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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF 1934
Commission file number 0-23076
SPARTA PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 56-1755527
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
111 Rock Road, Horsham, PA 19044-2310
(Address of principal executive offices)(zip code)
Registrant's telephone number, including area code: (215) 442-1700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the
Act:
(Title of Class)
Units, each consisting of one share of Common Stock, $.001 par value per
share, one redeemable Class A Warrant to purchase one and two-tenth
shares of Common Stock, $.001 par value per share, and one
redeemable Class B Warrant to purchase one and two-tenth
shares of Common Stock, $.001 par value per share
Redeemable Class A Warrants, each exercisable for the purchase of one and
two-tenth shares of Common Stock, $.001 par value per share
Redeemable Class B Warrants, each exercisable for the purchase of one and
two-tenth shares of Common Stock, $.001 par value per share
Redeemable Class C Warrants, each exercisable for the purchase of one share of
Common Stock, $.001 par value per share
Common Stock, $.001 par value per share
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No__
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The voting stock of the Registrant consists of the Common Stock and the Series
B' Convertible Preferred Stock, $.001 par value per share, which is convertible
into shares of Common Stock. The aggregate market value of Common Stock and the
Series B' Convertible Preferred Stock (on an as converted basis) held by
non-affiliates of the registrant, based upon the last sale price of the Common
Stock reported on the National Association of Securities Dealers Automated
Quotation SmallCapSM Market on March 20, 1998 was $11,345,720. Exclusion of
shares held by any person should not be construed to indicate that such person
possesses the power, direct or indirect, to direct or cause the direction of
management or policies of the Registrant, or that such person is controlled by
or under common control with the Registrant. Common Stock outstanding at March
20, 1998: 16,357,706 shares.
Documents Incorporated by Reference
Portions of the Registrant's Definitive Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the solicitation of
proxies for the Registrant's 1997 Annual Meeting of Stockholders to be held on
May 11, 1998 are incorporated by reference in Part III, Items 10, 11, 12 and 13
of this Form 10-K.
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PART I
Item 1. Business
General
Sparta Pharmaceuticals, Inc. (the "Company" or "Sparta") was
incorporated in Delaware on June 12, 1990 under the name "MediRx
Pharmaceuticals, Inc." and commenced operations in January 1991. It changed its
name to Sparta Pharmaceuticals, Inc. on May 31, 1991. Sparta is a development
stage pharmaceutical company engaged in the business of acquiring rights to, and
developing for commercialization, technologies and drugs for the treatment of a
number of life threatening diseases including cancer, cardiovascular disorders,
chronic metabolic disorders and inflammation.
During 1997, the Company focused on advancing its product candidates
in clinical trials. This involved initiating clinical trials for Spartaject(TM)
busulfan and the oral prodrug 5-FP (formerly referred to by the Company as
L.A.D.D.(TM) 5-FP) ("5-FP") while monitoring ongoing clinical trial activity for
RII retinamide. The Company continues to hold an option to acquire a license to
asulacrine, an anti-cancer compound currently in clinical trials in the United
Kingdom under the direction of the Cancer Research Campaign. In September 1997,
the Company was awarded a $750, 000 Phase II Small Business Innovative Research
("SBIR") Grant from the National Institutes of Health to study LEX032, the
Company's most advanced protease inhibitor. The funding provides the resources
necessary to study, over a two-year period, the protective effects of LEX032 in
an animal stroke model of reperfusion injury. In December 1997, the Company
in-licensed Pyrazinoylguanidine ("PZG"), a drug candidate with potential to
treat a variety of significant chronic metabolic diseases related to Type II
diabetes. Phase I clinical trials and preliminary Phase II trials completed with
PZG prior to its licensing by the Company have yielded no overt signs of
toxicity, which has been a significant hurdle for other drugs designed to treat
diabetic patients. The Company expects PZG to enter further Phase II human
clinical trials in 1998. License rights to PZG have been assigned to Orizon
Pharmaceuticals, Inc. ("Orizon"), a subsidiary of the Company.
In September 1997, Martin Rose, M.D., J.D., joined the Company as its
Vice President of Clinical & Regulatory Affairs. Dr. Rose joined the Company
from Quintiles Worldwide Strategic Consulting where he was Vice President of
Drug Development. In March 1998, William M. Sullivan announced, that while
retaining his seat on the Company's Board of Directors, he was stepping down as
Chairman.
The Company continues to focus on acquiring or licensing 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, drugs. Additionally, the Company continues to evaluate expressions of
interest from other pharmaceutical and biotech companies related to strategic
alliances and transactions including, but not limited to, the potential
licensing or acquisition of the Company's technologies and/or product
candidates.
When used in this discussion, the words "expects", "believes",
"anticipates" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those projected. See
"Important Factors Regarding Forward-Looking Statements." Readers are cautioned
not to place undue reliance on these forward- looking statements which speak
only as of the date hereof. The Company undertakes no obligation to publicly
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release the results of any revision to these forward-looking statements which
may be made to reflect events or circumstances after the date hereof, or to
reflect the occurrence of unanticipated events.
The Company's lead product candidates under development are:
<TABLE>
<CAPTION>
Product Candidate Indication Current Status
- ----------------- ---------- --------------
<S> <C> <C>
Spartaject(TM) busulfan Providing injectable delivery of drug Phase I Clinical Trial
for ablating bone marrow prior to Ongoing/Preparing for
bone marrow transplant Pivotal Trials
RII retinamide Treatment of myelodysplastic syndromes (MDS). Phase I/II Clinical Trial
Ongoing
Providing oral delivery of 5-FU for
5-FP the treatment of colorectal, breast, Phase I Clinical Trial
liver and other cancers Ongoing
Metabolic disorders
PZG Preparing for Phase II
Clinical Trial
Treatment of reperfusion injury (e.g.
LEX032 occurring after myocardial infarction Preclinical
and stroke)
</TABLE>
In addition to the Company's lead products, the Company has also identified, and
in some instances has undertaken some development of, other applications of its
licensed technologies and other product candidates, one of which, asulacrine, is
in joint Phase I Clinical Trials in the U.K. with the Cancer Research Campaign
("CRC").
In a successful effort to minimize its fixed costs of operation and to
augment its minimal internal staffing, the Company has retained consultants,
contract drug development organizations and contract manufacturers experienced
in the respective phases of preclinical and clinical drug development. The
Company expects to use the expertise of these organizations to assist with the
development and registration of its product candidates. The Company plans to
market its products, if and when successfully developed, with its own sales
force (which it must build), with co-marketers or through distributors,
licensees or strategic partners. By implementing these strategies, the Company
believes it can reduce the time, costs and risks traditionally involved in
bringing drugs to market. The Company will require substantial funds in addition
to its existing resources to continue to advance its technology applications and
product candidates through the preclinical and clinical stages of development,
regulatory registration and marketing.
The Company's management team includes Dr. Jerry B. Hook, 60, former
President and Chief Executive Officer of Lexin Pharmaceutical Corporation
("Lexin") and former head of worldwide development for SmithKline Beecham, Dr.
Martin Rose, 51, former Vice President of Drug Development of Quintiles
Worldwide Strategic Consulting, Ronald H. Spair, 42, former Chief Financial
Officer of Lexin, and a Board of Directors whose backgrounds include academic
and pharmaceutical research, government regulation of pharmaceuticals and
medical venture capital. In making its technology and product acquisition
decisions, the Company has relied on an advisory group of prominent scientists,
clinical oncologists and pharmacologists, led by Dr. Joseph Bertino, Program
Chairman, Molecular Pharmacology and Therapeutics, Memorial Sloan-Kettering
Cancer Center, and Dr. Yung-chi Cheng, Program Director of Developmental
Therapeutics and Chemotherapy, Yale Comprehensive Cancer Center.
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Overview of Therapeutic Areas of Interest
Cancer
- ------
Cancer afflicts millions of people worldwide and caused 6.3 million
deaths in 1996 according to The World Health Organization. It is the second
leading cause of mortality in the United States. The American Cancer Society
estimates that in the United States in 1998 there will be about 1.2 million new
cases of cancer and approximately 565,000 deaths attributed to the disease. In
addition, the Society estimates that one in four deaths in the United States is
from cancer. The National Cancer Institute ("NCI") estimates that approximately
8 million people living in the United States have had cancer.
Cancer is a generic term used to describe a number of related diseases.
There are many different forms of cancer that attack different parts of the
body. Cancer generally is characterized by the uncontrolled, abnormal growth and
spread of malignant tumors or by the proliferation of immature cells in blood or
bone marrow. Tumors in a tissue or organ result from rapid growth of immature
and essentially nonfunctional cells that are not controlled by the body's normal
regulatory functions. A tumor is considered malignant, and therefore a cancer,
when it demonstrates unrestrained local growth and a capacity to invade remote
areas of the body (metastasis).
Chemotherapy. Chemotherapy, surgery and radiation are the three most
common forms of cancer treatment. Each year in the United States, several
hundred thousand patients with cancer receive chemotherapy, which involves the
administration of drugs designed to kill or inhibit the growth of cancer cells.
Chemotherapeutic drug research focuses mainly on identifying agents that
negatively impact tumor cell growth and have the ability to distinguish between
growing cancer cells and normal cells. In general, the difference between a
drug's effectiveness at combating a disease and its toxicity to the system is
known as its therapeutic index. When chemotherapeutic drugs or new formulations
of such drugs act to impact tumor cell growth to a greater extent than
previously available therapies and/or reduce the harm to healthy cells as
compared to previously available therapies, the therapeutic index has been
expanded.
Methods of Administering Chemotherapeutics. Chemotherapeutics
are administered primarily by injection, usually into veins. This method has
traditionally been preferred by practitioners when it is feasible, because it
generally ensures more timely administration of the required medication and
provides more consistent and predictable availability of the drug within the
body. To be delivered by injection, the compound must be placed in a liquid
solution, blend or mixture that can readily pass through the body's circulatory
system. Unfortunately, many chemotherapeutic agents are poorly soluble in water,
and therefore either are not available in injectable form or require the use of
potentially toxic solubilizing agents to facilitate the preparation of
injectable formulations. Some patients experience adverse side effects
associated with the solubilizing chemicals used in the delivery of
chemotherapeutics.
Although less frequently used, oral administration of chemotherapeutics
is also employed if possible, primarily in outpatient cancer treatment, but also
in a hospital setting when an intravenous form of a chemotherapeutic is not
available. Generally, oral administration is more convenient and less expensive
than other methods, and the Company believes such administration will achieve
wider use in the future if more severe cost constraints are imposed on cancer
treatment. However, those chemotherapeutics which are available only in oral
form may have limited use in that form because of variability in patient
absorption, nausea and difficulties in administering them to debilitated
patients or children.
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Market for Chemotherapeutics. The market for chemotherapeutics
consists primarily of cytotoxic (literally, cell toxic) and other drugs used to
treat cancer. Worldwide sales of anticancer chemotherapeutic agents have been
forecasted to reach approximately $13.0 billion in 1999.
It is estimated that the costs associated with treating cancer
currently account for approximately 10% of total annual health-care costs in the
United States. The NCI estimate the overall annual economic impact of cancer at
$107 billion in the United States, of which $37 billion represents direct
medical costs.
Protease Inhibition
- -------------------
Major progress in drug discovery has been made in recent years with the
observation that inhibition of enzymes called proteases could produce often life
saving effects. The first of these enzymes widely identified in public view was
the protease of the HIV virus, rapidly followed by that of the hepatitis virus.
Inhibition of specific proteases inhibits growth and development of the virus
and thus prolongs life or possibly cures patients.
It has also become apparent that many highly specific proteases exist
in the human body which may, on occasion, be targets for drugs. Proteases
function to cut or degrade proteins and as such are necessary for normal growth
and development. Proteases are also necessary for blood clotting and for the
removal of damaged tissue prior to wound healing.
Because proteases cut or degrade proteins, they have the potential to
cut or degrade normal tissue as well. In healthy individuals, damage to normal
tissue by proteases is prevented by the presence of natural inhibitors that keep
proteases in check. If, for any reason, protease activity is excessive at an
inappropriate time, debilitating or life-threatening diseases can occur.
Excessive protease activity may be part of the disease process in rheumatoid
arthritis and arteriosclerosis. Activated white blood cells deliver several
proteases that are thought to be a major factor in the organ damage seen in
adult respiratory distress syndrome (ARDS), acute pancreatitis, myocardial
infarct, stroke, frostbite, and complications of organ transplantation.
Inappropriate activities of the proteases involved in the control of clotting
are associated with various coagulative disorders. Excessive proteolytic
activity is also associated with the symptoms of asthma. Other classes of
proteases appear to play a role in the process of cancer metastases and may be
involved in osteoporosis.
Thus, it is clear that proteases in the human body play important roles
in several major diseases. New drugs, which specifically target specific
proteases, would be expected to create large commercial markets. Recent advances
in recombinant protein production, combinatorial chemistry, and rational
structural based drug design, combined with the widespread involvement of
proteases in human disease and the degree of specificity of these enzymes, has
suggested that they would be valuable targets for drug discovery programs.
Metabolic Disorders
- -------------------
There are approximately 15,700,000 people with diabetes mellitus
("diabetes") in the United States. Diabetes is a complex metabolic disorder
characterized by an inability to produce and/or properly respond to insulin,
producing important effects on the metabolism of glucose and lipids (fats), as
well as increasing the risk of a variety of circulatory, ocular, neurological,
and renal complications. Patients with Type I (insulin-dependent) diabetes have
little or no ability to make insulin. The onset of this condition is usually in
childhood or young adulthood. Only about 5-10% of diabetics have Type I
diabetes. Patients with Type I diabetes are dependent on insulin injections for
immediate survival. These patients are treated with dietary therapy and insulin
injections. About 90-95% of diabetics in the U.S. (i.e., over 14,000,000) have
Type II (non-insulin-dependent) diabetes. Patients with Type II diabetes retain
some ability to make insulin, and generally are not dependent on injected
insulin for immediate survival. However, endogenous insulin secretion is not
normal, and some patients also have an inability to properly respond to insulin.
Onset of Type II diabetes is typically during adulthood, usually after
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age 40. Patients with Type II diabetes are treated with dietary therapy, but
many patients need drug therapy. Treatment with oral agents may be effective,
but up to 40% of patients fail oral therapy, and require insulin injections for
adequate control of their diabetes. Recently published data have underscored the
critical importance of tight control of blood glucose in preventing late
complications of diabetes. These data are likely to stimulate the need for new
oral therapies for diabetes. Also, current therapy of the lipid abnormalities of
diabetes is not optimal in many patients. An oral anti-diabetic that controls
the lipid abnormalities of diabetes mellitus, would have potentially broad use.
The market for anti-diabetic drugs in the U.S. was $1.5 billion in 1995
and is expected to reach $2.2 billion by 2000.
Potential Technology Applications and Product Candidates
The following table sets forth Sparta's technology applications and
product candidates, their stage of development by the Company and their intended
uses. Sparta's development efforts in 1997 were directed almost exclusively to
advancing certain of its product candidates in clinical trials. This involved
initiating clinical trials for Spartaject(TM) busulfan and 5-FP while monitoring
ongoing clinical trial activity for RII retinamide. PZG was licensed late in the
year and therefore development activity was limited to strategic planning
related to production of clinical trial material and the conduct of additional
Phase II trials in 1998. Other technology applications and product candidates
listed were developed only to a limited extent in 1997, and in 1998 and
thereafter, may be developed only to a limited extent, or not at all, unless
additional funds become available to the Company or outlicensing, joint
development or other collaborative arrangements are made. Rights with respect to
the product candidates and technologies listed below have been generally
acquired by license, and in one instance, under an option to license. Rights
with respect to the serine protease inhibitors were obtained pursuant to the
acquisition of the business and assets of Lexin Pharmaceutical Corporation
("Lexin" and the "Lexin Purchase"). See "Licensing." The Company is aware of
patents that have been issued to or applied for by third parties which may
affect the Company's ability to commercialize certain of its technology
applications and product candidates. See "Patents, Regulatory Exclusivity and
Trade Secrets."
================================================================================
SPARTAJECT DRUG DELIVERY TECHNOLOGY
- --------------------------------------------------------------------------------
For use with:
Busulfan Providing injectable delivery for ablating bone
(Phase I Clinical Trial) marrow prior to bone marrow transplants
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================================================================================
ORAL PRODRUG DELIVERY TECHNOLOGY
- --------------------------------------------------------------------------------
For use with:
5-FP Providing oral delivery of 5-FU for treatment
(Phase I Clinical Trial) of breast, colorectal, liver and other cancers
Providing targeted treatment of liver tumors
and liver metastases of other cancers
IPdR Providing oral delivery of IUdR to primary
(Preclinical) tumors and metastases that are treated with
radiotherapy
================================================================================
OTHER ANTICANCER COMPOUNDS
- --------------------------------------------------------------------------------
RII Retinamide Treating myelodysplastic syndromes
(Phase I/II Clinical Trial)
Asulacrine Treating solid tumors including
(Phase I Clinical Trials) breast and lung cancer
================================================================================
PROTEASE INHIBITORS
- --------------------------------------------------------------------------------
LEX032 Treatment of reperfusion injury, acute
(Preclinical) pancreatitis and acute pulmonary
inflammation
Other recombinant serine protease Treatment of various inflammatory
inhibitors conditions and coagulative disorders
(Discovery)
Small molecule protease inhibitors Treatment of various inflammatory
(Discovery) conditions, coagulative disorders,
metastatic diseases and osteoporosis.
================================================================================
METABOLIC DISORDERS
- --------------------------------------------------------------------------------
PZG Treatment of Type II diabetes and
(Preparing for Phase II Clinical Trials) other metabolic disorders
================================================================================
Terms used in the preceding table relating to the stage of development of
Sparta's technology applications and product candidates have the following
meanings: "Phase I Clinical Trials " refers to the first phase of studies in
humans, "Phase II Clinical Trials" refers to the second phase of studies in
humans, "Discovery" refers to the early stage of drug discovery prior to lead
compound identification and "Preclinical" refers to the development stage
preceding human clinical trials and includes preparation of formulations and
laboratory and animal testing. See "Government Regulation."
Spartaject Drug Delivery Technology
Many anticancer drugs either are poorly water soluble or water
insoluble. Some are currently available only in tablet or capsule form, and may
be limited in their potential use because of variability in patient absorption,
nausea or other difficulty in administering them to debilitated patients or
children. Others that are poorly water soluble have been formulated for
administration intravenously using undesirable detergents and certain organic
solvents that can create irritation at the site of administration, sensitivity
reactions and other side effects.
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Spartaject Drug Delivery Technology is a drug delivery system that
accommodates poorly water soluble and water insoluble compounds by encapsulating
them with a fatty (phospholipid) layer ("Spartaject Technology"). The Spartaject
Technology involves coating particles of a drug that are of submicron or near
micron size with a membrane-forming phospholipid layer, thereby permitting the
creation of a suspension of the drug rather than a solution, and its intravenous
injection without the use of potentially toxic solubilizing agents. As a result,
the Spartaject Technology may reduce toxicity created by other injectable forms
of delivery and potentially increase efficacy by facilitating delivery of
compounds whose prior intravenous delivery was impractical because of
solubility-related formulation difficulties.
The Spartaject Technology Program -- Busulfan
The Company's development program for Spartaject intravenous delivery
of busulfan is currently in Phase I Clinical Trials. Busulfan is currently
marketed in an oral dosage form by Glaxo Wellcome Inc. It is frequently used
"off-label" as a bone marrow ablating agent prior to bone marrow transplants
("BMT"). However, due to poor solubility in water, busulfan has been available
only in tablets containing a small amount of drug, and BMT requires high dosage
of drug requiring patients to take large numbers of tablets, usually more than
one hundred per day for four days, in order to absorb enough active drug to
achieve the desired effect on the bone marrow. The need to swallow large numbers
of tablets is one of the major limitations on the wider use of busulfan for BMT
procedures, especially in children. Furthermore, oral administration of busulfan
may result in variations in the amount of drug actually absorbed
(bioavailability) leading to widely variable blood levels and some unpredictable
and serious toxicities.
The Company believes that an intravenous form of busulfan is needed to
overcome these limitations. In March 1997, the Company initiated a Phase I
Clinical Trial of Spartaject busulfan at Johns Hopkins Oncology Center which was
later expanded to include Duke University Medical Center as a clinical site. The
Company has been granted orphan drug status by the U.S. Food and Drug
Administration ("FDA") for the use of busulfan as preparative therapy for
malignancies treated with bone marrow transplantation. The Orphan Drug Act, as
now in effect, will provide a period of market exclusivity for seven years
following approval, if the compound is initially approved by the FDA for use in
malignancies treated with bone marrow transplantation under the Company's
sponsorship, of which there can be no assurance. See "Patents, Regulatory
Exclusivity and Trade Secrets -- Waxman-Hatch Act and Orphan Drug Act," for a
discussion of the Orphan Drug Act.
In December 1995, the Company signed an agreement with Orphan Europe
SARL, Paris, and Swedish Orphan, AB, Stockholm, for the exclusive clinical
testing, registration, distribution and marketing of Spartaject busulfan in
certain countries outside the United States. Under the agreement, Orphan Europe
will be Sparta's exclusive distributor in Western European countries outside of
Scandinavia and will handle clinical testing and product registration for those
countries. Swedish Orphan will have similar rights and responsibilities for
Scandinavian countries. Orphan Europe and Swedish Orphan are obligated at their
own expense to use their best efforts to clinically test and register Spartaject
busulfan in Western Europe and Scandinavia, respectively, and to distribute and
market the product in those territories. The Orphan companies must also make
certain milestone payments to Sparta upon achievement of specified development
and registration objectives. Sparta is obligated to use its best efforts to
supply Spartaject busulfan for clinical testing and marketing on terms to be
established from time to time. In 1997, Orphan Europe SARL initiated a Phase I
Clinical Trial in the United Kingdom for Spartaject busulfan.
The Company estimates that in 1997 there were 12,000 bone marrow
transplants performed in the United States and that the number of such
procedures will grow at the rate of about 2,000 transplants per year.
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The Company believes there is a similar or greater number of such procedures
performed elsewhere in the world, and the frequency of such transplants is
increasing worldwide.
The Spartaject Technology Program -- Other Potential Applications
In 1997, the Company renegotiated its sublicensing agreement with
Research Triangle Pharmaceuticals, Ltd. ("RTP") related to the Spartaject
Technology. In consideration of RTP's elimination of the requirement that
certain milestones be achieved by fixed dates and the reduction of the on-going
license and maintenance fees, the Company has agreed to restrict its field of
use of the Spartaject Technology to busulfan, aphidicolin (and aphidicolin
glycinate), a compound evaluated for another pharmaceutical company and an
additional anti-cancer compound to be determined at a later date.
Oral Prodrug Delivery Technology
Oral Prodrug Delivery Technology involves administering an inactive
compound, known as a prodrug, which is absorbed in the digestive tract and is
converted to an active agent in the liver by an enzyme located there. Oral
Prodrug Delivery Technology could potentially enable the systemic delivery of
drugs that are otherwise only used parenterally through the oral ingestion of
prodrugs that are consistently absorbed. The resulting active compounds may pass
through the systemic circulation and act at peripheral sites. This technology
also may be used to treat diseases of the liver, using doses of the prodrug that
produce sub- therapeutic (and presumably less toxic) blood levels of the active
drug in the systemic circulation, but produce therapeutic tissue levels in the
liver in settings where conversion of the prodrug to the active drug occurs
within or sufficiently close to the target tissue in the liver. The Company is
applying the Oral Prodrug Delivery Technology to compounds selected for their
potential either (i) to serve as oral delivery agents for systemically active
chemotherapeutic drugs previously available only in intravenous form or (ii) to
treat liver cancer and metastases to the liver from primary tumors occurring
elsewhere in the body.
The Oral Prodrug Delivery Technology Program -- 5-FP
5-FP, or 5-fluoro pyrimidinone, is a pyrimidinone based prodrug that is
converted to 5-FU, or 5- fluorouracil by the liver. 5-FU is currently sold
generically only in an intravenous form. It is widely used in the treatment of
breast, colorectal, and other cancers.
Many current schedules of intravenous administration of 5-FU require
prolonged infusion of the drug, sometimes over several weeks, which can be
costly and inconvenient for patients. The Company believes that an oral form of
the drug could provide the advantages of convenience of administration and
potential cost savings in the total treatment regimen, and has developed 5-FP as
an oral form of 5-FU for treatment of breast, colorectal, and other cancers. In
July 1997, the Company initiated a Phase I Clinical Trial at Harper Hospital's
Karmanos Cancer Center, which is affiliated with Wayne State University in
Detroit, Michigan.
The intravenous formulation of 5-FU is available generically.
Accordingly, an oral form of 5-FU that may be more costly than the intravenous
formulation is likely to have more limited use than it otherwise might
experience. However, the Company estimates that a significant number of patients
will be treated with an oral form of 5-FU where the patient would otherwise be
treated with a schedule of prolonged infusion therapy.
The Company may also investigate the use of 5-FP using the Oral Prodrug
Delivery Technology for targeted treatment of liver tumors and tumors that
metastasize to the liver. The targeted approach is intended to
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achieve effective 5-FU concentrations in the liver, while decreasing the
presence, and therefore the side effects, of 5-FU elsewhere in the body.
Although the development of 5-FP as an oral form of 5-FU is expected to have
applicability to the Company's development of 5-FP for targeted treatment, the
Company does not expect to separately develop 5-FP for targeted treatment until
and unless the development of 5-FP as an oral form of 5- FU advances in clinical
trials. The separate development of 5-FP for targeted treatment will be
dependent upon receipt of funding from a financing or out-licensing, joint
development or other collaborative arrangements, of which there can be no
assurance. The Company estimates that there are a significant number of patients
who were candidates for a targeted liver chemotherapeutic directed at primary
liver cancer or liver cancer from primary tumors occurring elsewhere in the body
which first metastasize to the liver. The incidence of these cancers is
particularly high in the Pacific Rim countries.
The Oral Prodrug Delivery Technology Program -- Other Potential Anticancer
Applications
IPdR. IPdR is a pyrimidinone based prodrug that converts into IUdR, a
compound that has been under investigation by the NCI in animals and humans as a
potential agent to sensitize cancer cells to radiation. The Company concluded
animal feasibility testing of its targeted radiation concept (with potentially
lower toxicities) during 1997. Further product development will be dependent
upon receipt of additional funding from a financing or out-licensing, joint
development or other collaborative arrangements, of which there can be no
assurance. IPdR has potential utility in treating cancer in a variety of
locations, including tumors in the liver,head and neck. The Company estimates
that there are a significant number of patients in the United States with liver
cancer, or metastases to the liver of tumors occurring elsewhere, who would be
candidates for radiosensitization.
IPdR, unlike 5-FP and 5-FU, is a nucleoside analogue. It is possible
that as a result of severe complications and deaths associated with the use of
another nucleoside analogue, which was under clinical investigation for
hepatitis, more extensive preclinical toxicity testing may be required by the
FDA for any nucleoside analogues under investigation for any use, and there can
be no assurance that similar toxicities from the use of IPdR would not result.
RII Retinamide
RII retinamide (retinoid). In trials in China conducted by the
Company's licensor involving more than 600 patients, RII retinamide has shown
activity against myelodysplastic syndromes ("MDS") and a number of other
conditions. The Company is currently conducting Phase I/II Clinical Trials for
MDS at various sites throughout the United States. MDS are a related group of
conditions that have in common an abnormality in the blood-producing cells of
the bone marrow. The conditions are invariably fatal, although patients can live
for several years after diagnosis. Treatment of patients with MDS has generally
proven disappointing. The most common current treatment is management by
supportive measures, such as blood transfusion, or the administration of
antibiotics to fight infections. Hematopoietic growth factors also have been
used to treat MDS. RII retinamide may be effective because retinoids have a cell
differentiating effect that potentially can cause abnormal cells in the bone
marrow to become normal. The Company has been granted orphan drug status for RII
retinamide for the treatment of MDS. The Orphan Drug Act as now in effect will
provide a period of market exclusivity for seven years following approval, if
the compound is initially approved by the FDA for treatment of MDS under the
Company's sponsorship, of which there can be no assurance. See "Patents,
Regulatory Exclusivity and Trade Secrets -- Waxman-Hatch Act and Orphan Drug
Act" for a discussion of the Orphan Drug Act. The Company estimates that in 1997
there were at least 12,000 patients in the United States with MDS.
Asulacrine
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Asulacrine (formerly CI-921 or Amsalog). The Company has jointly
sponsored a Phase I Clinical Trial of an oral form of asulacrine with the CRC in
the United Kingdom, the initial phase of which, testing oral bioavailability,
has been completed and has demonstrated acceptable results. An oral Phase I
Clinical Trial to identify maximum tolerated dosage was initiated by CRC during
1996. Primary treatment targets are breast and lung cancer, with which the
American Cancer Society estimates approximately 180,000 and 170,000 people will
be diagnosed in 1998, respectively, in the United States. While prior clinical
trials of asulacrine by others for the treatment of breast and lung cancer
showed borderline activity, the Company believes that a different approach may
significantly enhance asulacrine's efficacy. The Company has not filed an IND
with the FDA for asulacrine. The development strategy is being pursued at
minimal current cost with CRC.
Protease Inhibitors
The technology and compounds acquired in the Lexin Purchase were
licensed to Lexin exclusively from the University of Pennsylvania ("Penn") and
Wichita State University ("Wichita State") and are directed at the potential
treatment of a number of life-threatening diseases. The lead compound acquired
in the Lexin Purchase, LEX032, is intended to treat serine protease-mediated
inflammatory tissue damage. Proteases, of which serine proteases are a subset,
are enzymes which digest proteins. Serine proteases have been implicated in a
number of serious diseases, especially those of major organs such as the lung
and pancreas, where uncontrolled inflammation may be fatal. LEX032 has exhibited
what may be a unique spectrum of activity in certain animal models of
reperfusion injury. A drug with such a spectrum of activity may be useful in the
treatment of myocardial infarction, stroke, shock-resuscitation, replantation
surgery, frostbite, burns and organ transplants. The compound is currently under
evaluation and option to Astra Merck Inc. for acute pancreatitis, or
inflammation of the pancreas.
The Company is currently funding a research program at Wichita State
designed to discover small molecule inhibitors of serine proteases. Recently,
this program has been expanded to include inhibitors of various other proteases.
In addition, the Company continues to support research at Penn in order to
broaden its understanding of the role of protease inhibitors in the disease
process.
Metabolic Disorders
The acquisition of the exclusive worldwide rights to develop and
commercialize PZG provides the Company an opportunity potentially to advance a
compound in an area of great unmet need - the treatment of Type II diabetes.
Animal studies and early clinical studies of PZG suggest that it may help to
control the blood sugar and lipid abnormalities of diabetes. Because in many
patients taking currently marketed oral agents the blood sugar and/or lipid
abnormalities of diabetes are not well-controlled, there is a pressing need for
additional therapies.
The Company intends to initiate in 1998 a controlled clinical study to
confirm the hypoglycemic and lipid-lowering effects of PZG in Type II diabetics.
The Company is now selecting experts in metabolic disease to help it plan this
study. In addition, the pre-clinical and clinical studies of PZG suggest that
the drug may have utility in treating: hypertriglyceridemia (a lipid disorder)
that is unrelated to diabetes; obesity; hypertension; the uremia of renal
failure; and Syndrome X. The latter is a syndrome of insulin resistance, lipid
abnormalities, hypertension and assorted findings.
Research and Development
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Since the Company's business strategy includes acquiring the rights to
therapeutic product candidates that have demonstrated potential efficacy in
preclinical or clinical testing, the Company does not have its own research
facilities and does not plan to establish them in the foreseeable future. The
Company has funded and may from time to time fund research programs in
collaboration with academic and other institutions, primarily those with which
it has or will have established license agreements. During 1997, the Company
supported research at four institutions with which it has entered into license
agreements with the Institute of Materia Medica, Beijing, China ("BIMM"), Yale
University, Wichita State, and Penn. At BIMM, the Company funded research
directed by its special consultant to the Scientific Advisory Board, Professor
Jui (Rui) Han, M.D., which focused on synthesizing and characterizing new
retinoid compounds with reduced teratogenic potential (fetal malformation) from
that experienced with many existing retinoid compounds. The Company will have
exclusive rights (outside of China) to the results of such work under the terms
of its existing license agreement with BIMM. At Yale University, the Company
funded research directed by Dr. Yung-chi Cheng, Co- Chairman of the Company's
Scientific Advisory Board. Dr. Cheng's research related to the metabolic
transformation of 5-FP. At Wichita State, the Company is currently funding a
research program under the direction of William C. Groutas, Ph.D., a consultant
to the Company, designed to discover small molecule protease inhibitors through
a combinatorial chemistry/structure based dsesign approach. The Company will
have exclusive rights (except for agricultural uses and applications) to the
results of such work under the terms of its existing license agreement with
Wichita State. In addition, the Company continues to support research at Penn
under the direction of Harvey Rubin, M.D., Ph.D., a member of the Company's
Scientific Advisory Board, with the goal of broadening its understanding of the
role of proteases and their inhibitors in the disease process. The Company will
have exclusive rights to commercialize the results of such work under the terms
of its existing license agreement with Penn.
To assist with the development of its products while permitting the
Company to maintain a minimal infrastructure, it has established relationships
with various providers of preclinical and clinical planning, development and
drug registration services. The Company also depends upon academic, research and
non-profit institutions, and some commercial service organizations, for chemical
synthesis and analysis, product formulation, assays and preclinical and clinical
testing of its compounds.
For the years ended December 31, 1995, 1996 and 1997, the Company
expended $1,819,887, $3,176,742 and $3,748,216 respectively, on research and
development activities excluding the charges of $3,062,913 and $235,000 in 1996
and 1997, respectively, for acquired research and development. From its
inception in June 1990 through December 31, 1997, the Company expended
$12,929,363 on research and development excluding the aforementioned charges
associated with the purchase of in-process research and development.
Manufacturing and Marketing
The Company does not have, and does not intend to establish in the
foreseeable future, manufacturing facilities to produce either drug chemicals or
product formulations (except possibly with respect to its Spartaject
Technology). Accordingly, in 1997, the Company relied on third parties to
manufacture clinical trial supplies and in the future will have to rely on third
parties to manufacture its product candidates. There can be no assurance that
third party manufacturers will be available and perform as required or, if
available, will give the Company's orders the highest priority, or that the
Company would be able to readily find a substitute manufacturer, if needed, on
short notice. The Company will be dependent upon contract manufacturers to meet
the Company's manufacturing standards and to comply with current Good
Manufacturing Practices ("cGMP") or other applicable requirements imposed by
U.S. or foreign regulators and with health, safety and environmental
regulations. There can be no assurance that such compliance will be achieved or
that the FDA
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and other regulators would not take action against a contract manufacturer for
violating cGMP or similar standards or regulations.
Currently, the Company has no marketing personnel or arrangements,
other than for the marketing of Spartaject busulfan in Western Europe and
Scandinavia. It plans to market its products, if and when successfully
developed, with its own sales force (which it must build), with co-marketers or
through distributors, licensees or strategic partners. The Company continues to
evaluate expressions of interest from other pharmaceutical and biotechnology
companies related to strategic alliances and transactions including, but not
limited to, the potential licensing or acquisition of the Company's technologies
and/or product candidates.
Licensing
The Company's license or sublicense agreements (the "Licenses")
generally require the Company to undertake and pursue with diligence and best
efforts development of the compounds and technologies that are licensed, and to
report on a regular basis on the Company's development progress and plans. Each
of the Licenses requires payments of royalties on sales of products covered by
the License and, in several instances, minimum annual royalties. Under most of
the Licenses, the licensor has the first right to sue for infringement of, and
defend invalidity charges against, the licensed patents. All of the Licenses
provide that in the event of the Company's default of its obligations, including
the obligations to diligently pursue and apply best efforts to the development
of the licensed compound or technology, and, in some instances, in the event of
its insolvency or bankruptcy, all or a portion of the license or sublicense may
be terminated by the licensor or sublicensor. A termination of any of the
Licenses could have a material adverse effect upon the Company. The Company
believes it has complied in all material respects with the terms of all of its
Licenses to date. The Company intends to continue its licensing program and
engage in product acquisitions with a primary focus on clinical stage of
development. There can be no assurance that any such licenses or acquisitions
will be on terms similar to the Licenses.
The Company made minimum royalty and annual maintenance fee payments in
the aggregate amount of $102,00 during 1997, and is obligated to make payments
of $352,000 during 1998.
Sublicense of Spartaject Technology to the Company
In July 1992, RTP granted the Company exclusive rights to patent and
know-how in a sublicense under RTP's license with Pharma-Logic, Inc. to make,
have made, use and sell pharmaceutical formulations worldwide embodying the
Spartaject Technology for use as anticancer agents for cancer treatment in
humans, for use as agents for ancillary care related to cancer treatment in
humans and for any use of busulfan in humans (the "RTP License"). The Company
has renegotiated its sublicensing agreement with RTP. As recited above in
describing the Spartaject Technology Program, the renegotiated RTP sublicense
reduces the Company's costs and restricts its exclusive rights to the Spartaject
Technology with respect to busulfan, aphidicolin (and aphidicolin glycinate), a
compound evaluated for another pharmaceutical company and an additional anti-
cancer compound to be determined at a later date.
The Company is obligated to pay royalties, including minimum amounts,
on product sales until the expiration of the underlying patents, to pay an
annual fee to maintain exclusivity, and must pay all or a portion of patent
prosecution, maintenance and defense costs. The Company is required under
certain circumstances to provide information regarding its preclinical and
clinical research, regulatory filings and proceedings, manufacturing processes
and related information to RTP, and under certain circumstances RTP may disclose
this information to other licensees, but during its term the RTP License limits
the use of such information by RTP or its licensees to uses outside the field of
use licensed to the Company. Unless sooner terminated, the RTP License
continues, with respect to an issued patent, until the patent expires or has
been found invalid. With
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respect to pending patent applications, the obligation to pay royalties ceases
upon abandonment of the application or after the application has been pending
for five years, whichever occurs first. Should the patent application
subsequently issue as a patent, the royalty obligation resumes.
License of Oral Prodrug Delivery Technology to the Company
Yale University ("Yale") granted the Company in October 1991 an
exclusive worldwide license to make, have made, use and sell products under
certain patent rights related to the Oral Prodrug Delivery Technology (the "Yale
License"). Exclusivity under the Yale License is subject to rights required to
be granted to the U.S. Government (related to government sponsorship of any
research) and Yale's right to make, use and practice the invention for
noncommercial purposes. Sparta's obligations to Yale include (i) payments upon
the achievement of certain milestones, (ii) royalty payments, including minimum
amounts, on product sales, and (iii) payment of the costs of preparing,
prosecuting and maintaining patent applications and patents. For products
covered by pending patent applications, royalties cease five years after the
filing date if no patent has issued. Royalties for products covered by issued
patents are payable until the patents expire or are found invalid or
unenforceable. The Company also issued shares of its Common Stock to Yale,
granted Yale certain stock registration rights, and provided for the Company to
have a right of first refusal if Yale desires to transfer the shares.
License of Retinoids to the Company
The Company obtained an exclusive worldwide (except for China) patent
and know-how license from BIMM in October 1991 to specified classes of
retinoids, including RII retinamide. The Company is obligated to use its
reasonable best efforts to prepare, prosecute and maintain patent applications
and patents for such compounds outside China at its expense, and has provided
and may continue to provide support to BIMM for research projects. The Company
issued to BIMM shares of Common Stock related to the achievement of certain
milestones pursuant to the license agreement. The Company is obligated to pay
royalties on product sales for different periods, depending on whether the
product is covered by a patent, is covered by a patent application, or embodies
know-how.
In September 1994, the Company obtained a non-exclusive license from
BASF Aktiengesellschaft ("BASF") under BASF's patents concerning RII retinamide
in Europe and Canada. The Company made a down payment to obtain the license, a
portion of which is creditable against royalties due on sales of RII retinamide,
and is obligated to pay royalties on such sales for the life of the patents
covered by the license.
License of Protease Inhibitors
The technology and compounds acquired in the Lexin Purchase were
licensed to Lexin exclusively from Penn and Wichita State. Pursuant to the terms
of the Lexin Purchase, Lexin's rights and obligations under its license
agreements with Penn and Wichita State were assigned to the Company.
The Penn license agreement grants the Company an exclusive worldwide
license to make, have made, use and sell products under certain patent rights
owned by Penn. These patent rights relate to the expression of a certain
protease inhibitor and specific modifications thereto. Exclusivity under the
Penn license is subject to potential rights required to be granted to the U.S.
government (related to government sponsorship of any research) and Penn's right
to use and to permit the use of the licensed products by nonprofit
organizations. Sparta's obligations to Penn include (i) royalty payments,
including minimum amounts, on product sales and (ii) payment of the costs of
preparing, prosecuting and maintaining patent applications and patents.
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The Wichita State license agreement grants the Company an exclusive
worldwide license to make, have made, use, sell and have sold products for any
diagnostic, therapeutic or prophylactic purpose under certain patent rights
owned by Wichita State. These patent rights relate to a family of related new
chemical entities exhibiting protease inhibitory properties. Exclusivity under
the Wichita State license is subject to potential rights required to be granted
to the U.S. government (related to government sponsorship of any research). The
Company's obligations to Wichita State include (i) royalty payments on product
sales and (ii) payment of the costs of preparing, prosecuting and maintaining
patent applications and patents.
Pyrazinoylguanidine
The Company entered into a license agreement with the Estate of Karl H.
Beyer, Jr. ("Beyer") in December 1997. The license agreement grants the Company
an exclusive worldwide license to make, have made, use, import, offer to sell
and sell or have sold on its behalf products under certain patent rights.
Exclusivity under the Beyer license is subject to potential rights required to
be granted to the U.S. government related to government sponsorship of any
research. Sparta's obligations under the license include (i) royalty payments,
including minimum amounts, on product sales, (ii) milestone payments related to
successful clinical development of the compound, and (iii) payment of the costs
of preparing, prosecuting and maintaining patent applications and patents. In
addition to a cash payment at the inception of the license agreement, the
Company issued to Beyer a Common Stock Warrant for 300,000 shares of Common
Stock expiring on December 4, 2004, with an exercise price of $.4375 per share
of Common Stock, vesting on the earlier of December 31, 1999, the enrollment of
the first patient in a Phase III Clinical Trial, or the termination of the
license agreement. The warrant also contains certain registration rights for the
underlying Common Stock. The license has been assigned to Orizon.
Other Licenses and Option
In addition to the licenses and sublicense described above, The
Research Foundation of the State University of New York ("SUNY") granted the
Company an exclusive worldwide patent and know-how license to make, have made,
use and sell IPdR and certain other nucleoside analogues, in exchange for
certain royalty and other payments by the Company. The Company has a
collaboration and option agreement with CRC and Cancer Research Campaign
Technology ("CRCT") for an exclusive worldwide patent and know-how license to
manufacture, use and sell asulacrine. CRC is obligated to use reasonable efforts
to carry out a research program that potentially can take asulacrine through
Phase II Clinical Trials in the United Kingdom, provided CRC, CRCT and the
Company agree on protocols for further studies. Under the agreement, the Company
would be obligated to pay up to (pound)110,000 of costs, of which approximately
(pound)62,500 had been paid as of December 31, 1997. If Sparta elects to
exercise the option, the parties have agreed to enter into good faith
negotiations of a license agreement based on certain provisions stipulated in
the option agreement. However, there can be no assurance that the parties will
enter into a license agreement on terms acceptable to the Company.
Patents, Regulatory Exclusivity and Trade Secrets
The Company considers the protection and enforcement of its
intellectual property rights, whether owned or licensed, to be vital to its
business. While it intends to focus primarily on patented or patentable
technology, it may also rely on trade secrets, unpatented proprietary know-how,
regulatory exclusivity, patent extensions and continuing technological
innovation to develop its competitive position. In the United States and certain
foreign countries, the exclusivity period provided by patents covering
pharmaceutical products may be extended by a portion of the time required to
obtain regulatory approval for a product.
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Patents. Patent applications in the United States are maintained in
secrecy until patents issue. However, corresponding foreign applications are
generally published 18 months after the priority filing. Publication of
discoveries in the scientific or patent literature, if made, tends to lag actual
discoveries by several months. Consequently, the Company cannot be certain that
its licensor or sublicensor was the first to invent certain technology or
compounds covered by pending patent applications or issued patents or that it
was the first to file patent applications for such inventions. In addition, the
patent positions of pharmaceutical firms, including the Company, are generally
uncertain, partly because they involve complex legal and factual questions.
There can be no assurance that any patents will issue from the patent
applications licensed to the Company or acquired in the Lexin Purchase. Further,
even if patents issue, there can be no assurance that they will not be
challenged, invalidated or infringed upon or designed around by others or that
the practice of the claims contained in such patents will not infringe the
patent claims of others or that they will provide the Company with significant
protection against competitive products or otherwise be commercially valuable.
There can be no assurance that the Company will not need to acquire licenses
under patents belonging to others for technology potentially useful or necessary
to the Company or, if any such licenses are required, that they will be
available on terms acceptable to the Company, if at all. To the extent that the
Company is unable to obtain patent protection for its products or technology,
the Company's business may be adversely affected by competitors who develop
substantially equivalent technology.
Waxman-Hatch Act and Orphan Drug Act. Certain provisions of the Drug
Price Competition and Patent Term Restoration Act of 1984 (the "Waxman-Hatch
Act") grant market exclusivity for a period of up to five years from the date of
FDA approval for certain new drugs and dosage forms. Separately, orphan drug
status under the Orphan Drug Act can confer market exclusivity in the United
States for seven years from the date of FDA approval of the drug. The
Waxman-Hatch Act and Orphan Drug Act protections run simultaneously, not
consecutively.
Under the Waxman-Hatch Act, a product patent or use patent covering a
drug may be extended for up to five years under certain circumstances, but in no
event for an effective patent life of longer than fourteen years, to compensate
the patent holder for the time required for testing of the product and its FDA
regulatory review. The benefits of the Waxman-Hatch Act are available only to
the first approved use of the active ingredient in the drug product and may be
applied only to one patent per drug product.
The Waxman-Hatch Act also establishes a period of time from the date of
FDA approval of certain new drug applications during which the FDA may not
accept or approve short-form applications for generic versions of the drug from
other sponsors, although it may accept or approve long-form applications, that
is, another complete NDA for such drug. The applicable period is five years in
the case of drugs containing an active ingredient not previously approved, and
three years for new uses of previously approved ingredients.
Pursuant to the Orphan Drug Act, as currently in effect, the FDA may
grant orphan drug status to certain drugs intended to treat a "rare disease or
condition," defined as a disease or condition which affects fewer than 200,000
people in the United States, or which affects more than 200,000 people but for
which the cost of development and of making the drug available will not be
recovered from sales of the drug in the United States. Orphan drug status may
provide certain benefits, including exclusive marketing rights in the United
States for the drug for the designated and approved indication for seven years
following marketing approval.
An applicant may receive marketing exclusivity only if it is the
sponsor of the first NDA approved for the drug for an indication for which it
has received orphan drug status designation prior to the time of such NDA
submission. Therefore, unlike patent protection, orphan drug status does not
prevent other companies from attempting to develop the drug for the designated
indication or from obtaining NDA approval prior to approval of the Company's
NDA. If another sponsor's NDA for the same drug and the same indication is
approved first,
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that sponsor is entitled to exclusive marketing rights if that sponsor has
received orphan drug designation for the drug. In that case, the FDA will
refrain for at least seven years from approving the Company's application to
market the product.
Orphan drug status does not prevent the FDA from approving the same
drug for a different indication. Furthermore, doctors are not restricted by the
FDA from prescribing an approved drug for unapproved uses. Therefore, another
company's approval of a drug for different uses could adversely affect the
marketing potential of a Company drug for which orphan drug status as to a
different indication has been obtained.
The Company believes that it will be advantageous to obtain orphan drug
status for eligible products. There can be no assurance, however, that such
products will receive such status. Furthermore, proposed amendments to the
Orphan Drug Act have been introduced into Congress from time to time, including
proposals which would reduce the period of exclusive marketing rights granted
under the Orphan Drug Act from its present level of seven years; provide for the
loss of exclusive marketing rights if the orphan drug treats a patient
population exceeding 200,000 people; and possibly grant such rights to two or
more companies if they develop a drug simultaneously. Accordingly, there can be
no assurance as to the availability of orphan drug status for the Company's
products, or as to the precise scope of protection that may be afforded by
orphan drug status in the future, or that the current level of exclusivity will
remain in effect.
Status of Technologies and Compounds
Spartaject Technology. A United States patent relating to the
Spartaject Technology (the "Licensed Patent"), expiring in 2009, is licensed by
the Company from RTP. Corresponding patent applications relating to the
Spartaject Technology have been filed in various foreign countries, including
certain European countries, Japan and Canada and have been licensed to the
Company. Patents relating to the Spartaject Technology have issued in Taiwan and
South Africa, which expire in 2008 and 2011, respectively, and have been
licensed to the Company.
Certain patents (the "Third Party Patents") issued in the United States
in September 1992 and March 1995 include numerous claims that, based on
presently available information, may cover certain embodiments of the Spartaject
Technology. The Company believes that these Third Party Patents have been
assigned to Eastman Kodak Company, or a subsidiary thereof. If the Third Party
Patents are not invalid insofar as their claims relate to those embodiments of
the Spartaject Technology, then (i) the Company will require a license from the
holder of the Third Party Patents to commercialize those embodiments of the
Spartaject Technology and sell or sublicense others to sell products utilizing
those embodiments of the Spartaject Technology in the United States and (ii) the
extent to which the Company might require such a license will depend on the
final formulations of its and any sublicensee's products and whether they
utilize those embodiments of the Spartaject Technology that are covered by the
Third Party Patents. There can be no assurance that a license will be obtainable
on acceptable terms, if at all, and any negotiations to obtain a license may be
protracted. If the Company is required to obtain a license under the Third Party
Patents to practice those embodiments of the Spartaject Technology and sell or
sublicense others to sell products utilizing those embodiments of the Spartaject
Technology in the United States and is unable to do so on commercially
reasonable terms, then the inability to obtain such a license could have a
material adverse effect on the Company's business and its future results of
operations.
The application for the Licensed Patent was filed in the United States
nearly nine months prior to the application for the initial Third Party Patent
and, based on presently available information, the work relating to the
inventions claimed in the Licensed Patent, insofar as such claimed inventions
cover those embodiments of the Spartaject Technology which also appear to be
covered by the initial Third Party Patent, was commenced more than two years
prior to the filing date of the application for the initial Third Party Patent.
However, there can be no assurance that the inventions claimed in the Licensed
Patent covering those embodiments of the
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Spartaject Technology were made prior to the inventions claimed in the Third
Party Patents, which appear to cover those embodiments of the Spartaject
Technology. If such inventions claimed in the Licensed Patent did have such
priority and such priority were established in a United States court proceeding
or otherwise with respect to each such claimed invention in the Third Party
Patents which appears to cover embodiments of the Spartaject Technology, then
the Third Party Patents would be invalid to the extent their claims extend to
those embodiments of the Spartaject Technology and would not prevent the Company
from practicing those embodiments of the Spartaject Technology in the United
States.
Patent applications corresponding to the Third Party Patents have been
filed in various countries outside the United States, including certain European
countries through the European Patent Office ("EPO"), in Japan and in Canada,
also with pending claims that, based on presently available information, may
cover certain embodiments of the Spartaject Technology. The applications filed
by the holder of the Licensed Patent in various foreign countries, including
certain European countries through the EPO, in Japan and in Canada, have earlier
effective filing dates than the application filed with the EPO, in Japan and in
Canada corresponding to the Third Party Patents. The Company believes that
generally, in most foreign countries, in the case of conflicting applications
claiming the same patentable invention, the application with the earlier
effective filing date (in this case the patent applications filed by the holder
of the Licensed Patent) is entitled to the issuance of the patent. Accordingly,
although there can be no assurance that foreign law will be applied in this
manner, the Company believes that a patent issued in such European countries,
Japan, or Canada corresponding to the Third Party Patents should be invalid (or
susceptible to cancellation) insofar as it pertained to the practice of the
Spartaject Technology. Therefore, the Company believes it should not be
prevented ultimately from commercializing the Spartaject Technology in such
European countries, Japan or Canada, respectively, solely by reason of the
issuance of such Third Party Patent.
A patent was issued in the United States (the "Orphan Patent") and a
patent application which designated various countries outside the United States
was published under the Patent Cooperation Treaty (the "Orphan Application")
which the Company understands have been licensed exclusively to Orphan Medical,
Inc. The Orphan Patent includes claims, and the Orphan Application is seeking
claims, covering methods of treating patients with malignant conditions using an
intravascularly administrable busulfan preparation and treating leukemia or
lymphoma patients undergoing a bone marrow transplant using an intravenously
administrable busulfan preparation that, based on presently available
information, may cover methods by which Spartaject busulfan will be used. The
Company believes, based on advice of patent counsel, that such claims do not
cover the use of Spartaject busulfan. However, there can be no assurances in
this regard and if such claims do cover the Company's intended use of Spartaject
busulfan, and the Orphan Patent or any patents issuing on the Orphan Application
are not invalid, then the Company will require a license from the holder or
exclusive licensee of such patent or patents in order to develop or
commercialize Spartaject busulfan in any country, including possibly the United
States, where such patent or patents are issued. There can be no assurance that
a license will be obtainable on acceptable terms, if at all, and any
negotiations to obtain a license may be protracted. If the Company is unable to
obtain a license on commercially reasonable terms, then the inability to obtain
such a license could have a material adverse effect on the Company's business
and its future results of operations.
A patent application filed by Sandoz Ltd. and Sandoz-Patent-GmbH (the
"Sandoz Application") was published under the Patent Cooperation Treaty ("PCT")
in October 1992 and designated various European countries for filing. The Sandoz
Application includes claims covering certain embodiments of the Spartaject
Technology applicable to formulations containing certain electrostatic lipids.
Although the patents which have issued in the EPO and the United Kingdom
pursuant to such application do not contain any such claims, if a Spartaject
formulated product contained such lipids and patents containing such claims
issue on such application in any country and such claims are not invalid, then
the Company will require a license from the holder of such patents in order to
develop or commercialize such product in any such country. There can be no
assurance that a license will be obtainable on acceptable terms, if at all, and
any negotiations to obtain a license may be protracted. If the Company is unable
to do so on commercially reasonable terms, then the inability to
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obtain such a license could have a material adverse effect on the Company's
business and its future results of operations.
Spartaject(TM) is a trademark of the Company.
Oral Prodrug Delivery Technology and IPdR. In March 1997 the U.S.
Patent and Trademark Office ("PTO") issued an office action indicating an
allowance of claims pursuant to the Company's licensed patent application from
Yale including all of the claims drawn to the administration of 5-FP (including
oral administration) and IPdR, and other compounds with similar structures, for
the treatment of liver associated diseases. The corresponding U.S. patent is
expected to issue in 1998.
The Company is aware that two international patent applications by The
Wellcome Foundation Limited ("Wellcome") were published under the PCT in 1992,
designating the United States, major European countries, Japan, Australia and
New Zealand, among other countries. As published, the applications have broad
claims that the Company believes may cover certain of the prodrugs which may be
used by the Company in practicing the Oral Prodrug Delivery Technology licensed
by the Company, or methods of formulating or using such prodrugs, or may cover
the active compound to which the prodrugs are intended to be converted in vivo.
A patent in Australia based on one of such applications was issued on March 7,
1995, and expires in 2011. Two patent applications in New Zealand, based on one
of such PCT applications, were allowed and published for opposition in November
1995 and, unless successfully opposed, will be granted and will expire in 2011
(such Australian patent and potential New Zealand patents being called
collectively the "ANZ Patents"). The claims of the ANZ Patents do not appear to
cover the application of the Oral Prodrug Delivery Technology to 5-FP but may
cover its application to IPdR as a radiosensitizer prodrug. The Company believes
that to the extent that it is possible to interpret such claims as covering such
applications to IPdR, they are invalid and that the issuance of the ANZ Patents
to such extent were in error. The Company had filed timely oppositions to the
issuance of the New Zealand applications based on prior art of which the Company
is presently aware. Both opposition proceedings are currently for post-grant
reexamination with respect to the Australian patent at an appropriate time. The
Company is also maintaining a watch with respect to the publication or allowance
of corresponding applications in other jurisdictions. There can be no assurance,
however, that such issuance in Australia and allowances in New Zealand were in
error, or that another patent or patents based on such published applications
will not issue in the United States or other jurisdictions or that the ANZ
Patents and any other such issued patent or patents would not contain claims
which could affect the practice of theOral Prodrug DeliveryTechnology. 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 Oral Prodrug DeliveryTechnology in such jurisdictions. There
can be no assurance that such license will be obtainable on commercially
reasonable terms to the Company, if at all. If any such license were required to
practice the Oral Prodrug DeliveryTechnology, the inability to obtain such
license could have a material adverse effect on the Company's business and its
future results of operations.
A patent licensed to the Company and expiring in 2007 has issued in the
United States on IPdR. A U.S. patent licensed to the Company on certain other
nucleoside analogues expires in 2005.
RII retinamide. RII retinamide is not patented in the United States,
and the Company believes it is no longer patentable in the United States. An EPO
patent on RII retinamide licensed to the Company expires in 1998 and pursuant
thereto patent rights have been perfected in various European countries. A
patent in Canada also licensed to the Company expires in 1999.
In June 1995, the Company, on behalf of BIMM, arranged for the filing
of several patent applications with the PTO for novel retinoid compounds which
may be potentially non-teratogenic. The filings were based on research at BIMM
sponsored by the Company which focused on synthesizing and characterizing new
retinoid
18
<PAGE>
compounds devoid of teratogenic potential. One such patent has issued in the
United States and the Company has been advised of the allowance of two
additional patents which are expected to issue in 1998.
The Company has been granted orphan drug status for RII retinamide for
the treatment of MDS.
Patent Rights Acquired from Lexin. The Company has obtained, through
the assignment to the Company of the Penn license agreement, exclusive rights to
seven issued United States patents expiring in 2009, 2011 (two), 2013 and 2014
(three). An additional two United States patent applications and three
corresponding PCT applications designating various countries outside the United
States are pending (all of which are covered by the Penn license agreement).
The Company has obtained, through the assignment to the Company of the
Wichita State license agreement, exclusive rights to four pending United States
patent applications and corresponding foreign applications, covering a novel
family of serine protease inhibitors. A patent under one of these United States
applications issued in 1996.
Two patents (the "Antichymotrypsin Patents"), were assigned to Sonoran
Desert Chemicals LLC in 1990 and 1991, respectively, relating to certain uses of
antichymotrypsin. The Antichymotrypsin Patents include claims covering methods
for treating pulmonary and/or bowel inflammations in a mammal using alpha-
1-antichymotrypsin, derivatives and salts thereof, methods for treating
inflammation using alpha-1- antichymotrypsin topically and pharmaceutical
compositions of alpha-1-antichymotrypsin, its salts or derivatives. To the
Company's knowledge, products embodying the Antichymotrypsin Patents have not
yet been developed. Claims of the Antichymotrypsin Patents may cover the
intended use of LEX032, the lead compound which the Company acquired in the
Lexin Purchase. The Company believes, however, based on the advice of patent
counsel, that such claims would not cover the Company's intended use of LEX032.
Nevertheless, there can be no assurance in this regard, and if such claims are
found to cover the Company's intended use of LEX032, and the Antichymotrypsin
Patents are not invalid, then the Company will require a license from the
holders of the Antichymotrypsin Patents in order to develop or commercialize
LEX032 in the United States or any other country where the Antichymotrypsin
Patents may have issued. There can be no assurance that a license will be
obtainable on commercially reasonable terms, if at all, and any negotiations to
obtain a license may be protracted. If the Company is unable to obtain such a
license on commercially reasonable terms, such inability to obtain such a
license could have a material adverse effect on the Company's business and its
future results of operations.
Pyrazinoylguanidine (PZG). The Company obtained exclusive worldwide
rights to the patent portfolio related to PZG pursuant to the licensing
agreement entered into with the Beyer Estate in December 1997. This includes
five issued US patents and eight corresponding foreign patents. Additionally,
there is one US and one foreign application pending. The US and foreign patents
expire through 2009.
Asulacrine. An issued United States patent on asulacrine under a
license option to the Company expires in 1999. Patents on asulacrine have also
issued in several European countries and Japan, which patents expire in 2001.
Other Compounds. The following compounds which the Company may develop
are believed to be in the public domain or not presently subject to patent
protection as compounds in the United States: busulfan, 5- FP, RII retinamide
and aphidicolin. Any patent coverage for any formulations of these compounds
with the Spartaject Technology will be primarily dependent upon the patent
coverage for the Spartaject Technology, to the extent available. The Company has
been granted orphan drug status by the FDA for its intended uses of busulfan and
RII retinamide described. Any patent protection for 5-FP will be dependent upon
the issuance of patents covering the Oral Prodrug Delivery Technology and the
scope of the coverage provided by such patents.
19
<PAGE>
Trade Secrets
The Company also relies on trade secrets and proprietary know-how to
protect certain of its technologies and potential products. To protect them, the
Company requires all employees, consultants, advisors and collaborators to enter
into confidentiality agreements which prohibit disclosure to any third party or
use of such secrets and know-how for commercial purposes. Company employees also
agree to disclose and assign to the Company all methods, improvements,
modifications, developments, discoveries and inventions conceived during their
employment that relate to the Company's business. There can be no assurance,
however, that these agreements will be observed and prevent disclosure or
provide adequate protection for the Company's confidential information and
inventions.
Government Regulation
The manufacturing and marketing of the Company's potential products and
its research and development activities are and will continue to be subject to
regulation by federal, state and local governmental authorities in the United
States and other countries. In the United States, pharmaceuticals are subject to
rigorous regulation by the FDA's Center for Drug Evaluation and Research, which
reviews and approves marketing of drugs. The Federal Food, Drug and Cosmetic
Act, as amended, the regulations promulgated thereunder, and other federal and
state statutes and regulations govern, among other things, the testing,
manufacture, labeling, storage, record keeping, advertising and promotion of the
Company's potential products. The process of obtaining FDA approval for a new
drug takes several years and involves the expenditure of substantial resources.
The steps required before such a product can be produced and marketed for human
use include preclinical studies, the making of an IND filing, human clinical
trials and the approval of an NDA. No assurance can be given that the Company
will be able to satisfy the requirements of the FDA with respect to any of its
proposed products.
"Preclinical" or "pre-Phase I" activities include studies and other
tests conducted in the laboratory and in animals, such as animal pharmacology,
drug kinetics/metabolism, initial toxicology, small scale chemical synthesis,
assay development and validation and initial drug formulation to obtain
preliminary information on a drug's efficacy and safety. The results of these
studies and tests are submitted to the FDA as part of the IND filing before
approval can be obtained for the commencement of testing in humans.
The human clinical testing program usually involves three phases which
are generally conducted sequentially, but which may overlap or be combined.
Particularly in the case of anticancer and other life saving drugs, these phases
are often combined. Clinical trials are conducted in accordance with protocols
that detail the objectives of the study, the parameters to be used to monitor
safety and the efficacy criteria to be evaluated. Each protocol is submitted to
the FDA as part of the IND filing. Each clinical study is conducted under the
auspices of an independent Institutional Review Board ("IRB") for each
institution at which the study will be conducted. The IRB will consider, among
other things, all existing pharmacology and toxicology information on the
product, ethical factors, the risk to human subjects, and the potential benefits
of therapy relative to risk.
In "Phase I Clinical Trials", studies are usually conducted on healthy
volunteers but, in the case of anticancer agents, are conducted on patients with
disease which usually has failed to respond to other treatment to determine the
maximum tolerated dose, side effects of a product and pharmacokinetics. "Phase
II Clinical Trials" are conducted on a small number of patients having a
specific disease to determine initial efficacy (activity) in humans for that
specific disease, the most effective doses and schedules of administration and
possible adverse effects and safety risks. "Phase II/III" differs from Phase II
in that the trials involved may include more patients and, at the sole
discretion of the FDA, be considered the pivotal trial or trials for NDA
approval. "Phase III Clinical Trials" normally involves the pivotal trials of a
drug, consisting of widescale studies on patients with the same disease in order
to evaluate the overall benefits and risks of the drug for the treated disease
compared with other available therapies. At least two such studies demonstrating
safety and
20
<PAGE>
efficacy are normally required for FDA approval. The FDA continually reviews the
clinical trial plans and results and may suggest study design changes or may
require termination of the trials at any time if significant safety or other
issues arise.
While certain of the compounds which the Company intends to develop are
currently marketed or have been the subject of clinical trials by other
companies or institutes, the Company will have to submit an IND filing and
obtain FDA approval in order to commence clinical trials in the United States,
and additional preclinical studies may be required before such trials can
commence. Where the drug formulation in which the compound to be studied is
different from that which was used in other studies, the Company either will
have to establish that it is biologically equivalent to the formulation
previously used or will have to conduct its own preclinical program before
approval of an IND filing can be obtained.
Data from preclinical studies and tests and the clinical trial phases
and of validated manufacturing and quality control procedures are submitted to
the FDA with the NDA for marketing approval. The NDA involves considerable data
collection, verification and analysis, as well as the preparation of summaries
of the manufacturing and testing processes, preclinical studies and clinical
trials. The FDA must approve the NDA before the drug may be marketed in the
United States. In selected cases, which the FDA has stated will apply where life
threatening diseases are involved, and particularly where no alternate
treatments are available, the various phases and the numbers of patients
required for them may be condensed, and the FDA review period accelerated. There
can be no assurance that the review period of the Company's NDAs will be
accelerated.
The testing and approval process is likely to require substantial time
and effort, and there can be no assurance that any FDA approval will be granted
on a timely basis, if at all. The approval process is affected by a number of
factors, primarily the side effects of the drug (safety) and its therapeutic
benefits (efficacy). Additional preclinical or clinical trials may be requested
during the FDA review period and may delay marketing approval. A task force
established by the FDA has recently proposed significant changes in the design,
analysis and reporting of clinical studies conducted under an IND. The task
force recommended increased requirements for reporting adverse effects and new,
more stringent rules that would require clinical trial investigators to assume
that toxicities reported by patients are drug-related. If these recommendations
are implemented, the length of time and costs associated with obtaining market
approval by the FDA are likely to be significantly increased.
The FDA may also require post marketing testing to support the
conclusion of efficacy and safety of the product, which can involve significant
expense. After FDA approval is obtained for initial indications, further
clinical trials may be necessary to gain approval for the use of the product for
additional indications.
The Company intends to enter into joint development or licensing
arrangements with pharmaceutical companies in which it will seek to have such
companies assume many of the costs of clinical testing and comparable foreign
regulatory approval for the products licensed. To the extent that the Company is
unable to enter into such arrangements, it may not have the resources to
complete the regulatory approval process with respect to the products it intends
to develop.
The manufacture of the Company's products, whether done by outside
contractors or the Company, will be subject to rigorous regulation, including
the need to comply with the FDA's cGMP standards. As part of obtaining FDA
approval for each product, each of the Company's own or contract manufacturing
facilities must be inspected, approved by and registered with the FDA. In
addition to obtaining NDA approval of the prospective manufacturer's quality
control and manufacturing procedures, domestic and foreign manufacturing
facilities are subject to periodic FDA inspections and/or inspections by foreign
regulatory authorities.
For marketing outside the United States, the Company will be subject to
foreign regulatory requirements governing human clinical trials and marketing
approval for its products. The requirements
21
<PAGE>
governing the conduct of clinical trials, product licensing, pricing and
reimbursements vary widely from country to country.
The Company's business is also subject to regulation relating to
safety, health and environmental matters and other factors at both the state and
federal level, and internationally.
Competition
Many of the Company's potential competitors engaged in research and
development and in acquiring rights to the products of such research and
development, including biotechnology companies, have substantially greater
financial, technical, scientific, manufacturing, marketing and other resources
than the Company and have more experience as organizations in developing,
marketing and manufacturing therapeutics, including performing the preclinical
testing and clinical trials that are required for obtaining FDA and other
regulatory approvals.
A significant number of pharmaceutical and biotech companies throughout
the world have cancer drugs under development, of which a substantial number are
under development in the United States. Many of such drugs or other substances
under development may compete directly with the treatments which the Company is
developing or may develop in the future, and such drugs may perform more
effectively or safely than the Company's product candidates. Included among the
Company's competitors are: (i) large established companies with commitments to
oncology or antiviral research, development and marketing, including
Bristol-Myers Squibb Company, Novartis, Eli Lilly and Company, Glaxo Wellcome
Inc., Hoffman-LaRoche Inc., Lederle Laboratories, Pharmacia & Upjohn, Inc.,
Rhone-Poulenc Rorer S.A., Schering-Plough Corporation and Zeneca Pharmaceuticals
Group; (ii) smaller companies with similar strategies, including Chiron
Corporation, Immunex Corporation, Roberts Pharmaceuticals Corporation and U.S.
Bioscience, Inc. and (iii) many development stage companies licensing and/or
developing oncology therapeutics.
A number of companies are developing a variety of delivery systems in
the form of microspheres, microcapsules, nanoparticles and liposomes, some of
which technologies may have characteristics that are similar or superior to the
Company's Spartaject Technology. Orphan Medical, Inc., a United States company
which is not affiliated with the Company's licensees of Spartaject busulfan in
Europe and Sweden, Orphan Europe and Swedish Orphan, has disclosed that it is in
Pivotal Trials with an intravenous form of busulfan for use in bone marrow
transplants using a formulation with solvents licensed from a university.
The development of technologies in which toxic agents are selectively
carried to a tumor site by mechanical, other chemical or biological means is a
recognized strategy for oncological research, and such technologies may have
characteristics similar or superior to the Company's Oral Prodrug Delivery
Technology. The concept of targeted therapeutics in cancer is not a new one, and
includes such approaches as the injection of toxic agents into the tumor, the
use of prodrugs activated by other means in the body, monoclonal antibodies and
gene therapy. The Company is aware of other approaches to the delivery of an
oral 5-FU, which may compete with the Company's oral prodrug 5-FP, being
developed by Hoffman-LaRoche Inc., Glaxo Wellcome Inc., Bristol-Myers Squibb,
Otsuka Pharmaceutical Co., Ltd. and Taiho Pharmaceutical Co., Ltd.
Several pharmaceutical companies are developing protease inhibitors
with potential application in pulmonary inflammation, pancreatitis, coagulative
disorders and reperfusion injury. It is widely acknowledged that proteases are a
critical component in the inflammatory cascade and their inhibition has been
pursued by companies engaged in the development of both traditional
pharmaceuticals and biotech compounds. Companies that have been active in this
area at some time include, but are not limited to, Eisai Company, Ltd., ONO
Pharmaceutical Company, Ltd., Zeneca, PLC, Boehringer Ingelheim, GmbH, Cortech,
Inc., DuPont Merck Pharmaceutical Company, T-Cell Sciences, Inc., SmithKline
Beecham Pharmaceuticals, Merck & Company,
22
<PAGE>
Inc., Bayer AG, AXYS Pharmaceuticals, Inc., Fujisawa Pharmaceutical Company,
Ltd., Corvas International, Inc. and British Bio-Technology Group, PLC.
Many drug companies are pursuing a variety of compounds and drug
delivery technologies for diabetes and diabetes related indications. Interest in
compounds that lower blood lipids, regulate blood glucose, enhance insulin
sensitivity, and address other diabetes related metabolic disorders is
widespread throughout the pharmaceutical and biotechnology industry. Companies
that have been active in this area at some time include, but are not limited to,
Eli Lilly and Company, Johnson & Johnson, Pfizer, Amylin Pharmaceuticals, Inc.,
SmithKline Beecham Pharmaceuticals, Warner-Lambert Company, Epimmune, Inc. and
Alteon.
Important Factors Regarding Forward-Looking Statements
Certain of the statements set forth above regarding the Company's
research and development programs, such as the statements regarding the
intention to contract with other organizations for development and registration,
if applicable, of its product candidates, as well as seeking joint development
or licensing arrangements with pharmaceutical companies; the research and
development of particular compounds and technologies for particular indications;
timing related to patent issuances; the markets for successfully developed
product candidates and seeking additional funding are forward-looking and
involve risks and uncertainties that could significantly impact expected
results. These forward looking statements are based upon the Company's current
belief as to the outcome, occurrence and timing of future events or current
expectations and plans. Many important factors affect the Company's ability to
achieve the stated outcomes and to successfully develop and commercialize drugs,
including: the ability to obtain substantial additional funds; to obtain and
maintain all necessary patents or licenses; to demonstrate the safety and
efficacy of product candidates at each stage of development; to meet applicable
regulatory standards and receive required regulatory approvals; to meet
obligations and required milestones under its license agreements; to produce
drug candidates in commercial quantities at reasonable costs; to compete
successfully against other products and to market products in a profitable
manner. There can be no assurance that any of the product candidates described
above will be successfully developed; prove to be safe and efficacious at each
stage of preclinical development and clinical trials; meet applicable regulatory
standards; be capable of being produced in commercial quantities at reasonable
cost or be successfully marketed for use by a sufficient number of patients at a
price to result in profitability. The Company's ability to raise additional
funds will be affected by progress in its research and development programs,
including preclinical and clinical trials, costs of filing and prosecuting
patent applications and, if necessary, enforcing issued patents or obtaining
additional licenses of patents, competing technological and market developments,
the cost and timing of regulatory approvals, the ability of the Company to
establish collaborative relationships, the cost of establishing manufacturing,
sales and marketing capabilities and the ability of the Company to continue to
meet the criteria for continued listing of the Company's securities on the
Nasdaq SmallCap Market. If adequate funds are not available, the Company may be
required to delay, reduce or eliminate research and development programs. The
Company also may be required to obtain funds through arrangements with
collaborative partners that may require the Company to relinquish material
rights to its products that it would not otherwise relinquish.
Human Resources
At March 16, 1998, the Company had nine full-time employees. Three
employees are officers, three administrative and three are involved in the
coordination of research and development activities. The Company believes that
its relationship with its employees is satisfactory.
Item 2. Properties
23
<PAGE>
The Company currently operates from leased facilities in Horsham,
Pennsylvania. A leasehold interest in 12,800 square feet of laboratory and
office space in Horsham was acquired as part of the Lexin Purchase. The initial
lease term expires in July 1999 with the Company having the option to extend the
lease for an additional five years. In March 1997, the Company sublet
approximately two-thirds of its leasehold interest to another pharmaceutical
company. The initial term of the sublease expires in July 1999 and, under
certain circumstances, can be renewed for two additional two and one-half year
terms. The Company believes that the Horsham facility is adequate to meet the
Company's needs for at least the next year.
Item 3. Legal Proceedings
The Company is not a party to any legal proceedings.
Item 4. Submission of matters to a vote of security holders
No matters were submitted to a vote of stockholders during the fourth
quarter of 1997.
24
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Units, Common Stock, Class A Warrants, Class B Warrants
and Class C Warrants are traded on the Nasdaq SmallCap Market under the symbols
SPTAU, SPTA, SPTAW, SPTAZ, and SPTAL, respectively. The following table sets
forth the range of high and low bid prices for the Units, Common Stock, and
Class A, B and C Warrants as reported by Nasdaq for the two most recent fiscal
years of the Company. These market quotations reflect inter-dealer prices and
may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
1996 1997
---- ----
Units High Low High Low
- ----- ---- --- ---- ---
<S> <C> <C> <C> <C>
January 1-- March ...................................... 6 3/8 2 1/2 2 1/4 1
April 1-- June 30....................................... 5 5/8 3 1/2 1 1/8 11/16
July 1-- September 30................................... 4 5/8 2 3/4 1 5/8
October 1-- December 31................................. 2 15/16 1 3/8 1 9/32 3/8
Common Stock High Low High Low
- ------------ ---- --- ---- ---
January 1-- March 31.................................... 5 1 7/8 1 1/2 11/16
April 1-- June 30....................................... 4 2 5/8 1 1/32 1/2
July 1-- September 30................................... 2 15/16 1 5/8 15/16 15/32
October 1-- December 31................................. 1 5/8 7/8 7/8 1/4
Class A Warrants High Low High Low
- ---------------- ---- --- ---- ---
January 1-- March 31................................... 27/32 3/8 1/2 5/16
April 1-- June 30...................................... 1 3/4 3/8 5/16 1/8
July 1-- September 30.................................. 1 9/32 13/16 5/32 3/32
October 1-- December 31................................ 7/8 5/16 1/4 1/16
Class B Warrants High Low High Low
- ---------------- ---- --- ---- ---
January 1-- March 31................................... 1/2 1/8 7/32 1/8
April 1-- June 30...................................... 11/16 1/8 1/8 1/16
July 1-- September 30.................................. 3/8 1/4 1/16 1/32
October 1-- December 31................................ 11/32 1/8 3/16 1/32
Class C Warrants High Low High Low
- ---------------- ---- --- ---- ---
January 1-- March 31................................... -- -- 5/8 1/4
April 1-- June 30...................................... -- -- 1/4 3/16
July 1-- September 30.................................. -- -- 5/16 3/16
October 1-- December 31................................ 9/16 1/4 13/32 1/8
</TABLE>
As of March 20, 1998, the Company's Common Stock was held by 211
stockholders of record and approximately 1,600 beneficial holders. The Company
has never declared or paid any dividends and does not anticipate paying
dividends on the Common Stock in the foreseeable future. The Company currently
intends to retain future earnings, if any, for use in the Company's business.
The payment of any future dividends will be
25
<PAGE>
determined by the Board of Directors taking into account the Company's financial
condition and requirements, its future prospects, restrictions in its financing
agreements, business conditions and other factors deemed relevant by the Board
of Directors.
Item 5. Changes in Securities and Use of Proceeds
On November 15 and December 9, 1997 the Company issued warrants to
purchase up to 250,000 and 35,000 shares of Common Stock to Park Avenue
Consulting Group, Inc. ("Park Avenue") and the Investor Relations Group ("IRG"),
respectively. The warrants were issued as partial consideration in exchange for
consulting services to be performed by Park Avenue and IRG during the year
following grant of the warrants. The aggregate value of the warrants is $35,050
as estimated by using the Black-Scholes option-pricing model assuming an
expected dividend yield of 0%, an expected stock price volatility of 70%, an
expected life of option of 3 years and a risk-free interest rate based on the 3
year treasury bond yield on the date of grant. The warrants were issued pursuant
to section 4(2) of the Securities Act of 1933 inasmuch as the warrants were
issued by the issuer in a transaction not involving a public offering. The Park
Avenue warrants are exercisable for four and one-half years following the date
of grant at the following prices: 150,000 shares at $1.50 per share, and 100,000
shares at $2.00 per share. The IRG warrants are exercisable for five years
following the date of grant at $.42 per share.
On December 5, 1997 the Company issued warrants to purchase up to
300,000 and 500,000 shares of Common Stock to the Estate of Karl H. Beyer, Jr.
and Paramount Capital, Inc., respectively. The warrants were issued as partial
consideration in exchange for the acquisition of a license to PZG. Paramount
became immediately vested in 200,000 of its 500,000 warrants, with the remainder
vesting on the achievement of certain milestones. The aggregate value of the
vested warrants is $135,000 as estimated by using the Black- Scholes
option-pricing model assuming an expected dividend yield of 0%, an expected
stock price volatility of 70%, an expected life of option of 5 years and a
risk-free interest rate based on the 5 year treasury bond yield on the date of
grant. The warrants were issued pursuant to section 4(2) of the Securities Act
of 1933 inasmuch as the warrants were issued by the issuer in a transaction not
involving a public offering. The warrants are exercisable for five years
following the date of grant at $.438 per share.
26
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Period From
June 12, 1990
(Inception) to
Years Ended December 31 December 31,
----------------------------------------------------------------------
1993 1994 1995 1996 (1) 1997 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Statements of
Operations Data:
Revenue:
Interest income.... $21,766 $114,648 $121,438 $296,730 $445,606 $1,033,998
Grant & contract
revenue......... -- 109,995 17,875 -- 155,206 283,076
------------- ---------
Total
revenue... 21,766 224,643 139,313 296,730 600,812 1,317,074
------ ------- ------- ------- ------- ---------
Operating expenses:
Research and
development..... 1,434,956 2,013,934 1,819,887 3,176,742 3,748,216 12,929,363
Charge for acquired
research and
development -- -- -- 3,062,913 235,000 3,297,913
General and
administrative.... 1,236,034 1,360,367 961,833 1,404,955 1,497,006 7,334,544
Total
operating
expenses.. 2,670,990 3,374,301 2,781,720 7,644,610 5,480,222 23,561,820
Net loss............. $(2,649,224) $(3,149,658) $(2,642,407) $(7,347,880) $(4,879,410) $(22,244,746)
Basic and diluted net
loss per common share $(.54) $(.57) $(.43) $(.93) $(.43)
Basic and diluted
weighted average
number of shares
outstanding.......... 4,894,928 5,534,497 6,167,817 7,912,068 11,301,305
At December 31
-----------------------------------------------------------------------------
1993 1994 1995 1996 (1) 1997
---- ---- ---- ---- ----
Balance Sheet Data:
Cash and cash equivalents $1,221,030 $2,348,522 $734,296 $10,246,812 $4,767,317
Short Term Investments -- 1,099,877 -- -- 1,473,275
Working capital (deficit) (3,072,792) 3,249,449 728,560 9,700,066 5,568,130
Total assets 2,037,337 3,626,680 999,966 11,086,283 6,816,251
Total convertible notes 3,869,124 -- -- -- --
Deficit accumulated during the
development stage (4,225,391) (7,375,049) (10,017,456) (17,365,336) (22,244,746)
Total stockholders' equity (deficit) (2,271,639) 3,369,004 814,105 10,456,786 6,075,011
</TABLE>
27
<PAGE>
(1) The Company acquired the business and assets of Lexin in March 1996.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Sparta is a development stage pharmaceutical company engaged in the
business of acquiring rights to, and developing for commercialization,
technologies and drugs for the treatment of a number of life-threatening
diseases including cancer, cardiovascular disorders and inflammation. Sparta has
not derived revenues from the sale of any products and expects to incur
substantial operating losses for the next several years. As of December 31,
1997, the Company's accumulated deficit was $22,244,746.
General
During 1997, the Company focused on advancing its product candidates
into and through clinical trials. The Company commenced Phase I clinical trials
in the United States for SpartajectTM busulfan and 5-FP. Sparta also announced
the initiation of Phase I clinical trials using SpartajectTM busulfan at
Hammersmith Hospital in London, England by its licensee in Europe. Sparta's
collaborator in the United Kingdom progressed with a trial of asulacrine, a
product candidate which the Company has an option to acquire, and the Company
also progressed with its ongoing Phase I/II trial of RII retinamide, a compound
for use in myelodysplastic syndrome. In December 1997, the Company announced the
acquisition of exclusive worldwide rights to develop and commercialize
Pyrazinoylguanidine (PZG), a compound with the potential to treat a variety of
significant chronic metabolic diseases including type II diabetes mellitus and
which has already been in preliminary Phase II clinical trials. In early 1998,
the Company announced an agreement with the Bioprocessing Resource Center for
production of Sparta's LEX 032 compound for use in animal pharmacology studies
pursuant to its $750,000 Phase II SBIR Grant from the NIH awarded in September
1997.
Results of Operations
Years Ended December 31, 1996 and 1997
Revenue increased from $296,730 in 1996 to $600,812 in 1997 due to a
significant increase in both interest income earned on greater cash balances
available for investment resulting from the private placements concluded during
1996 and grant revenue received pursuant to a Phase II SBIR award in 1997.
Although the Company earned interest income of $445,606 on its investments in
1997, this amount is expected to decrease over subsequent periods as investable
funds are consumed by the operations of the Company, unless the Company is able
to secure additional funding. Fees earned in connection with contracts under
which the Company provided pharmaceutical clients with drug formulations
utilizing its Spartaject Technology increased from $0 in 1996 to $39,074 in
1997. The Company also earned $116,132 in revenues from a Phase II SBIR Grant
awarded in 1997. The Company expects to record additional revenue during 1998
from the SBIR Grant which extends through August 1999. The amount of revenues,
if any, may vary significantly from year-to-year and quarter-to-quarter and
depend on, among other factors, the timing and amount of future financings and
the potential awarding of future grants and contracts.
Research and development expenses increased from $3,176,742 in 1996, to
$3,748,216 in 1997. The $571,474 increase reflects increased spending on
personnel, legal fees associated with patents, license fees related to product
candidates and clinical development costs.
General and administrative expenses increased from $1,404,955 in 1996,
to $1,497,006 in 1997. The $92,051 increase resulted from increased personnel
and investor relations expenses offset by reductions in financial consulting and
facility related expenses.
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<PAGE>
The Company recorded a significant one-time charge of $235,000 in the
fourth quarter of 1997 for in- process research and development acquired in
conjunction with the license to PZG. In 1996, the Company recorded a significant
one time non-cash charge of $3,062,913 related to the acquisition of in-process
research and development in conjunction with the purchase of the business and
assets of Lexin. The Company expects to incur substantial operating losses over
the next several years. The amount of net losses may vary significantly from
year-to-year and quarter-to-quarter and depend on, among other factors, the
timing of research and the progress of preclinical and clinical development
programs.
Years Ended December 31, 1995 and 1996
Revenue increased from $139,313 in 1995 to $296,730 in 1996 due to a
significant increase in interest income earned on greater cash balances
available for investment resulting from the private placements concluded during
1996. Fees earned in connection with contracts under which the Company provided
pharmaceutical clients with drug formulations utilizing its Spartaject
Technology decreased from approximately $18,000 in 1995 to $0 in 1996.
Research and development expenses increased from $1,819,887 in 1995 to
$3,176,742 in 1996. The $1,356,855 increase reflects increased spending on the
production of clinical trial materials to support the clinical trials of RII
retinamide, Spartaject busulfan and 5-FP, along with increases in personnel,
consulting, legal fees associated with patents and facility related expenses.
General and administrative expenses increased from $961,833 in 1995 to
$1,404,955 in 1996. The increase resulted from increased personnel, consulting
and facility related expenses.
The Company recorded a significant one time non-cash charge of
$3,062,913 in the first quarter of 1996 related to the acquisition of in-process
research and development in conjunction with the purchase of the business and
assets of Lexin.
Liquidity and Capital Resources
The Company has used $16,494,299 to fund operations from inception
through December 31, 1997. The Company has financed its operations to date from
the proceeds of its private placements concluded in 1996, its initial public
offering in 1994, prior placements of equity and convertible debt securities and
investment income. In 1997, the Company made minimum royalty payments and annual
maintenance fee payments in the aggregate of $107,000 and is obligated to make
payments of $352,000 in 1998. Under a collaboration and option agreement, the
term of which has been extended, the Company may have to make payments of up to
$78,000 based on the fulfillment of certain benchmarks. The Company is a party
to several research agreements, clinical trial production contracts and
agreements with clinical research organizations that require future payments.
The Company anticipates making payments of approximately $807,000 under the
agreements that were in effect as of February 28, 1998. Provided that there is
adequate financing, the amount of the Company's obligations under research
agreements can be expected to increase. In addition, the Company is a party to
employment agreements with three of its executive officers as well as certain
consulting agreements that provide for aggregate annual minimum payments of
$546,000 and $262,000, respectively, in 1998. In 1997, the Company entered into
a sublease through July 1999 for approximately 75% of its Horsham facility. From
time to time, the Company contracts with outside firms for services paid for
with a combination of cash and Common Stock.
In July and August, 1996, the Company completed a private placement of
units (the "Units"), or fractions thereof, with each Unit comprised of 10,000
shares of the Company's Series B' Preferred Stock and
29
<PAGE>
warrants to purchase 66,667 shares of the Company's Common Stock at an exercise
price of $1.50 per share (the "Class C Warrants"). Each Unit was priced at
$100,000 and gross proceeds from this placement were $12,965,000.
The Series B' Preferred Stock included in the Units is convertible at
any time at the option of the holder into shares of the Company's Common Stock
at a conversion price of $.75 such that the 10,000 shares of the Company's
Series B' Preferred Stock included in a Unit are currently convertible into
133,333 shares of the Company's Common Stock. In the event of a Liquidation
Event (as defined in the Certificate of Designation relating to the Series B'
Preferred Stock), the holders of the Series B' Preferred Stock are entitled to
be paid out of the assets of the Company available for distribution to its
stockholders an amount equal to $13.00 per share, plus an amount equal to all
declared and unpaid dividends thereon, before any payment is made in respect of
stock junior to the Series B' Preferred Stock, including Common Stock. The
Series B' Preferred Stock is subject to mandatory conversion at the option of
the Company if the closing price of the Common Stock shall have exceeded 200% of
the then applicable conversion price for at least 20 trading days in any 30
consecutive trading day period. Class C Warrants to purchase 11,309,722 shares
of Common Stock are currently outstanding and are redeemable under certain
circumstances. Each Class C Warrant has a five-year term.
The Company filed a registration statement on Form S-3 with the
Securities and Exchange Commission with respect to the Class C Warrants, Common
Stock previously issued to Yale University and the Common Stock issuable upon
(a) conversion of the Series B' Preferred Stock, (b) exercise of the Class C
Warrants, (c) the exercise of certain warrants issued to the Placement Agent and
(d) the exercise in full of the Unit Purchase Options granted to the underwriter
of the Company's Initial Public Offering (collectively, the "Registrable
Securities"). The registration statement was declared effective by the
Securities and Exchange Commission on October 22, 1996 and supplemented on
September 12, 1997.
As of December 31, 1997, the Company had cash and short term
investments of $6,240,592, accounts payable and accrued expenses of $741,240,
and working capital of $5,568,130.
The Company currently anticipates that the available cash, cash
equivalents, and investments will be sufficient to fund operations through the
first quarter of 1999. However, the Company may be required to obtain additional
financing to continue operations during such period in the event of cost
overruns or unanticipated expenses. The Company has experienced delays in
funding its planned research and development activities and will require
substantial additional funds to finance its business activities on an ongoing
basis. The Company's future capital requirements will depend on numerous
factors, including, but not limited to, progress in its research and development
programs, including preclinical and clinical trials, costs of filing and
prosecuting patent applications and, if necessary, enforcing issued patents or
obtaining additional licenses of patents, competing technological and market
developments, the cost and timing of regulatory approvals, the ability of the
Company to establish collaborative relationships, and the cost of establishing
manufacturing, sales and marketing capabilities. The Company has no current
commitment to obtain additional funding and is unable to state the amount or
potential source of such additional funds. Moreover, because of the Company's
potential long-term capital requirements, it may undertake additional equity
offerings whenever conditions are favorable, even if it does not have an
immediate need for additional capital at that time. There can be no assurance
that the Company will be able to obtain additional funding when needed, or that
such funding, if available, will be obtainable on reasonable terms. Any such
additional funding may result in significant dilution to existing stockholders.
If adequate funds are not available, the Company may be required to delay,
reduce or eliminate research and development programs, capital expenditures, and
other operating expenses. Additionally, the Company continues to evaluate
expressions of interest from other pharmaceutical and biotech companies related
to strategic alliances and transactions including, but not limited to, the
potential licensing or acquisition of the Company's technologies and/or product
candidates. The Company may be required to obtain funds through arrangements
with collaborative partners that may require the Company to relinquish certain
material rights to its products that it would not otherwise relinquish.
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<PAGE>
The Company's ability to raise funds is likely to be adversely affected
if it is unable to continue to meet the listing criteria on the Nasdaq SmallCap
Market. 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 granted an additional 90 days, beyond February 23, 1998 until May
28, 1998, to comply with the $1.00 minimum bid price requirement. In the event
that the Company fails to meet the $1.00 minimum bid price within the extended
due 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 the other
publicly-traded securities of the Company. Additionally, if delisting occurs,
the Company's securities may also become "penny stock" as defined in the
Securities Exchange Act of 1934, as amended, which may also adversely affect the
Company's ability to raise funds.
In an attempt to increase the price of the Company's Common Stock to a
point in excess of $1.00 in order to comply with the new Nasdaq SmallCap Market
continued listing requirements , 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.
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' Preferred Stock,
$.001 par value per share, will also be unchanged.
If the requisite approval by the Company's 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).
There can be no assurance that any of the intended effects of the
Reverse Stock Split will occur, that the price per share of Common Stock will
increase proportionately 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.
Impact of Year 2000
The "Year 2000 Issue" is the result of computer programs
being written using two digits rather than four to define the applicable year.
Some computer programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
systems failures or
31
<PAGE>
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in similar
normal business activities.
Based on a recent assessment, the Company believes that the
exposure of its internal systems to the Year 2000 Issue is immaterial as
internal systems are Year 2000 compliant. The Company intends to contact its
significant suppliers to determine the extent to which the Company is vulnerable
to those third parties' failure to remediate their own Year 2000 Issues. To
date, the Company is unaware of any situations of noncompliance that would
adversely affect its operations. However, there can be no assurance that a
failure to convert by another company would not have a material adverse effect
on the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data of the Company required
by this item are set forth in the pages indicated in Item 14(a)(1).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated by reference from
the information under the captions "Management -- Directors" and "-- Executive
Officers" contained in the Company's definitive Proxy Statement to be filed with
the Securities and Exchange Commission in connection with the solicitation of
proxies for the Company's 1998 Annual Meeting of Stockholders to be held on May
11, 1998 ( the "Proxy Statement").
Item 11. Executive Compensation
The information required by this item is incorporated by reference from
the information under the caption "Executive Compensation" contained in the
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from
the information under the caption "Security Ownership of Management and
Principal Stockholders" contained in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from
the information contained under the caption "Certain Relationships and Related
Transactions" contained in the Proxy Statement.
PART IV
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<PAGE>
Item 14. Exhibits
(a) (1) Financial Statements
The financial statements required by this item are submitted in a
separate section beginning on page F-1 of this report.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Public Accountants - Arthur Andersen LLP......................................... F-1
Report of Independent Auditors - Ernst & Young LLP..................................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and 1997........................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1995, 1996 and 1997, for
the period from June 12, 1990 (Inception) to December 31, 1997..................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1995,
1996 and 1997...................................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997, for
the period from June 12, 1990 (Inception) to December 31, 1997..................................... F-8
Notes to Consolidated Financial Statements............................................................. F-9
</TABLE>
(a) (2) All financial statement schedules normally required under
Regulation S-X are omitted as the required information is inapplicable.
(a) (3) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
%%% 2.1 -- Copy of the Asset Purchase Agreement, with exhibits thereto, dated February 22, 1996,
between the Registrant and Lexin Pharmaceutical Corporation
*3.2 -- Restated By-Laws of the Registrant
@ 3.4 -- Amended and Restated Certificate of Incorporation filed August 1, 1996.
& 3.4A -- Certificate of Designation of the Series B' Convertible Preferred Stock filed on August 23,
1996.
**4.2 -- Form of Common Stock Certificate
**4.3 -- Form of Class A Warrant Certificate
**4.4 -- Form of Class B Warrant Certificate
***4.5 -- Unit Purchase Option granted to Americorp Securities Inc. dated
June 28, 1994
***4.6 -- Warrant Agreement entered into among Midlantic National Bank,
Americorp Securities, Inc., and the Registrant dated June 21, 1994
@@4.7 -- Warrant Agreement for the Class C Warrants, dated
August 23, 1996 between the Registrant, First City
Transfer Company and Paramount Capital, Inc.
@@4.8 -- Form of Class C Warrant Certificate ( see Exhibit 4.7)
*+10.1 -- Exclusive License Agreement, dated October 1, 1991, between the
Registrant and Yale University ("Yale") and Subscription
Agreement, dated October 21, 1991, between the Registrant and Yale
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
*+10.1A -- Revised pages of Exhibit 10.1
*+10.2 -- License Agreement, dated October 7, 1991, between the Registrant
and The Research Foundation of State University of New York
*+10.2A -- Revised pages of Exhibit 10.2
*+10.3 -- Research and License Agreement, dated as of October 15, 1991,
between the Registrant and Institute of Materia Medica of the
Chinese Academy of Medical Sciences ("BIMM"), as amended by
an Amendment of Research and License Agreement, dated as of
March 1, 1992, between the Registrant and BIMM
*+10.3A -- Revised pages of Exhibit 10.3
*+10.4 -- Licensing and First Refusal Agreement, dated as of March 12, 1992,
between the Registrant and the Dana-Farber Cancer Institute, Inc.
("Dana-Farber"), a Letter Agreement, dated March 12, 1992,
between the Registrant and Dana-Farber, and a Letter Agreement,
dated September 12, 1992, between the Registrant and Dana-Farber
*+10.4A -- Revised pages of Exhibit 10.4
*+10.5 -- License Agreement, dated as of August 31, 1992, between the
Registrant and Imperial Chemical Industries PLC
*+10.5A -- Revised pages of Exhibit 10.5
*10.6 -- Letter Agreement, dated October 30, 1992, among the
Registrant, Imperial Chemical Industries PLC, and ICI
Bioscience Limited
*+10.7 -- Collaboration and Option Agreement, dated September 18, 1992, by
and among the Registrant, Cancer Research Campaign and Cancer
Research Campaign Technology Limited
*+10.7A -- Revised pages of Exhibit 10.7
&&+10.8 -- Amended and Restated Sublicense Agreement, dated January 1,
1997, between the Registrant and Research Triangle
Pharmaceuticals Ltd. ("RTP").
*+10.9 -- Service Agreement, dated November 27, 1991, between the
Registrant and Cato Research, Ltd. ("Cato"), as amended by a Letter
Agreement, dated March 16, 1993, between the Registrant and Cato
*10.9A -- Revised pages of Exhibit 10.9
*10.10 -- Letter Agreement, dated October 28, 1991, between the Registrant
and Cato
*10.11 -- Subscription Agreement, dated November 27, 1991, between the
Registrant and Cato Holding Co.
*10.12 -- Subscription Agreement, dated December 10, 1993, between the
Registrant and Cato Holding Co.
*10.13 -- Employment Agreement, dated as of January 28, 1991, between the
Registrant and William M. Sullivan, as amended by a Letter
Agreement, dated as of March 2, 1993, between the parties (1)
*10.14 -- Nonqualified Stock Option Agreement, dated as of December 3,
1991, between the Registrant and William M. Sullivan (1)
*10.15 -- Confidentiality Agreement, dated as of January 28, 1991, between
the Registrant and William M. Sullivan
*10.27 -- Letter Agreement, dated March 23, 1993, between the Registrant
and Paramount Capital, Inc., as amended by Letter Agreements
dated June 24, 1993, June 28, 1993, September 24, 1993 and
November 5, 1993
*10.30 -- 1991 Stock Plan, as amended
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
*10.43 -- Registration Rights Agreement, dated November 12, 1993, among the Registrant and
certain rights holders, as amended as of December 14, 1993
*10.44 -- Subscription Agreement dated September 14, 1992 and
Letter Agreements dated October 12, 1992 and December 13,
1993, between the Registrant and Yale
*10.44A -- Letter Agreement dated January 4, 1994
***10.46 -- M/A Agreement between the Registrant and Americorp Securities,
Inc. dated June 28, 1994
**10.47 -- Form of Warrant Purchase Agreement among the Registrant, Healthcare Capital
Investments, Inc., Societe Generale Securities Corporation and the Holders listed on
Schedule I thereto
**10.48 -- Form of Warrant Purchase Agreement among the Registrant, Paramount Capital, Inc.
and the Holders listed on Schedule I thereto
***10.49 -- Underwriting Agreement between the Registrant and Americorp
Securities, Inc. dated June 21, 1994
***10.50 -- Unit Purchase Option granted to LT Lawrence & Company, Inc.
dated June 28, 1994
#10.51 -- Nonqualified Stock Option Agreement, dated as of December 16, 1994, between the
Registrant and William M. Sullivan (1)
#10.52 -- Nonqualified Stock Option Agreement, dated as of July 10, 1994, between the Registrant
and Sir John Vane, FSR (1)
#10.54 -- Nonqualified Stock Option Agreement, dated as of July 10, 1994, between the
Registrant and Peter Barton Hutt (1)
#10.57 -- Amendment (dated November 26, 1994) to the Service
Agreement, dated November 27, 1991, between the Registrant
and Cato Holding Co.
#10.58 -- Amendment (dated December 16, 1994) to the Employment Agreement, dated January
28, 1991, between the Registrant and William M. Sullivan, as amended by a Letter
Agreement, dated as of March 2, 1993, between the parties (1)
##10.59 -- Nonqualified Stock Option Agreement, dated as of June 7, 1995, between the Registrant
and Sir John Vane, FSR (1)
##10.61 -- Nonqualified Stock Option Agreement, dated as of June 7, 1995, between the Registrant
and Peter Barton Hutt (1)
##10.62 -- Amendment (dated June 1, 1995) to the Research and License Agreement, dated as of
October 15, 1991, between the Registrant and BIMM, as amended by an Amendment of
Research and License Agreement, dated as of March 1, 1992, between the Registrant and
BIMM
%10.64 -- Amendment (dated as of September 14, 1994) to the Collaboration and Option Agreement,
dated September 18, 1992, by and among the Registrant, Cancer Research Campaign and
Cancer Research Campaign Technology Limited
%%10.65 -- Form of Nonqualified Stock Option Agreement, dated as of December 10, 1995, between
the Company and William M. Sullivan (1)
%%10.67 -- Distribution Agreement, dated as of December 1, 1995, among Sparta Pharmaceuticals,
Inc., Orphan Europe SARL and Swedish Orphan, AB
%%10.68 -- Warrant Agreement between the Registrant and Paramount Capital, Inc., dated February
29, 1996
^10.69 -- Financial advisory agreement between the Registrant and Paramount Capital, Inc. dated as
of February 29, 1996
^^+10.70 -- Evaluation and option agreement between Lexin Pharmaceutical Corporation and Astra
Merck, Inc. dated as of October 25, 1995 (Assigned to Registrant pursuant to the Lexin
Purchase)
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
^^+10.71 -- Collaborative Research and Licensing Agreement between Lexin Pharmaceutical
Corporation and Wichita State University dated as of April 1, 1994 (Assigned to
Registrant pursuant to the Lexin Purchase)
^^+10.72 -- License Agreement between PI Research Corporation (predecessor in name to Lexin
Pharmaceutical Corporation) and the Trustees of The University of Pennsylvania dated as
of January 2, 1992 (Assigned to Registrant pursuant to the Lexin Purchase)
^10.73 -- Amendment (dated March 15, 1996) to the Employment Agreement dated January 28,
1991, between the Registrant and William M. Sullivan, as amended by letter agreements,
dated as of March 2, 1993 and December 16, 1994, between the parties (1)
^10.74 -- Placement Agency Agreement between the Registrant and Paramount Capital, Inc., dated
as of January 22, 1996
@10.75 -- Placement Agency Agreement between the Registrant and Paramount Capital, Inc., dated
as of June 3, 1996
@10.77 -- Amendment (dated March 29, 1996) to the Collaborative Research and Licensing
Agreement between Lexin Pharmaceutical Corporation and Wichita State University dated
as of April 1, 1994 (Assigned to Registrant pursuant to the Lexin Purchase)
@@10.79 -- Promissory Note dated August 23, 1996, in the amount of $100,000 from Jerry B. Hook
Ph.D. to the Registrant.(1)
@@10.81 -- Promissory Note dated August 23, 1996, in the amount of $50,000 from Ronald H. Spair
to the Registrant.(1)
&&10.82 -- Employment Agreement, dated March 15, 1996, between the Registrant and Ronald
H. Spair (1)
&&10.83 -- Net Lease Agreement dated March 29, 1994, and entered into between Lexin
Pharmaceutical Corporation and the Pennsylvania Business Campus (assigned to the
Registrant).
&&10.84 -- Nonqualified Stock Option Agreement, dated as of September 5,
1996 between the Registrant and Colin B. Bier, Ph.D.(1)
&&10.86 -- Incentive Stock Option Agreement, dated as of December 5, 1996, between the Registrant
and Jerry B. Hook, Ph.D.(1)
&&10.88 -- Incentive Stock Option Agreement, dated as of December 5, 1996, between the Registrant
and Ronald H. Spair.(1)
&&10.89 -- Nonqualified Stock Option Agreement, dated as of June 17, 1996 between the Registrant
and Sir John Vane, FSR (1)
&&10.90 -- Nonqualified Stock Option Agreement, dated as of June 17, 1996,
between the Registrant and Peter Barton Hutt (1)
&&&10.91 -- Nonqualified Stock Option Agreement, dated as of June 17, 1997 between the Registrant
and Sir John Vane, FSR (1)
&&&10.92 -- Nonqualified Stock Option Agreement, dated as of June 17, 1997,
between the Registrant and Peter Barton Hutt (1)
&&&10.93 -- Nonqualified Stock Option Agreement, dated as of June 17, 1997 between the Registrant
and Colin B. Bier, Ph.D.(1)
^^^10.94 -- Employment Agreement, dated September 15, 1997, between the
Registrant and Martin Rose, M.D., J.D.(1)
^^^10.95 -- Incentive Stock Option Agreement, dated as of September 15, 1997 between the
Registrant and Martin Rose, M.D., J.D.(1)
10.96 -- Form of Incentive Stock Option Agreement entered into with Executive Officers (1)
10.97! -- License Agreement, dated as of December 4, 1997, between
the Registrant and the Estate of Karl H. Beyer, Jr.
10.98 -- Warrant Agreement dated December 9, 1997, between the Registrant and Dian Griesel,
Ph.D, of the Investor Relations Group
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.99 -- Warrant Agreement dated December 9, 1997, between the Registrant and Jacqueline Resto
of the Investor Relations Group
10.100 -- Warrant Agreement dated December 4, 1997, between the Registrant and Paramount
Capital Investments, LLC
21.1 -- Subsidiary of the Registrant
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Ernst & Young LLP
27.1 -- Financial Data Schedule
99.22 -- Press Release, dated as of December 8, 1997 announcing that the Registrant acquired
exclusive worldwide right to develop and commercialize Pyrazinoylguanidine, a drug
candidate with potential to treat a variety of significant chronic metabolic diseases
including type II diabetes mellitus
99.23 -- Press Release, dated as of January 20, 1998 announcing that the Registrant entered into a
production agreement with the Bioprocessing Resource Center, Inc., for the production of
the Registrant's LEX 032
99.24 -- Press Release, dated as of February 23, 1998 announcing that the United States Patent and
Trademark Office has granted United States Patent #5,703,130 submitted by Drs. Rui Han
and Zong-Ru Guo of the Institute of Materia Medica, Chinese Academy of Medical
Sciences, Beijing, China
99.25 -- Press Release, dated as of March 16, 1998 announcing the election by the Board of
Directors of Jerry Hook, the Registrant's current President and Chief Executive Officer, as
Chairman of the Board of Directors
</TABLE>
---------------
* Previously filed with the Company's Registration Statement on Form S-l,
Registration Number 33-72882, filed on December 14, 1993, or amendments
thereto, and incorporated by reference herein.
** Previously filed with the Company's Registration Statement on Form S-l,
Registration Number 33-78086, filed on April 25, 1994, or in Amendment
No. 1 thereto, filed on June 1, 1994.
*** Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1994, filed on August 15, 1994 and
incorporated by reference herein.
# Previously filed with the Company's 1994 Annual Report on Form 10-K,
filed on March 31, 1995, and incorporated by reference herein.
## Previously filed with the Company's Quarterly Report on form 10-Q for
the quarterly period ended June 30, 1995, filed on August 14, 1995.
### Previously filed with the Company's Amendment No. 1 to the Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1995,
filed on January 24, 1996.
% Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1995, filed on November 14,
1995.
%% Previously filed with the Company's 1995 Annual Report on Form 10-K,
filed on April 1, 1996, and incorporated by reference herein.
%%% Previously filed with the Company's report on Form 8-K filed on April 1,
1996, and incorporated by reference herein.
& Previously filed with the Company's report on Form 8-K filed on
September 26, 1996, and incorporated by reference herein.
&& Previously filed with the Company's 1996 Annual Report on Form 10-K,
filed on March 27, 1997, and incorporated by reference herein.
&&& Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1997, filed on August 8, 1997.
^ Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1996, filed on May 15, 1996.
<PAGE>
^^ Previously filed with the Company's Quarterly Report on Form 10-Q/A for
the quarterly period ended March 31, 1996, filed on July 17, 1996.
^^^ Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1997, filed on November 7,
1997.
@ Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1996, filed on August 9, 1996.
@@ Previously filed with the Company's Registration Statement on Form S-3,
Registration Number 333-13621, filed on October 7, 1996, or in Amendment
No. 1 thereto, filed on October 17, 1996.
(1) Represents a management contract or compensatory plan or arrangement.
+ Confidential Treatment has been granted by the Securities and Exchange
Commission.
! Confidential Treatment has been requested from the Securities and
Exchange Commission.
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the quarter:
None
(c) Exhibits:
See Item 14 (a) (3) above
(d) Financial Statements:
See Item 14 (a) (2) above
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SPARTA PHARMACEUTICALS, INC.
By: /s/ Jerry B. Hook
-------------------
Jerry B. Hook, Ph.D.
President and Chief Executive Officer
Dated: March 16, 1998
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jerry B. Hook, Ph.D. and Ronald H. Spair or
either of them, his attorney-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Annual Report, and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that either of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Jerry B. Hook, Ph.D. Chairman of the Board, March 16, 1998
- ---------------------------------
Jerry B. Hook, Ph.D. President and Chief Executive
Officer (principal executive
officer) and Director
/s/ Ronald H. Spair Vice President and Chief March 16, 1998
- ---------------------------------
Ronald H. Spair Financial Officer (principal
financial and accounting officer)
/s/ Colin B. Bier, Ph.D. Director March 16, 1998
- ---------------------------------
Colin B. Bier, Ph.D.
Director
- ---------------------------------
Peter Barton Hutt
Director
- ---------------------------------
Lindsay A. Rosenwald, M.D.
/s/ Richard L. Sherman Director March 16, 1998
- ---------------------------------
Richard L. Sherman
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ William M. Sullivan Director March 16, 1998
- ---------------------------------
William M. Sullivan
/s/ John Vane Director March 16, 1998
- ---------------------------------
Professor Sir John Vane
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Sparta Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of Sparta
Pharmaceuticals, Inc. (a Delaware corporation in the development stage) and
Subsidiary as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years then ended and the related statements of operations and cash flows for the
period from inception (June 12, 1990) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Sparta Pharmaceuticals,
Inc. for the period from inception to December 31, 1995. Such statements are
included in the cumulative inception to December 31, 1997 totals of the
statements of operations and cash flows and reflect total revenues and net loss
of 32 percent and 45 percent, respectively, of the related cumulative totals.
Those statements were audited by other auditors, whose report has been furnished
to us, and our opinion, insofar as it relates to amounts for the period from
inception to December 31, 1995, included in the cumulative totals, is based
solely upon the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Sparta Pharmaceuticals, Inc. and
Subsidiary, as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years then ended and for the
period from inception (June 12, 1990) to December 31, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
February 27, 1998
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Sparta Pharmaceuticals, Inc. (A Development Stage company)
We have audited the accompanying statements of operations, stockholders' equity
(deficit) and cash flows of Sparta Pharmaceuticals, Inc. (a development stage
company) for the year ended December 31, 1995 and for the period from June 12,
1990 (inception) to December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Sparta
Pharmaceuticals, Inc. (a developmental stage company) for the year ended
December 31, 1995 and for the period from June 12, 1990 (inception) to December
31, 1995 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Sparta
Pharmaceuticals, Inc. (a development stage company) will continue as a going
concern. As more fully described in Note 1, the Company has incurred operating
losses since inception and requires additional capital to continue operations.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans as to these matters are described in Note
1. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the possible
inability of Sparta Pharmaceuticals, Inc. (a development stage company) to
continue as a going concern.
ERNST & YOUNG LLP
Raleigh, North Carolina
January 31, 1996
F-2
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1997
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents .................................................... $ 10,246,812 $ 4,767,317
Short-term investments ....................................................... -- 1,473,275
Prepaid expenses and other current assets .................................... 82,751 68,778
------------ ------------
Total current assets ...................................................... 10,329,563 6,309,370
------------ ------------
Fixed assets:
Office equipment ............................................................. 177,595 189,962
Leasehold improvements ....................................................... 522,215 522,215
Less: accumulated depreciation and amortization .............................. (181,417) (375,482)
------------ ------------
518,393 336,695
License agreements, net of amortization of $73,303 in 1996 and
$92,912 in 1997 ............................................................. 41,485 21,876
Restricted cash ................................................................ 196,842 148,310
------------ ------------
$ 11,086,283 $ 6,816,251
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses ........................................ $ 629,497 $ 741,240
------------ ------------
Total current liabilities ................................................. 629,497 741,240
------------ ------------
Commitments (Note 7)
Stockholders' equity:
Preferred Stock, not designated, $.001 par value; authorized and unissued
8,675,725 shares .......................................................... -- --
Series B' Convertible Preferred Stock, $.001 par value; liquidation
preference $13 per share; authorized 2,324,275 shares; issued and
outstanding 1,487,146 shares in 1996 and 1,020,747 in 1997 ................ 1,487 1,021
Common Stock, $.001 par value; authorized 72,000,000 shares;
issued and outstanding 9,587,717 shares in 1996 and 15,580,772
shares in 1997 ............................................................ 9,588 15,581
Additional paid-in capital ................................................... 28,176,356 28,604,142
Stock subscription receivable ................................................ (200,000) (133,333)
Deferred compensation ........................................................ (165,309) (167,654)
Deficit accumulated during the development stage ............................. (17,365,336) (22,244,746)
------------ ------------
Total stockholders' equity ................................................ 10,456,786 6,075,011
------------ ------------
$ 11,086,283 $ 6,816,251
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Period from
June 12, 1990
Year Ended December 31, (Inception) to
----------------------- December 31,
1995 1996 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Interest income................................ $ 121,438 $ 296,730 $ 445,606 $ 1,033,998
Grant income and contract revenue.............. 17,875 -- 155,206 283,076
----------- ----------- ----------- ------------
Total revenue......................... 139,313 296,730 600,812 1,317,074
----------- ----------- ----------- ------------
Operating expenses:
Research and development....................... 1,819,887 3,176,742 3,748,216 12,929,363
General and administrative..................... 961,833 1,404,955 1,497,006 7,334,544
Charge for acquired research and development... -- 3,062,913 235,000 3,297,913
Total operating expenses.............. 2,781,720 7,644,610 5,480,222 23,561,820
----------- ----------- ----------- ------------
Net loss......................................... $(2,642,407) $(7,347,880) $(4,879,410) $(22,244,746)
=========== =========== =========== ============
Basic and diluted net loss per share............. $(.43) $(.93) $(.43)
===== ===== =====
Basic and diluted weighted average
number of shares outstanding................... 6,167,817 7,912,068 11,301,305
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Additional Stock
Date of ---------------------------- Stock Paid In Unrealized Subscription
Transaction Series A Series B Series C Par Value Capital Gain/(Loss) Receivable
----------- -------- -------- -------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 12, 1990........... $ $ $ $ $ $ $
Issuance of 1,448,333 shares at
$.003 per share................. June 1990 -- -- -- 1,448 2,897 -- --
---- ---- ---- ------ ---------- --- ---
Balance at December 31, 1990....... -- -- -- 1,448 2,897 -- --
Issuance of 864,241 shares at
$.003 per share for services.... February through -- -- -- 865 1,728 -- --
December 1991
Issuance of 325,815 shares at $3.99
per share net of issuance costs. December 1991 326 -- -- -- 1,274,874 -- --
Net loss for 1991................. -- -- -- -- -- -- --
---- ---- ---- ------ ---------- --- ---
Balance at December 31, 1991....... 326 -- -- 2,313 1,279,499 -- --
Issuance of 50,125 shares at $3.99
per share in exchange for
cancellation of notes payable... January 1992 50 -- -- -- 199,950 -- --
Issuance of 90,920 shares at $.003
per share....................... January through -- -- -- 90 183 -- --
December 1992
Conversion of Series A Convertible
Preferred Stock, into 375,939
shares of Common Stock at $3.99
per share....................... December 1992 (376) -- -- 376 -- -- --
Net loss for 1992................. -- -- -- -- -- -- --
---- ---- ---- ------ ---------- --- ---
Balance at December 31, 1992....... -- -- -- 2,779 1,479,632 -- --
Repurchase of 12,500 shares at
$.003 per share................. January 1993 -- -- -- (12) (26) -- --
Issuance of 125,000 shares at
$2.00 per share................. September 1993 -- 125 -- -- 249,875 -- --
Exchange of 125,000 shares of
Series B Convertible Preferred
Stock 125,000 shares of
Series C Convertible Preferred
Stock........................... December 1993 -- (125) 125 -- -- -- --
Issuance of 18,657 shares at $2.89
per share....................... July through -- -- -- 19 53,860 -- --
December 1993
Issuance of options to purchase
166,666 shares Common Stock
net of issuance costs
(see Note 4).................... -- -- -- -- 167,500 -- --
Net loss for 1993................. -- -- -- -- -- -- --
---- ---- ---- ------ ---------- --- ---
Balance at December 31, 1993....... -- -- 125 2,786 1,950,841 -- --
Issuance of 58,998 warrants....... May 1994 -- -- -- -- 59 -- --
</TABLE>
<PAGE>
PART 2
<TABLE>
<CAPTION>
Deficit
Accumulated Total
During the Stockholders'
Deferred Development Equity
Compensation Stage (Deficit)
------------ ----------- -------------
<S> <C> <C> <C>
Balance at June 12, 1990........... $ $ $
Issuance of 1,448,333 shares at
$.003 per share................. -- -- 4,345
--- ----------- -----------
Balance at December 31, 1990....... -- -- 4,345
Issuance of 864,241 shares at
$.003 per share for services.... -- -- 2,593
Issuance of 325,815 shares at $3.99
per share net of issuance costs. -- -- 1,275,200
Net loss for 1991................. -- (358,234) (358,234)
--- ----------- -----------
Balance at December 31, 1991....... -- (358,234) 923,904
Issuance of 50,125 shares at $3.99
per share in exchange for
cancellation of notes payable... -- -- 200,000
Issuance of 90,920 shares at $.003
per share....................... -- -- 273
Conversion of Series A Convertible
Preferred Stock, into 375,939
shares of Common Stock at $3.99
per share....................... -- -- --
Net loss for 1992................. -- (1,217,933) (1,217,933)
--- ----------- -----------
Balance at December 31, 1992....... -- (1,576,167) (91,756)
Repurchase of 12,500 shares at
$.003 per share................. -- -- (38)
Issuance of 125,000 shares at
$2.00 per share................. -- -- 250,000
Exchange of 125,000 shares of
Series B Convertible Preferred
Stock 125,000 shares of
Series C Convertible Preferred
Stock........................... -- -- --
Issuance of 18,657 shares at $2.89
per share....................... -- -- 53,879
Issuance of options to purchase
166,666 shares Common Stock
net of issuance costs
(see Note 4).................... -- -- 167,500
Net loss for 1993................. -- (2,649,224) (2,649,224)
--- ----------- -----------
Balance at December 31, 1993....... -- (4,225,391) (2,271,639)
Issuance of 58,998 warrants....... -- -- 59
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Additional Stock
Date of ---------------------------- Stock Paid In Unrealized Subscription
Transaction Series A Series B Series C Par Value Capital Gain/(Loss) Receivable
----------- -------- -------- -------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of 13,459 shares upon
conversion of Convertible
Notes and Preferred Stock..... June 1994 -- -- -- 13 (13) -- --
Conversion of Convertible Notes
and Preferred Stock........... June 1994 -- -- (125) 2,059 3,867,190 -- --
Proceeds of initial public
offering net of offering costs
of $1,335,521................. June 1994 -- -- -- 1,100 4,163,379 -- --
Issuance of 8,499 shares upon
option exercise............... March through -- -- -- 9 2,542 -- --
July 1994
Issuance of 165,000 units to
underwriter upon over allotment July 1994 -- -- -- 165 717,585 -- --
exercise......................
Repurchase of 2,500 shares...... July 1994 -- -- -- (2) (5) -- --
Issuance of 9,806 shares at $4.04
for services.................. January through -- -- -- 9 39,652 -- --
December 1994
Unrealized loss on available-
for-sale investments.......... -- -- -- -- -- (3,316) --
Net loss for 1994............... -- -- -- -- -- -- --
--- --- --- ------ ---------- ------ ---
Balance at December 31, 1994..... -- -- -- 6,139 10,741,230 (3,316) --
Issuance of 25,000 shares upon
option exercise............... April 1995 -- -- -- 25 7,475 -- --
Issuance of 21,515 shares at $3.56
per share for services........ January through -- -- -- 22 76,670 -- --
September 1995
Net Loss for 1995............... -- -- -- -- -- -- --
Loss on available-for-sale
investments................... -- -- -- -- -- 3,316 --
--- --- --- ------ ---------- ------ ---
Balance at December 31, 1995..... -- -- -- 6,186 10,825,375 -- --
Extension of exercise period for
options of former employees... January 1996 -- -- -- -- 18,738 -- --
Proceeds of private placement net
of commissions and expenses
of $428,571................... February 1996 300 -- -- -- 2,571,129 -- --
Stock issued for acquisition of
Lexin Pharmaceuticals
(see Note 2).................. March 1996 -- -- -- 2,000 3,598,000 -- --
Deferred compensation related
to acquisition (see Note 4)... March 1996 -- -- -- -- 206,100 -- --
Issuance of 5,000 shares at $.003
per share pursuant to license
agreement..................... April 1996 -- -- -- 5 10 -- --
Issuance of 1,288 shares at $2.86
per share for services....... June through -- -- -- 2 3,677 -- --
July 1996
</TABLE>
<PAGE>
PART 2
<TABLE>
<CAPTION>
Deficit
Accumulated Total
During the Stockholders'
Deferred Development Equity
Compensation Stage (Deficit)
------------ ----------- -------------
<S> <C> <C> <C>
Issuance of 13,459 shares upon
conversion of Convertible
Notes and Preferred Stock..... -- -- --
Conversion of Convertible Notes
and Preferred Stock........... -- -- 3,869,124
Proceeds of initial public
offering net of offering costs
of $1,335,521................. -- -- 4,164,479
Issuance of 8,499 shares upon
option exercise............... -- -- 2,551
Issuance of 165,000 units to
underwriter upon over allotment
exercise...................... -- -- 717,750
Repurchase of 2,500 shares...... -- -- (7)
Issuance of 9,806 shares at $4.04
for services.................. -- -- 39,661
Unrealized loss on available-
for-sale investments.......... -- -- (3,316)
Net loss for 1994............... -- (3,149,658) (3,149,658)
-------- ----------- ----------
Balance at December 31, 1994..... -- (7,375,049) 3,369,004
Issuance of 25,000 shares upon
option exercise............... -- -- 7,500
Issuance of 21,515 shares at $3.56
per share for services........ -- -- 76,692
Net Loss for 1995............... -- (2,642,407) (2,642,407)
Loss on available-for-sale
investments................... -- -- 3,316
-------- ----------- ----------
Balance at December 31, 1995..... -- (10,017,456) 814,105
Extension of exercise period for
options of former employees... -- -- 18,738
Proceeds of private placement net
of commissions and expenses
of $428,571................... -- -- 2,571,429
Stock issued for acquisition of
Lexin Pharmaceuticals
(see Note 2).................. -- -- 3,600,000
Deferred compensation related
to acquisition (see Note 4)... (206,100) -- --
Issuance of 5,000 shares at $.003
per share pursuant to license
agreement..................... -- -- 15
Issuance of 1,288 shares at $2.86
per share for services........ -- -- 3,679
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Additional Stock
Date of ---------------------------- Stock Paid In Unrealized Subscription
Transaction Series A Series B Series C Par Value Capital Gain/(Loss) Receivable
----------- -------- -------- -------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Proceeds of private placement net
of commissions and expenses of
$2,029,091 (see Note 4)........ July through -- 1,297 -- -- 10,934,612 -- (200,000)
August 1996
Conversion of Series A to Series B' August 1996 (300) 400 -- -- (100) -- --
Issuance of 35,000 warrants
for services .................. December 1996 -- -- -- -- 20,000 -- --
Conversion of Preferred Stock to
Common Stock................... November through -- (210) -- 1,395 (1,185) -- --
December 1996
Amortization of Deferred
Compensation for 1996.......... -- -- -- -- -- -- --
Net Loss for 1996................ -- -- -- -- -- -- --
----- ------ ---- ------ ----------- --- ---------
Balance at December 31, 1996...... $ -- $1,487 $ -- $9,588 $28,176,356 $-- $(200,000)
Issuance of 50,000 options for
services......................... January 1997 -- -- -- -- 33,750 -- --
Forgiveness of one-third of
common stock subscriptions..... July 1997 -- -- -- -- -- -- 66,667
Issuance of 266,666 shares
upon option exercise .......... September 1997 -- -- -- 267 79,733 -- --
Issuance of 35,504 shares at $1.70
per share for services......... August through -- -- -- 35 60,478 -- --
September 1997
Issuance of 500,000 warrants for
grant of license agreement..... December 1997 -- -- -- -- 135,000 -- --
Issuance of 100,000 options for
services........... December 1997 -- -- -- -- 29,000 -- --
Issuance of 535,000 warrants for
services....................... May through
December 1997 -- -- -- -- 95,050 -- --
Conversion of Preferred Stock to
Common Stock................... January through -- (466) -- 5,691 (5,225) -- --
December 1997
Amortization of Deferred
Compensation for 1997.......... -- -- -- -- -- -- --
Net Loss for 1997................ -- -- -- -- -- -- --
----- ------ ---- ------ ----------- --- ---------
Balance at December 31, 1997...... $ -- $1,021 $ -- $15,581 $28,604,142 $-- $(133,333)
===== ====== ==== ======= =========== === =========
</TABLE>
<PAGE>
PART 2
<TABLE>
<CAPTION>
Deficit
Accumulated Total
During the Stockholders'
Deferred Development Equity
Compensation Stage (Deficit)
------------ ----------- -------------
<S> <C> <C> <C>
Proceeds of private placement net
of commissions and expenses of
$2,029,091 (see Note 4)........ -- -- 10,735,909
Conversion of Series A to Series B' -- -- --
Issuance of 35,000 warrants
for services .................. -- -- 20,000
Conversion of Preferred Stock to
Common Stock................... -- -- --
Amortization of Deferred
Compensation for 1996.......... 40,791 -- 40,791
Net Loss for 1996................ -- (7,347,880) (7,347,880)
--------- ------------ -----------
Balance at December 31, 1996...... $(165,309) $(17,365,336) $10,456,786
Issuance of 50,000 options for
services......................... (33,750) -- --
Forgiveness of one-third of
common stock subscriptions..... -- -- 66,667
Issuance of 266,666 shares
upon option exercise........... -- -- 80,000
Issuance of 35,504 shares at $1.70
per share for services......... -- -- 60,513
Issuance of 500,000 warrants for
grant of license agreement..... -- -- 135,000
Issuance of 100,000 options for
services........... (29,000) -- --
Issuance of 535,000 warrants for
services....................... -- -- 95,050
Conversion of Preferred Stock to
Common Stock................... -- -- --
Amortization of Deferred
Compensation for 1997.... 60,405 -- 60,405
Net Loss for 1997................ -- (4,879,410) (4,879,410)
--------- ------------ ------------
Balance at December 31, 1997...... $(167,654) $(22,244,746) $ 6,075,011
========= ============ ============
F-7
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31, Period from June 12,
----------------------- 1990 (Inception)
1995 1996 1997 to December 31, 1997
---- ---- ---- --------------------
<S> <C> <C> <C> <C>
Operating activities
Net loss............................................................. $(2,642,407) $(7,347,880) $(4,879,410) $ (22,244,746)
Adjustments to reconcile net loss to net cash used in operating
activities:
Loss on investments.............................................. 3,316 -- -- 3,316
Depreciation and amortization.................................... 34,010 170,611 213,674 938,434
Acquired research and development................................ -- 3,062,913 135,000 3,197,913
Write down of license agreement.................................. -- -- -- 45,200
Issuance of convertible notes for services....................... -- -- -- 220,474
Issuance of stock for services................................... 76,692 3,694 60,514 221,959
Compensation expense related to stock options granted............ -- 79,529 155,454 434,983
Compensation expense related to forgiveness of stock
subscriptions receivable ....................................... -- -- 66,667 66,667
Changes in operating assets and liabilities, net of effect from
acquisition:
Prepaid expenses and other assets.............................. (121,399) 97,374 13,973 (68,778)
Accounts payable and accrued expenses.......................... (71,815) 293,636 111,743 591,240
Restricted cash................................................ -- 50,507 48,532 99,039
Net cash used in operating activities............... (2,721,603) (3,589,616) (4,073,853) (16,494,299)
----------- ----------- ----------- ------------
Investing activities
Payment of acquisition related fees and expenses..................... -- (128,842) -- (128,842)
Purchases of short-term investments.................................. -- -- (1,473,275) (2,576,468)
Sale of short-term investments....................................... 1,099,877 -- -- 1,099,877
Purchases of fixed assets............................................ -- (76,364) (12,367) (143,597)
Acquisition of license agreements.................................... -- -- -- (160,078)
----------- ----------- ------------ ------------
Net cash (used in) provided by investing activities. 1,099,877 (205,206) (1,485,642) (1,909,108)
----------- ----------- ------------ ------------
Financing activities
Proceeds from issuance of convertible notes and notes payable........ -- -- -- 4,488,650
Repayment of notes payable........................................... -- -- -- (640,000)
Proceeds from issuance of Common Stock............................... 7,500 -- 80,000 4,992,031
Repurchase of Common Stock........................................... -- -- -- (45)
Proceeds from issuance of Preferred Stock............................ -- 13,307,338 -- 14,800,038
Increase in debt issuance costs...................................... -- -- -- (469,950)
----------- ----------- ------------ ------------
Net cash provided by financing activities........... 7,500 13,307,338 80,000 23,170,724
----------- ----------- ------------ ------------
Increase (decrease) in cash and cash equivalents..................... (1,614,226) 9,512,516 (5,479,495) 4,767,317
Cash and cash equivalents at beginning of period..................... 2,348,522 734,296 10,246,812 --
----------- ----------- ------------ ------------
Cash and cash equivalents at end of period........................... $734,296 $10,246,812 $4,767,317 $ 4,767,317
=========== =========== ========== =============
Supplemental disclosures of cash flow information
Cash paid during the year for interest............................... $ -- $ -- $ -- $ 196,972
======== =========== ========== ==========
Supplemental disclosure of noncash investing and financing activities
Conversion of Convertible Notes and Series C
Convertible Preferred Stock into Common Stock...................... $ -- $ -- $ -- $4,086,624
======== =========== ========== ==========
Issuance of Series A Convertible Preferred Stock for cancellation of
notes payable $ -- $ -- $ -- $ 200,000
======== =========== ========== ==========
Conversion of Series B' Convertible Preferred Stock into Common Stock $ -- $ 1,395 $ 5,691 $ 7,086
======== =========== ========== ==========
Issuance of Common Stock for acquisition of Lexin.................... $ -- $ 3,600,000 $ -- $3,600,000
======== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. Company Activities and Significant Accounting Policies
Sparta Pharmaceuticals, Inc. and Subsidiary (together the "Company"), a
development stage biopharmaceutical company incorporated in 1990, is engaged in
the business of acquiring rights to, and developing for commercialization,
technologies and drugs for the treatment of a number of life threatening
diseases including cancer, cardiovascular disorders, chronic metabolic diseases
and inflammation.
The Company has generated no product revenues to date and has incurred
losses since its inception. The Company anticipates incurring additional losses
over at least the next several years and such losses are expected to increase as
the Company expands its research and development activities. Substantial
financing will be needed by the Company to fund its operations and to
commercially develop its products. There is no assurance that such financing
will be available when needed. Operations of the Company are subject to certain
risks and uncertainties including, among others, uncertainty of product
development, technological uncertainty, dependence on collaborative partners,
uncertainty regarding patents and proprietary rights, comprehensive government
regulations, marketing, or sales capability or experience, limited clinical
trial experience, and dependence on key personnel.
Basis of Presentation
The consolidated financial statements include the accounts of Sparta
Pharmaceuticals, Inc. and Orizon Pharmaceuticals, Inc., a wholly owned
subsidiary. All intercompany balances and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Short-Term Investments
At December 31, 1997, short-term investments represented government
mortgage-backed bonds maturing in less than a year and each was classified as
available-for-sale.
Fixed Assets
Office equipment and leasehold improvements are recorded at cost.
Depreciation and amortization are computed by using the straight-line method
over the estimated useful lives of the assets.
License Agreements
Certain costs incurred to acquire exclusive licenses of patentable
technology were capitalized and amortized using the straight-line method over a
five-year period or the term of the license, whichever was shorter.
F-9
<PAGE>
Accounts Payable and Accrued Expenses
At December 31, accounts payable and accrued expenses consisted of the
following:
1996 1997
---- ----
Accrued professional fees $ 60,117 $112,159
Accrued research and license agreement fees 211,118 405,563
Accrued liabilities related to the Lexin purchase 90,954 --
Accounts payable and accrued other expenses 267,308 223,518
-------- --------
$629,497 $741,240
======== ========
Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed
of" ("SFAS 121"), which required impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. SFAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The adoption of SFAS 121
in 1996 had no impact on the Company's financial position or results of
operations.
Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 encourages companies to adopt
the fair value method for expense recognition of employee stock options. SFAS
123 also allows companies to continue to account for stock options and stock
based awards using the intrinsic value method as outlined under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and to make pro forma disclosures of net income and net income per
share as if the fair value method had been applied. The Company uses APB 25 in
accounting for its stock options and stock based awards, and will continue to
apply APB 25 for future stock options and stock based awards. The Company
adopted the disclosure requirements of SFAS 123 in 1996.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS 109, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
Revenue Recognition
Contract revenues are recognized under the percentage of completion
method at the time costs benefitting the contracts are incurred.
Research and Development Costs
Research and development costs are charged to operations when incurred.
F-10
<PAGE>
Use of Estimates
Presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Net Loss Per Share
The Company has adopted SFAS No. 128 ("SFAS 128"), "Earnings per
Share," which supersedes APB Opinion No. 15 ("APB 15"), "Earnings per Share,"
and which is effective for all periods ending after December 15, 1997. SFAS 128
requires dual presentation of basic and diluted earnings per share ("EPS") for
complex capital structures on the face of the Statements of Operations. Basic
EPS is computed by dividing net income by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
from the exercise or conversion of securities into common stock. For the years
ended December 31, 1995, 1996, and 1997, the effects of the (i) exercise of
outstanding stock options and warrants and (ii) conversion of the outstanding
shares of convertible preferred stock (as if converted on their dates of
issuance) were excluded from the calculation of diluted EPS because their effect
was antidilutive.
New Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income," ("SFAS 130") and SFAS
No. 131, "Disclosure about Segments of an Enterprise and Related Information"
("SFAS 131"), were issued in June 1997. SFAS 130 and SFAS 131 are effective for
fiscal years beginning subsequent to December 15, 1997, and, therefore, will be
adopted by the Company on January 1, 1998. The Company does not expect the
adoption of SFAS 130 or SFAS 131 to result in any substantive changes in its
disclosure.
2. Acquisition of the Business and Assets of Lexin Pharmaceutical Corporation
On March 15, 1996, the Company acquired the business and assets, and
assumed certain liabilities of Lexin Pharmaceutical Corporation ("Lexin"), for a
payment of 2,000,000 shares of the Company's Common Stock. The acquisition was
accounted for using the purchase method of accounting. In connection with the
acquisition, the Company performed an analysis of all identifiable assets
acquired. The Company has recorded a total charge to the 1996 Statement of
Operations of $3,062,913 for acquired research and development. The technology
acquired had not yet reached technological feasibility and at the time, had no
alternative future uses.
The following unaudited pro forma information is presented for the
acquisition of Lexin as if the acquisition had occurred on January 1, 1996. The
unaudited pro forma information does not purport to be indicative of the result
that would have been attained if the operations had actually been combined
during the period presented, and is not necessarily indicative of operating
results to be expected in the future.
<TABLE>
<CAPTION>
For the year ended December 31:
1996
----
<S> <C>
Total revenues.............................................................. $ 406,296
Net loss.................................................................... $(4,614,493)
Pro forma loss per share.................................................... $ (.55)
Shares used in computing pro forma loss per share........................... 8,316,440
</TABLE>
F-11
<PAGE>
3. Acquisition of Technology Rights
In December 1997, the Company entered into an agreement to license
Pyrazinoylguanidine ("PZG") from the Estate of Karl H. Beyer, Jr. (the "Beyer
Estate") for a payment of $100,000 and the issuance of a warrant to purchase
300,000 shares of common stock at an exercise price of $0.4375. In addition, the
Company issued to Paramount Capital Investments, LLC ("Paramount") warrants to
purchase up to 500,000 shares of common stock at an exercise price of $0.4375
and reimbursed Paramount for certain due diligence expenditures for its efforts
in negotiating the transaction with the Beyer Estate. Vesting on warrants to
purchase 300,000 of the shares issued to Paramount is based on the successful
completion of future clinical trials for PZG.
The Company has recorded a total charge to the 1997 Statement of
Operations of $235,000 for acquired research and development, which represents
the fair value of the cash consideration and warrants issued to the Beyer Estate
and warrants issued to Paramount. The technology acquired had not yet reached
technological feasibility and at the time, had no alternative future uses.
4. Stockholders' Equity
On June 17, 1996 and 1997, the Company's stockholders approved
increasing the number of authorized shares of Common Stock to 42,000,000 and
72,000,000, respectively. The stockholders also approved increasing the maximum
number of shares available for issuance pursuant to the 1991 Stock Plan from
2,000,000 to 2,500,000, and from 2,500,000 to 3,000,000, respectively.
Preferred Stock
On February 29, 1996, the Company sold 300,000 shares of Series A
Convertible Preferred Stock, $.001 par value ("Series A Preferred Stock"), for
aggregate consideration of $3,000,000. Net proceeds of the financing after
commissions, legal fees and other expenses were approximately $2,570,000.
In July and August 1996, the Company completed a private placement of
equity securities with gross proceeds of $12,965,000. The securities sold were
Units, or fractions thereof, and each Unit was comprised of 10,000 shares of the
Company's Series B' Convertible Preferred Stock , par value $.001 per share
("Series B' Preferred Stock"), and Class C Warrants to purchase 66,667 shares of
the Company's Common Stock at an exercise price of $1.50 per share. Each unit
was priced at $100,000.
The Series B' Preferred Stock included in the Units is convertible at
any time at the option of the holder into shares of the Company's Common Stock
at a conversion price of $.75 per share such that the 10,000 shares of the
Company's Series B' Preferred Stock included in a Unit are convertible into
133,333 shares of the Company's Common Stock (for conversions occurring after
August 23, 1997). In the event of a liquidation event, the holders of the Series
B' Preferred Stock are entitled to be paid out of the assets of the Company
available for distribution to its stockholders an amount equal to $13.00 per
share, plus an amount equal to all declared and unpaid dividends thereon, before
any payment is made in respect of stock junior to the Series B' Preferred Stock,
including Common Stock. The Company has the option to order mandatory conversion
of the Series B' Preferred Stock into fully paid shares of Common Stock if the
closing price of the Common Stock exceeds $1.50 for 20 out of any 30 consecutive
trading days.
Subsequent to the private placement, 7,086,383 shares of Common Stock
have been issued as the result of the conversion of 675,753 shares of Series B'
Preferred Stock as of December 31, 1997. The remaining outstanding Series B'
Preferred Stock on that date was convertible into 13,609,846 shares of Common
Stock. Class C Warrants to purchase 11,309,722 shares of Common Stock are
currently outstanding and are redeemable at the option of the Company under
certain conditions. Each Class C Warrant has a five-year term.
F-12
<PAGE>
In connection with the private placement of the Units concluded in
August 1996, the Series A Preferred Stock was converted into Units comprised of
an aggregate of 399,971 Series B' Preferred Stock and 2,666,464 Class C Common
Stock Warrants and the warrant issued to the Placement Agent was converted into
a warrant to purchase securities offered in the private placement of the Units
concluded in August 1996.
Stock Options
In November 1991, the Company adopted a stock plan that provides for
the issuance of non-qualified and incentive stock options and the granting of
"stock purchase opportunities" to employees, directors and consultants.
Non-qualified options are to be granted at a price approved by the Board of
Directors. Options are exercisable as prescribed by the administrator of the
plan and expire ten years from the grant date, or earlier as specified by the
administrator of the plan.
In accordance with the provisions of APB Opinion 25 and related
Interpretations, the Company does not recognize compensation cost for options
granted with an exercise price at or above the fair market value of the
Company's Common Stock on the date of grant. The Company has adopted the
disclosure requirements of SFAS No. 123 in 1996. If the Company had elected to
recognize compensation cost based on the fair value of the options granted at
grant date as prescribed by SFAS No. 123, net loss and net loss per share would
have been increased to the pro forma amounts indicated in the table below:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Net loss - as reported................................................. $(7,347,880) $(4,879,410)
Net loss - pro forma................................................... (7,654,170) (5,137,196)
Basic and diluted net loss per share - as reported..................... (.93) (.43)
Basic and diluted net loss per share - pro forma....................... (.97) (.45)
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option- pricing model assuming an expected dividend
yield of 0%, an expected stock price volatility of 70%, an expected life of
option of 6.5 years and a risk-free interest rate based on the 6.5 year average
treasury bond yield on the date of grant.
The Black-Scholes option valuation model was intended for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility and expected life of the options. Because the Company's stock options
granted under this Stock Plan have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of the Company's stock options.
Because SFAS 123 has not been applied to options granted prior to
January 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
F-13
<PAGE>
Set forth below is a table summarizing option activity through December
31, 1997:
<TABLE>
<CAPTION>
Weighted
Average
Number Option Price Expiration Exercise
Description of Shares Range Per Share Date Price
- ----------- --------- --------------- ---- -----
<S> <C> <C> <C> <C>
Options outstanding at 12/31/94.................... 908,498 $0.30 to $6.00 2001 to 2004 $3.49
Options granted.................................. 191,000 $1.38 to $4.88 2004 to 2005 $2.62
Options exercised................................ (25,000) $0.30 $0.30
Options canceled................................. (182,000) $0.30 to $6.00 $4.72
---------
Options outstanding at 12/31/95.................... 892,498 $0.30 to $6.00 2001 to 2005 $3.14
Options granted.................................. 1,112,000 $1.13 to $3.00 2005 to 2006 $1.18
Options canceled................................. (30,000) $3.00 to $6.00 $5.00
--------
Options outstanding at 12/31/96.................... 1,974,498 $0.30 to $6.00 1998 to 2006 $2.01
Options granted.................................. 630,000 $0.45 to $0.81 2007 $0.51
Options exercised................................ (266,666) $0.30 $0.30
Options canceled................................. (181,666) $1.13 to $5.38 $3.36
---------
Options outstanding at 12/31/97.................... 2,156,166 $0.45 to $6.00 1998 to 2007 $1.66
</TABLE>
The weighted average fair value of options granted under the plan was
$1.84, $.80 and $.32 in the years ended December 31, 1995, 1996 and 1997.
Set forth below are the outstanding options at December 31, 1997,
summarized by range of exercise price:
<TABLE>
<CAPTION>
Number Weighted Weighted Number Weighted
Range of Exercise Outstanding at Average Average Exercise Exercisable at Average Exercise
Prices 12/31/97 Remaining Life Price 12/31/97 Price
------ -------- -------------- ----- -------- -----
<S> <C> <C> <C> <C> <C>
$0.30 to $0.81 630,000 9.9 $0.51 -- --
$1.13 to $2.63 1,134,166 7.5 $1.17 386,583 $1.21
$3.00 to $6.00 392,000 5.6 $4.95 337,458 $4.92
--------- --- ----- ------- -----
2,156,166 7.9 $1.66 724,041 $2.94
========= === ===== ======= =====
</TABLE>
In 1997, the Company issued options to purchase 150,000 shares of
Common Stock at current fair market value to a consultant and the members of the
Scientific Advisory Board of the Company. The Company recorded deferred
compensation of $62,750 in connection with the grant of these non-qualified
stock options which represents the fair value of the options on the date of
grant. The Company is amortizing this deferred compensation over the vesting
period of the options. The Company recognized $8,881 in compensation expense
related to these options for 1997.
In March 1996, the Company issued options to purchase 687,000 shares of
Common Stock at $2.70 per share. The Company recorded deferred compensation of
$206,100 in connection with the grant of these non-qualified stock options which
represents the excess of the fair market value over exercise price on the date
of grant. The Company is amortizing this deferred compensation over the four
year vesting period of the options. The Company recognized $40,791 and $51,525
in compensation expense related to these options for 1996 and 1997. On December
5, 1996 these options were repriced from $2.70 per share exercise price to
$1.13, the fair market value on that date.
"Stock purchase opportunities" represent rights to purchase Common
Stock at specified prices. The purchase price of shares offered in stock
purchase opportunities cannot be less than 50% of the fair market value. At
December 31, 1997, the Company has issued 119,996 shares of Common Stock at
$.003 per share and 8,333 shares of Common Stock at $1.50 per share in
connection with this stock plan.
F-14
<PAGE>
As of December 31, 1997, a total of 3,000,000 shares of Common Stock
were authorized for issuance under the stock plan, of which 415,340 shares were
available for grant. The Company has reserved 2,571,506 shares of its Common
Stock as of December 31, 1997 for future issuance in connection with the stock
plan.
Warrants
In connection with its initial public offering in 1994, the Company
sold 1.265 million units ("IPO Units") each consisting of one share of Common
Stock, one redeemable Class A Warrant to purchase one share of Common Stock and
one redeemable Class B Warrant to purchase one share of Common Stock for $5.00
per IPO Unit, before expenses and commissions.
In connection with the private placement of Series B' Preferred Stock
by the Company in July and August 1996, the Company issued 11,309,722 redeemable
Class C Warrants to purchase one share of Common Stock at an exercise price of
$1.50 per share. The Class C Warrants are exercisable until August 23, 2001,
unless sooner redeemed. In addition to the Class C Warrants, the Company also
issued 864,333 warrants to purchase Common Stock at an exercise price of $1.80
per share and 129,650 warrants to purchase Series B' Preferred Stock at an
exercise price of $11.00 per share to the Placement Agent for the private
placement.
The Class A, B and C warrants contain provisions that provide the
holders thereof certain protections by adjustment of the exercise price and
shares issuable upon exercise in certain events, such as certain stock
dividends, stock splits, mergers, sales of all or substantially all of the
Company's assets, sales of stock at below market price and other unusual events.
In connection with the Company's acquisition of PZG (see Note 3), the
Company issued 800,000 warrants to purchase Common Stock at $0.4375 per share.
Of these warrants, 500,000 were issued to the company which served as Placement
Agent for the 1996 private placements of Preferred Stock. The vesting of 200,000
warrants issued to the Placement Agent is based upon public announcement or
written notice from the Company that Phase II clinical trials have been
completed with the compound and that the Company or a third party intends to
initiate Phase III clinical trials, and the vesting of 100,000 of the warrants
is based upon the announcement of a filing of a New Drug Application with the
Food and Drug Administration.
In connection with the Company's retention of two investor relations
firms, the Company issued 35,000 warrants in 1996 to purchase common stock at
$1.125 per share and 535,000 warrants during 1997 to purchase common stock at
exercise prices ranging from $0.42 per share to $2.00 per share. In connection
with the issuance of these warrants, the Company recognized $20,000 and $95,050
of expense in 1996 and 1997, respectively.
Total warrants outstanding at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Underlying Number
Description of Shares Warrant Price Expiration Date
- ----------- --------- ------------- ---------------
<S> <C> <C> <C>
Class A Warrants 1,518,000 $4.99 1999
Class B Warrants 1,518,000 $8.25 1999
Class C Warrants 11,309,722 $1.50 2001
Placement Agent Warrants 4,376,515 $0.44-$6.88 1999-2002
Other Warrants 870,000 $0.42-$2.00 2001-2002
</TABLE>
5. Income Taxes
At December 31, 1997, the Company has net operating loss carryforwards
of approximately $18,600,000 and research and experimental credit carryforwards
of $343,900 for income tax purposes that
F-15
<PAGE>
expire in years 2006 through 2012 of which approximately $4,865,000 of net
operating loss carryforwards relate to the acquisition of Lexin. For financial
reporting purposes, a valuation allowance of $8,997,300 has been recognized to
offset the deferred tax assets related to those carryforwards at December 31,
1997. The valuation allowance increased by $1,785,200 from 1996 to 1997. When,
and if, recognized, the tax benefit for those items will be reflected in current
operations of the period when the benefit is recognized as a reduction of income
tax expense. Significant components of the Company's deferred tax liabilities
and assets at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................................... $ 4,535,000 $ 5,355,300
Capitalized research and development................................. 2,331,900 3,134,000
Research and experimental credit carryforwards....................... 227,700 343,900
Contribution carryforward............................................ 83,300 83,300
Depreciation......................................................... 34,300 80,800
Total deferred tax assets.............................................. 7,212,200 8,997,300
Valuation allowance for deferred tax assets............................ (7,212,200) (8,997,300)
------------ ------------
Net deferred tax assets................................................ $ -- $ --
------------ ------------
</TABLE>
No current income taxes have been provided for the periods ended
December 31, 1997, as the Company had a loss for both financial reporting and
tax purposes.
Based on the number of shares of Common Stock, Convertible Notes and
Preferred Stock issued in 1993 and March of 1996, the Company exceeded the
limits allowable under the Tax Reform Act of 1986 related to changes in
ownership percentage governing future utilization of net operating loss
carryforwards. The effect of these occurrences is to limit the annual
utilization of the net operating loss carryforwards to an amount determined by
multiplying the fair market value of the Company immediately prior to the change
in ownership percentage by the federal long-term tax exempt interest rate at the
time of these changes. As of December 31, 1997, future net operating loss carry
forwards are limited to approximately $225,000 per year for losses incurred
through August 23, 1993 and approximately $1,198,000 per year for losses
incurred between August 24, 1993 and March 15, 1996. In addition, future net
operating loss carry forwards related to Lexin are limited to approximately
$191,000 per year.
6. Employee Benefit Plan
The Company previously maintained a Salary Reduction Simplified
Employee Pension Plan, which was funded by elective salary deferrals by
employees. Additionally, the Company made mandatory contributions of $1,892 for
1994, $3,151 for 1995 and $5,029 for 1996.
As of January 1, 1997, the Company initiated a 401(k) plan covering all
current employees, which is funded by elective salary deferrals by employees.
The Company was not required to make a mandatory contribution for 1997.
7. Commitments
Consulting agreements: The Company is a party to several consulting
agreements with terms ranging from one to two years which commit the Company to
future stock sales and specified fees upon the occurrence of certain events. Two
of the agreements entered into in 1994 granted up to 200,000 non-qualified stock
options subject to certain terms and conditions, the most restrictive of which
required the market value of the Common Stock to reach target levels by certain
key dates. 100,000 of these options were granted under the 1991 Stock Plan (see
Note 4). The remaining 100,000 options were granted outside the 1991 Stock Plan.
These agreements were renegotiated in 1995, and the 200,000 options were
canceled. One of the renegotiated agreements granted 10,000 non-qualified stock
options under the 1991 Stock Plan. The Company granted
F-16
<PAGE>
125,000 non-qualified stock options pursuant to two agreements entered into
during 1996. Under terms of certain of these agreements, the Company had sold
99,999, 141,665 and 137,498 shares of common stock at $.003 per share as of
December 31, 1991, 1992, and 1993, respectively. The Company is obligated to pay
consulting fees of $262,000 per year. Consulting fees paid totaled $131,000,
$268,000 and $154,000 in 1995, 1996 and 1997 respectively.
Services agreement: The Company retained a contract drug development
company, Cato Research, Ltd. ("Cato"), to provide services for up to a three
year period beginning in November 1991. The contract was renewed effective
November 26, 1994. Services under the agreement are paid for by a combination of
cash payments and issuance of Common Stock. The amount of related service
expense is measured based on the invoice amount from Cato. The number of shares
issued for the stock portion of the payment is based on a formula. Under the
terms of the agreement, the Company may issue up to a maximum total of 150,000
shares at a formula price. Through December 31, 1997, cash payments of
approximately $1,042,000 had been made by the Company, and the related stock
portion of the payments totaled 73,896 shares of Common Stock. Included in
accounts payable and accrued expenses at December 31, 1997, is $94,797 owed to
Cato of which the Company was obligated to issue 61,326 shares of Common Stock
as part of the payment. The Company also issued 13,459 shares of Common Stock in
connection with the conversion of the Convertible Notes and Preferred Stock
because the conversion occurred at a price less than $6.00 per share. Those
shares of Common Stock, as well as 50,000 shares which were sold at $.003 in
1991, were issued or are issuable to Cato Holding Co., the parent corporation of
Cato Research Ltd.
License, option and research agreements: The Company is a party to
several license agreements for inventions, compounds, and technologies that
obligate the Company to pay certain royalties on net sales and certain fees,
upon the occurrence of certain events. These agreements are subject to
termination by the Company. Unless the agreements are terminated, the Company
must pay minimum royalties and maintenance fees as follows:
Amount
------
1998..................................................... $352,000
1999..................................................... $202,000
2000..................................................... $202,000
2001..................................................... $202,000
2002..................................................... $252,000
Payments under these agreements to licensors totaled approximately
$157,000, $157,000 and $107,000 in 1995, 1996, and 1997, respectively.
Additionally, under a collaboration and option agreement, the Company
agreed to pay part of the cost of a research program up to (pound)110,000, of
which (pound)62,500 has been paid as of December 31, 1997.
Under its various license and research agreements, the Company is
obligated to issue 56,402 shares of Common Stock at $.003 per share upon the
occurrence of certain future events.
Research agreements: The Company has entered into various other
research contracts for certain research activities. Payments under these
agreements totaled $765,000, $737,000 and $1,128,000 in 1995, 1996 and 1997,
respectively. Included in accounts payable and accrued expenses at December 31,
1997, is approximately $50,000 relating to these contracts. Under terms of these
agreements, the Company may be obligated to make further payments of
approximately $783,000 in 1998.
Minimum lease payments: The Company has entered into a lease agreement
for its office space in Horsham, Pennsylvania. Contingent rentals are payable
under the lease based upon operating, maintenance, management, and repair
expenses incurred by the lessor. The Company has the right to renew the lease at
the end of the term for an additional five years. In addition, the Company must
maintain a cash balance in escrow
F-17
<PAGE>
that represents the deposit on the leased facility. At December 31, 1997, the
cash balance restricted in escrow was $148,310. Future minimum lease payments
are as follows:
Amount
------
1998..................................................... $108,000
1999..................................................... $ 65,000
The Company entered into a sublease agreement for a portion of its
facility in April, 1997, which payments were offset against rent expense. Net
rent expense for 1997 was $6,795.
8. Related Party Transactions
In connection with the private placement of its Series A Preferred
Stock (see Note 4), the Company issued a warrant to purchase 30,000 shares of
Series A Preferred Stock at an aggregate purchase price of $375,000 and paid
commissions totaling $390,000 to Paramount Capital, LLC (the "Placement Agent"),
a firm controlled by Lindsay A. Rosenwald, M.D., a principal stockholder and
director of the Company.
In connection with the private placement of its Series B' Preferred
Stock (see Note 4), the Company paid commissions of $1,166,850 and
non-accountable expense allowances of $518,600 to the Placement Agent in
connection with such private placement. In addition, the Company will (i) pay
the Placement Agent a commission of 6% upon the exercise of any Class C Warrant
and (ii) reimburse the Placement Agent for out-of-pocket costs, not to exceed
$5,000 incurred in the connection with the solicitation of Class C Warrant
exercise or the redemption of Class C Warrants. In addition, the Company issued
to the Placement Agent certain preferred stock warrants in respect to the Series
B' Preferred Stock and common stock warrants.
On August 23, 1996, the Company made loans of $100,000, $50,000 and
$50,000 to Jerry B. Hook, Ph.D., the Company's President and Chief Executive
Officer, Dr. William McCulloch, the former Senior Vice President, Research and
Development of the Company and Ronald H. Spair, Chief Financial Officer and
Secretary of the Company, respectively (the "Officers"). Proceeds of such loans
were used by the Officers to purchase a Unit, or fraction thereof, sold by the
Company in its Series B' Preferred Stock private placement. Such loans are
evidenced by promissory notes bearing interest at the rate of 8% per annum with
maturity dates of July 30, 1999. Principal of the loans is payable in three
equal installments 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 the
respective Officer continues to be employed by the Company. One-third of the
principal of each of the loans was forgiven on July 30, 1997. Dr. William
McCulloch is no longer employed by the Company. The outstanding balance of the
loan (plus all accrued interest) will be forgiven in full in the event that one
of the following occurs: (i) the death or disability of the Officer (within the
meaning of the respective Officer's employment agreement with the Company); (ii)
the operations of the Company are terminated; (iii) the Company is liquidated;
or (iv) the Company undergoes a change of control.
In 1995, the Company and the underwriter for the Company's initial
public offering entered into a financial advisory agreement with a one-year
term. Under the terms of the agreement, the Company recognized financial
advisory fee expense of $150,000 in 1996.
In connection with the execution of the definitive PZG licensing
agreement between the Company and the Beyer Estate (see Note 3), a warrant to
purchase 500,000 shares of the Company's Common Stock was issued to Paramount,
an affiliate of the Placement Agent.
F-18
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
- -------------
<S> <C> <C>
10.96 -- Form of Incentive Stock Option Agreement entered into with Executive
Officers
10.97 -- License Agreement, dated as of December 4, 1997, between the Registrant and
the Estate of Karl H. Beyer, Jr.
10.98 -- Warrant Agreement dated December 9, 1997, between the Registrant and Dian Griesel,
Ph.D, of the Investor Relations Group
10.99 -- Warrant Agreement dated December 9, 1997, between the Registrant and Jacqueline
Resto of the Investor Relations Group
10.100 -- Warrant Agreement dated December 4, 1997, between the Registrant and Paramount
Capital Investments, LLC
21.1 -- Subsidiary of the Registrant
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Ernst & Young LLP
27.1 -- Financial Data Schedule
99.22 -- Press Release, dated as of December 8, 1997 announcing that the Registrant acquired
exclusive worldwide right to develop and commercialize Pyrazinoylguanidine, a drug
candidate with potential to treat a variety of significant chronic metabolic diseases
including type II diabetes mellitus
99.23 -- Press Release, dated as of January 20, 1998 announcing that the Registrant entered into
a production agreement with the Bioprocessing Resource Center, Inc., for the production
of the Registrant's LEX 032
99.24 -- Press Release, dated as of February 23, 1998 announcing that the United States Patent
and Trademark Office has granted United States Patent #5,703,130 submitted by Drs.
Rui Han and Zong-Ru Guo of the Institute of Materia Medica, Chinese Academy of
Medical Sciences, Beijing, China
99.25 -- Press Release, dated as of March 16, 1998 announcing the election by the Board of
Directors of Jerry Hook, the Registrant's current President and Chief Executive Officer,
as Chairman of the Board of Directors
</TABLE>
<PAGE>
EXHIBIT 10.96
-------------
SPARTA PHARMACEUTICALS, INC.
STOCK OPTION AGREEMENT
This certifies that, pursuant to the Sparta Pharmaceuticals, Inc. 1991
Stock Plan, as amended, the Board of Directors of Sparta Pharmaceuticals, Inc.
has granted an option to purchase shares of Common Stock of Sparta
Pharmaceuticals, Inc., as follows:
Name and Address
of Optionee: Officer Name
Position of
Optionee: Officer Title
Type of Option: Incentive Stock Option
Number of shares
subject to Option: ______ shares of Common Stock, $.001 par value
Exercise Price: $____
Date of Grant: _________________
Expiration Date: ___________________
<PAGE>
Vesting Schedule:
Options for _________ shares exercisable on or after__________
Options for _________ shares exercisable on or after__________
Options for _________ shares exercisable on or after__________
Options for _________ shares exercisable on or after__________
Exercise Following Termination:
If Optionee ceases to be an Employee before this Option is
exercised in full, the Option may be exercised as follows:
(a) If Optionee's termination is for "cause" (as defined
in the Plan), the Option shall be forfeited
immediately.
(b) If Optionee's termination is a result of Disability
or death, Optionee (or his Survivors) may exercise,
for a period of one year after such date or until
the expiration of the Option, whichever is earlier,
any portion of the Option that was exercisable on
the date of his termination and a pro rata portion
of the Options that would have become exercisable on
the next anniversary of the date of grant (based on
the number of days that elapsed during the period
prior to the date of his termination).
(c) If Optionee's termination is not a result of
Disability or death or for "cause", Optionee may
exercise, for a period of three months after the
date of termination or until the expiration of the
Option, whichever is earlier, any portion of the
Option that was exercisable on the date of his
termination. If Optionee dies during such
three-month period, his Survivors may exercise such
portion of the Option within one year after
Optionee's death or until the expiration of the
Option, whichever is earlier.
The option is subject to all the terms and conditions of the
aforementioned Plan, a copy of which is attached to this certificate which
contains provisions covering the treatment of Options in a number of
contingencies such as stock splits and mergers and sales of the Company.
Provisions in the Plan for adjustment with respect to stock subject to Options
and the related provisions with respect to successors to the business of the
Company are hereby made applicable hereunder and are incorporated herein by
reference. Terms used herein shall have the meanings set forth in the Plan.
Notwithstanding the foregoing, in the event of a "Change of Control" (as defined
below) while the Optionee is an employee of the Company, the Optionee shall be
entitled to exercise this Option, commencing as of immediately prior to the
consummation of such Change of Control (but subject to the consummation of such
<PAGE>
Change of Control) and in the event of a Change of Control as a result of a
tender offer, this Option shall become fully exercisable in a timely manner such
that the Optionee may participate in such tender offer at any stage, for all of
the Shares then remaining subject to purchase under such Option whether or not
the right to purchase such Shares shall have become vested and become
exercisable.
A "Change of Control" shall be deemed to have occurred upon the
occurrence of any of the following:
(i) any sale, lease, exchange or other transfer (in one transaction or
a series of transactions contemplated or arranged by any party as a single plan)
of all or substantially all of the assets of the Company;
(ii) individuals who, as of (the date of grant), constitute the entire
Board of Directors of the Company (the "Incumbent Directors") cease for any
reason to constitute at least 50% of the Board of Directors (hereinafter
referred to as a "Board Change"), provided that any individual becoming a
director subsequent to (the date of grant) whose election or nomination for
election was approved by a vote of at least a majority of the then Incumbent
Directors shall be, for purposes of provision, considered as though such
individual were an Incumbent Director; or
(iii) any consolidation or merger of the Company (including, without
limitation, a triangular merger) where the shareholders of the Company,
immediately prior to the consolidation or merger, would not, immediately after
the consolidation or merger, beneficially own, directly or indirectly, Shares
representing in the aggregate more than 50% of the combined voting power of all
the outstanding securities of the Company issuing cash or securities in the
consolidation or merger (or of its ultimate parent Company, if any); or
(iv) any "person," as such term is used in Section 13(d) of the
Securities Exchange Act of 1934, as amended (or any successor provision) (the
"Exchange Act") (other than the Company, any employee benefit plan of the
Company or any entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan), together with all "affiliates" and
"associates" (as such terms are defined in Rule 12b-2 under the Exchange Act or
any successor provision) of such person, shall become the "beneficial owner" or
"beneficial owners" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act
or any successor provision), directly or indirectly, of securities of the
Company representing in the aggregate thirty percent (30%) or more of either (a)
the then outstanding shares of Common Stock of the Company or (b) the combined
voting power of all then outstanding securities of the Company having the right
under ordinary circumstances to vote in an election of the Board of Directors of
the Company ("Voting Securities") (hereafter referred to as an "Acquisition");
provided, that, notwithstanding the foregoing, an Acquisition shall not be
deemed to have occurred for purposes of this clause (iv) (1) solely as the
result of an acquisition of securities by the Company which, by reducing the
<PAGE>
number of shares of Common Stock or other Voting Securities outstanding,
increases (x) the proportionate number of shares of Common Stock beneficially
owned by any person to thirty percent (30%) or more of the Common Stock then
outstanding or (y) the proportionate voting power represented by the Voting
Securities beneficially owned by any person to thirty percent (30%) or more of
the combined voting power of all then outstanding Voting Securities or (2)
solely as the result of an acquisition of securities from the Company; except
that if any person referred to in clause (1)(x) or (1)(y) of this sentence or to
which clause (2) of this sentence is applicable shall thereafter become the
beneficial owner of any additional shares of Common Stock or other Voting
Securities (other than pursuant to a stock split, stock dividend or similar
transaction or a transaction to which clause (2) applies), then an Acquisition
shall be deemed to have occurred for purposes of this clause (iv).
The undersigned Optionee acknowledges receipt of a copy of the Plan and
agrees to be bound by the terms and conditions of the option set forth in the
Plan and in this Stock Option Agreement.
Date: Date of grant SPARTA PHARMACEUTICALS, INC.
----------------------------------
By:
Title:
----------------------------------
<PAGE>
LICENSE AGREEMENT
This Agreement is effective December 4, 1997 ("the EFFECTIVE
DATE") by and between Estate of Karl H. Beyer, Jr. ("LICENSOR"), having an
address c/o George Q. Hardwick, Esq., 506 Spring House Village Center, Spring
House, PA 19477, and Sparta Pharmaceuticals, Inc., a Delaware Corporation having
offices at 111 Rock Road, Horsham, PA 19044-2310 ("LICENSEE").
WHEREAS, LICENSEE desires to obtain an exclusive license in
and to certain patents and know-how owned by LICENSOR; and
WHEREAS, LICENSOR is willing to grant the exclusive license
desired by LICENSEE.
NOW THEREFORE in consideration of the mutual promises and
other good and valuable consideration, the parties agree as follows:
SECTION 1 Definitions.
The terms used in this Agreement have the following meaning:
1.1 The term "AFFILIATE" as applied to LICENSEE, shall mean any company
or other legal entity other than LICENSEE, in whatever country organized,
controlling or controlled by LICENSEE. The term "control" means possession, of
the power to direct or cause the direction of the management and policies
whether through the ownership of voting securities, by contract or otherwise.
<PAGE>
1.2 The term "KNOW-HOW" shall mean any data, formulas, process
information or other information in the FIELD pertaining to claims set forth in
PATENT RIGHTS and known to LICENSOR on the EFFECTIVE DATE, including any
technical information, chemical, stability, pharmacological, toxicological,
clinical and manufacturing data.
1.3 The term "PATENT RIGHT(s)" shall mean the United States patents and
patent applications set forth in Appendix A, attached hereto and made a part
hereof, which are owned by LICENSOR including any division, continuation, or
continuation-in-part thereof and any foreign patent application or equivalent
corresponding thereto and any Letters Patent or the equivalent thereof issuing
thereon or reissue, re-examination or extension thereof.
1.4 The term "FIELD" shall mean prescription drug therapy for human
use.
1.5 The term "FIRST COMMERCIAL SALE" shall mean in each Country the
first sale of any PRODUCT by LICENSEE, its AFFILIATES or SUBLICENSEES, following
approval of its marketing by the appropriate governmental agency for the country
in which the sale is to be made and when governmental approval is not required,
the first sale in that country, provided, however, that FIRST COMMERCIAL SALE
shall not include the sale or transfer of non-commercial clinical trial or
research supplies of PRODUCT.
1.6 The term "TERRITORY" shall mean all countries of the world.
1.7 The term "NET SALES" means the [Information omitted and filed
separately with the Commission under Rule 24b-2.]
2
<PAGE>
[Information omitted and filed separately with the Commission under Rule 24b-2.]
1.8 The term "PRODUCT" shall mean any article, composition, apparatus,
substance, chemical, material, method, process or service in the FIELD which is
or which incorporates or utilizes KNOW-HOW or the manufacture, import, sale or
use of which is covered by PATENT RIGHTS.
1.9 The term "SUBLICENSEE" shall mean any non-AFFILIATE third party
licensed by LICENSEE to make, have made, import, use or sell any PRODUCT.
1.10 The term "VALID CLAIM" shall mean (i) a claim of a pending patent
application which has been pending for no more than five (5) years from the
filing date of the original subject matter covered by the claim or, (ii) a claim
of an issued patent which has not lapsed or become abandoned or been declared
invalid or unenforceable by a court of competent jurisdiction or an
administrative agency from which no appeal can be or is taken.
1.11 The use herein of the plural shall include the singular, and the
use of the masculine shall include the feminine.
SECTION 2 Grants.
2.1 (a) LICENSOR hereby grants to LICENSEE and LICENSEE hereby accepts
from LICENSOR a sole and exclusive royalty bearing right and license for the
TERRITORY under PATENT RlGHTS and KNOW-HOW to make, have made, use, import,
offer to sell and sell or have sold on its behalf PRODUCT, including the right
to sublicense third parties. LICENSEE shall have the right to extend such
license to its AFFILIATES.
3
<PAGE>
(b) Notwithstanding anything else to the contrary, LICENSEE may not
sublicense all rights licensed to LICENSEE hereunder without LICENSOR's written
consent, which consent shall not be unreasonably withheld.
2.2 Any permitted sublicenses shall provide that all applicable
sections of this Agreement shall be binding on the SUBLICENSEE as if it was a
party to this Agreement. LICENSOR shall be made a third party beneficiary under
the sublicense. In addition, LICENSEE agrees to remain responsible and liable
for the performance of a SUBLICENSEE under this Agreement and to forward to
LICENSOR a copy of any and all fully executed sublicense agreements. Any
sublicense shall provide that the SUBLICENSEE shall become a direct licensee of
LICENSOR upon termination of the license under this Agreement, pursuant to
Section 10.3(a) or (b), and that the SUBLICENSEE shall not grant a further
sublicense of all rights hereunder, except upon the written approval of
LICENSOR. However, such SUBLICENSEE may for marketing purposes grant sublicenses
on a country-by-country basis.
2.3 Notwithstanding anything else to the contrary, LICENSEE agrees that
KNOW-HOW and PATENT RIGHTS shall be used by LICENSEE only in and for PRODUCTS
and their development for sale in the TERRITORY, all in accordance with this
Agreement, and, except as set forth in Paragraph 10.1 of this Agreement, can
only be used by LICENSEE for so long as and to the extent that LICENSEE
maintains a license under this Agreement.
2.4 Notwithstanding anything else to the contrary, in the event that
LICENSEE'S rights and licenses under this Agreement are terminated, LICENSEE
agrees (a) not to use KNOW-HOW or VALID CLAIMS of PATENT RIGHTS or any
Confidential Information developed by LICENSEE which is derived from or based on
KNOW-HOW or PATENT RIGHTS for the
4
<PAGE>
research, development, making, using or selling of any PRODUCT and (b) not to do
any of the foregoing while this Agreement is in force for any PRODUCT except as
licensed under this Agreement.
2.5 The above licenses to sell any PRODUCT for which a royalty has been
paid under this Agreement includes the right of LICENSEE, its AFFILIATES and
SUBLICENSEES to grant to the purchaser thereof the right to use and/or resell
such purchased PRODUCT without payment of any further royalty hereunder.
2.6 All licenses pursuant to Paragraph 2.1 above to PATENT RIGHTS
conceived or first actually reduced to practice during the course of research
funded by a U.S. federal agency are subject to the rights, conditions and
limitations imposed by U.S. law. The words "sole and exclusive license" as used
herein shall mean sole and exclusive except for the royalty free non-exclusive
license granted to the U.S. government by LICENSOR pursuant to 35 USC Section
202 (c) (4) for any PATENT RIGHTS claiming any INVENTION subject to 35 USC
Section 201 and any other federal laws and applicable regulations.
2.7 (a) LICENSEE shall select and use reasonable efforts and diligence
under the circumstances to research, develop and then commercialize a selected
PRODUCT. The efforts of a SUBLICENSEE and/or an AFFILIATE shall be considered as
efforts of LICENSEE. At least once each year LICENSEE shall provide a report to
LICENSOR, in writing, summarizing in reasonable detail its efforts under this
paragraph.
(b) In the event that LICENSOR reasonably believes that LICENSEE is not
making reasonable efforts under the circumstances to develop and then
commercialize a selected PRODUCT by LICENSEE pursuant to Paragraph 2.7(a) then
LICENSOR shall provide written
5
<PAGE>
notice to LICENSEE which specifies LICENSOR's basis for such belief and what
additional efforts LICENSOR believes should be made by LICENSEE. Upon receipt of
such written notice, LICENSOR and LICENSEE shall enter into good faith
negotiations in order to reach mutual agreement as to what efforts by LICENSEE
shall satisfy the requirements of this Paragraph. If such mutual agreement is
not reached within thirty (30) days after receipt of such written notice, then,
in addition to any other remedies it may have outside the scope of arbitration,
LICENSOR may notify LICENSEE of its intention to terminate this Agreement and
the license hereunder which shall take effect thirty (30) days after written
notice to LICENSEE unless LICENSEE either (i) cures such failure prior to
expiration of such thirty (30) day period or (ii) invokes the arbitration
provisions of Paragraph 11.2 of this Agreement, which arbitration shall be
conducted on an expedited basis.
(c) As part of LICENSEE's obligation hereunder, LICENSEE shall meet the
following milestones:
(i) Initiate Phase III clinical trails with respect to a PRODUCT
pursuant to the rules of the U.S. Food & Drug Administration ("FDA") by
[Information omitted and filed separately with the Commission under Rule 24b-2.]
(ii) File a New Drug Application or Product License Application
(NDA/PLA) with respect to PRODUCT with the FDA by [Information omitted and filed
separately with the Commission under Rule 24b-2.] and
(iii) Obtain regulatory approval from the FDA to market and sell a
PRODUCT by [Information omitted and filed separately with the Commission under
Rule 24b-2.]
The fact that LICENSEE has met any or all of the foregoing milestones
shall not be conclusive evidence that LICENSEE has met is obligations under
Section 2.7(a). The parties recognize that pharmaceutical development is a
dynamic process and that unexpected delays may
6
<PAGE>
be encountered as a result of unanticipated scientific, medical and regulatory
issues and, accordingly, in the event of such a delay, beyond the control of
LICENSEE, LICENSOR agrees to consider in good faith a request for reasonable
adjustments to relevant milestone dates.
2.8 Subject to Section 2.7, LICENSEE shall have sole discretion for
making all decisions relating to the commercialization and marketing of PRODUCT.
SECTION 3 Confidentiality.
3.1 LICENSOR has already disclosed to LICENSEE confidential information
under a confidentiality agreement and during the term of this Agreement,
LICENSOR shall disclose to LICENSEE all additional proprietary and confidential
technology, inventions, technical information, biological materials and the like
which relate to PATENT RIGHTS, KNOW-HOW or PRODUCTS ("Confidential Information")
and are owned or controlled by LICENSOR. LICENSEE agrees to retain LICENSOR's
Confidential Information in confidence and not to disclose any such Confidential
Information to a third party without the prior written consent of LICENSOR and
to use LICENSOR's Confidential Information only for the purposes of this
Agreement, which obligation shall terminate five (5) years after the expiration
or termination of this Agreement. Confidential Information which is disclosed in
oral form shall be provided in written summary form with thirty (30) days after
disclosure.
3.2 The obligations of confidentiality and non-use will not apply to
Confidential Information which:
(i) was known to the LICENSEE or generally known to the public
prior to its disclosure hereunder; or
7
<PAGE>
(ii) subsequently becomes known to the public by some means other
than a breach of this Agreement;
(iii) is subsequently disclosed to the LICENSEE by a third party
having a lawful right to make such disclosure;
(iv) is required by law or bona fide legal process to be disclosed,
provided that the LICENSEE takes all reasonable steps to restrict and maintain
confidentiality of such disclosure and provides reasonable notice to the
LICENSOR; or
(v) is approved for release by the parties; or
(vi) is independently developed by the employees or agents of
LICENSEE without any knowledge of the Confidential Informatio provided by
LICENSOR.
3.3 Notwithstanding the foregoing, LICENSEE shall have the right to
disclose Confidential Information of LICENSOR to a third party who undertakes an
obligation of confidentiality and non-use with respect to such information, at
least as restrictive as LICENSEE'S obligation under this Section 3 (except for
the length of the confidentiality obligation, which shall not be less than five
(5) years from the time of the disclosure).
SECTION 4 Patents.
4.1 After the EFFECTIVE DATE of this Agreement, LICENSEE shall file,
where possible and in LICENSEE'S reasonable judgment, commercially practicable
and beneficial, prosecute and maintain patent applications and patents included
in PATENT RIGHTS in North
8
<PAGE>
America, the countries of the European Union and Japan, through patent counsel
selected by LICENSEE who shall consult with and keep LICENSOR advised with
respect thereto. In addition LICENSEE shall bear the cost and expense for the
filing, prosecution and maintenance of such PATENT RIGHTS in the TERRITORY.
4.2 With respect to any PATENT RIGHTS, each patent application, office
action, response to office action, request for terminal disclaimer, and request
for reissue or reexamination of any patent issuing from such application shall
be provided to LICENSOR sufficiently prior to the filing of such application,
response or request to allow for review and comment by LICENSOR. LICENSEE shall
not take any action that would materially adversely affect the scope, validity
or prosecution of the claims in any of said PATENT RIGHTS, including
substantially narrowing or canceling any claim, abandoning any patent or patent
application, failing to use reasonable commercial efforts to prosecute any
patent application or defend any patent in any interference or opposition
proceeding, or failing to file any patent application in any country, to the
extent such action or failure to act materially impairs PATENT RIGHTS of
commercially reasonable value, without providing LICENSOR with at least sixty
(60) days prior notice of LICENSEE's intent to take such proposed action in
inaction. LICENSOR shall thereupon have the rights set forth in paragraph 4.3 of
this Agreement.
4.3 If LICENSEE elects not to file a patent application or application
for a certificate of invention, not to maintain a patent or certificate of
invention or to abandon a pending patent application or application for
certificate of invention, included in the PATENT RIGHTS, it shall advise
LICENSOR and LICENSOR shall have the right but not the obligation to file such
application, maintain such patent or certificate of invention or continue to
attempt to maintain
9
<PAGE>
protection on the subject matter disclosed in the pending application. Costs for
these activities shall then become the responsibility of LICENSOR and LICENSEE
shall have no further rights thereunder with respect thereto.
SECTION 5 Royalties and Other Compensation.
5.1 (A) LICENSEE shall pay to LICENSOR:
(i) a royalty of [Information omitted and filed separately with the
Commission under Rule 24b-2.] of the NET SALES of PRODUCTS which are
manufactured or sold by LICENSEE or its AFFILIATES and licensed to LICENSEE
hereunder; or (ii) a royalty based on the royalties received by LICENSEE from
its SUBLICENSEES from the manufacture, use or sale of PRODUCTS as follows:
(a) [Information omitted and filed separately with the Commission
under Rule 24b-2.] of such royalties received by LICENSEE from a
SUBLICENSEE during the [Information omitted and filed separately
with the Commission under Rule 24b-2.] years of sales of PRODUCT by
such SUBLICENSEE;
(b) [Information omitted and filed separately with the Commission
under Rule 24b-2.] of such royalties received by LICENSEE from a
SUBLICENSEE during the next [Information omitted and filed
separately with the Commission under Rule 24b-2.] years of sales of
PRODUCT by such SUBLICENSEE;
(c) [Information omitted and filed separately with the Commission
under Rule 24b-2.] of such royalties received by LICENSEE from a
SUBLICENSEE from sales of PRODUCT by such SUBLICENSEE for each year
thereafter.
(B) LICENSEE shall also pay or provide to LICENSOR the following:
(i) A license fee of [Information omitted and filed separately with
the Commission under Rule 24b-2.] payable upon the EFFECTIVE DATE. This amount
shall not be refundable or creditable.
10
<PAGE>
(ii) [***] of all other revenues (in cash or in kind) received by
LICENSEE from a SUBLICENSEE in consideration of the granting of
sublicense rights to such SUBLICENSEE. Revenues for this purpose
shall not include either (a) research and development funding at
LICENSEE's cost, or (b) purchases of equity in LICENSEE, except to
the extent that such purchases are made in excess of fair market
value.
(iii) Nonrefundable and non-creditable milestones payable on
completion of the milestone as follows:
(a) [***]
(b) [***]
(c) [***]
(d) [***]
(C) Beginning on the earlier of [***] or [***], LICENSEE shall pay
LICENSOR minimum royalties of [***] per year, which payment shall be fully
creditable against future earned royalties at the rate of [***] per earned
royalty dollar. Such minimum royalties shall increase to [***] per year
effective the earlier of [***]
* [Information omitted and filed separately with the Commission under Rule
24b-2.]
11
<PAGE>
[Information omitted and filed separately with the Commission under Rule 24b-2.]
and shall also be fully creditable against earned royalties as above.
(D) LICENSEE shall, on the EFFECTIVE DATE, issue a warrant to purchase
300,000 shares of common stock of LICENSEE at the market price on the EFFECTIVE
DATE, exercisable on or after December 31, 1999 or such earlier date on which
LICENSEE initiates a Phase III clinical trial for a PRODUCT or the license
hereunder and this Agreement have been terminated other than by LICENSEE
pursuant to Paragraph 10.3 of this Agreement. The Warrant which shall be in the
form set forth in Appendix B hereto will survive termination of Agreement.
(E) In the event that a PRODUCT includes both component(s) covered by a
VALID CLAIM of a PATENT RIGHT ("Patented Component(s)") and a component which is
diagnostically useable or therapeutically active alone or in a combination which
does not require the Patented Component and such component is not covered by a
VALID CLAIM of a PATENT RIGHT ("Unpatented Component(s)") (such PRODUCT being a
"Combined Product"), then NET SALES shall be the amount which is normally
received by LICENSEE or its AFFILIATES from a sale of the Patented Component(s)
in an arm's length transaction with an unaffiliated third party. If the Patented
Component(s) are not sold separately, then NET SALES PRICE upon which a royalty
is paid shall be the NET SALES of the Combined Product multiplied by a fraction,
the numerator of which is the [Information omitted and filed separately with the
Commission under Rule 24b-2.]
12
<PAGE>
5.2 Royalties hereunder shall be payable hereunder for [Information
omitted and filed separately with the Commission under Rule 24b-2.] on a
country-by-country, PRODUCT-BY-PRODUCT basis and, if thereafter PRODUCT is
covered by a VALID CLAIM of a PATENT RIGHT in a country then royalties shall be
payable until the last to expire PATENT RIGHT in such country.
5.3 LICENSEE shall keep, and shall cause each of its AFFILIATES and
SUBLICENSEES to keep, full and accurate books of account containing all
particulars that may be necessary for the purpose of calculating all royalties
payable to LICENSOR. Such books of account shall be kept at their principal
place of business and, with all necessary supporting data shall, for the five
(5) years next following the end of the calendar year to which each shall
pertain be open for inspection by an independent certified accountant reasonably
acceptable to LICENSEE upon reasonable notice during normal business hours at
LICENSOR's expense for the sole purpose of verifying royalty statements or
compliance with this Agreement, but in no event more than once in each calendar
year. All information and data offered shall be used only for the purpose of
verifying compensation and shall be treated as LICENSEE Confidential Information
subject to the obligations of this Agreement. In the event that such inspection
shall indicate that in any calendar year that the royalties which should have
been paid by LICENSEE are at least five percent (5 %) greater than those which
were actually paid by LICENSEE, then LICENSEE shall pay the cost of such
inspection.
5.4 With each quarterly payment, LICENSEE shall deliver to LICENSOR a
full and accurate accounting to include at least the following information:
(a) Quantity of each PRODUCT subject to royalty sold (by country) by
LICENSEE, and its AFFILIATES;
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(b) Total receipts, to LICENSEE and its AFFILIATES, for each PRODUCT
subject to royalty (by country);
(c) Total royalties payable to LICENSOR;
(d) Royalties and other revenues received from SUBLICENSEES relating to
PRODUCTS.
5.5 In each year the amount of royalty due shall be calculated
quarterly as of March 31, June 30, September 30 and December 31 (each as being
the last day of an "ACCOUNTING PERIOD") and shall be paid quarterly within the
sixty (60) days next following such date, every such payment shall be supported
by the accounting prescribed in Paragraph 5.4 and shall be made in United States
currency. Whenever for the purpose of calculating royalties conversion from any
foreign currency shall be required, such conversion shall be at the rate of
exchange thereafter published in the Wall Street Journal for the last business
day of the applicable ACCOUNTING PERIOD.
5.6 Only one royalty shall be due and payable for the manufacture, use
and sale of a PRODUCT irrespective of the number of patents or claims thereof
which cover the manufacture, use and sale of such PRODUCT.
SECTION 6 Infringement.
6.1 (a) If any of the PATENT RIGHTS under which LICENSEE is licensed
hereunder is infringed by a third party, LICENSEE shall have the right and
option but not the obligation to bring an action for infringement, at its sole
expense, against such third party in the name of LICENSOR and/or in the name of
LICENSEE, and to join LICENSOR as a party plaintiff if
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required. LICENSEE shall promptly notify LICENSOR of any such infringement and
shall keep LICENSOR informed as to the prosecution of any action for such
infringement. No settlement, consent judgment or other voluntary final
disposition of the suit which adversely affects PATENT RIGHTS may be entered
into without the consent of LICENSOR, which consent shall not unreasonably be
withheld.
(b) In the event that LICENSEE shall undertake the enforcement and/or
defense of the PATENT RIGHTS by litigation, any recovery of damages by LICENSEE
for any such suit shall be applied first in satisfaction of any unreimbursed
expenses and legal fees of LICENSEE relating to the suit. The balance remaining
from any such recovery shall be divided between LICENSEE and LICENSOR, as
follows (i) for that portion, if any, based on lost profits, LICENSOR shall
recover the royalty LICENSOR would have received under this Agreement if such
sales had been made by LICENSEE; and (ii) for any other recovery, LICENSOR shall
receive forty percent (40%) of the remaining amount.
6.2 In the event that LICENSEE elects not to pursue an action for
infringement, upon written notice to LICENSOR by LICENSEE that an unlicensed
third party is an infringer of a VALID CLAIM of PATENT RIGHTS licensed to
LICENSEE, LICENSOR shall have the right and option, but not the obligation at
its cost and expense to initiate infringement litigation and to retain any
recovered damages.
6.3 In any infringement suit either party may institute to enforce the
PATENT RIGHTS pursuant to this Agreement, the other party hereto shall, at the
request of the party initiating such suit, cooperate in all respects and, to the
extent possible, have its employees testify when requested and make available
relevant records, papers, information, samples, specimens, and the
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like. All reasonable out-of-pocket costs incurred in connection with rendering
cooperation requested hereunder shall be paid by the party requesting
cooperation.
SECTION 7 Warranties.
7.1 Each of LICENSOR and LICENSEE warrants and represents to the other
that it has the full right and authority to enter into this Agreement, and that
it is not aware of any impediment which would inhibit its ability to perform the
terms and conditions imposed on it by this Agreement.
7.2 LICENSOR warrants and represents that it has not licensed or
assigned any right or interest in or to PATENT RIGHTS to any third party; it has
the right to grant the rights granted hereunder; that the granting of such
rights does not require the consent of a third party and; that there are and
will be no outstanding agreements, assignments or encumbrances inconsistent with
the provisions of this Agreement and that LICENSOR has no present knowledge of
any claims or threatened claims alleging that PATENT RIGHTS are invalid or that
the sale of PRODUCTS would infringe patent rights of third parties.
7.3 LICENSOR MAKES NO OTHER REPRESENTATIONS OR A WARRANTIES HEREUNDER,
EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, A WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR WITH RESPECT TO THE VALIDITY OF PATENT
RIGHTS.
SECTION 8 Indemnification.
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8.1 (a) LICENSEE agrees to indemnify and hold harmless LICENSOR, its
trustees, executors, beneficiaries, officers, employees, and agents, against any
and all actions, claims (specifically including, but not limited to, any damages
based on product liability Claims), suits, losses, demands, judgments, and other
liabilities (including attorney's fees until LICENSEE assumes the defense as
described below) asserted by third parties, government and non-government,
resulting from or arising out of the development, manufacturing, using,
labeling, advertising, marketing or selling of PRODUCTS by LICENSEE or its
AFFILIATES or SUBLICENSEES. If any such claims or actions are made, LICENSOR
shall be defended at LICENSEE's sole expense by counsel selected by LICENSEE and
reasonably acceptable to LICENSOR provided that LICENSOR may, at its own
expense, also be represented by counsel of its own choosing.
(b) LICENSEE's indemnification under (a) shall not apply to any
liability, damage, loss or expense to the extent that it is directly
attributable to the negligence or intentional misconduct of the Indemnitees.
(c) Each party shall notify the other promptly of any claim or
threatened claim under this Paragraph 8.1 and the indemnified party shall fully
cooperate with all reasonable requests of the indemnifying party LICENSEE with
respect thereto.
8.2 Upon the enrollment of the first patient in a clinical trial with a
PRODUCT, LICENSEE agrees to procure and maintain, comprehensive general
liability insurance against any claims or expenses for which it is obligated to
indemnify as provided above in amounts not less than $1,000,000 per incident and
$3,000,000 annual aggregate. The policies representing such insurance shall
specify LICENSOR as a named insured. LICENSEE shall provide LICENSOR
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with certificates of insurance from the insurance carriers maintaining such
insurance certifying that such coverage is in force, which certificates shall
also provide that LICENSOR shall receive at least forty-five (45) days advance
notice of any cancellation or expiration of said policy. The minimum amounts of
insurance coverage required herein shall not be construed to create a limit of
LICENSEE's liability with respect to its indemnification under this Agreement.
SECTION 9 Assignment; Successors.
9.1 This Agreement shall not be assignable by LICENSEE without the
prior written consent of LICENSOR (which consent shall not be unreasonably
withheld), except that LICENSEE without the consent of LICENSOR may assign this
Agreement to an AFFILIATE or to a successor in interest or transferee of all or
substantially all of the portion of the business to which this Agreement
relates.
9.2 Subject to the limitations on assignment herein, this Agreement
shall be binding upon and inure to the benefit of said successors in interest
and assigns of LICENSEE and LICENSOR. Any such successor or assignee of a
party's interest shall expressly assume in writing the performance of all the
terms and conditions of this Agreement to be performed by said party and such
Assignment shall not relieve the Assignor of any of its obligations under this
Agreement.
SECTION 10 Termination.
10.1 Except as otherwise specifically provided herein and unless sooner
terminated pursuant to Paragraph 10.2 or 10.3 of this Agreement, this Agreement
and the licenses and rights granted thereunder shall remain in full force and
effect until the expiration of the LICENSEE's obligations to pay royalties, at
which time LICENSEE shall have a fully paid-up, non-cancelable license.
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10.2 LICENSEE shall have the right to terminate this Agreement upon
ninety (90) days prior written notice upon completion of the First Phase II
clinical trial with a PRODUCT or at any time thereafter upon ninety (90) days
prior written notice. For purposes of this paragraph, "completion" shall be the
receipt by LICENSEE of the final analysis of the data from such trial, but in no
event more than six (6) months after the last patient has received PRODUCT
pursuant to the protocol for such trial.
10.3 (a) Upon material breach of any material provisions of this
Agreement by either party to this Agreement, in the event the breach is not
cured within sixty (60) days after written notice to the breaching party by the
other party, in addition to any other remedy it may have, the other party at its
sole option may terminate this Agreement, provided that such other party is not
then in breach of this Agreement.
(b) This Agreement may be terminated by LICENSOR in the event LICENSEE
files or institutes bankruptcy, reorganization, liquidation, receivership or
similar proceedings under debt relief laws or fails for more than sixty (60)
days to take steps to oppose the initiation of such action against it.
(c) Any dispute hereunder may be submitted to arbitration pursuant to
Section 11.2.
10.4 Upon any termination of this Agreement LICENSEE, at its option,
shall be entitled to finish any work-in-progress which is completed within three
(3) months of termination of this Agreement and to sell any completed inventory
of a PRODUCT covered by this Agreement which
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remains on hand as of the date of the termination, so long as LICENSEE pays to
LICENSOR the royalties applicable to said subsequent sales in accordance with
the same terms and conditions as set forth in this Agreement.
10.5 The obligations of Sections 3, 8 and 9 and of Paragraphs 10.4,
10.5, 10.6, 11.2 and 11.4 of this Agreement shall survive any termination of
this Agreement.
10.6 Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured
prior to the effective date of such termination. In addition, upon termination
all rights and information transferred to LICENSEE hereunder shall revert to
LICENSOR and, except in the case of a termination by LICENSEE pursuant to
paragraph 10.3 of this Agreement, all data and information developed under this
Agreement by LICENSEE and necessary or useful to make, use or sell PRODUCT shall
be assigned and transferred or licensed by LICENSEE, royalty-free, to LICENSOR,
for use in connection with the research, development, manufacture, use or sale
of PRODUCTS.
SECTION 11 General Provisions.
11.1 The relationship between LICENSOR and LICENSEE is that of
independent contractors. LICENSOR and LICENSEE are not joint venturers,
partners, principal and agent, master and servant, employer or employee, and
have no relationship other than as independent contracting parties. LICENSOR
shall have no power to bind or obligate LICENSEE in any manner.
Likewise, LICENSEE shall have no power to bind or obligate LICENSOR in any
manner.
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11.2 Any matter or disagreement under this Agreement, except with
respect to patent validity, shall be submitted to a mutually selected single
arbitrator to so decide any such matter or disagreement. The arbitrator shall
conduct the arbitration in accordance with the Rules of the American Arbitration
Association, unless the parties agree otherwise. If the parties are unable to
mutually select an arbitrator, the arbitrator shall be selected in accordance
with the procedures of the American Arbitration Association. The decision and
award rendered by the arbitrator shall be final and binding. Judgment upon the
award may be entered in any court having jurisdiction thereof. Any arbitration
pursuant to this section shall be held in Philadelphia, PA, or such other place
as may be mutually agreed upon in writing by the parties.
11.3 This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter thereof and supersedes all prior
agreements in this respect. There shall be no amendments or modifications to
this Agreement, except by a written document which is signed by both parties.
11.4 This Agreement shall be construed and enforced in accordance with
the laws of the Commonwealth of Pennsylvania without reference to its choice of
law principles.
11.5 The headings in this Agreement have been inserted for the
convenience of reference only and are not intended to limit or expand on the
meaning of the language contained in the particular article or section.
11.6 Any delay in enforcing a party's rights under this Agreement or
any waiver as to a particular default or other matter shall not constitute a
waiver of a party's right to the future enforcement of its rights under this
Agreement, excepting only as to an expressed written and signed waiver as to a
particular matter for a particular period of time.
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11.7 Notices. Any notices given pursuant to this Agreement shall be in
writing and shall be deemed to have been given and delivered upon the earlier of
(i) when received at the address set forth below, or (ii) three (3) business
days after mailed by certified or registered mail postage prepaid and properly
addressed, with return receipt requested, or (iii) on the day when sent by
facsimile as confirmed by certified or registered mail. Notices shall be
delivered to the respective parties as indicated:
To LICENSEE: Sparta Pharmaceuticals, Inc.
111 Rock Road
Horsham, PA 19044-2310
Attn: President & CEO
To LICENSOR: Estate of Karl H. Beyer, Jr.
c/o George Q. Hardwick, Esq.
506 Spring House Village Center
Spring House, PA 19477
Copy to: Carella, Byrne, Bain, Gilfillan, Cecchi,
Stewart & Olstein
6 Becker Farm Road
Roseland, New Jersey 07068
Fax no.(973) 994-1744
Attn: Donald S. Brooks, Esq.
11.8 LICENSEE shall not use the name of the LICENSOR or of Karl H.
Beyer, Jr. or any adaptation thereof in any advertising, promotional or sales
literature with respect to a PRODUCT without the prior written approval of
LICENSOR.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth above.
ESTATE OF KARL H. BEYER, JR. SPARTA PHARMACEUTICALS, INC.
By: /s/ Camille F. Beyer By: /s/ Jerry B. Hook
-------------------- -----------------
Name: Camille F. Beyer Name: Jerry B. Hook
Title: Executrix Title: President & CEO
By: /s/ George Q. Hardwick
----------------------
Name: George Q. Hardwick
Title: Executor
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APPENDIX A
PATENT RIGHTS
[Information omitted and filed separately with the Commission under Rule 24b-2.]
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APPENDIX B
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF
SUCH ACT. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO APPLICABLE STATE SECURITIES
LAWS.
SPARTA PHARMACEUTICALS, INC.
Warrant for the Purchase of Shares of
Common Stock, $.001 Par Value per Share
No. Beyer-1 300,000 Shares
FOR VALUE RECEIVED, SPARTA PHARMACEUTICALS, INC., a Delaware
corporation (the "Company"), hereby certifies that the Estate of Karl H. Beyer,
Jr. ("Beyer"), or its permitted assigns, is entitled to purchase from the
Company, at any time or from time to time commencing on December 31, 1999,
(subject to earlier acceleration in accordance with the provisions of Section
1(a) below) and prior to 5:00 P.M., New York City time, on December 4, 2002,
(subject to the provisions of Section 1(a) below) (Three Hundred Thousand
(300,000) of fully paid and nonassessable shares of the Common Stock, $.001 par
value per share, of the Company, subject to adjustment as provided below, for an
aggregate purchase price of One Hundred Thirty One Thousand Two Hundred and
Fifty Dollars ($131,250) ($.4375per share). As used hereinafter, (a) the term
"Common Stock" includes (i) the Company's Common Stock, $.001 par value, (ii)
any other capital stock of any class or classes (however designated) of the
Company, the holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference, and (iii) any other securities into which or for
which any of the securities described in clauses (i) or (ii) above have been
converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise; (b) the term "Other Securities" refers to
any stock (other than Common Stock) and other securities of the Company or any
other entity (corporate or otherwise) (i) which the holder of this Warrant at
any time shall be entitled to receive, or shall have received, on the exercise
of this Warrant, in lieu of or in addition to Common Stock, or (ii) which at any
time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities, in each case pursuant to
Section 3 hereof; (c) the shares of the Common Stock and Other Securities
purchasable hereunder or under any other Warrant (as hereinafter defined) are
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referred to as the "Warrant Shares"; (d) the aggregate purchase price payable
for the Warrant Shares hereunder is referred to as the "Aggregate Warrant
Price"; (e) the price payable for each of the Warrant Shares hereunder is
referred to as the "Per Share Warrant Price," (f) this Warrant and all warrants
hereafter issued in exchange or substitution for this Warrant are referred to as
the "Warrants" and (g) the holder of this Warrant is referred to as the "Holder"
and the holder of this Warrant and all other Warrants or Warrant Shares issued
upon the exercise of any Warrant are referred to as the "Holders." The Aggregate
Warrant Price is not subject to adjustment. The Per Share Warrant Price is
subject to adjustment as hereinafter provided; in the event of any such
adjustment, the number of Warrant Shares shall be adjusted by dividing the
Aggregate Warrant Price by the Per Share Warrant Price in effect immediately
after such adjustment.
1. Exercise of Warrant.
(a) Upon the earlier of December 31, 1999, the enrollment of
the first patient in a Phase III clinical trial for a Product pursuant to
paragraph 2.7 of the License Agreement between Company and Beyer of even date
herewith (the "Enrollment Condition"), or the earlier termination of that
Agreement (except for termination by Company pursuant to paragraph 10.3 thereof,
in which event this Warrant shall also terminate upon the effective date of
termination of the License Agreement), this Warrant may be exercised in whole at
any one time or in part from time to time by the Holder prior to 5:00 P.M., New
York City time, on December 4, 2002 (with the subscription form at the end
hereof duly executed) at the address set forth in Section 15 hereof, together
with proper payment of the Aggregate Warrant Price, or the proportionate part
thereof if this Warrant is exercised in part, with payment for Warrant Shares
made by certified or official bank check payable to the order of the Company; or
(b) If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock, and the Holder is
entitled to receive a new Warrant covering the Warrant Shares which have not
been exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon surrender of this Warrant, the
Company will (i) issue a certificate or certificates in the name of the Holder
for the largest number of whole shares of the Common Stock to which the Holder
shall be entitled and, if this Warrant is exercised in whole, in lieu of any
fractional share of the Common Stock to which the Holder shall be entitled, pay
to the Holder cash in an amount equal to the fair value of such fractional share
(determined in such reasonable manner as the Board of Directors of the Company
shall determine), and (ii) deliver the other securities and properties
receivable upon the exercise of this Warrant, or the proportionate part thereof
if this Warrant is exercised in part, pursuant to the provisions of this
Warrant.
2. Reservation of Warrant Shares; Listing. The Company agrees
that, prior to the expiration of this Warrant, the Company will at all times (a)
have authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock and
other securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on sale or
transfer and free and clear of all preemptive rights and rights of first
refusal; and (b) if the Company hereafter lists its Common Stock on any national
securities exchange, keep the shares of Common Stock receivable upon the
exercise of this Warrant authorized for listing on such exchange upon notice of
issuance.
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3. Adjustments of Per Share Warrant Price.
(a) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of shares
(by a stock split or otherwise), (iii) combine its outstanding shares of Common
Stock into a smaller number of shares (by a reverse stock split or otherwise) or
(iv) issue by reclassification of its Common Stock any shares of capital stock
of the Company, the Per Share Warrant Price shall be adjusted so that the holder
upon the exercise hereof shall be entitled to receive the number of shares of
Common Stock or other capital stock of the Company which it would have owned
immediately following such action had such Warrant been exercised immediately
prior thereto. An adjustment made pursuant to this Subsection 3(a) shall become
effective on the record date in the case of a dividend or distribution and shall
become effective on the effective date in the case of a subdivision, combination
or reclassification.
(b) In case of any capital reorganization or reclassification,
or any consolidation or merger to which the Company is a party other than a
merger or consolidation in which the Company is the continuing corporation, or
in case of any sale or conveyance to another entity of the property of the
Company as an entirety or substantially as a entirety, or in the case of any
statutory exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third corporation into the
Company)(which consolidation, merger, sale, conveyance and statutory exchange is
referred to below as a "Sale"), the Holder of this Warrant shall have the right
thereafter to receive on the exercise of this Warrant the kind and amount of
securities, cash or other property which the Holder would have owned or have
been entitled to receive immediately after such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
had this Warrant been exercised immediately prior to the effective date of such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance and in any such case, if necessary, appropriate adjustment
shall be made in the application of the provisions set forth in this Section 3
with respect to the rights and interests thereafter of the Holder of this
Warrant to the end that the provisions set forth in this Section 3 shall
thereafter correspondingly be made applicable, as nearly as may reasonably be,
in relation to any shares of stock or other securities or property thereafter
deliverable on the exercise of this Warrant. The above provisions of this
Subsection 3(d) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, statutory exchanges, sales or
conveyances. The issuer of any shares of stock or other securities or property
thereafter deliverable on the exercise of this Warrant shall be responsible for
all of the agreements and obligations of the Company hereunder. Notice of any
such reorganization, reclassification, consolidation, merger, statutory
exchange, sale or conveyance and of said provisions so proposed to be made,
shall be mailed to the Holders of the Warrants not less than 30 days prior to
such event. A sale of all or substantially all of the assets of the Company for
a consideration consisting primarily of securities shall be deemed a
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consolidation or merger for the foregoing purposes. In the event of an
anticipated Sale, the Company or the entity assuming the obligations of the
Company hereunder may (i) upon written notice to the Holders of all outstanding
Warrants, provide that all Warrants must be exercised, to the extent then
exercisable (and for purposes hereof, the Enrollment Condition shall be deemed
to have been satisfied), within a specified number of days of the date of such
notice, at the end of which period the Warrants shall terminate (but if and only
if such Sale shall be consummated); or (ii) terminate all Warrants in exchange
for a cash payment equal to the excess of the current market price of the
Warrant Shares subject to such Warrants, to the extent then exercisable (and for
purposes hereof, the Enrollment Condition shall be deemed to have been
satisfied), over the Per Share Warrant Price thereof (but if and only if such
Sale shall be consummated).
(c) If the Board of Directors of the Company shall declare any
dividend or other distribution with respect to the Common Stock other than a
cash distribution out of earned surplus, the Company shall mail notice thereof
to the Holders of the Warrants not less than 15 days prior to the record date
fixed for determining stockholders entitled to participate in such dividend or
other distribution.
(d) If, as a result of an adjustment made pursuant to this
Section 3, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in a
written notice to the Holder of any Warrant promptly after such adjustment)
shall determine the allocation of the adjusted Per Share Warrant Price between
or among shares or such classes of capital stock or shares of Common Stock and
other capital stock.
(e) In case any Other Securities shall have been issued, or
shall then be subject to issue upon the conversion or exchange of any stock (or
Other Securities) of the Company (or any other issuer of Other Securities or any
other entity referred to in Section 3(b) hereof) or to subscription, purchase or
other acquisition pursuant to any rights or options granted by the Company (or
such other issuer or entity), the holder hereof shall be entitled to receive
upon exercise hereof such amount of Other Securities (in lieu of or in addition
to Common Stock) as is determined in accordance with the terms hereof, treating
all references to Common Stock herein as references to Other Securities to the
extent applicable, and the computations, adjustments and readjustments provided
for in this Section 3 with respect to the number of shares of Common Stock
issuable upon exercise of this Warrant shall be made as nearly as possible in
the manner so provided and applied to determine the amount of Other Securities
from time to time receivable on the exercise of the Warrant, so as to provide
the holder of the Warrant with the benefits intended by this Section 3 and the
other provisions of this Warrant.
4. Certificate as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Treasurer or Chief Financial Officer to compute such adjustment or readjustment
in accordance with the terms of the Warrants and prepare a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based, including, among other things, (a) the
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number of shares of Common Stock outstanding or deemed to be outstanding, and
(b) the Aggregate Purchase Price and the number of shares of Common Stock to be
received upon exercise of this Warrant, in effect immediately prior to such
issue or sale and as adjusted and readjusted as provided in this Warrant. The
Company will forthwith mail a copy of each such certificate to each Holder, and
will, on the written request at any time of any Holder, furnish to such Holder a
like certificate setting forth the Per Share Warrant Purchase Price at the time
in effect and showing how it was calculated.
5. Fully Paid Stock; Taxes. The Company agrees that the shares
of the Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights or rights of first refusal, and the Company will take all
such actions as may be necessary to assure that the par value or stated value,
if any, per share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. The Company further covenants and agrees that it
will pay, when due and payable, any and all Federal and state stamp, original
issue, transfer or similar taxes which may be payable in respect of the issue of
any Warrant Share or any certificate thereof.
6. Registration Rights.
(a) If at any time the Company shall determine to register any
of its securities, either for its own account or the account of security
holders, other than a registration statement relating solely to employee benefit
plans or a registration on Form S-4 relating solely to an SEC Rule 145
transaction or an exchange offer, the Company will:
(i) promptly give to each Holder written notice thereof (which
shall include a list of the jurisdictions in which the Company intends
to attempt to qualify such securities under the applicable blue sky or
other state securities laws);
(ii) include in such registration ( and any related
qualification under blue sky laws or other compliance) and in any
underwriting involved therein, all of the Warrant Shares specified in a
written request or requests, made within 20 days after receipt of such
written notice from the Company, by any Holder or Holders, except as
set forth in Subsection 6(b) below.
(b) If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to Subsection
6(a)(i). In such event the right of any Holder to registration pursuant to this
Section 6 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Warrant Shares in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall, together with the Company and
any other parties distributing their securities through such underwriting, enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 6, if the underwriter determines that marketing
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<PAGE>
factors require a limitation of the number of shares to be underwritten, the
underwriter may limit or eliminate the Warrant Shares to be included in the
registration and underwriting. The Holder's right to include the Warrant Shares
in a registered public offering will be subject to similar rights, if any,
previously granted by the Company to holders of its equity securities. The
registration rights granted to the Holder pursuant to this Section 6 shall
terminate at such time as the Holder is able to sell all of the Warrant Shares
in a transaction exempt from registration pursuant to Rule 144 promulgated under
the Securities Act of 1933, as amended (the "Securities Act").
(c) Indemnification by the Company. To the extent permitted by
law, the Company will indemnify each Holder joining in a registration and the
officers, directors and partners of each such Holder and each Person, if any,
who controls any thereof (within the meaning of the Securities Act) against any
and all claims, losses, damages and liabilities (or actions in respect thereof)
to which they may become subject under the Securities Act, Securities Exchange
Act of 1934, as amended (the "Exchange Act") or other federal or state law,
arising out of or based on any untrue statement (or alleged untrue statement) of
any material fact contained in any prospectus, offering circular or other
document incident to any registration, qualification or compliance ( or in any
related registration statement, notification or the like) or any omission (or
alleged omission) to state therein any material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to any action or inaction
required of the Company in connection with any such registration, qualification
or compliance (collectively a "Violation") and the Company will reimburse each
such Holder, officer, director, partner and controlling person of such Holder
for any legal and any other expenses reasonably incurred by them in connection
with investigating or defending any such claim, loss, damage, liability or
action; provided however that the Company will not be liable in any such case to
the extent that any such claim, loss, damage or liability arises out of or is
based on any untrue statement or omission based upon written information
furnished to the Company by such Holder, officer, director, partner or
controlling person and stated to be specifically for use in such prospectus,
offering circular or other document.
(d) To the extent permitted by law, each selling Holder shall
indemnify and hold harmless the Company, each of its directors and officers who
have signed the registration statement, each Person, if any, who controls the
Company within the meaning of the Securities Act, and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, directors or officers or any Person who controls such Holder within
the meaning of the Securities Act or the Exchange Act, against any and all
claims, losses, damages and liabilities to which the Company or any such
director, officer, controlling Person, or other such Holder, or a partner,
director, officer or controlling Person of such other Holder may become subject
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished to the Company by such Holder,
officer, director, partner or controlling person and stated to be specifically
for use in such registration, prospectus, offering circular or other document;
and each such Holder shall reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling Person, or
other Holder, partner, officer, director or controlling Person of such other
Holder in connection with investigating or defending any such loss, claim,
damage, liability or action.
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<PAGE>
(e) Indemnification Procedure. Each party entitled to
indemnification pursuant to this Section (the "indemnified party") shall give
notice to the party required to provide indemnification pursuant to this Section
(the "indemnifying party") promptly after such indemnified party acquires actual
knowledge of any claim as to which indemnity may be sought, and shall permit the
indemnifying party (at its' expense) to assume the defense of any claim or any
litigation resulting therefrom; provided that counsel for the indemnifying party
who shall conduct the defense of such claim or litigation shall be acceptable to
the indemnified party, and the indemnified party may participate in such defense
at such party's expense, and provided further, that the failure by any
indemnified party to give notice as provided in this paragraph (e) shall not
relieve the indemnifying party of its obligations under this Section except to
the extent that the failure results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
the failure to give notice. No indemnifying party, in becoming aware of any such
claim or litigation, shall, except with the consent of each indemnified party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation. The reimbursement required by this Section shall be made by
periodic payments during the course of the investigation or defense, as and when
bills are received or expenses incurred.
(f) The foregoing indemnity agreements of the Company and
Holders are subject to the condition that, insofar as they related to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the Commission at the time the registration
statement in question becomes effective or the amended prospectus is filed with
the Commission pursuant to Rule 424 (b) under the Securities Act (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
Person if a copy of the Final Prospectus was furnished to the party seeking
indemnity and was not furnished to the Person asserting the loss, liability,
claim or damage at or prior to the time such action is required by the
Securities Act.
7. Transferred Warrants. All warrants issued upon the transfer
or assignment of this Warrant will be dated the same date as this Warrant, and
all rights and obligations of the Holder thereof shall be identical to those of
the Holder.
8. Loss, etc., of Warrant. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and of indemnity reasonably satisfactory to the Company, if lost,
stolen or destroyed, and upon surrender and cancellation of this Warrant, if
mutilated, the Company shall execute and deliver to the Holder a new Warrant of
like date, tenor and denomination.
9. Dissolution. Except as otherwise provided herein, in the
event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall at its expense deliver or cause to be delivered the stock and
other securities and property (including cash, where applicable) receivable by
the holders of the Warrants after the effective date of such dissolution
pursuant to this Section 9 to a bank or trust company, as trustee for the Holder
or Holders of the Warrants.
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<PAGE>
10. No Dilution or Impairment. The Company will not, by
amendment of its Charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holder of this
Warrant hereunder. Without limiting the generality of the foregoing, the Company
(i) will not increase the par value of any shares of stock receivable on the
exercise of this Warrant above the amount payable therefor on such exercise,
(ii) will take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and non-assessable shares
of stock on the exercise of this Warrant from time to time outstanding, (iii)
will not issue any capital stock of any class which is preferred as to dividends
or as to the distribution of assets upon voluntary or involuntary dissolution,
liquidation or winding up, unless the rights of the holders thereof shall be
limited to a fixed sum or percentage of par value in respect of participation in
dividends and in any such distribution of assets and (iv) will not transfer all
or substantially all of its properties and assets to any other entity (corporate
or otherwise), or consolidate with or merge into any other entity or permit any
such entity to consolidate with or merge into the Company (if the Company is not
the surviving entity), unless such other entity shall expressly assume in
writing and will be bound by all the terms of this Warrant.
11. Trustee for Warrant Holders. In the event that a bank or
trust company shall have been appointed as trustee for the Holders of the
Warrants pursuant to Section 9, such bank or trust company shall have all the
powers and duties of a warrant agent appointed pursuant to Section 12 and shall
accept, in its own name for the account of the Company or such successor person
as may be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
12. Warrant Agent. The Company may, by written notice to each
Holder, appoint an agent for the purpose of issuing Common Stock on the exercise
of the Warrants pursuant to Section 1 or any of the foregoing, and thereafter
any such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.
13. Warrant Holder Not Shareholder. Except as otherwise
provided herein, this Warrant does not confer upon the Holder any right to vote
or to consent to or receive notice as a stockholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
stockholder, prior to the exercise hereof.
14. Covenants of Warrant Holder. By acceptance of this
Warrant, the Holder is hereby deemed to covenant and agree with the Company that
it is acquiring this Warrant as an investment and not with a view to
distribution hereof. This Warrant may not be sold, transferred, assigned or
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<PAGE>
hypothecated by the Holder except in compliance with the provisions of the
Securities Act (or any successor legislation), and the state securities laws,
and is so transferable only upon the books of the Company which it shall cause
to be maintained for such purpose. Each registered Holder of this Warrant
acknowledges that this Warrant has not been registered under the Securities Act
and agrees not to sell, pledge, distribute, offer for sale, transfer or
otherwise dispose of this Warrant or any Warrant Shares issued upon its exercise
in the absence of (i) an effective registration statement as to this Warrant or
such Warrant Shares under the Securities Act, or (ii) an opinion of counsel
reasonably acceptable to the Company to the effect that such registration is
not, under the circumstances, required; provided, however, that no such opinion
under this Section 14 or similar provisions elsewhere herein shall be required
in the event the Estate of Karl H. Beyer, Jr. transfers this Warrant or portions
thereof to the legatees or distributees of such Estate subject to Section 7
hereof. In addition, in order for any transferee of this Warrant or any Warrant
Shares to receive any of the benefits of this Warrant or the Warrant Shares, as
the case may be, the Company must have received notice of such transfer, at the
address set forth in Section 16 below, in the form of assignment or partial
assignment attached hereto. Any transferee other than pursuant to an effective
registration statement under the Securities Act or pursuant to Rule 144
promulgated under the Securities Act must also covenant and agree that it is
acquiring this Warrant or such Warrant Shares as an investment and not with a
view to distribution hereof or thereof, except in accordance with the Securities
Act and applicable state securities law.
15. Negotiability, etc. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
16. Communication. All notices, requests, consents and demands
shall be made in writing and shall be mailed postage prepaid, or delivered by
hand, to the Company or to the Holder thereof at their respective addresses set
forth below or to such other address as may be furnished in writing to the other
party hereto:
If to the Holder: Estate of Karl H. Beyer, Jr.
c/o George Hardwick, Esq.
506 Spring House Village Center
Spring House, PA 19477
&
Estate of Karl H. Beyer, Jr.
c/o Carella, Byrne, Bain, Gilfillan, Cecchi
Stewart & Olstein, P.A.
6 Becker Farm Road
Roseland, NJ 07068
Attention: Donald S. Brooks, Esq.
If to the Company: Sparta Pharmaceuticals, Inc.
111 Rock Road
Horsham, PA 19044-2307
Attention: Jerry B. Hook, Ph.D., President
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<PAGE>
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service, or (iv) if sent by registered
or certified mail, on the 5th business day following the day such mailing is
made.
17. Headings. The headings of this Warrant have been inserted
as a matter of convenience and shall not affect the construction hereof.
18. Applicable Law. This Warrant shall be governed by and
construed in accordance with the law of the State of Delaware without giving
effect to the principles of conflicts of law thereof.
19. Pronouns. All pronouns and any variations thereof used
herein shall be deemed to refer to the masculine, feminine, neuter, singular or
plural as the person or persons referred to may require.
20. Amendment. The Company and the Holder may by supplemental
agreement make any changes or corrections in this Warrant to cure any ambiguity
or to correct any defective or inconsistent provision or manifest mistake or
error herein contained or that they deem necessary or desirable and which shall
not adversely affect the interests of the then Holder(s) of the Warrant;
provided, however, that this Warrant shall not be otherwise modified,
supplemented or altered in any respect except with the consent in writing of the
Holder(s) of Warrants representing not less than 50% of the Warrants then
outstanding other than such changes specifically prescribed by this Warrant as
originally executed or made in compliance with applicable law.
21. Expiration. The right to exercise this Warrant shall
expire on 5:00 P.M., Eastern Standard Time, on December 4, 2002.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its President and its corporate seal to be hereunto affixed and
attested by its Secretary this 4th day of December, 1997.
SPARTA PHARMACEUTICALS, INC.
By:______________________________
President
ATTEST:
____________________
Secretary
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<PAGE>
[Corporate Seal]
SUBSCRIPTION
The undersigned, ___________________, pursuant to the
provisions of the foregoing Warrant, hereby agrees to subscribe for and purchase
____________________ shares (the "Warrant Shares") of the common stock, par
value $.001 per share, of Sparta Pharmaceuticals, Inc. covered by said Warrant,
and makes payment therefor in full at the price per share provided by said
Warrant.
(a) The undersigned represents that the address of the undersigned
furnished below is (i) the undersigned's principal residence if he or she is an
individual or (ii) the undersigned's principal business address if it is a
corporation, partnership or other entity.
(b) The undersigned (i) was not formed for the purpose of investing in
the Company, (ii) is acquiring the Warrant Shares for its own account for
investment and not with a view to or for resale in connection with any
distribution or resale of the Warrant Shares except in accordance with the
Securities Act of 1933, as amended (or any successor statute) (the "Securities
Act") and applicable state securities laws, and (iii) has not offered or sold
any portion of the Warrant Shares and has no present intention of dividing the
Warrant Shares with others or of selling, distributing or otherwise disposing of
any portion of the Warrant Shares either currently or after the passage of a
fixed or determinable period of time or upon the occurrence or non-occurrence of
any predetermined event or circumstance, except in accordance with the
Securities Act and applicable state securities laws.
(c) The undersigned understands that (i) the sale of the Warrant Shares
has not been registered under the Securities Act or any state securities law in
reliance upon an exemption therefrom for non-public or limited offerings, (ii)
the Warrant Shares must be held indefinitely unless the sale or other transfer
thereof is subsequently registered under the Act or an exemption from such
registration is available at the time, and (iii) the Company has no obligation
to register the Warrant Shares.
(d) The undersigned understands and agrees that the following
restrictions and limitations are applicable to its purchase and any resales,
pledges, hypothecations or other transfers of the Warrant Shares:
(i) The following legend (or a legend in substantially similar
form) will be placed on any certificate(s) or other document(s)
evidencing the Warrant Shares, and the undersigned for itself must
comply with the terms and conditions set forth in such legend prior to
any resales, pledges, hypothecations or other transfers of the Warrant
Shares:
"The securities represented by this certificate have not been
registered pursuant to the Securities Act of 1933, as amended
("Act"), or any state securities laws, and may not be sold,
pledged, hypothecated or otherwise transferred unless (A) the
stockholder wishing to transfer such securities provides an
opinion of counsel in form and substance satisfactory to
Sparta Pharmaceuticals, Inc. (the "Company") stating that the
proposed transfer of the Company's securities is exempt from
the registration provisions of all applicable federal and
state laws; or (B) said securities are registered pursuant to
the Act and all applicable state securities laws.
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<PAGE>
(ii) Stop transfer instructions have been or will be placed on
any certificates or other documents evidencing the Shares so as to
restrict the resale, pledge, hypothecation or other transfer thereof in
accordance with the provisions hereof.
(e) The undersigned's representations and warranties made herein shall
survive the execution and delivery hereof and of the Warrant Shares.
Dated:_______________ Signature:__________________________________
Address:____________________________________
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<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED _______________ hereby sells, assigns and
transfers unto ____________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer said Warrant on the books of Sparta
Pharmaceuticals, Inc.
Dated:_______________ Signature:__________________________________
Address:____________________________________
<PAGE>
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _______________ hereby assigns and
transfers unto ____________________ the right to purchase _______ shares of the
common stock, par value $.001 per share, of Sparta Pharmaceuticals, Inc. covered
by the foregoing Warrant, and a proportionate part of said Warrant and the
rights evidenced thereby, and does irrevocably constitute and appoint
____________________, attorney, to transfer that part of said Warrant on the
books of Sparta Pharmaceuticals, Inc.
Dated:_______________ Signature:__________________________________
Address:____________________________________
<PAGE>
EXHIBIT 10.98
-------------
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR ANY OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF
SUCH ACT. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO APPLICABLE STATE SECURITIES
LAWS.
SPARTA PHARMACEUTICALS, INC.
Warrant for the Purchase of Shares of
---------------------------------------
Common Stock, $.001 Par Value per Share
---------------------------------------
No. IRG-2 31,000 Shares
FOR VALUE RECEIVED, SPARTA PHARMACEUTICALS, INC., a Delaware
corporation (the "Company"), hereby certifies that Dian Griesel, Ph.D. or her
permitted assigns, is entitled to purchase from the Company, at any time or from
time to time commencing on December 9, 1997, (subject to the provisions of
Section 1(a)(ii) below) and prior to 5:00 P.M., New York City time, on December
8, 2002, Thirty-One Thousand (31,000) of fully paid and nonassessable shares of
the Common Stock, $.001 par value per share, of the Company, subject to
adjustment as provided below, for an aggregate purchase price of $13,020.00
($.42 per share). As used hereinafter, (i) said Common Stock, together with any
other equity securities which may be issued by the Company with respect thereto
or in substitution therefor, is referred to as the "Common Stock," (ii) the
shares of the Common Stock purchasable hereunder or under any other Warrant (as
hereinafter defined) are referred to as the "Warrant Shares," (iii) the
aggregate purchase price payable for the Warrant Shares hereunder is referred to
as the "Aggregate Warrant Price," (iv) the price payable for each of the Warrant
Shares hereunder is referred to as the "Per Share Warrant Price," (v) this
Warrant and all warrants hereafter issued in exchange or substitution for this
Warrant are referred to as the "Warrants" and (vi) the holder of this Warrant is
referred to as the "Holder" and the holder of this Warrant and all other
Warrants or Warrant Shares issued upon the exercise of any Warrant are referred
to as the "Holders." The Aggregate Warrant Price is not subject to adjustment.
The Per Share Warrant Price is subject to adjustment as hereinafter provided; in
the event of any such adjustment, the number of Warrant Shares shall be adjusted
by dividing the Aggregate Warrant Price by the Per Share Warrant Price in effect
immediately after such adjustment.
<PAGE>
1. Exercise of Warrant.
-------------------
(a) This Warrant may be exercised, in whole at any time or in
part from time to time by the Holder:
(i) commencing on December 9, 1997 and prior to 5:00 P.M., New
York City time, on December 8, 2002, by the surrender of this Warrant
(with the subscription form at the end hereof duly executed) at the
address set forth in Subsection 10(a) hereof, together with proper
payment of the Aggregate Warrant Price, or the proportionate part
thereof if this Warrant is exercised in part, with payment for Warrant
Shares made by certified or official bank check payable to the order of
the Company; or
(ii) commencing on December 9, 1997 and prior to 5:00 P.M.,
New York City time, on December 8, 2002, by the surrender of this
Warrant (with the Cashless Exercise form at the end hereof duly
executed) (a "Cashless Exercise") at the address set forth in
Subsection 10(a) hereof. Such presentation and surrender shall be
deemed a waiver of the Holder's obligation to pay the Aggregate Warrant
Price, or the proportionate part thereof if this Warrant is exercised
in part. In the event of a Cashless Exercise, the Holder shall exchange
its Warrant for that number of Warrant Shares subject to such Cashless
Exercise (the "Exercised Number of Warrant Shares") less that number of
Warrant Shares which, when multiplied by the then current market price
per share of Common Stock, equals the Per Share Warrant Price
multiplied by the Exercised Number of Warrant Shares. For purposes of
any computation under this Section 1(a)(ii) and Section 5, the then
current market price per share of Common Stock at any date (the "Market
Price") shall be deemed to be the last sale price of the Common Stock
on the business day prior to the date of the Cashless Exercise or, in
case no such reported sales take place on such day, the average of the
last reported bid and asked prices of the Common Stock on such day, in
either case on the principal national securities exchange on which the
Common Stock is admitted to trading or listed, or if not listed or
admitted to trading on any such exchange, the last sale price of the
Common Stock on the business day prior to the date of the Cashless
Exercise as reported by the NASDAQ Stock Market ("NASDAQ"), or other
similar organization if NASDAQ is no longer reporting such information,
or if not so available, the fair market price of the Common Stock as
determined by good faith by the Board of Directors. Notwithstanding
anything contained herein, the Holder hereof shall pay to the Company
upon exercise, in cash, an amount equal to the aggregate amount of the
par value of all Warrant Shares purchased upon the exercise of this
Warrant pursuant to a Cashless Exercise less the amount paid to the
Company in cash upon issuance of this Warrant.
(b) If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock, and the Holder is
entitled to receive a new Warrant covering the Warrant Shares which have not
been exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon surrender of this Warrant, the
Company will (i) issue a certificate or certificates in the name of the Holder
for the
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<PAGE>
largest number of whole shares of the Common Stock to which the Holder shall be
entitled and, if this Warrant is exercised in whole, in lieu of any fractional
share of the Common Stock to which the Holder shall be entitled, pay to the
Holder cash in an amount equal to the fair value of such fractional share
(determined in such reasonable manner as the Board of Directors of the Company
shall determine), and (ii) deliver the other securities and properties
receivable upon the exercise of this Warrant, or the proportionate part thereof
if this Warrant is exercised in part, pursuant to the provisions of this
Warrant.
2. Reservation of Warrant Shares; Listing. The Company agrees
that, prior to the expiration of this Warrant, the Company will at all times (a)
have authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock and
other securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on sale or
transfer and free and clear of all preemptive rights and rights of first
refusal; and (b) if the Company hereafter lists its Common Stock on any national
securities exchange, keep the shares of Common Stock receivable upon the
exercise of this Warrant authorized for listing on such exchange upon notice of
issuance.
3. Adjustments of Per Share Warrant Price.
--------------------------------------
(a) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of shares
(by a stock split or otherwise), (iii) combine its outstanding shares of Common
Stock into a smaller number of shares (by a reverse stock split or otherwise) or
(iv) issue by reclassification of its Common Stock any shares of capital stock
of the Company, the Per Share Warrant Price shall be adjusted so that the holder
upon the exercise hereof shall be entitled to receive the number of shares of
Common Stock or other capital stock of the Company which it would have owned
immediately following such action had such Warrant been exercised immediately
prior thereto. An adjustment made pursuant to this Subsection 3(a) shall become
effective on the record date in the case of a dividend or distribution and shall
become effective on the effective date in the case of a subdivision, combination
or reclassification.
(b) In case of any capital reorganization or reclassification,
or any consolidation or merger to which the Company is a party other than a
merger or consolidation in which the Company is the continuing corporation, or
in case of any sale or conveyance to another entity of the property of the
Company as an entirety or substantially as a entirety, or in the case of any
statutory exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third corporation into the
Company)(which consolidation, merger, sale, conveyance and statutory exchange is
referred to below as a "Sale"), the Holder of this Warrant shall have the right
thereafter to receive on the exercise of this Warrant the kind and amount of
securities, cash or other property which the Holder would have owned or have
been entitled to receive immediately after such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
had this Warrant been exercised immediately prior to the
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<PAGE>
effective date of such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance and in any such case, if necessary,
appropriate adjustment shall be made in the application of the provisions set
forth in this Section 3 with respect to the rights and interests thereafter of
the Holder of this Warrant to the end that the provisions set forth in this
Section 3 shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. The above
provisions of this Subsection 3(d) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, statutory
exchanges, sales or conveyances. The issuer of any shares of stock or other
securities or property thereafter deliverable on the exercise of this Warrant
shall be responsible for all of the agreements and obligations of the Company
hereunder. Notice of any such reorganization, reclassification, consolidation,
merger, statutory exchange, sale or conveyance and of said provisions so
proposed to be made, shall be mailed to the Holders of the Warrants not less
than 30 days prior to such event. A sale of all or substantially all of the
assets of the Company for a consideration consisting primarily of securities
shall be deemed a consolidation or merger for the foregoing purposes. In the
event of an anticipated Sale, the Company or the entity assuming the obligations
of the Company hereunder may (i) upon written notice to the Holders of all
outstanding Warrants, provide that all Warrants 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 Warrants shall terminate (but if and only if such
Sale shall be consummated); or (ii) terminate all Warrants in exchange for a
cash payment equal to the excess of the current market price of the Warrant
Shares subject to such Warrants (to the extent then exercisable) over the Per
Share Warrant Price thereof (but if and only if such Sale shall be consummated).
(c) If the Board of Directors of the Company shall declare any
dividend or other distribution with respect to the Common Stock other than a
cash distribution out of earned surplus, the Company shall mail notice thereof
to the Holders of the Warrants not less than 15 days prior to the record date
fixed for determining stockholders entitled to participate in such dividend or
other distribution.
(d) If, as a result of an adjustment made pursuant to this
Section 3, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in a
written notice to the Holder of any Warrant promptly after such adjustment)
shall determine the allocation of the adjusted Per Share Warrant Price between
or among shares or such classes of capital stock or shares of Common Stock and
other capital stock.
4. Fully Paid Stock; Taxes. The Company agrees that the shares
of the Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights or rights of first refusal, and the Company will take all
such actions as may be necessary to assure that the par value or stated
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<PAGE>
value, if any, per share of the Common Stock is at all times equal to or less
than the then Per Share Warrant Price. The Company further covenants and agrees
that it will pay, when due and payable, any and all Federal and state stamp,
original issue or similar taxes which may be payable in respect of the issue of
any Warrant Share or any certificate thereof.
5. Registration Rights.
-------------------
(a) If at any time the Company shall determine to register any
of its securities, either for its own account or the account of security
holders, other than a registration statement relating solely to employee benefit
plans or a registration on Form S-4 relating solely to an SEC Rule 145
transaction, the Company will:
(i) promptly give to each Holder written notice
thereof (which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable blue sky
or other state securities laws);
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance) and in any underwriting
involved therein, all of the Warrant Shares specified in a written request or
requests, made within 20 days after receipt of such written notice from the
Company, by any Holder or Holders,except as set forth in subparagraph
5(b) below.
(b) If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to
subparagraph 5(a)(i). In such event the right of any Holder to registration
pursuant to this paragraph 5 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's Warrant
Shares in the underwriting to the extent provided herein. All Holders proposing
to distribute their securities through such underwriting shall, together with
the Company and any other parties distributing their securities through such
underwriting, enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of this paragraph 5, if the underwriter
determines that marketing factors require a limitation of the number of shares
to be underwritten, the underwriter may limit or eliminate the Warrant Shares to
be included in the registration and underwriting.
6. Limited Transferability. This Warrant may not be sold,
transferred, assigned or hypothecated by the Holder except in compliance with
the provisions of the Securities Act of 1933, as amended (or any successor
legislation), and is so transferable only upon the books of the Company which it
shall cause to be maintained for such purpose. The Company may treat the
registered Holder of this Warrant as it appears on the Company's books at any
time as the Holder for all purposes. All warrants issued upon the transfer or
assignment of this Warrant will be dated the same date as this Warrant, and all
rights of the Holder thereof shall be identical to those of the Holder.
- 5 -
<PAGE>
7. Loss, etc., of Warrant. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and of indemnity reasonably satisfactory to the Company, if lost,
stolen or destroyed, and upon surrender and cancellation of this Warrant, if
mutilated, the Company shall execute and deliver to the Holder a new Warrant of
like date, tenor and denomination.
8. Warrant Holder Not Shareholder. Except as otherwise
provided herein, this Warrant does not confer upon the Holder any right to vote
or to consent to or receive notice as a stockholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
stockholder, prior to the exercise hereof.
9. Covenants of Warrant Holder. By acceptance of this Warrant,
the Holder is hereby deemed to covenant and agree with the Company that it is
acquiring this Warrant as an investment and not with a view to distribution
hereof. The holder of this Warrant or any Warrant Shares may transfer this
Warrant or such Warrant Shares only pursuant to applicable Federal and state
laws. Each registered Holder of this Warrant acknowledges that this Warrant has
not been registered under the Securities Act and agrees not to sell, pledge,
distribute, offer for sale, transfer or otherwise dispose of this Warrant or any
Warrant Shares issued upon its exercise in the absence of (i) an effective
registration statement as to this Warrant or such Warrant Shares under the
Securities Act, or (ii) an opinion of counsel reasonably acceptable to the
Company to the effect that such registration is not, under the circumstances,
required. In addition, in order for any transferee of this Warrant or any
Warrant Shares to receive any of the benefits of this Warrant or the Warrant
Shares, as the case may be, the Company must have received notice of such
transfer, at the address set forth in Section 10 below, in the form of
assignment or partial assignment attached hereto. Any transferee other than
pursuant to an effective registration statement under the Securities Act or
pursuant to Rule 144 promulgated under the Securities Act must also covenant and
agree that it is acquiring this Warrant or such Warrant Shares as an investment
and not with a view to distribution hereof or thereof, except in accordance with
the Securities Act and applicable state securities law.
10. Communication. All notices, requests, consents and demands
shall be made in writing and shall be mailed postage prepaid, or delivered by
hand, to the Company or to the Holder thereof at their respective addresses set
forth below or to such other address as may be furnished in writing to the other
party hereto:
If to the Holder: Dian Griesel, Ph.D.
President
The Investor Relations Group
117 West 57th Street, PH 6b
New York, NY 10019
If to the Company: Sparta Pharmaceuticals, Inc.
111 Rock Road
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<PAGE>
Horsham, PA 19044-2307
Attention: Jerry B. Hook, Ph.D., President
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service, or (iv) if sent by registered
or certified mail, on the 5th business day following the day such mailing is
made.
11. Headings. The headings of this Warrant have been inserted
as a matter of convenience and shall not affect the construction hereof.
12. Applicable Law. This Warrant shall be governed by and
construed in accordance with the law of the State of Delaware without giving
effect to the principles of conflicts of law thereof.
13. Pronouns. All pronouns and any variations thereof used
herein shall be deemed to refer to the masculine, feminine, neuter, singular or
plural as the person or persons referred to may require.
14. Amendment. The terms of this Warrant and the Warrants may
be amended or waiver of compliance of any term hereof or thereof may be obtained
by the Company pursuant to the terms of the Warrant Purchase Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its President and its corporate seal to be hereunto affixed and
attested by its Secretary this 9th day of December, 1997.
SPARTA PHARMACEUTICALS, INC.
By:___________________________
President
ATTEST:
- -------------------
Secretary
[Corporate Seal]
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<PAGE>
SUBSCRIPTION
------------
The undersigned, ___________________, pursuant to the
provisions of the foregoing Warrant, hereby agrees to subscribe for and purchase
____________________ shares (the "Warrant Shares") of the common stock, par
value $.001 per share, of Sparta Pharmaceuticals, Inc. covered by said Warrant,
and makes payment therefor in full at the price per share provided by said
Warrant.
(a) The undersigned represents that the address of the undersigned
furnished below is (i) the undersigned's principal residence if he or she is an
individual or (ii) the undersigned's principal business address if it is a
corporation, partnership or other entity.
(b) The undersigned (i) was not formed for the purpose of investing in
the Company, (ii) is acquiring the Warrant Shares for its own account for
investment and not with a view to or for resale in connection with any
distribution or resale of the Warrant Shares except in accordance with the
Securities Act of 1933, as amended (or any successor statute) (the "Securities
Act") and applicable state securities laws, and (iii) has not offered or sold
any portion of the Warrant Shares and has no present intention of dividing the
Warrant Shares with others or of selling, distributing or otherwise disposing of
any portion of the Warrant Shares either currently or after the passage of a
fixed or determinable period of time or upon the occurrence or non-occurrence of
any predetermined event or circumstance, except in accordance with the
Securities Act and applicable state securities laws.
(c) The undersigned understands that (i) the sale of the Warrant Shares
has not been registered under the Securities Act or any state securities law in
reliance upon an exemption therefrom for non-public or limited offerings, (ii)
the Warrant Shares must be held indefinitely unless the sale or other transfer
thereof is subsequently registered under the Act or an exemption from such
registration is available at the time, and (iii) the Company has no obligation
to register the Warrant Shares.
(d) The undersigned understands and agrees that the following
restrictions and limitations are applicable to its purchase and any resales,
pledges, hypothecations or other transfers of the Warrant Shares:
(i) The following legend (or a legend in substantially similar
form) will be placed on any certificate(s) or other document(s)
evidencing the Warrant Shares, and the undersigned for itself must
comply with the terms and conditions set forth in such legend prior to
any resales, pledges, hypothecations or other transfers of the Warrant
Shares:
"The securities represented by this certificate have not been
registered pursuant to the Securities Act of 1933, as amended
("Act"), or any state securities laws, and may not be sold,
pledged, hypothecated or otherwise transferred unless (A) the
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<PAGE>
stockholder wishing to transfer such securities provides an
opinion of counsel in form and substance satisfactory to
Sparta Pharmaceuticals, Inc. (the "Company") stating that the
proposed transfer of the Company's securities is exempt from
the registration provisions of all applicable federal and
state laws; or (B) said securities are registered pursuant to
the Act and all applicable state securities laws.
(ii) Stop transfer instructions have been or will be placed on
any certificates or other documents evidencing the Shares so as to
restrict the resale, pledge, hypothecation or other transfer thereof in
accordance with the provisions hereof.
(e) The undersigned's representations and warranties made herein shall
survive the execution and delivery hereof and of the Warrant Shares.
Dated:_______________ Signature:__________________________________
Address:___________________________________
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<PAGE>
CASHLESS EXERCISE
-----------------
The undersigned ___________________, pursuant to the
provisions of the foregoing Warrant, hereby elects to exchange its Warrant for
___________________ shares (the "Warrant Shares") of common stock, par value
$.001 per share, of Sparta Pharmaceuticals, Inc. pursuant to the Cashless
Exercise provisions of the Warrant.
(a) The undersigned represents that the address of the undersigned
furnished below is (i) the undersigned's principal residence if he or she is an
individual or (ii) the undersigned's principal business address if it is a
corporation, partnership or other entity.
(b) The undersigned (i) was not formed for the purpose of investing in
the Company, (ii) is acquiring the Warrant Shares for its own account for
investment and not with a view to or for resale in connection with any
distribution or resale of the Warrant Shares except in accordance with the
Securities Act of 1933, as amended (or any successor statute) (the "Securities
Act") and applicable state securities laws, and (iii) has not offered or sold
any portion of the Warrant Shares and has no present intention of dividing the
Warrant Shares with others or of selling, distributing or otherwise disposing of
any portion of the Warrant Shares either currently or after the passage of a
fixed or determinable period of time or upon the occurrence or non-occurrence of
any predetermined event or circumstance, except in accordance with the
Securities Act and applicable state securities laws.
(c) The undersigned understands that (i) the sale of the Warrant Shares
has not been registered under the Securities Act or any state securities law in
reliance upon an exemption therefrom for non-public or limited offerings, (ii)
the Warrant Shares must be held indefinitely unless the sale or other transfer
thereof is subsequently registered under the Act or an exemption from such
registration is available at the time, and (iii) the Company has no obligation
to register the Warrant Shares.
(d) The undersigned understands and agrees that the following
restrictions and limitations are applicable to its purchase and any resales,
pledges, hypothecations or other transfers of the Warrant Shares:
(i) The following legend (or a legend in substantially similar
form) will be placed on any certificate(s) or other document(s)
evidencing the Warrant Shares, and the undersigned for itself must
comply with the terms and conditions set forth in such legend prior to
any resales, pledges, hypothecations or other transfers of the Warrant
Shares:
"The securities represented by this certificate have not been
registered pursuant to the Securities Act of 1933, as amended
("Act"), or any state securities laws, and may not be sold,
pledged, hypothecated or otherwise transferred unless (A) the
stockholder wishing to transfer such securities provides an
opinion of counsel in
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<PAGE>
form and substance satisfactory to Sparta Pharmaceuticals,
Inc. (the "Company") stating that the proposed transfer of the
Company's securities is exempt from the registration
provisions of all applicable federal and state laws; or (B)
said securities are registered pursuant to the Act and all
applicable state securities laws.
(ii) Stop transfer instructions have been or will be placed on
any certificates or other documents evidencing the Shares so as to
restrict the resale, pledge, hypothecation or other transfer thereof in
accordance with the provisions hereof.
(e) The undersigned's representations and warranties made herein shall
survive the execution and delivery hereof and of the Warrant Shares.
Dated:_______________ Signature:________________________________
Address:__________________________________
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<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED _______________ hereby sells, assigns and
transfers unto ____________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer said Warrant on the books of Sparta
Pharmaceuticals, Inc.
Dated:_______________ Signature:__________________________________
Address:___________________________________
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<PAGE>
PARTIAL ASSIGNMENT
------------------
FOR VALUE RECEIVED _______________ hereby assigns and
transfers unto ____________________ the right to purchase _______ shares of the
common stock, par value $.001 per share, of Sparta Pharmaceuticals, Inc. covered
by the foregoing Warrant, and a proportionate part of said Warrant and the
rights evidenced thereby, and does irrevocably constitute and appoint
____________________, attorney, to transfer that part of said Warrant on the
books of Sparta Pharmaceuticals, Inc.
Dated:_______________ Signature:______________________________
Address:________________________________
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<PAGE>
EXHIBIT 10.99
-------------
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR ANY OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF
SUCH ACT. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO APPLICABLE STATE SECURITIES
LAWS.
SPARTA PHARMACEUTICALS, INC.
Warrant for the Purchase of Shares of
---------------------------------------
Common Stock, $.001 Par Value per Share
---------------------------------------
No. IRG-3 4,000 Shares
FOR VALUE RECEIVED, SPARTA PHARMACEUTICALS, INC., a Delaware
corporation (the "Company"), hereby certifies that Jacqueline Resto, or her
permitted assigns, is entitled to purchase from the Company, at any time or from
time to time commencing on December 9, 1997, (subject to the provisions of
Section 1(a)(ii) below) and prior to 5:00 P.M., New York City time, on December
8, 2002, Four Thousand (4,000) of fully paid and nonassessable shares of the
Common Stock, $.001 par value per share, of the Company, subject to adjustment
as provided below, for an aggregate purchase price of $1,680.00 ($.42 per
share). As used hereinafter, (i) said Common Stock, together with any other
equity securities which may be issued by the Company with respect thereto or in
substitution therefor, is referred to as the "Common Stock," (ii) the shares of
the Common Stock purchasable hereunder or under any other Warrant (as
hereinafter defined) are referred to as the "Warrant Shares," (iii) the
aggregate purchase price payable for the Warrant Shares hereunder is referred to
as the "Aggregate Warrant Price," (iv) the price payable for each of the Warrant
Shares hereunder is referred to as the "Per Share Warrant Price," (v) this
Warrant and all warrants hereafter issued in exchange or substitution for this
Warrant are referred to as the "Warrants" and (vi) the holder of this Warrant is
referred to as the "Holder" and the holder of this Warrant and all other
Warrants or Warrant Shares issued upon the exercise of any Warrant are referred
to as the "Holders." The Aggregate Warrant Price is not subject to adjustment.
The Per Share Warrant Price is subject to adjustment as hereinafter provided; in
the event of any such adjustment, the number of Warrant Shares shall be adjusted
by dividing the Aggregate Warrant Price by the Per Share Warrant Price in effect
immediately after such adjustment.
<PAGE>
1. Exercise of Warrant.
-------------------
(a) This Warrant may be exercised, in whole at any time or in
part from time to time by the Holder:
(i) commencing on December 9, 1997 and prior to 5:00 P.M., New
York City time, on December 8, 2002, by the surrender of this Warrant
(with the subscription form at the end hereof duly executed) at the
address set forth in Subsection 10(a) hereof, together with proper
payment of the Aggregate Warrant Price, or the proportionate part
thereof if this Warrant is exercised in part, with payment for Warrant
Shares made by certified or official bank check payable to the order of
the Company; or
(ii) commencing on December 9, 1997 and prior to 5:00 P.M.,
New York City time, on December 8, 2002, by the surrender of this
Warrant (with the Cashless Exercise form at the end hereof duly
executed) (a "Cashless Exercise") at the address set forth in
Subsection 10(a) hereof. Such presentation and surrender shall be
deemed a waiver of the Holder's obligation to pay the Aggregate Warrant
Price, or the proportionate part thereof if this Warrant is exercised
in part. In the event of a Cashless Exercise, the Holder shall exchange
its Warrant for that number of Warrant Shares subject to such Cashless
Exercise (the "Exercised Number of Warrant Shares") less that number of
Warrant Shares which, when multiplied by the then current market price
per share of Common Stock, equals the Per Share Warrant Price
multiplied by the Exercised Number of Warrant Shares. For purposes of
any computation under this Section 1(a)(ii) and Section 5, the then
current market price per share of Common Stock at any date (the "Market
Price") shall be deemed to be the last sale price of the Common Stock
on the business day prior to the date of the Cashless Exercise or, in
case no such reported sales take place on such day, the average of the
last reported bid and asked prices of the Common Stock on such day, in
either case on the principal national securities exchange on which the
Common Stock is admitted to trading or listed, or if not listed or
admitted to trading on any such exchange, the last sale price of the
Common Stock on the business day prior to the date of the Cashless
Exercise as reported by the NASDAQ Stock Market ("NASDAQ"), or other
similar organization if NASDAQ is no longer reporting such information,
or if not so available, the fair market price of the Common Stock as
determined by good faith by the Board of Directors. Notwithstanding
anything contained herein, the Holder hereof shall pay to the Company
upon exercise, in cash, an amount equal to the aggregate amount of the
par value of all Warrant Shares purchased upon the exercise of this
Warrant pursuant to a Cashless Exercise less the amount paid to the
Company in cash upon issuance of this Warrant.
(b) If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock, and the Holder is
entitled to receive a new Warrant covering the Warrant Shares which have not
been exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon surrender of this Warrant, the
Company will (i) issue a certificate or certificates in the name of the Holder
for the
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<PAGE>
largest number of whole shares of the Common Stock to which the Holder shall be
entitled and, if this Warrant is exercised in whole, in lieu of any fractional
share of the Common Stock to which the Holder shall be entitled, pay to the
Holder cash in an amount equal to the fair value of such fractional share
(determined in such reasonable manner as the Board of Directors of the Company
shall determine), and (ii) deliver the other securities and properties
receivable upon the exercise of this Warrant, or the proportionate part thereof
if this Warrant is exercised in part, pursuant to the provisions of this
Warrant.
2. Reservation of Warrant Shares; Listing. The Company agrees
that, prior to the expiration of this Warrant, the Company will at all times (a)
have authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock and
other securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on sale or
transfer and free and clear of all preemptive rights and rights of first
refusal; and (b) if the Company hereafter lists its Common Stock on any national
securities exchange, keep the shares of Common Stock receivable upon the
exercise of this Warrant authorized for listing on such exchange upon notice of
issuance.
3. Adjustments of Per Share Warrant Price.
--------------------------------------
(a) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of shares
(by a stock split or otherwise), (iii) combine its outstanding shares of Common
Stock into a smaller number of shares (by a reverse stock split or otherwise) or
(iv) issue by reclassification of its Common Stock any shares of capital stock
of the Company, the Per Share Warrant Price shall be adjusted so that the holder
upon the exercise hereof shall be entitled to receive the number of shares of
Common Stock or other capital stock of the Company which it would have owned
immediately following such action had such Warrant been exercised immediately
prior thereto. An adjustment made pursuant to this Subsection 3(a) shall become
effective on the record date in the case of a dividend or distribution and shall
become effective on the effective date in the case of a subdivision, combination
or reclassification.
(b) In case of any capital reorganization or reclassification,
or any consolidation or merger to which the Company is a party other than a
merger or consolidation in which the Company is the continuing corporation, or
in case of any sale or conveyance to another entity of the property of the
Company as an entirety or substantially as a entirety, or in the case of any
statutory exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third corporation into the
Company)(which consolidation, merger, sale, conveyance and statutory exchange is
referred to below as a "Sale"), the Holder of this Warrant shall have the right
thereafter to receive on the exercise of this Warrant the kind and amount of
securities, cash or other property which the Holder would have owned or have
been entitled to receive immediately after such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
had this Warrant been exercised immediately prior to the
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<PAGE>
effective date of such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance and in any such case, if necessary,
appropriate adjustment shall be made in the application of the provisions set
forth in this Section 3 with respect to the rights and interests thereafter of
the Holder of this Warrant to the end that the provisions set forth in this
Section 3 shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. The above
provisions of this Subsection 3(d) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, statutory
exchanges, sales or conveyances. The issuer of any shares of stock or other
securities or property thereafter deliverable on the exercise of this Warrant
shall be responsible for all of the agreements and obligations of the Company
hereunder. Notice of any such reorganization, reclassification, consolidation,
merger, statutory exchange, sale or conveyance and of said provisions so
proposed to be made, shall be mailed to the Holders of the Warrants not less
than 30 days prior to such event. A sale of all or substantially all of the
assets of the Company for a consideration consisting primarily of securities
shall be deemed a consolidation or merger for the foregoing purposes. In the
event of an anticipated Sale, the Company or the entity assuming the obligations
of the Company hereunder may (i) upon written notice to the Holders of all
outstanding Warrants, provide that all Warrants 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 Warrants shall terminate (but if and only if such
Sale shall be consummated); or (ii) terminate all Warrants in exchange for a
cash payment equal to the excess of the current market price of the Warrant
Shares subject to such Warrants (to the extent then exercisable) over the Per
Share Warrant Price thereof (but if and only if such Sale shall be consummated).
(c) If the Board of Directors of the Company shall declare any
dividend or other distribution with respect to the Common Stock other than a
cash distribution out of earned surplus, the Company shall mail notice thereof
to the Holders of the Warrants not less than 15 days prior to the record date
fixed for determining stockholders entitled to participate in such dividend or
other distribution.
(d) If, as a result of an adjustment made pursuant to this
Section 3, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in a
written notice to the Holder of any Warrant promptly after such adjustment)
shall determine the allocation of the adjusted Per Share Warrant Price between
or among shares or such classes of capital stock or shares of Common Stock and
other capital stock.
4. Fully Paid Stock; Taxes. The Company agrees that the shares
of the Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights or rights of first refusal, and the Company will take all
such actions as may be necessary to assure that the par value or stated
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<PAGE>
value, if any, per share of the Common Stock is at all times equal to or less
than the then Per Share Warrant Price. The Company further covenants and agrees
that it will pay, when due and payable, any and all Federal and state stamp,
original issue or similar taxes which may be payable in respect of the issue of
any Warrant Share or any certificate thereof.
5. Registration Rights.
-------------------
(a) If at any time the Company shall determine to register any
of its securities, either for its own account or the account of security
holders, other than a registration statement relating solely to employee benefit
plans or a registration on Form S-4 relating solely to an SEC Rule 145
transaction, the Company will:
(i) promptly give to each Holder written notice
thereof (which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable blue sky or
other state securities laws);
(ii) include in such registration ( and any related
qualification under blue sky laws or other compliance) and in any underwriting
involved therein, all of the Warrant Shares specified in a written request or
requests, made within 20 days after receipt of such written notice from the
Company, by any Holder or Holders, except as set forth in subparagraph 5(b)
below.
(b) If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to
subparagraph 5(a)(i). In such event the right of any Holder to registration
pursuant to this paragraph 5 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's Warrant
Shares in the underwriting to the extent provided herein. All Holders proposing
to distribute their securities through such underwriting shall, together with
the Company and any other parties distributing their securities through such
underwriting, enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of this paragraph 5, if the underwriter
determines that marketing factors require a limitation of the number of shares
to be underwritten, the underwriter may limit or eliminate the Warrant Shares to
be included in the registration and underwriting.
6. Limited Transferability. This Warrant may not be sold,
transferred, assigned or hypothecated by the Holder except in compliance with
the provisions of the Securities Act of 1933, as amended (or any successor
legislation), and is so transferable only upon the books of the Company which it
shall cause to be maintained for such purpose. The Company may treat the
registered Holder of this Warrant as it appears on the Company's books at any
time as the Holder for all purposes. All warrants issued upon the transfer or
assignment of this Warrant will be dated the same date as this Warrant, and all
rights of the Holder thereof shall be identical to those of the Holder.
- 5 -
<PAGE>
7. Loss, etc., of Warrant. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and of indemnity reasonably satisfactory to the Company, if lost,
stolen or destroyed, and upon surrender and cancellation of this Warrant, if
mutilated, the Company shall execute and deliver to the Holder a new Warrant of
like date, tenor and denomination.
8. Warrant Holder Not Shareholder. Except as otherwise
provided herein, this Warrant does not confer upon the Holder any right to vote
or to consent to or receive notice as a stockholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
stockholder, prior to the exercise hereof.
9. Covenants of Warrant Holder. By acceptance of this Warrant,
the Holder is hereby deemed to covenant and agree with the Company that it is
acquiring this Warrant as an investment and not with a view to distribution
hereof. The holder of this Warrant or any Warrant Shares may transfer this
Warrant or such Warrant Shares only pursuant to applicable Federal and state
laws. Each registered Holder of this Warrant acknowledges that this Warrant has
not been registered under the Securities Act and agrees not to sell, pledge,
distribute, offer for sale, transfer or otherwise dispose of this Warrant or any
Warrant Shares issued upon its exercise in the absence of (i) an effective
registration statement as to this Warrant or such Warrant Shares under the
Securities Act, or (ii) an opinion of counsel reasonably acceptable to the
Company to the effect that such registration is not, under the circumstances,
required. In addition, in order for any transferee of this Warrant or any
Warrant Shares to receive any of the benefits of this Warrant or the Warrant
Shares, as the case may be, the Company must have received notice of such
transfer, at the address set forth in Section 10 below, in the form of
assignment or partial assignment attached hereto. Any transferee other than
pursuant to an effective registration statement under the Securities Act or
pursuant to Rule 144 promulgated under the Securities Act must also covenant and
agree that it is acquiring this Warrant or such Warrant Shares as an investment
and not with a view to distribution hereof or thereof, except in accordance with
the Securities Act and applicable state securities law.
10. Communication. All notices, requests, consents and demands
shall be made in writing and shall be mailed postage prepaid, or delivered by
hand, to the Company or to the Holder thereof at their respective addresses set
forth below or to such other address as may be furnished in writing to the other
party hereto:
If to the Holder: Jacqueline Resto
The Investor Relations Group
117 West 57th Street, PH 6b
New York, NY 10019
If to the Company: Sparta Pharmaceuticals, Inc.
111 Rock Road
Horsham, PA 19044-2307
Attention: Jerry B. Hook, Ph.D., President
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<PAGE>
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service, or (iv) if sent by registered
or certified mail, on the 5th business day following the day such mailing is
made.
11. Headings. The headings of this Warrant have been inserted
as a matter of convenience and shall not affect the construction hereof.
12. Applicable Law. This Warrant shall be governed by and
construed in accordance with the law of the State of Delaware without giving
effect to the principles of conflicts of law thereof.
13. Pronouns. All pronouns and any variations thereof used
herein shall be deemed to refer to the masculine, feminine, neuter, singular or
plural as the person or persons referred to may require.
14. Amendment. The terms of this Warrant and the Warrants may
be amended or waiver of compliance of any term hereof or thereof may be obtained
by the Company pursuant to the terms of the Warrant Purchase Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its President and its corporate seal to be hereunto affixed and
attested by its Secretary this 9th day of December, 1997.
SPARTA PHARMACEUTICALS, INC.
By:______________________________
President
ATTEST:
- -------------------
Secretary
[Corporate Seal]
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<PAGE>
SUBSCRIPTION
------------
The undersigned, ___________________, pursuant to the
provisions of the foregoing Warrant, hereby agrees to subscribe for and purchase
____________________ shares (the "Warrant Shares") of the common stock, par
value $.001 per share, of Sparta Pharmaceuticals, Inc. covered by said Warrant,
and makes payment therefor in full at the price per share provided by said
Warrant.
(a) The undersigned represents that the address of the undersigned
furnished below is (i) the undersigned's principal residence if he or she is an
individual or (ii) the undersigned's principal business address if it is a
corporation, partnership or other entity.
(b) The undersigned (i) was not formed for the purpose of investing in
the Company, (ii) is acquiring the Warrant Shares for its own account for
investment and not with a view to or for resale in connection with any
distribution or resale of the Warrant Shares except in accordance with the
Securities Act of 1933, as amended (or any successor statute) (the "Securities
Act") and applicable state securities laws, and (iii) has not offered or sold
any portion of the Warrant Shares and has no present intention of dividing the
Warrant Shares with others or of selling, distributing or otherwise disposing of
any portion of the Warrant Shares either currently or after the passage of a
fixed or determinable period of time or upon the occurrence or non-occurrence of
any predetermined event or circumstance, except in accordance with the
Securities Act and applicable state securities laws.
(c) The undersigned understands that (i) the sale of the Warrant Shares
has not been registered under the Securities Act or any state securities law in
reliance upon an exemption therefrom for non-public or limited offerings, (ii)
the Warrant Shares must be held indefinitely unless the sale or other transfer
thereof is subsequently registered under the Act or an exemption from such
registration is available at the time, and (iii) the Company has no obligation
to register the Warrant Shares.
(d) The undersigned understands and agrees that the following
restrictions and limitations are applicable to its purchase and any resales,
pledges, hypothecations or other transfers of the Warrant Shares:
(i) The following legend (or a legend in substantially similar
form) will be placed on any certificate(s) or other document(s)
evidencing the Warrant Shares, and the undersigned for itself must
comply with the terms and conditions set forth in such legend prior to
any resales, pledges, hypothecations or other transfers of the Warrant
Shares:
"The securities represented by this certificate have not been
registered pursuant to the Securities Act of 1933, as amended
("Act"), or any state securities laws, and may not be sold,
pledged, hypothecated or otherwise transferred unless (A) the
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<PAGE>
stockholder wishing to transfer such securities provides an
opinion of counsel in form and substance satisfactory to
Sparta Pharmaceuticals, Inc. (the "Company") stating that the
proposed transfer of the Company's securities is exempt from
the registration provisions of all applicable federal and
state laws; or (B) said securities are registered pursuant to
the Act and all applicable state securities laws.
(ii) Stop transfer instructions have been or will be placed on
any certificates or other documents evidencing the Shares so as to
restrict the resale, pledge, hypothecation or other transfer thereof in
accordance with the provisions hereof.
(e) The undersigned's representations and warranties made herein shall
survive the execution and delivery hereof and of the Warrant Shares.
Dated:_______________ Signature:__________________________________
Address:____________________________________
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<PAGE>
CASHLESS EXERCISE
-----------------
The undersigned ___________________, pursuant to the
provisions of the foregoing Warrant, hereby elects to exchange its Warrant for
___________________ shares (the "Warrant Shares") of common stock, par value
$.001 per share, of Sparta Pharmaceuticals, Inc. pursuant to the Cashless
Exercise provisions of the Warrant.
(a) The undersigned represents that the address of the undersigned
furnished below is (i) the undersigned's principal residence if he or she is an
individual or (ii) the undersigned's principal business address if it is a
corporation, partnership or other entity.
(b) The undersigned (i) was not formed for the purpose of investing in
the Company, (ii) is acquiring the Warrant Shares for its own account for
investment and not with a view to or for resale in connection with any
distribution or resale of the Warrant Shares except in accordance with the
Securities Act of 1933, as amended (or any successor statute) (the "Securities
Act") and applicable state securities laws, and (iii) has not offered or sold
any portion of the Warrant Shares and has no present intention of dividing the
Warrant Shares with others or of selling, distributing or otherwise disposing of
any portion of the Warrant Shares either currently or after the passage of a
fixed or determinable period of time or upon the occurrence or non-occurrence of
any predetermined event or circumstance, except in accordance with the
Securities Act and applicable state securities laws.
(c) The undersigned understands that (i) the sale of the Warrant Shares
has not been registered under the Securities Act or any state securities law in
reliance upon an exemption therefrom for non-public or limited offerings, (ii)
the Warrant Shares must be held indefinitely unless the sale or other transfer
thereof is subsequently registered under the Act or an exemption from such
registration is available at the time, and (iii) the Company has no obligation
to register the Warrant Shares.
(d) The undersigned understands and agrees that the following
restrictions and limitations are applicable to its purchase and any resales,
pledges, hypothecations or other transfers of the Warrant Shares:
(i) The following legend (or a legend in substantially similar
form) will be placed on any certificate(s) or other document(s)
evidencing the Warrant Shares, and the undersigned for itself must
comply with the terms and conditions set forth in such legend prior to
any resales, pledges, hypothecations or other transfers of the Warrant
Shares:
"The securities represented by this certificate have not been
registered pursuant to the Securities Act of 1933, as amended
("Act"), or any state securities laws, and may not be sold,
pledged, hypothecated or otherwise transferred unless (A) the
stockholder wishing to transfer such securities provides an
opinion of counsel in
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<PAGE>
form and substance satisfactory to Sparta Pharmaceuticals,
Inc. (the "Company") stating that the proposed transfer of the
Company's securities is exempt from the registration
provisions of all applicable federal and state laws; or (B)
said securities are registered pursuant to the Act and all
applicable state securities laws.
(ii) Stop transfer instructions have been or will be placed on
any certificates or other documents evidencing the Shares so as to
restrict the resale, pledge, hypothecation or other transfer thereof in
accordance with the provisions hereof.
(e) The undersigned's representations and warranties made herein shall
survive the execution and delivery hereof and of the Warrant Shares.
Dated:_______________ Signature:_______________________
Address:_________________________
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<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED _______________ hereby sells, assigns and
transfers unto ____________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer said Warrant on the books of Sparta
Pharmaceuticals, Inc.
Dated:_______________ Signature:_______________________
Address:_________________________
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<PAGE>
PARTIAL ASSIGNMENT
------------------
FOR VALUE RECEIVED _______________ hereby assigns and
transfers unto ____________________ the right to purchase _______ shares of the
common stock, par value $.001 per share, of Sparta Pharmaceuticals, Inc. covered
by the foregoing Warrant, and a proportionate part of said Warrant and the
rights evidenced thereby, and does irrevocably constitute and appoint
____________________, attorney, to transfer that part of said Warrant on the
books of Sparta Pharmaceuticals, Inc.
Dated:_______________ Signature:________________________________
Address:__________________________________
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<PAGE>
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. ANY SUCH TRANSFER MAY ALSO BE
SUBJECT TO APPLICABLE STATE SECURITIES LAWS.
SPARTA PHARMACEUTICALS, INC.
Warrant for the Purchase of Shares of
---------------------------------------
Common Stock, $.001 Par Value per Share
---------------------------------------
No. PCI-1 500,000 Shares
FOR VALUE RECEIVED, SPARTA PHARMACEUTICALS, INC., a Delaware
corporation (the "Company"), hereby certifies that PARAMOUNT CAPITAL
INVESTMENTS, LLC, ("Paramount"), or its permitted assigns, is entitled to
purchase from the Company, at the times set forth in Section 1 below, and prior
to 5:00 P.M., New York City time, on December 4, 2002, Five Hundred Thousand
(500,000) fully paid and nonassessable shares of the Common Stock, $.001 par
value per share, of the Company, subject to the conditions set forth in Section
1 below and subject to adjustment as provided in Section 3 below, for an
aggregate purchase price of Two Hundred Eighteen Thousand Seven Hundred and
Fifty Dollars ($218,750) ($.4375 per share). As used hereinafter, (a) the term
"Common Stock" means the Company's Common Stock, $.001 par value, (b) the term
"Other Securities" refers to any stock (other than Common Stock) and other
securities of the Company or any other entity (corporate or otherwise) (i) which
the holder of this Warrant at any time shall be entitled to receive, or shall
have received, on the exercise of this Warrant, in lieu of or in addition to
Common Stock, or (ii) which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or Other Securities, in
each case pursuant to Section 3 hereof; (c) the shares of the Common Stock and
Other Securities purchasable hereunder or under any other Warrant (as
hereinafter defined) are referred to as the "Warrant Shares"; (d) the aggregate
purchase price payable for the Warrant Shares hereunder is referred to as the
"Aggregate Warrant Price"; (e) the price payable for each of the Warrant Shares
hereunder is referred to as the "Per Share Warrant Price," (f) this Warrant and
all warrants hereafter issued in exchange or substitution for this Warrant are
referred to as the "Warrants" and (g) the holder of this Warrant is referred to
as the "Holder" and the holder of this Warrant and all other Warrants or Warrant
Shares issued upon the exercise of any Warrant are referred to as the "Holders."
The Aggregate Warrant Price is not subject to adjustment. The Per Share Warrant
Price is subject to adjustment as hereinafter provided; in the event of any such
<PAGE>
adjustment, the number of Warrant Shares shall be adjusted by dividing the
Aggregate Warrant Price by the Per Share Warrant Price in effect immediately
after such adjustment.
I. Exercise of Warrant.
--------------------
This Warrant may be exercised, in whole at any time or in part from
time to time by the Holder as more fully detailed below:
A. This Warrant may be exercised immediately for 200,000 shares
of Common Stock, in whole at any time or in part from time to
time by the Holder, and prior to 5:00 P.M., New York City
time, on December 4, 2002.
B. This Warrant may be exercised for an additional 200,000
shares of Common Stock, in whole at any time or in part from
time to time by the Holder, upon receipt of written notice or
public announcement from the Company that the Phase II
clinical trials testing efficacy and tolerance of
Pyrazinoylguanidine ("PZG") have been successfully completed
and that the Company or an affiliated third party intends to
initiate Phase III clinical trials, and prior to 5:00 P.M.,
New York City time, on December 4, 2002.
C. This Warrant may be exercised for an additional 100,000
shares of Common Stock, in whole at any time or in part from
time to time by the Holder, upon receipt of written notice or
public announcement from the Company that the Company or an
affiliated third party has filed a New Drug Application for
PZG, and prior to 5:00 P.M., New York City time, on December
4, 2002.
D. The Warrant may be exercised upon its surrender (with the
subscription form at the end hereof duly executed) at the
Company's address set forth in Section 15 hereof, together
with proper payment of the Aggregate Warrant Price, or the
proportionate part thereof if this Warrant is exercised in
part, with payment for Warrant Shares made by certified or
official bank check payable to the order of the Company; or
by the surrender of this Warrant (with the Cashless Exercise
form at the end hereof duly executed) (a "Cashless
Exercise"). Such presentation and surrender pursuant to a
Cashless Exercise shall be deemed a waiver of the Holder's
obligation to pay the Aggregate Warrant Price, or the
proportionate part thereof if this Warrant is exercised in
part. In the event of a Cashless Exercise, the Holder shall
exchange its Warrant for that number of Warrant Shares
subject to such Cashless Exercise (the "Exercised Number of
Warrant Shares") less that number of Warrant Shares which,
when multiplied by the then-current market price per Warrant
Share, equals the Per Share Warrant Price multiplied by the
Exercised Number of Warrant Shares. For purposes of any
computation under this Section 1 and Section 3(b), the
then-current market price per Warrant Share at any date (the
2
<PAGE>
"Market Price") shall be deemed to be the last sale price of
the Warrant Shares on the business day prior to the date of
the Cashless Exercise (or the business day prior to the date
of termination of the Warrants in the case of Section 3(b))
or, in case no such reported sales take place on such day,
the average of the last reported bid and asked prices of the
Warrant Shares on such day, in either case on the principal
national securities exchange on which the Warrant Shares are
admitted to trading or listed, or if not listed or admitted
to trading on any such exchange, the last sale price of the
Warrant Shares on the business day prior to the date of the
Cashless Exercise as reported by the NASDAQ Stock Market
("NASDAQ"), or other similar organization if NASDAQ is no
longer reporting such information, or if not so available,
the fair market price of the Warrant Shares as determined by
good faith by the Board of Directors. Notwithstanding
anything contained herein, the Holder hereof shall pay to the
Company upon exercise, in cash, an amount equal to the
aggregate amount of the par value of all Warrant Shares
purchased upon the exercise of this Warrant pursuant to a
Cashless Exercise.
E. If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of Common Stock, and
the Holder is entitled to receive a new Warrant covering the
Warrant Shares which have not been exercised and setting
forth the proportionate part of the Aggregate Warrant Price
applicable to such Warrant Shares. Upon surrender of this
Warrant, the Company will (i) issue a certificate or
certificates in the name of the Holder for the largest number
of whole shares of Common Stock to which the Holder shall be
entitled and, if this Warrant is exercised in whole, in lieu
of any fractional share of Common Stock to which the Holder
shall be entitled, pay to the Holder cash in an amount equal
to the fair value of such fractional share (determined in
such reasonable manner as the Board of Directors of the
Company shall determine), and (ii) deliver the other
securities and properties receivable upon the exercise of
this Warrant, or the proportionate part thereof if this
Warrant is exercised in part, pursuant to the provisions of
this Warrant.
II. Reservation of Warrant Shares; Listing. The Company agrees that, prior to
the expiration of this Warrant, the Company will at all times (a) have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock and
other securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on sale or
transfer and free and clear of all preemptive rights and rights of first
refusal; and (b) if the Company hereafter lists its Common Stock on any national
securities exchange, keep the shares of Common Stock receivable upon the
exercise of this Warrant authorized for listing on such exchange upon notice of
issuance.
3
<PAGE>
III. Adjustments of Per Share Warrant Price.
---------------------------------------
A. In case the Company shall hereafter (i) pay a dividend or
make a distribution on its capital stock in shares of Common
Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares (by a stock split or
otherwise), (iii) combine its outstanding shares of Common
Stock into a smaller number of shares (by a reverse stock
split or otherwise) or (iv) issue by reclassification of its
Common Stock any shares of capital stock of the Company, the
Per Share Warrant Price shall be adjusted so that the holder
upon the exercise hereof shall be entitled to receive the
number of shares of Common Stock or other capital stock of
the Company which it would have owned immediately following
such action had such Warrant been exercised immediately prior
thereto. An adjustment made pursuant to this Subsection 3(a)
shall become effective on the record date in the case of a
dividend or distribution and shall become effective on the
effective date in the case of a subdivision, combination or
reclassification.
B. In case of any capital reorganization or reclassification, or
any consolidation or merger to which the Company is a party
other than a merger or consolidation in which the Company is
the continuing corporation, or in case of any sale or
conveyance to another entity of the property of the Company
as an entirety or substantially as a entirety, or in the case
of any statutory exchange of securities with another
corporation (including any exchange effected in connection
with a merger of a third corporation into the Company)(which
consolidation, merger, sale, conveyance and statutory
exchange is referred to below as a "Sale"), the Holder of
this Warrant shall have the right thereafter to receive on
the exercise of this Warrant the kind and amount of
securities, cash or other property which the Holder would
have owned or have been entitled to receive immediately after
such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance had this Warrant been
exercised immediately prior to the effective date of such
reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance and in any such case,
if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section 3
with respect to the rights and interests thereafter of the
Holder of this Warrant to the end that the provisions set
forth in this Section 3 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation
to any shares of stock or other securities or property
thereafter deliverable on the exercise of this Warrant. The
above provisions of this Subsection 3(b) shall similarly
apply to successive reorganizations, reclassifications,
consolidations, mergers, statutory exchanges, sales or
conveyances. The issuer of any shares of stock or other
securities or property thereafter deliverable on the exercise
of this Warrant shall be responsible for all of the
agreements and obligations of the Company hereunder. Notice
of any such reorganization, reclassification, consolidation,
merger, statutory exchange, sale or conveyance and of said
4
<PAGE>
provisions so proposed to be made, shall be mailed to the
Holders of the Warrants not less than 30 days prior to such
event. A sale of all or substantially all of the assets of
the Company for a consideration consisting primarily of
securities shall be deemed a consolidation or merger for the
foregoing purposes. In the event of an anticipated Sale, the
Company or the entity assuming the obligations of the Company
hereunder may (i) upon written notice to the Holders of all
outstanding Warrants, provide that all Warrants 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 Warrants shall terminate (but if and only if
such Sale shall be consummated); or (ii) terminate all
Warrants in exchange for a cash payment equal to the excess
of the Market Price of the Warrant Shares subject to such
Warrants, to the extent then exercisable, over the Per Share
Warrant Price thereof (but if and only if such Sale shall be
consummated).
C. If the Board of Directors of the Company shall declare any
dividend or other distribution with respect to the Common
Stock other than a cash distribution out of earned surplus,
the Company shall mail notice thereof to the Holders of the
Warrants not less than 15 days prior to the record date fixed
for determining stockholders entitled to participate in such
dividend or other distribution.
D. If, as a result of an adjustment made pursuant to this
Section 3, the Holder of any Warrant thereafter surrendered
for exercise shall become entitled to receive shares of two
or more classes of capital stock or shares of Common Stock
and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall
be described in a written notice to the Holder of any Warrant
promptly after such adjustment) shall determine the
allocation of the adjusted Per Share Warrant Price between or
among shares or such classes of capital stock or shares of
Common Stock and other capital stock.
E. In case any Other Securities shall have been issued, or shall
then be subject to issue upon the conversion or exchange of
any stock (or Other Securities) of the Company (or any other
issuer of Other Securities or any other entity referred to in
Section 3(b) hereof) or to subscription, purchase or other
acquisition pursuant to any rights or options granted by the
Company (or such other issuer or entity), the holder hereof
shall be entitled to receive upon exercise hereof such amount
of Other Securities (in lieu of or in addition to Common
Stock) as is determined in accordance with the terms hereof,
treating all references to Common Stock herein as references
to Other Securities to the extent applicable, and the
computations, adjustments and readjustments provided for in
this Section 3 with respect to the number of shares of Common
Stock issuable upon exercise of this Warrant shall be made as
nearly as possible in the manner so provided and applied to
determine the amount of Other Securities from time to time
receivable on the exercise of the Warrant, so as to provide
the holder of the Warrant with the benefits intended by this
Section 3 and the other provisions of this Warrant.
5
<PAGE>
IV. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the Warrant Shares issuable on the exercise of the Warrants, the
Company at its expense will promptly cause its Treasurer or Chief Financial
Officer to compute such adjustment or readjustment in accordance with the terms
of the Warrants and prepare a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, including, among other things, (a) the number of Warrant
Shares outstanding or deemed to be outstanding, and (b) the Aggregate Purchase
Price and the number of Warrant Shares to be received upon exercise of this
Warrant, in effect immediately prior to such issue or sale and as adjusted and
readjusted as provided in this Warrant. The Company will forthwith mail a copy
of each such certificate to each Holder, and will, on the written request at any
time of any Holder, furnish to such Holder a like certificate setting forth the
Per Share Warrant Purchase Price at the time in effect and showing how it was
calculated.
V. Fully Paid Stock; Taxes. The Company agrees that the Warrant Shares delivered
on the exercise of this Warrant shall, at the time of such delivery, be validly
issued and outstanding, fully paid and nonassessable, and not subject to
preemptive rights or rights of first refusal, and the Company will take all such
actions as may be necessary to assure that the par value or stated value, if
any, per share of the Warrant Shares is at all times equal to or less than the
then Per Share Warrant Price. The Company further covenants and agrees that it
will pay, when due and payable, any and all Federal and state stamp, original
issue, transfer or similar taxes which may be payable in respect of the issue of
any Warrant Share or any certificate thereof.
VI. Transferred Warrants. The Company may treat the registered holder hereof as
the Holder for all purposes. All warrants issued upon the transfer or assignment
of this Warrant will be dated the same date as this Warrant, and all rights and
obligations of the Holder thereof shall be identical to those of the Holder
hereof.
VII. Loss, etc., of Warrant. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
VIII. Dissolution. Except as otherwise provided herein, in the event of any
dissolution of the Company following the transfer of all or substantially all of
its properties or assets, the Company, prior to such dissolution, shall at its
expense deliver or cause to be delivered the stock and other securities and
property (including cash, where applicable) receivable by the holders of the
Warrants after the effective date of such dissolution pursuant to this Section 8
to a bank or trust company, as trustee for the Holder or Holders of the
Warrants.
IX. No Dilution or Impairment. The Company will not,
by amendment of its Charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
6
<PAGE>
necessary or appropriate in order to protect the rights of the holder of this
Warrant hereunder. Without limiting the generality of the foregoing, the Company
(i) will not increase the par value of any shares of stock receivable on the
exercise of this Warrant above the amount payable therefor on such exercise,
(ii) will take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and non-assessable shares
of stock on the exercise of this Warrant from time to time outstanding, and
(iii) will not transfer all or substantially all of its properties and assets to
any other entity (corporate or otherwise), or consolidate with or merge into any
other entity or permit any such entity to consolidate with or merge into the
Company (if the Company is not the surviving entity), unless such other entity
shall expressly assume in writing and will be bound by all the terms of this
Warrant.
X. Trustee for Warrant Holders. In the event that a bank or trust company shall
have been appointed as trustee for the Holders of the Warrants pursuant to
Section 8, such bank or trust company shall have all the powers and duties of a
warrant agent appointed pursuant to Section 11 and shall accept, in its own name
for the account of the Company or such successor person as may be entitled
thereto, all amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to Section 1.
XI. Warrant Agent. The Company may, by written notice to each Holder, appoint an
agent for the purpose of issuing Common Stock on the exercise of the Warrants
pursuant to Section 1 or any of the foregoing, and thereafter any such issuance,
exchange or replacement, as the case may be, shall be made at such office by
such agent.
XII. Warrant Holder Not Shareholder. Except as otherwise provided herein, this
Warrant does not confer upon the Holder any right to vote or to consent to or
receive notice as a stockholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a stockholder, prior
to the exercise hereof.
XIII. Covenants of Warrant Holder. By acceptance of this Warrant, the Holder is
hereby deemed to covenant and agree with the Company that it is acquiring this
Warrant as an investment and not with a view to distribution hereof. This
Warrant may not be sold, transferred, assigned or hypothecated by the Holder
except in compliance with the provisions of the Securities Act of 1933, as
amended (the "Securities Act") (or any successor legislation), and the state
securities laws, and is so transferable only upon the books of the Company which
it shall cause to be maintained for such purpose. Each registered Holder of this
Warrant acknowledges that this Warrant has not been registered under the
Securities Act and agrees not to sell, pledge, distribute, offer for sale,
transfer or otherwise dispose of this Warrant or any Warrant Shares issued upon
its exercise in the absence of (i) an effective registration statement as to
this Warrant or such Warrant Shares under the Securities Act, or (ii) an opinion
of counsel reasonably acceptable to the Company to the effect that such
registration is not, under the circumstances, required; provided, however, that
7
<PAGE>
no such opinion under this Section 13 or similar provisions elsewhere herein
shall be required in the event that Paramount transfers this Warrant or portions
thereof to current or former employees of Paramount provided, however, that such
transferees agree to be bound by all of the existing terms and conditions of the
Warrant and make such written representations in that regard as may be required
by Company counsel. In addition, in order for any transferee of this Warrant or
any Warrant Shares to receive any of the benefits of this Warrant or the Warrant
Shares, as the case may be, the Company must have received notice of such
transfer, at the address set forth in Section 15 below, in the form of
assignment or partial assignment attached hereto. Any transferee other than
pursuant to an effective registration statement under the Securities Act or
pursuant to Rule 144 promulgated under the Securities Act must also covenant and
agree that it is acquiring this Warrant or such Warrant Shares as an investment
and not with a view to distribution hereof or thereof, except in accordance with
the Securities Act and applicable state securities law.
XIV. Negotiability, etc. Until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the contrary.
XV. Communication. All notices, requests, consents and demands shall be made in
writing and shall be mailed postage prepaid, or delivered by hand, to the
Company or to the Holder thereof at their respective addresses set forth below
or to such other address as may be furnished in writing to the other party
hereto:
If to the Holder: Paramount Capital Investments, LLC
787 Seventh Avenue
New York, NY 10019
Attention: Lindsay A. Rosenwald, M.D.,
Chairman
If to the Company: Sparta Pharmaceuticals, Inc.
111 Rock Road
Horsham, PA 19044-2307
Attention: Jerry B. Hook, Ph.D., President
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service, or (iv) if sent by registered
or certified mail, on the 5th business day following the day such mailing is
made.
XVI. Headings. The headings of this Warrant have been inserted as a matter of
convenience and shall not affect the construction hereof.
XVII. Applicable Law. This Warrant shall be governed by and construed in
accordance with the law of the State of Delaware without giving effect to the
principles of conflicts of law thereof.
8
<PAGE>
XVIII. Pronouns. All pronouns and any variations thereof used herein shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
person or persons referred to may require.
XIX. Amendment. The Company and the Holder may by supplemental agreement make
any changes or corrections in this Warrant to cure any ambiguity or to correct
any defective or inconsistent provision herein contained or that they deem
necessary or desirable and which shall not adversely affect the interests of the
then Holder(s) of the Warrant; provided, however, that this Warrant shall not be
otherwise modified, supplemented or altered in any respect except with the
consent in writing of the Holder(s) of Warrants representing not less than 50%
of the Warrants then outstanding other than such changes specifically prescribed
by this Warrant as originally executed or made in compliance with applicable
law.
XX. Expiration. The right to exercise this Warrant shall expire on 5:00 P.M.,
Eastern Standard Time, on December 4, 2002.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its President and its corporate seal to be hereunto affixed and
attested by its Secretary this 4th day of December, 1997.
SPARTA PHARMACEUTICALS, INC.
By:________________________
President
ATTEST:
____________________
Secretary
[Corporate Seal]
9
<PAGE>
SUBSCRIPTION
------------
The undersigned, ___________________, pursuant to the
provisions of the foregoing Warrant, hereby agrees to subscribe for and purchase
____________________ shares (the "Warrant Shares") of the common stock, par
value $.001 per share, of Sparta Pharmaceuticals, Inc. covered by said Warrant,
and makes payment therefor in full at the price per share provided by said
Warrant.
A. The undersigned represents that the address of the
undersigned furnished below is (i) the undersigned's
principal residence if he or she is an individual or
(ii) the undersigned's principal business address if
it is a corporation, partnership or other entity.
B. The undersigned (i) was not formed for the purpose
of investing in the Company, (ii) is acquiring the
Warrant Shares for its own account for investment
and not with a view to or for resale in connection
with any distribution or resale of the Warrant
Shares except in accordance with the Securities Act
of 1933, as amended (or any successor statute) (the
"Securities Act") and applicable state securities
laws, and (iii) has not offered or sold any portion
of the Warrant Shares and has no present intention
of dividing the Warrant Shares with others or of
selling, distributing or otherwise disposing of any
portion of the Warrant Shares either currently or
after the passage of a fixed or determinable period
of time or upon the occurrence or non-occurrence of
any predetermined event or circumstance, except in
accordance with the Securities Act and applicable
state securities laws.
C. The undersigned understands that (i) the sale of the
Warrant Shares has not been registered under the
Securities Act or any state securities law in
reliance upon an exemption therefrom for non-public
or limited offerings, (ii) the Warrant Shares must
be held indefinitely unless the sale or other
transfer thereof is subsequently registered under
the Securities Act or an exemption from such
registration is available at the time, and (iii) the
Company has no obligation to register the Warrant
Shares.
D. The undersigned understands and agrees that the
following restrictions and limitations are
applicable to its purchase and any resales, pledges,
hypothecations or other transfers of the Warrant
Shares:
1. The following legend (or a legend in
substantially similar form) will be placed on any
certificate(s) or other document(s) evidencing
the Warrant Shares, and the undersigned for
itself must comply with the terms and conditions
set forth in such legend prior to any resales,
pledges, hypothecations or other transfers of the
Warrant Shares:
<PAGE>
"The securities represented by this certificate have
not been registered pursuant to the Securities Act of
1933, as amended ("Act"), or any state securities
laws, and may not be sold, pledged, hypothecated or
otherwise transferred unless (A) the stockholder
wishing to transfer such securities provides an
opinion of counsel in form and substance satisfactory
to Sparta Pharmaceuticals, Inc. (the "Company")
stating that the proposed transfer of the Company's
securities is exempt from the registration provisions
of all applicable federal and state laws; or (B) said
securities are registered pursuant to the Act and all
applicable state securities laws.
2. Stop transfer instructions have been or will be
placed on any certificates or other documents
evidencing the Warrant Shares so as to restrict the
resale, pledge, hypothecation or other transfer
thereof in accordance with the provisions hereof.
E. The undersigned's representations and warranties made herein
shall survive the execution and delivery hereof and of the
Warrant Shares.
Dated:_______________ Signature:__________________________________
Address:___________________________________
<PAGE>
CASHLESS EXERCISE
-----------------
The undersigned ___________________, pursuant to the
provisions of the foregoing Warrant, hereby elects to exchange its Warrant for
___________________ shares (the "Warrant Shares") of common stock, par value
$.001 per share, of Sparta Pharmaceuticals, Inc. pursuant to the Cashless
Exercise provisions of the Warrant.
A. The undersigned represents that the address of the
undersigned furnished below is (i) the undersigned's
principal residence if he or she is an individual or
(ii) the undersigned's principal business address if
it is a corporation, partnership or other entity.
B. The undersigned (i) was not formed for the purpose
of investing in the Company, (ii) is acquiring the
Warrant Shares for its own account for investment
and not with a view to or for resale in connection
with any distribution or resale of the Warrant
Shares except in accordance with the Securities Act
of 1933, as amended (or any successor statute) (the
"Securities Act") and applicable state securities
laws, and (iii) has not offered or sold any portion
of the Warrant Shares and has no present intention
of dividing the Warrant Shares with others or of
selling, distributing or otherwise disposing of any
portion of the Warrant Shares either currently or
after the passage of a fixed or determinable period
of time or upon the occurrence or non-occurrence of
any predetermined event or circumstance, except in
accordance with the Securities Act and applicable
state securities laws.
C. The undersigned understands that (i) the sale of the
Warrant Shares has not been registered under the
Securities Act or any state securities law in
reliance upon an exemption therefrom for non-public
or limited offerings, (ii) the Warrant Shares must
be held indefinitely unless the sale or other
transfer thereof is subsequently registered under
the Securities Act or an exemption from such
registration is available at the time, and (iii) the
Company has no obligation to register the Warrant
Shares.
D. The undersigned understands and agrees that the
following restrictions and limitations are
applicable to its purchase and any resales, pledges,
hypothecations or other transfers of the Warrant
Shares:
1. The following legend (or a legend in
substantially similar form) will be placed on
any certificate(s) or other document(s)
evidencing the Warrant Shares, and the
undersigned for itself must comply with the
terms and conditions set forth in such legend
prior to any resales, pledges, hypothecations
or other transfers of the Warrant Shares:
<PAGE>
"The securities represented by this certificate have
not been registered pursuant to the Securities Act of
1933, as amended ("Act"), or any state securities
laws, and may not be sold, pledged, hypothecated or
otherwise transferred unless (A) the stockholder
wishing to transfer such securities provides an
opinion of counsel in form and substance satisfactory
to Sparta Pharmaceuticals, Inc. (the "Company")
stating that the proposed transfer of the Company's
securities is exempt from the registration provisions
of all applicable federal and state laws; or (B) said
securities are registered pursuant to the Act and all
applicable state securities laws.
2. Stop transfer instructions have been or will be
placed on any certificates or other documents
evidencing the Warrant Shares so as to restrict the
resale, pledge, hypothecation or other transfer
thereof in accordance with the provisions hereof.
E. The undersigned's representations and warranties made herein
shall survive the execution and delivery hereof and of the
Warrant Shares.
Dated:_______________ Signature:_________________________________
Address:___________________________________
<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED _______________ hereby sells, assigns and
transfers unto ____________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer said Warrant on the books of Sparta
Pharmaceuticals, Inc.
Dated:_______________ Signature:_________________________________
Address:___________________________________
<PAGE>
PARTIAL ASSIGNMENT
------------------
FOR VALUE RECEIVED _______________ hereby assigns and
transfers unto ____________________ the right to purchase _______ shares of the
common stock, par value $.001 per share, of Sparta Pharmaceuticals, Inc. covered
by the foregoing Warrant, and a proportionate part of said Warrant and the
rights evidenced thereby, and does irrevocably constitute and appoint
____________________, attorney, to transfer that part of said Warrant on the
books of Sparta Pharmaceuticals, Inc.
Dated:_______________ Signature:_________________________________
Address:___________________________________
<PAGE>
Exhibit 21.1
Subsidiary of the Registrant
- ----------------------------
Orizon Pharmaceuticals, Inc., was originally incorporated as Horizon
Pharmaceuticals, Inc. in the State of Delaware on October 7, 1997. The
subsidiary changed its name to Orizon Pharmaceuticals, Inc. on January 20, 1998.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed Form S-3
Registration Statement (File No. 333-13621) filed with the Securities and
Exchange Commission on October 22, 1996, and Form S-8 Registration Statement
(File No.333-20575) filed with the Securities and Exchange Commission on January
28, 1997, and Form S-3 Registration Statement (File No. 333-25211) filed with
the Securities and Exchange Commission on April 15, 1997, and Form S-8
Registration Statement (File No. 333-35311) filed with the Securities and
Exchange Commission on September 10, 1997.
ARTHUR ANDERSEN LLP
Philadelphia, PA,
March 23, 1998
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-20575) pertaining to the Sparta Pharmaceuticals, Inc. Amended 1991
Stock Plan and the Registration Statement (Form S-3 No. 333-13621) pertaining to
the registration of 25,323,853 Shares of Common Stock and 11,309,722 Class C
Warrants, the Registration Statement (Form S-3 No. 333-25211) pertaining to the
registration of 2,035,000 shares of Common Stock and the Registration Statement
(Form S-8 No. 333-35311) pertaining to the registration of 500,000 share of
Common stock, of our report dated January 31, 1996, with respect to the
financial statements of Sparta Pharmaceuticals, Inc. included in its Annual
Report on Form 10-K for the year ended December 31, 1997, filed with the
Securities and Exchange Commission.
Ernst & Young LLP
Raleigh, North Carolina
March 23, 1998
<PAGE>
EXHIBIT 99.22
- -------------
<TABLE>
<CAPTION>
<S> <C> <C>
Contact: Jerry B. Hook, Ph.D. Martin Rose, M.D., J.D.
President & Chief Executive Officer Vice President, Clinical and Regulatory Affairs
Sparta Pharmaceuticals, Inc. Sparta Pharmaceuticals, Inc.
(215) 442-1700, Ext. 205 (215) 442-1700, Ext. 219
</TABLE>
FOR IMMEDIATE RELEASE
Sparta Pharmaceuticals, Inc. Announces The Acquisition of PZG
-------------------------------------------------------------
Horsham, PA, December 8, 1997, Sparta Pharmaceuticals, Inc. (NASDAQ:
SPTA, SPTAU, SPTAW, SPTAZ AND SPTAL) announced today that the Company acquired
exclusive worldwide rights to develop and commercialize Pyrazinoylguanidine
(PZG), a drug candidate with potential to treat a variety of significant chronic
metabolic diseases including type II diabetes mellitus.
Phase I clinical trials have been completed with no overt signs of toxicity.
Extensive studies in animals and preliminary Phase II clinical trials suggest
that in diabetic patients PZG may be effective in reducing blood lipids (free
fatty acids, triglycerides and cholesterol) and reducing blood pressure in those
who are hypertensive. Possible other indications for PZG related to diabetes
include renal insufficiency, end stage renal disease and Syndrome X.
PZG will be developed by Horizon Pharmaceuticals, which will be a majority owned
subsidiary of Sparta. The Company intends to enter PZG into a tightly controlled
Phase II trial to evaluate quantitatively the beneficial effects of PZG in
diabetic patients.
"This is an exciting opportunity for Sparta," said Dr. Jerry B. Hook, Sparta's
President and Chief Executive Officer. "Development of drugs that effectively
treat diabetic patients without expressing toxicity has been a major challenge
for the pharmaceutical industry. We believe that PZG has the potential to meet
that challenge."
PZG will be entering Phase II human clinical trials in 1998. This is Sparta's
fifth compound to be engaged in either Phase I or Phase II clinical trials.
This press release contains certain forward-looking statements within the
meaning of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Such statements are made based on management's current
expectations and beliefs, and actual results may vary from those currently
anticipated based upon a number of factors, including uncertainties inherent in
the drug development process, including clinical trials. The Company undertakes
no obligation to release publicly any revisions which may be made to reflect
events or circumstances after the date hereof.
Sparta is a development stage pharmaceutical company engaged in the business of
acquiring rights to, and developing for commercialization, technologies and
drugs for the treatment of a number of life threatening diseases including
cancer, cardiovascular disorders and inflammation. The Company has focused on
acquiring compounds that have been previously tested in humans and animals and
technologies that may improve the delivery or targeting of previously tested,
and in some cases marketed, drugs. Sparta's portfolio of compounds in
development also includes four potential oncology products in clinical trials
and an emerging platform technology in recombinant and small molecule protease
inhibitors.
# # #
<PAGE>
EXHIBIT 99.23
- -------------
<TABLE>
<CAPTION>
<S> <C> <C>
Contact: Jerry B. Hook, Ph.D. Christopher P. Phillips, M.S.
President & Chief Executive Officer Director of Manufacturing
Sparta Pharmaceuticals, Inc. Sparta Pharmaceuticals, Inc.
(215) 442-1700, Ext. 205 (215) 442-1700, Ext. 206
</TABLE>
FOR IMMEDIATE RELEASE
Sparta Pharmaceuticals, Inc. Announces Agreement with the Bioprocessing
-----------------------------------------------------------------------
Resource Center for Production of Sparta's LEX 032
--------------------------------------------------
Horsham, PA, January 20, 1998, Sparta Pharmaceuticals, Inc. (NASDAQ:
SPTA, SPTAU, SPTAW, SPTAZ AND SPTAL) announced a production agreement with the
Bioprocessing Resource Center, Inc., (BRC), for the production of Sparta's LEX
032. Together with the BRC, Sparta will manufacture and purify adequate
quantities of pure, sterile, pyrogen free LEX 032 to be used for animal
pharmacology studies.
Funding for this project comes from a recently announced Phase II SBIR grant
which was approved to support the continued development of LEX 032.
LEX 032 is a recombinant modified human serine protease inhibitor being
developed for acute, life threatening inflammation. The Company believes this
product may have utility in acute pulmonary inflammation and reperfusion injury
such as thrombo-embolic stroke.
"Our relationship with the Bioprocessing Resource Center has been instrumental
in furthering the preclinical development of our compound," said Dr. Jerry B.
Hook, Sparta's President and Chief Executive Officer. "The combination of the
BRC's experienced, competent staff with our own Director of Manufacturing, has
made for an efficient and productive relationship."
Founded in 1988, the BRC, located in University Park, PA, has been helping firms
commercialize their products faster, strengthen their regulatory compliance,
adopt new technologies, and explore emerging market opportunities. Dr. Howard D.
Ratcliffe, the BRC's President and CEO, is spearheading the project with Sparta.
BRC's highly skilled staff provides contracted services to companies of all
sizes. The BRC is sponsored by Pennsylvania's Ben Franklin/Industrial Resource
Center Partnership and is a subsidiary of the Corporation for Penn State.
This press release contains certain forward-looking statements within the
meaning of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Such statements are made based on management's current
expectations and beliefs, and actual results may vary from those currently
anticipated based upon a number of factors, including uncertainties inherent in
the drug development process, including clinical trials. The Company undertakes
no obligation to release publicly any revisions which may be made to reflect
events or circumstances after the date hereof.
Sparta is a development stage pharmaceutical company engaged in the business of
acquiring rights to, and developing for commercialization, technologies and
drugs for the treatment of a number of life threatening diseases including
cancer, cardiovascular disorders, chronic metabolic diseases and inflammation.
The Company has focused on acquiring compounds that have been previously tested
in humans and animals and technologies that may improve the delivery or
targeting of previously tested, and in some cases marketed, drugs. Sparta's
portfolio of compounds in development includes four potential oncology products
and one for the treatment of Type II diabetes in clinical trials and an emerging
platform technology in recombinant and small molecule protease inhibitors.
# # #
<PAGE>
EXHIBIT 99.24
- -------------
Contact: Jerry B. Hook, Ph.D.
President & Chief Executive Officer
Sparta Pharmaceuticals, Inc.
(215) 442-1700, Ext. 205
FOR IMMEDIATE RELEASE
Sparta Pharmaceuticals, Inc. Announces Patent Approval From The United States
-----------------------------------------------------------------------------
Patent and Trademark Office
---------------------------
Horsham, PA, February 23, 1998, Sparta Pharmaceuticals, Inc. (NASDAQ:
SPTA, SPTAU, SPTAW, SPTAZ AND SPTAL) announced that the United States Patent and
Trademark Office has granted United States Patent #5,703,130 submitted by Drs.
Rui Han and Zong-Ru Guo of the Institute of Materia Medica, Chinese Academy of
Medical Sciences, Beijing, China. The patent, "Chalcone Retinoids and Methods of
Use of Same" is the first United States patent to be granted through Sparta's
collaboration with the Institute of Materia Medica. Dr. Han is a Special
Consultant to the Company. He has created this new series of retinoids supported
by a grant from Sparta. The Company has an exclusive, world-wide license,
excluding China, to this patent.
The Company believes the new retinoid compounds, covered under this patent and
others expected in the near future, could be a significant force in the
treatment of cancer and precancerous cells, as well as a variety of other
diseases. Retinoids are a class of compounds related to Vitamin A that have
shown promise in treating a variety of disorders including skin lesions, cancer
and diabetes. Sparta currently has RII Retinamide, the lead compound in an
earlier series of retinoids, in a Phase I/II clinical trial. RII offers hope for
treatment of Myelodysplastic Syndrome (MDS), a bone marrow disease which has no
approved drug treatment.
According to Dr. Jerry B. Hook, Sparta's President and Chief Executive Officer,
"Sparta's retinoid program is focused on discovery and development of more
effective compounds with fewer side effects. This patent is the first of several
we expect in the near future. Recently, retinoids have generated intense
scientific interest. The possibility that they may be effective in a wide
variety of diseases is increasingly being recognized. These compounds from our
collaborators in China represent a great opportunity for Sparta."
This press release contains certain forward-looking statements within the
meaning of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Such statements are made based on management's current
expectations and beliefs, and actual results may vary from those currently
anticipated based upon a number of factors, including uncertainties inherent in
the drug development process, including clinical trials. The Company undertakes
no obligation to release publicly any revisions which may be made to reflect
events or circumstances after the date hereof.
Sparta is a development stage pharmaceutical company engaged in the business of
acquiring rights to, and developing for commercialization, technologies and
drugs for the treatment of a number of life threatening diseases including
cancer, cardiovascular disorders, chronic metabolic diseases and inflammation.
The Company has focused on acquiring compounds that have been previously tested
in humans and animals and technologies that may improve the delivery or
targeting of previously tested, and in some cases marketed, drugs. Sparta's
portfolio of compounds in development includes four potential oncology products
and one for the treatment of Type II diabetes in clinical trials and an emerging
platform technology in recombinant and small molecule protease inhibitors.
# # #
<PAGE>
EXHIBIT 99.25
- -------------
Contact: Jerry B. Hook, Ph.D.
President, CEO and Chairman of the Board
Sparta Pharmaceuticals, Inc.
(215) 442-1700, Ext. 205
FOR IMMEDIATE RELEASE
Sparta Pharmaceuticals, Inc. Promotes Jerry B. Hook, Ph.D., to
--------------------------------------------------------------
Chairman of The Board
---------------------
Horsham, PA, March 16, 1998, Sparta Pharmaceuticals, Inc. (NASDAQ:
SPTA, SPTAU, SPTAW, SPTAZ AND SPTAL) today announced the election by the Board
of Directors of Jerry Hook, Sparta's current President and Chief Executive
Officer, as Chairman of the Board of Directors. Dr. Hook will replace William M.
Sullivan who, with Dr. Lindsay Rosenwald, founded Sparta in 1991. Mr. Sullivan
has agreed to continue to serve as a member of the Company's Board of Directors.
Dr. Hook has served as President and CEO since March 1996, when Sparta acquired
Lexin Pharmaceuticals, where Dr. Hook held the same positions.
Dr. Hook commented that, "Bill's vision was to create a small, highly-focused
company to develop products for cancer from a portfolio of in-licensed compounds
and technologies. He led the company toward this vision with energy and
dedication built on a solid base of integrity and good humor. The significant
progress the company made in 1997 was built on a substantial portfolio of
compounds and technologies licensed by the Company under Bill's leadership. His
legacy will remain with us for many years."
The Company also announced the Board's decision to recommend and submit to a
vote of the stockholders at the Annual Meeting of Stockholders to be held on May
11, 1998, a proposal to amend the Company's certificate of incorporation in
order to effect a one-for-five reverse split of the Company's Common Stock,
$.001 par value. The Board's decision was in response to recent changes in
Nasdaq's continued listing requirements for Nasdaq SmallCap companies. The Board
of Directors in its sole discretion may abandon the proposal to effect the
reverse split under certain circumstances, even if the stockholders voted in
favor of the proposal. The Company anticipates that a definitive proxy statement
containing this proposal will be mailed to the stockholders in early April.
Sparta is a development stage pharmaceutical company engaged in the business of
acquiring rights to, and developing for commercialization, technologies and
drugs for the treatment of a number of life threatening diseases including
cancer, cardiovascular disorders, chronic metabolic diseases and inflammation.
The Company has focused on acquiring compounds that have been previously tested
in humans and animals and technologies that may improve the delivery or
targeting of previously tested, and in some cases marketed, drugs. Sparta's
portfolio of compounds in development includes four potential oncology products
and one for the treatment of Type II diabetes in clinical trials and an emerging
platform technology in recombinant and small molecule protease inhibitors.
# # #
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S DECEMBER 31, 1998 REPORT ON FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,767,317
<SECURITIES> 1,473,275
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,309,370
<PP&E> 712,177
<DEPRECIATION> 375,482
<TOTAL-ASSETS> 6,816,251
<CURRENT-LIABILITIES> 741,240
<BONDS> 0
0
1,021
<COMMON> 15,581
<OTHER-SE> 6,058,409
<TOTAL-LIABILITY-AND-EQUITY> 6,815,251
<SALES> 0
<TOTAL-REVENUES> 600,812
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,480,222
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,879,410)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,879,410)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,879,410)
<EPS-PRIMARY> (.43)
<EPS-DILUTED> (.43)
</TABLE>
