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
[ X ] Filed by the registrant
[ ] Filed by a party other than the registrant
Check the appropriate box:
[ X ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Shaman Pharmaceuticals, Inc.
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(Name of Registrant as Specified in Its Charter)
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(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.
Title of each class of securities to which transaction applies:
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(1) Aggregate number of securities to which transactions applies:
- ------------------------------------------------------------------------------
(2) 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):
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(3) Proposed maximum aggregate value of transaction:
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(4) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] 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.
(5) Amount Previously Paid:
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(6) Form, Schedule or Registration Statement No.:
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(7) Filing Party:
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(8) Date Filed:
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<PAGE>
[SHAMAN LOGO]
SHAMAN PHARMACEUTICALS, INC.
213 East Grand Avenue
South San Francisco, California 94080
December 28, 1999
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders
("Special Meeting") of Shaman Pharmaceuticals, Inc. (the "Company"), which will
be held at 9:00 A.M. Pacific Standard Time on Wednesday, January 28, 2000 at The
Embassy Suites, 250 Gateway Boulevard, South San Francisco, California 94080,
for the following purposes:
(i) To approve an amendment to the Amended and Restated Certificate to
increase the number of authorized shares of the Company's Common Stock
by 280,000,000 shares, from 220,000,000 shares to 500,000,000 shares;
(ii) To authorize the Board of Directors to effect, as soon as practicable
following the Special Meeting, any one of five different reverse stock
splits of the Company's Common Stock in a ratio of from one-for-fifty
to up to one-for-one thousand;
(iii) To authorize and approve the Series R Preferred Stock Option Plan; 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.
Sincerely,
Lisa A. Conte
President, Chief Executive Officer and
Chief Financial Officer
===============================================================================
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>
SHAMAN PHARMACEUTICALS, INC.
-------------------------------
NOTICE OF SPECIAL
MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 28, 2000
-------------------------------
TO THE STOCKHOLDERS OF SHAMAN PHARMACEUTICALS, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders
("Special Meeting") of Shaman Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), will be held at 9:00 A.M. Pacific Standard Time on Wednesday,
January 28, 2000 at The Embassy Suites, 250 Gateway Boulevard, South San
Francisco, California 94080, for the following purposes:
(1) To approve an amendment to the Amended and Restated Certificate to
increase the number of authorized shares of the Company's Common Stock
by 280,000,000 shares, from 220,000,000 shares to 500,000,000 shares;
(2) To authorize the Board of Directors to effect, as soon as practicable
following the Special Meeting, any one of five different reverse stock
splits of the Company's Common Stock in a ratio of from one-for-fifty
to up to one-for-one thousand;
(3) To authorize and approve the Series R Preferred Stock Option Plan; 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 15, 1999. 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 10 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 would 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, Chief Executive Officer,
Chief Financial Officer and Director
South San Francisco, California
December 28, 2000
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>
SHAMAN PHARMACEUTICALS, INC.
213 East Grand Avenue
South San Francisco, California 94080
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PROXY STATEMENT
------------------------------
FOR THE SPECIAL
MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 28, 2000
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 the Special Meeting of Stockholders (the "Special
Meeting") to be held at 9:00 A.M. Pacific Standard Time on Wednesday, January
28, 2000, 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
December 29, 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. All stockholders of record at the close of
business on December 15, 1999 are entitled to notice of, and to vote at, the
Special Meeting. As of the close of business on such date, there were
____________ 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. _____ shares of Series C Preferred Stock were
outstanding and entitled to vote and held by ___ stockholders, ____ shares of
Series D Preferred Stock were outstanding and held by ___ stockholders of
record, and _____shares of Series R Preferred Stock were outstanding and held by
_____ stockholders of record. 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 holder of Series C Preferred Stock is entitled to
one vote for each share of Common Stock into which each share of Series C
Preferred Stock held by such stockholder is convertible as of the record date.
Each holder of Series D Preferred Stock as of the record date is entitled to one
vote for each share of Series D Preferred Stock held by such stockholder as of
the record date. Each holder of Series R Preferred Stock is entitled to one
hundred votes for each share of Series R Preferred Stock held by such
stockholder as of the record date.
Proposals One and Two will be decided by the affirmative vote of a
majority of the voting shares outstanding on the record date. All other 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. However, because Proposals One and Two require the
affirmative vote of a majority of the Company's outstanding voting shares on the
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Record Date, broker non-votes with respect to any of those particular proposals
will have the same effect as votes against the approval of those proposals.
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 __, 2000. 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. To assure that a quorum will be present in
person or by proxy at the Special Meeting, it may be necessary for certain
officers, directors, employees or other agents of the Company to solicit proxies
by telephone, facsimile or other means or in person. The Company will not
compensate such individuals for any such services. 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 TO THE
COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE
THE AUTHORIZED COMMON STOCK
The present capital structure of the Company authorizes 220,000,000 shares
of Common Stock, par value $0.001 per share, and 2,000,000 shares of preferred
stock, par value $0.001 per share (the "Preferred Stock"). In addition, of the
2,000,000 shares of Preferred Stock authorized, 200,000 shares are designated as
Series C Preferred Stock, ______ of which are issued and outstanding, 6,285
shares are designated as Series D Preferred Stock, ______ of which are issued
and outstanding, and 1,300,000 shares are designated as Series R Preferred
Stock, _____ of which are issued and outstanding. This capital structure is
inadequate for the present and future needs of the Company since the number of
shares of Common Stock currently authorized for issuance is insufficient for the
conversion of the Company's outstanding Preferred Stock into shares of Common
Stock. Therefore, the Board has unanimously approved the amendment of the
Company's Amended and Restated Certificate of Incorporation (the "Restated
Certificate") to increase the number of shares of Common Stock authorized for
issuance under Article IV of the Restated Certificate by 280,000,000 shares,
from 220,000,000 shares to 500,000,000. The increase in the authorized number of
shares of Common Stock, together with a reverse split of the Common Stock as
described in Proposal Two, is necessary so that the Company will be able to
issue the shares of Common Stock issuable upon conversion of the Company's
outstanding Preferred Stock. The Board believes that the increase is necessary
to meet the present and future needs of the Company and recommends that the
Company's stockholders approve this amendment.
On December 15, 1999, ______ shares of Common Stock were outstanding. On
December 15, 1999, assuming the conversion of the outstanding shares of the
Company's Series C Preferred Stock, Series D Preferred Stock, and Series R
Preferred Stock and exercise of all outstanding warrants and options, and
assuming that the stockholders approve and the Board adopts the 1-for-1,000
reverse stock split set forth in Proposal Two, approximately ______ shares of
Common Stock would be outstanding on a fully diluted basis. 220,000,000 shares
of Common Stock are authorized to be issued under the Company's Certificate of
Incorporation as currently in effect.
If approved by the Company's stockholders as provided herein, the increase
in shares of Common Stock will be effected by an amendment of the Company's
Restated Certificate in substantially the form attached to this Proxy Statement
as Exhibit A (the "Common Increase Amendment"), and will become effective upon
the filing of the Common Increase Amendment with the Secretary of State of
Delaware. The following discussion is qualified in its entirety by the full text
of the Common Increase Amendment, which is incorporated by reference herein.
Purpose of Authorizing Additional Common Stock
Currently, the total number of shares of Common Stock issued and
outstanding or issuable upon conversion of outstanding Preferred Stock exceeds
the authorized number of Common Stock shares. The amendment to increase the
authorized number of Common Stock shares will, together with a reverse split of
the common stock as described in Proposal Two, enable the Company to meet its
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obligations to issue shares of Common Stock under the terms of its outstanding
warrants and convertible securities, and to have adequate shares remaining for
future financing. The authorization of an additional 280,000,000 shares of
Common Stock would give the Board the express authority, without further action
of the stockholders, to issue such shares of Common Stock from time to time, as
the Board deems necessary.
As of December 15, 1999, the outstanding shares of Series C Preferred
Stock and Series D Preferred Stock were convertible into an aggregate of ______
shares of Common Stock. The Company does not have an adequate number of shares
of Common Stock authorized to accommodate conversion of all of the Series C
Preferred Stock and Series D Preferred Stock, and will therefore be in breach of
its obligations upon the request of the holders of Series C and Series D
Preferred Stock to convert their shares at such time as the authorized number of
Common Stock shares is exceeded. As a result, the Company will face significant
penalties under the agreements relating to the issuance of such securities, and
this breach may entitle the holders of the Series C and/or Series D Preferred
Stock to have their shares redeemed for cash. The Company does not have the
financial resources to redeem such shares. If Common Stock shares are not
available to accommodate this conversion when requested, the Company will face
significant financial penalties under the agreements relating to issuance of
such securities.
The Company's Series R Preferred Stock will automatically convert on
February 1, 2000 into a number of shares of Common Stock equal to $15.00 divided
by the conversion price then in effect. The conversion price shall be equal to
the lesser of $0.10 per share, or the price that is equal to 10% of the average
closing sales price of the common stock for the 10 trading days ending three
trading days prior to February 1, 2000. However, the Series R Preferred Stock
will convert on February 1, 2000 only to extent that the Company has enough
common stock shares authorized to issue all shares of common stock needed to
effect the conversion of all outstanding shares of the Series R Preferred Stock,
after taking into account the number of common stock shares necessary to effect
the conversion of any then outstanding shares of Series C Preferred Stock and
Series D Preferred Stock. Based on a conversion price of $__, which is equal to
10% of the closing price of the Company's Common Stock on December 15, 1999, the
outstanding shares of Series R Preferred Stock would be convertible into _____
shares of Common Stock. None of the outstanding Series R Preferred Stock may
therefore be converted based on the current market price of the Company's Common
Stock. The increase in the authorized shares of Common Stock in this Proposal
One, together with one of the reverse stock splits set forth in Proposal Two, is
necessary to enable the Company to convert its Preferred Stock into Common
Stock.
To the extent shares of common stock remain available after taking into
account the conversion of the Preferred Stock, any such additional Common Stock
would be available for issuance by the Board without future action by the
stockholders, unless such action was specifically required by applicable law or
rules of any stock exchange or quotation system on which the Company's
securities may then be listed.
Effect of Authorizing Additional Common Stock
Each additional share of Common Stock authorized by the amendment of the
Company's Restated Certificate would have the same rights and privileges as each
share of Common Stock currently authorized or outstanding.
To the extent shares of Common Stock remain available after taking into
account the conversion of the Preferred Stock, 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
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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 the Company's outstanding voting
shares is required to approve the amendment of the Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock issuable thereunder by 280,000,000 shares, from 220,000,000 shares
to 500,000,000 shares.
Recommendation of the Board of Directors
The Board of Directors recommends that the stockholders vote IN FAVOR OF
the amendment of the Company's Amended and Restated Certificate of
Incorporation. An increase in the number of authorized shares of the Company's
Common Stock from 220,000,000 to 500,000,000 would enable the Company to have
adequate authorized but unissued shares of Common Stock available for issuance
upon the conversion of several Series of Preferred Stock. If shares are not
available to accommodate conversion of the Series C Preferred Stock and Series D
Preferred Stock when requested, the Company will be in breach of its obligations
and therefore will face significant penalties under the agreements relating to
the issuance of such securities and may entitle the holders of the Series C
and/or Series D Preferred Stock to have their shares redeemed for cash. The
Company does not have the financial resources to redeem such shares, and the
Company will face significant financial penalties under the agreements relating
to issuance of such securities. In addition, the Company must have an adequate
number of shares of Common Stock available for issuance upon the conversion of
the Series R Preferred Stock on February 1, 2000.
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PROPOSAL TWO
AUTHORIZATION FOR THE BOARD TO
EFFECT ANY ONE OF FIVE DIFFERENT
REVERSE STOCK SPLITS
General
The Company's stockholders are being asked to act upon a proposal to
authorize the Board to effect any one of five different reverse stock splits
(one-for-fifty, one-for-one hundred, one-for two hundred, one-for five hundred,
and one-for-one thousand) (the "Reverse Stock Splits"), depending upon a
determination by the Board of which of these Reverse Stock Splits is in the best
interests of the Company and the stockholders. The Board will select, in its
discretion, one of the Reverse Stock Splits based on its determination of which
of them is necessary to enable the Company to issue all of the shares of Common
Stock issuable upon conversion of the outstanding Preferred Stock, which will
allow adequate additional shares of Common Stock to be issued for potential
future financings, and which results in the greatest marketability and liquidity
of the Common Stock. The remaining alternative Reverse Stock Splits will be
abandoned by the Board without further stockholder action.
The Board has approved each of the Reverse Stock Splits. The Board has
directed that each of the Reverse Stock Splits be submitted to the Company's
stockholders for consideration and action. If approved by stockholders, one of
the Reverse Stock Splits will be effected, as described below, even if none of
the other Proposals set forth in this Proxy Statement are adopted.
Stockholders may approve or reject the Reverse Stock Splits in whole but
not in part. Except as may result from the rounding of fractional shares as
described below, each stockholder will hold the same percentage of Common Stock
outstanding immediately following a Reverse Stock Split as each stockholder did
immediately prior to the Reverse Stock Split. If approved by the stockholders of
the Company, a Reverse Stock Split would become effective as soon as practicable
following the Special Meeting, and in no event later than March 1, 2000. If none
of the Reverse Stock Splits is effected by March 1, 2000, the Board will again
seek shareholder approval.
One of the five Reverse Stock Splits will be effected by an amendment of
the Company's Restated Certificate in substantially the form attached to this
Proxy Statement as Exhibit B (the "Reverse Stock Split Amendment"), and will
become effective upon the filing of the Reverse Stock Split Amendment with the
Secretary of State of Delaware (the "Effective Date"). The following discussion
is qualified in its entirety by the full text of the Reverse Stock Split
Amendment, which is incorporated by reference herein.
Upon filing of the Reverse Stock Split Amendment with the Delaware
Secretary of State on the Effective Date, a reverse stock split will be
effective, and each share of Common Stock issued and outstanding immediately
prior thereto will automatically be reclassified and converted into one of the
five reverse stock split alternative fractions (1/50th, 1/100th, 1/200th,
1/500th or 1/1,000th) of a share of Common Stock. Fractional shares of Common
Stock will not be issued as a result of any of the Reverse Stock Splits.
Stockholders entitled to receive a fractional share of Common Stock as a
consequence of a Reverse Stock Split will, instead, receive one whole share of
Common Stock. The Company expects that, if this Proposal Two is approved by the
stockholders at the Special Meeting, the Board will promptly select a Reverse
Stock Split and the Company will promptly file the applicable Reverse Stock
Split Amendment. The Board may elect not to file the Reverse Stock Split
Amendment, notwithstanding stockholder approval of this Proposal Two, if the
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Board determines that filing the Reverse Stock Split Amendment would not be in
the best interests of the Company, although the Company does not anticipate such
an occurrence.
Reasons for the Reverse Stock Split
The primary purpose of the Reverse Stock Split is to combine the
outstanding shares of the Company's Common Stock so that the Company has
adequate authorized but unissued shares of Common Stock available for issuance
upon conversion the Company's Series C, Series D and Series R Preferred Stock.
As of December 15, 1999 the Company had approximately ____ shares of Common
Stock issued and outstanding, and ______ shares of Common Stock issuable upon
conversion of outstanding shares of Series C, Series D, and Series R Preferred
Stock. 220,000,000 shares of Common Stock are authorized to be issued under the
Company's Certificate of Incorporation as currently in effect, and 500,000,000
shares will be authorized upon amendment of the Company's Restated Certificate
if the stockholders approve Proposal One. Since the Company is not able to issue
all the shares of Common Stock into which the Series C and Series D Stock is
currently convertible, the Company will face significant penalties under the
agreements relating to the issuance of such securities, and this breach may
entitle the holders of the Series C and/or Series D Preferred Stock to have
their shares redeemed for cash. The Company does not have the financial
resources to redeem such shares. If Common Stock shares are not available to
accommodate this conversion when requested, the Company will face significant
financial penalties under the agreements relating to issuance of such
securities. In addition, the Company must have an adequate number of shares of
Common Stock available for issuance upon the conversion of the Series R
Preferred Stock on February 1, 2000. The Reverse Stock Split, together with the
increase in the authorized shares of Common Stock under Proposal One, would
allow the Company to accommodate the conversion of the Company's outstanding
Preferred Stock.
Another effect of the Reverse Stock Split is that by combining the
outstanding shares of Common Stock, the Common Stock outstanding after giving
effect to the Reverse Stock Split trades at a significantly higher price per
share than the Common Stock outstanding before giving effect to the Reverse
Stock Split. The Company anticipates that, following the consummation of the
Reverse Stock Split, the Common Stock will trade at a price per share that is
significantly higher than the current market price of the Common Stock. The
Board of Directors also believes that the proposed Reverse Stock Splits may
result in a broader market for the Common Stock than that which currently
exists. The expected increased price level may encourage interest and trading in
the Common Stock and possibly promote greater liquidity for the Company's
stockholders. However, there can be no assurance that, following the Reverse
Stock Split, such higher price will be maintained or that the market for the
Common Stock will be improved.
For the above reasons, the Company believes that the Reverse Stock Split
is in the best interests of the Company and its stockholders. However, there can
be no assurances that the Reverse Stock Split will have the desired
consequences.
Effect of the Reverse Stock Split
Subject to stockholder approval, one of the five Reverse Stock Splits will
be effected by filing the Amendment to the Company's Amended and Restated
Certificate and will be effective immediately upon such filing. Although the
Company expects to file the Reverse Stock Split Amendment with the Delaware
Secretary of State's office promptly following approval of this Proposal Two at
the Annual Meeting, the actual timing of such filing will be determined by the
Company's management based upon their evaluation as to when such action will be
most advantageous to the Company and its stockholders. The Company reserves the
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right to forego or postpone filing the Reverse Stock Split Amendment if such
action is determined to be in the best interests of the Company and its
stockholders.
Each of the Company's stockholders will continue to own one or more shares
of Common Stock and will continue to share in the assets and future growth of
the Company as a stockholder. There will be no material differences between the
rights of the shares of Common Stock outstanding prior to the Reverse Stock
Split and those outstanding after one of the five Reverse Stock Splits is
effective. Each stockholder that owns fewer than the number of shares of Common
Stock equal to the applicable Reverse Stock Split ratio (for example, 50 shares
in the event of a Reverse Stock Split of 1-for-50) will have such stockholder's
fractional share of Common Stock converted into one share of Common Stock. Each
stockholder that owns more than the number of shares of Common Stock than the
applicable Reverse Stock Split ratio will own that number of shares as equals
the applicable fraction (1/50th, 1/100th, 1/200th, 1/500th or 1/1,000th) of the
number of shares that such stockholder owned before the Reverse Stock Split,
subject to the adjustment for fractional shares, in which case such stockholder
shall receive one share of Common Stock in lieu of such fractional share. The
number of shares of Common Stock that may be purchased upon the exercise of
outstanding options, warrants, and other securities exercisable for, shares of
Common Stock (collectively, "Exercisable Securities") and the per share exercise
or conversion prices thereof, will be adjusted appropriately as of the Effective
Date, so that the aggregate number of shares of Common Stock issuable in respect
of Exercisable Securities immediately following the Effective Date will be equal
to the applicable Reverse Stock Split fraction of the number issuable in respect
thereof immediately prior to the Effective Date, the per share exercise price
immediately following the Effective Date will be a commensurate multiple of the
per share exercise or conversion price immediately prior to the Effective Date,
and the aggregate exercise or conversion prices thereunder shall remain
unchanged. The Reverse Stock Split will have no effect on the authorized or
outstanding shares of Series C Preferred Stock, Series D Preferred Stock and
Series R Preferred Stock, although the Reverse Stock Split will result in
certain adjustments to the voting rights and conversion ratios of the Series C
Preferred Stock and the Series D Preferred Stock so that once one of the five
Reverse Stock Splits is effected, the relative voting power of such shares to
the voting power of the Common Stock and to the voting power of the other series
of outstanding Preferred Stock immediately after the Effective Date will be in
the same proportion as existed immediately prior to the Reverse Stock Split.
Since the Series R Preferred Stock will automatically convert into Common Stock
on February 1, 2000, it will not remain outstanding for any significant amount
of time following the Reverse Stock Split.
The Reverse Stock Split will also result in some stockholders owning "odd
lots" of less than 100 shares of Common Stock received as a result of the
Reverse Stock Split. Brokerage commissions and other costs of transactions in
odd lots may be higher, particularly on a per-share basis, than the cost of
transactions in even multiples of 100 shares.
The Company is currently authorized to issue 220,000,000 shares of Common
Stock, par value $0.001 per share (or 500,000,000 shares if Proposal One is
adopted), of which ___________ shares were issued and outstanding at the close
of business on December 15, 1999, the record date. The Company is also
authorized to issue 2,000,000 shares of Preferred Stock, each share having a par
value of $0.001 per share (the "Preferred Stock), of which __________ shares of
the Company's Series C Preferred Stock were outstanding, _____ shares of Series
D Preferred Stock were outstanding, and _____ shares of Series R Preferred Stock
were outstanding.
Adoption of one of the Reverse Stock Splits will reduce the shares of
Common Stock outstanding but will not affect the number of authorized shares of
Common Stock or the authorized or outstanding shares of Preferred Stock. After
the Reverse Stock Split, the Company estimates that it will have approximately
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<PAGE>
the same number of stockholders. Except for changes resulting in rounding of
fractional shares, the Reverse Stock Split will not affect any stockholder's
proportionate equity interest in the Company.
The following table illustrates the effects of each of the Reverse Stock
Splits upon the number of shares of Common Stock issued and outstanding, and the
number of authorized and unissued shares of Common Stock.
<TABLE>
<CAPTION>
Common Stock Authorized and
Reverse Stock Split Ratios Outstanding (1) Unissued Common Stock(2)
-------------------------- --------------- ------------------------
<S> <C> <C>
1 for 50
1 for 100
1 for 200
1 for 500
1 for 1000
</TABLE>
(1) The figures in this table are calculated based on December 15, 1999 issued
and outstanding shares of Common Stock. The number of Common Stock shares
outstanding does not include shares of Common Stock issuable upon exercise
or conversion of outstanding options or warrants but does include the
conversion of all outstanding Series C, Series D and Series R Preferred
Stock, based on a market price for the Common Stock on December 15, 1999
of $___ per share.
(2) These figures are based on a pre-Reverse Stock Split number of 220,000,000
authorized shares, and does not reflect the proposed increase in the
authorized shares to 500,000,000 under Proposal One.
As a result of the Reverse Stock Split, the Company will have a greater
number of authorized but unissued shares of Common Stock than prior to the
Reverse Stock Split. The increase in the authorized but unissued shares of
Common Stock could make a change in control of the Company more difficult to
achieve. Under certain circumstances, such shares of Common Stock could be used
to create voting impediments to frustrate persons seeking to effect a takeover
or otherwise gain control of the Company. Such shares could be sold privately to
purchasers who might side with the Board of Directors in opposing a takeover bid
that the Board determines is not in the best interests of the Company and its
stockholders. The increase in the authorized but unissued shares of Common Stock
also may have the effect of discouraging an attempt by another person or entity,
through acquisition of a substantial number of shares of Common Stock, to
acquire control of the Company with a view to effecting a merger, sale of assets
or a similar transaction, since the issuance of new shares could be used to
dilute the stock ownership of such person or entity. Shares of authorized but
unissued Common Stock could be issued to a holder who would thereby have
sufficient voting power to assure that any such business combination or any
amendment to the Company's Certificate of Incorporation would not receive the
stockholder vote required for approval thereof. The Board of Directors has no
current plans to issue any shares of Common Stock for any such or other purpose,
and does not intend to issue any stock except on terms or for reason which the
Board of Directors deems to be in the best interests of the Company.
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<PAGE>
The Common Stock is currently listed on the Nasdaq OTC Bulletin Board,
under the trading symbol SHMN.
Exchange of Stock Certificates
The combination and reclassification of shares of Common Stock pursuant to
a Reverse Stock Split will occur automatically on the Effective Date without any
action on the part of stockholders of the Company and without regard to the date
certificates representing shares of Common Stock prior to the Reverse Stock
Split are physically surrendered for new certificates. If the number of shares
of Common Stock to which a holder is entitled as a result of the Reverse Stock
Split would otherwise include a fraction, the Company will issue to the
stockholder, in lieu of issuing fractional shares of the Company, one share of
Common Stock.
As soon as practicable after the Effective Date, transmittal forms will be
mailed to each holder of record of certificates for shares of Common Stock to be
used in forwarding such certificates for surrender and exchange for certificates
representing the number of shares of Common Stock such stockholder is entitled
to receive as a consequence of the Reverse Stock Split. The transmittal forms
will be accompanied by instructions specifying other details of the exchange.
Upon receipt of such transmittal form, each stockholder should surrender the
certificates representing shares of Common Stock prior to the Reverse Stock
Split, in accordance with the applicable instructions. Each holder who
surrenders certificates will receive new certificates representing the whole
number of shares of Common Stock that he or she holds as a result of the Reverse
Stock Split. STOCKHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES UNTIL THEY
RECEIVE A TRANSMITTAL FORM.
After the Effective Date, each certificate representing shares of Common
Stock outstanding prior to the Effective Date (an "Old Certificate") will, until
surrendered and exchanged as described above, be deemed, for all corporate
purposes, to evidence ownership of the whole number of shares of Common Stock
into which the shares of Common Stock evidenced by such certificate have been
converted by the Reverse Stock Split, except that the holder of such unexchanged
certificates will not be entitled to receive any dividends or other
distributions payable by the Company after the Effective Date until the Old
Certificates have been surrendered. Such dividends and distributions, if any,
will be accumulated, and at the time of surrender of the Old Certificates, all
such unpaid dividends or distributions will be paid without interest.
Certain Federal Income Tax Considerations
The following discussion describes certain material federal income tax
considerations relating to the Reverse Stock Split. This discussion is based
upon the Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed regulations thereunder, legislative history, judicial decisions, and
current administrative rulings and practices, all as amended and in effect on
the date hereof. Any of these authorities could be repealed, overruled, or
modified at any time. Any such change could be retroactive and, accordingly,
could cause the tax consequences to vary substantially from the consequences
described herein. No ruling from the Internal Revenue Service (the "IRS") with
respect to the matters discussed herein has been requested, and there is no
assurance that the IRS would agree with the conclusions set forth in this
discussion.
This discussion may not address certain federal income tax consequences
that may be relevant to particular stockholders in light of their personal
circumstances (such as persons subject to the alternative minimum tax) or to
certain types of stockholders (such as dealers in securities, insurance
13
<PAGE>
companies, foreign individuals and entities, financial institutions, and
tax-exempt entities) who may be subject to special treatment under the federal
income tax laws. This discussion also does not address any tax consequences
under state, local or foreign laws.
STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR
TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT FOR THEM, INCLUDING THE
APPLICABILITY OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, CHANGES IN APPLICABLE TAX
LAWS AND ANY PENDING OR PROPOSED LEGISLATION.
The Reverse Stock Split will constitute a reorganization within the
meaning of Section 368(a)(1)(E) of the Code or will otherwise qualify for
general nonrecognition treatment, and the Company should not recognize any gain
or loss as a result of the Reverse Stock Split. No gain or loss should be
recognized by a stockholder on exchange of Common Stock for Common Stock. A
stockholder's holding period for tax purposes for shares of Common Stock will be
the same as the holding period for tax purposes of the shares of Common Stock
exchanged therefor. A stockholder who receives one whole share of Common Stock
in lieu of a fractional share of Common Stock that otherwise would be held as a
capital asset generally will recognize capital gain or loss in an amount equal
to the difference between the cash value of the one share of Common Stock
received and the stockholder's basis in such fractional share of Common Stock.
For this purpose, a stockholder's basis in such fractional share of Common Stock
will be determined as if the stockholder actually received such fractional
share. Except as provided with respect to fractional shares, the aggregate tax
basis of the shares of Common Stock held by a stockholder following the Reverse
Stock Split will equal the stockholder's aggregate basis in the Common Stock
held immediately prior to the Reverse Stock Split and generally will be
allocated among the shares of Common Stock held following the Reverse Stock
Split on a pro-rata basis. Stockholders who have used the specific
identification method to identify their basis in shares of Common Stock combined
in the Reverse Stock Split should consult their own tax advisors to determine
their basis in the post-Reverse Stock Split shares of Common Stock received in
exchange therefor.
Vote Required for Stockholder Approval
The affirmative vote of a majority of the Company's outstanding voting
shares is required to approve the amendment to the Company's Restated
Certificate to effect any of the Reverse Stock Splits.
Recommendation of the Board of Directors
The Board recommends that the stockholder vote IN FAVOR OF the amendment
of the Company's Restated Certificate to effect one of the Reverse Stock Splits.
The purpose of the Reverse Stock Split is to combine the outstanding shares of
the Company's Common Stock so that the Company has adequate authorized but
unissued shares of Common Stock available for issuance upon the conversion of
several Series of Preferred Stock. If shares are not available to accommodate
conversion of the Series C Preferred Stock and Series D Preferred Stock when
requested, the Company will be in breach of its obligations and therefore will
face significant penalties under the agreements relating to the issuance of such
securities and may entitle the holders of the Series C and/or Series D Preferred
Stock to have their shares redeemed for cash. The Company does not have the
financial resources to redeem such shares, and the Company will face significant
financial penalties under the agreements relating to issuance of such
securities. In addition, the Company must have an adequate number of shares of
Common Stock available for issuance upon the conversion of the Series R
Preferred Stock on February 1, 2000.
14
<PAGE>
PROPOSAL THREE
APPROVAL AND ADOPTION OF THE
SERIES R PREFERRED STOCK OPTION PLAN
General Description
In September __, 1999, the Board of Directors of the Company adopted the
Series R Preferred Stock Option Plan (the "Series R Plan"). A total of _______
shares of Series R Preferred Stock have been reserved for issuance under the
Series R Plan. Options granted under the Series R Plan may be either incentive
stock options, as defined in Section 422 of the Internal Revenue Code of 1986
("Code"), or nonstatutory stock options. See, "Certain Federal Income Tax
Information" below for information concerning the tax treatment of both
incentive stock options and nonstatutory stock options.
The Board adopted the Series R Plan to effect an increase in the number of
shares available for issuance pursuant to options granted to its employees,
directors and consultants. The purpose of the increase is to enable the Company
to continue to retain talented personnel and to attract new talented personnel
by offering them participation in the Company's Series R Plan. Management
believes that without such incentive it will be unable to retain talented
employees, new directors and consultants.
As of December __, 1999 there were _______ options outstanding under the
Series R Plan (which options are subject to shareholder approval of the Series R
Plan), and ______ shares were reserved for issuance under the Series R Plan. In
addition, as of December __, 1999, there were ______ options outstanding under
the Company's 1992 Stock Option Plan.
Summary of Series R Plan
The essential features of the Series R Plan are summarized below. This
summary does not purport to be complete, and is subject to, and qualified by,
reference to all provisions of the Series R Plan, a copy of which is attached
hereto as Exhibit C.
Purposes. The purposes of the Series R Plan are to attract and retain the
best available personnel for positions of substantial responsibility, to provide
additional incentive for employees, directors and consultants of the Company and
to promote the success of the Company's business.
Administration. With respect to the grant of options to directors or
employees who are also officers or directors, the Series R Plan shall be
administered by (i) the Board of Directors of the Company; or (ii) a committee
designated by the Board and constituted in such a manner as to comply with
applicable laws and to permit such grants and related transactions to be exempt
from Section 16 (b) of the Exchange Act in accordance with Rule 16b-3. With
respect to grants to employees or consultants who are neither officers nor
directors of the Company, the Series R Plan shall be administered by the Board
or by a committee of the Board. It is anticipated that the Series R Plan will be
administered by the Compensation Committee of the Board with respect to grants
to employees, officers and consultants of the Company, and by the Board will
respect to grants to directors who are not employees of the Company.
The administrators of the Series R Plan have full power to select, from
among the employees, directors and consultants of the Company eligible for
grants, the individuals to whom options will be granted, to determine the
15
<PAGE>
specific terms and conditions of each grant, including the number of shares
subject to each option, to amend the terms of outstanding options granted under
the Series R Plan (except that any amendments that would adversely affect an
optionee's rights under an outstanding option may not be made without the
optionee's written consent), and to interpret and construe the terms of the
Series R Plan and options granted thereunder, all subject to the provisions of
the Series R Plan. The interpretation and construction of any provision of the
Series R Plan by the administrators shall be final and conclusive. Members of
the Board receive no additional compensation for their services in connection
with the administration of the Series R Plan.
Eligibility. The Series R Plan provides that options may be granted to
employees (including officers and directors who are also employees), directors
and consultants to the Company. Incentive stock options may only be granted to
employees.
Stock Options. Each option granted under the Series R Plan is to be
evidenced by a written stock option agreement between the Company and the
optionee and is subject to the following additional terms and conditions:
(a) Exercise of the Options. The Board or its committee determines on the
date of grant when options will become exercisable. An option is exercised by
giving written notice of exercise to the Company, specifying the number of full
shares of Common Stock to be purchased and tendering payment of the purchase
price to the Company. The acceptable methods of payment for shares issued upon
exercise of an option are set forth in the option agreement and may consist of
(1) cash; (2) check; or (3) promissory note; (4) the delivery of a properly
executed exercise notice together with such other documentation as the
Administrator shall require to effect an exercise and delivery to the Company of
the amount of sale or loan proceeds required to pay the exercise price; (5) any
combination of the foregoing methods; or (6) such other consideration and method
of payment as may be determined by the Series R Plan administrators and
permitted under law.
(b) Exercise Price. The exercise price of options granted under the Series
R Plan is determined on the date of grant. The exercise price of incentive stock
options must be at least 100% of the fair market value per share of the Common
Stock at the time of grant. In the case of incentive stock options granted to an
employee who at the time of grant owns more than 10% of the voting power of all
classes of stock of the Company or any parent or subsidiary, the exercise price
must be at least 110% of the fair market value par share of the Common Stock at
the time of grant. In the event of the grant of a nonstatutory option with an
exercise price below the then fair market value of the Common Stock, the
difference between fair market value on the date of grant and the exercise price
would be treated as a compensation expense for accounting purposes and would
therefore affect the Company's earnings.
(c) Termination. If the optionee's employment, directorship or consulting
relationship with the Company is terminated for any reason (other than death or
disability), options may be exercised within such period as is determined by the
Board or its committee (up to three months in the case of incentive stock
options) after such termination as to all or part of the shares as to which the
16
<PAGE>
optionee was entitled to exercise at the date of such termination, provided that
the option is exercised no later than its expiration date.
(d) Disability. If an optionee is unable to continue his or her
employment, directorship or consulting relationship with the Company as a result
of disability, options may be exercised at any time within 12 months from the
date of disability to the extent such options were exercisable at the date of
disability, provided that the option is exercised no later than its expiration
date. With respect to incentive stock options, if the disability is not a
"disability" as defined in Section 22(e)(3) of the Code, an optionee's incentive
stock options shall automatically convert into nonstatutory options on the day
there months and one day following the date of termination of the optionee.
(e) Death. Of an optionee should die while serving as an employee,
director or consultant of the Company, options may be exercised at any time
within 12 months after the date of death by the optionee's estate or a person
who acquired the right to exercise the option by bequest or inheritance, but
only to the extent that such options would have been exercisable by the optionee
at the date of death, provided that the option is exercised no later than its
expiration date.
(f) Term and Termination of Options. At the time an option is granted, the
Board or its committee determines the period within which the option may be
exercised. In no event may the term of an incentive stock option be longer than
ten (10) years. No option may be exercised by any person after the expiration of
its term. An incentive stock option granted to an optionee who, at the time such
option is granted, owns stock possessing more than 10% of the voting power of
all classes of stock of the Company, may not have a term of more than five (5)
years.
(g) Transferability of Options. An incentive stock option is not
transferable by the optionee, other than by will or the laws of descent and
distribution, and is exercisable during the optionee's lifetime only by the
optionee. A nonstatutory option shall be transferable to the extent determined
by the administrator and as provided in an optionee's option agreement.
(h) Other Provisions. The option agreement may contain such other
terms, provisions and conditions not inconsistent with the Series R Plan as
may be determined by the Board or its committee.
Adjustments; Mergers and Asset Sales. In the event any change, such as a
stock split, reverse stock split, stock dividend, or combination or
reclassification of the Common Stock, is made in the Company's capitalization
without receipt of consideration by the Company, which results in an increase or
decrease in the number of outstanding shares of Common Stock, an appropriate
adjustment shall be made in the number of shares under the Series R Plan and the
price per share covered by each outstanding option.
In the event of the merger or consolidation of the Company in which the
Company is not the surviving corporation, or a proposed sale, transfer or other
disposition of all or substantially all of the assets of the Company in
connection with the complete liquidation or dissolution of the Company, or 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 shall automatically become fully vested and exercisable
and released from any restrictions on transfer and repurchase or forfeiture
rights, unless such option is assumed or substituted by such successor
corporation or replaced with a comparable option with respect to shares in the
surviving corporation, or such option is replaced with a comparable cash
incentive program of the successor corporation, or unless the vesting,
17
<PAGE>
exercisability and release of such option is subject to other limitations
imposed by the Series R Plan administrators at the time of granting such
options.
Amendment, Suspension and Termination of the Series R Plan. The Board may
amend the Series R Plan at any time or from time to time or may suspend or
terminate the Series R Plan without approval of the stockholders; provided,
however, that stockholder approval is required for any amendment to the Series R
Plan for which stockholder approval would be required under applicable law, as
in effect at the time. Any amendment, suspension or termination of the Series R
Plan shall not affect options already granted, and such options shall remain in
full force and effect, unless mutually agreed otherwise in writing between the
optionee and the Plan administrators. The Board may accelerate any option or
waive any condition or restriction pertaining to such option at any time. The
Board may also substitute new stock options for previously granted stock
options, including previously granted stock options having higher option prices,
and may reduce the exercise price of any option to the then current fair market
value, if the fair market value of the Common Stock covered by such option shall
have declined since the date the option was granted. In any event, the Series R
Plan shall terminate in _____, 2009. Any options outstanding under the Series R
Plan at the time of its termination shall remain outstanding until they expire
by their terms.
New Plan Benefits
The Company cannot now determine the number of options to be granted in
the future under the Series R Plan to its executive officers, directors, or all
current executive officers as a group or all employees (excluding current
executive officers) as a group. As of December __, 1999, _______ options have
been granted under the Series R Plan; however, all such grants are subject to
shareholder approval of the Series R Plan. The following table sets forth
additional information with respect to options granted under the Series R Plan
to date:
<TABLE>
<CAPTION>
Weighted Average
Options % of Total Exercise Price
Identity of Group Granted Options Granted Per Share
----------------- ------- --------------- ----------------
<S> <C> <C> <C>
Executive officers as a group
Employees that are not Executive
officers, as a group
Directors that are not Executive
officers, as a group
</TABLE>
Federal Tax Consequences
Options granted under the Series R 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.
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<PAGE>
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.
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<PAGE>
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.
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.
Parachute Payments. If the exercisability of an option is accelerated as a
result of a change of control, all or a portion of the value of the option o 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 Series R 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.
The Financial Accounting Standards Board recently announced its intention
to issue an exposure draft of a proposed interpretation of APB Opinion 25,
"Accounting for Stock Issued to Employees." Under the proposed interpretation,
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<PAGE>
option grants made to non-employee Board members or independent consultants
after December 15, 1998 will result in a direct charge to the Company's reported
earnings based upon the fair value of the option measured initially as of the
grant date and then subsequently on the vesting date of each installment of the
option shares. Accordingly, such charge will include the appreciation in the
value of the option shares over the period between the grant date of the option
(or, if later, the effective date of the final interpretation ) and the vesting
date of each installment of the option shares. In addition, if the proposed
interpretation is adopted, any options which are repriced after December 15,
1998 will also trigger a direct charge to Company's reported earnings measured
by the appreciation in the value of the underlying shares over the period
between the grant date of the option (or, if later, the effective date of the
final interpretation) and the date the option is exercised for those shares. The
accounting is the same as is currently applied for option grants to independent
consultant.
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.
Vote Required for Stockholder Approval
The affirmative vote of a majority of the Company's outstanding voting
shares is required to approve the Series R Plan.
Recommendation of the Board of Directors
The Board recommends that the stockholders vote IN FAVOR OF the adoption
of the Series R Plan as described in this Proposal Three. If such stockholder
approval is not obtained, then any options granted will terminate without
becoming exercisable for any of the shares of Series R Preferred Stock subject
to those options, and no further option grants will be made.
The Board believes that the Series R 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 business and financial
success. Without access to such option pool, it may require substantially more
cash to attract and retain such individuals, if such attraction and retention is
even possible.
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ADDITIONAL INFORMATION
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information known to us with respect
to the beneficial ownership of the common stock and Series R Preferred Stock as
of November 30, 1999 by (1) all persons who are beneficial owners of five
percent or more of the common stock or Series R Preferred Stock, as applicable,
(2) each director and officer of Shaman and (3) 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 or Series R Preferred Stock, as applicable,
subject to options or warrants currently exercisable or exercisable within 60
days of November 30, 1999 are included in the number of shares 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, we believe that
the beneficial owners of the common stock and Series R Preferred Stock, listed
below, based upon such information furnished by such owners, have sole voting
and investment power with respect to such shares, subject to community property
laws where applicable.
<TABLE>
<CAPTION>
Name and Address of Shares of Common Stock Series R Preferred Stock
Beneficial Owner (1) Owned Shares Owned
- ----------------------------------------------------------------------------------------------------
Number Percent(2) Number Percent(2)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vulcan Ventures, Inc. 5,459,812(3) 8.50% 118,596(4) 15.10%
110-110th Avenue NW,
Suite 550
Belleview, WA 98084
- ----------------------------------------------------------------------------------------------------
Lipha S.A. 87,247 * 133,334 17.16%
37 rue Saint-Romain
69379 Lyon cedex 08
- ----------------------------------------------------------------------------------------------------
Advantage Fund II Ltd 6,343,685 9.87% 2,233(7) *
c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
- ----------------------------------------------------------------------------------------------------
Lisa A. Conte 23,110 * 3,167(5) *
- ----------------------------------------------------------------------------------------------------
John W.S. Chow 1,146(6) * 667(6) *
- ----------------------------------------------------------------------------------------------------
Thomas Carlson, M.D. 4,667(6) * 400(6) *
- ----------------------------------------------------------------------------------------------------
Steven R. King, Ph.D. 8,153(8) * 500(6) *
- ----------------------------------------------------------------------------------------------------
Gerald R. Reaven, M.D. 10,775(9) * 0 *
- ----------------------------------------------------------------------------------------------------
Tom White 25 * 100 *
- ----------------------------------------------------------------------------------------------------
Adrian D.P. Bellamy 0 * 2,526(10) *
- ----------------------------------------------------------------------------------------------------
Jeffrey Berg 0 * 0 *
- ----------------------------------------------------------------------------------------------------
Loren D. Israelsen 45 * 19,000(11) 2.44%
- ----------------------------------------------------------------------------------------------------
Herbert McDade, Jr. 0 * 333(7) *
- ----------------------------------------------------------------------------------------------------
G. Kirk Raab 397,457(12) * 2,526(13) *
- ----------------------------------------------------------------------------------------------------
M. David Titus 250 * 1,533(14) *
- ----------------------------------------------------------------------------------------------------
Directors and officers as a group 445,558(15) * 30,752(16) 3.92%
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1.0%
(1) This table is based upon information supplied to us 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 Shaman's executive offices, 213 East Grand Avenue,
South San Francisco, CA 94080.
22
<PAGE>
(2) Percentage of beneficial ownership is calculated assuming 64,245,959
shares of common stock were outstanding as of November 30, 1999, and
777,101 shares of Series R Preferred Stock were outstanding as of November
30, 1999. 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 or
Series R Preferred Stock, as applicable, subject to options and warrants
currently exercisable or exercisable within 60 days of November 30, 1999,
are included in the number of shares outstanding for computing the
percentage of the person holding such option or warrant but are not
included in the number of shares outstanding for computing the percentage
of any other person.
(3) Does not include 20,000 shares of Series C Preferred Stock which is
convertible to a certain number of shares of common stock, such number
which shall be determined in accordance with Shaman's certificate of
incorporation.
(4) Includes 8,333 shares issuable upon exercise of outstanding warrants
within 60 days of November 30, 1999.
(5) Includes 2,500 shares issuable upon exercise of outstanding warrants
within 60 days of November 30, 1999.
(6) Represents shares issuable upon exercise of options within 60 days of
November 30, 1999.
(7) Represents shares issuable upon exercise of outstanding warrants within
60 days of November 30, 1999.
(8) Includes 8,153 shares issuable upon exercise of options within 60 days of
November 30, 1999.
(9) Includes 10,750 shares of issuable upon exercise of options within 60 days
of November 30, 1999.
(10) Includes 833 shares issuable upon exercise of outstanding warrants within
60 days of November 30, 1999.
(11) Includes 19,000 shares held by LDI Group, of which Mr. Israelsen owns 80%.
(12) 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 shall be determined in accordance with Shaman's certificate of
incorporation.
(13) Includes 833 shares issuable upon exercise of outstanding warrants within
60 days of November 30, 1999.
(14) Includes 833 shares issuable upon exercise of outstanding warrants within
60 days of November 30, 1999.
(15) Represents total shares held by directors and officers listed above.
Includes 24,741 shares of issuable upon exercise of options within 60 days
of November 30, 1999.
(16) Represents total shares held by directors and officers listed above.
Includes 6,899 shares issuable exercise of outstandig warrants within 60
days of November 30, 1999.
23
<PAGE>
OTHER MATTERS
The Board knows of no other business which will be presented at the
Special Meeting. If any other business is properly brought before the Special
Meeting, it is intended that proxies in the enclosed form will be voted in
respect thereof in accordance with the judgment of the persons voting the
proxies.
It is important that the proxies be returned promptly and that your shares
be represented. Stockholders are urged to mark, date, execute and promptly
return the accompanying proxy card in the enclosed envelope.
By Order of the Board of Directors,
Lisa A. Conte,
President and Chief Executive Officer, Chief Financial Officer and Director
December 28, 1999
South San Francisco, California
24
<PAGE>
EXHIBIT A
AMENDMENT TO ARTICLE IV OF THE CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
The following are the resolutions of the Board of Directors regarding the
amendment to the Certificate of Incorporation effecting an increase in the
authorized number of shares of the Company's Common Stock:
RESOLVED, that the first paragraph of Article IV, Section A of the
Restated and Amended Certificate of Incorporation of Shaman Pharmaceuticals,
Inc. is hereby amended to read in its entirety as follows so as to increase the
authorized number of shares of Common Stock from 220,000,000 to 500,000,000
shares:
"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 a par value of
$0.001 per share, and the total number of shares of Common the Corporation shall
have authority to issue is 500,000,000 with a par value of $0.001 per share."
25
<PAGE>
EXHIBIT B
FORM OF REVERSE STOCK SPLITS RESOLUTIONS
One-for-fifty Reverse Stock Split.
RESOLVED, that as soon as practicable following the Special Meeting of
Stockholders to be held on January 28, 2000, on the condition that no other
amendment to the Company's Certificate of Incorporation shall have been filed
subsequent to January 28, 2000 effecting a reverse stock split of the Common
Stock, Article IV of the Restated and Amended Certificate of Incorporation of
Shaman Pharmaceuticals, Inc. be amended by the addition of the following text
immediately following the first paragraph of Article IV, Section A:
"On the effective date of this amendment to the Restated and Amended
Certificate of Incorporation (the "Effective Date"), each one (1) share of
Common Stock issued and outstanding immediately prior to the Effective Date
shall automatically be converted into and reconstituted as 1/50th of a share of
Common Stock (the "Reverse Stock Split"). No fractional shares of Common Stock
shall be issued upon the Reverse Stock Split. In lieu of any fractional shares
to which a holder would otherwise be entitled (after aggregating all such shares
of Common Stock to which such holder is entitled), the Corporation shall issue
to such holder one share of Common Stock."
FURTHER RESOLVED, that at any time prior to the filing of the foregoing
amendment to the Company's Restated and Amended Certificate of Incorporation
effecting the Reverse Stock Split, notwithstanding authorization of the proposed
amendment by the stockholders of the Company, the Board of Directors may abandon
such proposed amendment without further action by the stockholders.
One-for-one hundred Reverse Stock Split.
RESOLVED, that as soon as practicable following the Special Meeting of
Stockholders to be held on January 28, 2000, on the condition that no other
amendment to the Company's Certificate of Incorporation shall have been filed
subsequent to January 28, 2000 effecting a reverse stock split of the Common
Stock, Article IV of the Restated and Amended Certificate of Incorporation of
Shaman Pharmaceuticals, Inc. be amended by the addition of the following text
immediately following the first paragraph of Article IV, Section A:
"On the effective date of this amendment to the Restated and Amended
Certificate of Incorporation (the "Effective Date"), each one (1) share of
Common Stock issued and outstanding immediately prior to the Effective Date
shall automatically be converted into and reconstituted as 1/100th of a share of
Common Stock (the "Reverse Stock Split"). No fractional shares of Common Stock
shall be issued upon the Reverse Stock Split. In lieu of any fractional shares
to which a holder would otherwise be entitled (after aggregating all such shares
of Common Stock to which such holder is entitled), the Corporation shall issue
to such holder one share of Common Stock."
FURTHER RESOLVED, that at any time prior to the filing of the foregoing
amendment to the Company's Restated and Amended Certificate of Incorporation
effecting the Reverse Stock Split, notwithstanding authorization of the proposed
amendment by the stockholders of the Company, the Board of Directors may abandon
such proposed amendment without further action by the stockholders.
26
<PAGE>
One-for-two hundred Reverse Stock Split.
RESOLVED, that as soon as practicable following the Special Meeting of
Stockholders to be held on January 28, 2000, on the condition that no other
amendment to the Company's Certificate of Incorporation shall have been filed
subsequent to January 28, 2000 effecting a reverse stock split of the Common
Stock, Article IV of the Restated and Amended Certificate of Incorporation of
Shaman Pharmaceuticals, Inc. be amended by the addition of the following text
immediately following the first paragraph of Article IV, Section A:
"On the effective date of this amendment to the Restated and Amended
Certificate of Incorporation (the "Effective Date"), each one (1) share of
Common Stock issued and outstanding immediately prior to the Effective Date
shall automatically be converted into and reconstituted as 1/200th of a share of
Common Stock (the "Reverse Stock Split"). No fractional shares of Common Stock
shall be issued upon the Reverse Stock Split. In lieu of any fractional shares
to which a holder would otherwise be entitled (after aggregating all such shares
of Common Stock to which such holder is entitled), the Corporation shall issue
to such holder one share of Common Stock."
FURTHER RESOLVED, that at any time prior to the filing of the foregoing
amendment to the Company's Restated and Amended Certificate of Incorporation
effecting the Reverse Stock Split, notwithstanding authorization of the proposed
amendment by the stockholders of the Company, the Board of Directors may abandon
such proposed amendment without further action by the stockholders.
One-for-five hundred Reverse Stock Split.
RESOLVED, that as soon as practicable following the Special Meeting of
Stockholders to be held on January 28, 2000, on the condition that no other
amendment to the Company's Certificate of Incorporation shall have been filed
subsequent to January 28, 2000 effecting a reverse stock split of the Common
Stock, Article IV of the Restated and Amended Certificate of Incorporation of
Shaman Pharmaceuticals, Inc. be amended by the addition of the following text
immediately following the first paragraph of Article IV, Section A:
"On the effective date of this amendment to the Restated and Amended
Certificate of Incorporation (the "Effective Date"), each one (1) share of
Common Stock issued and outstanding immediately prior to the Effective Date
shall automatically be converted into and reconstituted as 1/500th of a share of
Common Stock (the "Reverse Stock Split"). No fractional shares of Common Stock
shall be issued upon the Reverse Stock Split. In lieu of any fractional shares
to which a holder would otherwise be entitled (after aggregating all such shares
of Common Stock to which such holder is entitled), the Corporation shall issue
to such holder one share of Common Stock."
FURTHER RESOLVED, that at any time prior to the filing of the foregoing
amendment to the Company's Restated and Amended Certificate of Incorporation
effecting the Reverse Stock Split, notwithstanding authorization of the proposed
amendment by the stockholders of the Company, the Board of Directors may abandon
such proposed amendment without further action by the stockholders.
27
<PAGE>
One-for-one thousand Reverse Stock Split.
RESOLVED, that as soon as practicable following the Special Meeting of
Stockholders to be held on January 28, 2000, on the condition that no other
amendment to the Company's Certificate of Incorporation shall have been filed
subsequent to January 28, 2000 effecting a reverse stock split of the Common
Stock, Article IV of the Restated and Amended Certificate of Incorporation of
Shaman Pharmaceuticals, Inc. be amended by the addition of the following text
immediately following the first paragraph of Article IV, Section A:
"On the effective date of this amendment to the Restated and Amended
Certificate of Incorporation (the "Effective Date"), each one (1) share of
Common Stock issued and outstanding immediately prior to the Effective Date
shall automatically be converted into and reconstituted as 1/1000th of a share
of Common Stock (the "Reverse Stock Split"). No fractional shares of Common
Stock shall be issued upon the Reverse Stock Split. In lieu of any fractional
shares to which a holder would otherwise be entitled (after aggregating all such
shares of Common Stock to which such holder is entitled), the Corporation shall
issue to such holder one share of Common Stock."
FURTHER RESOLVED, that at any time prior to the filing of the foregoing
amendment to the Company's Restated and Amended Certificate of Incorporation
effecting the Reverse Stock Split, notwithstanding authorization of the proposed
amendment by the stockholders of the Company, the Board of Directors may abandon
such proposed amendment without further action by the stockholders.
28
<PAGE>
EXHIBIT C
SHAMAN PHARMACEUTICALS, INC.
1999
SERIES R PREFERRED STOCK OPTION PLAN
A. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under the Plan may be Incentive Stock
Options or Non-Qualified Stock Options, as determined by the Administrator at
the time of grant.
B. Definitions. As used herein, the following definitions shall apply:
1. "Administrator" means the Board or any of the Committees
appointed to administer the Plan.
2. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
3. "Applicable Laws" means the legal requirements relating to the
administration of stock option plans, if any, under applicable provisions
of federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Options granted to residents therein.
4. "Board" means the Board of Directors of the Company
5. "Code" means the Internal Revenue Code of 1986, as amended.
6. "Committee" means any committee appointed by the Board to
administer the Plan.
7. "Common Stock" means the common stock of the Company.
8. "Company" means Shaman Pharmaceuticals, Inc., a Delaware
corporation.
9. "Consultant" means any person who is engaged by the Company
or any Parent or Subsidiary to render consulting or advisory services as an
independent contractor and is compensated for such services.
10. "Continuing Directors" means members of the Board who either
(i) have been Board members continuously for a period of at least thirty-six
(36) months or (ii) have been Board members for less than thirty-six (36) months
and were elected or nominated for election as Board members by at least a
majority of the Board members described in clause (i) who were still in office
at the time such election or nomination was approved by the Board. 1.
11. "Continuous Status as an Employee, Director or Consultant" means
that the employment, director or consulting relationship with the Company,
any Parent, or Subsidiary, is not interrupted or terminated. Continuous Status
as an Employee, Director or Consultant shall not be considered interrupted in
the case of (i) any leave of absence approved by the Company or (ii) transfers
between locations of the Company or between the Company, its Parent, any
Subsidiary, or any successor. A leave of absence approved by the Company shall
include sick leave, military leave, or any other personal leave approved by an
authorized representative of the Company. For purposes of Incentive Stock
Options, no such leave may exceed ninety (90) days, unless reemployment upon
expiration of such leave is guaranteed by statute or contract.
12. "Corporate Transaction" means any of the following
stockholder-approved transactions to which the Company is a party:
<PAGE>
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 in which the Company is incorporated;
b. the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock
of the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company; or
c. 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 a person or persons different from those who held such securities
immediately prior to such merger.
13. "Covered Employee" means an Employee who is a "covered employee"
under Section 162(m)(3) of the Code.
14. "Director" means a member of the Board.
15. "Employee" means any person, including an Officer or Director,
who is an employee of the Company or any Parent or Subsidiary of the Company
for purposes of Section 422 of the Code. The payment of a director's fee by
the Company shall not be sufficient to constitute "employment" by the Company.
16. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
17. "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
a. Where there exists a public market for the Common Stock, the
Fair Market Value shall be (A) the closing sales price for a Share for the
last market trading day prior to the time of the determination (or, if no sales
were reported on that date, on the last trading date on which sales were
reported) on the stock exchange determined by the Administrator to be the
primary market for the Common Stock or the Nasdaq National Market, whichever is
applicable or (B) if the Common Stock is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of a
Share on the Nasdaq Small Cap Market for the day prior to the time of the
determination (or, if no such prices were reported on that date, on the last
date on which such prices were reported), in each case, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
b. In the absence of an established market of the type described
in (i), above, for the Common Stock, the Fair Market Value thereof shall be
determined by the Administrator in good faith.
18. "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code
19. "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
20. "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
21. "Option" means a stock option granted pursuant to the Plan.
22. "Option Agreement" means the written agreement evidencing the
grant of an Option executed by the Company and the Optionee, including any
amendments thereto.
23. "Optioned Stock" means the Common Stock subject to an Option.
24. "Optionee" means an Employee, Director or Consultant who receives
an Option under the Plan.
2
<PAGE>
25. "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
26. "Performance - Based Compensation" means compensation qualifying
as "performance-based compensation" under Section 162(m) of the Code.
27. "Plan" means this 1997 Stock Option Plan.
28. "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act
or any successor thereto.
29. "Series R Preferred Stock" means the shares of the Company's
Series R Preferred Stock authorized under the Company's Series R Preferred
Stock Certificate of Designation.
30. "Share" means a share of the Company's Series R Preferred Stock
and, upon conversion of each share of Series R Preferred Stock, that number
of shares of Common Stock issued upon the automatic conversion of each such
share of Series R Preferred Stock pursuant the Company's Series R Preferred
Stock Certificate of Designation.
31. "Subsidiary" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
C. Stock Subject to the Plan.
1. Subject to the provisions of Section 10, below, the maximum
aggregate number of Shares which may be optioned and sold under the Plan is
[250,000] Shares (adjusted appropriately upon the conversion of the Series R
Preferred Stock). The Shares may be authorized, but unissued, or reacquired
Series R Preferred Stock or Common Stock, as the case may be.
2. If an Option expires or becomes unexercisable without having
been exercised in full, or is surrendered pursuant to an Option exchange
program, such unissued or retained Shares shall become available for future
grant under the Plan (unless the Plan has terminated). Shares that actually have
been issued under the Plan shall not be returned to the Plan and shall not
become available for future distribution under the Plan, except that if unvested
Shares are forfeited, or repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan.
D. Administration of the Plan.
1. Plan Administrator.
a. Administration with Respect to Directors and Officers. With
respect to grants of Options to Directors or Employees who are also Officers or
Directors of the Company, the Plan shall be administered by (A) the Board or
(B) a Committee designated by the Board, which Committee shall be constituted
in such a manner as to satisfy the Applicable Laws and to permit such grants and
related transactions under the Plan to be exempt from Section 16(b) of the
Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board.
b. Administration With Respect to Consultants and Other
Employees. With respect to grants of Options to Employees or Consultants who
are neither Directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board, which
Committee shall be constituted in such a manner as to satisfy the Applicable
Laws. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. The Board may authorize one or
more Officers to grant such Options and may limit such authority by requiring
that such Options must be reported to and ratified by the Board or a Committee
within six (6) months of the grant date, and if so ratified, shall be effective
as of the grant date.
c. Administration With Respect to Covered Employees.
Notwithstanding the foregoing, grants of Options to any Covered Employee
intended to qualify as
3
<PAGE>
Performance-Based Compensation shall be made only by a Committee (or
subcommittee of a Committee) which is comprised solely of two or more Directors
eligible to serve on a committee making Options qualifying as Performance-Based
Compensation. In the case of such Options granted to Covered Employees,
references to the "Administrator" or to a "Committee" shall be deemed to be
references to such Committee or subcommittee.
d. Administration Errors. In the event an Option is granted
in a manner inconsistent with the provisions of this subsection (a), such Option
shall be presumptively valid as of its grant date to the extent permitted by the
Applicable Laws.
2. Powers of the Administrator. Subject to Applicable Laws and the
provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
a. to select the Employees, Directors and Consultants to whom
Options may be granted from time to time hereunder;
b. to determine whether and to what extent Options are granted
hereunder;
c. to determine the number of Shares to be covered by each
Option granted hereunder;
d. to approve forms of Option Agreement for use under the
Plan;
e. to determine the terms and conditions of any Option granted
hereunder;
f. to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Optionees favorable treatment under such laws; provided, however,
that no Option shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan;
g. to amend the terms of any outstanding Option granted under
the Plan, including a reduction in the exercise price of any Option to reflect a
reduction in the Fair Market Value of the Common Stock since the grant date of
the Option, provided that any amendment that would adversely affect the
Optionee's rights under an outstanding Option shall not be made without the
Optionee's written consent;
h. to construe and interpret the terms of the Plan and Options
granted pursuant to the Plan; and
i. to take such other action, not inconsistent with the terms
of the Plan, as the Administrator deems appropriate.
3. Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be conclusive and binding on all
persons.
E. Eligibility. Non-Qualified Stock Options may be granted to
Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee, Director or Consultant who has been granted
an Option may, if otherwise eligible, be granted additional Options. Options
may be granted to such Employees of the Company and its subsidiaries who are
residing in foreign jurisdictions as the Administrator may determine from
time to time.
F. Terms and Conditions of Options.
1. Designation of Options. Each Option shall be designated as either
an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
4
<PAGE>
become exercisable for the first time by an Optionee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options. For
this purpose, Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of the Shares shall be
determined as of the date the Option with respect to such Shares is granted.
2. Conditions of Option. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Option including, but not limited to, the Option vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, and satisfaction of
any performance criteria. The performance criteria established by the
Administrator may be based on any one of, or combination of, increase in share
price, earnings per share, total stockholder return, return on equity, return on
assets, return on investment, net operating income, cash flow, revenue, economic
value added, personal management objectives, or other measure of performance
selected by the Administrator. Partial achievement of the specified criteria may
result in vesting corresponding to the degree of achievement as specified in the
Option Agreement.
3. Term of Option. The term of each Option shall be the term stated in
the Option Agreement, provided, however, that the term of an Incentive
Stock Option shall be no more than ten (10) years from the date of grant
thereof. However, in the case of an Incentive Stock Option granted to an
Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.
4. Transferability of Options. Incentive Stock Options may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
Non-Qualified Stock Options shall be transferable to the extent provided in the
Option Agreement.
5. Time of Granting Options. The date of grant of an Option shall for
all purposes, be the date on which the Administrator makes the
determination to grant such Option, or such other date as is determined by the
Administrator. Notice of the grant determination shall be given to each
Employee, Director or Consultant to whom an Option is so granted within a
reasonable time after the date of such grant. 1.
G. Option Exercise Price, Consideration and Taxes.
1. Exercise Price. The exercise price for an Option shall be as
follows:
a. In the case of an Incentive Stock Option:
(1) granted to an Employee who, at the time of the
grant of such Incentive Stock Option owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be not less than one
hundred ten percent (110%) of the Fair Market Value per Share on the date of
grant.
(i) granted to any Employee other than an Employee described
in the preceding paragraph, the per Share exercise price shall be not less
than one hundred percent (100%) of the Fair Market Value per Share on the date
of grant.
b. In the case of Options intended to qualify as
Performance-Based Compensation, the per Share exercise price shall be not
less than one hundred percent (100%) of the Fair Market Value per Share on the
date of grant.
c. In the case of a Non-Qualified Stock Option:
(i) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the per Share exercise price shall be no less than 110% of the Fair Market Value
per Share on the date of the grant.
5
<PAGE>
(ii) granted to any person, the per Share exercise price
shall be determined at the discretion of the administrator.
2. Consideration. Subject to Applicable Laws, the consideration
to be paid for the Shares to be issued upon exercise of an Option including
the method of payment, shall be determined by the Administrator (and, in the
case of an Incentive Stock Option, shall be determined at the time of grant). In
addition to any other types of consideration the Administrator may determine,
the Administrator is authorized to accept as consideration for Shares issued
under the Plan the following:
a. cash;
b. check;
c. delivery of Optionee's promissory note with such
recourse, interest, security, and redemption provisions as the Administrator
determines as appropriate;
d. surrender of Shares (including withholding of Shares
otherwise deliverable upon exercise of the Option) which have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised (but only to the extent that
such exercise of the Option would not result in an accounting compensation
charge with respect to the Shares used to pay the exercise price unless
otherwise determined by the Administrator);
e. delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price; or
f. any combination of the foregoing methods of payment.
3. Taxes. No Shares shall be delivered under the Plan to any
Optionee or other person until such Optionee or other person has made
arrangements acceptable to the Administrator for the satisfaction of any
foreign, federal, state, or local income and employment tax withholding
obligations, including, without limitation, obligations incident to the receipt
of Shares or the disqualifying disposition of Shares received on exercise of an
Incentive Stock Option. Upon exercise of an Option, the Company shall withhold
or collect from Optionee an amount sufficient to satisfy such tax obligations.
H. Exercise of Option.
1. Procedure for Exercise: Rights as a Stockholder.
a. Any Option granted hereunder shall be exercisable at such
times and under such conditions as determined by the Administrator under
the terms of the Plan and specified in the Option Agreement.
b. An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Until the issuance (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a stockholder shall exist with respect
to Optioned Stock, notwithstanding the exercise of an Option. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Option. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in the Option Agreement or Section 10, below.
2. Exercise of Option Following Termination of Employment,
Director or Consulting Relationship.
a. Upon termination of an Optionee's Continuous Status as an
Employee, Director or Consultant, other than upon the Optionee's death or
disability, the Optionee may exercise his or her Option within such period of
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time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
b. Disability of Optionee. If an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise the Option to the extent the
Option is vested on the date of termination, but only within twelve (12) months
from the date of such termination (and in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement). If such
disability is not a "disability" as such term is defined in Section 22(e)(3) of
the Code, in the case of an Incentive Stock Option such Incentive Stock Option
shall automatically convert to a Non-Qualified Stock Option on the day three
months and one day following such termination. If, on the date of termination,
the Optionee is not vested as to the entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Option is not exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
c. Death of Optionee. In the event of the death of an
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement) to the extent vested
on the date of death. If, at the time of death, the Optionee is not vested as to
the entire Option, the Shares covered by the unvested portion of the Option
shall revert to the Plan. The Option may be exercised by the executor or
administrator of the Optionee's estate or, if none, by the person(s) entitled to
exercise the Option under the Optionee's will or the laws of descent or
distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
3. Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
I. Conditions Upon Issuance of Shares.
1. Shares shall not be issued pursuant to the exercise of an Option
unless the exercise of such Option and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
2. As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is required
by any Applicable Laws.
J. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of Shares covered by
each outstanding Option, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan, as well as the price per share of Series R
Preferred Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Series R Preferred Stock or Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Series R Preferred Stock or Common Stock, as applicable, or any other similar
event resulting in an increase or decrease in the number of issued shares of
Series R Preferred Stock or Common Stock, as applicable. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason hereof shall be made with respect to, the number or price
of Shares subject to an Option.
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K. Corporate Transactions.
a. In the event of any Corporate Transaction, each Option which is
at the time outstanding under the Plan automatically shall become fully vested
and exercisable and be released from any restrictions on transfer and repurchase
or forfeiture rights, immediately prior to the specified effective date of such
Corporate Transaction, for all of the Shares at the time represented by such
Option. However, an outstanding Option under the Plan shall not so fully vest
and be exercisable and released from such limitations 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 with respect to shares of the capital stock of the successor
corporation or Parent thereof, or (ii) such Option is to be replaced with a cash
incentive program of the successor corporation which preserves the compensation
element of such Option existing at the time of the Corporate Transaction and
provides for subsequent payout in accordance with the same vesting schedule
applicable to such Option. The determination of Option comparability under
clause (i) above shall be made by the Administrator, and its determination shall
be final, binding and conclusive.
b. Effective upon the consummation of the Corporate Transaction, all
outstanding Options under the Plan shall terminate and cease to remain
outstanding, except to the extent assumed by the successor company or its
Parent.
c. The portion of any Incentive Stock Option accelerated under this
Section 11 in connection with a Corporate Transaction shall remain exercisable
as an Incentive Stock Option under the Code only to the extent the $100,000
dollar limitation of Section 422(d) of the Code is not exceeded. To the extent
such dollar limitation is exceeded, the accelerated excess portion of such
Option shall be exercisable as a Non-Qualified Stock Option.
L. Term of Plan. The Plan shall become effective upon the earlier
to occur of its adoption by the Board or its approval by the stockholders of
the Company. It shall continue in effect for a term of ten (10) years unless
sooner terminated.
M. Amendment, Suspension or Termination of the Plan.
1. The Board may at any time amend, suspend or terminate the
Plan. To the extent necessary to comply with Applicable Laws, the Company
shall obtain stockholder approval of any Plan amendment in such a manner and to
such a degree as required.
2. No Option may be granted during any suspension of the Plan
or after termination of the Plan.
3. Any amendment, suspension or termination of the Plan shall not
affect Options already granted, and such Options shall remain in full force
and effect as if the Plan had not been amended, suspended or terminated, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.
N. Reservation of Shares.
1. The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
2. The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
O. No Effect on Terms of Employment. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment or consulting
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relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
P. Stockholder Approval. The grant of Incentive Stock Options under the
Plan shall be subject to approval by the stockholders of the Company within
twelve (12) months before or after the date the Plan is adopted. Such
stockholder approval shall be obtained in the degree and manner required under
Applicable Laws. The Administrator may grant Incentive Stock Options under the
Plan prior to approval by the stockholders, but until such approval is obtained,
no such Incentive Stock Option shall be exercisable. In the event that
stockholder approval is not obtained within the twelve (12) month period
provided above, all Incentive Stock Options previously granted under the Plan
shall terminate.
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SHAMAN PHARMACEUTICALS, INC.
PROXY
Special Meeting of Stockholders, January 28, 2000
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 on January 28, 2000 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 Wednesday, January 28, 2000
at 9:00 A.M. Pacific Standard 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. FOR AGAINST ABSTAIN To approve an amendment to
the Amended and Restated Certificate of Incorporation of the Company
to increase the number of authorized shares of the Company's Common
Stock by 280,000,000 shares from 220,000,000 shares to 500,000,000.
2. FOR AGAINST ABSTAIN To authorize the Board of
Directors to effect, as soon as practicable following the Special
Meeting, any one of five different reverse stock splits of the
Company's Common Stock in a ratio of from one-for-fifty to up to
one-for-one thousand.
3. FOR AGAINST ABSTAIN To approve and authorize
the Series R Preferred Stock Option Plan.
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 each of the proposals
listed above. This Proxy, when properly executed, will be voted as specified
above. If no specification is made, this Proxy will be voted IN FAVOR OF each of
the proposals listed above.
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))
