Cytrx Corporation

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 þ No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12(b)-2 of the Exchange Act). Yes o No þ

Number of shares of CytRx Corporation Common Stock, $.001 par value, issued and outstanding as of May 13, 2004: 34,927,327

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

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

CytRx Corporation (“CytRx” or “the Company”) is a biopharmaceutical research and development company, based in Los Angeles, California, with a research subsidiary, CytRx Laboratories, Inc. (the “Subsidiary”), based in Worcester, Massachusetts. The Company owns the rights to a portfolio of technologies, including ribonucleic acid interference (RNAi or gene silencing) technology in the treatment of specified diseases, including those within the areas of amyotrophic lateral sclerosis (ALS or Lou Gehrig’s disease), obesity and type 2 diabetes and human cytomegalovirus (CMV), as well as a DNA-based HIV vaccine technology. In addition, the Company has entered into strategic alliances with third parties to develop several of the Company’s other products.

The accompanying condensed consolidated financial statements at March 31, 2004 and for the three month periods ended March 31, 2004 and 2003 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. Interim results are not necessarily indicative of results for a full year. Certain prior year amounts have been reclassified to conform to the 2004 financial statement presentation. 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, 2003.

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” (“FIN No. 46”) as superseded in December 2003 by FASB-issued Interpretation No. 46R, “Consolidation of Variable Interest Entities — an interpretation of ARB 51 (“FIN 46R”). FIN 46R requires the primary beneficiary of a variable interest entity (“VIE”) to consolidate the entity and also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the equity investors do not have a controlling interest, equity investors participate in losses or residual interests of the entity on a basis that differs from its ownership interest, or the equity investment at risk is insufficient to finance the entity’s activities without receiving additional subordinated financial support from the other parties. FIN 46R was applicable starting January 1, 2004 and had no material effect on the Company’s consolidated financial statements.

Basic and diluted loss per common share are computed based on the weighted average number of common shares outstanding. Common share equivalents (which may consist of options and warrants) are excluded from the computation of diluted loss per share since the effect would be antidilutive. Common share equivalents which could potentially dilute basic earnings per share in the future, and which were excluded from the computation of diluted loss per share totaled approximately 11,281,000 and 6,379,000 shares at March 31, 2004 and 2003, respectively.

The Company uses the intrinsic value method of APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), in accounting for its employee stock options, and presents disclosure of pro forma information required under Statement of Financial Accounting Standards No. 123, Accounting for Stock-based Compensation (“SFAS 123”), as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure (“SFAS 148”).

The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation (amounts in thousands except per share data).

Included on the March 31, 2004 condensed consolidated balance sheets is $1,078,000 of prepaid compensation expense related to the issuance of common stock and vested and non-forfeitable options to purchase the Company’s common stock to non-employees. $779,000 of such prepaid compensation expense is included in noncurrent prepaid and other assets and the remaining $299,000 is included in prepaid and other current assets in the Company’s condensed consolidated balance sheets.

In May 2004, the Company’s current Chief Financial Officer tendered his resignation as the Company’s Chief Financial Officer, with such resignation to be effective as of June 15, 2004.

Item 2. — Management’s Discussion and Analysis of Financial Condition And Results of Operations

This report and other documents that we file with the Securities and Exchange Commission contain forward looking statements that are based upon our current expectations, beliefs, estimates, forecasts and projections about us, our business and our future performance. In addition, we, or others on our behalf, may make forward looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls, and conference calls. Words such as “expect,” “anticipate,” “outlook,” “could,” “target,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,” “should,” “may,” “assume,” “continue,” or variations of such words and similar expressions are intended to identify such forward looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict, including without limitation those risks identified under “Risk Factors” set forth below. We have based our forward looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied, or forecast by our forward looking statements. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission, we do not have any obligation and do not intend to update publicly any forward looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions or otherwise.

We are in the process of developing products, primarily in the areas of RNAi and small molecule therapeutics, for the human health care market. RNAi is a new technology for silencing genes in living cells and organisms. Development work on RNAi is still at an early stage, and we are not aware of any clinical testing of medical applications using RNAi that have yet been initiated by any party. In addition to our work in RNAi, we are involved in the development of a DNA-based HIV vaccine and have entered into strategic alliances with respect to the development of several other products using our other technologies.

Subsequent to our merger with Global Genomics, in July 2002, we modified our business strategy by discontinuing any further research and development efforts for our pre-merger pharmaceutical technologies and began to seek strategic relationships with other pharmaceutical companies to complete the development of those technologies. Instead of continuing research and development for those technologies, we focused our efforts on acquiring new technologies and products to serve as the foundation for the future of the company.

In April 2003, we acquired our first new technologies by entering into exclusive license agreements with UMass covering potential applications for its proprietary RNAi technology in the treatment of specified diseases. At that time, we also acquired an exclusive license from UMass covering its proprietary technology with potential gene therapy applications within the area of cancer. In May 2003, we broadened our strategic alliance with UMass by acquiring an exclusive license from it covering a proprietary DNA-based HIV vaccine technology.

As part of our strategic alliance with UMass, we agreed to fund certain discovery and pre-clinical research at the medical school relating to the use of our technologies, licensed from UMass, for the development of therapeutic products within certain fields. Although we intend to internally fund the early stage development work for certain product applications (including obesity, type 2 diabetes and ALS) and may seek to fund the completion of the development of certain of these product applications (such as ALS), we may also seek to secure strategic alliances or license agreements with larger pharmaceutical companies to fund the early stage development work for other gene silencing product applications and for subsequent development of those potential products where we fund the early stage development work.

We have not achieved profitability on a quarterly or annual basis and we expect to continue to incur significant additional losses over the next several years. We expect our net losses to increase primarily due to

activities related to our collaborations, technology acquisitions, research and development programs and other general corporate activities. We anticipate that our operating results will fluctuate for the foreseeable future.

Therefore, period-to-period comparisons should not be relied upon as predictive of the results in future periods.

To date, we have relied primarily upon the sale of equity securities and payments from our strategic partners and licensees to generate the funds needed to finance the implementation of our business plans. We will be required to obtain additional funding in order to execute our long-term business plans. Our sources of potential funding for the next several years are expected to consist primarily of proceeds from sales of equity, but could also include license and other fees, funded research and development payments, and milestone payments under existing and future collaborative arrangements.

Management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, bad debts, impairment of long-lived assets, including finite lived intangible assets, accrued liabilities and certain expenses. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

Our significant accounting policies are summarized in Note 2 to our financial statements contained in our Annual Report on Form 10-K filed for the year ended December 31, 2004. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Nonrefundable license fee revenue is recognized when collectibility is reasonably assured, which is generally upon receipt, when no continuing involvement on our part is required and payment of the license fee represents the culmination of the earnings process. Nonrefundable license fees received subject to future performance by us or that are credited against future payments due to us are deferred and recognized as services are performed and collectibility is reasonably assured, which is generally upon receipt, or upon termination of the agreement and all related obligations thereunder, whichever is earliest. Our revenue recognition policy may require us to defer significant amounts of revenue.

Research and development expenses consist of costs incurred for direct and overhead-related research expenses and are expensed as incurred. Costs to acquire technologies which are utilized in research and development and which have no alternative future use are expensed when incurred. Technology developed for use in our products is expensed as incurred, until technological feasibility has been established. Expenditures, to date, have been classified as research and development expense in the consolidated statements of operations and we expect to continue to expense research and development for the foreseeable future.

We grant stock options and warrants for a fixed number of shares to key employees and directors with an exercise price equal to the fair market value of the shares at the date of grant. We account for stock option grants and warrants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees

(“APB 25”) and related interpretations, and, accordingly, recognize no compensation expense for the stock option grants and warrants issued to employees for which the terms are fixed.

For stock option grants and warrants which vest based on certain corporate performance criteria, compensation expense is recognized to the extent that the quoted market price per share exceeds the exercise price on the date such criteria are achieved or are probable. At each reporting period end, we must estimate the probability of the criteria specified in the stock based awards being met. Different assumptions in assessing this probability could result in additional compensation expense being recognized.

In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-based Compensation (SFAS 123), which provides an alternative to APB 25 in accounting for stock-based compensation issued to employees. However, we have continued to account for stock-based compensation in accordance with APB 25 (See Notes 2 and 13 to financial statements).

We have also granted stock options and warrants to certain consultants and other third parties. Stock options and warrants granted to consultants and other third parties are accounted for in accordance with SFAS 123 and related interpretations and are valued at the fair market value of the options and warrants granted, as of the date of grant or services received, whichever is more reliably measurable. Expense is recognized in the period in which a performance commitment exists or the period in which the services are received, whichever is earlier. The Company anticipates that it will continue to rely on the use of consultants and that it will be required to expense the associated costs. The Company anticipates continuing the use of stock options to compensate employees, and continuing to expense the options in accordance with APB 25.

We review long-lived assets, including finite lived intangible assets, for impairment on an annual basis, as of December 31, or on an interim basis if an event occurs that might reduce the fair value of such assets below their carrying values. An impairment loss would be recognized based on the difference between the carrying value of the asset and its estimated fair value, which would be determined based on either discounted future cash flows or other appropriate fair value methods.

During 2002, we recorded a loss of $478,000 associated with the closure of our Atlanta headquarters and relocation to Los Angeles, subsequent to our merger with Global Genomics. This loss represents the total remaining lease obligations and estimated operating costs through the remainder of the lease term, less estimated sublease income. This accrued charge was combined with deferred rent of $85,000 already recorded, so that the total accrual related to the facility abandonment was $563,000 as of December 31, 2002. To the extent that we are able to negotiate a termination of the Atlanta lease, our operating costs are different or our estimates related to sublease income are different, the total loss ultimately recognized may be different than the amount recorded as of December 31, 2002 and such difference may be material. As of March 31, 2004, we have a remaining lease closure accrual of $392,000.

At March 31, 2004, we had cash, cash equivalents and short-term investments of $10,005,000 and net assets of $9,592,000 compared to $11,644,000 and $10,193,000, respectively, at December 31, 2003. Working capital totaled $9,246,000 at March 31, 2004, compared to $10,761,000 at December 31, 2003. By Board resolution, we have allocated approximately $5,806,000 of our cash and cash equivalents to the current and future operations of our obesity and type 2 diabetes subsidiary.

To date, we have relied primarily upon selling equity securities and payments from our strategic partners and licensees to generate funds needed to finance the implementation of our plans of operations. We believe that our current cash and investments balances will be sufficient to meet cash requirements for at least the next twelve months. We will be required to obtain significant additional funding in order to execute our long-term business plan. We cannot assure that additional funding will be available on favorable terms, if at all. If

we fail to obtain additional funding when needed, we may not be able to execute our business plan and our business may suffer, which would have a material adverse effect on our financial position, results of operations and cash flows.

In the three-month period ended March 31, 2003, net cash used in investing activities consisted of $1,401,000, representing funds received upon the maturity of U.S. government obligations. The only cash used in financing activities for the three-month period ended March 31, 2004, was for the purchase of $95,000 of property and equipment.

Net cash provided by financing activities was $538,000 in the first quarter of fiscal 2004. There were no financing activities for the three-month period ended March 31, 2003. Cash provided by financing activities in 2004 was comprised of $354,000 received upon the exercise of stock options and warrants and the sale of shares to a single purchaser for $184,000.

Although our net loss for the three-month period ending March 31, 2004 was $3,774,000, net cash used in operating activities was only $2,082,000 due primarily to $1,558,000 of common stock, options and warrants issued in lieu of cash for selling, general and administrative services. Net cash used in operating activities in the three-month period ended March 31, 2003 was $508,000 because the net loss during that prior year’s period was less, and the net loss included a non-cash loss from our minority-owned entities.

Based on our internal projections of expected expenses, we believe that we will have adequate working capital to allow us to operate at our currently planned levels for at least the next twelve months. Our strategic alliance with University of Massachusetts Medical School (UMass) may require us to make significant expenditures to fund research at that medical institution relating to developing therapeutic products based on that institution’s proprietary gene silencing technology that has been licensed to us. The aggregate amount of these expenditures under certain circumstances is expected to be approximately $1,800,000 during the next 12 months.

We also may require additional working capital in order to fund any product acquisitions that we consummate. Any additional capital requirements may be provided by potential milestone payments pursuant to the Merck and Vical licenses or by potential payments from future strategic alliance partners or licensees of our technologies. However, Merck and Vical are both at an early stage of clinical trials of a product utilizing TranzFect, so there is likely to be a substantial period of time, if ever, before we receive any further significant payments from Merck or Vical. We intend to also pursue other sources of capital, although we do not currently have commitments from any third parties to provide us with capital. The results of our technology licensing efforts and the actual proceeds of any fund-raising activities will determine our ongoing ability to operate as a going concern. These efforts are subject to market conditions and our ability to identify parties that are willing and able to enter into such arrangements on terms that are satisfactory to us. Our ability to obtain future financings through joint ventures, product licensing arrangements, equity financings or otherwise is subject to market conditions and our ability to identify parties that are willing and able to enter into such arrangements on terms that are satisfactory to us. There can be no assurance that we will be able to obtain future financing from these sources. Additionally, depending upon the outcome of our fund raising efforts, the accompanying financial information may not necessarily be indicative of future operating results or future financial condition.

We expect to incur significant losses for the foreseeable future, and there can be no assurance that we will become profitable. Even if we become profitable, we may not be able to sustain that profitability.

We recorded a net loss of $3,774,000 for the three-month period ended March 31, 2004 as compared to $914,000 in the same fiscal quarter in 2003.

During the three-month period ended March 31, 2004, we earned a $100,000 milestone payment from one of our licensees. No license fee income was recorded during the three-month period ended March 31, 2003.

Research and development expenses were $1,432,000 during the three-month period ended March 31, 2004, as compared to only $3,000 for the same fiscal period in 2003. Subsequent to our merger with Global Genomics, Inc. in July 2002, we modified our corporate business strategy so that we have not pursued additional internal research and development efforts for any of our then existing products or technologies, other than through partnering or out-licensing this research and development work to outside parties. As a result, we conducted virtually no internal research and development during the three-month period ended March 31, 2003. The research and development expenses incurred in the first fiscal quarter of 2004 relate to (i) our commitment to fund research and development activities conducted at UMass and Massachusetts General Hospital (Mass General), and (ii) the research and development activities of CytRx Laboratories, Inc., our obesity and type II diabetes subsidiary. Although our actual research and development expenses for the balance of 2004 could vary substantially, our research and development expense will remain substantial in the future as a result of our commitment to fund research and development activities conducted at UMass related to the technologies covered by the UMass license agreements and the on-going operations of our CytRx Laboratories subsidiary.

From time to time, we issue shares of our common stock or warrants to purchase shares of our common stock to consultants and other service providers in exchange for services. For financial statement purposes, we value these shares or warrants at the fair market value of the stock or warrants granted, or the services received, whichever is more reliably measurable, and we recognize the expense in the period in which a performance commitment exists or the period in which the services are received, whichever is earlier. During each of the periods presented in the accompanying condensed consolidated statement of operations, certain vesting criteria of stock purchase warrants issued to consultants were achieved, resulting in aggregate non-cash charges of $1,284,000 during the three month period ended March 31, 2004, and $149,000 during the same period in 2003.

Selling, general and administrative expenses paid or to be paid in cash were $1,200,000 during the three-month period ended March 31, 2004, as compared to $525,000 for the same period in 2003. Our new corporate business strategy contributed to the increase for 2004 resulting in (a) a greater use of consultants for technical, financial and business development advisory services and (b) higher legal and accounting costs.

Interest income was $23,000 for the three-month period ended March 31, 2004, as compared to $16,000 for the three-month period ended March 31, 2003. The increase in interest income is due to the substantial additional amounts of cash and investments we held during the fiscal 2004 quarter compared to the smaller amounts in the fiscal 2003 quarter. However, the increase in the amounts earning interest was partially offset by lower interest rates in the 2004 period.

For the three months ended March 31, 2004, we recorded $35,000 reduction of our losses as a result of the minority interest share in the losses of our subsidiary. This amount is reported as a separate line item in the accompanying condensed consolidated statement of operations.

We record our portion of the losses of Blizzard Genomics, an unconsolidated entity in which we own 40% of the outstanding equity interests, on the equity method. For the three months ended March 31, 2003, we recorded $254,000 as our share in the losses of Blizzard Genomics. Since we wrote off our entire investment in Blizzard Genomics at the end of the third quarter of fiscal 2003, we did not record any losses from our investment in Blizzard Genomics for the three months ended March 31, 2004.

You should carefully consider the following risks before deciding to purchase shares of our common stock. If any of the following risks actually occurs, our business or prospects could be materially adversely affected and the trading price of our common stock could decline, and investors in our securities could lose all or part of their investment. You should also refer to the other information in this Quarterly Report, including our financial statements and the related notes.

We have incurred significant losses over the past five years, including net losses of approximately $3,774,000 for the three months ended March 31, 2004 (on an unaudited basis), and $17,845,000, $6,176,000 and $931,000 for 2003, 2002, and 2001, respectively, and we had an accumulated deficit of approximately $93,576,000 (on an unaudited basis) as of March 31, 2004. Our operating losses have been due primarily to our expenditures for research and development on our products and for general and administrative expenses and our lack of significant revenues. We are likely to continue to incur operating losses until such time, if ever, that we generate significant recurring revenues. Unless we are able to acquire products from third parties that are already being marketed and that can be profitably marketed by us, it will take a minimum of three years (and possibly longer) for us to generate recurring revenues, since we anticipate that it will take at least several years before the development of any of our licensed or other current potential products is completed, FDA marketing approvals are obtained and commercial sales of any of these products can begin.

Although we generated $3,751,000 in revenues from milestone payments and license fees from our licensees during 2001 and $1,051,000 from these sources during 2002, we generated only $94,000 in such revenues in 2003. Although we earned a $100,000 milestone payment from one of our licenses in March 2004, we do not have any significant sources of recurring operating revenues. We will not have significant recurring operating revenues until at least one of the following occurs:


	•	we are able to complete the development of and commercialize one or more of the products that we are currently developing, which may require us to first enter into license or other arrangements with third parties

	•	one or more of our currently licensed products is commercialized by our licensees, thereby generating royalty income for us

	•	we are able to acquire products from third parties that are already being marketed or are approved for marketing

We are likely to incur negative cash flows from operations until such time, if ever, as we can generate significant recurring revenues. Although we believe that we have adequate financial resources to support our currently planned level of operations for at least the next twelve months, should we thereafter be unable to generate recurring revenues, it is likely that we will become dependent on obtaining financing from third parties to continue to meet our obligations to the University of Massachusetts Medical School (UMMS) and maintain our operations, including our planned levels of operations for our obesity and type 2 diabetes subsidiary. We have no commitments from third parties to provide us with any debt or equity financing. Accordingly, financing may be unavailable to us or only available on terms that substantially dilute our existing stockholders. A lack of needed financing could force us to reduce the scope of or terminate our operations or to seek a merger with or be acquired by another company. There can be no assurance that we would be able to identify an appropriate company to merge with or be acquired by or that we could consummate such a transaction on terms that would be attractive to our stockholders or at all.

License fees paid to us with respect to our TranzFect technology have represented all of our revenue in the first quarter of 2004 and 81%, 94% and 94% of our total revenues for the years ended December 31, 2003, 2002 and 2001, respectively. We have already licensed most of the potential applications for this technology, and there can be no assurance that we will be able to generate additional license fee revenues from any new licensees for this technology. Our current licensees for TranzFect, Merck & Co. (Merck) and Vical Incorporated (Vical) may be required to make further milestone payments to us under their licenses based on their future development of products using TranzFect. However, Merck is at an early stage of clinical trials of

a product utilizing TranzFect and Vical has only recently commenced a Phase I clinical trial of a product utilizing TranzFect. In the Merck trials, although the formulation of the tested vaccine using TranzFect was generally safe, well-tolerated and generated an immune response, the addition of TranzFect to the vaccine did not increase this immune response. Moreover, the DNA single-modality vaccine regimen with TranzFect, when tested in humans, yielded immune responses that were inferior to those obtained with the DNA vaccines in macaque monkeys. Accordingly, there is likely to be a substantial period of time, if ever, before we receive any further significant payments from Merck or Vical under their TranzFect licenses.

Following our merger with Global Genomics, we modified our business strategy of internally developing FLOCOR and the other, then-current, potential products that we had not yet licensed to third parties. Instead, we began to seek to enter into strategic alliances, license agreements or other collaborative arrangements with other pharmaceutical companies that would provide for those companies to be responsible for the development and marketing of those products. In October 2003, we entered into an agreement to license FLOCOR, the primary potential product that we held prior to the Global Genomics merger and which we had not already licensed to a third party, to SynthRx, Inc., a recently formed Houston, Texas-based biopharmaceutical company, and entered into a strategic alliance with that company. Although we intend to internally fund or carry out, through our obesity and type 2 diabetes subsidiary, the early stage development work for certain product applications based on the RNAi and other technologies that we licensed from UMMS, and we may seek to fund all of the later stage development work for our potential ALS products, the completion of the development, manufacture and marketing of these products is likely to require, in many cases, that we enter into strategic alliances, license agreements or other collaborative arrangements with larger pharmaceutical companies for this purpose.

There can be no assurance that our products will have sufficient potential commercial value to enable us to secure strategic alliances, license agreements or other collaborative arrangements with suitable companies on attractive terms or at all. If we enter into these arrangements, we will be dependent upon the timeliness and effectiveness of the development and marketing efforts of our contractual partners. If these companies do not allocate sufficient personnel and resources to these efforts or encounter difficulties in complying with applicable regulatory (including FDA) requirements, the timing of receipt or amount of revenues from these arrangements may be materially and adversely affected. By entering into these arrangements rather than completing the development and then marketing these products on our own, we may suffer a reduction in the ultimate overall profitability for us of these products. In addition, if we are unable to enter into these arrangements for a particular product, we may be required to either sell our rights in the product to a third party or abandon it unless we are able to raise sufficient capital to fund the substantial expenditures necessary for development and marketing of the product.

We will also seek to acquire products from third parties that already are being marketed or have previously been marketed. We have not yet identified any of these products. Even if we do identify such products, it may be difficult for us to acquire them with our limited financial resources and, if we acquire products using our securities as currency, we may incur substantial shareholder dilution. We do not have any prior experience in acquiring or marketing products and may need to find third parties to market these products for us. We may also seek to acquire products through a merger with one or more companies that own such products. In any such merger, the owners of our merger partner could be issued or hold a substantial, or even controlling, amount of stock in our company or, in the event that the other company is the surviving company, in that other company.

Our Current Financial Resources May Limit Our Ability to Execute Certain Strategic Initiatives

On March 31, 2004 we had approximately $10,005,000 in cash and cash equivalents and approximately $9,246,000 in working capital. Our significantly improved working capital position is due primarily to our completing a $5,440,000 private equity financing in May 2003 and an $8,695,000 private equity financing in September 2003, although we have used approximately $7,000,000 of the net proceeds of the September 2003

financing as initial capital for our obesity and type 2 diabetes subsidiary and we currently expect the balance of such proceeds to be available for the future operating needs of that subsidiary.

In October 2003, we entered into an agreement to license FLOCOR to SynthRx, which will be responsible for developing potential product applications for FLOCOR. As a result of the agreement, we may be entitled to receive future milestone payments and royalties. Although we are not doing any further development work on TranzFect, should our two principal licensees for this technology successfully meet the defined milestones, we could receive future milestone payments and, should either of the licensees commercialize products based upon our technology, future royalty payments. However, there can be no assurance that our licensees will continue to develop or ever commercialize any products that are based on our FLOCOR or our TranzFect technology.

Our strategic alliance with UMMS may require us to make significant expenditures to fund research at the institution relating to the development of therapeutic products based on the UMMS proprietary technology that we have licensed. We estimate that the aggregate amount of these sponsored research expenditures under our current commitments will be approximately $1,400,000 for 2004, approximately $1,500,000 for 2005 and approximately $800,000 for 2006. We have also agreed to fund approximately $487,000 of sponsored research at Massachusetts General Hospital over the next two years. Our license agreements with UMMS also provide, in certain cases, for milestone payments based on the progress we make in the clinical development and marketing of products utilizing the licensed technologies. In the event that we were to successfully develop a product in each of the categories of obesity/type 2 diabetes, ALS, CMV, cancer and an HIV vaccine, under our licenses, those milestone payments could aggregate up to $16,055,000. Those milestone payments, however, could vary significantly based upon the milestones we achieve and the number of products we ultimately undertake to develop.

Although we believe that an existing NIH grant will be sufficient to fund substantially all of the costs of the currently planned Phase I trial of the HIV vaccine candidate using the technology we licensed from UMMS and Advanced BioScience Laboratories (ABL), we could be required to fund expenses of the trial not covered by the grant, which expenses could be significant. Under our license for this technology, following the completion of the currently planned Phase I trial, we will be responsible for all of the costs for subsequent clinical trials for this vaccine. The costs of subsequent trials for the HIV vaccine will be very substantial. We do not have any NIH or other governmental funding for these future trials, and there can be no assurance that we will be able to secure such funding for any of these trials.

The expenditures potentially required under our agreements with the UMMS and ABL, together with the operating capital requirements of our obesity and type 2 diabetes subsidiary and our planned sponsored research funding for Massachusetts General Hospital, substantially exceed our current financial resources. Those required expenditures could require us to raise additional capital or to secure a licensee or strategic partner to fulfill our obligations to UMMS and to develop any products based on the technologies that we have licensed from UMMS, or to continue the operations of our obesity and type 2 diabetes subsidiary at the currently contemplated level. If we are unable to meet our various financial obligations under license agreements with UMMS, we could lose all of our rights under those agreements. If we were to have inadequate financial resources at that time, we also could be forced to reduce the level of, or discontinue, operations at our subsidiary.

In order to develop new obesity and type 2 diabetes products, our new subsidiary will first need to identify appropriate drug targets and pathways. We will be using novel RNAi-based techniques to accelerate this process, but there is no assurance that these techniques will accelerate our work or that we will be able to identify highly promising targets or pathways using these techniques or otherwise. Even if we are successful in identifying these targets or pathways, we will need to then develop proprietary molecules that are safe and effective against these targets. The development process and the clinical testing of our potential products will take a lengthy period of time and involve expenditures substantially in excess of our current financial resources. We currently plan to seek a strategic alliance with a major pharmaceutical company at a relatively

early stage in our development work to complete the development, clinical testing and manufacturing and marketing of our obesity and type 2 diabetes products, but we may not be able to secure such a strategic partner on attractive terms or at all. We do not have prior experience in operating a genomic and proteomic-based drug discovery company. Accordingly, we will be heavily dependent on the prior experience and current efforts of Dr. Michael P. Czech, the Chairman of the Scientific Advisory Board of our subsidiary, in establishing the scientific goals and strategies of our subsidiary, and Dr. Mark A. Tepper, the President of our subsidiary, in managing the operations of this subsidiary.

In October 2003, we entered into an agreement under which we will license FLOCOR and our other co-polymer technologies to SynthRx and acquire a 19.9% equity interest in that newly formed biopharmaceutical company. SynthRx has only limited financial resources and will have to either raise significant additional capital or secure a licensee or strategic partner to complete the development and commercialization of FLOCOR and these other technologies. SynthRx does not have any commitments from third parties to provide the capital that it will require and there can be no assurance that it will be able to obtain this capital or a licensee or strategic partner on satisfactory terms or at all.

Our prior Phase III clinical trial of FLOCOR for the treatment of sickle cell disease patients experiencing an acute vaso-occlusive crisis did not achieve its primary objective. However, in this study, for patients 15 year of age or younger, the number of patients achieving a resolution of crisis was higher for FLOCOR-treated patients at all time periods than for placebo-treated patients, which may indicate that future clinical trials should focus on juvenile patients. To generate sufficient data to seek FDA approval for FLOCOR will require additional clinical studies, which will entail substantial time and expense for SynthRx.

The manufacture of FLOCOR involves obtaining new raw drug substance and a supply of the purified drug from the raw drug substance, which requires specialized equipment. Should SynthRx encounter difficulty in obtaining the purified drug substance in sufficient amounts and at acceptable prices, SynthRx may be unable to complete the development or commercialization of FLOCOR on a timely basis or at all.

Each of our products is in the development stage and must be approved by the FDA or similar foreign governmental agencies before they can be marketed. The process for obtaining FDA approval is both time-consuming and costly, with no certainty of a successful outcome. This process typically includes the conduct of extensive pre-clinical and clinical testing, which may take longer or cost more than we or our licensees currently anticipate due to numerous factors such as:


	•	difficulty in securing centers to conduct trials

	•	difficulty in enrolling patients in conformity with required protocols or projected timelines

	•	unexpected adverse reactions by patients in trials

	•	difficulty in obtaining clinical supplies of the product

	•	changes in the FDA s requirements for our testing during the course of that testing

	•	inability to generate statistically significant data confirming the efficacy of the product being tested

The RNAi and other technologies that we have acquired from UMMS have not yet been clinically tested by us, nor are we aware of any clinical trials having been conducted by third parties involving similar technologies. Successful development of RNAi-based products will require solving a number of issues, including providing suitable methods of stabilizing the RNAi drug material and delivering it into target cells in the human body.

In connection with the currently planned Phase I clinical trial being conducted by UMMS and ABL, we do not have a commercial relationship with a company that is providing an adjuvant for the HIV vaccine

candidate, utilizing the technology that we have licensed from UMMS, that will be tested in that trial. We may be unable to use some or all of the results of that trial as part of our clinical data for obtaining FDA approval of this vaccine if we are unable or choose not to enter into an agreement to acquire the rights to use that third party’s adjuvant.

Our TranzFect technology is currently in Phase I clinical trials that are being conducted by our licensee, Merck, as a component of a vaccine to prevent AIDS. Since TranzFect is to be used as a component in vaccines, we do not need to seek FDA approval, but the vaccine manufacturer will need to seek FDA approval for the final vaccine formulation containing TranzFect. Merck has completed a multi-center, blinded, placebo controlled Phase I trial of an HIV vaccine utilizing TranzFect as a component. Although the formulation of this tested vaccine was generally safe and well-tolerated and generated an immune response, the addition of TranzFect to the vaccine did not increase this immune response. Moreover, the DNA single-modality vaccine regimen with TranzFect when tested in humans yielded immune responses that were inferior to those obtained with the DNA vaccines in macaque monkeys.

Due to its inability to raise needed capital, Blizzard Genomics, Inc. (Blizzard), which was Global Genomics’ principal portfolio company, has been unable to complete the development of any of its products and has been notified by the licensor of its core technologies that it is in default under its license for those technologies. Global Genomics’ other portfolio company is at a very early stage, is operating without any fulltime or salaried employees and has not been able to raise the capital it will need to fund its planned operations and to acquire licenses to certain technologies that it will require. Accordingly, it appears unlikely that either of Global Genomics’ portfolio companies will generate revenues for us in the future and, in 2003, we recorded a write-off of the carrying value of our investments in those companies.

The Company may be involved, from time to time, in investigations and proceedings by governmental and self-regulatory agencies, certain of which could result in adverse judgments, fines, or other sanctions. We have recently been notified by the Massachusetts State Ethics Commission (Massachusetts Commission) that it has initiated a Preliminary Inquiry into whether our previous retention of a consultant who introduced us to UMass constituted an improper conflict of interest under Massachusetts’ ethics laws. Since the inquiry is at a very preliminary stage, it is inherently difficult to predict whether the Massachusetts Commission will decide to initiate any formal proceedings, whether these proceedings will be directed at us or whether we will be found in any such proceedings to have violated any Massachusetts ethics laws. We also cannot estimate what our legal costs will be in connection with this proceeding, although these expenses could be substantial if a formal proceeding is initiated. Moreover, if the Massachusetts Commission were to determine that our conduct was unlawful, the Commission could impose a number of different penalties or sanctions upon us which under certain circumstances would have a material adverse effect on our business and financial condition.

We and our strategic partners or licensees may be unable to compete successfully against our current or future competitors. The pharmaceutical, biopharmaceutical and biotechnology industry is characterized by intense competition and rapid and significant technological advancements. Many companies, research institutions and universities are working in a number of areas similar to our primary fields of interest to develop new products. There also is intense competition among companies seeking to acquire products that already are being marketed. Many of the companies with which we compete have or are likely to have substantially greater research and product development capabilities and financial, technical, scientific, manufacturing, marketing, distribution and other resources than at least some of our present or future strategic partners or licensees.


	•	Succeed in developing competitive products earlier than we or our strategic partners or licensees

	•	Obtain approvals for such products from the FDA or other regulatory agencies more rapidly than we or our strategic partners or licensees do

	•	Obtain patents that block or otherwise inhibit the development and commercialization of our product candidates

	•	Develop treatments or cures that are safer or more effective than those we propose for our products

	•	Devote greater resources to marketing or selling their products

	•	Introduce or adapt more quickly to new technologies or scientific advances

	•	Introduce products that make the continued development of our product candidates uneconomical

	•	Withstand price competition more successfully than our strategic partners or licensees can

	•	More effectively negotiate third-party strategic alliances or licensing arrangements

	•	Take advantage of other opportunities more readily than we can

A number of medical institutions and pharmaceutical companies are seeking to develop products based on gene silencing technologies. Companies working in this area include Sirna Therapeutics, Inc., Ribopharma A.G., Alnylam, Inc., Benitec, Nucleonics, Inc. and a number of the multinational pharmaceutical companies. A number of products currently are being marketed by a variety of the multinational or other pharmaceutical companies for treating type II diabetes, including among others the diabetes drugs Avandia by Glaxo SmithKline PLC, Actos by Eli Lilly & Co., Glucophage by Bristol Myers Squibb Co., and Starlix by Novartis and the obesity drugs Xenical by F. Hoffman-La Roche Ltd. and Meridia by Abbott Laboratories. Many major pharmaceutical companies are also seeking to develop new therapies for these disease indications. At least one company, Alnylam, is seeking to develop a therapeutic product for obesity and type II diabetes based on an RNAi technology. Companies developing HIV vaccines that could compete with our HIV vaccine technology include Merck, VaxGen, Inc., Epimmune, Inc., AlphaVax, Inc. and Immunitor Corporation.

Although we do not expect FLOCOR to have direct competition from other products currently available or that we are aware of that are being developed related to FLOCOR’s ability to reduce blood viscosity in the cardiovascular area, there are a number of anticoagulant products that FLOCOR would have to compete against, such as tissue plasminogen activator (t-PA) and streptokinase (blood clot dissolving enzymes) as well as blood thinners such as heparin and coumatin, even though FLOCOR acts by a different mechanism to prevent damage due to blood coagulation. In the sickle cell disease area, FLOCOR would compete against companies that are developing or marketing other products to treat sickle cell disease, such as Droxia (hydroxyurea) marketed by Bristol-Myers Squibb Co. and Decitabine, which is being developed by SuperGen, Inc. Our TranzFect technology will compete against a number of companies that have developed adjuvant products, such as the adjuvant QS-21 marketed by Antigenics, Inc. and adjuvants marketed by Corixa Corp. Blizzard Genomics’ products, if ever developed, will compete with a number of currently marketed products, including those offered by Axon Instruments, Inc., Affymetrix, Inc., Applied Precision, LLC, Perkin Elmer, Inc. and Agilent Technologies, Inc.

We do not currently have the facilities or expertise to manufacture any of the clinical or commercial supplies of any of our products. Accordingly, we will be dependent upon contract manufacturers or our strategic alliance partners to manufacture these supplies, or we will need to acquire the ability to manufacture these supplies ourselves, which could be very difficult, time-consuming and costly. We do not have manufacturing supply arrangements for our products, including any of the licensed RNAi technology or, with the exception of the clinical supplies for the currently planned Phase I trial, the HIV vaccine product that

utilizes the HIV vaccine technology that we have licensed from UMMS. There can be no assurance that we will be able to secure needed manufacturing supply arrangements, or acquire the ability to manufacture the products ourselves, on attractive terms or at all. Delays in, or a failure to, secure these arrangements or abilities could have a materially adverse effect on our ability to complete the development of our products or to commercialize them.

Obtaining and maintaining patent and other intellectual property rights for our technologies and potential products is critical to establishing and maintaining the value of our assets and our business. Although we believe that we have significant patent coverage for our TranzFect technologies, there can be no assurance that this coverage will be broad enough to prevent third parties from developing or commercializing similar or identical technologies, that the validity of our patents will be upheld if challenged by third parties or that our technologies will not be deemed to infringe the intellectual property rights of third parties. We have a nonexclusive license to a patent owned by UMMS and the Carnegie Institution of Washington that covers the general field of gene silencing. The specific medical applications of the gene silencing technology and the other technologies that we have licensed from the UMMS are covered by a number of pending patent applications, but there can be no assurance that any of these patents will be issued. Moreover, other organizations and researchers have been active in the field of gene silencing, many patent applications covering different methods and compositions in the field of RNAi therapeutics have been and are expected to be filed, and certain organizations or researchers may hold or seek to obtain patents that could make it more difficult or impossible for us to develop products based on the gene silencing technology that we have licensed. At least one of our competitors is seeking broad patent coverage in the RNAi field that could restrict the ability of others to develop certain RNAi-based therapeutics.

Any litigation brought by us to protect our intellectual property rights or by third parties asserting intellectual property rights against us could be costly and have a material adverse effect on our operating results or financial condition, make it more difficult for us to enter into strategic alliances with third parties to develop our products, or discourage our existing licensees from continuing their development work on our potential products. If our patent coverage is insufficient to prevent third parties from developing or commercializing similar or identical technologies, the value of our assets is likely to be materially and adversely affected.

We are sponsoring research at UMMS and Massachusetts General Hospital under agreements that give us certain rights to acquire licenses to inventions that arise from that research and we may enter into additional research agreements with those institutions, or others, in the future. There can be no assurance, however, that we will be able to acquire those licenses under satisfactory terms or at all.

If any of our products are alleged to be defective, they may expose us to claims for personal injury by patients in clinical trials of our products or by patients using our commercially marketed products. Even if the commercialization of one or more of our products is approved by the FDA, users may claim that such products caused unintended adverse effects. We currently do not carry product liability insurance covering the use of our products in human clinical trials or the commercial marketing of these products but anticipate that our licensees who are developing our products will carry liability insurance covering the clinical testing and marketing of those products. However, if someone asserts a claim against us and the insurance coverage of our licensees or their other financial resources are inadequate to cover a successful claim, such successful claim may exceed our financial resources and cause us to discontinue operations. Even if claims asserted against us are unsuccessful, they may divert management’s attention from our operations and we may have to incur substantial costs to defend such claims.

On April 19, 2004, we received a Nasdaq Staff Determination letter informing us that our common stock is subject to delisting from The Nasdaq Small Cap Market as a result of our failure to file our Annual Report on Form 10-K for the year ended December 31, 2003, as required by Nasdaq Marketplace Rule 4310(c)(14). On May 13, 2004, we participated in a telephonic hearing before the Nasdaq Listing Qualifications Panel that was to consider our delisting. On May 14, 2004, we filed the Annual Report on Form 10-K for the year ended December 31, 2003. The Nasdaq Listing Qualifications Panel is expected to rule on our possible delisting by the end of May 2004. Notwithstanding our filing of our delinquent report, the Nasdaq Listing Qualifications Panel could, nevertheless, determine that we are otherwise in non-compliance with certain Nasdaq listing criteria and could, therefore, rule that our common stock be delisted from the Nasdaq Small Cap Market. If our common stock is delisted from the Nasdaq Small Cap Market, an active trading market for our common stock may cease to exist and the delisting could materially and adversely impact the market value of our common stock.

We have a stockholder rights plan and provisions in our bylaws that may discourage or prevent a person or group from acquiring us without the approval of our board of directors. The intent of the stockholder rights plan and our bylaw provisions is to protect our stockholders’ interests by encouraging anyone seeking control of our company to negotiate with our board of directors.

We have a classified board of directors, which requires that at least two stockholder meetings, instead of one, will be required to effect a change in the majority control of our board of directors. This provision applies to every election of directors, not just an election occurring after a change in control. The classification of our board increases the amount of time it takes to change majority control of our board of directors and may cause our potential purchasers to lose interest in the potential purchase of us, regardless of whether our purchase would be beneficial to us or our stockholders. The additional time and cost to change a majority of the members of our board of directors makes it more difficult and may discourage our existing stockholders from seeking to change our existing management in order to change the strategic direction or operational performance of our company.

Our bylaws provide that directors may only be removed for cause by the affirmative vote of the holders of at least a majority of the outstanding shares of our capital stock then entitled to vote at an election of directors. This provision prevents stockholders from removing any incumbent director without cause. Our bylaws also provide that a stockholder must give us at least 120 days notice of a proposal or director nomination that such stockholder desires to present at any annual meeting or special meeting of stockholders. Such provision prevents a stockholder from making a proposal or director nomination at a stockholder meeting without us having advance notice of that proposal or director nomination. This could make a change in control more difficult by providing our directors with more time to prepare an opposition to a proposed change in control. By making it more difficult to remove or install new directors, the foregoing bylaw provisions may also make our existing management less responsive to the views of our stockholders with respect to our operations and other issues such as management selection and management compensation.

As of March 31, 2004, there were outstanding stock options and warrants to purchase approximately 11,281,000 shares of our common stock at exercise prices ranging from $0.01 to $7.75 per share. Our outstanding options and warrants could adversely affect our ability to obtain future financing or engage in certain mergers or other transactions, since the holders of options and warrants can be expected to exercise them at a time when we may be able to obtain additional capital through a new offering of securities on terms more favorable to us than the terms of outstanding options and warrants. For the life of the options and

warrants, the holders have the opportunity to profit from a rise in the market price of our common stock without assuming the risk of ownership. To the extent the trading price of our common stock at the time of exercise of any such options or warrants exceeds the exercise price, such exercise will also have a dilutive effect to our stockholders.

In August 2003, we registered a total of 14,408,252 shares of our outstanding common stock and an additional 3,848,870 shares of our common stock issuable upon exercise of outstanding options and warrants, which shares and options and warrants were issued primarily in connection with our merger with Global Genomics and the private equity financing that we completed in May 2003. In December 2003, we registered a total of 6,113,448 shares of our common stock, consisting of the 5,175,611 shares we issued or that are issuable upon exercise of the warrants that we issued to the investors in connection with our $8,695,000 private equity financing in September 2003, and an additional 937,837 shares of our common stock that we issued or that are issuable upon the exercise of warrants having exercise prices ranging from $2.00 to $3.05 per share that we issued to certain other third parties. Both the availability for public resale of these various shares and the actual resale of these shares could adversely affect the trading price of our common stock.

The market price of our common stock has experienced significant volatility in the past and may continue to experience significant volatility from time to time. Our stock price has ranged from $0.21 to $3.74 over the past three years. Factors such as the following may affect such volatility:


	•	our quarterly operating results

	•	announcements of regulatory developments or technological innovations by us or our competitors

	•	government regulation of drug pricing

	•	developments in patent or other technology ownership rights

	•	public concern regarding the safety of our products

Other factors which may affect our stock price are general changes in the economy, financial markets or the pharmaceutical or biotechnology industries.

Our financial instruments that are sensitive to changes in interest rates are our investments and cash equivalents. As of March 31, 2004, we held no investments other than amounts invested in money market accounts. We are not subject to any other material market risks.

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)) as of the end of the quarterly period covered by this Form 10-Q, have concluded that the Company’s disclosure controls and procedures are adequate and effective to reasonably ensure that material information relating to us can be gathered, analyzed and disclosed on a timely basis in the reports that we file under the Securities Exchange Act. There were no significant changes made during our most recently completed fiscal quarter in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We have recently been notified by the Massachusetts State Ethics Commission (Massachusetts Commission) that it has initiated a Preliminary Inquiry into whether our previous retention of a consultant who introduced us to UMMS constituted an improper conflict of interest under Massachusetts’ ethics laws. Since the inquiry is at a very preliminary stage, it is inherently difficult to predict whether the Massachusetts Commission will decide to initiate any formal proceedings, whether these proceedings will be directed at us or whether we will be found in any such proceedings to have violated any Massachusetts ethics laws. We also cannot estimate what our legal costs will be in connection with this matter, although these expenses could be substantial if a formal proceeding is initiated. Moreover, if the Massachusetts Commission were to determine that our conduct was unlawful, the Commission could impose a number of different penalties or sanctions upon us which, under certain circumstances, would have a material adverse effect on our business and financial condition.

On April 5, 2004, we were served with a complaint for breach of contract, filed by Madison & Wall Worldwide, Inc. (“M&W”), in the Superior Court of California, County of Orange on April 1, 2004. M&W, a former independent contractor to us, engaged to provide investor relations services, was seeking damages in excess of $700,000 in that lawsuit. On May 11, 2004, we reached an agreement in principle with M&W to settle this lawsuit by issuing the 200,000 shares of our common stock that were to have been earned and received by M&W upon our entering into the investor relations services contract with them and by our making an additional payment of $50,000 to M&W. We are in the process, with M&W, of preparing the documentation for this settlement.

During the three-month period ended March 31, 2004, we granted ten-year options to purchase a total of 1,895,000 shares of our common stock to four employees and two members of our Scientific Advisory Board. The option exercise prices ranged from $1.85 to $2.16 per share.

In January 2004, we issued 125,000 shares of our common stock to Advanced BioScience Laboratories, Inc. as a milestone payment under our license agreement with that company. The shares of common stock were issued in reliance upon an exemption from registration under section 4(2) of the Securities Act of 1933.

In February 2004, we sold to Troy & Gould Professional Corporation 100,000 shares of our common stock at $1.84 per share. The shares of common stock were issued in reliance upon an exemption from registration under section 4(2) of the Securities Act of 1933.

In February 2004, we issued 100,000 shares of our common stock to The Investor Relations Group, Inc. for certain investor relation services to be rendered by that firm under a consulting agreement with that firm. The shares of common stock were issued in reliance upon an exemption from registration under section 4(2) of the Securities Act of 1933.

In March 2004, we issued 150,000 shares of our common stock to Gunn Allen Financial, Inc. for certain services to be rendered by that firm under an investment banking agreement with that firm. The shares of common stock were issued in reliance upon an exemption from registration under section 4(2) of the Securities Act of 1933.

The exhibits listed in the accompanying Index to Exhibits are filed as part of this Quarterly Report on Form 10-Q.

On January 20, 2004, we filed a Current Report on Form 8-K (Item 5. Other Events and Regulation FD Disclosure) attaching a press release announcing our plans to cease funding of our existing investments in genomics companies and to record write-off of our investments in the genomics companies.

On January 27, 2004, we filed a Current Report on Form 8-K (Item 4. Changes in Registrant’s Certifying Accountant) announcing the dismissal of Ernst & Young LLP as our independent auditors effective as of January 20, 2004.

On January 30, 2004, we filed a Current Report on Form 8-K (Item 4. Changes in Registrant’s Certifying Accountant) announcing that we had engaged PricewaterhouseCoopers LLP as our independent auditors.

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)

	By: /s/ STEVEN A. KRIEGSMAN

	Steven A. Kriegsman
	Chief Executive Officer

23 EX-10.1 2 v99122exv10w1.txt EXHIBIT 10.1 EXHIBIT 10.1 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of January 29, 2004, by and between CytRx Corporation, a Delaware corporation (the "Company"), and Advanced BioScience Laboratories, Inc., a Delaware corporation ("ABL"). WHEREAS, pursuant to the Collaboration Agreement, dated as of December 22, 2003, by and among the Company, ABL, and the University of Massachusetts (the "Collaboration Agreement"), the Company has agreed to issue shares of its common stock to ABL upon the occurrence of the event set forth in Section 11(iv) thereof (the "Filing Event"); and WHEREAS, to induce ABL to execute and deliver the Collaboration Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, with respect to the Common Shares (as defined below). NOW, THEREFORE, in consideration of the representations, warranties and agreements contained herein and other good and valuable consideration, the receipt and legal adequacy of which are hereby acknowledged by the parties, the Company and ABL hereby agree as follows: 1. Definitions. Capitalized terms used but not otherwise defined herein shall have the meanings given such terms in the Collaboration Agreement. As used in this Agreement, the following terms shall have the following meanings: "Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or under common control with such Person. For the purposes of this definition, "control," when used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. "Blackout Period" shall have the meaning set forth in Section 3(m). "Board" shall have the meaning set forth in Section 3(m). "Business Day" means any day except Saturday, Sunday and any day which is a legal holiday or a day on which banking institutions in the state of California generally are authorized or required by law or other government actions to close. "Commission" means the Securities and Exchange Commission. "Common Shares" shall have the meaning set forth in the definition of "Registrable Securities." "Common Stock" means the Company's Common Stock, $.001 par value. "Effectiveness Date" means with respect to the Registration Statement the earlier of (i) the 180th day following the Filing Event, before which the Company will use its commercially reasonable best efforts to cause the Registration Statement to become effective, and (ii) the date which is within five (5) Business Days after the date on which the Commission informs the Company in writing (a) that the Commission will not review the Registration Statement, or (b) that the Company may request the acceleration of the effectiveness of the Registration Statement. "Effectiveness Period" shall have the meaning set forth in Section 2. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Holder" means, collectively, each holder from time to time of Registrable Securities including, without limitation, ABL and its assignees. To the extent this Agreement refers to an election, consent, waiver, request or approval of or by the Holder, such reference shall mean an election, consent, waiver, request or approval by the holders of a majority in interest of the then-outstanding Registrable Securities (on an as exercised basis). "Indemnified Party" shall have the meaning set forth in Section 6(c). "Indemnifying Party" shall have the meaning set forth in Section 6(c). "Losses" shall have the meaning set forth in Section 6(a). "NASDAQ" shall mean the NASDAQ Stock Market. "Person" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind. "Proceeding" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened. "Prospectus" means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference in such Prospectus. -2- "Registrable Securities" means the shares of Common Stock issued or issuable pursuant to the Collaboration Agreement, and upon any stock split, stock dividend, recapitalization or similar event with respect to such shares of Common Stock and any other securities issued in exchange of or replacement of such shares of Common Stock (collectively, the "Common Shares"); until in the case of any of the Common Shares (a) a Registration Statement covering such Common Share has been declared effective by the Commission and continues to be effective during the Effectiveness Period, or (b) such Common Share is sold in compliance with Rule 144 or may be sold pursuant to Rule 144(k), after which time such Common Share shall not be a Registrable Security. "Registration Statement" means the registration statement, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference in such registration statement, for the Shares required to be filed by the Company with the Commission pursuant to this Agreement. "Required Filing Date" means the 120th day immediately following the Filing Event. "Rule 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "Rule 158" means Rule 158 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "Rule 415" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "Securities Act" means the Securities Act of 1933, as amended. "Special Counsel" means an attorney selected by and acting as special counsel to Holder. 2. Registration. On or prior to the Required Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance with the Securities Act and the rules promulgated thereunder) and shall contain (except if otherwise directed by ABL) the "Plan of Distribution" attached hereto as Exhibit A. The Company shall (i) use its commercially reasonable best efforts to cause the Registration Statement to be declared effective under the Securities Act (including filing with the Commission a request for acceleration of effectiveness within five (5) Business Days of the date that the Company is notified in writing by the Commission that the Registration -3- Statement will not be "reviewed," or not be subject to further review) as soon as possible after the filing thereof, but in any event prior to the Effectiveness Date, and (ii) keep such Registration Statement continuously effective under the Securities Act for a period of two years from the Effectiveness Date (as it may be extended hereunder, the "Effectiveness Period"). 3. Registration Procedures; Company's Obligations. In connection with the registration of the Registrable Securities, the Company shall: (a) Prepare and file with the Commission on or prior to the Required Filing Date, a Registration Statement on Form S-3 (or if the Company is not then eligible to register for resale the Registrable Securities on Form S-3 such registration shall be on another appropriate form in accordance with the Securities Act and the Rules promulgated thereunder) in accordance with the method or methods of distribution thereof as specified by the Holder (except if otherwise directed by the Holder), and use its commercially reasonable best efforts to cause the Registration Statement to become effective and remain effective as provided herein; provided, however, that not less than three (3) Business Days prior to the filing of the Registration Statement or any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated therein by reference), the Company shall (i) furnish to the Holder and any Special Counsel, copies of all such documents proposed to be filed, which documents (other than those incorporated by reference) will be subject to the timely review of and comment by such Special Counsel, and (ii) at the request of the Holder cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries, and to make available for inspection by the Holder all financial and other records, pertinent corporate documents and properties of the Company, as shall be necessary, in the reasonable opinion of such Special Counsel, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holder or any Special Counsel shall reasonably object in writing within three (3) Business Days of their receipt thereof. (b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to the Registration Statement as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; (iii) respond promptly to any comments received from the Commission with respect to the Registration Statement or any amendment thereto and promptly provide the Holder true and complete copies of all correspondence from and to the Commission relating to the Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holder set forth in the Registration Statement as so amended or in such Prospectus as so supplemented. -4- (c) Notify the Holder of Registrable Securities to be sold and any Special Counsel promptly (and, in the case of (i)(A) below, not less than three (3) Business Days prior to such filing and, in the case of (i)(C) below, no later than the first Business Day following the date on which the Registration Statement becomes effective) and (if requested by any such Person) confirm such notice in writing no later than three (3) Business Days following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement is proposed to be filed, (B) when the Commission notifies the Company whether there will be a "review" of such Registration Statement and whenever the Commission comments in writing on such Registration Statement, and (C) with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (v) of the occurrence of any event that makes any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Company shall promptly furnish to the Special Counsel, without charge, (i) any correspondence from the Commission or the Commission's staff to the Company or its representatives relating to any Registration Statement, and (ii) promptly after the same is prepared and filed with the Commission, a copy of any written response to the correspondence received from the Commission. (d) Use its commercially reasonable best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of, (i) any order suspending the effectiveness of the Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any U.S. jurisdiction, at the earliest practicable moment. (e) If requested by the Holder, (i) promptly incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the Company reasonably agrees should be included therein, and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment. (f) Furnish to the Holder and any Special Counsel, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including -5- financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission. (g) Promptly deliver to the Holder and any Special Counsel, without charge, as many copies of the Registration Statement, Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request; and the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by the selling Holder in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Securities, use its commercially reasonable best efforts to register or qualify or cooperate with the selling Holder and any Special Counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as the Holder reasonably requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or subject the Company to any tax in any such jurisdiction where it is not then so subject. (i) Cooperate with the Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to a Registration Statement and to enable such Registrable Securities to be in such denominations and registered in such names as the Holder may request at least two (2) Business Days prior to any sale of Registrable Securities. (j) Upon the occurrence of any event contemplated by Section 3(c)(v), promptly prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (k) Use its commercially reasonable best efforts to cause all Registrable Securities relating to such Registration Statement to be quoted by NASDAQ and any other securities exchange, quotation system, market or over-the-counter bulletin board, if any, on which the same securities issued by the Company are then listed. -6- (l) Comply in all material respects with all applicable rules and regulations of the Commission and make generally available to its security holders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 not later than forty-five (45) days after the end of any twelve (12) month period (or ninety (90) days after the end of any twelve (12) month period if such period is a fiscal year) commencing on the first day of the first fiscal quarter of the Company after the effective date of the Registration Statement, which statement shall conform to the requirements of Rule 158. (m) If (i) there is material non-public information regarding the Company which the Company's Board of Directors (the "Board") reasonably determines not to be in the Company's best interest to disclose and which the Company is not otherwise required to disclose, or (ii) there is a significant business opportunity (including, but not limited to, the acquisition or disposition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer or other similar transaction) available to the Company which the Board reasonably determines not to be in the Company's best interest to disclose and which the Company would be required to disclose under the Registration Statement, then the Company may suspend effectiveness of a Registration Statement and suspend the sale of Registrable Securities under a Registration Statement one (1) time every three (3) months or three (3) times in any twelve month period, provided that the Company may not suspend its obligation for more than sixty (60) days in the aggregate in any twelve month period (each, a "Blackout Period"); provided, however, that no such suspension shall be permitted for more than twenty (20) consecutive days, arising out of the same set of facts, circumstances or transactions, and that there shall be at least two business days between each Blackout Period; and, provided, further, that the Effectiveness Period shall be extended by up to sixty (60) days to reflect any Blackout Periods. (n) Within two (2) Business Days after the Registration Statement which includes the Registrable Securities is ordered effective by the Commission, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Holder whose Registrable Securities are included in such Registration Statement) confirmation that the Registration Statement has been declared effective by the Commission in the form attached hereto as Exhibit B. 4. Registration Procedures; Holder's Obligations In connection with the registration of the Registrable Securities, the Holder shall: (a) If the Registration Statement refers to the Holder by name or otherwise as the holder of any securities of the Company, have the right to require (if such reference to the Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force) the deletion of the reference to the Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. (b) (i) not sell any Registrable Securities under the Registration Statement until it has received copies of the Prospectus as then amended or supplemented as contemplated -7- in Section 3(g) and notice from the Company that such Registration Statement and any post-effective amendments thereto have become effective as contemplated by Section 3(c), (ii) comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement, and (iii) furnish to the Company information regarding such Holder and the distribution of such Registrable Securities as is required by law to be disclosed in the Registration Statement, and the Company may exclude from such registration the Registrable Securities of the Holder if it fails to furnish such information within a reasonable time prior to the filing of each Registration Statement, supplemented Prospectus and/or amended Registration Statement. (c) upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(m), forthwith discontinue disposition of such Registrable Securities under the Registration Statement until the Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by Section 3(j), or until it is advised in writing by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. 5. Registration Expenses All reasonable fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not the Registration Statement is filed or becomes effective and whether or not any Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, the following: (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with NASDAQ and each securities exchange or other market on which Registrable Securities are required hereunder to be listed, (B) with respect to filings required to be made with the Commission, and (C) in compliance with state securities or Blue Sky laws); (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is requested by the holders of a majority of the Registrable Securities included in the Registration Statement); (iii) messenger, telephone and delivery expenses incurred by the Company; (iv) fees and disbursements of counsel for the Company; and (v) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement, including, without limitation, the Company's independent public accountants (including the expenses of any comfort letters or costs associated with the delivery by independent public accountants of a comfort letter or comfort letters). In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. The Company shall not be responsible for the payment of any commissions or other expenses incurred by the Holder in connection with their sales of Registrable Securities or for the fees of any Special Counsel. -8- 6. Indemnification (a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless ABL, its permitted assignees, officers, directors, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees, each Person who controls ABL or a permitted assignee (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, and the respective successors, assigns, estate and personal representatives of each of the foregoing, to the fullest extent permitted by applicable law, from and against any and all claims, losses, damages, liabilities, penalties, judgments, costs (including, without limitation, costs of investigation) and expenses (including, without limitation, reasonable attorneys' fees and expenses) (collectively, "Losses"), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus, as supplemented or amended, if applicable, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, except (i) to the extent, but only to the extent, that such untrue statements or omissions are based solely upon information regarding the Holder furnished in writing to the Company by the Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto, or (ii) as a result of the failure of the Holder to deliver a Prospectus, as amended or supplemented, to a purchaser in connection with an offer or sale (provided that copies of the Prospectus, as amended or supplemented, have been provided to the Holder by the Company for delivery to such purchaser). The Company shall notify the Holder promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of an Indemnified Party (as defined in Section 6(c) hereof) and shall survive the transfer of the Registrable Securities by the Holder. (b) Indemnification by ABL. ABL and its permitted assignees shall, jointly and severally, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, and the respective successors, assigns, estate and personal representatives of each of the foregoing, to the fullest extent permitted by applicable law, from and against any and all Losses, as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus, as supplemented or amended, if applicable, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that (i) such untrue statement or omission is contained in or omitted from any information so furnished in writing by the Holder or the Special Counsel to the Company specifically for inclusion in the Registration Statement or such Prospectus, and (ii) such -9- information was reasonably relied upon by the Company for use in the Registration Statement, such Prospectus or such form of prospectus or, to the extent that such information relates to the Holder or the Holder's proposed method of distribution of Registrable Securities, was reviewed and expressly approved in writing by the Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus Supplement. Notwithstanding anything to the contrary contained herein, the Holder shall be liable under this Section 6(b) for only that amount as does not exceed the net proceeds to the Holder as a result of the sale of Registrable Securities pursuant to such Registration Statement. (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity pursuant to Section 6(a) or 6(b) hereunder (an "Indemnified Party"), such Indemnified Party promptly shall notify the Person from whom indemnity is sought (the "Indemnifying Party) in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have materially and adversely prejudiced the Indemnifying Party. An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (i) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (ii) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (iii) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld, conditioned or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, which consent shall not unreasonably be withheld, conditioned or delayed, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. All reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten (10) Business Days of written notice thereof to the Indemnifying -10- Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder or pursuant to applicable law). (d) Contribution. If a claim for indemnification under Section 6(a) or 6(b) is unavailable to an Indemnified Party because of a failure or refusal of a governmental authority to enforce such indemnification in accordance with its terms (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 6(c), any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for under Section 6(a) or 6(b) was available to such party in accordance with its terms. Notwithstanding anything to the contrary contained herein, the Holder shall be liable or required to contribute under this Section 6(d) for only that amount as does not exceed the net proceeds to the Holder as a result of the sale of Registrable Securities pursuant to the Registration Statement. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. 7. Rule 144. As long as the Holder owns Registrable Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act and to promptly furnish the Holder with true and complete copies of all such filings. As long as the Holder owns Registrable Securities, if the Company is not -11- required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Holder and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance substantially similar to those that would otherwise be required to be included in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as any other information required thereby, in the time period that such filings would have been required to have been made under the Exchange Act. The Company further covenants that it will take such further action as the Holder may reasonably request, all to the extent required from time to time to enable the Holder to sell the Common Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act. Upon the request of any Holder, the Company shall deliver to such Holder a written certification of a duly authorized officer as to whether it has complied with such requirements. 8. Miscellaneous. (a) Remedies. In the event of a breach by the Company or by the Holder of any of their obligations under this Agreement, the Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and the Holder each agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further each agree that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. Neither the Company nor any of its Affiliates has as of the date hereof entered into, nor shall the Company or any of its Affiliates, on or after the date of this Agreement, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holder in this Agreement or otherwise conflicts with the provisions hereof. Without limiting the generality of the foregoing, without the written consent of the Holder, the Company shall not grant to any Person the right to request the Company to register any securities of the Company under the Securities Act if the rights so granted are inconsistent with the rights granted to the Holder set forth herein, or otherwise prevent the Company with complying with all of its obligations hereunder. (c) No Piggyback on Registrations. Neither the Company nor any of its security holders (other than the Holder in such capacity pursuant hereto) may include securities of the Company in the Registration Statement; provided, however, that securities held by other security holders the resale of which the Company is, prior to the Required Filing Date, contractually obligated to register under the Securities Act may be included in the Registration Statement. (d) Consent to Jurisdiction. The Company and ABL (i) hereby irrevocably submit to the non-exclusive jurisdiction of the United States District Court for the Central District of California and the courts of the State of California located in the City of Los Angeles, -12- California, for the purposes of any suit, action or proceeding arising out of or relating to this Agreement, and (ii) hereby waive, and agree not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. The Company and ABL consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 8(d) shall affect or limit any right to serve process in any other manner permitted by law. (e) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and ABL. (f) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earlier of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified for notice prior to 5:00 p.m., Pacific Time, on a Business Day, (ii) the first Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified for notice later than 5:00 p.m., Pacific Time, on any date and earlier than 11:59 p.m., Pacific Time, on such date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) actual receipt by the party to whom such notice is required to be given. (x) if to the Company: CytRx Corporation 11726 San Vicente Boulevard, Suite 650 Los Angeles, California 90049 Attention: Steven A. Kriegsman Telecopier: (310) 826-5529 Telephone: (310) 826-5648 with a copy to: Troy & Gould Professional Corporation 1801 Century Park East, 16th Floor Los Angeles, California 90067-2367 Attention: Sanford J. Hillsberg Telecopier: (310) 201-4746 Telephone: (310) 553-4441 -13- (y) if to ABL: Advanced BioScience Laboratories, Inc. 5510 Nicholson Lane Kensington, Maryland 20895 Attention: Johannes Burlin Telecopier: (301) 984-3608 Telephone: (301) 881-5600 or to such other address or addresses or facsimile number or numbers as any such party may most recently have designated in writing to the other parties hereto by such notice. (g) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. (h) Assignment of Registration Rights. The rights of the Holder hereunder, including the right to have the Company register for resale Registrable Securities in accordance with the terms of this Agreement, shall be assignable by each Holder to any transferee of the Holder of all or a portion of the shares of Registrable Securities if: (i) the Holder agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (A) the name and address of such transferee or assignee, and (B) the securities with respect to which such registration rights are being transferred or assigned; (iii) following such transfer or assignment the further disposition of such securities by the transferee or assignees is restricted under the Securities Act and applicable state securities laws; and (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this Section, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions of this Agreement. In addition, the Holder shall have the right to assign its rights hereunder to any other Person with the prior written consent of the Company, which consent shall not be unreasonably withheld, conditioned or delayed. The rights to assignment shall apply to the Holder (and to subsequent) successors and assigns. In the event of an assignment pursuant to this Section 8(h), ABL shall pay all incremental costs and expenses incurred by the Company in connection with filing a Registration Statement (or an amendment to the Registration Statement) to register the shares of Registrable Securities assigned to any assignee or transferee of ABL. (i) Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof. (j) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of -14- law thereof. This Agreement shall not be interpreted or construed with any presumption against the party causing this Agreement to be drafted. (k) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. (l) Termination. This Agreement shall terminate on the date on which all of the Registrable Securities may be sold without restriction pursuant to Rule 144(k) of the Securities Act. (m) Severability. If any term, provision, covenant or restriction of this Agreement is held to be invalid, illegal, void or unenforceable in any respect, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (n) Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. (signature page follows) -15- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized persons as of the date first indicated above. CYTRX CORPORATION By: /s/ Steven A. Kriegsman ----------------------------------------------- Name: Steven A. Kriegsman Title: Chief Executive Officer ADVANCED BIOSCIENCE LABORATORIES, INC. By: /s/ Johannes Burlin ----------------------------------------------- Name: Johannes Burlin Title: President and Chief Executive Officer EXHIBIT A PLAN OF DISTRIBUTION We are registering the shares of common stock on behalf of the selling stockholders. The common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market prices, at varying prices determined at the time of sale, or at negotiated prices. These sales may be effected at various times in one or more of the following transactions, or in other kinds of transactions: - transactions on the NASDAQ Stock Market or on any national securities exchange or U.S. inter-dealer system of a registered national securities association on which the common stock may be listed or quoted at the time of sale; - in the over-the-counter market; - in private transactions and transactions otherwise than on these exchanges or systems or in the over-the-counter market; - in connection with short sales of the shares; - by pledge to secure or in payment of debt and other obligations; - through the writing of options, whether the options are listed on an options exchange or otherwise; - in connection with the writing of non-traded and exchange-traded call options, in hedge transactions and in settlement of other transactions in standardized or over-the-counter options; or - through a combination of any of the above transactions. The selling stockholders and their successors, including their transferees, pledgees or donees or their successors, may sell the common stock directly to purchasers or through underwriters, broker-dealers or agents, who may receive compensation in the form of discounts, concessions or commissions from the selling stockholders or the purchasers. These discounts, concessions or commissions as to any particular underwriter, broker-dealer or agent may be in excess of those customary in the types of transactions involved. The selling stockholders also may engage in short sales against the box, puts and calls and other transactions in our securities or derivatives of our securities and may sell or deliver shares in connection with these trades. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 of the Securities Act may be sold under Rule 144 rather than pursuant to this prospectus. A-1 The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders and any broker-dealers or agents that are involved in selling the shares of common stock may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares of common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. We entered into a registration rights agreement for the benefit of the selling stockholders to register the common stock under applicable federal and state securities laws. The registration rights agreement provides for cross-indemnification of the selling stockholders and us and our respective directors, officers and controlling persons against specific liabilities in connection with the offer and sale of the common stock, including liabilities under the Securities Act. We will pay substantially all of the expenses incurred by the selling stockholders incident to the registration of the common stock. The selling stockholders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by any selling stockholder. If we are notified by any selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, if required, we will file a supplement to this prospectus. If the selling stockholders use this prospectus for any sale of the shares of common stock, they will be subject to the prospectus delivery requirements of the Securities Act. The anti-manipulation rules of Regulation M under the Securities Exchange Act may apply to sales of our common stock and activities of the selling stockholders. A-2 EXHIBIT B FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT [Name and address of Transfer Agent] __________________ __________________ __________________ Attn: ____________ Re: CytRx Corporation Ladies and Gentlemen: We are counsel to CytRx Corporation, a Delaware corporation (the "COMPANY"), and have represented the Company in connection with that certain Collaboration Agreement (the "COLLABORATION AGREEMENT"), dated as of December 22, 2003, by and between the Company and Advanced BioScience Laboratories, Inc., a Delaware corporation ("ABL") pursuant to which the Company issued to ABL shares (the "SHARES") of its Common Stock, $0.001 par value. Pursuant to the Collaboration Agreement, the Company has also entered into a Registration Rights Agreement with ABL (the "REGISTRATION RIGHTS AGREEMENT"), dated as of January __, 2004, pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), including the Shares, under the Securities Act of 1933, as amended (the "1933 ACT"). In connection with the Company's obligations under the Registration Rights Agreement, on _________ __, 2004, the Company filed a Registration Statement on Form S-3 (File No. 333-________) (the "REGISTRATION STATEMENT") with the Securities and Exchange Commission (the "SEC") relating to the resale of the Registrable Securities which names ABL as selling stockholder thereunder. In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and, accordingly, the Registrable Securities are available for resale under the 1933 Act in the manner specified in, and pursuant to the terms of, the Registration Statement. Very truly yours, By: C-1 EX-10.2 3 v99122exv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 2/2/04 DRAFT CONSULTING AGREEMENT EFFECTIVE DATE: February 9, 2004 CONSULTANT: The Investor Relations Group, Inc. ("Consultant") CONSULTANT'S ADDRESS: 11 Stone Street, 3rd Floor New York, NY 10004 TERM: Six (6) months, renewable at the option of the Company SERVICES: Investor relations and public relations services that, at the sole and exclusive discretion of the Company, may include, without limitation, overall management of the corporate communications program; designing a corporate fact sheet that can readily be mass-produced for distribution to brokers, analysts and other industry personnel; securing one-on-one and group appointments with industry professionals for presentations by, for, and about Company management; targeted mailings; assistance with compiling promotional materials; writing and editing news releases and other corporate materials; advice on packaging the Company's story; writing pitch letters to and solicitation of the appropriate media and press; syndicated stories; and daily update reports. FEE: $12,000 per month. In addition, the Company shall deliver to Consultant, for investment purposes, 100,000 restricted shares of the Company's Common Stock (the "Stock"). In the event that the Company elects, in writing, to renew this Agreement, it shall deliver to Consultant an additional 100,000 restricted shares of the Company's Common Stock. Consultant acknowledges and agrees that any shares issued pursuant to this Agreement may not be resold into the public market for a period of at least twelve (12) months. The foregoing terms are defined as indicated in the Consulting Agreement. This Consulting Agreement ("Agreement") is made as of the Effective Date between Consultant and CytRx Corporation, a Delaware corporation (the "Company," and together with the Consultant, the "Parties"). RECITAL WHEREAS, the Company desires, during the Term to engage the Consultant to provide certain services to the Company, and the Consultant is willing to provide such services as requested by the Company. AGREEMENT NOW, THEREFORE, in consideration of the foregoing premises and for the promises hereinafter set forth and for other good and valuable consideration, the adequacy of which is specifically acknowledged, the Parties agree as follows: 1. TERM AND TERMINATION. (a) CONSULTING TERM. The Consultant's engagement hereunder shall commence on the Effective Date and shall continue for the Term unless extended in writing by mutual agreement between the Parties. (b) TERMINATION OF ENGAGEMENT. The Company may terminate this Agreement, with or without cause or explanation, at any time effective upon ten (10) calendar days' written notice to the Consultant. 2. ENGAGEMENT. (a) THE ENGAGEMENT. The Company hereby engages the Consultant, and the Consultant hereby accepts such engagement, as an independent contractor to be available to perform the duties set forth in this Agreement during the Consulting Term. (b) DUTIES OF THE CONSULTANT. During the Consulting Term, the Consultant shall provide such services as the Company may reasonably request with regard to the Services. The Consultant shall not represent, consult, or agree to represent or consult any direct competitors identified by the Company, including without limitation other companies providing services similar to or competitive with those of the Company. 3. COMPENSATION AND EXPENSES. (a) The Company shall pay the Fee to the Consultant as full compensation for the services provided during the Consulting Term. The first such installment shall be paid within five (5) business days of the date hereof. The Company's compensation obligation shall cease upon the earlier of the termination of this Agreement or the conclusion of the Term. (b) In addition to any compensation received pursuant hereto, the Company will reimburse the Consultant for all reasonable automobile, travel, entertainment and miscellaneous expenses incurred in connection with the performance of its duties under this Agreement, upon submission, within ten (10) days of the end of the month to which any such expenses are incurred, of reasonable documentation sufficient for the Company to sustain an income tax deduction under Section 274 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder. Such reimbursement will be made in accordance with policies and procedures of the Company in effect from time to time relating to reimbursement of consultants. Notwithstanding anything to the contrary set forth herein, no individual expenses over $500 shall be incurred without prior written approval of the Company. The Company agrees to remit, within ten (10) business days after the execution of this Agreement, a check for $5,000, to be placed on deposit with Consultant and credited to the Company against expenses incurred, on a permanent basis, throughout the program. From time to time, at the request of Consultant, the Company will replenish the expense account, as -2- necessary, to maintain a balance of $2,500. The balance of said deposit is fully refundable in the event that this Agreement is terminated. 4. INDEPENDENT CONTRACTOR. (a) In the performance of the services to be rendered under this Agreement, the Consultant in all respects and at all times shall be an independent contractor to the Company. As an independent contractor, the Consultant agrees and represents that it (i) has the right to control and direct the means and methods of performing the services rendered hereunder; (ii) is entitled to receive compensation from the Company only as set forth in this Agreement and does not participate in benefits of any sort which the Company may offer to its employees; and (iii) shall, to the extent practicable, keep its equipment, materials and the like separate from the Company property and will not remove any Company property from the Company's premises without the prior written approval of an authorized representative of the Company. (b) Except as otherwise set forth herein, nothing contained herein shall be construed so as to create an agency relationship, a partnership or joint venture between the Company and the Consultant. Neither the Company on one hand nor the Consultant on the other hand shall guarantee the obligations of the other or in any way become obligated for the debts or expenses of the other unless expressly agreed in writing. Except as otherwise set forth in this Agreement, the Consultant agrees not to represent itself as the Company's agent for any purpose to any party unless specifically authorized in advance in writing to do so, and then only for the limited purpose stated in such authorization. (c) Neither the Consultant, nor any of its employees, shall be treated as an employee of the Company for federal or state tax purposes as a result of any services rendered under this Agreement. The Consultant hereby agrees to be solely responsible for, and indemnify the Company against, any and all employee or employer taxes (including withholding taxes), interest and penalties, and all employee and welfare benefits related to the services it may be asked to provide hereunder. 5. CONSULTANT REPRESENTATIONS AND WARRANTIES. (a) The Consultant represents and warrants to the Company that it has been represented by legal counsel in the preparation, negotiation, execution and delivery of this Agreement. (b) The Consultant represents, warrants and covenants to the Company that, as of the date hereof, the Consultant has full power and authority to execute, deliver and perform this Agreement, and this Agreement is the valid and legally binding obligation of Consultant in accordance with its terms. (c) The Consultant covenants to the Company that, in the course of performing Services, it shall comply with all applicable laws, including, without limitation, all state and federal securities laws. (d) In connection with Consultant's acquisition of the Stock, Consultant represents to the Company the following: -3- (i) Consultant is acquiring the Stock for investment for Consultant's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933 (the "Act"). (ii) Consultant understands that the Stock, if any, has not been registered under the Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Consultant's investment intent as expressed herein. (iii) Consultant further acknowledges and understands that the Stock must be held indefinitely unless it is subsequently registered under the Act or an exemption from such registration is available. Consultant understands that the certificate evidencing the Stock will be imprinted with a legend which prohibits its transfer unless it is registered or such registration is not required in the opinion of counsel for the Company. (iv) Consultant is familiar with the provisions of Rule 144, under the Act, as in effect from time to time, which, in substance, permits limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions including, among other things: (A) the availability of certain public information about the Company and (B) the resale occurring following the required holding period under Rule 144 after the Purchaser has purchased, and made full payment of (within the meaning of Rule 144), the securities to be sold. (v) Consultant further understands that at the time Consultant wishes to sell the Stock there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not be satisfying the current public information requirements of Rule 144, and that, in such event, Consultant would be precluded from selling the Stock under Rule 144 even if the minimum holding period requirement had been satisfied. (vi) Consultant is a "qualified institutional buyer" as that term is defined in Rule 144A under the Act. 6. NONDISCLOSURE. The Consultant confirms that it is subject to the Confidentiality, Intellectual Property and Non-Disclosure Agreement, a copy of which is attached hereto as Exhibit A. 7. [INTENTIONALLY LEFT BLANK] 8. MISCELLANEOUS. (a) NOTICES. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when sent by U.S. -4- Certified Mail, return receipt requested and postage prepaid, or overnight courier, or by telecopier. If to the Consultant, addressed as indicated above. If to the Company, addressed to: CytRx Corporation 11726 San Vicente Blvd., Suite 650 Los Angeles, CA 90049 Attn: General Counsel (b) WAIVER. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Consultant and an authorized officer of the Company. No waiver by either party or any breach of, or compliance with, any condition or provision of this Agreement by any other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time. (c) ENTIRE AGREEMENT. This Agreement, including the exhibits attached hereto, constitutes the entire and exclusive agreement between the Consultant and the Company concerning the subject matter herein, and supersedes any prior or contemporaneous oral or written agreements or understandings. (d) AMENDMENTS. No amendment to this Agreement shall be effective unless in writing and signed by both of the Parties. (e) ASSIGNABILITY. The rights and obligations of the Company and its affiliates under this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company and its affiliates. For the purposes of this Agreement the term "affiliate" shall mean any entity controlling, controlled by or under common control with the named party. The Consultant may not make any assignment of its rights and obligations hereunder, and any attempt to do so shall be void. (f) BINDING NATURE OF AGREEMENT. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and, to the extent expressly provided herein, assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. (g) SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision hereof which shall remain in full force and effect. (h) DIRECTION OF BUSINESS. Nothing in this Agreement shall be deemed to limit or restrict, directly or indirectly, the discretion of the Board of Directors of the Company in directing the capitalization, financing, strategy, development, operations or business of the Company. -5- (i) PAYMENTS. All payments provided for in this Agreement shall be paid by check from the Company's general funds. No special or separate fund and no other segregation of the Company's assets shall be made with respect to any such payment. (j) GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement and any disputes or controversies arising hereunder or related to the transactions contemplated hereby shall be governed by the laws of the state of California without regard for its conflict of laws principles that would apply the law of any other jurisdiction. (k) PARAGRAPH HEADINGS. The paragraph headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. (l) COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be an original and both of which, taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first written above and agree to be bound by its terms. CONSULTANT /s/ DIAN GRIESEL ---------------------------------- By: Dian Griesel President CYTRX CORPORATION By: /s/ STEVEN A. KRIEGSMAN, CEO ---------------------------------- Steven A. Kriegsman, CEO -6- 2/2/04 DRAFT EXHIBIT A CONFIDENTIALITY, INTELLECTUAL PROPERTY AND NON- DISCLOSURE AGREEMENT This Confidentiality, Intellectual Property and Non-Disclosure Agreement (this "Agreement") is entered into by and between CytRx Corporation, a Delaware corporation (the "Company") and Consultant as of the Effective Date. In consideration of the compensation paid or to be paid to the Consultant, and for other good and valuable consideration, the adequacy of which is hereby acknowledged, the Company and the Consultant agree as follows: 1. Protection of Confidential Information. (a) The Consultant acknowledges that, during the consulting engagement with the Company, the Consultant will learn and will have access to Confidential Information regarding the Company or its affiliates, including without limitation (i) confidential or secret plans, programs, documents, agreements or other material relating to the business, services or activities of the Company or their affiliates and (ii) trade secrets, market reports, customer investigations, customer lists and other similar information that is proprietary information of the Company or their affiliates (collectively referred to as "Confidential Information"). The Consultant acknowledges that such Confidential Information as is acquired and used by the Company or their affiliates is a special, valuable and unique asset. The Consultant shall not, during the period of the consulting engagement with the Company or any time thereafter (irrespective of the circumstances under which the Consultant's consulting engagement with the Company terminates), for any reason, use for their own benefit or the benefit of any person or entity with which they may be associated or, subject to the following sentence, disclose any such Confidential Information to any person, firm, corporation, association or other entity for any reason or purpose whatsoever without the prior written consent of an executive officer of the Company, unless such Confidential Information previously shall have become public knowledge through no action by or omission of the Consultant. Notwithstanding the foregoing, the Consultant may disclose such information if, in the written opinion of counsel, such disclosure is required by law and then only with as much prior written notice to the Company as is practical under the circumstances. (b) All records, files, materials and Confidential Information obtained by the Consultant in the course of the consulting engagement with the Company are confidential and proprietary and shall remain the exclusive property of the Company or their affiliates, as the case may be. Upon termination of the Consultant's consulting engagement with the Company, all documents, records, notebooks and similar repositories of or containing Confidential Information, including copies thereof, then in Consultant's possession or under its control, whether prepared by it or others, will be returned to the Company. 2. Intellectual Property. (a) The parties foresee that the Consultant may make, discover or create Intellectual Property (as defined) in the course of the consulting engagement with the Company and agree that in this respect the Consultant has a special obligation to further the interests of the Company. For the purposes of this Agreement, "Intellectual Property" includes patents (including design patents), trademarks (whether registered or unregistered), copyrights, applications for any of the foregoing and the right to apply for them in any part of the world, software, designs or drawings, trade secrets, discoveries, creations, inventions or improvements upon or additions to an invention, Confidential Information, know-how and any research effort relating to any of the above-mentioned business names, whether registrable or not, moral and any similar rights in any country. (b) Consultant has attached, as Exhibit I, a complete list of all Intellectual Property to which Consultant claims ownership and that Consultant desires to remove from the operation of this Agreement (the "Consultant's Intellectual Property"), and Consultant acknowledges and agrees that such list is complete and the Company agrees that Consultant's Intellectual Property shall not be subject to the terms of this Agreement. (c) Subject to the provisions of applicable law, if in the course of the consulting engagement with the Company, the Consultant creates or discovers or participates in the creation or discovery of any Intellectual Property relating to or capable of being used in the business for the time being carried on by the Company or any of its affiliates, full details of the Intellectual Property shall be immediately communicated by the Consultant to the Company and shall be the absolute property of the Company. Any copyrightable Intellectual Property which is originated or produced by the Consultant during the consulting engagement with the Company that relates to or is capable of being used in the Company's business shall be considered a "work made for hire" as defined by the U.S. Copyright Act (17 U.S.C. Section 101; a copy of the definition is attached hereto as Exhibit II). At the request and expense of the Company, both during and subsequent to the Consultant's consulting engagement with the Company, the Consultant shall give and supply all such information, data, drawings and assistance as may be requisite to enable the Company to utilize such Intellectual Property to the Company's best advantage and shall execute all documents and do all things which may be necessary or desirable for obtaining appropriate rights in, and protection for, the Intellectual Property in such parts of the world as may be specified by the Company. The Consultant shall treat any Intellectual Property that is the subject of this paragraph as Confidential Information. (d) If at any time during the consulting engagement with the Company but outside of the course of the consulting engagement with the Company, the Consultant creates or discovers or participates in the creation or discovery of any Intellectual Property relating to or capable of being used in the business for the time being known to the Consultant to be carried on by the Company or any of its affiliates, the Consultant shall immediately communicate to the Company such details as are reasonably necessary for the Company to evaluate the usefulness of such Intellectual Property to the Company, which details shall be treated by the Company as Confidential Information in accordance with the provisions of Paragraph 1 hereinabove. (e) The Consultant irrevocably appoints the Company to be its attorney in fact and authorizes the Company to sign and execute any such instrument and do any such thing on its behalf, and generally to use its name for the purpose of giving to the Company (or its nominee) the full benefit of the provisions of this Section 2, and a certificate in writing signed by any director or the secretary of the Company that any instrument or act falls within the authority conferred by this clause shall be conclusive evidence that such is the case. At least one week 2 prior to taking any action as attorney in fact for the Consultant pursuant to this paragraph (e), the Company will notify the Consultant of its intent to take such action, provided that, if the Consultant takes such actions on its own behalf as are necessary to give the Company (or its nominee) the full benefit of the provisions of this clause, the Company will not take such action. (f) Rights and obligations under this Section 2 shall continue in force after termination of this Agreement in respect of Intellectual Property made during the Consultant's consulting engagement with the Company and shall be binding upon its representatives. 3. Non-Solicitation of Employees, Customers and Clients. The Consultant agrees that during the term of the consulting engagement, and for a period of one year following the termination of the consulting engagement (without regard to the reason for the termination of such engagement), neither it, nor any of its employees, officers, directors or agents, shall directly or indirectly, for whatever reason whatsoever, individually or on behalf of persons not now parties to this Agreement, for its own account or for the benefit of any other person: (a) attempt to divert or take away, the business or patronage of any of the customers or accounts, or prospective customers or accounts of the Company which were contacted, solicited or served by the Company during the course of the consulting engagement; (b) interfere with the relationship between the Company and any customers or accounts, or prospective customers or accounts of the Company which were contacted, solicited or served by the Company during the course of the consulting engagement; or (c) recruit, or attempt to recruit, induce or solicit, or assist in recruiting, inducing or soliciting the Company employees to terminate their employment with the Company. 4. Prior Information and Contractual Obligations. (a) Intellectual Property and Confidential Information. Except as otherwise provided in Section 1 and Section 2 hereinabove, the Consultant represents that it does not possess, has not brought, will not bring to the Company, and will not use in the course of the performance of the consulting duties at the Company, any intellectual property or Confidential Information of any former employer or third party which is in violation of any agreement between Consultant and such former employer or third party without its written authorization. (b) Prior Contractual Obligations. The Consultant represents that in performing its consulting duties for the Company, the Consultant will not be in breach of any agreement to keep in confidence intellectual property or Confidential Information acquired by the Consultant in confidence or in trust prior to the Consultant's engagement with the Company. The Consultant has not entered into, and the Consultant agrees it will not enter into, any agreement, either written or oral, that is in conflict with any term of this Agreement, or that would conflict with the Consultant's engagement with the Company. 3 5. Miscellaneous. (a) Assignability. The rights and obligations of the Company and its affiliates under this Agreement may, without the consent of the Consultant, be assigned by the Company, in its sole discretion, to any person, firm, corporation or other business entity which at any time and from time to time, whether by purchase, merger, or otherwise, directly or indirectly, acquires all or substantially all of the stock, assets or business of the Company. The rights and obligations of the Company and its affiliates under this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company and its affiliates. The Consultant's rights and obligations hereunder may not be assigned or alienated and any attempt to do so by the Consultant will be void. (b) Governing Law. This Agreement and any disputes or controversies arising hereunder or related to the transactions contemplated hereby shall be governed by and construed and enforced in accordance with the laws of the state of California other than conflicts of laws principles that would apply the law of any other jurisdiction. (c) Amendment; Waiver. No amendment or modification of this Agreement shall be binding unless it is in writing signed by the Company and the Consultant. The waiver by any party to this Agreement of a breach of any provision hereof by any other party shall not be construed as a waiver of any subsequent breach by any party. (d) Not A Consulting Contract. This Agreement is not a consulting contract, and nothing in this Agreement shall confer upon the Consultant any right to continue the consulting engagement with the Company or shall affect the right of the Company or the Consultant to terminate the engagement in accordance with the terms of Consultant's separate Consulting Agreement. The Consultant's obligations under this Agreement shall continue whether or not the Consultant's consulting engagement with the Company has been terminated. (e) Entire Agreement. This Agreement and the Consultant Agreement represent the entire understanding between the parties regarding the subject matter of this Agreement. (f) Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and, to the extent expressly provided and permitted herein, to their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. (g) Right To Injunctive Relief. The Consultant agrees that it would be impossible or inadequate to calculate the Company's damages from any breach of the covenants set forth in paragraphs 1, 2, 3 and 4 of this Agreement. In the event of Consultant's breach, or a threatened breach, of the terms of such paragraphs, the Company will have, in addition to any other right or remedy available, the right to obtain an injunction from a court of competent jurisdiction restraining such breach or threatened breach, and to specific performance of any such provisions, without showing or proving any actual damages. (h) Severability of Provisions. If any provision or any portion of any provision of this Agreement, or the application of any such provision or any portion thereof to 4 any person or circumstance, shall be held invalid or unenforceable, the remaining portion of such provision and the remaining provisions of this Agreement, and the application of such provision or portion of such provision as is held invalid or unenforceable to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be thereby affected. (i) Arbitration and Attorneys Fees. Except as provided in paragraph 5(g) above, in the event of a dispute concerning application, interpretation or enforcement of any provision or aspect of this Agreement, each party agrees that any such dispute shall be submitted to final and binding arbitration in lieu of proceeding before a state or federal agency or court of law. Such arbitration will take place in the City of New York, State of New York, and shall be conducted by an arbitrator mutually agreed upon between the parties from a panel of 11 arbitrators from the American Arbitration Association. The arbitration will be conducted in accordance with the American Arbitration Association's rules then in effect. The parties further agree that, notwithstanding any American Arbitration Association rule to the contrary, the arbitrator shall be vested with the discretion and authority to award the prevailing party the costs and expenses incurred in connection with the arbitration, including reasonable attorneys' fees. This mandatory arbitration provision is not intended to limit in any way the Company's right to seek injunctive relief as provided in paragraph 5(g). (j) Affiliates. For the purposes of this Agreement, the term "affiliate" shall mean any entity controlling, controlled by or under common control with the named party. (k) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the Company and Consultant have duly executed this Agreement as of the date first set forth above and agree to be bounds by its terms. CONSULTANT /s/ DIAN GRIESEL --------------------------------- By: Dian Griesel President CYTRX CORPORATION By: /s/ STEVEN A. KRIEGSMAN ----------------------------- Steven A. Kriegsman, CEO 5 EXHIBIT I Consultant's Prior Intellectual Property (if any) ________________________________________________________________________________ N/A ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ This is a true and complete list. CONSULTANT /s/ DIAN GRIESEL --------------------------------- Printed Name: Dian Griesel -------------------- [THE REMAINDER OF THE PAGE IS INTENTIONALLY LEFT BLANK.] 6 EXHIBIT II From 17 U.S.C. Section 101. Definition of "work made for hire" A "work made for hire" is (1) a work prepared by a employee within the scope of his or her employment; or (2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a sound recording, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire. For the purpose of the foregoing sentence, a "supplementary work" is a work prepared for publication as a secondary adjunct to a work by another author for the purpose of introducing, concluding, illustrating, explaining, revising, commenting upon, or assisting in the use of the other work, such as forewords, afterwords, pictorial illustrations, maps, charts, tables, editorial notes, musical arrangements, answer material for tests, bibliographies, appendixes, and indexes, and an "instructional text" is a literary, pictorial, or graphic work prepared for publication and with the purpose of use in systematic instructional activities. [THE REMAINDER OF THE PAGE IS INTENTIONALLY LEFT BLANK.] EX-10.3 4 v99122exv10w3.txt EXHIBIT 10.3 EXHIBIT 10.3 INVESTMENT BANKING AGREEMENT THIS AGREEMENT is made as of this February ___, 2004, by and between CytRx, a Delaware Corporation having its principal office at 11726 San Vicente Boulevard Suite 650 Los Angeles , California 90049 (the "Company"), and GUNN ALLEN FINANCIAL, INC., a Florida corporation having an office at 1715 N. Westshore Boulevard, Suite 700, Tampa, Florida 33607 ("GAF"). In consideration of the mutual premises contained herein and on the terms and conditions hereinafter set forth, the Company and GAF agree as follows: 1. PROVISION OF SERVICES. The Company hereby retains GAF and GAF hereby accepts such retention to perform consulting services related to corporate finance and investment banking matters. The Company may concurrently obtain corporate finance and investment banking services from other parties and GAF may provide such services to other parties, provided that those parties are not actively involved in the research and development of products based on RNAi interference. GAF shall undertake all reasonable efforts to perform for the Company the duties described herein. In this regard, GAF shall devote such time and attention to the business of the Company as shall be determined by GAF, in its sole discretion. (A) GAF agrees, to the extent reasonably required in the conduct of the business of the Company, and at the Company's written request to GAF's Senior Vice President of Corporate Finance (or such other similarly qualified person designated by GAF), to provide consulting services to the Company, including the following: (1) advice with respect to the capital markets and the structuring of and sources of funds for private placements and other financing transactions (provided that if the Company elects to have GAF act as a placement agent or in any other capacity for the Company in any financing transaction and GAF agrees to act in such capacity, the compensation in addition to that already paid to GAF under this Agreement to be paid to GAF for acting in such capacity shall be separately negotiated by the parties); (2) advice with respect to the structuring of, and the possible identification of specific opportunities for the Company to enter into, mergers, acquisitions, consolidations, joint ventures, product in-licensing and out-licensing, divestitures and other similar corporate finance transactions (provided that if the Company elects in its sole discretion to have GAF act as the Company's authorized agent in connection with any such transaction transaction and GAF agrees to act in such capacity, the compensation in addition to that already paid to GAF under this Agreement to be paid to GAF for acting in such capacity shall be separately negotiated by the parties); and (3) advice with respect to the preparation of investor presentations and possible introductions to capital conferences, broker-dealers, research analysts and investment companies that GAF believes to be in the Company's best interests. (B) GAF shall use reasonable efforts in furnishing advice and recommendations, and for this purpose GAF shall at all times maintain or keep and make available qualified personnel or a network of qualified outside professionals for the performance of its obligations under this Agreement, at its sole expense. To the extent reasonably practicable, GAF shall so use its own personnel rather than outside professionals and shall identify in writing to the Company any such outside personnel that it proposes to use prior to engaging such personnel. (C) If warranted and mutually agreed upon by and between the Company and GAF, the Company shall use reasonable efforts to invite a representative appointed by GAF to attend and participate as an investment banking consultant to the Company in at least one meeting of its Board of Directors for every year that this Agreement is in effect. The Company shall provide notice of such meetings to GAF at least two (2) weeks prior to the date that the meeting at which GAF is permitted to attend is scheduled to occur. GAF will use its reasonable efforts to attend any other meetings of the Company's Board of Directors to which the Company requests GAF's attendance. Any reasonable expenses incurred by GAF in attending such meetings shall be borne for by the Company. 2. TERM. Unless otherwise provided for in this Agreement, GAF's retention hereunder shall be for a term of two (2) years, commencing on the date hereof and expiring on the second anniversary date of this Agreement (the "Termination Date"). Except as provided for in Section 8 below, GAF may not terminate this Agreement without the written consent of the Company prior to the Termination Date. In the event that the Company desires to terminate this Agreement, without "cause", prior to the Termination Date, it shall provide GAF with at least thirty (30) days prior written notice of its intention to terminate this Agreement and this Agreement shall so terminate following the expiration of this thirty (30) day period, without any further liability or responsibility for either party; provided, however, that GAF shall be entitled to retain the Compensation Shares (as defined in Section 3 below) and receive all un-reimbursed expenses, if any, outstanding as of the date of termination. 3. COMPENSATION. (A) As payment in full for the services rendered under this Agreement by GAF, the Company shall issue GAF 150,000 shares of its common stock (the "Compensation Shares") upon execution of this Agreement. GAF agrees that it will not sell or otherwise transfer any of the Compensation Shares during the 18-month period following the date of this Agreement. Notwithstanding the foregoing, in the event (i) the Company's common stock is listed on The NASDAQ National Market(R), or (ii) a Change of Control (as hereafter defined) occurs, the restricted period shall be eliminated, subject to applicable federal securities laws. A Change of Control means the occurrence of one of the following: (i) a "person" or "group" within the meaning of Sections 13(d) and 14(d) of the Securities and Exchange Act of 1934 (the "Exchange Act"), becomes the "beneficial owner" (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company representing 35% or more of the combined voting power of the Company's then outstanding securities in any one or more transactions; provided, however, that purchases by employee benefit plans of the Company, or the Company or its current affiliates shall be disregarded; (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the operating assets of the Company, other than an internal restructuring of the Company; or (iii) a merger or consolidation, or a transaction having a similar effect unless such merger, consolidation or similar transaction is with a subsidiary of the Company or with another company, a majority of whose outstanding capital stock is owned by the same persons or entities who own a majority of the Company's outstanding common stock at such time, where (A) the Company is not the surviving corporation, (B) the majority of the common stock of the Company is no longer held by the stockholders of the Company immediately prior to the transaction, or (C) the Company's common stock is converted into cash, securities or other property (other than the common stock of a company into which the Company is merged). (B) The Company shall reimburse GAF for its reasonable out-of-pocket travel expenses incurred in connection with performing the services under this Agreement, provided that any expenditure in excess of [$500] shall be approved in writing in advance by the Company. 4. REPRESENTATIONS AND WARRANTIES OF GAF. GAF represents and warrants that: (A) it is a securities broker-dealer duly licensed and registered pursuant to federal and state securities laws rules and regulations; (B) it has the authority and ability to provide the services contemplated in this Agreement; (C) it is a member in good standing with the NASD and is in good standing with all states within which it is registered to conduct securities business; and (D) it will perform the services under this Agreement in compliance with all applicable laws and regulations, including without limitation all federal and state securities laws and regulations. 5. INDEMNIFICATION. The Company agrees to indemnify and hold harmless GAF and its affiliates, the respective directors, officers, partners, agents and employees and each other person, if any, controlling GAF or any of its affiliates (collectively the "GAF Parties") from all losses, claims, damages, liabilities and expenses incurred by them (including reasonable attorney's fees and disbursements) that result from any violations of securities laws or rules or any untrue statements made by the Company, its agents or employees, or any statements omitted to be made in connection with securities related matters by the Company, its agents or employees. GAF will indemnify and hold harmless the Company and the respective directors, officers, agents and employees of the Company (the "Company Parties") from and against all losses, claims, damages, liabilities and expenses that result from malfeasance or negligence in the performance of GAF's duties hereunder (including reasonable attorney's fees and disbursements). Each person or entity seeking indemnification hereunder shall promptly notify the Company or GAF as applicable, of any loss, claim, damage or expense for which the Company or GAF as applicable, may become liable pursuant to this Section 5. Neither party shall pay, settle or acknowledge liability under any such claim without the written consent of the party liable for indemnification, and shall permit the Company or GAF as applicable a reasonable opportunity to cure any underlying problem or to mitigate damages. The scope of this indemnification between GAF and the Company shall be limited to, and pertain only to certain transactions contemplated or entered into pursuant only to this Agreement. The Company or GAF, as applicable, shall have the opportunity to defend any claim for which it may be liable hereunder, provided it notifies the party claiming the right to indemnification within fifteen (I5) days of notice of the claim. 6. STATUS OF GAF. GAF shall at all times be an independent contractor of the Company and, except as expressly provided or authorized in this Agreement, shall have no authority to act for or represent the Company or bind it to any agreements. 7. OTHER ACTIVITIES OF GAF. The Company recognizes that GAF now renders and may continue to render financial consulting, management, investment banking and other services to other companies that may or may not conduct business and activities similar to those of the Company. Subject to Section 1 above and to Section 17 below, GAF shall be free to render such advice and other services and the Company hereby consents thereto. GAF shall not be required to devote its full time and attention to the performance of its duties under this Agreement, but shall devote only so much of its time and attention as it deems reasonable or necessary for such purposes, in its sole discretion. 8. COVENANTS OF THE COMPANY. The Company covenants, promises and agrees that: (A) During the term of this Agreement, the Company shall provide GAF at least thirty (30) days prior written notice of the proposed sale of any securities of the Company in a "Regulation S" or "Regulation D" offering. Such notice shall specify the type of securities to be offered, the purchase price thereof, the terms and conditions of the offering and the proposed offering date. GAF shall be entitled to immediately terminate this Agreement and retain all of the compensation set forth herein without offset and with no further liability to the Company, in the event that, during the term of this Agreement, the Company completes a sale of its securities pursuant to a Regulation D or S offering, without GAF's prior written consent thereto. (B) The Company shall immediately notify GAF in the event that it is de-listed from the NASDAQ Small Cap Market. The Company understands and acknowledges that, in the event of any such de-listing, GAF will be entitled to terminate this Agreement, in its sole and absolute discretion, and the Company shall pay to GAF all unpaid expenses, as provided for in Section 2 above. (C) during the term of this Agreement, the Company shall furnish GAF with copies of its annual, quarterly and proxy filings with the SEC, immediately upon the Company's filing thereof. (D) the Company shall make available at reasonable times and upon reasonable advance request by GAF appropriate Company personnel to attend due diligence or similar meetings with GAF's investment banking personnel. 9. CONTROL. Nothing contained herein shall be deemed to require the Company to take any action contrary to its Certificate of Incorporation or By-Laws, or any applicable statute or regulation, or to deprive its Board of Directors of their responsibility for any control of the affairs of the Company. 10. PUBLIC DISCLOSURE REQUIREMENT. Within thirty (30) business days of the final execution of this Agreement, the Company shall cause the release of a public announcement which sets forth, in pertinent part, a description of this Agreement, including without limitation, the name of GAF, the nature of the services to be provided hereunder by GAF and the compensation paid to it in connection herewith. At least three (3) business days prior to the dissemination of any such public announcement or filing containing the above required description, the Company shall submit to GAF, for its review and comment, the proposed public announcement or description. GAF shall thereafter have three (3) business days within which to submit its additions or amendments to the public announcement and/or description for inclusion therein, which additions and amendments shall be incorporated in the final version disseminated by the Company, unless, in the reasonable judgment of counsel to the Company, such additions or amendments cannot be incorporated. Furthermore, during the term of this Agreement, the Company shall disclose in its quarterly and annual filings the nature and terms of this Agreement, to the extent counsel for the Company determines that such disclosure is required. 11. NOTICES. Any notices hereunder shall be sent to the Company and GAF at their respective addresses above set forth. Any notice shall be given by registered or certified mail, postage prepaid, and shall be deemed to have been given when deposited in the United States mail. Either party may designate any other address to which notice shall be given, by giving written notice to the other of such change of address in the manner herein provided. 12. ENTIRE AGREEMENT. This Agreement contains the entire agreement and understanding between the parties with respect to its subject matter and supersedes all prior discussion, agreements and understandings between them with respect thereto. This Agreement may not be modified except in a writing signed by the parties. 13. JURISDICTION AND VENUE. This Agreement has been made in the State of Florida and shall be governed by and construed in accordance with the laws thereof without regard to principles of conflict of laws. Any proceeding commenced by GAF to enforce or interpret any provision of this Agreement shall be brought in the City of Los Angeles, State of California. Any proceeding commenced by the Company to enforce or interpret any provision of this Agreement shall be brought in the City of Tampa, State of Florida. 14. NO ASSIGNMENT. Neither this Agreement nor the rights of either party hereunder shall be assigned by either party without the prior written consent of the other party. 15. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 16. NON-COMPLIANCE. If any provision of this Agreement conflicts with any law, rule or regulation of any federal, state or self-regulatory organization, including the Securities and Exchange Commission, the blue-sky laws of any state, the National Association of Securities Dealers, Inc., or any other governmental authority having jurisdiction over the activities or services described herein, then in that event, the Company and GAF shall amend this Agreement to bring any affected provision into compliance with such regulations. 17. CONFIDENTIALITY. In performing consulting services pursuant to this Agreement, GAF from time to time will require from the Company and its directors, officers, employees, representatives, advisors and its affiliates (collectively, the "Disclosing Parties"), certain oral and written information concerning the Company and its business and operations. In this connection, GAF agrees as follows: (A) The Evaluation Material (as defined below) will be used by GAF solely for the purpose of performing consulting services hereunder, and all the Evaluation Material will be kept confidential and will not be reproduced, disclosed, distributed or communicated, directly or indirectly, in whole or in part, by GAF to any other person except those of its employees, agents, and advisors and those representatives of its advisors (the persons to whom such disclosure is permissible being collectively called its "Representatives") using such information for such purpose. The term "person" as used in this agreement is intended to be interpreted broadly to include, without limitation, any corporation, company, partnership or individual. (B) GAF will inform each of its Representatives which have, or will have, access to any or all of the Evaluation Materials, of the existence and substance of this Agreement, and will take all reasonable action necessary to cause its Representatives to observe the confidentiality requirements of this Agreement. GAF agrees that it will be responsible for any breach of this Agreement by any of its Representatives. (C) Notwithstanding the other provisions hereof, GAF agrees that the Evaluation Material will not be used by it or any of its Representatives in any way detrimental to the Company, including, without limitation, to the competitive disadvantage of the Company. GAF further agrees to immediately notify the Company in the event it becomes aware of any unauthorized use of the Evaluation Material. (D) The term "Evaluation Material" as used in this Agreement means all information and documents, whether in written or oral form, which any Disclosing Party furnishes or otherwise discloses to GAF or any of its Representatives, whether furnished or otherwise disclose before, on or after the date of this Agreement, together with all analyses, compilations, studies or other documents, records or data prepared by GAF or any of its Representatives which contain or otherwise reflect or are generated from such information and documents. "Evaluation Material" does not, however, include any information which (i) is generally available to and known by the public (other than as a result of a disclosure directly or indirectly by GAF or any of its Representatives) or (ii) was available to GAF on a non-confidential basis from a source other than a Disclosing Party that is not and was not bound by a confidentiality agreement with any Disclosing Party or otherwise prohibited from transmitting the information to you on a non-confidential basis by a contractual, legal or fiduciary obligation. (E) Upon the termination of this Agreement, or if the Company so requests at any time, GAF will promptly destroy or arrange for the return to the Company of all Evaluation Material in GAF's possession or in the possession of any of its Representatives, and any copies, notes, extracts or other reproduction thereof, without retaining any copy thereof. (F) GAF agrees that the Evaluation Material is and shall remain the sole and exclusive proprietary property of the Company, and that GAF acquires no license or other rights whatsoever in the Evaluation Material by virtue of this Agreement, or by virtue of any disclosure of the Evaluation Material pursuant hereto. GAF agrees that it will not claim any rights of any kind in the Evaluation Material. (G) GAF recognizes and acknowledges the competitive value and confidential nature of the Evaluation Material and the irreparable damage that could result to the Company if information contained therein is disclosed to any third party in violation of this Agreement. GAF agrees that money damages would not be a sufficient remedy for any breach of this Agreement and that, in addition to all other remedies, the Company will be entitled to specific performance and injunctive or other equitable relief as a remedy for any such breach, and GAF further agrees to waive any requirement for the securing or posting of any bond in connection with any such remedy. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed the day and year first above written. Gunn Allen Financial, Inc. CytRx Corporation /s/ RICHARD FRUEH /s/ STEVEN A. KRIEGSMAN - ------------------------------ -------------------------------- By: Richard Frueh By: Steven A. Kriegsman Its: Chief Executive Officer Its:Chief Executive Officer EX-10.4 5 v99122exv10w4.txt EXHIBIT 10.4 EXHIBIT 10.4 CYTRX CORPORATION/ARAIOS, INC. SCIENTIFIC ADVISORY BOARD AGREEMENT This Scientific Advisory Board Agreement (the "Agreement") dated as of January 20, 2004 is made by Tariq M. Rana, Ph.D. (the "SAB Member"), CytRx Corporation, a Delaware corporation ("CytRx") and Araios, Inc., a Delaware corporation and subsidiary of CytRx ("Araios"), with CytRx and Araios being collectively referred to as the "Companies". AGREEMENT 1. GENERAL. Effective as of the date of execution of this Agreement by all parties, the approval of this Agreement by the Principal Institution (defined below), and the execution of Schedule A hereto by all parties thereto, with such date to be indicated below the signature of the SAB Member on the signature page of this Agreement (the "Effective Date"), each of the Companies shall retain the SAB Member, and the SAB Member agrees to serve, as a member of both of the Companies' respective Scientific Advisory Boards ("SAB") and to consult with the Companies in the Field (as hereinafter defined). The SAB Member agrees to provide to each of the Companies such services in the Field as are customarily performed by a member of a scientific advisory board to a company such as the Companies (the "Services"). The Services will include, without limitation: - Consulting with each of the Companies' respective management within the SAB Member's professional area of expertise from time to time as reasonably requested by either of the Companies; - Exchanging strategic and business development ideas with the Companies; - Attending scientific, medical or business meetings with the Companies' management, such as United States Food & Drug Administration meetings, meetings with strategic or potential strategic partners and other meetings relevant to SAB Member's area of expertise; and - Attending meetings of the SAB as provided herein. For purposes of this Agreement, the term "Field" means the use of RNAi technology in, or the application of RNAi technology to, the discovery or development of therapeutic products for humans or animals, and/or the use of RNAi as a component of therapeutic products for humans or animals. Notwithstanding anything else herein to the contrary, the term "Field" is specifically understood to not include the use of RNAi technology in, or the application of RNAi technology to, the discovery and development of reagents, diagnostic products, agricultural products, or products or services developed for or offered to the research tools and products market, or the use of RNAi as a component of reagents, diagnostic products, agricultural products, or products or services developed for or offered to the research tools and products market. The Services shall not include those services prohibited by the Principal Institution, including as set forth in "The University of Massachusetts Uniform Consulting Agreement Provisions" attached hereto as Exhibit A and incorporated herein (the "UMass Provisions") or 1 any Affiliated Institution (as defined in Section 2 hereof). The SAB Member is agreeing to provide the Services under this Agreement in consideration of the compensation provided in Section 3 hereof. 2. PERFORMANCE OF SERVICES. As of the Effective Date, the SAB Member agrees to make himself available to render the Services, at such time or times and location or locations as may be mutually agreed, from time to time at the request of the respective Companies and subject to the UMass Provisions. The SAB Member agrees not to perform any Services for the respective Companies on the premises of the University of Massachusetts Medical School (the "Principal Institution"), any academic institution or any hospital with which he is or may become affiliated (each such Principal Institution, academic institution and hospital an "Affiliated Institution") or with the respective facilities or funds of any such Affiliated Institution which could result in claims by such Affiliated Institution of rights in any Inventions (as defined in Section 8 hereof), without the express prior agreement of the Companies and the Affiliated Institution, as appropriate. Unless covered by an appropriate agreement between any third party (other than an Affiliated Institution) and the respective Companies, the SAB Member shall not knowingly engage in any activities or use any facilities in the course of providing Services which could result in claims of ownership to any Inventions being made by such third party. The SAB Member agrees to devote his reasonable and diligent efforts to the performance of the Services. The SAB Member agrees to attend at least four Araios SAB meetings and two CytRx SAB meetings per year. 3. COMPENSATION. (A) UP-FRONT CASH PAYMENT AND GRANT OF OPTION. The Companies will compensate the SAB Member for serving as a member of the CytRx SAB and Araios SAB and for providing the Services to the Companies as follows: (1) Upon the Effective Date and confirmation from the SAB Member that he is permitted to commence providing the Services without violating any other contractual arrangement by which he is bound, the Companies shall pay the SAB Member a total of $50,000 in cash. (2) No later than the signing of this Agreement by the SAB Member and the Companies, CytRx shall grant the SAB Member a nonqualified stock option (the "Option") under the CytRx 2000 Long-Term Incentive Plan to purchase up to 812,500 shares (the "Option Shares") of common stock of CytRx. The Option shall have an exercise price equal to the closing price of CytRx common stock on the Effective Date, as reported on Nasdaq. The Option shall be for a term of ten years and shall otherwise be in the form of the Nonqualified Stock Option Agreement attached hereto as Exhibit B and incorporated herein by reference. Vested Options shall not be subject to lapse for any reason prior to the end of their ten year term. The Company covenants and agrees that it will file an effective Form S-8 registration statement covering the Option and the Options Shares no later than April 15, 2004, such that from and after the date of filing (and in all events no later than April 15, 2004) the Option Shares shall be freely tradable immediately upon any exercise of the Option. The Option may be exercised pursuant to a cashless exercise, but only if the SAB Member is not able at the time to obtain the cash proceeds for the exercise price in a broker's transaction (with the Companies bearing any 2 commission expenses charged by the broker in connection with selling sufficient shares to generate the cash proceeds for the exercise price). (B) VESTING OF OPTION. The Option shall be vested and exercisable immediately upon the Effective Date as to 500,000 of the Option Shares and shall vest and become exercisable as to the balance of the Option Shares as follows: (i) as to 62,500 of such Option Shares if, during the Term (as defined in Section 5 hereof) or within one year thereafter (the "Tail Period"), either of the Companies or any of their respective affiliates or successors enters into a strategic alliance, collaboration, joint venture or similar arrangement with a Major Pharmaceutical Company (as defined below) for the development or Commercialization of an RNAi Product (as hereinafter defined) (a "Strategic Alliance"); (ii) as to any and all unvested Option Shares if, during the Term or during the Tail Period, either of the Companies or any of their respective affiliates, successors or strategic partners or licensees commences commercial sales of any RNAi Product in the United States, the European Union nations or Japan ("Commercialization"); and (iii) as to any and all unvested Option Shares if during the Term or during the Tail Period, CytRx consummates a Sale (as defined below). (C) CERTAIN DEFINITIONS. For purposes of this Agreement: (1) The term "Major Pharmaceutical Company" means (i) any of the 50 largest pharmaceutical/bio-pharmaceutical/biotechnology companies worldwide as measured by market capitalization, or (ii) any pharmaceutical/bio-pharmaceutical/biotechnology company with revenues from product sales in excess of $3 billion. (2) The term "Sale" means (i) a consolidation or merger of CytRx into or with any other entity or entities which results in the exchange of outstanding shares of CytRx for securities or other consideration issued or paid or caused to be issued or paid by any such entity or affiliate thereof (other than a merger or consolidation in which the holders of outstanding shares of CytRx become, solely by means of such merger or consolidation, the holders of a majority of the voting securities of such other entity), or (ii) a sale, lease, transfer or other disposition to an unaffiliated third party by CytRx or Araios of all or substantially all of its respective assets or voting securities, or of all or substantially all of the assets or voting securities of that Company. (3) The term "RNAi Product" means any human or animal therapeutic product that (i) is discovered or developed through the use or application of RNAi technology, or (ii) contains RNAi as a component thereof. (4) Notwithstanding the definition of the term "Tail Period" in Section 3(B), in the event that (i) the Companies terminate this Agreement without Cause (as hereinafter defined), or (ii) the SAB Member terminates this Agreement for Good Reason (as hereinafter defined), then the Tail Period shall be extended so as to be that period which is the longer of one year from the date of termination or six years from the Effective Date. Notwithstanding anything herein to the contrary, the Tail Period shall not be extended under this Section 3(C)(4) in the event of a termination of this Agreement by either party under Section 4 or 6(E). 3 (D) MONTHLY CONSULTING FEE. In addition to the foregoing $50,000 payment and grant of the Option, for his Services hereunder the SAB Member shall be entitled to a total monthly payment from the Companies of $6,667 for each month during the Term, payable monthly in arrears, which will increase to $7,500 per month upon Commercialization, a Strategic Alliance or a Sale. (E) EXPENSES. The respective Companies also shall promptly reimburse the SAB Member for reasonable out-of-pocket expenses, including, without limitation, travel expenses incurred by him in the performance of the Services (including attendance at all SAB meetings), following the respective Companies' receipt of a request for reimbursement from the SAB Member. The SAB Member shall promptly provide the respective Companies with documentation supporting all such expenses. 4. PRINCIPAL INSTITUTION. The Companies recognize that the activities of the SAB Member are or will be subject to the rules and regulations of the Principal Institution and any other Affiliated Institution, now or in the future, and the Companies agree that SAB Member shall be under no obligation to perform Services if such performance would conflict with such rules and regulations, or constitute a conflict of interest under the relevant policies of the Affiliated Institution. The SAB Member has no reason to believe that the SAB Member's performance of any of the services contemplated by this Agreement will conflict with the applicable rules or policies of any Affiliated Institution, each as presently in effect. In the event such rules and regulations shall, in the Companies' reasonable opinion or the reasonable opinion of the SAB Member, substantially interfere with the performance of Services by the SAB Member, the Companies or the SAB Member may terminate this Agreement upon 30 days notice to the other parties. Any such termination by the Companies shall not be considered a termination for Cause, unless the Affiliated Institution's rules or policies that are asserted by the Companies or the SAB Member to be in conflict with the performance of the Services are rules or policies that are not generally applied by that Affiliated Institution to other academic researchers at that institution. The SAB Member shall provide copies to the Companies of all status reports he delivers and other material correspondences he has with any Affiliated Institution concerning this Agreement or the Services within three business days of his delivery or receipt of such report or correspondence, provided that the policies of any Affiliated Institution permit him to do so, and provided further that the Companies agree to hold any such report or correspondence in confidence. 5. TERM. The SAB Member's performance of Services shall commence on the Effective Date and shall continue for a period of five years thereafter (such period, including any extension of such period, the "Term"), unless either the SAB Member or either of the Companies terminate this Agreement pursuant to Sections 4 or 6 hereof, or unless this Agreement is extended by the mutual written agreement of the SAB Member and the Companies. 6. TERMINATION; EFFECT OF TERMINATION. (A) TERMINATION BY COMPANIES FOR CAUSE. The Companies may terminate this Agreement (in addition to any other available remedy) at any time for Cause. The term "Cause" shall mean the SAB Member's material failure to perform his duties under this Agreement which goes uncured for more than 15 days following written notice from either of the 4 Companies, the SAB Member's conviction of or plea of no contest to any felony, or the SAB Member's act or failure to act that materially and adversely affects the business of either of the Companies. (B) TERMINATION BY SAB MEMBER FOR GOOD REASON. The SAB Member may terminate this Agreement (in addition to any other available remedy) at any time for Good Reason. The term "Good Reason" shall mean (i) either of the Companies' breach any of its material obligations under this Agreement in any material respect (including without limitation, the Companies' payment obligations and CytRx's obligations with respect to the Option and the Option Shares) if such breach is not cured within 15 days (10 days in the case of a breach of a payment obligation) after receipt by such party of written notice thereof, or (ii) the occurrence any of the following events upon not less than 15 days prior written notice to the Companies at any time after the occurrence of such events, but in no event later than 60 days after written notice from the Companies to the SAB Member of the occurrence of any of such events: - a decree, judgment, or order by a court of competent jurisdiction shall have been entered adjudging both of the Companies as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization of both of the Companies under any bankruptcy or similar law, and such decree of order shall have continued undischarged and unstayed for a period of 60 days; or a decree or order of a court of competent jurisdiction ordering the appointment of a receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of both of the Companies, or for the winding up or liquidation of the affairs of both of the Companies, shall have been entered, and such decree, judgment, or order shall have remained in force undischarged and unstayed for a period of 60 days; - both of the Companies shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization under any bankruptcy or similar law or similar statute, or shall consent to the filing of any such petition, or shall consent to the appointment of a custodian, receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of it or any of its assets or property, or shall make a general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due; or - the Companies and their affiliates shall discontinue or suspend indefinitely substantially all research and development efforts in the Field. (C) TERMINATION BY COMPANIES WITHOUT CAUSE; TERMINATION BY SAB MEMBER WITHOUT GOOD REASON. The Companies or the SAB Member may terminate this Agreement at any time after three years from the Effective Date (but not before then) without cause and without liability to any other party upon 15 days prior written notice to the Companies or the SAB Member, as the case may be. (D) TERMINATION DUE TO DEATH OR DISABILITY. This Agreement shall automatically terminate upon the death of the SAB Member, or upon notice from the Companies 5 or the SAB Member following the "Disability" of the SAB Member. For purposes of this Agreement, the SAB Member shall be considered "to have suffered a "Disability" if: (i) he is incapacitated or disabled by accident, sickness or otherwise so as to render him mentally or physically incapable of performing a substantial part of the Services, with or without reasonable accommodation, required to be performed by him under this Agreement for a period of at least 90 consecutive days, or for 90 days (whether or not consecutive) during any six (6) month period. A termination by death or Disability shall not be considered a termination for Cause. (E) TERMINATION PURSUANT TO SECTION 4. Either party may terminate this Agreement at any time subject to and in accordance with the provisions of Section 4. (F) SURVIVAL OF CERTAIN PROVISIONS. No termination of this Agreement shall relieve the SAB Member or the Companies of any obligations hereunder which by their terms are intended to survive the termination of the SAB Member's association with the Companies, including, but not limited to, the obligations of Sections 3 (as to only those provisions that are specifically described as being applicable after the Term), 8, 9, 10, 11, 12, 15, 19, 20, 22 through 25 and 27 hereof. (G) RETURN OF COMPANY PROPERTY. Upon termination of this Agreement for any reason, the SAB Member shall promptly deliver to the Companies any and all property of the Companies or their customers, licensees, licensors, or affiliates which may be in his possession or control, including without limitation, products, cell lines, materials, memoranda, notes, diskettes, records, reports, laboratory notebooks, or other documents or photocopies of the same and shall destroy any Confidential Information (as defined in Section 9 hereof) in intangible form. 7. INDEPENDENT CONTRACTOR. It is understood and agreed that the SAB Member is an independent contractor and that neither this Agreement nor the Services to be rendered hereunder shall for any purpose whatsoever or in any way or manner create any employer-employee relationship between the parties. The SAB Member shall not be entitled to any fringe benefits generally provided to employees of either of the Companies and the Companies shall not be required to maintain workers' compensation coverage for the SAB Member. 8. INVENTIONS. The SAB Member shall promptly disclose to the Companies, and hereby assigns and agrees to assign to the Companies (or as otherwise directed by the Companies), his full right, title and interest, if any, to all Inventions (as defined below). The SAB Member agrees to cooperate fully with the Companies, their attorneys and agents, in the preparation and filing of all papers and other documents as may be required to perfect the Companies' rights in and to any of such Inventions, including, but not limited to, execution of any and all applications for domestic and foreign patents, copyrights or other proprietary rights and the performance of such other acts (including, among others, the execution and delivery of instruments of further assurance or confirmation) requested by the Companies to assign the Inventions to the Companies and to permit the Companies to file, obtain and enforce any patents, copyrights or other proprietary rights in the Inventions, all at the Companies' sole cost and expense. The SAB Member hereby designates the Companies as his agent, and grants to the Companies a power of attorney with full power of substitution, which power of attorney shall be deemed coupled with an interest, for the purpose of effecting any such assignment hereunder 6 from the SAB Member to the Companies. "Inventions" shall mean, for purposes of this paragraph, ideas, discoveries, creations, manuscripts and properties, innovations, improvements, know-how, inventions, trade secrets, apparatus, developments, techniques, methods, biological processes, cell lines, laboratory notebooks and formulas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made or discovered by the SAB Member (whether alone or with others) within the Field as a result of consulting with either of the Companies under this Agreement and/or as a result of Confidential Information (as defined in Section 9 hereof) received from either of the Companies. The Companies acknowledge and agree that the SAB Member is bound by the UMass Provisions. In the event of any inconsistency between the terms and provisions of this Section 8 and the UMass Provisions, the UMass Provisions shall govern. In this respect, in no event shall the SAB Member's obligations hereunder relate to any right, title or interest that the SAB Member may have in ideas, discoveries, creations, manuscripts and properties, innovations, improvements, know-how, inventions, trade secrets, apparatus, developments, techniques, methods, biological processes, cell lines, laboratory notebooks and formulas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made or discovered by the SAB Member (whether alone or with others) with the use of facilities or fundings of any Affiliated Institution and that the SAB Member is required to assign to his Affiliated Institution pursuant to the rules and regulations of such Affiliated Institution. The SAB Member agrees to not knowingly use or incorporate any third party proprietary information into any Inventions or to disclose such information to the Companies. Upon termination of this Agreement with the Companies, the SAB Member shall provide to the Companies in writing a full, signed statement of all Inventions in which the SAB Member participated prior to termination of this Agreement. The SAB Member agrees to cooperate to facilitate any efforts by the Companies to acquire by assignment or exclusive license rights to the existing inventions, technologies and other intellectual property in the Field that have been developed or identified by the SAB Member and his laboratory prior to or during the Term. The SAB Member shall not be in breach of this Agreement if, despite such cooperation, the Companies fail to consummate the foregoing. 9. CONFIDENTIALITY. During the Term, the SAB Member will be exposed to certain information concerning the respective Companies' research, business, Inventions, products, proposed new products, designs, clinical testing programs, manufacturing processes and techniques, customers, and other information and materials that embody trade secrets or technical or business information that is confidential and proprietary to the Companies and is not generally known to the public (collectively, "Confidential Information"). Confidential Information shall not include information that (i) is in the public domain on the Effective Date of this Agreement, (ii) is or was disclosed to the SAB Member by a third party having no fiduciary relationship with the Companies and having no known obligation of confidentiality with respect to such information, (iii) is or was independently known or developed by the SAB Member without reference to the Confidential Information as reasonably demonstrated by the SAB Member by written records or (iv) is required by law or in a legal proceeding to be disclosed, provided that the SAB Member shall give the Companies prior written notice of such proposed disclosure so that the Companies may take such legal steps as they deem appropriate to protect the Confidential Information. The SAB Member hereby agrees, for a period of seven years following his receipt of such Confidential Information, not to disclose or make use of, or allow 7 others to use, any Confidential Information, except to the Companies' employees and representatives, without the Companies' prior written consent, unless such information becomes publicly available through no fault of the SAB Member; provided, however, that such obligations of the SAB Member shall expire after five years from the termination or expiration of this Agreement. In addition, the SAB Member further agrees not to make any notes or memoranda relating to the Business of the Companies other than for the benefit of the Companies and not to use or permit to be used at any time any such notes or memoranda other than for the benefit of the Companies. 10. INJUNCTIVE RELIEF. The SAB Member agrees that any breach of this Agreement by him could cause irreparable damage to the Companies and that in the event of such breach the Companies shall have the right to obtain injunctive relief, including, without limitation, specific performance or other equitable relief to prevent the violation of his obligations hereunder. It is expressly understood and agreed that nothing herein contained shall be construed as prohibiting the Companies from pursuing any other remedies available for such breach or threatened breach, including, without limitation, the recovery of damages by the Companies. 11. NO ASSIGNMENT BY THE SAB MEMBER. The Services to be rendered by the SAB Member are personal in nature. The SAB Member may not assign or transfer this Agreement or any of his rights or obligations hereunder. In no event shall the SAB Member assign or delegate responsibility for actual performance of the Services to any other natural person. 12. PUBLICATIONS. The SAB Member agrees that he will not at any time during the time limitations set forth in paragraph 9 hereof, publish any Confidential Information that becomes known to him as a result of his relationship with the Companies which is, or pursuant to the terms hereof becomes, the property of either of the Companies or any of its clients, customers, consultants, licensors, licensees, or affiliates except to such extent as may be necessary in the ordinary course of performing in good faith his duties as a member of the SAB of either of the Companies and with the prior written consent of the Companies. During the Term and for a period of two years thereafter, the SAB Member agrees to submit to the Companies for a period of at least 30 days (the "Review Period") a copy of any proposed manuscript or other materials to be published or otherwise publicly disclosed by the SAB Member (each a "Proposed Publication") which contains information derived, in whole or in part, from Services performed for the Companies in sufficient time to enable the Companies to determine if patentable Inventions or Confidential Information would be disclosed. Nothing herein shall be construed to restrict the SAB Member's right to publish material which does not contain Confidential Information. Following the expiration of the Review Period, if the Companies do not notify the SAB Member that the Proposed Publication discloses patentable Inventions or Confidential Information such Proposed Publication shall be deemed to be approved by the Companies for publication. In addition, the SAB Member will cooperate with the Companies in this respect and will delete from the manuscript or other disclosure any Confidential Information if requested by the Companies and will assist the Companies in filing for patent protection for any patentable Inventions prior to publication or other disclosure. 13. NO CONFLICTING AGREEMENTS. The SAB Member represents and warrants, that he is not a party to any commitments or obligations that conflict with this Agreement. In this 8 regard, as a condition to the effectiveness of this Agreement the SAB Member shall obtain the Principal Institution's execution of Exhibit A to this Agreement. During the Term, the SAB Member will not enter into any agreement either written or oral in conflict with this Agreement and will arrange to provide Services under this Agreement in such a manner and at times that such Services will not conflict with his responsibilities under any other agreement, arrangement or understanding or pursuant to any employment relationship he has at any time with any third party. In the event of any inconsistency between this Agreement and any agreement or policy of any Affiliated Institution, the agreement or policy of the Affiliated Institution shall control. 14. OTHER CONSULTING SERVICES. The Companies agree that SAB Member may serve as a member of scientific advisory boards or in a similar capacity with, and provide consulting services to, other companies in scientific areas outside of the Field, provided that such service does not conflict or materially interfere with his Services hereunder. The SAB Member shall notify the Companies in writing in advance of such service, provided that the Companies shall hold all such information in confidence, and provided further that the SAB Member need not provide copies of any agreements with such other companies or any information relating to his compensation for such services. 15. NONSOLICITATION. During the Term and for a period of one year thereafter, the SAB Member, personally, will not, without the Companies' prior written consent, directly solicit the employment of any employee of the Companies or their affiliates with whom the SAB Member has had contact in connection with the relationship arising under this Agreement. Nothing in this Section 15 shall be deemed to prohibit general solicitations of employment by any Affiliated Institution. 16. DISCLOSURE OF RELATIONSHIP. The parties each shall be entitled to disclose that the SAB Member is serving on the SAB, including in any business plan, press release, advertisement, prospectus or other offering document of either of the Companies or their affiliates; provided that SAB Member shall have the opportunity to review and approve press releases relating to announcement of this Agreement and developments in the business of the respective Companies prior to release, with approval of such press releases not to be unreasonably delayed or withheld. Notwithstanding the foregoing, the Companies shall not require the approval by the SAB Member of any press release or governmental filing that in the opinion of the respective Companies' counsel is required to be made. 17. SPONSORED RESEARCH AGREEMENT. The Companies shall use their reasonable and diligent efforts to enter into as soon as is practicable after the Effective Date a sponsored research agreement in the Field with the Principal Institution with at least a three-year term under which the Company's direct and indirect costs and expenses associated with the research payable to the Principal Institution by either CytRx or Araios will be at least $750,000 per year. 18. NOTICES. All notices and other communications hereunder shall be delivered or sent by facsimile transmission, recognized courier service, registered or certified mail, return receipt requested. Any notice or required submission of documents to CytRx made under the provisions of this Agreement shall be deemed to have been constructively delivered to Araios for purposes of this Agreement. 9 If to CytRx: Steven A. Kriegsman Chief Executive Officer CytRx Corporation 11726 San Vicente Boulevard, Suite 650 Los Angeles, CA 90049 Fax: (310) 826-6139 If to Araios: Mark A. Tepper, Ph.D. President Araios, Inc. One Innovation Drive Worcester, MA 01605 Fax: (508) 767-3862 with a copy to: General Counsel CytRx Corporation 11726 San Vicente Boulevard, Suite 650 Los Angeles, CA 90049 Fax: (310) 826-6139 If to the SAB Member: Tariq M. Rana, Ph.D. Professor and Director of Chemical Biology Program Department of Biochemistry and Molecular Pharmacology University of Massachusetts Medical School 364 Plantation Street, LRB room 828, Worcester, MA 01605-2324 Fax: (508) 856-8015 Such notice or communication shall be deemed to have been given as of the date sent by the facsimile or delivered to a recognized courier service, or three days following the date sent by registered or certified mail. 19. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, successors and permitted assigns. The SAB Member agrees that either of the Companies may assign this Agreement, in whole but not in part, to any purchaser of all or substantially all of its assets or to any successor corporation resulting from any merger, consolidation or other reorganization of either of the Companies with or into such corporations (including without limitation a merger of Araios into CytRx or other acquisition by CytRx of all of the assets of Araios). Each of the Companies also may assign this 10 Agreement, in whole but not in part, to any person or entity controlled by, in control of, or under common control with, the respective Companies, if it obtains the prior written consent of the SAB Member, which consent shall not unreasonably be withheld or delayed and which shall not be required in the case of CytRx's acquisition of Araios by merger or otherwise; provided, however, that no such assignment shall relieve either of the Companies of its liability to the SAB Member hereunder. The Companies may not otherwise assign this Agreement without the SAB Member's prior written consent. 20. INDEMNIFICATION. The Companies shall jointly and severally indemnify, defend and hold harmless the SAB Member from any claim, loss, liability or expense (including reasonable attorney's fees) incurred by him as a result of the performance of his Services hereunder in accordance with the terms hereof, a material breach by either of the Companies hereof or any gross negligence or willful misconduct by either of the Companies or their respective officers or directors in connection with this Agreement or otherwise relating to or resulting from the performance of the Services hereunder, except where such claim, loss, liability or expense is attributable primarily to the SAB Member's own gross negligence or willful misconduct. 21. ENTIRE AGREEMENT; COUNTERPARTS. This Agreement constitutes the entire agreement among the parties as to the subject matter hereof. No provision of this Agreement shall be waived, altered or cancelled except in writing signed by the party against whom such waiver, alteration or cancellation is asserted. Any such waiver shall be limited to the particular instance and the particular time when and for which it is given. This Agreement may be executed in one or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 22. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware, without regard to conflict of law principles. 23. ENFORCEABILITY. The invalidity or unenforceability of any provision hereof as to an obligation of a party shall in no way affect the validity or enforceability of any other provision of this Agreement, provided that if such invalidity or unenforceability materially adversely affects the benefits the other party reasonably expected to receive hereunder, that party shall have the right to terminate this Agreement. Moreover, if one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to scope, activity or subject so as to be unenforceable at law, such provision or provisions shall be construed by limiting or reducing it or them, so as to be enforceable to the extent compatible with the applicable law as it shall then appear. 24. CONSTRUCTION. This Agreement has been prepared jointly and shall not be strictly construed against any party. 25. RESOLUTION OF DISPUTES. Any dispute arising under or in connection with any matter related to this Agreement or any related agreement shall be resolved exclusively by arbitration. The arbitration will be in conformity with and subject to the applicable rules and 11 procedures of the American Arbitration Association. All parties agree to be (i) subject to the jurisdiction and venue of the arbitration in Los Angeles, California; and (ii) bound by the decision of the arbitrator as the final decision with respect to the dispute. 26. ADVICE OF COUNSEL. Each party acknowledges that, in executing this Agreement, such party has had the opportunity to seek the advice of independent legal counsel, and has read and understood all of the terms and provisions of this Agreement. 27. FEES AND EXPENSES. Upon request by the SAB Member and presentation of invoices therefor in such detail as the Companies shall reasonably request, the Companies shall pay or reimburse the SAB Member up to a total of $10,000 in legal fees and disbursements incurred by him in connection with the negotiation and preparation of this Agreement. Except as otherwise specifically provided in this Agreement, the parties shall bear their own costs and expenses in connection with this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Scientific Advisory Board Agreement as a sealed instrument as the date first written above. CYTRX CORPORATION By: /s/ Steven A. Kriegsman ------------------------------- Steven A. Kriegsman Chief Executive Officer ARAIOS, INC. By: /s/ Mark A. Tepper ------------------------------- Mark A. Tepper, Ph.D. President SAB MEMBER /s/ Tariz M. Rana - ------------------------------- Name: Tariq M. Rana, Ph.D. Social Security Number: _______________________________ Effective Date: March 3, 2004 12 SCHEDULE A CONFLICTING AGREEMENTS UNIVERSITY OF MASSACHUSETTS UNIFORM CONSULTING AGREEMENT PROVISIONS All faculty at the University of Massachusetts (the "University") are subject to the University Policy on Faculty Consulting and Outside Activities (the `Policy"). The Policy recommends that faculty at the University attach these Uniform Consulting Agreement Provisions ("Uniform Provisions") to any agreement or arrangement ("Consulting Agreement") under which a faculty member will provide consulting services to, or will engage in other non-academic activities in his or her area of expertise on behalf of any for-profit organization (a "Company"). These Uniform Provisions are intended to clarify, among other things, the respective legal rights of the University and the Company in any intellectual property and other work product that may be developed or discovered by the faculty member in the course of performing services for the Company. If any term of the Uniform Provisions is inconsistent with a term of the Consulting Agreement to which the Uniform Provisions are attached, the terms of the Uniform Provisions govern. University faculty are permitted to devote the equivalent of one day within the academic week to the performance of outside activities, including consulting with Companies. These activities must be reported to the Department Chair of the faculty member in order to ensure compliance with this time restriction and the ability of the faculty member to meet his or her responsibilities to the University. In certain instances, these activities must also be reviewed by the University's Conflicts Committee. The Conflicts Committee may impose restrictions on the consulting relationship. University faculty are ordinarily prohibited from using University-administered funds, facilities, and equipment in the performance of services for a Company pursuant to a Consulting Agreement. In addition, faculty must obtain special approval to involve University students in consulting or other services for Companies. Companies may obtain access to University facilities, equipment, and personnel under a sponsored research agreement with the University. University faculty may not use the name of the University in relation to any outside activities, including consulting work, except to describe their credentials. University faculty are permitted to assign to a Company their rights in any invention, discovery, or development (collectively, "Intellectual Property") that arises while performing services under a Consulting Agreement, provided that the faculty member did not use University-administered funds, facilities, or equipment (collectively, "University Resources") in the course of developing that Intellectual Property. If a faculty member made significant use of University Resources, the faculty member is contractually obligated to assign to the University all of his or her rights in that Intellectual Property. A-1 The University presumes that a faculty member did make significant use of University Resources in the development of Intellectual Property that is the same as, directly related to, or substantially similar to a research project in which that faculty member is engaged at the University. In order to avoid any confusion regarding ownership of Intellectual Property, the University has determined and Company agrees that the field of services to be provided under this Consulting Agreement is directly related to or substantially similar to the research projects undertaken by the faculty member at the University. Therefore, any Intellectual Property developed by the faculty member during the term of this Consulting Agreement is owned by the University, and the Company may enter into negotiations to obtain license rights to the Intellectual Property. No Consulting Agreement may limit the ability of a University faculty member to use or publish information that (a) was developed, discovered, or acquired by the faculty member in the course of research performed at the University or otherwise outside the scope of the consulting services, (b) was in the public domain before the consulting services were performed (c) entered the public domain by means other than an unauthorized disclosure resulting from an act or omission by the faculty member, (d) was known to the faculty member or the University before the consulting services were performed, or (e) is required to be disclosed in order to comply with applicable law, regulations, or a court order. A Company may require a faculty member to leave with the Company any notes, data, and records developed in the performance of consulting services, provided that the faculty member may retain one copy of those documents for archival purposes. Companies should be aware that, in addition to the Policy, University faculty are subject to the University Intellectual Property Policy and the University Policy on Conflicts of Interest Relating to Intellectual Property and Commercial Ventures. The University will make the three policies available upon request. A-2 These Uniform Provisions remain in effect during the entire term of the Consulting Agreement to which they are attached. AGREED AND ACCEPTED: FACULTY MEMBER CYTRX CORPORATION By: /s/ Tariq M. Rana By: /s/ Steven A. Kriegsman --------------------------- ------------------------------ Printed Name: Tariq M. Rana Printed Name: Steven A. Kriegsman Date: Jan. 20, 2004 Title: Chief Executive Officer Date:____________________________ UNIVERSITY OF MASSACHUSETTS ARAIOS, INC. By: /s/ Chester A. Bisbee By: /s/ Mark A. Tepper --------------------------- ------------------------------ Printed Name: Chester A. Bisbee, Ph.D., J.D. Printed Name: Mark A. Tepper Title: Acting Director, Office of Technology Title: President Management Date:____________________________ Date: 4-9-04 A-3 EX-10.5 6 v99122exv10w5.txt EXHIBIT 10.5 EXHIBIT 10.5 Page 1 CYTRX CORPORATION/ARAIOS, INC. SCIENTIFIC ADVISORY BOARD AGREEMENT This Scientific Advisory Board Agreement (the "Agreement") dated as of January 20, 2004 is made by Craig C. Mello, Ph.D. (the "SAB Member"), CytRx Corporation, a Delaware corporation ("CytRx") and Araios, Inc., a Delaware corporation and subsidiary of CytRx ("Araios"), with CytRx and Araios being collectively referred to as the "Companies". The SAB Member is an investigator of the Howard Hughes Medical Institute (the "Institute") at the Institute's laboratory at the University of Massachusetts. AGREEMENT 1. GENERAL. Effective as of the date of execution of this Agreement by all parties, the approval of this Agreement by each Principal Institution (defined below), and the execution of Schedule A hereto by all parties thereto, with such date to be indicated below the signature of the SAB Member on the signature page of this Agreement (the "Effective Date"), each of the Companies shall retain the SAB Member, and the SAB Member agrees to serve, as a member of both of the Companies' respective Scientific Advisory Boards ("SAB") and to consult with the Companies in the Field (as hereinafter defined). The SAB Member agrees to provide to each of the Companies such services in the Field as are customarily performed by a member of a scientific advisory board to a company such as the Companies (the "Services"). The SAB Member is being engaged by the Companies as a consultant for the exchange of ideas only and shall not direct or conduct research for or on behalf of the Companies. The Services will include, without limitation: - Consulting with each of the Companies' respective management within the SAB Member's professional area of expertise from time to time as reasonably requested by either of the Companies; - Exchanging strategic and business development ideas with the Companies; - Attending scientific, medical or business meetings with the Companies' management, such as United States Food & Drug Administration meetings, meetings with strategic or potential strategic partners and other meetings relevant to SAB Member's area of expertise; and - Attending meetings of the SAB as provided herein. For purposes of this Agreement, the term "Field" means the use of RNAi technology in, or the application of RNAi technology to, the discovery or development of therapeutic products for humans or animals, and/or the use of RNAi as a component of therapeutic products for humans or animals. Notwithstanding anything else herein to the contrary, the term "Field" is specifically understood to not include the use of RNAi technology in, or the application of RNAi technology to, the discovery and development of reagents, diagnostic products, agricultural Page 2 products, or products or services developed for or offered to the research tools and products market, or the use of RNAi as a component of reagents, diagnostic products, agricultural products, or products or services developed for or offered to the research tools and products market. The Services shall not include those services prohibited by either Principal Institution, including as set forth in "The University of Massachusetts Uniform Consulting Agreement Provisions" attached hereto as Exhibit A and incorporated herein (the "UMass Provisions") or any Affiliated Institution (as defined in Section 2 hereof). The SAB Member is agreeing to provide the Services under this Agreement in consideration of the compensation provided in Section 3 hereof. 2. PERFORMANCE OF SERVICES. As of the Effective Date, the SAB Member agrees to make himself available to render the Services, at such time or times and location or locations as may be mutually agreed, from time to time at the request of the respective Companies and subject to the UMass Provisions. The SAB Member agrees not to perform any Services for the respective Companies on the premises of the University of Massachusetts Medical School (which, together with the Institute, are collectively referred to as the "Principal Institution"), any academic institution or any hospital with which he is or may become affiliated (each such Principal Institution, academic institution and hospital an "Affiliated Institution") or with the respective facilities or funds of any such Affiliated Institution which could result in claims by such Affiliated Institution of rights in any Inventions (as defined in Section 8 hereof), without the express prior agreement of the Companies and the Affiliated Institution, as appropriate. Unless covered by an appropriate agreement between any third party (other than an Affiliated Institution) and the respective Companies, the SAB Member shall not knowingly engage in any activities or use any facilities in the course of providing Services which could result in claims of ownership to any Inventions being made by such third party. The SAB Member agrees to devote his reasonable and diligent efforts to the performance of the Services. The SAB Member agrees to devote up to 20 days per year to providing the Services, including by attending at least four Araios SAB meetings and two CytRx SAB meetings per year. 3. COMPENSATION. (A) UP-FRONT CASH PAYMENT AND GRANT OF OPTION. The Companies will compensate the SAB Member for serving as a member of the CytRx SAB and Araios SAB and for providing the Services to the Companies as follows, with such compensation to be the full consideration for the Services: (1) Upon the Effective Date and confirmation from the SAB Member that he is permitted to commence providing the Services without violating any other contractual arrangement by which he is bound, the Companies shall pay the SAB Member a total of $50,000 in cash. (2) No later than the signing of this Agreement by the SAB Member and the Companies, CytRx shall grant the SAB Member a nonqualified stock option (the "Option") under the CytRx 2000 Long-Term Incentive Plan to purchase up to 812,500 shares (the "Option Shares") of common stock of CytRx. The Option shall have an exercise price equal to the closing price of CytRx common stock on the Effective Date, as reported on Nasdaq. The Option shall be for a term of ten years and shall otherwise be in the form of the Nonqualified Stock Option Agreement attached hereto as Exhibit B and incorporated herein by reference. Vested Options shall not be subject to lapse for any reason prior to the end of their ten year term. Page 3 The Company covenants and agrees that it will file an effective Form S-8 registration statement covering the Option and the Options Shares no later than April 15, 2004, such that from and after the date of filing (and in all events no later than April 15, 2004) the Option Shares shall be freely tradable immediately upon any exercise of the Option. The Option may be exercised pursuant to a cashless exercise, but only if the SAB Member is not able at the time to obtain the cash proceeds for the exercise price in a broker's transaction (with the Companies bearing any commission expenses charged by the broker in connection with selling sufficient shares to generate the cash proceeds for the exercise price). (B) VESTING OF OPTION. The Option shall vest and become exercisable as to the Option Shares as follows: (i) as to 500,000 of such Option Shares, those shares shall vest during the Term (provided that neither party has terminated this Agreement before such vesting date in accordance with any of the subsections of Section 6) at the rate of 13,889 shares per month over the first 35 months from the Effective Date and the remaining 13,885 shares shall vest as of the end of the 36th month from the Effective Date; (provided that neither party has terminated this Agreement before such vesting date in accordance with any of the subsections of Section 6; (ii) as to 62,500 of such Option Shares, all of such Option Shares shall vest at the commencement of the fourth year of the Term (provided that neither party has terminated this Agreement before such date in accordance with any of the subsections of Section 6); and (iii) the remaining 250,000 of such Option Shares shall fully vest upon completion of the five-year Term if the parties agree to extend the Term beyond the original five-year period (with neither party having any obligation to so extend the Term). Notwithstanding anything to the contrary in this Section 3(B), any remaining unvested Option Shares of the 500,000 shares described in the preceding sentence shall become fully vested in the event and at the time of the death or permanent disability of the SAB Member if such death or permanent disability occurs during the Term (provided that neither party has terminated this Agreement before such date in accordance with any of the subsections of Section 6). For purposes of this Section 3(B), a permanent disability shall be a "Disability" as defined in Section 6(D) that has been certified by a physician selected by the Companies. (C) EQUITY OWNERSHIP LIMIT. To the Companies' best knowledge, after reasonable inquiry, the stock options set forth herein, when added to all other stock, stock options, rights or other equity or equity-based securities (collectively, "Securities") issued or issuable by the Companies to the SAB Member (either directly or indirectly), constitute not more than 3.0% of CytRx's presently issued and outstanding common stock, as diluted by assuming full exercise of any options and other rights held by the SAB Member. Indirect holdings for this purpose include without limitation (i) any Securities issued or issuable by CytRx to members of the SAB Member's immediate family and (ii) any Securities issued or issuable by CytRx to the SAB Member, or Securities allocated or allocable to the SAB Member under the University of Massachusetts' inventorship policies, as royalties under a license by either Company of technology of which the SAB Member is an inventor. (D) MONTHLY CONSULTING FEE. In addition to the foregoing $50,000 payment and grant of the Option, for his Services hereunder the SAB Member shall be entitled to a total monthly payment from the Companies of $6,667 for each month during the Term, payable monthly in arrears. In the event the parties agree to extend the Term beyond the original five-year period (with neither party having any obligation to so extend the Term), the foregoing Page 4 monthly payment shall be increased from $6,667 to $7,500 for the period commencing after the original five-year Term. (E) EXPENSES. The respective Companies also shall promptly reimburse the SAB Member for reasonable out-of-pocket expenses, including, without limitation, travel expenses incurred by him in the performance of the Services (including attendance at all SAB meetings), following the respective Companies' receipt of a request for reimbursement from the SAB Member. The SAB Member shall promptly provide the respective Companies with documentation supporting all such expenses. 4. PRINCIPAL INSTITUTION. The Companies recognize that the activities of the SAB Member are or will be subject to the rules and regulations of each Principal Institution and any other Affiliated Institution, now or in the future, and the Companies agree that SAB Member shall be under no obligation to perform Services if such performance would conflict with such rules and regulations, or constitute a conflict of interest under the relevant policies of the Affiliated Institution. The Companies further acknowledge that the SAB Member is an employee of the Institute and is subject to the Institute's policies concerning consulting, conflicts of interest and intellectual property. The Companies each agree that nothing in this Agreement shall affect the SAB Member's obligations to, or research on behalf of, the Institute or the University of Massachusetts, including, without limitation, obligations or research of the SAB Member in connection with a transfer by the Institute or the University of Massachusetts of materials or intellectual property developed in whole or in part by the SAB Member, or in connection with research collaborations. The SAB Member has no reason to believe that the SAB Member's performance of any of the services contemplated by this Agreement will conflict with the applicable rules or policies of any Affiliated Institution, each as presently in effect. In the event such rules and regulations shall, in the Companies' reasonable opinion or the reasonable opinion of the SAB Member, substantially interfere with the performance of Services by the SAB Member, the Companies or the SAB Member may terminate this Agreement upon 30 days notice to the other parties. Any such termination by the Companies shall not be considered a termination for Cause, unless the Affiliated Institution's rules or policies that are asserted by the Companies or the SAB Member to be in conflict with the performance of the Services are rules or policies that are not generally applied by that Affiliated Institution to other academic researchers at that institution. The SAB Member shall provide copies to the Companies of all status reports he delivers and other material correspondences he has with any Affiliated Institution (other than the Institute) concerning this Agreement or the Services within three business days of his delivery or receipt of such report or correspondence, provided that the policies of any Affiliated Institution permit him to do so, and provided further that the Companies agree to hold any such report or correspondence in confidence. 5. TERM. The SAB Member's performance of Services shall commence on the Effective Date and shall continue for a period of five years thereafter (such period, including any extension of such period, the "Term"), unless either the SAB Member or either of the Companies terminate this Agreement pursuant to Sections 4 or 6 hereof, or unless this Agreement is extended by the mutual written agreement of the SAB Member and the Companies. Page 5 6. TERMINATION; EFFECT OF TERMINATION. (A) TERMINATION BY COMPANIES FOR CAUSE. The Companies may terminate this Agreement (in addition to any other available remedy) at any time for Cause. The term "Cause" shall mean the SAB Member's material failure to perform his duties under this Agreement which goes uncured for more than 15 days following written notice from either of the Companies, the SAB Member's conviction of or plea of no contest to any felony, or the SAB Member's act or failure to act that materially and adversely affects the business of either of the Companies. (B) TERMINATION BY SAB MEMBER FOR GOOD REASON. The SAB Member may terminate this Agreement (in addition to any other available remedy) at any time for Good Reason. The term "Good Reason" shall mean (i) either of the Companies' breach any of its material obligations under this Agreement in any material respect (including without limitation, the Companies' payment obligations and CytRx's obligations with respect to the Option and the Option Shares) if such breach is not cured within 15 days (10 days in the case of a breach of a payment obligation) after receipt by such party of written notice thereof, or (ii) the occurrence any of the following events upon not less than 15 days prior written notice to the Companies at any time after the occurrence of such events, but in no event later than 60 days after written notice from the Companies to the SAB Member of the occurrence of any of such events: - a decree, judgment, or order by a court of competent jurisdiction shall have been entered adjudging both of the Companies as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization of both of the Companies under any bankruptcy or similar law, and such decree of order shall have continued undischarged and unstayed for a period of 60 days; or a decree or order of a court of competent jurisdiction ordering the appointment of a receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of both of the Companies, or for the winding up or liquidation of the affairs of both of the Companies, shall have been entered, and such decree, judgment, or order shall have remained in force undischarged and unstayed for a period of 60 days; - both of the Companies shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization under any bankruptcy or similar law or similar statute, or shall consent to the filing of any such petition, or shall consent to the appointment of a custodian, receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of it or any of its assets or property, or shall make a general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due; or - the Companies and their affiliates shall discontinue or suspend indefinitely substantially all research and development efforts in the Field. (C) TERMINATION BY COMPANIES WITHOUT CAUSE; TERMINATION BY SAB MEMBER WITHOUT GOOD REASON. The Companies or the SAB Member may terminate this Page 6 Agreement at any time without cause and without liability to any other party upon at least 90 days prior written notice to the Companies or the SAB Member, as the case may be. (D) TERMINATION DUE TO DEATH OR DISABILITY. This Agreement shall automatically terminate upon the death of the SAB Member, or upon notice from the Companies or the SAB Member following the "Disability" of the SAB Member. For purposes of this Agreement, the SAB Member shall be considered "to have suffered a "Disability" if: (i) he is incapacitated or disabled by accident, sickness or otherwise so as to render him mentally or physically incapable of performing a substantial part of the Services, with or without reasonable accommodation, required to be performed by him under this Agreement for a period of at least 90 consecutive days, or for 90 days (whether or not consecutive) during any six (6) month period. A termination by death or Disability shall not be considered a termination for Cause. (E) TERMINATION PURSUANT TO SECTION 4. Either party may terminate this Agreement at any time subject to and in accordance with the provisions of Section 4. (F) SURVIVAL OF CERTAIN PROVISIONS. No termination of this Agreement shall relieve the SAB Member or the Companies of any obligations hereunder which by their terms are intended to survive the termination of the SAB Member's association with the Companies, including, but not limited to, the obligations of Sections 3 (as to only those provisions that are specifically described as being applicable after the Term), 8, 9, 10, 11, 12, 15, 18, 19, 22 through 24 and 26 hereof. (G) RETURN OF COMPANY PROPERTY. Upon termination of this Agreement for any reason, the SAB Member shall promptly deliver to the Companies any and all property of the Companies or their customers, licensees, licensors, or affiliates provided to SAB Member pursuant to this Agreement which may be in his possession or control, including without limitation, products, memoranda, notes, diskettes, records, reports, laboratory notebooks, or other documents or photocopies of the same and shall destroy any Confidential Information (as defined in Section 9 hereof) in tangible form. (H) RIGHTS OF PRINCIPAL INSTITUTION. The termination of this Agreement shall not affect (i) the Companies' obligations to recognize the priority of Institute and the University of Massachusetts intellectual property rights under the third paragraph of Section 8 or the Companies' obligations to defend and indemnify the Institute under Section 19. 7. INDEPENDENT CONTRACTOR. It is understood and agreed that the SAB Member is an independent contractor and that neither this Agreement nor the Services to be rendered hereunder shall for any purpose whatsoever or in any way or manner create any employer-employee relationship between the parties. The SAB Member shall not be entitled to any fringe benefits generally provided to employees of either of the Companies and the Companies shall not be required to maintain workers' compensation coverage for the SAB Member. The parties acknowledge that this Agreement is not a contract of employment within the meaning of Section 2750 of the California Labor Code, and the SAB Member is not an employee of the Companies for any purpose under the California Labor Code. Page 7 8. INVENTIONS. The SAB Member shall promptly disclose to the Companies, and, subject to the terms of the third paragraph of this Section 8, hereby assigns and agrees to assign to the Companies (or as otherwise directed by the Companies), his full right, title and interest, if any, to all Inventions (as defined below). The SAB Member agrees to cooperate fully with the Companies, their attorneys and agents, in the preparation and filing of all papers and other documents as may be required to perfect the Companies' rights in and to any of such Inventions, including, but not limited to, execution of any and all applications for domestic and foreign patents, copyrights or other proprietary rights and the performance of such other acts (including, among others, the execution and delivery of instruments of further assurance or confirmation) requested by the Companies to assign the Inventions to the Companies and to permit the Companies to file, obtain and enforce any patents, copyrights or other proprietary rights in the Inventions, all at the Companies' sole cost and expense. The SAB Member hereby designates the Companies as his agent, and grants to the Companies a power of attorney with full power of substitution, which power of attorney shall be deemed coupled with an interest, for the purpose of effecting any such assignment hereunder from the SAB Member to the Companies in the event the SAB Member should fail or refuse to sign and deliver any document in connection with perfecting the foregoing rights of the Companies within 10 days following the Companies' request; provided that, in each case in which the Companies intend to exercise this right (i) they shall give the SAB Member and the Institute 30 days written notice, by certified mail (the Institute's copy being mailed to the Office of the General Counsel, Howard Hughes Medical Institute, 4000 Jones Bridge Road, Chevy Chase, MD 20815 Attn: General Counsel) that they intend to exercise their rights under this sentence, which notice shall refer to this Agreement and shall be accompanied by (a) copies of the documents that the Companies intend to execute or file, or a description of the other acts that Companies intend to take, and (b) reasonably sufficient information about the Invention or other intellectual property to which the documents or acts relate for the SAB Member and the Institute each to make a determination of whether the document or acts relate to an Invention; and (ii) the Companies may not exercise their rights under this sentence if either the SAB Member or the Institute notifies the Companies within the 30-day period referred to above that the SAB Member or the Institute disagrees. "Inventions" shall mean, for purposes of this Section 8, ideas, discoveries, creations, manuscripts and properties, innovations, improvements, know-how, inventions, trade secrets, apparatus, developments, techniques, methods, biological processes, cell lines, laboratory notebooks and formulas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made or discovered by the SAB Member (whether alone or with others) within the Field (i) solely as a direct result of consulting with either of the Companies under this Agreement and (ii) not in the course of the SAB Member's activities as an Institute employee or University of Massachusetts faculty member. The Companies acknowledge and agree that the SAB Member is bound by the UMass Provisions. In the event of any inconsistency between the terms and provisions of this Section 8 and the UMass Provisions, the UMass Provisions shall govern. In this respect, in no event shall the SAB Member's obligations hereunder relate to any right, title or interest that the SAB Member may have in ideas, discoveries, creations, manuscripts and properties, innovations, improvements, know-how, inventions, trade secrets, apparatus, developments, techniques, methods, biological processes, cell lines, laboratory notebooks and formulas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made or discovered by the Page 8 SAB Member (whether alone or with others) with the use of facilities or fundings of any Affiliated Institution and that the SAB Member is required to assign to his Affiliated Institution pursuant to the rules and regulations of such Affiliated Institution. Further, the Companies will have no rights by reason of this Agreement in any publication, invention, discovery, improvement, or other intellectual property whatsoever, whether or not publishable, patentable, or copyrightable, which is developed as a result of a program of research financed, in whole or in part, by funds provided by or under the control of either Principal Institution. The SAB Member agrees to not knowingly use or incorporate any third party proprietary information into any Inventions or to disclose such information to the Companies. Upon termination of this Agreement with the Companies, the SAB Member shall provide to the Companies in writing a full, signed statement of all Inventions in which the SAB Member participated prior to termination of this Agreement. Each of the Companies acknowledges and agrees that it will enjoy no priority or advantage as a result of the consultancy created by this Agreement in gaining access, whether by license or otherwise, to any proprietary information or intellectual property that arises from any research undertaken by the SAB Member in his capacity as an employee of the Institute or a member of the faculty of University of Massachusetts. 9. CONFIDENTIALITY. The SAB Member may disclose to the Companies any information that the SAB Member would normally freely disclose to other members of the scientific community at large, whether by publication, by presentation at seminars, or in informal scientific discussions. However, the SAB Member shall not disclose to the Companies information that is proprietary to the Institute or the University of Massachusetts and is not generally available to the public other than through formal technology transfer procedures. During the Term, the SAB Member will be exposed to certain information concerning the respective Companies' research, business, Inventions, products, proposed new products, designs, clinical testing programs, manufacturing processes and techniques, customers, and other information and materials that embody trade secrets or technical or business information that is confidential and proprietary to the Companies and is not generally known to the public (collectively, "Confidential Information"). Confidential Information shall not include information that (i) is in the public domain on the Effective Date of this Agreement, (ii) is or was disclosed to the SAB Member by a third party having no fiduciary relationship with the Companies and having no known obligation of confidentiality with respect to such information, (iii) is or was independently known or developed by the SAB Member without reference to the Confidential Information as reasonably demonstrated by the SAB Member by written records or (iv) is required by law or in a legal proceeding to be disclosed, provided that the SAB Member shall give the Companies prior written notice of such proposed disclosure so that the Companies may take such legal steps as they deem appropriate to protect the Confidential Information. In addition, Confidential Information does not include information generated by the SAB Member, alone or with others, unless the information (i) is generated solely as a direct result of the performance of the Services and (ii) is not generated in the course of the SAB Member's activities as an Institute employee or University of Massachusetts faculty member. The SAB Member hereby agrees, for a period of seven years following his receipt of such Confidential Information, not to disclose or make use of, or allow others to use, any Confidential Information, except to the Companies' employees and representatives, without the Companies' prior written Page 9 consent, unless such information becomes publicly available through no fault of the SAB Member; provided, however, that such obligations of the SAB Member shall expire after five years from the termination or expiration of this Agreement. In addition, the SAB Member further agrees not to make any notes or memoranda relating to the Business of the Companies other than for the benefit of the Companies and not to use or permit to be used at any time any such notes or memoranda other than for the benefit of the Companies. 10. INJUNCTIVE RELIEF. The SAB Member agrees that any breach of this Agreement by him could cause irreparable damage to the Companies and that in the event of such breach the Companies shall have the right to obtain injunctive relief, including, without limitation, specific performance or other equitable relief to prevent the violation of his obligations hereunder. It is expressly understood and agreed that nothing herein contained shall be construed as prohibiting the Companies from pursuing any other remedies available for such breach or threatened breach, including, without limitation, the recovery of damages by the Companies. 11. NO ASSIGNMENT BY THE SAB MEMBER. The Services to be rendered by the SAB Member are personal in nature. The SAB Member may not assign or transfer this Agreement or any of his rights or obligations hereunder. In no event shall the SAB Member assign or delegate responsibility for actual performance of the Services to any other natural person. 12. PUBLICATIONS. The SAB Member agrees that he will not at any time during the time limitations set forth in paragraph 9 hereof, publish any Confidential Information that becomes known to him as a result of his relationship with the Companies which is, or pursuant to the terms hereof becomes, the property of either of the Companies or any of its clients, customers, consultants, licensors, licensees, or affiliates except to such extent as may be necessary in the ordinary course of performing in good faith his duties as a member of the SAB of either of the Companies and with the prior written consent of the Companies. During the Term and for a period of two years thereafter, the SAB Member agrees to submit to the Companies for a period of at least 30 days (the "Review Period") a copy of any proposed manuscript or other materials to be published or otherwise publicly disclosed by the SAB Member (each a "Proposed Publication") which contains Confidential Information or discloses Inventions in sufficient time to enable the Companies to determine if patentable Inventions or Confidential Information would be disclosed. Nothing herein shall be construed to restrict the SAB Member's right to publish material which does not contain Confidential Information. Following the expiration of the Review Period, if the Companies do not notify the SAB Member that the Proposed Publication discloses patentable Inventions or Confidential Information such Proposed Publication shall be deemed to be approved by the Companies for publication. In addition, the SAB Member will cooperate with the Companies in this respect and will delete from the manuscript or other disclosure any Confidential Information if requested by the Companies and will assist the Companies in filing for patent protection for any patentable Inventions prior to publication or other disclosure. 13. NO CONFLICTING AGREEMENTS. The SAB Member represents and warrants, that he is not a party to any commitments or obligations that conflict with this Agreement. In this regard, as a condition to the effectiveness of this Agreement the SAB Member shall obtain the University of Massachusetts's execution of Exhibit A to this Agreement. During the Term, the Page 10 SAB Member will not enter into any agreement either written or oral in conflict with this Agreement and will arrange to provide Services under this Agreement in such a manner and at times that such Services will not conflict with his responsibilities under any other agreement, arrangement or understanding or pursuant to any employment relationship he has at any time with any third party. In the event of any inconsistency between this Agreement and any agreement or policy of any Affiliated Institution, the agreement or policy of the Affiliated Institution shall control. 14. OTHER CONSULTING SERVICES. The Companies agree that SAB Member may =serve as a member of scientific advisory boards or in a similar capacity with, and provide consulting services to, other companies in scientific areas outside of the Field, provided that such service does not conflict or materially interfere with his Services hereunder. The SAB Member shall notify the Companies in writing in advance of such service, provided that the Companies shall hold all such information in confidence, and provided further that the SAB Member need not provide copies of any agreements with such other companies or any information relating to his compensation for such services. The restrictions set forth in this Section 14 shall not apply to the SAB Member's relationship with the Institute or other Affiliated Institutions. 15. NONSOLICITATION. During the Term and for a period of one year thereafter, the SAB Member, personally, will not, without the Companies' prior written consent, directly solicit the employment of any employee of the Companies or their affiliates with whom the SAB Member has had contact in connection with the relationship arising under this Agreement. Nothing in this Section 15 shall be deemed to prohibit general solicitations of employment by any Affiliated Institution. 16. DISCLOSURE OF RELATIONSHIP. The parties each shall be entitled to disclose that the SAB Member is serving on the SAB and the Companies may use the SAB Member's name and, in doing so may cite the SAB Member's relationship with the Institute, including in any business plan, press release, advertisement, prospectus or other offering document of either of the Companies or their affiliates, so long as any such usage (a) is limited to reporting factual events or occurrences only, and (b) is made in a manner that could not reasonably constitute a specific endorsement by the Institute or the SAB Member of the Companies or of any program, product or service of the Companies. However, the Companies shall not use the SAB Member's name or the Institute's name in any press release, or quote the SAB Member in any company materials (including advertisements), or otherwise use the SAB Member's name or the Institute's name in a manner not specifically permitted by the preceding sentence, unless in each case the Companies obtain in advance the written consent of the Institute, and, in the case of the use of the SAB Member's name, the SAB Member's consent as well. The foregoing consents shall not be unreasonably withheld or delayed by the SAB Member. Notwithstanding the foregoing, if, in the opinion of the respective Companies' counsel, the Companies are required by applicable law to use the SAB Member's name or the Institute's name in a press release or governmental filing and, under the circumstances, the Companies are not reasonably able to obtain the advance written consent of the Institute or the SAB Member, as applicable, to such use, then the Companies may proceed without obtaining the advance written consent of the Institute or the SAB Member, as applicable. Page 11 17. NOTICES. All notices and other communications hereunder shall be delivered or sent by facsimile transmission, recognized courier service, registered or certified mail, return receipt requested. Any notice or required submission of documents to CytRx made under the provisions of this Agreement shall be deemed to have been constructively delivered to Araios for purposes of this Agreement. If to CytRx: Steven A. Kriegsman Chief Executive Officer CytRx Corporation 11726 San Vicente Boulevard, Suite 650 Los Angeles, CA 90049 Fax: (310) 826-6139 If to Araios: Mark A. Tepper, Ph.D. President Araios, Inc. One Innovation Drive Worcester, MA 01605 Fax: (508) 767-3862 with a copy to: General Counsel CytRx Corporation 11726 San Vicente Boulevard, Suite 650 Los Angeles, CA 90049 Fax: (310) 826-6139 If to the SAB Member: Craig C. Mello, Ph.D. Howard Hughes Medical Institute University of Massachusetts 373 Plantation St., Suite 219 Worcester, MA 01605 Fax: (508) 856-2950 Such notice or communication shall be deemed to have been given as of the date sent by the facsimile or delivered to a recognized courier service, or three days following the date sent by registered or certified mail. 18. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, successors and permitted assigns. Page 12 The SAB Member agrees that either of the Companies may assign this Agreement, in whole but not in part, to any purchaser of all or substantially all of its assets or to any successor corporation resulting from any merger, consolidation or other reorganization of either of the Companies with or into such corporations (including without limitation a merger of Araios into CytRx or other acquisition by CytRx of all of the assets of Araios). Each of the Companies also may assign this Agreement, in whole but not in part, to any person or entity controlled by, in control of, or under common control with, the respective Companies, if it obtains the prior written consent of the SAB Member, which consent shall not unreasonably be withheld or delayed and which shall not be required in the case of CytRx's acquisition of Araios by merger or otherwise; provided, however, that no such assignment shall relieve either of the Companies of its liability to the SAB Member hereunder. The Companies may not otherwise assign this Agreement without the SAB Member's prior written consent. 19. INDEMNIFICATION. The Companies shall jointly and severally indemnify, defend and hold harmless the SAB Member from any claim, loss, liability or expense (including reasonable attorney's fees) incurred by him as a result of the performance of his Services hereunder in accordance with the terms hereof, a material breach by either of the Companies hereof or any gross negligence or willful misconduct by either of the Companies or their respective officers or directors in connection with this Agreement or otherwise relating to or resulting from the performance of the Services hereunder, except where such claim, loss, liability or expense is attributable primarily to the SAB Member's own gross negligence or willful misconduct. The Companies agree, at their sole expense, to jointly and severally defend the Institute against, and to indemnify and hold the Institute harmless from, any liability, claim, judgment, cost, expense, damage, deficiency, loss, or obligation, of any kind or nature (including without limitation reasonable attorneys' fees and other costs and expenses of defense) relating to a claim or suit by a third party against the Institute, either arising from this Agreement, the SAB Member's performance of Services, or any products or services of either of the Companies which result from the SAB Member's performance of Services. 20. ENTIRE AGREEMENT; COUNTERPARTS. This Agreement constitutes the entire agreement among the parties as to the subject matter hereof. No provision of this Agreement shall be waived, altered or cancelled except in writing signed by the party against whom such waiver, alteration or cancellation is asserted. The Companies and the SAB Member acknowledge and agree that any amendment of this Agreement (including, without limitation, any extension of this Agreement or any change from the terms of Section 3 in the consideration to be provided to the SAB Member with respect to the Services) or any departure from the terms or conditions hereof with respect to the SAB Member's consulting services for the Companies is subject to the Institute's prior written approval. Any such waiver shall be limited to the particular instance and the particular time when and for which it is given. This Agreement may be executed in one or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Page 13 21. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware, without regard to conflict of law principles. 22. ENFORCEABILITY. The invalidity or unenforceability of any provision hereof as to an obligation of a party shall in no way affect the validity or enforceability of any other provision of this Agreement, provided that if such invalidity or unenforceability materially adversely affects the benefits the other party reasonably expected to receive hereunder, that party shall have the right to terminate this Agreement. Moreover, if one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to scope, activity or subject so as to be unenforceable at law, such provision or provisions shall be construed by limiting or reducing it or them, so as to be enforceable to the extent compatible with the applicable law as it shall then appear. Notwithstanding any other provision of this Section 22 to the contrary, if any provision of this Agreement affecting the rights or property of the Institute is adjudicated to be invalid, unenforceable, contrary to, or prohibited under applicable laws or regulations of any jurisdiction, this Agreement shall terminate as of the date such adjudication is effective. 23. CONSTRUCTION. This Agreement has been prepared jointly and shall not be strictly construed against any party. 24. RESOLUTION OF DISPUTES. Except as set forth below, any dispute arising under or in connection with any matter related to this Agreement or any related agreement shall be resolved exclusively by arbitration. The arbitration will be in conformity with and subject to the applicable rules and procedures of the American Arbitration Association. All parties agree to be (i) subject to the jurisdiction and venue of any arbitration or litigation in Los Angeles, California; and (ii) bound by the decision of the arbitrator as the final decision with respect to any dispute that is to be resolved by arbitration pursuant to this Agreement. Notwithstanding the foregoing, any dispute or controversy that involves the rights of the Institute shall not be determined by arbitration. 25. ADVICE OF COUNSEL. Each party acknowledges that, in executing this Agreement, such party has had the opportunity to seek the advice of independent legal counsel, and has read and understood all of the terms and provisions of this Agreement. 26. FEES AND EXPENSES. Upon request by the SAB Member and presentation of invoices therefor in such detail as the Companies shall reasonably request, the Companies shall pay or reimburse the SAB Member up to a total of $10,000 in legal fees and disbursements incurred by him in connection with the negotiation and preparation of this Agreement. Except as otherwise specifically provided in this Agreement, the parties shall bear their own costs and expenses in connection with this Agreement. 27. INDIVIDUAL CAPACITY; THIRD PARTY BENEFICIARY. The SAB Member and the Companies acknowledge that (i) the SAB Member is entering into this Agreement in his individual capacity and not as an employee or agent of the Institute, (ii) the Institute is not a party to this Agreement and has no liability or obligation hereunder, and (iii) the Institute is an intended third-party beneficiary of this Agreement and certain provisions of this Agreement Page 14 (excluding the compensation provisions of Section 3(A), (B), (D) and (E)) are for the benefit of the Institute and are enforceable by the Institute in its own name. IN WITNESS WHEREOF, the parties hereto have duly executed this Scientific Advisory Board Agreement as a sealed instrument as of the date first written above. CYTRX CORPORATION By:______________________________ Steven A. Kriegsman Chief Executive Officer ARAIOS, INC. By:______________________________ Mark A. Tepper, Ph.D. President SAB MEMBER ______________________________ Name: Craig C. Mello, Ph.D. Social Security Number: ______________________________ Effective Date: March 3, 2004 Page A1 SCHEDULE A CONFLICTING AGREEMENTS UNIVERSITY OF MASSACHUSETTS UNIFORM CONSULTING AGREEMENT PROVISIONS AS MODIFIED FOR HHMI INVESTIGATORS All faculty at the University of Massachusetts (the "University"), including faculty who are employees of the Howard Hughes Medical Institute ("HHMI") pursuant to the Collaboration Agreement between HHMI and the University, are subject to the University Policy on Faculty Consulting and Outside Activities (the `Policy"). The Policy recommends that faculty at the University attach these Uniform Consulting Agreement Provisions ("Uniform Provisions") to any agreement or arrangement ("Consulting Agreement") under which a faculty member will provide consulting services to, or will engage in other non-academic activities in his or her area of expertise on behalf of any for-profit organization (a "Company"). These Uniform Provisions are intended to clarify, among other things, the respective legal rights of the University and the Company in any intellectual property and other work product that may be developed or discovered by the faculty member in the course of performing services for the Company. If any term of the Uniform Provisions is inconsistent with a term of the Consulting Agreement to which the Uniform Provisions are attached, the terms of the Uniform Provisions govern. University faculty are permitted to devote the equivalent of one day within the academic week to the performance of outside activities, including consulting with Companies. These activities must be reported to the Department Chair of the faculty member in order to ensure compliance with this time restriction and the ability of the faculty member to meet his or her responsibilities to the University. In certain instances, these activities must also be reviewed by the University's Conflicts Committee. The Conflicts Committee may impose restrictions on the consulting relationship. University faculty are ordinarily prohibited from using University-administered funds, facilities, and equipment in the performance of services for a Company pursuant to a Consulting Agreement. In addition, faculty must obtain special approval to involve University students in consulting or other services for Companies. Companies may obtain access to University facilities, equipment, and personnel under a sponsored research agreement with the University. University faculty may not use the name of the University in relation to any outside activities, including consulting work, except to describe their credentials. University faculty are permitted to assign to a Company their rights in any invention, discovery, or development (collectively, "Intellectual Property") that arises while performing services under a Consulting Agreement, provided that the faculty member did not use University-administered funds, facilities, or equipment (collectively, "University Resources") in the course of developing that Intellectual Property. If a faculty member made significant use of University Resources, the faculty member is contractually obligated to assign to the University all of his or her rights in that Intellectual Property (unless the faculty member is an HHMI employee, in which case the Page A2 faculty member assigns Intellectual Property to HHMI, and HHMI assigns Intellectual Property to the University, in accordance with the Collaboration Agreement). The University presumes that a faculty member did make significant use of University Resources in the development of Intellectual Property that is the same as, directly related to, or substantially similar to a research project in which that faculty member is engaged at the University. In order to avoid any confusion regarding ownership of Intellectual Property, the University has determined and Company agrees that the field of services to be provided under this Consulting Agreement is directly related to or substantially similar to the research projects undertaken by the faculty member at the University. Therefore, any Intellectual Property developed by the faculty member during the term of this Consulting Agreement, following assignment to HHMI to the University, is owned by the University, and the Company may enter into negotiations to obtain license rights to the Intellectual Property. No Consulting Agreement may limit the ability of a University faculty member to use or publish information that (a) was developed, discovered, or acquired by the faculty member in the course of research performed at the University or otherwise outside the scope of the consulting services, (b) was in the public domain before the consulting services were performed (c) entered the public domain by means other than an unauthorized disclosure resulting from an act or omission by the faculty member, (d) was known to the faculty member or the University before the consulting services were performed, or (e) is required to be disclosed in order to comply with applicable law, regulations, or a court order. A Company may require a faculty member to leave with the Company any notes, data, and records developed in the performance of consulting services, provided that the faculty member may retain one copy of those documents for archival purposes. Companies should be aware that, in addition to the Policy, University faculty are subject to the University Intellectual Property Policy and the University Policy on Conflicts of Interest Relating to Intellectual Property and Commercial Ventures. The University will make the three policies available upon request. Page A3 These Uniform Provisions remain in effect during the entire term of the Consulting Agreement to which they are attached. AGREED AND ACCEPTED: FACULTY MEMBER CYTRX CORPORATION By:______________________________ By:______________________________ Printed Name:____________________ Printed Name:____________________ Date:____________________________ Title:___________________________ Date:____________________________ UNIVERSITY OF MASSACHUSETTS ARAIOS, INC. By:______________________________ By:______________________________ Printed Name:____________________ Printed Name:____________________ Title:___________________________ Title:___________________________ Date:____________________________ Date:____________________________ EX-31 7 v99122exv31.txt EXHIBIT 31 Exhibit 31 CERTIFICATIONS I, Steven A. Kriegsman, Chief Executive Officer of CytRx Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of CytRx Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periods covered by this quarterly report based on such evaluation; and (c) Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 17, 2004 /s/ STEVEN A. KRIEGSMAN ------------------------ Steven A. Kriegsman Chief Executive Officer CERTIFICATIONS I, C. Kirk Peacock, Chief Financial Officer of CytRx Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of CytRx Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periods covered by this quarterly report based on such evaluation; and (c) Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 17, 2004 /s/ C. KIRK PEACOCK -------------------- C. Kirk Peacock Chief Financial Officer EX-32 8 v99122exv32.txt EXHIBIT 32 EXHIBIT 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of CytRx Corporation (the "Company") hereby certifies that: (i) the accompanying Quarterly Report on Form 10-Q of the Company for the three months ended March 31, 2004 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 17, 2004 /s/ STEVEN A. KRIEGSMAN ------------------------ Steven A. Kriegsman Chief Executive Officer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 (Section 906), or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to CytRx Corporation and will be retained by CytRx Corporation and furnished to the Securities and Exchange Commission or its staff upon request. CERTIFICATION OF CHIEF FINANCIAL OFFICER Pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of CytRx Corporation (the "Company") hereby certifies that: (i) the accompanying Quarterly Report on Form 10-Q of the Company for the three months ended March 31, 2004 (the "Report") fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 17, 2004 /s/ C. KIRK PEACOCK -------------------- C. Kirk Peacock Chief Financial Officer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 (Section 906), or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to CytRx Corporation and will be retained by CytRx Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----


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

		For the quarterly period ended March 31, 2004

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to


Delaware		58-1642740
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

11726 San Vicente Blvd Suite 650 Los Angeles, CA (Address of principal executive offices)		90049 (Zip Code)


Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 31
Exhibit 32


		Page

PART I. FINANCIAL INFORMATION
Item 1	Financial Statements:
	Condensed Consolidated Balance Sheets as of March 31, 2004 (unaudited) and December 31, 2003		1
	Condensed Consolidated Statements of Operations (unaudited) for the Three Month Periods Ended March 31, 2004 and 2003		2
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Month Periods Ended March 31, 2004 and 2003		3
	Notes to Condensed Consolidated Financial Statements		4
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		6
Item 3	Quantitative and Qualitative Disclosures About Market Risk		19
Item 4	Controls and Procedures		19
PART II. OTHER INFORMATION
Item 1	Legal Proceedings		20
Item 2	Changes in Securities and Use of Proceeds		20
Item 6	Exhibits and Reports on Form 8-K		20
SIGNATURES			21
INDEX TO EXHIBITS			22


			March 31,			December 31,
			2004			2003

			(Unaudited)
ASSETS
Current assets:
	Cash and short-term investments		$	10,005,300		$	11,644,446
	Prepaid and other current assets			617,073			236,349

		Total current assets		10,622,373			11,880,795
Property and equipment, net				306,186			227,413
Other assets —
	Prepaid and other assets			982,726			216,076

		Total assets	$	11,911,285		$	12,324,284


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	760,101		$	738,135
	Accrued expenses and other current liabilities			616,216			381,977

		Total current liabilities		1,376,317			1,120,112
Accrued loss on facility abandonment				286,032			312,433
Deferred gain on sale of building				86,855			93,836
Deferred revenue				275,000			275,000

		Total liabilities		2,024,204			1,801,381

Minority interest				295,359			330,287

Commitments and contingencies				—			—
Stockholders’ equity:
	Preferred stock, $.01 par value, 5,000,000 shares authorized, including 5,000 shares of Series A Junior Participating Preferred Stock; no shares issued and outstanding			—			—
	Common stock, $.001 par value, 100,000,000 shares authorized; 35,496,143 and 34,392,000 shares issued at March 31, 2004 and December 31, 2003			35,496			34,392
	Additional paid-in capital			105,411,133			102,239,460
	Treasury stock, at cost (633,816 shares held at March 31, 2004 and December 31, 2003)			(2,279,238	)		(2,279,238	)
	Accumulated deficit			(93,575,669	)		(89,801,998	)

		Total stockholders’ equity		9,591,722			10,192,616

		Total liabilities and stockholders’ equity	$	11,911,285		$	12,324,284

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		Three Months Ended March 31,

		2004			2003

Income —
	License fees	$	100,000		$	—

Expenses:
	Research and development (includes non-cash stock compensation of $274,000 in 2004)		1,431,948			2,500
	Depreciation and amortization		16,330			60
	Common stock, stock options and warrants issued for selling, general and administrative		1,283,832			148,500
	Selling, general and administrative		1,199,795			525,139

			3,931,905			676,199

Loss before other income			(3,831,905	)		(676,199	)
Other Income —
	Interest income		23,306			15,766

			(3,808,599	)		(660,433	)
Minority interest in losses of subsidiary			34,928			—
Equity in losses from minority-owned entity			—			(253,564	)

Net loss		$	(3,773,671	)	$	(913,997	)

Basic and diluted loss per common share		$	(0.11	)	$	(0.04	)

Basic and diluted weighted average shares outstanding			34,215,007			21,510,111



	Three Months Ended
	March 31,

	2004			2003

Net loss, as reported	$	(3,774	)	$	(914	)
Deduct: Total stock-based employee compensation expense determined under fair-value based method for all awards		(324	)		(72	)

Pro forma net loss	$	(4,098	)	$	(986	)

Loss per share, as reported (basic and diluted)	$	(0.11	)	$	(0.04	)
Loss per share, pro forma (basic and diluted)	$	(0.12	)	$	(0.05	)


	*We Have Operated at a Loss and Will Likely Continue to Operate at a Loss For the Foreseeable Future*


	*We Have No Source of Significant Recurring Revenues, Which May Make Us Dependent on Financing to Sustain Our Operations*


	*Most of Our Revenues Have Been Generated by License Fees for TranzFect, Which May Not be a Recurring Source of Revenue for Us*


	*We Have Changed Our Business Strategy, Which Will Require Us, in Certain Cases, to Find and Rely Upon Third Parties for the Development of Our Products and to Provide Us With Products*


	*Our New Obesity and Type 2 Diabetes Subsidiary May Not Be Able to Develop Products*


	*We Will Be Reliant Upon SynthRx to Develop and Commercialize FLOCOR*


	*If Our Products Are Not Successfully Developed and Approved by the FDA, We May Be Forced to Reduce or Terminate Our Operations*


	*We Are Unlikely to Recover Any Amounts from Global Genomics’ Portfolio Companies*


	*Forward Looking Statements*


	*Overview*


	*Critical Accounting Policies and Estimates*


	Revenue Recognition


	*We May Be Involved in Legal Proceedings That Could Affect Our Business Operations or Financial Condition*


	*We Are Subject to Intense Competition That Could Materially Impact Our Operating Results*


	*We Do Not Have the Ability to Manufacture Any of Our Products and Will Need to Rely upon Third Parties for the Manufacture of Our Clinical and Commercial Product Supplies*


	*We May Be Unable to Protect Our Intellectual Property Rights, Which Could Adversely Affect the Value of Our Assets*


	*We May Incur Substantial Costs from Future Clinical Testing or Product Liability Claims*


	*Our Anti-Takeover Provisions May Make It More Difficult to Change Our Management or May Discourage Others From Acquiring Us and Thereby Adversely Affect Stockholder Value*


	Our Outstanding Options and Warrants and the Registrations of Our Shares Issued in the Global Genomics Merger and Our Recent private Financings May Adversely Affect the Trading Price of Our Common Stock


	*We May Experience Volatility in Our Stock Price, Which May Adversely Affect the Trading Price of Our Common Stock*


Exhibit
Number		Description

	10.1	Registration Rights Agreement, dated as of January 29, 2004, by and between CytRx Corporation and Advanced BioScience Laboratories, Inc.
	10.2	Consulting Agreement, dated as of February 9, 2004, between CytRx Corporation and The Investor Relations Group, Inc.
	10.3	Investment Banking Agreement, dated as of February , 2004, between CytRx Corporation and Gunn Allen Financial, Inc.
	10.4	Scientific Advisory Board Agreement, effective as of March 3, 2004, by Tariq M. Rana, Ph.D., CytRx Corporation and Araios, Inc.
	10.5	Scientific Advisory Board Agreement, effective as of March 3, 2004, by Craig Mello, Ph.D., CytRx Corporation and Araios, Inc.
	31	Certifications Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002