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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-23076
SPARTA PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 56-1755527
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
111 Rock Road, Horsham, PA 19044-2310
(Address of principal executive offices)(zip code)
Registrant's telephone number, including area code: (215) 442-1700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units, each consisting of one share of Common Stock, $.001 par value per
share, one redeemable Class A Warrant to purchase one share of Common
Stock, $.001 par value per share, and one redeemable Class B Warrant to
purchase one share of Common Stock, $.001 par value per share
(Title of Class)
Redeemable Class A Warrants, each exercisable for the
purchase of one share of Common Stock, $.001
par value per share
(Title of Class)
Redeemable Class B Warrants, each exercisable for the
purchase of one share of Common Stock, $.001
par value per share
(Title of Class)
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Redeemable Class C Warrants, each exercisable for the
purchase of one share of Common Stock, $.001
par value per share
(Title of Class)
Common Stock, $.001 par value per share
(Title of Class)
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__
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The voting stock of the Company consists of the Common Stock and the
Series B' Convertible Preferred Stock, $.001 par value per share, which is
convertible into shares of Common Stock. The aggregate market value of Common
Stock and the Series B' Convertible Preferred Stock (on an as converted basis)
held by non-affiliates of the registrant, based upon the last sale price of the
Common Stock reported on the National Association of Securities Dealers
Automated Quotation SmallCapSM Market on March 21, 1997 was $12,231,866.
Exclusion of shares held by any person should not be construed to indicate that
such person possesses the power, direct or indirect, to direct or cause the
direction of management or policies of the Registrant, or that such person is
controlled by or under common control with the Registrant. Common Stock
outstanding at March 21, 1997: 9,954,662 shares.
Documents Incorporated by Reference
Portions of the Registrant's Definitive Proxy Statement to be filed
with the Securities and Exchange Commission in connection with the solicitation
of proxies for the Registrant's 1997 Annual Meeting of Shareholders to be held
on June 17, 1997 are incorporated by reference in Part III, Items 10, 11, 12 and
13 of this Form 10-K.
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PART I
Item 1. Business
General
Sparta Pharmaceuticals, Inc. (the "Company" or "Sparta") was
incorporated in Delaware on June 12, 1990 under the name "MediRx
Pharmaceuticals, Inc." and commenced operations in January 1991. It changed its
name to Sparta Pharmaceuticals, Inc. on May 31, 1991. 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 acute inflammation. In March 1996, and in connection with the acquisition of
the assets and business of Lexin Pharmaceutical Corporation ("Lexin" or the
"Lexin Purchase"), the Company gained access to a number of potential
therapeutic agents for acute inflammatory and cardiovascular diseases. During
1996, the Company focused on securing additional financing and advancing its
product candidates into clinical trials. This involved finalizing the
formulation and coordinating the manufacture of clinical trial material for RII
retinamide, Spartaject(TM) busulfan and L.A.D.D.(TM) 5-FP. Additionally, the
Company identified and retained clinical research organizations to monitor the
clinical trials and selected clinical trial sites for RII retinamide,
Spartaject(TM) busulfan and L.A.D.D.(TM) 5-FP. In the financing area, the
Company closed on a total of approximately $16,000,000 in gross proceeds from
two private placements concluded during 1996. The Company continues to focus on
acquiring or licensing compounds that have been previously tested in humans or
animals. The Company has commenced Phase I Clinical Trials in the United States
for two of its product candidates and has an option to acquire a license to
another compound currently in clinical trials in the United Kingdom.
When used in this discussion, the words "expects", "believes",
"anticipates" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those projected. See
"Important Factors Regarding Forward-Looking Statements." Readers are cautioned
not to place undue reliance on these forward-looking statements which speak
only as of the date hereof. The Company undertakes no obligation to publicly
release the results of any revision to these forward-looking statements which
may be made to reflect events or circumstances after the date hereof, or to
reflect the occurrence of unanticipated events.
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The Company's lead product candidates under development are:
<TABLE>
<CAPTION>
Product Candidate Indication Stage of Development
- ----------------- ---------- --------------------
<S> <C> <C>
Spartaject(TM) busulfan Providing injectable delivery of drug Phase I Clinical Trial
for ablating bone marrow prior to Commenced
bone marrow transplant
RII retinamide Treatment of myelodysplastic syndromes (MDS). Phase I/II Clinical Trial
Commenced
L.A.D.D.(TM) 5-FP Providing oral delivery of 5-FU for
the treatment of colorectal, breast, IND approved
liver and other cancers
LEX032 Treatment of reperfusion injury (e.g.
occurring after myocardial infarction Preclinical
and stroke)
</TABLE>
In addition to the Company's lead products, the Company has also identified, and
in some instances has undertaken some development of, other applications of its
licensed technologies and other product candidates, one of which is in joint
Phase I Clinical Trials in the U.K.
LEX032 is intended to treat serine protease-mediated inflammatory
tissue damage. Proteases, of which serine proteases are a subset, are enzymes
which digest proteins. They have been implicated in a number of serious
diseases, especially those of major organs such as the lung and pancreas, where
uncontrolled inflammation may be fatal. LEX032 has exhibited what may be a
unique spectrum of activity in certain animal models of reperfusion injury. A
drug with such a spectrum of activity may be useful in the treatment of
myocardial infarction, stroke, shock-resuscitation, replantation surgery,
frostbite, burns and organ transplants. The compound continues to be under
evaluation, pursuant to an option granted to Astra Merck Inc., for treatment of
acute pancreatitis, or inflammation of the pancreas.
In addition to the Company's lead products, the Company has an option
to acquire a license to a new oral form of asulacrine, a potential anticancer
agent, which the Cancer Research Campaign ("CRC") has in Phase I Clinical Trials
in the U.K. The oral form of this drug is believed to have potential in the
treatment of breast and lung cancer.
Prior to the Lexin Purchase, the Company built its product candidate
portfolio of licensed compounds and potential technology applications for the
treatment of cancer and premalignant conditions by focusing on compounds that
have shown activity in animals or humans and on compounds and technologies that
may expand the utility of previously marketed or investigated chemotherapeutic
compounds. In addition, to lower its fixed costs of operation and to augment its
minimal internal staffing, the Company has retained consultants, contract drug
development organizations and contract manufacturers experienced in the
respective phases of preclinical and clinical drug development. The Company
expects to use the expertise of these organizations to assist with the
development and registration of its product candidates. The Company plans to
market its products, if successfully developed, with its own sales force, with
co-marketers or through distributors, licensees or strategic partners. By
adopting these strategies, the Company believes it can reduce the time, costs
and risks traditionally involved in bringing drugs to market. The Company will
require substantial funds in addition to its existing resources to
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continue to advance its technology applications and product candidates through
the preclinical and clinical stages of development, regulatory registration and
marketing.
While numerous innovative biotechnology approaches are being explored
for the treatment of cancer, the Company believes that chemotherapeutic drugs
will continue to make substantial contributions to the treatment of cancer in
the near-to-mid-term. Furthermore, the Company believes that the application of
technologies that improve the delivery or targeting of chemotherapeutic agents
may provide greater commercial opportunities for such agents. Moreover, advances
in biotechnology that have already been made, such as the development of growth
factors, may facilitate the development of more promising chemotherapeutic
compounds.
In addition to the Company's anticancer and protease inhibitor
programs, the Company continues to focus on acquiring or licensing compounds
that have been previously tested in humans or animals.
The Company's management team includes William M. Sullivan, 62, former
Chairman, President and Chief Executive Officer of Burroughs Wellcome Co., Dr.
Jerry B. Hook, 59, former President and Chief Executive Officer of Lexin and
former head of worldwide development for SmithKline Beecham, Dr. William
McCulloch, 41, former Vice President of Clinical Research and Development of
U.S. Bioscience, Inc., Ronald H. Spair, 41, former Chief Financial Officer of
Lexin, and a Board of Directors whose backgrounds include academic and
pharmaceutical research, government regulation of pharmaceuticals and medical
venture capital. In making its anticancer technology and product acquisition
decisions, the Company has relied on an advisory group of prominent scientists,
clinical oncologists and pharmacologists, led by Dr. Joseph Bertino, Program
Chairman, Molecular Pharmacology and Therapeutics, Memorial Sloan-Kettering
Cancer Center, and Dr. Yung-chi Cheng, Program Director of Developmental
Therapeutics and Chemotherapy, Yale Comprehensive Cancer Center.
Overview of Cancer
Cancer afflicts millions of people worldwide and caused 6 million
deaths in 1995 according to The World Health Organization. It is the second
leading cause of mortality in the industrialized world. The American Cancer
Society estimates that in the United States in 1997 there will be about 1.4
million new cases of cancer and approximately 560,000 deaths attributed to the
disease. In addition, the Society estimates that one in four deaths in the
United States is from cancer.
Cancer is a generic term used to describe a number of related diseases.
There are many different forms of cancer that attack different parts of the
body. Cancer generally is characterized by the uncontrolled, abnormal growth and
spread of malignant tumors or by the proliferation of immature cells in blood or
bone marrow. Tumors in a tissue or organ result from rapid growth of immature
and essentially nonfunctional cells that are not controlled by the body's normal
regulatory functions. A tumor is considered malignant, and therefore a cancer,
when it demonstrates unrestrained local growth and a capacity to invade remote
areas of the body (metastasis).
Chemotherapy. Chemotherapy, surgery and radiation are the three most
common forms of cancer treatment. Each year in the United States, over 800,000
patients with cancer receive chemotherapy, which involves the administration of
drugs designed to kill or inhibit the growth of cancer cells. Chemotherapeutic
drug research focuses mainly on identifying agents that negatively impact tumor
cell growth and have the ability to distinguish between growing cancer cells and
normal cells. In general, the difference between a drug's effectiveness at
combating a disease and its toxicity to the system is known as its therapeutic
index. When chemotherapeutic drugs or new formulations of such drugs act to
impact tumor cell growth to a greater extent than previously available therapies
and/or reduce the harm to healthy cells as compared to previously available
therapies, the therapeutic index has been expanded.
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Methods of Administering Chemotherapeutics. Chemotherapeutics are
administered primarily by injection, usually into veins. This method has
traditionally been preferred by practitioners when it is feasible, because it
generally ensures more timely administration of the required medication and
provides more consistent and predictable availability of the drug within the
body. To be delivered by injection, the compound must be placed in a liquid
solution, blend or mixture that can readily pass through the body's circulatory
system. Unfortunately, many chemotherapeutic agents are poorly soluble in water,
and therefore either are not available in injectable form or require the use of
potentially toxic solubilizing agents to facilitate the preparation of
injectable formulations. Some patients experience adverse side effects
associated with the solubilizing chemicals used in the delivery of
chemotherapeutics.
Although less frequently used, oral administration of chemotherapeutics
is also employed if possible, primarily in outpatient cancer treatment, but also
in a hospital setting when an intravenous form of a chemotherapeutic is not
available. Generally, oral administration is more convenient and less expensive
than other methods, and the Company believes such administration will achieve
wider use in the future if more severe cost constraints are imposed on cancer
treatment. However, those chemotherapeutics which are available only in oral
form may have limited use in that form because of variability in patient
absorption, nausea and difficulties in administering them to debilitated
patients or children.
Market for Chemotherapeutics. The market for chemotherapeutics
consists primarily of cytotoxic (literally, cell toxic) and other drugs used to
treat cancer. This market is estimated to have generated United States sales of
approximately $1.5 billion and worldwide sales of approximately $5.0 billion in
1992. Worldwide sales of anticancer chemotherapeutic agents have been forecasted
to reach approximately $11.8 billion in 1999.
It is estimated that the costs associated with treating cancer
currently account for approximately 10% of total annual health-care costs in the
United States. The National Cancer Institute ("NCI") estimated the economic
impact of cancer at $104 billion in 1990, of which $35 billion represents direct
medical costs. Nevertheless, while total costs associated with cancer treatment
are substantial, in 1992 chemotherapy costs represented only approximately 4% of
such costs and other treatment costs, including those occasioned by the relative
efficacy and toxicity of existing cancer treatments, accounted for approximately
96%. To the extent improved chemotherapy reduces these other treatment costs,
the total cost of cancer care is likely to be positively impacted.
Potential Technology Applications and Product Candidates
The following table sets forth Sparta's technology applications and
product candidates, their stage of development by the Company and their intended
uses. Sparta's development efforts in 1996 were directed almost exclusively to
advancing its product candidates into clinical trials. This involved finalizing
the formulation and coordinating the manufacture of clinical trial material for
RII retinamide, Spartaject busulfan and L.A.D.D. 5-FP. Additionally, the Company
identified and retained clinical research organizations to monitor the clinical
trials and selected the clinical trial sites for RII retinamide, Spartaject
busulfan and L.A.D.D. 5-FP. Other technology applications and product candidates
listed were developed only to a limited extent in 1996, and in 1997 and
thereafter, may be developed only to a limited extent, or not at all, unless
additional funds become available to the Company or outlicensing, joint
development or other collaborative arrangements are made. Rights with respect to
the product candidates and technologies listed below have been generally
acquired by license, and in one instance, under an option to license. Rights
with respect to the serine protease inhibitors were acquired pursuant to the
Lexin Purchase. See "Licensing." The Company is aware of patents that have been
issued to or applied for by third parties which may affect the Company's ability
to commercialize certain of its technology applications and product candidates.
See "Patents, Regulatory Exclusivity and Trade Secrets."
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<TABLE>
<CAPTION>
==============================================================================================================================
SPARTAJECT DRUG DELIVERY TECHNOLOGY
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
For use with:
Busulfan Providing injectable delivery for ablating bone marrow prior to bone
(Phase I Clinical Trial) marrow transplants
- ------------------------------------------------------------------------------------------------------------------------------
L.A.D.D. LIVER ASSOCIATED DISEASE/DELIVERY TECHNOLOGY
- ------------------------------------------------------------------------------------------------------------------------------
For use with:
5-FP Providing oral delivery of 5-FU for treatment of breast, colorectal,
(IND approved) liver and other cancers
Providing targeted treatment of liver tumors and liver metastases of
other cancers
IPdR Providing targeted radiosensitization of certain primary tumors and
(Preclinical) metastases of other cancers
- ------------------------------------------------------------------------------------------------------------------------------
OTHER ANTICANCER COMPOUNDS
- ------------------------------------------------------------------------------------------------------------------------------
RII Retinamide Treating myelodysplastic syndromes
(Phase I Clinical Trial)
Asulacrine Treating breast and lung cancer
(Phase I Clinical Trials)
PT-523 Treating breast, lung and other cancers
(Preclinical)
- ------------------------------------------------------------------------------------------------------------------------------
SERINE PROTEASE INHIBITORS
- ------------------------------------------------------------------------------------------------------------------------------
LEX032 Treatment of reperfusion injury, acute pancreatitis and acute
(Preclinical) pulmonary inflammation
Other recombinant serine protease Treatment of various inflammatory conditions and coagulative
inhibitors disorders
(Preclinical)
Small molecule serine protease inhibitors Treatment of various inflammatory conditions and coagulative
(Preclinical) disorders
==============================================================================================================================
</TABLE>
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Terms used in the preceding table relating to the stage of development
of Sparta's technology applications and product candidates have the following
meanings: "Phase I Clinical Trials " refers to the first phase of studies in
humans and "Preclinical" refers to the development stage preceding human
clinical trials and includes preparation of formulations and laboratory and
animal testing. See "Government Regulation."
Spartaject Drug Delivery Technology
Many anticancer drugs either are poorly water soluble or water
insoluble. Some are currently available only in tablet or capsule form, and may
be limited in their potential use because of variability in patient absorption,
nausea or other difficulty in administering them to debilitated patients or
children. Others that are poorly water soluble have been formulated for
administration intravenously using undesirable detergents and certain organic
solvents that can create irritation at the site of administration, sensitivity
reactions and other side effects.
Spartaject Drug Delivery Technology is a drug delivery system that
accommodates poorly water soluble and water insoluble compounds by encapsulating
them with a fatty (phospholipid) layer ("Spartaject Technology"). The technology
involves coating particles of a drug which are of submicron or near micron size
with a membrane- forming phospholipid layer, thereby permitting the creation of
a suspension of the drug rather than a solution, and its intravenous injection
without the use of potentially toxic solubilizing agents. As a result, the
Spartaject Technology may reduce toxicity created by other injectable forms of
delivery and potentially increase efficacy by facilitating delivery of compounds
whose prior intravenous delivery was impractical because of solubility-related
formulation difficulties.
The Spartaject Technology Program -- Busulfan
The Company's development program for Spartaject intravenous delivery
of busulfan is currently in Phase I Clinical Trials. Busulfan is currently
marketed in an oral dosage form by Glaxo Wellcome Inc. It is frequently used
"off-label" as a bone marrow ablating agent prior to bone marrow transplants
("BMT"). However, due to poor solubility in water, busulfan has been available
only in tablets containing a small amount of drug, and BMT requires high dosage
of drug requiring patients to take large numbers of tablets, usually more than
one hundred per day for four days, in order to absorb enough active drug to
achieve the desired effect on the bone marrow. The need to swallow large numbers
of tablets is one of the major limitations on the wider use of busulfan for BMT
procedures, especially in children. Furthermore, oral administration of busulfan
may result in variations in the amount of drug actually absorbed
(bioavailability) leading to widely variable blood levels and some unpredictable
and serious toxicities.
The Company believes that an intravenous form of busulfan is needed to
overcome these limitations. During 1996, the Company further refined the
formulation and contracted for the production of sufficient quantity of
Spartaject busulfan needed for the conduct of Phase I Clinical Trials. In March
1997, the Company initiated a Phase I Clinical Trial of Spartaject busulfan at
Johns Hopkins Oncology Center. In addition, the Company has been granted orphan
drug status by the U.S. Food and Drug Administration ("FDA") for the use of
busulfan as preparative therapy for malignancies treated with bone marrow
transplantation. The Orphan Drug Act, as now in effect, will provide a period of
market exclusivity for seven years following approval, if the compound is
initially approved by the FDA for use in malignancies treated with bone marrow
transplantation under the Company's sponsorship. See "Patents, Regulatory
Exclusivity and Trade Secrets -- Waxman-Hatch Act and Orphan Drug Act," for a
discussion of the Orphan Drug Act.
In December 1995, the Company signed an agreement with Orphan Europe
SARL, Paris, and Swedish Orphan, AB, Stockholm, for the exclusive clinical
testing, registration, distribution and marketing of Spartaject
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busulfan in certain countries outside the United States. Under the agreement,
Orphan Europe will be Sparta's exclusive distributor in Western European
countries outside of Scandinavia and will handle clinical testing and product
registration for those countries. Swedish Orphan will have similar rights and
responsibilities for Scandinavian countries. Orphan Europe and Swedish Orphan
are obligated at their own expense to use their best efforts to clinically test
and register Spartaject busulfan in Western Europe and Scandinavia,
respectively, and to distribute and market the product in those territories. The
Orphan companies must also make certain milestone payments to Sparta upon
achievement of specified development and registration objectives. Sparta is
obligated to use its best efforts to supply Spartaject busulfan for clinical
testing and marketing on terms to be established from time to time.
The Company estimates that in 1996 there were 10,000 bone marrow
transplants performed in the United States and that the number of such
procedures will grow at the rate of about 1,000 transplants per year. The
Company believes there is a similar or greater number of such procedures
performed elsewhere in the world, and the frequency of such transplants is
increasing worldwide.
The Spartaject Technology Program -- Other Potential Applications
The Company has renegotiated its sublicensing agreement with Research
Triangle Pharmaceuticals, Ltd. ("RTP") related to the Spartaject Technology. In
consideration of RTP's elimination of the requirement that certain milestones be
achieved by fixed dates and the reduction of the on-going license and
maintenance fees, the Company has agreed to restrict its field of use of the
Spartaject Technology to busulfan, aphidicolin (and aphidicolin glycinate), a
compound currently undergoing feasibility evaluation and an additional
anti-cancer compound to be determined at a later date. Furthermore, RTP and the
Company may pursue a joint venture to evaluate and develop paclitaxel and
related derivatives. If the terms of the joint venture are not agreed to by the
end of 1997, RTP can license the rights to paclitaxel to another party.
L.A.D.D. Liver Associated Disease/Delivery Technology
L.A.D.D. Technology involves administering an inactive compound, known
as a prodrug, which passes through the body and is converted to an active agent
in the liver by an enzyme located there. Potentially, L.A.D.D. Technology may
enable adjusting the dosage of the prodrug so that either (i) appropriate
therapeutic levels of the active agent remain in the liver allowing targeted
treatment of liver-associated cancers and viral diseases, with only low levels
entering the system, thereby reducing the agent's potential for harming healthy
cells elsewhere in the body or (ii) higher levels of the activated agent pass
out of the liver into the circulation, thereby allowing chemotherapy to occur
throughout the body. The Company is applying the technology to prodrugs selected
for their potential either (i) to treat liver cancer and metastases to the liver
from primary tumors occurring elsewhere in the body or (ii) to serve as oral
delivery agents for systemically active chemotherapeutic drugs previously
available only in intravenous form.
The L.A.D.D. Technology Program -- 5-FP
5-FP, or 5-fluoro pyrimidinone, is a pyrimidinone based prodrug that
converts into 5-FU, or 5-fluorouracil. 5-FU is currently sold generically only
in an intravenous form. It is widely used in the treatment of breast,
colorectal, and other cancers.
Many current schedules of intravenous administration of 5-FU require
prolonged infusion of the drug, sometimes over several weeks, which can be
costly and inconvenient for patients. The Company believes that an
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oral form of the drug could provide the advantages of convenience of
administration and potential cost savings in the total treatment regimen, and
has developed 5-FP as an oral form of 5-FU for treatment of breast, colorectal,
and other cancers. In 1996, the Company filed an Investigational New Drug
application ("IND") with the FDA and contracted for the production of sufficient
quantity of 5-FP required for the conduct of Phase I Clinical Trials.
The intravenous formulation of 5-FU is available generically.
Accordingly, an oral form of 5-FU that may be more costly than the intravenous
formulation is likely to have more limited use than it otherwise might
experience. The Company estimates that of the approximately 195,000 patients
with breast, colorectal, liver or other cancers who might have been candidates
for treatment with 5-FU in 1995 in the United States, approximately 30,000 might
have been candidates for treatment with an oral form of 5-FU.
The Company also expects to investigate the use of 5-FP using the
L.A.D.D. Technology for targeted treatment of liver tumors and tumors that
metastasize to the liver. The targeted approach is intended to achieve effective
5-FU concentrations in the liver, while decreasing the presence, and therefore
the side effects, of 5-FU elsewhere in the body. Although the development of
5-FP as an oral form of 5-FU is expected to have applicability to the Company's
development of 5-FP for targeted treatment, the Company does not expect to
separately develop 5-FP for targeted treatment until and unless the development
of 5-FP as an oral form of 5-FU advances in clinical trials. The separate
development of 5-FP for targeted treatment will be dependent upon receipt of
funding from a financing or out-licensing, joint development or other
collaborative arrangements, of which there can be no assurance. The Company
estimates that in the United States in 1995 there were approximately 190,000
patients who were candidates for a targeted liver chemotherapeutic directed at
primary liver cancer or liver cancer from primary tumors occurring elsewhere in
the body which first metastasize to the liver. The incidence of these cancers is
particularly high in the Pacific Rim countries.
The L.A.D.D. Technology Program -- Other Potential Anticancer Applications
IPdR. IPdR is a pyrimidinone based prodrug that converts into IUdR, a
compound that has been under investigation by the NCI in animals and humans as a
potential agent to sensitize cancer cells to radiation. The Company continued
the funding of animal feasibility testing of its targeted radiation concept
(with potentially lower toxicities) during 1996 and evaluated sources for
contract manufacturing. However, product development at a level materially
beyond that expended over the past year will be dependent upon receipt of
additional funding from a financing or out-licensing, joint development or other
collaborative arrangements, of which there can be no assurance. The Company
estimates that in 1996 there were approximately 100,000 patients in the United
States with liver cancer or metastases to the liver of tumors occurring
elsewhere who were candidates for radiosensitization.
IPdR, unlike 5-FP and 5-FU, is a nucleoside analogue. It is possible
that as a result of severe complications and deaths associated with the use of
another nucleoside analogue, which was under clinical investigation for
hepatitis, more extensive preclinical toxicity testing may be required by the
FDA for any nucleoside analogues under investigation for any use, and there can
be no assurance that similar toxicities from the use of IPdR will not result.
RII Retinamide
RII retinamide (retinoid). In trials in China conducted by the
Company's licensor involving more than 600 patients, RII retinamide has shown
activity against myelodysplastic syndromes ("MDS") and a number of other
conditions. The Company intends to develop the compound in the United States for
MDS and has commenced Phase I Clinical Trials. MDS are a related group of
conditions that have in common an abnormality in the blood-producing cells of
the bone marrow. The conditions are invariably fatal, although patients can live
for several years after diagnosis. Treatment of patients with MDS has generally
proven disappointing and no chemotherapy has
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impacted survival to date. The most common current treatment is management by
supportive measures, such as blood transfusion, or the administration of
antibiotics to fight infections. RII retinamide may be effective because
retinoids have a cell differentiating effect that potentially can cause abnormal
cells in the bone marrow to become normal. The Company has been granted orphan
drug status for RII retinamide for the treatment of MDS. In August 1996, the
Company initiated a Phase I Clinical Trial of RII retinamide and in February
1997 expanded the number of clinical sites for this trial to seven. The Orphan
Drug Act as now in effect will provide a period of market exclusivity for seven
years following approval, if the compound is initially approved by the FDA for
treatment of MDS under the Company's sponsorship. See "Patents, Regulatory
Exclusivity and Trade Secrets -- Waxman-Hatch Act and Orphan Drug Act" for a
discussion of the Orphan Drug Act. The Company estimates that in 1996 there were
at least 12,000 patients in the United States with MDS.
Other Anticancer Compounds
The Company's portfolio of product candidates also includes the
following compounds under development for treatment of certain cancers:
Asulacrine (formerly CI-921 or Amsalog). The Company has jointly
sponsored a Phase I Clinical Trial of an oral form of asulacrine with the CRC in
the United Kingdom, the initial phase of which, testing oral bioavailablity, has
been completed and has demonstrated acceptable results. The Company anticipates
that an abbreviated oral Phase I Clinical Trial to identify maximum tolerated
dosage will be initiated by CRC during 1997. Treatment targets are breast and
lung cancer, with which the Company estimates approximately 180,000 and 178,000
people are diagnosed each year, respectively, in the United States. While prior
clinical trials of asulacrine by others for the treatment of breast and lung
cancer showed borderline activity, the Company believes that a different
approach may significantly enhance asulacrine's efficacy. The Company has not
filed an IND with the FDA for asulacrine. The development strategy is being
pursued at minimal current cost with CRC. Due to the incidence of vein
inflammation apparently caused by the injectable formulation of the compound
used in a previous Phase I Clinical Trial concluded in late 1995, CRC developed
an oral formulation of the compound which is being used in the ongoing Phase I
Clinical Trial.
PT-523. This compound, an antifolate, has undergone some animal studies
in order to determine its potential utility in relation to methotrexate, another
antifolate and one of the most commonly used anticancer drugs today for breast,
head and neck and other cancers. Tumor resistance to methotrexate has been
common, thereby limiting its use in many patients. Animal studies of PT-523 by
the Company's licensors have indicated that it may be more potent than
methotrexate against resistant tumors. The Company has entered into a research
agreement covering additional animal studies, the results of which will
influence the Company's decision to conduct further development of this
compound.
Viral Disease Applications of the L.A.D.D. Technology
The Company believes that the application of its L.A.D.D. Technology
and certain compounds may have utility in the area of viral disease. However,
the Company does not plan to use its funds for such purposes unless substantial
funds become available to it or out-licensing, joint development or other
collaborative arrangements are made, of which there can be no assurance.
Protease Inhibitors
The technology and compounds acquired in the Lexin Purchase were
licensed to Lexin exclusively from the University of Pennsylvania ("Penn") and
Wichita State University ("Wichita State") and are directed at the potential
treatment of a number of life-threatening diseases. Lexin's lead compound,
LEX032, is intended to treat
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serine protease-mediated inflammatory tissue damage. Proteases, of which serine
proteases are a subset, are enzymes which digest proteins. Serine proteases have
been implicated in a number of serious diseases, especially those of major
organs such as the lung and pancreas, where uncontrolled inflammation may be
fatal. LEX032 has exhibited what may be a unique spectrum of activity in certain
animal models of reperfusion injury. A drug with such a spectrum of activity may
be useful in the treatment of myocardial infarction, stroke,
shock-resuscitation, replantation surgery, frostbite, burns and organ
transplants. The compound is currently under evaluation and option to Astra
Merck Inc. for acute pancreatitis, or inflammation of the pancreas.
The Company is currently funding a research program at Wichita State
designed to discover small molecule inhibitors of serine proteases. Recently,
this program has been expanded to include inhibitors of various other proteases.
In addition, the Company continues to support research at Penn in order to
broaden its understanding of the role of protease inhibitors in the disease
process.
Research and Development
Since the Company's business strategy includes acquiring the rights to
therapeutic product candidates that have demonstrated potential efficacy in
preclinical or clinical testing, the Company does not have its own research
facilities and does not plan to establish them in the foreseeable future. The
Company has funded and may from time to time fund research programs in
collaboration with academic and other institutions, primarily those with which
it has or will have established license agreements. Currently, the Company is
supporting research at three institutions with which it has entered into license
agreements: the Institute of Materia Medica, Beijing, China ("BIMM"), Wichita
State, and Penn. At BIMM, the Company is funding research directed by its
special consultant to the Scientific Advisory Board, Professor Jui (Rui) Han,
M.D., which focuses on synthesizing and characterizing new retinoid compounds
with reduced teratogenic potential (fetal malformation) from that experienced
with many existing retinoid compounds. Some compounds have been synthesized
under the program. The Company will have exclusive rights (outside of China) to
the results of such work under the terms of its existing license agreement with
BIMM. At Wichita State, the Company is currently funding a research program
under the direction of William C. Groutas, Ph.D., a consultant to the Company,
designed to discover small molecule protease inhibitors. The Company will have
exclusive rights (except for agricultural uses and applications) to the results
of such work under the terms of its existing license agreement with Wichita
State. In addition, the Company continues to support research at Penn under the
direction of Harvey Rubin, M.D., Ph.D., a member of the Company's Scientific
Advisory Board, with the goal of broadening its understanding of the role of
proteases and their inhibitors in the disease process. The Company will have
exclusive rights to commercialize the results of such work under the terms of
its existing license agreement with Penn.
Under the terms of its agreement with Dana-Farber Cancer Institute,
Inc. ("Dana-Farber"), the Company also has a right of first refusal to negotiate
exclusive, worldwide licenses on certain new compounds developed during the term
of the agreement by, under the direction of, or in the laboratories of, Dr.
Andre Rosowsky, who is a special consultant to the Company. See "Licensing --
Other Licenses and Options."
To assist with the development of its products while permitting the
Company to maintain a minimal infrastructure, it has established relationships
with various providers of preclinical and clinical planning, development and
drug registration services. One such provider is Cato Research Ltd. ("Cato")
which, pursuant to an agreement, provides services to the Company which are paid
for with a combination of cash and Common Stock up to a maximum total of 150,000
shares, of which 93,608 shares remain available for issuance to Cato after
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December 31, 1996. Under a separate agreement, Cato provides office space and
limited services to the Company's personnel in North Carolina.
The Company also depends upon academic, research and non-profit
institutions, and some commercial service organizations, for chemical synthesis
and analysis, product formulation, assays and preclinical and clinical testing
of its compounds. Preclinical work has been, is currently being or is expected
to be conducted at the Roswell Park Cancer Institute, the Southern Research
Institute, the Universities of Iowa and Wisconsin, Research Triangle
Pharmaceuticals Ltd. ("RTP"), a wholly-owned subsidiary of Cato Holding Co., and
other organizations.
For the years ended December 31, 1994, 1995 and 1996, the Company
expended $2,013,934, $1,819,887 and $3,176,742, respectively, on research and
development activities excluding the charge of $3,062,913 for acquired research
and development related to the Lexin Purchase. From its inception in June 1990
through December 31, 1996, the Company expended $9,181,147 on research and
development excluding the aforementioned charge associated with the Lexin
Purchase.
Manufacturing and Marketing
The Company does not have, and does not intend to establish in the
foreseeable future, manufacturing facilities to produce either drug chemicals or
product formulations (except possibly with respect to its Spartaject
Technology). Accordingly, in 1996 the Company relied on third parties to
manufacture clinical trial supplies of RII retinamide, Spartaject busulfan and
L.A.D.D. 5-FP and in the future will have to rely on third parties to
manufacture its product candidates. There can be no assurance that third party
manufacturers will be available and perform as required or, if available, will
give the Company's orders the highest priority, or that the Company would be
able to readily find a substitute manufacturer, if needed, on short notice. The
Company will be dependent upon contract manufacturers to meet the Company's
manufacturing standards and to comply with current Good Manufacturing Practices
("cGMP") or other applicable requirements imposed by U.S. or foreign regulators
and with health, safety and environmental regulations. There can be no assurance
that such compliance will be achieved or that the FDA and other regulators would
not take action against a contract manufacturer for violating cGMP or similar
standards or regulations.
The market for oncology therapeutics in the United States is highly
concentrated. There are approximately 3,000 to 3,500 oncology practices in the
United States. Many are concentrated geographically in populated areas near the
approximately 50 major cancer centers in the United States. Currently, the
Company has no marketing personnel or arrangements, other than for the marketing
of Spartaject busulfan in Western Europe and Scandinavia. It plans to market its
products, if successfully developed, with its own sales force, with co-marketers
or through distributors, licensees or strategic partners.
Licensing
The Company's license or sublicense agreements (the "Licenses")
generally require the Company to undertake and pursue with diligence and best
efforts development of the compounds and technologies that are licensed, and to
report on a regular basis on the Company's development progress and plans. Each
of the Licenses requires payments of royalties on sales of products covered by
the License and, in several instances, minimum annual royalties. Under most of
the Licenses, the licensor has the first right to sue for infringement of, and
defend invalidity charges against, the licensed patents. All of the Licenses
provide that in the event of the Company's default of its obligations, including
the obligations to diligently pursue and apply best efforts to the development
of the licensed compound or technology, and, in some instances, in the event of
its insolvency or bankruptcy, all
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or a portion of the license or sublicense may be terminated by the licensor or
sublicensor. A termination of any of the Licenses could have a material adverse
effect upon the Company. The Company believes it has complied in all material
respects with the terms of all of its Licenses to date. The Company intends to
continue its licensing program and engage in product acquisitions with a primary
focus on clinical stage of development. There can be no assurance that any such
licenses or acquisitions will be on terms similar to the Licenses.
The Company made minimum royalty and annual maintenance fee payments in
the aggregate amount of $157,000 during 1996, and is obligated to make payments
of $182,000 during 1997.
Sublicense of Spartaject Technology to the Company
In July 1992, RTP granted the Company exclusive rights to patent and
know-how in a sublicense under RTP's license with Pharma-Logic, Inc. to make,
have made, use and sell pharmaceutical formulations worldwide embodying the
Spartaject Technology for use as anticancer agents for cancer treatment in
humans, for use as agents for ancillary care related to cancer treatment in
humans and for any use of busulfan in humans (the "RTP License"). The Company
has renegotiated its sublicensing agreement with RTP. As recited above in
describing the Spartaject Technology Program, the renegotiated RTP sublicense
reduces the Company's costs and restricts its exclusive rights to the Spartaject
Technology with respect to busulfan, aphidicolin (and aphidicolin glycinate), a
compound currently undergoing feasibility evaluation and an additional
anti-cancer compound to be determined at a later date. Furthermore, RTP and the
Company may pursue a joint venture to evaluate and develop paclitaxel and
related derivatives. If the terms of the joint venture are not agreed to by the
end of 1997, RTP can license the rights to paclitaxel to another party.
The Company is obligated to pay royalties, including minimum amounts,
on product sales until the expiration of the underlying patents, to pay an
annual fee to maintain exclusivity, and must pay all or a portion of patent
prosecution, maintenance and defense costs. The Company is required under
certain circumstances to provide information regarding its preclinical and
clinical research, regulatory filings and proceedings, manufacturing processes
and related information to RTP, and under certain circumstances RTP may disclose
this information to other licensees, but during its term the RTP License limits
the use of such information by RTP or its licensees to uses outside the field of
use licensed to the Company. Unless sooner terminated, the RTP License
continues, with respect to an issued patent, until the patent expires or has
been found invalid. With respect to pending patent applications, the obligation
to pay royalties ceases upon abandonment of the application or after the
application has been pending for five years, whichever occurs first. Should the
patent application subsequently issue as a patent, the royalty obligation
resumes.
License of L.A.D.D. Technology to the Company
Yale University ("Yale") granted the Company in October 1991 an
exclusive worldwide license to make, have made, use and sell products under
certain patent rights related to the L.A.D.D. Technology (the "Yale License").
Exclusivity under the Yale License is subject to rights required to be granted
to the U.S. Government (related to government sponsorship of any research) and
Yale's right to make, use and practice the invention for noncommercial purposes.
Sparta's obligations to Yale include (i) payments upon the achievement of
certain milestones, (ii) royalty payments, including minimum amounts, on product
sales, and (iii) payment of the costs of preparing, prosecuting and maintaining
patent applications and patents. For products covered by pending patent
applications, royalties cease five years after the filing date if no patent has
issued. Royalties for products covered by issued patents are payable until the
patents expire or are found invalid or unenforceable. The Company also issued
shares of its Common Stock to Yale, granted Yale certain stock registration
rights, and provided for the Company to have a right of first refusal if Yale
desires to transfer the shares.
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License of Retinoids to the Company
The Company obtained an exclusive worldwide (except for China) patent
and know-how license from BIMM in October 1991 to specified classes of
retinoids, including RII retinamide. The Company is obligated to use its
reasonable best efforts to prepare, prosecute and maintain patent applications
and patents for such compounds outside China at its expense, and has provided
and may continue to provide support to BIMM for research projects. The Company
issued to BIMM shares of Common Stock and is obligated to issue additional
shares as a result of the FDA's clearance of the RII retinamide IND if such
clearance is based solely on data provided by BIMM. The Company is obligated to
pay royalties on product sales for different periods, depending on whether the
product is covered by a patent, is covered by a patent application, or embodies
know-how.
In September 1994, the Company obtained a non-exclusive license from
BASF Aktiengesellschaft ("BASF") under BASF's patents concerning RII retinamide
in Europe and Canada. The Company made a down payment to obtain the license, a
portion of which is creditable against royalties due on sales of RII retinamide,
and is obligated to pay royalties on such sales for the life of the patents
covered by the license.
License of Protease Inhibitors
The technology and compounds acquired in the Lexin Purchase were
licensed to Lexin exclusively from Penn and Wichita State. Pursuant to the terms
of the Lexin Purchase, Lexin's rights and obligations under its license
agreements with Penn and Wichita State were assigned to the Company.
The Penn license agreement grants the Company an exclusive worldwide
license to make, have made, use and sell products under certain patent rights
owned by Penn. These patent rights relate to the expression of a certain
protease inhibitor and specific modifications thereto. Exclusivity under the
Penn license is subject to potential rights required to be granted to the U.S.
government (related to government sponsorship of any research) and Penn's right
to use and to permit the use of the licensed products by nonprofit
organizations. Sparta's obligations to Penn include (i) royalty payments,
including minimum amounts, on product sales and (ii) payment of the costs of
preparing, prosecuting and maintaining patent applications and patents.
The Wichita State license agreement grants the Company an exclusive
worldwide license to make, have made, use, sell and have sold products for any
diagnostic, therapeutic or prophylactic purpose under certain patent rights
owned by Wichita State. These patent rights relate to a family of related new
chemical entities exhibiting protease inhibitory properties. Exclusivity under
the Wichita State license is subject to potential rights required to be granted
to the U.S. government (related to government sponsorship of any research). The
Company's obligations to Wichita State include (i) royalty payments on product
sales and (ii) payment of the costs of preparing, prosecuting and maintaining
patent applications and patents.
Other Licenses and Option
In addition to the licenses and sublicense described above, The
Research Foundation of the State University of New York ("SUNY") granted the
Company an exclusive worldwide patent and know-how license to make, have made,
use and sell IPdR and certain other nucleoside analogues, in exchange for
certain royalty and other payments by the Company. The Company has a
collaboration and option agreement with CRC and Cancer Research Campaign
Technology ("CRCT") for an exclusive worldwide patent and know-how license to
manufacture, use and sell asulacrine. CRC is obligated to use reasonable efforts
to carry out a research program which potentially can take asulacrine through
Phase II Clinical Trials in the United Kingdom, provided CRC, CRCT and the
Company agree on protocols for further studies. Under the agreement, the Company
would be obligated to pay up to $182,000 of costs, of which approximately
$72,000 had been paid as of December 31, 1996. If Sparta
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elects to exercise the option, the parties have agreed to enter into good faith
negotiations of a license agreement based on certain provisions stipulated in
the option agreement. However, there can be no assurance that the parties will
enter into a license agreement on acceptable terms to the Company. Dana-Farber
has granted the Company an exclusive worldwide patent and know-how license for
PT-523 for all uses except the topical treatment of conditions other than
cancer, subject to (i) a non-exclusive license previously granted by Dana-Farber
to the U.S. Government (required for government sponsorship of any research) and
(ii) Dana-Farber's right to make and use PT-523 for its own noncommercial basic
research purposes and to convey PT-523 to other organizations for use in
noncommercial basic research. The Company issued Common Stock to Dana-Farber,
and agreed to issue additional Common Stock upon an IND filing and to pay
royalties and make certain other payments. The Company also has a right of first
refusal to license other inventions from the laboratory of Dr. Andre Rosowsky at
Dana-Farber.
Patents, Regulatory Exclusivity and Trade Secrets
The Company considers the protection and enforcement of its
intellectual property rights, whether owned or licensed, to be vital to its
business. While it intends to focus primarily on patented or patentable
technology, it may also rely on trade secrets, unpatented proprietary know-how,
regulatory exclusivity, patent extensions and continuing technological
innovation to develop its competitive position. In the United States and certain
foreign countries, the exclusivity period provided by patents covering
pharmaceutical products may be extended by a portion of the time required to
obtain regulatory approval for a product.
Patents. Patent applications in the United States are maintained in
secrecy until patents issue. However, corresponding foreign applications are
generally published 18 months after the priority filing. Publication of
discoveries in the scientific or patent literature, if made, tends to lag actual
discoveries by several months. Consequently, the Company cannot be certain that
its licensor or sublicensor was the first to invent certain technology or
compounds covered by pending patent applications or issued patents or that it
was the first to file patent applications for such inventions. In addition, the
patent positions of pharmaceutical firms, including the Company, are generally
uncertain, partly because they involve complex legal and factual questions.
There can be no assurance that any patents will issue from the patent
applications licensed to the Company or acquired in the Lexin Purchase. Further,
even if patents issue, there can be no assurance that they will not be
challenged, invalidated or infringed upon or designed around by others or that
the practice of the claims contained in such patents will not infringe the
patent claims of others or that they will provide the Company with significant
protection against competitive products or otherwise be commercially valuable.
There can be no assurance that the Company will not need to acquire licenses
under patents belonging to others for technology potentially useful or necessary
to the Company or, if any such licenses are required, that they will be
available on terms acceptable to the Company, if at all. To the extent that the
Company is unable to obtain patent protection for its products or technology,
the Company's business may be adversely affected by competitors who develop
substantially equivalent technology.
Waxman-Hatch Act and Orphan Drug Act. Certain provisions of the Drug
Price Competition and Patent Term Restoration Act of 1984 (the "Waxman-Hatch
Act") grant market exclusivity for a period of up to five years from the date of
FDA approval for certain new drugs and dosage forms. Separately, orphan drug
status under the Orphan Drug Act can confer market exclusivity in the United
States for seven years from the date of FDA approval of the drug. The
Waxman-Hatch Act and Orphan Drug Act protections run simultaneously, not
consecutively.
Under the Waxman-Hatch Act, a product patent or use patent covering a
drug may be extended for up to five years under certain circumstances, but in no
event for an effective patent life of longer than fourteen years, to compensate
the patent holder for the time required for testing of the product and its FDA
regulatory review. The
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benefits of the Waxman-Hatch Act are available only to the first approved use of
the active ingredient in the drug product and may be applied only to one patent
per drug product.
The Waxman-Hatch Act also establishes a period of time from the date of
FDA approval of certain new drug applications during which the FDA may not
accept or approve short-form applications for generic versions of the drug from
other sponsors, although it may accept or approve long-form applications, that
is, another complete NDA for such drug. The applicable period is five years in
the case of drugs containing an active ingredient not previously approved, and
three years for new uses of previously approved ingredients.
Pursuant to the Orphan Drug Act, as currently in effect, the FDA may
grant orphan drug status to certain drugs intended to treat a "rare disease or
condition," defined as a disease or condition which affects fewer than 200,000
people in the United States, or which affects more than 200,000 people but for
which the cost of development and of making the drug available will not be
recovered from sales of the drug in the United States. Orphan drug status may
provide certain benefits, including exclusive marketing rights in the United
States for the drug for the designated and approved indication for seven years
following marketing approval.
An applicant may receive marketing exclusivity only if it is the
sponsor of the first NDA approved for the drug for an indication for which it
has received orphan drug status designation prior to the time of such NDA
submission. Therefore, unlike patent protection, orphan drug status does not
prevent other companies from attempting to develop the drug for the designated
indication or from obtaining NDA approval prior to approval of the Company's
NDA. If another sponsor's NDA for the same drug and the same indication is
approved first, that sponsor is entitled to exclusive marketing rights if that
sponsor has received orphan drug designation for the drug. In that case, the FDA
will refrain for at least seven years from approving the Company's application
to market the product.
Orphan drug status does not prevent the FDA from approving the same
drug for a different indication. Furthermore, doctors are not restricted by the
FDA from prescribing an approved drug for unapproved uses. Therefore, another
company's approval of a drug for different uses could adversely affect the
marketing potential of a Company drug for which orphan drug status as to a
different indication has been obtained.
The Company believes that it will be advantageous to obtain orphan drug
status for eligible products. There can be no assurance, however, that such
products will receive such status. Furthermore, proposed amendments to the
Orphan Drug Act have been introduced into Congress from time to time, including
proposals which would reduce the period of exclusive marketing rights granted
under the Orphan Drug Act from its present level of seven years; provide for the
loss of exclusive marketing rights if the orphan drug treats a patient
population exceeding 200,000 people; and possibly grant such rights to two or
more companies if they develop a drug simultaneously. Accordingly, there can be
no assurance as to the availability of orphan drug status for the Company's
products, or as to the precise scope of protection that may be afforded by
orphan drug status in the future, or that the current level of exclusivity will
remain in effect.
Status of Technologies and Compounds
Spartaject Technology. A United States patent relating to the
Spartaject Technology (the "Licensed Patent"), expiring in 2009, is licensed by
the Company from RTP. Corresponding patent applications relating to the
Spartaject Technology have been filed in various foreign countries, including
certain European countries, Japan and Canada and have been licensed to the
Company. Patents relating to the Spartaject Technology have issued in Taiwan and
South Africa, which expire in 2008 and 2011, respectively, and have been
licensed to the Company.
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Certain patents (the "Third Party Patents") issued in the United States
in September 1992 and March 1995 include numerous claims that, based on
presently available information, may cover certain embodiments of the Spartaject
Technology including formulations of camptothecin, etoposide and certain
taxanes. The Company believes that these Third Party Patents have been assigned
to Eastman Kodak Company, or a subsidiary thereof.
If the Third Party Patents are not invalid insofar as their claims relate to
those embodiments of the Spartaject Technology, then (i) the Company will
require a license from the holder of the Third Party Patents to commercialize
those embodiments of the Spartaject Technology and sell or sublicense others to
sell products utilizing those embodiments of the Spartaject Technology in the
United States and (ii) the extent to which the Company might require such a
license will depend on the final formulations of its and any sublicensee's
products and whether they utilize those embodiments of the Spartaject Technology
that are covered by the Third Party Patents. There can be no assurance that a
license will be obtainable on acceptable terms, if at all, and any negotiations
to obtain a license may be protracted. If the Company is required to obtain a
license under the Third Party Patents to practice those embodiments of the
Spartaject Technology and sell or sublicense others to sell products utilizing
those embodiments of the Spartaject Technology in the United States and is
unable to do so on commercially reasonable terms, then the inability to obtain
such a license could have a material adverse effect on the Company's business
and its future results of operations.
The application for the Licensed Patent was filed in the United States
nearly nine months prior to the application for the initial Third Party Patent
and, based on presently available information, the work relating to the
inventions claimed in the Licensed Patent, insofar as such claimed inventions
cover those embodiments of the Spartaject Technology which also appear to be
covered by the initial Third Party Patent, was commenced more than two years
prior to the filing date of the application for the initial Third Party Patent.
However, there can be no assurance that the inventions claimed in the Licensed
Patent covering those embodiments of the Spartaject Technology were made prior
to the inventions claimed in the Third Party Patents, which appear to cover
those embodiments of the Spartaject Technology. If such inventions claimed in
the Licensed Patent did have such priority and such priority were established in
a United States court proceeding or otherwise with respect to each such claimed
invention in the Third Party Patents which appears to cover embodiments of the
Spartaject Technology, then the Third Party Patents would be invalid to the
extent their claims extend to those embodiments of the Spartaject Technology and
would not prevent the Company from practicing those embodiments of the
Spartaject Technology in the United States.
Patent applications corresponding to the Third Party Patents have been
filed in various countries outside the United States, including certain European
countries through the European Patent Office ("EPO"), in Japan and in Canada,
also with pending claims that, based on presently available information, may
cover certain embodiments of the Spartaject Technology. The applications filed
by the holder of the Licensed Patent in various foreign countries, including
certain European countries through the EPO, in Japan and in Canada, have earlier
effective filing dates than the application filed with the EPO, in Japan and in
Canada corresponding to the Third Party Patents. The Company believes that
generally, in most foreign countries, in the case of conflicting applications
claiming the same patentable invention, the application with the earlier
effective filing date (in this case the patent applications filed by the holder
of the Licensed Patent) is entitled to the issuance of the patent. Accordingly,
although there can be no assurance that foreign law will be applied in this
manner, the Company believes that a patent issued in such European countries,
Japan, or Canada corresponding to the Third Party Patents should be invalid (or
susceptible to cancellation) insofar as it pertained to the practice of the
Spartaject Technology. Therefore, the Company believes it should not be
prevented ultimately from commercializing the Spartaject Technology in such
European countries, Japan or Canada, respectively, solely by reason of the
issuance of such Third Party Patent.
A patent was issued in the United States (the "Orphan Patent") and a
patent application which designated various countries outside the United States
was published under the Patent Cooperation Treaty (the "Orphan
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Application") which the Company understands have been licensed exclusively to
Orphan Medical, Inc. The Orphan Patent includes claims, and the Orphan
Application is seeking claims, covering methods of treating patients with
malignant conditions using an intravascularly administrable busulfan preparation
and treating leukemia or lymphoma patients undergoing a bone marrow transplant
using an intravenously administrable busulfan preparation that, based on
presently available information, may cover methods by which Spartaject busulfan
will be used. The Company believes, based on advice of patent counsel, that such
claims do not cover the use of Spartaject busulfan. However, there can be no
assurances in this regard and if such claims do cover the Company's intended use
of Spartaject busulfan, and the Orphan Patent or any patents issuing on the
Orphan Application are not invalid, then the Company will require a license from
the holder or exclusive licensee of such patent or patents in order to develop
or commercialize Spartaject busulfan in any country, including possibly the
United States, where such patent or patents are issued. There can be no
assurance that a license will be obtainable on acceptable terms, if at all, and
any negotiations to obtain a license may be protracted. If the Company is unable
to obtain a license on commercially reasonable terms, then the inability to
obtain such a license could have a material adverse effect on the Company's
business and its future results of operations.
A patent application filed by Sandoz Ltd. and Sandoz-Patent-GmbH (the
"Sandoz Application") was published under the Patent Cooperation Treaty ("PCT")
in October 1992 and designated various European countries for filing. The Sandoz
Application includes claims covering certain embodiments of the Spartaject
Technology applicable to formulations containing certain electrostatic lipids.
Although the patents which have issued in the EPO and the United Kingdom
pursuant to such application do not contain any such claims, if a Spartaject
formulated product contained such lipids and patents containing such claims
issue on such application in any country and such claims are not invalid, then
the Company will require a license from the holder of such patents in order to
develop or commercialize such product in any such country. There can be no
assurance that a license will be obtainable on acceptable terms, if at all, and
any negotiations to obtain a license may be protracted. If the Company is unable
to do so on commercially reasonable terms, then the inability to obtain such a
license could have a material adverse effect on the Company's business and its
future results of operations.
L.A.D.D. Technology and IPdR. In March 1997 the U.S. Patent and
Trademark Office ("PTO") issued an office action indicating an allowance of
claims pursuant to the Company's licensed patent application from Yale including
all of the claims drawn to the administration of 5-FP and IPdR, and other
compounds with similar structures, for the treatment of liver associated
diseases. The corresponding U.S. patent is expected to issue in 1997.
The Company is aware that two international patent applications by The
Wellcome Foundation Limited ("Wellcome") were published under the PCT in 1992,
designating the United States, major European countries, Japan, Australia and
New Zealand, among other countries. As published, the applications have broad
claims that the Company believes may cover certain of the prodrugs which may be
used by the Company in practicing the L.A.D.D. Technology licensed by the
Company, or methods of formulating or using such prodrugs, or may cover the
active compound to which the prodrugs are intended to be converted in vivo. A
patent in Australia based on one of such applications was issued on March 7,
1995, and expires in 2011. Two patent applications in New Zealand, based on one
of such PCT applications, were allowed and published for opposition in November
1995 and, unless successfully opposed, will be granted and will expire in 2011
(such Australian patent and potential New Zealand patents being called
collectively the "ANZ Patents"). The claims of the ANZ Patents do not appear to
cover the application of the L.A.D.D. Technology to 5-FP but may cover its
application to IPdR as a radiosensitizer prodrug. The Company believes that to
the extent that it is possible to interpret such claims as covering such
applications to IPdR, they are invalid and that the issuance of the ANZ Patents
to such extent were in error. The Company had filed timely oppositions to the
issuance of the New Zealand applications based on prior art of which the Company
is presently aware. Both opposition proceedings are currently for post-grant
reexamination with respect to the Australian patent at an appropriate time. The
Company is also maintaining a watch with respect to
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the publication or allowance of corresponding applications in other
jurisdictions. There can be no assurance, however, that such issuance in
Australia and allowances in New Zealand were in error, or that another patent or
patents based on such published applications will not issue in the United States
or other jurisdictions or that the ANZ Patents and any other such issued patent
or patents would not contain claims which could affect the practice of the
L.A.D.D. Technology. The Company believes that if the ANZ Patents are valid as
issued or any such other patent or patents issue in any jurisdiction, it may be
required to seek a license under such claims in order to develop, market and
sell certain of the applications of its L.A.D.D. Technology in such
jurisdictions. There can be no assurance that such license will be obtainable on
commercially reasonable terms to the Company, if at all. If any such license
were required to practice the L.A.D.D. Technology, the inability to obtain such
license could have a material adverse effect on the Company's business and its
future results of operations.
A patent licensed to the Company and expiring in 2007 has issued in the
United States on IPdR. A U.S. patent licensed to the Company on certain other
nucleoside analogues expires in 2005.
RII retinamide. RII retinamide is not patented in the United States,
and the Company believes it is no longer patentable in the United States. An EPO
patent on RII retinamide licensed to the Company expires in 1998 and pursuant
thereto patent rights have been perfected in various European countries. A
patent in Canada also licensed to the Company expires in 1999.
In June 1995, the Company, on behalf of BIMM, arranged for the filing
of several patent applications with the PTO for novel retinoid compounds which
may be potentially non-teratogenic. The filings were based on research at BIMM
sponsored by the Company which focused on synthesizing and characterizing new
retinoid compounds devoid of teratogenic potential.
The Company has been granted orphan drug status for RII retinamide for
the treatment of MDS.
Patent Rights Acquired from Lexin. The Company has obtained, through
the assignment to the Company of the Penn license agreement, exclusive rights to
four issued United States patents expiring in 2009, 2011 (two), and 2013. An
additional five United States patent applications and three corresponding PCT
applications designating various countries outside the United States are pending
(all of which are covered by the Penn license agreement).
The Company has obtained, through the assignment to the Company of the
Wichita State license agreement, exclusive rights to four pending United States
patent applications and corresponding foreign applications, covering a novel
family of serine protease inhibitors. One of the United States applications
issued in 1996.
Two patents (the "Antichymotrypsin Patents"), were assigned to Sonoran
Desert Chemicals LLC in 1990 and 1991, respectively, relating to certain uses of
antichymotrypsin. The Antichymotrypsin Patents include claims covering methods
for treating pulmonary and/or bowel inflammations in a mammal using alpha-1-
antichymotrypsin, derivatives and salts thereof, methods for treating
inflammation using alpha-1-antichymotrypsin topically and pharmaceutical
compositions of alpha-1-antichymotrypsin, its salts or derivatives. To the
Company's knowledge, products embodying the Antichymotrypsin Patents have not
yet been developed. Claims of the Antichymotrypsin Patents may cover the
intended use of LEX032, the lead compound which the Company acquired in the
Lexin Purchase. The Company believes, however, based on the advice of patent
counsel, that such claims would not cover the Company's intended use of LEX032.
Nevertheless, there can be no assurance in this regard, and if such claims are
found to cover the Company's intended use of LEX032, and the Antichymotrypsin
Patents are not invalid, then the Company will require a license from the
holders of the Antichymotrypsin Patents in order to develop or commercialize
LEX032 in the United States or any other country where the Antichymotrypsin
Patents
20
<PAGE>
may have issued. There can be no assurance that a license will be obtainable on
commercially reasonable terms, if at all, and any negotiations to obtain a
license may be protracted. If the Company is unable to obtain such a license on
commercially reasonable terms, such inability to obtain such a license could
have a material adverse effect on the Company's business and its future results
of operations.
Asulacrine. An issued United States patent on asulacrine under a
license option to the Company expires in 1999. Patents on asulacrine have also
issued in several European countries and Japan, which patents expire in 2001.
PT-523. A United States patent licensed by the Company and expiring in
2005 has been issued on the PT-523 compound, its pharmaceutical composition and
its use as a methotrexate resistant cell inhibitor. Corresponding Japanese and
Canadian patents and patents in several European countries have issued, expiring
in 2007, 2010 and 2008, respectively.
Other Compounds. The following compounds which the Company may develop
are believed to be in the public domain or not presently subject to patent
protection as compounds in the United States: busulfan, 5-FP, RII retinamide and
aphidicolin. Any patent coverage for any formulations of these compounds with
the Spartaject Technology will be primarily dependent upon the patent coverage
for the Spartaject Technology, to the extent available. The Company has been
granted orphan drug status by the FDA for its intended uses of busulfan and RII
retinamide described. Any patent protection for 5-FP will be dependent upon the
issuance of patents covering the L.A.D.D. Technology and the scope of the
coverage provided by such patents.
Trade Secrets
The Company also relies on trade secrets and proprietary know-how to
protect certain of its technologies and potential products. To protect them, the
Company requires all employees, consultants, advisors and collaborators to enter
into confidentiality agreements which prohibit disclosure to any third party or
use of such secrets and know-how for commercial purposes. Company employees also
agree to disclose and assign to the Company all methods, improvements,
modifications, developments, discoveries and inventions conceived during their
employment that relate to the Company's business. There can be no assurance,
however, that these agreements will be observed and prevent disclosure or
provide adequate protection for the Company's confidential information and
inventions.
Government Regulation
The manufacturing and marketing of the Company's potential products and
its research and development activities are and will continue to be subject to
regulation by federal, state and local governmental authorities in the United
States and other countries. In the United States, pharmaceuticals are subject to
rigorous regulation by the FDA's Center for Drug Evaluation and Research, which
reviews and approves marketing of drugs. The Federal Food, Drug and Cosmetic
Act, as amended, the regulations promulgated thereunder, and other federal and
state statutes and regulations govern, among other things, the testing,
manufacture, labeling, storage, record keeping, advertising and promotion of the
Company's potential products. The process of obtaining FDA approval for a new
drug takes several years and involves the expenditure of substantial resources.
The steps required before such a product can be produced and marketed for human
use include preclinical studies, the making of an IND filing, human clinical
trials and the approval of a NDA. No assurance can be given that the Company
will be able to satisfy the requirements of the FDA with respect to any of its
proposed products.
"Preclinical" or "pre-Phase I" activities include studies and other
tests conducted in the laboratory and in animals, such as animal pharmacology,
drug kinetics/metabolism, initial toxicology, small scale chemical synthesis,
21
<PAGE>
assay development and validation and initial drug formulation to obtain
preliminary information on a drug's efficacy and safety. The results of these
studies and tests are submitted to the FDA as part of the IND filing before
approval can be obtained for the commencement of testing in humans.
The human clinical testing program usually involves three phases which
are generally conducted sequentially, but which may overlap or be combined.
Particularly in the case of anticancer and other life saving drugs, these phases
are often combined. Clinical trials are conducted in accordance with protocols
that detail the objectives of the study, the parameters to be used to monitor
safety and the efficacy criteria to be evaluated. Each protocol is submitted to
the FDA as part of the IND filing. Each clinical study is conducted under the
auspices of an independent Institutional Review Board ("IRB") for each
institution at which the study will be conducted. The IRB will consider, among
other things, all existing pharmacology and toxicology information on the
product, ethical factors, the risk to human subjects, and the potential benefits
of therapy relative to risk.
In "Phase I Clinical Trials", studies are usually conducted on healthy
volunteers but, in the case of anticancer agents, are conducted on patients with
disease which usually has failed to respond to other treatment to determine the
maximum tolerated dose, side effects of a product and pharmacokinetics. "Phase
II Clinical Trials" are conducted on a small number of patients having a
specific disease to determine initial efficacy (activity) in humans for that
specific disease, the most effective doses and schedules of administration and
possible adverse effects and safety risks. "Phase II/III" differs from Phase II
in that the trials involved may include more patients and, at the sole
discretion of the FDA, be considered the pivotal trial or trials for NDA
approval. "Phase III Clinical Trials" normally involves the pivotal trials of a
drug, consisting of widescale studies on patients with the same disease in order
to evaluate the overall benefits and risks of the drug for the treated disease
compared with other available therapies. At least two such studies demonstrating
safety and efficacy are normally required for FDA approval. The FDA continually
reviews the clinical trial plans and results and may suggest study design
changes or may require termination of the trials at any time if significant
safety or other issues arise.
While certain of the compounds which the Company intends to develop are
currently marketed or have been the subject of clinical trials by other
companies or institutes, the Company will have to submit an IND filing and
obtain FDA approval in order to commence clinical trials in the United States,
and additional preclinical studies may be required before such trials can
commence. Where the drug formulation in which the compound to be studied is
different from that which was used in other studies, the Company either will
have to establish that it is biologically equivalent to the formulation
previously used or will have to conduct its own preclinical program before
approval of an IND filing can be obtained.
Data from preclinical studies and tests and the clinical trial phases
and of validated manufacturing and quality control procedures are submitted to
the FDA with the NDA for marketing approval. The NDA involves considerable data
collection, verification and analysis, as well as the preparation of summaries
of the manufacturing and testing processes, preclinical studies and clinical
trials. The FDA must approve the NDA before the drug may be marketed in the
United States. In selected cases, which the FDA has stated will apply where life
threatening diseases are involved, and particularly where no alternate
treatments are available, the various phases and the numbers of patients
required for them may be condensed, and the FDA review period accelerated. There
can be no assurance that the review period of the Company's NDAs will be
accelerated.
The testing and approval process is likely to require substantial time
and effort, and there can be no assurance that any FDA approval will be granted
on a timely basis, if at all. The approval process is affected by a number of
factors, primarily the side effects of the drug (safety) and its therapeutic
benefits (efficacy). Additional preclinical or clinical trials may be requested
during the FDA review period and may delay marketing approval. A task force
established by the FDA has recently proposed significant changes in the design,
analysis and reporting of clinical studies conducted under an IND. The task
force recommended increased requirements for reporting
22
<PAGE>
adverse effects and new, more stringent rules that would require clinical trial
investigators to assume that toxicities reported by patients are drug-related.
If these recommendations are implemented, the length of time and costs
associated with obtaining market approval by the FDA are likely to be
significantly increased.
The FDA may also require post marketing testing to support the
conclusion of efficacy and safety of the product, which can involve significant
expense. After FDA approval is obtained for initial indications, further
clinical trials may be necessary to gain approval for the use of the product for
additional indications.
The Company intends to enter into joint development or licensing
arrangements with pharmaceutical companies in which it will seek to have such
companies assume many of the costs of clinical testing and comparable foreign
regulatory approval for the products licensed. To the extent that the Company is
unable to enter into such arrangements, it may not have the resources to
complete the regulatory approval process with respect to the products it intends
to develop.
The manufacture of the Company's products, whether done by outside
contractors or the Company, will be subject to rigorous regulation, including
the need to comply with the FDA's cGMP standards. As part of obtaining FDA
approval for each product, each of the Company's own or contract manufacturing
facilities must be inspected, approved by and registered with the FDA. In
addition to obtaining NDA approval of the prospective manufacturer's quality
control and manufacturing procedures, domestic and foreign manufacturing
facilities are subject to periodic FDA inspections and/or inspections by foreign
regulatory authorities.
For marketing outside the United States, the Company will be subject to
foreign regulatory requirements governing human clinical trials and marketing
approval for its products. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursements vary widely from country
to country.
The Company's business is also subject to regulation relating to
safety, health and environmental matters and other factors at both the state and
federal level, and internationally.
Competition
More than 300 companies are reported to have approximately 1,250 cancer
drugs under development worldwide, of which a substantial number are under
development in the United States. Many of such drugs or other substances under
development may compete directly with the treatments which the Company is
developing or may develop in the future, and such drugs may perform more
effectively or safely than the Company's product candidates. Many of the
companies engaged in anticancer research and development and in acquiring rights
to the products of such research and development, including biotechnology
companies, have substantially greater financial, technical, scientific,
manufacturing, marketing and other resources than the Company and have more
experience as organizations in developing, marketing and manufacturing
therapeutics, including performing the preclinical testing and clinical trials
that are required for obtaining FDA and other regulatory approvals. Included
among the Company's competitors are: (i) large established companies with
commitments to oncology or antiviral research, development and marketing,
including Bristol-Myers Squibb Company, Novartis, Eli Lilly and Company, Glaxo
Wellcome Inc., Hoffman-LaRoche Inc., Lederle Laboratories, Pharmacia & Upjohn,
Inc., Rhone-Poulenc Rorer S.A., Schering-Plough Corporation and Zeneca
Pharmaceuticals Group; (ii) smaller companies with similar strategies, including
Chiron Corporation, Immunex Corporation, Roberts Pharmaceuticals Corporation and
U.S. Bioscience, Inc. and (iii) many development stage companies licensing
and/or developing oncology therapeutics.
A number of companies are developing a variety of delivery systems in
the form of microspheres, microcapsules, nanoparticles and liposomes, some of
which technologies may have characteristics that are similar or superior to the
Company's Spartaject Technology. Orphan Medical, Inc., a United States company
which is not
23
<PAGE>
affiliated with the Company's licensees of Spartaject busulfan in Europe and
Sweden, Orphan Europe and Swedish Orphan, has disclosed that it is in Phase II
Clinical Trials with an intravenous form of busulfan for use in bone marrow
transplants using a formulation with solvents licensed from a university.
The development of technologies in which toxic agents are selectively
carried to a tumor site by mechanical, other chemical or biological means is a
recognized strategy for oncological research, and such technologies may have
characteristics similar or superior to the Company's L.A.D.D. Technology. The
concept of targeted therapeutics in cancer is not a new one, and includes such
approaches as the injection of toxic agents into the tumor, the use of prodrugs
activated by other means in the body, monoclonal antibodies and gene therapy.
The Company is aware of at least three other approaches to the delivery of an
oral 5-FU, which may compete with the Company's L.A.D.D. delivered 5-FP, one
possibly being developed by Hoffmann-La Roche Inc., one by Glaxo Wellcome Inc.
and the other by the Japanese company, Taiho Pharmaceutical Co., Ltd.
Several pharmaceutical companies are developing protease inhibitors
with potential application in pulmonary inflammation, pancreatitis, coagulative
disorders and reperfusion injury. It is widely acknowledged that proteases are a
critical component in the inflammatory cascade and their inhibition has been
pursued by companies engaged in the development of both traditional
pharmaceuticals and biotech compounds. Companies that have been active in this
area at some time include, but are not limited to, Eisai Company, Ltd., ONO
Pharmaceutical Company, Ltd., Zeneca, PLC, Boehringer Ingelheim, GmbH, Cortech,
Inc., DuPont Merck Pharmaceutical Company, T-Cell Sciences, Inc., SmithKline
Beecham Pharmaceuticals, Merck & Company, Inc., Bayer AG, Arris Pharmaceutical
Corp., Fujisawa Pharmaceutical Company, Ltd., Corvas International, Inc. and
British Bio- Technology Group, PLC.
Significant numbers of antiviral drugs are also under development by
other companies. Generally, the companies engaged in antiviral research and
development have substantially greater resources and experience than the
Company.
Important Factors Regarding Forward-Looking Statements
Certain of the statements set forth above regarding the Company's
research and development programs, such as the statements regarding the
intention to contract with other organizations for development and registration,
if applicable, of its product candidates, as well as seeking joint development
or licensing arrangements with pharmaceutical companies; the research and
development of particular compounds and technologies for particular indications;
timing related to patent issuances; the markets for successfully developed
product candidates and seeking additional funding are forward-looking and
involve risks and uncertainties that could significantly impact expected
results. These forward looking statements are based upon the Company's current
belief as to the outcome, occurrence and timing of future events or current
expectations and plans. Many important factors affect the Company's ability to
achieve the stated outcomes and to successfully develop and commercialize drugs,
including; the ability to obtain substantial additional funds, to obtain and
maintain all necessary patents or licenses; to demonstrate the safety and
efficacy of product candidates at each stage of development; to meet applicable
regulatory standards and receive required regulatory approvals; to meet
obligations and required milestones under its license agreements; to produce
drug candidates in commercial quantities at reasonable costs; to compete
successfully against other products and to market products in a profitable
manner. There can be no assurance that any of the product candidates described
above will be successfully developed; prove to be safe and efficacious at each
stage of preclinical development and clinical trials; meet applicable regulatory
standards; be capable of being produced in commercial quantities at reasonable
cost or be successfully marketed for use by a sufficient number of patients at a
price to result in profitability. The Company's ability to raise additional
funds will be affected by 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
24
<PAGE>
patents, competing technological and market developments, the cost and timing of
regulatory approvals, the ability of the Company to establish collaborative
relationships, the cost of establishing manufacturing, sales and marketing
capabilities and the ability of the Company to continue to meet the criteria for
continued listing of the Company's securities on the NasdaqSmallCap Market. If
adequate funds are not available, the Company may be required to delay, reduce
or eliminate research and development programs. The Company also may be required
to obtain funds through arrangements with collaborative partners that may
require the Company to relinquish material rights to its products that it would
not otherwise relinquish.
Human Resources
At March 21, 1997, the Company had nine full-time employees and one
part-time employee. Four employees are officers, three administrative and three
are involved in the coordination of research and development activities. The
Company believes that its relationship with its employees is satisfactory.
Item 2. Properties
The Company currently operates from leased facilities in Horsham,
Pennsylvania. A leasehold interest in 12,800 square feet of laboratory and
office space in Horsham was acquired as part of the Lexin Purchase. The
remaining initial lease term expires in July 1999 with the Company having the
option to extend the lease for an additional five years or to terminate the
lease in July 1997. The Company believes that the Horsham facility is adequate
to meet the Company's needs for at least the next two years. The Company
maintains a small office in Durham, North Carolina which it subleases on a
month-to-month basis from Cato.
Item 3. Legal Proceedings
The Company is not a party to any legal proceedings.
Item 4. Submission of matters to a vote of security holders
No matters were submitted to a vote of shareholders during the fourth
quarter of 1996.
25
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Units, Common Stock, Class A Warrants, Class B Warrants
and Class C Warrants are traded on the Nasdaq SmallCap Market under the symbols
SPTAU, SPTA, SPTAW, SPTAZ, and SPTAL, respectively. The following table sets
forth the range of high and low bid prices for the Units, Common Stock, and
Class A, B and C Warrants as reported by Nasdaq for the two most recent fiscal
years of the Company. These market quotations reflect inter-dealer prices and
may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
1995 1996
---- ----
Units High Low High Low
- -----
<S> <C> <C> <C> <C>
January 1-- March ...................................... 6 5/8 5 3/8 6 3/8 21/2
April 1-- June 30....................................... 6 4 5 5/8 31/2
July 1-- September 30................................... 5 3/8 3 1/4 4 5/8 2 3/4
October 1-- December 31................................. 4 1/4 2 2 15/16 1 3/8
Common Stock High Low High Low
- ------------
January 1-- March 31.................................... 5 1/8 41/2 5 1 7/8
April 1-- June 30....................................... 4 3/4 2 3/8 4 2 5/8
July 1-- September 30................................... 4 2 2 15/16 1 5/8
October 1-- December 31................................. 3 1 1/4 1 5/8 7/8
Class A Warrants High Low High Low
- ----------------
January 1-- March 31................................... 1 1/32 3/4 27/32 3/8
April 1-- June 30...................................... 1 3/16 5/8 1 3/4 3/8
July 1-- September 30.................................. 7/8 1 1/2 1 9/32 13/16
October 1-- December 31................................ 5/8 3/8 7/8 5/16
Class B Warrants High Low High Low
- ---------------- ---- --- ---- ---
January 1-- March 31................................... 9/16 7/16 1/2 1/8
April 1-- June 30...................................... 1 7/32 5/16 11/16 1/8
July 1-- September 30.................................. 1 9/32 9/32 3/8 1/4
October 1-- December 31................................ 1/2 1/4 11/32 1/8
Class C Warrants High Low High Low
- ---------------- ---- --- ---- ---
January 1-- March 31................................... -- -- -- --
April 1-- June 30...................................... -- -- -- --
July 1-- September 30.................................. -- -- -- --
October 1-- December 31................................ -- -- 9/16 1/4
</TABLE>
26
<PAGE>
As of March 21, 1997, the Company's Common Stock was held by 181
shareholders of record. The Company has never declared or paid any dividends and
does not anticipate paying dividends on the Common Stock in the foreseeable
future. The Company currently intends to retain future earnings, if any, for use
in the Company's business. The payment of any future dividends will be
determined by the Board of Directors taking into account the Company's financial
condition and requirements, its future prospects, restrictions in its financing
agreements, business conditions and other factors deemed relevant by the Board
of Directors.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Period From
June 12, 1990
Years Ended December 31 (Inception) to
--------------------------------------------------------------------- December 31,
1992 1993 1994 1995 1996 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Statements of
Operations Data:
Revenue:
Interest income.... $32,569 $21,766 $114,648 $121,438 $296,730 $588,392
Contract
revenue......... -- -- 109,995 17,875 -- 127,870
----------- ----------- ----------- ----------- ----------- ------------
Total
revenue... 32,569 21,766 224,643 139,313 296,730 716,262
----------- ----------- ----------- ----------- ----------- ------------
Operating expenses:
Research and
development..... 609,326 1,434,956 2,013,934 1,819,887 3,176,742 9,181,147
Charge for acquired
research and
development -- -- -- -- 3,062,913 3,062,913
General and
administrative.... 641,176 1,236,034 1,360,367 961,833 1,404,955 5,837,538
Total
operating
expenses.. 1,250,502 2,670,990 3,374,301 2,781,720 7,644,610 18,081,598
----------- ----------- ----------- ----------- ----------- ------------
Net loss............. $(1,217,933) $(2,649,224) $(3,149,658) $(2,642,407) $(7,347,880) $(17,365,336)
=========== =========== =========== =========== =========== ============
Net loss per
common share...... $(.27) $(.54) $(.57) $(.43) $(.93)
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
At December 31
---------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $368,255 $1,221,030 $2,348,522 $734,296 $10,246,812
Marketable securities -- -- 1,099,877 -- --
Working capital (deficit) (180,341) (3,072,792) 3,249,449 728,560 9,700,066
Total assets 464,693 2,037,337 3,626,680 999,966 11,086,283
Total convertible notes -- 3,869,124 -- -- --
Deficit accumulated during the
development stage (1,576,167) (4,225,391) (7,375,049) (10,017,456) (17,365,336)
Total stockholders' equity (deficit) (93,756) (2,271,639) 3,369,004 814,105 10,456,786
</TABLE>
27
<PAGE>
Item 7. 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. 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 December 31, 1996, the Company's accumulated deficit was $17,365,336
On March 15, 1996, Sparta acquired the assets and business of Lexin
Pharmaceutical Corporation of Horsham, Pennsylvania, subject to completion of
certain post-closing conditions which have since been satisfied. Lexin was in
the business of developing and commercializing technology and compounds which
were licensed exclusively from Penn and Wichita State and directed at the
potential treatment of a number of life threatening diseases. The technology and
compounds are related to inhibition of serine proteases, which are enzymes that
digest proteins and are implicated in a number of diseases including cancer,
cardiovascular disorders and acute inflammation. Lexin's lead compound LEX032,
is under option to Astra Merck Inc. for acute pancreatitis.
During 1996, the Company focused on securing additional financing and
advancing its product candidates into clinical trials. This involved finalizing
the formulation and coordinating the manufacture of clinical trial material for
RII retinamide, Spartaject busulfan and L.A.D.D. 5-FP. Additionally, the Company
identified and retained clinical research organizations to monitor the clinical
trials and selected clinical trial sites for RII retinamide, Spartaject busulfan
and L.A.D.D. 5-FP. The Company commenced Phase I Clinical Trials in the United
States for RII retinamide, while its collaborator, CRC, began a second Phase I
Clinical Trial in the United Kingdom with a compound for which the Company holds
an option to acquire.
Results of Operations
Years Ended December 31, 1995 and 1996
Revenue increased from $139,313 in 1995 to $296,730 in 1996 due to a
significant increase in interest income earned on greater cash balances
available for investment resulting from the private placements concluded during
1996. Although the Company earned interest income of approximately $148,000 on
its investments in the last quarter of 1996, this amount is expected to decrease
over subsequent periods as investable funds are consumed by the operations of
the Company, unless the Company is able to secure additional funding. Fees
earned in connection with contracts under which the Company provided
pharmaceutical clients with drug formulations utilizing its Spartaject
Technology decreased from approximately $18,000 in 1995 to approximately $0 in
1996. The amount of revenues, if any, may vary significantly from 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 $1,819,887, or 65% of total
operating expenses, in 1995 to $3,176,742, or 69% of total operating expenses
(excluding the Charge for Acquired Research and Development related to the Lexin
Purchase), in 1996. The $1,356,855 increase reflects increased spending on the
production of clinical trial materials to support the clinical trials of RII
retinamide, Spartaject busulfan and L.A.D.D. 5-FP, along with increases in
personnel, consulting, legal fees associated with patents and facility related
expenses.
General and administrative expenses increased from $961,833, or 35% of total
operating expenses, in 1995 to $1,404,955, or 31% of total operating expenses
(excluding the Charge for Acquired Research and Development related to the Lexin
Purchase), in 1996. The increase resulted from increased personnel, consulting
and facility related expenses.
28
<PAGE>
The Company recorded a significant one time non-cash charge of $3,062,913 in
the first quarter of 1996 related to the acquisition of in-process research and
development in conjunction with the purchase of the business and assets of Lexin
Pharmaceutical Corporation. After giving effect to the Lexin Purchase, 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.
Years Ended December 31, 1994 and 1995
Revenue decreased from $224,643 in 1994 to $139,313 in 1995 primarily due to a
lower level of grant and contract revenue. 1994 revenue included approximately
$75,000 of the work performed on a Phase 1 SBIR grant from the NCI, under which
grant the Company produced and tested formulations of etoposide utilizing its
Spartaject Technology. Sparta completed the work under the $83,000 grant in the
first quarter of 1995, and the remaining $8,000 was recognized as revenue in
that period. Fees earned in connection with contracts under which the Company
provided pharmaceutical clients with drug formulations utilizing its Spartaject
Technology decreased from approximately $35,000 in 1994 to approximately $18,000
in 1995. Interest income increased slightly in 1995, from approximately $115,000
in 1994 to approximately $121,000 in 1995.
Research and development expenses decreased from $2,013,934, or 60% of total
operating expenses, in 1994 to $1,819,887, or 65% of total operating expenses in
1995. The $194,047 decrease reflected decreased spending in the fourth quarter
of 1995 as the Company focused its efforts on obtaining additional financing.
The overall decrease was partially offset by increases in expenditures on
applications of the Company's L.A.D.D. technology and RII retinamide programs.
General and administrative expenses decreased from $1,360,367, or 40% of total
operating expenses, in 1994 to $961,833, or 35% of total operating expenses in
1995. The $398,534 decrease was primarily attributable to the elimination of
amortization and interest expense associated with convertible notes which
converted into capital stock on June 21, 1994. The decrease was partially offset
by a significant increase in financial advisory fees, increased insurance
expenses, and increased legal expenses in 1995.
Liquidity and Capital Resources
On February 29, 1996, the Company completed a private placement of $3,000,000
of its Series A Convertible Preferred Stock, $.001 par value per share (the
"Series A Preferred Stock"). The Series A Preferred Stock, pursuant to its
Certificate of Designation, was automatically converted into units comprised of
Series B' Convertible Preferred Stock , $.001 par value per share (the "Series
B' Preferred Stock") and Class C Warrants in connection with a "Qualified
Offering" (as defined in the Certificate of Designation) concluded during July
and August 1996. In connection with the private placement of its Series A
Preferred Stock, the Company paid commissions of $300,000 and non-accountable
expense allowances of $90,000 to a company controlled by a significant
shareholder which served as placement agent for the transaction ( the "Placement
Agent"). In addition, the Company issued the Placement Agent a warrant to
purchase 30,000 shares of the Series A Preferred Stock , for an aggregate
purchase price of $375,000, which was converted into a warrant to purchase
securities offered in the Qualified Offering concluded during July and August
1996. Net proceeds of the sale of Series A Preferred Stock after commissions,
legal fees and other expenses were approximately $2,570,000.
In July and August, 1996, the Company completed a private placement of units
(the "Units), or fractions thereof, with each Unit comprised of 10,000 shares of
the Company's Series B' Preferred Stock and warrants to purchase 66,667 shares
of the Company's Common Stock at an exercise price of $1.50 per share(the "Class
C Warrants").
29
<PAGE>
Each Unit was priced at $100,000. In connection with the closing of the private
placement at the end of August 1996, all previously issued shares of Series B
Convertible Preferred Stock were converted into shares of Series B' Preferred
Stock so as to give all purchasers comparable rights and privileges. Gross
proceeds from this placement were $12,965,000.
The Series B' Preferred Stock included in the Units is convertible at any time
at the option of the holder into shares of the Company's Common Stock at an
initial conversion price of $1.50 per share such that the 10,000 shares of the
Company's Series B' Preferred Stock included in a Unit are initially 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 then
outstanding Series B' Preferred Shares 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. The Series B' Preferred Stock is subject to mandatory
conversion under certain conditions after August 23, 1997. Class C Warrants to
purchase 11,309,722 shares of Common Stock are currently outstanding and are
redeemable under certain conditions after August 23, 1997. Each Class C Warrant
has a five year term.
The Company filed a registration statement on Form S-3 with the Securities and
Exchange Commission with respect to the Common Stock issuable upon (a)
conversion of the Series B' Preferred Stock (b) exercise of the Class C Warrants
(c) the Class C Warrants (d) the exercise of certain warrants issued to the
Placement Agent (e) the exercise in full of the Unit Purchase Options granted to
the underwriter of the Company's Initial Public Offering and (f) shares
previously issued to a Yale University (collectively, the "Registrable
Securities"). The registration statement was declared effective by the
Securities and Exchange Commission on October 22, 1996.
In connection with the Unit offering, the Company paid aggregate commissions
of $1,166,850 and non-accountable expense allowances of $518,600 to the same
Placement Agent which served in that capacity in the private placement of the
Series A Preferred Stock. In addition, the Company issued to the Placement Agent
warrants to purchase 129,650 shares of Series B' Preferred Stock for an
aggregate purchase price of $1,426,150 and warrants to purchase 864,333 shares
of the Company's Common Stock for an aggregate consideration of $1,555,799. Net
cash proceeds from the Unit offering were approximately $10,735,000.
In connection with the private placements concluded during 1996, adjustments
were made to the exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Company's outstanding Class A and B
Warrants and an underwriter's purchase option issued in connection with its
initial public offering. Each Class A Warrant has been adjusted such that the
exercise price is $4.99 and allows the holder to acquire 1.2 shares of Common
Stock. Each Class B Warrant has been adjusted such that the exercise price is
$8.25 and allows the holder to acquire 1.2 shares of Common Stock. The
Underwriter's Unit Purchase Option has been adjusted such that 155,100 shares of
Common Stock, and 110,000 Class A Warrants and 110,000 Class B Warrants are
issuable upon exercise in full of the Unit Purchase Option for an aggregate
option exercise price of $2,003,100.
The Company has used approximately $12,420,446 to fund operations from
inception through December 31, 1996. The Company has financed its operations to
date from the proceeds of its private placement of Series A Preferred Stock and
Units, its initial public offering in June and July 1994, prior placements of
equity and convertible debt securities and investment income. In 1996, the
Company made minimum royalty payments and
30
<PAGE>
annual maintenance fee payments in the aggregate of $157,000 and is obligated to
make payments of $182,000 in 1997. Under a collaboration and option agreement,
the term of which has been extended, the Company may have to make payments of up
to $110,000 based on the fulfillment of certain benchmarks. The Company is a
party to several research agreements, clinical trial production contracts and
agreements with clinical research organizations which require future payments.
The Company anticipates making payments of approximately $1,210,000 under the
agreements which were in effect as of February 28, 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 three of its executive officers and a former
executive officer as well as certain consulting agreements which provide for
aggregate annual minimum payments of $530,000 and $120,000, respectively, in
1997. Upon the acquisition of the assets and business of Lexin, Sparta assumed
an operating lease obligation which will require the Company to make payments of
approximately $100,000 in 1997. The Company has contracted with Cato to provide
drug development services. Cato's services are paid for with a combination of
cash and Common Stock.
As of December 31, 1996, the Company had cash and cash equivalents of
$10,246,812, accounts payable and accrued expenses of $629,497, and working
capital of $9,700,066.
The Company currently anticipates that the available cash, cash equivalents,
and investments will be sufficient to fund operations through the first 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. The Company has experienced delays in funding its
planned research and development activities and will require substantial
additional funds to finance its business activities on an ongoing basis. The
Company's future capital requirements will depend on numerous factors,
including, but not limited to, progress in its research and development
programs, including preclinical and clinical trials, costs of filing and
prosecuting patent applications and, if necessary, enforcing issued patents or
obtaining additional licenses of patents, competing technological and market
developments, the cost and timing of regulatory approvals, the ability of the
Company to establish collaborative relationships, and the cost of establishing
manufacturing, sales and marketing capabilities. The Company has no current
commitment to obtain 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.
The Company's ability to raise funds is likely to be adversely affected if it
is unable to continue to meet the listing criteria on the Nasdaq SmallCap
Market. The Nasdaq SmallCap Market listing criteria requires a minimum of
$2,000,000 in total assets and a minimum capital and surplus of $1,000,000. The
Company's assets fell below the required minimum during the third quarter of
1995. The Listing Qualifications Committee of Nasdaq granted the Company a
temporary exception from such requirements subject to meeting certain
conditions, one of which was the private placement of the Series A Preferred
Stock no later than February 29, 1996. On March 14, 1996, the Company was
notified that it had satisfied the requirements for continued listing. If the
Company is unable to raise sufficient funds when needed, thereby allowing it to
remain in compliance with the listing requirements, the Company will either have
to significantly reduce its operations, particularly its research and
development, or it will cease to be in compliance during such period. If the
Company becomes unable to meet such criteria and is delisted from Nasdaq,
trading, if any, in the Common Stock would thereafter be conducted in the
over-the-counter market
31
<PAGE>
in the so-called "pink sheets" or, if then available, the National Association
of Securities Dealers Inc.'s "Electronic Bulletin Board." If delisting occurs,
the Company's securities may also become "penny stock" as defined in the
Securities Exchange Act of 1934, as amended, which may also adversely affect the
Company's ability to raise funds. As a result, an investor would likely find it
more difficult to dispose of, or to obtain accurate quotations as to the value
of, the Company's securities. The Company anticipates that the proceeds of the
private placement of Units concluded in July and August 1996 will enable the
Company to satisfy the Minimum Asset Requirement for continued listing through
1997.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data of the Company required by
this item are set forth in the pages indicated in Item 14(a)(1).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated by reference from the
information under the captions "Management -- Directors" and "-- Executive
Officers" contained in the Company's definitive Proxy Statement to be filed with
the Securities and Exchange Commission in connection with the solicitation of
proxies for the Company's 1997 Annual Meeting of Stockholders to be held on June
17, 1997 ( the "Proxy Statement").
Item 11. Executive Compensation
The information required by this item is incorporated by reference from the
information under the caption "Executive Compensation" contained in the Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from the
information under the caption "Share Ownership" contained in the Proxy
Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from the
information contained under the caption "Certain Relationships and Related
Transactions" contained in the Proxy Statement.
32
<PAGE>
PART IV
Item 14. Exhibits
(a) (1) Financial Statements
The financial statements required by this item are submitted in a separate
section beginning on page F-1 of this report.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Public Accountants - Arthur Andersen LLP......................................... F-1
Report of Independent Auditors - Ernst & Young LLP..................................................... F-2
Financial Statements
Balance Sheets as of December 31, 1995 and 1996........................................................ F-3
Statements of Operations for the years ended December 31, 1994, 1995 and 1996, for
the period from June 12, 1990 (Inception) to December 31, 1996..................................... F-4
Statements of Shareholders' Equity (Deficit) for the years ended December 31, 1994,
1995 and 1996...................................................................................... F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996, for
the period from June 12, 1990 (Inception) to December 31, 1996..................................... F-9
Notes to Financial Statements.......................................................................... F-10
</TABLE>
(2) All financial statement schedules normally required under
Regulation S-X are omitted as the required information is inapplicable.
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the quarter:
On October 21, 1996, a report on Form 8-K/A dated September 3, 1996,
was filed with the Securities and Exchange Commission amending the Form 8-K
dated September 3, 1996, announcing the commencement of the Company's first U.S.
Clinical Trial with RII retinamide. This report was necessitated by the
unacceptable quality of the EDGAR version of the initial filing.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
%%% 2.1 -- Copy of the Asset Purchase Agreement, with exhibits thereto, dated February 22, 1996,
between the Registrant and Lexin Pharmaceutical Corporation
3.4 -- Amended and Restated Certificate of Incorporation filed August 1, 1996.
& 3.4A -- Certificate of Designation of the Series B' Convertible Preferred Stock filed on August 23,
1996.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
**4.2 -- Form of Common Stock Certificate
**4.3 -- Form of Class A Warrant Certificate
**4.4 -- Form of Class B Warrant Certificate
***4.5 -- Unit Purchase Option granted to Americorp Securities Inc. dated June 28, 1994
***4.6 -- Warrant Agreement entered into among Midlantic National Bank, Americorp Securities,
Inc., and the Registrant dated June 21, 1994
@@4.7 -- Warrant Agreement for the Class C Warrants, dated August 23, 1996 between the Registrant,
First City Transfer Company and Paramount Capital, Inc.
@@4.8 -- Form of Class C Warrant Certificate ( see Exhibit 4.7)
*+10.1 -- Exclusive License Agreement, dated October 1, 1991, between the Registrant and Yale
University ("Yale") and Subscription Agreement, dated October 21, 1991, between the
Registrant and Yale
*+10.1A -- Revised pages of Exhibit 10.1
*+10.2 -- License Agreement, dated October 7, 1991, between the Registrant and The Research
Foundation of State University of New York
*+10.2A -- Revised pages of Exhibit 10.2
*+10.3 -- Research and License Agreement, dated as of October 15, 1991, between the Registrant
and Institute of Materia Medica of the Chinese Academy of Medical Sciences ("BIMM"),
as amended by an Amendment of Research and License Agreement, dated as of March
1, 1992, between the Registrant and BIMM
*+10.3A -- Revised pages of Exhibit 10.3
*+10.4 -- Licensing and First Refusal Agreement, dated as of March 12, 1992, between the
Registrant and the Dana-Farber Cancer Institute, Inc. ("Dana-Farber"), a Letter
Agreement, dated March 12, 1992, between the Registrant and Dana-Farber, and a Letter
Agreement, dated September 12, 1992, between the Registrant and Dana-Farber
*+10.4A -- Revised pages of Exhibit 10.4
*+10.5 -- License Agreement, dated as of August 31, 1992, between the Registrant and Imperial
Chemical Industries PLC
*+10.5A -- Revised pages of Exhibit 10.5
*10.6 -- Letter Agreement, dated October 30, 1992, among the Registrant, Imperial Chemical
Industries PLC, and ICI Bioscience Limited
*+10.7 -- Collaboration and Option Agreement, dated September 18, 1992, by and among the
Registrant, Cancer Research Campaign and Cancer Research Campaign Technology
Limited
*+10.7A -- Revised pages of Exhibit 10.7
!10.8 -- Amended and Restated Sublicense Agreement, dated January 1, 1997, between the
Registrant and Research Triangle Pharmaceuticals Ltd. ("RTP").
*+10.9 -- Service Agreement, dated November 27, 1991, between the Registrant and Cato Research,
Ltd. ("Cato"), as amended by a Letter Agreement, dated March 16, 1993, between the
Registrant and Cato
*10.9A -- Revised pages of Exhibit 10.9
*10.10 -- Letter Agreement, dated October 28, 1991, between the Registrant and Cato
*10.11 -- Subscription Agreement, dated November 27, 1991, between the
Registrant and Cato Holding Co.
*10.12 -- Subscription Agreement, dated December 10, 1993, between the Registrant and Cato
Holding Co.
*10.13 -- Employment Agreement, dated as of January 28, 1991, between the Registrant and
William M. Sullivan, as amended by a Letter Agreement, dated as of March 2, 1993,
between the parties
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
*10.14 -- Nonqualified Stock Option Agreement, dated as of December 3, 1991, between the
Registrant and William M. Sullivan
*10.15 -- Confidentiality Agreement, dated as of January 28, 1991, between the Registrant and
William M. Sullivan
*10.16 -- Employment Agreement, dated July 2, 1992, between the Registrant and William
McCulloch, as amended by a Letter Agreement, dated as of March 2, 1993, between the
parties, and Guarantee by The Castle Group Ltd.
*10.17 -- Incentive Stock Option Agreement, dated as of October 1, 1992, between the Registrant
and William McCulloch
*10.18 -- Nonqualified Stock Option Agreement, dated as of October 1, 1992, between the
Registrant and William McCulloch
*10.19 -- Nonqualified Stock Option Agreement, dated as of October 1, 1992, between the
Registrant and William McCulloch
*10.20 -- Confidentiality Agreement, dated as of July 2, 1992, between the Registrant and William
McCulloch
*10.21 -- Noncompetition Agreement, dated as of October 1, 1992, between the Registrant and
William McCulloch
*10.27 -- Letter Agreement, dated March 23, 1993, between the Registrant and Paramount Capital,
Inc., as amended by Letter Agreements dated June 24, 1993, June 28, 1993, September
24, 1993 and November 5, 1993
*10.28 -- Indemnification Agreement, dated as of June 3, 1992, between the Registrant and The
Castle Group Ltd. relative to William McCulloch
*10.30 -- 1991 Stock Plan, as amended
*10.31 -- Stock Repurchase Agreement, dated as of November 21, 1991, between the Registrant and
Peter Barton Hutt
*10.33 -- Stock Repurchase Agreement, dated as of October 15, 1991, between the Registrant and
Sir John Vane
*10.34 -- Stock Repurchase Agreement, dated as of December 24, 1991, between the Registrant and
The Sir John Vane Trust
*10.36 -- Form of convertible notes issued on or prior to October 28, 1993 and schedule of
purchasers of notes
*10.37 -- Form of Note Purchase and Subscription Agreement for issuance of convertible notes
issued prior to October 28, 1993 and schedule of purchasers of notes
*10.38 -- Form of convertible notes issued in November 1993 and schedule of
purchasers of notes
*10.39 -- Note Purchase and Subscription Agreement dated as of November 12, 1993 between the
Registrant and Financial Strategic Portfolios, Inc. -- Health Sciences Portfolio ("FSP") for
issuance of convertible notes (See Exhibit 10.38 hereunder for Exhibit A to this Exhibit
10.39)
*10.40 -- Form of Note Purchase and Subscription Agreement for issuance of convertible notes
issued in November 1993 other than to FSP
*10.41 -- Form of Note Purchase and Exchange Agreement for exchange of convertible notes, form
of convertible notes and schedule of parties thereto
*10.41A -- Revised schedule of parties to Exhibit 10.41
*10.42 -- Stock Purchase and Exchange Agreement, dated as of December 10, 1993, between the
Registrant and FBL Ventures of South Dakota
*10.43 -- Registration Rights Agreement, dated November 12, 1993, among the Registrant and
certain rights holders, as amended as of December 14, 1993
*10.44 -- Subscription Agreement dated September 14, 1992 and Letter Agreements dated October
12, 1992 and December 13, 1993, between the Registrant and Yale
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
*10.44A -- Letter Agreement dated January 4, 1994
***10.46 -- M/A Agreement between the Registrant and Americorp Securities, Inc. dated June 28,
1994
**10.47 -- Form of Warrant Purchase Agreement among the Registrant, Healthcare Capital
Investments, Inc., Societe Generale Securities Corporation and the Holders listed on
Schedule I thereto
**10.48 -- Form of Warrant Purchase Agreement among the Registrant, Paramount Capital, Inc. and
the Holders listed on Schedule I thereto
***10.49 -- Underwriting Agreement between the Registrant and Americorp Securities, Inc. dated
June 21, 1994
***10.50 -- Unit Purchase Option granted to LT Lawrence & Company, Inc. dated June 28, 1994
#10.51 -- Nonqualified Stock Option Agreement, dated as of December 16, 1994, between the
Registrant and William M. Sullivan
#10.52 -- Nonqualified Stock Option Agreement, dated as of July 10, 1994, between the Registrant and
Sir John Vane, FSR
#10.54 -- Nonqualified Stock Option Agreement, dated as of July 10, 1994, between the Registrant
and Peter Barton Hutt
#10.55 -- Incentive Stock Option Agreement, dated as of December 16, 1994, between the
Registrant and William McCulloch
#10.56 -- Amendment (as of March 14, 1994) to the Employment Agreement, dated July 2, 1992,
between the Registrant and William McCulloch, as amended by a Letter Agreement, dated
as of March 2, 1993, between the parties, and guaranteed by The Castle Group Ltd.
#10.57 -- Amendment (dated November 26, 1994) to the Service Agreement, dated November 27,
1991, between the Registrant and Cato Holding Co.
#10.58 -- Amendment (dated December 16, 1994) to the Employment Agreement, dated January
28, 1991, between the Registrant and William M. Sullivan, as amended by a Letter
Agreement, dated as of March 2, 1993, between the parties
##10.59 -- Nonqualified Stock Option Agreement, dated as of June 7, 1995, between the Registrant and
Sir John Vane, FSR
##10.61 -- Nonqualified Stock Option Agreement, dated as of June 7, 1995, between the Registrant and
Peter Barton Hutt
##10.62 -- Amendment (dated June 1, 1995) to the Research and License Agreement, dated as of
October 15, 1991, between the Registrant and BIMM, as amended by an Amendment of
Research and License Agreement, dated as of March 1, 1992, between the Registrant and
BIMM
^10.63 -- Financial Advisory Agreement between the Registrant and Americorp Securities, Inc., dated
as of June 29, 1995
%10.64 -- Amendment (dated as of September 14, 1994) to the Collaboration and Option Agreement,
dated September 18, 1992, by and among the Registrant, Cancer Research Campaign and
Cancer Research Campaign Technology Limited
%%10.65 -- Form of Nonqualified Stock Option Agreement, dated as of December 10, 1995, between the
Company and William M. Sullivan
%%10.66 -- Incentive Stock Option Agreement, dated as of December 10, 1995, between the Company
and William McCulloch
%%10.67 -- Distribution Agreement, dated as of December 1, 1995, among Sparta Pharmaceuticals, Inc.,
Orphan Europe SARL and Swedish Orphan, AB
%%10.68 -- Warrant Agreement between the Registrant and Paramount Capital, Inc., dated February 29,
1996
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
^10.69 -- Financial advisory agreement between the Registrant and Paramount Capital, Inc. dated as
of February 29, 1996
^^+10.70 -- Evaluation and option agreement between Lexin Pharmaceutical Corporation and Astra
Merck, Inc. dated as of October 25, 1995 (Assigned to Registrant pursuant to the Lexin
Purchase)
^^+10.71 -- Collaborative Research and Licensing Agreement between Lexin Pharmaceutical Corporation
and Wichita State University dated as of April 1, 1994 (Assigned to Registrant pursuant to
the Lexin Purchase)
^^+10.72 -- License Agreement between PI Research Corporation (predecessor in name to Lexin
Pharmaceutical Corporation) and the Trustees of The University of Pennsylvania dated as of
January 2, 1992 (Assigned to Registrant pursuant to the Lexin Purchase)
^10.73 -- Amendment (dated March 15, 1996) to the Employment Agreement dated January 28, 1991,
between the Registrant and William M. Sullivan, as amended by letter agreements, dated as
of March 2, 1993 and December 16, 1994, between the parties
^10.74 -- Placement Agency Agreement between the Registrant and Paramount Capital, Inc., dated as
of January 22, 1996
@10.75 -- Placement Agency Agreement between the Registrant and Paramount Capital, Inc., dated as
of June 3, 1996
@10.76 -- Amendment (dated January 10, 1996) to the Stock Option Agreements between the Registrant
and William McCulloch dated as of October 1, 1992, December 1, 1996, December 16, 1994
and December 11, 1995
@10.77 -- Amendment (dated March 29, 1996) to the Collaborative Research and Licensing Agreement
between Lexin Pharmaceutical Corporation and Wichita State University dated as of April
1, 1994 (Assigned to Registrant pursuant to the Lexin Purchase)
@@ 10.79 -- Promissory Note dated August 23, 1996, in the amount of $100,000 from Jerry B. Hook
Ph.D. to the Registrant.
@@10.80 -- Promissory Note dated August 23, 1996, in the amount of $50,000 from Dr. William
McCulloch to the Registrant.
@@10.81 -- Promissory Note dated August 23, 1996, in the amount of $50,000 from Ronald H. Spair to
the Registrant.
10.82 -- Employment Agreement, dated March 15, 1996, between the Registrant and Ronald H. Spair
10.83 -- Net Lease Agreement dated March 29, 1994, and entered into between Lexin Pharmaceutical
Corporation and the Pennsylvania Business Campus (assigned to the Registrant).
10.84 -- Nonqualified Stock Option Agreement, dated as of September 5, 1996 between the
Registrant and Colin B. Bier, Ph.D.
10.85 -- Milestone Option Agreement between the Registrant and William McCulloch dated March
15, 1996.
10.85A -- Amendment (dated June 17, 1996) to the Milestone Option Agreement between the Registrant
and William McCulloch dated March 11, 1996.
10.86 -- Incentive Stock Option Agreement, dated as of December 5, 1996, between the Registrant
and Jerry B. Hook, Ph.D.
10.87 -- Incentive Stock Option Agreement, dated as of December 5, 1996, between the Registrant
and William McCulloch.
10.88 -- Incentive Stock Option Agreement, dated as of December 5, 1996, between the Registrant
and Ronald H. Spair.
10.89 -- Nonqualified Stock Option Agreement, dated as of June 17, 1996 between the Registrant and
Sir John Vane, FSR
10.90 -- Nonqualified Stock Option Agreement, dated as of June 17, 1996, between the Registrant
and Peter Barton Hutt
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
11.1 -- Statement Re Computation of Per Share Earnings
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Ernst & Young LLP
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* Previously filed with the Company's Registration Statement on Form S-l,
Registration Number 33-72882, filed on December 14, 1993, or amendments
thereto, and incorporated by reference herein.
** Previously filed with the Company's Registration Statement on Form S-l,
Registration Number 33-78086, filed on April 25, 1994, or in Amendment
No. 1 thereto, filed on June 1, 1994.
*** Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1994, filed on August 15, 1994 and
incorporated by reference herein.
# Previously filed with the Company's 1994 Annual Report on Form 10-K,
filed on March 31, 1995, and incorporated by reference herein.
## Previously filed with the Company's Quarterly Report on form 10-Q for
the quarterly period ended June 30, 1995, filed on August 14, 1995.
### Previously filed with the Company's Amendment No. 1 to the Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1995,
filed on January 24, 1996.
% Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1995, filed on November 14,
1995.
%% Previously filed with the Company's 1995 Annual Report on Form 10-K,
filed on April 1, 1996, and incorporated by reference herein.
%%% Previously filed with the Company's report on Form 8-K filed on April 1,
1996, and incorporated by reference herein.
& Previously filed with the Company's report on Form 8-K filed on
September 26, 1996, and incorporated by reference herein.
^ Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1996, filed on May 15, 1996.
^^ Previously filed with the Company's Quarterly Report on Form 10-Q/A for
the quarterly period ended March 31, 1996, filed on July 17, 1996.
@ Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1996, filed on August 9, 1996.
@@ Previously filed with the Company's Registration Statement on Form S-3,
Registration Number 333-13621, filed on October 7, 1996, or in Amendment
No. 1 thereto, filed on October 17, 1996.
+ Confidential Treatment has been granted by the Securities and Exchange
Commission.
! Confidential Treatment has been requested from the Securities and
Exchange Commission.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Jerry B. Hook
------------------------------------
Jerry B. Hook, Ph.D.
President and Chief Executive Officer
Dated: March 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William M. Sullivan
- ------------------------------- Chairman of the Board and March 27, 1997
William M. Sullivan Director
/s/ Jerry B. Hook, Ph.D.
- ------------------------------- President and Chief Executive March 27, 1997
Jerry B. Hook, Ph.D. Officer (principal executive
officer) and Director
/s/ Ronald H. Spair
- ------------------------------- Vice President and Chief March 27, 1997
Ronald H. Spair Financial Officer (principal
financial and accounting officer)
/s/ Colin B. Bier, Ph.D. Director March 27, 1997
- -------------------------------
Colin B. Bier, Ph.D.
/s/ Peter Barton Hutt Director March 27, 1997
- -------------------------------
Peter Barton Hutt
/s/ Lindsay A. Rosenwald, M.D. Director March 27, 1997
- -------------------------------
Lindsay A. Rosenwald, M.D.
/s/ John Vane Director March 27, 1997
Professor Sir John Vane
/s/ Richard L. Sherman Director March 27, 1997
- -----------------------
Richard L. Sherman
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Sparta Pharmaceuticals, Inc.:
We have audited the accompanying balance sheet of Sparta Pharmaceuticals, Inc.
(a Delaware corporation in the development stage) as of December 31, 1996, and
the related statements of operations, shareholders' equity and cash flows for
the year then ended and the related statements of operations and cash flows for
the period from inception (June 12, 1990) to December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We did not audit the financial statements of Sparta Pharmaceuticals,
Inc. for the period from inception to December 31, 1995. Such statements are
included in the cumulative inception to December 31, 1996 totals of the
statements of operations and cash flows and reflect total revenues and net loss
of 59 percent and 58 percent, respectively, of the related cumulative totals.
Those statements were audited by other auditors, whose report has been furnished
to us, and our opinion, insofar as it relates to amounts for the period from
inception to December 31, 1995, included in the cumulative totals, is based
solely upon the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Sparta Pharmaceuticals, Inc., as of December 31, 1996,
and the results of its operations and its cash flows for the year then ended and
for the period from inception (June 12, 1990) to December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
February 28, 1997
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Sparta Pharmaceuticals, Inc. (A Development Stage company)
We have audited the accompanying balance sheet of Sparta Pharmaceuticals, Inc.
(a development stage company) as of December 31, 1995 and the related statements
of operations, shareholders' equity (deficit) and cash flows for each of the two
years in the period ended December 31, 1995 and for the period from June 12,
1990 (inception) to December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sparta Pharmaceuticals, Inc. (a
development stage company) at December 31, 1995, and the results of operations
and its cash flows for each of the two years in the period ended December 31,
1995 and for the period from June 12, 1990 (inception) to December 31, 1995 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Sparta
Pharmaceuticals, Inc. (a development stage company) will continue as a going
concern. As more fully described in Note 1, the Company has incurred operating
losses since inception and requires additional capital to continue operations.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans as to these matters are described in Note
1. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the possible
inability of Sparta Pharmaceuticals, Inc. (a development stage company) to
continue as a going concern.
ERNST & YOUNG LLP
Raleigh, North Carolina
January 31, 1996
F-2
<PAGE>
SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................... $ 10,246,812 $ 734,296
Prepaid expenses and other assets ................................... 82,751 180,125
------------ ------------
Total current assets ............................................. 10,329,563 914,421
Fixed assets:
Office equipment .................................................... 177,595 54,866
Leasehold improvements .............................................. 522,215 --
Less: accumulated depreciation and amortization ..................... (181,417) (33,764)
------------ ------------
518,393 21,102
------------ ------------
Other assets:
License agreements, net of amortization of $73,303 in 1996 and
$50,345 in 1995 .................................................. 41,485 64,443
Restricted cash ..................................................... 196,842 --
------------ ------------
Total other assets ............................................... 238,327 64,443
------------ ------------
$ 11,086,283 $ 999,966
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses ............................... $ 629,497 $ 185,861
------------ ------------
Total current liabilities ........................................ 629,497 185,861
Commitments (Note 10)
Shareholders' equity (Notes 3, 4, 5, 6, and 7):
Preferred Stock, not designated, $.001 par value; authorized and
unissued 8,209,326 shares ........................................ -- --
Series B' Convertible Preferred Stock, $.001 par value;
liquidation preference $13 per share; authorized 2,790,674 shares;
issued and outstanding 1,487,146 shares in 1996 and 0 in 1995 .... 1,487 --
Common Stock, $.001 par value; authorized 42,000,000 shares;
issued and outstanding 9,587,717 shares in 1996 and 6,185,931
shares in 1995 ................................................... 9,588 6,186
Additional paid-in capital .......................................... 28,176,356 10,825,375
Stock subscription receivable ....................................... (200,000) --
Deferred compensation ............................................... (165,309) --
Deficit accumulated during the development stage .................... (17,365,336) (10,017,456)
------------ ------------
Total shareholders' equity ....................................... 10,456,786 814,105
------------ ------------
$ 11,086,283 $ 999,966
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
Period from
June 12, 1990
(Inception) to
Year Ended December 31, December 31,
-----------------------
1994 1995 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Interest income.................................. $ 114,648 $ 121,438 $ 296,730 $ 588,392
Contract revenue................................. 109,995 17,875 -- 127,870
------------ ------------ ------------ ------------
Total revenue........................... 224,643 139,313 296,730 716,262
------------ ------------ ------------ ------------
Operating expenses:
Research and development......................... 2,013,934 1,819,887 3,176,742 9,181,147
General and administrative....................... 1,360,367 961,833 1,404,955 5,837,538
Charge for acquired research and development..... -- -- 3,062,913 3,062,913
------------ ------------ ------------ ------------
Total operating expenses................ 3,374,301 2,781,720 7,644,610 18,081,598
------------ ------------ ------------ ------------
Net loss........................................... $ (3,149,658) $ (2,642,407) $ (7,347,880) $(17,365,336)
============ ============ ============ ============
Net loss per share (Note 7)........................ $(.57) $(.43) $(.93)
===== ===== =====
Weighted average number of shares
used in per-share calculation (Note 7)........... 5,534,497 6,167,817 7,912,068
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Statements of Shareholders' Equity (Deficit)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Additional
Date of ---------------------------------- Stock Paid In
Transactions Series A Series B Series C Par Value Capital
------------ -------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 12, 1990............ $ $ $ $ $
Issuance of 1,443,333 shares at
$.003 per share................. June 1990 -- -- -- 1,443 2,887
Issuance of 5,000 shares at $.003
per share for services......... June 1990 -- -- -- 5 10
------- ------- ------- ------- ---------
Balance at December 31, 1990........ -- -- -- 1,448 2,897
Issuance of 1,666 shares at
$.003 per share for services.... February 1991 -- -- -- 2 3
Issuance of 862,575 shares at
$.003 per share................. February -- -- -- 863 1,725
through
December 1991
Issuance of 325,815 shares at
$3.99 per share................. December 1991 326 -- -- -- 1,299,674
Stock issuance costs............... -- -- -- -- (24,800)
Net loss for 1991.................. -- -- -- -- --
------- ------- ------- ------- ---------
Balance at December 31, 1991........ 326 -- -- 2,313 1,279,499
Issuance of 50,125 shares at $3.99
per share in exchange for
cancellation of notes
payable........................ January 1992 50 -- -- -- 199,950
Issuance of 90,920 shares at $.003
per share...................... January -- -- -- 90 183
through
December 1992
Conversion of Series A Convertible
Preferred Stock, into 375,939
shares of Common Stock at $3.99
per share....................... December 1992 (376) -- -- 376 --
Net loss for 1992.................. -- -- -- -- --
------- ------- ------- ------- ---------
Balance at December 31, 1992........ -- -- -- 2,779 1,479,632
Repurchase of 12,500 shares at
$.003 per share................. January 1993 -- -- -- (12) (26)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated Total
Stock During the Shareholders
Unrealized Subscription Deferred Development Equity
Gain/Loss Receivable Compensation Stage (Deficit)
--------- ---------- ------------ ----- ---------
<S> <C> <C> <C> <C> <C>
Balance at June 12, 1990............ $ $ $ $ $
Issuance of 1,443,333 shares at
$.003 per share................. June 1990 -- -- -- -- 4,330
Issuance of 5,000 shares at $.003
per share for services......... June 1990 -- -- -- -- 15
-------- --------- ---------- -------- ----------
Balance at December 31, 1990........ -- -- -- -- 4,345
Issuance of 1,666 shares at
$.003 per share for services.... February 1991 -- -- -- -- 5
Issuance of 862,575 shares at
$.003 per share................. February -- -- -- -- 2,588
through
December 1991
Issuance of 325,815 shares at
$3.99 per share................. December 1991 -- -- -- -- 1,300,000
Stock issuance costs............... -- -- -- -- (24,800)
Net loss for 1991.................. -- -- -- (358,234) (358,234)
-------- --------- ---------- -------- ----------
Balance at December 31, 1991........ -- -- -- (358,234) 923,904
Issuance of 50,125 shares at $3.99
per share in exchange for
cancellation of notes
payable........................ January 1992 -- -- -- -- 200,000
Issuance of 90,920 shares at $.003
per share...................... January -- -- -- -- 273
through
December 1992
Conversion of Series A Convertible
Preferred Stock, into 375,939
shares of Common Stock at $3.99
per share....................... December 1992 -- -- -- -- --
Net loss for 1992.................. -- -- -- (1,217,933) (1,217,933)
-------- --------- ---------- ---------- ----------
Balance at December 31, 1992 ....... -- -- -- (1,576,167) (93,756)
Repurchase of 12,500 shares at
$.003 per share................. January 1993 -- -- -- -- (38)
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Additional
Date of -------------------------------- Stock Paid In Unrealized
Transaction Series A Series B Series C Par Value Capital Gain/(Loss)
------------ ---------- -------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of 4,643 shares at $3.18
per share for services........... July 1993 -- -- -- 5 14,760 --
Issuance of 591 shares at $3.69
per share for services........... August 1993 -- -- -- 1 2,180 --
Issuance of 8,333 shares at $1.50
per share........................ August 1993 -- -- -- 8 12,492 --
Issuance of 125,000 shares at
$2.00 per share.................. September 1993 -- 125 -- -- 249,875 --
Issuance of 5,090 shares at $4.80
per share for services........... October -- -- -- 5 24,428 --
through
December 1993
Exchange of 125,000 shares of
Series B Convertible Preferred
Stock 125,000 shares of
Series C Convertible Preferred
Stock............................. December 1993 -- (125) 125 -- -- --
Issuance of options to purchase
166,666 shares Common Stock
(Note 4).......................... -- -- -- -- 200,000 --
Stock issuance costs................. -- -- -- -- (32,500) --
Net loss for 1993.................... -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Balance at December 31, 1993.......... -- -- 125 2,786 1,950,841 --
Issuance of 1,437 shares at
$4.80 per share for services...... January -- -- -- 1 6,894 --
through
March 1994
Issuance of 8,333 shares at
$0.30 upon option exercise........ March 1994 -- -- -- 8 2,492 --
Issuance of 58,998 warrants.......... May 1994 -- -- -- -- 59 --
Issuance of 760 shares at $1.60
per share for services............ May through -- -- -- 1 1,215 --
June 1994
Issuance of 13,459 shares upon
conversion of Convertible
Notes and Preferred Stock (see
Note 10).......................... June 1994 -- -- -- 13 (13) --
Conversion of Convertible Notes
and Preferred Stock............... June 1994 -- -- (125) 2,059 3,867,190 --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated Total
Stock During the Shareholders'
Subscription Deferred Development Equity
Receivable Compensation Stage (Deficit)
------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Issuance of 4,643 shares at $3.18
per share for services........... -- -- -- 14,765
Issuance of 591 shares at $3.69
per share for services........... -- -- -- 2,181
Issuance of 8,333 shares at $1.50
per share........................ -- -- -- 12,500
Issuance of 125,000 shares at
$2.00 per share.................. -- -- -- 250,000
Issuance of 5,090 shares at $4.80
per share for services........... -- -- -- 24,433
Exchange of 125,000 shares of
Series B Convertible Preferred
Stock 125,000 shares of
Series C Convertible Preferred
Stock............................. -- -- -- --
Issuance of options to purchase
166,666 shares Common Stock
(Note 4).......................... -- -- -- 200,000
Stock issuance costs................. -- -- -- (32,500)
Net loss for 1993.................... -- -- (2,649,224) (2,649,224)
------ ------ ----------- -----------
Balance at December 31, 1993.......... -- -- (4,225,391) (2,271,639)
Issuance of 1,437 shares at
$4.80 per share for services...... -- -- -- 6,895
Issuance of 8,333 shares at
$0.30 upon option exercise........ -- -- -- 2,500
Issuance of 58,998 warrants.......... -- -- -- 59
Issuance of 760 shares at $1.60
per share for services............ -- -- -- 1,216
Issuance of 13,459 shares upon
conversion of Convertible
Notes and Preferred Stock (see
Note 10).......................... -- -- -- --
Conversion of Convertible Notes
and Preferred Stock............... -- -- -- 3,869,124
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Additional
Date of -------------------------------- Stock Paid In Unrealized
Transaction Series A Series B Series C Par Value Capital Gain/(Loss)
------------ ---------- -------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Proceeds of initial public
offering net of commissions
and expenses of $665,144 and
deferred financing costs of
$670,377.......................... June 1994 -- -- -- 1,100 4,163,379 --
Issuance of 166 shares upon
option exercise................... July 1994 -- -- -- 1 50 --
Issuance of 165,000 units to
underwriter upon over allotment
exercise.......................... July 1994 -- -- -- 165 717,585 --
Repurchase of 2,500 shares........... July 1994 -- -- -- (2) (5) --
Issuance of 1,044 shares at
$1.57 per share for services...... June through -- -- -- 1 2,683 --
September 1994
Issuance of 1,458 shares at
$4.65 per share for services...... September 1994 -- -- -- 1 6,776 --
Issuance of 707 shares at $4.65
per share for services............ November 1994 -- -- -- 1 3,285 --
Issuance 3,009 shares at
$3.59 per share for services...... November 1994 -- -- -- 3 10,800 --
Issuance of 1,391 shares at
$5.75 for services................ December 1994 -- -- -- 1 7,999 --
Unrealized loss on available-for-sale
investments....................... -- -- -- -- -- (3,316)
Net loss for 1994.................... -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Balance at December 31, 1994.......... -- -- -- 6,139 10,741,230 (3,316)
Issuance of 3,143 shares at $4.25
per share for services............ January 1995 -- -- -- 3 13,356 --
Issuance of 924 shares at $5.25
per share for services........... March 1995 -- -- -- 1 4,851 --
Issuance of 163 shares at $5.00
per share for services........... March 1995 -- -- -- 1 815 --
Issuance of 25,000 shares upon
option exercise.................. April 1995 -- -- -- 25 7,475 --
Issuance of 340 shares at $5.13
per share for services........... April 1995 -- -- -- 1 1,743 --
Issuance of 852 shares at $4.61
per share for services........... June 1995 -- -- -- 1 3,929 --
Issuance of 1,693 shares at $4.79
per share for services........... June 1995 -- -- -- 1 8,107 --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated Total
Stock During the Shareholders'
Subscription Deferred Development Equity
Receivable Compensation Stage (Deficit)
------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Proceeds of initial public
offering net of commissions
and expenses of $665,144 and
deferred financing costs of
$670,377.......................... -- -- -- 4,164,479
Issuance of 166 shares upon
option exercise................... -- -- -- 51
Issuance of 165,000 units to
underwriter upon over allotment
exercise.......................... -- -- -- 717,750
Repurchase of 2,500 shares........... -- -- -- (7)
Issuance of 1,044 shares at
$1.57 per share for services...... -- -- -- 2,684
Issuance of 1,458 shares at
$4.65 per share for services...... -- -- -- 6,777
Issuance of 707 shares at $4.65
per share for services............ -- -- -- 3,286
Issuance 3,009 shares at
$3.59 per share for services...... -- -- -- 10,803
Issuance of 1,391 shares at
$5.75 for services................ -- -- -- 8,000
Unrealized loss on available-for-sale
investments....................... -- -- -- (3,316)
Net loss for 1994.................... -- -- (3,149,658) (3,149,658)
------ ------ ----------- ------------
Balance at December 31, 1994.......... -- -- (7,375,049) 3,369,004
Issuance of 3,143 shares at $4.25
per share for services............ -- -- -- 13,359
Issuance of 924 shares at $5.25
per share for services........... -- -- -- 4,852
Issuance of 163 shares at $5.00
per share for services........... -- -- -- 816
Issuance of 25,000 shares upon
option exercise.................. -- -- -- 7,500
Issuance of 340 shares at $5.13
per share for services........... -- -- -- 1,744
Issuance of 852 shares at $4.61
per share for services........... -- -- -- 3,930
Issuance of 1,693 shares at $4.79
per share for services........... -- -- -- 8,108
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Additional
Date of -------------------------------- Stock Paid In Unrealized
Transaction Series A Series B Series C Par Value Capital Gain/(Loss)
------------ ---------- -------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of 2,338 shares at $4.56
per share for services........... June 1995 -- -- -- 2 10,658 --
Issuance of 6,744 shares at $2.84
per share for services........... September 1995 -- -- -- 7 19,146 --
Issuance of 2,953 shares at $2.77
per share for services........... September 1995 -- -- -- 3 8,178 --
Issuance of 2,365 shares at $2.49
per share for services........... September 1995 -- -- -- 2 5,887 --
Net Loss for 1995.................... -- -- -- -- -- --
Loss on available-for-sale
investments....................... -- -- -- -- -- 3,316
------ ------ ------ ------ ---------- ------
Balance at December 31, 1995.......... -- -- -- 6,186 10,825,375 --
Extension of exercise period for
options of former employees....... January 1996 -- -- -- -- 18,738 --
Proceeds of private placement net of
commissions and expenses.......... February 1996 300 -- -- -- 2,571,129 --
of $428,571
Stock issued for acquisition of Lexin
Pharmaceuticals (see Note 2)...... March 1996 -- -- -- 2,000 3,598,000 --
Deferred compensation related
to acquisition (see Note 6)..... March 1996 -- -- -- -- 206,100 --
Issuance of 5,000 shares at $.003
per share pursuant to license
agreement......................... April 1996 -- -- -- 5 10 --
Issuance of 1,012 shares at $2.89
per share for services............ June 1996 -- -- -- 1 2,928 --
Issuance of 276 shares at $2.72
per share for services............ July 1996 -- -- -- 1 749 --
Proceeds of private placement net of
commissions and expenses of
$2,029,091 (see Notes 3 and 11)... July through -- 1,297 -- -- 10,934,612 --
August 1996
Conversion of Series A to Series B'.. August 1996 (300) 400 -- -- (100) --
Issuance of 35,000 warrants for
services............................. December 1996 -- -- -- -- 20,000 --
Conversion of Preferred Stock to
Common Stock.................... November -- (210) -- 1,395 (1,185) --
through
December 1996
Amortization of Deferred Compensation for 1996 -- -- -- -- -- --
Net Loss for 1996.................. -- -- -- -- -- --
------- ------- ------- ------- ------- ------
Balance at December 31, 1996........ $ -- $1,487 $ -- $9,588 $28,176,356 $ --
======= ====== ======= ======= =========== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated Total
Stock During the Shareholders'
Subscription Deferred Development Equity
Receivable Compensation Stage (Deficit)
------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Issuance of 2,338 shares at $4.56
per share for services........... -- -- -- 10,660
Issuance of 6,744 shares at $2.84
per share for services........... -- -- -- 19,153
Issuance of 2,953 shares at $2.77
per share for services........... -- -- -- 8,181
Issuance of 2,365 shares at $2.49
per share for services........... -- -- -- 5,889
Net Loss for 1995.................... -- (2,642,407) (2,642,407)
Loss on available-for-sale
investments....................... -- -- -- 3,316
------ ------ ------ ------
Balance at December 31, 1995.......... -- -- (10,017,456) 814,105
Extension of exercise period for options of
former employees.................. -- -- -- 18,738
Proceeds of private placement net of
commissions and expenses of $428,571 -- -- -- 2,571,429
Stock issued for acquisition of Lexin
Pharmaceuticals (see Note 2)...... -- -- -- 3,600,000
Deferred compensation related
to acquisition (see Note 6)....... -- (206,100) -- --
Issuance of 5,000 shares at $.003
per share pursuant to license agreement -- -- -- 15
Issuance of 1,012 shares at $2.89
per share for services............ -- -- -- 2,929
Issuance of 276 shares at $2.72
per share for services............ -- -- -- 750
Proceeds of private placement net of
commissions and expenses of $2,029,091
(see Notes 3 and 11).............. (200,000) -- -- 10,735,909
Conversion of Series A to Series B' -- -- -- --
Issuance of 35,000 warrants for services -- -- -- 20,000
Conversion of Preferred Stock to
Common Stock...................... -- -- -- --
Amortization of Deferred Compensation for -- 40,791 -- 40,791
Net Loss for 1996.................... -- -- (7,347,880) (7,347,880)
---------- --------- ------------ -----------
Balance at December 31, 1996.......... $(200,000) $(165,309) $(17,365,336) $10,456,786
========== ========== ============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
<TABLE>
<CAPTION>
Statements of Cash Flows
Period from
June 12, 1990
Year ended December 31, (Inception) to
----------------------- December 31,
1994 1995 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating activities
Net loss........................................ $(3,149,658) $(2,642,407) $(7,347,880) $(17,365,336)
Adjustments to reconcile net loss to net cash used
in operating activities:
Loss on investments......................... -- 3,316 -- 3,316
Depreciation and amortization............... 403,635 34,010 170,611 724,760
Acquired research and development........... -- -- 3,062,913 3,062,913
Write down of license agreement............. -- -- -- 45,200
Issuance of convertible notes for services.. -- -- -- 220,474
Issuance of stock for services.............. 39,661 76,692 3,694 161,445
Compensation expense related to stock options
granted.................................... -- -- 79,529 279,529
Changes in operating assets and liabilities;
net of effect from acquisition
Prepaid expenses and other assets......... (43,572) (121,399) 97,374 (82,751)
Accounts payable and accrued expenses..... (182,176) (71,815) 293,636 479,497
Restricted cash........................... -- -- 50,507 50,507
----------- ----------- ----------- -----------
Net cash used in operating activities (2,932,110) (2,721,603) (3,589,616) (12,420,446)
----------- ----------- ----------- -----------
Investing activities
Payment of acquisition related fees and expenses -- -- (128,842) (128,842)
Purchases of available-for-sale securities...... (1,103,193) -- -- (1,103,193)
Maturities of available-for-sale securities..... -- 1,099,877 -- 1,099,877
Purchases of fixed assets....................... (6,928) -- (76,364) (131,230)
Acquisition of license agreements............... (64,878) -- -- (160,078)
----------- ----------- ----------- -----------
Net cash (used in) provided by
investing activities................ (1,174,999) 1,099,877 (205,206) (423,466)
----------- ----------- ----------- -----------
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.......... 4,884,839 7,500 -- 4,912,031
Repurchase of Common Stock...................... (7) -- -- (45)
Proceeds from issuance of Preferred Stock....... -- -- 13,307,338 14,800,038
Increase in debt issuance costs................. -- -- -- (469,950)
Decrease in deferred financing costs........... 349,769 -- -- --
----------- ----------- ----------- -----------
Net cash provided by financing
activities ......................... 5,234,601 7,500 13,307,338 23,090,724
----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 1,127,492 (1,614,226) 9,512,516 10,246,812
Cash and cash equivalents at beginning of period 1,221,030 2,348,522 734,296 --
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period...... $2,348,522 $734,296 $10,246,812 $10,246,812
=========== =========== =========== ===========
Supplemental disclosures of cash flow
information
Cash paid during the year for interest.......... $ 114,357 $ -- $ -- $196,972
=========== =========== =========== ===========
Supplemental disclosure of noncash investing
and financing activities
Conversion of Convertible Notes and Series C
Convertible Preferred Stock into Common Stock. $4,086,624 $ -- $ -- $4,086,624
=========== =========== =========== ===========
Issuance of Series A Convertible Preferred Stock
for cancellation of notes payable............. $ -- $ -- $ -- $200,000
=========== =========== =========== ===========
Conversion of Series B' Convertible Preferred
Stock into Common Stock....................... $ -- $ -- $ 1,395 $1,395
=========== =========== =========== ===========
Issuance of Common Stock for acquisition of Lexin $ -- $ -- $3,600,000 $3,600,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE>
SPARTA PHARMACEUTICALS, INC.
(A Development Stage Company)
Notes to Financial Statements
1. Company Activities and Significant Accounting Policies
Sparta Pharmaceuticals, Inc. (the "Company"), a development stage
biopharmaceutical company incorporated in 1990, is engaged in the business of
acquiring rights to, and developing for commercialization, technologies and
drugs for the treatment of cancer and other diseases.
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.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash deposits are
placed with high credit quality financial institutions. At times deposits exceed
amounts insured by the Federal Deposit Insurance Corporation.
Fixed Assets
Office equipment and leasehold improvements are recorded at cost.
Depreciation and amortization are computed by using the straight-line method
over the estimated useful lives of the assets.
License Agreements
Certain costs incurred to acquire exclusive licenses of patentable
technology are capitalized and amortized using the straight-line method over a
five year period or the term of the license, whichever is shorter.
Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Asset to be Disposed of"
("SFAS 121"), which required impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. SFAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The adoption of SFAS 121
in 1996 had no impact on the Company's financial position or results of
operations.
F-10
<PAGE>
Stock-Based Compensation
In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 encourages companies to adopt the fair
value method for expense recognition of employee stock options. SFAS 123 also
allows companies to continue to account for stock options and stock based awards
using the intrinsic value method as outlined under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and to
make pro forma disclosures of net income and net income per share as if the fair
value method had been applied. The Company uses APB 25 in accounting for its
stock options and stock based awards, and will continue to apply APB 25 for
future stock options and stock based awards. The Company has adopted the
disclosure requirements of SFAS 123 in 1996 (see Note 4).
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS 109, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
Revenue Recognition
Contract revenues are recognized under the percentage of completion
method at the time costs benefitting the contracts are incurred.
Research and Development Costs
Research and development costs are charged to operations when incurred.
Use of Estimates
Presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
2. Acquisition of the Business and Assets of Lexin Pharmaceutical Corporation
On March 15, 1996, the Company acquired the business and assets, and
assumed certain liabilities of Lexin Pharmaceutical Corporation ("Lexin"), for 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 has 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.
The following unaudited pro forma information is presented for the
acquisition of Lexin as if the acquisition had occurred on January 1, 1995. The
unaudited pro forma information does not purport to be indicative of the result
that would have been attained if the operations had actually been combined
during the period presented, and is not necessarily indicative of operating
results to be expected in the future.
F-11
<PAGE>
<TABLE>
<CAPTION>
For the year ended December 31,
1995 1996
---- ----
<S> <C> <C>
Total revenues................................................ $ 413,955 $ 406,296
Net loss...................................................... $ (5,626,656) $ (4,614,493)
Pro forma loss per share...................................... $ (.69) $ (.55)
Shares used in computing pro forma loss per share............. 8,167,817 8,316,440
</TABLE>
3. Preferred Stock
On February 29, 1996, the Company sold 300,000 shares of Series A
Convertible Preferred Stock, $.001 par value ("Series A Preferred Stock"), for
aggregate consideration of $3,000,000. In connection with the Company's private
placement of its Series A Preferred Stock, the Company paid commissions of
$300,000 and non-accountable expense allowances of $90,000 to a company
controlled by a significant shareholder which served as placement agent for the
transaction (the "Placement Agent"). In addition, the Company issued to the
Placement Agent a warrant to purchase 30,000 shares of Series A Preferred Stock
for an aggregate exercise price of $375,000. Net proceeds of the financing after
commissions, legal fees and other expenses were approximately $2,570,000.
In July and August 1996, the Company completed a private placement of
equity securities with gross proceeds of $12,965,000. The securities sold were
Units, or fractions thereof, and each Unit was comprised of 10,000 shares of the
Company's Series B' Convertible Preferred Stock , par value $.001 per share
("Series B' Preferred Stock"), and Class C Warrants to purchase 66,667 shares of
the Company's Common Stock at an exercise price of $1.50 per share. Each unit
was priced at $100,000.
The Series B' Preferred Stock included in the Units is convertible at
any time at the option of the holder into shares of the Company's Common Stock
at an initial conversion price of $1.50 per share such that the 10,000 shares of
the Company's Series B' Preferred Stock included in a Unit are initially
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
then outstanding Series B' Preferred Shares 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. The Series B' Preferred Stock is subject to mandatory
conversion under certain conditions after one year.
Subsequent to the private placement, 1,395,498 shares of Common Stock
have been issued as the result of the conversion of 209,326 shares of Series B'
Preferred Stock. The outstanding Series B' Preferred Stock at December 31, 1996
was convertible into 9,914,224 shares of Common Stock. Class C Warrants to
purchase 11,309,722 shares of Common Stock are currently outstanding and are
redeemable under certain conditions after one year. Each Class C Warrant has a
five year term.
In connection with the Unit offering, the Company paid aggregate
commissions of $1,166,850 and non-accountable expense allowances of $518,600 to
the same Placement Agent which served in that capacity for the private placement
of the Series A Preferred Stock. In addition, the Company issued to the
Placement Agent a warrant to purchase 129,650 shares of Series B' Preferred
Stock for an aggregate purchase price of $1,426,150 and a warrant to purchase
864,333 shares of the Company's Common Stock for an aggregate purchase price of
$1,555,799. Net cash proceeds from the Unit offering were $10,735,909.
F-12
<PAGE>
In connection with the private placement of the Units concluded in
August 1996, the Series A Preferred Stock was converted into Units comprised of
an aggregate of 399,971 Series B' Preferred Stock and 2,666,464 Class C Common
Stock Warrants and the warrant issued to the Placement Agent was converted into
a warrant to purchase securities offered in the private placement of the Units
concluded in August 1996.
In connection with the private placements concluded during 1996,
adjustments were made to the exercise price and the number of shares of Common
Stock purchasable upon the exercise of the Company's outstanding Class A and B
Warrants and an underwriter's purchase option issued in connection with its
initial public offering (see Note 5). Each Class A Warrant has been adjusted
such that the exercise price is $4.99 and allows the holder to acquire 1.2
shares of Common Stock. Each Class B Warrant has been adjusted such that the
exercise price is $8.25 and allows the holder to acquire 1.2 shares of Common
Stock. The Underwriter's Unit Purchase Option has been adjusted such that
155,100 shares of Common Stock, and 110,000 Class A Warrants and 110,000 Class B
Warrants are issuable upon exercise in full of the Unit Purchase Option for an
aggregate option exercise price of $2,003,100.
4. Stock Plan
In November 1991, the Company adopted a stock plan that provides for
the issuance of non-qualified and incentive stock options and the granting of
"stock purchase opportunities" to employees, directors and consultants.
Non-qualified options are to be granted at a price approved by the Board of
Directors. Options are exercisable as prescribed by the administrator of the
plan and expire ten years from the grant date, or earlier as specified by the
administrator of the plan.
Issuance of incentive stock options is restricted to employees only.
Incentive stock options are granted at a price of not less than 100% of fair
market value (110% of fair market value for shareholders with more than 10% of
the combined voting power of all classes of stock). Incentive stock options are
exercisable as prescribed by the administrator of the plan and expire ten years
from the grant date (five years for participants owning more than 10% of the
combined voting power of all classes of stock), or earlier as specified by the
administrator. No more than $100,000 of incentive stock options may become
exercisable by a participant for the first time in any calendar year.
In accordance with the provisions of APB Opinion 25 and related
Interpretations, the Company does not recognize compensation cost for options
granted with an exercise price at or above the fair market value of the
Company's Common Stock on the date of grant. The Company has adopted the
disclosure requirements of SFAS No. 123 in 1996. If the Company had elected to
recognize compensation cost based on the fair value of the options granted at
grant date as prescribed by SFAS No. 123, net loss and net loss per share would
have been increased to the pro forma amounts indicated in the table below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net loss - as reported................................................. $ (7,347,880) $ (2,642,407)
Net loss - pro forma................................................... (7,654,170) (2,714,991)
Net loss per share - as reported....................................... (.93) (.43)
Net loss per share - pro forma......................................... (.97) (.44)
</TABLE>
F-13
<PAGE>
The fair value of each option grant is estimated on the date of grant
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 6.5 years and a risk-free interest rate based on the 6.5 year average
treasury bond yield on the date of grant.
Because SFAS 123 has not been applied to options granted prior to
January 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
Set forth below is a table summarizing option activity through December
31, 1996:
<TABLE>
<CAPTION>
Weighted
Average
Number Option Price Expiration Exercise
Description of Shares Range Per Share Date Price
- ----------- --------- --------------- ---- -----
<S> <C> <C> <C> <C>
Options granted at 12/31/91, and outstanding at 12/31/91 166,666 $0.30 2001 $0.30
Options granted........................................ 341,665 $0.30 to $6.00 2001 $1.98
---------
Options outstanding at 12/31/92.......................... 508,331 $0.30 to $6.00 2001 $1.43
Options granted........................................ 202,332 $0.30 to $6.00 2002 to 2003 $5.05
Options canceled....................................... (95,000) $0.30 to $6.00 $2.50
---------
Options outstanding at 12/31/93.......................... 615,663 $0.30 to $6.00 2001 to 2003 $2.46
Options granted........................................ 318,000 $5.25 to $5.87 2003 to 2004 $5.54
Options exercised...................................... (8,499) $0.30 $0.30
Options canceled....................................... (16,666) $0.30 to $6.00 $6.00
---------
Options outstanding at 12/31/94.......................... 908,498 $0.30 to $6.00 2001 to 2004 $3.49
Options granted........................................ 191,000 $1.38 to $4.88 2004 to 2005 $2.62
Options exercised...................................... (25,000) $0.30 $0.30
Options canceled....................................... (182,000) $0.30 to $6.00 $4.72
---------
Options outstanding at 12/31/95.......................... 892,498 $0.30 to $6.00 2001 to 2005 $3.14
Options granted........................................ 1,112,000 $1.13 to $3.00 2005 to 2006 $1.18
Options canceled....................................... (30,000) $3.00 to $6.00 $5.00
---------
Options outstanding at 12/31/96.......................... 1,974,498 $0.30 to $6.00 1998 to 2006 $2.01
=========
</TABLE>
The weighted average fair value of options granted was $1.84 and $.80
in the years ended December 31, 1995 and 1996. 681,498 of the 1,974,498 options
outstanding at December 31, 1996 were issued prior to January 1, 1995 and have
exercise prices between $.30 and $6.00, with a weighted average exercise price
of $3.20 and a weighted average remaining contractual life of 6.1 years. 181,000
of the 1,974,498 options outstanding at December 31, 1996 were issued in 1995
and have exercise prices between $1.38 and $4.88 with a weighted average
exercise price of $2.60 and a weighted average remaining contractual life of 5.5
years. The remaining 1,112,000 options outstanding at December 31, 1996 were
issued in 1996 and have exercise prices between $1.13 and $3.00 with a weighted
average exercise price of $1.18 and a weighted average remaining contractual
life of 8.8 years.
In 1996, the exercise terms of options on 37,500 shares of common stock
held by three former employees were extended to 1998 as a result of the
acquisition of Lexin Pharmaceutical Corporation (see Note 2).
In March 1996, the Company issued options to purchase 687,000 shares of
Common Stock at $2.70 per share. The Company recorded deferred compensation of
$206,100 in connection with the grant of these non-qualified stock options which
represents the excess of the fair market value over exercise price on the date
of grant. The Company is amortizing this deferred compensation over the four
F-14
<PAGE>
year vesting period of the options. The Company recognized $40,791 in expense
for 1996. On December 5, 1996 these options were repriced from $2.70 per share
exercise price to $1.13, the fair market value on that date.
On March 2, 1993, in connection with the pricing of 166,666 options
granted in 1991, the Company recorded compensation expense of approximately
$200,000.
"Stock purchase opportunities" represent rights to purchase Common
Stock at specified prices. The purchase price of shares offered in stock
purchase opportunities cannot be less than 50% of the fair market value. At
December 31, 1996, the Company has issued 119,996 shares of Common Stock at
$.003 per share and 8,333 shares of Common Stock at $1.50 per share in
connection with this stock plan.
As of December 31, 1996, a total of 2,500,000 shares of Common Stock
were authorized for issuance under the stock plan, of which 363,674 shares were
available for grant. The Company has reserved 2,338,172 shares of its Common
Stock as of December 31, 1996 for future issuance in connection with the stock
plan.
5. Stock Warrants
On May 4, 1994, the Company issued 58,998 warrants and had a commitment
to issue 5,417 additional warrants to purchase Common Stock in connection with
the issuance of certain Convertible Notes and Preferred Stock at prices ranging
from $6.60 to $6.75 per share. These warrants are exercisable at any time during
periods ranging from four to five years. The exercise price and the number of
shares of Common Stock purchasable upon the exercise of these warrants is
subject to adjustment upon the occurrence of certain events, including stock
dividends, stock splits, combinations or reclassifications of the Common Stock.
In connection with its initial public offering, the Company sold 1.1
million units ("IPO Units" each consisting of one share of Common Stock, one
redeemable Class A Warrant to purchase one share of Common Stock at an exercise
price of $6.50 per share and one redeemable Class B Warrant to purchase one
share of Common Stock at an exercise price of $10.75 per share) for $5.00 per
IPO Unit, before expenses and commissions. On July 24, 1994, the underwriter for
the Company's initial public offering purchased in full from the Company 165,000
IPO Units at $5.00 per IPO Unit pursuant to its over-allotment option. The Class
A and Class B Warrants became exercisable upon consummation of the Company's
initial public offering and remain exercisable until June 21, 1999, unless
sooner redeemed. These warrants contain provisions that provide the holders
thereof certain protections by adjustment of the Exercise Price and shares
issuable upon exercise in certain events, such as certain stock dividends, stock
splits, mergers, sales of all or substantially all of the Company's assets,
sales of stock at below market price and other unusual events. In connection
with the Company's private placement of securities in July and August, 1996 (see
Note 3) each Class A Warrant has been adjusted such that the exercise price is
$4.99 and allows the holder to acquire 1.2 shares of Common Stock. Additionally,
each Class B Warrant has been adjusted such that the exercise price is $8.25 and
allows the holder to acquire 1.2 shares of Common Stock.
In connection with the private placement of securities by the Company
in July and August 1996 (see Note 3), the Company issued 11,309,722 redeemable
Class C Warrants to purchase one share of Common Stock at an exercise price of
$1.50 per share. The Class C Warrants are exercisable until August 23, 2001,
unless sooner redeemed. The Class C Warrants contain provisions that provide the
holders thereof certain protections by adjustment of the Exercise Price and
shares issuable upon exercise in certain events, such as certain stock
dividends, stock splits, mergers, sales of all or substantially all of the
Company's assets, sales of stock at below market price and other unusual events.
In addition to the Class C Warrants, the Company also issued 864,333 warrants to
purchase Common Stock at an exercise price of $1.80 per share to the Placement
Agent for the private placement. The Placement Agent warrants hold similar terms
and rights to the Class C Warrants.
F-15
<PAGE>
6. Shareholders' Equity
On December 1, 1993, in connection with the Company's planned initial
public offering, the Board of Directors authorized a 1 for 3 reverse Common
Stock split which was approved by a majority of shareholders on December 10,
1993. All numbers of Common Stock, options, warrants and related prices per
share have been restated for all periods presented to reflect the reverse split.
On December 10, 1993, following the reverse split, the number of authorized
shares of Common Stock was increased to 22,000,000.
The Company completed its initial public offering on June 28, 1994,
pursuant to which it sold 1.1 million IPO Units (each consisting of one share of
Common Stock, one redeemable Class A Warrant to purchase one share of Common
Stock and one redeemable Class B Warrant to purchase one share of Common Stock)
for $5.00 per IPO Unit, before expenses and commissions. In addition, the
underwriter for the Company's initial public offering received a unit purchase
option to purchase up to 110,000 IPO Units.
Upon completion of the Company's initial public offering, all shares of
outstanding preferred stock and outstanding convertible notes automatically
converted into 2,059,562 shares of Common Stock (at a conversion price of $2.00
per share).
In connection with one of its service agreements, the Company also
issued 13,459 shares of Common Stock to a service provider as a result of the
conversion of the convertible notes at $2.00 per share.
On July 20, 1994, the underwriter for the Company's initial public
offering purchased from the Company 165,000 IPO Units at $5.00 per IPO Unit
pursuant to its over-allotment option.
On June 7, 1995, the Company's shareholders approved increasing the
maximum number of shares available for issuance pursuant to the 1991 Stock Plan
(see Note 4) from 1,500,000 to 2,000,000.
On February 29, 1996, the Company sold 300,000 shares of Series A
Preferred Stock for aggregate consideration of $3,000,000. The Series A
Preferred Stock was converted into Units comprised of an aggregate of 399,971
Series B' Convertible Preferred Stock and 2,666,464 Class C Warrants in
connection with a private placement concluded during July and August 1996. In
connection with the Company's private placement of its Series A Preferred Stock,
the Company paid commissions of $300,000 and non-accountable expense allowances
of $90,000 to the Placement Agent. In addition, the Company issued to the
Placement Agent a warrant to purchase 30,000 shares of Series A Preferred Stock
for an aggregate exercise price of $375,000, which was converted into a warrant
to purchase securities offered in the private placement concluded during July
and August 1996. Net proceeds of the financing after commissions, legal fees and
other expenses were approximately $2,570,000.
On March 15, 1996, the Company acquired the business and assets, and
assumed certain liabilities of Lexin, for a payment of 2,000,000 shares of the
Company's Common Stock (see Note 2).
On June 17, 1996, the Company's shareholders approved increasing the
number of authorized shares of Common Stock to 42,000,000. The shareholders also
approved increasing the maximum number of shares available for issuance pursuant
to the 1991 Stock Plan (see Note 4) from 2,000,000 to 2,500,000.
In July and August 1996, the Company completed a private placement of
equity securities with gross proceeds of $12,965,000 (see Note 3). The
securities sold were Units, or fractions thereof, and each Unit was comprised of
10,000 shares of the Company's Series B' Preferred Stock and Class C Warrants to
purchase 66,667 shares of the Company's Common Stock at an exercise price of
$1.50 per share. Each Unit was priced at $100,000.
F-16
<PAGE>
Holders of Common Stock are entitled to one vote per share held of
record in the election of directors and on all other matters on which
stockholders are entitled to vote. Holders of Series B' Preferred Stock are
entitled to one vote per equivalent share of Common Stock which the holder would
be entitled to upon conversion of the Preferred Stock. Holders of Common and
Preferred Stock are not entitled to cumulative voting rights. The holders of
Common Stock are entitled to dividends in such amounts and at such times as may
be declared by the Company's Board of Directors out of funds legally available
therefor, subject to the rights of holders of preferred stock, if any. Upon
liquidation or dissolution, holders of Common Stock are entitled to share
ratably in all net assets available for distribution to stockholders after
payment of any liquidation preferences to holders of preferred stock, if any.
Holders of Common Stock have no redemption, conversion or preemptive rights.
7. Net Loss Per Share of Common Stock
The net loss per share amounts are presented in accordance with
Accounting Principles Board Opinion No. 15 ("APB 15"). Under this guidance,
options, warrants, convertible debt and securities and other common stock
equivalents are not considered as outstanding since their effect is dilutive.
In accordance with Staff Accounting Bulletin No. 83 ("SAB 83"), loss
per share amounts for periods presented in the Company's S-1 Registration
Statement dated June 21, 1994 previously filed with the Company's initial public
offering of its common stock are computed assuming that options, warrants and
convertible debt and securities issued within one year prior to the initial
filing of that registration statement, at prices or conversion prices less than
the IPO price are outstanding for all periods presented, regardless of whether
the effect is dilutive or anti-dilutive. The guidance under SAB 83 applies only
to those periods presented in and prior to the Company's initial S-1
Registration Statement. The net loss per share amount for 1994, gives effect to
the conversion of the Preferred Stock and Convertible Notes then outstanding
into Common Stock which occurred contemporaneously with the closing of the
Company's public offering.
8. Income Taxes
At December 31, 1996, the Company has net operating loss carryforwards
of approximately $18,573,000 and research and experimental credit carryforwards
of $196,700 for income tax purposes that expire in years 2006 through 2011 of
which approximately $4,865,000 of net operating loss carryforwards relate to the
acquisition of Lexin. For financial reporting purposes, a valuation allowance of
$5,815,100 has been recognized to offset the deferred tax assets related to
those carryforwards at December 31, 1996. The valuation allowance increased by
$1,778,770 from 1995 to 1996. When, and if, recognized, the tax benefit for
those items will be reflected in current operations of the period when the
benefit is recognized as a reduction of income tax expense. Significant
components of the Company's deferred tax liabilities and assets at December 31,
are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax liabilities:
Tax over-book depreciation........................................... $ -- $ (4,170)
------------- ------------
Total deferred tax liabilities......................................... -- (4,170)
Deferred tax assets:
Net operating loss carryforwards..................................... 5,500,800 3,770,800
Research and experimental credit carryforwards....................... 196,700 171,700
Contribution carryforward............................................ 83,300 98,000
Depreciation......................................................... 34,300 --
------------- ------------
Total deferred tax assets.............................................. 5,815,100 4,040,500
Valuation allowance for deferred tax assets............................ (5,815,100) (4,036,330)
------------- ------------
Total deferred tax assets.............................................. -- 4,170
------------- ------------
Net deferred tax assets (liabilities).................................. $ -- $ --
============= ============
</TABLE>
F-17
<PAGE>
No current income taxes have been provided for the periods ended
December 31, 1996, as the Company had a loss for both financial reporting and
tax purposes.
Based on the number of shares of Common Stock, Convertible Notes and
Preferred Stock issued in 1993 and March of 1996, the Company exceeded the
limits allowable under the Tax Reform Act of 1986 related to changes in
ownership percentage governing future utilization of net operating loss
carryforwards. The effect of these occurrences is to limit the annual
utilization of the net operating loss carryforwards to an amount determined by
multiplying the fair market value of the Company immediately prior to the change
in ownership percentage by the federal long-term tax exempt interest rate at the
time of these changes. As of December 31, 1996, future net operating loss carry
forwards are limited to approximately $225,000 per year for losses incurred
through August 23, 1993 and approximately $1,198,000 per year for losses
incurred between August 24, 1993 and March 15, 1996. In addition, future net
operating loss carry forwards related to Lexin are limited to approximately
$191,000 per year.
9. Employee Benefit Plan
The Company previously maintained a Salary Reduction Simplified
Employee Pension Plan, which was funded by elective salary deferrals by
employees. Additionally, the Company made mandatory contributions of $1,892 for
1994 and $3,151 for 1995. Included in accounts payable and accrued expenses at
December 31, 1996, is the Company's mandatory contribution for 1996 in the
amount of $5,029.
As of January 1, 1997, the Company initiated a 401(k) plan covering all
current employees, which is funded by elective salary deferrals by employees.
10. Commitments
Consulting agreements: The Company is a party to several consulting
agreements with terms ranging from one to two years which commit the Company to
future stock sales and specified fees upon the occurrence of certain events. Two
of the agreements entered into in 1994 granted up to 200,000 non-qualified stock
options subject to certain terms and conditions, the most restrictive of which
required the market value of the Common Stock to reach target levels by certain
key dates. 100,000 of these options were granted under the 1991 Stock Plan (see
Note 4). The remaining 100,000 options were granted outside the 1991 Stock Plan.
These agreements were renegotiated in 1995, and the 200,000 options were
canceled. One of the renegotiated agreements granted 10,000 non-qualified stock
options under the 1991 Stock Plan. The Company granted 125,000 non-qualified
stock options pursuant to two agreements entered into during 1996. Under terms
of certain of these agreements, the Company had sold 99,999, 141,665 and 137,498
shares of common stock at $.003 per share as of December 31, 1991, 1992, and
1993, respectively. The Company is obligated to pay consulting fees of $162,000
per year beginning in November 1996. Consulting fees paid totaled $158,000,
$131,000 and $268,000 in 1994, 1995 and 1996 respectively.
Services agreement: The Company retained a contract drug development
company, Cato Research, Ltd. ("Cato"), to provide services for up to a three
year period beginning in November 1991. The contract was renewed effective
November 26, 1994. Services under the agreement are paid for by a combination of
cash payments and issuance of Common Stock. The amount of related service
expense is measured based on the invoice amount from Cato. The number of shares
issued for the stock portion of the payment is based on a formula. Under the
terms of the agreement, the Company may issue up to a maximum total of 150,000
shares at a formula price. Through December 31, 1996, cash payments of
approximately $879,000 had been made by the Company, and the related stock
portion of the payments totaled 56,392 shares of Common Stock. Included in
accounts payable and accrued expenses at December 31, 1996, is $105,744 owed to
Cato of which the Company was obligated to issue 29,742 shares of Common Stock
as part of the payment. The Company also issued 13,459 shares of Common Stock in
connection with the conversion of the Convertible Notes and Preferred Stock (see
F-18
<PAGE>
Note 3-Preferred Stock) because the conversion occurred at a price less than
$6.00 per share. Those shares of Common Stock, as well as 50,000 shares which
were sold at $.003 in 1991, were issued or are issuable to Cato Holding Co., the
parent corporation of Cato Research Ltd.
License, option and research agreements: The Company is a party to
several license agreements for inventions, compounds, and technologies that
obligate the Company to pay certain royalties on net sales and certain fees,
upon the occurrence of certain events. These agreements are subject to
termination by the Company. Unless the agreements are terminated, the Company
must pay minimum royalties and maintenance fees as follows:
Amount
------
1997............................................... $182,000
1998............................................... $202,000
1999............................................... $202,000
Per year thereafter................................ $202,000
Payments under these agreements to licensors totaled approximately
$420,000, $157,000 and $157,000 in 1994, 1995, and 1996 respectively.
Additionally, under a collaboration and option agreement, the Company
agreed to pay part of the cost of a research program up to $182,000, of which
approximately $72,000 has been paid as of December 31, 1996. This agreement is
denominated in a foreign currency and is subject to the fluctuations of exchange
rates.
Under its various license and research agreements, the Company is
obligated to issue 56,402 shares of Common Stock at $.003 per share upon the
occurrence of certain future events.
Research agreements: The Company has entered into various other
research contracts for certain research activities. Payments under these
agreements totaled $314,000, $765,000 and $737,000 in 1994, 1995 and 1996,
respectively. Included in accounts payable and accrued expenses at December 31,
1996, is approximately $47,000 relating to these contracts. Under terms of these
agreements, the Company may be obligated to make further payments of
approximately $1,064,000 in 1997.
Minimum lease payments: The Company has entered into a lease agreement
for its office space in Horsham, Pennsylvania. Rent expense for 1996 was
$113,000. Contingent rentals are payable under the lease based upon operating,
maintenance, management, and repair expenses incurred by the lessor. The Company
has the right to renew the lease at the end of the term for an additional five
years. Future minimum lease payments are as follows:
Amount
------
1997............................................... $100,000
1998............................................... $108,000
1999............................................... $65,000
11. Related Party Transactions
During 1993, the Company paid commissions of approximately $313,000 and
non-accountable expense allowances of approximately $139,000 to a company
controlled by a significant shareholder in connection with the private placement
of its Convertible Note and Preferred Stock issues (see Note 3).
F-19
<PAGE>
On May 4, 1994, the Company issued to a company controlled by a common
shareholder (or its designees) warrants to purchase 53,583 shares of Common
Stock at $6.60 per share related to the above mentioned Convertible Note and
Preferred Stock issues.
On February 29, 1996 the Company completed a private placement of
300,000 shares of its Series A Preferred Stock. In connection with this private
placement the Placement Agent received a warrant to purchase 30,000 shares of
Series A Preferred Stock at an aggregate purchase price of $375,000. In
addition, the Placement Agent was paid commissions totaling $300,000 and
nonaccountable expenses totaling $90,000.
On March 15, 1996, the Company acquired the assets and business of
Lexin pursuant to an Asset Purchase Agreement (the "Agreement") between the
Company and Lexin. Pursuant to the Agreement, the Company issued 2,000,000
shares of its Common Stock. All of the shares issued pursuant to the Agreement
will be initially held in trust. Richard Sherman, a Director of the Company, was
a Director of Lexin. Dr. Jerry Hook, the Company's President and Chief Executive
Officer, was formerly the President and Chief Executive Officer of Lexin. Ronald
H. Spair, the Company's Chief Financial Officer, previously held that position
at Lexin. Upon liquidation of the Trust, a partnership of which Mr. Sherman is a
shareholder of the General Partner will receive 280,041 shares. Mr. Hook and Mr.
Spair will receive 99,000 and 49,500 shares, respectively.
On August 23, 1996, the Company completed a private placement of 129.65
Units each consisting of (a) 10,000 shares of Series B' Preferred Stock and (b)
Class C Warrants to purchase 66,667 shares of common Stock. The Company paid
commissions of $1,166,850 and non-accountable expense allowances of $518,600 to
the Placement Agent in connection with such private placement. In addition, the
Company will (i) pay the Placement Agent a commission of 6% upon the exercise of
any Class C Warrant and (ii) reimburse the Placement Agent for out-of-pocket
costs, not to exceed $5,000 incurred in the connection with the solicitation of
Class C Warrant exercise or the redemption of Class C Warrants. Lindsay A.
Rosenwald, M.D., a principal stockholder and Director of the Company, is the
sole stockholder, Chairman of the Board of Directors and Chief Executive Officer
of the Placement Agent. In addition, the Company issued to the Placement Agent
certain preferred stock warrants in respect to the Series B' Preferred Stock and
common stock warrants.
On August 23, 1996, the Company made loans of $100,000, $50,000 and
$50,000 to Jerry B. Hook, Ph.D., the Company's President and Chief Executive
Officer, Dr. William McCulloch, Senior Vice President, Research and Development
of the Company and Ronald H. Spair, Chief Financial Officer and Secretary of the
Company, respectively (the "Officers"). Proceeds of such loans were used by the
Officers to purchase a Unit, or fraction thereof, sold by the Company in its
private placement concluded in August 1996. Such loans are evidenced by
promissory notes bearing interest at the rate of 8% per annum with maturity
dates of July 30, 1999. Principal of the loans is payable in three equal
installments on each of July 30, 1997, 1998, and 1999. On each scheduled
repayment date, the amount then due (including accrued interest) will be
forgiven by the Company provided that on such date the respective Officer
continues to be employed by the Company. The outstanding balance of the loan
(plus all accrued interest) will be forgiven in full in the event that one of
the following occurs: (i) the death or disability of the Officer (within the
meaning of the respective Officer's employment agreement with the Company), (ii)
the operations of the Company are terminated, (iii) the Company is liquidated or
(iv) the Company undergoes a change of control.
Dr. Rosenwald, a Director, is also the Chairman and Chief Executive
Officer of The Castle Group Ltd., a medical venture capital firm located in New
York, New York. In 1992, The Castle Group Ltd. guaranteed the salary of William
McCulloch for a period of up to three years ending on October 1, 1995.
In 1995, the Company and the underwriter for the Company's initial
public offering entered into a financial advisory agreement with a one-year
term. Under the terms of the agreement, the Company recognized financial
advisory fee expense of $150,000 in 1996.
F-20
<PAGE>
EXHIBITS INDEX
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
%%% 2.1 -- Copy of the Asset Purchase Agreement, with exhibits thereto, dated February 22, 1996,
between the Registrant and Lexin Pharmaceutical Corporation
3.4 -- Amended and Restated Certificate of Incorporation filed August 1, 1996.
& 3.4A -- Certificate of Designation of the Series B' Convertible Preferred Stock filed on August 23,
1996.
**4.2 -- Form of Common Stock Certificate
**4.3 -- Form of Class A Warrant Certificate
**4.4 -- Form of Class B Warrant Certificate
***4.5 -- Unit Purchase Option granted to Americorp Securities Inc. dated June 28, 1994
***4.6 -- Warrant Agreement entered into among Midlantic National Bank, Americorp Securities,
Inc., and the Registrant dated June 21, 1994
@@4.7 -- Warrant Agreement for the Class C Warrants, dated August 23, 1996 between the Registrant,
First City Transfer Company and Paramount Capital, Inc.
@@4.8 -- Form of Class C Warrant Certificate ( see Exhibit 4.7)
*+10.1 -- Exclusive License Agreement, dated October 1, 1991, between the Registrant and Yale
University ("Yale") and Subscription Agreement, dated October 21, 1991, between the
Registrant and Yale
*+10.1A -- Revised pages of Exhibit 10.1
*+10.2 -- License Agreement, dated October 7, 1991, between the Registrant and The Research
Foundation of State University of New York
*+10.2A -- Revised pages of Exhibit 10.2
*+10.3 -- Research and License Agreement, dated as of October 15, 1991, between the Registrant
and Institute of Materia Medica of the Chinese Academy of Medical Sciences ("BIMM"),
as amended by an Amendment of Research and License Agreement, dated as of March
1, 1992, between the Registrant and BIMM
*+10.3A -- Revised pages of Exhibit 10.3
*+10.4 -- Licensing and First Refusal Agreement, dated as of March 12, 1992, between the
Registrant and the Dana-Farber Cancer Institute, Inc. ("Dana-Farber"), a Letter
Agreement, dated March 12, 1992, between the Registrant and Dana-Farber, and a Letter
Agreement, dated September 12, 1992, between the Registrant and Dana-Farber
*+10.4A -- Revised pages of Exhibit 10.4
*+10.5 -- License Agreement, dated as of August 31, 1992, between the Registrant and Imperial
Chemical Industries PLC
*+10.5A -- Revised pages of Exhibit 10.5
*10.6 -- Letter Agreement, dated October 30, 1992, among the Registrant, Imperial Chemical
Industries PLC, and ICI Bioscience Limited
*+10.7 -- Collaboration and Option Agreement, dated September 18, 1992, by and among the
Registrant, Cancer Research Campaign and Cancer Research Campaign Technology
Limited
*+10.7A -- Revised pages of Exhibit 10.7
!10.8 -- Amended and Restated Sublicense Agreement, dated January 1, 1997, between the
Registrant and Research Triangle Pharmaceuticals Ltd. ("RTP").
*+10.9 -- Service Agreement, dated November 27, 1991, between the Registrant and Cato Research,
Ltd. ("Cato"), as amended by a Letter Agreement, dated March 16, 1993, between the
Registrant and Cato
*10.9A -- Revised pages of Exhibit 10.9
*10.10 -- Letter Agreement, dated October 28, 1991, between the Registrant and Cato
*10.11 -- Subscription Agreement, dated November 27, 1991, between the
Registrant and Cato Holding Co.
*10.12 -- Subscription Agreement, dated December 10, 1993, between the Registrant and Cato
Holding Co.
*10.13 -- Employment Agreement, dated as of January 28, 1991, between the Registrant and
William M. Sullivan, as amended by a Letter Agreement, dated as of March 2, 1993,
between the parties
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
*10.14 -- Nonqualified Stock Option Agreement, dated as of December 3, 1991, between the
Registrant and William M. Sullivan
*10.15 -- Confidentiality Agreement, dated as of January 28, 1991, between the Registrant and
William M. Sullivan
*10.16 -- Employment Agreement, dated July 2, 1992, between the Registrant and William
McCulloch, as amended by a Letter Agreement, dated as of March 2, 1993, between the
parties, and Guarantee by The Castle Group Ltd.
*10.17 -- Incentive Stock Option Agreement, dated as of October 1, 1992, between the Registrant
and William McCulloch
*10.18 -- Nonqualified Stock Option Agreement, dated as of October 1, 1992, between the
Registrant and William McCulloch
*10.19 -- Nonqualified Stock Option Agreement, dated as of October 1, 1992, between the
Registrant and William McCulloch
*10.20 -- Confidentiality Agreement, dated as of July 2, 1992, between the Registrant and William
McCulloch
*10.21 -- Noncompetition Agreement, dated as of October 1, 1992, between the Registrant and
William McCulloch
*10.27 -- Letter Agreement, dated March 23, 1993, between the Registrant and Paramount Capital,
Inc., as amended by Letter Agreements dated June 24, 1993, June 28, 1993, September
24, 1993 and November 5, 1993
*10.28 -- Indemnification Agreement, dated as of June 3, 1992, between the Registrant and The
Castle Group Ltd. relative to William McCulloch
*10.30 -- 1991 Stock Plan, as amended
*10.31 -- Stock Repurchase Agreement, dated as of November 21, 1991, between the Registrant and
Peter Barton Hutt
*10.33 -- Stock Repurchase Agreement, dated as of October 15, 1991, between the Registrant and
Sir John Vane
*10.34 -- Stock Repurchase Agreement, dated as of December 24, 1991, between the Registrant and
The Sir John Vane Trust
*10.36 -- Form of convertible notes issued on or prior to October 28, 1993 and schedule of
purchasers of notes
*10.37 -- Form of Note Purchase and Subscription Agreement for issuance of convertible notes issued
prior to October 28, 1993 and schedule of purchasers of notes
*10.38 -- Form of convertible notes issued in November 1993 and schedule of
purchasers of notes
*10.39 -- Note Purchase and Subscription Agreement dated as of November 12, 1993 between the
Registrant and Financial Strategic Portfolios, Inc. -- Health Sciences Portfolio ("FSP") for
issuance of convertible notes (See Exhibit 10.38 hereunder for Exhibit A to this Exhibit
10.39)
*10.40 -- Form of Note Purchase and Subscription Agreement for issuance of convertible notes
issued in November 1993 other than to FSP
*10.41 -- Form of Note Purchase and Exchange Agreement for exchange of convertible notes, form
of convertible notes and schedule of parties thereto
*10.41A -- Revised schedule of parties to Exhibit 10.41
*10.42 -- Stock Purchase and Exchange Agreement, dated as of December 10, 1993, between the
Registrant and FBL Ventures of South Dakota
*10.43 -- Registration Rights Agreement, dated November 12, 1993, among the Registrant and
certain rights holders, as amended as of December 14, 1993
*10.44 -- Subscription Agreement dated September 14, 1992 and Letter Agreements dated October
12, 1992 and December 13, 1993, between the Registrant and Yale
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
*10.44A -- Letter Agreement dated January 4, 1994
***10.46 -- M/A Agreement between the Registrant and Americorp Securities, Inc. dated June 28,
1994
**10.47 -- Form of Warrant Purchase Agreement among the Registrant, Healthcare Capital
Investments, Inc., Societe Generale Securities Corporation and the Holders listed on
Schedule I thereto
**10.48 -- Form of Warrant Purchase Agreement among the Registrant, Paramount Capital, Inc. and
the Holders listed on Schedule I thereto
***10.49 -- Underwriting Agreement between the Registrant and Americorp Securities, Inc. dated
June 21, 1994
***10.50 -- Unit Purchase Option granted to LT Lawrence & Company, Inc. dated June 28, 1994
#10.51 -- Nonqualified Stock Option Agreement, dated as of December 16, 1994, between the
Registrant and William M. Sullivan
#10.52 -- Nonqualified Stock Option Agreement, dated as of July 10, 1994, between the Registrant and
Sir John Vane, FSR
#10.54 -- Nonqualified Stock Option Agreement, dated as of July 10, 1994, between the Registrant
and Peter Barton Hutt
#10.55 -- Incentive Stock Option Agreement, dated as of December 16, 1994, between the
Registrant and William McCulloch
#10.56 -- Amendment (as of March 14, 1994) to the Employment Agreement, dated July 2, 1992,
between the Registrant and William McCulloch, as amended by a Letter Agreement, dated
as of March 2, 1993, between the parties, and guaranteed by The Castle Group Ltd.
#10.57 -- Amendment (dated November 26, 1994) to the Service Agreement, dated November 27,
1991, between the Registrant and Cato Holding Co.
#10.58 -- Amendment (dated December 16, 1994) to the Employment Agreement, dated January
28, 1991, between the Registrant and William M. Sullivan, as amended by a Letter
Agreement, dated as of March 2, 1993, between the parties
##10.59 -- Nonqualified Stock Option Agreement, dated as of June 7, 1995, between the Registrant and
Sir John Vane, FSR
##10.61 -- Nonqualified Stock Option Agreement, dated as of June 7, 1995, between the Registrant and
Peter Barton Hutt
##10.62 -- Amendment (dated June 1, 1995) to the Research and License Agreement, dated as of
October 15, 1991, between the Registrant and BIMM, as amended by an Amendment of
Research and License Agreement, dated as of March 1, 1992, between the Registrant and
BIMM
^10.63 -- Financial Advisory Agreement between the Registrant and Americorp Securities, Inc., dated
as of June 29, 1995
%10.64 -- Amendment (dated as of September 14, 1994) to the Collaboration and Option Agreement,
dated September 18, 1992, by and among the Registrant, Cancer Research Campaign and
Cancer Research Campaign Technology Limited
%%10.65 -- Form of Nonqualified Stock Option Agreement, dated as of December 10, 1995, between the
Company and William M. Sullivan
%%10.66 -- Incentive Stock Option Agreement, dated as of December 10, 1995, between the Company
and William McCulloch
%%10.67 -- Distribution Agreement, dated as of December 1, 1995, among Sparta Pharmaceuticals, Inc.,
Orphan Europe SARL and Swedish Orphan, AB
%%10.68 -- Warrant Agreement between the Registrant and Paramount Capital, Inc., dated February 29,
1996
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
^10.69 -- Financial advisory agreement between the Registrant and Paramount Capital, Inc. dated as
of February 29, 1996
^^+10.70 -- Evaluation and option agreement between Lexin Pharmaceutical Corporation and Astra
Merck, Inc. dated as of October 25, 1995 (Assigned to Registrant pursuant to the Lexin
Purchase)
^^+10.71 -- Collaborative Research and Licensing Agreement between Lexin Pharmaceutical Corporation
and Wichita State University dated as of April 1, 1994 (Assigned to Registrant pursuant to
the Lexin Purchase)
^^+10.72 -- License Agreement between PI Research Corporation (predecessor in name to Lexin
Pharmaceutical Corporation) and the Trustees of The University of Pennsylvania dated as of
January 2, 1992 (Assigned to Registrant pursuant to the Lexin Purchase)
^10.73 -- Amendment (dated March 15, 1996) to the Employment Agreement dated January 28, 1991,
between the Registrant and William M. Sullivan, as amended by letter agreements, dated as
of March 2, 1993 and December 16, 1994, between the parties
^10.74 -- Placement Agency Agreement between the Registrant and Paramount Capital, Inc., dated as
of January 22, 1996
@10.75 -- Placement Agency Agreement between the Registrant and Paramount Capital, Inc., dated as
of June 3, 1996
@10.76 -- Amendment (dated January 10, 1996) to the Stock Option Agreements between the Registrant
and William McCulloch dated as of October 1, 1992, December 1, 1996, December 16, 1994
and December 11, 1995
@10.77 -- Amendment (dated March 29, 1996) to the Collaborative Research and Licensing Agreement
between Lexin Pharmaceutical Corporation and Wichita State University dated as of April
1, 1994 (Assigned to Registrant pursuant to the Lexin Purchase)
@@ 10.79 -- Promissory Note dated August 23, 1996, in the amount of $100,000 from Jerry B. Hook
Ph.D. to the Registrant.
@@10.80 -- Promissory Note dated August 23, 1996, in the amount of $50,000 from Dr. William
McCulloch to the Registrant.
@@10.81 -- Promissory Note dated August 23, 1996, in the amount of $50,000 from Ronald H. Spair to
the Registrant.
10.82 -- Employment Agreement, dated March 15, 1996, between the Registrant and Ronald H. Spair
10.83 -- Net Lease Agreement dated March 29, 1994, and entered into between Lexin Pharmaceutical
Corporation and the Pennsylvania Business Campus (assigned to the Registrant).
10.84 -- Nonqualified Stock Option Agreement, dated as of September 5, 1996 between the
Registrant and Colin B. Bier, Ph.D.
10.85 -- Milestone Option Agreement between the Registrant and William McCulloch dated March
15, 1996.
10.85A -- Amendment (dated June 17, 1996) to the Milestone Option Agreement between the Registrant
and William McCulloch dated March 11, 1996.
10.86 -- Incentive Stock Option Agreement, dated as of December 5, 1996, between the Registrant
and Jerry B. Hook, Ph.D.
10.87 -- Incentive Stock Option Agreement, dated as of December 5, 1996, between the Registrant
and William McCulloch.
10.88 -- Incentive Stock Option Agreement, dated as of December 5, 1996, between the Registrant
and Ronald H. Spair.
10.89 -- Nonqualified Stock Option Agreement, dated as of June 17, 1996 between the Registrant and
Sir John Vane, FSR
10.90 -- Nonqualified Stock Option Agreement, dated as of June 17, 1996, between the Registrant
and Peter Barton Hutt
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
11.1 -- Statement Re Computation of Per Share Earnings
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Ernst & Young LLP
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* Previously filed with the Company's Registration Statement on Form S-l,
Registration Number 33-72882, filed on December 14, 1993, or amendments
thereto, and incorporated by reference herein.
** Previously filed with the Company's Registration Statement on Form S-l,
Registration Number 33-78086, filed on April 25, 1994, or in Amendment
No. 1 thereto, filed on June 1, 1994.
*** Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1994, filed on August 15, 1994 and
incorporated by reference herein.
# Previously filed with the Company's 1994 Annual Report on Form 10-K,
filed on March 31, 1995, and incorporated by reference herein.
## Previously filed with the Company's Quarterly Report on form 10-Q for
the quarterly period ended June 30, 1995, filed on August 14, 1995.
### Previously filed with the Company's Amendment No. 1 to the Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1995,
filed on January 24, 1996.
% Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1995, filed on November 14,
1995.
%% Previously filed with the Company's 1995 Annual Report on Form 10-K,
filed on April 1, 1996, and incorporated by reference herein.
%%% Previously filed with the Company's report on Form 8-K filed on April 1,
1996, and incorporated by reference herein.
& Previously filed with the Company's report on Form 8-K filed on
September 26, 1996, and incorporated by reference herein.
^ Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1996, filed on May 15, 1996.
^^ Previously filed with the Company's Quarterly Report on Form 10-Q/A for
the quarterly period ended March 31, 1996, filed on July 17, 1996.
@ Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1996, filed on August 9, 1996.
@@ Previously filed with the Company's Registration Statement on Form S-3,
Registration Number 333-13621, filed on October 7, 1996, or in Amendment
No. 1 thereto, filed on October 17, 1996.
+ Confidential Treatment has been granted by the Securities and Exchange
Commission.
! Confidential Treatment has been requested from the Securities and
Exchange Commission.
<PAGE>
AMENDED AND RESTATED SUBLICENSE AGREEMENT
THIS AGREEMENT is made this the first day of January, 1997 by and
between Research Triangle Pharmaceuticals Ltd., a North Carolina corporation
which has its principal place of business at 4364 S. Alston Avenue, Durham,
North Carolina 27713 ("RTP"), and Sparta Pharmaceuticals, Inc., a Delaware
corporation, which has its principal place of business at 111 Rock Road,
Horsham, Pennsylvania 19044-2310 ("Sparta")
Recitals
1. RTP entered into a Technology License Agreement dated March 11, 1991
among Cato Holding Company, Research Triangle Pharmaceuticals Ltd.,
Haynes-Kirkpatrick Pharma-Logic, Inc. (now "Pharma-Logic, Inc."), Duncan Haynes,
and Anthony Kirkpatrick ("Technology License Agreement"), pursuant to which
Research Triangle Pharmaceuticals Ltd. licensed rights to certain drug delivery
technologies from Pharma -Logic, Inc. more particularly described therein but
which have been generally referred to by the parties thereto as the
Microdroplet, Microcrystal and Novel Liposome Technology.
2. On July 13, 1992, RTP and SPARTA entered into a Sublicense Agreement
(the "Sublicense Agreement") with respect the Microdroplet, Microcrystal and
Novel Liposome Technology in the field of anti- cancer applications. This
Sublicense agreement was subsequently amended by the parties on October 27,
1992, March 19, 1993, August 18, 1993, and July 22, 1994 (all of which are
referred to as the "Sublicense Amendments").
3. On or about October 25, 1996 RTP entered into a Technology Purchase
Agreement with Pharma Logic, Inc. pursuant to which RTP acquired rights to
technology formerly licensed under the Technology License Agreement. On the same
date, RTP entered into a License Agreement with RTP Pharma, Inc. ("RTP Pharma")
pursuant to which rights of RTP in the Microdroplet, Microcrystal and Novel
Liposome Technology other than that licensed to SPARTA were licensed to RTP
Pharma, Inc.
4. SPARTA and RTP desire to make technical changes in the Sublicense
Agreement to reflect RTP's status as an owner, rather than a licensee of the
technology, to narrow the scope of the field of use, to change certain financial
terms, and to make other technical amendments as are necessary and appropriate.
NOW, THEREFORE, in consideration of the covenants and premises herein
recited and of other good and valuable consideration, the receipt of which is
hereby acknowledged, RTP AND SPARTA AGREE AS FOLLOWS:
1. Definitions.
The following terms, when initially capitalized, shall have the following
respective meanings:
Affiliate. "Affiliate" shall mean any entity in which SPARTA or any of
its officers, agents, employees, or spouses thereof have a direct or indirect
ownership interest of fifty (50) percent or more, or any
1
<PAGE>
person or entity which directly or indirectly, or through one or more
intermediaries, controls, is controlled by, or is under common control with
SPARTA or any of its officers, agents, employees, or the spouses thereof. For
purposes of this paragraph, "control" shall mean the power to direct or cause
the direction of the management and policies of such entity, whether through the
ownership of voting securities, by contract or otherwise.
Agreement. "Agreement" shall mean and refer to this Amended and
Restated License Agreement.
Application. "Application" shall mean and refer to a finished
pharmaceutical formulation within the Field suitable for delivering drugs whose
manufacture, use or sale is covered by Licensed Rights.
Anti-Cancer Agent. "Anti-Cancer Agent" shall mean and refer to an agent
that it is intended to be used alone or in combination with other agents or
modalities such as surgery, radiation, or other non- pharmaceutical procedures
for the prevention, cure or treatment of neoplasia or dysplasia, whether or not
malignant, including but not limited to the primary and meta static lesions of
any such neoplasia or dysplasia.
Best Efforts. "Best Efforts" shall mean and refer to that reasonable
level of efforts undertaken in good faith which the performing party shall exert
which, in the performing party's sole judgment, shall be best suited to
commercialize the licenses granted under this Agreement and to carry out the
intent of this Agreement, taking into account such factors as time and expense
encountered in patent prosecution, regulatory considerations, capital formation,
cost factors derived at the completion of the development, competitive and other
market conditions. "Best Efforts" shall not imply any warranty or guaranty that
the intended result can or will be accomplished.
Continuing License Fees. "Continuing License Fees" shall mean and refer
to any royalty, or license fee, or the equivalent thereof even if not called the
same, other than Up-Front License Fees, received by SPARTA or its Affiliates,
including but not limited to periodic, running or continuing royalties or
license fees, which are compensation to SPARTA or its Affiliates for rights
granted by SPARTA or its Affiliates to utilize the Licensed Rights, to make,
have made, use and sell Applications. Notwithstanding the foregoing, "Continuing
License Fees" shall not include any revenue received by SPARTA or its Affiliates
which reimburses SPARTA for its reasonably allocated costs related to the
development of an Application, nor shall "Continuing License Fees" include any
equity investment made in SPARTA or its Affiliates by a Third Party, or
contribution to a joint venture, or the equivalent thereof, provided that, in
the case of a joint venture, said joint venture uses and practices Applications
and the joint venture becomes a Sublicensee. In the event SPARTA manufactures
and supplies Applications to a Sublicensee or a Sublicensee Affiliate,
Continuing License Fees shall also include any amounts received by SPARTA from
said Sublicensee or Sublicensee Affiliate with regard to the supply of such
Applications by SPARTA to the Sublicensee or Sublicensee Affiliate in excess of
twice SPARTA's reasonably allocated cost of goods for such Application.
CRL. "CRL" shall mean and refer to Cato Research Ltd., a North Carolina
corporation with its headquarters and principal place of business located at
4364 South Alston Avenue, Durham, North Carolina, and that is an affiliate of
RTP.
Default. "Default" shall mean and refer to a material breach of any
material term of this
2
<PAGE>
Agreement by a party to this Agreement, an Affiliate or a Sublicensee.
FDA. "FDA" shall mean the United States Food and Drug Administration
and its successors.
Field of Use. "Field of Use" or "Field" shall mean and refer to any use
in humans of (1) of busulfan; (2) Aphidicolin and its water soluble ester
derivatives, including glycine ester, and the lipophilic derivatives of
aphidicolin; (3)[*], (4) one Anti-Cancer Agent Application determined pursuant
to Section 2.2, and, (5) any additional therapeutic indication received on the
drugs listed in (1)-(4) preceding following receipt of regulatory approval as a
primary indication as an Anti-Cancer Agent.
First Commercial Sale. "First Commercial Sale" of an Application shall
mean any arm's length transaction which transfers to a purchaser physical
possession and title to an Application. Transfer of possession and title to an
Affiliate or Sublicensee shall not constitute a First Commercial Sale. Sales or
transfers which are made in the drug development process prior to receipt of
approval of a New Drug Application by the FDA for use in humans shall not be
considered a First Commercial Sale.
Fraction. "Fraction" shall mean and refer to a fraction the numerator
of which is one (1) and the denominator of which is ten (10).
Licensed Rights. "Licensed Rights" shall mean and refer to all of the
rights RTP has throughout the Territory with respect to Patent Rights and Other
Proprietary Rights.
Net Selling Price. "Net Selling Price" shall mean and refer to [
Information omitted and filed separately with the Commission under
Rule 24b-2.
]
Notwithstanding the foregoing, no deductions shall be made for [ *
]. Also, no deduction shall be made for[ * ].
Applications or kits including Applications shall be considered sold when billed
out or invoiced. Unless otherwise agreed among the parties, when the Application
is sold as a part of a kit in which multiple products are sold: (a) if there is
only a single pharmaceutical formulation in the kit, the entire price of the kit
shall be considered within the Net Selling Price; (b) if there are multiple
pharmaceutical formulations containing active ingredients in the kit and not all
of such formulations are Applications, for the purpose of determining how to
allocate the purchase price of the kit to Net Selling Price with respect to an
Application included within a kit,
[*Information omitted and filed separately with the Commission under Rule
24b-2.]
3
<PAGE>
the Net Selling Price shall include that portion of the selling price of the kit
which is represented by a fraction, the numerator of which is the number of
Applications included in the kit, and the denominator of which is the total
number of pharmaceutical formulations containing active ingredients included in
the kit.
Other Proprietary Rights. "Other Proprietary Rights" shall mean and
refer to any know-how, technical data, techniques, methods, or skills that are:
(1) directly related to the Patent Rights, (ii) are trade secrets owned by RTP,
and (iii) are necessary to practice or useful in practicing the above Patent
Rights. "Proprietary Rights" shall not include any formulation or invention
which is (1) disclosed in the published literature, including a published patent
application or issued patent, (2) generally available to the recipient without
breach of this Agreement, (3) obtained from a Third Party without binder of
secrecy, (4) or known by SPARTA prior to the date hereof and not otherwise
protected by a confidentiality agreement with RTP or not obtained from RTP by
SPARTA by misappropriation or other breach of the common law.
Patent Rights. "Patent Rights" shall mean, with respect to the patents
and patent applications identified in Schedule 1 attached hereto, all rights of
RTP to practice patent applications, issued patents, issued patents arising
therefrom and all additions, renewals, extensions, continuations, continuations
in part, and divisions arising therefrom.
A patent application will cease to be a Patent Right for purposes of
computing royalty obligations hereunder when it has been abandoned or it
(including any parent patent application) has been pending for more than five
(5) years, whichever first occurs, but will be reinstated as a Patent Right for
the purposes of computing royalty obligation on the date a patent issues
thereon. A patent will cease to be a Patent Right in the event of any of the
following:
(1) the patent expires;
(2) the patent is no longer maintained;
(3) all pertinent claims in the patent have been held to be invalid
by an unappealed or unappealable decision of a court of competent
jurisdiction.
Pharma-Logic. Inc. "Pharma-Logic, Inc." shall mean an Illinois
Corporation, formerly Haynes- Kirkpatrick Pharma-Logic, Inc., which is owned by
Duncan Haynes and Anthony Kirkpatrick, and which assigned the Patent Rights and
some of the Other Proprietary Rights to RTP.
PTO. "PTO" shall mean and refer to the United States Patent and
Trademark Office.
Requirements. "Requirements" shall mean and refer to the requirements
of SPARTA or its Sublicensees for a formulated and finished product constituting
an Application, including but not limited to the size and configuration of the
tablet, capsule or formulation, density, volume, stability, other manufacturing
specifications, the quantities of the product needed and when the product is
needed.
RTP. "RTP" shall mean and refer to Research Triangle Pharmaceuticals
Ltd., a North Carolina corporation with its headquarters and principal place of
business at 4364 S. Alston Avenue, Durham, North Carolina 27713.
4
<PAGE>
RTP Pharma. Inc., a body politic and corporate, duly incorporated
according to the Canadian Business Corporations Act, having its head office and
principal place of business at 1170 Peel Street, 5th Floor, Montreal, Quebec,
H3B 4S8, in the City of Montreal, Province of Quebec, Canada, which is an
affiliate of RTP.
Sales Year. "Sales Year" shall mean and refer to the period from
January 1 through December 31 of each calendar year unless otherwise agreed by
the parties hereto.
SPARTA. "SPARTA" shall mean and refer to SPARTA Pharmaceuticals, Inc.,
a Delaware corporation, with its headquarters and principal place of business at
111 Rock Road, Horsham, Pennsylvania 19044-2310.
Sublicense. "Sublicense" shall mean and refer to any agreement in which
SPARTA, or an Affiliate, conveys to a Third Party any or all of SPARTA's rights
to use and practice Licensed Rights within the Field.
Sublicensee. "Sublicensee" shall mean and refer to any Third Party to
whom SPARTA conveys pursuant to a Sublicense any rights of SPARTA to use and
practice Licensed Rights pursuant to this Agreement.
Sublicensee Affiliate. "Sublicensee Affiliate" shall mean any entity in
which a Sublicensee or any of its officers, agents, employees, or spouses
thereof has a direct or indirect ownership interest of fifty (50) percent or
more, or any person or entity which directly or indirectly, or through one or
more intermediaries, controls, is controlled by, or is under common control with
the Sublicensees or any of its officers, agents, employees, or the spouses
thereof. For purposes of this paragraph, "control" shall mean the power to
direct or cause the direction of the management and policies of such entity,
whether through the ownership of voting securities, by contract or otherwise.
Technology License Agreement. "Technology License Agreement" shall mean
and refer to the Technology License Agreement dated March 11, 1991 among Cato
Holding Company, Research Triangle Pharmaceuticals Ltd., Haynes-Kirkpatrick
Pharma-Logic, Inc. (now "Pharma-Logic, Inc."), Duncan Haynes, and Anthony
Kirkpatrick.
Term. "Term" shall mean the duration of this Sublicense Agreement more
particularly set forth in Section 9.1.
Territory. "Territory" shall mean and refer to the entire world.
Third Party. "Third Party" shall mean any entity or person other than
RTP, SPARTA or an Affiliate.
Up-Front License Fees. "Up-Front License Fees" shall mean and refer to
any prepaid or up-front
5
<PAGE>
royalty payments, license fees or other equivalent lump sum payments made to
SPARTA or its Affiliates, by a Sublicensee or other Third Party, for the purpose
of obtaining the right to make, have made, use or sell Applications using the
Licensed Rights.
2. RTP Obligations.
2.1. Grant of License. In consideration of the obligations of SPARTA to
RTP set forth in this License Agreement, RTP hereby grants to SPARTA and its
Affiliates and SPARTA hereby accepts, for itself and on behalf of its
Affiliates, upon the terms and conditions set forth in this Agreement, subject
to the determination of an Anti-Cancer Agent set forth in Section 2.2. of this
Agreement, the exclusive right, throughout the Territory, to:
2.1.1. to use and practice the Licensed Rights to make, have
made, use and sell Applications within the Field; and,
2.1.2. to sublicense the right to use and practice the
Licensed Rights to make, have made, use and sell Applications within
the Field provided that:
(a) Each Sublicense will be subject to the terms of this
Agreement, and no term in any Sublicense may be inconsistent with this
Agreement;
(b) The rights granted to each Sublicensee shall be no broader
than the fights granted to SPARTA in this Agreement;
(c) SPARTA shall be responsible for the performance of its
Sublicensees and Sublicensee Affiliates;
(d) If SPARTA cancels this Sublicense Agreement in its
entirety, any rights SPARTA may have under a Sub license shall revert
directly to RTP;
(e) Every Sublicense shall contain a statement setting forth
the conditions under which SPARTA's rights, privileges and license
hereunder shall terminate;
(f) Each Sublicense shall provide language substantially to
the effect that, to the extent applicable given the field of use,
territory and scope of license granted within the Sublicense: (i) the
obligations of SPARTA to RTP set forth in Subsections 4.1., 4.2.,
4.5.2., (to the extent not directly paid by SPARTA on behalf of each
respective Sublicensee), 4.5.4., 4.5.5., 4.5.6., 4.5.7., 4.7., 4.8.,
5.1., 5.2., 5.3., 9.1., 9.2., 9.4. (including all subsections), 9.5.
(including all subsections), and 10 (including all subsections thereof)
of this Agreement, as well as all applicable Definitions, shall be
binding upon Sublicensees and Sublicensee Affiliates in their
respective capacities just as they are binding upon SPARTA; (ii) if
this Agreement is terminated for any reason, RTP shall be exclusively
entitled to the benefits of such Sublicenses, and (iii) in no event
shall RTP be liable for or otherwise responsible for any breach by
SPARTA of the terms of any Sublicense or for any other obligation of
SPARTA arising out of any such Sublicense, regardless of whether such
liability or obligation arises from nonfeasance, misfeasance or
malfeasance or other action on the part of SPARTA, even if RTP should
assume the ongoing obligations of SPARTA as set forth in (g) below;
(g) Each Sublicense shall provide language substantially to
the effect that (i) RTP shall receive from each Sublicensee notice of
any breach of the Sublicense by SPARTA, (ii) in the event of
6
<PAGE>
the breach of the Sublicense by SPARTA, and SPARTA does not
cure the breach as set forth in the Sublicense Agreement, subject to
the limitation of Subsection 2.1 .2.(f)(iii) immediately above, RTP at
its option may elect to assume the ongoing duties and responsibilities
of SPARTA pursuant to said Sublicense or to terminate such Sublicense;
(h) In order that RTP can determine compliance with this
Agreement and related agreements, and so that RTP can provide copies of
Sublicenses to Pharma-Logic, Inc., SPARTA agrees to forward to RTP a
copy of any and all proposed Sublicenses at least twenty (20) days
prior to their final approval and execution;
(i) SPARTA shall forward to RTP annually a copy of such
reports received by SPARTA from its Sublicensees and Sublicensee
Affiliates during the preceding twelve-month period as shall be
pertinent to a royalty accounting under said sublicense agreements;
(j) Each Sublicense shall include language which provides
that: (i) the Sublicensee under such Sublicense shall procure product
liability insurance naming Duncan Haynes, Anthony Kirkpatrick, RTP
(including its officers and directors), RTP Pharma, Inc. and its
officers and directors, Cato Holding Company (and its officers and
directors)(for so long as RTP is controlled by Cato Holding Company),
Pharma-Logic, Inc., and the University of Miami as named insureds, and
shall be in an amount not less than One Million Dollars ($1,000,000)
per occurrence, and Five Million Dollars ($5,000,000) in the annual
aggregate, subject to reasonable deductibles which are based upon the
Sublicensee's or Sublicensee Affiliate's ability to self-insure with
respect to the amount of the deductible and excluding from such
insurance liability which arises by reason of the negligence, bad faith
or illegal act of any of the foregoing persons or entities; (ii) in
lieu of (i) above, each Sublicensee or Sublicensee Affiliate may
self-insure if it can present to RTP an audited balance sheet as of the
end of the last fiscal year and an unaudited balance sheet less than
forty-five (45) days old which shows that the Sublicensee has
unencumbered liquid assets in excess of $5,000,000; (iii) said
Sublicensee or Sublicensee Affiliate shall indemnify and hold harmless
Duncan Haynes, Anthony Kirkpatrick, Pharma-Logic, Inc., the University
of Miami, Cato Holding Company, RTP Pharma, Inc. and RTP from and
against any costs, damages, expenses, or charges, including reasonable
attorneys' fees, arising from any claim that any Application as
marketed or sold contains latent or non-latent defects or is inherently
unsafe or dangerous, except where such claim arises from the
negligence, bad faith or illegal act of any of the foregoing persons or
entities;
(k) Each Sublicense shall have provisions obligating the
Sublicensee pursuant to the Sublicense: either (i) to pay minimum
royalties from and after [*] years after the execution of the
Sublicense, in addition to any development costs or research costs
reimbursed under the Sublicense; or (ii) to pay substantially all of
the development costs for each Application which is the subject of the
Sublicense within reasonable milestones established for said
development;
(1) Each Sublicense shall provide language substantially to
the effect that: (i) upon the failure of the Sublicensee under said
Sublicense to meet the minimum use requirements established as set
forth in Subsection 2.1 .2.(k) above, the Sublicense shall terminate
immediately;
(m) No Sublicensee or Sublicensee Affiliate shall have any
right to sublicense any of the Licensed Rights; and,
(n) Each Sublicensee shall at all times during the term of
this Agreement and thereafter, indemnify, defend and hold harmless RTP,
its directors, officers, employees, affiliates, RTP Pharma, Inc. and
its officers and directors, Cato Holding Company, its trustees,
directors, officers, employees, and affiliates, Duncan Haynes, Anthony
Kirkpatrick, Pharma-Logic, Inc., and the University of Miami
[*Information omitted and filed separately with the Commission under Rule
24b-2.]
7
<PAGE>
against all claims and expenses, including legal expenses and
reasonable attorneys' fees, arising out of the death or injury to any
person or persons or out of any damage to property and against any
other claim, proceeding, demand, expense and liability of any kind
whatsoever resulting from the production, manufacture, sales, use,
consumption or advertisement of the Application arising from any
obligation of SPARTA or Sublicensee or arising out of or pursuant to
the Sublicense Agreement between SPARTA and the Sublicensee, except
where such death, injury, or damage occurs to RTP or its employees or
agents, or to subjects being tested by RTP directly or indirectly,
through no substantial fault of SPARTA or said Sublicensee, or where
such death, injury, damage, claim, proceeding, demand, expense or
liability results substantially from the negligence, illegal act or bad
faith of RTP, its employees or agents; and,
(o) Each Sublicensee shall be responsible for paying for all
of the development costs with respect to each Application licensed
pursuant to the Sublicense.
2.2. Anti-Cancer Agent. If SPARTA should decide it wishes to
commercialize one Anti- Cancer Agent Application, it shall notify RTP
of its desire to do so and shall provide RTP with sufficient
information to describe the nature of the intended Anti-Cancer Agent
Application. RTP shall, in response, notify SPARTA as to whether:
(a) RTP or RTP Pharma has a pre-existing bona fide plan to
begin development of that Application within a one year period, as
evidenced by a business plan that has been approved by the RTP Board of
Directors or that of RTP Pharma, Inc.,
(b) The proposed Anti-Cancer Agent Application is comprised of
all or a part of a category of Anti-Cancer Agents that has been the
subject of another license agreement entered into by RTP or RTP Pharma,
(c) The proposed Anti-Cancer Agent Application has been the
subject of active licensing negotiations by RTP or RTP Pharma within
the past year, as evidenced by: (i) written documentation showing
interest by a Third Party in securing a license for such Application,
(ii) , if there have been real and material negotiations, letters of
intent have been negotiated, or proposed license- arrangements have
been exchanged and discussed, or RTP or RTP Pharma has expended more
than negligible resources to attempt to effect such a license, or
(iii). RTP or RTP Pharma has engaged in other reasonable activities
leading to the development qr marketing of the Anti-Cancer Application
and such negotiations have not been terminated or have not lapsed by
default or inactivity, or,
(d) the proposed Anti-Cancer Agent Applications is being the
subject of substantial and material development activity by RTP or RTP
Pharma (such as chemical synthesis (but not by itself), pharmacology,
kinetics, metabolism, assay development, formulation development,
manufacturing feasibility, efficacy, safety, toxicology, or other
similar studies) to prepare or leading to the preparation of an
Investigational New Drug Application (IND) with respect to an
Application before the United States Food and Drug Administration or to
prepare similar regulatory documents for similar regulatory authorities
in other jurisdictions, and if any of (a) through (d) above apply,
SPARTA may not undertake the development of that Anti-Cancer Agent. If
RTP responds that none of (i) through (iv) apply, SPARTA may include
one such Anti-Cancer Agent within the Field of Use and Subsection 2.1.
and, upon doing so, SPARTA may not include within the Field of Use any
other Anti-Cancer Agent pursuant to this Subsection 2.2.
2.3. Taxol. SPARTA and RTP agree to work in good faith to establish a
50:50 joint venture to evaluate and develop Taxol and related derivatives
utilizing the Patent Rights, it being understood that no such joint venture
shall be established until the terms and conditions of such joint venture have
been documented in
8
<PAGE>
a joint venture agreement that has been executed by the parties thereto. RTP
agrees that it will withhold the licensing of Taxol to any party other than
SPARTA or said joint venture for a period of one year following the date of this
Agreement after which time, if no joint venture has been consummated, RTP shall
be free to license the Patent Rights associated with Taxol Applications to other
parties.
3. Additional RTP Obligations.
3.1. Delivery of Proprietary Data and Information Concerning Patent
Rights. RTP shall, as reasonably requested by SPARTA, except where such
undertaking would cause a breach of RTP's obligation to Third Parties or
cause an undue burden on RTP, furnish to SPARTA copies of and provide
access to written material that is owned by RTP and that is within the
possession of RTP with respect to the Licensed Rights as is reasonably
necessary, without creating an undue burden on RTP, to commercialize the
Licensed Rights within the Field and to carry out the purposes of this
Agreement. Except where such undertaking would cause a breach of RTP's
obligation to Third Parties, SPARTA shall have the reasonable opportunity
to discuss the technical aspects of manufacturing with appropriate RTP
technical personnel. All such material furnished to SPARTA shall be billed
to and paid for by SPARTA at RTP's reasonable cost of reproduction thereof
Subject to the terms of Third Party confidentiality rights, RTP shall
exercise good faith efforts to inform SPARTA of any material adverse
safety information of which RTP becomes aware concerning the safety of
Applications within the Field.
3.2. Clinical Research. Drug Development and Manufacturing . Recognizing
that SPARTA and RTP are both young companies with a need to cooperate in
order to maximize economies of scale and to avoid duplicate efforts
related to drug development and manufacturing of applications utilizing
same drug delivery technologies, SPARTA and RTP agree that:
3.2.1. Clinical Research. Except as otherwise provided in the
agreement effective November 27, 1991 by and between
SPARTA and CRL, to the extent requested by SPARTA and to
the extent available by RTP and its affiliates, Cato
Research Ltd. ("CRL") and Cato Pharma Canada, Ltd., RTP
will make available its staff or that of said affiliates,
to conduct ongoing clinical research activities related to
the Applications being developed by SPARTA as requested by
SPARTA and at SPARTA's expense, as mutually agreed by the
applicable parties.
3.2.2. Process and Product Development. SPARTA agrees to contract
with RTP or its affiliates (which may include but not be limited
to RTP Pharma, and a planned joint venture between Societe
General de Financement du Quebec and Patheon, Inc.) to conduct,
at SPARTA's expense as mutually agreed by the applicable parties,
all process and product development work other than animal and
clinical studies, and other than such work as is conducted by
SPARTA itself; provided that RTP and its affiliates,
respectively, have the resources to provide such services and can
provide such services on cost-competitive basis and in a timely
fashion.
3.2.3. Product Manufacturing. RTP and its affiliates (which may
include but not be limited to RTP Pharma, and a planned joint
venture between Societe General de Financement du Quebec and
Patheon, Inc.), shall have a right of first refusal to provide,
at SPARTA's expense, all of SPARTA's manufacturing Requirements
with respect to Applications, provided that RTP and its
affiliates, respectively, have the resources to provide such
services and can provide such services on cost- competitive basis
and in a timely fashion. The foregoing right of first refusal
shall not apply to manufacturing of Applications by a Sublicensee
or Sub licensee Affiliate.
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<PAGE>
3.3. Regulatory Information. Except where such undertakings would cause a
breach of RTP's obligations to Third Parties, RTP will execute such
instruments, including but not limited to authorizing references to RTP's
regulatory filings, including its master file, and take such other action
as SPARTA may reasonably request in order to obtain regulatory approvals
of Applications.
3.4. Royalty on Manufacturing Data. If SPARTA provides data and know-how
to RTP pursuant to Section 4.2., and such manufacturing data and know-how
is licensed by RTP to a Third Party, RTP shall pay to SPARTA a royalty in
the amount of [*] of the manufacturing royalty received by RTP from said
Third Party. Said royalty shall be paid by RTP to SPARTA in the same
manner as that provided in Sections 4.5.4., 4.5.5., 4.5.6. and 4.5.7. with
respect to royalties paid by SPARTA to RTP and shall be subject to the
same rights by SPARTA as those provided for RTP in Sections 4.5.4.4.5.5.,
4.5.6. and 4.5.7.
4. SPARTA Obligations.
4.1. Patent Prosecution. Except for those costs accrued or paid by RTP
prior to the effective date of this Agreement (which costs shall be the
sole liability and responsibility of RTP), SPARTA shall pay its Fraction
of all reasonable U.S. and foreign patent attorney, patent registration,
issuance, or filing fees, search fees, legal fees, and patent translation
and patent maintenance expenses with respect to the Patent Rights or Other
Proprietary Rights; provided, however, that if said expense relates solely
to a use within the Field, then SPARTA shall pay and be responsible for
one hundred percent (100%) of said costs.
4.2. Provision of Manufacturing Data. In recognition that the technology
comprising the Licensed Rights has application outside of the field, and
in recognition that information related to the manufacture of one
Application may potentially be utilized for other Applications, except
where such undertaking would cause a breach of SPARTA's obligation to
Third Parties, upon request of RTP, and at RTP's expense for procurement
of copies thereof and the time of the individuals involved, SPARTA and its
Affiliates shall provide RTP with access to all manufacturing feasibility
studies, all data on manufacturing processes, all FDA submissions related
to manufacturing of Applications, all manufacturing specifications, and
all information on manufacturing scale- up for production of Applications
which may be utilized or produced during the process of producing
Applications within the Field, whether such manufacture is performed by
SPARTA, its Affiliates or its Sublicensees, or by Third Party
manufacturers under contract with SPARTA, its Affiliates or its
Sublicensees. In addition, SPARTA shall make arrangements necessary so
that RTP shall have the right to inspect and observe the operation of all
facilities in which Applications are produced during such times in which
Applications are being produced, and RTP shall have the reasonable
opportunity to discuss the technical aspects of manufacturing with
appropriate technical personnel in each such manufacturing facility. In
addition, RTP will have the right to assay samples of Applications to
perform tests on samples from any production run of Applications.
4.3. Product Development and Manufacturing. SPARTA agrees to conduct its
clinical research, product development and manufacturing as provided in
Subsection 3.2.
4.4. Sale and Promotion of Licensed Products. SPARTA agrees to use its
Best Efforts to sell Applications within the Territory, to promote the
sale of Applications within the Territory, and to enter into Sublicenses
to effect the sale and promotion of Applications within the Territory.
4.5. Royalties. SPARTA shall pay to RTP a Royalty as follows:
4.5.1. Royalty on Applications Distributed by SPARTA. In the event SPARTA
or its Affiliates directly
[*Information omitted and filed separately with the Commission under Rule
24b-2.]
10
<PAGE>
or indirectly distribute, use or sell Applications within the Field
pursuant to Subsection 2.1.1., SPARTA shall pay to RTP a royalty in the
amount of [*] of the Net Selling Price with respect to all other
Applications, provided the Application sold is covered by a valid and
unexpired claim of a patent included within Patent Rights, or a patent
application for the period provided for in the Patent Rights. Furthermore,
in the event Applications are sold in a country where there are no issued
patents applicable to such sale, and SPARTA, its Affiliates, or
Sublicensees are not the exclusive manufacturer or distributor of the
subject Applications in such country, the royalty rate provided herein
shall be reduced by [*], and shall continue at such rate for the five-year
period referred to in the definition of Patent Rights or until such a
patent issues or such exclusivity is gained.
Only a single royalty shall be payable with respect to the sale or use of
an Application, irrespective of the number of claims of licensed Rights
used in the sale or use thereof.
4.5.2. License Fees on Sublicenses. In the event SPARTA shall sublicense
all or a portion of the Licensed Rights within the Field to a Sublicensee
pursuant to Subsection 2.1.2., SPARTA shall pay to RTP an amount equal to
(i) [*]of Continuing License Fees received by SPARTA with respect to such
Sublicensee or its Sublicensee Affiliate, plus [*]with respect to all
other Applications, of the Up-front License Fees received by SPARTA with.
respect to such Sublicensee or its Sublicensee Affiliate. Furthermore, in
the event Applications are sold in a country where there are no issued
patents applicable to such sale, and SPARTA, its Affiliates, or
Sublicensees are not the exclusive manufacturer or distributor of the
subject Applications in such country, the royalty rate provided herein
shall be reduced by [*] and shall continue at such rate for the five-year
period referred to in the definition of Patent Rights or until such a
patent issues or such exclusivity is gained.
4.5.3. Minimum Royalty. The parties acknowledge that prior to the
effective date of this Agreement SPARTA has paid to RTP Minimum Royalties
in the amount of [*] pursuant to the Sublicense Agreement and the
Amendments. From the effective date of the Agreement forward, a Minimum
Royalty shall be paid by SPARTA in the following amounts on or before the
last day of each calendar year following execution of this agreement as
indicated below:
Calendar Year End Minimum Royalty Due
----------------- -------------------
1997 $[ * ]
1998 $[ * ]
1999 $[ * ]
2000 $[ * ]
Each calendar year
thereafter until 2007
or until the amounts
paid as minimum royalties
are $[ * ] in addition to
amounts previously paid by
SPARTA under the Sublicense
Agreement and the Sublicense
Amendments $[ * ]
Any Minimum Royalty payments made pursuant to this Subsection 4.5.3. shall
be credited against SPARTA's obligation to make royalty payments pursuant
to Subsections 4.5.1., 4.5.2. and 4.5.4.
4.5.4. Payment of Royalties. After crediting any Minimum Royalty payments
paid pursuant to Subsection 4.5.3. above, royalties payable pursuant to
Subsections 4.5.1., and 4.5.2. above, shall be paid within ninety (90)
days following the termination of each quarter during the Sales Year.
Royalty payments shall be accompanied
[*Information omitted and filed separately with the Commission under Rule
24b-2.]
11
<PAGE>
by a schedule showing the number and type of products sold by SPARTA, its
Affiliates, Sublicensees or Sublicensee Affiliates during the calendar
quarter, and a computation of the royalties due.
Royalty payments that are not paid for whatever reason within ninety (90)
days of the end of the calendar quarter are delinquent on the next day (or
the 91st day) and are the subject to the addition of interest at the
annual rate of Citibank prime plus 3%, calculated from the date of
delinquency (91 days after the end of the calendar quarter) to the date a
negotiable payment check is received by RTP.
Except as provided below, royalty payments shall be paid in United States
dollars at RTP's headquarters, or to such other place as RTP may
reasonably designate, consistent with the laws and regulations controlling
in any foreign country. If any currency conversion shall be required in
connection with the payment of royalties hereunder, such conversion shall
be made by using the exchange rate prevailing at a first-class foreign
exchange on the last business day of the calendar quarter reporting period
to which such royalty payments relate.
Only a single Up-Front License Fee and/or Continuing Royalty shall be
payable with respect to an Application, irrespective of the number of
claims of Licensed Rights used in the manufacture, use or sale thereof.
4.5.5. Books and Records. SPARTA and its Affiliates shall keep such
accurate records, books of account, and product catalogues as will show in
detail the number and type of Applications on which royalty is payable
hereunder manufactured and sold and the selling prices therefor, and such
records and books of account, as well as other records relating to
materials procurement, manufacturing, inventory, sales, and licenses as
will permit verification thereof SPARTA and its Affiliates shall permit
RTP's representatives to take excerpts from and make copies of any entries
or details of such records.
SPARTA and its Affiliates shall keep true and accurate accounts of the
sales of any pharmaceutical products and kits covered by this Agreement
and of the royalties payable to RTP hereunder, and SPARTA and its
Affiliates shall deliver to RTP written reports to accompany each of the
payments specified in this Subsection 4.8., setting forth, in reasonable
detail, the computation of the royalties then payable (if none, so
stating) and the underlying facts.
SPARTA and its Affiliates shall furnish such other reports as may be
reasonably required by RTP and reasonably available to SPARTA and its
Affiliates as to sales and prospective sales under this Agreement.
SPARTA shall deliver to RTP copies of all Sublicense agreements, insurance
certificates and such other evidence as RTP may reasonably request to
determine compliance with this Agreement.
4.5.6. Foreign Taxes. Any and all foreign taxes levied on account of
royalties accruing under this Agreement remittable from a country in which
provision is made in the law or by regulation for withholding shall be
deducted from such royalty, shall be paid by SPARTA and its Affiliates to
the proper taxing authority, and proof of payment will be secured and sent
to RTP as evidence of such payment. Notwithstanding the foregoing, in the
event that the revenues received by SPARTA or an Affiliate cannot be
converted into U.S. Dollars and/or cannot be repatriated from a foreign
country, such royalty payments shall be made for the benefit of RTP, as
directed by RTP, subject to applicable law.
4.5.7. Audit. RTP shall have the right, at its own expense, during the
term of this Agreement and for a period of one (1) year following any
termination of this Agreement, to have an independent public accountant
examine the relevant books and records of SPARTA or its Affiliates during
reasonable business hours, to determine whether appropriate accountings
and payments have been made by SPARTA or its Affiliates; provided,
however, that SPARTA and its Affiliates shall not be obligated to keep
records for more than three years after the period has occurred to which
the audit relates; provided, further, that such accountant shall report
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to RTP only as to the accuracy of the royalty statements and payments
required to be made hereunder.
SPARTA shall make prompt adjustment and payment to RTP to compensate for
any errors and/or omissions disclosed by the review or audit performed in
accordance with this Agreement, and shall be liable for that amount plus
interest as set forth in Subsection 4.8.4 above, from the time said
payment should have been made. It after conducting an audit as set forth
above, it is determined that there has been an underpayment in the amount
of four percent (4%) or more of the amount due to RTP, the cost of such
audit shall be paid by SPARTA.
4.6. Annual Maintenance Fee. The parties acknowledge that prior to the
effective date of this agreement, SPARTA has paid to RTP [ * ] in annual
maintenance fees pursuant to the Sublicense Agreement and the Sublicense
Amendments. From the effective date of this Agreement forward, SPARTA
shall pay to RTP an Annual Maintenance Fee in the amount of [ * ] by
December 30, 1997, [ * ] by December 30, 1998, [ * ] by December 30,
1999, and [ * ] by December 30 of each year thereafter until the
termination of the agreement for annual maintenance fees in addition to
amounts previously paid for annual maintenance fees by SPARTA under the
Sublicense Agreement and the Sublicense Amendments.
4.7 Information Sharing. So long as this requirement is not unreasonably
burdensome, and except where such undertaking would cause a breach of
SPARTA's obligations to Third Parties, SPARTA and its Affiliates shall
provide to RTP on a royalty-free basis, and without any additional
consideration of any kind except RTP's performance pursuant to this
Agreement, upon reasonable request by RTP, all information, compilations,
analyses, reports, studies, data, copies of regulatory filings and
proceedings which SPARTA and its Affiliates have developed or acquired
which is related to the Licensed Rights or any Application within the
Field and which concerns or relates to preclinical and clinical research,
safety, use, pharmacokinetics and efficacy. SPARTA and its Affiliates
shall automatically provide, without request by RTP, copies of their
findings or reports which are required by the FDA or similar regulatory
agencies. SPARTA and its Affiliates shall make good faith efforts to
notify RTP of any finding of theirs with respect to any material adverse
safety information of which they become aware concerning an Application
being developed or marketed by them. All such material furnished to RTP
shall be billed to and paid for by RTP at SPARTA's reasonable cost of
reproduction thereof.
4.8. Regulatory Information. Except where such undertakings would cause a
breach of SPARTA's obligations to Third Parties, SPARTA and its Affiliates
will execute such instruments, including but not limited to authorizing
references to SPARTA's or its Affiliates' regulatory filings, including
their master file, and take such other action as RTP may reasonably
request in order to obtain regulatory approvals of finished pharmaceutical
formulations utilizing the Licensed Rights outside the Field.
4.9. Use of Confidential Information. With respect to the disclosures
required to be made pursuant to Subsections 4.2., 4.7., and 4.8., the
parties acknowledge and recognize that such disclosures are made subject
to the confidentiality provisions hereof and that the only purposes
consistent with this Agreement for which such proprietary information may
be used by the receiving party (or in the case of SPARTA its Affiliates,
Sublicensees or Sublicensee Affiliates, or in the case of RTP, parties who
would be Affiliates but for the fact that their relationship arises
through RTP rather than SPARTA, sublicensees of the Licensed Rights from
RTP, or Third Party manufacturers under contract with any of the foregoing
entities) are for the development and manufacture of Technology
Applications (as defined in Subsection 4.6.) to which such receiving party
has rights under the Licensed Rights, and not for the purpose of impairing
the rights granted or reserved to either party pursuant to the terms of
this Agreement.
5. Protection of Patent Rights and Other Proprietary Data.
[*Information omitted and filed separately with the Commission under Rule
24b-2.]
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The following actions shall be taken to protect the Patent Rights and
Other Proprietary Rights:
5.1. Filing and Maintenance of Patents. RTP shall initially select those
countries or patent offices where it wishes to have patents filed or
maintained to perfect or protect the Patent Rights. At the request of
SPARTA, RTP shall undertake filings in those countries or patent offices
where SPARTA wishes to have patents filed or maintained to perfect or
protect the Patent Rights which were not initially selected by RTP. RTP
shall take steps which are necessary to file, obtain (if possible) and
maintain such patent protection and RTP shall have the right to select
patent counsel to carry out the filings, but it shall consult with and
keep SPARTA fully informed regarding the status of such filings and the
selection of counsel. SPARTA shall pay to RTP SPARTA's Fraction of said
patent filing and maintenance expenses; provided, however that if said
patent filing or other related patent protection or maintenance activity
solely relates to the Patent Rights within the Field, or if SPARTA has
requested a filing in a country were RTP had previously elected not to
file, SPARTA shall be responsible for payment of One Hundred Percent
(100%) of such costs. SPARTA shall have the right, at its own cost and
expense to file for any patents encompassing all or a part of the Licensed
Rights in any country which RTP fails to file hereunder, provided that the
patent counsel who shall undertake such filings must be approved by RTP,
which approval shall not be unreasonably withheld.
Upon request by SPARTA, and at SPARTA's expense, RTP shall prepare and
execute such documents and take such other actions as are reasonably
necessary and appropriate to seek extension of the term of any patents
included within the Patent Rights pursuant to the terms of the Patent Term
Restoration Act of 1984. RTP shall have the authority to select counsel
and control the content of such filings, but it shall consult with and
keep SPARTA fully informed regarding the status of such filings and the
selection of counsel.
5.2. Defense of the Patent Rights. Upon receipt of notice of any
threatened or pending claim, suit, or cause of action whatsoever, alleging
that the practice or use of the Licensed Rights infringe upon any other
valid patent or is otherwise invalid, the party hereto receiving said
notice shall so inform the other party. RTP shall have the first right and
the duty to investigate and defend the claim, provided, if at any time, it
no longer wishes to act on its own, and it is requested to do so by
SPARTA, it shall continue such investigation at SPARTA's expense. RTP
shall consult with and keep SPARTA fully informed regarding the status of
such investigation and defense and the selection of counsel. In the event
that RTP, at any time, fails to undertake the defense of said claim,
SPARTA shall have the right to defend the claim, provided that no
settlement shall occur except with the consent of RTP, which consent shall
not be unreasonably withheld. All costs of such defense incurred by either
party, shall first be set off (in proportion to the relative expenditures
by each party) against any recovery from said suit, and then the balance,
if any, of such costs shall be credited against the royalty and other
payments due to RTP pursuant to Subsections 4.5.1., 4.5.2.,and 4.5.3. Any
excess recovery shall be treated as Net Selling Price as set forth herein
and royalties shall be paid to RTP accordingly. RTP and SPARTA,
respectively, shall provide each other with all necessary support and
assistance reasonably required in investigating and defending the Licensed
Rights.
If the settlement or the outcome of the litigation requires that SPARTA
pay royalties to a Third Party because it is determined or agreed that the
Patent Rights, when practiced with respect to a given Application,
infringe the rights of the Third Party to whom the royalties are paid, the
amount of such royalty payments shall be deducted from the royalty and
other payments due to RTP pursuant to Subsections 4.5.1., 4.5.2.,and
4.5.3. with respect to such Application, but in no event shall RTP be
responsible for payment to SPARTA for any royalty payments previously paid
by SPARTA to RTP, and in no event shall RTP have to pay to SPARTA any
deficiency between the level of royalties paid to RTP by SPARTA and the
level of royalties paid by SPARTA to said Third Party. If during the term
of this Agreement, after consultation and review by an independent patent
attorney mutually selected by RTP and SPARTA, it is determined that it is
advisable to seek a license from any Third Party under any patent in order
to avoid infringement of said patent by exercise of the Licensed Rights
within the Field, then RTP and SPARTA shall in good faith negotiate a
license with said Third Party, and any
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payments which must be made by SPARTA pursuant to said license shall be
deducted from royalty and other payments due to RTP pursuant to
Subsections 4.5.1., 4.5.2.,and 4.5.3.
No right of SPARTA pursuant to this Subsection 5.2. may be assigned to a
Sublicensee, in whole or in part. SPARTA may, however, at its option,
delegate its rights under this Section to an individual who may coordinate
and undertake such decisions and activities on behalf of SPARTA, its
Affiliates, its Sublicensees and Sublicensee Affiliates, so long as RTP
only has to deal with one party or person.
5.3. Protection Against Infringement. Upon receipt of any information
supporting a claim that any Third Party whatsoever is infringing on the
Patent Rights, the party hereto receiving said notice shall so inform the
other party. RTP shall have the first right and the duty to take any
necessary or appropriate actions to prevent the infringement of the Patent
Rights provided, if at any time, it no longer wishes to act on its own,
and it is requested to do so by SPARTA, it shall continue such action at
SPARTA's expense. RTP shall consult with and keep SPARTA fully informed
regarding the status of such action and the selection of counsel. In the
event that RTP, at any time, fails to undertake or continue the
prosecution of said claim, SPARTA shall have the right to prosecute the
claim, within its discretion. All costs of such action shall first be set
off (in proportion to the relative expenditures by each party) against any
recovery from said suit, if any, and any excess of costs over recoveries
shall be credited toward SPARTA's obligations to make payments to RTP as
set forth in Subsections 4.5.1., 4.5.2.,and 4.5.3. of this Agreement. All
recoveries in excess of the costs of said action, if any, shall be then be
treated as Net Selling Price received by SPARTA pursuant to Subsection
4.8.1. and royalties shall be paid according to that Section. In the event
RTP or SPARTA wishes to settle with the alleged infringer, said party
shall first procure the consent of the other which consent will not be
unreasonably withheld, and RTP will take reasonable steps to attempt to
procure the consent required from Pharma-Logic, Inc. under the Technology
Purchase Agreement. Each party shall provide the other party with all
necessary support and assistance reasonably required by the requesting
party in investigating and prosecuting infringement of the Patent Rights.
Upon request by SPARTA, at SPARTA's expense, RTP shall prepare and execute
such documents, and to take such other actions, as are reasonably
necessary and appropriate to take all appropriate action under the
provision of U.S. Public Law 98-417, to bring a patent infringement action
if SPARTA is notified that a Third Party has filed an application for a
similar product under Subsections 5.05(b) and 5.05(j) of the U.S. Food,
Drug and Cosmetic Act. SPARTA and RTP shall consult with and keep each
other fully advised of all their activities under this paragraph. Like
coordination and support from each party to the other shall be imputed in
foreign countries where similar statutory or regulatory structures exist.
RTP shall have the authority to select counsel and control the content of
such filings provided that such content must be reasonably acceptable to
SPARTA. Costs of SPARTA pursuant to this paragraph shall be treated in the
same way as costs of SPARTA as set forth in the first paragraph of this
Subsection.
5.4. Assistance of RTP. RTP shall provide all necessary assistance in the
protection or defense of any claim with respect to the Licensed Rights at
no compensation but with reimbursement for RTP's expenses out of the
proceeds or recoveries resulting from the litigation.
5.5. Jointly Developed Inventions. Any discoveries or inventions made
jointly by employees or agents of SPARTA and RTP while undertaking joint
development efforts shall be jointly owned by RTP and SPARTA, and,
accordingly, said inventions may be practiced by either or both of the
joint owners.
6. Representations and Warranties of SPARTA.
6.1. Due Incorporation, Existence. SPARTA is a corporation duly organized
and validly existing under the laws of the State of Delaware, with all
requisite power necessary to enter into this Agreement.
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6.2. Authority Relative to this Agreement. The execution, delivery and
performance of this Agreement by SPARTA and consummation of the
transactions contemplated hereby have been duly and effectively authorized
by all necessary corporate action, and, to the best of SPARTA's knowledge,
will not violate any provision of law applicable to SPARTA. To the best of
SPARTA's knowledge, the execution, delivery and performance of this
Agreement by SPARTA and the consummation of the transactions contemplated
hereby do not require the consent or approval of any person or public
authority not already obtained.
6.3. No Brokers. SPARTA has not entered into any contract, arrangement, or
understanding with, and is not aware of any claims or basis for any claims
by, any person or firm which may result in the obligation of RTP to pay
any finder's fee, brokerage or agent's commission or other like payment in
connection with the negotiations leading to this Agreement or the
consummation of this Agreement.
7. Representations and Warranties of RTP.
7.1. Due Incorporation. Existence. RTP is a corporation duly organized and
validly existing under the laws of the State of North Carolina, with all
requisite power necessary to enter into this Agreement.
7.2. Authority Relative to this Agreement. The execution, delivery and
performance of this Agreement by RTP and consummation of the transactions
contemplated hereby have been duly and effectively authorized by all
necessary corporate action. To the best of RTP's knowledge, the execution,
delivery and performance of this Agreement by RTP and the consummation of
the transactions contemplated hereby do not require the consent or
approval of any person or public authority, and, to the best of RTP's
knowledge and understanding, do not conflict with the terms of the
Technology Purchase Agreement.
7.3. Encumbrance. RTP covenants that at no time during the term of this
Agreement (nor at any time thereafter so long as SPARTA shall enjoy a
right originating under this Agreement to practice any of the Licensed
Rights) shall RTP assign, transfer, encumber, hypothecate or grant rights
in or with respect to the rights granted to SPARTA herein.
7.4. Non-Interference. RTP represents and warrants that SPARTA's entering
into this Agreement and performing under it shall not constitute any
interference with the advantageous contractual relations of any Third
Party.
7.5. Non-Infringement. RTP represents and warrants that it is unaware of
any claim by any Third Party that SPARTA's practice of the Patent Rights
will infringe any valid U.S. patent.
7.6. Ownership. RTP represents and warrants that it has the rights to
grant to SPARTA the rights to Licensed Rights as set forth herein, and
that such rights are not the subject of any encumbrance, lien or claim of
ownership by any Third Party, except as set forth in the Technology
Purchase Agreement. RTP has granted no other license within the Field
respecting the Licensed Rights or any part thereof for use in
Applications.
7.7. Litigation. Except as set forth in the European opposition to the
filing with the European Patent Office with respect to the microcrystal
technology, RTP has not received any notice of any claim from any person
asserting that any of the Licensed Rights infringe or may infringe any
patent or other proprietary rights of any person. Except as set forth in
the aforesaid opposition, RTP is not aware of any infringement by others
of its patents or Other Proprietary Rights in any of the Patent Rights, or
any violation of the confidentiality of any of its proprietary
information. To the best of its knowledge, RTP is not making unauthorized
use of any confidential information or trade secrets of any person,
including without limitation, any former employer of
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any past or present employee of RTP. Except as set forth in the European
opposition to the filing with the European Patent Office with respect to
the microcrystal technology, to the best of its knowledge, there are not
any actions, suits or proceedings pending or, to the knowledge of RTP,
threatened, against RTP before a court, arbiter, or any other governmental
or non-governmental department, commission, board, bureau, agency or
instrumentality which could affect the Licensed Rights or RTP's interest
therein.
7.8. No Brokers. RTP has not entered into any contract, arrangement or
understanding with, and is not aware of any claim or basis for any claim,
by any person or firm, which may result in the obligation of SPARTA to pay
any finder's fee, brokerage or agent's commission or other like payment in
connection with the negotiations leading to this Agreement or the
consummation of this Agreement.
7.9. Disclosure. To the best of its knowledge, no representation or
warranty by RTP in this Agreement, nor any statement made or documents
provided to SPARTA by or on the behalf of RTP in the course of SPARTA's
investigation process of deciding to enter this Agreement, contains any
untrue statement of material fact, or omits or will omit to state a
material fact necessary to make the statements not misleading. RTP does
not know or any fact that has not been disclosed to SPARTA that materially
or adversely affects or, so far as RTP can reasonably foresee, may
materially or adversely affect the Licensed Rights.
7.10. Confidentiality Agreements. RTP has entered into no confidentiality
agreements with, nor has it made any other undertakings to, Third Parties
of the type referred to in the exceptions to its disclosure obligations in
Subsection 3.1. which would cause a breach of any such undertakings to
Third Parties or otherwise prevent the disclosure of information as set
forth in Subsection 3.1. absent such exceptions. RTP and SPARTA agree that
the disclosures of information which RTP is required to make to SPARTA
pursuant to this Agreement are necessary and appropriate to License the
Licensed Rights to SPARTA and for SPARTA to develop Applications pursuant
to such license.
8. Indemnification.
8.1. Indemnification. SPARTA and its Affiliates shall at all times during
the term of this Agreement and thereafter, indemnify, defend and hold
harmless RTP, its trustees, directors, officers, employees, and
affiliates, RTP Pharma, Inc., its trustees, directors, officers, employees
and affiliates, Cato Holdings, Inc., its trustees, directors, officers,
employees, and affiliates, Duncan Haynes, Anthony Kirkpatrick and
Pharma-Logic, Inc., against all claims and expenses, including legal
expenses and reasonable attorneys fees, arising out of the death of or
injury to any person or persons or out of any damage to property and
against any other claim, proceeding, demand, expense and liability of any
kind whatsoever resulting from the production, manufacture, sale, use,
consumption or advertisement of the Application arising from any
obligation of SPARTA hereunder, except where such death, injury, or damage
occurs to RTP or its employees or agents, or to subjects being tested by
RTP directly or indirectly, through no substantial fault of SPARTA, or
where such death, injury, damage, claim, proceeding, demand, expense or
liability results from the negligence, bad faith or illegal act of RTP,
its employees or agents.
8.2. Insurance. In addition to the duty of SPARTA and its Affiliates to
indemnify RTP as set forth above, and not in lieu thereof, SPARTA and its
Affiliates shall procure and maintain for any Applications sold
incorporating or utilizing Licensed Rights, product liability insurance
naming Duncan Haynes, Anthony Kirkpatrick, RTP, its directors, officers,
employees, and affiliates, RTP Pharma, Inc., its trustees, directors,
officers, employees and affiliates, Cato Holding Company, its directors,
officers, employees, and affiliates, Pharma-Logic, Inc. and the University
of Miami as named insureds, and such insurance shall be in an amount, with
respect to claims arising in the United States, not less than One Million
Dollars ($1,000,000) per occurrence and Five Million Dollars ($5,000,000)
in the annual aggregate, subject to reasonable deductibles which are based
upon the ability of SPARTA and its Affiliates to self-insure with respect
to the amount of the
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deductible and, in addition, with respect to claims arising outside the
United States, not less than One Million Dollars ($1,000,000) per
occurrence and Five Million Dollars ($5,000,000) in the annual aggregate,
subject to reasonable deductibles which are based upon the Sublicensee's
ability to self-insure with respect to the amount of the deductible and
excluding from such insurance both in and outside of the United States
liability which arises by reason of the negligence, bad faith or illegal
act of any of the foregoing persons or entities.
9. Term. Termination and Default.
9.1. Term. This Agreement will become effective upon the date hereinabove
written and, unless sooner terminated in accordance with any of the
provisions herein, will remain in lull force and effect for the life of
the last to expire of the patents included in the Patent Rights or a
patent application for the period provided in the definition of Patent
Rights. Expiration of this Agreement under this provision shall not
preclude SPARTA, its Affiliates, Sublicensees and Sublicensee Affiliates
from continuing to develop and market Applications and to use Licensed
Rights on a royalty-free basis, provided SPARTA shall have paid all sums
accrued under the Agreement which are due upon such expiration.
9.2. Default. In the event that either party defaults or breaches any of
the provisions of this Agreement, the other party will have the right to
terminate this Agreement by giving written notice to the defaulting party;
provided, however, that if the defaulting party cures the default or
breach within sixty (60) days after the notice is given, this Agreement
will continue in lull force and effect; provided, further, that any
default which is a monetary default such as, but not limited to, any
monetary obligations set forth in Subsection 4.5 (and all subsections
thereof), 4.6 and 5.2., must be corrected or cured within thirty (30)
days. The failure on the part of either of the parties hereto to exercise
or enforce any right conferred upon it hereunder will not be deemed to be
a waiver of any right, nor operate to bar the exercise or enforcement
thereof at any time or times thereafter. Any right to terminate this
Agreement pursuant to this Subsection, shall be in addition to, and shall
not be exclusive of, or prejudicial to, any other rights or remedies the
non-defaulting party may have on account of the default of the other
party, notwithstanding any other provision of Subsection 9.4. or 9.5.
9.3. Insolvency of SPARTA. It during the term of this Agreement, SPARTA
becomes bankrupt or insolvent or if the business of SPARTA is placed in
the hands of a receiver or trustee, whether by the voluntary act of SPARTA
or otherwise, RTP shall have the right to terminate this Agreement by
giving written notice of termination to SPARTA.
9.4. Effect of Termination.
9.4.1. Termination by RTP Pursuant to Subsection 9.2. or 9.3. In the
event of termination by RTP pursuant to Subsection 9.2. or 9.3.:
(a) SPARTA shall retain its rights under Subsection 2.1. with respect
to any Application for which SPARTA is not in Default, subject to the
provisions of Subsections 4.2, 4.4, 4.5 and 5.2 and all other
applicable provisions of this Agreement with respect to such
Application and for which (i) SPARTA has filed a Phase I
Investigational New Drug Application (IND) (or a similar regulatory
filing in Canada, Great Britain, the European Common Market countries,
or Japan) in good faith conformity with FDA (or a similar regulatory
agency in Canada, Great Britain, the European Common Market countries,
or Japan) requirements and which is in due course approved or (ii)
which SPARTA is developing; all other rights of SPARTA pursuant to this
Agreement shall lapse, provided that for a period of one year after
such termination, SPARTA shall continue to be able to sell, subject to
the payment provisions of Subsection 4.8., other Applications which
SPARTA has in its possession at the time of termination;
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(b) The provisions of Subsections 5.3. (last sentence), 5.4. (first and
last sentence), 8.1., 8.2., 10. (except 10.9) shall continue in full
force and effect; and,
(c) The provisions of Subsections 4.5 and 5.2. shall continue for as
long as monies due to RTP by SPARTA as of the date of termination have
not been paid, and the provisions of Subsection 4.5. shall continue for
as long as any revenues with respect to any Application are received by
SPARTA, its Affiliates, its Sublicensees or their Sublicensee
Affiliates.
(d) RTP shall assume all rights of SPARTA pursuant to any Sublicense
with respect to Applications for which SPARTA has not retained rights
pursuant to (a) above;
9.4.2. Sales after Termination. Upon the termination of this Agreement,
SPARTA shall notify RTP of the amount of goods or products constituting
Applications SPARTA or one of its Sublicensees has on hand as of the
time of such termination and SPARTA shall have a license to sell those
goods or products, but no more, provided that SPARTA pays the royalty
thereon at the rate and at the time provided for herein.
9.5. Partial termination.
9.5.1. Partial Termination by SPARTA. SPARTA can terminate this
Agreement in its entirety or on a patent application-by-patent
application, patent-by-patent, or country-by- country basis by giving
RTP written notice at least three (3) months prior to termination, and
thereupon terminate the use or sale by SPARTA, its Affiliates, its
Sublicensees, and Sublicensee Affiliates of Applications in that
country.
9.5.2. Patent Costs. In the event SPARTA does not pay for patent costs
pursuant to Subsection 4.1. or 5.2. associated with any jurisdiction,
and RTP does not terminate this Agreement pursuant to Subsection 9.3.,
SPARTA's rights pursuant to Subsection 2.1. in such jurisdiction shall
lapse and revert to RTP, and such jurisdiction shall no longer be
within the Territory. In such event, the patent shall be excluded from
this Agreement for that country and all rights to use and sell
Applications within that country as well as all rights to receive
revenues and profits from the commercialization and exploitation of the
Licensed Rights in that country shall belong to RTP.
9.5.3. Default on Payment of Annual Maintenance Fee. If SPARTA shall
default with respect to any payment due pursuant to Subsection 4.6.,
all rights of SPARTA pursuant to this Agreement shall lapse.
10. Miscellaneous.
10.1. Governing Law. This Agreement shall be governed and construed in
accordance with the law of North Carolina.
10.2. No Agency or Partnership. It is understood that in giving effect
to this Agreement, SPARTA shall not be an agent or partner of RTP for
any purpose and that its relationship to RTP shall be that of an
independent contractor. SPARTA shall not have the right to enter into
contracts or to incur expenses or liabilities on behalf of RTP.
Similarly, it is understood that in giving effect to this Agreement,
RTP shall not be an agent or partner of SPARTA for any purpose and that
its relationship to SPARTA shall be that of an independent contractor.
RTP shall not have the right to enter into contracts, nor incur
expenses or liabilities, on behalf of SPARTA.
19
<PAGE>
10.3. Assignment. This Agreement will be binding upon and inure to the
benefit of the successors in interest of the parties hereto. However,
SPARTA cannot assign its rights in this Agreement or any interest
therein without consent by RTP, which consent will not be unreasonably
withheld, provided that SPARTA may assign its rights in this Agreement
or Licensed Rights owned by it to any Affiliate or to any corporation
with which it may merge or consolidate or to any corporation with which
it may transfer all or substantially all of its assets to which this
Agreement relates, without obtaining the consent of RTP, if the entity
to which the assets or Licensed Rights are transferred would have a net
worth, immediately after such merger, consolidation or transfer equal
to or in excess of that of SPARTA immediately prior to the transfer and
such entity assumes all of the obligations and liabilities of the
assigning party pursuant to this Agreement. Upon any such assignment or
transfer, except in the case of an assignment to an Affiliate, the
assigning party shall be relieved of liability hereunder, and the terms
of this Agreement referring to SPARTA hereunder shall include any such
assignee or transferee. An attempted assignment by SPARTA except as
provided herein shall be void.
10.4. Severance. In the event any term or provision of this Agreement
shall for any reason be held to be invalid, illegal, or unenforceable
in any respect, then, unless such term or provision goes to the root of
the Agreement and subject as otherwise agreed, this Agreement shall
continue in full force and effect save that the term or provision shall
be deemed to be excised therefrom and shall be interpreted and
construed as if such term or provision, to the extent the same shall
have been held to be invalid, illegal, or unenforceable, had never been
contained herein.
10.5. Confidentiality.
10.5.1. Use of Confidential Information. During the term of this
Agreement and for a period of five years thereafter, and, with
respect to manufacturing and regulatory information and
documentation, for a period of twenty-five years after the date
hereof both parties shall hold in confidence and not use for any
purpose inconsistent with the Agreement the other party's
proprietary or confidential information, including but not limited
to information concerning trade secrets and Other Proprietary
Rights disclosed by either party to the other pursuant to this
Agreement. Neither SPARTA nor RTP shall have any obligations with
respect to confidentiality or use if said information:
(a) was known to the recipient prior to the date of the disclosure
thereof unless covered by a prior confidentiality agreement; or,
(b) was known to the public or generally available to the public prior
to the date of the disclosure to the recipient; or,
(c) becomes available to the public or generally available to the
public subsequent to the date it was received through no act or failure
on the part of the recipient; or,
(d) materially corresponds in substance to information disclosed or
made available to the recipient any time by a Third Party having a bona
fide right to disclose or make available the same; or,
(e) is required to be disclosed to a governmental agency for the
purpose of securing essential or desirable authorizations, privileges
or rights from governmental agencies or otherwise provided that the
agency is itself not required to maintain the information as
confidential by contract or operation of law; or,
(f) is subsequently and independently developed by employees of the
receiving party or Affiliates who had no access to the confidential
information and who had no knowledge of the confidential information
disclosed; or,
20
<PAGE>
(g) is required to be disclosed for the purpose of filing or
prosecuting patent applications, or carrying out any litigation
concerning Licensed Rights, but this information shall not be
considered a waiver of confidentiality with respect to any information
which is subject to the attorney-client privilege; or
(h) is required to be disclosed for purposes of investigating,
manufacturing or marketing Applications, subject to the consent of the
party who provided said information, which consent shall not be
unreasonably withheld.
10.5.2. Publications. Except as otherwise provided in the exceptions
set forth in Subsection 10.5.1. above, neither party shall submit for
written or oral publication any manuscript, abstract or the like which
includes data or any other information generated and provided by the
other without first obtaining the prior written consent of the other
party, which consent shall not be unreasonably withheld, provided,
however, that valid commercial reasons may exist for withholding such
consent. Nothing contained herein shall be construed as precluding
either party from making, in its discretion, any disclosures of
information of any type which (a) relate to the safety, efficacy,
toxicology and pharmacokinetic characteristics of the microdroplet,
microcrystal, or liposome technology incorporated within the Licensed
Rights to the extent that either party may be required by law to make
disclosures of such information.
10.6. Compliance with Law. The rights and obligations set forth in this
Agreement shall be subject to all laws, both present and future, of any
government having jurisdiction over either of the parties hereto or the subject
matter hereof, and to orders, regulations, directions or the like of such
government or any
10.7. Arbitration.
10.7.1. General Rules. Except as to issues relating to the validity,
construction or effect of any patent licensed hereunder, any and all
claims, disputes or controversies arising under, out of, or in
connection with this Agreement, which have not been resolved by good
faith negotiations between the parties, shall be resolved by final and
binding arbitration in Durham or Wake County, North Carolina under the
rules of the American Arbitration Association then obtaining, provided
that any request for arbitration is filed within 180 days from the date
that the party seeking relief knew or through the exercise of due
diligence should have known of the facts giving rise to the dispute.
The arbitrators shall have no power to add to, subtract from or modify
any of tile terms or conditions of this Agreement. Any award rendered
in such arbitration may be enforced by either party in any court of
competent jurisdiction.
10.7.2. Patents. Claims, disputes or controversies concerning the
validity, construction or effect of any patent licensed hereunder shall
be resolved in any court having jurisdiction thereof.
10.7.3. Validity of Patents. In the event that, in any arbitration
proceeding, any issue shall arise concerning the validity, construction
or effect of any patent licensed hereunder, the arbitrators shall
assume the validity of all claims as set forth in such patent; in any
event the arbitrators shall not delay the arbitration proceeding for
the purpose of obtaining or permitting either party to obtain judicial
resolution of such issue, unless an order stating such arbitration
proceeding shall be entered by a court of competent jurisdiction.
Neither party shall raise any issue concerning the validity,
construction or effect of any patent licensed hereunder in any
proceeding to enforce any arbitration award hereunder or in any
proceeding otherwise arising out of any such arbitration award.
10.8. Laws. This Agreement shall be construed in accordance with the laws of the
State of North Carolina but the scope and validity of any patent comprised
within the Patent Rights shall be governed by the applicable laws of the country
granting such patent. In the event that any dispute hereunder is not otherwise
resolved, the parties hereto acknowledge and accept jurisdiction over any such
dispute in the United States District Court for the Middle District of North
Carolina.
21
<PAGE>
10.9. Force Majeure. No failure or omission by a party hereto in the performance
of any obligation of this Agreement, other than a failure to make any monetary
payment when due, shall be considered a breach if caused by reasons beyond the
reasonable control of such party, including but not limited to: acts of God; act
or omissions of any government; any rule, regulation or order issued by any
governmental authority or by any officer, department, agency or instrumentality
thereof; fire; storm; flood; earthquakes; accident; war; rebellion;
insurrection; riot; invasion; strikes; and lockouts; provided, however, that the
affected party shall use its Best Efforts to avoid or remove such causes or
non-performance and shall continue performance with the utmost dispatch whenever
such causes are removed. When such circumstances arise, the parties shall
discuss what, if any, modification of the terms of this Agreement may be
required to arrive at an equitable solution.
10.10. Notice. Notice hereunder shall be in writing and shall be duly dispatched
in the U.S. Mails by registered mail, by Federal Express courier, duly
addressed:
if to SPARTA to: J. Hook, President & CEO
SPARTA Pharmaceuticals, Inc.
111 Rock Road
Horsham, Pennsylvania 19044-2310
or if to RTP to: Gary W. Pace, President & CEO
Research Triangle Pharmaceuticals Ltd.
4364 S. Alston Avenue
Durham, North Carolina 27713
with a copy to: Walter E. Daniels
Daniels & Daniels, P.A.
1000 Park Forty Plaza, Suite 280
Durham, North Carolina 27713
or in either case, to such other address as the recipient party shall previously
have designated for the purpose by written communication to and actually
received by the giving party.
10.11. Waiver. The failure of either party to assert a right hereunder or to
insist upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term of condition by the other party.
10.12. Non-Use of Names. Except as required by law, rule, or regulation, and
except as provided in the third paragraph of this Subsection 10.12., no
statement concerning the signing of this Agreement shall be made or released to
any medium or public communication by either party, except with the prior
written approval of the other.
Except as set forth in the third paragraph of this Subsection 10.12., SPARTA
shall not use RTP's name or the names of any inventor in connection with any
product or process or for any promotional purposes, without the prior written
consent of RTP.
Notwithstanding the provisions immediately above, it is understood that SPARTA
shall be free to release to prospective investors, investment bankers,
regulatory authorities and other appropriate parties, the existence of and such
information concerning the terms and conditions of this Agreement, and SPARTA's
operations under it, which SPARTA may deem reasonably necessary in connection
therewith, or that may be required by applicable law regulating disclosure of
information with respect to potential investment.
22
<PAGE>
10.13. Trademarks of SPARTA. SPARTA and its Sublicensees, at its and their
expense, shall be responsible for the selection, registration and maintenance of
all trademarks which it or they may employ in connection with Applications and
shalt own and control such trademarks.
10.14. Captions. The captions used in this Agreement are for convenience only
and shall not be construed as being part of this Agreement.
10.15. Entire Understanding; Merger; Amendment. This Agreement represents the
entire understanding between the parties, and supersedes all other agreements,
express or implied, between the parties concerning Applications, Licensed Rights
or any other subject matter of this Agreement. This agreement shall not be
amended except pursuant to a writing executed by both parties. Notwithstanding
the foregoing, any approvals previously given by RTP with respect to Sublicenses
granted by SPARTA under the Sublicense Agreement and the Sublicense Amendments
shall remain in full force and effect.
IN WITNESSETH HEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date hereof first set
forth.
Research Triangle Pharmaceuticals Ltd.
By /s/ Gary W. Pace
-----------------------------
SPARTA Pharmaceuticals, Inc.
By /s/ Jerry B. Hook
-----------------------------
23
<PAGE>
Schedule 1
Patents and patent applications being licensed by RTP to Sparta
pursuant to the amended and restated license agreement
- - Phospholipid-coated microcrystals: injectable formulations of water-insoluble
drugs Purchased from Pharma-Logic, Inc.
United States Patent #5,091,187 issued 2/25/92
- - Phospholipid-coated microcrystals: injectable formulations of water-insoluble
drugs Purchased from Pharma-Logic, Inc.
United States Patent #5,091,188 issued 2/25/92
- - Sustained release of water-soluble bio-molecules and drugs using
phospholipid-coated microcrystals, microdroplets, and high concentration
liposomes Purchased from Pharma-Logic, Inc.
United States Patent #5,246,707 issued 9/21/93
US reissue Patent #Re. 35,338 issued 9/24/96
application #08/304,225
- - Sustained release of water-soluble bio-molecules and drugs using
phospholipid-coated microcrystals, microdroplets, and high concentration
liposomes Purchased from Pharma-Logic, Inc.
United States application #08/663,867 filed 9/6/94
- - Phospholipid-coated microcrystals: injectable formulations of water-insoluble
drugs Purchased rom Pharma-Logic, Inc.
Canada application #2078990 filed 4/23/91
Europe application #91908933.4 filed 4/23/91
India Patent #173,056 issued 4/22/91
Japan application #3-508854 filed 4/23/91
Korea application #702656/92 filed 4/23/91
Mexico Patent #178176 issued 5/29/95
Russia application #92016352 filed 4/23/91
Taiwan Patent #61654 issued 7/31/93
South Africa Patent #91/3122 issued 4/29/92
<PAGE>
- - Method of inducing local anesthesia using microdroplets of a general
anesthetic Purchased from Pharma-Logic, Inc.
United States Patent #4,622,219 issued 11/11/86
- - Microdroplets of water soluble drugs and injectable formulations containing
same Purchased from Pharma-Logic, Inc.
United States Patent #4,725,442 issued 2/16/88
- - Method of inducing local anesthesia using microdroplets of a general
anesthetic Purchased from Pharma-Logic, Inc.
Austria Patent #153,926 issued 2/6/91
Belgium Patent #153,926 issued 2/6/91
Canada Patent #1,242,645 issued 10/4/88
Switzerland Patent #153,926 issued 2/6/91
Germany Patent #P348104 issued 2/6/91
Europe Patent #153,926 issued 2/6/91
France Patent #153,926 issued 2/6/91
Great Britain Patent #153,926 issued 2/6/91
Japan Patent #2,518,605 issued 5/17/96
Luxembourg Patent #153,926 issued 2/6/91
Netherlands Patent #153,926 issued 2/6/91
Sweden Patent #153,926 issued 2/6/91
- - Compressed fluid technology for insoluble drug delivery
Owned by Research Triangle Pharmaceuticals Ltd.*
United States provisional patent #60/005,340 issued 10/17/95
- - Composition and method of preparing water-insoluble substances Owned by
Research Triangle Pharmaceuticals Ltd.
United States application #08/701,483 filed 8/22/96
* the patent application will be co-owned with the University of Texas
<PAGE>
Exhibit 10.82
SPARTA PHARMACEUTICALS, INC.
Pennsylvania Business Campus
111 Rock Road
Horsham, PA 19044
March 15, 1996
Ronald H. Spair
17 John Paul Drive
Hamilton Square, NJ 08690
Dear Mr. Spair:
This letter sets forth the terms of your employment by Sparta
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), subject to your
agreement with the terms hereof as indicated by your execution of this letter on
the final page. You are sometimes referred to in this Agreement as the
"Executive".
1. Effectiveness of Agreement. The effective date of this
Agreement will be the date set forth above (the "Commencement Date").
2. Employment. You have been appointed, and you agree to serve
as, Vice President and Chief Financial Officer of the Company, contingent on
your becoming employed on the Commencement Date, reporting to the Company's
President and Chief Executive Officer. During the time of such service, the
Company also agrees to appoint you as Secretary of the Company, as soon as the
current Company Secretary resigns, which the Company expects will occur shortly.
While serving as Vice President and Chief Financial Officer of
the Company you will have such responsibilities, duties and authority as are
customary to such positions, including, without limitation, general supervision
and control over, and responsibility for, the Company's financial and accounting
operations, its treasury, its management information and office systems and
operations, and its insurance and benefit programs, subject to supervision by
and the direction of the Company's Chief Executive Officer and its Board of
Directors. You agree to devote all of your full business time, energies and best
efforts to the business and affairs of the Company and its Subsidiaries, if any,
provided, however, that nothing contained in this paragraph shall be deemed to
prevent or limit your right to make passive investments not in excess of one
percent (1%) in the stock or other securities of any corporation with respect to
<PAGE>
which you are not obligated or required to, and you do not in fact, devote any
efforts which interfere with your fulfillment of your duties hereunder.
1. Term.
(a) Your retention hereunder shall commence on the
Commencement Date and will continue until the first anniversary thereof, subject
to extension in accordance with the provisions of the following paragraph,
unless terminated earlier in accordance with the terms hereof (the "Employment
Term").
(b) Notwithstanding the foregoing, on each anniversary of
the Commencement Date commencing with the first anniversary of such date, your
employment hereunder shall be automatically extended for one (1) year unless
either you or the Company shall have given written notice to the other of a
desire that such automatic extension not occur, which notice was given no later
than ninety (90) days prior to the relevant anniversary of the Commencement
Date. If the Company gives you such written notice, you shall be entitled to
monthly payments, equal to the Annual Base Salary, as defined in Paragraph 5
below, in effect immediately prior to the expiration of the Employment Term, for
a period of six (6) months following the date of expiration of the Employment
Term.
(c) Furthermore, if the Company gives you such written
notice, then, you shall continue to be entitled to the benefits to which you are
entitled as of immediately preceding such expiration pursuant to Paragraph 9
hereof at the Company's expense for the period from the expiration date of the
Employment Term through and until the earlier of (i) that date which is six (6)
months after such expiration date and (ii) the date on which you commence
full-time employment by another employer, except as otherwise required by law.
2. Principal Location. The principal location at which you
will perform your duties will be the Company's principal offices which are to be
established as soon as practicable in Horsham, Pennsylvania, or such other
location as the Company may designate.
3. Compensation. In consideration for your services under this
Agreement, you will be paid at the annual rate of $120,000, payable semi-monthly
in arrears, subject to increase from time to time by action of the Board in
accordance with your performance and the Company's performance (the "Annual Base
Salary").
4. Bonuses. You will be entitled to such bonuses as are
determined from time to time by the Board in accordance with your performance
and the Company's performance against an annual operating plan agreed in
advance.
5. Expenses. The Company will reimburse you for travel,
entertainment and other business expenses reasonably incurred by you in
connection with the business of the Company and its Affiliates (as defined
below), upon presentation of appropriate invoices and documentation.
<PAGE>
6. Equity Compensation. In connection with your employment by
the Company, and effective upon your commencing employment with the Company, the
Company agrees to grant you an option (the "Option") under its 1991 Stock Plan
to purchase all or any part of an aggregate of 150,000 shares of Common Stock,
$.001 par value ("Common Stock"), of the Company, subject to exercise at a price
per share of Common Stock of Two Dollars and Seventy Cents, the price which the
Company has determined as of the date hereof is ninety percent (90%) of their
fair market value, and vesting at the rate of Thirty-Seven Thousand Five Hundred
(37,500) shares on each of the first four anniversaries of the Commencement
Date, provided in each case you are employed by the Company on such anniversary,
and on such other terms and conditions as are contained in the Company's 1991
Stock Plan and in the Stock Option Agreement attached hereto as Exhibit A (the
"Option Agreement").
The Option will be exercisable as provided herein, in the
Company's 1991 Stock Plan and in the Option Agreement, but in any event no
longer than three (3) months after your employment terminates, as provided in
the 1991 Stock Plan, or ten (10) years from the date of grant.
1. Benefits. In connection with your employment hereunder, you
will be entitled during the Employment Term to the following additional
benefits:
(a) At the Company's expense, such fringe benefits as the
Company may provide from time to time generally for its employees.
(b) You shall be entitled to no less than the number of
vacation days in each calendar year determined in accordance with the Company's
vacation policy as in effect from time to time, but not less than four weeks in
any calendar year (prorated in any calendar year during which you are employed
hereunder for less than the entire such year in accordance with the number of
days in such calendar year in which you are so employed). You shall also be
entitled to all paid holidays and personal days given by the Company to its
executives.
(c) The Company will assume the cost of the continuation of
your health benefits from your present employer ending at such time as Executive
becomes eligible to participate in a health plan for the Company's employees
providing substantially equivalent benefits.
2. Termination Upon Death or Disability. Your employment by
the Company shall terminate upon your death, or if, by virtue of total and
permanent disability, you are unable to perform your duties hereunder.
The determination that, by virtue of total and permanent
disability, you are unable to perform your duties hereunder shall be made by a
physician chosen by the Company and reasonably satisfactory to you (or your
legal representative). The cost of such examination shall be borne by the
Company. Without limiting the generality of the foregoing, unless otherwise
agreed, you shall be conclusively presumed to be totally and permanently
disabled hereunder if
<PAGE>
for reasons involving mental or physical illness or physical injury you fail to
perform your duties hereunder for a period of ninety (90) consecutive calendar
days or for any periods aggregating ninety (90) days or more in any twelve (12)
consecutive month period.
For purposes of this Paragraph 10, the Termination Date in the
event of death shall be the date of death and in the event of such total and
permanent disability shall be the earlier of the date of such physician's
examination pursuant to which such determination is made or the first business
day after which either such 90-day period has expired.
In the event of such a termination of employment as a result
of your death or total and permanent disability, the Company shall have no
further obligations hereunder except as provided in Paragraph 15 and 16 hereof
end except as provided below in this Paragraph 10:
(a) In the event of death, the Company shall pay to your
estate amounts, at the Annual Base Salary rate in effect on the
Termination Date, in monthly payments, for a period of six (6) months
following the Termination Date; and
(b) In the event of total and permanent disability, the
Company shall pay to you (or your estate) amounts, at the Annual Base
Salary rate in effect on the Termination Date, payable in monthly
payments, for a period of six (6) months following the Termination
Date. Amounts to which you would otherwise be entitled under this
subparagraph (b) above shall be reduced by the amount of any disability
insurance proceeds actually paid to you or paid for your benefit (or to
your estate or legal representatives) with respect to such six (6)
months following the Termination Date under any disability policy
provided by the Company or any Affiliate.
1. Termination by the Executive. Your employment may be
terminated by you, by giving a Notice of Termination, as follows: (a) at any
time by written notice of at least one (1) month to the Company, which time
period may be waived by the Company in its discretion; (b) at any time upon a
"Change of Control" of the Company; and (c) if your health should become
impaired to an extent that makes your continued performance of your duties
hereunder hazardous to your physical or mental health, provided you have
obtained a written statement from a qualified doctor to such effect.
The Termination Date in the event of a termination (i)
pursuant to subparagraph (a) immediately above shall be the later of the date
set forth in the Notice of Termination or one (1) month after the date of such
notice, except as the Company and you may otherwise agree to a shorter period of
time during which your services hereunder shall be required, and in such event,
the date as of which it is agreed such services shall end; and (ii) pursuant to
subparagraph (b) or (c) immediately above, the date of the Notice of
Termination.
A "Change of Control" shall be deemed to have occurred upon
the occurrence of any of the following:
<PAGE>
(i) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by any party as
a single plan) of all or substantially all of the assets of the Company;
(ii) individuals who, as of March 15, 1996, constitute the
entire Board of Directors of the Company (the "Incumbent Directors") cease for
any reason to constitute at least 50% of the Board of Directors (hereinafter
referred to as a "Board Change"), provided that any individual becoming a
director subsequent to March 15, 1996 whose election or nomination for election
was approved by a vote of at least a majority of the then Incumbent Directors
shall be, for purposes of provision, considered as though such individual were
an Incumbent Director; or
(iii) any consolidation or merger of the Company
(including, without limitation, a triangular merger) where the shareholders of
the Company, immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own, directly or
indirectly, Shares representing in the aggregate more than 50% of the combined
voting power of all the outstanding securities of the Company issuing cash or
securities in the consolidation or merger (or of its ultimate parent Company, if
any); or
(iv) any "person," as such term is used in Section 13(d) of
the Securities Exchange Act of 1934, as amended (or any successor provision)
(the "Exchange Act") (other than the Company, any employee benefit plan of the
Company or any entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan), together with all "affiliates" and
"associates" (as such terms are defined in Rule 12b-2 under the Exchange Act or
any successor provision) of such person, shall become the "beneficial owner" or
"beneficial owners" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act
or any successor provision), directly or indirectly, of securities of the
Company representing in the aggregate thirty percent (30%) or more of either (a)
the then outstanding shares of Common Stock of the Company or (b) the combined
voting power of all then outstanding securities of the Company having the right
under ordinary circumstances to vote in an election of the Board of Directors of
the Company ("Voting Securities") (hereafter referred to as an "Acquisition");
provided, that, notwithstanding the foregoing, an Acquisition shall not be
deemed to have occurred for purposes of this clause (iv)(1) solely as the result
of an acquisition of securities by the Company which, by reducing the number of
shares of Common Stock or other Voting Securities outstanding, increases (x) the
proportionate number of shares of Common Stock beneficially owned by any person
to thirty percent (30%) or more of the Common Stock then outstanding or (y) the
proportionate voting power represented by the Voting Securities beneficially
owned by any person to thirty percent (30%) or more of the combined voting power
of all then outstanding Voting Securities or (2) solely as the result of an
acquisition of securities from the Company; except that if any person referred
to in clause (1)(x) or (1)(y) of this sentence or to which clause (2) of this
sentence is applicable shall thereafter become the beneficial owner of any
additional shares of Common Stock or other Voting Securities (other than
pursuant to a stock split, stock dividend or similar transaction or a
transaction to which clause (2) applies), then an Acquisition shall be deemed to
have occurred for purposes of this clause (iv).
<PAGE>
1. Termination by the Company. Your employment may be
terminated at any time by the Company (a) with Cause by a Notice of Termination
to you, effective immediately unless otherwise stated in such notice, which date
shall be the Termination Date therefor, (b) without Cause at any time, by a
Notice of Termination to you, effective thirty (30) days after the date given,
except as you and the Company may otherwise agree, which date of effectiveness
shall be the Termination Date therefor, or (c) for total and permanent
disability in accordance with Paragraph 10.
For purposes of this Agreement, the Company shall have "Cause"
to terminate your employment hereunder upon (i) the willful and continued
failure by you to substantially perform your duties hereunder (other than any
such failure resulting from your incapacity due to physical or mental illness or
any such actual or anticipated failure after the issuance of a Notice of
Termination by you upon a Change of Control) after demand for substantial
performance is delivered by the Company to you that specifically identifies the
manner in which the Company believes you have not substantially performed your
duties, (ii) the willful engaging by you in misconduct which is materially
injurious to the Company, monetarily or otherwise, or (iii) the willful
violation by you of the provisions of Paragraph 17 ("Unauthorized Disclosure"),
provided that such violation results in material injury to the Company. For
purposes of this paragraph, no act, or failure to act, on your part shall be
considered "willful" unless done, or omitted to be done, by you not in good
faith and without reasonable belief that your action or omission was in the best
interest of the Company. Notwithstanding the foregoing, you shall not be deemed
to have been terminated for Cause unless (1) reasonable notice to you setting
forth the reasons for the Company's intention to terminate for Cause, (2) an
opportunity for you, together with your counsel, to be heard before the Board,
and (3) delivery to you of a Notice of Termination from the Board finding that
in the good faith opinion of a majority of the Board you were guilty of conduct
set forth above in clause (i), (ii) or (iii) hereof, and specifying the
particulars thereof in detail.
1. Notice of Termination. Any termination of your employment
by the Company or by you (other than as a result of death) shall be communicated
by written Notice of Termination to the other party hereto in accordance with
Paragraph 21. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for the termination under the provision
so indicated.
<PAGE>
2. Payments of Compensation Upon Termination for other than
Death or Disability.
(a) In the event your employment hereunder is terminated by
you upon a Change of Control or by the Company other than for either Cause or
total and permanent disability, you shall be entitled to monthly payments at the
Annual Base Salary rate in effect on the Termination Date for the period
commencing on the Termination Date and continuing for six (6) months from the
Termination Date; provided that such amounts shall be set-off against and
subject to your obligation to mitigate damages resulting from such termination.
Any payments due pursuant to paragraph 5 shall be in addition to the amounts
payable pursuant to this paragraph 14(a).
(b) In the event the Company shall terminate your
employment for Cause, or you shall terminate your employment other than upon a
Change of Control, then you shall be entitled as of the Termination Date to no
compensation under this Agreement, except as provided in Paragraph 16.
3. Continuation of Benefits. In addition, in the event your
employment hereunder is terminated (a) by you upon a Change of Control, or (b)
by the Company without Cause or (c) as a result of total and permanent
disability in accordance with Paragraph 10, then you shall continue to be
entitled to the benefits to which you were entitled as of immediately preceding
the applicable Termination Date pursuant to Paragraph 9(a) hereof at the
Company's expense for the period of time following the Termination Date until
the earlier of (i) the date of the expiration of the Employment Term as in
effect immediately prior to such Termination Date, but in any event no sooner
than that date which is six (6) months after the Termination Date, and (ii) the
date on which you commence full-time employment by another employer, except as
otherwise required by law.
4. Accrued Compensation. In the event of any termination of
your employment for any reason, you (or your estate) shall be paid such portion
of your Annual Base Salary and bonuses as has accrued (including, without
limitation, as provided below) by virtue of your employment during the period
prior to termination and has not yet been paid, together with any amounts for
expense reimbursement and similar items which have been properly incurred in
accordance with the provisions hereof prior to termination and have not yet been
paid. Such amounts shall be paid within ten (10) days of the Termination Date.
The amount due to you (or your estate) under this Paragraph 16 in payment of any
bonus shall be a proportionate amount of the bonus that would otherwise have
been due to you as if such termination had not occurred.
5. Confidentiality and Non-Competition and Non-Solicitation
Agreement . You agree to execute and deliver and abide by all of the terms and
conditions of the Confidentiality Agreement attached hereto as Exhibit B (the
"Confidentiality Agreement"), and the Non-Competition Agreement attached hereto
as Exhibit C (the "Non-Competition and Non-Solicitation Agreement"). You have
carefully read and considered the provisions of the Confidentiality Agreement
and the Non-Competition and Non-Solicitation Agreement and,
<PAGE>
having done so, agree that the restrictions set forth therein are fair and
reasonable and are reasonably required for the protection of the interests of
the Company.
6. Duties to Others; Absence of Conflict. Nothing herein shall
obligate you to disclose any information of a third party which is proprietary
or confidential to that third party, or the disclosure of which would be
prohibited under the terms of your agreement with or other rules or regulations
governing your relationship with others with which you may be associated, or
which you are otherwise obligated not to disclose. You represent and warrant to
the Company that you are under no contractual or other restriction or obligation
which is inconsistent with your execution of this Agreement or the performance
of your duties hereunder. During the term of this Agreement, for the period
commencing with the Commencement Date, you will not enter into any agreement
either written or oral in conflict with this Agreement and will arrange to
provide your services under this Agreement in such a manner and at times that
your services will not conflict with your responsibilities under any other
agreement, arrangement or understanding.
7. Parties. This Agreement is personal and shall in no way be
subject to assignment by you except as contemplated hereby. This Agreement shall
be binding upon and shall inure to the benefit of the Company and its successors
and assigns either by merger, operation of law, consolidation, assignment,
purchase or otherwise of a controlling interest in the business of the Company
and shall be binding upon and shall inure to the benefit of you, your heirs,
executors, administrators, personal and legal representatives, distributees,
devisees, legatees, successors and permitted assigns. If you should die while
any amounts would still be payable to you hereunder if you had continued to live
(other than amounts to which you would be entitled by reason of continued
employment), all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to your devisees, legatees or
other designees or, if there be no such designee, to your estate. The Company
agrees that a successor in interest by merger, operation of law, consolidation,
assignment, purchase or otherwise of a controlling interest in the business of
the Company will be informed prior to such event of the existence of this
Agreement. The Company will require any successor (whether direct or indirect,
by purchase, merger, operation of law, consolidation, assignment or otherwise of
a controlling interest in the business, stock or other assets of the Company) to
assume expressly and agree to perform this Agreement. As used in this Agreement,
"the Company" shall mean the Company as hereinbefore defined and any successor
as aforesaid.
8. Invalidity. We intend this Agreement to be enforced as
written. However, if any term or provision of this Agreement shall to any extent
be declared illegal or unenforceable by a duly authorized court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
term or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, each term and
provision of this Agreement shall be valid and be enforceable to the fullest
extent permitted by law and the illegal or unenforceable term or provision shall
be deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable term
or provision.
<PAGE>
9. Notices. All notices and communications required or
permitted to be given hereunder shall be duly given by delivering the same in
hand or by depositing such notice or communication in the mail, sent by
certified or registered mail, return receipt requested, postage prepaid, or by
delivery by overnight courier, with a receipt obtained therefor, as follows:
If sent to the Company: Sparta Pharmaceuticals, Inc.
Pennsylvania Business Campus
111 Rock Road
Horsham, PA 19044
ATTN: President and Chief
Executive Officer
If sent to you: Ronald H. Spair
17 John Paul Drive
Hamilton Square, NJ 08690
or such other address as either party furnishes to the other by like notice,
provided, however, that any notice of a change of address shall be effective
only upon receipt.
1. Entire Agreement. This Agreement together with the Option
Agreement, the Confidentiality Agreement and the Non-Competition and
Non-Solicitation Agreement of even date herewith constitute the entire agreement
and understanding between us in relation to the subject matter hereof and there
are no promises, representations, conditions, provisions or terms related
thereto other than those set forth or referred to in this Agreement and the
exhibits hereto. This Agreement supersedes all previous understandings,
agreements and representations between the Company and you regarding your
employment by the Company, written or oral.
2. Headings. All captions in this Agreement are intended
solely for the convenience of the parties, and none shall be deemed to affect
the meaning or construction of any provision hereof.
3. Waiver. No failure of the Company or you to exercise any
power reserved to it or you, respectively, by this Agreement, or to insist upon
strict compliance by you or the Company, respectively, with any obligation or
condition hereunder, and no custom or practice of the parties at variance with
the terms hereof, shall constitute a waiver of the Company's or your right, as
the case may be, to demand exact compliance with any of the terms hereof. Waiver
by either party of any particular default by the other party hereto shall not
affect or impair the waiving party's rights with respect to any subsequent
default of the same, similar or different nature, nor shall any delay,
forbearance or omission of either party to exercise any power or right arising
out of any breach or default by the other party of any of the terms, provisions
or covenants hereof, affect or impair our or your right to exercise the same,
nor shall such constitute a waiver by the Company or you, as the case may be, of
any right hereunder, or the right to declare any subsequent breach or default
and to terminate this Agreement prior to the expiration of its term.
<PAGE>
4. Remedies. In the event of any breach by you of any of the
provisions of this Agreement, the Company shall be entitled, in addition to
monetary damages and to any other remedies available to the Company under this
Agreement and at law, to equitable relief, including injunctive relief.
5. Survival. Notwithstanding any other provision of this
Agreement, the provisions of Sections 17 and 19 through and including 31 and the
representations and warranties herein shall survive any termination of
Executive's employment and continue in full force and effect thereafter.
6. Affiliate. As used herein, the term "Affiliate" shall be
deemed to include any corporation, joint venture, or other business enterprise,
whether incorporated or unincorporated, which the Company directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with.
7. Subsidiaries. As used herein, the term "Subsidiaries" shall
mean all corporations a majority of the capital stock of which entitling the
holder thereof to vote is owned by the Company or a Subsidiary.
8. Governing Law. This Agreement shall be construed under and
be governed in all respects by the law of the Commonwealth of Pennsylvania.
9. Amendment. No amendment or modification to this Agreement
shall be effective unless in writing and signed by both parties hereto.
10. Counterparts. This Agreement may be executed in any number
of counterparts, each executed counterpart constituting an original and such
counterparts together constituting one agreement.
If you agree with the terms of your employment as set forth in
this Agreement, please execute the duplicate copy hereof in the space provided
below.
SPARTA PHARMACEUTICALS, INC.
By: /s/ Jerry B. Hook
-------------------------------
Jerry B. Hook, Ph.D.
President and Chief
Executive Officer
ACCEPTED AND AGREED
/s/ Ronald H. Spair
- -----------------------
Ronald H. Spair
<PAGE>
EXHIBIT A
Employee Copy
Company Copy
Option Number
SPARTA PHARMACEUTICALS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
AGREEMENT made as of the 15th day of March, 1996, between
Sparta Pharmaceuticals, Inc. (the "Company"), a Delaware corporation having a
principal place of business in Durham, North Carolina, and Ronald H. Spair, 17
John Paul Drive, Hamilton Square, NJ 08690, an employee of the Company
(sometimes referred to below as the "Employee" and as the "Optionee").
WHEREAS, the Company desires to grant to the Employee 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 Employee understand and agree
that any terms used and not defined herein have the same meanings as in the
Plan;
WHEREAS, the Company and the Employee 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 Employee, as of
the date the Optionee first becomes employed by the Company (the "Employment
Effective Date"), the right and option to purchase all or any part of an
aggregate of One Hundred Fifty Thousand (150,000) 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 Employee
acknowledges receipt of a copy of the Plan.
<PAGE>
This Option is in addition to any other options heretofore or
hereafter granted to the Employee by the Company, but a duplicate original of
this instrument shall not effect the grant of another option.
2. PURCHASE PRICE
The purchase price of the Shares covered by the Option shall
be Two Dollars and Seventy Cents ($2.70) per Share, 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. Payment may be made by cash or
certified check.
3. EXERCISE OF OPTION
If the Employee has continued to be employed by the Company on
the following dates, the Employee 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 Employment Effective Date
On or after the first anniversary up to 37,500 Shares
of the Employment Effective Date
On or after the second anniversary an additional 37,500
of the Employment Effective Date Shares
On or after the third anniversary an additional 37,500
of the Employment Effective Date Shares
On or after the fourth anniversary an additional 37,500
of the Employment Effective Date Shares
The foregoing rights are cumulative and are 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 Employee's ability to
exercise the Option after a termination of 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.
<PAGE>
a. Termination of Employment (Other than for Death or
Disability)
If the Employee's employment terminates (for any reason other
than death or Disability), the Option may be exercised within three (3) months
after the date the Employee's employment terminates, or within the originally
prescribed term of the Option, whichever is earlier, but may not be exercised
thereafter. In such event, the Option shall be exercisable only to the extent
that the right to purchase Shares under this Agreement or the Plan has accrued
and is in effect at the date of such termination of employment.
Notwithstanding the foregoing, in the event of the Employee's
death within three (3) months after the termination of employment, the
Optionee's Survivors may exercise the Option within one (1) year after the date
of the Employee's death, but in no event after the date of expiration of the
term of the Option.
b. Termination of Employment as a Result of Disability or
Death
In the event the Employee's employment terminates by reason of
Disability, as determined in accordance with the Plan, or death, the Option
shall be exercisable only within one (1) year after the date of such Disability
or death, as the case may be, or if earlier, the term originally prescribed by
the Option. In such event, the Option shall be exercisable:
(1) to the extent that the right to purchase the Shares
hereunder has accrued on the date of Disability or death and
is in effect as of such date; and
(2) to the extent of a pro rata portion of any such rights as
would have accrued under Section 3 had the Employee's
employment not terminated by reason of Disability or death
prior to the end of the current accrual period, i.e., the next
anniversary date of the Employment Effective Date after the
date of Disability or death. The proration shall be based upon
the number of days of the accrual period prior to the date of
the Employee's Disability or death.
<PAGE>
c. Termination of Employment for Cause and Finding of Cause
after Termination of Employment
In the event the Employee's employment is terminated by the
Company for Cause, the Employee's right to exercise any unexercised portion of
this Option shall cease forthwith, and this Option shall thereupon terminate.
Notwithstanding anything herein to the contrary, if subsequent to the Employee's
termination as an employee, but prior to the exercise of the Option, the
Administrator (as defined in the Plan) determines that, either prior or
subsequent to the Employee's termination, the Employee engaged in conduct which
would constitute Cause, then the Employee shall forthwith cease to have any
right to exercise the Option.
d. Change of Status
"Employment" as used in this Agreement shall include service
as a consultant to or as an employee of the Company or any of its Affiliates and
a change of status from consultant to employee or employee to consultant shall
not be treated as a termination of the "employment" 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 or, in the
discretion of the Administrator such other consideration as it may approve, 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
Employee and if the Employee shall so request in the notice exercising the
Option, shall be registered in the name of the Employee 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 Employee, 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 Employee otherwise
than by will or by the laws of descent and distribution and shall be
exercisable, during the Employee's lifetime, only by the Employee. 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 Employee shall have no rights as a stockholder with
respect to Shares subject to this Agreement until the Company has authorized
delivery of a stock certificate therefor to the Employee and such Shares are
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.
<PAGE>
Notwithstanding the foregoing provisions of this Section 9, in
the event of a "Change of Control" (as defined below) while the Optionee is an
employee of the Company, the Optionee shall be entitled to exercise this Option,
commencing as of immediately prior to the consummation of such Change of Control
(but subject to the consummation of such Change of Control) and in the event of
a Change of Control as a result of a tender offer, this Option shall become
fully exercisable in a timely manner such that the Optionee may participate in
such tender offer at any stage, for all of the Shares then remaining subject to
purchase under such Option whether or not the right to purchase such Shares
shall have become vested and become exercisable.
A "Change of Control" shall be deemed to have occurred upon
the occurrence of any of the following:
(i) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by any party as
a single plan) of all or substantially all of the assets of the Company;
(ii) individuals who, as of March 15, 1996, constitute the
entire Board of Directors of the Company (the "Incumbent Directors") cease for
any reason to constitute at least 50% of the Board of Directors (hereinafter
referred to as a "Board Change"), provided that any individual becoming a
director subsequent to March 15, 1996 whose election or nomination for election
was approved by a vote of at least a majority of the then Incumbent Directors
shall be, for purposes of provision, considered as though such individual were
an Incumbent Director; or
(iii) any consolidation or merger of the Company
(including, without limitation, a triangular merger) where the shareholders of
the Company, immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own, directly or
indirectly, Shares representing in the aggregate more than 50% of the combined
voting power of all the outstanding securities of the Company issuing cash or
securities in the consolidation or merger (or of its ultimate parent Company, if
any); or
(iv) any "person," as such term is used in Section 13(d) of
the Securities Exchange Act of 1934, as amended (or any successor provision)
(the "Exchange Act") (other than the Company, any employee benefit plan of the
Company or any entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan), together with all "affiliates" and
"associates" (as such terms are defined in Rule 12b-2 under the Exchange Act or
any successor provision) of such person, shall become the "beneficial owner" or
"beneficial owners" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act
or any successor provision), directly or indirectly, of securities of the
Company representing in the aggregate thirty percent (30%) or more of either (a)
the then outstanding shares of Common Stock of the Company or (b) the combined
voting power of all then outstanding securities of the Company having the right
under ordinary circumstances to vote in an election of the Board of Directors of
the Company ("Voting Securities") (hereafter referred to as an "Acquisition");
provided, that, notwithstanding the foregoing, an Acquisition shall not be
deemed to have
<PAGE>
occurred for purposes of this clause (iv)(1) solely as the result of an
acquisition of securities by the Company which, by reducing the number of shares
of Common Stock or other Voting Securities outstanding, increases (x) the
proportionate number of shares of Common Stock beneficially owned by any person
to thirty percent (30%) or more of the Common Stock then outstanding or (y) the
proportionate voting power represented by the Voting Securities beneficially
owned by any person to thirty percent (30%) or more of the combined voting power
of all then outstanding Voting Securities or (2) solely as the result of an
acquisition of securities from the Company; except that if any person referred
to in clause (1)(x) or (1)(y) of this sentence or to which clause (2) of this
sentence is applicable shall thereafter become the beneficial owner of any
additional shares of Common Stock or other Voting Securities (other than
pursuant to a stock split, stock dividend or similar transaction or a
transaction to which clause (2) applies), then an Acquisition shall be deemed to
have occurred for purposes of this clause (iv).
10. TAXES AND WITHHOLDING
The Employee acknowledges that any income or other taxes due
from him with respect to this Option or the Shares issuable pursuant to this
Option shall be the Employee's responsibility.
In the event of a Disqualifying Disposition (as defined in
Section 14 below) or if the Option is converted into a Non-Qualified Option and
such Non-Qualified Option is exercised, the Company may withhold from the
Employee's salary and wages, if any, or other remuneration, or as a condition of
the exercise hereof, may require the Employee to pay additional federal, state,
and local income tax withholding and employee 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") and no stop order or proceedings to suspend or revoke effectiveness
thereof have been issued, commenced or are pending or threatened, 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
<PAGE>
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 EMPLOY
Neither the Company nor any subsidiary is by the Plan or this
Agreement obligated to continue the Employee as an employee of the Company or
any subsidiary.
13. OPTION IS NOT AN INCENTIVE STOCK OPTION
The parties each intend and understand that the Option is not
an incentive stock option. Employee should consult with Employee's own tax
advisors regarding the tax effects of the Option.
14. NOTICES
Any notices required or permitted by the terms of this
Agreement or the Plan shall be given when delivered in person or by registered
or certified mail, return receipt requested, addressed as follows:
To the Company:
Sparta Pharmaceuticals, Inc.
111 Rock Road
Horsham, PA 19044
Attn: President and Chief Executive Officer
To the Employee:
Ronald H. Spair
17 John Paul Drive
Hamilton Square, NJ 08690
<PAGE>
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.
15. GOVERNING LAW
This Agreement shall be construed and enforced in accordance
with the law of the State of Delaware.
16. 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.
17. 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.
18. 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>
19. 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.
20. 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.
21. SURVIVAL
The expiration or other termination of the Option granted to
the Employee shall neither affect nor alter the Employee'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
Employee has hereunto set his hand, all as of the day and year first above
written.
SPARTA PHARMACEUTICALS, INC.
By: /s/ Jerry B. Hook
-------------------------
Jerry B. Hook, Ph.D.
President and Chief
Executive Officer
/s/ Ronald H. Spair
----------------------------------
Ronald H. Spair
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE OF NONQUALIFIED STOCK OPTION
To: Sparta Pharmaceuticals, Inc.
Ladies and Gentlemen:
I hereby exercise my Nonqualified Stock Option to purchase
__________ shares (the "Shares") of the common stock, $.01 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 March 15, 1996.
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 such transaction involving the Shares and no stop
order or proceedings to suspend or revoke effectiveness thereof have been
issued, commenced or are pending or threatened, or (2) the Company receives an
opinion of my legal counsel
<PAGE>
(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 payment in the amount of $__________ by _______________ is
enclosed.
I acknowledge that the Company is authorized to withhold from
my salary and 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, employee contributions to
employment taxes in respect of the amount that is considered compensation, if
any, 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:
My mailing address, if different from the address listed
above, for shareholder communications is:
<PAGE>
Very truly yours,
Employee (signature)
Print Name
Date
Social Security Number
<PAGE>
EXHIBIT B
SPARTA PHARMACEUTICALS, INC.
CONFIDENTIALITY AGREEMENT
This confidentiality agreement is made as of the 15th day of
March, 1996, by and between Sparta Pharmaceuticals, Inc., a Delaware corporation
("Company"), and Ronald H. Spair, 17 John Paul Drive, Hamilton Square, NJ 08690
("Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ Executive, and
Executive wishes to be so employed by the Company pursuant to a letter agreement
dated as of the same date as this Agreement (the "Employment Agreement");
WHEREAS, the Company has developed, and the Company and/or
Executive may continue to develop during the period Executive is employed by the
Company, certain Proprietary Information, Inventions and Intellectual Property
(as those terms are hereinafter defined), that the Company wishes to protect and
maintain as confidential;
WHEREAS, the Company from time to time has received, and may
continue to receive during the period of Executive is employed by the Company,
the Proprietary Information of others, and the Company wishes to maintain the
confidentiality of such Proprietary Information; and
<PAGE>
WHEREAS, the Company has developed, and will continue to
develop during the period Executive is so employed by the Company, goodwill by,
among other things, substantial expenditure of money and effort;
NOW, THEREFORE, in consideration of the premises set forth
below and the mutual covenants and undertakings contained in this Agreement, and
for other good and valuable consideration, receipt and sufficiency of which are
hereby mutually acknowledged, IT IS AGREED:
1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
(a) Agreement means this confidentiality agreement,
including all exhibits, schedules and annexations, as all may be amended from
time to time in the manner provided in this Agreement.
(b) Employment means the current or anticipated or
subsequent employment of Executive by the Company as an employee, or otherwise,
or any other period during which Executive receives compensation from the
Company in any capacity.
(c) Intellectual Property means any Invention, writing,
trade name, trademark, service mark or any other material registered or
otherwise protected or protectible under state, federal or foreign patent,
trademark, copyright or similar laws.
(d) Inventions includes ideas, discoveries, inventions,
developments and improvements, whether or not reduced to practice and whether or
not patentable or otherwise within the definition of Intellectual Property.
(e) Proprietary Information includes any scientific,
technical, trade or business secrets of the Company and any scientific,
technical, trade or business materials (including, without limitation, organisms
(or parts thereof), cell lines, cultures, plasmids, clones, vectors, reagents
and DNA and progeny, reproductions and derivatives of any of them) that are
treated by the Company as confidential or proprietary, including, but not
limited to, Inventions belonging to the Company and confidential information
obtained by or given to the Company about or belonging to its suppliers,
licensors, licensees, partners, affiliates, customers, potential customers or
others.
<PAGE>
The definition of "Proprietary Information" herein shall not
include Proprietary Information which (i) was properly and lawfully known by
Executive prior to its disclosure by the Company (except as provided herein with
respect to Inventions belonging to the Company); (ii) is publicly known through
publication or otherwise through no wrongful act of Executive; (iii) is received
from a third party who rightfully discloses it to Executive without restriction
on its subsequent disclosure; or (iv) is disclosed pursuant to the lawful
requirement of a governmental agency or by order of court of competent
jurisdiction, provided that such disclosure is subject to all applicable
governmental or judicial protection available for like material and the Company
is notified in writing in advance of such intended disclosure promptly after
Executive becomes aware of such requirement.
1. Executive Acknowledgments. The Company has developed and
will develop its Proprietary Information and Intellectual Property over a
substantial period of time and at a substantial expense, and its Proprietary
Information and Intellectual Property are integral to the goodwill of the
Company. During the course of Employment by the Company, Executive may develop
or become aware of Proprietary Information and/or Intellectual Property.
Protection of the Proprietary Information and Intellectual Property is necessary
to conduct the Company's business, and the Company is and shall at all times
remain the sole owner of the Company's Proprietary Information and Intellectual
Property. No proprietary rights or licenses are granted to Executive by this
Agreement.
2. Confidentiality. Executive shall at all times, both during
and after any termination of Executive's Employment by the Company by either the
Company or Executive, maintain in confidence and not utilize the Proprietary
Information or the Intellectual Property of the Company, except in performing
services for the Company under the Company's direction. Maintaining such
Proprietary Information and Intellectual Property in confidence shall include
refraining from disclosing such Proprietary Information or Intellectual Property
to any third party (except when duly and specifically authorized in writing to
do so for the purpose of furthering the business of the Company), and refraining
from using such Proprietary Information or Intellectual Property for the account
of Executive or for any other person or business entity or in any manner which
may injure or cause loss or may be calculated to injure or cause loss whether
directly or indirectly to the Company. Executive agrees not to make any copies
of the Proprietary Information or Intellectual Property of the Company (except
when appropriate for the furtherance of the business of the Company or duly and
specifically authorized to do so) and promptly upon request, whether during or
after the period of Employment by the Company, to return to the Company any and
all documentary, machine-readable or other elements or evidence of such
Proprietary Information, Intellectual Property, and any copies of either that
may be in Executive's possession or under Executive's control.
3. Rights to Inventions and Intellectual Property. In
connection with Executive's Employment by the Company, or by use of the
resources of the Company, whether or not Executive is then employed by the
Company, Executive may produce, develop, create or invent Inventions and
Intellectual Property related to the business of the Company. Executive shall
maintain and furnish to the Company complete and current records of all such
Inventions and Intellectual Property and promptly disclose to the Company in
writing any such Inventions
<PAGE>
and Intellectual Property, together with all available information relating
thereto. Executive agrees that all such Inventions and Intellectual Property are
and shall be the exclusive property of the Company, and that the Company may use
or pursue them without restriction or additional compensation. Executive: (i)
hereby assigns, sets over and transfers to the Company and its assigns all of
his right, title and interest in and to such Inventions and Intellectual
Property and benefits and/or rights resulting therefrom; (ii) agrees that
Executive and his agents shall, during and after the period Executive is
employed by the Company, cooperate fully in obtaining patent, trademark, service
mark, copyright or other proprietary protection for such Inventions and
Intellectual Property, in any country throughout the world, all in the name of
the Company (but only at Company expense), and, without limitation, shall
execute all requested applications, assignments and other documents in
furtherance of obtaining, maintaining, renewing and restoring such protection or
registration and confirming full ownership by the Company of such Inventions and
Intellectual Property; and (iii) shall, upon leaving the Company, provide to the
Company in writing a full, signed statement of all Inventions and Intellectual
Property in which Executive participated prior to termination of the Employment
by the Company.
In the event the Company is unable, after reasonable effort,
to secure Executive's signature on any letters patent, copyright, trademark,
service mark or other analogous protection relating to any of such Inventions
and Intellectual Property, whether because of his physical or mental incapacity
or for any other reason whatsoever, Executive hereby irrevocably designates and
appoints the Company and its duly authorized officers and agents as his agent
and attorney-in-fact, to act for and in his behalf and stead to execute and file
any such application or applications and to do all other lawfully permitted acts
to further the prosecution and issuance of letters patent, copyright, trademark,
service mark or other analogous protection thereon with the same legal force and
effect as if executed by the Executive.
Unless covered by an appropriate agreement between any third
party and the Company, Executive agrees that he will not engage in any
activities or use any facilities of a third party as a result of which claims of
ownership to any of the Inventions or Intellectual Property may be made by such
third party.
1. Continued Obligations. Executive's obligations under this
Agreement shall not be affected: (i) by any termination of Executive's
Employment, including termination upon the Company's initiative; nor (ii) by any
change in Executive's position, title or function with the Company; nor (iii) by
any interruption in Employment during which Executive leaves and then rejoins
the Company for any period within a period of one year and for any reason.
Nothing herein shall be construed as constituting an employment agreement or an
undertaking by the Company to retain or employ Executive's services for any
stated period of time.
2. No Conflicting Agreements. Executive represents and
warrants that execution and performance of this Agreement does not and will not
violate, conflict with, or constitute a default under any contract, commitment,
agreement, understanding, arrangement, or restriction, or any adjudication,
order, injunction or finding of any kind by any court or agency to which
Executive may be a party or by which Executive may be bound.
<PAGE>
7. Remedies. In the event of any breach by Executive of any of
the provisions of this Agreement, the Company shall be entitled, in addition to
monetary damages and to any other remedies available to the Company under this
Agreement and at law, to equitable relief, including injunctive relief, and to
payment by Executive of all costs incurred by the Company in enforcement against
Executive of the provisions of this Agreement, including reasonable attorneys'
fees.
8. General Provisions.
(a) No Waiver. Waiver of any provision of this Agreement,
in whole or in part, in any one instance shall not constitute a waiver of any
other provision in the same instance, nor any waiver of the same provision in
another instance, but each provision shall continue in full force and effect
with respect to any other then-existing or subsequent breach.
(b) Notice. For purposes of this Agreement, notices and all
other communications provided for herein shall be in writing and shall be deemed
to have been duly given when delivered personally or by overnight courier with a
receipt obtained therefor or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to Executive, to: Ronald H. Spair
17 John Paul Drive
Hamilton Square, NJ 08690
If to the Company, to: Sparta Pharmaceuticals, Inc.
111 Rock Road
Horsham, PA 19044
or to such other address as either party may furnish to the other in writing in
accordance with this Section, except that notices of changes of address shall be
effective upon receipt.
(a) Severability. The parties intend this Agreement to be
enforced as written. However, if a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
validity or unenforceability of that provision shall not affect the validity or
enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect. If any of the provisions of
this Agreement is held to be excessively broad, it shall be reformed and
construed by limiting and reducing it so as to be enforceable to the maximum
extent permitted by law.
(b) General. This Agreement: (i) may be executed in any
number of counterparts, each of which, when executed by both parties to this
Agreement shall be deemed to be an original, and all of which counterparts
together shall constitute one and the same instrument; (ii) shall be governed by
and construed under the law of the State of North Carolina applicable to
contracts made, accepted, and performed wholly within the State, without
<PAGE>
application of principles of conflicts of laws; (iii) along with the Employment
Agreement, the Stock Option Agreement and the Non-Competition and
Non-Solicitation Agreement of even date herewith constitute the entire agreement
of the parties with respect to the subject matter hereof and thereof for the
periods provided herein and therein, and supersedes all prior oral and written
communications, proposals, negotiations, representations, understandings,
courses of dealing, agreements, contracts, and the like, whether express or
implied between the parties in such respect; (iv) may be amended, modified, or
terminated, and any right under this Agreement may be waived in whole or in
part, only by a writing signed by both parties; (v) contains headings only for
convenience, which headings do not form part, and shall not be used in
construction, of this Agreement; (vi) where appropriate, with respect to defined
terms, the singular shall include the plural and the plural the singular; (vii)
the representations and warranties set forth herein shall survive the execution
hereof; (viii) shall bind and inure to the benefit of the parties and their
respective legal representatives, heirs, executors, administrators, successors
and assigns, as the case may be, except that no party may delegate any of its or
his obligations under this Agreement, or assign this Agreement, or any of its or
his rights or obligations hereunder, without the prior written consent of the
other party, provided, in any event, without written consent of the Executive,
the Company may assign this Agreement in connection with the merger,
consolidation, or sale of all or substantially all assets of the Company and may
assign any of its rights under Section 4 hereof; and (ix) be enforced only in
courts located within the State of North Carolina the parties hereby agree that
such courts shall have venue and exclusive subject matter and personal
jurisdiction, and consent to service of process by registered mail, return
receipt requested, or by any other manner provided by law.
Executive and the Company have executed and delivered this
Agreement as a document under seal as of the Effective Date.
COMPANY:
SPARTA PHARMACEUTICALS, INC.
By: /s/ Jerry B. Hook
----------------------------
Jerry B. Hook, Ph.D.
President and Chief
Executive Officer
Executive:
/s/ Ronald H. Spair
--------------------------
Ronald H. Spair
<PAGE>
)
) ss.
)
As of this 15th day of March, 1996, the above-named Ronald H.
Spair personally appeared before me and acknowledged the foregoing instrument to
be his free act and deed.
Notary Public
My commission expires:
<PAGE>
EXHIBIT C
NON-COMPETITION AND NON-SOLICITATION AGREEMENT
as of March 15, 1996
Ronald H. Spair
17 John Paul Drive
Hamilton Square, NJ 08690
Dear Mr. Spair:
In consideration of and as a condition to your employment by
Sparta Pharmaceuticals, Inc. (the "Company"), you hereby covenant and agree with
the Company as follows:
1. The term of this Agreement shall be, with respect to the "Non-Competition
Period" as defined below, for a period commencing on the date on which your
employment by the Company begins and ending on the last day of (a) your
employment by the Company if your employment is terminated for any reason
other than (i) by the Company without Cause in accordance with, and as
"Cause" is defined in, the letter agreement dated March 15, 1996 pertaining
to your employment by the Company (the "Employment Agreement") or (ii) by you
upon a "Change of Control" of the Company is defined in, the Employment
Agreement or (b) the twelfth (12th) month following the date on which your
employment by the Company terminates, if your employment should be terminated
(i) by the Company without Cause or (ii) by you upon a "Change of Control" of
the Company (the "Non-Competition Period"), and, with respect to the
"Non-Solicitation Period" as defined below, for a period commencing on the
date on which your employment by the Company begins and ending the twelfth
month (12th) following the date on which your employment by the Company
terminates if your employment is terminated for any reason, including but not
limited to termination by the Company without Cause or by you with Good
Reason (the "Non-Solicitation Period").
2. During the Non-Competition Period, you will not, without the Company's prior
written consent, directly or indirectly compete with the Company. As used
herein, to "compete" means to be involved for your own account or the account
of another, as owner, principal, agent, stockholder, director, employee,
officer, consultant, partner, joint venturer, or in any other manner with any
business or entity located in or doing business in the continental United
States in the Company's Field of Interest (as defined below), except that
nothing herein shall prohibit you from owning not more than 1% of any class
of the securities of any publicly-traded entity.
<PAGE>
3. During the Non-Solicitation Period, you will not solicit any person who is
employed by or a consultant to the Company or any affiliate or subsidiary of
the Company during the Non-Solicitation Period, to terminate such person's
employment by or consultancy to the Company, such affiliate or subsidiary. As
used herein, the term "solicit" shall include, without limitation,
requesting, encouraging, assisting or causing, directly or indirectly, any
such employee or consultant to terminate such person's employment by or
consultancy to the Company or any of its affiliates or subsidiaries.
4. You acknowledge that the Company is developing products and services to be
distributed throughout the continental United States and that such
non-competition and non-solicitation provisions are necessary to protect the
Company's goodwill and business.
5. For the purposes of this Agreement, "Field of Interest" currently means the
development, manufacture and sale of oncological, anti-viral and related
products and serine protease inhibitors. The Company and you may, by written
agreement, modify the definition of Field of Interest based on the activities
in which the Company is then engaged or in which the Company then proposes to
be engaged.
6. You agree that the breach of this Agreement by you may cause irreparable
damage to the Company and that in the event of such breach the Company shall
have, in addition to any and all remedies of law, the right to an injunction,
specific performance or other equitable relief to prevent the violation of
your obligations hereunder. In addition to the remedies the Company may seek
and obtain pursuant to this Section 3, the period during which the covenants
contained herein apply shall be extended by any and all periods during which
you shall be found by a court possessing personal jurisdiction over you to
have been in violation of the covenants contained in this Agreement.
7. You understand that this Agreement does not create an obligation on the
Company or any other person or entity to continue your employment. You
acknowledge that your skills and experience are such that you can anticipate
finding employment in your profession at a level commensurate with your
skills and represent and agree that the restrictions imposed by this
Agreement on engaging in competitive business activities are necessary for
the protection of the legitimate interests and competitive position of the
Company and do not impose undue hardships on you.
8. Any amendment to or modification of this Agreement, and any waiver of any
provision hereof, shall be in writing. Any waiver by the Company of a breach
of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach hereof.
9. The parties intend this Agreement to be enforced as written. However, the
parties agree that each provision herein shall be treated as a separate and
independent clause, and the unenforceability of any one clause shall in no
way impair the enforceability of any of the other clauses herein. Moreover,
if one or more of the provisions contained in this Agreement shall for any
reason be held to be excessively broad as to scope, activity or
<PAGE>
subject so as to be unenforceable at law, such provision or provisions shall
be construed by the appropriate judicial body by limiting and reducing it or
them, so as to be enforceable to the maximum extent compatible with the
applicable law as it shall then appear.
10. This Agreement shall be governed by and construed in accordance with the law
of the Commonwealth of Pennsylvania, without giving effect to the conflict
of law principles thereof.
11. The term "Company" shall include Sparta Pharmaceuticals, Inc. and any of its
subsidiaries, subdivisions or affiliates. The Company shall have the right
to assign this Agreement to its successors and assigns, and all covenants
and agreements hereunder shall inure to the benefit of and be enforceable by
said successors or assigns.
12. For purposes of this Agreement, the terms "employment" and "employee" shall
include any position you hold with the Company from time to time, whether as
a consultant, officer or director.
<PAGE>
Please indicate your agreement to and acceptance of the
foregoing by signing and returning one copy to the undersigned.
Very truly yours,
SPARTA PHARMACEUTICALS, INC.
By: /s/ Jerry B. Hook
--------------------------
Jerry B. Hook, Ph.D.
President and Chief
Executive Officer
ACCEPTED AND AGREED:
/s/ Ronald H. Spair
-------------------
Ronald H. Spair
Date: March 15, 1996
<PAGE>
PENNSYLVANIA BUSINESS CAMPUS
Township of Horsham,
Montgomery County,
Pennsylvania
NET LEASE AGREEMENT
between
PENNSYLVANIA BUSINESS CAMPUS DELAWARE, INC.
(Landlord)
and
LEXIN PHARMACEUTICAL CORPORATION
(Tenant)
<PAGE>
TABLE of CONTENTS
Section Page
------- ----
1. Reference Data ................................................. 1,2,3
2. Demise ......................................................... 4
3. Lease Term ..................................................... 4
4. Rent ........................................................... 6
5. Tenant's Obligations ........................................... 7
6. Operation and Services ......................................... 8
7. Escalation ..................................................... 10
8. Condition of the Premises ...................................... 16
9. Alterations and Fixtures ....................................... 16
10. Landlord's Approval of Tenant's Repairs and
Alterations ................................................... 17
11. Rules and Regulations .......................................... 18
12. Permitted Use .................................................. 18
13. Environmental Matters .......................................... 20
14. Interruption of Services ....................................... 23
15. Fire or Other Casualty ......................................... 24
16. Landlord's Rights to Enter and to Provide
Tenant with Substitute Premises ............................... 25
17. Insurance ...................................................... 27
18. Compliance with Law ............................................ 29
19. Notice of Accident or Breakage ................................. 30
20. Miscellaneous Covenants of Tenant .............................. 30
21. Lease Subordinated ............................................. 32
22. Eminent Domain ................................................. 33
23. Assignment and Subletting ...................................... 34
24. Default ........................................................ 35
25. Landlord's Remedies ............................................ 37
26. Liability of Landlord .......................................... 43
27. Successors and Assigns ......................................... 44
28. Waivers ........................................................ 45
29. Waiver of Trial by Jury ........................................ 45
30. Waiver of Benefits ............................................. 45
31. Severability ................................................... 45
32. Notice ......................................................... 46
33. Brokerage ...................................................... 46
34. Holding Over ................................................... 46
35. Estoppel Certificate by Tenant ................................. 47
36. Security Deposit ............................................... 47
37. Amendment and Modifications .................................... 48
38. Headings and Terms ............................................. 49
39. Recording and Copies ........................................... 49
40. Governing Law .................................................. 49
41. No Joint Venture ............................................... 49
42. Exhibits ....................................................... 49
43. Improvements for Tenant ........................................ Rider
44. Additional Security ............................................ Rider
45. Right of First Refusal ......................................... Rider
46. Tenant's Option to Terminate ................................... Rider
47. Tenant's Right to Audit ........................................ Rider
48. Renewal Term ................................................... Rider
-i-
<PAGE>
Exhibit "A" - Outline of Premises
Exhibit "B" - Outline of Lot
Exhibit "C" - Confirmation of Lease Term
Exhibit "D" - Scope of Work Letter and Space Plan
Exhibit "E" - Electrical Modifications
Exhibit "F" - Hazardous Materials Exhibit "G" - Research Animals
Exhibit "H" - Escrow Agreement
Exhibit "I" - First Refusal Space
-ii-
<PAGE>
Lease Dated: March 29, 1994
1. Reference Data.
Any reference in this Lease to the following subjects shall
incorporate therein the data stated for the subject(s) in this Section:
(a) LANDLORD: Pennsylvania Business Campus Delaware,
Inc., a Delaware corporation
(b) LANDLORD's ADDRESS:
c/o GSIC Realty Corporation
255 Shoreline Drive
Suite 600
Redwood City, California 94065
(c) TENANT: Lexin Pharmaceutical Corporation
a Delaware Corporation
(d) TENANT's ADDRESS:
200 Lakeside Drive
Lakeside Plaza II, Suite 226,
Horsham, PA 19044
(e) LEASED PREMISES:
BUILDING ADDRESS: Rock Plaza III
101-111 Rock Road
Horsham, Pennsylvania 19044
LEASED PREMISES UNIT NO: Suite # 111
LEASED BUILDING AREA: 12,786 square feet
TENANT's PERCENTAGE OF BUILDING: 34.10%
(based upon 37,500 square feet in the Building)
(f) LEASE TERM: Sixty (60) months
(g) COMMENCEMENT DATE August 1, 1994
(h) EXPIRATION DATE: July 31, 1999
(i) ANNUAL FIXED RENT: (See Below)
MONTHLY FIXED RENT: (See Below)
-1-
<PAGE>
Year Annual Fixed Rent Monthly Fixed Rent
- ---- ----------------- ------------------
1 $ 86,944.80 $7,245.40
2 $ 92,698.50 $7,724.88
3 $ 95,895.00 $7,991.25
4 $105,484.50 $8,790.38
5 $111,877.50 $9,323.13
(j) RENEWAL TERM: See Section 48
(k) ADDRESS FOR NOTICES TO LANDLORD:
Pennsylvania Business Campus Delaware, Inc.
c/o GSIC Realty Corporation
255 Shoreline Drive
Suite 600
Redwood City, California 94065
Attention: P.B.C. Investment Manager
With a required copy to:
Tower Realty Management Corporation
120 Gibraltar Road
Campus Center Suite 107
Horsham, Pennsylvania 19044
Attention: Office Park Manager
(1) ADDRESS FOR NOTICES TO TENANT:
Rock Plaza III
101-111 Rock Road
Horsham, Pennsylvania 19044
(m) PERMITTED USE: Biotechnology, research and
development, manufacturing,
distribution and office support for
such uses
(n) LANDLORD's AGENT: Tower Realty Management Corporation
(o) COOPERATING BROKER: Jackson-Cross Co.
(p) SECURITY DEPOSIT: None
(q) ADDRESS FOR RENT PAYMENTS:
Pennsylvania Business Campus Delaware, Inc.
P.O. Box 951295
Dallas, Texas 75395
-2-
<PAGE>
SPECIAL SECTIONS NO. 43 TO NO. 48 INCLUSIVE NOT PROVIDED IN
STANDARD FORM OF LEASE BUT FORMING A PART HEREOF, ARE
ATTACHED HERETO IN RIDER CONSISTING OF 8 PAGES.
The parties hereto hereby agree that the information set forth in this
Section 1 accurately sets forth certain data regarding their agreement with
respect to the Leased Premises and agree that such data is hereby incorporated
into this Lease and that any reference in this Lease to the foregoing subjects
shall mean the information set forth for the subjects in this Section 1.
PENNSYLVANIA BUSINESS CAMPUS
DELAWARE, INC.
By: /s/ Guy F. Tcheau
-----------------------------------------
Name: Guy F. Tcheau
Title: Senior Investment Manager
(Corporate Seal) Attest: /s/ Bernard Phang
------------------------------------
Name: Bernard Phang
Title: Investment Manager
LEXIN PHARMACEUTICAL CORPORATION
By: /s/ Jerry B. Hook
-----------------------------------------
Name: Jerry B. Hook
Title: President
(Corporate Seal) Attest: /s/ Ronald H. Spair
------------------------------------
Name: Ronald H. Spair
Title: Chief Financial Officer
-3-
<PAGE>
2. Demise.
Landlord, in consideration of the rent to be paid and the covenants and
agreements set forth herein to be performed by Tenant, hereby demises and leases
to Tenant and Tenant hereby takes and hires from Landlord, for the Lease Term
and at the rents hereinafter described, the Leased Premises identified in
Section 1(e) ("Premises"), as said Premises are outlined in red on Exhibit "A"
attached hereto, initialed and made a part hereof, said Premises being located
in the Building identified in Section 1(e), which Building is located upon that
certain lot or ground outlined in blue on Exhibit "B" attached hereto, initialed
and made part hereof ("Lot"), TOGETHER WITH the non-exclusive right to use the
parking and driveway areas now or hereafter constructed on the Lot and all
common facilities of the Building, in common with Landlord, other tenants of
Landlord, and their invitees, licensees, employees, officers, servants,
contractors and visitors, provided, however, that in no event shall Tenant, its
invitees, licensees, employees, officers, servants, contractors and/or visitors
be entitled to use more than Tenant's Percentage of Building, as set forth in
Section 1(e), of the parking spaces now or hereafter located on the Lot (the
non-exclusive right to use the parking and driveway areas on the Lot and the
common facilities of the Building and the Premises are hereinafter collectively
referred to as the "Leased Premises") . The Leased Premises are a part of a
surrounding office park known as of this date as the Pennsylvania Business
Campus, which is owned by Landlord (the "Office Park").
3. Lease Term.
The Lease Term described in Section 1(f) shall commence on the
Commencement Date set forth in Section 1(g) and shall unless otherwise extended
or terminated as herein provided terminate on the Expiration Date set forth in
Section 1(h) without the necessity of notice from either Landlord or Tenant, and
Tenant shall surrender possession and vacate the Leased Premises on the
Expiration Date. Tenant hereby waives. notice to vacate or quit the Leased
Premises and agrees that Landlord shall be entitled to the benefit of all
provisions of law respecting the summary recovery of the Leased Premises from a
tenant holding over to the same extent as if statutory notice had been
given.
If Tenant takes possession of the Leased Premises after the
"Improvements" (as defined in Section 43 of Rider attached hereto and made a
part hereof) have been substantially completed" (as defined in Section 43 of the
Rider hereto) and prior to the Commencement Date then (i) the Lease Term shall
commence as of the date that Tenant take possession of the Leased Premises, (ii)
notwithstanding the provisions of Section 4, Annual Fixed Rent and Additional
Rent shall be payable in advance on a prorated per
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diem basis for the period from the date that Tenant takes possession to the
Commencement Date, and (iii) such taking of possession prior to the Commencement
Date shall not affect the Expiration Date. Tenant's access to construct the
Improvements shall not be construed to mean Tenant's possession of the Leased
Premises.
If (i) the Improvements are not "substantially completed" on the
Commencement Date, or (ii) the Leased Premises are not ready for Tenant's
occupancy on the Commencement Date by reason of force majeure (defined below),
then Landlord shall not be subject to any liability to Tenant by reason of such
delay and (a) the Lease Term and the obligation to pay Rent shall commence on
the date that the Improvements are "substantially completed", or the date that
the Leased Premises are otherwise ready for Tenant's occupancy, (b) the duration
of the Lease Term, as set forth in Section 1(f), shall not be affected thereby,
and the Expiration Date set forth in Section 1(h) shall be adjusted accordingly
to cover the entire duration of the Lease Term, and (c) such failure to give
possession shall not affect the validity of this Lease or any of the obligations
and covenants of Tenant hereunder as used in this paragraph, force majeure means
fires, windstorm, earthquake, war, or acts of God. Force majeure shall not
include strikes or any other labor disturbance.
Notwithstanding the foregoing, if the Improvements are not
"substantially completed" on the Commencement Date for any reason other than by
reason of force majeure, then the Lease Term shall commence on the Commencement
Date and the Annual Fixed Rent, Additional Rent and all other charges payable by
Tenant hereunder shall commence to accrue on the Commencement Date as if the
delay had not occurred. Regardless of force majeure or any other reason, if the
Improvements are not "substantially completed" by December 31, 1994, then the
Lease Term shall commence on December 31, 1994, and the Annual Fixed Rent,
Additional Rent and all other charges payable by Tenant hereunder shall commence
to accrue on December 31, 1994.
If, pursuant to the provisions of this Section 3, the Lease Term
commences on a date other than the Commencement Date, then, within forty-five
(45) days after the date that the actual commencement date of the Lease Term has
been established, Landlord and Tenant shall execute a Confirmation of Lease Term
in the form attached hereto and made a part hereof as Exhibit "C".
Tenant shall notify Landlord in writing, within thirty (30) days after
the Commencement Date, of any defects in the Improvements (and 120 days with
respect to latent defects), and Landlord shall, upon receipt of such notice,
promptly take reasonable action necessary to correct any such defect. Except for
any defects identified in a written notice from Tenant to Landlord within such
thirty (30) day (and 120 days with respect to latent defects), it shall be
presumed that all work in connection with the Improvements theretofore performed
by or on behalf of Landlord was satisfactorily performed in accordance with the
provisions of this Lease; provided that, to the extent that Landlord receives or
obtains warranties or guarantees from its contractor selected by Landlord to
make the "Improvements" described in Section 43 or from the manufacturers of any
equipment or fixtures to be provided by Landlord as part of the Improvements,
which
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warranties or guarantees extend beyond said thirty (30) day period, Landlord
shall use reasonable efforts to enforce such warranties and guaranties or, at
Landlord's option, assign some or all of same to Tenant, if Tenant gives
Landlord timely notice of a defect or malfunction covered by such guaranties or
warranties.
4. Rent.
During the Lease Term, Tenant shall pay to Landlord the Annual Fixed
Rent as set forth in Sect on 1(i). The Annual Fixed Rent shall be payable by
Tenant beginning on the Commencement Date (unless otherwise provided herein) in
monthly installments equal to he Monthly Fixed Rent as set forth in Section
1(q), in advance on the first day of each month, at the address set forth in
Section 1(q) or at such other place as Landlord may direct Tenant by twenty (20)
days prior written notice; and shall be payable without prior notice or demand,
and without any set-off, deduction or counterclaim whatsoever except that Tenant
shall receive a credit against Annual Fixed Rent payable under this Lease, which
credit shall equal the aggregate Monthly Fixed Rent (less the Operating Expense
Base) actually paid by Tenant to Landlord pursuant to a previous lease between
Tenant and Landlord dated December 17, 1993, for Suite 226 of the Office Park,
and shall be applied to the installments of Monthly Fixed Rent until such credit
is exhausted. Tenant shall also pay to Landlord, as "Additional Rent" hereunder,
the "Operating Expense- Adjustment" (as defined in Section 7.A.), which includes
"Real Estate Taxes" (as defined in Section 7.B.), in accordance with the
provisions of Section 7 hereof, and charges for all electricity consumed upon
the Premises pursuant to Section 6 hereof, and all other sums chargeable to
Tenant hereunder.
All sums payable by Tenant under this Lease, whether or not stated to
be Annual Fixed Rent or Additional Rent, are included in and shall be deemed to
be "Rent" payable by Tenant to Landlord under this Lease, and shall be
collectible by Landlord as Rent and in the event of a default in payment
thereof, Landlord shall have the same rights and remedies as for a failure to
pay Annual Fixed Rent (without prejudice to any other right or remedy
therefor).
If the Lease Term commences on a day other than the first day of a
calendar month, Tenant shall pay to Landlord, on or before the Commencement Date
of the Lease Term, a pro rata portion of the Monthly Fixed Rent from such day
until the first day of the following month, such pro rata portion to be based on
the number of days during the first full calendar month within the Lease Term.
Tenant hereby covenants and agrees to pay all Rent when due, and to pay
interest to Landlord, as Additional Rent, at the "Overdue Interest Rate"
(hereinafter defined) (i) on all overdue installments of Monthly Fixed Rent from
the due date thereof to the date of payment and (ii) on all overdue payments of
Additional Rent or other sums payable to Landlord hereunder from the due date
thereof or from the date of demand for payment, as the case may be, until the
date of payment. As used herein, the
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term "overdue Interest Rate" shall mean and equal. three percent (3%) per annum
over the prime interest rate charged from time to time by (i) Mellon Bank in
Philadelphia, Pennsylvania, or, at Landlord's election, (ii) the largest
commercial bank whose principal office is located in Philadelphia, Pennsylvania.
If Landlord, at any time or times, shall accept any payment of Rent after the
date that same shall become due and payable, such acceptance shall not excuse
delay on subsequent occasions, or constitute, or be construed as, a waiver of
any of Landlord's rights hereunder.
5. Tenant's Obligations.
Throughout the Lease Term and all renewals and extensions thereof, if
any, it shall be the duty and obligation of Tenant, at its sole cost and
expense, unless caused by the gross negligence or intentional acts or omissions
of Landlord or its agents, employees, contractors or invitees regardless of the
cause or fault, to take good care of the Premises, including, but not limited
to, maintenance of the plumbing, interior walls and surfaces (including the
interior surface of exterior walls) , windows, window glass, plate glass, doors,
floors and all other parts of the Leased Premises and all other improvements on
the Leased Premises in good repair and condition, normal wear and tear and
casualty excepted. (as used in Section 15) Tenant shall be responsible for the
cost and expense of all repairs, maintenance and replacements, ordinary as well
as extraordinary, foreseen as well as unforeseen, necessary to maintain the
Premises in good repair and condition (ordinary wear and tear and casualty (as
used in Section 15) alone excepted). All repairs, replacements and renewals,
when necessary, made by Tenant shall be performed in a good and workmanlike
manner, and shall be equal in quality and class to the original work. It is
understood that Tenant shall have the benefit of contractor and manufacturing
warranties and guarantees to the extent provided in Section 3 above in
connection with Tenant's discharge of its obligations under this paragraph, and
that Tenant shall have no obligation to make any structural repairs to the
Building unless the need therefor is caused by Tenant's (or its agents' or
employees') acts or negligence or breach of its obligations under this Lease
and then to the extent such structural repairs are not covered by landlord's
insurance on the Building, including any applicable Landlord deductibles.
Landlord, for Tenant's account, shall obtain a maintenance and service
contract covering the components of the Building ("HVAC") that serve solely the
Leased Premises, and Tenant shall reimburse Landlord, as Additional Rent, for
the entire cost and expense of such contract.
During the Lease Term, and any renewal or extension thereof, Tenant
shall, at Tenant's sole cost and expense, provide janitorial, trash removal and
pest control services to the Leased Premises necessary to keep the Leased
Premises in a clean, orderly and sanitary condition and free of insects,
rodents, vermin and other pests.
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In addition, in performance of Tenant's obligations hereunder, Tenant
shall, at Tenant's sole cost and expense, promptly comply with all laws,
statutes, ordinances, regulation, orders and requirements of all federal, state,
county, township, municipal, local or other governmental authorities having
jurisdiction over Tenant and/or its use and Occupancy of the Leased Premises
and/or any work being performed by Tenant, and the appropriate departments,
commissions, boards and officers thereof, and with the orders, rules and
regulations of the Board of Fire Underwriters or another body hereafter
constituted exercising similar functions thereto. Tenant shall promptly pay for
all work performed pursuant to its repair and maintenance obligations.
If Tenant fails or neglects to proceed with due diligence to commence
and complete any and all repairs and/or replacements in accordance with its
obligations hereunder, Landlord, 30 days after the mailing of written notice to
Tenant (except [a] where such repairs and/or replacements by their nature
require a longer period of time to complete, as said time period is agreed to in
writing by Landlord, or [b} in the case of an emergency, in which case no
written notice shall be required to Tenant), may enter upon the Leased Premises
and cause such repairs and/or replacements to be made for the account and at the
expense of Tenant, and Tenant shall pay to Landlord, as Additional Rent
hereunder, all charges for such repairs and/or replacements within 30 days after
receipt of a bill for such charges.
Tenant shall, within 15 days after notice from Landlord, discharge any
mechanics' lien for material or labor claimed to have been furnished to the
Leased Premises on Tenant's behalf, and shall indemnify, defend and hold
Landlord harmless from any and all loss and costs incurred by Landlord in
connection with any mechanics' lien claims as may be filed against the Premises,
the Building or the Lot by reason of work or materials ordered by Tenant. The
provisions of this paragraph shall not be applicable to work performed by
Landlord pursuant to Section 43 of this Lease.
Tenant shall surrender the Leased Premises at the expiration of the
Lease Term or at the earlier termination of this Lease, broom clean and in the
same condition as when received, except for ordinary wear and tear and casualty
alone excepted (as used in Section 15).
6. Operation and Services.
Landlord shall furnish to Tenant and the Leased Premises, as long as
Tenant is not in default under any of the provisions of this Lease, through
Landlord's employees or independent contractors, such services and facilities
that are equal in
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scope and, quality as those being customarily provided by landlords of office
buildings of comparable quality and size to the Building in the vicinity of the
Building.
Hot and cold water for normal lavatory purposes and cold water for
drinking purposes shall be provided by Landlord to all lavatories in the
Building twenty-four (24) hours a day, seven days a week. If Tenant requires
water for additional purposes, Tenant shall pay the cost thereof as shown on a
meter to measure such additional consumption to be installed and maintained on
the Leased Premises at Tenant's sole cost and expense.
Electric service shall be furnished to the Leased Premises Twenty-Four
(24) hours a day, seven days a week in amount(s) sufficient to operate the
fixtures, appliances and equipment referred to below; and Tenant shall pay,
either directly to the public utility supplying such electricity (if a separate
meter is installed upon the Premises to measure consumption by Tenant), or to
Landlord as Additional Rent (if a sub-meter is installed upon the Premises), all
charges for all electricity consumed upon the Premises. In the case of a
sub-meter upon the Premises, Tenant shall pay Additional Rent to Landlord for
metered electric consumption based upon the rates then payable to the public
utility company supplying electricity to the Building. Landlord shall be
responsible for the cost and the expense of installing a separate meter or
sub-meter to measure the electricity consumed by Tenant upon the Premises; and
the cost of same shall be deemed to be a cost of the "Improvements" (as defined
in Section 43). See Page 9A
Landlord shall not be liable in any way to Tenant for any failure or
defect in the supply or character of electric energy furnished on the Leased
Premises by reason of any requirement, act or omission of the public utility
serving the Building with electricity. Tenant's use of electric energy in the
leased Premises shall not at any time exceed the capacity of any of the electric
conductors and equipment in or otherwise serving the Leased Premises, it being
understood and agreed that the capacity of the Building electrical system is
such as to allow, with the modifications set forth in Exhibit "E" the use and
operation of normal office equipment and machines as described in the following
sentence, as well as the lighting fixtures and other electrically powered items,
if any, which are included in the Improvements to be provided by tenant. In
order to insure that such capacity is not exceeded and to avert possible adverse
effect upon the Building electric service, Tenant shall not, without Landlord's
prior written consent in each instance, connect to the Building electric
distribution system any fixtures, appliances or equipment other than lamps,
typewriters and similar small office machines which operate on a voltage in
excess of 110 or make any alterations or additions to the electric system of the
Premises except as provided in Exhibit "E". Should Landlord grant such consent
for any such alterations or additions, all additional risers or other equipment
required
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therefor shall be provided by Landlord and all costs and expenses
thereof shall be paid by Tenant as Additional Rent upon Landlord's
demand.
7. Escalation.
A. Operating Expense.
Subject to the terms of the second following sentence, Tenant shall pay
to Landlord, as Additional Rent hereunder, an amount equal to Tenant's
Percentage of Building, as set forth in Section 1(e), of all operating,
maintenance, management, and repair expenses incurred by Landlord in connection
with the ownership and operation of the Building, the Lot and the Premises for
any "Operating Year" (as defined below), including without limitation the items
described hereafter as "Operating Expense" in Section 7.A. (ii); said payments
shall be made by Tenant in the manner and to the extent as set forth in Section
7.c. The amount of Tenant's Percentage of Building of such expenses is
hereinafter referred to as the "Operating Expense Adjustment." If Tenant
occupies the Leased Premises for less than a full Operating Year during the
Lease Term, the Operating Expense Adjustment shall be prorated on a per-diem
basis based upon the amount of time in such Operating Year that Tenant occupies
the Leased Premises. If the Building is not fully occupied during any Operating
Year during the Lease Term, Tenant's Percentage of Building shall be
recalculated for the purposes of determining Tenant's Operating Expense
Adjustment pursuant to this Section 7, except that such recalculation shall only
be for those expenses of the Operating expense that vary with the occupancy of
the Building. For the purposes of said recalculation, the total rentable square
feet in the Building shall be deemed to equal the average (calculated on a
month-by-month basis) of the rentable area of the Building occupied during the
applicable Operating Year.
As used in this Section 7.A., the following words and terms shall be
defined as hereinafter set forth:
(i) "Operating Expense Statement" shall mean a statement in writing
prepared by Landlord's Agent, setting forth in reasonable detail: (a) the
Operating Expense for the Operating Year (or portion thereof if less than a full
Operating Year) immediately preceding the Operating Year in which the statement
is issued, (b) Tenant's Operating Expense Adjustment for such preceding
Operating Year, prorated if only a part of the Operating Year falls within the
Lease Term, (c) the amount of payments of "Monthly Expense Estimate" (as defined
below) made by Tenant in the Operating Year immediately preceding the Operating
Year in which the statement is issued, and (d) the Monthly Expense Estimate for
each month during the Operating Year in which the Operating Expense Statement is
issued. The Operating Expense Statement for each Operating Year shall be
prepared in accordance with the terms of this Lease and standard accounting
practice
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applicable thereto, and shall be set forth in a financial statement certified
by Landlord to be true and correct, which statement shall be available for
inspection by Tenant, for a period of thirty (30) days after its release to
Tenant, at Landlord's office at the Office Park during normal business hours.
The Operating Expense Statement shall constitute a final determination as
between Landlord and Tenant of Tenant's Operating Expense Adjustment for any
Operating Year.
(ii) "Operating Expense" shall mean the following reasonable expenses
incurred by Landlord in connection with the operation, repair, maintenance and
management of the Building, the Lot and the Leased Premises:
(a) Real Estate Taxes (as defined in Section 7(B));
(b) All reasonable costs and expenses incurred with respect to
the maintenance and repair of (i) the Lot, including without limitation the
grounds, parking areas (including resurfacing and repainting), sidewalks and
landscaping and snow removal, (ii) the Building (excluding structural repairs
thereto except as otherwise provided in subparagraph (k) below) and (iii) the
Leased Premises, and the reasonable costs and expenses of all labor,
contractors, supplies equipment and material incidental thereto; reasonable
(c) Janitorial and cleaning costs and expenses for the Building
(including window washing) and the costs of labor, contractors, material,
supplies and equipment used in connection therewith;
(d) The costs and expenses of all rubbish removal and the costs
of labor, contractors, material, supplies and equipment used in connection
therewith;
(e) The costs and expenses of licenses, permits and similar fees
and charges related to the operation, repair and maintenance of the entire
Building and Lot (excluding the costs and expenses of same related to structural
repairs to the Building except as otherwise provided in subparagraph (k)
below);
(f) Wages payable to employees of Landlord whose duties are
connected with the operation and maintenance of the entire Building and Lot,
including payroll taxes, unemployment insurance costs, and fringe benefits
imposed on Landlord for all Office Park on-site personnel;
(g) Reasonable management fees for the Building and Lot;
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(h) Amounts paid to contractors and subcontractors for work or
services performed in connection with the operation and/or maintenance of the
entire Building and Lot (excluding amounts paid for work or services performed
in connection with structural repairs to the Building except as otherwise
provided in subparagraph (k) below);
(i) Building square foot prorated Office Park administration
costs, including expenses incurred for the operation of the management office
and reasonable rental charges for the management office;
(j) The costs and expenses of all utilities not directly metered
to and paid by Tenant (other than charges for electricity consumed by Tenant at
the Premises, payments for which to be as provided in Section 6 hereof);
(k) The costs and expenses of any capital improvements to the
Building, the Lot and the Leased Premises, whether structural or non-structural,
required -by law (but which was not so required at the time of execution of this
Lease) or which reduce other operation and/or maintenance expenses, such costs
and expenses to be amortized over the reasonable useful life of the capital
improvement, together with interest on the unamortized balance of the cost;
(1) The reasonable costs and expenses associated with all
maintenance and service agreements on equipment, including without limitation
alarm service, heating, air conditioning, ventilating, roof repair, electrical,
elevator (where applicable) and window cleaning and maintenance and the costs
and expenses incurred in the maintenance and repair of the Building heating,
air-conditioning, ventilating, plumbing, electrical and elevator (where
applicable) systems of the Building and the costs of labor, material, supplies,
and equipment used in connection with all of the aforesaid;
(m) Insurance premiums and other charges incurred by Landlord
with respect to all insurance relating to the Building and the Lot and the
operation and maintenance thereof, including, without limitation, fire and
extended coverage insurance, including windstorm, hail, explosion, riot, rioting
attending a strike, civil commotion, aircraft, earthquake, vehicle and smoke
insurance, public liability insurance, elevator insurance (where applicable) ,
workmen's compensation insurance, boiler and machinery insurance, rent
insurance, use and occupancy insurance, and health, accident and group life
insurance of all employees Landlord;
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(n) Reasonable auditing and accounting fees, including
accounting fees incurred in connection with the preparation of the Operating
Expense Statements;
(o) Sales and excise taxes and similar taxes upon any of the
expenses listed herein;
(p) Legal fees with respect to the Office Park other than those
incurred in the negotiation or enforcement of tenant leases; and
(q) Any and all other expenditures by Landlord which are properly
expensed in accordance with generally accepted accounting principles
consistently applied with respect to the operation, repair, maintenance,
protection and management of first class office buildings in the vicinity of the
Office Park.
As used in this Section, interest shall mean and equal three percent
(3%) per annum over the prime interest rate announced from time to time by (i))
Mellon Bank in Philadelphia, Pennsylvania or, at Landlord's election, (ii) the
largest commercial bank whose principal office is located in Philadelphia,
Pennsylvania.
To the extent that any of the aforesaid Operating Expenses are incurred
and/or contracted by Landlord for the Office Park as a whole, Landlord shall
reasonably allocate same to the Building and the Lot; but if Landlord, in
Landlord's sole discretion, does not allocate same to individual lots and
buildings, then, in that event, Operating Expense shall include only a pro-rata
share of such expenses based upon the rentable areas of the Building and of the
Office Park as a whole.
Notwithstanding the foregoing, "Operating Expense" shall not include
expenditures for any of the following:
(a) Repairs or other work occasioned by fire, windstorm or other
insured casualty or hazard, to the extent that Landlord shall receive
proceeds of such insurance;
(b) Leasing commissions, advertising expenses and other costs
incurred in leasing or procuring new tenants;
(c) Repairs or rebuilding necessitated by condemnation;
(d) Depreciation and amortization of the Building, other than
depreciation or amortization of equipment, devices or installations
described in Sections 7.A. (ii) above;
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(e) The salaries and benefits of executive officers of Landlord,
if any; or
(f) Ground lease payments or interest and principal payments on
any mortgage or other indebtedness of Landlord; or
(g) Legal, accounting or other expenses related to Landlord's
refinancing, financing mortgaging or selling of any portion of the
Building;
(h) The cost of correcting latent structural defects in the
Building;
(i) Fines, penalties, judgments or legal fees or court costs
incurred for violation of laws or ordinances by Landlord;
(j) expenses incurred by Landlord in providing services for the
sole benefit of other Building tenants;
(k) expenses incurred by Landlord to cause the Office Park to
comply with Landlord's Environmental Statutes (as defined below and as
in effect on the date of this Lease); and
(l) costs of constructing tenant improvements for other tenants
in the Building.
(iii) "Operating Year" shall mean each calendar year, or such other 12
month period as Landlord may adopt as its fiscal year, occurring during the
Lease Term.
B. Real Estate Taxes Defined.
"Real Estate Tax" shall mean all taxes, liens, charges, imposts and
assessments of every kind and nature, ordinary or extraordinary, foreseen or
unforeseen, general or special, levied, assessed or imposed by any governmental
authority on and/or with respect to the Lot and the Building which Landlord
shall become obligated to pay because of or in connection with the ownership,
leasing and operation of the Lot and the Building. Notwithstanding the
foregoing:
(a) there shall be excluded from Real Estate Tax all income
taxes, excess profit taxes, excise taxes, franchise taxes, estate,
succession, inheritance and transfer taxes and penalties due to
Landlord's lateness or failure to pay Real Estate Tax due provided,
however, that if at any time during the Lease Term the present system
of ad valorem taxation of real property shall be changed or
supplemented so that in lieu of or in addition to the ad valorem tax on
real property, there shall be assessed on Landlord a capital levy or
other tax on the gross rents received with respect to the Lot or the
Building, br any other federal, state, county, municipal or other local
income, franchise, excise or similar tax, assessment, levy or charge
(distinct from any now in effect) measured by or based, in whole or in
part upon any such gross rents or any other tax assessed on Landlord or
the Lot or the Building which is imposed, in whole or in part, in
substitution for or in lieu of any other tax which would otherwise
constitute a Real Estate Tax, then any and all of such taxes,
assessments, levies or charges shall be deemed to be included within
the term "Real Estate Tax", but only to the extent that the same would
be payable if the Lot and the Building were the only property of
Landlord; and
(b) there shall be excluded from Real Estate Tax any tax which
Landlord may be required by law to collect from Tenant for payment to
any governmental authority, which Tenant shall pay separately to
Landlord upon demand as Additional Rent hereunder if and to the extent
Landlord is required by law to collect such tax for any such
governmental authority; and
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(c) there shall be applied against Real Estate Tax any refunds of
Real Estate Tax received in such Operating Year, provided, however,
that the expenses of any contests (administrative or otherwise) of tax
assessments or proceedings for refunds incurred shall be included in
the Operating Year in which same are incurred
C. Payment of Operating Expense Adjustment as Additional Rent.
Tenant shall pay to Landlord, as Additional Rent hereunder, Tenant's
Operating Expense Adjustment, as follows:
(a) Beginning with the Commencement Date and continuing
thereafter on the first day of each month until receipt of the
Operating Expense Statement with respect to the Operating Year during
which the Lease Term commences, Tenant shall pay to Landlord an amount
set by Landlord which is sufficient to pay Landlord's estimate of the
Operating Expense Adjustment for the current Operating Year (or portion
thereof) prior to the expiration of the current Operating Year (the
"Monthly Expense Estimate"). The Monthly Expense Estimate for a period
less than a full calendar month shall be duly prorated.
(b) Within 120 days after the end of each Operating Year,
Landlord shall furnish Tenant an Operating Expense Statement. Within
thirty (30) days following the receipt of such Operating Expense
Statement (the "Expense Adjustment Date"), Tenant shall pay to
Landlord: (i) the amount by which the Operating Expense Adjustment for
the Operating Year (or portion thereof) covered by the Operating
Expense Statement exceeds the aggregate of Monthly Expense Estimates
paid by Tenant with respect to such Operating Year (or portion
thereof); and (ii) the amount by which the Monthly Expense Estimate for
the current Operating Year as shown on the Operating Expense Statement
multiplied by the number of months elapsed in the current Operating
Year (including the month in which payment is made) exceeds the
aggregate amount of payments of the Monthly Expense Estimate
theretofore made in the Operating Year in which the Operating Expense
Statement is issued.
(c) On the first day of the first month following receipt by
Tenant of any annual Operating Expense Statement and continuing
thereafter on the first day of each succeeding month until the issuance
of the next ensuing Operating Expense Statement, Tenant shall pay
Landlord the amount of the Monthly Expense Estimate shown on the
Operating Expense Statement.
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(d) If on any Expense Adjustment Date Tenant's payments of the
installments of the Monthly Expense Estimate for the preceding or
current year's Operating Expense Adjustment is greater than the actual
Operating Expense Adjustment for such preceding Operating Year or
Monthly Expense Estimate for the current year, Landlord shall credit
Tenant with any excess, which credit may be offset by Tenant against
next due installments of Additional Rent. If the Lease Term has expired
prior to the Expense Adjustment Date for the applicable Operating Year
and if Tenant's payments of Monthly Expense Estimate either exceeds or
is less than the Operating Expense Adjustment, Landlord shall send the
Operating Expense Statement to Tenant, and an appropriate payment from
Tenant to Landlord or refund from Landlord to Tenant shall be made on
the Expense Adjustment Date.
8. Condition of the Premises.
Tenant represents that the Leased Premises have been examined by
Tenant. Subject to Landlord's constructing the Improvements as described in
Section 43 and to the provisions of Section 3, tenant hereby accepts and leases
the Leased Premises in their "AS-IS" condition. Tenant acknowledges that neither
Landlord nor Landlord's agents, representatives, employees, servants or
attorneys have made any representations or promises, whether express or implied,
concerning the condition of the Leased Premises, and agrees that Landlord shall
have no obligation to make any alterations or improvements to the Leased
Premises except as otherwise expressly set forth in this Lease.
9. Alterations and Fixtures.
Tenant shall not make any alterations, improvements or additions to the
Leased Premises with out the prior written approval of Landlord except that
Tenant may, after giving Landlord written notice thereof (which notice shall
contain a detailed description of any contemplated alterations or improvements),
make alterations, improvements and/or additions to the Premises that (a) total
less than $5,000.00 and (b) involve interior non-structural work to the
Premises. All alterations or improvements made to the Premises (other than the
Improvements (as hereinafter defined) shall be performed by Tenant at Tenant's
sole cost and expense, in a good and workmanlike manner and in compliance with
all laws, statutes, ordinances, regulations, orders and requirements of all
federal, state, county, township, municipal, local or other governmental
authorities having jurisdiction thereof. Tenant shall, within 15 days after
notice from Landlord, discharge any mechanics' lien for material or labor
claimed to have been furnished to the Leased Premises on Tenant's behalf, and
shall indemnify, defend
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and hold Landlord harmless from and against any and all loss and costs incurred
by Landlord in connection therewith. Tenant shall have the right to remove any
equipment, trade fixtures and furniture installed in the Leased Premises by
Tenant, exercisable (i) during and (ii) at the expiration of the Lease Term or
any renewal thereof, provided that Tenant repairs all damage caused to the
Premises by said removal. Tenant shall not remove any alterations, fixtures or
improvements from the Premises without Landlord's prior written approval.
Landlord, by notice to Tenant in writing not later than thirty (30) days after
the expiration of the Lease Term or any renewal thereof, may request that Tenant
remove (i) any of said alterations, fixtures or improvements caused to be made
to the Premises or the Building by Tenant, or by Landlord on Tenant's behalf
(other than the Improvements) or (ii) any of the fixtures, equipment and
furniture caused to be installed in the Premises or the Building by Tenant, or
by Landlord on Tenant's behalf (other than the Improvements), and, if Landlord
so requests, Tenants shall remove each of said items listed in the request on of
before the Expiration Date or within thirty (30) days of Landlord's notice,
whichever is later, and shall repair any damage caused to the Leased Premises
and the Building by said removal. If Landlord requests such removal and Tenant
fails to perform same. or fails to repair any damage caused by such removal on
or before the time provided herein, Tenant agrees to reimburse and pay Landlord
for the reasonable cost of removing same and/or the reasonable cost of repairing
any damage to the Leased Premises and Building caused by said removal. All of
said alterations, improvements, fixtures, equipment and furniture remaining on
the premises after the Expiration Date, or at such sooner termination date of
this Lease, shall become the property of Landlord unless Landlord shall have
given notice to Tenant requesting removal of same as provided herein.
10. Landlord's Approval of Tenant's Repairs and Alterations.
During the Lease Term, if (a) Tenant (i) is obligated under the
provisions of this Lease to make any repairs and/or replacements to the Leased
Premises, or (ii) desires to make any alterations or improvements to the
Premises, and (b) (i) the estimated cost thereof will exceed the sum of Five
Thousand and 00/100 ($5,000.00) Dollars, or (ii) the exterior or structure of
the Leased Premises or the Building are involved, then Tenant shall not commence
same without first obtaining Landlord's prior written approval to the plans and
specifications of the proposed work, which prompt approval may be withheld at
Landlord's sole discretion. In granting its approval, Landlord, in its sole
reasonable discretion, may require Tenant to deposit security with Landlord (the
amount of such security to be determined solely by Landlord) to assure the
removal by Tenant of such alterations and improvements and the restoration and
repair of the Leased
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Premises upon the Expiration Date or sooner termination of this Lease. All such
work shall be performed by a contractor reasonably acceptable to Landlord and
under the supervision of a registered architect or a registered engineer
reasonably acceptable to Landlord. All such work shall be performed in a good
and workmanlike manner and in compliance with all laws, statutes, ordinances,
regulations, orders and requirements of all federal, state, county, township,
local or other governmental authorities having jurisdiction thereof. Prior to
the commencement of any work in connection with all repairs, replacements,
alterations or improvements to the Leased Premises to be performed by Tenant
pursuant to any of the provisions of this Lease, Tenant shall supply Landlord in
every case with satisfactory evidence of the following items: (a) the
procurement of all necessary permits and authorizations from the various
governmental authorities having jurisdiction over the Leased Premises, (b) the
due filing of a satisfactory waiver against mechanics' liens, (c) Tenant's
workmen's compensation insurance, public liability insurance, and property
damage insurance in amounts, form and content, and with companies satisfactory
to Landlord, and Cd) Contractor's workmen's compensation insurance, public
liability insurance, and property damage insurance in amounts, form and content,
and with companies satisfactory to Landlord. Tenant shall, within 15 days after
notice from Landlord, discharge any mechanics' lien for material or labor
claimed to have been furnished to the Leased Premises on Tenant's behalf, and
shall indemnify, defend and hold Landlord harmless from any and all loss and
costs incurred by Landlord in connection therewith.
11. Rules and Regulations.
Rules and regulations governing the use and occupancy of the Building,
the Leased Premises and/or the Office Park may be promulgated from time to time
by Landlord upon written notice to Tenant; provided that no such rule or
regulation applicable to Tenant or the Leased Premises shall be inconsistent
with the provisions of this Lease or the rights of use and occupancy afforded to
Tenant hereunder. Any such promulgated rules and regulations shall be deemed to
be a part of this Lease with the same force and effect as though written herein.
Tenant shall faithfully observe such rules and regulations and shall cause its
employees, servants, officers, invitees, contractors and agents to faithfully
observe same.
12. Permitted Use.
Tenant shall use and occupy the Leased Premises only in conformity with
law and in compliance with a certain Declaration
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of Covenants, Conditions and Restrictions dated February 28, 1983 and recorded
on March 1, 1983 in Montgomery County Deed Book 4702, page 1770, and for the
purposes permitted under Section 1(m) hereof and for no other purposes. Tenant
shall not use or permit any use of the Leased Premises which creates any safety
hazard, which would be dangerous to the Leased Premises, the Building or the
occupants of same, or which would be disturbing to any adjacent tenants in the
Building or tenants of any adjacent building, or which would cause any increase
in premium for any insurance which the Landlord may then have in effect with
respect to the Leased Premises and/or the Building generally. Tenant shall not
do any of the following in connection with the Leased Premises:
(a) install, use or operate any machinery or equipment that is
harmful to the Leased Premises or the Building;
(b) place any weights in any portion of the Leased Premises
beyond the safe carrying capacity of the floors thereof;
(c) commit waste or permit waste to be committed or allow any
nuisance on or in the Leased Premises or the Building;
(d) vacate or desert the Leased Premises during the Lease Term
except in the event of a permitted sublease or assignment of this Lease
in accordance with Section 23, unless Tenant shall first have requested
and obtained Landlord's consent, which consent, inter alia, shall
depend and be conditioned on Landlord's being furnished with such
assurances as Landlord may require of the continuing performance by
Tenant of its obligations under this Lease;
(e) do or permit to be done any act in violation of(i)the laws,
statutes, ordinances, regulations, orders or requirements of any
governmental authority having jurisdiction over the Leased Premises,
(ii) the provisions of the fire or other insurance policies covering
the Leased Premises and/or the Building now or thereafter obtained by
Landlord or Tenant, or (iii) the rules and regulations promulgated by
Landlord pursuant to Section 11.
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13. Environmental Matters
A. Hazardous Materials
Except as otherwise provided herein and except as may be
permitted pursuant to the provisions of Sections 13 (B) and 13 (C) below, Tenant
shall not bring, allow, use, permit upon, generate or create at, or emit or
dispose from, the Lot, the Building or the Leased Premises, temporarily or
otherwise, any toxic or hazardous gaseous, liquid or solid materials or waste
which may or could pose a hazard to the health or safety of the current or
future occupants of the Leased Premises, the Building or the Lot, or to the
owners or occupants of property adjacent to or in the vicinity of the Lot,
including, without limitation, any "hazardous substances" within the meaning of
the federal Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Sections 9601-9657, as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), Pub. L. No. 99-499, 100 Stat. 1613 (Oct.
17, 1986), any "toxic chemical" or "extremely hazardous substance" as defined or
listed pursuant to Title III of "SARA", "regulated substances", as defined in
title I of the federal Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6991, as amended by Section 205 of the Superfund Amendments and
Reauthorization Act of 1986, or "hazardous waste", as defined under the
Pennsylvania Solid Waste Management Act, Pa. Stat. Ann. title 35 Sections
6018.101 to 6018.1003 (Purdon Supp. 1986), as any of such laws may be amended
from time to time, or any regulated substances or wastes under any laws which
may be enacted in the future by federal, state or local governmental authorities
concerning protection of the environment. All such materials, substances,
chemicals and wastes are hereinafter referred to as "Hazardous Materials"
B. Certain De Minimis Use of Hazardous Materials
Landlord recognizes that the fluids, and toner materials, and
other substances used in current office photocopying equipment, computer
printers and other office equipment and in chemical compounds routinely used for
light office cleaning and housekeeping may contain chemicals which are Hazardous
Materials. Landlord agrees that the provisions of Section 13 (A) shall not be
regarded as prohibiting Tenant's use of such normal office materials so long as
the quantities are limited to amounts required for normal office use and the
materials are contained, stored and used in conformity with manufacturers'
recommendations and all applicable laws, statutes, ordinances, regulations and
orders now existing or hereinafter enacted.
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C. Uses of Hazardous Materials in Tenants Business Operations
Landlord recognizes that in addition to the materials addressed in
Section 13(B), Tenant will handle store, use, and dispose of certain substances
as specified in Exhibit "F," which are Hazardous Materials in the course of its
usual business operations at the Lot, the Building and the Leased Premises
("Business Materials"). Landlord agrees that the provisions of Section 13 A
shall not be regarded as prohibiting Tenant's handling, storage, use, and
disposal of such Business Materials so long as (1) the quantities are limited to
amounts contained, stored and used in conformity with manufacturers'
recommendations and all applicable laws, statutes ordinances, regulations and
orders now existing or hereinafter enacted, including, without limitation the
Environmental Statutes, (2) waste Business Materials are not disposed of
anywhere on the Leased Premises or in the Office Park, and (3) waste Business
Materials are disposed of in conformity with all applicable laws, statutes,
ordinances, regulations and orders now existing or hereinafter enacted,
including, without limitation the Environmental Statutes; provided, however,
Tenant represents and warrants to Landlord that in addition to its compliance
with all Environmental Statutes (i) the Business Materials will not be stored in
any above-ground or below-ground storage tanks, and (ii) the waste Business
Materials will be disposed of promptly and in any event within 30 days.
D. Compliance with Law, Site Contamination
Without limiting the provisions set forth in Section 13 (A) above, and
without qualification by the provisions of Sections 13(B) and 13(C):
(1) Tenant shall conduct all of its operations at and around the
Leased premises in compliance with all statutes, ordinances, regulations, and
orders pertaining to protection of public health, safety, welfare and the
environment, including but not limited to, those statutes enumerated in Section
13(A) hereinabove, now existing or hereafter enacted, or requirements of common
law, concerning (a) its operations, (b) construction of any improvements, (c)
handling of any materials, (d) discharge, release or emission of any material
into the environment, (e) storage, treatment, or disposal of any waste, or (f)
maintenance of bonds, insurance or other forms of financial responsibility for
claims or closure, at or connected with Tenant's operations at the Leased
Premises (collectively, the "Environmental Statutes"). Tenant shall obtain all
permits, licenses, or approvals and shall make all notifications as required by
any of the Environmental Statutes. Tenant shall at all times comply with the
provisions of any and all such permits, licenses, approvals, or notifications.
Tenant shall allow Landlord or its agent to inspect and, upon request, shall
provide to Landlord copies of: (a) applications or other materials submitted to
any governmental agency in compliance with any of the Environmental Statutes;
(b) any notification submitted to any person or entity pursuant to any of the
Environmental Statutes; (c) any permit, license, approval and any amendment or
modification to any permit, license or approval granted pursuant to any of the
Environmental Statutes; (d) any record or manifest required to be maintained
pursuant to any of the Environmental Statutes; and (e) any correspondence,
notice of violation, summons, order, complaint, or other document received by
Tenant pertaining to compliance with any of the Environmental Statutes or in
connection with Restricted Activities.
(2) Tenant shall not cause or allow the contamination of the
Leased Premises, the Building or the Lot, by or through any of the activities
set forth in Section 13(C)(l) hereof ("Restricted Activities") or by any
Hazardous Material. Tenant shall at all times handle Hazardous Materials in a
manner which will not cause an undue risk of contamination of the Leased
Premises, the Building or the Lot. For purposes of this Section 13, the term
"contamination" shall mean the uncontained presence of Hazardous Materials, or
damage resulting from Restricted Activities at the Leased Premises, the Building
or the Lot, that requires any remedial action, including investigation, studies
and interim remedial actions, under any of the Environmental Statutes.
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E. Indemnification
Tenant, and its successors and assigns, shall indemnity and hold
harmless Landlord, and its successors and assigns, of, from and against any and
all expense, loss or liability suffered by Landlord, or its successors or
assigns, by reason of Tenant's, or its successors' or assigns', breach of any of
the provisions of this Section 13, whether such expense loss or liability is
direct or indirect, foreseen or unforeseen, including, but not limited to, (1)
any and all reasonable expenses that Landlord or its successors and assigns may
incur in complying with any of the Environmental Statutes, (2) any and all
reasonable costs that Landlord, or its successors or assigns, may incur in
studying or remedying any contamination, (3) any and all fines or penalties
assessed upon Landlord, or its successors or assigns, by reasons of failure of
Tenant, or its successors and assigns, to comply with the provisions of this
Section 13, (4) any and all loss of value of the Leased Premises, the Building
or the Lot, by reasons of such failure to comply, and (5) any and all legal fees
and costs incurred by Landlord, or its successors or assigns, in connection with
any of the foregoing.
F. Inspections
Landlord and any environmental consultant retained by Landlord
may, from time to time, at reasonable times, after reasonable prior notice and
accompanied by a representative of Tenant (except in the event of an emergency),
enter the Leased Premises to conduct reasonable inspections, tests, samplings or
other investigations in connection with Tenant's obligations under the
provisions of this Section 13.
G. Remedies
Tenant agrees that a breach by Tenant of any of the provisions
of this Section 13 shall be a breach that requires immediate equitable relief.
Therefore, in the event of a breach by Tenant of any of the provisions of this
Section 13, Landlord shall have the right, in addition to the remedies provided
in Section 25 hereof and all other remedies available at law or equity, to
obtain injunctive relief.
H. Survival
The provisions of this Section 13 shall survive the expiration
or sooner termination of the Lease Term. No subsequent modification or
termination of this Lease by agreement of the parties or otherwise shall be
construed to waive or to modify any provisions of this Section 13 unless the
termination or modification agreement or other document so states in writing.
I. Compliance with Law. Landlord, without inquiry, has no knowledge
nor has Landlord received any notice from any governmental agency to the effect
that any activities at the Building, the Lease Premises and the Lot since
Landlord's acquisition of the Lot have been or are being conducted in violation
in any material respect with any laws or regulations concerning repairs or
construction of any improvements, handling of any materials, discharges to the
air, soil, surface, or groundwater, or storage or disposal of any waste at the
Building, the Leased Premises or the Lot. To its actual knowledge, Landlord
possesses all of the permits, licenses, and similar approvals necessary to
conduct Landlord's activities at the Building, the Leased Premises and the Lot,
and no Hazardous Materials are present at the Building, the Leased Premises or
the Lot at the date hereof.
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14. Interruption of Services.
If Landlord is prevented or delayed in performing any work or providing
any services to the Leased Premises as set forth in this Lease, (including, but
not limited to, any slow-down, interruption or stoppage of any such services for
any reasons) Landlord shall not be liable to Tenant for damage to persons or
property or be in default hereunder as a result thereof, and Tenant shall not be
entitled to any abatement or reduction in Rent by reason thereof (provided,
however, that Landlord shall not include within or attribute to Operating
Expense the cost and expense related to any such service not provided by
Landlord), nor shall the same give rise to a claim in Tenant's favor that such
absence of Building services constitutes actual or constructive, total or
partial, eviction or renders the Leased Premises untenantable.
Landlord, hereby reserves the right to stop, slow-down or interrupt
any service or utility system, when necessary by reason of malfunction,
breakage, accident or emergency, until necessary repairs and/or replacements
have been completed, provided, however, that in each instance of stoppage,
slow-down or interruption, Landlord shall exercise reasonable diligence to
eliminate the cause thereof. Except in case of emergency repairs, Landlord will
give Tenant reasonable advance notice of any contemplated stoppage, slow-down or
interruption and will use reasonable efforts to avoid unnecessary inconvenience
to Tenant by reason thereof.
Landlord shall not be liable in any way to Tenant nor shall there be
any abatement or reduction in rent for any failure or defect in the supply or
character of electric energy or other utility furnished to the Leased Premises
by reason of any requirement, act or omission of the public utilities serving
the Building and/or the Leased Premises unless such failure or defect was caused
by the intentional act or gross negligence of Landlord, its agents or employees;
but if such failure or defect is caused by the act or negligence of Landlord or
of its contractor(s) and the failure continues for more than seventy-two (72)
hours during regular business days, Tenant's sole right, remedy and composition
therefor shall be that Rent shall abate proportionately for the period during
which the failure continues.
Tenant's use of electric energy in the Leased Premises shall not at any
time exceed the capacity of any of the electric conductors and equipment in or
otherwise serving the Building and/or the Leased Premises. If Tenant, in the
sole judgment of Landlord, utilizes electricity, water or any other utility in
any excessive or unreasonable manner, then Landlord shall have the right to
require Tenant to pay for the installation of a separate
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meter for any such utility and to pay for the cost of the use of such utilities
as determined by such meter, both as Additional Rent hereunder.
15. Fire or Other Casualty.
Tenant agrees to give prompt notice to Landlord of any damage or
destruction of the Leased Premises by fire or other casualty.
If, during the Lease Term, or any renewal or extension thereof, the
Building and/or the Leased Premises are so damaged by fire or other casualty
that in Landlord's sole determination the Leased Premises are rendered unfit for
occupancy, then, at Landlord's option and upon written notice thereof to Tenant,
the Lease Term shall terminate as of the date of the occurrence of such damage,
and Tenant shall pay to Landlord Rent apportioned to the date of termination,
and Landlord may enter upon and repossess the Leased Premises without further
notice to Tenant. If Landlord does not elect to terminate the Lease Term as
aforesaid, then Landlord shall repair and restore the Building and/or the Leased
Premises and Landlord may enter and possess the Leased Premises for that
purpose, and if Tenant is deprived of the Leased Premises during such repairs
and restoration, then Annual Fixed Rent only shall be equitably reduced,
apportioned or suspended during the period of time for such repairs and
restoration. Notwithstanding anything herein contained, Tenant may cancel and
terminate this Lease in the event that "substantial Completion" of the Leased
Premises would, in Landlord's reasonable judgment, take more than 365 days from
the date of casualty, provided that Landlord has not previously supplied Tenant
with comparable space elsewhere in the Office Park.
If, during the Lease Term, or any renewal or extension thereof, the
Premises and/or the Building are so damaged by fire or other casualty that such
damage does not render the Premises unfit for occupancy, then Landlord will
promptly and in a good and workmanlike manner repair whatever portion, if any,
of the Premises or of the Building which may have been damaged, and during such
repairs Tenant with Landlord's consent, and the consent of applicable insurance
companies and governmental authorities, may continue in possession of the
Premises and Annual Fixed Rent and the Additional Rent will not be reduced,
apportioned or suspended, except proportionately to the areas of the Premises
which has been damaged and reasonably cannot be utilized by Tenant until the
repairs are completed.
Notwithstanding any other provisions of this Section, if any damage is
caused by or results from, the negligence of Tenant, those claiming under
Tenant, or their employees, servants, officers, contractors or invitees,
respectively, Rent shall not be reduced, suspended or apportioned and Tenant
shall pay, as Additional Rent hereunder upon demand by Landlord, the cost of any
repairs and/or restorations, made or to be made, as a result of such damage to
the extent such repairs are not covered by the insurance Tenant is required to
maintain pursuant to Section 17 of this Lease and are not covered by Landlord's
insurance on the Building, including any applicable Landlord deductibles.
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Tenant acknowledges notice from Landlord that (i) while Landlord shall
maintain appropriate insurance on the Building, which will extend to those
components of the Improvements which become part thereof, Landlord shall not
obtain insurance of any kind on Tenant's alterations or improvements as may be
made by Tenant as referenced in Section 9, or upon any of Tenant's fixtures,
equipment and furniture, (ii) it is Tenant's obligation to obtain such insurance
at Tenant's sole cost and expense, and (iii) Landlord shall not be obligated to
repair any damage thereto or replace the same unless such damage is caused by
the intentional act or gross negligence of Landlord, its agents or
employees.
If in the event of any damage to the Leased Premises and/or the
Building, the available insurance proceeds are insufficient to repair and/or
restore the Building and/or Leased Premises, or if any mortgagee of the Building
shall not permit the application of adequate insurance proceeds for repair
and/or restoration, or if the casualty not be of the type insured against under
standard fire policies with extended type coverage, the Lease Term shall, at the
option of Landlord and upon written notice to Tenant, terminate as of the date
of the occurrence of such casualty, Tenant shall pay to Landlord Rent
apportioned to the date of termination, and Landlord may enter upon and
repossess the Leased Premises without further notice to Tenant.
16. Landlord's Rights to Enter and to Provide Tenant with
Substitute Premises.
(a) Tenant shall permit Landlord, Landlord's agents, servants or
employees, or any other person or persons authorized in writing by Landlord,
upon the giving of twenty-four (24) hours' prior notice to Tenant to enter the
Leased Premises during usual business hours (i) to exhibit the same to
prospective Building purchasers or prospective or current lenders at any time
during the Lease Term or any renewal thereof, and (ii) to exhibit the same to
prospective tenants within six (6) months prior to the expiration of the Lease
Term or any renewal thereof. A representative of Landlord shall always accompany
any such purchaser, tenant or lender on any of the aforesaid inspections.
Landlord shall also have the right, within six (6) months prior to the
expiration of the Lease Term or any renewal thereof, to display the usual "For
Rent" signs in such manner as not to unreasonably interfere with Tenant's
business, and Tenant agrees that Tenant shall not disturb any such signs placed
upon the Leased Premises. The location of all such signs placed upon the Leased
Premises shall be subject to the approval of Tenant, which approval shall not be
unreasonably withheld.
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Landlord, its agents, servants or employees, or any other persons
authorized in writing by Landlord also may enter the Leased Premises during the
hours between 7 a.m. and 6:30 p.m. on business days and 8:00 a.m. and 1:00 p.m.
on Saturdays at reasonable hours, and without the giving of notice to Tenant,
(a) to inspect the same, including conducting such tests as Landlord may
require, (b) to determine whether Tenant is complying with all its obligations
hereunder, (c) to supply janitor and cleaning service and any other service(s)
to be provided by Landlord to Tenant under the provisions of this Lease, (d) to
make repairs required of Landlord hereunder, or to make repairs to any adjoining
space or utility service, or to make repairs, alterations or improvements to any
other portion of the Building, and (e) to perform any work therein that may be
necessary (i) to comply with any laws, statutes, ordinances, regulations, orders
and requirements of all governmental authorities having jurisdiction over the
Leased Premises, or (ii) to prevent waste or deterioration of the Leased
Premises or the Building; provided, however, that all such work shall be done as
promptly as reasonably possible and so as to cause as little interference to
Tenant as reasonably possible. Landlord may, during the progress of any work in
the Leased Premises, keep and store upon the Leased Premises, in areas mutually
convenient to Landlord and Tenant, all necessary materials, tools and equipment
required for said work. Landlord shall at all times have and retain a key with
which to unlock all of the doors in, on or about the Leased Premises, and
Landlord shall have the right to use any and all means which Landlord may deem
proper to open said doors in an emergency in order to obtain entry to the Leased
Premises, and any entry to the Premises obtained by Landlord by any of said
means or otherwise shall not under any emergency circumstances be construed or
deemed to be a forcible or unlawful entry into or a detainer of the Leased
Premises, or any eviction, actual or constructive, of Tenant from the Leased
Premises or any portion thereof.
Landlord shall use reasonable efforts not to interfere with Tenant's
business when it enters the Leased Premises pursuant to this Section 16.
(b) Landlord shall have the right at any time during the Lease Term,
upon giving Tenant not less than sixty (60) days prior written notice, to
provide and furnish Tenant with space elsewhere in the Office Park of
approximately the same size as the Premises and remove and place Tenant in
comparable (i.e., improved) such space, in which event Landlord will pay all
reasonable costs and expenses incurred to effect the relocation of Tenant.
Should Tenant refuse to permit Landlord to relocate Tenant to such new space at
the end of such sixty (60) day period, such refusal shall constitute an Event of
Default hereunder entitling Landlord to terminate this Lease as of the end of
such sixty (60) day period without the necessity of any further notice or
opportunity to
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cure being afforded to Tenant. If Landlord moves Tenant to such new space, this
Lease and all of its provisions shall remain in full force and effect and be
deemed applicable to such new space, and such new space shall thereafter be
deemed to be the Premises as though Landlord and Tenant had entered into an
express written amendment of this Lease with respect thereto.
17. Insurance.
A. Tenant shall not do or commit, or suffer or permit to be done or
committed, any act or thing as a result of which either (i) any policy of
insurance of any kind on or in connection with the Leased Premises shall become
void, invalid or suspended, or (ii) the insurance risk on the Building or the
Leased Premises shall (in the opinion of the insuring companies) be rendered
more hazardous. Tenant shall pay to Landlord, as Additional Rent hereunder, the
amount of any increase in premium costs for such insurance resulting from any
breach of this covenant.
B. At Tenant's sole cost and expense, Tenant shall procure and
maintain throughout the Lease Term and any renewals or extensions thereof:
(i) Commercial General Liability Insurance ("Insurance") on a coverage
form at least as broad as the most recent edition of Commercial General
Liability Form (CG0001) published by ISO Commercial Risk Services,
Inc., naming Landlord and Landlord's Agent as Additional Insureds using
an endorsement form at least as broad as the most recent edition of
Additional Insured-Managers or Lessors of Premises Endorsement Form
(CG2011) as published by ISO Commercial Risk Services, Inc. The limits
of such insurance shall be no less than:
Each Occurrence Limit $2,000,000
General Aggregate Limit $2,000,000
Products/Completed Operations Aggregate Limit $2,000,000
Personal Injury and Advertising Injury Limit $2,000,000
Fire Damage (Any One Fire) $ 50,000
Medical Expense (Any One Person) $ 5,000
covering Bodily Injury, Personal Injury and Property Damage Liability
occasioned by or arising out of or in connection with the use,
operation and occupancy of the Leased Premises. Such Commercial General
Liability Insurance policy shall cover events that occur during the
policy period regardless of when the claim is made. Such Insurance
shall be primary insurance to any other insurance that may be available
to
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Landlord. Any other insurance available to Landlord shall be
non-contributing with, and excess to, such Insurance.
(ii) Workers Compensation As required by state law
(iii) Employers Liability Insurance
Bodily Injury by Accident $250,000 Each Accident
Bodily Injury by Disease $250,000 Each Employee
Bodily Injury by Disease $250,000 Policy Limit
(iv) Property Insurance insuring Tenant's business personal property
and all tenant improvements in which Tenant has an insurable interest
against direct risk of loss, and insuring Tenant's business income.
Such coverage shall be provided on coverage forms at least as broad as
the standard Building and Personal Property Coverage Form (CP0010),
Business Income Coverage Form (CP0030), Boiler and Machinery Coverage
Form (BM0025), Causes of Loss Special Form (CP1030), and Sprinkler
Leakage-Earthquake Extension (CP1039) all as published by ISO
Commercial Risk Services, Inc. Replacement cost valuation must apply to
such policies. The limit of coverage required for business personal
property shall be equal to 100% of the current replacement cost value
of such business personal property. The limit of coverage for business
income shall be equal to the Tenant's annual total anticipated net
earnings.
C. Landlord may require reasonable increases in the limits set
forth in this Section from time to time. The carriers providing all coverages
required by this Section shall be obligated to provide Landlord with thirty (30)
days' advance written notice of any cancellation, material change or
non-renewal. Tenant shall provide renewal certificates to Landlord at least
thirty (30) days prior to the expiration of such policies. All insurance
required hereunder shall be provided by insurers who maintain a general policy
holder's rating of "A" and a financial rating of not less than Class "X' in the
most recent issue of Best's Insurance Reports, and be otherwise acceptable to
the Landlord. Copies of all such policies and endorsements, certified by the
insurers, shall be supplied to Landlord and all other parties named as
additional insureds within ten (10) days of demand therefor. On or before the
Commencement Date Tenant shall provide Landlord and all other parties named as
additional insureds with satisfactory evidence that such insurance is in full
force and effect or effectively renewed and that the insurance premiums for such
insurance have been paid for the first year of the Lease Term. All such
insurance shall be in form satisfactory to Landlord.
D. Within ten (10) days of written demand, Tenant shall provide
Landlord, at Tenant's expense, with such increased amount of existing insurance,
and
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such other insurance as Landlord or Landlord's lender may reasonably require
to afford Landlord and Landlord's lender adequate protection. If, on account of
the failure of Tenant to comply with the provisions of this Section, Landlord is
adjudged a co-insurer by its insurance carrier, then, any loss or damage
Landlord shall sustain by reason thereof, including attorneys' fees and costs,
shall be borne by Tenant and shall be immediately paid by Tenant upon receipt of
a bill therefor and evidence of such loss. Landlord and Landlord's Agent make no
representation that the limits of liability specified to be carried by Tenant
under this Lease are adequate to protect Tenant. If Tenant believes that any
such insurance coverage is insufficient, Tenant shall provide, at its own
expense, such additional insurance as Tenant deems adequate.
E. Notwithstanding anything to the contrary herein, to the extent of
insurance proceeds received with respect to any loss or damage, Tenant and
Landlord each waive any right of recovery against the other party for such loss
or damage suffered by such party with respect to the Lot, the Building, or the
Leased Premises, the contents of same, or any operation therein, whether or not
such loss is caused by the fault or negligence of the other party. Landlord and
Tenant shall each obtain from their respective insurers, if commercially
available, under policies of property insurance maintained by either of them at
any time during the term hereof insuring or covering the Lot, the Building, the
Leased Premises or any portion thereof or operations therein, a waiver of all
rights of subrogation which the insurer of one party might have against the
other party, and Landlord and Tenant shall each indemnify the other against any
loss or expense, including reasonable attorneys' fees, resulting from the
failure to obtain such waiver.
F. Landlord agrees to maintain during the Lease Term property
insurance in a amount at least equal, in Landlord's judgement, to the
replacement cost of the Building.
18. Compliance with Law.
Tenant shall, at its sole cost and expense, comply promptly with all
laws, ordinances, statutes, notices, requirements, orders, rules, regulations
and recommendations (whatever the nature thereof may be) of any and all federal,
state, county, township, municipal or other governmental authorities or of the
Board of Fire Underwriters or any insurance organizations, associations or
companies, with respect to the Leased Premises and Tenant's use and occupancy
thereof, and any property appurtenant thereto; provided that the foregoing shall
not require Tenant to make any structural changes or capital improvements to the
Building unless required as a result of Tenant's (or Tenant's agents' or
employees') acts or negligence or breach of its obligation under this Lease and
to the extent such structural repairs are not covered by Landlord's insurance in
the Building, including any applicable Landlord deductibles. Tenant also agrees
that it shall not knowingly do or commit, or suffer to be done or committed
anywhere upon the Leased Premises, any act or thing
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contrary to any of the laws, ordinances, statutes, notices, requirements,
orders, rules, regulations and recommendations hereinabove referred to in this
Section.
To the extent that alterations and/or new construction (as those terms
are defined under the Americans with Disabilities Act ("ADA") have been
performed with respect to or affecting the Lot and the Building, including
common areas, between January 26, 1992, and the date hereof, such alterations
and/or new construction was performed in compliance with the applicable
provisions of Title III of the ADA.
With respect to the Lot and that portion of the Building not occupied
by tenants, Landlord shall comply with all laws, ordinances statutes, and
regulations of federal, state, county, township, municipal or other governmental
authorities. Landlord also agrees that it shall not knowingly do or commit
anywhere upon the Lot or the Building, any act or thing contrary to any of the
laws, ordinances, statutes, and regulations hereinabove referred to in this
Section.
19. Notice of Accident or Breakage.
Tenant shall give to Landlord prompt written notice (within 48 hours of
occurrence) of (i) any accident occurring on or about the Leased Premises, and
(ii) any breakage or defects in the roof, window glass, wires, plumbing or
heating or cooling apparatus, elevators or other apparatus in or about the
Leased Premises. Failure to provide such notice shall not be deemed an Event of
Default.
20. Miscellaneous Covenants of Tenant.
Tenant shall faithfully perform and comply with all of the provisions,
covenants and conditions to be performed and complied with by Tenant hereunder,
and, in addition thereto, Tenant shall:
(a) secure and maintain in effect any governmental approvals,
licenses and permits as may be required for Tenant's use and occupancy
of the Leased Premises in accordance with Section 12 (it being
understood that Landlord shall obtain any permits required for the
construction or installation of the Improvements and so that the
Premises may be lawfully occupied for general office purposes only at
the commencement of the Lease Term);
(b) not place, erect, maintain or display any sign or other
marking of any kind whatsoever on the Lot, the Building or the Leased
Premises without the prior written approval of the Landlord, which
approval shall not be unreasonably withheld delayed or conditioned for
a single sign, provided that the same conforms to all applicable laws
and ordinances and to the sign standards as are then established by
Landlord generally;
(c) not, without the advance written consent of Landlord,
exhibit, sell or offer for sale on the Leased Premises, the Lot or in
the Building, any article or thing except those articles and things
connected with the permitted use of the Leased Premises by Tenant set
forth in Section 12, if any;
(d) will not make or permit to be made any use of the Lot, the
Building. or the Leased Premises or any part thereof which (i) would
violate any of the covenants, agreements, terms, provisions and
conditions of this Lease, (ii) is directly or indirectly forbidden by
any statute, law,
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ordinance or governmental regulation (iii) may be dangerous to life,
limb, or property, (iv) may invalidate or increase the premium cost of
any policy of insurance carried on the Lot, the Building or the
Leased Premises or covering the operation of any of same, (v) will
suffer or permit the Lot, the Building or the Leased Premises or any
part thereof to be used in any manner (including the bringing or
storage of any materials thereon) so as to impair or tend to impair the
character, reputation or appearance of the Lot, the Building or the
Leased Premises in the sole judgment of Landlord, or (vi) will impair
or interfere with any services performed by Landlord, its agents,
employees, servants, officers and contractors, for the Lot, the
Building or the Leased Premises, if any;
(e) not (i) advertise the business, profession or activities of
Tenant conducted on the Leased Premises in a manner which violates the
letter or spirit of any code of ethics adopted by any recognized
association or organization pertaining to such business, profession or
activities, (ii) use the name of the Building or the Leased Premises
for any purposes other than that of the business address of Tenant, or
(iii) use any picture or likeness of the Building or the Leased
Premises in any circulars, notices, advertisements or correspondence
without Landlord's prior written consent in each instance which consent
shall not be unreasonably withheld;
(f) not (i) use the Building or the Leased Premises for human
housing accommodations or human lodging or sleeping purposes, (ii) use
any illumination other than electric lighting in the Leased Premises,
(iii) use or permit to be brought in or kept upon, temporarily or
otherwise, the Building or the Leased Premises, any flammable fluids
such as gasoline, kerosene, naphtha, or benzene, or any explosive,
radioactive materials or other articles and/or substances deemed
hazardous to life, limb or property except as set forth in Exhibit
(g) not contract for any work or service which might involve the
employment of labor incompatible with Landlord's employees or employees
of contractors doing work or performing services by or on behalf of
Landlord, provided that the foregoing shall not be construed so as to
prevent Tenant from contracting with the third party supplier of its
choice for office supplies and/or coffee services;
(h) not (i) use, keep or permit to be used or kept upon,
temporarily or otherwise, the Building or the Lease& Premises, any foul
or noxious gas or substance (ii) permit or suffer the Building or the
Leased Premises to be occupied or used in a manner offensive or
objectionable to the Landlord by reason of noise, odors and/or
vibrations, (iii)
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interfere in any way with adjacent tenants or buildings, or (iv) permit
any animals or birds to be brought in or kept in about the Leased
Premises or the Building other than those animals used for research
purposes as set forth in Exhibit "G" and as otherwise acceptable to
Landlord, which Tenant represents will be in compliance with all
federal, state and local laws and regulations pertaining to animal
research, including all laws and regulations of the Federal Food and
Drug Administration;
(i) pay to Landlord, as Additional Rent hereunder, an amount
equal to any increase in insurance premiums payable by Landlord arising
or resulting from any breach of any provision of this Section, which
payment shall be in addition to all other remedies available to
Landlord hereunder and at law;
(j) not use the Lot for any purpose other than parking and
ingress and egress. Tenant's Percentage of Building set forth in
Section 1(e) shall be the basis for determining the number of parking
spaces on the Lot which shall be available to Tenant for the use of
Tenant and Tenant's employees and invitees; and
(k) not use the interior common areas of the Building, including
but not limited to, the hallways, lobbies, elevators, and stairways for
any purpose other than ingress or egress to or from the Leased Premises
and shall not obstruct same.
21. Lease Subordinated.
This Lease is and shall be subject and subordinate at all times to the
lien of any mortgage, deed of trust, ground lease and/or other instrument of
encumbrance, including declarations of covenants and restrictions and similar
recorded instruments, heretofore or hereafter placed by Landlord upon all or any
part of the Leased Premises, the Building or the Office Park, and to all
renewals, modifications, amendments, consolidations, replacements and extensions
thereof (all of which are hereinafter referred to collectively as a "mortgage");
and any such subordination shall be automatic, without the necessity of further
action on the part of Tenant to effectuate such subordination. Notwithstanding
the foregoing, if deemed appropriate by Landlord or if requested by the holder
of any mortgage, Tenant shall, at the request of Landlord or the holder of any
mortgage, attorn to such holder, and shall execute, enseal, acknowledge and
deliver, upon demand by Landlord or such holder, (i) such further instrument or
instruments evidencing such subordination of Tenant's right, title and interest
under this Lease to the lien of any such mortgage or instrument, and (ii) such
further instrument or instruments of attornments, as shall be desired by such
holder. If Tenant is requested to execute and deliver any instrument confirming
and evidencing subordination and/or attornment as aforesaid, but fails to
deliver same to Landlord within ten (10) days of request, Tenant
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hereby irrevocably appoints Landlord as attorney-in-fact for Tenant with full
power and authority to execute and deliver such instrument or instruments.
Notwithstanding the foregoing, this provision for subordination shall not apply
to a mortgage unless the mortgagee shall agree in writing that so long as Tenant
shall attorn to it and remain in compliance with the terms of this Lease, the
leasehold estate granted to Tenant hereunder shall not be terminated or
disturbed by any action to foreclose such mortgage or by any other action.
Landlord shall obtain such an agreement from all mortgagees to whose interest
this Lease is subordinate.
22. Eminent Domain.
If the entire or substantially the entire Lot or Building should be
taken for any public or quasi-public use under any governmental law, statute or
regulation, or should be taken by right of eminent domain or any other right, or
should be sold to the condemning authority in lieu of condemnation, then this
Lease shall terminate as of the date when physical possession of the Lot or the
Building is taken by the condemning authority.
In the event of (a) a partial (less than substantial) taking of the Lot
(which, in Landlord's reasonable opinion significantly impairs the usability of
the portions thereof not occupied by the Building, or of the Building) or of the
Building (regardless of whether or not the Premises are affected by said
taking), Landlord shall have the right to terminate this Lease, or (b) a taking
of the Premises or a partial taking of the Lot or the Building, Tenant shall
have the right to terminate this Lease but only if (i) the taking of the
Premises occurs within the last year of the Lease Term or any renewal thereof,
or (ii) Tenant provides clear and convincing evidence to Landlord that any
partial taking of the Premises or the Building would cause the remainder to be
impractical for Tenant's business purposes. Landlord or Tenant may exercise the
aforesaid right or rights to terminate this Lease in its entirety as aforesaid
by giving written notice to the other within sixty (60) days after the date of
the vesting of title in such proceeding, specifying a date not more than thirty
(30) days after the giving such notice as the date for such termination.
In the event of any total or partial taking of the Leased Premises,
Landlord shall be entitled to receive the entire award in any such proceeding;
and Tenant hereby assigns any and all right, title and interest of Tenant now or
hereafter arising in or to any such award any part thereof, and hereby waives
all rights against Landlord and the condemning authority, except that Tenant
shall have the right to claim and prove in any such proceeding and to receive
any award which may be made, if any, specifically for damages or condemnation of
Tenant's movable trade fixtures, equipment and relocation expenses.
If this Lease is not terminated after the eminent domain proceeding
under the aforesaid provisions, (a) Landlord shall promptly commence to repair
or restore the Leased Premises to a tenantable condition for Tenant's uses and
complete same with diligence, except for delays caused by (i) Landlord's
inability
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to obtain materials, (ii) Acts of God, as said term is legally defined and
construed, (iii) strikes, fire or weather, (iv) act of governmental authority,
or (v) any other cause beyond the reasonable control of Landlord; (b) the Annual
Fixed Rent (and, correspondingly, the Monthly Fixed Rent) shall be equitably
reduced from and after the date that title vests in the condemnor for the
balance of the Lease Term taking into account the character and the amount of
the taking; (c) Tenant's Percentage of Building shall be adjusted to reflect the
balance of rentable area remaining as the Premises subsequent to said eminent
domain proceeding.
23. Assignment and Subletting.
Tenant shall not (i) assign, pledge, mortgage or otherwise transfer or
encumber this Lease, (ii) sublet all or any part of the Leased Premises or (iii)
permit the Leased Premises to be occupied or used by anyone other than Tenant or
its employees, without Landlord's prior written consent in each instance, which
consent will be in form satisfactory to Landlord and may include such reasonable
conditions as Landlord deems appropriate, and which consent Landlord agrees not
to unreasonably withhold. Notwithstanding anything herein to the contrary, it
shall not be deemed to be unreasonable for Landlord to withhold its consent to
any of the aforesaid actions by Tenant (a) if the reputation, financial
responsibility, or business of a proposed assignee or subtenant is
unsatisfactory to Landlord in its reasonable determination, (b) if Landlord
deems the business of a proposed assignee or subtenant to be not consonant with
that of other tenants in the vicinity of the Leased Premises, (c) if the
intended use by the proposed assignee or subtenant conflicts with any commitment
made by Landlord to any other tenant in the vicinity of the Leased Premises, or
(d) if the proposed assignee or subtenant is to pay Tenant rents that are less
than the then current market rental rate for the Office Park, as determined by
Landlord. Tenant specifically acknowledges that the Leased Premises form a part
of the Office Park and that Landlord may exercise its sole discretion in
determining whether a proposed assignee or subtenant may be acceptable to
Landlord and within the scope of Landlord's concept of the sound and prudent
management of the Office Park.
Tenant agrees to pay to Landlord on demand, as Additional Rent
hereunder, reasonable costs and counsel fees incurred by Landlord in connection
with any request by Tenant for Landlord's consent to any assignment or
subletting by Tenant. Tenant's request for consent shall be in writing and shall
contain the name, address, and description of the business of the proposed
assignee or subtenant, its most recent financial statements and other evidence
of financial responsibility, its intended use of
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the Leased Premises, and the terms and conditions of the proposed assignment or
subletting. Within thirty (30) days after receipt of such request, Landlord
shall either: (a) grant or refuse consent; or (b) elect to require Tenant (i) to
execute an assignment of this Lease or a sublease of Tenant's interest hereunder
to Landlord or its designee upon the same terms and conditions as are contained
herein, together with an assignment of Tenant's interest as sublessor in any
such proposed sublease, or (ii) if the request is for consent to a proposed
assignment of this Lease, to terminate this Lease and the Term hereof effective
as of the last day of the third month following the month in which the request
was received.
Each assignee hereunder shall assume and shall be deemed to have
assumed this Lease and all of the provisions herein, and shall be and remain
jointly and severally liable with Tenant for all payments due from Tenant to
Landlord hereunder and for the due performance of and compliance with all of the
terms, covenants, conditions and provisions herein contained on Tenant's part to
be complied with and performed. No assignment of this Lease by Tenant shall be
binding upon Landlord unless the assignee shall deliver to Landlord an
instrument in recordable form containing a covenant of assumption by the
assignee in form acceptable to Landlord provided that the failure or refusal of
the assignee to execute the same shall not release the assignee from its
liability as set forth herein. Tenant shall pay to Landlord all profits derived
by Tenant from any permitted assignment of this Lease or sublease of the Leased
Premises.
Tenant shall not enter into any lease, assignment, sublease, license,
concession or other agreement for the use, occupancy or utilization of the
Leased Premises or any portion thereof other than in compliance with Section 12
hereof.
Any consent by Landlord hereunder shall not constitute a waiver of
strict future compliance by Tenant of the provisions of this Section 23 or a
release of Tenant from the full performance by Tenant of all of the terms,
covenants, provisions, or conditions contained in this Lease.
Tenant shall not (a) mortgage, pledge or otherwise encumber its
interest in this Lease, or (b) grant any license, concession or other right of
occupancy of the Leased Premises or any portion thereof, without the prior
written consent of Landlord which consent shall not be unreasonably withheld.
24. Default.
Notwithstanding any other provisions in this Lease to the contrary, it
shall be an "Event of Default" under this Lease if (i) Tenant fails to pay to
Landlord any installment of Annual
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Fixed Rent, Additional Rent or any other sum payable by Tenant hereunder when
due and such failure continues for period of fifteen (15) days after the date of
written notice thereof by or on behalf of Landlord, provided, however, that
Landlord shall not be required to give any such notice, and Tenant shall not be
entitled to receive any such period of grace, more than once in any 12 month
period during the Lease Term, (ii) Tenant vacates the Leased Premises (except as
may be permitted pursuant to the provisions of Section 12(d)) or uses or
occupies the Leased Premises otherwise than as permitted by the provisions of
this Lease, or assigns or sublets, or purports to assign or sublet the Lease or
the Leased Premises or any part thereof, otherwise than in accordance with, and
upon the conditions set forth in Section 23 hereof, (iii) Tenant fails to
observe or perform any other covenant or agreement of Tenant herein contained or
fails to comply with any other provision of this Lease, and such failure
continues after the date of written notice thereof by or on behalf of Landlord
for a period of thirty (30) days and such additional time not to exceed sixty
(60) days, as is necessary to cure such failure, provided that the cure of such
failure has commenced within the aforesaid thirty (30) day period, Tenant
notifies Landlord in writing of the procedures that Tenant will follow to
complete the cure and Tenant proceeds diligently thereafter to cure such failure
within such additional time period not to exceed sixty (60) days, (iv) without
Landlord's prior written consent, Tenant removes or attempts to remove or
manifests an intention to remove all or a substantial portion of Tenant's
property from the Leased Premises otherwise than in the ordinary and usual
course of business, (v) Tenant makes any assignment for the benefit of its
creditors; Tenant commits an act of bankruptcy or files a petition or commences
any proceeding under any bankruptcy or insolvency law; a petition is filed or
any proceeding is commenced against Tenant under any bankruptcy, reorganization,
creditor adjustment, debt rehabilitation or insolvency law and such petition or
proceeding is not dismissed within sixty (60) days; Tenant is adjudicated a
bankrupt; Tenant by an act indicates its consent to, approval of, or
acquiescence in, or a court approves, a petition filed or proceeding commenced
against Tenant under any bankruptcy, reorganization, creditor adjustment, debt
rehabilitation or insolvency law; a receiver or trustee or other officer is
appointed for Tenant or for a substantial part of Tenant's assets or for
Tenant's interest in this Lease; any attachment or execution against a
substantial part of Tenant's assets or of Tenant's interest in this Lease
remains unstayed or undismissed for a period of more than ten (10) days; a
substantial part of Tenant's assets or Tenant's interest in this Lease is taken
by legal process in an action against Tenant; Tenant becomes insolvent in the
bankruptcy or equity sense; a liquidator, receiver, custodian, sequester,
conservator, trustee or other similar judicial officer is applied for by Tenant
or appointed by Tenant.
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25. Landlord's Remedies.
(a) Upon the occurrence of an Event of Default hereunder,
Landlord may, at any time thereafter and in addition to all other
available legal or equitable rights and remedies, elect anyone or more
of the following remedies:
(i) accelerate and declare to be immediately due and payable,
and sue for and recover, all unpaid Annual Fixed Rent for the
unexpired period of the Lease Term (and also all Additional Rent
as the amount(s) of same can be determined) (said amounts to be
discounted to present value using an interest rate of 5%) as if
by the terms of this Lease the same were payable in advance (and
for the purposes of determining in the first instance accelerated
Additional Rent payable by Tenant under Sections 6 and 7 of this
Lease, the monthly charges for electricity under Section 6 arid
the Monthly Expense Estimate for Operating Expense under Section
7, as billed to Tenant for the month in which the Event of
Default occurred, shall be deemed to continue in those amounts
throughout the period to which the acceleration applies; and any
over or under payment shall be adjusted following Tenant's
payment of the accelerated amount, as the actual amounts are
determined pursuant to the applicable provisions of this Lease),
together with all reasonable legal fees and other expenses
incurred by Landlord in connection with the enforcement of any of
Landlord's rights and remedies hereunder, and/or
(ii) whether or not Landlord has elected to accelerate Rent
in accordance with subsection 25 (a) (i), or whether or not
Landlord has elected to terminate this Lease in accordance with
subsection 25 (a) (iii) below, distrain, collect or bring an
action for such Annual Fixed Rent and Additional Rent as being
rent in arrears, or may enter judgment therefor in an amicable
action as herein elsewhere provided for in case of rent in
arrears, or may file a Proof of Claim in any bankruptcy or
insolvency proceeding for such Annual Fixed Rent and Additional
Rent, or may institute any other proceedings, whether similar or
dissimilar to the foregoing, to enforce payment thereof, and/or
(iii) whether or not Landlord has elected to accelerate Rent
in accordance with subsection 25 (a) (i), terminate this Lease
and the Lease Term by giving written notice thereof to Tenant
and, upon the expiration of fifteen (15) days after the giving of
such notice, the Lease Term and the estate hereby
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granted shall expire and terminate with the same force and legal
effect as though the date of such notice was the Expiration Date,
and all rights of Tenant hereunder shall expire and terminate,
and Tenant shall thereupon quit and surrender the Leased
Premises to Landlord in the condition specified in Section 5 and
Tenant shall remain liable as hereinafter provided.
(b) Upon the occurrence of an Event of Default, at any time
thereafter and in addition to all available legal or equitable rights
and remedies, Landlord may, whether or not the Lease Term has been
terminated in accordance with subsection 25 (a) (iii), terminate or
suspend Tenant's right to possession of the Leased Premises and
re-enter upon and repossess the Leased Premises or any part thereof by
force, summary proceedings, ejectment or otherwise, remove all persons
and property therefrom, and have, hold and enjoy the Leased Premises
and the rents and profits therefrom. Landlord shall be under no
liability for or by reason of any such entry, repossession or removal;
and no such re-entry or taking of possession of the Leased Premises by
Landlord shall be construed as an election on Landlord's part to
terminate the Lease Term unless a written notice of such intention is
given to Tenant pursuant to subsection 25 (a) (iii) or unless the
termination of this Lease is decreed by a court of competent
jurisdiction.
(c) At any time or from time to time after the repossession of
the Leased Premises or any part thereof pursuant to subsection 25 (b),
whether or not. the Lease Term shall have been terminated pursuant
subsection 25 (a) (iii), Landlord shall use commercially reasonable
efforts, in its own name as agent for Tenant if the Lease Term has not
been terminated or in its own behalf if this Lease has been terminated,
relet all or any part of the Leased Premises for the account of Tenant
for such term or terms (which may be greater or less than the period
which would otherwise have constituted the balance of the Lease Term)
and on such conditions and provisions (which may include concessions or
free rent) as Landlord, in its absolute and sole discretion, may
determine, and Landlord may collect and receive any rents payable by
reason of such reletting. Notwithstanding the foregoing,
(1) Landlord shall not be required to (i) accept any tenant
offered by Tenant, (ii) observe any instruction given by Tenant
about such reletting, (iii) endeavor to relet if Landlord has
other space available or which will become available elsewhere in
the Building or the Office Park, or (iv) relet to any tenant
whose business or proposed use would be
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inconsistent or not compatible, in Landlord's sole opinion, with
the overall leasing, use and occupancy of the Building or
Office Park or whose financial responsibility or standing is not
satisfactory to Landlord. For the purpose of such reletting,
Landlord may decorate or make repairs, changes, alterations or
additions in or to the Leased Premises or any part thereof to the
extent deemed by Landlord to be desirable or convenient, and the
cost of such decoration, repairs, changes, alterations or
additions shall be charged to and be payable by Tenant as
Additional Rent hereunder, as will any reasonable brokerage and
legal fees expended by Landlord in connection with such
reletting. No reletting shall be deemed to be a surrender and
acceptance of the Leased Premises.
(2) Net rent received by Landlord from any third party tenant
as a result of reletting the Premises (i.e., net of all costs of
the reletting, including but not limited to, brokerage fees, free
rent or other concessions paid or credited to the third party
tenant, the cost of refurbishing or fitting-up the space, legal
and other expenses incurred as a result of Tenant's default and
those incurred in reletting) during or attributable to the period
ending on the Expiration Date, shall be credited against the Rent
otherwise payable by Tenant during the remainder of the Lease
Term, in inverse order against the last Rent payments to be made
under the provisions of this Lease.
(d) No expiration or termination of the Lease Term pursuant
subsection 25 (a) (iii) or by operation of law or otherwise, no
repossession of the Leased Premises or any part thereof pursuant
subsection 25(b), or otherwise, and no reletting of the Leased Premise
or any part thereof pursuant to subsection 25(c), shall relieve Tenant
of any of its liabilities and obligations hereunder, all of which shall
survive such expiration, termination, repossession or reletting.
(e) In the event of any expiration or termination of this Lease
or any repossession of the Leased Premises or any part thereof by
reason of an occurrence of an Event of Default, where Landlord has not
elected to accelerate Rent pursuant to subsection 25(a)(i), Tenant
shall pay to Landlord the Annual Fixed Rent, the Additional Rent and
all other sums required to be paid by Tenant hereunder to and including
the date of such expiration, termination or repossession; and,
thereafter, Tenant shall, until the end of what would have been the
expiration of the Lease Term in
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the absence of such expiration, termination or repossession, and
whether or not the Leased Premises or any part thereof shall have been
relet, be liable to Landlord for, and shall pay to Landlord, as
liquidated and agreed current damages, the Annual Fixed Rent, the
Additional Rent and all other sums which would have been payable by
Tenant to Landlord under this Lease in the absence of such expiration
termination or repossession, less the net proceeds, if any, of any
reletting effected for the account of Tenant pursuant to subsection 25
(c), after deducting from such proceeds all of Landlord's reasonable
expenses in connection with such reletting (including, without
limitation, all related repossession costs, brokerage commissions,
legal expenses, attorneys' fees, employees' expenses, alteration and
redecoration costs and expenses of preparation for reletting). Tenant
shall pay such current damages to Landlord on the days on which the
Monthly Fixed Rent would have been payable under this Lease in the
absence of such expiration, termination or repossession, and Landlord
shall be entitled to recover the same from Tenant on each such day.
(f) In the event of any expiration or termination of this Lease
or any repossession of the Leased Premises or any part thereof by
reason of the occurrence of an Event of Default, whether or not
Landlord shall have collected any current damages pursuant to
subsection 25 (e), Landlord shall be entitled to recover from Tenant,
and Tenant shall pay to Landlord on demand, unless Tenant has paid the
whole accelerated rent pursuant to subsection 25 (a) (i), as and for
liquidated and agreed final damages for Tenant's default and in lieu of
current damages beyond the date of such demand (it being agreed that it
would be impracticable or extremely difficult to fix the actual
damages), an amount equal to the excess, if any, of (a) the Annual
Fixed Rent, the Additional Rent and all other sums which would be
payable under the Lease for the remainder of the Lease Term from the
date of such demand (or, if it be earlier, the date to which Tenant
shall have satisfied in full its obligations under subsection 25(e) to
pay current damages), to the date that would have been the Expiration
Date of the Lease Term in the absence of such expiration, termination
or repossession, discounted at the rate of six percent (6%) per annum,
over (b) the then fair rental value of the Leased Premises for the same
period, discounted at the rate of six percent (6%) per annum. If any
statute or rule of law shall validly limit the amount of such
liquidated final damages to an amount that is less than the amount
above agreed upon, Landlord shall be entitled to the maximum amount
allowable under such statute or rule of law.
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(g) CONFESSION OF JUDGMENT Tenant, in consideration of the
execution of this Lease by Landlord and the covenants and agreements on
the part of Landlord herein contained, and fully comprehending the
relinquishment of certain rights including rights of pre-judgment
notice and hearing, hereby expressly authorizes any attorney of any
Court of Record to accept service of process for, to appear for, and to
confess judgment against Tenant in any and all actions brought
hereunder by Landlord against Tenant (i) to recover possession of the
Leased Premises (and Tenant agrees that upon the entry of each judgment
for said possession a Writ of Possession or other appropriate process
may issue forthwith). Such authority shall not be exhausted by one
exercise thereof, but judgment may be confessed from time to time as
often as occasion therefore shall exist. Such powers may be exercised
during as well as after the expiration or termination of the original
Lease Term and during and at any time after any extension or renewal of
the Lease Term.
(h) In any amicable action for ejectment, Landlord shall first
cause to be filed in such action an affidavit made by Landlord or
someone acting for it setting forth facts necessary to authorize the
entry of judgment of which facts such affidavit shall be conclusive
evidence, and if a true copy of this Lease be filed in such action (and
of the truth of the copy such affidavit shall be sufficient evidence),
it shall not be necessary to file the original as a warrant of
attorney, any rule of court, custom or practice to the contrary.
(i) Any and all property which may be removed from the Leased
Premises by Landlord pursuant to the authority of this Lease or of law,
to which Tenant is or may be entitled, may be handled, removed or
stored by Landlord at the sole risk, cost and expense of Tenant, and
Landlord shall in no event be responsible for the value, preservation
or safekeeping thereof. Tenant shall pay to Landlord, upon demand, any
and all reasonable expenses incurred in such removal and all storage
charges against such property so long as the same shall be in
Landlord's possession or under Landlord's control. Any such property of
Tenant not removed from the Leased Premises or retaken from storage by
Tenant within
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thirty (30) days after the end of the Lease Term or of Tenant's right
to possession of the Leased Premises, however terminated, shall be
conclusively deemed to have been forever abandoned by Tenant and either
may be retained by Landlord as its property or may be disposed of in
such manner as Landlord may see fit.
(j) No receipt of money by Landlord from Tenant after the
termination of this Lease or after the service of any notice or after
the commencement of any suit, or after final judgment for possession of
the Leased Premises shall reinstate, continue or extend the Lease Term
or affect any such notice, demand or suit or imply consent for any
action for which Landlord's consent is required.
(k) Tenant expressly waives the right to three (3) months and
fifteen (15) or thirty (30) days notice required under certain
circumstances by the Pennsylvania Landlord and Tenant Act of 1951,
Tenant hereby agreeing that the respective notice periods provided for
in this Lease shall be sufficient in either or any such case.
(l) All remedies available to Landlord hereunder and at law and
in equity shall be cumulative and concurrent. No determination of this
Lease or taking or recovery of possession of the Leased Premises shall
deprive Landlord of any remedies or actions against Tenant for Annual
Fixed Rent, Additional Rent, other charges or damages for the breach of
any covenant or condition herein contained, nor shall the bringing of
any such action or the resort to any other remedy or right for the
recovery of same be construed as a waiver or release of the right to
insist upon the forfeiture and to obtain possession.
(m) All of the rights and remedies of Landlord shall be
applicable to and available against any and all assignees subtenants of
Tenant.
(n) Tenant agrees that if it shall at any time fail to make any
payment to third parties or perform any other act on its part to be
made or performed under this Lease, Landlord may, but shall not be
obligated to, after notice or demand to Tenant and failure of Tenant,
within five (5) days after receipt of such notice, to make such payment
or commence (and thereafter diligently prosecute) such performance,
without waiving or releasing Tenant from any of its obligations under
this Lease, make such payment or perform such other act to the extent
Landlord may deem desirable and in connection therewith, to pay
reasonable expenses and employ legal counsel. Tenant agrees to pay
Landlord's reasonable attorney's fees if legal action is required in
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Landlord's judgment to enforce performance by Tenant of any condition,
obligation or requirement hereunder. All sums paid by Landlord pursuant
to this Section and all expenses in connection therewith, together with
interest thereon at the Overdue Interest Rate calculated from the date
of payment by Landlord, shall be deemed to be Additional Rent hereunder
and shall be payable upon demand by Landlord and Landlord shall have
the same rights and remedies for the non-payment thereof as in the case
of default in the payment of Annual Fixed Rent.
26. Liability of Landlord.
(a) Tenant covenants and agrees to exonerate, indemnify, defend,
protect and save Landlord, its employees, officers and servants and
Landlord's Agent, harmless from and against any and all claims,
actions, demands, expenses, costs, charges, obligations, penalties,
orders, judgments, liabilities, losses, suits and damages which may be
imposed upon, incurred by or asserted against them or any one of them
by reason of (i) any accident or matter occurring on the Premises,
causing injury to persons (including loss of life) or damage to
property (including but not limited to the Premises), unless such
accident or other matter resulted from Landlord's breach of this Lease
or the negligence or otherwise tortious act of Landlord, its employees,
officers and servants or Landlord's agent, (ii) the failure of Tenant
to fully and faithfully perform its obligations hereunder and to comply
with the conditions of this Lease, (iii) the negligence or otherwise
tortious act of Tenant, its employees, servants, officers, agents,
contractors, invitees, licensees, or visitors or anyone in or about the
Lot, the Building or the Leased Premises on behalf or at the invitation
or right of Tenant, and (iv) the use, occupancy or maintenance of the
Leased Premises.
If any such action or proceeding is brought against Landlord, its
employees, servants or officers, or against Landlord's Agent, by reason
of any such claim, Tenant shall (i) defend such action or proceeding
upon written notice from Landlord, with counsel approved by Landlord in
writing, which approval shall not be unreasonably withheld, and (ii)
further indemnify, defend and save Landlord, its employees, servants
and officers, and Landlord's Agent harmless from and against all costs,
expenses, counsel fees, liabilities, orders and judgments incurred or
rendered in or about any such action or proceeding.
(b) Landlord, its employees, servants and officers and Landlord's
Agents, shall not be liable for consequential
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damages, or loss of profits or income or interruption of business
occurring to Tenant, its agents, servants, employees, officers,
contractors, invitees, licensees, visitors or any other person, firm,
corporation or entity, arising out of or resulting from any claim of
breach of this Lease or of the Lease obligations attributable to
Landlord, its employees, servants and officers and Landlord's Agent, or
from any negligent or otherwise tortious act of Landlord, its
employees, servants and officers and Landlord's Agent, and Tenant shall
indemnify and hold harmless Landlord, its employees, servants and
officers and Landlord's Agent, from and against any and all such
liability as may be asserted.
(c) The term "Landlord" as used in this Lease, so far covenants
or agreements on the part of the Landlord are concerned, shall be
limited to mean and include only the owner or owners of the Landlord's
interest in this Lease at the time in question, and in the event of any
transfer or transfers of such interest, the Landlord herein named (and
in case of any subsequent transfer, the then transferee) shall be
automatically freed and relieved, from and after the date of such
transfer, of all liability as respects the performance of any covenants
or agreements on the part of the Landlord contained in this Lease
thereafter to be performed. The liability of Landlord under this Lease
shall be and is hereby limited to Landlord' interest in the Leased
Premises, and no other assets of Landlord shall be affected by reason
of any liability which Landlord may have to Tenant or to any other
person by reason of this Lease, the execution thereof, or the
acquisition of Landlord's interest.
(d) Landlord and Landlord's Agent shall not be liable for any
loss or damage to persons or property resulting from fire, explosion,
falling plaster, glass, tile or sheetrock, steam, gas, electricity,
water or rain which may leak from any part of the Premises, the
Building, or the Lot, or from the pipes, appliances or plumbing works
therein or from the roof, street or subsurface or whatsoever, except to
the extent caused by or due to the gross negligence or willful acts of
Landlord.
27. Successors and Assigns.
The provisions of this Lease shall be binding upon and shall inure to
the benefit of the parties hereunder and their respective successors and
permitted assigns; provided that Landlord and each successive owner of the
Building and the Lot shall be liable only for such obligations of Landlord
hereunder that accrue during the period of its ownership of the Building
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and the Lot, or interest and provided further that the liability of the Landlord
hereunder shall be limited to the Landlord's estate or other title or interest
in the Leased Premises.
28. Waivers.
No delay or forbearance by either Landlord or Tenant in exercising any
of their respective rights or remedies hereunder or in undertaking or performing
any act or matter which is not expressly required to be undertaken by such party
hereunder shall be construed to be a waiver of any of such party's rights or
remedies hereunder or to represent any agreement by such party to undertake or
perform such act or matter thereafter, or to be a waiver of such party's right
to enforce the other party's strict performance under all provisions of this
Lease.
29. Waiver of Trial by Jury.
Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other on any matters whatsoever arising out of or in any way connected with this
Lease, the relationship of Landlord and Tenant, Tenant's use of or occupancy of
the Leased Premises and/or any claim or injury or damage and any emergency
statutory remedy or any other statutory remedy.
30. Waiver of Benefits.
Tenant waives the benefits of all existing and future Rent control
Legislation and Statutes and similar governmental rules and regulations, whether
in time of war or not, to the extent permitted by law.
31. Severability.
If any of the provisions in this Lease or the application thereof to
any person or circumstances, shall, to any extent, be invalid, illegal or
otherwise unenforceable, the remainder of this Lease, and the application of
such provision to any person or circumstances, other than those as to whom or
which it is held invalid, illegal or unenforceable, shall not be affected
thereby, and every provision in this Lease shall be valid and enforceable to the
fullest extent permitted by law.
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32. Notice.
All notices or other communications required or permitted hereby shall
be effective only if the same are in writing and signed by the party giving the
notice or by an agent or other person authorized in writing to so act on behalf
of such party. Notices to Tenant may be given by leaving same at the Leased
Premises during business hours or by mailing same to Tenant at the address set
forth in Section 1-(l) by registered or certified mail, return receipt
requested, or at such other address as Tenant shall specify by notice to
Landlord pursuant hereto, and notices to Landlord must be mailed to Landlord at
the address stated in Section 1(k) by registered or certified mail, return
receipt requested, or at such other address as Landlord shall specify by notice
to Tenant pursuant hereto. All notices shall, unless otherwise specified herein,
be deemed to have been given (i) on the date when same are delivered, if
delivered, or (ii) two days after the date when the same are deposited in the
mail.
33. Brokerage.
Tenant represents and warrants that it has not dealt with any broker,
agent, finder or other person in connection with the negotiation for or the
obtaining of this Lease or the Leased Premises, and that no broker, agent,
finder or other person brought about the transaction contemplated by this Lease,
other than Landlord's Agent or a cooperating broker identified in Section 1(o),
and Tenant agrees to indemnify and hold Landlord harmless from and against any
and all claims, costs (including attorneys' fees) and liability for commissions
or other compensation claimed by any other broker, agent, finder or other person
claiming a commission or other form of compensation by virtue of having been
employed or engaged by Tenant or having dealt with Tenant with regard to this
Lease. The provisions of this Section shall survive the termination of this
Lease.
34. Holding Over.
If Tenant retains possession of the Leased Premises or any part
thereof after the Expiration Date or sooner termination of the Lease Term or any
extension thereof, Tenant shall pay to Landlord rent monthly in advance on the
first day of each month at a rate that is one and one-half (1 1/2) times the
Monthly Fixed Rent specified in Section 1(i) or such adjusted Month Fixed Rent
then payable, together with all Additional Rent required to be paid by Tenant
under this Lease for the time that the Tenant thus remains in possession and, in
addition thereto, shall pay to Landlord an amount equal to all damages,
consequential as well as direct, sustained by reason of Tenant's retention of
possession of the
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leased Premises. If Tenant remains in possession of the Leased Premises, or any
part thereof, after the Expiration Date or sooner termination of the Lease Term,
such holding over shall, at the election of the Landlord expressed in a written
notice to the Tenant and not otherwise, constitute a renewal of this Lease (i)
from month to month or, if the notice shall advise that unless Tenant vacates
the Leased Premises within thirty (30) days thereafter, a longer, tenancy shall
commence at the expiration of such thirty (30) day period, either (ii) from year
to year or (iii) such lesser period as Landlord may elect, in accordance with
such notice (in any case, at double the Monthly Fixed Rent rate, as aforesaid).
The provisions of this Section do not exclude Landlord's rights of re-entry or
any other right hereunder.
35. Estoppel Certificate by Tenant.
Tenant from time to time, within ten (10) days after Landlord's written
request, shall execute, acknowledge and deliver to Landlord a statement in
writing certifying (a) that this Lease is unmodified and in full force and
effect (or if there have been modifications, that the same is in full force and
effect as modified and identifying the modifications), (b) the dates to which
Annual Fixed Rent, Additional Rent and all other charges have been paid, (c)
that, to Tenant's knowledge, Landlord is not in default under any provision of
this Lease, and, if the Landlord is in default, specifying each such default,
and (d) such other items and matters as may be reasonably requested by Landlord,
it being understood that any such statement so delivered by Tenant to Landlord
may be relied upon by Landlord, any landlord under any ground or underlying
lease, any prospective purchaser, any existing or prospective mortgagee, any
assignee of any mortgage secured by the Leased Premises, or any prospective
assignee of Landlord's interest in this Lease. Tenant hereby irrevocably
appoints Landlord as its attorney-in-fact with full power to execute and
deliver, in the name of Tenant, any such certificate or certificates.
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37. Amendment and Modifications.
This Lease contains the entire agreement between the parties hereto
relating to the subject matter contained herein, and shall not be amended,
modified or supplemented unless by agreement in writing signed by both Landlord
and Tenant; and if any such agreement be for the acceptance of the surrender of
the Leased Premises, cancellation of this Lease, reduction of Rent, change of
the Lease Term, or any other matter which would impose any further material
obligation on Landlord or which would relieve Tenant of any of its obligations
or liability hereunder, the same shall not be valid unless it is approved in
writing by all mortgagees and holders of any estate of interest in the Leased
Premises by virtue of leases or other instruments expressly referred to herein
or which are then of record. Neither party hereto has made any representations
or promises to the other except as expressly contained herein. This Lease
supersedes all prior negotiations, agreements, informational brochures, letters,
promotional information and other statements and materials made or furnished by
Landlord or its agents. The submission of this Lease by Landlord, its attorneys
or agents, for examination or execution by Tenant, does not constitute a
reservation of (or option for) the Leased Premises in favor of Tenant and Tenant
shall have no right or interest in the Leased Premises and Landlord shall have
no liability hereunder, unless and until this Lease is executed and delivered by
Landlord. No rights, easements or licenses are acquired in the Lot or in any
land adjacent thereto, by Tenant by implication or otherwise, except as
expressly set forth in this Lease.
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38. Headings and Terms.
The title, captions, headings and table of contents of this Lease are
for convenience of reference only and shall not in any way be utilized to
construe or interpret the agreement of the parties as otherwise set forth
herein. The term "Landlord" and term "Tenant" as used herein shall mean, where
appropriate, all persons acting by or on behalf of the respective parties,
except as to any required approvals, consents or amendments, modifications or
supplements hereunder, where such terms shall only mean the parties originally
named on the first page of this Lease as Landlord and Tenant, respectively, and
their agents so authorized in writing.
39. Recording and Copies.
This Lease shall not be recorded in whole or in memorandum form by
either party without the prior written consent of the other. In the event of
variation or discrepancy, the Landlord's original copy of this Lease shall
control.
40. Governing Law.
This Lease shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania.
41. No Joint Venture.
This Lease shall create only the relationship of landlord and tenant
between Landlord and Tenant and no estate shall pass out of Landlord. Nothing
herein is intended to be construed as creating a joint venture or partnership
relationship between the parties hereto.
42. Exhibits.
All exhibits referred to in this Lease are attached hereto and shall be
deemed an integral part hereof.
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SEE RIDER ATTACHED HERETO AND MADE A PART HEREOF FOR SECTIONS 43
THROUGH 48 INCLUSIVE.
THE UNDERSIGNED TENANT ACKNOWLEDGES THAT IT FULLY UNDERSTANDS THE
CONFESSION OF JUDGMENT CONTAINED IN SECTION 25(g) HEREOF AND THAT THE
LANDLORD-TENANT RELATIONSHIP CREATED HEREBY IS COMMERCIAL IN NATURE AND
THAT THE UNDERSIGNED WAIVES ANY RIGHT TO A HEARING WHICH WOULD
OTHERWISE BE A CONDITION TO LANDLORD's OBTAINING THE JUDGMENTS
AUTHORIZED BY SECTION 25(g).
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed in Section 1 and below on the date first set forth above in Section 1.
PENNSYLVANIA BUSINESS CAMPUS
DELAWARE, INC.
By: /s/ Guy F. Tcheau
-----------------------------------
Name : Guy F. Tcheau
Title: Senior Investment Manager
(Corporate Seal)
Attest: /s/ Bernard Phang
-------------------------------
Name: Bernard Phang
Title: Investment Manager
LEXIN PHARMACEUTICAL CORPORATION
By: /s/ Jerry B. Hook
-----------------------------------
Name: Jerry B. Hook, Ph.D.
Title: President
(Corporate Seal)
Attest: /s/ Ronald H. Spair
-------------------------------
Name: Ronald H. Spair
Title: Chief Financial Officer
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RIDER
ATTACHED TO AND MADE A PART OF LEASE AGREEMENT
DATED MARCH 29, 1994 ("LEASE") BETWEEN
PENNSYLVANIA BUSINESS CAMPUS DELAWARE, INC. ("LANDLORD"),
AND LEXIN PHARMACEUTICAL CORPORATION ("TENANT")
FOR SUITE NO. 111, 101-111 ROCK ROAD
HORSHAM, PENNSYLVANIA
All capitalized terms utilized but not defined herein shall have the
meanings assigned to such terms in the Lease.
43. Improvements.
A. Tenant's Entry.
Tenant shall be permitted to enter the Leased Premises in advance
of the Commencement Date for the purposes set forth in this Section 43. Except
for Tenant's obligation to pay Annual Fixed Rent and Additional Rent on account
of Operating Expenses (which obligations shall commence on the Commencement
Date), during such early occupancy of the Leased Premises, Tenant shall comply
with all provisions of this Lease pertaining to Tenant's occupancy and use of
the Leased Premises.
B. Work to be Performed.
1. Subject to the terms and conditions set forth in this
Section 43, Tenant shall be permitted to construct and complete the improvements
("Tenant's Work") to the Leased Premises for Tenant's occupancy thereof
described in the Tenant's Scope of Work Letter attached hereto as Exhibit "D"
and made a part hereof. Promptly following the date of this Lease, Tenant shall
cause IPS Integrated Project Services, an architect chosen by Tenant, or a
substitute architect approved in writing by Landlord ("Tenant's Architect"), to
prepare construction drawings and specifications for the construction of
Tenant's Work ("Tenant's Plans and Specifications") consistent with Exhibit "D"
to the extent that Tenant's Architect has not already done so. Tenant has
delivered to Landlord that portion of Tenant's Plans and Specifications
comprised of a space plan (with reflected ceiling plan) for the Leased Premises
and that portion of Tenant's Plans and Specifications showing the placement of
HVAC equipment. Tenant shall cause Tenant's Architect to deliver to Landlord the
remainder of Tenant's Plans and Specifications prior to March 23, 1994. Tenant's
Plans and Specifications shall include, without limitation, a partitions, doors
and layout plan, a reflected ceiling plan, a finishes plan, a mechanical and
electrical plan and an HVAC plan (for a minimum of three HVAC units). Tenant's
Plans and Specifications shall be subject to
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Landlord's written approval prior to the commencement of construction, which
approval shall not be unreasonably withheld, and Tenant's Work shall be
constructed in accordance with Tenant's Plans and Specifications as approved in
writing by Landlord. Within ten business (10) days of receipt by Landlord,
Landlord shall either approve Tenant's Plans and Specifications or deliver to
Tenant its written objections to Tenant's Plans and Specifications. Landlord
similarly shall respond to corrections made by Tenant to Tenant's Plans and
Specifications within ten (10) business days of receipt. No variations or
additions to Tenant's Plans and Specifications may be made without the prior
written consent of Landlord, which consent shall not be unreasonably withheld,
provided that no variations or additions shall be made except pursuant to a
written change order under which Tenant shall pay any increased costs associated
therewith, to the extent such increased costs raise the total cost of Tenant's
Work above "Landlord's Share" (defined below). The foregoing notwithstanding,
Tenant may make minor changes in Tenant's Work that do not materially alter the
work described on Exhibit "D"; provided that Tenant notifies Landlord of such
changes.
2. Tenant's Work shall be performed by IPS Integrated Project
Services, a construction manager selected by Tenant, or a substitute
construction manager approved in advance in writing by Landlord ("Tenant's
Construction Manager") and under the supervision of IFS Integrated Project
Services ("Tenant's Architect") and IPS Integrated Project Services, a
registered engineer selected by Tenant, or a substitute engineer approved in
advance in writing by Landlord ("Tenant's Engineer"). Tenant shall enter into a
written construction contract with Tenant's Construction Manager, which contract
shall be approved in writing by Landlord. Such construction contract shall
include a schedule of values approved by Landlord, shall stipulate a maximum
price for the cost of Tenant's Work ("Contract Price"), and shall provide for a
ten percent (10%) retainage on all installments of the contract price payable
to Tenant's Construction Manager prior to final completion. All work performed
with respect to Tenant's Work shall be performed in a good and workmanlike
manner and in compliance with all laws, statutes, ordinances, regulations,
orders and requirements of all federal, state, county, township, local or other
governmental authorities having jurisdiction with respect thereto, including,
without limitation the Americans with Disabilities Act. Prior to the
commencement of any work as provided for herein, Tenant shall supply Landlord
with satisfactory evidence of (a) the procurement of all necessary permits and
authorizations for the construction of Tenant's Work from the various
governmental authorities having jurisdiction over the Building, (b) the due and
timely filing of a waiver against mechanics' liens, satisfactory to Landlord, by
the contractors and subcontractors hired by Tenant to perform Tenant's Work, (c)
Tenant's workmen's compensation insurance,
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public liability insurance and property damage insurance in amounts, form and
content, and with companies reasonably satisfactory to Landlord, and (d)
Tenant's Construction Manager's workmen's compensation insurance, public
liability insurance, and property damage insurance, in amounts, form and
content, and with companies satisfactory to Landlord. Landlord shall have the
right to enter the Leased Premises during the construction of Tenant's Work to
observe the execution and progress of the work. Notwithstanding any other
provision of this Lease to the contrary, Tenant's Construction Manager's failure
to perform shall not relieve Tenant of the duty to perform and complete Tenant's
work in the manner set forth herein.
C. Payments of Costs of Tenant's Work.
Landlord shall reimburse Tenant, in an amount not to exceed
"Landlord's Share" (defined below) in the aggregate, for payments made by Tenant
to Tenant's Construction Manager in respect of requisitions for payment
submitted by Tenant's Construction Manager on account of completed portions of
Tenant's Work, such reimbursement to be made by Landlord within ten (10) days
following receipt of a copy of Tenant's check and transmittal letter to Tenant's
Construction Manager evidencing that Tenant has paid the full amount of the
applicable requisition of payment, subject to following conditions:
(1) All requisitions for payment shall be on A.I.A. standard
form (which form shall include a release by the contractor/payee) and shall be
submitted by Tenant's Construction Manager to Tenant and to Landlord for
Landlord's approval.
(2) Until final completion of Tenant's Work, all
requisitions for payment shall reflect a ten percent (10%) retainage.
(3) Landlord shall not be required to pay for Landlord's
Share of payments made by Tenant in respect of requisitions for payment more
often than monthly.
(4) Landlord shall not be required to pay Landlord's Share
with respect to any requisition for payment unless and until the work covered
thereby has been certified by Tenant's Architect and Landlord's architect, if
Landlord so elects, to have been performed and completed in a good and
workmanlike manner and in conformity with Tenant's Plans and Specifications.
In no event shall Landlord be required to pay in excess of $18.50 per square
foot multiplied by the number of square feet of space in the Leased Premises,
plus an amount of $50,000 towards the purchase and installation of an HVAC
system ("Landlord's Share"), in the aggregate, on account of Tenant's Work, and
Tenant shall
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pay the full cost and expense of Tenant's Work in excess of such amount
("Tenant's Share")
44. Additional Security.
A. Escrow Deposit. contemporaneously with the execution and
delivery of this Lease by Tenant, Tenant has deposited with CoreStates Bank,
N.A. ("Escrow Agent") the amount of $282,500 ("Escrow Funds") to be held in
escrow as security for Tenant's obligations hereunder. Escrow Agent shall hold
and disburse the Escrow Funds as provided herein and in the Escrow Agreement
substantially in the form attached hereto as Exhibit "H".
B. Disbursements to Tenant. Provided Tenant has not committed an
Event of Default, which is ongoing, of any of its obligations set forth in this
Lease, at the end of each Lease Year of the Lease Term, until all of the Escrow
Funds have been disbursed, Landlord, in accordance with the terms of the Escrow
Agreement, shall instruct the Escrow Agent to pay to Tenant from the Escrow
Funds, an amount equal to 50 percent (50%) of all installments of Monthly Fixed
Rent paid by Tenant to Landlord during such period, plus all interest accrued on
the Escrow Funds. Within thirty (30) days following the expiration or earlier
termination of the initial Lease Term (other than as a result of an Event of
Default hereunder) and compliance by Tenant with its obligations under this
Lease, Landlord shall instruct the Escrow Agent to pay to Tenant all of Escrow
Funds then remaining in the Escrow Account, if any, including all accrued
interest.
C. Application of Escrow Funds in the Event of Default. If at any
time an Event of Default shall have occurred, Landlord shall be entitled, at its
sole discretion, (i) to receive the Escrow Funds or any part thereof and apply
the same to payment of (A) any Annual Fixed Rent, Additional Rent and/or
additional charges then past due, (B) any expense incurred by Landlord in curing
any Event of Default by Tenant hereunder, (c) any other sums due to Landlord in
connection with such Event of Default or the curing thereof, including, without
limitation, any damages and expenses (including attorneys' fees) incurred by
Landlord by reason of such Event of Default; or (ii) to retain the same in
liquidation of all or part of the damages suffered by Landlord by reason of such
default. If any portion of the Escrow Funds is so used or applied, Tenant shall,
within five (5) days after written demand therefor, deposit cash with Escrow
Agent in an amount sufficient to restore the Escrow Funds to the same amount as
prior to such Event of Default. All expenses relating to the Escrow Account
shall be borne by Tenant.
45. Right of First Refusal.
Tenant shall have, and is hereby granted, a right of first refusal
("Right of First Refusal")
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set forth in this Section 45, regarding that certain 10,000 (approximately)
rentable square feet of space located in the Building, adjacent to the Leased
Premises and outlined in blue on the floor plan attached hereto, initialed and
made a part hereof as Exhibit "I" ("First Refusal Space"). In the event Landlord
receives (or submits) a bona fide proposal to lease all or any portion of the
First Refusal Space from (or to) any third party and if Landlord is prepared to
lease the First Refusal Space to the third party on such terms, Landlord shall
give Tenant notice and a copy of the proposed terms of such lease, and Tenant
shall have the right (but not the obligation) to lease all of the First Refusal
Space as is described in such proposal on the terms set forth in Landlord's
notice by giving notice thereof to Landlord within fourteen (14) days after the
time Tenant receives such notice from Landlord; provided that if Tenant
exercises its Right of First Refusal, Tenant shall lease the greater of 5,000
rentable square feet of the First Refusal Space or the portion to be leased
pursuant to the third party proposal. If Tenant fails to exercise the foregoing
Right of First Refusal within fourteen (14) days after the time Tenant receives
Landlord's notice, such Right of First Refusal shall terminate, Landlord shall
have the right to lease such First Refusal Space to any third party and Landlord
shall have no further obligation to offer to lease the First Refusal Space to
Tenant. If Tenant elects to exercise such Right of First Refusal, Tenant shall
lease the First Refusal Space upon the same terms and conditions set forth in
Landlord's offer, and within thirty (30) days after Tenant's election, Landlord
and Tenant shall execute an agreement (i) consistent with the terms and
conditions of said offer and (ii) otherwise substantially in the form of this
Lease acceptable to Landlord and Tenant.
If Tenant fails to exercise the foregoing Right of First Refusal
within fourteen (14) days after the time Tenant receives Landlord's notice,
Landlord agrees not to enter into a lease with the third party on terms that are
materially more advantageous (in Landlord's reasonable opinion) to such third
party than the terms set forth in the bona fide proposal until Landlord has
again given Tenant notice and a copy of the proposed terms of such lease and an
additional forty-eight (48) hours to exercise Tenant's Right of First Refusal in
accordance with the foregoing paragraph. In addition, Landlord agrees to use its
best reasonable efforts to apprise Tenant of interest by third parties in the
First Refusal Space that will result, in Landlord's opinion, in a bona fide
proposal from (or to) such third party to lease the First Refusal Space.
Notwithstanding any other provisions of this Section 45 to the
contrary, the Right of First Refusal shall not be exercisable or available to
Tenant if (i) at the time such right would otherwise be exercisable, an Event of
Default, as defined in Section 24, has occurred and is continuing, or (ii)
Tenant shall
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have previously delivered to Landlord a "Termination Notice" (defined in Section
46). Exercise of the Right of First Refusal while an Event of Default has
occurred is continuing of any of its obligations hereunder or after Tenant shall
have delivered to Landlord a Termination Notice, shall be null and void and
shall confer no obligations upon Landlord.
46. Tenant's Option to Terminate.
Tenant shall have the right to terminate this Lease in advance of the
Expiration Date upon the last day of the third (3rd) year of the Lease Term
("Termination Date"), which right shall be exercisable by Tenant's giving
written notice thereof to Landlord ("Termination Notice") at least 120 days
prior to the Termination Date; provided, however that Tenant shall not have the
right to terminate provided in this Section if an Event of Default has occurred
and is continuing either at the time the Termination Notice is received or as of
the Termination Date; and provided further, that the terms and conditions of
this Section 46 are satisfied. On or before the Termination Date, Tenant shall
vacate and surrender the Leased Premises to Landlord in the condition the Leased
Premises are required to be returned at the expiration of the Lease Term. Tenant
agrees to pay all Rent, whether Annual Fixed Rent or Additional Rent, which
becomes payable or accrues during the period of time from the date Tenant's
Termination Notice is received by Landlord until the Termination Date,
regardless of whether Tenant vacates the Leased Premises prior to the
Termination Date. In addition, Tenant shall pay to Landlord, on or before the
Termination Date, an amount equal to $144,535 ("Termination Fee"). In the event
Tenant shall have previously leased the First Refusal Space pursuant to Section
45, Tenant's Termination Notice also shall cause the Lease to terminate with
respect the First Refusal Space and the Termination Fee payable by Tenant shall
be increased by the sum of the unamortized portion, as of the applicable
Termination Date, of (a) all costs and expenses incurred by Landlord in
constructing improvements to the First Refusal Space (if any), and (b) all
brokers' and co-brokers' commissions paid or payable by Landlord with respect to
leasing the First Refusal Space to Tenant, which amounts Landlord will amortize
on a straight line basis over the remaining Lease Term at the interest rate of
10 percent (10%) per annum.
47. Tenant's Right to Audit.
No more often than once in each Lease Year, Tenant, at its sole cost
and expense, shall have the right to review Landlord's record pertaining to
Operating Expenses at reasonable times with at least five (5) days' prior
written notice. If such review reveals that Operating Expenses have been
overstated, Landlord shall reimburse to Tenant the amount overpaid by Tenant.
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48. Renewal Term.
Tenant shall have the right and option to extend the Lease Term for
one (1) extension term of five (5) years ("Extension Term") at an Annual Fixed
Rent equal to the "Extension Term Annual Fixed Rent" (below defined), but
otherwise upon the same terms and conditions contained in this Lease; provided,
however, that the provisions of Section 45 and 46 shall not apply during the
Extension Term. Tenant's right and option to extend the Lease Term shall be
exercisable by giving Landlord prior written notice thereof at least one hundred
eighty (180) days prior to the Expiration Date. Tenant's option to extend shall
be exercisable provided that at the time of the exercise of such option and upon
the date on which the Extension Term would commence, Tenant shall not be in
default of any of its obligations or covenants under this Lease, including any
"Event of Default", as defined herein, that is continuing on such dates.
The "Extension Term Annual Fixed Rent" payable during the first year
of the Extension Term shall equal the Annual Fixed Rent for year 5 of the Lease
Term multiplied by a traction, the numerator of which shall be the Index
(defined below) in effect for the last full month of the Lease Term, and the
denominator of which shall be the Base Index. The foregoing notwithstanding, in
no event shall the Extension Term Annual Fixed Rent be less than the Annual
Fixed Rent for year 5 of the Lease Term. As used herein, "Index" shall mean the
"Revised Consumer Price Index for Urban Wage Earners and Clerical Workers"
published by the Bureau of Labor Statistics for the United States Department of
Labor for Philadelphia-Wilmington-Trenton, PA-DE-NJ-MD, (1982-84-100). If the
Index shall hereafter be converted to a different standard reference base or
otherwise revised, the determination of the Extension Term Annual Fixed Rent
shall be made with the use of such conversion factor, formula or table for
converting the Index as may be published by the Bureau of Labor Statistics or,
if said Bureau shall not publish the same, then with the use of such conversion
factor, formula or table for converting the Index as may be published by the
Bureau of Labor Statistics or, if said Bureau shall not publish the same, then
wit the use of such conversion factor, formula or table as may be published by
Prentice Hall, Inc., or failing such publication, by any other nationally
recognized published or similar statistical information. If the Index shall
cease to be published, then, for the purposes of this Section, there shall be
substituted for the Index such other comparable index as Landlord shall
reasonably determine. As used herein, "Ease Index" shall mean the Index in
effect for the month of February 1994.
In the second through fifth years of the Extension Term, the Extension
Term Annual Fixed Rent for each year shall equal the Extension Term Annual Fixed
Rent for the first year of the Extension Term (as calculated above) multiplied
by a
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fraction, the numerator of which shall be the Index in effect for the last
full month of the year immediately preceding the upcoming Extension Term year,
and the denominator of which shall be the Index in effect in the last month of
the initial Lease Term.
IN WITNESS WHEREOF, the parties hereto have caused this
Rider to be executed on their behalf by their duly authorized representatives on
the date first set forth above in Section 1.
PENNSYLVANIA BUSINESS CAMPUS
DELAWARE, INC.
By: /s/ Guy F. Tcheau
-------------------------------------
Name : Guy F. Tcheau
Title: Senior Investment Manager
(Corporate Seal)
Attest: /s/ Bernard Phang
---------------------------------
Name: Bernard Phang
Title: Investment Manager
LEXIN PHARMACEUTICAL CORPORATION
By: /s/ Jerry B. Hook
-------------------------------------
Name: Jerry B. Hook, Ph.D.
Title: President
(Corporate Seal)
Attest: /s/ Ronald H. Spair
---------------------------------
Name: Ronald H. Spair
Title: Chief Financial Officer
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<PAGE>
EXHIBIT A
Engineering drawing of 101-111 Rock Road
Horsham Pa, 19044
Latest Rev A Date: 10/16/92
<PAGE>
EXHIBIT B
Engineering Drawing of Pennsylvania Business Campus depicting location of
buildings on the campus and specifically drawing attention to
Building 10 - Rock Plaza 3 - (101 - 111 Rock Road)
<PAGE>
EXHIBIT "C"
CONFIRMATION OF LEASE TERM
THIS CONFIRMATION OF LEASE TERM is made this 16th ______ day of August,
1994 by and between PENNSYLVANIA BUSINESS CAMPUS DELAWARE, INC., a Delaware
corporation ("Landlord"), and LEXIN PHARMACEUTICAL CORPORATION, a Delaware
corporation ("Tenant")
W I T N E S E T H:
WHEREAS, by that certain Lease Agreement dated March 29, 1994, between
the parties hereto (the "Lease"), Landlord leased to Tenant and Tenant leased
and took from Landlord, certain Leased Premises for the Lease Term and upon the
terms and conditions more specifically set forth in the Lease (capitalized terms
used but not defined herein shall have the meanings assigned to them in the
Lease);
WHEREAS, the Lease provides that Landlord and Tenant shall execute a
confirmation of the actual commencement date of the Lease Term when such date
has been determined;
NOW THEREFORE, the parties hereto, intending to be legally bound
hereby, agree that the Lease Term commenced on July 25, 1994 (the "Actual
Commencement Date") and that the Lease Term will therefore expire on July 24,
1999.
Tenant acknowledges that: (i) it is in possession of the Leased
Premises; (ii) the Lease is in full force and effect; (iii) Landlord is not in
default under the Lease; and (iv) the Leased Premises are accepted by Tenant as
having been completed in accordance with the provisions of the Lease.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed on their behalf by their duly authorized representatives on the day and
year first above written.
PENNSYLVANIA BUSINESS CAMPUS
DELAWARE, INC.
By: /S/ Guy F. Tcheau
----------------------------------------
Name : Guy F. Tcheau
Title: Senior Investment Manager
(Corporate Seal)
Attest: /S/ Bernard Phang
------------------------------------
Name: Bernard Phang
Title: Investment Manager
LEXIN PHARMACEUTICAL CORPORATION
By: /S/ Jerry B. Hook
----------------------------------------
Name: Jerry B. Hook, Ph.D.
Title: President
(Corporate Seal)
Attest: /S/ Ronald H. Spair
-----------------------------------
Name: Ronald H. Spair
Title: Chief Financial Officer
<PAGE>
EXHIBIT "D"
SCOPE OF WORK
Overview
Alexin Pharmaceuticals intends to fit-out an existing building in the
Pennsylvania Business Campus located in Horsham, Pennsylvania. Alexin will
convert the building to house offices, research areas, and support areas for
maintenance, shipping and receiving.
Scope
1) Office Area: A 2,500 square foot office space. This office will consist of
low partitioned cubicles and fixed office partitions. It will also house a
325 square foot lobby, a 250 square foot mens and womens toilet facility,
and a 450 square foot common kitchen and eating area for employees.
2) Research Area: The research area will consist of a process development lab
of 750 square feet, a recovery area of 200 square feet, a centrifuge area
of 200 square feet, fermentation area of 1,000 square feet, a microbial lab
of 200 square feet, a refrigerated storage area of 200 square feet, and a
quality assurance area of 1,000 square feet.
3. Support Area: The support areas will include a wash and storage area of
500 square feet, a utility space of 200 square feet, a maintenance area of
200 square feet, a shipping/receiving/ quarantine area of 2,500 square
feet.
4. Utilities: Each of the above areas will require utilities for plumbing,
heating, cooling and electrical services. The utilities shall be defined on
the architects and engineers drawings.
5. Drawing List: The Scope of Work is further delineated in the
architectural/engineering drawings prepared by IPS, Inc. for which a
drawing list appears below.
Al Architectural Floor Plan
A2 Architectural Reflected Ceiling Plan
Ml Heating, Ventilating and Air Conditioning Floor Plan
M2 Heating, Ventilating and Air conditioning Equipment, Schedules and
Details
P1 Underground Plumbing and Potable Water Piping Systems
P2 Details, Schedules and Process Equipment Hookups
PS Sprinkler Requirements
E1 Electrical Power Requirements
E2 Electrical Lighting Requirements
SP-2 Space Plan drawing by IPS Integrated Project Services dated 1/14/94
are attached as Exhibit D.
D-1
<PAGE>
EXHIBIT E
ELECTRICAL MODIFICATIONS
Landlord shall provide a 480 volt, 800 amp electrical service to the
Lot. The Landlord is responsible for the cost of providing the electrical
service and primary meter.
Tenant will require electrical power over and above what is required
for the use and operation of normal office equipment. Additional power is
required to power research related items such as, but not limited to, ice
machines, autoclaves, compressors, reheat coils, Neslab coolers, hoods,
freezers, refrigerators, glass washers, dry heat oven, homogenizer, centrifuges,
and other miscellaneous lab equipment. Tenant agrees that Tenant's electric
requirements will not exceed the capacity of a 480 volt, 800 amp electrical
service.
<PAGE>
EXHIBIT F
HAZARDOUS MATERIALS
Tenant will comply with all federal, state, and local ordinances for
the use of hazardous materials. Tenant will use small quantities of organic
compounds (e.g. alcohol, acetone, hydrogen peroxide, etc.) for cleaning and
research purposes. Quantities will be limited by the limitation set forth in the
latest edition of the BOCA code. It is Tenant's responsibility to obtain all
permits required for the handling, storage, and disposal of these materials.
<PAGE>
EXHIBIT G
RESEARCH ANIMALS
A. Regulations pertaining to the animals
1. No animal shall weigh more than 10 pounds.
2. No more than 20 animals shall be present within the Leased Premises at
any point in tine.
3. The only types of animals permitted in the Leased Premises are laboratory
rats, mice and rabbits.
4. No audible noise or odor shall emanate beyond the perimeter walls of the
Leased Premises.
5. Transportation of animals in and out of the Leased Premises shall only
occur through the loading docks in the rear of the Building and in a
concealed manner.
6. Storage of animals shall be within a closed space at least 10 feet from
demising and perimeter walls of Leased Premises and not visible to public
areas.
7. No animals or animal waste shall be disposed of within the Leased
Premises, lot and campus including dumpsters.
B. Cure Period upon Default; Landlord's Remedy
Upon the occurrence of any complaint from another tenant in the Office
Park or any other person relating to the presence of the animals in the Leased
Premises, including, but not limited to, complaints caused by the violation of
any of the regulations in Section A, above, or complaints by animal rights
activists, than all experiments shall cease within 24 hours of such occurrence,
and Tenant shall have 48 hours to cure the cause of the complaint to Landlord's
satisfaction and the complaining tenant's satisfaction, if applicable. If Tenant
is unable to cure the cause of the complaint as provided in the foregoing
sentence, then Tenant shall remove all animals from the Leased Premises and the
Office Park within 24 hours. Failure to do so shall constitute an Event of
Default under this Lease, and Landlord shall be entitled to exercise all rights
and remedies hereunder, including the right to seek indemnification under
Section 26(a) of this Lease.
<PAGE>
EXHIBIT H
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made as of this 1st day of April, 1994 by and
among Pennsylvania Business Campus Delaware Inc., a Delaware corporation having
an address at c/o GSIC Realty Corporation, 255 shoreline Drive, Suite 600,
Redwood city, California 94065 ("Landlord"), Lexin Pharmaceutical Corporation, a
Pennsylvania corporation having an address as Rock Plaza III, 101-111 Rock Road,
Horsham, Pennsylvania 19044 ("Tenant") and CoreStates Bank N.A., a national
banking association having an address at 510 Walnut Street, 6th Floor,
Philadelphia, Pennsylvania 19106 ("Escrow Agent").
Witnesseth
WHEREAS, Landlord and Tenant have entered into that certain Net Lease
Agreement (the "Lease") dated March 29, 1994 pursuant to which Landlord has
leased to Tenant approximately 12,786 square feet of space in the building known
as Rock Plaza III and located in the Pennsylvania Business Campus, Horsham
Township, Montgomery County, Pennsylvania; and
WHEREAS, pursuant to section 44 of the Lease, Tenant is required to
deposit with Escrow Agent the sum of Two Hundred Eighty-Two Thousand Five
Hundred Dollars ($282,500.00) (the
<PAGE>
"Deposit") at the tine or the execution of the Lease to be held in escrow as
security for Tenant's obligations thereunder; and
WHEREAS, this Escrow Agreement is being executed and delivered by the
parties hereto in accordance with the provisions of Section 44 of the Lease. The
form of this Escrow Agreement is attached to the Lease as Exhibit H; and
WHEREAS, Landlord, Tenant and Escrow Agent desire to set forth herein
the terns upon which the Escrow Funds (as hereinafter defined) shall be held in
escrow and released therefrom.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and agreements contained herein and in the Loans, the parties hereto
intending to be legally bound, hereby agree as follows:
1. Definitions. All capitalized terms not defined herein shall nave the
meaning ascribed to them in the Lease.
2. Escrow Agent's Duties Landlord and Tenant hereby appoint CoreStates
Bank, N.A. as Escrow Agent hereunder, and CoreStates Bank, N.A. hereby accepts
such appointment. Escrow Agent's duties hereunder are limited to the holding and
disbursing of the Escrow funds an provided herein, the giving of notices to
Landlord and Tenant as provided herein and such other duties as are set forth
herein. No duties or obligations shall be implied to Escrow Agent.
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<PAGE>
3. Escrow Funds. Upon the execution of the Lease, Tenant shall pay the
Deposit to Escrow Agent which shall be held in escrow by Escrow Agent as
security for Tenant's obligations under the Lease. Escrow Agent shall invest the
Deposit in a Corefund Treasury Reserve Money Market Mutual Fund from which the
Escrow Agent or its affiliate may receive compensation and hold and disburse the
Deposit, with any interest accrued thereon (collectively. the "Escrow Funds"),
pursuant to the terms hereof. Escrow Agent shall be responsible solely for the
safekeeping of the Escrow Funds. For tax reporting purposes, all interest shall
be treated as received by Tenant.
4. Disbursements
(a) Provided that an Event of Default has not occurred and is
continuing under the Lease at the end of the then applicable Lease Year (as
hereinafter defined) and until all the Escrow Funds have been disbursed,
Landlord shall instruct Escrow Agent in writing (the "Payment Notice") to pay to
Tenant from the Escrow Funds the amount set forth by Landlord in the Payment
notice, which amount shall be equal to fifty percent (50%) of all installments
of Monthly Fixed Rent paid by Tenant to Landlord during the preceding Lease
Year, plus all interest accrued on the Deposit during such Lease Year. Escrow
Agent shall make such payment to Tenant within five (5) days of receipt of the
payment Notice from landlord. For purposes hereof, the term Lease Year" shall
mean a period of twelve (12) consecutive, full calendar months, the first of
which shall commence on the first day of the
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<PAGE>
first month which occurs after the Commencement Date, or if the Commencement
Date falls on the first day of a month, then on the Commencement Date.
(b) If Landlord fails to deliver the Payment Notice to Escrow Agent
within fifteen (15) days of the end of a Lease Year and an Event of Default has
not occurred and is not continuing, Tenant shall have the right to deliver the
Payment Notice to Escrow Agent and, provided that the Escrow Agent has not
received a notice from the Landlord that an Event of Default has occurred and is
continuing under the Lease, Escrow Agent shall pay to Tenant the amount set
forth therein within five (5) days of receipt of such notice; provided that
Tenant has given Landlord prior written notice of Landlord's failure to deliver
the Payment Notice and Landlord has not sent such Payment Notice within five (5)
business days of receiving such notice from Tenant.
(c) within thirty (30) days following the expiration or earlier
termination of the Initial Lease Term (other than as a result of an Event of
Default thereunder) and compliance by Tenant with its obligations under the
Lease, Landlord shall instruct Escrow Agent in writing to pay to Tenant, and
thereupon Escrow Agent shall pay to Tenant within five (5) days of such
instruction, all of the Escrow Funds then remaining in the Escrow Account, if
any.
(d) if at any time an Event of Default shall have occurred under the
Lease, Landlord shall be entitled, at its sole discretion, to direct the Escrow
Agent, in writing, with a copy to Tenant, to disburse the Escrow Funds to
Landlord, and within five (5) days or such written direction, Escrow Agent shall
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<PAGE>
disburse the Escrow Funds to Landlord, which Escrow Funds Landlord shall use and
apply in accordance with Section 44 of the Lease thereof. It any portion of the
Escrow funds are so used or applied, Landlord shall notify Tenant, in writing,
with a copy to Escrow Agent, of the amounts so used or applied and Tenant shall,
within five (5) days after such notice, deposit with Escrow Agent an amount
sufficient to restore the Escrow Funds to the same amount as prior to such Event
of Default.
5. Escrow Agent; Indemnity.
(a) Escrow Agent shall not be liable for the performance or
nonperformance of any term of the Lease by either Tenant or Landlord. It is
further agreed and understood that, except in case of its' gross negligence or
willful misconduct, Escrow Agent shall not be liable for the disposition of the
Escrow Funds or for any error or judgment or for any act taken or omitted to be
taken in good faith or in reliance on any written notice or other document
believed by it to be genuine and to be signed or submitted by an authorized
signatory of Landlord or Tenant.
(b) Escrow Agent shall be paid the sum of $2,000.00 per year for
its services performed hereunder and each or the parties hereto hereby
indemnities and holds Escrow Agent harmless from and against any and all costs,
damages and expenses, including reasonable attorneys' fees and disbursements, it
may incur or sustain in connection with acting as Escrow Agent hereunder.
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<PAGE>
(c) In the event of a dispute between Landlord and Tenant with
respect to the Escrow Funds, Escrow Agent shall have the right to deposit the
Escrow funds into a court of competent jurisdiction and Escrow Agent shall be
released and discharged or all obligations with respect to the Escrow Funds.
(d) Escrow Agent is an escrow holder only and is responsible solely
for the obligations stated herein to be performed by Escrow Agent, and Escrow
Agent shall not be liable for any action taken or omitted by it in good faith
with regard to such obligations. Escrow Agent is not authorized, and shall not
be required, to determine questions of fact or law.
6. Replacement of Escrow Agent.
(a) Escrow Agent nay resign and be discharged of the obligation
created by this Escrow Agreement by executing and delivering to Landlord and
Tenant a notice of its resignation as Escrow Agent and specifying the date when
such resignation is expected to take effect. Upon receiving such notice of
resignation, Tenant shall appoint a successor Escrow Agent; provided, however,
that the successor Escrow Agent must be a federally insured financial
institution and provided further that Tenant shall receive the prior written
consent of Landlord, which consent shall not be unreasonably withheld. Any
resignation of Escrow Agent shall become effective upon acceptance of
appointment by the successor Escrow Agent.
(b) If Escrow Agent shall be dissolved or if its property or
affairs shall be taken under the control of any state
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<PAGE>
or federal court or administrative body or agency because of insolvency or
bankruptcy or for any other reason, a successor shall be appointed by Tenant as
set forth in subparagraph 6(a).
(c) Notwithstanding anything to the contrary contained herein,
Tenant shall have the right, upon five (5) days prior written notice to Escrow
Agent, to discharge Escrow Agent from its obligations hereunder and appoint a
successor Escrow Agent; provided, that the successor Escrow Agent must be a
federally insured financial institution and provided further that Tenant shall
receive the prior written consent of Landlord, which consent shall not be
unreasonably withheld.
(d) Any successor Escrow Agent appointed pursuant to this Escrow
Agreement shall execute, acknowledge and deliver to Landlord and Tenant an
instrument accepting such appointment hereunder, and thereupon such successor
Escrow Agent, without any further act, deed or conveyance, shall become duly
vested with all of the property, rights, powers, trust, duties and obligations
of its predecessor hereunder, with the same effect as if originally named Escrow
Agent and upon notice thereof, the predecessor Escrow Agent shall immediately
pay over or deliver to the successor Escrow Agent the Escrow Funds and all
records with respect thereto then held by it. Upon request of such successor
Escrow Agent, the predecessor Escrow Agent, Landlord and Tenant shall execute
and deliver an instrument confirming the transfer to such successor Escrow Agent
all the property, rights, powers and trusts of the predecessor Escrow Agent.
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<PAGE>
7. Modification. This Escrow Agreement may not be modified, changed,
amended or terminated, except in writing signed by all of the parties hereto.
8. Governing Law. This Escrow Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
without any regard to conflicts of law.
9. Successors arid Assigns. This Escrow Agreement shall be binding
upon, inure to the benefit of and be enforceable by the respective successors
and permitted assigns or the parties hereto.
10. Assignment. This Escrow Agreement may not be assigned without the
express prior written consent of all parties.
11. Entire Agreement. This Escrow Agreement and the Lease contain the
entire understanding of the parties with respect to the subject matter hereof.
There are no representations, promises, warranties, covenants or other
undertakings other than as expressly set forth herein and in the Lease.
12. Notices. Any notice, demand, instruction or communication given
pursuant to this Escrow Agreement shall be in writing and shall be delivered by
personal service, Federal Express, certified mail, return receipt requested,
postage pre-paid, telegraph, telex or facsimile and addressed to the parties at
their addresses set forth above. Any of such addresses may be
8
<PAGE>
changed at any time upon written notice of such change given in accordance with
this Paragraph 12. Each notice hereunder shall be deemed given on the date it is
delivered in the case of personal service, or the date it is deposited with
Federal Express in the case of Federal Express, or the data it is deposited with
the Postal Service in the case of certified nail, return receipt requested, or
when properly transmitted in the case of telegraph, telex or facsimile
transmission.
13. Counterparts. This Escrow Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which, when
taken together shall constitute one and the same agreement.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the day and year first above written.
TENANT:
LEXIN PHARMACEUTICAL CORPORATION
By: /S/ Jerry B. Hook
--------------------------------
Name: Jerry B Hook, Ph.D.
Title: President
LANDLORD:
PENNSYLVANIA BUSINESS CAMPUS DELAWARE, INC.
By: /S/ Guy F. Tcheau
----------------------------------------
Name : Guy F. Tcheau
Title: Senior Investment Manager
ESCROW AGENT:
CORESTATES BANK, N.A.
By: /S/ Cathy Wiedecke
----------------------------------------
Name : Cathy Wiedecke
Title: Corporate Trust Officer
10
<PAGE>
EXHIBIT I
Latest Rev A Date: 10/16/92
<PAGE>
SPARTA PHARMACEUTICALS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
AGREEMENT made as of the 5th day of September, 1996, 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 Twenty-Five Thousand (25,000) 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 One Dollar and Eighty-Seven and One Half Cents ($1.875)
(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 6,250 Shares
of the Effective Date
On or after the second anniversary up to 12,500 Shares
of the Effective Date
On or after the third anniversary up to 18,750 Shares
of the Effective Date
On or after the fourth anniversary up to 25,000 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
- 2 -
<PAGE>
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.
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
- 3 -
<PAGE>
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
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.
- 4 -
<PAGE>
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 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).
- 5 -
<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.
- 6 -
<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.
- 7 -
<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/ Jerry B. Hook
-----------------------
Jerry B. Hook, Ph.D.
President & CEO
/s/ Colin B. Bier
------------------------
Colin B. Bier, Ph.D.
- 8 -
<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 September 5, 1996.
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.
<PAGE>
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
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
- 2 -
<PAGE>
and mail the certificate to me at the following address:
_______________________________________________
_______________________________________________
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
- 3 -
<PAGE>
Exhibit 10.85
Employee Copy _________
Company Copy _________
Option Number _________
SPARTA PHARMACEUTICALS, INC.
INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT made as of the 15th day of March, 1996, between Sparta
Pharmaceuticals, Inc. (the "Company"), a Delaware corporation having a principal
place of business in Horsham, Pennsylvania, and William McCulloch, M.D., 12109
Betts Lane, Raleigh, NC 27614, an employee of the Company (sometimes referred to
below as the "Employee" and as the "Optionee").
WHEREAS, the Company desires to grant to the Employee an option (the
"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 Employee understand and agree that any
terms used and not defined herein have the same meanings as in the Plan;
WHEREAS, the Company and the Employee each intend that the Option
granted herein qualify as 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 Employee, 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 Forty Thousand (40,000) Shares (the "Option
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 Option Shares is subject to adjustment, as provided in this Agreement,
in the event some or all of the contingencies set forth in Section 3 are not
met, and 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 Employee acknowledges
receipt of a copy of the Plan.
<PAGE>
This Option is in addition to any other options heretofore or hereafter
granted to the Employee by the Company, but a duplicate original of this
instrument shall not effect the grant of another option.
2. PURCHASE PRICE
The purchase price of the Option Shares shall be at a price per Share
of Three Dollars and No Cents ($3.00) (subject to adjustment, as provided in the
Plan, in the event of a stock split, a reverse stock split or other events
affecting the holders of Shares).
3. EXERCISE OF OPTION
If the Employee has continued to be employed by the Company on the
following dates, and provided the contingencies set forth below with respect to
the respective amounts of Option Shares shall have been met:
With respect to Twenty Thousand (20,000) of the Option Shares, an
investigational new drug application ("IND") for L.A.D.D.(TM) 5-FP shall have
become effective and the first patient in the Phase I clinical trial to be
conducted pursuant to such IND shall have commenced receiving L.A.D.D. 5-FP no
later than August 1, 1996;
With respect to Ten Thousand (10,000) of the Option Shares, the first patient in
the Phase I clinical trial to be conducted pursuant to the Company's
Spartaject(TM) Busulfan IND shall have commenced receiving L.A.D.D. 5-FP no
later than August 1, 1996; and
With respect to Ten Thousand (10,000) of the Option Shares, the first patient in
the Phase I clinical trial to be conducted pursuant to the Company's RII
Retinamide IND shall have commenced receiving RII Retinamide no later than July
1, 1996;
the Employee may exercise the Option for the number of Option Shares (subject to
meeting the respective contingencies set forth above and to adjustment as
provided in the Plan) set opposite the applicable date:
<TABLE>
<CAPTION>
<S> <C>
Prior to the first anniversary as to no Shares
of the Effective Date
On or after the first anniversary up to Twenty Five Percent (25%) of the Option Shares as to
of the Effective Date which such contingencies shall have been met
On or after the second anniversary up to an additional Twenty Five Percent (25%) of such
of the Effective Date Option Shares
On or after the third anniversary up to an additional Twenty Five Percent (25%) of such
of the Effective Date Option Shares
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
On or after the fourth anniversary up to an additional Twenty Five Percent (25%) of such
of the Effective Date Shares
</TABLE>
The foregoing rights are cumulative and are 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 Employee's ability to
exercise the Option after a termination of employment.
4. TERM OF OPTION
The Option shall terminate five (5) years from the date it shall become
fully exercisable, but in no event later than March 15, 2005, and shall be
subject to earlier termination as provided herein or in the Plan.
a. Termination of Employment (Other than for Death. Disability
or Cause)
If the Employee's employment terminates (for any reason other than
death, Disability or Cause), the Option may be exercised within three (3) months
after the date the Employee's employment terminates, or within the originally
prescribed term of the Option, whichever is earlier, but may not be exercised
thereafter. In such event, the Option shall be exercisable only to the extent
that the right to purchase Shares under this Agreement or the Plan has accrued
and is in effect at the date of such termination of employment.
Notwithstanding the foregoing, in the event of the Employee's death
within three (3) months after the termination of employment, the Optionee's
Survivors may exercise the Option within one (1) year after the date of the
Employee's death, but in no event after the date of expiration of the term of
the Option.
b. Termination of Employment as a Result of Disability or Death
In the event the Employee's employment terminates by reason of
Disability, as determined in accordance with the Plan, or death, the Option
shall be exercisable only within one (1) year after the date of such Disability
or death, as the case may be, or if earlier, the term originally prescribed by
the Option. In such event, the Option shall be exercisable:
(1) to the extent that the right to purchase the Shares hereunder
has accrued on the date of Disability or death and is in
effect as of such date; and
(2) to the extent of a pro rata portion of any such rights as
would have accrued under Section 3 had the Employee's
employment not terminated by reason of Disability or death
prior to the end of the current accrual period, i.e. the next
anniversary date of the Employment Effective Date after the
date of Disability or death. The proration shall be based upon
the number of days of the accrual period prior to the date of
the Employee's Disability or death.
<PAGE>
c. Termination of Employment for Cause and Finding of Cause after
Termination of Employment
In the event the Employee's employment is terminated by the Company for
Cause, as determined in accordance with the Employee's employment agreement with
the Company, Employee's right to exercise any unexercised portion of this Option
shall cease forthwith, and this Option shall thereupon terminate.
Notwithstanding anything herein to the contrary, if subsequent to the Employee's
termination as an employee, but prior to the exercise of the Option, the
Administrator (as defined in the Plan) determines that, either prior or
subsequent to the Employee's termination, the Employee engaged in conduct which
would constitute Cause, then the Employee shall forthwith cease to have any
right to exercise the Option.
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 or, in the
discretion of the Administrator such other consideration as it may approve, 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
Employee and if the Employee shall so request in the notice exercising the
Option, shall be registered in the name of the Employee 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 Employee, 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
The Option shall not be transferable by the Employee otherwise than by
will or by the
<PAGE>
laws of descent and distribution and shall be exercisable, during the Employee's
lifetime, only by the Employee. 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 Employee shall have no rights as a stockholder with respect to
Shares subject to this Agreement until the Company has authorized delivery of a
stock certificate therefor to the Employee and such Shares are 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 Employee acknowledges that any income or other taxes due from him
with respect to this Option or the Shares issuable pursuant to this Option shall
be the Employee's responsibility.
In the event of a Disqualifying Disposition (as defined in Section 14
below) or if the Option is converted into a Non-Qualified Option and such
Non-Qualified Option is exercised, the Company may withhold from the Employee's
salary and wages, if any, or other remuneration, or as a condition of the
exercise hereof, may require the Employee to pay additional federal, state, and
local income tax withholding and employee 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") and
no stop order or proceedings to suspend or revoke effectiveness thereof have
been issued, commenced or are pending or threatened, the Company shall be under
no obligation to issue the Shares covered by such exercise unless and until the
following conditions have been fulfilled:
<PAGE>
(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).
12. NO OBLIGATION TO EMPLOY
Neither the Company nor any subsidiary is by the Plan or this Agreement
obligated to continue the Employee as an employee of the Company or any
subsidiary.
13. OPTION INTENDED TO BE AN INCENTIVE STOCK OPTION
The parties each intend that the Option be an incentive stock option so
that the Employee (or the Optionee's Survivors) may qualify for the favorable
tax treatment provided to holders of Options that meet the standards of Code
Section 422. Except with respect to the purchase price of the Shares, any
provision of this Agreement or the Plan which conflicts with the Code so that
this Option would not be deemed an incentive stock option is null and void and
any ambiguities shall be resolved so that the Option qualifies as an incentive
stock option. If the Option is determined not to be an incentive stock option,
the Employee understands that the Company and any subsidiary are not responsible
to compensate him or otherwise make up for the treatment of the Option as a
Non-Qualified Option and not as an incentive stock option. Employee should
consult with Employee's own tax advisors regarding the tax effects of the Option
and the requirements necessary to obtain favorable tax treatment under Section
422 of the Code, including, but not limited to, holding period requirements.
<PAGE>
14. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION
The Employee agrees to notify the Company in writing immediately after
the Employee makes a Disqualifying Disposition of any of the Shares acquired
pursuant to the exercise of the Option. A Disqualifying Disposition is defined
in Section 424(c) of the Code and includes any disposition (including any sale)
of such Shares before the later of (a) two years after the date the Employee was
granted the Option or (b) one year after the date the Employee acquired Shares
by exercising the Option, except as otherwise provided in Section 424(c) of the
Code. If the Employee has died before the Shares are sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
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 registered or certified mail,
return receipt requested, addressed as follows:
To the Company:
Sparta Pharmaceuticals, Inc.
111 Rock Road
Horsham, PA 19044
Attn: President
To the Employee:
William McCulloch, M.D.
12109 Betts Lane
Raleigh, NC 27614
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 Commonwealth of Pennsylvania.
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.
<PAGE>
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.
22. SURVIVAL
The expiration or other termination of the Option granted to the
Employee shall neither affect nor alter the Employee's obligations under
Sections 10, 11 and 14 hereof.
[This space intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Incentive Stock Option
Agreement to be executed by a duly authorized officer, and the Employee has
hereunto set his hand, all as of the day and year first above written.
SPARTA PHARMACEUTICALS, INC.
By /s/ Jerry B. Hook
------------------------------
Name: Jerry B. Hook, Ph.D.
Title: President & CEO
/s/ William McCulloch
---------------------------------
William McCulloch, M.D.
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION
To: Sparta Pharmaceuticals, Inc.
Ladies and Gentlemen:
I hereby exercise my Incentive Stock 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 Incentive Stock Option Agreement
between the undersigned and the Company dated as of March 15, 1996.
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
such transaction involving the Shares and no stop order or proceedings to
suspend or revoke effectiveness thereof have been issued, commenced or are
pending or threatened, 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
<PAGE>
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 payment in the amount of $_______ by _____________ is enclosed.
I acknowledge that the Company is authorized to withhold from my salary
and 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, employee contributions to employment taxes in
respect of the amount that is considered compensation, if any, 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:
__________________________________ __________________________
__________________________________ __________________________
My mailing address, if different from the address listed above, for
shareholder communications is:
__________________________________ __________________________
__________________________________ __________________________
Very truly yours,
__________________________
Employee (signature)
__________________________
Print Name
__________________________
Date
__________________________
Social Security Number
<PAGE>
AMENDMENT TO OPTION AGREEMENT and OPTION AGREEMENT dated as of June 17,
1996 by and between SPARTA PHARMACEUTICALS, INC., with offices at Pennsylvania
Business Campus, 111 Rock Road, Horsham, PA 19044, a Delaware corporation (the
"Company") and WILLIAM McCULLOCH, M.D., an individual residing at 12109 Betts
Lane, Raleigh, NC 27614 ("Executive")
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Executive is the Company's Senior Vice President of Research
and Development, and in that capacity, is a party to an agreement with the
Company dated July 2, 1992 ("McCulloch Agreement"); and
WHEREAS, in addition to options to purchase up to 500,000 shares of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), which the
Company granted to Executive under the McCulloch Agreement, in December 1995 the
Company granted to the Executive an additional option to purchase an additional
50,000 shares of Common Stock (the "1995 Options") pursuant to, and on the terms
and conditions contained in, a
<PAGE>
Stock Option Agreement between the Company and the Executive (the "1995 Option
Agreement") and the Company's 1991 Stock Option Plan (the "Plan"); and
WHEREAS, on March 11, 1996, the Company took action to grant Executive
additional options, intended to qualify as "incentive stock options" under the
Internal Revenue Code of 1986, as amended, to purchase an aggregate of 40,000
shares of Common Stock, upon the achievement of certain performance milestones
(collectively, the "Milestone Options"), pursuant to the Plan; and
WHEREAS, the Company has determined that some of the relevant dates for
measuring achievement of the Milestone Options and that some of the provisions
of the 1995 Options and the 1995 Option Agreement should be altered; and
WHEREAS, the Executive desires to have the 1995 Options and the
Milestone Options so altered.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:
1. Amendment to 1995 Options; Grant of Milestone Options.
(a) Amendment to 1995 Options. The Company's Committee charged with
the obligation to administer the Plan has
-2-
<PAGE>
determined that options such as the 1995 Options would serve as a more desirable
incentive to Company employees such as the Executive if the Executive were to
hold options for which vesting would be accelerated upon a "Change of Control"
of the Company and the Executive desires that the 1995 Options be so changed.
Accordingly, the Company and the Executive hereby agree to amend the 1995 Option
Agreement to add the following provisions to the 1995 Option Agreement:
"Notwithstanding the vesting provisions of this Agreement or
any other provision in this Agreement to the contrary, the
Employee may exercise the Option for all of the Shares covered
by the Option immediately upon a "Change of Control" of the
Company while the Employee is an employee of the Company, such
accelerated vesting and right to exercise to commence as of
the time immediately prior to the consummation of such Change
of Control (but subject to the consummation of such Change of
Control) and in the event of a Change of Control as a result
of a tender offer, this Option shall become fully exercisable
in a timely manner such that the Employee may participate in
such tender offer at any stage, for all of the Shares then
remaining subject to purchase under such Option, whether or
not the right to purchase such Shares otherwise shall have
become vested and become exercisable."
-3-
<PAGE>
For purposes of this Agreement and the 1995 Option Agreement, a "Change
of Control" shall be deemed to have occurred upon the occurrence of any of the
following:
(i) any sale, lease, exchange or other transfer (in one transaction
or a series of transactions contemplated or arranged by any party as a single
plan) of all or substantially all of the assets of the Company;
(ii) individuals who, as of March 15, 1996, constitute the entire
Board of Directors of the Company (the "Incumbent Directors") cease for any
reason to constitute at least 50% of the Board of Directors (hereinafter
referred to as a "Board Change"), provided that any individual becoming a
director subsequent to March 15, 1996 whose election or nomination for election
was approved by a vote of at least a majority of the then Incumbent Directors
shall be, for purposes of provision, considered as though such individual were
an Incumbent Director; or
(iii) any consolidation or merger of the Company (including,
without limitation, a triangular merger) where the shareholders of the Company,
immediately prior to the consolidation or merger, would not, immediately after
the
-4-
<PAGE>
consolidation or merger, beneficially own, directly or indirectly, Shares
representing in the aggregate more than 50% of the combined voting power of all
the outstanding securities of the Company issuing cash or securities in the
consolidation or merger (or of its ultimate parent Company, if any); or
(iv) any "person," as such term is used in Section 13(d) of the
Securities Exchange Act of 1934, as amended (or any successor provision) (the
"Exchange Act") (other than the Company, any employee benefit plan of the
Company or any entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan), together with all "affiliates" and
"associates" (as such terms are defined in Rule 12b-2 under the Exchange Act or
any successor provision) of such person, shall become the "beneficial owner" or
"beneficial owners" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act
or any successor provision), directly or indirectly, of securities of the
Company representing in the aggregate thirty percent (30%) or more of either (a)
the then outstanding shares of Common Stock of the Company or (b) the combined
voting power of all then outstanding securities of the Company having the right
under ordinary circumstances to vote in an election of the
-5-
<PAGE>
Board of Directors of the Company ("Voting Securities") (hereafter referred to
as an "Acquisition"); provided, that, notwithstanding the foregoing, an
Acquisition shall not be deemed to have occurred for purposes of this clause
(iv)(1) solely as the result of an acquisition of securities by the Company
which, by reducing the number of shares of Common Stock or other Voting
Securities outstanding, increases (x) the proportionate number of shares of
Common Stock beneficially owned by any person to thirty percent (30%) or more of
the Common Stock then outstanding or (y) the proportionate voting power
represented by the Voting Securities beneficially owned by any person to thirty
percent (30%) or more of the combined voting power of all then outstanding
Voting Securities or (2) solely as the result of an acquisition of securities
from the Company; except that if any person referred to in clause (1)(x) or
(1)(y) of this sentence or to which clause (2) of this sentence is applicable
shall thereafter become the beneficial owner of any additional shares of Common
Stock or other Voting Securities (other than pursuant to a stock split, stock
dividend or similar transaction or a transaction to which clause (2) applies),
then an Acquisition
-6-
<PAGE>
shall be deemed to have occurred for purposes of this clause (iv).
(b) Busulfan, RII and 5FP Option Grants. The Company hereby agrees
to grant to Executive, without any further action required with respect to such
grant, the following Milestone Options, on the terms and conditions hereinafter
set forth, and as set forth in any applicable option agreement with respect
thereto to be issued upon such grant pursuant to this Agreement and the terms of
the Plan, and notwithstanding any prior determination of different triggering
dates for any Milestone Option, to purchase all or any part of an aggregate of
40,000 shares of the Company's Common Stock, at an option exercise price equal
to the Fair Market Value of a share of Common Stock on the date of grant (for
purposes of this Agreement, "Fair Market Value" of a share of Common Stock is
defined as the closing bid price for the Common Stock on the Nasdaq Stock Market
for such date if the Common Stock is then listed for trading on the Nasdaq
National Market System or the Nasdaq Small Cap Market, or the closing sales
price for the Common Stock if then listed on any other national securities
exchange):
-7-
<PAGE>
(i) A Milestone Option to purchase all or any part of 10,000 shares
of Common Stock, to be granted to the Executive if and only if human clinical
trials with respect to the Company's Spartaject Busulfan product shall have
begun by the close of business on December 1, 1996 (the "Busulfan Option");
(ii) A Milestone Option to purchase all or any part of 10,000
shares of Common Stock, to be granted to the Executive if and only if human
clinical trails with respect to the Company's RII Retinamide product shall have
begun by the close of business on August 1, 1996 (the "RII Option"); and
(iii) A Milestone Option to purchase all or any part of 20,000
shares of Common Stock, to be granted to the Executive if and only if human
clinical trials with respect to the Company's 5-fluoro-2(1H)-pyrimidone product
shall have begun by the close of business on December 1, 1996 (the "5FP Option")
(the Busulfan Option, the RII Option and the 5FP Option collectively constitute
the Milestone Options).
(c) Exercisability and Vesting of Milestone Options. (i) Upon the grant
of each of the Busulfan Option, the RII Option and the 5FP Option, if any such
grant occurs, the Executive's right to exercise each such Milestone Option shall
-8-
<PAGE>
vest in increments of 25% of the aggregate amount of each Milestone Option on
the anniversary date of the respective dates of grant and if at any time prior
to the fourth anniversary of such respective dates thereof, the Executive shall
not be employed by the Company, then, subject to the terms and conditions of the
Plan and any relevant option agreement with respect to any Milestone Option
affecting the Executive's ability to exercise any Milestone Option after a
termination of employment, all then unexercised and unvested Milestone Options
shall terminate and be of no further force or effect, without any additional
action required by the Company or by Executive; provided, however,
notwithstanding the foregoing, that upon a Change of Control (as defined in
Paragraph 1(a)), the Executive shall be entitled to exercise all of the
Milestone Options granted prior to such Change of Control and all such prior
Milestone Options shall thereupon become fully vested.
(ii) The Company shall issue to the Executive an option agreement
with respect to each Milestone Option granted, if any, containing such terms as
are then included in the Company's standard form of such option agreement, so
long as such
-9-
<PAGE>
terms include matters consistent with the terms of this Agreement.
(iii) The Milestone Options shall be exercisable, subject to
vesting, until the close of business on the tenth anniversary of their
respective dates of grant, subject also, in each case, to earlier termination as
described above and to the terms of the Plan and the applicable option agreement
under which each Milestone Option is granted.
(c) Mechanics of Grant. Upon achievement of a Milestone Option, each
Milestone Option may be exercised by the Executive by written notice to the
Company specifying the number of shares to be issued upon exercise of the
Milestone Option and on such other terms as shall be set forth in the applicable
option agreement.
2. Withholding of Taxes. Whenever the Company proposes or is required
to deliver or transfer shares of Common Stock pursuant to this Agreement, the
Company shall have the right to (a) require Executive to remit to the Company
amounts sufficient to satisfy any federal, state and/or local withholding tax
requirements prior to the delivery or transfer of any certificate or
certificates for such shares of Common Stock or
-10-
<PAGE>
(b) take whatever action it deems necessary to protect its interest with respect
to tax liabilities.
3. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Delaware.
4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SPARTA PHARMACEUTICALS, INC.
By: /s/ Jerry B. Hook
-------------------
Jerry B. Hook, Ph.D.
President and Chief Executive Officer
/s/ William McCulloch (Seal)
-------------------
William McCulloch, M.D.
-11-
<PAGE>
SPARTA PHARMACEUTICALS, INC.
STOCK OPTION AGREEMENT
This certifies that, pursuant to the Sparta Pharmaceuticals, Inc. 1991
Stock Plan, as amended, the Board of Directors of Sparta Pharmaceuticals, Inc.
has granted an option to purchase shares of Common Stock of Sparta
Pharmaceuticals, Inc., as follows:
Name and Address Jerry B. Hook
of Optionee: 112 Lafayette Drive
Washington Crossing, PA 18977
Position of President and C.E.O.
Optionee:
Type of Option: Incentive Stock Option
Number of shares 75,000
subject to Option:
Exercise Price: $1.125
Date of Grant: Dec. 5, 1996
Expiration Date: Dec. 4, 2006
<PAGE>
Vesting Schedule:
Options for 18,750 shares exercisable on or after 12/5/97
Options for 18,750 shares exercisable on or after 12/5/98
Options for 18,750 shares exercisable on or after 12/5/99
Options for 18,750 shares exercisable on or after 12/5/00
Exercise Following Termination:
If Optionee ceases to be an Employee before this Option is
exercised in full, the Option may be exercised as follows:
(a) If Optionee's termination is for "cause" (as
defined in the Plan), the Option shall be
forfeited immediately.
(b) If Optionee's termination is a result of
Disability or death, Optionee (or his Survivors)
may exercise, for a period of one year after such
date or until the expiration of the Option,
whichever is earlier, any portion of the Option
that was exercisable on the date of his
termination and a pro rata portion of the Options
that would have become exercisable on the next
anniversary of the date of grant (based on the
number of days that elapsed during the period
prior to the date of his termination).
(c) If Optionee's termination is not a result of
Disability or death or for "cause", Optionee may
exercise, for a period of three months after the
date of termination or until the expiration of
the Option, whichever is earlier, any portion of
the Option that was exercisable on the date of
his termination. If Optionee dies during such
three-month period, his Survivors may exercise
such portion of the Option within one year after
Optionee's death or until the expiration of the
Option, whichever is earlier.
The option is subject to all the terms and conditions of the
aforementioned Plan, a copy of which is attached to this certificate. Terms used
herein shall have the meanings set forth in the Plan.
<PAGE>
The undersigned Optionee acknowledges receipt of a copy of the Plan and
agrees to be bound by the terms and conditions of the option set forth in the
Plan and in this Stock Option Agreement.
Date: SPARTA PHARMACEUTICALS, INC.
/s/ Ronald H. Spair
---------------------------------
By: Ronald H. Spair
Title: Vice President and C.F.O.
/s/ Jerry B. Hook
---------------------------
Jerry B. Hook, Ph.D.
<PAGE>
SPARTA PHARMACEUTICALS, INC.
STOCK OPTION AGREEMENT
This certifies that, pursuant to the Sparta Pharmaceuticals, Inc. 1991
Stock Plan, as amended, the Board of Directors of Sparta Pharmaceuticals, Inc.
has granted an option to purchase shares of Common Stock of Sparta
Pharmaceuticals, Inc., as follows:
Name and Address Dr. William McCulloch
of Optionee: 12109 Betts Lane
Raleigh, NC 27614
Position of Director of Research and Development
Optionee:
Type of Option: Incentive Stock Option
Number of shares 40,000
subject to Option:
Exercise Price: $1.125
Date of Grant: 12/5/96
Expiration Date: 12/4/06
<PAGE>
Vesting Schedule:
Options for 10,000 shares exercisable on or after 12/5/97
Options for 10,000 shares exercisable on or after 12/5/98
Options for 10,000 shares exercisable on or after 12/5/99
Options for 10,000 shares exercisable on or after 12/5/00
Exercise Following Termination:
If Optionee ceases to be an Employee before this Option is
exercised in full, the Option may be exercised as follows:
(a) If Optionee's termination is for "cause" (as
defined in the Plan), the Option shall be
forfeited immediately.
(b) If Optionee's termination is a result of
Disability or death, Optionee (or his Survivors)
may exercise, for a period of one year after such
date or until the expiration of the Option,
whichever is earlier, any portion of the Option
that was exercisable on the date of his
termination and a pro rata portion of the Options
that would have become exercisable on the next
anniversary of the date of grant (based on the
number of days that elapsed during the period
prior to the date of his termination).
(c) If Optionee's termination is not a result of
Disability or death or for "cause", Optionee may
exercise, for a period of three months after the
date of termination or until the expiration of
the Option, whichever is earlier, any portion of
the Option that was exercisable on the date of
his termination. If Optionee dies during such
three-month period, his Survivors may exercise
such portion of the Option within one year after
Optionee's death or until the expiration of the
Option, whichever is earlier.
The option is subject to all the terms and conditions of the
aforementioned Plan, a copy of which is attached to this certificate. Terms used
herein shall have the meanings set forth in the Plan.
<PAGE>
The undersigned Optionee acknowledges receipt of a copy of the Plan and
agrees to be bound by the terms and conditions of the option set forth in the
Plan and in this Stock Option Agreement.
Date: SPARTA PHARMACEUTICALS, INC.
/s/ Jerry B. Hook
-----------------------------
By: Jerry B. Hook, Ph.D.
Title: President and C.E.O.
/s/ William McCulloch
-----------------------------
Dr. William McCulloch
<PAGE>
SPARTA PHARMACEUTICALS, INC.
STOCK OPTION AGREEMENT
This certifies that, pursuant to the Sparta Pharmaceuticals, Inc. 1991
Stock Plan, as amended, the Board of Directors of Sparta Pharmaceuticals, Inc.
has granted an option to purchase shares of Common Stock of Sparta
Pharmaceuticals, Inc., as follows:
Name and Address Ronald H. Spair
of Optionee: 17 John Paul Drive
Hamilton Square, NJ 08690
Position of Vice President and C.F.O.
Optionee:
Type of Option: Incentive Stock Option
Number of shares 40,000
subject to Option:
Exercise Price: $1.125
Date of Grant: Dec. 5, 1996
Expiration Date: Dec. 4, 2006
<PAGE>
Vesting Schedule:
Options for 10,000 shares exercisable on or after 12/5/97
Options for 10,000 shares exercisable on or after 12/5/98
Options for 10,000 shares exercisable on or after 12/5/99
Options for 10,000 shares exercisable on or after 12/5/00
Exercise Following Termination:
If Optionee ceases to be an Employee before this Option is
exercised in full, the Option may be exercised as follows:
(a) If Optionee's termination is for "cause" (as
defined in the Plan), the Option shall be
forfeited immediately.
(b) If Optionee's termination is a result of
Disability or death, Optionee (or his Survivors)
may exercise, for a period of one year after such
date or until the expiration of the Option,
whichever is earlier, any portion of the Option
that was exercisable on the date of his
termination and a pro rata portion of the Options
that would have become exercisable on the next
anniversary of the date of grant (based on the
number of days that elapsed during the period
prior to the date of his termination).
(c) If Optionee's termination is not a result of
Disability or death or for "cause", Optionee may
exercise, for a period of three months after the
date of termination or until the expiration of
the Option, whichever is earlier, any portion of
the Option that was exercisable on the date of
his termination. If Optionee dies during such
three-month period, his Survivors may exercise
such portion of the Option within one year after
Optionee's death or until the expiration of the
Option, whichever is earlier.
The option is subject to all the terms and conditions of the
aforementioned Plan, a copy of which is attached to this certificate. Terms used
herein shall have the meanings set forth in the Plan.
<PAGE>
The undersigned Optionee acknowledges receipt of a copy of the Plan and
agrees to be bound by the terms and conditions of the option set forth in the
Plan and in this Stock Option Agreement.
Date: SPARTA PHARMACEUTICALS, INC.
/s/ Jerry B. Hook
-----------------------------
By: Jerry B. Hook, Ph.D.
Title: President and C.E.O.
/s/ Ronald H. Spair
----------------------------
Ronald H. Spair
<PAGE>
Exhibit 10.89
SPARTA PHARMACEUTICALS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
AGREEMENT made as of the 17th day of June, 1996, 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 Three Dollars ($3.00) (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.
- 2 -
<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.
- 3 -
<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
- 4 -
<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).
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.
- 5 -
<PAGE>
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:
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.
- 6 -
<PAGE>
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.
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.
- 7 -
<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
- 8 -
<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, 1996.
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.
<PAGE>
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
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
- 2 -
<PAGE>
and mail the certificate to me at the following address:
____________________________________
____________________________________
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
- 3 -
<PAGE>
SPARTA PHARMACEUTICALS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
AGREEMENT made as of the 17th day of June, 1996, 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 Three Dollars ($3.00) (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.
- 2 -
<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.
- 3 -
<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
- 4 -
<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).
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.
- 5 -
<PAGE>
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.
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.
- 6 -
<PAGE>
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.
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.
- 7 -
<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/ Peter Barton Hutt
-------------------------
Peter Barton Hutt
- 8 -
<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, 1996.
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.
<PAGE>
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
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
- 2 -
<PAGE>
and mail the certificate to me at the following address:
___________________________________
___________________________________
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
- 3 -
<PAGE>
Sparta Pharmaceuticals, Inc.
(A Development Stage Company)
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------
1992 1993 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $(1,217,933) $(2,649,224) $(3,149,658) $(2,642,407)
=========== =========== =========== ===========
Weighted average number of shares used in per share
calculations(1) 2,403,856 2,835,366 4,530,108 6,167,817
Net Loss per share $ (0.51) $ (0.93) $ (0.70) $ (0.43)
=========== =========== =========== ===========
(1) Weighted average shares outstanding include the following:
Common Stock outstanding for the period based on a
daily weighted average 2,332,324 2,763,834 4,494,736 6,167,817
Common Stock issued within one year of the initial
filing used the treasury stock method* 6,076 6,076 2,963 --
Common Stock Options* 1,041 1,041 508 --
Common Stock Warrants* 64,415 64,415 31,901 --
----------- ----------- ----------- -----------
Weighted average number of shares outstanding 2,403,856 2,835,366 4,530,108 6,167,817
=========== =========== =========== ===========
Period from
June 12,
1990
(Inception
1996 to December
---- 31,1996)
<S> <C> <C>
Net loss $(7,347,880) $ (17,365,336)
=========== =============
Weighted average number of shares used in per share
calculations(1) 7,912,068
Net Loss per share (0.93)
===========
(1) Weighted average shares outstanding include the following:
Common Stock outstanding for the period based on a
daily weighted average 7,912,068
Common Stock issued within one year of the initial
filing used the treasury stock method* --
Common Stock Options* --
Common Stock Warrants* --
-----------
Weighted average number of shares outstanding 7,912,068
===========
*Included as outstanding pursuant to SAB 83. See Note 7 of Notes to Financial Statements.
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in Sparta Pharmaceuticals, Inc.'s Form 10-K, into the Company's
previously filed Form-3 Registration Statement (File No. 333-13621) filed with
the Securities and Exchange Commission on October 22, 1996, and Form S-8
Registration Statement (File No.333-20575) filed with the Securities and
Exchange Commission on January 28, 1997.
ARTHUR ANDERSEN LLP
Philadelphia, PA,
March 26, 1997
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-20575) pertaining to the Sparta Pharmaceuticals, Inc. Amended 1991
Stock Plan and the Registration Statement (Form S-3 No. 333-13621) pertaining to
the registration of 25,323,853 Shares of Common Stock and 11,309,722 Class C
Warrants of our report dated January 31, 1996, with respect to the financial
statements of Sparta Pharmaceuticals, Inc. included in its Annual Report on Form
10-K for the year ended December 31, 1996, filed with the Securities and
Exchange Commission.
Ernst & Young LLP
Raleigh, North Carolina
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S DECEMBER 31, 1996 REPORT ON FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 10,246,812
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,329,563
<PP&E> 699,810
<DEPRECIATION> 181,417
<TOTAL-ASSETS> 11,086,283
<CURRENT-LIABILITIES> 629,497
<BONDS> 0
0
1,487
<COMMON> 9,588
<OTHER-SE> 10,445,711
<TOTAL-LIABILITY-AND-EQUITY> 11,086,283
<SALES> 0
<TOTAL-REVENUES> 296,730
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,644,610
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,347,880)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,347,880)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,347,880)
<EPS-PRIMARY> (.93)
<EPS-DILUTED> (.93)
</TABLE>
