UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-21022
SHAMAN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3095806
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
213 East Grand Avenue, CA 94080
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: 650-952-7070
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Number of shares of Common Stock, $.001 par value, outstanding as of
April 30, 1999: 44,537,048
SHAMAN PHARMACEUTICALS, INC.
INDEX FOR FORM 10-Q
March 31, 1999
PAGE
NUMBER
-------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements and Notes
Condensed Balance Sheets as of March 31, 1999 (unaudited)
and December 31, 1998 3
Condensed Statements of Operations for the three months
ended March 31, 1999 and March 31, 1998 (unaudited) 4
Condensed Statements of Cash Flows for the three months
ended March 31, 1999 and March 31, 1998 (unaudited) 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Qualitative and Quantitative Disclosures About Market Risk 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults in Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements and Notes
SHAMAN PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
March 31, December 31,
1999 1998
----------- -----------
(Unaudited)
A S S E T S (in thousands)
Current assets:
Cash and cash equivalents $ 1,707 $ 5,887
Short-term investments 1,004 3,277
Amounts due from related parties 200 209
Prepaid expenses and other current assets 658 284
--------- ---------
Total current assets 3,569 9,657
Property and equipment, net 2,386 3,114
Other assets 368 368
--------- ---------
Total assets $ 6,323 $ 13,139
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable and other accrued expenses $ 1,309 $ 1,515
Accrued clinical trial costs 1,088 2,051
Accrued professional fees 897 948
Accrued compensation 225 327
Accrued restructuring costs 1,715 -
Advances - contract research 969 969
Current installments of long-term obligations 2,897 2,804
--------- ---------
Total current liabilities 9,100 8,614
Long-term obligations, excluding current installments 1,390 2,415
Stockholders' equity:
Preferred Stock - -
Common Stock 39 30
Additional paid-in capital 154,954 152,699
Deferred compensation and other adjustments (116) (185)
Accumulated deficit (159,044) (150,434)
--------- ---------
Total stockholders' equity (net capital deficiency) (4,167) 2,110
--------- ---------
Total liabilities and stockholders' equity (net capital deficiency) $ 6,323 $ 13,139
========= =========
NOTE: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See Notes to condensed financial statements.
3
SHAMAN PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
----------------------------
1999 1998
---------- ---------
(in thousands, except per share data)
Revenue from collaborative agreements $ 0 $ 875
Operating expenses:
Research and development 2,468 7,513
General and administrative 1,494 1,276
---------- ----------
Total operating expenses 3,962 8,789
---------- ----------
Loss from operations (3,962) (7,914)
Interest income 73 232
Interest expense (259) (807)
Restructuring Costs (2,189) -
---------- ----------
Net loss (6,337) (8,489)
Deemed dividend on Preferred Stock (2,273) -
---------- ----------
Net loss applicable to Common Stockholders $ (8,610) $ (8,489)
========== ==========
Basic and diluted net loss per common share $ (0.26) $ (0.48)
========== ==========
Shares used in calculation of basic and diluted net loss per common share 33,255 17,836
========== ==========
See Notes to condensed financial statements.
4
SHAMAN PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
Three Months Ended March 31,
-------------------------------
1999 1998
----------- -----------
Operating activities: (in thousands)
Net loss applicable to Common Stockholders $ (8,610) $ (8,489)
Adjustments to reconcile net loss applicable to Common Stockholders
to net cash used in operating activities:
Depreciation 171 381
Amortization of warrants and deferred equity costs 109 270
Loss on disposal of fixed assets 122 27
Deemed dividend on Preferred Stock 2,273 -
Payment of interest in Common Stock 15 289
Changes in operating assets and liabilities:
Prepaid expenses, current assets and other assets (95) (120)
Accounts payable, accrued professional fees, accrued compensation,
accrued clinical trial costs and contract research advances 393 850
----------- -----------
Net cash used in operating activities (5,622) (6,792)
----------- -----------
Investing activities:
Purchases of available-for-sale investments - (1,999)
Maturities of available-for-sale investments - 4,959
Sales of available-for-sale investments 2,289 899
Proceeds on sale of fixed assets due to restructuring 236 -
Capital expenditures (81) (33)
Employee loans, net of repayments and forgiveness of interest 9 -
----------- -----------
Net cash provided by investing activities 2,453 3,826
----------- -----------
Financing activities:
Other Preferred Stock costs (25) -
Proceeds from issuance of Common Stock, net - 12
Principal payments on long-term obligations (986) (644)
Proceeds from asset financing arrangements - 211
----------- -----------
Net cash used in financing activities (1,011) (421)
----------- -----------
Net (decrease) in cash and cash equivalents (4,180) (3,387)
Cash and cash equivalents at beginning of period 5,887 11,340
----------- -----------
Cash and cash equivalents at end of period $ 1,707 $ 7,953
=========== ===========
See Notes to condensed financial statements.
5
SHAMAN PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
1. Basis of Presentation
We are focused on the discovery, development, and marketing of novel,
proprietary botanical dietary supplements derived from tropical plant sources.
We intend to develop and commercialize our Shaman-branded products through our
recently established botanicals division. We also have available for
out-licensing a pipeline of botanical product candidates, as well as novel
pharmaceutical products for major human diseases developed by isolating active
compounds from tropical plants with a history of medicinal use.
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation have been included. The results of operations for the interim
periods shown herein are not necessarily indicative of operating results for the
entire year. This unaudited financial data should be read in conjunction with
the audited financial statements and notes thereto included in our Annual Report
on Form 10-K for the fiscal year ended December 31, 1998, filed with the
Securities and Exchange Commission on March 31, 1999.
Until December 1998, we were focused solely on developing pharmaceutical
products derived from tropical plant sources. Our pharmaceutical business model
was dependent upon our ability to launch our first pharmaceutical product in
1999. As a result of the U.S. Food and Drug Administration response to our
proposed fast-track (single-pivotal trial) New Drug Application package for our
leading pharmaceutical product candidate, SP-303/Provir, and insufficient
resources to continue the costly process of conducting a second pivotal trial
which would have created significant delays, we restructured our business to
focus on the development and marketing of dietary supplements.
These unaudited interim financial statements have been prepared assuming
that we will continue as a going concern. We need substantial working capital to
fund our operations. As of March 31, 1999, we had cash, cash equivalents and
short-term investment balances of approximately $2.7 million. Our long-term
capital requirements will depend on numerous factors, including among others,
the extent and progress of additional development activities related to the
botanicals products, the success of any marketing efforts related to the
botanicals products, the success of any out-licensing efforts with respect to
the pharmaceuticals programs, and the extent and timing of additional costs
associated with patents and other intellectual property rights. Our projections
show that cash on hand plus approximately $1.0 million under the Credit
Agreement (see Note 3) will be sufficient to fund operations at the current
level through mid-August, 1999. Unless we are successful in our efforts to sell
or out-license our pharmaceutical products, or to sell or establish
collaborative agreements to sell our botanical products, we will be unable to
fund our current operations beyond mid-August, 1999. In addition, unless we are
successful in our efforts to raise additional capital through our proposed
rights offering or other offerings of equity securities, to sell or out-license
our pharmaceutical products, or to sell or establish collaborative agreements to
sell our botanical products, our cash resources will be used to satisfy our
existing liabilities, and we will be unable to fund our operations, which may
result in significant delay of our planned activities or the cessation of
operations. Even if we are successful in these efforts to raise additional
funds, such funds may not be adequate to fund our operations on a long-term
basis.
In addition, we may need additional capital to fund the redemption of our
Series D Preferred Stock or to pay accumulated dividends. The delisting of our
common stock from The Nasdaq National Market on February 2, 1999 constituted an
optional redemption event for our Series D Preferred Stock. Since we do not have
adequate resources to pay to redeem the Series D Preferred Stock, we have issued
a notice to the holders of the Series D Preferred Stock as required under our
charter that prevented the redemption of the Series D Preferred Stock. Under the
terms of our charter, the effect of preventing this redemption event by issuing
the notice was to increase the annual cumulative dividend payable to the Series
6
D Preferred Stock holders to $180 per share and to adjust the conversion price
of the Series D Preferred Stock to 72% of the lowest trading price for a
designated period prior to the conversion. The notice preventing the redemption
of the Series D Preferred Stock will remain in effect for as long as our
securities are not listed on any of The Nasdaq National Market, The Nasdaq
SmallCap Market, the American Stock Exchange or the New York Stock Exchange. In
connection with the issuance of such notice, we recorded a deemed dividend
charge in the amount of $2,273,614 in the first quarter of 1999.
We will need to obtain additional funding through public or private equity
or debt financing, collaborative agreements or from other sources to continue
our research and development activities, fund operating expenses and
commercialize products. If we raise additional funds by issuing equity
securities, current stockholders may experience significant dilution. If we
obtain additional funds through collaborative agreements, we may be required to
relinquish rights to certain of our technologies, product candidates, products
or marketing territories that we would otherwise seek to develop or
commercialize ourselves. We may be unable to obtain adequate financing on
acceptable terms when needed. If we are unable to obtain adequate funds, we may
be required to reduce significantly our spending and delay, scale back or
eliminate one or more of our research, development, or commercialization
programs, which would have a material adverse effect on our business, financial
condition and results of operations.
2. Restructuring Expenses
On February 1, 1999, we initiated a restructuring plan in which we closed
down the operations of our pharmaceutical business. We now intend to out-license
worldwide marketing rights to all our pharmaceutical compounds and will focus
our efforts on the development and commercialization of botanical dietary
supplements. The restructuring plan includes: cessation of pharmaceutical
research and development activities and related operations; outlicensing of all
of our current pharmaceutical research programs; reduction in force of
approximately 60 employees (65% of workforce); sale or disposal of all of our
fixed assets that are not needed for our botanicals business; and sub-leasing a
portion of our facility.
The termination of 60 employees occurred on February 1, 1999. The
following table summarizes the Company's restructuring activities as of March
31, 1999.
Total
Restructuring Spending/ Balance at
Category Charges Charges March 31, 1999
-------------- --------------- ----------- ----------------
(in thousands)
Severance and related charges $ 467 $ 352 $ 115
Write-off impaired assets 122 122 0
Cancellation of contracts 1,200 0 1,200
Other 400 0 400
------- ------- --------
$ 2,189 $ 474 $ 1,715
======= ======= =======
In addition, we have approximately $969,000 recorded as deferred revenue
which we have not yet earned. We are currently in negotiations with Lipha/Merck
for the discontinuation of the research and development agreement.
3. Subsequent Events
In April 1999, directors of our company holding stock options to purchase
an aggregate of 3,634,345 shares of common stock agreed to surrender these
options to us for cancellation.
On April 5, 1999, we entered into a credit facility and note purchase
agreement with certain investors, stockholders, key executives and members of
the board of directors (the "Credit Agreement"), pursuant to which we may borrow
approximately $1.0 million at any time commencing on May 14, 1999 and until the
earlier of the completion of a registered public offering of our equity
securities, or September 1, 1999 (the "Convertible Promissory Notes"). The
Convertible Promissory Notes will be due and payable on the earlier of (i) 30
days subsequent to the completion of the public offering, or (ii) December 31,
1999. Interest on the Convertible Promissory Notes will accrue at an annual rate
of 12%. The Convertible Promissory Notes, when issued, will be secured by
certain assets of our company and will be convertible into shares of the class
7
and series of equity securities offered by us in the first registered public
offering effected by us after the date of the Credit Agreement, or into common
stock if no such offering occurs prior to December 31, 1999. In connection with
the Credit Agreement, we issued warrants to purchase shares of the same class
and series of equity securities as those into which the debt is convertible. The
number of shares subject to these warrants is equal to 50% of the debt amount
divided by the per share sale price of the shares sold in the public offering.
These warrants are exercisable, on a cashless basis, commencing on April 5,
1999, and through the third anniversary date of the public offering. The
conversion price of the Convertible Promissory Notes and the exercise price of
the warrants is equal to the per share offering price in the public offering. If
a public offering is not completed prior to December 31, 1999, then the
conversion price of the Convertible Promissory Notes and the exercise price of
the warrants will be the lower of $0.05 per share of our common stock, or 1/3 of
the five-day weighted average trading price of our common stock for the period
ending three trading days prior to conversion or exercise.
In April 1999, we entered into an amendment agreement with an existing
lender to permit the issuance by us of the Convertible Promissory Notes. In
connection with the amendment, we issued a warrant to purchase shares of the
class and series of equity securities offered by us in the first registered
public offering effected by us after the date of the loan amendment, or into
common stock if no such offering occurs prior to December 31, 1999. The number
of shares subject to these warrants is equal to $592,685 divided by the per
share sale price of the shares sold in the above offering. This warrant is
exercisable, on a cashless basis, commencing on April 30, 1999 and through the
seventh anniversary date of the earlier to occur of (i) December 31, 1999, or
(ii) the date of the above offering. The per share exercise price will be equal
to the per share offering price of the above offering, or, if no offering is
completed by December 31, 1999, then the lower of $0.05 per share of our common
stock, or 1/3 of the five-day weighted average trading price of our common stock
for the period ending three trading days prior to conversion or exercise.
In May 1999, we filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission in connection with a proposed rights
offering. We intend to sell up to 7,500,000 shares of our Series R Convertible
Preferred Stock at $2.00 per share to all persons who are owners of our common
stock on the record date for the offering, which is anticipated to be
immediately prior to the effective date of the registration statement and the
commencement of the rights offering. Each share of Series R Preferred Stock will
automatically convert on February 1, 2000 into shares of common stock at a
conversion price equal to the lesser of (i) 10% of the average closing sales
price of our common stock as reported on the OTC Bulletin Board for the 10
trading days ending three trading days prior to the effective date, or (ii) 10%
of the average closing sales price of our common stock for the 10 trading days
ending three trading days prior to February 1, 2000.
8
SHAMAN PHARMACEUTICALS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
We are focused on the discovery, development, and marketing of novel,
proprietary botanical dietary supplements derived from tropical plant sources.
We intend to develop and commercialize our Shaman-branded products through our
recently established botanicals division. We also have available for
out-licensing a pipeline of botanical product candidates, as well as novel
pharmaceutical products for major human diseases developed by isolating active
compounds from tropical plants with a history of medicinal use.
Until December 1998, we were focused solely on developing pharmaceutical
products derived from tropical plant sources. Our pharmaceutical business model
was dependent upon our ability to launch our first pharmaceutical product in
1999. As a result of the U.S. Food and Drug Administration response to our
proposed fast-track (single-pivotal trial) New Drug Application package for our
leading pharmaceutical product candidate, SP-303/Provir, and insufficient
resources to continue the costly process of conducting a second pivotal trial
which would have created significant delays, we restructured our business to
focus on the development and marketing of dietary supplements.
Results of Operations for the Quarters Ended March 31, 1999 and 1998
The results of operations for the quarter ended March 31, 1998 relate to
our pharmaceutical operations. Since we ceased operations of our pharmaceutical
business and focused our efforts in our botanical business in February 1999, our
results of operations for the quarter ended March 31, 1999 and future periods
are not comparable to the same periods last year.
We recorded collaborative revenues of $0 and $875,000 for the quarters
ended March 31, 1999 and 1998, respectively. Revenues for the first quarter of
1998 resulted from research funding from Lipha S.A., a wholly-owned subsidiary
of Merck KGaA, Darmstadt, Germany ("Lipha/Merck") and research funding from our
collaboration with Ono Pharmaceutical Co. Ltd. of Osaka, Japan ("Ono"), which
expired in May 1998.
In December 1998, we renegotiated the terms of the existing agreement with
Lipha/Merck. Under the new terms, we forgave $6.0 million in aggregate payments
due over the remaining term of the original agreement in exchange for a one-time
up-front payment of an aggregate of $2.0 million, consisting of a $1.0 million
research payment (which remains recorded as deferred revenue that we have not
yet earned) and a $1.0 million equity investment. We are currently in
negotiations with Lipha/Merck for the discontinuation of this agreement. There
will be no further research payments from Lipha/Merck.
We incurred research and development expenses of $2.3 million of which
$149,000 was related to the research and development of the botanicals division
and $7.5 million for the quarters ended March 31, 1999 and 1998, respectively.
This decrease was primarily attributable to the closing down of our
pharmaceutical business as of February 1, 1999. Research and development
expenses are expected to decrease in 1999 as we focus our efforts in our
botanicals business, effective February 1, 1999.
General and administrative expenses were $1.5 million and $1.3 million for
the quarters ended March 31, 1999 and 1998, respectively. This increase was
primarily attributable to legal dispute costs. General and administrative
expenses are expected to decrease in 1999 since we have ceased operations in our
pharmaceutical business and focused our efforts in our botanicals business,
effective February 1, 1999.
Interest income was $73,000 and $232,000 for the quarters ended March 31,
1999 and 1998, respectively. Interest income decreased for the period ended
March 31, 1999, compared with the period ended March 31, 1998, due to lower
average cash and investment balances as we continue to fund our operations.
Interest expense was $259,000 and $807,000 for the quarters ended March 31, 1999
and 1998, respectively. Interest expense decreased for the period ended March
31, 1999, compared with the period ended March 31, 1998 due to lower average
debt balances.
9
Delisting of our common stock from Nasdaq National Market
The delisting of our common stock from The Nasdaq National Market on
February 2, 1999 constituted an optional redemption event for our Series D
Preferred Stock. Since we do not have adequate resources to pay to redeem the
Series D Preferred Stock, we have issued a notice to the holders of the Series D
Preferred Stock as required under our charter that prevented the redemption of
the Series D Preferred Stock. Under the terms of our charter, the effect of
preventing this redemption event by issuing the notice was to increase the
annual cumulative dividend payable to the Series D Preferred Stock holders to
$180 per share and to adjust the conversion price of the Series D Preferred
Stock to 72% of the lowest trading price for a designated period prior to the
conversion. The notice preventing the redemption of the Series D Preferred Stock
will remain in effect for as long as our securities are not listed on any of The
Nasdaq National Market, The Nasdaq SmallCap Market, the American Stock Exchange
or the New York Stock Exchange. In connection with the issuance of such notice,
we recorded a deemed dividend charge in the amount of $2,273,614 in the first
quarter of 1999.
Restructuring Expenses
On February 1, 1999, we initiated a restructuring plan in which we closed
down the operations of our pharmaceutical business. We now intend to out-license
worldwide marketing rights to all our pharmaceutical compounds and will focus
our efforts on the development and commercialization of botanical dietary
supplements. The restructuring plan includes: cessation of pharmaceutical
research and development activities and related operations; outlicensing of all
of our current pharmaceutical research programs; reduction in force of
approximately 60 employees (65% of workforce); sale or disposal of all of our
fixed assets that are not needed for our botanicals business; and sub-leasing a
portion of our facility.
The termination of 60 employees occurred on February 1, 1999. The
following table summarizes the Company's restructuring activities as of March
31, 1999.
Total
Restructuring Spending/ Balance at
Category Charges Charges March 31, 1999
-------------- --------------- ----------- ----------------
(in thousands)
Severance and related charges $ 467 $ 352 $ 115
Write-off impaired assets 122 122 0
Cancellation of contracts 1,200 0 1,200
Other 400 0 400
------- ------- -------
$ 2,189 $ 474 $ 1,715
======= ======= =======
In addition, we have approximately $969,000 recorded as deferred revenue
for which we have not yet earned. We are currently in negotiations with
Lipha/Merck for the discontinuation of the research and development agreement.
Liquidity and Capital Resources
As of March 31, 1999, our cash, cash equivalents, and investments totaled
approximately $2.7 million, compared with $9.2 million at December 31, 1998. We
invest excess cash according to our investment policy that provides guidelines
with regard to liquidity, type of investment, credit ratings and concentration
limits.
10
In April 1999, we entered into a credit facility and note purchase
agreement with certain investors, stockholders, key executives and members of
the board of directors (the "Credit Agreement"), pursuant to which we may borrow
up to $1.0 million at any time commencing on May 14, 1999 and until the earlier
of the completion of a registered public offering of our equity securities, or
September 1, 1999 (the "Convertible Promissory Notes"). The Convertible
Promissory Notes will be due and payable on the earlier of (i) 30 days
subsequent to the completion of the public offering, or (ii) December 31, 1999.
Interest on the Convertible Promissory Notes will accrue at an annual rate of
12%. The Convertible Promissory Notes, when issued, will be secured by certain
assets of Shaman and will be convertible into shares of the class and series of
equity securities offered by us in the first registered public offering effected
by us after the date of the Credit Agreement, or into common stock if no such
offering occurs prior to December 31, 1999. In connection with the Credit
Agreement, we issued warrants to purchase shares of the same class and series of
equity securities as those into which the debt is convertible. The number of
shares subject to these warrants is equal to 50% of the debt amount divided by
the per share sale price of the shares sold in the public offering. These
warrants are exercisable, on a cashless basis, commencing on April 5, 1999, and
through the third anniversary date of the public offering. The conversion price
of the Convertible Promissory Notes and the exercise price of the warrants is
equal to the per share offering price in the public offering. If a public
offering is not completed prior to December 31, 1999, then the conversion price
of the Convertible Promissory Notes and the exercise price of the warrants will
be the lower of $0.05 per share of our common stock, or 1/3 of the five-day
weighted average trading price of our common stock for the period ending three
trading days prior to conversion or exercise.
We have incurred substantial additional costs in the first quarter of 1999
relating to our restructuring in February 1999. We expect to continue to incur
losses at least through 1999. We need substantial working capital to fund our
operations. As of March 31, 1999, we had cash, cash equivalents and short-term
investment balances of approximately $2.7 million. Our long-term capital
requirements will depend on numerous factors, including among others, the extent
and progress of additional development activities related to the botanicals
products, the success of any marketing efforts related to the botanicals
products, the success of any out-licensing efforts with respect to the
pharmaceuticals programs, and the extent and timing of additional costs
associated with patents and other intellectual property rights. Our projections
show that cash on hand plus approximately $1.0 million under the Credit
Agreement (see Note 3) will be sufficient to fund operations at the current
level through mid-August, 1999. Unless we are successful in our efforts to sell
or out-license our pharmaceutical products, or to sell or establish
collaborative agreements to sell our botanical products, we will be unable to
fund our current operations beyond mid-August, 1999. In addition, unless we are
successful in our efforts to raise additional capital through our proposed
rights offering or other offerings of equity securities, to sell or out-license
our pharmaceutical products, or to sell or establish collaborative agreements to
sell our botanical products, our cash resources will be used to satisfy our
existing liabilities, and we will be unable to fund our operations, which may
result in significant delay of our planned activities or the cessation of
operations. Even if we are successful in these efforts to raise additional
funds, such funds may not be adequate to fund our operations on a long-term
basis.
In addition, we may need additional capital to fund the redemption of our
Series D Preferred Stock or to pay accumulated dividends. The delisting of our
common stock from The Nasdaq National Market on February 2, 1999 constituted an
optional redemption event for our Series D Preferred Stock. Since we do not have
adequate resources to pay to redeem the Series D Preferred Stock, we have issued
a notice to the holders of the Series D Preferred Stock as required under our
charter that prevented the redemption of the Series D Preferred Stock. Under the
terms of our charter, the effect of preventing this redemption event by issuing
the notice was to increase the annual cumulative dividend payable to the Series
D Preferred Stock holders to $180 per share and to adjust the conversion price
of the Series D Preferred Stock to 72% of the lowest trading price for a
designated period prior to the conversion. The notice preventing the redemption
of the Series D Preferred Stock will remain in effect for as long as our
securities are not listed on any of The Nasdaq National Market, The Nasdaq
SmallCap Market, the American Stock Exchange or the New York Stock Exchange. In
connection with the issuance of such notice, we recorded a deemed dividend
charge in the amount of $2,273,614 in the first quarter of 1999.
We will need to obtain additional funding through public or private equity
or debt financing, collaborative agreements or from other sources to continue
our research and development activities, fund operating expenses and prepare for
commercialization of products. If we raise additional funds by issuing equity
securities, current stockholders may experience significant dilution. If we
obtain additional funds through collaborative agreements, we may be required to
11
relinquish rights to certain of our technologies, product candidates, products
or marketing territories that we would otherwise seek to develop or
commercialize ourselves. We may be unable to obtain adequate financing on
acceptable terms when needed. If we are unable to obtain adequate funds, we may
be required to reduce significantly our spending and delay, scale back or
eliminate one or more of our research, development, or commercialization
programs, which would have a material adverse effect on our business, financial
condition and results of operations.
Year 2000 Compliance
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions or engage in similar normal business activities.
Based on recent assessments, we have determined that we will be required
to certify portions of our software and certain hardware so that those systems
will properly utilize dates beyond December 31, 1999. We presently believe that
with modifications or replacements of existing software and certain hardware,
the Year 2000 issue can be mitigated. We believe that such modification and
replacements are not significant, and should such modification and replacements
be delayed there would be no material impact on our operations.
We are approximately 85% complete with the assessment of all internal
systems that could be significantly affected by the Year 2000. To date, all
assessments have been preformed by our employees, therefore, we have not
incurred any costs related to this assessment project. We estimate that upgrades
for those systems not in compliance will total approximately $200,000. After the
assessment phase is completed, we will have to purchase, install and test the
upgrades to ensure they meet internal Year 2000 compliance. We expect to
complete our internal Year 2000 readiness program in the third quarter of 1999.
We are also in the process of asking our significant suppliers and
subcontractors that do not share information systems with us (external agents)
whether their systems are Year 2000 compliant. To date, we are not aware of any
external agent with a Year 2000 Issue that would materially impact our results
of operations, liquidity, or capital resources. However, we have no means of
ensuring that external agents will be Year 2000 ready. The inability of external
agents to complete their Year 2000 resolutions to process in a timely fashion
could materially impact us.
We currently have no contingency plans in place in the event we do not
complete all phases of the Year 2000 program. We plan to evaluate the status of
completion in second quarter of 1999 and determine whether such a plan is
necessary.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
None.
12
Certain Factors that May Affect Future Results
This Form 10-Q contains, in addition to historical information,
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed below and also in "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere in our
Form 10-K for the fiscal year ended December 31, 1998, filed with the Securities
and Exchange Commission on March 31, 1999.
We will need significant additional capital to fund continuing operations
We need substantial working capital to fund our operations. As of March 31,
1999, we had cash, cash equivalents and short-term investment balances of
approximately $2.7 million. Our long-term capital requirements will depend on
numerous factors, including among others, the extent and progress of additional
development activities related to the botanicals products, the success of any
marketing efforts related to the botanicals products, the success of any
out-licensing efforts with respect to the pharmaceuticals programs, and the
extent and timing of additional costs associated with patents and other
intellectual property rights. Our projections show that cash on hand plus
approximately $1.0 million under the Credit Agreement (see Note 3) will be
sufficient to fund operations at the current level through mid-August, 1999.
Unless we are successful in our efforts to sell or out-license our
pharmaceutical products, or to sell or establish collaborative agreements to
sell our botanical products, we will be unable to fund our current operations
beyond mid-August, 1999. In addition, unless we are successful in our efforts to
raise additional capital through our proposed rights offering or other offerings
of equity securities, to sell or out-license our pharmaceutical products, or to
sell or establish collaborative agreements to sell our botanical products, our
cash resources will be used to satisfy our existing liabilities, and we will be
unable to fund our operations, which may result in significant delay of our
planned activities or the cessation of operations. Even if we are successful in
these efforts to raise additional funds, such funds may not be adequate to fund
our operations on a long-term basis.
In addition, we may need additional capital to fund the redemption of our
Series D Preferred Stock or to pay accumulated dividends. The delisting of our
common stock from The Nasdaq National Market on February 2, 1999 constituted an
optional redemption event for our Series D Preferred Stock. Since we do not have
adequate resources to pay to redeem the Series D Preferred Stock, we have issued
a notice to the holders of the Series D Preferred Stock as required under our
charter that prevented the redemption of the Series D Preferred Stock. Under the
terms of our charter, the effect of preventing this redemption event by issuing
the notice was to increase the annual cumulative dividend payable to the Series
D Preferred Stock holders to $180 per share and to adjust the conversion price
of the Series D Preferred Stock to 72% of the lowest trading price for a
designated period prior to the conversion. The notice preventing the redemption
of the Series D Preferred Stock will remain in effect for as long as our
securities are not listed on any of The Nasdaq National Market, The Nasdaq
SmallCap Market, the American Stock Exchange or the New York Stock Exchange. In
connection with the issuance of such notice, we recorded a deemed dividend
charge in the amount of $2,273,614 in the first quarter of 1999.
We will need to obtain additional funding through public or private equity
or debt financing, collaborative agreements or from other sources to continue
our research and development activities, fund operating expenses and
commercialize products. If we raise additional funds by issuing equity
securities, current stockholders may experience significant dilution. If we
obtain additional funds through collaborative agreements, we may be required to
relinquish rights to certain of our technologies, product candidates, products
or marketing territories that we would otherwise seek to develop or
commercialize ourselves. We may be unable to obtain adequate financing on
acceptable terms when needed. If we are unable to obtain adequate funds, we may
be required to reduce significantly our spending and delay, scale back or
eliminate one or more of our research, development, or commercialization
programs, which would have a material adverse effect on our business, financial
condition and results of operations.
Possible inability to continue as a going concern increases investment risk
We have suffered recurring and significant losses from operations. We have
also relied upon debt and equity financing to fund these losses and cash flow
deficits. Cash flows from future operations, if any, may not be sufficient to
enable us to continue our current level of operations, or to meet our debts as
they come due. As a result, we may not be able to continue as a going concern.
For the year ended December 31, 1998, our independent auditors have issued a
report which contains explanatory language for the uncertainty related to our
ability to continue as a going concern beyond December 31, 1999. If we are to
remain as a going concern, we will need to become and remain profitable and will
also need additional financing. We may not be successful in obtaining new
financing or in achieving profitability.
13
We have a history of operating losses, expect continuing losses and may never
achieve profitability
We have incurred significant operating losses in each year since our
founding in 1989 and expect to continue to incur net losses for the foreseeable
future. We incurred a net loss of approximately $6.3 million for the quarter
ended March 31, 1999 and additional non-cash expense of $2.3 million incurred in
connection with the issuance of the Control Notice to holders of Series D
Preferred Stock. As of March 31, 1999, our accumulated deficit was approximately
$159 million.
If we are to become and remain profitable, we will need to, among other
things, generate product revenues. We have not generated any product sales to
date. We have changed the direction of our operations and are pursuing a new
business model in the botanical dietary supplement industry. Our botanical
dietary supplement products are being prepared for commercial introduction. In
order to generate revenues or profits, we must successfully market these
products or enter into collaborative agreements with others who can successfully
market them. Even if our products are introduced, they may not achieve market
acceptance or we may not achieve profitability.
Our pharmaceutical product candidates and compounds are still in the
research and development stage and we have ceased all our pharmaceutical
operations. In order to generate revenues from these products, we must
out-license these product candidates. It is possible that our out-licensing
efforts may not be successful, and that we or our licensees may not obtain
required regulatory approvals. Even if our product candidates are developed and
introduced, they may not be successfully marketed and may not achieve market
acceptance or we may not achieve profitability.
The ownership interests of our common stockholders will be substantially reduced
by future issuances of stock upon exercises and conversions of currently
outstanding options, warrants and preferred stock
We currently have outstanding many securities that are convertible into
shares of common stock. The holders of common stock will be diluted upon the
exercise of outstanding options and warrants and upon conversion of the Series A
Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock.
The Series D Preferred Stock is currently convertible into common stock at a
price equal to 72% of the market price of the common stock, and commencing in
August 1999, the Series C Preferred Stock will be convertible at a price equal
to 85% of the market price of the common stock and may be freely resold on the
market. The common stock issued upon conversion of the Series C and Series D
Preferred Stock will substantially dilute the common stock and will likely
depress the price of the common stock if large amounts are offered for sale in
the open market. In our proposed rights offering, we intend to sell up to
7,500,000 shares of Series R Convertible Preferred Stock that will be
convertible into shares of common stock at an effective per share price of 10%
of the market price of the common stock. Any issuances of Series R Preferred
Stock will therefore substantially dilute holders of common stock who do not
participate. In addition, assuming the completion of the rights offering, there
will be outstanding warrants to purchase 548,344 shares of Series R Preferred
Stock. The exercise of these warrants and the sales of common stock underlying
the Series R Preferred Stock will also dilute the common stock.
We have no experience in the business of botanical dietary supplements and may
not be successful in transitioning into this new business
We are in the process of transitioning our operations from pharmaceutical
product development to botanical dietary supplement development and
commercialization. We have no experience in this new industry segment and must
create a new business model. Some skills and relationships developed over time
may not be transferable to our new business. While we have been working with
natural products since our inception, we have no prior experience manufacturing
or marketing dietary supplements. We may not be successful in these activities.
Our botanical products are at various stages of development, ranging from
initial research to final formulation. We will need to conduct additional
research and development to move our product candidates toward
commercialization. Our research and development efforts on potential products
may not lead to development of products that we can successfully commercialize.
In addition, we may not be able to produce our products in commercial quantities
at acceptable costs, or to market and sell our products successfully. Our
products may also prove to have undesirable or unintended side effects that may
prevent or limit their commercial use. Accordingly, we may curtail, redirect,
suspend or eliminate our product development or commercialization at any time.
14
The failure or loss of third parties on which we rely to manufacture our
products and to perform other services could adversely affect our future
operations and financial results
We currently produce products only in pilot scale quantities and do not
have the staff or facilities necessary to manufacture products in commercial
quantities. Therefore, we must rely on collaborative partners or third party
manufacturing facilities. We may not be successful in entering into third party
manufacturing arrangements on acceptable terms, if at all. In addition, should
we or our third party manufacturers encounter delays or difficulties in
producing, packaging and distributing our finished products, our clinical trials
and market introduction and subsequent sales of our products could be adversely
affected.
Contract manufacturers must conform to certain Good Manufacturing
Practices regulations for foods on an ongoing basis. Our dependence on third
parties for the manufacture of our products may adversely affect our ability to
develop and deliver products on a timely and competitive basis. If we are
required to manufacture our own products, we will be required to build or
purchase a manufacturing facility, will be subject to manufacturing requirements
and to similar risks regarding delays or difficulties encountered in
manufacturing any such products, and we will require substantial additional
capital. We may be unable to manufacture any such products successfully or in a
cost-effective manner.
We have only a limited marketing staff and may be unable to launch our products
in the marketplace
We currently have minimal marketing staff. If we are unable to
successfully establish, execute and finance a complete marketing plan, we may
not achieve a successful product entry into the marketplace. Such failure would
have a material adverse effect on our business, financial condition and results
of operations.
Our success will depend on entering into strategic partnership relationships
Our ability to develop, commercialize, market and sell our botanical
supplement products will depend on our entering into strategic partner
relationships. We are currently searching for strategic partners for development
and commercialization. Our success in the botanicals market depends in part upon
our ability to attract, retain and motivate key strategic partners in each major
sales and distribution channel. We may not be successful in negotiating or
entering into such agreements on terms favorable to us, or at all, and any
agreement, if entered into, may be unsuccessful. We may never derive any
significant revenues from any of our existing or future collaborations.
We also intend to seek collaborative agreements to develop and
commercialize our pharmaceutical product candidates. We may not be successful in
negotiating or entering into such agreements on terms favorable to us or at all,
and any agreement, if entered into, may be unsuccessful.
We may incur costs in connection with the termination of prior research and
development agreement
The research and development efforts in our discontinued diabetes program
were dependent upon arrangements with Lipha/Merck. We are currently in
negotiations with Lipha/Merck for the discontinuation of their research
agreement. Lipha/Merck will make no further research payments, and may have a
claim against Shaman in connection with the termination of the agreement. We may
never derive any significant revenues from any of our existing or future
collaborations and may incur a loss in connection with the termination of
existing collaborations.
We are subject to intense competition in the botanical dietary supplement
industry
The dietary supplement business is highly competitive and is characterized
by short product life cycles, significant pressure on pricing and heavy
commitment of marketing resources. Many of our existing competitors are
substantially larger and have greater financial, research and development,
production, marketing, sales and other resources than we do. Such companies
offer a variety of competitive products and services and much broader product
lines. We face actual and potential competition not only from these established
companies, but also from start-up companies developing and marketing new
commercial products. Our failure to successfully compete for customers could
adversely affect our future growth, revenues and profitability.
15
Government regulation
The manufacturing, processing, formulating, packaging, labeling and
advertising of our botanical dietary supplement products are subject to
regulation in the United States by several federal agencies, including the Food
and Drug Administration, the Federal Trade Commission, the Consumer Product
Safety Commission, the Department of Agriculture and the Environmental
Protection Agency. Our activities are also regulated by various agencies of the
states and localities where we will distribute and sell our products.
The composition and labeling of dietary supplements is most actively
regulated by the FDA under the provisions of the Federal Food, Drug, and
Cosmetic Act. The FFDC Act has been revised in recent years by the Nutrition
Labeling and Education Act of 1990 and by the Dietary Supplement Health and
Education Act of 1994.
Our botanical product candidates are generally regulated as dietary
supplements under the 1994 Dietary Supplement Health and Education Act, and are,
therefore, generally not subject to pre-market approval by the FDA. However,
these product candidates are subject to FDA regulation, particularly relating to
adulteration and misbranding. For instance, we are responsible for ensuring that
all dietary ingredients in a supplement are safe, and must notify the FDA in
advance of putting a product containing a new dietary ingredient (i.e., an
ingredient not marketed in the United States before October 15, 1994) on the
market and furnish adequate information to provide reasonable assurance of the
ingredient's safety. Currently, we are only pursuing products that are old
dietary ingredients and are therefore not subject to this procedure. Further, if
we make statements about a supplement's effects on the structure or function of
the body, we must, among other things, substantiate that the statements are
truthful and not misleading. In addition, our product labels must bear proper
ingredient and nutritional labeling and we must manufacture our supplements in
accordance with current Good Manufacturing Practices regulations for foods. A
product can be removed from the market if it is shown to pose a significant or
unreasonable risk of illness or injury. Moreover, if the FDA determines that the
"intended use" of any of the our products is for the diagnosis, cure,
mitigation, treatment or prevention of disease, the product would meet the
definition of a drug and would require pre-market approval of safety and
effectiveness prior to its manufacture and distribution. Our failure to comply
with applicable FDA regulatory requirements may result in, among other things,
injunctions, product withdrawals, recalls, product seizures, fines, and criminal
prosecution.
In March 1999, new FDA regulations governing the labeling of dietary
supplements took effect. The new rules require that information such as the
complete list of ingredients and levels of vitamins and minerals be included on
product labels. While in our judgment these regulatory changes are generally
favorable to the dietary supplements industry, in the future we may be subject
to additional laws or regulations that could have an adverse effect on the
industry and on our business. In addition, existing laws and regulations may be
repealed and applicable regulatory authorities may interpret them stringently or
unfavorably.
We cannot predict the nature of future laws, regulations, interpretations
or applications, nor can we determine what effect either additional government
regulations or administrative orders, when and if promulgated, or disparate
federal, state and local regulatory schemes would have on our business in the
future. Any change could materially and adversely affect our results of
operations and financial condition.
Governmental regulations in foreign countries where we may commence or
expand sales may prevent or delay entry into the market or prevent or delay the
introduction, or require the reformulation, of our products. Compliance with
such foreign governmental regulations is generally the responsibility of our
partners or distributors in those countries, which distributors are independent
contractors over whom we have limited or no control.
Environmental regulation
In connection with our research and development activities and
manufacturing of materials, we are subject to federal, state and local laws,
rules, regulations and policies governing the use, generation, manufacture,
storage, air emission, effluent discharge, handling and disposal of certain
materials and wastes. Although we believe we comply with these laws and
regulations in all material respects and have not been required to take any
action to correct any noncompliance, we may be required to incur significant
costs to comply with environmental and health and safety regulations in the
future. Our research, development, and manufacturing activities involve the
controlled use of hazardous materials and chemicals. Although we believe that
our safety procedures for handling and disposing of such materials comply with
the standards prescribed by state and federal regulations, we cannot eliminate
the risk of accidental contamination or injury from these materials completely.
In the event of an accident, we could be held liable for any resulting damages.
Although we have secured insurance to mitigate such expense, any such liability
could exceed our insurance coverage and resources. Such liability could have a
material adverse effect on our business, financial condition and results of
operations.
16
Product liability claims asserted against us in the future could adversely
affect our business
Our business exposes us to potential product liability risks that are
inherent in the development, testing, manufacture, marketing and sale of
pharmaceutical and dietary supplement products. Product liability insurance for
the pharmaceutical and dietary supplement industries generally is expensive. Our
present product liability insurance coverage, which includes coverage for acts
by third parties, including manufacturers of our product candidates, may not be
adequate. We will also need to increase our insurance coverage as we further
develop our products, and we may be unable to obtain adequate insurance coverage
against all potential claims at a reasonable cost. Some of our development and
manufacturing agreements contain insurance and indemnification provisions
pursuant to which we could be held accountable for certain occurrences. If we
are subject to product liability claims for which we have inadequate insurance
we could suffer a material adverse effect on our business, financial condition
and results of operations.
Negative publicity regarding the safety or quality of our products could
adversely impact our business
Because we depend on consumers' perception of the safety and quality of
our products as well as similar products distributed by other companies (which
may not adhere to the same quality standards as ours), if our products or a
competitor's similar products were asserted to be harmful to consumers, our
business could be adversely affected by that negative publicity. In addition,
because we depend on perceptions, adverse publicity associated with illness or
other adverse effects resulting from consumers' failure to use our products as
we suggest, other misuse or abuse of our products or any similar products
distributed by other companies could affect the market acceptance of our
products and materially adversely affect our business.
Furthermore, we believe the recent growth experienced by the nutritional
supplement market is based in part on national media attention regarding recent
scientific research suggesting potential health benefits from regular
consumption of certain dietary supplements and other nutritional products. This
research has been described in major medical journals, magazines, newspapers and
television programs. The scientific research to date is preliminary, and in the
future scientific results and media attention may contain unfavorable or
inconsistent findings that could have a material adverse effect on our business.
Our dependence on raw plant material from Latin and South America, Africa and
Asia makes us particularly susceptible to the risks of interruptions in our
supplies
We currently import all of the plant materials for our products from
countries in Latin and South America, Africa and Southeast Asia. We are
dependent upon a supply of raw plant material to make our products. We do not
have formal agreements in place with all of our suppliers. Continued source of
plant supply risks include:
* unexpected changes in regulatory requirements,
* exchange rates, tariffs and barriers,
* difficulties in coordinating and managing foreign operations,
* political instability, and
* potentially adverse tax consequences.
Interruptions in supply or material increases in the cost of supply could
have a material adverse effect on our business, financial condition and results
of operations. If the prices of raw materials rise, we may not be able to raise
prices quickly enough to offset the effect of these increased raw material
costs, if at all.
In addition, tropical rainforests and irreplaceable plant resources found
only in such rainforests are currently threatened with destruction. The
destruction of portions of the rainforests which contain the source material
from which our current or future products are derived could materially and
adversely affect our business, financial condition and results of operations.
The failure to protect our intellectual property rights could adversely impact
our business
Our success will be substantially dependent on our proprietary technology.
We rely primarily on a combination of patent, copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to protect
our intellectual property. These means of protecting our proprietary rights may
not be adequate. Our trademarks are valuable assets that are very important to
the marketing of our products. Our policy is to pursue registrations for all of
the trademarks associated with our key products. We currently have 20 U.S.
patents issued, 12 U.S. patent applications pending, and one international
application filed. The pending patents may never be approved or issued. Any
17
issued patents may not provide sufficiently broad protection or may not prove
valid or enforceable in actions against alleged infringers. Others may
independently develop similar products, duplicate any of our products or design
around any of our patents. In addition, many foreign countries may not protect
our products and intellectual property rights to the same extent as the laws of
the United States, and there is considerable variation between countries as to
the level of protection afforded under patents and other proprietary rights.
Such differences may expose Shaman to increased risks of commercialization in
each foreign country in which we may sell products. We also depend on unpatented
trade secrets. All of our employees have entered into confidentiality
agreements. However, others may independently develop substantially equivalent
information and techniques or otherwise gain access to our trade secrets, our
trade secrets may be disclosed or we may be unable to effectively protect our
rights to unpatented trade secrets. To the extent that we or our consultants or
research collaborators use intellectual property owned by others in their work
for us, disputes also may arise as to the rights in related or resulting
know-how and inventions. Litigation may be necessary in the future to enforce
our intellectual property rights, protect our trade secrets or to determine the
validity and scope of the intellectual property rights of others. In the event
of litigation to determine the validity of any third party's claims, we could be
required to expend significant resources and divert the efforts of our technical
and management personnel, whether or not such litigation is determined in our
favor.
Our success in outlicensing our pharmaceutical assets depends in large
part on our ability to obtain and maintain patents, protect trade secrets and
operate without infringing upon the proprietary rights of others. The patent
position of companies in the pharmaceutical industry generally is highly
uncertain, involves complex legal and factual questions, and has recently been
the subject of much litigation. No consistent policy has emerged from the U.S.
Patent and Trademark Office, or PTO, or the courts regarding the breadth of
claims allowed or the degree of protection afforded under pharmaceutical
patents.
We are currently in a dispute in Europe regarding a patent for our
proanthocyanidin polymer composition (which covers the active ingredient in
SP-303/Provir). The European Patent Office, the French Patent Office, the German
Patent Office and the Australian Patent Office have each granted a patent
containing broad claims to proanthocyanidin polymer compositions (and methods of
use of such compositions), which are similar to our specific composition, to
Leon Cariel and the Institut des Substances Vegetales. The effective filing date
of these patents is prior to the effective filing date of our foreign pending
patent application in Europe. Certain of the foreign patents have been granted
in jurisdictions where examination is not rigorous. We have instituted an
Opposition in the European Patent Office against granted European Patent No.
472531 owned by Leon Cariel and Institut des Substances Vegetales. We believe
that the granted claims are invalid and intend to vigorously prosecute the
Opposition. In the United States, the Patent and Trademark Office awarded
judgment to Shaman in an Interference regarding this patent dispute.
We may be unsuccessful in having the granted European patent revoked or
the claims sufficiently narrowed so that our proanthocyanidin polymer
composition and methods of use are not potentially covered. The holders of the
granted European patent may assert against us claims relating to this patent. If
they are successful, we may not be able to obtain a license to this patent at
all, or at reasonable cost, or be able to develop or obtain alternative
technology to use in Europe or elsewhere. If we cannot obtain licenses to the
patent, we may not be able to introduce or sell our SP-303/Provir product in
Europe. The earlier effective filing date of this patent could limit the scope
of the patents, if any, that we may be able to obtain or result in the denial of
our patent applications in Europe or elsewhere.
We may be subject to infringement claims by third parties
The pharmaceutical industry and, to a lesser extent, the dietary
supplement industry, is subject to frequent litigation regarding patent and
other intellectual property rights. Leading companies and organizations in these
industries have numerous patents that protect their intellectual property rights
in these areas. Third parties may assert claims against us with respect to our
existing and future products. In the event of litigation to determine the
validity of any third party's claims, we could be required to expend significant
resources and divert the efforts of our technical and management personnel,
whether or not such litigation is determined in our favor. In the event of an
adverse result of any such litigation, among other requirements, we could be
required to develop non-infringing technology or to obtain licenses to the
technology that is the subject of the litigation. We may not be successful in
developing non-infringing technology or in obtaining a license to use the
technology on commercially reasonable terms.
We have no experience in marketing products over the Internet and may
not succeed
We intend to market our first product, SB-300, directly to consumers
through the Internet on our web site. We have no experience in marketing any
product on the Internet, and we have no market visibility or brand name
18
awareness on the Internet. Although Internet sites marketing dietary supplements
do exist, the Internet may never develop as a strong or viable marketing and
distribution channel for dietary supplements. We may not be successful in using
the Internet as a direct marketing and distribution channel for our products.
The failure of third party internet access providers to keep our web site
operational could adversely affect our business
We will rely entirely or in part on third parties to provide us with
access to the Internet and to enable commerce over our web site, including
providing adequate security of information provided over the web site. Any
failure by such third party providers to provide uninterrupted access by our
customers to our web site and to ensure that commerce can be conducted on our
web site could have a material adverse effect on our business, financial
condition and results of operations.
We will only be able to execute our business plan if internet usage grows
The success of our first product launch and a portion of our future
business is highly dependent on the adoption of the Internet as a widely-used
medium for commercial activities, including advertising, direct marketing and
other commerce. The Internet market is at a very early stage of development, is
rapidly evolving and is characterized by an increasing number of entrants that
are introducing or developing competing products and services. The Internet has
experienced, and is expected to continue to experience, significant growth in
the number of users and amount of traffic. However, the Internet infrastructure
may not be able to support the demands placed on it by this continued growth. In
addition, the Internet could lose its viability due to delays in the development
or adoption of new standards and protocols to handle increased levels of
Internet activity or due to increased governmental regulation. Moreover,
critical issues concerning the commercial use of the Internet, including
security, reliability, cost, ease of use, accessibility and quality of service,
remain unresolved. Such issues may negatively affect the growth of Internet use
or the attractiveness of commerce and communication on the Internet. Our
business, financial condition and operating results will be materially adversely
affected if critical issues concerning the commercial use of the Internet are
not favorably resolved, the necessary infrastructure is not developed, or the
Internet does not become a viable commercial marketplace.
Failure of the web infrastructure would harm our business
The success of our first product launch and a portion of our future
business will substantially depend, among other things, upon the continued
expansion and maintenance of the web infrastructure as a reliable network
backbone. This requires the necessary speed, capacity, security, and timely
development of enabling products such as high speed modems, for providing
reliable web access and services. We do not know whether the web infrastructure
will continue to be able to support the growing demands placed upon it as the
web continues to grow in terms of the number of users, the frequency of users
and the increased bandwidth requirements. The performance or reliability of the
web could be adversely affected by these demands. In addition, the Internet
could lose its viability due to delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet activity
or due to increased governmental regulation. Changes in, or insufficient
availability of, telecommunications services to support the Internet could also
result in slower response times and adversely affect usage of the web. The web
has experienced a number of outages and other delays due to damage to portions
of its web infrastructure. Any such outages or any other failure of the Internet
infrastructure to effectively support the expected growth could delay the growth
of the Internet and adversely affect our business.
On-line security breaches could harm our business
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. We plan to
rely on encryption and authentication technology licensed from third parties to
provide the security and authentication necessary to effect secure transmission
of confidential information to and from our web site. It is possible that
advances in computer capabilities, new discoveries or other developments will
result in a compromise or breach of the algorithms that we select for this
purpose. This could have a material adverse effect on our business, results of
operations and financial condition.
We may be required to expend significant capital and other resources to
protect against the threat of such security breaches or to alleviate problems
caused by such breaches. The public's concern over the security of Internet
transactions and the privacy of users may also inhibit the growth of the web as
a means of conducting commercial transactions. To the extent that our activities
or those of third party contractors involve the storage and transmission of
proprietary information, such as credit card numbers, security breaches could
expose us to a risk of loss or litigation and possible liability. Our security
19
measures may not be sufficient to prevent security breaches, and the failure to
prevent such security breaches could have a material adverse effect on our
business, results of operations and financial condition.
Legal and regulatory uncertainties regarding the Internet could harm our
business
There is an increasing number of laws and regulations pertaining to the
Internet. In addition, a number of legislative and regulatory proposals are
under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, online content regulation, user privacy, taxation, pricing and quality
of products and services. The growth and development of the market for online
commerce may prompt more stringent consumer protection laws that may impose
additional burdens on conducting business online. Moreover, the applicability to
the Internet of existing laws governing issues such as intellectual property
ownership and infringement, copyright, trademark, trade secret, obscenity,
libel, employment and personal privacy is uncertain and developing. Any new
legislation or regulation, or the application or interpretation of existing
laws, may decrease the growth in the use of the Internet, increase our cost of
doing business or otherwise have a material adverse effect on our business,
operations and financial condition. In addition, since we expect that our
products will be available over the Internet in multiple states, and as we
expect to have consumers residing in such states, these jurisdictions may claim
that we are required to qualify to do business as a foreign corporation in each
such state. We are currently qualified to do business only in California, and
failure to qualify as an out-of-state or foreign corporation in a jurisdiction
where we are required to do so could subject us to taxes and penalties for the
failure to qualify.
Our executive officers and key personnel are critical to our business and may
not remain with Shaman in the future
Our success depends in large part upon the continued contributions of our
key senior management. Our future performance also depends on our ability to
attract and retain qualified management and scientific personnel. Competition
for such personnel is intense, and we may be unable to continue to attract,
assimilate or retain other highly qualified technical and management personnel
in the future. The loss of key personnel or the failure to recruit additional
personnel or to develop needed expertise could have a material adverse effect on
our business, financial condition and results of operations.
Potential Year 2000 computer software problems could adversely impact future
operations
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions or engage in similar normal business activities.
Based on recent assessments, we have determined that we will be required
to certify portions of our internal operating systems software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. We presently believe that with modifications or replacements of existing
software and certain hardware, the year 2000 issue can be mitigated. We believe
that such modification and replacements are not significant, and should such
modification and replacements be delayed there would be no material impact on
our operations. We cannot, however, be certain that we have identified all of
the potential risks to our business that could result from matters related to
the year 2000.
We are approximately 85% complete with the assessment of all internal
systems that could be significantly affected by the Year 2000. To date, all
assessments have been preformed by our employees, therefore, we have not
incurred any costs related to this assessment project. We estimate that upgrades
for those systems not in compliance will total approximately $200,000. After the
assessment phase is completed, we will have to purchase, install and test the
upgrades to ensure they meet internal Year 2000 compliance. We expect to
complete our internal Year 2000 readiness program in the third quarter of 1999.
We are also in the process of asking our significant suppliers and
subcontractors that do not share information systems with us (external agents)
whether their systems are Year 2000 compliant. To date, we are not aware of any
external agent with a Year 2000 Issue that would materially impact our results
of operations, liquidity, or capital resources. However, we have no means of
ensuring that external agents will be Year 2000 ready. The inability of external
agents to complete their Year 2000 resolutions to process in a timely fashion
could materially impact us.
We currently have no contingency plans in place in the event we do not
complete all phases of our year 2000 program. We plan to evaluate the status of
completion in the second quarter of 1999 and determine whether such a plan is
necessary.
20
The recent delisting from the Nasdaq National Market may reduce the liquidity
and marketability of our stock and may depress the market price of our stock
On February 2, 1999, Nasdaq delisted our common stock from The Nasdaq
National Market and moved our stock to the National Association of Securities
Dealers, Inc.'s OTC Bulletin Board. Although our securities are included on the
OTC Bulletin Board, there can be no assurance that a regular trading market for
the securities will be sustained in the future. The OTC Bulletin Board is an
unorganized, inter-dealer, over-the-counter market which provides significantly
less liquidity than The Nasdaq Stock Market, and quotes for stocks included on
the OTC Bulletin Board are not listed in the financial sections of newspapers as
are those for The Nasdaq Stock Market. Therefore, prices for securities traded
solely on the OTC Bulletin Board may be difficult to obtain. The reduced
liquidity of our stock and the reduced public access to quotations for our stock
could depress the market price of our stock.
"Penny Stock" regulations may impose restrictions on marketability of our stock
The Securities and Exchange Commission has adopted regulations which
generally define "penny stock" to be any equity security that is not traded on a
national securities exchange or Nasdaq and that has a market price of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. Since our securities that are currently included on the OTC
Bulletin Board are trading at less than $5.00 per share at any time, our stock
may become subject to rules that impose additional sales practice requirements
on broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally, such investors have assets in
excess of $1,000,000 or an individual annual income exceeding $200,000, or,
together with the investor's spouse, a joint income of $300,000). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of such securities and have received
the purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require, among other things, the delivery, prior to the transaction, of a
risk disclosure document mandated by the SEC relating to the penny stock market
and the risks associated therewith. The broker-dealer must also disclose the
commission payable to both the broker-dealer and the registered representative,
current quotations for the securities and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the penny stock
rules may restrict the ability of broker-dealers to sell our securities and may
affect the ability of stockholders to sell our securities in the secondary
market.
Our stock price has been and may continue to be highly volatile
The price of our common stock has been particularly volatile and will
likely continue to fluctuate in the future. Announcements of technological
innovations, regulatory matters or new commercial products by us or our
competitors, developments or disputes concerning patent or proprietary rights,
publicity regarding actual or potential product results relating to products
under development by us or our competitors, regulatory developments in both the
United States and foreign countries, public concern as to the safety of
pharmaceutical or dietary supplement products, and economic and other external
factors, as well as period-to-period fluctuations in financial results, may have
a significant impact on the market price of our common stock. In addition, from
time to time, the stock market experiences significant price and volume
fluctuations that may be unrelated to the operating performance of particular
companies or industries. The market price of our common stock, like the stock
prices of many publicly traded smaller companies, has been and may continue to
be highly volatile.
Anti-takeover Provisions in our Charter Documents and Delaware law may inhibit
potential acquisition bids for Shaman, which may adversely affect the market
price of our common stock and the voting rights of the holders of the common
stock
Certain provisions of our charter documents and Delaware law make it more
difficult for a third party to acquire, and may discourage a third party from
attempting to acquire, us, even if a change in control would be beneficial to
our stockholders. These provisions could also limit the price that certain
investors might be willing to pay in the future for shares of the common stock.
The provisions include the division of our board of directors into two separate
classes, the ability of the board to elect directors to fill vacancies created
by an expansion of the board, the power of the board to amend our bylaws, and
the requirement that at least 66 2/3% of the outstanding shares are required to
call a special meeting of stockholders. Assuming the stockholders approve the
amendment to our certificate of incorporation that are described in our proxy
statement for the annual stockholders meeting to be held on June 11, 1999, our
board will also have the authority to issue up to 11,393,715 additional shares
of preferred stock, which includes 10,000,000 shares of Series R Preferred Stock
that may be issued in our proposed rights offering and pursuant to exercise of
warrants to purchase Series R Preferred Stock and to fix the price, rights,
21
preferences, privileges and restrictions of those shares without any further
vote or action by the stockholders. The rights of the holders of common stock
will be subject to, and may be adversely affected by, the rights of the holders
of any preferred stock that may be issued in the future. The issuance of
preferred stock with voting rights could make it more difficult for a third
party to acquire a majority of the outstanding voting stock. Certain provisions
of Delaware law applicable to us could also delay or make more difficult a
merger, tender offer or proxy contest involving Shaman, including Section 203 of
the Delaware General Corporation Law, which prohibits a Delaware corporation
from engaging in any business combination with any interested stockholder for a
period of three years unless certain conditions are met.
22
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults in Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) A Special Meeting of Stockholders of Shaman Pharmaceuticals,
Inc. was held on February 1, 1999.
(b) The matters voted upon at the meeting and voting of the
stockholders with respect thereto are as follows:
(i) To approve an amendment and restatement to our Amended and
Restated Certificate of Incorporation to (a) increase the number of authorized
shares of our Common Stock thereunder from 40,000,000 shares to 70,0000,000
shares and (b) increase the number of authorized shares of our Preferred Stock
by 1,000,000 shares, from 1,000,000 to 2,000,000 shares (This proposal was
adjourned to March 8, 1999 at the February 1, 1999 Special Meeting of
Stockholders.)
For: 15,597,501 Against: 3,725,813
Abstain: 178,311
(ii) To approve an amendment to our 1992 Stock Option Plan (the
"1992 Plan") to increase the maximum number of shares of our Common Stock
authorized for issuance under the 1992 Plan by an additional 2,000,000 shares
and change the limitation on the maximum number of shares for which any one
individual may be granted stock options and separately exercisable stock
appreciation rights under the Plan from 750,000 shares over the term of the
1992 Plan to 2,500,000 shares per calendar year.
For: 11,394,957 Against: 3,836,201
Abstain: 440,538
(iii) To approve the option grant for 1,500,000 shares of our
Common Stock made from the 1992 Plan to Lisa A. Conte, our President and Chief
Executive Officer, on September 18, 1998 with an exercise price of $1.281 per
share.
For: 10,465,149 Against: 4,690,194
Abstain: 516,353
Item 5. Other information
On April 5, 1999, we entered into a credit facility and note purchase
agreement with certain investors, stockholders, key executives and members of
the board of directors (the "Credit Agreement"), pursuant to which we may borrow
approximately $1.0 million at any time commencing on May 14, 1999 and until the
earlier of the completion of a registered public offering of our equity
securities, or September 1, 1999 (the "Convertible Promissory Notes"). The
Convertible Promissory Notes will be due and payable on the earlier of (i) 30
days subsequent to the completion of the public offering, or (ii) December 31,
1999. Interest on the Convertible Promissory Notes will accrue at an annual rate
of 12%. The Convertible Promissory Notes, when issued, will be secured by
certain assets of our company and will be convertible into shares of the class
23
and series of equity securities offered by us in the first registered public
offering effected by us after the date of the Credit Agreement, or into common
stock if no such offering occurs prior to December 31, 1999. In connection with
the Credit Agreement, we issued warrants to purchase shares of the same class
and series of equity securities as those into which the debt is convertible. The
number of shares subject to these warrants is equal to 50% of the debt amount
divided by the per share sale price of the shares sold in the public offering.
These warrants are exercisable, on a cashless basis, commencing on April 5,
1999, and through the third anniversary date of the public offering. The
conversion price of the Convertible Promissory Notes and the exercise price of
the warrants is equal to the per share offering price in the public offering. If
a public offering is not completed prior to December 31, 1999, then the
conversion price of the Convertible Promissory Notes and the exercise price of
the warrants will be the lower of $0.05 per share of our common stock, or 1/3 of
the five-day weighted average trading price of our common stock for the period
ending three trading days prior to conversion or exercise.
In April 1999, we entered into an amendment agreement with an existing
lender to permit the issuance by us of the Convertible Promissory Notes. In
connection with the amendment, we issued a warrant to purchase shares of the
class and series of equity securities offered by us in the first registered
public offering effected by us after the date of the loan amendment, or into
common stock if no such offering occurs prior to December 31, 1999. The number
of shares subject to these warrants is equal to $592,685 divided by the per
share sale price of the shares sold in the above offering. This warrant is
exercisable, on a cashless basis, commencing on April 30, 1999 and through the
seventh anniversary date of the earlier to occur of (i) December 31, 1999, or
(ii) the date of the above offering. The per share exercise price will be equal
to the per share offering price of the above offering, or, if no offering is
completed by December 31, 1999, then the lower of $0.05 per share of our common
stock, or 1/3 of the five-day weighted average trading price of our common stock
for the period ending three trading days prior to conversion or exercise.
In May 1999, we filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission in connection with a proposed rights
offering. We intend to sell up to 7,500,000 shares of our Series R Convertible
Preferred Stock at $2.00 per share to all persons who are owners of our common
stock on the record date for the offering, which is anticipated to be
immediately prior to the effective date of the registration statement and the
commencement of the rights offering. Each share of Series R Preferred Stock will
automatically convert on February 1, 2000 into shares of common stock at a
conversion price equal to the lesser of (i) 10% of the average closing sales
price of our common stock as reported on the OTC Bulletin Board for the 10
trading days ending three trading days prior to the effective date, or (ii) 10%
of the average closing sales price of our common stock for the 10 trading days
ending three trading days prior to February 1, 2000.
24
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------------------------------------------------
4.1 Form of Warrant, dated April 5, 1999, issued to certain
investors of the Registrant.
4.2 Form of Warrant, dated April 30, 1999, issued to MMC/GATX
Partnership No. 1.
10.30C Amendment No. 2 to Loan and Security Agreement, dated as
of April 30, 1999, by and between the Registrant and
MMC/GATX Partnership No.1.
10.47 Form of Credit Facility and Note Purchase Agreement,
dated as of April 5, 1999, by and between the Registrant
and the Investors named therein.
10.47A Amendment No. 1 to Form of Credit Facility and Note
Purchase Agreement, dated as of April 13, 1999, by and
between the Registrant and the Investors named in the
Credit Facility and Note Purchase Agreement.
10.47B Amendment No. 2 to Form of Credit Facility and Note
Purchase Agreement, dated as of April 30, 1999, by and
between the Registrant and the Investors named in the
Credit Facility and Note Purchase Agreement.
27 Financial Data Schedule
(b) Current reports on Form 8-K that were filed during the quarter ended
March 31, 1999.
A current report on Form 8-K was filed on January 11, 1999, regarding
the resignation of Ms. Stephanie Diaz, Vice President, Chief Financial
Officer, effective on January 4, 1999.
- ------------------------------------------------
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 14, 1999
SHAMAN PHARMACEUTICALS, INC.
(Registrant)
/s/ Lisa A. Conte
_____________________________________________
Lisa A. Conte
President , Chief Executive Officer and Chief
Financial Officer
(on behalf of the Company and as principal
executive officer and principal financial
officer)
26
EXHIBIT 4.1
FORM OF WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.
SHAMAN PHARMACEUTICALS, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
No. __
April 5, 1999
This Warrant is issued to the Holder named on the signature page
hereof (the "Holder") by Shaman Pharmaceuticals, Inc., a Delaware corporation
(the "Company"), pursuant to the terms and conditions of the Note Purchase
Agreement (as defined below) and in connection with the Company's issuance to
the holder of this Warrant of a Secured Convertible Promissory Note (the
"Note"), for the principal amount set forth on the signature page hereof (the
"Original Principal").
1. Definitions
(a) "Offering" shall mean the first equity offering by the Company of
its securities in a primary registered public offering of such equity
securities.
(b) "Shares" shall mean that class and series of equity securities
offered by the Company in the Offering, or, in the event the Company has not
conducted any qualifying Offering on or before December 31, 1999, then shares of
the Company's Common Stock.
(c) "Exercise Price" shall mean the per share price at which Shares
are sold in the Offering, or, in the event the Company has not conducted any
qualifying Offering on or before December 31, 1999, then a price equal to the
lower of (i) $0.05 per share (which price shall be subject to adjustment from
time to time as set forth in Section 9 below) or (ii) ) or one-third of the five
trading day weighted average trading price of the Common Stock for the period
ending three (3) days prior to the date of exercise.
(d) "Original Principal" shall mean the principal amount of the
Convertible Secured Promissory Note of the Company issued to the holder
contemporaneously with the issuance of this Warrant, all pursuant to that
certain Credit Facility and Note Purchase Agreement (the "Note Purchase
Agreement") between the Company and certain Investors (including the Holder)
dated as of April 5, 1999.
2. Purchase of Shares. Subject to the terms and conditions
hereinafter set forth, the holder of this Warrant is entitled, upon surrender of
this Warrant at the principal office of the Company (or at such other place as
the Company shall notify the holder hereof in writing), to purchase from the
Company at any time after the completion of the Offering (or, if the Offering
has not been consummated by December 31, 1999, then as of December 31, 1999) at
the Exercise Price up to such number of Shares as equals fifty percent (50%) of
the Original Principal divided by the per share sale price of the Shares
(subject to the provisions set forth below). The Shares shall also be subject to
adjustment pursuant to Section 9 hereof. The Company shall notify the Holder of
the completion of the Offering on the date the Offering is completed.
3. Purchase Price. The purchase price per share for the Shares shall
be the Exercise Price.
4. Exercise Period. This Warrant is exercisable from the earlier of
(i) the date of consummation of the Offering or (ii) December 31, 1999, and
until seven (7) years from such date; provided, however, that in the event of
(a) the sale of all or substantially all the assets of the Company, or (b) the
merger of the Company into or consolidation with any other entity, this Warrant
shall, on the date of the consummation of such event, no longer be exercisable
and shall become null and void; provided, however, that in the event the
consideration received upon the consummation of a transaction described in (a)
or (b) above is securities of another corporation, then this Warrant shall
remain in effect and shall be exercisable at a price and for that number of
securities of the acquiror for which the maximum number of securities issuable
hereunder at such time would have otherwise been exchangeable had this Warrant
been exercised immediately prior to the consummation of such transaction; and
provided further, however, that if a transaction in (a) or (b) above occurs
prior to December 31, 1999, this Warrant shall become exercisable in full as
provided in the following sentence, if this Warrant is not at that time
exercisable pursuant to this Section 4. In the event of a proposed transaction
of the kind described above, the Company shall notify the holder of the Warrant
at least fifteen (15) days prior to the consummation of such event or
transaction and, notwithstanding anything to the contrary above, this Warrant
shall be exercisable during such fifteen (15) day period, and any such exercise
may be made contingent by the Holder upon the completion of such event or
transaction. This warrant may be exercised in part, provided, however, that no
partial exercise shall be permitted for any less than 10,000 Shares.
5. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 4 above, the holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall
be effected by:
(i) the surrender of the Warrant, together with a duly executed
copy of the form of subscription attached hereto, to the Secretary of the
Company at its principal offices; and
(ii) the payment to the Company of an amount equal to the
aggregate Exercise Price for the number of Shares being purchased.
6. Net Exercise. In lieu of cash exercising this Warrant, the holder
of this Warrant may elect to receive shares of the Company's Common stock equal
to the value of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the Company together with
notice of such election, in which event the Company shall issue to the holder
hereof a number of the shares of its Common Stock computed using the following
formula:
X = Y (A - B)
----------
A
Where
X = The number of shares of Common Stock of the Company to be
issued to the Holder upon such exercise.
2
Y = The number of shares of the Common Stock of the Company
into which the Shares being purchased through net exercise
are then convertible (or which then constitutes such
Shares).
A = The fair market value of one share of the Company's
Common Stock (as determined below).
B = The Exercise Price (as adjusted to reflect an equivalent
number of shares of Common stock on the date of such
calculations).
For purposes of this Paragraph 6, the fair market value shall be the
weighted average ten (10) day closing bid price of the Company's Common Stock
for the period ending three (3) days prior to exercise.
7. Certificates for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter, and in any event
within fifteen (15) days of the delivery of the subscription notice.
8. Issuance of Shares. The Company covenants that it shall use its
best efforts to keep authorized and have reserved for issuance hereunder
such number of Shares and shares of Common Stock as shall be sufficient to allow
the Holder to exercise this Warrant in full. The Company further covenants that
the Shares, when issued pursuant to the exercise of this Warrant, will be duly
and validly issued, fully-paid and non-assessable and free from all taxes,
liens, and charges with respect to the issuance thereof (except for any
applicable transfer taxes, which shall be paid by the holder of this Warrant).
9. Adjustment of Exercise Price and Number of Shares. The number of
and kind of securities purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the
Company shall at any time prior to the expiration of this Warrant subdivide the
class of securities then constituting Shares, by split-up or otherwise, or
combine the equity securities constituting shares, or issue additional Shares or
shares of its Common Stock as a dividend with respect to any of the Shares, the
number of Shares issuable on the exercise of this Warrant shall forthwith be
proportionately increased in the case of a subdivision or stock dividend, or
proportionately decreased in the case of a combination. Appropriate adjustments
shall also be made to the purchase price payable per Share, but the aggregate
purchase price payable for the total number of Shares purchasable upon exercise
of the then exercised portion of this Warrant (as adjusted) shall remain the
same. Any adjustment under this Section 9(a) shall become effective as of the
record date of such subdivision, combination or dividend, or in the event that
no record date is fixed, upon the making of such subdivision, combination or
dividend.
(b) Reclassification, Reorganization and Consolidation. In case
of any reclassification, capital reorganization, or change in the class of
equity securities constituting the Shares (other than as a result of a
subdivision, combination, or stock dividend provided for in Section 9(a) above),
then, as a condition of such reclassification, reorganization, or change, lawful
provision shall be made, and duly executed documents evidencing the same from
the Company or its successor shall be delivered to the holder of this Warrant,
so that the holder of this Warrant shall have the right at any time prior to the
expiration of this Warrant to purchase, at a total price equal to that payable
upon the exercise of the unexercised portion of this Warrant, the kind and
amount of shares of stock and other securities and property receivable in
connection with such reclassification, reorganization, or change by a holder of
3
the same number of Shares as were purchasable by the holder of this Warrant
immediately prior to such reclassification, reorganization, or change. In any
such case appropriate provisions shall be made with respect to the rights and
interest of the holder of this Warrant so that the provisions hereof shall
thereafter be applicable with respect to any shares of stock or other securities
and property deliverable upon exercise hereof, and appropriate adjustments shall
be made to the purchase price per share payable hereunder, provided the
aggregate purchase price shall remain the same.
(c) Notice of Adjustment. When any adjustment is required to be
made in the number or kind of shares purchasable upon exercise of the Warrant,
or in the Exercise Price, the Company shall within fifteen (15) days after such
adjustment notify the holder of such event and of the number of shares of the
Shares or other securities or property thereafter purchasable upon exercise of
this Warrant; provided, however, that nothing in this Section 9(c) shall relieve
the Company of its obligation to notify the Holder as provided in section 4
above.
10. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant, instead, the Company shall round all fractions up to the nearest whole
share.
11. No Stockholder Rights. Prior to exercise of this Warrant, the
holder shall not be entitled to any rights of a stockholder with respect to
the Shares, including (without limitation) the right to vote such Shares,
receive dividends or other distributions thereon, exercise preemptive rights or
be notified of stockholder meetings, and the holder, as such, shall not be
entitled to any notice or other communication concerning the business or affairs
of the Company.
12. Successors and Assigns. The terms and provisions of this Warrant
shall inure to the benefit of, and be binding upon, the Company and its
successors. The Company may not assign its obligations under this Warrant,
except to an entity succeeding to substantially all of the business or assets of
the Company. This Warrant is not transferable by Holder except by operation of
law. Any purported transfer hereof (other than by operation of law) shall be
null and void and the Company is hereby expressly authorized to instruct its
transfer agent (which may be the Company itself) to not honor any such purported
transfer.
13. Amendments and Waivers. Any term of this Warrant may be amended
and the observance of any term of this Warrant may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the Holder of this
Warrant. Any waiver or amendment effected in accordance with this Section shall
be binding upon the holder of this Warrant and the Company.
14. Governing Law. This Warrant shall be governed by the laws of the
State of California as applied to agreements among California residents made and
to be performed entirely within the State of California.
4
The Company has caused this Warrant to be duly
executed by one of its officers thereunto duly
authorized as of the date first set forth
above.
SHAMAN PHARMACEUTICALS, INC., a Delaware
corporation
By:/s/ Lisa A. Conte
___________________
Lisa A. Conte
President & CEO
Name of Holder: Each Investor
______________________________________
Principal Amount of Note:____________________________
5
SUBSCRIPTION
Shaman Pharmaceuticals, Inc.
Attention: Corporate Secretary
1. The undersigned hereby elects to purchase,
pursuant to the provisions of the Warrant to Purchase Shares of Common Stock
(or other securities) issued by Shaman Pharmaceuticals, Inc. and held by the
undersigned, the Shares. Payment of the exercise price per share required under
such Warrant accompanies this Subscription.
1. The undersigned hereby elects to receive shares
of Common Stock equal to the value of this Warrant in the manner specified in
Section 5 of the Warrant.
[STRIKE PARAGRAPH ABOVE THAT DOES NOT APPLY]
2. The undersigned hereby represents and warrants
that the undersigned is acquiring such shares for its own account for investment
purposes only, and not for resale or with a view to distribution of such shares
or any part thereof.
WARRANTHOLDER:
By:
Address:________________________________
________________________________
Date:___________________________________
Name in which shares should be registered:
________________________________________
6
EXHIBIT 4.2
FORM OF WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.
SHAMAN PHARMACEUTICALS, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
April 30, 1999
This Warrant is issued to the Holder named on the signature page
hereof (the "Holder") by Shaman Pharmaceuticals, Inc., a Delaware corporation
(the "Company"), pursuant to the terms and conditions of the Second Amendment to
Loan and Security Agreement dated as of April 30, 1999.
1. Definitions
(a) "Offering" shall mean the first equity offering after the date
hereof by the Company of its securities in a primary registered public offering
of such equity securities.
(b) "Shares" shall mean that class and series of equity securities
offered by the Company in the Offering, or, in the event the Company has not
conducted any qualifying Offering on or before December 31, 1999, then shares of
the Company's Common Stock.
(c) "Exercise Price" shall mean the per share price at which Shares
are sold in the Offering, or, in the event the Company has not conducted any
qualifying Offering on or before December 31, 1999, then a price equal to the
lower of (i) $0.05 per share (which price shall be subject to adjustment from
time to time as set forth in Section 9 below) or (ii) ) or one-third of the five
trading day weighted average trading price of the Common Stock for the period
ending three (3) days prior to the date of exercise.
2. Purchase of Shares. Subject to the terms and conditions
hereinafter set forth, the holder of this Warrant is entitled, upon surrender of
this Warrant at the principal office of the Company (or at such other place as
the Company shall notify the holder hereof in writing), to purchase from the
Company at any time after the completion of the Offering (or, if the Offering
has not been consummated by December 31, 1999, then as of December 31, 1999) at
the Exercise Price up to such number of Shares as equals $592,684.85 divided by
the per share sale price of the Shares (subject to the provisions set forth
below). The Shares shall also be subject to adjustment pursuant to Section 9
hereof. The Company shall notify the Holder of the completion of the Offering on
the date the Offering is completed.
3. Purchase Price. The purchase price per share for the Shares shall
be the Exercise Price.
4. Exercise Period. This Warrant is exercisable from the earlier of
(i) the date of consummation of the Offering or (ii) December 31, 1999, and
until seven (7) years from such date; provided, however, that in the event of
(a) the sale of all or substantially all the assets of the Company, or (b) the
merger of the Company into or consolidation with any other entity, this Warrant
shall, on the date of the consummation of such event, no longer be exercisable
and shall become null and void; provided, however, that in the event the
consideration received upon the consummation of a transaction described in (a)
or (b) above is securities of another corporation, then this Warrant shall
remain in effect and shall be exercisable at a price and for that number of
securities of the acquiror for which the maximum number of securities issuable
hereunder at such time would have otherwise been exchangeable had this Warrant
been exercised immediately prior to the consummation of such transaction; and
provided further, however, that if a transaction in (a) or (b) above occurs
prior to December 31, 1999, this Warrant shall become exercisable in full as
provided in the following sentence, if this Warrant is not at that time
exercisable pursuant to this Section 4. In the event of a proposed transaction
of the kind described above, the Company shall notify the holder of the Warrant
at least fifteen (15) days prior to the consummation of such event or
transaction and, notwithstanding anything to the contrary above, this Warrant
shall be exercisable during such fifteen (15) day period, and any such exercise
may be made contingent by the Holder upon the completion of such event or
transaction. This warrant may be exercised in part, provided, however, that no
partial exercise shall be permitted for any less than 10,000 Shares.
5. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 4 above, the holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall
be effected by:
(i) the surrender of the Warrant, together with a duly executed
copy of the form of subscription attached hereto, to the Secretary of the
Company at its principal offices; and
(ii) the payment to the Company of an amount equal to the
aggregate Exercise Price for the number of Shares being purchased.
6. Net Exercise. In lieu of cash exercising this Warrant, the holder
of this Warrant may elect to receive shares of the Company's Common stock equal
to the value of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the Company together with
notice of such election, in which event the Company shall issue to the holder
hereof a number of the shares of its Common Stock computed using the following
formula:
X = Y (A - B)
----------
A
Where
X = The number of shares of Common Stock of the Company to be
issued to the Holder upon such exercise.
Y = The number of shares of the Common Stock of the Company
into which the Shares being purchased through net exercise
are then convertible (or which then constitutes such
Shares).
A = The fair market value of one share of the Company's
Common Stock (as determined below).
2
B = The Exercise Price (as adjusted to reflect an equivalent
number of shares of Common stock on the date of such
calculations).
For purposes of this Paragraph 6, the fair market value shall be the
weighted average ten (10) day closing bid price of the Company's Common Stock
for the period ending three (3) days prior to exercise.
7. Certificates for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter, and in any event
within fifteen (15) days of the delivery of the subscription notice.
8. Issuance of Shares. The Company covenants that it shall use its
best efforts to keep authorized and have reserved for issuance hereunder
such number of Shares and shares of Common Stock as shall be sufficient to allow
the Holder to exercise this Warrant in full. The Company further covenants that
the Shares, when issued pursuant to the exercise of this Warrant, will be duly
and validly issued, fully-paid and non-assessable and free from all taxes,
liens, and charges with respect to the issuance thereof (except for any
applicable transfer taxes, which shall be paid by the holder of this Warrant).
9. Adjustment of Exercise Price and Number of Shares. The number of
and kind of securities purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the
Company shall at any time prior to the expiration of this Warrant subdivide the
class of securities then constituting Shares, by split-up or otherwise, or
combine the equity securities constituting shares, or issue additional Shares or
shares of its Common Stock as a dividend with respect to any of the Shares, the
number of Shares issuable on the exercise of this Warrant shall forthwith be
proportionately increased in the case of a subdivision or stock dividend, or
proportionately decreased in the case of a combination. Appropriate adjustments
shall also be made to the purchase price payable per Share, but the aggregate
purchase price payable for the total number of Shares purchasable upon exercise
of the then exercised portion of this Warrant (as adjusted) shall remain the
same. Any adjustment under this Section 9(a) shall become effective as of the
record date of such subdivision, combination or dividend, or in the event that
no record date is fixed, upon the making of such subdivision, combination or
dividend.
(b) Reclassification, Reorganization and Consolidation. In case
of any reclassification, capital reorganization, or change in the class of
equity securities constituting the Shares (other than as a result of a
subdivision, combination, or stock dividend provided for in Section 9(a) above),
then, as a condition of such reclassification, reorganization, or change, lawful
provision shall be made, and duly executed documents evidencing the same from
the Company or its successor shall be delivered to the holder of this Warrant,
so that the holder of this Warrant shall have the right at any time prior to the
expiration of this Warrant to purchase, at a total price equal to that payable
upon the exercise of the unexercised portion of this Warrant, the kind and
amount of shares of stock and other securities and property receivable in
connection with such reclassification, reorganization, or change by a holder of
the same number of Shares as were purchasable by the holder of this Warrant
immediately prior to such reclassification, reorganization, or change. In any
such case appropriate provisions shall be made with respect to the rights and
interest of the holder of this Warrant so that the provisions hereof shall
thereafter be applicable with respect to any shares of stock or other securities
and property deliverable upon exercise hereof, and appropriate adjustments shall
be made to the purchase price per share payable hereunder, provided the
aggregate purchase price shall remain the same.
3
(c) Notice of Adjustment. When any adjustment is required to be
made in the number or kind of shares purchasable upon exercise of the Warrant,
or in the Exercise Price, the Company shall within fifteen (15) days after such
adjustment notify the holder of such event and of the number of shares of the
Shares or other securities or property thereafter purchasable upon exercise of
this Warrant; provided, however, that nothing in this Section 9(c) shall relieve
the Company of its obligation to notify the Holder as provided in section 4
above.
10. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant, instead, the Company shall round all fractions up to the nearest whole
share.
11. No Stockholder Rights. Prior to exercise of this Warrant, the
holder shall not be entitled to any rights of a stockholder with respect to
the Shares, including (without limitation) the right to vote such Shares,
receive dividends or other distributions thereon, exercise preemptive rights or
be notified of stockholder meetings, and the holder, as such, shall not be
entitled to any notice or other communication concerning the business or affairs
of the Company.
12. Successors and Assigns. The terms and provisions of this Warrant
shall inure to the benefit of, and be binding upon, the Company and its
successors. The Company may not assign its obligations under this Warrant,
except to an entity succeeding to substantially all of the business or assets of
the Company. This Warrant is not transferable by Holder except by operation of
law. Any purported transfer hereof (other than by operation of law) shall be
null and void and the Company is hereby expressly authorized to instruct its
transfer agent (which may be the Company itself) to not honor any such purported
transfer.
13. Amendments and Waivers. Any term of this Warrant may be amended
and the observance of any term of this Warrant may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the Holder of this
Warrant. Any waiver or amendment effected in accordance with this Section shall
be binding upon the holder of this Warrant and the Company.
14. Governing Law. This Warrant shall be governed by the laws of the
State of California as applied to agreements among California residents made and
to be performed entirely within the State of California.
The Company has caused this Warrant to be duly
executed by one of its officers thereunto duly
authorized as of the date first set forth
above.
SHAMAN PHARMACEUTICALS, INC.,
a Delaware corporation
By:/s/ Lisa A. Conte
__________________________
Lisa A. Conte
CEO
Name of Holder: MMC/GATX Partnership No. I
___________________________
Principal Amount of Note: $592,684.85
4
SUBSCRIPTION
Shaman Pharmaceuticals, Inc.
Attention: Corporate Secretary
1. The undersigned hereby elects to
purchase, pursuant to the provisions of the Warrant to Purchase Shares of Common
Stock (or other securities) issued by Shaman Pharmaceuticals, Inc. and held by
the undersigned, the Shares. Payment of the exercise price per share required
under such Warrant accompanies this Subscription.
1. The undersigned hereby elects to
receive shares of Common Stock equal to the value of this Warrant in the manner
specified in Section 5 of the Warrant.
[STRIKE PARAGRAPH ABOVE THAT DOES NOT APPLY]
2. The undersigned hereby represents
and warrants that the undersigned is acquiring such shares for its own account
for investment purposes only, and not for resale or with a view to distribution
of such shares or any part thereof.
WARRANTHOLDER:
By:
Address:________________________________
________________________________
Date:____________________________________
Name in which shares should be registered:
_________________________________________
5
EXHIBIT 10.30C
SECOND AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This SECOND AMENDMENT, dated as of April 30, 1999 (this "Second
Amendment"), to the Loan and Security Agreement, dated as of May 7, 1997 as
amended by a First Amendment to Loan and Security Agreement, dated June 30, 1997
(as so amended, the "Loan Agreement") is entered into by and between MMC/GATX
PARTNERSHIP NO. I (the "Lender") and SHAMAN PHARMACEUTICALS, INC., a Delaware
corporation (the "Borrower").
RECITALS:
A. The Borrower has requested that the Lender agree to amend the Loan
Agreement to permit the Borrower to borrower up to $1,500,000 from certain
existing stockholders, officers and directors on a subordinated secured basis.
B. Subject to the terms and conditions set forth below,
Lender is willing to amend the Loan Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. AMENDMENT OF LOAN AGREEMENT.
1.1 Section 1.01 of the Loan Agreement is amended to add the
following defined term in appropriate alphabetical order:
""Excluded Intellectual Property" shall mean the Intellectual
Property represented by U.S. Patent Nos. 5,494,661 and 5,211,944 relating
to Borrower's SP-303 pharmaceutical formulation."
1.2 The definition of "Permitted Indebtedness" in Section 1.01 of
the Loan Agreement is amended in its entirety to read as follows:
""Permitted Indebtedness" shall mean and include:
(a) Indebtedness of Borrower to Lender;
(b) Indebtedness of Borrower secured by Liens permitted under
clause (e) of the definition of Permitted Liens;
(c) Indebtedness arising from the endorsement of instruments in the
ordinary course of business;
(d) Other Indebtedness of Borrower not exceeding Two Hundred Fifty
Thousand Dollars ($250,000) at any time;
(e) Indebtedness evidenced by Senior Subordinated Secured
Convertible Promissory Notes issued to certain existing
stockholders, officers and directors of Borrower in an amount
not to exceed $2,000,000;
(f) Indebtedness evidenced by notes which (i) is secured by
Intellectual Property and (ii) is subordinate to the
Obligations pursuant to a subordination agreement satisfactory
to Lender in its sole discretion; and
(g) Indebtedness secured by Liens on assets of the type specified
in clause (i) of the definition of Permitted Liens in an amount
not to exceed the sum of (x) 80% of Borrower's accounts
receivables (including trade receivables and other payments due
from third parties) not more than 90 days past due, and (y) 50%
of Borrower's inventory."
1.3 The definition of "Permitted Liens" in Section 1.01 of the Loan
Agreement is amended in its entirety to read as follows:
" "Permitted Liens" shall mean (a) the Lien created by this
Agreement, (b) Liens for fees, taxes, levies, imposts, duties or other
governmental charges of any kind which are not yet delinquent or which are
being contested in good faith by appropriate proceedings which suspend the
collection thereof (provided, however, that such proceedings do not
involve any substantial danger of the sale, forfeiture or loss of any item
of equipment and that Borrower has adequately bonded such Lien or reserves
sufficient to discharge such Lien have been provided on the books of
Borrower), (c) Liens identified on the disclosure schedule attached hereto
as Schedule 2 ("Disclosure Schedule"), (d) Liens to secure payment of
worker's compensation, employment insurance, old age pensions or other
social security obligations of Borrower in the ordinary course of business
of Borrower, (e) Liens upon any equipment or other personal property
acquired by Borrower after the date hereof to secure (i) the purchase
price of such equipment or other personal property or (ii) lease
obligations or indebtedness incurred solely for the purpose of financing
the acquisition of such equipment or other personal property; provided
that (A) such Liens are confined solely to the equipment or other personal
property so acquired, and (B) no such Lien shall be created, incurred,
assumed or suffered to exist in favor of Borrower's officers, directors or
shareholders holding five percent (5%) or more of Borrower's Equity
Securities, (f) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens arising in the ordinary
course of business which are not delinquent or remain payable without
penalty or which are being contested in good faith and by appropriate
proceedings, (g) Liens or similar arrangements entered into in connection
with joint ventures and corporate collaborations, (h) Liens on
Intellectual Property, subordinate to those of Lender, securing
Indebtedness specified in clauses (e) and (f) of the definition of
Permitted Indebtedness; (i) Liens on inventory and accounts receivable
(and instruments and general intangibles related specifically to such
inventory and accounts receivable) securing Indebtedness in an amount
permitted under clause (g) of the definition of Permitted Indebtedness;
and (j) to the extent they constitute Liens, Transfers permitted under
Section 7.01(d)(ii)."
2
1.4 Section 2.01 shall be amended to add a new clause (d) which
shall read in its entirety as follows:
"(d) Notwithstanding the other provisions of this Section 2.01, the
principal portions of the payments due on April 15, 1999, May 15, 1999 and
June 15, 1999 (a total of $592,684.85) will be deferred and will be
payable upon the earlier to occur of (i) August 15, 1999, and (ii) the
final closing of the first sale by Borrower of its equity securities after
the date of this Second Amendment in a primary registered public offering.
Payments of interest only on the outstanding principal amount shall
continue on each date specified in the previous sentence. Regularly
scheduled payments of principal and interest in the amount of $172,300
(plus the pro rata portion of the amount added to principal pursuant to
the last sentence of this Section 2.01(d)) shall resume on August 15,
1999. Borrower agrees that it shall pay and Lender shall add to the amount
of the principal of the Loan, the legal fees and expenses incurred by
Lender in connection with the Second Amendment to this Agreement and the
transactions contemplated thereby. Such fees will not be capped; however,
it is the parties' expectation that such fees will not exceed $5,000."
1.5 Clauses (a) through (g) of Section 5.01 are amended in their
entirety to read as follows:
"(a) All goods and equipment now owned or hereafter acquired,
including, without limitation, all laboratory equipment, computer
equipment, office equipment, machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing,
and all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing, wherever located;
(b) All inventory now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies,
packing and shipping materials, work in process and finished products
including such inventory as is temporarily out of Borrower's custody or
possession or in transit and including any returns upon any accounts or
other proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing and any documents of title
representing any of the above, and Borrower's books relating to any of the
foregoing;
(c) All contract rights and general intangibles (other than
Excluded Intellectual Property), now owned or hereafter acquired,
including, without limitation, goodwill, license agreements, franchise
agreements, blueprints, drawings, purchase orders, customer lists, route
lists, infringements, claims, computer programs, computer disks, computer
tapes, literature, reports, catalogs, design rights, income tax refunds,
payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract
rights, royalties, license rights and all other forms of obligations owing
to Borrower arising out of the sale or lease of goods, the licensing of
technology or the rendering of services by Borrower (subject, in each
case, to the contractual rights of third parties to require funds received
by Borrower to be expended in a particular manner), whether or not earned
by performance, and any and all credit insurance, guaranties, and other
security therefor, as well as all merchandise returned to or reclaimed by
Borrower and Borrower's books relating to any of the foregoing;
3
(e) All documents, cash, deposit accounts, investment property,
securities entitlements, securities, letters of credit, certificates of
deposit, instruments and chattel paper now owned or hereafter acquired and
Borrower's books relating to the foregoing;
(f) All Intellectual Property (other than Excluded Intellectual
Property so long as the granting of a security interest in Excluded
Intellectual Property is prohibited by any court proceeding; provided that
at such time as a security interest in the Excluded Intellectual Property
is not prohibited by any such court proceeding, Lender shall have a
security interest therein without further action of Borrower or Lender);
and
(g) Any and all claims, rights and interests in any of the above
and all substitutions for, additions and accessions to and proceeds
thereof, including, without limitation, insurance, condemnation,
requisition or similar payments and proceeds of the sale or licensing of
Excluded Intellectual Property to the extent such proceeds no longer
constitute Excluded Intellectual Property."
1.6 Section 5.06 is amended in its entirety to read as follows:
"5.05 Lien Subordination. Lender agrees that the Liens
granted to it hereunder shall be subordinate to the Liens of existing and
future lenders providing equipment financing and equipment lessors and to
working capital lenders; provided that such Liens are confined, in the
case of equipment financing, solely to the equipment so financed and the
proceeds thereof or, in the case of working capital financing, to the
inventory and accounts receivable (and instruments and general intangibles
related specifically to such inventory and accounts receivable); and
provided, further, that the Obligations hereunder shall not be subordinate
in right of payment to any obligations to other lenders or equipment
lessors and Lender's rights and remedies hereunder shall not in any way be
subordinate to the rights and remedies of any such lenders or equipment
lessors. Lender agrees to execute and deliver such agreements and
documents as may be reasonably requested by Borrower from time to time
which set forth the lien subordination described in this Section 5.05 and
are reasonably acceptable to Lender. Lender shall have no obligation to
execute any agreement or document which would impose obligations,
restrictions or lien priority on Lender which are less favorable to Lender
than those described in this Section 5.05."
1.7 Section 7.01(c) is amended in its entirety to read as follows:
"(c) Negative Pledge Regarding Intellectual Property.
Create, incur, assume or suffer to exist any Lien of any kind upon any
Excluded Intellectual Property, whether now owned or hereafter acquired,
except Permitted Liens."
1.8 Section 7.01(d) is amended in its entirety to read as follows:
"(d) Dispositions of Collateral or Intellectual Property.
Convey, sell, offer to sell, lease, transfer, exchange or otherwise
dispose of (collectively, a "Transfer") all or any part of the Collateral
or Intellectual Property to any Person, other than: (i) Transfers of
inventory, cash and cash equivalents in the ordinary course of business;
(ii) Transfers of non-exclusive licenses, other Transfers of licenses
which are exclusive in a particular field of use or geographical territory
4
so long as all of the economic value of the subject Intellectual Property
is not transferred, and Transfers consisting of similar arrangements for
the use of the property of Borrower in the ordinary course of business; or
(iii) Transfers of worn-out or obsolete equipment. It is expressly agreed
and understood that the ordinary course of Borrower's business includes
entering into agreements and arrangements with third parties for research,
development, manufacturing, sale or marketing of products and the
licensing of Intellectual Property in connection with such agreements and
arrangements.
1.9 Section 7.01(m) is amended in its entirety to read as follows:
"(m) Indebtedness. Create, incur, assume or permit to exist
any Indebtedness except (i) trade credit in the ordinary course of
business; (ii) Indebtedness existing on the date hereof and set forth on
the Disclosure Schedule; (iii) Indebtedness secured by Liens permitted
under clause (e) of the definition of Permitted Liens and (iv) Permitted
Indebtedness."
1.10 The first sentence of Section 10.03 is amended in its entirety
to read as follows:
"Borrower agrees upon demand to pay or reimburse Lender for all
liabilities, obligations and reasonable out-of-pocket expenses, including
reasonable fees and expenses of counsel for Lender, from time to time
arising in connection with (i) the preparation, negotiation, execution and
delivery of any consent or proposed consent under this Agreement, any
amendment or proposed amendment of this Agreement or any waiver or
proposed waiver of any provision of this Agreement, whether or not the
same are actually entered into or approved by Lender, (ii) any
consultation with counsel in connection with a "work-out" or other
protection of the rights of Lender under this Agreement or the other
Operative Documents (including the warrant issued in connection with the
execution of the Second Amendment to this Agreement), (iii) the protection
of the rights of Lender under the Operative Documents including any fees
arising in connection with filings made in connection with the security
interests granted to Lender, and (iv) the enforcement or collection of
sums due under the Operative Documents.
2. CONDITION TO EFFECTIVENESS. The effectiveness of this Amendment is
conditioned upon the delivery by Borrower to Lender of the following: (a) a
certificate of the Secretary or the Assistant Secretary of Borrower, in form and
substance satisfactory to Lender, certifying the adoption of resolutions of the
Board of Directors of Borrower approving this Second Amendment, the Warrant
specified in clause (b) below and the transactions contemplated hereby and
thereby; (b) a Warrant in the form of Exhibit A hereto; and (c) an amendment to
the UCC financing statement and an instrument to be filed with the Patent and
Trademark Office, with respect to Intellectual Property each in form and
substance satisfactory to Lender.
3. MISCELLANEOUS.
3.1 Borrower hereby represents and warrants that attached hereto as
Exhibit B is an accurate list of all registered Intellectual Property of
Borrower. Borrower hereby covenants that it will notify Lender of any new
application for registration or registration of any Intellectual Property after
the date hereof including any Intellectual Property acquired from third parties.
This Second Amendment and the consent contained herein shall operate solely with
respect to the matters described herein and shall not impair any right or power
accruing to the Lender upon the occurrence or continuance of any unrelated
Default or Event of Default under the Loan Agreement, nor shall this Second
Amendment be construed as a waiver of any such Default or Event of Default or as
an acquiescence therein.
5
3.2 This Second Amendment shall be construed in connection with and
as part of the Loan Agreement, and except as modified and expressly amended
by this Second Amendment, all terms, conditions and covenants contained in the
Loan Agreement are hereby ratified and shall be and remain in full force and
effect.
3.3 Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and delivery of this
Second Amendment may refer to the Loan Agreement without making specific
reference to this Second Amendment but nevertheless all such references shall
include this Second Amendment unless the context otherwise requires.
3.4 The descriptive headings of the various Sections of this Second
Amendment are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
3.5 This Second Amendment shall be governed by and construed in
accordance with the laws of the State of California.
3.6 This Second Amendment may be executed in any number of
counterparts, each executed counterpart constituting an original, but all
together only one agreement.
[Remainder of Page Left Blank Intentionally]
6
IN WITNESS WHEREOF, the Borrower and the Lender have caused this Second
Amendment to be executed by their duly elected officers as of the date first
above written.
SHAMAN PHARMACEUTICALS, INC.
By: /s/ Lisa A. Conte
---------------------------
Name: Lisa A. Conte
Title: President & CEO
MMC/GATX PARTNERSHIP NO. I
By: GATX Capital Corporation, as General
Partner
By: /s/ James V. Mitchell
-------------------------
Name: James V. Mitchell
Title: Managing Director
7
EXHIBIT A
FORM OF WARRANT
8
EXHIBIT 10.47
CREDIT FACILITY AND NOTE PURCHASE AGREEMENT
THIS CREDIT FACILITY AND NOTE PURCHASE AGREEMENT, dated as of April
5, 1999 (this "Agreement"), by and between SHAMAN PHARMACEUTICALS, INC., a
Delaware corporation, with headquarters located at 213 East Grand Avenue, South
San Francisco, California 94080 (the "Company"), and each Investor named on the
signature pages hereto , (each, an "Investor" and together, the "Investors").
WHEREAS, the Investors are willing to lend certain sums of money to
the Company, and the Company wishes to borrow from the Investors, upon the terms
and subject to the conditions of this Agreement a total of up to $1,500,000,
pursuant to secured convertible promissory notes of the Company having the
aggregate principal amount set forth on the signature page of this Agreement and
which will be convertible into equity shares of the Company on the terms and
conditions herein set forth; and
WHEREAS, certain of the Investors, as a condition to their making the
loans to the Company, have required that members of the Company's Board of
Directors and Management themselves participate in and provide loans under this
Agreement;
WHEREAS, the Company shall execute and deliver to the Investors a
Security Agreement, in the form referred to herein which provides for the grant
to the Investors of a first priority perfected security interest in certain
intellectual property relating to its SB-300 and IBS-400 product candidates and
in revenues to be derived from the sale of SB-300;
WHEREAS, the Company has agreed to issue to each Investor, in
consideration of the amounts committed hereunder, warrants (the Warrants") to
purchase additional shares of the Company's equity on the terms and conditions
set forth herein;
NOW THEREFORE, the parties agree as follows:
1. DEFINITIONS. The following terms shall have the
following meanings (such meanings to be equally applicable to both
the singular and plural forms of the terms defined):
"Affiliate" means, with respect to any person, any other person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the subject person. For purposes
of this definition, "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
whether through the ownership of voting securities or by contract or otherwise.
"Blackout Period" means the period of up to 20 consecutive days after
the date the Company notifies the Investors that they are required, pursuant to
Section 8(c)(4), to suspend offers and sales of Registrable Securities as a
result of an event or circumstance described in Section 8(b)(5)(A) during which
period, by reason of Section 8(b)(5)(B), the Company is not required to amend
the Registration Statement or to supplement the Prospectus; provided, however,
that such period may be up to 30 consecutive days if the Company so elects in
accordance with Section 8(b)(5)(B), subject to the limitations provided therein.
"Call Notice" shall mean the written notice provided by the Company
to the Investor(s) requesting funding of the Purchase Price of the Note.
"Closing Date" shall mean the date which is not less than five
Business Days after delivery by the Company of a Call Notice, as specified in
such Call Notice on which the Purchase price for the Notes shall become due and
payable and the Company shall issue the corresponding Notes and Warrants.
"Collateral" shall have the meaning provided in the Security
Agreement.
"Common Stock" means the Common Stock, par value $.001 per share, of
the Company.
"Event of Default" shall have the meaning provided in the Note.
"Fletcher" means Fletcher International Limited, a company organized
under the laws of the Cayman Islands.
"Fletcher Subscription Agreement" means the Subscription Agreement,
dated July 25, 1996, between the Company and Fletcher.
"Indemnified Party" means the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act.
"Indemnified Person" means each Investor who holds Registrable
Securities and each Investor who sells such Registrable Securities in the manner
permitted under this Agreement, the directors, if any, of such Investor, the
officers, if any, of such Investor, each person, if any, who controls any
Investor within the meaning of the 1933 Act or the 1934 Act, any underwriter (as
defined in the 1933 Act) acting on behalf of an Investor who participates in the
offering of Registrable Securities of such Investor in accordance with the plan
of distribution contained in any Prospectus, the directors, if any, of such
underwriter and the officers, if any, of such underwriter, and each person, if
any, who controls any such underwriter within the meaning of the 1933 Act or the
1934 Act .
"Majority Holders" shall have the meaning provided in the Note.
`Market Price" shall have the meaning provided in the Note.
"Maturity Date" shall have the meaning provided in the Note.
2
"Notes" means the Secured Convertible Promissory Notes of the Company
in the form of Appendix I to this Agreement.
"Offering" shall mean the first equity offering by the Company of its
securities in a primary registered public offering of such equity.
"Prospectus" means the prospectus, including any preliminary
prospectus, forming part of the Registration Statement and any amendment or
supplement thereto.
"Purchase Price" means the principal amount of each Note, which
amount shall not with respect to each Investor exceed the amount set forth next
to such investor's name on the signature page of this Agreement.
"register," "registered," and "registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the 1933 Act and pursuant to Rule 415, and the declaration or
ordering of effectiveness of such Registration Statement by the SEC.
"Registrable Securities" means the Shares and any stock or other
securities into which or for which the Common Stock represented by the Shares
may hereafter be changed, converted or exchanged by the Company or its
successor, as the case may be, and any other securities issued to holders of
such Common Stock (or such shares into which or for which such shares are so
changed, converted or exchanged) upon any reclassification, share combination,
share subdivision, share dividend, merger, consolidation or similar transaction
or event.
"Registration Period" means the period from the SEC Effective Date to
the earlier of (i) the date which is three years after the Closing Date and (ii)
the date on which the Investors no longer own any Registrable Securities (or, if
(x) the Note shall have been fully converted into shares of Common Stock, (y)
the Maturity Date shall have occurred or (z) the Note shall no longer remain
outstanding, such date after which each Investor may sell all of its Registrable
Securities without registration under the 1933 Act pursuant to Rule 144, free of
any limitation on the volume of such securities which may be sold in any
period).
"Registration Statement" means a registration statement on Form S-3
of the Company under the 1933 Act which names the Investors as selling
stockholders.
"Regulation D" means Regulation D under the 1933 Act.
"Requested Information" means the information the Company requires
from each Investor in connection with the preparation of the Registration
Statement.
"Rule 415" means Rule 415 under the 1933 Act or any successor rule
providing for offering securities on a delayed or continuous basis.
"Rule 144" means Rule 144 promulgated under the 1933 Act or any other
similar rule or regulation of the SEC that may at any time permit a holder of
any securities to sell securities of the Company to the public without
registration under the 1933 Act.
3
"SEC" means the Securities and Exchange Commission.
"SEC Effective Date" means the date the Registration Statement is
declared effective by the SEC.
"SEC Filing Date" means the date the Registration Statement is first
filed with the SEC pursuant to Section 8.
"Securities" means the Notes, the Shares and the Warrants.
"Security Agreement" means the Security Agreement in the form
attached hereto as Exhibit C.
"Senior Lender" means MMC/GATX Limited Partnership No. I, a
California general partnership.
"Shares" means that class and series of equity securities offered by
the Company in the Offering, or, in the event the Company has not conducted any
qualifying Offering on or before December 31, 1999, then shares of the Company's
Common Stock.
"Warrants" has the meaning provided in Section 2(a).
2. PURCHASE AND SALE; PURCHASE PRICE.
(a) Purchase. Each Investor hereby agrees to purchase, and the
Company hereby agrees to sell to each Investor, at a Closing Date to occur
between May 14, 1999 and the earlier of the completion of an Offering or
September 1, 1999, Notes in aggregate principal amount set forth on the
signature page of this Agreement for such Investor and as further specified in a
Call Notice and having the terms and conditions as set forth in the form of the
Note attached hereto as Exhibit A, each for the Purchase Price set forth on the
signature page to this Agreement. Upon execution of this Agreement, the Company
agrees to issue to each Investor a Warrant in substantially the form attached
hereto as Exhibit B, to purchase that number of shares as equals 50% of the
amount of such Investor's Note divided by the per share purchase price of the
Shares (the "Warrant").
(b) Form and Timing of Payment. Within five Business Days after the
date the Company delivers to each Investor a Call Notice of its election to call
the Notes, the Investor shall deposit an amount equal to the applicable Purchase
Price by delivering funds in United States Dollars in the amount of the
applicable Purchase Price to the Company against delivery by the Company of a
corresponding Note, duly executed on behalf of the Company, to the Investor on
or prior to the Closing Date. Delivery of the Purchase Price to the Company
shall be made by wire transfer of funds to such account as shall be specified in
the Company's Call Notice.
(c) Closing. The issuance and sale of the Notes shall be five
Business Days after the issuance of the Call Notice (the "Closing Date") at the
offices of Brobeck, Phleger & Harrison, LLP, 2200 Geng Road, Palo Alto, CA
94303.
4
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor represents and warrants to, and covenants and agrees
with, the Company as follows:
(a) Purchase for Investment; Circumstances of Offer. The Investor
is purchasing the Note for its own account for investment and not with a view
towards the public sale or distribution thereof;
(b) Accredited Investor. The Investor is an "accredited investor"
as that term is defined in Rule 501 of Regulation D by reason of Rule 501(a)(3)
thereof;
(c) Reoffers and Resales. The Investor will not, directly or
indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit
any offers to buy, purchase or otherwise acquire or take a pledge of) any of the
Securities unless registered under the 1933 Act and the rules and regulations
promulgated thereunder or pursuant to an exemption from registration;
(d) Company Reliance. The Investor understands that the Notes are
being offered and sold, and, upon conversion of the Notes, the Shares will be
issued to it in reliance on one or more exemptions from the registration
requirements of the 1933 Act, including, without limitation, Regulation D, and
exemptions from state securities laws and that the Company is relying upon the
truth and accuracy of, and the Investor's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Investor set
forth herein and in the Questionnaire, a true and accurate copy of which has
been delivered by the Investor to the Company, in order to determine the
availability of such exemptions and the eligibility of the Investor to acquire
the Securities; and the information with respect to the Investor set forth in
the Questionnaire is accurate and complete in all material respects;
(e) Information Provided. The Investor and its advisors have
requested, received and considered all information relating to the business,
properties, operations, condition (financial or other), results of operations
and prospects of the Company and information relating to the offer and sale of
the Notes and the offer and, upon conversion of the Notes, sale of the Shares
deemed relevant by them; the Investor and its advisors have been afforded the
opportunity to ask questions of the Company concerning the terms of the
Securities and the business, properties, operations, condition (financial or
other), results of operations and prospects of the Company and have received
satisfactory answers to any such inquiries, assuming the accuracy and
completeness of the SEC Reports, the representations and warranties in this
Agreement, the Security Agreement and the Company's responses; without limiting
the generality of the foregoing, the Investor has had the opportunity to obtain
and to review the SEC Reports; the Investor has, in connection with its decision
to purchase the Note, relied solely upon the SEC Reports, the representations,
warranties, covenants and agreements of the Company set forth in this Agreement
and to be contained in the Note, the Security Agreement and the Transfer Agent
Agreement, as well as any investigation of the Company completed by the Investor
or its advisors; the Investor understands that its investment in the Securities
involves a high degree of risk; and the Investor understands that the offering
of the Notes is being made to the Investor as part of an offering without any
5
minimum or maximum amount of the offering (subject, however, to the right of the
Company at any time prior to execution and delivery of this Agreement by the
Company, in its sole discretion, to accept or reject an offer by the Investor to
purchase the Notes);
(f) Absence of Approvals. The Investor understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities;
(g) Note Purchase Agreement. The Investor has all requisite power and
authority, corporate or otherwise, to execute, deliver and perform its
obligations under this Agreement and the other agreements executed by the
Investor in connection herewith and to consummate the transactions contemplated
hereby and thereby; and this Agreement has been duly and validly authorized,
duly executed and delivered by the Investor and, assuming due execution and
delivery by the Company, is a valid and binding agreement of the Investor
enforceable in accordance with its terms, except as the enforceability hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally and general principles of equity,
regardless of whether enforcement is considered in a proceeding in equity or at
law;
(h) Investor Status. The Investor is not a "broker" or "dealer"
as those terms are defined in the 1934 Act which is required to be registered
with the SEC pursuant to Section 15 of the 1934 Act; and
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY;.
The Company represents and warrants to, and covenants and agrees
with, the Investor that:
(a) Organization and Authority. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority (i) to own, lease
and operate its properties and to carry on its business as described in the SEC
Reports and as currently conducted, and (ii) to execute, deliver and perform its
obligations under this Agreement, the Notes and the other agreements executed
and delivered by the Company in connection herewith, and to consummate the
transactions contemplated hereby and thereby. The Company has no subsidiaries or
equity investments in any other person other than Shaman Botanicals, Inc. (which
corporation either has been or will be dissolved prior to the issuance of any
Call Notice.
(b) Qualifications. The Company is duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and where failure so to qualify could have a material
adverse effect on the business, properties, operations, condition (financial or
other), results of operations or prospects of the Company.
(c) Capitalization. The authorized capital of the Company consists of
(a) 70,000,000 shares of Common Stock, of which 38,245,912 shares were
outstanding on March 26, 1999 and (b) 2,000,000 shares of Preferred Stock, $.001
par value, of which 400,000 shares have been designated Series A Preferred
6
Stock, of which 400,000 shares were outstanding on March 26, 1999; of which
140,880 shares have been designated Series C Preferred Stock, of which 115,958
shares were outstanding on March 26, 1999; of which 6,284 shares have been
designated Series D Preferred Stock, of which 2,112 shares were outstanding on
March 26, 1999. Except as disclosed in Schedule 4(c), (i) the 1998 10-K
discloses as of December 31, 1998 all outstanding options or warrants for the
purchase of, or other rights to purchase or subscribe for, or securities
convertible into or exchangeable for, Common Stock or other capital stock of the
Company, or any contracts or commitments to issue or sell Common Stock or other
capital stock of the Company or any such options, warrants, rights or other
securities; and (ii) from such date to the date hereof there has been, and to
the Closing Date there will be, no material change in the amount or terms of any
of the foregoing. None of the outstanding shares of Common Stock, shares of
Series A, Series C or Series D Preferred Stock and options, warrants and other
rights to acquire Common Stock has been issued in violation of the preemptive
rights of any security holder of the Company.
(d) Concerning the Shares and the Common Stock. The Shares have not
yet been duly authorized and will only be so authorized upon the approval of the
stockholders of the Company of an amendment to the Company's Certificate of
Incorporation authorizing such Shares and the shares of Common stock issuable
upon conversion thereof, it being acknowledged that the Company shall use its
best efforts to obtain such approvals and that upon such approvals having been
obtained and the Amended Certificate having been filed, the Shares when issued
upon conversion of the Note, and the shares of Common Stock issuable upon
conversion of the Shares, will be duly and validly issued, fully paid and
non-assessable. The Company further agrees immediately upon such authorization
to reserve and keep reserved such number of Shares and shares of Common stock as
are reasonably necessary to permit conversion of the Notes into Shares and
Shares into shares of Common Stock.
(e) Corporate Authorization. This Agreement, the Security Agreement,
and the Notes and the Warrant have been duly and validly authorized by the
Company; this Agreement has been duly executed and delivered by the Company and,
assuming due execution and delivery by the Investor, this Agreement is, the
Warrants are, the Security Agreement will be, when duly executed and delivered
by the Company and each Note will be, when executed and delivered by the
Company, valid and binding obligations of the Company enforceable in accordance
with their respective terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and general principles of equity, regardless of
whether enforcement is considered in a proceeding in equity or at law.
(f) Noncontravention. The execution and delivery of this Agreement,
the Warrants, the Security Agreement and each of the Notes by the Company and
the consummation by the Company of the issuance of the Securities and the other
transactions contemplated by this Agreement, the Warrants, the Security
Agreement and the Notes do not and will not, with or without the giving of
notice or the lapse of time, or both, (i) result in any violation of any term of
the certificate of incorporation or by-laws of the Company, (ii) conflict with
or result in a breach by the Company of any of the terms or provisions of, or
constitute a default under, or result in the modification of, or result in the
creation or imposition of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company pursuant to, any indenture,
7
mortgage, deed of trust or other agreement or instrument to which the Company is
a party or by which the Company or any of its properties or assets are bound or
affected or (iii) violate or contravene any applicable law, rule or regulation
or any applicable decree, judgment or order of any court, United States federal
or state regulatory body, administrative agency or other governmental body
having jurisdiction over the Company or any of its respective properties or
assets or (iv) have any material adverse effect on any permit, certification,
registration, approval, consent, license or franchise necessary for the Company
to own or lease and operate any of its properties and to conduct its business or
to make use thereof.
(g) Approvals. No authorization, approval or consent of, or filing
with, any court, governmental body, regulatory agency, self-regulatory
organization, or stock exchange or market or the stockholders of the Company is
required to be obtained or made by the Company in connection with the execution,
delivery and performance of this Agreement, the Warrants, the Security Agreement
and the Notes and, except as noted in Section 4(e) above, the issuance and sale
of the Securities as contemplated by this Agreement and the terms of the Notes,
other than (1) registration of the resale of the Shares under the 1933 Act, (2)
as may be required under applicable state securities or "blue sky" laws, (3) the
filing of appropriate financing statements under the Uniform Commercial Code
relating to the Collateral and (4) filing of one or more Forms D with respect to
the Securities as required under Regulation D.
(h) SEC Filings. The Company has timely filed all reports required to
be filed under the 1934 Act and any other material reports or documents required
to be filed with the SEC since January 1, 1994. All of such reports and
documents complied, when filed, in all material respects, with all applicable
requirements of the 1933 Act and the 1934 Act. The Company meets the
requirements for the use of Form S-3 for the registration of the resale of the
Shares by the Investor and any Investor.
(i) Absence of Certain Proceedings. Except as described in the
Company's periodic filings pursuant to the Securities and Exchange Act of 1934,
as amended (the "SEC Reports"), there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the
knowledge of the Company, threatened against or affecting the Company wherein an
unfavorable decision, ruling or finding could have a material adverse effect on
the business, properties, operations, condition (financial or other), results of
operations or prospects of the Company or the transactions contemplated by this
Agreement, the Warrants, the Security Agreement, the Notes, or any of the
documents contemplated thereby or which could adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement, the Warrants, the Security Agreement, the
Notes, or any of such other documents.
(j) Liabilities. Except as and to the extent disclosed, reflected or
reserved against in the financial statements of the Company and the notes
thereto included in the 1998 10-K and except for the obligations under the
MMC/GATX Loan Agreement and equipment lease line with Transamerica Business
Credit Corporation, the Company has no material (individually or in the
aggregate) liabilities, debts or obligations whether accrued, absolute,
contingent or otherwise, and whether due or to become due.
8
(k) Intellectual Property. Except as disclosed in the SEC Reports,
the Company owns, or possesses adequate rights to use, all patents, patent
rights, inventions, trade secrets, know-how, proprietary techniques, including
processes and substances, trademarks, service marks, trade names and copyrights
described or referred to in the SEC Reports or owned or used by it or which are
necessary for the conduct of its business as it is presently conducted, or as
proposed to be conducted, and the Company is not aware of any claim to the
contrary or any challenge by any person to the rights of the Company with
respect to the foregoing which claim or challenge is material to the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company.
(l) Compliance with Law. Except as disclosed in the SEC Reports, the
Company is not in violation of any statute, law, rule, regulation, ordinance,
decision or order of any governmental agency or body or any court, domestic or
foreign, including, without limitation, those relating to the use, operation,
handling, transportation, disposal or release of hazardous or toxic substances
or wastes or relating to the protection or restoration of the environment or
human exposure to hazardous or toxic substances or wastes, except where such
violation would not individually or in the aggregate have a material adverse
effect on the business, properties, operations, condition (financial or other),
results of operations or prospects of the Company; and the Company is not aware
of any pending investigation which would reasonably be expected to lead to such
a claim.
(m) Properties. The Company has good title to all property real and
personal (tangible and intangible) and other assets owned by it which are
individually or in the aggregate material to the Company, free and clear of all
security interests, charges, mortgages, liens or other encumbrances, except such
as are described in the SEC Reports, created pursuant to the MMC/GATX Loan
Agreement or such as do not materially interfere with the use of such property
made, or proposed to be made, by the Company. The leases, licenses or other
contracts or instruments under which the Company leases, holds or is entitled to
use any property, real or personal, which individually or in the aggregate are
material to the Company, are valid, subsisting and enforceable with only such
exceptions as do not materially interfere with the use of such property made, or
proposed to be made by the Company. The Company has not received notice of any
material violation of any applicable law, ordinance, regulation, order or
requirement relating to its owned or leased properties.
5. CERTAIN COVENANTS.
(a) Transfer Restrictions. Each Investor acknowledges and agrees that
(1) the Notes to be issued to it hereunder have not been and are not being
registered under the provisions of the 1933 Act or any state securities laws
and, the Shares have not been and are not being registered under the 1933 Act or
any state securities laws, and that the Notes may not be transferred unless the
Investor shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Note to be transferred may be transferred without such registration; (2) no
sale, assignment or other transfer of the Note or any interest therein may be
made except in accordance with the terms thereof; (3) the Shares may not be
resold by the Investor unless the resale has been registered under the 1933 Act
or is made pursuant to an exemption from such registration; (4) any sale of the
Securities made in reliance on Rule 144 may be made only in accordance with the
9
terms of said Rule and further, if the exemption provided by Rule 144 is not
available, any resale of the Securities under circumstances in which the seller,
or the person through whom the sale is made, may be deemed to be an underwriter,
as that term is used in the 1933 Act, may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (5) the Company is under no obligation to register the Securities under the
1933 Act or, to comply with the terms and conditions of any exemption
thereunder, except as provided in Section 8 with respect to shares of Common
Stock.
(b) Restrictive Legend. Each Investor acknowledges and agrees that
the Notes shall bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of the Note):
This Note has not been registered under the Securities Act of 1933, as amended
(the "Act"), or any state securities laws. The sale to the holder of this Note
of the shares issuable upon conversion of this Note and in payment of interest
on this Note are not currently covered by a registration statement under the Act
or registration under state securities laws. This Note has been acquired, and
such shares must be acquired, for investment only and may not be sold,
transferred or assigned in the absence of registration of the resale thereof or
an opinion of counsel reasonably satisfactory in form, scope and substance to
the Company that such registration is not required.
(c) Form D. The Company agrees to file one or more Forms D with
respect to the Securities as required under Regulation D to claim the exemption
provided by Rule 506 of Regulation D and to provide a copy thereof to the
Investor promptly after such filing.
(d) Security Agreement; Financing Statements. The Company agrees to
execute and deliver to the Collateral Agent for the benefit of the Investors the
Security Agreement in the form attached hereto as Exhibit C on or before the
Closing Date for a call under the Notes. The Company shall prepare, and on or
before the Closing Date, file with the appropriate officials, Uniform Commercial
Code financing statements on Form UCC-1 and appropriate filings with the United
States Patent and Trademark Office relating to the Collateral in which the
Company is granting a security interest to the Collateral Agent for the benefit
of the Investor pursuant to the Security Agreement. The Company shall provide to
the Investors evidence of such filings and customary search reports of the
records of the relevant Uniform Commercial Code filing offices on or prior to
the Closing Date.
(e) State Securities Laws. On or before the Closing Date, the Company
shall take such action as shall be necessary to qualify, or to obtain an
exemption for, the Notes for sale to each Investor pursuant to this Agreement
and the Shares for sale upon conversion of the Notes under such of the
securities laws of jurisdictions in the United States as shall be applicable to
the sale of the Notes to each Investor pursuant to this Agreement and issuance
of the Shares upon conversion of the Notes. In connection with the foregoing
obligations of the Company in this Section 5(e), the Company shall not be
required (1) to qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 5(e), (2) to subject
itself to general taxation in any such jurisdiction, (3) to file a general
consent to service of process in any such jurisdiction, (4) to provide any
undertakings that cause more than nominal expense or burden to the Company or
10
(5) to make any change in its charter or by-laws which the Board of Directors of
the Company determines to be contrary to the best interests of the Company and
its stockholders. The Company shall furnish the Investor with copies of all
filings, applications, orders and grants or confirmations of exemptions relating
to such securities laws on or before the Closing Date.
(f) Best Efforts. Each of the parties shall use its best efforts
timely to satisfy each of the conditions to the other party's obligations to
sell and purchase the Note set forth in Section 6 or 7, as the case may be, of
this Agreement on or before the Closing Date.
(g) Debt Obligation. So long as any portion of the Notes is
outstanding, the Company shall cause its books, records and financial statements
to reflect the Notes as debts of the Company in their aggregate unpaid principal
amount and, whenever appropriate, as a valid unsubordinated debt obligation of
the Company for money borrowed.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Investor understands that the Company's obligation to sell the
Notes to the Investor pursuant to this Agreement is conditioned upon the
following (any or all of which may be waived by the Company in its sole
discretion):
(a) The payment by the Investor to the Company on each Closing
Date of an amount equal to the Purchase Price;
(b) On each Closing Date, no legal action, suit or proceeding shall
be pending or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement;
(c) The representations and warranties of the Investor contained in
this Agreement and in the Questionnaire shall have been true and correct on the
date of this Agreement and shall be true and correct on the Closing Date as if
given on and as of such Closing Date (except for representations given as of a
specific date which representations shall be true and correct as of such date),
and on or before such Closing Date the Investor shall have performed all
covenants and agreements of the Investor required to be performed by the
Investor on or before such Closing Date; and
(d) No event which, if the Notes were outstanding, (1) would
constitute an Event of Default or, with the giving of notice or the passage of
time or both, would constitute an Event of Default shall have occurred and be
continuing or (2) would constitute a Repurchase Event or, with the giving of
notice or the lapse of time, or both, would constitute a Repurchase Event shall
have occurred and be continuing.
7. CONDITIONS TO THE INVESTOR'S OBLIGATION TO PURCHASE.
The Company understands that each Investor's obligation to purchase
the Notes is conditioned upon the following (any or all of which may be waived
by the Investor in its sole discretion):
11
(a) Delivery by the Company to the Investor of each Note in
accordance with this Agreement;
(b) On the applicable Closing Date, no legal action, suit or
proceeding shall be pending or threatened which seeks to restrain or prohibit
the transactions contemplated by this Agreement;
(c) The representations and warranties of the Company contained in
this Agreement shall have been true and correct on the date of this Agreement,
and except for the approvals referred to in clauses (1) through (4) of Section
4(g), which shall have been obtained, on the Closing Date as if given on and as
of the Closing Date (except for representations given as of a specific date,
which representations shall be true and correct as of such date), and on or
before the Closing Date the Company shall have performed all covenants and
agreements of the Company contained herein required to be performed by the
Company on or before such Closing Date;
(d) No event which, if the Notes were outstanding, (1) would
constitute an Event of Default or, with the giving of notice or the passage of
time or both, would constitute an Event of Default shall have occurred and be
continuing or (2) would constitute a Repurchase Event or, with the giving of
notice or the lapse of time, or both, would constitute a Repurchase Event shall
have occurred and be continuing;
(e) The Company shall have delivered to each Investor its
certificate, dated as of such Closing Date, duly executed by its President and
Chief Executive Officer to the effect set forth in subparagraphs (b), (c) and
(d) of this Section 7; and
(f) The receipt by the Investor of a certificate, dated the Closing
Date, of the Secretary of the Company certifying (1) the Certificate of
Incorporation and By-Laws of the Company as in effect on the Closing Date, (2)
all resolutions of the Board of Directors (and committees thereof) of the
Company relating to this Agreement and the transactions contemplated hereby and
(3) such other matters as reasonably requested by the Investor;
8. REGISTRATION RIGHTS;.
(a) Mandatory Registration.
(1) The Company shall prepare and not later than the Closing
Date, file with the SEC a Registration Statement on Form S-3 which on the SEC
Filing Date covers the resale of a number of shares of Common Stock equal to at
least the number of shares of Common Stock as are then expected to be issuable
upon a conversion of the Shares into shares of Common Stock (or as may hereafter
become issuable upon conversion of the Notes, if the Offering is not completed
by December 31, 1999), as Registrable Securities, and which Registration
Statement shall state that, in accordance with Rule 416 under the 1933 Act, such
Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the Shares to
prevent dilution resulting from stock splits, stock dividends or similar
transactions. If, notwithstanding Rule 416 under the 1933 Act, the Registration
Statement is not deemed to cover such indeterminate number of shares of Common
Stock as shall be issuable upon conversion of the Shares based on changes from
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time to time in the conversion price thereof, at any time the number of shares
of Common Stock included in the Registration Statement required to be filed as
provided in the first sentence of this Section 8(a) shall be insufficient to
cover the number of shares of Common Stock issuable on conversion in full of the
unconverted portion of the Shares, then promptly, but in no event later than 20
days after such insufficiency shall occur, the Company shall file with the SEC
an additional Registration Statement on Form S-3 (which shall not constitute a
post-effective amendment to the Registration Statement filed pursuant to the
first sentence of this Section 8(a)) covering such number of shares of Common
Stock as shall be sufficient to permit such conversion. For all purposes of this
Agreement such additional Registration Statement shall be deemed to be the
Registration Statement required to be filed by the Company pursuant to this
Section 8(a), and the Company and the Investors shall have the same rights and
obligations with respect to such additional Registration Statement as they shall
have with respect to the initial Registration Statement required to be filed by
the Company pursuant to this Section 8(a).
(2) Prior to the SEC Effective Date and during any time
subsequent to the SEC Effective Date when the Registration Statement for any
reason is not available for use by any Investor for the resale of any Shares,
the Company shall not file any other registration statement or any amendment
thereto with the SEC under the 1933 Act or request the acceleration of the
effectiveness of any other registration statement previously filed with the SEC
other than (A) any registration statement on Form S-8 and (B) any registration
statement or amendment which the Company is required to file or as to which the
Company is required to request acceleration pursuant to any obligation in effect
on the Execution Date. The Company's obligation to register the Registrable
Securities under this Section 8 shall constitute a registration pursuant to a
demand registration right held by the Investors.
(b) Obligations of the Company;. In connection with the registration
of the Registrable Securities, the Company shall:
(1) prepare promptly, and file with the SEC not later than 20
days after the Closing Date, a Registration Statement with respect to the number
of Registrable Securities provided in Section 8(a), and thereafter use its best
efforts to cause such Registration Statement relating to Registrable Securities
to become effective as promptly as possible after the Closing Date, and keep the
Registration Statement effective pursuant to Rule 415 at all times during the
Registration Period. The Company shall submit to the SEC, within three Business
Days after the Company learns that no review of the Registration Statement will
be made by the staff of the SEC or that the staff of the SEC has no further
comments on the Registration Statement, as the case may be, a request for
acceleration of effectiveness of the Registration Statement to a time and date
not later than 48 hours after the submission of such request. The Company
represents and warrants to the Investors that (a) the Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein), at the time it is first filed with the SEC, at the time it is ordered
effective by the SEC and at all times during which it is required to be
effective hereunder (and each such amendment and supplement at the time it is
filed with the SEC and at all times during which it is available for use in
connection with the offer and sale of the Registrable Securities) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (b) the Prospectus shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
13
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading;
(2) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
Prospectus as may be necessary to keep the Registration Statement effective, and
the Prospectus current, at all times during the Registration Period, and, during
the Registration Period, comply with the provisions of the 1933 Act applicable
to the Company in order to permit the disposition by the Investors of all
Registrable Securities covered by the Registration Statement;
(3) furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel, (1) promptly after
the same is prepared and publicly distributed, filed with the SEC or received by
the Company, one copy of the Registration Statement and any amendment thereto,
each Prospectus and each amendment or supplement thereto, (2) each letter
written by or on behalf of the Company to the SEC or the staff of the SEC and
each item of correspondence from the SEC or the staff of the SEC relating to
such Registration Statement (other than any portion of any thereof which
contains information for which the Company has sought confidential treatment),
each of which the Company hereby determines to be confidential information and
which the Buyer hereby agrees to keep confidential as a confidential Record in
accordance with Section 8(b)(9) and (3) such number of copies of a Prospectus
and all amendments and supplements thereto and such other documents, as such
Investor may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor;
(4) use its best efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under the
securities or blue sky laws of such jurisdictions as the Investors who hold a
majority in interest of the Registrable Securities reasonably request, (ii)
prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times during the Registration Period and (iii) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale by the
Investors in such jurisdictions; provided, however, that the Company shall not
be required in connection therewith or as a condition thereto (I) to qualify to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 8(b)(4), (II) to subject itself to general taxation
in any such jurisdiction, (III) to file a general consent to service of process
in any such jurisdiction, (IV) to provide any undertakings that cause more than
nominal expense or burden to the Company or (V) to make any change in its
charter or by-laws which the Board of Directors of the Company determines to be
contrary to the best interests of the Company and its stockholders;
(5) (A) as promptly as practicable after becoming aware of such
event or circumstance, notify each Investor of any event or circumstance of
which the Company has knowledge, as a result of which the Prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and use its best efforts promptly to
prepare a supplement or amendment to the Registration Statement and Prospectus
to correct such untrue statement or omission or to add any new or additional
information, and deliver a number of copies of such supplement or amendment to
each Investor as such Investor may reasonably request;
14
(B) notwithstanding Section 8(b)(5)(A) above, if at any
time the Company notifies the Investors as contemplated by Section
8(b)(5)(A) that the event giving rise to such notice relates to a development
involving the Company which occurred subsequent to the later of (x) the SEC
Effective Date and (y) the latest date prior to such notice on which the Company
has amended or supplemented the Registration Statement, then the Company shall
not be required to use best efforts to make such amendment during a Blackout
Period; provided, however, that in any period of 360 consecutive days the
Company shall not be entitled to avail itself of its rights under this Section
8(b)(5)(B) with respect to more than (i) two Blackout Periods, if the Company
does not make an election pursuant to the next succeeding clause (ii) of this
proviso or (ii) if the Company so elects by notice to the Holder given not later
than 18 days after the commencement of a Blackout Period, one Blackout Period of
up to 30 consecutive days and; provided further, however, that no Blackout
Period may commence sooner than 45 days after the end of another Blackout
Period.
(6) as promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold of the
issuance by the SEC of any stop order or other suspension of effectiveness of
the Registration Statement at the earliest possible time;
(7) permit the Investors who hold Registrable Securities being
sold and a single firm of counsel designated as selling stockholders' counsel by
the Investors who hold a majority in interest of the Registrable Securities
being sold to review at such Investors' sole expense the Registration Statement
and all amendments and supplements thereto a reasonable period of time prior to
their filing with the SEC;
(8) make generally available to its security holders as soon as
practical, but not later than 90 days after the close of the period covered
thereby, an earning statement (in form complying with the provisions of Rule 158
under the 1933 Act) covering a 12-month period beginning not later than the
first day of the Company's fiscal quarter next following the effective date of
the Registration Statement;
(9) make available for inspection by any Investor and any
Inspectors retained by any such Investor at such Investor's sole expense,
all Records as shall be reasonably necessary to enable each Investor to exercise
its due diligence responsibility and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(i) the release of such Records is ordered pursuant to a subpoena or other order
from a court or government body of competent jurisdiction or (ii) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement; provided
further, however, that each Investor understands that in the course of
exercising the rights provided in this Section 8(b)(9) such Investor may come
into possession of material non-public information about the Company and that by
reason of the requirements of the 1934 Act any such Investor who possesses such
material non-public information may be restricted in making purchases and sales
of the Common Stock unless such information has been publicly disclosed. The
Company shall not be required to disclose any confidential information in such
15
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
8(b)(9). Each Investor agrees that it shall, upon learning that disclosure of
such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at the Company's expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential. The Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the Company
pursuant to this Agreement unless the disclosure of such information is
necessary to comply with federal or state securities laws, (ii) the disclosure
of such information is necessary to avoid or correct a misstatement or omission
in any Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other order from a court or governmental body of
competent jurisdiction or (iv) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Company agrees that it shall, upon learning that disclosure
of such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to such Investor and allow such Investor, at such Investor's expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, such information;
(10) provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the SEC Effective
Date;
(11) cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts as the Investors may
reasonably request and registered in such names as the Investors may request;
(12) during the Registration Period, the Company shall not bid
for or purchase any Common Stock or any right to purchase Common Stock or
attempt to induce any person to purchase any such security or right if such bid,
purchase or attempt would in any way limit the right of the Investors to sell
Registrable Securities by reason of the limitations set forth in Regulation M
under the 1934 Act; and
(13) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant to
the Registration Statement.
(c) Obligations of the Investors;. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(1) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
16
with such registration as the Company may reasonably request. At least four (4)
Business Days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the Requested Information
if any of such Investor's Registrable Securities are eligible for inclusion in
the Registration Statement. If at least one (1) Business Day prior to the filing
date the Company has not received the Requested Information from an Investor,
then the Company may file the Registration Statement without including
Registrable Securities of such Non-Responsive Investor;
(2) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement;
(3) Each Investor agrees that it will not effect any disposition
of the Registrable Securities except as contemplated in the Registration
Statement or as otherwise in compliance with applicable securities laws and that
it will promptly notify the Company of any material changes in the information
set forth in the Registration Statement regarding such Investor or its plan of
distribution; each Investor agrees (a) to notify the Company in writing in the
event that such Investor enters into any material agreement with a broker or a
dealer for the sale of the Registrable Securities through a block trade, special
offering, exchange distribution or a purchase by a broker or dealer and (b) in
connection with such agreement, to provide to the Company in writing the
information necessary to prepare any supplemental prospectus pursuant to Rule
424(c) under the 1933 Act which is required with respect to such transaction;
(4) Each Investor acknowledges that during the times specified
in Section 8(b)(4) or 8(b)(5) the Company must suspend the use of the
Prospectus until such time as an amendment to the Registration Statement has
been filed by the Company and declared effective by the SEC, the Company has
prepared a supplement to the Prospectus or the Company has filed an appropriate
report with the SEC pursuant to the 1934 Act. Each Investor hereby covenants
that it will not sell any Registrable Securities pursuant to the Prospectus
during the period commencing at the time at which the Company gives such
Investor notice in accordance with Section 8(b)(4) or 8(b)(5) of the suspension
of the use of the Prospectus and ending at the time the Company gives such
Investor notice that such Investor may thereafter effect sales pursuant to the
Prospectus, or until the Company delivers to such Investor an amended or
supplemented Prospectus;
(5) In connection with any sale of Registrable Securities which
is made pursuant to the Registration Statement through a broker, each
Investor shall instruct its broker or brokers to deliver the Prospectus to the
purchaser or purchasers in connection with such sale, shall supply copies of
such Prospectus to such broker or brokers and shall otherwise use its reasonable
best efforts to comply with the prospectus delivery requirements of the 1933
Act;
(6) Each Investor agrees to notify the Company promptly after
the event of the completion of the sale by such Investor of all Registrable
Securities to be sold by such Investor pursuant to the Registration Statement;
and
17
(7) Each Investor agrees not to use Registrable Securities for
the purpose of covering any Short Sale by such Investor of Common Stock
unless at the time of such Short Sale such Investor shall have complied with the
requirements of Section 8(c)(4) with respect to such Short Sale to the extent
compliance with such requirements is necessary under the 1933 Act.
(d) Expenses of Registration;. All reasonable expenses incurred in
connection with registrations, filings or qualifications pursuant to this
Agreement shall be paid by the Company, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees and
the fees and disbursements of counsel for the Company and the Investors, but
excluding (1) fees and expenses of investment bankers retained by any Investor,
(2) brokerage commissions incurred by any Investor and (3) fees and
disbursements of counsel for the Investors.
(e) Indemnification;.
(1) To the extent permitted by law, the Company will indemnify
and hold harmless each Indemnified Person against any Claims to which any
of them may become subject under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations in the Registration Statement, or
any post-effective amendment thereof, or any prospectus included therein: (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereof or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
any Prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any state securities law or any rule or
regulation under the 1933 Act, the 1934 Act or any state securities law (the
matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to the restrictions set forth in Section 8(e)(3) with
respect to the number of legal counsel, the Company shall reimburse the
Investors and each such controlling person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees or other
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 8(e)(1) shall not apply to:
(I) a Claim arising out of or based upon a Violation which occurs in reliance
upon and in conformity with information relating to an Indemnified Person
furnished in writing to the Company by any Indemnified Person or underwriter for
such Indemnified Person expressly for use in connection with the preparation of
the Registration Statement or any such amendment thereof or supplement thereto,
if such Prospectus was timely made available by the Company pursuant to Section
8(b)(3) hereof; (II) an Indemnified Person with respect to a Claim which arises
solely from the failure of such Indemnified Person to comply in any material
respect with Section 8(c)(4); and (III) amounts paid in settlement of any Claim
if such settlement is effected without the prior written consent of the Company.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors.
18
(2) In connection with the Registration Statement, each Investor
agrees to indemnify and hold harmless, to the same extent and in the same manner
set forth in Section 8(e)(1), each Indemnified Party against any Claim to which
any of them may become subject, under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claim arises out of or is based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs (A) in
reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement or (B) the failure of such Indemnified Person to comply in any
material respect with Section 8(c)(4); and such Investor will reimburse any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such Claim; provided, however, that the indemnity
agreement contained in this Section 8(e)(2) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of such Investor, which consent shall not be unreasonably withheld;
provided, further, however, that the Investor shall be liable under this Section
8(e)(2) for only that amount of a Claim as does not exceed the proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 8(e)(2) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the Prospectus, as then amended or
supplemented.
(3) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 8(e) of notice of the commencement of
any action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 8(e), deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel reasonably satisfactory to the
Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 8(e), except to the extent that the
indemnifying party is prejudiced in its ability to defend such action. The
indemnification required by this Section 8(e) shall be made by periodic payments
of the amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.
(f) Contribution;. To the extent any indemnification by an
indemnifying party as set forth in Section 8(e) above is applicable by its terms
but is prohibited or limited by law, the indemnifying party agrees to make the
19
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 8(e) to the fullest extent permitted by law. In determining
the amount of contribution to which the respective parties are entitled, there
shall be considered the relative fault of each party, the parties' relative
knowledge of and access to information concerning the matter with respect to
which the claim was asserted, the opportunity to correct and prevent any
statement or omission and any other equitable considerations appropriate under
the circumstances; provided, however, that (a) no contribution shall be made
under circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 8(e), (b) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any other person
who was not guilty of such fraudulent misrepresentation and (c) contribution by
any seller of Registrable Securities shall be limited to the amount of the
proceeds received by such seller from the sale of such Registrable Securities
(g) Reports under 1934 Act;. With a view to making available to the
Investors the benefits of Rule 144, the Company agrees:
(a) to promptly furnish to each Investor so long as such
Investor owns Registrable Securities, such information as may be necessary to
permit the Investors to sell Registrable Securities pursuant to Rule 144 without
registration; and
(b) if at any time the Company is not required to file such
reports with the SEC under Sections 13 or 15(d) of the 1934 Act, to use its
best efforts to, upon the request of an Investor, make publicly available other
information so long as is necessary to permit publication by brokers and dealers
of quotations for the Common Stock and sales of the Registrable Securities in
accordance with Rule 15c2-11 under the 1934 Act.
9.MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California.
(b) Headings. The headings, captions and footers of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement.
(c) Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
(d) Notices. Any notices required or permitted to be given under
the terms of this Agreement shall be sent by mail, personal delivery, by
telephone line facsimile transmission or courier and shall be effective five
days after being placed in the mail, if mailed, or upon receipt, if delivered
personally, by telephone line facsimile transmission or by courier, in each case
addressed to a party at such party's address (or telephone line facsimile
transmission number) shown in the introductory paragraph or on the signature
page of this Agreement or such other address (or telephone line facsimile
transmission number) as a party shall have provided by notice to the other party
20
in accordance with this provision. In the case of any notice to the Company,
such notice should be addressed to the Company at its address shown in the
introductory paragraph of this Agreement, Attention: President and Chief
Executive Officer (telephone line facsimile number (650) 873-8367), and a copy
shall also be given to: Brobeck, Phleger & Harrison LLP, Two Embarcadero Place,
2200 Geng Road, Palo Alto, California 94303-0913, Attention: J. Stephan
Dolezalek, Esq. (telephone line facsimile transmission number (650) 496-2885).
(e) Counterparts. This Agreement may be executed in counterparts
and by the parties hereto on separate counterparts, each of which shall be
deemed to be an original but all of which together shall constitute one and the
same agreement. A telephone line facsimile transmission of this Agreement
bearing a signature on behalf of a party hereto shall be legal and binding on
such party.
(f) Entire Agreement; Benefit. This Agreement, including the
Appendices hereto, constitute the entire agreement among the parties hereto with
respect to the subject matter hereof. There are no restrictions, promises,
warranties, or undertakings, other than those set forth or referred to herein or
therein. This Agreement, including the Appendices hereto, supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof. This Agreement and the terms and provisions hereof and
thereof are for the sole benefit of only the Company, the Investor and their
respective successors and permitted assigns.
(g) Waiver. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or exercise of any other right or power.
(h) Amendment. No amendment, modification, waiver, discharge or
termination of any provision of this Agreement nor consent to any departure by
the Investor or the Company therefrom shall in any event be effective unless the
same shall be in writing and signed by the party to be charged with enforcement,
and then shall be effective only in the specific instance and for the purpose
for which given. No course of dealing between the parties hereto shall operate
as an amendment of this Agreement.
(i) Further Assurances. Each party to this Agreement will
perform any and all acts and execute any and all documents as may be
necessary and proper under the circumstances in order to accomplish the intents
and purposes of this Agreement and to carry out its provisions.
(j) Termination. The Investor shall have the right to terminate
this Agreement by giving notice to the Company at any time at or prior to the
Closing Date if:
21
(1) the Company shall have failed, refused, or been unable
at or prior to the date of such termination of this Agreement to perform any of
its obligations hereunder;
(2) any other condition of the Company's obligations
hereunder is not fulfilled;
Any such termination shall be effective upon the giving of notice thereof by the
Investor. Upon such termination, the Investor shall have no further obligation
to the Company hereunder and the Company shall remain liable for any breach of
this Agreement or the other documents contemplated hereby which occurred on or
prior to the date of such termination.
22
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the dates
set forth below.
Principal Amount: $______________________________
SHAMAN PHARMACEUTICALS, INC.
By: /s/ Lisa A. Conte
_____________________
Name: Lisa A. Conte
Title: President & CEO
Date: April 5, 1999
Name of Investor: Each Investor
By: /s/ Each Investor
_____________________
Name:
Title:
Date: ______________________
Address:
23
EXHIBIT A: FORM OF NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS. THE SALE TO THE HOLDER OF THIS NOTE
OF THE SHARES ISSUABLE UPON CONVERSION OF THIS NOTE AND IN PAYMENT OF INTEREST
ON THIS NOTE ARE NOT COVERED BY A REGISTRATION STATEMENT UNDER THE ACT OR
REGISTRATION UNDER STATE SECURITIES LAWS. THIS NOTE HAS BEEN ACQUIRED, AND SUCH
SHARES MUST BE ACQUIRED, FOR INVESTMENT ONLY AND MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF REGISTRATION OF THE RESALE THEREOF OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY IN FORM, SCOPE AND SUBSTANCE TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED.
SHAMAN PHARMACEUTICALS, INC.
SENIOR SUBORDINATED SECURED CONVERTIBLE PROMISSORY NOTE
No. __
South San Francisco, California $______________
____________, 1999
FOR VALUE RECEIVED, SHAMAN PHARMACEUTICALS, INC., a Delaware
corporation (hereinafter called the "Company"), hereby promises to pay to
[INSERT NAME AND ADDRESS OF INVESTOR], or registered assigns (the "Holder") or
order, the sum of ____________ Dollars ($____________), on the earlier to occur
of (i) thirty (30) days after the consummation by the Company of a primary
registered public offering of its equity securities at any time after the date
of this Note, or (ii) January 1, 2000 (such earlier date to be referred to as
the "Maturity Date"), and to pay interest on the unpaid principal balance hereof
at the rate of twelve percent (12%) per annum, from the date hereof, until the
same becomes due and payable, whether at maturity or upon acceleration or by
conversion in accordance with the terms hereof or otherwise. Interest shall be
payable in arrears on the 1st day of each July, September, December and March on
the principal amount outstanding on such date, commencing on the first of such
dates which is at least 90 days after the Issuance Date, and at maturity (the
"Interest Payment Dates"). Interest on this Note shall be computed on the basis
of a 360-day year of twelve 30-day months.
Except as otherwise specifically provided herein, all payments of
principal of and premium, if any, and interest on this Note shall be made in
lawful money of the United States of America. All cash payments shall be made by
wire transfer of immediately available funds to such account as the Holder may
from time to time designate by written notice in accordance with the provisions
of this Note. Whenever any amount expressed to be due by the terms of this Note
is due on any day which is not a Business Day, the same shall instead be due on
the next succeeding day which is a Business Day and, in the case of any Interest
Payment Date which is not the date on which this Note is paid in full, the
extension of the due date thereof shall not be taken into account for purposes
of determining the amount of interest due on such date.
This Note is one of a series of Notes (the "Other Notes" as defined below and
together, the "Notes") issued pursuant to a Credit Facility and Note Purchase
Agreement (the "Note Purchase Agreement") by and among the Company and certain
Investors named in the Note Purchase Agreement. This Note may not be prepaid,
redeemed or repurchased without the consent of the Holder and any offer by the
Company to prepay this Note or any of the other Notes shall be may pro-rata to
the then principal amount among all holders of Notes. Any offer of consideration
to waive or amend Other Notes may only be made to the extent that such offer is
also made to the Holder on a pro-rata basis. Certain capitalized terms used in
this Note are defined in Section 1.
The obligations of the Company under this Note shall rank in right of
payment on a parity with all other unsubordinated obligations of the Company for
indebtedness for borrowed money or the purchase price of property, except as and
to the extent otherwise specifically provided in Section 5. This Note is issued
pursuant to the Note Purchase Agreement and the Holder of this Note and this
Note are subject to the terms of the Note Purchase Agreement. The obligations of
the Company under this Note are secured pursuant to, and the Holder of this Note
is entitled to the benefits of, the that certain Security Agreement between the
Company and the Collateral Agent dated as of April 5, 1999.
The following terms shall apply to this Note:
1. DEFINITIONS
1.1 Certain Defined Terms. The following terms shall have the
following meanings:
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Affiliate" means, with respect to any Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the subject Person, including,
without limitation, an investment fund which has the same investment advisor as
the Holder.
(c) "Bankruptcy Code" means the federal bankruptcy law of the United
States as from time to time in effect (Title 11 of the United States Code on the
date of this Note); and references in this Note to sections of the Bankruptcy
Code in effect on the date of this Note shall refer to comparable sections of
any revised version thereof if section numbering is changed.
2
(d) "Business Day" shall mean any day other than a Saturday, Sunday
or a day on which commercial banks in The City of San Francisco are authorized
or required by law or executive order to remain closed.
(e) "Collateral" means all items or categories of assets owned by the
Company in which one or more of the Holders under the Notes has a security
interest.
(f) "Collateral Agent" shall mean the Note Holder identified as such
in the Security Agreement.
(g) "Conversion Price" shall mean the per share price at which Shares
are sold in the Offering, or, in the event the Company has not consummated any
qualifying Offering on or before December 31, 1999, then a price equal to the
lower of $0.05 per share (which price shall be subject to equitable adjustment
from time to time for stock splits, recapitalizations, stock dividends and the
like) or one-third of the five trading day weighted average trading price of the
Common Stock for the period ending three (3) days prior to the date of
conversion.
(h) "Enforcement Action" means, with respect to any Holder and with
respect to any Claim of such Holder or any item of Collateral in which such
Holder has or claims a security interest, lien or right of offset, any action,
whether judicial or nonjudicial, to repossess, collect, accelerate, offset,
recoup, give notification to third parties with respect to, sell, dispose of,
foreclose upon, give notice of sale, disposition, or foreclosure with respect
to, or obtain equitable or injunctive relief with respect to, such Claim or
Collateral, including, without limitation, the filing by any Holder of, or the
joining in the filing by any Holder of, an involuntary bankruptcy or insolvency
proceeding against the Company also is an Enforcement Action.
(i) "Event of Default" shall have the meaning provided in Section 3.
(j) "Generally Accepted Accounting Principles" for any Person means
the generally accepted accounting principles and practices applied by such
Person from time to time in the preparation of its audited financial statements.
(k) "Indebtedness" as used in reference to any Person means all
indebtedness of such person for borrowed money, the deferred purchase price of
property, goods and services and obligations under leases which are required to
be capitalized in accordance with Generally Accepted Accounting Principles and
shall include all such indebtedness guaranteed in any manner by such person or
in effect guaranteed by such person through a contingent agreement to purchase
and all indebtedness for the payment or purchase of which such person has
contingently agreed to advance or supply funds and all indebtedness secured by
mortgage or other lien upon property owned by such person, although such person
has not assumed or become liable for the payment of such indebtedness, and, for
all purposes hereof, such indebtedness shall be treated as though it has been
assumed by such person.
3
(l) "Insolvency Event" means any distribution, division or
application, partial or complete, voluntary or involuntary, by operation of law
or otherwise, of all or any part of the property of the Company or the proceeds
thereof to the creditors of the Company, or the readjustment of the Claims,
whether by reason of liquidation, bankruptcy, arrangement, receivership,
assignment for the benefit of creditors or any other action or proceeding
involving the readjustment of all or any part of the Claims, or the application
of the property of the Company to the payment or liquidation thereof, or upon
the dissolution or other winding up of the Company's business.
(m) "Majority Holders" means at any time the holders of this Note and
the other Notes which hold Notes and Other Notes which, , represent a majority
of the aggregate outstanding principal amount of this Note and the other Notes..
(n) "Market Price" of any security on any date shall mean the last
reported sale price of such security on such date on Nasdaq or such other
securities exchange or other market on which such security is listed for trading
which constitutes the principal securities market for such security, as reported
by Nasdaq or such exchange or other market.
(o) "Maturity Date" shall have the meaning provided in the first
paragraph of this Note.
(p) "MMC/GATX Loan Agreement" means the Loan and Security Agreement,
dated as of May 7, 1997, between the Senior Lender and the Company, as amended.
(q) "Note Purchase Agreement" shall mean the Credit Facility and Note
Purchase Agreement, dated as of April 5, 1999 by and between the Company and the
original Holder of this Note.
(r) "Offering" shall mean the first equity offering by the Company of
its securities in a primary registered public offering of such equity.
(s) "Other Notes" means the several Senior Subordinated Convertible
Notes issued pursuant to the Note Purchase Agreement.
(t) "Original Principal" shall mean the original
principal amount of this Note.
(u) "Person" means an individual, partnership, corporation, trust,
incorporated organization, or similar entity, and a government or a governmental
agency or political subdivision.
(v) "Registration Statement" means the Registration Statement
required to be filed by the Company with the SEC pursuant to Section 8 of the
Note Purchase Agreement.
4
(w) "SEC" means the Securities and Exchange Commission.
(x) "Security Agreement" shall mean the Security Agreement, dated as
of April __1999, by and between the Company and the Collateral Agent.
(y) "Senior Lender" means MMC/GATX Partnership No. I, a California
general partnership.
(z) "Senior Lender Claims" means any and all present and future
"claims" (used in its broadest sense, as contemplated by and defined in Section
101(5) of the Bankruptcy Code, but without regard to whether such claim would be
disallowed under the Bankruptcy Code) of the Senior Lender now or hereafter
arising or existing under or relating to the MMC/GATX Loan Agreement, whether
joint, several, or joint and several, whether fixed or indeterminate, due or not
yet due, contingent or non-contingent, matured or unmatured, liquidated or
unliquidated, or disputed or undisputed, whether under a guaranty or a letter of
credit, and whether arising under contract, in tort, by law, or otherwise, any
interest or fees thereon (including interest or fees that accrue after the
filing of a petition by or against the Company under the Bankruptcy Code,
irrespective of whether allowable under the Bankruptcy Code), any costs of
Enforcement Actions, including reasonable attorneys' fees and costs, and any
prepayment or termination premiums.
(aa) "Shares" shall mean that class and series of equity securities
offered by the Company in the Offering, or, in the event the Company has not
consummated any qualifying Offering on or before December 31, 1999, then shares
of the Company's Common Stock.
(bb) "Standstill Period" means the period commencing on the date an
Event of Default occurs or the Holder gives a Holder Notice or a Holder
Redemption Notice to the Company and ending at 12:00 noon, New York City time,
on the fifth Business Day after the Standstill Notice Date; provided, however,
that if prior to 12:00 noon, New York City time, on such fifth Business Day (i)
the outstanding Senior Lender Claims are paid in full, the Standstill Period
shall end at the time of such payment or (ii) the Senior Lender shall have
accelerated all outstanding Senior Lender Claims and declared the same to be
immediately due and payable and shall have provided notice of such acceleration
to the Holder, the Standstill Period shall end when such Senior Lender Claims
are paid in full.
(cc) "Trading Day" means a day on which either the national
securities exchange or Nasdaq which then constitutes the principal securities
market for the Common Stock is open for general trading.
2. CONVERSION; RIGHTS AND OBLIGATIONS
2.1 Conversion Right. The Holder shall have the right from and after
the date on which the Offering is consummated (or, if no Offering has been
consummated on or before such date, then as of December 31, 1999) but prior to
5
the Maturity Date, to convert at any time all or from time to time any part of
the outstanding and unpaid principal amount of this Note, and accrued and unpaid
interest on the principal amount to be converted and on any such interest, into
fully paid and nonassessable Shares at the Conversion Price in effect on the
date the applicable Conversion Notice is given in accordance with this Note. The
Company shall notify the Holder of the completion of the Offering on the date
the Offering is consummated.
2.2 Authorized Shares. The Company covenants that, during the period
the conversion rights exist, it shall use its best efforts to reserve from its
authorized and unissued shares of the class and series constituting the Shares
such number of Shares as will permit for the issuance of Shares upon the full
conversion of this Note, subject to reduction from time to time by the number of
Shares issued on conversion of this Note, it being understood that such Share
are currently not authorized or reserved and that such reservation and
authorization shall occur only upon the approval thereof by the stockholders of
the Company. The Company represents and warrants that upon issuance, such shares
of the Shares will be duly and validly issued, fully paid and non-assessable.
2.3 Method of Conversion.
(a) The right of the Holder to convert this Note shall be exercised
by delivering (which may be made by telephone line facsimile transmission) to
the Company, a Conversion Notice stating the principal amount of this Note
which, together with interest, is being converted and the number of Shares to be
issued upon such conversion. The Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of shares of the shares or other securities or property on conversion
of this Note in a name other than that of the Holder, and the Company shall not
be required to issue or deliver any such shares or other securities or property
unless and until the person or persons requesting the issuance thereof shall
have paid to the Company the amount of any such tax or shall have established to
the satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for the amount of any withholding tax payable in connection with any
conversion.
(b) The Company may by notice to the Holder from time to time require
the Holder to surrender this Note in exchange for the issuance by the Company of
a new Note in a principal amount equal to the outstanding principal amount of
this Note and otherwise having terms identical to this Note.
(c) In case of any consolidation or merger of the Company with any
other corporation (other than a wholly-owned subsidiary of the Company) in which
the Company is not the surviving corporation, or in case of any sale or transfer
of all or substantially all of the assets of the Company, or in the case of any
share exchange pursuant to which all of the outstanding shares of the Shares are
converted into other securities or property, the Company shall make appropriate
provision or cause appropriate provision to be made so that the Holder shall
6
have the right thereafter to convert this Note into the kind of shares of stock
and other securities and property receivable upon such consolidation, merger,
sale, transfer or share exchange by the persons who were holders of the Shares
immediately prior to the effective date of such consolidation, merger, sale,
transfer or share exchange and on a basis which preserves the economic benefits
of the conversion rights of the Holder on a basis as nearly as practical as such
rights existed prior to such consolidation, merger, sale, transfer or share
exchange.
(d) Upon receipt by the Company from the Holder of a Conversion
Notice meeting the requirements for conversion as provided in Section 2.3(a) and
this Section 2.3(d) , the Company shall issue and deliver or cause to be issued
and delivered to the Holder certificates for the Shares issuable upon such
conversion by the close of business on the fifth Business Day after the date of
such receipt, and as of the close of business on the date of receipt of such
Conversion Notice the Holder shall be deemed to be the holder of record of the
Shares issuable upon such conversion, the outstanding principal amount and the
amount of accrued and unpaid interest on this Note shall be reduced to reflect
such conversion, and all rights with respect to the portion of this Note being
so converted shall forthwith terminate except the right to receive the Shares or
other securities, cash or other assets, as herein provided, on such conversion.
(e) No fractional Shares shall be issued upon conversion of this Note
but, in lieu of any fraction of a Share which would otherwise be issuable in
respect of the amount of this Note and the Other Notes converted at one time by
the Holder, the Company may round the number of Shares issued on such conversion
up to the next highest whole share or may pay lawful money of the United States
of America, based on a value of one Share being equal to the last sale price of
the Shares on the date the applicable Conversion Notice is given to the Company,
as reported by Bloomberg, L.P.
3. EVENTS OF DEFAULT
If any of the following events of default (each, an "Event of
Default") shall occur:
3.1 Failure to Pay Principal or Interest. The Company fails (a) to
pay the principal, when due, whether at maturity, upon acceleration or
otherwise, as applicable, or (b) to pay any installment of interest hereon when
due and, in the case of this clause (b) of this Section 3.1 only, such failure
continues for a period of five (5) Business Days after the due date thereof;
3.2 Conversion and the Shares. The Company fails to issue or cause to
be issued the Shares to the Holder upon exercise by the Holder of the conversion
rights of the Holder in accordance with the terms of this Note or fails to
transfer any certificate for the Shares issued to the Holder upon conversion of
this Note as and when required by this Note or the Note Purchase Agreement.
3.3 Failure to Maintain Share Reservation. Any failure by the Company
to maintain the reservation of Shares sufficient for conversion of the Notes
7
once such initial reservation has been approved and authorized by the Company's
stockholders and Board of Directors.
3.4 Breach of Covenant. The Company breaches any other material
covenant or other material term or condition of this Note, the Note Purchase
Agreement, or the Security Agreement and such breach continues for a period of
ten (10) days after written notice thereof to the Company from the Holder;
3.5 Breach of Representations and Warranties. Any representation or
warranty of the Company made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, the Note Purchase Agreement and the Security
Agreement, shall be false or misleading in any material respect when made;
3.6 Certain Voluntary Proceedings. The Company or any material
subsidiary of the Company shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency or other similar law now or hereafter
in effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, or shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they become due or shall
admit in writing its inability generally to pay its debts as they become due;
3.7 Certain Involuntary Proceedings. An involuntary case or other
proceeding shall be commenced against the Company or any material subsidiary of
the Company seeking liquidation, reorganization or other relief with respect to
it or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of sixty (60) consecutive days; or
3.8 Security Agreement. The occurrence of any Event of Default (as
defined in the Security Agreement);
then upon the occurrence and during the continuation of any Event of Default,
except in the case of Sections 3.6 and 3.7 which shall be mandatory, at the
option of the Holder, the Company shall, pay to the Holder an amount equal to
the sum of (1) the outstanding principal amount of this Note plus (2) accrued
and unpaid interest on such principal amount to the date of payment, and all
other amounts payable hereunder shall immediately become due and payable, all
without demand, presentment or notice, all of which hereby are expressly waived,
together with all costs, including, without limitation, legal fees and expenses,
of collection, and the Holder shall be entitled to exercise all other rights and
8
remedies available at law or in equity, including all rights and remedies under
or in connection with the Security Agreement.
4. PAYMENT OR CONVERSION
The Holder shall have the right, exercisable at any time at least ten
(10) days prior to the closing date for the Offering (or such later date as the
Company may permit) by giving a Conversion Election, to elect that upon the
closing of the Offering the outstanding amount of this Note shall be converted
into Shares in accordance with Section 2.1. If the Holder gives a Conversion
Election, then on the closing of the Offering the outstanding amount of this
Note shall be converted into the number of Shares determined in accordance with
Section 2.1.
5. SUBORDINATION
5.1 Subordination. If any Holder Claims are outstanding and there
shall occur an Event of Default, then during the applicable Standstill Period,
no payments shall be made in respect of the Holder Claims other than from, or
from the proceeds of, the Collateral under the Security Agreement. During such
Standstill Period, the Holder shall be prohibited from taking any Enforcement
Action other than an Enforcement Action which constitutes the exercise of any
right or remedy with respect to the Collateral under the Security Agreement;
provided, however, that if the Holder had initiated an Enforcement Action prior
to the commencement of a Standstill Period at a time when it was permitted to do
so, then the Holder shall not be prevented during such Standstill Period from
taking any steps with respect to such pending Enforcement Action as are required
by law or are reasonably required to avoid material prejudice to its rights. If
at or before 12:00 noon, San Francisco time, on the fifth Business Day of a
Standstill Period the Senior Lender shall have declared all outstanding Senior
Lender Claims to be immediately due and payable and shall have provided written
notice of such acceleration to the Holder, no payment shall be made in respect
of the Holder Claims until such Standstill Period has expired, except as
otherwise permitted by this Section 5.1 with respect to the Collateral under the
Security Agreement. If the Senior Lender does not so accelerate the Senior
Lender Claims at or before 12:00 noon, San Francisco time, on the fifth Business
Day of such Standstill Period or provide notice thereof to the Holder at or
before 12:00 noon, San Francisco time, on the fifth Business Day of such
Standstill Period, or if the Senior Lender cancels or withdraws such
acceleration at any time during such Standstill Period, the Company shall
thereupon no longer be prohibited from making any payment pursuant to this
Section 5.1 and shall thereupon pay the Holder in accordance with the terms of
this Note the amount of all Holder Claims due by reason of the applicable Event
of Default, Holder Notice or Holder Redemption Notice.
5.2 Insolvency Events. In the event of any Insolvency Event, then,
(a) all payments and distributions of any kind or character, whether in cash or
property or securities in respect of the Lenders' Claims shall be distributed as
between the Senior Lender and the Holder as follows:
9
(a) first, (i) solely out of the assets of the Company constituting
Collateral of the Senior Lender at such time under the terms of the MMC/GATX
Loan Agreement to the extent the Senior Lender has a security interest therein,
to the Senior Lender in an amount up to the amount of the Senior Lender Claims,
and (ii) solely out of the assets of the Company constituting Collateral of the
Collateral Agent at such time under the Security Agreement to the extent the
Collateral Agent has a security interest therein, ratably to the Holder and the
holders of the Other Notes;
(b) second, out of all remaining assets of the Company, if any, to
the Senior Lender in an amount up to the amount of the Senior Lender Claims
remaining unpaid after application of the amounts distributed to the Senior
Lender pursuant to Section 5.2(a) above; and
(c) third, out of all remaining assets of the Company, if any,
ratably to the Holder and the holders of the Other Notes; and
(d) the Holder shall promptly file a claim or claims, on the form
required in such proceeding, for the full outstanding amount of the Holder's
Claim, and shall use its best efforts to cause said claim or claims to be
approved and the Holder hereby irrevocably agrees that if the Holder fails to do
so within ten days after written notice of such failure from the Senior Lender
to the Holder, the Senior Lender shall have the right, in the name of the
Holder, or otherwise, to prove up any and all of the Holder's claims relating to
the Holder Claims.
5.3 Return of Payments. If, notwithstanding the foregoing, the
Company shall make any payment to the Holder which is prohibited by the
provisions of Section 5.1, then the Holder shall segregate such payment and hold
it in trust for the benefit of the Senior Lender and shall immediately at the
direction of the Senior Lender either pay it over to the Senior Lender or return
the payment to the Company. Similarly, if, notwithstanding the foregoing, the
Company shall make any payment to the Senior Lender which is prohibited by the
provisions of Section 5.1, then the Senior Lender shall segregate such payment
and hold it in trust for the benefit of the Holder and shall immediately at the
direction of the Holder pay it over to the Holder or return the payment to the
Company.
5.4 Subrogation. Subject to the payment in full of the Senior Lender
Claims, the rights of the Holder shall be subrogated to the extent of the
payments or distributions made to the Senior Lender pursuant to the provisions
of this Article to the rights of the Senior Lender to receive payments or
distributions of cash, property or securities of the Company applicable to the
Senior Lender Claims until the principal of and interest on this Note and all
other Holder Claims shall be paid in full; and, for the purposes of such
subrogation, no payments or distributions to the Senior Lender of any cash,
property or securities to which the Holder would be entitled except for the
provisions of this Article, and no payment over pursuant to the provisions of
this Article, to or for the benefit of the Senior Lender by the Holder, shall,
as between the Company, its creditors other than the Senior Lender, and the
10
Holder, be deemed to be a payment by the Company to or on account of the Senior
Lender Claims; and no payments or distributions of cash, property or securities
to or for the benefit of the Holder pursuant to the subrogation provisions of
this Article, which would otherwise have been paid to the Senior Lender shall be
deemed to be a payment by the Company to or for the account of the Holder
Claims.
6. MISCELLANEOUS
6.1 Failure or Indulgency Not Waiver. No failure or delay on the part
of the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
6.2 Notices. Except as otherwise specifically provided herein, any
notice herein required or permitted to be given shall be in writing and may be
personally served, sent by telephone line facsimile transmission or delivered by
courier or sent by United States mail and shall be deemed to have been given
upon receipt if personally served, sent by telephone line facsimile transmission
or sent by courier or five (5) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if sent by mail.
For the purposes hereof, the address of the Holder shall be as shown on the
records of the Company, the address of the Company shall be 213 East Grand
Avenue, South San Francisco, California 94080, Attention: President and Chief
Executive Officer (telephone line facsimile transmission number (650) 873-8367);
and the address of the Senior Lender shall be MMC/GATX Partnership No. I, c/o
GATX Capital Corporation, Four Embarcadero Center, Suite 2200, San Francisco,
California 94111, Attention: Contract Administration (telephone line facsimile
transmission number (415) 955-3493). The Holder, the Company and the Senior
Lender may change their respective addresses for service of notices by service
of written notice to both of such other entities as herein provided.
6.3 Amendment Provision. The term "Note" and all reference thereto,
as used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented. Neither this Note or any Other Note nor the Security Agreement nor
any terms hereof or thereof may be changed, waived, discharged or terminated
unless such change, waiver, discharge or termination is in writing signed by the
Majority Holders (and, in the case of (1) any change in the provisions of
Section 5 or the definitions of Bankruptcy Code, Claim, Collateral, Enforcement
Action, Holder Claims, Insolvency Event, Lender, , Senior Lender, Senior Lender
Claims and Standstill Period, or any waiver with respect thereto, (2) any
increase in the principal amount of this Note or (3) any shortening of the
maturity of this Note by changing the stated maturity date hereof or otherwise
amending this Note to accelerate the date on which any principal amount is
scheduled to be repaid, the prior written consent of the Senior Lender is
obtained), provided that no such change, waiver, discharge or termination shall,
without the consent of the Holder and the holders of the Other Notes affected
11
thereby, (i) extend the scheduled final maturity of this Note or any Other Note,
or reduce the rate or extend the time of payment of interest (other than as a
result of waiving the applicability of any post-default increase in interest
rates) hereon or thereon or reduce the principal amount hereof or thereof or the
Redemption Price or Repurchase Price, (ii) release the collateral or reduce the
amount of collateral required to be deposited or maintained by the Company
pursuant to the Security Agreement except as expressly provided in the Security
Agreement, (iii) amend, modify or waive any provision of this Section 9.3, (iv)
reduce any percentage specified in, or otherwise modify, the definition of
Majority Holders or (v) except as provided in this Note, change the method of
calculating the Conversion Price.
6.4 Assignability. This Note shall be binding upon the Company and
its successors and permitted assigns, and shall inure to the benefit of and be
binding upon the Holder and its successors and permitted assigns.
6.5 Governing Law. This Note shall be governed by the internal laws
of the State of California, without regard to the principles of conflict of
laws.
6.6 Transfer of Note. This Note has not been and is not being
registered under the provisions of the Act or any state securities laws and this
Note may not be transferred unless (1) the transferee is an Affiliate or pledgee
of the Holder, (2) the transferee is an "accredited investor" as defined in
Regulation D under the Act and (3) the Holder shall have delivered to the
Company an opinion of counsel, reasonably satisfactory in form, scope and
substance to the Company, to the effect that this Note may be sold or
transferred pursuant to an exemption from such registration. Prior to any such
transfer, such transferee shall (x) have made written representations and
warranties to and covenants with the Company with respect to such transferee in
the form of Sections 3(a), 3(c), 5(a) and 5(b) of the Note Purchase Agreement,
and (y) shall have further represented in writing to the Company that such
transferee has requested and received from the Company all information relating
to the business, properties, operations, condition (financial or other), results
of operations or prospects of the Company deemed relevant by such transferee;
that such transferee has been afforded the opportunity to ask questions of the
Company concerning the foregoing
6.7 Enforceable Obligation. The Company represents and warrants that
at the time of the original issuance of this Note it received the full purchase
price payable pursuant to the Note Purchase Agreement in an amount at least
equal to the original principal amount of this Note, and that this Note is an
enforceable obligation of the Company which is not subject to any offset,
reduction, counterclaim or disallowance of any sort.
6.8 Replacement of Notes. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note and (a) in the case of loss, theft or
destruction, of indemnity from the Holder reasonably satisfactory to the Company
12
or (b) in the case of mutilation, upon surrender and cancellation of the Note,
the Company at its expense will execute and deliver to the Holder a new Note of
like tenor.
13
IN WITNESS WHEREOF, the Company has caused this Note to be signed in
its name by its duly authorized officer on the day and in the year first above
written.
SHAMAN PHARMACEUTICALS, INC.
By:___________________________________
Name:
Title:
14
EXHIBIT B - FORM OF WARRANT
EXHIBIT C - FORM OF SECURITY AGREEMENT
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated as of April __,
1999, is made by and among SHAMAN PHARMACEUTICALS, INC., a Delaware corporation
("Debtor"); each Investor named on the signature page hereto (each an "Investor"
and together, the "Investors") and the Collateral Agent designated on the
signature page hereto.
WHEREAS, to secure the payment and performance of its obligations,
indebtedness and liabilities pursuant to those Senior Subordinated Secured
Convertible Notes (each a "Promissory Note") which may be issued at a single
Closing occurring from time to time after the date of that certain Credit
Facility and Note Purchase Agreement (the "Note Purchase Agreement") by and
between the Debtor and the Investors dated of even date herewith issued by
Debtor to each Investor (such obligations collectively the "Obligations") Debtor
has agreed to enter into this Agreement.
NOW THEREFORE, FOR VALUABLE CONSIDERATION, THE RECEIPT AND ADEQUACY
OF WHICH ARE HEREBY ACKNOWLEDGED, THE PARTIES HAVE AGREED AS FOLLOWS:
SECTION 1 Definitions; Interpretation.
(a) As used in this Agreement, the following terms shall have the
following meanings:
"Collateral" has the meaning set forth in Section 2.
"Event of Default" means any of the following:
(i) the occurrence of a Termination Event;
(ii) the failure to make any payment of principal, interest or
any other amount payable under the Promissory Note or hereunder when due which
failure is not remedied within 10 days of the notice from an Investor to Debtor
requesting such payment;
(iii) any levy upon, seizure or attachment of the
Collateral or any part thereof;
(v) any of the representations or warranties contained in the
Note Purchase Agreement, any Note or this Agreement shall be materially
inaccurate or misleading when made or deemed made;
(vi) the Debtor or any other Person shall challenge the
validity of the grant of the security interest hereunder or this Agreement shall
cease to create a valid perfected security interest in favor of the Investor;
(vii) any "Event of Default" as defined in the Notes; or
(viii) any event or circumstance which with the giving of notice
or passage of time, or both, would result in any of the foregoing.
"GAAP" means generally accepted accounting principals as in effect in
the United States from time to time.
"Lien" means any mortgage, deed of trust, pledge, security interest,
assignment, charge or encumbrance, lien (statutory or other), or other
preferential arrangement (including, without limitation, any conditional sale or
other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing or any agreement to give any
security interest).
"Majority Investors" means the holders of at least fifty-one percent
(51%) of the aggregate principal amount of the Notes then outstanding.
"Permitted Liens" means any of the following: (i) Liens for taxes,
assessments and other government charges either not delinquent or being
contested in good faith and reserved for in accordance with GAAP; (ii) Liens of
mechanics, materialman, warehousemen and similar Liens arising by operation of
law in the ordinary course of business that individually or in the aggregate do
not materially interfere with the use or value of any assets subject thereto;
(iii) all existing Liens in favor of MMC/GATX; and (iv) all existing rights of
holders of Debtor's Series C Preferred Stock to receive royalty payment upon
sales of the Company's products.
"Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated association, limited liability corporation,
corporation, government agency, government or political subdivision thereof and
any other entity.
"Termination Event" means, with respect to the Debtor,
any of the following:
(i) a breach by Debtor of its obligations pursuant to the
Note Purchase Agreement, the Senior Secured Notes or this Agreement, which
breach is either not remedied within 20 days after notice thereof from an
Investor, or which is otherwise material;
(ii) the Debtor or any of its subsidiaries shall admit in
writing its inability to, or shall fail generally or be generally unable to, pay
its debts (including its payrolls) as such debts become due, or shall make a
general assignment for the benefit of creditors; or the Debtor or any such
subsidiary shall file a voluntary petition in bankruptcy or a petition or answer
seeking reorganization, to effect a plan or other arrangement with creditors or
any other relief under the Bankruptcy Reform Act of 1978, as amended or
recodified from time to time (the "Bankruptcy Code") or under any other state or
federal or foreign law relating to bankruptcy or reorganization granting relief
to debtors, whether now or hereafter in effect, or shall file an answer
2
admitting the jurisdiction of the court and the material allegations of any
involuntary petition filed against the Debtor or any such subsidiary pursuant to
the Bankruptcy Code or any such other state or federal or foreign law; or the
Debtor or any such subsidiary shall be adjudicated a bankrupt, or shall make an
assignment for the benefit of creditors, or shall apply for or consent to the
appointment of any custodian, receiver or trustee for all or any substantial
part of the Debtor's or any such subsidiary's property, or shall take any action
to authorize any of the actions or events set forth above in this paragraph; or
an involuntary petition seeking any of the relief specified in this paragraph
shall be filed against the Debtor or any such subsidiary; or any order for
relief shall be entered against the Debtor or any such subsidiary in any
involuntary proceeding under the Bankruptcy Code or any such other state or
federal or foreign law referred to in this paragraph (iii);
(iii) the Debtor or any of its subsidiaries shall (a)
liquidate, wind up or dissolve (or suffer any liquidation, winding-up or
dissolution), except to the extent expressly permitted by this Agreement,
(b) suspend its operations other than in the ordinary course of business, or
(c) take any corporate action to authorize any of the actions or events set
forth above in this paragraph (iii).
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of California; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the security interest in any Collateral is governed by
the Uniform Commercial Code as in effect in a jurisdiction other than the State
of California, the term "UCC" shall mean the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof relating
to such attachment, perfection or priority and for purposes of definitions
related to such provisions.
(b) Where applicable and except as otherwise defined herein, terms
used in this Agreement shall have the meanings assigned to them in the UCC.
(c) In this Agreement, (i) the meaning of defined terms shall be
equally applicable to both the singular and plural forms of the terms defined;
and (ii) the captions and headings are for convenience of reference only and
shall not affect the construction of this Agreement.
(d) In this Agreement, the words "hereof", "herein", "hereunder" and
similar words refer to this Agreement as a whole and not to any particular
provision hereof, and Subsection, Section, Schedule and Exhibit references are
to this Agreement unless otherwise specified.
(e) In this Agreement, unless otherwise expressly provided herein,
references to agreements (including this Agreement) and other contractual
instruments shall be deemed to include modifications, amendments and supplements
thereto and restatements thereof.
3
SECTION 2 Security Interest.
(a) As security for the payment and performance of the Obligations,
Debtor hereby pledges, assigns, transfers, hypothecates and sets over to the
Investors and hereby grants to the Investors, a security interest in, all of
Debtor's right, title and interest in, to and under the following property,
wherever located and whether now existing or owned or hereafter acquired or
arising (the "Collateral"): such patent applications, trade secrets and other
intellectual property covering Debtor's products characterized as SB-300 and
IBS- 400 as are further detailed on Exhibit A hereto, including any proceeds of
(subject to all prior claims of any senior lender), after payment of any royalty
obligations thereon existing as of the date of this Agreement, the sale of
SB-300 (including proceeds of proceeds) in whatever form including, without
limitation, in the form of accounts, accounts receivable, contract rights,
chattel paper, instruments, deposit accounts and other rights to payment or
rights of action and general intangibles;
(b) This Agreement shall create a continuing security interest in the
Collateral which shall remain in effect until terminated in accordance with
Section 16 hereof.
SECTION 3 Further Assurance. Debtor shall execute and deliver to the
Investors and the Collateral Agent at any time and from time to time, all
financing statements, assignments, continuation financing statements,
termination statements, account control agreements, and other documents and
instruments, in form satisfactory to the Investors, and take all other action,
as the Investors or the Collateral Agent may request, to perfect and continue
perfected, maintain the priority of or provide notice of the security interest
of the Investors in the Collateral or otherwise give effect to the purposes of
this Agreement and the Note Purchase Agreement.
SECTION 4 Collateral Agent.
(a) The Majority Investors hereby appoint James McCamant. to perform
the duties and obligations set forth in subsection (e) below (the "Collateral
Agent") at any time, and whether before, during or after the occurrence of an
Event of Default. The Collateral Agent's duties and obligations shall commence
upon the date specified in the notice of acceptance to be submitted by the
Collateral Agent. Each Investor hereby authorizes the Collateral Agent to take
such action as agent on its behalf and to exercise such powers and perform such
duties under this Agreement as are delegated to the Collateral Agent by the
terms hereof, together with such powers as are reasonably incidental thereto.
The duties and obligations of the Collateral Agent are strictly limited to those
expressly provided for herein, and any additional duties and obligations
expressly agreed upon by the Collateral Agent and the Majority Investors, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or otherwise exist against the
Collateral Agent. Nothing in this Agreement shall, or shall be construed to,
constitute the Collateral Agent a trustee or fiduciary for any Investor. In
performing its functions and duties hereunder, the Collateral Agent shall act
solely as the agent of the Investors and does not assume and shall not be deemed
to have assumed any obligation towards or relationship of agency or trust with
or for the Debtor. Notwithstanding anything to the contrary contained herein,
Collateral Agent shall not be required to take any action which is contrary to
this Agreement or applicable law.
(b) The duties and obligations of the Collateral Agent hereunder
shall consist of (i) exercising or refraining from exercising any rights,
remedies or powers of the Investors hereunder or under applicable law in respect
of the Notes or all or any portion of any Collateral, (ii) selling, releasing,
4
surrendering, realizing upon or otherwise dealing with, in any manner and in any
order, all or any portion of any Collateral, (iii) making any demands or giving
any notices hereunder, (iv) effecting amendments to and granting waivers
hereunder, (v) distributing payments to the Investors of amounts paid to it by
the Debtor hereunder or received by it in connection with the Collateral, (vi)
holding on behalf of the Investors any instruments or other possessory
Collateral, and (vii) engaging and replacing (in consultation with the Investors
and with the prior approval of the Majority Investors), instructing and
remunerating on behalf of the Investors all consultants, experts and other
Persons to be engaged by the Investors, including legal counsel for the
Investors, in each case in accordance with the instructions of the Majority
Investors.
(c) the Collateral Agent shall not be responsible to any Investor for
any action taken or omitted to be taken by it hereunder or in connection
herewith, except for its own gross negligence or willful misconduct. The
Collateral Agent shall use the level of care it uses with respect to its own
property of a similar nature to assure the safe custody of Collateral in its
possession. Beyond the exercise of such level of care to assure the safe custody
of Collateral in its possession as the Collateral Agent, and the accounting for
any monies actually received by the Collateral Agent in such capacity, the
Collateral Agent shall have no duty or liability to exercise or preserve any
rights, privileges and powers pertaining to the Collateral.
Each Investor's interest in the Collateral shall be on a parity with
the interests of all other Investors, and the interest of each Investor in the
Collateral shall be ratable in the proportion that the aggregate indebtedness
then outstanding and unpaid under the Notes held by such Investor bears to the
aggregate indebtedness then outstanding and unpaid under the Notes held by all
Investors (except to the extent the Investors agree to any other ratable
interest therein). Any Investor holding any instruments, certificated investment
property or other Collateral hereunder shall do so as agent for and for the
ratable benefit of all Investors.
SECTION 5 Authorization; Collateral Agent Appointed Attorney-in-Fact.
Any Collateral Agent shall have the right to, in the name of Debtor, or in
the name of the Investors or Collateral Agent or otherwise, upon notice to but
without the requirement of assent by Debtor, and Debtor hereby constitutes and
appoints Collateral Agent as Debtor's true and lawful attorney-in-fact, with
full power and authority to: (i) sign any of the financing statements and other
documents and instruments which must be executed or filed to perfect or continue
perfected, maintain the priority of or provide notice of the Investors security
interest in the Collateral (including any notices to or agreements with any
securities intermediary); (ii) assert, adjust, sue for, compromise or release
any claims under any policies of insurance; and (iii) execute any and all such
other documents and instruments, and do any and all acts and things for and on
behalf of Debtor, which Collateral Agent may deem reasonably necessary or
advisable to maintain, protect, realize upon and preserve the Collateral and the
Investors' security interest therein and to accomplish the purposes of this
Agreement. Collateral Agent agrees that, except upon and during the continuance
of an Event of Default, it shall not exercise the power of attorney, or any
rights granted to Collateral Agent, pursuant to clauses (ii) and (iii). The
foregoing power of attorney is coupled with an interest and irrevocable so long
as the Obligations have not been paid and performed in full. In the event that a
Collateral Agent is not appointed, each Investor, acting upon the direction of
the Majority Investors, is hereby authorized to act as attorney-in-fact as
5
contemplated by this Section 5. Debtor hereby ratifies, to the extent permitted
by law, all that Collateral Agent or any such Investor shall lawfully and in
good faith do or cause to be done by virtue of and in compliance with this
Section 5.SECTION 6 Representations and Warranties. Debtor represents and
warrants to the Investors that:
(a) Debtor is the sole owner of the Collateral, free from any Lien
other than Permitted Liens.
(b) This Agreement creates, or will at the time Debtor acquires
rights in the same hereafter create, a first priority perfected security
interest in and enforceable against the Collateral.
(c) The execution, delivery and performance by the Debtor of this
Agreement and the Transaction Documents, and the consummation by the Debtor of
the transactions contemplated hereby and thereby, have been duly authorized and
approved by all necessary corporate action of the Debtor. This Agreement and the
Credit Facility and Note Purchase Agreement have been duly executed and
delivered by the Debtor, and each constitutes a legal, valid and binding
obligation of the Debtor, enforceable against the Debtor in accordance with
their respective terms, except as limited by bankruptcy, insolvency or other
laws of general application relating to the enforcement of creditors' rights
generally.
SECTION 7 Covenants. So long as any of the Obligations remain
unsatisfied or unperformed Debtor agrees that:
(a) Debtor shall appear in and defend any action, suit or proceeding
which may affect to a material extent its title to, or right or interest in, or
the Collateral Agent's or Investors's right or interest in, the Collateral, and
shall do and perform all acts that may be necessary and appropriate to maintain,
preserve and protect the Collateral. Without limiting the foregoing, Debtor
shall prepare and file all necessary Uniform Commercial Code notices and
assignments of inventions and patent applications as the Collateral Agent
reasonably feels are appropriate to perfect or maintain the security interest
created by this Agreement.
(b) Debtor shall comply in all respects with all laws, rules,
regulations and orders of any governmental agency or authority, and all policies
of insurance, relating in a material way to the possession, operation,
maintenance and control of the Collateral.
(c) Debtor shall give prior written notice to the Collateral Agent
and the Investors of: (i) any change in the location of Debtor's chief executive
office or principal place of business; (ii) any change in its name; and (iii)
any changes in its identity or structure in any manner which might make any
financing statement filed hereunder incorrect or misleading.
(d) Debtor shall keep accurate and comprehensive books and records
with respect to the Collateral, disclosing the Investors's security interest
hereunder.
(e) Debtor shall not transfer or otherwise dispose of any of the
Collateral to any other Person, without the prior written consent of the
Collateral Agent or the Investors, and shall keep the Collateral free of all
Liens except Permitted Liens.
6
(f) Debtor shall at any time and from time to time upon reasonable
notice permit the Collateral Agent or the Investors or any of their agents or
representatives to visit the premises of Debtor and inspect the Collateral and
to examine and make copies of and abstracts from the records and books of
account of Debtor relating to the Collateral.
(g) Debtor shall (i) notify the Collateral Agent and the Investors of
any material claim made or asserted against the Collateral by any Person or
other event which could materially adversely affect the value of the Collateral
or the Investors's Lien thereon; (ii) furnish to the Collateral Agent and the
Investors such statements and schedules further identifying and describing the
Collateral and such other reports and other information in connection with the
Collateral as the Investors may reasonably request, all in reasonable detail;
and (iii) upon request of the Collateral Agent or the Investors make such
demands and requests for information and reports as Debtor is entitled to make
in respect of the Collateral.
(h) Debtor shall pay and discharge all taxes, fees, assessments and
governmental charges or levies imposed upon it with respect to the Collateral
prior to the date on which penalties attach thereto, except to the extent such
taxes, fees, assessments or governmental charges or levies are being contested
in good faith by appropriate proceedings and in respect of which appropriate
reserves are maintained in accordance with GAAP.
(i) Debtor shall maintain and preserve its corporate existence, its
rights to transact business and all other rights, franchises and privileges
necessary or desirable in the normal course of its business and operations and
the ownership of the Collateral.
(j) Debtor shall at all times comply in all material respects with
the requirements of all applicable laws, rules, regulations and orders of any
court or governmental department, commission, board, bureau, agency or other
instrumentality (domestic or foreign) and the terms of any indenture, contract
or other instrument to which it is a party or under which it or its properties
may be bound.
(k) Debtor shall promptly notify the Collateral Agent and the
Investors of any event or circumstance which constitutes an Event of Default.
The Debtor and the Investors will hold the Collateral Agent harmless
from, and indemnify against, all loss, cost or expense (including attorney fees
and settlement payments) which may be incurred by the Collateral Agent by reason
of any claim or cause of action arising from or relating to the performance of
the duties at any time as Collateral Agent, whether or not those claims or
causes of action relate to actions or events occurring during the actual service
as Collateral Agent in effect under this Agreement, unless the Collateral Agent
is adjudged by a court of final appeal to have engaged in willful misconduct in
connection with the subject matter of such claim or cause of action.
SECTION 9 Remedies.
(a) Upon the occurrence and continuance of any Event of Default, the
Investors may declare any of the Obligations to be immediately due and payable
and shall have, in addition to all other rights and remedies granted to it in
7
this Agreement or any other Transaction Document, all rights and remedies of a
secured party under the UCC and other applicable laws. Without limiting the
generality of the foregoing, the Collateral Agent, in each case as directed by
the Majority Investors may sell, resell, lease, use, assign, license,
sublicense, transfer or otherwise dispose of any or all of the Collateral in its
then condition or following any commercially reasonable preparation or
processing (utilizing in connection therewith any of Debtor's assets, without
charge or liability to the Investors therefor) at public or private sale, by one
or more contracts, in one or more parcels, at the same or different times, for
cash or credit, or for future delivery without assumption of any credit risk,
all as the Investors deem advisable; provided, however, that Debtor shall be
credited with the net proceeds of sale only when such proceeds are finally
collected by the Collateral Agent or the Investors. The Collateral Agent or the
Investors shall have the right upon any such public sale, and, to the extent
permitted by law, upon any such private sale, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption, which
right or equity of redemption Debtor hereby releases, to the extent permitted by
law. Debtor hereby agrees that the sending of notice by ordinary mail, postage
prepaid, to the address of Debtor set forth herein, of the place and time of any
public sale or of the time after which any private sale or other intended
disposition is to be made, shall be deemed reasonable notice thereof if such
notice is sent five days prior to the date of such sale or other disposition or
the date on or after which such sale or other disposition may occur, provided
that the Collateral Agent or the Investors may provide Debtor shorter notice or
no notice, to the extent permitted by the UCC or other applicable law.
(b) The cash proceeds actually received from the sale or other
disposition or collection of Collateral, and any other amounts received in
respect of the Collateral the application of which is not otherwise provided for
herein, shall be applied first, to the payment of the reasonable costs and
expenses of the Collateral Agent and Investors in exercising or enforcing its
rights hereunder and in collecting or attempting to collect any of the
Collateral, and to the payment of all other amounts payable to the Investors
pursuant to Section 12 hereof; and second, to the payment of the Obligations.
Any surplus thereof which exists after payment and performance in full of the
Obligations shall be promptly paid over to Debtor or otherwise disposed of in
accordance with the UCC or other applicable law. Debtor shall remain liable to
the Investors for any deficiency which exists after any sale or other
disposition or collection of Collateral.
SECTION 10 Certain Waivers. Debtor waives, to the fullest extent
permitted by law, (i) any right of redemption with respect to the Collateral,
whether before or after sale hereunder; (ii) any right to require the Collateral
Agent or the Investors (A) to proceed against any Person, (B) to exhaust any
other collateral or security for any of the Obligations, (C) to pursue any
remedy in the Collateral Agent's or the Investors's power, or (D) to make or
give any presentments, demands for performance, notices of nonperformance,
protests, notices of protests or notices of dishonor in connection with any of
the Collateral; and (iii) all claims, damages, and demands against the
Collateral Agent or the Investors arising out of any lawful repossession,
retention, sale or application of the proceeds of any sale of the Collateral.
SECTION 11 Notices. All notices or other communications hereunder
shall be in writing (including by facsimile transmission) and mailed, sent or
delivered to the respective parties hereto at or to their respective addresses
or facsimile numbers set forth below their names on the signature pages hereof,
8
or at or to such other address or facsimile number as shall be designated by any
party in a written notice to the other parties hereto. All such notices and
other communications shall be effective (i) if delivered by hand, when
delivered; (ii) if sent by mail, upon the earlier of the date of receipt or 5
days after deposit in U.S. mail, first class; and (iii) if sent by facsimile
transmission (with hard copy to follow promptly), when sent.
SECTION 12 No Waiver; Cumulative Remedies. No failure on the part of
the Collateral Agent or the Investors to exercise, and no delay in exercising,
any right, remedy, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, remedy,
power or privilege preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights and remedies
under this Agreement are cumulative and not exclusive of any rights, remedies,
powers and privileges that may otherwise be available to the Collateral Agent or
the Investors.
SECTION 13 Binding Effect. This Agreement shall be binding upon,
inure to the benefit of and be enforceable by Debtor, the Collateral Agent, the
Investors and their respective successors and assigns. This Agreement shall not
be amended without the written consent of the Majority Investors.
SECTION 14 Governing Law and Legal Actions. This Agreement shall be
governed by and construed under the laws of California without regard to
conflicts of laws provisions thereof. All parties consent to the jurisdiction of
courts in the Northern and Southern Districts of California and agree that
process may be served in the manner provided herein for giving of notices or
otherwise as allowed by law. In any action or proceeding to enforce rights under
this Agreement, the prevailing party shall be entitled to recover costs and
attorneys' fees.
SECTION 15 Entire Agreement. This Agreement and the Credit Facility
and Note Purchase Agreement supersede all proposals, oral or written, all
negotiations, conversations, or discussions between or among the parties
relating to the subject matter of this Agreement and all past dealings or
industry custom.
SECTION 16 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such provision
in any other jurisdiction.
SECTION 17 Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute but one and the same agreement. Counterparts may
be delivered by facsimile transmission, which delivery shall be conclusive
notwithstanding any failure to deliver the original faxed counterpart.
9
SECTION 18 Termination. Upon payment and performance in full of all
Obligations, this Agreement shall terminate and the Investors shall promptly
execute and deliver to Debtor such documents and instruments reasonably
requested by Debtor as shall be necessary to evidence termination of all
security interests given by Debtor to the Investors hereunder; provided,
however, that the obligations of Debtor under Sections 11 and 17 hereof shall
survive such termination.
[Remainder of page intentionally left blank]
10
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written. All signed copies of this Agreement shall be
deemed originals.
THE INVESTORS
By:
Name:_____________________________
Title:____________________________
Address:
SHAMAN PHARMACEUTICALS, INC.
By:
Name:_____________________________
Title:_____________________________
Address:
THE COLLATERAL AGENT.
By:
Name:_____________________________
Title:____________________________
Address:
11
EXHIBIT 10.47A
AMENDMENT NO. 1 TO
CREDIT FACILITY AND NOTE PURCHASE AGREEMENT
This Amendment Number 1 to the Credit Facility and Note Purchase Agreement
(the "Note Agreement") by and between the undersigned and Shaman
Pharmaceuticals, Inc., A Delaware Corporation, (the "Company") is made as of the
13th day of April, 1999.
WHEREAS, the parties have previously entered into the Note Agreement,
including the Exhibits referenced therein, particularly the Security Agreement
attached as Exhibit C thereto (the "Security Agreement");
WHEREAS, as a result of certain negotiations with the MMC/GATX Partnership
No. 1 ("MMC/GATX"), the Company has agreed that in exchange for granting
MMC/GATX a first priority security interest in the Intellectual Property of the
Company, MMC/GATX shall permit the Company to grant a second priority security
interest in the same Intellectual Property to each Investor named in the
Security Agreement;
WHEREAS, the parties desire hereby to amend the terms of the Security
Agreement as set forth below:
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. The definition of the term "Permitted Liens" shall be amended to read as
follows:
"Permitted Liens" means any of the following: (i) Liens for taxes,
assessments and other government charges either not delinquent or being
contested in good faith and reserved for in accordance with GAAP; (ii)
Liens of mechanics, materialman, warehousemen and similar Liens arising by
operation of law in the ordinary course of business that individually or
in the aggregate do not materially interfere with the use or value of any
assets subject thereto; (iii) all Liens in favor of MMC/GATX existing as
of April 30, 1999; and (iv) all existing rights of holders of Debtor's
Series C Preferred Stock to receive royalty payment upon sales of the
Company's products.
2. Section 2(a) of the Security Agreement shall be amended to read as
follows:
SECTION 2 Security Interest.
(a) As security for the payment and performance of the Obligations, Debtor
hereby pledges, assigns, transfers, hypothecates and sets over to the
Investors and hereby grants to the Investors, a security interest in,
all of Debtor's right, title and interest in, to and under the following
property, wherever located and whether now existing or owned or
hereafter acquired or arising (the "Collateral"): all of Debtor's patent
applications, trade secrets and other intellectual property except that
certain issued U.S. Patent Nos. 5,494,661 and 5,211,944 covering
Debtor's SP-303 product including any proceeds of (subject to all prior
claims of any senior lender), after payment of any royalty obligations
thereon existing as of the date of this Agreement, the sale of products
covered by such Intellectual Property (including proceeds of proceeds)
in whatever form including, without limitation, in the form of accounts,
accounts receivable, contract rights, chattel paper, instruments,
deposit accounts and other rights to payment or rights of action and
general intangibles;
Except as so modified the Security Agreement shall be executed in the form
attached as Exhibit A to the Note Agreement.
The parties agree to take all such further action as may be necessary to
effect the intent of this Amendment No. 1, including, without limitation
the preparation and filing of appropriate documentation to perfect the
security interests granted herein.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
SHAMAN PHARMACEUTICALS, INC.
By: /s/ Lisa A. Conte
_________________________________
Lisa A. Conte
President and CEO
INVESTOR: Each Investor
___________________________
By: /s/ Each Investor
_________________________________
2
EXHIBIT 10.47B
AMENDMENT NO. 2 TO
CREDIT FACILITY AND NOTE PURCHASE AGREEMENT
This Amendment No. 2 to the Credit Facility and Note Purchase Agreement
(the "Credit Agreement") dated as of April 5, 1999 (the "Effective Date") by and
between the undersigned (the "Investor"), Shaman Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), and other investor parties thereto as
amended by that certain Amendment No. 1 thereto dated April 13, 1999, is made
effective as of April 30, 1999. All "Capitalized" terms not defined herein shall
have the meaning established in the Credit Agreement.
WHEREAS, the Company, the Investor and the other parties thereto desire to
stipulate that the Company desires to increase the amount to be borrowed from
$1.5 million to $2.0 million; and
WHEREAS, there are several additional provisions under the Credit
Agreement, including timing of the Company's registration obligations, that the
parties desire to amend;
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. The aggregate amount of principal under the Notes may be up to $2.0
million.
2. "Offering" shall mean the first equity offering by the Company of its
securities in a primary registered public offering of such equity registered
after the Effective Date.
3. "Registration Statement" means a registration statement on Form S-1 or
Form S-3 of the Company under the 1933 Act which names the Investors as selling
stockholders.
4. The last sentence of Section 4(i) that reads "The Company meets the
requirements for the use of Form S-3 for the registration of the Shares by the
Investor and any Investor" is hereby deleted.
5. The portion of the first sentence of Sections 8(a)(1) and 8(b)(1) that read
"The Company shall prepare and not later than the Closing Date, file with the
SEC a Registration Statement on Form S-3" and "the Company shall prepare
promptly and file with the SEC not later than 20 days after the Closing Date,"
respectively, shall both be amended to read as follows: "The Company shall
prepare promptly, and file with the SEC not later than 30 days after the
registration statement covering the Offering is declared effective by the SEC, a
Registration Statement."
IN WITNESS WHEREOF, the parties have caused this Amendment (which may be
executed in counterparts) to be duly executed as of the day and year first above
written.
SHAMAN PHARMACEUTICALS, INC.
By: /s/ Lisa A. Conte
_________________________________
Lisa A. Conte
President and CEO
INVESTOR: Each Investor
By: /s/ Each Investor
_________________________________