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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, 1997; 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.
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(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 4, 1997, there were outstanding 10,115,434 shares of Common Stock,
$.001 par value per share.
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FORM 10-Q
QUARTERLY REPORT
INDEX
<TABLE>
<S> <C> <C>
Part I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Balance Sheets as of June 30, 1997 and December 31, 1996 (unaudited) 3
Statements of Operations for the three-month periods and for the six-month
periods ended June 30, 1997 and 1996 and for the period from June 12, 1990
(inception) to June 30, 1997 (unaudited) 4
Statements of Cash Flows for the six-month periods ended June 30, 1997 and 1996
and for the period from June 12, 1990 (inception) to June 30, 1997 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Part II. OTHER INFORMATION
Item 2. Changes in Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
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PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,813,824 $ 10,246,812
Prepaid expenses and other assets 215,466 82,751
------------ ------------
Total current assets 8,029,290 10,329,563
Fixed assets, net 429,751 518,393
Other assets:
License agreements, net of amortization
of $84,771 in 1997 and $73,303 in 1996 30,017 41,485
Restricted Cash 201,661 196,842
------------ ------------
$ 8,690,719 $ 11,086,283
============ ============
Liabilities and shareholders' equity Current liabilities:
Accounts payable and accrued expenses $ 571,591 $ 629,497
------------ ------------
Total current liabilities 571,591 629,497
Shareholders' equity:
Preferred Stock, not designated, $.001 par value;
authorized and unissued 8,288,484 shares -- --
Series B' Convertible Preferred Stock, $.001 par value;
authorized 2,711,516 shares; issued and outstanding
1,407,988 shares in 1997 and 1,487,146 shares in 1996 1,408 1,487
Common Stock, $.001 par value; authorized 72,000,000
shares; issued and outstanding 10,115,434 shares in
1997 and 9,587,717 shares in 1996 10,115 9,588
Additional paid-in capital 28,269,657 28,176,356
Stock subscriptions receivable (183,333) (200,000)
Deferred compensation (169,078) (165,309)
Deficit accumulated during the development stage (19,809,641) (17,365,336)
------------ ------------
Total shareholders' equity 8,119,128 10,456,786
------------ ------------
$ 8,690,719 $ 11,086,283
============ ============
</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 Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Period From
June 30, June 30, June 12, 1990
------------------------------ -------------------------------- (Inception) to
1997 1996 1997 1996 June 30,1997
---- ---- ---- ---- -------------
Revenue:
<S> <C> <C> <C> <C> <C>
Contract revenue $ 6,006 $ -- $ 22,506 $ -- $ 150,376
Interest income 118,463 28,871 244,090 47,584 832,482
------------ ------------ ------------ ------------ ------------
Total revenue 124,469 28,871 266,596 47,584 982,858
Operating expenses:
Research and development 993,587 741,144 1,979,963 1,034,002 11,161,110
General and administrative 387,792 451,705 730,938 764,208 6,568,476
Charge for acquired research
and development (Note 5) -- -- -- 3,062,913 3,062,913
------------ ------------ ------------ ------------ ------------
Net loss $ (1,256,910) $ (1,163,978) $ (2,444,305) $ (4,813,539) $(19,809,641)
============ ============ ============ ============ ============
Net loss per share $ (.13) $ (.14) $ (.25) $ (.65)
============ ============ ============ ============
Weighted average number
of shares outstanding (Note 3) 10,011,308 8,189,669 9,929,004 7,374,613
============ ============ ============ ============
</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
1997 1996 June 30, 1997
------------ ------------ -------------
Operating activities:
<S> <C> <C> <C>
Net loss ......................................................... $ (2,444,305) $ (4,813,539) $(19,809,641)
Adjustments to reconcile net loss to net cash used in
operating activities:
Recognition of gain/loss on investments ...................... -- -- 3,316
Depreciation and amortization ................................ 109,098 65,834 833,858
Writedown of license agreement ............................... -- -- 45,200
Acquired research & development (Note 5) ..................... -- 3,062,913 3,062,913
Issuance of convertible notes for services ................... -- -- 220,474
Issuance of stock for services ............................... -- 2,944 161,445
Compensation expense related to stock options and
warrants granted ............................................. 89,980 15,028 369,509
Compensation expense related to forgiveness of stock
subscriptions receivable ..................................... 16,667 -- 16,667
Changes in operating assets and liabilities:
Prepaid expenses and other assets ........................... (132,715) 133,470 (215,466)
Restricted cash ............................................. (4,819) -- 45,688
Accounts payable and accrued expenses ....................... (57,906) 189,434 421,591
------------ ------------ ------------
Net cash used in operating activities ... (2,424,000) (1,343,916) (14,844,446)
------------ ------------ ------------
Investing activities:
Payment of acquisition related fees & expenses ................... -- (130,842) (128,842)
Purchases of available-for-sale securities ....................... -- -- (1,103,193)
Maturities of available-for-sale securities ...................... -- -- 1,099,877
Purchases of fixed assets ........................................ (8,988) -- (140,218)
Acquisition of license agreements ................................ -- -- (160,078)
------------ ------------ ------------
Net cash used in investing activities ... (8,988) (130,842) (432,454)
------------ ------------ ------------
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 4,912,031
Repurchase of common stock ....................................... -- -- (45)
Proceeds from issuance of Preferred Stock ........................ -- 2,571,429 14,800,038
Increase in debt issuance costs .................................. -- -- (469,950)
Increase in deferred financing costs ............................. -- (105,045) --
------------ ------------ ------------
Net cash provided by financing activities -- 2,468,384 23,090,724
------------ ------------ ------------
Increase (Decrease) in cash and cash equivalents ................. (2,432,988) 993,626 7,813,824
Cash and cash equivalents at beginning of period ................. 10,246,812 734,296 --
------------ ------------ ------------
Cash and cash equivalents at end of period ....................... $ 7,813,824 $ 1,727,922 $ 7,813,824
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Notes to Financial Statements
(Unaudited)
1. Company Background
Sparta Pharmaceuticals, Inc. (formerly MediRx Pharmaceuticals, Inc.) (the
"Company"), 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.
The Company has generated no product revenues to date and has incurred
losses since its inception. The Company anticipates incurring additional losses
over at least the next several years and such losses are expected to increase as
the Company expands its research and development activities. Substantial
financing will be needed by the Company to fund its operations and to
commercially develop its products. There is no assurance that such financing
will be available when needed. Operations of the Company are subject to certain
risks and uncertainties including, among others, uncertainty of product
development, technological uncertainty, dependence on collaborative partners,
uncertainty regarding patents and proprietary rights, comprehensive government
regulations, marketing, or sales capability or experience, limited clinical
trial experience, and dependence on key personnel.
2. Basis of Presentation
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, 1996. Results for the
interim periods are not necessarily indicative of the results for any other
interim period or for the full fiscal year.
3. 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.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", which the Company is required to adopt for both interim and annual
periods ending after December 15, 1997. SFAS No. 128 simplifies the earnings per
share ("EPS") calculation by replacing primary EPS with basic EPS. Basic EPS is
computed by dividing reported earnings available to common stockholders by the
weighted average shares outstanding. Early application is prohibited, although
footnote disclosure of pro forma EPS amounts is required. Since the Company has
incurred losses in the three months and six months ended June 30, 1997 and 1996,
there is no difference between pro forma basic EPS and the net loss per share as
reported.
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4. Shareholders' Equity
The Company's Series B' Convertible Preferred Stock, par value $.001 per
share ("Series B' Preferred Stock") is convertible at any time at the option of
the holder into shares of the Company's Common Stock at an initial conversion
price of $1.50 per share such that 10,000 shares of the Company's Series B'
Preferred Stock are convertible into 66,667 shares of the Company's Common
Stock. In the event of a Liquidation Event (as defined in the Certificate of
Designation relating to the Series B' Preferred Stock), 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. On August
23, 1997 the conversion rate of the Series B' Preferred Stock into shares of
Common Stock will be subject to increase if the average closing bid price of the
Common Stock for the 30 consecutive trading days immediately prior to August 23,
1997 is not greater than $1.95 per share, but in no event will the conversion
price be adjusted below 50% of the currently applicable conversion price. The
outstanding Series B' Preferred Stock is currently convertible into 9,386,507
shares of Common Stock.
5. 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, for a payment
of 2,000,000 shares of the Company's Common Stock. The acquisition was accounted
for using the purchase method of accounting. In connection with the acquisition,
the Company performed an analysis of all identifiable assets acquired. The
Company recorded a total charge to the 1996 Statement of Operations of
$3,062,913 for acquired research and development. The development of the
technology acquired had not yet reached technological feasibility and at the
time, had no alternative future uses.
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 ("Lexin"), 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, 1997, the Company's accumulated deficit was $19,809,641.
General
In July 1997, Sparta announced that the United States Patent and Trademark
Office granted United States Patent #5,637,479 submitted by Dr. Harvey Rubin and
colleagues of The University of Pennsylvania ("Penn"), which patent relates to a
method of modulating DNA binding activity of recombinant
alpha-1-antichymotrypsin and other serine protease inhibitors. The Company has
an exclusive license to over sixty compounds covered in six U.S. patents issued
to Penn, including the aforementioned patent. On July 8, 1997, the Company
announced the initiation of Phase I clinical trials using SpartajectTM busulfan
in bone marrow transplant patients, at Hammersmith Hospital in London, England
by its licensee in Europe. On July 22, 1997, the Company announced the
initiation of Phase I clinical trials for its 5-FP, an oral pro-drug of the
widely used chemotherapeutic 5-FU (5-fluorouracil). The Company continued its
efforts to increase patient accrual in both its SpartajectTM Busulfan and RII
Retinamide clinical trials through the opening of new sites in both trials.
7
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Results of Operations
Three Months Ended June 30, 1996 and 1997
Revenue increased from $28,871 for the three months ended June 30, 1996 to
$124,469 for the three months ended June 30, 1997 due primarily to a higher
level of interest income. Interest income increased from $28,871 in the second
quarter of 1996 to $118,463 in the second quarter of 1997 due to a higher level
of funds available for investment as a result of a private placement which
occurred in August 1996. Interest income is likely to decrease in subsequent
quarters as funds are consumed by the operations of the Company, unless the
Company is able to secure additional funding. The Company recorded contract
revenues of $6,006 for the three months ended June 30, 1997 related to a
feasibility study being conducted for a pharmaceutical company. 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 $741,144 in the second
quarter of 1996 to $993,587 in the second quarter of 1997. This increase is
attributable to greater outside development expenditures on certain drug
candidates and increased personnel expenses incurred during the second quarter
of 1997, partially offset by decreased facilities expenditures as a result of
the sublease of a portion of the Company's office facility in 1997. Subject to
the availability of funding, the Company expects research and development
expenses to increase during the next several years as product development,
preclinical activity, clinical trials, and regulatory activities increase.
General and administrative expenses decreased from $451,705 in the second
quarter of 1996 to $387,792 in the second quarter of 1997. This decrease is
principally due to a decrease in financial advisory fees, a decrease in
personnel expenses, a decrease in professional fees, and a decrease in
facilities expenditures as a result of the sublease of a portion of the
Company's office facility in 1997, offset by increased expenditures in the areas
of public relations and employee recruiting.
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, 1996 and 1997
Revenue increased from $47,584 for the six months ended June 30, 1996 to
$266,596 for the six months ended June 30, 1997 due primarily to a higher level
of interest income. Interest income increased from $47,584 for the first six
months of 1996 to $244,090 for the first six months of 1997 due to a higher
level of funds available for investment as a result of a private placement which
occurred in August 1996. Interest income is likely to decrease in subsequent
periods as funds are consumed by the operations of the Company, unless the
Company is able to secure additional funding. The Company recorded contract
revenues of $22,506 for the six months ended June 30, 1997 related to a
feasibility study being conducted for a pharmaceutical company. 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 $1,034,002 for the first
six months of 1996 to $1,979,963 for the first six months of 1997. This increase
is attributable to greater outside development expenditures on certain drug
candidates, increased legal expenses, primarily for patent filings, and
increased personnel and facility-related expenses resulting from the
acquisition, on March 15, 1996, of the business and assets of Lexin. Subject to
the availability of funding, the Company expects research and development
expenses to increase during the next several years as product development,
preclinical activity, clinical trials, and regulatory activities increase.
General and administrative expenses decreased from $764,208 for the first
six months of 1996 to $730,938 for
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the first six months of 1997. This decrease is due to a decrease in financial
advisory fees and professional fees, partially offset by an increase in public
relations expenses, increased expenditures in the areas of personnel and
facility-related expenses as a result of the Lexin purchase, and increased
expenses for employee recruiting.
In connection with the Lexin purchase, the Company recorded a one-time
charge to the first quarter 1996 Statement of Operations of $3,062,913 for
acquired research and development.
Liquidity and Capital Resources
The Series B' Preferred Stock is convertible at any time at the option of
the holder into shares of the Company's Common Stock at an initial conversion
price of $1.50 per share such that 10,000 shares of the Company's Series B'
Preferred Stock are convertible into 66,667 shares of the Company's Common
Stock. In the event of a Liquidation Event (as defined in the Certificate of
Designation relating to the Series B' Preferred Stock), 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. On
August 23, 1997 the conversion rate of the Series B' Convertible Preferred Stock
into shares of Common Stock will be subject to increase if the average closing
bid price of the Common Stock for the 30 consecutive trading days immediately
prior to August 23, 1997 is not greater than $1.95 per share, but in no event
will the conversion price be adjusted below 50% of the currently applicable
conversion price. The outstanding Series B' Preferred Stock is currently
convertible into 9,386,507 shares of Common Stock.
The Company has used $14,844,446 to fund operations from inception through
June 30, 1997. The Company has financed its operations to date from the proceeds
of its initial public offering in June and July 1994, private placements of
equity and convertible debt securities and investment income. In 1997, the
Company is obligated under its license agreements to make minimum royalty
payments and an annual maintenance fee in the aggregate of $182,000, of which
$27,000 had been paid as of July 22, 1997. Under a collaboration and option
agreement, the term of which has been extended, the Company may have to make
payments of up to $80,000 based on the fulfillment of certain benchmarks. This
agreement is denominated in a foreign currency and is subject to the
fluctuations of exchange rates.
The Company is a party to several research agreements, clinical trial
production contracts and agreements with clinical research organizations which
require future payments in cash, and under the terms of one agreement, with a
combination of cash and Common Stock. The Company anticipates making aggregate
payments of approximately $878,000 during the terms of the agreements that were
in effect as of July 22, 1997. 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
$549,000 and $162,000, respectively, of which $287,000 is still owed as of July
22, 1997. The Company is a party to an operating lease agreement which will
require the Company to make payments of approximately $100,000 in 1997, of which
approximately $56,000 has already been paid. The agreement also requires the
Company to pay a certain amount of contingent rentals based upon operating,
maintenance, management, and repair expenses incurred by the lessor.
As of June 30, 1997, the Company had cash and cash equivalents of
$7,813,824, accounts payable and accrued expenses of $571,591, and working
capital of $7,457,699.
The Company currently anticipates that the available cash, cash
equivalents, and investments will be sufficient
9
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to fund operations through the second quarter of 1998. 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. Continuing
development of the Company's product candidates is critical and will require
substantial additional funds to finance such 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 additional funding and is unable to state the amount or
potential source of such 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.
Continued inclusion of the Company's Common Stock for quotation on the
Nasdaq SmallCap Market will require that (i) the Company maintain at least
$2,000,000 in total assets and $1,000,000 in capital and surplus, (ii) the
minimum bid price for the Common Stock be at least $1.00 per share (unless it
maintains a public float of at least $1,000,000 and $2,000,000 in capital and
surplus), (iii) the public float consist of at least 100,000 shares of Common
Stock, valued in the aggregate at more than $200,000, (iv) the Common Stock have
at least two active market makers and (v) the Common Stock be held by at least
300 holders. Although the Company currently meets the listing criteria and has
no reason to believe that it will not continue to meet such criteria, there can
be no assurance that future events will not result in the Company's failure to
meet all of the criteria for continued listing. In such event, trading, if any,
in the Common Stock would thereafter be conducted in the over-the-counter market
in the so-called "pink sheets" or the NASD's "Electronic Bulletin Board", and it
would be more difficult to dispose of the securities or to obtain as favorable a
price for the securities. Consequently, the liquidity of the securities could be
impaired, not only in the number of securities that could be bought and sold at
a given price, but also through delays in the timing of transactions and
reduction in security analysts' and the media's coverage of the Company, which
could result in lower prices for the securities than might otherwise be attained
and in a larger spread between the bid and asked prices for the securities.
This quarterly report contains certain forward-looking statements within
the meaning of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Such statements are made based on management's current
expectations and beliefs, and actual results may vary from those currently
anticipated based upon a number of factors, including uncertainties inherent in
the drug development process, including clinical trials. The Company undertakes
no obligation to release publicly any revisions which may be made to reflect
events or circumstances after the date hereof.
10
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PART II-OTHER INFORMATION
ITEM 2. Changes in Securities
(c) On May 15, 1997 the Company issued warrants to purchase up to 250,000
shares of Common Stock to Park Avenue Consulting Group, Inc. ("Park
Avenue"). The warrants were issued as partial consideration in exchange for
consulting services to be performed by Park Avenue during the year
following grant of the warrants. The aggregate value of the warrants is
$60,000 as estimated by using the Black-Scholes option-pricing model
assuming an expected dividend yield of 0%, an expected stock price
volatility of 70%, an expected life of option of 3 years and a risk-free
interest rate based on the 3 year treasury bond yield on the date of grant.
The warrants were issued pursuant to section 4(2) of the Securities Act of
1933 inasmuch as the warrants were issued by the issuer in a transaction
not involving a public offering. The warrants are exercisable for five
years following the date of grant at the following prices: 150,000 shares
at $ 11/16 per share, and 100,000 shares at $ 1 1/4 per share.
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, 1997.
(b) Election of Directors. William M. Sullivan, Professor Sir John Vane,
and Colin B. Bier, Ph.D. were re- elected to the Board of Directors in an
uncontested election.
Votes were cast as follows:
For all candidates: 11,056,272
Withheld for each candidate: 148,651
(c) Matters Voted Upon:
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: 10,866,632
Against: 299,635
Abstain: 35,920
Broker non-votes: 2,736
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 30,000,000 shares to 72,000,000 shares.
Votes were cast as follows:
For: 10,899,466
Against: 271,701
Abstain: 31,020
Broker non-votes: 2,736
Proposal to ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31,
1997.
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Votes were cast as follows:
For: 11,102,756
Against: 24,667
Abstain: 77,500
Broker non-votes: None
ITEM 5. Other Information
On July 1, 1997, Sparta issued the press release filed as Exhibit 99.15
hereto announcing the grant by the United States Patent and Trademark
Office of United States Patent #5,637,479 submitted by Dr. Harvey Rubin and
colleagues of The University of Pennsylvania.
On July 8, 1997, Sparta issued the press release filed as Exhibit 99.16
hereto announcing the initiation of Phase I clinical trials using
SpartajectTM busulfan in bone marrow transplant patients, at Hammersmith
Hospital in London, England, under the direction of Orphan Europe SARL.
On July 22, 1997, Sparta issued the press release filed as Exhibit 99.17
hereto announcing the initiation of clinical trials for Sparta's 5-FP, an
oral pro-drug of the widely used chemotherapeutic 5-FU (5 fluorouracil).
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
3.4 -- Restated Certificate of Incorporation
10.30A -- 1991 Stock Plan, as amended
10.91 -- Nonqualified Stock Option Agreement, dated as of June 17, 1997, between the Registrant and
Sir John Vane, FSR
10.92 -- Nonqualified Stock Option Agreement, dated as of June 17, 1997, between the Registrant and
Peter Barton Hutt
10.93 -- Nonqualified Stock Option Agreement, dated as of June 17, 1997, between the Registrant and
Dr. Colin Bier
27 -- Financial Data Schedule
99.15 -- Press Release, dated as of July 1, 1997, announcing the grant by the United States Patent and
Trademark Office of United States Patent #5,637,479 submitted by Dr. Harvey Rubin and
colleagues of The University of Pennsylvania
99.16 -- Press Release, dated as of July 8, 1997, announcing the initiation of Phase I clinical trials using
SpartajectTM busulfan in bone marrow transplant patients, at Hammersmith Hospital in London,
England, under the direction of Orphan Europe SARL
99.17 -- Press Release, dated as of July 22, 1997, announcing the initiation of clinical trials for Sparta's
5-FP, an oral pro-drug of the widely used chemotherapeutic 5-FU (5-fluorouracil)
</TABLE>
---------------
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the quarter:
None.
12
<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 7, 1997 By: /s/ Jerry B. Hook
- --------------- ---------------------
Date Jerry B. Hook, Ph.D.
President and Chief Executive Officer
(principal executive officer)
August 7, 1997 By: /s/ Ronald H. Spair
- --------------- ---------------------
Date Ronald H. Spair
Vice President and Chief Financial
Officer (principal financial officer)
<PAGE>
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
1
<PAGE>
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 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
2
<PAGE>
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 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
3
<PAGE>
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 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
4
<PAGE>
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 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
5
<PAGE>
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
6
<PAGE>
adjustment as provided herein. For purposes of this 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
7
<PAGE>
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 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:
8
<PAGE>
(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
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
9
<PAGE>
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
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.
10
<PAGE>
(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
11
<PAGE>
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
12
<PAGE>
as defined in Section 5) at the close of business on the day
of conversion.
(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
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<PAGE>
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 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
14
<PAGE>
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 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.
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(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 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
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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, warrants, units of Common Stock and
warrants, other securities exchangeable, convertible or exercisable for
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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
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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 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.
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<PAGE>
(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 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
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<PAGE>
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 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.
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(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
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.
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<PAGE>
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.
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<PAGE>
(ii). Series B Convertible Preferred Stock.
1. Designation and Amount. There shall be a series of
Preferred Stock designated as "Series B Convertible Preferred 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
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<PAGE>
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 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
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<PAGE>
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 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
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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 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
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<PAGE>
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 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
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<PAGE>
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
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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 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
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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 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
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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 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
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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 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
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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
(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
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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
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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
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
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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 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
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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 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,
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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.
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
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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 such meeting into three classes, as nearly equal in number as
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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
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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
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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 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,
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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 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
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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
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.
46
<PAGE>
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
47
<PAGE>
Exhibit 10.30A
SPARTA PHARMACEUTICALS, INC.
AMENDED 1991 STOCK PLAN, AS AMENDED
Amendment No. 1
Pursuant to the power reserved in Section 25 of the Sparta
Pharmaceuticals, Inc. 1991 Stock Plan, as amended (the "Plan"), the Plan is
hereby amended as follows:
1. The first sentence of Section 3 is hereby amended and
restated to read as follows:
"The number of Shares subject to this Plan as to which Stock
Rights may be granted and exercisable from time to time shall
be 3,000,000 or the equivalent of such number of Shares after
the Administrator, in its sole discretion, has interpreted the
effect of any stock split, stock dividend, combination,
recapitalization or similar transaction."
2. This Amendment No. 1 to the Plan shall be effective
only after approval of the Company's stockholders as set forth in
Section 25.
To record the adoption of this Amendment No. 1, the Company
has caused its authorized officers to affix its corporation name and seal as of
this 17th day of June, 1997.
CORPORATE SEAL PARTA PHARMACEUTICALS, INC.
Attest: /s/ Ronald H. Spair By: /s/ Jerry B. Hook
------------------------ --------------------
Ronald H. Spair Jerry B. Hook, Ph.D.
Secretary President and Chief Executive
Officer
<PAGE>
Exhibit 10.91
SPARTA PHARMACEUTICALS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
AGREEMENT made as of the 17th day of June, 1997, between Sparta
Pharmaceuticals, Inc. (the "Company"), a Delaware corporation having a principal
place of business 111 Rock Road, Horsham, Pennsylvania, and Sir John Vane, an
individual having his residence at White Angles, 7 Beech Dell, Keston Park, Kent
BR2 6EP, England (sometimes referred to below as the "Director" and as the
"Optionee").
WHEREAS, the Company desires to grant to the Director an Option to
purchase shares of its common stock, $.001 par value (the "Shares") under and
for the purposes of the 1991 Stock Plan of the Company (the "Plan");
WHEREAS, the Company and the Director understand and agree that any
terms used and not defined herein have the same meanings as in the Plan;
WHEREAS, the Company and the Director each intend and understand that
the Option granted herein is not an Incentive Stock Option.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto
agree as follows:
1. GRANT OF OPTION
The Company hereby irrevocably grants to the Director, as of the date
first set forth above (the "Effective Date"), the right and option to purchase
all or any part of an aggregate of Ten Thousand (10,000) Shares on the terms and
conditions and subject to all the limitations set forth herein and in the Plan,
which is incorporated herein by reference. The number of Shares is subject to
adjustment, as provided in the Plan, in the event of a stock split, reverse
stock split or other events affecting the holders of Shares after the date
hereof. Determinations made in connection with this Option pursuant to the Plan
shall be governed by the Plan as it exists on this date. The Director
acknowledges receipt of a copy of the Plan.
This Option is in addition to any other options heretofore or hereafter
granted to the Director by the Company, but a duplicate original of this
instrument shall not effect the grant of another option.
<PAGE>
2. PURCHASE PRICE
The purchase price of the Shares covered by the Option shall be at a
price per Share of Eighty One and One Quarter Cents ($.8125) (subject to
adjustment, as provided in the Plan, in the event of a stock split, a further
reverse stock split or other events affecting the holders of Shares). Payment
may be by cash or certified check.
3. EXERCISE OF OPTION
If Director's service to the Company has continued on the following
dates, the Director may exercise the Option for the number of Shares (subject to
adjustment as provided in the Plan) set opposite the applicable date:
Prior to the first anniversary as to no Shares
of the Effective Date
On or after the first anniversary up to 10,000 Shares
of the Effective Date
The foregoing rights are cumulative and subject to the other terms and
conditions of this Agreement and the Plan, including, without limitation, the
term of the Option and the provisions affecting the Director's ability to
exercise the Option after termination of the employment.
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 Service (Other than for Death or Disability)
If the Director's service to the Company ceases (for any reason other
than death or Disability), the Option may be exercised within three (3) months
after the date the Director'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 Director's death
within three (3) months after the termination of such service, the Optionee's
Survivors may exercise the Option within one (1) year after the date of the
Director's death, but in no event after the date of expiration of the term of
the Option.
<PAGE>
b. Termination of Service as a Result of Disability or Death
In the event the Director'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.
c. Change of Status
The term, "service to the Company" as used in this Agreement shall
include service as a member of the Board of Directors of the Company or as a
consultant to the Company, or any of its Affiliates, and a change of status from
consultant to Director or Director to consultant shall not be treated as a
termination of "service to the Company" hereunder.
5. METHOD OF EXERCISING OPTION
Subject to the terms and conditions of this Agreement, including,
without limitation, Section 10 hereof, the Option may be exercised by written
notice to the Company, at the principal executive office of the Company. Such
notice shall state the election to exercise the Option and the number of Shares
in respect of which it is being exercised, shall be signed by the person or
persons so exercising the Option, and shall be in substantially the form
attached hereto as Exhibit A. Such notice shall be accompanied by payment of the
full purchase price for such Shares in United States dollars, and the Company
shall deliver a certificate or certificates representing such Shares as soon as
practicable after the notice shall be received, provided, however, that the
Company may delay issuance of such Shares until completion of any action or
obtaining of any consent, which the Company deems necessary under any applicable
law (including, without limitation, state securities or "blue sky" laws). The
certificate or certificates for the Shares as to which the Option shall have
been so exercised shall be registered in the name of the person or persons so
exercising the Option (or, if the Option shall be exercised by Director and if
Director shall so request in the notice exercising the Option, shall be
registered in the name of the Director and another person jointly, with right of
survivorship) and shall be delivered as provided above to or upon the written
order of the person or persons exercising the Option. In the event the Option
shall be exercised, pursuant to Section 4 hereof, by any person or persons other
than the Director, such notice shall be accompanied by appropriate proof of the
right of such person or persons to exercise the Option. All Shares that shall be
purchased upon the exercise of the Option as provided herein shall be fully paid
and non-assessable.
6. PARTIAL EXERCISE
Exercise of this Option to the extent above stated may be made in part
at any time and from time to time within the above limits, except that no
fractional Share shall be issued pursuant to this Option.
7. NON-ASSIGNABILITY
<PAGE>
The Option shall not be transferable by the Director otherwise than by
will or by the laws of descent and distribution and shall be exercisable, during
the Director's lifetime, only by the Director. Except as provided in the
preceding sentence, the Option shall not be assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of the Option or of any rights
granted hereunder contrary to the provisions of this Section 7, or the levy of
any attachment or similar process upon the Option or such rights, shall be null
and void.
8. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE
The Director shall have no rights as a stockholder with respect to
Shares subject to this Agreement until a stock certificate therefor has been
issued to the Director and is fully paid for. Except as is expressly provided in
the Plan with respect to certain changes in the capitalization of the Company,
no adjustment shall be made for dividends or similar rights for which the record
date is prior to the date such stock certificate is issued.
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.
10. TAXES AND WITHHOLDING
The Director acknowledges that any income or other taxes due from him
or her with respect to this Option or the Shares issuable pursuant to this
Option shall be the Director's responsibility.
In the event of the exercise of this Option, the Company may withhold
from the Director's fees, if any, or other remuneration, or as a condition of
the exercise hereof, may require the Director to pay, additional federal, state,
and local income tax withholding and if applicable at such time, Director
contributions to employment taxes, in respect of the amount that is considered
compensation includable in such person's gross income.
11. PURCHASE FOR INVESTMENT
Unless the offering and sale of the Shares to be issued upon the
particular exercise of the Option shall have been effectively registered under
the Securities Act of 1933, as now in force or hereafter amended (the "Act"),
the Company shall be under no obligation to issue the Shares covered by such
exercise unless and until the following conditions have been fulfilled:
(a) The person(s) who exercise the Option shall warrant to the
Company, at the
<PAGE>
time of such exercise, that such person(s) are acquiring such
Shares for their own respective accounts, for investment, and
not with a view to, or for sale in connection with, the
distribution of any such Shares, in which event the person(s)
acquiring such Shares shall be bound by the provisions of the
following legend which shall be endorsed upon the
certificate(s) evidencing the Shares issued pursuant to such
exercise:
"The shares represented by this certificate have been
taken for investment and they may not be sold or
otherwise transferred by any person, including a
pledgee, unless (1) either (a) a registration
statement with respect to such shares shall be
effective under the Securities Act of 1933, as
amended, or (b) the Company shall have received an
opinion of counsel satisfactory to it that an
exemption from registration under such Act is then
available, and (2) there shall have been compliance
with all applicable state securities laws."
(b) If the Company so requires, the Company shall have received an
opinion of its counsel that the Shares may be issued upon such
particular exercise in compliance with the Act without
registration thereunder. Without limiting the generality of
the foregoing, the Company may delay issuance of the Shares
until completion of any action or obtaining of any consent
which the Company deems necessary under any applicable law
(including without limitation state securities or "blue sky"
laws).
12. NO OBLIGATION TO RETAIN
Neither the Company nor any subsidiary is by the Plan or this Agreement
obligated to continue the Director as an Director to the Company or any
subsidiary or in any other capacity.
13. OPTION IS NOT AN INCENTIVE STOCK OPTION
The parties each intend and understand that the Option is not an incentive
stock option. Director should consult with Director's own tax advisors regarding
the tax effects of the Option.
14. CONSULTATION WITH TAX ADVISOR
Director should consult with Director's own tax advisors regarding the
tax effects of the Option and the consequences of the nonqualified status of the
Option.
15. NOTICES
Any notices required or permitted by the terms of this Agreement or the
Plan shall be given when delivered in person or by overnight courier with a
receipt obtained therefor, or by registered or certified mail, return receipt
requested, addressed as follows:
<PAGE>
To the Company:
Sparta Pharmaceuticals, Inc.
111 Rock Road
Horsham, PA 19044-2310
Attn: President
To the Director:
Sir John Vane
White Angles
7 Beech Dell
Keston Park
Kent BR2 6EP
England
or to such other address or addresses of which notice in the same manner has
previously been given. Any such notice shall be deemed to have been given when
received in accordance with the foregoing provisions.
16. GOVERNING LAW
This Agreement shall be construed and enforced in accordance with the
law of the State of Delaware.
17. BENEFIT OF AGREEMENT
Subject to the provisions of the Plan and the other provisions hereof,
this Agreement shall be for the benefit of and shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
18. ENTIRE AGREEMENT
This Agreement, together with the Plan, 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 Agreement shall affect or
be used to interpret, change or restrict, the express terms and provisions of
this Agreement, provided, however, in any event, this Agreement shall be subject
to and governed by the Plan.
19. MODIFICATIONS AND AMENDMENTS
The terms and provisions of this Agreement may be modified or amended
only by written agreement executed by all parties hereto.
<PAGE>
20. WAIVERS AND CONSENTS
The terms and provisions of this Agreement may be waived, or consent
for the departure therefrom granted, only by written document executed by the
party entitled to the benefits of such terms or provisions. No such waiver or
consent shall be deemed to be or shall constitute a waiver or consent with
respect to any other terms or provisions of this Agreement, whether or not
similar. Each such waiver or consent shall be effective only in the specific
instance and for the purpose for which it was given, and shall not constitute a
continuing waiver or consent.
21. HEADINGS AND CAPTIONS
The headings and captions of the various subdivisions of this Agreement
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.
22. SURVIVAL
The expiration or other termination of the Option granted to the
Director shall neither affect nor alter the Director's obligations under
Sections 10 and 11 hereof.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Nonqualified Stock
Option Agreement to be executed by a duly authorized officer, and the Director
has hereunto set his or her hand, all as of the day and year first above
written.
SPARTA PHARMACEUTICALS, INC.
By /s/ William M. Sullivan
-------------------------------
William M. Sullivan
Chairman of the Board
/s/ John Vane
----------------------------------
Sir John Vane
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE OF NONQUALIFIED STOCK OPTION
To: Sparta Pharmaceuticals, Inc.
Ladies and Gentlemen:
I hereby exercise my Nonqualified Option to purchase ________ shares
(the "Shares") of the common stock, $.001 par value, of Sparta Pharmaceuticals,
Inc. (the "Company"), at the exercise price of $____ per share, pursuant to and
subject to the terms of that certain Nonqualified Stock Option Agreement between
the undersigned and the Company dated as of June 17, 1997.
I am aware that the Shares have not been registered under the
Securities Act of 1933, as amended (the "1933 Act") or any state securities
laws. I understand that the reliance by the Company on exemptions under the 1933
Act is predicated in part upon the truth and accuracy of the statements by me in
this Notice of Exercise.
I hereby represent and warrant that (1) I have been furnished with all
information which I deem necessary to evaluate the merits and risks of the
purchase of the Shares; (2) I have had the opportunity to ask questions
concerning the Shares and the Company and all questions posed have been answered
to my satisfaction; (3) I have been given the opportunity to obtain any
additional information I deem necessary to verify the accuracy of any
information obtained concerning the Shares and the Company; and (4) I have such
knowledge and experience in financial and business matters that I am able to
evaluate the merits and risks of purchasing the Shares and to make an informed
investment decision relating thereto.
I hereby represent and warrant that I am purchasing the Shares for my
own personal account for investment and not with a view to the sale or
distribution of all or any part of the Shares.
I understand that because the Shares have not been registered under the
1933 Act, I must continue to bear the economic risk of the investment for an
indefinite time and the Shares cannot be sold unless the Shares are subsequently
registered under applicable federal and state securities laws or an exemption
from such registration requirements is available.
I agree that I will in no event sell or distribute or otherwise dispose
of all or any part of the Shares unless (1) there is an effective registration
statement under the 1933 Act and applicable state securities laws covering any
<PAGE>
such transaction involving the Shares or (2) the Company receives an opinion of
my legal counsel (concurred in by legal counsel for the Company) stating that
such transaction is exempt from registration or the Company otherwise satisfies
itself that such transaction is exempt from registration.
I consent to the placing of a legend on my certificate for the Shares
stating that the Shares have not been registered and setting forth the
restriction on transfer contemplated hereby and to the placing of a stop
transfer order on the books of the Company and with any transfer agents against
the Shares until the Shares may be legally resold or distributed without
restriction.
I understand that at the present time Rule 144 of the Securities and
Exchange Commission (the "SEC") may not be relied on for the resale or
distribution of the Shares by me. I understand that the Company has no
obligation to me to register the Shares with the SEC and has not represented to
me that it will register the Shares.
I am aware that it is my responsibility to have consulted with
competent tax and legal advisors about the relevant national, state and local
income tax and securities laws affecting the exercise of the Option and the
purchase and subsequent sale of the Shares.
My check payable to the order of the Company in the amount of $ is
enclosed in payment of 100% of the option exercise price for the Shares.
I acknowledge that the Company is authorized to withhold from my wages,
if any, or other remuneration, or may require me, as a condition of the exercise
of the Option, to pay, additional federal, state and local income tax
withholding and if applicable, Director contributions to employment taxes in
respect of the amount that is considered compensation includable in my gross
income.
Please issue the stock certificate for the Shares (check one):
____ to me
____ to me and _________ as joint tenants with right of survivorship
and mail the certificate to me at the following address:
____________________________________________________
____________________________________________________
<PAGE>
My mailing address, if different from the address listed above, for
shareholder communications is:
____________________________________________________
____________________________________________________
Very truly yours,
---------------------------
Director (signature)
---------------------------
Print Name
---------------------------
Date
---------------------------
Social Security Number
<PAGE>
Exhibit 10.92
SPARTA PHARMACEUTICALS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
AGREEMENT made as of the 17th day of June, 1997, between Sparta
Pharmaceuticals, Inc. (the "Company"), a Delaware corporation having a principal
place of business at 111 Rock Road, Horsham, Pennsylvania, and Peter Barton
Hutt, an individual having his office at 1201 Pennsylvania Ave. NW, Washington,
D.C. 20004 (sometimes referred to below as the "Director" and as the
"Optionee").
WHEREAS, the Company desires to grant to the Director an Option to
purchase shares of its common stock, $.001 par value (the "Shares") under and
for the purposes of the 1991 Stock Plan of the Company (the "Plan");
WHEREAS, the Company and the Director understand and agree that any
terms used and not defined herein have the same meanings as in the Plan;
WHEREAS, the Company and the Director each intend and understand that
the Option granted herein is not an Incentive Stock Option.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto
agree as follows:
1. GRANT OF OPTION
The Company hereby irrevocably grants to the Director, as of the date
first set forth above (the "Effective Date"), the right and option to purchase
all or any part of an aggregate of Ten Thousand (10,000) Shares on the terms and
conditions and subject to all the limitations set forth herein and in the Plan,
which is incorporated herein by reference. The number of Shares is subject to
adjustment, as provided in the Plan, in the event of a stock split, reverse
stock split or other events affecting the holders of Shares after the date
hereof. Determinations made in connection with this Option pursuant to the Plan
shall be governed by the Plan as it exists on this date. The Director
acknowledges receipt of a copy of the Plan.
This Option is in addition to any other options heretofore or hereafter
granted to the Director by the Company, but a duplicate original of this
instrument shall not effect the grant of another option.
<PAGE>
2. PURCHASE PRICE
The purchase price of the Shares covered by the Option shall be at a
price per Share of Eighty One and One Quarter Cents ($.8125) (subject to
adjustment, as provided in the Plan, in the event of a stock split, a further
reverse stock split or other events affecting the holders of Shares). Payment
may be by cash or certified check.
3. EXERCISE OF OPTION
If Director's service to the Company has continued on the following
dates, the Director may exercise the Option for the number of Shares (subject to
adjustment as provided in the Plan) set opposite the applicable date:
Prior to the first anniversary as to no Shares
of the Effective Date
On or after the first anniversary up to 10,000 Shares
of the Effective Date
The foregoing rights are cumulative and subject to the other terms and
conditions of this Agreement and the Plan, including, without limitation, the
term of the Option and the provisions affecting the Director's ability to
exercise the Option after termination of the employment.
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 Service (Other than for Death or Disability)
If the Director's service to the Company ceases (for any reason other
than death or Disability), the Option may be exercised within three (3) months
after the date the Director'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 Director's death
within three (3) months after the termination of such service, the Optionee's
Survivors may exercise the Option within one (1) year after the date of the
Director's death, but in no event after the date of expiration of the term of
the Option.
<PAGE>
b. Termination of Service as a Result of Disability or Death
In the event the Director'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.
c. Change of Status
The term, "service to the Company" as used in this Agreement shall
include service as a member of the Board of Directors of the Company or as a
consultant to the Company, or any of its Affiliates, and a change of status from
consultant to Director or Director to consultant shall not be treated as a
termination of "service to the Company" hereunder.
5. METHOD OF EXERCISING OPTION
Subject to the terms and conditions of this Agreement, including,
without limitation, Section 10 hereof, the Option may be exercised by written
notice to the Company, at the principal executive office of the Company. Such
notice shall state the election to exercise the Option and the number of Shares
in respect of which it is being exercised, shall be signed by the person or
persons so exercising the Option, and shall be in substantially the form
attached hereto as Exhibit A. Such notice shall be accompanied by payment of the
full purchase price for such Shares in United States dollars, and the Company
shall deliver a certificate or certificates representing such Shares as soon as
practicable after the notice shall be received, provided, however, that the
Company may delay issuance of such Shares until completion of any action or
obtaining of any consent, which the Company deems necessary under any applicable
law (including, without limitation, state securities or "blue sky" laws). The
certificate or certificates for the Shares as to which the Option shall have
been so exercised shall be registered in the name of the person or persons so
exercising the Option (or, if the Option shall be exercised by Director and if
Director shall so request in the notice exercising the Option, shall be
registered in the name of the Director and another person jointly, with right of
survivorship) and shall be delivered as provided above to or upon the written
order of the person or persons exercising the Option. In the event the Option
shall be exercised, pursuant to Section 4 hereof, by any person or persons other
than the Director, such notice shall be accompanied by appropriate proof of the
right of such person or persons to exercise the Option. All Shares that shall be
purchased upon the exercise of the Option as provided herein shall be fully paid
and non-assessable.
6. PARTIAL EXERCISE
Exercise of this Option to the extent above stated may be made in part
at any time and from time to time within the above limits, except that no
fractional Share shall be issued pursuant to this Option.
<PAGE>
7. NON-ASSIGNABILITY
The Option shall not be transferable by the Director otherwise than by
will or by the laws of descent and distribution and shall be exercisable, during
the Director's lifetime, only by the Director. Except as provided in the
preceding sentence, the Option shall not be assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of the Option or of any rights
granted hereunder contrary to the provisions of this Section 7, or the levy of
any attachment or similar process upon the Option or such rights, shall be null
and void.
8. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE
The Director shall have no rights as a stockholder with respect to
Shares subject to this Agreement until a stock certificate therefor has been
issued to the Director and is fully paid for. Except as is expressly provided in
the Plan with respect to certain changes in the capitalization of the Company,
no adjustment shall be made for dividends or similar rights for which the record
date is prior to the date such stock certificate is issued.
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.
10. TAXES AND WITHHOLDING
The Director acknowledges that any income or other taxes due from him
or her with respect to this Option or the Shares issuable pursuant to this
Option shall be the Director's responsibility.
In the event of the exercise of this Option, the Company may withhold
from the Director's fees, if any, or other remuneration, or as a condition of
the exercise hereof, may require the Director to pay, additional federal, state,
and local income tax withholding and if applicable at such time, Director
contributions to employment taxes, in respect of the amount that is considered
compensation includable in such person's gross income.
11. PURCHASE FOR INVESTMENT
Unless the offering and sale of the Shares to be issued upon the
particular exercise of the Option shall have been effectively registered under
the Securities Act of 1933, as now in
<PAGE>
force or hereafter amended (the "Act"), the Company shall be under no obligation
to issue the Shares covered by such exercise unless and until the following
conditions have been fulfilled:
(a) The person(s) who exercise the Option shall warrant to the
Company, at the time of such exercise, that such person(s) are
acquiring such Shares for their own respective accounts, for
investment, and not with a view to, or for sale in connection
with, the distribution of any such Shares, in which event the
person(s) acquiring such Shares shall be bound by the
provisions of the following legend which shall be endorsed
upon the certificate(s) evidencing the Shares issued pursuant
to such exercise:
"The shares represented by this certificate have been
taken for investment and they may not be sold or
otherwise transferred by any person, including a
pledgee, unless (1) either (a) a registration
statement with respect to such shares shall be
effective under the Securities Act of 1933, as
amended, or (b) the Company shall have received an
opinion of counsel satisfactory to it that an
exemption from registration under such Act is then
available, and (2) there shall have been compliance
with all applicable state securities laws."
(b) If the Company so requires, the Company shall have received an
opinion of its counsel that the Shares may be issued upon such
particular exercise in compliance with the Act without
registration thereunder. Without limiting the generality of
the foregoing, the Company may delay issuance of the Shares
until completion of any action or obtaining of any consent
which the Company deems necessary under any applicable law
(including without limitation state securities or "blue sky"
laws).
<PAGE>
12. NO OBLIGATION TO RETAIN
Neither the Company nor any subsidiary is by the Plan or this Agreement
obligated to continue the Director as an Director to the Company or any
subsidiary or in any other capacity.
13. OPTION IS NOT AN INCENTIVE STOCK OPTION
The parties each intend and understand that the Option is not an incentive
stock option. Director should consult with Director's own tax advisors regarding
the tax effects of the Option.
14. CONSULTATION WITH TAX ADVISOR
Director should consult with Director's own tax advisors regarding the
tax effects of the Option and the consequences of the nonqualified status of the
Option.
15. NOTICES
Any notices required or permitted by the terms of this Agreement or the
Plan shall be given when delivered in person or by overnight courier with a
receipt obtained therefor, or by registered or certified mail, return receipt
requested, addressed as follows:
To the Company:
Sparta Pharmaceuticals, Inc.
111 Rock Road
Horsham, PA 19044-2310
Attn: President
To the Director:
Peter Barton Hutt, Esq.
1201 Pennsylvania Ave. NW
Washington, D.C. 20004
or to such other address or addresses of which notice in the same manner has
previously been given. Any such notice shall be deemed to have been given when
received in accordance with the foregoing provisions.
<PAGE>
16. GOVERNING LAW
This Agreement shall be construed and enforced in accordance with the
law of the State of Delaware.
17. BENEFIT OF AGREEMENT
Subject to the provisions of the Plan and the other provisions hereof,
this Agreement shall be for the benefit of and shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
18. ENTIRE AGREEMENT
This Agreement, together with the Plan, 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 Agreement shall affect or
be used to interpret, change or restrict, the express terms and provisions of
this Agreement, provided, however, in any event, this Agreement shall be subject
to and governed by the Plan.
19. MODIFICATIONS AND AMENDMENTS
The terms and provisions of this Agreement may be modified or amended
only by written agreement executed by all parties hereto.
20. WAIVERS AND CONSENTS
The terms and provisions of this Agreement may be waived, or consent
for the departure therefrom granted, only by written document executed by the
party entitled to the benefits of such terms or provisions. No such waiver or
consent shall be deemed to be or shall constitute a waiver or consent with
respect to any other terms or provisions of this Agreement, whether or not
similar. Each such waiver or consent shall be effective only in the specific
instance and for the purpose for which it was given, and shall not constitute a
continuing waiver or consent.
21. HEADINGS AND CAPTIONS
The headings and captions of the various subdivisions of this Agreement
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.
<PAGE>
22. SURVIVAL
The expiration or other termination of the Option granted to the
Director shall neither affect nor alter the Director's obligations under
Sections 10 and 11 hereof.
IN WITNESS WHEREOF, the Company has caused this Nonqualified Stock
Option Agreement to be executed by a duly authorized officer, and the Director
has hereunto set his or her hand, all as of the day and year first above
written.
SPARTA PHARMACEUTICALS, INC.
By /s/ William M. Sullivan
--------------------------------
William M. Sullivan
Chairman of the Board
/s/ Peter Barton Hutt
--------------------------------
Peter Barton Hutt
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE OF NONQUALIFIED STOCK OPTION
To: Sparta Pharmaceuticals, Inc.
Ladies and Gentlemen:
I hereby exercise my Nonqualified Option to purchase ________ shares
(the "Shares") of the common stock, $.001 par value, of Sparta Pharmaceuticals,
Inc. (the "Company"), at the exercise price of $______ per share, pursuant to
and subject to the terms of that certain Nonqualified Stock Option Agreement
between the undersigned and the Company dated as of June 17, 1997.
I am aware that the Shares have not been registered under the
Securities Act of 1933, as amended (the "1933 Act") or any state securities
laws. I understand that the reliance by the Company on exemptions under the 1933
Act is predicated in part upon the truth and accuracy of the statements by me in
this Notice of Exercise.
I hereby represent and warrant that (1) I have been furnished with all
information which I deem necessary to evaluate the merits and risks of the
purchase of the Shares; (2) I have had the opportunity to ask questions
concerning the Shares and the Company and all questions posed have been answered
to my satisfaction; (3) I have been given the opportunity to obtain any
additional information I deem necessary to verify the accuracy of any
information obtained concerning the Shares and the Company; and (4) I have such
knowledge and experience in financial and business matters that I am able to
evaluate the merits and risks of purchasing the Shares and to make an informed
investment decision relating thereto.
I hereby represent and warrant that I am purchasing the Shares for my
own personal account for investment and not with a view to the sale or
distribution of all or any part of the Shares.
I understand that because the Shares have not been registered under the
1933 Act, I must continue to bear the economic risk of the investment for an
indefinite time and the Shares cannot be sold unless the Shares are subsequently
registered under applicable federal and state securities laws or an exemption
from such registration requirements is available.
I agree that I will in no event sell or distribute or otherwise dispose
of all or any part of
<PAGE>
the Shares unless (1) there is an effective registration statement under the
1933 Act and applicable state securities laws covering any such transaction
involving the Shares or (2) the Company receives an opinion of my legal counsel
(concurred in by legal counsel for the Company) stating that such transaction is
exempt from registration or the Company otherwise satisfies itself that such
transaction is exempt from registration.
I consent to the placing of a legend on my certificate for the Shares
stating that the Shares have not been registered and setting forth the
restriction on transfer contemplated hereby and to the placing of a stop
transfer order on the books of the Company and with any transfer agents against
the Shares until the Shares may be legally resold or distributed without
restriction.
I understand that at the present time Rule 144 of the Securities and
Exchange Commission (the "SEC") may not be relied on for the resale or
distribution of the Shares by me. I understand that the Company has no
obligation to me to register the Shares with the SEC and has not represented to
me that it will register the Shares.
I am aware that it is my responsibility to have consulted with
competent tax and legal advisors about the relevant national, state and local
income tax and securities laws affecting the exercise of the Option and the
purchase and subsequent sale of the Shares.
My check payable to the order of the Company in the amount of
$_________ is enclosed in payment of 100% of the option exercise price for the
Shares.
I acknowledge that the Company is authorized to withhold from my wages,
if any, or other remuneration, or may require me, as a condition of the exercise
of the Option, to pay, additional federal, state and local income tax
withholding and if applicable, Director contributions to employment taxes in
respect of the amount that is considered compensation includable in my gross
income.
Please issue the stock certificate for the Shares (check one):
___ to me
___ to me and ____________ as joint tenants with right of survivorship
and mail the certificate to me at the following address:
____________________________________________
____________________________________________
<PAGE>
My mailing address, if different from the address listed above, for
shareholder communications is:
____________________________________________
____________________________________________
Very truly yours,
-------------------------------
Director (signature)
-------------------------------
Print Name
-------------------------------
Date
-------------------------------
Social Security Number
<PAGE>
Exhibit 10.93
SPARTA PHARMACEUTICALS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
AGREEMENT made as of the 17th day of June, 1997, between Sparta
Pharmaceuticals, Inc. (the "Company"), a Delaware corporation having a principal
place of business at 111 Rock Road, Horsham, Pennsylvania, and Colin B. Bier,
Ph.D., an individual having his office at 677 Dr. Frederik Phillips,
Saint-Laurent (Montreal), Quebec, Canada, H4M 2W4, (sometimes referred to below
as the "Director" and as the "Optionee").
WHEREAS, the Company desires to grant to the Director an Option to
purchase shares of its common stock, $.001 par value (the "Shares") under and
for the purposes of the 1991 Stock Plan of the Company (the "Plan");
WHEREAS, the Company and the Director understand and agree that any
terms used and not defined herein have the same meanings as in the Plan;
WHEREAS, the Company and the Director each intend and understand that
the Option granted herein is not an Incentive Stock Option.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto
agree as follows:
1. GRANT OF OPTION
The Company hereby irrevocably grants to the Director, as of the date
first set forth above (the "Effective Date"), the right and option to purchase
all or any part of an aggregate of Ten Thousand (10,000) Shares on the terms and
conditions and subject to all the limitations set forth herein and in the Plan,
which is incorporated herein by reference. The number of Shares is subject to
adjustment, as provided in the Plan, in the event of a stock split, reverse
stock split or other events affecting the holders of Shares after the date
hereof. Determinations made in connection with this Option pursuant to the Plan
shall be governed by the Plan as it exists on this date. The Director
acknowledges receipt of a copy of the Plan.
This Option is in addition to any other options heretofore or hereafter
granted to the Director by the Company, but a duplicate original of this
instrument shall not effect the grant of another option.
<PAGE>
2. PURCHASE PRICE
The purchase price of the Shares covered by the Option shall be at a
price per Share of Eighty One and One Quarter Cents ($.8125) (subject to
adjustment, as provided in the Plan, in the event of a stock split, a further
reverse stock split or other events affecting the holders of Shares). Payment
may be by cash or certified check.
3. EXERCISE OF OPTION
If Director's service to the Company has continued on the following
dates, the Director may exercise the Option for the number of Shares (subject to
adjustment as provided in the Plan) set opposite the applicable date:
Prior to the first anniversary as to no Shares
of the Effective Date
On or after the first anniversary up to 10,000 Shares
of the Effective Date
The foregoing rights are cumulative and subject to the other terms and
conditions of this Agreement and the Plan, including, without limitation, the
term of the Option and the provisions affecting the Director's ability to
exercise the Option after termination of the employment.
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 Service (Other than for Death or Disability)
If the Director's service to the Company ceases (for any reason other
than death or Disability), the Option may be exercised within three (3) months
after the date the Director'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 Director's death
within three (3) months after the termination of such service, the Optionee's
Survivors may exercise the Option within one (1) year after the date of the
Director's death, but in no event after the date of expiration of the term of
the Option.
<PAGE>
b. Termination of Service as a Result of Disability or Death
In the event the Director'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.
c. Change of Status
The term, "service to the Company" as used in this Agreement shall
include service as a member of the Board of Directors of the Company or as a
consultant to the Company, or any of its Affiliates, and a change of status from
consultant to Director or Director to consultant shall not be treated as a
termination of "service to the Company" hereunder.
5. METHOD OF EXERCISING OPTION
Subject to the terms and conditions of this Agreement, including,
without limitation, Section 10 hereof, the Option may be exercised by written
notice to the Company, at the principal executive office of the Company. Such
notice shall state the election to exercise the Option and the number of Shares
in respect of which it is being exercised, shall be signed by the person or
persons so exercising the Option, and shall be in substantially the form
attached hereto as Exhibit A. Such notice shall be accompanied by payment of the
full purchase price for such Shares in United States dollars, and the Company
shall deliver a certificate or certificates representing such Shares as soon as
practicable after the notice shall be received, provided, however, that the
Company may delay issuance of such Shares until completion of any action or
obtaining of any consent, which the Company deems necessary under any applicable
law (including, without limitation, state securities or "blue sky" laws). The
certificate or certificates for the Shares as to which the Option shall have
been so exercised shall be registered in the name of the person or persons so
exercising the Option (or, if the Option shall be exercised by Director and if
Director shall so request in the notice exercising the Option, shall be
registered in the name of the Director and another person jointly, with right of
survivorship) and shall be delivered as provided above to or upon the written
order of the person or persons exercising the Option. In the event the Option
shall be exercised, pursuant to Section 4 hereof, by any person or persons other
than the Director, such notice shall be accompanied by appropriate proof of the
right of such person or persons to exercise the Option. All Shares that shall be
purchased upon the exercise of the Option as provided herein shall be fully paid
and non-assessable.
<PAGE>
6. PARTIAL EXERCISE
Exercise of this Option to the extent above stated may be made in part
at any time and from time to time within the above limits, except that no
fractional Share shall be issued pursuant to this Option.
7. NON-ASSIGNABILITY
The Option shall not be transferable by the Director otherwise than by
will or by the laws of descent and distribution and shall be exercisable, during
the Director's lifetime, only by the Director. Except as provided in the
preceding sentence, the Option shall not be assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of the Option or of any rights
granted hereunder contrary to the provisions of this Section 7, or the levy of
any attachment or similar process upon the Option or such rights, shall be null
and void.
8. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE
The Director shall have no rights as a stockholder with respect to
Shares subject to this Agreement until a stock certificate therefor has been
issued to the Director and is fully paid for. Except as is expressly provided in
the Plan with respect to certain changes in the capitalization of the Company,
no adjustment shall be made for dividends or similar rights for which the record
date is prior to the date such stock certificate is issued.
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.
10. TAXES AND WITHHOLDING
The Director acknowledges that any income or other taxes due from him
or her with respect to this Option or the Shares issuable pursuant to this
Option shall be the Director's responsibility.
In the event of the exercise of this Option, the Company may withhold
from the Director's fees, if any, or other remuneration, or as a condition of
the exercise hereof, may
<PAGE>
require the Director to pay, additional federal, state, and local income tax
withholding and if applicable at such time, Director contributions to employment
taxes, in respect of the amount that is considered compensation includable in
such person's gross income.
11. PURCHASE FOR INVESTMENT
Unless the offering and sale of the Shares to be issued upon the
particular exercise of the Option shall have been effectively registered under
the Securities Act of 1933, as now in force or hereafter amended (the "Act"),
the Company shall be under no obligation to issue the Shares covered by such
exercise unless and until the following conditions have been fulfilled:
(a) The person(s) who exercise the Option shall warrant to the
Company, at the time of such exercise, that such person(s) are
acquiring such Shares for their own respective accounts, for
investment, and not with a view to, or for sale in connection
with, the distribution of any such Shares, in which event the
person(s) acquiring such Shares shall be bound by the
provisions of the following legend which shall be endorsed
upon the certificate(s) evidencing the Shares issued pursuant
to such exercise:
"The shares represented by this certificate have been
taken for investment and they may not be sold or
otherwise transferred by any person, including a
pledgee, unless (1) either (a) a registration
statement with respect to such shares shall be
effective under the Securities Act of 1933, as
amended, or (b) the Company shall have received an
opinion of counsel satisfactory to it that an
exemption from registration under such Act is then
available, and (2) there shall have been compliance
with all applicable state securities laws."
(b) If the Company so requires, the Company shall have received an
opinion of its counsel that the Shares may be issued upon such
particular exercise in compliance with the Act without
registration thereunder. Without limiting the generality of
the foregoing, the Company may delay issuance of the Shares
until completion of any action or obtaining of any consent
which the Company deems necessary under any applicable law
(including without limitation state securities or "blue sky"
laws).
<PAGE>
12. NO OBLIGATION TO RETAIN
Neither the Company nor any subsidiary is by the Plan or this Agreement
obligated to continue the Director as an Director to the Company or any
subsidiary or in any other capacity.
13. OPTION IS NOT AN INCENTIVE STOCK OPTION
The parties each intend and understand that the Option is not an incentive
stock option. Director should consult with Director's own tax advisors regarding
the tax effects of the Option.
14. CONSULTATION WITH TAX ADVISOR
Director should consult with Director's own tax advisors regarding the
tax effects of the Option and the consequences of the nonqualified status of the
Option.
15. NOTICES
Any notices required or permitted by the terms of this Agreement or the
Plan shall be given when delivered in person or by overnight courier with a
receipt obtained therefor, or by registered or certified mail, return receipt
requested, addressed as follows:
To the Company:
Sparta Pharmaceuticals, Inc.
111 Rock Road
Horsham, PA 19044-2310
Attn: President
To the Director:
Colin B. Bier
677 Dr. Frederik Phillips
Montreal
Canada H4M 2W4
or to such other address or addresses of which notice in the same manner has
previously been given. Any such notice shall be deemed to have been given when
received in accordance with the foregoing provisions.
<PAGE>
16. GOVERNING LAW
This Agreement shall be construed and enforced in accordance with the
law of the State of Delaware.
17. BENEFIT OF AGREEMENT
Subject to the provisions of the Plan and the other provisions hereof,
this Agreement shall be for the benefit of and shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
18. ENTIRE AGREEMENT
This Agreement, together with the Plan, 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 Agreement shall affect or
be used to interpret, change or restrict, the express terms and provisions of
this Agreement, provided, however, in any event, this Agreement shall be subject
to and governed by the Plan.
19. MODIFICATIONS AND AMENDMENTS
The terms and provisions of this Agreement may be modified or amended
only by written agreement executed by all parties hereto.
20. WAIVERS AND CONSENTS
The terms and provisions of this Agreement may be waived, or consent
for the departure therefrom granted, only by written document executed by the
party entitled to the benefits of such terms or provisions. No such waiver or
consent shall be deemed to be or shall constitute a waiver or consent with
respect to any other terms or provisions of this Agreement, whether or not
similar. Each such waiver or consent shall be effective only in the specific
instance and for the purpose for which it was given, and shall not constitute a
continuing waiver or consent.
21. HEADINGS AND CAPTIONS
The headings and captions of the various subdivisions of this Agreement
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.
<PAGE>
22. SURVIVAL
The expiration or other termination of the Option granted to the
Director shall neither affect nor alter the Director's obligations under
Sections 10 and 11 hereof.
IN WITNESS WHEREOF, the Company has caused this Nonqualified Stock
Option Agreement to be executed by a duly authorized officer, and the Director
has hereunto set his or her hand, all as of the day and year first above
written.
SPARTA PHARMACEUTICALS, INC.
By /s/ William M. Sullivan
-------------------------------
William M. Sullivan
Chairman of the Board
/s/ Colin B. Bier
-------------------------------
Colin B. Bier, Ph.D.
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE OF NONQUALIFIED STOCK OPTION
To: Sparta Pharmaceuticals, Inc.
Ladies and Gentlemen:
I hereby exercise my Nonqualified Option to purchase _________ shares
(the "Shares") of the common stock, $.001 par value, of Sparta Pharmaceuticals,
Inc. (the "Company"), at the exercise price of $______ per share, pursuant to
and subject to the terms of that certain Nonqualified Stock Option Agreement
between the undersigned and the Company dated as of June 17, 1997.
I am aware that the Shares have not been registered under the
Securities Act of 1933, as amended (the "1933 Act") or any state securities
laws. I understand that the reliance by the Company on exemptions under the 1933
Act is predicated in part upon the truth and accuracy of the statements by me in
this Notice of Exercise.
I hereby represent and warrant that (1) I have been furnished with all
information which I deem necessary to evaluate the merits and risks of the
purchase of the Shares; (2) I have had the opportunity to ask questions
concerning the Shares and the Company and all questions posed have been answered
to my satisfaction; (3) I have been given the opportunity to obtain any
additional information I deem necessary to verify the accuracy of any
information obtained concerning the Shares and the Company; and (4) I have such
knowledge and experience in financial and business matters that I am able to
evaluate the merits and risks of purchasing the Shares and to make an informed
investment decision relating thereto.
I hereby represent and warrant that I am purchasing the Shares for my
own personal account for investment and not with a view to the sale or
distribution of all or any part of the Shares.
I understand that because the Shares have not been registered under the
1933 Act, I must continue to bear the economic risk of the investment for an
indefinite time and the Shares cannot be sold unless the Shares are subsequently
registered under applicable federal and state securities laws or an exemption
from such registration requirements is available.
I agree that I will in no event sell or distribute or otherwise dispose
of all or any part of
<PAGE>
the Shares unless (1) there is an effective registration statement under the
1933 Act and applicable state securities laws covering any such transaction
involving the Shares or (2) the Company receives an opinion of my legal counsel
(concurred in by legal counsel for the Company) stating that such transaction is
exempt from registration or the Company otherwise satisfies itself that such
transaction is exempt from registration.
I consent to the placing of a legend on my certificate for the Shares
stating that the Shares have not been registered and setting forth the
restriction on transfer contemplated hereby and to the placing of a stop
transfer order on the books of the Company and with any transfer agents against
the Shares until the Shares may be legally resold or distributed without
restriction.
I understand that at the present time Rule 144 of the Securities and
Exchange Commission (the "SEC") may not be relied on for the resale or
distribution of the Shares by me. I understand that the Company has no
obligation to me to register the Shares with the SEC and has not represented to
me that it will register the Shares.
I am aware that it is my responsibility to have consulted with
competent tax and legal advisors about the relevant national, state and local
income tax and securities laws affecting the exercise of the Option and the
purchase and subsequent sale of the Shares.
My check payable to the order of the Company in the amount of $________
is enclosed in payment of 100% of the option exercise price for the Shares.
I acknowledge that the Company is authorized to withhold from my wages,
if any, or other remuneration, or may require me, as a condition of the exercise
of the Option, to pay, additional federal, state and local income tax
withholding and if applicable, Director contributions to employment taxes in
respect of the amount that is considered compensation includable in my gross
income.
Please issue the stock certificate for the Shares (check one):
___ to me
___ to me and _____________ as joint tenants with right of survivorship
and mail the certificate to me at the following address:
_____________________________________
_____________________________________
<PAGE>
My mailing address, if different from the address listed above, for
shareholder communications is:
_____________________________________
_____________________________________
Very truly yours,
----------------------------
Director (signature)
----------------------------
Print Name
----------------------------
Date
----------------------------
Social Security Number
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S JUNE 30, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,813,824
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,029,290
<PP&E> 708,798
<DEPRECIATION> 279,047
<TOTAL-ASSETS> 8,690,719
<CURRENT-LIABILITIES> 571,591
<BONDS> 0
0
1,408
<COMMON> 10,115
<OTHER-SE> 8,107,605
<TOTAL-LIABILITY-AND-EQUITY> 8,690,719
<SALES> 0
<TOTAL-REVENUES> 266,596
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,710,901
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,444,305)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,444,305)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,444,305)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
<PAGE>
Exhibit 99.15
Contact: Jerry B. Hook, Ph.D.
President & Chief Executive Officer
Sparta Pharmaceuticals, Inc.
(215) 442-1700, Ext. 205
FOR IMMEDIATE RELEASE
Sparta Pharmaceuticals, Inc. Announces Patent Approval From The United States
Patent and Trademark Office
Horsham, PA, July 1, 1997, Sparta Pharmaceuticals, Inc. (NASDAQ: SPTA,
SPTAU, SPTAW, SPTAZ AND SPTAL) announced that the United States Patent and
Trademark Office has granted United States Patent #5,637,479 submitted by Dr.
Harvey Rubin and colleagues of The University of Pennsylvania (Penn). The patent
is entitled, "A Method of Modulating DNA Binding Activity of Recombinant alpha
- -1-Antichymotrypsin And Other Serine Protease Inhibitors". This is the sixth
United States patent to be granted through Sparta's collaboration with Penn.
Through a Sparta funded grant, Dr. Rubin, who is a scientific advisor to The
Company, has created a new class of recombinant modified human proteins that are
specific serine protease inhibitors. The Company has an exclusive license to
over sixty compounds covered in the six U.S. patents issued to Penn;
international patents are pending.
According to Dr. Jerry B. Hook, Sparta's President and Chief Executive Officer,
"The issuance of this patent will further enhance Sparta's strong proprietary
position regarding recombinant serine protease inhibitors, their production and
use."
The Company believes this recombinant serine protease inhibitor program has the
potential to be successful in treating serious conditions where uncontrolled
inflammatory responses may have fatal consequences including: cardiovascular
disorders, stroke, lung inflammation and pancreatitis.
This press release contains certain forward-looking statements within the
meaning of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Such statements are made based on management's current
expectations and beliefs, and actual results may vary from those currently
anticipated based upon a number of factors, including uncertainties inherent in
the drug development process, including clinical trials. The Company undertakes
no obligation to release publicly any revisions which may be made to reflect
events or circumstances after the date hereof.
<PAGE>
Sparta is a development stage pharmaceutical company 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 inflammation. The Company has focused on
acquiring compounds that have been previously tested in humans and animals and
technologies that may improve the delivery or targeting of previously tested,
and in some cases marketed, anticancer agents. Sparta's foundation in cancer
chemotherapy has been augmented by the addition of new technology in the rapidly
expanding field of serine protease inhibitors. Serine protease inhibitors have
wide applications in diverse fields such as inflammation, reperfusion injury and
stroke.
<PAGE>
Exhibit 99.16
Contact: Jerry B. Hook, Ph.D. Ronald H. Spair
President & Chief Executive officer CFO
Sparta Pharmaceuticals, Inc. Sparta Pharmaceuticals, Inc.
(215) 442-1700, Ext. 205 (215) 442-1700, Ext. 207
FOR IMMEDIATE RELEASE
Sparta Pharmaceuticals, Inc. Announces Initiation of SpartajectTM Busulfan
Human Clinical Trial in London, England
Horsham, PA, July 8, 1997, Sparta Pharmaceuticals, Inc. (NASDAQ: SPTA,
SPTAU, SPTAW, SPTAZ AND SPTAL) announces initiation of Phase I clinical trial
using SpartajectTM busulfan in bone marrow transplant patients, at Hammersmith
Hospital in London, England, under the direction of Orphan Europe SARL, which
will be coordinating the trial at Hammersmith Hospital.
Sparta has previously established collaborative arrangements with Orphan Europe
SARL, Paris, and Swedish Orphan, AB, Stockholm, for the exclusive testing,
registration and distribution of Spartaject busulfan in Europe and the Nordic
countries. Under the agreement, Orphan Europe is the Company's exclusive
distributor in Western European countries outside of the Nordic countries and
will handle clinical testing and product registration for those countries.
Swedish Orphan will have similar rights and responsibilities for the Nordic
countries. Orphan Europe and Swedish Orphan are affiliated companies within a
global network of orphan pharmaceutical companies dedicated to the development,
registration, marketing and distribution of orphan products.
Dr. Jerry B. Hook, Sparta's President and Chief Executive Officer, stated, "Our
collaboration with Orphan Europe and Swedish Orphan is intended to accelerate
European development of busulfan and will shorten the time before patients can
have access to this technology."
Sparta's U.S. clinical trials for busulfan began on March 24 of this year at
Johns Hopkins Oncology Center. An additional center will be added soon in this
country.
Sparta's new intravenous form of busulfan is to be used as a myeloablative
agent in patients being prepared for bone marrow transplant. SpartajectTM
technology allows for the injection of water insoluble drugs without the use of
solubilizing agents which may be irritating or cause other unwanted side
reactions.
This press release contains certain forward-looking statements within the
meaning of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Such statements are made based on management's current
expectations and beliefs, and actual results may vary from those currently
anticipated based upon a number of factors, including uncertainties inherent in
the drug development process, including clinical trials. The Company undertakes
no obligation
<PAGE>
to release publicly any revisions which may be made to reflect events or
circumstances after the date hereof.
Sparta is a development stage pharmaceutical company 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 inflammation. The Company has focused on
acquiring compounds that have been previously tested in humans and animals and
technologies that may improve the delivery or targeting of previously tested,
and in some cases marketed, anticancer agents. Sparta's foundation in cancer
chemotherapy has been augmented by the addition of new technology in the rapidly
expanding field of serine protease inhibitors. Serine protease inhibitors have
wide applications in diverse fields such as inflammation, reperfusion injury and
stroke.
# # #
<PAGE>
Exhibit 99.17
Contact: Jerry B. Hook, Ph.D.
President & CEO
Sparta Pharmaceuticals, Inc.
(215) 442-1700, Ext. 205
FOR IMMEDIATE RELEASE
Sparta Pharmaceuticals, Inc. Announces Initiation of 5-FP Clinical Trial at
Harper Hospital of Detroit, Michigan
Horsham, PA, July 22, 1997, Sparta Pharmaceuticals, Inc. (NASDAQ: SPTA,
SPTAU, SPTAW, SPTAZ and SPTAL) announces initiation of clinical trials for
Sparta's 5-FP, an oral pro-drug of the widely used chemotherapeutic 5-FU
(5-fluorouracil). The trials are being conducted at Harper Hospital, which is
affiliated with Wayne State University in Detroit, MI. Dr. Patricia LoRusso, a
clinical oncologist with Harper Hospital, is the principle investigator.
Sparta's L.A.D.D.TM (Liver Associated Disease Delivery) Technology Program, of
which 5-FP is a part, involves the formulation and administration of a pro-drug
which remains inactive until it is converted into an active agent by an enzyme
located in the liver. Sparta's 5-FP is an orally delivered pro-drug of the
chemotherapeutic 5-FU, which is available in IV formulation only. 5- FP may be
indicated for colorectal, breast and lung cancer.
"This clinical trial is a significant step forward in Sparta's cancer
chemotherapy program," according to Dr. Jerry Hook, Sparta's President and Chief
Executive Officer. "5-FU, one of the oldest and most widely used cancer
chemotherapeutic agents, is only available intravenously, which is a major
disadvantage to sustained therapy over a course of weeks. Availability of 5-FU
in oral form will contribute significantly to ease of administration and patient
safety."
This is Sparta's fourth clinical trial to commence within the past year.
This press release contains certain forward-looking statements within the
meaning of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Such statements are made based on management's current
expectations and beliefs, and actual results may vary from those currently
anticipated based upon a number of factors, including uncertainties inherent in
the drug development process, including clinical trials. The Company undertakes
no obligation to release publicly any revisions which may be made to reflect
events or circumstances after the date hereof.
Sparta is a development stage pharmaceutical company 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
<PAGE>
cancer, cardiovascular disorders and inflammation. The Company has focused on
acquiring compounds that have been previously tested in humans and animals and
technologies that may improve the delivery or targeting of previously tested,
and in some cases marketed, anticancer agents. Sparta's foundation in cancer
chemotherapy has been augmented by the addition of new technology in the rapidly
expanding field of serine protease inhibitors. Serine protease inhibitors have
wide applications in diverse fields such as inflammation, reperfusion injury and
stroke.
# # #
