Spectrum Pharmaceuticals, Inc.

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RXB1A+akc8MoujH+BjQ+0jroW16CGn+HnoX+tVZ4wI70Y2CqTXeZmEMwx1l1Hv2P lEPcJ/YangfBarCjS1/HIg== 0000892569-03-001269.txt : 20030514 0000892569-03-001269.hdr.sgml : 20030514 20030514080428 ACCESSION NUMBER: 0000892569-03-001269 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRUM PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000831547 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 930979187 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28782 FILM NUMBER: 03696854 BUSINESS ADDRESS: STREET 1: 157 TECHNOLOGY DR CITY: IRVINE STATE: CA ZIP: 92618 BUSINESS PHONE: 9497886700 MAIL ADDRESS: STREET 1: 157 TECHNOLOGY DR CITY: IRVINE STATE: CA ZIP: 92618 FORMER COMPANY: FORMER CONFORMED NAME: NEOTHERAPEUTICS INC DATE OF NAME CHANGE: 19960819 FORMER COMPANY: FORMER CONFORMED NAME: AMERICUS FUNDING CORP DATE OF NAME CHANGE: 19920703 10-Q 1 a89552e10vq.htm FORM 10-Q QUARTERLY PERIOD ENDED MARCH 31, 2003 Spectrum Pharmaceuticals, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended March 31, 2003


[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to

Commission File Number 000-28782

SPECTRUM PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware (State or other jurisdiction of incorporation or organization)		93-0979187 (I.R.S. Employer Identification No.)

157 Technology Drive Irvine, California (Address of Principal Executive Offices)		92618 (Zip Code)

Registrant’s Telephone Number, Including Area Code:		(949) 788-6700

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes [X]		No [ ]

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12B-2 of the Exchange Act).


Yes [ ]		No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date:


Class	Outstanding at May 9, 2003

Common Stock, $.001 par value		3,108,100

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	ITEM 1. Financial Statements
		Statement Regarding Financial Information
		Condensed Consolidated Balance Sheets
		Condensed Consolidated Statements of Operations
		Condensed Consolidated Statements of Cash Flows
		Notes to Condensed Consolidated Financial Statements
	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
	ITEM 4. Controls and Procedures
PART II — OTHER INFORMATION
	ITEM 1. Legal Proceedings
	ITEM 2. Changes in Securities and Use of Proceeds
	ITEM 3. Defaults Upon Senior Securities
	ITEM 4. Submission of Matters to a Vote of Security Holders
	ITEM 5. Other Information (not previously reported in a Form 8-K)
	ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit Index:
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 99.1
EXHIBIT 99.2

SPECTRUM PHARMACEUTICALS, INC.

TABLE OF CONTENTS


		Page No.

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
	Statement Regarding Financial Information		3
	Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002 (unaudited)		4
	Condensed Consolidated Statements of Operations for the three-month periods ended March 31, 2003 and 2002 (unaudited)		5
	Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2003 and 2002 (unaudited)		6
	Notes to Condensed Consolidated Financial Statements (unaudited)		7
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			21
ITEM 4. Controls and Procedures			21

PART II. OTHER INFORMATION			22
ITEM 1. Legal Proceedings			22
ITEM 2. Changes in Securities and Use of Proceeds			22
ITEM 3. Defaults Upon Senior Securities			22
ITEM 4. Submission of Matters to a Vote of Security Holders			22
ITEM 5. Other Information (not previously reported in a Form 8-K)			22
ITEM 6. Exhibits and Reports on Form 8-K			23

SIGNATURES			23

SPECTRUM PHARMACEUTICALS, INC.

FORM 10-Q

For the Three-Month Period Ended March 31, 2003

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

Statement Regarding Financial Information

The condensed consolidated financial statements of Spectrum Pharmaceuticals, Inc. (the “Company”) included herein have been prepared by management, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States has been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The Company recommends that you read the consolidated financial statements included herein in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Amendment Number Two to the Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed with the Securities and Exchange Commission.

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)
Condensed Consolidated Balance Sheets
(Unaudited)


					March 31,			December 31,
					2003			2002

Assets
Current Assets:
		Cash and cash equivalents			$	576,509		$	1,511,942
		Marketable securities and short-term investments				66,268			66,396
		Other receivables				87,928			203,558
		Property and equipment, held for sale				604,810			619,000
		Prepaid expenses and refundable deposits				107,554			170,214

			Total current assets			1,443,069			2,571,110

Property and Equipment, at cost:
		Equipment				1,173,137			1,177,828
		Leasehold improvements				509,032			509,032
		Accumulated depreciation and amortization				(964,082	)		(884,794	)

			Property and equipment, net			718,087			802,066

Other Assets – deposits						79,944			79,944

			Total assets		$	2,241,100		$	3,453,120

Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities:
		Accounts payable and accrued expenses			$	2,167,153		$	2,013,247
		Accrued payroll and related taxes				126,497			201,847
		Current portion of capital lease obligations				272,454			306,597

			Total current liabilities			2,566,104			2,521,691

Capital lease obligations, net of current portion						104,667			157,581
Other non-current liabilities						121,951			101,496
Commitments and Contingencies (Note 4)

Stockholders’ Equity:
	Preferred stock, par value $0.001 per share, 5,000,000 shares authorized:
				None issued or outstanding at March 31, 2003 and December 31, 2002		—			—
		Common stock, par value $0.001 per share, 50,000,000 shares authorized:
				Issued and outstanding, 2,948,241 and 2,726,019 shares at March 31, 2003 and December 31, 2002, respectively		2,948			2,726
		Additional paid-in capital				144,295,691			143,831,315
		Deferred compensation				(47,361	)		(55,730	)
		Accumulated other comprehensive income				5,334			5,724
		Accumulated deficit				(144,808,234	)		(143,111,683	)

			Total stockholders’ equity (deficit)			(551,622	)		672,352

			Total liabilities and stockholders’ equity (deficit)		$	2,241,100		$	3,453,120

The accompanying notes are an integral part of these
condensed consolidated balance sheets.

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)
Condensed Consolidated Statements of Operations
(Unaudited)


		Three-Months			Three-Months
		Ended			Ended
		March 31, 2003			March 31, 2002

Revenues		$	—		$	20,001

Operating expenses:
	Research and development		852,784			4,924,123
	General and administrative		845,258			1,478,511

Total operating expenses			1,698,042			6,402,634

Loss from operations			(1,698,042	)		(6,382,633	)

Other income, net			1,490			77,169

Net loss		$	(1,696,552	)	$	(6,305,464	)

Basic and diluted net loss per share		$	(0.58	)	$	(6.50	)

Basic and diluted weighted average common shares outstanding			2,908,735			970,071

The accompanying notes are an integral part of these
condensed consolidated statements.

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)
Condensed Consolidated Statements of Cash Flows
(Unaudited)


					Three-Months			Three-Months
					Ended			Ended
					March 31, 2003			March 31, 2002

Cash Flows From Operating Activities:
Net loss					$	(1,696,552	)	$	(6,305,464	)
		Adjustments to reconcile net loss to net cash used in operating activities:
				Depreciation and amortization		80,555			244,974
				Amortization of employee stock option compensation		6,975			191,756
				Gain on sale of assets		(14,850	)		—
				Changes in operating assets and liabilities:
				Decrease in other receivables, prepaid expenses and refundable deposits		178,290			361,238
				Increase (decrease) in accounts payable and accrued expenses		153,907			(1,071,650	)
				Increase (decrease) in accrued payroll and related taxes		(75,350	)		32,852
				Increase (decrease) in other non-current liabilities		20,456			(31,551	)

		Net cash used in operating activities				(1,346,569	)		(6,577,845	)
Cash Flows From Investing Activities:
				Purchases of property and equipment		—			(45,840	)
				Redemption of marketable securities and short-term investments, net		—			6,090,422
				Increase (decrease) in other assets		3,162			(3,001	)
				Proceeds from sale of equipment		29,040			—

		Net cash provided by investing activities				32,202			6,041,581
Cash Flows From Financing Activities:
	Proceeds from issuance of common stock and warrants, net of related offering costs and expenses					466,992			5,826,537
	Payments made on capital lease obligations					(87,058	)		(407,290	)
	Repurchase of common stock of a subsidiary					(1,000	)		—

	Net cash provided by financing activities					378,934			5,419,247

	Net increase in cash and cash equivalents					(935,433	)		4,882,983
	Cash and cash equivalents, beginning of period					1,511,942			749,213

	Cash and cash equivalents, end of period				$	576,509		$	5,632,196

Supplemental Cash Flow Information:
			Interest paid		$	377		$	18,430

			Income taxes paid		$	300		$	—

Schedule of Non-Cash Investing and Financing Activities:
			Unrealized (gain) loss on marketable securities		$	390		$	137,429

			Expiration of stock options		$	1,394		$	—

The accompanying notes are an integral part of these
condensed consolidated statements.

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)
Notes to Condensed Consolidated Financial Statements
March 31,2003
(Unaudited)

1. Organization and Business and Basis of Presentation, Liquidity and Going Concern

Organization and Business

Organization

We incorporated Spectrum Pharmaceuticals, Inc. (“Spectrum”) in Colorado as Americus Funding Corporation (“AFC”) in December 1987. In August 1996, we changed AFC’s name to NeoTherapeutics, Inc. and in June 1997, we reincorporated NeoTherapeutics, Inc. in the state of Delaware. In December 2002, NeoTherapeutics, Inc. changed its name to Spectrum Pharmaceuticals, Inc. We had three subsidiaries as of March 31, 2003: NeoTherapeutics GmbH, wholly owned, incorporated in Switzerland in April 1997 (or NeoGmbH); NeoGene Technologies, Inc., 88.4% owned, incorporated in California in October 1999 (or NeoGene); and NeoJB LLC, 80% owned by Spectrum and organized in California in April 2002. We dissolved two subsidiaries, NeoTravel, Inc., in December 2002 and NeoOncoRx, Inc. in February 2003. We merged a previously wholly owned subsidiary, Advanced ImmunoTherapeutics, Inc., into Spectrum Pharmaceuticals, Inc. in 2001. The accompanying consolidated financial statements include the operating results of Spectrum Pharmaceuticals, Inc. and its subsidiaries. Unless the context otherwise requires, all references to the “Company”, “we”, “our”, “us” and “Spectrum” refer to all of the companies above as a consolidated entity.

Business

We are a pharmaceutical company engaged in (1) the in-licensing of oncology drug candidates and the further development of and strategic alliances for these drug candidates, (2) the development and marketing of generic drugs in the United States and (3) the out-licensing of our neurology drug candidates to strategic partners.

Basis of Presentation, Liquidity and Going Concern

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements are prepared on a consistent basis in accordance with accounting principles generally accepted in the United States (GAAP) 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 GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and consolidation and elimination entries) considered necessary for a fair presentation have been included. Operating results for the three-months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003. The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2002.

Certain quarterly amounts have been reclassified to conform to the current period presentation. All share and per share information has been restated to affect for the 25-for-1 reverse split of our outstanding common stock approved on September 5, 2002 and executed on September 6, 2002.

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)
Notes to Condensed Consolidated Financial Statements
(continued)

March 31,2003
(Unaudited)

Liquidity

On August 20, 2002, we announced a shift in our strategic focus from discovery and development of neurology drugs to the in-licensing of oncology drug candidates and the further development of and strategic alliances for these drug candidates and the out-licensing of our neurology drug candidates to strategic partners. As a result of these changes and the completion of a large Alzheimer’s disease clinical trial, our expense burn rate fell from approximately $7 million per quarter to approximately $1.7 million during the three-month period ended March 31, 2003, and we expect it to continue to fall to approximately $1.5 million, or lower, per quarter beginning in the second quarter of 2003. The recent and the prospective reduction in the burn rate is principally due to reductions in clinical, research and administrative personnel, the termination of a facility lease for office space used to administer the Alzheimer’s disease clinical trial, the reduction of expenses for the manufacturing of Neotrofin supplies (one of our neurology drug candidates), a reduction in our research and fellowship grant commitments, and the elimination of the research operations of our functional genomics business.

During the three-month period ended March 31, 2003, we sold 222,223 shares of our common stock for net cash proceeds of approximately $467,000 and issued warrants to purchase 55,555 shares of our common stock at an exercise price of $3.25 per share. Subsequent to March 31, 2003, we received gross cash proceeds from the issuance of shares of our convertible preferred stock of $4.4 million (for further information see Note 10 – Subsequent Events).

On September 30, 2002, we entered into a co-development and license agreement with GPC Biotech AG for the development and commercialization of our lead drug candidate, satraplatin. Under the co-development and licensing agreement, Spectrum could receive up to $22 million in license fees and milestone payments. The license fee consists of a total of $4 million; $2 million received upon signing and $1 million in cash and a $1 million equity investment within 30 days after the first dosing of a patient in a registrational study. GPC Biotech has agreed to make additional payments totaling up to $18 million upon achieving agreed upon milestones. However, there can be no assurance that any milestone will be achieved. Furthermore, GPC Biotech has agreed to fully fund development and commercialization expenses for satraplatin. Upon commercial sale of satraplatin, if any, Spectrum will be entitled to receive royalty payments based upon net sales.

Our common stock was transferred from the Nasdaq National Market to the Nasdaq SmallCap Market where it began trading on October 16, 2002. To remain listed on this market, we must meet Nasdaq’s continued listing requirements. Among other requirements, Nasdaq rules require that a SmallCap Market company maintain a minimum stockholders’ equity of $2.5 million or a minimum market value of listed securities of $35 million or a net income from continuing operations (in latest fiscal year or 2 of the last 3 fiscal years) of at least $500,000. As of March 31, 2003, we were not in compliance with this standard and have received a notice indicating that our securities are subject to delisting. The Company has requested and been granted a hearing before a Nasdaq Listing Qualifications Panel to review the delisting notice. As a result of the issuance of the convertible preferred stock, we believe we have regained compliance with this standard. There is no assurance that the Panel will grant the Company’s request for continued listing and that we will be able to maintain compliance with any of the continued listing requirements. If we fail to do so, our common stock could be delisted from the Nasdaq SmallCap Market. Please see “Risk Factors” under “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” for alternatives should our common stock be delisted.

2. Joint Venture

On April 17, 2002, we formed a joint venture with J.B. Chemicals & Pharmaceuticals Ltd. of Mumbai, India (JBCPL) and created a new entity, NeoJB LLC, a Delaware limited liability company (NeoJB). Spectrum owns 80% of NeoJB and a JBCPL subsidiary owns 20% of NeoJB. NeoJB’s business operations include seeking U.S. regulatory approval of JBCPL pharmaceutical products and to subsequently market these products in the U.S. and possibly other countries. We will initially fund 100% of NeoJB’s operating expenses. In conjunction with the formation of NeoJB, we granted a five-year warrant to JBCPL to purchase up to 4,000 shares of our common stock at an exercise price of $11.25 per share, equal to the market price of our common stock on the date of grant. The fair value of the warrant was estimated to be $38,000 using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%; expected volatility of 119.8%; risk free interest rate of 5.0%; and an expected life of five years.

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)
Notes to Condensed Consolidated Financial Statements
(continued)

March 31, 2003
(Unaudited)

3. Co-Development and License Agreement with GPC Biotech AG

4. Commitments and Contingencies

Research and Fellowship Grants

We periodically make non-binding commitments to various universities and not-for-profit research organizations to fund scientific research and fellowship grants that may further our research programs. During 2002, we terminated all research and fellowship grants and at December 31, 2002 and March 31, 2003, we had no commitments to pay any research or fellowship grants. Grant expense for the three-month periods ended March 31, 2003 and 2002, were approximately zero and $139,000, respectively, and is included in research and development on the consolidated statement of operations.

Debt and Capital Leases

Beginning in the second quarter of 2002, we were not in compliance with one of our debt covenants under our Master Note and Security Agreement secured by certain items of our lab equipment and computer software. An event of default had occurred because we had not maintained the required minimum balance of cash or equivalents. During the three-months ended September 30, 2002, we executed a modification of the lease providing the leaseholder a security interest in the property and equipment and accounts of the Company and in return, the leaseholder waived its rights to any remedies or actions due to the default.

Other

On September 30, 2002, the Company entered into a co-development and license agreement with GPC Biotech AG for the development and commercialization of our lead drug candidate, satraplatin. Under the agreement, we became obligated to maintain certain contractual obligations related to an underlying license agreement for satraplatin.

5. Stockholders’ Equity

Common Stock and Warrant transactions

On January 16, 2003, we sold 222,223 shares of our common stock at $2.25 per share for gross cash proceeds of $500,000 under our shelf registration statement. Included in this transaction was the issuance of warrants to purchase up to 55,555 shares of our common stock at an exercise price of $3.25 per share. The fair value of the warrants were estimated to be $83,000 using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%; expected volatility of 89.9% risk free interest rate of 2.8%; and an expected life of five years. Offering costs of this transaction were approximately $35,000.

On February 3, 2003, we entered into an agreement with a strategic investor who has agreed to invest $1 million in Spectrum to support the Company’s emerging generic drug business. The investment will be subject to the achievement of two milestones, both of which relate to the first Abbreviated New Drug Application (ANDA) filed by Spectrum with the U.S. Food and Drug Administration

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)
Notes to Condensed Consolidated Financial Statements
(continued)

March 31,2003
(Unaudited)

(FDA) in January 2003. The investor will purchase $250,000 of unregistered shares of our common stock upon acceptance by the FDA of the ANDA. The investor will purchase an additional $750,000 of unregistered shares of our common stock upon approval of this ANDA by the FDA. The purchase prices in the transactions will be at the closing price of our common stock on the day prior to acceptance and approval, respectively.

Comprehensive Loss

During the three-month periods ended March 31, 2003 and 2002, comprehensive loss was $1,696,942 and $6,442,893, respectively. For the three-month periods ended March 31, 2003 and 2002, other comprehensive loss of $390 and $137,429 consisted of unrealized gains and losses on our marketable securities and short-term investments that are held as available-for-sale.

6. Equity Compensation

Below is a summary of Spectrum stock option activity during the three-month period ended March 31, 2003:


					Weighted Average
		Shares			Exercise Price

Outstanding at December 31, 2002			601,799		$	37.27
	Granted		135,000		$	1.99
	Forfeited		(18,872	)	$	9.93

Outstanding at March 31, 2003			717,927		$	31.35

Exercisable at March 31, 2003			202,721		$	96.94

Included in the granted options are options to purchase an aggregate of 135,000 shares at an exercise price of $1.99 per share granted to employees on March 28, 2003. These grants were made subject to stockholder approval of an increase in the number of shares subject to our 1997 Stock Incentive Plan. The Company also granted options to purchase an aggregate of 374,000 shares of our common stock during 2002, which were made subject to stockholder approval of an increase in the number of shares of our common stock subject to our 1997 Stock Incentive Plan. Upon stockholder approval, the options will be considered granted for accounting purposes and therefore may result in the recognition of deferred compensation, which would be amortized over the vesting period of the options. An increase in the number of shares of our common stock subject to our 1997 Stock Incentive Plan will be proposed at our next stockholder meeting.

We granted 54,080 stock options to employees in 2000 with exercise prices less than the fair market value of our common stock at the measurement date. The intrinsic value of the option grants amounting to $959,850 was recorded as deferred compensation and is being amortized to expense over the vesting period, in accordance with APB Opinion No. 25. During the three-month periods ended March 31, 2003 and 2002, we recorded compensation expense of $7,000 and $42,311, respectively, as a result of such amortization.

We account for stock options under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net loss for options granted under those plans that have an exercise price equal to the market value of the underlying common stock on the date of grant. We recognize expense related to options granted that have an exercise price that is below the market price of the underlying stock at the time of grant and for options issued to non-employees. The following table illustrates the effect on net loss and loss per share if we had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation, for the three-months ended March 31, 2003 and 2002.

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)
Notes to Condensed Consolidated Financial Statements
(continued)

March 31,2003
(Unaudited)


	Three-Months			Three-Months
	Ended			Ended
	March 31, 2003			March 31, 2002

Net loss, as reported		(1,696,552	)		(6,305,464	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(615,212	)		(1,041,678	)

Pro forma net loss	$	(2,311,764	)	$	(7,347,142	)
Loss per share:
Basic and diluted – as reported	$	(0.58	)	$	(6.50	)
Basic and diluted – pro forma	$	(0.79	)	$	(7.57	)

7. Loss Per Share

Basic and diluted loss per share for the three-month period ended March 31, 2003 and 2002 are computed using the weighted average common shares outstanding during the period, respectively.

8. Litigation

We are not aware of any litigation matters pending or threatened as of March 31, 2003 that will materially affect our condensed consolidated financial statements. We are sometimes involved in matters of litigation that we consider ordinary routine litigation incidental to our business. Our policy is to accrue during a period, as a charge to operations, amounts related to legal matters if it is probable that a liability has been incurred and the amount of loss can be reasonably estimated, as required by SFAS No. 5, Accounting for Contingencies.

9. Income Taxes

We did not provide any current or deferred federal or state income tax provision or benefit for the period presented because we have experienced operating losses since our inception. A valuation allowance has been recognized to fully offset the net deferred tax assets as of March 31, 2003 and December 31, 2002 as realization of such assets is uncertain.

10. Subsequent Events

On April 8, 2003, Spectrum announced that Nasdaq has notified the Company that it is not in compliance with Nasdaq’s minimum stockholders’ equity requirement set forth in Marketplace Rule 4310(c)(2)(B), and that its securities are, therefore, subject to delisting from the Nasdaq SmallCap Market. The Company has requested a hearing before a Nasdaq Listing Qualifications Panel to review the Staff Determination. There can be no assurance the Panel will grant the Company’s request for continued listing. However, the hearing request will stay the delisting of the Company’s securities pending the Panel’s decision.

On April 14, 2003, the Company received notification from the FDA that it had accepted the ANDA for Ciprofloxican. As a result of this notification and in accordance with the agreement entered into on February 3, 2003, a strategic investor has agreed to purchase 125,628 shares of unregistered Spectrum common stock at $1.99 per share for total proceeds of $250,000 upon approval of the currency transfer by the Reserve Bank of India.

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)
Notes to Condensed Consolidated Financial Statements
(continued)

March 31,2003
(Unaudited)

On May 7, 2003, we sold 444 shares of our Series D 8% Cumulative Convertible Voting Preferred Stock and Series D Warrants to purchase shares of our common stock for gross cash proceeds of $4,440,000. The preferred stock is convertible into 1,889,361 shares of Spectrum common stock at a price of $2.35 per share. Dividends on the preferred stock are payable quarterly at an annual rate of 8 percent either in cash or shares of our common stock at the discretion of the Company. In addition, purchasers of the preferred stock received five-year warrants to purchase up to a total of 944,681 shares of our common stock at an exercise price of $3.00 per share and five-year warrants to purchase up to a total of 944,681 shares of our common stock at an exercise price of $3.50 per share. Under a preexisting agreement with a placement agent, we issued to a placement agent, in addition to cash fees, a five-year warrant to purchase up to a total of 188,936 shares of our common stock at an exercise price of $3.00 per share. Offering costs, including cash commissions paid to placement agents of this transaction, are estimated to be $545,000. The accompanying balance sheet reflects a pro-forma adjustment to effect for the issuance of the Series D Preferred Stock and receipt of the net proceeds of the offering.

SPECTRUM PHARMACEUTICALS, INC. AND SUBSIDIARIES
(formerly NeoTherapeutics, Inc.)
Pro-forma Condensed Consolidated Balance Sheets


		March 31,			Pro-Forma
		2003			Adjustment		Adjusted

Cash and cash equivalents		$	576,509		$	3,895,000	$	4,471,509
Other current assets			866,560					866,560
Property and equipment, net			718,087					718,087
Other assets			79,944					79,944

	Total assets	$	2,241,100		$	3,895,000	$	6,136,100

Current liabilities		$	2,566,104				$	2,566,104
Capital lease obligations, net of current portion			104,667					104,667
Other non-current liabilities			121,951					121,951
Stockholders’ equity			(551,622	)	$	3,895,000		3,343,378

	Total liabilities and stockholders’ equity	$	2,241,100		$	3,895,000	$	6,136,100

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain words, not limited to, “believes,” “may,” “will,” “expects,” “intends,” “estimates,” “anticipates,” “plans,” “seeks,” or “continues,” that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are based on the beliefs of the Company’s management as well as assumptions made by and information currently available to the Company’s management. Readers should not put undue reliance on these forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Our actual results may differ materially from the results projected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed below under “Subsequent Events Affecting Future Results,” “Financial Market Risks,” and “Risk Factors.”

You should read the following discussion of the financial condition and results of our operations in conjunction with the financial statements and the notes to those statements included elsewhere in this report.

Critical Accounting Polices and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared on a consistent basis in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including cash requirements resulting from estimating: planned research and development activities and general and administrative requirements, the retention of key personnel, certain clinical trial results, maintained market need for our product candidates and other major business assumptions.

We believe that our most significant accounting policies that affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements are as follows:

Basis of Presentation

Certain quarterly amounts have been reclassified to conform to the current period presentation. All share and per share information has been restated to affect for the 25-for-1 reverse split of our outstanding common stock that was approved on September 5, 2002 and was effective on September 6, 2002.

Liquidity

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)

reductions in clinical, research and administrative personnel, the termination of a facility lease for office space used to administer the Alzheimer’s disease clinical trial, the reduction of expenses for the manufacturing of Neotrofin supplies, a reduction in our research and fellowship grant commitments, and the elimination of the research operations of our functional genomics business.

Our common stock was transferred from the Nasdaq National Market to the Nasdaq SmallCap Market where it began trading on October 16, 2002. To remain listed on this market, we must meet Nasdaq’s continued listing requirements. Among other requirements, Nasdaq rules require that a SmallCap Market company maintain a minimum stockholders equity of $2.5 million or a minimum market value of listed securities of $35 million or a net income from continuing operations (in latest fiscal year or 2 of the last 3 fiscal years) of at least $500,000. As of March 31, 2003, we were not in compliance with this standard and as a result we received a notice indicating that our securities are subject to delisting. The Company has requested and been granted a hearing before a Nasdaq Listing Qualifications Panel to review the delisting notice. As a result of the issuance of the convertible preferred stock, we believe we have regained compliance with this standard. There is no assurance that the Panel will grant the Company’s request for continued listing and that we will be able to maintain compliance with any of the continued listing requirements. If we fail to do so, our common stock could be delisted from the Nasdaq SmallCap Market. Please see “Risk Factors” below for alternatives should our common stock be delisted.

Principles of Consolidation

Our consolidated financial statements include our accounts including those of our wholly owned and majority owned subsidiaries. We eliminated all significant intercompany accounts and transactions.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments of commercial paper and demand notes with original maturities of 90 days or less.

Marketable Securities and Short-Term Investments

We classify investments in debt securities among three categories: held-to-maturity, trading, and available-for-sale. As of March 31, 2003, all of our debt securities holdings were categorized as available-for-sale. We carry available-for-sale securities at fair value, with unrealized gains and losses included as a component of accumulated other comprehensive income (loss) in stockholders’ equity. We use quoted market prices to determine the fair value of these investments. If we believe that it is probable that we will be unable to collect all amounts due to us according to the contractual terms of an investment, we consider the impairment as other than temporary and would record an impairment loss.

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)

Prepaid Expenses and Refundable Deposits

Prepaid expenses are deferred and later recorded as an expense during the period benefited. Deposits are expected to become refundable at a later date.

Property and Equipment Purchased or Leased

We carry property and equipment at historical cost, less accumulated depreciation and amortization. When property and equipment are disposed of, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income. Depreciation and amortization are computed using the straight-line method over the following estimated useful lives:


Equipment		5 to 7 years
Leasehold Improvements		The shorter of the estimated useful life or lease term

We review long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. We assess the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through undiscounted future operating cash flows. If impairment is indicated, we reduce the carrying value of the asset to fair value.

Research and Development

We expense all research and development activity costs in the period incurred.

Stock-Based Compensation

We account for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net loss for options granted under those plans that have an exercise price equal to the market value of the underlying common stock on the date of grant. We recognize expense related to options granted that have an exercise price that is below the market price of the underlying stock at the time of grant and for options issued to non-employees.

Basic and Diluted Net Loss Per Share

We calculate basic and diluted net loss per share using: the weighted average number of common shares outstanding and the net loss, less preferred stock dividends, during each year, respectively. We exclude all antidilutive common stock equivalents from the basic and diluted net loss per share calculation.

All share and per share information has been restated to reflect for the 25-for-1 reverse split of our outstanding common stock that was approved by our stockholders on September 5, 2002 and was effective on September 6, 2002.

Use of Estimates

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including cash requirements resulting from estimating: planned research & development activities and general and administrative requirements, the retention of key personnel, certain clinical trial results, maintained market need for our product candidates and other major business assumptions. Actual results could differ from our estimates.

We have estimated that our current working capital plus funds raised or funds we are seeking to raise subsequent to the three-month period ended March 31, 2003 will be sufficient for us to continue as a going concern and therefore have prepared the financial statements on that basis. That basis includes estimating future cash requirements of planned research and development activities and general and administrative requirements, the retention of key personnel, certain clinical trial results, maintained market need for our product candidates, and other major business assumptions. If these estimates prove to be wrong, we may not be able to continue as a going concern.

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)

Revenue Recognition

We have adopted a strategy of co-developing or licensing our drug candidates. Accordingly, we have entered into collaborative research and development agreements and have received funding for pre-clinical research and clinical trials. Payments under these agreements, which are non-refundable, are recorded as revenue as the related research expenditures are incurred pursuant to the terms of the agreement and provided collectibility is reasonably assured. If no further commitments are required of us, the revenue is recognized when the license fee is payable or when all future commitments are satisfied.

License fees comprise initial fees and milestone payments derived from collaborative licensing arrangements. Non-refundable milestone payments continue to be recognized upon the achievement of specified milestones when we have earned the milestone payment, the milestone payment is substantive in nature and the achievement of the milestone was not reasonably assured at the inception of the agreement. We defer payments for milestone events which are reasonably assured and recognize them ratably over the minimum remaining period of our performance obligations. Payments for milestones which are not reasonably assured are treated as the culmination of a separate earnings process and are recognized as revenue when the milestones are achieved.

Income Taxes

We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement bases and tax bases of existing assets and liabilities. We recorded a valuation allowance equal to our net deferred tax asset.

Results of Operations

For the three-months ended March 31, 2003, we incurred a net loss of approximately $1.7 million. We expect that our operating expenses will decrease in the immediate future as compared to the same period last year due to the shift in our strategic focus and the reduction of the operations during 2002. However, we expect to incur significant additional operating losses for at least the next several years unless such operating losses are offset, if at all, by licensing revenues under our agreement with GPC Biotech AG, strategic alliances with larger pharmaceutical companies that we are currently seeking or revenues from generic drug sales. The following is unaudited financial information for the three-months ended March 31, 2003 and 2002:


	Three-Months Ended March 31,

	2003		2002

Licensing revenue		—		20,001
Research and development expenses		852,784		4,924,123
General and administrative expenses		845,258		1,478,511
Other income (expense)		1,490		77,169

We had no revenues during the three-months ended March 31, 2003. Revenue for the three-months ended March 31, 2002 resulted from amortization of the licensing fee from the technology out-licensing agreements with Pfizer Inc. entered into during the second and fourth quarter of 2001. During the fourth quarter of 2002, we terminated our relationship with UCI and in February 2003 we executed a settlement agreement with UCI transferring all future rights to any milestone payments under these agreements to UCI for the satisfaction of certain accounts payable due to the Regents of the University of California and certain future obligations. As a result of the satisfaction of all future obligations by the Company to Pfizer during 2002, we recognized the remaining deferred revenue balance during fiscal 2002.

Research and development expenses for the three-months ended March 31, 2003 compared to the same period in 2002 decreased due primarily to the termination of our development efforts for Neotrofin, the elimination of our functional genomics subsidiary and the termination of pre-clinical research activities. During the three-months ended March 31, 2002, clinical trails for Neotrofin in the treatment of patients with Alzheimer’s disease, Parkinson’s disease, spinal cord injury and neuropathy were underway. All of these trials were completed during 2002. Our decision to terminate the development of Neotrofin during 2002 resulted in a decrease in outside clinical research site costs, product manufacturing costs and salary and related benefit costs due to a reduction in research and development personnel. In addition, as part of the restructuring in 2002, we eliminated all activities at our functional genomics activities and only incurred costs in the amount of $67,000 during the three-months ended March 31, 2003 related to two lease agreements entered into in 2001. During the three-months ended March 31, 2002, our functional genomics subsidiary incurred

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)

$815,000 in expenses. We also terminated our pre-clinical research activities during the fourth quarter of 2002 resulting in a further decrease in salary and related benefit costs due to a decrease in research personnel and research supplies.

General and administrative expenses for the three-month period ended March 31, 2003 compared to the same period in 2002 decreased due primarily to a lower level of personnel in 2003 when compared to the same period in 2002, a decrease in business activities in our functional genomics business and a decrease in general business expenses as a result of the restructuring and cost-cutting activities undertaken in 2002.

Other income for the three-month period ended March 31, 2003 compared to the same period in 2002 decreased due primarily to a decrease in interest income resulting from lower average marketable securities balances and lower interest rates.

Subsequent Events Affecting Future Results

Financial Condition

From inception through March 31, 2003, we financed our operations primarily through sales of securities, borrowings, grants, deferred payment of salaries and other expenses from related parties and payments received from technology out-license agreements.

At March 31, 2003, we had a net working capital deficit of approximately $1.1 million. Our working capital included cash and cash equivalents of approximately $577,000 and marketable securities and short-term investments of approximately $66,000. In comparison, at December 31, 2002, we had positive net working capital of approximately $50,000, which included cash and cash equivalents of approximately $1.5 million and short-term investments of approximately $66,000. The $1.2 million decrease in net working capital during the three-month period ended March 31, 2003 is attributable primarily to the loss of approximately $1.7 million, less non-cash expenses. Additionally, we used $87,000 to pay capital lease obligations. These uses of working capital were offset by net cash proceeds of approximately $467,000 from the sale of shares of our common stock.

We devote substantially all of our efforts to research and development. We incurred net losses of approximately $1.7 million during the three month period ended March 31, 2003, and expect to incur substantial losses over the next several years. We have historically funded our operations with funds from public offerings and private placement equity offerings. We will require substantial funds by June 2004, or sooner, in order to continue and complete the research and development activities currently contemplated and to commercialize our proposed products. Our future capital requirements and availability of capital will depend upon many factors, including continued scientific progress in research and development programs, the scope and results of pre-clinical studies and clinical trials, the time and costs involved in obtaining regulatory approvals, the cost involved in filing, prosecuting and enforcing patent

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)

claims, the effect of competing technological developments, the cost of manufacturing scale-up, the cost of commercialization activities, and other factors which may not be within our control.

We believe over the long-term, profits from our generic business will help to reduce or possibly eliminate our reliance on the need to raise funds through the sale of our securities.

Contractual and Commercial Obligations

Debt and Capital Leases

Future installments of debt principal on capital lease obligations are as follows:


Year Ending
December 31:	Amount

2003	$	272,000
2004		105,000

	$	377,000

Facility, Property and Equipment Operating Leases

Minimum lease requirements for the remainder of the year ending December 31, 2003 and for the years ending December 31, 2004 through 2007 under the property and equipment leases are as follows:


Year Ending
December 31:	Amount

2003	$	542,300
2004		424,700
2005		210,700
2006		84,900
2007		—

	$	1,262,600

Research and Fellowship Grants

We periodically make non-binding commitments to various universities and not-for-profit research organizations to fund scientific research and fellowship grants that may further our research programs. During 2002, we terminated all research and fellowship grants and at December 31, 2002 and March 31, 2003, we had no commitments to pay any research or fellowship grants. Grant expense for the three-month periods ended March 31, 2003 and 2002, were approximately zero and $139,000, respectively, and is included in Research and Development on the Consolidated Statement of Operations.

Joint Ventures

We are also reviewing other possible joint ventures to promote our strategic focus.

Financial Market Risks

We are exposed to certain market risks associated with interest rate fluctuations and credit risk on our marketable securities and borrowing arrangements. All investments in marketable securities and borrowing arrangements are entered into for purposes other

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)

than trading. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. We do not utilize hedging contracts or similar instruments.

Our investments during the three-month period ended March 31, 2003 and as of March 31, 2003 are fixed rate, short-term corporate and government notes and bonds, which are available for sale. Because the interest rates are fixed, changes in interest rates affect the fair market value of these investments but do not affect the interest earnings. Because these financial instruments are considered “available for sale,” we record all changes in fair market value in stockholders’ equity as “Accumulated other comprehensive income” until the investment is either sold or matures, at which time the gain or loss, if any, is recognized as a realized gain or loss in the statement of operations. If a 10% change in interest rates were to have occurred on March 31, 2003, any decline in the fair value of our investments would not be material. In addition, we are exposed to certain market risks associated with the credit ratings of corporations whose bonds we have purchased. If these companies were to experience a significant detrimental change in their credit ratings, the fair market value of these corporate bonds may significantly decrease. If these companies were to default on their corporate bonds, we may lose part or all of the principal amount of our investment. We believe that we effectively manage this market risk by diversifying our corporate bond investments by purchasing a few bonds of many large, well-known, companies in a variety of industries.

As of March 31, 2003, we had one investment of approximately $61,000 in WorldCom, Inc. corporate bonds that matures on May 15, 2003. The fair market value of these corporate bonds at March 31, 2003 was approximately $16,000, based on a market quotation. In July 2002, WorldCom, Inc. and its subsidiaries filed a voluntary jointly administered petition under the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. We believe that it is probable that we will be unable to collect all amounts due to us according to the contractual terms of the corporate bonds, therefore, we consider the impairment as other than temporary and have recorded a loss for approximately $51,000 in other expense during the three-month period ended June 30, 2002.

Our primary market risk exposures relate to (1) interest rate risk on borrowings, (2) our ability to pay or refinance our borrowings at maturity at market rates, (3) interest rate risk on our investment portfolio, and (4) credit risk of the companies’ bonds in which we invest. We manage interest rate risk on our investment portfolio by matching scheduled investment maturities with our cash requirements. We manage interest rate risk on our outstanding borrowings by using fixed rate debt. While we cannot predict or manage our ability to refinance existing borrowings and our interest rate risk on our investment portfolio, we evaluate our financial position on an ongoing basis.

Our borrowings bear interest at fixed rates. Changes in interest rates affect the fair value of our borrowings, but do not have an impact on interest expense. Because of the relatively short-term nature of our borrowings, fluctuations in fair value are not deemed to be material.

Risk Factors

The risk factors described below are not intended to be complete. A more comprehensive list of factors that could affect our future operating results can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2002, in “Item 1. Description of Business” under the subheading “Risk Factors.” Failure to satisfactorily achieve any of our objectives or avoid any of the below or other risks listed in our Annual Report on Form 10-K would likely have a material adverse effect on our business and results of operations.

As shown in the accompanying condensed consolidated financial statements, we continue to incur significant losses and negative cash flow from operations. During the three-month period ended March 31, 2003, we incurred a loss of approximately $1.7 million. We anticipate that our expense rate will be reduced to approximately $1.5 million, or lower, per quarter starting with the second quarter. At March 31, 2003, we had cash, cash equivalents, marketable securities and short-term investments of approximately $643,000. Subsequent to March 31, 2003, we received gross cash proceeds from the issuance of shares of our convertible preferred stock of $4.4 million. Therefore, we will need to raise additional funds by June 2004, or sooner, through public or private financings, including equity financings or through other arrangements, to continue operating our businesses, including out-licensing our technology, to meet our short-term and long-term cash needs. We continue to seek additional sources of financing at the most favorable terms available to us, however, we do not know whether we will be able to secure sufficient new funds to continue our businesses. If we are not able to obtain sufficient funding within the time frame estimated by us, we will have to take other actions that we otherwise would not take, such as selling some or all of our intellectual property rights or further restructuring our operations, or a

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)

combination of these activities, including the possibility of a restructuring or liquidation provided for by one of the sections of the United States Bankruptcy Code.

Our need for additional funding is substantial and will be determined by the progress and cost of the development and commercialization of our products and other activities. We will require substantial additional funds in order to continue the research and development activities currently contemplated and to commercialize our proposed products. The source, availability, and terms of such funds have not been determined and there is no assurance that we will be able to obtain any funding on acceptable terms or at all.

We have incurred losses in every year of our existence and expect to continue to incur significant operating losses for the next several years. We have never generated revenues from product sales and there is no assurance that revenue from product sales will ever be achieved. There is no assurance that any of our proposed products will ever be successfully developed, receive and maintain required governmental regulatory approvals, become commercially viable or achieve market acceptance.

Our business strategy requires that we establish and maintain good strategic alliances. Currently we are seeking strategic alliances but have limited experience in obtaining such alliances. We cannot give any assurance that we will be successful in establishing additional alliances or that we will be able to maintain existing and new alliances in a manner that is beneficial to us.

We have no experience in manufacturing, procuring products in commercial quantities or marketing, and only limited experience in negotiating, setting up or maintaining strategic relationships and conducting clinical trials or other late stage phases of the regulatory approval process, and there is no assurance that we will successfully engage in any of these activities.

We shifted our strategic focus from discovery and development of neurology drugs to the in-licensing of oncology drug candidates and the further development of and strategic alliances for these drug candidates and the out-licensing of our neurology drug candidates to strategic partners. As a result of these changes we made reductions in clinical, administrative and research personnel. We believe that we retained the correct, and a level of, personnel that are key to our success in executing our strategic focus. We may be wrong and later require additional personnel or personnel with skills different than those that we retained.

On September 30, 2002, we entered into a co-development and license agreement with GPC Biotech AG for the development and commercialization of our lead drug candidate, satraplatin. GPC Biotech has agreed to fully fund development and commercialization expenses for satraplatin. We will not have complete control over the drug development process and therefore, the success of our lead drug candidate will depend upon the efforts of a third party. There is no assurance that GPC Biotech will be successful in the clinical development of the drug, the achievement of any milestones such as the acceptance of the NDA (New Drug Application) filing by the U.S. Food and Drug Administration or the eventual commercialization of satraplatin.

There were 2,948,241 shares of our common stock outstanding as of March 31, 2003. In addition, security holders held options, warrants and other rights as of March 31, 2003 which, if exercised, would obligate us to issue up to an additional 1,263,542 shares of common stock at a weighted average exercise price of $43.51 per share, of which 736,776 shares are subject to options or warrants which are currently exercisable at a weighted average exercise price of $63.50 per share. In addition, on May 7, 2003, we completed a financing resulting in the issuance of 444 shares of our Series D 8% Cumulative Convertible Voting Preferred Stock, which are convertible into a total of 1,889,361 shares of our common stock at a conversion price of $2.35 per share. In addition, the investors received 944,681 warrants to purchase our common stock at an exercise price of $3.00 per share and 944,681 warrants to purchase our common stock at an exercise price of $3.50 per share. A substantial number of those shares, when we issue them upon exercise, will be available for immediate resale in the public market. The market price of our common stock could fall as a result of such resales due to the increased number of shares available for sale in the market.

We have financed our operations, and we expect to continue to finance our operations, primarily by issuing and selling our common stock or securities convertible into or exercisable for shares of our common stock. Any issuances by us of equity securities may be at or below the prevailing market price of our common stock and may have a dilutive impact on our other stockholders. These issuances would also cause our earnings (loss) per share to decrease in future periods. As a result, the market price of our common stock could drop.

Certain provisions of the Preferred Stock and Warrant Purchase Agreement and Certificate of Designation, Rights and Preferences of the Series D 8% Cumulative Convertible Voting Preferred Stock (“Preferred Stock”) may require us to obtain the approval of the preferred stockholders to (i) amend, alter or repeal any provision of the Charter or Bylaws which may be deemed to adversely affect the terms of the Preferred Stock (ii) offer, sell or designate a security senior to or equal with the Preferred Stock, (iii) sell or issue common stock or securities convertible into or excersiable for shares of our common stock below $2.35 per share, (iv) incur any bank or non-

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)

trade indebtedness, (v) grant or make any mortgage or pledge of our property, (vi) merge or consolidate with another entity or sell or dispose of substantially of all our assets or businesses or (vii) take certain other actions which may be deemed to adversely affect the terms of the Preferred Stock. These provisions may make it more difficult for management, the board of directors or stockholders of the Company to take certain corporate actions and could delay, discourage or prevent future financings. These provisions could also limit the price that certain investors might be willing to pay for shares of our common stock.

Our common stock was transferred from the Nasdaq National Market to the Nasdaq SmallCap Market where it began trading on October 16, 2002. To remain listed on this market, we must meet Nasdaq’s continued listing requirements. Among other requirements, Nasdaq rules require that a SmallCap Market company maintain a minimum stockholders’ equity of $2.5 million or a minimum market value of listed securities of $35 million or a net income from continuing operations (in latest fiscal year or 2 of the last 3 fiscal years) of at least $500,000. As of March 31, 2003, we were not in compliance with this standard and have received a notice indicating that our securities are subject to delisting. The Company has requested and been granted a hearing before a Nasdaq Listing Qualifications Panel to review the delisting notice. As a result of the issuance of the shares of our convertible preferred stock, we believe we have regained compliance with this standard. However, there is no assurance that the Panel will grant the Company’s request for continued listing or that we will be able to maintain compliance with any of the continued listing requirements. If we fail to do so, our common stock could be delisted from the Nasdaq SmallCap Market.

If our stock is delisted from the Nasdaq SmallCap Market, we would likely seek quotation on the American Stock Exchange or a regional stock exchange, if available. However, quotation on such a market or exchange could reduce the market liquidity for our common stock. If our common stock is not quoted on another market or exchange, trading of our common stock could be conducted in the over-the-counter market on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. As a result, an investor would find it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock.

If our common stock is delisted from the Nasdaq SmallCap Market, we fail to obtain quotation on another market or exchange, and the trading price remains below $5.00 per share, trading in our common stock might also become subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a “penny stock” (generally, any equity security not listed on a national securities exchange or quoted on Nasdaq that has a market price of less than $5.00 per share, subject to certain exceptions). Many brokerage firms are reluctant to recommend low-priced stocks to their clients. Moreover, various regulations and policies restrict the ability of stockholders to borrow against or “margin” low-priced stocks and declines in the stock price below certain levels may trigger unexpected margin calls. Additionally, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the current share price of the common stock can result in an individual stockholder paying transaction costs that represent a higher percentage of total share value than would be the case if our share price were higher. This factor may also limit the willingness of institutions to purchase our common stock. Finally, the additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from facilitating trades in our common stock, which could severely limit the market liquidity of the stock and the ability of investors to trade our common stock.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

See “ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, subheading “Financial Market Risks,” above.

ITEM 4. Controls and Procedures

(a) We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Vice President Finance and Strategic Planning (our senior financial officer), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Vice President Finance and Strategic Planning, of the effectiveness

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)

of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and our Vice President Finance and Strategic Planning concluded that our disclosure controls and procedures were effective.

(b) There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation.

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

None

ITEM 2. Changes in Securities and Use of Proceeds

On May 7, 2003, we issued 444 shares of Series D 8% Cumulative Convertible Voting Preferred Stock that have certain liquidation and dividend preferences over our common stock and Series B Junior Participating Preferred Stock holders. For more information, please see the Form 8-K filed with the Securities and Exchange Commission on May 14, 2003.

ITEM 3. Defaults Upon Senior Securities

None

ITEM 4. Submission of Matters to a Vote of Security Holders

None

ITEM 5. Other Information (not previously reported in a Form 8-K)

None

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)

ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibits


Exhibit No.		Description

	4.1	Form of Warrant issued by the Registrant to three purchasers, dated as of January 16, 2003, to purchase up to an aggregate of 55,555 shares of our common stock. (Filed as Exhibit 4.1 to Form 8-K, as filed with the Securities and Exchange Commission on January 17, 2003 and incorporated herein by reference.)

	10.1 +	Limited Liability Agreement of NeoJB LLC, a Delaware limited liability company effective as of April 17, 2002

	10.2 +	Supply Agreement dated April 16, 2002 by and between J.B. Chemicals & Pharmaceuticals Ltd. and NeoJB LLC

	10.3 +	Management Agreement dated April 16, 2002 by and between NeoTherapeutics, Inc., NeoJB LLC

	10.4	Form of Securities Purchase Agreement by and between the Registrant and three investors, dated as of January 16, 2003, for the purchase of an aggregate of 222,223 shares of our common stock. (Filed as Exhibit 10.1 to Form 8-K, as filed with the Securities and Exchange Commission on January 17, 2003 and incorporated herein by reference.)

	99.1 +	Section 906 Certification of Chief Executive Officer

	99.2 +	Section 906 Certification of Vice President Finance and Strategic Planning

+ Filed herewith

(b) Reports on Form 8-K

1. We filed a Report on Form 8-K on January 2, 2003 with financial statements and accompanying notes thereto for the two-month and eleven-month period ended November 30, 2002, in order to show compliance with The Nasdaq Stock Market, Inc. requirements that we maintain a minimum stockholders’ equity of $2.5 million for continued listing on the Nasdaq SmallCap Market.

2. We filed a Report on Form 8-K on January 17, 2003 to report the completion of our January 16, 2003 offering of 222,223 shares of our common stock at a negotiated purchase price per share of $2.25 and warrants to purchase up to 55,555 shares of our common stock at an exercise price per share of $3.25 to three institutional investors for aggregate consideration of $500,001.75. The shares and warrants were issued pursuant to an effective shelf registration statement on Form S-3, file number 333-53108.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	SPECTRUM PHARMACEUTICALS, INC.

Date: May 14, 2003	By:	/s/ John L. McManus

		John L. McManus, Vice President Finance and
		Strategic Planning
		(Authorized Signatory and Principal Financial Officer)

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Rajesh C. Shrotriya, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Spectrum Pharmaceuticals, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

/s/ Rajesh C. Shrotriya
Rajesh C. Shrotriya, M.D.
Chairman, Chief Executive Officer and President

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)

CERTIFICATION OF VICE PRESIDENT FINANCE AND STRATEGIC PLANNING

I, John McManus, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Spectrum Pharmaceuticals, Inc.;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: May 14, 2003

/s/ John L. McManus
John L. McManus
Vice President Finance and Strategic Planning

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)

Exhibit Index:


Exhibit No.		Description

	4.1	Form of Warrant issued by the Registrant to three purchasers, dated as of January 16, 2003, to purchase up to an aggregate of 55,555 shares of our common stock. (Filed as Exhibit 4.1 to Form 8-K, as filed with the Securities and Exchange Commission on January 17, 2003 and incorporated herein by reference.)

	10.1 +	Limited Liability Agreement of NeoJB LLC, a Delaware limited liability company effective as of April 17, 2002

	10.2 +	Supply Agreement dated April 16, 2002 by and between J.B. Chemicals & Pharmaceuticals Ltd. and NeoJB LLC

	10.3 +	Management Agreement dated April 16, 2002 by and between NeoTherapeutics, Inc., NeoJB LLC

	10.4	Form of Securities Purchase Agreement by and between the Registrant and three investors, dated as of January 16, 2003, for the purchase of an aggregate of 222,223 shares of our common stock. (Filed as Exhibit 10.1 to Form 8-K, as filed with the Securities and Exchange Commission on January 17, 2003 and incorporated herein by reference.)

	99.1 +	Section 906 Certification of Chief Executive Officer

	99.2 +	Section 906 Certification of Vice President Finance and Strategic Planning

+ Filed herewith

EX-10.1 3 a89552exv10w1.txt EXHIBIT 10.1 EXHIBIT 10.1 LIMITED LIABILITY COMPANY AGREEMENT of NEOJB LLC a Delaware limited liability company Effective as of April 17, 2002 TABLE OF CONTENTS ARTICLE 1 ORGANIZATIONAL MATTERS................................................................................. 1 1.1 Formation of Limited Liability Company......................................................... 1 1.2 Name........................................................................................... 1 1.3 Principal Place of Business; Other Places of Business.......................................... 1 1.4 Business Purpose............................................................................... 1 1.5 Certificate of Formation; Filings.............................................................. 2 1.6 Registered Office and Designated Agent for Service of Process.................................. 2 1.7 Term........................................................................................... 2 ARTICLE 2 DEFINITIONS............................................................................................ 2 2.1 "Acceptance Notice"............................................................................ 2 2.2 "Acceptance Period"............................................................................ 2 2.3 "Additional Members"........................................................................... 2 2.4 "Adjusted Capital Account"..................................................................... 2 2.5 "Affiliate".................................................................................... 2 2.6 "Agreement".................................................................................... 3 2.7 "Assignee"..................................................................................... 3 2.8 "Board of Managers"............................................................................ 3 2.9 "Capital Account".............................................................................. 3 2.10 "Capital Call"................................................................................. 4 2.11 "Capital Contributions"........................................................................ 4 2.12 "Cash Available for Distribution".............................................................. 4 2.13 "Certificate".................................................................................. 4 2.14 "Change of Control"............................................................................ 4 2.15 "Class A Members".............................................................................. 4 2.16 "Code"......................................................................................... 4 2.17 "Company"...................................................................................... 4 2.18 "Company Assets"............................................................................... 5 2.19 "Contribution Date"............................................................................ 5 2.20 "Covered Person"............................................................................... 5 2.21 "Delaware LLC Act"............................................................................. 5 2.22 "Depreciation"................................................................................. 5 2.23 "Economic Interest"............................................................................ 5 2.24 "Effective Date"............................................................................... 5 2.25 "Excess Capital Contribution".................................................................. 5 2.26 "FDA".......................................................................................... 5 2.27 "GAAP"......................................................................................... 5 2.28 "Gross Asset Value"............................................................................ 5 2.29 "Investment Interests"......................................................................... 6 2.30 "Investment Members"........................................................................... 6 2.31 "JAMS"......................................................................................... 6 2.32 "JBCPL" and "JBSOL"............................................................................ 6 2.33 "Majority in Interest"......................................................................... 7 2.34 "Manager"...................................................................................... 7 2.35 "Members"...................................................................................... 7

i 2.36 "Membership Interest" or "Interest"............................................................ 7 2.37 "Negotiation Period"........................................................................... 7 2.38 "NeoTherapeutics".............................................................................. 7 2.39 "Net Profits" or "Net Losses".................................................................. 7 2.40 "Note"......................................................................................... 8 2.41 "Operating Cash Expenses"...................................................................... 8 2.42 "Percentage Interest".......................................................................... 8 2.43 "Person"....................................................................................... 8 2.44 "Prime Rate"................................................................................... 8 2.45 "Product"...................................................................................... 8 2.46 "Proportionate" and "Proportionately".......................................................... 8 2.47 "Records"...................................................................................... 8 2.48 "Regulations".................................................................................. 8 2.49 "Regulatory Allocations"....................................................................... 8 2.50 "Reserves"..................................................................................... 8 2.51 "Responsible Party"............................................................................ 9 2.52 "Securities Act"............................................................................... 9 2.53 "Selling Member"............................................................................... 9 2.54 "Substitute Member"............................................................................ 9 2.55 "Supply Agreement"............................................................................. 9 2.56 "Terminating Capital Transaction".............................................................. 9 2.57 "Total Amount"................................................................................. 9 2.58 "Transfer"..................................................................................... 9 2.59 "Unreturned Capital"........................................................................... 9 ARTICLE 3 CAPITALIZATION......................................................................................... 9 3.1 Initial Capitalization of Company.............................................................. 9 3.2 Additional Capital Contributions by Members.................................................... 10 3.3 Capital Accounts............................................................................... 11 3.4 Member Capital................................................................................. 11 3.5 Member Loans................................................................................... 12 3.6 Liability of Members........................................................................... 12 3.7 Allocation of Costs............................................................................ 12 ARTICLE 4 DISTRIBUTIONS.......................................................................................... 13 4.1 Timing and Amount of Distributions............................................................. 13 4.2 Order of Distributions......................................................................... 13 4.3 Distributions in Kind.......................................................................... 13 4.4 Withholding.................................................................................... 13 ARTICLE 5 ALLOCATIONS OF NET PROFITS AND NET LOSSES.............................................................. 14 5.1 Allocation of Net Profits and Losses........................................................... 14 5.2 Additional Special Allocations................................................................. 14 5.3 Other Provisions............................................................................... 15 ARTICLE 6 GOVERNANCE AND OPERATIONS.............................................................................. 16 6.1 Board of Managers.............................................................................. 16 6.2 Election of Managers........................................................................... 16 6.3 Powers and Authority of Board of Managers...................................................... 17

ii 6.4 Amendment of Certificate or Agreement.......................................................... 17 6.5 Meetings....................................................................................... 18 6.6 Officers....................................................................................... 18 6.7 Records and Reports............................................................................ 20 6.8 Meetings of Members............................................................................ 21 6.9 Power to Bind Company.......................................................................... 21 6.10 Standards of Conduct........................................................................... 21 6.11 Outside Activities of Members.................................................................. 22 ARTICLE 7 INTERESTS AND TRANSFERS OF INTERESTS................................................................... 22 7.1 Transfers of Membership Interests.............................................................. 22 7.2 Sale or Transfer of a Member's Interest........................................................ 23 7.3 Rights of Assignees............................................................................ 24 7.4 Admissions, Withdrawals and Removals........................................................... 24 7.5 No Payment Upon Withdrawal of Member........................................................... 24 7.6 Admission of Assignees as Substitute Members................................................... 24 7.7 Withdrawal of Members.......................................................................... 25 ARTICLE 8 LIABILITY, EXCULPATION, AND INDEMNIFICATION............................................................ 25 8.1 Liability...................................................................................... 25 8.2 Exculpation.................................................................................... 25 8.3 Indemnification of Covered Persons............................................................. 26 8.4 Expenses....................................................................................... 26 8.5 Insurance...................................................................................... 26 ARTICLE 9 DISSOLUTION, LIQUIDATION, AND TERMINATION OF THE COMPANY............................................... 26 9.1 Limitations.................................................................................... 26 9.2 Exclusive Causes............................................................................... 26 9.3 Effect of Dissolution.......................................................................... 27 9.4 No Capital Contribution Upon Dissolution....................................................... 27 9.5 Liquidation.................................................................................... 27 ARTICLE 10 MISCELLANEOUS......................................................................................... 28 10.1 Amendments..................................................................................... 28 10.2 Accounting and Fiscal Year..................................................................... 28 10.3 Entire Agreement............................................................................... 28 10.4 Further Assurances............................................................................. 28 10.5 Notices........................................................................................ 29 10.6 Tax Matters.................................................................................... 29 10.7 Governing Law; Certain Waivers................................................................. 29 10.8 Captions - Pronouns............................................................................ 29 10.9 Binding Effect................................................................................. 29 10.10 Confidentiality................................................................................ 30 10.11 Member Representations......................................................................... 30 10.12 Counterparts................................................................................... 30 10.13 Attorney Fees.................................................................................. 30 10.14 Titles......................................................................................... 31 10.15 Successors..................................................................................... 31

iii 10.16 Computation of Time Periods.................................................................... 31 10.17 Severability................................................................................... 31 10.18 Signatory Authority............................................................................ 31 10.19 Arbitration.................................................................................... 31 10.20 Lockup in Event of Initial Public Offering..................................................... 32 10.21 Interpretations................................................................................ 32

EXHIBITS Exhibit A Members, Capital Contributions and Percentage Interests iv LIMITED LIABILITY COMPANY AGREEMENT OF NEOJB LLC This LIMITED LIABILITY COMPANY AGREEMENT (the "AGREEMENT") of NeoJB LLC (the "COMPANY"), by and among those Persons whose names are set forth on Exhibit A hereto (as such may be amended from time to time) (collectively, the "MEMBERS," with each being referred to, individually, as a "MEMBER"), is made effective as of April 16, 2002 (the "EFFECTIVE DATE"). ARTICLE 1 ORGANIZATIONAL MATTERS 1.1 FORMATION OF LIMITED LIABILITY COMPANY. The Members formed the Company as a limited liability company under the Delaware Limited Liability Company Act (as such may be amended from time to time, the "DELAWARE LLC ACT") for the purposes of obtaining regulatory approval, distributing and marketing in the United States products produced by JB Chemicals and Pharmaceuticals, Ltd. of Mumbai, India, and upon the terms and conditions set forth in this Agreement. The rights, powers, duties and liabilities of the Members shall be as provided in the Delaware LLC Act, except as otherwise expressly provided herein. In the event of any inconsistency between any terms and conditions contained in the Agreement and any non-mandatory provisions of the Delaware LLC Act, the Agreement shall govern. 1.2 NAME. The name of the Company shall be "NeoJB, LLC." The Company may conduct business under one or more fictitious names as determined by the Board of Managers. 1.3 PRINCIPAL PLACE OF BUSINESS; OTHER PLACES OF BUSINESS. The principal place of business of the Company is 157 Technology Drive, Irvine, California 92618, or such other place as determined by the Board of Managers. The Company may maintain offices and places of business at such other place or places within or outside the State of Delaware as determined by the Board of Managers. 1.4 BUSINESS PURPOSE. The Company has been formed to implement a joint venture between NeoTherapeutics, Inc. ("NEOTHERAPEUTICS") and J.B. Chemicals & Pharmaceuticals, Ltd. ("JBCPL") and/or its wholly owned subsidiary, JB Life Science Overseas Ltd. ("JBSOL") for the purposes of obtaining regulatory approval in the United States for patented and/or proprietary pharmaceuticals, intermediates, bulk chemicals, finished pharmaceuticals and natural products of JBCPL (each, a "PRODUCT") and to engage in the distribution and sale of the Products in the United States. It is anticipated that the Company and JBCPL shall enter into one or more Supply Agreement(s) (each, a "SUPPLY AGREEMENT") in a form reasonably acceptable to both the Company and JBCPL, related to the supply of one or more Products by JBCPL to the Company and providing for the grant or license by JBCPL to the Company of all intellectual property rights necessary to enable the Company to obtain regulatory approval of the subject Products in the United States. Notwithstanding the foregoing, subject to the limitations set forth in this Agreement, the Company may carry on any lawful business, purpose or activity, whether or not for profit, with the exception of the business of the granting of policies of insurance, or assuming insurance risks or banking as defined in Section 126 of the Delaware General Corporation Law, and shall have the power to do and perform all things determined by the Board of Managers to be necessary, desirable or appropriate for, incident to or connected with or arising out of the business, purposes or activities of the Company. 1.5 CERTIFICATE OF FORMATION; FILINGS. The Members have caused to be executed and filed a Certificate of Formation (the "CERTIFICATE") in the Office of the Delaware Secretary of State. The Board of Managers may execute and file any duly authorized amendments to the Certificate from time to time in a form prescribed by the Delaware LLC Act. The Board of Managers shall also cause to be made, on behalf of the Company, such additional filings and recordings as it shall deem necessary or advisable. 1.6 REGISTERED OFFICE AND DESIGNATED AGENT FOR SERVICE OF PROCESS...The Company shall continuously maintain a registered office and a designated and duly qualified agent for service of process for the Company in the State of Delaware. The address of the registered office in Delaware and of the registered agent for service of process as of the effective date of this Agreement is The Delaware Limited Liability Company. 1.7 TERM. The Company commenced existence on the date that the Certificate was first properly filed with the Office of the Delaware Secretary of State, and shall continue perpetually until duly terminated. ARTICLE 2 DEFINITIONS Capitalized words and phrases used and not otherwise defined elsewhere in this Agreement shall have the following meanings: 2.1 "ACCEPTANCE NOTICE" is defined in Section 6.11.2. 2.2 "ACCEPTANCE PERIOD" is defined in Section 6.11.2. 2.3 "ADDITIONAL MEMBERS" means those Persons admitted as Members pursuant to Section 3.1.2 or Section 3.2.1. 2.4 "ADJUSTED CAPITAL ACCOUNT" means, with respect to any Member, the balance, if any, in such Member's Capital Account as of the end of the relevant fiscal year, after adding to such Capital Account the amount that such Member is deemed to be obligated to restore pursuant to Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), and subtracting from such Capital Account such Member's share of the items described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6). 2.5 "AFFILIATE" means, with reference to a specified Person: (a) a Person that, directly or indirectly, controls, is controlled by, or is under common control with, the specified Person, or (b) any Person that is an officer, director, general partner, manager or managing 2 member, or trustee of, or serves in a similar capacity with respect to, the specified Person, or for which the specified Person is an officer, director, general partner, manager or managing member, or trustee, or serves in a similar capacity. 2.6 "AGREEMENT" is defined in the Preamble. 2.7 "ASSIGNEE" means any Person (a) to whom a Member (or Assignee thereof) Transfers all or any part of its Interest and (b) which has not been admitted as a Substitute Member pursuant to Section 7.5. 2.8 "BOARD OF MANAGERS" means those Persons elected as members of the Board of Managers pursuant to this Agreement or any Person(s) succeeding any of them in that capacity. 2.9 "CAPITAL ACCOUNT" means a Capital Account maintained for each Member in accordance with the following provisions: 2.9.1 To each Member's Capital Account there shall be added (a) such Member's Capital Contributions and (b) such Member's allocable share of Net Profits and any items in the nature of income or gain that are specially allocated to such Member pursuant to Article 5 hereof or other provisions of this Agreement. 2.9.2 From each Member's Capital Account there shall be subtracted (a) the amount of (i) cash distributed to such Member, and (ii) the Gross Asset Value of any Company Assets distributed to such Member in kind pursuant to any provision of this Agreement (net of liabilities encumbering the distributed Company Assets that such Member is considered to assume or take subject to under Section 752 of the Code), (b) such Member's allocable share of Net Losses and any other items in the nature of expenses or losses that are specially allocated to such Member pursuant to Article 5 hereof and (c) liabilities of such Member assumed by the Company or which are secured by any property contributed by such Member to the Company, calculated by reference to Section 752 of the Code. With respect to distributions of Company Assets in kind, if any, Capital Accounts shall first be adjusted to reflect the manner in which the unrealized income, gain, loss and deduction inherent in such assets (that has not been previously reflected in Capital Accounts) would be allocated, pursuant to Article 5 hereof, to the Members if there were a taxable disposition of such assets for fair market value (taking Section 7701(g) of the Code into account) on the date of distribution. 2.9.3 The Board of Managers may cause an increase or decrease in the Capital Accounts of the Members to reflect a revaluation of Company Assets on the Company's books and records. Any such adjustments shall be made in accordance with Regulations Section 1.704-1(b)(2)(iv)(g). 2.9.4 Additional adjustments shall be made to the Members' Capital Accounts as required by Regulations Sections 1.704-1(b) and 1.704-2 or, as permitted but not required, in the discretion of the Board of Managers. Adjustments to Capital Accounts in respect to Company income, gain, loss, deduction and non-deductible expenditures (or any item thereof) shall be made with reference to the federal tax treatment of such items (and, in the case of book 3 items, with reference to federal tax treatment of the corresponding tax items) at the Company level, without regard to any requisite or elective tax treatment of such items at the Member level. 2.9.5 The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Sections 1.704-1(b) and 1.704-2 and shall be interpreted and applied in a manner consistent with such Regulations. 2.10 "CAPITAL CALL" is defined in Section 3.2.1(d). 2.11 "CAPITAL CONTRIBUTIONS" means, with respect to any Member, the total amount of money and the fair market value of property (other than money) contributed to the capital of the Company by such Member, whether contributed as an initial Capital Contribution or as an additional Capital Contribution. 2.12 "CASH AVAILABLE FOR DISTRIBUTION" means, with respect to any fiscal year, all Company cash receipts, after deducting payments for Operating Cash Expenses, payments required to be made in connection with any loan to the Company or any other loan secured by a lien on any Company Assets, capital expenditures and any other amounts set aside for the restoration, increase or creation of Reserves. 2.13 "CERTIFICATE" is defined in Section 1.5. 2.14 "CHANGE OF CONTROL" means (a) an acquisition of all or substantially all of the assets of the Company, (b) a sale of Membership Interests (other than through newly issued Membership Interests or other equity) or a merger, consolidation, reorganization or other combination or acquisition whereby the existing Members of the Company and their Affiliates do not retain at least a majority of the voting power of the membership interests of the Company or the other equity of the surviving entity or (c) after an initial public offering of membership interests (or shares of common stock or other securities of a successor corporation or entity of the Company into which the Company may reorganize in contemplation of an initial public offering), the acquisition by one person (within the meaning of Section 13(d)(3) under the Securities Exchange Act of 1934, as amended) other than the securityholders existing immediately prior to the initial public offering of beneficial ownership of at least 30% of the Company's fully-diluted membership interests (or shares of common stock or other securities of a successor corporation or entity of the Company into which the Company may reorganize in contemplation of an initial public offering). 2.15 "CLASS A MEMBERS" means the Persons identified as such on Exhibit A to this Agreement, as such may be amended from time to time. 2.16 "CODE" means the Internal Revenue Code of 1986, as amended from time to time (or corresponding provisions of succeeding law). 2.17 "COMPANY" is defined in the Preamble. 4 2.18 "COMPANY ASSETS" means all direct and indirect interests in real and personal property owned by the Company, including both tangible and intangible property (including cash). 2.19 "CONTRIBUTION DATE" is defined in Section 3.2.1(d). 2.20 "COVERED PERSON" means each member of the Board of Managers, any Member, an officer of the Company, a Person to whom the Board of Managers duly delegates management responsibilities, an Affiliate of a Member, or an employee or agent of the Company or of a Covered Person. 2.21 "DELAWARE LLC ACT" is defined in the Preamble. 2.22 "DEPRECIATION" means, for each fiscal year, an amount equal to the federal income tax depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that (a) with respect to any asset the Gross Asset Value of which differs from its adjusted tax basis for federal income tax purposes, which difference is being eliminated by use of the "remedial method" pursuant to Section 1.704-3(d) of the Regulations, Depreciation for such fiscal year shall be the amount of book basis recovered for such fiscal year under the rules prescribed by Section 1.704-3(d)(2) of the Regulations, and (b) with respect to any other asset the Gross Asset Value of which differs from its adjusted basis for federal income tax purposes at the beginning of such year, Depreciation shall be an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however, that if the federal income tax depreciation, amortization or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any method selected by the Board of Managers. 2.23 "ECONOMIC INTEREST" means a Person's right to share in the Net Profits, Net Losses, or similar items of, and to receive distributions from, the Company, but does not include any other rights of a Member, including, without limitation, the right to vote or to participate in the management of the Company, or, except as specifically provided in this Agreement or required under the Delaware LLC Act, any right to information concerning the business and affairs of the Company. 2.24 "EFFECTIVE DATE" is defined in the Preamble. 2.25 "EXCESS CAPITAL CONTRIBUTION" is defined in Section 3.2.3. 2.26 "FDA"means the United States Food and Drug Administration. 2.27 "GAAP" is defined in Section 3.5.1. 2.28 "GROSS ASSET VALUE" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: 5 2.28.1 The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as provided herein or as determined by the Board of Managers. 2.28.2 The Gross Asset Values of all Company Assets immediately prior to the occurrence of any event described in subsection (a), subsection (b), subsection (c) or subsection (d) hereof shall be adjusted to equal their respective gross fair market values, as determined by the Board of Managers, as of the following times: (a) the acquisition of an additional interest in the Company (other than in connection with the execution of this Agreement) by a new or existing Member in exchange for more than a nominal Capital Contribution; (b) the distribution by the Company to a Member of more than a nominal amount of Company property as consideration for an interest in the Company; (c) the liquidation of the Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); and (d) at such other times as the Board of Managers may determine as necessary or advisable in order to comply with Regulations Sections 1.704-1(b) and 1.704-2. 2.28.3 The Gross Asset Value of any Company Asset distributed to a Member shall be the gross fair market value of such asset on the date of distribution, as determined by the Board of Managers. 2.28.4 The Gross Asset Values of Company Assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Section 734(b) or Section 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m). 2.28.5 If the Gross Asset Value of a Company asset has been determined or adjusted pursuant to Section 2.27.1, Section 2.27.2 or Section 2.27.4 above, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Profits and Net Losses. 2.29 "INVESTMENT INTERESTS" is defined in Section 3.2.1(c). 2.30 "INVESTMENT MEMBERS" means the Person(s), if any, who are granted Investment Interests pursuant to Section 3.2.1(c) and who are identified as Investment Members on Exhibit A to this Agreement, as such may be amended from time to time. 2.31 "JAMS" is defined in Section 10.20. 2.32 "JBCPL" AND "JBSOL" are defined in Section 1.4. 6 2.33 "MAJORITY IN INTEREST" means Members entitled to vote (or any specified subset thereof) holding, in the aggregate, a majority of the Percentage Interests entitled to vote held by all Members entitled to vote (or by such specified subset). 2.34 "MANAGER" is defined in Section 6.2.1. 2.35 "MEMBERS" means the Persons owning Membership Interests, including any Additional Members and any Substitute Members, with each Member being referred to, individually, as a "MEMBER." 2.36 "MEMBERSHIP INTEREST" or "INTEREST" means the entire ownership interest of a Member in the Company at any particular time, including, without limitation, the Member's Economic Interest, the right to vote and otherwise participate in the Company's affairs, and the right to the benefits to which a Member may be entitled as provided in this Agreement, together with the obligations of such Member to comply with all of the terms and provisions of this Agreement. 2.37 "NEGOTIATION PERIOD" is defined in Section 6.11.3. 2.38 "NEOTHERAPEUTICS" is defined in Section 1.4. 2.39 "NET PROFITS" or "NET LOSSES" means, for each fiscal year or other period, an amount equal to the Company's taxable income or loss for such year or period determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments: 2.39.1 Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Profits or Net Losses pursuant to this Section 2.38 shall be added to such taxable income or loss. 2.39.2 Any expenditure of the Company described in Section 705(a)(2)(B) of the Code or treated as a Section 705(a)(2)(B) expenditure pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Profits or Net Losses pursuant to this Section 2.38, shall be subtracted from such taxable income or loss. 2.39.3 Gain or loss resulting from any disposition of each Company Asset where such gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the Company Asset disposed of, notwithstanding that the adjusted tax basis of such Company Asset differs from its Gross Asset Value. 2.39.4 To the extent an adjustment to the adjusted tax basis of any asset included in the Company Assets pursuant to Section 734(b) or Section 743(b) of the Code is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member's Membership Interest, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the 7 asset) from the disposition of the asset and shall be taken into account for the purposes of computing Net Profits and Net Losses. 2.39.5 If the Gross Asset Value of any Company Asset is adjusted in accordance with the terms of this Agreement, the amount of such adjustment shall be taken into account in the taxable year of such adjustment as gain or loss from the disposition of such asset for purposes of computing Net Profits or Net Losses. 2.39.6 Notwithstanding any other provision of this Section 2.38, any items that are specially allocated pursuant to Section 5.2 hereof shall not be taken into account in computing Net Profits or Net Losses. 2.40 "NOTE" is defined in Section 3.5.1. 2.41 "OPERATING CASH EXPENSES" means, with respect to any fiscal period, the amount of cash disbursed in the ordinary course of business during the period, for operating expenses of the Company, for capital expenditures not paid from Capital Contributions, and for Reserves actually funded. Operating Cash Expenses shall not include expenditures paid from Reserves or other non-cash expenses such as depreciation or amortization. 2.42 "PERCENTAGE INTEREST" means, with respect to each Member, the percentage set forth opposite such Member's name on Exhibit A, attached hereto and, as it may be amended, modified or supplemented from time to time, incorporated herein. 2.43 "PERSON" means and includes an individual, a corporation, a partnership, a limited liability company or partnership, a trust, an unincorporated organization, a government or any department or agency thereof, or any other juridical entity. 2.44 "PRIME RATE" means the highest prime or reference rate as quoted from time to time by Bank of America, N.A., which shall be a variable rate. Interest rates set forth in this Agreement that are determined with reference to the Prime Rate shall similarly be variable rates and shall change immediately effective upon a change in the Prime Rate. 2.45 "PRODUCT" is defined in Section 1.4. 2.46 "PROPORTIONATE" and "PROPORTIONATELY" means, when used with respect to the Members (or a group of them), the proportion that each such Member's Percentage Interest bears to the total outstanding Percentage Interests of all Members to whom reference is made. 2.47 "RECORDS" is defined in Section 6.7.3. 2.48 "REGULATIONS" means Treasury Regulations promulgated under the Code and in effect, as such Regulations may be amended and succeeded from time to time. 2.49 "REGULATORY ALLOCATIONS" is defined in Section 5.2.9. 2.50 "RESERVES" means funds set aside or amounts allocated to reserves that shall be maintained in amounts determined by the Board of Managers for working capital, to pay 8 taxes, insurance, debt service and other costs or expenses and liabilities (actual and contingent) incident to the conduct of business by the Company or the liquidation of its assets and termination of its existence. 2.51 "RESPONSIBLE PARTY" is defined in Section 6.10.1. 2.52 "SECURITIES ACT" is defined in Section 3.2.2. 2.53 "SELLING MEMBER" is defined in Section 7.2. 2.54 "SUBSTITUTE MEMBER" means any Person (a) to whom a Member (or Assignee thereof) Transfers all or any part of its Interest, and (b) which has been admitted to the Company as a Substitute Member pursuant to Section 7.5. 2.55 "SUPPLY AGREEMENT" is defined in Section 1.4. 2.56 "TERMINATING CAPITAL TRANSACTION" means any sale or other disposition of all or substantially all of the assets of the Company or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the Company. 2.57 "TOTAL AMOUNT" is defined in Section 3.2.1(d). 2.58 "TRANSFER" means, with respect to any Interest, a sale, conveyance, exchange, assignment, pledge, encumbrance, gift, bequest, hypothecation or other transfer or disposition by any other means, whether for value or not and whether voluntary or involuntary (including, without limitation, by operation of law), or an agreement to do any of the foregoing. Used as a verb, the term shall mean effecting any of the foregoing. 2.59 "UNRETURNED CAPITAL" means, with respect to each Member, the cumulative Capital Contributions by such Member less (a) the amount of any liabilities to which any assets contributed by the Member are subject at the time of contribution or which are otherwise assumed by the Company in connection with such contribution(s) and (b) the distributions to such Member with respect to such Member's Unreturned Capital. ARTICLE 3 CAPITALIZATION 3.1 INITIAL CAPITALIZATION OF COMPANY. The names, addresses, initial Capital Contributions and Percentage Interests of the Members are set forth on Exhibit A. All Members acknowledge and agree that the initial Capital Contributions set forth in Exhibit A represent the amount of cash and the fair market value of property other than cash initially contributed by the Members. 9 3.2 ADDITIONAL CAPITAL CONTRIBUTIONS BY MEMBERS. 3.2.1 If the Board of Managers determines that the Company requires or would benefit from additional funds, the Board of Managers, on behalf of the Company, may, but shall not be obligated to, do any of the following: (a) THIRD PARTY DEBT FINANCING. Obtain the funds via third-party debt financing from one or more sources and on terms and conditions acceptable to the Board of Managers (which may include, for example, (i) the granting of a lien or liens on certain or all of the Company Assets to secure repayment or (ii) the granting of a Membership Interest or Economic Interest and/or the right to subsequently convert all or a portion of the loan funds provided into a Membership Interest or Economic Interest). (b) VOLUNTARY MEMBER LOANS. Obtain the funds via voluntary Member loans to the Company, of all or a portion of the total funds required. Such loans shall be considered permitted Member loans. Unless otherwise determined by the Board of Managers at the time voluntary Member loans are obtained, all voluntary Member loans under this Section 3.2.1(b) shall be payable upon demand, shall bear interest quarterly in arrears at the Prime Rate in effect on the first day of the applicable quarter and shall not be convertible into additional Membership Interests of the Company. If multiple Members are interested in making loans to the Company, and the aggregate amount that such Members wish to loan exceeds the total amount of required funds as determined by the Board of Managers, each interested Member may loan his or its Proportionate share of the required funds. If any Member does not wish to loan his or its entire Proportionate share of the required funds, such share may be lent by the other interested Members on a Proportionate basis. This process shall be repeated until all required funds have been received, but in no event longer than fifteen (15) days after the Board of Managers has sent out a written notice to all Members soliciting loans pursuant to this Section 3.2.1(b). (c) INVESTMENT INTERESTS. Obtain the funds via one or more issuances of one or more separate class of Interests ("INVESTMENT INTERESTS"), the terms and conditions of each issuance of which, and the rights, preferences, privileges and obligations associated with the ownership of which, are determined by the Board of Managers and set forth in a written instrument delivered to all Members. Notwithstanding the provisions of Section 6.4, the Board of Managers may amend this Agreement to create and give effect to the rights, preferences, privileges and obligations any class of Investment Interests issued in accordance with this Section 3.2.1(c) without the consent of the Members. Prior to issuing any Investment Interests to outside persons in exchange for funds, such interests shall first be offered to existing Members on a Proportionate basis, and if an existing Member does not purchase his entire Proportionate share of the Investment Interests being offered to him, such share may be purchased by the other Members on a Proportionate basis. This process shall be repeated until all of the Investment Interests have been purchased by the existing Members or until no existing Member has any further interest in purchasing the Investment Interests, but in no event longer than fifteen (15) days after the Board of Managers has sent out a written notice to all Members soliciting the purchase of the Investment Interests and setting forth 10 the material terms and conditions pertinent thereto. If existing Members do not purchase all of the Investment Interests, the unpurchased Investment Interests shall then be offered to outside investors (including any interested Affiliates of one or more of the Members) on the same terms and conditions offered to the Members. Upon issuance of one or more Investment Interests pursuant hereto, the Percentage Interests of all other Members shall be diluted on a Proportionate basis, and the Board of Managers shall revise Exhibit A appropriately and distribute the revised version to all of the Members. (d) VOLUNTARY MEMBER CAPITAL CONTRIBUTIONS. Obtain the funds via voluntary Member Capital Contributions, which shall be solicited via written notice from the Board of Managers (a "CAPITAL CALL") to all Members specifying the total amount of capital to be obtained via Capital Contributions pursuant to the Capital Call ("TOTAL AMOUNT"), the use(s) therefor, each Member's Proportionate share of the Total Amount and the date by which Capital Contributions in response to the Capital Call are to be made (the "CONTRIBUTION DATE"). Each Member shall be entitled to elect to make a Capital Contribution in response to the Capital Call, equal to his or its Proportionate share of the Total Amount specified therein, by making a Capital Contribution of all or any portion of such amount by the Contribution Date. If any Member does not contribute his or its entire Proportionate share of the Total Amount by the Contribution Date, no Member may contribute a greater relative portion of its Proportionate share than that contributed by the Member contributing the smallest relative portion of its Prportionate share, so that no Member shall have contributed more than such Member's Proportionate share of the total amount contributed under this Section 3.2.1(d). Any additional contributions made by any Member shall be deemed to be Voluntary Member loans made under Section 3.2.1(b). (e) However, no person may loan funds pursuant to (b) above, make an investment (or additional investment) in the Company pursuant to (c) above or make a contribution pursuant to (d) above unless such person is, at the time his money is to be lent, invested or contributed, an "accredited investor" as that term is defined in Regulation D promulgated under the Securities Act of 1933, as amended (the "SECURITIES ACT"). 3.2.2 Except as provided in Section 3.2.1, no Member shall be permitted or required to make any additional Capital Contributions to the Company. 3.2.3 Except as explicitly provided in this Agreement to the contrary, no Member nor any other Person or Persons shall be obligated to guarantee any Company borrowings. 3.3 CAPITAL ACCOUNTS. A Capital Account shall be established and maintained for each Member. 3.4 MEMBER CAPITAL. Except as otherwise provided in this Agreement or with the prior written consent of the Board of Managers: (a) no Member shall demand or be entitled to receive a return of or interest on its Capital Contributions or Capital Account; (b) no Member shall withdraw any portion of its Capital Contributions or receive any distributions from 11 the Company as a return of capital on account of such Capital Contributions; and (c) the Company shall not redeem or repurchase the Interest of any Member. 3.5 MEMBER LOANS. Except as otherwise provided in this Agreement, or as otherwise determined by the Board of Managers, no Member shall be required or permitted to make any loans or otherwise lend any funds to the Company. Except as otherwise permitted or provided in this Agreement, no loans made by any Member to the Company shall have any effect on such Member's Percentage Interest or Capital Account. Each Member loan shall represent a debt of the Company payable or collectible solely from the assets of the Company in accordance with the terms and conditions upon which such loan was made. All permitted Member loans shall be repaid in accordance with any documents and instruments evidencing such loans or, absent any such documents or instruments, shall be repaid prior to making any distributions to the Members. 3.6 LIABILITY OF MEMBERS. Except as otherwise required by any non-waivable provision of the Delaware LLC Act or other applicable law: (a) no Member shall be personally liable for any debt, liability or other obligation of the Company; and (b) no Member shall have any liability to any Person in excess of (i) the amount of its Capital Contributions and (ii) without duplication, its share of any assets and undistributed profits of the Company. 3.7 ALLOCATION OF COSTS. 3.7.1 Until the earliest time at which each Product then subject to a Supply Agreement has been approved by the FDA to be marketed and sold in the United States, subject to the terms of any Supply Agreement, NeoTherapeutics shall bear all direct and indirect costs incurred by or on behalf of the Company in the United States in connection with obtaining such regulatory approval in the United States, including without limitation all costs related to clinical and pre-clinical testing conducted in the United States, required product testing, and costs associated with the preparation and filing of required Abbreviated New Drug Applications and New Drug Applications. NeoTherapeutics may bear such costs by advancing funds to the Company, paying costs directly on the Company's behalf or providing required services at no cost to the Company, at NeoTherapeutics' sole discretion. 3.7.2 Until the earliest time at which each Product then subject to a Supply Agreement has been approved by the FDA to be marketed and sold in the United States, subject to the terms of any Supply Agreement, JBCPL shall bear all direct and indirect costs incurred by or on behalf of the Company outside of the United States in connection with obtaining such regulatory approval in the United States, including without limitation all costs related to manufacture of Products for the purpose of conducting clinical and pre-clinical testing in India. JBCPL and/or JBSOL may bear such costs by advancing funds to the Company, paying costs directly on the Company's behalf or providing required goods or services at no cost to the Company, at JBCPL's and/or JBSOL's sole discretion. 3.7.3 Until the earliest time at which each Product then subject to a Supply Agreement has been approved by the FDA to be marketed and sold in the 12 United States, subject to the terms of any Supply Agreement, the Company shall bear all direct and indirect costs incurred by or on behalf of the Company for matters not directly related to obtaining such approvals, including without limitation, costs associated with general administration, Federal and state taxes, required business licenses, marketing and marketing research, distribution and legal, accounting and other professional fees. In addition, the Company shall bear all direct and indirect costs and expenses associated with ongoing required submissions to and approvals from various state and federal regulatory agencies. From and after such time, subject to the terms of any Supply Agreement, the Company shall bear all costs incurred by or on behalf of the Company. ARTICLE 4 DISTRIBUTIONS 4.1 TIMING AND AMOUNT OF DISTRIBUTIONS. Except as otherwise provided in Article 9 hereof, all Cash Available for Distribution and net proceeds from any Terminating Capital Transaction shall be distributed to the Members at such times and in such amounts as determined by the Board of Managers. 4.2 ORDER OF DISTRIBUTIONS. Any Cash Available for Distribution shall be distributed as follows: 4.2.1 first, to the Members in proportion to and to the extent of their respective amounts of Unreturned Capital; 4.2.2 then, to the Members with positive Adjusted Capital Accounts, in proportion to and to the extent thereof; and 4.2.3 thereafter, to the Members in proportion to their respective Percentage Interests. 4.3 DISTRIBUTIONS IN KIND. No Member shall have a right to receive property other than cash as provided in this Agreement. The Board of Managers may determine to make a distribution in kind of Company Assets to the Members, and such Company Assets shall be distributed in such a fashion as to ensure that the fair market value thereof is distributed and allocated in accordance with this Article 4 and Articles 5 and 9 hereof. 4.4 WITHHOLDING. The Company may withhold distributions or portions thereof if it is required to do so by any applicable rule, regulation or law, and each Member hereby authorizes the Company to withhold from or pay on behalf of or with respect to such Member any amount of federal, state, local or foreign taxes that the Board of Managers determines that the Company is required to withhold or pay with respect to any amount distributable or allocable to such Member pursuant to this Agreement. Any amounts so paid or withheld with respect to a Member pursuant to this Section 4.4 shall be treated as having been distributed to such Member and shall reduce any amounts otherwise distributable to such Member (either currently or in the future) pursuant to Section 4.2 or Article 9. 13 ARTICLE 5 ALLOCATIONS OF NET PROFITS AND NET LOSSES 5.1 ALLOCATION OF NET PROFITS AND LOSSES. Subject to Sections 5.2 and 5.3 hereof, Net Profits, Net Losses and any other items of income, gain, loss and deduction for any fiscal year shall be allocated, for purposes of adjusting the Capital Accounts of the Members, as provided in this Section 5.1: 5.1.1 The Net Losses of the Company shall be allocated as follows: (a) first, to the Members with positive Adjusted Capital Account Balances, in proportion to and to the extent thereof; (b) thereafter, to the Members in proportion to their Percentage Interests. 5.1.2 The Net Profits shall be allocated as follows: (a) first, to the Members in proportion to and to the extent of the Net Losses allocated to them pursuant to Section 5.1.1(b); (b) second, to the Members in the proportion and to the extent of the Net Losses allocated to them pursuant to Section 5.1.1(a); (c) thereafter, to the Members in proportion to their respective Percentage Interests. 5.2 ADDITIONAL SPECIAL ALLOCATIONS. Notwithstanding the foregoing provisions of this Article 5: 5.2.1 Tax items with respect to assets that are contributed to the Company with a Gross Asset Value that varies from its basis in the hands of the contributing Member immediately preceding the date of contribution shall be allocated among the Members for income tax purposes pursuant to Regulations promulgated under Section 704(c) of the Code so as to take into account such variation. The Company shall account for such variation under any method approved under Section 704(c) of the Code and the applicable Regulations selected by the Board of Managers. If the Gross Asset Value of any Company Asset is adjusted pursuant to Section 2.27.2 hereof, subsequent allocations of income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Section 704(c) of the Code and the Regulations promulgated thereunder. Allocations pursuant to this Section 5.2.1 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Member's Capital Account or share of Net Profits, Net Losses and any other items or distributions pursuant to any provision of this Agreement. 5.2.2 If any Member unexpectedly receives an adjustment, allocation or distribution of the type contemplated by Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) 14 that causes or increases a deficit Adjusted Capital Account, items of income and gain shall be allocated to all such Members (in proportion to the amounts of their respective deficit Adjusted Capital Accounts) in an amount and manner sufficient to eliminate the deficit balances in such Members' Adjusted Capital Accounts as quickly as possible as of the end of the Company's taxable year to which such adjustment, allocation or distribution relates. It is intended that this Section 5.2.6 qualify and be construed as a "qualified income offset" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(d). 5.2.3 To the extent that an adjustment to the adjusted tax basis of any Company Asset pursuant to Section 734(b) or Section 743(b) of the Code is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of such Member's Membership Interest in the Company, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to the Members in accordance with their interests in the Company in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Members to whom such distribution was made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies. 5.2.4 The allocations set forth in Sections 5.2.2 and 5.2.3 hereof (the "REGULATORY ALLOCATIONS") are intended to comply with certain requirements of Regulations Sections 1.704-1(b) and 1.704-2(i). The Regulatory Allocations may not be consistent with the manner in which the Members intend to distribute the cash of the Company or allocate Company income or loss. Accordingly, the Board of Managers is hereby authorized to cause the allocation of Net Profits, Net Losses and other items of income, gain, loss and deductions to the Members so as to prevent the Regulatory Allocations from distorting the manner in which Company distributions will be divided among the Members. In general, the Members anticipate that this will be accomplished by specially allocating other Net Profits, Net Losses and other items of income, gain, loss and deduction to the Members so that, to the extent possible, the net amount of such allocations of other Net Profits, Net Losses and other items and the Regulatory Allocations to the Members shall be equal to the net amount that would have been allocated among the Members if the Regulatory Allocations had not occurred. 5.2.5 For purposes of determining the Net Profits, Net Losses and any other items of income, gain, loss and deduction allocable to any period, Net Profits, Net Losses and any such other items shall be determined on a daily, monthly or other basis, as determined by the Board of Managers using any permissible method under Section 706 of the Code and the Regulations thereunder. 5.3 OTHER PROVISIONS. 5.3.1 For any fiscal year during which any part of a Membership Interest or Economic Interest is transferred between the Members or to another Person, the portion of the Net Profits, Net Losses and other items of income, gain, loss, deduction and credit that are allocable with respect to such part of a Membership Interest or Economic Interest shall be 15 apportioned between the transferor and the transferee based on an interim closing of the Company's books, except as otherwise mandated by the Code and the applicable Regulations. 5.3.2 Except as provided in Section 5.2.1 hereof, for income tax purposes under the Code and the Regulations each Company item of income, gain, loss and deduction shall be allocated among the Members as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to this Article 5. 5.3.3 In the event that the Code or any Regulations require allocations of items of income, gain, loss, deduction or credit different from those set forth in this Article 5, the Board of Managers is hereby authorized to make new or different allocations in reliance on the Code and such Regulations. ARTICLE 6 GOVERNANCE AND OPERATIONS 6.1 BOARD OF MANAGERS. Except for situations in which the approval of the Members is required by statute or this Agreement, the Company shall be managed and controlled by the Board of Managers. The Board of Managers shall set the consideration, if any, to be paid to each member of the Board of Managers for his or her services as a Manager, provided that any such consideration shall be limited to ordinary and reasonable compensation. 6.2 ELECTION OF MANAGERS. 6.2.1 NUMBER, TERM AND QUALIFICATIONS. The Board of Managers shall consist of five (5) Persons (each such Person, a "MANAGER"). NeoTherapeutics shall have the right to designate four (4) Managers and JBSOL shall have the right to designate one (1) Manager. Unless a Manager resigns or is removed, each Manager shall hold office until a successor shall have been elected and qualified. The Managers initially designated by NeoTherapeutics shall be Alvin J. Glasky, Ph.D. (Chairman), Rajesh Shrotriya, M.D., Ashok Gore, Ph.D. and Samuel Gulko, and the Manager initially designated by JBSOL shall be Dr. Satya Agarwala. A Manager need not be a Member, an individual, a resident of the State of Delaware, or a citizen of the United States. 6.2.2 RESIGNATION. Any Manager may resign at any time by giving written notice to the other Managers without prejudice to the rights, if any, of the Company under any contract to which the Manager is a party. The resignation of a Manager shall take effect upon receipt of that notice or at such later time as shall be specified in the notice. Unless otherwise specified in the notice, the acceptance of the resignation shall not be necessary to make it effective. The resignation of a Manager who is also a Member shall not affect the Manager's rights as a Member and shall not constitute a withdrawal of a Member. 6.2.3 REMOVAL. Any Manager may be removed at any time, with or without cause, by the Member that designated such Manager. Any removal shall be without prejudice to the rights, if any, of the Manager under any employment contract and, if the Manager is also a Member, shall not affect the Manager's rights as a Member or constitute a withdrawal of a Member. 16 6.2.4 VACANCIES. Any vacancy occurring for any reason in the number of Managers may be filled as designated by the Member that designated the Manager whose resignation, removal or death created the vacancy. 6.3 POWERS AND AUTHORITY OF BOARD OF MANAGERS. 6.3.1 The powers and authority of the Board of Managers shall be substantially the same as the powers and authority of the board of directors of a Delaware corporation. The business of the Company shall be managed by and under the direction of the Board of Managers, which may do all lawful acts and things not by statute or by the Certificate or by this Agreement required to be done by the Members. Unless otherwise provided in this Agreement, the vote of the majority of the Managers shall be the act of the Board of Managers. 6.3.2 Notwithstanding anything to the contrary contained in this Agreement, none of the following actions shall be effected by the Company or the Board of Managers without the written consent of NeoTherapeutics and JBSOL: (a) Materially change the Company's business as defined in Section 1.4; (b) Sell, transfer or otherwise dispose of all or substantially all of the Company's assets; (c) Enter into any merger, joint venture, partnership or other similar agreement; or (d) Make a general assignment for the benefit of creditors, file a voluntary petition under the federal bankruptcy law, file a petition seeking an reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation or seek, consent to or acquiesce in the appointment of a trustee, receiver or liquidator of the Company or all or any substantial part of its assets. 6.4 AMENDMENT OF CERTIFICATE OR AGREEMENT. This Agreement may be amended from time to time with the approval of a majority of the Board of Managers and approval by a Majority in Interest (except for those amendments which expressly require something greater or less than a vote of a Majority in Interest). Notwithstanding the foregoing, (a) any amendment which would materially alter any individual Member's rights, as distinct from any Class's rights, may only be made if the consent of the Member adversely affected thereby is obtained prior to the effectiveness thereof and (b) any amendment which would materially alter any individual Class's rights, as distinct from the rights of the other Members, may only be made if the consent of a Majority in Interest of the Class that is adversely affected thereby is obtained prior to the effectiveness thereof. The Board of Managers shall amend the Certificate or this Agreement as necessary to reflect any changes as a result of any action taken by the Members. 17 6.5 MEETINGS. The Board of Managers will meet at least quarterly. Regular meetings shall be scheduled on at least ten (10) days notice and shall be held at reasonable times and places. Attendance at meetings may be in person or by telephone or videoconference, provided that all Managers participating in the meeting may hear each other. Unless otherwise provided in this Agreement, any action required or permitted to be taken at a meeting of the Managers may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action to be so taken, shall be signed by a majority of the Managers, which consents may be delivered to the Company by electronic transmission, including transmission by facsimile or electronic mail. Prompt notice of the taking of any such action without a meeting by less than unanimous consent shall be given to those Managers that have not consented in writing. 6.6 OFFICERS. 6.6.1 APPOINTMENT OF OFFICERS. The officers of the Company shall be appointed by the Board of Managers and shall include a President, a Treasurer (or Chief Financial Officer) and a Secretary. The Board of Managers may appoint a Chairman, a Vice Chairman and/or one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers. Any number of offices may be held by the same person. Any member of the Board of Managers may hold any of the offices. 6.6.2 COMPENSATION OF OFFICERS. The compensation of all officers and agents of the Company shall be fixed by the Board of Managers and shall be limited to amounts that are ordinary and reasonable for the services performed. 6.6.3 TERM OF OFFICE. The officers of the Company shall hold office until their successors are chosen and qualified. Any officer may be removed at any time by a majority of the Board of Managers. Any vacancy occurring in any office of the Company shall be filled by the Board of Managers. 6.6.4 DUTIES OF SPECIFIC OFFICERS. (a) DUTIES OF CHAIRMAN. The Chairman, if any, shall preside at all meetings of the Members at which the Chairman is present. The Chairman shall have and may exercise powers assigned from time to time to the Chairman by the Board of Managers and as are otherwise customarily associated with such office pursuant to the Delaware General Corporation Law. (b) DUTIES OF VICE-CHAIRMAN. In the absence of the Chairman, the Vice Chairman, if any, shall preside at all meetings of the Members at which the Vice Chairman is present. The Vice Chairman shall have and may exercise powers assigned from time to time to the Vice Chairman by the Board of Managers and as are otherwise customarily associated with such office pursuant to the Delaware General Corporation Law. (c) DUTIES OF PRESIDENT. The President shall be the chief executive officer of the Company, and in the absence of the Chairman and Vice Chairman shall preside at all meetings of the Members. The President shall have general 18 and active management of the day-to-day business and affairs of the Company and shall see that all orders and resolutions of the Board of Managers are carried into effect. The President shall execute all contracts except where required or permitted by law to be otherwise signed and executed and except where the signing and execution has been expressly delegated by the Board of Managers to some other officer or agent of the Company. (d) DUTIES OF VICE-PRESIDENT(S). In the absence of the President, the Vice President, if any (or, if there is more than one (1) Vice President, the Vice Presidents in the order designated by the Board of Managers, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform other duties and have other powers as prescribed by the President or the Board of Managers or as are otherwise customarily associated with such office pursuant to the Delaware General Corporation Law. (e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of the Members and, if requested by the Board of Managers, shall record the proceedings of any such meeting of the Members and keep such written records in a book to be kept for that purpose. The Secretary shall give, or cause to be given, notice of all meetings of the Members and shall perform other duties and have other powers as prescribed by the Board of Managers or the President or as are otherwise customarily associated with such office pursuant to the Delaware General Corporation Law. (f) DUTIES OF ASSISTANT SECRETARY(IES). The Assistant Secretary, if any (or, if there is more than one (1) Assistant Secretary, the Assistant Secretaries in the order designated by the Board of Managers, or in the absence of any designation, then in the order of their election) shall, in the absence of the Secretary or in the event of the Secretary's inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform other duties and have other powers as prescribed by the Board of Managers, the President or the Secretary or as are otherwise customarily associated with such office pursuant to the Delaware General Corporation Law. (g) DUTIES OF TREASURER (OR CHIEF FINANCIAL OFFICER). The Treasurer, or the Chief Financial Officer (both of which shall be referred to herein as the Treasurer), shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Company and shall deposit all money and other valuables in the name and to the credit of the Company in depositories designated by the Board of Managers. The Treasurer shall disburse the funds of the Company ordered by the Board of Managers, taking proper vouchers for disbursements, and shall render to the President and the Board of Managers, at regular meetings, or when the Board of Managers so requires, an account of all transactions as Treasurer and of the financial condition of the Company. 19 (h) DUTIES OF ASSISTANT TREASURER(S). The Assistant Treasurer, if any (or, if there is more than one (1) Assistant Treasurer, the Assistant Treasurers in the order designated by the Board of Managers, or in the absence of any designation, then in the order of their election) shall, in the absence of the Treasurer or in the event of the Treasurer's refusal or inability to act, perform the duties and exercise the powers of the Treasurer and shall perform other duties and have other powers as prescribed by the Board of Managers, the President or the Treasurer or as are otherwise customarily associated with such office pursuant to the Delaware General Corporation Law. 6.7 RECORDS AND REPORTS. 6.7.1 The Board of Managers shall cause to be kept, at the principal place of business of the Company, full and proper ledgers, other books of account, and records of all receipts and disbursements, other financial activities, and the internal affairs of the Company for at least the current and past four (4) fiscal years, prepared, to the extent applicable, in accordance with GAAP consistently applied. 6.7.2 As to each of the first three fiscal quarters of the Company and each fiscal year of the Company, the Company shall send to each Member a copy of (a) the balance sheet of the Company as of the end of the fiscal quarter or year, (b) an income statement of the Company for such quarter or year, and (c) a statement showing the amounts distributed by the Company to Members in respect of such quarter or year. Such financial statements shall be delivered no later than forty-five (45) days following the end of the fiscal quarter to which the statements apply, except that the financial statements relating to the end of the fiscal year shall be delivered no later than ninety (90) days following the end of such fiscal year such financial statements to be prepared, to the extent applicable, in accordance with GAAP consistently applied. 6.7.3 The Board of Managers shall cause to be sent to each Member of the Company, within ninety (90) days following the end of each fiscal year of the Company or as soon thereafter as is reasonably practicable, a report that shall include all necessary information required by each of the Members for preparation of its federal, state and local income or franchise tax or information returns, including each Member's pro rata share of Net Profits, Net Losses and any other items of income, gain, loss and deduction for such fiscal year. 6.7.4 (a) The Board of Managers shall ensure that all records, documents and information in any form, including without limitation written and electronic ("RECORDS") of the Company that may reasonably be expected to relate to any regulatory process in the United States or elsewhere that may be applicable to the Company from time to time, or that have been or may reasonably be expected to be used to support any regulatory submission made by the Company in the United States or otherwise, whether related to any Product or otherwise, are maintained as statutorily required, and in any event for a period of not less than 20 years following the completion of the applicable regulatory process, unless the Members unanimously agree otherwise. (b) Each Member shall ensure that all Records of such Member that may reasonably be expected to relate to any regulatory process in 20 the United State or elsewhere that may be applicable to any Product from time to time, or that have been or may reasonably be expected to be used to support any regulatory submission made by the Company or such Member in the United States or elsewhere related to any Product, are maintained indefinitely, and in any event for a period of not less than 20 years following the completion of the applicable regulatory process, unless the Members unanimously agree otherwise. (c) Each Member agrees to provide the Company with copies of such Records required to be maintained under Section 6.7.4(b) as the Company may reasonably request from time to time. All such copies shall be prepared at the Company's expense, and shall be delivered to the Company within twenty-one (21) days of receipt by the applicable Member of a request for copies. 6.7.5 The Members (personally or through an authorized representative) may, for purposes reasonably related to their Interests, examine and copy (at their own cost and expense) the books and records of the Company during reasonable business hours. 6.8 MEETINGS OF MEMBERS. At any time, and from time to time, the Board of Managers or any Member may call a meeting of the Members. No meeting of Members is required to be called or held unless called by the Board of Managers or a Member. Written notice of a meeting, stating the place, date and hour of the meeting and the purpose(s) for which the meeting is called, shall be given by the Board of Managers to each Member entitled to vote at such meeting not less than three (3) nor more than thirty (30) days in advance. The Members holding a Majority in Interest entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the Members. No minutes of the meetings shall be required to be taken, but the Board of Managers may cause minutes of one or more meetings to be taken by the Secretary of the Company. 6.9 POWER TO BIND COMPANY. Except as expressly set forth in this Agreement, no Member shall have the power or authority to bind the Company. 6.10 STANDARDS OF CONDUCT. 6.10.1 To the extent that any Manager, any Member or any Affiliate or subsidiary thereof, or any officer, director, employee or agent of the Company or any of the foregoing (each, a "RESPONSIBLE PARTY") has, at law or in equity, duties (including, without limitation, fiduciary duties) to the Company, any Member or any other Person bound by the terms of this Agreement, such Responsible Parties acting in accordance with this Agreement shall not be liable to the Company, any Member or any such other Person for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict the duties of a Responsible Party otherwise existing at law or in equity, are agreed by all parties hereto to replace such other duties to the greatest extent permitted under applicable law. 6.10.2 Whenever a Responsible Party is required or permitted to make a decision, take or approve an action, or omit to do any of the foregoing: (a) in its discretion, under a similar grant of authority or latitude, or without an express standard of behavior 21 (including, without limitation, standards such as "reasonable" or "good faith"), then such Responsible Party shall be entitled to consider only such interests and factors, including its own, as it desires, and shall have no duty or obligation to consider any other interests or factors whatsoever; or (b) with an express standard of behavior (including, without limitation, standards such as "reasonable" or "good faith"), then such Responsible Party shall comply with such express standard but shall not be subject to any other, different or additional standard imposed by this Agreement or otherwise under applicable law. 6.10.3 Notwithstanding anything in this Agreement to the contrary, to the maximum extent permitted by Delaware law, the Members absolutely and irrevocably waive any and all claims, actions, causes of action, loss, cost, damage and expense, including, without limitation, any and all attorneys' fees and other costs of enforcement arising out of or in connection with any breach of any fiduciary duty by any Manager or any of their respective Affiliates in the nature of actions taken or omitted by any such entity as a Manager of this Company, which actions or omissions would otherwise constitute the breach of any fiduciary duty owed to the Members (or any of them). It is the express intent of the Members that the Managers and each and all of their respective Affiliates shall be and hereby are relieved of any and all fiduciary duties which might otherwise arise out of or in connection with this Agreement to the Members (or any of them). 6.11 OUTSIDE ACTIVITIES OF MEMBERS. The Members and the Managers may engage or invest in and devote their time to, any other business venture or activity of any nature and description (independently or with others), whether or not such other activity may be deemed or construed to be in competition with the Company. Neither the Company nor any other Member shall have any right by virtue of this Agreement or the relationship created hereby in or to such other venture or activity of any Member (or to the income or proceeds derived therefrom), and the pursuit thereof, even if competitive with the business of the Company, shall not be deemed wrongful or improper. ARTICLE 7 INTERESTS AND TRANSFERS OF INTERESTS 7.1 TRANSFERS OF MEMBERSHIP INTERESTS. 7.1.1 Subject to the provisions of Section 7.6, a Member may make or permit a Transfer, directly or indirectly, by operation of law or otherwise, voluntarily or involuntarily, of all or any portion of its Membership Interest, including all or any portion of its Economic Interest, only to as follows: (a) to an Affiliate of such Member; or (b) to any Person other than an Affiliate of such Member, subject to the right of first refusal or the other Members as set forth in Section 7.2 7.1.2 Any other purported Transfer of a Membership Interest or Economic Interest shall be null and void. A Substitute Member may Transfer the transferred 22 Membership Interest or Economic Interest in the same manner as an original or the transferring Member. 7.1.3 Notwithstanding the above or any contrary provision in this Agreement, unless expressly waived by the Board of Managers in writing, any otherwise permitted Transfer shall be null and void if: (a) such Transfer would cause a termination of the Company for federal, state or local (if applicable) income tax purposes; (b) such Transfer would, in the opinion of counsel to the Company, cause the Company to cease to be classified as a partnership for federal or state income tax purposes; (c) such Transfer requires the registration of such transferred Interest pursuant to any applicable federal or state securities laws; (d) such Transfer causes the Company to become a "Publicly Traded Partnership," as such term is defined in Section 7704 of the Code; (e) such Transfer subjects the Company to regulation under the Investment Company Act of 1940, the Investment Advisers Act of 1940 or the Employee Retirement Income Security Act of 1974, each as amended; (f) such Transfer results in a violation of applicable laws; (g) such Transfer is made to any Person who lacks the legal right, power or capacity to own such Interest; or (h) the Company does not receive written instruments (including, without limitation, copies of any instruments of Transfer and such Assignee's consent to be bound by this Agreement as an Assignee) that are in a form satisfactory to the legal counsel of the Company. 7.2 SALE OR TRANSFER OF A MEMBER'S INTEREST. Except as otherwise provided herein and in Section 7.1 hereof, no Member nor such Member's heirs, personal representatives, successors or assigns (a "SELLING MEMBER") shall have the right to Transfer all or any portion of his Membership Interest or Economic Interest unless such Selling Member shall first deliver a notice in writing to the Board of Managers, stating the price, terms and conditions of such proposed Transfer and the identity of the proposed transferee. The Board of Managers shall provide written notice to the other Members of the proposed Transfer. For a period of thirty (30) days after issuance of such notice, the other Members shall have the right to elect to purchase all of the Interest so proposed to be transferred upon the same terms and conditions. If the other Members or a portion of them collectively elect to purchase more than the entire Interest proposed to be transferred, then each such Member shall be entitled to purchase his Proportionate share of such Interest plus his Proportionate share of the Interest which remains available for purchase pursuant to this Section 7.2. If the Members do not timely elect pursuant hereto to the purchase the entire Interest proposed to be transferred by the Selling Member, the 23 Selling Member may within sixty (60) days thereafter complete the sale or Transfer upon the terms originally proposed. In the event that the Selling Member does not complete the sale or transfer of his Membership Interest or Economic Interest within such sixty (60) day period, then the rights of the Members under this Section 7.2 shall be reinstated and apply to any subsequent sale or Transfer of such Interest proposed by the Selling Member. 7.3 RIGHTS OF ASSIGNEES. Until such time, if any, as a transferee of any permitted Transfer pursuant to this Article 7 is admitted to the Company as a Substitute Member pursuant to Section 7.6: (i) such transferee shall be an Assignee only, and only shall receive, to the extent Transferred, the distributions and allocations of income, gain, loss, deduction, credit or any similar item to which the Member which Transferred its Interest would be entitled; and (ii) such Assignee shall not be entitled or enabled to exercise any other rights or powers of a Member, such other rights remaining with the transferring Member. In such a case, the transferring Member shall remain a Member even if he has transferred his entire Economic Interest in the Company to one or more Assignees. In the event any Assignee desires to make a further assignment of any Economic Interest in the Company, such Assignee shall be subject to all of the provisions of this Agreement to the same extent and in the same manner as any Member desiring to make such an assignment. 7.4 ADMISSIONS, WITHDRAWALS AND REMOVALS. No Person shall be admitted to the Company as a Member except pursuant to Sections 3.1.2 or 3.2.1 (in the case of Persons obtaining an interest in the Company directly from the Company) or Section 7.6 (in the case of transferees of a permitted Transfer of an interest in the Company from another Person). Except as otherwise specifically set forth in Section 7.7, no Member shall be entitled to retire or withdraw from being a Member of the Company without the written consent of the Board of Managers (which consent may be granted or withheld by the Board of Managers). Without in any way affecting Section 6.2.3, no Member shall be subject to removal. No admission or withdrawal of a Member shall cause the dissolution of the Company. Any purported admission or withdrawal that is not in accordance with this Agreement shall be null and void. 7.5 NO PAYMENT UPON WITHDRAWAL OF MEMBER. If any Member withdraws from the Company with or without the consent of the Board of Managers (other than pursuant to Section 7.7), then such Member shall not be entitled to receive from the Company any payment whatsoever. 7.6 ADMISSION OF ASSIGNEES AS SUBSTITUTE MEMBERS. 7.6.1 An Assignee shall become a Substitute Member only if and when each of the following conditions are satisfied: (a) the assignor of the Interest transferred sends written notice to the Board of Managers requesting the admission of the Assignee as a Substitute Member and setting forth the name and address of the Assignee, the Percentage Interest transferred, and the effective date of the Transfer; (b) the Board of Managers consents in writing to such admission, which consent may be granted or withheld by the Board of Managers; and 24 (c) the Board of Managers receives from the Assignee (i) such information concerning the Assignee's financial capacities and investment experience as may be requested by the Board of Managers and (ii) written instruments (including, without limitation, copies of any instruments of Transfer and such Assignee's consent to be bound by this Agreement as a Substitute Member) that are in a form satisfactory to the legal counsel of the Company. 7.6.2 Upon the admission of any Substitute Member, Exhibit A shall be amended to reflect the name, address and Percentage Interest of such Substitute Member and to eliminate or adjust, if necessary, the name, address and Percentage Interest of the predecessor of such Substitute Member. 7.6.3 Notwithstanding anything to the contrary contained in this Agreement, no Member may transfer more than such Member's Economic Interest to any Person without the unanimous written consent of the other Members. Any Member that transfers its Economic Interest shall remain bound by this Agreement, provided that such Member shall not be entitled to exercise any voting rights or rights to designate Managers under this Agreement. 7.7 WITHDRAWAL OF MEMBERS. If a Member has transferred all of its Membership Interest to one or more Assignees, then such Member shall withdraw from the Company if and when all such Assignees have been admitted as Substitute Members in accordance with this Agreement. ARTICLE 8 LIABILITY, EXCULPATION, AND INDEMNIFICATION 8.1 LIABILITY. Except as otherwise provided by the Delaware LLC Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Manager, Member or any proper delegate shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Manager, a Member or a delegate. 8.2 EXCULPATION. 8.2.1 No Covered Person shall be liable to the Company or any other Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of the Company and in a manner reasonably believed to be within the scope of authority conferred on such Covered Person by this Agreement, except that a Covered Person shall be liable for any such loss, damage or claim incurred by reason of such Covered Person's gross negligence or willful misconduct. 8.2.2 A Covered Person shall be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports or statements presented to the Company by any Person as to matters the Covered Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Company, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, Net Profits, Net Losses or net cash 25 flow or any other facts pertinent to the existence and amount of assets from which distributions to Members might properly be paid. 8.3 INDEMNIFICATION OF COVERED PERSONS. To the fullest extent permitted by applicable law, a Covered Person shall be entitled to indemnification from the Company for any loss, damage or claim incurred by such Covered Person by reason of any act or omission performed or omitted by such Covered Person (including alleged breaches of fiduciary duty) in good faith on behalf of the Company and in a manner reasonably believed to be within the scope of authority conferred on such Covered Person by this Agreement, except that no Covered Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Covered Person by reason of gross negligence or willful misconduct with respect to such acts or omissions; provided, however, that any indemnity under this Section 8.3 shall be provided out of and to the extent of Company Assets only, and no Manager or Member shall have any personal liability with respect to such indemnity. 8.4 EXPENSES. To the fullest extent permitted by applicable law, expenses (including legal fees) incurred by a Covered Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Company prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Company of an undertaking by or on behalf of the Covered Person to repay such amount if it shall be determined that the Covered Person is not entitled to be indemnified as authorized in Section 8.3 hereof. 8.5 INSURANCE. The Company may purchase and maintain insurance, to the extent and in such amounts as the Board of Managers shall deem prudent, on behalf of Covered Persons and such other Persons as the Board of Managers shall determine, against any liability that may be asserted against or expenses that may be incurred by any such Person in connection with the activities of the Company or such indemnities, regardless of whether the Company would have the power to indemnify such Person against such liability under the provisions of this Agreement. The Company may enter into indemnity contracts with Covered Persons and such other Persons as the Board of Managers shall determine and adopt written procedures pursuant to which arrangements are made for the advancement of expenses and the funding of obligations under Section 8.4 hereof and containing such other procedures regarding indemnification as the Board of Managers considers appropriate. ARTICLE 9 DISSOLUTION, LIQUIDATION, AND TERMINATION OF THE COMPANY 9.1 LIMITATIONS. The Company may be dissolved, liquidated and terminated only pursuant to the provisions of this Article 9, and the parties hereto do hereby irrevocably waive any and all other rights they may have to cause a dissolution of the Company or a sale or partition of any or all of the Company Assets. 9.2 EXCLUSIVE CAUSES. Notwithstanding the Delaware LLC Act, the following and only the following events shall cause the Company to be dissolved, liquidated and terminated: 26 9.2.1 The election of NeoTherapeutics or JBPCL at any time after six (6) months after the Effective Date if there is no Supply Agreement between the Company and JBCPL at the time of such election; 9.2.2 The election of NeoTherapeutics at any time after a violation by JBCPL and/or JBSOL of Section 6.11; 9.2.3 The election of NeoTherapeutics at any time when the Managers designated by NeoTherapeutics represent less than a majority of the Board of Managers; 9.2.4 The occurrence of a Terminating Capital Transaction; 9.2.5 The unanimous agreement of the Members; or 9.2.6 The entry of a decree of judicial dissolution under Section 18-802 of the Delaware LLC Act. Any dissolution of the Company other than as provided in this Section 9.2 shall be a dissolution in contravention of this Agreement. 9.3 EFFECT OF DISSOLUTION. The dissolution of the Company shall be effective on the day on which the event occurs giving rise to the dissolution, but the Company shall not terminate until it has been wound up and its assets have been distributed as provided in Section 9.5 of this Agreement. Notwithstanding the dissolution of the Company, prior to the termination of the Company, the business of the Company and the affairs of the Members, as such, shall continue to be governed by this Agreement. 9.4 NO CAPITAL CONTRIBUTION UPON DISSOLUTION. Each Member shall look solely to the assets of the Company for all distributions with respect to the Company, its Capital Contribution(s) thereto, its Capital Account and its share of Net Profits or Net Losses, and shall have no recourse therefor (upon dissolution or otherwise) against any other Member. Accordingly, if any Member has a deficit balance in its Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which the liquidation occurs), then such Member shall have no obligation to make any Capital Contribution with respect to such deficit, and such deficit shall not be considered a debt owed to the Company or to any other Person for any purpose whatsoever. 9.5 LIQUIDATION. 9.5.1 Upon dissolution of the Company, one of the Managers (such person to be designated by the Board of Managers) shall act as the "LIQUIDATOR" of the Company. The Liquidator shall liquidate the assets of the Company, and after allocating (pursuant to Article 5 of this Agreement) all income, gain, loss and deductions resulting therefrom, shall apply and distribute the proceeds thereof as follows: 27 (a) first, to the payment of the obligations of the Company (including any voluntary Member loans under Section 3.2(b)), to the expenses of liquidation and to the setting up of Reserves; and (b) thereafter, to the Members pursuant to Section 4.2. 9.5.2 Notwithstanding Section 9.5.1 of this Agreement, in the event that the Liquidator reasonably determines that an immediate sale of all or any portion of the Company Assets would cause undue loss to the Members, the Liquidator, in order to avoid such loss to the extent not then prohibited by the Delaware LLC Act, may either defer liquidation of and withhold from distribution for a reasonable time any Company Assets except those necessary to satisfy the Company's debts and obligations, or distribute the Company Assets to the Members in kind. ARTICLE 10 MISCELLANEOUS 10.1 AMENDMENTS. 10.1.1 Each Additional Member and Substitute Member shall become a signatory hereto by signing such number of counterpart signature pages to this Agreement and such other instruments, in such manner, as the Board of Managers shall determine. By so signing, each Additional Member and Substitute Member, as the case may be, shall be deemed to have adopted and to have agreed to be bound by all of the provisions of this Agreement. 10.1.2 Subject to Sections 6.4 hereof, this Agreement may be amended at any time and from time to time by execution of a written agreement executed by each member of the Board of Managers and at least a Majority in Interest of the Members. 10.1.3 In making any amendments, the Board of Managers shall prepare and file such documents and certificates as may be required under the Delaware LLC Act and under the laws of any other jurisdiction applicable to the Company. 10.2 ACCOUNTING AND FISCAL YEAR. Subject to Section 448 of the Code, the books of the Company shall be kept on such method of accounting for tax and financial reporting purposes as may be determined by the Board of Managers. The fiscal year of the Company shall end on December 31 of each year, or on such other date required or permitted under the Code as the Board of Managers shall determine. 10.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and fully supersedes any and all prior or contemporaneous agreements or understandings between the parties hereto pertaining to the subject matter hereof. 10.4 FURTHER ASSURANCES. Each of the parties hereto does hereby covenant and agree on behalf of itself, its successors and its assigns, without further consideration, to prepare, execute, acknowledge, file, record, publish and deliver such other instruments, 28 documents and statements, and to take such other action, as may be required by law or reasonably necessary to effectively carry out the purposes of this Agreement. 10.5 NOTICES. Any notice, consent, payment, demand or communication required or permitted to be given by any provision of this Agreement shall be in writing and shall be (a) delivered personally to the Person or to an officer of the Person to whom the same is directed or (b) sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: if to the Company, to the Company at the address set forth in Section 1.3 hereof, or to such other address as the Company may from time to time specify by notice to the Members; if to a Member, to such Member at the address set forth in Exhibit A, or to such other address as such Member may from time to time specify by notice to the Company. Any such notice shall be deemed to be delivered, given and received for all purposes as of: (i) the date so delivered, if delivered personally; or (ii) on the date of receipt or refusal indicated on the return receipt, if sent by registered or certified mail, return receipt requested, postage and charges prepaid and properly addressed. 10.6 TAX MATTERS. 10.6.1 Samuel Gulko shall be designated and shall operate as "TAX MATTERS PARTNER" (as defined in Section 6231 of the Code), to oversee or handle matters relating to the taxation of the Company. 10.6.2 The Tax Matters Partner may make all elections for federal income and all other tax purposes (including, without limitation, pursuant to Section 754 of the Code). 10.6.3 Income tax returns of the Company shall be prepared by such certified public accountant(s) as the Board of Managers shall retain at the expense of the Company. 10.7 GOVERNING LAW; CERTAIN WAIVERS. This Agreement, including its existence, validity, construction and operating effect, and the rights of each of the parties hereto, shall be governed by and construed in accordance with the laws of the State of Delaware without regard to otherwise governing principles of conflicts of law. The Members waive any and all rights they may have to a jury trial, and any and all rights they may have to punitive, special, exemplary or consequential damages, in respect of any dispute based on this Agreement. 10.8 CAPTIONS - PRONOUNS. Any titles or captions contained in this Agreement are for convenience only and shall not be deemed part of the text of this Agreement. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as appropriate. 10.9 BINDING EFFECT. Except as otherwise expressly provided herein, this Agreement shall be binding on and inure to the benefit of the Members, their heirs, executors, administrators, successors and all other Persons hereafter holding, having or receiving an interest in the Company, whether as Assignees, Substitute Members or otherwise. 29 10.10 CONFIDENTIALITY. Each party hereto agrees that the provisions of this Agreement, all understandings, agreements and other arrangements between and among the parties, and all other non-public information received from or otherwise relating to, the Company shall be confidential, and, except as otherwise required by law, shall not be disclosed or otherwise released to any other Person (other than to such party's legal counsel or another party hereto), without the written consent of the Board of Managers (which shall not be unreasonably withheld or delayed). The obligations of the parties hereunder shall not apply to the extent that the disclosure of information otherwise determined to be confidential is required by applicable law, provided that, prior to disclosing such confidential information, a party shall notify the Company thereof, which notice shall include the basis upon which such party believes the information is required to be disclosed. 10.11 MEMBER REPRESENTATIONS. Each Member acknowledges, agrees and represents to the Company and each other Member that (a) he or she is an "accredited investor," as that term is defined in Regulation D promulgated under the Securities Act, (b) he or she either (i) has a preexisting personal or business relationship with the Company or any of its members, officers, Managers or controlling Persons or (ii) by reason of his or her business or financial experience or the business or financial experience of his or her professional advisors who are unaffiliated with and who are not compensated by the Company or any affiliate or selling agent of the Company, directly or indirectly, has the capacity to protect his or her own interests in connection with an investment in the Company, (c) he or she has been furnished with all documents and additional information requested by him or her for the purpose of evaluating whether an investment in the Company is suitable for the Member, (d) in evaluating an investment in the Company, the Member has consulted with his or her own investment, legal and tax advisors and has independently concluded that an investment by the Member in the Company is appropriate in light of his or her overall investment objectives and financial situation, (e) the Member has adequate means of providing for current needs and contingencies, has no need for liquidity with respect to his or her investment in the Company and is able to bear the economic risk of a loss of the Member's entire investment in the Company, (f) the Member is purchasing his or her interest for the Member's own account for investment and not with a view to, or for resale in connection with, any distribution of such security, and (g) the Member understands there are no guarantees or assurances of any economic or other benefits that may accrue by virtue of holding an interest in the Company. Each Member further acknowledges, agrees and represents that he or she is not relying on legal counsel of any other Member in reviewing this Agreement and in deciding whether to invest as a Member. In this connection, each Member acknowledges and agrees that Latham & Watkins has represented solely NeoTherapeutics and certain of its Affiliates in putting together this Agreement and that, although Latham & Watkins may continue to represent NeoTherapeutics and certain of its Affiliates on various matters from time to time, all Members consent to the representation by Latham & Watkins of the Company from time to time upon its request. 10.12 COUNTERPARTS. This Agreement may be executed in any number of multiple counterparts, each of which shall be deemed to be an original copy and all of which shall constitute one agreement, binding on all parties hereto. 10.13 ATTORNEY FEES. In case any proceeding, whether at law, in equity or in arbitration, shall be brought by any Member or by or on behalf of the Company to enforce the 30 terms of this Agreement or with respect to any breach hereof, the prevailing party in each such proceeding, as determined by the court or arbitrator, shall be entitled to the payment of reasonable attorneys' fees and costs from the non-prevailing party or parties (as determined by the court or arbitrator). 10.14 TITLES. Article and Section titles are for descriptive purposes only and shall not control or alter the meaning of this Agreement as set forth in the text. 10.15 SUCCESSORS. This Agreement shall bind and inure to the benefit of the Members' respective successors and assigns. 10.16 COMPUTATION OF TIME PERIODS. All periods of time referred to in this Agreement shall include Saturdays, Sundays and state or national holidays, provided that if the date or last date to perform any act or give any notice or approval shall fall on a Saturday, Sunday or state or national holiday, such act or notice may be timely performed or given on the next succeeding day which is not a Saturday, Sunday or state or national holiday. 10.17 SEVERABILITY. Should any one or more of the provisions of this Agreement or of any agreement entered into pursuant to this Agreement be determined to be illegal or unenforceable, then such illegal or unenforceable provision shall be modified by the proper court or arbitrator to the minimum extent necessary and possible to make such provision enforceable, and such modified provision and all other provisions of this Agreement and of each other agreement entered into pursuant to this Agreement shall be given effect separately from the provision or portion thereof determined to be illegal or unenforceable and shall not be affected thereby. 10.18 SIGNATORY AUTHORITY. By signing this Agreement, the individual or individuals signing this Agreement on behalf of each Member represents to the other Members that he or she has full authority to do so, has received all required consents, and that his or her signature (together with the signature or signatures of any other individual signing below on behalf of such Member) is (are) the only signatures required to bind the Member on whose behalf he or she is signing this Agreement. 10.19 ARBITRATION. Any disputes which arise involving all or any of the Members under this Agreement, shall be subject to final, binding arbitration upon written request by any Member involved in the dispute in accordance with this Section 10.20. The dispute shall be submitted before JAMS/Endispute ("JAMS") within thirty (30) days after the requesting notice in accordance with the then existing JAMS Arbitration Rules as modified by this Section 10.20; a decision shall be issued within thirty (30) days after the close of the record; and judgment upon the award may be entered in any court having jurisdiction over the judgment. Within thirty (30) days after selection of the arbitrator as provided herein, each party to the dispute shall submit to each other and the arbitrator their respective proposals for resolution of the dispute, and the arbitration shall be limited to the sole question of determining which written proposal is to be accepted. The arbitrator shall have no authority to compromise between the proposals. If a party to a dispute fails to appear at any properly noticed arbitration proceeding, an award may be entered against such party notwithstanding such failure to appear. If the parties disagree on the arbitrator, the parties shall jointly request JAMS to furnish a list of five (5) 31 available arbitrators. After receipt of such list and an opportunity to consider the names, each party may designate in writing to JAMS not more than two (2) names to be eliminated from the selection process. If more than one (1) name remains after such eliminations are made, the selection of the arbitrator shall be made by lot from the remaining names. If either party makes demand upon the other for arbitration, the arbitration shall be conducted in Orange County, California at the location designated by the arbitrator. The parties may mutually agree to another location. Subject to Section 10.14, the expenses, wages and other compensation of any witnesses called before the arbitrator shall be borne by the party calling the witnesses. Subject to Section 10.14, other expenses incurred, including wages of participants and experts shall be borne separately by the respective parties. Subject to Section 10.14, the fee for the arbitration, the arbitrator's fees and expenses, the cost of any hearing room, and the cost of a shorthand or similar reporter and the original transcript shall all be borne by the Company. 10.20 LOCKUP IN EVENT OF INITIAL PUBLIC OFFERING. Each Member acknowledges that the Company may at some time reorganize, change or convert its form of entity into a corporation in contemplation of an initial public offering. Each Member agrees (a) that, during a period of 180 days from the date of such initial public offering, whether or not such reorganization, change or conversion has occurred, such Member will not, without the prior written consent of the underwriter(s) of the initial public offering, directly or indirectly, sell, offer to sell, grant any option or right for the sale of, or otherwise dispose of or transfer, any Membership Interests (or shares of common stock or other securities of a successor corporation or entity of the Company into which the Company may reorganize in contemplation of an initial public offering) and (b) to execute an agreement reflecting the obligations described in clause (a) above as may be requested by the underwriter(s) at the time of the initial public offering of the Company (or any successor corporation or entity of the Company into which the Company may reorganize in contemplation of an initial public offering). 10.21 INTERPRETATIONS. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against any party hereto, whether under any rule of construction or otherwise. No party to this Agreement shall be considered the draftsman. On the contrary, this Agreement has been reviewed, negotiated and accepted by all parties and their attorneys and shall be construed and interpreted according to the ordinary meaning of the words used so as fairly to accomplish the purposes and intentions of all parties hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 32 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the Effective Date. BOARD OF MANAGERS: /s/ Alvin J. Glasky ----------------------------------- [Alvin J. Glasky, Ph.D.] /s/ Rajesh C. Shrotriya ----------------------------------- [Rajesh C. Shrotriya, M.D.] /s/ Satya Agarwala ----------------------------------- [Satya Agarwala, M.D.] /s/ Samuel Gulko ----------------------------------- [Samuel Gulko] /s/ Ashok Gore ----------------------------------- [Ashok Gore, Ph.D.] LIMITED LIABILITY COMPANY AGREEMENT OF NEOJB LLC COUNTERPART MEMBER SIGNATURE PAGE THE MEMBER INTERESTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED UNLESS (A) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND QUALIFICATION ORDERS UNDER SUCH LAWS OR (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND QUALIFICATION ORDERS UNDER SUCH LAWS, THE AVAILABILITY OF WHICH IS ESTABLISHED TO THE SATISFACTION OF THE BOARD OF MANAGERS. By execution of this counterpart member signature page, the undersigned does hereby become a party to the Limited Liability Company Agreement of NeoJB LLC, effective as of April 16, 2002 (the "Agreement"). The undersigned hereby agrees to be bound by all of the terms and conditions of the Agreement and authorizes the Board of Managers to attach this counterpart signature page to the Agreement and, when so attached with the signature pages of all of the Members, such Agreement will constitute one and the same document as if all signatories had originally signed thereon. ADDRESS: MEMBER: "Neelam Centre" J. B. Life Science Overseas Limited 'B' Wing, 4th Floor Hind Cycle Road By: /s/ J. B. Mody Worli, Mumbai 400025 ---------------------------- India Name: J. B. Mody Title: Director ADDRESS: MEMBER: 157 Technology Drive NeoTherapeutics, Inc. Irvine, CA 92618 U.S.A. By: /s/ Alvin J. Glasky ---------------------------- Name: Alvin J. Glasky, Ph.D. Title: Chairman & Chief Executive Officer EXHIBIT A MEMBERS, CAPITAL CONTRIBUTIONS AND PERCENTAGE INTERESTS 1. Class A Members:
CLASS A MEMBER CAPITAL CONTRIBUTION PERCENTAGE INTEREST ~~NeoTherapeutics, Inc. $80,000.00 80% 157 Technology Drive Irvine, California 92618 J.B. Life Science Overseas Limited $20,000.00 20%~~
A-1 EX-10.2 4 a89552exv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 SUPPLY AGREEMENT THIS AGREEMENT is made and entered into on the 16th day of April, 2002, BY AND BETWEEN M/S. J.B. CHEMICALS & PHARMACEUTICALS LTD., a company incorporated under the provisions of the Companies Act, 1956, having its registered office at Neelam Center, 'B' Wing, 4th floor, Hind Cycle Road, Worli, Mumbai 400 025, hereinafter referred to as "JBCPL", which term shall include its successors and permitted assigns, and which company is represented herein by Shri J.B. Mody, Shri S.B.Mody of the One Part AND NEOJB LLC, a limited liability company organized in accordance with the laws of the State of Delaware within the United States of America, having its principal office at 157 Technology Drive, Irvine, California, USA 92618, hereinafter referred to as "NEOJB" which term shall include its successors and permitted assigns, and which company is represented herein by Alvin J. Glasky, Ph.D, Rajesh Shrotriya, M.D., Samuel Gulko and Ashok Gore, Ph.D. of the Other Part; A. WHEREAS, JBCPL is currently involved in or intends to be involved in the manufacture in India of the drugs mentioned in Annexure 'A' and markets and distributes the same in India and abroad under the trademarks as more particularly indicated in the said Annexure 'A' and/or such other trademarks as the said JBCPL may utilize in this regard from time to time. JBCPL, is also the owner of Patents, both in India and other countries, including the United States of America in respect of the said drugs as more particularly mentioned in detail in Annexure 'B'. The products detailed in the said Annexure 'A' and 'B' are hereinafter collectively referred to as "THE EXISTING PRODUCTS". As new products become 2 available, Annexure 'A' and Annexure 'B' will be amended from time to time to incorporate such new products. B. WHEREAS, NEOJB is a marketing and distribution company organized in the United States of America ("USA") for the purposes of marketing and distributing some of the existing products, each of which drugs is subject to a specific product addendum hereto. The drugs detailed in the said specific product addenda are hereinafter collectively referred to as "THE SAID PRODUCTS"; C. WHEREAS, JBCPL is desirous of engaging NEOJB to obtain regulatory approval from the United States Food and Drug Administration ("FDA") to market the said products in the USA, and to market and distribute the said products in the USA, under the various trademarks and tradenames registered by JBCPL in the USA; Now THEREFORE, for and in consideration of the foregoing premises, and the mutual covenants, stipulations, terms and conditions herein contained the parties agree as follows: 1. APPOINTMENT AND TERRITORIAL LIMITS 1.1. Subject to the terms and conditions of this Agreement, JBCPL hereby appoints NEOJB as its exclusive distributor for the sale of the said products in the USA and NEOJB agrees to market and distribute the said products in the USA in accordance with the terms and conditions of this Agreement. JBCPL hereby grants to NEOJB, during the term of this Agreement, an exclusive license to use the Intellectual Property Rights associated with the said products for the purposes of obtaining regulatory approval of the said products in the USA and marketing, distributing and selling the said products in the USA. For the purposes of this Agreement, "Intellectual Property Rights" means, collectively, worldwide Patents, Copyrights, Trademarks, mask work rights, trade names and all other intellectual property rights and proprietary rights, whether arising under the laws of the United States or any other state, country or jurisdiction, including all rights 3 or causes of action for infringement or misappropriation of any of the foregoing. For purposes of this Agreement: (a) "Patents" means all patent rights and all right, title and interest in all letters patent or equivalent rights and applications, including provisional applications, for letters patent or rights, industrial and utility models, industrial designs, petty patents, patents of importation, patents of addition, certificates of invention and other government issued or granted indicia of invention ownership, including any reissue, extension, division, continuation or continuation-in-part applications throughout the world; (b) "Trade Secrets" means all right, title and interest in all trade secrets and trade secret rights arising under common law, state law, federal law or laws of foreign countries; (c) "Copyrights" shall mean all copyrights, and all other literary property and authorship rights, and all right, title, and interest in all copyrights, copyright registrations, certificates of copyright and copyrighted interests throughout the world; and (d) "Trademarks" means all right, title and interest in all trademark, service mark, trade name and trade dress rights arising under the common law, state law, federal laws and laws of foreign countries, and all right, title, and interest in all trademark, service mark, trade name and trade dress applications and registrations interests throughout the world. 1.2. It is however agreed and clarified between the Parties hereto that the rights of NEOJB to act as the distributor of JBCPL shall be initially confined to the territorial limits of USA (as on the date of this Agreement) and shall thereafter extend to other neighbouring countries with the prior written consent of JBCPL. For the purposes of abundant caution it is also clarified that this Agreement shall not prevent and this JBCPL shall be free to enter into such marketing, distribution and representation agreements in any and all other territories whether relating to the said products or otherwise. 2. CONFIDENTIALITY 2.1 Neither Party shall disclose to any third party any Confidential Information and which was obtained from the other Party in connection with this 4 Agreement. This obligation of secrecy of the Confidential Information shall not apply to information which is required to be disclosed to governmental agencies for product registration purposes or as may be required by applicable law or governmental authority having competent jurisdiction over the receiving Party. In addition, the secrecy obligation shall expire for Confidential Information which: a) is or ceases to be Confidential Information as a consequence of authorized disclosures; b) was already in the possession of a Party at the time of receipt from the disclosing Party, as shown by documentary evidence; c) after the date of this Agreement is received from a third party whose direct or indirect source is not the disclosing party. For the purpose of this Article, the term "CONFIDENTIAL INFORMATION" shall mean any information or data (including but not limited to any technical or non-technical data, and any formula, patents, methods, processes, patterns, compilation, programs, device or technique) that derive economic value, actual or potential, from not being generally known to other persons. Confidential Information would also include all information exchanged by and between the Parties in relation to this Agreement or otherwise marked as confidential by any Party to this Agreement. 2.2. The Parties agree: (a) to exercise the same degree of care and protection (but no less than a reasonable degree of care and protection) with respect to each other's Confidential Information as a Party would exercise with respect to its own confidential information; and (b) except as expressly authorized by this Agreement, or as necessary to the performance of the obligations hereunder, not to directly or indirectly disclose, copy, transfer, or allow access to the Confidential Information. Without limitation to the generality of the foregoing, all persons with access to the Confidential Information will be subject to the same restrictions and limitations as that of the Parties to this Agreement. The Parties 5 shall ensure that appropriate non-disclosure undertakings are obtained in this regard. Provided that obtaining of such non-disclosure undertakings shall not absolve any of the Parties hereto from any breach that may be committed by reason of a breach by any of the persons to whom the Confidential Information has been disclosed pursuant to this Agreement. 2.3. The obligations contained in this Article shall survive the duration of this Agreement and thereafter for a period of fifteen (15) years or until the expiration of all Patents for the said products (including any extended term), whichever is later. 2.4. Without prejudice to any other provision of this Agreement, but notwithstanding anything contained in clause 15.1 hereto, the Parties acknowledge and agree that any violation of this Article 2 by a Party would cause the other Party irreparable injury for which such other would have no adequate remedy at law, and that such other Party shall be entitled to preliminary and other injunctive relief against the defaulting Party for any such violation. Such injunctive relief will be in addition to, and in no way a limitation of, any and all other remedies or rights that such other Party shall have at law or in equity. 3. OBLIGATIONS OF JBCPL 3.1. JBCPL hereby agrees : a) To hold and keep in force all manufacturing licenses and permission in respect of the said products and comply with requirements of all laws applicable to the said products. b) To provide NEOJB and/or NeoTherapeutics, Inc. with all documents required to enable the regulatory approval of the said products by the FDA and NEOJB and/or NeoTherapeutics shall render all assistance to JBCPL for registration of the said products. It is hereby clarified and agreed to by and between the Parties that the costs of such regulatory approval of the 6 said products shall be borne solely and exclusively by NEOJB and/or NeoTherapeutics, Inc. c) To provide all technical information and documents in respect of the said products as may be required to facilitate distribution and marketing of the said products by NEOJB in USA. d) To manufacture the said Products from time to time, either directly or indirectly through any of its subsidiaries or group companies in such quantities as may be required to enable the fulfillment of the orders placed by NEOJB from time to time. e) To maintain high standards in manufacturing the said products, and to produce quality products as per quality specifications established by JBCPL, confirming to B.P./U.S.P. Pharmaceutical specifications. f) To comply with the applicable US regulations contained in 21 CFR - Sections 210 and 211, to the extent the same is not contrary to provisions of Indian law. g) To procure the raw material for the manufacture of the existing products from the suppliers whose manufacturing plants have been approved by the FDA, as applicable. h) JBCPL will carryout all manufacturing /packaging activities in the manufacturing facilities duly approved by the FDA, whether such facilities be of JBCPL or any subsidiary, group concern or any other person in India. i) Any deficiencies noted during an FDA audit, independent audit, or any audit conducted by any regulatory body of the manufacturing/packaging 7 plant in India will be remedied immediately by JBCPL and the total cost of such remediation shall be borne by JBCPL. 3.2 RECORDS AND REPORTS a) JBCPL shall ensure that all Records that may reasonably be expected to relate to any regulatory process in the United States that may be applicable to any Product from time to time, or that have been or may reasonably be expected to be used to support any regulatory submission made by NEOJB or an affiliate of NEOJB in the United States or elsewhere related to any Product, are maintained as statutorily required, and in any event for a period of not less than 20 years following the completion of the applicable regulatory process, unless the parties hereto unanimously agree otherwise. b) JBCPL agrees to provide NEOJB with copies of such Records required to be maintained under Section 3.2(a) as NEOJB may reasonably request from time to time. All such copies shall be prepared at NEOJB's expense, and shall be delivered to NEOJB within twenty-one (21) days of receipt of a request for copies. 3.3 RIGHT OF FIRST REFUSAL a) JBCPL hereby agrees that it shall not, directly or indirectly, distribute and sell, permit or authorize any Person to distribute or sell, enter into any distribution or sale or grant any license with respect to, any Product in the United States unless JBCPL first offers to enter into a Supply Agreement with NEOJB with respect to such Product in accordance with the terms set forth below. b) JBCPL shall deliver to NEOJB written notice identifying the Product or Products it wishes to offer to NEOJB. NEOJB shall have ninety (90) days from the date it receives such notice (the "Acceptance Period") to deliver to JBCPL written notice (the "Acceptance Notice") that it wishes to enter into a Supply Agreement with respect to such Product or Products. 8 During the Acceptance Period, JBCPL shall, within two (2) weeks of receiving a request from NEOJB, provide to NEOJB all data and information related to such Product or Products as NEOJB shall reasonably request that is in the possession of JBCPL or to which JBCPL has access or rights, in order to allow NEOJB to assess the Product or Products. The Acceptance Period shall be extended for any delay by JBCPL in delivering any requested data or information beyond the two (2) week response time allowed. c) If NEOJB delivers an Acceptance Notice to JBCPL within the Acceptance Period, NEOJB shall have an additional thirty (30) days from the date it delivers the Acceptance Notice (the "Negotiation Period") to negotiate and execute a Supply Agreement with JBCPL on terms reasonably acceptable to both parties, which terms shall be intended to allow each party to obtain a usual and customary profit margin from the distribution and sale of the Products. d) If NEOJB does not deliver an Acceptance Notice, JBCPL may enter into arrangements related to the distribution and sale of the offered Product or Products in the United States with any Person on any terms during the one (1) year period following the expiration of the Acceptance Period. If JBCPL does not enter into any such arrangement within such one (1) year period, it may not do so thereafter without again complying with the provisions of this Section 3.3. e) If NEOJB timely delivers an Acceptance Notice and the parties do not enter into a Supply Agreement within the Negotiation Period, JBCPL may enter into arrangements related to the distribution and sale of the offered Product or Products in the United States with any Person on terms no less favorable to JBCPL than the last written proposal made by NEOJB or JBCPL during the Negotiation Period during the one (1) year period 9 following the expiration of the Negotiation Period. If JBCPL does not enter into any such arrangement within such one (1) year period, it may not do so thereafter without again complying with the provisions of this Section 3.3. 4. OBLIGATIONS OF NEOJB 4.1. NEOJB hereby agrees: a) To comply with all statutory rules, regulations, drug laws and all other government regulations affecting the importation and sale of the said products in the USA. b) To sell/market the said products bought from JBCPL in accordance with marketing rules and regulations applicable in the USA and for this purpose to adopt high marketing standards and observe and comply with such reasonable marketing practices as are common to marketing such products in the USA by entities of similar size to NEOJB. Without prejudice to the generality of the aforesaid, NEOJB shall in its sole discretion carry out the sales promotion activities and such other activities as are necessary to distribute and market the said products in the USA. c) To collect and store all market information and data on the sales of the said products, including the regions and areas in which the sales are higher/lower, segregating at all times institutional sales from sales to retailers and stockists, the prices at which the sales are being made and also to collect such other market data as may be reasonably required by JBCPL from time to time. To provide all such market data to JBCPL on a monthly basis or on such other earlier frequency as may be mutually agreed. 10 d) To market and sell the said Products solely on the Trademarks registered by JBCPL in the U.S.A. and on no other Trademarks without the express approval of JBCPL. e) To market and sell the said Products in the packaging provided by JBCPL and not to sell the said Products in any other manner without the express approval of JBCPL. f) Save and except as provided in this Agreement, not to represent JBCPL or the name of JBCPL in any manner whatsoever. g) To store the said products in accordance with the product storage specifications. 5. PRODUCT WARRANTIES AND PRODUCT LIABILITY 5.1. JBCPL hereby represents that the products supplied by them shall be in compliance with the USA regulations, CFR parts 210 and 211. 5.2. NEOJB shall be responsible to carry out such tasks or activities as may be required to ensure that the products delivered comply with the said specifications. In the event of NEOJB being of the view that the products do not so comply with the FDA, USA requirements for any reason, then in such an event NEOJB shall ensure that the products found to be non-compliant are not sold or distributed to the customers and JBCPL is immediately notified of the same. Such inspection and notification shall be completed within 30 days from the receipt of goods in the USA. However all such notices of non-compliance shall be subject to verification of the same by the representatives of JBCPL. JBCPL shall not be required to take back any such goods, unless the same has been confirmed by an independent laboratory mutually identified to be non-compliant. The decision of the independent laboratory in this regard shall be final and binding. For the 11 purpose of making any such inspection and examination, the representatives of NEOJB shall provide full and complete co-operation to the designated representative of JBCPL. ALL THE EXPENSES IN CONNECTION WITH LABORATORY TEST TO BE DONE BY THE INDEPENDENT LABORATORY WOULD BE BORNE BY JBCPL. NEOJB shall not be liable to make any payments to JBCPL with respect to products found to be non-compliant at the time of receipt of the goods and shall, at JBCPL's direction, either destroy such products or return such products to JBCPL at JBCPL's expense. 5.3. Notwithstanding the aforesaid, it is the intention of the Parties and a term of this Agreement that in the event there is any dispute or claim raised by any third party, arising out of or relating to any of the said products, whether the same relates to any deficiency in the said products or relates to any manufacturing defect of the said products or relates to any side-effects of the said products or otherwise in any manner relates to the said products, NEOJB shall ensure that appropriate product liability insurance is obtained protecting NEOJB and JBCPL against any reasonable third party claims. 5.4. In the event that any governmental agency having applicable jurisdiction shall order, or it shall otherwise become necessary to perform, any corrective action or market action with respect to any of the said products, including any recall, field correction, market withdrawal, stock recovery, customer notice or restriction, then NEOJB shall be responsible for the reasonable out-of-pocket costs incurred in connection therewith. 6. TRADEMARKS, PATENTS AND OTHER INTELLECTUAL PROPERTY 6.1. JBCPL hereby represents and warrants that it is the owner of all Intellectual Property Rights in respect of the said products. JBCPL hereby further represents and warrants that none of such Intellectual Property Rights or said products infringes any Intellectual Property Rights held by any third party. 12 6.2. In the event that any Patents related to the said products being challenged or if any infringement proceedings being initiated in the USA either against NEOJB or JBCPL in respect of any of the said products, the same shall be defended by NEOJB at JBCPL's expense. NEOJB shall co-operate and provide JBCPL with all necessary information as may be within NEOJB's control and necessary to defend any/all such proceedings. 6.3. In the event of NEOJB perceiving any threat to any of the Patents of JBCPL or being aware of any third party infringing any of the rights of JBCPL under the Patents held by JBCPL in respect of the said products, NEOJB shall bring the same immediately to the attention of JBCPL. Thereafter, if so reasonably required by JBCPL, NEOJB shall initiate such proceedings as may be required by JBCPL to arrest any such infringements. All such proceedings shall be at the costs of JBCPL. In the event that JBCPL is desirous of taking any action against such infringement, then NEOJB shall provide all commercially reasonable co-operation as may be required by JBCPL to enable JBCPL to file such proceedings and obtain appropriate reliefs. 6.4. NEOJB recognizes that, as between NEOJB and JBCPL, the Trademarks appearing on the said products and mentioned in the Annexure 'A' are the exclusive property of JBCPL and/or its affiliates. NEOJB shall use commercially reasonable efforts not do or cause to be done anything whereby the rights or reputation of JBCPL in respect of the said Trademarks and the said products are likely to be adversely affected. 6.5. Without prejudice to the generality of clause 6.3 above, NEOJB shall not be entitled to use the said Trademarks in any manner whatsoever without JBCPL's express permission. NEOJB shall also use commercially reasonable efforts to ensure that the said Trademarks on the packaging of the products imported from JBCPL are not modified, obliterated or altered in any manner whatsoever. All 13 marketing, sale and distribution of the said products by NEOJB shall be deemed to be "use" of the said Trademarks by JBCPL for the purpose of applicable trademark legislation. 6.6. Nothing herein contained shall at any time during the currency of this Agreement or upon expiry or earlier termination thereof be deemed to give NEOJB any right, claim, interest in the said Trademarks. NEOJB shall not be entitled to any benefit or right in the said Trademarks as a consequence of any marketing, sale or distribution of the said products. It is hereby expressly agreed by and between the parties hereto that NEOJB shall have no right to acquire the said Trademarks from JBCPL under any circumstances whatsoever by virtue of this Agreement. 6.7. NEOJB shall render all commercially reasonable assistance to JBCPL as may be required to ensure that the said Trademarks are duly registered in the USA. 6.8. NEOJB hereby recognizes that although certain of the Trademarks related to the said products are unregistered in the USA, as between NEOJB and JBCPL, JBCPL is the owner of the said Trademarks. In the event of NEOJB being aware of any infringement of any of the trademarks or any passing off, NEOJB shall forthwith intimate the same to JBCPL. Thereafter, if so reasonably required by JBCPL, NEOJB shall initiate such proceedings as may be required by JBCPL to arrest any such infringements or to prevent any passing off, including such injunctive actions as may be required. All such proceedings shall be at the costs of JBCPL. In the event that JBCPL is desirous of taking any action against such infringement or passing off, then NEOJB shall provide all commercially reasonable co-operation as may be required by JBCPL to enable JBCPL to file appropriate proceedings and obtain reliefs. 14 7. PLACEMENT OF ORDERS 7.1. NEOJB shall place written orders with JBCPL for supply of the required products from time to time, and JBCPL shall deliver the ordered products at the times and places, and in the amounts, specified in such written orders. JBCPL will require a minimum 90 days prior estimates of the quantities sought to be ordered to enable JBCPL to supply the same to NEOJB. 8. PRICES 8.1. Prices for the said products to be supplied under the specific product addendum to this Agreement for the first year commencing from the date of regulatory approval for the specific product in the USA shall be mutually agreed upon execution of the specific product addendum to this Agreement. The said prices shall continue during the term of the Agreement unless they are mutually reviewed between the Parties. The Parties shall on the first anniversary of the date of this Agreement and every year thereafter discuss the review of the prices agreed. Prior to obtaining regulatory approval of each specific product in the USA, JBCPL shall supply to NEOJB at no cost such quantities of such specific product as NEOJB shall reasonably require in order to obtain regulatory approval of such specific product in the USA. 8.2. All prices as agreed to between the Parties shall be CIF (Cost, Insurance and Freight Prices). The risk in the said goods shall stand transferred to NEOJB forthwith on delivery of the goods to the port of entry into the USA, whether landed, by sea or by air. In the event of any loss of goods in transit, the liability of NEOJB shall not be liable for payment and shall such event occur, JBCPL shall make every reasonable effort to replace the lost goods. In the event of any loss of goods in transit subsequent to arrival at the USA port of entry, NeoJB shall bear all costs of loss, including the liability to pay JBCPL for the goods to the port of entry into the USA. 15 9. PAYMENTS 9.1. Payments for the orders shall be made through irrevocable letters of credit to be opened by NEOJB through a bank of International repute, the branch of which bank is also operating in India, which bank is acceptable to JBCPL. The letters of credit shall be opened in favour of JBCPL at least twenty (20) days prior to the scheduled date of shipment authorizing payments to JBCPL upon presentation of the relevant documents to the negotiating bank. The letters of credit shall be opened in favour of J.B. CHEMICALS & PHARMACEUTICALS LTD., Neelam Centre 'B' Wing, 4th floor, Hind Cycle Road, Worli, Mumbai 400 025, India. The letters of credit shall be governed by the terms of UCP 500. 10. NON-COMPETE 10.1. NEOJB hereby acknowledges and agrees that in order to enable the better marketing and sale of the said products and/or any of the other existing products which may subsequently become part of the said products pursuant to the other provisions of this Agreement, NEOJB shall not for a period of five years from the date of termination of the supply Agreement or until the expiration of the applicable Patents, if any, whichever is later, hereof undertake the marketing of any products which would in any manner directly or indirectly compete with the distribution, marketing or sale of the said products. This restriction of non-compete shall only apply to the territory of the USA and NEOJB shall be free to market any products whether competing with the existing products or otherwise. 11. FORCE MAJEURE 11.1 Neither Party shall be under any liability whatsoever to the other for failure or delay in the performance of any of its obligations hereunder where such performance becomes impractical by reason of any event of Force Majeure (as hereinafter defined). 16 11.2. For purposes of this Article, the expression "Force Majeure" shall mean war, acts of aggression, civil strife and terrorism, labour disputes, including strikes and lockouts, accidents, acts of God, shortages of materials, acts of Government, failure of networking, viruses, Trojans or any other bugs in systems or any matter (whether or not of the same nature as the foregoing) which are beyond the control of the Party affected by such event. 11.3. In the event a Force Majeure event hinders the performance of this Agreement by a Party, the other Party shall be entitled to suspend the operation of this Agreement by giving written notice to the party who is affected by the event of Force Majeure, if the continuance of this Agreement becomes impractical by reason of such event of Force Majeure. In the event the event of Force Majeure does not subside for a period of sixty days after the notice for suspension as aforesaid, the affected party may in its discretion choose to terminate to forthwith terminate this Agreement by providing notice of such termination in writing. 12. ASSIGNMENT 12.1 Neither party shall without the other's prior written consent, assign any of its rights or duties hereunder. It is however clarified that nothing in this Agreement shall prevent any of the parties from performing, sub-contracting any of its obligations herein to any of its subsidiaries or group companies, provided that the principal responsibility of performance of the terms and conditions of this Agreement remains and continues to remain on any of the parties and all such delegation or sub-contracting is in accordance with the other terms and conditions of this Agreement. 12.2. This Agreement shall be binding on the successors and permitted assigns of the parties hereto. 17 13. DURATION AND TERMINATION 13.1. This Agreement shall remain in effect so long as JBCPL or any of its affiliates is a member of NEOJB, unless earlier terminated by mutual agreement of the Parties; provided, however, that each specific product addendum may provide that this Agreement shall terminate earlier with respect to the specific product subject to such addendum. 14. APPLICABLE LAW AND DISPUTE RESOLUTION 14.1. It is expressly agreed that this Agreement shall be governed by, subject to and interpreted in accordance with the laws of the State of California. 14.2 In the event of any disagreement, dispute or conflict between the Parties relating to or arising out of the provisions of this Agreement that cannot otherwise be resolved promptly by the management of NEOJB and JBCPL within a period of thirty days from such date of the dispute, disagreement or conflict, the same shall be resolved by arbitration on the terms set forth in Section 10.19 of the Limited Liability Company Agreement of NEOJB. 15. MODIFICATION This Agreement shall not be subject to modification, except by modification in writing, signed by the parties, or their legal agents or representatives. This Agreement may not be varied except by written agreement duly executed by all parties hereto. 16. NOTICES All notices, letters and communications between the Parties shall be in writing. Any notices, letters or communications to be given pursuant to this Agreement shall be given only if transmitted by Telefax or electronic delivery 18 subject to acknowledgement of electronic delivery by the recipient. The notice shall be deemed to be received only on the date of acknowledgement of electronic delivery, on the date of transmission by Telefax if such transmission is confirmed as having been successfully completed, or on the date of actual delivery by an internationally known courier service. Addresses for notice are as follows: FOR : NEOJB LLC FOR: J.B. CHEMICALS & PHARMACEUTICALS, LTD. 157 Technology Drive Neelam Centre, "B" Wing, 4th Floor IRVINE, CA HIND CYCLE ROAD, WORLI, MUMBAI 92618 400025 U.S.A. INDIA ATTENTION: (NAME & TITLE) ATTENTION: (NAME & TITLE) TELEPHONE: TELEPHONE: TELEFAX: TELEFAX: EMAIL: EMAIL: The parties may from time-to-time change their designated addresses, telephone numbers and person/s to whom notice should be sent, by sending to the other party a notice in accordance with the above sub-paragraph. 17. PRINCIPAL TO PRINCIPAL BASIS This Agreement is on a principal to principal basis and nothing contained herein shall be deemed to constitute NEOJB as an agent of JBCPL. [signature page to follow] 19 IN WITNESS WHEREOF, the parties hereto have signed this Agreement on the date set forth below. Executed on April 16, 2002. For and on behalf of JBCPL For and on behalf of NEOJB By: /s/ J. B. Mody By: /s/ Alvin J. Glasky ------------------------------ ------------------------------- Shri J. B. Mody Alvin J. Glasky Date : April 16, 2002 Date : April 16, 2002 Place: Irvine, California, U.S.A. Place: Irvine, California, U.S.A. EX-10.3 5 a89552exv10w3.txt EXHIBIT 10.3 EXHIBIT 10.3 MANAGEMENT AGREEMENT This Management Agreement (this "Agreement") is made as of this 16th day of April, 2002, by and between NeoTherapeutics, Inc. ("NEOT"), a Delaware corporation, and NeoJB LLC, a Delaware limited liability company ("NeoJB"), and is entered into with reference to the following facts: A. J.B. Chemicals & Pharmaceuticals, Ltd., an Indian company ("JBCPL") holds rights to patented and/or proprietary pharmaceuticals that it desires to market in the United States. B. NEOT is an established Delaware corporation, maintaining facilities in Irvine, California. NEOT is familiar with the process of obtaining approval to market pharmaceuticals from the U.S. Food and Drug Administration (hereinafter the "FDA"). C. NeoJB has been formed by NEOT and JBCPL for the purpose of obtaining FDA approval of one or more Products; and, following such approval, to introduce and market the Products in the United States. D. As partial consideration for its membership interest in NeoJB, NEOT has agreed to provide office space, equipment, initial personnel and financing (collectively, the "Services") to NeoJB on and subject to the terms of this Agreement, such services to be provided solely at NEOT's expense pursuant to Section 3.7.1 of the Limited Liability Company Agreement of NeoJB (the "LLC Agreement"). NOW THEREFORE, in consideration of the promises and mutual agreements contained herein, the parties hereto agree as follows: 1. TERM (a) NEOT shall provide the Services described herein to NeoJB from and after the effective date of the first Supply Agreement (as defined in the LLC Agreement) until the earliest time at which all Products then subject to a Supply Agreement have been approved by the United States Food and Drug Administration to be marketed and sold in the United States, unless the Board of Managers of NeoJB elects to earlier terminate this Agreement. (b) NEOT's commitment to provide the Services described herein may be extended by mutual agreement of NEOT and NeoJB on such terms as the parties may agree. 2. OFFICE SPACE AND OFFICE EQUIPMENT (a) NEOT will provide NeoJB with furnished office space and office equipment as determined by NeoJB's Board of Managers from time to time to be reasonably MANAGEMENT AGREEMENT PAGE 2 0F 6 necessary for NeoJB's operations. NeoJB's offices will initially be co-located with NEOT's existing operations located in Irvine, California. NeoJB will have access to NEOT's existing offices, office furniture and office equipment on a shared basis. NeoJB's access to NEOT's offices, telephones, computer network, files, records and data bases will be subject to the rules and regulations that apply to NEOT's employees and such additional restrictions required by NEOT to maintain the confidentiality of NEOT's independent businesses. (b) If NEOT moves its operations while NeoJB is still co-located with NEOT, NEOT will notify NeoJB on a timely basis that NEOT will either continue to accommodate NeoJB's operations at NEOT's new site or of the requirement for NeoJB to locate and lease a suitable, separate facility for NeoJB. NEOT will arrange for the relocation of NeoJB's offices, if NeoJB will continue to be co-located with NEOT at NEOT's new site. If, because of the move, NEOT will no longer accommodate NeoJB at NEOT's new site, NEOT will assist NeoJB, as needed, in making arrangements to identify, lease and relocate NeoJB to a separate facility, and, if requested in writing by NeoJB, NEOT shall be obligated to pay to NeoJB an amount equal to NeoJB's lease costs related to such separate facility as provided in Section 4 below. (c) The Parties anticipate that either NEOT or NeoJB will at some point decide to terminate NeoJB's co-location with NEOT, because of the internal growth of either or both of NEOT and NeoJB, or for other business reasons. At that point, NEOT or NeoJB, depending on which company desires to end the co-location, will timely notify the other so that the companies can plan for an orderly transition. NEOT will assist NeoJB as needed in making arrangements to identify, lease and relocate NeoJB to a separate facility, and, if requested in writing by NeoJB, NEOT shall be obligated to pay to NeoJB an amount equal to NeoJB's lease costs related to such separate facility as provided in Section 4 below. 3. PERSONNEL (a) NEOT will provide NeoJB with management and staff personnel as determined by NeoJB's Board of Managers from time to time to be reasonably necessary for NeoJB's operations. NEOT will provide the personnel on a full and part-time basis depending on the respective needs of NeoJB and NEOT. The NEOT personnel assigned to NeoJB on a full or part time basis will continue to be employees of NEOT subject to the applicable NEOT rules, policies and procedures including NEOT's terms of employment, compensation and benefit plans. (b) The Parties anticipate that the Board of Managers of NeoJB, because of NeoJB's internal growth or for other business reasons, will at some point decide to hire its own employees to staff NeoJB. At that point, NeoJB will timely notify NEOT so that both of the MANAGEMENT AGREEMENT PAGE 3 0F 6 companies can plan for an orderly transition. NEOT, if requested in writing by NeoJB, will assist in locating and recruiting future NeoJB employees. 4. EFFECT OF ASSIGNMENT It is agreed that no part of this Agreement shall be assigned except upon prior written consent of both Parties, as well as the express agreement of the assignee to be bound by each and every term of this Agreement. Furthermore, no assignment shall be considered a release of the obligations of the original Parties to this Agreement to perform each and every covenant herein contained. 5. SEVERABILITY If any provision under this Agreement is, at any time, deemed unenforceable under applicable law, that portion shall be severed from this Agreement, and all remaining provisions shall continue in full force and effect. 6. INTEGRATION This Agreement constitutes the entire agreement and understanding of the parties with respect to confidentiality, and replaces the prior secrecy agreements between the Parties and/or their affiliates. Each Party hereby warrants, acknowledges, and agrees that no additional representations, promises, or agreements have been made by either Party concerning the matters herein contained. 7. APPLICABLE LAW; VARIANCES It is expressly agreed that this Agreement shall be governed and interpreted in accordance with the laws of the State of California, U.S.A. This Agreement may not be amended except by written agreement duly executed by all parties hereto. In addition, either party may waive compliance with any provision of this Agreement by the other party in writing, provided that any such waiver shall not be deemed to be a waiver of future compliance except to the extent specified in the waiver. 8. NOTICES All notices or communications required or permitted under this Agreement shall be given in writing and delivered personally or sent by telefax transmission, by United States registered or certified mail with postage prepaid and return receipt requested or by nationally recognized overnight delivery service. In each case, notice shall be delivered or sent to: MANAGEMENT AGREEMENT PAGE 4 0F 6 If to NEOT, addressed to: NeoTherapeutics, Inc. 157 Technology Drive Irvine, California 92618 Attn: Corporate Secretary Telefax: (949) 788-6706 With a copy to: Latham & Watkins 650 Town Center Drive, 20th Floor Costa Mesa, California 92626 Attn: Alan W. Pettis, Esq. Telefax: (714) 755-8290 If to NeoJB, addressed to: NeoJB LLC 157 Technology Drive Irvine, California 92618 Attn: Secretary Telefax: (949) 788-6706 or to such other address as either party may provide to the other in accordance with this Section 11. 9. COUNTERPARTS This Agreement may be executed in any number of multiple counterparts, each of which shall be deemed to be an original copy and all of which shall constitute one agreement, binding on all parties hereto. Delivery of an executed copy of a signature page to this Agreement by facsimile transmission shall be effective as delivery of a manually executed copy of this Agreement and shall be effective and enforceable as the original. 10. ATTORNEY FEES In case any proceeding, whether at law, in equity or in arbitration, shall be brought by any party to enforce the terms of this Agreement or with respect to any breach hereof, the prevailing party in each such proceeding, as determined by the court or arbitrator, shall be MANAGEMENT AGREEMENT PAGE 5 0F 6 entitled to the payment of reasonable attorneys' fees and costs from the non-prevailing party or parties (as determined by the court or arbitrator). 11. TITLES Section titles are for descriptive purposes only and shall not control or alter the meaning of this Agreement as set forth in the text. 12. SUCCESSORS This Agreement shall bind and inure to the benefit of each respective successors and assigns. 13. ARBITRATION Any disputes which arise involving any of the parties to this Agreement, shall be subject to final, binding arbitration upon written request by any Member involved in the dispute in accordance with this Section 13. The dispute shall be submitted before JAMS/Endispute ("JAMS") within thirty (30) days after the requesting notice in accordance with the then existing JAMS Arbitration Rules as modified by this Section 13; a decision shall be issued within thirty (30) days after the close of the record; and judgment upon the award may be entered in any court having jurisdiction over the judgment. Within thirty (30) days after selection of the arbitrator as provided herein, each party to the dispute shall submit to each other and the arbitrator their respective proposals for resolution of the dispute, and the arbitration shall be limited to the sole question of determining which written proposal is to be accepted. The arbitrator shall have no authority to compromise between the proposals. If a party to a dispute fails to appear at any properly noticed arbitration proceeding, an award may be entered against such party notwithstanding such failure to appear. If the parties disagree on the arbitrator, the parties shall jointly request JAMS to furnish a list of five (5) available arbitrators. After receipt of such list and an opportunity to consider the names, each party may designate in writing to JAMS not more than two (2) names to be eliminated from the selection process. If more than one (1) name remains after such eliminations are made, the selection of the arbitrator shall be made by lot from the remaining names. If either party makes demand upon the other for arbitration, the arbitration shall be conducted in Orange County, California at the location designated by the arbitrator. The parties may mutually agree to another location. Subject to Section 10, the expenses, wages and other compensation of any witnesses called before the arbitrator shall be borne by the party calling the witnesses. Subject to Section 10, other expenses incurred, including wages of participants and experts shall be borne separately by the respective parties. MANAGEMENT AGREEMENT PAGE 6 0F 6 IN WITNESS WHEREOF, the Parties hereto have executed this Management Agreement as of the date first set forth hereinabove. NEOTHERAPEUTICS, INC. NEOJB LLC BY: /s/ Alvin J. Glasky BY: /s/ Rajesh C. Shrotriya ------------------------------- ---------------------------------- NAME: ALVIN J. GLASKY, PHD. NAME: RAJESH C. SHROTRIYA, M.D. TITLE: CHIEF EXECUTIVE OFFICER TITLE: PRESIDENT EX-99.1 6 a89552exv99w1.htm EXHIBIT 99.1 exv99w1

~~EXHIBIT 99.1~~

~~Certification of Chief Executive Officer~~

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Spectrum Pharmaceuticals, Inc. (the “Company”), hereby certifies, to such officer’s knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2003 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

~~(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.~~

~~Dated: May 14, 2003~~

/s/ Rajesh C. Shrotriya
Rajesh C. Shrotriya, M.D.

Chairman, Chief Executive Officer and President

The forgoing certification is being furnished solely to accompany the report pursuant to 18 U.S.C. § 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
A signed original of this written statement required by Section 906 has been provided to Spectrum Pharmaceuticals, Inc. and will be
retained by Spectrum Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EX-99.2 7 a89552exv99w2.htm EXHIBIT 99.2 exv99w2

EXHIBIT 99.2
Certification of Vice President Finance and Strategic Planning
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Spectrum Pharmaceuticals, Inc. (the “Company”), hereby certifies, to such officer’s knowledge, that:
(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2003 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 14, 2003

/s/ John L. McManus
John L. McManus

Vice President Finance and Strategic Planning

The forgoing certification is being furnished solely to accompany the report pursuant to 18 U.S.C. § 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
A signed original of this written statement required by Section 906 has been provided to Spectrum Pharmaceuticals, Inc. and will be
retained by Spectrum Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
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	1.		We filed a Report on Form 8-K on January 2, 2003 with financial statements and accompanying notes thereto for the two-month and eleven-month period ended November 30, 2002, in order to show compliance with The Nasdaq Stock Market, Inc. requirements that we maintain a minimum stockholders’ equity of $2.5 million for continued listing on the Nasdaq SmallCap Market.

	2.		We filed a Report on Form 8-K on January 17, 2003 to report the completion of our January 16, 2003 offering of 222,223 shares of our common stock at a negotiated purchase price per share of $2.25 and warrants to purchase up to 55,555 shares of our common stock at an exercise price per share of $3.25 to three institutional investors for aggregate consideration of $500,001.75. The shares and warrants were issued pursuant to an effective shelf registration statement on Form S-3, file number 333-53108.


	/s/ Rajesh C. Shrotriya Rajesh C. Shrotriya, M.D.
	Chairman, Chief Executive Officer and President


		/s/ John L. McManus John L. McManus
		Vice President Finance and Strategic Planning