<PAGE>
As filed with the Securities and Exchange Commission on January 28, 1997
REGISTRATION NO. 333 -
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM S-8
REGISTRATION STATEMENT
under the
SECURITIES ACT OF 1933
----------
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.)
PENNSYLVANIA BUSINESS CAMPUS
ROCK PLAZA III
111 ROCK ROAD
HORSHAM, PENNSYLVANIA 19044
(Address of Principal Executive Offices)
SPARTA PHARMACEUTICALS, INC.
AMENDED
1991 STOCK PLAN
(Full title of the plans)
JERRY B. HOOK, Ph.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PENNSYLVANIA BUSINESS CAMPUS
ROCK PLAZA III
SPARTA PHARMACEUTICALS, INC.
111 ROCK ROAD
HORSHAM, PENNSYLVANIA 19044
(215) 442-1700
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
-------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
Proposed Proposed
maximum maximum
Title of Amount to be offering price aggregate Amount of
securities to be registered registered(1) per share(2) offering price(2) registration fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value 1,974,498 $2.01 $3,968,740.98 $1,203
525,502 $1.14 $ 599,072.28 $ 182
--------- -----
2,500,000 $1,385
===================================================================================================================================
</TABLE>
(1) The number of shares of common stock, par value $.001 per share ("Common
Stock"), stated above consists of the aggregate number of shares which may
be sold upon the exercise of options or opportunities to make a direct
purchase of shares of Common Stock (collectively, "Stock Rights") which have
been granted and/or may hereafter be granted under the Sparta
Pharmaceuticals, Inc. Amended 1991 Stock Plan (the "Plan"). The maximum
number of shares which may be sold upon the exercise of Stock Rights granted
under the Plan are subject to adjustment in accordance with certain
anti-dilution and other provisions of said Plan. Accordingly, pursuant to
Rule 416 under the Securities Act of 1933, as amended (the "Securities
Act"), this Registration Statement covers, in addition to the number of
shares stated above, an indeterminate number of shares which may be subject
to grant or otherwise issuable after the operation of any such anti-dilution
and other provisions.
(2) This calculation is made solely for the purpose of determining the
registration fee pursuant to the provisions of Rule 457(h) under the
Securities Act as follows: (i) in the case of the 1,974,498 shares of Common
Stock which may be purchased upon exercise of outstanding Stock Rights, the
fee is calculated on the basis of the price at which the Stock Rights may be
exercised; and (ii) in the case of the 525,502 shares of Common Stock for
which Stock Rights have not yet been granted and the price of which is
therefore unknown, the fee is calculated on the basis of the average of the
high and low sale prices per share of the Common Stock on the SmallCap
Market System of the National Association of Securities Dealers Automated
Quotation System (Nasdaq) as of a date (January 22, 1997) within 5 business
days prior to filing this Registration Statement.
===============================================================================
<PAGE>
EXPLANATORY NOTE
----------------
In accordance with the instructional Note to Part I of Form S-8 as
promulgated by the Securities and Exchange Commission, the information specified
by Part I of Form S-8 has been omitted from this Registration Statement on Form
S-8 for offers of Common Stock pursuant to the Plan. The Prospectus filed as
part of this Registration Statement has been prepared in accordance with the
requirements of Form S-3 and may be used for reofferings and resales of shares
of Common Stock which have been and/or may hereafter be issued upon the exercise
of Stock Rights which have been granted under the Plan.
<PAGE>
PROSPECTUS
SPARTA PHARMACEUTICALS, INC.
1,974,498 Shares of Common Stock
Par Value $.001 Per Share
issued or issuable pursuant to the
Sparta Pharmaceuticals, Inc. Amended 1991 Stock Plan
------------
The Shares of Common Stock, par value $.001 per share (the "Common
Stock"), offered hereby (the "Shares") are shares which have been or may in the
future be acquired upon grants or issued upon the exercise of stock options and
purchase opportunities which have been granted under the Sparta Pharmaceuticals,
Inc. Amended 1991 Stock Plan (the "Plan"), to be sold by the stockholders of
Sparta Pharmaceuticals, Inc., a Delaware corporation (the "Company"), referred
to herein (the "Selling Stockholders"). The Company will not receive any of the
proceeds from the sale of the Shares. Some or all of the Shares may be offered
for sale from time to time by the Selling Stockholders or by pledgees, donees,
transferees, or other successors in interest. Such sales may be made on one or
more exchanges, in the over-the-counter market, or otherwise, at prices and on
terms then prevailing, or at prices related to the then-current market price, or
in negotiated transactions or otherwise, or by underwriters pursuant to an
underwriting agreement in customary form, or in a combination of any such
methods of sale. The Selling Stockholders and any broker-dealers (including
underwriters) who may participate in a sale of the Shares may be deemed to be
statutory underwriters within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and the commissions paid or discounts or
concessions allowed to any of such broker-dealers (including underwriters) by
any person, as well as any profits received on the resale of the Shares, if any
of such broker-dealers (including underwriters) should purchase any Shares as a
principal, may be deemed to be underwriting discounts and commissions under the
Securities Act. All discounts, commissions or fees incurred in connection with
the sale of the Shares offered hereby will be paid by the Selling Stockholders
or by the purchasers of the Shares, except that the expenses of registering the
Shares and preparing and filing this Prospectus with the Securities and Exchange
Commission (the "Commission"), and of registering or qualifying the Shares under
the blue sky laws of any jurisdiction necessary to permit the distribution as
described in this Prospectus, will be paid by the Company.
The Common Stock is listed on The Nasdaq SmallCap Market ("Nasdaq")
under the symbol SPTA. On January 22, 1997, the closing sale price for the
Common Stock of the Company, as reported by Nasdaq, was $1.125.
-----------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY
THE RISK FACTORS INDICATED UNDER THE HEADING
"RISK FACTORS" BEGINNING ON PAGE 4.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES AUTHORITY NOR HAS THE COMMISSION OR
ANY STATE SECURITIES AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------
The date of this Prospectus is January 28, 1997.
------------
<PAGE>
No person has been authorized in connection with any offering made
hereby to give any information or to make any representation not contained in
this Prospectus, and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company or any Selling
Stockholder. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the Shares offered by
this Prospectus, nor does it constitute an offer to sell or a solicitation of an
offer to buy any shares of Common Stock offered hereby to any person in any
jurisdiction where it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus nor any sale hereunder shall, under any
circumstances, create any implication that information contained herein is
correct as of any time subsequent to the date hereof.
------------
AVAILABLE INFORMATION
The Company is subject to certain informational reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
at the Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, IL 60661-2511, and at the New York Regional Office, 7 World Trade
Center, Suite 1300, New York, NY 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 at prescribed rates. The Commission
maintains a site on World Wide Web at http://www.sec.gov that contains reports,
proxy and other information statements regarding registrants that file
electronically with the Commission.
The Company will provide without charge to each person, including
beneficial owners, to whom this Prospectus is delivered, upon the written or
oral request of such person, a copy of any and all of the documents that have
been or may be incorporated by reference in this Prospectus, other than exhibits
to such documents, unless such exhibits are specifically incorporated by
reference into such documents. Requests for such copies should be directed to
Sparta Pharmaceuticals, Inc., Pennsylvania Business Campus, Rock Plaza III, 111
Rock Road, Horsham, Pennsylvania 19044, Attention: Ronald H. Spair.
The telephone number at this location is (215) 442-1700.
-----------
Spartaject(TM) and L.A.D.D.(TM) are trademarks of the Company.
-2-
<PAGE>
TABLE OF CONTENTS
RISK FACTORS......................................................... 4
THE COMPANY.......................................................... 18
SELLING STOCKHOLDERS................................................. 20
PLAN OF DISTRIBUTION................................................. 22
LEGAL MATTERS........................................................ 23
EXPERTS.............................................................. 23
CHANGE IN PUBLIC ACCOUNTANTS......................................... 23
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................... 24
IMPORTANT FACTORS REGARDING FORWARD LOOKING STATEMENTS............... 24
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT.................. II-1
SIGNATURES.......................................................... II-4
INDEX TO EXHIBITS FILED WITH FORM S-8 REGISTRATION STATEMENT........ II-6
-3-
<PAGE>
RISK FACTORS
An investment in the securities offered hereby involves a high degree
of risk and the securities should not be purchased by persons who cannot afford
the loss of their entire investment. In addition to the other information in
this Prospectus or incorporated herein by reference, the following factors
should be considered carefully in evaluating an investment in the shares of
Common Stock offered hereby.
Early Stage of Development. The Company's product candidates are in the early
stages of research and development and no revenues have been generated to date
from product sales, nor are any product revenues expected for at least the next
several years, if at all. To date, only limited human testing has been conducted
on any of the Company's proposed product candidates. The Company has received
approval of Investigational New Drug ("IND") applications by the United States
Food and Drug Administration ("FDA") relating to proposed Phase I clinical
trials in the United States for three product candidates of which one is
currently in Phase I Clinical Trials. The Company's other product candidates are
in the preclinical stage of development; testing has not yet commenced. As a
result, the Company must be evaluated in light of the problems, delays,
uncertainties and complications encountered in connection with a development
stage biopharmaceutical business. The risks include, but are not limited to, the
possibilities that any or all of the Company's potential products will be found
to be ineffective or toxic, or fail to receive necessary regulatory clearances.
To achieve profitable operations, the Company must successfully develop, obtain
regulatory approval for, introduce and successfully and profitably market
products that are currently in the research and development phase. The great
majority of the preclinical research and clinical development work and testing
for the Company's product candidates remains to be completed. The Company is
currently not profitable, and no assurance can be given that the Company's
research and development efforts will be successful, that required regulatory
approvals will be obtained, that any of the Company's proposed products will be
safe and effective, that any such products, if developed and introduced, will be
successfully marketed or achieve market acceptance, or that such products can be
marketed at prices that will allow profitability to be achieved. Failure of the
Company to successfully develop, obtain regulatory approval for, introduce and
market its products under development would have a material adverse effect on
the business, financial condition and results of operations of the Company.
Need for Substantial Additional Funds. The Company expects that existing capital
resources and interest earned on invested funds will be sufficient to fund its
operations through early 1998. However, the Company may be required to seek
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 to 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 funds 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
-4-
<PAGE>
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
marketing and other operating expenses. The Company 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.
History of Losses; Going Concern Report; Uncertainty of Future Financial
Results. The Company has experienced significant operating losses since its
inception in June, 1990. As of September 30, 1996, the Company's accumulated
deficit was $15,815,734. The majority of the Company's income to date has been
derived from interest earned on invested funds. The Company's former independent
auditors have included an explanatory paragraph in their report on the Company's
financial statements for each fiscal year since inception, including as of
December 31, 1995, which paragraph expresses substantial doubt concerning the
Company's ability to continue as a going concern. The Company has not introduced
any product commercially. The Company expects to incur increasing operating
losses over the next several years as its product research programs expand and
various preclinical and clinical trials commence. The amount of net losses may
vary significantly from year-to-year and quarter-to-quarter and depends on,
among other factors, the timing of Company payments in connection with sponsored
research, and the progress of preclinical and clinical development programs. The
Company's ability to attain profitability will depend on, among other things, it
successfully completing development of its product candidates, obtaining
regulatory approvals, establishing manufacturing, sales and marketing
capabilities, and obtaining sufficient funds to finance its activities. There
can be no assurance that the Company will be able to achieve profitability or
that profitability, if achieved, can be sustained.
Reliance on Patents and Other Proprietary Rights. The pharmaceutical industry
places considerable importance on obtaining patent and trade secret protection
for new technologies, products and processes. The Company's success will depend,
in part, on its ability to enjoy or obtain protection for its products and
technologies under United States and foreign patent laws and other intellectual
property laws, to preserve its trade secrets and to operate without infringing
the proprietary rights of third parties. The patent position of pharmaceutical
firms is often highly uncertain and usually involves complex legal and factual
questions.
Some of the planned product candidates or technologies that the Company has
licensed or has rights to license are covered by United States and foreign
patents issued, assigned or licensed to the Company's licensors, and
applications for additional United States and foreign patents for certain of its
products and technologies have been filed or are expected to be filed.
There is a substantial backlog of pharmaceutical and biotechnology patent
applications at the United States Patent and Trademark Office (the "PTO") and
equivalent foreign agencies. There can be no assurance that patent applications
relating to the Company's potential products, or technologies licensed by the
Company from others or licenses that the Company may obtain in the future or
file itself, will result in patents being issued, will afford adequate
protection to the Company, or will provide competitive advantages to the Company
with respect to any rights granted thereunder. In addition, there can be no
assurance that such patent applications and licenses will not be challenged,
invalidated, infringed or circumvented. Furthermore, patent applications in the
United States are maintained in secrecy until patents issue. Accordingly, there
-5-
<PAGE>
can be no assurance that all United States and foreign patents or patent
applications that may pose a risk of infringement have been identified.
Publication of discoveries in the scientific or patent literature, if made,
tends to lag actual discoveries by several months. There can be no assurance
that others have not independently developed or will not independently develop
similar products and/or technologies, will not duplicate any of the Company's
products or technologies or, if patents are issued to or licensed by the
Company, will not design around such patents. There can be no assurance that
patents issued to others will not adversely affect the development or
commercialization of the Company's products or technologies, or that, if patents
are issued in one jurisdiction, patents will also issue in any other
jurisdiction. Further, patents owned by or licensed to the Company may expire
prior to the Company commercializing its technology applications and product
candidates covered by the applicable patents.
Moreover, the Company conducts some research through academic advisors and
collaborators who may be prohibited from entering into inventors' rights
agreements by the academic institutions that employ them. Furthermore, there can
be no assurance that the validity of any of the patents licensed to, or that may
in the future be owned by, the Company would be upheld if challenged by others
in litigation or that the Company's activities would not infringe patents owned
by others. The Company could incur substantial costs in defending itself in
suits brought against it or any of its licensors, or in suits in which the
Company may assert its patents or patents in which it may have rights against
others, or in suits contesting the validity of a patent. Any such proceedings
may be protracted. In any suit contesting the validity of a patent, the patent
being contested would be entitled to a presumption of validity and the
contesting party would be required to demonstrate invalidity of such patent by
clear and convincing evidence. The Company could also incur substantial costs in
connection with any suits relating to matters for which the Company has agreed
to indemnify its licensors. In addition, the Company may be required to obtain
licenses to patents or other proprietary rights of third parties. No assurance
can be given that any licenses required under any such patents or proprietary
rights would be made available on terms acceptable to the Company, if at all. If
the Company is required to, and does not obtain such licenses, it could be
prevented from or encounter delays in, developing, manufacturing or marketing
its products and technologies while it attempts to design around such patents or
other rights.
Some of the compounds that the Company is developing or may in the future
develop, including aphidicolin, busulfan, 5-FP, paclitaxel and RII retinamide,
are believed to be in the public domain, or not presently subject to patent
protection as compounds in the United States. Where the Company chooses to apply
the Spartaject Technology and L.A.D.D. Technology licensed by it to compounds
that are not patented, any patent protection for any products which may be so
developed will be dependent upon the patent protection, if any, applicable to
the particular technology applied.
In June 1996, the PTO issued an office action on the Company's application
indicating that sixteen claims were allowed, which claims are drawn to the
administration of 5-FP, IPdR and other compounds with similar structures, for
the treatment of liver associated diseases. Other claims were finally rejected,
including claims which relate to the application of the L.A.D.D. Technology to
the oral administration of 5-FP and other compounds with similar structures. The
Company believes that further negotiation with the examiner or, if necessary, an
appeal of the examiner's position to the PTO Board of Patent Appeals and
Interferences, will result in the allowance of additional claims, including, at
the least, a claim drawn to the oral administration of 5-FP, although the
Company cannot predict with certainty whether or not a patent thereon will be
granted.
-6-
<PAGE>
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 use of
LEX032, the lead compound which the Company acquired in the purchase of the
assets and business of Lexin Pharmaceutical Corporation on March 15, 1996. The
Company believes, however, 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 patents in order to develop or commercialize
LEX032 in the United States or any other country where the Antichymotrypsin
Patents may have 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 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.
Three patents (the "Third Party Patents") have been issued in the United States
(in September, 1992 (No. 5,145,684), March, 1995 (No. 5,399,363) and February,
1996 (No. 5494683), respectively) and are believed by the Company to be assigned
to Eastman Kodak Company or a subsidiary thereof. The March, 1995 patent is a
continuation-in-part of the September, 1992 patent. The February, 1996 patent is
a divisional of the March, 1995 patent. The Third Party Patents include numerous
claims that, based on presently available information, may cover certain
embodiments of the Spartaject Technology, including formulations of certain
taxanes. 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 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. 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.
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 (the "EPO"), Japan and Canada. Such
patent applications have been filed with pending claims that, based on presently
available information, may cover certain embodiments of the Spartaject
Technology. The applications filed by the holder of a United States patent
related to the Spartaject Technology (the Licensed Patent) in various foreign
countries, including certain European countries through the EPO, Japan and
Canada, have earlier effective filing dates than the application filed in
certain European countries, Japan and Canada corresponding to the Third Party
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<PAGE>
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 Patent should be invalid (or susceptible to cancellation) insofar as it
pertains 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 solely by
reason of the issuance of such patent. However, if the Company is required to
obtain a license under any patent issued in such European countries, Japan or
Canada 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.
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 PCT (the "Orphan 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 (i) patients with malignant conditions using an intravascularly
administrable busulfan preparation and (ii) leukemia or lymphoma patients
undergoing a bone marrow transplant using an intravenously administrable
busulfan preparation that the Company believes 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 is not invalid, then the Company may require a license from the
holder or exclusive licensee of such patent or patents in order to develop or
commercialize Spartaject busulfan in the United States. 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. Furthermore, there can be no assurances that a
different interpretation with respect to coverage of the use of Spartaject
busulfan will not be obtained in countries outside the United States in the
event any claims are allowed pursuant to the Orphan Applications.
The Company is aware that two international patent applications by The Wellcome
Foundation Limited were published under the PCT in 1992, designating the United
States, major European countries and Japan, 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 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 applications were allowed and published for
opposition in November, 1995 and unless opposed will be granted and will expire
in 2011 (such Australian patent and potential New Zealand patent 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. There can be no assurance however 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
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<PAGE>
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 licenses will be
obtainable on 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.
All of the Company's product candidates and proposed technology applications are
in the early stage of development. Even if development of such product
candidates and technology applications is successful and approval for sale is
obtained, there can be no assurance that applicable patent coverage, if any,
will not have expired or will not expire shortly after such approval, which
expiration, in the absence of other regulatory protection, could have a material
adverse effect on the sales and profitability of such product or application.
The United States patent on asulacrine expires in 1999 and other United States
and foreign patents covering compounds or technologies the Company intends to
develop expire in 1998 and subsequent years. The Company also seeks to protect
its proprietary technology, including technology which may not be patented or
patentable, in part by confidentiality agreements and, if applicable, inventors'
rights agreements with its employees. There can be no assurance that these
agreements will not be breached, that the Company will have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise be
disclosed to, or discovered by, competitors. There can also be no assurance that
others will not independently develop similar or superior products or
technologies or otherwise obtain access to the Company's proprietary products or
technologies.
Proprietary protection of the Company's products and technologies is important
to the Company's business, and the Company's failure or inability to maintain
the proprietary nature of its products and technologies could have a material
adverse effect on the Company's financial condition and the results of its
operations.
License Agreements; Risk of Loss of Spartaject Technology. The Company has
contractual rights to certain compounds and technologies through various license
agreements. These agreements are generally terminable by the licensor if the
Company does not meet its financial obligations thereunder or otherwise for
cause upon short notice or in the event the Company is insolvent or bankrupt,
does not apply minimum resources and efforts to develop the compounds and
technologies under licenses or does not achieve certain filing goals with
respect to new drug applications ("NDAs"), the earliest of which is January,
1997. The Company is currently renegotiating the license agreement which
requires the Company to file an NDA by January, 1997. There can be no assurance
that the agreements will not be so terminated and, if terminated, that the
Company will be able to enter into similar agreements on terms as favorable to
the Company as those contained in its existing license agreements. Furthermore,
the Company may seek additional licenses in the future, and there can be no
assurance that the Company will be able to enter into similar license agreements
for additional products in the future on terms acceptable to it.
The Company is a party to a license with Research Triangle Pharmaceuticals Ltd.
("RTP"), a wholly-owned subsidiary of Cato Holding Co., relating to the
Spartaject Technology. Such license requires the Company, subject to extensions
and qualifications in certain circumstances, to fund, prepare and file NDAs for
a fixed number of products by specified dates, the earliest of which is January,
1997. The Company is currently renegotiating such license agreement. In the
event that the Company is unable to prepare and file such NDAs in accordance
with the time requirements set forth in the license, the Company's rights under
the license could become subject to termination and, if terminated, the Company
would be unable to commercialize any products utilizing the Spartaject
Technology.
-9-
<PAGE>
Risks of New Product Development; Market Uncertainty. The Company has received
approval by the FDA for IND applications relating to three product candidates,
Spartaject busulfan, L.A.D.D. 5-FP and RII retinamide, one of which is currently
in Phase I clinical trials. LEX032, is in the preclinical stage of development.
One of the Company's product candidates, asulacrine, is in a second Phase I
clinical trial in England being conducted by the Cancer Research Campaign (the
"CRC"). The Company has not filed an IND with the FDA for asulacrine. Because of
the incidence of vein inflammation apparently caused by the injectable
formulation of the compound used in the first clinical trial, the CRC developed
an oral formulation of the compound which has recently entered a second Phase I
clinical trial in the U.K. Another potential product candidate, IPdR, 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 extended 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.
The Company has not commenced development of some of its other product
candidates and has done only limited development on others. None of the products
the Company proposes to develop or is developing has been approved for marketing
by regulatory authorities and all of the Company's products will require
significant research and development, including lengthy clinical testing, prior
to their commercialization. The results of clinical trial and preclinical
testing discussed in this Prospectus for the Company's compounds and
technologies are subject to varying interpretations. Furthermore, studies
conducted with alternative designs or on alternative populations could produce
results that vary from those discussed in this Prospectus. Therefore, there can
be no assurance that the results discussed in this Prospectus or the Company's
interpretation of them will be accepted by governmental regulators or the
medical community. Even if the development of the Company's products in the
preclinical phase advances to the clinical stage, there can be no assurance that
they will prove to be safe and effective. The products that are successfully
developed, if any, will be subject to requisite regulatory approval prior to
their commercial sale, and the approval, if obtainable, may take several years.
Generally, only a very small percentage of the number of new pharmaceutical
products initially developed is approved for sale. Even if they are approved for
sale, there can be no assurance that they will be commercially successful. The
Company may encounter unanticipated problems relating to development,
manufacturing, distribution and marketing, some of which may be beyond the
Company's financial and technical capacity to solve. The failure to address such
problems adequately could have a material adverse effect on the Company's
business and prospects. No assurance can be given that the Company will succeed
in the development and marketing of any new drug products, or that they will not
be rendered obsolete by products of competitors.
The Company has estimated the number of patients with a particular type of
cancer or other diseases, the number of patients who were administered a
particular drug and the number of patients who received or might have been
candidates for a particular type of treatment. There can be no assurance of the
extent to which any of the Company's products, if successfully developed, will
actually be used by patients. Furthermore, there can be no assurance that the
Company's sales of its products for such uses will be profitable even if patient
use occurs.
-10-
<PAGE>
Uncertainty of Health Care Reform Measures. Federal, state and local officials
and legislators (and certain foreign government officials and legislators) have
proposed or are reportedly considering proposing a variety of reforms to the
health care systems in the United States and abroad. The Company cannot predict
what health care reform legislation, if any, will be enacted in the United
States or elsewhere. Significant changes in the health care system in the United
States or elsewhere are likely to have a substantial impact over time on the
manner in which the Company conducts its business. Such proposals and changes
could have a material adverse effect on the Company's ability to raise capital.
Furthermore, the Company's ability to commercialize its potential products may
be adversely affected to the extent that such proposals have a material adverse
effect on the business, financial condition and profitability of other companies
that are prospective corporate partners with respect to certain of the Company's
proposed products.
Uncertain Extent of Price Flexibility and Third Party Reimbursement. The
Company's ability to commercialize its products successfully will depend in part
on the extent to which appropriate reimbursement levels for the cost of such
products and related treatment are obtained from government authorities, private
health insurers and other organizations, such as health maintenance
organizations ("HMOs"). Third party payers are increasingly challenging the
prices charged for medical products and services. Also, the trend towards
managed health care in the United States and the concurrent growth of
organizations such as HMOs, which could control or significantly influence the
purchase of health care services and products, as well as legislative proposals
to reduce government insurance programs, may all result in lower prices for the
Company's products. The cost containment measures that health care providers are
instituting could affect the Company's ability to sell its products and may have
a material adverse effect on the Company.
Government Regulation; Need for FDA and Other Regulatory Approval; Orphan Drug
Status. Prior to marketing, each of the Company's drugs must undergo an
extensive regulatory approval process conducted by the FDA and applicable
agencies in other countries. The process, which focuses on safety and efficacy
and includes a review by the FDA of preclinical testing and clinical trials and
an investigation as to whether good laboratory and clinical practices were
maintained during testing, takes many years and requires the expenditure of
substantial resources. The Company is, and will be, dependent on the external
laboratories and medical institutions conducting its preclinical testing and
clinical trials to maintain both good laboratory practices established by the
FDA and good clinical practices. Data obtained from preclinical and clinical
testing are subject to varying interpretations which could delay, limit or
prevent regulatory approval. In addition, delays or rejection may be encountered
based upon changes in FDA policy for drug approval during the period of
development and by the requirement for regulatory review of each IND and NDA.
There can be no assurance that even after such time and expenditures regulatory
approval will be obtained for any of the Company's product candidates. Moreover,
such approval may entail significant limitations on the indicated uses for which
a drug may be marketed. Even if such regulatory approval is obtained, a marketed
therapeutic product and its manufacturer are subject to continual regulatory
review, and later discovery of previously unknown problems with a product or
manufacturer may result in restrictions on such product or manufacturing,
including withdrawal of such product from the market. Change in the
manufacturing procedures used by the Company for any of the Company's approved
drugs are subject to FDA review, which could have an adverse effect upon the
Company's ability to continue the commercialization or sale of a drug. The
process of obtaining FDA approval is costly and time consuming, and there can be
no assurance that any product that the Company may develop will be deemed to be
safe and effective by the FDA. The Company will not be permitted to market any
product it may develop in any jurisdiction in which the product does not receive
regulatory approval.
-11-
<PAGE>
The Company intends to seek orphan drug status for some of its product
candidates pursuant to the Orphan Drug Act of 1983 (the "Orphan Drug Act") and
has been granted orphan drug status for the Spartaject formulation of busulfan
as preparative therapy for malignancies treated with bone marrow transplantation
and for RII retinamide for the treatment of myelodysplastic syndromes. There can
be no assurance orphan drug status will be granted for other product candidates
or that for any grant of orphan drug status, such grant will provide the Company
with any benefits. Although under the Orphan Drug Act as now in effect orphan
drug status may provide an applicant exclusive marketing rights in the United
States for a designated indication for seven years following marketing approval,
in order to obtain such benefits, the applicant must be the sponsor of the first
NDA approved for that drug and indication. If a third party receives prior FDA
approval for an orphan drug indication, the Company may be precluded by the
Orphan Drug Act from obtaining market approval for seven years. Orphan Medical,
Inc., a United States company which is not affiliated with the Company's
distributors of Spartaject busulfan in Europe and Sweden, has disclosed that it
is in Phase I clinical trials with an intravenous form of busulfan for use in
bone marrow transplants using a formulation with solvents licensed from a
Research Institute. It cannot be predicted whether such development by Orphan
Medical, Inc. will be successful and whether it will adversely affect the
ability of the Company to obtain FDA approval of Spartaject busulfan for the
orphan drug indication of use in bone marrow transplants. In addition,
amendments to the Orphan Drug Act have been introduced in Congress, which if
adopted, would limit the benefits available for sellers of orphan drugs,
including limiting the exclusivity period to four years generally and providing
for the loss or sharing of exclusivity in some circumstances. There can be no
assurance that such amendments or other amendments will not be adopted, and
therefore the Company is unable to predict the extent to which or whether any
benefits currently provided by the Orphan Drug Act will continue to be
available.
Competition; Technological Change. There is substantial competition in the
pharmaceutical field and in the areas of the Company's proposed business in
cancer, cardiovascular disorders and acute inflammation from companies with
financial resources, and licensing, research and development staffs and
facilities substantially greater than those of the Company. Competitors include
pharmaceutical companies with recognized, well established development programs
in these areas, and biotechnology firms and pharmaceutical companies with
therapies in the development stage. Many of such companies have extensive
experience in undertaking preclinical testing and clinical trials and obtaining
FDA and other regulatory approvals. There can be no assurance that the Company's
competitors will not succeed in developing similar technologies and products
more rapidly than the Company and that these technologies and products will not
be more effective than any of those that are being or will be developed by the
Company, or render the Company's technologies and products obsolete or
noncompetitive. The Company is applying, and may in the future apply, its
Spartaject Technology or L.A.D.D. Technology to compounds that are believed to
be in the public domain, or not presently subject to patent protection as
compounds, in the United States, including aphidicolin, busulfan, 5-FU and
paclitaxel. As a result, the Company cannot prevent other companies from
developing products or applying delivery technologies other than the Spartaject
Technology and the L.A.D.D. Technology to such compounds in a manner than
competes with technologies and product candidates under development by the
Company. Several pharmaceutical companies are developing protease inhibitors
with potential application in pulmonary inflammation, pancreatitis, coagulative
disorders and reperfusion injury. It is
-12-
<PAGE>
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.
Dependence Upon Others for Manufacturing and Marketing. The Company currently
has no capability to manufacture any of its products for preclinical testing or
clinical trials, and, if appropriate, for commercial purposes, or to market
them. The Company does not intend to establish in the foreseeable future
manufacturing facilities to produce drug chemicals or product formulations,
except possibly with respect to its Spartaject Technology, or marketing
capabilities, other than potentially in the United States to specialists in
oncology/hematology practices. Accordingly, the Company will be required to
enter into arrangements with other companies for the manufacture and marketing
of its products. If the Company is unable to obtain or maintain third party
manufacturing and marketing arrangements, it may not be able to commercialize
its product candidates as planned. In addition, manufacturers of the Company's
products will be subject to applicable current good manufacturing practices
("cGMP") prescribed by the FDA or other rules and regulations prescribed by
foreign regulatory authorities. There can be no assurance that the Company will
be able to enter into manufacturing agreements either domestically or abroad
with companies whose facilities and procedures comply with cGMP or applicable
foreign standards. Should such agreements be entered into, the Company will be
dependent on such manufacturers for continued compliance with cGMP and
applicable foreign standards. Failure by a manufacturer of the Company's
products to maintain cGMP or applicable foreign standards could result in
significant time delays or the inability of the Company to commercialize a
product and could have a material adverse effect on the Company. In addition,
the Company's dependence on third parties for the manufacture and marketing of
its products may adversely affect profit margins on its products.
Product Liability. The testing, marketing and sale of human health care products
entail an inherent risk of adverse side effects and/or personal injury and
product liability, and there can be no assurance that product liability claims
will not be asserted against the Company. The Company currently has no product
liability insurance. Under the terms of most of its license agreements, the
Company is required both to indemnify its licensor against product liability
risks and to obtain such coverage prior to the sale of the products covered by
the license, and in certain instances, at coverage levels specified in the
license agreement by the licensor. If the Company fails to do so, its licensor
will be entitled to terminate the license. Although the Company will seek to
carry reasonable levels of product liability insurance, it is not certain that
such coverage will be obtainable on reasonable terms and at levels required by
its licensors, or if obtained, that such amounts ultimately will prove adequate
or will be renewable for any period. If such insurance is not obtained and
maintained at sufficient levels, or if any product liability claim against the
Company were sustained, the Company's business and prospects could be materially
adversely affected and its rights to market certain of its products could be
terminated.
Dependence on Key Personnel and Scientific Advisors. The Company is highly
dependent on having qualified experienced management, the loss of one or more of
whom could have a material adverse effect on the Company if an appropriate
successor is not available with reasonable promptness. The Company currently
holds "key person" insurance for coverage against the unanticipated death of
particular executives in the amount of $4,000,000. The Company has $2,000,000 of
such coverage in respect of each of William M. Sullivan, Chairman of the Board
and Jerry B. Hook, Ph.D., the Company's President and Chief Executive Officer.
The relevant insurance policies name the Company as beneficiary. The loss of
services of a key person could have a material adverse effect on the Company.
Although the Company has employment agreements with Dr. Hook, Dr. William
-13-
<PAGE>
McCulloch, Senior Vice President, Research and Development, and Ronald H. Spair,
Chief Financial Officer, each such executive officer may terminate his
employment at any time upon thirty days notice, and there can be no assurance
that such agreements will not be so terminated.
The Company's scientific advisors are employed on a full time basis by unrelated
employers and some have one or more consulting or other advisory arrangements
with other entities which may conflict with their obligations to the Company.
Inventions or processes discovered by such persons, other than those to which
the Company's licenses relate or those to which the Company is able to acquire
licenses for or those which were invented while performing consulting services
under contract to the Company, will most likely not become the property of the
Company, but will remain the property of such persons or such persons' full-time
employers. Failure to obtain needed patents, licenses or proprietary information
held by others could have a material adverse effect on the Company.
Limited Personnel; Dependence on Corporate and Academic Collaborators for
Research and Development. The Company has nine full-time employees. With these
exceptions, the Company relies, and for the foreseeable future will rely, on
contract development organizations, other academic collaborators and other
consultants for its preclinical and clinical planning, development, monitoring
and regulatory registration services. Contract development organizations and the
Company's advisors and consultants are employed or retained by other entities,
and they have commitments to, or consulting or advisory contracts with, such
entities that may limit their availability to the Company and that may compete
with the Company. There can be no assurance that their services will be
available to the Company on a timely basis when needed, or at all, and as
non-employees, the Company has limited control over their activities. In
addition, the academic collaborators are not actively involved in the Company's
business or in the development of its products from a commercial perspective.
Contract development organizations and the Company's advisors and consultants
generally sign agreements that provide for confidentiality of the Company's
proprietary information and results of studies. However, there can be no
assurance that the Company will be able to maintain the confidentiality of the
Company's technology, the dissemination of which could have a material adverse
effect on the Company's business. Because of the nature of its business, the
Company will require a wide range of skilled personnel to conduct its proposed
operations and will be dependent upon its ability to attract and retain
qualified management, scientific and marketing personnel. There is intense
competition among pharmaceutical companies for such personnel, and there is no
assurance that the Company will be successful in recruiting or retaining them.
Conducting Business Abroad. To the extent the Company conducts business outside
the United States, it intends to do so through licenses, joint ventures or other
contractual arrangements for the development, manufacturing and marketing of its
products. Although the Company has entered into a development and marketing
arrangement for Spartaject busulfan for Europe and the Scandinavian countries,
no assurance can be given that the Company will be able to establish other
foreign operations successfully through such a plan, that the necessary foreign
regulatory approvals for its product candidates will be obtained, that foreign
patent coverage will be available or that the manufacturing and marketing of its
products through such licenses, joint ventures or other arrangements will be
commercially successful. The Company might also have greater difficulty
obtaining proprietary protection for its products and technologies outside the
United States rather than in it, and enforcing its rights in foreign courts
rather than in United States courts.
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<PAGE>
Shares Eligible for Future Sale; Registration Rights. Of the 9,733,557 shares of
Common Stock outstanding as of the date of this Prospectus, approximately
6,636,412 shares will be eligible for sale in the public market without
restriction on the date of this Prospectus. In addition to such outstanding
shares of Common Stock, there are 16,672,137 shares of Common Stock issuable
under currently outstanding warrants, 9,768,384 shares of Common Stock issuable
upon conversion of the currently outstanding Series B' Convertible Preferred
Stock (the "Series B' Stock") and approximately 3,000,000 shares of Common
Stock issuable or reserved for issuance under the Company's Amended 1991 Stock
Plan and under various license, option and research agreements. No prediction
can be made as to the effect, if any, that the sale, or the availability for the
sale, of such securities will have on the market prices prevailing from time to
time for the Common Stock and the outstanding warrants. Nevertheless, the
possibility that substantial amounts of such securities may be sold in the
public market may adversely affect prevailing market prices for the Company's
equity securities, and could impair the Company's ability to raise capital in
the future through the sale of equity securities. Certain stockholders have also
been granted demand and piggy-back rights with respect to future registrations
by the Company. Sales of Common Stock, or the possibility of such sales, in the
public market may adversely affect the market price of the Common Stock
underlying the securities being offered hereby.
Antitakeover Effects of Certain Charter and By-Law Provisions and Delaware Law.
The Board of Directors has the authority to issue shares of preferred stock with
rights and preferences senior to those of the Common Stock without further vote
or action by the stockholders of the Company. In addition, the Company's
Restated By-Laws and Restated Certificate of Incorporation contain certain
provisions (including a classified Board of Directors) that could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
Such provisions could limit the price that certain investors might be willing to
pay in the future for shares of the Common Stock or other equity securities.
These provisions could also make it more difficult for stockholders to change
the management of the Company or to effect certain transactions.
Absence of Dividends. The Company has never declared or paid any cash dividends
and does not anticipate paying dividends on its Common Stock or other equity
securities for the foreseeable future. Management of the Company anticipates
that all earnings and other resources of the Company, if any, will be retained
by the Company for investment in its business.
Potential Volatility of Price; Low Trading Volume. The market price of the
Common Stock, like that of many other development-stage public pharmaceutical or
biotechnology companies, has been and may continue to be, highly volatile.
Factors such as announcements of technological innovations or new commercial
products by the Company or its competitors, disclosure of results of preclinical
and clinical testing, adverse reactions to products, governmental regulation and
approvals, developments in patent or other proprietary rights, public or
regulatory agency concerns as to the safety of products developed by the Company
and general market conditions may have a significant effect on the market price
of the Common Stock and the Company's other equity securities. In addition, in
general, the Common Stock has been thinly traded on the Nasdaq SmallCap Market,
which may affect the ability of the Company's stockholders to sell shares of the
Common Stock in the public market. There can be no assurance that a more active
trading market will develop in the future.
-15-
<PAGE>
Control by Directors and Others. The Company's directors, executive officers and
principal stockholders beneficially own (excluding exercisable options, warrants
and convertible securities) approximately 37% of the outstanding shares of
Common Stock. Accordingly, the Company's executive officers, directors,
principal stockholders and certain of their affiliates have the ability to exert
substantial influence over the election of the Company's Board of Directors, and
to control the outcome of substantially all issues submitted to the Company's
stockholders.
Limited Availability of Net Operating Loss Carry Forwards. At December 31, 1995,
the Company had accumulated approximately $9,000,000 in net operating loss carry
forwards. Based on the number of shares of Common Stock, convertible notes and
shares of convertible preferred stock issued in 1993, 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 carry
forwards under Internal Revenue Code Section 382. The effect of these
occurrences is to limit the annual utilization of the net operating loss carry
forwards to an amount determined by multiplying the fair market value of the
Company immediately prior to a change in ownership by the Federal long term tax
exempt interest rate at the time of the change. There can be no assurance that
further limitations on utilization of net operating loss carry forwards will not
occur resulting from ownership changes that have taken place subsequent to
December 31, 1995 and those that may occur in the future.
Possible Delisting from Nasdaq and Market Illiquidity. Continued inclusion of
the Common Stock, Class A Warrants, Class B Warrants, Class C Warrants and the
Units issued at the time of the Company's Initial Public Offering (collectively,
the "Publicly Traded Securities"), for quotation on The Nasdaq SmallCap Market
("Nasdaq") will require that (i) the Company maintain at least $2,000,000 in
total assets (the "Minimum Asset Requirement") and $1,000,000 in capital and
surplus, (ii) the minimum bid price for the Common Stock be at least $1.00 per
share, (iii) the public float consist of at least 100,000 shares of Common
Stock, valued in the aggregate at more than $200,000, (iv) the Common Stock have
at least two active market makers and (v) the Common Stock be held by at least
300 holders. As of December 31, 1995, the Company did not meet all of the
criteria for continued listing. The listing qualifications committee of The
Nasdaq Stock Market granted the Company a temporary exception from such
requirements subject to meeting certain conditions (including completion of the
offering by the Company of the Series A Convertible Preferred Stock), which
conditions have been satisfied. The Company anticipates that the proceeds of the
recently concluded private placements of Units comprised of the Series B'
Stock and the Class C Warrants will enable the Company to satisfy the Minimum
Asset Requirement for continued listing until December 31, 1997. In the event
that the Company does not raise additional funds in addition to those received
in the recently concluded private placements, the Company may be required to
reduce materially its planned research and development expenditures in order to
continue to satisfy the Minimum Asset Requirement. However, if the Company is
unable to continue to satisfy the Minimum Asset Requirement or the other
maintenance requirements, the securities may be delisted from Nasdaq. In such
event, trading, if any, in the Publicly Traded Securities, would thereafter be
conducted in the over-the-counter market in the so-called "pink sheets" or the
National Association of Securities Dealers' "Electronic Bulletin Board," and it
would be more difficult to dispose of the securities or to obtain as favorable a
price for the securities. Consequently, the liquidity of the securities could be
impaired, not only in the number of securities that could be bought and sold at
a given price, but also through delays in the timing of transactions and
reduction in security analysts' and the media's coverage of the Company, which
could result in lower prices for the securities than might otherwise be attained
and in a larger spread between the bid and asked prices for the securities.
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<PAGE>
Risks of Low-Priced Stock; Possible Effect of "Penny Stock" Rules on Liquidity
for the Company's Securities. If the Company's securities were delisted from
Nasdaq, they may become subject to Rule 15g-9 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), which imposes additional sales
practice requirements on broker-dealers which sell such securities to persons
other than established customers and "accredited investors". For transactions
covered by this Rule, a broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to sale. Consequently, such Rule may affect the
ability of broker-dealers to sell the Company's securities and may affect the
ability to sell any of the Company's securities in the secondary market.
The Commission has adopted regulations which define a "penny stock" to be any
equity security that has a market price (as therein defined) of less than $5.00
per share or with an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless exempt,
the rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about sales commissions payable
to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stock.
The foregoing required penny stock restrictions will not apply to the Company's
securities if such securities are listed on Nasdaq and have certain price and
volume information provided on a current and continuing basis, or if the Company
meets certain minimum net tangible assets or average revenue criteria. There can
be no assurance that the Company's securities will qualify for exemption from
the penny stock restrictions. In any event, even if the Company's securities
were exempt from such restrictions, the Company would remain subject to Section
15(b)(6) of the Exchange Act, which gives the Commission the authority to
prohibit any person that engages in unlawful conduct while participating in a
distribution of penny stock from associating with a broker-dealer or
participating in a distribution of penny stock, if the Commission finds that
such a restriction would be in the public interest.
If the Company's securities were subject to the rules on penny stocks, the
market liquidity for the Company's securities would be materially adversely
affected.
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<PAGE>
THE COMPANY
The Company 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. The
Company has focused on acquiring compounds that have been previously tested in
humans or animals and technologies that may improve the delivery or targeting of
previously tested, and in some cases marketed, anticancer agents. The Company
has received approval of Investigational New Drug applications by the United
States Food and Drug Administration with respect to three of its product
candidates, one of which is currently in Phase I clinical trials. On March 15,
1996, the Company acquired (the "Lexin Purchase") the assets and business of
Lexin Pharmaceutical Corporation ("Lexin"). The assets acquired in the Lexin
Purchase are designed primarily as potential therapeutic agents for acute
inflammatory and cardiovascular diseases.
The Company's lead products under development are:
<TABLE>
<CAPTION>
Product Candidate Indication Stage of Development
- ----------------- ----------- --------------------
<S> <C> <C>
Spartaject(TM) busulfan Providing injectable delivery of IND approved
drug for ablating bone marrow
prior to bone marrow transplant
RII retinamide Treatment of Myelodysplastic Phase I Clinical Trial Commenced
Syndromes (MDS)
L.A.D.D.(TM) 5-FP Providing oral delivery of 5-FU IND approved
for the treatment of colorectal,
breast, liver and other cancers
LEX032 Treatment of reperfusion injury, Preclinical
(e.g., occurring after myocardial
infarction and stroke)
</TABLE>
In addition to the Company's lead product candidates, 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 United Kingdom.
The technology acquired in the Lexin Purchase is licensed exclusively from two
universities and directed at the potential treatment of a number of life
threatening diseases. LEX032 is intended to treat serine protease-mediated
inflammatory tissue damage. Serine proteases are enzymes which digest proteins.
They have been implicated in a number of serious diseases, especially those of
major organs (e.g., 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
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<PAGE>
transplants. The compound is currently under evaluation, pursuant to an option
granted to Astra Merck Inc., for the treatment of acute pancreatitis, or
inflammation of the pancreas.
The Company 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. The Company's principal
offices are located at Pennsylvania Business Campus, Rock Plaza III, 111 Rock
Road, Horsham, Pennsylvania 19044, and its telephone number is (215) 442-1700.
Spartaject(TM) and L.A.D.D.(TM) are trademarks of the Company.
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SELLING STOCKHOLDERS
The Selling Stockholders are hereby offering Shares which have been or
may hereafter be acquired by them upon the exercise of Stock Rights granted
under the Plan. In addition to the persons named below, the Selling Stockholders
include certain unnamed non-affiliates, each of whom holds less than the lesser
of 1,000 shares or one percent (1%) of the shares of Common Stock issuable under
the Plan, and who may use this Prospectus for reoffers and resales of up to that
amount of shares. The names of additional Selling Stockholders and the number of
Shares offered hereby by them may be added to this Prospectus from time to time
by an addendum or supplement to this Prospectus. Other persons who acquire
Shares from the Selling Stockholders may also be identified as Selling
Stockholders by means of an addendum or supplement to this Prospectus.
The following table sets forth certain information with respect to the
Selling Stockholders as of December 31, 1996. Unless otherwise indicated, the
Selling Stockholders are current or former employees or consultants of the
Company.
<TABLE>
<CAPTION>
Number of
Shares Number of Percentage of
Beneficially Shares to be Class to be
Owned Number of Beneficially Beneficially
Prior to Shares Being Owned After Owned After
Name Offering(1) Offered(2) Offering(3) Offering
- ---- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
William M. Sullivan (4) 744,553 421,666 374,971 3.69%
William McCulloch, MB., 251,666 281,666 66,666 *
Ch.B, F.R.C.P. (Glasg.) (5)
Jerry B. Hook, Ph.D. (6) 232,332 525,000 232,332 2.26%
Ronald H. Spair (7) 116,166 190,000 116,166 1.17%
Peter Barton Hutt (8) 51,666 50,000 16,666 *
Sir John Vane (9) 51,666 50,000 16,666 *
Caroline D. Campbell (10) 35,000 70,000 0 *
Colin B. Bier, Ph.D. (11) 0 25,000 0 *
Christopher P. Phillips 0 90,000 0 *
Harvey Rubin 49,700 75,000 49,700 *
William C. Groutas 0 50,000 0 *
Joseph R. Bertino 47,500 20,000 37,500 *
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Yung-chi Cheng 47,500 20,000 37,500 *
Howard Sands 0 14,000 0 *
O. Michael Colvin 13,333 10,000 8,333 *
Thomas A. Conners 13,333 10,000 8,333 *
Lawrence H. Einhorn 5,000 10,000 0 *
Enrico Mihich 5,000 10,000 0 *
Franco M. Muggia 13,333 10,000 8,333 *
Herbert M. Pinedo 13,333 10,000 8,333 *
Thomas R. Redington 10,000 10,000 0 *
Shigeru Tsukagoshi 13,333 10,000 8,333 *
M. Sharon Smith 0 3,500 0 *
Ann M. Connick 1,750 2,666 0 *
Catherine S. Landi 17,416 1,500 16,666 *
James H. Nichols 1,000 1,500 1,000 *
Tracy Coffey 0 1,500 0 *
Cris Triolo 0 1,500 0 *
</TABLE>
- ------
*Less than 1% of the outstanding Common Stock
(1) Includes all shares of Common Stock owned by the Selling Stockholder and
Shares of Common Stock which the Selling Stockholder has the right to acquire,
through the exercise of convertible stock, warrants and Stock Rights, including
those granted under the Plan, within 60 days after December 31, 1996.
(2) Includes certain shares of Common Stock acquired by the Selling Stockholder
pursuant to the exercise of Stock Rights granted under the Plan and all shares
of Common Stock which the Selling Stockholder has the right to acquire, through
the exercise of Stock Rights granted under the Plan, whether or not such right
has yet become exercisable or will become exercisable within 60 days after
December 31, 1996.
-21-
<PAGE>
(3) Includes shares of Common Stock beneficially owned by the Selling
Stockholder and Shares of Common Stock which the Selling Stockholder has the
right to acquire within 60 days after December 31, 1996, other than those shares
registered pursuant hereto. Assumes all shares registered pursuant hereto will
be sold, although there can be no assurance that any of the Selling Stockholders
will offer for sale or sell any or all of the Common Stock offered by them
pursuant to this Prospectus. Also assumes that no other shares are acquired or
transferred by the Selling Stockholder.
(4) William M. Sullivan, a founder of the Company, has served as the Company's
Chairman since February, 1991 and was President and Chief Executive Officer of
the Company from October, 1991 until March, 1996. Mr. Sullivan's beneficially
owned shares include shares owned by his wife and a child, for which he
disclaims beneficial ownership and excludes shares owned by three adult
children.
(5) Dr. William McCulloch has been Senior Vice President, Research and
Development of the Company since October, 1992. He was a consultant to the
Company from July through September, 1992.
(6) Jerry B. Hook, Ph.D. has been President, Chief Executive Officer and a
Director of the Company since March, 1996.
(7) Ronald H. Spair has been Vice President and Chief Financial Officer of the
Company since March, 1996 and Secretary of the Company since June, 1996.
(8) Peter Barton Hutt has been a Director of the Company since December, 1991.
(9) Sir John Vane has been a Director of the Company since December, 1991.
(10) Caroline D. Campbell had been Secretary and Treasurer of the Company
through June, 1996.
(11) Colin B. Bier, Ph.D. has been a Director of the Company since September
1996.
PLAN OF DISTRIBUTION
The Shares may be offered and sold from time to time by the Selling
Stockholders, or by pledgees, donees, transferees or other successors in
interest. Such offers and sales may be made from time to time on one or more
exchanges or in the over-the-counter market, or otherwise, at prices and on
terms then prevailing or at prices related to the then-current market price, or
in negotiated transactions. The Shares may be sold by one or more of the
following: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the Shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; (b) purchases by a broker or
dealer as principal and resale by such broker or dealer for its account; (c) an
exchange distribution in accordance with the rules of such exchange; (d)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; (e) privately negotiated transactions; and (f) a combination of any
such methods of sale. In effecting sales, brokers or dealers engaged by the
Selling Stockholders may arrange for other brokers or dealers to participate.
Brokers or dealers may receive commissions or discounts from Selling
Stockholders or from purchasers in amounts to be negotiated immediately prior to
the sale. Such brokers or dealers and any other participating brokers or dealers
may be deemed to be "underwriters" within the meaning of the Securities Act in
connection with such sales.
-22-
<PAGE>
In addition, any securities covered by this Prospectus which qualify
for sale pursuant to Rule 144 or Rule 701 promulgated under the Securities Act
("Rule 144" or "Rule 701") may be sold under Rule 144 or Rule 701 rather than
pursuant to this Prospectus.
The Company and the Selling Stockholders may enter into customary
agreements concerning indemnification and the provision of information in
connection with the sale of the Shares.
There is no assurance that any of the Selling Stockholders will offer
for sale or sell any or all of the Common Stock covered by this Prospectus.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered has
been passed upon for the Company by Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C. of Boston, Massachusetts.
EXPERTS
The financial statements of the Company incorporated in this Prospectus
by reference from the Company's Annual Report on Form 10-K, as amended, for the
fiscal year ended December 31, 1995, have been audited by Ernst & Young LLP,
independent auditors, as indicated in their report with respect thereto which is
incorporated herein by reference (which contains an explanatory paragraph
regarding the Company's ability to continue as a going concern mentioned in Note
1 to the financial statements appearing in such Form 10-K), and have been so
incorporated in reliance on the authority of their report as experts in
accounting and auditing.
The financial statements of Lexin as of June 30, 1994 and 1995, for the
years ended June 30, 1993, 1994 and 1995, and for the period from inception,
February 23, 1989, to June 30, 1995, incorporated in this Prospectus by
reference from the Company's Amended Current Report on Form 8-K/A dated March
15, 1996, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto which is
incorporated herein by reference, and have been so incorporated in reliance upon
the authority of that firm as experts in giving said report. Reference is made
to said report which includes an explanatory paragraph regarding the uncertainty
of Lexin's ability to continue as a going concern.
CHANGE IN PUBLIC ACCOUNTANTS
The Board of Directors of the Company retained Arthur Andersen LLP as
the Company's independent public accountants and discontinued employing Ernst &
Young LLP. Ernst & Young LLP had been the Company's independent auditors since
the Company's inception. Ernst & Young LLP's reports regarding the Company did
not contain adverse opinions or disclaimer opinions and were not qualified as to
audit scope or accounting principles. Ernst & Young LLP's report for the year
ended December 31, 1995 was qualified regarding the uncertainty of the Company's
-23-
<PAGE>
ability to continue as a going concern. There were no disagreements with Ernst &
Young LLP on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures at the time of the change
which if not resolved to Ernst & Young LLP's satisfaction, would have caused
Ernst & Young LLP to make reference to the disagreement in connection with its
report. Prior to retaining Arthur Andersen LLP, the Company did not consult with
Arthur Andersen LLP regarding accounting principles.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K, as amended, for the
fiscal year ended December 31, 1995.
(b) The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996; the Company's Current
Reports on Form 8-K dated March 15, 1996, April 1, 1996, April 30, 1996, May 15,
1996, August 7, 1996, August 23, 1996, September 3, 1996, September 23, 1996,
September 24, 1996 and September 26, 1996; the Company's Amended Current Reports
on Form 8-K/A dated March 15, 1996 and September 3, 1996; the Company's
Registration Statement on Form S-3, as amended, Registration No. 333-13621,
filed on October 7, 1996 and all other reports filed by the Company pursuant to
Section 13(a) or 15(d) of the Exchange Act since December 31, 1995.
(c) The description of Common Stock contained in the Company's
Registration Statement on Form S-1, Registration No. 33-78086, filed on April
25, 1994 under the Exchange Act, including any amendment or report filed for the
purpose of updating such description.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this Prospectus
and prior to the termination of the offering of the Shares shall be deemed to be
incorporated by reference in this Prospectus and to be deemed a part hereof from
the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
IMPORTANT FACTORS REGARDING FORWARD LOOKING STATEMENTS
Certain of the statements set forth in this Registration Statement
(including in the Exhibits hereto) constitute "forward looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act which are intended to be covered by the safe harbors created
thereby. All such forward looking statements involve risks and uncertainties,
including those statements regarding (i) the Company's research and development
programs; (ii) the intention to contract with other organizations for
-24-
<PAGE>
development and registration, if applicable, of its product candidates; (iii)
joint development or licensing arrangements with pharmaceutical companies; (iv)
the research and development of particular compounds and technologies for
particular indications; and (v) the period of time for which available funds
will enable the Company to sustain its operations and to continue to satisfy
certain requirements for the quotation of its securities on Nasdaq. Many
important factors affect the Company's ability to achieve the stated outcomes
and to successfully develop and commercialize its product candidates, including,
among other things, 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, to receive required regulatory approvals, to
meet obligations and required milestones under its license agreements, to be
capable of producing drug candidates in commercial quantities at reasonable
costs, to compete successfully against other products and to market products in
a profitable manner. As a result, there also can be no assurance that the
forward looking statements included in this Registration Statement will prove to
be accurate. In light of the significant uncertainties inherent in the forward
looking statements included herein, the inclusion of such information should not
be regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved. These forward looking
statements embody the Company's best estimates as of the date of this
Registration Statement. The Company assumes no obligation to update such
estimates except as required by the rules and regulations of the Commission.
-25-
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Certain Documents by Reference.
- ---------------------------------------------------------
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K, as amended, for the
fiscal year ended December 31, 1995.
(b) The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996; the Company's Current
Reports on Form 8-K dated March 15, 1996, April 1, 1996, April 30, 1996, May 15,
1996, August 7, 1996, August 23, 1996, September 3, 1996, September 23, 1996,
September 24, 1996 and September 26, 1996; the Company's Amended Current Reports
on Form 8-K/A dated March 15, 1996 and September 3, 1996; the Company's
Registration Statement on Form S-3, as amended, Registration No. 333-13621,
filed on October 7, 1996 and all other reports filed by the Company pursuant to
Section 13(a) or 15(d) of the Exchange Act since December 31, 1995.
(c) The description of Common Stock contained in the Company's
Registration Statement on Form S-1, Registration No. 33-78086, filed on April
25, 1994 under the Exchange Act, including any amendment or report filed for the
purpose of updating such description.
All reports and other documents filed by the Company after the date
hereof pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior
to the filing of a post-effective amendment which indicates that all securities
offered hereby have been sold or which deregisters all securities then remaining
unsold, shall be deemed to be incorporated by reference herein and to be part
hereof from the date of filing of such reports and documents.
Item 4. Description of Securities.
- -----------------------------------
Not applicable.
Item 5. Interests of Named Experts and Counsel.
- ------------------------------------------------
The validity of the issuance of the shares of Common Stock registered
under this Registration Statement has been passed upon for the Company by Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C. of Boston, Massachusetts.
Item 6. Indemnification of Directors and Officers.
- ---------------------------------------------------
Incorporated herein by reference from the Company's Registration
Statement on Form S-1, Registration No. 33-72882 filed on December 14, 1993, or
in amendments thereto.
II-1
<PAGE>
Item 7. Exemption from Registration Claimed.
- ---------------------------------------------
Not applicable.
Item 8. Exhibits.
- ------------------
(4.1) Amended and Restated Certificate of Incorporation (filed as
Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, filed on August 1, 1996, and
incorporated herein by reference).
(4.2) Series B' Certificate of Designation (filed with the Company's
Current Report on Form 8-K dated September 26, 1996, and
incorporated herein by reference).
(4.3) By-Laws, as amended and restated (Filed as Exhibit 3.3 to the
Company's Registration Statement on Form S-1, Registration No.
33-72882, filed on December 14, 1993, or in amendments thereto,
and incorporated herein by reference).
(4.4) Form of Common Stock Certificate (Filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-1, Registration No.
33-78086, filed on April 25, 1994, or in amendments thereto,
and incorporated herein by reference).
(5) Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
as to the legality of the shares being registered.
(10) Sparta Pharmaceuticals, Inc. Amended 1991 Stock Plan.
(23.1) Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(included in opinion of counsel filed as Exhibit 5 hereto).
(23.2) Consent of Ernst & Young LLP.
(23.3) Consent of Arthur Andersen LLP.
(24) Power of Attorney to file future amendments (set forth on the
signature page of this Registration Statement).
Item 9. Undertakings.
- ----------------------
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represents a fundamental change in the information set forth
in the Registration Statement; and
II-2
<PAGE>
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the Registration Statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Company
pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Company's annual report pursuant to Section 13(a) or Section 15(d) of
the Exchange Act that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Company will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Horsham, Pennsylvania on January 24, 1997.
SPARTA PHARMACEUTICALS, INC.
By /s/ JERRY B. HOOK, PH.D.
-------------------------------------
Jerry B. Hook, Ph.D.
President and Chief Executive Officer
Each person whose signature appears below constitutes and appoints
Jerry B. Hook, Ph.D. and Ronald H. Spair, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
in each of them, for him and in his name, place and stead, and in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement on Form S-8 of Sparta Pharmaceuticals, Inc. and
to file the same, with all exhibits thereto and other documents in connection
therewith, with the Commission, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform each and every act
and thing requisite or necessary to be done in or about the premises, as full to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them or their or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ WILLIAM M. SULLIVAN Chairman of the Board January 24, 1997
- ------------------------
William M. Sullivan
/s/ JERRY B. HOOK, PH.D. President, Chief Executive January 24, 1997
- ------------------------- Officer and Director
Jerry B. Hook, Ph.D. (principal executive
officer)
II-4
<PAGE>
/s/ RONALD H. SPAIR Vice President, Chief Financial January 24, 1997
- ------------------------- Officer and Secretary (principal
Ronald H. Spair financial and accounting officer)
/s/ COLIN B. BIER, PH.D. Director January 17, 1997
- -------------------------
Colin B. Bier, Ph.D.
/s/ PETER BARTON HUTT Director January 24, 1997
- -------------------------
Peter Barton Hutt
- -------------------------- Director January __, 1997
Lindsay A. Rosenwald, M.D.
/s/ RICHARD L. SHERMAN Director January 17, 1997
- -------------------------
Richard L. Sherman
/s/ SIR JOHN VANE Director January 20, 1997
- -------------------------
Professor Sir John Vane
II-5
<PAGE>
SPARTA PHARMACEUTICALS, INC.
INDEX TO EXHIBITS FILED WITH
FORM S-8 REGISTRATION STATEMENT
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page No.
- ------ ----------- -----------
<S> <C> <C>
(4.1) Amended and Restated Certificate of Incorporation (filed as Exhibit 3.4 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996, filed on August 1, 1996, and incorporated herein by reference).
(4.2) Series B' Certificate of Designation (filed with the Company's Current
Report on Form 8-K dated September 26, 1996, and incorporated herein by
reference).
(4.3) By-Laws, as amended and restated (Filed as Exhibit 3.3 to the Company's
Registration Statement on Form S-1, Registration No. 33-72882, filed on
December 14, 1993, or in amendments thereto, and incorporated herein by
reference).
(4.4) Form of Common Stock Certificate (Filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-1, Registration No. 33-78086, filed on
April 25, 1994, or in amendments thereto, and incorporated herein by
reference).
(5) Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. as to the
legality of the shares being registered.
(10) Sparta Pharmaceuticals, Inc. Amended 1991 Stock Plan.
(23.1) Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (included
in opinion of counsel filed as Exhibit 5 hereto).
(23.2) Consent of Ernst & Young LLP.
(23.3) Consent of Arthur Andersen LLP.
(24) Power of Attorney to file future amendments (set forth on the signature page
of this Registration Statement).
</TABLE>
II-6
<PAGE>
Exhibit 5
[LETTERHEAD OF MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C.]
January 27, 1997
Sparta Pharmaceuticals, Inc.
Pennsylvania Business Campus
Rock Plaza III
111 Rock Road
Horsham, Pennsylvania 19044-2310
Ladies and Gentlemen:
We have acted as counsel to Sparta Pharmaceuticals, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing of a
Registration Statement on Form S-8 (the "Registration Statement"), with the
Securities and Exchange Commission, pursuant to which the Company is registering
the issuance of an aggregate of two million five hundred thousand (2,500,000)
shares (the "Shares"), of its common stock, $.001 par value per share (the
"Common Stock"), under the Securities Act of 1933, as amended. This opinion is
being rendered in connection with the filing of the Registration Statement. All
capitalized terms used herein and not otherwise defined shall have the
respective meanings given to them in the Registration Statement.
In connection with this opinion, we have examined the Company's
Restated Certificate of Incorporation and Restated By-Laws, both as currently in
effect; such other records of the corporate proceedings of the Company and
certificates of the Company's officers as we have deemed relevant; and the
Registration Statement and the exhibits thereto.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies.
Based upon the foregoing, we are of the opinion that (i) the Shares
have been duly and validly authorized by the Company and (ii) the Shares, when
sold, will be duly and validly issued, fully paid and non-assessable shares of
the Company.
Our opinion is limited to the General Corporation Law of the State of
Delaware and the federal law of the United States of America, and we express no
opinion with respect to the laws of any other jurisdiction. No opinion is
expressed herein with respect to the qualification of the Shares under the
securities or blue sky laws of any state or any foreign jurisdiction.
<PAGE>
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
Sparta Pharmaceuticals, Inc.
January 27, 1997
Page 2
We understand that you wish to file this opinion as an exhibit to the
Registration Statement, and we hereby consent thereto.
Very truly yours,
/s/ MINTZ, LEVIN, COHN, FERRIS,
GLOVSKY AND POPEO, P.C.
--------------------------------------
MINTZ, LEVIN, COHN, FERRIS,
GLOVSKY AND POPEO, P.C.
SPARTA PHARMACEUTICALS, INC.
AMENDED
1991 STOCK PLAN
(as amended through June 17, 1996)
1. DEFINITIONS.
------------
Unless otherwise specified or unless the context otherwise requires,
the following capitalized terms, as used in this 1991 Stock Plan, have the
following meanings:
Administrator means the Board of Directors, unless it has
delegated power to act on its behalf to a Committee. (See
Section 4, hereof.)
Affiliate means a corporation which, for purposes of Section 424 of the
Code, is a parent or subsidiary of the Company, direct or indirect.
Board of Directors means the Board of Directors of the Company.
Code means the United States Internal Revenue Code of 1986, as amended.
Committee means the Committee to which the Board of Directors has
delegated power to act under or pursuant to the provisions of the Plan.
Company means Sparta Pharmaceuticals, Inc., a Delaware
corporation.
Consultant means a consultant of the Company or of an Affiliate,
including, without limitation, members of its Scientific Advisory
Board.
Director means a member of the Board of Directors of the Company.
Disability or Disabled means permanent and total disability as defined
in Section 22(e)(3) of the Code.
Employee means an employee of the Company or of an Affiliate.
<PAGE>
Fair Market Value of a Share of Common Stock means:
(1) If the Common Stock is listed on a national securities exchange or
traded in the over-the-counter market and sales prices are
regularly reported for the Common Stock, either (a) the average of
the closing or last prices of the Common Stock on the Composite
Tape or other comparable reporting system for the ten (10)
consecutive trading days immediately preceding the applicable date
or (b) the closing or last price of the Common Stock on the
Composite Tape or other comparable reporting system for the trading
day immediately preceding the applicable date, as the Administrator
shall determine;
(2) If the Common Stock is not traded on a national securities exchange
but is traded on the over-the-counter market, if sales prices are
not regularly reported for the Common Stock for the trading days or
day referred to in clause (1), and if bid and asked prices for the
Common Stock are regularly reported, either (a) the average of the
mean between the bid and the asked price for the Common Stock at
the close of trading in the over-the-counter market for the ten
(10) trading days on which Common Stock was traded immediately
preceding the applicable date or (b) the mean between the bid and
the asked price for the Common Stock at the close of trading in the
over-the-counter market for the trading day on which Common Stock
was traded immediately preceding the applicable date, as the
Administrator shall determine; and
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as
the Administrator, in good faith, shall determine.
ISO means an option meant to qualify as an incentive stock option under
Section 422 of the Code.
Non-Qualified Option means an option which is not intended to qualify
as an ISO.
Option means an ISO or Non-Qualified Option granted under the Plan.
Participant means an Employee, Director or Consultant to whom one or
more Stock Rights are granted under the Plan. As used herein,
"Participant" shall include "Participant's Survivors" where the context
requires.
- 2 -
<PAGE>
Participant's Survivors means a deceased Participant's legal
representatives and/or any person or persons who acquired the
Participant's rights to a Stock Right by will or by the laws of descent
and distribution.
Plan means this Amended 1991 Stock Plan.
Purchase Opportunity means an opportunity to make a direct purchase of
Shares of the Company granted under the Plan.
Shares means (i) shares of the common stock, $.001 par value, of the
Company ("Common Stock") as to which Stock Rights have been or may be
granted under the Plan, or (ii) any shares of capital stock into which
the Shares are changed or for which they are exchanged within the
provisions of Section 3 of the Plan. The Shares issued upon exercise of
Stock Rights granted under the Plan may be authorized and unissued
Shares or Shares held by the Company in its treasury, or both.
Stock Agreement means an agreement between the Company and a
Participant executed and delivered pursuant to the Plan, in such form
as the Administrator shall approve.
Stock Right means a right to Shares of the Company granted pursuant to
the Plan -- an Option or a Purchase Opportunity.
2. PURPOSES OF THE PLAN.
---------------------
The Plan is intended to encourage ownership of Shares by Employees,
Directors and Consultants of the Company in order to attract such people, to
induce them to work for the benefit of the Company or of an Affiliate, and to
provide an additional incentive for them to promote the success of the Company
or of an Affiliate. The Plan provides for the issuance of ISOs and Non-Qualified
Options and the granting of Purchase Opportunities to Employees, Directors and
Consultants of the Company.
3. SHARES SUBJECT TO THE PLAN.
---------------------------
The number of Shares subject to this Plan as to which Stock Rights may
be granted and exercisable from time to time shall be 2,500,000 or the
equivalent of such number of Shares after the Administrator, in its sole
discretion, has interpreted the effect of any stock split, stock dividend,
combination, recapitalization or similar transaction.
- 3 -
<PAGE>
If any Option granted under the Plan shall expire or terminate for any
reason without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part, or if the Company shall reacquire any Shares
issued pursuant to Purchase Opportunities, the unpurchased Shares subject to
such Options and any Shares so reacquired by the Company shall again be
available for grants of Stock Rights under the Plan. In no event shall any
Participant be granted in any calendar year Stock Rights to purchase or receive
more than 500,000 Shares pursuant to this Plan.
4. ADMINISTRATION OF THE PLAN.
---------------------------
The Administrator of the Plan will be the Board of Directors, except to
the extent the Board of Directors delegates its authority to a Committee of the
Board of Directors. Following the date on which the Common Stock is registered
under the Securities and Exchange Act of 1934, as amended (the "1934 Act"), the
Plan is intended to comply in all respects with Rule 16b-3 or its successors,
promulgated pursuant to Section 16 of the 1934 Act with respect to Participants
who are subject to Section 16 of the 1934 Act, and any provision in this Plan
with respect to such persons contrary to Rule 16b-3 shall be deemed null and
void to the extent permissible by law and deemed appropriate by the
Administrator. Subject to the provisions of the Plan, the Administrator is
authorized to:
a. Interpret the provisions of the Plan or of any Option, Purchase
Opportunity or Stock Agreement and to make all rules and
determinations which it deems necessary or advisable for the
administration of the Plan;
b. Determine which Employees, Directors and Consultants of the Company
shall be granted Stock Rights, subject to the terms of Section 5
hereof;
c. Determine the number of Shares for which a Stock Right or Stock
Rights shall be granted; and
d. Specify the terms and conditions upon which a Stock Right or Stock
Rights may be granted;
provided, however, that all such interpretations, rules,
determinations, terms and conditions shall be made and prescribed in
the context of preserving the tax status under Code Section 422 of
those Options which are designated as ISOs. Subject to the foregoing,
the interpretation and construction by the Administrator of any
provisions of the Plan or of any Stock Right granted under it shall be
final, unless otherwise determined by the Board of Directors, if the
Administrator is other than the Board of Directors.
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<PAGE>
5. ELIGIBILITY FOR PARTICIPATION.
------------------------------
The Administrator will, in its sole discretion, name the Participants
in the Plan, provided, however, that each Participant must be an Employee,
Director or Consultant of the Company or of an Affiliate at the time a Stock
Right is granted. Members of the Company's Board of Directors who are not
employees of the Company or of an Affiliate may receive Stock Rights pursuant to
Section 6A, but only pursuant thereto. Notwithstanding any of the foregoing
provisions, (i) the Administrator may authorize the grant of a Stock Right to a
person not then an Employee, Director or Consultant of the Company or of an
Affiliate, provided, however, that the actual grant of such Stock Right shall be
conditioned upon such person becoming eligible to become a Participant at or
prior to the time of the execution of the Stock Agreement evidencing such Stock
Right, and (ii) ISOs may be granted only to Employees. Non-Qualified Options and
Purchase Opportunities may be granted to any Employee, Director or Consultant of
the Company or an Affiliate. Granting of any Stock Right to any individual shall
neither entitle that individual to, nor disqualify him or her from,
participation in any other grant of Stock Rights.
6. TERMS AND CONDITIONS OF NON-QUALIFIED OPTIONS.
----------------------------------------------
Each Non-Qualified Option shall be set forth in writing in a Stock
Agreement, duly executed by the Company and the Participant. The Administrator
may provide that Non-Qualified Options be granted subject to such conditions as
the Administrator may deem appropriate including, without limitation, subsequent
approval by the stockholders of the Company of this Plan or any amendments
thereto. Such Stock Agreement shall contain terms and conditions which the
Administrator determines to be appropriate and in the best interest of the
Company, subject to the following minimum standards:
a. The Stock Agreement shall be in writing in the form approved by the
Administrator, with such changes and modifications to such form as
the Administrator, in its discretion, shall approve with respect to
any particular Participant or Participants;
b. The option price (per share) of the Shares covered by each
Non-Qualified Option shall be determined by the Administrator but
shall not be less than fifty percent (50%) of the Fair Market Value
(per share) of the Shares on the date of the grant of the
Non-Qualified Option, subject to Section 3 hereof.
c. Each Stock Agreement shall state the number of Shares to which the
Non-Qualified Option pertains; and
- 5 -
<PAGE>
d. Each Stock Agreement shall state the date or dates on which the
Non-Qualified Option first is exercisable and the date after which
it may no longer be exercised, and may provide that the Option
rights accrue or become exercisable in installments over a period of
months or years, or upon the attainment of stated goals or events.
6A. TERMS AND CONDITIONS OF DIRECTORS' OPTIONS
------------------------------------------
a. Any non-employee director serving in office on December 15, 1993
(other than Lindsay A. Rosenwald), who has been a member of the
Board of Directors prior to such date shall be granted on such date,
a Non-Qualified Option to purchase 60,000 Shares (which number does
not give effect to any reverse stock split effected after December
1, 1993), provided that on such date such director has been in the
continued and uninterrupted service of the Company as a director
since his election or appointment and is a director of the Company
and is not an employee of the Company at such time. Each such Option
shall (i) have an exercise price equal to $2.00 (which number does
not give effect to any reverse stock split effected after December
1, 1993), (ii) have a term of ten (10) years, and (iii) shall become
cumulatively exercisable in four (4) equal annual installments of
twenty-five percent (25%) each, upon completion of one full year of
service on the Board of Directors after the date of grant, and
continuing on each of the next three (3) full years of service
thereafter.
b. Each director of the Company who is not an employee of the Company
or any Affiliate, who is first elected or appointed to the Board of
Directors after the date on which the initial underwritten public
offering of the Company's Common Stock is consummated, upon such
election or appointment shall be granted a Non- Qualified Option to
purchase 75,000 Shares (which number does not give effect to any
reverse stock split effected after December 1, 1993). Each such
Option shall (i) have an exercise price equal to the Fair Market
Value (per share) of the Shares on the date of grant of the Option,
which shall be determined based on the trading day immediately
preceding such date as provided for in Section 1, (ii) have a term
of ten (10) years, and (iii) shall become cumulatively exercisable
in four (4) equal annual installments of twenty-five percent (25%)
each, upon completion of one full year of service on the Board of
Directors after the date of grant, and continuing on each of the
next three (3) full years of service thereafter.
- 6 -
<PAGE>
c. Each director of the Company who is not an employee of the Company
or any Affiliate, who is in office as a director of the Company on
the date which is six months after the date of the annual meeting of
stockholders of the Company in 1994 and immediately following each
annual meeting of stockholders of the Company thereafter, commencing
with the annual meeting of stockholders in 1995, and who was not
first elected or appointed to the Board of Directors at such
meeting, shall be granted as of such date a Non-Qualified Option to
purchase 30,000 (which number does not give effect to any reverse
stock split effected after December 1, 1993) Shares. Each such
Option shall (i) have an exercise price equal to the Fair Market
Value (per share) of the Shares on the date of grant of the Option,
which shall be determined based on the trading day immediately
preceding such date as provided for in Section 1, (ii) have a term
of ten (10) years, and (iii) shall become exercisable upon
completion of one full year of service on the Board of Directors
after the date of grant.
d. Any director entitled to receive an Option grant under this Section
6A may elect to decline any Option. Notwithstanding the provisions
of Section 25 concerning amendment of the Plan, the provisions of
this Section 6A shall not be amended more than once every six
months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act, or the rules thereunder. The
provisions of Sections 12, 13, 14 and 15 below shall not apply to
Options granted pursuant to this Section 6A.
Except as otherwise provided in the pertinent Stock Agreement, if a
director who received Options pursuant to this Section 6A:
i. ceases to be a member of the Board of Directors of the Company
for any reason other than death or Disability, any then
unexercised Options granted to such director may be exercised
by the director within a period of ninety (90) days after the
date the director ceases to be a member of the Board of
Directors, but only to the extent of the number of shares with
respect to which the Options are exercisable on the date the
director ceases to be a member of the Board of Directors, and
in no event later than the expiration date of the Option; or,
ii. ceases to be a member of the Board of Directors of the Company
by reason of his or her death or Disability, any then
unexercised Options granted to such director may be exercised
by the director (or by the Participant's personal
representative, or Participant's Survivors in the event of
death) within a period of one hundred eighty (180) days after
- 7 -
<PAGE>
the date the director ceases to be a member of the Board of
Directors, for the number of Shares for which such Option is
unexercised, notwithstanding that the Options were exercisable
immediately prior to the date the director ceased to be a
member of the Board of Directors for a fewer number of shares,
and in no event later than the expiration date of the Option.
7. TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS.
------------------------------------------------
Each ISO shall be issued only to an Employee and set forth in a Stock
Agreement, duly executed by the Company and by the Participant. Such Stock
Agreement shall contain terms and conditions which the Administrator determines
to be appropriate and in the best interest of the Company, subject to the
following minimum standards:
a. The Stock Agreement for an ISO shall be in writing in substantially
the form as approved by the Administrator, with such changes to such
form as the Administrator shall approve, provided any changes are
not inconsistent with Code Section 422 and relevant regulations and
rulings of the Internal Revenue Service.
b. ISO Price: Immediately before the ISO is granted, if the Participant
owns, directly or by reason of the applicable attribution rules in
Code Section 424(d):
i. Ten percent (10%) or less of the total combined voting power of
all classes of share capital of the Company or an Affiliate,
the ISO price (per share) of the Shares covered by each ISO
shall not be less than one hundred percent (100%) of the Fair
Market Value (per share) of the Shares on the date of the grant
of the ISO, subject to Section 3 hereof.
ii. More than ten percent (10%) of the total combined voting power
of all classes of share capital of the Company or an Affiliate,
the ISO price (per share) of the Shares covered by each ISO
shall be not less than one hundred ten percent (110%) of the
said Fair Market Value on the date of grant, subject to Section
3 hereof.
- 8 -
<PAGE>
c. Each Stock Agreement shall state the number of Shares to which the
ISO pertains; and
d. Each Stock Agreement shall state the date or dates on which the ISO
first is exercisable and the date after which it may no longer be
exercised, and may provide that the Option rights accrue or become
exercisable in installments over a period of months or years, or
upon the attainment of stated goals or events.
e. Term of ISO:
i. For Participants who own ten percent (10%) or less of the total
combined voting power of all classes of share capital of the
Company or an Affiliate, each ISO shall terminate not more than
ten (10) years from the date of the grant or at such earlier
time as the Stock Agreement may provide;
ii. For Participants who own more than ten percent (10%) of the
total combined voting power of all classes of share capital of
the Company or an Affiliate, each ISO shall terminate not more
than five (5) years from the date of the grant or at such
earlier time as the Stock Agreement may provide.
f. Medium of Payment: The ISO price shall be payable upon the exercise
of the ISO and only in such form as the Administrator determines is
permitted by Section 422 of the Code.
g. Limitation on Yearly Exercise: Stock Agreements shall restrict the
amount of ISOs which may be exercisable in any calendar year (under
this or any other ISO plan of the Company or an Affiliate) so that
the aggregate Fair Market Value (determined at the time each ISO is
granted) of the stock with respect to which ISOs are exercisable for
the first time by the Participant in any calendar year does not
exceed one hundred thousand dollars ($100,000), provided that this
paragraph (g) shall have no force or effect if its inclusion in the
Plan is not necessary for Options issued as ISOs to qualify as ISOs
pursuant to Section 422(d) of the Code.
h. Limitation on Grant of ISOs: No ISOs shall be granted after the
expiration of the earlier of ten (10) years from the date of the
adoption of the Plan by the Company or the approval of the Plan by
the shareholders of the Company.
- 9 -
<PAGE>
8. TERMS AND CONDITIONS OF PURCHASE OPPORTUNITIES.
-----------------------------------------------
Each Purchase Opportunity shall be set forth in a Stock Agreement, duly
executed by the Company and by the Participant. The Stock Agreement shall
contain terms and conditions which the Administrator determines to be
appropriate and in the best interest of the Company, subject to the following
minimum standards:
a. The Stock Agreement shall be in writing in the form approved by the
Administrator, with such changes and modifications to such form as
the Administrator, in its discretion, shall approve with respect to
any particular Participant or Participants;
b. The purchase price (per share) of the Shares covered by each
Purchase Opportunity shall be determined by the Administrator but
shall not be less than fifty percent (50%) of the Fair Market Value
(per share) of the Shares on the date of the grant of the Purchase
Opportunity, subject to Section 3 hereof;
c. Each Stock Agreement shall state the number of Shares to which the
Purchase Opportunity pertains;
d. Each Stock Agreement shall state the date prior to which the
Purchase Opportunity must be exercised by the Participant; and
e. Each Stock Agreement shall include the terms of any right of the
Company to reacquire the Shares subject to the Purchase Opportunity,
including the time and events upon which such rights shall accrue
and the purchase price therefor.
9. EXERCISE OF STOCK RIGHTS AND ISSUE OF SHARES.
---------------------------------------------
A Stock Right (or any part or installment thereof) shall be exercised
by giving written notice to the Company at its principal office address,
together with provision for payment of the full purchase price in accordance
with this paragraph for the Shares as to which such Stock Right is being
exercised, and upon compliance with any other condition(s) set forth in the
Stock Agreement. Such written notice shall be signed by the person exercising
the Stock Right, shall state the number of Shares with respect to which the
Stock Right is being exercised and shall contain any representation required by
the Plan or the Stock Agreement. Payment of the purchase price for the Shares as
to which such Stock Right is being exercised shall be made (a) in United States
dollars in cash or by check, or (b) at the discretion of the Administrator,
through delivery of shares of Common Stock having a fair market value equal as
of the date of the exercise to the cash exercise price of the Stock Right,
- 10 -
<PAGE>
determined in good faith by the Administrator, or (c) at the discretion of the
Administrator, by delivery of the grantee's personal recourse note bearing
interest payable not less than annually at no less than 100% of the applicable
Federal rate, as defined in Section 1274(d) of the Code, or (d) at the
discretion of the Administrator, in accordance with a cashless exercise program
established with a securities brokerage firm, and approved by the Administrator,
or (e) at the discretion of the Administrator, by any combination of (a), (b),
(c) and (d) above. Notwithstanding the foregoing, the Administrator shall accept
only such payment on exercise of an ISO as is permitted by Section 422 of the
Code.
The Company shall then reasonably promptly deliver the Shares as to
which such Stock Right was exercised to the Participant (or to the Participant's
Survivors, as the case may be). In determining what constitutes "reasonably
promptly," it is expressly understood that the delivery of the Shares may be
delayed by the Company in order to comply with any law or regulation which
requires the Company to take any action with respect to the Shares prior to
their issuance. The Shares shall, upon delivery, be evidenced by an appropriate
certificate or certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of
exercise of any installment of any Stock Right; provided that the Administrator
shall not accelerate the exercise date of any installment of any Stock Right
granted to any Employee as an ISO (and not previously converted into a
Non-Qualified Option pursuant to Section 21) if such acceleration would violate
the annual vesting limitation contained in Section 422(d) of the Code, as
described in paragraph 7(g).
The Administrator may, in its discretion, amend any term or condition
of an outstanding Stock Right provided (i) such term or condition as amended is
permitted by the Plan, (ii) any such amendment shall be made only with the
consent of the Participant to whom the Stock Right was granted or in the event
of the death of the Participant, the Participant's Survivors, (iii) any such
amendment of any ISO shall be made only after the Administrator considers
whether such amendment would constitute a "modification" of any Stock Right
which is an ISO (as that term is defined in Section 424(h) of the Code) or would
cause any adverse tax consequences for the holders of such ISO, and (iv) with
respect to any Stock Right held by any Participant who is subject to the
provisions of Section 16(a) of the 1934 Act, any such amendment shall be made
only after the Administrator considers whether such amendment would constitute
the grant of a new Stock Right.
- 11 -
<PAGE>
10. RIGHTS AS A SHAREHOLDER.
------------------------
No Participant to whom a Stock Right has been granted shall have rights
as a shareholder with respect to any Shares covered by such Stock Right, except
after due exercise of the Stock Right and tender of the full purchase price for
the Shares being purchased pursuant to such exercise and registration of the
Shares in the Company's share register in the name of the Participant.
11. ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS.
--------------------------------------------------
By its terms, a Stock Right granted to a Participant shall not be
transferable by the Participant other than by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act or the rules
thereunder, provided, however, that the designation of a beneficiary of a Stock
Right by a Participant shall not be deemed a transfer prohibited by this
paragraph. Except as otherwise provided in the preceding sentence, a Stock Right
shall be exercisable, during the Participant's lifetime, only by such
Participant (or by his or her legal representative). Such Stock Right 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 any Stock Right or any rights granted thereunder contrary to the provisions
of this Plan, or the levy of any attachment or similar process upon a Stock
Right, shall be null and void.
12. EFFECT OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE".
--------------------------------------------------------
Except as otherwise provided in the pertinent Stock Agreement, in the
event of a termination of service (whether as an Employee, Director or
Consultant) before the Participant has exercised all Stock Rights, the following
rules apply:
a. A Participant who ceases to be an Employee, Director or Consultant
of the Company or of an Affiliate (for any reason other than
termination "for cause", for Disability, or death for which events
there are special rules in Sections 13, 14, and 15, respectively),
may exercise any Stock Right granted to him or her to the extent
that the right to purchase Shares has accrued on the date of such
termination of service, but only within such term as the
Administrator has designated in the pertinent Stock Agreement.
- 12 -
<PAGE>
b. In no event may a Stock Agreement provide, if the Stock Right is
intended to be an ISO, that the time for exercise be later than
three (3) months after the Participant's termination of employment.
c. The provisions of this section, and not the provisions of Section 13
or 14, shall apply to a Participant who subsequently becomes
disabled or dies after the termination of employment; provided,
however, in the case of a Participant's death during the exercise
period otherwise permitted after the termination of service, the
Participant's Survivors may exercise the Stock Right within a period
of up to one (1) year after the date of the Participant's death, as
provided in the Stock Agreement, but in no event after the date of
expiration of the term of the Stock Right.
d. Notwithstanding anything herein to the contrary, but only if so
provided in the Stock Agreement, if subsequent to a Participant's
termination of service, but prior to the exercise of a Stock Right,
the Board of Directors determines that, either prior or subsequent
to the Participant's termination, the Participant engaged in conduct
which would constitute "cause", then such Participant shall
forthwith cease to have any right to exercise any Stock Right.
e. A Participant to whom a Stock Right has been granted under the Plan
who is absent from work with the Company or with an Affiliate
because of temporary disability (any disability other than a
permanent and total Disability as defined in Section 1 hereof), or
who is on leave of absence for any purpose, shall not, during the
period of any such absence, be deemed, by virtue of such absence
alone, to have terminated such Participant's employment or
consultancy with the Company or with an Affiliate, except as the
Administrator may otherwise expressly provide.
f. Stock Rights granted under the Plan shall not be affected by any
change of employment or other service within or among the Company
and any Affiliates, so long as the Participant continues to be an
Employee, Director or Consultant of the Company or any Affiliate,
provided, however, if a Participant's employment by either the
Company or an Affiliate should cease (other than to become an
employee of an Affiliate or the Company), such termination shall
affect the Participant's rights under any ISO granted to such
Participant in accordance with the terms of the Plan and the
pertinent Stock Agreement.
- 13 -
<PAGE>
13. EFFECT OF TERMINATION OF SERVICE "FOR CAUSE".
---------------------------------------------
If and only if so provided in the pertinent Stock Agreement, the
following rules apply if the Participant's service (whether as an Employee,
Director, or Consultant) is terminated "for cause" prior to the time that all of
his or her outstanding Stock Rights have been exercised:
a. All outstanding and unexercised Stock Rights as of the date the
Participant is notified that his or her service is terminated "for
cause" will immediately be forfeited.
b. For purposes of this Section 13, "cause" shall include (and is not
limited to) dishonesty with respect to the employer,
insubordination, substantial malfeasance or non-feasance of duty,
unauthorized disclosure of confidential information, and conduct
substantially prejudicial to the business of the Company or any
Affiliate. The determination of the Administrator as to the
existence of cause will be conclusive on the Participant and the
Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If
and only if so provided in the pertinent Stock Agreement, if the
Administrator determines, subsequent to a Participant's termination
of service but prior to the exercise of a Stock Right, that either
prior or subsequent to the Participant's termination the Participant
engaged in conduct which would constitute "cause", then the right to
exercise any Stock Right is forfeited.
d. Any definition in an agreement between the Participant and the
Company or an Affiliate, which contains a conflicting definition of
"cause" for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with
respect to such Participant.
14. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY.
------------------------------------------------
In the event of a termination of service by reason of Disability, a
Stock Right shall be exercisable to the extent that the right to purchase Shares
has accrued on the date of the Participant's Disability and to such additional
extent, if any, as provided in the pertinent Stock Agreement.
- 14 -
<PAGE>
A Disabled Participant may exercise such rights only within such period
as is designated in the Stock Agreement, but not longer than one (1) year after
the date that the Participant became Disabled or, if earlier, within the
originally prescribed term of the Stock Right.
The Administrator shall make the determination both of whether
Disability has occurred and the date of its occurrence (unless a procedure for
such determination is set forth in another agreement between the Company and
such Participant, in which case such procedure shall be used for such
determination). If requested, the Participant shall be examined by a physician
selected or approved by the Administrator, the cost of which examination shall
be paid for by the Company.
15. EFFECT OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
----------------------------------------------------------
In the event of the death of a Participant to whom a Stock Right has
been granted while the Participant is an Employee, Director or Consultant of the
Company or of an Affiliate, such Stock Right may be exercised by the
Participant's Survivors to the extent exercisable but not exercised on the date
of death and to such additional extent, if any, as provided in the pertinent
Stock Agreement.
If the Participant's Survivors wish to exercise the Stock Right, they
must take all necessary steps to exercise the Stock Right within such period as
is designated in the Stock Agreement, but not longer than one (1) year after the
date of death of such Participant, notwithstanding that the decedent might have
been able to exercise the Stock Right as to some or all of the Shares on a later
date if he or she had not died and had continued to be an Employee, Director, or
Consultant or, if earlier, within the originally prescribed term of the Stock
Right.
16. PURCHASE FOR INVESTMENT.
------------------------
Unless the offering and sale of the Shares to be issued upon the
particular exercise of a Stock Right shall have been effectively registered
under the Securities Act of 1933, as now in force or hereafter amended (the
"Securities 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 such Stock Right shall warrant to the
Company, at the time of such exercise or receipt, as the case may
be, 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
- 15 -
<PAGE>
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 their Shares issued pursuant to such
exercise or such grant:
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 Securities Act without
registration thereunder.
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).
17. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
------------------------------------------
Upon the dissolution or liquidation of the Company, all Stock Rights
granted under this Plan which as of such date shall not have been exercised will
terminate and become null and void; provided, however, that if the rights of a
Participant or a Participant's Survivors have not otherwise terminated and
expired, the Participant or the Participant's Survivors will have the right
immediately prior to such dissolution or liquidation to exercise any Stock Right
to the extent that the right to purchase Shares has accrued under the Plan as of
the date immediately prior to such dissolution or liquidation.
18. ADJUSTMENTS.
------------
Upon the occurrence of any of the following events, a Participant's
rights with respect to any Stock Rights previously granted to him or her
hereunder which have not previously been exercised in full shall be adjusted as
hereinafter provided, unless otherwise specifically provided in the applicable
Stock Agreement:
-16-
<PAGE>
a. Stock Dividends and Stock Splits. If the Shares of Common Stock
shall be subdivided or combined into a greater or smaller number of
Shares or if the Company shall issue any Shares of Common Stock as a
stock dividend on its outstanding Common Stock after the date of
grant of a Stock Right, the number of Shares of Common Stock
deliverable upon a subsequent exercise of such Stock Right shall be
appropriately increased or decreased proportionately, and
appropriate adjustments shall be made in the purchase price per
Share to reflect such subdivision, combination or stock dividend.
The number of Shares subject to Options granted or to be granted to
directors pursuant to Section 6A and the purchase price per share
shall also be proportionately adjusted upon the occurrence of such
events.
b. Consolidations or Mergers. If the Company is to be consolidated with
or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an
"Acquisition"), the Administrator or the board of directors of any
entity assuming the obligations of the Company hereunder (the
"Successor Board"), shall, as to outstanding and unexercised Stock
Rights, either (i) make appropriate provision for the continuation
of such Stock Rights by substituting on an equitable basis for the
Shares then subject to such Stock Rights the consideration payable
with respect to the outstanding Shares of Common Stock in connection
with the Acquisition or securities of any successor or acquiring
entity; or (ii) upon written notice to the Participants, provide
that all Stock Rights must be exercised, to the extent then
exercisable, within a specified number of days of the date of such
notice, at the end of which period the Stock Rights shall terminate;
or (iii) terminate all Stock Rights in exchange for a cash payment
equal to the excess of the Fair Market Value of the Shares subject
to such Stock Rights (to the extent then exercisable) over the
exercise price thereof.
c. Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than a
transaction described in paragraph (b) of this Section 18) pursuant
to which securities of the Company or of another corporation are
issued with respect to the outstanding Shares of Common Stock, a
Participant, upon exercising a Stock Right, shall be entitled to
receive for the purchase price paid upon such exercise the
securities he or she would have received if he or she had exercised
such Stock Right prior to such recapitalization or reorganization.
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<PAGE>
d. Modification of ISOs. Notwithstanding the foregoing, any adjustments
made pursuant to paragraphs (a), (b), or (c) with respect to ISOs
shall be made only after the Administrator, after consulting with
counsel for the Company, determines whether such adjustments would
constitute a "modification" of such ISOs (as that term is defined in
Section 424(h) of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Administrator
determines that such adjustments made with respect to ISOs would
constitute a modification of such ISOs, it may refrain from making
such adjustments, unless the holder of an ISO specifically requests
in writing that such adjustment be made and such writing indicates
that the holder has full knowledge of the consequences of such
"modification" on his or her income tax treatment with respect to
the ISO.
19. ISSUANCES OF SECURITIES.
------------------------
Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares subject to Stock Rights. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the Company.
20. FRACTIONAL SHARES.
------------------
No fractional share shall be issued under the Plan and the person
exercising such right shall receive from the Company cash in lieu of such
fractional share equal to the Fair Market Value thereof determined in good faith
by the Board of Directors of the Company.
21. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS: TERMINATION OF ISOs.
-------------------------------------------------------------------
The Administrator, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified Options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
Employee of the Company or an Affiliate at the time of such conversion. Such
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<PAGE>
actions may include, but are not limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such Options. At
the time of such conversion, the Administrator (with the consent of the
optionee) may impose such conditions on the exercise of the resulting
Non-Qualified Options as the Administrator in its discretion may determine,
provided that such conditions shall not be inconsistent with this Plan. Nothing
in the Plan shall be deemed to give any optionee the right to have such
optionee's ISO's converted into Non-Qualified Options, and no such conversion
shall occur until and unless the Administrator takes appropriate action. The
Administrator, with the consent of the optionee, may also terminate any portion
of any ISO that has not been exercised at the time of such conversion.
22. WITHHOLDING.
------------
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Stock Right holder's salary, wages or other remuneration in connection
with the exercise of a Stock Right or a Disqualifying Disposition (as defined in
Section 23), the Stock Right holder shall advance in cash to the Company, or to
any Affiliate of the Company which employs or employed the Stock Right holder,
the amount of such withholdings unless a different withholding arrangement,
including the use of shares of the Company's Common Stock, is authorized by the
Administrator (and permitted by law), provided, however, that with respect to
persons subject to Section 16 of the 1934 Act, any such withholding arrangement
shall be in compliance with any applicable provisions of Rule 16b-3 promulgated
under Section 16 of the 1934 Act. For purposes hereof, the fair market value of
the shares withheld for purposes of payroll withholding shall be determined in
the manner provided in Section 1 above, as of the most recent practicable date
prior to the date of exercise. If the fair market value of the shares withheld
is less than the amount of payroll withholdings required, the Stock Right holder
may be required to advance the difference in cash to the Company or the
Affiliate employer. The Administrator in its discretion may condition the
exercise of a Stock Right for less than the then Fair Market Value on the
Participant's payment of such additional withholding.
23. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
-----------------------------------------------
Each Employee who receives an ISO must agree to notify the Company in
writing immediately after the Employee makes a Disqualifying Disposition of any
Shares acquired pursuant to the exercise of an ISO. A Disqualifying Disposition
is any disposition (including any sale) of such Shares before the later of (a)
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<PAGE>
two years after the date the Employee was granted the ISO, or (b) one year after
the date the Employee acquired Shares by exercising the ISO. If the Employee has
died before such stock is sold, these holding period requirements do not apply
and no Disqualifying Disposition can occur thereafter.
24. TERMINATION OF THE PLAN.
------------------------
The Plan will terminate ten (10) years from the earlier of the date of
its adoption or the date of its approval by the stockholders of the Company. The
Plan may be terminated at an earlier date by vote of the stockholders of the
Company; provided, however, that any such earlier termination will not affect
any Stock Rights granted or Stock Agreements executed prior to the effective
date of such termination.
25. AMENDMENT OF THE PLAN.
----------------------
The Plan may be amended by the stockholders of the Company. The Plan
may also be amended by the Administrator, including, without limitation, to the
extent necessary to qualify any or all outstanding options granted under the
Plan or options to be granted under the Plan for favorable federal income tax
treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code, to the extent necessary
to ensure the qualification of the Plan under Rule 16b-3 at such time if any as
the Company has a class of stock registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, and to the extent necessary to
qualify the shares issuable upon exercise of any outstanding options granted, or
options to be granted, under the Plan for listing on any national securities
exchange or quotation in any national automated quotation system of securities
dealers. Any amendment approved by the Administrator which is of a scope that
requires stockholder approval in order to ensure favorable federal income tax
treatment for any incentive stock options or requires stockholder approval in
order to ensure the qualification of the Plan under Rule 16b-3 at such time if
any as the Company has a class of stock registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, shall be subject to obtaining such
stockholder approval. Any modification or amendment of the Plan shall not,
without the consent of a Participant, affect his or her rights under a Stock
Right previously granted to him or her. With the consent of the Participant
affected, the Administrator may amend outstanding Stock Agreements in a manner
not inconsistent with the Plan. So long as any shares of the Company's Series B
Stock shall be outstanding, in no event may the second sentence of Section 3 be
amended without the consent of holders of at least a majority of the Series B
Stock.
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<PAGE>
26. EMPLOYMENT OR OTHER RELATIONSHIP.
---------------------------------
Nothing in this Plan or any Stock Agreement shall be deemed either to
prevent the Company or an Affiliate from terminating the employment, consultancy
or directorship of a Participant nor to prevent a Participant from terminating
his or her own employment, consultancy or directorship or to give any
Participant a right to be retained in employment or other service by the Company
or any Affiliate for any period of time.
27. GOVERNING LAW.
--------------
This Plan shall be construed and enforced in accordance with the law of
the State of Delaware.
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<PAGE>
Consent of Independent Auditors
We consent to the reference to our Firm under the caption "Experts" in the
Registration Statement (Form S-8) pertaining to the Sparta Pharmaceuticals, Inc.
amended 1991 Stock Plan and the incorporation by reference therein of our report
dated January 31, 1996 (except for Note 13, as to which the date is March 15,
1996) with respect to the financial statements of Sparta Pharmaceuticals, Inc.
included in its Annual Report on Form 10-K, as amended, for the year ended
December 31, 1995, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
-----------------------
Ernst & Young LLP
Raleigh, North Carolina
January 23, 1997
<PAGE>
ARTHUR
ANDERSEN
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this S-8 Registration Statement of our report dated January 17,
1996 on the financial statements of Lexin Pharmaceutical Corporation included in
Sparta Pharmaceuticals, Inc.'s Form 8-K/A and to all references to our Firm
included in this Registration Statement.
/s/ Arthur Andersen LLP
-----------------------------------
Philadelphia, Pa.,
January 23, 1997
