<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1999
REGISTRATION NO. 333-80517
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SUPERGEN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------------------------
<TABLE>
<S> <C>
DELAWARE 2834
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
<CAPTION>
DELAWARE 91-1841574
incorporation or organization) Identification Number)
<CAPTION>
(State or other jurisdiction of (I.R.S. Employer
</TABLE>
TWO ANNABEL LANE, SUITE 220
SAN RAMON, CALIFORNIA 94583
(925) 327-0200
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------------------------
JOSEPH RUBINFELD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SUPERGEN, INC.
TWO ANNABEL LANE, SUITE 220
SAN RAMON, CALIFORNIA 94583
(925) 327-0200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN V. ROOS, ESQ. JAMES J. MARINO, ESQ.
WILSON SONSINI GOODRICH & ROSATI DECHERT PRICE & RHOADS
PROFESSIONAL CORPORATION PRINCETON PIKE CORPORATE CENTER
650 PAGE MILL ROAD 997 LENOX DRIVE BUILDING 3
PALO ALTO, CA 94304 SUITE 210
(650) 493-9300 LAWRENCEVILLE, NJ 08648
(609) 620-3211
</TABLE>
----------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and
satisfaction of the conditions as proposed in the merger agreement.
----------------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING
BE REGISTERED REGISTERED PER SECURITY(1) PRICE(1)
<S> <C> <C> <C>
Common Stock, $0.001 par value(3)(7) 650,000 $.565 $9,626,015
Common Stock issuable upon certain adjustment(4).... 162,500 Not Applicable Not Applicable
Common Stock Purchase Warrants ("Warrants")(5)...... 310,870 Not Applicable Not Applicable
Common Stock issuable upon exercise of certain
assumed warrants(6)(7)............................. 96,474 .565 1,414,352
Totals.............................................. -- -- $11,040,367
<CAPTION>
TITLE OF EACH CLASS AMOUNT OF
OF SECURITIES TO REGISTRATION
BE REGISTERED FEE(2)
<S> <C>
Common Stock, $0.001 par value(3)(7) --
Common Stock issuable upon certain adjustment(4).... --
Common Stock Purchase Warrants ("Warrants")(5)...... --
Common Stock issuable upon exercise of certain
assumed warrants(6)(7)............................. --
Totals.............................................. $3,070
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(f).
(2) Calculated in accordance with Section 6(b) of the Securities Act of 1933 and
Rule 457(f) promulgated thereunder. Registration fee previously paid.
(3) Represents the aggregate number of shares of Common Stock of the Registrant
which may be (i) issued to former stockholders of Sparta Pharmaceuticals,
Inc. ("Sparta") pursuant to the merger described herein and (ii) issuable
upon exercise of the Warrants. To the extent that such shares are issuable
upon exercise of the Warrants, such shares are being registered for resale
by the purchasers thereof and their assigns and transferees on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933. The
Proposed Maximum Offering Price Per Security is $.565, representing the
average of the high and low price of Sparta Common Stock as reported on the
OTC Bulletin Board on June 8, 1999. The Proposed Maximum Aggregate Offering
Price is the sum of (a) the product of (i) such Proposed Maximum Offering
Price Per Security and (ii) 3,691,841 (the number of shares of Sparta Common
Stock to be acquired by SuperGen pursuant to the merger) and (b) the product
of (i) such Proposed Maximum Offering Price Per Security and (ii) 13,345,352
(the number of shares of Sparta Common Stock into which Sparta Series BC
Convertible Preferred Stock, which is also being acquired by SuperGen
pursuant to the merger, is convertible after giving effect to the proposed
amendments to the conversion rate for such preferred stock).
(4) Represents the number of shares of Common Stock of the Registrant which may
be issuable pursuant to the merger described herein in the event the average
closing price per share of Common Stock of the Registrant on the Nasdaq
National Market during a specified period before the closing of such merger
is less than $5.00. The registration fee in respect of these securities is
included within the registration fee payable pursuant to row one of the
table above because pursuant to Rule 457(f) the calculation of the
registration fee has been based only on the market value of the securities
to be received by the Registrant from Sparta stockholders in the merger.
(5) Represents the warrants to purchase 310,870 shares of Common Stock of the
Registrant which may be issuable if the average closing price per share of
Common Stock of the Registrant on the Nasdaq National Market during a
specified period before the closing of the merger described herein is
greater than $12.00. The registration fee in respect of these securities is
included within the registration fee payable pursuant to row one of the
table above because pursuant to Rule 457(f) the calculation of the
registration fee has been based only on the market value of the securities
to be received by the Registrant from Sparta stockholders in the merger.
(6) Represents the number of shares of Common Stock of the Registrant which may
be issuable upon exercise of warrants assumed ("Assumed Warrants") in
connection with the merger described herein. Such shares are being
registered for resale by the purchasers thereof and their assigns and
transferees on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933. The Proposed Maximum Offering Price Per Security is
$.565, representing the average of the high and low price of Sparta Common
Stock as reported on June 8, 1999. The Proposed Maximum Aggregate Offering
Price is the product of (i) such Proposed Maximum Offering Price Per
Security and (ii) 2,503,277 (the number of shares of Sparta Common Stock
that would otherwise be issuable upon exercise of such Assumed Warrants).
(7) An indeterminate number of additional shares of Common Stock of the
Registrant are to be registered hereunder, as provided in the Warrants and
Assumed Warrants, in the event provisions against dilution therein become
operative.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SPARTA PHARMACEUTICALS, INC.
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 10, 1999
TO THE STOCKHOLDERS OF SPARTA PHARMACEUTICALS, INC.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Sparta
Pharmaceuticals, Inc. will be held on August 10, 1999 at 10:00 a.m. local time
at Sparta's executive offices, 111 Rock Road, Horsham, Pennsylvania 19044 to
consider a vote upon the following proposals:
1. To approve and adopt the merger agreement among Sparta, SuperGen, Inc.
and Royale Acquisition Corp., a wholly-owned subsidiary of SuperGen, and
to approve a merger that will result in Sparta becoming a wholly-owned
subsidiary of SuperGen. A copy of this merger agreement is attached as
Appendix A to the proxy statement-prospectus accompanying this Notice.
2. To approve amendments to Sparta's certificate of incorporation that
increase the conversion rate of the Sparta Series BC Convertible
Preferred Stock in exchange for the elimination of the liquidation
preference for that preferred stock.
3. To transact any other business as may properly come before the Sparta
special meeting or any adjournment or postponement thereof.
The merger agreement, the proposed merger, the amendments to Sparta's
certificate of incorporation and other related matters are more fully described
in the attached proxy statement-prospectus.
Only Sparta stockholders of record at the close of business on July 6, 1999 are
entitled to notice of, and to vote at, the Sparta special meeting and any
adjournments or postponements thereof.
All Sparta stockholders are cordially invited to attend the Sparta special
meeting in person. HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU
ARE URGED TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS
POSSIBLE IN THE POSTAGE-PAID ENVELOPE ENCLOSED FOR THAT PURPOSE.You may revoke
your proxy at any time before it has been voted, and, if you attend the meeting,
you may vote in person even if you have previously returned your proxy card.
Thank you for your continued support.
Sincerely,
Jerry B. Hook, Ph.D.
Chairman, President and
Chief Executive Officer
Horsham, Pennsylvania
July 9, 1999
<PAGE>
PROXY STATEMENT-PROSPECTUS
PROXY STATEMENT
OF
SPARTA PHARMACEUTICALS, INC.
PROSPECTUS
OF
SUPERGEN, INC.
DATED JULY 9, 1999
The Boards of Directors of SuperGen, Inc. and Sparta Pharmaceuticals, Inc.
have approved a merger agreement that would merge a subsidiary of SuperGen into
Sparta. If the merger is completed, it would result in Sparta operating as a
wholly-owned subsidiary of SuperGen and stockholders of Sparta becoming SuperGen
stockholders. Upon completion of the merger, Sparta stockholders will receive
650,000 shares of SuperGen common stock (subject to adjustment as described
below) in exchange for all shares of Sparta common stock and Sparta preferred
stock that they own.
This number of shares is subject to adjustment. Sparta stockholders will
receive:
- Fewer shares, if the average closing price per share of SuperGen common
stock on the Nasdaq National Market during the 30 trading days before the
closing of the merger is greater than $12.00. In that event, Sparta
stockholders will receive a number of shares of SuperGen common stock
equal to $7,800,000 divided by that average closing price. In addition,
SuperGen will issue to Sparta stockholders warrants exercisable for
SuperGen common stock in the amount of the decrease below 650,000 shares
and exercisable at that average closing price per share of SuperGen common
stock.
- More shares, if the average closing price per share of SuperGen Common
Stock on the Nasdaq National Market during the 30 trading days before the
closing of the merger is less than $5.00. In that event, Sparta
stockholders will receive a number of shares of SuperGen common stock
equal to $3,250,000 divided by that average closing price.
We estimate that the shares of SuperGen common stock to be issued to Sparta
stockholders will represent approximately 3% of the outstanding SuperGen common
stock after the merger based on the capitalization of SuperGen as of the date of
this proxy statement-prospectus. This percentage includes shares of SuperGen
common stock issuable upon exercise of the adjustment warrants, if any, issued
to Sparta stockholders in the merger in the event the average closing price per
share of SuperGen common stock on the Nasdaq National Market during the 30
trading days before the closing of the merger is greater than $12.00. This
percentage does not include shares of SuperGen common stock that may eventually
be issued (1) to holders of options or warrants for the purchase of Sparta
capital stock that will be assumed by SuperGen in the merger or (2) to existing
holders of options or warrants for the purchase of SuperGen common stock.
Sparta has scheduled a special meeting for Sparta stockholders to vote on
the matters described in this document. Whether or not you plan to attend the
Sparta special meeting, please take the time to vote by completing and mailing
the enclosed proxy card to Sparta. If you sign, date and mail your proxy card
without indicating how you want to vote, your proxy will count as a vote in
favor of the proposals. YOUR VOTE IS VERY IMPORTANT.
You may vote at the Sparta special meeting if you own shares as of the close
of business on July 6, 1999. The date, time and place of the Sparta special
meeting is as follows:
August 10, 1999
10:00 a.m. local time
111 Rock Road
Horsham, Pennsylvania 19044
This proxy statement-prospectus provides you with detailed information about
the proposed merger. SuperGen provided the information concerning SuperGen.
Sparta provided the information concerning Sparta. Please see "Where You Can
Find More Information" on page 79 for additional information about SuperGen and
Sparta.
--------------------------
SUPERGEN COMMON STOCK TRADES ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
SUPG.
SPARTA COMMON STOCK TRADES ON THE OTC BULLETIN BOARD UNDER THE SYMBOL SPTA.
WE STRONGLY URGE YOU TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT-PROSPECTUS IN ITS ENTIRETY, INCLUDING THE MATTERS REFERRED TO UNDER
"RISK FACTORS" BEGINNING AT PAGE 16.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROXY STATEMENT-PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
We are first mailing this proxy statement-prospectus and the form of proxy
on or about July 9, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
SUMMARY OF THE PROXY STATEMENT--PROSPECTUS................................................................. 1
THE COMPANIES............................................................................................ 1
QUESTIONS AND ANSWERS ABOUT THE SUPERGEN/SPARTA MERGER................................................... 2
SUMMARY OF THE TRANSACTION............................................................................... 4
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA......................................................... 10
COMPARATIVE MARKET PRICE DATA............................................................................ 15
RISK FACTORS............................................................................................... 16
Risks Related to the Merger.............................................................................. 16
Risks Related to SuperGen................................................................................ 18
Risks Related to Sparta.................................................................................. 26
SPARTA SPECIAL MEETING..................................................................................... 29
Date, Time, and Place of Sparta Special Meeting.......................................................... 29
Purpose.................................................................................................. 29
Voting by Proxy.......................................................................................... 29
Record Date and Outstanding Shares; Quorum............................................................... 29
Vote Required............................................................................................ 30
General Vote............................................................................................. 30
Separate Class Vote...................................................................................... 30
Revocability of Proxies.................................................................................. 31
Solicitation of Stockholder Approval..................................................................... 31
Recommendation of Sparta Board........................................................................... 31
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS............................................................ 32
SuperGen's Reasons for the Merger........................................................................ 32
Material Contacts and Board Deliberations................................................................ 34
Opinion of Sparta's Financial Advisor.................................................................... 37
Federal Income Tax Considerations........................................................................ 42
Stock Ownership Following Merger......................................................................... 44
Interests of Sparta Executive Officers and Directors..................................................... 44
Governmental and Regulatory Approvals.................................................................... 45
Dissenters' Rights....................................................................................... 45
Accounting Treatment..................................................................................... 45
Stock Exchange Listing................................................................................... 45
TERMS OF THE MERGER........................................................................................ 46
The Merger............................................................................................... 46
Merger Consideration..................................................................................... 46
Certificate of Incorporation and Bylaws of Sparta After the Merger....................................... 47
Directors and Officers of Sparta After the Merger........................................................ 47
Conversion of Sparta Capital Stock as a Result of the Merger............................................. 47
Sparta Stock Options and Stock Purchase Warrants......................................................... 48
Procedure for Converting Sparta Capital Stock............................................................ 48
Form S-8 Filing.......................................................................................... 49
Tax and Accounting Consequences.......................................................................... 49
Representations and Warranties........................................................................... 49
Conduct of Business of Sparta Pending the Merger......................................................... 50
Conditions to the Merger................................................................................. 51
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Termination of the Merger Agreement...................................................................... 52
Fees and Expenses........................................................................................ 52
Indemnification of Officers and Directors................................................................ 53
No Solicitation by Sparta of Other Offers................................................................ 53
Other Covenants.......................................................................................... 53
Affiliate Agreements..................................................................................... 54
Voting Agreements........................................................................................ 54
SUPERGEN AND SPARTA UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS...................................... 55
ADDITIONAL MATTERS BEING SUBMITTED TO A VOTE OF SPARTA STOCKHOLDERS........................................ 63
SPARTA BUSINESS............................................................................................ 65
SPARTA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION............... 66
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF SPARTA................................... 69
COMPARISON OF CAPITAL STOCK................................................................................ 71
Description of SuperGen Capital Stock.................................................................... 71
Description of Sparta Capital Stock...................................................................... 71
Comparison of Capital Stock of SuperGen and Sparta....................................................... 73
DISSENTERS' RIGHTS......................................................................................... 77
LEGAL MATTERS.............................................................................................. 79
EXPERTS.................................................................................................... 79
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 79
STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS............................................................ 81
SPARTA PHARMACEUTICALS, INC. INDEX TO FINANCIAL STATEMENTS................................................. F-1
Appendix A -- Agreement and Plan of Reorganizations........................................................ A-1
Appendix B -- Voting Agreement............................................................................. B-1
Appendix C -- Opinion of Sparta's Financial Advisor........................................................ C-1
Appendix D -- Affiliate Agreement.......................................................................... D-1
Appendix E -- Delaware Appraisal Rights Provisions......................................................... E-1
</TABLE>
ii
<PAGE>
SUMMARY OF THE PROXY STATEMENT-PROSPECTUS
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU.
YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT AND THE OTHER DOCUMENTS REFERRED
TO IN THIS PROXY STATEMENT-PROSPECTUS FOR A MORE COMPLETE UNDERSTANDING OF THE
MERGER. IN PARTICULAR, YOU SHOULD READ THE DOCUMENTS ATTACHED TO THIS PROXY
STATEMENT-PROSPECTUS, INCLUDING THE MERGER AGREEMENT, THE VOTING AGREEMENT, THE
OPINION OF THE FINANCIAL ADVISOR TO SPARTA, THE AFFILIATE AGREEMENT AND THE FULL
TEXT OF SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW, WHICH ARE ATTACHED
AS APPENDICES A, B, C, D AND E, RESPECTIVELY. IN ADDITION, WE INCORPORATE BY
REFERENCE IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT SUPERGEN AND SPARTA
INTO THIS PROXY STATEMENT-PROSPECTUS. YOU MAY OBTAIN THE INFORMATION
INCORPORATED BY REFERENCE INTO THIS PROXY STATEMENT-PROSPECTUS WITHOUT CHARGE BY
FOLLOWING THE INSTRUCTIONS IN THE SECTION ENTITLED "WHERE YOU CAN FIND MORE
INFORMATION" ON PAGE 79 OF THIS PROXY STATEMENT-PROSPECTUS.
THE COMPANIES
SUPERGEN, INC.
Two Annabel Lane, Suite 220
San Ramon, California 94583
(925) 327-0200
SuperGen is an emerging pharmaceutical company dedicated to the acquisition,
rapid development and commercialization of products for the treatment of
life-threatening diseases, particularly cancer. SuperGen seeks to minimize the
time, expense and technical risk associated with drug commercialization by
identifying, acquiring and developing pharmaceutical compounds in the later
stages of development, rather than committing significant resources to the
research phase of drug discovery.
SuperGen is focusing its existing and proposed commercialization efforts on
two drugs, Nipent-Registered Trademark- and Rubitecan (RFS 2000).
SuperGen is currently marketing Nipent-Registered Trademark- in the United
States for the treatment of hairy cell leukemia. SuperGen is also conducting
clinical trials of Nipent-Registered Trademark- in order to seek FDA approval to
expand its use for the treatment of additional forms of leukemia. Rubitecan (RFS
2000) is a drug compound in the late stage of clinical development. Clinical
studies indicate it has the potential to treat a variety of solid tumors,
including pancreatic, breast, lung, colorectal, ovarian and prostate cancers,
and hematological disorders.
SuperGen is also developing its product line of enhanced generic anticancer
drugs using its Extra proprietary drug delivery technology. This technology,
consisting of a delivery system incorporating the active drug cyclodextrin, has
the following properties:
- The form of a ready to inject, stable solution that increases the ease and
safety of administration.
- Increased shelf life, facilitating multiple doses from a single vial.
- Less susceptibility to ulceration at the injection site due to shielding
properties of the Extra formulation. The drug is released only upon
circulation within the bloodstream.
SuperGen's Extra technology is protected by a combination of exclusive and
non-exclusive licenses and related patents. These patents were issued between
1991 and 1998. The licenses pertaining to the Extra platform generally are
effective for the terms of the related patents.
SuperGen seeks to expand its portfolio of anticancer drugs through the
acquisition of products and product candidates, or companies owning those
products or candidates, like Sparta, which complement its portfolio and provide
SuperGen with market opportunities.
SuperGen also has non-oncology programs in the large market areas of anemias
and other blood cell disorders, obesity/diabetes and autoimmune diseases.
SuperGen intends to seek partnerships with larger drug companies for the
development and marketing of these non-oncology drug candidates.
<PAGE>
Throughout this proxy statement-prospectus, SuperGen uses the term
"proprietary" to refer to some of its products and technology. By use of this
term, SuperGen means to refer to those products and technology that are
protected from competition by patents, licenses, manufacturing know-how or a
combination of these competitive barriers.
SuperGen was incorporated in March 1991 as a California corporation and
changed its state of incorporation to Delaware in November 1997.
SPARTA PHARMACEUTICALS, INC.
111 Rock Road
Horsham, Pennsylvania 19044
(215) 442-1700
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, chronic metabolic disorders, cardiovascular disorders and inflammation.
Sparta seeks to acquire or license 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.
Sparta was incorporated in Delaware in June 1990 under the name "MediRx
Pharmaceuticals, Inc." In May 1991, Sparta changed its name to "Sparta
Pharmaceuticals, Inc."
QUESTIONS AND ANSWERS
ABOUT THE SUPERGEN/SPARTA MERGER
Q: WHAT CONSIDERATION IS BEING OFFERED TO THE SPARTA STOCKHOLDERS?
(SEE PAGE 46)
A: SuperGen will issue to Sparta stockholders 650,000 shares of SuperGen common
stock in exchange for all outstanding shares of Sparta common stock and
Sparta Series BC Convertible Preferred Stock. This number of shares is
subject to the following adjustments:
- Fewer shares will be issued if the average closing price per share of
SuperGen common stock as reported by the Nasdaq National Market during the
30 trading days before the closing of the merger is greater than $12.00.
In that event, Sparta stockholders will receive a number of shares of
SuperGen common stock equal to $7,800,000 divided by that average closing
price. In addition, SuperGen will issue to Sparta stockholders warrants to
purchase SuperGen common stock in the amount of the decrease below 650,000
shares and exercisable at that average closing price per share of SuperGen
common stock.
- More shares will be issued if the average closing price specified above is
less than $5.00. In that event, Sparta stockholders will receive a number
of shares of SuperGen common stock equal to $3,250,000 divided by that
average closing price.
Q: AS A SPARTA COMMON STOCKHOLDER, WHAT WILL I SPECIFICALLY RECEIVE IN THE
MERGER?
(SEE PAGE 46)
A: If you are a Sparta common stockholder, for each share of Sparta common
stock you own, you will receive a fraction of a share of SuperGen common
stock equal to 650,000 (subject to the adjustments described above) divided
by the aggregate number of shares of Sparta common stock outstanding as of
the effective time of the merger, assuming conversion of all shares of
Sparta Series BC Convertible Preferred Stock into shares of Sparta common
stock. The fraction of a share of SuperGen common stock issuable per share
of Sparta common stock in the merger is often referred to in the merger
agreement and this proxy statement-prospectus as the applicable "exchange
ratio."
2
<PAGE>
Subject to the adjustments described above, based on the capitalization
of Sparta as of the record date, you will receive .03785 of a share of
SuperGen common stock in exchange for each share of Sparta common stock. For
example, if you own 1,000 shares of Sparta common stock, you will receive 37
shares of SuperGen common stock in exchange for your shares. You will
receive only whole shares. You will receive cash in lieu of a fractional
share.
Q: AS A SPARTA PREFERRED STOCKHOLDER, WHAT WILL I SPECIFICALLY RECEIVE IN THE
MERGER?
(SEE PAGES 46 AND 63)
A: If you are a Sparta preferred stockholder, for each share of Sparta Series
BC Convertible Preferred Stock you own, you will receive a fraction of a
share of SuperGen common stock equal to the applicable exchange ratio
specified above multiplied by the conversion rate then applicable for the
Sparta Series BC Convertible Preferred Stock (that is, .03785 multiplied by
16.4). As a condition to the merger, Sparta stockholders will be asked to
approve amendments to Sparta's certificate of incorporation which increase
the conversion rate for the Sparta Series BC Convertible Preferred Stock to
16.4 from 2.666667 in exchange for the elimination of the liquidation
preference for that preferred stock.
Subject to the adjustments described above, assuming the increase in the
conversion rate described above and based on the capitalization of Sparta as
of the record date, you will receive .62074 of a share of SuperGen common
stock in exchange for each share of Sparta Series BC Convertible Preferred
Stock. For example, if you own 1,000 shares of Sparta Series BC Convertible
Preferred Stock, you will receive 620 shares of SuperGen common stock in
exchange for your shares. You will receive only whole shares. You will
receive cash in lieu of a fractional share.
Q: WHEN IS THE SPARTA STOCKHOLDERS' MEETING RELATING TO THE MERGER AND WHAT
SPECIFIC PROPOSALS WILL I BE ASKED TO CONSIDER?
(SEE PAGE 29)
A: The Sparta special meeting will take place on August 10, 1999. At the Sparta
special meeting, Sparta stockholders will be asked to consider the following
specific proposals:
- To approve and adopt the merger agreement and approve the merger. The
Sparta board of directors unanimously recommends voting in favor of this
proposal.
- To approve amendments to Sparta's certificate of incorporation. The
amendments will increase the conversion rate in effect for the Sparta
Series BC Convertible Preferred Stock so that each full share will be
convertible into 16.4 shares of Sparta common stock (instead of 2.666667
shares of Sparta common stock). In exchange for this increase in the
conversion rate, the amendments will eliminate the liquidation preference
to which the holders of Sparta Series BC Convertible Preferred Stock are
currently entitled. The Sparta board of directors unanimously recommends
voting in favor of this proposal.
Sparta stockholders may also be asked to consider and vote upon other
matters as may be properly brought before the Sparta special meeting.
Q: IF I AM NOT GOING TO ATTEND THE SPARTA STOCKHOLDERS MEETING, SHOULD I RETURN
MY PROXY CARD INSTEAD?
(SEE PAGE 29)
A: Yes. Please fill out and sign your proxy card and return it in the enclosed
envelope as soon as possible. Returning your proxy card ensures that your
shares will be represented at the Sparta special meeting.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
(SEE PAGE 29)
A: Your broker will not be able to vote your shares without instructions from
you. Therefore, it is very important that you instruct your broker to vote
your shares, following the procedures provided by your broker.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
(SEE PAGE 31)
3
<PAGE>
A: Send in a later-dated, signed proxy card to Sparta's secretary before the
Sparta special meeting, send a written notice to Sparta's secretary before
the Sparta special meeting stating that the proxy is revoked or attend the
Sparta special meeting in person and vote. If you have instructed your
broker to vote your shares, you must follow the directions received from
your broker to change those instructions.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
(SEE PAGE 49)
A: No. After the merger is completed, we will mail to you (1) a letter of
transmittal with respect to the surrender of your certificates representing
your shares of Sparta capital stock and (2) instructions for the use of that
letter of transmittal.
SUMMARY OF THE TRANSACTION
STRUCTURE OF THE TRANSACTION
(SEE PAGE 46)
SuperGen and Sparta have entered into the merger agreement. As a result of
the merger of a wholly-owned subsidiary of SuperGen into Sparta, Sparta will
become a wholly-owned subsidiary of SuperGen. Following the merger, you will be
a stockholder of SuperGen.
REASONS FOR THE MERGER
(SEE PAGE 32)
The Sparta board of directors has determined that the merger agreement and
the merger are in the best interests of Sparta and its stockholders. In reaching
its decision, the Sparta board considered a number of factors, including but not
limited to the following:
- The fact that the merger would provide Sparta stockholders with the
opportunity to receive SuperGen common stock trading at a premium over the
price at which Sparta common stock was trading since the delisting of the
Sparta common stock from the Nasdaq SmallCap Market and to retain an
equity interest in the combined entity.
- Sparta's cash position and its prospects for securing additional financing
absent the merger.
- The financial and other analyses presented by Sparta's financial advisor.
- The oral commitment of SuperGen to continue various clinical trials being
conducted by Sparta, subject to ongoing review by the SuperGen board of
directors.
- The experience of SuperGen and its management in conducting clinical
trials and seeking FDA approval for therapies and diagnostics related to
cancer.
- Larger public float and trading volume of shares of SuperGen common stock
on the Nasdaq National Market compared with the public float and trading
volume of shares of Sparta common stock on the OTC Bulletin Board.
- An assessment of possible strategic alternatives, including remaining a
separate company, joint ventures and other acquisitions, taking into
consideration the marketing activities conducted by Sparta's management
and its advisors in pursuing these strategic alternatives.
The Sparta board also considered that Sparta stockholders would have the
opportunity to participate in the potential growth of SuperGen following the
merger. However, the Sparta board also recognized that the potential benefits of
the merger may not be realized and that there are a number of other risks and
uncertainties related to the merger.
The SuperGen board of directors has approved the merger agreement and the
merger. The SuperGen board also considered the potential benefits of the merger
as well as the risks and uncertainties related to the merger.
RISKS OF THE MERGER
(SEE PAGE 16)
In considering whether to approve the merger agreement and the merger, you
should consider all the risks of the merger, including
4
<PAGE>
the risks that the potential benefits of the merger may not be realized, that
SuperGen's business may not be successful and that the market price of SuperGen
common stock will fluctuate and could decline in the future.
RESALE OF SUPERGEN COMMON STOCK RECEIVED IN THE MERGER
(SEE PAGE 54)
All of Sparta's stockholders, other than Sparta's executive officers,
directors and stockholders who own more than 10% of Sparta's outstanding capital
stock, will generally be permitted to resell the SuperGen common stock they
receive in the merger without restriction. Sparta's executive officers,
directors and significant stockholders will be able to resell their SuperGen
common stock received in the merger only if they comply with securities laws.
LISTING OF SUPERGEN COMMON STOCK
(SEE PAGE 45)
The shares of SuperGen common stock (and any warrants for the purchase of
SuperGen common stock issued in the event that the average closing price of
SuperGen common stock is greater than $12.00 per share as described above)
issued in connection with the merger will be listed on the Nasdaq National
Market.
YOUR RIGHTS AS A HOLDER OF SUPERGEN COMMON STOCK
(SEE PAGE 73)
Following the merger, you will be a SuperGen stockholder. There are
important differences between the rights of stockholders of Sparta and
stockholders of SuperGen. In considering whether to approve the merger agreement
and the merger, you should consider these differences.
RECORD DATE; VOTING POWER
(SEE PAGE 29)
You are entitled to vote at the Sparta special meeting if you own shares of
Sparta common stock and/or Sparta Series BC Convertible Preferred Stock as of
the close of business on July 6, 1999, the record date.
At the close of business on the record date, 3,691,841 shares of Sparta
common stock and 813,741 shares of Sparta Series BC Convertible Preferred Stock
were outstanding and entitled to vote at the Sparta special meeting. You will
have one vote at the Sparta special meeting for each share of Sparta common
stock you owned as of the record date and 2.666667 votes for each share of
Sparta Series BC Convertible Preferred Stock you owned as of the record date.
RECOMMENDATION TO SPARTA STOCKHOLDERS
(SEE PAGE 34)
The Sparta board believes that the merger is fair to, and is in the best
interests of, both you and Sparta. The Sparta board unanimously recommends that
you vote "for" the proposal to approve and adopt the merger agreement and
approve the merger. In addition, the Sparta board unanimously recommends that
you vote "for" the proposal to approve the amendments to Sparta's certificate of
incorporation.
VOTE REQUIRED
(SEE PAGE 30)
The affirmative vote of a majority of the outstanding shares of Sparta
common stock and Sparta Series BC Convertible Preferred Stock on an as-converted
basis as of the record date is required to approve the proposals to approve and
adopt the merger agreement, approve the merger and approve the amendments to
Sparta's certificate of incorporation require.
In addition, the proposal to approve the amendments to Sparta's certificate
of incorporation will require a separate class vote of holders of the Sparta
Series BC Convertible Preferred Stock. The affirmative vote of the holders of a
majority of the outstanding shares of Sparta Series BC Convertible Preferred
Stock as of the record date is required.
Even if the affirmative votes required to approve the amendments to Sparta's
certificate of incorporation are obtained, the amendments will not be effective
unless the Sparta stockholders also approve and adopt the merger agreement and
approve the merger. Conversely, even if the affirmative vote required to approve
and adopt the merger agreement and approve the
5
<PAGE>
merger is obtained, the merger will not be effective unless the Sparta
stockholders approve the amendments to Sparta's certificate of incorporation.
SHARE OWNERSHIP OF SPARTA DIRECTORS AND
EXECUTIVE OFFICERS
(SEE PAGE 69)
As of the record date and assuming the conversion of all Sparta Series BC
Convertible Preferred Stock held by them, the directors and executive officers
of Sparta, as a group, were entitled to vote 208,038 shares of Sparta common
stock or approximately 3.5% of the outstanding voting shares. They were entitled
to vote 15,000 shares of Sparta Series BC Convertible Preferred Stock, or
approximately 1.8% of the Sparta Series BC Convertible Preferred Stock. The
directors and executive officers of Sparta had the right to acquire up to an
additional 223,501 shares of Sparta common stock under Sparta stock options and
stock purchase warrants exercisable within 60 days of the record date.
VOTING AGREEMENTS
(SEE PAGE 54)
Executive officers, directors (and stockholders related to directors) and
10% or greater stockholders of Sparta, beneficially owned, in the aggregate,
approximately 14.6% of the outstanding shares of Sparta common stock on an
as-converted basis and approximately 20.9% of the outstanding shares of the
Sparta Series BC Convertible Preferred Stock as of the date of the merger
agreement. These stockholders have entered into voting agreements that require
that they vote their shares of Sparta common stock and Sparta Series BC
Convertible Preferred Stock in favor of approval and adoption of the merger
agreement and approval of the merger and in favor of any other actions
contemplated by the merger agreement or required in furtherance of the merger.
These voting agreements also require that these stockholders deliver proxies
with respect to these matters to SuperGen that cannot be revoked. The form of
the voting agreement and the related irrevocable proxy are included as Appendix
B to this proxy statement-prospectus.
WHEN THE MERGER WILL OCCUR
(SEE PAGE 46)
Unless SuperGen and Sparta otherwise agree, we will complete the merger no
later than the second business day after all of the conditions to closing
contained in the merger agreement have been satisfied or waived. The merger will
become effective when we file a certificate of merger with the State of
Delaware.
Assuming that both companies satisfy or waive all of the conditions in the
merger agreement as quickly as possible, we hope to complete the merger by
September 1999.
TREATMENT OF OPTIONS AND WARRANTS
(SEE PAGE 48)
At the effective time of the merger, each option to purchase Sparta common
stock will convert into an option to purchase that number of whole shares of
SuperGen common stock equal to the product of the number of shares of Sparta
common stock that were issuable upon exercise of that option multiplied by the
exchange ratio for Sparta common stock, rounded to the nearest whole share. Each
option will be exercisable at an adjusted exercise price, rounded to the nearest
whole cent. SuperGen will assume each option to purchase Sparta common stock in
accordance with the terms of the stock option plan under which the Sparta stock
option was issued. Likewise, each outstanding warrant to purchase Sparta common
stock will convert into a warrant to purchase that number of whole shares of
SuperGen Common Stock equal to the product of the number of shares of Sparta
common stock that were issuable upon exercise of that warrant multiplied by the
exchange ratio for Sparta common stock, rounded to the nearest whole share. Each
Sparta stock purchase warrant will be exercisable at an adjusted exercise price,
rounded to the nearest whole cent. The terms and conditions that will apply to
the new option or warrant will be substantially the same as the terms and
conditions that apply to the existing option or warrant.
6
<PAGE>
OWNERSHIP OF SUPERGEN FOLLOWING THE MERGER
(SEE PAGE 44)
Assuming no adjustments to the consideration payable by SuperGen in the
merger, SuperGen will issue to Sparta stockholders an aggregate of 650,000
shares of SuperGen common stock. This number does not include shares that may be
issued in the future upon exercise of Sparta stock purchase warrants or Sparta
stock options assumed by SuperGen in the merger. In addition, SuperGen will be
obligated to issue an additional aggregate of 110,343 shares of SuperGen common
stock if and when Sparta stock purchase warrants and the Sparta stock options
assumed in the merger are exercised. Based on the number of shares of SuperGen
common stock outstanding as of the record date (not including outstanding
SuperGen options or warrants), and after giving effect to the issuance of
SuperGen common stock in connection with the merger and the exercise of all
Sparta stock options and Sparta stock purchase warrants assumed by SuperGen, the
former holders of Sparta common stock, Sparta Series BC Convertible Preferred
Stock, Sparta stock options and Sparta stock purchase warrants will hold
approximately 3% of the total number of shares of SuperGen common stock issued
and outstanding.
As of the record date, Sparta stock options to be assumed in the merger
would represent the right to purchase an aggregate of 13,869 shares of SuperGen
common stock with exercise prices ranging from $58.78 to $792.60 per share. As
of the record date, the Sparta stock purchase warrants to be assumed in the
merger would represent the right to purchase an aggregate of 96,474 shares of
SuperGen common stock with exercise prices ranging from $55.48 to $871.86 per
share.
FEDERAL INCOME TAX CONSEQUENCES
(SEE PAGE 42)
SuperGen and Sparta intend that the merger be treated as a tax-free
reorganization for federal income tax purposes. Sparta stockholders should not
recognize gain or loss in the merger (other than on cash received for a fraction
of a share or cash received upon exercise of dissenters' rights, which cash will
be subject to tax). The merger agreement does not require the parties to obtain
a ruling from the IRS as to the tax consequences of the merger. It is a
condition to the consummation of the merger that each of Sparta and SuperGen
receive opinions from their legal counsel that, based on various assumptions and
certifications, the IRS will treat the merger as a tax-free reorganization for
federal income tax purposes.
TAX MATTERS ARE VERY COMPLICATED. THE TAX CONSEQUENCES OF THE MERGER TO YOU
WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. WE URGE YOU TO CONSULT YOUR OWN
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE
APPLICABLE FEDERAL, LOCAL AND FOREIGN TAX.
OPINION OF FINANCIAL ADVISOR
(SEE PAGE 37)
In deciding to approve the merger, the Sparta board considered the opinion
of Spencer Trask Securities, Inc., its financial advisor, which stated that the
exchange ratio as set forth in the merger agreement was fair, from a financial
point of view, to Sparta's stockholders. This opinion is attached as Appendix C
to this proxy statement-prospectus. We encourage you to read this opinion
carefully and in its entirety.
INTERESTS OF SPARTA EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER
(SEE PAGE 44)
Sparta stockholders should note that Sparta executive officers and directors
have interests in the merger that are different from, or in addition to, your
interest as a stockholder. If SuperGen and Sparta complete the merger, SuperGen
will continue indemnification arrangements for persons serving as directors and
officers of Sparta at the time of the merger. Also, SuperGen will maintain a
policy of directors' and officers' liability insurance for the benefit of those
persons for six years after the merger. In addition, the executive officers of
Sparta are entitled to various benefits under existing employment agreements,
stock option agreements and promissory notes as a result of the merger. One of
Sparta's executive officers has also agreed to become an executive officer of
SuperGen at or about the effective time of the merger.
7
<PAGE>
CONDITIONS TO THE MERGER
(SEE PAGE 51)
SuperGen will complete the merger only if a number of conditions are either
satisfied or waived by SuperGen, some of which include:
- The representations and warranties of Sparta made in the merger agreement
are accurate in all material respects.
- Sparta performs covenants and obligations contained in the merger
agreement in all material respects.
- The Sparta stockholders adopt and approve the merger agreement and the
merger and approve the amendments to Sparta's certificate of
incorporation.
- The value of the cash and cash equivalents of Sparta at the time of the
closing is at least the amounts agreed to by the parties.
- There has been no event or change that has had a material adverse effect
on Sparta.
- There are no restraining orders, injunctions and other governmental orders
preventing the consummation of the merger.
Sparta will complete the merger only if a number of conditions are satisfied
or waived by Sparta, some of which include:
- The representations and warranties of SuperGen made in the merger
agreement are accurate in all material respects.
- SuperGen performs covenants and obligations contained in the merger
agreement in all material respects.
- The Sparta stockholders adopt and approve the merger agreement and approve
the merger and approve the amendments to Sparta's certificate of
incorporation.
- There has been no event or change that has had a material adverse effect
on SuperGen.
- The SuperGen common stock to be issued in the merger is authorized for
listing on the Nasdaq National Market.
- There are no restraining orders, injunctions and other governmental orders
preventing the consummation of the merger.
NO SOLICITATION
(SEE PAGE 53)
Sparta has agreed, subject to exceptions set forth in the merger agreement,
not to initiate or engage in discussions regarding a business combination with
any other party other than SuperGen until the earlier of the effective time of
the merger or termination of the merger agreement pursuant to its terms.
TERMINATION OF THE MERGER AGREEMENT
(SEE PAGE 52)
Either SuperGen or Sparta may terminate the merger agreement at any time
prior to the effective time of the merger, whether before or after approval of
the merger by Sparta stockholders, if:
- The SuperGen and Sparta boards mutually consent.
- We do not complete the merger by September 15, 1999 (or October 15, 1999
under circumstances specified in the merger agreement).
- A governmental entity issues an order, decree or ruling or takes any other
action which permanently prevents us from consummating the merger.
- The required approvals of the Sparta stockholders are not obtained.
- The Sparta Board approves or recommends an "SPI Superior Proposal" (as
defined in the merger agreement).
SuperGen may terminate the merger agreement at any time prior to the
effective time of the merger, whether before or after approval of the merger by
Sparta stockholders, if:
- The Sparta board withholds, withdraws or modifies, in a manner adverse to
SuperGen, its approval or recommendation in favor of adoption and approval
of the merger agreement and the merger.
- Sparta breaches any of its representations, warranties or covenants
contained in the
8
<PAGE>
merger agreement (subject to cure provisions).
Sparta may terminate the merger agreement at any time prior to the effective
time of the merger, whether before or after approval of the merger by Sparta
stockholders, if:
- SuperGen breaches any of its representations, warranties or covenants
contained in the merger agreement (subject to cure provisions).
EXPENSES AND TERMINATION FEES
(SEE PAGE 52)
SuperGen and Sparta have agreed that we will each pay our own fees and
expenses in connection with the merger, whether or not we consummate the merger,
except that we will share equally all fees and expenses (other than attorneys'
and accountants' fees) in connection with the printing and filing of this proxy
statement-prospectus and the registration statement of which this proxy
statement-prospectus is a part. In addition, Sparta has agreed to pay SuperGen
an amount equal to 150% of costs and expenses incurred by SuperGen in connection
with the merger agreement and the transactions contemplated by the merger
agreement if the merger agreement is terminated under various circumstances,
including for breaches of the merger agreement by Sparta. Similarly, SuperGen is
obligated to pay Sparta similar costs and expenses if the merger agreement is
terminated for breaches of the merger agreement by SuperGen.
AFFILIATE AGREEMENTS
(SEE PAGE 54)
Some Sparta stockholders who might be considered affiliates of Sparta under
applicable securities laws have executed and delivered affiliate agreements to
SuperGen. The purpose of these agreements is to comply with the requirements of
federal securities laws, which, among other things, restrict these individuals'
ability to dispose of SuperGen common stock received in the merger. A form of
these affiliate agreements is included as Appendix D to this proxy
statement-prospectus.
ANTICIPATED ACCOUNTING TREATMENT
(SEE PAGE 45)
We expect the merger will be accounted for under the purchase method of
accounting.
RIGHTS OF DISSENTING STOCKHOLDERS
(SEE PAGE 45)
If you vote against the merger you may be entitled to appraisal rights under
applicable Delaware law. If you desire to exercise your appraisal rights you
must satisfy all of the conditions of Section 262 of the Delaware General
Corporation Law. You are strongly urged to read the full text of Section 262,
which is included as Appendix E to this proxy statement-prospectus.
MARKETS AND MARKET PRICES
SuperGen common stock is quoted on the Nasdaq National Market under the
symbol "SUPG." Sparta common stock is quoted on the OTC Bulletin Board under the
symbol "SPTA." Following the consummation of the merger, Sparta common stock
will cease to be quoted on the OTC Bulletin Board.
The following table sets forth the closing sale price per share of SuperGen
common stock as reported on the Nasdaq National Market and of Sparta common
stock as reported on the OTC Bulletin Board and the equivalent estimated per
share price (as explained below) of Sparta common stock, each as of January 15,
1999, the last trading day before SuperGen and Sparta announced that they signed
the merger agreement.
<TABLE>
<CAPTION>
SPARTA COMMON EQUIVALENT SPARTA
SUPERGEN COMMON STOCK STOCK CLOSING PER SHARE PRICE
CLOSING PRICE PRICE (1)
- ---------------------- --------------- -----------------
<S> <C> <C>
$10.56 $ .23 $ .40
</TABLE>
- ------------------------
(1) The equivalent Sparta per share price represents 3.785% of the price of one
share of SuperGen common stock and ignores any dilutive effect of the
merger.
We cannot guarantee or predict the actual prices of SuperGen and Sparta
common stock prior to or at the time SuperGen and Sparta consummate the merger.
9
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The tables on the following three pages present (1) selected historical
financial data of SuperGen, (2) selected historical financial data of Sparta and
(3) unaudited selected pro forma combined financial information of SuperGen and
Sparta, which reflects the proposed transaction and assumes the purchase method
of accounting.
The selected historical financial data of SuperGen has been derived from the
audited historical consolidated financial statements and related notes of
SuperGen for each of the three years in the period ended December 31, 1998, nine
months ended December 31, 1995 and the year ended March 31, 1995 and the
unaudited financial statements for the quarters ended March 31, 1998 and 1999.
The selected historical financial data of Sparta has been derived from the
audited historical consolidated financial statements and related notes of Sparta
for each of the years in the five-year period ended December 31, 1998 and the
unaudited financial statements for the quarters ended March 31, 1998 and 1999.
This historical information is only a summary and it is qualified by reference
to, and should be read in conjunction with, the historical financial statements
and related notes. The unaudited selected pro forma combined financial
information has been derived from the unaudited pro forma combined financial
statements included elsewhere in this proxy statement-prospectus and should be
read in conjunction with the unaudited pro forma combined financial statements
and related notes.
10
<PAGE>
SUPERGEN
SELECTED HISTORICAL FINANCIAL DATA
(In Thousands, Except per Share Amounts)
<TABLE>
<CAPTION>
THREE MONTHS
NINE MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED MARCH 31,
MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, --------------------
1995 1995 1996 1997 1998 1998 1999
----------- ------------- ------------- ------------ ------------ --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Net sales...................... $ -- $ -- $ 264 $ 1,802 $ 3,004 $ 758 $ 916
Contract revenues from related
party........................ 169 13 -- -- -- -- --
----------- ------------- ------------- ------------ ------------ --------- ---------
Total revenues............... 169 13 264 1,802 3,004 758 916
Operating expenses:
Cost of sales.................. -- -- 283 1,539 1,925 325 708
Research and development....... 2,986 2,174 6,152 8,583 10,511 2,777 3,120
Sales and marketing............ 198 161 982 2,018 3,232 642 1,232
General and administrative..... 735 482 1,912 2,934 3,814 1,135 863
Acquisition of in-process
research and development..... -- -- 442 3,506 -- -- --
----------- ------------- ------------- ------------ ------------ --------- ---------
Total operating expenses..... 3,919 2,817 9,771 18,580 19,482 4,879 5,923
----------- ------------- ------------- ------------ ------------ --------- ---------
Loss from operations........... (3,750) (2,804) (9,507) (16,778) (16,478) (4,121) (5,007)
Interest income................ 111 75 749 782 901 292 140
----------- ------------- ------------- ------------ ------------ --------- ---------
Net loss..................... $ (3,639) $ (2,729) $ (8,758) $ (15,996) $ (15,577) $ (3,829) $ (4,867)
----------- ------------- ------------- ------------ ------------ --------- ---------
----------- ------------- ------------- ------------ ------------ --------- ---------
Basic and diluted net loss per
common share................... $ (0.31) $ (0.22) $ (0.55) $ (0.85) $ (0.77) $ (0.19) $ (0.23)
----------- ------------- ------------- ------------ ------------ --------- ---------
----------- ------------- ------------- ------------ ------------ --------- ---------
Basic and diluted weighted
average number of shares
outstanding.................... 11,908 12,629 15,961 18,765 20,353 20,235 21,063
----------- ------------- ------------- ------------ ------------ --------- ---------
----------- ------------- ------------- ------------ ------------ --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------------------------ MARCH 31,
1995 1995 1996 1997 1998 1999
----------- --------- --------- --------- --------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 2,014 $ 1,815 $ 13,915 $ 23,326 $ 8,614 $ 5,750
Property, plant and equipment, net............... 188 150 411 2,906 2,939 2,847
Total assets..................................... 2,440 2,162 17,936 30,772 19,793 18,130
Current liabilities.............................. 407 511 2,229 2,205 2,975 3,778
Stockholders' equity............................. 2,033 1,651 15,707 28,567 16,818 14,352
</TABLE>
11
<PAGE>
SPARTA
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31, PERIOD FROM
--------------------------------------------------------------- ------------------------ JUNE 12, 1990
1994 1995 1996(1) 1997 1998 1998 1999 (INCEPTION) TO
----------- ----------- ----------- ----------- ----------- ----------- ----------- MARCH 31, 1999
--------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Interest income....... $ 114,648 $ 121,438 $ 296,730 $ 445,606 $ 236,467 $ 76,745 $ 23,071 $ 1,293,536
Grant income and
contract revenue.... 109,995 17,875 -- 155,206 612,407 144,252 132,760 1,028,243
----------- ----------- ----------- ----------- ----------- ----------- ----------- --------------
Total revenues...... 224,643 139,313 296,730 600,812 848,874 220,997 155,831 2,321,779
----------- ----------- ----------- ----------- ----------- ----------- ----------- --------------
Operating expenses:
Research and
development......... 2,013,934 1,819,887 3,176,742 3,748,216 3,663,055 931,577 802,287 17,394,705
General and
administrative...... 1,360,367 961,833 1,404,955 1,497,006 1,247,880 284,567 330,328 8,912,752
Charge for acquired
research and
development......... -- -- 3,062,913 235,000 -- -- -- 3,297,913
----------- ----------- ----------- ----------- ----------- ----------- ----------- --------------
Total operating
expenses.......... 3,374,301 2,781,720 7,644,610 5,480,222 4,910,935 1,216,144 1,132,615 29,605,370
----------- ----------- ----------- ----------- ----------- ----------- ----------- --------------
Net loss................ $(3,149,658) $(2,642,407) $(7,347,880) $(4,879,410) $(4,062,061) $ (995,147) $ (976,784) $(27,283,591)
----------- ----------- ----------- ----------- ----------- ----------- ----------- --------------
----------- ----------- ----------- ----------- ----------- ----------- ----------- --------------
Basic and diluted net
loss per common
share................. $ (2.85) $ (2.14) $ (4.64) $ (2.16) $ (1.18) $ (0.31) $ (0.26)
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Basic and diluted
weighted average
number of shares
outstanding........... 1,106,899 1,233,563 1,582,414 2,260,261 3,446,252 3,189,207 3,688,360
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MARCH 31,
1994 1995 1996(1) 1997 1998 1999
---------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents........ $2,348,522 $ 734,296 $10,246,812 $ 4,767,317 $ 2,470,359 $ 1,532,163
Short term investments........... 1,099,877 -- -- 1,473,275 -- --
Working capital.................. 3,249,449 728,560 9,700,066 5,568,130 1,956,988 1,046,556
Total assets..................... 3,626,680 999,966 11,086,283 6,816,251 2,740,980 1,809,031
Deficit accumulated during the
development stage.............. (7,375,049) (10,017,456) (17,365,336) (22,244,746) (26,306,807) (27,283,591)
Total stockholders' equity....... 3,369,004 814,105 10,456,786 6,075,011 2,212,890 1,252,908
</TABLE>
- ------------------------------
(1) Sparta acquired the business and assets of Lexin Pharmaceutical Corp., a
development stage company, in March 1996.
12
<PAGE>
SUPERGEN AND SPARTA
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial information set forth
below gives effect to the merger as a purchase. The unaudited pro forma
condensed combined statements of operations for year ended December 31, 1998 and
for the three-month period ended March 31, 1999, combine the historical
statements of operations of SuperGen and Sparta as if the merger had occurred on
January 1, 1998. The unaudited pro forma condensed combined balance sheet data
as of March 31, 1999 gives effect to the merger as if it had occurred on March
31, 1999, and gives effect to the allocation of the purchase price to the Sparta
assets acquired, including in-process research and development and assumed
liabilities. This data should be read in conjunction with the selected
historical financial information, the unaudited pro forma condensed combined
financial statements and the separate historical financial statements of
SuperGen and Sparta incorporated by reference and included elsewhere in this
proxy statement-prospectus, respectively. The unaudited pro forma condensed
combined financial information is presented for illustrative purposes only and
is not necessarily indicative of the operating results or financial position
that would have been achieved had the merger been completed at the beginning of
the earliest period presented, and such information should not be construed as
representative of future operating results or financial position.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
STATEMENTS OF OPERATIONS DATA:
Revenue:
Net sales................................................................ $ 3,004 $ 916
Grant income and contract revenue........................................ 613 133
-------- -------
Total revenue.......................................................... 3,617 1,049
Expenses:
Cost of Sales............................................................ 1,925 708
Research and development................................................. 14,174 3,922
Sales and marketing...................................................... 3,232 1,232
General and Administrative............................................... 5,062 1,193
Amortization of purchased intangible assets.............................. 145 21
-------- -------
Total operating costs.................................................. 24,538 7,076
-------- -------
Operating loss............................................................. (20,921) (6,027)
Interest icome............................................................. 1,137 163
-------- -------
Net loss................................................................... $ (19,784) $ (5,864)
-------- -------
-------- -------
Net loss per share--basic and diluted...................................... $ (0.95) $ (0.27)
-------- -------
-------- -------
Shares used in computing basic and diluted net loss per share.............. 20,831 21,541
-------- -------
-------- -------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................................................... $ 7,282
Working capital................................................................................. 10,013
Total assets.................................................................................... 20,414
Accumulated deficit............................................................................. (67,990)
Total stockholders' equity...................................................................... 15,830
</TABLE>
13
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth historical per share data of SuperGen and
Sparta and combined per share data on an unaudited pro forma basis. You should
refer to the selected historical financial data and the unaudited pro forma
combined condensed financial information and related notes included elsewhere in
this proxy statement-prospectus. The unaudited pro forma combined financial data
are not necessarily indicative of the operating results or financial position
that would have been achieved had the merger been consummated as of the
beginning of the periods presented and should not be construed as representative
of future operating results or financial position.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- ---------------------
<S> <C> <C>
Historical SuperGen:
Basic and diluted net loss per common share............................ $ (0.77) $ (0.23)
Historical Sparta:
Basic and diluted net loss per common share............................ $ (1.18) $ (0.26)
Pro Forma Combined Net Loss (1):
Per SuperGen share--Basic.............................................. $ (0.95) $ (0.27)
Equivalent per Sparta share--Basic (2)................................. $ (0.04) $ (0.01)
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999
-----------------
<S> <C>
Book value per share (3):
Historical SuperGen............................................................................. $ 0.68
Historical Sparta............................................................................... $ 0.34
Pro forma combined per SuperGen share .......................................................... $ 0.73
Pro forma combined equivalent per Sparta share ................................................. $ 0.03
</TABLE>
- ------------------------
(1) SuperGen estimates it will incur direct transaction costs of approximately
$250,000 associated with the merger, which will be included in the purchase
price upon consummation of the merger. The pro forma combined net loss will
include charges for in-process research and development and amortization of
intangible assets acquired. See "Unaudited Pro Forma Combined Financial
Information" and accompanying notes thereto.
(2) The pro forma combined net loss per equivalent Sparta share amounts is
calculated by multiplying the SuperGen pro forma combined net income per
share amounts by the estimated exchange ratio of .03785 after giving effect
to the adjustment to the Sparta Series BC Convertible Preferred Stock
conversion rate.
(3) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of common stock outstanding as of March 31,
1999. The pro forma combined book value per share data gives effect to the
estimated direct transaction costs as if these costs had been incurred as of
the respective balance sheet date. The pro forma combined book value per
share data does not include additional costs, which costs are not currently
estimable, expected to be incurred relating to integrating the companies.
The pro forma combined book value per share is computed by dividing pro
forma stockholders' equity by the pro forma number of shares of common stock
outstanding as of March 31, 1999 (and for Sparta, all shares of Sparta
Series BC Convertible Preferred Stock are assumed to convert to Sparta
common stock on a 16.4 for 1 basis).
14
<PAGE>
COMPARATIVE MARKET PRICE DATA
The table below sets forth, for the calendar quarters indicated, the
reported (1) high and low bid prices of SuperGen common stock as reported on the
Nasdaq National Market and (2) high and low bid prices of Sparta common stock as
reported on the Nasdaq SmallCap Market until December 1, 1998 and on the OTC
Bulletin Board since that date.
<TABLE>
<CAPTION>
SUPERGEN SPARTA
COMMON STOCK COMMON STOCK (1)
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1997 CALENDAR YEAR
First Quarter..................................................... $ 14.13 $ 9.63 $ 7.19 $ 3.44
Second Quarter.................................................... 14.75 10.88 4.84 2.50
Third Quarter..................................................... 18.81 12.88 4.22 2.34
Fourth Quarter.................................................... 18.63 14.50 4.22 1.25
1998 CALENDAR YEAR
First Quarter..................................................... $ 15.13 $ 11.69 $ 2.97 $ 1.25
Second Quarter (1)................................................ 17.75 9.63 3.75 1.09
Third Quarter..................................................... 12.50 5.13 1.19 .38
Fourth Quarter.................................................... 9.31 5.38 .44 .16
1999 CALENDAR YEAR
First Quarter....................................................... $ 12.63 $ 8.22 $ .88 $ .20
Second Quarter (through June 25, 1999).............................. 19.63 10.25 .66 .36
</TABLE>
- ------------------------
(1) Effective May 13, 1998, Sparta common stock was split 1-for-5. All prices
have been restated to reflect this reverse stock split.
On January 15, 1999, the last full trading day prior to the public
announcement of the execution and delivery of the merger agreement, the closing
prices on the Nasdaq National Market and the OTC Bulletin Board, respectively,
were $10.56 per share of SuperGen common stock and $.23 per share of Sparta
common stock. On June 25, 1999, the closing prices on the Nasdaq National Market
and the OTC Bulletin Board, respectively, were $14.38 per share of SuperGen
common stock and $.51 per share of Sparta common stock.
Neither SuperGen nor Sparta has ever paid cash dividends. Each of SuperGen
and Sparta currently intends to retain any future earnings for development of
its business and not to distribute earnings to stockholders as dividends. After
the effective time of the merger, the declaration and payment by SuperGen of any
future dividends and the amounts of any future dividends will depend upon its
results of operations, financial condition, cash requirements, future prospects,
limitations imposed by credit agreements or senior securities and other factors
deemed relevant by its board of directors.
15
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW, ELSEWHERE IN THIS
PROXY STATEMENT-PROSPECTUS AND IN THE DOCUMENTS EACH OF SUPERGEN AND SPARTA HAS
INCORPORATED INTO THIS PROXY STATEMENT-PROSPECTUS BY REFERENCE IN DECIDING ON
THE PROPOSALS IN THIS PROXY STATEMENT-PROSPECTUS. THIS PROXY
STATEMENT-PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND
UNKNOWN RISKS AND UNCERTAINTIES. SEE "STATEMENTS REGARDING FORWARD-LOOKING
STATEMENTS." THE MATTERS SET FORTH BELOW ARE CAUTIONARY STATEMENTS IDENTIFYING
IMPORTANT FACTORS WITH RESPECT TO THESE FORWARD-LOOKING STATEMENTS, INCLUDING
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY AND
ADVERSELY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS.
RISKS RELATED TO THE MERGER
IF THE CONDITIONS TO THE MERGER ARE NOT MET, THE MERGER WILL NOT OCCUR
Numerous conditions must be satisfied or waived to complete the merger.
These conditions are described under "Terms of the Merger--Conditions to the
Merger" and in detail in the merger agreement. SuperGen and Sparta cannot assure
you that each of the conditions, including Sparta stockholder approval, will be
satisfied. If the conditions are not satisfied or waived, the merger will not
occur or will be delayed, and SuperGen and Sparta each may lose some or all of
the intended benefits of the merger.
IF SUPERGEN AND SPARTA DO NOT INTEGRATE THEIR TECHNOLOGIES, PRODUCTS AND
OPERATIONS QUICKLY AND EFFECTIVELY, ALL OF THE POTENTIAL BENEFITS OF THE
MERGER MAY NOT OCCUR
SuperGen and Sparta cannot assure you that they will be able to integrate
their respective technologies, products, product candidates and operations
quickly and smoothly. In order to obtain the benefits of the merger, SuperGen
must effectively use and operate Sparta's technologies and product candidates
together with SuperGen's technologies and products. SuperGen may be required to
spend additional time or money on integration which would otherwise be spent on
developing its business and services or other matters. If SuperGen and Sparta do
not integrate their technologies, products, product candidates and operations
smoothly or if management spends too much time on integration issues, it could
harm the combined company's business, financial condition and prospects.
THE CONSIDERATION THAT SPARTA STOCKHOLDERS RECEIVE IN THE MERGER DEPENDS ON THE
AVERAGE CLOSING PRICE OF SUPERGEN COMMON STOCK
If the average closing price of SuperGen common stock on the Nasdaq National
Market during the 30 trading days before the closing of the merger is between
$5.00 and $12.00 per share, then Sparta stockholders will receive 650,000 shares
of SuperGen common stock. Therefore, while SuperGen common stock is trading
within that range, any decrease in the market price of SuperGen common stock
before the closing of the merger will reduce the dollar value of the 650,000
shares to be received by Sparta stockholders. Conversely, any increase in the
market price of SuperGen common stock before the closing of the merger will
increase the dollar value of the 650,000 shares to be received by Sparta
stockholders. However, the dollar value of SuperGen common stock received will
not be less than $3,250,000 nor exceed $7,800,000.
As described under "Terms of the Merger--Manner and Basis of Converting
Shares," if the average closing price of SuperGen common stock on the Nasdaq
National Market during the 30 trading days before the closing of the merger is
less than $5.00 or greater than $12.00, the number of SuperGen shares to be
received by Sparta stockholders will be adjusted. On the one hand, this
adjustment will protect you against decreases in the market price of SuperGen
common stock below $5.00 per share since SuperGen will issue additional shares
of SuperGen common stock based on the adjustment formula so that the total value
of the common stock received will equal $3,250,000. On the other hand, you will
not receive the full benefit of an increase in the average closing price of
SuperGen common stock above $12.00 per share since SuperGen will issue fewer
than 650,000 shares of SuperGen common stock based on the adjustment
16
<PAGE>
formula so that the total value of the SuperGen common stock received will equal
$7,800,000. However, SuperGen will issue warrants to purchase shares of SuperGen
common stock to the extent that fewer than 650,000 shares are issued.
The average closing price of SuperGen common stock on the Nasdaq National
Market during the 30 trading days before June 26, 1999 was $16.33 per share.
Therefore, if we assume the merger had closed on that same date, then, based on
the adjustment formula, Sparta stockholders would have received 477,612 shares
of SuperGen common stock and warrants to purchase 172,388 shares of SuperGen
common stock with an exercise price of $16.33 per share.
Sparta stockholders are strongly encouraged to obtain the current market
price of SuperGen common stock before delivering their proxy or voting on the
merger agreement and the merger. The market price of SuperGen common stock on a
recent date is set forth under "Comparative Market Price Data."
MERGER RELATED ACCOUNTING CHARGES WILL DELAY AND REDUCE SUPERGEN'S PROFITS
Accounting charges that will be incurred in connection with the merger may
delay SuperGen's future profitability and reduce profits if profits are
achieved. The merger is expected to be accounted for by SuperGen under the
"purchase" method of accounting. Under the purchase method, the purchase price
of Sparta will be allocated to the assets and liabilities acquired from Sparta
based on their fair market values at the effective time of the merger.
Additionally, SuperGen will incur accounting charges related to in-process
research and development and amortization of intangible assets acquired that may
delay and reduce profitability. These charges are currently estimated to be
$7,230,000 for in-process research and development and $475,000 for amortization
of intangible assets.
THE MERGER WILL LIKELY RESULT IN LOSS OF SPARTA EMPLOYEES
Despite SuperGen's efforts to hire and retain quality employees, SuperGen
expects to lose certain of Sparta's key employees following the merger.
Competition for qualified management, engineering and technical employees in the
biotechnology industry is intense. SuperGen and Sparta are geographically
disparate and have different corporate cultures. In addition, competitors may
recruit employees prior to the merger and during the integration. As a result,
employees of Sparta or the combined company could leave with little or no prior
notice. SuperGen and Sparta cannot assure you that the combined company will be
able to attract, retain and integrate employees to develop and use Sparta's
products and technologies following the merger.
Nonetheless, Ronald H. Spair and Dr. Howard Sands of Sparta have agreed to
be employed by SuperGen at or about the effective time of the merger as
SuperGen's Chief Financial Officer and Vice President of Pre-Clinical
Development, respectively.
THE MERGER MAY NOT BE BENEFICIAL TO SUPERGEN
Based on its belief that the merger is fair and in the best interests of
SuperGen and its stockholders, the SuperGen board approved the merger agreement
and the merger. Nonetheless, SuperGen has not received any opinion of an outside
financial advisor to the fairness of the transaction from a financial point of
view. Analysis of the value of companies involves making numerous assumptions
about the future. SuperGen cannot assure you that it has correctly assessed the
value of Sparta in the merger. As a result, the merger may not be beneficial to
SuperGen.
SUPERGEN WILL NEED ADDITIONAL FINANCING AS A RESULT OF EXPANSION OF OPERATIONS
WHICH MAY NOT BE READILY AVAILABLE
SuperGen will need to raise additional funds which may not be readily
available or available on acceptable terms. See "Risks Related to
SuperGen--SuperGen Will Need Additional Financing Which
17
<PAGE>
May Not be Readily Available." The consummation of the merger and the resulting
expansion of operations may further strain the financial resources of SuperGen.
SuperGen may not be able to raise additional funds on acceptable terms to
support the expanded operations of the combined company.
SUPERGEN'S STOCK PRICE FLUCTUATES WIDELY
Sparta stockholders will receive SuperGen common stock in the merger.
SuperGen believes the market price for SuperGen common stock will continue to
fluctuate widely in response to various factors and events, including SuperGen's
results of operations and fluctuations in the stock market as a whole. See
"Risks Related to SuperGen--The Trading Price of SuperGen Stock May Decrease Due
to Factors Beyond Supergen's Control."
WE CANNOT GUARANTEE THAT THE MERGER WILL BE TREATED AS A TAX-FREE REORGANIZATION
We intend that the merger be treated as a tax-free reorganization for
federal income tax purposes. Sparta stockholders should not recognize gain or
loss on the exchange of their stock, other than on account of cash received for
a fractional share or cash received upon exercise of dissenters' rights.
However, we cannot assure you that the merger will qualify as a tax-free
reorganization for federal income tax purposes or that the SuperGen common stock
received by the Sparta stockholders will be received without recognition of gain
or loss. Moreover, tax matters are very complicated and the tax consequences of
the merger to you will depend on the facts of your particular situation. A more
detailed discussion of the tax consequences to Sparta stockholders is set forth
under "Approval of the Merger and Related Transactions--Federal Income Tax
Considerations."
RIGHTS OF SPARTA STOCKHOLDERS DIFFER FROM THOSE OF SUPERGEN STOCKHOLDERS
As a result of the merger, you will become a stockholder of SuperGen. There
are important differences between the rights of stockholders of Sparta and
stockholders of SuperGen. A description of these differences are set forth under
"Comparison of SuperGen and Sparta Stockholders' Rights."
RISKS RELATED TO SUPERGEN
SUPERGEN HAS INCURRED LOSSES AND ITS BUSINESS WILL SUFFER IF IT FAILS TO ACHIEVE
SIGNIFICANT REVENUES OR PROFITABLE OPERATIONS
SuperGen has incurred cumulative losses of $60.8 million for the period from
inception through March 31, 1999. These losses included non-cash charges of $7.5
million for the acquisition of in-process research and development. SuperGen has
not achieved profitability and expects to continue to incur substantial
operating losses at least through 2000. Substantially all of SuperGen's revenues
have come from sales of Nipent-Registered Trademark-, and SuperGen expects this
trend to continue for some time. Nipent-Registered Trademark- revenues were $2.7
million in 1998, $1.5 million in 1997 and $225,000 in 1996. All of these
revenues resulted from commercial sales. SuperGen's ability to achieve
profitability will depend on its ability to develop, obtain regulatory approval
for and successfully market Nipent-Registered Trademark- for other indications,
and bring other proprietary products to market. SuperGen's ability to become
profitable will also depend upon a variety of other factors, including the
following:
- The price, volume and timing of sales of products.
- The mix between Nipent-Registered Trademark- sales in the United States
and those under a supply agreement with Warner-Lambert Company for sales
outside North America.
- Variations in gross margins of SuperGen's products, which may be affected
by sales mix and competitive pricing pressures.
- Regulatory approvals of new products or expanded labeling of existing
products.
18
<PAGE>
- Changes in the level of SuperGen's research and development, including the
timing of any expansion of clinical trials. Clinical trials include the
testing of drug compounds upon human subjects.
- Acquisitions of products, technology or companies.
SuperGen's long-term success will also be affected by expenses, difficulties
and delays frequently encountered in developing and commercializing new
pharmaceutical products, competition, and the burdensome regulatory environment
in which SuperGen operates. SuperGen cannot be certain that it will ever achieve
significant revenues or profitable operations.
SUPERGEN'S BUSINESS COULD SUFFER IF THE RESULTS OF FURTHER CLINICAL TESTING
INDICATE THAT ITS PROPOSED PRODUCTS ARE NOT SUITABLE FOR COMMERCIAL USE
SuperGen's proposed proprietary products are in the development rather than
the research stage. However, SuperGen must significantly develop all of its
proposed products before it can market them. Although SuperGen believes that the
results of its early stage clinical studies support further development of its
proposed proprietary products, the results SuperGen has obtained to date do not
necessarily indicate results of further testing, including controlled human
clinical testing. All of the potential proprietary products that SuperGen is
currently developing and the product candidates that it will acquire in the
merger will require extensive clinical testing before SuperGen can submit any
regulatory application for their commercial use.
In contrast to SuperGen's proposed proprietary products,
Nipent-Registered Trademark- and SuperGen's generic version of mitomycin have
been approved for commercial use and SuperGen began sales of these drugs in 1996
and 1998, respectively.
SUPERGEN'S BUSINESS COULD SUFFER IF IT IS UNABLE TO SUCCESSFULLY DEVELOP ITS
GENERIC PRODUCTS AND EXTRA PRODUCTS BASED ON GENERIC PRODUCTS BECAUSE THE
PATENTS FOR THE UNDERLYING DRUGS DO NOT EXPIRE
SuperGen plans to develop and market several generic and Extra drugs, some
of which are currently protected by one or more patents. If the existing patent
protection for these drugs is maintained or extended, it is unlikely that
SuperGen will be able to market its own generic and Extra versions of those
drugs. SuperGen does not believe it is financially prudent to proceed with
substantial development efforts for generic or Extra drugs if it does not know
if or when existing patent protection will cease.
In particular, SuperGen plans to develop and market a generic and an Extra
version of paclitaxel, as well as an Extra version of cisplatin. However, the
original patent protection for both drugs has been extended through the issuance
of new patents. The current cisplatin patent expires in 2013 and the current use
patent for paclitaxel expires in 2014. Other companies interested in marketing
generic versions of these drugs are actively disputing the legality of these
patents and SuperGen anticipates that these legal disputes will be resolved
within the next three years. If the patent protection for both these products is
upheld, SuperGen will not proceed with further development of these products. If
the patent protection is overturned, SuperGen plans to further develop these
products and it believes it can bring them to market within two years of a
favorable patent ruling.
SUPERGEN'S BUSINESS WILL SUFFER IF SUPERGEN FAILS TO OBTAIN ADEQUATE FUNDING IN
A TIMELY MANNER
SuperGen expects that it will need substantial additional funding.
SuperGen's business, results of operations and cash flows will be adversely
affected if it fails to obtain adequate funding in a timely manner. SuperGen's
funding requirements will depend on many factors, including:
- The progress of SuperGen's development programs.
19
<PAGE>
- The availability of additional drugs or drug candidates for acquisition by
SuperGen or to be licensed to SuperGen.
- The availability of companies as potential acquisition or merger
candidates.
- Revenue growth, if any.
- The amount of cash generated, if any, by SuperGen's operations.
- The timing and receipt of regulatory approvals.
- The costs involved in preparing, filing, prosecuting, maintaining,
enforcing and defending patent claims and other intellectual property
rights.
- Developments related to reimbursement matters.
- Competing technological and market developments.
- The need for additional office and manufacturing facilities to accommodate
growth.
SuperGen anticipates that its existing capital resources as of the date of
this proxy statement-prospectus will be adequate to fund operations and capital
expenditures through December 31, 1999. However, if SuperGen experiences
unanticipated cash requirements during this period, SuperGen could require
additional funds much sooner. SuperGen may receive funds from the sale of equity
securities or the exercise of outstanding warrants and options to acquire common
stock. However, SuperGen cannot assure you that any of those fundings will
occur, or if they occur, that they will be on terms favorable to SuperGen. Also,
the dilutive effect of those fundings could adversely affect SuperGen's results
per share.
SUPERGEN'S BUSINESS WILL SUFFER IF IT FAILS TO OBTAIN REGULATORY APPROVALS IN A
TIMELY MANNER,
IF AT ALL
SuperGen cannot assure you that it will obtain the necessary regulatory
approvals to manufacture or market its proposed products. The United States Food
and Drug Administration and comparable agencies in foreign countries impose
substantial requirements for the introduction of new pharmaceutical products
through lengthy and detailed clinical testing procedures, sampling activities
and other costly and time-consuming compliance procedures. SuperGen has obtained
marketing approval for Nipent-Registered Trademark- and its internally developed
generic version of mitomycin and approval of sources of bulk drugs for
SuperGen's Extra and generic products. However, SuperGen has not yet received
marketing approval for any of its internally developed proprietary products.
SuperGen's proprietary drugs and Extra drugs may require substantial clinical
trials and FDA review as new drugs. SuperGen's generic drugs require both
approval of the bulk source of the drug and FDA approval of their final
formulation.
SuperGen cannot predict with certainty if or when it might submit for
regulatory review those products currently under development. Once SuperGen
submits its potential products for review, including the product candidates it
will acquire in the merger, SuperGen cannot assure you that the FDA or other
regulatory agencies will grant approvals for any of those pharmaceutical
products on a timely basis or at all. For example, SuperGen initially believed
that the FDA would abbreviate the approval process for its Extra products.
However, the FDA is reviewing Mito Extra, SuperGen's first Extra product
submission, as a new drug. Sales of SuperGen's products outside the United
States will be subject to regulatory requirements governing clinical trials and
marketing approval. These requirements vary widely from country to country and
could delay the introduction of SuperGen's products in those countries.
SUPERGEN'S BUSINESS WILL SUFFER IF IT FAILS TO COMPLY WITH GOVERNMENTAL
REGULATIONS
If SuperGen fails to comply with regulatory requirements, SuperGen may be
subject to regulatory or judicial enforcement actions. Those actions could
include product recalls or seizures, injunctions, civil penalties, criminal
prosecution, refusals to approve new products, withdrawal of existing approvals
and
20
<PAGE>
potentially enhanced product liability exposure. SuperGen's research, testing,
manufacturing, labeling, distribution, marketing and advertising activities are
regulated extensively by governmental authorities in the United States and other
countries.
ASSERTING AND DEFENDING INTELLECTUAL PROPERTY RIGHTS WILL HARM SUPERGEN'S
RESULTS OF OPERATIONS REGARDLESS OF SUCCESS
SuperGen's business will be harmed if competitors develop substantially
equivalent proprietary information and techniques or otherwise gain access to
SuperGen's trade secrets, if SuperGen's trade secrets are disclosed or if
SuperGen cannot effectively protect its rights to unpatented trade secrets.
SuperGen actively seeks patent protection for its proprietary products and
technologies. SuperGen has a number of United States patents and also has
licenses to or assignments of numerous issued United States patents. However,
litigation may be necessary to protect SuperGen's patent position, and SuperGen
cannot be certain that it will have the required resources to pursue the
necessary litigation or otherwise to protect its patent rights. SuperGen's
efforts to protect its patents may fail. In addition to pursuing patent
protection in appropriate cases, SuperGen also relies on trade secret protection
for unpatented proprietary technology. However, trade secrets are difficult to
protect.
SuperGen's proprietary products are dependent upon compliance with numerous
licenses and agreements. These licenses and agreements require SuperGen to make
royalty and other payments, reasonably exploit the underlying technology of the
applicable patents, and comply with regulatory filings. If SuperGen fails to
comply with these licenses and agreements, it could lose the underlying rights
to one or more of these potential products, which would adversely affect its
business, results of operations and cash flows.
Claims may be brought against SuperGen in the future based on patents held
by others. These persons could bring legal actions against SuperGen claiming
damages and seeking to enjoin clinical testing, manufacturing and marketing of
the affected product. If any of these actions are successful, in addition to any
potential liability for damages, SuperGen could be required to obtain a license
in order to continue to manufacture or market the affected product. SuperGen
cannot assure you whether it would prevail in any of these actions or that it
could obtain any licenses required under any of these patents on acceptable
terms, if at all.
SuperGen knows of no pending patent infringement suits, discussions
regarding possible patent infringements or threats of patent infringement
litigation either related to:
- patents held by SuperGen or its licensors; or
- SuperGen's products or proposed products.
There has been, and SuperGen believes that there will continue to be,
significant litigation in the pharmaceutical industry regarding patent and other
intellectual property rights. If SuperGen becomes involved in any litigation, it
could consume a substantial portion of SuperGen's resources, regardless of the
outcome of the litigation.
SUPERGEN'S BUSINESS WILL SUFFER IF IT FAILS TO COMPETE EFFECTIVELY, PARTICULARLY
AGAINST LARGER, MORE ESTABLISHED PHARMACEUTICAL COMPANIES WITH GREATER
RESOURCES
SuperGen's competitors and probable competitors include, among others,
Ortho-McNeil Pharmaceutical, Amgen Inc., Gensia-Sicor, Inc., Bristol-Myers
Squibb Company and Immunex Corp. These companies have substantially greater
financial, research and development, manufacturing and marketing experience and
resources than SuperGen does and represent substantial long-term competition for
SuperGen. These companies may succeed in developing pharmaceutical products that
are more effective or less costly than any that SuperGen may develop or market.
21
<PAGE>
Factors affecting competition in the pharmaceutical industry vary depending
on the extent to which the competitor is able to achieve a competitive advantage
based on proprietary technology. If SuperGen is able to establish and maintain a
significant proprietary position with respect to its proprietary products,
competition will likely depend primarily on the effectiveness of the product and
the number, gravity and severity of its unwanted side effects as compared to
alternative products.
Competition for generic products is based primarily on price and, to a
lesser extent, on name recognition and the reputation of the manufacturer in its
target markets. Moreover, the number of competitors offering a particular
generic product could dramatically affect price and gross margin for that
product, or an Extra product based on that generic product. SuperGen may be at a
disadvantage in competing with more established companies on the basis of price
or market reputation. In addition, a significant number of Extra products that
SuperGen is currently developing consist of, or are based upon, generic products
for which patent protection has expired or is expected to expire. Increased
competition in a particular generic market would likely lead to significant
price erosion for SuperGen's generic products and Extra products based on those
generic products, which would adversely affect SuperGen's sales and potential
gross profit margins.
For example, SuperGen believes that the total estimated U.S. sales for
mitomycin, bleomycin, etoposide and cisplatin, as well as other of its proposed
generic products and generic products upon which it proposes to base Extra
products, have decreased in recent years due to increased competition. SuperGen
also believes that sales volumes and unit prices of these generics may continue
to decrease as a result of competitive factors, including the following:
- The introduction of additional generics as well as other anticancer drugs.
- The desire of some companies to increase their market share.
- New formulations for these drugs and the use of different therapies.
Extensive research and development efforts and rapid technological progress
characterize SuperGen's industry. Although SuperGen believes that its
proprietary position gives SuperGen a competitive advantage with respect to its
proposed non-generic drugs, SuperGen anticipates that development will continue
and discoveries by others may render SuperGen's current and potential products,
including the product candidates it will acquire in the merger, noncompetitive.
In addition, SuperGen has only limited experience in selling and marketing
pharmaceutical products. SuperGen's competitive position also depends on its
ability to attract and retain qualified scientific and other personnel, develop
effective proprietary products, implement development and marketing plans,
obtain patent protection and secure adequate capital resources.
SUPERGEN IS DEPENDENT ON THIRD PARTIES FOR MANUFACTURING AND ITS BUSINESS MAY BE
HARMED IF THE MANUFACTURE OF ITS PRODUCTS IS INTERRUPTED OR DISCONTINUED OR IT
CANNOT OBTAIN THIRD PARTY MANUFACTURING ON ACCEPTABLE TERMS
SuperGen currently relies on vendors for manufacturing activities related to
Nipent-Registered Trademark- and its generic version of mitomycin. The
facilities used by these vendors have passed plant inspections required by the
FDA prior to market clearance of all pharmaceutical products. The FDA conducts
these inspections to ensure compliance with current Good Manufacturing Practices
regulations enforced by the FDA. If the facilities fail to maintain their Good
Manufacturing Practices status, or there is an interruption at any of these
facilities due to the occurrence of a fire, natural disaster, equipment failure
or other condition, SuperGen may not be able to locate other facilities that are
FDA-approved for manufacturing activities in a timely manner or on commercially
acceptable terms.
In addition, SuperGen stores the majority of its
Nipent-Registered Trademark- crude concentrate, the unpurified, bulk form of the
drug, at a single storage location. Improper storage, fire, natural disaster,
theft or other conditions at this location that may lead to the loss or
destruction of SuperGen's Nipent-Registered Trademark- crude concentrate could
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adversely affect SuperGen's business, results of operations and cash flows.
SuperGen is currently negotiating a long-term agreement with the vendor that
purifies SuperGen's current supply of crude concentrate to continue its
purification services. However, SuperGen cannot assure you that it will be able
to finalize the agreement. If SuperGen is not able to do so, SuperGen's supply
of Nipent-Registered Trademark- may be interrupted while it seeks to locate
another facility and to have that facility approved by the FDA. The delay could
adversely affect SuperGen's business, results of operations and cash flows.
SuperGen will encounter similar issues with respect to any potential
products that the FDA clears for sale. SuperGen must establish and maintain
relationships with manufacturers to produce and package its finished
pharmaceutical products, including Rubitecan (RFS 2000). In addition, the FDA
must clear the facilities used by these contract manufacturers. If SuperGen is
unable to obtain or retain third-party manufacturing on commercially acceptable
terms or obtain necessary FDA clearances to manufacture the products currently
being developed, SuperGen may not be able to commercialize pharmaceutical
products as planned. SuperGen's dependence upon third parties for the
manufacture of pharmaceutical products may adversely affect its profit margins
and its ability to develop and deliver pharmaceutical products on a timely and
competitive basis.
SuperGen currently relies on foreign manufacturers for the production of
bulk Extra and generic formulations and on domestic manufacturers to supply
sufficient quantities of compounds to conduct clinical trials on proposed
proprietary products. If SuperGen is unable to contract for or obtain a
sufficient supply of potential pharmaceutical products on acceptable terms, or
these supplies are delayed or contaminated, SuperGen could experience:
- Significant reductions in sales.
- Delays in bringing its proposed proprietary, Extra and generic products to
market.
- Delays in preclinical and human clinical testing schedules.
- Delays in submitting products for regulatory approval and initiating new
development programs.
Any of these factors could adversely affect SuperGen's business, results of
operations and cash flows.
SuperGen does not currently intend to manufacture any pharmaceutical
products, although SuperGen may choose to do so in the future. If SuperGen
decides to manufacture products, it will be subject to the regulatory
requirements described above. SuperGen will also be subject to similar risks
regarding delays or difficulties encountered in manufacturing these
pharmaceutical products and it will require additional facilities and
substantial additional capital. In addition, SuperGen has only limited
experience in manufacturing pharmaceutical products. SuperGen cannot assure you
that it would be able to manufacture any of these products successfully and in a
cost-effective manner.
THE LOSS OF KEY PERSONNEL, OR THE INABILITY TO ATTRACT AND RETAIN THE
ADDITIONAL, HIGHLY SKILLED PERSONNEL REQUIRED FOR THE EXPANSION OF SUPERGEN'S
ACTIVITIES, COULD ADVERSELY AFFECT ITS BUSINESS, RESULTS OF OPERATIONS AND
CASH FLOWS
SuperGen's success is dependent on key personnel, including Dr. Rubinfeld,
the President and Chief Executive Officer of SuperGen, and members of its senior
management and scientific staff. To successfully expand its operations, SuperGen
will need to attract and retain additional highly skilled individuals,
particularly in the areas of clinical administration, manufacturing and finance.
SuperGen competes with other companies for the services of existing and
potential employees. SuperGen believes its compensation and benefits packages
are competitive for its geographical region and its industry group. However,
SuperGen may be at a disadvantage to the extent that potential employees may
favor larger, more established employers.
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THE CONTINUING EFFORTS OF GOVERNMENT AND THIRD-PARTY PAYORS TO CONTAIN OR REDUCE
THE COSTS OF HEALTHCARE MAY ADVERSELY AFFECT SUPERGEN'S REVENUES AND
PROFITABILITY
SuperGen's revenues and profitability may be affected by the continuing
efforts of governmental and third-party payors to contain or reduce the costs of
healthcare. SuperGen cannot predict the effect that these health care reforms
may have on SuperGen's business, but it is possible that any of these reforms
will adversely affect SuperGen's business. In addition, in both the United
States and elsewhere, sales of prescription pharmaceuticals are dependent in
part on the availability of reimbursement to the consumer from third-party
payors, like government and private insurance plans. Third-party payors are
increasingly challenging the prices charged for medical products and services.
If SuperGen's current and proposed products are not considered cost-effective,
reimbursement to the consumer may not be available or be sufficient to allow
SuperGen to sell products on a competitive basis.
SUPERGEN MAY BE SUBJECT TO PRODUCT LIABILITY LAWSUITS AND ITS INSURANCE MAY BE
INADEQUATE TO COVER DAMAGES
Clinical trials or marketing of any of SuperGen's current and potential
pharmaceutical products, including the product candidates it will acquire in the
merger, may expose SuperGen to liability claims from the use of these
pharmaceutical products. SuperGen currently carries product liability insurance.
However, SuperGen cannot be certain that it will be able to maintain insurance
on acceptable terms for clinical and commercial activities or that the insurance
would be sufficient to cover any potential product liability claim or recall. If
SuperGen fails to have sufficient coverage, its business, results of operations
and cash flows could be adversely affected.
IF SUPERGEN IS UNABLE TO COMPLY WITH ENVIRONMENTAL LAWS AND REGULATIONS, ITS
BUSINESS MAY BE HARMED.
SuperGen is subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of hazardous
materials and waste products. SuperGen currently maintains a supply of several
hazardous materials at its facilities. While SuperGen currently outsources its
research and development programs involving the controlled use of biohazardous
materials, if in the future SuperGen conducts these programs, SuperGen might be
required to incur significant costs to comply with environmental laws and
regulations. In the event of an accident, SuperGen could be held liable for any
damages that result, and the liability could exceed its resources.
ANTI-TAKEOVER PROVISIONS MAY PREVENT YOU FROM REALIZING A PREMIUM RETURN
Anti-takeover provisions of SuperGen's certificate of incorporation and
bylaws make it more difficult for a third party to acquire SuperGen, even if
doing so would be beneficial to SuperGen's stockholders. These provisions
include:
- Authorization of the issuance of up to 2,000,000 shares of preferred
stock.
- Elimination of cumulative voting.
- Elimination of stockholder action by written consent.
SuperGen's bylaws establish procedures, including notice procedures, with
regard to the nomination, other than by or at the direction of the SuperGen
board, of candidates for election as directors or for stockholder proposals to
be submitted at stockholder meetings.
SuperGen is also subject to Section 203 of the Delaware General Corporation
Law, an anti-takeover law. In general, Section 203 of the Delaware General
Corporation Law prevents stockholders owning 15% or more of a corporation's
outstanding voting stock from engaging in business combinations with a Delaware
corporation for three years following the date those stockholders acquired 15%
or more of a
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corporation's outstanding voting stock. This restriction is subject to
exceptions, including the approval of the board of directors and of the holders
of at least two-thirds of the outstanding shares of voting stock not owned by
the interested stockholder.
These provisions are expected to discourage different types of coercive
takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control of SuperGen to first negotiate with SuperGen.
SuperGen believes that the benefits of increased protection of its potential
ability to negotiate with the proponents of unfriendly or unsolicited proposals
to acquire or restructure SuperGen outweigh the disadvantages of discouraging
those proposals because, among other things, negotiation of those proposals
could result in an improvement of their terms.
BECAUSE CURRENT OFFICERS AND DIRECTORS OWN A LARGE PERCENTAGE OF SUPERGEN'S
STOCK, THESE STOCKHOLDERS MAY BE ABLE TO CONTROL SUPERGEN AND ALSO PREVENT
POTENTIALLY BENEFICIAL ACQUISITIONS OF SUPERGEN
As of June 25, 1999, SuperGen's officers and directors beneficially owned
approximately 30% of the outstanding shares of SuperGen common stock. Beneficial
ownership includes shares of SuperGen common stock subject to options
exercisable within 60 days of June 25, 1999.
These stockholders, if acting together, may be able to elect all of
SuperGen's directors, and otherwise significantly influence matters requiring
approval by our stockholders. This concentration of ownership and the lack of
cumulative voting may also delay or prevent a third party from acquiring
SuperGen.
These stockholders may have interests that differ from other stockholders of
SuperGen, particularly in the context of potentially beneficial acquisitions of
SuperGen. For example, to the extent that these stockholders are employees of
SuperGen, they may be less inclined to vote for acquisitions of SuperGen
involving the termination of their employment.
THE TRADING PRICE OF SUPERGEN STOCK MAY DECREASE DUE TO FACTORS BEYOND
SUPERGEN'S CONTROL
The trading prices of SuperGen common stock are subject to significant
fluctuations in response to numerous factors, including:
- Variations in anticipated or actual results of operations.
- Announcements of new products or technological innovations of competitors.
- FDA approval or rejection of pending applications.
- Changes in earnings estimates of operational results by analysts.
Moreover, the stock market from time to time has experienced extreme price
and volume fluctuations, which have particularly affected the market prices for
emerging growth companies and which have often been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of SuperGen common stock.
During the past three years from the date of this proxy
statement-prospectus, the market price per share of SuperGen common stock has
fluctuated between approximately $5.13 and $19.63.
SUPERGEN'S BUSINESS MAY BE HARMED IF IT BECOMES SUBJECT TO SECURITIES CLASS
ACTION LITIGATION
In the past, following periods of volatility in the market price of a
company's common stock, securities class action litigation has been brought
against the issuing company. This type of litigation could be brought against
SuperGen in the future. The litigation could be expensive and divert
management's attention and resources, which could adversely affect SuperGen's
business and results of operations. If the litigation is determined against
SuperGen, SuperGen could also be subject to significant liabilities.
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THE MARKET PRICE OF SUPERGEN STOCK MAY FALL IF OTHER STOCKHOLDERS SELL THEIR
STOCK
If SuperGen's stockholders sell substantial amounts of SuperGen common stock
in the public market following the merger, the market price of SuperGen common
stock could fall. These sales also might make it more difficult for SuperGen to
sell equity or equity-related securities in the future at a price SuperGen deems
appropriate.
As of June 25, 1999, SuperGen had 22,392,199 shares of common stock
outstanding. Of these shares, 21,763,417 shares were eligible for sale in the
public market.
THE VALUE OF YOUR STOCK MAY DECREASE IF OTHER SECURITY HOLDERS EXERCISE THEIR
OPTIONS AND WARRANTS
As of June 25, 1999, SuperGen had reserved an additional 9,967,748 shares of
SuperGen common stock for future issuance upon exercise of outstanding options
and warrants. If these securities are exercised, you may experience significant
dilution in the book value and earnings per share of SuperGen common stock. This
may cause the market price of SuperGen common stock to fall.
THE YEAR 2000 PROBLEM COULD DISRUPT SUPERGEN'S OPERATIONS
The Year 2000 issue is the result of computer software applications being
written using two rather than four digits to define a year. On January 1, 2000,
computer equipment and programs that have time sensitive software may not be
able to distinguish whether "00" means 1900 or 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
SuperGen converted to new accounting software in 1998 and that software
properly recognizes dates beyond December 31, 1999. SuperGen has determined that
no other software programs currently in use by SuperGen will require significant
modification or replacement to properly recognize dates beyond December 31,
1999. SuperGen has initiated and maintained formal communications with
significant contract manufacturers, contract research organizations and other
vendors to determine the extent to which SuperGen is vulnerable to those third
parties' failure to remediate their own Year 2000 issues. Based upon those
communications, SuperGen believes that all significant computer software
programs utilized by third parties upon which SuperGen relies are either Year
2000 compliant or will be converted to Year 2000 compliance prior to December
31, 1999.
One or more of SuperGen's or its business partners' software applications
may prove to be non-Year 2000 compliant. In that case, SuperGen may experience
difficulties on and after January 1, 2000. The worst case Year 2000 scenario
envisioned by our management would involve delays in invoicing and shipping,
inventory production, and clinical trial documentation.
RISKS RELATED TO SPARTA
IF THE MERGER IS NOT APPROVED AND COMPLETED, SPARTA MAY NEED TO SCALE BACK OR
CEASE ALL OPERATIONS
Sparta's independent auditors have included an explanatory paragraph in
their report covering Sparta's financial statements for the period ended
December 31, 1998, which paragraph raises substantial doubt about Sparta's
ability to continue as a going concern.
Sparta currently anticipates that its available cash, cash equivalents, and
investments will be sufficient to fund operations into the fourth quarter of
1999. If the merger is not approved and completed, Sparta will be left in a
precarious financial position requiring the immediate infusion of additional
capital in order to survive as a going concern. At this time, Sparta has no
other viable strategic alternatives to the merger. Sparta cannot provide you
with any assurances that it will be able to obtain additional funding if needed,
or
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that funding, if available, will be obtainable on reasonable terms. Any
additional funding is reasonably likely to result in significant dilution to
you. If adequate funds are not available, Sparta will need to significantly
scale back its activities and eventually cease operations altogether. In that
case, if Sparta were to liquidate, the holders of the Sparta Series BC
Convertible Preferred Stock would be entitled to receive their liquidation
preference before any amount is distributed to holders of Sparta common stock.
Because the amount of the liquidation preference on the record date is estimated
to be $10,578,633, it is likely that the holders of Sparta Series BC Convertible
Preferred Stock would receive significantly less than their liquidation
preference and the holders of Sparta common stock would receive nothing.
SPARTA HAS POSTPONED SOME OF ITS CLINICAL TRIALS PENDING THE MERGER AND WILL
HAVE TO EVENTUALLY SUSPEND ALL DEVELOPMENT WORK IF THE MERGER IS NOT COMPLETED
Sparta's product candidates are in the early stages of research and
development and no revenues have been generated to date from product sales, nor
are any product revenues expected for at least the next several years, if ever.
To date, only limited human testing has been conducted on any of Sparta's
proposed product candidates. A significant portion of the development work and
testing for Sparta's product candidates remains to be completed. Due to the
proposed merger, Sparta has postponed some of its clinical trials until Sparta's
portfolio of compounds has been integrated into SuperGen's portfolio and the
priority for all compounds has been established. Sparta cannot provide you with
any assurance that these compounds will be given priority by SuperGen. Moreover,
if Sparta fails to complete the merger as scheduled, absent an infusion of
capital, all preclinical and clinical development will eventually need to be
suspended.
THE LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT SPARTA
Sparta is dependent on having qualified, experienced management. Although
Jerry B. Hook, Ph.D., Sparta's Chairman, President and Chief Executive Officer,
and Ronald H. Spair, Senior Vice President, Chief Financial Officer, and
Secretary of Sparta, have indicated their current intention to remain employees
of Sparta until the merger is consummated, these executive officers may
terminate their employment at any time upon thirty (30) days notice. Dr. Martin
Rose, Vice President of Clinical and Regulatory Affairs, terminated his
employment with Sparta effective February 28, 1999.
IF THE MERGER IS NOT COMPLETED, YOU WILL CONTINUE TO OWN SHARES OF SPARTA THAT
TRADE ONLY ON THE OTC BULLETIN BOARD, WHICH MAKES THEM MORE DIFFICULT TO
DISPOSE OF AND NEGATIVELY AFFECTS THEIR PRICE
If the merger is not completed, you will continue to hold shares of Sparta
common stock and/or Sparta Series BC Convertible Preferred Stock. As of December
1, 1998, the shares of Sparta common stock were delisted from the Nasdaq
SmallCap Market and after that date, began trading on the OTC Bulletin Board. As
a result, it is more difficult to dispose of Sparta's shares or to obtain as
favorable a price for Sparta's shares. Consequently, the liquidity of Sparta's
shares has been impaired, not only in the number of shares that can be bought
and sold at a given price, but also through delays in the timing of
transactions. In addition, security analysts' and the media's coverage of Sparta
is likely to be reduced, which could result in lower prices for Sparta's shares
than might otherwise be attained and in a larger spread between the bid and
asked prices for Sparta's shares.
Under some circumstances, Sparta's shares could also become subject to the
"penny stock" rules under the Securities Exchange Act of 1934 which impose
additional sales practice requirements on broker-dealers that sell these
securities to persons other than established customers and "accredited
investors." For transactions covered by this rule, a broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to the sale. Consequently,
the rule may affect the ability of broker-dealers to sell Sparta's shares and
may affect your ability to sell any of Sparta's shares in the secondary market.
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YOU SHOULD BE AWARE OF THE LIMITATIONS ON INFORMATION USED IN THE FAIRNESS
OPINION WHEN EVALUATING THE CONCLUSIONS REACHED IN THAT OPINION
In approving the merger, the Sparta board considered, among other things,
the fairness opinion issued by Spencer Trask Securities, Inc., its financial
advisor, that the exchange ratio is fair to the Sparta stockholders from a
financial point of view. In reaching its opinion, Spencer Trask reviewed, among
other things, information provided by the managements of SuperGen and Sparta and
relied upon the accuracy of this information. Spencer Trask did not
independently verify this information nor did it perform an independent
appraisal of specific properties or other assets of SuperGen or Sparta. These
limitations should be considered by you in evaluating the conclusions contained
in the Spencer Trask opinion.
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SPARTA SPECIAL MEETING
DATE, TIME, AND PLACE OF SPARTA SPECIAL MEETING
The Sparta special meeting will be held at the principal executive offices
of Sparta at 111 Rock Road, Horsham, Pennsylvania 19044, on August 10, 1999, at
10:00 a.m., local time.
PURPOSE
At the Sparta special meeting, Sparta stockholders will be asked to:
- Approve and adopt the merger agreement and approve the merger; and
- Approve the amendments to the certificate of designations of Series BC
Convertible Preferred Stock forming a part of Sparta's certificate of
incorporation, which amendments increase the conversion rate of that
preferred stock in exchange for the elimination of the liquidation
preference to which those preferred stockholders are entitled.
Sparta stockholders may also consider and vote upon other matters as may be
properly brought before the Sparta special meeting or any adjournments.
VOTING BY PROXY
The proxy card accompanying this proxy statement-prospectus is solicited on
behalf of the Sparta board in an attempt to consummate the merger as soon as
possible. Please complete, date and sign the accompanying proxy card and
promptly return it to Sparta. All proxies that are properly executed and
returned, and that are not revoked, will be voted at the Sparta special meeting
in accordance with the instructions indicated on the proxies. IF NO DIRECTION IS
INDICATED ON THE PROXY CARD, THE SHARES REPRESENTED THEREBY WILL BE VOTED FOR
THE MERGER AND THE MERGER AGREEMENT AND FOR THE AMENDMENTS TO SPARTA'S
CERTIFICATE OF INCORPORATION.
For voting purposes at the Sparta special meeting, only shares affirmatively
voted in favor of the merger and the merger agreement and in favor of the
amendments to Sparta's certificate of incorporation will be counted as favorable
votes for these matters. THE FAILURE TO VOTE IN PERSON OR BY PROXY, BROKER
NON-VOTES OR THE ABSTENTION FROM VOTING WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE MERGER, THE MERGER AGREEMENT AND THE AMENDMENTS TO SPARTA'S
CERTIFICATE OF INCORPORATION.
The management of Sparta is not aware of any other matters to be voted on at
the Sparta special meeting other than the merger and the merger agreement and
the amendments to Sparta's certificate of incorporation. If other matters should
properly come before the Sparta special meeting, the proxyholders will vote on
these matters in accordance with their judgment.
RECORD DATE AND OUTSTANDING SHARES; QUORUM
The Sparta board has fixed the close of business on July 6, 1999, as the
record date for determination of Sparta stockholders entitled to notice of and
entitled to vote at the Sparta special meeting. As of the record date, 3,691,841
shares of Sparta common stock and 813,741 shares of Sparta Series BC Convertible
Preferred Stock were outstanding and entitled to vote at the Sparta special
meeting. As of the record date, the Sparta common stock and the Sparta Series BC
Convertible Preferred Stock were held by 180 and 119 holders of record,
respectively.
Only holders of record of shares of Sparta common stock and Sparta Series BC
Convertible Preferred Stock at the close of business on the record date, are
entitled to notice of the Sparta special meeting and will be entitled to vote at
the Sparta special meeting. The Sparta common stock and Sparta Series BC
Convertible Preferred Stock will vote together as one class on the merger, the
merger agreement and the amendments to Sparta's certificate of incorporation. In
addition, the holders of record of Sparta Series BC
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Convertible Preferred Stock will also vote on the amendments to Sparta's
certificate of incorporation as a separate class.
The required quorum for the transaction of business at the Sparta special
meeting is a majority of the outstanding shares of capital stock issued and
outstanding and entitled to vote as of the record date, which shares may be
present in person or represented by proxy. Abstentions and shares for which a
broker indicates that it does not have discretionary authority to vote on some
matters will be treated as present and entitled to vote for purposes of
determining the presence of a quorum.
VOTE REQUIRED
GENERAL VOTE
Approval of the merger, the merger agreement and the amendments to Sparta's
certificate of incorporation at the Sparta special meeting will require the
affirmative vote of the holders of record of at least the majority of the total
outstanding shares of Sparta common stock and Series BC Convertible Preferred
Stock on an as-converted basis as of the record date.
The holders of record of Sparta common stock and Series BC Convertible
Preferred Stock will vote together on the merger, the merger agreement and the
amendments to Sparta's certificate of incorporation. The Sparta common stock and
Sparta Series BC Convertible Preferred Stock will effectively have the following
number of votes per share on these matters:
<TABLE>
<S> <C>
- - Common Stock 1 vote per share
- - Series BC Convertible Preferred
Stock 2.666667 votes per share
</TABLE>
As of the record date, and assuming the conversion of all Sparta Series BC
Convertible Preferred Stock as of that date, directors and executive officers of
Sparta beneficially owned and were entitled to vote 208,038 shares of Sparta
common stock. These shares represented approximately 3.5% of the outstanding
voting shares on the record date. Pursuant to voting agreements, each director
and executive officer has agreed to vote the Sparta common stock and Sparta
Series BC Convertible Preferred Stock owned by him for the approval of the
merger, the merger agreement and the amendments to Sparta's certificate of
incorporation. They have also granted to SuperGen irrevocable proxies to so vote
their shares. In addition, some significant stockholders also executed these
voting agreements to so vote their shares. Approximately 853,739 shares of
Sparta common stock (on an as-converted basis), representing approximately 14.6%
of the outstanding shares of Sparta common stock (on an as-converted basis) as
of the record date, are subject to these voting agreements.
SEPARATE CLASS VOTE
In addition to the vote described above, approval of the amendments to
Sparta's certificate of incorporation at the Sparta special meeting also
requires a separate class vote of the Sparta Series BC Convertible Preferred
Stock. The affirmative vote of the holders of record of at least the majority of
the outstanding shares of Sparta Series BC Convertible Preferred Stock as of the
record date is required to approve the amendments to Sparta's certificate of
incorporation.
As of the record date, directors and executive officers of Sparta
beneficially owned and were entitled to vote 15,000 shares of Sparta Series BC
Convertible Preferred Stock. These shares represented approximately 1.8% of the
Sparta Series BC Convertible Preferred Stock outstanding on the record date and
are subject to the voting agreements. In addition, the significant stockholders
that have executed these voting agreements own shares of Sparta Series BC
Convertible Preferred Stock. Approximately 170,001 shares of Sparta Series BC
Convertible Preferred Stock, representing approximately 20.9% of the outstanding
shares of Sparta Series BC Convertible Preferred Stock as of the record date,
are subject to these voting agreements.
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REVOCABILITY OF PROXIES
You may revoke your proxy at any time prior to the Sparta special meeting by
delivering to Sparta's secretary a written notice of revocation or a duly
executed proxy bearing a later date, or by attending the meeting in person and
voting. Merely attending the meeting will not revoke your proxy. If you have
instructed a broker to vote your shares, you must follow the directions received
from your broker to change those instructions.
SOLICITATION OF STOCKHOLDER APPROVAL
All expenses of Sparta's solicitation of stockholder approval, including the
cost of mailing this proxy statement-prospectus to Sparta stockholders will be
borne by Sparta. In addition, Sparta will reimburse brokerage firms and other
persons representing beneficial owners of Sparta common stock for their expenses
in forwarding proxy material to those beneficial owners. Solicitation of proxies
by mail may be supplemented by telephone, telegram, telex and personal
solicitation by the directors, officers or employees of Sparta. Those directors,
officers and employees will not receive additional compensation for the
solicitation, but may be reimbursed for reasonable out-of-pocket expenses in
connection therewith. Sparta has engaged Corporate Investor Communications,
Inc., an independent proxy solicitation firm, to assist Sparta in the
distribution and solicitation of proxies for the Sparta special meeting. Sparta
has agreed to pay this firm a fee of $3,000 plus out-of-pocket expenses for
these services.
RECOMMENDATION OF SPARTA BOARD
The Sparta board has unanimously approved the merger and the merger
agreement and has determined that the merger and the merger agreement are fair
to, and in the best interests of, Sparta and its stockholders. THE SPARTA BOARD
UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE MERGER AND THE MERGER AGREEMENT.
IN ADDITION, THE SPARTA BOARD HAS UNANIMOUSLY APPROVED THE AMENDMENTS TO
SPARTA'S CERTIFICATE OF INCORPORATION AND UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR
OF THE AMENDMENTS.
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APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
THE FOLLOWING DISCUSSION SUMMARIZES THE PROPOSED MERGER AND RELATED
TRANSACTIONS. THE FOLLOWING IS NOT, HOWEVER, A COMPLETE STATEMENT OF ALL
PROVISIONS OF THE MERGER AGREEMENT AND RELATED AGREEMENTS. WE REFER YOU TO THE
DETAILED TERMS OF AND CONDITIONS TO THE MERGER AND THE RELATED TRANSACTIONS
CONTAINED IN THE MERGER AGREEMENT, A CONFORMED COPY OF WHICH IS ATTACHED TO THIS
PROXY STATEMENT-PROSPECTUS AS APPENDIX A. WE ALSO REFER YOU TO THE OTHER
APPENDICES ATTACHED TO THIS PROXY STATEMENT-PROSPECTUS. STATEMENTS MADE IN THIS
PROXY STATEMENT-PROSPECTUS WITH RESPECT TO THE TERMS OF THE MERGER AND THE
RELATED TRANSACTIONS ARE QUALIFIED IN THEIR RESPECTIVE ENTIRETIES BY REFERENCE
TO THE MORE DETAILED INFORMATION SET FORTH IN THE MERGER AGREEMENT AND THE OTHER
APPENDICES ATTACHED TO THIS PROXY STATEMENT-PROSPECTUS.
ADDITIONALLY, THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS
AND INVOLVES RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE DISCUSSED BELOW. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO THESE
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTIONS
ENTITLED "RISK FACTORS," AND "SPARTA BUSINESS" AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS PROXY STATEMENT-PROSPECTUS. SEE "STATEMENTS REGARDING
FORWARD-LOOKING STATEMENTS."
SUPERGEN'S REASONS FOR THE MERGER
On January 14, 1999, the SuperGen board held a telephonic board meeting to
consider the merger agreement and the merger. At the meeting, the SuperGen board
weighed the relative merits of the proposed merger with Sparta and concluded
that the purchase of Sparta was in the best interests of SuperGen and its
stockholders. The SuperGen board approved the merger agreement and the merger
and authorized SuperGen's officers to execute the merger agreement and
consummate the merger.
In approving the merger agreement and the merger, the SuperGen board
considered a number of factors, including:
- The ability to broaden the pipeline of complementary product candidates
through the acquisition of Sparta. Sparta's product candidates in the
oncology and diabetes area are in clinical trials with SPARTAJECT-TM-
busulfan poised to enter pivotal trials.
- To gain access to the federally funded grants that Sparta had secured for
the development of LEX 032 and IPdR.
- To gain access to Sparta's existing business relationships with
Schering-Plough and Orphan Europe.
- The attractiveness of Sparta's domestic and international patent estate.
- An opportunity to evaluate the application of Sparta's licensed technology
to SuperGen's product candidates.
- The ability to acquire Sparta for less than the funds expended by Sparta
to date on research and development.
The SuperGen board identified and considered a number of potentially
negative factors in its deliberations concerning the merger, including:
- The effort and management distraction involved with the task of
integrating the activities and projects of the two companies.
- That the requisite number of Sparta stockholders may not approve both the
terms of the merger and the modification of the Sparta preferred
stockholders' rights.
- Sparta's drug candidates may fail in future clinical trials.
- The dilutive effect of issuing common stock as consideration for the
merger.
- The non-cash charge that SuperGen is expected to record in connection with
the merger.
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- The other risks described above under "Risk Factors."
The SuperGen board believes that these risks are outweighed by the potential
benefits of the merger.
In reaching its decision to approve the merger agreement and the merger, the
SuperGen board did not assign any relative or specific weights to the various
factors considered, and individual directors may have given differing weights to
different factors. Rather, the SuperGen board based its position and
recommendations upon the totality of the information presented to them.
SPARTA'S REASONS FOR THE MERGER
On January 18, 1999, the Sparta board held a telephonic board meeting to
consider the merger agreement, the merger and the amendments to Sparta's
certificate of incorporation. At the meeting, the Sparta board weighed the
relative merits of the proposed merger with SuperGen and concluded that the sale
of Sparta to SuperGen was in the best interests of Sparta and its stockholders.
The Sparta board approved the merger agreement, the merger and the amendments to
Sparta's certificate of incorporation and authorized Sparta's officers to
execute the merger agreement, to solicit Sparta stockholders' approval of the
merger agreement, the merger and the amendments to Sparta's certificate of
incorporation and to consummate the merger.
In reaching the conclusions and recommendations described above, the Sparta
board consulted with Sparta management, as well as Sparta's legal counsel and
Spencer Trask Securities, Inc., its financial adviser, and considered a number
of factors, including the following:
- Reports from management and legal advisors on the specific terms of the
relevant agreements, including the terms of the merger agreement.
- The merger consideration and the recent trading prices for Sparta common
stock and SuperGen common stock.
- The fact that the merger would provide Sparta stockholders with the
opportunity to receive SuperGen common stock trading at a premium over the
price at which Sparta common stock was trading since the delisting of the
Sparta common stock from the Nasdaq SmallCap Market and to retain an
equity interest in the combined entity.
- Sparta's cash position and its prospects for securing additional financing
absent the merger.
- The financial and other analyses presented by Spencer Trask, including its
opinion that, as of the date of its opinion and based upon and subject to
matters stated in the opinion, the exchange ratio as set forth in the
merger agreement is fair to the Sparta stockholders from a financial point
of view.
- The oral commitment of SuperGen to continue various clinical trials being
conducted by Sparta, subject to ongoing review by the SuperGen board.
- The experience of SuperGen and its management in conducting clinical
trials and seeking FDA approval for therapies and diagnostics related to
cancer.
- Information concerning the financial condition, results of operations,
business and prospects of each of Sparta and SuperGen as separate entities
and on a combined basis.
- Larger public float and trading volume of shares of SuperGen common stock
on the Nasdaq National Market compared with the public float and trading
volume of shares of Sparta common stock on the OTC Bulletin Board.
- An assessment of possible strategic alternatives, including remaining a
separate company, joint ventures and acquisitions by other parties, taking
into consideration the marketing activities conducted by Sparta's
management and its advisors in pursuing these strategic alternatives.
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- The treatment of the merger as a "tax-free reorganization" for federal
income tax purposes. See "Federal Income Tax Consequences."
- The absence of any term or condition in the merger agreement that in the
view of the Sparta board is unduly onerous or could materially impair or
impede the consummation of the merger.
The Sparta board identified and considered a number of potentially negative
factors in its deliberations concerning the merger, including:
- Generally, the Sparta stockholders might not approve the merger agreement,
the merger and the amendments to Sparta's certificate of incorporation and
specifically, the holders of Sparta Series BC Convertible Preferred Stock
might not be willing to relinquish their liquidation preference in
exchange for a higher conversion rate.
- The benefits sought in the merger might not be achieved.
- Negative findings in any of SuperGen's ongoing clinical trials might have
a negative impact on SuperGen's stock price, thus reducing the value of
the consideration received by the Sparta stockholders in the merger.
- Some of Sparta's compounds in development may be regarded as low priority
by SuperGen's management and not receive resources for continued
development.
- The other risks described above under "Risk Factors."
The Sparta board believes that these risks are outweighed by the potential
benefits of the merger.
In reaching its decision to approve the merger agreement and the merger, the
Sparta board did not assign any relative or specific weights to the various
factors considered, and individual directors may have given differing weights to
different factors. Rather, the Sparta board based its position and
recommendations upon the totality of the information presented to them.
THE SPARTA BOARD HAS UNANIMOUSLY CONCLUDED THAT THE MERGER IS FAIR AND IN
THE BEST INTERESTS OF SPARTA AND THE STOCKHOLDERS OF SPARTA, HAS APPROVED THE
MERGER AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE STOCKHOLDERS OF SPARTA
VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
MATERIAL CONTACTS AND BOARD DELIBERATIONS
Sparta was created in 1991 with the stated intention to out-license drug
candidates to major pharmaceutical firms for completion of clinical trials,
registration, manufacturing and commercialization. Thus, the search for
potential corporate partners has been an integral function of Sparta from its
inception.
SuperGen first contacted Sparta by letter dated May 23, 1996 from Dr.
Christine Carey, Pharm.D., J.D., Director, Business Development, to Dr. Jerry B.
Hook, Chairman, President and Chief Executive Officer of Sparta, regarding the
possibility of licensing 5-FP, one of Sparta's compounds in clinical trials.
Dr. Carey visited Sparta on July 8, 1996 and met with Dr. Hook, Mr. Ronald
H. Spair, Senior Vice President and Chief Financial Officer of Sparta, Mr.
Christopher Phillips, M.S., Director of Manufacturing, and Dr. Howard Sands,
Senior Fellow, Biology. Dr. Hook presented an overview of all Sparta compounds
in development.
In late 1996, Sparta engaged QED Technologies as a consultant for business
development, with specific responsibility to assist Sparta in the identification
of potential strategic commercial partners.
On July 30, 1997, Dr. Carey again visited Sparta and met with Dr. Hook and a
representative of QED to reinitiate potential licensing discussions. A
confidentiality agreement was signed in August 1997.
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On August 18, 1997, Dr. Hook met in New York City with Dr. Carey and Dr.
Joseph Rubinfeld, SuperGen's Chairman, President and Chief Executive Officer, to
discuss the potential licensing of one or more of Sparta's compounds in
development.
On September 5, 1997, SuperGen initiated due diligence investigations at
Sparta to consider potential licensing arrangements for some of Sparta's
compounds. Dr. Carey, Luigi Lenaz, M.D., Senior Vice President, Clinical
Research & Medical Affairs, Simeon M. Wrenn, Jr., Ph.D., Vice President,
Biotechnology and Ashok Y. Gore, Ph.D., Senior Director Pharmaceutical
Development and Manufacturing, met with Dr. Hook, Mr. Spair, Mr. Phillips and
Martin Rose, M.D., J.D., Sparta's Vice President of Clinical & Regulatory
Affairs. Shortly after that meeting, SuperGen indicated an interest in licensing
Spartaject busulfan.
Meetings were held at Sparta on October 2 and November 5, 1997 with Drs.
Carey and Hook and representatives of QED to outline the structure of a license
agreement. Sparta received the first draft of a license agreement on January 23,
1998.
On January 23, 1998, Drs. Carey, Lenaz and Frederick L. Grab, Ph.D., Vice
President, Pharmaceutical Operations of SuperGen met with Drs. Hook and Rose and
Mr. Phillips at Sparta to discuss technical issues regarding Sparta's
technology. Due diligence regarding Spartaject busulfan continued with
telephonic and facsimile communications as needed. Draft agreements were
considered and modified by QED and Dr. Carey.
On May 11, 1998, after evaluating proposals from several investment banks,
the Sparta board approved the engagement of Ferghana Partners, Inc. to assist it
in identifying potential strategic transactions with other pharmaceutical and
biotechnology companies, including a potential merger or disposition of the
company or its technologies and product candidates.
On May 28, 1998, Dr. Hook met with Dr. Rubinfeld, Rajesh C. Shrotriya, M.D.,
Executive Vice President & Chief Scientific Officer of SuperGen and Dr. Carey in
New York. The parties agreed that they were interested in considering a possible
business combination between SuperGen and Sparta. SuperGen was subsequently
specifically eliminated from the Ferghana agreement, then in negotiation.
Between June 22, 1998 and November 10, 1998, representatives of Ferghana (on
behalf of Sparta) and Sparta's management contacted a number of third parties
with respect to a potential strategic transaction with or acquisition of Sparta.
Preliminary discussions were held with approximately 74 entities.
On July 29, 1998, Dr. Hook received a revised draft of a license agreement
for Spartaject busulfan from Dr. Carey. At that time, Dr. Hook advised Dr. Carey
that Sparta was interested in pursuing a possible business combination.
A preliminary due diligence visit was made to Sparta by SuperGen on August
27, 1998. Drs. Carey and Lenaz, accompanied by patent counsel, met with Sparta's
staff and reviewed and evaluated Sparta's intellectual property, scientific
documents and Sparta's business condition.
On September 14, 1998, at a regularly-scheduled Sparta board meeting, Dr.
Hook apprised the Sparta board of Ferghana's progress in identifying possible
strategic partners, and the status of Sparta's discussions to date with
SuperGen. Because of the decline in the trading price of Sparta common stock
(notwithstanding a 1-for-5 reverse stock split effective in May 1998) and the
threatened delisting of the stock from the Nasdaq SmallCap Market, the Sparta
board approved a plan to conserve resources by limiting the initiation of new
drug trials.
In September and October, 1998, in several telephone conferences between
representatives of SuperGen and Sparta, possible terms and structure of a
business combination between the parties were discussed.
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Dr. Hook and Mr. Spair met with Drs. Rubinfeld, Shrotriya and Lenaz in New
York on November 5, 1998, to discuss a possible merger. SuperGen offered a
purchase price of 650,000 shares of SuperGen common stock in exchange for all of
the outstanding shares of Sparta common stock and preferred stock.
A conference call was conducted on November 10, 1998 led by Everen
Securities, SuperGen's financial adviser. The meeting participants included Dr.
Rubinfeld, Dr. Hook, Mr. Spair, counsel from both companies and a representative
from Spencer Trask. The participants considered a proposed timetable and
allocation of responsibilities for producing an agreement containing the
specific terms of the merger. It was agreed that SuperGen's counsel would
produce a first draft of the merger agreement.
At a special meeting of the Sparta board held by teleconference on November
14, 1998, after considering proposals from several banks, the Sparta board
approved the engagement of Spencer Trask to deliver a fairness opinion and to
provide financial advice in connection with the merger, including advice
regarding allocation of the merger consideration to be received between the
common stock and preferred stock of Sparta.
On November 17, 1998, Sparta notified Ferghana Partners of the decision to
terminate immediately its engagement of Ferghana. Ferghana reported back to
Sparta that it had contacted 80 companies but after extensive discussions with
several interested parties, had not received an offer superior to that made by
SuperGen.
On November 18, 1998, legal counsel to SuperGen circulated a preliminary
draft of the merger agreement to Sparta and its legal counsel.
On November 18, 1998, representatives from Everen Securities visited
Sparta's office in Horsham to perform due diligence.
On November 20, 1998, Mr. Spair visited SuperGen to perform due diligence.
On November 25, 1998, Dr. Shrotriya visited Sparta to perform due diligence.
In addition, he presented an overview of SuperGen's business and operations and
interviewed Sparta employees.
On November 30, 1998, the Sparta board held a special meeting by
teleconference, with representatives of Sparta's legal counsel and Spencer Trask
also in attendance. Sparta's legal counsel described the fiduciary
responsibilities of the Sparta board in evaluating the merger proposal. Spencer
Trask representatives described the analyses they would undertake to fulfill
their obligations under their engagement letter with Sparta. A draft of the
agreement, which had been sent to the Sparta board prior to the meeting was
discussed and questions were asked and comments thereto given to legal counsel.
On December 1, 1998, Sparta common stock was delisted from the Nasdaq
SmallCap Market and began trading on the OTC Bulletin Board on December 2, 1998.
On the day prior to delisting, the last reported sale price of Sparta on the
Nasdaq SmallCap Market was $.25. On January 15, 1999, the last trading day prior
to the announcement of the merger, the last sale price of the Sparta common
stock on the OTC Bulletin Board was $.23.
On December 15, 1998, legal counsel to SuperGen circulated a revised draft
of the merger agreement to Sparta and its legal counsel.
On December 22, 1998, a conference call was held with Drs. Rubinfeld,
Shrotriya and Hook, Mr. Spair, counsel of both companies and representatives
from Everen Securities to discuss the remaining open issues contained in the
merger agreement. One remaining issue was discussed by Drs. Rubinfeld and Hook
on the next day.
On December 24, 1998, legal counsel to SuperGen circulated a draft of the
merger agreement to Sparta and its legal counsel, revised to reflect the
discussions of the previous two days' conferences.
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Several discussions ensued to finalize the terms of the merger agreement,
including the addition of an adjustment to the purchase consideration if the
average closing price of SuperGen common stock on the Nasdaq National Market
during the 30 trading days before the closing of the merger increases above $12
per share or falls below $5 per share. Final drafts of the merger agreement and
ancillary agreements were circulated on January 15, 1999.
The SuperGen board held a special meeting by teleconference to approve the
terms of the merger agreement and the merger on January 14, 1999.
On January 18, 1999, the Sparta board held a special meeting by
teleconference to approve the merger agreement (which they had received in
advance of the meeting), the merger and the amendments to Sparta's certificate
of incorporation. At this meeting, the Sparta board was updated as to the events
that had occurred since their previous meeting. Spencer Trask then reviewed the
financial analyses it had performed in connection with its evaluation of the
exchange ratio as set forth in the merger agreement and delivered to the Sparta
board an oral opinion, subsequently confirmed in writing, to the effect that, as
of that date and based upon and subject to matters contained in the fairness
opinion, that the exchange ratio as set forth in the merger agreement was fair,
from a financial point of view, to the Sparta stockholders. After hearing
presentations from Sparta's legal counsel, the Sparta board unanimously approved
the merger agreement, the merger and the amendments to Sparta's certificate of
incorporation and authorized the execution of the merger agreement.
The merger agreement was executed on January 18, 1999.
OPINION OF SPARTA'S FINANCIAL ADVISOR
Sparta retained Spencer Trask to deliver an opinion to the Sparta board as
to the fairness to the holders of both Sparta common stock and Sparta Series BC
Convertible Preferred Stock, from a financial point of view, of the
consideration to be received by Sparta stockholders pursuant to the merger
agreement. On January 18, 1999, Spencer Trask provided both oral and written
opinions to the Sparta board that, as of the date of those opinions, the
exchange ratio as set forth in the merger agreement was fair to Sparta
stockholders from a financial point of view. References to the opinion of
Spencer Trask are, unless otherwise noted, references to its written opinion
dated January 18, 1999. This summary of the opinion of Spencer Trask is
qualified in its entirety by reference to the full text of that opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SPENCER TRASK DATED JANUARY 18,
1999, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN IN RENDERING THAT OPINION, IS ATTACHED AS APPENDIX C
AND IS INCORPORATED INTO THIS PROXY STATEMENT-PROSPECTUS BY REFERENCE. THE
HOLDERS OF SPARTA COMMON STOCK AND SPARTA SERIES BC CONVERTIBLE PREFERRED STOCK
ARE URGED TO CAREFULLY READ THIS OPINION IN ITS ENTIRETY.
Spencer Trask's opinion is directed only to the Sparta board and addresses
only the fairness from a financial point of view of the consideration to be
received by the holders of Sparta common stock and Series BC Convertible
Preferred Stock pursuant to the merger agreement. It does not constitute a
recommendation to any stockholder as to how that stockholder should vote at the
Sparta special meeting. No limitations were placed on Spencer Trask by the
Sparta board with respect to the investigations made or the procedures followed
by Spencer Trask in preparing and rendering its opinion.
In arriving at its opinion, Spencer Trask, among other things:
- Reviewed various publicly available business and financial information
relating to Sparta and SuperGen, including the merger agreement.
- Reviewed other information provided by Sparta and SuperGen, including
financial forecasts prepared by Sparta management and financial forecasts
prepared by independent third parties relating to SuperGen.
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- Reviewed the terms of the Series BC Convertible Preferred Stock as set
forth in the certificate of designations forming a part of Sparta's
certificate of incorporation.
- Discussed with Sparta's and SuperGen's respective managements the business
and prospects of Sparta and SuperGen, respectively.
- Analyzed various publicly available data relating to the biotechnology
industry and its outlook.
- Considered other information, financial studies, analyses and
investigations and financial, economic and market criteria which Spencer
Trask deemed relevant.
In addition, in rendering its opinion, Spencer Trask assumed that all
necessary approvals would be obtained to increase to at least 16 the number of
shares of Sparta common stock into which a share of Sparta Series BC Convertible
Preferred Stock may convert upon effectiveness of the merger.
In connection with its review, Spencer Trask did not assume any
responsibility for independent verification of any of the information described
above and relied on it being complete and accurate in all material respects.
Spencer Trask did not make any independent appraisal of specific properties or
other assets of Sparta or SuperGen. Spencer Trask did not express any opinion as
to what the value of SuperGen common stock will be when issued to Sparta
stockholders pursuant to the merger or the prices at which SuperGen common stock
may trade subsequent to the merger. Also, Spencer Trask was not requested to,
and did not, solicit third party indications of interest in acquiring all or any
part of Sparta, nor did Spencer Trask seek financing for Sparta. Spencer Trask's
opinion is necessarily based upon financial, economic, market and other
conditions as they existed and could be evaluated as of the date of its opinion.
The following is a summary of the analyses performed by Spencer Trask in
connection with its January 18, 1999 oral and written opinions.
SUPERGEN
Spencer Trask estimated the value of the SuperGen common stock to be paid to
holders of Sparta common stock by analyzing historical trading prices of
SuperGen common stock, comparing SuperGen with companies that Spencer Trask
believed to be somewhat similar to SuperGen, and estimating the present value of
SuperGen's future cash flows. As discussed below, Spencer Trask applied weights
to the results of the foregoing tests. In establishing the appropriate weights,
Spencer Trask took into account several factors, including but not limited to:
- The liquidity provided by the listing of SuperGen common stock on the
Nasdaq National Market.
- The number of market-makers in SuperGen common stock.
- The amount of research coverage provided by investment banking firms with
respect to SuperGen.
- The absence of financial projections prepared by SuperGen's management.
- Spencer Trask's lack of access to some of SuperGen's proprietary
information.
- The quality and depth of SuperGen's management.
- The adequacy of SuperGen's anticipated levels of cash and cash equivalents
to fund anticipated near-term continuing operating losses.
MARKET VALUE ANALYSIS. Spencer Trask applied an 80% weight to the average
closing price of SuperGen common stock over the 20 trading days ending on
January 15, 1999, which average price was $8.68. No liquidity discount was
applied to this measure because the merger agreement provides that the SuperGen
common stock to be issued pursuant to the merger will be registered under the
Securities Act to permit their sale.
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COMPARABLE COMPANY VALUATION ANALYSIS. Spencer Trask compared various
financial and stock market information for the following selected publicly held
companies that it believed to be somewhat similar to SuperGen: ILEX Oncology,
Inc., Matrix Pharmaceuticals, Inc., Maxim Pharmaceuticals, Inc., Medarex, Inc.,
MGI Pharmaceuticals, Inc., Onyx Pharmaceuticals, Inc., OXiGENE, Inc. and
Progenics Pharmaceuticals, Inc.
For each of these companies, based on their most recent publicly-released
financial statements and common stock market prices as of January 15, 1999,
Spencer Trask examined the following ratios:
- Enterprise value to revenue (enterprise value representing the sum of
market equity capitalization plus long-term debt and preferred stock).
- Enterprise value to earnings before interest and taxes or "EBIT".
- Common stock price to net earnings.
- Market equity value to book value.
The ratios of enterprise value to EBIT and common stock price to net
earnings were deemed by Spencer Trask to be not meaningful because most of the
selected companies, like SuperGen, have negative EBIT and negative net earnings.
The median enterprise value/revenue ratio for the selected companies was 10.1,
and the median market equity/book value ratio for the selected companies was
3.4. Applying these ratios, weighted at 15% and 85%, respectively, Spencer Trask
derived an implied equity value of SuperGen of $56.921 million. A 10% weight was
applied to this valuation approach, which weight was partially determined by
taking into account the limited number of meaningful ratios applicable to
SuperGen.
DISCOUNTED CASH FLOW ANALYSIS. Spencer Trask performed a discounted cash
flow analysis to estimate the net present value of the cash flows that SuperGen
could generate over the period 1999 through 2003. The projections were based on
a combination of independent third party forecasts and Spencer Trask's estimates
of SuperGen's possible future financial performance. Spencer Trask discounted
SuperGen's projected cash flows by an estimated weighted average cost of capital
of 21%. Included in the projected SuperGen cash flows was an estimated terminal
value of SuperGen in 2003 based on a price/net income multiple of 27. This
multiple is at the low end of the range of the ratios for selected publicly-held
biotechnology companies that have achieved product sales and net income,
including: Amgen Inc., Biogen, Inc., Chiron Corporation, Genzyme Corporation and
Idec Pharmaceuticals Corporation.
Spencer Trask estimated the net present value of SuperGen's discounted cash
flows to be $155 million as of January 1, 1999. A 10% weight was applied to this
valuation approach, reflective of the inherent imprecision in estimating future
cash flows for biotechnology companies without a history of operating earnings.
SPARTA
Spencer Trask estimated the value of Sparta common stock by analyzing
historical trading prices of Sparta common stock, comparing Sparta with several
public companies that Spencer Trask believed to be somewhat similar to Sparta,
analyzing the purchase terms with respect to acquisitions of companies that
Spencer Trask believed to be somewhat similar to Sparta, and estimating the net
present value of SuperGen's future cash flows. As discussed below, Spencer Trask
applied weights to the results of the foregoing tests. In establishing the
appropriate weights, Spencer Trask took into account several factors, including
but not limited to:
- The liquidity provided by the trading of Sparta common stock on the OTC
Bulletin Board.
- The amount of research coverage provided by investment banking firms with
respect to Sparta.
- The financial projections prepared by Sparta's management.
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- The quality and depth of Sparta's management.
- The adequacy of Sparta's anticipated levels of cash and cash equivalents
to fund anticipated near-term continuing operating losses.
MARKET VALUE ANALYSIS. Since December 1, 1998, Sparta common stock has been
traded on the OTC Bulletin Board, where share prices are considered by Spencer
Trask to be a less reliable indicator of fair market value than share prices of
securities traded on the Nasdaq National Market because of generally less
research coverage and liquidity. During 1998, the closing price of Sparta common
stock ranged from a high of $1.28 in June to a low of $0.18 on December 30th.
During the 20 trading days ending January 15, 1999, the average closing market
price was $0.220 and the average trading volume was 35,940 shares per day.
Spencer Trask applied a 60% weight to this market price in estimating the fair
market value of Sparta's stockholders' equity.
COMPARABLE COMPANY VALUATION ANALYSIS. Spencer Trask compared financial and
stock market information for the following selected publicly held companies that
it believed to be somewhat similar to Sparta: Endorex Corp., Inkine
Pharmaceuticals, Co., Lorus Therapeutics Inc., Onyx Pharmaceuticals, Inc.,
Orphan Medical, Inc., Procept Inc. and Pacific Pharmaceuticals.
For each of these companies, based on their most recent publicly-released
financial statements and common stock market prices as of January 15, 1999,
Spencer Trask examined the following ratios:
- Enterprise value to revenue (enterprise value representing the sum of
market equity capitalization plus long-term debt and preferred stock).
- Enterprise value to EBIT.
- Common stock price to net earnings.
- Market equity value to book value.
The median market equity/book value ratio for the selected companies was
1.3. The other ratios were deemed by Spencer Trask to be not meaningful because
most of the selected companies, like Sparta, have no significant revenue from
product sales and negative EBIT and net earnings. Application of the 1.3 median
market equity/book value ratio to Sparta's estimated December 31, 1998 book
value of $2.24 million, plus an acquisition premium of 35%, resulted in an
implied equity value of $3.821 million. Spencer Trask applied a 10% weight to
this valuation approach, which weight was partially determined by taking into
account the limited number of meaningful ratios applicable to Sparta.
ANALYSIS OF RECENT MERGERS AND ACQUISITIONS. Spencer Trask reviewed the
purchase price and implied transaction multiples in the following selected
merger or acquisition transactions, involving the acquisition of publicly-held
companies considered somewhat similar to Sparta during the period January 1,
1993 through November 25, 1998: Aramed, Inc., ChemGenics Pharmaceuticals,
CytoRad Inc., Houston Biotechnology, Inc. and Telios Pharmaceuticals, Inc.
The ratios examined for these transactions, relating to the acquired
company, were:
- Transaction value (the sum of the price paid for the equity plus assumed
long term debt) to revenue.
- Transaction value to operating income.
- Equity price to net income.
- Equity price to book value
The first three ratios were deemed not meaningful by Spencer Trask because
most of the selected companies, like Sparta, had no significant revenue and had
negative operating and net income. The median ratio of equity price to book
value for the selected companies was 1.36. Application of this ratio to
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Sparta resulted in an implied equity value of $3.04 million, and a 20% weight
was applied to this valuation approach taking into consideration its
appropriateness in terms of the Sparta acquisition and the limited number of
meaningful ratios applicable to Sparta.
DISCOUNTED CASH FLOW ANALYSIS. Spencer Trask performed a discounted cash
flow analysis to estimate the net present value of the cash flows that Sparta
could generate over the period 1999 through 2003. The projections were based on
a combination of management's projections and Spencer Trask's estimates of
Sparta's possible future financial performance. Spencer Trask discounted
Sparta's projected cash flows by an estimated weighted average cost of capital
of 22%. Included in the projected Sparta cash flows was an estimated terminal
value of Sparta in 2003 based on a price/net income multiple of 27. This
multiple is at the low end of the range of such ratios for selected
publicly-held biotechnology companies that have achieved product sales and net
income, including: Amgen Inc., Biogen, Inc., Chiron Corporation, Genzyme
Corporation and Idec Pharmaceuticals Corporation.
Spencer Trask estimated the net present value of Sparta's discounted cash
flows to be $3.61 million as of January 1, 1999. A 10% weight was applied to
this valuation approach, reflective of the inherent imprecision in estimating
future cash flows for biotechnology companies without a history of operating
earnings.
QUANTITATIVE VALUATION SUMMARY
Spencer Trask's quantitative valuation summary, based on the analytical
approaches described above that it utilized to value SuperGen and Sparta,
estimated the total fair market value of SuperGen shares to be issued for
Sparta's equity securities, including Sparta common stock and Sparta Series BC
Convertible Preferred Stock, at $5,174,000. This amount is in excess of the
estimated fair market value of Sparta's equity securities, which was $4,400,000.
OTHER VALUATION CONSIDERATIONS
In rendering its opinion, Spencer Trask also considered that:
- The anticipated continuation of operating losses by Sparta may jeopardize
its ability to operate as a going concern.
- The merger will provide Sparta's stockholders with an equity position in a
company with liquid resources, an experienced management team with a track
record of success at large pharmaceutical and biotechnology companies,
current product sales, a potential cancer therapeutic product in Phase III
clinical trials and other products under development, and an enhanced
product and intellectual property portfolio upon acquiring Sparta.
- Sparta's management had unsuccessfully searched for other potential joint
venture partners, merger candidates and equity investors.
In preparing its opinion for Sparta, Spencer Trask performed the financial
and comparative analyses and considered all the factors described above. The
summary of these analyses does not purport to be a complete description of the
analyses underlying Spencer Trask's opinion. The preparation of a fairness
opinion is a complex analytic process involving various determinations as to the
most appropriate and relevant methods of financial analyses and the application
of those methods to the particular circumstances and, therefore, the opinion is
not readily susceptible to summary description. Spencer Trask believes that its
analyses must be considered as a whole and that selecting portions of its
analyses or portions of the factors considered by it, without considering all
analyses and factors, could create an incomplete view of the valuation process
underlying its opinion. In its analyses, Spencer Trask made numerous assumptions
with respect to Sparta and SuperGen, industry performance, general business,
regulatory, economic, market and financial conditions and other matters, many of
which are beyond the control of Sparta and SuperGen. The estimates contained in
these analyses are not necessarily indicative of actual values or
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predictive of future results or values, which may be significantly more or less
favorable than those suggested by these analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, because these estimates of actual values or future results or
values are inherently subject to substantial uncertainty, Spencer Trask assumes
no responsibility for their accuracy.
Sparta selected Spencer Trask to deliver a fairness opinion in connection
with the merger because Spencer Trask is a recognized investment banking firm
and is regularly engaged in securities transactions, equity research, mergers
and acquisitions, private placements, business valuations and other related
activities. In addition, Spencer Trask has previously rendered investment
banking services to Sparta in connection with its acquisition of Lexin
Pharmaceutical Corp. in March 1996.
As compensation for Spencer Trask's services to Sparta, Sparta paid Spencer
Trask a fee of $50,000 upon the execution of Spencer Trask's engagement letter
and an additional fee of $50,000 upon delivery of Spencer Trask's fairness
opinion and related analyses. Sparta has also agreed to reimburse Spencer Trask
for its out-of-pocket expenses and to indemnify Spencer Trask and its affiliates
against various liabilities, including liabilities under the federal securities
laws, relating to or arising out of its engagement.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes various federal income tax
considerations of the merger that are generally applicable to holders of Sparta
capital stock exchanging their Sparta capital stock for SuperGen common stock.
You should be aware that the following discussion does not deal with all federal
income tax considerations that may be relevant to you in light of your
particular circumstances, including if you are a dealer in securities, you are a
foreign person or you acquired your Sparta capital stock through stock option or
stock purchase programs or in other compensatory transactions. In addition, the
following discussion does not address the tax consequences of the merger under
foreign, state or local tax laws. Finally, the following discussion does not
address the tax consequences of transactions occurring prior to or after the
merger (whether or not those transactions are in connection with the merger)
including, without limitation, the exercise of options or rights to purchase
Sparta capital stock in anticipation of the merger. ACCORDINGLY, YOU ARE URGED
TO CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO YOU OF
THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO YOU OF THE MERGER.
The following discussion is based on currently existing provisions of the
Internal Revenue Code of 1986, as amended, existing and proposed Treasury
Regulations, current judicial authority and administrative rulings and practice,
all of which are subject to change. The IRS could still adopt a contrary
position. In addition, future legislative, judicial or administrative changes or
interpretations could adversely affect the accuracy of the statements and
conclusions set forth in this discussion. Any changes or interpretations could
be applied retroactively and could affect the tax consequences of the merger as
described in this proxy statement-propectus to SuperGen, Sparta and/or their
respective stockholders.
The merger is intended to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, with each of SuperGen and Sparta
intending to qualify as a "party to the reorganization" under Section 368(b) of
the Internal Revenue Code, in which case the following federal income tax
consequences will result (subject to the limitations and qualifications referred
to in this discussion):
- You will recognize no gain or loss upon the receipt of SuperGen common
stock (or common stock and warrants) solely in exchange for your Sparta
capital stock in the merger (except to the extent, if any, that cash is
received in lieu of a fractional share).
- The aggregate tax basis of the SuperGen common stock (or common stock and
warrants) received by you in the merger (including any fractional share of
SuperGen common stock not actually
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received but for which cash is paid) will be the same as the aggregate tax
basis of the Sparta capital stock you surrendered in exchange. If you
receive common stock and warrants, the aggregate tax basis will be
allocated between the common stock and warrants based on their relative
fair market values at the time of the merger.
- The holding period of the SuperGen common stock (or common stock and
warrants) received by you in the merger will include the holding period of
the Sparta capital stock you surrendered in exchange, provided that the
Sparta capital stock you surrendered is held as a capital asset at the
time of the merger.
- Cash payments received by you in lieu of a fractional share will be
treated as if a fractional share of Sparta capital stock had been issued
in the merger and then redeemed by Sparta. To the extent you receive cash
in lieu of a fractional share, you will recognize gain or loss upon the
payment, measured by the difference (if any) between the amount of cash
received and the basis in the fractional share. The gain or loss should be
capital gain or loss, provided that each fractional share of Sparta
capital stock was held by you as a capital asset at the effective time of
the merger.
- To the extent you exercise your dissenter's rights with respect to a share
of Sparta capital stock and receive payment for that stock in cash, you
will generally recognize gain or loss for federal income tax purposes,
measured by the difference between your basis in that stock and the amount
of cash received, provided that the payment is neither essentially
equivalent to a dividend within the meaning of Section 302 of the Internal
Revenue Code, nor has the effect of a distribution of a dividend within
the meaning of Section 356(a)(2) of the Internal Revenue Code. That gain
or loss will be capital gain or loss, provided that the Sparta capital
stock is held by you as a capital asset at the effective time of the
merger. A sale of Sparta capital stock pursuant to an exercise of
dissenters' rights will generally not be a transaction within the meaning
of Section 302 or Section 356(a)(2) of the Internal Revenue Code if, as a
result of that exercise, you own no shares of SuperGen common stock or
Sparta capital stock (either actually or constructively within the meaning
of Section 318 of the Internal Revenue Code).
- Neither SuperGen nor Sparta will recognize gain or loss solely as a result
of the merger.
Neither SuperGen nor Sparta has requested a ruling from the IRS in
connection with the merger. It is a condition to the consummation of the merger
that SuperGen and Sparta each receive opinions from their respective counsel
that the merger will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code for federal income tax purposes. The tax
opinions neither bind the IRS nor preclude the IRS from adopting a contrary
position. The tax opinions are subject to assumptions and qualifications and are
based on the truth and accuracy of representations of SuperGen and Sparta,
including representations in certificates delivered to these counsel by the
respective managements of SuperGen and Sparta.
A successful IRS challenge to the reorganization status of the merger would
result in significant adverse tax consequences to Sparta stockholders. You would
recognize gain or loss equal to the difference between your basis in that share
and the fair market value as of the time of the merger, of the SuperGen common
stock (or SuperGen common stock and warrants) received in exchange. In that
event, your aggregate basis in the SuperGen common stock (or SuperGen common
stock and warrants) so received would equal its fair market value, and your
holding period for that stock would begin the day after the merger. However,
even in that event, neither SuperGen nor Sparta would recognize gain or loss
solely as a result of the merger.
Noncorporate Sparta stockholders may be subject to backup withholding at a
rate of 31% on cash payments received in lieu of a fractional share interest in
SuperGen common stock. Backup withholding will not apply, however, to you if you
furnish a correct taxpayer identification number and certify that you are not
subject to backup withholding on Form W-9 and provide a certificate of foreign
status on Form W-8, or you are otherwise exempt from backup withholding. If you
fail to provide the correct taxpayer identification number on Form W-9, you may
be subject to a $50 penalty imposed by the IRS.
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You will be required to retain records and file with your federal income tax
return a statement setting forth various facts relating to the merger.
Even if the merger qualifies as a reorganization, if you are receiving
shares of SuperGen common stock, you would recognize gain to the extent that
those shares were received in exchange for services or property (other than
solely Sparta capital stock). All or a portion of that gain may be taxable as
ordinary income. Gain would also have to be recognized to the extent you were
treated as receiving consideration other than SuperGen common stock in exchange
for your Sparta capital stock.
STOCK OWNERSHIP FOLLOWING MERGER
Assuming no adjustments to the merger consideration based on the average
closing price of SuperGen common stock during the 30 trading days before the
closing of the merger, an aggregate of 650,000 shares of SuperGen common stock
will be issued to Sparta stockholders in the merger and SuperGen will assume
Sparta stock options and Sparta stock purchase warrants for up to approximately
110,343 additional shares of SuperGen common stock with exercise prices ranging
from $55.48 to $871.86 per share. Based upon the number of shares of SuperGen
common stock issued and outstanding as of June 25, 1999, and after giving effect
to the issuance of SuperGen common stock as described in the previous sentence,
the former holders of Sparta common stock would hold, and have voting power with
respect to, approximately 3% of SuperGen's total issued and outstanding shares,
and holders of former Sparta stock options and Sparta stock purchase warrants
assumed by SuperGen in the merger would hold options and warrants exercisable
for approximately 0.5% of SuperGen's total issued and outstanding shares
(assuming the exercise of only those options and warrants). These percentages
may change if the capitalization of SuperGen changes subsequent to June 25, 1999
and prior to the effective time of the merger, and there can be no assurance as
to the actual capitalization of SuperGen at the effective time of the merger or
of SuperGen at any time following the effective time of the merger.
INTERESTS OF SPARTA EXECUTIVE OFFICERS AND DIRECTORS
In considering the recommendation of the Sparta board with respect to the
merger agreement and the merger, Sparta stockholders should be aware that the
directors and officers of Sparta will receive continuing indemnification against
various liabilities. These arrangements present the Sparta directors and
officers with potential conflicts of interest. See "Terms of the
Merger--Indemnification of Officers and Directors."
In addition, two executive officers of Sparta are entitled to various
benefits under existing employment agreements, stock option agreements and
promissory notes. The consummation of the merger will trigger provisions in the
existing employment agreements between Sparta and each of Dr. Hook and Mr.
Spair, entitling each of them to severance payments equal to twelve months
salary and six months salary, respectively. In addition, existing stock option
agreements between Sparta and each of Dr. Hook and Mr. Spair provide that
unvested stock options granted to each will become immediately exercisable if a
change of control of Sparta (which includes the merger) occurs. At June 25,
1999, Dr. Hook had unvested stock options for the purchase of 56,250 shares of
Sparta common stock with exercise prices ranging from $2.225 to $5.625 per share
(or $58.78 to $148.61 per share of SuperGen common stock after the merger based
on the exchange ratio) and Mr. Spair had unvested stock options for the purchase
of 22,750 shares of Sparta common stock with exercise prices also ranging from
$2.225 to $5.625 per share (or $58.78 to $148.61 per share of SuperGen common
stock after the merger based on the exchange ratio). Dr. Hook and Mr. Spair are
also the makers of promissory notes payable to Sparta in the outstanding
principal amounts of $33,334 and $16,668, respectively. These notes provide that
all principal and interest will be forgiven (and each maker will be made whole
for tax liabilities resulting from that forgiveness) if a change of ownership of
Sparta (which would include the merger) occurs.
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In addition, as of the record date, the directors and officers of Sparta and
their affiliates beneficially owned 168,038 shares of Sparta common stock,
15,000 shares of Sparta preferred stock and options and warrants exercisable
within 60 days of the record date to purchase 223,501 shares of Sparta common
stock. Assuming the conversion of all their Sparta preferred stock into Sparta
Common Stock and the exercise of all these options and warrants to purchase
Sparta common stock, the directors and officers of Sparta and their affiliates
would own 431,539 shares or 10.9% of the outstanding Sparta common stock. See
"Security Ownership of Certain Beneficial Owners and Management of Sparta."
In addition, Ronald H. Spair and Dr. Howard Sands have agreed to be employed
by SuperGen at or about the effective time of the merger as SuperGen's Chief
Financial Officer and Vice President of Pre-Clinical Development, respectively.
GOVERNMENTAL AND REGULATORY APPROVALS
Neither SuperGen nor Sparta believe that any governmental filings with the
Federal Trade Commission are required with respect to the merger. However, the
FTC or the Antitrust Division of the United States Department of Justice could
take action under the antitrust laws as they deem necessary or desirable in the
public interest, including seeking to enjoin consummation of the merger or
seeking to cause the divestiture of significant assets of SuperGen or Sparta. We
cannot be certain that a challenge to the merger on antitrust grounds will not
be made or, if a challenge is made, of what the result would be. Private parties
may also seek to take legal action under the antitrust laws under some
circumstances.
DISSENTERS' RIGHTS
Sparta stockholders who properly dissent from the merger will be entitled to
dissenters' rights. A stockholder that is a stockholder as of the record date
and entitled to vote on the merger may dissent from the merger and obtain
payment for the fair value of that stockholder's shares after completion of the
merger. A stockholder who wishes to assert dissenters' rights must deliver to
Sparta, before a vote of the stockholders is completed, written notice of that
stockholder's intent to demand payment for the stockholder's shares if the
proposed merger is consummated. A Sparta stockholder that approves the merger
will not have a right to dissent from the merger. See "Dissenters' Rights."
ACCOUNTING TREATMENT
The merger is expected to be accounted for under the purchase method of
accounting in accordance with generally accepted accounting principles. Under
the purchase method of accounting, the aggregate consideration paid by SuperGen
will be allocated to the acquired assets and liabilities of Sparta based on
their fair market values at the effective time of the merger. Results of
operations of Sparta subsequent to the merger, the related amortization of
tangible and intangible assets and write-off of in-process research and
development associated with the merger will be included in the results of
operations of SuperGen subsequent to the time of the merger.
STOCK EXCHANGE LISTING
The shares of SuperGen common stock (and warrants for the purchase of
SuperGen common stock, if any) to be issued in the merger will be approved for
listing on the Nasdaq National Market.
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TERMS OF THE MERGER
THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS OF THE MERGER AGREEMENT. A
COPY OF THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A AND IS INCORPORATED INTO
THIS PROXY STATEMENT-PROSPECTUS BY REFERENCE. THE FOLLOWING IS NOT A COMPLETE
STATEMENT OF ALL THE TERMS OF THE MERGER AGREEMENT. STATEMENTS MADE IN THIS
PROXY STATEMENT-PROSPECTUS ARE QUALIFIED BY REFERENCE TO THE MORE DETAILED
INFORMATION SET FORTH IN THE MERGER AGREEMENT. YOU ARE ENCOURAGED TO READ THE
ENTIRE MERGER AGREEMENT.
THE MERGER
In accordance with the merger agreement and Delaware law, Royale Acquisition
Corp., a newly-formed and wholly-owned subsidiary of SuperGen, will be merged
with and into Sparta. As a result of the merger, the separate corporate
existence of Royale Acquisition Corp. will cease and Sparta will survive the
merger as a wholly-owned subsidiary of SuperGen.
Unless the parties agree otherwise, the closing of the merger will take
place no later than two business days following the approval of the merger by
Sparta's stockholders and the satisfaction or waiver of the conditions set forth
in the merger agreement.
Assuming that both SuperGen and Sparta satisfy or waive all of the
conditions in the merger agreement as quickly as possible, we hope to complete
the merger by September 1999.
MERGER CONSIDERATION
The total number of shares of SuperGen common stock to be issued in exchange
for all shares of Sparta common stock and preferred stock outstanding at the
time of the merger is variable. The determination of the precise number of
shares of SuperGen common stock to be issued will be based on the average
closing price of SuperGen common stock on the Nasdaq National Market over the 30
consecutive trading days ending on the day before the closing of the merger. The
possibilities are as follows:
IF THAT AVERAGE CLOSING PRICE IS BETWEEN $5.00 AND $12.00 PER SHARE:
SuperGen will issue 650,000 shares of SuperGen common stock in the merger in
exchange for all shares of Sparta common stock and preferred stock outstanding
at the time of the merger.
IF THAT AVERAGE CLOSING PRICE IS BELOW $5.00 PER SHARE:
SuperGen will issue the number of shares of SuperGen common stock determined
by dividing $3,250,000 by that average closing price. For example, if that
average closing price was equal to $4.50 per share, SuperGen would issue 722,222
shares of SuperGen common stock in exchange for all shares of Sparta common
stock and preferred stock outstanding at the time of the merger.
IF THAT AVERAGE CLOSING PRICE EXCEEDS $12.00 PER SHARE:
SuperGen will issue the number of shares of SuperGen common stock determined
by dividing $7,800,000 by that average closing price. In addition, SuperGen will
issue warrants to purchase a number of shares of SuperGen common stock equal to
650,000 less the number of SuperGen shares being issued in the merger. For
example, if that average closing price was equal to $20.00 per share, SuperGen
would issue 390,000 shares of SuperGen common stock and warrants for the
purchase of 260,000 shares of SuperGen common stock. The key terms of the
warrants would be as follows:
- Exercise price will be equal to that average closing price;
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- Exercise may occur at any time until the earlier of:
- the second anniversary of the merger, or
- the sale of all or substantially all of SuperGen's assets, or
- a merger or other transaction resulting in a change in control of
SuperGen;
- The registration statement of which this proxy statement-prospectus forms
a part will register the warrants and shares of SuperGen common stock
underlying the warrants; and
- The exercise price and number of shares will be adjusted for
reclassifications, consolidations, mergers, subdivisions or combinations
of SuperGen common stock.
CERTIFICATE OF INCORPORATION AND BYLAWS OF SPARTA AFTER THE MERGER
The certificate of incorporation and bylaws of Royale Acquisition Corp. as
in effect immediately prior to the merger will become the certificate of
incorporation and bylaws of Sparta at the effective time of the merger, except
that the certificate of incorporation will be amended to reflect that the name
of the surviving corporation will be "Sparta Pharmaceuticals, Inc."
DIRECTORS AND OFFICERS OF SPARTA AFTER THE MERGER
At the effective time of the merger, the current directors and officers of
Royale Acquisition Corp., who are each current directors or officers of
SuperGen, will become the directors and officers of Sparta.
CONVERSION OF SPARTA CAPITAL STOCK AS A RESULT OF THE MERGER
Under the terms of the merger agreement, each share of Sparta capital stock
issued and outstanding immediately prior to the merger (other than any shares
held by a holder who has demanded and perfected dissenters' rights for those
shares in accordance with the applicable provisions of Delaware law and who has
not withdrawn or lost those rights) will be cancelled and extinguished and be
converted automatically into the right to receive a number of shares of SuperGen
common stock. If the average closing price of SuperGen common stock on the
Nasdaq National Market over the 30 consecutive trading days ending on the day
before the closing of the merger is greater than $12.00 per share, holders of
Sparta capital stock will also receive warrants for the purchase of SuperGen
common stock. SuperGen will not issue fractional shares of SuperGen common stock
in the merger. Instead, the holder of any fractional share will be entitled to
receive cash in an amount equal to that fraction multiplied by the average
closing price of SuperGen common stock on the Nasdaq National Market over the 10
consecutive trading days ending one day before the closing of the merger. The
number of shares of SuperGen common stock and any SuperGen warrants to be
received by Sparta stockholders cannot be determined precisely until that
average closing price of SuperGen common stock on the Nasdaq National Market
over the 30 consecutive trading days ending on the day before the closing of the
merger is known.
BASED ON THE INFORMATION AVAILABLE AT THIS TIME AND ASSUMING AN AVERAGE
CLOSING PRICE BETWEEN $5.00 AND $12.00, HOLDERS OF SPARTA CAPITAL STOCK WILL
RECEIVE THE NUMBER OF SHARES OF SUPERGEN COMMON STOCK AS DESCRIBED BELOW. THE
ACTUAL NUMBERS MAY VARY AFTER THE FINAL CALCULATIONS HAVE BEEN MADE.
CONVERSION OF SPARTA COMMON STOCK
Holders of Sparta common stock will be entitled to receive approximately
.03785 of a share of SuperGen common stock for each share of Sparta common stock
they hold.
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CONVERSION OF SPARTA SERIES BC Convertible Preferred Stock
Holders of Sparta Series BC Convertible Preferred Stock will be entitled to
receive approximately .62074 of a share of SuperGen common stock for each share
of Sparta Series BC Convertible Preferred Stock they hold.
SPARTA STOCK OPTIONS AND STOCK PURCHASE WARRANTS
In the merger, each outstanding option, warrant or other right to purchase
shares of Sparta Common stock shall be assumed by SuperGen and remain
outstanding. However, each Sparta stock option, Sparta stock purchase warrant or
other purchase right will be exercisable for shares of SuperGen common stock.
The number of shares of SuperGen common stock issuable upon exercise of a Sparta
stock option, Sparta stock purchase warrant or other right to purchase, and the
exercise price of that Sparta security will be adjusted to reflect the exchange
ratio as set forth in the merger agreement. The results of those computations
will be rounded to the nearest whole share of SuperGen common stock and exercise
prices will be rounded to the nearest whole cent.
PROCEDURE FOR CONVERTING SPARTA CAPITAL STOCK
EXCHANGE AGENT
The merger agreement requires SuperGen to select an exchange agent to
facilitate the exchange of Sparta capital stock for SuperGen securities.
Promptly after the merger, SuperGen will make available to this exchange agent
certificates for SuperGen securities plus any cash to be exchanged for Sparta
capital stock.
EXCHANGE PROCEDURES
Promptly after the closing of the merger, Sparta stockholders will receive a
letter of transmittal providing instructions for surrender of their certificates
representing ownership of Sparta capital stock. Sparta stockholders will return
to the exchange agent the completed letter of transmittal, accompanied by Sparta
stock certificates and other customary documents described in the instructions
to the letter of transmittal. Upon receipt of the documents requested in the
letter of transmittal, the exchange agent will issue the SuperGen securities and
any cash to which the Sparta stockholder is entitled.
SPARTA STOCKHOLDERS SHOULD ALSO NOTE:
No dividends or other distributions on SuperGen common stock declared or
made after the merger will be paid to any holder of any unsurrendered Sparta
stock certificate with respect to the shares of SuperGen common stock
represented by that certificate until it is surrendered to the exchange agent.
If any certificate for shares of SuperGen common stock is to be issued in a
name other than that in which the Sparta stock certificate surrendered in
exchange therefor is registered, the Sparta stock certificate so surrendered
must be properly endorsed and otherwise in proper form for transfer and the
person requesting the exchange will have to pay SuperGen or any agent designated
by it any transfer or other taxes required by reason of issuance of a
certificate for shares of SuperGen common stock in any name other than that of
the registered holder of the Sparta stock certificate surrendered, or establish
to the satisfaction of SuperGen or any agent designated by it that the tax has
been paid or is not payable.
In the event that any Sparta stock certificates representing shares of
Sparta capital stock have been lost, stolen or destroyed, the exchange agent
will issue shares of SuperGen common stock in exchange for the lost, stolen, or
destroyed Sparta stock certificates upon the making of an affidavit of that fact
by the owner of those Sparta stock certificates and, at the request of SuperGen,
upon delivery of a bond in an amount as SuperGen may reasonably direct as
indemnity against any claim that may be made against
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SuperGen or the exchange agent with respect to the Sparta stock certificates
alleged to have been lost, stolen or destroyed.
SPARTA STOCKHOLDERS SHOULD NOT FORWARD SPARTA STOCK CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED A TRANSMITTAL LETTER. SPARTA
STOCKHOLDERS SHOULD NOT RETURN SPARTA STOCK CERTIFICATES WITH THEIR PROXY.
FORM S-8 FILING
SuperGen has agreed to file with the SEC, as soon as reasonably practicable
after the merger, a registration statement on Form S-8 to register shares of
SuperGen common stock issuable as a result of the exercise of Sparta stock
options assumed in the merger. The shares of SuperGen common stock issuable as a
result of the exercise of Sparta stock purchase warrants assumed in the merger
will be registered on the registration statement of which this proxy
statement-prospectus forms a part.
TAX AND ACCOUNTING CONSEQUENCES
SuperGen and Sparta intend that the merger be treated as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. SuperGen and Sparta intend to treat the merger as a purchase for
accounting purposes.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties made
by Sparta. These representations and warranties relate to various aspects of
Sparta's business, including:
- Organization and good standing as a corporation
- Ownership of subsidiaries
- Capital structure
- Obligations with respect to capital stock
- Authorization, execution, delivery and enforceability of the merger
agreement and related agreements and necessary stockholder approvals
- Absence of conflict with, default under or violation of agreements and
laws, and the holding of permits necessary for the conduct of business
- Absence of need for waivers or consents from any governmental entity or
third party
- Accuracy and completeness of SEC filings
- Accuracy of financial statements
- Absence of undisclosed liabilities
- Absence of various changes in the business
- Tax matters
- Title to property
- Ownership of intellectual property
- Compliance with laws and agreements, sufficiency of permits and absence of
restrictions on business activities
- Litigation matters
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- Absence of brokers' and finders' fees
- Compliance with environmental matters
- Absence of some types of agreements, contracts and commitments
- Employee benefit plans
- Employee labor matters
- Change in control payments
- Accuracy and completeness of information provided in this proxy
statement-prospectus
- Receipt by Sparta of an opinion from an investment banking firm as to the
fairness of the transaction
The representations and warranties of Sparta terminate upon closing of the
merger.
The merger agreement also contains customary representations and warranties
made by SuperGen and Royale Acquisition Corp. These representations and
warranties relate to various aspects of SuperGen and Royale Acquisition Corp.'s
businesses, including:
- Organization and good standing as corporations
- Capital structure
- Authorization, execution, delivery and enforceability of the merger
agreement and related agreements
- Authorization and issuance of the shares of SuperGen common stock to be
issued pursuant to the merger
- Absence of conflict with, default under or violation of agreements and
laws
- Accuracy and completeness of SEC filings
- Accuracy of financial statements
- Absence of various changes in the business
The representations and warranties of SuperGen and Royale Acquisition Corp.
terminate upon the closing of the merger.
CONDUCT OF BUSINESS OF SPARTA PENDING THE MERGER
Sparta has agreed in the merger agreement to carry on its business in its
usual customary manner during the period from the date of the merger agreement
and continuing until the earlier of the termination of the merger agreement or
the date of the merger. Sparta has committed to use commercially reasonable
efforts consistent with past practices and policies:
- To preserve intact the present business organization of Sparta
- To keep available the services of its present officers and key employees
- To preserve its relationships with customers, suppliers, distributors,
licensors, licensees and others
Sparta has also agreed to refrain from taking a variety of actions that
could affect Sparta's business prior to the closing without SuperGen's prior
consent. A complete list of these actions is set out at Section 4.1 of the
merger agreement, which is included as Appendix A to this proxy
statement-prospectus.
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CONDITIONS TO THE MERGER
There are numerous conditions that have to be satisfied or waived before the
merger can be completed. These conditions are divided into three categories, and
are summarized below.
THE OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER AGREEMENT ARE SUBJECT TO
THE FOLLOWING CONDITIONS:
- Sparta stockholders shall have approved the merger;
- The SEC shall have approved the effectiveness of the proxy
statement-prospectus and shall not have taken any action to suspend the
effectiveness prior to the merger;
- No governmental entity shall have taken action to prohibit the merger or
make it illegal;
- SuperGen and Sparta shall have obtained all material consents;
- SuperGen shall have received all necessary state securities law permits;
and
- The SuperGen common stock to be issued in connection with the merger shall
have been listed on the Nasdaq National Market.
THE OBLIGATIONS OF SPARTA TO EFFECT THE MERGER ARE SUBJECT TO THE FOLLOWING
CONDITIONS:
- The representations and warranties of SuperGen and Royale Acquisition
Corp. in the merger agreement shall be true and correct in all material
respects;
- SuperGen and Royale Acquisition Corp. shall have performed and complied in
all material respects with all agreements and covenants in the merger
agreement;
- There shall not have been any change, event or effect that is materially
adverse to the business and assets, financial condition, results of
operations or prospects of SuperGen and its subsidiaries taken as a whole;
- SuperGen shall have obtained all material consents, waivers, and approvals
necessary in connection with the merger;
- Sparta shall have obtained a written opinion from its tax counsel that the
merger will constitute a tax free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code; and
- Sparta shall have been provided with an officer's certificate of SuperGen
to the effect that, as of the date of the merger, all representations and
warranties made by SuperGen and Royale Acquisition Corp. in the merger
agreement are true and correct in all material respects on and as of that
date, and all agreements and covenants required to be performed by
SuperGen and Royale Acquisition Corp. have been so performed in all
material respects.
Sparta may waive any of the above conditions.
THE OBLIGATIONS OF SUPERGEN AND ROYALE ACQUISITION CORP. TO EFFECT THE MERGER
ARE SUBJECT TO THE FOLLOWING CONDITIONS:
- The representations and warranties of Sparta in the merger agreement shall
be true and correct in all material respects;
- Sparta shall have performed and complied in all material respects with all
agreements and covenants in the merger agreement;
- There shall not have been any change, event or effect that is materially
adverse to the business and assets, financial condition, results of
operations or prospects of Sparta and its subsidiaries other than
specified changes in cash, liquidity and drug development activities;
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- Sparta shall have obtained all material consents, waivers, and approvals
necessary in connection with the merger;
- SuperGen shall have obtained a written opinion from its tax counsel that
the merger will constitute a tax free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code;
- The value of Sparta's cash and cash equivalents shall not be less than the
amounts projected by Sparta; and
- SuperGen shall have been provided with an officer's certificate to the
effect that, as of the date of the merger, all representations and
warranties made by Sparta in the merger agreement are true and correct in
all material respects on and as of that date, and all agreements and
covenants required to be performed or complied with by Sparta have been so
performed in all material respects.
SuperGen may waive any of the above conditions.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated and the merger abandoned at any time
prior to the merger by the mutual agreement of SuperGen and Sparta and in the
circumstances that are described below:
BY SUPERGEN OR SPARTA IF:
- The merger has not occurred by September 15, 1999 (or October 15, 1999 in
the event that the SEC delays effectiveness of the registration statement
of which this proxy statement-prospectus forms a part), unless the party
seeking to terminate the merger agreement had acted or failed to act in a
manner to be the principal cause of or resulted in the failure of the
merger to occur on or before that date and that action or failure to act
constitutes a breach of the merger agreement; or
- There is a final nonappealable order of a federal or state court in effect
preventing the merger; or
- The required approvals of Sparta stockholders have not occurred at the
Sparta special meeting; or
- The Sparta board approves or recommends a superior proposal and Sparta
pays SuperGen a termination fee.
BY SUPERGEN IF:
- The Sparta board has withheld, withdrawn or modified its approval or
recommendation of the merger and approval of the merger by Sparta
stockholders; or
- Sparta is in breach of a representation, warranty, covenant or agreement,
and the breach, if curable, has not been cured within ten (10) days after
the breach is discovered by SuperGen.
BY SPARTA IF:
- SuperGen is in breach of a representation, warranty, covenant or agreement
and the breach, if curable, has not been cured within ten (10) days after
the breach is discovered by Sparta.
FEES AND EXPENSES
Regardless of whether the merger is consummated, all fees and expenses
incurred in connection with the merger agreement and the transactions
contemplated thereby will be paid by the respective party incurring those fees
and expenses, except that SuperGen and Sparta will share equally all fees and
expenses, other than attorneys' and accountants' fees and expenses, incurred in
connection with the filing of this proxy statement-prospectus and registration
statement.
52
<PAGE>
In the event of termination of the merger agreement because Sparta is
pursuing a superior proposal (provided that SuperGen has not experienced a
material adverse effect prior to that termination), Sparta will pay SuperGen a
cash amount equal to 150% of documented out-of-pocket costs and expenses
incurred by SuperGen in connection with the merger, including legal, accounting,
investment banking and printing fees. Sparta will also pay that termination fee
if SuperGen terminates the merger agreement due to breaches of the merger
agreement by Sparta. Similarly, SuperGen shall pay Sparta a similar termination
fee if Sparta terminates due to breaches of the merger agreement by SuperGen.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The merger agreement provides that from and after the merger, SuperGen will,
and will cause Sparta to honor and fulfill its existing obligations to Sparta's
directors and officers for change of control, severance and indemnification
arrangements. For a period of six years from the date of the merger, SuperGen
will maintain and pay the premiums for officers' and directors' liability
insurance policies held by Sparta at the time of the merger. This obligation
will cease if the total expenses for the payment of those premiums during that
period exceed $72,900.
NO SOLICITATION BY SPARTA OF OTHER OFFERS
Sparta has agreed that it will not (1) solicit or knowingly encourage
submission of any proposal or offer relating to a merger with or acquisition of
or investment in Sparta, or (2) participate in any negotiations or discussions
with, or disclose any non-public information concerning Sparta, or otherwise
assist or enter into any agreement or understanding with any person or entity in
connection with any proposal or offer relating to a merger with or acquisition
of or investment in Sparta; provided, however, that Sparta may participate in
discussions or negotiate with and supply information to a third party who makes
an unsolicited acquisition proposal that is financially superior to the terms of
the merger, if the Sparta board determines that failing to take that action
would result in breach of its fiduciary duties under applicable law. If Sparta
receives an unsolicited acquisition proposal, Sparta has agreed to immediately
notify SuperGen and disclose the identity of the offeror and the terms of that
proposal.
OTHER COVENANTS
The merger agreement also contains various other covenants and agreements
that are customary in transactions of this nature, including:
- SuperGen and Sparta agreed to prepare and cause to be filed with the SEC
this proxy statement-prospectus for the solicitation and approval of the
stockholders of Sparta of the merger agreement, the merger and the
amendments to Sparta's certificate of incorporation and to register the
sale of the shares of SuperGen common stock issuable in the merger;
- Sparta agreed to notice, convene and hold a stockholders' meeting to vote
on the merger agreement and related transactions within 45 days after the
registration statement on Form S-4 is declared effective. Sparta has also
agreed to use its reasonable best efforts to solicit from its stockholders
proxies in favor the merger and related transactions;
- SuperGen and Sparta confirmed that a confidentiality agreement between the
parties relating to confidential information obtained in connection with
the merger is in full force. In addition, SuperGen and Sparta have agreed
to provide access and make available to each other business and other
information in connection with the merger and related transactions;
- SuperGen and Sparta agreed to not issue press releases relating to the
merger without the written consent of the other unless the failure to do
so would breach a law or stock exchange rule;
53
<PAGE>
- SuperGen and Sparta agreed to inform each other of events or other issues
that have or would likely result in a breach of a material representation,
warranty, covenant or condition relating to the merger; and
- SuperGen agreed to authorize for listing on the Nasdaq National Market the
shares of Common Stock issuable in connection with the merger not less
than 15 days prior to the date of issuance.
AFFILIATE AGREEMENTS
Under the terms of the merger agreement, Sparta delivered to SuperGen
agreements executed by Sparta's affiliates. Sparta's affiliates include all of
Sparta's directors and officers and any stockholder that owns 10% or more of
Sparta's outstanding capital stock. The affiliate agreements provide, among
other things, that each Sparta affiliate will not sell, transfer or otherwise
dispose of the shares of SuperGen issued to the affiliate in connection with the
merger other than in compliance with Rule 145 of the Securities Act unless the
affiliate delivers to SuperGen a written opinion from counsel, reasonably
acceptable to SuperGen, that the sale, transfer or disposition is exempt from
registration under the Securities Act. Additionally, the affiliate agreements
provide that SuperGen shall place legends on the stock certificates and give
stop transfer orders to its transfer agent to ensure compliance with Rule 145.
VOTING AGREEMENTS
Pursuant to the merger agreement, various affiliates and significant
stockholders of Sparta executed voting agreements. Under the voting agreements,
the stockholders have agreed to vote to approve the merger and the merger
agreement. In addition, the stockholders have executed an irrevocable proxy
appointing the SuperGen board as proxy to vote their shares in favor of the
merger and approval of the merger agreement.
54
<PAGE>
SUPERGEN AND SPARTA
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the merger applying the purchase method of accounting. The unaudited pro
forma combined balance sheet gives effect to the merger as if it had occurred on
March 31, 1999, and reflects the allocation of the purchase price of the Sparta
assets acquired, including in-process research and development and liabilities
assumed. These pro forma combined financial statements should be read in
conjunction with the historical consolidated financial statements and the
related notes thereto of SuperGen incorporated by reference herein and of Sparta
included herein.
The unaudited pro forma combined statement of operations combines the
historical statements of operations of SuperGen and Sparta as if the merger had
occurred at the beginning of the earliest period presented. SuperGen's
consolidated statement of operations for the fiscal year ended December 31, 1998
and the unaudited consolidated statement of operations for the three-month
period ended March 31, 1999 have been combined with Sparta's consolidated
statement of operations for the fiscal year ended December 31, 1998 and the
unaudited consolidated statement of operations for the three-month period ended
March 31, 1999.
The SuperGen statement of operations for the period in which the merger
occurs will include a significant charge for acquired in-process research and
development, currently estimated to be approximately $7.2 million or 80% of the
purchase price. This amount represents the values determined by management,
using a discounted cash flow methodology, to be attributable to the in-process
research and development programs of Sparta based on a preliminary valuation of
such programs. Such amount is subject to significant change pending completion
of the final valuation analysis related to specific on-going research and
development programs. Assuming each of these research programs continues through
all stages of clinical development, the projected future research and
development expenditures related to these programs, excluding the cost of
research and development which may be performed by corporate collaborators, is
approximately $45 million. The programs are forecasted to be completed at
various times between 2001 and 2008. If SuperGen would have allocated less of
the purchase price to these programs, the value would have been recorded as
goodwill on the balance sheets and amortized over the expected benefit period,
resulting in increased amortization expense during that period.
Management of SuperGen believes that the allocation of the purchase price to
these programs is appropriate given the future potential of these programs to
contribute to the operations of SuperGen. If, at a later date, management of
SuperGen decides to no longer pursue one or all of these in-process programs,
decides to indefinitely postpone the research effort related to one or more of
the programs or determines that the discounted cash flows will no longer meet
the projections underlying the valuations, it will disclose that fact to
investors in the appropriate Annual Report on Form 10-K or Quarterly Report on
Form 10-Q explaining why it will not pursue commercialization or why research
has been postponed and when research is expected to resume. In addition, should
SuperGen revise its estimate of the anticipated date of regulatory approval for
a particular product, this fact will be disclosed in the appropriate Annual
Report on Form 10-K or Quarterly Report on Form 10-Q and the reasons for, and
potential implications of, the change in estimate will be explained.
The unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have actually been reported if the merger had been
consummated as of the beginning of the periods presented, nor is it necessarily
indicative of future operating results or financial position.
55
<PAGE>
SUPERGEN AND SPARTA
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------- PRO FORMA REFERENCES PRO FORMA
SUPERGEN SPARTA ADJUSTMENTS (NOTE 2) COMBINED
----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents.............................. $ 5,750 $ 1,532 $ -- $ 7,282
Marketable securities............................. 1,253 -- -- 1,253
Accounts receivable, net.......................... 876 -- -- 876
Inventories....................................... 1,149 -- -- 1,149
Due from related parties.......................... 101 -- -- 101
Prepaid loan commitment fees...................... 1,957 -- -- 1,957
Prepaid expenses and other current assets......... 1,908 71 -- 1,979
----------- ---------- ----------- -----------
Total current assets............................ 12,994 1,603 -- 14,597
Property, plant and equipment, net.................. 2,847 105 -- 2,952
Developed technology................................ 1,208 -- -- 1,208
Investment in preferred stock of related party...... 500 -- -- 500
Due from related parties............................ 450 450
Intangible assets, net.............................. -- -- 475 A 475
Other assets........................................ 131 101 -- 232
----------- ---------- ----------- -----------
Total assets...................................... $ 18,130 $ 1,809 $ 475 $ 20,414
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.......... $ 3,259 $ 556 $ 250 B $ 4,065
Accrued employee benefits......................... 519 -- -- 519
----------- ---------- ----------- -----------
Total current liabilities....................... 3,778 556 250 4,584
Stockholders' equity:
Preferred stock................................... -- 1 (1) C --
Common stock...................................... 21 4 (4) C 21
Additional paid in capital........................ 75,180 28,682 (19,974) C, D 83,888
Stock subscription receivable..................... -- (67) 67 C --
Deferred compensation............................. -- (84) 84 C --
Accumulated other comprehensive loss.............. (89) -- -- (89)
Accumulated deficit............................... (60,760) (27,283) 20,053 C, E (67,990)
----------- ---------- ----------- -----------
Total stockholders' equity...................... 14,352 1,253 225 15,830
----------- ---------- ----------- -----------
Total liabilities and stockholders' equity...... $ 18,130 $ 1,809 $ 475 $ 20,414
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
See accompanying notes to the unaudited pro forma
combined financial statements
56
<PAGE>
SUPERGEN AND SPARTA
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------- PRO FORMA PRO FORMA
SUPERGEN SPARTA ADJUSTMENTS COMBINED
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales........................................................ $ 3,004 $ -- $ -- $ 3,004
Grant income and contract revenue................................ -- 613 -- 613
---------- --------- ----------- -----------
Total revenues................................................... 3,004 613 -- 3,617
Operating expenses:
Cost of sales.................................................. 1,925 -- -- 1,925
Research and development....................................... 10,511 3,663 -- 14,174
Sales and marketing............................................ 3,232 -- -- 3,232
General and administrative..................................... 3,814 1,248 -- 5,062
Amortization expense........................................... -- -- 145 145
---------- --------- ----------- -----------
Total operating expenses......................................... 19,482 4,911 145 24,538
---------- --------- ----------- -----------
Loss from operations............................................. (16,478) (4,298) 145 (20,921)
Interest income.................................................. 901 236 -- 1,137
---------- --------- ----------- -----------
Net loss......................................................... $ (15,577) $ (4,062) $ 145 $ (19,784)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Basic and diluted net loss per share............................. $ (0.77) $ (1.18) $ (0.95)
---------- --------- -----------
---------- --------- -----------
Weighted average number of shares................................ 20,353 3,446 20,831
---------- --------- -----------
---------- --------- -----------
</TABLE>
See accompanying notes to unaudited pro forma
combined financial statements
57
<PAGE>
SUPERGEN AND SPARTA
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA PRO FORMA
SUPERGEN SPARTA ADJUSTMENTS COMBINED
----------- --------- --------------- -----------
<S> <C> <C> <C> <C>
Net sales.......................................................... $ 916 $ -- $ -- $ 916
Grant income and contract revenue.................................. -- 133 -- 133
----------- --------- --- -----------
Total revenues..................................................... 916 133 -- 1,049
Operating expenses:
Cost of sales.................................................... 708 -- -- 708
Research and development......................................... 3,120 802 -- 3,922
Sales and marketing.............................................. 1,232 -- -- 1,232
General and administrative....................................... 863 330 -- 1,193
Amortization expense............................................. -- -- 21 21
----------- --------- --- -----------
Total operating expenses........................................... 5,923 1,132 21 7,076
----------- --------- --- -----------
Loss from operations............................................... (5,007) (999) 21 (6,027)
Interest income.................................................... 140 23 -- 163
----------- --------- --- -----------
Net loss........................................................... $ (4,867) $ (976) $ 21 $ (5,864)
----------- --------- --- -----------
----------- --------- --- -----------
Basic and diluted net loss per share............................... $ (0.23) $ (0.26) $ (0.27)
----------- --------- -----------
----------- --------- -----------
Weighted average number of shares.................................. 21,063 3,688 21,541
----------- --------- -----------
----------- --------- -----------
</TABLE>
See accompanying notes to unaudited pro forma
combined financial statements
58
<PAGE>
SUPERGEN AND SPARTA
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
NOTE 1
The unaudited pro forma combined consolidated financial statements reflect
the conversion of all of the outstanding shares of Sparta common stock,
including the conversion of preferred stock to common stock, into approximately
477,612 shares of SuperGen's common stock and 172,388 warrants exercisable for
SuperGen common stock pursuant to the merger.
Certain options and warrants to purchase 2,914,927 shares of Sparta common
stock will be assumed by SuperGen pursuant to the merger and converted into
options and warrants to purchase 110,343 shares of SuperGen common stock. The
total cost of the proposed merger is estimated to be $8,958,000, determined as
follows (in thousands):
<TABLE>
<S> <C>
Fair value of SuperGen shares (calculated using the 30 day average
fair value per share as of June 25, 1999)......................... $ 7,800
Value of warrants issued to acquire SuperGen common stock........... 896
Value of Sparta warrants and options assumed........................ 12
SuperGen transactions costs, primarily financial advisory, legal and
accounting fees................................................... 250
---------
$ 8,958
---------
---------
</TABLE>
Based upon a preliminary valuation of tangible and intangible assets
acquired and liabilities assumed, SuperGen has allocated the total cost of the
merger to the net assets of Sparta at March 31, 1999 as follows (in thousands):
<TABLE>
<S> <C>
Tangible assets acquired............................................ $ 1,809
In-process research and development................................. 7,230
Other purchased intangible assets................................... 475
Liabilities assumed................................................. (556)
---------
$ 8,958
---------
---------
</TABLE>
Sparta 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. Sparta is in the development stage and its
research and development programs in these areas are in various stages of early
clinical trials. No products using Sparta's technologies have been approved for
marketing to date. The Sparta research and development programs currently in
process were valued as follows (in thousands):
<TABLE>
<S> <C>
Oral anticancer drug for the treatment of breast, colorectal and
other cancers (5-FP, a prodrug of 5-FU)........................... $ 3,320
Chronic metabolic disease drug (PZG)................................ 1,350
SPARTAJECT Technology for the delivery of certain anti-cancer
compounds......................................................... 2,560
---------
$ 7,230
---------
---------
</TABLE>
The in-process research and development has been written off against the
combined retained earnings. Because the charge is non-recurring, it has not been
reflected in the pro forma combined
59
<PAGE>
SUPERGEN AND SPARTA
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS (CONTINUED)
statements of operations. Such charge will be included in the SuperGen
consolidated statement of operations in the quarter in which the merger is
completed.
NOTE 2
The unaudited pro forma combined balance sheet includes the adjustments
necessary to give effect to the merger as if it had occurred on March 31, 1999
and to reflect the allocation of the proposed acquisition cost to the fair value
of tangible and intangible assets acquired and liabilities assumed as noted
above, including the charge to retained earnings for in-process technology
acquired and the elimination of Sparta's equity accounts.
Adjustments included in the unaudited pro forma consolidated balance sheet
are summarized as follows (in thousands, except for share and per share
amounts):
(A) Valuation of acquired technology licenses and other intangible assets of
approximately $475;
(B) Accrual of transaction-related costs of approximately $250, principally
for financial advisory, legal and accounting services;
(C) Elimination of the Sparta equity accounts;
(D) Issuance of SuperGen common stock, $0.001 par value, and assumption of
options and warrants to purchase common stock, as discussed in Note 1.
The value of SuperGen's common stock is equal to the product of 477,612
shares multiplied by $16.33 per share, the average closing price of
SuperGen's common stock during the 30 trading days before the closing of
the merger (designated as June 25, 1999 for the filing) and the issuance
of 172,388 warrants to purchase shares of SuperGen's common stock. The
fair value of the warrants issued, based on the Black-Scholes model, is
$896. The assumed options and warrants have been assigned a valued of
approximately $12.
(E) Charge to operations for in-process research and development technology
of approximately $7,230.
Adjustments included in the pro forma combined statement of operations are
related to the amortization of intangible assets.
NOTE 3
The unaudited pro forma combined statements of operations includes the
adjustments to give effect to the merger as if it had occurred on January 1,
1998. Adjustments consist of the amortization of intangible assets using an
estimated useful life of 5 years.
NOTE 4
Pro forma basic and diluted net loss per share amounts for the year ended
December 31, 1998 and the three-month period ended March 31, 1999, are based
upon the historical weighted average number of SuperGen common shares
outstanding adjusted to reflect the issuance of 477,612 shares of SuperGen
common stock, as if the shares had been outstanding for the period. The effect
of stock options and warrants assumed in the merger was excluded from the
calculation as their exercise price exceeded the market value of SuperGen common
stock.
60
<PAGE>
SUPERGEN AND SPARTA
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5
ACQUISITION OF SPARTA IN-PROCESS RESEARCH AND DEVELOPMENT
SuperGen is acquiring three primary Sparta in-process research and
development programs (IPR&D). SuperGen's management is primarily responsible for
estimating the fair value of the purchased in-process research and development.
The valuation model assumes for each program that clinical trials are
successfully completed, regulatory approval to market the product is obtained
and SuperGen is able to manufacture the product in commercial quantities. The
resulting cash flows for each program are then valued based on a discounted
probable future cash flow analysis using a discount rate of 30%, which
management believes adequately reflects the risk of research and development.
The percentage of completion was considered for each program acquired. Each of
these programs is subject to significant risks as described in "Risk Factors"
and elsewhere in this proxy statement-prospectus. The three IPR&D programs were
valued as follows (in thousands):
<TABLE>
<S> <C>
Oral anticancer drug for the treatment of breast, colorectal and
other cancers (5-FP, a prodrug of 5-FU)........................... $ 3,320
Chronic metabolic disease drug (PZG)................................ 1,350
SPARTAJECT Technology for the delivery of certain anti-cancer
compounds......................................................... 2,560
---------
$ 7,230
---------
---------
</TABLE>
Each of the programs and their relative stage of development, including key
assumptions used in the valuation, are described below.
5-FP
In 1998 Sparta accrued patients into its single-site clinical trial for
5-FP, an oral prodrug of 5-FU (5-Fluorouracil), widely used in the treatment of
breast, colorectal and other cancers. The final patients have completed their
treatment under the 5-FP protocol and a complete analysis of the results is
underway. Based on a preliminary review of the currently available data, it
appears that the trial will need to be expanded to vary some protocol parameters
to maximize the pharmacokinetics of the dosing regimen.
Management estimates that Sparta has incurred approximately $4 million in
research and development expenses directly related to this program and expects
that the remaining R&D efforts will total more than $6 million over the next
four years. SuperGen currently estimates, and the valuation reflects, that
activities necessary to obtain regulatory approval could be completed and
revenues could begin to accrue to SuperGen with the projected introduction of a
product in 2003.
PZG
After the licensing of Pyrazinoylguanidine (PZG) from the Estate of Dr. Karl
Beyer in 1997, a dedicated effort was undertaken to identify a contractor
capable of producing quantities of PZG for use in clinical trials in compliance
with current Good Manufacturing Practices. This effort and the resulting
production of clinical grade materials took significantly longer than
anticipated. Sparta believes it has designed a well-defined clinical trial to
determine the potential of PZG. Sparta recently initiated a small Phase I
clinical pharmacology study to further assess this drug candidate's potential to
treat a variety of significant chronic metabolic diseases related to Type II
diabetes.
61
<PAGE>
SUPERGEN AND SPARTA
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS (CONTINUED)
Management estimates that Sparta has incurred approximately $.5 million in
research and development expenses directly related to this program and expects
that the remaining R&D efforts will total more than $31 million over the next
six years. SuperGen currently estimates, and the valuation reflects, that
activities necessary to obtain regulatory approval could be completed and
revenues could begin to accrue to SuperGen with the projected introduction of a
product in 2005.
SPARTAJECT-TM- TECHNOLOGY
Spartaject-TM- Technology is a drug delivery system that accommodates poorly
water-soluble and water insoluble compounds by encapsulating them with a fatty
(phospholipid) layer. In 1998, the Company completed a Phase I Clinical Trial of
Spartaject-TM- busulfan at each of Johns Hopkins Oncology Center and Duke
University Medical Center and subsequently agreed with the FDA to the clinical
trial design necessary to obtain marketing approval for Spartaject busulfan.
Additional Phase I clinical trials in pediatric bone marrow ablation and
neoplastic meningitis were initiated at St. Jude's Children's Hospital and Duke
University Medical Center, respectively.
Sparta estimates that it has incurred approximately $4 million in research
and development expenses directly related to this program and expects that the
remaining R&D efforts will total more than $8 million over the next three years.
SuperGen currently estimates, and the valuation reflects, that activities
necessary to obtain regulatory approval could be completed and revenues could
begin to accrue to SuperGen with the projected introduction of a product in
2001.
SUMMARY
Over the past five years, Sparta has incurred approximately $15 million of
R&D expenses in the development of its current programs, including $8.5 million
on the programs mentioned above. Costs to complete these projects could
aggregate in excess of $45 million over the next five years. Sparta currently
expects that products that use its technologies will obtain FDA approval
beginning at various times beginning in 2001 through 2008.
The nature of the efforts required to develop any of the acquired IPR&D into
technologically feasible and commercially viable products principally relates to
the successful performance of additional clinical trials. Though we currently
expect that the acquired IPR&D will be successfully developed, commercial
viability of these proposed products may never be achieved. See "Risk Factors"
for further information on the risks and uncertainties associated with the drug
development and approval process, the consequences of failure to complete or
untimely completion, and other risks associated with the completion of the above
and other IPR&D programs.
62
<PAGE>
ADDITIONAL MATTERS BEING SUBMITTED TO A VOTE
OF SPARTA STOCKHOLDERS
APPROVAL OF AMENDMENTS TO SPARTA'S CERTIFICATE OF
INCORPORATION TO INCREASE THE CONVERSION RATE OF THE
SERIES BC CONVERTIBLE PREFERRED STOCK IN EXCHANGE
FOR ELIMINATION OF THE LIQUIDATION PREFERENCE
The Sparta board has approved amendments to the certificate of designation
of the Series BC Convertible Preferred Stock forming a part of Sparta's
certificate of incorporation. These amendments increase the conversion rate of
that preferred stock in exchange for the elimination of the liquidation
preference to which those preferred stockholders are entitled.
THE AMENDMENTS
Sparta's certificate of incorporation provides that the holders of the
Series BC Convertible Preferred Stock will be entitled to a liquidation
preference in the event of a merger in which the shares of Sparta common stock
constituting in excess of 50% of the voting power of Sparta are exchanged for
other stock. In that case, the holders of the Series BC Convertible Preferred
Stock will be entitled to receive stock in that merger with a value equal to
$13.00 per share before any amount is distributed to the holders of Sparta
common stock. Based on the number of shares of Series BC Convertible Preferred
Stock outstanding on January 18, 1999, the date of execution of the merger
agreement, and before giving effect to the amendments to Sparta's certificate of
incorporation, the holders of those shares would be entitled to an aggregate
liquidation preference equal to $10,708,633. Based on the closing price of
SuperGen common stock on January 15, 1999 (the last trading day before the
announcement of the merger), the aggregate merger value of the 650,000 shares of
SuperGen common stock to be received by Sparta stockholders in the merger was
approximately $6,864,000. This amount will be referred to as the "merger value."
Because the value of the liquidation preference exceeds the merger value, under
the current terms of Sparta's certificate of incorporation, the holders of the
Series BC Convertible Preferred Stock would receive the entire merger value and
the holders of the Sparta common stock would receive nothing. The merger
requires the approval of holders of the Sparta common stock and Series BC
Convertible Preferred Stock voting together as a single class. The common
stockholders represent approximately 62.5% of the combined voting power of the
two classes of stock. In light of the foregoing, the Sparta board determined it
would be in the best interests of Sparta that its certificate of incorporation
be amended to eliminate the liquidation preference and that, in exchange
therefor, the conversion rate of the Series BC Convertible Preferred Stock would
be increased to provide the maximum amount of value possible to the holders of
the Series BC Convertible Preferred Stock, while at the same time providing some
value to the holders of the Sparta common stock. The amendments to Sparta's
certificate of incorporation will increase the conversion rate in effect for the
Series BC Convertible Preferred Stock so that each full share of that preferred
stock will be convertible into 16.4 shares of Sparta common stock (instead of
2.666667 shares of Sparta common stock). This increase in the conversion rate
means that, based on the number of shares outstanding as of the record date,
each share of Series BC Convertible Preferred Stock will represent the right to
receive .62074 of a share of SuperGen common stock (or an aggregate of 510,719
shares of SuperGen common stock) and each share of Sparta common stock will
represent the right to receive .03785 of a share of SuperGen common stock (or an
aggregate of 139,281 shares of SuperGen common stock), assuming no adjustments
based on the average closing price of SuperGen common stock on the Nasdaq
National Market over the 30 consecutive trading days ending on the day before
the closing of the merger.
63
<PAGE>
VOTE REQUIRED
- The affirmative vote of a majority of the outstanding shares of Sparta
common stock and Sparta Series BC Convertible Preferred Stock on an
as-converted basis as of the record date is required to approve the
amendment to Sparta's certificate of incorporation.
- In a separate class vote, the affirmative vote of the holders of at least
a majority of the outstanding shares of Sparta Series BC Convertible
Preferred Stock as of the record date is required to approve the
amendments to Sparta's certificate of incorporation.
- Even if affirmative votes required to approve the amendments to Sparta's
certificate of incorporation are obtained, the amendments will not be
effective unless the Sparta stockholders also approve and adopt the merger
agreement and approve the merger. Conversely, even if the affirmative vote
required to approve and adopt the merger agreement and approve the merger
is obtained, the merger will not be effective unless the Sparta
stockholders approve the amendments to Sparta's certificate of
incorporation.
RECOMMENDATION
THE SPARTA BOARD HAS UNANIMOUSLY APPROVED THE AMENDMENTS TO SPARTA'S
CERTIFICATE OF INCORPORATION AND RECOMMENDS THAT THE SPARTA STOCKHOLDERS VOTE
FOR THE AMENDMENTS.
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SPARTA BUSINESS
Sparta was incorporated in Delaware on June 12, 1990 under the name "MediRx
Pharmaceuticals, Inc." and commenced operations in January 1991. It changed its
name to Sparta Pharmaceuticals, Inc. on May 31, 1991. Sparta is a development
stage pharmaceutical company engaged in the business of acquiring rights to, and
developing for commercialization, technologies and drugs for the treatment of a
number of life threatening diseases including cancer, cardiovascular disorders
and 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 March 31, 1999 Sparta's accumulated deficit was $27,283,591.
During 1998, Sparta continued to advance its product candidates in clinical
trials. Sparta successfully completed its Phase I clinical trial for
SPARTAJECT-TM- busulfan and subsequently agreed with the FDA to the clinical
trial design necessary to obtain marketing approval for SPARTAJECT-TM- busulfan.
Although Sparta has identified clinicians with whom and trial sites at which to
conduct these pivotal trials, due to the proposed merger, these trials will not
be initiated until Sparta's portfolio of compounds in development has been
integrated into SuperGen's portfolio and the priority for all the compounds has
been established. During 1998, two additional clinical trials involving
SPARTAJECT-TM- busulfan were initiated: the first involves use of the drug as a
potential therapeutic for neoplastic meningitis in a trial at Duke University
Medical Center, and the second involves use of the drug in a small pediatric
bone marrow ablation trial at St. Jude Medical Center. In addition,
Schering-Plough sublicensed the exclusive worldwide rights to apply the
SPARTAJECT-TM- technology to its chemotherapeutic compound Temodal-Registered
Trademark- in exchange for up-front payments, milestone payments and royalties
on sales of the SPARTAJECT-TM- formulation of Temodal-Registered Trademark-, if
and when approved.
During 1998, Sparta continued its activities with three other compounds in
clinical trials. It continued to accrue patients into its single-site clinical
trial for 5-FP, an oral prodrug of 5-FU (5-Fluorouracil), widely used in the
treatment of breast, colorectal and other cancers. The final patients have
completed their treatment under the 5-FP trial protocol and a complete analysis
of the results is underway. Based on a preliminary review of the currently
available data, it appears that the trial would need to be expanded to vary some
protocol parameters to maximize the pharmacokinetics of the dosing regimen. The
RII retinamide trial continued throughout the year with Sparta accruing its
final patients and completing the required 6-month treatment protocol. Results
analysis is underway. Subsequent to the licensing of Pyrazinoylguanidine, or
"PZG," in December 1997, a dedicated effort was undertaken to identify a
contractor capable of producing quantities of PZG for use in clinical trials in
compliance with current Good Manufacturing Practices. This effort and the
resulting production of clinical grade materials took significantly longer than
anticipated. Additionally, Sparta and its consultants invested a significant
amount of time to design a well-defined clinical trial to elucidate the
potential of PZG. Sparta recently initiated a small, well-defined and controlled
Phase I clinical pharmacology study to further assess this drug candidate's
potential to treat a variety of significant chronic metabolic diseases related
to Type II diabetes.
Sparta was awarded an $850,000 Phase I/II Fast-Track Small Business
Innovative Research Grant from the National Cancer Institute to study IPdR, a
radiation sensitizer and prodrug of IUdR. The funding provides the resources
necessary to conduct, over a two and one half year period, the required
toxicology studies and the first two years of clinical trials. Sparta also
continued its NIH-funded efforts in support of LEX 032, a recombinant protease
inhibitor demonstrating protective effects in animal models of stroke.
Sparta also evaluated the clinical data related to asulacrine, an
anti-cancer compound developed in the United Kingdom under the direction of the
Cancer Research Campaign. Both the Cancer Research Campaign and Sparta agreed
that further clinical development of the compound was unwarranted and therefore,
Sparta declined to exercise its option to acquire a license to the drug.
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SPARTA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATION
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
SELECTED HISTORICAL FINANCIAL DATA, THE UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION AND THE HISTORICAL FINANCIAL STATEMENTS INCLUDED ELSEWHERE
IN THIS PROXY STATEMENT-PROSPECTUS. ADDITIONALLY, THE FOLLOWING DISCUSSION AND
ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. STATEMENTS OF SPARTA'S PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS ARE EXAMPLES OF THESE FORWARD-LOOKING STATEMENTS. THE CAUTIONARY
STATEMENTS MADE IN THIS PROXY STATEMENT-PROSPECTUS SHOULD BE READ AS APPLICABLE
TO ALL RELATED FORWARD-LOOKING STATEMENTS THAT APPEAR IN THIS PROXY
STATEMENT-PROSPECTUS. SPARTA'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO THESE DIFFERENCES
INCLUDE THOSE RISKS DISCUSSED IN THIS SECTION AND THE SECTIONS ENTITLED "RISK
FACTORS" AND "SPARTA BUSINESS" AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROXY STATEMENT-PROSPECTUS. SEE "STATEMENTS REGARDING FORWARD-LOOKING
STATEMENTS."
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
Revenue decreased from $220,997 for the three months ended March 31, 1998 to
$155,831 for the three months ended March 31, 1999 due primarily to a lower
level of interest income. Sparta recorded grant income of $144,252 and $132,760
for the three months ended March 31, 1998 and 1999, respectively, under two
Small Business Innovation Research grants awarded in 1997 and 1998. Interest
income decreased from $76,745 in the first quarter of 1998 to $23,071 in the
first quarter of 1999 due to a lower level of funds available for investment as
Sparta has consumed funds for continuing operations. Interest income is likely
to decrease in subsequent quarters unless Sparta is able to secure additional
funding.
Research and development expenses decreased from $931,577 in the first
quarter of 1998 to $802,287 in the first quarter of 1999. This decrease is
attributable to decreased (a) personnel expenses, (b) legal expenses, primarily
for patent filings, (c) license agreement expenses, (d) office expenses, and (e)
insurance expenses, partially offset by a small increase in clinical trial
expenses. Due to (and assuming the closing of) the proposed merger with
SuperGen, further clinical development will be minimized until such time as
Sparta's portfolio of compounds has been integrated into SuperGen's portfolio
and the priority for all compounds has been established.
General and administrative expenses increased from $284,567 in the first
quarter of 1998 to $330,328 in the first quarter of 1999. This increase is
principally due to an increase in (a) costs associated with the proposed merger
including legal expenses, and (b) personnel expenses, partially offset by
decreases in (a) investor/public relations expense, (b) bank fees, (c) non-legal
professional fees, (d) office expenses, and (e) insurance expenses.
YEARS ENDED DECEMBER 31, 1997 AND 1998
Revenue increased from $600,812 in 1997 to $848,874 in 1998 due to a
significant increase in grant revenue received pursuant to two SBIR grant awards
in 1997 and 1998 and license fees received in 1998, partially offset by a
decrease in interest income. Although Sparta earned interest income of $236,467
on its investments in 1998, this amount is expected to decrease over subsequent
periods as investable funds are consumed by the operations of Sparta. Sparta
earned $116,132 in 1997 and $612,407 in 1998 in revenues from two SBIR grants
awarded in 1997 and 1998 and license fees received in 1998. Sparta expects to
record additional revenue during 1999 from the SBIR grants. 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 grants and contracts, if any.
Research and development expenses decreased from $3,748,216 in 1997 to
$3,663,055 in 1998. The $85,161 decrease reflects decreased spending on
personnel, consulting fees, legal fees including those associated with patents,
facility related expenses and insurance, partially offset by increased spending
on
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license fees and production of clinical trial materials to support the clinical
trials of RII retinamide, SPARTAJECT-TM- busulfan and 5-FP.
General and administrative expenses decreased from $1,497,006 in 1997 to
$1,247,880 in 1998. The decrease resulted from decreased personnel, consulting,
legal and other non-legal professional fees, insurance and facility related
expenses, partially offset by costs incurred in 1998 related to Sparta's
proposed merger with SuperGen.
Sparta recorded a charge of $235,000 in the fourth quarter of 1997 for
in-process research and development acquired in conjunction with the license to
PZG, given the development stage nature of the related technology. As a result
of the foregoing factors, net loss for 1998 decreased to $4,062,061 from
$4,879,410 for 1997. 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, 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 Sparta 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 Sparta. Fees earned in connection with
contracts under which Sparta provided pharmaceutical clients with drug
formulations utilizing its SPARTAJECT-TM- technology increased from $0 in 1996
to $39,074 in 1997. Sparta also earned $116,132 in revenues from a Phase II SBIR
Grant awarded in 1997.
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.
Sparta recorded a 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, Sparta recorded a non-cash charge of $3,062,913 related to the
Lexin acquisition of in-process research and development, given the development
stage nature of the related technology.
LIQUIDITY AND CAPITAL RESOURCES
Sparta has used $21,215,048 to fund operations from inception through March
31, 1999. Sparta 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, grant income, contract
revenue and investment income. In 1998, Sparta made minimum royalty payments and
annual maintenance fee payments in the aggregate amount of $352,000 and is
obligated to make payments of $177,000 in 1999. Under a collaboration and option
agreement Sparta has agreed to pay 17,500 British pounds (or approximately U.S.
$29,600) in 1999. Sparta is a party to several research agreements, clinical
trial production contracts and agreements with clinical research organizations
that require future payments. Sparta anticipates making payments of
approximately $473,000 under the agreements that were in effect as of April 26,
1999. Provided that there is adequate financing to continue funding the
development of Sparta's product candidates, Sparta expects that the amount of
its obligations under research agreements would increase. In addition, Sparta
was a party to employment agreements with two of its executive officers as well
as some consulting agreements that provide for aggregate annual minimum payments
of $346,000 and $130,000, respectively, in 1999. In 1997, Sparta entered into a
sublease through July 1999 for
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approximately 75% of its Horsham facility. From time to time, Sparta contracts
with outside firms for services paid for with a combination of cash and Sparta
common stock.
As of March 31, 1999, Sparta had 813,741 shares of Series BC Convertible
Preferred Stock which are convertible into 2,169,976 shares of Sparta common
stock. In the event of a liquidation event (as defined in the certificate of
designation relating to the Series BC Convertible Preferred Stock), the holders
of the Series BC Convertible Preferred Stock are entitled to be paid out of the
assets of Sparta 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 BC
Convertible Preferred Stock, including Sparta common stock. The proposed
amendments to Sparta's certificate of incorporation to be voted upon at the
Sparta special meeting would eliminate this liquidation preference in exchange
for an increase in the conversion rate so that thereafter each share of Series
BC Convertible Preferred Stock would be convertible into 16.4 shares (instead of
2.666667 shares) of Sparta common stock. Holders of Series BC Convertible
Preferred Stock are also entitled to dividends, if any, as shall be declared on
Sparta common stock or on any other class of preferred stock, unless holders of
at least 66 2/3% of the outstanding Series BC Convertible Preferred Stock
consent otherwise. The Series BC Convertible Preferred Stock is subject to
mandatory conversion at the option of Sparta if the closing price of the Sparta
common stock exceeds 200% of the then applicable conversion price for at least
30 trading days in any 30 consecutive trading day period. Also, as of March 31,
1999, Sparta had a significant number of warrants and options outstanding with
exercise prices significantly over the trading prices of Sparta common stock.
As of March 31, 1999, Sparta had cash of $1,532,163, accounts payable and
accrued expenses of $566,123, and working capital of $1,046,556.
Sparta currently anticipates that the available cash, cash equivalents, and
investments will be sufficient to fund operations through the third quarter of
1999. If the proposed merger with SuperGen is not consummated, Sparta will be
left in a severely weakened financial position requiring the immediate infusion
of additional capital to survive as a going concern. Sparta has no current
commitment to obtain additional funding and is unable to state the amount or
potential source of any additional funds. In that event, there can be no
assurance that Sparta will be able to obtain additional funding when needed, or
that any funding, if available, will be obtainable on reasonable terms. Any
additional funding would be reasonably likely to result in significant dilution
to existing stockholders. If adequate funds were not available, Sparta would
need to significantly scale back or cease all operations.
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 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, Sparta believes that the exposure of its
internal systems to the Year 2000 issue is immaterial, as internal systems are
Year 2000 compliant. Sparta continues to assess compliance of its significant
contractors to determine the extent to which Sparta is vulnerable to those third
parties' failure to remediate their own Year 2000 issues. To date, Sparta is
unaware of any situations of noncompliance that would adversely affect its
operations. However, if significant contractors' software applications prove to
be non-compliant, Sparta may experience difficulties after January 1, 2000.
Sparta has not yet clearly identified its most reasonably likely worst case
Year 2000 scenario and therefore, a contingency plan has not yet been developed.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Sparta does not have any material market risk sensitive financial
instructions.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF SPARTA
The following table sets forth information as of June 25, 1999 concerning
the beneficial ownership of Sparta common stock by each person known by Sparta
to be the beneficial owner of more than 5% of the outstanding shares of Sparta
common stock, each current member of the Sparta board, each current executive
officer named in the Summary Compensation Table contained in Sparta's Annual
Report on Form 10-K and all current directors and executive officers as a group.
The persons and entities named in the table have sole voting and investment
power with respect to all shares shown as beneficially owned by them, except as
noted below.
The number of shares of Sparta common stock issued and outstanding on June
25, 1999 was 3,691,841. The number of shares of Sparta common stock beneficially
owned by each person on the table and listed in the first and third columns
includes shares of Sparta common stock subject to Sparta options and warrants
and/or issuable upon conversion of shares of Sparta Series BC Convertible
Preferred Stock held by that person at June 25, 1999 and exercisable within 60
days from that date. The calculation of percentage ownership for each person
listed in the second column is based upon the number of shares of Sparta common
stock issued and outstanding at June 25, 1999, plus shares of Sparta common
stock subject to Sparta options and warrants and issuable upon conversion of
shares of Series BC Convertible Preferred Stock held by that person at June 25,
1999 and exercisable within 60 days from that date. Each share of Sparta Series
BC Convertible Preferred Stock was convertible into 2.666667 shares of Sparta
common stock at June 25, 1999 and that conversion rate is reflected in the first
two columns of the table and footnotes set forth below. For purposes of the
third and fourth columns of the table, each share of Sparta Series BC
Convertible Preferred Stock was assumed to be convertible into 16.4 shares of
Sparta common stock, since as a condition to the merger, Sparta stockholders
will be asked to approve amendments to Sparta's certificate of incorporation
which increase the conversion rate for the Sparta Series BC Convertible
Preferred Stock to 16.4 from 2.666667 in exchange for the elimination of the
liquidation preference for that preferred stock.
<TABLE>
<CAPTION>
SHARES OF
SUPERGEN COMMON
SHARES STOCK
SHARES PERCENTAGE BENEFICIALLY BENEFICIALLY
DIRECTORS, NAMED EXECUTIVE OFFICERS BENEFICIALLY BENEFICIALLY OWNED AFTER OWNED AFTER THE
AND PRINCIPAL STOCKHOLDERS** OWNED OWNED AMENDMENTS MERGER***
- ------------------------------------------------------ ----------- ------------- ------------ -----------------
<S> <C> <C> <C> <C>
126736 Canada, Inc. (1)............................... 406,667 9.9% 1,780,000 67,373
1310 Green Avenue, Suite 660
Westmont, Quebec
Canada H3Y 1J8
Lou Wiesbach (2)...................................... 326,400 8.8% 326,400 12,354
c/o Norman J. Gantz
Neal, Gerber & Eisenberg
Two North LaSalle Street
Chicago, IL 60602
Lindsay A. Rosenwald, M.D. (3)........................ 130,416 3.5% 130,416 4,936
Jerry B. Hook, Ph.D. (4).............................. 144,671 3.8% 282,004 10,673
Richard L. Sherman (5)................................ 2,000 * 2,000 75
Ronald H. Spair (6)................................... 60,150 1.6% 128,817 4,875
William M. Sullivan (7)............................... 53,134 1.4% 53,134 2,011
Peter Barton Hutt (8)................................. 17,334 * 17,334 656
Sir John Vane, FRS (8) (9)............................ 17,334 * 17,334 656
Colin B. Bier, Ph.D. (10)............................. 6,500 * 6,500 246
</TABLE>
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<TABLE>
<CAPTION>
SHARES OF
SUPERGEN COMMON
SHARES STOCK
SHARES PERCENTAGE BENEFICIALLY BENEFICIALLY
DIRECTORS, NAMED EXECUTIVE OFFICERS BENEFICIALLY BENEFICIALLY OWNED AFTER OWNED AFTER THE
AND PRINCIPAL STOCKHOLDERS** OWNED OWNED AMENDMENTS MERGER***
- ------------------------------------------------------ ----------- ------------- ------------ -----------------
<S> <C> <C> <C> <C>
All directors and executive officers as a group
(8 persons)(3)(4)(5)(6)(7)(8)(9)(11)................ 431,539 10.9% 637,539 24,128
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1% of Sparta common stock.
** Addresses are given for beneficial owners of more than 5% of the
outstanding Sparta common stock only.
*** Determined by multiplying the number of shares in the third column by the
estimated exchange ratio of .03785.
(1) Includes shares of Sparta common stock issuable upon conversion of 100,000
shares of Series BC Convertible Preferred Stock (266,667 shares in the
first column and 1,640,000 shares in the third column). Also includes
140,000 shares of Sparta common stock issuable upon the exercise of 140,000
Class C Warrants.
(2) This information is based solely on information from a Schedule 13G/A filed
with the SEC and dated February 5, 1999.
(3) Includes an aggregate of 22,357 shares held by Dr. Rosenwald's spouse
individually or as custodian for the benefit of his children as to which
Dr. Rosenwald may be deemed to be the beneficial owner, but for which he
disclaims beneficial ownership. Does not include 321,075 shares issuable
upon the exercise of warrants to purchase Sparta common stock issued in
connection with the private placements of Sparta's securities, which
warrants have been relinquished in anticipation of the merger.
(4) Includes 83,750 shares of Sparta common stock that Dr. Hook may acquire
upon the exercise of options within 60 days of June 25, 1999. Also includes
shares of Sparta common stock issuable upon conversion of 10,000 shares of
Series BC Convertible Preferred Stock (26,667 shares in the first column
and 164,000 shares in the third column) and 13,334 shares of Sparta common
stock issuable upon the exercise of 13,334 Class C Warrants.
(5) Includes 2,000 shares of Sparta common stock issuable upon exercise of
options within 60 days of June 25, 1999.
(6) Includes 30,250 shares of Sparta common stock that Mr. Spair may acquire
upon the exercise of options within 60 days of June 25, 1999. Also includes
shares of Sparta common stock issuable upon conversion of 5,000 shares of
Series BC Convertible Preferred Stock (13,333 shares in the first column
and 82,000 shares in the third column) and 6,667 shares of Sparta common
stock issuable upon the exercise of 6,667 Class C Warrants.
(7) Includes 53,000 shares of Sparta common stock that Mr. Sullivan may acquire
upon the exercise of options within 60 days of June 25, 1999.
(8) Includes 14,000 shares of Sparta common stock issuable upon the exercise of
options within 60 days of June 25, 1999.
(9) Includes 3,334 shares issued and outstanding which are owned by the Sir
John Vane Trust, a trust for the benefit of Sir John Vane's children, for
which Sir John Vane acts as one of three trustees, as to which he may be
deemed to be a beneficial owner, but for which he disclaims beneficial
ownership.
(10) Includes 6,500 shares of Sparta common stock issuable upon the exercise of
options within 60 days of June 25, 1999.
(11) Includes 201,500 shares of Sparta common stock issuable upon exercise of
options within 60 days of June 25, 1999. Also includes shares of Sparta
common stock issuable upon conversion of 15,000 shares of Series BC
Convertible Preferred Stock (40,000 shares in the first column and 246,000
shares in the third column) and 20,001 shares of Sparta common stock
issuable upon exercise of outstanding warrants.
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COMPARISON OF CAPITAL STOCK
DESCRIPTION OF SUPERGEN CAPITAL STOCK
The authorized capital stock of SuperGen consists of 42,000,000 shares of
capital stock, of which 40,000,000 shares are designated as common stock and
2,000,000 are designated as preferred stock.
SUPERGEN COMMON STOCK
As of June 25, 1999, 22,392,199 shares of SuperGen common stock were
outstanding. After giving effect to the transactions contemplated by the merger
agreement, and assuming no other issuances of common stock after June 25, 1999,
there will be approximately 23,042,199 shares of SuperGen common stock
outstanding. The holders of SuperGen common stock are entitled to one vote per
share on all matters to be voted upon by the stockholders. Stockholders may not
cumulate votes in connection with the election of directors. SuperGen common
stock has no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions applicable to SuperGen common
stock. All outstanding shares of SuperGen common stock are fully paid and
non-assessable, and the shares of SuperGen common stock to be outstanding upon
completion of the merger will be fully paid and non-assessable.
SUPERGEN PREFERRED STOCK
SuperGen has 2,000,000 shares of preferred stock authorized, of which, as of
June 25, 1999, no shares were outstanding. The SuperGen board has the authority,
subject to limitations prescribed by law, to issue these shares of SuperGen
preferred stock in one or more series, to fix the rights, preferences,
privileges and restrictions, qualifications and limitations (including, without
limitation, dividend rates, conversion rights, voting rights, rights and terms
of redemption, sinking fund provisions and liquidation preferences) granted to
or imposed upon any unissued and undesignated shares of SuperGen preferred stock
and to fix the number of shares constituting any series and the designations of
those series, without any further vote or action by the stockholders (subject to
applicable stock exchange rules).
TRANSFER AGENT AND REGISTRAR
Chase Mellon Shareholder Services serves as the transfer agent and registrar
of SuperGen common stock.
DESCRIPTION OF SPARTA CAPITAL STOCK
The authorized capital stock of Sparta will consist, prior to the closing of
the merger, of 83,000,000 shares of capital stock, of which 72,000,000 shares
are designated as common stock, $.001 par value per share, and 11,000,000 shares
are designated as preferred stock, $.001 par value per share.
SPARTA COMMON STOCK
As of the record date, 3,691,841 shares of Sparta common stock were
outstanding. The holders of Sparta common stock are entitled to one vote per
share on all matters to be voted upon by the stockholders. Stockholders may not
cumulate votes in connection with the election of directors. Subject to the
preferential rights of the Sparta Preferred Stock, the holders of shares of
Sparta common stock are entitled to receive:
- dividends when and if declared by the Sparta board out of funds legally
available therefor and
- upon the dissolution or liquidation of Sparta, whether voluntary or
involuntary, all assets of Sparta available for distribution to its
stockholders.
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Sparta common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to Sparta common stock. All outstanding shares of Sparta common stock
are fully paid and non-assessable.
SPARTA PREFERRED STOCK
As of the record date, 813,741 shares of Sparta preferred stock were
outstanding, all of which are designated as "Series BC Convertible Preferred
Stock." The holders of Series BC Convertible Preferred Stock will be entitled to
receive dividends and distributions, when and if declared by the Sparta board
out of funds legally available for that purpose. No dividend or distribution
will be declared or paid on any junior stock unless the dividend or distribution
is also paid to holders of the Series BC Convertible Preferred Stock. If Sparta
declares a dividend or distribution on the Sparta common stock, the holders of
Series BC Convertible Preferred Stock shall be entitled to receive for each
share of Series BC Convertible Preferred Stock a dividend or distribution in the
amount of the dividend or distribution that would be received by a holder of the
Sparta common stock into which that share of Series BC Convertible Preferred
Stock is convertible.
In the event of:
- a liquidation, dissolution or winding up of Sparta, whether voluntary or
involuntary;
- any sale or other disposition of all or substantially all of the assets of
Sparta; or
- any consolidation, merger, combination, reorganization or other
transaction in which Sparta is not the surviving entity or the shares of
Sparta common stock constituting in excess of 50% of the voting power of
Sparta are exchanged for or changed into other stock or securities, cash
and/or property; and
after payment of debts and other liabilities of Sparta, holders of Series BC
Convertible Preferred Stock then outstanding will be entitled to be paid out of
the assets of Sparta, before any payment to holders of stock junior to the
Series BC Convertible Preferred Stock, an amount equal to $13.00 per share plus
an amount equal to all declared and unpaid dividends. With regard to the
liquidation events mentioned above, the Series BC Convertible Preferred Stock
ranks senior to the Sparta common stock.
Each share of Series BC Convertible Preferred Stock may be converted at the
option of the holder at any time into 2.666667 shares of Sparta common stock.
The conversion rate is subject to adjustment upon the occurrence of various
events that will result in an increase or decrease in the number of shares of
Sparta common stock outstanding.
Sparta has the right to cause the Series BC Convertible Preferred Stock to
be converted in whole or in part, on a pro rata basis, into shares of Sparta
common stock if the closing price of the Sparta common stock exceeds $7.50 for
at least 20 trading days in any 30 consecutive trading day period.
Except as provided below or as required by applicable law, the holders of
the Series BC Convertible Preferred Stock are entitled to vote together with the
holders of the Sparta common stock as a single class on all matters submitted to
a vote of Sparta stockholders. Each holder of the Series BC Convertible
Preferred Stock has the right at all meetings of stockholders to the number of
votes equal to the number of shares of Sparta common stock issuable upon
conversion of the Series BC Convertible Preferred Stock at the record date for
determination of the stockholders entitled to vote. So long as 50% of the shares
of Series BC Convertible Preferred Stock (including those shares issuable upon
exercise of the warrants issued to the placement agent for those shares)
originally issued remain outstanding, Sparta may not take any of the following
actions without the approval of the holders of at least 66 2/3% of the Series BC
Convertible Preferred Stock then outstanding:
- the authorization or issuance, or increase in the authorized amount of,
any class or series of stock, or any security convertible into stock of
that class or series, (1) ranking prior to, or on a parity with,
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the Series BC Convertible Preferred Stock upon liquidation, dissolution or
winding up of Sparta or a sale of all or substantially all the assets of
Sparta, or (2) providing for the payment of any dividends or
distributions;
- any alteration or change in the rights, preferences or privileges of the
Series BC Convertible Preferred Stock; and
- the declaration or payment of any dividend or distribution on any other
class or series of stock or the repurchase of any securities of Sparta.
The placement agent for the shares of Series BC Convertible Preferred Stock
has agreed to relinquish all rights to the warrants issued to it and the shares
underlying the warrants. As a result, the number of shares of Series BC
Convertible Preferred Stock outstanding as of the record date is less than 50%
of the Series BC Convertible Preferred Stock originally issued and therefore,
the supermajority voting provisions described above no longer apply.
COMPARISON OF CAPITAL STOCK OF SUPERGEN AND SPARTA
Both SuperGen and Sparta are incorporated in the State of Delaware.
Following the effective time of the merger, SuperGen and Sparta will both be
governed by the Delaware General Corporation Law. Sparta stockholders, however,
will hold SuperGen common stock rather than Sparta common stock and/or Sparta
Series BC Convertible Preferred Stock, as the case may be. The following is a
summary description of some provisions of the Delaware General Corporation Law
and a comparison of the certificates of incorporation and bylaws of the
respective corporations. This summary does not purport to be complete and is
qualified in its entirety by reference to the Delaware General Corporation Law
and the certificates of incorporation and bylaws of SuperGen and Sparta.
POWER TO CALL SPECIAL MEETING OF STOCKHOLDERS
Under the Delaware General Corporation Law, a special meeting of
stockholders may be called by the board of directors or any other person as may
be provided in the certificate of incorporation or bylaws. The SuperGen bylaws
provide that special meetings of the stockholders may be called at any time by
the SuperGen board, the chairman of the SuperGen board, the president of
SuperGen or by one or more stockholders entitled to cast not less than ten
percent of the votes at the meeting. The Sparta bylaws provide that a special
meeting of stockholders may be called at any time by the chairman of the Sparta
board, the chief executive officer of Sparta, if any, the president of Sparta,
by the affirmative vote of a majority of the Sparta board, or by one or more
stockholders holding not less than fifteen percent of the outstanding shares
entitled to vote at the meeting; provided, however, that a special meeting for
the purpose of electing directors may only be called by the Sparta board.
CUMULATIVE VOTING
In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number of
directors to be elected. A stockholder may then cast all those votes for a
single candidate or may allocate them among as many candidates as the
stockholder may choose. Without cumulative voting, the holders of a majority of
the shares present at an annual meeting or any special meeting held to elect
directors would have the power to elect all the directors to be elected at that
meeting, and no person could be elected without the support of holders of a
majority of the shares voting at that meeting. Under the Delaware General
Corporation Law, cumulative voting in the election of directors is not mandatory
but is a permitted option. The SuperGen and Sparta certificates of incorporation
do not permit cumulative voting.
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STOCKHOLDER ACTION WITHOUT A MEETING
Under the Delaware General Corporation Law, unless otherwise provided in the
certificate of incorporation, any action which may be taken at a meeting of the
stockholders may be taken without a meeting and without prior notice if a
consent in writing is signed by the holders of outstanding shares having at
least the minimum number of votes that would be necessary to take the action at
a meeting at which all shares entitled to vote thereon were present and voted.
The SuperGen and Sparta certificates of incorporation both eliminate the ability
of stockholders to vote by written consent.
SIZE OF THE BOARD OF DIRECTORS
Under the Delaware General Corporation Law, the number of directors is fixed
by the bylaws, unless the certificate of incorporation fixes the number of
directors. The SuperGen bylaws set the number of directors at five. The SuperGen
board is currently comprised of five members. The Sparta bylaws provide that the
Sparta board of Directors will designate the number of directors. The Sparta
board is currently comprised of seven members.
CLASSIFICATION OF BOARD OF DIRECTORS
A classified board is one on which a number of directors, but not
necessarily all, are elected on a rotating basis each year. The Delaware General
Corporation Law permits, but does not require, a classified board of directors,
pursuant to which the directors can be divided into as many as three classes
with staggered terms of office, with only one class of directors standing for
election each year. The SuperGen certificate and bylaws do not provide for a
classified board. The Sparta bylaws classify the Sparta board into three classes
so that each director is elected for a three year term.
SPECIAL MEETINGS OF THE BOARD OF DIRECTORS
Under the SuperGen bylaws, meetings of the SuperGen board may be called by
the chairman of the SuperGen board, the president or secretary of SuperGen, or
any two directors. The Sparta bylaws stipulate that special meetings of the
Sparta board may be called by a majority of the directors or by the chairman of
the Sparta board, or by the chief executive officer or president of Sparta, if
that person is also a director of Sparta.
REMOVAL OF DIRECTORS
Under the Delaware General Corporation Law, any director or the entire board
of directors of a corporation that does not have a classified board of directors
or cumulative voting may be removed with or without cause with the approval of a
majority of the outstanding shares entitled to vote at an election of directors.
The directors of a classified board, however, may be removed only for cause. The
SuperGen certificate of incorporation and bylaws do not provide for a classified
board of directors or cumulative voting. As a result, any director of SuperGen
or the entire SuperGen board may be removed with or without cause with the
approval of a majority of the outstanding shares entitled to vote at an election
of directors. Since the Sparta bylaws provide for a classified board of
directors, Sparta directors may only be removed for cause.
LIMITATION OF LIABILITY OF DIRECTORS; INDEMNIFICATION
Both the Sparta certificate of incorporation and the SuperGen certificate of
incorporation eliminate the liability of directors to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director to
the fullest extent permissible under the Delaware General Corporation Law. Under
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the Delaware General Corporation Law, these provisions may not eliminate or
limit director monetary liability for:
- Breaches of the director's duty of loyalty to the corporation or its
stockholders;
- Acts or omissions not in good faith or involving intentional misconduct or
knowing violations of law;
- The payment of unlawful dividends or unlawful stock repurchases or
redemptions; or
- Transactions in which the director received an improper personal benefit.
The limitation of liability provisions also may not limit a director's
liability for violation of, or otherwise relieve the company or its directors
from the necessity of complying with federal or state securities laws, or affect
the availability of nonmonetary remedies like injunctive relief or rescission.
The Delaware General Corporation Law generally permits indemnification of
expenses, including attorneys' fees, actually and reasonably incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by a majority vote of a disinterested quorum of the directors, by
independent legal counsel or, if there are no disinterested directors, by a
majority vote of a quorum of the stockholders, that the person seeking
indemnification acted in good faith and in a manner reasonably believed to be in
the best interests of the corporation and, in the case of any criminal action,
that the person seeking indemnification had no reasonable cause to believe that
his or her conduct was unlawful. Without court approval, however, no
indemnification may be made in respect of any derivative action or action
brought by the corporation in which that person is adjudged liable for
negligence or misconduct in the performance of his or her duty to the
corporation. The Delaware General Corporation Law requires indemnification of
expenses to the extent the individual being indemnified has successfully
defended any action, claim, issue or matter, on the merits or otherwise.
Expenses incurred by an officer or director in defending any action may be
paid in advance, under the Delaware General Corporation Law, if that director or
officer undertakes to repay those amounts if it is ultimately determined that he
or she is not entitled to indemnification. In addition, the Delaware General
Corporation Law authorizes a corporation's purchase of indemnity insurance for
the benefit of its officers, directors, employees and agents whether or not the
corporation would have the power to indemnify against the liability covered by
the policy.
The Delaware General Corporation Law also permits a Delaware corporation to
provide indemnification in excess of that provided by statute. Limitations on
indemnification may be imposed by a court based on principles of public policy.
DIVIDENDS AND REPURCHASES OF SHARES
The Delaware General Corporation Law permits a corporation to declare and
pay dividends out of surplus or, if there is no surplus, out of net profits for
the fiscal year in which the dividend is declared and/or for the preceding
fiscal year. However, if the amount of capital of the corporation is less than
the aggregate amount of the capital represented by the issued and outstanding
stock of all classes having a preference upon the distribution of assets, the
directors may not declare and pay out a dividend from the corporation's net
profits. In addition, the Delaware General Corporation Law generally provides
that a corporation may redeem or repurchase its shares only if the capital of
the corporation is not impaired and the redemption or repurchase would not
impair the capital of the corporation.
APPROVAL OF CERTAIN CORPORATE TRANSACTIONS
Under the Delaware General Corporation Law, with exceptions, any merger,
consolidation or sale of all or substantially all of the assets of a corporation
must be approved by the corporation's board of directors and a majority of the
outstanding shares entitled to vote. Sparta's certificate of incorporation
requires the affirmative vote of the holders of at least 70% of the outstanding
voting stock of Sparta to
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amend or repeal specified provisions of Sparta's certificate of incorporation. A
70% vote is also required for any amendment to or repeal of Sparta's bylaws by
the stockholders. A 70% stockholder vote would be in addition to any separate
class vote that might be required pursuant to the terms of any preferred stock
that is outstanding. No supermajority vote is required by SuperGen's certificate
of incorporation of bylaws.
CLASS VOTING IN CERTAIN CORPORATE TRANSACTIONS
As discussed under "Description of Sparta Capital Stock--Sparta Preferred
Stock," some transactions had required the approval of the Series BC Convertible
Preferred Stock voting as a separate class. No separate class vote is currently
required. Also, no separate class vote is currently required by SuperGen's
certificate of incorporation or bylaws. However, as discussed under "Description
of SuperGen Capital Stock--SuperGen Preferred Stock," the SuperGen Board has the
authority to issue up to 2,000,000 shares of preferred stock having voting
rights as the SuperGen Board may determine.
BUSINESS COMBINATIONS/MERGERS
Under Section 203 of the Delaware General Corporation Law, a Delaware
corporation is prohibited from engaging in a business combination with an
interested stockholder, as defined below, for three years following the date
that person or entity becomes an interested stockholder. With some exceptions,
an interested stockholder is a person or entity who or which owns, individually
or with or through other persons or entities, 15% or more of the corporation's
outstanding voting stock, including any rights to acquire stock pursuant to an
option, warrant, agreement, arrangement or understanding, or upon the exercise
of conversion or exchange rights, and stock with respect to which the person has
voting rights only. The three-year moratorium imposed by Section 203 on business
combinations of Section 203 does not apply if one or more of the following
applies:
- Prior to the date on which that stockholder becomes an interested
stockholder, the board of directors of the subject corporation approves
either the business combination or the transaction that resulted in the
person or entity becoming an interested stockholder;
- Upon consummation of the transaction that made him or her an interested
stockholder, the interested stockholder owns at least 85% of the
corporation's voting stock outstanding at the time the transaction
commenced, excluding from the 85% calculation shares owned by directors
who are also officers of the subject corporation and shares held by
employee stock plans that do not give employee participants the right to
decide confidentially whether to accept a tender or exchange offer; or
- On or after the date that person or entity becomes an interested
stockholder, the board of directors approves the business combination and
it is also approved at a stockholder meeting by 66 2/3% of the outstanding
voting stock not owned by the interested stockholder.
Although a Delaware corporation to which Section 203 applies may elect not
to be governed by Section 203, neither SuperGen nor Sparta has made that
election. SuperGen and Sparta believe that most Delaware corporations have
availed themselves of this statute and have not opted out of Section 203, and,
that Section 203 will encourage any potential acquiror to negotiate with the
board of directors. Section 203 also might have the effect of limiting the
ability of a potential acquiror to make a two-tiered bid for SuperGen in which
all stockholders would not be treated equally. Stockholders should note,
however, that the application of Section 203 to SuperGen will confer upon its
board the power to reject a proposed business combination in some circumstances,
even though a potential acquiror may be offering a substantial premium for
SuperGen's shares over the then-current market price. Section 203 may also
discourage potential acquirors unwilling to comply with its provisions.
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DISSENTERS' RIGHTS
If the merger is consummated and you are a dissenting holder of Sparta
capital stock, you may be entitled to have the "fair value" (exclusive of any
element of value arising from the accomplishment or expectation of the merger)
of your Sparta capital stock at the effective time of the merger judicially
determined and paid to you by complying with the provisions of Section 262 of
the Delaware General Corporation Law.
The following is a brief summary of Section 262, which sets forth the
procedures for dissenting from the merger and demanding statutory appraisal
rights. This summary is not a complete statement of the Delaware General
Corporation Law provisions relating to appraisal rights shares and you are
strongly encouraged to read the full text of Section 262, which is attached as
Appendix E. Failure to follow these procedures exactly could result in the loss
of appraisal rights. This proxy statement-prospectus constitutes notice to
holders of Sparta capital stock concerning the availability of appraisal rights
under Section 262. Under Section 262, a stockholder of record wishing to assert
appraisal rights must hold the shares of stock on the date of making a demand
for appraisal rights with respect to those shares and must continuously hold
those shares through the effective time of the merger.
STOCKHOLDERS WHO DESIRE TO EXERCISE THEIR APPRAISAL RIGHTS MUST SATISFY ALL
OF THE CONDITIONS OF SECTION 262. A WRITTEN DEMAND FOR APPRAISAL OF SHARES MUST
BE FILED WITH SPARTA BEFORE THE TAKING OF THE VOTE ON THE MERGER. This written
demand for appraisal of shares must be in addition to and separate from any vote
abstaining from or voting against the merger. Any abstention or vote against the
merger will not constitute a demand for appraisal within the meaning of Section
262.
If you elect to exercise your appraisal rights under Section 262, you must
not vote for the adoption and approval of the merger agreement and approval of
the merger. If you return a signed proxy in favor of the merger agreement and
approval of the merger, you will have effectively waived your appraisal rights.
A demand for appraisal must be executed by or for the stockholder of record
fully and correctly, as that stockholder's name appears on the share
certificate. If the shares are owned of record in a fiduciary capacity,
including by a trustee, guardian or custodian, this demand must be executed by
or for the fiduciary. If the shares are owned by or for more than one person, as
in a joint tenancy or tenancy in common, the demand must be executed by or for
all joint owners. An authorized agent, including an agent for two or more joint
owners, may execute the demand for appraisal for a stockholder of record;
however, the agent must identify the record owner and expressly disclose the
fact that, in exercising the demands, he is acting as agent for the record
owner. A person having a beneficial interest in Sparta capital stock held of
record in the name of another person, like a broker or nominee, must act
promptly to cause the record holder to follow the steps summarized below and in
a timely manner to perfect whatever appraisal rights the beneficial owner may
have.
A record owner, like a broker, who holds Sparta capital stock as a nominee
for others may exercise his or her right of appraisal with respect to the shares
for all or less than all of the beneficial owners of shares as to which he or
she is the record owner. In that case, the written demand must set forth the
number of shares covered by that demand. Where the number of shares is not
expressly mentioned, the demand will be presumed to cover all shares outstanding
in the name of that record owner.
If you elect to exercise appraisal rights, you should mail or deliver your
written demand to Sparta at 111 Rock Road, Horsham, Pennsylvania 19044,
Attention: Secretary. The written demand for appraisal should specify your name
and mailing address, and that you are thereby demanding appraisal for your
Sparta capital stock. Within ten days after the effective time of the merger,
Sparta must provide notice of the effective time of the merger to all of its
stockholders who have complied with Section 262 and have not voted for approval
of the merger.
Within 120 days after the effective time of the merger, if you have
satisfied the requirements of Section 262, you may deliver to Sparta a written
demand for a statement listing the aggregate number of
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shares of Sparta capital stock not voted in favor of the merger and with respect
to which demands for appraisal have been received and the aggregate number of
holders of those shares. That statement must be mailed within 10 days after the
written request therefor has been received by Sparta or within 10 days after
expiration of the period for delivery of demands for appraisal, whichever is
later.
Within 120 days after the effective time of the merger (but not thereafter),
either Sparta or any holder of Sparta capital stock who has complied with the
required conditions of Section 262 may file a petition in the Delaware Court of
Chancery demanding a determination of the fair value of the Sparta capital
stock. Sparta does not presently intend to file that petition if demand for
appraisal is made.
Upon the filing of any petition by a stockholder in accordance with Section
262, service of a copy will be made upon Sparta, which will, within 20 days
after service, file in the office of the Register in Chancery in which the
petition was filed a duly verified list containing the names and addresses of
all holders of Sparta capital stock who have demanded payment for their shares
and with whom agreements as to the value of their shares have not been reached
by Sparta. If the petition is filed by Sparta, the petition will be accompanied
by the verified list. The Register of Chancery, if so ordered by the Delaware
Court of Chancery, will give notice of the time and place filed for the hearing
of that petition by registered or certified mail to Sparta and to the
stockholders shown on the list at the addresses stated on the list, and notice
will also be given by publishing a notice at least one week before the day of
the hearing in a newspaper of general circulation published by the City of
Wilmington, Delaware, or other publication as the Delaware Court of Chancery
deems advisable. The forms of the notices by mail and by publication must be
approved by the Delaware Court of Chancery, and the costs shall be born by
Sparta.
If a petition for an appraisal is filed in a timely fashion, after a hearing
on the petition, the Delaware Court of Chancery will determine which
stockholders are entitled to appraisal rights and will appraise the shares owned
by these stockholders, determining the fair value of those shares, exclusive of
any element of value arising from the accomplishment or expectation of the
merger, together with a fair rate of interest to be paid, if any, upon the
amount determined to be the fair value. In determining fair value, the Delaware
Court of Chancery is to take into account all relevant factors. In WEINBERGER V.
UOP, INC. ET AL., the Delaware Supreme Court stated that "proof of value by any
techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered and that "fair
price obviously requires consideration of all relevant factors involving the
value of the company..." The Delaware Supreme Court stated that, in making a
determination of fair value, the agency fixing the value must consider market
value, asset value, dividends, earnings prospects, the nature of the enterprise
and any other factors which could be ascertained as of the date of the merger
and which throw any light on future prospects of the merged corporation. In
WEINBERGER, the Delaware Supreme Court held that the "elements of future value,
including the nature of the enterprise, which are known or susceptible of proof
as of the date of the merger and not the product of speculation, may be
considered." In addition, the Delaware Supreme Court has determined that the
statutory appraisal remedy, depending upon the factual circumstances, may or may
not be a stockholders' exclusive remedy in connection with a merger.
If you are considering seeking appraisal of your shares of Sparta capital
stock, you should note that the fair value of your shares determined under
Section 262 could be more, the same or less than the consideration you would
receive pursuant to the merger agreement if you did not seek appraisal of your
shares. The costs of the appraisal proceeding may be determined by the Delaware
Court of Chancery and taxed against the parties as that court deems equitable in
the circumstances. Upon application of a dissenting stockholder, the Delaware
Court of Chancery may order that all or a portion of the expenses incurred by
any dissenting stockholder in connection with the appraisal proceedings,
including reasonable attorney fees and the fees and expenses of experts, be
charged pro rata against the value of all shares entitled to appraisal. In the
absence of a determination or assessment, each party bears his or her own
expenses.
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If you duly demand appraisal in compliance with Section 262, you will not,
after the effective time of the merger, be entitled to vote for any purpose the
shares subject to demand or to receive payment of dividends or other
distributions on those shares, except for dividends or distributions payable to
stockholders of record at a date prior to the effective time of the merger.
At any time within 60 days after the effective time of the merger, you will
have the right to withdraw your demand for appraisal and to accept the terms
offered in the merger agreement. After this period, you may withdraw your demand
for appraisal and receive payment for your shares as provided in the merger
agreement only with the consent of Sparta. If no petition for appraisal is filed
with the Delaware Court of Chancery within 120 days after the effective time of
the merger, your rights to appraisal (if available) will cease and you will be
entitled to receive shares of SuperGen common stock as provided in the merger
agreement. Because Sparta has no obligation to file that petition, if you desire
a petition to be filed, you are advised to file it on a timely basis. No
petition timely filed in the Delaware Court of Chancery demanding appraisal may
be dismissed as to any stockholder without the approval of that court, which
approval may be conditional upon terms as that court deems just.
LEGAL MATTERS
The validity of the shares of SuperGen common stock to be issued pursuant to
the merger and the federal income tax consequences of the merger will be passed
upon for SuperGen by Wilson Sonsini Goodrich & Rosati Professional Corporation,
Palo Alto, California. The federal income tax consequences of the merger will
also be passed upon for Sparta by Dechert Price & Rhoads, Philadelphia,
Pennsylvania.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the SuperGen
consolidated financial statements included in our Annual Report on Form 10K for
the year ended December 31, 1998, as set forth in their report, which is
incorporated in this proxy-statement prospectus by reference. The SuperGen
consolidated financial statements are incorporated by reference in reliance on
their report, given on their authority as experts in accounting and auditing
The consolidated financial statements of Sparta included in this proxy
statement-prospectus and elsewhere in the registration statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports. Reference is made to
said report, which includes an explanatory paragraph with respect to the
uncertainty regarding Sparta's ability to continue as a going concern as
discussed in Note 1 to the financial statements.
WHERE YOU CAN FIND MORE INFORMATION
SuperGen and Sparta file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy these materials at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, as well as at the SEC's regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. You may also obtain copies of these materials from the SEC
at prescribed rates by writing to the Public Reference Section of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for more information on the public
reference rooms. You can also find our SEC filings at the SEC's website at
"http://www.sec.gov."
SuperGen filed a registration statement on Form S-4 to register with the SEC
the SuperGen common stock to be issued to Sparta stockholders in the merger.
This proxy statement-prospectus is a part of that registration statement and
constitutes a prospectus of SuperGen in addition to being a proxy statement of
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Sparta. As permitted by the SEC's rules, this proxy statement-prospectus does
not contain all the information you can find in the registration statement or
the exhibits to the registration statement.
The SEC's rules and regulations allow SuperGen and Sparta to "incorporate by
reference" information into this proxy statement-prospectus, which means that
SuperGen and Sparta can disclose important information to you by referring you
to other documents filed separately by each of them with the SEC. The
information incorporated by reference is considered to be part of this proxy
statement-prospectus. Information in this proxy statement-prospectus supersedes
information incorporated by reference that we filed with the SEC prior to the
date of this proxy statement-prospectus, while information that we file later
with the SEC will automatically update and, in some cases, supersede this
information. This proxy statement-prospectus incorporates by reference the
documents listed below and any future filings SuperGen and Sparta will make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934 prior to the date of the Sparta special meeting. These documents contain
important information about our companies and their businesses and finances.
SUPERGEN SEC FILINGS (FILE NO. 0-27628)
1. The description of SuperGen common stock contained in the Registration
Statement on Form 8-A filed with the SEC on January 18, 1996, including any
amendment or report filed for the purpose of updating that description.
2. SuperGen's Annual Report on Form 10-K, as amended, for the fiscal year ended
December 31, 1998.
3. SuperGen's Quarterly Report on Form 10-Q for the quarter ended March 31,
1999.
4. SuperGen's Proxy Statement for the 1999 Annual Meeting of Stockholders.
5. SuperGen's Current Report on Form 8-K filed with the SEC on January 28,
1999.
6. All other reports filed pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 since December 31, 1998.
SPARTA SEC FILINGS (FILE NO. 0-23076)
1. Sparta's Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
2. Sparta's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.
3. Sparta's Current Report on Form 8-K filed with the SEC on January 20, 1999.
4. All other reports filed pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 since December 31, 1998.
You may request a copy of these filings, at no cost to you, by writing or
telephoning the appropriate parties:
<TABLE>
<CAPTION>
FOR SUPERGEN DOCUMENTS FOR SPARTA DOCUMENTS
- ---------------------------------------------- ----------------------------------------------
<S> <C>
SuperGen, Inc. Sparta Pharmaceuticals, Inc.
Two Annabel Lane, Suite 220 111 Rock Road
San Ramon, California 94583 Horsham, Pennsylvania 19044
Attn: Investor Relations Attn: Investor Relations
Telephone: (925) 327-0200 Telephone: (215) 442-1700
</TABLE>
Exhibits to these documents will not be sent unless those exhibits are
specifically incorporated by reference in this proxy statement-prospectus.
YOU SHOULD MAKE YOUR REQUEST BY AUGUST 3, 1999 TO ENSURE DELIVERY PRIOR TO
THE SPARTA SPECIAL MEETING.
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YOU SHOULD RELY ONLY ON THE INFORMATION PROVIDED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT-PROSPECTUS. WE HAVE AUTHORIZED NO ONE TO
PROVIDE YOU WITH DIFFERENT INFORMATION. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS PROXY STATEMENT-PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER
THAN THE DATE ON THE FRONT OF THE DOCUMENT AND NEITHER THE MAILING OF THIS PROXY
STATEMENT-PROSPECTUS NOR THE ISSUANCE OF SUPERGEN COMMON STOCK IN THE MERGER
SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement-prospectus and the documents incorporated by reference
into this proxy statement-prospectus contain forward-looking statements within
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 with respect to financial condition, results of operations and business and
on the expected impact of the merger on SuperGen's financial performance.
Statements as to the anticipated closing of the merger, the benefits expected to
result from the merger, the future performance of the combined company and the
analyses performed by the financial advisor to Sparta are examples of
forward-looking statements. Any statements contained in this proxy
statement-prospectus (including, without limitation, statements to the effect
that SuperGen, Sparta or their respective management "believes," "expects,"
"anticipates," "plans," "may," "will," "projects," "continues," "estimates,"
"potential," "opportunity" or similar expressions) that are not statements of
historical fact should be considered forward-looking statements. Actual results
could differ materially and adversely from those anticipated in those
forward-looking statements as a result of various factors, including those set
forth in "Risk Factors" beginning at page 16, which you should carefully review.
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SPARTA PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Annual Financial Statements
Report of Independent Public Accountants--Arthur Andersen LLP.............................................. F-2
Report of Independent Auditors--Ernst & Young LLP.......................................................... F-3
Consolidated Balance Sheets as of December 31, 1997 and 1998............................................... F-4
Consolidated Statements of Operations for the years ended December 31, 1996, 1997 and 1998, for the period
from June 12, 1990 (Inception) to December 31, 1998...................................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1996, 1997 and
1998..................................................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998, for the period
from June 12, 1990 (Inception) to December 31, 1998...................................................... F-8
Notes to Consolidated Financial Statements................................................................. F-9
Interim Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998..................................... F-20
Consolidated Statements of Operations for the three-month periods ended March 31, 1999 and 1998 and for the
period from June 12, 1990 (inception) to March 31, 1999.................................................. F-21
Consolidated Statements of Cash Flows for the three-month periods ended March 31, 1999 and 1998 and for the
period from June 12, 1990 (inception) to March 31, 1999.................................................. F-22
Notes to Consolidated Financial Statements................................................................. F-23
</TABLE>
F-1
<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, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1998 and the related
statements of operations and cash flows for the period from inception (June 12,
1990) to December 31, 1998. 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 period from inception to
December 31, 1998 totals on the statements of operations and cash flows and
reflect total revenues and net loss of 19 percent and 38 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 and for the period from inception (June 12, 1990) to December
31, 1998, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
has incurred operating losses since inception and will require additional
capital to continue operations which raises 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 relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
February 11, 1999
F-2
<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 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 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.
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina
January 31, 1996
F-3
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 4,767,317 $ 2,470,359
Short-term investments.......................................................... 1,473,275 --
Prepaid expenses and other current assets....................................... 68,778 14,719
-------------- --------------
Total current assets.......................................................... 6,309,370 2,485,078
-------------- --------------
Fixed assets:
Office equipment................................................................ 189,962 194,308
Leasehold improvements.......................................................... 522,215 522,215
Less: accumulated depreciation and amortization................................. (375,482) (563,987)
-------------- --------------
336,695 152,536
License agreements, net of amortization of $92,912 in 1997 and $105,870 in 1998... 21,876 8,918
Restricted cash................................................................... 148,310 94,448
-------------- --------------
$ 6,816,251 $ 2,740,980
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........................................... $ 741,240 $ 528,090
-------------- --------------
Total current liabilities..................................................... 741,240 528,090
-------------- --------------
Commitments (Note 7)
Stockholders' equity:
Preferred Stock, not designated, $.001 par value; authorized and unissued
8,867,731 shares.............................................................. -- --
Series BC Convertible Preferred Stock, $.001 par value; liquidation preference
$13 per share; authorized 2,132,269 shares; issued and outstanding 1,020,747
shares in 1997 and 828,741 in 1998............................................ 1,021 829
Common Stock, $.001 par value; authorized 72,000,000 shares; issued and
outstanding 3,116,154 shares in 1997 and 3,651,843 shares in 1998............. 3,116 3,652
Additional paid-in capital...................................................... 28,616,607 28,682,326
Stock subscription receivable................................................... (133,333) (66,667)
Deferred compensation........................................................... (167,654) (100,443)
Deficit accumulated during the development stage................................ (22,244,746) (26,306,807)
-------------- --------------
Total stockholders' equity.................................................... 6,075,011 2,212,890
-------------- --------------
$ 6,816,251 $ 2,740,980
-------------- --------------
-------------- --------------
</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 OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 12, 1990
YEAR ENDED DECEMBER 31, (INCEPTION) TO
------------------------------------------- DECEMBER 31,
1996 1997 1998 1998
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue:
Interest income................................... $ 296,730 $ 445,606 $ 236,467 $ 1,270,465
Grant income and contract revenue................. -- 155,206 612,407 895,483
------------- ------------- ------------- --------------
Total revenue................................... 296,730 600,812 848,874 2,165,948
------------- ------------- ------------- --------------
Operating expenses:
Research and development.......................... 3,176,742 3,748,216 3,663,055 16,592,418
General and administrative........................ 1,404,955 1,497,006 1,247,880 8,582,424
Charge for acquired research and development...... 3,062,913 235,000 -- 3,297,913
------------- ------------- ------------- --------------
Total operating expenses........................ 7,644,610 5,480,222 4,910,935 28,472,755
------------- ------------- ------------- --------------
Net loss............................................ $ (7,347,880) $ (4,879,410) $ (4,062,061) $ (26,306,807)
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Basic and diluted net loss per share................ $ (4.64) $ (2.16) $ (1.18)
------------- ------------- -------------
------------- ------------- -------------
Basic and diluted weighted average number of shares
outstanding....................................... 1,582,414 2,260,261 3,446,252
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK
DATE OF -------------------------------------
TRANSACTION SERIES A SERIES B SERIES C
----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE AT JUNE 12, 1990............................................... $ $ $
Issuance of 289,666 shares at $.015 per share.......................... June 1990 -- -- --
----- ----------- -----
BALANCE AT DECEMBER 31, 1990........................................... -- -- --
February through
$.015 per share for services........................................... December 1991 -- -- --
Issuance of 325,815 shares at $3.99 per share net of issuance costs.... December 1991 326 -- --
Net loss for 1991...................................................... -- -- --
----- ----------- -----
BALANCE AT DECEMBER 31, 1991........................................... 326 -- --
Issuance of 50,125 shares at $3.99 per share in exchange for
cancellation of notes payable........................................ January 1992 50 -- --
January through
Issuance of 18,184 shares at $.015 per share........................... December 1992 -- -- --
Conversion of Series A Convertible Preferred Stock, into 75,188 shares
of Common Stock at $19.95 per share.................................. December 1992 (376) -- --
Net loss for 1992...................................................... -- -- --
----- ----------- -----
BALANCE AT DECEMBER 31, 1992........................................... -- -- --
Repurchase of 2,500 shares at $.015 per share.......................... January 1993 -- -- --
Issuance of 125,000 shares at $2.00 per share.......................... September 1993 -- 125 --
Exchange of 125,000 shares of Series B Convertible Preferred Stock
125,000 shares of Series C Convertible Preferred Stock............... December 1993 -- (125) 125
July through
Issuance of 3,731 shares at $14.45 per share........................... December 1993 -- -- --
Issuance of options to purchase 33,333 shares Common Stock net of
issuance costs (see Note 4).......................................... -- -- --
Net loss for 1993...................................................... -- -- --
----- ----------- -----
BALANCE AT DECEMBER 31, 1993........................................... -- -- 125
Issuance of 11,800 warrants............................................ May 1994 -- -- --
Issuance of 2,692 shares upon conversion of Convertible Notes and
Preferred Stock...................................................... June 1994 -- -- --
Conversion of Convertible Notes and Preferred Stock.................... June 1994 -- -- (125)
Proceeds of initial public offering net of offering costs of
$1,335,521........................................................... June 1994 -- -- --
March through
Issuance of 1,700 shares upon option exercise.......................... July 1994 -- -- --
Issuance of 33,000 units to underwriter upon over allotment exercise... July 1994 -- -- --
Repurchase of 500 shares............................................... July 1994 -- -- --
January through
Issuance of 1,961 shares at $20.20 for services........................ December 1994 -- -- --
Unrealized loss on available-for-sale investments...................... -- -- --
Net loss for 1994...................................................... -- -- --
----- ----------- -----
BALANCE AT DECEMBER 31, 1994........................................... -- -- --
Issuance of 5,000 shares upon option exercise.......................... April 1995 -- -- --
January through
Issuance of 4,303 shares at $17.80 per share for services.............. September 1995 -- -- --
Net Loss for 1995...................................................... -- -- --
Loss on available-for-sale investments................................. -- -- --
----- ----------- -----
<CAPTION>
COMMON ADDITIONAL STOCK
STOCK PAID IN UNREALIZED SUBSCRIPTION
PAR VALUE CAPITAL GAIN/(LOSS) RECEIVABLE
----------- ---------- ------------- ------------
<S> <C> <C> <C>
BALANCE AT JUNE 12, 1990............................................... $ $ $ $
Issuance of 289,666 shares at $.015 per share.......................... 289 4,056 -- --
----------- ---------- ------------- ------------
BALANCE AT DECEMBER 31, 1990........................................... 289 4,056 -- --
$.015 per share for services........................................... 173 2,420 -- --
Issuance of 325,815 shares at $3.99 per share net of issuance costs.... -- 1,274,874 -- --
Net loss for 1991...................................................... -- -- -- --
----------- ---------- ------------- ------------
BALANCE AT DECEMBER 31, 1991........................................... 462 1,281,350 -- --
Issuance of 50,125 shares at $3.99 per share in exchange for
cancellation of notes payable........................................ -- 199,950 -- --
Issuance of 18,184 shares at $.015 per share........................... 18 255 -- --
Conversion of Series A Convertible Preferred Stock, into 75,188 shares
of Common Stock at $19.95 per share.................................. 75 301 -- --
Net loss for 1992...................................................... -- -- -- --
----------- ---------- ------------- ------------
BALANCE AT DECEMBER 31, 1992........................................... 555 1,481,856 -- --
Repurchase of 2,500 shares at $.015 per share.......................... (2) (36) -- --
Issuance of 125,000 shares at $2.00 per share.......................... -- 249,875 -- --
Exchange of 125,000 shares of Series B Convertible Preferred Stock
125,000 shares of Series C Convertible Preferred Stock............... -- -- -- --
Issuance of 3,731 shares at $14.45 per share........................... 4 53,875 -- --
Issuance of options to purchase 33,333 shares Common Stock net of
issuance costs (see Note 4).......................................... -- 167,500 -- --
Net loss for 1993...................................................... -- -- -- --
----------- ---------- ------------- ------------
BALANCE AT DECEMBER 31, 1993........................................... 557 1,953,070 -- --
Issuance of 11,800 warrants............................................ -- 59 -- --
Issuance of 2,692 shares upon conversion of Convertible Notes and
Preferred Stock...................................................... 3 (3) -- --
Conversion of Convertible Notes and Preferred Stock.................... 412 3,868,837 -- --
Proceeds of initial public offering net of offering costs of
$1,335,521........................................................... 220 4,164,259 -- --
Issuance of 1,700 shares upon option exercise.......................... 2 2,549 -- --
Issuance of 33,000 units to underwriter upon over allotment exercise... 33 717,717 -- --
Repurchase of 500 shares............................................... (1) (6) -- --
Issuance of 1,961 shares at $20.20 for services........................ 2 39,659 -- --
Unrealized loss on available-for-sale investments...................... -- -- (3,316) --
Net loss for 1994...................................................... -- -- -- --
----------- ---------- ------------- ------------
BALANCE AT DECEMBER 31, 1994........................................... 1,228 10,746,141 (3,316) --
Issuance of 5,000 shares upon option exercise.......................... 5 7,495 -- --
Issuance of 4,303 shares at $17.80 per share for services.............. 4 76,688 -- --
Net Loss for 1995...................................................... -- -- -- --
Loss on available-for-sale investments................................. -- -- 3,316 --
----------- ---------- ------------- ------------
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
DURING THE STOCKHOLDERS'
DEFERRED DEVELOPMENT EQUITY
COMPENSATION STAGE (DEFICIT)
------------- ------------ ------------
BALANCE AT JUNE 12, 1990............................................... $ $ $
Issuance of 289,666 shares at $.015 per share.......................... -- -- 4,345
------------- ------------ ------------
BALANCE AT DECEMBER 31, 1990........................................... -- -- 4,345
$.015 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 18,184 shares at $.015 per share........................... -- -- 273
Conversion of Series A Convertible Preferred Stock, into 75,188 shares
of Common Stock at $19.95 per share.................................. -- -- --
Net loss for 1992...................................................... -- (1,217,933) (1,217,933)
------------- ------------ ------------
BALANCE AT DECEMBER 31, 1992........................................... -- (1,576,167) (93,756)
Repurchase of 2,500 shares at $.015 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 3,731 shares at $14.45 per share........................... -- -- 53,879
Issuance of options to purchase 33,333 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 11,800 warrants............................................ -- -- 59
Issuance of 2,692 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 1,700 shares upon option exercise.......................... -- -- 2,551
Issuance of 33,000 units to underwriter upon over allotment exercise... -- -- 717,750
Repurchase of 500 shares............................................... -- -- (7)
Issuance of 1,961 shares at $20.20 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 5,000 shares upon option exercise.......................... -- -- 7,500
Issuance of 4,303 shares at $17.80 per share for services.............. -- -- 76,692
Net Loss for 1995...................................................... -- (2,642,407) (2,642,407)
Loss on available-for-sale investments................................. -- -- 3,316
------------- ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK
DATE OF -------------------------------------
TRANSACTION SERIES A SERIES B SERIES C
----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995........................................... -- -- --
Extension of exercise period for options of former employees........... January 1996 -- -- --
Proceeds of private placement net of commissions and expenses of
$428,571............................................................. February 1996 300 -- --
Stock issued for acquisition of Lexin Pharmaceuticals (see Note 2)..... March 1996 -- -- --
Deferred compensation related to acquisition (see Note 4).............. March 1996 -- -- --
Issuance of 1,000 shares pursuant to license agreement................. April 1996 -- -- --
June through July
Issuance of 258 shares for services.................................... 1996 -- -- --
Proceeds of private placement net of commissions and expenses of July through
$2,029,091 (see Note 4).............................................. August 1996 -- 1,297 --
Conversion of Series A to Series BC.................................... August 1996 (300) 400 --
Issuance of 7,000 warrants for services................................ December 1996 -- -- --
November through
Conversion of Preferred Stock to Common Stock.......................... December 1996 -- (210) --
Amortization of Deferred Compensation for 1996......................... -- -- --
Net Loss for 1996...................................................... -- -- --
----- ----------- -----
BALANCE AT DECEMBER 31, 1996........................................... -- 1,487 --
Issuance of 10,000 options for services................................ January 1997 -- -- --
Forgiveness of one-third of common stock subscriptions................. July 1997 -- -- --
Issuance of 53,333 shares upon option exercise......................... September 1997 -- -- --
August through
Issuance of 7,101 shares for services.................................. September 1997 -- -- --
Issuance of 100,000 warrants for grant of license agreement............ December 1997 -- -- --
Issuance of 20,000 options for services................................ December 1997 -- -- --
May through
Issuance of 107,000 warrants for services.............................. December 1997 -- -- --
January through
Conversion of Preferred Stock to Common Stock.......................... December 1997 -- (466) --
Amortization of Deferred Compensation for 1997......................... -- -- --
Net Loss for 1997...................................................... -- -- --
----- ----------- -----
BALANCE AT DECEMBER 31, 1997........................................... -- 1,021 --
Forgiveness of common stock subscriptions.............................. July 1998 -- -- --
Repayment of common stock subscriptions................................ July 1998 -- -- --
March through
Issuance of 23,601 shares for services................................. December 1998 -- -- --
January through
Conversion of Preferred Stock to Common Stock.......................... December 1998 -- (192) --
Amortization of Deferred Compensation for 1998......................... -- -- --
Net Loss for 1998...................................................... -- -- --
----- ----------- -----
BALANCE AT DECEMBER 31, 1998........................................... $ -- $ 829 $ --
----- ----------- -----
----- ----------- -----
<CAPTION>
COMMON ADDITIONAL STOCK
STOCK PAID IN UNREALIZED SUBSCRIPTION
PAR VALUE CAPITAL GAIN/(LOSS) RECEIVABLE
----------- ---------- ------------- ------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995........................................... 1,237 10,830,324 -- --
Extension of exercise period for options of former employees........... -- 18,738 -- --
Proceeds of private placement net of commissions and expenses of
$428,571............................................................. -- 2,571,129 -- --
Stock issued for acquisition of Lexin Pharmaceuticals (see Note 2)..... 400 3,599,600 -- --
Deferred compensation related to acquisition (see Note 4).............. -- 206,100 -- --
Issuance of 1,000 shares pursuant to license agreement................. 1 14 -- --
Issuance of 258 shares for services.................................... 1 3,678 -- --
Proceeds of private placement net of commissions and expenses of
$2,029,091 (see Note 4).............................................. -- 10,934,612 -- (200,000)
Conversion of Series A to Series BC.................................... -- (100) -- --
Issuance of 7,000 warrants for services................................ -- 20,000 -- --
Conversion of Preferred Stock to Common Stock.......................... 279 (69) -- --
Amortization of Deferred Compensation for 1996......................... -- -- -- --
Net Loss for 1996...................................................... -- -- -- --
----------- ---------- ------------- ------------
BALANCE AT DECEMBER 31, 1996........................................... 1,918 28,184,026 -- (200,000)
Issuance of 10,000 options for services................................ -- 33,750 -- --
Forgiveness of one-third of common stock subscriptions................. -- -- -- 66,667
Issuance of 53,333 shares upon option exercise......................... 53 79,947 -- --
Issuance of 7,101 shares for services.................................. 7 60,506 -- --
Issuance of 100,000 warrants for grant of license agreement............ -- 135,000 -- --
Issuance of 20,000 options for services................................ -- 29,000 -- --
Issuance of 107,000 warrants for services.............................. -- 95,050 -- --
Conversion of Preferred Stock to Common Stock.......................... 1,138 (672) -- --
Amortization of Deferred Compensation for 1997......................... -- -- -- --
Net Loss for 1997...................................................... -- -- -- --
----------- ---------- ------------- ------------
BALANCE AT DECEMBER 31, 1997........................................... 3,116 28,616,607 -- (133,333)
Forgiveness of common stock subscriptions.............................. -- -- -- 50,000
Repayment of common stock subscriptions................................ -- -- -- 16,666
Issuance of 23,601 shares for services................................. 24 66,039 -- --
Conversion of Preferred Stock to Common Stock.......................... 512 (320) -- --
Amortization of Deferred Compensation for 1998......................... -- -- -- --
Net Loss for 1998...................................................... -- -- -- --
----------- ---------- ------------- ------------
BALANCE AT DECEMBER 31, 1998........................................... $ 3,652 $28,682,326 $ -- $ (66,667)
----------- ---------- ------------- ------------
----------- ---------- ------------- ------------
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
DURING THE STOCKHOLDERS'
DEFERRED DEVELOPMENT EQUITY
COMPENSATION STAGE (DEFICIT)
------------- ------------ ------------
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 1,000 shares pursuant to license agreement................. -- -- 15
Issuance of 258 shares for services.................................... -- -- 3,679
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 BC.................................... -- -- --
Issuance of 7,000 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 10,000 options for services................................ (33,750) -- --
Forgiveness of one-third of common stock subscriptions................. -- -- 66,667
Issuance of 53,333 shares upon option exercise......................... -- -- 80,000
Issuance of 7,101 shares for services.................................. -- -- 60,513
Issuance of 100,000 warrants for grant of license agreement............ -- -- 135,000
Issuance of 20,000 options for services................................ (29,000) -- --
Issuance of 107,000 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
Forgiveness of common stock subscriptions.............................. -- -- 49,999
Repayment of common stock subscriptions................................ -- -- 16,667
Issuance of 23,601 shares for services................................. -- -- 66,063
Conversion of Preferred Stock to Common Stock.......................... -- -- --
Amortization of Deferred Compensation for 1998......................... 67,211 -- 67,211
Net Loss for 1998...................................................... -- (4,062,061) (4,062,061)
------------- ------------ ------------
BALANCE AT DECEMBER 31, 1998........................................... $(100,443) ($26,306,807) $2,212,890
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-7
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM JUNE
12,
YEAR ENDED DECEMBER 31, 1990 (INCEPTION)
---------------------------------- TO DECEMBER 31,
1996 1997 1998 1998
---------- ---------- ---------- -------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................... $(7,347,880) $(4,879,410) $(4,062,061) $ (26,306,807)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss on investments.................................. -- -- -- 3,316
Depreciation and amortization........................ 170,611 213,674 201,463 1,139,897
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....................... 3,694 60,514 66,063 288,022
Compensation expense related to stock options
granted............................................ 79,529 155,454 67,211 502,194
Compensation expense related to forgiveness of stock
subscriptions receivable........................... -- 66,667 50,000 116,667
Changes in operating assets and liabilities, net of
effect from acquisition:
Prepaid expenses and other assets.................. 97,374 13,973 54,059 (14,719)
Accounts payable and accrued expenses.............. 293,636 111,743 (213,150) 378,090
Restricted cash.................................... 50,507 48,532 53,862 152,901
---------- ---------- ---------- -------------------
Net cash used in operating activities............ (3,589,616) (4,073,853) (3,782,553) (20,276,852)
---------- ---------- ---------- -------------------
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......................... -- -- 1,473,275 2,573,152
Purchases of fixed assets.............................. (76,364) (12,367) (4,346) (147,943)
Acquisition of license agreements...................... -- -- -- (160,078)
---------- ---------- ---------- -------------------
Net cash (used in) provided by investing
activities..................................... (205,206) (1,485,642) 1,468,929 (440,179)
---------- ---------- ---------- -------------------
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................. -- 80,000 -- 4,992,031
Repurchase of Common Stock............................. -- -- -- (45)
Proceeds from issuance of Preferred Stock.............. 13,307,338 -- 16,666 14,816,704
Increase in debt issuance costs........................ -- -- -- (469,950)
---------- ---------- ---------- -------------------
Net cash provided by financing activities........ 13,307,338 80,000 16,666 23,187,390
---------- ---------- ---------- -------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 9,512,516 (5,479,495) (2,296,958) 2,470,359
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....... 734,296 10,246,812 4,767,317 --
---------- ---------- ---------- -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............. $10,246,812 $4,767,317 $2,470,359 $ 2,470,359
---------- ---------- ---------- -------------------
---------- ---------- ---------- -------------------
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 BC Convertible Preferred Stock
into Common Stock.................................... $ 279 $ 1,138 $ 512 $ 1,929
---------- ---------- ---------- -------------------
---------- ---------- ---------- -------------------
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. Should the Company continue to function
independently, it 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.
In January 1999, the Company entered into an agreement providing for the
purchase of the Company by Supergen, Inc. See Note 9 "Proposed Acquisition of
the Company."
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Sparta
Pharmaceuticals, Inc. and Orizon Pharmaceuticals, Inc., a 95%-owned subsidiary.
The Company recognizes 100% of Orizon's net loss in its consolidated results of
operations. All intercompany balances and transactions have been eliminated.
On May 13, 1998, the Company effected a one-for-five reverse stock split of
its Common Stock. The financial statements and related notes have been
retroactively restated to reflect the effect of the reverse stock split. 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>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. COMPANY ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At December 31, accounts payable and accrued expenses consisted of the
following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Accrued professional fees....................................................... $ 112,159 $ 117,527
Accrued research and license agreement fees..................................... 405,563 219,139
Deferred revenue................................................................ -- 50,000
Accounts payable and other accrued expenses..................................... 223,518 141,424
---------- ----------
$ 741,240 $ 528,090
---------- ----------
---------- ----------
</TABLE>
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
Grant revenues are recognized as the related expenses are incurred. Contract
revenues are recognized when all obligations of the agreement are satisfied.
F-10
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. COMPANY ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations when incurred.
USE OF ESTIMATES
Presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from these estimates.
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 all years presented,
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, were adopted by
the Company on January 1, 1998. The adoption of SFAS 130 and SFAS 131 did not
result in any substantive changes in the Company's 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 400,000 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, given the development stage
nature of the related technology.
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
60,000 shares of common stock at an exercise price of $2.1875. In addition, the
Company issued to Paramount Capital Investments, LLC ("Paramount") warrants to
purchase up to 100,000 shares of common stock at an exercise price of $2.1875
and reimbursed Paramount for certain due diligence expenditures for its efforts
in negotiating the transaction with the Beyer Estate. Vesting on
F-11
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITION OF TECHNOLOGY RIGHTS (CONTINUED)
warrants to purchase 60,000 of the shares issued to Paramount is based on the
successful completion of future clinical trials for PZG. In connection with the
license, the Company has recorded a total charge to the 1997 Statement of
Operations of $235,000 for acquired research and development, given the
development stage nature of the related technology.
4. STOCKHOLDERS' EQUITY
PREFERRED STOCK
As of December 31, 1998, the Company has 828,741 shares of Series BC
Convertible Preferred Stock ("Series BC Preferred Stock") which are convertible
into 2,209,970 shares of Common Stock. In the event of a liquidation event (as
defined in the Certificate of Designation relating to the Series BC Preferred
Stock), the holders of the Series BC 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 BC Preferred Stock, including Common Stock (see Note 9). Holders
of Series BC Preferred Stock are also entitled to dividends, if any, as shall be
declared on the Company's Common Stock or on any other class of preferred stock,
unless holders of at least 66 2/3% of the outstanding Series BC Preferred Stock
consent otherwise. The Series BC 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.
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 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net loss--as reported...................................... $ (7,347,880) $ (4,879,410) $ (4,062,061)
Net loss--pro forma........................................ (7,654,170) (5,137,196) (4,306,491)
Basic and diluted net loss per share--as reported.......... (4.64) (2.16) (1.18)
Basic and diluted net loss per share--pro forma............ (4.84) (2.27) (1.25)
</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
F-12
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
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.
Set forth below is a table summarizing option activity through December 31,
1998:
<TABLE>
<CAPTION>
WEIGHTED
OPTION PRICE AVERAGE
NUMBER RANGE EXPIRATION EXERCISE
DESCRIPTION OF SHARES PER SHARE DATE PRICE
- --------------------------------------------- ----------- ------------------ -------------- -----------
<S> <C> <C> <C> <C>
Options outstanding at 12/31/95.............. 178,500 $1.50 to $30.00 2001 to 2005 $ 15.70
Options granted.............................. 222,400 $5.63 to $15.00 2005 to 2006 $ 5.90
Options canceled............................. (6,000) $15.00 to $30.00 $ 25.00
-----------
Options outstanding at 12/31/96.............. 394,900 $1.50 to $30.00 1998 to 2006 $ 10.05
Options granted.............................. 126,000 $2.23 to $4.06 2007 $ 2.55
Options exercised............................ (53,334) $1.50 $ 1.50
Options canceled............................. (36,333) $5.63 to $26.90 $ 16.80
-----------
Options outstanding at 12/31/97.............. 431,233 $2.23 to $30.00 1998 to 2007 $ 8.30
Options granted.............................. 10,000 $2.50 2008 $ 2.50
Options canceled............................. (29,583) $2.23 to $27.60 $ 11.87
-----------
Options outstanding at 12/31/98.............. 411,650 $2.23 to $30.00 2003 to 2008 $ 7.92
</TABLE>
The weighted average fair value of options granted under the plan was $4.00,
$1.60 and $1.74 in the years ended December 31, 1996, 1997 and 1998,
respectively.
F-13
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
Set forth below are the outstanding options at December 31, 1998, summarized
by range of exercise price:
<TABLE>
<CAPTION>
WEIGHTED NUMBER WEIGHTED
NUMBER WEIGHTED AVERAGE EXERCISABLE AVERAGE
OUTSTANDING AVERAGE EXERCISE AT EXERCISE
RANGE OF EXERCISE PRICES AT 12/31/98 REMAINING LIFE PRICE 12/31/98 PRICE
- -------------------------------- ----------- ------------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$2.23 to $4.06 131,000 8.9 $ 2.54 34,750 $ 2.74
$5.63 to $12.50 212,650 6.6 $ 5.84 123,950 $ 5.91
$15.00 to $30.00 68,000 5.4 $ 24.83 68,000 $ 24.83
--
----------- ------ ------------- -----------
411,650 7.1 $ 7.92 226,700 $ 11.10
--
--
----------- ------ ------------- -----------
----------- ------ ------------- -----------
</TABLE>
In 1997, the Company issued options to purchase 30,000 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 and $15,686 in compensation
expense related to these options for 1997 and 1998.
In March 1996, the Company issued options to purchase 137,400 shares of
Common Stock at $13.50 per share. The Company recorded deferred compensation
expense 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,
$51,525 and $51,525 in compensation expense related to these options for 1996,
1997 and 1998, respectively. On December 5, 1996 these options were repriced
from $13.50 per share exercise price to $5.63, 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,
1998, the Company has issued 23,999 shares of Common Stock at $.015 per share
and 1,667 shares of Common Stock at $7.50 per share in connection with this
stock plan.
As of December 31, 1998, a total of 600,000 shares of Common Stock were
authorized for issuance under the stock plan, of which 102,651 shares were
available for grant. The Company has reserved 514,301 shares of its Common Stock
as of December 31, 1998 for future issuance in connection with the stock plan.
WARRANTS
In connection with its initial public offering in 1994, the Company sold
1,265,000 units ("IPO Units") each consisting of one-fifth of one share of
Common Stock, one redeemable Class A Warrant to purchase .24 shares of Common
Stock, and one redeemable Class B Warrant to purchase .24 shares of Common Stock
for $5.00 per IPO Unit, before expenses and commissions.
In connection with the 1996 private placements of Preferred Stock, the
Company issued 2,261,944 redeemable Class C Warrants to purchase one share of
Common Stock at an exercise price of $7.50 per share. The Class C Warrants are
exercisable until August 23, 2001, unless sooner redeemed. In addition to
F-14
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
the Class C Warrants, the Company also issued 226,200 warrants to purchase
Common Stock at an exercise price of $9.00 per share and 169,650 warrants to
purchase Series BC 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 160,000 warrants to purchase Common Stock at $2.1875 per share.
Of these warrants, 100,000 were issued to the company which served as Placement
Agent for the 1996 private placements of Preferred Stock. The vesting of 40,000
warrants issued to the Placement Agent is based upon public announcement or
written notice from the Company that Phase II clinical trials with the compound
have been completed and that the Company or a third party intends to initiate
Phase III clinical trials, and the vesting of 20,000 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 7,000 warrants in 1996 to purchase common stock at $5.625 per
share and 107,000 warrants during 1997 to purchase common stock at exercise
prices ranging from $2.10 per share to $10.00 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, 1998 were as follows:
<TABLE>
<CAPTION>
UNDERLYING
NUMBER WARRANT EXPIRATION
DESCRIPTION OF SHARES PRICE DATE
- ------------------------------------------------------------- ---------- -------------- -----------
<S> <C> <C> <C>
Class A Warrants............................................. 303,600 $20.80 1999
Class B Warrants............................................. 303,600 $34.40 1999
Class C Warrants............................................. 2,261,944 $7.50 2001
Placement Agent Warrants..................................... 762,420 $4.15-$34.40 1999-2002
Other Warrants............................................... 274,000 $2.10-$10.00 2001-2002
</TABLE>
5. INCOME TAXES
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $19,439,000 and research and experimental credit carryforwards of
$483,700 for income tax purposes that expire in years 2006 through 2013 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
$10,671,000 has been recognized to offset the deferred tax assets related to
those carryforwards at December 31, 1998. When, and if, recognized, the tax
benefit for those items will be reflected in current operations of the
F-15
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
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>
1997 1998
------------ -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................................... $ 5,355,300 $ 6,609,200
Capitalized research and development..................................... 3,134,000 3,372,000
Research and experimental credit carryforwards........................... 343,900 483,700
Contribution carryforward................................................ 83,300 83,300
Depreciation............................................................. 80,800 122,800
------------ -------------
Total deferred tax assets.................................................. 8,997,300 10,671,000
Valuation allowance for deferred tax assets................................ (8,997,300) (10,671,000)
------------ -------------
Net deferred tax assets.................................................... $ -- $ --
------------ -------------
------------ -------------
</TABLE>
No current income taxes have been provided for the period ended December 31,
1998, 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. Net operating loss carry forwards at the time of the change were
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. The
proposed merger (see Note 9) will result in an ownership change and a potential
additional limitation of net operating loss carry forwards.
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 $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 or 1998.
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 upon exercise of outstanding options and specified fees upon
the occurrence of certain events. The Company is obligated to pay consulting
fees of $130,000 per year. Consulting fees paid totaled approximately $268,000,
$154,000 and $297,000 in 1996, 1997 and 1998, respectively.
F-16
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS (CONTINUED)
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:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
1999........................................................................................ $ 177,000
2000........................................................................................ $ 177,000
2002........................................................................................ $ 177,000
2002........................................................................................ $ 227,000
2003........................................................................................ $ 227,000
</TABLE>
Payments under these agreements to licensors totaled approximately $157,000,
$107,000 and $352,000 in 1996, 1997, and 1998, respectively.
The Company has a remaining obligation of L17,500, pursuant to a
collaboration and option agreement that was terminated by the Company.
RESEARCH AGREEMENTS: The Company has entered into various other research
contracts for certain research activities. Payments under these agreements
totaled approximately $737,000, $1,128,000 and $1,187,000 in 1996, 1997 and
1998, respectively. Included in accounts payable and accrued expenses at
December 31, 1998, is approximately $156,000 relating to these contracts. Under
terms of these agreements, the Company may be obligated to make further payments
of approximately $863,000 in 1999.
MINIMUM LEASE PAYMENTS: The Company has a lease agreement for its office
space in Horsham, Pennsylvania that terminates in July 1999. Contingent rentals
are payable under the lease based upon operating, maintenance, management, and
repair expenses incurred by the lessor. In addition, the Company must maintain a
cash balance in escrow that represents the deposit on the leased facility which
is refundable at the termination of the lease. At December 31, 1998, the cash
balance restricted in escrow was $94,448. Future minimum lease payments are as
follows:
<TABLE>
<CAPTION>
AMOUNT
---------
<S> <C>
1999......................................................................................... $65,000
</TABLE>
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 and net rent income for 1998 was $54,374.
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.
F-17
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
In connection with the private placement of its Series BC 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 BC 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, Senior Vice President, 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 BC 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 the loans to Dr. Hook and Mr. Spair was forgiven
on both July 30, 1997 and 1998. One-third of the principal of the loan to Dr.
McCulloch was forgiven on July 30, 1997. Dr. McCulloch repaid one-third of the
principal of the loan and accrued interest in July, 1998. Dr. William McCulloch
is no longer employed by the Company. The outstanding balance of the loans (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
100,000 shares of the Company's Common Stock was issued to Paramount Capital
Investments, LLC, an affiliate of the Placement Agent.
In 1998, the Company awarded contingent bonuses of $35,000 each to Dr. Rose
and Mr. Spair to be paid in the event that they continue to be employed on the
earlier of (i) a liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, (ii) a sale or other disposition of all or
substantially all of the assets of the Company, (iii) any consolidation, merger,
combination, reorganization or other transaction in which the Company is not the
surviving entity or the shares of Common Stock constituting in excess of 50% of
the voting power of the Company are exchanged for or changed into other stock or
securities, cash and/or any other property, or (iv) March 31, 1999.
F-18
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. PROPOSED ACQUISITION OF THE COMPANY
The Company and SuperGen, Inc. ("SuperGen") entered into an Agreement and
Plan of Reorganization dated as of January 18, 1999 ("Reorganization
Agreement"). Under the terms of the Reorganization Agreement, SuperGen will
issue to Sparta stockholders 650,000 shares of SuperGen common stock (subject to
adjustment) in exchange for all outstanding shares of Sparta Common and
Preferred Stock. After the merger, Sparta will operate as a wholly-owned
subsidiary of SuperGen.
The Company expects a special meeting of the Company's stockholders to vote
on certain matters will occur in the second quarter of 1999. At the Special
Meeting, stockholders will be asked to adopt and approve the Reorganization
Agreement and approve the merger. In addition, the Company's stockholders will
be asked to approve amendments to the Company's Certificate of Incorporation
("Amendments"). The Amendments will increase the conversion rate in effect for
the Sparta Series BC Preferred Stock and will eliminate the liquidation
preference to which the holders of Sparta Series BC Preferred Stock are
currently entitled. In addition to the approval of the Sparta stockholders,
these transactions also remain subject to, among other things, the effectiveness
of a registration statement and proxy statement and other customary closing
conditions.
F-19
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 1,532,163 $ 2,470,359
Prepaid expenses and other assets............................................... 70,516 14,719
-------------- --------------
Total current assets.......................................................... 1,602,679 2,485,078
Fixed assets, net................................................................. 105,553 152,536
Other assets:
License agreements, net of amortization of $109,109 in 1999 and $105,870 in
1998.......................................................................... 5,679 8,918
Restricted Cash................................................................. 95 120 94,448
-------------- --------------
$ 1,809,031 $ 2,740,980
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........................................... $ 556,123 $ 528,090
-------------- --------------
Total current liabilities..................................................... 556,123 528,090
-------------- --------------
Stockholders' equity:
Preferred Stock, not designated, $.001 par value; authorized and unissued
8,882,731 shares.............................................................. -- --
Series BC Convertible Preferred Stock, $.001 par value; authorized 2,117,269
shares; issued and outstanding 813,741 shares in 1999 and 828,741 shares in
1998.......................................................................... 814 829
Common Stock, $.001 par value; authorized 72,000,000 shares; issued and
outstanding 3,691,841 shares in 1999 and 3,651,843 shares in 1998............. 3,692 3,652
Additional paid-in capital 28,682,301 28,682,326
Stock subscriptions receivable.................................................. (66,667) (66,667)
Deferred compensation........................................................... (83,641) (100,443)
Deficit accumulated during the development stage................................ (27,283,591) (26,306,807)
-------------- --------------
Total stockholders' equity.................................................... 1,252,908 2,212,890
-------------- --------------
$ 1,809,031 $ 2,740,980
-------------- --------------
-------------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-20
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH PERIOD FROM
31, JUNE 12, 1990
------------------------ (INCEPTION) TO
1999 1998 MARCH 31, 1999
----------- ----------- --------------
<S> <C> <C> <C>
Revenue:
Grant income and contract revenue.................................... $ 132,760 $ 144,252 $ 1,028,243
Interest income...................................................... 23,071 76,745 1,293,536
----------- ----------- --------------
Total revenue...................................................... 155,831 220,997 2,321,779
----------- ----------- --------------
Operating expenses:
Research and development............................................. 802,287 931,577 17,394,705
General and administrative........................................... 330,328 284,567 8,912,752
Charge for acquired research and development......................... -- -- 3,297,913
----------- ----------- --------------
Net loss............................................................... $ (976,784) $ (995,147) $ (27,283,591)
----------- ----------- --------------
----------- ----------- --------------
Basic and diluted net loss per share................................... $ (.26) $ (.31)
----------- -----------
----------- -----------
Basic and diluted weighted average number of shares outstanding (Note
2)................................................................... 3,688,360 3,189,207
----------- -----------
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-21
<PAGE>
SPARTA PHARMACEUTICALS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS PERIOD FROM
ENDED MARCH 31, JUNE 12, 1990
--------------------------- (INCEPTION) TO
1999 1998 MARCH 31, 1999
------------ ------------- --------------
<S> <C> <C> <C>
Operating activities:
Net loss............................................................. $ (976,784) $ (995,147) $ (27,283,591)
Adjustments to reconcile net loss to net cash used in operating
activities:
Loss on investments................................................ -- -- 3,316
Depreciation and amortization...................................... 50,222 50,937 1,190,119
Write down of license agreement.................................... -- -- --
Acquired research & development.................................... -- 45,200 3,197,913
Issuance of convertible notes for services......................... -- -- 220,474
Issuance of stock for services..................................... -- 45,431 288,022
Compensation expense related to stock options and warrants
granted.......................................................... 16,802 16,803 518,996
Compensation expense related to forgiveness of stock subscriptions
receivable....................................................... -- -- 116,667
Changes in operating assets and liabilities, net of effect from
acquisition:
Prepaid expenses and other assets................................ (55,797) (153,571) (70,516)
Restricted cash.................................................. (672) (1,209) 152,229
Accounts payable and accrued expenses............................ 28,033 (111,585) 406,123
------------ ------------- --------------
Net cash used in operating activities.......................... (938,196) (1,148,341) (21,215,048)
------------ ------------- --------------
INVESTING ACTIVITIES:
Payment of acquisition related fees & expenses....................... -- -- --
Purchases of available-for-sale securities........................... -- (128,842) (2,576,468)
Maturities of available-for-sale securities.......................... -- 1,473,275 2,573,152
Purchases of fixed assets............................................ -- (4,346) (147,943)
Acquisition of license agreements.................................... -- -- (160,078)
------------ ------------- --------------
Net cash provided by (used in) investing activities............ -- 1,468,929 (440,179)
------------ ------------- --------------
FINANCING ACTIVITIES:
Proceeds from issuance of convertible notes and notes payable........ -- -- 4,488,650
Repayment of notes payable........................................... -- -- (640,000)
Proceeds from issuance of Common Stock............................... -- -- 4,992,031
Repurchase of Common Stock........................................... -- -- (45)
Proceeds from issuance of Preferred Stock............................ -- -- 14,816,704
Increase in debt issuance costs...................................... -- -- (469,950)
------------ ------------- --------------
Net cash provided by financing activities...................... -- -- 23,187,390
------------ ------------- --------------
Increase (Decrease) in cash and cash equivalents..................... (938,196) 320,588 1,532,163
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... 2,470,359 4,767,317 --
------------ ------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 1,532,163 $ 5,087,905 $ 1,532,163
------------ ------------- --------------
------------ ------------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-22
<PAGE>
SPARTA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. COMPANY BACKGROUND
Sparta Pharmaceuticals, Inc. (and together with its subsidiary, 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.
In January 1999, the Company and SuperGen, Inc. ("SuperGen") entered into an
Agreement and Plan of Reorganization (the "Reorganization Agreement") pursuant
to which a subsidiary of SuperGen will merge with and into the Company (the
"Merger"). If the Merger and related amendments to Sparta's Certificate of
Incorporation are approved by Sparta's stockholders, after the Merger, Sparta
will operate as a wholly owned subsidiary of SuperGen.
Due to the proposed merger with SuperGen, further clinical development will
be minimized until such time as the Company's portfolio of compounds has been
integrated into SuperGen's portfolio and the priority for all compounds has been
established.
2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Sparta
Pharmaceuticals, Inc. and Orizon Pharmaceuticals, Inc., a 95% owned subsidiary.
The Company recognizes 100% of Orizon's net loss in its consolidated results of
operations. All intercompany balances and transactions have been eliminated.
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. The financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
only of normal recurring accruals, considered necessary for a fair presentation,
have been included in the accompanying unaudited financial statements. For more
complete financial information, these financial statements should be read in
conjunction with the audited financial statements and notes thereto contained in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998. Results for the interim periods are not necessarily indicative of the
results for any other interim period or for the full fiscal year. All common
stock and per share amounts in the accompanying Consolidated Financial
Statements, for periods prior to May 13, 1998, have been retroactively restated
to reflect the one-for-five reverse stock split of its common stock.
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 three months ended March 31, 1999 and 1998, 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.
F-23
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
SUPERGEN, INC.
ROYALE ACQUISITION CORP.
AND
SPARTA PHARMACEUTICALS, INC.
DATED AS OF JANUARY 18, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE I THE MERGER....................................................................................... A-1
1.1 The Merger...................................................................................... A-1
1.2 Effective Time; Closing......................................................................... A-1
1.3 Effect of the Merger............................................................................ A-1
1.4 Certificate of Incorporation; Bylaws............................................................ A-2
1.5 Directors and Officers.......................................................................... A-2
1.6 Effect on Capital Stock......................................................................... A-2
1.7 Unvested SPI Capital Stock...................................................................... A-3
1.8 Dissenting Shares............................................................................... A-3
1.9 Surrender of Certificates....................................................................... A-4
1.10 No Further Ownership Rights in SPI Capital Stock................................................ A-5
1.11 Lost, Stolen or Destroyed Certificates.......................................................... A-5
1.12 Tax and Accounting Consequences................................................................. A-5
1.13 Taking of Necessary Action; Further Action...................................................... A-6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SPI........................................................... A-6
2.1 Organization of SPI............................................................................. A-6
2.2 SPI Capital Structure........................................................................... A-6
2.3 Obligations With Respect to Capital Stock....................................................... A-7
2.4 Authority....................................................................................... A-7
2.5 SEC Filings; SPI Financial Statements........................................................... A-8
2.6 Absence of Certain Changes or Events............................................................ A-9
2.7 Tax............................................................................................. A-9
2.8 Title to Properties; Absence of Liens and Encumbrances.......................................... A-10
2.9 Intellectual Property........................................................................... A-11
2.10 Compliance; Permits; Restrictions............................................................... A-11
2.11 Litigation...................................................................................... A-12
2.12 Brokers' and Finders' Fees...................................................................... A-12
2.13 Employee Benefit Plans.......................................................................... A-12
2.14 Employees; Labor Matters........................................................................ A-12
2.15 Environmental Matters........................................................................... A-13
2.16 Agreements, Contracts and Commitments........................................................... A-13
2.17 Change of Control Payments...................................................................... A-14
2.18 Statements; Proxy Statement/Prospectus.......................................................... A-14
2.19 Board Approval.................................................................................. A-15
2.20 Fairness Opinion................................................................................ A-15
2.21 Section 203 of the Delaware General Corporation Law Not Applicable.............................. A-15
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SG AND MERGER SUB............................................ A-15
3.1 Organization of SG.............................................................................. A-15
3.2 SG and Merger Sub Capital Structure............................................................. A-15
3.3 Authority....................................................................................... A-16
3.4 SEC Filings; SG Financial Statements............................................................ A-15
3.5 Absence of Certain Changes or Events............................................................ A-17
3.6 Statements; Proxy Statement/Prospectus.......................................................... A-17
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............................................................. A-17
4.1 Conduct of SPI's Business....................................................................... A-17
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ARTICLE V ADDITIONAL AGREEMENTS............................................................................ A-19
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings; Board Recommendations........ A-19
5.2 Meeting of Stockholders......................................................................... A-20
5.3 Confidentiality; Access to Information.......................................................... A-20
5.4 No Solicitation................................................................................. A-20
5.5 Public Disclosure............................................................................... A-21
5.6 Legal Requirements.............................................................................. A-22
5.7 Third Party Consents............................................................................ A-22
5.8 Notification of Certain Matters................................................................. A-22
5.9 Reasonable Best Efforts and Further Assurances.................................................. A-22
5.10 Stock Options and Warrants and Employee Benefits................................................ A-23
5.11 Form S-8........................................................................................ A-23
5.12 Indemnification................................................................................. A-23
5.13 NASDAQ National Market Listing.................................................................. A-24
5.14 SPI Affiliate Agreement......................................................................... A-24
5.15 Regulatory Filings; Reasonable Efforts.......................................................... A-24
5.16 Tax-Free Reorganization......................................................................... A-24
5.17 SPI Rights Plan................................................................................. A-24
5.18 Voting Agreement................................................................................ A-24
ARTICLE VI CONDITIONS TO THE MERGER........................................................................ A-25
6.1 Conditions to Obligations of Each Party to Effect the Merger.................................... A-25
6.2 Additional Conditions to Obligations of SPI..................................................... A-25
6.3 Additional Conditions to the Obligations of SG and Merger Sub................................... A-26
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.............................................................. A-27
7.1 Termination..................................................................................... A-27
7.2 Notice of Termination; Effect of Termination.................................................... A-28
7.3 Fees and Expenses............................................................................... A-28
7.4 Amendment....................................................................................... A-28
7.5 Extension; Waiver............................................................................... A-28
ARTICLE VIII GENERAL PROVISIONS............................................................................ A-29
8.1 Non-Survival of Representations and Warranties.................................................. A-29
8.2 Notices......................................................................................... A-29
8.3 Interpretation; Knowledge....................................................................... A-29
8.4 Counterparts.................................................................................... A-30
8.5 Entire Agreement; Third Party Beneficiaries..................................................... A-30
8.6 Severability.................................................................................... A-30
8.7 Other Remedies; Specific Performance............................................................ A-30
8.8 Governing Law................................................................................... A-30
8.9 Rules of Construction........................................................................... A-30
8.10 Assignment...................................................................................... A-31
</TABLE>
A-ii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of
January 18, 1999, among SuperGen, Inc., a Delaware corporation ("SG"), Royale
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of SG
("MERGER SUB"), and Sparta Pharmaceuticals, Inc., a Delaware corporation
("SPI").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 below) and in accordance with the Delaware General
Corporation Law ("DELAWARE LAW"), SG and SPI intend to enter into a
business combination transaction.
B. The Board of Directors of SPI (i) has determined that the Merger (as
defined in Section 1.1) is consistent with and in furtherance of the
long-term business strategy of SPI and fair to, and in the best interests
of, SPI and its stockholders, (ii) has approved this Agreement, the
Merger and the other transactions contemplated by this Agreement and
(iii) has determined to recommend that the stockholders of SPI adopt and
approve this Agreement and approve the Merger.
C. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "CODE").
D. It is also intended by the parties hereto that the Merger shall be
accounted for under the purchase method of accounting.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law, Merger Sub shall be merged with and into
SPI (the "MERGER"), the separate corporate existence of Merger Sub shall cease
and SPI shall continue as the surviving corporation. SPI as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"SURVIVING CORPORATION."
1.2 EFFECTIVE TIME; CLOSING. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing a
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of Delaware Law (the "CERTIFICATE OF
MERGER") (the time of such filing (or such later time as may be agreed in
writing by the parties and specified in the Certificate of Merger) being the
"EFFECTIVE TIME") as soon as practicable on or after the Closing Date (as herein
defined). Unless the context otherwise requires, the term "AGREEMENT" as used
herein refers collectively to this Agreement and Plan of Reorganization and the
Certificate of Merger. The closing of the Merger (the "CLOSING") shall take
place at the offices of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, at a time and date to be specified by the parties, which shall be
no later than the second business day after the satisfaction or waiver of the
conditions set forth in Article VI, or at such other time, date and location as
the parties hereto agree in writing (the "CLOSING DATE").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of SPI and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of SPI and Merger Sub shall become the debts, liabilities
and duties of the Surviving Corporation.
<PAGE>
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Certificate of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation of the
Surviving Corporation; PROVIDED, HOWEVER, that at the Effective Time the
Certificate of Incorporation of the Surviving Corporation shall be amended
so that the name of the Surviving Corporation shall be Sparta
Pharmaceuticals, Inc.
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 DIRECTORS AND OFFICERS. The initial directors and officers of the
Surviving Corporation shall be the directors of Merger Sub immediately prior to
the Effective Time, until their respective successors are duly elected or
appointed and qualified.
1.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, SPI or the holders of
any of the following securities:
(a) CONVERSION OF SPI COMMON AND PREFERRED STOCK.
(i) Each share of common stock and preferred stock of SPI ("SPI
CAPITAL STOCK") issued and outstanding immediately prior to the Effective
Time, (other than any shares of SPI Capital Stock to be canceled pursuant
to Section 1.6(b) and any Dissenting Shares (as defined in and to the
extent provided in Section 1.8(a)) will be canceled and extinguished and
automatically converted (subject to Sections 1.6(e) and (f)) into the
right to receive a number of shares (the "EXCHANGE RATIO") of Common
Stock of SG (the "SG COMMON STOCK") equal to the Total Number of SG
Shares (as defined below) divided by the aggregate number of shares of
Common Stock, par value $.001 per share, of SPI (the "SPI COMMON STOCK")
outstanding as of the Effective Time and issuable upon conversion of all
shares of Series BC Convertible Preferred Stock, par value $.001 per
share, of SPI (the "SERIES BC PREFERRED STOCK") outstanding as of the
Effective Time upon surrender of the certificate representing such share
of SPI Capital Stock in the manner provided in Section 1.9 (or in the
case of a lost, stolen or destroyed certificate, upon delivery of an
affidavit (and bond, if required) in the manner provided in Section
1.11); PROVIDED, HOWEVER, that each share of Series BC Preferred Stock
shall have the right to receive a number of shares of SG Common Stock
that is equal to the Exchange Ratio multiplied by the SPI Common Stock
conversion rate for such share of Series BC Preferred Stock applicable as
of the Effective Time. Notwithstanding anything in this Agreement to the
contrary, in no event shall more than 650,000 shares of SG Common Stock
be issued in respect of the SPI Capital Stock, except for adjustments set
forth in Sections 1.6(a)(ii) and (e) hereof. For purposes of this
Agreement, "STOCK RIGHTS" means options, warrants, purchase rights,
subscription rights, exchange rights and other rights that could require
SPI to issue, sell or otherwise cause to become outstanding any of its
capital stock. Stock Rights shall be treated in accordance with Sections
1.6(c) and 5.10 hereof.
(ii) The "TOTAL NUMBER OF SG SHARES" shall mean:
(A) If the Average Share Price (as defined below) is between
$5.00 and $12.00 (inclusive), the Total Number of SG Shares shall be
650,000.
(B) If the Average Share Price is greater than $12.00, the Total
Number of SG Shares shall be the number (rounded to three decimal
places) determined by dividing $7,800,000 by the Average Share Price;
provided, however, to the extent that the Total Number of SG Shares
decreases below 650,000 pursuant to this Section 1.6(a)(ii)(B), SG
shall issue to the holders of SPI Capital Stock their pro rata
portion of warrants exercisable for SG Common Stock in the amount of
the difference between 650,000 and such Total Number of SG Shares,
such warrants to have the terms set forth on EXHIBIT B attached
hereto.
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(C) If the Average Share Price is less than $5.00, the Total
Numberof SG Shares shall be the number (rounded to three decimal
places) determined by dividing $3,250,000 by the Average Share Price.
For purposes of this Section 1.6(a), the "AVERAGE SHARE PRICE" shall mean
the average closing price per share of the SG Common Stock on the Nasdaq
National Market over the thirty (30) consecutive trading days ending on the
trading day immediately preceding the Closing Date.
(b) CANCELLATION OF SG-OWNED STOCK AND SPI-OWNED STOCK. Each share of
SPI Capital Stock held by SPI or owned by Merger Sub, SG or any direct or
indirect wholly owned subsidiary of SPI or of SG immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof.
(c) STOCK OPTIONS AND WARRANTS. At the Effective Time, each of the then
outstanding options (including each outstanding option granted under 1991
Stock Plan) (collectively, the "SPI STOCK OPTION PLANS") and warrants
(including each redeemable Class A Warrant, redeemable Class B Warrant and
redeemable Class C Warrant) (all such options and warrants being more fully
described on SPI Schedule 2.2) to purchase SPI Common Stock whether vested
or unvested (collectively, "SPI STOCK OPTIONS/WARRANTS") shall be assumed by
SG in accordance with Section 5.10 hereof.
(d) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock, $.01, of
Merger Sub (the "MERGER SUB COMMON STOCK") issued and outstanding
immediately prior to the Effective Time shall be converted into one validly
issued, fully paid and nonassessable share of Common Stock, $.01, of the
Surviving Corporation. Each certificate evidencing ownership of shares of
Merger Sub Common Stock shall continue to evidence ownership of such shares
of capital stock of the Surviving Corporation.
(e) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be adjusted
to reflect appropriately the effect of any stock split, reverse stock split,
stock dividend (including any dividend or distribution of securities
convertible into SG Common Stock or SPI Common Stock), reorganization,
recapitalization or other like change with respect to SG Common Stock or SPI
Common Stock occurring on or after the date hereof and prior to the
Effective Time.
(f) FRACTIONAL SHARES. No fraction of a share of SG Common Stock will
be issued by virtue of the Merger, but in lieu thereof each holder of shares
of SPI Capital Stock who would otherwise be entitled to a fraction of a
share of SG Common Stock (after aggregating all fractional shares of SG
Common Stock to be received by such holder) shall receive from SG an amount
of cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) the average closing price of one share of SG
Common Stock for the ten (10) most recent days that SG Common Stock has
traded ending on the trading day immediately prior to the Effective Time, as
reported on the NASDAQ National Market.
1.7 UNVESTED SPI CAPITAL STOCK. To the extent that shares of SPI Capital
Stock issued prior to the Merger are subject to vesting arrangements under which
shares that are unvested as of a date of termination of employment would be
subject to repurchase by SPI, SG shall issue SG Common Stock, which upon
issuance, will be subject to equivalent contractual vesting and repurchase
provisions on the same schedules and subject to the same terms, shares to be
repurchased and the repurchase price thereof shall be adjusted as provided in
Section 5.10.
1.8 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary, the
shares of any holder of SPI Capital Stock who has demanded and perfected
appraisal rights for such shares in accordance with Delaware Law and who, as
of the Effective Time, has not effectively withdrawn or lost such appraisal
rights ("DISSENTING SHARES"), shall not be converted into or represent a
right to receive SG Common Stock pursuant to Section 1.6, but the holder
thereof shall only be entitled to such rights as are granted by Delaware
Law.
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(b) Notwithstanding the foregoing, if any holder of shares of SPI
Capital Stock who demands appraisal of such shares under Delaware Law shall
effectively withdraw or lose (through failure to perfect or otherwise) the
right to appraisal, then, as of the later of the Effective Time or the
occurrence of such event, such holder's shares shall automatically be
converted into and represent only the right to receive SG Common Stock and
cash in lieu of fractional shares of SG Common Stock in accordance with
Section 1.6 hereof, without interest thereon, upon surrender of the
certificate representing such shares of SPI Capital Stock in the manner
provided in Section 1.9 (or in the case of a lost, stolen or destroyed
certificate, upon delivery of an affidavit (and bond, if required) in the
manner provided in Section 1.11).
(c) SPI shall give SG (i) prompt notice of any written demands for
appraisal of any shares of SPI Capital Stock, withdrawals of such demands,
and any other instruments served pursuant to Delaware Law and received by
SPI which relate to any such demand for appraisal and (ii) the opportunity
to participate in all negotiations and proceedings which take place prior to
the Effective Time with respect to demands for appraisal under Delaware Law.
SPI shall not, except with the prior written consent of SG or as may be
required by applicable law, voluntarily make any payment with respect to any
demands for appraisal of SPI Capital Stock or offer to settle or settle any
such demands. Any payments made in respect of Dissenting Shares shall be
made by SPI or the Surviving Corporation, as the case may be.
1.9 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. SG shall select its transfer agent or such other
person reasonably satisfactory to SG to act as the exchange agent (the
"EXCHANGE AGENT") in the Merger.
(b) SG TO PROVIDE COMMON STOCK. Promptly after the Effective Time, SG
shall make available to the Exchange Agent for exchange in accordance with
this Article I, the shares of SG Capital Stock issuable pursuant to Section
1.6 in exchange for outstanding shares of SPI Capital Stock, and cash in an
amount sufficient for payment in lieu of fractional shares pursuant to
Section 1.6(f) and any dividends or distributions to which holders of shares
of SPI Capital Stock may be entitled pursuant to Section 1.9(d).
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, SG shall
cause the Exchange Agent to mail to each holder of record (as of the
Effective Time) of a certificate or certificates (the "CERTIFICATES"), which
immediately prior to the Effective Time represented outstanding shares of
SPI Capital Stock whose shares were converted into the right to receive
shares of SG Capital Stock pursuant to Section 1.6, cash in lieu of any
fractional shares pursuant to Section 1.6(f) and any dividends or other
distributions pursuant to Section 1.9(d), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
SG may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing
shares of SG Common Stock, cash in lieu of any fractional shares pursuant to
Section 1.6(f) and any dividends or other distributions pursuant to Section
1.9(d). Upon surrender of Certificates for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by SG, together
with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holders of such Certificates
shall be entitled to receive in exchange therefor certificates representing
the number of whole shares of SG Common Stock to which such holder is
entitled under Section 1.6(a), payment in lieu of fractional shares which
such holders have the right to receive pursuant to Section 1.6(f) and any
dividends or distributions payable pursuant to Section 1.9(d), and the
Certificates so surrendered shall forthwith be canceled. Until so
surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, subject to Section 1.9(d) as to
the payment of dividends, to evidence the ownership of the number of full
shares of SG Common Stock into which such shares of SPI
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Capital Stock shall have been so converted and the right to receive an
amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 1.6(f) and any dividends or distributions payable
pursuant to Section 1.9(d).
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the date of this Agreement with
respect to SG Common Stock with a record date after the Effective Time will
be paid to the holders of any unsurrendered Certificates with respect to the
shares of SG Common Stock represented thereby until the holders of record of
such Certificates shall surrender such Certificates. Subject to applicable
law, following surrender of any such Certificates, the Exchange Agent shall
deliver to the record holders thereof, without interest, certificates
representing whole shares of SG Common Stock issued in exchange therefor
along with payment in lieu of fractional shares pursuant to Section 1.6(f)
hereof and the amount of any such dividends or other distributions with a
record date after the Effective Time payable with respect to such whole
shares of SG Common Stock.
(e) TRANSFERS OF OWNERSHIP. If certificates for shares of SG Common
Stock are to be issued in a name other than that in which the Certificates
surrendered in exchange therefor are registered, it will be a condition of
the issuance thereof that the Certificates so surrendered will be properly
endorsed and otherwise in proper form for transfer and that the persons
requesting such exchange will have paid to SG or any agent designated by it
any transfer or other taxes required by reason of the issuance of
certificates for shares of SG Common Stock in any name other than that of
the registered holder of the Certificates surrendered, or established to the
satisfaction of SG or any agent designated by it that such tax has been paid
or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.9, neither the Exchange Agent, SG, the Surviving Corporation nor
any party hereto shall be liable to a holder of shares of SG Common Stock or
SPI Capital Stock for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
1.10 NO FURTHER OWNERSHIP RIGHTS IN SPI CAPITAL STOCK. All shares of SG
Common Stock issued upon the surrender for exchange of shares of SPI Capital
Stock in accordance with the terms hereof (including any cash paid in respect
thereof pursuant to Section 1.6(f) and 1.9(d)) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of SPI
Capital Stock, and there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of SPI Capital Stock which were
outstanding immediately prior to the Effective Time. If after the Effective Time
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
1.11 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of SG Common Stock,
cash for fractional shares, if any, as may be required pursuant to Section
1.6(f) and any dividends or distributions payable pursuant to Section 1.9(d);
provided, however, that SG may, in its discretion and as a condition precedent
to the issuance thereof, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against SG, SPI or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
1.12 TAX AND ACCOUNTING CONSEQUENCES.
(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368 of the Code.
The parties hereto adopt this Agreement as a "plan of reorganization" within
the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Income Tax Regulations.
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(b) It is intended by the parties hereto that the Merger shall be
accounted for under the purchase method of accounting.
1.13 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of SPI and Merger Sub, the officers and directors of SPI and
Merger Sub will take all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SPI
SPI represents, warrants and covenants to SG and Merger Sub, subject to the
exceptions specifically disclosed in writing in the disclosure letter
(indicating the relevant section of this Agreement) supplied by SPI to SG dated
as of the date hereof and certified by a duly authorized officer of SPI (the
"SPI SCHEDULES"), as follows:
2.1 ORGANIZATION OF SPI.
(a) SPI and each of its subsidiaries is a corporation duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation; has the corporate power and authority to own, lease and
operate its assets and property and to carry on its business as now being
conducted; and is duly qualified or licensed to do business and is in good
standing in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except where the failure to be so
qualified would not have a Material Adverse Effect (as defined below) on
SPI.
(b) SPI has delivered to SG a true and complete list of all of SPI's
subsidiaries, indicating the jurisdiction of incorporation of each
subsidiary and SPI's equity interest therein.
(c) SPI has delivered or made available to SG a true and correct copy of
the Certificate of Incorporation (the "CERTIFICATE OF INCORPORATION") and
Bylaws of SPI and similar governing instruments of each of its subsidiaries,
each as amended to date, and each such instrument is in full force and
effect. Neither SPI nor any of its subsidiaries is in violation of any of
the provisions of its Certificate of Incorporation or Bylaws or equivalent
governing instruments.
(d) When used in connection with SPI, the term "MATERIAL ADVERSE EFFECT"
means, for purposes of this Agreement, any change, event or effect that is
materially adverse to the business, assets (including intangible assets),
financial condition, results of operations or prospects of SPI and its
subsidiaries taken as a whole; provided, however, that with respect to SPI,
any change, event or effect that reflects, results from or relates to SPI's
lack of liquidity or consumption of available cash and cash equivalents,
including any delay, suspension or termination of the development of its
product candidates, shall be disregarded.
2.2 SPI CAPITAL STRUCTURE. The authorized capital stock of SPI consists of
(a) 72,000,000 shares of Common Stock, $.001 par value, of which there were
3,665,175 shares issued and outstanding as of January 6, 1999, and (b)
11,000,000 shares of Preferred Stock, $.001 par value, of which shares are
designated and issued and outstanding as set forth on SPI Schedule 2.2. All
outstanding shares of SPI are duly authorized, validly issued, fully paid and
nonassessable and are not subject to preemptive rights created by statute, the
Certificate of Incorporation or Bylaws of SPI or any agreement or document to
which SPI is a party or by which it is bound. As of January 6, 1999, SPI had
reserved (a) 2,649,043 shares of SPI Common Stock for issuance upon conversion
of the Preferred Stock, (b) 2,869,144 shares of SPI Common Stock for issuance
upon exercise of redeemable Class A Warrants, redeemable Class B Warrants and
redeemable Class C Warrants, (c) 514,302 shares of SPI Common Stock for issuance
to employees,
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consultants and non-employee directors pursuant to the SPI Stock Option Plans,
(d) 83,820 shares of SPI Common Stock for issuance upon exercise of certain
outstanding unit purchase options (including shares of SPI Common Stock for
issuance upon exercise of Class A Warrants and Class B Warrants included within
such unit purchase options) and (e) 513,083 shares of SPI Common Stock for
issuance upon exercise of certain outstanding warrants. As of January 6, 1999,
there were outstanding (i) 110,000 unit purchase options (consisting of one
share of SPI Common Stock, one redeemable Class A Warrant and one redeemable
Class B Warrant) and (ii) options to purchase an aggregate of 411,650 shares of
SPI Common Stock, issued to employees, consultants and non-employee directors
pursuant to the SPI Stock Option Plans. All shares of SPI Common Stock subject
to issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, would be duly authorized,
validly issued, fully paid and nonassessable. The SPI Schedules list for each
person who held options to acquire shares of SPI Common Stock as of January 6,
1999, the name of the holder of such option, the exercise price of such option,
the number of shares as to which such option will have vested at such date, the
vesting schedule for such option and whether the exercisability of such option
will be accelerated in any way by the transactions contemplated by this
Agreement, and indicate the extent of acceleration, if any. As a result of the
Merger, SG will be the record and beneficial owner of all Stock Rights and
outstanding capital stock of SPI, other than the SPI Stock Options/Warrants
being assumed by SG pursuant to Sections 1.6(c) and 5.10 hereof. After the
Effective Time, such SPI Stock Options/Warrants shall only be exercisable for or
convertible into SG Common Stock.
2.3 OBLIGATIONS WITH RESPECT TO CAPITAL STOCK. Except as set forth in
Section 2.2 (including SPI Schedule 2.2), there are no equity securities,
partnership interests or similar ownership interests of any class of SPI, or any
securities exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except for securities SPI owns, directly
or indirectly through one or more subsidiaries, there are no equity securities,
partnership interests or similar ownership interests of any class of any
subsidiary of SPI, or any security exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except as set
forth in Section 2.2 (including SPI Schedule 2.2), there are no options,
warrants, equity securities, partnership interests or similar ownership
interests, calls, rights (including preemptive rights), commitments or
agreements of any character to which SPI or any of its subsidiaries is a party
or by which it is bound obligating SPI or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem
or otherwise acquire, or cause the repurchase, redemption or acquisition, of any
shares of capital stock, partnership interests or similar ownership interests of
SPI or any of its subsidiaries or obligating SPI or any of its subsidiaries to
grant, extend, accelerate the vesting of or enter into any such option, warrant,
equity security, call, right, commitment or agreement. There are no registration
rights and, to the knowledge of SPI, there are no voting trusts, proxies or
other agreements or understandings with respect to any equity security of any
class of SPI or with respect to any equity security, partnership interest or
similar ownership interest of any class of any of its subsidiaries.
2.4 AUTHORITY.
(a) SPI has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of SPI, subject only to the approval and
adoption of this Agreement and the approval of the Merger by SPI's common
and preferred stockholders and the filing and recordation of the Certificate
of Merger pursuant to Delaware Law. The affirmative vote of the holders of
at least a majority of the outstanding shares of the SPI Common Stock and
Series BC Preferred Stock (on an as-if converted basis) voting together as a
single class, is required for SPI's stockholders to approve and adopt the
amendment to the Certificate of Incorporation described in the proviso at
the end of this sentence and this Agreement and to approve the Merger;
PROVIDED, HOWEVER, that in addition to
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such specified vote, the affirmative vote of the holders of at least 66 2/3%
of the outstanding shares of Series BC Preferred Stock (or, in the event the
number of shares of Series BC Preferred Stock outstanding falls below 50% of
the number of such shares originally issued (including those shares of
Series BC Preferred Stock issued or issuable upon exercise of certain
warrants issued to the placement agent for the offering of the Series BC
Preferred Stock), the affirmative vote of the holders of a majority of the
outstanding shares of Series BC Preferred Stock entitled to vote thereon)
voting separately as a class is required to amend the Certificate of
Incorporation so as to adversely affect the relative rights, preferences and
qualifications of the Series BC Preferred Stock, to the extent such an
amendment is necessary if the Exchange Ratio is inconsistent with the
liquidation preference of the Series BC Preferred Stock (the "AMENDMENT
VOTE"). This Agreement has been duly executed and delivered by SPI and,
assuming the due authorization, execution and delivery hereof by SG and
Merger Sub, constitutes valid and binding obligations of SPI, enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy or other laws relating to or affecting creditors' rights
generally or general principles of equity. The execution and delivery of
this Agreement by SPI does not, and the performance of this Agreement by SPI
will not, (i) conflict with or violate the Certificate of Incorporation or
Bylaws of SPI or the equivalent organizational documents of any of its
subsidiaries, subject to obtaining the Amendment Vote, the approval and
adoption of this Agreement and the approval of the Merger by SPI's
stockholders as contemplated in Section 5.2 and compliance with the
requirements set forth in Section 2.4(b) below, (ii) conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to
SPI or any of its subsidiaries or by which its or any of their respective
properties is bound or affected, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or impair SPI's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of SPI
or any of its subsidiaries pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which SPI or any of its subsidiaries is a party
or by which SPI or any of its subsidiaries or its or any of their respective
properties are bound or affected. The SPI Schedules list all consents,
waivers and approvals under any of SPI's or any of its subsidiaries'
agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental authority or instrumentality, foreign or domestic
("GOVERNMENTAL ENTITY"), is required by or with respect to SPI in connection
with the execution and delivery of this Agreement or the consummation of the
Merger, except for (i) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware, (ii) the filing of the Proxy
Statement (as defined in Section 2.18) with the Securities and Exchange
Commission ("SEC") in accordance with the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT"), (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable federal and state securities laws and the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), and the
securities or antitrust laws of any foreign country, and (iv) such other
consents, authorizations, filings, approvals and registrations which if not
obtained or made would not be material to SPI or have a material adverse
effect on the ability of SPI to consummate the Merger.
2.5 SEC FILINGS; SPI FINANCIAL STATEMENTS.
(a) SPI has filed all forms, reports and documents required to be filed
with the SEC since its initial public offering of securities and has made
available to SG such forms, reports and documents in the form filed with the
SEC. All such required forms, reports and documents (including those that
SPI may file subsequent to the date hereof) are referred to herein as the
"SPI SEC REPORTS." As of their
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respective dates, the SPI SEC Reports (i) were (or will be) prepared in
accordance and complied with (or will comply with) in all material respects
the requirements of the Securities Act of 1933, as amended (the "SECURITIES
ACT"), or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such SPI SEC Reports and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of SPI's subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in SPI SEC Reports (the "SPI
FINANCIALS"), including any SPI SEC Reports filed after the date hereof
until the Closing, as of their respective dates, (x) complied as to form in
all material respects with the published rules and regulations of the SEC
with respect thereto, (y) was prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto and, in
the case of unaudited interim financial statements, as may be permitted by
the SEC on Form 10-Q under the Exchange Act) and (z) fairly presented in all
material respects the consolidated financial position of SPI and its
subsidiaries as at the respective dates thereof and the consolidated results
of SPI's operations and cash flows for the periods indicated, except that
the unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments. The balance sheet of SPI contained in SPI's
Form 10-K for the year ended December 31, 1997 is hereinafter referred to as
the "SPI BALANCE SHEET." Except as disclosed in the SPI Financials, since
the date of the SPI Balance Sheet neither SPI nor any of its subsidiaries
has any liabilities (absolute, accrued, contingent or otherwise) of a nature
required to be disclosed on a balance sheet or in the related notes to the
consolidated financial statements prepared in accordance with GAAP which
are, individually or in the aggregate, material to the business, results of
operations or financial condition of SPI and its subsidiaries taken as a
whole, except liabilities (i) provided for in the SPI Balance Sheet, (ii)
incurred since the date of the SPI Balance Sheet in the ordinary course of
business consistent with past practices, or (iii) described in this
Agreement or the SPI Schedules.
(c) SPI has heretofore furnished to SG a complete and correct copy of
any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by SPI with the SEC pursuant to
the Securities Act or the Exchange Act.
2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the SPI
Balance Sheet there has not been: (i) any Material Adverse Effect on SPI, except
as disclosed in the SPI SEC Reports, (ii) any material change by SPI in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP, or (iii) any material revaluation by SPI of any of its assets,
including, without limitation, writing down the value of capitalized inventory
or writing off notes or accounts receivable other than in the ordinary course of
business.
2.7 TAXES.
(a) DEFINITION OF TAXES. For the purposes of this Agreement, "TAX" or
"TAXES" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and
liabilities relating to taxes, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value added,
ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest, penalties
and additions imposed with respect to such amounts and any obligations under
any agreements or arrangements with any other person with respect to such
amounts and including any liability for taxes of a predecessor entity.
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(b) TAX RETURNS AND AUDITS.
(i) SPI and each of its subsidiaries have timely filed all federal,
state, local and foreign returns, estimates, information statements and
reports ("RETURNS") relating to Taxes required to be filed by SPI and
each of its subsidiaries, except such Returns which are not material to
SPI, and have paid all Taxes shown to be due on such Returns.
(ii) SPI and each of its subsidiaries have withheld with respect to
their employees all federal and state income taxes, Federal Insurance
Contribution Act ("FICA") taxes, Federal Unemployment Tax Act ("FUTA")
taxes and other Taxes required to be withheld.
(iii) Neither SPI nor any of its subsidiaries has been delinquent in
the payment of any Tax nor is there any Tax deficiency outstanding, or to
SPI's knowledge, proposed or assessed against SPI or any of its
subsidiaries, nor has SPI or any of its subsidiaries executed any waiver
of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(iv) No audit or other examination of any Return of SPI or any of
its subsidiaries is presently in progress, nor has SPI or any of its
subsidiaries been notified of any request for such an audit or other
examination.
(v) No adjustment relating to any Returns filed by SPI or any of its
subsidiaries has been proposed formally or informally by any Tax
authority to SPI or any of its subsidiaries or any representative
thereof.
(vi) Neither SPI nor any of its subsidiaries has any liability for
unpaid Taxes which has not been accrued for or reserved in the ordinary
course of business, whether asserted or unasserted, contingent or
otherwise, which is material to SPI.
(vii) There is no contract, agreement, plan or arrangement, including
but not limited to the provisions of this Agreement, covering any
employee or former employee of SPI or any of its subsidiaries that,
individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to Sections 280G, 404 or
162(m) of the Code.
(viii) Neither SPI nor any of its subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as defined in Section 341(f)(4) of the Code) owned by SPI.
(ix) Neither SPI nor any of its subsidiaries is party to or has any
obligation under any tax-sharing, tax indemnity or tax allocation
agreement or arrangement.
(x) Except as may be required as a result of the Merger, SPI and its
subsidiaries have not been and will not be required to include any
adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or Section 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions,
events or accounting methods employed prior to the Closing.
(xi) None of the assets are tax exempt use property within the
meaning of Section 168(h) of the Code.
(xii) The SPI Schedules list (A) any foreign Tax holidays, (B) any
intercompany transfer pricing agreements, or other arrangements that have
been established by SPI or any of its subsidiaries with any Taxing
authority and (C) any expatriate programs or policies affecting SPI or
any of its subsidiaries.
2.8 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The SPI Schedules list the real property owned by SPI or any of its
subsidiaries. The SPI Schedules list all real property leases to which SPI
or any of its subsidiaries is a party and each
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amendment thereto. All such current leases are in full force and effect, are
valid and effective in accordance with their respective terms, and there is
not, under any of such leases, any existing default or event of default. SPI
has not exercised its option to extend the term of its lease with
Pennsylvania Business Campus Delaware, Inc. ("PBCD") pursuant to Section 48
of its lease with PBCD as identified in the SPI Schedules.
(b) Each of SPI and its subsidiaries has good and valid title to, or, in
the case of leased properties and assets, valid leasehold interests in, all
of its tangible properties and assets, real, personal and mixed, used or
held for use in its business, free and clear of any liens, pledges, charges,
claims, security interests or other encumbrances of any sort ("LIENS"),
except as reflected in SPI Financials or in the SPI Schedules and except for
(i) Liens for taxes not yet due and payable, (ii) Liens that have arisen
pursuant to licensing of SPI IP Rights (as defined below) in the ordinary
course of business and (iii) such imperfections of title and encumbrances,
if any, which are not material in character, amount or extent, and which do
not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
2.9 INTELLECTUAL PROPERTY.
(a) SPI and its subsidiaries either own, or have a valid license with
respect to, all patents, copyrights, mask works, trademarks, trade secrets
and other intellectual property used in, by, or necessary to, the operation
or conduct of their respective businesses (such intellectual property and
the rights thereto are collectively referred to herein as the "SPI IP
RIGHTS").
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
material breach of any instrument or agreement governing any patent,
copyright, trademark, trade secret or other intellectual property rights
licensed by, or to, SPI or any of its subsidiaries, will not cause the
forfeiture or termination or give rise to a right of forfeiture or
termination of any SPI IP Rights or materially impair the right of SPI or
any of its subsidiaries, or the Surviving Corporation in or to use, sell,
enforce, license or otherwise exploit any SPI IP Rights or portion thereof.
(c) Neither the operation of SPI's nor any of its subsidiaries'
respective businesses nor the manufacture, marketing, license, sale or
intended use of any product, service or technology currently licensed,
manufactured, created, distributed, authored, used, sold or under
development by SPI or any of its subsidiaries (i) violates in any material
respect any license or agreement between SPI or any of its subsidiaries and
any third party or (ii) to the knowledge of SPI, infringes any patents,
copyright, trademark, trade secret or other intellectual property right of
any other party; and there is no pending or, to the knowledge of SPI,
threatened claim or litigation contesting the validity, ownership or right
to use, sell, enforce, license or dispose of any SPI IP Rights, nor has SPI
received any written notice asserting that any SPI IP Rights or the proposed
use, sale, license or disposition thereof conflicts or will conflict with
the rights of any other party.
(d) SPI has taken reasonable and practicable steps designed to safeguard
and maintain the secrecy and confidentiality of, and its proprietary rights
in, all SPI IP Rights.
(e) No other party, to the knowledge of SPI, is infringing or
misappropriating any SPI IP rights.
2.10 COMPLIANCE; PERMITS; RESTRICTIONS.
(a) Neither SPI nor any of its subsidiaries is, in any material respect,
in conflict with, or in default or violation of (i) any law, rule,
regulation, order, judgment or decree applicable to SPI or any of its
subsidiaries or by which SPI or any of its subsidiaries or any of their
respective properties is bound or affected, or (ii) any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which SPI or any of its subsidiaries is
a party or by which SPI or any of its subsidiaries or its or any of their
respective properties is bound or
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affected. No investigation or review by any Governmental Entity is pending
or to the knowledge of SPI, threatened against SPI or any of its
subsidiaries. There is no material agreement, judgment, injunction, order or
decree binding upon SPI or any of its subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of SPI or any of its subsidiaries, any
acquisition of material property by SPI or any of its subsidiaries or the
conduct of business by SPI or any of its subsidiaries as currently
conducted.
(b) SPI and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities that are
material to the operation of the business of SPI as presently conducted
(collectively, the "SPI PERMITS"). SPI and its subsidiaries are in
compliance in all material respects with the terms of the SPI Permits.
2.11 LITIGATION. There is no action, suit, proceeding, claim, arbitration
or investigation pending, or as to which SPI or any of its subsidiaries has
received any notice of assertion nor, to SPI's knowledge, is there a threatened
action, suit, proceeding, claim, arbitration or investigation against SPI or any
of its subsidiaries which, if adversely decided, would have a Material Adverse
Effect on SPI. To SPI's knowledge, there is no basis for any action, suit,
proceeding, claim, arbitration or proceeding of the type described in the
preceding sentence. No Governmental Entity has at any time challenged or
questioned in writing the legal right of SPI or any of its subsidiaries to
manufacture, offer or sell any of its products in the present manner or style
thereof.
2.12 BROKERS' AND FINDERS' FEES. SPI has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
2.13 EMPLOYEE BENEFIT PLANS.
(a) With respect to each material employee benefit plan, program,
arrangement and contract (including, without limitation, any "employee
benefit plan" as defined in Section 3(3) of ERISA) maintained or contributed
to by SPI or any trade or business which is under common control with SPI
within the meaning of Section 414 of the Code (the "SPI EMPLOYEE PLANS"),
SPI has made available to SG a true and complete copy of, to the extent
applicable, (i) such SPI Employee Plan, (ii) the most recent annual report
(Form 5500), (iii) each trust agreement related to such SPI Employee Plan,
(iv) the most recent summary plan description for each SPI Employee Plan for
which such a description is required, (v) the most recent actuarial report
relating to any SPI Employee Plan subject to Title IV of ERISA and (vi) the
most recent IRS determination letter issued with respect to any SPI Employee
Plan.
(b) Each SPI Employee Plan which is intended to be qualified under
Section 401(a) of the Code has received a favorable determination from the
IRS covering the provisions of the Tax Reform Act of 1986 stating that such
SPI Employee Plan is so qualified and nothing has occurred since the date of
such letter that could reasonably be expected to affect the qualified status
of such plan. Each SPI Employee Plan has been operated in all material
respects in accordance with its terms and the requirements of applicable
law. Neither SPI nor any ERISA Affiliate of SPI has incurred or is
reasonably expected to incur any material liability under Title IV of ERISA
in connection with any SPI Employee Plan.
2.14 EMPLOYEES; LABOR MATTERS. To SPI's knowledge after due inquiry, no
employee of SPI or any of its subsidiaries (i) is in violation of any term of
any employment contract, patent disclosure agreement, non-competition agreement,
or any restrictive covenant to a former employer relating to the right of any
such employee to be employed by SPI or any of its subsidiaries because of the
nature of the business conducted or presently proposed to be conducted by SPI or
any of its subsidiaries or to the use of trade secrets or proprietary
information of others and (ii) has given notice to SPI or any of its
subsidiaries, nor is SPI otherwise aware, that any employee intends to terminate
his or her employment with SPI or any of its subsidiaries except for
terminations of a nature and number that are consistent with SPI's prior
experience.
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To SPI's knowledge, there are no activities or proceedings of any labor union to
organize any employees of SPI or any of its subsidiaries and there are no
strikes, or material slowdowns, work stoppages or lockouts, or threats thereof
by or with respect to any employees of SPI or any of its subsidiaries. Neither
SPI nor any of its subsidiaries is, or has ever been, a party to any collective
bargaining agreement. SPI and its subsidiaries are and have been in compliance
in all material respects with all applicable laws regarding employment
practices, terms and conditions of employment, and wages and hours (including,
without limitation, ERISA, WARN or any similar state or local law).
2.15 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. Except as would not be likely to result in a
material liability to SPI or any of its subsidiaries, no underground storage
tanks and no amount of any substance that has been designated by any
Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances pursuant
to the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, or defined as a hazardous waste pursuant to the United
States Resource Conservation and Recovery Act of 1976, as amended, and the
regulations promulgated pursuant to said laws, (a "HAZARDOUS MATERIAL"), but
excluding office and janitorial supplies, are present, as a result of the
actions of SPI or any of its subsidiaries or any affiliate of SPI, or, to
SPI's knowledge, as a result of any actions of any third party, in, on or
under any property, including the land and the improvements, ground water
and surface water thereof, that SPI or any of its subsidiaries has at any
time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. Except as reasonably would not be
likely to result in a material liability to SPI or any of its subsidiaries,
neither SPI nor any of its subsidiaries has transported, stored, used,
manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials (collectively "HAZARDOUS MATERIALS ACTIVITIES") in
violation of any law in effect at the time of such transportation, storage,
use, manufacture, disposal, release or exposure.
(c) PERMITS. SPI and its subsidiaries currently hold all environmental
approvals, permits, licenses, clearances and consents (the "SPI
ENVIRONMENTAL PERMITS") necessary for the conduct of SPI's and its
subsidiaries' Hazardous Material Activities and other businesses of SPI and
its subsidiaries as such activities and businesses are currently being
conducted.
(d) ENVIRONMENTAL LIABILITIES. No material action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to SPI's knowledge, threatened concerning any SPI Environmental
Permit, Hazardous Material or any Hazardous Materials Activity of SPI or any
of its subsidiaries. SPI is not aware of any fact or circumstance which
could involve SPI or any of its subsidiaries in any material environmental
litigation or impose upon SPI any material environmental liability.
2.16 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth in the SPI
Schedules, neither SPI nor any of its subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or commitment with
any officer or director level employee or member of SPI's Board of
Directors, other than those that are terminable by SPI or any of its
subsidiaries on no more than thirty days notice without liability or
financial obligation, except to the extent general principles of wrongful
termination law may limit SPI's or any of its subsidiaries' ability to
terminate employees at will;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
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(c) any agreement of indemnification or guaranty not entered into in the
ordinary course of business other than indemnification agreements between
SPI or any of its subsidiaries and any of its officers or directors;
(d) any agreement, contract or commitment containing any covenant
limiting the freedom of SPI or any of its subsidiaries to engage in any line
of business (except for license agreements entered into in the ordinary
course of business with SPI as the licensee, which limit SPI's activities
thereunder to the scope of the license) or compete with any person or
granting any exclusive distribution rights to a third party;
(e) any agreement, contract or commitment currently in force relating to
the disposition or acquisition of assets not in the ordinary course of
business or any ownership interest in any corporation, partnership, joint
venture or other business enterprise;
(f) any material joint marketing or development agreement;
(g) any agreement, contract or commitment currently in force to provide
or receive source code for any product, service or technology except for
maintenance purposes;
(h) any agreement, contract or commitment currently in force to license
any third party to manufacture or reproduce any SPI product, service or
technology except as a distributor in the normal course of business.
Neither SPI nor any of its subsidiaries, nor to SPI's knowledge any other
party to an SPI Contract (as defined below), has breached, violated or defaulted
under, or received notice that it has breached violated or defaulted under, any
of the material terms or conditions of any of the agreements, contracts or
commitments to which SPI or any of its subsidiaries is a party or by which it is
bound of the type described in clauses (a) through (h) above (any such
agreement, contract or commitment, an "SPI CONTRACT") in such a manner as would
permit any other party to seek damages, which would be reasonably likely to be
material to SPI, or would permit any other party to cancel or terminate any such
SPI Contract.
2.17 CHANGE OF CONTROL PAYMENTS. The SPI Schedules set forth each plan or
agreement pursuant to which any amounts may become payable (whether currently or
in the future) to current or former officers and directors of SPI as a result of
or in connection with the Merger (the "CHANGE OF CONTROL PAYMENTS").
2.18 STATEMENTS; PROXY STATEMENT/PROSPECTUS. The information supplied by
SPI for inclusion in the Registration Statement (as defined in Section 3.3(b))
shall not at the time the Registration Statement is declared effective by the
SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The information supplied by SPI for inclusion in the proxy
statement/prospectus to be sent to the stockholders of SPI in connection with
the meeting of SPI's stockholders to consider the Amendment Vote and the
approval and adoption of this Agreement and the approval of the Merger (the "SPI
STOCKHOLDERS' MEETING") (such proxy statement/prospectus as amended or
supplemented is referred to herein as the "PROXY STATEMENT") shall not, on the
date the Proxy Statement is first mailed to SPI's stockholders, at the time of
the SPI Stockholders' Meeting and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the SPI
Stockholders' Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to SPI or any of its affiliates,
officers or directors should be discovered by SPI which should be set forth in
an amendment to the Registration Statement or a supplement to the Proxy
Statement, SPI shall promptly inform SG. Notwithstanding the foregoing, SPI
makes no representation or warranty with respect to any information supplied by
SG or Merger Sub which is contained in any of the foregoing documents.
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2.19 BOARD APPROVAL. The Board of Directors of SPI has, as of the date of
this Agreement, determined (i) that the Merger is fair to, and in the best
interests of SPI and its stockholders, and (ii) to recommend that the
stockholders of SPI approve and adopt this Agreement and approve the Merger.
2.20 FAIRNESS OPINION. SPI's Board of Directors has received a written
opinion from Spencer Trask Securities Incorporated dated as of the date hereof,
to the effect that as of the date hereof, the Exchange Ratio is fair to SPI's
stockholders from a financial point of view and has delivered to SG a copy of
such opinion.
2.21 SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW NOT
APPLICABLE. The restrictions contained in Section 203 of the Delaware General
Corporation Law applicable to a "business combination" (as defined in such
Section 203) will not apply to the execution, delivery or performance of this
Agreement or to the consummation of the Merger or the other transactions
contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SG AND MERGER SUB
SG and Merger Sub represent and warrant to SPI, subject to the exceptions
specifically disclosed in writing in the disclosure letter (indicating the
relevant section of this Agreement) supplied by SG to SPI dated as of the date
hereof and certified by a duly authorized officer of SG (the "SG SCHEDULES"), as
follows:
3.1 ORGANIZATION OF SG.
(a) Each of SG and Merger Sub is a corporation duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation; has the corporate power and authority to own, lease and
operate its assets and property and to carry on its business as now being
conducted and as proposed to be conducted; and is duly qualified or licensed
to do business and is in good standing in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except where
the failure to be so qualified would not have a Material Adverse Effect (as
defined below) on SG.
(b) SG has delivered or made available to SPI a true and correct copy of
the Articles of Incorporation and Bylaws of SG, each as amended to date, and
each such instrument is in full force and effect. SG is not in violation of
any of the provisions of its Articles of Incorporation or Bylaws.
(c) When used in connection with SG, the term "MATERIAL ADVERSE EFFECT"
means, for purposes of this Agreement, any change, event or effect that is
materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of SG and its subsidiaries
taken as a whole.
3.2 SG AND MERGER SUB CAPITAL STRUCTURE. The authorized capital stock of
SG consists of 40,000,000 shares of Common Stock, of which there were 20,862,620
shares issued and outstanding as of January 6, 1999, and 2,000,000 shares of
Preferred Stock, of which no shares are issued or outstanding. The authorized
capital stock of Merger Sub consists of 100 shares of Common Stock, $.01 par
value, all of which, as of the date hereof, are issued and outstanding and are
held by SG. Merger Sub was formed on December 18, 1998, for the purpose of
consummating a merger and has no material assets or liabilities except as
necessary for such purpose. All outstanding shares of SG Common Stock are duly
authorized, validly issued, fully paid and nonassessable and are not subject to
preemptive rights created by statute, the
Articles of Incorporation or Bylaws of SG or any agreement or document to which
SG is a party or by which it is bound. The SG Common Stock issuable and
deliverable pursuant to Section 1.6 will, when so issued and delivered, be duly
authorized, validly issued, fully-paid and non-assessable and be issued pursuant
to the Registration Statement (as defined herein) or the Form S-8 (as defined
herein) declared effective by the SEC.
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3.3 AUTHORITY.
(a) Each of SG and Merger Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of SG and, in the
case of this Agreement, Merger Sub, subject only to the filing and
recordation of the Certificate of Merger pursuant to Delaware Law. This
Agreement has been duly executed and delivered by each of SG and Merger Sub
and, assuming the due authorization, execution and delivery by SPI,
constitutes the valid and binding obligation of SG and Merger Sub,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy and other similar laws and general principles of
equity. The execution and delivery of this Agreement by each of SG and
Merger Sub does not, and the performance of this Agreement by each of SG and
Merger Sub will not, (i) conflict with or violate the Articles of
Incorporation or Bylaws of SG or the Certificate of Incorporation or Bylaws
of Merger Sub, (ii) conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to SG or Merger Sub or by which any of
their respective properties is bound or affected or (iii) result in any
breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or impair SG's rights or alter
the rights or obligations of any third party under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or encumbrance on any of the properties or assets
of SG or Merger Sub pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which SG or Merger Sub is a party or by which SG
or Merger Sub or any of their respective properties are bound or affected.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to SG or Merger Sub in connection with the execution and delivery of
this Agreement or the consummation of the Merger, except for (i) the filing
of a Form S-4 Registration Statement (the "REGISTRATION STATEMENT") with the
SEC in accordance with the Securities Act to register the shares of SG
Common Stock to be issued or issuable in connection with the Merger, (ii)
the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware, (iii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the HSR Act and the securities or
antitrust laws of any foreign country, and (iv) such other consents,
authorizations, filings, approvals and registrations which if not obtained
or made would not be material to SG or SPI or have a material adverse effect
on the ability of the parties to consummate the Merger.
3.4 SEC FILINGS; SG FINANCIAL STATEMENTS.
(a) SG has filed all forms, reports and documents required to be filed
with the SEC since its initial public offering, and has made available to
SPI such forms, reports and documents in the form filed with the SEC. All
such required forms, reports and documents (including those that SG may file
subsequent to the date hereof) are referred to herein as the "SG SEC
REPORTS." As of their respective dates, the SG SEC Reports (i) were prepared
in accordance with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC thereunder
applicable to such SG SEC Reports, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. None of
SG's subsidiaries is required to file any forms, reports or other documents
with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in SG SEC Reports (the "SG
FINANCIALS"), including any SG SEC Reports filed
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after the date hereof until the Closing, as of their respective dates (x)
complied as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, (y) was prepared in accordance
with GAAP applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto and, in the case of
unaudited interim financial statements, as may be permitted by the SEC on
Form 10-Q under the Exchange Act) and (z) fairly presented in all material
respects the consolidated financial position of SG and its subsidiaries as
at the respective dates thereof and the consolidated results of SG's
operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments. The balance sheet of SG contained in SG SEC
Reports as of December 31, 1997 is hereinafter referred to as the "SG
BALANCE SHEET."
3.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the SG Balance
Sheet, there has not been any Material Adverse Effect on SG, except as may be
disclosed on SG SEC Reports, (ii) any material change by SG in its accounting
methods, principles or practices, except as required by concurrent changes in
GAAP, or (iii) any material revaluation by SG of any of its assets, including,
without limitation, writing down the value of capitalized inventory or writing
off notes or accounts receivable other than in the ordinary course of business.
3.6 STATEMENTS; PROXY STATEMENT/PROSPECTUS. The information supplied by SG
for inclusion in the Registration Statement shall not at the time the
Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The information supplied by SG for
inclusion in the Proxy Statement shall not, on the date the Proxy Statement is
first mailed to SPI's stockholders, at the time of the SPI Stockholders' Meeting
and at the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not false or misleading; or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the SPI Stockholders' Meeting which has become
false or misleading. The Registration Statement (including the Proxy Statement
contained therein) will comply as to form in all material respects with the
provisions of the Securities Act and the rules and regulations promulgated
thereunder. If at any time prior to the Effective Time, any event relating to SG
or any of its affiliates, officers or directors should be discovered by SG which
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, SG shall promptly inform SPI. Notwithstanding
the foregoing, SG makes no representation or warranty with respect to any
information supplied by SPI which is contained in any of the foregoing
documents.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF SPI'S BUSINESS. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time (the "PRE-CLOSING PERIOD"), SPI,
(which for the purposes of this Article 4 shall include SPI and each of its
subsidiaries) shall, except to the extent that SG shall otherwise consent in
writing, carry on its business diligently and in accordance with good commercial
practice and in the usual, regular and ordinary course, in substantially the
same manner as heretofore conducted and in compliance with all applicable laws
and regulations, pay its debts and taxes when due subject to good faith disputes
over such debts or taxes, pay or perform other material obligations when due,
and use its commercially reasonable efforts consistent with past practices and
policies to preserve intact its present business organization, keep available
the services of its present officers and employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees, and
others with which it has business dealings. In addition, SPI will promptly
notify SG of any material event involving its business or operations.
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In addition, except as permitted by the terms of this Agreement, and except
as provided in Article 4 of the SPI Schedules, without the prior written consent
of SG, SPI shall not do any of the following and shall not permit its
subsidiaries to do any of the following during the Pre-Closing Period:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock (except in
accordance with the change of control provisions of the SPI Stock Option
Plans), or reprice options granted under any employee, consultant or
director stock plans or authorize cash payments in exchange for any options
granted under any of such plans;
(b) Grant any severance or termination pay to any officer or employee
except payments in amounts consistent with policies and past practices or
pursuant to written agreements outstanding, or policies existing, on the
date hereof and as disclosed to SG herein or in the SPI Schedules, or adopt
any new severance plan;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the SPI IP Rights, or
enter into grants to future patent rights, other than non-exclusive licenses
in the ordinary course of business and consistent with past practice;
(d) Declare or pay any dividends on or make any other distributions
(whether in cash, stock, equity securities or property) in respect of any
capital stock or split, combine or reclassify any capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(e) Repurchase or otherwise acquire, directly or indirectly, any shares
of capital stock, or any securities convertible into shares of capital
stock, or subscriptions, rights, warrants or options to acquire any shares
of capital stock or any securities convertible into shares of capital stock,
or enter into other agreements or commitments of any character obligating it
to repurchase any such shares, warrants, options or convertible securities,
except for the repurchase at cost of unvested shares held by SPI employees
on the termination of their employment;
(f) Issue, deliver, sell, authorize or propose the issuance, delivery or
sale of, any shares of capital stock or any securities convertible into
shares of capital stock, or subscriptions, rights, warrants or options to
acquire any shares of capital stock or any securities convertible into
shares of capital stock, or enter into other agreements or commitments of
any character obligating it to issue any such shares or convertible
securities, other than the issuance (i) of shares of capital stock and other
securities pursuant to the exercise of stock options, unit purchase options
or warrants, or the conversion of preferred stock therefor outstanding as of
the date of this Agreement, (ii) securities issuable to participants in the
SPI Stock Option Plans consistent with past practice and the terms thereof
and (iii) warrants to acquire any shares of capital stock issued upon
exercise of unit purchase option agreements outstanding on the date hereof;
(g) Cause, permit or propose any amendments to any charter document or
Bylaw (or similar governing instruments of any subsidiaries) other than such
amendments contemplated by the Amendment Vote;
(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a material portion of the assets of, or
by any other manner, any business or any corporation, partnership interest,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or
in the aggregate, to the business of SPI or enter into any material joint
ventures, strategic partnerships or alliances;
(i) Sell, lease (or extend the term of a lease), license, encumber or
otherwise dispose of any properties or assets which are material,
individually or in the aggregate, to the business of SPI, except in the
ordinary course of business consistent with past practice; provided that,
extension of the SPI lease with PBCD shall be deemed material and not in the
ordinary course of business;
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(j) Incur any indebtedness for borrowed money (other than ordinary
course trade payables or pursuant to existing credit facilities in the
ordinary course of business) or guarantee any such indebtedness or issue or
sell any debt securities or warrants or rights to acquire debt securities of
SPI or guarantee any debt securities of others;
(k) Adopt or amend any employee benefit or employee stock purchase or
employee option plan, or enter into any employment contract, pay any special
bonus or special remuneration to any director or employee (except pursuant
to written agreements outstanding on the date hereof and as disclosed to SG
herein or in the SPI Schedules), or increase the salaries or wage rates of
its officers or employees other than in the ordinary course of business,
consistent with past practice, or change in any material respect any
management policies or procedures;
(l) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business;
(m) Make any grant of exclusive rights to any third party;
(n) Enter into any material partnership agreements, joint development
agreements or strategic alliances, agreements to create standards or
agreements with "standards" bodies; or
(o) Agree in writing or otherwise to take any of the actions described
in Article 4 (a) through (n) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT; OTHER FILINGS;
BOARD RECOMMENDATIONS.
(a) As promptly as practicable after the execution of this Agreement,
SPI and SG will cooperate to prepare and file with the SEC, the Registration
Statement in which the Proxy Statement will be included as a prospectus.
Each of SPI and SG will respond to any comments of the SEC, will use its
respective reasonable best efforts to have the Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing and will cause the Proxy Statement to be mailed to the SPI
stockholders at the earliest practicable time. As promptly as practicable
after the date of this Agreement, SPI and SG will cooperate to prepare and
file any other filings required under the Exchange Act and the Securities
Act relating to the Merger and the transactions contemplated by this
Agreement (the "OTHER FILINGS"). Each of SPI and SG will notify the other
promptly upon the receipt of any comments from the SEC or its staff and of
any request by the SEC or its staff or any other government officials for
amendments or supplements to the Registration Statement, the Proxy Statement
or any Other Filing or for additional information and will supply the other
with copies of all correspondence between such party or any of its
representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Registration
Statement, the Proxy Statement, the Merger or any Other Filing. The Proxy
Statement, the Registration Statement and the Other Filings will comply in
all material respects with all applicable requirements of law and the rules
and regulations promulgated thereunder. Whenever any event occurs which is
required to be set forth in an amendment or supplement to the Proxy
Statement, the Registration Statement or any Other Filing, SPI or SG, as the
case may be, will promptly inform the other of such occurrence and cooperate
in filing with the SEC or its staff or any other government officials,
and/or mailing to stockholders of SPI, such amendment or supplement.
(b) The Proxy Statement will include the recommendation of the Board of
Directors of SPI in favor of adoption and approval of this Agreement and
approval of the Merger (except that the Board of Directors of SPI may
withdraw, modify or refrain from making such recommendation to the extent
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that the Board determines, in good faith, after consultation with outside
legal counsel, that compliance with the Board's fiduciary duties under
applicable law would require it to do so).
5.2 MEETING OF STOCKHOLDERS. Promptly after the date hereof, SPI will take
all action necessary in accordance with the Delaware General Corporation Law and
its Certificate of Incorporation and Bylaws to convene the SPI Stockholders'
Meeting to be held as promptly as practicable, and in any event (to the extent
permissible under applicable law) within 45 days after the declaration of
effectiveness of the Registration Statement, for the purpose of voting upon the
Amendment Vote and this Agreement and the Merger. Subject to the provisions of
Section 5.4(b) hereof, SPI will use its reasonable best efforts to solicit from
its stockholders proxies in favor of the adoption and approval of this Agreement
and the approval of the Merger.
5.3 CONFIDENTIALITY; ACCESS TO INFORMATION.
(a) The parties acknowledge that SPI and SG have previously executed a
Confidential Disclosure Agreement, dated as of August 7, 1997 (the
"CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will continue
in full force and effect in accordance with its terms.
(b) ACCESS TO INFORMATION. Subject to the terms of the Confidentiality
Agreement, each party will afford the other party and its accountants,
counsel and other representatives reasonable access during normal business
hours to the properties, books, records and personnel of such party during
the period prior to the Effective Time to obtain all information concerning
the business, including the status of product development efforts,
properties, results of operations and personnel of such party, as the other
party may reasonably request. No information or knowledge obtained by SG or
SPI in any investigation pursuant to this Section 5.3 will affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Merger.
5.4 NO SOLICITATION.
(a) Subject to the provisions of paragraph (b) hereof, from and after
the date of this Agreement until the earlier of the Effective Time or
termination of this Agreement pursuant to its terms, SPI and its
subsidiaries will not, and will instruct their respective directors,
officers, employees, representatives, investment bankers, agents and
affiliates not to, directly or indirectly, (i) solicit or knowingly
encourage submission of, any Acquisition Proposal (as defined below) by any
person, entity or group (other than SG and its affiliates, agents and
representatives), or (ii) participate in any discussions or negotiations
with, or disclose any non-public information concerning SPI or any of its
subsidiaries to, or afford any access to the properties, books or records of
SPI or any of its subsidiaries to, or otherwise assist or facilitate, or
enter into any agreement or understanding with, any person, entity or group
(other than SG and its affiliates, agents and representatives), in
connection with any Acquisition Proposal with respect to SPI. For the
purposes of this Agreement, an "ACQUISITION PROPOSAL" means any proposal or
offer relating to (i) any merger, consolidation, sale of substantially all
of the assets or similar transactions involving SPI or any of its
subsidiaries (other than sales of assets or inventory in the ordinary course
of business or as permitted under the terms of this Agreement), (ii) sale by
SPI of any shares of capital stock of SPI (including without limitation by
way of a tender offer or an exchange offer) except as may be permitted
pursuant to Article 4, (iii) the acquisition by any person of beneficial
ownership or a right to acquire beneficial ownership of, or the formation of
any "group" (as defined under Section 13(d) of the Exchange Act and the
rules and regulations thereunder) which beneficially owns, or has the right
to acquire beneficial ownership of, 10% or more of the then outstanding
shares of capital stock of SPI (except for acquisitions for passive
investment purposes of not more than 15% of the then outstanding shares of
capital stock of SPI only in circumstances where the person or group
qualifies for and files a Schedule 13G with respect thereto and does not
become obligated to file a Schedule 13D); or (iv) any public announcement of
a proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the
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foregoing. SPI will immediately cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing. SPI will (i) notify SG as promptly as
practicable if it receives any proposal or written inquiry or any written
request for information or access in connection with an Acquisition Proposal
or potential Acquisition Proposal and (ii) as promptly as practicable notify
SG of the significant terms and conditions of any such Acquisition Proposal.
In addition, subject to the other provisions of this Section 5.4, from and
after the date of this Agreement until the earlier of the Effective Time and
termination of this Agreement pursuant to its terms, SPI and its
subsidiaries will not, and will instruct their respective directors,
officers, employees, representatives, investment bankers, agents and
affiliates not to, directly or indirectly, make or authorize any public
statement, recommendation or solicitation in support of any Acquisition
Proposal made by any person, entity or group (other than SG); PROVIDED,
HOWEVER, that nothing herein shall prohibit SPI's Board of Directors from
taking and disclosing to SPI's stockholders a position with respect to a
tender or exchange offer pursuant to Rules 14d-9 and 14e-2 promulgated under
the Exchange Act.
(b) Notwithstanding the provisions of paragraph (a) above, prior to the
Effective Time, SPI may, to the extent the Board of Directors of SPI
determines, in good faith, after consultation with outside legal counsel,
that failing to take such action would result in a substantial likelihood of
liability for breach of the Board's fiduciary duties under applicable law,
participate in discussions or negotiations with, and, subject to the
requirements of paragraph (c), below, furnish information to any person,
entity or group after such person, entity or group has delivered to SPI in
writing, an unsolicited bona fide Acquisition Proposal which the Board of
Directors of SPI in its good faith reasonable judgment determines, after
consultation with its independent financial advisors, would result in a
transaction more favorable than the Merger to the stockholders of SPI from a
financial point of view (a "SPI SUPERIOR PROPOSAL"). In addition,
notwithstanding the provisions of paragraph (a) above, in connection with a
possible Acquisition Proposal, SPI may refer any third party to this Section
5.4 or make a copy of this Section 5.4 available to a third party. In the
event SPI receives a SPI Superior Proposal, nothing contained in this
Agreement (but subject to the terms hereof) will prevent the Board of
Directors of SPI from recommending such SPI Superior Proposal to its
Stockholders, if the Board determines, in good faith, after consultation
with outside legal counsel, that failing to take such action would result in
a substantial likelihood of liability for breach of its fiduciary duties
under applicable law; in such case, the Board of Directors of SPI may
withdraw, modify or refrain from making its recommendation set forth in
Section 5.1(b), and, to the extent it does so, SPI may refrain from
soliciting proxies to secure the vote of its stockholders as may be required
by Section 5.2; PROVIDED, HOWEVER, that SPI shall (i) provide SG at least
forty eight (48) hours prior notice of any SPI Board meeting at which it is
reasonably expected to contemplate a Superior Proposal and (ii) not
recommend to its stockholders a SPI Superior Proposal for a period of not
less than 2 business days after SG's receipt of a copy of such SPI Superior
Proposal (or a description of the significant terms and conditions thereof,
if not in writing); and PROVIDED FURTHER, that nothing contained in this
Section shall limit SPI's obligation to hold and convene the SPI
Stockholders' Meeting (regardless of whether the recommendation of the Board
of Directors of SPI shall have been withdrawn, modified or not yet made) or
to provide the SPI stockholders with material information relating to such
meeting.
(c) Notwithstanding anything to the contrary in this Section 5.4, SPI
will not provide any non-public information to a third party unless SPI
provides such non-public information pursuant to a nondisclosure agreement
with terms regarding the protection of confidential information at least as
restrictive as such terms in the Confidentiality Agreement.
5.5 PUBLIC DISCLOSURE. No party will issue or cause the publication of any
press release or other public announcement with respect to this Agreement or the
transactions contemplated hereby without the prior consent of SG and SPI, which
consent will not be unreasonably withheld; PROVIDED, HOWEVER, that nothing
herein will prohibit any party from issuing or causing publication of any such
press release or
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public announcement to the extent that such party determines such action to be
required by law or by the rules of any stock exchange applicable to it, in which
event the party making such determination will, if practicable in the
circumstances, use all reasonable efforts to allow the other party hereto
reasonable time to comment on such release or announcement in advance of its
issuance. The parties have agreed to the text of the joint press release
announcing the signing of this Agreement.
5.6 LEGAL REQUIREMENTS. Each of SG, Merger Sub and SPI will take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement (including furnishing all
information required in connection with approvals by or filings with any
Governmental Entity, and prompt resolution of any litigation prompted hereby)
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such filings with or investigations by any
Governmental Entity, and any other such requirements imposed upon any of them or
their respective subsidiaries in connection with the consummation of the
transactions contemplated by this Agreement. Each party shall have the right to
review in advance, and to the extent practicable each will consult the other on,
in each case subject to applicable laws relating to the exchange of information,
all the information relating to the other parties, and any of their respective
subsidiaries, which appear in any filing made with, or written materials
submitted to, any third party or any Governmental Entity in connection with the
transactions contemplated by this Agreement and the Merger. In exercising the
foregoing right, each of the parties hereto shall act reasonably and as promptly
as practicable. SG will use its commercially reasonable efforts to take such
steps as may be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable to the issuance of SG Common Stock pursuant
hereto. SPI will use its commercially reasonable efforts to assist SG as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of SG Common Stock pursuant
hereto.
5.7 THIRD PARTY CONSENTS. As soon as practicable following the date
hereof, SG and SPI will each use its commercially reasonable efforts to obtain
all consents, waivers and approvals under any of its or its subsidiaries'
agreements, contracts, licenses or leases required to be obtained in connection
with the consummation of the transactions contemplated hereby.
5.8 NOTIFICATION OF CERTAIN MATTERS. SG and Merger Sub will give prompt
notice to SPI, and SPI will give prompt notice to SG, of the occurrence, or
failure to occur, of any event, which occurrence or failure to occur would be
likely to cause (a) any representation or warranty contained in this Agreement
and made by it to be untrue or inaccurate in any material respect at any time
from the date of this Agreement to the Effective Time such that the conditions
set forth in Section 6.2(a) or 6.3(a), as the case may be, would not be
satisfied as a result thereof or (b) any material failure of SG and Merger Sub
or SPI, as the case may be, or of any officer, director, employee or agent
thereof, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement. Notwithstanding the
above, the delivery of any notice pursuant to this section will not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
5.9 REASONABLE BEST EFFORTS AND FURTHER ASSURANCES. Subject to the
respective rights and obligations of SG and SPI under this Agreement, each of
the parties to this Agreement will use its reasonable best efforts to effectuate
the Merger and the other transactions contemplated hereby and to fulfill and
cause to be fulfilled the conditions to closing under this Agreement; provided
that neither SG nor SPI nor any subsidiary or affiliate thereof will be required
to agree to any divestiture by itself or any of its affiliates of shares of
capital stock or of any business, assets or property, or the imposition of any
material limitation on the ability of any of them to conduct their businesses or
to own or exercise control of such assets, properties and stock. Subject to the
foregoing, each party hereto, at the reasonable request of another party hereto,
will execute and deliver such other instruments and do and perform such other
acts and things as may be necessary for effecting completely the consummation of
the transactions contemplated hereby.
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5.10 STOCK OPTIONS AND WARRANTS AND EMPLOYEE BENEFITS.
(a) At the Effective Time, each SPI Stock Option/Warrant, whether or not
exercisable, will be assumed by SG. The term, exercisability, vesting
schedule, vesting commencement date, status as an incentive stock option
under Section 422 of the Code, if applicable, and all other terms and
conditions of each SPI Stock Option/Warrant (including, without limitation,
any repurchase rights) so assumed by SG under their Agreement will remain
unchanged, except that (i) each SPI Stock Option/Warrant will be exercisable
(or will become exercisable in accordance with its terms) for that number of
whole shares of SG Common Stock equal to the product of the number of shares
of SPI Common Stock that were issuable upon exercise of such SPI Stock
Option/Warrant (whether or not then exercisable) immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded to the nearest
whole number of shares of SG Common Stock and (ii) the per share exercise
price for the shares of SG Common Stock issuable upon exercise of such
assumed SPI Stock Option/Warrant will be equal to the quotient determined by
dividing the exercise price per share of SPI Common Stock at which such SPI
Stock Option/Warrant was exercisable immediately prior to the Effective Time
by the Exchange Ratio, rounded to the nearest whole cent. As soon as
reasonably practicable after the Effective Time, SG will issue to each
holder of an outstanding SPI Stock Option/Warrant a notice describing the
foregoing assumption of such SPI Stock Option/Warrant by SG.
(b) It is intended that the options constituting the SPI Stock
Options/Warrants assumed by SG shall qualify following the Effective Time as
incentive stock options as defined in Section 422 of the Code to the extent
such SPI Stock Options/Warrants qualified as incentive stock options
immediately prior to the Effective Time and the provisions of this Section
5.10 shall be applied consistent with such intent.
(c) SG will reserve sufficient shares of SG Common Stock for issuance
under Section 5.10(a) and under Section 1.6(c) hereof.
(d) If requested by SG, at least three (3) days prior to the Effective
Time, SPI hereby agrees to terminate, prior to the Effective Time, any and
all SPI Employee Plans subject to Section 401(k) of the Code.
5.11 FORM S-8. SG agrees to file a registration statement on Form S-8 (the
"FORM S-8") for the shares of SG Common Stock issuable with respect to assumed
SPI Stock Options/Warrants (other than warrants so assumed) as soon as
reasonably practical after the Effective Time. The Registration Statement shall
register shares of SG Common Stock issuable upon exercise of the assumed
warrants included within the assumed SPI Stock Options/Warrants.
5.12 INDEMNIFICATION.
(a) From and after the Effective Time, SG shall, and shall cause the
Surviving Corporation to fulfill and honor in all respects the obligations
of SPI pursuant to any (i) Change of Control Payments and (ii)
indemnification agreements between SPI and its directors and officers or
indemnification provisions under SPI's Certificate of Incorporation or
Bylaws existing prior to the date hereof. The Certificate of Incorporation
and By-laws of the Surviving Corporation will contain appropriate provisions
with respect to indemnification, which provisions will not be amended,
repealed or otherwise modified from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who, immediately
prior to the Effective Time, were directors, officers, employees or agents
of SPI, unless such modification is required by law.
(b) From and after the Effective Time for a period of six years, SG
shall cause to be maintained the current policies of the officers' and
directors' liability insurance maintained by SPI covering persons who are
presently covered by SPI's officers' and directors' liability insurance
policies with respect to actions and omissions occurring prior to the
Effective Time; PROVIDED, that policies with third party insurers of similar
or better A.M. Best rating of at least the same coverage containing
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terms and conditions that are not less advantageous to the insured may be
substituted therefor. SG shall bear and pay, and shall reimburse the
indemnified parties for, all costs and expenses, including attorneys' fees,
that may be incurred by the indemnified parties in seeking to enforce their
rights against SG and the Surviving Corporation under this Section 5.12.
Notwithstanding anything herein to the contrary, SG shall have no obligation
to maintain such liability insurance or pay or reimburse such indemnified
parties if the out-of-pocket expense to SG for the payment of premiums in
connection with such liability insurance exceeds $72,900 (less the pro rata
premium credit received by SPI in respect of cancellation of existing
policies as of the Effective Time).
(c) This Section 5.12 will survive any termination of this Agreement and
the consummation of the Merger at the Effective Time, is intended to benefit
SPI, the Surviving Corporation and the indemnified parties, and will be
binding on SG and on all successors and assigns of SG and the Surviving
Corporation.
5.13 NASDAQ NATIONAL MARKET LISTING. SG agrees to authorize for listing on
the NASDAQ National Market the shares of SG Common Stock issuable, and those
required to be reserved for issuance (including those issuable upon exercise of
the SPI Stock Options/Warrants), in connection with the Merger, upon official
notice of issuance filed with NASDAQ by SG not less than 15 days prior to the
date of issuance (or such other time period as may be specified in the NASDAQ
National Market Notification Form for Listing of Additional Shares).
5.14 SPI AFFILIATE AGREEMENT. Set forth on the SPI Schedules is a list of
those persons who may be deemed to be, in SPI's reasonable judgment, affiliates
of SPI within the meaning of Rule 145 promulgated under the Securities Act (each
a "SPI AFFILIATE"). SPI will provide SG with such information and documents as
SG reasonably requests for purposes of reviewing such list. SPI will use its
reasonable best efforts to deliver or cause to be delivered to SG, as promptly
as practicable on or following the date hereof, from each SPI Affiliate an
executed affiliate agreement in substantially the form attached hereto as
EXHIBIT A (the "SPI AFFILIATE AGREEMENT"), each of which will be in full force
and effect as of the Effective Time. SG will be entitled to place appropriate
legends on the certificates evidencing any SG Common Stock to be received by a
SPI Affiliate pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for the SG Common Stock,
consistent with the terms of the SPI Affiliate Agreement.
5.15 REGULATORY FILINGS; REASONABLE EFFORTS. To the extent necessary under
applicable law, as soon as may be reasonably practicable, SPI and SG each shall
file with the United States Federal Trade Commission (the "FTC") and the
Antitrust Division of the United States Department of Justice ("DOJ")
Notification and Report Forms relating to the transactions contemplated herein
as required by the HSR Act, as well as comparable pre-merger notification forms
required by the merger notification or control laws and regulations of any
applicable jurisdiction, as agreed to by the parties. Each of SPI and SG shall
promptly (a) supply the other with any information which may be required in
order to effectuate such filings and (b) supply any additional information which
reasonably may be required by the FTC, the DOJ or the competition or merger
control authorities of any other jurisdiction and which the parties may
reasonably deem appropriate.
5.16 TAX-FREE REORGANIZATION. No party shall take any action either prior
to or after the Effective Time that could reasonably be expected to cause the
merger to fail to qualify as a "reorganization" under Section 368(a) of the
Code.
5.17 SPI RIGHTS PLAN. Prior to the Effective Time, without the prior
written consent of SG, SPI shall not adopt a stockholders rights plan.
5.18 VOTING AGREEMENT. Prior to or within twenty (20) business days after
the execution of this Agreement, SPI shall use its reasonable best efforts to
cause the persons specified on Schedule 1 to the form of Voting Agreement
attached hereto as Exhibit C to enter into such Voting Agreement.
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) SPI STOCKHOLDER APPROVAL. This Agreement shall have been approved
and adopted, and the Merger shall have been duly approved, and the Amendment
Vote obtained by the requisite vote under applicable law, by the
stockholders of SPI.
(b) REGISTRATION STATEMENT EFFECTIVE; PROXY STATEMENT. The SEC shall
have declared the Registration Statement effective. No stop order suspending
the effectiveness of the Registration Statement or any part thereof shall
have been issued and no proceeding for that purpose, and no similar
proceeding in respect of the Proxy Statement, shall have been initiated or
threatened in writing by the SEC.
(c) NO ORDER; HSR ACT. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of
making the Merger illegal or otherwise prohibiting consummation of the
Merger. All waiting periods, if any, under the HSR Act relating to the
transactions contemplated hereby will have expired or terminated early.
(d) CONSENTS. Other than the filing of the merger documents as
required by Delaware Law, all authorizations, consents, waivers, orders and
approvals required to be obtained, and all filings, notices and declarations
required to be made, by SG and SPI prior to the consummation of the Merger
and the transactions contemplated hereunder shall have been obtained from,
and made with, all required Governmental Entities and all other third
parties except for such authorizations, consents, waivers, orders,
approvals, filings, notices or declarations which would not have a Material
Adverse Effect on SG or a Material Adverse Effect on SPI at or after the
Effective Time.
(e) SECURITIES LAWS. SG shall have received all state securities and
"blue sky" permits and other authorizations necessary to consummate the
transactions contemplated by this Agreement.
(f) NASDAQ NATIONAL MARKET LISTING. The shares of SG Common Stock
issuable to stockholders of SPI pursuant to this Agreement and such other
shares required to be reserved for issuance in connection with the Merger
shall have been authorized for listing on the NASDAQ National Market upon
official notice of issuance filed with NASDAQ by SG not less than 15 days
prior to the date of issuance (or such other time period as may be specified
in the NASDAQ National Market Notification Form for Listing of Additional
Shares).
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF SPI. The obligation of SPI to
consummate and effect the Merger shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by SPI:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of SG and Merger Sub contained in this Agreement shall have been true and
correct in all material respects on and as of the date of this Agreement. In
addition, the representations and warranties of SG and Merger Sub contained
in this Agreement shall be true and correct in all material respects on and
as of the Effective Time except for changes contemplated by this Agreement
and except for those representations and warranties which address matters
only as of a particular date (which shall remain true and correct as of such
particular date), with the same force and effect as if made on and as of the
Effective Time, except in such cases (other than the representation in
Section 3.2) where the failure to be so
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true and correct would not have a Material Adverse Effect on SG. SPI shall
have received a certificate with respect to the foregoing signed on behalf
of SG by an authorized officer of SG;
(b) AGREEMENTS AND COVENANTS. SG and Merger Sub shall have performed
or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them at or
prior to the Effective Time, and SPI shall have received a certificate to
such effect signed on behalf of SG by an authorized officer of SG; and
(c) MATERIAL ADVERSE EFFECT. No Material Adverse Effect with respect
to SG shall have occurred since the date of this Agreement.
(d) CONSENTS. SG shall have obtained all material consents, waivers
and approvals required in connection with the consummation of the
transactions contemplated hereby under the agreements, contracts, licenses
or leases contemplated by Section 3.3.
(e) TAX OPINION. SPI shall have received a written opinion from its
legal counsel, Dechert Price & Rhoads, in form and substance reasonably
satisfactory to it, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and such
opinion shall not have been withdrawn; provided, however, that if the
counsel to SPI does not render such opinion, this condition shall
nonetheless be deemed to be satisfied if counsel to SG renders such opinion
and SPI determines to rely upon such opinion. SPI agrees to make reasonable
representations as requested by counsel for the purpose of rendering such
opinion.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF SG AND MERGER SUB. The
obligations of SG and Merger Sub to consummate and effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, exclusively by SG:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of SPI contained in this Agreement shall have been true and correct in all
material respects as of the date of this Agreement. In addition, the
representations and warranties of SPI contained in this Agreement shall be
true and correct in all material respects on and as of the Effective Time
except for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such particular date), with
the same force and effect as if made on and as of the Effective Time. SG
shall have received a certificate with respect to the foregoing signed on
behalf of SPI by the Chief Executive Officer and the Chief Financial Officer
of SPI;
(b) AGREEMENTS AND COVENANTS. SPI shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the
Effective Time, and SG shall have received a certificate to such effect
signed on behalf of SPI by the Chief Executive Officer and the Chief
Financial Officer of SPI; and
(c) MATERIAL ADVERSE EFFECT. No Material Adverse Effect with respect
to SPI shall have occurred since the date of this Agreement.
(d) [INTENTIONALLY DELETED.]
(e) CONSENTS. SPI shall have obtained all material consents, waivers
and approvals required in connection with the consummation of the
transactions contemplated hereby under the agreements, contracts, licenses
or leases set forth on Schedule 2.4.
(f) TAX OPINION. SG shall have received a written opinion from its
legal counsel, Wilson Sonsini Goodrich & Rosati, in form and substance
reasonably satisfactory to it, to the effect that the Merger will constitute
a reorganization within the meaning of Section 368(a) of the Code and such
opinion shall not have been withdrawn; PROVIDED, HOWEVER, that if the
counsel to SG does not render
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<PAGE>
such opinion, this condition shall nonetheless be deemed to be satisfied if
counsel to SPI renders such opinion and SG determines to rely upon such
opinion. SG agrees to make reasonable representations as requested by
counsel for the purpose of rendering such opinion.
(g) FINANCIAL CONDITION. Depending on the date of the Closing, the
value of the cash and cash equivalents of SPI as correctly reflected on
SPI's books and records as of the Closing shall be no less than the amounts
(for the month in which the Closing occurs) set forth on SPI Schedule 6.3(g)
hereto, with such amounts subject to amendment or waiver by the mutual
written consent of the parties hereto.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time of the Merger, whether before or after approval of the Merger by
the stockholders of SPI:
(a) by mutual written consent duly authorized by the Boards of Directors
of SG and SPI;
(b) by either SPI or SG if the Merger shall not have been consummated by
May 15, 1999 for any reason; PROVIDED, HOWEVER, that if the Merger shall not
have been consummated by reason of delay in the effectiveness of the
Registration Statement, then such date shall be extended to June 15, 1999;
and PROVIDED, FURTHER, that the right to terminate this Agreement under this
Section 7.1(b) shall not be available to any party whose action or failure
to act has been a principal cause of or resulted in the failure of the
Merger to occur on or before such date and such action or failure to act
constitutes a breach of this Agreement;
(c) by either SPI or SG if a Governmental Entity shall have issued an
order, decree or ruling or taken any other action (an "ORDER"), in any case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree or ruling is final and
nonappealable;
(d) by either SPI or SG if the required approvals of the stockholders of
SPI contemplated by this Agreement shall not have been obtained at a meeting
of SPI stockholders duly convened therefor or at any adjournment thereof;
(e) by SG or SPI, (A) if the Board of Directors of SPI approves or
recommends a SPI Superior Proposal to the stockholders of SPI or if the
Board of Directors of SPI shall resolve to take the foregoing action, and
(B) in the case of the termination of this Agreement by SPI pursuant to this
Section 7.1(e), SPI shall have paid to SG all amounts owing by SPI to SG
under Section 7.3;
(f) by SG, if the Board of Directors of SPI shall have withheld,
withdrawn or modified in a manner adverse to SG its approval or
recommendation in favor of adoption and approval of this Agreement and
approval of the Merger, or if the Board of Directors of SPI shall resolve to
take any of the foregoing actions;
(g) by SPI, upon a breach of any representation, warranty, covenant or
agreement on the part of SG or Merger Sub set forth in this Agreement, or if
any representation or warranty of SG shall have become untrue, in either
case such that the conditions set forth in Section 6.2(a) or Section 6.2(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue; PROVIDED, HOWEVER, that
if such breach is curable by SG through the exercise of its best efforts,
SPI may not terminate this Agreement under this paragraph (f) unless such
breach has not been cured within ten (10) days after such breach is
discovered by SPI; or
(h) by SG, upon a breach of any representation, warranty, covenant or
agreement on the part of SPI set forth in this Agreement, or if any
representation or warranty of SPI shall have become untrue,
A-27
<PAGE>
in either case such that the conditions set forth in Section 6.3(a) or
Section 6.3(b) would not be satisfied as of the time of such breach or as of
the time such representation or warranty shall have become untrue; provided,
however, that if such breach is curable by SPI through the exercise of its
best efforts, SG may not terminate this Agreement under this paragraph (g)
unless such breach has not been cured within ten (10) days after such breach
is discovered by SG.
7.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except (i) as set forth
in this Section 7.2, Section 7.3 and Article 8, each of which shall survive the
termination of this Agreement, and (ii) nothing herein shall relieve any party
from liability for any breach of this Agreement. No termination of this
Agreement shall affect the obligations of the parties contained in the
Confidentiality Agreement, all of which obligations shall survive termination of
this Agreement in accordance with their terms.
7.3 FEES AND EXPENSES.
(a) GENERAL. Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses
whether or not the Merger is consummated; PROVIDED, HOWEVER, that SG and SPI
shall share equally all fees and expenses, other than attorneys' and
accountants fees and expenses, incurred in relation to the printing and
filing of the Proxy Statement (including any preliminary materials related
thereto) and the Registration Statement (including financial statements and
exhibits) and any amendments or supplements thereto.
(b) PAYMENTS.
(i) If this Agreement is terminated pursuant to Section 7.1(e),
then, provided that there shall have not occurred a Material Adverse
Effect on SG prior to the termination of this Agreement, SPI shall pay to
SG an amount equal to 150% of documented, out-of-pocket costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including legal, accounting, investment banking and
printing fees) (the "Transaction Fees") by SG within one business day
following demand therefor;
(ii) If this Agreement is terminated by SPI pursuant to Section
7.1(g), then SG shall pay SPI an amount equal to 150% of the Transaction
Fees incurred by SPI within one (1) business day following demand
therefor; and
(iii) If this Agreement is terminated by SG pursuant to Section
7.1(h), then SPI shall pay SG an amount equal to 150% of the Transaction
Fees incurred by SG within one (1) business day following demand
therefor.
(c) Payment of the fees described in Section 7.3(b) above shall not be
in lieu of damages incurred in the event of breach of this Agreement.
7.4 AMENDMENT. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of the parties hereto.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
A-28
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of SPI, SG and Merger Sub contained in this Agreement shall
terminate at the Effective Time, and only the covenants that by their terms
survive the Effective Time shall survive the Effective Time.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to SuperGen, Inc. or Merger Sub, to:
SuperGen, Inc.
Two Annabel Lane
Suite 220
San Ramon, California 94583
Attention: Dr. Joseph Rubinfeld
Telephone No.: (925) 327-0200
Telecopy No.: (925) 327-7347
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Kathleen Bloch, Esq.
Telephone No.: (650) 493-9300
Telecopy No.: (650) 493-6811
(b) if to Sparta Pharmaceuticals, Inc., to:
Sparta Pharmaceuticals, Inc.
111 Rock Road
Horsham, Pennsylvania 19044
Attention: Dr. Jerry Hook
Telephone No.: (215) 442-1700
Telecopy No.: (215) 442-1827
with a copy to:
Dechert Price & Rhoads
Princeton Pike Corporate Center
997 Lenox Dr., Bldg.3, Ste. 210
Lawrenceville, New Jersey 08648
Attention: James Marino, Esq.
Telephone No.: (609) 620-3230
Telecopy No.: (609) 620-3259
8.3 INTERPRETATION; KNOWLEDGE.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise
indicated. The words "INCLUDE," "INCLUDES" and "INCLUDING" when used herein
shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. When reference is made herein to "THE
BUSINESS OF" an entity, such reference shall be deemed to include the
business of all
A-29
<PAGE>
direct and indirect subsidiaries of such entity. Reference to the
subsidiaries of an entity shall be deemed to include all direct and indirect
subsidiaries of such entity.
(b) For purposes of this Agreement (a) as it relates to SG, the term
"KNOWLEDGE" means, with respect to any matter in question, the actual
knowledge of such matter by any of the Chief Executive Officer, Chief
Financial Officer or Controller of SG; and (b) as it relates to SPI, the
term "KNOWLEDGE" means, with respect to any matter in question, the actual
knowledge of such matter by any of the Chief Executive Officer, Chief
Financial Officer, Vice President, accounting manager or project manager of
SPI.
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including SPI Schedules (a) constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, it being understood
that the Confidentiality Agreement shall continue in full force and effect until
the Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as specifically provided in Section 5.12.
8.6 SEVERABILITY. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
8.7 OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction of
the Court of Chancery of Delaware or the U.S. District Court of Delaware, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, and agrees that process may be served upon them in
any manner authorized by the laws of the State of Delaware for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
8.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law,
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<PAGE>
regulation, holding or rule of construction providing that ambiguities in an
agreement or other document will be construed against the party drafting such
agreement or document.
8.10 ASSIGNMENT. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other party. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
*****
A-31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
<TABLE>
<S> <C> <C>
SUPERGEN, INC.
By: /s/ DR. JOSEPH RUBINFELD
-----------------------------------------
Name: Dr. Joseph Rubinfeld
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
ROYALE ACQUISITION CORP.
By: /s/ DR. JOSEPH RUBINFELD
-----------------------------------------
Name: Dr. Joseph Rubinfeld
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
SPARTA PHARMACEUTICALS, INC.
By: /s/ JERRY B. HOOK
-----------------------------------------
Name: Jerry B. Hook
Title: CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
</TABLE>
**** REORGANIZATION AGREEMENT ****
A-32
<PAGE>
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
ROYALE ACQUISITION CORP.
AND
SPARTA PHARMACEUTICALS, INC.
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION (the "First
Amendment") is entered into as of the 15th day of May, 1999 by and among
SuperGen, Inc., a Delaware corporation ("SG"), Royale Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of SG ("MergerSub"), and
Sparta Pharmaceuticals, Inc., a Delaware corporation ("SPI").
BACKGROUND
The parties hereto have entered into an Agreement and Plan of Reorganization
dated as of January 18, 1999 (the "Agreement"). The parties now desire to amend
the Agreement on the terms and conditions set forth herein. Capitalized terms
not defined herein shall have the meanings ascribed to them in the Agreement, as
amended hereby.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and intending to be legally bound, the parties hereby agree
as follows:
1. AMENDMENT. Section 7.1(b) of the Agreement is hereby amended and
restated as follows:
"(b) by either SPI or SG if the Merger shall not have been consummated by
September 15, 1999 for any reason; provided, however, that if the Merger shall
not have been consummated by reason of delay in the effectiveness of the
Registration Statement, then such date shall be extended to October 15, 1999;
and provided, further, that the right to terminate this Agreement under this
Section 7.1(b) shall not be available to any party whose action or failure to
act has been a principal cause of or resulted in the failure of the Merger to
occur on or before such date and such action or failure to act constitutes a
breach of this Agreement;"
2. COUNTERPARTS. The First Amendment may be signed in any number of
counterparts, and by the different parties hereto on separate counterparts, each
of which shall be deemed an original and all of which shall constitute one and
the same instrument, and in pleading or providing any provisions thereof it
shall not be necessary to produce more than one such counterpart. The First
Amendment shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all of the parties
reflected thereon as the signatories.
3. CONTINUED EFFECT. All of the other terms, covenants, and conditions of
the Agreement, unless expressly amended by the First Amendment or as may be
required in order to give effect to the amendments set forth in the First
Amendment, shall remain in full force and effect.
4. GOVERNING LAW. The First Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the
conflicts of laws provisions thereof.
A-A-1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused the First Amendment to be
executed by their duly authorized respective officers as of the date first
written above.
<TABLE>
<S> <C> <C>
SUPERGEN, INC.
By: /s/ DR. JOSEPH RUBINFELD
-----------------------------------------
Name: Dr. Joseph Rubinfeld
Title: PRESIDENT
ROYALE ACQUISITION CORP.
By: /s/ DR. JOSEPH RUBINFELD
-----------------------------------------
Name: Dr. Joseph Rubinfeld
Title: PRESIDENT
SPARTA PHARMACEUTICALS, INC.
By: /s/ JERRY B. HOOK
-----------------------------------------
Name: Jerry B. Hook
Title:CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
</TABLE>
A-A-2
<PAGE>
APPENDIX B
FORM OF
VOTING AGREEMENT
This Voting Agreement ("AGREEMENT") is made and entered into as of
, 1999, between SuperGen, Inc., a Delaware corporation ("SG"), and
the undersigned stockholder ("STOCKHOLDER") of Sparta Pharmaceuticals, Inc., a
Delaware corporation (the "COMPANY").
RECITALS
A. SG, the Company and Royale Acquisition Corp., a Delaware corporation and
a wholly-owned subsidiary of SG ("SUB"), have entered into an Agreement and Plan
of Reorganization (the "REORGANIZATION AGREEMENT") which provides for the merger
(the "MERGER") of Sub with and into the Company. Pursuant to the Merger, shares
of capital stock of the Company will be converted into Common Stock of SG on the
basis described in the Reorganization Agreement.
B. The Stockholder is the record holder and beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT")), of such number of shares of the outstanding capital stock of the Company
as is indicated on the signature page of this Agreement (the "SHARES").
C. Pursuant to the Reorganization Agreement, the Company has agreed to use
its reasonable best efforts to cause the stockholders of the Company specified
on SCHEDULE I hereto to enter into this Agreement.
D. As a material inducement to consummate the transactions contemplated by
the Reorganization Agreement, SG and the Company desire the Stockholder to
agree, and the Stockholder is willing to agree, to vote the Shares in favor of
consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties agree as follows:
1. AGREEMENT TO VOTE SHARES; ADDITIONAL PURCHASES.
1.1 AGREEMENT TO VOTE SHARES. During the time this Agreement is in
effect, at every meeting of the stockholders of the Company called with
respect to the following, and at every adjournment thereof, Stockholder
shall vote or cause to be voted the Shares and any New Shares (as
hereinafter defined) in favor of approval and adoption of the Reorganization
Agreement and approval of the Merger and in favor of any other actions
contemplated by the Reorganization Agreement or required in furtherance of
the Merger which are submitted to a vote of the stockholders of the Company.
1.2 ADDITIONAL PURCHASES. Stockholder agrees that any shares of
capital stock of the Company that Stockholder purchases or with respect to
which Stockholder otherwise acquires beneficial ownership after the
execution of this Agreement and prior to the date of termination of this
Agreement ("NEW SHARES") shall be subject to the terms and conditions of
this Agreement to the same extent as if they constituted Shares.
2. PROXY. Concurrently with the execution of this Agreement, Stockholder
agrees to deliver to SG a proxy in the form attached hereto as EXHIBIT A (the
"PROXY"), which shall be irrevocable, with the total number of shares of capital
stock of the Company beneficially owned (as such term is defined in Rule 13d-3
under the Exchange Act) by Stockholder set forth therein.
3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. Stockholder (i) is
the beneficial owner of the Shares, which at the date hereof are free and clear
of any liens, claims, options, charges or other encumbrances; (ii) does not
beneficially own any shares of capital stock of the Company other than the
Shares (excluding shares as to which Stockholder currently disclaims beneficial
ownership in accordance with applicable law); and (iii) has full power and
authority to make, enter into and carry out the terms of this Agreement.
<PAGE>
4. ADDITIONAL DOCUMENTS. Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary, in the reasonable
opinion of SG or Stockholder, as the case may be, to carry out the intent of
this Agreement.
5. LIMITATION ON TRANSFER. Stockholder covenants and agrees that, prior to
the record date fixed for persons entitled to receive notice of, and the vote
at, a meeting of stockholders of the Company at which approval of the
Reorganization Agreement and the Merger is to be considered, Stockholder will
not, directly or indirectly, sell or otherwise transfer its voting rights with
respect to, any Shares or New Shares unless and until the transferee shall have
executed a counterpart of this Voting Agreement and a proxy in the form attached
hereto as Exhibit A and thereby agreed to hold such Shares or New Shares subject
to all of the terms and conditions of this Voting Agreement.
6. TERMINATION. This Agreement shall terminate and shall have no further
force or effect as of the earlier to occur of (i) such date and time as the
Merger shall become effective in accordance with the terms and provisions of the
Reorganization Agreement or (ii) such date and time as the Reorganization
Agreement shall have been terminated pursuant to Article VII thereof.
7. MISCELLANEOUS.
7.1 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
7.2 BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor
any of the rights, interests or obligations of the parties hereto may be
assigned by either of the parties without prior written consent of the other
party.
7.3 AMENDMENTS AND MODIFICATION. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
7.4 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto
acknowledge that SG will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements
of Stockholder set forth herein. Therefore, it is agreed that, in addition
to any other remedies that may be available to SG upon any such violation,
SG shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to SG at law
or in equity.
7.5 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given upon receipt or, if earlier, (a)
five (5) days after deposit with the U.S. Postal Service or other applicable
postal service, if delivered by first class mail, postage prepaid, (b) upon
delivery, if delivered by hand, (c) one business day after the business day
of deposit with Federal Express or similar overnight courier, freight
prepaid or (d) one business day after the business day of facsimile
transmission, if delivered by facsimile
B-2
<PAGE>
transmission with copy by first class mail, postage prepaid, and shall be
addressed to the intended recipient as set forth below:
<TABLE>
<S> <C>
If to SG: SuperGen, Inc.
Two Annabel Lane
Suite 220
San Ramon, CA 94583
Attn: Dr. Joseph Rubinfeld
With a copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94303-1050
Attn: John Roos, Esq.
If to the Stockholder: To the address for notice set forth on the last
page hereof.
</TABLE>
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
7.6 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the internal laws of the State of Delaware
(without regard to the principles of conflict of laws thereof).
7.7 ENTIRE AGREEMENT. This Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
7.8 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which together shall constitute
one and the same agreement.
B-3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be duly
executed on the date and year first above written.
<TABLE>
<S> <C>
SUPERGEN, INC. STOCKHOLDER:
By: By:
- ------------------------------ ---------------------------------------
Name: Name of Stockholder:
- ------------------------------
Title: Stockholder's Address for Notice:
- ------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
Shares of Capital Stock of the Company
beneficially owned by the Stockholder:
-------------- shares
</TABLE>
[SIGNATURE PAGE TO VOTING AGREEMENT]
B-4
<PAGE>
SCHEDULE I
SPECIFIED STOCKHOLDERS
126736 Canada, Inc.
Atrix Ventana
Ventana Growth Capital Fund
Kalman Renov
Alan Stahler
Peter Cash
Lindsay Rosenwald
Jerry Hook
Ron Spair
Peter Hutt
John Vane
B-5
<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
The undersigned Stockholder of Sparta Pharmaceuticals, Inc., a Delaware
corporation (the "COMPANY"), hereby irrevocably appoints the directors on the
Board of Directors of SuperGen, Inc., a Delaware corporation ("SG"), and each of
them, as the sole and exclusive attorneys and proxies of the undersigned, with
full power of substitution and resubstitution, to the full extent of the
undersigned's rights with respect to the shares of Capital Stock of the Company
beneficially owned by the undersigned, which shares are listed on the final page
of this Proxy (the "SHARES"), and any and all other shares or securities issued
or issuable in respect thereof or acquired by the undersigned on or after the
date hereof, until such time as that certain Agreement and Plan of
Reorganization dated as of January , 1999 (the "REORGANIZATION AGREEMENT"),
among SG, the Company and Royale Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of SG ("SUB"), shall be terminated in accordance with
its terms or the Merger (as defined in the Reorganization Agreement) is
effective. Upon the execution hereof, all prior proxies given by the undersigned
with respect to the Shares and any and all other shares or securities issued or
issuable in respect thereof or acquired by the undersigned on or after the date
hereof shall be revoked and no subsequent proxies will be given in a manner
inconsistent herewith, except as set forth in the following paragraph.
This proxy is irrevocable, is granted pursuant to the Voting Agreement dated
as of , 1999 between SG and the undersigned Stockholder (the "VOTING
AGREEMENT"), and is granted as an inducement to SG to consummate the
transactions contemplated by the Reorganization Agreement. The attorneys and
proxies named above will be empowered at any time prior to termination of the
Reorganization Agreement to exercise all voting rights of the undersigned at
every annual, special or adjourned meeting of the stockholders of the Company,
in favor of approval of the Merger and approval and adoption of the
Reorganization Agreement and in favor of any other actions contemplated by the
Reorganization Agreement or required in furtherance of the Merger which are
submitted to a vote of the stockholders of the Company. The undersigned
Stockholder may vote the Shares on all other matters in its sole discretion.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
Dated: , 1999
STOCKHOLDER:
Signature of Stockholder: ________________________________________________
Name of Stockholder:
______________Shares of Capital Stock Beneficially Owned
[PROXY]
B-A-1
<PAGE>
APPENDIX C
OPINION OF SPENCER TRASK SECURITIES, INC.
January 18, 1999
Sparta Pharmaceuticals, Inc.
Pennsylvania Business Campus
Rock Plaza III, 111 Rock Road
Horsham, PA 19044-2310
Attention: Board of Directors
Gentlemen:
You have asked for the opinion of Spencer Trask Securities, Inc. ("Spencer
Trask") as to the fairness, from a financial point of view, to the holders of
the outstanding shares of (a) the common stock, $0.001 par value per share (the
"Common Stock") and (b) the Series BC Convertible Preferred Stock, $0.001 par
value per share (the "Series BC Preferred Stock") (collectively, the
"Stockholders") of Sparta Pharmaceuticals, Inc. ("Sparta" or the "Company") of
the consideration to be received by such Stockholders pursuant to certain terms
of the Agreement and Plan of Reorganization dated as of January 18, 1999 among
the Company, a subsidiary of SuperGen, Inc. ("SuperGen") and SuperGen (the
"Merger Agreement"). The Merger Agreement provides that each share of Common
Stock issued and outstanding and issuable upon conversion of the Series BC
Preferred Stock issued and outstanding at the effective time of the Merger will
be automatically converted into the right to receive a number of shares of
SuperGen common stock equal to 650,000 (subject to adjustment under certain
circumstances) divided by the aggregate number of shares of Common Stock
outstanding at the effective time of the Merger and issuable upon conversion of
all shares of Series BC Preferred Stock outstanding at the effective time of the
Merger (such number of SuperGen shares to be known as the "Exchange Ratio").
In arriving at our opinion, we have reviewed the Merger Agreement and the
Certificate of Designations of the Series BC Preferred Stock, along with certain
business records of Sparta and SuperGen, including but not limited to the
following:
Regarding Sparta:
1. Annual Report on Form 10-K and Annual Report to Stockholders for the
fiscal year ended December 31, 1997
2. Quarterly reports on Form 10-Q for the periods ended March 31, 1998,
June 30, 1998 and September 30, 1998
3. Management's development plans regarding Sparta's intellectual property
4. Financial projections prepared by management
5. Intellectual property, including patents and other technology to which
the Company has rights
6. Published and unpublished scientific articles regarding the Company's
intellectual property
7. License agreements
8. Investigational New Drug applications submitted to the FDA
9. Internal financial and operational information prepared by management
10. Press releases and industry-related articles
11. Stock issuance and trading history
Regarding SuperGen:
1. Annual Report on Form 10-K and Annual Report to Stockholders for the
fiscal year ended December 31, 1997
<PAGE>
2. Quarterly reports on Form 10-Q for the periods ended March 31, 1998,
June 30, 1998 and September 30, 1998
3. Registration statement on Form S-3 filed on January 12, 1999
4. Intellectual property, including patents to which SuperGen has rights
5. Published articles regarding SuperGen's intellectual property
6. License agreements
7. Investment research reports
8. Press releases and industry-related articles
9. Stock issuance and trading history
In addition, we have visited Sparta's and SuperGen's facilities and have
discussed with the respective managements the current status of and outlook for
their company's operating results, assets and liabilities; industry conditions
and outlook; material contained in the foregoing documents; and other matters we
considered relevant to our inquiry.
We have considered certain financial and stock market data relating to
Sparta and SuperGen and compared that data with similar data for certain other
publicly held companies in businesses similar to those of Sparta and SuperGen.
We have also considered the financial terms of certain acquisitions involving
publicly held companies engaged in businesses somewhat similar to the Company.
We also conducted other financial studies and analyses as we deemed appropriate
for purposes of this opinion. In addition, we have assumed that in consideration
of the relinquishment of the Series BC Preferred Stock liquidation preference,
Stockholder approval will be given to increasing to at least 16 the number of
shares of Common Stock into which the Series BC Preferred Stock will be
convertible upon effectiveness of the Merger.
In our review and in arriving at our opinion we have not independently
verified any of the foregoing information and have relied upon its being
complete and accurate in all material aspects, and we have not made an
independent appraisal of specific properties or other assets of Sparta and
SuperGen. Our opinion is provided solely for your benefit in connection with the
Merger Agreement, according to the terms of our engagement letter dated November
18, 1998.
Spencer Trask Securities, Inc., as part of its investment banking business,
is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, private placements, and valuations for
estate, corporate and other purposes. Spencer Trask is being paid a fee for
rendering this opinion and performing related valuation analyses, which fee is
not contingent upon its conclusions.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio as set forth in the Merger Agreement dated as of
January 18, 1999 among the Company, a subsidiary of SuperGen, Inc., and
SuperGen, Inc. is fair, from a financial point of view, to the Stockholders of
Sparta Pharmaceuticals, Inc.
Very truly yours,
<TABLE>
<S> <C> <C>
SPENCER TRASK SECURITIES, INC.
By: /s/ ROGER K. BAUMBERGER
-----------------------------------------
Roger K. Baumberger
MANAGING DIRECTOR--CORPORATE FINANCE
</TABLE>
C-2
<PAGE>
APPENDIX D
FORM OF
AFFILIATE AGREEMENT
This AFFILIATE AGREEMENT ("AGREEMENT") dated as of 1999, is entered
into between SuperGen, Inc., a Delaware corporation ("SG") and the undersigned
affiliate ("AFFILIATE") of Sparta Pharmaceuticals, Inc., a Delaware corporation
("COMPANY").
WHEREAS, SG and Company have entered into an Agreement and Plan of
Reorganization dated January 18, 1999 ("MERGER AGREEMENT") pursuant to which a
subsidiary of SG will merge with and into Company ("MERGER"), and Company will
become a subsidiary of SG (capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Merger Agreement);
WHEREAS, pursuant to the Merger, at the Effective Time outstanding shares of
capital stock of the Company ("COMPANY CAPITAL STOCK"), including any shares
owned by Affiliate, will be converted into the right to receive SG Common Stock
as set forth in the Merger Agreement;
WHEREAS, the execution and delivery of this Agreement by Affiliate is a
material inducement to SG to enter into the Merger Agreement; and
WHEREAS, Affiliate has been advised that Affiliate may be deemed to be an
"affiliate" of Company, as the term "affiliate" is used (i) for purposes of
paragraphs (c) and (d) of Rule 145 of the Rules and Regulations (the "RULES AND
REGULATIONS") of the Securities and Exchange Commission (the "COMMISSION"),
although nothing contained herein shall be construed as an admission by
Affiliate that Affiliate is in fact an "affiliate" of Company.
NOW, THEREFORE, intending to be legally bound, the parties hereby agree as
follows:
1. ACKNOWLEDGMENTS BY AFFILIATE. Affiliate has carefully read this
Agreement and the Merger Agreement and has had the opportunity to discuss the
requirements of this Agreement with his, her or its professional advisors, who
are qualified to advise him, her or it with regard to such matters.
2. COMPLIANCE WITH RULE 145 AND THE SECURITIES ACT.
(a) Affiliate has been advised that (i) the issuance of shares of SG
Common Stock to Affiliate in connection with the Merger is expected to be
effected pursuant to a Registration Statement on Form S-4 to be filed to
register the shares of SG Common Stock under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), and as such will not be deemed "restricted
securities" within the meaning of Rule 144 promulgated under the Securities
Act, and resale of such shares will not be subject to any restrictions other
than as set forth in Rule 145 promulgated under the Securities Act (which
will not apply if such shares are otherwise transferred pursuant to an
effective registration statement under the Securities Act or an appropriate
exemption from registration), and (ii) Affiliate may be deemed to be an
"affiliate" of the Company within the meaning of the Securities Act and, in
particular, Rule 145 promulgated thereunder. Affiliate accordingly agrees
not to sell, transfer or otherwise dispose of any SG Common Stock issued to
Affiliate in the Merger unless (i) such sale, transfer or other disposition
is made in conformity with the requirements of Rule 145(d) promulgated under
the Securities Act, (ii) such sale, transfer or other disposition is made
pursuant to an effective registration statement under the Securities Act or
an appropriate exemption from registration, (iii) Affiliate delivers to SG a
written opinion of counsel, reasonably acceptable to SG in form and
substance, that such sale, transfer or other disposition is otherwise exempt
from registration under the Securities Act, or (iv) such sale, transfer or
disposition occurs after the earlier of (A) the first anniversary of the
Effective Time if Affliliate is not then an affiliate of SG as the term
"affiliate" is used for purposes of Rule 145(d) and the Affiliate and SG
meet the requirements of Rule 144 (the "Identified Conditions"), or (B) the
date on which the restrictions upon sale, transfer or disposition under Rule
145 are eliminated pursuant to action of the SEC.
(b) SG will give stop transfer instructions to its transfer agent with
respect to any SG Common Stock received by Affiliate pursuant to the Merger
and there will be placed on the certificates
<PAGE>
representing such Common Stock, or any substitutions therefor issued prior
to the termination of the restrictions described in Section 2(a) above, a
legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") APPLIES AND MAY ONLY BE TRANSFERRED (A)
IN CONFORMITY WITH RULE 145(D), (B) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) IN ACCORDANCE WITH
A WRITTEN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER IN
FORM AND SUBSTANCE, THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER
THE SECURITIES ACT, OR (D) AS IS OTHERWISE PERMITTED UNDER THAT CERTAIN
AFFILIATE AGREEMENT DATED AS OF , 1999, A COPY OF WHICH IS ON FILE
WITH THE SECRETARY OF THE ISSUER."
The legend set forth above shall be removed (by delivery of a substitute
certificate without such legend) and SG shall so instruct its transfer agent, if
Affiliate delivers to SG (i) satisfactory written evidence that the shares have
been sold in compliance with Rule 145 (in which case, the substitute certificate
will be issued in the name of the transferee), or (ii) an opinion of counsel, in
form and substance reasonably satisfactory to SG, to the effect that public sale
of the shares by the holder thereof is no longer subject to Rule 145, or (iii) a
written request for removal of such legend after the earlier of (x) the
inapplicability of Rule 145 by its terms if the Identified Conditions have been
satisfied, or (y) the effective date of any action by the SEC eliminating the
restrictions upon sale, transfer of disposition under Rule 145 or otherwise
rendering compliance with such restrictions unnecessary.
3. SPECIFIC PERFORMANCE. Affiliate agrees that irreparable damages would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms, or were otherwise breached.
It is, accordingly, agreed that SG shall be entitled to injunctive relief to
prevent breaches of the provisions of this Agreement, and to enforce
specifically the terms and provisions hereof, in addition to any other remedy to
which SG may be entitled at law or in equity.
4. MISCELLANEOUS.
(a) For the convenience of the parties hereto, this Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
document.
(b) This Agreement shall be enforceable by, and shall inure to the
benefit of and be binding upon, the parties hereto and their respective
successors and assigns. As used herein, the term "successors and assigns"
shall mean, where the context so permits, heirs, executors, administrators,
trustees and successor trustees, and personal and other representatives.
(c) This Agreement shall be governed by and construed, interpreted and
enforced in accordance with the internal laws of the State of Delaware.
(d) If a court of competent jurisdiction determines that any provision
of this Agreement is not enforceable or enforceable only if limited in time
or scope, this Agreement shall continue in full force and effect with such
provision stricken or so limited.
(e) This Agreement shall not be modified or amended, or any right
hereunder waived or any obligation excused, except by a written agreement
signed by both parties.
(f) This Affiliate Agreement and all obligations and restrictions
imposed on the Affiliate hereunder shall be terminated and of no further
force and effect upon termination of the Merger Agreement pursuant to its
terms.
D-2
<PAGE>
(g) SG currently intends to file on a timely basis, from and after the
Effective Time and as long as if necessary in order to permit Affiliate to
sell SG Common Stock held by Affiliate pursuant to Rule 145, all reports
required to be filed bt it pursuant to the Exchange Act, and currently
intends to otherwise make available adequate information regarding SG in
such manner as may be required to satisfy the requirements of Rule 144(c)
under the Act as now in effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth on the first page of this Agreement.
SUPERGEN, INC.
By: __________________________________
Title: _______________________________
AFFILIATE
By: __________________________________
Name of Affiliate: ___________________
Name of Signatory (if different from
name of
Affiliate): __________________________
Title of Signatory
(if applicable): _____________________
Company shares beneficially owned:
_________ shares of Capital Stock
Company shares subject to outstanding
options:
_________ shares of Capital Stock
***AFFILIATE AGREEMENT***
D-3
<PAGE>
APPENDIX E
DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS
262 APPRAISAL RIGHTS.-(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to "228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section251 (other than a merger effected pursuant to
Section251(g) of this title), Section252, Section254, Section257, Section258,
Section263 or Section264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of a merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market systems security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Section251,
252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
E-1
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section228
or Section253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for
any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of
a constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on
or within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
E-2
<PAGE>
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall
be not more than 10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion,
E-3
<PAGE>
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the surviving
or resulting corporation pursuant to subsection (f) of this section and who has
submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 120, L.
Section97, eff. 7-1-97.)
E-4
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law (the "DGCL") permits a Delaware
corporation to indemnify its directors, officers, employees and agents so long
as (1) such person acted in good faith and in a manner reasonably believed by
such person to be in or not opposed to the best interests of the corporation,
(2) in the case of a criminal action, such person had no reasonable cause to
believe that his conduct was unlawful, and (3) in the case of an action brought
by or in the right of the corporation in which such person has been found
liable, the court determines that such person is entitled to indemnity. The DGCL
also permits a corporation to eliminate the personal liability of directors for
monetary damages for breaches of fiduciary duties, subject to certain
exceptions. The Registrant's Certificate of Incorporation (Exhibit 3.1 hereto)
eliminates the personal liability of directors for monetary damages for breaches
of fiduciary duties to the maximum extent permitted by the DGCL. The
Registrant's Bylaws (Exhibit 3.2 hereto) provide for indemnification of its
directors, officers, employees and other agents to the maximum extent permitted
by the DGCL. In addition the Registrant has entered into Indemnification
Agreements (Exhibit 10.5 hereto) with its officers and directors.
Pursuant to the merger agreement, the Registrant agreed that, from the
effective time of the merger, it will, and will cause the surviving corporation,
to fulfill and honor in all respects the obligations of Sparta pursuant to each
indemnification agreement currently in effect between Sparta and each person who
is a director or officer of Sparta (the "Indemnified Parties") and any
indemnification provisions under Sparta's Certificate of Incorporation or Bylaws
as in effect on the date of the merger agreement. The Certificate of
Incorporation and Bylaws of the surviving corporation will contain provisions
with respect to indemnification.
Moreover, the Registrant has agreed to cause the surviving corporation to
maintain in effect, during the six-year period commencing as of the effective
time of the merger, a policy of directors' and officers' liability insurance for
the benefit of each of the Indemnified Persons providing coverage and containing
terms no less advantageous to the Indemnified Persons than the coverage and
terms of Sparta's existing policy of directors' and officers' liability
insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT NUMBER DOCUMENT DESCRIPTION
- --------------- -------------------------------------------------------------------------------------------------
<C> <S>
2.1(o) Agreement and Plan of Reorganization, dated January 18, 1999, by and among the Registrant, a
Delaware corporation, Royale Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of the Registrant, and Sparta Pharmaceuticals, Inc., a Delaware corporation. (included
as Exhibit A).
2.2(t) First Amendment to Agreement and Plan of Reorganization dated May 15, 1999.
3.1(f) Certificate of Incorporation of the Registrant.
3.2(m) Bylaws, as amended, of the Registrant.
4.1(m) Specimen Common Stock Certificate.
4.2(a) Form of Representative's Warrant.
4.3(a) Form of Warrant Agreement (dated March 11, 1996 including form of Common Stock Purchase Warrant).
4.4 Form of Warrant Agreement (including form of Common Stock Purchase Warrant).
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, with respect to the
securities being issued.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DOCUMENT DESCRIPTION
- --------------- -------------------------------------------------------------------------------------------------
<C> <S>
8.1 Tax Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
8.2 Tax Opinion of Dechert, Price & Rhoads.
10.1(l) Form of Indemnification Agreement between the Registrant and each of its directors and officers.
10.2(n)(s) 1993 Stock Option Plan (as amended through March 9, 1998).
10.3(i)(s) Forms of stock option agreements under the 1993 Stock Option Plan.
10.4(i)(s) 1996 Directors' Stock Option Plan, as amended effective February 3, 1997, and form of stock
option agreement thereunder.
10.5(c)(s) Employees and Consultants Stock Option Agreement/Plan.
10.6(n)(s) 1998 Employee Stock Purchase Plan.
10.7(b)(r) Patent License and Royalty Agreement dated August 30, 1993 between the Registrant and The Jackson
Laboratory.
10.8(b)(r) Worldwide License Agreement dated March 1, 1994 between the Registrant and Janssen Biotech, N.V.
10.9(b)(r) Patent License Agreement dated March 1, 1994 between the Registrant and Cyclex Inc.
10.10(b)(r) Patent License and Royalty Agreement dated November 15, 1993 between the Registrant and The Long
Island Jewish Medical Center.
10.11(b)(r) License Agreement dated February 1, 1995 between the Registrant and Pharmos Corporation.
10.12(i) Common Stock Sale/Repurchase Agreement dated August 6, 1997 between Israel Chemicals, Ltd.
("ICL") and the Registrant.
10.13(m) First Amendment to Common Stock Sale/Repurchase Agreement between ICL and the Registrant dated
November 12, 1997.
10.14(m)(s) Amended and Restated Employment, Confidential Information and Invention Assignment Agreement
dated January 1, 1998 between the Registrant and Joseph Rubinfeld
10.15(b) Consulting Agreement between the Registrant and Vida International Pharmaceutical Consultants.
10.16(d) Purchase and Sale Agreement dated as of September 30, 1996, between the Registrant and
Warner-Lambert Company, a Delaware corporation.
10.17(e)(r) Asset Purchase Agreement dated January 15, 1997 between the Registrant and Immunex Corporation, a
Washington corporation.
10.18(e) Bishop Ranch Business Park Building Lease dated October 14, 1996 between the Registrant and
Annabel Investment Company, a California partnership.
10.19(g)(r) License Agreement between Inflazyme Pharmaceuticals Ltd. and the Registrant dated April 11, 1997.
10.20(g)(r) Nonexclusive Supply Agreement between the Registrant and Yunnan Hande Technological Development
Co. Ltd. dated May 7, 1997.
10.21(g) Assignment and Assumption Agreement between the Registrant and R&S, LLC, dated April 17, 1997.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DOCUMENT DESCRIPTION
- --------------- -------------------------------------------------------------------------------------------------
<C> <S>
10.22(h) Convertible Secured Note, Option and Warrant Purchase Agreement dated June 28, 1997 among the
Registrant, Tako Ventures, LLC and, solely as to Sections 5.3 and 5.5 thereof, Lawrence J.
Ellison (the "Tako Purchase Agreement").
10.23(q) Amendment No. 1 to the Tako Purchase Agreement dated March 17, 1999.
10.24(j) Form of Common Stock Purchase Agreement among the purchasers and the Registrant dated August 29,
1997.
10.25(j)(r) License Agreement between Stehlin Foundation for Cancer Research and the Registrant dated
September 3, 1997.
10.26(j) Letter Agreement dated August 13, 1997 between the Registrant and South Bay Construction, Inc.
10.27(k)(r) Supply Agreement dated October 20, 1997 between the Registrant and Warner-Lambert Company.
10.28(l) Standard Industrial/Commercial Multi-Tenant Lease dated October 13, 1997 between R&S, LLC and
Quark Biotech, Inc.
10.29(q) Registration Rights Agreement dated November 23, 1998.
10.30(q) Stock Purchase Agreement between the Registrant and Tako dated January 29, 1999.
10.31(q) Standard Industrial/Commercial Multi-Tenant Lease dated February 12, 1999 between the Registrant
and Sea Cliff Properties, a California general partnership (for the premises at 1075 Serpentine
Lane, Pleasanton, California, Suite A).
10.32(q) Standard Industrial/Commercial Multi-Tenant Lease dated February 12, 1999 between the Registrant
and Sea Cliff Properties, a California general partnership (for the premises at 1075 Serpentine
Lane, Pleasanton, California, Suite B).
10.33(q) Secured Promissory Note Commitment dated March 25, 1999 issued by the Registrant to Tako Ventures
LLC.
10.34(q) Common Stock Purchase Warrant dated March 25, 1999.
10.35(p)(r) Letter of Intent regard Nipent-Registered Trademark- Manufacturing.
10.36(u) Common Stock Purchase Agreement dated November 23, 1998.
23.1 Consent of Ernst & Young LLP (Registrant).
23.2 Consent of Arthur Andersen LLP (Sparta Pharmaceuticals, Inc.).
23.3 Consent of Ernst & Young LLP (Sparta Pharmaceuticals, Inc.).
23.4 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibits 5.1
and 8.1)
23.5 Consent of Dechert, Price & Rhoads (included in Exhibit 8.2).
24.1* Power of Attorney (included on page II-7).
99.1 Opinion of Spencer Trask Securities, Inc. (included as Appendix C to the proxy
statement-prospectus forming a part of this Registration Statement).
99.2 Form of Proxy of Sparta Pharmaceuticals, Inc.
</TABLE>
- ------------------------
* Previously filed.
(a) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2 (Reg. No. 333-476-LA) filed with the Securities and Exchange
Commission January 18, 1996.
II-3
<PAGE>
(b) Incorporated by reference from Amendment No. 1 to the Registrant's
Registration Statement on Form SB-2 (Reg. No. 333-476-LA) filed with the
Securities and Exchange Commission February 26, 1996.
(c) Incorporated by reference from the Registrant's Report on Form S-8 filed
with the Securities and Exchange Commission on July 1, 1996.
(d) Incorporated by reference from the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on October 15, 1996.
(e) Incorporated by reference from the Registrant's Report on Form 10-K filed
with the Securities and Exchange Commission on March 31, 1997.
(f) Incorporated by reference from the Registrant's Proxy Statement filed with
the Securities and Exchange Commission on April 25, 1997.
(g) Incorporated by reference from the Registrant's Report on Form 10-Q filed
with the Securities and Exchange Commission on May 15, 1997.
(h) Incorporated by reference from the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on July 2, 1997.
(i) Incorporated by reference from the Registrant's Report on Form 10-Q filed
with the Securities and Exchange Commission on August 13, 1997.
(j) Incorporated by reference from Amendment No. 2 on Form S-3 to the
Registrant's Registration Statement on Form SB-2 (Reg. No. 333-476-LA) filed
with the Securities and Exchange Commission on October 6, 1997.
(k) Incorporated by reference from the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on October 31, 1997.
(l) Incorporated by reference from Amendment No. 3 on Form S-3 to the
Registrant's Registration Statement on Form SB-2 (Reg. No. 333-476-LA) filed
with the Securities and Exchange Commission on November 5, 1997.
(m) Incorporated by reference from the Registrant's Report on Form 10-K filed
with the Securities and Exchange Commission on March 19, 1998.
(n) Incorporated by reference from the Registrant's Registration Statement on
Form S-8 (Reg. No. 333-58303) filed with the Securities and Exchange
Commission on July 1, 1998.
(o) Incorporated by reference from the Registrant's Report on Form 8-K, filed
with the Securities and Exchange Commission on January 28, 1999.
(p) Incorporated by reference from the Registrant's Report on Form 10-Q filed
with the Securities and Exchange Commission on November 12, 1998.
(q) Incorporated by reference from the Registrant's Report on Form 10-K filed
with the Securities and Exchange Commission on March 31, 1999.
(r) Confidential treatment has been previously granted for certain portions of
these exhibits.
(s) Indicates a management contract or compensatory plan or arrangement.
(t) Filed as Appendix A to the proxy statement-prospectus constituting a part of
this Registration Statement and incorporated herein by reference.
(u) Incorporated by reference from the Registrant's Report on Form 10-K/A filed
with the Securities and Exchange Commission on May 14, 1999.
II-4
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of
any employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(5) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of the applicable
form.
(6) The registrant undertakes that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities At of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(7) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling
II-5
<PAGE>
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Ramon,
State of California, on June 30, 1999.
<TABLE>
<S> <C> <C>
SUPERGEN, INC.
By: /s/ JOSEPH RUBINFELD
-----------------------------------------
Joseph Rubinfeld
CHIEF EXECUTIVE OFFICER, PRESIDENT AND
DIRECTOR
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------------ ----------------------------------------------- ---------------
<S> <C> <C> <C>
By: /s/ JOSEPH RUBINFELD Chief Executive Officer, President and Director
--------------------------------- (Principal Executive, Financial and June 30, 1999
Joseph Rubinfeld Accounting Officer)
By: *
--------------------------------- Director June 30, 1999
Denis Burger
By:
--------------------------------- Director June , 1999
Lawrence J. Ellison
By: *
--------------------------------- Director June 30, 1999
Julius Vida
By:
--------------------------------- Director June , 1999
Daniel Zurr
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ JOSEPH RUBINFELD
-------------------------
Joseph Rubinfeld
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DOCUMENT DESCRIPTION NUMBERED PAGE
- ------------- ---------------------------------------------------------------------------------- ---------------
<C> <S> <C>
2.1(o) Agreement and Plan of Reorganization, dated January 18, 1999, by and among the
Registrant, a Delaware corporation, Royale Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of the Registrant, and Sparta
Pharmaceuticals, Inc., a Delaware corporation. (included as Exhibit A).
2.2(t) First Amendment to Agreement and Plan of Reorganization dated May 15, 1999.
3.1(f) Certificate of Incorporation of the Registrant.
3.2(m) Bylaws, as amended, of the Registrant.
4.1(m) Specimen Common Stock Certificate.
4.2(a) Form of Representative's Warrant.
4.3(a) Form of Warrant Agreement (dated March 11, 1996 including form of Common Stock
Purchase Warrant).
4.4 Form of Warrant Agreement (including form of Common Stock Purchase Warrant).
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, with
respect to the securities being issued.
8.1 Tax Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
8.2 Tax Opinion of Dechert, Price & Rhoads.
10.1(l) Form of Indemnification Agreement between the Registrant and each of its directors
and officers.
10.2(n)(s) 1993 Stock Option Plan (as amended through March 9, 1998).
10.3(i)(s) Forms of stock option agreements under the 1993 Stock Option Plan.
10.4(i)(s) 1996 Directors' Stock Option Plan, as amended effective February 3, 1997, and form
of stock option agreement thereunder.
10.5(c)(s) Employees and Consultants Stock Option Agreement/Plan.
10.6(n)(s) 1998 Employee Stock Purchase Plan.
10.7(b)(r) Patent License and Royalty Agreement dated August 30, 1993 between the Registrant
and The Jackson Laboratory.
10.8(b)(r) Worldwide License Agreement dated March 1, 1994 between the Registrant and Janssen
Biotech, N.V.
10.9(b)(r) Patent License Agreement dated March 1, 1994 between the Registrant and Cyclex
Inc.
10.10(b)(r) Patent License and Royalty Agreement dated November 15, 1993 between the
Registrant and The Long Island Jewish Medical Center.
10.11(b)(r) License Agreement dated February 1, 1995 between the Registrant and Pharmos
Corporation.
10.12(i) Common Stock Sale/Repurchase Agreement dated August 6, 1997 between Israel
Chemicals, Ltd. ("ICL") and the Registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DOCUMENT DESCRIPTION NUMBERED PAGE
- ------------- ---------------------------------------------------------------------------------- ---------------
<C> <S> <C>
10.13(m) First Amendment to Common Stock Sale/Repurchase Agreement between ICL and the
Registrant dated November 12, 1997.
10.14(m)(s) Amended and Restated Employment, Confidential Information and Invention Assignment
Agreement dated January 1, 1998 between the Registrant and Joseph Rubinfeld
10.15(b) Consulting Agreement between the Registrant and Vida International Pharmaceutical
Consultants.
10.16(d) Purchase and Sale Agreement dated as of September 30, 1996, between the Registrant
and Warner-Lambert Company, a Delaware corporation.
10.17(e)(r) Asset Purchase Agreement dated January 15, 1997 between the Registrant and Immunex
Corporation, a Washington corporation.
10.18(e) Bishop Ranch Business Park Building Lease dated October 14, 1996 between the
Registrant and Annabel Investment Company, a California partnership.
10.19(g)(r) License Agreement between Inflazyme Pharmaceuticals Ltd. and the Registrant dated
April 11, 1997.
10.20(g)(r) Nonexclusive Supply Agreement between the Registrant and Yunnan Hande
Technological Development Co. Ltd. dated May 7, 1997.
10.21(g) Assignment and Assumption Agreement between the Registrant and R&S, LLC, dated
April 17, 1997.
10.22(h) Convertible Secured Note, Option and Warrant Purchase Agreement dated June 17,
1997 among the Registrant, Tako Ventures, LLC and, solely as to Sections 5.3 and
5.5 thereof, Lawrence J. Ellison (the "Tako Purchase Agreement").
10.23(q) Amendment No. 1 to the Tako Purchase Agreement dated March 17, 1999.
10.24(j) Form of Common Stock Purchase Agreement among the purchasers and the Registrant
dated August 29, 1997.
10.25(j)(r) License Agreement between Stehlin Foundation for Cancer Research and the
Registrant dated September 3, 1997.
10.26(j) Letter Agreement dated August 13, 1997 between the Registrant and South Bay
Construction, Inc.
10.27(k)(r) Supply Agreement dated October 20, 1997 between the Registrant and Warner-Lambert
Company.
10.28(l) Standard Industrial/Commercial Multi-Tenant Lease dated October 13, 1997 between
R&S, LLC and Quark Biotech, Inc.
10.29(q) Registration Rights Agreement dated November 23, 1998.
10.30(q) Stock Purchase Agreement between the Registrant and Tako dated January 29, 1999.
10.31(q) Standard Industrial/Commercial Multi-Tenant Lease dated February 12, 1999 between
the Registrant and Sea Cliff Properties, a California general partnership (for the
premises at 1075 Serpentine Lane, Pleasanton, California, Suite A).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DOCUMENT DESCRIPTION NUMBERED PAGE
- ------------- ---------------------------------------------------------------------------------- ---------------
<C> <S> <C>
10.32(q) Standard Industrial/Commercial Multi-Tenant Lease dated February 12, 1999 between
the Registrant and Sea Cliff Properties, a California general partnership (for the
premises at 1075 Serpentine Lane, Pleasanton, California, Suite B).
10.33(q) Secured Promissory Note Commitment dated March 25, 1999 issued by the Registrant
to Tako Ventures LLC.
10.34(q) Common Stock Purchase Warrant dated March 25, 1999.
10.35(p)(r) Letter of Intent regard Nipent-Registered Trademark- Manufacturing.
10.36(u) Common Stock Purchase Agreement dated November 23, 1998.
23.1 Consent of Ernst & Young LLP (Registrant).
23.2 Consent of Arthur Andersen LLP (Sparta Pharmaceuticals, Inc.).
23.3 Consent of Ernst & Young LLP (Sparta Pharmaceuticals, Inc.).
23.4 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in
Exhibits 5.1 and 8.1)
23.5 Consent of Dechert, Price & Rhoads (included in Exhibit 8.2).
24.1* Power of Attorney (included on page II-7).
99.1 Opinion of Spencer Trask Securities, Inc. (included as Appendix C to the proxy
statement-prospectus forming a part of this Registration Statement).
99.2 Form of Proxy of Sparta Pharmaceuticals, Inc.
</TABLE>
- ------------------------
* Previously filed.
(a) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2 (Reg. No. 333-476-LA) filed with the Securities and Exchange
Commission January 18, 1996.
(b) Incorporated by reference from Amendment No. 1 to the Registrant's
Registration Statement on Form SB-2 (Reg. No. 333-476-LA) filed with the
Securities and Exchange Commission February 26, 1996.
(c) Incorporated by reference from the Registrant's Report on Form S-8 filed
with the Securities and Exchange Commission on July 1, 1996.
(d) Incorporated by reference from the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on October 15, 1996.
(e) Incorporated by reference from the Registrant's Report on Form 10-K filed
with the Securities and Exchange Commission on March 31, 1997.
(f) Incorporated by reference from the Registrant's Proxy Statement filed with
the Securities and Exchange Commission on April 25, 1997.
(g) Incorporated by reference from the Registrant's Report on Form 10-Q filed
with the Securities and Exchange Commission on May 15, 1997.
(h) Incorporated by reference from the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on July 2, 1997.
(i) Incorporated by reference from the Registrant's Report on Form 10-Q filed
with the Securities and Exchange Commission on August 13, 1997.
<PAGE>
(j) Incorporated by reference from Amendment No. 2 on Form S-3 to the
Registrant's Registration Statement on Form SB-2 (Reg. No. 333-476-LA) filed
with the Securities and Exchange Commission on October 6, 1997.
(k) Incorporated by reference from the Registrant's Report on Form 8-K filed
with the Securities and Exchange Commission on October 31, 1997.
(l) Incorporated by reference from Amendment No. 3 on Form S-3 to the
Registrant's Registration Statement on Form SB-2 (Reg. No. 333-476-LA) filed
with the Securities and Exchange Commission on November 5, 1997.
(m) Incorporated by reference from the Registrant's Report on Form 10-K filed
with the Securities and Exchange Commission on March 19, 1998.
(n) Incorporated by reference from the Registrant's Registration Statement on
Form S-8 (Reg. No. 333-58303) filed with the Securities and Exchange
Commission on July 1, 1998.
(o) Incorporated by reference from the Registrant's Report on Form 8-K, filed
with the Securities and Exchange Commission on January 28, 1999.
(p) Incorporated by reference from the Registrant's Report on Form 10-Q filed
with the Securities and Exchange Commission on November 12, 1998.
(q) Incorporated by reference from the Registrant's Report on Form 10-K filed
with the Securities and Exchange Commission on March 31, 1999.
(r) Confidential treatment has been previously granted for certain portions of
these exhibits.
(s) Indicates a management contract or compensatory plan or arrangement.
(t) Filed as Appendix A to the proxy statement-prospectus constituting a part of
this Registration Statement and incorporated herein by reference.
(u) Incorporated by reference from the Registrant's Report on Form 10-K/A filed
with the Securities and Exchange Commission on May 14, 1999.
<PAGE>
WARRANT AGREEMENT
BETWEEN
SUPERGEN, INC.
AND
CHASEMELLON SHAREHOLDER SERVICES, LLC
DATED AS OF _____________, 1999
<PAGE>
This Agreement, dated as of __________, 1999, is between SuperGen, Inc.,
a Delaware corporation (the "Company"), and ChaseMellon Shareholder Services
LLC, a New Jersey limited liability company, (the "Warrant Agent").
The Company, at or about the time that it is entering into this Agreement,
proposes to issue up to _________ Warrants (collectively, the "Warrants"), each
Warrant exercisable to purchase one share of Common Stock for [$____], upon the
terms and conditions and subject to adjustment in certain circumstances, all as
set forth in this Agreement.
The Company wishes to retain the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, transfer, exchange and replacement of the certificates evidencing the
Warrants to be issued under this Agreement (the "Warrant Certificates") and the
exercise of the Warrants;
The Company and the Warrant Agent wish to enter into this Agreement to set
forth the terms and conditions of the Warrants and the rights of the holders
thereof ("Warrantholders") and to set forth the respective rights and
obligations of the Company and the Warrant Agent. Each Warrantholder is an
intended beneficiary of this Agreement with respect to the rights of
Warrantholders herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
Section 1. APPOINTMENT OF WARRANT AGENT
The Company appoints the Warrant Agent to act as agent for the Company in
accordance with the instructions in this Agreement and the Warrant Agent
accepts such appointment.
Section 2. DATE, DENOMINATION AND EXECUTION OF WARRANT CERTIFICATES
The Warrant Certificates (and the Form of Election to Purchase and the Form
of Assignment to be printed on the reverse thereof) shall be in registered form
only and shall be substantially of the tenor and purport recited in Exhibit A
hereto, and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed
or engraved thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law, or with any rule or regulation made pursuant thereto, or
with any rule or regulation of any stock exchange on which the Common Stock or
the Warrants may be listed or any automated quotation system, or to conform to
usage. Each Warrant Certificate shall entitle the registered holder thereof,
subject to the provisions of this Agreement and of the Warrant Certificate, to
purchase, on or before the date (the "Expiration Date") that is the earlier of
(i) the close of business on _______, 2001, or (ii) the effective date of the
consummation of any transaction or series of transactions (collectively, the
"Transaction"), including without limitation, the sale, transfer or disposition
of all or substantially all of the Company's assets or the merger of the
Company with or into, or consolidation with, any other corporation, whereby the
holders of the Company's voting securities prior to the Transaction do not hold
more than 50% of the voting securities of the surviving entity following
consummation of the Transaction (a "Change
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in Control"), one fully paid and non-assessable share of Common Stock for each
Warrant evidenced by such Warrant Certificate, subject to adjustments as
provided in Section 6 hereof, for [$____] (the "Exercise Price"). Each
Warrant Certificate shall be dated the date on which the Warrant Agent
receives valid issuance instructions from the Company or a transferring holder
of a Warrant Certificate or, if such instructions specify another date, such
other date.
For purposes of this Agreement, the term "close of business" on any given
date shall mean 5:00 p.m., Pacific time, on such date; provided, however, that
if such date is not a business day, it shall mean 5:00 p.m., Pacific time, on
the next succeeding business day. For purposes of this Agreement, the term
"business day" shall mean any day other than a Saturday, Sunday, or a day on
which banking institutions in California are authorized or obligated by law to
be closed.
Each Warrant Certificate shall be executed on behalf of the Company by the
Chairman of the Board or its President or a Vice President, either manually or
by facsimile signature printed thereon, and have affixed thereto the Company's
seal or a facsimile thereof which shall be attested by the Secretary or an
Assistant Secretary of the Company, either manually or by facsimile signature.
Each Warrant Certificate shall be manually countersigned by the Warrant Agent
and shall not be valid for any purpose unless so countersigned. In case any
officer of the Company who shall have signed any Warrant Certificate shall
cease to be such officer of the Company before countersignature by the Warrant
Agent and issue and delivery thereof by the Company, such Warrant Certificate,
nevertheless, may be countersigned by the Warrant Agent, issued and delivered
with the same force and effect as though the person who signed such Warrant
Certificate had not ceased to be such officer of the Company.
Section 3. SUBSEQUENT ISSUE OF WARRANT CERTIFICATES
Subsequent to their original issuance, no Warrant Certificates shall be
reissued except (i) Warrant Certificates issued upon transfer thereof in
accordance with Section 4 hereof, (ii) Warrant Certificates issued upon any
combination, split-up or exchange of Warrant Certificates pursuant to Section 4
hereof, (iii) Warrant Certificates issued in replacement of mutilated,
destroyed, lost or stolen Warrant Certificates pursuant to Section 5 hereof,
(iv) Warrant Certificates issued upon the partial exercise of Warrant
Certificates pursuant to Section 7 hereof, and (v) Warrant Certificates issued
to reflect any adjustment or change in the Exercise Price or the number or kind
of shares purchasable thereunder pursuant to Section 22 hereof. The Warrant
Agent is hereby irrevocably authorized to countersign and deliver, in
accordance with the provisions of said Sections 4, 5, 7 and 22, the new Warrant
Certificates required for purposes thereof, and the Company, whenever required
by the Warrant Agent, will supply the Warrant Agent with Warrant Certificates
duly executed on behalf of the Company for such purposes.
Section 4. TRANSFERS AND EXCHANGES OF WARRANT CERTIFICATES
The Warrant Agent will keep or cause to be kept books for registration of
ownership and transfer of the Warrant Certificates issued hereunder. Such
registers shall show the names and addresses of the respective holders of the
Warrant Certificates and the number of Warrants evidenced by each such Warrant
Certificate.
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The Warrant Agent shall, from time to time, register the transfer of any
outstanding Warrants upon the books to be maintained by the Warrant Agent for
that purpose, upon surrender of the Warrant Certificate evidencing such
Warrants, with the Form of Assignment duly filled in and executed with such
signature guaranteed by a banking institution or NASD member and such
supporting documentation as the Warrant Agent or the Company may reasonably
require, to the Warrant Agent at its stock transfer office in San Francisco,
California at any time on or before the Expiration Date, and upon payment to
the Warrant Agent for the account of the Company of an amount equal to any
applicable transfer tax. Payment of the amount of such tax may be made in cash,
or by certified or official bank check, payable in lawful money of the United
States of America to the order of the Company.
Upon receipt of a Warrant Certificate, with the Form of Assignment duly
filled in and executed, accompanied by payment of an amount equal to any
applicable transfer tax, the Warrant Agent shall promptly cancel the
surrendered Warrant Certificate and countersign and deliver to the transferee a
new Warrant Certificate for the number of full Warrants transferred to such
transferee; PROVIDED, HOWEVER, that in case the registered holder of any Warrant
Certificate shall elect to transfer fewer than all of the Warrants evidenced by
such Warrant Certificate, the Warrant Agent in addition shall promptly
countersign and deliver to such registered holder a new Warrant Certificate or
Certificates for the number of full Warrants not so transferred.
Any Warrant Certificate or Certificates may be exchanged at the option of
the holder thereof for another Warrant Certificate or Certificates of different
denominations, of like tenor and representing in the aggregate the same number
of Warrants, upon surrender of such Warrant Certificate or Certificates, with
the Form of Assignment duly filled in and executed, to the Warrant Agent, at any
time or from time to time after the close of business on the date hereof and
prior to the close of business on the Expiration Date. The Warrant Agent shall
promptly cancel the surrendered Warrant Certificate and deliver the new Warrant
Certificate pursuant to the provisions of this Section.
Section 5. MUTILATED, DESTROYED, LOST OR STOLEN WARRANT CERTIFICATES
Upon receipt by the Company and the Warrant Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of any
Warrant Certificate, and in the case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and reimbursement to
them of all reasonable expenses incidental thereto, and, in the case of
mutilation, upon surrender and cancellation of the Warrant Certificate, the
Warrant Agent shall countersign and deliver a new Warrant Certificate of like
tenor for the same number of Warrants.
Section 6. ADJUSTMENTS OF NUMBER AND KIND OF SHARES PURCHASABLE AND
EXERCISE PRICE
The number and kind of securities or other property purchasable upon
exercise of a Warrant shall be subject to adjustment from time to time upon the
occurrence, after the date hereof, of any of the following events:
A. In case the Company shall (1) pay a dividend in, or make a
distribution of, shares of capital stock on its outstanding Common
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Stock, (2) subdivide its outstanding shares of Common Stock into a greater
number of such shares or (3) combine its outstanding shares of Common Stock into
a smaller number of such shares, the total number of shares of Common Stock
purchasable upon the exercise of each Warrant outstanding immediately prior
thereto shall be adjusted so that the holder of any Warrant Certificate
thereafter surrendered for exercise shall be entitled to receive at the same
aggregate Exercise Price the number of shares of capital stock (of one or more
classes) which such holder would have owned or have been entitled to receive
immediately following the happening of any of the events described above had
such Warrant been exercised in full immediately prior to the record date with
respect to such event. Any adjustment made pursuant to this Subsection shall,
in the case of a stock dividend or distribution, become effective as of the
record date therefor and, in the case of a subdivision or combination, be made
as of the effective date thereof. If, as a result of an adjustment made
pursuant to this Subsection, the holder of any Warrant Certificate thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock of the Company, the Board of Directors of the Company
(whose determination shall be conclusive and shall be evidenced by a Board
resolution filed with the Warrant Agent) shall determine the allocation of the
adjusted Exercise Price between or among shares of such classes of capital
stock.
B. In the event of a capital reorganization or a reclassification of the
Common Stock (except in connection with a Change in Control or as provided in
Subsection A. above or Subsection D. below), any Warrantholder, upon exercise of
Warrants, shall be entitled to receive, in substitution for the Common Stock to
which he would have become entitled upon exercise immediately prior to such
reorganization or reclassification, the shares (of any class or classes) or
other securities or property of the Company (or cash) that he would have been
entitled to receive at the same aggregate Exercise Price upon such
reorganization or reclassification if such Warrants had been exercised
immediately prior to the record date with respect to such event; and in any such
case, appropriate provision (as determined by the Board of Directors of the
Company, whose determination shall be conclusive and shall be evidenced by a
certified Board resolution filed with the Warrant Agent) shall be made for the
application of this Section 6 with respect to the rights and interests
thereafter of the Warrantholders (including but not limited to the allocation of
the Exercise Price between or among shares of classes of capital stock), to the
end that this Section 6 (including the adjustments of the number of shares of
Common Stock or other securities purchasable and the Exercise Price thereof)
shall thereafter be reflected, as nearly as reasonably practicable, in all
subsequent exercises of the Warrants for any shares or securities or other
property (or cash) thereafter deliverable upon the exercise of the Warrants.
C. Whenever the number of shares of Common Stock or other securities
purchasable upon exercise of a Warrant is adjusted as provided in this Section
6, the Company will promptly file with the Warrant Agent a certificate signed by
a Chairman or co-Chairman of the Board or the President or a Vice President of
the Company and by the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary of the Company setting forth the number and kind of
securities or other property purchasable upon exercise of a Warrant, as so
adjusted, stating that such adjustments in the number or kind of shares or other
securities or property conform to the requirements of this Section 6, and
setting forth a brief statement of the facts accounting for such adjustments.
Promptly after receipt of such certificate, the Company, or the Warrant Agent at
the Company's request, will deliver, by first-class, postage prepaid mail, a
brief summary thereof (to be supplied by the Company) to the registered holders
of the outstanding Warrant Certificates; PROVIDED, HOWEVER, that
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failure to file or to give any notice required under this Subsection, or any
defect therein, shall not affect the legality or validity of any such
adjustments under this Section 6; and PROVIDED, FURTHER, that, where
appropriate, such notice may be given in advance and included as part of the
notice required to be given pursuant to Section 12 hereof.
D. Irrespective of any adjustments in the number or kind of shares
issuable upon exercise of Warrants, Warrant Certificates theretofore or
thereafter issued may continue to express the same price and number and kind of
shares as are stated in the similar Warrant Certificates initially issuable
pursuant to this Warrant Agreement.
E. The Company may retain a firm of independent public accountants of
recognized standing, which may be the firm regularly retained by the Company,
selected by the Board of Directors of the Company or the Executive Committee of
said Board, and not disapproved by the Warrant Agent, to make any computation
required under this Section, and a certificate signed by such firm shall, in the
absence of fraud or gross negligence, be conclusive evidence of the correctness
of any computation made under this Section.
F. For the purpose of this Section, the term "Common Stock" shall mean
(i) the class of stock designated as Common Stock in the Articles of
Incorporation of the Company, as amended, at the date of this Agreement, or (ii)
any other class of stock resulting from successive changes or reclassifications
of such Common Stock consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value. In the event that at
any time as a result of an adjustment made pursuant to this Section, the holder
of any Warrant thereafter surrendered for exercise shall become entitled to
receive any shares of capital stock of the Company other than shares of Common
Stock, thereafter the number of such other shares so receivable upon exercise of
any Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in this Section, and all other provisions of this
Agreement, with respect to the Common Stock, shall apply on like terms to any
such other shares.
G. The Company may, from time to time and to the extent permitted by law,
reduce the exercise price of the Warrants by any amount for a period of not less
than 20 days. If the Company so reduces the exercise price of the Warrants, it
will give not less than 15 days' notice of such decrease, which notice may be in
the form of a press release and shall take such other steps as may be required
under applicable law in connection with any offers or sales of securities at the
reduced price.
Section 7. EXERCISE OF WARRANTS
The registered holder of any Warrant Certificate may exercise the Warrants
evidenced thereby, in whole at any time or in part from time to time at or prior
to the close of business on the Expiration Date, subject to the provisions of
Section 9, at which time the Warrant Certificates shall be and become wholly
void and of no value. Warrants may be exercised by their holders as follows:
A. Exercise of Warrants shall be accomplished upon surrender of the
Warrant Certificate evidencing such Warrants, with the Form of Election to
Purchase on the reverse side thereof duly
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filled in and executed, to the Warrant Agent at its order of the stock
transfer office in San Francisco, California, together with payment to the
order of the Company of the Exercise Price (as of the date of such surrender)
of the Warrants then being exercised and an amount equal to any applicable
transfer tax and, if requested by the Company, any other taxes or
governmental charges which the Company may be required by law to collect in
respect of such exercise. The executed Warrant Certificate and payment are
to be sent to the Warrant Agent at its stock transfer office in San
Francisco, California. Payment of the Exercise Price and other amounts may be
made by wire transfer of good funds, or by certified or bank cashier's check,
payable in lawful money of the United States of America to the order of the
Company. No adjustment shall be made for any cash dividends, whether paid or
declared, on any securities issuable upon exercise of a Warrant.
B. Upon receipt of a Warrant Certificate, with the Form of Election to
Purchase duly filled in and executed, accompanied by payment of the Exercise
Price of the Warrants being exercised (and of an amount equal to any applicable
taxes or government charges as aforesaid), the Warrant Agent shall promptly
request from the Transfer Agent with respect to the securities to be issued and
deliver to or upon the order of the registered holder of such Warrant
Certificate, in such name or names as such registered holder may designate, a
certificate or certificates for the number of full shares of the securities to
be purchased, together with cash made available by the Company pursuant to
Section 8 hereof in respect of any fraction of a share of such securities
otherwise issuable upon such exercise. If the Warrant is then exercisable to
purchase property other than securities, the Warrant Agent shall take
appropriate steps to cause such property to be delivered to or upon the order of
the registered holder of such Warrant Certificate. In addition, if it is
required by law and upon instruction by the Company, the Warrant Agent will
deliver to each Warrantholder a prospectus which complies with the provisions of
Section 9 of the Securities Act of 1933 and the Company agrees to supply Warrant
Agent with sufficient number of prospectuses to effectuate that purpose.
C. In case the registered holder of any Warrant Certificate shall
exercise fewer than all of the Warrants evidenced by such Warrant Certificate,
the Warrant Agent shall promptly countersign and deliver to the registered
holder of such Warrant Certificate, or to his duly authorized assigns, a new
Warrant Certificate or Certificates evidencing the number of Warrants that were
not so exercised.
D. Each person in whose name any certificate for securities is issued
upon the exercise of Warrants shall for all purposes be deemed to have become
the holder of record of the securities represented thereby as of, and such
certificate shall be dated, the date upon which the Warrant Certificate was duly
surrendered in proper form and payment of the Exercise Price (and of any
applicable taxes or other governmental charges) was made; PROVIDED, HOWEVER,
that if the date of such surrender and payment is a date on which the stock
transfer books of the Company are closed, such person shall be deemed to have
become the record holder of such shares as of, and the certificate for such
shares shall be dated, the next succeeding business day on which the stock
transfer books of the Company are open (whether before, on or after the
Expiration Date) and the Warrant Agent shall be under no duty to deliver the
certificate for such shares until such date. The Company covenants and agrees
that it shall not cause its stock transfer books to be closed for a period of
more than 20 consecutive business days except upon consolidation, merger, sale
of all or substantially all of its assets, dissolution or liquidation or as
otherwise provided by law.
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Section 8. FRACTIONAL INTERESTS
The Company shall not be required to issue any Warrant Certificate
evidencing a fraction of a Warrant or to issue fractions of shares of securities
on the exercise of the Warrants. If any fraction (calculated to the nearest
one-hundredth) of a Warrant or a share of securities would, except for the
provisions of this Section, be issuable on the exercise of any Warrant, the
Company shall, at its option, either purchase such fraction for an amount in
cash equal to the current value of such fraction computed on the basis of the
closing market price (as quoted on NASDAQ) on the trading day immediately
preceding the day upon which such Warrant Certificate was surrendered for
exercise in accordance with Section 7 hereof or issue the required fractional
Warrant or share. By accepting a Warrant Certificate, the holder thereof
expressly waives any right to receive a Warrant Certificate evidencing any
fraction of a Warrant or to receive any fractional share of securities upon
exercise of a Warrant, except as expressly provided in this Section 8.
Section 9. RESERVATION OF EQUITY SECURITIES
The Company covenants that it will at all times reserve and keep available,
free from any pre-emptive rights, out of its authorized and unissued equity
securities, solely for the purpose of issue upon exercise of the Warrants, such
number of shares of equity securities of the Company as shall then be issuable
upon the exercise of all outstanding Warrants ("Equity Securities"). The
Company covenants that all Equity Securities which shall be so issuable shall,
upon such issue, be duly authorized, validly issued, fully paid and
non-assessable.
The Company covenants that if any equity securities, required to be
reserved for the purpose of issue upon exercise of the Warrants hereunder,
require registration with or approval of any governmental authority under any
federal or state law before such shares may be issued upon exercise of Warrants,
the Company will use all commercially reasonable efforts to cause such
securities to be duly registered, or approved, as the case may be, and, to the
extent practicable, take all such action in anticipation of and prior to the
exercise of the Warrants, including, without limitation, filing any and all
post-effective amendments to the Company's Registration Statement on Form S-4
(Registration No. 333-80517) necessary to permit a public offering of the
securities underlying the Warrants at any and all times during the term of this
Agreement, PROVIDED, HOWEVER, that in no event shall such securities be issued,
and the Company is authorized to refuse to honor the exercise of any Warrant, if
such exercise would result in the opinion of the Company's Board of Directors,
upon advice of counsel, in the violation of any law.
Section 10. REDUCTION OF CONVERSION PRICE BELOW PAR VALUE
Before taking any action that would cause an adjustment pursuant to Section
6 hereof reducing the portion of the Exercise Price required to purchase one
share of capital stock below the then par value (if any) of a share of such
capital stock, the Company will use its best efforts to take any corporate
action which, in the opinion of its counsel, may be necessary in order that the
Company may validly and legally issue fully paid and non-assessable shares of
such capital stock.
Section 11. PAYMENT OF TAXES
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The Company covenants and agrees that it will pay when due and payable any
and all federal and state documentary stamp and other original issue taxes which
may be payable in respect of the original issuance of the Warrant Certificates,
or any shares of Common Stock or other securities upon the exercise of Warrants.
The Company shall not, however, be required (i) to pay any tax which may be
payable in respect of any transfer involved in the transfer and delivery of
Warrant Certificates or the issuance or delivery of certificates for Common
Stock or other securities in a name other than that of the registered holder of
the Warrant Certificate surrendered for purchase or (ii) to issue or deliver any
certificate for shares of Common Stock or other securities upon the exercise of
any Warrant Certificate until any such tax shall have been paid, all such tax
being payable by the holder of such Warrant Certificate at the time of
surrender.
Section 12. NOTICE OF CERTAIN CORPORATE ACTION
In case the Company after the date hereof shall propose (i) to offer the
holders of Common Stock, generally, rights to subscribe to or purchase any
additional shares of any class of its capital stock, any evidences of its
indebtedness or assets, or any other rights or options or (ii) to effect a
Change in Control, or the liquidation, voluntary or involuntary dissolution
or winding-up of the Company, then, in each such case, the Company shall file
with the Warrant Agent and the Company, or the Warrant Agent on its behalf,
shall mail (by first-class, postage prepaid mail) to all registered holders
of the Warrant Certificates notice of such proposed action, which notice
shall specify the date on which the books of the Company shall close or a
record be taken for such offer of rights or options or the date on which such
Change in Control, liquidation, voluntary or involuntary dissolution or
winding up event shall take place or commence, as the case may be, and which
shall also specify any record date for determination of holders of Common
Stock entitled to vote thereon or participate therein and shall set forth
such facts with respect thereto as shall be reasonably necessary to indicate
the number or kind of shares or other securities purchasable or other
consideration to which the holders of Warrant Certificates would be entitled
upon exercise of the Warrants. Such notice shall be filed and mailed in the
case of any action covered by clause (i) above at least thirty days prior to
the record date for determining holders of the Common Stock for purposes of
such action or, if a record is not to be taken, the date as of which the
holders of shares of Common Stock of record are entitled to such offering;
and in the case of any action covered by clause (ii) above, at least 30 days
prior to the date a Change in Control or liquidation, voluntary or
involuntary dissolution or winding-up is expected to become effective.
Failure to give any such notice or any defect therein shall not affect the
legality or validity of any transaction listed in this Section 12.
Section 13. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANT CERTIFICATES,
ETC.
The Warrant Agent shall account promptly to the Company with respect to
Warrants exercised and concurrently pay to the Company all moneys received by
the Warrant Agent for the purchase of securities or other property through the
exercise of such Warrants.
The Warrant Agent shall keep copies of this Agreement available for
inspection by Warrantholders during normal business hours at its stock transfer
office. Copies of this Agreement may be obtained upon written request addressed
to the Warrant Agent at its stock transfer office in San Francisco, California.
Section 14. WARRANTHOLDER NOT DEEMED A STOCKHOLDER
No Warrantholder, as such, shall be entitled to vote, receive dividends or
be deemed the holder of Common Stock or any other securities of the Company
which may at any time be issuable on the exercise of the Warrants represented
thereby for any purpose whatever, nor shall anything contained herein or in any
Warrant Certificate be construed to confer upon any Warrantholder, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold
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consent to any corporate action (whether upon any recapitalization, issuance of
stock, reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger, conveyance or otherwise), or to receive notice
of meetings or other actions affecting stockholders (except as provided in
Section 12 hereof), or to receive dividend or subscription rights, or otherwise,
until such Warrant Certificate shall have been exercised in accordance with the
provisions hereof and the receipt of the Exercise Price and any other amounts
payable upon such exercise by the Warrant Agent.
Section 15. RIGHT OF ACTION
All rights of action in respect to this Agreement are vested in the
respective registered holders of the Warrant Certificates; and any registered
holder of any Warrant Certificate, without the consent of the Warrant Agent or
of any other holder of a Warrant Certificate, may, in his own behalf for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company suitable to enforce, or otherwise in respect of, his right
to exercise the Warrants evidenced by such Warrant Certificate, for the purchase
of shares of the Common Stock in the manner provided in the Warrant Certificate
and in this Agreement.
Section 16. AGREEMENT OF HOLDERS OF WARRANT CERTIFICATES
Every holder of a Warrant Certificate by accepting the same consents and
agrees with the Company, the Warrant Agent and with every other holder of a
Warrant Certificate that:
A. the Warrant Certificates are transferable on the registry books of the
Warrant Agent only upon the terms and conditions set forth in this Agreement;
and
B. the Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the absolute owner of the
Warrant (notwithstanding any notation of ownership or other writing thereon made
by anyone other than the Company or the Warrant Agent) for all purposes whatever
and neither the Company nor the Warrant Agent shall be affected by any notice to
the contrary.
Section 17. CANCELLATION OF WARRANT CERTIFICATES
In the event that the Company shall purchase or otherwise acquire any
Warrant Certificate or Certificates after the issuance thereof, such Warrant
Certificate or Certificates shall thereupon be delivered to the Warrant Agent
and be canceled by it and retired. The Warrant Agent shall also cancel any
Warrant Certificate delivered to it for exercise, in whole or in part, or
delivered to it for transfer, split-up, combination or exchange. Warrant
Certificates so canceled shall be delivered by the Warrant Agent to the Company
from time to time, or disposed of in accordance with the instructions of the
Company.
Section 18. CONCERNING THE WARRANT AGENT
The Company agrees to pay to the Warrant Agent from time to time, on demand
of the Warrant Agent, reasonable compensation for all services rendered by it
hereunder and also its reasonable expenses, including counsel fees, and other
disbursements incurred in the administration
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and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Warrant Agent for, and to
hold it harmless against, any loss, liability or expense, incurred without gross
negligence, bad faith or willful misconduct on the part of the Warrant Agent,
arising out of or in connection with the acceptance and administration of this
Agreement.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT
Any corporation into which the Warrant Agent may be merged or with which it
may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, provided that
such corporation would be eligible for appointment as a successor warrant agent
under the provisions of Section 21 hereof. In case at the time such successor
to the Warrant Agent shall succeed to the agency created by this Agreement, any
of the Warrant Certificates shall have been countersigned but not delivered, any
such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent and deliver such Warrant Certificates so countersigned;
and in case at that time any of the Warrant Certificates shall not have been
countersigned, any successor to the Warrant Agent may countersign such Warrant
Certificates either in the name of the predecessor Warrant Agent or in the name
of the successor Warrant Agent; and in all such cases such Warrant Certificates
shall have the full force provided in the Warrant Certificates and in this
Agreement.
In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrant Certificates shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrant Certificates so countersigned; and in case at that time any
of the Warrant Certificates shall not have been countersigned, the Warrant Agent
may countersign such Warrant Certificates either in its prior name or in its
changed name; and in all such cases such Warrant Certificates shall have the
full force provided in the Warrant Certificates and in this Agreement.
Section 20. DUTIES OF WARRANT AGENT
The Warrant Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which the Company
and the holders of Warrant Certificates, by their acceptance thereof, shall be
bound:
A. The Warrant Agent may consult with counsel satisfactory to it (who may
be counsel for the Company or the Warrant Agent's in-house counsel), and the
opinion of such counsel shall be full and complete authorization and protection
to the Warrant Agent as to any action taken, suffered or omitted by it in good
faith and in accordance with such opinion; PROVIDED, HOWEVER, that the Warrant
Agent shall have exercised reasonable care in the selection of such counsel.
Fees and expenses of such counsel, to the extent reasonable, shall be paid by
the Company.
B. Whenever in the performance of its duties under this Agreement, the
Warrant Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company
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prior to taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate signed by a
Chairman or co-Chairman of the Board or the President or a Vice President or the
Secretary of the Company and delivered to the Warrant Agent; and such
certificate shall be full authorization to the Warrant Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
C. The Warrant Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct.
D. The Warrant Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Warrant
Certificates (except its countersignature on the Warrant Certificates and such
statements or recitals as describe the Warrant Agent or action taken or to be
taken by it) or be required to verify the same, but all such statements and
recitals are and shall be deemed to have been made by the Company only.
E. The Warrant Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Warrant Agent) or in respect of the validity or
execution of any Warrant Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Warrant Certificate; nor shall
it be responsible for the making of any change in the number of shares of Common
Stock for which a Warrant is exercisable required under the provisions of
Section 6 or responsible for the manner, method or amount of any such change or
the ascertaining of the existence of facts that would require any such
adjustment or change (except with respect to the exercise of Warrant
Certificates after actual notice of any adjustment of the Exercise Price); nor
shall it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any shares of Common Stock to be
issued pursuant to this Agreement or any Warrant Certificate or as to whether
any shares of Common Stock will, when issued, be validly issued, fully paid and
non-assessable.
F. The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or take any other action likely to involve
expense unless the Company or one or more registered holders of Warrant
Certificates shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred. All rights of
action under this Agreement or under any of the Warrants may be enforced by the
Warrant Agent without the possession of any of the Warrants or the production
thereof at any trial or other proceeding relative thereto, and any such action,
suit or proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent, and any recovery of judgment shall be for the ratable benefit
of the registered holders of the Warrant Certificates, as their respective
rights or interests may appear.
G. The Warrant Agent and any stockholder, director, officer or employee
of the Warrant Agent may buy, sell or deal in any of the Warrants or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to or
otherwise act as fully and freely as though it were not Warrant Agent under this
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any other legal entity.
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<PAGE>
H. The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from a
Chairman or co-Chairman of the Board or President or a Vice President or the
Secretary or the Controller of the Company, and to apply to such officers for
advice or instructions in connection with the Warrant Agent's duties, and it
shall not be liable for any action taken or suffered or omitted by it in good
faith in accordance with instructions of any such officer.
I. The Warrant Agent will not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrant Certificates to be complied with by the Company.
J. The Warrant Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys, agents or employees and the Warrant Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such
attorneys, agents or employees or for any loss to the Company resulting from
such neglect or misconduct; PROVIDED, HOWEVER, that reasonable care shall have
been exercised in the selection and continued employment of such attorneys,
agents and employees.
K. The Warrant Agent will not incur any liability or responsibility to
the Company or to any holder of any Warrant Certificate for any action taken, or
any failure to take action, in reliance on any notice, resolution, waiver,
consent, order, certificate, or other paper, document or instrument reasonably
believed by the Warrant Agent to be genuine and to have been signed, sent or
presented by the proper party or parties.
L. The Warrant Agent will act hereunder solely as agent of the Company in
a ministerial capacity, and its duties will be determined solely by the
provisions hereof. The Warrant Agent will not be liable for anything which it
may do or refrain from doing in connection with this Agreement except for its
own negligence, bad faith or willful conduct.
Section 21. CHANGE OF WARRANT AGENT
The Warrant Agent may resign and be discharged from its duties under this
Agreement upon 30 days' prior notice in writing mailed, by registered or
certified mail, to the Company. The Company may remove the Warrant Agent or any
successor warrant agent upon 30 days' prior notice in writing, mailed to the
Warrant Agent or successor warrant agent, as the case may be, by registered or
certified mail. If the Warrant Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Warrant Agent and shall, within 15 days following such appointment, give
notice thereof in writing to each registered holder of the Warrant Certificates.
If the Company shall fail to make such appointment within a period of 15 days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Warrant Agent,
then the Company agrees to perform the duties of the Warrant Agent hereunder
until a successor Warrant Agent is appointed. After appointment and execution
of a copy of this Agreement in effect at that time, the successor Warrant Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Warrant Agent without further act or deed; but
the former Warrant Agent shall deliver and transfer to the successor Warrant
Agent, within a reasonable time, any property at the
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<PAGE>
time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Failure to give any notice
provided for in this Section, however, or any defect therein shall not affect
the legality or validity of the resignation or removal of the Warrant Agent or
the appointment of the successor warrant agent, as the case may be.
Section 22. ISSUANCE OF NEW WARRANT CERTIFICATES
Notwithstanding any of the provisions of this Agreement or the several
Warrant Certificates to the contrary, the Company may, at its option, issue new
Warrant Certificates in such form as may be approved by its Board of Directors
to reflect any adjustment or change in the Exercise Price or the number or kind
of shares purchasable under the several Warrant Certificates made in accordance
with the provisions of this Agreement.
Section 23. NOTICES
Notice or demand pursuant to this Agreement to be given or made on the
Company by the Warrant Agent or by the registered holder of any Warrant
Certificate shall be sufficiently given or made if sent by first-class or
registered mail, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent) as follows:
SuperGen, Inc.
Two Annabel Lane, Suite 220
San Ramon, California 94583
Subject to the provisions of Section 21, any notice pursuant to this
Agreement to be given or made by the Company or by the holder of any Warrant
Certificate to or on the Warrant Agent shall be sufficiently given or made if
sent by first-class or registered mail, postage prepaid, addressed (until
another address is filed in writing by the Warrant Agent with the Company) as
follows:
ChaseMellon Shareholder Services
235 Montgomery Street, 23rd Floor
San Francisco, California 94104
Attention: _______________
Any notice or demand authorized to be given or made to the registered
holder of any Warrant Certificate under this Agreement shall be sufficiently
given or made if sent by first-class or registered mail, postage prepaid, to the
last address of such holder as it shall appear on the registers maintained by
the Warrant Agent.
Section 24. MODIFICATION OF AGREEMENT
The Warrant Agent may, without the consent or concurrence of the
Warrantholders, by supplemental agreement or otherwise, concur with the Company
in making any changes or corrections in this Agreement that the Warrant Agent
shall have been advised by counsel (who may be counsel for the Company) are
necessary or desirable to cure any ambiguity or to correct any defective or
inconsistent provision or clerical omission or mistake or manifest error herein
contained, or to make any other provisions in regard to matters or questions
arising hereunder and which shall
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<PAGE>
not be inconsistent with the provisions of the Warrant Certificates and which
shall not adversely affect the interests of the Warrantholders. As of the date
hereof, this Agreement contains the entire and only agreement, understanding,
representation, condition, warranty or covenant between the parties hereto with
respect to the matters herein, supersedes any and all other agreements between
the parties hereto relating to such matters, and may be modified or amended only
by a written agreement signed by both parties hereto pursuant to the authority
granted by the first sentence of this Section; provided however, that the
Company and Warrant Agent may amend this Agreement in any respect upon the
written consent of the holders of a majority of the outstanding Warrants.
Section 25. SUCCESSORS
All the covenants and provisions of this Agreement by or for the benefit of
the Company or the Warrant Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.
Section 26. CALIFORNIA CONTRACT
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of California and for
all purposes shall be construed in accordance with the laws of said State.
Section 27. TERMINATION
This Agreement shall terminate as of the close of business on the
Expiration Date, or such earlier date upon which all Warrants shall have been
exercised, except that the Warrant Agent shall account to the Company as to all
Warrants outstanding and all cash held by it as of the close of business on the
Expiration Date.
Section 28. BENEFITS OF THIS AGREEMENT
Nothing in this Agreement or in the Warrant Certificates shall be construed
to give to any person or corporation other than the Company, the Warrant Agent,
and their respective successors and assigns hereunder and the registered holders
of the Warrant Certificates any legal or equitable right, remedy or claim under
this Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Warrant Agent, their respective successors and assigns
hereunder and the registered holders of the Warrant Certificates.
Section 29. DESCRIPTIVE HEADINGS
The descriptive headings of the several Sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
Section 30. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be an original, but such counterparts shall together constitute one and
the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
SUPERGEN, INC.
By:
-----------------------------
Title
CHASEMELLON SHAREHOLDER SERVICES, LLC
By:
-----------------------------
Title
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<PAGE>
EXHIBIT A
VOID AFTER 5 P.M. PACIFIC TIME ON _______, 2001
WARRANTS TO PURCHASE COMMON STOCK
W________ ___________Warrants
SUPERGEN, INC.
CUSIP [_________]
THIS CERTIFIES THAT
or registered assigns, is the registered holder of the number of Warrants
("Warrants") set forth above. Each Warrant entitles the holder thereof to
purchase from SuperGen, Inc., a corporation incorporated under the laws of
the State of Delaware ("Company"), subject to the terms and conditions set
forth hereinafter and in the Warrant Agreement hereinafter more fully
described (the "Warrant Agreement") referred to, one fully paid and
non-assessable share of Common Stock, $0.001 par value, of the Company
("Common Stock") upon presentation and surrender of this Warrant Certificate
with the instructions for the registration and delivery of Common Stock
filled in, at any time prior to the earlier of (i) 5:00 P.M., Pacific time,
on ______, 2001 or, (ii) the effective date of the consummation of any
transaction or series of transactions (collectively, the "Transaction"),
including without limitation, the sale, transfer or disposition of all or
substantially all of the Company's assets or the merger of the Company with
or into, or consolidation with, any other corporation, whereby the holders of
the Company's voting securities prior to the Transaction do not hold more
than 50% of the voting securities of the surviving entity following
consummation of the Transaction (a "Change in Control"), at the stock
transfer office in San Francisco, California, of ChaseMellon Shareholder
Services, Warrant Agent of the Company ("Warrant Agent") or of its successor
warrant agent or, if there be no successor warrant agent, at the corporate
offices of the Company, and upon payment of the Exercise Price (as defined in
the Warrant Agreement) and any applicable taxes paid either in cash, or by
certified or official bank check, payable in lawful money of the United
States of America to the order of the Company which payment shall be sent to
the Warrant Agent. Each Warrant initially entitles the holder to purchase
one share of Common Stock for [$___]. The number and kind of securities or
-i-
<PAGE>
other property for which the Warrants are exercisable are subject to further
adjustment in certain events, such as mergers, splits, stock dividends,
recapitalizations and the like, to prevent dilution. All Warrants not
theretofore exercised will expire on ______, 2001.
This Warrant Certificate is subject to all of the terms, provisions and
conditions of the Warrant Agreement, dated as of _________, 1999 ("Warrant
Agreement"), between the Company and the Warrant Agent, to all of which terms,
provisions and conditions the registered holder of this Warrant Certificate
consents by acceptance hereof. The Warrant Agreement is incorporated herein by
reference and made a part hereof and reference is made to the Warrant Agreement
for a full description of the rights, limitations of rights, obligations, duties
and immunities of the Warrant Agent, the Company and the holders of the Warrant
Certificates. Copies of the Warrant Agreement are available for inspection at
the stock transfer office of the Warrant Agent or may be obtained upon written
request addressed to the Company at Two Annabel Lane, Suite 220, San Ramon,
California 94583, Attention: Controller.
The Company shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractions of Warrants, Common
Stock or other securities, but shall make adjustment therefor in cash on the
basis of the current market value of any fractional interest as provided in the
Warrant Agreement.
In certain cases, the sale of securities by the Company upon exercise of
Warrants would violate the securities laws of the United States, certain states
thereof or other jurisdictions. The Company has agreed to use its best efforts
to cause a registration statement to continue to be effective during the term of
the Warrants with respect to such sales under the Securities Act of 1933, and to
take such action under the laws of various states as may be required to cause
the sale of securities upon exercise to be lawful. However, the Company will
not be required to honor the exercise of Warrants if, in the opinion of the
Board of Directors, upon advice of counsel, the sale of securities upon such
exercise would be unlawful.
This Warrant Certificate, with or without other Certificates, upon
surrender to the Warrant Agent, any successor warrant agent or, in the absence
of any successor warrant agent, at the corporate offices of the Company, may be
exchanged for another Warrant Certificate or Certificates evidencing in the
aggregate the same number of Warrants as the Warrant Certificate or Certificates
so surrendered. If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
No holder of this Warrant Certificate, as such, shall be entitled to vote,
receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose whatever, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder of this Warrant
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof or give or withhold
-ii-
<PAGE>
consent to any corporate action (whether upon any matter submitted to
stockholders at any meeting thereof, or give or withhold consent to any merger,
recapitalization, issuance of stock, reclassification of stock, change of par
value or change of stock to no par value, consolidation, conveyance or
otherwise) or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Warrant Agreement) or to receive
dividends or subscription rights or otherwise until the Warrants evidenced by
this Warrant Certificate shall have been exercised and the Common Stock
purchasable upon the exercise thereof shall have become deliverable as provided
in the Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Company's Common Stock or other
class of stock purchasable upon the exercise of the Warrants evidenced by this
Warrant Certificate are closed for any purpose, the Company shall not be
required to make delivery of certificates for shares purchasable upon such
transfer until the date of the reopening of said transfer books.
Every holder of this Warrant Certificate by accepting the same consents and
agrees with the Company, the Warrant Agent, and with every other holder of a
Warrant Certificate that:
(a) this Warrant Certificate is transferable on the registry books of the
Warrant Agent only upon the terms and conditions set forth in the Warrant
Agreement, and
(b) the Company and the Warrant Agent may deem and treat the person in
whose name this Warrant Certificate is registered as the absolute owner hereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone other than the Company or the Warrant Agent) for all purposes whatever
and neither the Company nor the Warrant Agent shall be affected by any notice to
the contrary.
The Company shall not be required to issue or deliver any certificate for
shares of Common Stock or other securities upon the exercise of Warrants
evidenced by this Warrant Certificate until any tax which may be payable in
respect thereof by the holder of this Warrant Certificate pursuant to the
Warrant Agreement shall have been paid, such tax being payable by the holder of
this Warrant Certificate at the time of surrender.
This Warrant Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Warrant Agent.
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<PAGE>
WITNESS the facsimile signatures of the proper officers of the Company and
its corporate seal.
Dated: SUPERGEN, INC.
By:
---------------------------------
Chief Executive Officer
Attest:
-----------------------------
Secretary
Countersigned
CHASEMELLON SHAREHOLDER SERVICES
By:
---------------------------
Authorized Officer
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<PAGE>
EXHIBIT 5.1
July 2, 1999
SuperGen, Inc.
Two Annabel Lane, Suite 220
San Ramon, California 94583
RE: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 filed by you with
the Securities and Exchange Commission (the "Commission") on June 11, 1999 (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of shares of your Common Stock, par value
$0.001 per share (the "Shares") and warrants to purchase your Common Stock (the
"Warrants"). As your counsel in connection with this transaction, we have
examined the proceedings taken and are familiar with the proceedings proposed to
be taken by you in connection with the sale and issuance of the Shares and
Warrants.
It is our opinion that upon conclusion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares and the Warrants, and upon completion of the proceedings being taken in
order to permit such transactions to be carried out in accordance with the
securities laws of the various states where required, the Shares and Warrants,
when issued and sold in the manner described in the Registration Statement, will
be legally and validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the proxy statement-prospectus constituting a
part thereof, and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati
<PAGE>
EXHIBIT 8.1
July 2, 1999
SuperGen, Inc.
Two Annabel Lane, Suite 220
San Ramon, CA 94583
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Form S-4
Registration Statement filed with the Securities and Exchange Commission (which
contains a Proxy Statement/Prospectus) filed with the Securities and Exchange
Commission on June 11, 1999 and as amended thereafter (the "Registration
Statement") filed pursuant to the Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated January 18, 1999, among SuperGen, Inc., a
Delaware company ("SuperGen"), Royale Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of SuperGen ("Merger Sub"), and Sparta
Pharmaceuticals, Inc., a Delaware corporation ("Sparta").
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement.
We have acted as counsel to SuperGen and Merger Sub in connection with the
Merger. As such, and for the purpose of rendering this opinion, we have
examined, and are relying upon (without any independent investigation or review
thereof) the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents
(including all exhibits and schedules attached thereto):
1. The Reorganization Agreement;
2. The Registration Statement;
3. Those certain tax representation letters expected to be delivered to
us by SuperGen, Merger Sub, and Sparta containing certain
representations of SuperGen, Merger Sub, and Sparta (the "Tax
Representation Letters"); and
4. Such other instruments and documents related to the formation,
organization and operation of SuperGen, Merger Sub, and Sparta and
related to the consummation of the Merger and the other transactions
contemplated by the Reorganization Agreement as we have deemed
necessary or appropriate.
<PAGE>
SuperGen, Inc.
July 2, 1999
Page 2
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
a. Original documents submitted to us (including signatures thereto) are
authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the
Effective Time) duly and validly executed and delivered where due
execution and delivery are a prerequisite to the effectiveness
thereof;
b. All representations, warranties and statements made or agreed to by
SuperGen, Merger Sub, and Sparta, their managements, employees,
officers, directors and shareholders in connection with the Merger,
including, but not limited to, those set forth in the Reorganization
Agreement (including the exhibits thereto) and the Tax Representation
Letters, are true and accurate at all relevant times;
c. All covenants contained in the Reorganization Agreement (including
exhibits thereto) and the Tax Representation Letters are performed
without waiver or breach of any material provision thereof;
d. The Merger will be reported by SuperGen, Merger Sub, and Sparta on
their respective federal income tax returns in a manner consistent
with the opinion set forth below;
e. In the Merger, shares of stock of Sparta representing Control of
Sparta will be exchanged solely for shares of voting stock of
SuperGen;
f. The total fair market value of all consideration other than shares of
SuperGen Common Stock received by stockholders of Sparta in the Merger
(including, without limitation, warrants to purchase SuperGen Common
Stock and cash paid to Sparta stockholders perfecting appraisal rights
or in lieu of fractional shares of SuperGen Common Stock) will be less
than twent percent (20%) of the aggregate fair market value of shares
of stock of Sparta outstanding immediately prior to the Merger; and
g. Any representation or statement made "to the best knowledge of" or
similarly qualified is correct without such qualification.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are of
the opinion that, if the Merger is consummated in accordance with the
Reorganization Agreement (and without any waiver, breach, or amendment of any of
the provisions thereof) and the statements set forth in the Tax
<PAGE>
SuperGen, Inc.
July 2, 1999
Page 3
Representation Letters are true and correct as of the Effective Time, then, for
federal income tax purposes, the Merger will be a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.
In addition, we are of the opinion that the disclosure entitled "Approval
of The Merger and Related Transactions - Federal Income Tax Considerations" in
the Proxy Statement/Prospectus constituting a part of the Registration
Statement, insofar as it relates to the statements of law and legal conclusions,
is correct in all material respects.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any tax consequence of the Merger or the other transactions
contemplated by the Reorganization Agreement except as specifically set forth
herein, and this opinion may not be relied upon except with respect to the
consequences specifically discussed herein.
No opinion is expressed as to any other transaction whatsoever, including
the Merger, if all of the transactions described in the Reorganization Agreement
are not consummated in accordance with the terms of the Reorganization Agreement
and without waiver of any material provision thereof. To the extent that any of
the representations, warranties, covenants, statements and assumptions material
to our opinion and upon which we have relied are not accurate and complete in
all material respects at all relevant times, our opinion would be adversely
affected and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
any court of law, tribunal, administrative agency or other governmental body.
The conclusions are based on the Internal Revenue Code of 1986, as amended,
existing judicial decisions, administrative regulations and published rulings.
No assurance can be given that future legislative, judicial or administrative
changes or interpretations will not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, by rendering this opinion, we
undertake no responsibility to advise you of any new developments in the
application or interpretation of the federal income tax laws.
<PAGE>
SuperGen, Inc.
July 2, 1999
Page 4
This opinion is being delivered solely for the purposes of being included
as an exhibit to the Registration Statement. It is intended for your benefit
and may not be relied upon or utilized for any other purpose or by any other
person and may not be made available to any other person without our prior
written consent. We hereby consent to the use of our name under the headings
"Approval of The Merger and Related Transactions - Certain Federal Income Tax
Considerations" and "Legal Matters" in the Proxy Statement/Prospectus and to the
filing of this opinion as an exhibit to the Registration Statement. In giving
such consent, we do not thereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati
<PAGE>
EXHIBIT 8.2
[Dechert Price & Rhoads Letterhead]
July 2, 1999
Board of Directors
Sparta Pharmaceuticals, Inc.
111 Rock Road
Horsham, PA 19004
Re: Merger of Royale Acquisition Corporation with and into SPARTA
PHARMACEUTICALS, INC.
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing
of the Proxy Statement-Prospectus for the merger (the "Merger") of Royale
Acquisition Corporation ("Merger Sub"), a Delaware corporation and wholly-owned
subsidiary of SuperGen, Inc. ("SuperGen"), a Delaware corporation, with and into
Sparta Pharmaceuticals, Inc. ("SPI"), a Delaware corporation. The Proxy
Statement-Prospectus is included in the Registration Statement on Form S-4, of
SuperGen as originally filed with the Securities and Exchange Commission (the
"SEC") on June 11, 1999 and as amended thereafter (the "Registration
Statement"). The terms and conditions of the Merger are set forth in the
Agreement and Plan of Reorganization, dated as of January 18, 1999 (as amended,
the "Reorganization Agreement"), by and among SuperGen, Merger Sub and SPI.
Except as otherwise provided, capitalized terms used but not defined
herein shall have the meanings set forth in the Reorganization Agreement. All
section references, unless otherwise indicated, are to the Internal Revenue Code
of 1986, as amended (the "Code").
Pursuant to the Reorganization Agreement, Merger Sub will merge with
and into SPI. Each share of common and preferred stock of SPI ("SPI Capital
Stock") (other than any shares of SPI Capital Stock to be canceled pursuant to
Section 1.6(b) of the Reorganization Agreement or any Dissenting Shares as
defined in Section 1.8 of the Reorganization Agreement) will be exchanged solely
for shares of SuperGen common stock (except to the extent that warrants to
purchase SuperGen common stock may be issued pursuant to Section 1.6(a)(ii)(B)
of the Reorganization Agreement or cash is paid in lieu of fractional shares).
We have acted as counsel to SPI in connection with the Merger. As
such, and for the purpose of rendering this opinion, we have examined, and are
relying upon (without any independent investigation or review thereof) the truth
and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents (including
all exhibits and schedules attached thereto):
(a) the Reorganization Agreement;
<PAGE>
Board of Directors
Sparta Pharmaccuticals, Inc.
Page 2
(b) those certain tax representation letters dated on or about the
date hereof delivered to us by SuperGen, Merger Sub and SPI containing certain
representations of SuperGen, Merger Sub and SPI (the "Tax Representation
Letters"); and
(c) such other instruments and documents related to the formation,
organization and operation of SuperGen, Merger Sub and SPI and related to the
consummation of the Merger and the other transactions contemplated by the
Reorganization Agreement as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without
any independent investigation or review thereof) that:
1. Original documents submitted to us (including signatures thereto)
are authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the Effective
Time) duly and validly executed and delivered where due execution and delivery
are a prerequisite to the effectiveness thereof;
2. All representations, warranties and statements made or agreed to
by SuperGen, Merger Sub and SPI, their managements, employees, officers,
directors and stockholders in connection with the Merger, including, but not
limited to, those set forth in the Reorganization Agreement (including the
exhibits thereto) and the Tax Representation Letters are true and accurate at
all relevant times and as if made at the Effective Time;
3. All covenants contained in the Reorganization Agreement
(including exhibits thereto) and the Tax Representation Letters have been or
will be performed without waiver or breach of any material provision thereof;
and
4. Any representation or statement made "to the best of knowledge"
or similarly qualified is correct without such qualification.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are of
the opinion that, provided the Merger is consummated in accordance with the
terms and conditions of the Reorganization Agreement and as set forth in the
Registration Statement, for federal income tax purposes the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code.
Furthermore, it is our opinion that the description of the federal income tax
consequences of the Merger under the caption "Approval of the Merger and Related
Transactions - Certain Federal Income Tax Considerations" in the Proxy
Statement-Prospectus is true and accurate in all material respects.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the
<PAGE>
Board of Directors
Sparta Pharmaceuticals, Inc.
Page 3
Merger or the other transactions contemplated by the Reorganization Agreement
except as specifically set forth herein, and this opinion may not be relied upon
except with respect to the consequences specifically discussed herein.
No opinion is expressed as to any transaction other than the Merger as
described in the Reorganization Agreement, or as to any other transaction
whatsoever, including the Merger, if all of the transactions described in the
Reorganization Agreement are not consummated in accordance with the terms of the
Reorganization Agreement and without waiver of any material provision thereof.
To the extent that any of the representations, warranties, statements and
assumptions material to our opinion and upon which we have relied are not
accurate and complete in all material respects at all relevant times, our
opinion could be adversely affected and should not be relied upon. This opinion
may not apply to holders of SPI Capital Stock who have received their shares as
compensation for services rendered (for example, if the shares are substantially
non-vested within the meaning of Section 83 of the Code or were acquired upon
the exercise of incentive stock options under Section 422 of the Code).
This opinion only represents our best judgment as to the federal
income tax consequences of the Merger and is not binding on the Internal Revenue
Service or any court of law, tribunal, administrative agency or other
governmental body. The conclusions are based on the Code, existing judicial
decisions, administration regulations and published rulings, all of which are
subject to change, possibly with retroactive effect. No assurance can be given
that future legislative, judicial or administrative changes or interpretations
would not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this opinion, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion is being delivered solely in connection with the filing
of the Proxy Statement-Prospectus contained in the Registration Statement. It
is intended for your benefit and for the benefit of the holders of SPI Capital
Stock and may not be relied upon or utilized for any other purpose or by any
other person and may not be made available to any other person without our prior
written consent.
We consent to the reference to our firm under the caption "LEGAL
MATTERS" in the Proxy Statement-Prospectus included in the Registration
Statement and to the filing of this opinion as an exhibit to the Registration
Statement. In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the SEC.
Very truly yours,
/s/ Dechert Price & Rhoads
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-4 No. 333-80517) and
related Prospectus of SuperGen, Inc. for the registration of 650,000 shares of
its common stock and to the incorporation by reference therein of our report
dated March 25, 1999, with respect to the consolidated financial statements of
SuperGen, Inc. included in its Annual Report (Form 10-K) for the year ended
December 31, 1998, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Palo Alto, California
June 29, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report included in this S-4 Registration Statement and to the incorporation by
reference in this Registration Statement of our report dated February 11, 1999
included in Sparta Pharmaceutical, Inc.'s Form 10-K for the year ended December
31, 1998 and to all references to our Firm included in this Registration
Statement.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
June 29, 1999
<PAGE>
EXHIBIT 23.3
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, 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, the Registration Statement
(Form S-8 No. 333-35311) pertaining to the registration of 5,000,000 shares of
Common Stock and Amendment No. 1 to the Registration Statement (Form S-4 No.
333-80517) pertaining to the registration of 650,000 shares of Common Stock and
to the inclusion or incorporation by reference therein 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, 1998, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina
June 29, 1999
<PAGE>
EXHIBIT 99.2
PROXY
SPARTA PHARMACEUTICALS, INC.
The undersigned, revoking any previous proxies relating to these
shares, hereby acknowledges receipt of the Notice and Proxy Statement-
Prospectus dated July 9, 1999 in connection with the Special Meeting of
Stockholders to be held at 10:00 a.m. on August 10, 1999 at 111 Rock Road,
Horsham, Pennsylvania and hereby appoints Dr. Jerry B. Hook and Ronald H.
Spair, and each of them (with full power to act alone), the attorneys and
proxies of the undersigned, with power of substitution to each, to vote all
shares of the Common Stock and Series B' Convertible Preferred Stock of
Sparta Pharmaceuticals, Inc. registered in the name provided herein which the
undersigned is entitled to vote at the Special Meeting of Stockholders, and
at any adjournments or postponements thereof, with all the powers the
undersigned would have if personally present. Without limiting the general
authorization hereby given, said proxies are, and each of them is, instructed
to vote or act as follows on the proposals set forth in said Proxy.
SEE REVERSE SIDE FOR BOTH PROPOSALS.
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- FOLD AND DETACH HERE -
<PAGE>
Please mark
your votes as
indicated in
this example /x/
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR BOTH PROPOSALS:
1. Proposal to approve and adopt the merger agreement and approve the merger.
FOR AGAINST ABSTAIN
/ / / / / /
2. Proposal to approve certain amendments to the Company's Restated
Certificate of Incorporation, which increase the conversion rate of the
Series B' Convertible Preferred Stock in exchange for the elimination of
the liquidation preference for such preferred stock.
FOR AGAINST ABSTAIN
/ / / / / /
In their discretion the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournments thereof.
Whether or not you expect to attend the Special Meeting, you are urged to
execute and return this Proxy, which you may revoke at any time prior to its
use.
THIS PROXY WHEN EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO
DIRECTION IS MADE THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Signature(s) of Stockholder(s)______________________________
Dated:______________________, 1999
NOTE: The signature(s) should appear the same as it (they) appear(s) on the
address label on this Proxy. When signing as executor, administrator,
trustee, guardian, or attorney, please give full title as such. For joint
accounts or co-fiduciaries, all joint owners or co-fiduciaries should sign.
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- FOLD AND DETACH HERE -
