UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[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. For the transition period from ____ to ____.
Commission File Number
0-23076
Sparta Pharmaceuticals, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 56-1755527
- --------------------------------- ------------------------------------------
(State of incorporation) (IRS Employer Identification No.)
111 Rock Rd. Horsham, PA 19044
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(Address of principal executive offices, including zip code)
(215) 442-1700
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(Registrant's telephone number, including area code)
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 |_|
As of August 9, 1996, there were outstanding 8,192,219 shares of Common Stock,
$.001 par value per share.
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FORM 10-Q
QUARTERLY REPORT
----------
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets (Unaudited) as of June 30, 1996 and
December 31, 1995 3
Statements of Operations (Unaudited) for the
three-month periods and for the six-month periods
ended June 30, 1996 and 1995 and for the period from
June 12, 1990 (inception) to June 30, 1996 4
Statements of Cash Flows (Unaudited) for the six-month
periods ended June 30, 1996 and 1995 and for the
period from June 12, 1990 (inception) to June 30, 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 19
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SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Balance Sheets
(Unaudited)
June 30, December 31,
Assets 1996 1995
------------ ------------
Current assets:
Cash and cash equivalents $ 1,727,922 $ 734,296
Prepaid expenses and other current assets 46,654 180,125
------------ ------------
Total current assets 1,774,576 914,421
Property, plant & equipment, net 535,091 21,102
Other assets:
License agreements, net of amortization
of $61,587 in 1996 and $50,345 in 1995 53,200 64,443
Deferred financing costs 101,912 --
Restricted Cash 250,482 --
------------ ------------
Total assets $ 2,715,261 $ 999,966
============ ============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 525,294 $ 185,861
------------ ------------
Total current liabilities 525,294 185,861
Shareholders' equity :
Series A Convertible Preferred Stock, $.001
par value; authorized 330,000 shares;
issued and outstanding 300 --
300,000 shares in 1996 and 0 in 1995
Series B Convertible Preferred Stock,
$.001 par value; authorized and unissued
3,000,000 shares -- --
Preferred Stock, not designated, $.001 par
value; authorized and unissued
7,670,000 shares -- --
Common Stock, $.001 par value; authorized
42,000,000 shares; issued and outstanding
8,191,943 shares in 1996 and 6,185,931
shares in 1995 8,192 6,186
Additional paid-in capital 17,203,542 10,825,375
Deficit accumulated during the development stage (14,830,995) (10,017,456)
Deferred compensation (191,072) --
------------ ------------
Total shareholders' equity 2,189,967 814,105
------------ ------------
Total liabilities and shareholders' equity $ 2,715,261 $ 999,966
============ ============
The accompanying notes are an integral part of the financial statements.
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SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Period From
June 30, June 30, June 12, 1990
--------------------- ---------------------- (Inception) to
1996 1995 1996 1995 June 30, 1996
---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C>
Revenue:
Contract revenue $ -- $ 2,695 $ -- 16,875 $ 127,870
Interest income 28,871 37,759 47,584 83,661 339,246
------------ ------------ ------------ ------------ ------------
Total revenue 28,871 40,454 47,584 100,536 467,116
Operating expenses:
Research and development 741,144 581,512 1,034,002 958,185 7,038,407
General and administrative 451,705 207,191 764,208 464,763 5,196,791
Charge for acquired research
and development (Note 4) -- -- 3,062,913 -- 3,062,913
------------ ------------ ------------ ------------ ------------
Net loss $ (1,163,978) $ (748,249) $ (4,813,539) $ (1,322,412) $(14,830,995)
============ ============ ============ ============ ============
Net loss per share $ (.14) $ (.12) $ (.65) $ (.21) $ (4.07)
============ ============ ============ ============ ============
Weighted average number
of shares outstanding (Note 2) 8,189,669 6,168,419 7,374,613 6,155,468 3,640,484
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months ended June 30, Period from June 12 1990
----------------------------------- (Inception) to
1996 1995 June 30, 1996
----------------- -------------- ------------------------
<S> <C> <C> <C>
Operating activities:
Net loss ........................................ $ (4,813,539) $ (1,322,412) $(14,830,995)
Adjustments to reconcile net loss to net cash
used in operating activities:
Recognition of gain/loss on investments ..... 3,316 3,316
Depreciation and amortization ............... 65,834 18,508 619,983
Writedown of license agreement .............. -- -- 45,200
Acquired research & development (Note 4) . 3,062,913 3,062,913
Issuance of convertible notes for services .. -- -- 220,474
Issuance of stock for services .............. 2,944 43,469 160,695
Compensation expense related to stock
options granted ........................... 15,028 -- 215,028
Changes in operating assets and liabilities:
Prepaid expenses and other assets .......... 133,470 33,121 (46,655)
Accounts payable and accrued expenses ...... 189,434 129,037 375,295
------------ ------------ ------------
Net cash used in operating activities ........... (1,343,916) (1,094,961) (10,174,746)
Investing activities:
Payment of acquisition related fees & expenses .. (130,842) -- (130,842)
Purchases of available-for-sale securities ...... -- -- (1,103,193)
Maturities of available-for-sale securities ..... 1,099,877 1,099,877
Purchases of fixed assets ....................... -- (54,866)
Acquisition of license agreements ............... -- -- (160,078)
------------ ------------ ------------
Net cash provided by (used in) investing
activities .................................... (130,842) 1,099,877 (349,102)
Financing activities:
Proceeds from issuance of convertible
notes and notes payable
-- -- 4,488,650
Repayment of notes payable ...................... -- -- (640,000)
Proceeds from issuance of Common Stock .......... 2,000 7,500 4,914,031
Repurchase of common stock ...................... -- -- (45)
Proceeds from issuance of Preferred Stock ....... 2,571,429 -- 4,064,129
Increase in debt issuance costs ................. -- -- (469,950)
Increase in deferred financing costs ............ (105,045) -- (105,045)
------------ ------------ ------------
Net cash provided by financing activities ....... 2,468,384 7,500 12,251,770
------------ ------------ ------------
Increase in cash and cash equivalents ........... 993,626 12,416 1,727,922
Cash and cash equivalents at beginning of
period ........................................ 734,296 2,348,522 --
------------ ------------ ------------
Cash and cash equivalents at end of period ...... $ 1,727,922 $ 2,360,938 $ 1,727,922
============ ============ ============
Supplemental disclosures of cash flow
information:
Cash paid during the year for interest .......... $ -- $ -- $ 196,972
============ ============ ============
Supplemental disclosures of noncash investing
and financing activities:
Conversion of Convertible Notes and Series C
Convertible Preferred Stock into Common
Stock ......................................... $ -- $ -- $ 4,086,624
============ ============ ============
Issuance of Series A Convertible Preferred
Stock for cancellation of notes payable ....... $ -- $ -- $ 200,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Notes to Financial Statements
For the Six Months Ended June 30, 1996
(Unaudited)
1. Company Activities and Significant Accounting Policies
Sparta Pharmaceuticals, Inc. (formerly MediRx Pharmaceuticals, Inc.), a
development stage company incorporated in 1990, is engaged in the business of
acquiring rights to, and developing for commercialization, technologies and
drugs for the treatment of a number of life threatening diseases, including
cancer, cardiovascular disorders and acute inflammation.
Basis of Presentation and Financing Activities
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has incurred total net
losses of $14,830,995 since inception. The Company's continuation as a going
concern is dependent upon its ability to obtain adequate financing. The Company
will require substantial additional funds to finance its business activities on
an ongoing basis and will have a continuing long-term need to obtain additional
financing. The Company's future capital requirements will depend on numerous
factors, including, but not limited to, continued progress in its research and
development programs including its preclinical and clinical trials. The Company
plans to engage in such ongoing financing efforts on a continuing basis.
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 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 in the accompanying unaudited financial statements. For more
complete financial information, these financial statements should be read in
conjunction with the audited financial statements and notes thereto contained in
the Company's 10-K for the fiscal year ended December 31, 1995. Results for the
interim periods are not necessarily indicative of the results for any other
interim period or for the full fiscal year.
2. Net Loss Per Share of Common Stock
The net loss per share amounts are presented in accordance with Accounting
Principles Bulletin No. 15. Under this guidance, options, warrants, convertible
debt and securities and other common stock equivalents are not considered
outstanding as their effect would be anti-dilutive for both primary and fully
diluted earnings per share computations.
3. Preferred Stock Issuance
On February 29, 1996, the Company sold 300,000 shares of Series A
Convertible Preferred Stock, $.001 par value ("Series A Preferred Stock"), for
an aggregate consideration of $3,000,000. Each share of Series A Preferred Stock
is convertible into shares of the Company's Common Stock, $.001 par value
("Common Stock"), at the option of the holder at an initial conversion price of
$2.25 per share of Common Stock, representing an initial conversion rate of
4.444444, and shall be automatically convertible into the securities sold in the
Company's next equity offering of at least $2,500,000 (a "Qualified Offering").
The conversion price, subject to certain adjustments, will be the lesser of
$2.25
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and 75% of the price of the securities sold in the Qualified Offering. In
connection with the Company's outstanding Class A and B Warrants and an
underwriter's purchase option issued in connection with its initial public
offering, the exercise price and the number of shares of Common Stock
purchasable upon the exercise of such Class A and Class B Warrants and the
underwriter's purchase option were adjusted as a result of the issuance of the
Series A Convertible Preferred Stock. Each Class A Warrant has been adjusted
such that the exercise price is $6.16 and allows the holder to acquire 1.1
shares of Common Stock. Each Class B Warrant has been adjusted such that the
exercise price is $10.19 and allows the holder to acquire 1.1 shares of Common
Stock. In connection with the Company's private placement of its Series A
Preferred Stock, the Company paid commissions of $300,000 and non-accountable
expense allowances of $90,000 to a company controlled by a significant
shareholder which served as the Placement Agent. In addition, the Company issued
to the Placement Agent a warrant to purchase 30,000 shares of Series A Preferred
Stock for an aggregate purchase price of $375,000.
4. Acquisition of the Business and Assets of Lexin Pharmaceutical Corporation
On March 15, 1996, the Company acquired the business and assets, and
assumed certain liabilities of Lexin Pharmaceutical Corporation ("Lexin"), for
an initial payment of 2,000,000 shares of the Company's Common Stock. The
purchase agreement provides for the issuance of up to an additional 600,000
shares of Common Stock upon achievement of certain milestones related to the
Lexin assets acquired. The acquisition was accounted for using the purchase
method of accounting. The fair value of the net assets acquired was recorded
based on the carrying value for monetary and fixed assets with the remaining
portion of the purchase price ($3,062,913) allocated to acquired research and
development, which was expensed in the quarter ended March 31, 1996.
5. Subsequent Events
On July 3, 1996 and August 1, 1996, the Company held initial and interim
closings related to an ongoing private placement of equity securities. Gross
proceeds involved in the closings amounted to $3,290,000 and $2,997,500,
respectively. The securities sold were Units, or fractions thereof, and each
Unit was comprised of 10,000 shares of the Company's Series B Convertible
Preferred Stock , par value $.001 per share ("Series B Preferred Stock"), and a
warrant to purchase 66,667 shares of the Company's Common Stock at an exercise
price of $1.50 per share. Each unit was priced at $100,000. The private
placement has a minimum offering size of 30 Units and a maximum offering size of
75 Units. Additionally, the Company has granted the placement agent an
over-allotment option to offer for sale up to an additional 75 Units.
The Series B Preferred Stock included in the Units is convertible at any
time at the option of the holder into shares of the Company's Common Stock at a
conversion price of $1.50 per share such that the 10,000 shares of the Company's
Series B Preferred Stock included in a Unit are convertible into 66,667 shares
of the Company's Common Stock . Each Warrant has a five year term. In addition,
the currently outstanding shares of the Company's Series A Preferred Stock will
be automatically converted into Units sold in this private placement as this
financing is considered a Qualified Offering.
In connection with the initial and interim closings of the Unit offering,
the Company paid aggregate commissions of $565,875 and non-accountable expense
allowances of $251,500 to a company controlled by a significant shareholder
which served as the Placement Agent. In addition, and in connection with the
initial and interim closings of the Unit offering, the Company is obligated to
issue to the Placement Agent a warrant to purchase 62,875 shares of Series B
Preferred Stock for an aggregate purchase price of $691,625 and a warrant to
purchase 419,169 shares of the Company's Common Stock for an aggregate purchase
price of $754,504.
In the event of a Liquidation Event ( as defined in the Company's Restated
Certificate of Incorporation), the holders of the Series B Preferred Stock are
entitled to be paid out of the assets of the Company available for distribution
7
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to its shareholders an amount equal to $13.00 per share, plus an amount equal to
all declared and unpaid dividends thereon, before any payment is made in respect
of stock junior to the Series B Preferred Stock, including Common Stock. Holders
of Series B Preferred Stock are also entitled to dividends, if any, as shall be
declared on the Company's Common Stock or on any other class of preferred stock,
unless holders of at least 66 2/3% of the outstanding Series B Preferred Stock
consent otherwise.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Since its inception in June 1990, the Company has been engaged in acquiring
and developing technologies and drug candidates for the treatment of cancer and
viral diseases, and through its acquisition of the assets and business of Lexin
Pharmaceutical Corporation, cardiovascular disorders and acute inflammation.
Sparta has not derived revenues from the sale of any products and expects to
incur substantial operating losses for the next several years. As of June 30,
1996, the Company's accumulated deficit was $14,830,995.
On March 15, 1996, Sparta acquired the assets and business of Lexin
Pharmaceutical Corporation ("Lexin") of Horsham, Pennsylvania. Lexin has been in
the business of developing and commercializing technology and compounds which
were licensed exclusively from the University of Pennsylvania and Wichita State
University and are directed at the potential treatment of a number of life
threatening diseases. The technology and compounds are related to inhibition of
serine proteases, which are enzymes which digest proteins and are implicated in
a number of diseases including cancer, cardiovascular disorders and acute
inflammation. Lexin's lead compound LEX032, is under option to Astra Merck Inc.
for acute pancreatitis.
The results of operations for the quarter and six months ended June 30,
1996 include the operating expenses for the Lexin business from the date of
acquisition and a charge for acquired research and development amounting to
$3,062,913 related to the Lexin acquisition. The Company's balance sheet at June
30, 1996 reflects the inclusion of the Lexin assets acquired.
Results of Operations
Three Months Ended June 30, 1995 and 1996
Revenue decreased from $40,454 for the three months ended June 30, 1995 to
$28,871 for the three months ended June 30, 1996 due primarily to a lower level
of interest income. Interest income decreased from $37,759 in the second quarter
of 1995 to $28,871 in the second quarter of 1996 due to a lower level of funds
available for investment. Interest income is likely to increase in the quarter
ending September 30, 1996 due to a higher level of funds available for
investment resulting from the Company's private placement of Units on July 3,
1996. Subsequently, interest income is likely to decrease as funds are consumed
by the operations of the Company, unless the Company is able to secure
additional funding. The amount of revenues may vary significantly year-to-year
and quarter-to-quarter and depend on, among other factors, the timing and amount
of future financings and the potential awarding of future grants and contracts.
Research and development expenses increased from $581,512 in the second
quarter of 1995 to $741,144 in the second quarter of 1996. This is largely
attributable to increased expense levels, resulting from the Lexin purchase, in
the areas of personnel, facility-related and legal offset by a net decrease in
outside development expenditures on certain drug candidates during the second
quarter of 1996. Subject to the receipt of additional funding, the Company
expects research and development expenses to increase during the next several
years as product development, preclinical and clinical trials, and regulatory
activities increase.
General and administrative expenses increased from $207,191 in the second
quarter of 1995 to $451,705 in the second quarter of 1996. This increase is
principally due to increases in financial advisory fees along with increased
expenditures in the areas of personnel, facility-related and legal as a result
of the Lexin purchase.
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The Company expects to incur substantial operating losses over the next
several years. The amount of net losses may vary significantly from year-to-year
and quarter-to-quarter and depend on, among other factors, the timing of
research and the progress of preclinical and clinical development programs.
Six Months Ended June 30, 1995 and 1996
Revenue decreased from $100,536 for the six months ended June 30, 1995 to
$47,584 for the six months ended June 30, 1996 due primarily to lower levels of
interest income. Interest income decreased from $83,661 for the six months ended
June 30, 1995 to $47,584 for the six months ended June 30, 1996 due to a lower
level of funds available for investment. Contract revenue decreased from $16,875
for the six months ended June 30, 1995 to $0 for the six months ended June 30,
1996. Contract revenues for the six months ended June 30, 1995 resulted from the
completion of work under a Phase I SBIR grant from the National Cancer
Institute, under which grant the Company produced and tested formulations of
etoposide utilizing its Spartaject(TM) Drug Delivery Technology and a fee for a
partially completed contract under which the Company provided a pharmaceutical
client with drug formulations utilizing its Spartaject(TM) Drug Delivery
Technology. The amount of revenues may vary significantly year-to-year and
quarter-to-quarter and depend on, among other factors, the timing and amount of
future financings and the potential awarding of future grants and contracts.
Research and development expenses increased from $958,185 for the six
months ended June 30, 1995 to $1,034,002 for the six months ended June 30, 1996.
This is largely attributable to increased expense levels, resulting from the
Lexin purchase, in the areas of personnel, facility-related and legal offset by
a net decrease in outside development expenditures on certain drug candidates
during the first six months of 1996. Subject to the receipt of additional
funding, the Company expects research and development expenses to increase
during the next several years as product development, preclinical and clinical
trials, and regulatory activities increase.
General and administrative expenses increased to $764,208 for the six
months ended June 30, 1996 from $464,763 for the six months ended June 30, 1995.
This increase is principally due to increases in financial advisory fees along
with increased expenditures in the areas of personnel, facility-related and
legal as a result of the Lexin purchase.
Liquidity and Capital Resources
On February 29, 1996, the Company completed a private placement of
$3,000,000 of its Series A Convertible Preferred Stock, $.001 par value per
share (the "Series A Preferred Stock"). The Series A Preferred Stock sold in the
financing is convertible at any time at the option of the holder at an initial
conversion price of $2.25 per share of common stock. In addition, the Series A
Preferred Stock is automatically convertible into the securities sold in the
Company's next equity offering of at least $2,500,000. The conversion price,
subject to certain adjustments, will be the lesser of $2.25 and 75% of the price
of the securities sold in the qualifying offering. In connection with the
private placement, the Company paid commissions of $300,000 and non-accountable
expense allowances of $90,000 to a company controlled by a significant
shareholder. In addition, the Company issued the placement agent a warrant to
purchase 30,000 shares of the Series A Preferred Stock , for an aggregate
purchase price of $375,000. Net proceeds of the financing after commissions,
legal fees and other expenses were approximately $2,570,000.
On July 3, 1996 and August 1, 1996, the Company held initial and interim
closings related to an ongoing private placement of equity securities. Gross
proceeds involved in the closings amounted to $3,290,000 and $2,997,500,
respectively. The securities sold were Units, or fractions thereof, and each
Unit was comprised of 10,000 shares of the Company's Series B Convertible
Preferred Stock , par value $.001 per share ("Series B Preferred Stock"), and
five-year warrants (the "Warrants") to purchase 66,667 shares of the Company's
Common Stock, par value $.001 per share ("Common Stock") at an exercise price of
$1.50 per share. Each Unit was priced at $100,000. The private placement has a
minimum offering size of 30 Units and a maximum offering size of 75 Units.
Additionally, the Company has granted the placement agent an over-allotment
option to offer for sale up to an additional 75 Units.
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The Series B Preferred Stock included in the Units is convertible at any
time at the option of the holder into shares of the Company's Common Stock at a
conversion price of $1.50 per share such that the 10,000 shares of the Company's
Series B Preferred Stock included in a Unit are convertible into 66,667 shares
of the Company's Common Stock . In addition, the currently outstanding shares of
the Company's Series A preferred stock will be automatically converted into
Units sold in this private placement as this financing is considered a Qualified
Offering.
In connection with the initial and interim closings of the Unit offering,
the Company paid aggregate commissions of $565,875 and non-accountable expense
allowances of $251,500 to a company controlled by a significant shareholder
which served as the Placement Agent. In addition, and in connection with the
initial and interim closings of the Unit offering, the Company is obligated to
issue to the Placement Agent a warrant to purchase 62,875 shares of Series B
Preferred Stock for an aggregate purchase price of $691,625 and warrants to
purchase 419,169 shares of the Company's Common Stock for an aggregate
consideration of $754,504.
In the event of a Liquidation Event ( as defined in the Company's Restated
Certificate of Incorporation), the holders of the Series B Preferred Stock are
entitled to be paid out of the assets of the Company available for distribution
to its shareholders an amount equal to $13.00 per share, plus an amount equal to
all declared and unpaid dividends thereon, before any payment is made in respect
of stock junior to the Series B Preferred Stock, including Common Stock. Holders
of Series B Preferred Stock are also entitled to dividends, if any, as shall be
declared on the Company's Common Stock or on any other class of preferred stock,
unless holders of at least 66 2/3% of the outstanding Series B Preferred Stock
consent otherwise.
The Company is obligated to , as soon as practicable, but not later than 30
days following the final closing of the private placement, file a registration
statement with the Securities and Exchange Commission with respect to the Common
Stock issuable upon conversion of the Series B Preferred Stock, the Common Stock
issuable upon exercise of the Warrants included in the Units, and the Warrants
(collectively, the "Registrable Securities"). The Company is obligated to use
its best efforts to cause the Registration Statement to be declared effective
and to remain effective until such time as the holders of the Registrable
Securities have completed the distribution described therein or at such time as
the holder may sell pursuant to an exemption under the Securities Act.
The Company has used approximately $10,174,746 to fund operations from
inception through June 30, 1996. The Company has financed its operations to date
from the proceeds of its private placement of Series A Preferred Stock, its
initial public offering in June and July 1994, prior placements of equity and
convertible debt securities and investment income. In 1996, the Company is
obligated under its license agreements to make minimum royalty payments and an
annual maintenance fee in the aggregate of $232,000, of which $27,000 has been
paid as of July 31, 1996. Under a collaboration and option agreement, the term
of which has been extended, the Company may have to make payments of up to
$225,000, of which approximately $72,000 had been paid as of July 31, 1996. The
Company currently anticipates making payments totaling $60,000 under this
agreement in 1996, none of which has been paid as of July 31, 1996. The Company
is a party to several research agreements, clinical trial production contracts
and agreements with clinical research organizations which require future
payments. The Company anticipates making payments of approximately $1,625,000
under the agreements which were in effect as of July 31, 1996. Provided that
there is adequate financing, the amount of the Company's obligations under
research agreements can be expected to increase. In addition, the Company is a
party to employment agreements with two of its executive officers and a former
executive officer as well as certain consulting agreements which provide for
aggregate annual, minimum payments of $500,000 and $97,000, respectively in
1996, of which $339,000 has been paid as of July 31, 1996. Upon the acquisition
of the assets and business of Lexin, Sparta assumed an operating lease
obligation which will require the Company to make payments of approximately
$100,000 in 1996. The Company has contracted with Cato Research Ltd. ("Cato") to
provide drug development services. Cato's services are paid for with a
combination of cash and Common Stock.
As of June 30, 1996, the Company had cash and cash equivalents of
$1,727,922, accounts payable and accrued expenses of $525,294, and working
capital of $1,249,282. The report of the Company's independent auditors on the
Company's financial statements as of December 31, 1995 and 1994 for the years
then ended and for the period from June
10
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12, 1990 (inception) to December 31, 1995 contains a paragraph regarding the
uncertainty with respect to the ability of the Company to continue as a going
concern.
The Company currently anticipates that the available cash, cash
equivalents, and investments will be sufficient to fund operations through the
third quarter of 1997. However, the Company may be required to obtain additional
financing to continue operations during such period in the event of cost
overruns or unanticipated expenses. The Company has experienced delays in
funding its planned research and development activities and will require
substantial additional funds to finance its business activities on an ongoing
basis. The Company's future capital requirements will depend on numerous
factors, including, but not limited to, progress in its research and development
programs, including preclinical and clinical trials, costs of filing and
prosecuting patent applications and, if necessary, enforcing issued patents or
obtaining additional licenses of patents, competing technological and market
developments, the cost and timing of regulatory approvals, the ability of the
Company to establish collaborative relationships, and the cost of establishing
manufacturing, sales and marketing capabilities. The Company has no current
commitment to obtain other additional funds and is unable to state the amount or
potential source of such other additional funds. Moreover, because of the
Company's potential long-term capital requirements, it may undertake additional
equity offerings whenever conditions are favorable, even if it does not have an
immediate need for additional capital at that time. There can be no assurance
that the Company will be able to obtain additional funding when needed, or that
such funding, if available, will be obtainable on reasonable terms. Any such
additional funding may result in significant dilution to existing stockholders.
If adequate funds are not available, the Company may be required to delay,
reduce or eliminate research and development programs, capital expenditures, and
other operating expenses. The Company may be required to obtain funds through
arrangements with collaborative partners that may require the Company to
relinquish certain material rights to its products that it would not otherwise
relinquish.
The Company's ability to raise funds is likely to be adversely affected if
it is unable to continue to meet the listing criteria on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") SmallCap
Market. The NASDAQ SmallCap Market listing criteria requires a minimum of
$2,000,000 in total assets and a minimum capital and surplus of $1,000,000. The
Company's assets fell below the required minimum during the third quarter of
1995. The Listing Qualifications Committee of NASDAQ (the "Qualifications
Committee") granted the Company a temporary exception from such requirements
subject to meeting certain conditions, one of which was the closing of the
recently completed private placement no later than February 29, 1996. On March
14, 1996, the Company was notified that it had satisfied the requirements for
continued listing. If the Company is unable to raise sufficient funds when
needed, thereby allowing it to remain in compliance with the listing
requirements, the Company will either have to significantly reduce its
operations, particularly its research and development, or it will cease to be in
compliance during such period. If the Company becomes unable to meet such
criteria and is delisted from NASDAQ, trading, if any, in the Common Stock would
thereafter be conducted in the over-the-counter market in the so-called "pink
sheets" or, if then available, the National Association of Securities Dealers
Inc.'s ("NASD") "Electronic Bulletin Board." If delisting occurs, the Company's
securities may also become "penny stock" as defined in the Securities Exchange
Act of 1934, which may also adversely affect the Company's ability to raise
funds. As a result, an investor would likely find it more difficult to dispose
of, or to obtain accurate quotations as to the value of, the Company's
securities.
11
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PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
On July 3 and August 1, 1996, the Company held closings related to its
private placement of Series B Preferred Stock. In the event of a
Liquidation Event ( as defined in the Company's Restated Certificate of
Incorporation), holders of Series B Preferred Stock have a liquidation
preference with respect to their shares over holders of Common Stock.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of the shareholders of Sparta Pharmaceuticals,
Inc. was held on June 17, 1996.
(b) Not applicable.
(c) Matters Voted Upon:
Election of Directors. Lindsay A. Rosenwald, M.D. and Jerry B. Hook,
Ph.D. were re-elected to the Board of Directors in an uncontested
election.
Votes were cast as follows:
For both candidates: 5,494,969
Withheld for each candidate: 31,411
Proposal to increase by 500,000 shares the aggregate number of shares
for which stock rights may be granted under the 1991 Stock Plan.
Votes were cast as follows:
For: 4,327,516
Against: 254,426
Abstentions: 40,931
Broker non-votes: 903,507
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.
Votes were cast as follows:
For: 5,411,979
Against: 53,745
Abstentions: 35,931
12
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Broker non-votes: 24,725
Proposal to ratify the appointment of Arthur Andersen LLP as the
Company's independent public accountants for the fiscal year ending
December 31, 1996.
Votes were cast as follows
For: 5,437,460
Against: 1,220
Abstentions: 87,700
(d) Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
%%%2.1 -- Copy of the Asset Purchase Agreement, with exhibits thereto, dated
February 22, 1996, between the Registrant and Lexin Pharmaceutical
Corporation
3.4 -- Amended and Restated Certificate of Incorporation filed August 1,
1996.
**4.2 -- Form of Common Stock Certificate
**4.3 -- Form of Class A Warrant Certificate
**4.4 -- Form of Class B Warrant Certificate
***4.5 -- Unit Purchase Option granted to Americorp Securities Inc. dated
June 28, 1994
***4.6 -- Warrant Agreement entered into among Midlantic National Bank,
Americorp Securities, Inc., and the Registrant dated June 21, 1994
*+10.1 -- Exclusive License Agreement, dated October 1, 1991, between the
Registrant and Yale University ("Yale") and Subscription Agreement,
dated October 21, 1991, between the Registrant and Yale
*+10.1A -- Revised pages of Exhibit 10.1
*+10.2 -- License Agreement, dated October 7, 1991, between the Registrant
and The Research Foundation of State University of New York
*+10.2A -- Revised pages of Exhibit 10.2
*+10.3 -- Research and License Agreement, dated as of October 15, 1991,
between the Registrant and Institute of Materia Medica of the
Chinese Academy of Medical Sciences ("BIMM"), as amended by an
Amendment of Research and License Agreement, dated as of March 1,
1992, between the Registrant and BIMM
*+10.3A -- Revised pages of Exhibit 10.3
*+10.4 -- Licensing and First Refusal Agreement, dated as of March 12, 1992,
between the Registrant and the Dana-Farber Cancer Institute, Inc.
("Dana-Farber"), a Letter Agreement, dated March 12, 1992, between
the Registrant and Dana-Farber, and a
13
<PAGE>
Letter Agreement, dated September 12, 1992, between the Registrant
and Dana-Farber
*+10.4A -- Revised pages of Exhibit 10.4
*+10.5 -- License Agreement, dated as of August 31, 1992, between the
Registrant and Imperial Chemical Industries PLC
*+10.5A -- Revised pages of Exhibit 10.5
*10.6 -- Letter Agreement, dated October 30, 1992, among the Registrant,
Imperial Chemical Industries PLC, and ICI Bioscience Limited
*+10.7 -- Collaboration and Option Agreement, dated September 18, 1992, by
and among the Registrant, Cancer Research Campaign and Cancer
Research Campaign Technology Limited
*+10.7A -- Revised pages of Exhibit 10.7
*+10.8 -- Sublicense Agreement, dated July 13, 1992, between the Registrant
and Research Triangle Pharmaceuticals Ltd. ("RTP"), as amended by a
Letter Agreement, dated October 27, 1992, between the Registrant
and RTP and by a Second Amendment to Sublicense Agreement, dated
March 19, 1993, between the Registrant and RTP
*+10.8A -- Revised pages of Exhibit 10.8
*+10.9 -- Service Agreement, dated November 27, 1991, between the Registrant
and Cato Research, Ltd. ("Cato"), as amended by a Letter Agreement,
dated March 16, 1993, between the Registrant and Cato
*10.9A -- Revised pages of Exhibit 10.9
*10.10 -- Letter Agreement, dated October 28, 1991, between the Registrant
and Cato
*10.11 -- Subscription Agreement, dated November 27, 1991, between the
Registrant and Cato Holding Co
*10.12 -- Subscription Agreement, dated December 10, 1993, between the
Registrant and Cato Holding Co.
*10.13 -- Employment Agreement, dated as of January 28, 1991, between the
Registrant and William M. Sullivan, as amended by a Letter
Agreement, dated as of March 2, 1993, between the parties
*10.14 -- Nonqualified Stock Option Agreement, dated as of December 3, 1991,
between the Registrant and William M. Sullivan
*10.15 -- Confidentiality Agreement, dated as of January 28, 1991, between
the Registrant and William M. Sullivan
*10.16 -- Employment Agreement, dated July 2, 1992, between the Registrant
and William McCulloch, as amended by a Letter Agreement, dated as
of March 2, 1993, between the parties, and Guarantee by The Castle
Group Ltd.
*10.17 -- Incentive Stock Option Agreement, dated as of October 1, 1992,
between the Registrant and William McCulloch
*10.18 -- Nonqualified Stock Option Agreement, dated as of October 1, 1992,
between the Registrant and William McCulloch
*10.19 -- Nonqualified Stock Option Agreement, dated as of October 1, 1992,
between the Registrant and William McCulloch
*10.20 -- Confidentiality Agreement, dated as of July 2, 1992, between the
Registrant and William McCulloch
*10.21 -- Noncompetition Agreement, dated as of October 1, 1992, between the
Registrant and William McCulloch
*10.22 -- Employment Agreement, dated September 10, 1992, between the
Registrant and Richard N. Scott, as amended by a Letter Agreement,
dated as of March 2, 1993, between the parties, and Guarantee by
The Castle Group Ltd.
*10.23 -- Incentive Stock Option Agreement, dated as of September 10, 1992,
between the Registrant and Richard N. Scott
14
<PAGE>
*10.24 -- Nonqualified Stock Option Agreement, dated as of September 10,
1992, between the Registrant and Richard N. Scott
*10.25 -- Confidentiality Agreement, dated as of September 10, 1992, between
the Registrant and Richard N. Scott
*10.26 -- Confidentiality Agreement, dated as of September 10, 1992, between
the Registrant and John S. McBride
*10.27 -- Letter Agreement, dated March 23, 1993, between the Registrant and
Paramount Capital, Inc., as amended by Letter Agreements dated June
24, 1993, June 28, 1993, September 24, 1993 and November 5, 1993
*10.28 -- Indemnification Agreement, dated as of June 3, 1992, between the
Registrant and The Castle Group Ltd. relative to William McCulloch
*10.29 -- Indemnification Agreement, dated as of September 15, 1992, between
the Registrant and The Castle Group Ltd. relative to Richard N.
Scott
*10.30 -- 1991 Stock Plan, as amended
*10.31 -- Stock Repurchase Agreement, dated as of November 21, 1991, between
the Registrant and Peter Barton Hutt
*10.32 -- Stock Repurchase Agreement, dated as of October 25, 1991, between
the Registrant and Charles O. O'Brien
*10.33 -- Stock Repurchase Agreement, dated as of October 15, 1991, between
the Registrant and Sir John Vane
*10.34 -- Stock Repurchase Agreement, dated as of December 24, 1991, between
the Registrant and The Sir John Vane Trust
*10.35 -- Stock Repurchase Agreement, dated as of October 5, 1993, between
the Registrant and Richard N. Scott and related Assignment of even
date between the parties
*10.36 -- Form of convertible notes issued on or prior to October 28, 1993
and schedule of purchasers of notes
*10.37 -- Form of Note Purchase and Subscription Agreement for issuance of
convertible notes issued prior to October 28, 1993 and schedule of
purchasers of notes
*10.38 -- Form of convertible notes issued in November 1993 and schedule of
purchasers of notes
*10.39 -- Note Purchase and Subscription Agreement dated as of November 12,
1993 between the Registrant and Financial Strategic Portfolios,
Inc. -- Health Sciences Portfolio ("FSP") for issuance of
convertible notes (See Exhibit 10.38 hereunder for Exhibit A to
this Exhibit 10.39)
*10.40 -- Form of Note Purchase and Subscription Agreement for issuance of
convertible notes issued in November 1993 other than to FSP
*10.41 -- Form of Note Purchase and Exchange Agreement for exchange of
convertible notes, form of convertible notes and schedule of
parties thereto
*10.41A -- Revised schedule of parties to Exhibit 10.41
*10.42 -- Stock Purchase and Exchange Agreement, dated as of December 10,
1993, between the Registrant and FBL Ventures of South Dakota
*10.43 -- Registration Rights Agreement, dated November 12, 1993, among the
Registrant and certain rights holders, as amended as of December
14, 1993
*10.44 -- Subscription Agreement dated September 14, 1992 and Letter
Agreements dated October 12, 1992 and December 13, 1993, between
the Registrant and Yale University
*10.44A -- Letter Agreement dated January 4, 1994
*10.45 -- Noncompetition Agreement, dated as of September 10, 1992, between
the Registrant and Richard N. Scott
***10.46 -- M/A Agreement between the Registrant and Americorp Securities, Inc.
dated June 28, 1994
15
<PAGE>
**10.47 -- Form of Warrant Purchase Agreement among the Registrant; Healthcare
Capital Investments, Inc. and Societe Generale Securities
Corporation; and the Holders listed on Schedule I thereto
**10.48 -- Form of Warrant Purchase Agreement among the Registrant, Paramount
Capital, Inc. and the Holders listed on Schedule I thereto
***10.49 -- Underwriting Agreement between the Registrant and Americorp
Securities, Inc. dated June 21, 1994
***10.50 -- Unit Purchase Option granted to LT Lawrence & Company, Inc. dated
June 28, 1994
#10.51 -- Nonqualified Stock Option Agreement, dated as of December 16, 1994,
between the Registrant and William M. Sullivan
#10.52 -- Nonqualified Stock Option Agreement, dated as of July 10, 1994,
between the Registrant and Sir John Vane, FSR
#10.53 -- Nonqualified Stock Option Agreement, dated as of July 10, 1994,
between the Registrant and Charles O. O'Brien
#10.54 -- Nonqualified Stock Option Agreement, dated as of July 10, 1994,
between the Registrant and Peter Barton Hutt
#10.55 -- Incentive Stock Option Agreement, dated as of December 16, 1994,
between the Registrant and William McCulloch
#10.56 -- Amendment (as of March 14, 1994) to the Employment Agreement, dated
July 2, 1992, between the Registrant and William McCulloch, as
amended by a Letter Agreement, dated as of March 2, 1993, between
the parties, and Guaranteed by The Castle Group Ltd.
#10.57 -- Amendment (dated November 26, 1994) to the Service Agreement, dated
November 27, 1991, between the Registrant and Cato Holding Co.
#10.58 -- Amendment (dated December 16, 1994) to the Employment Agreement,
dated January 28, 1991, between the Registrant and William M.
Sullivan, as amended by a Letter Agreement, dated as of March 2,
1993, between the parties
##10.59 -- Nonqualified Stock Option Agreement, dated as of June 7, 1995,
between the Registrant and Sir John Vane, FSR
##10.60 -- Nonqualified Stock Option Agreement, dated as of June 7, 1995,
between the Registrant and Charles O. O'Brien
##10.61 -- Nonqualified Stock Option Agreement, dated as of June 7, 1995,
between the Registrant and Peter Barton Hutt
##10.62 -- Amendment (dated June 1, 1995) to the Research and License
Agreement, dated as of October 15, 1991, between the Registrant and
Institute of Materia Medica of the Chinese Academy of Medical
Sciences ("BIMM"), as amended by an Amendment of Research and
License Agreement, dated as of March 1, 1992, between the
Registrant and BIMM
^10.63 -- Financial Advisory Agreement between the Registrant and Americorp
Securities, Inc., dated as of June 29, 1995
%10.64 -- Amendment (dated as of September 14, 1994) to the Collaboration and
Option Agreement, dated September 18, 1992, by and among the
Registrant, Cancer Research Campaign and Cancer Research Campaign
Technology Limited
%%10.65 -- Form of Nonqualified Stock Option Agreement, dated as of December
10, 1995, between the Company and William M. Sullivan
%%10.66 -- Incentive Stock Option Agreement, dated as of December 10, 1995,
between the Company and William McCulloch
%%10.67 -- Distribution Agreement, dated as of December 1, 1995, among Sparta
Pharmaceuticals, Inc., Orphan Europe SARL and Swedish Orphan, AB
%%10.68 -- Warrant Agreement between Sparta Pharmaceuticals, Inc. and
Paramount Capital,
16
<PAGE>
Inc., dated February 29, 1996
^10.69 -- Financial advisory agreement between the Registrant and Paramount
Capital, Inc. dated as of February 29, 1996
^^!10.70 -- Evaluation and option agreement between Lexin Pharmaceutical
Corporation and Astra Merck, Inc. dated as of October 25, 1995
(Assigned to Registrant pursuant to the Lexin purchase)
^^!10.71 -- Collaborative Research and Licensing Agreement between Lexin
Pharmaceutical Corporation and Wichita State University dated as of
April 1, 1994 (Assigned to Registrant pursuant to the Lexin
purchase)
^^!10.72 -- License Agreement between PI Research Corporation (predecessor in
name to Lexin Pharmaceutical Corporation) and the Trustees of The
University of Pennsylvania dated as of January 2, 1992 (Assigned to
Registrant pursuant to the Lexin purchase)
^10.73 -- Amendment (dated March 15, 1996) to the Employment Agreement dated
January 28, 1991, between the Registrant and William M. Sullivan,
as amended by letter agreements, dated as of March 2, 1993 and
December 16, 1994, between the parties
^10.74 -- Placement Agency Agreement between the Registrant and Paramount
Capital, Inc., dated as of January 22, 1996
10.75 -- Placement Agency Agreement between the Registrant and Paramount
Capital, Inc., dated as of June 3, 1996
10.76 -- Amendment (dated January 10, 1996) to the Stock Option Agreements
between the Registrant and William McCulloch dated as of October 1,
1992, December 1, 1996, December 16, 1994 and December 11, 1995
10.77 -- Amendment (dated March 29, 1996) to the Collaborative Research and
Licensing Agreement between Lexin Pharmaceutical Corporation and
Wichita State University dated as of April 1, 1994 (Assigned to
Registrant pursuant to the Lexin purchase)
11.1 -- Statement Re Computation of Per Share Earnings
27 -- Financial Data Schedule
- ----------
* Previously filed with the Company's Registration Statement on Form S-l,
Registration Number 33-72882, filed on December 14, 1993, or amendments
thereto, and are incorporated by reference herein.
** Previously filed with the Company's Registration Statement on Form S-l,
Registration Number 33-78086, filed on April 25, 1994, or in Amendment No.
1 thereto, filed on June 1, 1994.
*** Previously filed with the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1994, filed on August 15, 1994 and are
incorporated by reference herein.
# Previously filed with the Company's 1994 Annual Report on Form 10-K, filed
on March 31, 1995, and are incorporated by reference herein.
## Previously filed with the Company's Quarterly Report on form 10-Q for the
quarterly period ended June 30, 1995, filed on August 14, 1995.
### Previously filed with the Company's Amendment No. 1 to the Quarterly Report
on Form 10-Q for the quarterly period ended September 30, 1995, filed on
January 24, 1996.
% Previously filed with the Company's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1995, filed on November 14, 1995.
%% Previously filed with the Company's 1995 Annual Report on Form 10-K, filed
on April 1, 1996, and are incorporated by reference herein.
%%% Previously filed with the Company's report on Form 8-K filed on April 1,
1996, and is incorporated by reference herein.
+ Confidential Treatment has been granted by the Securities and Exchange
Commission.
! Confidential Treatment has been requested from the Securities and Exchange
Commission.
17
<PAGE>
^ Previously filed with the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1996, filed on May 15, 1996.
^^ Previously filed with the Company's Quarterly Report on Form 10-Q/A for the
quarterly period ended March 31, 1996, filed on July 17, 1996.
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the quarter:
On April 1, 1996, a report on Form 8-K dated March 15, 1996 was filed with
the Securities and Exchange Commission announcing the acquisition of the assets
and business of Lexin Pharmaceutical Corporation. The report also announced the
appointments of Dr. Jerry B. Hook, former President, CEO and Director of Lexin,
and Ronald H. Spair, former Vice President and Chief Financial Officer of Lexin,
to those positions at Sparta. Richard L. Sherman, a former Director of Lexin was
appointed a Director of Sparta Pharmaceuticals, Inc. It was impracticable to
provide the required financial statements for Lexin Pharmaceutical Corporation
at the date of filing. The statements were filed via an amendment to the report
on Form 8-K filed on May 3, 1996.
On May 3, 1996, a report on Form 8-K dated April 30, 1996 was filed with
the Securities and Exchange Commission announcing a change in the Registrant's
independent public accountants.
On May 3, 1996, a report on Form 8-K/A dated March 15, 1996 was filed with
the Securities and Exchange Commission amending the Form 8-K dated March 15,
1996 announcing the acquisition of the assets and liabilities of Lexin
Pharmaceutical Corporation. This amendment contains the required financial
statements omitted from the original filing.
On June 4, 1996, a report on Form 8-K dated May 15, 1996 was filed with the
Securities and Exchange Commission which included a press release announcing
that the Company had received clearance from the Food and Drug Administration to
begin clinical trials with 5-fluoro pyrimidinone (5-FP), an orally bioavailable
prodrug of the widely used anti-cancer agent, 5-fluorouracil (5-FU).
18
<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.
Sparta Pharmaceuticals, Inc.
August 9, 1996 By: /s/ Jerry B. Hook President and Chief Executive
- --------------- ----------------------- Officer (principal executive
Date Jerry B. Hook, Ph.D. officer) and Director
August 9, 1996 By: /s/ Ronald H. Spair Vice President and Chief
- --------------- ----------------------- Financial Officer (principal
Date Ronald H. Spair Financial Officer)
19
EXHIBIT 3.4
RESTATED
CERTIFICATE OF INCORPORATION
OF
SPARTA PHARMACEUTICALS, INC.
(formerly MediRx Pharmaceuticals, Inc.)
Adopted in accordance with the
provisions of Sections 242 and 245
of the Delaware General Corporation Law
The Certificate of Incorporation of Sparta Pharmaceuticals, Inc. (the
"Corporation"), as originally filed with the Secretary of State of the State of
Delaware on June 12, 1990 and as amended by the filing with the Secretary of
State of the State of Delaware of Certificates of Stock Designation on December
30, 1991, September 20, 1993 and December 10, 1993, of Certificates of Amendment
on May 31, 1991, August 23, 1991, March 3, 1993, December 10, 1993 and December
10, 1993, a Certificate of Retirement of Stock on September 21, 1993, a
Certificate of Retirement of Stock on March 5, 1996, a Certificate of Stock
Designation on February 26, 1996, a Certificate of Stock Designation on July 3,
1996 and an Amended Certificate of Stock Designation on August 1, 1996, is
hereby amended and restated as set forth below pursuant to a resolution adopted
by the Board of Directors of the Corporation acting at a meeting held in
accordance with the provisions of the General Corporation Law of the State of
Delaware and the By-laws of the Corporation and pursuant to a resolution adopted
by holders of a majority of the outstanding shares of Common Stock and Preferred
Stock, voting together as a class, at a meeting duly called in accordance with
the provisions of Section 222 the General Corporation Law of the State of
Delaware and the By-Laws of the Corporation.
THE UNDERSIGNED does hereby certify as follows:
FIRST: The name of the Corporation (hereinafter referred to as the
"Corporation") is
SPARTA PHARMACEUTICALS, INC.
SECOND: The registered office of the Corporation in the State of Delaware
is 1013 Centre Road, City of Wilmington, County of New Castle, Delaware. The
name of its registered agent at that address is The Prentice-Hall Corporation
System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the laws of the General
Corporation Law of the State of Delaware.
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
1
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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 and 3,000,000 of the par value of $.001 each shall be designated
Series B Convertible Preferred Stock. The number of authorized shares of
Preferred Stock may be increased or decreased (but not below the number thereof
then outstanding) by the affirmative vote of the holders of a majority of the
capital stock of the Corporation entitled to vote, voting together as a single
class, without a vote of the holders of the Preferred Stock, or of any series
thereof, as a separate class or series, unless a vote of any such holders is
required pursuant to the terms of any series of Preferred Stock, as such terms
may be established in accordance with the following provisions of this Article
FOURTH, subject in any event to the provisions of Article TENTH of this Restated
Certificate of Incorporation.
The relative powers, designations, preferences, special rights,
restrictions and other matters relating to such Common Stock, the Preferred
Stock, the Series A Convertible Preferred Stock and the Series B Convertible
Preferred Stock are as set forth below in this Article FOURTH. The Preferred
Stock, the Series A Convertible Preferred Stock and the Series B Convertible
Preferred Stock are sometimes referred to herein collectively as the "Preferred
Stock" and the shares of Preferred Stock which are not designated as shares of
Series A Convertible Preferred Stock or Series B Convertible Preferred Stock are
sometimes referred to herein as the "Undesignated Preferred Stock."
B. Common Stock.
1. General. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
Preferred Stock, if any.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held. There shall be no cumulative voting.
3. Dividends. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors, subject to any provision of this Restated Certificate of
Incorporation, as amended from time to time, and subject to the relative rights
and preferences of any shares of Preferred Stock authorized and issued
hereunder.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the
2
<PAGE>
Corporation available for distribution to its stockholders, subject, however, to
the liquidation rights of the holders of Preferred Stock authorized and issued
hereunder.
C. Undesignated Preferred Stock.
The Undesignated Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of shares of Undesignated
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware (such certificate being hereinafter
referred to as a "Preferred Stock Designation"), to establish from time to time
the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof. The Board of
Directors is also expressly authorized to increase or decrease the number of
shares of any such series prior to the issue of shares of that series. In case
the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series. The number of authorized shares of Undesignated Preferred Stock may be
increased or decreased (but not below the number thereof then outstanding) by
the affirmative vote of the holders of a majority of the Common Stock, without a
vote of the holders of the Preferred Stock, or of any series thereof, unless a
vote of any such holders is required pursuant to the terms of any Preferred
Stock then outstanding, subject in any event to the provisions of Article TENTH
of this Restated Certificate of Incorporation.
D. Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock.
(i). Series A Convertible Preferred Stock.
1. Designation and Amount. There shall be a series of Preferred Stock
designated as "Series A Convertible Preferred Stock" and the number of
shares constituting such series shall be 330,000. Such series is referred
to herein as the "Series A Convertible Preferred Stock." Such number of
shares may be increased or decreased by resolution of the Board of
Directors of the Corporation; provided, however, that no decrease shall
reduce the number of shares of Series A Convertible Preferred Stock to less
then the number of shares then issued and outstanding.
2. Dividends. Subject to the prior and superior rights of the holders
of any shares of any series of Preferred Stock ranking prior and superior
to the shares of
3
<PAGE>
Series A Convertible Preferred Stock with respect to dividends and
distributions, the holders of shares of Series A Convertible Preferred
Stock, shall be entitled to receive dividends and distributions, when, as
and if declared by the Board of Directors out of funds legally available
for such purpose. If the Corporation declares a dividend or distribution on
the common stock, par value $.001 per share (the "Common Stock"), of the
Corporation, the holders of shares of Series A Convertible Preferred Stock
shall be entitled to receive for each share of Series A Convertible
Preferred Stock a dividend or distribution in the amount of the dividend or
distribution that would be received by a holder of the Common Stock into
which such share of Series A Convertible Preferred Stock is convertible on
the record date for such dividend or distribution. If the Corporation
declares a dividend or distribution on any other class or series of
preferred stock, the holders of shares of Series A Convertible Preferred
Stock shall be entitled to receive a dividend or distribution in an amount
per share in proportion to the dividend or distribution declared on a share
of such other class or series based upon the liquidation preference of a
share of the Series A Convertible Preferred Stock relative to that of a
share of such other class or series, unless the holders of at least 66-2/3%
of the outstanding shares of Series A Convertible Preferred Stock consent
otherwise. In any such case, the Corporation shall declare a dividend or
distribution on the Series A Convertible Preferred Stock at the same time
that it declares a dividend or distribution on the Common Stock or such
other class or series of preferred stock and shall establish the same
record date for the dividend or distribution on the Series A Convertible
Preferred Stock as is established for such dividend or distribution on the
Common Stock or such other class or series of preferred stock. Each such
dividend or distribution will be payable to holders of record of the Series
A Convertible Preferred Stock as they appeared on the records of the
Corporation at the close of business on the record date declared for such
dividend or distribution, as shall be fixed by the Board of Directors. If
the Corporation declares or pays a dividend or distribution on the Series A
Convertible Preferred Stock as a result of the declaration or payment of a
dividend or distribution on the Common Stock or any other class or series
of preferred stock as described above, the holders of the Series A
Convertible Preferred Stock shall not be entitled to any additional
dividend or distribution solely because such first dividend or distribution
also required the declaration or payment of a dividend or distribution on
any other class or series of preferred stock. Any reference to
"distribution" contained in this Section 2 shall not be deemed to include
any distribution made in connection with
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any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
3. Liquidation Preference. In the event of a (i) liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary or (ii) a sale or other disposition of all or substantially all
of the assets of the Corporation (a "Liquidation Event"), after payment or
provision for payment of debts and other liabilities of the Corporation,
the holders of the Series A Convertible Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available
for distribution to its shareholders, whether such assets are capital,
surplus, or earnings, before any payment or declaration and setting apart
for payment of any amount shall be made in respect of the stock junior to
the Series A Convertible Preferred Stock, an amount equal to $10.00 per
share plus an amount equal to all declared and unpaid dividends thereon, if
any. If upon any Liquidation Event, whether voluntary or involuntary, the
assets to be distributed to the holders of the Series A Convertible
Preferred Stock shall be insufficient to permit the payment to such
shareholders of the full preferential amounts aforesaid, then all of the
assets of the Corporation to be distributed shall be so distributed ratably
to the holders of the Series A Convertible Preferred Stock on the basis of
the number of shares of Series A Convertible Preferred Stock held. A
consolidation or merger of the Corporation with or into another corporation
shall not be considered a liquidation, dissolution or winding up of the
Corporation or a sale or other disposition of all or substantially all of
the assets of the Corporation. All shares of Series A Convertible Preferred
Stock shall rank as to payment upon the occurrence of any of the events
described in clauses (i) and (ii) above senior to the Common Stock as
provided herein and, unless the terms of such series shall provide
otherwise, senior to all other series of the Corporation's preferred stock.
4. Conversion.
(a) Right of Conversion. The shares of Series A Convertible
Preferred Stock shall be convertible, in whole or in part, at the option of
the holder thereof and upon notice to the Corporation as set forth in
paragraph (b) below, into fully paid and nonassessable shares of Common
Stock and such other securities and property as hereinafter provided. The
shares of Series A Convertible Preferred Stock shall be convertible
initially at the rate of 4.444444 shares of Common Stock for each full
share of Series A Convertible Preferred Stock and shall be subject to
adjustment as provided herein. For purposes of this
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resolution, the "conversion rate" applicable to a share of Series A
Convertible Preferred Stock shall be the number of shares of Common Stock
and number or amount of any other securities and property as hereinafter
provided into which a share of Series A Convertible Preferred Stock is then
convertible and shall be determined by dividing the then existing
conversion price into $10.00 (subject to appropriate adjustment upon any
stock split of, stock dividend on, combination of or other recapitalization
of the Series A Convertible Preferred Stock (a "Preferred Stock
Recapitalization Event")). The initial conversion price shall be $2.25 (the
"conversion price").
(b) Conversion Procedures. Any holder of shares of Series A
Convertible Preferred Stock desiring to convert such shares into Common
Stock shall surrender the certificate or certificates evidencing such
shares of Series A Convertible Preferred Stock at the office of the
transfer agent for the Series A Convertible Preferred Stock, which
certificate or certificates, if the Corporation shall so require, shall be
duly endorsed to the Corporation or in blank, or accompanied by proper
instruments of transfer to the Corporation or in blank, accompanied by
irrevocable written notice to the Corporation that the holder elects so to
convert such shares of Series A Convertible Preferred Stock and specifying
the name or names (with address) in which a certificate or certificates
evidencing shares of Common Stock are to be issued. The Corporation need
not deem a notice of conversion to be received unless the holder complies
with all the provisions hereof. The Corporation will instruct the transfer
agent (which may be the Corporation) to make a notation of the date that a
notice of conversion is received, which date shall be deemed to be the date
of receipt for purposes hereof.
The Corporation shall, as soon as practicable after such deposit of
certificates evidencing shares of Series A Convertible Preferred Stock
accompanied by the written notice and compliance with any other conditions
herein contained, deliver at such office of such transfer agent to the
person for whose account such shares of Series A Convertible Preferred
Stock were so surrendered, or to the nominee or nominees of such person,
certificates evidencing the number of full shares of Common Stock to which
such person shall be entitled as aforesaid, together with a cash adjustment
of any fraction of a share as hereinafter provided. Subject to the
following provisions of this paragraph, such conversion shall be deemed to
have been made as of the date of such surrender of the shares of Series A
Convertible Preferred Stock to be converted, and the person or persons
entitled to receive the Common Stock deliverable upon conversion of such
Series A Convertible Preferred Stock
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shall be treated for all purposes as the record holder or holders of such
Common Stock on such date; provided, however, that the Corporation shall
not be required to convert any shares of Series A Convertible Preferred
Stock while the stock transfer books of the Corporation are closed for any
purpose, but the surrender of Series A Convertible Preferred Stock for
conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books as if
the surrender had been made on the date of such reopening, and the
conversion shall be at the conversion rate in effect on such date. No
adjustments in respect of any dividends on shares surrendered for
conversion or any dividend on the Common Stock issued upon conversion shall
be made upon the conversion of any shares of Series A Convertible Preferred
Stock.
All notices of conversion shall be irrevocable; provided, however,
that if the Corporation has sent notice of an event pursuant to Section
4(g) hereof, a holder of Series A Convertible Preferred Stock may, at its
election, provide in its notice of conversion that the conversion of its
shares of Series A Convertible Preferred Stock shall be contingent upon the
occurrence of the record date or effectiveness of such event (as specified
by such holder), provided that such notice of conversion is received by the
Corporation prior to such record date or effective date, as the case may
be.
(c) Certain Adjustments of Conversion Rate. In addition to
adjustment pursuant to paragraph (a) above, the conversion rate (and the
corresponding conversion price) shall be subject to adjustment from time to
time as follows:
(i) In case the Corporation shall at any time or from time to time (A) pay
a dividend in Common Stock on the Common Stock or make a distribution
in Common Stock on the Common Stock, (B) subdivide its outstanding
Common Stock, (C) combine its outstanding Common Stock into a smaller
number of shares of Common Stock or (D) issue by reclassification of
its Common Stock other securities of the Corporation, then in each
such case the conversion rate in effect immediately prior thereto
shall be adjusted so that the holder of any shares of Series A
Convertible Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the kind and number of shares of Common
Stock or other securities of the Corporation which such holder would
have owned or would have been entitled to receive immediately after
the happening of the events described above had such shares of Series
A Convertible Preferred Stock been converted immediately prior to the
happening
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<PAGE>
of the first such event or any record date with respect thereto. Any
adjustment made pursuant to this subparagraph (i) shall become
effective immediately after the effective date of such event
retroactive to the record date, if any, for such event, but shall be
subject to further adjustment upon any subsequent event.
(ii) In case the Corporation shall issue rights, options, warrants or
convertible securities to all or substantially all holders of its
Common Stock, without any charge to such holders, entitling them to
subscribe for or purchase Common Stock at a price per share which is
lower at the record date mentioned below than the closing price (as
defined in Section 5) for the trading day immediately prior to such
record date (the "Current Market Price"), then the conversion rate
shall be determined by multiplying the conversion rate theretofore in
effect by a fraction, of which the numerator shall be the number of
shares of Common Stock outstanding immediately prior to the issuance
of such rights, options, warrants or convertible securities plus the
number of additional shares of Common Stock offered for subscription
or purchase, and of which the denominator shall be the number of
shares of Common Stock outstanding immediately prior to the issuance
of such rights, options, warrants or convertible securities plus the
number of shares which the aggregate offering price of the total
number of shares offered would purchase at such Current Market Price.
Such adjustment shall be made whenever such rights, options, warrants
or convertible securities are issued, and shall become effective
immediately and retroactive to the record date for the determination
of stockholders entitled to receive such rights, options, warrants or
convertible securities. "Trading day" shall mean a day on which the
national securities exchange or the NASDAQ National Market System used
to determine the closing price is open for the transaction of business
or the reporting of trades or, if the closing price is not so
determined, a day on which the American Stock Exchange is open for the
transaction of business.
(iii) In case the Corporation shall distribute to all or substantially all
holders of its Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions out of earnings) or rights,
options, warrants or convertible securities containing the right to
subscribe for or purchase Common Stock (excluding those referred to in
subparagraph (ii) above), then in each case the conversion rate shall
be determined by
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<PAGE>
multiplying the conversion rate theretofore in effect by a fraction,
of which the numerator shall be the then fair value as determined in
good faith by the Corporation's Board of Directors on the date of such
distribution, and of which the denominator shall be such fair value on
such date minus the then fair value (as so determined) of the portion
of the assets or evidences of indebtedness so distributed or of such
subscription rights, options, warrants or convertible securities
applicable to one share. Such adjustment shall be made whenever any
such distribution is made and shall become effective on the date of
distribution retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
(iv) Upon the expiration of any rights, options, warrants or conversion
privileges, if such shall not have been exercised, the conversion rate
shall, upon such expiration, be readjusted and shall thereafter be
such as it would have been had it been originally adjusted (or had the
original adjustment not been required, as the case may be) on the
basis of (A) the fact that Common Stock, if any, actually issued or
sold upon the exercise of such rights, options, warrants or conversion
privileges, and (B) the fact that such shares of Common Stock, if any,
were issued or sold for the consideration actually received by the
Corporation upon such exercise plus the consideration, if any,
actually received by the Corporation for the issuance, sale or grant
of all such rights, options, warrants or conversion privileges whether
or not exercised.
(v) No adjustment in the conversion rate shall be required unless such
adjustment would require an increase or decrease of at least 1% in
such rate; provided, however, that the Corporation may make any such
adjustment at its election; and provided, further, that any
adjustments which by reason of this subparagraph (v) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 4 shall be
made to the nearest cent or to the nearest one-hundredth of a share,
as the case may be.
(vi) Whenever the conversion rate is adjusted as provided in any provision
of this Section 4:
(A) the Corporation shall compute (or may retain a firm of
independent public accountants of recognized national standing
(which may be any such firm regularly employed by the
Corporation) to compute) the adjusted conversion rate in
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<PAGE>
accordance with this Section 4 and shall prepare a certificate
signed by the principal financial officer of the Corporation (or
cause any such independent public accountants to execute a
certificate) setting forth the adjusted conversion rate and
showing in reasonable detail the facts upon which such adjustment
is based, and such certificate shall forthwith be filed with the
transfer agent of the Series A Convertible Preferred Stock; and
(B) a notice stating that the conversion rate has been adjusted and
setting forth the adjusted conversion rate shall forthwith be
required, as soon as practicable after it is required, such
notice shall be mailed by the Corporation to all record holders
of Series A Convertible Preferred Stock at their last addresses
as they shall appear in the stock transfer books of the
Corporation.
(vii) In the event that at any time, as a result of any adjustment made
pursuant to this Section 4, the holder of any shares of Series A
Convertible Preferred Stock thereafter surrendered for conversion
shall become entitled to receive any shares of the Corporation other
than shares of Common Stock or to receive any other securities, the
number of such other shares or securities so receivable upon
conversion of any shares of Series A Convertible Preferred Stock shall
be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions contained in this
Section 4 with respect to the Common Stock.
(d) No Fractional Shares. No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon conversion of Series
A Convertible Preferred Stock. If more than one certificate evidencing
shares of Series A Convertible Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares
issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series A Convertible Preferred Stock so
surrendered. Instead of any fractional share of Common Stock which would
otherwise be issuable upon conversion of any shares of Series A Convertible
Preferred Stock, the Corporation shall pay a cash adjustment in respect of
such fractional interest in an amount equal to the same fraction of the
market price per share of Common Stock (which shall be the closing price as
defined in Section 5) at the close of business on the day of conversion.
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<PAGE>
(e) Consolidation; Merger; Etc. If the Corporation shall enter into
any consolidation, merger, combination or other transaction in which shares
of Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into other stock or securities,
cash and/or any other property (a "Merger Transaction"), then in any such
case the shares of Series A Convertible Preferred Stock shall at the same
time be similarly exchanged or changed in an amount per share equal to (x)
the conversion rate in effect at such time multiplied by (y) the number of
shares of such other stock or securities, cash and/or other property
exchanged for each share of Common Stock or into which each share of Common
Stock is changed.
(f) Reservation of Shares; Transfer Taxes; Etc. The Corporation shall
at all times reserve and keep available, out of its authorized and unissued
stock, solely for the purpose of effecting the conversion of the Series A
Convertible Preferred Stock, such number of shares of its Common Stock free
of preemptive rights as shall from time to time be sufficient to effect the
conversion of all shares of Series A Convertible Preferred Stock from time
to time outstanding. The Corporation shall use its best efforts from time
to time, in accordance with the laws of the State of Delaware, to increase
the authorized number of shares of Common Stock if at any time the number
of shares of Common Stock not outstanding shall not be sufficient to permit
the conversion of all the then-outstanding shares of Series A Convertible
Preferred Stock.
The Corporation shall pay any and all issue taxes that may be payable
in respect of any issue or delivery of shares of Common Stock on conversion
of the Series A Convertible Preferred Stock. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of Common Stock (or other
securities or assets) in a name other than that in which the shares of
Series A Convertible Preferred Stock so converted were registered, and no
such issue or delivery shall be made unless and until the person requesting
such issue has paid to the Corporation the amount of such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
Notwithstanding anything to the contrary herein, before taking any
action that would cause an adjustment reducing the conversion rate, such
that the effective conversion price (for all purposes an amount equal to
$10.00 divided by the conversion rate as in effect at such time) would be
below the then par value of the Common Stock, the Corporation shall take
any corporate action which may, in
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<PAGE>
the opinion of its counsel, be necessary in order that the Corporation may
validly and legally issue fully paid and nonassessable shares of Common
Stock at the conversion rate as so adjusted.
(g) Prior Notice of Certain Events. In case:
(i) the Corporation shall declare any dividend (or any other
distribution) on its Common Stock; or
(ii) the Corporation shall authorize the granting to all of the
holders of Common Stock of rights or warrants to subscribe
for or purchase any shares of stock of any class or of any
other rights or warrants; or
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock,
or a change in par value, or from par value to no par value,
or from no par value to par value), or of any consolidation
or merger to which the Corporation is a party and for which
approval of holders of Common Stock of the Corporation shall
be required, or of the sale or transfer of all or
substantially all of the assets of the Corporation or of any
compulsory share exchange whereby the Common Stock is
converted into other securities, cash or other property; or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation; or
(v) the Corporation shall consummate a Qualified Offering (as
defined below);
then the Corporation shall cause to be filed with the transfer agent for
the Series A Convertible Preferred Stock, and shall cause to be mailed to
the holders of record of the Series A Convertible Preferred Stock, at their
last addresses as they shall appear upon the stock transfer books of the
Corporation, at least 10 days prior to the applicable record date
hereinafter specified, a notice stating (x) the date on which a record (if
any) is to be taken for the purpose of such dividend, distribution or
granting of rights or warrants or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be
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<PAGE>
entitled to such dividend, distribution, rights or warrants are to be
determined and a description of the cash, securities or other property to
be received by such holders upon such dividend, distribution or granting of
rights or warrants or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution,
liquidation or winding up is expected to become effective, the date as of
which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such exchange, dissolution, liquidation or
winding up and the consideration, including securities or other property,
to be received by such holders upon such exchange; provided, however, that
no failure to mail such notice or any defect therein or in the mailing
thereof shall affect the validity of the corporate action required to be
specified in such notice.
(h) Other Changes in Conversion Rate. The Corporation from time to
time may increase the conversion rate by any amount for any period of time
if the period is at least 20 days and if the increase is irrevocable during
the period. Whenever the conversion rate is so increased, the Corporation
shall mail to holders of record of the Series A Convertible Preferred Stock
a notice of the increase at least 15 days before the date the increased
conversion rate takes effect, and such notice shall state the increased
conversion rate and the period it will be in effect.
The Corporation may make such increases in the conversion rate, in
addition to those required or allowed by this Section 4, as shall be
determined by it, as evidenced by a resolution of the Board of Directors,
to be advisable in order to avoid or diminish any income tax to holders of
Common Stock resulting from any dividend or distribution of stock or
issuance of rights or warrants to purchase or subscribe for stock or from
any event treated as such for income tax purposes. The Corporation shall
not be obligated to make any increase.
(i) Ambiguities/Errors. The Board of Directors of the Corporation
shall have the power to resolve any ambiguity or correct any error in the
provisions relating to the convertibility of the Series A Convertible
Preferred Stock, and its actions in so doing shall be final and conclusive.
5. Mandatory Conversion. (a)(i) The Series A Convertible Preferred
Stock shall be automatically converted upon the completion of the Qualified
Offering (as defined below) into Qualified Offering Securities (as defined
below) at the greater of (x) the then applicable conversion rate and (y) a
conversion rate equal to (A) $10.00 (which shall
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<PAGE>
be appropriately adjusted upon any Preferred Stock Recapitalization Event)
divided by (B) the Per Unit Offering Price (as defined below) of the
securities offered in the Qualified Offering multiplied by .75. As used
herein, the Per Unit Offering Price shall mean (l) if the only security
issued or sold in the Qualified Offering is Common Stock, the offering
price of one share of Common Stock, (2) if the only security issued or sold
in the Qualified Offering is a Convertible Security, the offering price of
one share of such Convertible Security (as defined below) (or if the
Convertible Security is issued in dollar denominations, of such minimum
dollar denomination in which such Convertible Security is issued) divided
by the number of shares of Common Stock issuable upon conversion or
exchange of the Convertible Securities and (3) the offering price of one
unit issued or sold in the Qualified Offering divided by the sum of the
number of shares of Common Stock included in such unit and the number of
shares of Common Stock issuable upon conversion or exchange of the
Convertible Securities included in such unit. As used herein, the
"Qualified Offering Securities" into which the Series A Convertible
Preferred Stock is convertible shall refer to the securities (whether they
are Common Stock, Convertible Securities, units of Common Stock and/or
Convertible Securities or units of Common Stock or Convertible Securities
and warrants or other similar rights) issued or sold in the Qualified
Offering. In the event of (2) or (3) above, the conversion rate as
determined above shall be adjusted by dividing such conversion rate by
either (x) in the case of a Convertible Security, by the number of shares
of Common Stock issuable upon conversion or exchange of one share of such
Convertible Security (or if the Convertible Security is issued in dollar
denominations, such minimum dollar denomination of such Convertible
Securities as used in (2) above) or (y) in the case of a unit, the sum of
the number of shares of Common Stock included in such unit and the number
of shares of Common Stock issuable upon conversion or exchange of the
Convertible Securities included in such unit. As used herein, "Convertible
Security" and "Convertible Securities" shall mean any security convertible
into or exchangeable for a share or shares of Common Stock without the
payment of any additional consideration in such conversion or exchange
other than the delivery of such security, but shall not include a warrant
or option to purchase Common Stock or to purchase a Convertible Security,
whether or not such warrant or option contains a right to exercise such
warrant or option by the delivery of shares deemed purchased thereunder,
including, without limitation, by a cashless exercise. A "Qualified
Offering" shall mean the sale or series of sales of equity securities of
the Corporation next occurring after the issuance of the Series A
Convertible Preferred Stock, including without limitation, Common Stock,
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warrants, units of Common Stock and warrants, other securities
exchangeable, convertible or exercisable for Common Stock, alone or in
units, whether in a public offering or private placement, raising gross
proceeds in excess of $2,500,000 (the "Threshold Amount").
(ii) Conversion shall be deemed to have been effected on the date on
which the Threshold Amount has been sold. Such automatic conversion shall
require no further action on the part of either the Corporation or the
holder of Series A Convertible Preferred Stock and, any shares of Series A
Convertible Preferred Stock so converted shall be treated as having been
surrendered by the holder thereof for conversion pursuant to Section 4 on
the date of such mandatory conversion (unless previously converted at the
option of the holder). The Corporation shall, as soon as practicable after
surrender of the certificates representing the Series A Convertible
Preferred Stock, issue and deliver the certificate or certificates for the
number of Qualified Offering Securities into which the Series A Convertible
Preferred Stock is convertible, together with any cash in lieu of any
fractional shares as provided in paragraph 4(d). The entity in whose name
the certificates of the Qualified Offering Securities are issued to shall
be deemed to be holders of record of such Qualified Offering Securities on
the next succeeding day on which the transfer books of the Corporation are
open after the closing of the Qualified Offering. Upon receipt of notice
from the Corporation of such automatic conversion, each holder of shares so
converted shall surrender the certificate evidencing such shares to the
Corporation at the place designated in such notice for conversion.
Notwithstanding that the certificates evidencing any shares properly
converted pursuant hereto shall not have been surrendered, the shares shall
no longer be deemed outstanding and all rights whatsoever with respect to
the shares so converted (except the right of the holders to convert such
shares upon surrender of their certificates therefor) shall terminate.
(b)(i)In addition, at any time on or after one year following the initial
issuance date of the Series A Convertible Preferred Stock, the Corporation,
at its option, may cause the Series A Convertible Preferred Stock to be
converted in whole, or in part, on a pro rata basis, into fully paid and
nonassessable shares of Common Stock and such other securities and property
as herein provided if the closing price of the Common Stock shall have
exceeded 250% of the then applicable conversion price for at least 20
trading days in any 30 consecutive trading day period. Any shares of Series
A Convertible Preferred Stock so converted shall be treated as having been
surrendered by the holder thereof for conversion pursuant to Section 4 on
the date of
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such mandatory conversion (unless previously converted at the option of the
holder). Conversion shall be deemed to have been effected on the date of
such mandatory conversion. Such mandatory conversion shall require no
further action on the part of either the Corporation or the holder of
Series A Convertible Preferred Stock and, any share of Series A Convertible
Preferred Stock so converted shall be treated as having been surrendered by
the holder thereof for conversion pursuant to Section 4 on the date of such
mandatory conversion (unless previously converted at the option of the
holder). The Corporation shall, as soon as practicable after surrender of
the certificates representing the Series A Convertible Preferred Stock,
issue and deliver the certificate or certificates for the number of shares
of Common Stock into which the Series A Convertible preferred Stock is
convertible, together with any cash in lieu of any fractional shares as
provided in paragraph 4(d). The entity in whose name the certificates of
the Common Stock are issued to shall be deemed to be holders of record of
such Common Stock on the next succeeding day on which the transfer books of
the Corporation are open after such mandatory conversion. Upon receipt of
notice from the Corporation of such automatic conversion, each holder of
shares so converted shall surrender the certificate evidencing such shares
to the Corporation at the place designated in such notice for conversion.
Notwithstanding that the certificates evidencing any shares properly
converted pursuant hereto shall not have been surrendered, the shares shall
no longer be deemed outstanding and all rights whatsoever with respect to
the shares so converted (except the right of the holders to convert such
shares upon surrender of their certificates therefor) shall terminate. Such
mandatory conversion shall be effective whether or not the holder of such
shares of Series A Convertible Preferred Stock shall have received notice
of such conversion.
(ii) Not more than 60 nor less than 20 days prior to the date of any such
mandatory conversion, notice by first class mail, postage prepaid,
shall be given to the holders of record of the Series A Convertible
Preferred Stock to be converted, addressed to such holders at their
last addresses as shown on the stock transfer books of the
Corporation. Each such notice shall specify the date fixed for
conversion, the place or places for surrender of shares of Series A
Convertible Preferred Stock, and the then effective conversion rate
pursuant to Section 4.
(iii) The "closing price" for each trading day shall be the reported last
sales price or, in case no such reported sale takes place on such day,
the average
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of the reported closing bid and asked prices, in either case on the
NASDAQ Small Cap Market or the NASDAQ National Market System
(collectively referred to as, "NASDAQ") or, if the Common Stock is not
quoted on NASDAQ, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading (based on the
aggregate dollar value of all securities listed or admitted to
trading) or, if not listed or admitted to trading on any national
securities exchange or quoted on NASDAQ, the average of the closing
bid and asked prices in the over-the-counter market as furnished by
any NASD member firm selected from time to time by the Corporation for
that purpose, or, if such prices are not available, the fair market
value set by, or in a manner established by, the Board of Directors of
the Corporation in good faith. "Trading day" shall have the meaning
given in Section 4 hereof.
(iv) Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given by the Corporation on the date
deposited in the mail, whether or not the holder of the Series A
Convertible Preferred Stock receives such notice; and failure properly
to give such notice by mail, or any defect in such notice, to the
holders of the shares to be converted shall not affect the validity of
the proceedings for the conversion of any shares of Series A
Convertible Preferred Stock. On the date fixed for conversion as
stated in such notice, each holder of shares called to be converted
shall surrender the certificate evidencing such shares to the
Corporation at the place designated in such notice for conversion.
Notwithstanding that the certificates evidencing any shares properly
called for conversion shall not have been surrendered, the shares
shall no longer be deemed outstanding and all rights whatsoever with
respect to the shares so called for conversion (except the right of
the holders to convert such shares upon surrender of their
certificates therefor) shall terminate.
6. Voting Rights.
(a) General. Except as otherwise provided in this Restated Certificate of
Incorporation or the By-laws of the Corporation, or as required by law, the
holders of shares of Series A Convertible Preferred Stock, the holders of shares
of Common Stock and the holders of any other class or series
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of shares entitled to vote with the Common Stock shall vote together as one
class on all matters submitted to a vote of stockholders of the Corporation. In
any such vote, each share of Series A Convertible Preferred Stock shall entitle
the holder thereof to cast the number of votes equal to the number of votes
which could be cast in such vote by a holder of the Common Stock into which such
share of Series A Convertible Preferred Stock is convertible on the record date
for such vote. Any shares of Series A Convertible Preferred Stock held by the
Corporation shall not have voting rights hereunder and shall not be counted in
determining the presence of a quorum.
(b) Class Voting Rights. In addition to any vote specified in paragraph (a)
of this Section 6, so long as 50% of the shares of Series A Convertible
Preferred Stock initially issued shall be outstanding, the Corporation shall
not, without the affirmative vote or consent of the holders of at least 66-2/3%
of all outstanding Series A Convertible Preferred Stock voting or consenting
separately as a class, (i) amend, alter or repeal any provision of this Restated
Certificate of Incorporation, as amended, or the Bylaws of the Corporation so as
adversely to affect the relative rights, preferences, qualifications,
limitations or restrictions of the Series A Convertible Preferred Stock, (ii)
declare any dividend or distribution on the Common Stock or any other class or
series of preferred stock or authorize the repurchase of any securities of the
Corporation (except from employees, consultants, officers and directors) or
(iii) authorize or issue, or increase the authorized amount of, any additional
class or series of stock, or any security convertible into stock of such class
or series, (A) ranking prior to, or on a parity with, the Series A Convertible
Preferred Stock upon liquidation, dissolution or winding up of the Corporation
or a sale of all or substantially all of the assets of the Corporation or (B)
providing for the payment of any dividends or distributions other than upon
liquidation, dissolution or winding up of the Corporation or a sale of all or
substantially all of the assets of the Corporation. A class vote on the part of
the Series A Convertible Preferred Stock shall, without limitation, specifically
not be deemed to be required (except as otherwise required by law or resolution
of the Corporation's Board of Directors) in connection with: (a) the
authorization, issuance or increase in the authorized amount of Common Stock or
of any shares of any other class or series of stock ranking junior to the Series
A Convertible Preferred Stock in respect of distributions upon liquidation,
dissolution or winding up of the Corporation; (b) the authorization, issuance or
increase in the amount of the Series A Convertible Preferred Stock or any bonds,
mortgages, debentures or other obligations of the Corporation (other than bonds,
mortgages, debentures or other obligations convertible into or exchangeable for
or having option rights to purchase any shares of stock of the Corporation the
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authorization, issuance or increase in amount of which would require the consent
of the holders of the Series A Preferred Stock); or (c) any consolidation or
merger of the Corporation with or into another corporation in which the
Corporation is not the surviving entity, a sale or transfer of all or part of
the Corporation's assets for cash, securities or other property, or a compulsory
share exchange.
7. Outstanding Shares. For purposes of Section D(i) hereof only, all shares
of Series A Convertible Preferred Stock shall be deemed outstanding except (i)
from the date, or the deemed date as provided in this Restated Certificate of
Incorporation, of surrender of certificates evidencing shares of Series A
Convertible Preferred Stock, all shares of Series A Convertible Preferred Stock
converted into Common Stock or otherwise, (ii) from the date of registration of
transfer, all shares of Series A Convertible Preferred Stock held of record by
the Corporation and (iii) any and all shares of Series A Convertible Preferred
Stock held in escrow prior to delivery of such stock by the Corporation to the
initial beneficial owners thereof.
8. Status of Acquired Shares. Shares of Series A Convertible Preferred
Stock received upon conversion pursuant to Section 4 or Section 5 or otherwise
acquired by the Corporation will be restored to the status of authorized but
unissued shares of Preferred Stock, without designation as to class, and may
thereafter be issued, but not as shares of Series A Convertible Preferred Stock.
9. Preemptive Rights. The Series A Convertible Preferred Stock is not
entitled to any preemptive or subscription rights in respect of any securities
of the Corporation.
10. Severability of Provisions. Whenever possible, each provision of
Section D(i) shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.
(ii). Series B Convertible Preferred Stock.
1. Designation and Amount. There shall be a series of Preferred Stock
designated as "Series B Convertible Preferred
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Stock" and the number of shares constituting such series shall be 3,000,000.
Such series is referred to herein as the "Series B Convertible Preferred Stock".
Such number of shares may be increased or decreased by resolution of the Board
of Directors of the Corporation; provided, however, that no decrease shall
reduce the number of shares of Series B Convertible Preferred Stock to less than
the number of shares then issued and outstanding.
2. Dividends. Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series B Convertible Preferred Stock with respect to dividends and
distributions, the holders of shares of Series B Convertible Preferred Stock,
shall be entitled to receive dividends and distributions, when, as and if
declared by the Board of Directors out of funds legally available for such
purpose. If the Corporation declares a dividend or distribution on the common
stock, par value $.001 per share (the "Common Stock"), of the Corporation, the
holders of shares of Series B Convertible Preferred Stock shall be entitled to
receive for each share of Series B Convertible Preferred Stock a dividend or
distribution in the amount of the dividend or distribution that would be
received by a holder of the Common Stock into which such share of Series B
Convertible Preferred Stock is convertible on the record date for such dividend
or distribution. If the Corporation declares a dividend or distribution on any
other class or series of preferred stock, the holders of shares of Series B
Convertible Preferred Stock shall be entitled to receive a dividend or
distribution in an amount per share in proportion to the dividend or
distribution declared on a share of such other class or series based upon the
liquidation preference of a share of the Series B Convertible Preferred Stock
relative to that of a share of such other class or series, unless the holders of
at least 66-2/3% of the outstanding shares of Series B Convertible Preferred
Stock consent otherwise. In any such case, the Corporation shall declare a
dividend or distribution on the Series B Convertible Preferred Stock at the same
time that it declares a dividend or distribution on the Common Stock or such
other class or series of preferred stock and shall establish the same record
date for the dividend or distribution on the Series B Convertible Preferred
Stock as is established for such dividend or distribution on the Common Stock or
such other class or series of preferred stock. Each such dividend or
distribution will be payable to holders of record of the Series B Convertible
Preferred Stock as they appeared on the records of the Corporation at the close
of business on the record date declared for such dividend or distribution, as
shall be fixed by the Board of Directors. If the corporation declares or pays a
dividend or distribution on the Series B Convertible Preferred Stock as a result
of the declaration or payment of a dividend or distribution on the Common Stock
or any other class or series of preferred stock as described above, the holders
of the Series B Convertible
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Preferred Stock shall not be entitled to any additional dividend or distribution
solely because such first dividend or distribution also required the declaration
or payment of a dividend or distribution on any other class or series of
preferred stock. Any reference to "distribution" contained in this Section 2
shall not be deemed to include any distribution made in connection with or in
lieu of any Liquidation Event (as defined below).
3. Liquidation Preference. In the event of a (i) liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, (ii) a sale
or other disposition of all or substantially all of the assets of the
Corporation or (iii) any consolidation, merger, combination, reorganization or
other transaction in which the Corporation is not the surviving entity or the
shares of Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into other stock or securities, cash
and/or any other property (a "Merger Transaction") (subparagraphs (i), (ii) and
(iii) being collectively referred to as a "Liquidation Event"), after payment or
provision for payment of debts and other liabilities of the Corporation, the
holders of the Series B Convertible Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its shareholders, whether such assets are capital, surplus, or
earnings, before any payment or declaration and setting apart for payment of any
amount shall be made in respect of the stock junior to the Series B Convertible
Preferred Stock, an amount equal to $13.00 per share plus an amount equal to all
declared and unpaid dividends thereon; provided, however, in the case of Section
3(iii) above, such $13.00 per share may be paid in cash and/or securities
(valued at the closing price (as defined in Section 5) of such security) of the
entity surviving such Merger Transaction. If upon any Liquidation Event, whether
voluntary or involuntary, the assets to be distributed to the holders of the
Series B Convertible Preferred Stock shall be insufficient to permit the payment
to such shareholders of the full preferential amounts aforesaid, then all of the
assets of the Corporation to be distributed shall be so distributed ratably to
the holders of the Series B Convertible Preferred Stock on the basis of the
number of shares of Series B Convertible Preferred Stock held. A consolidation
or merger of the Corporation with or into another corporation, other than in a
transaction described in Section 3(iii) above, shall not be considered a
liquidation, dissolution or winding up of the Corporation or a sale or other
disposition of all or substantially all of the assets of the Corporation and
accordingly the Corporation shall make appropriate provision to ensure that the
terms of this Restated Certificate of Incorporation respecting shares of Series
B Convertible Preferred Stock survive any such transaction. All shares of Series
B Convertible Preferred Stock shall rank as to payment upon the
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occurrence of any Liquidation Event senior to the Common Stock as provided
herein and, unless the terms of such series shall provide otherwise, senior to
all other series of the Corporation's preferred stock.
4. Conversion.
(a) Right of Conversion. The shares of Series B Convertible Preferred Stock
shall be convertible, in whole or in part, at the option of the holder thereof
and upon notice to the Corporation as set forth in paragraph (b) below, into
fully paid and nonassessable shares of Common Stock and such other securities
and property as hereinafter provided. The shares of Series B Convertible
Preferred Stock shall be convertible initially at the rate of 6.666667 shares of
Common Stock for each full share of Series B Convertible Preferred Stock and
shall be subject to adjustment as provided herein. The initial conversion price
per share of Common Stock is $1.50 and shall be subject to adjustment as
provided herein. For purposes of this resolution, the "conversion rate"
applicable to a share of Series B Convertible Preferred Stock shall be the
number of shares of Common Stock and number or amount of any other securities
and property as hereinafter provided into which a share of Series B Convertible
Preferred Stock is then convertible and shall be determined by dividing the then
existing conversion price into $10.00.
The conversion price (subject to adjustments pursuant to the provisions of
paragraph (c) below) in effect immediately prior to the date that is 12 months
after the final closing date (the "Final Closing Date") of the issuance and sale
of the Series B Convertible Preferred Stock (the "Reset Date") shall be adjusted
and reset effective as of the Reset Date if the average closing bid price of the
Common Stock for the 30 consecutive trading days immediately preceding the Reset
Date (the "12-Month Trading Price") is less than 130% of the then applicable
conversion price (a "Reset Event"). Upon the occurrence of a Reset Event, the
conversion price shall be reduced to be equal to the greater of (A) the 12-Month
Trading Price divided by 1.3, and (B) 50% of the then applicable conversion
price. If there is any change in the conversion price as a result of the
preceding sentence, then the conversion rate shall be changed accordingly, and
shall be determined by dividing the new conversion price into $10.00. The
Corporation shall prepare a certificate signed by the principal financial
officer of the Corporation setting forth the conversion rate as of the Reset
Date, showing in reasonable detail the facts upon which such conversion rate is
based, and such certificate shall forthwith be filed with the transfer agent of
the Series B Convertible Preferred Stock. Notwithstanding the provisions of
subparagraph (vi) of paragraph (c) below, a notice stating that the conversion
rate has been adjusted pursuant to this paragraph, or that no adjustment is
necessary, and setting
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forth the conversion rate in effect as of the Reset Date shall be mailed as
promptly as practicable after the Reset Date by the Corporation to all record
holders of the Series B Convertible Preferred Stock at their last addresses as
they shall appear in the stock transfer books of the Corporation.
The "closing bid price" for each trading day shall be the reported closing
bid price on the NASDAQ Small-Cap Market or the NASDAQ National Market System
(collectively referred to as, "NASDAQ") or, if the Common Stock is not quoted on
NASDAQ, on the principal national securities exchange on which the Common Stock
is listed or admitted to trading (based on the aggregate dollar value of all
securities listed or admitted to trading) or, if not listed or admitted to
trading on any national securities exchange or quoted on NASDAQ, the closing bid
price in the over-the-counter market as furnished by any NASD member firm
selected from time to time by the Corporation for that purpose, or, if such
prices are not available, the fair market value set by, or in a manner
established by, the Board of Directors of the Corporation in good faith.
"Trading day" shall mean a day on which the national securities exchange or
NASDAQ used to determine the closing bid price is open for the transaction of
business or the reporting of trades or, if the closing bid price is not so
determined, a day on which NASDAQ is open for the transaction of business.
(b) Conversion Procedures. Any holder of shares of Series B Convertible
Preferred Stock desiring to convert such shares into Common Stock shall
surrender the certificate or certificates evidencing such shares of Series B
Convertible Preferred Stock at the office of the transfer agent for the Series B
Convertible Preferred Stock, which certificate or certificates, if the
Corporation shall so require, shall be duly endorsed to the Corporation or in
blank, or accompanied by proper instruments of transfer to the Corporation or in
blank, accompanied by irrevocable written notice to the Corporation that the
holder elects so to convert such shares of Series B Convertible Preferred Stock
and specifying the name or names (with address) in which a certificate or
certificates evidencing shares of Common Stock are to be issued. The Corporation
need not deem a notice of conversion to be received unless the holder complies
with all the provisions hereof. The Corporation will instruct the transfer agent
(which may be the Corporation) to make a notation of the date that a notice of
conversion is received, which date shall be deemed to be the date of receipt for
purposes hereof.
The Corporation shall, as soon as practicable after such deposit of
certificates evidencing shares of Series B Convertible Preferred Stock
accompanied by the written notice and compliance with any other conditions
herein contained, deliver at such office of such transfer agent to the person
for whose
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account such shares of Series B Convertible Preferred Stock were so surrendered,
or to the nominee or nominees of such person, certificates evidencing the number
of full shares of Common Stock to which such person shall be entitled as
aforesaid, together with a cash adjustment of any fraction of a share as
hereinafter provided. Subject to the following provisions of this paragraph,
such conversion shall be deemed to have been made as of the date of such
surrender of the shares of Series B Convertible Preferred Stock to be converted,
and the person or persons entitled to receive the Common Stock deliverable upon
conversion of such Series B Convertible Preferred Stock shall be treated for all
purposes as the record holder or holders of such Common Stock on such date;
provided, however, that the Corporation shall not be required to convert any
shares of Series B Convertible Preferred Stock while the stock transfer books of
the Corporation are closed for any purpose, but the surrender of Series B
Convertible Preferred Stock for conversion during any period while such books
are so closed shall become effective for conversion immediately upon the
reopening of such books as if the surrender had been made on the date of such
reopening, and the conversion shall be at the conversion rate in effect on such
date. No adjustments in respect of any dividends on shares surrendered for
conversion or any dividend on the Common Stock issued upon conversion shall be
made upon the conversion of any shares of Series B Convertible Preferred Stock.
All notices of conversion shall be irrevocable; provided, however, that if
the Corporation has sent notice of an event pursuant to Section 4(g) hereof, a
holder of Series B Convertible Preferred Stock may, at its election, provide in
its notice of conversion that the conversion of its shares of Series B
Convertible Preferred Stock shall be contingent upon the occurrence of the
record date or effectiveness of such event (as specified by such holder),
provided that such notice of conversion is received by the Corporation prior to
such record date or effective date, as the case may be.
(c) Certain Adjustments of Conversion Rate. In addition to adjustment
pursuant to paragraph (a) above, the conversion rate (and the corresponding
conversion price) shall be subject to adjustment from time to time as follows:
(i) In case the Corporation shall (A) pay a dividend in Common Stock
or make a distribution in Common Stock, (B) subdivide its outstanding
Common Stock, (C) combine its outstanding Common Stock into a smaller
number of shares of Common Stock or (D) issue by reclassification of its
Common Stock other securities of the Corporation, then in each such case
the conversion rate in effect immediately prior thereto shall be adjusted
so that the holder of any shares of Series B Convertible Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the kind
and number
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of shares of Common Stock or other securities of the Corporation which such
holder would have owned or would have been entitled to receive immediately
after the happening of any of the events described above had such shares of
Series B Convertible Preferred Stock been converted immediately prior to
the happening of such event or any record date with respect thereto. Any
adjustment made pursuant to this subparagraph (i) shall become effective
immediately after the effective date of such event retroactive to the
record date, if any, for such event.
(ii) In case the Corporation shall issue rights, options, warrants or
convertible securities to all or substantially all holders of its Common
Stock, without any charge to such holders, entitling them to subscribe for
or purchase Common Stock at a price per share which is lower at the record
date mentioned below than both (A) the then effective conversion price and
(B) the closing bid price (as defined in Section 4) for the trading day
immediately prior to such record date (the "Current Market Price"), then
the conversion rate shall be determined by multiplying the conversion rate
theretofore in effect by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding immediately prior to the
issuance of such rights, options, warrants or convertible securities plus
the number of additional shares of Common Stock offered for subscription or
purchase, and of which the denominator shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such rights,
options, warrants or convertible securities plus the number of shares which
the aggregate offering price of the total number of shares offered would
purchase at such Current Market Price. Such adjustment shall be made
whenever such rights, options, warrants or convertible securities are
issued, and shall become effective immediately and retroactive to the
record date for the determination of stockholders entitled to receive such
rights, options, warrants or convertible securities. Notwithstanding any of
the foregoing, no adjustment shall be made pursuant to the provisions of
this subsection (ii), if such adjustment would result in a decrease of the
conversion rate.
(iii) In case the Corporation shall distribute to all or substantially
all holders of its Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions out of earnings) or rights,
options, warrants or convertible securities containing the right to
subscribe for or purchase Common Stock (excluding those referred to in
subparagraph (ii) above), then in each case the conversion rate shall be
determined by multiplying the conversion rate theretofore in effect by a
fraction, of which the numerator shall be the then fair value as
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determined in good faith by the Corporation's Board of Directors on the
date of such distribution, and of which the denominator shall be such fair
value on such date minus the then fair value (as so determined) of the
portion of the assets or evidences of indebtedness so distributed or of
such subscription rights, options, warrants or convertible securities
applicable to one share. Such adjustment shall be made whenever any such
distribution is made and shall become effective on the date of distribution
retroactive to the record date for the determination of stockholders
entitled to receive such distribution.
(iv) Upon the expiration of any rights, options, warrants or
conversion privileges, if such shall not have been exercised, the
conversion rate shall, upon such expiration, be readjusted and shall
thereafter be such as it would have been had it been originally adjusted
(or had the original adjustment not been required, as the case may be) on
the basis of (A) the fact that Common Stock, if any, actually issued or
sold upon the exercise of such rights, options, warrants or conversion
privileges, and (B) the fact that such shares of Common Stock, if any, were
issued or sold for the consideration actually received by the Corporation
upon such exercise plus the consideration, if any, actually received by the
Corporation for the issuance, sale or grant of all such rights, options,
warrants or conversion privileges whether or not exercised.
(v) No adjustment in the conversion rate shall be required unless such
adjustment would require an increase or decrease of at least 1% in such
rate; provided, however, that the Corporation may make any such adjustment
at its election; and provided, further, that any adjustments which by
reason of this subparagraph (v) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 4 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
(vi) Whenever the conversion rate is adjusted as provided in any
provision of this Section 4:
(A) the Corporation shall compute (or may retain a firm of
independent public accountants of recognized national standing (which
may be any such firm regularly employed by the Corporation) to
compute) the adjusted conversion rate in accordance with this Section
4 and shall prepare a certificate signed by the principal financial
officer of the Corporation (or cause any such independent public
accountants to execute a certificate) setting forth the adjusted
conversion rate and showing in reasonable detail the facts upon which
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such adjustment is based, and such certificate shall forthwith be
filed with the transfer agent of the Series B Convertible Preferred
Stock; and
(B) a notice stating that the conversion rate has been adjusted
and setting forth the adjusted conversion rate shall forthwith be
required, and as soon as practicable after it is required, such notice
shall be mailed by the Corporation to all record holders of Series B
Convertible Preferred Stock at their last addresses as they shall
appear in the stock transfer books of the Corporation.
(vii) In the event that at any time, as a result of any adjustment
made pursuant to this Section 4, the holder of any shares of Series B
Convertible Preferred Stock thereafter surrendered for conversion shall
become entitled to receive any shares of the Corporation other than shares
of Common Stock or to receive any other securities, the number of such
other shares or securities so receivable upon conversion of any share of
Series B Convertible Preferred Stock shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable
to the provisions contained in this Section 4 with respect to the Common
Stock.
(d) No Fractional Shares. No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon conversion of Series B
Convertible Preferred Stock. If more than one certificate evidencing shares of
Series B Convertible Preferred Stock shall be surrendered for conversion at one
time by the same holder, the number of full shares issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Series B Convertible Preferred Stock so surrendered. Instead of any fractional
share of Common Stock which would otherwise be issuable upon conversion of any
shares of Series B Convertible Preferred Stock, the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal to the same
fraction of the market price per share of Common Stock (which shall be the
closing price as defined in Section 5) at the close of business on the day of
conversion.
(e) Reservation of Shares; Transfer Taxes; Etc. The Corporation shall at
all times reserve and keep available, out of its authorized and unissued stock,
solely for the purpose of effecting the conversion of the Series B Convertible
Preferred Stock, such number of shares of its Common Stock free of preemptive
rights as shall from time to time be sufficient to effect the conversion of all
shares of Series B Convertible Preferred Stock from time to time outstanding.
The Corporation shall use its best efforts from time to time, in accordance with
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the laws of the State of Delaware, to increase the authorized number of shares
of Common Stock if at any time the number of shares of Common Stock not
outstanding shall not be sufficient to permit the conversion of all the
then-outstanding shares of Series B Convertible Preferred Stock.
The Corporation shall pay any and all issue or other taxes that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of the Series B Convertible Preferred Stock. The Corporation shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of Common Stock (or other securities
or assets) in a name other than that in which the shares of Series B Convertible
Preferred Stock so converted were registered, and no such issue or delivery
shall be made unless and until the person requesting such issue has paid to the
Corporation the amount of such tax or has established, to the satisfaction of
the Corporation, that such tax has been paid.
Notwithstanding anything to the contrary herein, before taking any action
that would cause an adjustment reducing the conversion rate or before any such
adjustment is made as a result of a Reset Event, in either event, such that the
effective conversion price (for all purposes an amount equal to $10.00 divided
by the conversion rate as in effect at such time) would be below the then par
value of the Common Stock, the Corporation shall take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Corporation
may validly and legally issue fully paid and nonassessable shares of Common
Stock at the conversion rate as so adjusted.
(f) Prior Notice of Certain Events. In case:
(i) the corporation shall declare any dividend (or any other
distribution) on its Common Stock; or
(ii) the Corporation shall authorize the granting to the holders of
Common Stock of rights or warrants to subscribe for or purchase any shares
of stock of any class or of any other rights or warrants; or
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a change in
par value, or from par value to no par value, or from no par value to par
value), or of any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the Corporation shall
be required, or of the sale or transfer of all or substantially all of the
assets of the Corporation or of any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or other property; or
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(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed with the transfer agent for the
Series B Convertible Preferred Stock, and shall cause to be mailed to the
holders of record of the Series B Convertible Preferred Stock, at their last
addresses as they shall appear upon the stock transfer books of the Corporation,
at least 10 days prior to the applicable record date hereinafter specified, a
notice stating (x) the date on which a record (if any) is to be taken for the
purpose of such dividend, distribution or granting of rights or warrants or, if
a record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights or warrants are to
be determined and a description of the cash, securities or other property to be
received by such holders upon such dividend, distribution or granting of rights
or warrants or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding up
is expected to become effective, the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such exchange,
dissolution, liquidation or winding up and the consideration, including
securities or other property, to be received by such holders upon such exchange;
provided, however, that no failure to mail such notice or any defect therein or
in the mailing thereof shall affect the validity of the corporate action
required to be specified in such notice.
(g) Other Changes in Conversion Rate. The Corporation from time to time may
increase the conversion rate by any amount for any period of time if the period
is at least 20 days and if the increase is irrevocable during the period.
Whenever the conversion rate is so increased, the Corporation shall mail to
holders of record of the Series B Convertible Preferred Stock a notice of the
increase at least 15 days before the date the increased conversion rate takes
effect, and such notice shall state the increased conversion rate and the period
it will be in effect.
The corporation may make such increases in the conversion rate, in addition
to those required or allowed by this Section 4, as shall be determined by it, as
evidenced by a resolution of the Board of Directors, to be advisable in order to
avoid or diminish any income tax to holders of Common Stock resulting from any
dividend or distribution of stock or issuance of rights or warrants to purchase
or subscribe for stock or from any event treated as such for income tax
purposes.
(h) Ambiguities/Errors. The Board of Directors of the Corporation shall
have the power to resolve any ambiguity or
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correct any error in the provisions relating to the convertibility of the Series
B Convertible Preferred Stock, and its actions in so doing shall be final and
conclusive.
5. Mandatory Conversion. At any time on or after the Reset Date, the
Corporation, at its option, may cause the Series B Convertible Preferred Stock
to be converted in whole, or in part, on a pro rata basis, into fully paid and
nonassessable shares of Common Stock and such other securities and property as
herein provided if the closing price of the Common Stock shall have exceeded
200% of the then applicable conversion price for at least 20 trading days in any
30 consecutive trading day period. Any shares of Series B Convertible Preferred
Stock so converted shall be treated as having been surrendered by the holder
thereof for conversion pursuant to Section 4 on the date of such mandatory
conversion (unless previously converted at the option of the holder).
Not more than 60 nor less than 20 days prior to the date of any such
mandatory conversion, notice by first class mail, postage prepaid, shall be
given to the holders of record of the Series B Convertible Preferred Stock to be
converted, addressed to such holders at their last addresses as shown on the
stock transfer books of the Corporation. Each such notice shall specify the date
fixed for conversion, the place or places for surrender of shares of Series B
Convertible Preferred Stock, and the then effective conversion rate pursuant to
Section 4.
The "closing price" for each trading day shall be the reported last sales
price regular way or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in either case
on the NASDAQ Small-Cap Market or the NASDAQ National Market System
(collectively referred to as, "NASDAQ") or, if the Common Stock is not quoted on
NASDAQ, on the principal national securities exchange on which the Common Stock
is listed or admitted to trading (based on the aggregate dollar value of all
securities listed or admitted to trading) or, if not listed or admitted to
trading on any national securities exchange or quoted on NASDAQ, the average of
the closing bid and asked prices in the over-the-counter market as furnished by
any NASD member firm selected from time to time by the Corporation for that
purpose, or, if such prices are not available, the fair market value set by, or
in a manner established by, the Board of Directors of the Corporation in good
faith. "Trading day" shall have the meaning give in Section 4 hereof.
Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given by the Corporation on the date deposited in the
mail, whether or not the holder of the Series B Convertible Preferred Stock
receives such notice; and failure properly to give such notice by mail, or any
defect
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in such notice, to the holders of the shares to be converted shall not affect
the validity of the proceedings for the conversion of any other shares of Series
B Convertible Preferred Stock. On or after the date fixed for conversion as
stated in such notice, each holder of shares called to be converted shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice for conversion. Notwithstanding that the certificates
evidencing any shares properly called for conversion shall not have been
surrendered, the shares shall no longer be deemed outstanding and all rights
whatsoever with respect to the shares so called for conversion (except the right
of the holders to convert such shares upon surrender of their certificates
therefor) shall terminate.
6. Voting Rights.
(a) General. Except as otherwise provided in this Restated Certificate of
Incorporation or in the By-laws of the Corporation, the holders of shares of
Series B Convertible Preferred Stock, the holders of shares of Common Stock and
the holders of any other class or series of shares entitled to vote with the
Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation. In any such vote, each share of Series B
Convertible Preferred Stock shall entitle the holder thereof to cast the number
of votes equal to the number of votes which could be cast in such vote by a
holder of the Common Stock into which such share of Series B Convertible
Preferred Stock is convertible on the record date for such vote, or if no record
date has been established, on the date such vote is taken. Any shares of Series
B Convertible Preferred Stock held by the Corporation or any entity controlled
by the Corporation shall not have voting rights hereunder and shall not be
counted in determining the presence of a quorum.
(b) Class Voting Rights. In addition to any vote specified in paragraph (a)
of this Section 6, so long as 50% of the shares of Series B Convertible
Preferred Stock (including those shares of Series B Convertible Preferred Stock
issued or issuable upon the exercise of the warrants issued to Paramount
Capital, Inc., the placement agent in connection with the offer and sale of the
Series B Convertible Preferred Stock) shall be outstanding, the Corporation
shall not, without the affirmative vote or consent of the holders of at least
66-2/3% of all outstanding Series B Convertible Preferred Stock voting
separately as a class, (i) amend, alter or repeal any provision of this Amended
and Restated Certificate of Incorporation, as amended, or the By-laws of the
Corporation so as adversely to affect the relative rights, preferences,
qualifications, limitations or restrictions of the Series B Convertible
Preferred Stock, (ii) declare any dividend or distribution on the Common Stock
or any other class or series of preferred stock or
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authorize the repurchase of any securities of the Corporation or (iii) authorize
or issue, or increase the authorized amount of, any additional class or series
of stock, or any security convertible into stock of such class or series, (A)
ranking prior to, or on a parity with, the Series B Convertible Preferred Stock
upon liquidation, dissolution or winding up of the Corporation or a sale of all
or substantially all of the assets of the Corporation or (B) providing for the
payment of any dividends or distributions. A class vote on the part of the
Series B Convertible Preferred Stock shall, without limitation, specifically not
be deemed to be required (except as otherwise required by law or resolution of
the Corporation's Board of Directors) in connection with: (a) the authorization,
issuance or increase in the authorized amount of Common Stock or of any shares
of any other class or series of stock ranking junior to the Series B Convertible
Preferred Stock in respect of distributions upon liquidation, dissolution or
winding up of the Corporation; (b) the authorization, issuance or increase in
the amount of the Series B Convertible Preferred Stock or any bonds, mortgages,
debentures or other obligations of the Corporation (other than bonds, mortgages,
debentures or other obligations convertible into or exchangeable for or having
option rights to purchase any shares of stock of the Corporation the
authorization issuance or increase in amount of which would require the consent
of the holders of the Series B Preferred Stock); or (c) any consolidation or
merger of the Corporation with or into another corporation in which the
Corporation is not the surviving entity, a sale or transfer of all or part of
the Corporation's assets for cash, securities or other property, or a compulsory
share exchange.
7. Outstanding Shares. For purposes of Section D(ii) hereof, all shares of
Series B Convertible Preferred Stock shall be deemed outstanding except (i) from
the date, or the deemed date, of surrender of certificates evidencing shares of
Series B Convertible Preferred Stock, all shares of Series B Convertible
Preferred Stock converted into Common Stock, (ii) from the date of registration
of transfer, all shares of Series B Convertible Preferred Stock held of record
by the Corporation or any subsidiary of the Corporation and (iii) any and all
shares of Series B Convertible Preferred Stock held in escrow prior to delivery
of such stock by the Corporation to the initial beneficial owners thereof.
8. Status of Acquired Shares. Shares of Series B Convertible Preferred
Stock received upon conversion pursuant to Section 4 or Section 5 or otherwise
acquired by the Corporation will be restored to the status of authorized but
unissued shares of Preferred Stock, without designation as to class, and may
thereafter be issued, but not as shares of Series B Convertible Preferred Stock.
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9. Preemptive Rights. The Series B Convertible Preferred Stock is not
entitled to any preemptive or subscription rights in respect of any securities
of the Corporation.
10. Severability of Provisions. Whenever possible, each provision of
Section D(ii) shall be interpreted in a manner as to be effective and valid
under applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors. In addition to the powers and authority
expressly conferred upon them by statute or by this Restated Certificate of
Incorporation or the by-laws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written ballot
unless the by-laws so provide.
C. Any action required or permitted to be taken by the stockholders of the
Corporation may be effected only at a duly called annual or special meeting of
stockholders of the Corporation.
SIXTH: A. Subject to the rights of the holders of any series of Preferred
Stock then outstanding to elect additional directors under specified
circumstances, the number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board.
B. On or prior to the date on which the Corporation first provides notice
of an annual meeting of the stockholders (or a special meeting in lieu thereof)
in 1994 or solicits actions by written consent in lieu thereof, the Board of
Directors of the Corporation shall divide the directors nominated for election
at
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such meeting into three classes, as nearly equal in number as reasonably
possible, with the term of office of the first class to expire at the 1995
annual meeting of stockholders or any special meeting in lieu thereof, the term
of office of the second class to expire at the 1996 annual meeting of
stockholders or any special meeting in lieu thereof, and the term of office of
the third class to expire at the 1997 annual meeting of stockholders or any
special meeting in lieu thereof. At each annual meeting of stockholders or
special meeting in lieu thereof following such initial classification, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of stockholders
or special meeting in lieu thereof after their election and until their
successors are duly elected and qualified.
C. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining director.
In the event of any increase or decrease in the authorized number of directors,
(i) each director then serving as such shall nevertheless continue as a director
of the class of which he is a member until the expiration of his current term or
his prior death, retirement, removal or resignation and (ii) the newly created
or eliminated directorships resulting from such increase or decrease shall if
reasonably possible be apportioned by the Board of Directors among the three
classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent reasonably possible,
consistent with the foregoing rule, any newly created directorships shall be
added to those classes whose terms of office are to expire at the latest dates
following such allocation and newly eliminated directorships shall be subtracted
from those classes whose terms of office are to expire at the earliest dates
following such allocation, unless otherwise provided for from time to time by
resolution adopted by a majority of the directors then in office, although less
than a quorum. In the event of a vacancy in the Board of Directors, the
remaining directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled.
D. Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the Corporation shall be given in the manner provided in the
by-laws of the Corporation.
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E. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any director, or the entire Board of Directors, may be removed
from office at any time only with cause. A director may be removed for cause
only after a reasonable notice and opportunity to be heard before the body
proposing to remove him.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal by-laws of the Corporation. Any adoption, amendment or repeal of the
by-laws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the by-laws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of the
Corporation required by law or by this Restated Certificate of Incorporation,
the affirmative vote of the holders of at least seventy percent (70%) of the
voting power of all of the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required for the stockholders to adopt,
amend or repeal any provision of the by-laws of the Corporation.
EIGHTH: 1. To the fullest extent permitted by the Delaware General
Corporation Law as the same now exists or may hereafter be amended, the
Corporation shall indemnify, and advance expenses to, its directors, officers
and members of its Scientific Advisory Board and any person who is or was
serving at the request of the Corporation as a director or officer, employee or
agent of another corporation, or of a partnership, joint venture, trust or other
enterprise if such person was or is made a party to or is threatened to be made
a party to or is otherwise involved (including, without limitation, as a
witness) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director or officer of the Corporation or a member of the Corporation's
Scientific Advisory Board or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan, provided, however, that except with respect
to proceedings to enforce rights to indemnification or as is otherwise required
by law, the by-laws of the Corporation may provide that the Corporation shall
not be required to indemnify, and advance expenses to, any director, officer or
other person in connection with a proceeding (or part thereof) initiated by such
director, officer or other person, unless such proceeding (or part thereof) was
authorized by the board of directors of the Corporation. The Corporation, by
action of its board of directors, may provide indemnification or advance
expenses to employees and other agents of the Corporation or other persons only
on such terms and conditions and to the
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extent determined by the board of directors in its sole and absolute discretion.
2. The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article EIGHTH shall not be deemed exclusive of any other
rights to which a person seeking indemnification or advancement of expenses may
be entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
3. The Corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, or of a
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under this Article EIGHTH.
4. The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article EIGHTH shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer or member of the Corporation's Scientific Advisory Board and shall inure
to the benefit of the heirs, executors and administrators of such director,
officer or member of the Corporation's Scientific Advisory Board. The
indemnification and rights to advancement of expenses that may have been
provided to an employee or agent of the Corporation by action of the board of
directors, pursuant to the last sentence of Paragraph 1 of this Article EIGHTH,
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be an employee or agent of the Corporation and shall
inure to the benefit of the heirs, executors and administrators of such person,
after the time such person has ceased to be an employee or agent of the
Corporation, only on such terms and conditions and to the extent determined by
the board of directors in its sole discretion. No repeal or amendment of this
Article EIGHTH shall adversely affect any rights of any person pursuant to this
Article EIGHTH which existed at the time of such repeal or amendment with
respect to acts or omissions occurring prior to such repeal or amendment.
NINTH: No director shall be personally liable to the Corporation or its
stockholders for any monetary damages for breaches of fiduciary duty as a
director, notwithstanding any provision of law imposing such liability; provided
that this provision shall not eliminate or limit the liability of a director, to
the extent that such liability is imposed by
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<PAGE>
applicable law, (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 or successor provisions of the General Corporation Law of the State
of Delaware; or (iv) for any transaction from which the director derived an
improper personal benefit. This provision shall not eliminate or limit the
liability of a director for any act or omission if such elimination or
limitation is prohibited by the General Corporation Law of the State of
Delaware. No amendment to or repeal of this provision shall apply to or have any
effect on the liability or alleged liability of any director for or with respect
to any acts or omissions of such director occurring prior to such amendment or
repeal. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
TENTH: The Corporation reserves the right to amend or repeal any provision
contained in this Restated Certificate of Incorporation in the manner prescribed
by the laws of the State of Delaware and all rights conferred upon stockholders
are granted subject to this reservation, provided, however, that in addition to
the vote of the holders of any class or series of stock of the Corporation
required by law or by this Restated Certificate of Incorporation, the
affirmative vote of the holders of shares of voting stock of the Corporation
representing at least seventy percent (70%) of the voting power of all of the
then outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to (i) reduce or eliminate the number of authorized shares of Common
Stock or the number of authorized shares of Preferred Stock set forth in Article
FOURTH or (ii) amend or repeal, or adopt any provision inconsistent with,
Section C of Article FOURTH and Articles FIFTH, SIXTH, SEVENTH, EIGHTH, NINTH
and this Article TENTH of this Restated Certificate of Incorporation.
ELEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
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the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
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IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed and acknowledged by Jerry B. Hook, Ph.D., its President and Chief
Executive Officer, this 31st day of July, 1996.
SPARTA PHARMACEUTICALS, INC.
By:/s/ Jerry B. Hook
-------------------------------------
Jerry B. Hook, Ph.D.
President and Chief Executive Officer
39
EXHIBIT 10.75
SPARTA PHARMACEUTICALS, INC.
PLACEMENT AGENCY AGREEMENT
June 3, 1996
Paramount Capital, Inc.
375 Park Avenue
Suite 1501
New York, New York 10152
Dear Sirs:
Sparta Pharmaceuticals Inc., a Delaware corporation (the "Company"), hereby
confirms its agreement to retain Paramount Capital, Inc. (the "Placement Agent")
on an exclusive basis to introduce the Company to and to procure subscriptions
of Units (the "Units") of the Company from certain "accredited investors" (as
defined in Regulation D under the Securities Act of 1933, as amended) as
prospective purchasers (the "Purchasers") of a minimum of thirty (30) Units (the
"Minimum Offering") and a maximum of seventy-five (75) Units (the "Maximum
Offering"), with an option in favor of the Placement Agent to offer up to an
additional seventy-five (75) Units to cover over-allotments, at a purchase price
of $100,000 per Unit, with each Unit consisting of (a) 10,000 shares of Series B
Convertible Premium Preferred Stock (the "Preferred Stock"), stated value $10.00
per share, of the Company and (b) Class C warrants to purchase 30,000 shares of
Common Stock at an exercise price per underlying share of Common Stock equal to
120% of the initial conversion price of the Preferred Stock, subject to
adjustment, exercisable for a period of 5 years from the date of issuance
(collectively with the Placement Warrants (as defined in Section 4(d) below),
the "Warrants"). The Preferred Stock and the Warrants shall have the terms set
forth in the Term Sheet (as defined below).
The sale to such purchasers (the "Offering") will be made through a private
placement by the Placement Agent (or its designated selected dealers which will
be bound by agreements substantially the same as contained herein for the
Placement Agent) on a "best efforts" basis pursuant to the Confidential Term
Sheet dated June 3, 1996, and all supplements, amendments and exhibits thereto,
all of which constitute an integral part thereof (the "Term Sheet"), separate
purchase agreements and related documents (the "Subscription Agreements") in
accordance with Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") and Regulation D promulgated thereunder.
The Term Sheet, the Subscription Agreements, the exhibits to the
Subscription Agreements, the Certificate of Designations relating to the
Preferred Stock, the agreements setting forth the terms of the Warrants
(collectively with the Warrants, the "Warrant Agreements"), the Warrants, the
Escrow Agreement, dated June 3, 1996 (the "Escrow Agreement"), the Financial
Advisory Agreement, dated
<PAGE>
Paramount Capital, Inc.
Page 2
February 29, 1996, and the Placement Agency Agreement, are collectively referred
to herein as the "Offering Documents."
The Company, at its sole cost, shall prepare and deliver to the Placement
Agent a reasonable number of copies of the Offering Documents in form and
substance satisfactory to the Placement Agent.
Each prospective investor subscribing to purchase Units shall be required
to deliver, among other things, a Subscription Agreement, which shall include a
Confidential Investor Questionnaire ("Questionnaire"). The Company shall make
available to each prospective purchaser at a reasonable time prior to the
purchase of the Units the opportunity to ask questions of and receive answers
from the Company concerning the terms and conditions of the Offering and the
opportunity to obtain additional information necessary to verify the accuracy of
the documents delivered in connection with the purchase of the Units to the
extent it possesses such information or can acquire it without unreasonable
effort or expense. After the Offering Documents have been reviewed by investors,
and they have had the opportunity to address all inquiries to the Company,
separate Subscription Agreements shall be completed by each prospective
investor. The Company or Placement Agent shall have the right to reject
subscriptions in its sole discretion. The Company shall evidence its acceptance
of a subscription by countersigning a copy of the applicable Subscription
Agreement and returning the same to the Placement Agent.
Capitalized terms used herein, unless otherwise defined or unless the
context otherwise indicates, shall have the same meanings provided in the
Offering Documents.
1. Appointment of Placement Agent.
(a) You are hereby appointed exclusive placement agent of the Company
(subject to your right to have Selected Dealers, as defined in Section 1(c)
hereof, participate in the Offering) during the Offering Period herein specified
for the purposes of assisting the Company in finding qualified Subscribers
pursuant to the Offering described in the Offering Documents. You shall not be
deemed an agent of the Company for any other purpose. The Offering Period shall
commence on the day (the "Commencement Date") the Offering Documents are first
made available to you by the Company for delivery in connection with the
offering for sale of the Units. Upon receipt of the Minimum Offering amount, the
Placement Agent may conduct a closing (the "Initial Closing Date") and may
conduct subsequent closings on an interim basis until the Maximum Offering
amount (and any over-allotment amount) has been reached (the "Final Closing
Date"). The Offering Period shall terminate at 11:59 p.m. New York City Time on
the date sixty days following the Commencement Date, subject to an extension, at
the option of the Placement Agent, for an additional sixty (60) days.
<PAGE>
Paramount Capital, Inc.
Page 3
(b) Subject to the performance by the Company of all of its
obligations to be performed under this Agreement and to the completeness and
accuracy of all representations and warranties of the Company contained in this
Agreement, the Placement Agent hereby accepts such agency and agrees to use its
best efforts to assist the Company in finding qualified subscribers pursuant to
the Offering described in the Offering Documents and to keep the Company or its
counsel reasonably informed of subscriptions received. It is understood that the
Placement Agent has no commitment to sell the Units. Your agency hereunder is
not terminable by the Company except upon termination of the Offering Period.
(c) You may engage other persons, selected by you in your discretion,
that are members of the National Association of Securities Dealers, Inc.,
("NASD") or who are located outside the United States and that have executed a
Selected Dealers Agreement in the form provided to the Company to assist you in
the Offering (each such person being hereinafter referred to as a "Selected
Dealer") and you may allow such persons such part of the compensation and
payment of expenses payable to you hereunder as you shall determine, provided
that (i) such compensation shall be received pursuant to Section 1(d) hereof,
and (ii) any assignment of the Placement Warrants (as defined herein) shall
conform with the requirements of Section 4(2) of the Securities Act and
Regulation D promulgated thereunder.
(d) Subscriptions for Units shall be evidenced by the execution by
Subscribers of a Subscription Agreement. No Subscription Agreement shall be
effective unless and until it is accepted by the Company. Until a closing is
held, all subscription funds received shall be held as described in the
Subscription Agreement. The Placement Agent shall not have any independent
obligation to verify the accuracy or completeness of any information contained
in any Subscription Agreement or the authenticity, sufficiency, or validity of
any check delivered by any prospective investor in payment for Units.
2. Representations and Warranties of the Company. The Company represents
and warrants to the Placement Agent and each Selected Dealer, if any, as
follows:
(a) Securities Law Compliance. The Offering Documents, as of their
respective dates, do and will, as of the date of the Term Sheet and the Closing,
describe the material aspects of an investment in the Company and conform in all
respects with the requirements of Section 4(2) of the Securities Act and
Regulation D promulgated thereunder and with the requirements of all other
published rules and regulations of the Securities and Exchange Commission (the
"Commission") currently in effect relating to "private offerings" to "accredited
investors" of the type contemplated by the Company. The Offering Documents will
not as of the date of the Term Sheet and the Closing contain an untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, provided, however,
<PAGE>
Paramount Capital, Inc.
Page 4
that no representation is made with respect to information, relating to the
Placement Agent, provided in writing by the Placement Agent to the Company
specifically for inclusion in the Offering Documents. If at any time prior to
the completion of the Offering or other termination of this Agreement any event
shall occur as a result of which it might become necessary to amend or
supplement the Offering Documents so that they do not include any untrue
statement of any material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances then
existing, not misleading, the Company will promptly notify the Placement Agent
and will supply the Placement Agent with amendments or supplements correcting
such statement or omission. The Company will also provide the Placement Agent
for delivery to all offerees and purchasers and their representatives, if any,
any information, documents and instruments which the Placement Agent and the
Company's counsel reasonably deem necessary to comply with applicable state and
federal law.
The Company acknowledges that the Placement Agent (i) has not supplied any
information for inclusion in the Offering Documents other than information
furnished in writing to the Company by the Placement Agent specifically for
inclusion in the Offering Documents; (ii) has no obligation to independently
verify any of the information in the Offering Documents; and (iii) has no
responsibility for the accuracy or completeness of the Offering Documents,
except for the information, relating to the Placement Agent, furnished in
writing by the Placement Agent to the Company specifically for inclusion in the
Offering Documents.
(b) Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own and lease its properties, to
carry on its business as currently conducted and as proposed to be conducted, to
execute and deliver this Agreement and to carry out the transactions
contemplated by this Agreement, as appropriate and is duly licensed or qualified
to do business as a foreign corporation in Pennsylvania and each jurisdiction in
which the conduct of its business or ownership or leasing of its properties
requires it to be so qualified, except where the failure to be so qualified
would not have a material adverse effect on the business, financial condition or
prospects of the Company.
(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company prior to the consummation of the transactions contemplated
hereby is as set forth in the Offering Documents. All issued and outstanding
shares of the Company are validly issued, fully paid and nonassessable and have
not been issued in violation of the preemptive rights of any stockholder of the
Company. The Preferred Stock has the rights, preferences and privileges
substantially as set forth in the Form of Certificate of Designations attached
as Exhibit A to the Term Sheet. All prior sales of securities of the Company
were either registered under the Act and applicable state securities laws or
exempt from such registration, and no security holder has any rescission rights
with respect thereto.
<PAGE>
Paramount Capital, Inc.
Page 5
Except as set forth in the Term Sheet, there are no outstanding options,
warrants, agreements, convertible securities, preemptive rights or other rights
to subscribe for or to purchase any shares of capital stock of the Company.
Except as set forth in the Term Sheet and as otherwise required by law, there
are no restrictions upon the voting or transfer of any shares of the Company's
capital stock pursuant to the Company's Certificate of Incorporation, By-Laws or
other governing documents or any agreement or other instruments to which the
Company is a party or by which the Company is bound.
(d) Warrants, Preemptive Rights, Etc. Except as set forth in or
contemplated by the Term Sheet, there are not, nor will there be immediately
after the Closing (as hereinafter defined), any outstanding warrants, options,
agreements, convertible securities, rights of first refusal, rights of first
offer, preemptive rights or other rights to subscribe for or to purchase or
other commitments pursuant to which the Company is, or may become, obligated to
issue any shares of its capital stock or other securities of the Company and
this offering will not cause any anti-dilution adjustments to such securities or
commitments except as reflected in the Term Sheet.
(e) Subsidiaries and Investments. The Company has no subsidiaries and
the Company does not own, directly or indirectly, any capital stock or other
equity ownership or proprietary interests in any other corporation, association,
trust, partnership, joint venture or other entity.
(f) Financial Statements. The financial information contained in the
Offering Documents is accurate in all material respects. The Financial
Statements have been prepared in conformity with generally accepted accounting
principles consistently applied and show all material liabilities, absolute or
contingent, of the Company required to be recorded thereon and present fairly
the financial position and results of operations of the Company as of the dates
and for the periods indicated.
(g) Absence of Changes. Since the date of the Term Sheet, except as
has been or will be reflected in the Term Sheet prior to Closing, the Company
has not incurred any liabilities or obligations, direct or contingent, not in
the ordinary course of business, or entered into any transaction not in the
ordinary course of business, which is material to the business of the Company,
and there has not been any change in the capital stock of, or any incurrence of
long-term debt by, the Company, or any issuance of options, warrants or other
rights to purchase the capital stock of the Company, or any adverse change or
any development involving, so far as the Company can now reasonably foresee, a
prospective adverse change in the condition (financial or otherwise), net worth,
results of operations, business, key personnel or properties which would be
material to the business or financial condition of the Company, and the Company
has not become a party to, and neither the
<PAGE>
Paramount Capital, Inc.
Page 6
business nor the property of the Company has become the subject of, any material
litigation whether or not in the ordinary course of business.
(h) Title. The Company has good and marketable title to all tangible
properties and assets owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as are not materially significant or
important in relation to the Company's business; all of the material leases and
subleases under which the Company is the lessor or sublessor of properties or
assets or under which the Company holds properties or assets as lessee or
sublessee are in full force and effect, and the Company is not in default in any
material respect with respect to any of the terms or provisions of any of such
leases or subleases, and no material claim has been asserted by anyone adverse
to rights of the Company as lessor, sublessor, lessee or sublessee under any of
the leases or subleases mentioned above, or affecting or questioning the right
of the Company to continued possession of the leased or subleased premises or
assets under any such lease or sublease. The Company owns or leases all such
tangible properties as are necessary to its operations as now conducted and to
be conducted, as presently planned.
(i) Proprietary Rights. To the best of the Company's knowledge and
except as has been or will be reflected in the Term Sheet prior to Closing, the
Company owns or possesses adequate and enforceable rights to use all patents,
patent applications, trademarks, service marks, trade names, corporate names,
copyrights, trade secrets, processes, mask works, licenses, inventions,
formulations, technology or know-how or other intangible property used or
proposed to be used in the conduct of its business as described in or
contemplated by the Term Sheet (the "Proprietary Rights"). To the best of the
Company's knowledge and except as has been or will be reflected in the Term
Sheet prior to Closing, the Company or the entities from whom the Company has
acquired rights has taken all necessary action to protect all of its Proprietary
Rights. Except as set forth in the Term Sheet, the Company has not received any
notice of, and there are not any facts known to the Company which indicate the
existence of (i) any infringement or misappropriation by any third party of any
of the Proprietary Rights or (ii) any claim by a third party contesting the
validity of any of the Proprietary Rights; the Company has not received any
notice of any infringement, misappropriation or violation by the Company or any
of its employees of any Proprietary Rights of third parties, and, to the best of
the Company's knowledge, the Company nor any of its employees has infringed,
misap propriated or otherwise violated any Proprietary Rights of any third
parties; and, to the best of the Company's knowledge, no infringement, illicit
copying, misappropriation or violation of any intellectual property rights of
any third party has occurred or will occur with respect to any products
currently being sold by the Company or with respect to any products currently
under development by the Company or with respect to the conduct of the Company's
business as currently contemplated. Except as described in the Term Sheet, the
Company is not aware that any of its employees are obligated under any contract
(including licenses, covenants
<PAGE>
Paramount Capital, Inc.
Page 7
or commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or adminis trative agency, that would interfere
with the use of the employee's best efforts to promote the interests of the
Company or that would conflict with the Company's busi ness as proposed to be
conducted. To the best of the Company's knowledge, neither the execution nor
delivery of this Agreement, nor the carrying on of the Company's business by the
employees of the Company, nor the conduct of the Company's business, as
proposed, will conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any such employee is now obligated.
(j) Litigation. Except as set forth in the Term Sheet, there is no
material action, suit, claim or proceeding at law or in equity, or to the
Company's knowledge, investigation or customer complaint, by or before any
arbitrator, governmental instrumentality or other agency now pending or, to the
knowledge of the Company, threatened against the Company (or basis therefor
known to the Company which the Company believes will result in the foregoing)
the adverse outcome of which would materially adversely affect the Company's
business or prospects. The Company is not subject to any judgment, order, writ,
injunction or decree of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign which would materially adversely affect the Company's business or
prospects.
(k) Non-Defaults, Non-Contravention. The Company is not in violation
of or default under, nor will the execution and delivery of this Agreement or
any of the Offering Documents and the Escrow Agreement, or consummation of the
transactions contemplated herein or therein result in a violation of or
constitute a default in the performance or observance of any obligation (i)
under its Certificate of Incorporation, or its By-laws, or any indenture,
mortgage, contract, material purchase order or other agreement or instrument to
which the Company is a party or by which it or its property is bound or affected
or (ii) with respect to any material order, writ, injunction or decree of any
court of any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, and
there is no existing condition, event or act which constitutes, nor which after
notice, the lapse of time or both, could constitute a default under any of the
foregoing, which in either case would have a material adverse effect on the
business, financial condition or prospects of the Company.
(l) Taxes. The Company has filed all Federal, state, local and foreign
tax returns which are required to be filed by it and all such returns are true
and correct in all material respects. The Company has paid all taxes pursuant to
such returns or pursuant to any assessments received by it or which it is
obligated to withhold from amounts owing to any employee, creditor or third
party. The Company has properly accrued all taxes required to be accrued. The
tax returns of the Company have never been audited by any state, local or
Federal authorities (except for an audit by state authorities which has been
concluded and all liabilities in
<PAGE>
Paramount Capital, Inc.
Page 8
connection therewith paid). The Company has not waived any statute of
limitations with respect to taxes or agreed to any extension of time with
respect to any tax assessment or deficiency.
(m) Compliance With Laws, Licenses, Etc. The Company has not received
notice of any violation of or noncompliance with any Federal, state, local or
foreign, laws, ordinances, regulations and orders applicable to its business
which has not been cured, the violation of, or noncompliance with which, would
have a materially adverse effect on the business or operations of the Company.
The Company has all governmental licenses and permits and other governmental
certificates, authorizations and permits and approvals (collectively,
"Licenses") required by every Federal, state and local government or regulatory
body for the operation of its business as currently conducted and the use of its
properties, except where the failure to be licensed would not have a material
adverse effect on the business of the Company. The Licenses are in full force
and effect and no violations are or have been recorded in respect of any License
and no proceeding is pending or threatened to revoke or limit any thereof.
(n) Authorization of Documents and Units. Each of the Offering
Documents, has been duly and validly authorized, executed and delivered by the
Company and the execution, delivery and performance by the Company of the
Offering Documents, has been duly authorized by all requisite corporate action
by the Company and when delivered, constitute or will constitute the legal,
valid and binding obligations of the Company, enforceable in accordance with
their respective terms, subject to the availability and enforceability of
equitable remedies and to applicable bankruptcy and other laws relating to the
rights of creditors generally and except as the enforcement of the rights to
indemnification and contribution hereunder and under any other Offering
Documents may be limited by federal or state securities laws or public policy.
The Corporation has full power and lawful authority to authorize, issue and sell
the Units to be sold to the Purchasers.
(o) Exemption from Registration. Assuming (i) the accuracy of the
information provided by the respective Purchasers in the Subscription
Agreements, (ii) that the Placement Agent has complied in all material respects
with the provisions of Regulation D promulgated under the Securities Act and
(iii) the timely filing of a Form D by the Company, the offer and sale of the
Units and the granting of the Placement Warrants pursuant to the terms of this
Agreement are exempt from the registration requirements of the Securities Act
and the rules and regulations promulgated thereunder (the "Regulations"). The
Company is not disqualified from the exemption under Regulation D by virtue of
the disqualifications contained in Rule 505(b)(2)(iii) or Rule 507 promulgated
thereunder.
(p) Registration Rights. Except with respect to holders of the Units,
and except as set forth in the Term Sheet or disclosed to the Placement
<PAGE>
Paramount Capital, Inc.
Page 9
Agent in writing, no person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the Company.
(q) Brokers. Neither the Company nor any of its officers, directors,
employees or stockholders has employed any broker or finder in connection with
the transactions contemplated by this Agreement other than the Placement Agent.
(r) Title to Units. When certificates representing the securities
comprising the Units shall have been duly delivered to the purchasers and
payment shall have been made therefor, the several purchasers shall have good
and marketable title to the Preferred Stock, and upon conversion of such
Preferred Stock, will have good and marketable title to the Common Stock
issuable upon such conversion (the "Conversion Shares"), free and clear of all
liens, encumbrances and claims whatsoever (with the exception of claims arising
through the acts of the purchasers and except as arising from applicable Federal
and state securities laws), and the Company shall have paid all taxes, if any,
in respect of the original issuance thereof. When certificates representing the
Placement Warrants shall have been duly delivered to the Placement Agent, the
Placement Agent shall have good and marketable title to the Warrants, and upon
exercise of such Warrants, will have good and marketable title to the Common
Stock and Preferred Stock issuable upon such exercise, and upon conversion of
the Preferred Stock acquired upon exercise of such Warrants, will have good and
marketable title to the Common Stock into which such Preferred Stock is
converted, free and clear of all liens, encumbrances and claims whatsoever (with
the exception of claims arising through the acts of the purchasers and except as
arising from applicable Federal and state securities laws), and the Company
shall have paid all taxes, if any, in respect of the original issuance thereof.
(s) Non-Affiliated Directors. The Company's Board of Directors has not
less than two directors who are independent from, and unaffiliated with,
management of the Company.
(t) Accuracy of Reports. All material reports required to be filed by
the Corporation within the two years prior to the date of this Agreement under
the Securities and Exchange Act of 1934 (the "Exchange Act"), as amended, have
been duly filed with the SEC, complied at the time of filing in all material
respects with the requirements of their respective forms and, except to the
extent updated or superseded by the Term Sheet or any subsequently filed report,
were complete and correct in all material respects as of the dates at which the
information was furnished, and contained (as of such dates) no untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading.
3. Representations and Warranties of Paramount Capital, Inc. The Placement
Agent represents and warrants as follows:
<PAGE>
Paramount Capital, Inc.
Page 10
(a) The Placement Agent is duly organized and validly existing and in
good standing as a corporation under the laws of the State of New York with full
and adequate power and authority to enter into and perform this Agreement.
(b) In offering the Units, the Placement Agent will deliver (or direct
the Company to deliver) to each prospective purchaser, prior to accepting any
subscription from such prospective purchaser, the Offering Documents, and will
not offer any of the Units for sale, or solicit any offers to subscribe for any
Units, or otherwise approach or negotiate with any person in respect of the
Units, on the basis of any written information except the Offering Documents and
any cover or transmittal letter therefor, and any other documents approved for
such use by the Company or counsel to the Company. The Placement Agent will
cooperate with the Company in the preparation of the Offering Documents, will
exercise reasonable care to ensure that prospective purchasers for Units are not
underwriters within the meaning of Section 2(11) of the Act and will not engage
in a general solicitation or employ general advertising in connection with the
Offering.
(c) The Placement Agent will conduct the Offering in compliance with
applicable federal and state securities laws so as to preserve the exemption
provided in Section 4(2) of the Act and any applicable rules or regulations
promulgated thereunder or under such state securities laws and will make offers
to sell Units to, or solicit offers to subscribe for any Units from, persons in
only those states where the Company has informed the Placement Agent in writing
that the Offering and the Units have been qualified, or the Company has
determined that an exemption from such qualification is available, under the
applicable state securities statute. The Placement Agent will accept
subscriptions only from persons that the Placement Agent reasonably believes are
"accredited investors" (as defined in Regulation D under the Securities Act of
1933, as amended). The final acceptance of any subscription shall be made only
after the Company has reviewed the Subscription Agreement and agreed to such
final acceptance.
(d) The Placement Agent will maintain a record for the period
specified in Rule 17a-4 promulgated by the Securities and Exchange Commission
(the "Commission") under the Act, or such longer period, if any, required by
relevant state regulatory authorities, of all information obtained by the
Placement Agent indicating that prospective purchasers for Units meet applicable
suitability standards and any other information required thereby, which
information shall be available to the Company at its reasonable request, and at
each closing the Placement Agent will deliver to the Company the original copies
of all accepted Subscription Agreements (or signature pages thereto provided
such Purchasers were provided the form of Subscription Agreement attached to the
Term Sheet) and have no reason to believe that said information and the
representations of each Purchaser as set forth in the Subscription Agreement
executed thereby are untrue.
<PAGE>
Paramount Capital, Inc.
Page 11
(e) The Placement Agent is, and at each closing will be, a securities
broker-dealer registered with the Commission and any jurisdiction where
broker-dealer registration is required in order to offer and sell the Units and
a member in good standing of the National Association of Securities Dealers,
Inc. ("NASD").
(f) There is no material litigation, governmental or NASD proceeding,
pending or, to the best of the Placement Agent's knowledge, threatened against
the Placement Agent or any controlling person of the Placement Agent that
involves allegations of improper or illegal conduct under federal or state
securities laws.
(g) The Placement Agent will handle, transmit and deposit all funds
from the sale of Units in accordance with the requirements of Rule 15c-2(4)
promulgated under the Act.
(h) The information, relating to the Placement Agent, provided by the
Placement Agent to the Company in writing specifically for inclusion in the
Offering Documents, as of the Closing Date, will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, all
in light of the circumstances under which they were made.
4. Closing; Placement and Fees.
(a) Closing. Provided that the Placement Agent has received
subscriptions for the Minimum Offering amount, the Placement Agent may conduct,
in its sole discretion, closings (each a "Closing Date") at the offices of the
Placement Agent, 375 Park Avenue, New York, N.Y., until the Final Closing Date.
At each Closing Date, payment for the Units issued and sold by the Company shall
be made to the Company in immediately available funds against delivery of
certificates evidencing the Preferred Stock and Warrants comprising such Units.
(b) Conditions to Placement Agent's Obligations. The obligations of
the Placement Agent hereunder will be subject to the accuracy of the
representations and warranties of the Company herein contained as of the date
hereof and as of each Closing Date, to the performance by the Company of its
obligations hereunder and to the following additional conditions:
(i) Due Qualification or Exemption. (A) The offering contemplated
by this Agreement will become qualified or be exempt from qualification under
the securities laws of the several states pursuant to paragraph 4(c) below not
later than the Closing Date, subject to any filings to be made thereafter, and
(B) at the Closing Date no stop order suspending the sale of the Units shall
have
<PAGE>
Paramount Capital, Inc.
Page 12
been issued, and no proceeding for that purpose shall have been initiated
or threatened;
(ii) No Material Misstatements. Neither the Blue Sky
qualification materials nor the Term Sheet, nor any supplement thereto, will
contain an untrue statement of a fact which in the opinion of the Placement
Agent is material, or omit to state a fact, which in the opinion of the
Placement Agent is material and is required to be stated therein, or is
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(iii) Compliance with Agreements. The Company will have complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to each Closing;
(iv) Corporate Action. The Company will have taken all necessary
corporate action, including, without limitation, obtaining the approval of the
Company's board of directors, for the execution and delivery of the Offering
Documents, the performance by the Company of its obligations hereunder and the
offering contemplated hereby;
(v) Opinion of Counsel-Roberts, Sheridan and Kotel. The Placement
Agent shall receive the opinion of Roberts, Sheridan & Kotel (stating that each
of the Purchasers may rely thereon as though addressed directly to such
Purchaser), dated as of each Closing Date, substantially to the effect that:
(A) the Company is duly organized and is validly existing
and in corporate good standing under the laws of the State of Delaware, has all
requisite corporate power and authority necessary to own or hold its properties
and conduct its business as described in the Term Sheet and is duly qualified or
licensed to do business as a foreign corporation and is in good standing in the
State of Pennsylvania and in each other jurisdiction in which the nature of the
business conducted, or as proposed to be conducted in the Term Sheet, by it or
the properties owned, leased or operated by it, makes such qualification or
licensing necessary or where the failure to be so qualified or licensed would
have a material adverse effect upon the Company. The Company has no subsidiaries
and the Company does not own, directly or indirectly, any capital stock or other
equity ownership or proprietary interests in any other corporation, association,
trust, partnership, joint venture or other entity;
(B) the execution, delivery and performance of each of the
Offering Documents, including the issuance of the Units and Warrants, have been
duly authorized by all necessary corporate action on the part of the Company.
Each of the Offering Documents has been duly executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, except as such enforceability may be
limited
<PAGE>
Paramount Capital, Inc.
Page 13
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by applicable
law. Such counsel shall not be required to express any opinion herein as to the
availability of any equitable remedy upon breach of any of the agreements,
documents or obligations referred to herein, or as to the enforceability of any
indemnification provisions of any agreement, document or instrument referred to
herein under any federal or state securities law;
(C) the authorized, issued and outstanding capital stock of
the Company as of the date hereof (before giving effect to the transactions
contemplated by this Agreement) is as set forth in the Offering Documents. There
are no outstanding warrants, options, agreements, convertible securities,
preemptive rights or other commitments to the best knowledge of such counsel
pursuant to which the Company is, or may become, obligated to issue any shares
of its capital stock or other securities of the Company other than as set forth
in the Term Sheet. All of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and nonassessable
and have not been issued in violation of the preemptive rights of any security
holder of the Company to the best knowledge of such counsel;
(D) assuming (i) the accuracy of the information provided by
the Subscribers in the Subscription Documents, (ii) that the Placement Agent has
complied in all material respects with the requirements of section 4(2) of the
Securities Act (and the provisions of Regulation D promulgated thereunder) and
(iii) the timely filing with the Securities and Exchange Commission of a Form D
and amendments thereto containing accurate and complete information, the
issuance and sale of the Units is exempt from registration under the Securities
Act and Rule 506 of Regulation D promulgated thereunder;
(E) neither the execution and delivery of the Offering
Documents nor compliance with the terms hereof or thereof, nor the consummation
of the transactions herein or therein contemplated, has, nor will, conflict
with, result in a breach of, or constitute a default under the Certificate of
Incorporation or By-laws of the Company, or any material contract, instrument or
document to which the Company is a party, or by which it or any of its
properties is bound or violate any applicable order or decree of any
governmental agency or court having jurisdiction over the Company or any of its
properties or business naming the Company and to the best knowledge of such
counsel;
(F) to such counsel's best knowledge, there are no claims,
actions, suits, investigations or proceedings before or by any arbitrator,
court, governmental authority or instrumentality pending or threatened against
the Company which might materially and adversely affect the business, properties
or
<PAGE>
Paramount Capital, Inc.
Page 14
financial condition of the Company or which might materially adversely affect
the transactions or other acts contemplated by the Offering Documents or the
validity or enforceability of the Offering Documents, except as set forth in or
contemplated by the Offering Documents. Except as disclosed in the Offering
Documents, to such counsel's best knowledge, the Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality naming the Company;
(G) upon the issuance of the Preferred Stock, the Conversion
Shares, the Warrants and any underlying Common Stock, each of the purchasers
shall acquire such securities, free and clear of all pledges, liens, claims,
encumbrances, preemptive rights, rights of first offer or right of first refusal
and restrictions, to such counsel's best knowledge, and imposed by or through
the Company, except for the transfer restrictions set forth in the Subscription
Agreements and any action taken to encumber such securities by the holder
itself;
(H) the Preferred Stock, the Conversion Shares, the Warrants
and any underlying Common Stock, have been duly authorized and reserved for
issuance and, upon issuance in accordance with the terms of such instruments,
will be validly issued, fully paid and non-assessable;
(I) the Conversion Shares, and the Common Stock underlying
the Warrants, will be duly authorized when issued and will continue to be
reserved for future issuance and, upon issuance in accordance with the terms of
such instruments, will be validly issued, fully paid and non-assessable;
(K) in course of the preparation of the Offering Documents,
which involved, among other things, discussions and inquiries concerning the
various legal matters and the review of certain corporate records, documents and
proceedings, counsel participated in conferences with certain officers and other
representatives of the Company and the Placement Agent during which the contents
of the Offering Documents and related matters were discussed. On the basis of
the information which was developed in the course thereof, such counsel shall
advise the Placement Agent (which advice shall not be in the form of an opinion
and is not required to be delivered to the purchasers) that such counsel has no
reason to believe that as of the date of the Closing, the Term Sheet contained
an untrue statement of a material fact relating to the Company or omitted to
state a material fact relating to the Company required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made.
Such counsel may state that the absence of any independent
verification by such counsel of factual matters and the character of
determinations involved in the securities laws disclosure process are such,
however, that it does not assume responsibility for the accuracy, completeness
or fairness of the statements made in the
<PAGE>
Paramount Capital, Inc.
Page 15
Term Sheet. Such counsel need not express any opinion or belief as to the
financial statements and related schedules and the other financial and
statistical data contained in the Term Sheet.
(vi) The Placement Agent shall receive the opinion of Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C., dated the Closing Date,
substantially to the effect that the execution, delivery and performance of this
Agreement, has been duly authorized by all necessary corporate action on the
part of the Company. This Agreement has been duly executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution may be
limited by applicable law. Such counsel shall not be required to express any
opinion herein as to the availability of any equitable remedy upon breach of
this Agreement, or as to the enforceability of any indemnification provisions of
this Agreement under any federal or state securities law.
(vii) Opinion of Patent Counsel. The Placement Agent shall
receive the opinion of Pennie & Edmonds, patent counsel to the Company, dated
the Closing Date in the form and substance satisfactory to counsel for the
Placement Agent.
(viii) Opinion of Regulatory Counsel. The Placement Agent shall
receive the opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,
regulatory counsel to the Company, dated the Closing Date, in form and substance
satisfactory to counsel for the Placement Agent.
(ix) Comfort Letter. The Company shall cause the Company's
independent public accountants to address and deliver to the Company and the
Placement Agent a letter or letters (which letters are frequently referred to as
"Comfort Letters") dated as of the Closing Date and the effective date of the
registration statement required to be filed in connection with the Subscription
Agreements.
(x) Officer's Certificate. The Placement Agent shall receive an
Officer's Certificate substantially in the form of Exhibit B and a Secretary's
Certificate substantially in the form of Exhibit C, signed by the appropriate
parties and dated as of each Closing Date. These certificates shall state, among
other things, that the representations and warranties contained in Section 2
hereof are true and accurate in all material respects at such Closing Date with
the same effect as though expressly made at such Closing Date.
<PAGE>
Paramount Capital, Inc.
Page 16
(xi) Escrow Agreement. The Placement Agent shall receive a copy
of a duly executed Escrow Agreement with the American Stock Transfer & Trust
Company substantially in the form previously delivered to you.
(xii) Transmittal Letters. The Placement Agent shall receive
copies of all letters from the Company to the investors transmitting the
Preferred Stock and Warrants and shall receive a letter from the Company
confirming transmittal of the securities to the investors.
(xiii) Transfer Sheets. For a period of three (3) years from the
Closing Date, the Company, at its expense, shall provide the Placement Agent
with copies of the Company's daily transfer sheets, if requested by the
Placement Agent.
(c) Blue Sky. A summary blue sky survey, at the sole cost of the
Company (with legal fees and disbursements in connection therewith not to exceed
$15,000), shall be prepared by counsel to the Placement Agent stating the extent
to which and the conditions upon which offers and sales of the Units may be made
in certain jurisdictions. It is understood that such survey may be based on or
rely upon (i) the representations of each Subscriber set forth in the
Subscription Agreement delivered by such Subscriber, (ii) the representations,
warranties and agreements of the Company set forth in Section 2 of this
Agreement, (iii) the representations and warranties of the Placement Agent, and
(iv) the representations of the Company set forth in the certificate to be
delivered at the Closing pursuant to paragraph (iii) of Section 3(b).
(d) Placement Fee and Expenses. Simultaneously with payment for and
delivery of the Units at each Closing as provided in paragraph 4(a) above, the
Company shall at such Closing pay to the Placement Agent (i) a commission (the
"Cash Commission") equal to nine percent (9%) of the aggregate purchase price of
the Units sold and (ii) a non-accountable expense allowance (the "Expense
Allowance") equal to four percent (4%) of the aggregate purchase price of the
Units sold. The Company shall also pay all expenses in connection with the
qualification of the Units under the securities or Blue Sky laws of the states
which the Placement Agent shall designate (with legal fees and disbursements in
connection therewith not to exceed $15,000). In addition, upon the closing of
the sale of the Units being offered, the Company will grant to the Placement
Agent and/or its designees (i) preferred stock warrants (the "Preferred Stock
Warrants") to purchase a number of newly issued shares of Preferred Stock equal
to 10% of the number of shares of Preferred Stock issued in the Offering,
exercisable for a period of 5 years commencing six months after the the Final
Closing Date at an exercise price equal to 110% of the stated value per share of
Preferred Stock sold in the Offering, and (ii) Common Stock warrants (the
"Common Stock Warrants") to purchase a number of newly issued shares of Common
Stock equal to 10% of the Common Stock issuable upon exercise of the Class C
Warrants issued in the Offering exercisable for a period
<PAGE>
Paramount Capital, Inc.
Page 17
of 5 years commencing six months after the Final Closing Date at an exercise
price equal to 120% of the Initial Conversion Price (the Preferred Stock
Warrants and the Common Stock Warrants being collectively referred to as the
"Placement Warrants"). The Placement Warrants cannot be transferred, sold,
assigned or hypothecated for six months except that they may be assigned in
whole or in part during such period to any NASD member participating in the
Offering (provided such transfer is performed in conformity with Regulation D)
or any officer or employee of the Placement Agent or any such NASD member. The
Placement Warrants will contain a cashless exercise feature, certain
antidilution provisions and the right to have the Common Stock underlying the
Placement Warrants included in the Shelf Registration Statement. In addition to
the foregoing, the Company will pay the Placement Agent a commission of 6% upon
the exercise of any of the Class C Warrants. Any out-of-pocket costs incurred by
the Placement Agent in connection with the solicitation of Warrant exercises or
the redemption of Class C Warrants shall be borne by the Company, not to exceed
$5,000.
(iv) The Cash Commission, Expense Allowance and Placement
Warrants as set forth in this Agreement shall be paid to the Placement Agent
with respect to any investment by any investors ("Covered Investors") introduced
to the Company by the Placement Agent prior to the Final Closing Date in the
event that any such Covered Investor purchases securities from the Company
during the twelve (12) months following the Final Closing Date of the Offering
(other than purchases made by such investors as part of a "firm commitment"
underwriting, corporate partner arrangement, strategic alliance or other
licensing transaction). The Company shall not be required to pay fees to the
Placement Agent pursuant to Section 3 of the Financial Advisory Agreement (the
"Financial Advisory Agreement") dated February 29, 1996, with respect to any
specific purchase of securities by a Covered Investor to the extent that the
Company has already paid fees in connection with any such purchase to the
Placement Agent pursuant to this subsection (iv). To the extent that the terms
of Section 3 of the Financial Advisory Agreement and the terms of this
subsection (iv) are both applicable to any purchase of securities from the
Company, then the Placement Agent shall be entitled to the compensation set
forth herein and the terms of this subsection (iv) shall apply in lieu of the
terms of the Financial Advisory Agreement.
(e) No Adverse Changes. There shall not have occurred, at any time
prior to the Closing (i) any domestic or international event, act or occurrence
which has materially disrupted, or in the Placement Agent's opinion will in the
immediate future materially disrupt, the securities markets; (ii) a general
suspension of, or a general limitation on prices for, trading in securities on
the New York Stock Exchange or the American Stock Exchange or in the
over-the-counter market; (iii) any outbreak of major hostilities or other
national or international calamity; (iv) any banking moratorium declared by a
state or federal authority; (v) any moratorium declared in foreign exchange
trading by major international banks or other persons; (vi) any material
interruption in the mail service or other means of
<PAGE>
Paramount Capital, Inc.
Page 18
communication within the United States; (vii) any material adverse change in the
business, properties, assets, results of operations, or financial condition of
the Company; or (viii) any change in the market for securities in general or in
political, financial, or economic conditions which, in the Placement Agent's
reasonable judgment, makes it inadvisable to proceed with the offering, sale,
and delivery of the Units.
5. Covenants of the Company.
(a) Use of Proceeds. The net proceeds of the Offering will be used by
the Company substantially as set forth in the Term Sheet. The Company shall not
use any of the proceeds from the Offering to repay any indebtedness of the
Company, including, but not limited to, indebtedness to any current executive
officers, directors or principal stockholders of the Company.
(b) Expenses of Offering. The Company shall be responsible for and
shall bear all directly expenses incurred in connection with the proposed
Offering, including but not limited to, the costs of preparing and duplicating
the Term Sheet and all exhibits thereto; preparing, duplicating and delivering
exhibits thereto and copies of the preliminary, final and supplemental
prospectus; the costs of preparing, printing and filing with the Securities and
Exchange Commission (the "SEC") the Shelf Registration Statement and amendments,
post-effective amendments and supplements thereto; preparing, duplicating and
delivering exhibits thereto and copies of the preliminary, final and
supplemental prospectus; preparing, duplicating and delivering all selling
documents, including but not limited to the Placement Agency Agreement,
Subscription Agreements, Warrant agreements, blue sky memorandum and stock and
warrant certificates; blue sky fees, filing fees and legal fees and
disbursements of the Placement Agent's counsel in connection with blue sky
matters (with legal fees and disbursements not to exceed $15,000); fees and
disbursements of the transfer and warrant agent; the cost of a total of two sets
of bound closing volumes for the Placement Agent and its counsel; and the cost
of three tombstone advertisements, at least one of which shall be in a national
business newspaper and one of which shall be in a major New York newspaper
(collectively, the "Company Expenses"). The Company shall pay to the Placement
Agent the Expense Allowance to cover the cost of our mailing, telephone,
telegraph, travel, due diligence meetings and other similar expenses including
legal fees of the Placement Agent's counsel. If the proposed financing is not
completed because (i) of a breach by the Company of the covenants,
representations or warranties set forth herein, or (ii) the Company, for any
reason, refuses to, or decides not to, proceed with or takes any action which is
intended to prevent the consummation of the Offering, the Company shall pay to
the Placement Agent a fee (in addition to the Company Expenses for which the
Company shall in all events remain liable) equal to $100,000.
(c) Notification. The Company shall notify the Placement Agent
immediately, and in writing, (A) when any event shall have occurred during
<PAGE>
Paramount Capital, Inc.
Page 19
the period commencing on the date hereof and ending on the later of the Closing
or the Final Closing Date as a result of which the Offering Documents would
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances under which they were made and (B)
of the receipt of any notification with respect to the modification, rescission,
withdrawal or suspension of the qualification or registration of the Units and
the Warrants, or of any exemption from such registration or qualification, in
any jurisdiction. The Company will use its best efforts to prevent the issuance
of any such modification, rescission, withdrawal or suspension and, if any such
modification, rescission, withdrawal or suspension is issued and you so request,
to obtain the lifting thereof as promptly as possible.
(d) Blue Sky. The Company will use its best efforts to qualify the
Units for offering and sale under exemptions from qualification or registration
requirements under the securities or "blue sky" laws of such jurisdictions as
you may reasonably request; provided however, that the Company will not be
obligated to qualify as a dealer in securities in any jurisdiction in which it
is not so qualified. The Company will not consummate any sale of Units in any
jurisdiction in which it is not so qualified or in any manner in which such sale
may not be lawfully made.
(e) Registration Statement Filing. The Company will, as soon as
practicable, but not later than 30 days after the Final Closing Date, (i) file a
shelf registration statement (the "Shelf Registration Statement") with respect
to (x) the Common Stock issuable upon conversion of the Preferred Stock and
exercise of the Warrants and (y) the Warrants (excluding the Placement Warrants)
(the "Registrable Capital Stock") with the Commission and use its best efforts
to have such Shelf Registration Statement declared effective by the SEC and (ii)
cause such Shelf Registration Statement to remain effective until such date as
the holders of the securities have completed the distribution described in the
Shelf Registration Statement or at such time that such shares are no longer, by
reason of Rule 144 under the Securities Act, required to be registered for the
sale thereof by such holders and each such holder may sell all of such holder's
Registrable Capital Stock in any three month period.
(f) Form D Filing. The Company shall file five copies of a Notice of
Sales of Securities on Form D with the Commission no later than 15 days after
the first Closing Date. The Company shall file promptly such amendments to such
Notices on Form D as shall become necessary and shall also comply with any
filing requirement imposed by the laws of any state or jurisdiction in which
offers and sales are made. The Company shall furnish the Placement Agent with
copies of all such filings.
(g) Press Releases, Etc. Except as otherwise required by applicable
law, the Company shall not, during the period commencing on the date
<PAGE>
Paramount Capital, Inc.
Page 20
hereof and ending thirty days after the Final Closing Date, issue any press
release or other communication, or hold any press conference with respect to the
Company, its financial condition, results of operations, business, properties,
assets, or liabilities, or the Offering, without the prior written consent of
the Placement Agent, which consent shall not be unreasonably withheld, except
upon the advice of counsel in which case the Company shall deliver to the
Placement Agent a copy of such press release prior to publication.
(h) Public Documents. Following the Final Closing Date of the
Offering, the Company will furnish to the Placement Agent: (i) as soon as
practicable (but in the case of the annual report of the Company to its
stockholders, within 120 days after the end of each fiscal year of the Company)
one copy of: (A) its annual report to its stockholders (which annual report
shall contain financial statements audited in accordance with generally accepted
accounting principles in the United States of America by a firm of certified
public accountants of recognized standing), (B) if not included in substance in
its annual report to stockholders, its annual report on Form 10- K, (C) each of
its quarterly reports to its stockholders, and if not included in substance in
its quarterly reports to stockholders, its quarterly report on Form 10-Q, (D)
each of its current reports on Form 8-K, and (E) a copy of the full Shelf
Registration Statement, (the foregoing, in each case, excluding exhibits); and
(ii) upon reasonable request, all exhibits excluded by the parenthetical to the
immediately preceding clause 5(h)(i)(E) and all other information that is
generally available to the public. In addition, the Company upon reasonable
request will meet with the Placement Agent or its representatives to discuss all
information relevant for disclosure in any Shelf Registration Statement covering
shares purchased by purchasers from the Company and offered by them for resale
and will cooperate in any reasonable investigation undertaken by the Placement
Agent for the purpose of confirming the accuracy of the Shelf Registration
Statement, including the production of information at the Company's offices.
(i) Restrictions on Securities. During the two years following the
Closing of the Offering, the Company shall not, without the prior written
consent of the Placement Agent, offer or sell any of its securities in reliance
on Regulation S of the Securities Act, other than to non-U.S. employees of the
Company or its subsidiaries. During the nine (9) month period following February
29, 1996, (i) the Placement Agent shall have the right of first refusal to act
as placement agent for the offering of any securities of the Company issued for
fund raising purposes (excluding "firm commitment" underwritings, corporate
partner arrangements and strategic alliances and other licensing transactions)
and (ii) the Company will not extend the expiration date or decrease the
exercise price of any options or warrants or other similar security purchase
rights without the prior written consent of the Placement Agent (other than
those issued pursuant to the Company's stock option plan or as required by the
documents governing any such securities).
<PAGE>
Paramount Capital, Inc.
Page 21
(j) Letter Agreements. The Placement Agent acknowledges that the
Company is a party to letter agreements (the "Letter Agreements") dated June 29,
1995 and June 28, 1994 with Americorp which provide for Americorp Securities,
Inc. ("Americorp") to act as a financial advisor and for the payment of certain
fees to be paid to Americorp in connection with certain transactions. Although
the parties hereto do not believe that the Letter Agreements relate to the
Offering, in the event that Americorp is owed and paid a fee pursuant to the
Letter Agreements on account of the transactions contemplated hereby, the
Placement Agent agrees to reimburse the Company, solely out of and to the extent
of Cash Commissions actually paid to the Placement Agent, for any such amounts
actually paid to Americorp.
(k) Listing. The Company will promptly file a Nasdaq Small Cap Market
Notification Form for Listing of Additional Securities and Notification Pursuant
to SEC Rule 10b-17 and hereby represents and warrants to Paramount and to the
Purchasers that it will take all action necessary to list all Conversion Shares,
Warrants (excluding the Placement Warrants) and shares issuable upon exercise of
the Warrants as promptly as practicable in accordance with the rules of the
Nasdaq SmallCap Market.
(l) Increase in Shares Authorized. The Company will use best efforts
and take all action necessary to obtain shareholder approval as promptly as
practicable for an increase in the number of authorized shares of Common Stock
to 42,000,000.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Placement
Agent and each Selected Dealer, if any, and their respective shareholders,
directors, officers, agents and controlling persons within the meaning of the
Act (an "Indemnified Party") against any and all loss, liability, claim, damage,
liability and expense whatsoever (and all actions in respect thereof), and to
reimburse the Placement Agent for legal fees and related expenses as incurred
(including, but not limited to the costs of giving testimony or furnishing
documents in response to a subpoena or otherwise, the costs of investigating,
preparing or defending any such action or claim whether or not in connection
with litigation in which the Placement Agent is a party), in so far as such
loss, liability, claim, damage or expense arises out of any untrue statement or
alleged untrue statement of a material fact contained in the Offering Documents
or the omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, provided, however, that the Company will not be
liable in any such case if and to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by any such Indemnified Party in writing specifically
for use in the Offering Documents;
<PAGE>
Paramount Capital, Inc.
Page 22
(b) The Company agrees to indemnify and hold harmless an Indemnified
Party to the same extent as the foregoing indemnity, and subject to the
limitations set forth therein, against any and all loss, liability, claim,
damage and expense whatsoever directly arising out of the exercise by any person
of any right under the Securities Act or the Exchange Act or the securities or
Blue Sky laws of any state on account of violations of the representations,
warranties or agreements set forth in Section 2 hereof.
(c) The Placement Agent agrees to indemnify and hold harmless the
Company, the Company's directors, officers, employees and agents and each person
who controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act and each and all of them, to the same extent as the
foregoing indemnity from the Company to the Placement Agent, but only with
reference to information, relating to the Placement Agent, furnished in writing
to the Company by the Placement Agent specifically for inclusion in the Offering
Documents.
(d) Promptly after receipt by a person entitled to indemnification
pursuant to the foregoing subsection (a), (b), (c) or (d) (an "indemnified
party") under this Section of notice of the commencement of any action, the
indemnified party will, if a claim in respect thereof is to be made against a
person granting indemnification (an "indemnifying party") under this Section,
notify in writing the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to the indemnified party otherwise than under this
Section. In case any such action is brought against an indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, subject to the provisions herein stated, with counsel
reasonably satisfactory to the indemnified party, and after notice from the
indemnifying party to the indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to the indemnified
party under this Section for any legal or other expenses subsequently incurred
by the indemnified party in connection with the defense thereof other than
reasonable costs of investigation. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that the fees and expenses of such counsel shall be at the expense of
the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party or (ii) the named
parties to any such action (including any impleaded parties) include both the
indemnified party or parties and the indemnifying party and, in the judgment of
the indemnified party, it is advisable for the indemnified party or parties to
be represented by separate counsel in which case the indemnifying party shall
not have the right to assume the
<PAGE>
Paramount Capital, Inc.
Page 23
defense of such action on behalf of the indemnified party or parties, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for the indemnified party or parties. No settlement
of any action against an indemnified party shall be made without the consent of
the indemnified party, which shall not be unreasonably withheld in light of all
factors of importance to the indemnified party.
7. Contribution.
(a) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 6 but it
is found in a final judicial determination, by a court of competent
jurisdiction, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Securities Act, the Exchange Act, or otherwise,
then the Company (including for this purpose any contribution made by or on
behalf of any officer, director, employee or agent for the Company, or any
controlling person of the Company), on the one hand, and the Placement Agent and
any Selected Dealers (including for this purpose any contribution by or on
behalf of an indemnified party), on the other hand, shall contribute to the
losses, liabilities, claims, damages, and expenses whatsoever to which any of
them may be subject, in such proportions as are appropriate to reflect the
relative benefits received by the Company, on the one hand, and the Placement
Agent and the Selected Dealers, on the other hand; provided, however, that if
applicable law does not permit such allocation, then other relevant equitable
considerations such as the relative fault of the Company and the Placement Agent
and the Selected Dealers in connection with the facts which resulted in such
losses, liabilities, claims, damages, and expenses shall also be considered. In
no case shall the Placement Agent or a Selected Dealer be responsible for a
portion of the contribution obligation in excess of the compensation received by
it pursuant to Section 4 hereof or the Selected Dealer Agreement, as the case
may be. No person guilty of a fraudulent misrepresentation shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls the Placement Agent or a Selected Dealer within the meaning of Section
15 of the Securities Act or Section 20(a) of the Exchange Act and each officer,
director, stockholder, employee and agent of the Placement Agent or a Selected
Dealer, shall have the same rights to contribution as the Placement Agent or the
Selected Dealer, and each person, if any who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act
and each officer, director, employee and agent of the Company, shall have the
same rights to contribution as the Company, subject in each case to the
provisions of this Section 7. Anything in this Section 7 to the contrary
notwithstanding, no party shall be liable for contribution with respect to the
settlement
<PAGE>
Paramount Capital, Inc.
Page 24
of any claim or action effected without its written consent. This Section 7 is
intended to supersede any right to contribution under the Securities Act, the
Exchange Act, or otherwise.
(b) Notwithstanding the provisions of this Agreement, the aggregate
indemnification or contribution of the Placement Agent for or on account of any
losses, claims, damages, liabilities or actions shall not exceed the Selling
Commissions paid to the Placement Agent. The respective indemnity and
contribution agreements by the Company and the Placement Agent contained in
subsections (a), (b), (c) and (d) of Section 6 and this Section 7, and the
covenants, representations and warranties of the Company and the Placement Agent
set forth in Sections 1, 2, 3, 4 and 5 shall remain operative and in full force
and effect regardless of (i) any investigation made by the Placement Agent, on
the Placement Agent's behalf or by or on behalf of any person who controls the
Placement Agent, the Company or any controlling person of the Company or any
director or officer of the Company, (ii) acceptance of any of the Units and
payment therefor or (iii) any termination of this Agreement, and shall survive
the delivery of the Units, and any successor of the Placement Agent or of the
Company or of any person who controls the Placement Agent or the Company, as the
case may be, shall be entitled to the benefit of such respective indemnity and
contribution agreements. The respective indemnity and contribution agreements by
the Company and the Placement Agent contained in subsections (a), (b) and (c) of
Section 6 and this Section 7 shall be in addition to any liability which the
Company and the Placement Agent may otherwise have.
8. Miscellaneous.
(a) Survival. Any termination of the Offering without any Closing
shall be without obligation on the part of any party except that the provisions
regarding fees and expenses contained in Section 5(b) (including the last
sentence of Section 5(b)), the indemnification provided in Section 6 hereof and
the contribution provided in Section 7 hereof shall survive any termination and
shall survive any Closing for a period of five years.
(b) Representations, Warranties and Covenants to Survive Delivery.
Except as provided in Section 8(a), the respective representations, warranties,
indemnities, agreements, covenants and other statements of the Company and the
Placement Agent as of the date hereof shall survive execution of this Agreement
and delivery of the Units and the termination of this Agreement.
(c) No Other Beneficiaries. This Agreement is intended for the sole
and exclusive benefit of the parties hereto and their respective successors and
controlling persons, and no other person, firm or corporation shall have any
third-party beneficiary or other rights hereunder.
<PAGE>
Paramount Capital, Inc.
Page 25
(d) Governing Law. This Agreement shall be governed by and construed
in accordance with the law of the State of New York without regard to conflict
of law provisions.
(e) Counterparts. This Agreement may be signed in counterparts with
the same effect as if both parties had signed one and the same instrument.
(f) Notices. Any communications specifically required hereunder to be
in writing, if sent to the Placement Agent, will be mailed, delivered and
confirmed to it at Paramount Capital, 375 Park Avenue, Suite 1501, New York, New
York, 10023, Att: Michael S. Weiss and if sent to the Company, will be mailed,
delivered or telegraphed and confirmed to it at Sparta Pharmaceuticals, Inc.,
Pennsylvania Business Campus, Rock Plaza III, 111 Rock Road, Horsham, PA 19044-
2310, Att: Chief Executive Officer, with a copy to Roberts, Sheridan & Kotel,
P.C., 640 Fifth Avenue, New York, N.Y. 10019, Att: Mr. Kevin Sheridan, Esq., and
to Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial Center,
Boston, MA 02111, Att: Elizabeth P. Knauss, Esq.
(g) Termination. Subject to the general survival provisions contained
in Sections 8(a) and 8(b), this Agreement may be terminated by either party
prior to any Closing upon written notice to the other party.
(h) Entire Agreement. This Agreement constitutes the entire agreement
of the parties with respect to the matters herein referred and supersedes all
prior agreements and understandings, written and oral, between the parties with
respect to the subject matter hereof. Except as this Agreement pertains to the
Offering, the Letter of Intent dated January 10, 1996 between the parties,
including without limitation, paragraph 15, is not superseded. Neither this
Agreement nor any term hereof may be changed, waived or terminated orally, but
only by an instrument in writing signed by the party against which enforcement
of the change, waiver or termination is sought.
(i) Nothing contained herein or otherwise shall create a partnership
or joint venture between you and the Company.
(j) The headings and captions of the various subdivisions of this
Agreement are for convenience or reference only and shall in no way modify or
affect the meaning or construction of any of the terms or provisions hereof.
<PAGE>
Paramount Capital, Inc.
Page 26
If you find the foregoing is in accordance with our understanding, kindly
sign and return to us a counterpart hereof, whereupon this instrument along with
all counterparts will become a binding agreement between us.
Very truly yours,
SPARTA PHARMACEUTICALS, INC.
By: /s/ Jerry B. Hook
-------------------------------
Name: Jerry B. Hook, Ph.D.
Its: Chief Executive Officer
Agreed to by:
PARAMOUNT CAPITAL, INC.
By: /s/ Lindsay A. Rosenwald
-------------------------------
Name: Lindsay A. Rosenwald, M.D.
Its: Chairman
EXHIBIT 10.76
SPARTA PHARMACEUTICALS, INC.
P.O. Box 13288
Research Triangle Park, NC 27709
as of January 10, 1996
William McCulloch, M.D.
12109 Betts Lane
Raleigh, NC 27614
Dear Dr. McCulloch:
This letter sets forth the terms of an amendment (the "Amendment") to the
agreements dated as of October 1, 1992, December 1, 1993, December 16, 1994 and
December 11, 1995, relating to the terms of your options to purchase shares of
the Company's Common Stock under and for the purposes of the 1991 Stock Plan of
the Company (the "Plan"), as such agreements have been amended to date (the
"Option Agreements").
1. Effectiveness of Letter Agreement. The effective date of this letter
agreement will be January 10, 1996 (the "Effective Date"), the date on which the
terms hereof were approved in all material respects by the Compensation
Committee of the Company's Board of Directors, provided however nothing herein
is intended to affect adversely rights which may have accrued to you under the
terms of the Option Agreements prior to the Effective Date.
2. Contingent Amendment. In the event of (i) the acquisition by the
Company of, or merger with, Lexin Pharmaceutical Corporation, or the acquisition
by the Company of the assets and business of Lexin Pharmaceutical Corporation,
and (ii) within a period of six months of the closing of such acquisition or
merger, the relocation of the headquarters of the Company from its location in
Durham, North Carolina, and the termination of your employment without "Cause"
as defined in and in accordance with the terms of your employment agreement with
the Company dated July 2, 1992 (the "Employment Agreement"), then in such events
and effective thereupon:
(A) Section 3 of each of the Option Agreements dated as of December 1,
1993, December 16, 1994 and December 11, 1995 is hereby amended to provide that
notwithstanding the provisions of each such Section 3 as in effect immediately
prior to the Effective Date, (i) the number of shares of Common Stock (subject
to adjustment as provided in the Plan) (the "Shares") which may be exercisable
under the options granted pursuant to each such Option Agreement (the "Options")
on the Effective Date shall be, with respect to the Option granted pursuant to
the Option Agreement dated as of December 1, 1993, Seventy-Five Percent (75%) of
the Shares covered by such Option and, with respect to the Options
<PAGE>
granted pursuant to the Option Agreements dated as of December 16, 1994 and
December 11, 1995, Fifty Percent (50%) of the Shares covered by such Options,
subject to the other terms and conditions of the Option Agreements, this
Amendment and the Plan, including without limitation the terms of the Options
and the provisions affecting the Employee's ability to exercise the Options
after termination of employment.
(B) Section 4 of each of the Option Agreements is amended in its entirety
to read as follows:
"4. TERM OF OPTION
The Option shall terminate ten (10) years from the date of this Agreement,
but shall be subject to earlier termination as provided herein or in the Plan.
a. Termination of Employment (Other than for Death or Disability)
If the Employee's employment ceases (for any reason other than death or
Disability), the Option may be exercised within twenty four (24) months after
the date the Employee's employment ceases, or within the originally prescribed
term of the Option, whichever is earlier, but may not be exercised thereafter.
Notwithstanding the foregoing, in the event of the Employee's death within
twenty four (24) months after the termination of such employment, the Optionee's
Survivors may exercise the Option within one (1) year after the date of the
Employee's death, but in no event after the date of expiration of the term of
the Option.
b. Termination of Employment as a Result of Disability or Death
In the event the Employee's service to the Company terminates by reason of
Disability, as determined in accordance with the Plan, or death, the Option
shall be exercisable only within one (1) year after the date of such Disability
or death, as the case may be, or if earlier, the term originally prescribed by
the Option. In such event, the Option shall be exercisable:
(1) to the extent that the right to purchase the Shares hereunder has
accrued on the date of Disability or death and is in effect as of
such date; and
(2) to the extent any such right would have accrued under Section 3 had
the Employee's employment not terminated by reason of Disability or
death prior to the end of the current monthly accrual period.
c. Change of Status
"Employment" as used in this Agreement shall include service as a
director, consultant to or as an employee of the Company or any of its
Affiliates and a change of status from one
2
<PAGE>
such category to another shall not be treated as a termination of the
"employment" hereunder."
3. Fully Effective Amendment. Effective upon the Effective Date, Section 9
of each of the Option Agreements is hereby amended in its entirety to read as
follows:
"9. CAPITAL CHANGES AND BUSINESS SUCCESSIONS
The Plan contains provisions covering the treatment of Options in a number
of contingencies such as stock splits and mergers and sales of the Company.
Provisions in the Plan for adjustment with respect to stock subject to Options
and the related provisions with respect to successors to the business of the
Company are hereby made applicable hereunder and are incorporated herein by
reference.
Notwithstanding the foregoing provisions of this Section 9, in the event
of a "Change of Control" (as defined below) while the Optionee is an employee of
the Company, the Optionee shall be entitled to exercise this Option, commencing
as of immediately prior to the consummation of such Change of Control (but
subject to the consummation of such Change of Control) and in the event of a
Change of Control as a result of a tender offer, this Option shall become fully
exercisable in a timely manner such that the Optionee may participate in such
tender offer at any stage, for all of the Shares then remaining subject to
purchase under such Option whether or not the right to purchase such Shares
shall have become vested and become exercisable.
A "Change of Control" shall be deemed to have occurred upon the occurrence
of any of the following:
(i) any sale, lease, exchange or other transfer (in one transaction or a
series of transactions contemplated or arranged by any party as a single plan)
of all or substantially all of the assets of the Company;
(ii) individuals who, as of March 15, 1996, constitute the entire Board of
Directors of the Company (the "Incumbent Directors") cease for any reason to
constitute at least 50% of the Board of Directors (hereinafter referred to as a
"Board Change"), provided that any individual becoming a director subsequent to
March 15, 1996 whose election or nomination for election was approved by a vote
of at least a majority of the then Incumbent Directors shall be, for purposes of
provision, considered as though such individual were an Incumbent Director; or
(iii) any consolidation or merger of the Company (including, without
limitation, a triangular merger) where the shareholders of the Company,
immediately prior to the consolidation or merger, would not, immediately after
the consolidation or merger, beneficially own, directly or indirectly, Shares
representing in the aggregate more than 50% of the combined voting power of all
the outstanding securities of the Company issuing cash or securities in the
consolidation or merger (or of its ultimate parent Company, if any); or
3
<PAGE>
(iv) any "person," as such term is used in Section 13(d) of the Securities
Exchange Act of 1934, as amended (or any successor provision) (the "Exchange
Act") (other than the Company, any employee benefit plan of the Company or any
entity organized, appointed or established by the Company for or pursuant to the
terms of any such plan), together with all "affiliates" and "associates" (as
such terms are defined in Rule 12b-2 under the Exchange Act or any successor
provision) of such person, shall become the "beneficial owner" or "beneficial
owners" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act or any
successor provision), directly or indirectly, of securities of the Company
representing in the aggregate thirty percent (30%) or more of either (a) the
then outstanding shares of Common Stock of the Company or (b) the combined
voting power of all then outstanding securities of the Company having the right
under ordinary circumstances to vote in an election of the Board of Directors of
the Company ("Voting Securities") (hereafter referred to as an "Acquisition");
provided, that, notwithstanding the foregoing, an Acquisition shall not be
deemed to have occurred for purposes of this clause (iv) (1) solely as the
result of an acquisition of securities by the Company which, by reducing the
number of shares of Common Stock or other Voting Securities outstanding,
increases (x) the proportionate number of shares of Common Stock beneficially
owned by any person to thirty percent (30%) or more of the Common Stock then
outstanding or (y) the proportionate voting power represented by the Voting
Securities beneficially owned by any person to thirty percent (30%) or more of
the combined voting power of all then outstanding Voting Securities or (2)
solely as the result of an acquisition of securities from the Company; except
that if any person referred to in clause (1)(x) or (1)(y) of this sentence or to
which clause (2) of this sentence is applicable shall thereafter become the
beneficial owner of any additional shares of Common Stock or other Voting
Securities (other than pursuant to a stock split, stock dividend or similar
transaction or a transaction to which clause (2) applies), then an Acquisition
shall be deemed to have occurred for purposes of this clause (iv)."
4. Options May No Longer be Incentive Stock Options. The parties
acknowledge and agree that if the contingent amendment set forth in paragraph 2
above becomes effective, and thereby Section 4 of the Option Agreements is
amended as set forth above, the Options that are intended to be treated as
incentive stock options will no longer be incentive stock options. Employee
understands that the Company and any subsidiary are not obligated to compensate
him or otherwise make up for the treatment of Options as non-qualified options
and not as incentive stock options. Employee should consult with Employee's own
tax advisors regarding the tax effects of the Options and this Amendment.
5. Entire Agreement. This Amendment, together with the Plan and the Option
Agreements, embodies the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all prior oral
or written agreements and understandings relating to the subject matter hereof.
No statement, representation, warranty, covenant or agreement not expressly set
forth in this Amendment shall affect or be used to interpret, change or
restrict, the express terms and provisions of this Amendment, provided, however,
in any event, this Amendment shall be subject to and governed by the Plan.
4
<PAGE>
6. Headings and Captions. The heading and captions of the various
subdivisions of this Amendment are for convenience of reference only and shall
in no way modify, or affect the meaning or construction of, any of the terms or
provisions hereof.
If the foregoing is agreeable to you, would you please so indicate by
signing in the space provided and returning to us the enclosed copy of this
letter whereupon this letter will become a binding agreement between us amending
the terms of the Option Agreements.
Very truly yours,
SPARTA PHARMACEUTICALS, INC.
By /s/ William M. Sullivan
----------------------------
William M. Sullivan
Chairman, President & CEO
Accepted and Agreed:
/s/ William McCulloch
- ----------------------------
William McCulloch, M.B., Ch.B., F.R.C.P. (Glasg.)
5
EXHIBIT 10.77
Amendment No. 2
to Collaborative Research and Licensing Agreement
This Amendment No 2 is made this 29th day of March, 1996 between Sparta
Pharmaceuticals, Inc., (Assignee of the interests of Lexin Pharmaceutical
Corporation) and Wichita State University (the "University") pursuant to the
Agreement entered into between Lexin Pharmaceuticals Corporation ("Lexin") and
the University.
RECITALS
A. Lexin and the University entered into a Collaborative Research and Licensing
Agreement ("Agreement") dated April 1, 1994.
B. Lexin and the University had previously extended the term of the Agreement
for a term expiring on March 31, 1996.
C. Lexin and the University has previously agreed to the assignment of the
Agreement to Sparta Pharmaceuticals, Inc. ("Sparta").
D. Sparta and the University desire to extend the term of the Agreement for an
additional one year term.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
contained herein, and intending to be legally bound, the parties hereto agree as
follows:
1. The term of this agreement is hereby extended to cover the period
April 1, 1996 to March 31, 1997.
2. Both parties acknowledge and agree that all amounts due to the
University for periods prior to March 31, 1996 have been paid in full.
3. Except as expressly amended herein, all other terms and conditions of
the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment No. 2
as of the date first above written.
FOR WICHITA STATE UNIVERSITY
By: /s/ Gerald D. Loper
---------------------------
Name: Gerald D. Loper
-------------------------
Title: Assoc. V.P. for Research
------------------------
FOR SPARTA PHARMACEUTICALS,
INC.
By: /s/ Jerry B. Hook
---------------------------
Jerry B. Hook, Ph.D.
President & C.E.O.
EXHIBIT 11.1
Sparta Pharmaceuticals, Inc.
(A Development Stage Company)
Computation of Earnings Per Share
<TABLE>
<CAPTION>
For the three months ended For the six months ended Period from
---------------------------- ---------------------------- June 12, 1990
June 30, June 30, June 30, June 30, (Inception) to
1996 1995 1996 1995 June 30, 1996
---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C>
Net loss $ (1,163,978) $ (748,249) $ (4,813,539) $ (1,322,412) $(14,830,995)
============ ============ ============ ============ ============
Common Stock outstanding for the period based
on a daily weighted average 8,189,669 6,168,419 7,374,613 6,155,468 3,640,484
Net Loss per share $ (0.14) $ (0.12) $ (0.65) $ (0.21) $ (4.07)
============ ============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Financial Statements included in the Company's June 30, 1996 report on Form 10-Q
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,727,922
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,774,576
<PP&E> 623,445
<DEPRECIATION> 88,354
<TOTAL-ASSETS> 2,715,261
<CURRENT-LIABILITIES> 525,294
<BONDS> 0
0
300
<COMMON> 8,192
<OTHER-SE> 2,181,475
<TOTAL-LIABILITY-AND-EQUITY> 2,715,261
<SALES> 0
<TOTAL-REVENUES> 47,584
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,861,123
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,813,539)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,813,539)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,813,539)
<EPS-PRIMARY> (0.650)
<EPS-DILUTED> (0.650)
</TABLE>
