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 JUNE 30, 1996

                                 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              (I.R.S. Employer
 incorporation of organization)           Identification Number)     
                                                      

    213 East Grand Avenue 
South San Francisco, California                              94080
(Address of principal executive offices)                   (ZIP Code)


Registrant's telephone number, including area code:      415-952-7070


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 June 30, 1996:  13,389,320


<PAGE>



                      SHAMAN PHARMACEUTICALS, INC.

                          INDEX FOR FORM 10-Q

                             June 30, 1996
<TABLE>
<CAPTION>

                                                                      PAGE
                                                                     NUMBER

PART I                FINANCIAL INFORMATION
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Item 1.               Financial Statements and Notes

                      Condensed  Balance Sheets as of June 30, 1996    3
                      and December 31, 1995

                      Condensed Statements of Operations for the       4
                      three and six months ended June 30, 1996 and
                      June 30, 1995

                      Condensed Statements of Cash Flows for the       5
                      three and six months ended June 30, 1996 and
                      June 30, 1995

                      Notes to Condensed Financial Statements          6

Item 2.               Management's   Discussion   and  Analysis  of    8
                      Financial Condition and Results of Operations


PART II               OTHER INFORMATION

Item 1.               Legal Proceedings                                14

Item 2.               Changes in Securities                            14

Item 3.               Defaults in Senior Securities                    14

Item 4.               Submission  of Matters to a Vote of  Security    14
                      Holders

Item 5.               Other Information                                15

Item 6.               Exhibits and Reports on Form 8-K                 16


SIGNATURES                                                             17

</TABLE>

<PAGE>


PART I.  FINANCIAL INFORMATION.

      Item 1.  Financial Statements and Notes
<TABLE>
<CAPTION>

                      SHAMAN PHARMACEUTICALS, INC.
                        CONDENSED BALANCE SHEETS

<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                 June 30,         December 31,
                                                   1996              1995
                                                 ----------        ----------
                                                 (Unaudited)        (Note)
    ASSETS

    Current assets:
       Cash and cash equivalents                 $7,466,159        $9,210,123
       Short-term investments                    10,526,193        17,454,778
       Prepaid expenses and other                 1,007,654           858,724
                                                       
                                                 ----------        ----------
    Total current assets                         19,000,006        27,523,625
                                   
    Property and equipment, net                   5,579,990         6,158,056
   
    Other assets                                    128,080           128,080
                                                 ----------        ----------
    Total assets                                $24,708,076       $33,809,761
                                                ============        ==========

    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities:
       Accounts payable and other                         
       accrued expenses                         $  875,970        $  668,078
       Accrued clinical trial costs                731,971         1,016,573
       Accrued professional fees                   544,480           705,374
       Accrued compensation                        267,325           383,089
       Advances - contract research              1,789,855           789,855
       Current installments of long-term         
       obligations                               2,416,027         1,111,128
                                                 ----------        ----------

    Total current liabilities                    6,625,628         4,674,097

    Long-term obligations, excluding             3,533,668         4,930,263
    current installments

    Stockholders' equity:
       Common stock                                 13,389            13,258
       Additional paid-in capital               88,447,300        88,170,926
       Deferred compensation and other            
       adjustments                                 (98,423)         (146,956)
       Accumulated deficit                     (73,813,486)      (63,831,827)                                         
                                                 ----------        ----------

    Total stockholders' 
     equity                                     14,548,780        24,205,401     
                                                 ----------        ----------

    Total liabilities and stockholders'
    equity                                     $24,708,076       $33,809,761
                                               ===========       ===========
</TABLE>


   NOTE:  The balance  sheet at  December  31,  1995 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.

<PAGE>

                      SHAMAN PHARMACEUTICALS, INC.
                   CONDENSED STATEMENTS OF OPERATIONS
                              (Unaudited)

<TABLE>
<CAPTION>

                         Three Months Ended          Six Month Ended
                             June 30,                   June 30,
                        ----------------------     --------------------------
                           1996        1995           1996           1995
                        ----------  ----------     -----------   ------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

  Revenue from
  collaborative                                                          
  agreement             $500,001    $1,210,145      $1,000,001    $1,210,145

  Operating expenses:
     Research and      
     development       4,672,565     4,415,243       9,470,936     8,296,151

     General and    
     administrative      904,271       991,776       1,772,474     1,869,155
                      ----------    -----------     -----------  ------------

  Total operating  
  expenses             5,576,836     5,407,019      11,243,410    10,165,306
                        ----------  ----------     -----------   ------------

  Loss from           (5,076,835)   (4,196,874)    (10,243,409)   (8,955,161)
  operations

  Other income (expense):

     Interest income     269,654      441,339          587,758       878,285
     Interest expense   (163,743)    (124,974)        (326,008)     (286,396)
                        ----------  ----------     -----------   ------------

  Net loss           $(4,970,924) $(3,880,509)     $(9,981,659)  $(8,363,272)
                        ==========  ==========     ===========   ============

  Net loss per share   $   (0.37)  $    (0.29)     $     (0.75)  $     (0.64)        
                        ==========  ==========     ===========   ============

Shares used in
calculation of        
net loss per
share                 13,378,000   13,166,000       13,356,000    13,102,000
                        ==========  ==========     ===========   ============

</TABLE>








   See notes to condensed financial statements.



<PAGE>

<TABLE>
<CAPTION>

                      SHAMAN PHARMACEUTICALS, INC.
                   CONDENSED STATEMENTS OF CASH FLOWS
            Increase (Decrease) in Cash and Cash Equivalents
                              (Unaudited)


                                  Three Months Ended     Six Months Ended 
                                      June 30,               June 30,
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                 -------------------   --------------------
                               1996        1995           1996          1995
                             ---------   ---------     ---------   ----------
Operating activities:

Net loss                 $(4,970,924)  $(3,880,509)   $(9,981,659)  $(8,363,272)

Adjustments to 
reconcile net
loss to net 
cash used in
operating activities:

     Depreciation 
     and amortization        633,024       697,149      1,289,613     1,340,020

     Changes in operating 
     assets and liabilities:

     Prepaid expenses, 
     other current assets 
     and other assets       (264,617)      260,672       (148,930)      377,438
     
      Accounts payable,
      accrued expenses 
      and contract
      research advances    1,298,935     1,581,500        646,632       355,717
                          ----------    -----------      ---------    ----------
Net cash used in 
operating activities      (3,303,582)   (1,341,188)     (8,194,34)   (6,290,097)
                          ---------     -----------    -----------   -----------
Investing activities:

  Purchases of 
  short-term        
  investments             (4,562,517)   (6,510,358)   (10,951,386)  (10,021,016)

  Maturities of                  
  available-
  for-sale 
  investments              7,500,000     9,679,000     17,833,314    18,308,500

  Capital 
  expenditures              (243,497)     (110,952)      (652,290)     (142,495)
                           ----------     ---------     ----------   -----------
Net cash provided 
by investing   
activities                 2,693,986     3,057,390      6,229,638     8,144,989

Financing activities:

  Proceeds from 
  issuance of       
  common stock               202,894       165,964        312,438       326,786

  Proceeds from 
  long-term                    --            --           600,000         --
  obligations

  Principal payments on 
  long-term obligations     (505,711)     (193,453)      (691,696)     (402,858)
                            ----------    ----------     ----------    ----------
Net cash provided by 
(used in)   
financing activities        (302,817)      (27,489)       220,742       (76,072)

Net increase 
(decrease) in cash  
and cash equivalents        (912,413)    1,688,713     (1,743,964)    1,778,820

Cash and cash 
equivalents at     
beginning of period        8,378,572     8,866,689      9,210,123     8,776,582
                          ----------    -----------    -----------   -----------
Cash and cash 
equivalents at 
end of period            $7,466,159    $10,555,402     $7,466,159   $10,555,402
                        ===========    ============   ============  ============
</TABLE>
See notes to condensed financial statements.


<PAGE>



                      SHAMAN PHARMACEUTICALS, INC.

                NOTES TO CONDENSED FINANCIAL STATEMENTS

                             June 30, 1996
                              (Unaudited)

1.    Basis of Presentation

      Shaman  Pharmaceuticals,  Inc.  ("Shaman" or the "Company") is a mid-stage
pharmaceutical  company developing new drugs from tropical plants with a history
of  medicinal  use.  These  drugs are  expected to provide  new  medicines  with
applications in human health care markets.

      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 accruals)  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 the Company's Annual
Report  on Form  10-K for the year  ended  December  31,  1995,  filed  with the
Securities and Exchange Commission on April 1, 1996.

     Operating  expenses  for 1995 have been  reclassified  to  conform  to 1996
presentation.









<PAGE>

2.    Term Loan

      The  Company's   unsecured   term  loan  carried  a  principal   repayment
acceleration  provision  if the  Company did not achieve  certain  financing  or
collaborative  objectives by May 15, 1996. The acceleration  provisions  require
that  principal  amortization  be shortened from 30 months to 24 months and that
monthly  repayment  begin May 15, 1996 instead of April 30, 1997.  As of May 15,
1996, the Company had not achieved the specified  milestones.  Accordingly,  the
Company made three principal  payments  totaling $312,500 during the quarter and
reclassified  $1,250,000  of its term debt to  current  liabilities  at June 30,
1996.

3.    Subsequent Event

      In  July  1996,  the  Company  closed  a  private  placement  pursuant  to
Regulation  S under the  Securities  Act of 1933,  as amended,  in which it sold
400,000 shares of Series A Convertible  Preferred Stock ("Preferred Stock") at a
price  per share of  $8.147.  The  Preferred  Stock  does not  carry a  dividend
obligation  and is  convertible  into  common  stock at the  earlier  of (a) the
investor's option, (b) immediately  following any 60 trading day period in which
the Company's  common stock has consistently  traded higher than $8.147,  or (c)
July 23, 1999.  If the  Preferred  Stock  converts  prior to July 23, 1999,  the
conversion  ratio will be one share of common stock for each share of preferred.
If the Preferred  Stock converts on July 23, 1999,  the conversion  rate will be
the higher of $6.00 or a weighted average of the Company's common stock price at
the time of conversion. In either case, appropriate adjustments will be made for
stock dividends, splits or other adjustments.

     In addition to the initial  sale of  Preferred  Stock,  the Company has the
right,  from time to time during the period  beginning  January  1997 and ending
July 2000,  to sell up to 1,200,000  shares of common stock to the investor at a
formula  price of 100% or 101% of a multi-day  average of the  Company's  common
stock price at the time of sale.  As the Company  exercises its rights under the
agreement, the investor has the option to increase the shares purchased by up to
an aggregate of 527,500 shares. The investor also received a six-year warrant to
purchase  550,000 shares of the Company's common stock at a price of $10.184 per
share.


<PAGE>

Item 2.  
          Management's  Discussion  and Analysis of  Financial  
               Condition and Results of Operations

Overview

      During the ten months from  inception  in May 1989 until  March 1990,  the
Company was engaged in  organizational  efforts,  including the formation of its
Scientific Strategy Team and hiring of scientific and management  personnel.  In
March 1990, the Company began focusing its research efforts on the discovery and
development of new classes of  pharmaceuticals  derived from tropical plants. To
date, Shaman has not sold any products and does not anticipate receiving product
revenue in the near future.  The Company has been  unprofitable  since inception
and expects to continue to incur substantial and increasing losses over the next
several  years,  due primarily to the expense of preclinical  studies,  clinical
trials and  expansion  of its  research and  development  programs.  The Company
expects  that  losses  will  fluctuate  from  quarter to  quarter  and that such
fluctuations  could  be  substantial.  As  of  June  30,  1996,  Shaman  had  an
accumulated  deficit of  approximately  $73.8  million.  Shaman has financed its
research and  development  activities and operations  primarily  through private
placements of its equity securities,  an initial public offering of common stock
in January  1993,  a secondary  offering  completed  in December  1993 and, to a
lesser  extent,  through  equipment and  leasehold  improvement  financings  and
collaborative agreements.

      Shaman centers its research  efforts in therapeutic  programs in which the
Company  believes  that  its  drug  discovery   approach   provides  a  distinct
competitive advantage over other methodologies. Shaman's ethnobotanical strategy
provides the basis for focusing on therapeutic  targets which: (a) have symptoms
that are easily  observable  and being  treated  by  traditional  healers  using
plant-based remedies;  (b) are best modeled by whole animal testing; (c) have an
underlying  pathophysiology  which is complicated and  characterized by multiple
abnormalities  that could lead to the disease  state;  and (d) have large market
opportunities  which  are not well  managed  by  available  therapies.  Diabetes
mellitus,  which fits these  parameters,  is the Company's  lead basic  research
effort.

     In July 1996, the Company closed a private placement pursuant to Regulation
S under the Securities Act of 1933, as amended,  in which it sold 400,000 shares
of Series A Convertible Preferred Stock ("Preferred Stock") at a price per share
of $8.147.  The Preferred  Stock does not carry a dividend  obligation  and will
convert into common  stock by July 23, 1999 at a price per share  between $6 and
$8.147,  depending on the market value of the Company's  common stock during the
period.  In addition to the sale of Preferred  Stock, the Company has the right,
from time to time during the period beginning January 1997 and ending July 2000,
to sell up to 1,200,000  additional  shares of common stock to the investor at a
formula  price of 100% or 101% of a  multi-day  average of the  Company's  comon
stock price at the time of sale.  The  investor  has the option to increase  the
shares  purchased  by up to an aggregate of 527,500  shares.  The investor  also
received a six-year  warrant to purchase  550,000 shares of the Company's common
stock at a price of $10.184 per share.

<PAGE>


      In June 1996, the Company  initiated a Phase II study for  Provir(TM),  an
oral agent for the treatment of secretory  diarrhea.  Previous  Phase I clinical
trials established Provir's safety and preclinical in vivo and in vitro research
showed Provir to be potentially effective as an oral antidiarrheal agent.

      In October 1995, the Company announced that Virend(R), a topical agent for
the treatment of herpes,  was shown to be  efficacious in healing herpes lesions
in a Phase II clinical  trial.  The study  involved  45  patients  with AIDS and
recurring   genital   herpes.   Results  from  the   randomized,   double-blind,
placebo-controlled  study  showed  that 38% of  patients  receiving  Virend  had
lesions  that healed  completely,  compared  with 14% in the  placebo-controlled
group.  Based on these  results,  the  Company is  planning to begin a Phase III
study in patients with genital herpes in the latter part of 1996.

      The Company has licensed  several patents  relating to a compound known as
nikkomycin Z for the development of antifungal agents.  Shaman initially intends
to develop  nikkomycin Z for the treatment of endemic  mycoses,  systemic fungal
diseases  which  can  be  life  threatening,   especially  in  immunocompromised
patients.  The Company is finalizing its preclinical data package for nikkomycin
Z and intends to begin human clinical trials late in 1996.

      In May 1995, Shaman entered into a three-year collaborative agreement with
Ono Pharmaceutical Co., Ltd. ("Ono" or "Ono  collaboration") of Osaka, Japan for
the   research   and   development   of   compounds   for   the   treatment   of
non-insulin-dependent  diabetes  mellitus.  Under  the  terms of the  agreement,
Shaman screens  diabetes-specific plants in vivo, isolates and identifies active
compounds,  and participates in any medicinal chemistry  modification.  In turn,
Ono  provides   preclinical  and  clinical   development   capabilities  through
proprietary  in vitro assays and medicinal  chemistry  efforts.  Ono will retain
development and commercialization rights in Japan, South Korea, and Taiwan while
Shaman  will  retain all other  territorial  rights.  The  Company  is  actively
pursuing an additional partner in its diabetes research and development program.


Results of Operations

     Six Months Ended June 30, 1996 and June 30, 1995

      The Company  recorded  revenues of $0.5  million and $1.2  million for the
quarters ended June 30, 1996 and 1995, and $1.0 million and $1.2 million for the
six month periods ended June 30, 1996 and 1995, respectively. The revenues are a
result of ongoing funding for research  activities under the Ono  collaboration,
including an initial  one-time access fee paid during the quarter ended June 30,
1995.

      Research and  development  expenses were $4.7 million and $4.4 million for
the quarters ended June 30, 1996 and 1995, and $9.5 million and $8.3 million for
the six month periods ended June 30, 1996 and 1995, respectively.  The increases
are attributable  primarily to the Company's preclinical  development activities
with  respect to  nikkomycin  Z and  expanded  research  efforts in its diabetes
program, partially offset by reduced spending for Phase II clinical trials which
were completed in October 1995. Research and development  expenses are likely to
increase  in  upcoming  quarters as the Company  continues  its  clinical  trial
program for various product candidates.
<PAGE>

      General and  administrative  expenses were  approximately $0.9 million and
$1.0 million for the quarters ended June 30, 1996 and 1995, and $1.8 million and
$1.9  million  for  the  six  month  periods  ended  June  30,  1996  and  1995,
respectively. General and administrative expenses were higher for the comparable
periods in 1995 due primarily to non-recurring  bonus and deferred  compensation
expenses. General and administrative expenses for the current fiscal periods are
in line with the Company's  plan and are not expected to increase  substantially
because the Company's expanded clinical  activities do not require  commensurate
increases in general and administrative support.

      Interest  income  decreased for the quarter ended June 30, 1996,  compared
with the quarter ended June 30, 1995, due to lower cash and investment  balances
as the Company funds its operations.  The increases in interest  expense for the
three and six-month  periods  ending June 30, 1996 over the same periods in 1995
resulted from higher average debt balances in 1996.


Liquidity and Capital Resources

      For the quarter  ended June 30, 1996,  the Company  funded its  operations
through  net  maturities  in its  available-for-sale  investment  portfolio  and
through the annual research funding received from the Ono collaboration.

     As of June 30, 1996, the Company's cash, cash equivalents,  and investments
totaled approximately $18.0 million, compared with $26.7 million at December 31,
1995, with an average investment maturity of five and a half months and four and
a half months,  respectively.  The Company  invests excess cash according to its
investment  policy that provides  guidelines  with regard to liquidity,  type of
investment, credit rating, and concentration limits.

     In July 1996,  the Company  received  gross  proceeds  of $3.3  million for
400,000 shares of Series A Convertible  Preferred  Stock in connection  with the
Company's private placement ("private  placement").  The Preferred Stock carries
no dividend requirement. In addition to the initial sale of Preferred Stock, the
Company  has the right,  from time to time during the period  beginning  January
1997 and ending July 2000, to sell up to 1,200,000  additional  shares of common
stock to the investor at a formula price of 100% or 101% of a multi-day  average
of the  Company's  common  stock  price  at the  time of  sale.  As the  Company
exercises  its  rights  under the  agreement,  the  investor  has the  option to
increase  the shares  purchased by up to an  aggregate  of 527,500  shares.  The
investor  also  received a six-year  warrant to purchase  550,000  shares of the
Company's  Common  Stock at a price of $10.184  per  share.  (Also see Note 3 to
condensed financial statements.)

     In October 1995, the Company  closed a $2.5 million  unsecured term loan to
finance capital asset  acquisitions and facilities  expansion.  Interest on each
advance is charged at the London  Interbank  Offered  Rate  (LIBOR) plus 1.5% or
prime plus 0.5%.  As of March 31,  1996,  the Company had utilized the full $2.5
million available under the loan, with an average interest rate of approximately
7.15% at June 30, 1996. During the quarter ended June 30,1996,  the Company made
three principal payments totaling $312,500 in accordance with the accelerated 24
month  amortization  schedule  required  by the loan  agreement.  (See Note 2 to
condensed financial statements.)

<PAGE>

      The Company expects to incur substantial  additional costs relating to the
continued clinical  development of its products,  other research and development
programs,  preclinical  and clinical  testing,  and regulatory  activities.  The
Company  anticipates that its cash, cash equivalents and investment  balances of
approximately  $18.0  million  at  June  30,  1996,  the  collaborative  revenue
committed  by Ono,  the funding  received  from the July 1996 sale of  preferred
stock and the  additional  rights  to sell  common  stock  through  its  private
placement will be adequate to fund operations under its current plan through the
third quarter of 1997.

      Recognizing the need for additional  financing,  the Company  continues to
actively pursue  collaborative  partnerships  with  pharmaceutical  companies to
support  its  research  programs.  To the extent the  Company is  successful  in
creating such  partnerships,  cash balances would be enhanced  through  research
funding and fees, milestone payments and possible equity investments. Additional
potential  sources of capital  include  public and  private  equity  financings,
capital  equipment  financings,  and  bank  lines  of  credit.  There  can be no
assurance that any of these sources of funds will be available to the Company on
acceptable terms, if at all.


Future Outlook

      In addition to historical  information,  this report contains predictions,
estimates and other forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities  Exchange Act of
1934.  Actual  results  could  differ  materially  from any  future  performance
suggested  in this report as a result of the risk factors set forth below and in
the Company's  Annual Report on Form 10-K filed with the Securities and Exchange
Commission on April 1, 1996.

<PAGE>

Risk Factors

      History  of  Operating  Losses;  Products  Still  in  Development;  Future
Profitability  Uncertain.  Shaman's  potential  products  are  in  research  and
development.  In order to generate  revenues or profits,  the Company,  alone or
with others,  must successfully  develop,  test, obtain regulatory  approval and
market its  potential  products.  No assurance  can be given that these  product
development efforts will be successful,  that required regulatory approvals will
be  obtained,  or that  the  products,  if  developed  and  introduced,  will be
successfully marketed or achieve market acceptance.

      Additional Financing Requirements and Uncertain Access to Capital Markets.
The Company has significant  long-term  capital  requirements  and, in the event
Shaman  receives  regulatory  approval  for any of its  products,  it will incur
substantial   expenditures  to  develop   manufacturing,   sales  and  marketing
capabilities. The Company will need to raise additional funds for these purposes
through  additional equity or debt financings,  collaborative  arrangements with
corporate  partners or from other  sources.  No assurance can be given that such
additional  funds will be available to the Company to finance its development on
acceptable terms, if at all.

      No Assurance of FDA Approval for  Marketing;  Government  Regulation.  The
Company's activities with respect to research, preclinical development, clinical
trials, manufacturing and marketing in the United States and other countries are
subject to extensive regulation by numerous governmental  authorities including,
but not limited  to, the Food and Drug  Administration  ("FDA").  The process of
obtaining FDA and other  required  regulatory  approvals is lengthy and requires
the expenditure of substantial resources. Success cannot be assured. In order to
obtain FDA approval,  the Company must perform  clinical tests to demonstrate to
the FDA's  satisfaction  that a product is safe and  effective  for its intended
uses.  The Company may encounter  problems in clinical  trials which could cause
the FDA or the Company to delay or suspend clinical trials. Further, the Company
must  demonstrate  that it is  capable  of  manufacturing  bulk  product  to the
relevant  standards.  There can be no assurance that any of the Company's future
studies will demonstrate their intended result, that the Company's products will
not have  undesirable  side effects  that may prevent or limit their  commercial
use, or that the FDA will otherwise approve any of the Company's products.

      Dependence on Sources of Supply.  The Company currently imports all of the
plant  materials from which its products are derived from countries in South and
Latin America, Africa and Southeast Asia. To the extent that its products cannot
be economically  synthesized or otherwise produced, the Company will continue to
be dependent upon a supply of raw plant  material.  While Shaman believes it has
good  relationships  with the local  governments  and  suppliers  of these plant
materials,  the Company does not have formal agreements in place with all of its
suppliers.

      Limited  Manufacturing and Marketing Experience and Capacity.  The Company
currently produces products only in quantities necessary for clinical trials and
does not have the staff or  facilities  necessary  to  manufacture  products  in
commercial  quantities.  As a result,  the  Company  must rely on  collaborative
partners or third-party manufacturing facilities,  which may not be available on
commercially acceptable terms adequate for Shaman's long-term needs. The Company
currently  has no marketing or sales staff.  To the extent that the Company does
not or is unable to enter into  co-promotion  agreements or to arrange for third
party  distribution of its products,  significant  additional  resources will be
required to develop a marketing and sales force.

<PAGE>

      Rapid Technological Change and Substantial Competition. The pharmaceutical
industry is subject to rapid and substantial technological change. Technological
competition  from   pharmaceutical   companies,   biotechnology   companies  and
universities  is intense.  Many of these  entities  have  significantly  greater
research  and  development  capabilities,  as  well  as  substantial  marketing,
manufacturing,  financial and managerial  resources,  and represent  significant
competition  for the Company.  There can be no assurance  that  developments  by
others will not render the Company's products or technologies  noncompetitive or
that the Company will be able to keep pace with technological developments.

      Uncertainty  Regarding  Patents  and  Proprietary  Rights.  The  Company's
success  depends in part on its  ability  to obtain  patent  protection  for its
products and to preserve its trade  secrets.  No assurance can be given that the
Company's patent  applications  will be approved,  that any patents will provide
the Company with  competitive  advantages for its products or that they will not
be  successfully  challenged or circumvented  by the Company's  competitors.  In
addition,  patents do not necessarily prevent others from developing competitive
products.  The Company has not  conducted  an  exhaustive  patent  search and no
assurance  can be given that  patents  do not exist or could not be filed  which
would have an adverse effect on the Company's ability to market its products.

      Uncertainty of Health Care  Reimbursement and Reform.  Shaman's ability to
successfully  commercialize  its  products  may  depend in part on the extent to
which reimbursement for the cost of such products and related treatments will be
available from  government  health  administration  authorities,  private health
insurers  and  other  organizations.  Significant  uncertainty  exists as to the
pricing, availability of distribution channels and reimbursement status of newly
approved healthcare products.

      Possible  Volatility  of Stock Price.  The market  price of the  Company's
common stock,  like the stock prices of many publicly traded  biotechnology  and
smaller  pharmaceutical  companies,  has  been  and may  continue  to be  highly
volatile.

      Environmental  Regulation. In connection with its research and development
activities  and its periodic  manufacturing  of clinical  trial  materials,  the
Company is 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  the  Company  believes  that  it has  complied  with  these  laws  and
regulations  in all  material  respects  and has not been  required  to take any
action to correct any noncompliance,  there can be no assurance that the Company
will not be required to incur significant costs to comply with environmental and
health and safety regulations in the future.



<PAGE>


PART II    OTHER INFORMATION

Item 1.    Legal Proceedings

           None.

Item 2.    Changes in Securities

           None.

Item 3.    Defaults in Senior Securities

           None.

Item 4.    Submission of Matters to a Vote of Security Holders

      (a)  The Annual Meeting of Stockholders of          
           Shaman Pharmaceuticals, Inc. was held on May 23, 1996.

      (b) The following Directors were elected to serve as Class I directors for
          two years or until their successors are elected and qualified:

           Name                           Position
           Lisa A. Conte                  Class I Director
           John A. Young                  Class I Director

           The  following  Directors  continue  to serve their two year terms as
           elected at last year's Annual Meeting held on June 9, 1995:

           Name                           Position
           G. Kirk Raab                   Chairman of the Board
           Herbert H. McDade, Jr.         Class II Director
           M. David Titus                 Class II Director

      (c)  The matters voted upon at the meeting and voting of the
           stockholders with respect thereto are as follows:

           (i)  The election of Class I directors  to hold office for a
                term of two years from the Annual Meeting.

                Lisa A. Conte:
                For:  11,409,234          Withheld:  272,345

                John A. Young:
                For:  11,404,476          Withheld:  277,103


<PAGE>


           (ii) Approval of an Amendment to the Company's 1992 Stock
                Option Plan (the "Plan") to:

               1)  increase the maximum number of shares of the Company's 
                   common stock authorized for issuance under the Plan 
                   by an additional 450,000 shares,

               2)  increase the limit of the maximum  number of shares for 
                   which any  individual participant may be granted 
                   stock options by an additional 250,000 shares, and

               3)  to extend the eligibility provisions of the Plan so that 
                   non-employee Board members, other than those at the time  
                   serving on the Compensation Committee which administers 
                   the Plan, will be eligible to receive option grants under 
                   both the Discretionary Option Grant and Automatic Option 
                   Grant Programs in effect under the Plan.

                For:  9,388,673           Against:  2,221,303
                Abstain:  71,603


         (iii) Ratification of the appointment of Ernst & Young LLP as 
               the Company's independent auditors for the year ending 
               December 31, 1996.

               For:  11,602,187          Against:  41,406
               Abstain:  37,986


Item 5.    Other Information

           None.



<PAGE>


Item 6.    Exhibits and Reports on Form 8-K

(a)        Exhibits

           Exhibit No.         Description

           3.2                 Amended and Restated Bylaws, effective 
                               as of May 23, 1996.

           4                   Certificate of Designation of Preferences
                               of Series A Preferred Stock of Shaman 
                               Pharmaceuticals, Inc., a Delaware corporation,
                               as filed with the Delaware Secretary of State
                               July 24, 1996.

           10.49+              Subscription Agreement dated July 25,
                               1996 between Shaman Pharmaceuticals, Inc.
                               and Fletcher International Limited.

           27                  Financial Data Schedule.

 (b)       No reports on Form 8-K were filed during the quarter ended
           June 30, 1996.


--------------------------------------

  +  Confidential treatment pursuant to Rule 24b-2 under the Securities
     Exchange Act of 1934, as amended, has been requested for certain portions
     of this agreement.


<PAGE>

                               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:  December 23, 1996
                              Shaman Pharmaceuticals, Inc.
                              (Registrant)


                              /s/ Lisa A. Conte
                              -----------------------------------
                              Lisa A. Conte
                              President and Chief Executive Officer
                              (principal executive officer)


                              /s/ Barbara J. Goodrich
                              -----------------------------------
                              Barbara J. Goodrich
                              Vice President and Chief Financial Officer
                              (principal financial and accounting officer)


      
<PAGE>
                                   EXHIBIT 3.2

                           AMENDED AND RESTATED BYLAWS
                                       OF
                          SHAMAN PHARMACEUTICALS, INC.
                           (As Amended March 29, 1996)


                                    ARTICLE I
                                     OFFICES

            Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.

            Section  2. The  corporation  may also have  offices  at such  other
places both  within and without the State of Delaware as the Board of  Directors
may from time to time determine or the business of the corporation may require.

                                   ARTICLE II
                            MEETINGS OF STOCKHOLDERS

            Section 1. All  meetings  of the  stockholders  for the  election of
directors shall be held in the City of San Carlos, State of California,  at such
place as may be fixed  from time to time by the Board of  Directors,  or at such
other  place  either  within  or  without  the  State  of  Delaware  as shall be
designated  from time to time by the Board of Directors and stated in the notice
of the meeting.  Meetings of  stockholders  for any other purpose may be held at
such time and place, within or without the State of Delaware, as shall be stated
in the notice of the meeting or in a duly executed waiver of notice thereof.

            Section 2. Annual meetings of stockholders, commencing with the year
1994,  shall be held on the first Wednesday in May if not a legal holiday,  and,
if a legal  holiday,  then on the next secular day  following,  at 9:00 A.M., or
such other date and time as shall be  designated  from time to time by the Board
of Directors and stated in the notice of the meeting,  at which they shall elect
by a plurality vote a board of directors or a class of the board of directors as
provided in the certificate of  incorporation,  and transact such other business
as may properly be brought before the meeting.

            Section 3. Written notice of the annual  meeting  stating the place,
date and hour of the meeting shall be given to each stockholder entitled to vote
at such  meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.

            Section 4. The  officer  who has  charge of the stock  ledger of the
corporation  shall  prepare and make,  at least ten days before every meeting of
stockholders,  a  complete  list  of the  stockholders  entitled  to vote at the
meeting,  arranged  in  alphabetical  order,  and  showing  the  address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any  stockholder,  for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days  prior to the  meeting,  either at a place  within  the city  where the
meeting  is to be held,  which  place  shall be  specified  in the notice of the
meeting, or, if not so specified,  at the place where the meeting is to be held.
The list shall also be  produced  and kept at the time and place of the  meeting
during the whole time thereof,  and may be inspected by any  stockholder  who is
present.


<PAGE>

            Section 5. Special meetings of the stockholders,  for any purpose or
purposes,  unless  otherwise  prescribed  by  statute or by the  certificate  of
incorporation,  may be called by the  president  or the chairman of the Board of
Directors  and shall be called by the  president  or secretary at the request in
writing of a majority of the Board of Directors, or at the request in writing of
stockholders  owning not less than sixty-six and two-thirds percent (66-2/3%) of
the entire capital stock of the corporation  issued and outstanding and entitled
to vote.  Such  request  shall state the  purpose or  purposes  of the  proposed
meeting.

            Section 6. Written  notice of a special  meeting  stating the place,
date and hour of the meeting  and the purpose or purposes  for which the meeting
is  called,  shall be given not less than ten (10) nor more than sixty (60) days
before the date of the  meeting,  to each  stockholder  entitled to vote at such
meeting.

            Section  7.   Business   transacted   at  any  special   meeting  of
stockholders shall be limited to the purposes stated in the notice.

            Section  8. The  holders  of a  majority  of the  stock  issued  and
outstanding  and entitled to vote thereat,  present in person or  represented by
proxy,  shall  constitute a quorum at all meetings of the  stockholders  for the
transaction  of  business  except as  otherwise  provided  by  statute or by the
certificate of incorporation.  If, however,  such quorum shall not be present or
represented at any meeting of the  stockholders,  the  stockholders  entitled to
vote thereat,  present in person or  represented  by proxy,  shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting,  until a quorum shall be present or represented.  At such adjourned
meeting at which a quorum  shall be present or  represented  any business may be
transacted  which  might  have been  transacted  at the  meeting  as  originally
notified.  If the  adjournment  is for more than  thirty  days,  or if after the
adjournment  a new record date is fixed for the adjourned  meeting,  a notice of
the adjourned  meeting shall be given to each  stockholder of record entitled to
vote at the meeting.

            Section 9. When a quorum is present at any meeting,  the vote of the
holders of a majority  of the stock  having  voting  power  present in person or
represented  by proxy shall decide any  question  brought  before such  meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of  incorporation,  a different vote is required,  in which case
such express provision shall govern and control the decision of such question.

            Section  10.  Unless  otherwise   provided  in  the  certificate  of
incorporation  each  stockholder  shall at every meeting of the  stockholders be
entitled to one vote in person or by proxy for each share of the  capital  stock
having  voting  power held by such  stockholder,  but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.


<PAGE>

            Section  11.  Unless  otherwise   provided  in  the  certificate  of
incorporation,  any action required to be taken at any annual or special meeting
of  stockholders  of the  corporation,  or any action  which may be taken at any
annual or special meeting of such stockholders,  may be taken without a meeting,
without prior notice and without a vote, if a consent in writing,  setting forth
the action so taken,  shall be signed by the holders of outstanding stock having
not less than the minimum  number of votes that would be  necessary to authorize
or take such action at a meeting at which all shares  entitled  to vote  thereon
were  present and voted.  Prompt  notice of the taking of the  corporate  action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.

                                   ARTICLE III
                                    DIRECTORS

            Section 1. The number of directors which shall  constitute the whole
board  shall not be less than five (5) nor more than nine (9) with the number of
directors  presently  set at five  (5).  Thereafter,  within  the  limits  above
specified,  the number of  directors  shall be  determined  by  amendment of the
bylaws  duly  adopted  by  resolution  of  the  Board  of  Directors  or by  the
stockholders  at the annual meeting of the  stockholders,  except as provided in
Section 2 of this Article, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.

            Section 2.  Vacancies and new created  directorships  resulting from
any increase in the  authorized  number of directors may be filled by a majority
of the  directors  then in  office,  though  less  than a  quorum,  or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual  election and until their  successors are duly elected and shall qualify,
unless sooner displaced.  If there are no directors in office,  then an election
of directors may be held in the manner  provided by statute.  If, at the time of
filling any vacancy or any newly created  directorship,  the  directors  then in
office shall  constitute less than a majority of the whole board (as constituted
immediately  prior to any  such  increase),  the  Court of  Chancery  may,  upon
application of any stockholder or  stockholders  holding at least ten percent of
the total number of the shares at the time outstanding  having the right to vote
for such  directors,  summarily  order an  election  to be held to fill any such
vacancies or newly created directorships,  or to replace the directors chosen by
the directors then in office.

            Section 3. The  business of the  corporation  shall be managed by or
under the direction of its board of directors which may exercise all such powers
of the  corporation and do all such lawful acts and things as are not by statute
or by the certificate of  incorporation  or by these bylaws directed or required
to be exercised or done by the stockholders.


<PAGE>

                       MEETINGS OF THE BOARD OF DIRECTORS

            Section  4.  The  Board of  Directors  of the  corporation  may hold
meetings,  both  regular  and  special,  either  within or without  the State of
Delaware.

            Section  5.  The  first  meeting  of each  newly  elected  Board  of
Directors  shall be held at such time and place as shall be fixed by the vote of
the  stockholders  at the annual  meeting and no notice of such meeting shall be
necessary to the newly  elected  directors in order  legally to  constitute  the
meeting,  provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of  Directors,  or in the event  such  meeting is not held at the time and
place so fixed by the  stockholders,  the  meeting  may be held at such time and
place as shall  be  specified  in a notice  given as  hereinafter  provided  for
special  meetings  of the  Board of  Directors,  or as shall be  specified  in a
written waiver signed by all of the directors.

            Section 6. Regular  meetings of the Board of  Directors  may be held
without  notice  at such  time and at such  place as shall  from time to time be
determined by the board.

            Section  7.  Special  meetings  of the  board  may be  called by the
president on four (4) days' notice to each director by mail or forty-eight  (48)
hours'  notice  to each  director  either  personally  or by  telegram;  special
meetings  shall be called by the  president  or  secretary in like manner and on
like notice on the written request of two directors unless the board consists of
only one  director,  in which  case  special  meetings  shall be  called  by the
president or secretary in like manner and on like notice on the written  request
of the sole director.

            Section 8. At all  meetings  of the board four (4)  directors  shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors,  except as may be otherwise  specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be present
at any meeting of the Board of  Directors,  the  directors  present  thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.

            Section  9.  Unless  otherwise  restricted  by  the  certificate  of
incorporation  of these bylaws,  any action required or permitted to be taken at
any meeting of the Board of Directors or of any  committee  thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent  thereto in  writing,  and the  writing or  writings  are filed with the
minutes of proceedings of the board or committee.


<PAGE>

            Section  10.  Unless  otherwise  restricted  by the  certificate  of
incorporation  or  these  bylaws,  members  of the  Board of  Directors,  or any
committee designated by the Board of Directors,  may participate in a meeting of
the Board of Directors,  or any committee,  by means of conference  telephone or
similar communications  equipment by means of which all persons participating in
the meeting  can hear each  other,  and such  participation  in a meeting  shall
constitute presence in person at the meeting.

                             COMMITTEES OF DIRECTORS

            Section 11. The Board of Directors  may, by  resolution  passed by a
majority of the whole board, designate one or more committees, each committee to
consist  of one or more of the  directors  of the  corporation.  The  board  may
designate one or more directors as alternate  members of any committee,  who may
replace any absent or disqualified member at any meeting of the committee.

            In the absence of disqualification  of a member of a committee,  the
member or members  thereof  present at any  meeting  and not  disqualified  from
voting,  whether or not he or they constitute a quorum, may unanimously  appoint
another  member of the Board of  Directors to act at the meeting in the place of
any such absent or disqualified member.

            Any such committee,  to the extent provided in the resolution of the
Board of Directors,  shall have and may exercise all the powers and authority of
the Board of  Directors  in the  management  of the  business and affairs of the
corporation,  and may authorize the seal of the corporation to be affixed to all
papers  which may  require  it;  but no such  committee  shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's  property and
assets,  recommending to the  stockholders a dissolution of the corporation or a
revocation of a  dissolution,  or amending the bylaws of the  corporation;  and,
unless the resolution or the certificate of incorporation  expressly so provide,
no such committee  shall have the power or authority to declare a dividend or to
authorize the issuance of stock.  Such  committee or committees  shall have such
name or names as may be determined  from time to time by  resolution  adopted by
the Board of Directors.

            Section  12.  Each  committee  shall  keep  regular  minutes  of its
meetings and report the same to the Board of Directors when required.

                            COMPENSATION OF DIRECTORS

            Section  13.  Unless  otherwise  restricted  by the  certificate  of
incorporation  or these bylaws,  the Board of Directors shall have the authority
to fix the compensation of directors.  The directors may be paid their expenses,
if any, of  attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation  therefor.  Members
of special or standing committees may be allowed like compensation for attending
committee meetings.


<PAGE>

                                   ARTICLE IV
                                     NOTICES

            Section 1. Whenever,  under the provisions of the statutes or of the
certificate of incorporation or of these bylaws,  notice is required to be given
to any  director or  stockholder,  it shall not be  construed  to mean  personal
notice,  but such notice may be given in  writing,  by mail,  addressed  to such
director  or  stockholder,  at his  address as it appears on the  records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be  deposited  in the United  States mail.
Notice to directors may also be given by telegram.

            Section 2.  Whenever  any notice is  required  to be given under the
provisions of the statutes or of the  certificate of  incorporation  or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice,  whether before or after the time stated  therein,  shall be deemed
equivalent thereto.

                                    ARTICLE V
                                    OFFICERS

            Section 1. The  officers of the  corporation  shall be chosen by the
Board of  Directors  and  shall be a  president  and a  secretary.  The Board of
Directors  may elect from among its  members a Chairman  of the Board and a Vice
Chairman  of the  Board.  The Board of  Directors  may also  choose  one or more
vice-presidents,  assistant secretaries and assistant treasurers.  Any number of
offices may be held by the same person,  unless the certificate of incorporation
or these bylaws otherwise provide.

            Section 2. The Board of  Directors at its first  meeting  after each
annual meeting of stockholders  shall choose a president and a secretary and may
choose a vice president and a treasurer.

            Section 3. The Board of Directors  may appoint  such other  officers
and agents as it shall deem  necessary  who shall  hold their  offices  for such
terms and  shall  exercise  such  powers  and  perform  such  duties as shall be
determined from time to time by the board.

            Section  4.  The   salaries  of  all  officers  and  agents  of  the
corporation shall be fixed by the Board of Directors.

            Section 5. The officers of the  corporation  shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
Board of  Directors  may be  removed  at any time by the  affirmative  vote of a
majority of the Board of Directors.  Any vacancy  occurring in any office of the
corporation shall be filled by the Board of Directors.


                            THE CHAIRMAN OF THE BOARD

            Section 6. The Chairman of the Board,  if any,  shall preside at all
meetings of the Board of Directors and of the  stockholders at which he shall be
present.  He shall have and may exercise  such powers as are, from time to time,
assigned to him by the Board and as may be provided by law.

            Section 7. In the  absence of the  Chairman  of the Board,  the Vice
Chairman of the Board,  if any,  shall  preside at all  meetings of the Board of
Directors and of the  stockholders  at which he shall be present.  He shall have
and may exercise such powers as are,  from time to time,  assigned to him by the
Board and as may be provided by law.


<PAGE>

                        THE PRESIDENT AND VICE-PRESIDENT

            Section 8. The president shall be the chief executive officer of the
corporation;  and in the absence of the Chairman and Vice  Chairman of the Board
he shall preside at all meetings of the stockholders and the Board of Directors;
he shall have general and active  management of the business of the  corporation
and shall see that all  orders and  resolutions  of the Board of  Directors  are
carried into effect.

            Section 9. He shall execute  bonds,  mortgages  and other  contracts
requiring a seal,  under the seal of the  corporation,  except where required or
permitted  by law to be  otherwise  signed and  executed  and  except  where the
signing and  execution  thereof  shall be  expressly  delegated  by the Board of
Directors to some other officer or agent of the corporation.

            Section 10. In the absence of the  president  or in the event of his
inability or refusal to act, the vice-president,  if any, (or in the event there
be more than one vice-president,  the vice-presidents in the order designated by
the directors, or in the absence of any designation,  then in the order of their
election) shall perform the duties of the president,  and when so acting,  shall
have  all  the  powers  of and be  subject  to all  the  restrictions  upon  the
president.  The  vice-presidents  shall  perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.

                      THE SECRETARY AND ASSISTANT SECRETARY

     Section  11.  The  secretary  shall  attend  all  meetings  of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the  meetings of the  corporation  and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing  committees
when  required.  He shall give, or cause to be given,  notice of all meetings of
the  stockholders  and  special  meetings of the Board of  Directors,  and shall
perform  such other  duties as may be  prescribed  by the Board of  Directors or
president,  under whose  supervision  he shall be. He shall have  custody of the
corporate seal of the corporation and he, or an assistant secretary,  shall have
authority to affix the same to any instrument  requiring it and when so affixed,
it may be  attested  by his  signature  or by the  signature  of such  assistant
secretary.  The  Board of  Directors  may give  general  authority  to any other
officer to affix the seal of the  corporation  and to attest the affixing by his
signature.

            Section 12. The assistant  secretary,  or if there be more than one,
the assistant  secretaries in the order determined by the Board of Directors (or
if there be no such  determination,  then in the order of their election) shall,
in the absence of the  secretary or in the event of his  inability or refusal to
act,  perform  the duties and  exercise  the powers of the  secretary  and shall
perform  such other  duties and have such other powers as the board of directors
may from time to time prescribe.


<PAGE>

                     THE TREASURER AND ASSISTANT TREASURERS

     Section 13. The treasurer shall have the custody of the corporate funds and
securities   and  shall  keep  full  and  accurate   accounts  of  receipts  and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable  effects in the name and to the credit of the  corporation in
such depositories as may be designated by the Board of Directors.

            Section 14. He shall disburse the funds of the corporation as may be
ordered  by  the  Board  of   Directors,   taking   proper   vouchers  for  such
disbursements,  and shall render to the president and the Board of Directors, at
its regular meetings,  or when the Board of Directors so requires, an account of
all  his  transactions  as  treasurer  and of  the  financial  condition  of the
corporation.

            Section 15. If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be  satisfactory  to the Board of Directors for
the faithful  performance of the duties of his office and for the restoration to
the corporation,  in case of his death, resignation,  retirement or removal from
office,  of all books,  papers,  vouchers,  money and other property of whatever
kind in his possession or under his control belonging to the corporation.

            Section 16. The assistant treasurer,  or if there shall be more than
one, the assistant  treasurers in the order determined by the Board of Directors
(or if  there be no such  determination,  then in the  order of their  election)
shall,  in the  absence of the  treasurer  or in the event of his  inability  or
refusal to act,  perform the duties and exercise the powers of the treasurer and
shall  perform  such other  duties  and have such  other  powers as the Board of
Directors may from time to time prescribe.

                                   ARTICLE VI
                              CERTIFICATE OF STOCK

            Section  1.  Every  holder  of  stock  in the  corporation  shall be
entitled to have a certificate, signed by, or in the name of the corporation by,
the chairman or vice-chairman  of the Board of Directors,  or the president or a
vice-president and the treasurer or an assistant treasurer,  or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by him in the corporation.

            Certificates  may be issued for partly  paid shares and in such case
upon the face or back of the  certificates  issued to represent  any such partly
paid shares, the total amount of the consideration to be paid therefor,  and the
amount paid thereon shall be specified.


<PAGE>

            If the corporation  shall be authorized to issue more than one class
of stock  or more  than one  series  of any  class,  the  powers,  designations,
preferences  and relative,  participating,  optional or other special  rights of
each class of stock or series  thereof  and the  qualification,  limitations  or
restrictions  of such  preferences  and/or  rights shall be set forth in full or
summarized on the face or back of the certificate  which the  corporation  shall
issue to  represent  such  class or series of stock,  provided  that,  except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing  requirements,  there may be set forth on the face or back
of the certificate  which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each  stockholder  who so requests  the powers,  designations,  preferences  and
relative, participating, optional or other special rights of each class of stock
or series thereof and the  qualifications,  limitations or  restrictions of such
preferences and/or rights.

            Section 2. Any of or all the  signatures on the  certificate  may be
facsimile.  In case any officer,  transfer  agent or registrar who has signed or
whose facsimile  signature has been placed upon a certificate  shall have ceased
to be such  officer,  transfer  agent or registrar  before such  certificate  is
issued,  it may be issued by the corporation  with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.

                                LOST CERTIFICATES

            Section 3. The Board of Directors  may direct a new  certificate  or
certificates   to  be  issued  in  place  of  any  certificate  or  certificates
theretofore  issued by the  corporation  alleged  to have been  lost,  stolen or
destroyed,  upon the making of an affidavit of that fact by the person  claiming
the certificate of stock to be lost, stolen or destroyed.  When authorizing such
issue of a new certificate or  certificates,  the Board of Directors may, in its
discretion  and as a condition  precedent to the issuance  thereof,  require the
owner of such lost,  stolen or destroyed  certificate  or  certificates,  or his
legal  representative,  to advertise the same in such manner as it shall require
and/or to give the  corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the  corporation  with respect to the
certificate alleged to have been lost, stolen or destroyed.

                                TRANSFER OF STOCK

            Section 4. Upon  surrender to the  corporation or the transfer agent
of the  corporation of a certificate  for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the  corporation to issue a new  certificate to the person  entitled
thereto, cancel the old certificate and record the transaction upon its books.


<PAGE>

                               FIXING RECORD DATE

            Section  5.  In  order  that  the   corporation  may  determine  the
stockholders  entitled to notice of or to vote at any meeting of  stockholder or
any adjournment  thereof,  or to express consent to corporate  action in writing
without a meeting,  or  entitled  to receive  payment of any  dividend  or other
distribution  or allotment of any rights,  or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action,  the Board of Directors may fix, in advance, a record date,
which  shall not be more than  sixty nor less than ten days  before  the date of
such  meeting,   nor  more  than  sixty  days  prior  to  any  other  action.  A
determination  of  stockholders  of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting: provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.

                             REGISTERED STOCKHOLDERS

            Section  6. The  corporation  shall be  entitled  to  recognize  the
exclusive  right of a person  registered  on its books as the owner of shares to
receive  dividends,  and to vote as such owner, and to hold liable for calls and
assessments  a person  registered  on its books as the owner of shares and shall
not be bound to  recognize  any  equitable or other claim to or interest in such
share or shares on the part of any other  person,  whether  or not it shall have
express or other notice  thereof,  except as  otherwise  provided by the laws of
Delaware.

                                   ARTICLE VII
                               GENERAL PROVISIONS
                                    DIVIDENDS

            Section 1.  Dividends  upon the  capital  stock of the  corporation,
subject to the provisions of the  certificate of  incorporation,  if any, may be
declared by the Board of Directors at any regular or special  meeting,  pursuant
to law. Dividends may be paid in cash, in property,  or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.

            Section 2. Before  payment of any  dividend,  there may be set aside
out of any funds of the corporation  available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies,  or for equalizing dividends,  or for
repairing  or  maintaining  any property of the  corporation,  or for such other
purposes  as  the  directors  shall  think  conducive  to  the  interest  of the
corporation,  and the  directors  may modify or abolish any such  reserve in the
manner in which it was created.

                                     CHECKS

            Section  3.  All  checks  or  demands  for  money  and  notes of the
corporation  shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.


<PAGE>

                                   FISCAL YEAR

            Section  4. The  fiscal  year of the  corporation  shall be fixed by
resolution of the Board of Directors.

                                      SEAL

            Section 5. The Board of Directors may adopt a corporate  seal having
inscribed thereon the name of the corporation,  the year of its organization and
the words  "Corporate Seal,  Delaware".  The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.

                                 INDEMNIFICATION

            Section 6. The corporation shall indemnify its officers,  directors,
employees and agents to the full extent permitted by the General Corporation Law
of Delaware.

                                  ARTICLE VIII
                                   AMENDMENTS

            Section 1. These  bylaws may be altered,  amended or repealed or new
bylaws may be adopted by the  stockholders  or by the Board of  Directors,  when
such  power is  conferred  upon the Board of  Directors  by the  certificate  of
incorporation  at any  regular  meeting of the  stockholders  or of the Board of
Directors  or at any  special  meeting  of the  stockholders  or of the Board of
Directors  if notice of such  alteration,  amendment,  repeal or adoption of new
bylaws be  contained  in the  notice of such  special  meeting.  If the power to
adopt,  amend or repeal  bylaws is conferred  upon the Board of Directors by the
certificate  or  incorporation  it shall  not  divest  or limit the power of the
stockholders to adopt, amend or repeal bylaws.


<PAGE>



                             SECRETARY'S CERTIFICATE



            I, J. Stephan Dolezalek, Secretary of SHAMAN PHARMACEUTICALS,  INC.,
a Delaware corporation (the "Corporation"),  do hereby certify that the attached
document  is a true and  complete  copy of the ByLaws of the  Corporation  as in
effect on the date hereof.
            Dated:      June 12, 1996

                                        /s/ J. Stephen Dolezalek
                                        ---------------------------------
                                            J. Stephan Dolezalek, Secretary

<PAGE>

                                    EXHIBIT 4

                           CERTIFICATE OF DESIGNATION
                 OF PREFERENCES OF SERIES A PREFERRED STOCK OF
                          SHAMAN PHARMACEUTICALS, INC.,
                             a Delaware Corporation



            The  undersigned  Lisa A. Conte and J. Stephan  Dolezalek  hereby
certify that:

            (i)  They  are the duly  elected  and  acting  President  and  Chief
Executive Officer and Secretary, respectively, of Shaman Pharmaceuticals,  Inc.,
a Delaware corporation (the "Corporation").

            (ii) Pursuant to the authority conferred upon the Board of Directors
of the Corporation by paragraph (B) of Article IV of the Corporation's  Restated
Certificate of Incorporation (the "Certificate"),  the Board of Directors of the
Corporation on July 18, 1996 adopted the following resolutions creating a series
of preferred stock designated as Series A Preferred Stock;

            WHEREAS,  the  Certificate  provides  for a class of shares known as
Preferred Stock, issuable from time to time in one or more series; and

            WHEREAS,  the Board of Directors of the Corporation is authorized by
the Certificate to determine the powers,  rights,  preferences,  qualifications,
limitations  and  restrictions  granted to or imposed  upon any wholly  unissued
series of Preferred  Stock,  to fix the number of shares  constituting  any such
series, and to determine the designation thereof, or any of them;

            WHEREAS, the Board of Directors of the Corporation desires, pursuant
to its  authority  as  aforesaid,  to  determine  and  fix the  powers,  rights,
preferences, qualifications,  limitations and restrictions relating to series of
Preferred Stock and the number of shares  constituting,  and the designation of,
each such series:

            NOW,  THEREFORE,  BE IT  RESOLVED,  that  pursuant to the  authority
vested in the Board of  Directors  of the  Corporation  in  accordance  with the
provisions of the Certificate,  the series of Preferred Stock is hereby created,
and the Board of Directors  hereby fixes and determines the  designation of, the
number of shares  constituting,  and the  rights,  preferences,  privileges  and
restrictions relating to, such series of Preferred Stock as follows:

            1.    Designation.   The   series  of   preferred   stock  of  the
Corporation  shall be designated  as "Series A  Preferred  Stock,"  $0.001 par
value.
<PAGE>

            2. Authorized Number. The number of shares constituting the Series A
Preferred Stock shall be Four Hundred  Thousand  (400,000)  shares.  The rights,
preferences,  restrictions  and other matters relating to the Series A Preferred
Stock set forth below are subject to the  issuance of any  subsequent  series of
preferred  stock.  The Board of  Directors  is also  authorized  to decrease the
number of shares of any series of  preferred  stock prior or  subsequent  to the
issue of that  series,  but not below the number of shares of such  series  then
outstanding.  In case the number of shares of any series shall be so  decreased,
the shares  constituting  such  decrease  shall resume the status which they had
prior to the adoption of the resolution  originally  fixing the number of shares
of such series.

            3.  Dividend  Rights.  Subject to the rights of series of  Preferred
Stock which may from time to time come into existence, the holders of the Series
A Preferred  Stock  shall be  entitled  to receive,  when and as declared by the
Board of  Directors,  out of any  assets of the  corporation  legally  available
therefor,  such  dividends as may be declared  from time to time by the Board of
Directors.  The Board of Directors  shall not pay any dividend to the holders of
the Common Stock unless and until it has paid an equivalent  dividend,  on a pro
rata per share basis, to the holders of the Series A Preferred Stock.

            4.    Liquidation Preference.

                  (A) In the event of any liquidation, dissolution or winding up
of the Corporation,  whether voluntary or involuntary, the holders of the Series
A Preferred  Stock shall be entitled to receive,  prior and in preference to any
distribution  of any of the assets or surplus  funds of the  Corporation  to the
holders of the Common Stock by reason of their ownership thereof,  the amount of
$8.147  (the  AOriginal  Issue  Price@)  per  share (as  adjusted  for any stock
dividends,  combinations or splits with respect to such shares) plus all accrued
or  declared  but  unpaid  dividends  on such  share for each  share of Series A
Preferred Stock then held by such holder.  If upon the occurrence of such event,
the  assets  and funds  thus  distributed  among  the  holders  of the  Series A
Preferred  Stock shall be  insufficient to permit the payment to such holders of
the full aforesaid  preferential amount, then the entire assets and funds of the
Corporation  legally  available for  distribution  shall be distributed  ratably
among  the  holders  of the  Series  A  Preferred  Stock  in  proportion  to the
preferential amount each such holder is otherwise entitled to receive.

                  (B) After  payment to the  holders  of the Series A  Preferred
Stock of the  amounts  set forth in Section  4(A)  above,  the entire  remaining
assets and funds of the Corporation legally available for distribution,  if any,
shall be distributed  among the holders of the Common Stock in proportion to the
shares of Common Stock then held by them.

                  (C) For purposes of this Section 4, (i) any acquisition of the
Corporation  by means of merger or other  form of  corporate  reorganization  in
which  outstanding  shares of the  Corporation  are exchanged for  securities or
other consideration issued, or caused to be issued, by the acquiring corporation
or its subsidiary (other than a mere reincorporation transaction) or (ii) a sale
of all or substantially  all of the assets of the Corporation or (iii) any other
transaction  or series of related  transactions  by the  Corporation in which in
excess of 50% of the Corporation's voting power is transferred, shall be treated
as a liquidation, dissolution or winding up of the Corporation and shall entitle
the  holders of Series A  Preferred  Stock to  receive  at the  closing in cash,
securities  or other  property  (valued as provided  in Section  4(D) below) the
amount as specified in Section 4(A) above.
<PAGE>

                  (D) Whenever the  distribution  provided for in this Section 4
shall be payable in  securities or property  other than cash,  the value of such
distribution shall be as follows:

                         (i)  Securities  not subject to investment  letter or
      other similar restrictions on free marketability:

                              (A)   If traded on a  securities  exchange,  the
      value  shall be  deemed to be the  average  of the  closing  prices of the
      securities  on such  exchange over the 30-day period ending three (3) days
      prior to the closing;

                              (B)   If actively traded  over-the-counter,  the
      value  shall be deemed to be the average of the closing bid or sale prices
      (whichever  are  applicable)  over the 30-day period ending three (3) days
      prior to the closing; and

                              (C)   If there is no active public  market,  the
      value shall be the fair market value thereof,  as determined in good faith
      by the Board of Directors of the Corporation.

                        (ii) The method of  valuation of  securities  subject to
      investment letter or other restrictions on free marketability  (other than
      restrictions  arising  solely by virtue  of a  stockholder's  status as an
      affiliate or former  affiliate)  shall be to make an appropriate  discount
      from the  market  value  determined  as  above  in (i) (A),  (B) or (C) to
      reflect the approximate  fair market value thereof,  as determined in good
      faith by the Board of Directors of the Corporation.

                        (iii) In the event of any bona-fide  dispute between the
      Corporation  and one or more holders of the Series A Preferred Stock as to
      any fair market value  determination  under clauses  (i)(C) or (ii) above,
      such dispute shall be resolved through binding arbitration under the rules
      of the  American  Arbitration  Association,  with  the  arbitration  panel
      consisting  of persons  familiar  with the valuation of public and private
      entities and such panel being advised,  as to such valuation issues, by an
      investment bank of nationally recognized standing, the costs thereof to be
      borne by the non-prevailing party.

            5.    Redemption.  The Series A Preferred Stock is not redeemable.
<PAGE>

            6.    Conversion.  The holders of Series A  Preferred  Stock shall
have conversion rights as follows (the "Conversion Rights"):

                  (A) Right to Convert.  Each share of Series A Preferred  Stock
shall be convertible  into one share of Common Stock,  as adjusted for any stock
dividends,  combinations  or splits with respect to such shares,  at any time at
the option of the holder,  provided,  however, that the minimum number of shares
which may be  converted  at any one time shall be 75,000  shares or such  lesser
number of shares as shall be then outstanding.

                  (B)  Automatic  Conversion.  Each share of Series A  Preferred
Stock shall  automatically  be converted into Common Stock,  upon the earlier to
occur of:

                         (i)  immediately in the event that at any time prior to
      July 23, 1999,  the closing sale price (the  AClosing  Sale Price@) of the
      Corporation's  Common Stock (as listed on the Nasdaq National  Market) has
      for a period of sixty (60) consecutive  trading days exceeded the Original
      Issue Price, which event shall be disclosed to each holder of the Series A
      Preferred Stock by written  notification  from the  Corporation,  in which
      event  each  share of Series A  Preferred  Stock  shall  automatically  be
      converted into one (1) share of Common Stock,  as  appropriately  adjusted
      for any stock  dividends,  combinations  or splits  with  respect  to such
      shares of Common Stock; or

                        (ii) July 23, 1999,  in which event each share of Series
      A Preferred Stock shall automatically be converted into the such number of
      shares of Common Stock as equals the Original  Issue Price  divided by the
      weighted-average Closing Sale Price for the sixty (60) consecutive trading
      days ending two days prior to July 23, 1999, but in no event more than the
      Original  Issue  Price  divided  by $6.00,  in each case as  appropriately
      adjusted for any stock  dividends,  combinations or splits with respect to
      such shares of Common Stock.

                  (C)  Mechanics  of  Conversion.  Before any holder of Series A
Preferred  Stock  shall be  entitled  to convert  the same into shares of Common
Stock,  he shall  surrender  the  certificate  or  certificates  therefor,  duly
endorsed,  at the office of this  Corporation  or of any transfer  agent for the
Series A  Preferred  Stock,  and shall  give  written  notice  by mail,  postage
prepaid,  or by  facsimile,  confirmed  by  mail,  to  this  Corporation  at its
principal  corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued.  This  Corporation  shall, as soon as practicable
thereafter,  issue and  deliver  at such  office to such  holder of the Series A
Preferred  Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be  entitled as  aforesaid.  Such  conversion  shall be deemed to have been made
immediately  prior to the close of business on the date of such surrender of the
Series A Preferred Stock to be converted, or in the case of automatic conversion
pursuant  to Section  6(B),  ten (10) days  following  written  notification  as
provided  in Section  6(B),  and the person or persons  entitled  to receive the
shares of Common Stock  issuable upon such  conversion  shall be treated for all
purposes as the record  holder or holders of such  shares of Common  Stock as of
such date.
<PAGE>

                  (D)  Adjustments to Conversion  Ratio for Stock  Dividends and
for  Combinations  or  Subdivisions  of Common  Stock.  In the  event  that this
Corporation  at any time or from  time to time  after the  purchase  date of the
Series A Preferred shall declare or pay, without consideration,  any dividend on
the Common Stock payable in Common Stock or in any right to acquire Common Stock
for no consideration, or shall effect a subdivision of the outstanding shares of
Common  Stock into a greater  number of shares of Common  Stock (by stock split,
reclassification  or otherwise  than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares of
Common  Stock  shall  be  combined  or  consolidated,   by  reclassification  or
otherwise,  into a lesser number of shares of Common  Stock,  then the number of
shares of Common Stock into which the Series A Preferred  Stock can be converted
shall be proportionately  decreased or increased,  as appropriate.  In the event
that this Corporation shall declare or pay, without consideration,  any dividend
on the  Common  Stock  payable  in any  right to  acquire  Common  Stock  for no
consideration  then the  Corporation  shall be deemed  to have  made a  dividend
payable in Common  Stock in an amount of shares  equal to the maximum  number of
shares issuable upon exercise of such rights to acquire Common Stock.

                  (E) Adjustments for  Reclassification  and Reorganization.  If
the Common Stock issuable upon  conversion of the Series A Preferred Stock shall
be changed  into the same or a different  number of shares of any other class or
classes  of  stock,  whether  by  capital  reorganization,  reclassification  or
otherwise  (other than a subdivision or  combination  of shares  provided for in
Section  6(D) above or a merger or other  reorganization  referred to in Section
4(C)  above),  the number of shares of such other class or classes of stock into
which the Series A Preferred Stock shall be convertible shall, concurrently with
the effectiveness of such reorganization or reclassification, be proportionately
adjusted so that the Series A Preferred Stock shall be convertible into, in lieu
of the number of shares of Common Stock which the holders would  otherwise  have
been  entitled to receive,  a number of shares of such other class or classes of
stock  equivalent  to the number of shares of Common  Stock that would have been
subject to receipt by the  holders  upon  conversion  of the Series A  Preferred
Stock immediately before that change.

                  (F) No Impairment.  This Corporation will not, by amendment of
its  Certificate or through any  reorganization,  recapitalization,  transfer of
assets, consolidation,  merger, dissolution,  issue or sale of securities or any
other voluntary action,  avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by this Corporation,  but
will at all times in good faith assist in the carrying out of all the provisions
of this  Section 6 and in the taking of all such action as may be  necessary  or
appropriate  in order to protect  the  Conversion  Rights of the  holders of the
Series A Preferred Stock against impairment.
<PAGE>

                  (G)   No   Fractional   Shares  and   Certificate   as  to
Adjustments.

                         (i)  No   fractional   shares   shall  be  issued  upon
      conversion  of the Series A Preferred  Stock,  and the number of shares of
      Common  Stock to be issued  shall be rounded to the nearest  whole  share.
      Whether or not fractional  shares are issuable upon such conversion  shall
      be determined on the basis of the total number of Series A Preferred Stock
      the holder is at the time  converting  into Common Stock and the number of
      shares of Common Stock issuable upon such aggregate conversion.

                        (ii)  Upon  the   occurrence   of  each   adjustment  or
      readjustment of the number of shares of Common Stock into which the Series
      A  Preferred  Stock can be  converted  pursuant  to this  Section  6, this
      Corporation,  at its expense,  shall promptly  compute such  adjustment or
      readjustment  in accordance  with the terms hereof and prepare and furnish
      to each holder of Series A Preferred  Stock a  certificate  setting  forth
      such adjustment or readjustment and showing in detail the facts upon which
      such adjustment or readjustment is based. This Corporation shall, upon the
      written  request  at any time of any holder of Series A  Preferred  Stock,
      furnish or cause to be furnished to such holder a like certificate setting
      forth (A) such adjustment and  readjustment,  (B) the conversion  ratio at
      the time in effect,  and (C) the number of shares of Common  Stock and the
      amount, if any, of other property which at the time would be received upon
      the conversion of the Series A Preferred Stock.

                  (H) Notices of Record Date. In the event of any taking by this
Corporation  of a record  of the  holders  of any  class of  securities  for the
purpose of  determining  the  holders  thereof  who are  entitled to receive any
dividend  (other  than a cash  dividend)  or other  distribution,  any  right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any  other  securities  or  property,  or  to  receive  any  other  right,  this
Corporation  shall mail to each  holder of Series A  Preferred  Stock,  at least
twenty (20) days prior to the date specified  therein,  a notice  specifying the
date on which any such record is to be taken for the  purpose of such  dividend,
distribution  or  right,   and  the  amount  and  character  of  such  dividend,
distribution or right.

                  (I)  Reservation  of  Stock  Issuable  Upon  Conversion.  This
Corporation  shall at all times reserve and keep available out of its authorized
but unissued  shares of Common  Stock  solely for the purpose of  effecting  the
conversion  of the Series A Preferred  Stock such number of its shares of Common
Stock as shall from time to time be sufficient  to effect the  conversion of all
outstanding  shares  of the  Series A  Preferred  Stock;  and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all the then  outstanding  Series A Preferred Stock,
in addition to such other  remedies as shall be  available to the holder of such
Series A Preferred  Stock,  this  Corporation will take such corporate action as
may, in the opinion of its counsel,  be necessary to increase its authorized but
unissued  shares of Common Stock to such number of shares as shall be sufficient
for such purposes.
<PAGE>

                  (J) Notices.  Any notice  required by the  provisions  of this
Section 6 to be given to the holders of Series A Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid,  and addressed to
each holder of record at his address appearing on the books of this Corporation.

            7.    Voting Rights.

                  (A) Each holder of shares of Series A Preferred Stock shall be
entitled  to the number of votes  equal to the number of shares of Common  Stock
into which such shares of Series A Preferred  Stock could then be converted  and
shall have voting rights and powers equal to the voting rights and powers of the
Common Stock (except as otherwise  expressly  provided  herein or as required by
law,  voting  together  with the  Common  Stock as a single  class) and shall be
entitled to notice of any stockholders' meeting in accordance with the Bylaws of
the  Corporation.  Fractional  votes shall not,  however,  be permitted  and any
fractional voting rights resulting from the above formula (after aggregating all
shares into which  shares of Series A Preferred  Stock held by each holder could
be converted)  shall be rounded to the nearest whole number (with one-half being
rounded  upward).  Each holder of Common Stock shall be entitled to one (1) vote
for each share of Common Stock held.

            8. Status of Converted or Redeemed  Stock. In the event any Series A
Preferred Stock shall be converted  pursuant to Section 6 hereof,  the shares so
converted  shall be promptly  canceled  after the conversion  thereof.  All such
shares shall upon their  cancellation  become  authorized but unissued shares of
Preferred  Stock and may be reissued as part of a new series of Preferred  Stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.

                        *           *           *

            RESOLVED  FURTHER,  that  the  Chairman  of  the  Board,  the  Chief
Executive Officer, the President or any Vice President,  and the Secretary,  the
Chief Financial Officer, the Treasurer,  or any Assistant Secretary or Assistant
Treasurer of this Corporation are each authorized to execute, verify, and file a
Certificate of Designation of Preferences in accordance with Delaware law.


<PAGE>


            IN WITNESS  WHEREOF,  the undersigned have executed this certificate
on July 24, 1996.



                                  /s/ Lisa A. Conte
                                  ------------------------------
                                  Lisa A. Conte
                                  President and Chief Executive Officer



                                  /s/ Stephen Dolezalek
                                  -----------------------------
                                  J. Stephan Dolezalek
                                  Secretary


            The undersigned certify under penalty of perjury that they have read
the foregoing  Certificate of  Designation of Preferences  and know the contents
thereof, and that the statements therein are true.

            Executed at South San Francisco, California, on July 24, 1996.


                                  /s/ Lisa A. Conte
                                  ------------------------------
                                  Lisa A. Conte
                                  President and Chief Executive Officer



                                  /s/ Stephen Dolezalek
                                  -----------------------------
                                  J. Stephan Dolezalek
                                  Secretary

                               
<PAGE>

                                  EXHIBIT 10.49

                             SUBSCRIPTION AGREEMENT



            This Subscription  Agreement (the "Agreement"),  dated July 25, 1996
is  entered  into  by and  between  Shaman  Pharmaceuticals,  Inc.,  a  Delaware
corporation ("Shaman"),  and Fletcher International Limited, a company organized
under the laws of the Cayman Islands ("Fletcher").

            Unless otherwise  defined herein,  capitalized terms used herein and
not  defined  herein  shall  have the  meanings  given to them in  Regulation  S
("Regulation  S") under the Securities Act of 1933, as amended (the  "Securities
Act").

            The parties hereto agree as follows:

            1.    Purchases and Sale. In  consideration  of and upon the basis
of the  representations,  warranties  and  agreements and subject to the terms
and conditions set forth in this Agreement:

                  a.  Series  A  Preferred  Stock.  Shaman  agrees  to  sell  to
      Fletcher, and Fletcher agrees to purchase from Shaman, on the Closing Date
      specified in Section 2 hereof, 400,000 newly issued shares of its Series A
      Preferred  Stock,  par value $0.001 per share,  of Shaman (the  "Preferred
      Shares"),  at a price per share equal to $8.147. As used herein,  the term
      "Trading  Day" means any day on which  Shaman's  Common  Stock,  par value
      $0.001  per  share  (the  "Common   Stock")  is  quoted  on  the  National
      Association of Securities Dealers Automated Quotation ("NASDAQ") System.

                  b.    Put  Options.  Fletcher  agrees  to grant to Shaman on
      the Closing Date  specified in Section 2 hereof,  six put options having
      the terms set forth in Annex A hereto (each a "Put Option").

                  c. Warrant.  Shaman  agrees to sell to Fletcher,  and Fletcher
      agrees to purchase from Shaman, on the Closing Date specified in Section 2
      hereof,  a warrant  having  the  terms  set  forth in Annex B hereto  (the
      "Warrant")  to purchase an  aggregate  of 550,000  shares of Common  Stock
      which, in accordance with the terms and conditions of this Agreement, will
      be freely  tradable.  The shares of Common Stock issuable  pursuant to the
      Warrant are referred to herein as the "Warrant Shares."

            2.  Closing.  The delivery of the  Preferred  Shares  referred to in
Section 1(a) and the Warrant  referred to in Section  1(c) and payment  therefor
(the "Closing")  shall take place at 3:00 p.m. (New York time) on July 26, 1996,
or at such other date and time as Fletcher and Shaman may agree in writing (such
date and time being referred to herein as the "Closing Date").


<PAGE>

            At the Closing, the following deliveries shall be made:

                  a.    Preferred    Shares.    Shaman   shall   deliver   the
      certificate or certificates  representing  the Preferred Shares referred
      to in Section  1(a) to  Fletcher,  at such address as shall be specified
      by Fletcher, duly registered in the name of Fletcher.

                  b.    Warrant.  Shaman  shall  deliver  the  certificate  or
      certificates  representing  the Warrant to Fletcher.  Such  certificates
      shall be substantially in the form attached hereto as Annex B hereto.

                  c.    Officers'   Certificate.   Shaman  shall  deliver  the
      officers' certificate required by Section 7(a).

                  d.    Legal  Opinions.   The  legal  opinions   required  by
      Sections  7(b) and 8(b)  shall be  delivered  to  Fletcher  and  Shaman,
      respectively.

                  e.    Payment.  Payment  of  the  Preferred  Stock  Purchase
      Price shall be made by Fletcher  by New York  Clearing  House (next day)
      funds to the following Shaman account  (subject to customary  settlement
      procedures):

                  Client Account No. 449-15852-14025
                  Subaccount of Smith Barney Account No. 066-198-038
                  Chemical Bank (ABA No. 021000128).

            The foregoing  deliveries shall be deemed to occur simultaneously as
part of a single transaction,  and no delivery shall be deemed to have been made
until all such deliveries have been made.

           3.  Representations and Warranties of Shaman.  Shaman hereby repre-
sents and warrants to Fletcher on the date hereof, on the Closing Date, on  
the date any Preferred Share is converted (each a "Preferred Share Conversion 
Date"), on each Put Option  Exercise  Date (as  defined in Annex A hereto)  and 
on each  Warrant Exercise Date (as defined in Annex B hereto) as follows:

                  a.    Shaman  has  been  duly  incorporated  and is  validly
      existing in good standing under the laws of Delaware.

                  b. This  Agreement  has been  duly  authorized,  executed  and
      delivered by Shaman and, when duly  authorized,  executed and delivered by
      Fletcher, will be a valid and binding agreement enforceable against Shaman
      in  accordance  with  its  terms,   subject  to  bankruptcy,   insolvency,
      fraudulent  transfer,  reorganization,  moratorium  and  similar  laws  of
      general applicability relating to or affecting creditors' rights generally
      and to general principles of equity.


<PAGE>

                  c.    Shaman  has  full   corporate   power  and   authority
      necessary to enter into this  Agreement  and to perform its  obligations
      hereunder.

                  d. No consent, approval,  authorization or order of any court,
      governmental  agency or other body is required for  execution by Shaman of
      this  Agreement  or the  performance  by Shaman of any of its  obligations
      hereunder.

                  e.    Neither the execution by Shaman of this  Agreement nor
      the performance by Shaman of any of its obligations hereunder will:

                        (1) violate,  conflict  with,  result in a breach of, or
            constitute a default (or an event which with the giving of notice or
            the lapse of time or both would be reasonably likely to constitute a
            default)  under  (A)  the  Restated  Certificate  of  Incorporation,
            by-laws or any other  constitutive  document of Shaman or any of its
            affiliates,  (B) any decree,  judgment,  order,  law, treaty,  rule,
            regulation  or  determination  of which  Shaman is aware  (after due
            inquiry) of any court,  governmental  agency or body,  or arbitrator
            having  jurisdiction  over Shaman or any of its affiliates or any of
            their  respective  properties or assets,  (C) the terms of any bond,
            debenture,  note  or any  other  evidence  of  indebtedness,  or any
            agreement,  stock option or other  similar plan,  indenture,  lease,
            mortgage,  deed of trust or other  instrument to which Shaman or any
            of  its  affiliates  is a  party,  by  which  Shaman  or  any of its
            affiliates is bound,  or to which any of the properties or assets of
            Shaman or any of its affiliates is subject,  or (D) the terms of any
            "lock-up"  or  similar  provision  of any  underwriting  or  similar
            agreement to which Shaman or any of its affiliates is a party; or

                        (2) result in the  creation or  imposition  of any lien,
            charge or encumbrance  upon (A) any Preferred  Share, the Warrant or
            any Common Stock or (B) any of the properties or assets of Shaman or
            any of its affiliates.

                  f.  When  issued  to  Fletcher  against  payment  therefor  in
      accordance with the terms of this Agreement,  any Preferred Share, any Put
      Option or the Warrant, each share of Common Stock:

                        (1)   will  have  been  duly and  validly  authorized,
            duly and validly issued, fully paid and non-assessable;

                        (2)   will  be  free  and   clear   of  any   security
            interests, liens, claims or other encumbrances; and

                        (3) will not have been  issued or sold in  violation  of
            any  preemptive  or  other  similar  rights  of the  holders  of any
            securities of Shaman.


<PAGE>

                  g.  When any  share of  Common  Stock is  issued  to  Fletcher
      pursuant to the terms of this  Agreement,  any  Preferred  Share,  any Put
      Option or the Warrant, the Common Stock will be quoted on NASDAQ or listed
      and registered on a national securities exchange (as defined in the United
      States Securities Exchange Act of 1934, as amended (the "Exchange Act")).

                  h.    Shaman is a  Reporting  Issuer  within the  meaning of
      Regulation S.

                  i. There is no pending  or, to the best  knowledge  of Shaman,
      threatened  action,  suit,  proceeding or investigation  before any court,
      governmental agency or body, or arbitrator having jurisdiction over Shaman
      or any of its  affiliates  that would  materially  affect the execution by
      Shaman of, or the  performance by Shaman of its  obligations  under,  this
      Agreement,  provided,  however,  that the  representations  and warranties
      contained in this  Section 3(i) shall not apply to any action,  threatened
      action, suit, proceeding or investigation  initiated by Fletcher and shall
      not be required to be given in respect of any Preferred  Share  Conversion
      Date or Warrant Exercise Date.

                  j. None of Shaman's filings with the United States  Securities
      and Exchange  Commission  (the "S.E.C.") under the Securities Act or under
      Section  13(a) or 15(d) of the Exchange Act (each,  an "SEC  Filing"),  or
      press releases material to the business of Shaman as a whole,  contain any
      untrue  statement of a material  fact or omit to state any  material  fact
      necessary  in  order  to  make  the  statements,   in  the  light  of  the
      circumstances under which they were made, not misleading.

                  k. Since the date of Shaman's  most  recent SEC Filing,  there
      has not been, and Shaman is not aware of any development that might result
      in, any material adverse change in the condition,  financial or otherwise,
      or in the business affairs or business prospects of Shaman, whether or not
      arising in the ordinary  course of  business,  except as disclosed in such
      SEC Filing,  provided,  however,  that the  representations and warranties
      contained  in this  Section  3(k)  shall  not be  required  to be given in
      respect of any Preferred Share Conversion Date or Warrant Exercise Date.

                  l. The  offer and sale of the  Preferred  Shares,  the  Common
      Stock,  the Warrant and the  Warrant  Shares to Fletcher  pursuant to this
      Agreement  will,  subject to compliance  by Fletcher  with the  applicable
      representations and warranties  contained in Section 4 hereof and with the
      applicable covenants and agreements contained in Section 6 hereof, be made
      in accordance with the provisions and requirements of Regulation S and any
      applicable state law.

                  m.  Neither  Shaman nor any of its  affiliates  nor any person
      acting on its or their  behalf has engaged or will engage in any  Directed
      Selling  Efforts with respect to the Preferred  Shares,  the Common Stock,
      the Warrant or the Warrant  Shares,  and all such persons  understand  and
      have  complied  and  will  otherwise   comply  with  the  requirements  of
      Regulation S.


<PAGE>

                  n. The  transactions  contemplated  by this  Agreement are not
      part of a plan or scheme on the part of Shaman,  any of its  affiliates or
      any  person  acting  on its or  their  behalf  to evade  the  registration
      provisions of the Securities Act.

                  o. Shaman has not issued,  and after the Closing Date will not
      issue,  any  stop  transfer  order or other  order  impeding  the sale and
      delivery of the Preferred  Shares,  the Common  Stock,  the Warrant or the
      Warrant Shares issuable  hereunder except for a stop order restricting the
      sale of any of the foregoing securities to any person in the United States
      or to or  for  the  account  or  benefit  of any  U.S.  Person  during  an
      applicable  Restricted Period.  Notwithstanding  the foregoing  provision,
      Shaman shall place the following  legend on the  certificate  representing
      any security  issued  hereunder  prior to the expiration of the Restricted
      Period (as defined herein) applicable to such security:

            The securities  represented by this  certificate were issued on July
            26, 1996 (the "Original  Issue Date")  pursuant to the  Subscription
            Agreement dated July 25, 1996 between Shaman  Pharmaceuticals,  Inc.
            ("Shaman")  and  Fletcher   International  Limited.  The  securities
            represented by this  certificate  have not been registered under the
            Securities Act of 1933, as amended (the "Securities  Act"), and have
            been sold in reliance on the exemption from registration provided by
            Regulation S under the Securities Act ("Regulation S"). Prior to the
            expiration of a 40-day  restricted  period beginning on the Original
            Issue Date (the "Restricted Period"),  the securities represented by
            this certificate may not be offered or sold, directly or indirectly,
            within the United States (as defined in Regulation S under the Act),
            to a U.S.  Person (as defined in  Regulation S under the Act) or for
            the   account  or  benefit  of  a  U.S.   Person.   Neither   Shaman
            Pharmaceuticals,  Inc. nor its transfer  agent shall be obligated to
            remove  this  legend  unless it shall  have  received  an opinion of
            counsel stating that such removal  complies with the requirements of
            Regulation S (under the Act).

      provided, however, that as used in this Agreement and as reflected in such
      legend, the term "Restricted Period," with respect to any security,  shall
      mean the Restricted  Period then  applicable to such security  pursuant to
      Regulation S (or any applicable successor thereto).

                  p.  Neither  Shaman nor any of its  affiliates  has offered to
      sell  or  sold  any  Common  Stock  or  any   securities   convertible  or
      exchangeable  into or  exercisable  for  Common  Stock  in  reliance  upon
      Regulation  S at any time  during  the past 12  months;  and  there are no
      outstanding  convertible or exchangeable securities that have been offered
      or sold in reliance upon  Regulation  S, except,  in each case the Warrant
      and the Preferred Shares sold pursuant hereto.


<PAGE>

                  q. (i) If, any time  after the date  hereof,  the  S.E.C.  has
      reinterpreted  Regulation  S or  has  promulgated,  or the  United  States
      Congress has legislated, a successor or revision to Regulation S, and such
      reinterpretation,  successor  provision  or revision  imposes a Restricted
      Period  applicable to any security  issued or issuable  hereunder  that is
      greater  than  that in  effect  on the  date of this  Agreement,  or would
      materially  impair the ability of Fletcher  or any of its  affiliates  (as
      defined  in Rule  144(a)  under  the  Securities  Act) to  offer,  sell or
      otherwise  dispose  of any  such  security  pursuant  to  Regulation  S as
      contemplated hereby, or requires any such offer, sale or other disposition
      to be registered  under the Securities  Act, then upon the written request
      of Fletcher  (a  "Registration  Request"),  Shaman  shall,  as promptly as
      practicable  thereafter  and  at its  own  expense,  file  a  registration
      statement (the "Registration Statement") under the Securities Act covering
      the sale or resale of all such  securities  (each a  "Covered  Security");
      provided,  however,  that in no event  shall  Shaman be required to file a
      Registration  Statement or otherwise comply with a Registration Request to
      the extent that such  reinterpretation,  successor  provision  or revision
      imposes limitations on the offer, sale or other disposition of any Covered
      Security  by  Fletcher  pursuant  to  Regulation  S solely  as a result of
      Fletcher's  hedging or selling short such Covered  Security or engaging in
      any other activity the effect of which is to decrease or limit  Fletcher's
      investment risk with respect to such Covered Security in violation of such
      reinterpretation,   successor   provision  or   revision.   Prior  to  the
      effectiveness of such Registration Statement, Shaman shall not be entitled
      to exercise any Put Option under this Agreement. Upon the effectiveness of
      such  Registration  Statement  (A) Shaman shall issue such  securities  to
      Fletcher  in  accordance  with the terms  hereof,  (B) the  provisions  of
      Sections 3(l), (m) and (o), 4(e),  (f), (g), (h), (i) and (j), 5(a),  (b),
      (c) and (d), 6(a) (collectively, the "Specified Provisions"), 7(a) and (b)
      (to the extent applicable to the Specified Provisions),  8(b), (c) and (d)
      (to the extent applicable to the Specified Provisions) shall thereafter be
      of no force and  effect  with  respect  to the  issuance  of such  Covered
      Securities  and (C) the provision  that not more than one Put Option shall
      be exercisable within any six-month period shall be of no further force 
      and effect, and with respect to any Put Options outstanding at that time, 
      not more than one such Put  Option  shall  be  exercisable  within  any 50
      Trading  Day  period and no such Put Option  shall be  exercisable  to the
      extent that (i) the number of shares of Common Stock  issuable to Fletcher
      pursuant to such Put Option plus (ii) the number of shares of Common Stock
      issued to Fletcher during the  immediately  preceding 365 days pursuant to
      any Put  Option  plus  (iii)  the total  number of shares of Common  Stock
      issuable to Fletcher pursuant to the Preferred Shares (whether or not such
      Preferred  Shares  have been  converted)  plus  (iv) the  total  number of
      Warrant Shares issuable to Fletcher pursuant to the Agreement  (whether or
      not such Warrant Shares have then been issued),  would equal or exceed 10%
      of the number of shares of Common  Stock  outstanding  on the relevant Put
      Option Exercise Date (including  common stock issuable under (iii) or (iv)
      above),  provided,  however,  that, if such Registration Statement has not
      been  declared  effective  before the 180th day following the date of such
      Registration  Request,  then (X) any Put  Options  outstanding  under this
      Agreement   shall   immediately   expire  and  shall  not   thereafter  be
      exercisable,  and Fletcher shall have no further liability whatsoever with
      respect  thereto 

<PAGE>

     and (Y)  Shaman  shall  use its best  efforts  to cause  such  Registration
     Statement to become effective as  promptly as  practicable  in respect of
     any outstanding portion of the securities the sale or resale of which is 
     required to be so registered.  

                    (ii) In the  case of the  registration  effected  by  Shaman
      pursuant to this Section 3(q) registration provisions, Shaman will use its
      best efforts to: (i) keep such registration effective until the earlier of
      (A) the third  anniversary of the issuance of each Covered  Security,  (B)
      such date as all of the Covered  Securities  have been sold by Fletcher or
      (C) such time as all of the Covered  Securities  held by  Fletcher  can be
      sold by  Fletcher  or any of its  affiliates  (within  the meaning of Rule
      144(a) under the Securities Act) within a given three-month period without
      compliance  with  the  registration  requirements  of the  Securities  Act
      pursuant to Rule 144 under the Securities  Act ("Rule 144");  (ii) prepare
      and  file  with  the  S.E.C.   such  amendments  and  supplements  to  the
      Registration  Statement and the  prospectus  used in  connection  with the
      Registration  Statement (as so amended and supplemented from time to time,
      the "Prospectus") as may be necessary to comply with the provisions of the
      Securities Act with respect to the  disposition of all Covered  Securities
      by  Fletcher or any of its  affiliates  (within the meaning of Rule 144(a)
      under the Securities  Act);  (iii) furnish such number of Prospectuses and
      other documents incident thereto, including any amendment of or supplement
      to the Prospectus,  as Fletcher from time to time may reasonably  request;
      (iv) cause all Covered  Securities  that are Common  Stock to be listed on
      each  securities  exchange and quoted on each  quotation  service on which
      similar securities issued by Shaman are then listed or quoted; (v) provide
      a transfer  agent and  registrar  for all Covered  Securities  and a CUSIP
      number for all Covered Securities;  (vi) otherwise use its best efforts to
      comply with all applicable rules and regulations of the S.E.C.;  and (vii)
      file the  documents  required of Shaman and otherwise use its best efforts
      to  obtain  and  maintain   requisite   blue  sky  clearance  in  (A)  all
      jurisdictions  in which any of the Covered  Securities are originally sold
      and (B) all other states specified in writing by Fletcher,  provided as to
      clause (B),  however,  that Shaman  shall not be required to qualify to do
      business  or consent to service of process in any state in which it is not
      now so qualified or has not so consented.

                   (iii)  Shaman  shall  furnish  to  Fletcher  upon  request  a
      reasonable  number of copies of a  supplement  to or an  amendment of such
      Prospectus as may be necessary in order to  facilitate  the public sale or
      other  disposition of all or any of the Covered  Securities by Fletcher or
      any of its  affiliates  (within  the  meaning  of Rule  144(a)  under  the
      Securities Act); pursuant to the Registration Statement.

                    (iv) With a view to making  available  to  Fletcher  and its
      affiliates  (within the meaning of Rule 144(a) under the  Securities  Act)
      the  benefits of Rule 144 and Form S-3 under the  Securities  Act,  Shaman
      covenants  and  agrees to: (i) make and keep  available  adequate  current
      public information  (within the meaning of Rule 144(c)) concerning Shaman,
      until the  earlier of (A) the third  anniversary  of the  issuance of each
      Covered  Security of (B) such date as all of the Covered  Securities shall

<PAGE>

      have been resold by Fletcher or any of its affiliates  (within the meaning
      of Rule 144(a) under the  Securities  Act);  (ii) maintain its status as a
      Reporting  Issuer and file with the S.E.C.  in a timely manner all reports
      and other  documents  required  of Shaman  for use of Form S-3;  and (iii)
      furnish to Fletcher  upon  request,  as long as Fletcher  owns any Covered
      Securities (A) a written statement by Shaman that it has complied with the
      reporting  requirements  of the Securities Act and the Exchange Act, (B) a
      copy of the most recent annual or quarterly report of Shaman, and (C) such
      other  information  as may be  reasonably  requested  in  order  to  avail
      Fletcher and its  affiliates  (within the meaning of Rule 144(a) under the
      Securities  Act) of Rule  144 or Form  S-3 with  respect  to such  Covered
      Securities.

                     (v) Notwithstanding anything else in this Section 3(q), if,
      at any time during  which a  Prospectus  is required  to be  delivered  in
      connection with the sale of any Covered  Securities,  Shaman determines in
      good faith that a  development  has  occurred or a  condition  exists as a
      result of which the  Registration  Statement or the Prospectus  contains a
      material misstatement or omission, Shaman will immediately notify Fletcher
      thereof by telephone  and in writing.  Upon receipt of such  notification,
      Fletcher and its  affiliates  (within the meaning of Rule 144(a) under the
      Securities  Act) will  immediately  suspend  all  offers  and sales of any
      Covered Securities pursuant to the Registration  Statement. In such event,
      Shaman will amend or supplement the Registration  Statement as promptly as
      practicable  and will take such other  steps as may be  required to permit
      sales of the Covered Securities  thereunder by Fletcher and its affiliates
      (within the meaning of Rule 144(a) under the Securities Act) in accordance
      with applicable  federal and state securities  laws.  Shaman will promptly
      notify Fletcher after it has determined in good faith that such sales have
      become  permissible in such manner and will promptly deliver copies of the
      Registration  Statement and the Prospectus (as so amended or supplemented)
      to  Fletcher in  accordance  with  paragraph  (ii) of this  Section  3(q).
      Notwithstanding the foregoing,  (A) under no circumstances shall Shaman be
      entitled to exercise its right to suspend sales of any Covered  Securities
      pursuant  to  the  Registration  Statement  more  than  two  times  in any
      twelve-month  period,  (B) the  period  during  which  such  sales  may be
      suspended (each a "Blackout  Period") shall not exceed thirty days and (C)
      no  Blackout  Period may  commence  less than 30 days after the end of the
      preceding Blackout Period.

                  Upon the  commencement  of a Blackout  Period pursuant to this
      Section 3(q),  Fletcher will immediately notify Shaman of any contracts to
      sell any Covered Securities (each a "Sales Contract") that Fletcher or any
      of its affiliates  (within the meaning of Rule 144(a) under the Securities
      Act) has entered into prior to the  commencement  of such Blackout  Period
      and that would  require  delivery of such Covered  Securities  during such
      Blackout  Period,  which notice will contain the aggregate  sale price and
      volume of Covered Securities pursuant to such Sales Contract. Upon receipt
      of such notice,  Shaman will  immediately  notify Fletcher of its election
      either  (i)  to  terminate  the  Blackout   Period  and,  as  promptly  as
      practicable,  amend  or  supplement  the  Registration  Statement  or  the
      Prospectus in order to correct the material  misstatement  or omission and

<PAGE>

      deliver to Fletcher  copies of such amended or  supplemented  Registration
      Statement and Prospectus in accordance with paragraph (ii) of this Section
      3(q) or (ii) to  continue  the  Blackout  Period in  accordance  with this
      paragraph.  If Shaman elects to continue the Blackout Period, and Fletcher
      or any of its  affiliates  (within the  meaning of Rule  144(a)  under the
      Securities  Act) is  therefore  unable to  consummate  the sale of Covered
      Securities  pursuant to the Sales Contract (such unsold Covered Securities
      being hereinafter referred to herein as the "Unsold  Securities"),  Shaman
      will promptly  indemnify each Fletcher  Indemnified Party (as such term is
      defined in Section 11(a) below)  against any  Proceeding  (as such term is
      defined in Section 11(a) below) that each Fletcher  Indemnified  Party may
      incur arising out of or in connection  with  Fletcher's  breach or alleged
      breach  of any such  Sales  Contract,  and  Shaman  shall  reimburse  each
      Fletcher Indemnified Party for any reasonable costs or expenses (including
      reasonable  legal  fees)  incurred  by  such  party  in  investigating  or
      defending  any  such  Proceeding   (collectively,   the   "Indemnification
      Amount");  provided,  however,  that each Fletcher Indemnified Party shall
      take all actions  reasonably  necessary or  appropriate  to mitigate  such
      Indemnification   Amount;   and  provided  further,   however,   that  the
      Indemnification  Amount  shall be reduced by an amount equal to the number
      of Unsold Securities  multiplied by the difference  between (x) the actual
      per share price received by Fletcher or any of its affiliates  (within the
      meaning  of Rule  144(a)  under the  Securities  Act) upon the sale of the
      Unsold  Securities  (if such sale occurs  within three Trading Days of the
      end of the Blackout  Period) or the closing sale price of the Common Stock
      on NASDAQ or other national  securities exchange on which the Common Stock
      is then  listed on the  third  Trading  Day after the end of the  Blackout
      Period (if the Unsold  Securities  are not sold by  Fletcher or any of its
      affiliates  (within the meaning of Rule 144(a) under the  Securities  Act)
      within three Trading Days of the end of the Blackout Period),  and (y) the
      per share  sale  price for the  Unsold  Securities  provided  in the Sales
      Contract.

            4.    Representations   and   Warranties  of  Fletcher.   Fletcher
hereby represents and warrants to Shaman as follows:

                  a.    Fletcher  has been duly  incorporated  and is  validly
      existing in good standing under the laws of the Cayman Islands.

                  b. This  Agreement  has been  duly  authorized,  executed  and
      delivered by Fletcher and, when duly authorized, executed and delivered by
      Shaman, will be a valid and binding agreement enforceable against Fletcher
      in  accordance  with  its  terms,   subject  to  bankruptcy,   insolvency,
      fraudulent  transfer,  reorganization,  moratorium  and  similar  laws  of
      general applicability relating to or affecting creditors' rights generally
      and to general principles of equity.

                  c.    Fletcher  understands that no United States federal or
      state  agency has  passed on,  reviewed  or made any  recommendation  or
      endorsement of the Preferred  Shares,  the Common Stock,  the Warrant or
      the Warrant Shares;


<PAGE>

                  d. In making the  decision to purchase the  Preferred  Shares,
      the Common Stock,  the Warrant and the Warrant  Shares in accordance  with
      this Agreement, Fletcher has relied solely upon independent investigations
      made by it and not upon any  representations  made by  Shaman  other  than
      those made pursuant to this Agreement.

                  e. Fletcher  understands that the Preferred Shares, the Common
      Stock,  the Warrant  and the Warrant  Shares have not been and will not be
      registered  under the  Securities  Act and may not be  reoffered or resold
      other  than  pursuant  to  such  registration  or an  available  exemption
      therefrom.

                  f.  Fletcher  is not a U.S.  Person and is not  acquiring  the
      Preferred Shares,  the Common Stock, the Warrant or any Warrant Shares for
      the  account  or  benefit  of any  U.S.  Person,  and  Fletcher  is not an
      affiliate  (within  the meaning of Rule 144 under the  Securities  Act) of
      Shaman.

                  g. At the time the buy orders for the Preferred Shares and the
      Warrant  (and any  Common  Stock and  Warrant  Shares  issued  during  the
      applicable  Restricted  Period)  were  originated,  Fletcher  was  located
      outside the United States.

                  h.  Neither  Fletcher  nor any of its  affiliates  nor  anyone
      acting on its or their  behalf has engaged or will engage in any  Directed
      Selling  Efforts with respect to the Preferred  Shares,  the Common Stock,
      the Warrant or any Warrant  Shares,  and all such persons  understand  and
      have  complied  and  will  otherwise   comply  with  the  requirements  of
      Regulation S.

                  i.    Fletcher:

                        (1) will not, during the Restricted Period applicable to
            the Preferred Shares,  the Common Stock, the Warrant and the Warrant
            Shares,  offer or sell any of the foregoing securities (or create or
            maintain any derivative  position  equivalent thereto) in the United
            States,  to or for the account or benefit of a U.S.  Person or other
            than in accordance with Regulation S; and

                        (2)  will,   after  the  expiration  of  the  applicable
            Restricted  Period,  offer,  sell, pledge or otherwise  transfer the
            Preferred  Shares,  the Common  Stock,  the  Warrant or any  Warrant
            Shares (or create or maintain  any  derivative  position  equivalent
            thereto) only pursuant to  registration  under the Securities Act or
            an available  exemption  therefrom  and, in any case,  in accordance
            with applicable state securities laws.

                  j. Fletcher is purchasing  the Preferred  Shares,  the Warrant
      and the Warrant Shares for its own account,  for the purpose of investment
      and not with a view to a distribution thereof.


<PAGE>

                  k. The  transactions  contemplated  by this  Agreement are not
      part of a plan or scheme on the part of Fletcher, any of its affiliates or
      any  person  acting  on its or  their  behalf  to evade  the  registration
      requirements of the Securities Act.

            5.    Covenants  of  Shaman.  Shaman  covenants  and  agrees  with
Fletcher as follows:

                  a. For so long as any Preferred Share is outstanding or any of
      the Put  Options  have not been  exercised  or any  portion of the Warrant
      remains  outstanding,  and  in  either  case  for  a  period  of  40  days
      thereafter,  Shaman  will  continue to be a  Reporting  Issuer  within the
      meaning of  Regulation S and will maintain the  eligibility  of the Common
      Stock for quotation on NASDAQ or listing on a national securities exchange
      (as defined in the Exchange Act).

                  b. For so long as any Preferred Share is outstanding or any of
      the Put  Options  have not been  exercised  or any  portion of the Warrant
      remains  outstanding,  and in  either  case  for a  period  of six  months
      thereafter,  Shaman  will  not  offer  or sell  any  Common  Stock  or any
      securities  convertible into or exchangeable into Common Stock in reliance
      upon Regulation S.

                  c. For so long as any Preferred Share is outstanding or any of
      the Put  Options  have not been  exercised  or any  portion of the Warrant
      remains  outstanding,  and  in  either  case  for  a  period  of  40  days
      thereafter, neither Shaman nor any of its affiliates nor any person acting
      on its or their  behalf will engage in any Directed  Selling  Efforts with
      respect to the Preferred Shares,  the Common Stock, the Warrant or Warrant
      Shares.

                  d. For so long as any Preferred Share is outstanding or any of
      the Put  Options  have not been  exercised  or any  portion of the Warrant
      remains  outstanding,  and  in  either  case  for  a  period  of  40  days
      thereafter,  Shaman will ensure that all applicable Offering  Restrictions
      with respect to the Preferred  Shares,  the Common Stock,  the Warrant and
      the Warrant Shares are thoroughly complied with and satisfied.

                  e.  Beginning  on the  date  hereof  and  for so  long  as any
      Preferred  Share is  outstanding  or any of the Put Options  have not been
      exercised or any portion of the Warrant remains outstanding, and in either
      case for a period  of 40 days  thereafter,  Shaman  will  promptly  notify
      Fletcher if (i) any event shall have occurred as a result of which any SEC
      Filing would  include an untrue  statement  of a material  fact or omit to
      state any material fact necessary in order to make the statements therein,
      in the  light  of the  circumstances  under  which  they  were  made,  not
      misleading, or (ii) there is any public disclosure of material information
      regarding  Shaman or its  financial  condition  prospects  or  results  of
      operation.

                  f. At any time after the expiration of any  Restricted  Period
      with respect to the Preferred Shares, the Common Stock, the Warrant or any

<PAGE>

      Warrant Shares, upon the request of Fletcher  accompanied by an opinion of
      Rogers & Wells (or such other counsel as shall be reasonably  satisfactory
      to Shaman and its transfer  agent (if any)) to the effect that the removal
      of the legend  referred to in Section 4(o) would then be  permitted  under
      Regulation S and that the resale of any such securities  would not require
      registration  under the Securities  Act,  Shaman shall, or shall cause its
      transfer agent (if any) to, accept from Fletcher the legended certificates
      representing  such  securities  and  deliver  in  their  place  unlegended
      certificates therefor.

                  g. Shaman will comply with the terms and conditions of the Put
      Option  and the  Warrant  as set  forth  in  Annex A and  Annex B  hereto,
      respectively  (as duly amended  from time to time by the parties  hereto),
      and when issued, each Preferred Share will be substantially in the form of
      Annex C hereto.

                  h. For so long as any Preferred Share is outstanding or any of
      the Put  Options  have not been  exercised  or any  portion of the Warrant
      remains outstanding, Shaman shall at all times reserve and keep available,
      free from  pre-emptive  rights,  out of its authorized but unissued Common
      Stock,  for issuance upon conversion of such Preferred Shares and exercise
      of such Put Options and  Warrant,  the maximum  number of shares of Common
      Stock then so issuable.

            6.    Covenants of Fletcher.  Fletcher hereby covenants and agrees
with Shaman as follows:

                  a. During any  Restricted  Period  applicable to the Preferred
      Shares,  the Common  Stock,  the  Warrant or the Warrant  Shares,  neither
      Fletcher nor any of its  affiliates  nor any person acting on its or their
      behalf will:

                        (1) offer or sell such Preferred  Shares,  Common Stock,
            Warrant or the Warrant Shares other than in an Offshore Transaction;

                        (2)   engage  in any  Directed  Selling  Efforts  with
            respect  to  such  Preferred  Shares,  Common  Stock,  Warrant  or
            Warrant Shares;

                        (3) offer or sell such Preferred  Shares,  Common Stock,
            Warrant or Warrant  Shares other than:  (A) in accordance  with Rule
            903 or Rule 904 of Regulation S; (B) pursuant to registration  under
            the  Securities  Act  or  (C)  pursuant  to an  available  exemption
            therefrom; and

                        (4)   offer  or sell  such  Preferred  Shares,  Common
            Stock,  Warrant  or Warrant  Shares to any U.S.  Person or for the
            account or benefit of any U.S. Person.

        
<PAGE>

   7.    Conditions   Precedent  to   Fletcher's   Obligations.   The
obligations of Fletcher  hereunder are subject to the performance by Shaman of
its obligations  hereunder and to the satisfaction of the following additional
conditions precedent:

                  a. The  representations  and warranties made by Shaman in this
      Agreement shall,  unless expressly waived in writing by Fletcher,  be true
      and correct on the date hereof,  on the Closing  Date,  on each  Preferred
      Share  Conversion  Date,  on each Put Option  Exercise Date (as defined in
      Annex A hereto) and on each Warrant  Exercise  Date (as defined in Annex B
      hereto),  and Fletcher shall have received on each such date a certificate
      of the Chief Executive  Officer and the Chief Financial  Officer of Shaman
      dated such date and to such effect.

                  b. On the Closing Date,  on each  Preferred  Share  Conversion
      Date, on each Put Option  Exercise Date (as defined in Annex A hereto) and
      on each Warrant  Exercise Date (as defined in Annex B hereto) Shaman shall
      have   delivered  to  Fletcher  an  opinion  of  its  counsel   reasonably
      satisfactory  to  Fletcher,  dated  the date of  delivery,  confirming  in
      substance the matters  covered in paragraphs (a), (b), (c), (d), (e), (f),
      (g),  (h) and (i) of  Section 3 hereof;  provided,  however,  that no such
      opinion  delivered in respect of any Preferred  Share  Conversion  Date or
      Warrant  Exercise Date shall be required to cover the matters set forth in
      paragraph (i) of Section 3 hereof.

                  c. On any Put Option Exercise Date,  Fletcher's  obligation to
      purchase  any  shares of Common  Stock  hereunder  shall be subject to the
      additional  condition  that during the five (5) Business  Days (as defined
      below)  immediately  preceding such Put Option Exercise Date, Shaman shall
      not have made any SEC Filing or issued any press  release  describing  and
      shall not be aware of any material adverse change, or any development that
      might result in any material  adverse changes in the condition,  financial
      or otherwise,  or in the business affairs or business prospects of Shaman,
      whether  or not  arising in the  ordinary  course or  business;  provided,
      however,  that if on any Put Option  Exercise Date such  condition has not
      been  satisfied,  such Put Option  Exercise Date and each  subsequent  Put
      Option Exercise Date and the Put Option  Termination  Date hereunder shall
      be  postponed  by  five  (5)  Business  Days  for  all  purposes  of  this
      Subscription  Agreement as if such fifth (5th) Business Day had originally
      been specified as such Put Option Exercise Date or Put Option  Termination
      Date, as the case may be; and provided further,  however, that if, on such
      fifth (5th)  Business Day, such  condition has not been  satisfied,  there
      shall be no further postponement of such Put Option Exercise Date.

            As used herein the term  "Business Day" means any day on which banks
in The City of New York are open for business.

            8.    Conditions   Precedent   to   Shaman's   Obligations.    The
obligations of Shaman  hereunder are subject to the performance by Fletcher of
its obligations  hereunder and to the satisfaction of the following additional
conditions precedent:


<PAGE>

                  a. The representations and warranties made by Fletcher in this
      Agreement shall, unless expressly waived in writing by Shaman, be true and
      correct as of the date  hereof,  on the Closing  Date,  on each  Preferred
      Share  Conversion  Date,  on each  Put  Option  Exercise  Date and on each
      Warrant  Exercise Date, and Shaman shall have received on each such date a
      certificate of the Chief Financial Officer of Fletcher dated such date and
      to such effect.

                  b. On the  Closing  Date,  Fletcher  shall have  delivered  to
      Shaman a legal opinion of Rogers & Wells,  counsel to Fletcher,  dated the
      date of delivery stating that:

                     (i)      Fletcher is not a U.S. Person; and

                    (ii) The  offer  and sale of the  Preferred  Shares  and the
      Warrant  by Shaman  to  Fletcher  on the  Closing  Date  does not  require
      registration under the Securities Act;

                  c. On each Preferred  Share  Conversion  Date,  Fletcher shall
      have  delivered  to Shaman a legal  opinion of Rogers & Wells,  counsel to
      Fletcher, dated the date of delivery, stating that:

                     (i)      Fletcher is not a U.S. Person; and

                    (ii) the  offer and sale of the  Common  Stock  issuable  by
      Shaman to Fletcher on such date does not  require  registration  under the
      Securities Act.

                  d.  On  each  Warrant  Exercise  Date,   Fletcher  shall  have
      delivered  to  Shaman  a legal  opinion  of  Rogers &  Wells,  counsel  to
      Fletcher, dated the date of delivery, stating that:

                     (i)      Fletcher is not a U.S. Person; and

                    (ii) the offer and sale of the  Warrant  Shares  issuable by
      Shaman to Fletcher on such date does not  require  registration  under the
      Securities Act.

                  e. On the date of any  transfer by  Fletcher of any  Preferred
      Share or the Warrant or any Common Stock during the applicable  Restricted
      Period,  Fletcher shall have delivered to Shaman or its transfer agent, as
      the case may be, a legal opinion of Rogers & Wells, dated the date of such
      transfer,  stating that such transfer  complies with the  requirements  of
      Regulation S.

            9.    Fees and  Expenses.  Each of Fletcher  and Shaman  agrees to
pay  its  own  expenses   incident  to  the  performance  of  its  obligations
hereunder,   including,   but  not   limited  to,  the  fees,   expenses   and
disbursements of such party's counsel.

        
<PAGE>

           10.   Non-Performance.

                  a. If,  on the  Closing  Date or any  portion  of the  Warrant
      Exercise Date (as defined in Annex B hereto), Shaman shall fail to deliver
      the Preferred Shares,  Warrant Shares or Common Stock to Fletcher required
      to be delivered  pursuant to this  Agreement for any reason other than the
      failure of any condition  precedent to Shaman's  obligations  hereunder or
      the failure by Fletcher to comply  with its  obligations  hereunder,  then
      Shaman shall:

                        (1) hold Fletcher  harmless  against any loss,  claim or
            damage arising from or as a result of such failure by Shaman; and

                        (2)  reimburse  Fletcher  for  all of its  out-of-pocket
            expenses,  including fees and disbursements of its counsel, incurred
            by Fletcher in connection  with this Agreement and the  transactions
            contemplated herein;

provided,  however,  that  Shaman  shall then be under no further  liability  to
Fletcher except as provided in this Section 10 and Section 11 hereof.

                  b. If, on the Closing  Date or any Put Option  Exercise  Date,
      Fletcher shall fail to purchase the Preferred  Shares,  the Warrant or any
      Common Stock  required to be purchased  pursuant to this Agreement for any
      reason other than the failure of any  condition  precedent  to  Fletcher's
      obligations  hereunder  or the  failure  by  Shaman  to  comply  with  its
      obligations hereunder, then Fletcher shall:

                        (1)   hold Shaman harmless  against any damage arising
            from or as a result of such failure by Fletcher;

                        (2)  reimburse  Shaman  for  all  of  its  out-of-pocket
            expenses,  including fees and disbursements of its counsel, incurred
            by Shaman in connection  with this  Agreement  and the  transactions
            contemplated herein; and

                        (3)   surrender   to  Shaman  for   cancellation   any
            portion of the  Warrant  not  exercised  prior to the date of such
            default by Fletcher;

provided,  however,  that Fletcher  shall then be under no further  liability to
Shaman except as provided in this Section 10 and Section 11 hereof.

            11.   Indemnification.

                  a.  Indemnification  of  Fletcher.  Shaman  hereby  agrees  to
      indemnify Fletcher and each of its officers, directors,  employees, agents
      and  affiliates  and each  person  that  controls  (within  the meaning of
      Section 20 of the Securities  Exchange Act of 1934, as amended) any of the
      foregoing persons (each a "Fletcher Indemnified Party") against any claim,

<PAGE>

      demand,  action,  liability,  damages,  loss, cost or expense  (including,
      without limitation,  reasonable legal fees) (a "Proceeding"),  that it may
      incur in  connection  with  any of the  transactions  contemplated  hereby
      arising out of or based upon:

                        (1) any untrue or alleged untrue statement of a material
            fact by Shaman or any of its  affiliates or any person acting on its
            or their behalf or omission or alleged  omission by Shaman or any of
            its  affiliates or any person acting on its or their behalf to state
            any material fact necessary in order to make the statements,  in the
            light  of  the  circumstances   under  which  they  were  made,  not
            misleading;

                        (2)   any of the  representations  or warranties  made
            by Shaman herein being untrue or incorrect; and

                        (3)   any breach or  non-performance  by Shaman of any
            of its covenants, agreements or obligations under this Agreement;

      and Shaman hereby agrees to reimburse each Fletcher  Indemnified Party for
      any  reasonable  legal  or  other  expenses   incurred  by  such  Fletcher
      Indemnified Party in investigating or defending any such Proceeding;

      provided,  however,  that the foregoing  indemnity  shall not apply to any
      Proceeding  to the extent that it arises out of or is based upon the gross
      negligence of Fletcher in connection therewith.

                  b.  Indemnification  of  Shaman.  Fletcher  hereby  agrees  to
      indemnify Shaman and each of its officers,  directors,  employees,  agents
      and  affiliates  and each  person  that  controls  (within  the meaning of
      Section 20 of the Securities  Exchange Act of 1934, as amended) any of the
      foregoing  persons  (each  a  "Shaman   Indemnified  Party")  against  any
      Proceeding,  that it may incur in connection with any of the  transactions
      contemplated hereby arising out of or based upon:

                        (1) any untrue or alleged untrue statement of a material
            fact by Fletcher or any of its  affiliates  or any person  acting on
            its or their  behalf or omission or alleged  omission by Fletcher or
            any of its affiliates or any person acting on its or their behalf to
            state any material fact  necessary in order to make the  statements,
            in the light of the  circumstances  under which they were made,  not
            misleading;

                        (2)   any of the  representations  or warranties  made
            by Fletcher herein being untrue or incorrect; and

                        (3)   any breach or  non-performance  by  Fletcher  of
            any  of  its  covenants,  agreements  or  obligations  under  this
            Agreement;


<PAGE>

      and Fletcher hereby agrees to reimburse each Shaman  Indemnified Party for
      any reasonable legal or other expenses incurred by such Shaman Indemnified
      Party in investigating or defending any such Proceeding;

      provided,  however,  that the foregoing  indemnity  shall not apply to any
      Proceeding  to the extent that it arises out of or is based upon the gross
      negligence of Shaman in connection therewith.

                  c.    Conduct of Claims.

                        (1)  Whenever a claim for  indemnification  shall  arise
            under  this  Section,   the  party  seeking   indemnification   (the
            "Indemnified  Party"),   shall  notify  the  party  from  whom  such
            indemnification is sought (the  "Indemnifying  Party") in writing of
            the Proceeding and the facts  constituting  the basis for such claim
            in reasonable detail;

                        (2) Upon delivery of such notice, such Indemnified Party
            shall  have a duty to take  all  reasonable  steps to  mitigate  any
            losses,  liabilities,  costs,  charges and expenses  relating to any
            such Proceeding;

                        (3) Such  Indemnifying  Party  shall  have the  right to
            retain the counsel of its choice in connection  with such Proceeding
            and to  participate  at its own  expense in the  defense of any such
            Proceeding;  provided,  however,  that  counsel to the  Indemnifying
            Party shall not (except with the consent of the relevant Indemnified
            Party) also be counsel to such Indemnified  Party. In no event shall
            the Indemnifying  Party be liable for fees and expenses of more than
            one counsel (in addition any local  counsel)  separate  from its own
            counsel  for all  Indemnified  Parties  in  connection  with any one
            action or  separate  but  similar  or  related  actions  in the same
            jurisdiction   arising  out  of  the  same  general  allegations  or
            circumstances; and

                        (4) No  Indemnifying  Party  shall,  without  the  prior
            written consent to the Indemnified  Parties (which consent shall not
            be  unreasonably  withheld),  settle or compromise or consent to the
            entry  of  any  judgment  with  respect  to any  litigation,  or any
            investigation  or  proceeding  by any  governmental  agency or body,
            commenced or threatened, or any claim whatsoever in respect of which
            indemnification  could be sought  under  this  Section  unless  such
            settlement,  compromise  or consent (A)  includes  an  unconditional
            release of each Indemnified  Party from all liability arising out of
            such litigation, investigation, proceeding or claim and (B) does not
            include a statement as to or an admission of fault, culpability or a
            failure to act by or on behalf of any Indemnified Party.

            12. Survival of the Representations, Warranties, etc. The respective
representations,  warranties and  agreements  made herein by or on behalf of the

<PAGE>

parties  hereto  shall  remain  in full  force  and  effect,  regardless  of any
investigation  made by or on behalf of the other party to this  Agreement or any
officer,  director or employee of, or person controlling or under common control
with,  such party and will  survive  delivery of and  payment for the  Preferred
Shares, the Warrant and any Common Stock issuable hereunder.

            13.   Notices.  All communications  hereunder shall be in writing,
and

                  a.    if sent to Fletcher,  shall be delivered by hand, sent
      by registered  mail or transmitted by telecopy and confirmed to Fletcher
      at:

                  Fletcher International Limited
                  c/o Midland Bank Trust Corporation (Cayman) Limited
                  P.O. Box 1109, Mary Street
                  Grand Cayman, Cayman Islands
                  British West Indies
                  Telephone:  (809) 949-7755
                  Facsimile:  (809) 949-7634

                  with a copy to:

                  Rogers & Wells
                  200 Park Avenue
                  New York, NY 10166
                  Attention:  Lucien A. Moolenaar III
                  Telephone:  (212) 878-8000
                  Facsimile:  (212) 878-8375

                  b.    if sent to Shaman,  shall be delivered  by hand,  sent
      by registered  mail or  transmitted  by telecopy and confirmed to Shaman
      at:

                  Shaman Pharmaceuticals, Inc.
                  213 East Grand Avenue
                  South San Francisco, CA 94080
                  Attention:  President and Chief Executive Officer
                  Telephone:  (415) 952-7070
                  Telefax number: (415) 873-8367


<PAGE>

                  with a copy to:

                  Brobeck, Phleger & Harrison LLP
                  Two Embarcadero Place
                  2200 Geng Road
                  Palo Alto, CA 94303
                  Attention:  J. Stephan Dolezalek
                  Telephone:  (415) 496-2842
                  Telefax number: (415) 496-2736


            14.   Miscellaneous.

                  a. This Agreement may be executed in one or more  counterparts
      and it is not necessary that  signatures of all parties appear on the same
      counterpart,  but such counterparts  together shall constitute but one and
      the same agreement.

                  b. This Agreement shall inure to the benefit of and be binding
      upon the parties hereto, their respective  successors and, with respect to
      Section 11 hereof,  their respective  officers,  directors and affiliates,
      and no other person shall have any right or obligation hereunder.

                  c. This  Agreement  shall be  governed  by, and  construed  in
      accordance  with,  the internal laws of the State of New York, and each of
      the parties hereto hereby submits to the non-exclusive jurisdiction of any
      State or Federal  court in the Borough of  Manhattan in the City and State
      of New York and any court  hearing  any appeal  therefrom,  over any suit,
      action  or  proceeding  against  it  arising  out of or  based  upon  this
      Agreement  (a "Related  Proceeding").  Each of the parties  hereto  hereby
      waives any objection to any Related  Proceeding in such courts  whether on
      the  grounds of venue,  residence  or  domicile  or on the ground that the
      Related Proceeding has been brought in an inconvenient forum.

                  d. The provisions of this Agreement are severable,  and if any
      clause or provision hereof shall be held invalid, illegal or unenforceable
      in whole or in part, such invalidity or unenforceability  shall not in any
      manner affect any other clause or provision of this Agreement.

                  e. The  headings of the  sections of this  document  have been
      inserted for convenience of reference only and shall not be deemed to be a
      part of this Agreement.


<PAGE>

            15.   Time  of  Essence.  Time  shall  be of the  essence  in this
Agreement.

            IN WITNESS  WHEREOF,  the  parties  hereto  have duly  executed  and
delivered this Agreement, all as of the day and year first above written.

                          SHAMAN PHARMACEUTICALS, INC.

                        By:    /s/ Lisa A. Conte
                        Name:  Lisa A. Conte
                        Title: President and CEO


                         FLETCHER INTERNATIONAL LIMITED

                        By:    /s/ Alphonse Fletcher, Jr.
                        Name:  Alphonse Fletcher, Jr.
                        Title: CEO
<PAGE>



                                                                         ANNEX A




                             TERMS OF PUT OPTIONS
                   GRANTED BY FLETCHER INTERNATIONAL LIMITED
                        TO SHAMAN PHARMACEUTICALS, INC.


            The  Put   Options   granted  by  Fletcher   International   Limited
("Fletcher")  to  Shaman  Pharmaceuticals,   Inc.  ("Shaman")  pursuant  to  the
Subscription  Agreement  dated July 25, 1996  between  Fletcher  and Shaman (the
"Subscription Agreement"), including any additional Put Options granted pursuant
to Paragraph 4 hereof, shall have the terms and conditions set forth below.

            This  Annex A forms a part of the  Subscription  Agreement,  and the
following  terms and conditions are subject to the  representations,  warranties
and agreements and further provisions  contained in the Subscription  Agreement.
Unless otherwise  defined herein,  capitalized  terms used herein shall have the
meanings set forth in the Subscription Agreement.

            1.    Option to Sell

            Each  of the  Put  Options  granted  pursuant  to  the  Subscription
Agreement  shall  entitle  Shaman to sell to Fletcher and  obligate  Fletcher to
purchase  from  Shaman,   upon  the  terms  and  conditions  set  forth  in  the
Subscription  Agreement and herein, 200,000 newly issued shares of Common Stock,
subject to  adjustment  as  provided  in  Paragraph  4 hereof  (the "Put  Option
Amount"),  at the price per share (the "Put Option Price") computed as set forth
below.

            2.    Exercisable by Shaman

            The Put Options  shall be  exercisable  only by Shaman and only upon
the  terms  and  conditions  and  subject  to the  limitations  set forth in the
Subscription  Agreement and herein,  and the Put Options may not be transferred,
sold, pledged, assigned or otherwise disposed of to any person.

            3.    Certain Restrictions on Exercise

            (a) The Put Options shall be exercisable on any Trading Day (each, a
"Put Option Exercise Date") from but excluding  January 27,1997 to and including
July 28, 2000 (the "Put Option Termination Date");

     provided,  however that,  subject to the  provisions of Section 3(q) of the
Subscription Agreement, not more than one Put Option shall be exercisable within
any six-month period; and provided further, however, that no Put Option shall be

<PAGE>

exercisable  unless Shaman shall have  delivered to Fletcher on the relevant Put
Option  Exercise Date a  certificate  of the Chief  Executive  Officer and Chief
Financial  Officer of Shaman,  dated such Put Option  Exercise Date,  confirming
that  each  of  the  representations  and  warranties  made  by  Shaman  in  the
Subscription Agreement are true and correct as of such Put Option Exercise Date.
Notwithstanding anything to the contrary contained herein or in the Subscription
Agreement,  in no event shall any Put Option be  exercisable  to the extent that
(i) the number of shares of Common Stock  issuable to Fletcher  pursuant to such
Put Option plus (ii) the number of shares of Common Stock  previously  issued to
Fletcher  pursuant  to any Put Option  plus (iii) the total  number of shares of
Common Stock issuable to Fletcher  pursuant to the Preferred  Shares (whether or
not such Preferred  Shares have then been  converted) plus (iv) the total number
of Warrant Shares issuable to Fletcher pursuant to the Agreement (whether or not
such  Warrant  Shares have then been  issued),  would equal or exceed  2,677,500
shares. 

            (b) On any Put Option  Settlement Date (as defined  below),  the Put
Option  Price  payable by  Fletcher  shall be (i) 101  percent  of the  Weighted
Average Price (as hereinafter  defined) during the period (the "Original Pricing
Period") from but excluding the second Trading Day after the relevant Put Option
Exercise Date and to and including the * * * Day thereafter,  or (ii) if written
notice is given by  Fletcher  at any time  after  the  fifth day of any  Pricing
Period but prior to the end of such Pricing Period,  the Weighted  Average Price
(as hereinafter  defined) during the period (the "Adjusted Pricing Period") from
but  excluding  the * * * Day  prior to such  Put  Option  Exercise  Date to and
including such Put Option  Exercise Date.  "Weighted  Average Price" shall mean,
with respect to any specified time period,  the arithmetic  average of the daily
volume-weighted  average sale prices (rounded to the nearest tenth of a cent) of
the Shaman  Common  Stock on NASDAQ,  as  reported  by  Bloomberg  L.P.,  or, if
Bloomberg,  L.P. is not then reporting such  information,  any successor service
mutually agreed upon by Shaman and Fletcher. [* INDICATES THAT MATERIAL HAS BEEN
OMITTED AND CONFIDENTIAL TREATMENT HAS BEEN REQUESTED THEREFOR. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24b-2.]

            4.    Additional Put Options

     Fletcher  shall have the right (on the  Business Day  immediately  prior to
each Put Right Closing Date, as defined  below) to increase the  applicable  Put
Option  Amount to a maximum of 400,000  shares of Common  Stock or to reduce the
applicable Put Option Amount to a minimum of four times the average of the daily
volume of shares of Common Stock  traded on the Nasdaq  Stock Market  during the
applicable  Original Pricing Period or Adjusted Pricing Period,  as the case may
be. The excess,  if any, of the original Put Option  Amount over such  decreased
Put Option  Amount  shall be referred to herein as the  "Remaining  Shares".  If
Fletcher does reduce the Put Option Amount in one or more instances, Shaman will
receive that number of additional Put Options on a cumulative basis equal to the
total number of Remaining  Shares  divided by 200,000,  plus an  additional  Put
Option for any fractional remainder of the Remaining Shares (exercisable only to
the extent of the number of Remaining Shares in such fractional remainder).


<PAGE>

            5.    Certain Exercise Procedures

            On any Put Option Exercise Date, Shaman may exercise a Put Option by
delivering  notice  thereof to  Fletcher  in  accordance  with the  Subscription
Agreement.  On the second  Business  Day  following  (i) the end of the Original
Pricing  Period  or (ii) the  date on  which  Fletcher  exercises  its  right to
calculate the put option price using the Adjusted  Pricing  Period,  as the case
may be, or such  later date as shall be agreed by Shaman  and  Fletcher  (a "Put
Option Settlement Date"), Shaman shall issue to Fletcher the number of shares of
Common  Stock  equal to the Put Option  Amount  calculated  as  provided  herein
against  payment by Fletcher of the Put Option Price in New York Clearing  House
(next day) funds in accordance with the Subscription Agreement.

            6.    Expiration and Termination

            (a) Any Put Option  (including any  additional  Put Options  granted
pursuant  to  Paragraph  4  hereof)  that has not been  exercised  by  Shaman in
accordance with the terms of the Subscription  Agreement and hereof by 5:00 p.m.
(New York time) on the Put Option  Termination Date shall immediately expire and
not thereafter be  exercisable,  and Fletcher  shall have no further  obligation
whatsoever with respect to any such Put Option.


                                   

<PAGE>


      The Warrant  represented by this  certificate  was issued on July 26, 1996
      (the "Original Issue Date") pursuant to the  Subscription  Agreement dated
      July  25,  1996  between   Shaman   Pharmaceuticals,   Inc.  and  Fletcher
      International Limited. Neither the Warrant represented by this certificate
      nor the  securities  issuable  upon exercise  hereof have been  registered
      under the  Securities  Act of 1933,  as amended (the  "Act").  The Warrant
      represented  hereby  has  been  sold in  reliance  on the  exemption  from
      registration  provided by  Regulation  S under the Act  ("Regulation  S").
      Prior to the  expiration of a 40-day  restricted  period  beginning on the
      Original Issue Date (the "Restricted Period"),  the Warrant represented by
      this  certificate  may not be  exercised,  offered  or sold,  directly  or
      indirectly, within the United States (as defined in Regulation S under the
      Act),  to a U.S.  Person (as defined in Regulation S under the Act) or for
      the account or benefit of a U.S. Person.  Neither Shaman  Pharmaceuticals,
      Inc.  nor its  transfer  agent  shall be  obligated  to remove this legend
      unless it shall have  received  an opinion  of counsel  stating  that such
      removal complies with the requirements of Regulation S.



Warrant No. _________________                         550,000 Warrant Shares

                               WARRANT CERTIFICATE

                          SHAMAN PHARMACEUTICALS, INC.

            This  Warrant  Certificate  certifies  that  FLETCHER  INTERNATIONAL
LIMITED,  or registered  assigns,  is the registered  holder of one Warrant (the
"Warrant") expiring on the Termination Date (as defined below) to purchase up to
550,000 shares (the "Warrant Shares") of common stock, par value $.001 per share
(the "Common Stock"), of Shaman  Pharmaceuticals,  Inc., a Delaware  corporation
(the "Issuer"), at the Exercise Price (as defined below).

            The  Warrant  represented  hereby was  issued on July 26,  1996 (the
"Original  Issue Date")  pursuant to the  Subscription  Agreement dated July 25,
1996  (the   "Subscription   Agreement"),   between  the  Issuer  and   Fletcher
International Limited  ("Fletcher"),  and is subject to the terms and conditions
thereof.  Unless otherwise  defined herein,  capitalized terms used herein shall
have  the  meanings  set  forth  in the  Subscription  Agreement.  A copy of the
Subscription  Agreement  may be obtained by the  registered  holder  hereof upon
written request to the Issuer.

            The Warrant  represented hereby may be exercised on any Business Day
(a "Warrant  Exercise  Date") from but excluding the Original  Issue Date to and
including  July 25, 2002 (the  "Termination  Date").  The Warrant  entitles  the
registered  holder  hereof to receive  from the Issuer  upon  exercise up to the
number of Warrant  Shares set forth on the face  hereof upon  surrender  of this

<PAGE>

Warrant  Certificate  as  provided  on the  reverse  hereof  and  payment of the
Exercise Price defined below (the "Exercise  Price") (plus  transfer  taxes,  if
applicable) to the Issuer in cash or by certified or official bank check.

            The Exercise Price per Warrant Share shall be $10.184.

            The Warrant  represented hereby shall have the following  additional
terms:

1.    The Warrant  represented  hereby may be exercised upon surrender of this
      Warrant  Certificate  by the  registered  holder hereof to the Issuer at
      its  principal  office on any  Exercise  Date with the  Exercise  Notice
      attached hereto (an "Exercise  Notice") duly completed and signed by the
      registered  holder  hereof and upon payment by such holder to the Issuer
      of the Exercise  Price (plus  transfer  taxes,  if  applicable)  for the
      total number of Warrant  Shares in respect of which such Warrant is then
      exercised.  The Warrant  represented hereby shall be exercisable only in
      the minimum amount of 30,000  Warrant  Shares and integral  multiples of
      30,000  Warrant Shares in excess thereof (or such lesser amount as shall
      constitute the full amount of this Warrant).

2.    On the Business Day  following  an Exercise  Date (an "Issue  Date") the
      Issuer shall issue and cause to be delivered  to the  registered  holder
      hereof at such  address as such  holder  shall  specify in the  Exercise
      Notice a  certificate  or  certificates  for the number of full  Warrant
      Shares  issuable upon the exercise of such  Warrant,  registered in such
      holder's  name,  together with cash (if any) as provided in paragraph 4.
      Such  certificate  or  certificates  shall be deemed to have been issued
      and any  person so  designated  to be named  therein  shall be deemed to
      have  become  a holder  of  record  of such  Warrant  Shares  as of such
      Exercise Date.

3.    If on such  Issue  Date the  number of  Warrant  Shares to be  delivered
      shall be less  than the  total  number  of  Warrant  Shares  deliverable
      hereunder,  there shall be issued to the holder  hereof or his  assignee
      on such Issue Date a new warrant certificate  substantially identical to
      this  Warrant  Certificate,  except  that such new  warrant  certificate
      shall  evidence the right to purchase the number of Warrant Shares equal
      to (x) the total number of Warrant  Shares  deliverable  hereunder  less
      (y) the number of Warrant Shares so delivered.

4.    The Issuer shall not be required to issue  fractional  Warrant Shares on
      the  exercise  of the  Warrant  represented  hereby.  The number of full
      Warrant  Shares which shall be issuable upon the exercise of the Warrant
      shall be  computed  on the  basis of the  aggregate  number  of  Warrant
      Shares  purchasable  on  exercise of the  Warrant so  presented.  If any
      fraction of a Warrant  Share would,  except for the  provisions  of this
      paragraph  4, be issuable on the  exercise  of the  Warrant,  the Issuer
      shall pay an  amount  in cash  equal to the  closing  sale  price of the
      Common  Stock per Warrant  Share on the day  immediately  preceding  the
      date the Warrant is presented for exercise, multiplied by such fraction.

5.    For so long as the Warrant  represented  hereby has not been  exercised in
      full, the Issuer shall at all times reserve and keep available,  free from

<PAGE>

      preemptive  rights,  out of its authorized but unissued Common Stock,  for
      issuance  upon  exercise of the Warrant  represented  hereby,  the maximum
      number of Common  Stock then so issuable  (as  adjusted  from time to time
      pursuant to paragraph 10).

6.    By accepting delivery of this Warrant  Certificate,  the registered holder
      hereby  covenants  and agrees  with the Issuer not to exercise or transfer
      the Warrant  represented hereby except in compliance with the terms of the
      Subscription Agreement and this Warrant Certificate.

7.    By  accepting  delivery  of this  Warrant  Certificate,  the  registered
      holder  hereof  covenants and agrees with the Issuer that no Warrant may
      be sold, assigned,  conveyanced,  pledged,  hypothecated or in any other
      manner  disposed of or  transferred  unless and until such holder  shall
      deliver to the Issuer (i)  written  notice of such  transfer  and of the
      name and  address of the  transferee  has been  received  by the Issuer;
      (ii) a written  agreement of the  transferee to comply with the terms of
      the  Subscription  Agreement and this Warrant  Certificate  and (iii) in
      the case of a transfer  hereof prior to the expiration of the Restricted
      Period  specified  on the first  page  hereof,  an  opinion  of  counsel
      stating  that such  transferee  is not a "U.S.  Person"  as  defined  in
      Regulation  S under the  Securities  Act of 1933,  as amended,  and that
      such transfer is otherwise exempt from any registration requirements.

8.    The Issuer will pay all  documentary  stamp taxes (if any)  attributable
      to the  issuance of Warrant  Shares upon the  exercise of the Warrant by
      the registered holder hereof;  provided,  however, that the Issuer shall
      not be  required to pay any tax or taxes which may be payable in respect
      of any transfer involved in the registration of the Warrant  Certificate
      or any  certificates for Warrant Shares in a name other than that of the
      registered  holder  of the  Warrant  Certificate  surrendered  upon  the
      exercise of a Warrant,  and the Issuer shall not be required to issue or
      deliver the  Warrant  Certificate  or  certificates  for Warrant  Shares
      unless or until the person or persons  requesting  the issuance  thereof
      shall  have paid to the  Issuer  the  amount  of such tax or shall  have
      established  to the  satisfaction  of the Issuer  that such tax has been
      paid.

9.    In case this Warrant  Certificate  shall be mutilated,  lost,  stolen or
      destroyed,  the  Issuer  may in its  discretion  issue in  exchange  and
      substitution  for  and  upon   cancellation  of  the  mutilated  Warrant
      Certificate,  or in lieu of and substitution for the Warrant Certificate
      lost, stolen or destroyed,  a new Warrant Certificate of like tenor, but
      only upon receipt of evidence  reasonably  satisfactory to the Issuer of
      such  loss,  theft  or  destruction  of  such  Warrant  Certificate  and
      indemnity,   if  requested,   satisfactory  to  it.   Applicants  for  a
      substitute  Warrant  Certificate  shall  also  comply  with  such  other
      reasonable  regulations  and pay such  other  reasonable  charges as the
      Issuer may prescribe.

10.   The number of Warrant  Shares  issuable  upon the  exercise of the Warrant
      (the  "Exercise  Rate") and the terms and  conditions  of the  Warrant are
      subject to  adjustment  by the  Issuer,  in  consultation  with the holder
      hereof, from time to time as follows:


<PAGE>

      a.    If the Issuer:

            (1)   subdivides  its  outstanding  shares of Common  Stock into a
                  greater number of shares;

            (2)   combines  its  outstanding  shares  of Common  Stock  into a
                  smaller number of shares; or

            (3)   issues by  reclassification  of its Common  Stock any shares
                  of its Capital Stock (as defined below);

            then the Exercise  Rate in effect  immediately  prior to such action
            shall  be  adjusted  so that  the  registered  holder  hereof  shall
            thereafter be entitled to receive upon exercise the number of shares
            of Common  Stock or other  Capital  Stock of the  Issuer  which such
            holder would have owned  immediately  following  such action if such
            holder had exercised the Warrant immediately prior to such action.

            As used herein the term "Capital  Stock" means,  with respect to any
            corporation,  any and all  shares,  interest,  rights  to  purchase,
            warrants,  options,   participations  or  other  equivalents  of  or
            interests (however designated) in stock issued by that corporation.

            Such  adjustment  shall  become  effective  simultaneously  with the
            effective date of any subdivision, combination or reclassification.

            If, after an adjustment,  the registered holder hereof would receive
            upon exercise  shares of two or more classes of Capital Stock of the
            Issuer,  the Exercise Rate shall thereafter be subject to adjustment
            upon the  occurrence  of an action  taken with  respect to each such
            class of Capital Stock as is contemplated hereby with respect to the
            Common  Stock,  on terms  comparable  to those  applicable to Common
            Stock hereunder.

      b.    Whenever the Exercise  Rate is adjusted,  the Issuer shall provide
            the notices required by paragraph 12 hereof.

      c.    If:

            (1)   the  Issuer   takes  any  action   that  would   require  an
                  adjustment  in the Exercise  Rate  pursuant to  subparagraph
                  (a) above; or

            (2)   there is a liquidation or dissolution of the Issuer;

            then the Issuer shall mail to the registered  holder hereof a notice
            stating the proposed  effective date of a subdivision,  combination,
            reclassification,    consolidation,    merger,   transfer,    lease,
            liquidation  or  dissolution,  as the case may be. The Issuer  shall
            mail the notice at least 15 days before such date.


<PAGE>

     d. The Issuer covenants and agrees with the registered holder hereof not to
        consolidate   or  merge  with  or  into, or transfer  or  lease  all  or
        substantially all its assets to, any person unless, at the option of the
        registered holder hereof, either:

       (1)  on any date prior to the effective date of such consolidation, mer- 
            ger, transfer or lease(the "Redemption Date"),the Issuer shall have 
            redeemed the  Warrant represented  hereby by paying to such holder, 
            upon surrender of this Warrant Certificate, a price (the Redemption 
            Price"),agreed in good faith by the Board of Directors of the 
            Issuer and such holder, representing (x) the fair market value of 
            the Common Stock that would be issuable upon exercise of the 
            Warrant as of the Redemption Date; (y) In the event the fair market 
            value as determined  in (x) above is less than $30.00 a share, the 
            intrinsic time value of the warrant as of the  Redemption Date,  
            such intrinsic value when added to the fair market value shall not 
            exceed $30.00  per  share  and (z)  such  other  factors  as the  
            Board of Directors and such holder deem appropriate; provided,
            however, that in the event of any bona fide dispute between the 
            Issuer and such holder as to the computation  of such  Redemption 
            Price, such dispute  shall be resolved through  binding arbitration 
            under the rules of the American  Arbitration Associaton, with the 
            arbitration panel consisting of persons familiar with the valuation 
            of derivative securities and such panel being advised, as to such 
            valuation issues, by an investment  bank of  nationally  recognized 
            standing, the costs thereof to be borne by the non-prevailing 
            party; or
            

           

      (2)   (a)   such person shall expressly assume in writing all of
                  the  obligations  of the Issuer  under the  Subscription
                  Agreement and hereunder  and deliver  notice  thereof to
                  the registered holder hereof; and

            (b)   upon  consummation  of such  transaction,  the Warrant
                  shall  automatically  become  exercisable for the kind
                  and amount of  securities,  cash or other  assets that
                  the   registered   holder   hereof  would  have  owned
                  immediately after the consolidation,  merger, transfer
                  or lease if such  holder  had  exercised  the  Warrant
                  immediately   before  the   effective   date  of  such
                  transaction.

      e.    After an adjustment to the Exercise Rate  hereunder,  any subsequent
            event requiring an adjustment hereunder shall cause an adjustment to
            the Exercise Rate as so adjusted.

11.   Upon the issuance of any stock  dividend or  distribution  of Common Stock
      pro rata to all holders of Common Stock,  the registered  holder hereof on

<PAGE>

      the record date for such  distribution  shall be entitled to receive  such
      dividend or  distribution on the same terms as the holders of Common Stock
      upon exercise hereof.

12.   Upon any  adjustment  of the Exercise Rate pursuant to paragraph 10, the
      Issuer  shall  promptly  thereafter  but in any  event  within  15  days
      following  such  adjustment  (i) cause to be delivered to the registered
      holder  hereof a  certificate  of its Chief  Financial  Officer  setting
      forth the  Exercise  Rate after such  adjustment  and  setting  forth in
      reasonable  detail  the method of  calculation  and the facts upon which
      such  calculations  are based,  which  certificate  shall be  conclusive
      evidence of the  correctness of the matters set forth therein,  and (ii)
      cause to be  delivered  to the  registered  holder  hereof at his or her
      address  appearing  on the  Warrant  Register  written  notice  of  such
      adjustments by first-class  mail,  postage prepaid.  Where  appropriate,
      such notice may be given in advance  and  included as part of the notice
      required to be mailed under the other provisions of this paragraph 12.

      In case:

      a.    the Issuer shall  authorize  the issuance to all holders of shares
            of Common Stock of rights,  options or warrants to  subscribe  for
            or purchase  shares of Common  Stock or of any other  subscription
            rights or warrants; or

      b.    of any  consolidation or merger to which the Issuer is a party and
            for which approval of any  shareholders of the Issuer is required,
            or of the  conveyance or transfer of the  properties and assets of
            the   Issuer   substantially   as   an   entirety,   or   of   any
            reclassification  or change of Common Stock issuable upon exercise
            of the  Warrant  (other  than a change in par  value,  or from par
            value to no par value,  or from no par value to par value, or as a
            result of a subdivision or  combination),  or of a tender offer or
            exchange offer for shares of Common Stock; or

      c.    of  the  voluntary  or  involuntary  dissolution,  liquidation  or
            winding up of the Issuer; or

      d.    the Issuer  proposes  to take any action  which  would  require an
            adjustment of the Exercise Rate pursuant to paragraph 10;

      then the Issuer shall cause to be given to the registered holder hereof at
      his or her address appearing on the Warrant Register, at least 20 days (or
      10 days in any case  specified  in clauses (a) or (b) above)  prior to the
      applicable record date hereinafter  specified,  or promptly in the case of
      events for which there is no record  date,  by first  class mail,  postage
      prepaid,  a written notice stating (i) the date as of which the holders of
      record of  shares  of Common  Stock to be  entitled  to  receive  any such
      rights,  options,  warrants or distribution are to be determined,  or (ii)
      the  initial  expiration  date set forth in any tender  offer or  exchange
      offer  for  shares of  Common  Stock,  or (iii) the date on which any such
      reclassification,    consolidation,    merger,    conveyance,    transfer,
      dissolution,  liquidation or winding up is expected to become effective or

<PAGE>

      consummated,  and the date as of  which it is  expected  that  holders  of
      record of shares of Common Stock shall be entitled to exchange such shares
      for  securities  or  other  property,   if  any,   deliverable  upon  such
      reclassification,    consolidation,    merger,    conveyance,    transfer,
      dissolution, liquidation or winding up.

13.   The Issuer  shall serve as warrant  agent (the  "Warrant  Agent")  under
      this Agreement.  The Warrant Agent hereunder shall at all times maintain
      a register (the "Warrant Register") of the holders of Warrants.  Upon 30
      days' notice to the registered  holder hereof,  the Issuer may appoint a
      new Warrant Agent.  Such new Warrant Agent shall be a corporation  doing
      business  under the laws of the United States or any state  thereof,  in
      good  standing  and having a combined  capital  and  surplus of not less
      than  $50,000,000.  The  combined  capital  and  surplus of any such new
      Warrant Agent shall be deemed to be the combined  capital and surplus as
      set forth in the most recent annual  report of its  condition  published
      by such  Warrant  Agent  prior to its  appointment;  provided  that such
      reports  are  published  at  least  annually  pursuant  to law or to the
      requirements of a federal or state  supervising or examining  authority.
      After  acceptance  in writing  of such  appointment  by the new  Warrant
      Agent,  it shall be vested  with the same  powers,  rights,  duties  and
      responsibilities  as if it  had  been  originally  named  herein  as the
      Warrant Agent, without any further assurance,  conveyance,  act or deed;
      but if for any reason it shall be  reasonably  necessary or expedient to
      execute and deliver any further assurance,  conveyance, act or deed, the
      same  shall be done at the  expense  of the  Issuer and shall be legally
      and validly executed and delivered by the Issuer.

      Any  corporation  into  which the Issuer or any new  Warrant  Agent may be
      merged or any corporation  resulting from any  consolidation  to which the
      Issuer or any new  Warrant  Agent shall be a party or any  corporation  to
      which the Issuer or any new Warrant Agent transfers  substantially  all of
      its corporate trust or shareholders services business shall be a successor
      Warrant Agent under this Agreement  without any further act; provided that
      such corporation (i) would be eligible for appointment as successor to the
      Warrant  Agent  under the  provisions  of this  paragraph  13 or (ii) is a
      wholly owned subsidiary of the Warrant Agent.  Any such successor  Warrant
      Agent shall promptly cause notice of its succession as Warrant Agent to be
      mailed (by first class mail,  postage  prepaid) to the  registered  holder
      hereof at such holder's last address as shown on the Warrant Register.

      This Warrant Certificate shall not be valid unless signed by the Issuer.


<PAGE>

      IN WITNESS WHEREOF, Shaman  Pharmaceuticals,  Inc. has caused this Warrant
Certificate to be signed by its duly authorized officer.

Dated:  July 26, 1996

                                    SHAMAN PHARMACEUTICALS, INC.



                                    By:    /s/ Lisa A. Conte
                                    Name:  Lisa A. Conte
                                    Title: President and Chief Executive Officer


<PAGE>



                             FORM OF EXERCISE NOTICE

               (To Be Executed Upon Exercise Of the Warrant)

                                                         [DATE]

Shaman Pharmaceuticals, Inc.
213 East Grand Avenue
South San Francisco, CA 94080
Attn:  President and Chief Executive Officer

                            Re:  Warrant No.

Ladies and Gentlemen:

            The  undersigned  is the registered  holder of the  above-referenced
warrant (the "Warrant") issued by Shaman Pharmaceuticals, Inc., evidenced by the
Warrant  Certificate  attached hereto, and hereby elects to exercise the Warrant
to  purchase  _____  shares  of  Warrant  Shares  (as  defined  in such  Warrant
Certificate)  and herewith  tenders  $______________  [in cash] [by certified or
official bank check to the order of Shaman Pharmaceuticals, Inc.] as payment for
such Warrant Shares in accordance with the terms of such Warrant Certificate.

            In accordance  with the terms of the attached  Warrant  Certificate,
the undersigned  requests that certificates for such shares be registered in the
name of and delivered to the undersigned at the following address:1


                       ================================
                       --------------------------------


            [If the number of Warrant  Shares to be  delivered  is less than the
total  number of  Warrant  Shares  deliverable  under the  Warrant,  insert  the
following  -  The   undersigned   requests   that  a  new  warrant   certificate
substantially  identical to the attached  Warrant  Certificate  be issued to the
undersigned  evidencing the right to purchase the number of Warrant Shares equal
to (x) the total number of Warrant Shares deliverable under the Warrant less (y)
the number of Warrant Shares to be delivered in connection with this exercise.

                                    NAME OF REGISTERED HOLDER [ADDRESS]
                                    [ADDRESS]
                                    [ADDRESS]
                                    [ADDRESS]




                                       By: 
                                         --------------------------------
                                      Name:
                                     Title:



1 Prior to the expiration of the  Restricted  Period (if any) referred to in the
legend appearing on the Warrant Certificate  attached hereto, the Warrant Shares
issuable thereunder "shall not be delivered within the United States (as defined
in Regulation S under the  Securities  Act of 1933, as amended (the  "Securities
Act")) unless  registered  under the  Securities Act or pursuant to an available
exemption from such registration.
<PAGE>