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, UVhaQfrgrO+JhRzkRJUvKkTvchXKNqgBCDtS96YW6S0rXiAHJ7TlfP1lbMjZNjpl ZH0wJkYmjoYaKyUY9XMY0A== 0000892569-03-002612.txt : 20031113 0000892569-03-002612.hdr.sgml : 20031113 20031113171117 ACCESSION NUMBER: 0000892569-03-002612 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031113 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: 03999081 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 a94549e10vq.htm FORM 10-Q PERIOD END SEPTEMBER 30, 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 September 30, 2003

		OR

[ ]		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 November 11, 2003

Common Stock, $.001 par value		6,514,697

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
	ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit Index
EXHIBIT 10.5
EXHIBIT 10.6
EXHIBIT 10.7
EXHIBIT 10.8
EXHIBIT 10.9
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

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 September 30, 2003 and December 31, 2002 (unaudited)		4
	Condensed Consolidated Statements of Operations for the three-month and nine-month periods ended September 30, 2003 and 2002 (unaudited)		5
	Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 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		15
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		24
ITEM 4.	Controls and Procedures		24
PART II.	OTHER INFORMATION		25
ITEM 1.	Legal Proceedings		25
ITEM 2.	Changes in Securities and Use of Proceeds		25
ITEM 3.	Defaults Upon Senior Securities		25
ITEM 4.	Submission of Matters to a Vote of Security Holders		25
ITEM 5.	Other Information (not previously reported in a Form 8-K)		26
ITEM 6.	Exhibits and Reports on Form 8-K		26
SIGNATURES			28

SPECTRUM PHARMACEUTICALS, INC.

FORM 10-Q

For the Three-Month Period Ended September 30, 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 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)


					September 30,			December 31,
					2003			2002

Assets
Current Assets:
		Cash and cash equivalents			$	24,893,623		$	1,511,942
		Marketable securities and short-term investments				19,800			66,396
		Other receivables				1,654,753			203,558
		Property and equipment, held for sale				99,750			619,000
		Prepaid expenses				355,363			170,214

			Total current assets			27,023,289			2,571,110
Property and Equipment, at cost:
		Equipment				1,173,596			1,177,828
		Leasehold improvements				509,032			509,032
		Accumulated depreciation and amortization				(1,073,728	)		(884,794	)

			Property and equipment, net			608,900			802,066
Other Assets – deposits						64,944			79,944

			Total assets		$	27,697,133		$	3,453,120

Liabilities and Stockholders’ Equity
Current Liabilities:
		Accounts payable and accrued expenses			$	2,382,804		$	2,013,247
		Accrued public offering costs				1,671,000			—
		Accrued payroll and related taxes				—			201,847
		Current portion of capitalized lease obligations				165,313			306,597

			Total current liabilities			4,219,117			2,521,691
Capital lease obligations, net of current portion						34,921			157,581
Other non-current liabilities						—			101,496

			Total liabilities			4,254,038			2,780,768

Series E Convertible Preferred Stock subject to redemption						10,000,000			—
Commitments and Contingencies (Note 5)
Stockholders’ Equity:
	Preferred stock, par value $0.001 per share, 5,000,000 shares authorized:
			Series D 8% Cumulative Convertible Voting Preferred Stock, stated value $10,000, Issued and outstanding, 358 and none at September 30, 2003 and December 31, 2002, respectively			3,580,000			—
			Series E Convertible Voting Preferred Stock, stated value $10,000, Issued and outstanding, 2,000 and none at September 30, 2003 and December 31, 2002, respectively			10,000,000			—
		Common stock, par value $0.001 per share, 50,000,000 shares authorized:
				Issued and outstanding, 5,165,011 and 2,726,019 shares at September 30, 2003 and December 31, 2002, respectively		5,165			2,726
		Additional paid-in capital				149,462,516			143,831,315
		Deferred compensation				(261,698	)		(55,730	)
		Accumulated other comprehensive income				9,700			5,724
		Accumulated deficit				(149,352,588	)		(143,111,683	)

			Total stockholders’ equity			13,443,095			672,352

			Total liabilities and stockholders’ equity		$	27,697,133		$	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			Nine-Months			Nine-Months
		Ended			Ended			Ended			Ended
		September 30,			September 30,			September 30,			September 30,
		2003			2002			2003			2002

Revenues		$	1,000,000		$	2,008,334		$	1,000,000		$	2,219,307
Operating expenses:
	Research and development		787,691			2,685,555			2,095,955			11,437,910
	General and administrative		1,252,747			461,201			3,231,349			3,349,012
	Employee stock compensation		1,558,861			—			1,582,418			—
	Restructuring expenses		—			1,381,088			—			1,381,088

Total operating expenses			3,599,299			4,527,844			6,909,722			16,168,010

Loss from operations			(2,599,299	)		(2,519,510	)		(5,909,722	)		(13,948,703	)
Other income (expense), net			(120,689	)		166,378			(153,428	)		150,011

Net loss		$	(2,719,988	)	$	(2,353,132	)	$	(6,063,150	)	$	(13,798,692	)

Basic and diluted net loss per share		$	(0.71	)	$	(1.50	)	$	(1.87	)	$	(11.23	)

Basic and diluted weighted average common shares outstanding			3,975,271			1,564,664			3,337,703			1,228,911

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)


					Nine-Months			Nine-Months
					Ended			Ended
					September 30, 2003			September 30, 2002

Cash Flows From Operating Activities:
Net loss					$	(6,063,150	)	$	(13,798,692	)
		Adjustments to reconcile net loss to net cash used in operating activities:
				Depreciation and amortization		190,172			745,404
				Impairment on investment in marketable security		—			50,904
				Amortization of employee stock option compensation		1,034,998			375,146
				Issuance of common stock for services and employee compensation		824,194			102,000
				Offset of retirement benefit obligations to an officer against a note receivable from the officer		—			390,649
				Loss on sale of assets		3,527			—
				Changes in operating assets and liabilities:
				Increase in other receivables, prepaid expenses and deposits		(1,636,343	)		(1,490,782	)
				Increase (decrease) in accounts payable and accrued expenses		369,557			(1,132,950	)
				Increase (decrease) in accrued payroll and related taxes		(201,847	)		122,602
				Decrease in other non-current liabilities		(101,496	)		(131,454	)
				Repayment of notes payable to related parties, net		—			(135,574	)

		Net cash used in operating activities				(5,580,388	)		(14,902,747	)
Cash Flows From Investing Activities:
				Purchases of property and equipment		—			(59,121	)
				Redemption of marketable securities and short-term investments, net		50,011			6,015,555
				Decrease in equipment, held for sale		519,250			—
				Proceeds from the sale of equipment		—			470,779
				(Increase) decrease in other assets		15,000			20,550

		Net cash provided by investing activities				584,261			6,447,763
Cash Flows From Financing Activities:
	Proceeds from issuance of common stock and warrants, net of related offering costs and expenses					3,537,953			8,454,242
	Proceeds from the issuance of preferred stock and warrants, net of related offering costs and expenses					23,365,707			—
	Increase in accrued public offering costs					1,671,000			—
	Proceeds from the exercise of stock options and warrants					105,188			—
	Payments made on capital lease obligations					(263,944	)		(564,031	)
	Repurchase of common stock and warrants					—			(143,000	)
	Repurchase of common stock of a subsidiary					(1,000	)		—
	Dividends paid on preferred stock					(37,096	)		—

	Net cash provided by financing activities					28,377,808			7,747,211

	Net increase in cash and cash equivalents					23,381,681			(707,773	)
	Cash and cash equivalents, beginning of period					1,511,942			749,213

	Cash and cash equivalents, end of period				$	24,893,623		$	41,440

Supplemental Cash Flow Information:
			Interest paid		$	15,427		$	116,517

			Income taxes paid		$	4,103		$	800

Schedule of Non-Cash Investing and Financing Activities:
			Unrealized (gain) loss on marketable securities		$	(3,977	)	$	85,948

			Forfeiture of stock options in consolidated subsidiary		$	—		$	818,124

			Grant of stock options below fair market value		$	1,004,850		$	—

			Dividends paid on preferred stock in form of common stock		$	140,658		$	—

			Expiration of stock options granted to employees and non- employees below fair market value		$	3,662		$	412,885

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

SPECTRUM PHARMACEUTICALS, INC.
(formerly NeoTherapeutics, Inc.)
Notes to Condensed Consolidated Financial Statements
September 30, 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 September 30, 2003: Spectrum Pharmaceuticals GmbH (formerly NeoTherapeutics GmbH), wholly owned, incorporated in Switzerland in April 1997 (or GmbH); 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 and nine-months ended September 30, 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 Amendment Number 2 to the 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)

September 30, 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 development and marketing of generic drugs in the United States. 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 $2.0 million during the three-month period ended September 30, 2003, excluding non-cash employee stock compensation expense. The 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 nine-month period ended September 30, 2003, we sold:

• 2,000 shares of our Series E Convertible Voting Preferred Stock (“Series E Preferred Stock”) and warrants to purchase up to an aggregate of 2,800,000 shares of our common stock, at an exercise price of $6.50, for net cash proceeds of approximately $18.2 million.

• 600 shares of our Series D 8% Cumulative Convertible Voting Preferred Stock (“Series D Preferred Stock”) and warrants to purchase up to an aggregate of 2,553,190 shares of our common stock, half at an exercise price of $3.00 and the other half at an exercise price of $3.50 per share, for net cash proceeds of approximately $5.1 million.

• 1,084,828 shares of our common stock for net cash proceeds of approximately $3.5 million and issued warrants to purchase 55,555 shares of our common stock at an exercise price of $3.25 per share and warrants to purchase 368,520 shares of our common stock at an exercise price of $4.75 per share.

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, which additional $2 million was received in October 2003. 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.

Recent Accounting Pronouncements

In May 2003, the Financial Accounting Standards Board issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement clarifies the accounting for certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously, many of those financial instruments were classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 is not expected to have any impact on the Company’s financial statements.

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

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

September 30, 2003
(Unaudited)

owns 20% of NeoJB. NeoJB’s business operations include seeking U.S. regulatory approval of JBCPL pharmaceutical products and overseeing the subsequent marketing of 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.

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

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 which occurred on September 25, 2003. 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. In accordance with our revenue recognition policy the initial payment of $2 million and the milestone payment of $1 million were recognized as revenue as the Company has satisfied its commitments under the license agreement.

On September 25, 2003, the first dosing of a patient in a registrational study occurred which triggered the second milestone payment of $1 million in cash and a $1 million equity investment by GPC Biotech AG. Subsequent to September 30, 2003, the Company received the $2 million and issued 128,370 shares of common stock reflecting a price of $7.79 or a 50 percent premium to the twenty-day average ending three days prior to the achievement of the milestone.

4. Restructuring Expenses

During the nine-month period ended September 30, 2002, we shifted our strategic focus from discovery and development of neurology drugs to the (1) 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. As a result of this change in focus, we terminated all research efforts related to Neotrofin, neurology and functional genomics. As part of the restructuring, 21 employees were terminated resulting in severance related expenses of $59,000, two senior executives retired and entered into retirement agreements with an associated expense of $704,000, the Company exchanged assets for certain payables to the University of California, Irvine which resulted in a net loss of $312,000 and the Company incurred restructuring related administrative and legal expenses of $306,000 during the quarter. As of September 30, 2002, we had completed substantially all of the activities related to the restructuring except for a review of the carrying value of our property and equipment for a possible impairment under Statement of Financial Accounting Standards No. 144 (“SFAS 144”) “Accounting for the Impairment or Disposal of Long-Lived Assets” which was completed on December 31, 2002. As a result of the SFAS 144 review, we determined that the expected cash flow from the equipment was less than its current carrying value and therefore recorded an impairment in the amount of $1,669,000.

Effective August 16, 2002, Dr. Alvin J. Glasky retired from his positions as Chairman of our Board of Directors, Chief Executive Officer and Chief Scientific Officer. In connection with his retirement, we entered into an agreement with Dr. Glasky which provided for the payment of approximately $113,000 in severance benefits through December 31, 2002, accrued vacation benefits and deferred salary of approximately $54,000, and an additional payment of approximately $106,000, representing the repayment of certain loans from Dr. Glasky to us, net of other offsets. In addition, in lieu of the payment of additional contractually obligated severance benefits of approximately $390,000, the Company relieved Dr. Glasky of his obligation to repay a loan in the amount of $390,000.

Effective August 21, 2002, Samuel Gulko retired from his positions as Senior Vice President Finance, Chief Financial Officer, Secretary, Treasurer and a Director. In connection with his retirement, we entered into an agreement with Mr. Gulko, which provided

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

September 30, 2003
(Unaudited)

for the payment of approximately $200,000 in severance benefits and accrued vacation benefits and deferred salary of approximately $34,000. In connection with his retirement, Mr. Gulko repaid a loan from the Company in amount of $75,000.

5. 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 September 30, 2003, we had no commitments to pay any research or fellowship grants. Grant expense for the nine-month periods ended September 30, 2003 and 2002, were approximately zero and $351,000, respectively, and is included in research and development expenses 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.

The Company is contractually obligated to pay certain benefits to former executives and employees of the Company during the fourth quarter of 2003 and in 2004 amounting to $488,000.

6. 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 (FDA) in January 2003. On June 30, 2003, the investor purchased $250,000 of unregistered shares of our common stock at a purchase price of $1.99 per share based upon the closing price of our common stock on the day prior to acceptance by the FDA of the ANDA, March 26, 2003. 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 price in the transaction will be at the closing price of our common stock on the day prior to approval.

On April 2, 2003, a warrant holder exercised warrants to purchase 161,460 shares of our common stock at an exercise price of $0.25 per share.

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

September 30, 2003
(Unaudited)

On August 13, 2003, we sold 737,040 shares of our common stock at a negotiated purchase price of $4.10 per share for gross cash proceeds of approximately $3.0 million to certain institutional and individual investors. The investors also received five-year warrants to purchase up to 368,520 shares of our common stock at an exercise price of $4.75 per share. A placement agent received warrants to purchase up to a total of 39,304 shares of our common stock at an exercise price of $4.75 per share for its role in the transaction. The fair value of the warrants were estimated to be $1,692,000 using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%; expected volatility of 95.6%; risk free interest rate of 4.0%; and an expected life of five years. Offering costs including cash commissions paid to placement agents of this transaction were approximately $199,000.

On September 12, 2003, we agreed to issue a five-year warrant to purchase up to 130,000 shares of our common stock, at an exercise price of $4.90, to a consultant for services to generate retail interest in the Company’s stock. Half of the warrant will vest upon issuance and the remaining half of the warrant will vest upon achievement of certain objectives by the consultant. The warrant is subject to shareholder approval at the Company’s next Annual Stockholder Meeting. The fair value of the warrant was estimated to be $480,000 using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%; expected volatility of 95.6%; risk free interest rate of 3.2%; and an expected life of five years. A non-cash expense of $240,000, representing the Black-Scholes value of one-half of the warrant that was immediately vested, was expensed upon execution of the contract during the third quarter of 2003. The expense for the remaining half of the warrant will be expensed over the one-year estimated vesting period.

Preferred Stock Transactions

On May 7 and 13, 2003, we sold a total of 600 shares of our Series D 8% Cumulative Convertible Voting Preferred Stock (“Series D Preferred Stock”) and Series D Warrants to purchase shares of our common stock for gross cash proceeds of $6,000,000. The Series D Preferred Stock is convertible into 2,553,191 shares of Spectrum common stock based on a conversion price of $2.35 per share. Dividends on the Series D 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 Series D Preferred Stock received five-year warrants to purchase up to a total of 1,276,595 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 1,276,595 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 the placement agent, in addition to cash fees, a five-year warrant to purchase up to a total of 255,319 shares of our common stock at an exercise price of $3.00 per share. The fair value of the warrants were estimated to be $5,484,000 using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%; expected volatility of 92.1%; risk free interest rate of 2.6%; and an expected life of five years. Offering costs, including cash commissions paid to placement agents, of this transaction were $844,000. Certain provisions of the Preferred Stock and Warrant Purchase Agreement and Certificate of Designation, Rights and Preferences of the Series D Preferred Stock required us to obtain the approval of the preferred stockholders to take certain corporate actions, however, in October 2003, these restrictions ceased to apply when certain measures outlined in the Preferred Stock and Warrant Purchase Agreement were achieved.

On September 26, 2003, we sold a total of 2,000 shares of our Series E Convertible Voting Preferred Stock (“Series E Preferred Stock”) and Series E Warrants to purchase shares of our common stock for gross cash proceeds of $20,000,000. The Series E Preferred Stock is convertible into 4,000,000 shares of Spectrum common stock based on a conversion price of $5.00 per share. In addition, purchasers of the Series E Preferred Stock received five-year warrants to purchase up to a total of 2,800,000 shares of our common stock at an exercise price of $6.50 per share. We also issued to two placement agents, in addition to cash fees, five-year warrants to purchase up to a total of 400,000 shares of our common stock at an exercise price of $6.50 per share. The fair value of the warrants were estimated to be $25,664,000 using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%; expected volatility of 98.1%; risk free interest rate of 2.9%; and an expected life of five years. Offering costs, including cash commissions paid to placement agents, of this transaction were approximately $1,790,000.

Certain provisions of the Certificate of Designation, Rights and Preferences of the Series E Preferred Stock provide, at the option of the holder, a right to redeem up to one half of the Series E Preferred Stock if a “Product-Triggered Redemption Event” has occurred before December 26, 2003. A Product Triggered Redemption Event is defined as the Company failing to acquire from another person or entity, by December 26, 2003, either (i) the right, title and interest to an oncology-related drug candidate that has entered at least a Phase I clinical trial (a “Compound”) or (ii) an exclusive license or sublicense to further develop a Compound. In addition, a pro-rata number of the Series E Warrants will be cancelled for any amount of the Series E Preferred Stock redeemed. Accordingly, one half of the stated value of the Series E Preferred Stock has been excluded from stockholders’ equity in the accompanying balance sheet.

Certain provisions of the Preferred Stock and Warrant Purchase Agreement and Certificate of Designation, Rights and Preferences of the Series E Preferred Stock also require us to obtain the approval of the preferred stockholders to (i) amend, alter or repeal any provision of the Charter or Bylaws which adversely affects the terms of the Series E Preferred Stock (ii) offer, sell or designate a security senior to or equal with the Series E Preferred Stock, (iii) sell or issue common stock or securities convertible into or exercisable for shares of our common stock below $5.00 per share, with certain exceptions, (iv) incur any bank or non-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. These covenants are in place until a

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

September 30, 2003
(Unaudited)

registration statement registering the shares of our common stock issuable upon conversion of the Series E Preferred Stock is declared effective and remains effective and the Company’s common stock trades above $5.00 for ten out of thirty trading days.

During the second and third quarters of 2003, 242 shares of our Series D Preferred Stock were converted into 1,029,776 shares of our common stock. On June 27, 2003, the Company declared a dividend of $69,205 on the Series D Preferred Stock payable on June 29, 2003 in the form of 13,899 shares of our common stock and on September 30, 2003, the Company declared a dividend of $73,191 on the Series D Preferred Stock payable on September 30, 2003 in the form of 12,196 shares of our common stock.

Comprehensive Loss

During the nine-month periods ended September 30, 2003 and 2002, comprehensive loss was $6,059,000 and $13,885,000, respectively. For the nine-month periods ended September 30, 2003 and 2002, other comprehensive income of $3,976 and $1,117, respectively, consisted of unrealized gains and losses on our marketable securities and short-term investments that are held as available-for-sale.

7. Equity Compensation

Below is a summary of Spectrum stock option activity during the nine-month period ended September 30, 2003:


					Weighted Average
		Shares			Exercise Price

Outstanding at December 31, 2002			601,799		$	37.27
	Granted		927,500
	Exercised		(34,250	)
	Forfeited		(107,480	)

Outstanding at September 30, 2003			1,387,569		$	12.69

Exercisable at September 30, 2003			702,915		$	19.06

On March 28, 2003 our Board of Directors determined it was in the best interest of the Company to grant options to certain of its executives, employees and consultants at $1.99 per share, the closing sale price of our common stock on March 28, 2003, in recognition of their services to the Company during our financial and strategic restructuring and as an incentive for the completion of the restructuring. Due to state securities law requirements not all of these grants could be made on March 28, 2003. The Board subsequently modified the form of some of the awards to meet their original intent. The actual grants occurred as follows:

       •    Options to purchase an aggregate of 140,000 shares at an exercise price of $1.99 per share granted to certain non-California resident employees and consultants on March 28, 2003,

       •    Rights to purchase 105,700 shares of common stock at a purchase price of $5.18 per share to certain California employees on September 5, 2003. The purchase price was deemed paid in the form of past uncompensated services of equivalent value provided by the employees, and

       •    Options to purchase an aggregate of 315,000 shares at an exercise price of $1.99 per share to certain executive officers on September 5, 2003.

The value of the rights to purchase amounting to $548,000 and the difference between the exercise price of the options granted on September 5, 2003 and the fair market value of our common stock at that date, amounting to $1,004,850 for the executive officer options, was expensed during the third quarter of 2003, in accordance with APB Opinion No. 25. The September 5, 2003 option grants are subject to shareholder approval at the Annual Shareholder meeting in 2004.

During the nine months ended September 30, 2003, the Board of Directors granted the following additional options. In each case, the exercise prices were based on the respective fair market values on the dates of grant:

       •    Options to purchase an aggregate of 20,000 shares at an exercise price of $2.01 per share to certain directors on April 1, 2003,

       •    Options to purchase an aggregate of 90,000 shares at an exercise price of $4.00 per share to certain directors on July 31, 2003,

       •    Options to purchase an aggregate of 5,000 shares at an exercise price of $4.06 per share to a new employee on August 5, 2003,

       •    Options to purchase an aggregate of 25,000 shares at an exercise price of $4.21 per share to a new employee on August 15, 2003, and

       •    Options to purchase an aggregate of 332,500 shares at an exercise price of $4.90 per share to certain employees, directors and consultants on September 12, 2003.

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

September 30, 2003
(Unaudited)

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 nine-month periods ended September 30, 2003 and 2002, we recorded compensation expense of $20,000 and $375,000, respectively, as a result of such amortization.

During 2003, employees exercised 32,750 stock options for cash proceeds of $64,800.

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 or greater than 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 and nine-months ended September 30, 2003 and 2002.


	Three-Months			Three-Months			Nine-Months			Nine-Months
	Ended			Ended			Ended			Ended
	September 30, 2003			September 30, 2002			September 30, 2003			September 30, 2002

Net loss, as reported		(2,719,989	)		(2,353,132	)		(6,063,150	)		(13,798,692	)
Add: Preferred stock dividends		(108,549	)		—			(177,754	)		—
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(1,886,004	)		(489,215	)		(2,343,438	)		(1,063,838	)

Pro forma net loss	$	(4,714,542	)	$	(2,842,347	)	$	(8,584,342	)	$	(14,862,530	)
Loss per share:
Basic and diluted – as reported	$	(0.71	)	$	(1.50	)	$	(1.87	)	$	(11.23	)
Basic and diluted – pro forma	$	(1.19	)	$	(1.82	)	$	(2.57	)	$	(12.09	)

8. Loss Per Share

Basic and diluted loss per share for the three-month and nine-month periods ended September 30, 2003 and 2002 are computed using the weighted average common shares outstanding during the period, respectively. Basic and diluted loss per share for the three-month and nine-month periods ended September 30, 2003 are computed after increasing the net loss by dividends amounting to $108,549 and $177,754, respectively, paid to holders of the Series D Preferred Stock.

9. Litigation

We are not aware of any litigation matters pending or threatened as of September 30, 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.

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

September 30, 2003
(Unaudited)

10. 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 September 30, 2003 and December 31, 2002 as realization of such assets is uncertain.

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.

Use of Estimates

We make certain estimates to prepare our financial statements that affect the reported amounts of assets and liabilities, the allocation of expenses and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses reported during the reporting period. Actual results could differ from our estimates.

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

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.

Revenue Recognition

We have adopted a strategy of co-developing or licensing some of 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.

Results of Operations

For the three-months ended September 30, 2003, we incurred a net loss of approximately $2.7 million. 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 other pharmaceutical companies that we are currently seeking or revenues from generic drug sales. The following is unaudited financial information for the three-months and nine-months ended September 30, 2003 and 2002:


	Three-Months Ended September 30,					Nine-Months Ended September 30,

	2003			2002		2003			2002

Licensing revenue		1,000,000			2,008,334		1,000,000			2,219,307
Research and development expenses		787,691			2,685,555		2,095,955			11,437,910
General and administrative expenses		1,252,747			461,201		3,231,349			3,349,012
Employee stock compensation		1,558,861			—		1,582,418			—
Restructuring expenses		—			1,381,088		—			1,381,088
Other income (expense), net		(120,689	)		166,378		(153,428	)		150,011

Results of Operations for the Three-Months Ended September 30, 2003 compared to the Three-Months Ended September 30, 2002

Revenue for the three-month period ended September 30, 2003 resulted from the recognition of the second licensing fee of $1 million under the co-development and licensing agreement with GPC Biotech AG. Upon dosing of the first patient in a registrationial study which occurred on September 25, 2003, GPC Biotech AG was obligated to pay us $1 million in cash and make a $1 million equity investment. We received the $2 million from GPC Biotech AG in October 2003. Revenue for the three-month period ended September 30, 2002 resulted from the recognition of the first licensing fee of $2 million from the co-development and licensing agreement with GPC Biotech AG and amortization of the licensing fee from the technology out-licensing agreements with the University of California, Irvine (“UCI”) and 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 in satisfaction of certain accounts payable due to the Regents of the University of California and certain future obligations.

Research and development expenses for the three months ended September 30, 2003 compared to the same period in 2002 decreased due primarily to the termination of our development efforts for Neotrofin and the termination of pre-clinical research activities. During the three-months ended September 30, 2002, clinical trials for Neotrofin in the treatment of patients with spinal

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

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. We also terminated our pre-clinical research activities during the fourth quarter of 2002 resulting in a further decrease in costs due to a decrease in research personnel and research supplies. In addition, as part of the restructuring in 2002, we eliminated all activities at our functional genomics subsidiary and only incurred costs in the amount of $177,000 during the three-months ended September 30, 2003 related to two lease agreements entered into in 2001, which are now included in general and administrative expenses. During the three-months ended September 30, 2002, our functional genomics subsidiary incurred $301,000 in expenses. In 2003, research and development expenses included our ongoing clinical trial for EOquin™ in the treatment of patients with superficial bladder cancer, procurement of elsamitrucin supplies for an upcoming clinical trial in patients with Non-Hodgkin’s Lymphoma and expenses incurred in connection with the filing of an Abbreviated New Drug Application for carboplatin.

General and administrative expenses for the three-month period ended September 30, 2003 compared to the same period in 2002 increased due primarily to the idling of the Company’s research facilities which transferred fixed costs related to the facility from research and development expenses in 2002 to general and administrative expenses in 2003 and the issuance of a warrant to purchase 130,000 shares of our common stock to a consultant engaged to generate retail interest in the Company’s stock. A non-cash expense of $250,000, representing the Black-Scholes value of one-half of the warrant that was immediately vested, was expensed upon execution of the contract during the third quarter of 2003. The expense for the remaining half of the warrant will be expensed over the one-year vesting period. Also contributing to the increase in general and administrative expenses was higher employee benefit costs and salary increases. Offsetting the increase were significant reductions during 2003 when compared to the same period in 2002 for consulting services, investor and shareholder relations, board of directors expenses and travel costs.

Employee stock compensation for the three months ended September 30, 2003 represents non-cash compensation expense for the Company’s employees. In September 2003, the Board of Directors granted rights to purchase 105,700 shares of our common stock to employees of the Company for past services. In addition, the Board of Directors granted options to purchase 315,000 shares of our common stock to two executive officers of the Company. These options were originally to be issued in March 2003 at the then current fair market value of our common stock; however, the Company was precluded from issuing the options at that time due to California state securities law restrictions. In September 2003, we granted the options at the price originally contemplated in March as compensation for their efforts in the strategic and financial restructuring of the Company during the past fourteen months. The difference between the fair market value of our common stock on the date of grant and exercise price was recorded as an expense during the quarter for these grants. There was no employee stock compensation expense for the three months ended September 30, 2002.

Restructuring expenses were incurred during the three-month period ended September 30, 2002 as a result of a shift in our strategic focus from discovery and development of neurology drugs to (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. As a result of these changes, we laid off 21 employees, two senior executives retired and we incurred significant administrative and legal expenses. The restructuring charge includes legal fees related to the restructuring in the amount of $231,000, a loss on the exchange of assets for certain payables to the University of California, Irvine in the amount of $312,000, retirement benefits offset against a loan to Dr. Glasky, the Company’s former CEO, in the amount of $390,000, $114,000 in severance benefits to Dr. Glasky, $200,000 in severance benefits to Sam Gulko, the Company’s former Chief Financial Officer, board of directors fees of $71,000 for special meetings related to the restructuring and personnel severance related expenses of $59,000. There were no restructuring expenses for the three months ended September 30, 2003.

Other income (expense) for the three-month period ended September 30, 2003 compared to the same period in 2002 decreased due to the receipt in 2002 of a $250,000 exclusivity payment from a party negotiating a potential corporate transaction with the Company. During the third quarter of 2002, the exclusivity period expired and we are no longer in discussions with the party. In addition, we incurred losses on the sale of laboratory equipment not being utilized by the Company in 2003.

Results of Operations for the Nine-Months Ended September 30, 2003 compared to the Nine-Months Ended September 30, 2002

Revenue for the nine-month period ended September 30, 2003 resulted from the recognition of the second licensing fee of $1 million under the co-development and licensing agreement with GPC Biotech AG. Upon dosing of the first patient in a registrationial study which occurred on September 25, 2003, GPC Biotech AG was obligated to pay us $1 million in cash and make a $1 million

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

equity investment. We received the $2 million from GPC Biotech AG in October 2003. Revenue for the nine-month period ended September 30, 2002 resulted from the recognition of the first licensing fee of $2 million from the co-development and licensing agreement with GPC Biotech and 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 the University of California, Irvine (“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 in satisfaction of certain accounts payable due to the Regents of the University of California and certain future obligations.

Research and development expenses for the nine months ended September 30, 2003 compared to the same period in 2002 decreased due primarily to the termination of our development efforts for Neotrofin and the termination of pre-clinical research activities. During the nine-months ended September 30, 2002, clinical trials 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 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. In addition, as part of the restructuring in 2002, we eliminated all activities at our functional genomics subsidiary and only incurred costs in the amount of $273,000 during the nine-months ended September 30, 2003 related to two lease agreements entered into in 2001, which are now included in general and administrative expenses. During the nine-months ended September 30, 2002, our functional genomics subsidiary incurred $1,693,000 in expenses. In 2003, research and development expenses included our ongoing clinical trial for EOquin™ in the treatment of patients with superficial bladder cancer, procurement of elsamitrucin supplies for an upcoming clinical trial in patients with Non-Hodgkin’s Lymphoma and expenses incurred in connection with the filing of our Abbreviated New Drug Application for Ciprofloxacin and carboplatin.

General and administrative expenses for the nine-month period ended September 30, 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. The cost-cutting efforts during the past fourteen months resulted in decreases in expenses for consulting services, legal services, investor and shareholder relations, board of directors expenses and travel costs in 2003 when compared to the same period in 2002. The decrease was offset by the idling of the Company’s research facilities which transferred fixed costs related to the facility from research and development expenses in 2002 to general and administrative expenses in 2003 and the issuance of a warrant to purchase 130,000 shares of our common stock to a consultant engaged to generate retail interest in the Company’s stock. A non-cash expense of $250,000, representing the Black-Scholes value of one-half of the warrant, which was immediately vested, was expensed upon execution of the contract during the third quarter of 2003.

Employee stock compensation for the nine months ended September 30, 2003 represents non-cash compensation expense for the Company’s employees. In September 2003, the Board of Directors granted rights to purchase 105,700 shares of our common stock to employees of the Company for past services. In addition, the Board of Directors granted options to purchase 315,000 shares of our common stock to two executive officers of the Company. These options were originally to be issued in March 2003 at the then current fair market value of our common stock; however, the Company was precluded from issuing the options at that time due to California state securities law restrictions. In September 2003, we granted the options at the price originally contemplated in March as compensation for their efforts in the strategic and financial restructuring of the Company during the past fourteen months. The difference between the fair market value of our common stock on the date of grant and exercise price was recorded as an expense during the quarter for these grants. There was no employee stock compensation expense for the nine months ended September 30, 2002.

Restructuring expenses were incurred during the nine-month period ended September 30, 2002 as a result of a shift in our strategic focus from discovery and development of neurology drugs to (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. As a result of these changes, we laid off 21 employees, two senior executives retired and we incurred significant administrative and legal expenses. The restructuring charge includes legal fees related to the restructuring in the amount of $231,000, a loss on the exchange of assets for certain payables to the University of California, Irvine in the amount of $312,000, retirement benefits offset against a loan to Dr. Glasky, the Company’s former CEO, in the amount of $390,000, $114,000 in severance benefits to Dr. Glasky, $200,000 in severance benefits to Sam Gulko, the Company’s former Chief Financial Officer, board of directors fees of $71,000 for special meetings related to the restructuring and

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

personnel severance related expenses of $59,000. There were no restructuring expenses for the nine months ended September 30, 2003.

Other income (expense) for the nine-month period ended September 30, 2003 compared to the same period in 2002 decreased due to the receipt in 2002 of a $250,000 exclusivity payment from a party negotiating a potential corporate transaction with the Company. During the third quarter of 2002, the exclusivity period expired and we are no longer in discussions with the party. In addition, we realized a lower level of interest income in 2003 when compared to the same period in 2002 as a result of lower average marketable securities balances and lower interest rates. In 2003, we also incurred losses from the sale of laboratory equipment not being utilized by the Company and in 2002, we realized an impairment provision of $50,000 on a marketable security.

Financial Condition

From inception through September 30, 2003, we financed our operations primarily through sales of securities, borrowings, grants, and payments received from technology out-license agreements.

At September 30, 2003, we had net working capital of approximately $22.8 million. Our working capital included cash and cash equivalents of approximately $24.9 million. In comparison, at December 31, 2002, we had 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 $22.8 million increase in net working capital during the nine-month period ended September 30, 2003 is attributable primarily to the sale of our Series D and Series E Preferred Stock for net cash proceeds of $23.4 million and sale of shares of our common stock for net cash proceeds of $3.5 million. These cash inflows were offset by a loss of approximately $6.1 million, less non-cash expenses, and $264,000 to pay capital lease obligations.

We devote substantially all of our efforts to research and development. We incurred net losses of approximately $2.7 million during the three month period ended September 30, 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 2006, or sooner, in order to continue operating our business, to support 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 clinical trials, the time and costs involved in obtaining regulatory approvals, the cost involved in filing, prosecuting and enforcing patent 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.

Liquidity

During the nine-month period ended September 30, 2003, we sold:

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

• Additionally, we sold 1,084,828 shares of our common stock for net cash proceeds of approximately $3.5 million and issued warrants to purchase 55,555 shares of our common stock at an exercise price of $3.25 per share and warrants to purchase 368,520 shares of our common stock at an exercise price of $4.75 per share.

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	$	165,000
2004		35,000

	$	200,000

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	$	181,000
2004		468,000
2005		211,000
2006		85,000
2007		—

	$	945,000

Research and Fellowship Grants

Joint Ventures

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

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.

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 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 nine-month period ended September 30, 2003 and as of September 30, 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 September 30, 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 September 30, 2003, we had one investment of approximately $61,000 in WorldCom, Inc. corporate bonds that was due to mature on May 15, 2003. The fair market value of these corporate bonds at September 30, 2003 was approximately $19,800, 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 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 interest rate risk on our investment portfolio and 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. While we cannot predict our interest rate risk on our investment portfolio, we evaluate our financial position on an ongoing basis.

We believe that we have no material foreign currency exchange rate risk.

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, as amended 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 September 30, 2003, we incurred a loss of approximately $2.7 million. 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.

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

Our business does not generate cash from operations needed to finance our operations. We have relied primarily on raising capital through the sale of our securities, and/or out-licensing our drug candidates and technology, to meet our financial needs. Our existing cash and investment securities are sufficient to fund our current planned pharmaceutical operations until June 2006. Therefore, we will need to seek additional capital by June 2006, or sooner, through public or private financings, including equity financings, and through other arrangements to continue operating our businesses and to support the research and development of our potential products long-term. In addition, if we choose to expand our operations beyond what is currently planned, we will have to raise capital sooner.

Since our business does not generate cash from operations needed to finance our operations, our capital requirements are driven by our operating expenses. Our future operating expenses will depend on many factors, including:

• continued scientific progress in research and development to identify and develop or obtain additional drug candidates;

• the cost and progress of preclinical and clinical testing of our anti-cancer drugs and additional drug candidates;

• cost involved in filing, prosecuting and enforcing patent claims;

• effect of competing technological developments;

• cost of commercialization activities;

• time and cost involved in obtaining regulatory approvals; and

• our ability to establish collaborative and other arrangements with third parties, such as licensing and manufacturing agreements.

We will have to raise substantial additional capital to meet these operating expenses and support our future growth.

We may not be able to raise additional capital on favorable terms, if at all. Accordingly, we may be forced to significantly change our business plans and restructure our operations to conserve cash, which would likely involve out-licensing or selling some or all of our intellectual, technological, and/or tangible property not presently contemplated and at terms that we believe would not be favorable to us and/or reducing the scope and nature of our currently planned research and drug development activities. An inability to raise additional capital would also impact our ability to expand operations.

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 there is no assurance that we will successfully engage in any of these activities.

Our success depends upon the contributions of our key management and scientific personnel, especially Dr. Rajesh C. Shrotriya, our Chairman, President and Chief Executive Officer and Dr. Luigi Lenaz, the President of our Oncology division. Dr. Shrotriya has been President since 2000 and Chief Executive Officer since 2002, and has spearheaded the major changes in our business strategy and coordinated structural reorganization. Dr. Lenaz has been President of our Oncology Division since 2001 and has played a key role in the identification and development of our oncology drug candidates. Our loss of the services of Dr. Shrotriya, Dr. Lenaz or any other key personnel could delay or preclude us from achieving our business objectives. Dr. Shrotriya has an employment agreement with us that will expire on December 31, 2004, with automatic one-year renewals thereafter unless we or Dr. Shrotriya gives notice of intent not to renew at least 90 days in advance of the renewal date. Dr. Lenaz has an employment agreement with us that will expire on July 1, 2004, with automatic one year renewals thereafter unless Dr. Lenaz or we give notice of intent not to renew at least 90 days in advance of the renewal date.

We shifted our strategic focus from discovery and development of neurology drugs to (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. In the fourth quarter of 2002, we announced plans to pursue regulatory approval in the United States of generic drugs manufactured by J.B. Chemicals & Pharmaceuticals Ltd., or JBCPL, an Indian company, through our existing joint venture, NeoJB LLC. However, we may not in-license, discover or validate any more new drug development targets based on our efforts. In addition, 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.

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

We plan to use our management’s experience with the regulatory approval process in the United States to seek the introduction of generic drug products into the United States, which may include generic drugs produced by other pharmaceutical companies or developed internally by us. While some members of our management have experience with obtaining regulatory approval of drug candidates in the United States, we have limited experience with generic drug products, and, as a company, we have not successfully obtained regulatory approval of any of our drug candidates.

On January 15, 2003, we announced the filing of our first Abbreviated New Drug Application, or ANDA, with the United States Food and Drug Administration. The filing was made by our NeoJB LLC subsidiary on behalf of JBCPL, and relates to a generic drug product manufactured by JBCPL. While we announced on May 9, 2003, that the FDA has accepted the ANDA for filing, we cannot be certain that the FDA will approve this ANDA, or if approved, that we will be able to complete a transfer pricing agreement with JBCPL to allow NeoJB to market the drug product in the United States on terms favorable to us or at all.

Even if we obtain regulatory approval to market one or more generic drug products in the United States, we may face opposition from the producers of the branded versions of these drugs. Branded pharmaceutical companies have historically been aggressive in seeking to prevent generic competition, including the extensive use of litigation.

In addition, many branded pharmaceutical companies increasingly have used state and federal legislative and regulatory means to delay generic competition. These efforts have included:

• pursuing new patents for existing products which may be granted just before the expiration of one patent, which could extend patent protection for a number of years or otherwise delay the launch of generics;

• using the Citizen Petition process to request amendments to FDA standards;

• seeking changes to the United States Pharmacopeia, an organization which publishes industry recognized compendia of drug standards; and

• attaching patent extension amendments to non-related federal legislation.

In addition, some branded pharmaceutical companies have engaged in state-by-state initiatives to enact legislation that restricts the substitution of some generic drugs. Some of these initiatives could have an impact on products that we will seek to introduce to the United States. We have limited resources, and may not be able to effectively respond to these or other measures that may be taken by pharmaceutical companies that produce the branded version of our generic products.

We have acquired rights to three anti-cancer drugs and we have commenced a clinical trial of our Eoquin drug candidate for superficial urinary bladder cancer and expect to begin a clinical trial of our elsamitrucin drug candidate for Non-Hodgkin’s Lymphoma during 2004. We expect that we will need to complete additional trials before we will be able to apply for regulatory approval to sell any of our potential drug candidates. Our other proposed drug candidates are in various stages of development. We cannot be certain that any of our proposed drug candidates will prove to be safe or effective in treating cancer, disorders of the nervous system, or any other diseases or indications. Our former lead drug candidate, Neotrofin, failed to demonstrate efficacy in previous trials for Alzheimer’s disease and Parkinson’s disease. All of our proposed drugs will require additional research and development, testing and regulatory clearance before we can sell them. We cannot be certain that we will receive regulatory approval to sell any of our proposed drugs. We do not expect to have any oncology products commercially available for at least five years, if at all.

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 6,514,697 shares of our common stock outstanding as of November 11, 2003. In addition, security holders held options, warrants and other rights as of November 11, 2003 which, if exercised, would obligate us to issue up to an additional 7,440,473 shares of common stock at a weighted average exercise price of $9.23 per share, of which 6,686,314 shares are subject to options or warrants which are currently exercisable at a weighted average exercise price of $9.23 per share. In addition, the outstanding shares of our Series D 8% Cumulative Convertible Voting Preferred Stock, at a conversion price of $2.35 per share, are currently convertible into a total of 1,161,702 shares of our common stock and the outstanding shares of our Series E Convertible Voting Preferred Stock, at a conversion price of $5.00 per share, are currently convertible into a total of 4,000,000 shares of our common stock. The holders of the Series D preferred stock may receive additional shares of our common stock as payment of

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

dividends. 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.

On September 26, 2003, we completed a sale to certain institutional investors of 2,000 shares of our Series E Convertible Voting Preferred Stock and warrants to purchase up to an aggregate of 2,800,000 shares of our common stock at an exercise price of $6.50 per share for an aggregate purchase price of $20,000,000. Pursuant to the terms of the Certificate of Designation, Rights and Preferences of the Preferred Stock, up to one-half of the preferred shares can be redeemed at the holder’s discretion, for face value of up to $10 million, if we have not concluded the acquisition of an oncology drug product candidate by the end of December 2003. There can be no assurance that we will be able to identify and acquire an oncology drug candidate on acceptable terms, or at all, prior to December 26, 2003. If the holders do require us to redeem shares of the preferred stock, then the number of shares of common stock issuable upon exercise of the warrant issued to the redeeming holders will be reduced proportionately.

If we are required to redeem shares of the preferred stock, we may have to raise additional capital sooner than anticipated in order to meet our anticipated operations. There can be no assurance that capital will be available on acceptable terms or at all.

Certain provisions of the September 26, 2003 Preferred Stock and Warrant Purchase Agreement and Certificate of Designation, Rights and Preferences of the Series E Convertible Voting Preferred Stock (“Series E Preferred Stock”) may require us to obtain the approval of the preferred stockholders to (i) amend, alter or repeal any provision of the Charter, Bylaws which may be deemed to adversely affect the terms of the Series E Preferred Stock (ii) offer, sell or designate a security senior to or equal with the Series E Preferred Stock, (iii) sell or issue common stock or securities convertible into or exercisable for shares of our common stock below $5.00 per share, (iv) incur any bank or non-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 all our assets or businesses or (vii) take certain other actions. 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 is listed on Nasdaq SmallCap Market under the ticker symbol SPPI. 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. If we fail to do so, our common stock could be delisted from the Nasdaq SmallCap Market. As a result of the recent review of our listing status, Nasdaq has specified as an additional condition of our continued listing that we must show that we continue to meet the minimum stockholder’s equity and other requirements for continued listing on the Nasdaq SmallCap Market in a timely filing of our Quarterly Report on Form 10-Q with the Securities and Exchange Commission for the third quarter of 2003. As of September 30, 2003, we were in compliance with these requirements, however, there is no assurance that we will be able to maintain compliance with any of the continued listing requirements. Please see the risk factors in our Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2002, for a discussion of the consequences if we are delisted from the Nasdaq SmallCap Market.

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

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Vice President Finance and Strategic Planning (our senior financial officer), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and

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

procedures, management recognizes 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 is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Vice President Finance and Strategic Planning, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the third quarter of 2003 covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Vice President Finance and Strategic Planning concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

None

ITEM 2. Changes in Securities and Use of Proceeds

On August 13, 2003, we sold 737,040 shares of our common stock and warrants to purchase up to an aggregate of 368,520 shares of our common stock at an exercise price of $4.75. Under a preexisting agreement with a placement agent, we issued to the placement agent, in addition to cash fees, a five-year warrant to purchase up to a total of 39,304 shares of our common stock at an exercise price of $4.75 per share.

On September 12, 2003, we agreed to issue a five-year warrant to purchase up to 130,000 shares of our common stock, at an exercise price of $4.90 to a consultant for services. Half of the warrant will vest upon issuance and the remaining half of the warrant will vest upon achievement of certain objectives by the consultant. The warrant provides for certain registration rights to register the common stock issuable upon exercise of the warrant. The warrant is subject to shareholder approval at the Company’s next Annual Stockholder Meeting.

On September 26, 2003, we sold 2,000 shares of our Series E Convertible Voting Preferred Stock (“Series E Preferred Stock”) and warrants to purchase up to an aggregate of 2,800,000 shares of our common stock, at an exercise price of $6.50 for gross cash proceeds of $20.0 million. We also issued to two placement agents, in addition to cash fees, five-year warrants to purchase up to a total of 400,000 shares of our common stock at an exercise price of $6.50 per share. The Series E Preferred Stock also has certain liquidation preferences pari passu with our Series D Preferred Stock and 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 September 30, 2003.

The securities issued by the Company pursuant to the transactions described above have been issued without registration under the Securities Act of 1933 in reliance upon the exemptions from registration provided under Section 4(2) of the Securities Act and Regulation D promulgated thereunder. The foregoing transactions did not involve any public offering; we made no solicitation in connection with the transaction, other than communications with the purchasers; we obtained representations from the purchasers regarding their investment intent, experience and sophistication; the investors either received or had access to adequate information about the Company in order to make an informed investment decision; and the Company reasonably believed that each of the investors was “sophisticated” within the meaning of Section 4(2) of the Securities Act.

ITEM 3. Defaults Upon Senior Securities

None

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

None

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

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

On November 7, 2003, the Company engaged Shyam Kumaria, certified public accountant, with over 20 years experience at Deloitte and Touché, as a consultant to assist in managing the Company’s accounting and finance function.

Effective November 7 and November 13, 2003, Michael McManus, our part-time Controller and John McManus, our part-time Vice President, Finance and Strategic Planning and Assistant Corporate Secretary, resigned their positions with the Company, respectively. John McManus and Michael McManus were engaged to assist in the financial and strategic restructuring of the Company. Upon completion of the recapitalization and restructuring of the Company, John McManus and Michael McManus decided to return to their consulting business to pursue other opportunities. The consulting agreement between the Company and McManus & Company, Inc. will remain in effect through its expiration on July 31, 2004. The Company has commenced a search for a chief financial officer and controller.

ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibits


Exhibit No		Description

3.1		Certificate of Designations, Rights and Preference of the Series E Convertible Voting Preferred Stock (Filed as Exhibit 3.1 to Form 8-K, as filed with the Securities and Exchange Commission on September 30, 2003 and incorporated herein by reference.)

4.1		Registration Rights Agreement dated as of August 13, 2003, by and among Spectrum and the persons listed on Schedule 1 attached thereto. (Filed as Exhibit 4.1 to Form 8-K, as filed with the Securities and Exchange Commission on August 15, 2003 and incorporated herein by reference.)

4.2		Form of Series 2003-1 Warrant (Filed as Exhibit 4.2 to Form 8-K, as filed with the Securities and Exchange Commission on August 15, 2003 and incorporated herein by reference.)

4.3		Form of Series E-1 Warrant (Filed as Exhibit 4.1 to Form 8-K, as filed with the Securities and Exchange Commission on September 30, 2003 and incorporated herein by reference.)

4.4		Form of Series E-2 Warrant (Filed as Exhibit 4.2 to Form 8-K, as filed with the Securities and Exchange Commission on September 30, 2003 and incorporated herein by reference.)

4.5		Series E-3 Warrant (Filed as Exhibit 4.3 to Form 8-K, as filed with the Securities and Exchange Commission on September 30, 2003 and incorporated herein by reference.)

4.6		Registration Rights Agreement dated as of September 26, 2003, by and among Spectrum and the persons listed on Schedule 1 attached thereto. (Filed as Exhibit 4.4 to Form 8-K, as filed with the Securities and Exchange Commission on September 30, 2003 and incorporated herein by reference.)

4.7		Amendment Number 1 to the Rights Agreement dated as of December 13, 2000 by and between Spectrum Pharmaceuticals, Inc. and U.S. Stock Transfer Corporation. (Filed as Exhibit 4.1 to Form 10-Q, as filed with the Securities and Exchange Commission on August 14, 2003 and incorporated herein by reference.)

10.1		Common Stock and Warrant Purchase Agreement dated as of August 13, 2003, by and among Spectrum and the purchasers listed on Schedule 1 attached thereto. (Filed as Exhibit 10.1 to Form 8-K, as filed with the Securities and Exchange Commission on August 15, 2003 and incorporated herein by reference.)

10.2		Preferred Stock and Warrant Purchase Agreement dated as of September 26, 2003, by and among Spectrum and the purchasers listed on Schedule 1 attached thereto. (Filed as Exhibit 10.1 to Form 8-K, as filed with the Securities and Exchange Commission on September 30, 2003 and incorporated herein by reference.)

10.3		Form of Lock-up Agreement (Filed as Exhibit 10.2 to Form 8-K, as filed with the Securities and Exchange Commission on September 30, 2003 and incorporated herein by reference.)

10.4		Engagement Letter dated as of February 1, 2003, by and among Spectrum and SCO Financial Group LLC (Filed as Exhibit 10.3 to Form 8-K, as filed with the Securities and Exchange Commission on May 16, 2003 and incorporated herein by reference.)

10.5 + #		Exclusive Supply, Marketing and Distribution Agreement between Lannett Company, Inc. and Spectrum Pharmaceuticals, Inc. dated as of August 15, 2003.

10.6 + *		Separation Agreement and General Release dated as of November 13, 2003 by and between Spectrum and John L. McManus.

10.7 + *		Separation Agreement and General Release dated as of November 7, 2003 by and between Spectrum and Michael P. McManus.

10.8 + *		2003 Stock Incentive Plan

10.9 + *		Letter of Agreement between Spectrum and McManus & Company, Inc. dated August 19, 2002

31.1 +		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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


Exhibit No		Description

31.2 +		Certification of Vice President Finance and Strategic Planning Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 +		Section 906 Certifications of Chief Executive Officer and Vice President Finance and Strategic Planning

+ Filed herewith

* Indicates a management contract or compensatory plan or arrangement.

# Confidential portions omitted and filed separately with the U.S. Securities and Exchange Commission pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.

(b) Reports on Form 8-K

1. We filed a Report on Form 8-K on August 15, 2003 to report the completion of the a sale in a private placement transaction to certain institutional and individual investors of 737,040 shares of our common stock at a negotiated purchase price of $4.10 per share for gross cash proceeds of approximately $3.0 million. The investors also received five-year warrants to purchase up to 368,520 shares of our common stock at an exercise price of $4.75 per share.

2. We filed a Report on Form 8-K on August 18, 2003 to report the Company had entered into an agreement to purchase certain assets and provide debtor in possession financing to the owner of the assets, Protarga, Inc.

3. We filed a Report on Form 8-K on August 20, 2003 to report the Company and Lannett Company, Inc. announced that they have entered into an exclusive supply, marketing and distribution agreement for ciprofloxacin.

4. We filed a Report on Form 8-K on September 30, 2003 to report the completion of the offering of 2,000 shares of our Series E Convertible Voting Preferred Stock, stated value $10,000 per share, and warrants to purchase up to an aggregate of 2,800,000 shares of our common stock, at an exercise price of $6.50 per share, for aggregate consideration of $20,000,000.

5. We filed a Report on Form 8-K on September 30, 2003 to report that the Company and GPC Biotech AG announced that the first patient was dosed in the satraplatin Phase 3 registrational trial. The first patient dosing triggers payments by GPC Biotech AG, co-developer of satraplatin, to the Company, of $1 million in cash plus a $1 million equity investment.

6. We filed a Report on Form 8-K on October 2, 2003 to report that the Company withdrew from a bankruptcy court supervised auction to purchase certain assets of Protarga, Inc.

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

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: November 13, 2003	By:	/s/ RAJESH C. SHROTRIYA

		Rajesh C. Shrotriya, M.D.
		Chairman, Chief Executive Officer and President
		(Authorized Signatory and Principal Executive Officer)

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

Exhibit Index:


Exhibit No.		Description

3.1		Certificate of Designations, Rights and Preference of the Series E Convertible Voting Preferred Stock (Filed as Exhibit 3.1 to Form 8-K, as filed with the Securities and Exchange Commission on September 30, 2003 and incorporated herein by reference.)

4.1		Registration Rights Agreement dated as of August 13, 2003, by and among Spectrum and the persons listed on Schedule 1 attached thereto. (Filed as Exhibit 4.1 to Form 8-K, as filed with the Securities and Exchange Commission on August 15, 2003 and incorporated herein by reference.)

4.2		Form of Series 2003-1 Warrant (Filed as Exhibit 4.2 to Form 8-K, as filed with the Securities and Exchange Commission on August 15, 2003 and incorporated herein by reference.)

4.3		Form of Series E-1 Warrant (Filed as Exhibit 4.1 to Form 8-K, as filed with the Securities and Exchange Commission on September 30, 2003 and incorporated herein by reference.)

4.4		Form of Series E-2 Warrant (Filed as Exhibit 4.2 to Form 8-K, as filed with the Securities and Exchange Commission on September 30, 2003 and incorporated herein by reference.)

4.5		Series E-3 Warrant (Filed as Exhibit 4.3 to Form 8-K, as filed with the Securities and Exchange Commission on September 30, 2003 and incorporated herein by reference.)

4.6		Registration Rights Agreement dated as of September 26, 2003, by and among Spectrum and the persons listed on Schedule 1 attached thereto. (Filed as Exhibit 4.4 to Form 8-K, as filed with the Securities and Exchange Commission on September 30, 2003 and incorporated herein by reference.)

4.7		Amendment Number 1 to the Rights Agreement dated as of December 13, 2000 by and between Spectrum Pharmaceuticals, Inc. and U.S. Stock Transfer Corporation. (Filed as Exhibit 4.1 to Form 10-Q, as filed with the Securities and Exchange Commission on August 14, 2003 and incorporated herein by reference.)

10.1		Common Stock and Warrant Purchase Agreement dated as of August 13, 2003, by and among Spectrum and the purchasers listed on Schedule 1 attached thereto. (Filed as Exhibit 10.1 to Form 8-K, as filed with the Securities and Exchange Commission on August 15, 2003 and incorporated herein by reference.)

10.2		Preferred Stock and Warrant Purchase Agreement dated as of September 26, 2003, by and among Spectrum and the purchasers listed on Schedule 1 attached thereto. (Filed as Exhibit 10.1 to Form 8-K, as filed with the Securities and Exchange Commission on September 30, 2003 and incorporated herein by reference.)

10.3		Form of Lock-up Agreement (Filed as Exhibit 10.2 to Form 8-K, as filed with the Securities and Exchange Commission on September 30, 2003 and incorporated herein by reference.)

10.4		Engagement Letter dated as of February 1, 2003, by and among Spectrum and SCO Financial Group LLC (Filed as Exhibit 10.3 to Form 8-K, as filed with the Securities and Exchange Commission on May 16, 2003 and incorporated herein by reference.)

10.5 + #		Exclusive Supply, Marketing and Distribution Agreement between Lannett Company, Inc. and Spectrum Pharmaceuticals, Inc. dated as of August 15, 2003.

10.6 + *		Separation Agreement and General Release dated as of November 13, 2003 by and between Spectrum and John L. McManus.

10.7 + *		Separation Agreement and General Release dated as of November 7, 2003 by and between Spectrum and Michael P. McManus.

10.8 + *		2003 Stock Incentive Plan

10.9 + *		Letter of Agreement between Spectrum and McManus & Company, Inc. dated August 19, 2002

31.1 +		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 +		Certification of Vice President Finance and Strategic Planning Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 +		Section 906 Certifications of Chief Executive Officer and Vice President Finance and Strategic Planning

EX-10.5 3 a94549exv10w5.txt EXHIBIT 10.5 Exhibit 10.5 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [Intentionally Redacted]. A complete version of the exhibit has been filed separately with the Securities and Exchange Commission. SUPPLY, DISTRIBUTION and MARKETING AGREEMENT -------------------------------------------- THIS AGREEMENT made as of this 15th day of August, 2003, by and between LANNETT COMPANY, INC., a Delaware corporation whose principal office is at 9000 State Road, Philadelphia, PA 19136 (hereinafter referred to as "Lannett"), and NEOJB LLC, a Delaware limited liability company (and a subsidiary of SPECTRUM PHARMACEUTICALS, INC., a Delaware corporation), whose principal office is at 157 Technology Drive, Irvine, California 92618 (hereinafter referred to as "Spectrum"). WITNESSETH WHEREAS, Spectrum represents that it is engaged in the development, supply and marketing of pharmaceutical products for human use, and that it is, subject to receipt of all necessary governmental approvals, ready, willing and able to supply Lannett CIPROFLOXACIN (hereinafter referred to and further defined as "Product"); and WHEREAS, Lannett desires to have available on a coordinated, continuing basis the manufacture of Product; and WHEREAS, Spectrum is willing to supply Product for Lannett's use on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements set forth herein, the parties hereto covenant and agree as follows: 1. Definitions. For all purposes of this Agreement (this "Agreement"), the following terms shall have the following meanings: 1.1 "ANDA" shall mean abbreviated new drug application. 1.2 "cGMPs" shall mean the current Good Manufacturing Practices as defined in regulations promulgated by the FDA under the Act and as generally understood and interpreted by the pharmaceutical industry. 1.3 "FDA" shall mean the United States Food and Drug Administration, any successor agencies or departments, or any other federal agency serving in the same or similar function. 1.4 "Product" shall mean Ciprofloxacin Hydrochloride, as defined in the latest edition of United States Pharmacopeia ("USP"), in tablet form, in such dosages as may be set forth in Exhibit A hereto. The term "Product" shall also include such other products as may be mutually agreed upon by the parties from time to time. 1.5 "Reference Product" means the reference drug listed in the FDA's Orange Book, as the same may change from time to time. 1.6 "Territory" shall mean the United States of America and its territories, commonwealths and possessions. 2. Premises, Terms and Conditions of Development and Manufacture. 2.1 On and subject to the terms hereof, Spectrum hereby agrees to supply Lannett all of the requirements of Lannett for the Product necessary to supply its customers in the Territory in accordance with established business practices of Lannett. 2.2 On and subject to the terms hereof, Lannett agrees to purchase from Spectrum its entire requirements of the Product for the Territory and, except as permitted hereunder, not to manufacture or cause to have manufactured the Product for sale in the Territory, nor cause to have the Product manufactured for marketing in the Territory during the term of this Agreement. If Spectrum is unable to produce a sufficient quantity of Product to meet the requirements of Lannett on the delivery dates requested by Lannett for a period of four (4) consecutive months, then Lannett may obtain the same from another supplier or manufacturer mutually acceptable to both Lannett and Spectrum, provided that Lannett purchases all of the Product that Spectrum is able to produce, subject to the terms of this Agreement. If the foregoing event should occur and Spectrum subsequently increases its production after Lannett has found an additional source, then the parties must mutually agree on the phasing and timing of Spectrum's and the other supplier's additional production in order to restore Spectrum's exclusivity as soon as reasonably possible. 2.3 Spectrum shall arrange to commence manufacture of all orders within thirty (30) working days from receipt thereof (as raw material deliveries permit). 2.4 Lannett will use commercially reasonable efforts to market and sell an annual minimum amount of tablets or capsules per strength of each of the Product(s), which amount shall be mutually agreed upon by Lannett and Spectrum. Product(s) may only be shipped if the package configuration is in compliance with the cGMP and FDA regulations. 2.5 Subject to the terms of this Agreement, Spectrum shall be solely responsible for all development costs and expenses associated with this Agreement that it may incur or that may be incurred by its affiliates or subsidiaries, including, but not limited to, stability determination, production demonstration batches, and other scale up and laboratory costs and expenses, all of which will be within Spectrum's sole discretion. 2.6 Lannett shall also perform the following services: a commercially reasonable volume of advertising and promotional activities, registering Product National Drug Codes ("NDCs") for the Product in national databases and state formularies, and submitting pricing for the Product to the Center for Medicaid Services for state reimbursement purposes, shipping product to customers, paying freight charges for delivery to customers, billing customers and servicing customer accounts receivable. 2.7 Any work that is to be done by either Lannett or Spectrum under this Agreement may be subcontracted to a third party in accordance with the approved ANDA, cGMP's and any applicable FDA guidelines which relate to the work to be performed under the -2- direction and supervision of Lannett or Spectrum, as the case may be; provided, however, that, as between Lannett and Spectrum, the subcontracting party shall be and remain responsible for all acts and omissions of any such subcontractor. 2.8 This Agreement shall serve as the master agreement between the parties and, as such, sets forth all of the terms and conditions concerning, and shall govern the purchase by each party, by whatever means of, of all Product (and all components and ingredients thereof) from the other party hereto. Specific orders of Product hereunder shall be made by purchase order (written or electronically transmitted), setting forth the quantity and description of Product, delivery dates and shipping instructions (if other than as set forth herein). Unless agreed to in writing signed by both parties, any and all terms and conditions which add to, vary from or conflict with the terms and conditions of this Agreement shall be of no effect, whether such terms and conditions are set forth in either party's purchase order, invoice, confirmation (written or electronically transmitted), packing slip, bill of lading or any other writing, and regardless of whether the Product shall have been shipped, accepted or paid for. The parties further agree that no course of prior dealings between the parties shall in any way modify, change or supersede the terms and conditions of this Agreement. 2.9 Spectrum will use commercially reasonable efforts to process an ANDA for the Product through the FDA. Spectrum's duties under this Agreement are conditioned upon issuance and continued validity of FDA approvals necessary for the performance of its duties hereunder including without limitation final approval of the ANDA for the Product. 3. Additional Products. 3.1 If Spectrum desires to add one or more additional pharmaceutical products to the Products covered by this Agreement, it shall send written notice thereof to Lannett, setting forth its proposal in such detail as may be appropriate under the circumstances (the "Product Proposal"). 3.2 Lannett will respond to each Product Proposal by confirming or rejecting Lannett's interest in marketing and distributing the subject of such Product Proposal. If Lannett is interested in marketing and distributing such Product, Lannett will submit to Spectrum its expected purchases, including quantity and a desired transfer cost for, such Product. Spectrum will then confirm or reject Lannett's proposal for purchases of such products. 3.3 For each additional Product added to this Agreement, Spectrum will be solely responsible for developing or having developed the finished dosage form of such Products, submitting appropriate ANDAs to the FDA with respect thereto, and receiving approval from the FDA of such ANDAs for distribution of such Products. The FDA approved finished dosage form will be manufactured by or for Spectrum and will either be packaged in bottles or will be shipped in bulk for Lannett for packaging into trade bottles of 100's and 1000's. After receipt of FDA approval, Spectrum will offer a reliable and constant supply of the finished dosage Product to Lannett to meet Lannett's needs under this Agreement. The terms of the transactions between Spectrum and Lannett for such future finished dosage Products shall be negotiated on an individual Product-by-Product basis. -3- 3.4 Any Products added to this Agreement under this Paragraph 3 shall be deemed to be a "Product" within the meaning of this Agreement and shall be subject to all of the terms and conditions hereof that are applicable thereto. 3.5 If Lannett agrees to distribute any Product manufactured by or for Spectrum (other than Ciprofloxacin), Lannett shall not, without Spectrum's prior written approval, such approval not to be unreasonably withheld or delayed, market, distribute or sell a product that competes with such Product. As used herein, one product "competes" with another if it is therapeutically equivalent (AB or AA rated) to the same innovator drug to which the Spectrum Product is AB or AA rated. 4. Forecasts. 4.1 [Intentionally Redacted] 4.2 [Intentionally Redacted] 5. Product Description and Regulatory Materials. 5.1 The Product and all components and ingredients thereof shall be produced in strict accordance with cGMPs and the formulae specifications which have been developed to meet the specifications set forth in Exhibit A for dosage strength, and in accordance with quality control procedures and associated test methods for the manufacturing process as developed by or for Spectrum, and acceptance specifications and test methods for the Product as jointly approved by Spectrum and Lannett. 5.2 Spectrum shall supply to Lannett the protocol of assay of all controlled tests performed on the Product and shall, for each batch of Product delivered hereunder, supply Lannett with the results thereof. Spectrum shall test raw materials and Product, and further, will use no raw materials in the manufacture of the Product which fail to meet or exceed the current National Formulary/United States Pharmacopoeia compendia standards for such materials, where such standards are established. 5.3 Spectrum agrees that the stability data for the Product as packaged for the existing ANDA will be obtained by Spectrum and will be provided to Lannett. Stability is guaranteed by Spectrum for the Product in finished package form, for the period supported by the stability data. Following the execution of this Agreement, Lannett will commence sales of the Product in the ANDA approved packages, which will provide the Product with an expiration date of not less than twenty-four (24) months. If, thereafter, Lannett chooses a package size different than those approved in the ANDA, Lannett may request that Spectrum undertake a 90-day stability test, which may provide the Product with an expiration date of not less than two (2) years. Upon receipt of such request, Spectrum will promptly commence or arrange for such a 90-day stability test at Lannett's expense and will promptly provide the results thereof to Lannett. -4- [Intentionally Redacted] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 5.4 Spectrum agrees to validate all manufacturing, packaging and testing procedures under the Act. 5.5 The package labels for the Product will be jointly developed by Spectrum and Lannett. The labels will contain the Lannett logo and the Spectrum Pharmaceuticals, Inc. logo in equal prominence in all, and such other marketing information as the parties may mutually agree upon. 6. Inspection of Manufacturing Site and Product Approval. 6.1 Lannett shall have the right to inspect at reasonable times, during normal business hours, on reasonable prior notice, the operations and facilities wherein the Product is being manufactured, packaged, tested, labeled and/or stored for shipping. 6.2 The Product manufactured by or for Spectrum shall be subject to approval by Lannett's quality assurance group or such other technical representatives as Lannett may select, with respect to whether or not each batch of Product meets the specifications referred to in Paragraph 5.1. 6.3 Lannett shall, as promptly as reasonably practicable, normally within fifteen (15) working days after receipt but not exceeding thirty (30) days, notify Spectrum of its approval or disapproval of samples of each batch of Product tested. 6.4 Spectrum warrants that the manufacturer's plant for manufacture of the Product is and shall be in compliance with cGMPs and that the manufacturer's plant(s) is and shall continue to be available for FDA inspection if and when the FDA so requests. 7. Product Materials and Shipment. 7.1 All boxes, labels, inserts, droppers and other components of the Product, as well as all shipping containers for the Product, shall be provided by Spectrum. The Product will be palletized in corrugate boxes or other form approved in advance by Lannett. 7.2 All orders for Product shall be placed by means of a purchase order issued by Lannett to Spectrum. Spectrum shall notify Lannett in writing within fifteen (15) business days of its receipt of Lannett's purchase order if Spectrum is unable to make any scheduled delivery and state the reasons therefor. The absence of such notice constitutes acceptance of the purchase order. 7.3 Spectrum shall deliver Product in accordance with the delivery dates contained in the purchase order or on such other dates as the parties may agree. Lannett may return non-conforming shipments at Spectrum's sole risk and expense. 7.4 All Product provided by Spectrum under this Agreement shall be subject to inspection and approval by Lannett for a five (5) business days after receipt, notwithstanding prior payments therefor, and may be rejected, in whole or in part, by Lannett, as if it had never been accepted, if any such Product is found not to be in compliance with Paragraphs 5.1, 5.2, 5.3 and/or 5.4. Lannett may also reject any Product not ordered if Spectrum -5- has substituted a different quantity, quality or type of product for the Product ordered by Lannett. If so rejected by Lannett, such Product (and in the case of Product shipped in excess of any order, the excess) shall be subject to return to Spectrum with charges for return transportation, insurance, labor and other costs of unloading and reloading, payable by Spectrum, with full credit to Lannett. Product so rejected may not be reshipped except upon receipt of written instructions from Lannett. Neither the payment of any invoice nor any delay in the return of Product shall constitute acceptance of such Product or be deemed a waiver of Lannett's right to reject or return such Product under this Paragraph even if such Product was subsequently sold and then returned by the purchaser thereof to Lannett. 8. Product Price, Payment and Transfer cost Adjustments. 8.1 For the finished Product, manufactured and packaged and delivered to Lannett hereunder, Lannett shall pay Spectrum the transfer costs set forth in Exhibit A hereto. 8.2 Payment for the transfer cost of any Product purchased hereunder shall be made by Lannett no later than thirty-five (35) days after the date of invoice. If Product has been rejected at a time after payment is made, and is found not to be in compliance with the guarantees as stated in Paragraphs 5.1, 5.2, 5.3 and 5.4, Spectrum will issue a check or credit to be applied to the next scheduled delivery for the amount of the Product so found to be in non-compliance with these terms. 8.3 [Intentionally Redacted] 8.4 [Intentionally Redacted] 9. Term and Termination. 9.1 The initial term of this Agreement shall begin as of the date first set forth above and shall expire eighteen (18) months after the date upon which Spectrum is first legally allowed to sell the Product in the United States. If so desired, this Agreement may be renewed by the written, mutual agreement of both parties. Such a renewal may be executed before or after the last day of the initial term of this Agreement. 9.2 Lannett shall also have the right to terminate this Agreement and/or suspend further performance under this Agreement without terminating this Agreement, without liability except for unpaid prior delivered Product, if: (a) Spectrum breaches any of its obligations under this Agreement in any material respect and fails to cure such breach within thirty (30) days of Lannett's written notice to Spectrum of such breach; or (b) Spectrum becomes insolvent, makes an assignment for the benefit of creditors or files or has filed against it a petition in bankruptcy, or has a receiver, marshal or trustee placed in possession of all or substantially all of Spectrum's assets, plant(s), equipment, inventory or raw or finished materials; or (c) Spectrum loses any approval(s) from the FDA required to perform its obligations under this Agreement because of felonious or fraudulent reasons or is otherwise involved in involved in felonious or fraudulent activities. 9.3 If Lannett decides to terminate this Agreement after receipt of FDA approval to market for any reason other than as a result of one of the events described in Paragraph 9.2, or if Spectrum terminates this Agreement pursuant to Paragraph 9.4 below, then, at Spectrum's election, Lannett shall have the obligation to purchase all of Spectrum's components, materials and finished goods inventory of the Product on hand at the time of the -6- [Intentionally Redacted] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. termination of this Agreement. Such purchase must be completed within thirty (30) days of the date of termination and shall be accompanied by a transfer to Lannett from Spectrum of ownership of the components, materials and Product so purchased, including, but not limited to, all records, documents, correspondence, data and other pertinent information regarding the Product that is then in the possession or under the control of Spectrum and necessary for Lannett to distribute the Products as herein contemplated. The purchase price for finished goods shall be the then existing transfer price hereunder and the purchase price for such components and materials shall be Spectrum's documented cost thereof. 9.4 Spectrum shall also have the right to terminate this Agreement and/or suspend further performance under this Agreement without terminating this Agreement, without liability, if: (a) Lannett breaches any of its obligations under this Agreement in any material respect and fails to cure such breach within thirty (30) days of Spectrum's written notice to Lannett of such breach; or (b) Lannett becomes insolvent, makes an assignment for the benefit of creditors or files or has filed against it a petition in bankruptcy or has a receiver, marshal or trustee placed in possession of all or substantially all of Lannett's assets, plant(s), equipment, inventory or raw or finished materials; or (c) Lannett is involved in felonious or fraudulent activities; or (d) Lannett diverts any Product beyond the Territory without prior written approval from Spectrum or amendment of this Agreement. 9.5 If Spectrum decides to terminate this Agreement as a result of any of the events described in Paragraph 9.4, then Lannett shall immediately transfer to Spectrum ownership of all records, documents, data, correspondence and other pertinent information regarding the sales and marketing of the Product to Spectrum. 9.6 Notwithstanding any other term of this Agreement but subject to Paragraph 9.1, Spectrum shall have the right to terminate this Agreement by giving at least one-hundred eighty (180) days advance notice of termination to Lannett in order to provide Lannett with the opportunity to replace Spectrum as a supplier without interruption to Lannett's sales efforts. 9.7 In no event shall any expiration or termination of this Agreement excuse either party from any breach or violation of this Agreement and full legal and equitable remedies shall remain available therefor, nor shall it excuse either party from making any payment due under this Agreement with respect to any period prior to the date of expiration or termination. Notwithstanding any provision of this Agreement to the contrary, Paragraphs 9.7, 10, 11, 13, 15, 17, 18, 19, 20 and 21 hereof shall survive any expiration or termination of this Agreement. 10. Insurance. 10.1 Spectrum shall maintain in full force during the term hereof a comprehensive general liability insurance policy including Products Liability coverage with minimum limits of Two Million Dollars ($2,000,000) for bodily injury including death. 10.2 On or before the date on which Lannett begins to sell the Product, Spectrum shall deliver to Lannett a Certificate of Insurance with a broad form vendors -7- endorsement naming Lannett as an additional insured to verify the coverage provided in Paragraph 10.1, which endorsement provides a thirty (30) day written notice to Lannett of cancellation or non-renewal; and Spectrum shall maintain such endorsement in effect for so long as Spectrum manufactures or processes (or has manufactured or processed for it) any Product for Lannett and for a period of one (1) year thereafter, provided that such insurance coverage is available to Spectrum at a cost reasonable to Spectrum. Spectrum agrees to promptly renew all insurance policies in a timely manner and so notify Lannett with certificates evidencing same. Spectrum further agrees that Spectrum shall notify Lannett at least thirty (30) days in advance of any proposed cancellation of any policies so that negotiations for continuous coverage may be held between Lannett and Spectrum. 10.3 If Spectrum breaches its obligation with respect to maintaining insurance pursuant to the foregoing, then Lannett may procure such insurance and either charge the cost of the same to Spectrum or offset the cost of such insurance against sums owed by Lannett to Spectrum under this Agreement. 10.4 Lannett shall maintain in full force during the term hereof a comprehensive general liability insurance policy including Products Liability coverage with minimum limits of Two Million Dollars ($2,000,000) for bodily injury including death. 10.5 On or before the date on which Lannett begins to sell the Product, Lannett shall deliver to Spectrum a Certificate of Insurance with a broad form vendors endorsement naming Spectrum and Spectrum Pharmaceuticals, Inc. as additional insureds to verify the coverage provided in Paragraph 10.4, which endorsement provides a thirty (30) day written notice to Spectrum of cancellation or non-renewal; and Lannett shall maintain such endorsement in effect for so long as Spectrum manufactures or processes (or has manufactured or processed for it) any Product for Lannett and for a period of one (1) year thereafter, provided that such insurance coverage is available to Lannett at a cost reasonable to Lannett. Lannett agrees to promptly renew all insurance policies in a timely manner and so notify Spectrum with certificates evidencing same. Lannett further agrees that Lannett shall notify Spectrum at least thirty (30) days in advance of any proposed cancellation of any policies so that negotiations for continuous coverage may be held between Lannett and Spectrum. 10.6 If Lannett breaches its obligation with respect to maintaining insurance pursuant to the foregoing, then Spectrum may procure such insurance and charge the cost of the same to Lannett. 11. Warranty. 11.1 For the purpose of Section 303 (c) of the U.S. Food, Drug and Cosmetic Act, as amended, each of Spectrum and Lannett warrant and guarantee to the other that each article shipped by them hereunder: (a) will not, on the date of shipment, be adulterated or misbranded (i) within the meaning of such Act, or (ii) within the meaning of any applicable state law in which the definitions of "adulteration" and "misbranding" are substantially the same as those contained in the such Act, as such laws are constituted and effective at the time of such shipment or delivery, and (b) will not be an article which may not under the provisions of Section 404 or 505 of such Act be introduced into interstate commerce. -8- 11.2 The warranty contained in Paragraph 11.1 shall be binding upon Spectrum with respect to all Product or Product components shipped or delivered to Lannett by or on behalf of Spectrum (including without limitation goods in transit). 11.3 Lannett warrants that if any packaging is performed by Lannett then neither the packaging nor the Product will be adulterated or misbranded within the meaning of the Act or any applicable state law. 11.4 The warranty contained in Paragraph 11.3 shall be binding upon Lannett with respect to all Product or Product components shipped or delivered to Spectrum by or on behalf of Lannett (including without limitation goods in transit). 12. Force Majeure. Either party shall be excused from failure to perform any of its obligations hereunder to the extent such failure is caused by acts of God, fires, floods, wars, acts of terrorism, sabotage, unavailability of raw materials, governmental laws or regulations, labor disputes or strikes or similar occurrences, or any other circumstance or causes beyond the reasonable control of the non-performing party. 13. Indemnity and Contribution. 13.1 Spectrum shall protect, defend, indemnify, and hold Lannett harmless from and against any and all damages, losses, claims, expenses (including without limitation reasonable attorneys' fees), judgments, demands or causes of action of every kind and character arising in favor of any person, including without limitation Spectrum's employees, on account of personal injuries, illness or death, or damages to property occurring, growing out of, incident to, or resulting directly or indirectly from the manufacture, processing or packaging by or for Spectrum of the Product, including components thereof but excluding claims associated with the pharmacology of the active components of the Product and excluding claims covered by Paragraph 13.5. 13.2 Spectrum shall have no liability for damages or the costs incident thereto caused by negligence or misuse of Lannett. 13.3 Spectrum will indemnify, defend and hold Lannett harmless from and against all damages, losses, claims, expenses (including without limitation reasonable attorneys' fees), judgments, demands or causes of action of every kind and character arising in favor of any person growing out of, incident to, or resulting directly or indirectly from any claim of patent, copyright or other intellectual property infringement resulting from the manufacturing, processing or packaging processes or the composition of the Product, if such procedures differ from those specified in the ANDA. If the Product is held, or is believed by Spectrum, to infringe, then Spectrum shall have the option, at its expense, to obtain a license or other right to continue using the Product. If, in Spectrum's sole discretion, it is not economically or commercially reasonable to obtain such rights then Spectrum may terminate this Agreement without further liability. This Paragraph states Spectrum's entire liability and Lannett's sole and exclusive remedy for infringement. -9- 13.4 Both Spectrum and Lannett will promptly notify the other of any actual or threatened judicial or other proceedings which could involve either or both parties. Spectrum and Lannett each reserve the right to defend themselves in any such proceedings, provided however, if indemnity is sought then the party from whom indemnity is sought shall have the right to control the defense of the claim, and the indemnified party may participate with counsel of its choice at its own expense. Spectrum and Lannett shall cooperate with each other to the extent reasonably necessary in the defense of all actual or potential liability claims and in any other litigation relating to the Product supplied pursuant to this Agreement. Each party will supply information to the other relevant to any product liability claims and litigation affecting the Product. 13.5 Lannett shall protect, defend, indemnify, and hold Spectrum harmless from and against any and all damages, losses, claims, expenses (including without limitation reasonable attorneys' fees), judgments, demands or causes of action of every kind and character arising in favor of any person, including without limitation Lannett's employees, on account of personal injuries, illness or death, or damages to property occurring, growing out of, incident to, or resulting directly or indirectly from the processing, packaging, marketing, distribution or sale by Lannett of the Product, including components thereof but excluding claims associated with the pharmacology of the active components of the Product and excluding any claims covered by Paragraphs 13.1 or 13.3. 13.6 Spectrum and Lannett shall have a contractual right of contribution against one another equivalent to the currently existing rights of contribution among joint tortfeasors under Pennsylvania law with respect to any damages, losses, claims, expenses (including reasonable attorneys' fees), judgments, demands or causes of action of every kind and character arising in favor of any person associated with the pharmacology of the active components of the Product(s). 14. Delivery and Freight. 14.1 Delivery of the Product shall be on notice to Lannett within twelve (12) weeks of receipt of a purchase order, following receipt of FDA approval to market (if applicable), for the first [Intentionally Redacted] batches of Product in accordance with Lannett's instructions. Thereafter, on prior notice, the Product shall be delivered at a rate of not less than [Intentionally Redacted] bottles in finished package form per delivery and Spectrum shall maintain a capability of delivering at least [Intentionally Redacted] bottles of 500 mg per month for the first year of this Agreement. Lannett will provide Spectrum with forecasts for subsequent years in accordance with Paragraph 4 so that Spectrum can accommodate Lannett's needs. 14.2 Delivery will be made prepaid to all distribution locations designated by Lannett, by such means as may be designated by Lannett, and all freight charges shall be added to the invoice. In the alternative, the orders may be picked up by Lannett's truck. 15. Notice. 15.1 Any notice expressly provided for under this Agreement shall be in writing, and shall be deemed sufficiently given when delivered in person or upon mailing by registered or certified mail, postage prepaid, or upon sending by reputable overnight courier, charges prepaid, to the addresses set forth in the preamble to this Agreement, addressed to the President and one other designated officer as well as a designated attorney or law firm chosen by each party under this Agreement. -10- [Intentionally Redacted] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 15.2 Either party may, by written notice to the other, change its address for receiving such notices. In the event Spectrum desires to change the location of its manufacturing facility for the Product, it will not do so without advance written notice to Lannett. 16. Assignment. Neither this Agreement nor any interest therein may be assigned, in whole or in part, by either party without the prior written consent of the other, which consent shall not be unreasonably withheld or delayed, except that Lannett may assign its rights and obligations under this Agreement to an affiliate, division, or subsidiary, in which event such assignee shall assume Lannett's obligations hereunder. However, notwithstanding any such assignment, Lannett shall remain liable in addition to the assignee unless such liability is specifically waived in writing by Spectrum. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. Either party may subcontract any of its duties hereunder as contemplated in Paragraph 2.7. 17. Entire Agreement. This Agreement constitutes the full understanding of the parties hereto regarding the subject matter hereof and may not be affected by any course of prior oral or written representations, agreements or dealings that are not expressly contained in this Agreement. This Agreement may not be modified orally, but only by an instrument in writing, signed by the parties hereto. Any waiver of any provision of this Agreement shall be written form signed by both parties. 18. Governing Law, Waiver of Jury Trial and ADR. This Agreement shall be construed in accordance with, and governed by, the laws of the Commonwealth of Pennsylvania. The parties waive any and all rights to have any dispute, claim or controversy arising out of or relating to this Agreement tried before a jury. All disputes, claims or controversies arising out of or relating to this Agreement that are not resolved by the parties' good faith attempt to negotiate a resolution shall be submitted to final and binding arbitration before JAMS/Endispute, or its successor, in Wilmington, Delaware, USA, pursuant to the United States Arbitration Act, 9 U.S.C. Sec. 1 et seq. The arbitration will be conducted in accordance with the provisions of JAMS/Endispute's Streamlined Arbitration Rules and Procedures in effect at the time of filing of the demand for arbitration. The parties will cooperate with JAMS/Endispute and each other in selecting a single arbitrator who shall be a former judge or justice with substantial experiences in resolving business disputes with particular experience in resolving disputes involving the pharmaceuticals industry. The costs of arbitration will be shared equally by the parties. The provisions of this Paragraph may be enforced by any court of competent jurisdiction. The arbitrator shall not be empowered to award damages in excess of, or inconsistent with, the liability limitations contained in this Agreement. The prevailing party, however, shall be entitled to an award of all costs, fees and expenses, including expert witness fees and attorneys' fees, to be paid by the party against whom enforcement is ordered. 19. EXCLUSION OF CERTAIN DAMAGES. NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL EITHER PARTY, NOR ANYONE ELSE WHO HAS BEEN INVOLVED IN THE CREATION, PRODUCTION OR DELIVERY OF THE PRODUCT, INCLUDING SPECTRUM'S SUPPLIERS, BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, WHETHER IN AN ACTION IN -11- CONTRACT OR TORT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. BECAUSE SOME STATES AND JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY, PORTIONS OF THE ABOVE LIMITATION MAY NOT APPLY IN CERTAIN CIRCUMSTANCES. 20. Trademarks. Lannett shall advertise, promote, market and sell the Product under any trademark of its choosing. Spectrum shall have no right, title or interest in and to any such trademark. If a joint label is used including the respective trademarks of either Spectrum or Lannett, then those trademarks remain the property of the respective companies. 21. Confidentiality, Employees Rights. 21.1 Neither party shall disclose or appropriate to its own use, or to the use of any third party, at any time during or subsequent to the term of this Agreement, any secret or confidential information of the other party or any of the other party's affiliates or subsidiaries of which either becomes informed during such period, whether or not developed by the other, if based on information supplied by the other. 21.2 During the term of this Agreement, Spectrum shall not supply Ciprofloxacin for any other party in the Territory. 21.3 Neither party is granted any right or authority to assume or create any obligation or responsibility, express or implied, on behalf of, or in the name of the other party, or to bind the other party in any manner or with respect to anything, whatsoever. 22. Severability. 22.1 Each provision of this Agreement is intended to be severable from the others, so that if any provision or term hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remaining provisions of the terms hereof. 22.2 The parties to this Agreement specifically acknowledge the drafting of this Agreement to be the product of both parties. Neither party may attempt to claim the other party was the sole drafting party due to any ambiguity in the language in this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective representatives thereunto duly authorized as of the day and year first above written. LANNETT COMPANY, INC. NEOJB LLC By: /s/ Lawrence Dalesandro By: /s/ Rajesh C. Shrotriya ------------------------------ ---------------------------------- Lawrence Dalesandro, Title: CEO Title: Chief Financial Officer --------------------------- -12- JOINDER/GUARANTEE The undersigned, a Delaware corporation, intending to be legally bound hereby, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, does hereby agree to be bound by all of the terms and conditions of the Supply, Development and Marketing Agreement, dated as of August 15, 2003, entered into by and between LANNETT COMPANY, INC., a Delaware corporation (hereinafter referred to as "Lannett"), and NEOJB LLC, a Delaware limited liability company (hereinafter referred to as "Spectrum"), relating to the development, supply and marketing of certain pharmaceutical products (the "Agreement"). In particular, the undersigned corporation agrees that, if Spectrum should fail or refuse to perform any of its duties, obligations or responsibilities under the Agreement, the undersigned shall be obligated to perform any such duty, obligation and/or responsibility. SPECTRUM PHARMACEUTICALS, INC. By: /s/ Rajesh C. Shrotriya -------------------------------- Title: CEO -------------------------------- -13- EXHIBIT A 1. Product: Ciprofloxacin Hydrochloride, in tablet form, in the following dosages: 250 mg, 500 mg and 750 mg. 2. Transfer Costs:
Potency Primary Config.(A) Annual Forecast(B) Transfer Cost - ------- -------------- --------------- ------------- 250 mg 100's [Intentionally Redacted] [Intentionally Redacted] 500 mg 100's [Intentionally Redacted] [Intentionally Redacted] 750 mg 50's [Intentionally Redacted] [Intentionally Redacted]
NOTES: - ----- (A): [Intentionally Redacted] (B): [Intentionally Redacted] (C): [Intentionally Redacted] [Intentionally Redacted] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. EX-10.6 4 a94549exv10w6.txt EXHIBIT 10.6 Exhibit 10.6 CONFIDENTIAL SEPARATION AGREEMENT AND GENERAL RELEASE THIS CONFIDENTIAL SEPARATION AGREEMENT AND GENERAL RELEASE (this "Agreement") is entered into as of November 13, 2003 (the "Effective Date"), by and between Spectrum Pharmaceuticals, Inc., a Delaware corporation (the "Company") and John L. McManus, an individual ("Executive"). RECITALS WHEREAS, Executive is presently employed by the Company; WHEREAS, Executive and the Company (collectively, the "Parties") have agreed that Executive will resign from his positions as an officer and an employee of the Company; WHEREAS, the Parties wish to specify the terms of the resignation and resolve any outstanding issues between them. AGREEMENT NOW THEREFORE, in consideration of the representations and agreements contained herein, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be bound hereby, the Company and Executive hereby agree to terminate their employment relationship on the following basis: 1. Resignation. Executive hereby resigns any and all positions with the Company, including, without limitation, as Vice President, Finance and Strategic Planning and Assistant Corporate Secretary and an employee of the Company as of the Effective Date. Executive understands and agrees that he is giving up any right or claim to future employment with the Company and any compensation or benefit of such employment, including any compensation and/or benefits owed to the Executive as of the Effective Date, except for compensation and/or benefits provided for in this Agreement. Executive acknowledges that he has received all compensation and benefits due to him through the Effective Date. 2. Compensation. In consideration for Executive's agreement to resign pursuant to the terms of this Agreement: (a) In lieu of severance, concurrently with the execution of this Agreement, Executive shall receive a bonus for the 2003 calendar year in the amount of $20,500 less withholdings in accordance with applicable law. Also concurrently with the execution of this Agreement, Executive shall receive a lump-sum cash payment for accrued and unpaid vacation as well as accrued and unpaid salary through the date of this Agreement, less applicable statutory deductions. In addition, the Company shall pay to Employee, on or before January 5, 2004, but no earlier than January 1, 2004, $205,000 in cash, less applicable statutory deductions. (b) The Parties acknowledge that the Investor Relations Consulting Agreement by and between the Company and McManus & Company, Inc. ("M&C") dated August 19, 2002 (the "M&C Consulting Agreement") shall remain in full force and effect until its expiration on July 31, 2004. Executive and Company agree to, and Executive agrees to cause M&C to, continue to honor the terms of the M&C Consulting Agreement through July 31, 2004; provided that the Company shall only request that M&C provide reasonable and customary services under the M&C Consulting Agreement; and, provided, further, that if Executive believes any such requested services are unreasonable, Executive shall be entitled to contact any member of the Company's board of directors to verify the validity of the request. The Company shall remain obligated to pay M&C on the first business day of each month, for the applicable month, the fees due under such M&C Consulting Agreement through July 31, 2004. In addition to the foregoing, Executive agrees to use his best efforts to assist with the completion and filing of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (the "10-Q"); however, no additional compensation shall be paid for Executive's services in connection with the 10-Q. (c) The Company hereby covenants and agrees to submit the 90,000 share conditional stock option grant made to Executive on September 12, 2003 (the "Grant") to the Company's stockholders for approval at the Company's 2004 Annual Meeting of Stockholders ("Annual Meeting") with a recommendation that the stockholders approve such Grant. If the stockholders fail to approve the Grant at the Annual Meeting, the Company shall pay Executive $504,900, less applicable statutory withholdings and deductions, within seven (7) days after the Annual Meeting. (d) Following the Effective Date, the Company shall continue to provide Executive with medical, dental and vision benefits under the Company's existing insurance plans, or in the alternative, at the Company's election, pay one hundred-percent (100%) of the COBRA premium with respect to medical, dental and vision benefits for Executive and his spouse and dependents until December 31, 2003, provided that Executive elects to continue benefits under COBRA and remains eligible for COBRA throughout that period. (e) All stock options previously granted to Executive shall become fully vested as of the Effective Date, subject only to any applicable stockholder approval requirements, and Executive shall be entitled to exercise such options in whole or in part from time to time during the one year period commencing on November 17, 2003. 3. Options. Executive and the Company are parties to certain written agreements pursuant to which Executive has been granted options to purchase stock in the Company. Executive acknowledges that although such options might be identified as incentive stock options, such options may not be qualified for treatment as incentive stock options, either now or in the future. Executive is advised to consult with his personal tax advisor to determine whether the options are qualified for treatment as incentive stock options. Except as set forth in Section 2(c), 2(e) and this Section 3, Executive's rights under his existing option agreements are not intended to be modified by this Agreement in any way. 4. Return of Company Property. Except as expressly provided for herein, at the Company's request, the Executive will return to the Company all files, records, credit cards, keys, equipment, and any other property of the Company or documents maintained by him for the Company's use or benefit, on or before the Effective Date. 2 5. Confidentiality. The Parties acknowledge that this Agreement and all matters relating to or leading up to the negotiation and effectuation of this Agreement are confidential and shall not be disclosed to any third party except as follows: the Company may disclose the terms of this Agreement to the public as required by law, including without limitation, the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended; the Company may disclose the terms of this Agreement to Company employees with a business purpose for receiving such information; the Parties may disclose the terms of the Agreement to their respective legal, accounting and tax advisors to the extent necessary for them to perform services; and the Parties may disclose the terms of this Agreement to the Internal Revenue Service and the California Franchise Tax Board as required by law, rule or regulation, or as otherwise required by law or necessary to enforce the terms of this Agreement. If any disclosure is made as permitted by this paragraph other than to governmental authorities as required by law, then such persons or entities shall be cautioned about the confidentiality obligations imposed by this Agreement. 6. Non-Disclosure, Non-Competition and Non-Solicitation. (a) Executive agrees that he will not disclose at any time, other than to an authorized employee, officer, director or agent of the Company, any information relating to the Company's business, trade, practices, trade secrets or know-how or proprietary information without the Company's prior express written consent. Executive agrees that until the first anniversary of the Effective Date, Executive shall not directly or indirectly solicit, induce, recruit or encourage any of the Company's employees to leave their employment or take away such employees to leave their employment or take away such employees or attempts to solicit, induce, recruit, encourage or take away employees of the Company. 7. General Release by Executive. (a) Release of Claims. Executive does hereby for himself and his respective heirs, successors and assigns, release, acquit and forever discharge the Company, its parents, subsidiaries and affiliates and any of their officers, directors, managers, employees, representatives, related entities, successors and assigns, and all persons acting by, through or in concert with them (the "Company Releasees") of and from any and all claims, actions, charges, complaints, causes of action, rights, demands, debts, damages, or accountings of whatever nature, known or unknown which Executive may have against the Company Releasees, or any of them, based on any actions or events which occurred prior to the Effective Date, including, but not limited to, those related to, or arising from, Executive's employment with the Company or the termination thereof, including, without limitation, any claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act and the California Fair Employment and Housing Act (collectively, the "Claims" or individually, "Claim"), but excluding any claims arising under the Company's agreements with McManus & Company, Inc. and any claims for defense and indemnity under the Company's Certificate of Incorporation and Bylaws. 3 (b) Release of Unknown Claims. In addition, Executive expressly waives all rights under Section 1542 of the Civil Code of the State of California, which reads as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH A CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. (c) No Assignment of Claims. Executive represents and warrants to the Company Releasees that there has been no assignment or other transfer of any interest in any Claim which Executive may have against the Company Releasees, or any of them, and Executive agrees to indemnify and hold the Company Releasees harmless from any liability, claims, demands, damages, costs, expenses and attorneys' fees incurred as a result of any person asserting any such assignment or transfer of any rights or Claims if Executive has made such assignment or transfer from such party. (d) No Suits or Actions. Executive represents and warrants to the Company that there have been no claims, suits, actions, complaints, or charges filed by him against the Company Releasees, or any of them. Executive agrees that if he hereafter commences, joins in, or in any manner seeks relief through any suit arising out of, based upon, or relating to any of the Claims released hereunder, or in any manner asserts against the Company Releasees, or any of them, any of the Claims released hereunder, then he will pay to the Company Releasees against whom such claim(s) is asserted, in addition to any other damages caused thereby, all attorneys' fees incurred by such Company Releasees in defending or otherwise responding to said suit or Claim. (e) No Admission. Executive further understands and agrees that neither the payment of money nor the execution of this Release shall constitute or be construed as an admission of any liability whatsoever by the Company Releasees. 8. General Release by the Company. (a) Release of Claims. The Company does hereby for itself and its respective successors and assigns, release, acquit and forever discharge Executive and his heirs, estates, successors and assigns, and all persons acting by, through or in concert with them (the "Executive Releasees") of and from any and all claims, actions, charges, complaints, causes of action, rights, demands, debts, damages, or accountings of whatever nature, known or unknown which the Company may have against the Executive Releasees, or any of them, based on any actions or events which occurred prior to the Effective Date, including, but not limited to, those related to, or arising from, Executive's employment with the Company or the termination thereof (collectively, the "Claims" or individually, "Claim"), but excluding any claims arising under the Company's agreements with McManus & Company, Inc. (b) Release of Unknown Claims. In addition, the Company expressly waives all rights under Section 1542 of the Civil Code of the State of California, which reads as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH A CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. 4 (c) No Assignment of Claims. The Company represents and warrants to the Executive Releasees that there has been no assignment or other transfer of any interest in any Claim which the Company may have against the Executive Releasees, or any of them, and the Company agrees to indemnify and hold the Executive Releasees harmless from any liability, claims, demands, damages, costs, expenses and attorneys' fees incurred as a result of any person asserting any such assignment or transfer of any rights or Claims if the Company has made such assignment or transfer from such party. (d) No Suits or Actions. The Company agrees that if it hereafter commences, joins in, or in any manner seeks relief through any suit arising out of, based upon, or relating to any of the Claims released hereunder, or in any manner asserts against the Executive Releasees, or any of them, any of the Claims released hereunder, then it will pay to the Executive Releasees against whom such claim(s) is asserted, in addition to any other damages caused thereby, all attorneys' fees incurred by such Executive Releasees in defending or otherwise responding to said suit or Claim. (e) No Admission. The Company further understands and agrees that neither the payment of money nor the execution of this Release shall constitute or be construed as an admission of any liability whatsoever by the Executive Releasees. 9. Nondisparagement. The Company and Executive agree not to make any disparaging or derogatory comments, public or otherwise, concerning each other, or M&C or McManus Financial Consultants, Inc. ("MFC"), and Executive shall refrain and shall cause M&C and MFC to refrain from making any disparaging comments, public or otherwise, concerning any employees, officers or directors of the Company. The Company's obligation under this provision shall be limited to (i) causing its officers and directors and (ii) using its best efforts to cause other employees, to refrain from making any disparaging or derogatory comments, public or otherwise, concerning Executive, M&C and MFC. The Company will advise its officers, directors and employees in writing of the existence of this nondisparagement obligation. In addition, the Company shall provide Executive a reasonable opportunity to review and comment in advance on any press release or filing with the Securities and Exchange Commission regarding Executive's employment or separation from the Company, and M&C and MFC's consulting relationship with the Company, and the Company shall not unreasonably disregard any such comments provided by Executive. 10. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. Notwithstanding the foregoing, neither this Agreement nor any rights hereunder may be assigned to any party by the Company or Executive without the prior written consent of the other party hereto. 11. Entire Agreement/No Oral Modification. This Agreement contains all of the terms, promises, representations, and understandings, oral or written, made between the Company and Executive with respect to the subject matter hereof and supersedes all prior representations, understandings, or agreements, oral or written, between the Company and 5 Executive, with respect to such matters, which the Parties acknowledge have been merged into this Agreement. This Agreement may not be modified other than with a writing executed by both parties and stating an intent to modify this agreement. 12. Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 5:00 p.m. (Pacific Standard Time) on a business day, (b) the next business day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a business day or later than 5:00 p.m. (Pacific Standard Time) on any business day, or (c) the business day following the date of mailing, if sent by U.S. nationally recognized overnight courier service such as Federal Express. The address for such notices and communications shall be as follows: If to the Company: Spectrum Pharmaceuticals, Inc. 157 Technology Drive Irvine, CA 92618 Attn: CEO Fax No.: (949) 788-6706 If to the Executive: John McManus 23811 Inverness Place Laguna Niguel, CA 92677 Fax No.: (949) 481-9829 Unless otherwise stated above, such communications shall be effective when they are received by the addressee thereof in conformity with this Section. Any party may change its address for such communications by giving notice thereof to the other parties in conformity with this Section. 13. Governing Law and Forum Selection. This Agreement shall be governed by the laws of the State of California, without regard for conflict of law principles. Any actions arising out of relating to this Agreement shall be filed in either the Superior Court of the State of California for the County of Orange, or the United States District Court for the Central District of California, Southern Division, located in the County of Orange. 14. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which shall constitute the same instrument. 6 IN WITNESS WHEREOF, this Agreement is executed by the parties set forth below as of the date first indicated above. THE COMPANY EXECUTIVE SPECTRUM PHARMACEUTICALS, INC. JOHN MCMANUS, a Delaware corporation an individual By: /s/ Rajesh C. Shrotriya /s/ John McManus ---------------------------------- ---------------------------------- Title: Chairman, CEO & President ------------------------------- 7 EX-10.7 5 a94549exv10w7.txt EXHIBIT 10.7 Exhibit 10.7 CONFIDENTIAL SEPARATION AGREEMENT AND GENERAL RELEASE THIS CONFIDENTIAL SEPARATION AGREEMENT AND GENERAL RELEASE (this "Agreement") is entered into as of November 7, 2003 (the "Effective Date"), by and between Spectrum Pharmaceuticals, Inc., a Delaware corporation (the "Company") and Michael P. McManus, an individual ("Consultant"). RECITALS WHEREAS, Consultant was retained by the Company to provide consulting services pursuant to certain arrangements made between the Company and McManus Financial Consultants, Inc. ("MFC") (the "Prior Arrangements"); WHEREAS, Consultant, MFC and the Company (collectively, the "Parties") have agreed that Consultant will resign his current duties as a consultant and officer of the Company pursuant to the Prior Arrangements, and will instead provide consulting services to the Company pursuant to the terms of this Agreement; WHEREAS, the Parties wish to specify the terms of the resignation and resolve any outstanding issues between them. AGREEMENT NOW THEREFORE, in consideration of the representations and agreements contained herein, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be bound hereby, the Company and Consultant hereby agree to terminate their Prior Arrangements on the following basis: 1. Termination of the Prior Arrangements. The Prior Arrangements and each Party's rights thereunder are hereby terminated. 2. Separation. Consultant hereby resigns any and all positions with the Company, including, without limitation, as Controller of the Company and a consultant to the Company under the Prior Arrangements as of the Effective Date. Consultant understands and agrees that he is giving up any right or claim to future consulting arrangements with the Company and any compensation or benefit of such consulting arrangement, including any compensation and/or benefits owed to the Consultant pursuant to the Prior Arrangements, except for compensation and/or benefits provided for in this Agreement. Consultant acknowledges that he has received all compensation and benefits due to him through the Effective Date. 3. Compensation. In consideration for Consultant's agreement to resign pursuant to the terms of this Agreement: (a) In lieu of severance, within seven (7) days following the execution of this Agreement by all parties, the Company shall pay MFC the sum of one hundred eighty thousand dollars ($180,000), less applicable statutory deductions, if any, by way of a certified check or wire transfer. (b) The Parties acknowledge that the Investor Relations Consulting Agreement by and between the Company and McManus & Company, Inc. ("M&C") dated August 19, 2002 (the "M&C Consulting Agreement") shall remain in full force and effect until its expiration on July 31, 2004. Consultant and Company agree to, and Consultant agrees to cause M&C to, continue to honor the terms of the M&C Consulting Agreement through July 31, 2004; provided that the Company shall only request that M&C provide reasonable and customary services under the M&C Consulting Agreement; and, provided, further, that if Consultant believes any such requested services are unreasonable, Consultant shall be entitled to contact any member of the Company's board of directors to verify the validity of the request. The Company shall remain obligated to pay M&C on the first business day of each month, for the applicable month, fees in the amount of $12,000, due under such M&C Consulting Agreement through July 31, 2004. (c) All stock options previously granted to Consultant shall become fully vested as of the Effective Date, and Consultant shall be entitled to exercise such options in whole or in part from time to time during the one year period commencing on November 17, 2003. (d) Consultant is covered and will continue to be covered under the liability insurance policies currently maintained by the Company for its directors and officers, with respect to events occurring prior to the Effective Date, in addition to subsequent events concerning the 10-Q identified in Section 5 below. In the event that the Company renews, extends or replaces such policies, or purchases "tail" coverage, the Company will include Consultant under the coverage with respect to events occurring prior to the Effective Date, in addition to subsequent events concerning the 10-Q, which is identified in Section 5 below. (e) In connection with this Agreement, Consultant retained his own legal counsel, Yocca Patch & Yocca, LLP ("YPY"). Within seven (7) days following the execution of this Agreement by all Parties, the Company agrees to pay Consultant up to $4000 for actual legal expenses incurred by Consultant through YPY (by check). 4. Options. Consultant and the Company are parties to certain written agreements pursuant to which Consultant has been granted options to purchase stock in the Company. Consultant acknowledges that although such options might be identified as incentive stock options, such options may not be qualified for treatment as incentive stock options, either now or in the future. Consultant is advised to consult with his personal tax advisor to determine whether the options are qualified for treatment as incentive stock options. Except as set forth in Section 3(c) and this Section 4, Consultant's rights under his existing option agreements are not intended to be modified by this Agreement in any way. 5. Future Consulting. Consultant agrees to use his best efforts to assist with the completion and filing of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (the "10-Q"). No additional compensation shall be paid for Consultant's services in connection with the 10-Q up to the scheduled filing date of November 14, 2003. However, if additional work is necessary on the 10-Q after November 14, 2003, Consultant shall 2 be paid at his customary rate of $250 per hour. In addition to the foregoing, Consultant shall provide consulting services to the Company as may be reasonably requested by the Company from time to time up to and through May 31, 2004, such requests to be made on reasonable notice to Consultant. The Company shall compensate Consultant for these consulting services at the rate of $250 per hour. It is the express intent of the parties that Consultant shall provide consulting services to the Company as an independent contractor pursuant to this Agreement. Consultant will not be an employee of the Company, and Consultant shall not hold himself out to be an employee of the Company, and shall not have the authority to enter into or bind the Company to any contract, promise, or obligation under any circumstances. The Company is interested only in the results to be achieved by Consultant under this Agreement, and the manner and method of performing all services of Consultant under this Agreement, and achieving the desired results, shall be under the exclusive control of Consultant. The Company shall have no right or authority to direct or control Consultant with respect to the performance of Consultant's services under this Agreement, except as otherwise provided by this Agreement. Payments for consulting services provided pursuant to this Section 5 shall be made to MFC. 6. Return of Company Property. Except as expressly provided for herein, at the Company's request, the Consultant and MFC will return to the Company all files, records, credit cards, keys, equipment, and any other property of the Company or documents maintained by him or it for the Company's use or benefit, on or before the Effective Date. 7. Confidentiality. The Parties acknowledge that this Agreement and all matters relating to or leading up to the negotiation and effectuation of this Agreement are confidential and shall not be disclosed to any third party except as follows: the Company may disclose the terms of this Agreement to the public as required by law, including without limitation, the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended; the Company may disclose the terms of this Agreement to Company employees with a business purpose for receiving such information; the Parties may disclose the terms of the Agreement to their respective legal, accounting and tax advisors to the extent necessary for them to perform services; and the Parties may disclose the terms of this Agreement to the Internal Revenue Service and the California Franchise Tax Board as required by law, rule or regulation, or as otherwise required by law or necessary to enforce the terms of this Agreement. If any disclosure is made as permitted by this paragraph other than to governmental authorities as required by law, then such persons or entities shall be cautioned about the confidentiality obligations imposed by this Agreement. 8. Non-Disclosure and Non-Solicitation. (a) Consultant and MFC agree that they will not disclose at any time, other than to an authorized employee, officer, director or agent of the Company, any information relating to the Company's business, trade, practices, trade secrets or know-how or proprietary information without the Company's prior express written consent. Consultant, MFC and the Company agree that until the first anniversary of the Effective Date, the Parties shall not directly or indirectly solicit, induce, recruit or encourage any of the other's employees to leave their employment or take away such employees to leave their employment or take away such employees or attempts to solicit, induce, recruit, encourage or take away the other's employees. 3 9. General Release by Consultant. (a) Release of Claims. Consultant and MFC do hereby for themselves and their respective heirs, successors and assigns, release, acquit and forever discharge the Company, its parents, subsidiaries and affiliates and any of their officers, directors, managers, employees, representatives, related entities, successors and assigns, and all persons acting by, through or in concert with them (the "Company Releasees") of and from any and all claims, actions, charges, complaints, causes of action, rights, demands, debts, damages, or accountings of whatever nature, known or unknown which Consultant or MFC may have against the Company Releasees, or any of them, based on any actions or events which occurred prior to the Effective Date, including, but not limited to, those related to, or arising from, Consultant's employment with the Company or the termination thereof, including, without limitation, any claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act and the California Fair Employment and Housing Act (collectively, the "Claims" or individually, "Claim"), but excluding any claims arising under the Company's agreements with McManus & Company, Inc and any claims for defense and indemnity under the Company's Certificate of Incorporation and Bylaws. (b) Release of Unknown Claims. In addition, Consultant and MFC expressly waive all rights under Section 1542 of the Civil Code of the State of California, which reads as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH A CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. (c) No Assignment of Claims. Consultant and MFC represent and warrants to the Company Releasees that there has been no assignment or other transfer of any interest in any Claim which Consultant or MFC may have against the Company Releasees, or any of them, and Consultant and MFC agree to indemnify and hold the Company Releasees harmless from any liability, claims, demands, damages, costs, expenses and attorneys' fees incurred as a result of any person asserting any such assignment or transfer of any rights or Claims if Consultant or MFC have made such assignment or transfer from such party. (d) No Suits or Actions. Consultant and MFC represent and warrant to the Company that there have been no claims, suits, actions, complaints, or charges filed by either of them against the Company Releasees, or any of them. (e) No Admission. Consultant and MFC further understand and agree that neither the payment of money nor the execution of this Release shall constitute or be construed as an admission of any liability whatsoever by the Company Releasees. 10. General Release by the Company. (a) Release of Claims. The Company does hereby for itself and its respective successors and assigns, release, acquit and forever discharge Consultant and MFC and each of 4 their heirs, estates, successors and assigns, and all persons acting by, through or in concert with them (the "Consultant Releasees") of and from any and all claims, actions, charges, complaints, causes of action, rights, demands, debts, damages, or accountings of whatever nature, known or unknown which the Company may have against the Consultant Releasees, or any of them, based on any actions or events which occurred prior to the Effective Date, including, but not limited to, those related to, or arising from, Consultant's and MFC's Prior Arrangements with the Company or the termination thereof (collectively, the "Claims" or individually, "Claim"), but excluding any claims arising under the Company's agreements with McManus & Company, Inc. (b) Release of Unknown Claims. In addition, the Company expressly waives all rights under Section 1542 of the Civil Code of the State of California, which reads as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH A CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. (c) No Assignment of Claims. The Company represents and warrants to the Consultant Releasees that there has been no assignment or other transfer of any interest in any Claim which the Company may have against the Consultant Releasees, or any of them, and the Company agrees to indemnify and hold the Consultant Releasees harmless from any liability, claims, demands, damages, costs, expenses and attorneys' fees incurred as a result of any person asserting any such assignment or transfer of any rights or Claims if the Company has made such assignment or transfer from such party. (d) No Admission. The Company further understands and agrees that neither the payment of money nor the execution of this Release shall constitute or be construed as an admission of any liability whatsoever by the Consultant Releasees. 11. Nondisparagement. The Company, Consultant and MFC agree not to make any disparaging or derogatory comments, public or otherwise, concerning each other, or M&C or MFC, and Consultant shall refrain and shall cause M&C and MFC to refrain from making any disparaging comments, public or otherwise, concerning any employees, officers or directors of the Company. The Company's obligation under this provision shall be limited to (i) causing its officers and directors and (ii) using its best efforts to cause other employees, to refrain from making any disparaging or derogatory comments, public or otherwise, concerning Consultant, M&C and MFC. The Company will advise its officers, directors and employees in writing of the existence of this obligation. In addition, the Company shall provide Consultant a reasonable opportunity to review and comment in advance on any press release or filing with the Securities and Exchange Commission regarding Consultant's employment or separation from the Company, and M&C and MFC's consulting relationship with the Company, and the Company shall not unreasonably disregard any such comments provided by Consultant. 12. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. Notwithstanding the foregoing, neither this Agreement nor any rights hereunder may be assigned 5 to any party by the Company, MFC or Consultant without the prior written consent of the other parties hereto. 13. Entire Agreement/No Oral Modification. This Agreement contains all of the terms, promises, representations, and understandings, oral or written, made between the Company, MFC and Consultant with respect to the subject matter hereof and supersedes all prior representations, understandings, or agreements, oral or written, between the Company and/or MFC and/or Consultant, with respect to such matters, which the Parties acknowledge have been merged into this Agreement. This Agreement may not be modified other than with a writing executed by both parties and stating an intent to modify this agreement. 14. Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 5:00 p.m. (Pacific Standard Time) on a business day, (b) the next business day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a business day or later than 5:00 p.m. (Pacific Standard Time) on any business day, or (c) the business day following the date of mailing, if sent by U.S. nationally recognized overnight courier service such as Federal Express. The address for such notices and communications shall be as follows: If to the Company: Spectrum Pharmaceuticals, Inc. 157 Technology Drive Irvine, CA 92618 Attn: CEO Fax No.: (949) 788-6706 If to the Consultant: Michael P. McManus P.O. Box 7002 624 Lariat Circle #4 Incline Village, NV 89450-7002 If to MFC: McManus Financial Consultants, Inc. P.O. Box 7002 624 Laria Circle #4 Incline Village, NV 89450-7002 Attn: Michael P. McManus Unless otherwise stated above, such communications shall be effective when they are received by the addressee thereof in conformity with this Section. Any party may change its 6 address for such communications by giving notice thereof to the other parties in conformity with this Section. 15. Governing Law and Forum Selection. This Agreement shall be governed by the laws of the State of California, without regard for conflict of law principles. Any actions arising out of or relating to this Agreement shall be filed in either the Superior Court of the State of California for the County of Orange, or the United States District Court for the Central District of California, Southern Division, located in the County of Orange. 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which shall constitute the same instrument. 7 IN WITNESS WHEREOF, this Agreement is executed by the parties set forth below as of the date first indicated above. THE COMPANY CONSULTANT SPECTRUM PHARMACEUTICALS, INC. MICHAEL P. MCMANUS, a Delaware corporation an individual By: /s/ Rajesh C. Shrotriya /s/ Michael P. McManus -------------------------------- -------------------------------- Title: Chairman, CEO & President ----------------------------- MFC MCMANUS FINANCIAL CONSULTANTS, INC. a Nevada corporation By: /s/ Michael P. McManus -------------------------------- Title: Executive Vice President ----------------------------- 8 EX-10.8 6 a94549exv10w8.txt EXHIBIT 10.8 Exhibit 10.8 SPECTRUM PHARMACEUTICALS, INC. 2003 STOCK INCENTIVE PLAN The SPECTRUM PHARMACEUTICALS, INC. 2003 STOCK INCENTIVE PLAN (the "Plan") was originally established by Spectrum Pharmaceuticals, Inc. (the "Company"), and first adopted by its Board of Directors as of the 15th day of August, 2003 (the "Effective Date"). ARTICLE 1. PURPOSES OF THE PLAN 1.1 PURPOSES. The purposes of the Plan are (a) to enhance the Company's ability to attract and retain the services of qualified Employees, Officers and Directors (including non-employee Officers and Directors), and Consultants upon whose judgment, initiative and efforts the successful conduct and development of the Company's business largely depends, and (b) to provide additional incentives to such persons or entities to devote their utmost effort and skill to the advancement and betterment of the Company, by providing them an opportunity to participate in the ownership of the Company and thereby have an interest in the success and increased value of the Company. ARTICLE 2. DEFINITIONS For purposes of this Plan, the following terms shall have the meanings indicated: 2.1 ADMINISTRATOR. "Administrator" means the Board or, if the Board delegates responsibility for any matter to the Committee, the term Administrator shall mean the Committee. 2.2 AFFILIATED COMPANY. "Affiliated Company" means any "parent corporation" or "subsidiary corporation" of the Company, whether now existing or hereafter created or acquired, as those terms are defined in Sections 424(e) and 424(f) of the Code, respectively. 2.3 BOARD. "Board" means the Board of Directors of the Company. 2.4 CHANGE IN CONTROL. "Change in Control" shall mean (i) the acquisition, directly or indirectly, by any person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the beneficial ownership of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of all outstanding voting securities of the Company; (ii) a merger or consolidation in which the Company is not the surviving entity, except for a transaction in which the holders of the outstanding voting securities of the Company immediately prior to such merger or consolidation hold, in the aggregate, securities possessing more than fifty percent (50%) of the total combined voting power of all outstanding voting securities of the surviving entity immediately after such merger or consolidation; (iii) a reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of all outstanding voting securities of the Company are transferred to or acquired by a person or persons different from the persons holding those securities immediately prior to such merger; (iv) the sale, transfer or other disposition (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; or (v) the approval by the shareholders of a plan or proposal for the liquidation or dissolution of the Company. 2.5 CODE. "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.6 COMMITTEE. "Committee" means a committee of two or more members of the Board appointed to administer and/or amend the Plan, as set forth in Sections 7.1 and 9.1, respectively, hereof. 2.7 COMMON STOCK. "Common Stock" means the Common Stock, no par value, of the Company, subject to adjustment pursuant to Section 4.2 hereof. 2.8 CONSULTANT. "Consultant" means any consultant or adviser if: (i) the consultant or adviser renders bona fide services to the Company; (ii) the services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company's securities; and (iii) the consultant or adviser is a natural person who has contracted directly with the Company to render such services. 2.9 DIRECTOR. "Director" means a member of the Board. 2.10 DISABILITY. "Disability" means permanent and total disability as defined in Section 22(e)(3) of the Code. The Administrator's determination of a Disability or the absence thereof shall be conclusive and binding on all interested parties. 2.11 EFFECTIVE DATE. "Effective Date" means the date on which the Plan is adopted by the Board, as set forth on the first page hereof. 2.12 EMPLOYEE. "Employee" means any person, including an Officer or Director, who is an employee (as defined in accordance with Section 3401(c) of the Code) of the Company or any Affiliated Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company and any Affiliated Company, or any successor. For purposes of Incentive Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient, by itself, to constitute "employment" by the Company. 2.13 EXERCISE PRICE. "Exercise Price" means the purchase price per share of Common Stock payable upon exercise of an Option. 2.14 FAIR MARKET VALUE. "Fair Market Value" on any given date means the value of one share of Common Stock, determined as follows: (a) If the Common Stock is then listed or admitted to trading on a NASDAQ market system or a stock exchange which reports closing sale prices, the Fair Market Value shall be the closing sale price on the date of valuation on such NASDAQ market system or principal stock exchange on which the Common Stock is then listed or admitted to trading, or, if no closing sale price is quoted on such day, then the Fair Market Value shall be the closing sale price of the 2 Common Stock on such NASDAQ market system or such exchange on the next preceding day for which a closing sale price is reported. (b) If the Common Stock is not then listed or admitted to trading on a NASDAQ market system or a stock exchange which reports closing sale prices, the Fair Market Value shall be the average of the closing bid and asked prices of the Common Stock in the over-the-counter market on the date of valuation. (c) If neither (a) nor (b) is applicable as of the date of valuation, then the Fair Market Value shall be determined by the Administrator in good faith using any reasonable method of evaluation, which determination shall be conclusive and binding on all interested parties. 2.15 INCENTIVE OPTION. "Incentive Option" means any Option designated and qualified as an "incentive stock option" as defined in Section 422 of the Code. 2.16 INCENTIVE OPTION AGREEMENT. "Incentive Option Agreement" means an Option Agreement with respect to an Incentive Option. 2.17 NASD DEALER. "NASD Dealer" means a broker-dealer that is a member of the National Association of Securities Dealers, Inc. 2.18 NONQUALIFIED OPTION. "Nonqualified Option" means any Option that is not an Incentive Option. To the extent that any Option designated as an Incentive Option fails in whole or in part to qualify as an Incentive Option, including, without limitation, for failure to meet the limitations applicable to a 10% Shareholder or because it exceeds the annual limit provided for in Section 5.6 below, it shall to that extent constitute a Nonqualified Option. 2.19 NONQUALIFIED OPTION AGREEMENT. "Nonqualified Option Agreement" means an Option Agreement with respect to a Nonqualified Option. 2.20 OFFEREE. "Offeree" means a Participant to whom a Right to Purchase has been offered or who has acquired Restricted Stock under the Plan. 2.21 OFFICER. "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder. 2.22 OPTION. "Option" means any option to purchase Common Stock granted pursuant to the Plan. 2.23 OPTION AGREEMENT. "Option Agreement" means the written agreement entered into between the Company and the Optionee with respect to an Option granted under the Plan. 2.24 OPTIONEE. "Optionee" means a Participant who holds an Option. 2.25 PARTICIPANT. "Participant" means an individual or entity who holds an Option, a Right to Purchase or Restricted Stock under the Plan. 2.26 PURCHASE PRICE. "Purchase Price" means the purchase price per share of Restricted Stock payable upon acceptance of a Right to Purchase. 2.27 RESTRICTED STOCK. "Restricted Stock" means shares of Common Stock issued pursuant to Article 6 hereof, subject to any restrictions and conditions as are established pursuant to such Article 6. 3 2.28 RIGHT TO PURCHASE. "Right to Purchase" means a right to purchase Restricted Stock granted to an Offeree pursuant to Article 6 hereof. 2.29 SERVICE PROVIDER. "Service Provider" means a Employee, Director or Consultant. 2.30 STOCK PURCHASE AGREEMENT. "Stock Purchase Agreement" means the written agreement entered into between the Company and the Offeree with respect to a Right to Purchase offered under the Plan. 2.31 10% SHAREHOLDER. "10% Shareholder" means a person who, as of a relevant date, owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of an Affiliated Company. ARTICLE 3. ELIGIBILITY 3.1 INCENTIVE OPTIONS. Officers and other key Employees of the Company or of an Affiliated Company (including Directors if they are Employees) are eligible to receive Incentive Options under the Plan. 3.2 NONQUALIFIED OPTIONS AND RIGHTS TO PURCHASE. Officers and other key Employees of the Company or of an Affiliated Company, Directors (whether or not employed by the Company or an Affiliated Company), and Consultants are eligible to receive Nonqualified Options or Rights to Purchase under the Plan. 3.3 LIMITATION ON SHARES. In no event shall any Participant be granted Options or Rights to Purchase in any one calendar year pursuant to which the aggregate number of shares of Common Stock that may be acquired thereunder exceeds 500,000 shares. ARTICLE 4. PLAN SHARES 4.1 SHARES SUBJECT TO THE PLAN. A total of 315,000 shares of Common Stock may be issued under the Plan, subject to adjustment as to the number and kind of shares pursuant to Section 4.2 hereof. For purposes of this limitation, in the event that (a) all or any portion of any Option or Right to Purchase granted or offered under the Plan can no longer under any circumstances be exercised, or (b) any shares of Common Stock are reacquired by the Company pursuant to an Incentive Option Agreement, Nonqualified Option Agreement or Stock Purchase Agreement, the shares of Common Stock allocable to the unexercised portion of such Option or such Right to Purchase, or the shares so reacquired, shall again be available for grant or issuance under the Plan. 4.2 CHANGES IN CAPITAL STRUCTURE. In the event that the outstanding shares of Common Stock are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of a recapitalization, stock split, combination of shares, reclassification, stock dividend, or other change in the capital structure of the Company, then proportionate adjustments shall be made by the Administrator to the aggregate number and kind of shares subject to this Plan, and the number and kind of shares and the price per share subject to outstanding Option Agreements, Rights to Purchase and Stock Purchase Agreements in order to preserve, as nearly as practical, but not to increase, the benefits to Participants. 4 ARTICLE 5. OPTIONS 5.1 OPTION AGREEMENT. Each Option granted pursuant to this Plan shall be evidenced by an Option Agreement which shall specify the number of shares subject thereto, the Exercise Price per share, and whether the Option is an Incentive Option or Nonqualified Option. As soon as is practical following the grant of an Option, an Option Agreement shall be duly executed and delivered by or on behalf of the Company to the Optionee to whom such Option was granted. Each Option Agreement shall be in such form and contain such additional terms and conditions, not inconsistent with the provisions of this Plan, as the Administrator shall, from time to time, deem desirable, including, without limitation, the imposition of any rights of first refusal and resale obligations upon any shares of Common Stock acquired pursuant to an Option Agreement. Each Option Agreement may be different from each other Option Agreement. 5.2 EXERCISE PRICE. The Exercise Price per share of Common Stock covered by each Option shall be determined by the Administrator, subject to the following: (a) the Exercise Price of an Incentive Option shall not be less than 100% of Fair Market Value on the date the Incentive Option is granted and (b) if the person to whom an Option is granted is a 10% Shareholder on the date of grant, the Exercise Price shall not be less than 110% of Fair Market Value on the date the Option is granted. 5.3 PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price shall be made upon exercise of an Option and may be made, in the discretion of the Administrator, subject to any legal restrictions, by: (a) cash; (b) check; (c) the surrender of shares of Common Stock owned by the Optionee that have been held by the Optionee for at least six (6) months, which surrendered shares shall be valued at Fair Market Value as of the date of such exercise; (d) the Optionee's promissory note in a form and on terms acceptable to the Administrator; (e) the cancellation of indebtedness of the Company to the Optionee; (f) the waiver of compensation due or accrued to the Optionee for services rendered; (g) provided that a public market for the Common Stock exists, a "same day sale" commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably elects to exercise the Option and to sell a portion of the shares so purchased to pay for the Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the Exercise Price directly to the Company; (h) provided that a public market for the Common Stock exists, a "margin" commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably elects to exercise the Option and to pledge the shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the Exercise Price directly to the Company; or (i) any combination of the foregoing methods of payment or any other consideration or method of payment as shall be permitted by applicable corporate law. 5.4 TERM AND TERMINATION OF OPTIONS. The term and provisions for termination of each Option shall be as fixed by the Administrator, but no Option may be exercisable more than ten (10) years after the date it is granted. An Incentive Option granted to a person who is a 10% Shareholder on the date of grant shall not be exercisable more than five (5) years after the date it is granted. 5.5 VESTING AND EXERCISE OF OPTIONS. Each Option shall vest and become exercisable in one or more installments at such time or times and subject to such conditions, including without limitation the achievement of specified performance goals or objectives, as shall be determined by the Administrator; provided, however, that, except with regard to Options granted to Officers, Directors or Consultants, in no event shall an Option granted hereunder become vested and exercisable at a rate of less than twenty percent (20%) per year over five (5) years from the date the 5 Option is granted, subject to reasonable conditions, such as continuing to be a Service Provider. No Option granted to an Optionee may be exercised to any extent by anyone after the first to occur of the following events: (a) the expiration of 12 months from the date of the Participant ceases to be a Service Provider as a result of the Participant's death; (b) the expiration of 12 months from the date the Participant's ceases to be a Service Provider as a result of the Participant's Disability; (c) the expiration of three months from the date the Participant ceases to be a Service Provider for any reason other than such Participant's death or his or her Disability, unless the Participant dies within said three-month period; or (d) the expiration of the Option in accordance with Section 5.4. 5.6 ANNUAL LIMIT ON INCENTIVE OPTIONS. To the extent required for "incentive stock option" treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the Common Stock shall not, with respect to which Incentive Options granted under this Plan and any other plan of the Company or any Affiliated Company become exercisable for the first time by an Optionee during any calendar year, exceed $100,000. 5.7 NONTRANSFERABILITY OF OPTIONS. No Option shall be assignable or transferable except by will or the laws of descent and distribution, and during the life of the Optionee shall be exercisable only by such Optionee; provided, however, that, in the discretion of the Administrator, any Option may be assigned or transferred in any manner which an "incentive stock option" is permitted to be assigned or transferred under the Code. 5.8 RIGHTS AS SHAREHOLDER. An Optionee or permitted transferee of an Option shall have no rights or privileges as a shareholder with respect to any shares covered by an Option until such Option has been duly exercised and certificates representing shares purchased upon such exercise have been issued to such person. ARTICLE 6. RIGHTS TO PURCHASE 6.1 NATURE OF RIGHT TO PURCHASE. A Right to Purchase granted to an Offeree entitles the Offeree to purchase, for a Purchase Price determined by the Administrator, shares of Common Stock subject to such terms, restrictions and conditions as the Administrator may determine at the time of grant ("Restricted Stock"). Such conditions may include, but are not limited to, continued employment or the achievement of specified performance goals or objectives. 6.2 ACCEPTANCE OF RIGHT TO PURCHASE. An Offeree shall have no rights with respect to the Restricted Stock subject to a Right to Purchase unless the Offeree shall have accepted the Right to Purchase within ten (10) days (or such longer or shorter period as the Administrator may specify) following the grant of the Right to Purchase by making payment of the full Purchase Price to the Company in the manner set forth in Section 6.3 hereof and by executing and delivering to the Company a Stock Purchase Agreement. Each Stock Purchase Agreement shall be in such form, and shall set forth the Purchase Price and such other terms, conditions and restrictions of the Restricted Stock, not inconsistent with the provisions of this Plan, as the Administrator shall, from time to time, deem desirable. Each Stock Purchase Agreement may be different from each other Stock Purchase Agreement. 6 6.3 PAYMENT OF PURCHASE PRICE. Subject to any legal restrictions, payment of the Purchase Price upon acceptance of a Right to Purchase Restricted Stock may be made, in the discretion of the Administrator, by: (a) cash; (b) check; (c) the surrender of shares of Common Stock owned by the Offeree that have been held by the Offeree for at least six (6) months, which surrendered shares shall be valued at Fair Market Value as of the date of such exercise; (d) the Offeree's promissory note in a form and on terms acceptable to the Administrator; (e) the cancellation of indebtedness of the Company to the Offeree; (f) the waiver of compensation due or accrued to the Offeree for services rendered; or (g) any combination of the foregoing methods of payment or any other consideration or method of payment as shall be permitted by applicable corporate law. 6.4 RIGHTS AS A SHAREHOLDER. Upon complying with the provisions of Section 6.2 hereof, an Offeree shall have the rights of a shareholder with respect to the Restricted Stock purchased pursuant to the Right to Purchase, including voting and dividend rights, subject to the terms, restrictions and conditions as are set forth in the Stock Purchase Agreement. Unless the Administrator shall determine otherwise, certificates evidencing shares of Restricted Stock shall remain in the possession of the Company until such shares have vested in accordance with the terms of the Stock Purchase Agreement. 6.5 RESTRICTIONS. Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided in the Stock Purchase Agreement. In the event of termination of a Participant's status as a Service Provider for any reason whatsoever (including death or disability), the Stock Purchase Agreement may provide, in the discretion of the Administrator, that the Company shall have the right, exercisable at the discretion of the Administrator, to repurchase (i) at the original Purchase Price, any shares of Restricted Stock which have not vested as of the date of termination, and (ii) at Fair Market Value, any shares of Restricted Stock which have vested as of such date, on such terms as may be provided in the Stock Purchase Agreement, provided, however, that to the extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of the California Code of Regulations, any such repurchase right set forth in a Right to Purchase to a person who is not an Officer, Director or Consultant shall be upon the following terms: if the repurchase option gives the Company the right to repurchase the shares of Restricted Stock upon termination as a Service Provider at the original purchase price for such Shares, then (A) the right to repurchase at the original purchase price shall lapse at the rate of at least twenty percent (20%) of the shares per year over five (5) years from the date the Right to Purchase is granted (without respect to the date the Right to Purchase was exercised or became exercisable) and (B) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares within ninety (90) days of termination of status as a Service Provider (or, in the case of shares issued upon exercise of Rights to Purchase, after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Company and the Plan participant. 6.6 VESTING OF RESTRICTED STOCK. The Stock Purchase Agreement shall specify the date or dates, the performance goals or objectives which must be achieved, and any other conditions on which the Restricted Stock may vest; provided, however, that to the extent required to comply with applicable securities laws, the terms of such shares of Restricted Stock shall comply with the requirements set forth in Section 260.140.42 of Title 10 of the California Code of Regulations. 6.7 DIVIDENDS. If payment for shares of Restricted Stock is made by promissory note, any cash dividends paid with respect to the Restricted Stock may be applied, in the discretion of the Administrator, to repayment of such note. 6.8 NONASSIGNABILITY OF RIGHTS. No Right to Purchase shall be assignable or transferable except by will or the laws of descent and distribution or as otherwise provided by the Administrator. 7 ARTICLE 7. ADMINISTRATION OF THE PLAN 7.1 ADMINISTRATOR. Authority to control and manage the operation and administration of the Plan shall be vested in the Board, which may delegate such responsibilities in whole or in part to a committee consisting of two (2) or more members of the Board (the "Committee"). Members of the Committee may be appointed from time to time by, and shall serve at the pleasure of, the Board. As used herein, the term "Administrator" means the Board or, with respect to any matter as to which responsibility has been delegated to the Committee, the term Administrator shall mean the Committee. 7.2 POWERS OF THE ADMINISTRATOR. In addition to any other powers or authority conferred upon the Administrator elsewhere in the Plan or by law, the Administrator shall have full power and authority: (a) to determine the persons to whom, and the time or times at which, Incentive Options or Nonqualified Options shall be granted and Rights to Purchase shall be offered, the number of shares to be represented by each Option and Right to Purchase and the consideration to be received by the Company upon the exercise thereof; (b) to interpret the Plan; (c) to create, amend or rescind rules and regulations relating to the Plan; (d) to determine the terms, conditions and restrictions contained in, and the form of, Option Agreements and Stock Purchase Agreements; (e) to determine the identity or capacity of any persons who may be entitled to exercise a Participant's rights under any Option or Right to Purchase under the Plan; (f) to correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Option Agreement or Stock Purchase Agreement; (g) to accelerate the vesting of any Option or release or waive any repurchase rights of the Company with respect to Restricted Stock; (h) to extend the exercise date of any Option or acceptance date of any Right to Purchase; (i) to provide for rights of first refusal and/or repurchase rights; (j) to amend outstanding Option Agreements and Stock Purchase Agreements to provide for, among other things, any change or modification which the Administrator could have provided for upon the grant of an Option or Right to Purchase or in furtherance of the powers provided for herein; and (k) to make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan. Any action, decision, interpretation or determination made in good faith by the Administrator in the exercise of its authority conferred upon it under the Plan shall be final and binding on the Company and all Participants. 7.3 LIMITATION ON LIABILITY. No employee of the Company or member of the Board or Committee shall be subject to any liability with respect to duties under the Plan unless the person acts fraudulently or in bad faith. To the extent permitted by law, the Company shall indemnify each member of the Board or Committee, and any employee of the Company with duties under the Plan, who was or is a party, or is threatened to be made a party, to any threatened, pending or completed proceeding, whether civil, criminal, administrative or investigative, by reason of such person's conduct in the performance of duties under the Plan. ARTICLE 8. CHANGE IN CONTROL 8.1 CHANGE IN CONTROL. In order to preserve a Participant's rights in the event of a Change in Control of the Company, (i) the time period relating to the exercise or realization of all outstanding Options, Rights to Purchase and Restricted Stock shall automatically accelerate immediately prior to the consummation of such Change in Control, and (ii) with respect to Options and Rights to Purchase, the Administrator in its discretion may, at any time an Option or Right to Purchase is granted, or at any time thereafter, take one or more of the following actions: (A) provide 8 for the purchase or exchange of each Option or Right to Purchase for an amount of cash or other property having a value equal to the difference, or spread, between (x) the value of the cash or other property that the Participant would have received pursuant to such Change in Control transaction in exchange for the shares issuable upon exercise of the Option or Right to Purchase had the Option or Right to Purchase been exercised immediately prior to such Change in Control transaction and (y) the Exercise Price of such Option or the Purchase Price under such Right to Purchase, (B) adjust the terms of the Options and Rights to Purchase in a manner determined by the Administrator to reflect the Change in Control, (C) cause the Options and Rights to Purchase to be assumed, or new rights substituted therefor, by another entity, through the continuance of the Plan and the assumption of outstanding Options and Rights to Purchase, or the substitution for such Options and Rights to Purchase of new options and new rights to purchase of comparable value covering shares of a successor corporation, with appropriate adjustments as to the number and kind of shares and Exercise Prices, in which event the Plan and such Options and Rights to Purchase, or the new options and rights to purchase substituted therefor, shall continue in the manner and under the terms so provided, or (D) make such other provision as the Administrator may consider equitable. If the Administrator does not take any of the forgoing actions, all Options and Rights to Purchase shall terminate upon the consummation of the Change in Control and the Administrator shall cause written notice of the proposed transaction to be given to all Participants not less than fifteen (15) days prior to the anticipated effective date of the proposed transaction. ARTICLE 9. AMENDMENT AND TERMINATION OF THE PLAN 9.1 AMENDMENTS. The Board may from time to time alter, amend, suspend or terminate the Plan in such respects as the Board may deem advisable. In addition, the Board may delegate such power in whole or in part to the Committee. No such alteration, amendment, suspension or termination shall be made which shall substantially affect or impair the rights of any Participant under an outstanding Option Agreement or Stock Purchase Agreement without such Participant's consent. The Board and/or Committee may alter or amend the Plan to comply with requirements under the Code relating to Incentive Options or other types of options which give Optionees more favorable tax treatment than that applicable to Options granted under this Plan as of the date of its adoption. Upon any such alteration or amendment, any outstanding Option granted hereunder may, if the Administrator so determines and if permitted by applicable law, be subject to the more favorable tax treatment afforded to an Optionee pursuant to such terms and conditions. 9.2 PLAN TERMINATION. Unless the Plan shall theretofore have been terminated, the Plan shall terminate on the tenth (10th) anniversary of the Effective Date and no Options or Rights to Purchase may be granted under the Plan thereafter, but Option Agreements, Stock Purchase Agreements and Rights to Purchase then outstanding shall continue in effect in accordance with their respective terms. ARTICLE 10. TAX WITHHOLDING 10.1 WITHHOLDING. The Company shall have the power to withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy any applicable Federal, state, and local tax withholding requirements with respect to any Options exercised or Restricted Stock issued under the Plan. To the extent permissible under applicable tax, securities and other laws, the Administrator may, in its sole discretion and upon such terms and conditions as it may deem appropriate, permit a Participant to satisfy his or her obligation to pay any such tax, in whole or in part, up to an amount determined on the basis of the highest marginal tax rate applicable to such 9 Participant, by (a) directing the Company to apply shares of Common Stock to which the Participant is entitled as a result of the exercise of an Option or as a result of the purchase of or lapse of restrictions on Restricted Stock or (b) delivering to the Company shares of Common Stock owned by the Participant. The shares of Common Stock so applied or delivered in satisfaction of the Participant's tax withholding obligation shall be valued at their Fair Market Value as of the date of measurement of the amount of income subject to withholding. ARTICLE 11. MISCELLANEOUS 11.1 BENEFITS NOT ALIENABLE. Other than as provided above, benefits under the Plan may not be assigned or alienated, whether voluntarily or involuntarily. Any unauthorized attempt at assignment, transfer, pledge or other disposition shall be without effect. 11.2 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a voluntary undertaking on the part of the Company and shall not be deemed to constitute a contract between the Company and any Participant to be consideration for, or an inducement to, or a condition of, the employment of any Participant. Nothing contained in the Plan shall be deemed to give the right to any Participant to be retained as an employee of the Company or any Affiliated Company or to limit the right of the Company or any Affiliated Company to discharge any Participant at any time. 11.3 APPLICATION OF FUNDS. The proceeds received by the Company from the sale of Common Stock pursuant to Option Agreements and Stock Purchase Agreements, except as otherwise provided herein, will be used for general corporate purposes. 11.4 INFORMATION TO HOLDERS AND Purchasers. To the extent required by Section 260.140.46 of Title 10 of the California Code of Regulations, the Company shall provide to each Participant and to each individual who acquires shares of Common Stock pursuant to the Plan, not less frequently than annually during the period such Participant or purchaser has one or more Options or Rights to Purchase outstanding, and, in the case of an individual who acquires shares of Common Stock pursuant to the Plan, during the period such individual owns such shares, copies of annual financial statements. Notwithstanding the preceding sentence, the Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. 10 EX-10.9 7 a94549exv10w9.txt EXHIBIT 10.9 Exhibit 10.9 McMANUS FINANCIAL CONSULTANTS, INC. Specializing in Investor Relations Post Office Box 7002 Incline Village, Nevada 89450 August 19, 2002 Rajesh C. Shrotriya, M.D. Chairman and Chief Executive Officer NeoTherapeutics, Inc. 157 Technology Drive Irvine, California 92618 Dear Raj: This Letter of Agreement sets forth the terms and conditions under which NeoTherapeutics, Inc. agrees to engage McManus Financial Consultants, Inc. as consultants in investor relations. McManus Financial Consultants, Inc. is engaged as an independent contractor to act as a consultant to NeoTherapeutics, Inc. within the framework of this Letter of Agreement. The engagement is to commence August 1, 2002 and continue to July 31, 2004. The engagement is to continue after July 31, 2004, on a quarterly basis, until terminated by mutual written agreement or by written notice by either party thirty days in advance of a quarterly renewal date. During the term of the engagement, McManus Financial Consultants, Inc. will provide consultation services on NeoTherapeutics, Inc.'s investor relations activities as requested. These services shall include: - - Advice and assistance in developing and maintaining a cost-effective, goal oriented investor relations program. - - Advice and assistance on stockholder programs, relations and communications. - - Advice and assistance on relations with registered representatives, security analysts, portfolio managers, investment advisors and other members of the financial community. - - Training and assistance of Company personnel in performing investor relations functions. - - Advice and assistance in developing presentations and other communications for the financial community. Rajesh C. Shrotriya, M.D. August 19, 2002 NeoTherapeutics, Inc. Page 2 - - Arrangement of meetings with key members of the financial community in the United States. - - Advice and assistance in targeting the appropriate members of the financial community and maintenance of a targeted mailing and contact list. - - Advice and assistance in monitoring stock performance and investor relations activities. For services as consultants under this Letter of Agreement, NeoTherapeutics, Inc. will pay McManus Financial Consultants, Inc. for the time spent and services provided on NeoTherapeutics, Inc.'s behalf at a rate of $10,000 per month, payable monthly beginning on August 1, 2002 through July 31, 2003. For the period from August 1, 2003 through July 31, 2004, NeoTherapeutics, Inc. will pay McManus Financial Consultants, Inc. for the time spent and services provided on NeoTherapeutics, Inc.'s behalf at a rate of $12,000 per month, payable monthly. This agreement may be terminated at the option of NeoTherapeutics at any time for cause. For purposes of this Agreement, "cause" shall be defined as any of the following, provided however, that the board of directors of the Corporation by a duly adopted resolution has determined the presence of such cause in good faith: (i) McManus Financial Consultants, Inc.'s material breach of any of its duties and responsibilities under this Agreement; or, (ii) McManus Financial Consultants, Inc.'s commission of an act of fraud or willful misconduct or gross negligence in the performance of its duties. NeoTherapeutics shall have the right to terminate this Agreement without cause at any time, but any such termination shall be without prejudice to McManus Financial Consultants, Inc.'s rights to receive all payments due under this agreement upon termination. McManus Financial Consultants, Inc. shall have the right to terminate this Agreement if at its sole discretion determines that a material change in the operations of NeoTherapeutics has occurred. NeoTherapeutics, Inc. agrees to indemnify and hold McManus Financial Consultants, Inc. harmless against any loss, damage, expense (including legal and other related fees and expenses), liability or claim arising out of negligent or other wrongful actions by NeoTherapeutics, Inc. or its officers or employees and relating to McManus Financial Consultants, Inc.'s performance under this Agreement. McManus Financial Consultants, Inc. shall advise NeoTherapeutics, Inc. in writing of any such claim of liability within a reasonable time after first receipt of any notice or other information which would suggest the likelihood of such claim or action. Rajesh C. Shrotriya, M.D. August 19, 2002 NeoTherapeutics, Inc. Page 3 McManus Financial Consultants, Inc. agrees to indemnify and hold NeoTherapeutics, Inc. harmless against any loss, damage, expense (including legal and other related fees and expenses), liability or claim arising out of negligent or other wrongful actions by McManus Financial Consultants, Inc. or its officers or employees and relating to McManus Financial Consultants, Inc.'s performance under this Agreement. NeoTherapeutics, Inc. shall advise McManus Financial Consultants, Inc. in writing of any such claim of liability within a reasonable time after first receipt of any notice or other information, which would suggest the likelihood of such claim or action. McManus Financial Consultants, Inc. will maintain the confidentiality of all corporate and financial planning information provided to McManus Financial Consultants, Inc. by NeoTherapeutics, Inc. This information shall remain confidential until such information becomes publicly available without fault on the part of McManus Financial Consultants, Inc. or is disclosed by NeoTherapeutics, Inc. to third parties without similar restrictions. If this Letter of Agreement is approved and agreed to, please sign the original and enclosed duplicate under the work "Accepted". Retain the original for your records and return the duplicate for my files. Sincerely, /s/ Michael P. McManus Michael P. McManus Executive Vice President Accepted and Agreed to this 19th day of August, 2002 NEOTHERAPEUTICS, INC. By: /s/ Rajesh C. Shrotriya ----------------------------------------- Rajesh C. Shrotriya, M.D. Chairman and Chief Executive Officer EX-31.1 8 a94549exv31w1.htm EXHIBIT 31.1 exv31w1

EXHIBIT 31.1

Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Rajesh C. Shrotriya, M.D., certify that:

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

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

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

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 13, 2003		/s/ Rajesh C. Shrotriya

		Rajesh C. Shrotriya, M.D.
		Chief Executive Officer

EX-31.2 9 a94549exv31w2.htm EXHIBIT 31.2 exv31w2

EXHIBIT 31.2

Certification of Vice President Finance and Strategic Planning
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, John L. McManus, certify that:

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

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 13, 2003		/s/ JOHN L. McMANUS

		John L. McManus
		Vice President Finance and Strategic Planning

EX-32.1 10 a94549exv32w1.htm EXHIBIT 32.1 exv32w1

EXHIBIT 32.1

The following certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350 and in accordance with SEC Release No. 33-8238. These certifications shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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., a Delaware corporation (the “Company”), hereby certifies, to his knowledge, that:

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the period ended September 30, 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: November 13, 2003		/s/ Rajesh C. Shrotriya

		Rajesh C. Shrotriya, M.D.
		Chief Executive Officer

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.

Certification of Acting Chief Financial officer


Dated: November 13, 2003		/s/ JOHN L. McMANUS

		John L. McManus
		Vice President Finance and Strategic Planning

-----END PRIVACY-ENHANCED MESSAGE-----

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	•		2,000 shares of our Series E Convertible Voting Preferred Stock (“Series E Preferred Stock”) and warrants to purchase up to an aggregate of 2,800,000 shares of our common stock, at an exercise price of $6.50, for net cash proceeds of approximately $18.2 million.

	•		600 shares of our Series D 8% Cumulative Convertible Voting Preferred Stock (“Series D Preferred Stock”) and warrants to purchase up to an aggregate of 2,553,190 shares of our common stock, half at an exercise price of $3.00 and the other half at an exercise price of $3.50 per share, for net cash proceeds of approximately $5.1 million.

	•		1,084,828 shares of our common stock for net cash proceeds of approximately $3.5 million and issued warrants to purchase 55,555 shares of our common stock at an exercise price of $3.25 per share and warrants to purchase 368,520 shares of our common stock at an exercise price of $4.75 per share.

	•		Options to purchase an aggregate of 140,000 shares at an exercise price of $1.99 per share granted to certain non-California resident employees and consultants on March 28, 2003,

	•		Rights to purchase 105,700 shares of common stock at a purchase price of $5.18 per share to certain California employees on September 5, 2003. The purchase price was deemed paid in the form of past uncompensated services of equivalent value provided by the employees, and

	•		Options to purchase an aggregate of 315,000 shares at an exercise price of $1.99 per share to certain executive officers on September 5, 2003.

	•		Options to purchase an aggregate of 20,000 shares at an exercise price of $2.01 per share to certain directors on April 1, 2003,

	•		Options to purchase an aggregate of 90,000 shares at an exercise price of $4.00 per share to certain directors on July 31, 2003,

	•		Options to purchase an aggregate of 5,000 shares at an exercise price of $4.06 per share to a new employee on August 5, 2003,

	•		Options to purchase an aggregate of 25,000 shares at an exercise price of $4.21 per share to a new employee on August 15, 2003, and

	•		Options to purchase an aggregate of 332,500 shares at an exercise price of $4.90 per share to certain employees, directors and consultants on September 12, 2003.

	•		continued scientific progress in research and development to identify and develop or obtain additional drug candidates;

	•		the cost and progress of preclinical and clinical testing of our anti-cancer drugs and additional drug candidates;

	•		cost involved in filing, prosecuting and enforcing patent claims;

	•		effect of competing technological developments;

	•		cost of commercialization activities;

	•		time and cost involved in obtaining regulatory approvals; and

	•		our ability to establish collaborative and other arrangements with third parties, such as licensing and manufacturing agreements.

	•		pursuing new patents for existing products which may be granted just before the expiration of one patent, which could extend patent protection for a number of years or otherwise delay the launch of generics;

	•		using the Citizen Petition process to request amendments to FDA standards;

	•		seeking changes to the United States Pharmacopeia, an organization which publishes industry recognized compendia of drug standards; and

	•		attaching patent extension amendments to non-related federal legislation.

+		Filed herewith

*		Indicates a management contract or compensatory plan or arrangement.

#		Confidential portions omitted and filed separately with the U.S. Securities and Exchange Commission pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.

(b)		Reports on Form 8-K

	1.		We filed a Report on Form 8-K on August 15, 2003 to report the completion of the a sale in a private placement transaction to certain institutional and individual investors of 737,040 shares of our common stock at a negotiated purchase price of $4.10 per share for gross cash proceeds of approximately $3.0 million. The investors also received five-year warrants to purchase up to 368,520 shares of our common stock at an exercise price of $4.75 per share.

	2.		We filed a Report on Form 8-K on August 18, 2003 to report the Company had entered into an agreement to purchase certain assets and provide debtor in possession financing to the owner of the assets, Protarga, Inc.

	3.		We filed a Report on Form 8-K on August 20, 2003 to report the Company and Lannett Company, Inc. announced that they have entered into an exclusive supply, marketing and distribution agreement for ciprofloxacin.

	4.		We filed a Report on Form 8-K on September 30, 2003 to report the completion of the offering of 2,000 shares of our Series E Convertible Voting Preferred Stock, stated value $10,000 per share, and warrants to purchase up to an aggregate of 2,800,000 shares of our common stock, at an exercise price of $6.50 per share, for aggregate consideration of $20,000,000.

	5.		We filed a Report on Form 8-K on September 30, 2003 to report that the Company and GPC Biotech AG announced that the first patient was dosed in the satraplatin Phase 3 registrational trial. The first patient dosing triggers payments by GPC Biotech AG, co-developer of satraplatin, to the Company, of $1 million in cash plus a $1 million equity investment.

	6.		We filed a Report on Form 8-K on October 2, 2003 to report that the Company withdrew from a bankruptcy court supervised auction to purchase certain assets of Protarga, Inc.

			(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

			(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

			(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

		(i) the accompanying Quarterly Report on Form 10-Q of the Company for the period ended September 30, 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.