SPARTA PHARMACEUTICALS INC, DEF 14A, 1998-04-03

SPARTA PHARMACEUTICALS INC
DEF 14A, 1998-04-03
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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<PAGE>

SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.________ )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11 (c) or Rule 14a-12

Sparta Pharmaceuticals, Inc.
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(Name of Registrant as Specified In Its Charter)

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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

1) Title of each class of securities to which transaction applies:

--------------------------------------------------

2) Aggregate number of securities to which transaction applies:

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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):

--------------------------------------------------

4) Proposed maximum aggregate value of transaction:

--------------------------------------------------

5) Total fee Paid:
--------------------------------------------------

[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing:

1) Amount previously paid:

--------------------------------------------------------
2) Form, Schedule or Registration Statement No:

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3) Filing party:

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4) Date Filed:

<PAGE>

April 3, 1998

Dear Stockholder,

You are cordially invited to attend the 1998 Annual Meeting of
Stockholders of Sparta Pharmaceuticals, Inc. (the "Company") to be held at 10:00
a.m. on Monday, May 11, 1998 at 111 Rock Road, Horsham, Pennsylvania.

At the Annual Meeting, two persons will be elected to the Board of
Directors. In addition, the Company will ask the stockholders to approve an
amendment to the Company's Certificate of Incorporation (the "Amendment") which
will effect a one-for-five reverse stock split (the "Reverse Split") of the
outstanding shares of Common Stock and to ratify the selection of Arthur
Andersen LLP as the Company's independent public accountants. The Board of
Directors recommends the approval of each of these proposals. Such other
business will be transacted as may properly come before the Annual Meeting.

We hope you will be able to attend the Annual Meeting. Whether you plan
to attend the Annual Meeting or not, it is important that your shares are
represented. Therefore, you are urged promptly to complete, sign, date and
return the enclosed proxy card in accordance with the instructions set forth on
the card. This will ensure your proper representation at the Annual Meeting.

Sincerely,

/s/ Jerry B. Hook
-------------------------------
Jerry B. Hook, Ph.D.
Chairman of the Board

YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY PROMPTLY.

<PAGE>

SPARTA PHARMACEUTICALS, INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To be held on May 11, 1998

To the Stockholders of Sparta Pharmaceuticals, Inc.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Sparta Pharmaceuticals, Inc., a Delaware corporation (the "Company"), will be
held at 10:00 a.m. on Monday, May 11, 1998, at the Company's principal executive
offices located at 111 Rock Road, Horsham, Pennsylvania, 19044 for the following
purposes:

1. To elect two members to the Board of Directors to serve for three-year
terms ending at the Annual Meeting of Stockholders in 2001 and until
their respective successors are duly elected and qualified or their
earlier resignations or removals.

2. To consider and vote upon a proposal to approve an amendment to the
Restated Certificate of Incorporation of the Company (the "Amendment")
which will effect a reverse stock split (the "Reverse Split") of the
Company's outstanding shares of Common Stock on the basis of one new
share of Common Stock for each five outstanding shares of Common Stock.

3. To consider and vote upon a proposal to ratify the appointment of
Arthur Andersen LLP as the Company's independent public accountants for
the fiscal year ending December 31, 1998.

4. To transact such other business as may be properly brought before the
Annual Meeting and any adjournments thereof.

The Board of Directors has fixed the close of business on March 20,
1998 as the record date for the determination of Stockholders entitled to notice
of and to vote at the Annual Meeting and at any adjournments thereof.

All Stockholders are cordially invited to attend the Annual Meeting.
Whether you plan to attend the Annual Meeting or not, you are requested to
complete, sign, date and return the enclosed proxy card as soon as possible in
accordance with the instructions on the proxy card. A pre-addressed, postage
prepaid return envelope is enclosed for your convenience. If you attend the
meeting, you may vote in person even though you have sent in your proxy.

BY ORDER OF THE BOARD OF DIRECTORS

/s/ Jerry B. Hook
--------------------------------------
Jerry B. Hook, Ph.D.
Chairman of the Board

Horsham, Pennsylvania
April 3, 1998

<PAGE>

SPARTA PHARMACEUTICALS, INC.
111 Rock Road
Horsham, Pennsylvania 19044-2310
(215) 442-1700
------------------------------

PROXY STATEMENT
FOR THE ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD ON May 11, 1998
-------------------------------

GENERAL INFORMATION

This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Sparta Pharmaceuticals, Inc., a Delaware
corporation, (the "Company") of proxies, in the accompanying form, to be used at
the Annual Meeting of Stockholders to be held at 111 Rock Road, Horsham,
Pennsylvania, on Monday, May 11, 1998 at 10:00 am, and any adjournments or
postponements thereof (the "Meeting"). This Proxy Statement and the accompanying
proxy are being mailed on or about April 3, 1998 to all stockholders entitled to
notice of and to vote at the Meeting (the "Stockholders" and each a
"Stockholder").

The close of business on March 20, 1998 has been fixed as the record
date for determining the Stockholders entitled to notice of and to vote at the
Meeting. As of the close of business on March 20, 1998, the Company had
16,357,706 shares of Common Stock outstanding and entitled to vote and 966,312
shares of Series B' Preferred Stock outstanding and entitled to vote. Holders of
Common Stock are entitled to one vote per share on all matters to be voted on by
Stockholders. On March 20, 1998, holders of Series B' Preferred Stock were
entitled to 13.333333 votes per share of Series B' Preferred Stock held (based
on the conversion rate in effect on that date of 13.333333 shares of Common
Stock for each share of Series B' Preferred Stock), rounded to the nearest whole
number.

Where the Stockholder specifies a choice on the proxy as to how his or
her shares are to be voted on a particular matter, the shares will be voted
accordingly. If no choice is specified, the shares will be voted FOR the
election of the nominees for director named herein, FOR the Amendment to effect
the Reverse Split (each term defined below) and FOR the ratification of the
appointment of Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ending December 31, 1998. Any proxy given
pursuant to this solicitation may be revoked by the person giving it at any time
before its use by delivering to the Company a written notice of revocation or a
duly executed proxy bearing a later date. Any Stockholder who has executed a
proxy but is present at the Meeting, and who wishes to vote in person, may do so
by revoking his or her proxy as described in the preceding sentence. The
presence, in person or by proxy, of the holders of a majority of the outstanding
shares of the stock entitled to vote is necessary to constitute a quorum at the
Meeting. Abstentions and broker non-votes will be treated as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. In the event that a quorum is not present at the time the Meeting is
convened, or if for any other reason the Company believes that additional time
should be allowed for the solicitation of proxies, the Company may adjourn the
Meeting with or without a vote of the Stockholders. If the Company proposes to
adjourn the Meeting by a vote of the Stockholders, the persons named in the
enclosed form of proxy will vote all shares of Common Stock, $.001 par value per
share, ("Common Stock") and Series B' Convertible Preferred Stock, $.001 par
value per share, ("Series B' Preferred Stock") for which they have voting
authority in favor of such adjournment.

The election of directors requires a plurality of the shares voted
affirmatively. The Amendment to effect the Reverse Split requires the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock and Series B' Preferred Stock voting together as a single class.
The affirmative vote of a majority of the votes cast at the Meeting is required
to approve the ratification of the appointment of Arthur Andersen LLP as the
Company's independent public accountants. With respect to the tabulation of
votes on any matter, abstentions have the effect of votes against a proposal,
while broker non-votes have no effect on the vote, except with respect to the
Amendment to effect the Reverse Split, in which case broker non-votes have the
effect of votes against the proposal.

<PAGE>

The cost of soliciting proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company. In
addition, the Company will reimburse brokerage firms and other persons
representing beneficial owners of Common Stock of the Company for their expenses
in forwarding proxy material to such beneficial owners. Solicitation of proxies
by mail may be supplemented by telephone, telegram, telex and personal
solicitation by the directors, officers or employees of the Company. The Company
has engaged Corporate Investor Communications, Inc. ("CIC"), an independent
proxy solicitation firm, to assist the Company in the distribution and
solicitation of proxies for the Meeting. The Company has agreed to pay CIC a fee
of $5,000 plus out-of-pocket expenses for these services.

The Annual Report to Stockholders for the fiscal year ended December
31, 1997 is being mailed to the Stockholders with this Proxy Statement, but does
not constitute a part hereof.

<PAGE>

SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL STOCKHOLDERS

The following table sets forth certain information as of March 1, 1998
concerning the beneficial ownership of Common Stock by each person known by the
Company to be the beneficial owner of more than 5% of its outstanding shares of
Common Stock, each current member of the Board of Directors, each executive
officer named in the Summary Compensation Table and all current directors and
executive officers as a group.
<TABLE>
<CAPTION>

Directors, Named Executive Shares Percentage
Officers and Beneficially Beneficially
Principal Stockholders** Owned(1) Owned(1)
------------------------ -------- --------

<S> <C> <C> <C>
Lindsay A. Rosenwald, M.D. (2)......................................... 2,271,003 12.9%
c/o Paramount Capital Incorporated
787 Seventh Avenue
New York, NY 10019

126736 Canada, Inc. (3)................................................ 2,100,000 11.6%
1310 Green Avenue, Suite 660
Westmont, Quebec
Canada H3Y 1J8

Lou Wiesbach (4)....................................................... 1,005,000 6.3%
c/o Norman J. Gantz
Neal, Gerber & Eisenberg
Two North LaSalle Street
Chicago, IL 60602

Kalman & Ruki Renov(5)................................................. 874,490 5.5%
c/o D.H. Blair & Co., Inc.
44 Wall Street
New York, NY 10005

Jerry B. Hook, Ph.D. (6)............................................... 542,748 3.3%

Richard L. Sherman (7)................................................. 280,041 1.8%

William M. Sullivan (8)................................................ 255,666 1.6%

Ronald H. Spair (9).................................................... 234,499 1.5%

Peter Barton Hutt (10)................................................. 66,666 *

Sir John Vane, FRS (10)(11)............................................ 66,666 *

Colin B. Bier, Ph.D. (12).............................................. 6,250 *

Martin Rose, M.D., J.D. (13)........................................... -- *

All Directors and executive officers as a group
(9 persons)(2) (6) (7) (8) (9) (10) (11) (12) (13) (14).............. 3,723,539 20.1%
</TABLE>
- -------------------
* Represents beneficial ownership of less than 1% of Common Stock.
** Addresses are given for beneficial owners of more than 5% of the
outstanding Common Stock only.

<PAGE>

(1) The number of shares of Common Stock issued and outstanding on March 1,
1998 was 15,960,903. The calculation of percentage ownership for each
listed beneficial owner is based upon the number of shares of Common
Stock issued and outstanding at March 1, 1998, plus shares of Common
Stock subject to options, warrants and conversion privileges held by
such person at March 1, 1998 and exercisable within 60 days thereafter.
The persons and entities named in the table have sole voting and
investment power with respect to all shares shown as beneficially owned
by them, except as noted below. A share of Series B' Preferred Stock is
convertible into 13.333333 shares of Common Stock at March 1, 1998.

(2) Includes an aggregate of 111,777 shares held by Dr. Rosenwald's spouse
individually or as custodian for the benefit of his children as to which
Dr. Rosenwald may be deemed to be the beneficial owner, but for which he
disclaims beneficial ownership. Also includes 1,618,935 shares issuable
upon the exercise of warrants to purchase Common Stock issued in
connection with private placements of the Company's securities.

(3) Includes 1,400,000 shares of Common Stock issuable upon conversion of
105,000 shares of Series B' Preferred Stock. Also includes 700,000
shares of Common Stock issuable upon the exercise of 700,000 Class C
Warrants.

(4) This information is based solely on a Schedule 13D/13G filed with the
Securities and Exchange Commission dated November 26, 1997.

(5) This information is based solely on a Schedule 13D/13G filed with the
Securities and Exchange Commission dated September 10, 1997.

(6) Includes 243,750 shares of Common Stock that Dr. Hook may acquire upon
the exercise of options within 60 days of March 1, 1998, 133,332 shares
of Common Stock issuable upon conversion of 10,000 shares of Series B'
Preferred Stock and 66,666 shares of Common Stock issuable upon the
exercise of 66,666 Class C Warrants. Excludes options to purchase
456,250 shares which are not exercisable within 60 days of March 1,
1998.

(7) Mr. Sherman is a shareholder of the corporate General Partner of CIP
Capital, L.P. which owns 280,041 shares of Common Stock.

(8) Includes 255,000 shares of Common Stock that Mr. Sullivan may acquire
upon the exercise of options within 60 days of March 1, 1998.

(9) Includes 85,000 shares of Common Stock that Mr. Spair may acquire upon
the exercise of options within 60 days of March 1, 1998, 66,666 shares
of Common Stock issuable upon conversion of 5,000 shares of Series B'
Preferred Stock and 33,333 shares of Common Stock issuable upon the
exercise of 33,333 Class C Warrants. Excludes options to purchase
180,000 shares which are not exercisable within 60 days of March 1,
1998.

(10) Includes 50,000 shares of Common Stock issuable upon the exercise of
options within 60 days of March 1, 1998. Excludes options to purchase
10,000 shares which are not exercisable within 60 days of March 1, 1998.

(11) Includes 16,666 shares issued and outstanding which are owned by the Sir
John Vane Trust, a trust for the benefit of Sir John Vane's children,
for which Sir John Vane acts as one of three trustees, as to which he
may be deemed to be a beneficial owner, but for which he disclaims
beneficial ownership.

(12) Includes 6,250 shares of Common Stock issuable upon the exercise of
options within 60 days of March 1, 1998. Excludes options to purchase
28,750 shares which are not exercisable within 60 days of March 1, 1998.

<PAGE>

(13) Excludes options to purchase 175,000 shares of Common Stock which are
not exercisable within 60 days of March 1, 1998.

(14) Includes 690,000 shares of Common Stock issuable upon exercise of
options within 60 days of March 1, 1998, 199,998 shares of Common Stock
issuable upon conversion of 15,000 shares of Series B' Preferred Stock,
and 1,718,934 shares of Common Stock issuable upon exercise of
outstanding warrants. Excludes options to purchase 860,000 shares of
Common Stock which are not exercisable within 60 days of March 1, 1998.

<PAGE>

MANAGEMENT

Directors

The Company's Restated By-Laws (the "By-Laws") provide for the Company's
business to be managed by or under the direction of the Board of Directors.
Under the Company's By-Laws, the number of directors is fixed from time to time
by the Board of Directors. The Board of Directors currently consists of seven
members, classified into three classes as follows:; Lindsay A. Rosenwald, M.D.
and Jerry B. Hook, Ph.D. constitute a class with a term ending in 1999 (the
"Class II directors"); William M. Sullivan, Sir John Vane, FRS and Colin B.
Bier, Ph.D. constitute a class with a term ending in 2000 (the "Class III
directors"); and Peter Barton Hutt and Richard L. Sherman constitute a class
with a term which expires at the upcoming Meeting (the "Class I directors"). At
each annual meeting of Stockholders, directors are elected for a full term of
three years to succeed those directors whose terms are expiring.

Pursuant to the Company's By-Laws, the Board of Directors on March 16, 1998
voted (i) to set the size of the Board of Directors at seven and (ii) to
nominate Peter Barton Hutt and Richard L. Sherman for election at the Meeting
for terms of three years to serve until the 2001 annual meeting of Stockholders,
and until their respective successors have been elected and qualified. The Class
II directors (Lindsay A. Rosenwald, M.D. and Jerry B. Hook, Ph.D.) and the Class
III directors (William M. Sullivan, Sir John Vane, FRS and Colin B. Bier,
Ph.D.)will serve until the annual meetings of Stockholders to be held in 1999
and 2000, respectively, and until their respective successors have been elected
and qualified.

The names of the Company's current directors and certain information about them
are set forth below:
<TABLE>
<CAPTION>

Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
Jerry B. Hook, Ph.D....................... 60 Chairman of the Board, President and CEO
William M. Sullivan(1).................... 63 Director
Colin B. Bier, Ph.D....................... 52 Director
Peter Barton Hutt(1)(2)................... 63 Director
Lindsay A. Rosenwald, M.D.(2)............. 42 Director
Richard L. Sherman........................ 51 Director
Professor Sir John Vane................... 71 Director
</TABLE>
- ----------------------
(1) Indicates a member of the Audit Committee.
(2) Indicates a member of the Compensation Committee.

Jerry B. Hook, Ph.D. has been Chairman of the Board since March 1998 and has
served as a Director, President and Chief Executive Officer of the Company since
March 1996. He has worked in the pharmaceutical sector (first as a professor and
then as a business executive) since 1966. From January 1993 until March 1996,
Dr. Hook served as President and Chief Executive Officer of Lexin Pharmaceutical
Corporation, a development stage biopharmaceutical company. Prior thereto, Dr.
Hook spent ten years in various positions at SmithKline Beecham, plc, and at the
time of his departure from SmithKline Beecham, plc in January 1993 served as its
Senior Vice President and Director of Worldwide Development. In such position,
Dr. Hook had worldwide responsibility for all non-clinical drug development.
Prior to joining SmithKline Beecham, plc, Dr. Hook served as a professor of
pharmacology on the faculty of Michigan State University from 1966 to 1983. Dr.
Hook also serves on numerous editorial boards and advisory committees, and his
memberships in scientific societies include the Toxicology Section of the
International Union of Pharmacology (of which he is past Chairperson) and the
Society of Toxicology (of which he is past President). Dr. Hook received a
bachelors degree in Pharmacy from Washington State University and a Ph.D. in
Pharmacology from the University of Iowa.

<PAGE>

William M. Sullivan, a founder of the Company, served as Sparta's Chairman
from February 1991 to March 1998 and as President and Chief Executive Officer of
the Company from October 1991 to March 1996. He has worked in the pharmaceutical
industry since 1966. He has been associated as chairman, director, executive or
consultant with a number of development stage companies in the pharmaceutical
and biotechnology fields since 1986, including The Immune Response Corporation
(founding Chairman, March 1987 to May 1993 and a director since May 1993),
ProCyte Corporation (a director since September 1991), and VimRx Pharmaceuticals
Inc. (a director from July 1990 to June 1991). He has been a director of
Research Corporation Technologies, a technology transfer company, since December
1994. He was Chairman, President and Chief Executive Officer of Burroughs
Wellcome Co. from 1981 to 1986, and Vice President, General Counsel and
Secretary from 1974 to 1981. He also served as Regional Director for the
Americas of Wellcome plc from 1982 to 1986. Prior thereto, Mr. Sullivan served
at Ciba-Geigy Corporation from 1965 to 1973, where he was counsel to its
pharmaceuticals division, and later Director of the Legal Department and
Associate General Counsel. He received an A.B. cum laude from the University of
Notre Dame and a J.D. from Harvard Law School.

Peter Barton Hutt has been a Director since December 1991. He has been a
partner in the Washington, D.C. law firm of Covington & Burling during the
period from 1968 through 1971 and since 1975 and has been associated with the
firm since 1960. He also served as Chief Counsel of the United States Food and
Drug Administration ("FDA") from 1971 to 1975. Mr. Hutt served from 1988 to 1990
on the National Committee to Review Current Procedures for Approval of New Drugs
for Cancer and AIDS, which was established by the President's Cancer Panel of
the National Cancer Institute. His memberships include the Institute of Medicine
of the National Academy of Sciences and the Boards of the Foundation for
Biomedical Research and the Center for Study of Drug Development at Tufts
University, along with a number of other industry, government and professional
governing and advisory groups. He currently serves on the Boards of Interneuron
Pharmaceuticals, Inc. and Emisphere Technologies, Inc. He received a B.A. from
Yale University, an LL.B. from Harvard University, and an LL.M. from New York
University.

Lindsay A. Rosenwald, M.D. has been a Director since February 1991. Dr.
Rosenwald is the founder and currently serves as the Chairman and Chief
Executive Officer of Paramount Capital Incorporated, a healthcare investment
banking firm and NASD affiliated broker-dealer, Paramount Capital Investments,
LLC, a biotechnology merchant banking firm and Paramount Capital Asset
Management, an asset management firm specializing in the health sciences
industry. Dr. Rosenwald is the founder and Chairman of Interneuron
Pharmaceuticals, Inc., and serves as a director of each of the following
publicly-traded companies: Avigen, Inc., BioCryst Pharmaceuticals, Inc., Neose
Technologies, Inc., Titan Pharmaceuticals, Inc., and VimRx Pharmaceuticals, Inc.
In addition, Dr. Rosenwald currently serves on the Board of Directors of several
privately-held biotechnology companies. Dr. Rosenwald received his M.D. from
Temple University School of Medicine and his B.S. in Finance from Pennsylvania
State University.

Richard L. Sherman has been a Director since March 1996. Since June 1993, he
has been a principal in C.I.P. Capital Management, Inc., a private SBIC
investment firm which makes non-public equity investments in technology-based
businesses. He is also a founding partner of QED Technologies, a consulting firm
established in 1992. Mr. Sherman presently serves on the Board of Directors of
IBAH, Inc. and is a member of the investment advisory committee of the Ben
Franklin Technology Center and serves on the Executive Board of the START
Technology Partnership. Prior to founding QED Technologies, Mr. Sherman served
as Deputy General Counsel of SmithKline Beckman Corporation (now SmithKline
Beecham, plc). He was with SmithKline Beecham, plc from 1976 to 1989. Prior to
joining SmithKline Beecham, plc, Mr. Sherman was in private legal practice, as a
partner in the Philadelphia law firms of Pepper, Hamilton, & Sheetz, and
Ballard, Spahr, Andrews and Ingersoll. Mr. Sherman received his bachelors degree
magna cum laude from the University of Nebraska and his J.D. from New York
University School of Law.

Professor Sir John Vane has been a Director since December 1991. He is the
Honorary President of The William Harvey Research Institute at St. Bartholomew's
Hospital Medical College in London where he served as Chairman and Director from
1986 to 1997. From 1973 to 1986, he was Group Research and Development Director
of Wellcome plc. In 1982, Professor Vane was honored with the Nobel Prize in
Physiology or Medicine. In 1984, he was named a Knight Bachelor in the New Year
Honors List for his services to pharmaceutical research. Professor Vane has
served as a Director of Vanguard Medica Pharmaceutical Company, a development
stage pharmaceutical company, since July 1991. In 1997, he

<PAGE>

became a Director of deCode Genetics. He received bachelors degrees in Chemistry
(Birmingham University) and Pharmacology (Oxford University), and doctorates in
Philosophy and Science from Oxford University.

Colin B. Bier, Ph.D. has been a Director since September 1996. Since
September 1989, Dr. Bier has been Managing Director of ABA BioResearch, an
independent bioregulatory consulting firm. Prior thereto, he was Vice President
of Experimental Toxicology and Clinical Pathology at Bio-Research Laboratories,
Ltd. in Montreal, Quebec. He is a leading authority on toxicology,
pharmaceutical and biotechnology regulatory and strategic development. Dr. Bier
serves as a director of several private companies and the following
publicly-traded pharmaceutical biotechnology companies: NYMOX Corporation,
Neurochem, Boston Life Sciences, Maxim Pharmaceuticals, Receptagen and Biochem
Vaccines, Inc. He also serves on the Scientific Advisory Boards of several
biotechnology companies. Dr. Bier received his Ph.D. in Experimental Pathology
from Colorado State University.

Committees of the Board of Directors and Meetings

Meeting Attendance. During the fiscal year ended December 31, 1997, there were
four regularly scheduled meetings of the Board of Directors, and the various
committees of the Board of Directors met three times. No director attended fewer
than 75% of the total number of meetings of the Board of Directors and of
committees of the Board on which he served during fiscal 1997. In addition
during fiscal 1997, the Board acted once by unanimous written consent pursuant
to Delaware law.

Committees. The standing committees of the Board of Directors are the Audit
Committee and the Compensation Committee. The Company does not have a standing
Nominating Committee of the Board of Directors.

Audit Committee. The Audit Committee has two members, Mr. Sullivan and Mr.
Hutt. The Audit Committee reviews the engagement of the Company's independent
accountants, reviews annual financial statements, considers matters relating to
accounting policy and internal controls, reviews the scope of annual audits,
reviews the appropriateness of accounting principles and the adequacy of
financial operating controls, recommends independent public accountants to the
Board of Directors, and monitors, reviews and approves external auditing
services and fees, and reviews related party transactions. The Audit Committee
met two times during the year ended December 31, 1997.

Compensation Committee. The Compensation Committee, which met one time during
fiscal 1997, has two members, Dr. Rosenwald and Mr. Hutt. Duties and authority
of the Compensation Committee include establishing compensation programs for the
Company's executive employees, advising management with respect to compensation-
related matters and employee benefit matters, administering (other than routine
administration) employee and non-employee benefit plans, including the 1991
Stock Plan, and the issuance of shares of the Company's capital stock (or other
securities convertible into or exchangeable or exercisable for shares of the
Company's capital stock) in connection with compensation arrangements for the
Company's directors, officers, employees and consultants, and reviewing
executive development and succession, and such other duties as the Board of
Directors may determine.

Compensation of Directors

On December 15, 1993, all non-employee Directors other than Dr. Rosenwald
received a one-time grant of non-qualified stock options to purchase 20,000
shares of Common Stock. These options vest in four equal annual installments
commencing on the first anniversary of the grant date subject to continuing
service as a Director and have an exercise price of $6.00 per share. All new
non-employee Directors will be granted non-qualified stock options to purchase
25,000 shares of Common Stock upon their election to the Board, which options
will vest in four equal annual installments, subject to continuing service as a
Director, and have an exercise price equal to the fair market value of the
Company's Common Stock on the date of grant. On the date of each annual meeting,
all non-employee Directors, other than Dr. Rosenwald and Mr. Sherman, will
receive non-qualified stock options to purchase 10,000 shares of Common Stock,
which options will vest in full after one year, subject to continuing service as
a Director, with an exercise price equal to the fair market value of the

<PAGE>

Company's Common Stock on the date of grant. Options to purchase an aggregate of
30,000 shares were granted under this formula during fiscal 1997 to Mr. Hutt,
Professor Vane and Dr. Bier. Options granted during fiscal 1997 to Dr. Hook are
reported under "Executive Compensation." Beginning in September 1996, all
non-employee directors, excluding Dr. Rosenwald, receive a retainer of $1,500
per quarter along with an additional cash stipend for Board Meeting attendance
of $1,500 if in person, $500 if by phone. In addition, the Company reimburses
directors for expenses of attendance at meetings of the Board of Directors and
committees of the Board.

Executive Officers

The names of, and certain information regarding, the executive officers of the
Company who are not directors, are set forth below. Executive officers of the
Company serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>

Name Age Position
---- --- --------

<S> <C>
Martin Rose, M.D., J.D.................. 51 Vice President of Clinical and Regulatory Affairs
Ronald H. Spair......................... 42 Senior Vice President, Chief Financial Officer and
Secretary

</TABLE>

Dr. Martin Rose has been Vice President of Clinical and Regulatory Affairs
since September 1997. From November 1994 until September 1997, Dr. Rose served
as Vice President, Drug Development of Quintiles Worldwide Strategic Consulting,
a firm specializing in pharmaceutical clinical research and regulatory affairs.
From July 1993 to November 1994, he served as Senior Vice President, Clinical
and Regulatory Affairs of Alpha 1 Biomedicals, Inc., a development stage
biopharmaceutical company. Dr. Rose was Senior Director for Government Affairs
at Genentech, Inc. from July 1988 to July 1993 where he was primarily involved
in pharmaceutical regulatory affairs, government relations and clinical
research. Prior thereto, he had been the Medical Officer and Group Leader,
Division of Cardio-Renal Drug Products, at the US Food and Drug Administration.
Dr. Rose was a former associate attorney at the law firm of Arnold & Porter.
Early in his career, Dr. Rose maintained a private practice in Endocrinology and
Internal Medicine. Dr. Rose received his M.D. from the University of California,
San Francisco, School of Medicine and his J.D. from the University of
California, Berkeley, School of Law.

Ronald H. Spair, has been Senior Vice President of the Company since June
1997, Company Secretary since June 1996 and Chief Financial Officer since March
1996. He has worked in the biotechnology industry since 1990. From October 1993
until March 1996, Mr. Spair served as Vice President and Chief Financial Officer
of Lexin Pharmaceutical Corporation, a development stage biopharmaceutical
company. Prior thereto, Mr. Spair served as Vice President, Chief Financial
Officer and Assistant Secretary of Envirogen, Inc., an environmental
biotechnology company, from May 1990 to August 1993. From July 1982 until May
1990, Mr. Spair served in various positions at Image Storage/Retrieval Systems,
Inc., and at the time of his departure served as Vice President, Chief Financial
Officer and Secretary. Mr. Spair received a B.S. in Accounting and an M.B.A.
from Rider College. He is a licensed Certified Public Accountant in New Jersey.

<PAGE>

EXECUTIVE COMPENSATION

Summary Compensation Table

The following Summary Compensation Table sets forth summary
information as to compensation awarded to, earned by or paid to the Company's
Chief Executive Officer and the next most highly compensated executive officers
of the Company (other than the CEO) (collectively, the "Named Executive
Officers") for services rendered to the Company in all capacities during the
fiscal years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>

Summary Compensation Table

Annual Long Term
Compensation Compensation
------------ ------------
Securities
Underlying All Other
Name and Fiscal Salary Options Compensation
Principal Position Year ($) (#)(4) ($)
- -------------------------- ------ ---------- ------------ ---------

<S> <C> <C> <C> <C>
Jerry B. Hook, Ph.D. 1997 $220,000 175,000 $ 78,888(6)
President and CEO 1996(1) $174,167 525,000(5) $ 2,956(7)

William M. Sullivan(2) 1997 $120,000 $ 8,900(8)
Former Chairman, 1996 $144,270 75,000 $ 8,180(8)
President and CEO 1995 $200,000 50,000 $ 5,530(8)

Ronald H. Spair(3) 1997 $120,000 75,000 $38,352(10)
Sr. Vice President, CFO 1996(3) $ 95,000 190,000(9) $0
and Secretary

</TABLE>
- -----------------------
(1) Dr. Hook was appointed President and Chief Executive Officer in March 1996
in connection with the Company's acquisition of Lexin Pharmaceutical
Corporation.

(2) Mr. Sullivan served as the Company's Chairman until March 1998 and as its
President and Chief Executive Officer until March 1996.

(3) Mr. Spair was appointed Chief Financial Officer in March 1996 in
connection with the Company's acquisition of Lexin Pharmaceutical
Corporation.

(4) Options to purchase the number of shares shown were granted pursuant to
the 1991 Stock Plan.

(5) Includes non-qualified stock options to purchase 450,000 shares of Common
Stock granted in March 1996, which options were repriced on December 5,
1996 at an exercise price of $1.125 per share, and incentive stock options
to purchase 75,000 shares of Common Stock granted in December 1996.

(6) Represents additional deemed compensation in the amount of $74,947 in
connection with the forgiveness of a portion of the loan granted by the
Company for the purchase of Preferred Stock, and the annual premium
payment made in 1997 in the amount of $3,941 on an insurance policy on Dr.
Hook's life in the amount of $714,000 payable to his beneficiaries.

(7) Represents the annual premium payment made in 1996 on an insurance policy
on Dr. Hook's life in the amount of $714,000 payable to his beneficiaries.
This policy is in addition to the $2 million "key man" insurance policy on
Dr. Hook's life payable to the Company.

<PAGE>

(8) Represents the annual premium payments made on a term insurance policy on
Mr. Sullivan's life in the amount of $1 million payable to his
beneficiaries.

(9) Includes non-qualified stock options to purchase 150,000 shares of Common
Stock granted in March 1996, which options were repriced on December 5,
1996 at an exercise price of $1.125 per share.

(10) Represents additional deemed compensation in connection with the
forgiveness of a portion of the loan granted by the Company for the
purchase of Preferred Stock.

Unless otherwise disclosed, the value of certain perquisites or personal
benefits is not included in the amounts disclosed above because it did not
exceed, for any Named Executive Officer, the lesser of either $50,000 or 10% of
total annual salary and bonus reported for the Named Executive Officer.

Option Grants in Last Fiscal Year

The following table sets forth information regarding each stock option
granted during the fiscal year ended December 31, 1997 to each of the Named
Executive Officers.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year

Individual Grants
-----------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted (#)(1) Fiscal Year ($/Share) Date
---- -------------- ----------- --------- ----

<S> <C> <C> <C> <C> <C>
Jerry B. Hook, Ph.D. 175,000(2) 28% $.445 12/8/07

Ronald H. Spair 75,000(2) 12% $.445 12/8/07

</TABLE>
- ----------------------
(1) All options shown were granted under the 1991 Stock Plan. (2) Represents
Incentive Stock Options which vest annually in four equal
installments commencing one year from the date of grant and having a term
which expires ten years from the date of grant.

Option Exercises in Last Fiscal Year and Fiscal Year-End Values

One of the Named Executive Officers exercised options during the fiscal
year ended December 31, 1997. The following table provides information, as of
December 31, 1997, regarding the number of shares covered by both exercisable
and unexercisable stock options. At December 31, 1997, there were no outstanding
"in-the-money" (the positive spread between the exercise price of any such
option and the fiscal year-end value ($.375) of the Company's Common Stock)
options.

<PAGE>

Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
<TABLE>
<CAPTION>

Number of Securities Underlying Value of the Unexercised
Shares Unexercised Options In-The-Money Options
Acquired at Fiscal Year-E at Fiscal Year-End($) (1)
on Value ------------------ -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------

<S> <C> <C> <C> <C> <C> <C>
Jerry B. Hook, Ph.D. 0 $ 0 130,750 569,250 $ N/A $ N/A

Ronald H. Spair 0 $ 0 47,500 217,500 $ N/A $ N/A

William M. Sullivan 166,666 $38,302 239,375 15,625 $ N/A $ N/A

</TABLE>

- ------------------------
(1) The value of unexercised in-the-money options at fiscal year end
assumes a fair market value for the Company's Common Stock of $.375,
the closing sale price per share of the Company's Common Stock as
reported on the Nasdaq SmallCap Market on December 31, 1997.

------------------------

Employment Agreements, Termination and Change in Control Arrangements

During fiscal 1997, Mr. Sullivan was employed as the Company's Chairman
of the Board. Effective March 15, 1998, Mr. Sullivan resigned his position as
Chairman of the Board while retaining his Board membership. Pursuant to the
terms of his Employment Agreement, as amended, Mr. Sullivan is entitled to
certain perquisites for the year following his resignation as Chairman of the
Board.

Dr. Hook is employed as President and Chief Executive Officer of the
Company under an agreement (the "Hook Agreement") with an initial term that
expires on March 15, 1999, which will be automatically extended for additional
one-year periods unless either party elects to terminate the Hook Agreement at
least 90 days prior to the commencement of any such additional term. Dr. Hook
has agreed to devote substantially all of his time to the affairs of the
Company. His current annual base salary is $220,000 per year. In the event that
Dr. Hook's employment is terminated by the Company (other than for cause or
permanent or total disability, but including constructive termination which
includes (i) failure to be nominated or elected to the Board of Directors and
failure to be reelected, (ii) a material reduction in Dr. Hook's authority or
(iii) failure of the Company to comply with certain of the material terms of the
Hook Agreement), Dr. Hook shall be paid his then annual base salary for a period
of 12 months and be entitled to receive certain benefits for a period of 12
months. If the Company elects not to extend Dr. Hook's employment period for an
additional one-year term, Dr. Hook shall be paid his then annual base salary
over a period of 12 months following the date of such termination and be
eligible to receive certain benefits for up to 12 months following the date of
such termination. In the event that Dr. Hook's employment is terminated as a
result of death or permanent or total disability, Dr. Hook (or his estate) shall
be paid his then monthly base salary for a period of six months following the
date of such termination. Dr. Hook may terminate his employment at any time upon
at least one month's prior written notice, provided that no such advance notice
will be required if Dr. Hook's employment is constructively terminated by the
Company. Pursuant to the Hook Agreement, in March 1996 the Company granted Dr.
Hook options to purchase 450,000 shares of Common Stock under the 1991 Stock
Plan. Concurrently with the execution of the Hook Agreement in March 1996, Dr.
Hook entered into a Non-Competition and Non-Solicitation Agreement with the
Company which provides for up to a twelve month period

<PAGE>

of non-competition subsequent to Dr. Hook's termination of employment and
prohibits solicitation of Company employees for a comparable period.

Dr. Rose is employed as Vice President of Clinical and Regulatory
Affairs of the Company under an agreement (the "Rose Agreement") with an initial
term that expires on September 14, 1998, and which provides for automatic
extensions for additional one-year periods unless either party elects to
terminate the Rose Agreement at least 90 days prior to the commencement of any
such additional term. Dr. Rose has agreed to devote substantially all of his
time to the affairs of the Company. His current annual base salary is $200,000
per year. During the first year of his employment, Dr. Rose is entitled to
reimbursement for all reasonable housing expenses incurred for rental housing in
the Horsham, PA area and travel to and from his home in Maryland. Under certain
conditions, the Company is obligated to partially fund Dr. Rose's relocation to
the Horsham area. In the event that Dr. Rose's employment is terminated by the
Company (other than for cause or permanent or total disability), Dr. Rose shall
be paid his then annual base salary for a period of 6 months and be entitled to
receive certain benefits for a period of up to 6 months. In the event that Dr.
Rose's employment is terminated as a result of death or permanent or total
disability, Dr. Rose (or his estate) shall be paid his accrued and unpaid
salary, unreimbursed expenses and unused accrued vacation time through the
termination date. Dr. Rose may terminate his employment at any time upon at
least one month's prior written notice. Pursuant to the Rose Agreement, in
September 1997, the Company granted Dr. Rose options to purchase 150,000 shares
of Common Stock under the 1991 Stock Plan. In addition to a confidentiality
obligation, the Rose Agreement contains non-compete and non-solicitation
provisions which provide for up to a twelve month period of non-competition
subsequent to Dr. Rose's termination of employment and prohibits solicitation of
Company employees for a comparable period.

Mr. Spair is employed as Chief Financial Officer of the Company under
an agreement (the "Spair Agreement") with an initial term that expired on March
15, 1997, and which provides for automatic extensions for additional one-year
periods unless either party elects to terminate the Spair Agreement at least 90
days prior to the commencement of any such additional term. Mr. Spair has agreed
to devote substantially all of his time to the affairs of the Company. His
current annual base salary is $126,000 per year. In the event that Mr. Spair's
employment is terminated by the Company (other than for cause or permanent or
total disability), Mr. Spair shall be paid his then annual base salary for a
period of 6 months and be entitled to receive certain benefits for a period of
up to 6 months. If the Company elects not to extend Mr. Spair's employment
period for an additional one-year term, Mr. Spair shall be paid one-half his
then annual base salary over a period of 6 months following the date of such
termination and be eligible to receive certain benefits for up to 6 months
following the date of such termination. In the event that Mr. Spair's employment
is terminated as a result of death or permanent or total disability, Mr. Spair
(or his estate) shall be paid his then monthly base salary for a period of six
months following the date of such termination. Mr. Spair may terminate his
employment at any time upon at least one month's prior written notice, provided
that no such advance notice will be required if Mr. Spair's employment is
constructively terminated by the Company. Pursuant to the Spair Agreement, in
March 1996 the Company granted Mr. Spair options to purchase 150,000 shares of
Common Stock under the 1991 Stock Plan. Concurrently with the execution of the
Spair Agreement in March 1996, Mr. Spair entered into a Confidentiality
Agreement and a Non-Competition and Non- Solicitation Agreement with the Company
which provides for up to a twelve month period of non-competition subsequent to
Mr. Spair's termination of employment and prohibits solicitation of Company
employees for a comparable period.

The Named Executive Officers are also subject to certain
confidentiality obligations. Each officer is required to disclose to the Company
certain inventions, discoveries, and developments, and assign the rights thereto
to the Company.

<PAGE>

SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers, and persons who
own more than 10% of the Company's Common Stock, to file with the Securities and
Exchange Commission (the "SEC") initial reports of beneficial ownership and
reports of changes in beneficial ownership of the Common Stock and other equity
securities of the Company. Officers, directors and greater than 10% beneficial
owners are required by SEC regulation to furnish the Company with copies of all
Section 16(a) reports they file. To the Company's knowledge, based solely on
review of the copies of such reports furnished to the Company and written
representations that no other reports were required, during the fiscal year
ended December 31, 1997, all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10% beneficial owners were complied with.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In October 1997, the Company entered into an Engagement Agreement with
Paramount Capital Investments, LLC ("Paramount") whereby Paramount agreed to
assist the Company in its efforts to license Pyrazinoylguanidine ("PZG") from
the Estate of Karl H. Beyer, Jr. (the "Beyer Estate"). Dr. Rosenwald, a Director
and greater than 5% stockholder of the Company, is the Chairman of Paramount. In
addition to reimbursing Paramount an aggregate of $31,635 for both patent
related due diligence expenditures and a payment to the Beyer Estate to obtain
exclusive negotiation rights, the Company issued to Paramount, concurrently with
the execution of the definitive PZG licensing agreement between the Company and
the Beyer Estate, a warrant to purchase up to an aggregate of 500,000 shares of
the Company's Common Stock. The warrant was issued on December 4, 1997 and has a
five-year term. The exercise price is $.4375 per share of Common Stock and the
warrant contains a cashless exercise feature. Immediate vesting was granted for
200,000 shares underlying the warrant with an additional 200,000 shares subject
to vesting upon successful completion of a Phase II clinical trial for PZG and
the Company's announcement of its, or an affiliated third party's, intent to
advance PZG into a Phase III clinical trial. The final 100,000 shares underlying
the warrant vest upon the announcement of the Company's, or an affiliated third
party's, filing of a New Drug Application with the Food and Drug Administration.
All such milestones must be met prior to the warrant expiration.

In connection with the private placement of its Series B' Preferred
Stock and Class C Warrants in 1996, the Company became obligated to (i) pay
Paramount Capital, Inc. (The "Placement Agent"), a commission of 6% upon the
exercise of any Class C Warrant and (ii) reimburse the Placement Agent for
out-of-pocket costs, not to exceed $5,000 incurred in connection with the
solicitation of Class C Warrant exercises or the redemption of Class C Warrants.

On August 23, 1996, the Company made a loan of $100,000 to Jerry B.
Hook, Ph.D., the Company's Chairman, President and Chief Executive Officer.
Proceeds of such loans was used by Dr. Hook to purchase a Unit sold by the
Company in its Series B' Preferred Stock private placement. The loan is
evidenced by a promissory note bearing interest at the rate of 8% per annum with
a maturity date of July 30, 1999. Principal of the loan is payable in three
equal installments plus accrued interest on each of July 30, 1997, 1998, and
1999. On each scheduled repayment date, the amount then due (including accrued
interest) will be forgiven by the Company provided that on such date Dr. Hook
continues to be employed by the Company. One-third of the principal of the loan
was forgiven on July 30, 1997. The outstanding balance of the loan (plus all
accrued interest) will be forgiven in full in the event that one of the
following occurs: (i) the death or disability of Dr. Hook (within the meaning of
his employment agreement with the Company), (ii) the operations of the Company
are terminated, (iii) the Company is liquidated or (iv) the Company undergoes a
change of control.

<PAGE>

ELECTION OF DIRECTORS

(Notice Item 1)

The Company's By-Laws provide for the Company's business to be managed by or
under the direction of a Board of Directors. Under the Company's By-Laws, the
number of directors is fixed from time to time by the Board of Directors. The
Board of Directors currently consists of seven members, classified into three
classes as follows: Lindsay A. Rosenwald, M.D. and Jerry B. Hook, Ph.D.
constitute a class with a term ending in 1999 (the "Class II directors");
William M. Sullivan, Sir John Vane, FRS and Colin B. Bier, Ph.D. constitute a
class with a term ending in 2000 (the "Class III directors"); and Peter Barton
Hutt and Richard L. Sherman constitute a class with a term which expires at the
upcoming Meeting (the "Class I directors"). At each annual meeting of
Stockholders, directors are elected for a full term of three years to succeed
those directors whose terms are expiring.

Pursuant to the Company's By-Laws, on March 16, 1998, the Board of Directors
voted (i) to fix the size of the Board of Directors at seven members and (ii) to
nominate Peter Barton Hutt and Richard L. Sherman for election at the Meeting
for terms of three years to serve until the 2001 annual meeting of Stockholders
and until their respective successors have been elected and qualified. The Class
II directors (Lindsay A. Rosenwald, M.D. and Jerry B. Hook, Ph.D.), and the
Class III directors (William M. Sullivan, Sir John Vane, FRS and Colin B. Bier,
Ph.D.) will serve until the annual meetings of Stockholders to be held in 1999
and 2000, respectively, and until their respective successors have been elected
and qualified.

Unless authority to vote for any of the nominees named above is withheld, the
shares represented by the enclosed proxy will be voted FOR the election as
directors of such nominees. In the event that either nominee shall become unable
or unwilling to serve, the shares represented by the enclosed proxy will be
voted for the election of such other person as the Board of Directors may
recommend in his place. The Board has no reason to believe that either of the
nominees will be unable or unwilling to serve.

THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF PETER BARTON HUTT AND
RICHARD L. SHERMAN AS DIRECTORS, AND PROXIES SOLICITED BY THE BOARD WILL BE
VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE
PROXY.

APPROVAL OF AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
EFFECT A ONE-FOR FIVE REVERSE STOCK SPLIT OF THE COMPANY'S OUTSTANDING COMMON
STOCK

(Notice Item 2)

General Summary

The Board of Directors of the Company has unanimously approved, subject
to stockholder approval, a proposed amendment to the Company's Restated
Certificate of Incorporation, as amended (the "Amendment"), which will effect a
one-for-five reverse stock split (the "Reverse Split") of the Company's
outstanding shares of Common Stock. On March 20, 1998, the Company had
72,000,000 shares of authorized Common Stock of which 16,357,706 shares were
issued and outstanding and 35,047,903 shares were reserved for issuance pursuant
to outstanding options, warrants, convertible preferred stock and other
securities. Had the Amendment to effect the Reverse Split been approved and
effective as of March 20, 1998, the Company would have had 72,000,000 authorized
shares of Common Stock, approximately 10,281,122 shares of Common Stock issued
and outstanding or reserved for issuance and approximately 61,718,878 authorized
shares of Common Stock unissued and not reserved for any purpose.

<PAGE>

The authorized number of shares of the Company's Preferred Stock, $.001
par value per share (the "Preferred Stock") will remain unchanged at 11,000,000
shares. The number of issued and outstanding shares of Preferred Stock, which as
of March 20, 1998 consisted of 966,312 shares of Series B' Convertible Preferred
Stock, $.001 par value per share ("Series B' Preferred Stock"), will also be
unchanged.

The complete text of the proposed Amendment is set forth in Exhibit A
to this Proxy Statement. The final text of the Amendment is subject to change in
order to meet the requirements as to form that may be requested or required by
the Secretary of State's Office of the State of Delaware.

If the requisite approval by the Stockholders is obtained, the
Amendment to effect the Reverse Split will be effective upon the close of
business on the date of filing of the Amendment with the Delaware Secretary of
State (currently scheduled to occur on May 12, 1998). Each certificate
representing shares of Common Stock outstanding immediately prior to the Reverse
Split (the "Old Shares") will be deemed automatically, without any action on the
part of the Stockholders, to represent one-fifth the number of shares of Common
Stock after the Reverse Split (the "New Shares"). A Stockholder's proportionate
ownership interest in the Company will remain unchanged by the Reverse Split.
The New Shares issued pursuant to the Reverse Split will be fully paid and
nonassessable. The voting and other rights of the Common Stock will not be
altered by the Amendment or the Reverse Split.

No fractional New Shares will be issued as a result of the Reverse
Split. In lieu thereof, each Stockholder whose Old Shares are not evenly
divisible by five will receive one additional New Share for the fractional New
Share that such stockholder would otherwise be entitled to receive as a result
of the Reverse Split. When the Reverse Split becomes effective, stockholders
will be asked to surrender certificates representing Old Shares in accordance
with the procedures set forth in a letter of transmittal to be sent by the
Company. Upon such surrender, a certificate representing the New Shares will be
issued and forwarded to the stockholders; however, each certificate representing
Old Shares will continue to be valid and represent New Shares equal to one-fifth
the number of Old Shares (plus one additional New Share where such Old Shares
are not evenly divisible by five). Persons who hold their shares in brokerage
accounts or "street name" will not be required to take any further actions to
effect the exchange of their certificates.

The conversion rate and the mandatory conversion price in effect for
Series B' Preferred Stock immediately prior to the Reverse Split shall be
proportionately adjusted upon effectiveness of the Reverse Split and the number
of shares of Common Stock issuable upon conversion thereof shall be
proportionately reduced on a five-for-one basis. Holders of Preferred Stock are
not required to take any action with respect to their certificates. On March 20,
1998, each share of Series B' Preferred Stock was convertible into 13.333333
shares of Common Stock. Had the amendment to effect the Reverse Split been
approved and effective as March 20, 1998, then each share of Series B' Preferred
Stock would have been convertible into 2.666666 shares of Common Stock.

PURPOSE OF THE REVERSE SPLIT

The Reverse Stock Split would decrease the number of shares of Common
Stock outstanding and presumably increase the per share market price for the New
Common Stock.

The Common Stock is currently traded on the Nasdaq SmallCap Market
under the symbol "SPTA." On August 22, 1997, The Nasdaq Stock Market ("Nasdaq")
received approval from the Securities and Exchange Commission for changes to its
listing requirements which involved both quantitative and qualitative standards
for both initial and continued inclusion on the Nasdaq SmallCap Market. These
changes became effective February 23, 1998 for companies listed on the Nasdaq
SmallCap Market. The Company was notified by Nasdaq that it failed to meet the
continued listing requirements related to the maintenance of a $1.00 minimum bid
price for the Company's Common Stock. The Company was subsequently notified by
Nasdaq that it would be provided 90 days beyond February 23, 1998, until May 28,
1998, (the "Extended Compliance Date"), to comply with the $1.00 minimum bid
price requirement. In the event that the Company fails to meet the $1.00 minimum

<PAGE>

bid price by the Extended Compliance Date, the Company's securities would likely
be removed from the Nasdaq SmallCap Market and moved to the OTC Bulletin Board.
As a result of the Common Stock being traded on the OTC Bulletin Board,
investors could find it difficult to obtain accurate quotations as to the price
of the Common Stock, and there may be reduced media coverage of the Company.
Furthermore, the Board believes that the continued low market price per share of
the Common Stock may impair the marketability of the Common Stock to
institutional investors and members of the investing public. Many investors look
upon low-priced stocks as speculative in nature and, as a matter of policy,
avoid investment in such stocks. These factors may not only affect the liquidity
of the Common Stock, but may also impair the Company's ability to raise
additional capital through the sale of equity or debt
securities. The Board also recognizes that many leading brokerage firms are
reluctant to recommend lower-priced securities to their clients, and certain
brokerage house policies and practices currently tend to discourage individual
brokers within firms from dealing in lower-priced stocks. Some of these policies
and practices relate to the payment of brokers' commissions and time-consuming
procedures that make the handling of lower priced stocks economically
unattractive to brokers. For all of the above reasons, the Board believes that
continuation of the Company's Nasdaq SmallCap listing is in the best interests
of the Stockholders of the Company.

There can be no assurance that any of the intended effects of the
Reverse Stock Split will occur, that the price per share of New Common Stock
will, by the Extended Compliance Date, increase proportionately, or at all, with
the decrease in the number of shares, or that any price increase can be
sustained for a prolonged period of time. There also can be no assurance that
subsequent to the Reverse Split, the Company will be able to maintain the Nasdaq
SmallCap Market's continued listing requirements.

Effect of the Reverse Split

The Reverse Split will be effected by means of filing the Amendment
with the Delaware Secretary of State. Assuming approval of the Reverse Split by
the requisite vote of the Stockholders at the Meeting, the Amendment will
thereafter be filed with the Delaware Secretary of State as promptly as
practicable and the Reverse Split will become effective as of 5:00 p.m. Eastern
Standard Time on the date of that filing (the "Effective Date"). After the
Reverse Split, without any further action on the part of the Company or the
Stockholders, certificates representing Old Shares will thereafter represent New
Shares equal to one-fifth of the number of Old Shares.

The Company currently has authorized capital stock of 83,000,000
shares. The Reverse Split will not affect the number of authorized shares of
Common Stock or Preferred Stock of the Company. The Reverse Split also will not
effect the number of shares of Series B' Preferred Stock currently issued and
outstanding.

As of March 20, 1998, the number of issued and outstanding Old Shares
was 16,357,706. The following table illustrates the principal effects of the
proposed Reverse Split and decrease in outstanding Common Stock assuming that no
additional shares of Common Stock are issued prior to the Effective Date as a
result of the exercise of any options or warrants or the conversion of any
outstanding shares of Series B' Preferred Stock and without giving effect to
fractional shares:

Authorized Authorized Outstanding Outstanding
Prior to After Prior to After
Reverse Reverse Reverse Reverse
Split Split Split Split
----- ----- ----- -----

<S> <C> <C>
Common Stock 72,000,000 72,000,000 16,357,706 3,271,541
Series B' Preferred Stock 2,269,840 2,269,840 966,312 966,312
Preferred Stock 11,000,000 11,000,000 0 0

</TABLE>

As of March 20, 1998, the Company had 35,047,903 shares of Common
Stock reserved for issuance pursuant to the 1991 Stock Plan (the "Plan"),
warrant agreements to purchase Common Stock between the Company and various
third parties (the 'Warrant Agreements"), the terms of the Series B' Preferred
Stock and rights for the purchase or issuance of shares of Common Stock. Under
the terms of the Plan, the Warrant Agreements, the Series B' Preferred Stock and
the other securities, the number of shares reserved for issuance will be reduced
proportionately by a factor of five.

<PAGE>

The Common Stock is currently registered under Section 12(g) of the
Securities Exchange Act of 1934 (the "Exchange Act") and, as a result, the
Company is subject to the periodic reporting and other requirements of the
Exchange Act. The Common Stock is admitted for trading on the Nasdaq SmallCap
Market. The number of holders of the Common Stock on the Record Date was 1,810,
including approximately 1,600 beneficial holders. The Company does not
anticipate that the Reverse Split will result in a significant reduction in the
number of such holders. Accordingly, the Reverse Split is not expected to
adversely affect the registration of the Common Stock under the Exchange Act or
its status as a Nasdaq SmallCap Market security.

Federal Income Tax Consequence of the Reverse Split

The Company has not sought and will not seek an opinion of counsel
or a ruling from the Internal Revenue Service regarding the federal income tax
consequences of the Reverse Split. However, the Company believes that because
the Reverse Split is not part of a plan to periodically increase a stockholder's
proportionate interest in the assets or earnings and profits of the Company, the
Reverse Split will have the following effects. The receipt of Common Stock in
the Reverse Split should not result in any taxable gain or loss to stockholders
for federal income tax purposes. If the Reverse Split is approved, the tax basis
of Common Stock received as a result of the Reverse Split will be equal, in the
aggregate, to the basis of the shares exchanged for the Common Stock. For tax
purposes, the holding period of the shares immediately prior to the Effective
Date will be included in the holding period of the Common Stock received as a
result of the Reverse Split. The Company will not recognize any gain or loss on
the transaction.

Certificates and Fractional Shares

As soon as practicable after the Effective Date, the Company will send a
letter of transmittal to each holder of record of Old Shares outstanding on the
Effective Date. The letter of transmittal will contain instructions for the
surrender of certificate(s) representing such Old Shares to First City Transfer
Company, the Company's exchange agent (the "Exchange Agent"). Upon proper
completion and execution of the letter of transmittal and return thereof to the
Exchange Agent, together with the certificate(s) representing Old Shares, a
stockholder will be entitled to receive a certificate representing the number of
New Shares into which his or her Old Shares have been reclassified and changed
as a result of the Reverse Split.

Stockholders should not submit any Common Stock certificates until
requested to do so. No new certificate will be issued to a stockholder until he
or she has surrendered his or her outstanding certificate(s), together with the
properly completed and executed letter of transmittal, to the Exchange Agent.

No fractional New Shares will be issued as a result of the Reverse Split.
In lieu thereof, each stockholder whose Old Shares are not evenly divisible by
five will receive one additional New Share for the fractional New Share that
such stockholder would otherwise be entitled to receive as a result of the
Reverse Split. After the Reverse Split becomes effective, stockholders will be
asked to surrender certificates representing Old Shares in accordance with the
procedures set forth in a letter of transmittal to be sent by the Company. Upon
such surrender, a certificate representing the New Shares will be issued and
forwarded to the stockholders; however, each certificate representing Old Shares
will continue to be valid and represent New Shares equal to one-fifth the number
of Old Shares (plus one additional New Share where such Old Shares are not
evenly divisible by five).

Statutory Accounting Consequences

The par value of the Common Stock will remain at $.001 per share following
the Reverse Split, and the number of shares of Common Stock outstanding will be
reduced. As a consequence, the aggregate par value of the outstanding Common

<PAGE>

Stock will be reduced, while the aggregate capital in excess of par value
attributable to the outstanding Common Stock will be correspondingly increased
for statutory accounting purposes under the Delaware General Corporation law.
Although it is currently expected that this increase in capital in excess of par
value will continue to be treated as capital for statutory accounting purposes,
the Board of Directors of the Company has the authority to transfer some or all
of such increased capital in excess of par value from its statutory capital
account to surplus. The additional statutory surplus created thereby would then
be available for general corporate purposes without further action by the
stockholders. The Company currently has no plans to use any surplus so created.

Miscellaneous

The Board of Directors may abandon the proposed Amendment to effect the
Reverse Split at any time before or after the Meeting and prior to the Effective
Date if for any reason the Board of Directors deems it advisable to abandon the
proposal. The Board of Directors may consider abandoning the proposed Amendment
if it determines, in its sole discretion, that the Amendment would adversely
affect the ability of the Company to raise capital or the liquidity of the
Common Stock, among other things. In addition, the Board of Directors may make
any and all changes to the Amendment that it deems necessary or appropriate to
file the Amendment with the Delaware Secretary of State to give effect to the
Amendment.

Recommendation and Vote

The affirmative vote of a majority of the shares of Common Stock and Series
B' Preferred Stock outstanding on the Record Date, voting together as a single
class, is required to approve the Amendment.

THE BOARD OF DIRECTORS IS OF THE OPINION THAT THE AMENDMENT IS
ADVISABLE AND IN THE BEST INTERESTS OF THE COMPANY AND RECOMMENDS A VOTE FOR THE
APPROVAL OF THE AMENDMENT. ALL PROXIES WILL BE VOTED TO APPROVE THE AMENDMENT
UNLESS A CONTRARY VOTE IS INDICATED ON THE ENCLOSED PROXY CARD.

INDEPENDENT PUBLIC ACCOUNTANTS

(Notice Item 3)

The Board of Directors has appointed Arthur Andersen LLP,
independent public accountants, to audit the financial statements of the Company
for the fiscal year ending December 31, 1998. The Board proposes that the
stockholders ratify this appointment. The Company expects that representatives
of Arthur Andersen LLP will be present at the Meeting, with the opportunity to
make a statement if they so desire, and will be available to respond to
appropriate questions.

In the event that ratification of the appointment of Arthur
Andersen LLP as the independent public accountants for the Company is not
obtained at the Meeting, the Board of Directors will reconsider its appointment.

THE BOARD OF DIRECTORS RECOMMENDS RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS, AND
PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A
STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.

<PAGE>

OTHER MATTERS

(Notice Item 4)

The Board of Directors knows of no other business that will be
presented to the Meeting. If any other business is properly brought before the
Meeting, it is intended that proxies in the enclosed form will be voted in
respect thereof in accordance with the judgment of the persons voting the
proxies.

FUTURE STOCKHOLDER PROPOSALS

To be considered for presentation at the Annual Meeting of
Stockholders to be held in 1999, stockholder proposals must be received, marked
for the attention of: Ronald H. Spair, Secretary, Sparta Pharmaceuticals, Inc.,
111 Rock Road, Horsham, Pennsylvania 19044-2310, not earlier than September 30,
1998 and not later than December 3, 1998.

WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, YOU ARE URGED
TO FILL OUT, SIGN, DATE AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST
CONVENIENCE.

By Order of the Board of Directors:

/s/ Ronald H. Spair
-------------------------
Ronald H. Spair
SECRETARY

April 3, 1998

<PAGE>

EXHIBIT A

FOURTH: A. Designation and Number of Shares.

The total number of shares of stock which the Company is authorized
to issue is 83,000,000, of which shares 72,000,000 of the par value of $.001
each shall be designated Common Stock, and 11,000,000 of the par value of $.001
each shall be designated Preferred Stock, of which 330,000 of the par value of
$.001 each shall be designated Series A Convertible Preferred Stock and
3,000,000 of the par value of $.001 each shall be designated Series B
Convertible Preferred Stock. The number of authorized shares of Preferred Stock
may be increased or decreased (but not below the number thereof then
outstanding) by the affirmative vote of the holders of a majority of the capital
stock of the Corporation entitled to vote, voting together as a single class,
without a vote of the holders of the Preferred Stock, or of any series thereof,
as a separate class or series, unless a vote of any such holders is required
pursuant to the terms of any series of Preferred Stock, as such terms may be
established in accordance with the following provisions of this Article FOURTH,
subject in any event to the provisions of Article TENTH of this Restated
Certificate of Incorporation.

At the time this amendment becomes effective, and without any further
action on the part of the Corporation or its stockholders, each five shares of
Common Stock, par value $.001 per share, then issued and outstanding shall be
changed and reclassified into one fully paid and non-assessable share of Common
Stock, par value $.001. The capital account of the Company shall not be
increased or decreased by such change and reclassification. To reflect the said
change and reclassification, each certificate representing shares of Common
Stock, with a par value of $.00l per share, theretofore issued and outstanding
shall represent one-fifth the number of shares of Common Stock, with a par value
of $.001 per share, issued and outstanding after such change and
reclassification; and the holder of record of each such certificate shall be
entitled to receive a new certificate representing a number of shares of Common
Stock, with a par value of $.001 per share, of the kind authorized by this
amendment, equal to one-fifth the number of shares represented by said
certificate for theretofore issued and outstanding shares, so that upon this
amendment becoming effective each holder of record of five shares of the Common
Stock will have or be entitled to certificates representing in the aggregate one
share of Common Stock, with a par value of $.001 per share, of the kind
authorized by this amendment for each share of Common Stock, with a par value of
$.001 per share, of which he was the holder prior to the effectiveness of this
amendment.

The relative powers, designations, preferences, special rights,
restrictions and other matters relating to such Common Stock, the Preferred
Stock, the Series A Convertible Preferred Stock and the Series B Convertible
Preferred Stock are as set forth below in this Article FOURTH. The Preferred
Stock, the Series A Convertible Preferred Stock and the Series B Convertible
Preferred Stock are sometimes referred to herein collectively as the "Preferred
Stock" and the shares of Preferred Stock which are not designated as shares of
Series A Convertible Preferred Stock or Series B Convertible Preferred Stock are
sometimes referred to herein as the "Undesignated Preferred Stock."

21
<PAGE>

SPARTA PHARMACEUTICALS, INC.
Proxy Solicited by The Board of Directors

The undersigned, revoking any previous proxies relating to these shares, hereby
acknowledges receipt of the Notice and Proxy Statement dated April 3, 1998 in
connection with the 1998 Annual Meeting of Stockholders to be held at 10:00 am
on Monday, May 11, 1998 at 111 Rock Road, Horsham, Pennsylvania and hereby
appoints Dr. Jerry B. Hook and Ronald H. Spair, and each of them (with full
power to act alone), the attorneys and proxies of the undersigned, with power of
substitution to each, to vote all shares of the Common Stock and Series B'
Convertible Preferred Stock of Sparta Pharmaceuticals, Inc. registered in the
name provided herein which the undersigned is entitled to vote at the 1998
Annual Meeting of Stockholders, and at any adjournments or postponements
thereof, with all the powers the undersigned would have if personally present.
Without limiting the general authorization hereby given, said proxies are, and
each of them is, instructed to vote or act as follows on the proposals set forth
in said Proxy.

Whether or not you expect to attend the Annual Meeting, you are urged to execute
and return this Proxy, which you may revoke at any time prior to its use.

This Proxy when executed will be voted in the manner directed herein. If no
direction is made this Proxy will be voted FOR the election of Directors and FOR
Proposals 2 and 3.

In their discretion the proxies are authorized to vote upon such other matters
as may properly come before the meeting or any adjournments thereof.

Election of Directors duly nominated (or if any nominee is not available for
election, such substitute as the Board of Directors may designate)

Nominees: Peter Barton Hutt Richard L. Sherman

SEE REVERSE SIDE FOR ALL THREE PROPOSALS. If you wish to
vote in accordance with the Board of Directors' recommendations, just sign on
the reverse side. You need not mark any boxes.

X Please mark votes as in this example.
(See Reverse Side)

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL THREE PROPOSALS.

1. Election of Directors (See reverse). FOR |_| WITHHELD |_|

-----------------------------------------------------
|_| For all nominees except as noted above.

2. Proposal to approve an amendment to the Company's Restated Certificate of
Incorporation to effect a one-for-five reverse stock split of the shares of the
Company's outstanding common stock.

|_| FOR |_| AGAINST |_| ABSTAIN

3. Proposal to ratify the appointment of Arthur Andersen L.L.P. as the Company's
independent public accountants for the fiscal year ending December 31, 1998.

|_| FOR |_| AGAINST |_| ABSTAIN

Dated: , 1998
---------------------------------

---------------------------------------
Signature(s) of Stockholder(s)