-----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, EaQXu65hTEj+iHEuet7GpEgaCrMfExDGdmneGSR8qdMjfO3UvjRrinLhJ26jKrkI wZJxUHK4WEky/cNIko030Q== 0000950144-97-009204.txt : 19970815 0000950144-97-009204.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950144-97-009204 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CYTRX CORP CENTRAL INDEX KEY: 0000799698 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 581642740 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15327 FILM NUMBER: 97661976 BUSINESS ADDRESS: STREET 1: 154 TECHNOLOGY PKWY STREET 2: TECHNOLOGY PARK/ATLANTA CITY: NORCROSS STATE: GA ZIP: 30092 BUSINESS PHONE: 4043689500 MAIL ADDRESS: STREET 1: 154 TECHNOLOGY PARKWAY CITY: NORCROSS STATE: GA ZIP: 30092 10-Q 1 CYTRX CORP. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 ------------- 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 0-15327 CYTRX CORPORATION - ------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 58-1642740 - ------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 154 Technology Parkway, Norcross, Georgia 30092 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (770) 368-9500 - ------------------------------------------------------------------------------- (Registrant's telephone number) 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 -- --- Number of shares of CytRx Corporation Common Stock, $.001 par value, issued and outstanding as of August 11, 1997: 7,422,588. 2 CYTRX CORPORATION Form 10-Q Table of Contents
Page ---- PART I. FINANCIAL INFORMATION Item 1 Financial Statements: Condensed Consolidated Balance Sheets as of June 30, 1997 (unaudited) and December 31, 1996 3 Condensed Consolidated Statements of Operations (unaudited) for the Three Month and Six Month Periods Ended June 30, 1997 and 1996 4 Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Month Periods Ended June 30, 1997 and 1996 5 Notes to Condensed Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 2 Changes in Securities 12 Item 4 Submission of Matters to a Vote of Security Holders 14 Item 6 Exhibits and Reports on Form 8-K 15 SIGNATURES 16
2 3 Part I - FINANCIAL INFORMATION Item 1. - Financial Statements CYTRX CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1997 December 31, 1996 ------------- ----------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 4,761,957 $ 1,604,003 Short-term investments 8,393,008 10,273,108 Accounts receivable, net 2,524,930 643,079 Inventories 11,045 9,508 Other current assets 167,932 532,399 ------------ ------------ Total current assets 15,858,872 13,062,097 Property and equipment, net 4,949,497 5,012,809 Other assets: Long-term investments -- 5,096,353 Notes receivable 632,786 975,000 Acquired developed technology, net 3,574,356 -- Other 59,901 153,063 ------------ ------------ Total other assets 4,267,043 6,224,416 ------------ ------------ Total assets $ 25,075,412 $ 24,299,322 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 941,437 $ 586,920 Accrued liabilities 1,676,443 1,123,476 Unearned revenue 46,056 251,192 ------------ ------------ Total current liabilities 2,663,936 1,961,588 Minority interest in Vaxcel, Inc. 735,685 -- Commitments Stockholders' equity: Preferred stock, $.01 par value, 1,000 shares authorized; no shares issued and outstanding -- -- Common stock, $.001 par value, 18,750,000 shares authorized; 7,966,274 and 7,945,203 shares issued at June 30, 1997 and December 31, 1996, respectively 7,966 7,945 Additional paid-in capital 65,103,567 62,653,015 Treasury stock, at cost (555,154 and 507,750 shares held at June 30, 1997 and December 31, 1996, respectively) (2,198,533) (2,021,669) Accumulated deficit (41,237,209) (38,301,557) ------------ ------------ Total stockholders' equity 21,675,791 22,337,734 ------------ ------------ Total liabilities and stockholders' equity $ 25,075,412 $ 24,299,322 ============ ============
See accompanying notes. 3 4 CYTRX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Month Period Ended June 30, Six Month Period Ended June 30, --------------------------------- -------------------------------- 1997 1996 1997 1996 ------------ ----------------- ------------ ---------------- Revenues: Net sales $ 3,322,250 $ 479,894 $ 7,065,330 $ 817,419 Investment income, net 220,024 316,595 464,559 620,567 License fees -- 50,000 -- 50,000 Collaborative and grant income 13,322 -- 105,989 -- Other 27,129 15,667 52,823 33,452 ------------ ------------ ------------ ------------ 3,582,725 862,156 7,688,701 1,521,438 Expenses: Cost of sales 2,433,967 367,637 4,758,612 480,352 Research and development 909,526 553,357 1,687,090 1,540,576 Selling, general and administrative 1,676,791 1,086,541 3,352,918 1,957,828 Acquired research and development 951,017 -- 951,017 -- ------------ ------------ ------------ ------------ 5,971,301 2,007,535 10,749,637 3,978,756 ------------ ------------ ------------ ------------ Net loss before minority interest (2,388,576) (1,145,379) (3,060,936) (2,457,318) Minority interest (125,284) -- (125,284) -- ------------ ------------ ------------ ------------ Net loss $ (2,263,292) $ (1,145,379) $ (2,935,652) $ (2,457,318) ============ ============ ============ ============ Net loss per share (see Exhibit 11) $ (0.31) $ (0.15) $ (0.40) $ (0.31) ============ ============ ============ ============
See acompanying notes. 4 5 CYTRX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Month Period Ended June 30, ------------------------------------- 1997 1996 ------------- ------------ Cash flows from operating activities: Net loss $ (2,935,652) $ (2,457,318) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 324,659 252,364 Charge for acquired research and development 951,017 -- Minority interest in net loss (125,284) -- Net change in assets and liabilities (503,450) (691,458) ------------ ------------ Total adjustments 646,942 (439,094) ------------ ------------ Net cash used by operating activities (2,288,710) (2,896,412) Cash flows from investing activities: (Increase) decrease in short-term investments 1,880,100 (11,181,158) Decrease in long-term investments 5,096,353 -- Capital expenditures, net (201,332) (123,274) Net cash paid for acquisition (1,239,355) -- ------------ ------------ Net cash provided (used) by investing activities 5,535,766 (11,304,432) Cash flows from financing activities: Net proceeds from issuance of common stock 87,762 70,160 Purchase of treasury stock (176,864) (40,001) ------------ ------------ Net cash provided (used) by financing activities (89,102) 30,159 ------------ ------------ Net increase (decrease) in cash and cash equivalents 3,157,954 (14,170,685) Cash and cash equivalents at beginning of period 1,604,003 16,645,570 ------------ ------------ Cash and cash equivalents at end of period $ 4,761,957 $ 2,474,885 ============ ============
5 6 CYTRX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 (Unaudited) 1. DESCRIPTION OF COMPANY AND BASIS OF PRESENTATION CytRx Corporation's business strategy is to build shareholder value through the development and commercialization of high value human therapeutic products and the successful development and rollout of its promising subsidiary companies. CytRx's Flocor (CRL-5861) is being developed to treat acute sickle cell crisis and other vascular diseases. Vaxcel, Inc. is developing the Optivax(R) vaccine delivery system to enhance the effectiveness of vaccines. VetLife, Inc. markets and distributes products to enhance food animal growth. Proceutics, Inc. provides high quality preclinical development services to the pharmaceutical industry. References herein to "the Company" include CytRx and its subsidiaries. The accompanying condensed consolidated financial statements at June 30, 1997 and for the three month and six month periods ended June 30, 1997 and 1996 include the accounts of CytRx together with those of its subsidiaries and are unaudited, but include all adjustments, consisting of normal recurring entries, which the Company's management believes to be necessary for a fair presentation of the periods presented. All significant intercompany transactions have been eliminated. Interim results are not necessarily indicative of results for a full year. The financial statements should be read in conjunction with the Company's audited financial statements in its Form 10-K for the year ended December 31, 1996. 2. INVENTORIES Inventories at June 30, 1997 and December 31, 1996 are comprised of the following:
June 30, 1997 December 31, 1996 ------------- ----------------- Finished goods $ 8,009 $ 6,144 Raw materials 3,036 3,364 ------- ------- $11,045 $ 9,508 ======= =======
3. REVERSE STOCK SPLIT All share and per share information in the accompanying condensed consolidated financial statements and notes thereto has been retroactively adjusted to reflect a one-for-four 6 7 reverse stock split approved on February 5, 1996 by the Company's stockholders, effective February 6, 1996. 4. NET LOSS PER COMMON SHARE Net loss per common share is calculated in accordance with Accounting Principles Board Opinion No. 15, Earnings per Share, and is based on the weighted average number of common shares and common share equivalents outstanding during each period. Stock options and warrants outstanding are excluded from the computation of net loss per share since the effect is antidilutive. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The adoption of Statement No. 128 will not impact the Company's calculation of net loss per share for the three month or six month periods ended June 30, 1997 and 1996. 5. ACQUISITION OF ZYNAXIS, INC. In December 1996 CytRx, Vaxcel and Zynaxis, Inc. ("Zynaxis") signed an agreement whereby Zynaxis would be merged with a wholly-owned subsidiary of Vaxcel. At that time Zynaxis was a publicly-held biotechnology company engaged in the development of certain vaccine technologies. The transaction was approved by the Zynaxis stockholders at a meeting held on May 21, 1997 and was consummated as of that date. Under the terms of the agreement all of the outstanding shares of Zynaxis were converted into shares of Vaxcel based upon certain exchange ratios defined in the agreement, resulting in the issuance of an aggregate of 12.5% of the outstanding (post-merger) shares of Vaxcel common stock at the date of closing. The merger was treated as a purchase by Vaxcel and constitutes a tax-free reorganization for Zynaxis stockholders. Pursuant to the agreement, CytRx was to provide up to $2 million to Zynaxis under a secured credit facility during the period prior to closing of the merger, at which time the outstanding principal and interest was to be contributed to the capital of Vaxcel, together with additional equity in the amount of $4 million less the outstanding principal and interest of the secured note. At the time of closing the outstanding principal and interest of the secured note to Zynaxis was approximately $1.7 million, resulting in a net cash infusion to Vaxcel of approximately $2.3 million. Of the $4,551,000 excess purchase price over the estimated fair value of the net assets acquired from Zynaxis, $3,600,000 has been recorded as an intangible asset (Acquired 7 8 Technology) and is being amortized over 15 years. The remaining $951,000 has been recorded as a charge for acquired research and development in the accompanying statement of operations. The following table presents unaudited pro forma operating results for the six months ended June 30, 1997 and 1996, as if the acquisition of Zynaxis had occurred on January 1 of each period.
1997 1996 ---- ---- Revenues $ 8,467,000 $ 2,341,000 Net loss before minority interest (2,432,000) (4,969,000) Minority interest (129,000) (378,000) Net loss $(2,303,000) $(4,591,000) Net loss per share $ (.31) $ (.58)
6. ADOPTION OF SHAREHOLDER PROTECTION RIGHTS PLAN Effective April 16, 1997, the Company's Board of Directors declared a distribution of one Right for each outstanding share of the Company's Common Stock to stockholders of record at the close of business on May 15, 1997 and for each share of Common Stock issued by the Company thereafter and prior to a Flip-in Date (as defined below). Each Right entitles the registered holder to purchase from the Company one ten-thousandth (1/10,000th) of a share of Series A Junior Participating Preferred Stock, at an exercise price of $30. The Rights are generally not exercisable until 10 business days after an announcement by the Company that a person or group of affiliated persons (an "Acquiring Person") has acquired beneficial ownership of 15% or more of the Company's then outstanding shares of Common Stock (a "Flip-in Date"). In the event the Rights become exercisable as a result of the acquisition of shares, each Right will enable the owner, other than the Acquiring Person, to purchase at the Right's then current exercise price a number of shares of Common Stock with a market value equal to twice the exercise price. In addition, unless the Acquiring Person owns more than 50% of the outstanding shares of Common Stock, the Board of Directors may elect to exchange all outstanding Rights (other than those owned by such Acquiring Person) at an exchange ratio of one share of Common Stock per Right. All Rights that are owned by any person on or after the date such person becomes an Acquiring Person will be null and void. The Rights have been distributed to protect the Company's stockholders from coercive or abusive takeover tactics and to give the Board of Directors more negotiating leverage in dealing with prospective acquirors. 8 9 Item 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition and Liquidity At June 30, 1997 the Company had cash and investments of $13.2 million and net assets of $21.7 million, compared to $17 million and $22.3 million, respectively, at December 31, 1996. Working capital totaled $13.2 million at June 30, 1997, compared to $11.1 million at December 31, 1996. Working capital at December 31, 1996 excludes $5.1 million of investments classified as non-current assets which mature in early 1998 that are included in working capital at June 30, 1997. Management believes that cash and investments on hand, combined with interest income and operating revenues, will be sufficient to satisfy the Company's liquidity and working capital needs for the next several years, but it is possible that additional funding may be required to accomplish the necessary testing and data collection procedures prescribed by the U.S. Food and Drug Administration for the commercialization of any products for human use. Definitive statements as to the time required and costs involved in reaching certain objectives for the Company's products are difficult to project due to the uncertainties of the medical research field. Requirements could vary depending upon the results of research, competitive and technological developments, and the time and expense required for governmental approval of products, some of which factors are beyond management's control. During 1996 and 1997 the Company received federal government funding for certain research and development activities via several Small Business Innovative Research (SBIR) grants. The Company will continue to seek government assistance for its product development efforts as appropriate and available. Additional funding for research and development expenditures is expected to be obtained through joint ventures and product licensing arrangements with other companies. CytRx also anticipates that it may raise funds through equity financings of one or more of its subsidiaries, either directly by the subsidiary through issuance of the subsidiary's stock, or through sale by CytRx of a portion of its ownership in a subsidiary. These statements regarding the Company's plans for future financing are forward-looking statements that are subject to a number of risks and uncertainties. The Company's ability to obtain future financings through joint ventures, product licensing arrangements, equity financings or otherwise is subject to market conditions and the Company's ability to identify parties that are willing and able to enter into such arrangements on terms that are satisfactory to the Company. There can be no assurance that the Company will be able to obtain future financing from these sources. Effective May 21, 1997 CytRx's then wholly-owned subsidiary, Vaxcel, merged with Zynaxis, a publicly-held biotechnology company (see Note 5 to Financial Statements). Pursuant to the merger agreement, CytRx provided $4 million in equity funding to Vaxcel, less the outstanding principal and interest drawn on a $2 million secured credit facility by Zynaxis during 9 10 the period prior to closing of the merger. Subsequent to the merger, CytRx owns approximately 87.5% of Vaxcel, with the remaining 12.5% held by the former Zynaxis shareholders. During 1995 the Company formed a new subsidiary, Proceutics, Inc., to provide preclinical development services to the pharmaceutical industry. CytRx contributed existing property and staff resources to the venture, which commenced formal operations in January 1996. Although Proceutics continues to provide services to its affiliates, revenues derived from third party sources are contributing to the Company's consolidated liquidity and capital resources. In January 1996 VetLife signed an agreement with IVY Laboratories, Inc. to market and distribute IVY's line of FDA-approved cattle growth products and devices in North America beginning January 1, 1997. In September 1996 VetLife signed an agreement with Elanco Animal Health, a division of Eli Lilly and Company, whereby VetLife became the exclusive U.S. supplier of Elanco's Compudose cattle growth promotant products, effective October 1, 1996. Revenue generated from these arrangements are offsetting VetLife's product development efforts and contributing to the Company's consolidated liquidity and capital resources. At December 31, 1996 the Company has net operating loss carryforwards for income tax purposes of approximately $37 million, which will expire at various dates through 2011 if not utilized. The Company also has research and development credits available to reduce income taxes, if any, of approximately $1.1 million. Based on an assessment of all available evidence including, but not limited to, the Company's limited operating history and lack of profitability, uncertainties of the commercial viability of the Company's technology, the impact of government regulation and healthcare reform initiatives, and other risks normally associated with biotechnology companies, the Company has concluded that it is more likely than not that these net operating loss carryforwards and credits will not be realized and, as a result, a 100% deferred tax valuation allowance has been recorded against these assets. Such valuation allowance had no impact on reported net losses. Results of Operations The following table presents the breakdown of consolidated results of operations by operating unit for the three month and six month periods ended June 30, 1997 and 1996. Although the subsequent discussion addresses the consolidated results of operations for CytRx together with its subsidiaries, management believes this presentation of net results by operating unit is important to an understanding of the consolidated financial statements taken as a whole. 10 11
Three Months Ended June 30, Six Months Ended June 30, ---------------------------- -------------------------- (in thousands) 1997 1996 1997 1996 ---- ---- ---- ---- CytRx $ (876) $ (581) $(1,497) $ (960) Proceutics (219) (176) (305) (580) Vaxcel (1,319) (220) (1,662) (513) Vetlife 207 (149) 581 (330) Consolidation Adjustments (56) (19) (53) (74) ------- ------- ------- ------- Consolidated $(2,263) $(1,145) $(2,936) $(2,457) ======= ======= ======= =======
Consolidated net sales for the three month and six month periods ended June 30, 1997 were $3,322,000 and $7,065,000, respectively, as compared to $480,000 and $817,000, respectively, in 1996. The significant components of net sales are shown below.
Three Months Ended June 30, Six Months Ended June 30, ---------------------------- ------------------------- (in thousands) 1997 1996 1997 1996 ---- ---- ---- ---- Product Sales (VetLife) $ 2,714 $ -- $ 5,794 $ -- Product Sales (CytRx) 106 105 234 228 Services (Proceutics) * 385 280 821 435 Services (CytRx) 117 95 216 154 ------- ------- ------- ------- Consolidated $ 3,322 $ 480 $ 7,065 $ 817 ======= ======= ======= =======
* excludes affiliate sales Cost of sales were $2,434,000 (73% of net sales) during the second quarter of 1997 as compared to $368,000 (77% of net sales) in 1996. For the six month period ended June 30 cost of sales were $4,759,000 (67% of net sales) in 1997 versus $480,000 (59% of net sales) in 1996. This increase in cost of sales is directly attributable to the sales activities of VetLife, which initiated sales and marketing activities during the fourth quarter of 1996, as well as increasing third party sales for Proceutics. Investment income was $220,000 and $465,000 during the three month and six month periods ended June 30, 1997 as compared to $317,000 and $621,000 for the same periods in 1996, corresponding to reductions in cash and investment balances. Research and development expenditures for the three month period ended June 30, 1997 were $910,000 as compared to $553,000 in 1996. For the six month period research and development expenditures totalled $1,687,000 as compared to $1,541,000 in 1996. Contributing to the increase for 1997 was the initiation in April 1997 of a human clinical trial to evaluate Flocor (CRL-5861) in sickle cell patients suffering acute vaso-occlusive crises. In connection with Vaxcel's acquisition of Zynaxis, the Company recorded a non-recurring charge of $951,000 for acquired research and development. This charge is reported as a separate line item on the accompanying Statement of Operations. Selling, general and administrative expenses for the three month period ended June 30, 1997 were $1,677,000 as compared to $1,087,000 in 1996. For the six month period selling, general and administrative expenses totalled $3,353,000 as compared to $1,958,000 in 1996. 11 12 This increase is primarily attributable to the initiation of selling activities for VetLife. Management believes that inflation had no material impact on the Company's operations during the three year period ended December 31, 1996. PART II -- OTHER INFORMATION ITEM 2 CHANGES IN SECURITIES As reported on the Company's report on Form 8-K filed April 17, 1997, on April 16, 1997, the Board of Directors of the Company declared a dividend of one preferred stock purchase right (a "Right") for each outstanding share of common stock, par value $.001 per share (the "Common Shares"), of the Company. The dividend was payable on May 15, 1997, (the "Record Date") to the stockholders of record on that date. Each Right entitles the registered holder to purchase from the Company one ten-thousandth (1/10,000th) of a share of Junior Participating Preferred Stock, par value $.01 per share (the "Preferred Shares"), of the Company, at a price of $30 per one ten-thousandth of a Preferred Share (the "Exercise Price"), subject to adjustment. The description and terms of the Rights are set forth in the Shareholder Protection Rights Agreement, as the same may be amended from time to time (the "Rights Agreement"), dated as of April 16, 1997 between the Company and American Stock Transfer & Trust Company, as Rights Agent (the "Rights Agent"). Until the date on which certain events take place (the "Separation Time"), the Rights will be evidenced by, with respect to any Common Share certificate outstanding on the Record Date, such Common Share and a Summary of Rights mailed to each holder of record on the Record Date. The term "Separation Time" means the close of business on the earlier of (a) the tenth business day (or such earlier or later date as may be determined by the Board of Directors of the Company) following a public announcement by the Company that a person or group of affliated or associated persons has acquired beneficial ownership of 15% or more of the outstanding Common Shares (collectively, an "Acquiring Person") (the "Flip-in Date") or (b) the tenth business day (or such later date as may be determined by the Board of Directors of the Company) after the date on which any person or group of affiliated or associated persons commences a tender or exchange offer the consummation of which would result in the beneficial ownership by such Person of 15% or more of such outstanding Common Shares. The Rights Agreement provides that, until the Separation Time, the Rights will be transferred with and only with the Common Shares. Until the Separation Time (or the earlier temination or expiration of the Rights), new Common Share certificates issued after the Record Date upon transfer or new issuance of Common Shares will contain a notation incorporating the Rights Agreement by reference. Until the Separation Time (or the earlier termination or expiration of the Rights), the surrender for transfer of any certificates for Common Shares outstanding as of the Record Date, even without such notation, will also constitute the transfer of the Rights associated with the Common Shares represented by such certificate. As soon as practicable following the Separation Time, separate certificates evidencing the Rights (the "Right Certificates") will be mailed to holders of record of the Common Shares as of the close 12 13 of business on the Separation Time, and such separate Right Certificates alone will evidence the Rights. The Rights are not exercisable until the Separation Time. After the Separation Time and prior to the Expiration Time, each Right (unless previously terminated) will entitle the holder to purchase, for the Exercise Price, one ten-thousandth of a share of the Preferred Shares having the rights described below. The Rights will expire on the Expiration Time, unless the Expiration Time is extended, or the Rights are earlier terminated by the Company. The term "Expiration Time" is defined in the Rights Agreement and generally means April 16, 2007, unless the Rights are sooner exchanged or terminated. The Exercise Price payable, and the number of outstanding Rights and the number of one ten-thousandth interests in Preferred Shares issuable upon exercise of each Right, are subject to adjustment in the event of a stock split of the Common Shares or a stock dividend on the Common Shares payable in Common Shares or subdivisions, consolidations or combinations of the Common Shares occurring, in any such case, prior to the Separation Time. If prior to the Separation Time, the Company distributes securities or assets in exchange for Common Shares (other than regular cash dividends or a dividend payable solely in Common Shares) whether by dividend, reclassification or otherwise, the Company shall make such adjustments, if any, in the Exercise Price, the number of Rights and otherwise as the Board of Directors deems appropriate. At a Flip-in Date, Rights owned by the Acquiring Person or any affiliate or associate thereof or any transferee thereof will automatically become void and, subject to the Exchange Option summarized below, each Right will automatically become a right to buy, for the Exercise Price, that number of Common Shares or, at the option of the Board of Directors, Preferred Shares designed to have economic and voting terms similar to the Common Shares, in either case, having a market value of twice the Exercise Price. If any person or group acquires beneficial ownership of 15% or more of the outstanding Common Shares without any intent to acquire or affect control of the Company, that acquisition will not result in a Flip-in Date if such acquiror immediately enters into an irrevocable commitment to promptly divest, and thereafter promptly divests, sufficient Common Shares such that 15% or greater beneficial ownership ceases. After a Flip-in Date occurs, the Company may not consolidate or merge with, or sell 50% or more of its assets or earning power to, any person, if the Company's Board of Directors is controlled by the Acquiring Person, unless proper provision is made so that each Right would thereafter become a right to buy, for the Exercise Price, that number of shares of common stock of such other person having a market value of twice the Exercise Price. At any time after a Flip-in Date occurs and prior to the time a person or group of persons become the beneficial owner of more than 50% of the oustanding Common Shares, the Board of Directors of the Company may elect to exchange all of the outstanding Rights (other than Rights owned by such person or group which have become void), for Common Shares at an exhange ratio (subject to adjustment) of one Common Share per Right (the "Exchange Option"). 13 14 At any time prior to a Flip-in Date, the Board of Directors of the Company may terminate the Rights. Immediately upon any termination of the Rights, the right to exercise the Rights will terminate. The Company and the Rights Agent may amend the Rights Agreement in any respect prior to the occurrence of a Flip-in Date. Therafter, the Company and the Rights Agent may amend the Rights Agreement in any respect which shall not materially adversely affect the interests of holders of Rights generally or to cure an ambiguity or to correct or supplement any provision which may be inconsistent with any other provision or otherwise defective. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting of Stockholders held on June 26, 1997, the following members were elected to the Board of Directors:
Votes For Votes Withheld --------- -------------- Jack L. Bowman 6,617,285 399,177 Raymond C. Carnahan Jr. 6,621,450 395,012 Max Link 6,623,175 393,287 Jack J. Luchese 6,619,300 397,162 Herbert H. McDade 6,622,450 394,012
The following proposals were submitted to the Company's Stockholders for approval:
Votes Abstained/ Votes For Votes Against Not Voted --------- ------------- --------------- Amendment of the Company's ByLaws to classify the Board of Directors into three classes, each of which shall contain an equal number of directors to the extent possible, with directors in each class to be elected to three-year terms. 2,141,439 1,268,897 3,606,126 Amendment of the Company's Certificate of Incorporation to provide that stockholder action by written consent without a meeting must be taken by the holders of at least 80% of the Company's outstanding shares of Common Stock. 2,092,456 1,313,915 3,610,091 Amendment of the Company's Certificate of Incorporation to increase the Company's authorized capital stock to 25,000,000 shares
14 15 of Common Stock, par value $.001 per share, and 1,000,000 shares of Preferred Stock, par value $.01 per share. 2,109,067 1,309,916 3,597,479 Ratification of appointment of Ernst & Young LLP as independent auditors for the fiscal year ending December 31, 1997. 6,372,788 588,388 55,286
The nominees for election as directors were all elected. The proposals to amend the Company's Bylaws to classify the Board of Directors and to ratify the selection of the Company's auditors received more than the number of votes required for their approval, and were adopted. The proposals to amend the Company's Certificate of Incorporation to provide for a higher vote for stockholder action taken without a meeting and to increase the Company's authorized capital stock received fewer than the number of votes required for their approval, and were not adopted. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit Number Description ------- ----------- 3 Registrant's Bylaws, as amended (included as Exhibit 4.2 to the Registrant's registration statement on Form S-8 filed July 21, 1997 (registration no. 31717) and incorporated herein by reference). 10.1* Amendment No. 1 to 1995 Employment Agreement by and between CytRx Corporation and Jack J. Luchese 10.2* Change in Control Employment Agreement dated April 16, 1997 by and between CytRx Corporation and Jack J. Luchese 10.3* CytRx Corporation 1994 Stock Option Plan Amended and Restated as of April 16, 1997 11 Statement re: computation of net loss per share 27 Financial Data Schedule (for SEC use only)
* Indicates a management contract or compensating plan or arrangement. (b) Reports on Form 8-K On April 17, 1997, the Registrant filed a Current Report on Form 8-K reporting the adoption of a Shareholder Protection Rights Plan by its Board of Directors, effective April 16, 1997. On June 3,1997, the Registrant filed a Current Report on Form 8-K reporting the merger of its wholly-owned subsidiary, Vaxcel, Inc., with Zynaxis, Inc. on May 21, 1997. On July 21, 1997 the Registrant file Amendment No. 1 to the Form 8-K filed on June 3, 1997 in order to provide the historical financial statements of Zynaxis, Inc. required 15 16 under Rule 3-05 of Regulation S-X and the pro forma financial information required under Article 11 of Regulation S-X. 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. CYTRX CORPORATION (Registrant) Date: August 14, 1997 By: /s/ Mark W. Reynolds --------------- ------------------------------ Mark W. Reynolds Chief Financial Officer (Chief Accounting Officer and a duly authorized officer) 16 EX-10.1 2 AMENDMENT NO. 1 TO 1995 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.1 AMENDMENT NO. 1 TO 1995 EMPLOYMENT AGREEMENT BETWEEN CYTRX CORPORATION AND JACK J. LUCHESE This Amendment No. 1 ("Amendment") to Employment Agreement is made and executed this 16th day of April, 1997, by and between CYTRX CORPORATION ("CytRx" or the "Company"), a Delaware corporation having its principal place of business at 154 Technology Parkway, Technology Park/Atlanta, Norcross, Georgia 30092, and JACK J. LUCHESE ("Mr. Luchese") who currently resides at 3030 Castle Pines Drive, Duluth, Georgia 30136. WHEREAS, the Company and Mr. Luchese have heretofore entered into an amended and restated Employment Agreement, dated as of March 7, 1995 (the "1995 Agreement"); WHEREAS, the Compensation Committee of the Board of Directors of the Company at its meeting on April 16, 1997, approved certain changes to the terms of the 1995 Agreement, consistent with Mr. Luchese and the Company entering into a separate Change in Control Employment Agreement (the "Change in Control Employment Agreement") concurrently with such amendment; WHEREAS, the Company and Mr. Luchese desire to modify the 1995 Agreement to delete the provisions therein relating to a change in control of the Company; NOW, THEREFORE, in consideration of the mutual covenants and promises made in this Amendment, the parties do hereby agree as follows: 1. DELETION OF PARAGRAPH 8 "CHANGE IN CONTROL". Paragraph 8 of the 1995 Agreement be and hereby is deleted in its entirety, effective upon the execution by the Company and Mr. Luchese of that certain Change in Control Employment Agreement dated on or about April 16, 1997. 2. AMENDMENT TO PARAGRAPH 6(C)(4). Paragraph 6(c)(4) of the 1995 Agreement be and hereby is amended by deleting the parenthetical phrase "(as defined in Paragraph 8 hereof)" and substituting therefor the following "(as defined in such warrant)". 2 3. AMENDMENT TO PARAGRAPH 12(B). Paragraph 12(b) of the 1995 Agreement be and hereby is amended by deleting the reference therein to Paragraph 8. 4. AMENDMENT TO PARAGRAPH 3(A). Paragraph 3(a) of the 1995 Agreement be and hereby is amended by deleting the fourth sentence thereof and substituting therefor the following: "The base salary may be increased in any year based on Mr. Luchese's performance, but will not be decreased." 5. EFFECT OF AMENDMENT. All provisions of the 1995 Agreement not modified by the provisions of this Amendment shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment under seal on the day and year first above written. /s/ Jack J. Luchese ----------------------------------------- Jack J. Luchese Attest: CYTRX CORPORATION: /s/ Mark W. Reynolds /s/ William B. Fleck - --------------------- ----------------------------------------- Corporate Secretary By: William B. Fleck (CORPORATE SEAL) Title: Vice President - Human Resources EX-10.2 3 CHANGE IN CONTROL EMPLOYMENT AGREEMENT 1 EXHIBIT 10.2 CHANGE IN CONTROL EMPLOYMENT AGREEMENT BY AND BETWEEN CYTRX CORPORATION AND JACK J. LUCHESE 2 CHANGE IN CONTROL EMPLOYMENT AGREEMENT AGREEMENT by and between CytRx Corporation, a Delaware corporation (the "Company") and Jack J. Luchese (the "Executive"), dated as of the 16th day of April, 1997. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section l(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. 3 (c) The "1995 Employment Agreement" shall mean that certain Employment Agreement, dated as of March 7, 1995, as amended, by and between the Company and the Executive. 2. Change of Control. For the purposes of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by a Person who is on April 1, 1997 the beneficial owner of 25% or more of the Outstanding Company Voting Securities, (ii) any acquisition directly from the Company, (iii) any acquisition by the Company, (iv) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (v) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or (b) Individuals who, as of April 1, 1997, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to April 1, 1997 whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more - 2 - 4 subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the second anniversary of such date (the "Employment Period"). 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date, and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) engage in other business activities that do not represent a conflict of interest with his duties to the Company, and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this - 3 - 5 Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to 12 times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the 12-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the Executive's highest annual bonus for the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. - 4 - 6 (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 13(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the - 5 - 7 Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, - 6 - 8 insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 12(c) of this Agreement. For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the - 7 - 9 Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred, for the most recently completed fiscal year during the Employment Period, if any (such amount being referred to as the "Most Recent Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to two times the sum of (1) the Executive's Annual Base Salary, and (2) the Most Recent Annual Bonus; and C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's qualified retirement plan (the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Company's Retirement Plan immediately prior to the Effective Date), and any excess or supplemental retirement plans in which the Executive participates (together, the "SERP") which the Executive would receive if the Executive's employment continued for two years after the Date of Termination, assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation in each of such two years is the Annual Base Salary required by Section 4(b)(i) plus the Most Recent Annual Bonus, over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination; (ii) for two years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the - 8 - 10 Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until two years after the Date of Termination and to have retired on the last day of such period; (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (iv) Notwithstanding any provision of this Agreement to the contrary, the Executive shall forfeit his right to receive, or, to the extent such amounts have previously been paid to the Executive, shall repay in full to the Company with interest at 8% per annum within thirty (30) days of a final determination of the Executive's liability therefor as set forth below, the amount described in Section 6(a)(i)(B) of this Agreement if at any time during the period of two years after the Date of Termination (the "Restricted Period") he violates the restrictions on competition set forth in Section 11 hereof. Any determination of whether the Executive has violated the such non- competition restrictions shall be made by arbitration in Atlanta, Georgia under the Rules of Commercial Arbitration (the "Rules") of the American Arbitration Association, which Rules are deemed to be incorporated by reference herein. (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable of the following: (1) the death benefits described in Section 7(c) of the 1995 Employment Agreement (whether or not superseded by this Agreement), (2) benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, - 9 - 11 practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date, or (3) similar benefits in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without furthe obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of the following: (1) the post-disability benefits described in Section 7(c) of the 1995 Employment Agreement (whether or not superseded by this Agreement), (2) disability and other benefits generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date, or (3) disability and other benefits in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(d) shall include, and the Executive shall be entitled after his termination of employment to receive, the post-termination benefits described in the first sentence of Section 7(a) of the 1995 Employment Agreement (whether or not superseded by this Agreement). 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 13(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement - 10 - 12 with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. Certain Adjustments for Excise Tax. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then, prior to the making of any Payment to the Executive, a calculation shall be made comparing (i) the net benefit to the Executive of the Payment after payment of the Excise Tax and all applicable federal, state and local income and other taxes, to (ii) the net benefit to the Executive if the Payment had been limited to the extent necessary to avoid being subject to the Excise Tax (but after payment of all other applicable federal, state and local income and other taxes). If the amount calculated under (i) above is less than the amount calculated under (ii) above, then the Payment shall be limited to the extent necessary to avoid being subject to the Excise Tax, and the Executive may select the component of the Payment to which such limitation is to be applied. (b) The determination of whether an Excise Tax would be imposed, the amount of such Excise Tax, and the calculation of the amounts referred to in (i) and (ii) above shall be made by Ernst & Young LLP or such other nationally-recognized public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the - 11 - 13 Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Payments which the Executive was entitled to, but did not receive pursuant to this Section 9, could have been made without the imposition of the Excise Tax ("Underpayment"). In such event, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Restriction on Competition. In order to protect the Company's investment, which includes but is not limited to, time, money and proprietary information and in recognition of the unique character of the trade secrets and other confidential information which are the basis of the Company's business and future business opportunities, in recognition of the worldwide geographic scope of the Company's business and/or potential business opportunities and the Executive's contemplated role, responsibilities and knowledge therefor, for a period of two years following the Date of Termination, regardless of the reason therefor, the Executive agrees that he will not work as a consultant for or directly or indirectly perform services anywhere in the world for himself or any other person, firm or corporation in any capacity involving the study, development, use, manufacture or marketing of all formulations and methods using the surface-active copolymers described in U.S. Patent No. 4,801,452, U.S. Patent Application Serial No. 291,925, U.S. Patent Application Serial No. 107,358, U.S. Patent Application Serial No. 208,335, and U.S. Patent Application Serial No. 150,731. The foregoing shall not preclude (i) the employment of the Executive, whether as a director, - 12 - 14 officer, employee, consultant or otherwise, by a research partner, joint venture partner, licensee or other person, or corporation or entity that at such time is authorized by the Company to have rights in or to restricted products, or (ii) the ownership by the Executive of investment securities representing not more than three per cent of the outstanding voting securities of company engaged in a pharmaceutical business, whose stock and/or securities are traded on a national stock exchange or national quotations system, provided that such investment is passive and not with the intention of controlling such business. 12. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 13. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than-by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Mr. Jack J. Luchese 3030 Castle Pines Drive Duluth, Georgia 30136 - 13 - 15 If to the Company: the Company Corporation 154 Technology Parkway Norcross, Georgia 30092 Attention: Secretary or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a) hereof, prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof, including without limitation the 1995 Employment Agreement; provided, however, that the following shall expressly survive the Effective Date of this Agreement: (i) Paragraphs 6, 10, 11(a), 11(c), 11(d) and 12(a) of the 1995 Employment Agreement, and (ii) any and all outstanding rights, options and/or warrants to purchase stock of the Company held by the Executive on the Effective Date. (signatures on following page) - 14 - 16 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused this Agreement to be executed in its name on its behalf by its undersigned officer thereunto, duly authorized, all as of the day and year first above written. /s/ Jack J. Luchese ------------------------------------ Jack J. Luchese CYTRX CORPORATION By: /s/ William B. Fleck --------------------------------- William B. Fleck Vice President - Human Resources - 15 - EX-10.3 4 1994 STOCK OPTION PLAN 1 EXHIBIT 10.3 CYTRX CORPORATION 1994 STOCK OPTION PLAN (amended and restated as of April 16, 1997) 2 CYTRX CORPORATION 1994 STOCK OPTION PLAN AMENDED AND RESTATED AS OF APRIL 16, 1997 The purpose of the 1994 Stock Option Plan (the "Plan") of CytRx Corporation (the "Company") is to promote the interests of the Company by providing incentives to (i) designated officers and other employees of the Company or a Subsidiary Corporation (as defined herein), (ii) members of the Board of Directors (the "Board") and (iii) independent contractors and consultants (who may be individuals or entities) who perform services for the Company, to encourage them to acquire a proprietary interest, or to increase their proprietary interest, in the Company. The Company believes that the Plan will cause participants to contribute materially to the growth of the Company, thereby benefiting the Company's stockholders. For purposes of the Plan, the terms "Parent Corporation" and "Subsidiary Corporation" shall have the meanings set forth in subsections (e) and (f) of Section 424 of the Internal Revenue Code of 1986, as amended (the "Code"). SECTION 1. Administration The Plan shall be administered and interpreted by a committee of the Board (the "Committee") consisting of not less than two persons, all of whom shall be (i) "outside directors" as that term is used in Section 162(m) of the Code and the regulations promulgated thereunder or any successor provisions, and (ii) "non-employee directors" as such term is defined in Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act") or any successor provisions. The Committee shall have the sole authority to determine (i) who is eligible to receive Grants (as defined in Section 2 below) under the Plan, (ii) the type, size and terms of each Grant under the Plan (subject to Section 4 below), (iii) the time when each Grant will be made and the duration of any exercise or restriction period; (iv) any restrictions on resale applicable to the shares to be issued or transferred pursuant to the Grant; and (v) any other matters arising under the Plan. Non-Employee Directors of the Board, as defined below, may receive Grants only pursuant to the provisions of Section 5(j). The Committee may, if it so desires, base any of the foregoing determinations upon the recommendations of management of the Company. The Committee shall have full power and authority to administer and interpret the Plan and to adopt or amend such rules, regulations, agreements and instruments as it may deem appropriate for the proper administration of the Plan. The Committee's interpretations of the Plan and all determinations made by the Committee pursuant to the powers vested in it hereunder shall be conclusive and binding on all persons having any interests in the Plan or in any Grants under the Plan. No person acting under this Section shall be held liable for any action or determination made in good faith with respect to the Plan or any Grant under the Plan. SECTION 2. Grants Grants under the Plan shall consist of Incentive Stock Options (as defined in Section 5(b) below) and Nonqualified Stock Options (as defined in Section 5(b) below) (hereinafter collectively referred to as "Grants" or "Stock Options"). All Grants shall be subject to the terms and conditions set forth herein and to such other terms and conditions of any nature (as long as they are not inconsistent with the Plan) as the Committee deems appropriate and specifies in writing to the participant in the document designating the Grant (the "Grant Letter"). The Committee shall approve the form and provisions of each Grant Letter. Grants under any section 3 of the Plan need not be uniform as among the participants receiving the same type of Grant, and Grants under two or more sections of the Plan may be combined in one Grant Letter; provided, however, that Grants to Non-Employee Directors, as defined below, shall be made only in accordance with the provisions of Section 5(j). SECTION 3. Shares Subject to the Plan (a) The aggregate number of shares of the Common Stock, par value $.001 per share ("Common Stock"), of the Company that may be issued or transferred under the Plan is 1,500,000, subject to adjustment pursuant to Section 3(b) below. The maximum number of shares of Common Stock for which any Grantee may be granted Stock Options under the Plan is 500,000, subject to adjustment pursuant to Section 3(b) below. The shares may be authorized but unissued shares or reacquired shares. If and to the extent that Stock Options granted under the Plan terminate, expire or are canceled without having been exercised (including shares canceled as part of an exchange of Grants), the shares subject to such Grant shall again be available for subsequent Grants under the Plan. (b) If any change is made to the Common Stock (whether by reason of merger, consolidation, reorganization, recapitalization, stock dividend, stock split, combination of shares, or exchange of shares or any other change in capital structure made without receipt of consideration), then unless such event or change results in the termination of all outstanding Grants under the Plan, the Committee shall preserve the value of the outstanding Grants by adjusting the maximum number and class of shares issuable under the Plan to reflect the effect of such event or change in the Company's capital structure, and by making appropriate adjustments to the number and class of shares, the exercise price of each outstanding Stock Option and otherwise, except that any fractional shares resulting from such adjustments shall be eliminated by rounding any portion of a share equal to .500 or greater up, and any portion of a share equal to less than .500 down, in each case to the nearest whole number. SECTION 4. Eligibility for Participation Officers and other employees of the Company or a Subsidiary Corporation, members of the Board, and independent contractors and consultants who perform services for the Company shall be eligible to participate in the Plan (hereinafter referred to individually as an "Eligible Participant" and collectively as "Eligible Participants"). Only Eligible Participants who are officers or other employees of the Company or a Subsidiary Corporation shall be eligible to receive Incentive Stock Options. All Eligible Participants shall be eligible to receive Nonqualified Stock Options. The Committee shall select from among the Eligible Participants those who will receive Grants (the "Grantees") and shall determine the number of shares of Common Stock subject to each Grant; provided, however, that members of the Board who are not employed in any capacity by the Company (hereinafter referred to as "Non-Employee Directors") may only receive grants of Stock Options pursuant to Section 5(j). The Committee may, if it so desires, base any such selections or determinations upon the recommendations of management of the Company. Nothing contained in the Plan shall be construed to limit in any manner whatsoever the right of the Company to grant rights or options to acquire Common Stock or awards of Common Stock otherwise than pursuant to the Plan. - 3 - 4 SECTION 5. Stock Options (a) Number of Shares. The Committee, in its sole discretion, shall determine the number of shares of Common Stock that will be subject to each Stock Option. (b) Type of Stock Option and Exercise Price. (1) The Committee may grant options qualifying as incentive stock options within the meaning of Section 422 of the Code ("Incentive Stock Options") and other stock options ("Nonqualified Stock Options"), in accordance with the terms and conditions set forth herein, or may grant any combination of Incentive Stock Options and Nonqualified Stock Options (hereinafter referred to collectively as "Stock Options"). The exercise price per share of an Incentive Stock Option shall be the fair market value (as defined herein) of a share of Common Stock on the date of grant. If the Grantee of an Incentive Stock Option is the owner (as determined under Section 424(d) of the Code) of stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or a Parent Corporation or Subsidiary Corporation, the exercise price per share in the case of an Incentive Stock Option shall not be less than 110% of the fair market value of a share of Common Stock on the date of grant. (2) For all valuation purposes under the Plan, the fair market value of a share of Common Stock shall be determined in accordance with the following provisions: (A) If the Common Stock is not at the time listed or admitted to trading on any stock exchange but is traded either on the over-the-counter market or listed on the Nasdaq National Market, the fair market value shall be the closing selling price of one share of Common Stock on the date in question as such price is reported by the Nasdaq system or any successor system. If there is no reported closing selling price for the Common Stock on the date in question, then the closing selling price on the next preceding date for which such quotation exists shall be determinative of fair market value. (B) If the Common Stock is at the time listed or admitted to trading on any stock exchange, then the fair market value shall be the closing selling price of one share of Common Stock on the date in question on the stock exchange determined by the Committee to be the primary market for the Common Stock, as such prices are officially quoted on such exchange. If there is no reported closing selling price of Common Stock on such exchange on the date in question, then the fair market value shall be the closing selling price on the next preceding date for which such quotation exists. (C) If the Common Stock is at the time neither listed nor admitted to trading on any stock exchange nor traded in the over-the-counter market (or, if the Committee determines that the value as determined pursuant to Section 5(b)(2)(A) or (B) above does not reflect fair market value), then the Committee shall determine fair market value after taking into account such factors as it deems appropriate. - 4 - 5 (c) Exercise Period. The Committee shall determine the exercise period of each Stock Option. The exercise period shall not exceed ten years from the date of grant. However, if the Grantee of an Incentive Stock Option is the owner (as determined under Section 424(d) of the Code) of stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or a Parent Corporation or Subsidiary Corporation, the exercise period shall not exceed five years from the date of grant. Notwithstanding any determinations by the Committee regarding the exercise period of any Stock Option, a Change in Control (as defined in Section 7) shall have the effect set forth in Section 7. (d) Vesting of Stock Options and Restrictions on Shares. The vesting period for Stock Options shall commence on the date of grant and shall end on the date or dates, determined by the Committee, that shall be specified in the Grant Letter. The Committee may impose upon the shares of Common Stock issuable upon the exercise of a Stock Option such restrictions as it deems appropriate and specifies in the Grant Letter. During any period in which such restrictions apply, the Committee, in such circumstances as it deems equitable, may determine that all such restrictions shall lapse. Notwithstanding any other provision of the Plan, all outstanding Stock Options shall become immediately and fully vested and immediately exercisable upon a Change in Control of the Company (as defined in Section 7 below). (e) Manner of Exercise. A Grantee may exercise a Stock Option by delivering a duly completed notice of exercise to the Corporate Secretary of the Company, together with payment of the exercise price and any applicable tax withholdings. Such notice may include instructions authorizing the Company to deliver the certificates representing the shares of Common Stock issuable upon the exercise of such Stock Option to any designated registered broker or dealer ("Designated Broker"). Such instructions shall designate the account into which the shares are to be deposited. The Grantee may tender such notice of exercise, which has been properly executed by the Grantee, and the aforementioned delivery instructions to any Designated Broker. (f) Termination of Eligible Status, Disability or Death. (1) If a Grantee terminates employment or otherwise ceases to be an Eligible Participant for any reason (other than, in the case of an individual, the death of such individual) any Stock Option which is otherwise exercisable by the Grantee shall terminate unless exercised within three months after the date on which the Grantee ceases to be an Eligible Participant (or within such other period of time, which may be longer or shorter than three months, as may be specified in the Grant Letter), but in any event no later than the date of expiration of the exercise period, except that in the case of an individual Grantee who is disabled within the meaning of Section 22(e)(3) of the Code, such period shall be one year rather than three months (except as otherwise provided in the Grant Letter). (2) In the event of the death of an individual Grantee while he or she is an Eligible Participant or within not more than three months after the date on which the Grantee ceases to be an Eligible Participant (or within such other period of time, which may be longer or shorter than three months, as may be specified in the Grant Letter), any Stock Option which was otherwise exercisable by the Grantee at the date of death may be exercised by the Grantee's personal representative at any time prior to the expiration - 5 - 6 of one year from the date of death, but in any event no later than the date of expiration of the exercise period. (g) Satisfaction of Exercise Price. The Grantee shall pay the exercise price in cash, or, with the consent of the Committee in its sole discretion, by delivering (or attesting his or her ownership of) shares of Common Stock already owned by the Grantee and having a fair market value on the date of exercise equal to the exercise price, or a combination of cash and shares of Common Stock; provided however, that if shares of Common Stock are used to pay the exercise price of a Stock Option, such shares must have been held by the Grantee for at least six months. The Committee shall determine any other methods by which the exercise price of a Stock Option may be paid, the form of payment, including, without limitation, "cashless exercise" arrangements, and the methods by which shares of Common Stock shall be delivered or deemed to be delivered to Grantees. Without limiting the power and discretion conferred on the Committee pursuant to the preceding sentence, the Committee may, in the exercise of its discretion, but need not, allow a Grantee to pay the exercise price of a Stock Option by directing the Company to withhold from the shares of Common Stock that would otherwise be issued upon exercise of the Stock Option that number of shares having a fair market value on the exercise date equal to the exercise price, all as determined pursuant to rules and procedures established by the Committee. The Grantee shall pay the exercise price and the amount of withholding tax due, if any, at the time of exercise. Shares of Common Stock shall not be issued or transferred upon any purported exercise of a Stock Option until the exercise price and the withholding obligation are fully paid. (h) Limits on Incentive Stock Options. Each Grant of an Incentive Stock Option shall provide that: (1) the Stock Option is not transferable by the Grantee, except, in the case of an individual Grantee, by will or the laws of descent and distribution; (2) the Stock Option is exercisable only by the Grantee, except as otherwise provided herein or in the Grant Letter in the event of the death of an individual Grantee; and (3) the aggregate fair market value of the Common Stock on the date of the Grant with respect to which Incentive Stock Options are exercisable for the first time by a Grantee during any calendar year under the Plan and under any other stock option plan of the Company shall not exceed $100,000. (i) Replacement Stock Options. If a Stock Option granted pursuant to the Plan may be exercised by a Grantee by means of a stock-for-stock swap method of exercise as provided in Section 5(g) above, then the Committee may, in its sole discretion and at the time of the original Grant, authorize the Grantee to automatically receive a replacement Stock Option pursuant to this Section of the Plan. This replacement Stock Option shall cover a number of shares of Common Stock determined by the Committee, but in no event more than the number of shares equal to the difference between the number of shares of the original Stock Option exercised and the net shares received by the Grantee from such exercise. The per share exercise price of the replacement Stock Option shall equal the then current fair market value of a share of Common Stock, and shall have a term extending to the expiration date of the original Stock Option. The Committee shall have the right, in its sole discretion and at any time, to discontinue the - 6 - 7 automatic grant of replacement Stock Options if it determines the continuance of such Grants to no longer be in the best interest of the Company. (j) Stock Option Grants to Non-Employee Directors. Each Non-Employee Director will receive a grant of a Nonqualified Stock Option to purchase 20,000 shares of Common Stock upon the date he or she first becomes a member of the Board, and thereafter will receive a grant of a Nonqualified Stock Option to purchase 7,500 shares of Common Stock (subject to adjustment as provided in this Plan) as of the date of the Company's Annual Meeting of Stockholders each year. (1) Option Exercise Price. Stock Options granted under this Section 5(j) shall have a per share exercise price equal to the fair market value of a share of Common Stock on the date of grant, and such Stock Option shall become exercisable, with respect to 33% of the shares of Common Stock underlying the option, on each anniversary following the date of grant. (2) Administration. The provisions of this Section 5(j) are intended to operate automatically and not require administration. However, to the extent that administrative determinations are required, the provisions of this Section 5(j) shall be made by the members of the Board who are not eligible to receive Grants under this Section 5(j), but in no event shall such determinations affect the eligibility of Grantees, the determination of the exercise price, the timing of the Grants or the number of shares subject to Stock Options hereunder. (3) Applicability of Plan Provisions. Except as otherwise provided in this Section 5(j), the Nonqualified Stock Options to Non-Employee Directors shall be subject to the provisions of this Plan applicable to Nonqualified Stock Options to other persons. SECTION 6. Transferability of Stock Options No Stock Option shall be assignable or transferable by a Grantee other than by will or the laws of descent and distribution or, except in the case of an Incentive Stock Option, pursuant to a domestic relations order that would satisfy Section 414(p)(1)(A) of the Code if such section applied to a Stock Option issued under the Plan; provided, however, that the Committee may (but need not) permit other transfers where the Committee concludes that such transferability (i) does not result in accelerated taxation, (ii) does not cause any Stock Option intended to be an Incentive Stock Option to fail to be described in Code Section 422(b), and (iii) is otherwise appropriate and desirable, taking into account any state or federal tax or securities laws applicable to transferable stock options. Only a Grantee or his or her permitted transferee (or, in the case of an individual Grantee, his or her authorized legal representative) may exercise rights under a Grant. Upon the death of an individual Grantee, the personal representative or other person entitled to succeed to the rights of the Grantee ("Successor Grantee") may exercise such rights. A Successor Grantee shall furnish proof satisfactory to the Company of such person's right to receive the Grant under the Grantee's will or under the applicable laws of descent and distribution. SECTION 7. Change of Control - 7 - 8 For purposes of the Plan, "Change in Control" means and includes each of the following: (1) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (1), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by a Person who is on April 1, 1997 the beneficial owner of 25% or more of the Outstanding Company Voting Securities, (ii) any acquisition directly from the Company, (iii) any acquisition by the Company, (iv) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (v) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) of this definition; or (2) Individuals who, as of April 1, 1997, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to April 1, 1997 whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (3) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Voting Securities, and (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or - 8 - 9 (4) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. If a Change in Control occurs, then each Stock Option shall become immediately and fully vested and immediately exercisable. Before or after the occurrence of an anticipated Change in Control, the Committee, in its discretion, may provide that outstanding Stock Options may be canceled unilaterally by the Company in exchange for an amount equal to (x) the same consideration each Employee and Non-Employee Director otherwise would receive with respect to Common Stock subject to the Stock Option if such Common Stock has been sold, surrendered, exchanged or otherwise in the transaction constituting the Change in Control, less (y) the aggregate exercise price with respect to the Common Stock subject to such Stock Option. SECTION 8. Stockholder Approval; Effective Date The Plan was approved by the stockholders of the Company on May 19, 1994, and became effective on June 1, 1994. Pursuant to Section 9, the Plan was amended and restated by the Board of Directors of the Company on April 16, 1997, effective as of such date. SECTION 9. Amendment and Termination of the Plan (a) Amendment. The Board or the Committee may, at any time and from time to time, amend, modify or terminate the Plan without stockholder approval; provided, however, that the Board or Committee may condition any amendment or modification on the approval of stockholders of the Company if such approval is necessary or deemed advisable with respect to tax, securities or other applicable laws, policies or regulations. (b) Termination of Plan. The Plan shall terminate on June 1, 2004 unless earlier terminated by the Board or unless extended by the Board with the approval of the stockholders. (c) Termination and Amendment of Outstanding Grants. A termination or amendment of the Plan that occurs after a Grant is made shall not result in the termination or amendment of the Grant unless the Grantee consents or unless the Committee acts under Section 16(b) below. The termination of the Plan shall not impair the power and authority of the Committee with respect to an outstanding Grant. Whether or not the Plan has terminated, an outstanding Grant may be terminated or amended under Section 16(b) below or may be amended by agreement of the Company and the Grantee which is consistent with the Plan. SECTION 10. Funding of the Plan The Plan shall be unfunded and shall not create (or be construed to create) a trust or separate fund or funds. The Plan shall not establish any fiduciary relationship between the Company and any participant or beneficiary of a participant. To the extent any person holds any obligation of the Company by virtue of an award granted under the Plan, such obligation shall merely constitute a general unsecured liability of the Company and accordingly shall not confer upon such person any right, title or interest in any assets of the Company. SECTION 11. Rights of Eligible Participation - 9 - 10 Nothing in the Plan shall entitle any Eligible Participant or other person to any claim or right to any Grant under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any Eligible Participant or Grantee any rights to be retained by the Company in any capacity, whether as an employee, non-employee member of the Board, independent contractor, consultant or otherwise. SECTION 12. Withholding of Taxes The Company shall have the right to require the Grantee to pay to the Company the amount of any taxes which the Company is required to withhold in respect of such Grants or to take whatever action it deems necessary to protect the interests of the Company in respect of such tax liabilities, including, without limitation, withholding a portion of the shares of Common Stock otherwise deliverable pursuant to the Plan. The Company's obligation to issue or transfer shares of Common Stock upon the exercise of a Stock Option shall be conditioned upon the Grantee's compliance with the requirements of this Section to the satisfaction of the Committee. SECTION 13. Agreements with Grantees Each Grant made under the Plan shall be evidenced by a Grant Letter containing such terms and conditions as the Committee shall approve. SECTION 14. Requirements for Issuance of Shares No Common Stock shall be issued or transferred under the Plan unless and until all applicable legal requirements have been complied with to the satisfaction of the Committee. The Committee shall have the right to condition any Stock Option on the Grantee's undertaking in writing to comply with such restrictions on any subsequent disposition of the shares of Common Stock issued or transferred thereunder as the Committee shall deem necessary or advisable as a result of any applicable law, regulation or official interpretation thereof, and certificates representing such shares may be legended to reflect any such restrictions. SECTION 15. Headings The section headings of the Plan are for reference only. In the event of a conflict between a section heading and the content of a section of the Plan, the content of the section shall control. SECTION 16. Miscellaneous (a) Substitute Grants. The Committee may make a Grant to an employee, a non-employee director, or an independent contractor or consultant of another corporation, if such person shall become an Eligible Participant by reason of a corporate merger, consolidation, acquisition of stock or property, reorganization or liquidation involving the Company or a Subsidiary Corporation and such other corporation. Any such Grant shall be made in substitution for a stock option granted by the other corporation ("Substituted Stock Incentives"), but the terms and conditions of the substitute Grant may vary from the terms and conditions required by the Plan and from those of the Substituted Stock Incentives. The Committee shall prescribe the provisions of the substitute Grants. - 10 - 11 (b) Compliance with Law. The Plan, the exercise of Grants and the obligations of the Company to issue or transfer shares of Common Stock under Grants shall be subject to all applicable laws and required approvals by any governmental or regulatory agencies. The Committee may revoke any Grant if it is contrary to law or modify any Grant to bring it into compliance with any valid and mandatory government regulations. The Committee may also adopt rules regarding the withholding of taxes on payments to Grantees. The Committee may, in its sole discretion, agree to limit its authority under this Section. (c) Ownership of Stock. A Grantee, transferee or Successor Grantee shall have no rights as a stockholder with respect to any shares of Common Stock covered by a Grant until the shares are issued or transferred to the Grantee, transferee or Successor Grantee on the stock transfer records of the Company. - 11 - EX-11 5 COMPUTATION OF NET LOSS PER SHARE 1 EXHIBIT 11 CYTRX CORPORATION COMPUTATION OF NET LOSS PER SHARE
COMPUTATION OF LOSS PER SHARE - PRIMARY Three Month Period Ended June 30, Six Month Period Ended June 30, --------------------------------- ---------------------------------- 1997 1996 1997 1996 ---------------- ------------ --------- ------------ Net loss $(2,263,292) $ (1,145,379) $(2,935,652) $ (2,457,318) =========== ============ =========== ============ Average number of common shares outstanding 7,409,712 7,864,216 7,425,289 7,862,090 Common shares issuable assuming exercise of stock options and warrants (1) -- -- -- -- ----------- ------------ ----------- ------------ Total 7,409,712 7,864,216 7,425,289 7,862,090 ----------- ------------ ----------- ------------ Net loss per share $ (0.31) $ (0.15) $ (0.40) $ (0.31) =========== ============ =========== ============ COMPUTATION OF LOSS PER SHARE - FULLY DILUTED Net loss $(2,263,292) $ (1,145,379) $(2,935,652) $ (2,457,318) ----------- ------------ ----------- ------------ Average number of common shares outstanding 7,409,712 7,864,216 7,425,289 7,862,090 Common shares issuable assuming exercise of stock options and warrants (1) -- -- -- -- ----------- ------------ ----------- ------------ Total 7,409,712 7,864,216 7,425,289 7,862,090 ----------- ------------ ----------- ------------ Net loss per share $ (0.31) $ (0.15) $ (0.40) $ (0.31) =========== ============ =========== ============
(1) Stock options and warrants outstanding are excluded from the computation of net loss per share since their effect would be antidilutive. EX-27 6 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1997 JUN-30-1997 4,761,957 8,393,008 2,524,930 0 11,045 15,858,872 7,294,804 2,345,307 25,075,412 2,663,936 0 0 0 7,966 21,667,825 25,075,412 7,065,330 7,688,701 4,758,612 4,758,612 5,991,025 0 0 (2,935,652) 0 (2,935,652) 0 0 0 (2,935,652) 0 0
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