<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
[ ] Filed by the registrant
[ ] Filed by a party other than the
registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of
the Commission Only (as
permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Shaman Pharmaceuticals, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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SHAMAN PHARMACEUTICALS, INC.
213 EAST GRAND AVENUE
SOUTH SAN FRANCISCO, CALIFORNIA 94080
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
("Special Meeting") of Shaman Pharmaceuticals, Inc. (the "Company"), which will
be held at 9:00 A.M. Pacific Time on Monday, February 1, 1999 at The Embassy
Suites, 250 Gateway Boulevard, South San Francisco, California 94080.
At the Special Meeting, you will be asked to consider and vote upon the
following proposals:
(i) to approve an amendment and restatement to the Company's
Amended and Restated Certificate of Incorporation to (a)
increase the number of authorized shares of the Company's
Common Stock thereunder from 40,000,000 shares to 70,000,000
shares and (b) increase the number of authorized shares of the
Company's Preferred Stock by 1,000,000 shares, from 1,000,000
shares to 2,000,000 shares.
(ii) to approve an amendment to the Company's 1992 Stock Option
Plan (the "Plan") to (a) increase the maximum number of shares
of the Company's Common Stock authorized for issuance under
the Plan by an additional 2,000,000 shares and (b) change the
limitation on the maximum number of shares of Common Stock for
which any one individual may be granted stock options and
separately-exercisable stock appreciation rights under the
Plan from 750,000 shares over the term of the Plan to
2,500,000 shares per calendar year, beginning with the 1998
calendar year;
(iii) to approve the stock option grant for 1,500,000 shares of the
Company's Common Stock made under the Plan to Lisa A. Conte,
the Company's President and Chief Executive Officer, on
September 18, 1998 with an exercise price of $1.281 per share;
and
(iv) to transact such other business as may properly come before
the Special Meeting and any adjournment or postponement
thereof.
The enclosed Proxy Statement more fully describes the details of the
business to be conducted at the Special Meeting. After reading the Proxy
Statement, please mark, date, sign and return the enclosed proxy card in the
accompanying reply envelope as soon as possible. If you attend the Special
Meeting and vote by ballot, your proxy will be automatically revoked and only
your vote at the Special Meeting will be counted. YOUR SHARES CANNOT BE VOTED
UNLESS YOU MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY OR ATTEND THE SPECIAL
MEETING AND VOTE IN PERSON.
After careful consideration, the Company's Board of Directors has
unanimously approved the proposals and recommends that you vote IN FAVOR OF each
such proposal.
We look forward to seeing you at the Special Meeting.
Sincerely,
Lisa A. Conte
President and Chief Executive Officer
December 31, 1998
IMPORTANT
PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE
ACCOMPANYING POSTAGE-PAID RETURN ENVELOPE SO THAT, IF YOU ARE UNABLE TO ATTEND
THE SPECIAL MEETING, YOUR SHARES MAY BE VOTED.
<PAGE> 3
SHAMAN PHARMACEUTICALS, INC.
-----------------------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 1, 1999
-----------------------------------------------------
TO THE STOCKHOLDERS OF SHAMAN PHARMACEUTICALS, INC.:
NOTICE IS HEREBY GIVEN that the Special Meeting of Stockholders ("Special
Meeting") of Shaman Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), will be held at 9:00 A.M. Pacific Time on Monday, February 1, 1999
at The Embassy Suites, 250 Gateway Boulevard, South San Francisco, California
94080, for the following purposes:
1. to approve an amendment and restatement to the Company's
Amended and Restated Certificate of Incorporation to (a)
increase the number of authorized shares of the Company's
Common Stock thereunder from 40,000,000 shares to 70,000,000
shares and (b) increase the number of authorized shares of the
Company's Preferred Stock by 1,000,000 shares, from 1,000,000
shares to 2,000,000 shares;
2. to approve an amendment to the Company's 1992 Stock Option
Plan (the "Plan") to (a) increase the maximum number of shares
of the Company's Common Stock authorized for issuance under
the Plan by an additional 2,000,000 shares and (b) change the
limitation on the maximum number of shares of Common Stock for
which any one individual may be granted stock options and
separately-exercisable stock appreciation rights under the
Plan from 750,000 shares over the term of the Plan to
2,500,000 shares per calendar year; beginning with the 1998
calendar year;
3. to approve the stock option grant for 1,500,000 shares of the
Company's Common Stock made under the Plan to Lisa A. Conte,
the Company's President and Chief Executive Officer on
September 18, 1998 with an exercise price of $1.281 per share;
and
4. to transact such other business as may properly come before
the Special Meeting and any adjournment or postponement
thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The record date for determining those stockholders entitled to notice
of, and to vote at, the Special Meeting and any adjournment thereof is December
18, 1998. The stock transfer books will not be closed between the record date
and the date of the Special Meeting. A list of the stockholders entitled to vote
at the Special Meeting will be available for inspection at the Company's
offices, 213 East Grand Avenue, South San Francisco, California 94080, for a
period of ten days prior to the Special Meeting.
All stockholders are cordially invited to attend the Special Meeting in
person. Whether or not you plan to attend, please carefully read the
accompanying Proxy Statement, which describes the matters to be voted upon at
the Special Meeting, and mark, date, sign and return the enclosed proxy card in
the reply envelope provided. Should you receive more than one proxy because your
shares are registered in different names and addresses, each proxy should be
returned to ensure that all your shares will be voted. You may revoke your proxy
at any time prior to the Special Meeting. If you attend the Special Meeting and
vote by ballot, your proxy vote will be revoked automatically and only your vote
at the Special Meeting will be counted. The prompt return of your proxy card
will assist us in preparing for the Special Meeting.
Sincerely,
Lisa A. Conte
President and Chief Executive Officer
South San Francisco, California
December 31, 1998
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY. IF YOU DO NOT EXPECT TO ATTEND IN
PERSON, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE
ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE.
<PAGE> 4
SHAMAN PHARMACEUTICALS, INC.
213 East Grand Avenue
South San Francisco, California 94080
--------------------------------------------
PROXY STATEMENT
--------------------------------------------
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 1, 1999
GENERAL INFORMATION FOR STOCKHOLDERS
THE ENCLOSED PROXY ("PROXY") IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS (THE "BOARD") OF SHAMAN PHARMACEUTICALS, INC., A DELAWARE CORPORATION
(THE "COMPANY"), FOR USE AT A SPECIAL MEETING OF STOCKHOLDERS (THE "SPECIAL
MEETING") TO BE HELD AT 9:00 A.M. PACIFIC TIME ON MONDAY, FEBRUARY 1, 1999, AT
THE EMBASSY SUITES, 250 GATEWAY BOULEVARD, SOUTH SAN FRANCISCO, CALIFORNIA
94080, AND AT ANY ADJOURNMENT THEREOF.
This Proxy Statement and the accompanying form of Proxy are to be first
mailed to the stockholders entitled to vote at the Special Meeting on or about
January 4, 1999.
RECORD DATE AND VOTING
The specific proposals to be considered and acted upon at the Special
Meeting are summarized in the accompanying Notice and are described in more
detail in this Proxy Statement. Stockholders of record at the close of business
on December 18, 1998 are entitled to notice of, and to vote at, the Special
Meeting. As of the close of business on such date, there were 29,793,278
shares of the Company's Common Stock, par value $0.001 per share (the "Common
Stock"), outstanding and entitled to vote, held by stockholders of record. In
addition, 400,000 shares of the Company's Series A Preferred Stock were
outstanding and entitled to vote, and held by one stockholder of record 115,958
shares of Series C Preferred Stock were outstanding and entitled to vote and
held by 21 stockholders, 4,784 shares of Series D Preferred Stock were
outstanding and entitled to vote and held by 6 stockholders of record (all of
the Series A Preferred Stock, Series C Preferred Stock and Series D Preferred
stock is herein referred to cumulatively as the "Preferred Stock"). Each holder
of Common Stock as of the record date is entitled to one vote for each share of
Common Stock held by such stockholder as of the record date. Each stockholder
holding Preferred Stock as of the record date is also entitled to one vote for
each share of Common Stock into which such Preferred Stock is convertible as of
the record date. As of the record date, one share of Series A Preferred Stock
was convertible into one share of Common Stock, one share of Series C Preferred
Stock was convertible into six shares of Common Stock and one share of Series D
Preferred Stock was convertible into one share of Common Stock.
All matters submitted for stockholder approval at this Special Meeting
will be decided by the affirmative vote of a majority of shares present in
person or represented by proxy and entitled to vote on such matters. If a choice
as to the matters coming before the Special Meeting has been specified by a
stockholder on the Proxy, the shares will be voted accordingly. If no contrary
instructions are given, the shares will be voted IN FAVOR OF the approval of all
proposals described in the accompanying Notice of Special Meeting and in this
Proxy Statement. All votes will be tabulated by the inspector of election
appointed for the meeting, who will separately tabulate affirmative and negative
votes, abstentions and broker non-votes (i.e., the submission of a Proxy by a
broker or nominee specifically indicating the lack of discretionary authority to
vote on the matter). Abstentions and broker non-votes are counted as present for
purposes of determining the presence or absence of a quorum for the transaction
of business. Abstentions will be counted towards the tabulation of votes cast on
proposals presented to the stockholders and will have the same effect as
negative votes, whereas broker non-votes will not be counted for purposes of
determining whether a proposal has been approved.
<PAGE> 5
Any stockholder or stockholder's representative who, because of a
disability, may need special assistance or accommodation to allow him or her to
participate at the Special Meeting may request reasonable assistance or
accommodation from the Company by contacting Investor Relations in writing at
213 East Grand Avenue, South San Francisco, California 94080 or by telephone at
(650) 952-7070. To provide the Company sufficient time to arrange for reasonable
assistance, please submit such requests by January 15, 1999.
REVOCABILITY OF PROXIES
Any stockholder giving a Proxy pursuant to this solicitation may revoke
it at any time prior to its exercise by filing with the Secretary of the Company
at its principal executive offices at 213 East Grand Avenue, South San
Francisco, California 94080, a written notice of such revocation or a duly
executed Proxy bearing a later date, or by attending the Special Meeting and
voting in person.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of the Notice of Special Meeting,
this Proxy Statement, the Proxy and any additional solicitation materials
furnished to stockholders. Copies of solicitation materials will be furnished to
brokerage houses, fiduciaries and custodians holding shares in their names that
are beneficially owned by others so that they may forward this solicitation
material to such beneficial owners. The Company has engaged Corporate Investor
Communications, Inc. ("CIC") to provide routine advice and services for Proxy
solicitation. CIC will receive approximately $6,500 from the Company for such
advice and services, plus reimbursement of costs incurred in forwarding the
solicitation materials to the beneficial owners of Common Stock and Series C
Preferred Stock. To assure that a quorum will be present in person or by proxy
at the Special Meeting, it may be necessary for CIC, certain officers,
directors, employees or other agents of the Company to solicit proxies by
telephone, facsimile or other means or in person. Except with respect to CIC,
the Company will not compensate such individuals for any such services. Except
as described above, the Company does not presently intend to solicit proxies
other than by mail.
IMPORTANT
PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE
ACCOMPANYING POSTAGE-PREPAID, RETURN ENVELOPE AS SOON AS POSSIBLE SO THAT, IF
YOU ARE UNABLE TO ATTEND THE SPECIAL MEETING, YOUR SHARES MAY BE VOTED.
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MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
PROPOSAL ONE
AMENDMENT AND RESTATEMENT
OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The present capital structure of the Company authorizes 40,000,000
shares of Common Stock, par value $0.001, 1,000,000 shares of undesignated
preferred stock, par value $0.001 ("Undesignated Preferred Stock"). In addition,
400,000 shares are designated as Series A Preferred Stock, all of which are
issued and outstanding, 200,000 shares are designated as Series C Preferred
Stock, 115,958 of which are issued and outstanding and 6,285 shares are
designated as Series D Preferred Stock, 4,784 of which are issued and
outstanding. The Board believes this capital structure is inadequate for the
present and future needs of the Company. Therefore, the Board has unanimously
approved the amendment and restatement of the Company's Restated Certificate of
Incorporation to (i) increase the number of shares of Common Stock authorized
for issuance by Article IV of the Restated Certificate of Incorporation by
30,000,000 shares from 40,000,000 shares to 70,000,000 shares and (ii) increase
the number of shares of Preferred Stock authorized for issuance by Article IV of
the Restated Certificate of Incorporation by 1,000,000 shares, from 1,000,000
shares to 2,000,000 shares. The Board believes this capital structure more
appropriately reflects the present and future needs of the Company and
recommends that the Company's stockholders approve such amendment and
restatement. The Undesignated Preferred Stock may be issued from time to time in
one or more series with such rights, preferences and privileges, including
dividend rates, conversion and redemption prices, and voting rights, as may be
determined by the Board. On December 18, 1998, 29,793,278 shares of Common Stock
were outstanding. On December 18, 1998, assuming the conversion of the
outstanding shares of the Company's Series A Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock and exercise of all outstanding warrants and
options, approximately 49,230,493 shares of Common Stock would be outstanding on
a fully diluted basis. The 49,230,493 shares of Common Stock outstanding on a
fully diluted basis includes 6,626,217 shares of Common Stock issuable upon
conversion of Series C Preferred Stock, which conversion may not occur before
May 31, 1999, and 3,890,740 shares of Common Stock issuable upon exercise of the
Company's stock options, which shares will not be vested and therefore are not
exercisable until on or after May 31, 1999.
PURPOSE OF AUTHORIZING ADDITIONAL COMMON STOCK
The authorization of an additional 30,000,000 shares of Common Stock
and Preferred Stock would give the Board the express authority, without further
action of the stockholders, to issue such shares of Common Stock and Preferred
Stock from time to time as the Board deems necessary. The Board believes it is
necessary to have the ability to issue such additional shares of Common Stock
and Preferred Stock for general corporate purposes. The time frame necessary to
achieve market success for any individual product in the biotechnology industry
is lengthy. Consequently, the Company will expend substantial funds on research
and development, expanding manufacturing capacity, preclinical and clinical
testing of its products and manufacturing and marketing of its products prior to
commercialization. The Company plans to fund such development activities through
several different means including equity financings. Other potential uses of the
additional authorized shares of Common Stock and Preferred Stock may include
acquisition transactions, stock dividends or distributions, and as such it is
necessary to have sufficient Common Stock available for any future designation
and issuance of preferred stock convertible into Common Stock. The additional
Common Stock and Preferred Stock would be available for issuance by the Board
without future action by the stockholders, unless such action were specifically
required by applicable law or rules of any stock exchange or quotation system on
which the Company's securities may then be listed.
The proposed increase in the authorized number of shares of Common
Stock and Preferred Stock could have a number of effects on the Company's
stockholders depending upon the exact nature and circumstances of any actual
issuances of authorized but unissued shares. The increase could have an
anti-takeover effect, in that additional shares could be issued (within the
limits imposed by applicable law) in one or more transactions that could make a
change in control or takeover of the Company more difficult. For example,
additional shares could be issued by the Company so as to dilute the stock
ownership or voting rights of persons seeking to obtain control of the Company.
Similarly, the issuance of additional shares to certain persons allied with the
Company's management could have the effect of making it more difficult to remove
the Company's current management by diluting the stock ownership or voting
rights of persons seeking to cause such removal.
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In addition, an issuance of additional shares by the Company could have
an effect on the potential realizable value of a stockholder's investment. In
the absence of a proportionate increase in the Company's earnings and book
value, an increase in the aggregate number of outstanding shares of the Company
caused by the issuance of the additional shares would dilute the earnings per
share and book value per share of all outstanding shares of the Company's
capital stock. If such factors were reflected in the price per share of Common
Stock, the potential realizable value of a stockholder's investment could be
adversely affected.
VOTE REQUIRED FOR STOCKHOLDER APPROVAL
The affirmative vote of a majority of all shares of the Company's
Common Stock, including all shares of Series A Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock on an as converted basis,
outstanding at the time of voting is required for approval of the amendment and
restatement of the Amended and Restated Certificate of Incorporation of Shaman
Pharmaceuticals, Inc. to (i) increase the number of authorized shares of Common
Stock issuable thereunder by 30,000,000 shares, from 40,000,000 shares to
70,000,000 shares and (ii) increase the number of authorized shares of Preferred
Stock issuable thereunder by 1,000,000 shares, from 1,000,000 shares to
2,000,000 shares.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR
OF THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION.
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PROPOSAL TWO
APPROVAL OF
AMENDMENT TO 1992 STOCK OPTION PLAN
INTRODUCTION
The stockholders are being asked to vote on a proposal to approve an
amendment to the Company's 1992 Stock Option Plan (the "Plan") which the Board
adopted on September 18, 1998, subject to stockholder approval at the Special
Meeting. The amendment will effect the following principal changes to the
existing provisions of the Plan:
(i) increase the maximum number of shares of the Company's Common
Stock issuable over the term of the Plan by an additional
2,000,000 shares; and
(ii) change the limitation on the maximum number of shares of
Common Stock for which any one individual may be granted stock
options and separately-exercisable stock appreciation rights
under the Plan from 750,000 shares over the term of the Plan
to 2,500,000 shares per calendar year, beginning with the 1998
calendar year.
The proposed 2,000,000-share increase will assure that a sufficient
reserve of Common Stock will be available under the Plan to attract and retain
the services of employees essential to the Company's long-term growth and
financial success. The proposed change to the limitation on the maximum number
of shares for which any one individual may be granted stock options and
separately-exercisable stock appreciation rights under the Plan will provide the
Company with greater flexibility in structuring equity incentive awards for
senior management while continuing to assure that any compensation deemed paid
to the Company's executive officers in connection with their exercise of stock
options or stock appreciation rights granted under the Plan or their disposition
of the purchased shares will qualify as tax-deductible performance-based
compensation under the federal tax laws and will not otherwise be subject to the
$1 million limitation per covered individual on the tax deductibility of
compensation paid to certain executive officers of the Company. Accordingly,
stockholder approval of this Proposal will assure that any compensation deemed
paid to Lisa A. Conte, the Company's President and Chief Executive Officer, in
connection with the subsequent exercise of the stock option grants made to her
during the 1998 calendar year in excess of the prior 750,000-share limit, namely
(i) the issuance of options for 545,000 shares with an exercise price of $1.281
in cancellation of higher-priced options for the same number of shares and (ii)
a new option grant for 1,500,000 shares with an exercise price of $1.281 per
share, will continue to qualify as performance-based compensation under the
federal tax laws.
The principal terms and provisions of the Plan as modified by the most
recent amendment are summarized below. The summary is not, however, intended to
be a complete description of all the terms of the Plan. A copy of the actual
plan document will be furnished without charge to any stockholder upon written
request to the attention of the Company's Investor Relations Department at 213
East Grand Avenue, South San Francisco, CA 94080.
DESCRIPTION OF THE PLAN
Structure. The Plan is divided into two separate equity incentive
programs: (i) a Discretionary Option Grant Program under which key employees,
non-employee Board members and consultants may be granted options to purchase
shares of Common Stock at a fixed price per share and (ii) an Automatic Option
Grant Program under which eligible non-employee Board members will automatically
receive option grants at designated intervals over their period of Board
service.
Options granted under the Discretionary Option Grant Program may be
either incentive stock options designed to meet the requirements of Section 422
of the Internal Revenue Code or non-statutory options not intended to satisfy
such requirements. All grants under the Automatic Option Grant Program will be
non-statutory options.
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<PAGE> 9
Administration. The Discretionary Option Grant Program is administered
by the Compensation Committee of the Board (the "Compensation Committee" or the
"Plan Administrator"). Compensation Committee members are appointed by the Board
and may be removed by the Board at any time.
The Compensation Committee as Plan Administrator has full authority,
subject to the provisions of the Plan, to determine the eligible individuals who
are to receive option grants and/or stock appreciation rights under the
Discretionary Option Grant Program, the type of option (incentive stock option
or non-statutory stock option) or stock appreciation right (tandem or limited)
to be granted, the number of shares to be covered by each granted option or
right, the date or dates on which the option or right is to become exercisable
and the maximum term for which the option or right is to remain outstanding.
All grants under the Automatic Option Grant Program will be made in
strict compliance with the express provisions of that program, and no
administrative discretion will be exercised by the Plan Administrator.
Eligibility. Key employees (including officers), non-employee Board
members, and consultants in the service of the Company are eligible to receive
option grants under the Discretionary Option Grant Program. Non-employee Board
members are also eligible to participate in the Automatic Option Grant Program.
As of November 30, 1998 approximately 90 employees (including nine (9)
executive officers) and five (5) non-employee Board members were eligible to
participate in the Discretionary Option Grant Program, and the five (5)
non-employee Board members were also eligible to participate in the Automatic
Option Grant Program.
Securities Subject to the Plan. The maximum number of shares of Common
Stock issuable over the term of the Plan may not exceed 6,216,660 shares,
including the 2,000,000-share increase for which stockholder approval is sought
under this Proposal. The issuable shares may be made available either from the
authorized but unissued shares of Common Stock or from shares of Common Stock
repurchased by the Company, including shares purchased on the open market.
As of November 30, 1998, approximately 542,923 shares of Common Stock
had been issued under the Plan, 4,478,627 shares of Common Stock were subject to
outstanding options and 1,195,110 shares of Common Stock were available for
future option grants, taking into account the 2,000,000-share increase for which
stockholder approval is sought under this Proposal.
Upon stockholder approval of this Proposal, the limitation on the
maximum number of shares of Common Stock for which any one individual
participating in the Plan be granted stock options or separately exercisable
stock appreciation rights will be increased to 2,500,000 shares of Common Stock
per calendar year, beginning with the 1998 calendar year. Previously, such limit
was set at 750,000 shares over the term of the Plan. The new 2,500,000-share
limitation will be subject to adjustment from time to time in the event of
certain changes to the Company's capital structure.
Should an option expire or terminate for any reason prior to exercise
in full (including options cancelled in accordance with the cancellation-regrant
provisions described in the "Discretionary Option Grant Program--Cancellation
and Regrant of Options" section below), the shares subject to the portion of the
option not so exercised will be available for subsequent grant under the Plan.
In addition, unvested shares issued under the Plan and subsequently repurchased
by the Company at the option exercise price paid per share will be added back to
the share reserve and will accordingly be available for subsequent issuance
under the Plan. However, shares subject to any option surrendered or cancelled
in accordance with the stock appreciation right provisions of the Plan will not
be available for subsequent grants.
DISCRETIONARY OPTION GRANT PROGRAM
Price and Exercisability. The option exercise price per share for
incentive stock option grants may not be less than the fair market value of the
Common Stock on the grant date. The exercise price per share for non-statutory
option grants may be less than, equal to or greater than such fair market value.
Options granted under the Discretionary Option Grant Program may either become
exercisable in periodic installments over the optionee's
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<PAGE> 10
period of service or may be immediately exercisable for all of the option
shares, with such shares subject to repurchase by the Company, at the exercise
price paid per share, in the event the optionee leaves the Company's service
prior to vesting in those shares. No granted option will have a term in excess
of 10 years.
The exercise price may be paid in cash or in shares of Common Stock.
Options may also be exercised through a same-day sale program, pursuant to which
a designated brokerage firm effects the immediate sale of the shares purchased
under the option and pays over to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the exercise price
for the purchased shares plus all applicable withholding taxes. The Plan
Administrator may also assist any optionee (including an officer) in the
exercise of his or her outstanding options by (a) authorizing a Company loan to
the optionee or (b) permitting the optionee to pay the exercise price in
installments over a period of years. The terms and conditions of any such loan
or installment payment will be established by the Plan Administrator in its sole
discretion, but in no event may the maximum credit extended to the optionee
exceed the aggregate exercise price payable for the purchased shares, plus any
federal or state income or employment taxes incurred in connection with the
purchase.
Valuation. For purposes of establishing the exercise price and for all
other valuation purposes under the Plan, the fair market value per share of
Common Stock on any relevant date will be deemed equal to the closing selling
price per share on that date, as such price is reported on the Nasdaq National
Market. The closing price of the Common Stock on November 30, 1998 was $2.66 per
share.
Termination of Service. Any option held by the optionee at the time of
cessation of service will not remain exercisable beyond the limited post-service
period designated by the Plan Administrator at the time of the option grant.
Under no circumstances, however, may any option be exercised after the specified
expiration date of the option term. Each such option will normally, during such
limited period, be exercisable only to the extent of the number of shares of
Common Stock for which the option is exercisable at the time of the optionee's
cessation of service. The optionee will be deemed to continue in service for so
long as such individual performs services for the Company (or any parent or
subsidiary corporation), whether as an employee, a non-employee member of the
Board or an independent consultant or advisor.
The Plan Administrator has complete discretion to extend the period
following the optionee's cessation of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability or
vesting of such options in whole or in part. Such discretion may be exercised at
any time while the options remain outstanding, whether before or after the
optionee's actual cessation of service.
Stockholder Rights. No optionee is to have any stockholder rights with
respect to the option shares until the optionee has exercised the option and
paid the exercise price for the purchased shares. Options are generally not
assignable or transferable other than by will or the laws of inheritance and,
during the optionee's lifetime, the option may be exercised only by such
optionee. However, the Plan Administrator may allow non-statutory options to be
transferred or assigned during the optionee's lifetime to one or more members of
the optionee's immediate family or to a trust established exclusively for one or
more such family members, to the extent such transfer or assignment is in
furtherance of the optionee's estate plan.
Repurchase Rights. The shares of Common Stock acquired upon the
exercise of one or more options may be subject to repurchase by the Company, at
the original exercise price paid per share, upon the optionee's cessation of
service prior to vesting in those shares. The Plan Administrator has complete
discretion in establishing the vesting schedule to be in effect for any such
unvested shares and may cancel the Company's outstanding repurchase rights with
respect to those shares at any time, thereby accelerating the vesting of the
shares subject to the cancelled rights.
Acceleration of Options. In the event of any of the following
stockholder-approved transactions to which the Company is a party (a "Corporate
Transaction"):
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of
which is to change the state of the Company's incorporation;
7
<PAGE> 11
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in complete liquidation
or dissolution of the Company; or
(iii) a reverse merger in which the Company is the surviving
entity but in which securities possessing more than 50% of the total
combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such
securities immediately prior to such merger;
each outstanding option will automatically accelerate so that each option will,
immediately prior to the specified effective date for a Corporate Transaction,
become exercisable for the total number of shares of Common Stock at that time
subject to such option and may be exercised for all or any portion of such
shares as fully-vested shares. However, an outstanding option will not so
accelerate if and to the extent: (1) the option is to be assumed by the
successor corporation (or its parent corporation) in such Corporate Transaction
or (2) the acceleration of such option is subject to other limitations imposed
by the Plan Administrator at the time of grant.
Immediately following the consummation of a Corporate Transaction, all
outstanding options under the Plan will terminate and cease to be exercisable,
except to the extent assumed by the successor corporation.
The Company's outstanding repurchase rights under the Plan will also
terminate, and the shares subject to such repurchase rights will become fully
vested, upon a Corporate Transaction, except to the extent (i) one or more of
such repurchase rights are to be assigned to the successor corporation (or its
parent company) or (ii) such accelerated vesting is precluded by other
limitations imposed by the Plan Administrator at the time the repurchase rights
are issued.
The Plan Administrator will have full power and authority, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options under the Discretionary Option Grant Program in the event of
a Change in Control (as described below) so that each such option will,
immediately prior to such Change in Control, become exercisable for all the
shares of Common Stock at that time subject to that option and may be exercised
for all or any portion of those shares as fully-vested shares. The Plan
Administrator will also have complete discretion in establishing the specific
terms and conditions upon which one or more of the Company's outstanding
repurchase rights under the Plan are to terminate in connection with a Change in
Control.
For all purposes under the Plan, a "Change in Control" will be deemed
to occur if:
(i) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Company) directly or
indirectly acquires beneficial ownership (within the meaning of Rule
13d-3 of the Securities Exchange Act of 1934, as amended) of securities
possessing more than 50% of the total combined voting power of the
Company's outstanding securities pursuant to a tender or exchange offer
made directly to the Company's stockholders; or
(ii) the composition of the Board changes over a period of 24
consecutive months or less such that a majority of the Board members
cease, by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B)
have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (A) who were still in office at the time such election or
nomination was approved by the Board.
Upon a Change in Control, all outstanding options will remain
exercisable until the expiration or sooner termination of the option term
specified in the instrument evidencing the option.
The acceleration of options in the event of a Corporate Transaction or
Change in Control may be seen as an anti-takeover provision and may have the
effect of discouraging a merger proposal, a takeover attempt or other efforts to
gain control of the Company.
8
<PAGE> 12
Cancellation and Regrant of Options. The Plan Administrator has the
authority to effect the cancellation of any or all options outstanding under the
Plan and to grant in substitution therefor new options covering the same or
different numbers of shares of Common Stock but with an exercise price per share
based upon the fair market value of the Common Stock on the new grant date.
On September 18, 1998, the Plan Administrator implemented an option
cancellation/regrant program for all employees of the Company, including the
Company's executive officers. Pursuant to that program, each such employee was
given the opportunity to surrender his or her outstanding options under the Plan
with exercise prices in excess of $1.281 per share in return for a new option
grant for the same number of shares but with an exercise price of $1.281 per
share, the closing selling price per share of Common Stock as reported on the
Nasdaq National Market on the September 18, 1998 grant date of the new option.
Options for a total of 1,908,648 shares with a weighted average exercise price
of $5.213 per share were surrendered for cancellation, and new options for the
same number of shares were granted with the $1.281 per share exercise price. To
the extent the higher-priced option was exercisable for any option shares on the
September 18, 1998 cancellation date, the new option granted in replacement of
that option will become exercisable for those shares in a series of twelve (12)
successive equal monthly installments upon the optionee's completion of each
month of service over the one (1) year period measured from the September 18,
1998 grant date. The option will become exercisable for the remaining option
shares in one or more installments over the optionee's period of continued
service, with each such installment to vest on the same vesting date in effect
for that installment under the cancelled higher-priced option.
On October 20, 1998, the Plan Administrator implemented an option
cancellation/regrant program for the non-employee Board members and independent
consultants holding options under the Plan. Pursuant to the October program,
each such individual was given the opportunity to surrender his or her
outstanding options under the Plan with exercise prices in excess of $1.4375 per
share in return for a new option grant for the same number of shares but with an
exercise price of $1.4375 per share, the closing selling price per share of
Common Stock as reported on the Nasdaq National Market on the October 20, 1998
grant date of the new option. Options for a total of 586,470 shares with a
weighted average exercise price of $6.1088 per share were surrendered for
cancellation, and new options for the same number of shares were granted with
the $1.4375 per share exercise price. To the extent the higher-priced option was
exercisable for any option shares on the October 20, 1998 cancellation date, the
new option granted in replacement of that option will become exercisable for
those shares in a series of twelve (12) successive equal monthly installments
upon the optionee's completion of each month of service over the one (1) year
period measured from the October 20, 1998 grant date. The option will become
exercisable for the remaining option shares in one or more installments over the
optionee's period of continued service, with each such installment to vest on
the same vesting date in effect for that installment under the cancelled
higher-priced option.
Stock Appreciation Rights. The Plan Administrator is authorized to
issue two types of stock appreciation rights in connection with option grants
made under the Discretionary Option Grant Program:
Tandem stock appreciation rights provide the holders with the
right to surrender their options for an appreciation distribution from
the Company equal in amount to the excess of (a) the fair market value
of the vested shares of Common Stock subject to the surrendered option
over (b) the aggregate exercise price payable for such shares. Such
appreciation distribution may, at the discretion of the Plan
Administrator, be made in cash or in shares of Common Stock.
Limited stock appreciation rights may be provided to one or
more officers of the Company as part of their option grants. Any option
with such a limited stock appreciation right will automatically be
cancelled upon the successful completion of a hostile tender offer for
more than 50% of the Company's outstanding voting securities. In return
for the cancelled option, the officer will be entitled to a cash
distribution from the Company in an amount per cancelled option share
equal to the excess of (a) the highest price per share of Common Stock
paid in connection with the tender offer over (b) the exercise price
payable for such share.
Outstanding stock appreciation rights granted before January 26, 1993
to certain officers and directors of the Company under the Predecessor Plan and
incorporated into the Plan allow such individuals to surrender the underlying
options to the Company for a cash distribution, calculated in the manner
indicated above, in the event a
9
<PAGE> 13
hostile tender offer for 25% or more of the Company's outstanding voting
securities is successfully completed or a change in the majority of the Board of
Directors is effected through one or more proxy contests.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each non-employee Board
member will automatically be granted, upon his or her initial election or
appointment to the Board, a stock option to purchase 20,000 shares of Common
Stock, provided such individual has not previously been in the Company's employ.
In addition, on the date of each Annual Stockholders' Meeting, each individual
who is to continue to serve as a non-employee Board member will automatically be
granted a stock option to purchase that number of shares of Common Stock
determined by dividing $50,000 by the average closing selling price of the
Common Stock for the 30 trading days immediately preceding the date of such
Annual Meeting, but in no event shall the number of shares of Common Stock
subject to such grant be more than 7,500 shares nor fewer than 5,000 shares.
However, no non-employee Board member will be eligible to receive such an annual
grant unless he or she has served on the Board for at least six months.
Stockholder approval of this Proposal will also constitute pre-approval of each
option granted after the date of this Special Meeting pursuant to the provisions
of the Automatic Option Grant Program summarized below and the subsequent
exercise of that option in accordance with those provisions.
The option exercise price per share for each automatic grant will be
equal to the fair market value per share of Common Stock on the grant date and
will be payable in cash or shares of Common Stock. The options may also be
exercised through a same-day sale program, pursuant to which a designated
brokerage firm effects the immediate sale of the shares purchased under the
option and pays over to the Company, out of the sale proceeds available on the
settlement date, sufficient funds to cover the exercise price for the purchased
shares.
Each automatic option grant will have a maximum term of 10 years and
will become exercisable for the option shares in a series of 24 successive equal
monthly installments over the optionee's period of continued Board service,
measured from the grant date. However, the option will become immediately
exercisable for all of the option shares upon a Corporate Transaction or Change
in Control. Each automatic option grant will be automatically cancelled upon the
successful completion of a hostile tender offer for more than 50% of the
Company's outstanding voting securities. In return, the optionee will be
entitled to a cash distribution from the Company in an amount per cancelled
option share equal to the excess of (a) the highest price per share of Common
Stock paid in connection with the tender offer over (b) the exercise price
payable for such share. Stockholder approval of this Proposal will constitute
approval of each option granted with such an automatic cancellation provision
after the date of this Special Meeting and the subsequent cancellation of that
option in accordance with such provision. No additional approval of the Plan
Administrator or the Board will be required at the time of the actual option
cancellation and cash distribution.
All automatic option grants held by the non-employee Board member at
the time of his or her cessation of Board service will remain exercisable for a
period of six months for any or all shares for which those options are
exercisable at the time of such cessation of Board service. However, should the
optionee die while holding one or more options, then those options will remain
exercisable for a 12-month period following the date of the optionee's death and
may be exercised, for any or all shares for which those options are exercisable
at the time of the optionee's cessation of Board service, by the personal
representative of the optionee's estate or by the persons to whom the options
are transferred by the optionee's will or by the laws of inheritance. In no
event may any such option be exercised after the expiration date of the 10-year
option term.
GENERAL PROVISIONS
Amendment and Termination of the Plan. The Board may amend or modify
the Plan in any or all respects whatsoever. However, no such amendment may
adversely affect the rights of outstanding option holders without their consent.
In addition, certain amendments may require stockholder approval pursuant to
applicable law or regulation.
The Board may terminate the Plan at any time, and the Plan will in all
events terminate not later than December 31, 2002. Any options outstanding at
the time of such plan termination will continue to remain outstanding and
exercisable in accordance with the terms and provisions of the instruments
evidencing those grants.
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<PAGE> 14
The Plan will, however, automatically terminate on the date all shares available
for issuance are issued as vested shares or cancelled pursuant to the exercise,
surrender or cash-out of outstanding options under the Plan.
Tax Withholding. The Compensation Committee may, in its discretion and
upon such terms and conditions as it may deem appropriate, provide one or more
option holders under the Discretionary Option Grant Program with the election to
have the Company withhold, from the shares of Common Stock otherwise issuable
upon the exercise of their options, a portion of those shares with an aggregate
fair market value equal to the designated percentage (up to 100% as specified by
the option holder) of the federal, state and local income tax liability and
federal employment tax liability incurred by such option holder in connection
with the exercise of such option. Any election so made will be subject to the
approval of the Compensation Committee, and no shares will actually be withheld
in satisfaction of such taxes except to the extent approved by the Compensation
Committee. One or more option holders may also be granted the alternative right,
subject to Committee approval, to deliver previously-issued shares of Common
Stock in satisfaction of such tax liability.
Changes in Capitalization. In the event any change is made to the
Common Stock issuable under the Plan by reason of any stock split, stock
dividend, recapitalization, combination of shares, exchange of shares, or other
change in corporate structure effected without the Company's receipt of
consideration, appropriate adjustments will be made to (i) the maximum number
and/or class of securities issuable under the Plan, (ii) the number and/or class
of securities and price per share in effect under each outstanding option, (iii)
the maximum number and/or class of securities for which any one individual may
be granted stock options and separately exercisable stock appreciation rights
under the Plan per calendar year and (iv) the number and/or class of securities
for which automatic option grants are subsequently to be made to each
newly-elected or continuing non-employee Board member.
Each outstanding option which is assumed or is otherwise to continue in
effect after a Corporate Transaction will be appropriately adjusted to apply and
pertain to the number and class of securities which would have been issued, in
connection with such Corporate Transaction, to the holder of such option had the
option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments will also be made to the exercise price payable per
share and to the number and class of securities subsequently available for
issuance under the Plan on both an aggregate and per participant basis.
Option grants under the Plan will not affect the right of the Company
to adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
Excess Grants. The Plan permits the grant of options to purchase shares
of Common Stock in excess of the number of shares then available for issuance
under the Plan. Any options so granted cannot be exercised prior to stockholder
approval of an amendment sufficiently increasing the number of shares available
for issuance under the Plan.
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<PAGE> 15
OPTION GRANTS
The table below shows, as to each of the executive officers named in
the Summary Compensation Table below and the various other indicated persons and
groups, the following information with respect to stock option grants effected
during the period from January 1, 1997 through November 30, 1998: (i) the number
of shares of Common Stock subject to options granted under the Plan during that
period; and (ii) the weighted average exercise price payable per share under
such options. The number of shares and weighted average exercise price
calculations include all options which were granted during the indicated period
and subsequently cancelled and regranted at a lower exercise price per share on
either September 18, 1998 or October 20, 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
OPTIONS GRANTED WEIGHTED AVERAGE
NAME AND POSITION (NUMBER OF SHARES) EXERCISE PRICE ($)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Lisa A. Conte,
President and Chief Executive Officer 2,340,000 $1.7518
- ------------------------------------------------------------------------------------------
Gerald M. Reaven, M.D.
Senior Vice President, Research 215,000 $1.2810
- ------------------------------------------------------------------------------------------
Atul S. Khandwala, Ph.D.(1)
Senior Vice President, Development and
Chief Regulatory Officer 40,000 $1.4375
- ------------------------------------------------------------------------------------------
Steven R. King, Ph.D.
Senior Vice President, Ethnobotany and
Conservation 148,810 $1.2810
- ------------------------------------------------------------------------------------------
Gina D. Morhun
Vice President, Human Resources 80,000 $1.2810
- ------------------------------------------------------------------------------------------
All executive officers as a group (10
persons) 3,538,810 $1.9812
- ------------------------------------------------------------------------------------------
All directors who are not executive
officers as a group (5 persons) 629,064 $2.6342
- ------------------------------------------------------------------------------------------
All employees (90 persons) and consultants
as a group, excluding executive officers 1,262,043 $2.4854
- ------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The Company accepted the resignation of Dr. Khandwala effective
October 2, 1998.
The number of options granted on either September 18, 1998 or October
20, 1998 in cancellation of outstanding higher-priced options originally granted
during the period January 1, 1997 to November 30, 1998 was as follows for each
of the indicated individuals and groups: Ms. Conte, options for 295,000 shares;
Dr. Reaven, options for 0 shares; Dr. Khandwala, options for 0 shares; Dr. King,
options for 0 shares; Ms. Morhun, options for 0 shares; all executive officers
as a group, 630,000 shares; all directors who are not executive officers as a
group, 164,000 shares; and all employees (other than executive officers and
directors) and consultants as a group, 401,500 shares.
On November 7, 1998, the Company issued 747,206 shares of Common Stock
in the aggregate to certain individuals in connection with the consulting
services they rendered the Company. None of the shares were issued under the
Plan. However, certain individuals eligible to participate in the Plan received
a portion of the issued shares. G. Kirk Raab, Chairman of the Board of
Directors, was issued 135,652 shares of Common Stock and Atul S. Khandwala,
Ph.D., the Company's former Senior Vice President, Development and Chief
Regulatory Officer, was issued 87,326 shares of Common Stock.
12
<PAGE> 16
FEDERAL TAX CONSEQUENCES
Options granted under the Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
federal income tax treatment for the two types of options differs as described
below.
Incentive Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. However, the difference between the fair
market value of the purchased shares and the exercise price is generally
included as alternative minimum taxable income for purposes of the alternative
minimum tax. The optionee will recognize taxable income in the year in which the
purchased shares are sold or otherwise made the subject of disposition. For
federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. The optionee will make a qualifying
disposition of the purchased shares if the sale or other disposition of such
shares is made after the optionee has held the shares for more than two years
after the grant date of the option and more than one year after the exercise
date. If the optionee fails to satisfy either of these two minimum holding
periods prior to the sale or other disposition of the purchased shares, then a
disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will
recognize long-term capital gain in an amount equal to the excess of (i) the
amount realized upon the sale or other disposition of the purchased shares over
(ii) the exercise price paid for such shares. If there is a disqualifying
disposition of the shares, then the excess of (a) the fair market value of those
shares on the exercise date over (b) the exercise price paid for the shares will
be taxable as ordinary income. Any additional gain recognized upon the
disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction, for the
taxable year in which such disposition occurs, equal to the excess of (i) the
fair market value of such shares on the exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
Special provisions of the Internal Revenue Code apply to the
acquisition of unvested shares of Common Stock under a non-statutory option.
These special provisions may be summarized as follows:
(i) If the shares acquired upon exercise of the non-statutory
option are subject to repurchase by the Company at the original
exercise price in the event of the optionee's termination of service
prior to vesting in such shares, then the optionee will not recognize
any taxable income at the time of exercise but will have to report as
ordinary income, as and when the Company's repurchase right lapses, an
amount equal to the excess of (a) the fair market value of the shares
on the date the Company's repurchase right lapses with respect to those
shares over (b) the exercise price paid for the shares.
(ii) The optionee may, however, elect under Section 83(b) of
the Internal Revenue Code to include as ordinary income in the year of
exercise of the non-statutory option an amount equal to the excess of
(a) the fair market value of the purchased shares on the exercise date
(determined as if the shares were not subject to the Company's
repurchase right) over (b) the exercise price paid for such shares. If
the Section 83(b) election is made, the optionee will not recognize any
additional income as and when the Company's repurchase right lapses.
The Company will be entitled to a business expense deduction equal to
the amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
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<PAGE> 17
Deductibility of Executive Compensation. The Company anticipates that
any compensation deemed paid by it in connection with disqualifying dispositions
of incentive stock option shares or exercises of non-statutory options granted
with an exercise price equal to the fair market value of the option shares will
qualify as performance-based compensation for purposes of Code Section 162(m)
and will not have to be taken into account for purposes of the $1 million
limitation per covered individual on the deductibility of the compensation paid
to certain executive officers of the Company.
Stock Appreciation Rights. An optionee who is granted a stock
appreciation right will recognize ordinary income in the year of exercise equal
to the amount of the appreciation distribution. The Company will be entitled to
a business expense deduction equal to the appreciation distribution for the
taxable year of the Company in which the ordinary income is recognized by the
optionee.
Parachute Payments. If the exercisability of an option or stock
appreciation right is accelerated as a result of a change of control, all or a
portion of the value of the option or stock appreciation right at that time may
be a parachute payment for purposes of the excess parachute provisions of the
Internal Revenue Code. Those provisions generally provide that if parachute
payments equal or exceed three times an employee's average compensation for the
five tax years preceding the change of control, the Company loses its deduction
and the recipient is subject to a 20% excise tax for the amount of the parachute
payments in excess of one times such average compensation.
Note Forgiveness. If any promissory note delivered in payment of shares
acquired under the Plan is forgiven in whole or in part, the amount of such
forgiveness will be reportable by the participant as ordinary compensation
income. The Company will be entitled to a business expense deduction equal to
the amount of ordinary income recognized by the participant in connection with
the acquisition of the shares and any note forgiveness. The deduction will be
allowed for the taxable year of the Company in which the ordinary income is
recognized by the participant.
ACCOUNTING TREATMENT
Option grants or stock issuances to employees and members of the Board
of Directors with exercise or issue prices less than the fair market value of
the shares on the grant or issue date will result in compensation expense to the
Company's earnings equal to the excess of the fair market value of the shares on
the grant or issue date over the exercise or issue price. Such charge will be
expensed by the Company over the period benefited (usually the vesting period of
the option). Option grants or stock issuances with exercise or issue prices not
less than the fair market value of the shares on the grant or issue date will
not result in any direct charge to the Company's earnings. However, the fair
value of those options is required to be disclosed in the notes to the Company's
financial statements, and the Company must also disclose, in pro-forma
disclosures in the Company's financial statements, the impact those options
would have upon the Company's reported earnings were the value of those options
at the time of grant treated as compensation expense. Whether or not granted at
a discount, the number of outstanding options may be a factor in determining the
Company's earnings per share on a fully-diluted basis.
Option grants or stock issuances to non-employees result in
compensation expense to the Company's earnings equal to the fair value of the
options or shares granted as of the grant or issue date. Such charge is also
expensed over the period benefited (usually the vesting period for options).
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in compensation expense to be charged
against the Company's earnings. Accordingly, at the end of each fiscal quarter,
the amount (if any) by which the fair market value of the shares of Common Stock
subject to such outstanding stock appreciation rights has increased from prior
quarter-end will be accrued as compensation expense, to the extent such fair
market value is in excess of the aggregate exercise price in effect for such
rights.
14
<PAGE> 18
NEW PLAN BENEFITS
Lisa A. Conte, the Company's Chief Executive Officer, has received the
following stock option grants during the 1998 calendar year which will not
become exercisable in whole or in part unless the stockholders approve both this
Proposal and Proposal Three:
(i) Options for 545,000 shares of Common Stock with an exercise price
of $1.281 per share which were granted on September 18, 1998 in cancellation of
outstanding stock options for the same number of shares but with exercise prices
per share in excess of $1.281. Subject to the requisite stockholder approval,
the new options will become exercisable as follows: to the extent the cancelled
options were exercisable for vested shares of Common Stock on the September 18,
1998 regrant date, the new options will become exercisable for those shares in a
series of twelve (12) successive equal monthly installments upon Ms. Conte's
completion of each month of service over the twelve (12)-month period measured
from the September 18, 1998 regrant date. To the extent the cancelled options
were not exercisable for vested shares on the September 18, 1998 regrant date,
the new options will become exercisable for those shares in a series of
installments over Ms. Conte's continued service with the Company. Each such
installment will continue to become exercisable on the same date that
installment was scheduled to become exercisable under the cancelled option.
(ii) Options for an additional 1,500,000 shares with an exercise price
of $1.281 per share. These options will become exercisable for 187,500 shares
upon Ms. Conte's continuation in service through March 17, 1999, and the balance
of the option shares will become exercisable in a series of forty-two (42)
successive equal monthly installments upon her completion of each additional
month of service thereafter. For further information concerning this option
grant, please see Proposal Three.
No other stock option grants have been made to date under the Plan on
the basis of either the proposed 2,000,000-share increase or the proposed change
in the limitation on the maximum number of shares of Common Stock for which any
one individual may be granted stock options and separately-exercisable stock
appreciation rights. However, on the date of the 1999 Annual Meeting, each of
the non-employee Board members will receive the automatic option grant for the
number of shares of Common Stock determined as described above (not to exceed
7,500 shares) at an exercise price equal to the fair market value per share of
Common Stock on that date.
STOCKHOLDER VOTE
The affirmative vote of a majority of the shares present or represented
by proxy at the Special Meeting, as determined on as-converted basis for the
Preferred Stock, and entitled to vote is required for approval of this Proposal
Two. As previously indicated, each share of Series A and Series D Preferred
Stock will be entitled to one vote for each share of Common Stock into which
that Series A and Series D Preferred Stock is convertible and each share of
Series C Preferred Stock will be entitled to six votes for each share of Common
Stock into which that Series C Preferred Stock is convertible.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
approval of the amendment to the Plan as described in this Proposal Two. If such
stockholder approval is not obtained, then any options granted on the basis of
the 2,000,000-share increase which forms part of this Proposal will terminate
without becoming exercisable for any of the shares of Common Stock subject to
those options and no further option grants will be made on the basis of the
2,000,000-share increase. However, the Plan will continue to remain in effect,
and option grants may continue to be made pursuant to the provisions of the Plan
in effect prior to the amendment summarized in this Proposal, until the
available reserve of Common Stock as last approved by the stockholders has been
issued. In addition, if the stockholders do not approve both this Proposal Two
and Proposal Three, the 1,500,000-share option grant made to Lisa A. Conte on
September 18, 1998 will be cancelled. The maximum number of shares for which Ms.
Conte and any other participant may be granted stock options and stock
appreciation rights under the Plan will be limited to 750,000 shares per
individual over the term of the Plan, and any option grants in excess of that
limitation will also be cancelled, if this Proposal Two is not approved.
The Board believes that the amendment to the Plan is essential to the
Company's efforts in attracting and retaining the services of highly qualified
individuals who can contribute significantly to the Company's financial success.
ACCORDINGLY, THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF
APPROVAL OF THE AMENDMENT TO THE PLAN.
15
<PAGE> 19
PROPOSAL THREE
APPROVAL OF
SEPTEMBER 18, 1998 OPTION GRANT TO LISA A. CONTE
The stockholders are being asked to vote on a proposal to approve the
stock option grant which was made to Lisa A. Conte, the Company's President and
Chief Executive Officer, under the Company's 1992 Stock Option Plan (the "Plan")
on September 18, 1998.
MATERIAL TERMS OF THE OPTION
The material terms and conditions of that option grant may be
summarized as follows:
(i) The option is for 1,500,000 shares of the Company's Common
Stock and has an exercise price of $1.281 per share, the closing selling price
per share of the Common Stock on the September 18, 1998 grant date, as reported
on the Nasdaq National Market. On November 30, 1998, the closing selling price
per share on the Nasdaq National Market was $2.688.
(ii) The option will become exercisable for the option shares
over Ms. Conte's period of continued service with the Company as follows: the
option will become exercisable for 187,500 shares upon her continuation in
service through March 17, 1999 and will become exercisable for the balance of
the option shares in a series of forty-two (42) successive equal monthly
installments upon her completion of each additional month of service thereafter.
(iii) The option has a maximum term of ten (10) years measured
from the September 18, 1998 grant date, subject to earlier termination upon Ms.
Conte's cessation of service. If her service terminates for any reason other
than death or disability, then Ms. Conte will only have a three (3)-month period
following her termination date in which to exercise the option for any shares
for which the option is exercisable at the time of her termination. Should Ms.
Conte die or become disabled while the option is outstanding, then she or the
legal representatives of her estate will have a thirty-six (36) month period in
which to exercise the option for any shares for which the option is exercisable
at the time of her cessation of service.
(iv) The exercise price may be paid in cash or in shares of
Common Stock. The option may also be exercised through a same-day sale program,
pursuant to which a designated brokerage firm effects the immediate sale of the
shares purchased under the option and pays over to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
exercise price for the purchased shares plus all applicable withholding taxes.
The Plan Administrator may also assist Ms. Conte in the exercise of her option
by (a) authorizing a Company loan to her or (b) permitting her to pay the
exercise price in installments over a period of years. The terms and conditions
of any such loan or installment payment will be established by the Plan
Administrator in its sole discretion, but in no event may the maximum credit
extended to Ms. Conte exceed the aggregate exercise price payable for the
purchased shares, plus any federal or state income or employment taxes incurred
in connection with the purchase.
(v) In the event of any of the following stockholder-approved
transactions to which the Company is a party (a "Corporate Transaction"):
(a) a merger or consolidation in which the Company is
not the surviving entity, except for a transaction the principal
purpose of which is to change the state of the Company's incorporation;
(b) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in complete liquidation
or dissolution of the Company; or
16
<PAGE> 20
(c) a reverse merger in which the Company is the
surviving entity but in which securities possessing more than 50% of
the total combined voting power of the Company's outstanding securities
are transferred to a person or persons different from those who held
such securities immediately prior to such merger;
The option will automatically accelerate immediately
prior to the specified effective date for a Corporate Transaction and become
exercisable for all of the shares of Common Stock at that time subject to such
option and may be exercised for all or any portion of such shares as
fully-vested shares. However, the option will not so accelerate if and to the
extent the option is to be assumed by the successor corporation (or its parent
corporation) in such Corporate Transaction. Immediately following the
consummation of a Corporate Transaction, the option will terminate and cease to
be exercisable, except to the extent assumed by the successor corporation.
(vi) The option contains a limited stock appreciation right
which will trigger the automatic cancellation of the option upon the successful
completion of a hostile tender offer for more than 50% of the Company's
outstanding voting securities. In return for the cancelled option, Ms. Conte
will be entitled to a cash distribution from the Company in an amount per
cancelled option share equal to the excess of (a) the highest price per share of
Common Stock paid in connection with the tender offer over (b) the exercise
price payable for such share.
(vii) In the event any change is made to the Common Stock
issuable under the option by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares, or other change in
corporate structure effected without the Company's receipt of consideration,
appropriate adjustments will be made to the number and/or class of securities
subject to the option and the exercise price payable per share.
(viii) The remaining terms and conditions of Ms. Conte's
option are substantially the same as those summarized in the "Discretionary
Option Grant" section of Proposal Two above.
FEDERAL TAX CONSEQUENCES
Part of the option granted to Ms. Conte is an incentive stock option
which satisfies the requirements of Section 422 of the Internal Revenue Code,
and the remainder of the option is a non-statutory option which is not intended
to meet such requirements. The federal income tax treatment for the two types of
options is described in the "Federal Tax Consequences" section in Proposal Two
above.
STOCKHOLDER VOTE
The affirmative vote of a majority of the shares present or represented
by proxy at the Special Meeting, as determined on as-converted basis for the
Preferred Stock, and entitled to vote is required for approval of this Proposal
Three. As previously indicated, each share of Series A and Series D Preferred
Stock will be entitled to one vote for each share of Common Stock into which
that Series A and Series D Preferred Stock is convertible and each share of
Series C Preferred Stock will be entitled to six votes for each share of Common
Stock into which that Series C Preferred Stock is convertible.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
approval of the 1,500,000-share option grant made to Ms. Conte on September 18,
1998. If such stockholder approval is not obtained, then the option will
terminate without ever becoming exercisable for any of the option shares.
The Board believes that the September 18, 1998 option grant to Ms.
Conte is essential to the Company's efforts in retaining her services which are
critical to the Company's long-term growth and financial success. ACCORDINGLY,
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE IN FAVOR OF THE 1,500,000-SHARE
OPTION GRANT MADE TO MS. CONTE ON SEPTEMBER 18, 1998.
17
<PAGE> 21
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Certain information about the Company's executive officers, as of
November 30, 1998, is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Lisa A. Conte.................................... 39 President, Chief Executive Officer and
Director
Steven R. King, Ph.D. ........................... 41 Senior Vice President, Ethnobotany and
Conservation
James E. Pennington, M.D. ....................... 55 Senior Vice President, Clinical Research
and Chief Medical Officer
Gerald M. Reaven, M.D. .......................... 70 Senior Vice President, Research
John W.S. Chow, Ph.D............................. 46 Vice President, Technical Operations
Stephanie C. Diaz................................ 33 Vice President, Chief Financial Officer
J.D. Haldeman.................................... 33 Vice President, Commercial Development
Gina D. Morhun................................... 32 Vice President, Human Resources
Laurie Peltier .................................. 47 Vice President, Project Coordination
G. Kirk Raab..................................... 63 Chairman of the Board of Directors
Adrian D.P. Bellamy.............................. 56 Director
Jeffrey Berg..................................... 51 Director
Herbert H. McDade, Jr. .......................... 71 Director
M. David Titus................................... 41 Director
</TABLE>
LISA A. CONTE founded the Company in May 1989 and currently serves as
the Company's President, Chief Executive Officer and as a Director. Ms. Conte
also served as the Company's Chief Financial Officer from January 1997 to June
1998. From 1987 to 1989, Ms. Conte was Vice President at Technology Funding,
Inc., a venture capital firm, where she was responsible for the analysis and
management of healthcare industry investments. From 1985 to 1987, she conducted
risk and strategy audits for venture capital portfolio companies at Strategic
Decisions Group, a management consulting firm. Ms. Conte received an A.B. in
Biochemistry from Dartmouth College, an M.S. in Physiology/Pharmacology from the
University of California, San Diego and an M.B.A. from The Amos Tuck School,
Dartmouth College.
STEVEN R. KING, PH.D. joined Shaman in March 1990. He currently serves
as Senior Vice President, Ethnobotany and Conservation and is responsible for
coordinating the Company's Scientific Strategy Team. From 1989 to 1990, Dr. King
was the chief botanist for Latin America at Arlington, Virginia's Nature
Conservancy. He worked in 1988 as Research Associate for the Committee on
Managing Global Genetic Resources at the National Academy of Sciences, and was a
Doctoral Fellow from 1983 to 1988 at The New York Botanical Garden's Institute
of Economic Botany. Dr. King received a B.A. in Human Ecology from the College
of the Atlantic and M.S. and Ph.D. degrees in Biology from City University of
New York.
JAMES E. PENNINGTON, M.D. joined Shaman in September 1997 as Senior
Vice President, Clinical Research and Chief Medical Officer. Prior to joining
the Company, from September 1986 to September 1997, Dr. Pennington worked at
Bayer Corp., where he served as Vice President, Clinical Research from February
1994 to September 1997 and as Director, Clinical Research from September 1986 to
February 1994. Prior to joining Bayer Corp., Dr. Pennington served on the
medical faculty of Harvard Medical School, from July 1975 to August 1986, with
the academic title of Associate Professor of Medicine. Dr. Pennington has
published over 100 articles and was the editor of a textbook on respiratory
infections. Dr. Pennington received his B.A. and M.D. from the University of
Oregon.
18
<PAGE> 22
GERALD M. REAVEN, M.D. joined Shaman as a consultant in February 1995
and became an employee in July 1995. He currently serves as Senior Vice
President, Research. Dr. Reaven came to Shaman from the Stanford University
School of Medicine where he served as a faculty member since 1960 and a
Professor of Medicine since 1970. Over the last 20 years, Dr. Reaven served as
head of the Division of Endocrinology and Metabolic Diseases, Division of
Gerontology and director of the General Clinical Research Center. Dr. Reaven
also served as head of the Division of Endocrinology, Gerontology and Metabolism
at Stanford University School of Medicine, and Director of the Geriatric
Research, Education and Clinical Center, at the Palo Alto Veterans Affairs
Medical Center. Dr. Reaven received his A.B., B.S. and M.D. from the University
of Chicago.
JOHN W.S. CHOW, Ph.D. joined Shaman in April 1998 as Vice President of
Technical Operations. Prior to joining the Company, from December 1997 to April
1998, Dr. Chow served as Director, Product and Technology Evaluation at
Bristol-Myers Squibb Company, where he performed technical due diligence toward
the acquisition and licensing of various dosage forms and technologies and
reviewed and approved new product specifications. Prior to holding this
position, from July 1980 to December 1997, Dr. Chow held other positions, also
with Bristol-Myers Squibb Company, where he was responsible for developing
strategies for manufacturing consolidation, facilitating technology transfers of
new and existing products, and directing technical operations of an
international plant. Dr. Chow received a B.S. in Pharmacy from Washington State
University, a Ph.D. in Pharmaceutical Chemistry from Ohio State University and
an M.B.A. in Pharmaceutical/Chemical Studies from Fairleigh Dickinson
University.
STEPHANIE C. DIAZ joined Shaman in June 1998 as Vice President, Chief
Financial Officer. Prior to joining the Company, from December 1997 to June
1998, Ms. Diaz held the position of Director of Finance with Hyseq, Inc., a
genomics company. From January 1993 to December 1997, Ms. Diaz was the
Controller and later the Director of Finance for Martek Biosciences
Corporation ("Martek"), where she managed the financial and investor relations
functions of the Company, actively participated in public and private financing
activities, managed certain business development efforts and worked closely with
Martek's manufacturing and marketing teams to initiate production and
commercialization of a new product. Ms. Diaz holds a B.A. in international
relations from Stanford University and an M.B.A. from Georgetown University.
J.D. HALDEMAN joined Shaman in July 1997 as Vice President, Commercial
Development. Prior to joining the Company, from April 1988 to June 1997, Ms.
Haldeman served in various positions at Warner-Lambert/Parke-Davis
Pharmaceuticals ("Warner-Lambert"), most recently as Senior Director,
Cardiovascular Marketing from October 1995 to June 1997. Prior to that, she
served as Director, Customer Marketing--West Business Unit; Product Manager,
Epilepsy Team; Associate Product Manager, Global Cardiovascular Product
Planning; and Sales Specialist for Warner-Lambert. Ms. Haldeman received her
B.A. from Brigham Young University and her Masters of Management from the J.L.
Kellogg Graduate School of Management, Northwestern University.
GINA D. MORHUN joined Shaman in November 1994 and currently serves as
Vice President, Human Resources and Senior Director, Business Development. Ms.
Morhun is responsible for Shaman's human resource functions and business
development functions. Prior to joining the Company, she served as Human
Resource Manager at Abaxis, Inc., a medical products company, from April to
November, 1994, and as Manager of Compensation and Benefits at ASK Computers,
Inc., a software company, from November 1992 to April 1994. From June 1987 to
November 1992, Ms. Morhun served as Senior Technical Analyst, Actuarial
Consultant and Underwriter of three large international firms: Alexander &
Alexander Consulting Group, The Wyatt Company, and Metropolitan Life Insurance
Company. Ms. Morhun received a B.A. in Statistics from the University of
California at Davis.
LAURIE PELTIER joined Shaman in June 1997 as Vice President, Project
Coordination. Prior to joining the Company, from June 1992 to May 1997, Ms.
Peltier served as Senior Director, Project Management at Amylin Pharmaceuticals,
Inc. Prior to that, she served as Director, Development at Quintiles
Transnational Corp., a contract research organization, from May 1990 to May
1992. Ms. Peltier served in various positions in biostatics clinical operations
at Syntex Corporation from May 1979 through April 1990. Ms. Peltier received a
B.S. in Psychology from the University of Michigan, Flint, an M.A. in Psychology
and an M.S. in Statistics from Northern Illinois University and an M.B.A. from
Golden Gate University.
19
<PAGE> 23
G. KIRK RAAB became a director of the Company in January 1992 and
Chairman of the Board in September 1995. Mr. Raab was President, Chief Executive
Officer and director of Genentech, Inc. ("Genentech") from February 1990 to July
1995 and President, Chief Operating Officer and director from February 1985 to
January 1990. Before joining Genentech, Mr. Raab was associated with Abbott
Laboratories, serving as President, Chief Operating Officer and director. Mr.
Raab holds a B.A. in Political Science from Colgate University, where he
currently serves as a trustee. Mr. Raab is also Chairman of the Board of
Connectics, Inc. and Oxford GlycoSciences (UK) Ltd. and a director of LXR
Biotechnology, Inc., Bridge Medical, Inc., Accumetrics, Inc. and Applied Imaging
Corporation.
ADRIAN D.P. BELLAMY became a director of the Company in October 1997.
Since April 1995, Mr. Bellamy has served as Chairman and a director of each of
Airport Group International Holdings LLC and Gucci Group N.V. From September
1983 to April 1995, Mr. Bellamy served as Chairman of the Board of Directors and
Chief Executive Officer of DFS Group Limited, a specialty retailer. He received
a B.A. in Communications and an M.B.A. from the University of South Africa. Mr.
Bellamy is a director of The Body Shop, Inc., The Body Shop International PLC,
The Gap, Inc., Paragon Trade Brands, Inc. and Williams-Sonoma, Inc.
JEFFREY BERG became a director of the Company in June 1998. Mr. Berg
has been the Chairman and Chief Executive Officer of International Creative
Management, Inc. since 1985. Mr. Berg, one of the leading agents in the
entertainment industry, has been in the entertainment industry for over 25
years. Mr. Berg received a B.A. from the University of California at Berkeley
and a Master of Liberal Arts from the University of Southern California. He
served as Co-Chair of the California Information Technology Council and is a
director of each of Oracle Corporation and Excite, Inc.
HERBERT H. MCDADE, JR. became a director of the Company in October
1991. He has served as Chairman of the Board and Chief Executive Officer of
Chemex Pharmaceuticals, Inc. ("Chemex") since February 1989 and as Chief
Executive Officer from February 1989 through January 1996, when Chemex merged
with Access Pharmaceutical Corporation ("Access") and the combined entity
changed its name to Access. From October 1986 to January 1988, Mr. McDade was
Chairman, President and Chief Executive Officer of Armour Pharmaceuticals, Inc.,
after previously serving as President, International Health Care Division of the
Revlon HealthCare Group. Mr. McDade holds a B.S. in Biology from the University
of Notre Dame and a B.P.H. in Theology and Philosophy from Laval University. He
is Chairman of the Board of Access and a director of Cytrx, Inc., Discovery Ltd.
and several privately held companies.
DAVID TITUS became a director of the Company in April 1990. Mr. Titus
is currently a General Partner of Windward Ventures Management, L.P., a venture
capital firm, which he founded in November 1997. Prior to founding Windward
Ventures Management, L.P., Mr. Titus was Managing Director of Windward Ventures,
a venture capital consulting and investment firm, which he founded in 1993. From
May 1986 to December 1992, he served in various capacities at Technology
Funding, Inc., a venture capital firm, including Group Vice President,
Technology Funding, Inc., and General Partner of Technology Funding Limited.
Prior to joining Technology Funding, Inc. in May 1986, Mr. Titus was a founder
and Senior Vice President of the Technology Division of Silicon Valley Bank. Mr.
Titus earned a B.A. in Economics from the University of California, Santa
Barbara. He is a director of several privately held companies.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the 1997 fiscal year, Herbert H. McDade and Adrian D.P. Bellamy
served as members of the Compensation Committee of the Board of Directors. No
member of the Compensation Committee was, at any time during the 1997 fiscal
year or at any earlier time, an officer or employee of the Company.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
20
<PAGE> 24
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation earned, for services
rendered in all capacities to the Company, for each of the last three fiscal
years by (i) the Company's Chief Executive Officer and (ii) the four other
highest paid executive officers serving as such at the end of the 1997 fiscal
year whose salary and bonus for that fiscal year was in excess of $100,000. The
individuals named in the table will be hereinafter referred to as the "Named
Officers." No other executive officer who would otherwise have been included in
such table on the basis of fiscal year 1997 salary and bonus resigned or
terminated employment during the year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
========================================================================================================================
Long-Term
Annual Compensation Compensation
---------------------------------------- --------------
Awards
-------------------------------
Securities
Other Annual Underlying All Other
Name and Principal Position(*) Year Salary ($)(1) Bonus ($) Compensation($) Options/SARs(#) Compensation($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lisa A. Conte 1997 312,901(2) 91,689(3) -- 295,000 --
President and 1996 286,190(4) 53,000(5) -- 105,000 --
Chief Executive Officer 1995 247,644(6) 24,000 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Gerald M. Reaven, M.D. 1997 239,114 25,000(7) -- -- --
Senior Vice President, Research 1996 227,878 3,000 -- 5,000 --
1995 100,088 -- 68,000(8) -- --
- ------------------------------------------------------------------------------------------------------------------------
Atul S. Khandwala, Ph.D. 1997 226,031 20,000(7) -- -- 82,217(9)
Senior Vice President, 1996 187,563 3,000 51,200(8) 125,000 106,399(10)
Development and Chief Medical 1995 -- -- 30,000(8) -- --
Officer
- ------------------------------------------------------------------------------------------------------------------------
Steven R. King, Ph.D. 1997 176,202 40,000(7) -- -- --
Senior Vice President, 1996 171,822 3,000 -- 55,000 --
Ethnobotany and Conservation 1995 149,711 -- -- -- 20,000(11)
- ------------------------------------------------------------------------------------------------------------------------
Gina D. Morhun 1997 109,128 40,000(7) -- -- --
Vice President, Human Resources 1996 96,150 15,000(12) -- 55,000 --
1995 77,983 -- -- 15,000 --
========================================================================================================================
</TABLE>
(*) Does not include James E. Pennington, M.D., who joined the Company in
September 1997 as Senior Vice President, Clinical Research and Chief
Medical Officer. Dr. Pennington's annualized base salary for 1997 was
$255,000.
(1) Includes amounts deferred under the Company's Internal Revenue Code
Section 401(k) Plan.
(2) Includes $61,214 and $27,287 attributable to child care costs and
family travel, respectively.
(3) Includes $75,000 paid in 1998 for achievement of milestones in 1997.
(4) Includes $49,646 and $16,858 attributable to child care costs and
family travel, respectively.
(5) Includes $50,000 paid in 1997 for achievement of milestones in 1996.
(6) Includes $27,597 attributable to child care costs.
(7) Represents bonus paid in 1998 for achievement of milestones in 1997.
(8) Represents fees received for consulting services.
(9) Includes $16,500 received as a housing subsidy, $1,164 for travel
expenses and $64,553 in indebtedness for which repayment was forgiven.
(10) Includes $13,445 received as a housing subsidy, $23,746 for moving and
relocation expenses, $1,562 for travel expenses and $67,646 in
indebtedness for which repayment was forgiven.
(11) Represents indebtedness for which repayment was forgiven.
(12) Represents bonus paid in 1997 for achievement of milestones in 1996.
21
<PAGE> 25
OPTIONS AND STOCK APPRECIATION RIGHTS
The following table contains information concerning the grant of stock
options under the Plan to the Named Officers during the 1997 fiscal year. Except
for the limited stock appreciation right described in footnote (2) below which
formed part of the option grant made to each Named Officer, no stock
appreciation rights were granted to such Named Officers during the 1997 fiscal
year.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
======================================================================================================================
Individual Grants Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for Option
Term (1)
- ----------------------------------------------------------------------------------------------------------------------
Number of
Securities % of Total
Underlying Options Granted Exercise
Options/SARs to Employees in Price Expiration
Name Granted(#)(2) Fiscal Year ($/Share)(3) Date 5% 10%
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lisa A. Conte 295,000 37.47% $5.0156 01/30/07 $930,514 $2,358,105
Gerald M. Reaven, M.D. -- -- -- -- -- --
Atul S. Khandwala, Ph.D. -- -- -- -- -- --
Steven R. King, Ph.D. -- -- -- -- -- --
Gina D. Morhun -- -- -- -- -- --
======================================================================================================================
</TABLE>
(1) Potential realizable value is based on assumption that the market price
of the Common Stock appreciates at the annual rate shown (compounded
annually) from the date of grant until the end of the 10-year option
term. There can be no assurance that the actual stock price
appreciation over the 10-year option term will be at the assumed 5% and
10% levels or at any other defined level.
(2) Each option has a maximum term of 10 years, subject to earlier
termination in the event of the optionee's cessation of service with
the Company. However, each option will become immediately exercisable
in full upon an acquisition of the Company by merger or asset sale,
unless the option is assumed by the successor entity. Each option
includes a limited stock appreciation right which will result in the
cancellation of that option, to the extent exercisable for vested
shares, upon the successful completion of a hostile tender for
securities possessing more than 50% of the combined voting power of the
Company's outstanding voting securities. In return for the cancelled
option, the optionee will receive a cash distribution per cancelled
option share equal to the excess of (i) the highest price paid per
share of the Company's Common Stock in such hostile tender offer over
(ii) the exercise price payable per share under the cancelled option.
(3) The exercise price may be paid in cash or in shares of Common Stock
(valued at fair market value on the exercise date) or through a
cashless exercise procedure involving a same-day sale of the purchased
shares. The Company may also finance the option exercise by loaning the
optionee sufficient funds to pay the exercise price for the purchased
shares and the federal and state income tax liability incurred by the
optionee in connection with such exercise. The optionee may be
permitted, subject to the approval of the Plan Administrator, to apply
a portion of the shares purchased under the option (or to deliver
existing shares of Common Stock) in satisfaction of such tax liability.
22
<PAGE> 26
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the Named
Officers concerning the exercise of options during the last fiscal year and
unexercised options held as of the end of the fiscal year (as of December 31,
1997). No stock appreciation rights were exercised during such fiscal year, and
except for the limited stock appreciation right described in Footnote (2) to the
Option/SAR Grants Table which forms part of each outstanding stock option, no
stock appreciation rights were outstanding at the end of that fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
===============================================================================================================================
Value
Realized
(Market Value of Unexercised In-the-Money
Shares price at Options at FY-End (Market price of
Acquired exercise No. of Securities Underlying shares at FY-End less exercise
on date less Unexercised Options at FY-End(#) price) ($)(1)
Exercise exercise ----------------------------------------------------------------------
Name (#) price) ($)(2) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lisa A. Conte -- -- 118,333 501,667 $359,980 $194,863
- -------------------------------------------------------------------------------------------------------------------------------
Gerald M. Reaven, M.D. -- -- 203,889 11,111 $262,292 $14,583
- -------------------------------------------------------------------------------------------------------------------------------
Atul S. Khandwala, Ph.D. -- -- 60,200 64,800 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Steven R. King, Ph.D. -- -- 93,868 60,589 $83,403 $21,750
- -------------------------------------------------------------------------------------------------------------------------------
Gina D. Morhun -- -- 40,625 39,375 $19,466 $2,096
===============================================================================================================================
</TABLE>
(1) Based on the fair market value of the Company's Common Stock on
December 31, 1997 of $4.9375 per share, the Nasdaq National Market
trading price at the close of business that same day.
(2) Equal to the closing selling price of the purchased shares on the
option exercise date less the exercise price paid for such shares.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL AGREEMENTS
On May 27, 1998, the Company entered into a letter agreement with
Stephanie C. Diaz pursuant to which she is to serve as Vice President, Chief
Financial Officer commencing in June 1998. Pursuant to the letter agreement, the
Company agreed to pay Ms. Diaz an annual salary of $135,000, payable
semi-monthly, and a sign-on bonus of $15,000. In addition, Ms. Diaz was granted
an option for 45,000 shares of Common Stock on June 30, 1998 with an exercise
price per share of $3.375, the fair market value per share of Common Stock on
that date. The option will become exercisable in for 12.5% of the option shares
upon her completion of six months of employment and will become exercisable for
the balance of the option shares in 42 equal monthly installments over the next
42-months of employment. In the event that the Company terminates Ms. Diaz's
employment other than for cause, the Company will be obligated to continue her
salary and benefits for six months or until she obtains full-time employment,
whichever occurs first.
On March 30, 1998, the Company entered into a letter agreement with
John W.S. Chow, Ph.D. pursuant to which he would serve as Vice President,
Technical Operations commencing in May 1998. Pursuant to the letter agreement,
the Company agreed to pay Dr. Chow an annual salary of $165,000, payable
semi-monthly, and a sign-on bonus of $10,000 and to reimburse him, in an amount
not to exceed $25,000, for closing costs incurred in the sale of his former
residence in New Jersey and the purchase of his new residence in the Bay area.
Dr. Chow will, however, be obligated to repay a prorated portion of both the
sign-on bonus and the reimbursed closing costs should he resign from the Company
within two years of his date of hire. Dr. Chow was also granted an option for
50,000 shares of Common Stock on May 15, 1998 with an exercise price per share
of $4.9375, the fair market value per share of Common Stock on that date. The
option will become exercisable in a series of monthly installments over the
4-year period measured from the grant date as follows: 10% of the option shares
will become exercisable upon his completion of six months of employment measured
from such grant date, an additional 30% of the option shares will become
exercisable in a series of 18 monthly installments upon his completion of each
month of employment over the next 18 months thereafter, and the remaining 60% of
the option shares will become exercisable in a series of 24 monthly installments
upon his completion of each month of employment during the 3rd and 4th years of
employment measured from the grant date. Dr. Chow was also granted an additional
15,000 shares of Common Stock on May 15, 1998 with an exercise price of $4.9375,
the fair market value per share of Common Stock on that date. The 15,000-share
grant will become exercisable as follows: 7,500 shares upon Dr. Chow's
completion of three years of employment measured from the grant date, and the
remaining 7,500 shares upon his completion of four years of employment measured
from the grant date. The Company further agreed to pay Dr. Chow's reasonable
moving expenses in an amount not to exceed $20,000 and to provide him with an
apartment for up to four months at a rental not to exceed $2,500 per month.
Should the Company terminate Dr. Chow's employment for any reason other than for
cause prior to May 1, 2001, the Company will continue to pay Dr. Chow's base
salary plus benefits on a monthly basis for up to six months or until Dr. Chow
obtains near full-time employment or consulting of at least 80% of his time,
whichever occurs sooner. The Company also extended a $300,000 loan to Dr. Chow
in connection with his purchase of a new residence in the Bay Area. See "Certain
Relationships and Related Transactions."
On August 21, 1997, the Company entered into a letter agreement with
Dr. James Pennington pursuant to which he would serve as Senior Vice President,
Clinical Research and Chief Medical Officer commencing October 1997. Pursuant to
the letter agreement, the Company agreed to pay Dr. Pennington an annual salary
of $255,000, payable semi-monthly, and a sign-on bonus of $60,000. In addition,
Dr. Pennington was granted, on September 16, 1997, an option to purchase 125,000
shares of Common Stock at a purchase price of $6.0625 per share. The option has
a term of 10 years and becomes exercisable as follows: 12.5% of the option
shares upon Dr. Pennington's completion of six months of service, measured from
the grant date, and the balance of the option shares in 42 successive equal
monthly installments upon Dr. Pennington's completion of each of the next 42
months of service thereafter. In the event that the Company terminates Dr.
Pennington's employment other than for cause, the Company is obligated to pay
Dr. Pennington's salary and benefits for nine months, or, if sooner, until Dr.
Pennington obtains near full time employment or consulting of at least 80% of
his time.
On February 9, 1996, the Company entered into a letter agreement with
Dr. Atul Khandwala pursuant to which he would serve as Senior Vice President,
Development commencing March 1996. Pursuant to the letter agreement, the Company
agreed to pay Dr. Khandwala an annual salary of $225,000, payable semi-monthly.
In addition, Dr. Khandwala was granted an option to purchase 120,000 shares of
Common Stock at a purchase price of $6.875 per share. The option has a term of
ten years and becomes exercisable over a four-year period in a series of 48
successive equal monthly installments upon Dr. Khandwala's completion of each
month of service with the Company over the four-year period measured from March
1, 1996. In the event that the Company terminates Dr. Khandwala's employment for
any reason, the Company is obligated to pay Dr. Khandwala's salary and benefits
for six months.
23
<PAGE> 27
None of the Company's other executive officers have employment
agreements with the Company, and their employment may be terminated at any time
at the discretion of the Board of Directors. As administrator of the Plan, the
Compensation Committee has the authority to provide for accelerated vesting of
the shares of Common Stock subject to any outstanding options held by the Chief
Executive Officer and the Company's other executive officers or any unvested
shares actually held by those individuals under the Plan upon a change in
control of the Company effected through a successful tender offer for more than
50% of the Company's outstanding voting securities or through a change in the
majority of the Board as a result of one or more contested elections for Board
membership.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 28, 1998, the Company entered into an agreement with Atul
Khandwala, who resigned from the Company as Senior Vice President, Development
and Chief Regulatory Officer on October 2, 1998. Under this agreement, Dr.
Khandwala would render consulting services to the Company from October 2, 1998
through April 2, 1999 (the "Consulting Period") for at least 10 hours per month.
In connection with this agreement, the Company issued to Dr. Khandwala 87,326
shares of Common Stock on October 20, 1998 and loaned him the funds necessary to
satisfy the federal and state withholding taxes applicable to those shares. In
addition, the Company granted Dr. Khandwala an option to purchase 40,000 shares
of Common Stock at an exercise price of $1.4375, the fair market value of the
Company's Common Stock on October 20, 1998. The option was granted under the
Discretionary Option Grant Program in effect under the Plan, and the option
shall become exercisable in six successive equal monthly installments on the
last day of each month during the Consulting Period.
On June 17, 1998, the Company loaned $300,000 to John W.S. Chow, the
Vice President, Technical Operations, to reimburse him for a reasonable
difference between the purchase price of his residence in the Bay Area and the
cost of comparable housing in New Jersey, his former state of residence. The
loan is evidenced by his promissory note of the same date which will become due
and payable in a series of five successive equal annual installments, with the
first such installment due on June 25, 1999. The note will bear interest at a
variable per annum rate equal to the short-term applicable federal rate in
effect under the federal tax laws for January of each calendar year the loan
remains outstanding. Accordingly, the interest rate in effect for the period
Dr. Chow's note was outstanding during the 1998 calendar year was 5.52%,
compounded semi-annually. Accrued and unpaid interest will become due and
payable each year on the same date the principal installment for that year
becomes payable. Each installment of principal and accrued interest will
automatically be forgiven as that installment becomes due, provided Dr. Chow
continues in the Company's employ. However, the entire unpaid balance of the
note, together with all accrued and unpaid interest, will become immediately
due and payable upon Dr. Chow's termination of employment with the Company
prior to June 25, 2003, unless Dr. Chow's employment is involuntarily
terminated by the Company other than for cause. In the event (i) the Company
terminates Dr. Chow's employment for any reason other than for cause or (ii)
Dr. Chow's employment terminates by reason of his death or disability, then the
entire principal balance of the note plus accrued interest will be forgiven.
The amount outstanding on Dr. Chow's note was approximately $306,900 as of
November 30, 1998.
On May 1, 1997, the Company approved a consulting arrangement with Mr.
Titus, pursuant to which he would serve as a consultant on financing matters and
financial operations to the Company. Under this arrangement, Mr. Titus is paid a
monthly consulting fee of $6,000 starting in June 1997 and granted an option to
purchase up to 14,000 shares of Common Stock under the Discretionary Option
Grant Program. Such option has an exercise price of $5.375 per share, the fair
market value of the Company's Common Stock on May 22, 1997, the effective date
of the option grant, and is exercisable in full at any time prior to May 22,
2007.
In August 1995, the Company entered into a consulting arrangement (the
"Consulting Arrangement") with Mr. Raab, Chairman of the Board. As consideration
for the special consulting services Mr. Raab performs under the Consulting
Arrangement, Mr. Raab is paid an annual consulting fee of $100,000. In addition,
he was granted an option for 200,000 shares of Common Stock on August 21, 1995
with an exercise price per share of $5.50, the fair market value per share of
Common Stock on that date. The option was granted under the Discretionary Option
Grant Program in effect under the Plan, and the option will become exercisable
in a series of 48 successive equal monthly installments following the August 21,
1995 grant date as Mr. Raab continues to render services to the Company pursuant
to his Consulting Arrangement. The option will, however, become immediately
exercisable for all the option shares upon certain changes in control or
ownership of the Company. In addition, in connection with his services as a
director and as Chairman of the Board, Mr. Raab receives an annual retainer fee
of $60,000, payable after each Annual Meeting of Stockholders so long as Mr.
Raab continues to render services to the Company as Chairman of the Board.
The Company's Restated Certificate of Incorporation and Bylaws provide
for indemnification of directors, officers and other agents of the Company. Each
of the current directors and certain officers and agents of the Company have
entered into separate indemnification agreements with the Company.
24
<PAGE> 28
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Common Stock as of November 30,
1998 by (i) all persons who are beneficial owners of five percent or more of the
Common Stock, (ii) each director, (iii) the Named Officers in the Summary
Compensation Table above and (iv) all current directors and executive officers
as a group. The number of shares beneficially owned by each director or
executive officer is determined under rules of the SEC and the information is
not necessarily indicative of beneficial ownership for any other purpose. Shares
of Common Stock subject to options or warrants currently exercisable or
exercisable within 60 days of November 30, 1998 are deemed to be beneficially
owned by the person holding such option or warrant for computing the percentage
ownership of such person, but are not treated as outstanding for computing the
percentage of any other person. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed below, based upon
such information furnished by such owners, have sole investment power with
respect to such shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Number of Percent of Total Shares
Name and Address Shares Outstanding (1)(2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lipha S.A.(3)....................................................... 1,402,713 5.83%
34 rue Saint Romain
F-69379 Lyon, cedex 08
France
State of Wisconsin Investment Board................................. 1,290,000 5.36%
Post Office Box 7842
Madison, WI 53707
Lisa A. Conte (4)................................................... 624,328 2.58%
Steven R. King, Ph.D. (5)........................................... 79,492 *
James E. Pennington, M.D. (6)....................................... 26,042 *
Gerald R. Reaven, M.D. (7).......................................... 90,083 *
John Chow (8)....................................................... 8,333 *
Stephanie C. Diaz (9)............................................... 7,500 *
J.D. Haldeman (10)................................................... 9,028 *
Laurie Peltier (11)................................................. 9,375 *
Atul S. Khandwala, Ph.D. (12)....................................... 114,993 *
Gina D. Morhun (13)................................................. 24,013 *
G. Kirk Raab (14)................................................... 248,156 1.03%
Adrian D.P. Bellamy (15)............................................ 16,146 *
Jeffrey Berg (16)................................................... 3,333 *
Herbert H. McDade, Jr. (17)......................................... 38,658 *
M. David Titus (18)................................................. 24,116 *
Current Officers and Directors as a group (19)
(15 persons)........................................................ 1,323,596 5.37%
</TABLE>
- ----------
* Less than 1.0%
(1) Percentage of beneficial ownership is calculated assuming 24,060,360
shares of Common Stock were outstanding as of November 30, 1998.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options or warrants currently exercisable or convertible, or
exercisable or convertible within 60 days of November 30, 1998, are
deemed outstanding for computing the percentage of the person holding
such option or warrant but are not deemed outstanding for computing the
percentage of any other person. Except as indicated in the footnotes to
this table and pursuant to applicable community property laws, the
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned.
25
<PAGE> 29
(2) This table is based upon information supplied to the Company by
executive officers, directors and stockholders owning greater than five
percent, as set forth in filings required by the Securities and
Exchange Commission or as otherwise provided. The address of each
officer and director identified in this table is that of the Company's
executive offices, 213 East Grand Avenue, South San Francisco, CA
94080. Unless otherwise indicated in the footnotes to this table and
subject to applicable community property laws, each of the stockholders
named in this table has sole voting and investment power with respect
to the shares shown as beneficially owned by it, him or her.
(3) Does not include 342,231 shares of Common Stock which were issued to
Lipha on December 3, 1998.
(4) Includes 152,028 shares subject to options exercisable within 60 days
of November 30, 1998.
(5) Includes 64,234 shares subject to options exercisable within 60 days of
November 30, 1998.
(6) Represents shares subject to options exercisable within 60 days of
November 30, 1998.
(7) Includes 89,583 shares subject to options exercisable within 60 days of
November 30, 1998.
(8) Represents shares subject to options exercisable within 60 days of
November 30, 1998.
(9) Represents shares subject to options exercisable within 60 days of
November 30, 1998.
(10) Represents shares subject to options exercisable within 60 days of
November 30, 1998.
(11) Represents shares subject to options exercisable within 60 days of
November 30, 1998.
(12) Includes 26,667 shares subject to options exercisable within 60 days of
November 30, 1998. Dr. Khandwala resigned from the Company in October
1998.
(13) Includes 23,663 shares subject to options exercisable within 60 days of
November 30, 1998.
(14) Includes 112,504 shares subject to options exercisable within 60 days
of November 30, 1998. Does not include 1,500 shares of Series C
Preferred Stock which is convertible to a certain number of shares of
Common Stock, such number which is determined in accordance with that
certain Series C Stock Purchase Agreement.
(15) Represents shares subject to options exercisable within 60 days of
November 30, 1998.
(16) Represents shares subject to options exercisable within 60 days of
November 30, 1998.
(17) Represents shares subject to options exercisable within 60 days of
November 30, 1998.
(18) Includes 19,116 shares subject to options exercisable within 60 days of
November 30, 1998.
(19) Includes shares held by family members associated with directors and
officers listed above. Also includes 606,210 shares which are currently
issuable upon the exercise of outstanding options.
26
<PAGE> 30
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Special Meeting. If any other matters properly come before
the Special Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board may recommend.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed Proxy.
THE BOARD OF DIRECTORS
Dated: December 31, 1998
27
<PAGE> 31
SHAMAN PHARMACEUTICALS, INC.
1992 STOCK OPTION PLAN
(AS RESTATED AND AMENDED THROUGH DECEMBER 15, 1998)
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
A. This 1992 Stock Option Plan ("Plan") is intended to promote the
interests of Shaman Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), by providing a method whereby eligible individuals may be offered
the opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Company as an incentive for them to remain in the
service of the Company (or its parent or subsidiary corporations).
B. The Plan became effective on the date on which shares of the
Company's common stock were first registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). Such date is
hereby designated as the Effective Date of the Plan.
C. This Plan shall serve as the successor to the Company's 1990
Stock Option Plan (the "1990 Plan"), and no further option grants shall be made
under the 1990 Plan from and after the Effective Date of this Plan. All options
outstanding under the 1990 Plan on such Effective Date are hereby incorporated
into this Plan and shall accordingly be treated as outstanding options under
this Plan. However, each outstanding option so incorporated shall continue to be
governed solely by the express terms and conditions of the instrument evidencing
such grant, and no provision of this Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of the Company's common stock
thereunder or their exercise of any outstanding stock appreciation rights
thereunder.
D. For purposes of the Plan, the following provisions shall be
applicable in determining the parent and subsidiary corporations of the Company:
Any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company shall be considered
to be a PARENT of the Company, provided each such corporation in
the unbroken chain (other than the Company) owns, at the time of
the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one
of the other corporations in such chain.
<PAGE> 32
Each corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company shall be
considered to be a SUBSIDIARY of the Company, provided each such
corporation (other than the last corporation) in the unbroken
chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in such
chain.
II. STRUCTURE OF THE PLAN
A. Stock Programs. The Plan shall be divided into two separate
components: the Discretionary Option Grant Program specified in Article Two and
the Automatic Option Grant Program specified in Article Three. Under the
Discretionary Option Grant Program, eligible individuals may, at the discretion
of the Plan Administrator, be granted options to purchase shares of Common Stock
in accordance with the provisions of Article Two. Under the Automatic Option
Grant Program, certain non-employee members of the Company's Board of Directors
(the "Board") will at periodic intervals automatically receive special option
grants to purchase shares of Common Stock in accordance with the provisions of
Article Three.
B. General Provisions. Unless the context clearly indicates
otherwise, the provisions of Articles One and Four of the Plan shall apply to
both the Discretionary Option Grant Program and the Automatic Option Grant
Program and shall accordingly govern the interests of all individuals under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. The Discretionary Option Grant Program shall be administered by a
committee ("Committee") of two (2) or more non-employee Board members appointed
by the Board. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time.
B. The Committee as Plan Administrator shall have full power and
authority (subject to the express provisions of the Plan) to establish such
rules and regulations as it may deem appropriate for the proper administration
of the Discretionary Option Grant Program and to make such determinations under,
and issue such interpretations of, the provisions of such program and any
outstanding option grants as it may deem necessary or advisable. Decisions of
the Plan Administrator shall be final and binding on all parties who have an
interest in the Discretionary Option Grant Program or any outstanding option
thereunder.
C. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the express terms and conditions of Article
Three, and the Committee as Plan Administrator shall exercise no discretionary
functions with respect to option grants made pursuant to that program.
2
<PAGE> 33
IV. OPTION GRANTS
A. The persons eligible to participate in the Discretionary Option
Grant Program under Article Two of the Plan shall be limited to the following:
(i) officers and other key employees of the Company (or its
parent or subsidiary corporations) who render services which contribute to the
management, growth and financial success of the Company (or its parent or
subsidiary corporations);
(ii) non-employee members of the Board;
(iii) non-employee members of the board of directors of any
parent or subsidiary corporation; and
(iv) those consultants or other independent advisors who provide
valuable services to the Company (or its parent or subsidiary corporations).
B. The Plan Administrator shall have full authority to determine the
eligible individuals who are to receive option grants under the Discretionary
Option Grant Program, the number of shares to be covered by each such grant, the
status of the granted option as either an incentive stock option ("Incentive
Option") which satisfies the requirements of Section 422 of the Internal Revenue
Code or a non-statutory option not intended to meet such requirements, the time
or times at which each granted option is to become exercisable and the maximum
term for which the option may remain outstanding.
V. STOCK SUBJECT TO THE PLAN
A. Shares of the Company's common stock (the "Common Stock") shall
be available for issuance under the Plan and shall be drawn from either the
Company's authorized but unissued shares of Common Stock or from reacquired
shares of Common Stock, including shares repurchased by the Company on the open
market. The maximum number of shares of Common Stock which may be issued over
the term of the Plan shall not exceed 6,216,6601/ shares, subject to adjustment
from time to time in accordance with the provisions of this Section V. Such
authorized share reserve includes the number of shares which remained available
for issuance under the 1990 Plan as of the Effective Date, including the shares
subject to the outstanding options incorporated into this Plan and any other
shares available for future option grant under the 1990 Plan as of such
Effective Date. Such share reserve also includes (i) the
- --------
1/ Such share reserve gives effect to the 1-for-3 reverse stock split of the
Common Stock effected in connection with the reincorporation of the Company in
Delaware and the associated exchange of three (3) shares of the California
corporation's common stock for one (1) share of the Delaware corporation's
common stock on January 25, 1993.
3
<PAGE> 34
increase of 107,166 shares authorized by the Board in May 1992 and subsequently
approved by the stockholders in August 1992, (ii) the increases of 250,000
shares and 176,166 shares authorized by the Board in November 1992 and December
1992, respectively, and subsequently approved in the aggregate by the
stockholders in December 1992, (iii) the increase of 1,000,000 shares authorized
by the Board in May 1993 and subsequently approved by the stockholders at the
1994 Annual Stockholders Meeting, (iv) the increase of 545,000 shares authorized
by the Board in February 1995 and approved by the stockholders at the 1995
Annual Stockholders Meeting, (v) the increase of 450,000 shares authorized by
the Board in January 1996 and subsequently approved by the stockholders at the
1996 Annual Stockholders Meeting, (vi) the increase of 700,000 shares authorized
by the Board in February 1997 and subsequently approved by the stockholders at
the 1997 Annual Stockholders Meeting, (vii) the increase of 500,000 shares
authorized by the Board on January 29, 1998 and approved by the stockholders at
the 1998 Annual Stockholders Meeting, and (viii) the increase of 2,000,000
shares authorized by the Board on September 1998, subject to stockholder
approval at a Special Stockholders Meeting to be held in February 1999.
B. To the extent one or more outstanding options under the 1990 Plan
which have been incorporated into this Plan are subsequently exercised, the
number of shares issued with respect to each such option shall reduce, on a
share-for-share basis, the number of shares available for issuance under this
Plan. Subject to stockholder approval at the Special Meeting to be held in
February 1999, the maximum number of shares of Common Stock for which any one
individual participating in the Plan may be granted stock options and separately
exercisable stock appreciation rights shall be limited to 2,500,000 shares per
calendar year, beginning with the 1998 calendar year, rather than the prior
limitation of 750,000 shares of Common Stock over the term of the Plan
(excluding any stock options or stock appreciation rights granted prior to
December 31, 1993).
C. Should one or more outstanding options under this Plan (including
outstanding options under the 1990 Plan incorporated into this Plan) expire or
terminate for any reason prior to exercise in full (including any option
cancelled in accordance with the cancellation-regrant provisions of Section IV
of Article Two of the Plan), then the shares subject to the portion of each
option not so exercised shall be available for subsequent option grant under the
Plan. In addition, any unvested shares issued under the Plan and subsequently
repurchased by the Company at the original exercise price per share pursuant to
the Company's repurchase rights under the Plan shall be added back to the number
of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants under the Plan. However, shares subject to any option or portion thereof
surrendered or cancelled in accordance with Section V of Article Two or Section
III of Article Three shall reduce on a share-for-share basis the number of
shares of Common Stock available for subsequent option grants under the Plan. In
addition, should the exercise price of an outstanding option under the Plan
(including any option incorporated from the 1990 Plan) be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Company in satisfaction of the withholding taxes incurred in
4
<PAGE> 35
connection with the exercise of an outstanding option under the Plan, then the
number of shares of Common Stock available for issuance under the Plan shall be
reduced by the gross number of shares for which the option is exercised, and not
by the net number of shares of Common Stock actually issued to the option
holder.
D. In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Company's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan, (ii) the maximum
number and/or class of securities for which any one individual participating in
the Plan may be granted stock options and separately exercisable stock
appreciation rights per calendar year, (iii) the number and/or class of
securities for which automatic option grants are to be subsequently made to each
newly-elected or continuing Board member under the Automatic Option Grant
Program, (iv) the number and/or class of securities and price per share in
effect under each option outstanding under either the Discretionary Option Grant
or Automatic Option Grant Program under the Plan and (v) the number and/or class
of securities and price per share in effect under each outstanding option
incorporated into this Plan from the 1990 Plan. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
5
<PAGE> 36
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Option Grant Program
shall be authorized by action of the Plan Administrator and may, at the Plan
Administrator's discretion, be either Incentive Options or non-statutory
options. Individuals who are not Employees of the Company or its parent or
subsidiary corporations may only be granted non-statutory options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; provided, however, that each such instrument shall comply
with the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
A. Option Price.
(1) The option price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) The option price per share of the Common Stock subject
to an Incentive Option shall in no event be less than one hundred percent (100%)
of the fair market value of such Common Stock on the grant date.
(ii) The option price per share of the Common Stock subject
to a non-statutory stock option shall be determined by the Plan Administrator in
its sole discretion and may be less than, equal to or greater than the fair
market value of such Common Stock on the grant date.
(2) The option price shall become immediately due upon exercise
of the option and, subject to the provisions of Section VI of this Article Two
and the instrument evidencing the grant, shall be payable in one of the
following alternative forms specified below:
- full payment in cash or check drawn to the Company's
order;
- full payment in shares of Common Stock held by the
optionee for the requisite period necessary to avoid a charge to the Company's
earnings for financial reporting purposes and valued at fair market value on the
Exercise Date (as such term is defined below);
6
<PAGE> 37
- full payment in a combination of shares of Common Stock
of the Company held by the optionee for the requisite period necessary to avoid
a charge to the Company's earnings for financial reporting purposes and valued
at fair market value on the Exercise Date and cash or check drawn to the
Company's order; or
- full payment through a broker-dealer sale and
remittance procedure pursuant to which the optionee (I) shall provide
irrevocable instructions to a Company-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate option price payable for the purchased shares plus all applicable
Federal and State income and employment taxes required to be withheld by the
Company in connection with such purchase and (II) shall provide directives to
the Company to deliver the certificates for the purchased shares directly to
such brokerage firm in order to complete the sale transaction.
For purposes of this subparagraph (2), the Exercise Date shall be the
date on which written notice of the option exercise is delivered to the Company.
Except to the extent the sale and remittance procedure is utilized in connection
with the exercise of the option, payment of the option price for the purchased
shares must accompany such notice.
(3) The fair market value per share of Common Stock shall be
determined in accordance with the following provisions:
- If the Common Stock is not at the time listed or
admitted to trading on any national stock exchange but is traded on the Nasdaq
National Market, the fair market value shall be the closing selling price per
share on the date in question, as such price is reported by the National
Association of Securities Dealers on the Nasdaq National Market or any successor
system. If there is no reported closing selling price for the Common Stock on
the date in question, then the closing selling price on the last preceding date
for which such quotation exists shall be determinative of fair market value.
- If the Common Stock is at the time listed or admitted
to trading on any national stock exchange, then the fair market value shall be
the closing selling price per share on the date in question on the exchange
determined by the Plan Administrator to be the primary market for the Common
Stock, as such price is officially quoted in the composite tape of transactions
on such exchange. If there is no reported sale of Common Stock on such exchange
on the date in question, then the fair market value shall be the closing selling
price on the exchange on the last preceding date for which such quotation
exists.
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B. Term and Exercise of Options. Each option granted under this
Discretionary Option Grant Program shall be exercisable at such time or times
and during such period as is determined by the Plan Administrator and set forth
in the instrument evidencing the grant. No such option, however, shall have a
maximum term in excess of ten (10) years from the grant date.
C. Limited Transferability of Options. During the lifetime of the
optionee, Incentive Options shall be exercisable only by the optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the optionee's death. However, non-statutory options
may, in connection with the optionee's estate plan, be assigned in whole or in
part during the optionee's lifetime to one or more members of the optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
D. Termination of Service.
(1) The following provisions shall govern the exercise period
applicable to any outstanding options held by the optionee at the time of
cessation of Service or death.
- Should an optionee cease Service for any reason
(including death or permanent disability as defined in Section 22(e)(3) of the
Internal Revenue Code) while holding one or more outstanding options under this
Article Two, then none of those options shall (except to the extent otherwise
provided pursuant to subparagraph D.(3) below) remain exercisable for more than
a thirty-six (36)-month period (or such shorter period determined by the Plan
Administrator and set forth in the instrument evidencing the grant) measured
from the date of such cessation of Service.
- Any option held by the optionee under this Article Two
and exercisable in whole or in part on the date of his/her death may be
subsequently exercised by the personal representative of the optionee's estate
or by the person or persons to whom the option is transferred pursuant to the
optionee's will or in accordance with the laws of descent and distribution. Any
exercise, however, must occur prior to the earlier of (i) the third anniversary
of the date of the optionee's death or (ii) the specified expiration date of the
option term. Upon the occurrence of the earlier event, the option shall
terminate and cease to be outstanding.
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- Under no circumstances, however, shall any such option
be exercisable after the specified expiration date of the option term.
- During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of shares
(if any) in which the optionee is vested at the time of his/her cessation of
Service. Upon the expiration of the limited post-Service exercise period or (if
earlier) upon the specified expiration date of the option term, each such option
shall terminate and cease to be outstanding with respect to any vested shares
for which the option has not otherwise been exercised. However, each outstanding
option shall immediately terminate and cease to be outstanding, at the time of
the optionee's cessation of Service, with respect to any shares for which the
option is not otherwise at that time exercisable or in which the optionee is not
otherwise vested.
- Should (i) the optionee's Service be terminated for
misconduct (including, but not limited to, any act of dishonesty, willful
misconduct, fraud or embezzlement) or (ii) the optionee make any unauthorized
use or disclosure of confidential information or trade secrets of the Company or
its parent or subsidiary corporations, then in any such event all outstanding
options held by the optionee under this Article Two shall terminate immediately
and cease to be outstanding.
(2) The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to permit one or more options held by the optionee
under this Article Two to be exercised, during the limited post-Service exercise
period applicable under subparagraph (1) above, not only with respect to the
number of vested shares of Common Stock for which each such option is
exercisable at the time of the optionee's cessation of Service but also with
respect to one or more subsequent installments in which the optionee would
otherwise have vested had he/she continued in Service.
(3) The Plan Administrator shall also have full power and
authority to extend the period of time for which the option is to remain
exercisable following the optionee's cessation of Service or death from the
limited period in effect under subparagraph (1) above to such greater period of
time as the Plan Administrator shall deem appropriate. In no event, however,
shall such option be exercisable after the specified expiration date of the
option term.
(4) For purposes of the foregoing provisions of this Section I.D
(and for all other purposes under the Discretionary Option Grant Program):
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- The optionee shall (except to the extent otherwise
specifically provided in the applicable stock option or stock purchase
agreement) be deemed to remain in the SERVICE of the Company for so long as such
individual renders services on a periodic basis to the Company (or any parent or
subsidiary corporation) in the capacity of an Employee, a non-employee member of
the Board or an independent consultant or advisor.
- The optionee shall be considered to be an EMPLOYEE for
so long as he or she remains in the employ of the Company or one or more parent
or subsidiary corporations, subject to the control and direction of the employer
entity not only as to the work to be performed but also as to the manner and
method of performance.
E. Stockholder Rights.
An optionee shall have no stockholder rights with respect to any
shares covered by the option until such individual shall have exercised the
option and paid the option price for the purchased shares.
F. Repurchase Rights.
The shares of Common Stock acquired upon the exercise of any
Article Two option grant may be subject to repurchase by the Company in
accordance with the following provisions:
(a) The Plan Administrator shall have the discretion to
authorize the issuance of unvested shares of Common Stock under this Article
Two. Should the optionee cease Service while holding such unvested shares, the
Company shall have the right to repurchase any or all of those unvested shares
at the option price paid per share. The terms and conditions upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall be
established by the Plan Administrator and set forth in the instrument evidencing
such repurchase right.
(b) All of the Company's outstanding repurchase rights under
this Article Two shall automatically terminate, and all shares subject to such
terminated rights shall immediately vest in full, upon the occurrence of any
Corporate Transaction under Section III of this Article Two, except to the
extent: (i) any such repurchase right is expressly assigned to the successor
corporation (or parent thereof) in connection with the Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
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(c) The Plan Administrator shall have the discretionary
authority, exercisable either before or after the optionee's cessation of
Service, to cancel the Company's outstanding repurchase rights with respect to
one or more shares purchased or purchasable by the optionee under this
Discretionary Option Grant Program and thereby accelerate the vesting of such
shares in whole or in part at any time.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only be
granted to individuals who are Employees of the Company. Options which are
specifically designated as "non-statutory" options when issued under the Plan
shall not be subject to such terms and conditions.
A. Dollar Limitation. The aggregate fair market value (determined as
of the respective date or dates of grant) of the Common Stock for which one or
more options granted to any Employee after December 31, 1986 under this Plan (or
any other option plan of the Company or its parent or subsidiary corporations)
may for the first time become exercisable as incentive stock options under the
Federal tax laws during any one calendar year shall not exceed the sum of One
Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or
more such options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability of such options as
incentive stock options under the Federal tax laws shall be applied on the basis
of the order in which such options are granted. Should the number of shares of
Common Stock for which any Incentive Option first becomes exercisable in any
calendar year exceed the applicable One Hundred Thousand Dollar ($100,000)
limitation, then that option may nevertheless be exercised in that calendar year
for the excess number of shares as a non-statutory option under the Federal tax
laws.
B. 10% Stockholder. If any individual to whom an Incentive Option is
granted is the owner of stock (as determined under Section 424(d) of the
Internal Revenue Code) possessing ten percent (10%) or more of the total
combined voting power of all classes of stock of the Company or any one of its
parent or subsidiary corporations, then the option price per share shall not be
less than one hundred and ten percent (110%) of the fair market value per share
of Common Stock on the grant date, and the option term shall not exceed five (5)
years, measured from the grant date.
Except as modified by the preceding provisions of this Section II, the
provisions of Articles One, Two and Four of the Plan shall apply to all
Incentive Options granted hereunder.
III. CORPORATE TRANSACTIONS/CHANGES IN CONTROL
A. In the event of any of the following stockholder-approved
transactions (a "Corporate Transaction") to which the Company is a party:
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(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in complete liquidation or
dissolution of the Company, or
(iii) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred to person or persons different from those who held such securities
immediately prior to such merger,
then each option which is at the time outstanding under this Article
Two shall automatically accelerate so that each such option shall, immediately
prior to the specified effective date for the Corporate Transaction, become
fully exercisable with respect to the total number of shares of Common Stock at
the time subject to such option and may be exercised for all or any portion of
such shares. However, an outstanding option under this Article Two shall not so
accelerate if and to the extent: (i) such option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation or
parent thereof or to be replaced with a comparable option to purchase shares of
the capital stock of the successor corporation or parent thereof, (ii) such
option is to be replaced with a cash incentive program of the successor
corporation which preserves the option spread existing at the time of the
Corporate Transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to such option, or (iii) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant. The determination of option comparability under
clause (i) above shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
B. Immediately following the consummation of the Corporate
Transaction, all outstanding options under this Article Two shall terminate and
cease to be outstanding, except to the extent assumed by the successor
corporation or its parent company.
C. Each outstanding option under this Article Two which is assumed
in connection with the Corporate Transaction or is otherwise to continue in
effect shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain to the number and class of securities which
would have been issued to the option holder, in consummation of such Corporate
Transaction, had such person exercised the option immediately prior to such
Corporate Transaction. Appropriate adjustments shall also be made to the option
price payable per share, provided the aggregate option price payable for such
securities shall remain the same. In addition, the class and number of
securities available for issuance under the Plan on both an aggregate and per
participant basis following the consummation of the Corporate Transaction shall
be appropriately adjusted.
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D. The grant of options under this Article Two shall in no way
affect the right of the Company to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
E. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the option is granted or at any time while the
option is outstanding, to provide for the automatic acceleration of one or more
outstanding options under this Article Two (and the termination of one or more
of the Company's outstanding repurchase rights under this Article Two) upon the
occurrence of the Change in Control. The Plan Administrator shall also have full
power and authority to condition any such option acceleration (and the
termination of any outstanding repurchase rights) upon the subsequent
termination of the optionee's Service within a specified period following the
Change in Control.
F. For purposes of this Section III, a Change in Control shall be
deemed to occur in the event:
(i) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled by, or
is under common control with, the Company) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities pursuant to a tender or exchange
offer made directly to the Company's stockholders; or
(ii) there is a change in the composition of the Board over a
period of twenty-four (24) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more proxy contests for the
election of Board members, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period by at
least a majority of the Board members described in clause (A) who were still in
office at the time such election or nomination was approved by the Board.
G. Any options accelerated in connection with the Change in Control
shall remain fully exercisable until the expiration or sooner termination of the
option term.
H. The exercisability as incentive stock options under the Federal
tax laws of any options accelerated under this Section III in connection with a
Corporate Transaction or Change in Control shall remain subject to the dollar
limitation of Section II of this Article Two.
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IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options under this Article Two (including
outstanding options under the 1990 Plan incorporated into this Plan) and to
grant in substitution new options under the Plan covering the same or different
numbers of shares of Common Stock but with an option price per share based on
the fair market value of the Common Stock on the date of the new grant.
V. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this Section
V, one or more optionees may be granted the right, exercisable upon such terms
and conditions as the Plan Administrator may establish, to surrender all or part
of an unexercised option under this Article Two in exchange for a distribution
from the Company in an amount equal to the excess of (i) the fair market value
(on the option surrender date) of the number of shares in which the optionee is
at the time vested under the surrendered option (or surrendered portion thereof)
over (ii) the aggregate option price payable for such vested shares.
B. No surrender of an option shall be effective hereunder unless it
is approved by the Plan Administrator. If the surrender is so approved, then the
distribution to which the optionee shall accordingly become entitled under this
Section V may be made in shares of Common Stock valued at fair market value on
the option surrender date, in cash, or partly in shares and partly in cash, as
the Plan Administrator shall in its sole discretion deem appropriate.
C. If the surrender of an option is rejected by the Plan
Administrator, then the optionee shall retain whatever rights the optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the later of
(i) five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised more than ten (10) years after the date of the option grant.
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<PAGE> 45
D. One or more officers of the Company subject to the short-swing
profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under the Plan. Upon the occurrence of a
Hostile Take-Over effected at any time when the Company's outstanding Common
Stock is registered under Section 12(g) of the 1934 Act, each outstanding option
with such a limited stock appreciation right shall automatically be cancelled,
to the extent such option is at the time exercisable for fully-vested shares of
Common Stock. The optionee shall in return be entitled to a cash distribution
from the Company in an amount equal to the excess of (i) the Take-Over Price of
the vested shares of Common Stock at the time subject to the cancelled option
(or cancelled portion of such option) over (ii) the aggregate exercise price
payable for such shares. The cash distribution shall be made within five (5)
days following the consummation of the Hostile Take-Over. The Plan Administrator
shall pre-approve, at the time the limited right is granted, the subsequent
exercise of that right in accordance with the terms of the grant and the
provisions of this Section V.D. No additional approval of the Plan Administrator
or the Board shall be required at the time of the actual option cancellation and
cash distribution. The balance of the option (if any) shall continue to remain
outstanding and become exercisable in accordance with the terms of the
instrument evidencing such grant.
E. For purposes of Section V.D, the following definitions shall be
in effect:
A Hostile Take-Over shall be deemed to occur in the event any
person or related group of persons (other than the Company or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Company) acquires directly or indirectly
beneficial ownership (within the meaning of Rule 13d-3 of the 1934
Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
stockholders which the Board does not recommend such stockholders to
accept.
The Take-Over Price per share shall be deemed to be equal to the
greater of (a) the fair market value per share of Common Stock on the
option cancellation date, as determined pursuant to the valuation
provisions of Section I.A.(3) of this Article Two, or (b) the highest
reported price per share of Common Stock paid in effecting such
Hostile Take-Over. However, if the cancelled option is an Incentive
Option, the Take-Over Price shall not exceed the clause (a) price per
share.
F. The shares of Common Stock subject to any option surrendered or
cancelled for an appreciation distribution pursuant to this Section V shall NOT
be available for subsequent option grant under the Plan.
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VI. LOANS OR INSTALLMENT PAYMENTS
The Plan Administrator may, in its discretion, assist any optionee
(including an optionee who is an officer or director of the Company) in the
exercise of one or more options granted to such optionee under this Article Two,
including the satisfaction of any Federal and State income and employment tax
obligations arising therefrom, by (i) authorizing the extension of a loan from
the Company to such optionee or (ii) permitting the optionee to pay the option
price for the purchased Common Stock in installments over a period of years. The
terms of any loan or installment method of payment (including the interest rate
and terms of repayment) will be upon such terms as the Plan Administrator
specifies in the applicable option agreement or otherwise deems appropriate
under the circumstances. Loans and installment payments may be granted with or
without security or collateral. However, the maximum credit available to the
optionee shall not exceed the sum of (i) the aggregate option price of the
purchased shares plus (ii) any Federal and State income and employment tax
liability incurred by the optionee in connection with the exercise of the
option.
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ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. ELIGIBILITY
The individuals eligible to receive automatic option grants pursuant
to the provisions of this Article Three program shall be limited to (i) those
individuals who are first elected or appointed as non-employee Board members on
or after the Effective Date of this Plan, whether through appointment by the
Board or election by the Company's stockholders, provided they have not
otherwise been in the prior employ of the Company (or any parent or subsidiary
corporation), and (ii) those individuals who are re-elected as non-employee
Board members at one or more Annual Stockholder Meetings held after the
Effective Date, whether or not such individuals are otherwise serving as
non-employee Board members on the Effective Date.
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Dates. Option grants shall be made under this Article Three
on the dates specified below. Stockholder approval of this February 14, 1997
restatement at the 1997 Annual Meeting shall constitute pre-approval of each
option granted under this Article Three on or after the date of that Annual
Meeting and the subsequent exercise of each such option in accordance with the
provisions of this Article Three.
(i) Each individual who first becomes a non-employee Board
member on or after the Effective Date of this Plan, whether through election by
the Company's stockholders or appointment by the Board shall automatically be
granted, at the time of such initial election or appointment, a non-statutory
stock option to purchase 20,000 shares of Common Stock upon the terms and
conditions of this Article Three, provided such individual has not otherwise
been in the prior employ of the Company or any parent or subsidiary corporation.
(ii) On the date of each Annual Stockholders Meeting held after
February 24, 1995, each individual who is to continue to serve as a non-employee
Board member and who has served in such capacity for at least six (6) months
shall automatically be granted, whether or not such individual is standing for
re-election as a Board member at that Annual Meeting, a non-statutory stock
option to purchase, upon the terms and conditions of this Article Three, that
number of shares of Common Stock determined by dividing $50,000 by the average
closing selling price per share of the Common Stock for the thirty (30) trading
days immediately preceding the date of such Annual Meeting. In no event,
however, shall the number of shares subject to such option be greater than 7,500
or less than 5,000. There shall be no limit on the number of such annual
automatic option grants any one non-employee Board member may receive over
his/her continued period of Board service.
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The number of shares subject to the automatic option grants to be
made to each newly-elected or continuing non-employee Board member shall be
subject to periodic adjustment pursuant to the applicable provisions of Section
V.D of Article One.
B. Exercise Price. The exercise price per share of each automatic
option grant made under this Article Three shall be equal to one hundred percent
(100%) of the fair market value per share of Common Stock on the automatic grant
date.
C. Payment.
The exercise price shall be payable in one of the alternative
forms specified below:
(i) full payment in cash or check made payable to the Company's
order; or
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Company's reported earnings
and valued at fair market value on the Exercise Date (as such term is defined
below); or
(iii) full payment in a combination of shares of Common Stock
held for the requisite period necessary to avoid a charge to the Company's
reported earnings and valued at fair market value on the Exercise Date and cash
or check payable to the Company's order; or
(iv) full payment through a sale and remittance procedure
pursuant to which the non-employee Board member (I) shall provide irrevocable
instructions to a Company-designated brokerage firm to effect the immediate sale
of the purchased shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares and shall (II) concurrently
provide directives to the Company to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale
transaction.
For purposes of this subparagraph C, the Exercise Date shall be
the date on which written notice of the option exercise is delivered to the
Company, and the fair market value per share of Common Stock on any relevant
date shall be determined in accordance with the provisions of Section I.A.(3) of
Article Two. Except to the extent the sale and remittance procedure specified
above is utilized for the exercise of the option, payment of the option price
for the purchased shares must accompany the exercise notice.
D. Option Term. Each automatic grant under this Article Three shall
have a maximum term of ten (10) years measured from the automatic grant date.
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E. Exercisability. Each automatic grant shall become exercisable for
the option shares in a series of twenty-four (24) equal and successive monthly
installments over the optionee's period of service on the Board, with the first
such installment to become exercisable one (1) month after the automatic grant
date. The option shall not become exercisable for any additional option shares
following the optionee's cessation of Board service for any reason.
F. Limited Transferability of Options. Options granted under the
Automatic Option Grant Program may, in connection with the optionee's estate
plan, be assigned in whole or in part during the optionee's lifetime to one or
more members of the optionee's immediate family or to a trust established
exclusively for one or more such family members. The assigned portion may only
be exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate.
G. Effect of Termination of Board Membership.
1. Should the optionee cease to serve as a Board member for any
reason (other than death) while holding one or more automatic option grants
under this Article Three, then such optionee shall have a six (6)-month period
following the date of such cessation of Board membership in which to exercise
each such option for any or all of the shares of Common Stock for which the
option is exercisable at the time of such cessation of Board service. Each such
option shall immediately terminate and cease to be outstanding, at the time of
such cessation of Board service, with respect to any shares for which the option
is not otherwise at that time exercisable.
2. Should the optionee die while serving as a member of the
Board or within six (6) months after cessation of Board service, then each
outstanding automatic option grant held by the optionee at the time of death may
subsequently be exercised, for any or all of the shares of Common Stock for
which the option is exercisable at the time of the optionee's cessation of Board
service (less any option shares subsequently purchased by the optionee prior to
death), by the personal representative of the optionee's estate or by the person
or persons to whom the option is transferred pursuant to the optionee's will or
in accordance with the laws of descent and distribution. Any such exercise must
occur within twelve (12) months after the date of the optionee's death. However,
each such automatic option grant shall immediately terminate and cease to be
outstanding, at the time of the optionee's cessation of Board service, with
respect to any option shares for which it was not otherwise exercisable at that
time.
3. In no event shall any automatic option grant under this
Article Three remain exercisable after the specified expiration date of the ten
(10)-year option term. Upon the expiration of the applicable post-service
exercise under subparagraph 1 or 2 above or (if earlier) upon the expiration of
the ten (10)-year option term, the automatic option grant shall terminate and
cease to be outstanding for any unexercised shares for which the option was
exercisable at the time of the optionee's cessation of Board service.
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H. Stockholder Rights. The holder of an automatic option grant under
this Article Three shall have none of the rights of a stockholder with respect
to any shares subject to such option until such individual shall have exercised
the option and paid the exercise price for the purchased shares.
I. Remaining Terms. The remaining terms and conditions of each
automatic option grant shall be as set forth in the prototype Non-statutory
Stock Option Agreement attached as Exhibit A to the Plan.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any of the following stockholder-approved
transactions to which the Company is a party (a "Corporate Transaction"):
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation,
(ii) the sale, transfer or disposition of all or substantially
all of the assets of the Company in liquidation or dissolution of the Company,
or
(iii) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred to person or persons different from those who held such securities
immediately prior to such merger,
the exercisability of each automatic option grant at the time
outstanding under this Article Three shall automatically accelerate so that each
such option shall, immediately prior to the specified effective date for the
Corporate Transaction, become fully exercisable with respect to the total number
of shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares. Immediately following the
consummation of the Corporate Transaction, all automatic option grants under
this Article Three shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation or its parent company.
B. In connection with any Change in Control of the Company, the
exercisability of each automatic option grant at the time outstanding under this
Article Three shall automatically accelerate so that each such option shall,
immediately prior to the specified effective date for the Change in Control,
become fully exercisable with respect to the total
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<PAGE> 51
number of shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares at any time prior to the
expiration or sooner termination of the option term. For purposes of this
Article Three, a Change in Control shall be deemed to occur in the event:
(i) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled by, or
is under common control with, the Company) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made directly to the Company's
stockholders; or
(ii) there is a change in the composition of the Board over a
period of twenty-four (24) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more proxy contests for the
election of Board members, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period by at
least a majority of the Board members described in clause (A) who were still in
office at the time such election or nomination was approved by the Board.
C. Upon the occurrence of a Hostile Take-Over, each option granted
under this Article Three shall automatically be cancelled, and the optionee
shall in return be entitled to a cash distribution from the Company in an amount
equal to the excess of (i) the Take-Over Price of the shares of Common Stock at
the time subject to the cancelled option (whether or not the option is otherwise
at the time exercisable for such shares) over (ii) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five (5)
days following the consummation of the Hostile Take-Over. Stockholder approval
of the February 14, 1997 restatement of the Plan at the 1997 Annual Meeting
shall constitute pre-approval of each option granted on or after the date of
that Annual Meeting with such an automatic cancellation provision and the
subsequent cancellation of that option in accordance with such provision. No
additional approval of the Plan Administrator or the Board shall be required at
the time of the actual option cancellation and cash distribution.
D. For purposes of this Section III, the following definitions shall
be in effect:
A HOSTILE TAKE-OVER shall be deemed to occur in the event any
person or related group of persons (other than the Company or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Company) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of securities possessing
more than fifty percent (50%) of the total combined voting
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power of the Company's outstanding securities pursuant to a tender or
exchange offer made directly to the Company's stockholders which the
Board does not recommend such stockholders to accept.
The TAKE-OVER PRICE per share shall be deemed to be equal to the
greater of (a) the fair market value per share of Common Stock on the
option cancellation date, as determined pursuant to the valuation
provisions of Section I.A.(3) of Article Two, or (b) the highest
reported price per share paid by the tender offeror in effecting such
Hostile Take-Over.
E. The shares of Common Stock subject to each option cancelled in
connection with the Hostile Take-Over shall NOT be available for subsequent
option grant under this Plan.
F. The automatic option grants outstanding under this Article Three
shall in no way affect the right of the Company to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
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<PAGE> 53
ARTICLE FOUR
MISCELLANEOUS
I. AMENDMENT OF THE PLAN AND AWARDS
The Board has complete and exclusive power and authority to amend or
modify the Plan (or any component thereof) in any or all respects whatsoever.
However, no such amendment or modification shall, without the consent of the
Company's stockholders, adversely affect rights and obligations with respect to
options at the time outstanding under the Plan. In addition, certain amendments
may require stockholder approval pursuant to applicable laws or regulations.
II. TAX WITHHOLDING
The Company's obligation to deliver shares or cash upon the exercise
of stock options or stock appreciation rights granted under the Plan shall be
subject to the satisfaction of all applicable Federal, State and local income
tax and employment tax withholding requirements.
The Plan Administrator may, in its discretion and in accordance with
the provisions of this Section II of Article Four and such supplemental rules as
the Plan Administrator may from time to time adopt (including the applicable
safe-harbor provisions of SEC Rule 16b-3), provide any or all holders of
non-statutory options under the Plan (other than the automatic grants made
pursuant to Article Three of the Plan) with the right to use shares of the
Company's Common Stock in satisfaction of all or part of the Federal, State and
local income tax and employment tax liabilities incurred by such holders in
connection with the exercise of their options (the "Taxes"). Such right may be
provided to any such option holder in either or both of the following formats:
1. Stock Withholding: The holder of the non-statutory option may be
provided with the election to have the Company withhold, from the shares of
Common Stock otherwise issuable upon the exercise of such non-statutory option,
a portion of such shares with an aggregate fair market value equal to the
percentage of the applicable Taxes (not to exceed one hundred percent (100%))
designated by the option holder.
2. Stock Delivery: The Plan Administrator may, in its discretion,
provide the holder of the non-statutory option with the election to deliver, at
the time the non-statutory option is exercised, one or more shares of Common
Stock already held by such individual with an aggregate fair market value equal
to the percentage of the Taxes incurred in connection with such option exercise
(not to exceed one hundred percent (100%)) designated by the option holder.
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<PAGE> 54
III. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan first became effective on the Effective Date and serves
as the successor to the Company's 1990 Stock Option Plan. No further option
grants shall be made under the 1990 Plan from and after the Effective Date.
B. On May 26, 1993, the Board amended the Plan to increase the
number of shares issuable thereunder by 1,000,000 shares. The 1,000,000-share
increase was approved by the Company's stockholders at the 1994 Annual
Stockholders Meeting. On March 28, 1994, the Board further amended the Plan to
impose a limitation on the maximum number of shares for which any one individual
participating in the Plan may be granted stock options and separately
exercisable stock appreciation rights.
C. On February 24, 1995, the Board amended the Plan to increase the
number of shares of Common Stock issuable thereunder by 545,000 shares. The
545,000-share increase was approved by the Company's stockholders at the 1995
Annual Stockholders Meeting.
D. On February 24, 1995, the Board further amended the Plan to
increase the number of shares of Common Stock for which automatic option grants
are to be made to continuing non-employee Board members on the date of each
Annual Stockholders Meeting held after February 24, 1995. The amendment was
approved by the Company's stockholders at the 1995 Annual Stockholders Meeting.
E. On August 21, 1995, the Board amended the Plan to extend the
eligibility provisions of the Discretionary Option Grant Program to all
non-employee Board members other than those at the time serving on the Committee
acting as the Plan Administrator. The amendment was approved by the Company's
stockholders at the 1996 Annual Stockholders Meeting.
F. In January 1996, the Board adopted an amendment to the Plan which
(i) increased the number of shares of Common Stock available for issuance under
the Plan by an additional 450,000 shares and (ii) increased the maximum number
of shares for which any one individual may be granted stock options and
separately exercisable stock appreciation rights over the remaining term of the
Plan by an additional 250,000 shares of Common Stock. The amendment was approved
by the Company's stockholders at the 1996 Annual Stockholders Meeting.
G. In February 1997, the Board adopted a series of amendments to the
Plan (the "1997 Amendments") which (i) increased the number of shares of Common
Stock available for issuance under the Plan by an additional 700,000 shares,
(ii) increased the limit on the maximum number of shares of the Company's common
stock for which any one individual may be granted stock options and separately
exercisable stock appreciation rights under the Plan from 500,000 shares to
750,000 shares, (iii) rendered the non-employee Board members who serve as Plan
Administrator eligible to receive option grants under the Discretionary Option
Grant
24
<PAGE> 55
Program, (iv) allowed unvested shares issued under the Plan and subsequently
repurchased by the Company at the option exercise price paid per share to be
reissued under the Plan, (v) removed certain restrictions on the eligibility of
non-employee Board members to serve as Plan Administrator, and (vi) effected a
series of additional changes to the provisions of the Plan (including the
stockholder approval requirements, the transferability of non-statutory stock
options and the elimination of the six (6)-month holding period requirement as a
condition to the exercise of stock appreciation rights) in order to take
advantage of the recent amendments to Rule 16b-3 of the Securities and Exchange
Commission which exempts certain officer and director transactions under the
Plan from the short-swing liability provisions of the federal securities laws.
The 1997 Amendments were approved by the stockholders at the 1997 Annual
Stockholders Meeting.
H. On January 29, 1998, the Board adopted an amendment to the Plan
which increased the number of shares of Common Stock available for issuance
under the Plan by an additional 500,000 shares. The amendment was approved by
the stockholders at the 1998 Annual Stockholders Meeting.
I. On September 18, 1998, the Board adopted an amendment to the Plan
which increased the number of shares of Common Stock available for issuance
under the Plan by an additional 2,000,000 shares. The amendment is subject to
stockholder approval at the Special Stockholders Meeting to be held in February
1999. If such stockholder approval is not obtained, then any options granted on
the basis of the 2,000,000-share increase will terminate without becoming
exercisable for any of the shares of Common Stock subject to those options, and
no further option grants or stock issuances will be made on the basis of such
share increase. However, the Plan will continue to remain in effect, and option
grants may continue to be made pursuant to the provisions of the Plan in effect
prior to this amendment, until the available reserve of Common Stock as last
approved by the stockholders has been issued.
J. Each option issued and outstanding under the 1990 Plan
immediately prior to the Effective Date shall be incorporated into this Plan and
treated as an outstanding option under this Plan, but each such option shall
continue to be governed solely by the terms and conditions of the instrument
evidencing such grant, and nothing in this Plan shall be deemed to affect or
otherwise modify the rights or obligations of the holders of such options with
respect to their acquisition of shares of Common Stock thereunder.
K. The sale and remittance procedure authorized for the exercise of
outstanding options under this Plan shall be available for all options granted
under this Plan on or after the Effective Date and for all non-statutory options
outstanding under the 1990 Plan and incorporated into this Plan. The Plan
Administrator may also allow such procedure to be utilized in connection with
one or more disqualifying dispositions of Incentive Option shares effected after
the Effective Date, whether such Incentive Options were granted under this Plan
or the 1990 Plan.
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<PAGE> 56
L. The option acceleration provisions of Section III of Article Two
relating to Corporate Transactions and Changes in Control may, in the Plan
Administrator's discretion, be extended to one or more stock options which are
outstanding under the 1990 Plan on the Effective Date of this Plan but which do
not otherwise provide for such acceleration.
M. The Plan shall terminate upon the earlier of (i) December 31,
2002 or (ii) the date on which all shares available for issuance under the Plan
shall have been issued or cancelled pursuant to the exercise, surrender or
cash-out of the options granted under the Plan. If the date of termination is
determined under clause (i) above, then all option grants outstanding on such
date shall thereafter continue to have force and effect in accordance with the
provisions of the instruments evidencing such grants.
N. Options to purchase shares of Common Stock may be granted under
the Plan which are in excess of the number of shares then available for issuance
under the Plan, provided each option granted is not to become exercisable, in
whole or in part, at any time prior to stockholder approval of an amendment
authorizing a sufficient increase in the number of shares available for issuance
under the Plan.
IV. USE OF PROCEEDS
Any cash proceeds received by the Company from the sale of shares
pursuant to options granted under the Plan shall be used for general corporate
purposes.
V. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option thereunder
and the issuance of stock upon the exercise or surrender of the option grants
made hereunder shall be subject to the Company's procurement of all approvals
and permits required by regulatory authorities having jurisdiction over the
Plan, the options granted under it, and the stock issued pursuant to it.
VI. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Company in establishing the Plan, nor any
action taken by the Plan Administrator hereunder, nor any provision of the Plan
shall be construed so as to grant any individual the right to remain in the
employ or service of the Company (or any parent or subsidiary corporation) for
any period of specific duration, and the Company (or any parent or subsidiary
corporation retaining the services of such individual) may terminate such
individual's employment or service at any time and for any reason, with or
without cause.
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<PAGE> 57
VIII. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets under the Plan
may not be assigned, encumbered or otherwise transferred by any optionee.
B. The provisions of the Plan relating to the vesting and
termination of outstanding options shall be governed by the laws of the State of
California, as such laws are applied to contracts entered into and performed in
such State.
C. The provisions of the Plan shall inure to the benefit of, and be
binding upon, the Company and its successors or assigns, whether by Corporate
Transaction or otherwise, and the optionees, the legal representatives of their
respective estates, their respective heirs or legatees and their permitted
assignees.
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EXHIBIT A
NON-STATUTORY STOCK OPTION AGREEMENT
AUTOMATIC OPTION GRANT PROGRAM
<PAGE> 59
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF SHAMAN PHARMACEUTICALS, INC.
a Delaware Corporation
SHAMAN PHARMACEUTICALS, INC., a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
1. The name of this corporation is Shaman Pharmaceuticals,
Inc. The original Certificate of Incorporation of the corporation was filed with
the Secretary of State of the State of Delaware on December 21, 1992.
2. The Amended and Restated Certificate of Incorporation has
been duly adopted by its Board of Directors and stockholders in accordance with
the provisions of SECTIONS 242 and 245 of the General Corporation Law of the
State of Delaware.
3. The text of the Restated Certificate of Incorporation is
hereby restated to read in its entirety as follows:
ARTICLE I
The name of this corporation is Shaman Pharmaceuticals, Inc.
ARTICLE II
The address of the registered office of the corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under General Corporation Law of Delaware.
ARTICLE IV
A. Classes of Stock. The corporation is authorized to issue two classes
of shares to be designated, respectively, Common Stock ("Common") and Preferred
Stock ("Preferred"). The total number of shares of Preferred the corporation
shall have authority to issue is 2,000,000 with
<PAGE> 60
a par value of $0.001 per share, and the total number of shares of Common the
corporation shall have authority to issue is 70,000,000 with a par value of
$0.001 per share.
B. Rights, Preferences and Restrictions of Preferred. The Preferred
authorized by this Amended and Restated Certificate of Incorporation may be
issued from time to time in series. The Board of Directors is hereby authorized
to fix or alter the rights, preferences, privileges and restrictions granted to
or imposed upon any authorized series of Preferred, and the number of shares
constituting any such series and the designation thereof, or of any of them.
Subject to compliance with applicable protective voting rights which may be
granted to the holders of the Preferred or series thereof in Certificates of
Designation or in the corporation's Certificate of Incorporation, as amended and
restated from time to time, and requirements and restrictions of applicable law
("Protective Provisions"), the rights, privileges, preferences and restrictions
of any such additional series may be subordinated to, pari passu with
(including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences, redemption and/or approval of matters
by vote or written consent), or senior to any of those of any present or future
class or series of Preferred or Common. Subject to compliance with applicable
Protective Provisions, the Board of Directors is also authorized to increase or
decrease the number of shares of any series, prior or subsequent to the issue of
that series, but not below the number of shares of such series then outstanding.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
The number of shares constituting the Series A Preferred
Stock, $0.001 par value per share, shall be Four Hundred Thousand (400,000)
shares. The number of shares constituting Series C Preferred Stock shall be Two
Hundred Thousand (200,000) shares, $0.001 par value per share. The number of
shares constituting the Series D Convertible Preferred Stock (the "Series D
Preferred Stock") shall be Six Thousand Two Hundred Eighty-five (6,285) shares,
$0.001 par value per share and shall not be subject to increase. The Corporation
shall not issue any shares of Series D Preferred Stock after the Issuance Date
(defined below), except that on or prior to May 31, 1999, the corporation may
issue up to 1,500 shares of Series D Preferred Stock to MMC/GATX in exchange for
indebtedness of the corporation to MMC/GATX on a basis of one share of Series D
Preferred Stock for each $1,000 of such indebtedness. The Board of Directors is
also authorized to decrease number of shares of any series of preferred stock
prior or subsequent to the issue of the Series A Preferred Stock but not below
the number of shares of such series then outstanding. In case the number os
hares of any series shall be so decreased, the shares constituting such decrease
shall resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
The rights, preferences, privileges, and restrictions granted
to and imposed on the Series A Preferred Stock, the Series C Preferred Stock,
and the Series D Preferred Stock are as set forth below in this Article IV(B).
1. Certain Defined Terms. The following terms shall have the
following meanings as used in this Article IV(B) (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
2
<PAGE> 61
"Adjustment Notice" means an Adjustment Notice substantially
in the form set forth in SECTION 14(f).
"Affiliate" means, with respect to any Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, the subject Person.
For purposes of the term "Affiliate," the term "control" (including the terms
"controlling," "controlled by" and "under common control with") means the
possession, direct or indirect, of the power to direct or to cause the direction
of the management and policies of a Person, whether through the ownership of
securities, by contract or otherwise.
"Aggregated Person" means, with respect to any holder of
shares of Series D Preferred Stock, any Person whose beneficial ownership of
shares of Common Stock would be aggregated with such holder's beneficial
ownership of shares of Common Stock for purposes of SECTION 13(d) of the 1934
Act and Regulation 13D-G thereunder.
"AMEX" means the American Stock Exchange, Inc.
"Arrearage Interest" means interest at the rate of 12% per
annum on any dividend on shares of Series D Preferred Stock which dividend is
not paid on a Dividend Payment Date, whether or not declared, from such Dividend
Payment Date.
"Auditors" means Ernst & Young LLP or such other firm of
independent public accountants of recognized national standing as shall have
been engaged by the corporation to audit its financial statements.
"Auditors' Determination" means a determination requested by
the corporation and signed by the Auditors concurring with the corporation's
conclusion that a requirement of the corporation to redeem, or a right of any
holder of shares of Series D Preferred Stock to require redemption of, shares of
Series D Preferred Stock by reason of the occurrence of a specified Optional
Redemption Event which occurs by reason of an event described in clause (1), (2)
or (3) of the definition of Optional Redemption Event would result in the
corporation being required to classify the Series D Preferred Stock as
redeemable preferred stock on a balance sheet of the Corporation in accordance
with Generally Accepted Accounting Principles. The Auditors' Determination shall
(i) set forth in reasonable detail all relevant facts considered by the Auditors
in connection therewith, (ii) set forth all applicable accounting principles and
assumptions used, and (iii) set forth in reasonable detail or attach copies of
all legal, expert and other advice or information used by the Auditors in
reaching their conclusion. To the extent any facts are assumed for purposes of
either the Corporation's conclusion or the Auditor's Determination, the validity
of such conclusion or determination shall depend upon such assumed facts being
true and complete in all material respects.
"Blackout Period" means the period of up to 20 consecutive
days after the date the Corporation notifies the holders of shares of Series D
Preferred Stock that they are required to suspend offers and sales of
Registrable Securities as a result of an event or circumstance described in
SECTION 3.b.(5)(A) of the Exchange Agreement, which period commences after the
date which is 90 days after the date of the Closing and during which period, by
reason of SECTION 3.b.(5)(B) of the Exchange Agreement, the Corporation is not
required to amend any
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<PAGE> 62
Registration Statement or to supplement the Prospectus relating to any
Registration Statement; provided, however, that such period may be up to 30
consecutive days if the Corporation so elects in accordance with SECTION
3.b.(5)(B) of the Exchange Agreement, subject to the limitations provided
therein.
"Board of Directors" or "Board" means the Board of Directors
of the Corporation.
"Business Combination Redemption Percentage" means 118% with
respect to a redemption of shares of Series D Preferred Stock in accordance with
SECTION 8(c)(ii)(f).
"Business Combination Redemption Price" means an amount in
cash equal to the product obtained by multiplying (A) the sum of (i) $1,000 plus
(ii) an amount equal to the accrued but unpaid dividends on the share of Series
D Preferred Stock to be redeemed and any Arrearage Interest on dividends thereon
in arrears to the date of payment of the redemption price pursuant to SECTION
8(c)(ii)(f) times (B) the Business Combination Redemption Percentage.
"Business Day" means (a) in the case of the Series C Preferred
Stock, any day other than a Saturday, Sunday or other day on which commercial
banks in The City of San Francisco are authorized or required by law to remain
closed and (b) in the case of the Series D Preferred Stock, any day other than a
Saturday, Sunday or other day on which commercial banks in The City of New York
are authorized or required by law to remain closed.
"Cash and Cash Equivalent Balances" of any Person on any date
shall be determined from such Person's books maintained in accordance with
Generally Accepted Accounting Principles, and means, without duplication, the
sum of (1) the cash accrued by such Person and its subsidiaries on a
consolidated basis on such date and available for use by such Person and its
subsidiaries on such date and (2) all assets which would, on a consolidated
balance sheet of such Person and its subsidiaries prepared as of such date in
accordance with Generally Accepted Accounting Principles, be classified as cash
or cash equivalents.
"Common Stock" means the Common Stock, $0.001 par value per
share, of the Corporation or any shares of capital stock into which such stock
shall be changed or reclassified after the Issuance Date.
"Control Notice" means a Control Notice substantially in the
form set forth in SECTION 14(e).
"Converted Restriction Amount" means on any date of
determination a number of shares of Common Stock equal to 4.9% of the shares of
Common Stock outstanding on such date.
"Corporation Notice" means a Corporation Notice substantially
in the form set forth in SECTION 14(c).
"Dividend Payment Date" means each February 1, May 1, August 1
and November 1.
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<PAGE> 63
"Exchange Agreement" means the Exchange Agreement, dated as of
December 10, 1998, by and between the Corporation and the several original
holders of the Senior Subordinated Convertible Notes pursuant to which such
Senior Subordinated Convertible Notes will be exchanged for shares of Series D
Preferred Stock.
"Generally Accepted Accounting Principles" for any Person
means the generally accepted accounting principles and practices applied by such
Person from time to time in the preparation of its audited financial statements.
"Holder Notice" means a Holder Notice substantially in the
form set forth in SECTION 14(d).
"Indebtedness" as used in reference to any Person means all
indebtedness of such Person for borrowed money, the deferred purchase price of
property, goods and services and obligations under leases which are required to
be capitalized in accordance with Generally Accepted Accounting Principles and
shall include all such indebtedness guaranteed in any manner by such Person or
in effect guaranteed by such Person through a contingent agreement to purchase
and all indebtedness for the payment or purchase of which such Person has
contingently agreed to advance or supply funds and all indebtedness secured by
mortgage or other lien upon property owned by such Person, although such Person
has not assumed or become liable for the payment of such indebtedness, and, for
all purposes hereof, such indebtedness shall be treated as though it has been
assumed by such Person.
"Issuance Date" means (a) with respect to the Series C
Preferred Stock, the first date of original issuance of any shares of Series C
Preferred Stock and (b) with respect to the Series D Preferred Stock, the date
of original issuance of the shares of Series D Preferred Stock pursuant to the
Exchange Agreement.
"Initial Reserve Amount" means 6,285,000 shares of Common
Stock reserved by the Corporation for issuance upon conversion of the shares of
Series D Preferred Stock.
"Junior Dividend Stock" means, collectively, the Series A
Preferred Stock, the Common Stock and any other class or series of capital stock
of the Corporation ranking junior as to dividends to the Series D Preferred
Stock.
"Junior Liquidation Stock" means, collectively, the Series A
Preferred Stock, the Common Stock and any other class or series of capital stock
of the Corporation ranking junior as to liquidation rights to the Series D
Preferred Stock.
"Majority Holders" means at any time the holders of shares of
Series D Preferred Stock which shares constitute a majority of the outstanding
shares of Series D Preferred Stock outstanding at such time.
"Market Price" of any security on any date means the closing
bid price of such security on such date on the Nasdaq or such other securities
exchange or other market on which such security is listed for trading which
constitutes the principal securities market for such security, as reported by
Bloomberg, L.P.
5
<PAGE> 64
"Measurement Period" means with respect to any Series D
Conversion Date, the period consisting of 12 consecutive Trading Days ending on
and including the Trading Day immediately preceding such Series D Conversion
Date.
"Nasdaq" means The Nasdaq National Market or The Nasdaq
SmallCap Market, whichever system lists the Common Stock.
"1934 Act" means the Securities Exchange Act of 1934, as
amended.
"1933 Act" means the Securities Act of 1933, as amended.
"NYSE" means the New York Stock Exchange, Inc.
"Optional Redemption Date" means the date which is three
Business Days after a holder of shares of Series D Preferred Stock who is
entitled to redemption rights under SECTION 7(c)(ii)(a) and 7(c)(ii)(b) gives a
Holder Notice.
"Optional Redemption Event" means any one of the following
events:
1) For any period of five consecutive Trading Days following
the Issuance Date there shall be no reported sale price of the Common Stock on
any of the Nasdaq, the NYSE or the AMEX;
2) The Common Stock ceases to be listed for trading on the
Nasdaq, the NYSE or the AMEX;
3) Any consolidation or merger of the Corporation or any
subsidiary of the Corporation with or into another entity or other business
combination transaction involving the Corporation or any subsidiary of the
Corporation (other than a merger or consolidation of a subsidiary of the
Corporation into the Corporation or a wholly-owned subsidiary of the
Corporation) where the stockholders of the Corporation immediately prior to such
transaction do not collectively own at least 51% of the outstanding voting
securities of the surviving corporation of such transaction immediately
following such transaction or the common stock of such surviving corporation is
not listed for trading on the Nasdaq, the NYSE or the AMEX; or the sale of all
or substantially all of the assets of the Corporation and its subsidiaries;
4) The adoption of any amendment to the Certificate of
Incorporation of the Corporation (other than any certificate designating a
series of preferred stock of the Corporation which does not contravene the
rights of the holders of shares of Series D Preferred Stock) which materially
and adversely affects the rights of the holders of shares of Series D Preferred
Stock in respect of their interest in the Common Stock in a different and more
adverse manner than it affects the rights of holders of Common Stock generally
or the taking of any other action which materially and adversely affects the
rights of the holders of Series D Preferred Stock;
5) The inability of any holder of shares of Series D Preferred
Stock for (x) (i) 20 days (whether or not consecutive) or (ii) if in accordance
with SECTION 3.b.(5)(B) of the Exchange Agreement the Corporation elects a
Blackout Period of up to 30 consecutive days which commences more than 90 days
after the Issuance Date, such greater number of days as
6
<PAGE> 65
shall equal the number of days the Blackout Period so elected is in effect (but
in no event more than 30 days), in either the case of such clause (i) or such
clause (ii) during the period commencing on the Issuance Date and ending on the
first anniversary of the Issuance Date or (y) 60 days (whether or not
consecutive) subsequent to August 29, 1997, to sell shares of Common Stock
issued or issuable upon conversion of shares of Series D Preferred Stock
pursuant to any Registration Statement (1) by reason of the requirements of the
1933 Act, the 1934 Act or any of the rules or regulations under either thereof
or (2) due to such Registration Statement containing any untrue statement of
material fact or omitting to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or any other failure
of such Registration Statement to comply with the rules and regulations of the
SEC; or
6) The Corporation shall fail or default in the timely
performance of any material obligation to a holder of shares of Series D
Preferred Stock under the terms of this Amended and Restated Certificate of
Incorporation or under the Exchange Agreement or any other agreement or document
entered into in connection with the issuance of shares of Series D Preferred
Stock, as such agreements and instruments may be amended from time to time.
"Optional Redemption Percentage" means 118%.
"Optional Redemption Price" means an amount in cash equal to
the product obtained by multiplying (a) the sum of (i) $1,000 plus (ii) an
amount equal to the accrued but unpaid dividends on the share of Series D
Preferred Stock to be redeemed and any Arrearage Interest on dividends thereon
in arrears to the applicable Optional Redemption Date times (b) the Optional
Redemption Percentage.
"Parity Dividend Stock" means any class or series or the
Corporation's capital stock ranking, as to dividends, on a parity with the
Series D Preferred Stock.
"Parity Liquidation Stock" means any class or series of the
Corporation's capital stock ranking, as to liquidation rights, on a parity with
the Series D Preferred Stock.
"Permitted Indebtedness" means (i) Indebtedness which is
outstanding and which would be reflected on a balance sheet of the Corporation
as of the Issuance Date prepared in accordance with Generally Accepted
Accounting Principles and (ii) Indebtedness incurred to finance (A) inventory or
(B) the lease or purchase of equipment (which Indebtedness shall be secured by
such equipment) used in the Corporation's business, the outstanding amount
thereof which does not exceed $10,000,000 during the first year after the
Issuance Date, $15,000,000 during the second year after the Issuance Date and
$30,000,000 during the third year after the Issuance Date.
"Person" means an individual, partnership, corporation,
limited liability company, trust, incorporated organization, unincorporated
association, joint stock company, government, governmental agency or political
subdivision.
"Redemption Date" means December 30, 1998.
"Redemption Notice" means a Redemption Notice substantially in
the form set forth in SECTION 14(b).
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"Redemption Price" means an amount in cash equal to the
product obtained by multiplying (i) the sum of (A) $1,000 plus (B) an amount
equal to the accrued but unpaid dividends on such share of Series D Preferred
Stock to be redeemed and any Arrearage Interest on dividends thereon in arrears
to the date of payment of the Redemption Price times (ii) 130%.
"Registrable Securities" means the shares of Common Stock
issuable upon conversion of shares of Series D Preferred Stock and the shares of
Common Stock issuable as dividends on the Series D Preferred Stock, and any
stock or other securities into which or for which the Common Stock may hereafter
be changed, converted or exchanged by the Corporation or its successor, as the
case may be, and any other securities issued to holders of such Common Stock (or
such shares into which or for which such shares are so changed, converted or
exchanged) upon any reclassification, share combination, share subdivision,
share dividend, merger, consolidation or similar transaction or event.
"Registration Statement" shall have the meaning provided in
the Exchange Agreement.
"SEC" means the United States Securities and Exchange
Commission.
"Senior Dividend Stock" means the Series C Preferred Stock of
the Corporation and any other class or series of capital stock of the
Corporation ranking senior as to dividends to the Series D Preferred Stock.
"Senior Liquidation Stock" means the Series C Preferred Stock
of the Corporation and any other class or series of capital stock of the
Corporation ranking senior as to liquidation rights to the Series D Preferred
Stock.
"Series C Conversion Agent" means Boston EquiServe Limited
Partnership, as Servicing Agent for BankBoston, N.A., or its duly appointed
successor who shall be serving as transfer agent and registrar for the Common
Stock and who shall have been authorized by the Corporation to act as conversion
agent for the Series C Preferred Stock.
"Series C Conversion Date" means (1) the date on which a
notice of conversion of Series C Preferred Stock is actually received by the
Series C Conversion Agent, whether by mail, courier, personal service, telephone
line facsimile transmission or other means, in case of a conversion of shares of
Series C Preferred Stock pursuant to SECTION 8(b)(i); or (2) the fourth
anniversary of the Issuance Date, in the case of a conversion of shares of
Series C Preferred Stock pursuant to SECTION 8(b)(ii).
"Series C Conversion Price" means an amount equal to 85% of
the average Closing Price of the Common Stock for the ten Trading Day period
ending three Trading Days prior to the Series C Conversion Date.
"Series D Conversion Agent" means BankBoston, N.A., or its
duly appointed successor, who shall serve as conversion agent for the Series D
Preferred Stock.
"Series D Conversion Date" means the date on which a Series D
Conversion Notice is actually received by the Series D Conversion Agent, whether
by mail, courier, personal
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service, telephone line facsimile transmission or other means, in case of a
conversion of shares of Series D Preferred Stock pursuant to SECTION 8(c)(i).
"Series D Conversion Notice" means a Notice of Conversion of
Series D Convertible Preferred Stock substantially in the form set forth in
SECTION 14(a).
"Series D Conversion Price" means the lesser of (a) $1.125 per
share (subject to equitable adjustments from time to time on terms reasonably
acceptable to the Majority Holders for (i) stock splits, (ii) stock dividends,
(iii) combinations, (iv) capital reorganizations, (v) issuance to all holders of
Common Stock of rights or warrants to purchase shares of Common Stock, (vi)
distribution by the Corporation to all holders of Common Stock of evidences of
indebtedness of the Corporation or cash (other than regular quarterly cash
dividends), (vii) Tender Offers by the Corporation or any Subsidiary for, or
other repurchases of shares of, Common Stock in one or more transactions which,
individually or in the aggregate, result in the purchase of more than 10% of the
Common Stock outstanding, and (viii) similar events relating to the Common
Stock, in each case which occur, or with respect to which "ex-" trading of the
Common Stock begins, on or after December 9, 1998, and on or before the
applicable Series D Conversion Date) and (b) on any Series D Conversion Date,
90% of the lowest per share Trading Price during the applicable Measurement
Period for such Series D Conversion Date in a trade in which neither the Holder
nor any of its Affiliates was the seller, subject to adjustment in the case of
such clause (a) and clause (b) in accordance with SECTION 7(c).
"Series D Preferred Stock" means the Series D Convertible
Preferred Stock of the Corporation.
"Stockholder Approval" shall have the meaning provided in the
Exchange Agreement.
"Tender Offer" means a tender offer or exchange offer.
"Trading Day" means a day on whichever of (x) the national
securities exchange, (y) Nasdaq or (z) such other securities market, which at
the time constitutes the principal securities market for the Common Stock is
open for general trading of securities.
"Trading Price" on any date means the lowest sale price
(regular way) for one share of the Common Stock on such date, on the first
applicable among the following: (a) the national securities exchange on which
the shares of Common Stock are listed which constitutes the principal securities
market for the Common Stock, (b) Nasdaq, or (c) such other securities market
which constitutes the principal securities market for the Common Stock, in any
such case as reported by Bloomberg, L.P. or if no such sale prices are so
reported, then the representative bid price of the Common Stock as quoted by a
broker or dealer which is a member firm of the NASD (in each such case subject
to equitable adjustment from time to time on terms reasonably acceptable to the
Majority Holders for (i) stock splits, (ii) stock dividends, (iii) combinations,
(iv) capital reorganizations, (v) issuance to all holders of Common Stock of
rights or warrants to purchase shares of Common Stock at a price per share less
than the Trading Price which would otherwise be applicable, (vi) the
distribution by the Corporation to all holders of Common Stock of evidences of
indebtedness of the Corporation or cash (other than regular quarterly cash
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dividends), (vii) Tender Offers by the Corporation or any subsidiary of the
Corporation or other repurchases of shares of Common Stock in one or more
transactions which, individually or in the aggregate, result in the purchase of
more than 10% of the Common Stock outstanding, and (viii) similar events
relating to the Common Stock, in each such case which occur on or after the
Issuance Date); provided, however, that if on any Trading Day there shall be no
reported sale price (regular way) of such security, the "Trading Price" on such
Trading Day shall be the lowest sale price (regular way) of such security on the
Trading Day next preceding such Trading Day on which a sale price (regular way)
for such security has been so reported.
2. Rank. The shares of Series C Preferred Stock shall rank
senior to the Series D Preferred Stock, and both the Series C Preferred Stock
and the Series D Preferred Stock shall rank senior to the Series A Preferred
Stock and the Common Stock and any shares of any other series of Preferred Stock
or any shares of any other class of preferred stock of the Corporation, now or
hereafter issued, as to payment of dividends and distribution of assets upon
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary. However, the relative rank of the Series D Preferred Stock to
future issuances may be altered by written consent of the Majority Holders in
advance of such issuance.
3. Dividend Rights.
a. Series A Preferred Stock. Subject to the rights of
series of Preferred Stock which may from time to time come into existence, the
holders of the Series A Preferred Stock shall be entitled to receive, when and
as declared by the Board of Directors, out of any assets of the corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors. The Board of Directors shall not pay any dividend to
the holders of the Common Stock unless and until it has paid an equivalent
dividend, on a pro rata per share basis, to the holders of the Series A
Preferred Stock.
b. Series C Preferred Stock. The holders of shares of
Series C Preferred Stock shall be entitled to receive, when, as, and if declared
by the Board of Directors out of funds legally available for such purpose,
dividends paid semi-annually on May 31 and November 30 of each year to the
holders of record of such shares on March 31 and September 30 of such year as
follows: (i) a stock-on-stock dividend of $10.00 per annum, paid in arrears, in
shares of Common Stock (valued at 85% of the average closing price of the Common
Stock for the ten Trading Day period ending three Trading Days prior to the date
on which the dividend is paid); plus (ii) a cash amount equaling 0.00005% of the
Company's United States net sales, if any, for the preceding two calendar
quarters of its SP-303/Provir product for the treatment of diarrhea less $5.00
(the value of the semi-annual stock dividend). Dividends on the shares of Series
C Preferred Stock shall be cumulative. If under Delaware law, the Company is
unable to pay the cash amount of the dividends, then this portion of the
dividends shall be payable in shares of Common Stock (valued at 85% of the
average closing price of the Common Stock for the ten Trading Day period ending
three Trading Days prior to the date on which the dividend is paid).
c. Series D Preferred Stock
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(i) The holders of shares of Series D Preferred Stock shall be
entitled to receive, when, as, and if declared by the Board of Directors out of
funds legally available for such purpose, dividends at the rate of $55 per annum
per share, and no more (except as otherwise provided herein), which shall be
fully cumulative, shall accrue without interest (except as otherwise provided
herein as to dividends in arrears) from the date of original issuance of each
share of Series D Preferred Stock and shall be payable quarterly on each
Dividend Payment Date of each year commencing February 1, 1999 (except that if
any such date is not a Business Day, then such dividend shall be payable on the
next succeeding day that is a Business Day) to holders of record as they appear
on the stock books of the Corporation on such record dates, not more than ten
nor less than five days preceding the payment dates for such dividends, as shall
be fixed by the Board. Notwithstanding any other provision hereof, the rate of
dividends on the shares of Series D Preferred Stock shall be subject to increase
in accordance with SECTION 7(c)(ii)(b)(iv).
Dividends on the Series D Preferred Stock shall be paid in
cash or, subject to the limitations in SECTION 3(c)(ii), shares of Common Stock
or any combination of cash and shares of Common Stock, at the option of the
Corporation as hereinafter provided. The amount of the dividends payable per
share of Series D Preferred Stock for each quarterly dividend period shall be
computed by dividing the annual dividend amount by four. The amount of dividends
payable for the initial dividend period and any period shorter than a full
quarterly dividend period shall be computed on the basis of a 360-day year of
twelve 30-day months. Dividends not paid on a Dividend Payment Date, whether or
not such dividends have been declared, will bear Arrearage Interest until paid.
No dividends or other distributions, other than dividends payable solely in
shares of any Junior Dividend Stock, shall be paid or set apart for payment on
any shares of Junior Dividend Stock, and no purchase, redemption, or other
acquisition shall be made by the Corporation of any shares of Junior Dividend
Stock unless and until all accrued and unpaid dividends on the Series D
Preferred Stock and Arrearage Interest on dividends in arrears at the rate
specified herein shall have been paid or declared and set apart for payment.
If at any time any dividend on any Senior Dividend Stock shall
be in default, in whole or in part, no dividend shall be paid or declared and
set apart for payment on the Series D Preferred Stock unless and until all
accrued and unpaid dividends with respect to the Senior Dividend Stock,
including the full dividends for the then current dividend period, shall have
been paid or declared and set apart for payment, without interest. No full
dividends shall be paid or declared and set apart for payment on any Parity
Dividend Stock for any period unless all accrued but unpaid dividends (and
Arrearage Interest on dividends in arrears) have been, or contemporaneously are,
paid or declared and set apart for such payment on the Series D Preferred Stock.
No full dividends shall be paid or declared and set apart for payment on the
Series D Preferred Stock for any period unless all accrued but unpaid dividends
have been, or contemporaneously are, paid or declared and set apart for payment
on the Parity Dividend Stock for all dividend periods terminating on or prior to
the date of payment of such full dividends. When dividends are not paid in full
upon the Series D Preferred Stock and the Parity Dividend Stock, all dividends
paid or declared and set apart for payment upon shares of Series D Preferred
Stock (and Arrearage Interest on dividends in arrears) and the Parity Dividend
Stock shall be paid or declared and set apart for payment pro rata, so that the
amount of dividends paid or declared and set apart for payment per share on the
Series D Preferred Stock and the Parity Dividend Stock shall in all cases bear
to each other the same ratio that accrued and unpaid
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dividends per share on the shares of Series D Preferred Stock and the Parity
Dividend Stock bear to each other.
Any references to "distribution" contained in this SECTION
3(c) shall not be deemed to include any stock dividend or distributions made in
connection with any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary.
(ii) If the Corporation elects in the exercise of its sole
discretion to issue shares of Common Stock in payment of dividends on the Series
D Preferred Stock with respect to any Dividend Payment Date, the Corporation
shall (1) give notice to the holders of the Series D Preferred Stock at least 14
days prior to the applicable Dividend Payment Date of the Corporation's election
to exercise such right and (2) deliver, or cause to be delivered, by the third
Trading Day after such Dividend Payment Date to each holder of such shares the
number of whole shares of Common Stock arrived at by dividing the per share
Series D Conversion Price (determined as if the applicable Dividend Payment Date
were a Series D Conversion Date) of such shares of Common Stock into the total
amount of cash dividends such holder would be entitled to receive if the
aggregate dividends on the Series D Preferred Stock held by such holder which
are being paid in shares of Common Stock were being paid in cash; provided,
however, that if shares of Common Stock for such dividend are not delivered to
holders of Series D Preferred Stock on or prior to the third Trading Day after a
Dividend Payment Date, then the Corporation shall not be entitled to pay such
dividend in shares of Common Stock and such dividend, together with Arrearage
Interest from the applicable Dividend Payment Date, shall be payable solely in
cash. No fractional shares of Common Stock shall be issued in payment of
dividends. In lieu thereof, the Corporation shall pay cash in an amount equal to
the product of (x) the Trading Price of the Common Stock for the 12 consecutive
Trading Days ending on and including the Trading Day immediately preceding such
Dividend Payment Date times (y) the fraction of a share of Common Stock which
would otherwise be issuable by the Corporation. The Corporation shall not
exercise its right to issue shares of Common Stock in payment of dividends on
Series D Preferred Stock if:
(A) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, together with the number
of shares of Common Stock held in the Corporation's treasury, is insufficient to
pay the portion of such dividends to be paid in shares of Common Stock;
(B) the issuance or delivery of shares of Common Stock
as a dividend payment would require registration with or approval of any
governmental authority under any law or regulation, and such registration or
approval has not been effected or obtained;
(C) the shares of Common Stock to be issued as a
dividend payment have not been authorized for listing, upon official notice of
issuance, on any securities exchange or market on which the Common Stock is then
listed; or have not been approved for quotation if the Common Stock is traded in
the over-the-counter market;
(D) the Series D Conversion Price (determined as if the
applicable Dividend Payment Date were a Series D Conversion Date) is less than
the par value of one share of Common Stock;
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(E) the shares of Common Stock to be issued as a dividend
(1) cannot be sold or transferred without restriction by holders of shares of
Series D Preferred Stock who receive such shares of Common Stock as a dividend
payment and who are not Affiliates of the Corporation or (2) are no longer
listed on the NYSE, the AMEX or the Nasdaq;
(F) the issuance of shares of Common Stock in payment of
dividends on Series D Preferred Stock held by any holder of shares of Series D
Preferred Stock would result in such holder (including all Aggregated Persons of
such holder) beneficially owning more than 4.9% of the Common Stock, determined
as provided in the proviso to the second sentence of SECTION 8(c)(i)(a) or would
result in the issuance to such holder (including all Aggregated Persons of such
holder) of an aggregate number of shares of Common Stock upon conversion of
shares of Series D Preferred Stock or in payment of dividends on shares of
Series D Preferred Stock in excess of the 4.9% limitation provided in SECTION
8(c)(i)(b);
(G) an Optional Redemption Event shall have occurred and on
the applicable Dividend Payment Date any holder of shares of Series D Preferred
Stock shall be entitled to exercise optional redemption rights under SECTION
7(c)(ii) hereof by reason of such Optional Redemption Event or shall have
exercised such optional redemption rights and the Corporation shall not have
paid the applicable Optional Redemption Price.
Shares of Common Stock issued in payment of dividends on Series D
Preferred Stock pursuant to this SECTION shall be, and for all purposes shall be
deemed to be, validly issued, fully paid and nonassessable shares of Common
Stock of the Corporation; the issuance and delivery thereof is hereby
authorized; and the dispatch in full thereof will be, and for all purposes shall
be deemed to be, payment in full of the cumulative dividends to which holders
are entitled on the applicable Dividend Payment Date.
(iii) Neither the Corporation nor any subsidiary of the
Corporation shall (1) make any Tender Offer for outstanding shares of Common
Stock, unless the Corporation contemporaneously therewith makes an offer, or (2)
enter into an agreement regarding a Tender Offer for outstanding shares of
Common Stock by any Person other than the Corporation or any subsidiary of the
Corporation, unless such Person agrees with the Corporation to make an offer, in
either such case to each holder of outstanding shares of Series D Preferred
Stock to purchase for cash at the time of purchase in such Tender Offer the same
percentage of shares of Series D Preferred Stock held by such holder as the
percentage of outstanding shares of Common Stock offered to be purchased in such
Tender Offer at a price per share of Series D Preferred Stock equal to the
greater of (i) the quotient obtained by dividing (a) the sum of (1) $1,000 plus
(2) an amount equal to the accrued but unpaid dividends on such share of Series
D Preferred Stock and any Arrearage Interest on dividends thereon in arrears to
the date of purchase pursuant to this SECTION 3(c)(iii) by (b) 0.9 and (ii) an
amount equal to the product obtained by multiplying (x) the number of shares of
Common Stock which would, but for the purchase pursuant to such Tender Offer, be
issuable on conversion in accordance with SECTION 9(a) of one share of Series D
Preferred Stock if a Series D Conversion Notice were given by the holder of such
share of Series D Preferred Stock on the date of purchase pursuant to such
Tender Offer (determined without regard to any limitation on beneficial
ownership
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contained in the second sentence of SECTION 8(c)(i)(a) or in SECTION 8(c)(i)(b)
times (y) the price per share of Common Stock offered in such Tender Offer.
4. Series D Preferred Stock Capital. The amount to be
represented in the capital account for the Series D Preferred Stock at all times
for each outstanding share of Series D Preferred Stock shall be an amount at
least equal to the sum of (1) $1,000 plus (2) to the extent that the corporation
has surplus in its capital account, an amount equal to the accrued but unpaid
dividends on such share of Series D Preferred Stock and any Arrearage Interest
on dividends thereon in arrears to the date of determination plus (3) to the
extent that the corporation has surplus in its capital account, an amount equal
to the product obtained by multiplying (a) the sum of (1) $1,000 plus (2) an
amount equal to the accrued but unpaid dividends on such share of Series D
Preferred Stock and any Arrearage Interest on dividends thereon in arrears to
the date of determination times (b) 18%. Upon original issuance of each share of
Series D Preferred Stock, an amount equal to $1,000 shall be credited to the
Series D Preferred Stock capital account of the corporation and, to the extent
at such time the corporation has surplus in its capital account, an amount equal
to the amount specified in the preceding clause (3) (or so much thereof as is in
surplus) shall be transferred from surplus to the Series D Preferred Stock
capital account. If at any time the corporation shall have credited to the
Series D Preferred Stock capital account less than the full amount required by
the preceding clauses (1) through (3), then (x) if at any time thereafter the
corporation has surplus in its capital account, the corporation immediately
shall transfer surplus to the Series D Preferred Stock capital account to the
extent available and necessary to satisfy the requirements of the preceding
clauses (1) through (3), (y) notwithstanding the particular shares of Series D
Preferred Stock in respect of which an amount in excess of $1,000 per share of
Series D Preferred Stock shall have been transferred to the Series D Preferred
Stock capital account, any amount in excess of $1,000 for each outstanding share
of Series D Preferred Stock shall be treated as Series D Preferred Stock capital
pro rata for all outstanding shares of Series D Preferred Stock and (z) upon any
conversion of a share of Series D Preferred Stock, an amount equal to $0.001 per
share of common stock issued upon such conversion shall be credited to the
common stock capital account and the balance in the Series D Preferred Stock
capital account in respect of such converted share of Series D Preferred Stock
shall be retained in the Series D Preferred Stock capital account, to the extent
required under the preceding clauses (1) through (3). Nothing in this SECTION
shall require the corporation in a balance sheet prepared in accordance with
generally accepted accounting principles to reflect more than $1,000 per share
in Series D Preferred Stock capital for purposes of such balance sheet, if such
presentation would not be in accordance with generally accepted accounting
principles, so long as the notes to any such balance sheet make adequate
disclosure of the requirements of this SECTION and the capital accounts of the
corporation for purposes of the general corporation law of the state of
Delaware.
5. Liquidation Preference.
a. In the event of a liquidation, dissolution, or winding
up of the Corporation, whether voluntary or involuntary, the holders of Series C
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution to the holders of the Series D Preferred Stock, the Series A
Preferred Stock, and the Common Stock, out of the assets of the Corporation,
whether such assets constitute stated capital or surplus of any nature, an
amount per share of Series C Preferred Stock equal to $100.00 plus any accrued
and unpaid dividends and no
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more. In the event that the assets of the Corporation are insufficient to make
the foregoing distribution, then the entire assets of the Corporation available
for distribution shall be distributed ratably among the holders of the Series C
Preferred Stock and any stock on parity with the Series C Preferred Stock with
respect to liquidation rights in proportion to the respective preferential
amounts to which each is entitled (but only to the extent of such preferential
amounts). After payment in full of the liquidation price of the shares of the
Series C Preferred Stock with respect to liquidation rights, the holders of such
shares shall not be entitled to any further participation in any distribution of
the assets by the Corporation.
b. Upon the completion of the distribution required by
SECTION 5(a) above, if any assets remain in the Corporation, the holders of
Series D Preferred Stock shall be entitled to receive out of such remaining
assets of the Corporation, whether such assets constitute stated capital or
surplus of any nature, an amount per share of Series D Preferred Stock equal to
the Liquidation Preference (as defined above) and no more, before any payment
shall be made or any assets distributed to the holders of Junior Liquidation
Stock, provided however, that such rights shall accrue to the holders of Series
D Preferred Stock only in the event that the Corporation's payments with respect
to the liquidation preference of the holders of Senior Liquidation are fully
met. After the liquidation preferences of the Senior Liquidation Stock are fully
met, the entire assets of the Corporation available for distribution shall be
distributed ratably among the holders of the Series D Preferred Stock and any
Parity Liquidation Stock in proportion to the respective preferential amounts to
which each is entitled (but only to the extent of such preferential amounts).
After payment in full of the liquidation price of the shares of the Series D
Preferred Stock and the Parity Liquidation Stock, the holders of such shares
shall not be entitled to any further participation in any distribution of assets
by the Corporation. In the event that the assets of the Corporation are
insufficient to make the foregoing distribution, then the entire assets of the
Corporation available for distribution shall be distributed ratably among the
holders of the Series D Preferred Stock and any stock on parity with the Series
D Preferred Stock with respect to liquidation rights in proportion to the
respective preferential amounts to which each is entitled (but only to the
extent of such preferential amounts). With respect to the Series D Preferred
Stock, neither a consolidation or merger of the Corporation with another
corporation nor a sale or transfer of all or part of the Corporation's assets
for cash, securities, or other property in and of itself will be considered a
liquidation, dissolution, or winding up of the Corporation.
c. After payment in full of the liquidation price as set
forth above in SECTIONS 5(a) and 5(b) above, if assets remain in the
corporation, the holders of Series A Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of the Common Stock by reason of
their ownership thereof, the amount of $8.147 (the "Original Issue Price") per
share (as adjusted for any stock dividends, combinations or splits with respect
to such shares) plus all accrued or declared but unpaid dividends on such share
for each share of Series A Preferred Stock then held by such holder. If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series A Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amount, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series A Preferred Stock
in proportion to the preferential amount each such holder is otherwise entitled
to receive.
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d. After payment to the holders of the Series C Preferred
Stock, Series D Preferred Stock, and Series A Preferred Stock of the amounts set
forth in SECTIONS 5(a), (b), and (c), respectively, above, the entire remaining
assets and funds of the Corporation legally available for distribution, if any,
shall be distributed among the holders of the Common Stock and the Series A
Preferred Stock in proportion to the shares of Common Stock then held by them
and the shares of Common Stock which they then have the right to acquire upon
conversion of the shares of Series A Preferred Stock then held by them. The
holders of Series C Preferred Stock and Series D Preferred Stock shall not be
entitled to any further participation in any distribution of assets by the
Corporation, other than payment as set forth in SECTION 5(a) and 5(b),
respectively.
e. With respect to the Series A Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock (except as limited with respect to
Series D Preferred Stock as set forth in SECTION 5(b) above), (i) any
acquisition of the Corporation by means of merger or other form of corporate
reorganization in which outstanding shares of the Corporation are exchanged for
securities or other consideration issued, or caused to be issued, by the
acquiring corporation or its subsidiary (other than a mere reincorporation
transaction) or (ii) a sale of all or substantially all of the assets of the
Corporation or (iii) any other transaction or series of related transactions by
the Corporation in which in excess of 50% of the Corporation's voting power is
transferred, shall be treated as a liquidation, dissolution or winding up of the
Corporation and shall entitle the holders of Series C Preferred Stock and Series
A Preferred Stock to receive at the closing thereof the amount as specified in
SECTION 5(a) and SECTION 5(c), respectively.
f. With respect to the holders of Series A Preferred Stock
and Series C Preferred Stock, whenever the distribution provided for the holders
of the Series A Preferred Stock in this SECTION 5 shall be payable in securities
or property other than cash, the value of such distribution shall be as follows:
(i) Securities not subject to investment letter or
other similar restrictions on free marketability:
(A) If traded on a securities exchange, the value
shall be deemed to be the average of the closing prices of the securities on
such exchange over the 30-day period ending three (3) days prior to the closing;
(B) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
are applicable) over the 30-day period ending three (3) days prior to the
closing; and
(C) If there is no active public market, the value
shall be the fair market value thereof, as determined in good faith by the Board
of Directors of the Corporation.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount
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from the market value determined as above in (i) (A), (B) or (C) to reflect the
approximate fair market value thereof, as determined in good faith by the Board
of Directors of the Corporation.
(iii) In the event of any bona-fide dispute between the
Corporation and one or more holders of the Series A Preferred Stock as to any
fair market value determination under clauses (i)(C) or (ii) above, such dispute
shall be resolved through binding arbitration under the rules of the American
Arbitration Association, with the arbitration panel consisting of persons
familiar with the valuation of public and private entities and such panel being
advised, as to such valuation issues, by an investment bank of nationally
recognized standing, the costs thereof to be borne by the non-prevailing party.
6. No Sinking Fund. The shares of Series D Preferred Stock
shall not be entitled to the benefits of any sinking fund for the redemption or
repurchase of shares of Series D Preferred Stock.
7. Redemption.
(a) Series A Preferred Stock. The Series A Preferred Stock
is not redeemable.
(b) Series C Preferred Stock. The Series C Preferred Stock
is not redeemable.
(c) Series D Preferred Stock. The Series D Preferred Stock
is subject to the following redemption provisions:
(i) Redemption at Option of Corporation.
(A) Optional Redemption.
(1) So long as (x) the Corporation shall be in
compliance in all material respects with its obligations to the holders of the
Series D Preferred Stock (including, without limitation, its obligations under
the Exchange Agreement and this Amended and Restated Certificate of
Incorporation) and (y) on the date the Corporation gives the Redemption Notice
and on the Redemption Date, the Corporation has Cash and Cash Equivalent
Balances (excluding investment securities) which are sufficient, after taking
into account the Corporation's cash requirements during the period from the date
the Redemption Notice is given to the Redemption Date, to pay the Redemption
Price of the shares of Series D Preferred Stock to be redeemed, the Corporation
shall have the right to redeem all or any part of the outstanding shares of
Series D Preferred Stock pursuant to this SECTION 7(c)(i)(A) at the Redemption
Price. In order to exercise its right of redemption under this SECTION
7(c)(i)(A), the Corporation shall give a Redemption Notice to the holders of
shares of Series D Preferred Stock not less than 20 or more than 30 days prior
to the Redemption Date.
(2) On the Redemption Date (or such later date
as a holder of shares of Series D Preferred Stock shall surrender to the
Corporation the certificate(s) for the shares of Series D Preferred Stock
redeemed), the Corporation shall pay to or upon the order of each holder of
shares of Series D Preferred Stock by wire transfer of
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immediately available funds to such account as shall be specified for such
purpose by such holder in an amount equal to the Redemption Price of all of such
holder's shares of Series D Preferred Stock to be redeemed. A holder of shares
of Series D Preferred Stock which are redeemed pursuant to this SECTION
7(c)(i)(A) shall not be entitled to payment of the Redemption Price of such
shares of Series D Preferred Stock until such holder shall have surrendered the
certificate(s) for such shares of Series D Preferred Stock to the Corporation
or, in the case of the loss, theft or destruction of any such certificate, given
indemnity in accordance with SECTION 13. If the Corporation shall fail to pay
the Redemption Price of any shares of Series D Preferred Stock in full when due,
then the amount thereof shall bear interest to the extent not prohibited by
applicable law at the rate of 12% per annum from the due date thereof until paid
in full.
(3) Notwithstanding the giving of a Redemption
Notice, each holder of shares of Series D Preferred Stock shall be entitled to
convert in accordance with SECTION 8(c) any shares of Series D Preferred Stock
which are to be redeemed at any time prior to (1) the Redemption Date or (2) if
the Corporation fails to pay the Redemption Price in full to such holder on the
Redemption Date, the date on which the Corporation pays the Redemption Price in
full to such holder for all shares of Series D Preferred Stock to be redeemed
from such holder.
(4) Any redemption of shares of Series D
Preferred Stock pursuant to this SECTION 7(c)(i)(A) shall be made as nearly as
practical pro rata from all holders of shares of Series D Preferred Stock
outstanding, subject to reduction of the shares of Series D Preferred Stock to
be redeemed from any holder by reason of conversions of shares of Series D
Preferred Stock of such holder between the date the Redemption Notice is given
and the Redemption Date.
(5) Upon receipt by the Corporation from a
holder of shares of Series D Preferred Stock of certificates for shares of
Series D Preferred Stock evidencing a greater number of shares of Series D
Preferred Stock than the number of shares of Series D Preferred Stock to be
redeemed in accordance with this SECTION 7(c)(i)(A), the Corporation shall,
within three Trading Days after such surrender, issue and deliver to or upon the
order of such holder a new certificate for the balance of shares of Series D
Preferred Stock, if any.
(B) No Other Redemption at the Option of the
Corporation. Except as otherwise specifically provided in SECTION 7(a), the
Corporation shall not have any right to redeem any shares of Series D Preferred
Stock at the option of the Corporation.
(ii) Redemption Upon an Optional Redemption Event.
(a) Redemption Right Upon Optional Redemption
Event. If an Optional Redemption Event occurs, then each holder of shares of
Series D Preferred Stock shall have the right, at such holder's option, to
require the Corporation to redeem all of such holder's shares of Series D
Preferred Stock, or any portion thereof, on the date that is three Business Days
after the date of the Holder Notice given with respect to such Optional
Redemption Event. Each holder of shares of Series D Preferred Stock shall have
the right to require the Corporation to redeem all or any such portion of such
holder's shares of Series D
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Preferred Stock if an Optional Redemption Event occurs at any time while any of
such holder's shares of Series D Preferred Stock are outstanding at a price per
share of Series D Preferred Stock equal to the Optional Redemption Price.
(b) Notices; Method of Exercising Optional
Redemption Rights, Etc.
(i) On or before the fifth Business Day
after the occurrence of an Optional Redemption Event, the Corporation shall give
to each holder of outstanding shares of Series D Preferred Stock a Corporation
Notice of the occurrence of such Optional Redemption Event and of the redemption
right set forth herein arising as a result thereof. The Corporation Notice shall
set forth:
(A) the date by which the optional
redemption right must be exercised, which date shall be at least 30 days after
the date such Corporation Notice is given, and
(B) a description of the procedure (set
forth below) which each such holder must follow to exercise such holder's
optional redemption right.
No failure of the Corporation to give a
Corporation Notice or defect therein shall limit the right of any holder of
shares of Series D Preferred Stock to exercise the optional redemption right or
affect the validity of the proceedings for the redemption of such holder's
shares of Series D Preferred Stock.
(ii) To exercise its optional redemption
right, each holder of outstanding shares of Series D Preferred Stock shall
deliver to the Corporation on or before the thirtieth day after a Corporation
Notice is given to such holder (or if no Corporation Notice has been given to
such holder, within forty days after such holder first learns of the Optional
Redemption Event) a Holder Notice to the Corporation setting forth the name of
such holder and the number of such holder's shares of Series D Preferred Stock
to be redeemed. A Holder Notice may be revoked by such holder giving such Holder
Notice by giving notice of such revocation to the Corporation at any time prior
to the time the Corporation pays the Optional Redemption Price to such holder.
(iii) If a holder of shares of Series D
Preferred Stock shall have given a Holder Notice, on the date which is three
Business Days after the date such Holder Notice is given (or such later date as
such holder surrenders such holder's certificates for the shares of Series D
Preferred Stock redeemed) the Corporation shall make payment in immediately
available funds of the applicable Optional Redemption Price to such account as
specified by such holder in writing to the Corporation at least one Business Day
prior to the applicable redemption date. A holder of shares of Series D
Preferred Stock which are redeemed pursuant to this SECTION shall not be
entitled to payment of the Optional Redemption Price of such shares of Series D
Preferred Stock until such holder shall have surrendered the certificate(s) for
such shares of Series D Preferred Stock to the Corporation or, in the case of
the loss, theft or destruction of any such certificate, given indemnity in
accordance with SECTION 11.
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(iv) Notwithstanding any other provision of
this Amended and Restated Certificate of Incorporation, if an Optional
Redemption Event occurs by reason of the occurrence of an event described in
clause (1), (2) or (3) of the definition of the term Optional Redemption Event,
and such occurrence is by reason of events which are not solely within the
control of the Corporation, the Corporation shall have the right to give a
Control Notice to the holders of shares of Series D Preferred Stock at any time
after such Optional Redemption Event occurs and prior to the earlier of (1) the
date on which all holders of shares of Series D Preferred Stock who had the
right (other than as limited by this SECTION 7(c)(ii)(b)) to require redemption
of any shares of Series D Preferred Stock by reason of the occurrence of such
Optional Redemption Event no longer have such right and (2) the applicable
Optional Redemption Date by reason of the earliest Holder Notice given by any
holder of shares of Series D Preferred Stock by reason of such Optional
Redemption Event. If the Corporation timely gives such Control Notice and an
Adjustment Notice (which may be combined in a single notice) to the holders of
shares of Series D Preferred Stock, then in lieu of payment of the Optional
Redemption Price by reason of any such Optional Redemption Event and commencing
on the first date on which such Optional Redemption Event occurs the following
adjustments shall take effect:
(A) In the case of an Optional Redemption
Event described in clause (1) of the definition of the term Optional Redemption
Event, for a period of 180 days after the occurrence of such Optional Redemption
Event (i) the Series D Conversion Price will be 80% of the amount which the
Series D Conversion Price would otherwise be and (ii) the cumulative dividend
shall accrue on each share of the Series D Preferred Stock at the rate of $180
per annum.
(B) In the case of an Optional Redemption
Event described in clause (2) of the definition of the term Optional Redemption
Event, for so long as such Optional Redemption Event continues (i) the Series D
Conversion Price will be 80% of the amount which the Series D Conversion Price
would otherwise be and (ii) the cumulative dividend shall accrue on each share
of Series D Preferred Stock at the rate of $180 per annum.
(C) In the case of an Optional Redemption
Event described in clause (3) of the definition of the term Optional Redemption
Event, for so long as any shares of Preferred Stock are outstanding (i) the
Series D Conversion Price will be 70% of the amount which the Series D
Conversion Price would otherwise be and (ii) the cumulative dividend shall
accrue on each share of Series D Preferred Stock at the rate of $300 per annum.
For purposes of this SECTION 7(c)(ii)(b)(iv), an Optional
Redemption Event described in clause (1), (2) or (3) of the definition of the
term Optional Redemption Event shall be deemed to have occurred by reason of
events which are not solely within the control of the Corporation if a
requirement of the Corporation to redeem, or a right of any holder of shares of
Series D Preferred Stock to require redemption of, shares of Series D Preferred
Stock by reason thereof would result in the Corporation being required to
classify the Series D Preferred Stock as redeemable preferred stock on a balance
sheet of the Corporation prepared in accordance with Generally Accepted
Accounting Principles, and, in the case of an Optional Redemption Event
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described in clause (3) of the definition of the term Optional Redemption Event,
the Board or the stockholders of the Corporation do not have the right to
approve or disapprove the transactions resulting in such event.
(d) Other.
(1) If the Corporation fails to pay in
full when due the Optional Redemption Price for the number of shares of Series D
Preferred Stock specified in a Holder Notice, then the amount thereof shall bear
interest to the extent not prohibited by applicable law at the rate of 12% per
annum from the due date thereof until paid in full.
(2) In connection with a redemption
pursuant to these SECTIONS 7(c)(ii) of less than all of the shares of Series D
Preferred Stock evidenced by a particular certificate, promptly, but in no event
later than three Business Days after surrender of such certificate to the
Corporation, the Corporation shall issue and deliver to such holder a
replacement certificate for the shares of Series D Preferred Stock evidenced by
such certificate which have not been redeemed.
(3) A Holder Notice given by a holder of
shares of Series D Preferred Stock shall be deemed for all purposes to be in
proper form unless the Corporation notifies such holder in writing within three
Business Days after such Holder Notice has been given (which notice shall
specify all defects in the Holder Notice), and any Holder Notice containing any
such defect shall nonetheless be effective on the date given if such holder
promptly undertakes in writing to correct all such defects. Notwithstanding the
absence of any such undertaking from such holder, no such claim of error shall
limit or delay performance of the Corporation's obligation to redeem all shares
of Series D Preferred Stock not in dispute.
8. Conversion.
a. Series A Preferred Stock. The holders of Series A
Preferred Stock have conversion rights as follows:
(i) Right to Convert. Each share of Series A Preferred
Stock shall be convertible into one share of Common Stock, as adjusted for any
stock dividends, combinations or splits with respect to such shares, provided,
however, that the minimum number of shares which may be converted at anyone time
shall be 75,000 shares or such lesser number of shares as shall be then
outstanding.
(ii) Automatic Conversion. Each share of Series A
Preferred Stock shall automatically be converted into Common Stock, upon the
earlier to occur of:
(A) immediately in the event that at any time
prior to July 23, 1999, the closing sale price (the "Closing Sale Price") of the
Corporation's Common Stock (as listed on the Nasdaq National Market) has for a
period of sixty (60) consecutive trading days exceeded the Original Issue Price,
which event shall be disclosed to each holder of the Series A Preferred Stock by
written notification from the Corporation, in which event each share of Series A
Preferred Stock shall automatically be converted into one share of Common
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Stock, as appropriately adjusted for any stock dividends, combinations or splits
with respect to such shares of Common Stock; or
(B) July 23, 1999, in which event each share of
Series A Preferred Stock shall automatically be converted into such number of
shares of Common Stock as equals the Original Issue Price divided by the
weighted-average Closing Sale Price for the sixty (60) consecutive trading days
ending two days prior to July 23, 1999, but in no event more than the Original
Issue Price divided by $6.00, in each case as appropriately adjusted for any
stock dividends, combinations or splits with respect to such shares of Common
Stock.
(iii) Mechanics of Conversion. Before any holder of
Series A Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this Corporation or of any transfer agent for the
Series A Preferred Stock, and shall give written notice by mail, postage
prepaid, or by facsimile, confirmed by mail, to this Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. This Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of the Series A
Preferred Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
Series A Preferred Stock to be converted, or in the case of automatic conversion
pursuant to SECTION 8(a)(ii), ten (10) days following written notification as
provided in SECTION 8(a)(ii), and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock as of
such date.
(iv) Adjustments to Conversion Ratio for Stock Dividends
and for Combinations or Subdivisions of Common Stock. In the event that this
Corporation at any time or from time to time after the purchase date of the
Series A Preferred shall declare or pay, without consideration, any dividend on
the Common Stock payable in Common Stock or in any right to acquire Common Stock
for no consideration, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the number of
shares of Common Stock into which the Series A Preferred Stock can be converted
shall be proportionately decreased or increased, as appropriate. In the event
that this Corporation shall declare or pay, without consideration, any dividend
on the Common Stock payable in any right to acquire Common Stock for no
consideration then the Corporation shall be deemed to have made a dividend
payable in Common Stock in an amount of shares equal to the maximum number of
shares issuable upon exercise of such rights to acquire Common Stock.
(v) Adjustments for Reclassification and
Reorganization. If the Common Stock issuable upon conversion of the Series A
Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by
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capital reorganization, reclassification or otherwise (other than a subdivision
or combination of shares provided for in SECTION 8(a)(iv) above or a merger or
other reorganization referred to in SECTION 5(f) above), the number of shares of
such other class or classes of stock into which the Series A Preferred Stock
shall be convertible shall, concurrently with the effectiveness of such
reorganization or reclassification, be proportionately adjusted so that the
Series A Preferred Stock shall be convertible into, in lieu of the number of
shares of Common Stock which the holders would otherwise have been entitled to
receive, a number of shares of such other class or classes of stock equivalent
to the number of shares of Common Stock that would have been subject to receipt
by the holders upon conversion of the Series A Preferred Stock immediately
before that change.
(vi) No Impairment. This Corporation will not, by
amendment of its Certificate or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this SECTION 8(a)(iv) and in the taking of all such action
as may be necessary or appropriate in order to protect the Conversion Rights of
the holders of the Series A Preferred Stock against impairment.
(vii) No Fractional Shares and Certificate as to
Adjustments.
(a) No fractional shares shall be issued upon
conversion of the Series A Preferred Stock, and the number of shares of Common
Stock to be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of Series A Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
(b) Upon the occurrence of each adjustment or
readjustment of the number of shares of Common Stock into which the Series A
Preferred Stock can be converted pursuant to this SECTION 8(a)(iv), this
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the conversion ratio at the time in effect, and (C) the number
of shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of the Series A Preferred Stock.
(viii) Notices of Record Date. In the event of any
taking by this Corporation of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
Corporation shall mail to each holder of Series A Preferred Stock, at least
twenty (20) days prior to the date specified
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therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
(ix) Reservation of Stock Issuable Upon Conversion. This
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the Series A Preferred Stock such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all the then outstanding Series A Preferred Stock,
in addition to such other remedies as shall be available to the holder of such
Series A Preferred Stock, this Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes.
(x) Notices. Any notice required by the provisions of
this SECTION 8(a)(iv) to be given to the holders of Series A Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
this Corporation.
b. Series C Preferred Stock. The holders of Series C
Preferred Stock have conversion rights as follows:
(i) Conversion at the Option of the Holder. At any time
at the option of the holder, Commencing twelve (12) months after the Issuance
Date, the holders of the Series C Preferred Stock may convert at any time all or
from time to time any part of their outstanding shares of Series C Preferred
Stock into that number of fully paid and nonassessable shares of Common Stock
(calculated as to each conversion to the nearest 1/100th of a share) as equals
the greater of (A) 16.6667 shares of Common Stock or (B) such number of shares
of Common Stock as equals $100.00 divided by the Series C Conversion Price on
the applicable Series C Conversion Date.
(ii) Mandatory Conversion. Each share of Series C
Preferred Stock shall automatically convert, on the fourth anniversary of the
Issuance Date, into that number of fully paid and nonassessable shares of Common
Stock (calculated as to each conversion to the nearest 1/100th of a share) as
equals the greater of (A) 16.6667 shares of Common Stock or (B) such number of
shares of Common Stock as equals $100.00 divided by the Series C Conversion
Price on the applicable Series C Conversion Date.
(iii) Mechanics of Conversion. Before any holder of
Series C Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Transfer Agent, and shall give written notice by
mail, postage prepaid, or by facsimile, confirmed by mail, to the Transfer Agent
at its principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. This Corporation shall, as soon as
practicable thereafter, issue
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and deliver or cause to be issued and delivered to such holder of the Series C
Preferred Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the applicable Conversion Date,
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of such date; provided,
however, that a holder of Series C Preferred Stock shall not be entitled to
receive the shares of Common Stock issuable upon any such conversion of shares
of Series C Preferred Stock until such holder surrenders to the Corporation or
the Transfer Agent the certificate for the shares of Series C Preferred Stock so
converted.
(iv) Adjustments to Conversion Ratio for Stock Dividends
and for Combinations or Subdivisions of Common Stock. In the event that this
Corporation at any time or from time to time after the purchase date of the
Series C Preferred shall declare or pay, without consideration, any dividend on
the Common Stock payable in Common Stock or in any right to acquire Common Stock
for no consideration, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the number of
shares of Common Stock into which the Series C Preferred Stock can or shall be
converted, to the extent such number is determined under either SECTION
8(b)(i)(A) or 8(b)(ii)(A), shall be proportionately decreased or increased, as
appropriate. In the event that this Corporation shall declare or pay, without
consideration, any dividend on the Common Stock payable in any right to acquire
Common Stock for no consideration then the Corporation shall be deemed to have
made a dividend payable in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to acquire Common
Stock.
(v) Adjustments for Reclassification and
Reorganization. If the Common Stock issuable upon conversion of the Series C
Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for in SECTION 8(b)(ii) above or a merger or other reorganization
referred to in SECTION 4(f) above), the number of shares of such other class or
classes of stock into which the Series C Preferred Stock shall be convertible
shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted so that the Series C Preferred
Stock shall be convertible into, in lieu of the number of shares of Common Stock
which the holders would otherwise have been entitled to receive, a number of
shares of such other class or classes of stock equivalent to the number of
shares of Common Stock that would have been subject to receipt by the holders
upon conversion of the Series C Preferred Stock immediately before that change.
(vi) No Impairment. This Corporation will not, by
amendment of its Certificate or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to
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avoid the observance or performance of any of the terms to be observed or
performed hereunder by this Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this SECTION 8(b) and in the
taking of all such action as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of the Series C Preferred Stock against
impairment.
(vii) No Fractional Shares and Certificate as to
Adjustments.
(A) No fractional shares shall be issued upon
conversion of the Series C Preferred Stock, but, in lieu of any fraction of a
share of Common Stock which would otherwise be issuable in respect of the
aggregate number of shares of Series C Preferred Stock surrendered for
conversion at one time by the same holder, the Corporation shall pay in cash to
such holder at the time of issuance of shares of Common Stock in connection with
such conversion an amount equal to the product of (i) an amount equal to the
average closing price of a share of Common Stock for the 10 Trading Day period
ending three Trading Days prior to the Conversion Date times (ii) such fraction
of a share of Common Stock. Whether or not fractional shares are issuable upon
such conversion shall be determined on the basis of the total number of Series C
Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
(B) Upon the occurrence of each adjustment or
readjustment of the number of shares of Common Stock into which the Series C
Preferred Stock can be converted pursuant to this SECTION 8(b), this
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and, upon the written request
at any time of any holder of Series C Preferred Stock, prepare and furnish to
such holder of Series C Preferred Stock a certificate setting forth (A) such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, (B) the conversion ratio at the time in
effect, and (C) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of the
Series C Preferred Stock.
(viii) Notices of Record Date. In the event of any
taking by this Corporation of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
Corporation shall mail to each holder of Series C Preferred Stock, at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(ix) Reservation of Stock Issuable Upon
Conversion. This Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock solely for the purpose of
(i) effecting the conversion of the Series C Preferred Stock and (ii) of
effecting the issuance of any shares of Common Stock issuable upon any
stock-for-stock dividend declared on the Series C Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient to (a)
effect the conversion of all
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outstanding shares of the Series C Preferred Stock and (b) to effect the
issuance of any shares of Common Stock issuable upon any stock-for-stock
dividend declared on the Series C Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to (x)
effect the conversion of all the then outstanding Series C Preferred Stock or
(y) effect the issuance of any shares of Common Stock issuable upon any
stock-for-stock dividend declared on the Series C Preferred Stock, then, in
addition to such other remedies as shall be available to the holder of such
Series C Preferred Stock, this Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes.
b. Notices. Any notice required by the provisions of this
SECTION 8(b) to be given to the holders of Series C Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of this
Corporation.
c. Series D Preferred Stock. The holders of Series D
Preferred Stock shall have conversion rights as follows:
(i) Conversion at the Option of the Holder.
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(a) Conversion Right. The holders of the Series D
Preferred Stock may convert at any time all or from time to time any part of
their outstanding shares of Series D Preferred Stock into fully paid and
nonassessable shares of Common Stock and such other securities and property as
hereinafter provided. Commencing on the Issuance Date, and at any time
thereafter, each share of Series D Preferred Stock may be converted at the
office of the Corporation or at such additional office or offices, if any, as
the Board of Directors may designate, into such number of fully paid and
nonassessable shares of Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) determined by dividing (x) the sum of (i) $1,000
plus (ii) an amount equal to the accrued but unpaid dividends on the share of
Series D Preferred Stock being converted and any Arrearage Interest on dividends
thereon in arrears to the applicable Series D Conversion Date by (y) the Series
D Conversion Price on the applicable Series D Conversion Date; provided,
however, that in no event shall any holder of shares of Series D Preferred Stock
be entitled to convert any shares of Series D Preferred Stock in excess of that
number of shares of Series D Preferred Stock upon conversion of which the sum of
(1) the number of shares of Common Stock beneficially owned by such holder
(including shares of Common Stock beneficially owned by all Aggregated Persons
of such holder) (other than shares of Common Stock deemed beneficially owned by
such holder or any Aggregated Person of such holder through the ownership of (x)
unconverted shares of Series D Preferred Stock and (y) the unconverted or
unexercised portion of any instrument which contains limitations similar to
those set forth in this sentence) and (2) the number of shares of Common Stock
issuable upon the conversion of the number of shares of Series D Preferred Stock
with respect to which the determination in this proviso is being made, would
result in beneficial ownership by such holder and all Aggregated Persons of such
holder of more than 4.9% of the outstanding shares of Common Stock.
(b) Certain Limitations on Conversion Rights.
Notwithstanding any other provision of this Amended and Restated Certificate of
Incorporation, in no event shall any holder of shares of Series D Preferred
Stock be entitled on any date to convert a number of shares of Series D
Preferred Stock in excess of that number of shares of Series D Preferred Stock
upon conversion of which such holder and any Aggregated Person of such holder
would have acquired, through conversion of shares of Series D Preferred Stock or
otherwise, a number of shares of Common Stock in excess of the Converted
Restriction Amount during the 30-day period ending on and including the date of
the determination being made pursuant to this SECTION 8(c)(i)(b) (other than
shares of Common Stock deemed beneficially owned by such holder or any
Aggregated Person of such holder through the ownership of (x) unconverted shares
of Series D Preferred Stock and (y) the unconverted or unexercised portion of
any instrument which contains limitations similar to those set forth in this
sentence).
(c) Beneficial Ownership. For purposes of the
proviso to the second sentence of SECTION 8(c)(i)(b) and for purposes of SECTION
8(c)(i)(b), (x) beneficial ownership shall be determined in accordance with
SECTION 13(d) of the 1934 Act and Regulation 13D-G thereunder, except as
otherwise provided in clause (1) of the proviso to the second sentence of
SECTION 8(c)(i)(b) or as provided in SECTION 8(c)(i)(b) and (y) the Corporation
shall be entitled to rely, and shall be fully protected in relying, on any
statement or representation made by a holder of shares of Series D Preferred
Stock to the Corporation in connection with a particular conversion, without any
obligation on the part of the Corporation to make any inquiry
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or investigation or to examine its records or the records of any transfer agent
for the Common Stock and without any liability of the Corporation with respect
thereto.
(ii) Other Provisions.
(a) The holders of shares of Series D Preferred Stock
at the close of business on the record date for any dividend payment to holders
of Series D Preferred Stock shall be entitled to receive the dividend payable on
such shares on the corresponding dividend payment date notwithstanding the
conversion thereof after the record date for such dividend payment date or the
Corporation's default in payment of the dividend due on such dividend payment
date; provided, however, that the holder of shares of Series D Preferred Stock
converted during the period between the close of business on any record date for
a dividend payment and the opening of business on the corresponding dividend
payment date must pay to the Corporation, within five days after receipt by such
holder, an amount equal to the dividend payable on such shares on such dividend
payment date if such dividend is paid by the Corporation to such holder. A
holder of shares of Series D Preferred Stock on a record date for a dividend
payment who (or whose transferee) converts any of such shares into shares of
Common Stock on or after such dividend payment date will receive the dividend
payable by the Corporation on such shares of Series D Preferred Stock on such
dividend payment date, and the converting holder need not make any payment of
the amount of such dividend in connection with such conversion of shares of
Series D Preferred Stock. Except as provided above, no adjustment shall be made
in respect of cash dividends on Common Stock or Series D Preferred Stock that
may be accrued and unpaid at the date of conversion of shares of Series D
Preferred Stock.
(b) The right of the holders of Series D Preferred
Stock to convert their shares shall be exercised by delivering (which may be
made by telephone line facsimile transmission, which shall be conclusively
deemed for all purposes of this Amended and Restated Certificate of
Incorporation to have been given on the date sent if the sender shall have
received electronic confirmation of the receipt by the Series D Conversion Agent
of such facsimile transmission) to the Series D Conversion Agent a Series D
Conversion Notice at the address or telephone line facsimile number provided in
the form of Series D Conversion Notice set forth in SECTION 14(a) (or such other
address or facsimile number of the Series D Conversion Agent as shall be
provided by the Corporation by notice to the holders of the shares of Series D
Preferred Stock), with a copy to the Corporation at its address or telephone
line facsimile number provided in or pursuant to SECTION 12; provided, however,
that any failure or delay in giving a copy of a Series D Conversion Notice to
the Corporation shall not affect the validity of or Series D Conversion Date for
such Series D Conversion Notice. The number of shares of Common Stock to be
issued upon each conversion of shares of Series D Preferred Stock shall be the
number set forth in the applicable Series D Conversion Notice, which number
shall be conclusive absent manifest error. The Corporation shall notify a holder
who has given a Series D Conversion Notice of any claim of manifest error within
three Trading Days after such holder gives such Series D Conversion Notice, and
no such claim of error shall limit or delay performance of the Corporation's
obligation to issue upon such conversion the number of shares of Common Stock
which are not in dispute. A Series D Conversion Notice shall be deemed for all
purposes to be in proper form unless the Corporation notifies a holder of shares
of Series D Preferred Stock being converted within three Trading Days after a
Series D Conversion Notice has been given (which notice shall specify all
defects in such Series D Conversion Notice), and
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<PAGE> 88
any Series D Conversion Notice containing any such defect shall nonetheless be
effective on the date given if the converting holder agrees to correct all such
defects promptly.
(c) If a holder of Series D Preferred Stock elects to
convert any shares of Series D Preferred Stock in accordance with SECTION
8(c)(i), such holder shall not be required to surrender the certificate(s)
representing such shares of Series D Preferred Stock physically to the
Corporation unless all of the shares of Series D Preferred Stock represented
thereby are so converted. Each holder of shares of Series D Preferred Stock and
the Corporation shall maintain records showing the number of shares so converted
and the dates of such conversions or shall use such other method, satisfactory
to such holder and the Corporation, so as to not require physical surrender of
such certificates upon each such conversion. In the event of any dispute or
discrepancy, such records of the Corporation shall be controlling and
determinative in the absence of manifest error. Notwithstanding the foregoing,
if any shares of Series D Preferred Stock evidenced by a particular certificate
therefor are converted as aforesaid, the holder of Series D Preferred Stock may
not transfer the certificate(s) representing such shares of Series D Preferred
Stock unless such holder first physically surrenders such certificate(s) to the
Corporation, whereupon the Corporation will forthwith issue and deliver upon the
order of such holder of shares of Series D Preferred Stock new certificate(s) of
like tenor, registered as such holder of shares of Series D Preferred Stock
(upon payment by such holder of shares of Series D Preferred Stock of any
applicable transfer taxes) may request, representing in the aggregate the
remaining number of shares of Series D Preferred Stock represented by such
certificate(s). Each holder of shares of Series D Preferred Stock, by acceptance
of a certificate for such shares, acknowledges and agrees that (1) by reason of
the provisions of this paragraph, following conversion of any shares of Series D
Preferred Stock represented by such certificate, the number of shares of Series
D Preferred Stock represented by such certificate may be less than the number of
shares stated on such certificate and (2) the Corporation may place one or more
legends on the certificates for shares of Series D Preferred Stock which refers
to or describes the provisions of this paragraph. The Corporation may by notice
to any holder of shares of Series D Preferred Stock require such holder to
surrender the certificate(s) for such holder's shares of Series D Preferred
Stock in exchange for issuance by the Corporation of one or more new
certificates for the number of shares evidenced by the certificate(s) so
surrendered.
(d) The Corporation shall pay any transfer tax
arising in connection with any conversion of shares of Series D Preferred Stock
except that the Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery
upon conversion of shares of Common Stock or other securities or property in a
name other than that of the holder of the shares of the Series D Preferred Stock
being converted, and the Corporation shall not be required to issue or deliver
any such shares or other securities or property unless and until the Person or
Persons requesting the issuance thereof shall have paid to the Corporation the
amount of any such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid. A holder of shares of Series D
Preferred Stock who converts such shares shall be responsible for the amount of
any withholding tax payable in connection with such conversion.
(e) (1) The Corporation shall duly reserve and at all
times prior to the Stockholder Approval will continue to reserve 6,285,000
shares of its authorized and unissued Common Stock, free from preemptive rights,
for issuance upon
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conversion of the shares of Series D Preferred Stock (subject to reduction from
time to time for shares of Common Stock issued upon conversion of shares of
Series D Preferred Stock). From and after the date of the Stockholder Approval,
the Corporation will duly reserve, free from preemptive rights, for issuance
upon conversion of the shares of Series D Preferred Stock a number of shares of
its authorized and issued Common Stock equal to 175% of the number of shares of
Common Stock which would be issuable on conversion of all authorized shares of
Series D Preferred Stock on the Issuance Date if all of such shares of Series D
Preferred Stock were outstanding on such date (determined without regard to the
limitations on conversion continued in SECTION 8(c)(i), subject to reduction
from time to time for shares of Common Stock issued upon conversion of shares of
Series D Preferred Stock. The Corporation (and any successor corporation) shall
take all action necessary so that a number of shares of the authorized but
unissued Common Stock (or common stock in the case of any successor corporation)
equal to the number of shares of Common Stock (or such common stock) issuable
upon conversion of the Series D Preferred Stock outstanding, determined without
regard to any limitation on beneficial ownership contained in SECTION 8(c)(i),
are at all times reserved by the Corporation (or any successor corporation),
free from preemptive rights, for such conversion, subject to the provisions of
the next succeeding paragraph. If the Corporation shall issue any securities or
make any change in its capital structure which would change the number of shares
of Common Stock into which each share of the Series D Preferred Stock shall be
convertible as herein provided, the Corporation shall at the same time also make
proper provision so that thereafter there shall be a sufficient number of shares
of Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series D Preferred Stock on the new basis. If at
any time the number of authorized but unissued shares of Common Stock shall be
insufficient to permit the Corporation to reserve such number of shares of
Common Stock, the Corporation promptly shall seek such corporate action as may,
in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
to meet such requirement.
(2) The Initial Reserve Amount shall be allocated
among the shares of Series D Preferred Stock at the time of initial issuance
thereof pro rata based on the total number of authorized shares of Series D
Preferred Stock provided in Article IV(B). Each certificate for shares of Series
D Preferred Stock initially issued shall bear a notation as to the number of
shares constituting the portion of the Initial Reserve Amount allocated to the
shares of Series D Preferred Stock represented by such certificate for purposes
of conversion thereof. Upon surrender of any certificate for shares of Series D
Preferred Stock for transfer or re-registration thereof (or, at the option of
the holder of such certificate, for conversion pursuant to SECTION 8(c)(i) of
less than all of the shares of Series D Preferred Stock represented thereby),
the Corporation shall make a notation on the new certificate issued upon such
transfer or re-registration or evidencing such unconverted shares, as the case
may be, as to the number of shares of Common Stock from the Initial Reserve
Amount remaining available for conversion of the shares of Series D Preferred
Stock evidenced by such new certificate. If any certificate for shares of Series
D Preferred Stock is surrendered for division into two or more certificates
representing an aggregate number of shares of Series D Preferred Stock equal to
the number of shares of Series D Preferred Stock represented by the certificate
so surrendered (as reduced by any contemporaneous conversion of shares of Series
D Preferred Stock represented by the certificate so surrendered), each
certificate issued on such division shall bear a notation of the portion of the
Initial Reserve Amount allocated thereto determined by pro rata allocation of
the
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remaining portion of the Initial Reserve Amount allocated to the certificate so
surrendered. If any shares of Series D Preferred Stock represented by a single
certificate are converted in full pursuant to SECTION 8(c), all of the portion
of the Initial Reserve Amount allocated to such shares of Series D Preferred
Stock which remains unissued after such conversion shall be re-allocated pro
rata to the outstanding shares of Series D Preferred Stock held of record by the
holder of record at the close of business on the date of such conversion of the
shares of Series D Preferred Stock so converted, and if there shall be no other
shares of Series D Preferred Stock held of record by such holder at the close of
business on such date, then such portion of the Initial Reserve Amount shall be
allocated pro rata among the shares of Series D Preferred Stock outstanding at
the close of business on such date. The provisions of this SECTION 8(c)(ii)(E)
shall be inapplicable after the Stockholder Approval is obtained. If shares of
Series D Preferred Stock are not issued to MMC/GATX in accordance with this
Article IV(B), the shares from the Initial Reserve Amount which were available
for allocation to such shares of Series D Preferred Stock shall be allocated to
the issued shares of Series D Preferred Stock pro rata based on the amounts
thereof initially issued.
(f) (1) In case of any consolidation or merger of the
Corporation with any other corporation (other than a wholly-owned subsidiary of
the Corporation) in which the Corporation is not the surviving corporation, or
in case of any sale or transfer of all or substantially all of the assets of the
Corporation, or in the case of any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, the Corporation shall make appropriate provision or cause appropriate
provision to be made so that each holder of shares of Series D Preferred Stock
then outstanding shall have the right thereafter to convert such shares of
Series D Preferred Stock into the kind of shares of stock and other securities
and property receivable upon such consolidation, merger, sale, transfer, or
share exchange by a holder of shares of Common Stock into which such shares of
Series D Preferred Stock could have been converted immediately prior to the
effective date of such consolidation, merger, sale, transfer, or share exchange
and on a basis which preserves the economic benefits of the conversion rights of
the holders of shares of Series D Preferred Stock on a basis as nearly as
practical as such rights exist hereunder prior thereto. If, in connection with
any such consolidation, merger, sale, transfer, or share exchange, each holder
of shares of Common Stock is entitled to elect to receive securities, cash, or
other assets upon completion of such transaction, the Corporation shall provide
or cause to be provided to each holder of Series D Preferred Stock the right to
elect prior to the completion of such transaction the securities, cash, or other
assets into which the Series D Preferred Stock held by such holder shall be
convertible after completion of any such transaction on the same terms and
subject to the same conditions applicable to holders of the Common Stock
(including, without limitation, notice of the right to elect, limitations on the
period in which such election shall be made, and the effect of failing to
exercise the election). Notwithstanding the forgoing, in connection with any
such merger, consolidation, sale, transfer or exchange, the Corporation shall
have the right, in lieu of making provision for preservation of economic
benefits of the conversion rights of the holders of shares of Series D Preferred
Stock, to redeem all outstanding shares of Series D Preferred Stock immediately
after completion of such transaction at a redemption price per share of Series D
Preferred Stock in cash equal to the Business Combination Redemption Price. Such
right of redemption shall be exercised by notice from the Corporation to the
holders of shares of Series D Preferred Stock stating that the Corporation is
exercising its redemption right under this SECTION 8(c)(ii)(f), which notice
shall be given at least 20 days and not more than 30 days prior
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to completion of such transaction and shall specify that such redemption shall
occur on the Business Day immediately following the date of completion of such
transaction. On the date specified in such notice (or such later date as a
holder of shares of Series D Preferred Stock surrenders such holder's
certificates for shares of Series D Preferred Stock redeemed) the Corporation
shall make payment in immediately available funds of the applicable Business
Combination Redemption Price to each holder of shares of Series D Preferred
Stock to be redeemed to such account as specified by such holder in writing to
the Corporation at least one Business Day prior to such payment of the Business
Combination Redemption Price. A holder of shares of Series D Preferred Stock
which are redeemed pursuant to this SECTION 8(c)(ii)(f) shall not be entitled to
payment of the Business Combination Redemption Price of such shares of Series D
Preferred Stock until such holder shall have surrendered the certificate(s) for
such shares of Series D Preferred Stock to the Corporation or, in the case of
the loss, theft or destruction of any such certificate, given indemnity in
accordance with SECTION 14. If the Corporation shall fail to pay the Business
Combination Redemption Price of any shares of Series D Preferred Stock in full
when due, then the amount thereof shall bear interest to the extent not
prohibited by applicable law at the rate of 12% per annum from the due date
thereof until paid in full. Notwithstanding the giving of a notice of redemption
pursuant to this SECTION 8(c)(ii)(f), each holder of shares of Series D
Preferred Stock shall be entitled to convert in accordance with this SECTION
8(c)(ii)(f) any shares of Series D Preferred Stock which are to be redeemed at
any time prior to (1) the redemption date specified in the notice of redemption
or (2) if the Corporation fails to pay the Business Combination Redemption Price
in full to such holder when due, the date on which the Corporation pays the
Business Combination Redemption Price in full to such holder for all shares of
Series D Preferred Stock to be redeemed from such holder. The Corporation shall
not effect any such transaction unless it shall have complied with the
provisions of this paragraph. The above provisions shall similarly apply to
successive consolidations, mergers, sales, transfers, or share exchanges.
(2) Whenever the Corporation shall propose to
take any of the actions specified in this SECTION 8(c)(ii)(f)(2), the
Corporation shall cause a notice to be mailed, at least 20 days prior to the
date on which the books of the Corporation will close or on which the security
holders entitled to participate in such transaction will be determined, to the
holders of record of the outstanding Series D Preferred Stock on the date of
such notice. Such notice shall specify the action proposed to be taken by the
Corporation and the date as of which holders of record of the Common Stock shall
participate in any such actions or be entitled to exchange their Common Stock
for securities or other property, as the case may be.
(g) Upon receipt by the Series D Conversion Agent
from a holder of shares of Series D Preferred Stock of a Series D Conversion
Notice, the Corporation shall issue and deliver or cause to be issued and
delivered to or upon the order of such holder certificates for the Common Stock
issuable upon such conversion by the close of business on the third Trading Day
after such Series D Conversion Notice is received, and as of the close of
business on the date of such receipt such holder (or such holder's assignee)
shall be deemed to be the holder of record of the Common Stock issuable upon
such conversion, and all rights with respect to the shares of Series D Preferred
Stock so converted shall forthwith terminate except the right to receive the
Common Stock or other securities, cash, or other assets, as herein provided, on
such conversion. If a holder of Series D Preferred Stock shall have given a
Series D Conversion Notice in accordance with the terms of this Amended and
Restated
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Certificate of Incorporation, the Corporation's obligation to issue and deliver
the certificates for Common Stock issuable upon such conversion shall be
absolute and unconditional, irrespective of any action or inaction by the
converting holder to enforce the same, any waiver or consent with respect to any
provision thereof, the recovery of any judgment against any Person or any action
to enforce the same, any failure or delay in the enforcement of any other
obligation of the Corporation to the holder of record, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the holder or any other Person of any obligation to the Corporation,
or any violation or alleged violation of law by such holder or any other Person,
and irrespective of any other circumstance which might otherwise limit such
obligation of the Corporation to such holder in connection with such conversion;
provided, however, that nothing herein shall limit or prejudice the right of the
Corporation to pursue any such claim in any other manner permitted by applicable
law.
The occurrence of an event which requires an equitable
adjustment of the Trading Price as contemplated by the definition thereof in
SECTION 1 shall in no way restrict or delay the right of any holder of shares of
Series D Preferred Stock to receive shares of Common Stock upon conversion of
shares of Series D Preferred Stock, and the Corporation shall use its best
efforts to implement each such adjustment on terms reasonably acceptable to the
Majority Holders within two Trading Days after such occurrence.
If the Corporation fails to issue and deliver the certificates
for the Common Stock to the holder converting shares of Series D Preferred Stock
as and when required to do so, in addition to any other liabilities the
Corporation may have hereunder and under applicable law (1) the Corporation
shall pay or reimburse such holder on demand for all out-of-pocket expenses,
including, without limitation, reasonable fees and expenses of legal counsel,
incurred by such holder as a result of such failure, (2) the Series D Conversion
Price applicable to such conversion shall be reduced by one-tenth of a
percentage point from the Series D Conversion Price otherwise applicable to such
conversion for each Trading Day during the period from the date the Corporation
was required to deliver such shares of Common Stock to the date the Corporation
so delivers such shares of Common Stock; provided, however, that in no event
shall any such reduction be made for any Trading Day in such period which is
after the date which is 120 days after the date the Corporation was required to
deliver such shares of Common Stock in connection with such conversion, and (3)
such holder may by written notice or oral notice (promptly confirmed in writing)
given at any time prior to delivery to such holder of the certificates for the
shares of Common Stock issuable upon such conversion of shares of Series D
Preferred Stock, rescind such conversion, whereupon such holder shall have the
right to convert such shares of Series D Preferred Stock thereafter in
accordance herewith; provided, however, that the Corporation shall not be liable
to any holder of shares of Series D Preferred Stock under the preceding clause
(1) or clause (2) to the extent the failure of the Corporation to deliver or to
cause to be delivered such shares of Common Stock results from fire, flood,
storm, earthquake, shipwreck, strike, war, acts of terrorism, crash involving
facilities of a common carrier, acts of God, or any similar event outside the
control of the Corporation (it being understood that the action or failure to
act of the Series D Conversion Agent shall not be deemed an event outside the
control of the Corporation except to the extent resulting from fire, flood,
storm, earthquake, shipwreck, strike, war, acts of terrorism, crash involving
facilities of a common carrier, acts of God, the bankruptcy, liquidation or
reorganization of the Series D Conversion Agent under any bankruptcy, insolvency
or other similar law or any similar event outside the control of the Series
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D Conversion Agent). A holder of shares of Series D Preferred Stock who has
given a Series D Conversion Notice shall notify the Corporation in writing (or
by telephone conversation, confirmed in writing) as promptly as practicable
after becoming aware that shares of Common Stock issued upon such conversion
have not been received as provided in this SECTION 8(c)(vii).
(h) No fractional shares. No fractional shares of
Common Stock shall be issued upon conversion of Series D Preferred Stock but, in
lieu of any fraction of a share of Common Stock and the related right which
would otherwise be issuable in respect of the aggregate number of shares of
Series D Preferred Stock surrendered for conversion at one time by the same
holder, the Corporation shall pay in cash to such holder at the time of issuance
of shares of Common Stock in connection with such conversion an amount equal to
the product of (A) the arithmetic average of the Market Price of a share of
Common Stock on the three consecutive Trading Days ending on the Trading Day
immediately preceding the Series D Conversion Date times (B) such fraction of a
share of Common Stock
9. Voting Rights.
Except as otherwise required by law or expressly provided
herein, each share of Series A Preferred Stock and Series C Preferred Stock
shall have voting rights and powers equal to the voting rights and powers of the
Common Stock (except as otherwise expressly provided herein or as required by
law, voting together with the Common Stock as a single class) and shall be
entitled to notice of any stockholders' meeting in accordance with the Bylaws of
the Corporation. Fractional votes shall not, however, be permitted and any
fractional voting rights resulting from the above formula (after aggregating all
shares into which shares of Series A Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock held by each holder could be converted) shall be
rounded to the nearest whole number (with one-half being rounded upward).
Each holder of shares of Series A Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which such shares of Series A Preferred Stock could then be converted. Each
holder of shares of Series C Preferred Stock shall be entitled (i) during the
first year after the issuance thereof to six votes for each one share held and
(ii) thereafter, to one vote for each share of Common Stock into which such
share of Series C Preferred Stock is convertible on the record date for the
matter to be voted upon. Each holder of Common Stock shall be entitled to one
vote for each share of Common Stock held.
Except as otherwise required by law or expressly provided
herein, shares of Series D Preferred Stock shall not be entitled to vote on any
matter.
a. Series D Voting Rights and Restrictions.
(1) Certificate of Incorporation; Certain Stock. The
affirmative vote or written consent of the Majority Holders, voting separately
as a class, will be required for (i) any amendment, alteration, or repeal,
whether by merger or consolidation or otherwise, of the Corporation's
Certificate of Incorporation if the amendment, alteration, or repeal materially
and adversely affects the rights, preferences or privileges of the Series D
Preferred Stock, or (ii) the creation or issuance of any Senior Dividend Stock
or Senior Liquidation Stock; provided,
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however, that any increase in the authorized Preferred Stock of the Corporation
or the creation and issuance of any stock which is both Junior Dividend and
Junior Liquidation Stock shall not be deemed to affect materially and adversely
such rights, preferences or privileges and any such increase or creation and
issuance may be made without any such vote by the holders of Series D Preferred
Stock except as otherwise required by law; and provided further, however, that
no such amendment, alteration or repeal shall (A) reduce the Optional Redemption
Price, Redemption Price or the amount payable to a holder of shares of Series D
Preferred Stock pursuant to SECTION 3(c)(iii), (B) reduce the percentage in, or
otherwise change the definition of Majority Holders, (C) change the method of
calculating the Series D Conversion Price in a manner adverse to the holders of
shares of Series D Preferred Stock or reduce the number of shares of Common
Stock issuable upon any conversion of shares of Series D Preferred Stock, or (D)
amend, modify or repeal any provision of this SECTION 9(a)(1), unless in each
such case referred to in the preceding clauses (A) through (D) such amendment,
modification or repeal has been approved by the affirmative vote or written
consent of the holders of all outstanding shares of Series D Preferred Stock,
voting separately or as a class.
(2) Repurchases of Series D Preferred Stock. The
Corporation shall not repurchase or otherwise acquire any shares of Series D
Preferred Stock (other than pursuant to SECTION 7(c)(i) unless the Corporation
offers to repurchase or otherwise acquire simultaneously a pro rata portion of
each holder's shares of Series D Preferred Stock for cash at the same price per
share.
(3) Other. So long as any shares of Series D Preferred
Stock are outstanding:
(a) Limitation on Indebtedness. The Corporation will
not itself, and will not permit any subsidiary of the Corporation to, create,
assume, incur, in any manner become liable in respect of, including, without
limitation, by reason of any business combination transaction, or suffer to
exist (all of which are referred to herein as "incurring"), any Indebtedness
other than Permitted Indebtedness.
(b) Payment of Obligations. The Corporation will pay
and discharge, and will cause each subsidiary of the Corporation to pay and
discharge, all their respective material obligations and liabilities, including,
without limitation, tax liabilities, except where the same may be contested in
good faith by appropriate proceedings.
(c) Maintenance of Property; Insurance.
(i) The Corporation will keep, and will cause each
subsidiary of the Corporation to keep, all material property useful and
necessary in its business in good working order and condition, ordinary wear and
tear excepted
(ii) The Corporation will maintain, and will cause
each subsidiary of the Corporation to maintain, with financially sound and
responsible insurance companies, insurance in at least such amounts and against
such risks as are usually insured against in the same geographic region by
companies of comparable size that are engaged in the same or a similar business,
subject to customary deductibles.
36
<PAGE> 95
(d) Conduct of Business and Maintenance of Existence.
The Corporation will continue, and will cause each subsidiary of the Corporation
to continue, to engage in business of the same general type as conducted by the
Corporation and such subsidiaries on December 9, 1998, the date the Certificate
of Designation for the Series D Preferred Stock was filed with the Secretary of
State of Delaware, and will preserve, renew and keep in full force and effect,
and will cause each subsidiary of the Corporation to preserve, renew and keep in
full force and effect, their respective corporate existence and their respective
material rights, privileges and franchises necessary or desirable in the normal
conduct of business.
(e) Compliance with Laws. The Corporation will comply,
and will cause each subsidiary of the Corporation to comply, in all material
respects with all applicable laws, ordinances, rules, regulations, decisions,
orders and requirements of governmental authorities and courts (including,
without limitation, environmental laws) except (i) where compliance therewith is
contested in good faith by appropriate proceedings or (ii) where non-compliance
therewith could not reasonably be expected to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Corporation and its subsidiaries taken as a
whole.
(f) Investment Company Act. The Corporation will not
be or become an open-end investment trust, unit investment trust or face-amount
certificate company that is or is required to be registered under SECTION 8 of
the Investment Company Act of 1940, as amended, or any successor provision.
(g) Transactions with Affiliates. The Corporation will
not, and will not permit any subsidiary of the Corporation to, directly or
indirectly, pay any funds to or for the account of, make any investment (whether
by acquisition of stock or Indebtedness, by loan, advance, transfer of property,
guarantee or other agreement to pay, purchase or service, directly or
indirectly, any Indebtedness, or otherwise) in, lease, sell, transfer or
otherwise dispose of any assets, tangible or intangible, to, or participate in,
or effect any transaction in connection with, any joint enterprise or other
joint arrangement with, any Affiliate of the Corporation, except, on terms to
the Corporation or such subsidiary no less favorable than terms that could be
obtained by the Corporation or such subsidiary from a Person that is not an
Affiliate of the Corporation, as determined in good faith by the Board of
Directors.
10. Status of Converted or Redeemed Stock. In the event any
Series A Preferred Stock or Series C Preferred Stock shall be converted pursuant
to SECTION 8(a) or 8(b), respectively, hereof, the shares so converted shall be
promptly canceled after the conversion thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock to be created by resolution
or resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
11. Outstanding Shares. For purposes of the Certificate of
Designation for the Series D Convertible Preferred Stock filed on December 9,
1998, all shares of Series D Preferred Stock shall be deemed outstanding except
(i) from the date a Series D Conversion Notice is given by a holder of Series D
Preferred Stock, all shares of Series D Preferred Stock
37
<PAGE> 96
converted into Common Stock and (ii) from the date of registration of transfer,
all shares of Series D Preferred Stock held of record by the Corporation or any
subsidiary or Affiliate (as defined herein) of the Corporation (other than any
original holder of shares of Series D Preferred Stock) and (iii) from the
applicable Redemption Date, Optional Redemption Date or date of redemption
pursuant to SECTION 8(c)(ii)(f), all shares of Series D Preferred Stock which
are redeemed, so long as in each case the Redemption Price, Optional Redemption
Price or Business Combination Redemption Price, as the case may be, of such
shares of Series D Preferred Stock shall have been paid by the Corporation as
and when due hereunder.
12. Notices. Any notices required or permitted to be given
under the terms of this Certificate of Incorporation shall be in writing and
shall be delivered personally (which shall include telephone line facsimile
transmission) or by courier, and shall be deemed given upon receipt, (a) in the
case of the Corporation, addressed to the Corporation at 213 East Grand Avenue,
South San Francisco, California 94080, Attention: President and Chief Executive
Officer (telephone line facsimile transmission number (650) 873-8367), or (b) in
the case of any holder of shares of Series D Preferred Stock, at such holder's
address or telephone line facsimile transmission number shown on the stock books
maintained by the Corporation with respect to the Series D Preferred Stock or
such other address as the Corporation shall have provided by notice to the
holders of shares of Series D Preferred Stock in accordance with this SECTION or
any holder of shares of Series D Preferred Stock shall have provided to the
Corporation in accordance with this SECTION.
13. Replacement of Certificates. Upon receipt by the
Corporation of evidence reasonably satisfactory to the Corporation of the
ownership of and the loss, theft, destruction or mutilation of any certificate
for shares of Series C Preferred Stock or Series D Preferred Stock and (1) in
the case of loss, theft or destruction, of indemnity from the record holder of
the certificate for such shares of Series C Preferred Stock or Series D
Preferred Stock reasonably satisfactory in form to the Corporation (and without
the requirement to post any bond or other security) or (2) in the case of
mutilation, upon surrender and cancellation of the certificate for such shares
of Series C Preferred Stock or Series D Preferred Stock, the Corporation will
execute and deliver to such holder a new certificate for such shares of Series C
Preferred Stock or Series D Preferred Stock without charge to such holder.
38
<PAGE> 97
14. Forms of Notices.
a. Notice of Conversion of Series D Convertible Preferred
Stock.
NOTICE OF CONVERSION
OF
SERIES D CONVERTIBLE PREFERRED STOCK
OF
SHAMAN PHARMACEUTICALS, INC.
TO: BankBoston, N.A.,
as Conversion Agent
150 Royall Street
Canton, Massachusetts 02021
Attention: Client Administration
Facsimile No.: (781) 575-2549
cc: Shaman Pharmaceuticals, Inc.
213 East Grand Avenue
South San Francisco, California 94080
Attention: Chief Financial Officer
Facsimile No.: (650) 873-8367
(1) Pursuant to the terms of the Series D Convertible
Preferred Stock (the "Preferred Stock"), of Shaman Pharmaceuticals, Inc., a
Delaware corporation (the "Corporation"), the undersigned (the "Holder") hereby
elects to convert _______________ shares of the Preferred Stock, including
accrued and unpaid dividends per share of $________ and Arrearage Interest per
share of $________ into shares of Common Stock, $0.001 par value (the "Common
Stock"), of the Corporation, at a Series D Conversion Price per share of Common
Stock of $________ or such other securities into which the Preferred Stock is
currently convertible. Capitalized terms used in this Notice and not otherwise
defined herein have the respective meanings provided in the Amended and Restated
Certificate of Incorporation.
(2) The number of shares of Common Stock issuable upon the
conversion of the shares of Preferred Stock to which this Notice relates is
__________________________.
(3) Check (and complete, if applicable) one of the following:
/__/ (A) Set forth below or on a schedule which accompanies
this Notice are the Trading Prices during the Measurement
Period applicable to this Notice and an indication of the
Trading Price used to determine the Series D Conversion Price
set forth above.
39
<PAGE> 98
<TABLE>
<CAPTION>
Date Trading Price
<S> <C>
1. __________________________ $____________________
2. __________________________ $____________________
3. __________________________ $____________________
4. __________________________ $____________________
5. __________________________ $____________________
6. __________________________ $____________________
7. __________________________ $____________________
8. __________________________ $____________________
9. __________________________ $____________________
10. __________________________ $____________________
11. __________________________ $____________________
12. __________________________ $____________________
</TABLE>
/__/ (B) The conversion to which this Notice relates is based
on the fixed Series D Conversion Price specified in clause (a)
of the definition of such term in the Amended and Restated
Certificate of Incorporation.
(4) Please issue certificates for the number of shares of
Common Stock or other securities into which such number of shares of Preferred
Stock is convertible in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:
- --------------------------------- -----------------------------------
Name Name
- --------------------------------- -----------------------------------
Address Address
- --------------------------------- -----------------------------------
SS or Tax ID Number SS or Tax ID Number
40
<PAGE> 99
(5) The undersigned hereby represents to the Corporation that
the exercise of conversion rights contained in this Notice does not violate the
provisions of SECTION 8(b) of this Amended and Restated Certificate of
Incorporation relating to beneficial ownership in excess of 4.9% of the Common
Stock.
(6) If the shares of Common Stock issuable upon conversion of
the Preferred Stock have not been registered for resale under the 1933 Act, as
amended (the "1933 Act") and are not being offered or sold pursuant to Rule 144
under the 1933 Act (or any successor or replacement rule or provision), the
Holder represents and warrants that (i) the shares of Common Stock not so
registered are being acquired for the account of the Holder for investment, and
not with a view to, or for resale in connection with, the public distribution
thereof other than pursuant to registration under the 1933 Act or an exemption
from registration under the 1933 Act, and that the Holder has no present
intention of distributing or reselling the shares of Common Stock not so
registered other than pursuant to registration under the 1933 Act or an
exemption from registration under the 1933 Act and (ii) the Holder is an
"accredited investor" as defined in Regulation D under the 1933 Act. The Holder
further agrees that (A) the shares of Common Stock not so registered shall not
be sold or transferred unless (i) they first shall have been registered under
the 1933 Act, (ii) the Corporation first shall have been furnished with an
opinion of legal counsel reasonably satisfactory to the Corporation to the
effect that such sale or transfer is exempt from the registration requirements
of the 1933 Act or (iii) such shares are offered or sold pursuant to Rule 144
under the 1933 Act (or any successor or replacement rule or provision), and (B)
until such shares are registered for resale under the 1933 Act, the Corporation
may place a legend on the certificate(s) for the shares of Common Stock not so
registered to that effect and place a stop-transfer restriction in its records
relating to the shares of Common Stock not so registered, all in accordance with
the Exchange Agreement by which the Holder is bound.
Date
------------------------------ -------------------------------
Signature of Holder
(Must be signed exactly as name
appears on the Preferred
Stock Certificate.)
41
<PAGE> 100
b. Form of Redemption Notice.
REDEMPTION NOTICE
(SECTION 7(a) OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION)
TO: _____________________________
(Name of Holder)
(1) Pursuant to the terms of the Series D Convertible
Preferred Stock (the "Preferred Stock"), Shaman Pharmaceuticals, Inc., a
Delaware corporation (the "Corporation"), hereby notifies the above-named holder
(the "Holder") that the Corporation is exercising its right to redeem
_____________ shares of Preferred Stock held by the Holder in accordance with
SECTION 7(a) of the Amended and Restated Certificate of Incorporation:
(2) The Redemption Date is December 30, 1998.
(3) The Redemption Price per share of Preferred Stock is
$_________.
(4) Upon surrender to the Corporation of the certificate(s)
for the shares of Preferred Stock to be redeemed (but in no event earlier than
the Redemption Date), the Corporation will make payment of the applicable
Redemption Price in accordance with the Amended and Restated Certificate of
Incorporation.
(5) Capitalized terms used herein and not otherwise defined
herein have the respective meanings provided in the Amended and Restated
Certificate of Incorporation.
SHAMAN PHARMACEUTICALS, INC.
By _______________________________
Title:
42
<PAGE> 101
c. Form of Corporation Notice.
CORPORATION NOTICE
(SECTION 7(c)(i) OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION)
TO: _____________________________
(Name of Holder)
(1) An Optional Redemption Event described in the Amended and
Restated Certificate of Incorporation (the "Amended and Restated Certificate of
Incorporation") of Series D Convertible Preferred Stock, par value $0.001 per
share (the "Preferred Stock"), of Shaman Pharmaceuticals, Inc., a Delaware
corporation (the "Corporation"), occurred on _____________________, _______. As
a result of such Optional Redemption Event, the above-named holder (the
"Holder") is entitled to exercise its optional redemption rights pursuant to
SECTION 7(c)(ii) of the Amended and Restated Certificate of Incorporation.
(2) The Holder's optional redemption right must be exercised
on or before ________________, ______.
(3) At or before the date set forth in the preceding paragraph
(2), the Holder must deliver to the Corporation:
(a) a Holder Notice, in the form set forth in SECTION 14(d) of
the Amended and Restated Certificate of Incorporation; and
(b) the certificates for the shares of Preferred Stock to be
redeemed, duly endorsed for transfer to the Corporation the shares to
be redeemed.
(4) Capitalized terms used herein and not otherwise defined
herein have the respective meanings provided in the Amended and Restated
Certificate of Incorporation.
Date _________________________ SHAMAN PHARMACEUTICALS, INC.
By ______________________________
Title:
43
<PAGE> 102
d. Form of Holder Notice.
HOLDER NOTICE
(SECTION 7(c)(ii) OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION)
TO: SHAMAN PHARMACEUTICALS, INC.
(1) Pursuant to the terms of the Series D Convertible
Preferred Stock, par value $0.001 per share (the "Preferred Stock"), of Shaman
Pharmaceuticals, Inc., a Delaware corporation (the "Corporation"), the
undersigned hereby elects to exercise its right to require redemption by the
Corporation pursuant to SECTIONs 7(c)(ii)(a) and 7(c)(ii)(b) of the Amended and
Restated Certificate of Incorporation of _______________ shares of Preferred
Stock at an Optional Redemption Price per share in cash equal to the product
obtained by multiplying (a) the sum of (i) $1,000 plus (ii) an amount equal to
$___________ for the accrued but unpaid dividends on each share of Series D
Preferred Stock to be redeemed and any Arrearage Interest on dividends thereon
in arrears to the date of redemption times (b) 118%.
(2) The aggregate Optional Redemption Price of all shares of
Preferred Stock to be redeemed from the undersigned is $___________.
(3) Capitalized terms used herein and not otherwise defined
herein have the respective meanings provided in the Amended and Restated
Certificate of Incorporation.
Date: _______________________ NAME OF HOLDER:
By __________________________________
Signature of Registered Holder
(Must be signed exactly as name
appears on the stock certificate.)
44
<PAGE> 103
e. Form of Control Notice.
CONTROL NOTICE
(SECTION 7(c)(iv) OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION)
TO: _____________________________
(Name of Holder)
(1) Pursuant to the terms of the Series D Convertible
Preferred Stock, par value $0.001 per share (the "Preferred Stock"), Shaman
Pharmaceuticals, Inc., a Delaware corporation (the "Corporation"), hereby
notifies the above-named holder (the "Holder") that in accordance with the
Amended and Restated Certificate of Incorporation and by reason of events which
are not solely within the control of the Corporation, on _____________(fill in
date) an Optional Redemption Event subject to SECTION 7(c)(ii)(b)(iv) of the
Amended and Restated Certificate of Incorporation occurred.
(2) Attached to this Notice is an Auditors' Determination with
respect to the occurrence referred to in paragraph (1).
(3) Capitalized terms used herein and not otherwise defined
herein have the respective meanings provided in the Amended and Restated
Certificate of Incorporation.
Date: _________________________ SHAMAN PHARMACEUTICALS, INC.
By ______________________________
Title:
45
<PAGE> 104
f. Form of Adjustment Notice.
ADJUSTMENT NOTICE
(SECTION 7(c)(iv) OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION)
VIA FACSIMILE
TO: ____________________________
(Name of Holder)
(1) Pursuant to the terms of the Series D Convertible
Preferred Stock, par value $0.001 per share (the "Preferred Stock"), Shaman
Pharmaceuticals, Inc., a Delaware corporation (the "Corporation"), confirms to
the above-named holder (the "Holder") of shares of Preferred Stock that on
_______________ (fill in date) the Corporation gave the Holder and each other
holder of shares of Preferred Stock a Control Notice in accordance with the
Amended and Restated Certificate of Incorporation of the Preferred Stock (the
"Amended and Restated Certificate of Incorporation"), and hereby notifies the
Holder of the adjustments set forth below.
(2) Effective on _________(fill in date), the Series D
Conversion Price of the Preferred Stock is ____% (fill in percentage) of the
amount the Series D Conversion Price would otherwise be without regard to
adjustments pursuant to SECTION 7(c)(ii)(b)(iv) of the Amended and Restated
Certificate of Incorporation.
(3) Effective on _________(fill in date), cumulative dividends
shall accrue on each outstanding share of Preferred Stock in the amount of
$__________ per annum.
(4) The foregoing adjustments to the Series D Conversion Price
and the cumulative annual dividend amount will continue in effect until a
subsequent Adjustment Notice is given to the Holder.
(5) Capitalized terms used herein and not otherwise defined
herein have the respective meanings provided in the Amended and Restated
Certificate of Incorporation.
Date _________________________ SHAMAN PHARMACEUTICALS, INC.
By ______________________________
Title:
46
<PAGE> 105
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders
of all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Redemption. The Common is not redeemable.
3. Voting Rights. The holder of each share of Common shall
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with this Amended and Restated Certificate of
Incorporation and the Bylaws of this corporation, and shall be entitled to vote
upon such matters and in such manner as may be provided by law.
4. Residual Rights. All rights accruing to the outstanding
shares of the corporation not expressly provided for to the contrary herein
shall be vested in the Common.
ARTICLE V
Except as otherwise provided in this Amended and Restated
Certificate of Incorporation, in furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
repeal, alter, amend and rescind from time to time any or all of the Bylaws of
the corporation.
ARTICLE VI
The number of directors of the corporation shall be fixed from
time to time by a Bylaw or amendment thereof duly adopted by the Board of
Directors or by the stockholders.
The Board of Directors shall be and is divided into two
classes, Class I and Class II. Such classes shall be as nearly equal in number
of directors as possible. Each director shall serve for a term ending on the
second annual meeting following the annual meeting at which such director was
elected. The foregoing notwithstanding, each director shall serve until his
successor shall have been duly elected and qualified, unless he shall resign,
become disqualified, disabled or shall otherwise be removed. Any director or the
entire Board of Directors may be removed, with or without cause, by the holders
of a majority of the shares entitled to vote at an election of directors.
At each annual election, directors chosen to succeed those
whose terms then expire shall be of the same class as the directors they
succeed, unless by reason of any intervening changes in the authorized number of
directors, the Board shall designate one or more directorships whose term then
expires as directorships of another class in order more nearly to achieve
equality of number of directors among the classes.
47
<PAGE> 106
Notwithstanding the rule that the two classes shall be as
nearly equal in number of directors as possible, in the event of any change in
the authorized number of directors each director then continuing to serve as
such shall nevertheless continue as a director of the class of which he is a
member until the expiration of his current term, or his prior death, resignation
or removal. If any newly created directorship may, consistently with the rule
that the two classes shall be as nearly equal in number of directors as
possible, be allocated to one of two classes, the Board shall allocate it to
that of the available classes whose term of office is due to expire at the
earliest date following such allocation.
ARTICLE VII
Elections of directors need not be by written ballot unless
the Bylaws of the corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or outside of the
State of Delaware, as the Bylaws may provide. The books of the corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of the corporation.
ARTICLE IX
A director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under SECTION 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived any
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to authorize, with the approval of the corporation's stockholders,
further reductions in the liability of the corporation's directors for breach of
fiduciary duty, then a director of the corporation shall not be liable for any
such breach to the fullest extent permitted by the Delaware General Corporation
Law as so amended. Any repeal or modification of the foregoing provisions of
this Article IX by the stockholders of the corporation shall not adversely
affect any right or protection of a director of the corporation existing at the
time of such repeal or modification.
ARTICLE X
The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or
48
<PAGE> 107
hereafter prescribed by statute, and all rights conferred on stockholders herein
are granted subject to this reservation.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by the President and the Secretary of the
corporation this ____ day of February, 1999.
SHAMAN PHARMACEUTICALS, INC.
By _____________________________
Lisa A. Conte, President
49
<PAGE> 108
SHAMAN PHARMACEUTICALS, INC.
PROXY
Special Meeting of Stockholders, February 1, 1999
This Proxy is Solicited on Behalf of the Board of Directors of
Shaman Pharmaceuticals, Inc.
The undersigned revokes all previous proxies, acknowledges receipt of
the Notice of the Special Meeting of Stockholders to be held February 1, 1999
and the Proxy Statement and appoints Lisa A. Conte and G. Kirk Raab, and each of
them, the Proxy of the undersigned, with full power of substitution, to vote all
shares of Common Stock or Preferred Stock of Shaman Pharmaceuticals, Inc. (the
"Company") which the undersigned is entitled to vote, either on his or her own
behalf or on behalf of any entity or entities, at the Special Meeting of
Stockholders of the Company to be held at The Embassy Suites, 250 Gateway
Boulevard, South San Francisco, California, 94080 on Monday, February 1, 1999 at
9:00 A.M. Pacific Time (the "Special Meeting"), and at any adjournment or
postponement thereof, with the same force and effect as the undersigned might or
could do if personally present thereat. The shares represented by this Proxy
shall be voted in the manner set forth on the reverse side.
1. To approve an amendment and restatement to the Company's
Amended and Restated Certificate of Incorporation to (a)
increase the number of authorized shares of the Company's
Common Stock thereunder from 40,000,000 shares to 70,000,000
shares and (b) increase the number of authorized shares of the
Company's Preferred Stock by 1,000,000 shares, from 1,000,000
shares to 2,000,000 shares.
2. FOR AGAINST ABSTAIN To approve an amendment to the
Company's 1992 Stock Option Plan (the "Plan") to increase the
maximum number of shares of the Company's Common Stock
authorized for issuance under the Plan by an additional
2,000,000 shares and change the limitation on the maximum
number of shares for which any one individual may be granted
stock options and separately exercisable stock appreciation
rights under the Plan from 750,000 shares over the term of the
Plan to 2,500,000 shares per calendar year.
3. FOR AGAINST ABSTAIN To approve the option grant for
1,500,000 shares of the Company's Common Stock made under the
Plan to Lisa A. Conte, the Company's President and Chief
Executive Officer, on September 18, 1998 with an exercise
price of $1.281 per share.
4. In accordance with the discretion of the proxy holders, to act
upon all matters incident to the conduct of the meeting and
upon other matters as may properly come before the meeting.
The Board of Directors recommends a vote IN FAVOR OF above proposals.
This Proxy, when properly executed, will be voted as specified above. If no
specification is made, this Proxy will be voted IN FAVOR OF the above proposals.
Please print the name(s) appearing on each share certificate(s) over
which you have voting authority:________________________________________________
(Print name(s) on certificate)
Please sign your name:____________________________ Date:_______________________
(Authorized Signature(s))
<PAGE> 109
[SHAMAN PHARMACEUTICALS LETTERHEAD]
TO OUR STOCKHOLDERS:
Normally, I would be writing to update you as part of our regular Annual
Stockholders' Meeting Schedule. This year, however, has been rather event
filled, and I am writing to update you on Shaman Pharmaceuticals in connection
with a Special Meeting of Stockholders. Our regular Annual Meeting will proceed
later on in 1999 as regularly scheduled.
I would like to start off the year 1999 with a commercial resolution, namely the
planned registration of Provir as a treatment of diarrhea in people with AIDS.
Our activities throughout 1998 were focused on this near-term event, and those
of 1999 will be even more intensely channeled towards this objective, as we move
forward in filing our first NDA for this fast-tracked indication of Provir,
looking to the FDA for an approval of this first indication, and as we prepare
the Company for direct participation in the commercial introduction of Provir to
the AIDS Community.
1998; THE YEAR IN REVIEW
The highlights of the past year's activities were undoubtedly the positive
clinical trial results achieved with Provir, in multiple indications, and the
capital raised to support the final development and commercialization of this
product.
CLINICAL TRIAL RESULTS
In December, 1998, Shaman released positive Phase III results of Provir for the
treatment of diarrhea in people with AIDS. Shaman has worked closely,
productively, and expediently with the FDA over the past year to first, study
this devastating syndrome in the AIDS population, which was the request of the
FDA; and secondly, to design and execute a single pivotal trial to reproduce our
Phase II results in this syndrome and serve as the basis of an NDA filing in the
first half of 1999.
Diarrhea in people with AIDS is a complicated disease of multiple and, for the
most-part, unknown etiologies. We are quite pleased with the strength of our
results in such a heterogeneous population. We are particularly heartened by the
fact that Provir seemed to have an even more pronounced effect in the sicker
patients in the trial-- individuals who were putting out over 1000 grams of
stool a day at the start of the trial. One can only fathom the dramatic impact
on the lifestyle of such patients, and the truly unmet medical need of this
syndrome.
Our goal is to continue to work respectfully with the FDA in the presentation of
these results and to achieve the agency's endorsement of these results as they
become incorporated into our NDA filing package over the next few months.
Equally important to this dialogue is the continued safety profile of Provir,
which has now been administered for periods of up to one month. We've already
initiated treatment of patients from this trial in an open label extension
study, to provide continued relief to the participants in
<PAGE> 110
December 31, 1998
Page 2
the trial and create an even longer term safety database to support our full NDA
package.
We also released highly significant results in a Phase II study of acute watery
diarrhea in travelers in 1998-- a relatively homogenous population and
well-honed trial design utilized in most of the major studies of travelers'
diarrhea over the past 20 years by the principle investigator, Dr. Hebert
DuPont, the leading expert in the study of traveler's diarrhea. These data, in
combination with a second successful study of the treatment of acute watery
diarrhea in Venezuelan nationals in Venezuela, support the broad-acting
mechanism of action of Provir.
CAPITAL RAISED
I recently had the opportunity to review the original business plan written for
Shaman Pharmaceuticals-- which set expectations of approximately $150-$250
million and 10 years to bring a first product to market-- a seemingly
overwhelming task, yet the realities of the emerging pharmaceutical company
existence and of an industry which has generated some of the most important and
fascinating medical breakthroughs in the world. With over $150 million raised
from equity financings and corporate partnerships, and a ten year anniversary
upcoming in 1999, Shaman is finally poised to realize these expectations.
Shaman raised approximately $21 million in two different innovative financings
in 1998. Each financing was designed by Shaman to uniquely address our
fund-raising needs and to highlight the commercial potential of near-term Provir
sales in the US market.
Our royalty-based Series C Convertible Preferred Stock provides a royalty on the
sales of Provir in the US as an important component of the return for this
financial instrument. Conversion of the outstanding preferred cannot occur
before August 18, 1999.
Our recent equity offering tied to the creation of the Shaman HIV Investment
Trust again highlights our direct involvement with the prospective sales of
Provir and rapport with and commitment to the AIDS Community, as well as our
desire to access an investor base with a long-term investment outlook.
Also, in 1998, Shaman successfully exchanged previously issued convertible debt
on its balance sheet for equity, an activity critical to maintaining our NASDAQ
listing status and influential in limiting the shorting incentive in our stock.
DIVERSIFICATION
With the necessary attention to the near-term commercial opportunity and value
driver at Shaman, I would like to take the opportunity to remind our
stockholders that Shaman is not a one indication company, one product company,
nor one marketplace company. We do have three distinct products in the clinic
targeting five different indications, including the first product to emerge from
our prolific diabetes research program. Moreover, the recent establishment of
Shaman Botanicals, Inc. will allow us to access the value of our ethnobotanical
archives which are not suitable for NDA development.
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This being said, there is no doubt in the mind and action of Shaman employees
which activities get the first "call" on Shaman's resources over the next year--
those that support the near-term commercialization of Provir.
1999, THE YEAR TO COME
TARGETING THE COMMERCIAL INTRODUCTION OF PROVIR
We at Shaman have calculated the potential value to Shaman in maintaining direct
participation in the commercialization of Provir to the AIDS market in the US --
and have sought and raised funds in accordance with that expected value
generation to our stockholders. The key to achieving this value is the
relatively streamlined selling effort that can occur to a well-educated and
highly motivated patient population.
Commercialization of Provir for a more broad array of indications this
supportive care product addresses, and its international introduction, will
ultimately occur with the assistance of corporate partnerships. The value sought
by Shaman and motivating strategy driving such partnership discussions has
evolved throughout 1998 as additional market and clinical data were generated,
culminating in the Phase III trial results. With the experience and base of
multiple partner discussions, Shaman is well-poised to pursue corporate
alliances in 1999.
PROXY
The votes in this year's proxy provide Shaman with two major attributes-- the
ability to exercise flexibility in the structure of corporate alliances, and the
ability to retain and attract key personnel.
Shaman needs access to additional shares in order to be responsive to the
"balance sheet sensitivity" of large corporate partners in structuring licenses
for a product with the near-term revenue opportunity and development
risk-reduction profile of Provir. Deal structures incorporating future priced
equity are common in the biotech-big pharma alliance world, and such flexibility
can enhance the total resources brought to Shaman in pursuing such alliances.
Shaman also needs to increase its employee option pool. Shaman has put together
one of the most impressive research and development teams in the industry-- Dr.
Gerald Reaven, Senior Vice President of Research, Dr. James Pennington, Senior
Vice President of Clinical Research and Chief Medical Officer, and Dr. Steven
King, Senior Vice President of Ethnobotany and Conservation are internationally
recognized and sought-after distinguished leaders in their respective fields.
Dr. John Chow, Vice President of Technical Operations, Laurie Peltier, Vice
President of Project Coordination, Dr. Carol Zoltowski, Senior Director of
Regulatory Affairs, Dr. Steve Porter, Senior Director of Medical Affairs, Dr.
Steve Chang, Director of Biostatistics, Dr. Richard Hector, Senior Director of
Biological Sciences, Dr. Tom Carlson, Senior Director of Biomedical Field
Research, and Loretta Su, Controller are but a few of the Shaman "heroes" who
brought us through 1998 with quality, integrity, and success. And J.D. Haldeman,
Vice President of Commercial Development, the first member and
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leader of our commercial team, represents the vigor and experience we'll be
seeking to add to the team as we prepare to launch our first product.
Moreover, Shaman added two members to its board of directors in 1998-- Mr.
Adrian Bellamy, former Chairman and CEO of DFS Group Limited and Mr. Jeff Berg,
Chairman and CEO of International Creative Management, Inc. Under the
chairmanship of Mr. Kirk Raab, former President and CEO of Genentech, and
continued participation of Mr. Herbert McDade, former President of Revlon
Healthcare, and Mr. Dave Titus of Windward Ventures the evolving profile of the
board is clearly reflecting Shaman's movement towards commercialization.
Let me conclude by saying that 1998 was a year of exhaustion-- physically, to
achieve the 1998 milestones with as efficient a staff as possible; and mentally,
as the capital markets continually fail to show recognition for such
achievements. The Shaman team is highly focused on the objective value
recognition that can be attained making product revenues, and ultimately
profitability, near-term realities. The team is also highly motivated to take on
the objectives and goals of 1999 with vigor and enthusiasm. As our recent
T-shirts display, "The greatest gift in life..." is to bring a product from a
tree growing in the rain forest, through our discovery and development
philosophy, to market. This gift has been enhanced with such an important
initial indication for Provir, and the opportunity it provides for Shaman to
continue its programs of recognition and respect for all the communities with
which it works-- from the rain forests of tropical regions in the world, to the
international AIDS Community.
To you, our stockholders, I thank you for your support, patience, and vision. To
lead this team and this product to market in 1999 is a gift to me and my clear
responsibility to you.
/s/ LISA A. CONTE
Lisa A. Conte
President and Chief Executive Officer
December 31, 1998
