<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1 )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
SPARTA PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[SPARTA PHARMACEUTICALS, INC. LOGO]
May 13, 1996
Dear Stockholder,
You are cordially invited to attend the 1996 Annual Meeting of Stockholders
of Sparta Pharmaceuticals, Inc. (the "Company") to be held at 10:00 a.m., on
Monday, June 17, 1996 at 111 Rock Road, Horsham, Pennsylvania.
At the Annual Meeting, two persons will be elected to the Board of
Directors. In addition, the Company will ask the stockholders to approve an
increase in the aggregate number of shares for which stock rights may be granted
or awarded under the Company's 1991 Stock Plan. The Company will also seek
stockholder approval of a proposal to amend the Company's Certificate of
Incorporation to increase the number of authorized shares of the Company's
Common Stock and to ratify the selection of Arthur Andersen LLP as the Company's
independent public accountants. The Board of Directors recommends the approval
of each of these proposals. Such other business will be transacted as may
properly come before the Annual Meeting.
We hope you will be able to attend the Annual Meeting. Whether you plan to
attend the Annual Meeting or not, it is important that your shares are
represented. Therefore, you are urged promptly to complete, sign, date and
return the enclosed proxy card in accordance with the instructions set forth on
the card. This will ensure your proper representation at the Annual Meeting.
Sincerely,
/s/ William M. Sullivan
WILLIAM M. SULLIVAN
Chairman of the Board
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY PROMPTLY.
<PAGE> 3
SPARTA PHARMACEUTICALS, INC.
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 17, 1996
---------------------
To the Stockholders of Sparta Pharmaceuticals, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Sparta Pharmaceuticals,
Inc., a Delaware corporation (the "Company"), will be held at 10:00 a.m. on
Monday, June 17, 1996, at the Company's new corporate offices located at 111
Rock Road, Horsham, Pennsylvania for the following purposes:
1. To elect two members to the Board of Directors to serve for a
three-year term ending at the Annual Meeting of Stockholders in 1999 and
until their respective successors are duly elected and qualified or their
earlier resignations or removals.
2. To consider and act upon a proposal to amend the Company's 1991
Stock Plan to increase by 500,000 shares the aggregate number of shares of
Common Stock authorized for issuance thereunder.
3. To approve an amendment and restatement of the Company's
Certificate of Incorporation to increase the number of authorized shares of
the Company's Common Stock by 20,000,000 shares to 42,000,000 shares.
4. To consider and act upon a proposal to ratify the appointment of
Arthur Andersen LLP as the Company's independent public accountants for the
fiscal year ending December 31, 1996.
5. To transact such other business as may be properly brought before
the Annual Meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on April 26, 1996 as
the record date for the determination of Stockholders entitled to notice of and
to vote at the Annual Meeting and at any adjournments thereof.
All Stockholders are cordially invited to attend the Annual Meeting.
Whether you plan to attend the Annual Meeting or not, you are requested to
complete, sign, date and return the enclosed proxy card as soon as possible in
accordance with the instructions on the proxy card. A pre-addressed, postage
prepaid return envelope is enclosed for your convenience.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ William M. Sullivan
William M. Sullivan
Chairman of the Board
Horsham, Pennsylvania
May 13, 1996
<PAGE> 4
SPARTA PHARMACEUTICALS, INC.
111 ROCK ROAD
HORSHAM, PENNSYLVANIA 19044-2310
(215) 442-1700
---------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 17, 1996
---------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Sparta Pharmaceuticals, Inc. (the "Company"), a
Delaware corporation, of proxies, in the accompanying form, to be used at the
Annual Meeting of Stockholders to be held at 111 Rock Road, Horsham,
Pennsylvania, on Monday, June 17, 1996 at 10:00 am, and any adjournments thereof
(the "Meeting").
Where the Stockholder specifies a choice on the proxy as to how his or her
shares are to be voted on a particular matter, the shares will be voted
accordingly. If no choice is specified, the shares will be voted FOR the
election of the nominees for director named herein, FOR the proposal to amend
the 1991 Stock Plan to increase by 500,000 the aggregate number of shares
available thereunder, FOR the proposal to amend and restate the Company's
Certificate of Incorporation to increase the number of authorized shares of the
Company's Common Stock by 20,000,000 shares to 42,000,000 shares and FOR the
ratification of the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31, 1996. Any
proxy given pursuant to this solicitation may be revoked by the person giving it
at any time before its use by delivering to the Company a written notice of
revocation or a duly executed proxy bearing a later date. Any Stockholder who
has executed a proxy but is present at the Meeting, and who wishes to vote in
person, may do so by revoking his or her proxy as described in the preceding
sentence. The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of the Company's common stock, par value $.001 per share
("Common Stock"), is necessary to constitute a quorum at the Meeting.
The affirmative vote of a majority of the shares present or represented and
entitled to vote at the Meeting is required to approve each proposal, other than
the election of directors, which requires a plurality of the shares voted
affirmatively or negatively at the Meeting, and the amendment to the Company's
Certificate of Incorporation, which requires a majority of the outstanding
Common Stock entitled to vote at the Meeting. With respect to the tabulation of
votes on any matter, abstentions are treated as votes against a proposal, while
broker non-votes have no effect on the vote, except with respect to the
amendment of the Company's Certificate of Incorporation, in which case broker
non-votes are treated as votes against the proposal.
The close of business on April 26, 1996 has been fixed as the record date
for determining the Stockholders entitled to notice of and to vote at the
Meeting. As of the close of business on April 26, 1996, the Company had
8,190,931 shares of Common Stock outstanding and entitled to vote and 300,000
shares of Series A Convertible Preferred Stock outstanding and entitled to vote.
Holders of Common Stock are entitled to one vote per share on all matters to be
voted on by Stockholders. On April 26, 1996, holders of Series A Convertible
Preferred Stock were entitled to the nearest whole number of votes per share of
Preferred Stock held based on the conversion rate in effect on that date of
4.444444 shares of Common Stock for each share of Series A Convertible Preferred
Stock.
The cost of soliciting proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company. In
addition, the Company will reimburse brokerage firms and other persons
representing beneficial owners of Common Stock of the Company for their expenses
in forwarding proxy material to such beneficial owners. Solicitation of proxies
by mail may be supplemented by telephone,
<PAGE> 5
telegram, telex and personal solicitation by the directors, officers or
employees of the Company. No additional compensation will be paid for such
solicitation.
This Proxy Statement and the accompanying proxy are being mailed on or
about May 13, 1996 to all Stockholders entitled to notice of and to vote at the
Meeting.
The Annual Report to Stockholders for the fiscal year ended December 31,
1995 is being mailed to the Stockholders with this Proxy Statement, but does not
constitute a part hereof.
2
<PAGE> 6
SHARE OWNERSHIP
The following table sets forth certain information as of April 15, 1996
concerning the ownership of Common Stock by each Stockholder known by the
Company to be the beneficial owner of more than 5% of its outstanding shares of
Common Stock, each current member of the Board of Directors, each executive
officer named in the Summary Compensation Table on p.7 hereof, certain other
executive officers and all current directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES
DIRECTORS, NAMED EXECUTIVE OFFICERS BENEFICIALLY PERCENTAGE BENEFICIALLY
AND PRINCIPAL STOCKHOLDERS OWNED(1) OWNED(1)
- ---------------------------------------------------------------- ------------- -----------------------
<S> <C> <C>
Thomas R. Morse(2).............................................. 2,000,000 24.4 %
c/o Philadelphia Ventures, Inc.
200 South Broad Street, 8th Floor
Philadelphia, PA 19102
William M. Sullivan(3).......................................... 827,676 9.8 %
3308 Landor Road
Raleigh, NC 27709
Lindsay A. Rosenwald, M.D.(4)................................... 665,651 8.1 %
c/o The Castle Group Ltd.
375 Park Avenue, Suite 1501
New York, New York 10152
J.F. Shea Co., Inc(5)........................................... 519,444 6.3 %
655 Brea Canyon Road
Walnut, CA 91789
Financial Strategic Portfolios, Inc. -- Health Sciences
Portfolio(6).................................................. 500,000 6.1 %
c/o Invesco Trust Company
7800 East Union Avenue, Suite 800
Denver, Colorado 80237
Palmetto Partners, Ltd(7)....................................... 477,778 5.8 %
1600 Smith Street, Suite 4300
Houston, Texas 77002
Edgewater Private Equity Fund, L.P.(8).......................... 465,000 5.6 %
666 Grand Avenue, Suite 200
Des Moines, IA 50309
Nikki Establishment for Fashion and Marketing Research(9)....... 444,444 5.4 %
20 East 63rd Street
New York, New York 10021
Richard L. Sherman(10).......................................... 280,041 3.4 %
c/o CIP Capital Management Inc.
20 Valley Stream Parkway
Malvern, Pennsylvania 19355
William McCulloch(11)........................................... 128,750 1.5 %
Jerry B. Hook, Ph.D.(12)........................................ 99,000 1.2 %
Ronald H. Spair(13)............................................. 49,500 *
Peter Barton Hutt(14)........................................... 36,666 *
Sir John Vane, FRS(14)(15)...................................... 36,666 *
All Directors and executive officers as a group
(8 persons)(3),(4),(10),(11),(12),(13),(14),(15),(16)......... 2,123,950 24.54%
</TABLE>
3
<PAGE> 7
- ---------------
* Represents beneficial ownership of less than 1% of Common Stock.
** Addresses are given for beneficial owners of more than 5% of the
outstanding Common Stock only.
(1) The number of shares of Common Stock issued and outstanding on April 15,
1996 was 8,185,931. The calculation of percentage ownership for each listed
beneficial owner is based upon the number of shares of Common Stock issued
and outstanding at April 15, 1996, plus shares of Common Stock subject to
options, warrants and conversion privileges held by such person at April
15, 1996 and exercisable within 60 days thereafter. The persons and
entities named in the table have sole voting and investment power with
respect to all shares shown as beneficially owned by them, except as noted
below.
(2) Mr. Morse is trustee of the Lexin Pharmaceutical Liquidating Trust (the
"Trust") and has sole voting power over such shares. Mr. Morse is a
managing director of Philadelphia Ventures, Inc., a venture capital firm
which has an indirect beneficial ownership in 280,041 shares held by the
Trust. On March 15, 1996, the Company acquired the assets and business of
Lexin Pharmaceutical Corporation ("Lexin") for up to 2,600,000 shares of
the Company's Common Stock, 2,000,000 shares of which are held by the
Trust. Payment of up to an additional 600,000 shares is contingent upon the
attainment of certain post-closing milestones with respect to corporate
partnering transactions related to Lexin's lead compound, LEX032. After the
satisfaction of certain conditions, and the passage of time, the shares
held in trust will be distributed to former investors, a creditor,
management and a scientific founder of Lexin. At least 1,000,000 shares
will remain in the Trust until it is liquidated. All of the stock issued
pursuant to the agreement shall be subject to a lock-up period of 13 months
following the closing. Upon liquidation of the Trust, a partnership of
which Mr. Sherman is a Shareholder of the General Partner will receive
280,041 shares. Mr. Hook and Mr. Spair will receive 99,000 and 49,500
shares, respectively.
(3) Includes 283,542 shares of Common Stock that Mr. Sullivan may acquire upon
the exercise of options and an aggregate of 133,330 shares owned by Mr.
Sullivan's wife and children, as to which Mr. Sullivan may be deemed to be
a beneficial owner, but for which he disclaims beneficial ownership.
Excludes options to purchase 138,124 shares of Common Stock which are not
exercisable within 60 days of April 15, 1996.
(4) Includes an aggregate of 111,777 shares held by Dr. Rosenwald's spouse
individually or as custodian for the benefit of his children as to which
Dr. Rosenwald may be deemed to be the beneficial owner, but for which he
disclaims beneficial ownership. Also includes 13,583 shares issuable upon
the exercise of Warrants to purchase Common Stock. Excludes a total of
25,000 shares owned by Dr. Rosenwald's mother and two brothers. Also
excludes 191,617 shares of Common Stock owned by Dr. Rosenwald's
sister-in-law, both directly and as custodian for her children and 35,555
shares of Common Stock issuable upon the conversion of 8,000 shares of
Series A Convertible Preferred Stock owned by Dr. Rosenwald's sister-in-law
and her husband, 175,649 shares owned by a second sister-in-law of Dr.
Rosenwald, both directly and as custodian for her children and 35,555
shares of Common Stock issuable upon the conversion of 8,000 shares of
Series A Convertible Preferred Stock owned by Dr. Rosenwald's second
sister-in-law and her husband, and 79,841 shares owned by a third
sister-in-law of Dr. Rosenwald.
(5) Includes 75,000 shares of Common Stock and 444,444 shares of Common Stock
issuable upon the conversion of 100,000 shares of Series A Convertible
Preferred Stock at an assumed conversion rate of 4.444444, the rate which
prevailed as of April 15, 1996.
(6) This information is based solely on a Schedule 13G/13D filed with the
Securities and Exchange Commission and dated February 14, 1996.
(7) Includes 100,000 shares of Common Stock and 377,777 shares of Common Stock
issuable upon the conversion of 85,000 shares of Series A Convertible
Preferred Stock at an assumed conversion rate of 4.444444, the rate which
prevailed as of April 15, 1996.
(8) This information is based solely on a Schedule 13G/13D filed with the
Securities and Exchange Commission and dated July 5, 1994.
(9) Includes 444,444 shares of Common Stock issuable upon the conversion of
100,000 shares of Series A Convertible Preferred Stock at an assumed
conversion rate of 4.444444, the rate which prevailed as of April 15, 1996.
4
<PAGE> 8
(10) Includes 280,041 shares held by the Lexin Pharmaceutical Liquidating Trust.
Mr. Sherman is a shareholder of the General Partner of CIP Capital, L.P.
which will receive the 280,041 shares upon distribution from the Lexin
Pharmaceutical Liquidating Trust.
(11) Includes 128,750 shares of Common Stock issuable upon the exercise of
options. Excludes options to purchase 152,916 shares which are not
exercisable within 60 days of April 15, 1996.
(12) Includes 99,000 shares which Dr. Hook will receive upon distribution from
the Lexin Pharmaceutical Liquidating Trust. Excludes options to purchase
450,000 shares which are not exercisable within 60 days of April 15, 1996.
(13) Includes 49,500 shares which Mr. Spair will receive upon distribution from
the Lexin Pharmaceutical Liquidating Trust. Excludes options to purchase
150,000 shares which are not exercisable within 60 days of April 15, 1996.
(14) Includes 20,000 shares of Common Stock issuable upon the exercise of
options. Excludes options to purchase 20,000 shares which are not
exercisable within 60 days of April 15, 1996.
(15) Includes 16,666 shares issued and outstanding which are owned by the Sir
John Vane Trust, a trust for the benefit of Sir John Vane's children, for
which Sir John Vane acts as one of three trustees, as to which he may be
deemed to be a beneficial owner, but for which he disclaims beneficial
ownership.
(16) Includes 452,292 shares of Common Stock issuable upon exercise of options.
Excludes options to purchase 931,040 shares of Common Stock which are not
exercisable within 60 days of April 15, 1996.
5
<PAGE> 9
MANAGEMENT
DIRECTORS
The Company's By-Laws provide for the Company's business to be managed by
or under the direction of the Board of Directors. Under the Company's By-Laws,
the number of directors is fixed from time to time by the Board of Directors.
The Board of Directors currently consists of six members, classified into three
classes as follows: Peter Barton Hutt and Richard L. Sherman constitute a class
with a term ending in 1998 (the "Class I directors"); Lindsay A. Rosenwald, M.D.
and Jerry B. Hook, Ph.D. constitute a class with a term which expires at the
upcoming Meeting (the "Class II directors"); and William M. Sullivan and Sir
John Vane, FRS constitute a class with a term ending in 1997 (the "Class III
directors"). At each annual meeting of Stockholders, directors are elected for a
full term of three years to succeed those directors whose terms are expiring.
Pursuant to the Company's By-Laws, the Board of Directors on March 11, 1996
voted (i) to set the size of the Board of Directors at six and (ii) to nominate
Lindsay A. Rosenwald, M.D. and Jerry B. Hook, Ph.D. for election at the Meeting
for a term of three years to serve until the 1999 annual meeting of
Stockholders, and until their respective successors have been elected and
qualified. The Class I directors (Peter Barton Hutt and Richard L. Sherman) and
the Class III directors (William M. Sullivan and Sir John Vane, FRS) will serve
until the annual meetings of Stockholders to be held in 1998 and 1997,
respectively, and until their respective successors have been elected and
qualified.
The names of the Company's current directors and certain information about
them are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
--------------------------------------- --- ---------------------------------------
<S> <C> <C>
William M. Sullivan.................... 61 Chairman of the Board
Jerry B. Hook, Ph.D.................... 58 Director, President, and Chief
Executive Officer
Peter Barton Hutt(1)(2)................ 61 Director
Lindsay A. Rosenwald, M.D.(1)(2)....... 41 Director
Richard L. Sherman..................... 49 Director
Professor Sir John Vane................ 68 Director
</TABLE>
- ---------------
(1) Indicates a member of the Compensation Committee.
(2) Indicates a member of the Audit Committee.
WILLIAM M. SULLIVAN, a founder of the Company, has served as Sparta's
Chairman since February 1991 and as President and Chief Executive Officer of the
Company since October 1991. He has worked in the pharmaceutical industry since
1966. He has been associated as chairman, director, executive or consultant with
a number of development stage companies in the pharmaceutical and biotechnology
fields since 1986, including The Immune Response Corporation (founding Chairman,
March 1987 to May 1993 and a Director since May 1993), ProCyte Corporation (a
Director since September 1991), and VimRx Pharmaceuticals Inc. (a Director from
July 1990 to June 1991). He has been a director of Research Corporation
Technologies, a technology transfer company, since December 1994. He was
Chairman, President and Chief Executive Officer of Burroughs Wellcome Co. from
1981 to 1986, and Vice President, General Counsel and Secretary from 1974 to
1981. He also served as Regional Director for the Americas of Wellcome plc from
1982 to 1986. Prior thereto, Mr. Sullivan served at Ciba-Geigy Corporation from
1965 to 1973, where he was counsel to its pharmaceuticals division, and later
Director of the Legal Department and Associate General Counsel. He received an
A.B. cum laude from the University of Notre Dame and a J.D. from Harvard Law
School.
JERRY B. HOOK, PH.D. has been a director since March 1996 and has served as
President and Chief Executive Officer of the Company since March 1996. He has
worked in the pharmaceutical sector (first as a professor and then as a business
executive) since 1966. From January 1993 until March 1996, Dr. Hook served as
President and Chief Executive Officer of Lexin Pharmaceutical Corporation, a
development stage biopharmaceutical company. Prior thereto, Dr. Hook spent ten
years in various positions at SmithKline
6
<PAGE> 10
Beecham, plc, and at the time of his departure from SmithKline Beecham, plc in
January, 1993 served as its Senior Vice President and Director of Worldwide
Development. In such position Dr. Hook had worldwide responsibility for all
non-clinical drug development. Prior to joining SmithKline Beecham, plc, Dr.
Hook served as a professor of pharmacology on the faculty of Michigan State
University from 1966-1983. Dr. Hook also serves on numerous editorial boards and
advisory committees, and his memberships in scientific societies include the
Toxicology Section of the International Union of Pharmacology (of which he is
past Chairperson) and the Society of Toxicology (of which he is past President
and Chairman). Dr. Hook received a bachelors degree in Pharmacy from Washington
State University and a Ph.D. in Pharmacology from the University of Iowa.
PETER BARTON HUTT has been a Director since December 1991. He has been a
partner in the Washington, D.C. law firm of Covington & Burling during the
period from 1968 through 1971 and since 1975 and has been associated with the
firm since 1960. He also served as Chief Counsel of the United States Food and
Drug Administration ("FDA") from 1971 to 1975. Mr. Hutt served from 1988 to 1990
on the National Committee to Review Current Procedures for Approval of New Drugs
for Cancer and AIDS, which was established by the President's Cancer Panel of
the National Cancer Institute. His memberships include the Institute of Medicine
of the National Academy of Sciences and the Boards of the Foundation for
Biomedical Research and the Center for Study of Drug Development at Tufts
University, along with a number of other industry, government and professional
governing and advisory groups. He currently serves on the Boards of several
development stage pharmaceutical companies, including Interneuron
Pharmaceuticals, Inc., Vivus, Inc., Cell Genesys Inc., IDEC Pharmaceuticals
Corp. and Emisphere Technologies, Inc. He received a B.A. from Yale University,
a LL.B. from Harvard University, and a LL.M. from New York University.
LINDSAY A. ROSENWALD, M.D. has been a Director of the Company since
February 1991. He has been Chairman and Chief Executive Officer of The Castle
Group Ltd., a medical venture capital firm located in New York, New York, since
August 1991, and Chairman and Chief Executive Officer of Paramount Capital,
Inc., an investment banking firm, since March 1992. Prior thereto, Dr. Rosenwald
was a Managing Director of D.H. Blair & Co., Inc. from June 1987 to February
1992. He currently serves as Chairman of Interneuron Pharmaceuticals, Inc. and
is on the Boards of several development stage pharmaceutical and biotechnology
companies. Dr. Rosenwald received a B.S. in Finance from Pennsylvania State
University and a M.D. from Temple University School of Medicine.
RICHARD L. SHERMAN has been a Director since March 1996. Since June 1993,
he has been a principal in C.I.P. Capital Management, Inc., a private SIC
investment firm which makes non-public equity investments in technology-based
businesses. He is also founding partner of QED Technologies, a consulting firm
established in 1992. Mr. Sherman presently serves on the Board of Directors of
IBAH, Inc. and is a member of the investment advisory committee of the Ben
Franklin Technology Center and serves on the Executive Board of the START
Technology Partnership. Prior to founding Q.E.D. Technologies, Mr. Sherman
served as Deputy General Counsel of SmithKline Beckman Corporation (now
SmithKline Beecham, plc). He was with SmithKline Beecham from 1976 to 1989.
Prior to joining SmithKline Beecham, plc, Mr. Sherman was in private legal
practice, as a partner in the Philadelphia law firms of Pepper, Hamilton, &
Sheetz, and Ballard, Spahr, Andrews and Ingersoll. Mr. Sherman received his
bachelors degree magna cum laude from the University of Nebraska and his J.D.
from the New York University School of Law.
PROFESSOR SIR JOHN VANE has been a Director since December 1991. He has
served as Chairman and Director of The William Harvey Research Institute at St.
Bartholomew's Hospital Medical College in London since 1990. From 1973 to 1986,
he was Group Research and Development Director of Wellcome plc. In 1982,
Professor Vane was honored with the Nobel Prize in Physiology or Medicine. In
1984, he was named a Knight Bachelor in the New Year Honours List for his
services to pharmaceutical research. Professor Vane has served as a Director of
Vanguard Medica Pharmaceutical Company, a development stage pharmaceutical
company, since July 1991, and as a Director of Biofor, Inc. From March 1992
until August 1995. He received bachelor degrees in Chemistry (Birmingham
University) and Pharmacology (Oxford University), and doctorates in Philosophy
and Science from Oxford University.
7
<PAGE> 11
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS
Meeting Attendance. During the fiscal year ended December 31, 1995, there
were six meetings of the Board of Directors, and the various committees of the
Board of Directors met once. No director attended fewer than 75% of the total
number of meetings of the Board and of committees of the Board on which he
served during fiscal 1995, except for Peter Barton Hutt. However, Mr. Hutt has
attended twenty-eight of the thirty-four meetings of the Board and of the
committees of the Board held during the period he has been a director. In
addition, from time to time, the members of committees of the Board of Directors
acted by unanimous written consent pursuant to Delaware law.
Audit Committee. The Audit Committee has two members, Lindsay A.
Rosenwald, M.D. (Chairman) and Peter Barton Hutt. The Audit Committee reviews
the engagement of the Company's independent accountants, reviews annual
financial statements, considers matters relating to accounting policy and
internal controls and reviews the scope of annual audits. The Audit Committee
met once during the year ended December 31, 1995.
Compensation Committee. The Compensation Committee, which did not meet
during fiscal 1995, has two members, Lindsay Rosenwald, M.D. and Peter Barton
Hutt. On several occasions during 1995, the Compensation Committee acted by
unanimous written consent pursuant to Delaware law. The Compensation Committee
reviews, approves and makes recommendations on the Company's compensation
policies, practices and procedures to ensure that legal and fiduciary
responsibilities of the Board of Directors are carried out and that such
policies, practices and procedures contribute to the success of the Company. The
Compensation Committee also administers the 1991 Stock Plan.
Nominating Committee. The Company does not have a standing Nominating
Committee.
COMPENSATION OF DIRECTORS
All non-employee Directors other than Dr. Rosenwald received on December
15, 1993, a one-time grant of non-qualified stock options to purchase 20,000
shares of Common Stock. These options will vest in four equal annual
installments commencing on the first anniversary of the grant date subject to
continuing service as a Director and have an exercise price of $6.00 per share.
All new non-employee Directors, except for Richard L. Sherman, will be granted
non-qualified stock options to purchase 25,000 shares of Common Stock upon their
election to the Board, which options will vest in four equal annual
installments, subject to continuing service as a Director, and have an exercise
price equal to the fair market value of the stock on the date of grant. On the
date of each annual meeting, all non-employee Directors, other than Dr.
Rosenwald and Mr. Sherman, will receive non-qualified stock options to purchase
10,000 shares of Common Stock which will vest in full after one year, subject to
continuing service as a Director, with an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant. Options to
purchase a total of 30,000 shares were granted under this formula during fiscal
1995 to Peter Barton Hutt, Charles O. O'Brien, who resigned his position as
Director in October 1995, and Sir John Vane. Options granted during fiscal 1995
to William M. Sullivan are reported under "Executive Compensation." In addition,
the Company reimburses Directors for expenses of attendance at meetings of the
Board of Directors and committees of the Board.
Executive Officers
The names of, and certain information regarding, the executive officers of
the Company who are not directors, are set forth below. Executive officers of
the Company serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ------------------------------------------------------
<S> <C> <C>
William McCulloch, M.B., Ch.B.,
F.R.C.P. (Glasg.).............. 41 Senior Vice President, Research and Development
Ronald H. Spair.................. 40 Vice President and Chief Financial Officer
</TABLE>
8
<PAGE> 12
DR. WILLIAM MCCULLOCH has been Senior Vice President, Research and
Development, since October 1992. He was a consultant to the Company from July
through September 1992. Prior thereto, he served as Vice President of Clinical
Research and Development of U.S. Bioscience, Inc. from December 1988 to July
1992. Dr. McCulloch has been involved in oncology drug development with various
institutions and businesses since his graduate research and teaching activity in
childhood leukemia and bone marrow transplantation at the Royal Hospital for
Sick Children in Glasgow, Scotland. He received a M.B., Ch.B. (U.S.
M.D.-equivalent) from the University of Glasgow and his Membership of the Royal
College of Physicians (U.K.) from the combined Royal Colleges (equivalent of
Board Certification). He also holds diplomas in Obstetrics/Gynecology and
Pharmaceutical Medicine. He was elected a Fellow of the Royal College of
Physicians and Surgeons of Glasgow in 1991.
RONALD H. SPAIR, has been a Vice President and Chief Financial Officer of
the Company since March 1996. He has worked in the biotechnology industry since
1990. From October 1993 until March 1996, Mr. Spair served as Vice President and
Chief Financial Officer of Lexin Pharmaceutical Corporation, a development stage
biopharmaceutical company. Prior thereto, Mr. Spair served as Vice President,
Chief Financial Officer and Assistant Secretary of Envirogen, Inc., an
environmental biotechnology company, from May 1990 to August 1993. From July
1982 until May 1990, Mr. Spair served in various positions at Image
Storage/Retrieval Systems, Inc., and at the time of his departure served as Vice
President, Chief Financial Officer and Secretary. Mr. Spair received a B.S. in
Accounting and an M.B.A. from Rider College. He is a licensed Certified Public
Accountant in New Jersey.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth summary information as
to compensation received by the Company's Chief Executive Officer and the next
most highly compensated executive officer of the Company (other than the CEO)
(collectively, the "Named Executive Officers") for services rendered to the
Company in all capacities during the fiscal years ended December 31, 1995, 1994
and 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG- TERM
ANNUAL COMPENSATION COMPEN-
----------------------------- SATION
OTHER ---------- ALL
ANNUAL SECURITIES OTHER
FISCAL COMPEN- UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION OPTIONS(3) SATION
- ------------------------------------------- ------ -------- ----- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
William M. Sullivan........................ 1995 $200,000 $ 0 $ 0 50,000 $6,490 (6)
Chairman, President, and CEO 1994 200,000 0 0 50,000 5,530
1993 200,000(1) 0 0 80,000(4) 4,640
William McCulloch.......................... 1995 $175,000 $ 0 $ 0 (2) 30,000(5) $ 0
Senior Vice President, Research and 1994 175,000 0 0 25,000 0
Development 1993 175,000 0 21,699 86,666 0
</TABLE>
- ---------------
* Dr. Jerry B. Hook, the Company's current President and Chief Executive
Officer, and Ronald H. Spair, the Company's Vice President and Chief
Financial Officer, each joined the Company in March, 1996 as a result of
the Company's acquisition of Lexin Pharmaceutical Corporation. Dr. Hook's
and Mr. Spair's annual salaries are $220,000 and $120,000, respectively,
subject to adjustment. In addition, Dr. Hook and Mr. Spair were granted
450,000 options and 150,000 options, respectively, at the time they joined
the Company.
(1) A portion of the salary earned by Mr. Sullivan during fiscal year 1993 was
deferred by him. Pursuant to an agreement with the Company, on October 13,
1993, Mr. Sullivan received payment for all deferred salary, including
1991, 1992 and that portion of his 1993 salary which was deferred, totaling
approximately $440,000. Payment was made one-half in cash and one-half in
the form of a convertible note of
9
<PAGE> 13
the type issued by the Company to investors in a financing which took place
between August and October 1993. Does not include approximately $3,750 in
interest on deferred salary paid to Mr. Sullivan in 1993.
(2) Represents amounts paid by the Company in connection with relocation
expenses and legal expenses incurred in connection with Dr. McCulloch's
being granted permanent residence in the United States.
(3) Options to purchase the number of shares shown were granted pursuant to the
1991 Stock Plan.
(4) Represents non-qualified options to purchase 80,000 shares of Common Stock
granted in December 1993, which options were repriced on March 14, 1994 at
an exercise price of $4.50 per share, which was equal to or above the then
current fair market value at such date as determined by the Board.
(5) Represents incentive stock options to purchase 20,000 shares of Common Stock
granted in December 1993, which options were repriced on March 14, 1994 at
an exercise price of $4.50 per share, and non-qualified options to purchase
66,666 shares granted in 1992, which options were also repriced on March
14, 1994 at $4.50.
(6) Represents the annual premium payment made in 1995 on a term insurance
policy on Mr. Sullivan's life in the amount of $1 million payable to his
beneficiaries. This policy is in addition to the $2 million "Key man"
insurance policy on Mr. Sullivan's life payable to the Company.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding each stock option
granted during the fiscal year ended December 31, 1995 to each of the Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE) DATE
- ------------------------------------------------- ------------- ------------ --------- ----------
<S> <C> <C> <C> <C>
William M. Sullivan.............................. 50,000(2) 33% $1.38 12/11/05
William McCulloch................................ 30,000(3) 20% $1.38 12/11/04
</TABLE>
- ---------------
(1) All options shown were granted under the 1991 Stock Plan.
(2) Non-qualified Stock Options which vest annually in four equal installments
commencing one year from the date of grant and have a term which expires
ten years from the date of grant.
(3) Incentive Stock Options which vest annually in four equal installments
commencing one year from the date of grant and have a term which expires on
the earlier of (i) five years from the date of full vesting or (ii)
December 2004.
10
<PAGE> 14
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
Neither of the Named Executive Officers exercised options during the fiscal
year ended December 31, 1995. The following table provides information regarding
the number of shares covered by both exercisable and unexercisable stock options
as of December 31, 1995 and the values of "in-the-money" options, which values
represent the positive spread between the exercise price of any such option and
the fiscal year-end value of the Company's Common Stock.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF THE UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS AT
ACQUIRED END(#) FISCAL YEAR-END($)(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William M. Sullivan.............. 0 $0 219,666 127,500 $ 283,332 $31,000
William McCulloch................ 0 $0 128,750 112,916 $ 127,500 $61,100
</TABLE>
- ---------------
(1) The value of unexercised in-the-money options at fiscal year end assumes a
fair market value for the Company's Common Stock of $2.00, the closing sale
price per share of the Company's Common Stock as reported in the NASDAQ
SmallCap Market on December 29, 1995.
EMPLOYMENT AGREEMENTS; TERMINATION AND CHANGE IN CONTROL ARRANGEMENTS
During the last fiscal year, William M. Sullivan was employed as Chairman
of the Board, President and CEO of the Company under an agreement with a term
that expired on January 28, 1996, and which was automatically extended for an
additional one-year period. Effective March 15, 1996, the agreement was amended
to reflect Mr. Sullivan's resignation as President and Chief Executive Officer.
The agreement as amended effective March 15, 1996, shall hereinafter be referred
to as (the "Amended Agreement"). Mr. Sullivan continues to serve the Company as
Chairman of the Board under the terms of the Amended Agreement, the initial term
of which (the "Initial Employment Term") is two years from the effective date.
The term will be automatically extended for one year periods unless either party
elects to terminate the Amended Agreement at least 30 days prior to the relevant
anniversary of the effective date. The annual base salary under the Amended
Agreement is $120,000. Mr. Sullivan may perform services for other persons or
entities provided such services are not deemed to be a conflict of interest or a
breach of fiduciary duty to the Company. In the event that Mr. Sullivan's
employment is terminated by him or by the Company during the Initial Employment
Term, (other than for cause of permanent and total disability), Mr. Sullivan
shall be paid monthly installments equal to the greater of (i) one twelfth of
the remainder of $240,000 less the amount of annual base salary previously paid
under the agreement as amended and (ii) the amount determined by multiplying
such remainder by a fraction, the numerator of which is one and the denominator
of which is the number of months remaining in the initial employment term, for
the period commencing on the termination date and continuing for the number of
months remaining in the Initial Employment Term if clause (ii) is applicable. In
the event that Mr. Sullivan's employment is terminated as a result of death or
permanent and total disability, Mr. Sullivan or his estate shall be paid an
amount equal to $240,000 less the amount of annual base salary previously paid
to him under the Amended Agreement in 12 equal monthly installments following
the termination date if such termination occurs within twelve months after the
effective date of the Amended Agreement, and if the termination date occurs
later but within 24 months after such effective date, in a number of
installments equal to the number of months remaining in the Initial Employment
Term. Mr. Sullivan may terminate his employment at any time upon at least one
month's prior written notice. Pursuant to his employment agreement in January
and October 1991, the Company issued an aggregate of 421,357 shares to Mr.
Sullivan, his wife and his children at a price of $.003 per share and in
December 1991 granted options to purchase 166,666 shares of Common Stock
pursuant to the 1991 Stock Plan. These options are currently exercisable at a
price per share of $.30. Pursuant to the Amended Agreement, in March 1996 the
Company granted options to Mr. Sullivan to purchase 75,000 shares of Common
Stock pursuant to the 1991
11
<PAGE> 15
Stock Plan and accelerated vesting of an aggregate of 127,500 options previously
granted to Mr. Sullivan under the 1991 Stock Plan and not exercisable.
Dr. William McCulloch became employed by the Company as its Senior Vice
President, Research and Development, on October 1, 1992, after serving as a
consultant to the Company from July through September 1992. The initial term of
Dr. McCulloch's employment agreement is three years, with automatic extensions
for additional one-year periods unless either party elects not to so extend at
least 90 days prior to the commencement of a new one-year term. Dr. McCulloch
has agreed to devote his full time to the affairs of the Company. His current
annual salary is $190,000 per annum. In the event that Dr. McCulloch is
terminated by the Company (other than for cause or Dr. McCulloch's permanent and
total disability), Dr. McCulloch shall be entitled to receive salary and certain
benefits for up to six months after the effective date of such termination. In
the event Dr. McCulloch's employment is terminated as a result of death or
permanent and total disability, Dr. McCulloch (or his estate) shall be paid his
annual base salary for a period of six months following the date of such
termination. Dr. McCulloch may terminate his employment at any time upon at
least one month's prior written notice. In connection with entering into his
employment agreement in July 1992, the Company granted to Dr. McCulloch options
to purchase up to 166,666 shares of Common Stock, 100,000 of which vest at the
rate of 25,000 shares on each of the first four anniversaries of his date of
employment and are exercisable at a price of $.30 per share, 50,000 of which
vest at the rate of 12,500 shares on each of the first four anniversaries of his
date of employment and are exercisable at $4.50 per share and 16,666 of which
vest if the Company has an NDA approved by the FDA and are exercisable at $4.50
per share. Dr. McCulloch's employment agreement provides that if his employment
is terminated by the Company without cause after the third anniversary of the
effective date of his employment, to the extent any of the above-referenced
stock options are not fully vested, they shall become fully vested and
exercisable for a period of three months thereafter. His employment agreement
also provides that if his employment with the Company should be terminated
subsequent to the second anniversary of the effective date of his employment by
reason of his being forced to terminate his residence in the United States, then
the options referenced above to purchase 100,000 shares and 50,000 shares,
respectively, shall become immediately vested to the extent of 50% of those
shares subject to options which remain unvested as of the effective date of
termination and shall remain exercisable for a period of three months
thereafter.
The Named Executive Officers are also subject to certain confidentiality
obligations. Each officer is required to disclose to the Company certain
inventions, discoveries, and developments, and assign the rights thereto to the
Company. Dr. McCulloch is also subject to a non-compete agreement pursuant to
which he has agreed not to compete with the Company for a period of six months
after his termination of employment by the Company without cause, provided he is
receiving severance payments.
COMPLIANCE WITH SECTION 16(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers, and persons who own more than 10% of the Company's
Common Stock, to file with the Securities and Exchange Commission (the "SEC")
initial reports of beneficial ownership and reports of changes in beneficial
ownership of the Common Stock and other equity securities of the Company.
Officers, directors and greater than 10% beneficial owners are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file. To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1995, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. Rosenwald, a Director, is also the Chairman and Chief Executive Officer
of The Castle Group Ltd., a medical venture capital firm located in New York,
New York. In 1992, The Castle Group Ltd. guaranteed the salary of William
McCulloch for a period of up to three years ending on October 1, 1995.
12
<PAGE> 16
The placement agent for the Company's recently completed private placement
of the Series A Convertible Preferred Stock was Paramount Capital, Inc.
("Paramount"). Dr. Rosenwald is the sole stockholder, Chairman of the Board of
Directors and Chief Executive Officer of Paramount. In connection with the
private placement, Paramount Capital received a warrant to purchase 30,000
shares of Series A Convertible Preferred Stock at an aggregate purchase price of
$375,000. In addition, Paramount was paid commissions totaling $300,000 and
nonaccountable expenses totaling $90,000.
On March 15, 1996, the Company acquired the assets and business of Lexin.
The acquisition of the assets and business of Lexin was effected pursuant to the
Asset Purchase Agreement dated as of February 22, 1996 (the "Agreement") between
the registrant and Lexin. Pursuant to the Agreement, the registrant is to
exchange up to 2,600,000 of its common stock for all of the business and assets
of Lexin. 2,000,000 of the shares issued pursuant to the Agreement will be
initially held in trust. Payment of up to an additional 600,000 shares is
contingent upon the attainment of certain post-closing milestones with respect
to corporate partnering transactions related to Lexin's lead compound, LEX032.
After the satisfaction of certain conditions, and the passage of time, the
shares held in trust will be distributed to former investors, a creditor,
management and a scientific founder of Lexin. A minimum of 1,000,000 shares will
remain in the Trust for 13 months following the date of closing. All of the
stock issued pursuant to the Agreement shall be subject to a lock-up period of
13 months following the closing. Thereafter, the holders of the stock have
agreed to limit the transfer, sale or conveyance of their registerable shares
to: (a) no more than 25% of the aggregate of their registerable shares prior to
two months following the expiration of the lock-up period, (b) no more than 50%
of the aggregate of their registerable shares prior to four months following the
expiration of the lock-up period and (c) no more than 75% of the aggregate of
their registerable shares prior to six months following the expiration of the
lock-up period. Thomas Morse, the trustee of the Trust, served as the Chairman
of the Board of Directors of Lexin. Richard Sherman, a Director of the Company,
was also a Director of Lexin. Dr. Jerry Hook, the Company's President and Chief
Executive Officer, was formerly the President and Chief Executive Officer of
Lexin. Ronald H. Spair, the Company's Vice President and Chief Financial
Officer, previously held those titles at Lexin. Upon liquidation of the Trust, a
partnership of which Mr. Sherman is a Shareholder of the General Partner will
receive 280,041 shares. Mr. Hook and Mr. Spair will receive 99,000 and 49,500
shares, respectively.
ELECTION OF DIRECTOR
(NOTICE ITEM 1)
The Company's By-Laws provide for the Company's business to be managed by
or under the direction of a Board of Directors. Under the Company's By-Laws, the
number of directors is fixed from time to time by the Board of Directors. The
Board of Directors currently consists of six members, classified into three
classes as follows: Peter Barton Hutt and Richard L. Sherman constitute a class
with a term ending in 1998 (the "Class I directors"); Lindsay A. Rosenwald, M.D.
and Jerry B. Hook, Ph.D. constitute a class with a term which expires at the
upcoming meeting (the "Class II directors"); and William M. Sullivan and Sir
John Vane, FRS constitute a class with a term ending in 1997 (the "Class III
directors"). At each annual meeting of Stockholders, directors are elected for a
full term of three years to succeed those directors whose terms are expiring.
Pursuant to the Company's By-Laws, on March 11, 1996, the Board of
Directors voted (i) to fix the size of the Board of Directors at six members and
(ii) to nominate Lindsay A. Rosenwald, M.D. and Jerry B. Hook, Ph.D. for
election at the Meeting for a term of three years to serve until the 1999 annual
meeting of Stockholders and until their respective successors have been elected
and qualified. The Class I directors (Peter Barton Hutt and Richard L. Sherman)
and the Class III directors (William M. Sullivan and Sir John Vane, FRS) will
serve until the annual meetings of Stockholders to be held in 1998 and 1997,
respectively, and until their respective successors have been elected and
qualified.
Unless authority to vote for any of the nominees named above is withheld,
the shares represented by the enclosed proxy will be voted FOR the election as
directors of such nominees. In the event that any nominee shall become unable or
unwilling to serve, the shares represented by the enclosed proxy will be voted
for the
13
<PAGE> 17
election of such other person as the Board of Directors may recommend in his
place. The Board has no reason to believe that the nominee will be unable or
unwilling to serve.
A plurality of the shares voted affirmatively or negatively at the Meeting
is required to elect each nominee as a director.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF LINDSAY A. ROSENWALD,
M.D. AND JERRY B. HOOK, PH.D. AS DIRECTORS, AND PROXIES SOLICITED BY THE BOARD
WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON
THE PROXY.
AMENDMENTS TO THE COMPANY'S 1991 STOCK PLAN
(NOTICE ITEM 2)
GENERAL
The Company's Board of Directors and Stockholders approved the 1991 Stock
Plan (the "Plan") as of November 26, 1991. A total of 1,000,000 shares of Common
Stock were initially reserved for issuance under the Plan. The number of shares
reserved for issuance under the Plan was increased to 1,500,000 in December 1993
through an amendment to the Plan approved by the Board of Directors and
Stockholders. On March 20, 1995, the Board of Directors voted to approve an
amendment to the Plan to increase by 500,000 shares the aggregate number of
shares of Common Stock for which stock options, stock awards or purchase rights
(collectively, "stock rights") may be granted under the Plan. This vote was
ratified by the Stockholders on June 7, 1995. By the terms of the Plan, the Plan
may be amended by the Board of Directors or the Compensation Committee of the
Board of Directors (the "Compensation Committee"), provided that any amendment
approved by the Board of Directors or the Compensation Committee which is of a
scope that requires Stockholder approval to ensure favorable federal income tax
treatment for any incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or to ensure the qualification of
the Plan under Rule 16b-3 under the Securities Exchange Act of 1934, is subject
to obtaining such Stockholder approval. On March 11, 1996, the Board of
Directors voted to approve an amendment to the Plan to increase by 500,000
shares the aggregate number of shares of Common Stock for which stock options,
stock awards or purchase rights (collectively, "stock rights") may be granted
under the Plan. This amendment is being submitted for Stockholder approval at
the Meeting to ensure continued favorable treatment under Code Section 422 and
qualification of the Plan under Rule 16b-3 of the Securities Exchange Act of
1934. The Board believes that the increase is advisable to give the Company the
flexibility needed to attract, retain and motivate employees, directors, and
consultants.
MATERIAL FEATURES OF THE PLAN
The purpose of the Plan is to attract, retain and motivate employees,
directors and consultants through the issuance of stock rights and to encourage
ownership of shares of Common Stock by employees, directors and consultants of
the Company. The Plan is administered by the Compensation Committee. Subject to
the provisions of the Plan, the Compensation Committee determines the persons to
whom stock rights will be granted or awarded, the number of shares to be covered
by each grant or award and the terms and conditions upon which stock rights may
be granted or awarded, and has the authority to administer the provisions of the
Plan. All employees, directors and consultants of the Company and its affiliates
(approximately 20 people) are eligible to participate in the Plan.
Options granted under the Plan may be either (i) options intended to
qualify as "incentive stock options" under Code Section 422, or (ii)
non-qualified stock options. Incentive stock options may be granted under the
Plan to employees of the Company and its affiliates. Non-qualified stock options
may be granted to consultants, directors and employees of the Company and its
affiliates. The Plan provides for an annual grant on the date of each annual
meeting of the Company to each non-employee director of an option, which vests
in one year, to purchase 10,000 shares of Common Stock at an exercise price
equal to the fair market value of the
14
<PAGE> 18
Common Stock on such grant date. Awards of stock may be made to consultants
(including directors), employees or officers of the Company and direct purchases
of stock may be made by such individuals. In no event may any employee, director
or consultant be granted in any calendar year stock rights to purchase more than
500,000 shares pursuant to the Plan.
The aggregate fair market value (determined at the time of grant) of shares
issuable pursuant to incentive stock options which become exercisable in any
calendar year under any incentive stock option plan of the Company by an
employee may not exceed $100,000. Incentive stock options granted under the Plan
may not be granted at a price less than the fair market value of the Common
Stock on the date of grant, or 110% of fair market value in the case of
employees holding 10% or more of the voting stock of the Company. Non-qualified
stock options and purchase opportunities granted under the Plan may not be
granted at an exercise price less than 50% of the fair market value of the
Common Stock on the date of grant. Incentive stock options granted under the
Plan expire not more than ten years from the date of grant, or not more than
five years from the date of grant in the case of incentive stock options granted
to an employee holding 10% or more of the voting stock of the Company. An option
granted under the Plan is exercisable, during the optionholder's lifetime, only
by the optionholder and is not transferable by him or her except by will or by
the laws of descent and distribution.
An incentive stock option granted under the Plan may, at the Compensation
Committee's discretion, be exercised after the termination of the optionholder's
employment with the Company (other than by reason of death, disability or
termination for cause as defined in the Plan) to the extent exercisable on the
date of such termination, at any time prior to the earlier of the option's
specified expiration date or 90 days after such termination. In granting any
non-qualified stock option, the Compensation Committee may specify that such
non-qualified stock option shall be subject to such termination or cancellation
provisions as the Compensation Committee shall determine. In the event of the
optionholder's death or disability, both incentive stock options and
non-qualified stock options may be exercised, to the extent exercisable on the
date of death or disability (plus a pro rata portion of the option if the option
vests periodically), by the optionholder or the optionholder's survivors at any
time prior to the earlier of the option's specified expiration date or one year
from the date of the optionholder's death or disability. In the event of the
optionholder's termination for cause, all outstanding and unexercised options
are forfeited.
If the shares of Common Stock shall be subdivided or combined into a
greater or smaller number of shares or if the Company shall issue any shares of
Common Stock as a stock dividend on its outstanding Common Stock, the number of
shares of Common Stock deliverable upon the exercise of stock rights granted or
awarded under the Plan shall be proportionately increased or decreased, and
appropriate adjustments shall be made in the purchase price per share to reflect
such subdivision, combination or stock dividend. If the Company is to be
consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"), the
Compensation Committee or the Board of Directors of any entity assuming the
obligations of the Company under the Plan (the "Successor Board"), shall, as to
outstanding stock rights under the Plan either (i) make appropriate provision
for the continuation of such stock rights by substituting on an equitable basis
for the shares then subject to such rights the consideration payable with
respect to the outstanding shares of Common Stock in connection with the
Acquisition or securities of the successor or acquiring entity; or (ii) upon
written notice to the participants, provide that all stock rights must be
exercised (either to the extent then exercisable or, at the discretion of the
Compensation Committee, all stock rights being made fully exercisable for
purposes of such transaction) within a specified number of days of the date of
such notice, at the end of which period the stock rights shall terminate; or
(iii) terminate all stock rights in exchange for a cash payment equal to the
excess of the fair market value of the shares subject to each of such stock
rights (either to the extent then exercisable or, at the discretion of the
Compensation Committee, all stock rights being made fully exercisable for
purposes of such transaction) over the exercise price thereof. In the event of a
recapitalization or reorganization of the Company (other than an Acquisition)
pursuant to which securities of the Company or of another corporation are issued
with respect to the outstanding shares of Common Stock, a holder of stock
rights, upon exercising any stock right under the Plan, shall be entitled to
receive for the purchase price paid upon such exercise the
15
<PAGE> 19
securities he or she would have received if he or she had exercised such stock
right prior to such recapitalization or reorganization.
The Plan may be amended by the Stockholders of the Company. The Plan may
also be amended by the Board of Directors or the Compensation Committee,
provided that any amendment approved by the Board of Directors or the
Compensation Committee which is of a scope that requires Stockholder approval in
order to ensure favorable federal income tax treatment for any incentive stock
options under Code Section 422 or to ensure the qualification of the Plan under
Rule 16b-3 under the Securities Exchange Act of 1934, is subject to obtaining
such Stockholder approval.
As of April 15, 1996, an aggregate of 1,664,498 shares were issuable upon
the exercise of options outstanding under the Plan. On April 15, 1996, the
closing market price per share of the Company's Common Stock was $2.875 as
reported in the NASDAQ SmallCap Market.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a description of certain U.S. federal income tax
consequences of the issuance and exercise of options under the Plan:
Incentive Stock Options. An incentive stock option does not result in
taxable income to the optionee or deduction to the Company at the time it
is granted or exercised, provided that no disposition is made by the
optionee of the shares acquired pursuant to the option within two years
after the date of grant of the option nor within one year after the date of
issuance of shares to him (the "ISO holding period"). However, the
difference between the fair market value of the shares on the date of
exercise and the option price will be an item of tax preference includible
in "alternative minimum taxable income." Upon disposition of the shares
after the expiration of the ISO holding period, the optionee will generally
recognize long term capital gain or loss based on the difference between
the disposition proceeds and the option price paid for the shares. If the
shares are disposed of prior to the expiration of the ISO holding period,
the optionee generally will recognize taxable compensation, and the Company
will have a corresponding deduction, in the year of the disposition, equal
to the excess of the fair market value of the shares on the date of
exercise of the option over the option price. Any additional gain realized
on the disposition will normally constitute capital gain. If the amount
realized upon such a disqualifying disposition is less than fair market
value of the shares on the date of exercise, the amount of compensation
income will be limited to the excess of the amount realized over the
optionee's adjusted basis in the shares.
Non-Qualified Stock Options. The grant of a non-qualified option does
not result in taxable income to the optionee or deduction to the Company at
the time of grant. The optionee will recognize taxable compensation, and
the Company will have a corresponding deduction, at the time of exercise in
the amount of the excess of the then fair market value of the shares
acquired over the option price. Upon disposition of the shares, the
optionee will generally realize capital gain or loss, and his basis for
determining gain or loss will be the sum of the option price paid for the
shares plus the amount of compensation income recognized on exercise of the
option.
The affirmative vote of a majority of the votes present or represented and
entitled to vote at the Meeting is required to approve the increase in the
aggregate number of shares of Common Stock available under the Plan.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE ADOPTION OF THE AMENDMENT
TO THE PLAN TO INCREASE BY 500,000 SHARES THE AGGREGATE NUMBER OF SHARES FOR
WHICH STOCK RIGHTS MAY BE GRANTED UNDER THE PLAN AND PROXIES SOLICITED BY THE
BOARD WILL BE VOTED IN FAVOR OF SUCH AMENDMENT UNLESS A STOCKHOLDER HAS
INDICATED OTHERWISE ON THE PROXY.
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<PAGE> 20
AMENDMENT OF CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
(NOTICE ITEM 3)
On March 11, 1996, the Board unanimously adopted a resolution proposing
that the Company amend and restate its Certificate of Incorporation to increase
the number of authorized shares of Common Stock from 22,000,000 to 42,000,000.
That proposed amendment and restatement of the Company's Certificate of
Incorporation is now being submitted for stockholder approval. The relative
rights and limitations of the Common Stock would remain unchanged under the
amendment. The Common Stock does not have preemptive rights.
As of April 15, 1996, the Company had 8,185,931 shares of Common Stock
outstanding and 300,000 shares of Series A Convertible Preferred Stock issued
and outstanding. The Series A Convertible Preferred Stock is currently
convertible at an initial conversion rate of 4.444444. There are 30,000 shares
of Series A Convertible Preferred Stock issuable upon exercise of an outstanding
warrant at an aggregate purchase price of $375,000. These shares are also
convertible into shares of Common Stock at an initial conversion rate of
4.444444. There are also 1,265,000 shares issuable upon exercise of outstanding
Class A Warrants at an exercise price of $6.50 per share, 1,265,000 shares
issuable upon exercise of outstanding Class B Warrants at an exercise price of
$10.75 per share, 64,415 shares issuable upon exercise of outstanding private
placement warrants at a weighted average exercise price of $6.63 per share,
110,000 shares issuable upon exercise in full of a unit purchase option ("UPO")
granted to the underwriter of the Company's June 1994 public offering at an
exercise price of $7.00 per unit, 110,000 Class A Warrants at an exercise price
of $6.50 per share issuable upon exercise in full of a unit purchase option
granted to the underwriter of the Company's June 1994 public offering, 110,000
Class B Warrants at an exercise price of $10.75 per share issuable upon exercise
in full of a unit purchase option granted to the underwriter of the Company's
June 1994 public offering, 1,838,172 shares reserved for issuance under stock
rights granted or to be granted under the Company's 1991 Stock Plan of which
1,664,498 shares are issuable, 61,042 shares reserved for issuance under various
license and option agreements at $0.003 per share and in consideration of such
agreements, and 94,896 shares reserved for issuance to Cato Research under the
contract research agreement at a 20% discount from a weekly average of bid and
asked prices, representing an aggregate of 14,571,122 shares of Common Stock
outstanding or reserved for issuance. The Company therefore has 7,428,878
unreserved and unissued shares of Common Stock available for future issuance.
The Company believes that this number of shares does not provide sufficient
flexibility to allow the Company to engage in activities such as raising capital
through the issuance of new equity or entering into corporate partnering
arrangements.
Management believes that the proposed amendment to Article Fourth of the
Company's Certificate of Incorporation will provide several long-term advantages
to the Company and its shareholders. The passage of the proposal would enable
the Company to raise capital through the issuance of new equity, to pursue
acquisitions or enter into transactions which management believes provide the
potential for growth and profit, including possible corporate partnerships and
joint ventures. With the extremely limited number of shares currently available
for such uses, it is impractical for the Company to evaluate or seek to
consummate business combinations or other transactions which, if they could be
accomplished, might enhance shareholder value. Additional authorized shares
could be used to raise cash assets through sales of stock to public and private
investors. If additional shares are available, transactions dependent upon the
issuance of additional shares would be less likely to be undermined by delays
and uncertainties occasioned by the need to obtain stockholder authorization
prior to the consummation of such transactions. The ability to issue shares, as
deemed in the Company's best interest by the Board, will also permit the Company
to avoid the expenses which are incurred in holding special shareholders'
meetings.
However, these additional shares, if issued, could have a dilutive effect
on present shareholders. The authorization of such an increase in the authorized
Common Stock, while providing desirable flexibility in connection with possible
corporate partnerships, joint ventures, acquisitions and other corporate
purposes, could have the effect of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company.
17
<PAGE> 21
The Company currently intends to raise capital through the issuance of
shares of its Common Stock, which may include shares authorized hereby. The
terms of such proposed issuance of Common Stock are not known at this time. The
Company's management will evaluate the merits of raising funds in both private
and public transactions. If the Company does not raise capital through the
issuance of additional securities or through any other source, it expects that
additional funding will be needed by September 1996. The Company has no other
current plans, arrangements or understandings with respect to the use of the
additional shares of Common Stock, the authorization of which is being sought
hereby. In the event the proposal is passed, shareholder approval of the
issuance of the 20,000,000 additional shares of Common Stock will not be sought
prior to the issuance of additional securities unless such issuances relate to a
merger, consolidation or other transaction which requires Stockholder approval.
Accordingly, the following resolutions will be offered at the meeting.
RESOLVED, that Article FOURTH of the Certificate of Incorporation be
amended to read as follows:
FOURTH A. Designation and Number of Shares. The total number of
shares of stock which the Company is authorized to issue is 53,000,000,
of which shares 42,000,000 of the par value of $.001 each shall be
designated Common Stock, and 11,000,000 of the par value of $.001 each
shall be designated Preferred Stock, of which 330,000 of the par value
of $.001 each shall be designated Series A Convertible Preferred Stock.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES ENTITLED TO VOTE AT THE
MEETING IS REQUIRED TO APPROVE THE INCREASE IN THE AUTHORIZED SHARES OF COMMON
STOCK OF THE COMPANY.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE ADOPTION OF THE AMENDMENT
OF ARTICLE FOURTH TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK OF THE
COMPANY BY 20,000,000 TO 42,000,000 SHARES AND PROXIES SOLICITED BY THE BOARD
WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON
THE PROXY.
INDEPENDENT PUBLIC ACCOUNTANTS
(NOTICE ITEM 4)
The Board of Directors has appointed Arthur Andersen LLP, independent
public accountants, to audit the financial statements of the Company for the
fiscal year ending December 31, 1996. The Board proposes that the Stockholders
ratify this appointment. The Company expects that representatives of Arthur
Andersen, LLP will be present at the Meeting, with the opportunity to make a
statement if they so desire, and will be available to respond to appropriate
questions.
In the event that ratification of the appointment of Arthur Andersen LLP as
the independent public accountants for the Company is not obtained at the
Meeting, the Board of Directors will reconsider its appointment.
The affirmative vote of a majority of the shares present or represented and
entitled to vote at the Meeting is required to ratify the appointment of the
independent public accountants.
THE BOARD OF DIRECTORS RECOMMENDS RATIFICATION OF THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS, AND PROXIES SOLICITED BY THE
BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED
OTHERWISE ON THE PROXY.
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<PAGE> 22
OTHER MATTERS
The Board of Directors knows of no other business which will be presented
to the Meeting. If any other business is properly brought before the Meeting, it
is intended that proxies in the enclosed form will be voted in respect thereof
in accordance with the judgment of the persons voting the proxies.
STOCKHOLDER PROPOSALS
To be considered for presentation at the Annual Meeting of Stockholders to
be held in 1997, Stockholder proposals must be received, marked for the
attention of: Ronald H. Spair, Chief Financial Officer, Sparta Pharmaceuticals,
Inc., 111 Rock Road, Horsham, Pennsylvania 19044-2310 not earlier than September
30, 1996 and not later than December 31, 1996.
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER
31, 1995 (OTHER THAN EXHIBITS THERETO) FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, WHICH PROVIDES ADDITIONAL INFORMATION ABOUT THE COMPANY, IS
AVAILABLE TO BENEFICIAL OWNERS OF THE COMPANY'S COMMON STOCK WITHOUT CHARGE UPON
WRITTEN REQUEST TO INVESTOR RELATIONS, 111 ROCK ROAD, HORSHAM, PENNSYLVANIA,
19044-2310.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, YOU ARE URGED TO
FILL OUT, SIGN, DATE AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE.
By order of the Board of Directors:
/s/ Caroline D. Campbell
CAROLINE D. CAMPBELL
Secretary
May 13, 1996
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<PAGE> 23
APPENDIX A
SPARTA PHARMACEUTICALS, INC.
THIS PROXY IS BEING SOLICITED BY SPARTA'S BOARD OF DIRECTORS
The undersigned, revoking any previous proxies relating to these shares,
hereby acknowledges receipt of the Notice and Proxy Statement dated May 13, 1996
in connection with the Annual Meeting to be held at 10:00 a.m. on Monday, June
17, 1996 at 111 Rock Road, Horsham, Pennsylvania and hereby appoints Dr. Jerry
B. Hook and Ronald H. Spair, and each of them (with full power to act alone),
the attorneys and proxies of the undersigned, with power of substitution to
each, to vote all shares of the Common Stock of Sparta Pharmaceuticals, Inc.
registered in the name provided herein which the undersigned is entitled to vote
at the 1996 Annual Meeting of Stockholders, and at any adjournments thereof,
with all the powers the undersigned would have if personally present. Without
limiting the general authorization hereby given, said proxies are, and each of
them is, instructed to vote or act as follows on the proposals set forth in said
Proxy.
THIS PROXY WHEN EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO
DIRECTION IS MADE THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR
PROPOSALS 2, 3 AND 4.
IN THEIR DISCRETION THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF.
ELECTION OF DIRECTORS (or if any nominee is not available for election, such
substitute as the Board of Directors may designate)
NOMINEES: Lindsay A. Rosenwald, M.D. Jerry B. Hook, Ph.D.
SEE REVERSE SIDE FOR ALL FOUR PROPOSALS. If you wish to vote in accordance
with the Board of Directors' recommendations, just sign on the reverse side. You
need not mark any boxes.
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE.
The Board of Directors recommends a vote FOR Proposals 1, 2 , 3 and 4.
(SEE REVERSE SIDE)
1. Election of Directors (See reverse). FOR / / WITHHELD / /
------------------------------
/ / For all nominees except as noted above.
2. Proposal to increase by 500,000 shares the aggregate number of shares for
which stock options may be granted under the 1991 Stock Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to approve an amendment to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of the Company's
Common Stock by 20,000,000 shares to 42,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
4. Proposal to Ratify the Appointment of Arthur Andersen L.L.P. as the
Company's independent public accountants for the fiscal year ending
December 31, 1996.
/ / FOR / / AGAINST / / ABSTAIN
Please sign exactly as name(s)
appears hereon. Joint owners
should each sign. When signing
as attorney, executor,
administrator, trustee or
guardian, please give full
title as such.
Signature:
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Date:
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Signature:
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Date:
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