-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UAiff2lotEivadEBkhKvrWZGaBYY6gR81s3TLbKrqGmmTpxWNxlE1Z5k4ymCkxiT wEBCGFvE5wAx1wA1QeGZdA== 0001144204-03-004580.txt : 20030814 0001144204-03-004580.hdr.sgml : 20030814 20030814141855 ACCESSION NUMBER: 0001144204-03-004580 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CYTRX CORP CENTRAL INDEX KEY: 0000799698 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 581642750 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15327 FILM NUMBER: 03846142 BUSINESS ADDRESS: STREET 1: 154 TECHNOLOGY PKWY STREET 2: TECHNOLOGY PARK/ATLANTA CITY: NORCROSS STATE: GA ZIP: 30092 BUSINESS PHONE: 4043689500 MAIL ADDRESS: STREET 1: 154 TECHNOLOGY PARKWAY CITY: NORCROSS STATE: GA ZIP: 30092 10-Q 1 form10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ------------- -------------- Commission file number 0-15327 CYTRX CORPORATION (Exact name of Registrant as specified in its charter) Delaware 58-1642740 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 11726 San Vicente Blvd. Suite 650 Los Angeles, CA 90049 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 826-5648 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Number of shares of CytRx Corporation Common Stock, $.001 par value, issued and outstanding as of August 8, 2003: 28,622,499. CYTRX CORPORATION ----------------- Form 10-Q --------- Table of Contents -----------------
Page ---- PART I. FINANCIAL INFORMATION Item 1 Financial Statements: Condensed Balance Sheets as of June 30, 2003 (unaudited) and December 31, 2002 3 Condensed Statements of Operations (unaudited) for the Three Month and Six Month Periods Ended June 30, 2003 and 2002 4 Condensed Statements of Cash Flows (unaudited) for the Six Month Periods Ended June 30, 2003 and 2002 5 Notes to Condensed Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3 Quantitative and Qualitative Disclosures About Market Risk 23 Item 4 Controls and Procedures 23 PART II. OTHER INFORMATION Item 2 Changes in Securities and Use of Proceeds 23 Item 6 Exhibits and Reports on Form 8-K 24 SIGNATURES 25
2 Part I - FINANCIAL INFORMATION Item 1. - Financial Statements CYTRX CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31, 2003 2002 ------------ ------------ ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 5,852,320 $ 387,314 Short-term investments -- 1,401,358 Accounts receivable, less allowances 40,527 98,529 Current portion of note receivable 153,422 135,291 Prepaid insurance 60,551 119,332 Other current assets 18,978 4,166 ------------ ------------ Total current assets 6,125,798 2,145,990 Property and equipment, net 963 1,084 Other assets: Investment in minority -owned entity - acquired developed technology 6,120,873 6,644,492 Note receivable, less current portion 157,088 229,958 Prepaid insurance, less current portion 185,243 208,160 Other assets 53,900 53,900 ------------ ------------ Total other assets 6,517,104 7,136,510 ------------ ------------ Total assets $ 12,643,865 $ 9,283,584 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 86,311 $ 79,947 Accrued expenses and other current liabilities 297,891 428,490 ------------ ------------ Total current liabilities 384,202 508,437 Accrued loss on facility abandonment, less current portion 390,368 419,038 Deferred gain on sale of building, less current portion 107,799 121,762 Deferred revenue from license agreements 275,000 275,000 ------------ ------------ Total liabilities 1,157,369 1,324,237 Commitments Stockholders' equity: Preferred Stock, $.01 par value, 1,000 shares authorized, including 1,000 shares of Series A Junior Participating Preferred Stock; no shares issued and outstanding -- -- Common stock, $.001 par value, 50,000,000 shares authorized; 28,447,840 and 22,143,927 shares issued at June 30, 2003 and December 31, 2002 28,448 22,144 Additional paid-in capital 91,655,096 82,173,839 Treasury stock, at cost (633,816 shares held at June 30, 2003 and December 31, 2002) (2,279,238) (2,279,238) Accumulated deficit (77,917,810) (71,957,398) ------------ ------------ Total stockholders' equity 11,486,496 7,959,347 ------------ ------------ Total liabilities and stockholders' equity $ 12,643,865 $ 9,283,584 ============ ============
See accompanying notes 3 CYTRX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended June 30, Six Months Ended June 30, ---------------------------- ---------------------------- 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Revenues: Service revenues $ -- $ -- $ -- $ 22,453 License fees -- -- -- 1,000,000 Interest income 11,549 29,553 27,315 61,670 Grant income -- 14,831 -- 46,144 Other 16,150 30,824 26,487 85,961 ------------ ------------ ------------ ------------ 27,699 75,208 53,802 1,216,228 Expenses: Cost of service revenues -- -- -- 11,287 Research and development 2,270,119 127,428 2,272,619 280,954 (includes $1,829,435 of non-cash stock issued for the 3 month and 6 month periods of 2003) Depreciation and amortization 182,815 228,682 365,629 374,902 Common stock and warrants issued for services 1,489,029 144,550 1,637,529 249,800 Contractual payment to officer -- -- -- 428,007 Selling, general and administrative 1,044,851 505,365 1,580,327 981,340 ------------ ------------ ------------ ------------ 4,986,814 1,006,025 5,856,104 2,326,290 ------------ ------------ ------------ ------------ Loss before other expenses (4,959,115) (930,817) (5,802,302) (1,110,062) Equity in losses from minority-owned entity (87,300) -- (158,110) -- ------------ ------------ ------------ ------------ Net loss $ (5,046,415) $ (930,817) $ (5,960,412) $ (1,110,062) ============ ============ ============ ============ Basic and diluted (loss) per common share $ (0.21) $ (0.08) $ (0.26) $ (0.10) ============ ============ ============ ============ Basic and diluted weighted average shares outstanding 24,605,755 11,649,394 23,066,484 11,372,006 ============ ============ ============ ============
See accompanying notes. 4 CYTRX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Month Period Ended June 30, -------------------------- 2003 2002 ----------- ----------- Cash flows from operating activities: Net loss $(5,960,412) $(1,110,062) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 121 374,902 Amortization of intangible assets 365,509 -- Equity in losses from minority-owned entity 158,110 -- Stock and stock purchase warrants issued for services 1,637,529 249,800 License fees paid with common stock 1,829,435 -- Net change in operating assets and liabilities 12,759 (842,063) ----------- ----------- Total adjustments 4,003,463 (217,361) ----------- ----------- Net cash used in operating activities (1,956,949) (1,327,423) ----------- ----------- Cash flows from investing activities: Maturity of held-to-maturity securities 1,401,358 -- ----------- ----------- Net cash provided by financing activities 1,401,358 -- ----------- ----------- Cash flows from financing activities: Net proceeds from exercise of stock options and warrants 1,169,540 -- Net proceeds from issuances of common stock 4,851,057 349,372 ----------- ----------- Net cash provided by financing activities 6,020,597 349,372 ----------- ----------- Net increase (decrease) in cash and cash equivalents 5,465,006 (978,051) Cash and cash equivalents at beginning of period 387,314 5,272,914 ----------- ----------- Cash and cash equivalents at end of period $ 5,852,320 $ 4,294,863 =========== ===========
See accompanying notes. 5 CYTRX CORPORATION ----------------- NOTES TO CONDENSED FINANCIAL STATEMENTS --------------------------------------- June 30, 2003 ------------- (Unaudited) ----------- 1. Description of Company and Basis of Presentation CytRx Corporation ("CytRx" or "the Company") is a Delaware corporation that was incorporated in 1985 and is engaged in the development and commercialization of pharmaceutical products. Subsequent to its acquisition of Global Genomics Capital in July 2002, CytRx modified its corporate business strategy by discontinuing any further additional research and development efforts for any of its then existing technologies and by seeking strategic partners to complete the development of these technologies. As part of its new strategy, CytRx has also focused its efforts on acquiring new technologies and products, including products that are already being marketed or have been approved for marketing. In April 2003, CytRx acquired its first new technologies by entering into exclusive license arrangements with the University of Massachusetts Medical School ("UMass") covering potential applications for the medical institution's proprietary gene silencing technology in the treatment of specified diseases, including those within the areas of obesity, type II diabetes and Lou Gehrig's disease (ALS), and covering UMass's proprietary technology with potential gene therapy applications within the area of cancer. There is growing scientific interest in various techniques to halt the activity or silence targeted genes that cause cells to produce undesirable proteins as a means for developing therapeutic products. In consideration of the licenses, CytRx made cash payments to UMass totalling approximately $186,000 and issued it a total of 1,613,258 shares of CytRx common stock which were valued for financial statement purposes at approximately $1,468,000. In May 2003, CytRx broadened its strategic alliance with UMass by acquiring an exclusive license from that institution covering a proprietary DNA-based HIV vaccine technology. In consideration of this license, CytRx made cash payments to UMass totalling approximately $18,000 and issued it 215,101 shares of CytRx common stock which were valued for financial statement purposes at approximately $361,000. Under the various license agreements with UMass, CytRx will be required to make annual license maintenance payments as well as milestone payments to UMass based on the development of products utilizing the licensed technology and will be required to pay royalties based on future sales of those products. CytRx also agreed to fund certain pre-clinical research at UMass related to the use of our licensed technologies for the development of therapeutic products within the fields of obesity, type II diabetes and certain other areas. As the gene silencing technology from UMass has not achieved technological feasibility at the time of its license by CytRx and had no alternative future uses and, therefore, no separate economic value, the aggregate total of $2,068,000 in cash payments and stock issued for acquisition of the technology was expensed as research and development. CytRx's other products are FLOCOR, an intravenous agent for treatment of sickle cell disease and other acute vaso-occlusive disorders, and TranzFect, a delivery technology for DNA and conventional-based vaccines. Sickle cell disease is an inherited disease caused by a genetic mutation of hemoglobin in the blood and vaso-occlusive disorders are a blockage of blood flow caused by deformed or "sickled" red blood cells which can cause intense pain in sickle cell disease patients. CytRx is currently seeking strategic partners to complete the development of FLOCOR, and TranzFect is currently being developed by two licensees for this product, Merck & Co., Inc. and Vical Incorporated. The Company is also seeking to license its TranzFect technology for development as a potential DNA-based prostate cancer adjuvant and may also seek to license this technology as a potential conventional adjuvant for hepatitis B and C, flu, malaria and other viral diseases. (Adjuvants are agents added to a vaccine to increase its effectiveness.) CytRx also has a portfolio of potential products and technologies in the areas of spinal cord injury, vaccine delivery and gene therapy. 6 On July 19, 2002, CytRx consummated a merger with Global Genomics Capital, Inc., which became a wholly-owned subsidiary of the Company and was renamed GGC Pharmaceuticals, Inc. ("Global Genomics"). Global Genomics is a genomics holding company that currently has a 40% ownership interest in Blizzard Genomics, Inc. ("Blizzard Genomics") in Minneapolis, Minnesota and a 5% ownership interest in Psynomics, Inc., a central nervous system genomics company in San Diego, California. Blizzard Genomics is developing instrumentation, software, and consumable supplies (including patent-pending "T-Chip" and "Contact" technologies) for the genomics industry. Global Genomics expects that DNA chips may significantly impact a broad range of biomedical and agricultural businesses. These include drug development, diagnostic testing, forensics, environmental testing and plant biotechnology. Psynomics, Inc. is an early stage genomics company developing technology for the diagnosis and treatment of neuropsychiatric diseases and has rights to access a significant database of patient data and corresponding tissue samples. The Company accounts for its investment in Blizzard Genomics using the equity method. The Company's investment in Psynomics is accounted for using the cost method. The accompanying condensed consolidated financial statements at June 30, 2003 and for the three month and six month periods ended June 30, 2003 and 2002 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. The accounts of Global Genomics are included since July 19, 2002. Certain prior year amounts have been reclassified to conform to the 2003 financial statement presentation. The financial statements should be read in conjunction with the Company's audited financial statements in its Form 10-K/A for the year ended December 31, 2002. 2. Adoption of Recently Issued Accounting Standards In May 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). This statement changes the classification of certain financial instruments from equity to a liability. The three types of financial instruments requiring the change in classification are: (1) mandatorily redeemable shares, which the issuing company is obligated to buy back in exchange for cash or other assets; (2) put options and forward purchase contracts; and (3) obligations that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuer's shares. This statement is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company will adopt SFAS 150 as of July 1, 2003 and does not expect that the statement will have a material impact on its consolidated financial statements. In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement is generally effective for contracts entered into or modified after June 30, 2003 and hedging relationships designated after June 30, 2003. The Company will apply the provisions of SFAS 149 for any derivative instruments or hedging activities entered into after June 30, 2003. As the Company does not currently enter into derivative instruments or hedging activities, adoption of this statement will not have a material impact on the Company's consolidated financial statements. In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB 51" ("FIN 46"). The primary objectives of FIN 46 are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights ("variable interest entities" or "VIEs") and how to determine when and which business enterprise should consolidate the VIE (the "primary beneficiary"). This new model for consolidation applies to an entity in which either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures regarding the nature, purpose, size and activities of the VIE and 7 the enterprise's maximum exposure to loss as a result of its involvement with the VIE. The Company is required to adopt this interpretation no later than July 1, 2003 for any VIEs in which it holds a variable interest that it acquired before February 1, 2003. The interpretation is effective immediately for any VIEs created after January 31, 2003 and for VIEs in which an enterprise obtains an interest after that date. The Company has adopted the provisions of FIN 46, and the pronouncement did not have a material effect on the Company's consolidated financial statements. In December 2002, FASB issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" ("SFAS 148"), amending Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation. The three methods provided in SFAS 148 include (1) the prospective method which is the method currently provided for in SFAS 123, (2) the retroactive method which would allow companies to restate all periods presented and (3) the modified prospective method which would allow companies to present the recognition provisions to all outstanding stock-based employee compensation instruments as of the beginning of the fiscal year of adoption. In addition, SFAS 148 amends the disclosure provisions of SFAS 123 to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS 148 does not amend SFAS 123 to require companies to account for their employee stock-based awards using the fair value method. However, the disclosure provisions are required for all companies with stock-based employee compensation, regardless of whether they utilize the fair value method of accounting described in SFAS 123 or the intrinsic value method described in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion No. 25"). The Company will continue to account for its stock-based compensation awards to employees and directors under the accounting prescribed by APB Opinion No. 25 and related interpretations; however, the Company has adopted the disclosure provisions of SFAS 148 in the current year. (See Note 4). In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. FIN 45 also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, and the disclosure provisions are effective as of December 31, 2002. The Company has adopted FIN 45 and, as the Company does not enter into significant guarantees on a routine basis, the pronouncement did not have a material impact on the consolidated financial statements. In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for the Cost Associated with Exit or Disposal Activities." This statement applies to all exit or disposal activities initiated after December 31, 2002 and requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. The Company will apply this accounting standard for all exit or disposal activities initiated after December 31, 2002. In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections ("SFAS 145"). SFAS 145 rescinds SFAS 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of SFAS 4, SFAS 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. SFAS 145 also rescinds SFAS 44, Accounting for Intangible Assets of Motor Carriers and amends SFAS 16, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. SFAS 145 is effective for fiscal years beginning after May 15, 2002. The provisions of SFAS 145 related to SFAS 13 are effective for transactions occurring after May 15, 2002. All other provisions of SFAS 145 are effective for financial statements issued on or after May 15, 2002. 8 The Company adopted SFAS 145 as of January 1, 2003. Adoption of the pronouncement did not have a material impact on the consolidated financial statements. 3. Loss Per Share 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 8,065,000 and 5,557,000 shares at June 30, 2003 and 2002, respectively. 4. Stock Based Compensation 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.)
Three Months Ended Six Months Ended June 30, June 30, ------------------------ ------------------------ 2003 2002 2003 2002 ------- ------- ------- ------- Net loss, as reported $(5,046) $ (931) $(5,960) $(1,110) Deduct: Total stock - based employee compensation expense determined under fair-value based method for all awards (86) (139) (158) (261) ------- ------- ------- ------- Pro forma net loss $(5,132) $(1,070) $(6,118) $(1,371) ======= ======= ======= ======= Loss per share, as reported (basic and diluted) $ (0.21) $ (0.08) $ (0.26) $ (0.10) Loss per share, pro forma (basic and diluted) $ (0.21) $ (0.09) $ (0.27) $ (0.12)
5. Private Placement of Common Stock In May 2003, the Company completed a $5,440,000 private equity financing to a group of institutional investors in which it issued 2,940,539 shares of its common stock and warrants to purchase an additional 735,136 shares of its common stock at an exercise price of $3.05 per share, expiring in 2008. CytRx agreed to register for resale under the Securities Act the shares of common stock, the warrants and the shares of common stock issuable upon exercise of the warrants sold in this financing. After consideration of offering expenses of $614,000, net proceeds to the Company were $4,826,000. 6. Equity in Losses From Minority-Owned Entity The Company records its portion of the losses of Blizzard Genomics, a minority-owned entity, using the equity method. For the three month and six month periods ended June 30, 2003, the Company recorded $87,300 and $158,110, respectively, as its share in the losses of Blizzard Genomics. These amounts are reported as a separate line item in the accompanying condensed consolidated statement of operations. Summarized financial information for Blizzard Genomics as of June 30, 2003 and for the three month and six month periods ended June 30, 2003 that has been provided by Blizzard Genomics is as follows (amounts in thousands): 9 Company's Total Share ----------------- -------------- Current assets $ 26 $ 10 Other assets 11 4 Current liabilities 831 332 Long-term convertible notes payable 188 75 Net assets (982) (393) Net loss - three month period (218) (87) Net loss - six month period (395) (158) 7. Segment Reporting
Product Recruiting (in thousands) Development Services* Total - ----------------------------------------------------------------------------------------------------- Three Months Ended June 30, 2003 Revenues from external customers $ -- $ -- $ -- Intersegment sales -- -- -- Collaborative, grant & other income 16 -- 16 Interest income 12 -- 12 Interest expense -- -- -- Depreciation and amortization 183 -- 183 Common stock and warrants issued for services 1,489 -- 1,489 Equity in loss from minority-owned entity (87) -- (87) Segment profit (loss) (5,046) -- (5,046) Total assets 12,644 -- 12,644 Capital expenditures -- -- -- Three Months Ended June 30, 2002 Revenues from external customers -- -- Intersegment sales -- -- -- Collaborative, grant & other income 46 -- 46 Interest income 30 -- 30 Interest expense -- -- -- Depreciation and amortization 229 -- 229 Common stock and warrants issued for services 53 -- 53 Segment profit (loss) (931) -- (931) Total assets 6,776 -- 6,776 Capital expenditures -- -- -- Six Months Ended June 30, 2003 Revenues from external customers -- -- -- Intersegment sales -- -- -- Collaborative, grant & other income 26 -- 26 Interest income 27 -- 27 Interest expense -- -- -- Depreciation and amortization 366 -- 366 Common stock and warrants issued for services 1,638 -- 1,638 Equity in loss from minority-owned entity (158) -- (158) Segment profit (loss) (5,960) -- (5,960) Total assets 12,644 -- 12,644 Capital expenditures -- -- --
10 Six Months Ended June 30, 2002 Revenues from external customers -- 22 22 Intersegment sales -- -- -- Collaborative, grant & other income 1,132 -- 1,132 Interest income 62 -- 62 Interest expense -- -- -- Depreciation and amortization 375 -- 375 Common stock and warrants issued for services 142 -- 142 Segment profit (loss) (1,115) 5 (1,110) Total assets 6,776 -- 6,776 Capital expenditures -- -- --
* The activities of the Spectrum Recruitment Research segment were terminated effective February 1, 2002. 11 Item 2. -- Management's Discussion and Analysis of Financial Condition And -------------------------------------------------------------------- Results of Operations --------------------- This discussion includes "forward looking" statements that reflect our current views with respect to future events and financial performance. Investors should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties inherent in future events, particularly those risks identified under "Risk Factors" set forth below, and should not unduly rely on these forward looking statements. We undertake no duty to update the information in this discussion. Liquidity and Capital Resources At June 30, 2003, we had cash, cash equivalents and short-term investments of $5,852,000 and net assets of $11,486,000, compared to $1,789,000 and $7,959,000, respectively, at December 31, 2002. Working capital totaled $5,742,000 at June 30, 2003, compared to $1,638,000 at December 31, 2002. Subsequent to our merger with Global Genomics in July 2002, we modified our corporate business strategy by discontinuing any additional internal research and development efforts for any of our then existing products or technologies. We have, instead, more recently focused our efforts on obtaining strategic alliances, license partners or other collaborative arrangements with larger pharmaceutical companies for FLOCOR and additional strategic partners or licensees for TranzFect. Our spending for each of these technologies now will primarily relate to maintaining patents and other agreements as required under our existing license agreements and to support our additional licensing efforts. We may also pursue product or technology acquisition opportunities, such as the license agreements with the University of Massachusetts Medical School discussed below. In April and May 2003, we entered into exclusive license agreements with the University of Massachusetts Medical School ("UMass") covering potential applications for UMass's proprietary gene silencing technology in the treatment of specified diseases, including those within the areas of HIV, ALS, obesity and type II diabetes. RNA interference (RNAi) has been shown to effectively silence a targeted disease-causing gene within a living cell. The technology essentially uses ribonucleic acid (RNA) to selectively turn off the harmful genes of infectious viruses or malignant tumor cells. In consideration of the licenses, we made aggregate cash payments to UMass of approximately $204,000 and issued it and another medical institution involved in developing the gene silencing technology a total of 1,828,359 shares of our common stock which were valued for financial statement purposes at $1,829,000. As part of our strategic alliance with UMass, we also agreed to fund certain pre-clinical research at UMass relating to the use of its gene silencing technology for the development of therapeutic products within the fields of obesity and type II diabetes and cancer. Although we intend to internally fund the early stage development work for certain gene silencing product applications, we may seek as part of our corporate business strategy to secure strategic alliances or license agreements with larger pharmaceutical companies to fund subsequent development of these potential products. We currently have three license agreements for our technologies - with Merck & Co, Inc. (TranzFect), Vical, Incorporated (TranzFect), and Ivy Animal Health, Inc. (CRL-8761). From the dates that we entered into these agreements through June 30, 2003, we have received $7,200,000 in upfront fees, milestone payments and annual maintenance fees pursuant to these agreements, and have the potential to receive in excess of $8,000,000 in additional milestone and maintenance fees, plus additional royalties on eventual sales of approved products of from 1% to 5% of net sales by the licensees. Merck continues to study the use of TranzFect with their HIV vaccine development program. We have the potential to receive future milestone payments from Merck of up to $3,000,000 for an HIV vaccine utilizing the TranzFect technology and, under certain circumstances, a royalty equal to 1% of Merck's net sales of an HIV vaccine product utilizing the TransFect technology. In July 2003, Merck notified us that they were returning to us the rights to the additional three infectious disease targets covered by our license agreement. We intend now to seek additional licensees for these additional disease indications. We believe that we will have adequate working capital to allow us to operate at least through the end of 2004. Our strategic alliance with 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 technology that has been licensed to us. The aggregate amount of these expenditures under certain circumstances could range from approximately $1,600,000 to $1,800,000 annually over the next three years. Our license agreements with UMass 12 also provide in certain cases for milestone payments based on the progress made by us in the clinical development of products utilizing the licensed technologies and the marketing of these products. These milestone payments could aggregate over time up to $13,610,000 if we successfully complete the development of six separate products. These potentially required sponsored research and milestone payment expenditures could substantially exceed our current financial resources, and we will need to raise additional capital or secure a licensee or strategic partner to fulfill our obligations to UMass and to complete the development of any products based on the technology that we have licensed from that medical institution. 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 is at an early stage of clinical trials of a product utilizing TranzFect, and Vical has not yet commenced any 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. Our recent efforts to license or find a strategic partner for FLOCOR have thus far been unsuccessful, although we will continue to seek such a licensee or partner. We may 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. There is no assurance that such funding will be available to finance our operations on acceptable terms, if at all. The above statements regarding our plans and expectations for future financing are forward-looking statements that are subject to a number of risks and uncertainties. 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. Results of Operations We recorded net losses of $5,046,000 and $5,960,000 for the three month and six month periods ended June 30, 2003 as compared to $931,000 and $1,110,000 for the same periods in 2002. From 1996 to 2002, we marketed the services of a small group of human resources professionals under the name of Spectrum Recruitment Research ("Spectrum") as a way of offsetting our cost of maintaining this function. In February 2002 the operations of Spectrum were terminated and the rights to use the Spectrum tradenames were transferred to Albert, Isaac & Alexander, Inc., a consulting firm comprised of former Spectrum employees. No service revenues for Spectrum were recorded during 2003. Service revenues related to Spectrum were $0 and $22,000 during the three month and six month periods ended June 30, 2002, respectively. Cost of service revenues were $0 and $11,000 during the three month and six month periods ended June 30, 2002, respectively. No license fee income has been recorded during 2003. License fee income was $0 and $1,000,000 during the three month and six month periods ended June 30, 2002, respectively. License fees for 2002 consisted of a milestone fee received in the first quarter of 2002 from Merck related to the commencement by Merck of a Phase I human clinical trial incorporating our TranzFect technology. Interest income was $12,000 and $27,000 during the three month and six month periods ended June 30, 2003, as compared to $30,000 and $62,000 for the same periods of 2002. The variance generally corresponds to fluctuating cash and investment balances and declining interest rates. No grant income has been recorded during 2003. Grant income was $15,000 and $46,000 during the three month and six month periods ended June 30, 2002. Costs related to grant income are included in research and development expense and generally approximate the amount of revenue recognized. Grant income recognized in 2002 primarily relates to SBIR (Small Business Innovative Research) grants we received from the National Institutes of Health in support of our research and development activities. 13 Other income was $16,000 and $26,000 during the three month and six month periods ended June 30, 2003 as compared to $31,000 and $86,000 for the same periods in 2002. Other income primarily consists of subrental revenues for our former headquarters facility located in Atlanta, Georgia. The decrease represents the effect of vacancy in the building during the first half of 2003. During the fourth quarter of 2002, we accrued the estimated loss on the facility represented by the difference between the total remaining lease obligations and estimated operating costs through the remainder of the lease term, less estimated sublease income. This accrual is being written off against the actual expenses as they occur. Research and development expenses were $2,270,000 and $2,273,000 during the three month and six month periods ended June 30, 2003, as compared to $127,000 and $281,000 for the same periods in 2002. Subsequent to our merger with Global Genomics 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. In consideration of our license agreements with UMass (see discussion under "Liquidity and Capital Resources"), we made cash payments payments to UMass and another medical institution involved in developing the gene silencing technology of approximately $239,000. We also issued a total of 1,828,359 shares of our common stock to UMass which were valued for financial statement purposes at $1,829,000. The aggregate expense of $2,068,000 was recorded during the second quarter of 2003. Research and development expense during 2003 also includes a payment of $201,000 to UMass for sponsored research related to developing therapeutic products in one area that are based on the gene silencing technology that has been licensed to us by others. We expect research and development expense to increase 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. The aggregate amount of these commitments under certain circumstances could range from approximately $1,600,000 to $1,800,000 annually over each of the next three years. Depreciation and amortization expense was $183,000 and $366,000 during the three month and six month periods ended June 30, 2003, as compared to $229,000 and $375,000 for the same periods in 2002. The amounts for 2003 consists almost entirely of amortization of intangible assets related to our acquisition of Global Genomics in July 2002. During the fourth quarter of 2002, we recorded an impairment loss equal to the net book value of most of our equipment and related leasehold improvements associated with FLOCOR. As a result of the recognition of this impairment charge, our property balances have been reduced to a nominal amount as of December 31, 2002, and therefore, our depreciation expense related to these assets will be nominal for the foreseeable future. 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 $678,000 and $827,000 during the three and six month periods ended June 30, 2003, and $53,000 and $142,000 during the same periods in 2002. We also recognized non-cash charges of $811,000 during each of the three and six month periods ended June 30, 2003 and $92,000 and $108,000 during the same periods in 2002 for shares of our common stock issued to consultants. These charges are combined and reported as a separate line item on the accompanying condensed consolidated statement of operations. Pursuant to his employment agreement, our former President and CEO was entitled to a payment of $435,000 upon the execution of the merger agreement between Global Genomics and us and an additional $435,000 upon the closing of the merger. In order to reduce the amount of cash that we had to pay to our former President & CEO, we agreed that approximately $325,200 of the first $435,000 payment would be satisfied by CytRx granting a stock award to him under the CytRx Corporation 2000 Long-Term Incentive Plan under which CytRx issued him 558,060 shares of our common stock. Those shares of stock were issued at a value equal to 85% of the volume weighted 14 average price of our common stock for the 20 trading days ended on February 8, 2002. The cash payment and fair value of the shares issued were recognized as expense (total of $428,000) during the first quarter of 2002 and is reported as a separate line item on the accompanying condensed consolidated statement of operations. Selling, general and administrative expenditures were $1,045,000 and $1,580,000 during the three month and six month periods ended June 30, 2003, as compared to $505,000 and $981,000 for the same periods in 2002. Contributing to the increase for 2003 were (a) greater use of consultants for technical, financial and business development advisory services (contributing approximately $151,000 and $263,000 to the increase for the three and six month periods, respectively), (b) higher legal and accounting costs (contributing approximately $168,000 and $227,000 to the increase for the three and six month periods, respectively), and (c) higher patent costs (contributing approximately $52,000 to the increase for each of the three and six month periods, respectively). Equity in Losses of Minority-Owned Entity. We record our portion of the losses of Blizzard Genomics on the equity method. For the three month and six month periods ended June 30, 2003, we recorded $87,000 and $158,000 as our share in the loss of Blizzard Genomics. This amount is reported as a separate line item in the accompanying condensed consolidated statement of operations. Related Party Transactions In July 2002, the Company entered into a services and facilities agreement with The Kriegsman Group ("TKG") and Kriegsman Capital Group ("KCG"), which was subsequently amended in January 2003 and July 2003, whereby TKG and KCG agreed to provide us with office space and certain administrative services and TKG agreed to reimburse us for its use of certain of our administrative personnel. TKG and KCG are owned by Steven A. Kriegsman, our President and CEO. During the three month and six month periods ended June 30, 2003, we paid approximately $40,000 and $65,000 to TKG under this agreement. The charges are determined based upon actual space used and estimated percentages of employee time used. We believe that such charges approximate the fair value of the space and services provided. Risk Factors You should carefully consider the following risks before deciding to purchase shares of our common stock. If any of the following risks actually occur, our business or prospects could be materially adversely affected and the trading price of our common stock could be negatively impacted, 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 Operated at a Loss and Will Likely Continue to Operate at a Loss For the - -------------------------------------------------------------------------------- Foreseeable Future - ------------------ We have incurred significant losses over the past five years, including net losses of approximately $5,960,000 for the six months ended June 30, 2003 (on an unaudited basis), and $6,176,000, $931,000 and $348,000 for 2002, 2001 and 2000, respectively, and we had an accumulated deficit of approximately $77,918,000 (on an unaudited basis) as of June 30, 2003. 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 an extended period of time for us to generate recurring revenues. 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. 15 We Have No Source of Significant Recurring Revenues, Which May Make Us Dependent - -------------------------------------------------------------------------------- on Financing to Sustain Our Operations - -------------------------------------- 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 in 2002, 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: o one or more of our currently licensed products is commercialized by our licensees that generates royalty income for us o we are able to enter into license or other arrangements with third parties who are then able to complete the development and commercialize one or more of our other products that are currently under development o 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 from operations until such time, if ever, as we can generate significant recurring revenues. Should we be unable to generate these recurring revenues after the next 24 months, 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 and maintain our operations. 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 shareholders. 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 shareholders or at all. Most of Our Revenues Have Been Generated by License Fees for TranzFect, Which - ----------------------------------------------------------------------------- May Not be a Recurring Source of Revenue for Us - ----------------------------------------------- License fees paid to us with respect to our TranzFect technology have represented 78%, 85% and 60% of our total revenues for 2002, 2001 and 2000, 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 and 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 not yet commenced any clinical trials of a product utilizing TranzFect. 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. We Have Changed Our Business Strategy, Which Will Require Us to Find and Rely - ----------------------------------------------------------------------------- Upon Third Parties for the Development of Our Products and to Provide Us With - ----------------------------------------------------------------------------- Products - -------- We have modified our prior business strategy of internally developing FLOCOR and our other potential products not yet licensed to third parties. We will now seek to enter into strategic alliances, license agreements or other collaborative arrangements with larger pharmaceutical companies that will provide for those companies to be responsible for the development and marketing of our products, although we intend to internally fund the early stage development work for certain product applications based on the gene silencing and other technologies that we have licensed from the University of Massachusetts Medical School. There can be no assurance that our products will have sufficient potential commercial value to enable us to secure these 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 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. If we are unable to enter into these arrangements for a particular product, we may be required to either sell 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. 16 Our Limited Financial Resources May Adversely Impact Our Ability to Execute - --------------------------------------------------------------------------- Certain Strategic Initiatives - ----------------------------- On June 30, 2003 we had approximately $5,852,000 in cash and cash equivalents and approximately $5,742,000 in working capital. Our recently modified product development strategy calls for seeking strategic alliances, licensing agreements or other collaborative arrangements with larger pharmaceutical companies to complete the development of FLOCOR and our other potential products, and we will not continue any further FLOCOR development work on our own in the meantime. Although we are not doing any further development work on TranzFect, our two licensees for this technology (Merck & Co. and Vical Incorporated) are continuing to do development work on product applications for this technology that could entitle us to future milestone payments should they continue with this work and it successfully meets the defined milestones, as well as future royalty payments should either of these licensees commercialize products based on our technology. However, there can be no assurance that our licensees will continue to develop or ever commercialize any products that are based on our TranzFect technology. Our strategic alliance with the University of Massachusetts Medical School 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 technology that has been licensed to us. We estimate that the aggregate amount of these sponsored research expenditures under certain circumstances could range from approximately $1,600,000 to $1,800,000 annually over the next three years. Our license agreements with the University of Massachusetts Medical School also provide in certain cases for milestone payments based on the progress made by us in the clinical development of products utilizing the technologies licensed from the University of Massachusetts Medical School and the marketing of these products. These milestone payments could aggregate over time up to $13,610,000 if we successfully complete the development of six separate products. Our potentially required expenditures under our agreements with the University of Massachusetts Medical School could substantially exceed our current financial resources and require us to raise additional capital or secure a licensee or strategic partner to fulfill our obligations to the University of Massachusetts Medical School and to develop any products based on the technology that we have licensed from that medical institution. If we are unable to meet our various financial obligations under these license agreements, which included a requirement that we raise at least $10,000,000 of additional capital within 18 months after the signing of these agreements, we could lose all of our rights under these agreements. Our Recent Acquisition of Global Genomics May Place Additional Financial and - ---------------------------------------------------------------------------- Operational Burdens on Us - ------------------------- In July 2002, we acquired Global Genomics through a merger. Global Genomics is a development stage company that, to date, has not generated any operating revenue, does not expect to generate any revenues in the foreseeable future and has operated at a loss since its organization in May 2000. Global Genomics had a cumulative loss from inception through June 30, 2003 (on an unaudited basis) of approximately $3,422,000, a loss of approximately $395,000 for the six months ended June 30, 2003 (on an unaudited basis), and a loss of approximately $303,000 and $1,563,000 for 2002 and 2001, respectively. We have moved our headquarters in connection with the merger to Los Angeles, California while we continue to incur a substantial lease expense ($14,000 per month, less offsetting sublease income of currently $3,000 per month) for our prior headquarters in Norcross, Georgia. We may be unable to substantially mitigate the future rental expense for our prior headquarters by subleasing this space. Although a majority of the members of our board of directors were directors prior to our merger with Global Genomics, all of our then current operating officers were terminated as a part of the merger. This change in personnel may place additional administrative burdens on our management in conducting our operations. If Our Products Are Not Successfully Developed and Approved by the FDA, We May - ------------------------------------------------------------------------------ Be Forced to Reduce or Terminate Our Operations - ----------------------------------------------- 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: 17 o difficulty in securing centers to conduct trials o difficulty in enrolling patients in conformity with required protocols or projected timelines o unexpected adverse reactions by patients in trials o difficulty in obtaining clinical supplies of the product o changes in the FDA s requirements for our testing during the course of that testing o inability to generate statistically significant data confirming the efficacy of the product being tested The gene silencing and other technologies that we have acquired from the University of Massachusetts Medical School have not yet been clinically tested by us, nor are we aware of any clinical trials having been conducted by third parties involving similar gene silencing technologies. Our TranzFect technology is currently in Phase I clinical trials that are being conducted by our licensee, Merck & Co., 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. We Were Only Able to Establish the Effectiveness of FLOCOR in a Subset of - -------------------------------------------------------------------------------- Patients in a Recent Clinical Trial and May Be Unable to Establish a Viable - -------------------------------------------------------------------------------- Medical Indication for FLOCOR or Find a Partner to Fund the Necessary Research - -------------------------------------------------------------------------------- for FLOCOR - ---------- In December 1999, we reported results from our Phase III clinical trial of FLOCOR for treatment of sickle cell disease patients experiencing an acute vaso-occlusive crisis. Overall, the study was not able to achieve its primary objective, which was to show a statistically significant decrease in the length of vaso-occlusive crisis for the study population as a whole. However, for patients 15 years of age or younger, the number of patients achieving 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. We believe that there were certain design flaws in the protocol for the previous Phase III clinical trial relating primarily to the assumed period for resolution of a vaso-occlusive crisis in patients not treated with FLOCOR that may have impacted the results of that clinical trial and that would need to be addressed in properly designing any future trial. To generate sufficient data to seek FDA approval for FLOCOR will require additional clinical studies, which will entail substantial time and expense. We currently estimate the cost of these clinical trials to be in the range of $10,000,000 - $12,000,000, although the actual costs could vary substantially, depending on the nature and number of trials that the FDA ultimately would require. We do not intend to conduct or fund these tests ourselves but will seek a strategic alliance partner or licensee for this purpose. The failure of our prior Phase III trial to generate sufficient data could make it more difficult for us to secure a strategic alliance partner or licensee for this product. In June 2002, the National Heart, Lung and Blood Institute of the National Institutes of Health turned down a grant application by Johns Hopkins University School of Medicine to provide financial support for a potential new Phase III trial for FLOCOR. Since this grant application was submitted at the NIH's suggestion, we believed that there was a reasonable possibility of obtaining governmental funding for the cost of a new FLOCOR trial. However, based on the NIH's rejection of the Johns Hopkins application, we may encounter difficulty in obtaining future governmental financial support for FLOCOR development work should we or any strategic partner or licensee seek such support in the future. If Blizzard Genomics Fails to Successfully Commercialize Its Products, the Value - -------------------------------------------------------------------------------- of Our Assets Will Be Adversely Impacted - ---------------------------------------- Blizzard Genomics, Inc., which is Global Genomics principal portfolio company, has not yet commercialized any of its products. Although Blizzard Genomics plans to introduce its first product, the I-Scan Imager, a low cost DNA chip reader, in late 2003 or early 2004, it may experience delays in completing the development of or commercially launching this product. Blizzard Genomics' products will be used in research laboratories and will not require FDA approval prior to their being marketed. These products are likely to face intense market competition from existing 18 products or technologies and products or technologies that are developed in the future. Blizzard Genomics is the licensee of several U.S. patents, and is seeking additional patent protection for its products and technologies. There can be no assurance, however, that the company will be able to secure sufficient patent coverage for its products and technologies. The failure of Blizzard Genomics to successfully commercialize its products would require us to write down or write off the substantial carrying value of Global Genomics' investment in that company as part of our assets, which would have a materially adverse effect on our stockholders' equity. Blizzard Genomics May Be Unable to Raise Sufficient Funding to Commercialize Its - -------------------------------------------------------------------------------- Products, Which Would Adversely Impact the Value of Our Assets - -------------------------------------------------------------- Blizzard Genomics has no working capital and is currently seeking to raise up to $2,000,000 in capital to fund the commercial launch of the I-Scan Imager(TM) and for its working capital needs. Blizzard Genomics has encountered difficulty to date in obtaining this capital. Failure to raise at least a portion of this capital could delay Blizzard Genomics' commercialization of its products and might force it to suspend its operations. Should Blizzard Genomics raise at least $750,000 in capital, it believes that it would have sufficient funding to begin commercial marketing of the I-Scan Imager(TM) but would require additional capital to complete development of any other products and might need additional capital to support its operations. Any significant delay in the commercialization of Blizzard Genomics' products or the cessation of its operations would adversely affect the carrying value of Global Genomics' investment in that company as part of our assets, which would have a materially adverse effect on our stockholders' equity. Although we may consider making a further investment in Blizzard Genomics, we have not discussed the terms of any such investment with Blizzard Genomics and have no obligation to make any new investment in that company. We Are Dependent Upon a Limited Operational Management Team and Need to Recruit - -------------------------------------------------------------------------------- a Chief Financial Officer and Perhaps Other Personnel to Effectively Operate - ---------------------------------------------------------------------------- Our current management team is small and we rely significantly on the efforts of external consultants. We are dependent on the availability and quality of the efforts of Steven A. Kriegsman, our Chief Executive Officer and interim Chief Financial Officer, in managing our company. We have recently recruited a permanent Chief Financial Officer and may need to recruit other personnel in order to effectively operate the company and carry out our business plan. We Are Subject to Intense Competition That Could Materially Impact Our Operating - -------------------------------------------------------------------------------- Results - ------- 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. 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. As a result, these competitors may: o Succeed in developing competitive products earlier than we or our strategic partners or licensees o Obtain approvals for such products from the FDA or other regulatory agencies more rapidly than we or our strategic partners or licensees do o Obtain patents that block or otherwise inhibit the development and commercialization of our product candidates o Develop treatments or cures that are safer or more effective than those we propose for our products o Devote greater resources to marketing or selling their products 19 o Introduce or adapt more quickly to new technologies or scientific advances o Introduce products that make the continued development of our product candidates uneconomical o Withstand price competition more successfully than our strategic partners or licensees can o More effectively negotiate third-party strategic alliances or licensing arrangements o Take advantage of other opportunities more readily than we can 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, we 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 Aquila Biopharmaceuticals, Inc. and adjuvants marketed by Corixa. Blizzard Genomics' products will compete with a number of currently marketed products, including those offered by Axon Instruments, Affymetrix, Applied Precision, Perkin Elmer and Agilent Technologies. 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. Companies developing HIV vaccines that could compete with our product include Merck, VaxGen, AlphaVax and Immunitor Corporation. The Manufacturing Requirements for FLOCOR May Make It More Difficult for Us to - -------------------------------------------------------------------------------- License FLOCOR or for Our Licensee to Develop FLOCOR - ---------------------------------------------------- The manufacture of CRL-5861 requires the following: o a supply of the raw drug substance o a supply of the purified drug which is refined from the raw drug substance o formulation and sterile filling of the purified drug substance into the finished drug product A number of suppliers and manufacturers can provide the raw drug substance and the finished drug product. Prior to the change in our business strategy to now seek a strategic partner or licensee for FLOCOR (who we anticipate would be responsible for the manufacture of FLOCOR), we entered into an agreement with Organichem Corp. to provide us with commercial supplies of the purified drug substance. However, this agreement will expire before the end of 2003, which will be well before any potential strategic partner or licensee that we might secure will need commercial supplies of this substance. There can be no assurance that any strategic partner or licensee that we secure will either have the specific equipment expertise to purify the FLOCOR drug substance or will be able to enter into an agreement with Organichem or another supplier on acceptable terms. An inability to obtain purified drug substance in sufficient amounts and at acceptable prices could have a material adverse effect on our ability to secure a strategic partner or licensee or on the ability of that partner or licensee to commercialize FLOCOR. We May Be Unable to Protect Our Intellectual Property Rights, Which Could - -------------------------------------------------------------------------------- Adversely Affect the Value of Our Assets - ---------------------------------------- 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 20 significant patent coverage for our FLOCOR and 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 non-exclusive license to a patent owned by the University of Massachusetts Medical School and another institution 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 University of Massachusetts Medical School are covered by a number of pending patent applications. However, other researchers have been active in the field of gene silencing, and these 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. 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 and 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 May Incur Substantial Costs from Future Clinical Testing or Product Liability - -------------------------------------------------------------------------------- Claims - ------ 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. It Will Be Difficult For Us To Manage Our Operations If We Are Regulated As An - -------------------------------------------------------------------------------- Investment Company In The Future - -------------------------------- The Investment Company Act of 1940 regulates certain companies that own investment securities with a value greater than 40% of the total assets of that company. In the Global Genomics merger, we acquired a 40% equity interest in Blizzard Genomics, which investment represented approximately 48% of our total assets as of June 30, 2003. Accordingly, because our investment in Blizzard Genomics represents such a large percentage of our total assets, we would be subject to the Investment Company Act if an exemption were not available. The SEC's regulations, however, exempt certain companies from the Investment Company Act if they, among other things, have a controlling interest in the subsidiary company. While we believe this exemption is currently available to us, if our ownership interest in Blizzard Genomics significantly decreases or we otherwise no longer remain the largest shareholder of Blizzard Genomics, the value of our investment in Blizzard Genomics could cause us to become subject to the provisions of the Investment Company Act. Should we become subject to the Investment Company Act, we would essentially have to operate as a mutual fund and would be subject to all of the substantive regulations imposed on such companies, including the restrictions on the securities we can issue, the rules specifying the composition and structure of our management, the additional reporting requirements, and other limitations on our ability to conduct our operations in the manner currently conducted. Our Board of Directors has determined that, should we become subject to these provisions, we will either (i) seek an order from the SEC exempting us from these provisions, or (ii) attempt to restructure our business in a manner that would relieve us from these provisions. The regulatory requirements for investment companies are extremely restrictive and would materially and adversely affect our ability to manage and operate our business and could materially and adversely affect our financial condition. Although it is our intention to remain an operating company that is not subject to the Investment Company Act, no assurance can be given that we will not become subject to the provisions of that act. 21 Our Anti-Takeover Provisions May Make It More Difficult to Change Our Management - -------------------------------------------------------------------------------- or May Discourage Others From Acquiring Us and Thereby Adversely Affect - -------------------------------------------------------------------------------- Shareholder Value - ----------------- We have a shareholder rights plan and provisions in our bylaws that may discourage or prevent a person or group from acquiring us without our board of directors approval. The intent of the shareholder rights plan and our bylaw provisions is to protect our shareholders 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 shareholders 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 shareholders with respect to our operations and other issues such as management selection and management compensation. Our Outstanding Options and Warrants and the Registration of Our Shares Issued - -------------------------------------------------------------------------------- in the Global Genomics Merger May Adversely Affect the Trading Price of Our - -------------------------------------------------------------------------------- Common Stock - ------------ As of August 8, 2003, there were outstanding stock options and warrants to purchase 7,222,287 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. We May Experience Volatility in Our Stock Price, Which May 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: o our quarterly operating results o announcements of regulatory developments or technological innovations by us or our competitors o government regulation of drug pricing o developments in patent or other technology ownership rights 22 o 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. Item 3. -- Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- Our financial intruments that are sensitive to changes in interest rates are our investments and cash equivalents. As of June 30, 2003, we held no investments other than amounts invested in money market accounts. We are not subject to any other material market risks. Item 4. - Controls and Procedures ----------------------- Our Chief Executive Officer and interim Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) as of the end of the quarterly period covered by this Form 10-Q, has 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. PART II-- OTHER INFORMATION Item 2 -- Changes in Securities and Use of Proceeds ----------------------------------------- In April 2003, we issued 1,613,258 shares of our common stock and in May 2003, we issued 215,101 shares of our common stock to the University of Massachusetts Medical School as partial consideration for seven medical technology licenses that we acquired from that institution. The shares of common stock were issued in reliance upon an exemption from registration under the Securities Act of 1933 provided by Regulation D. In May 2003, we issued a total of 2,940,539 shares of our common stock and warrants to purchase a total of 735,136 shares of our common stock at $3.05 per share to nine institutional investors for total cash consideration of $5,440,000. The shares of common stock and warrants were issued in reliance upon an exemption from registration under the Securities Act of 1933 provided by Regulation D. Cappello Capital Corp. and Cardinal Securities LLC acted as the placement agents for the foregoing private placement in May 2003. We issued warrants to Cardinal Securities LLC to purchase 78,750 shares of our common stock at $1.85 per share, and we issued to eight employees of Cappello Capital Corp. warrants to purchase a total of 294,054 shares of our common stock at $1.85 per share and a total of 73,515 shares of our common stock at $3.05 per share as partial consideration for the services of the two firms as placement agents for the May 2003 private placement. The warrants were issued in reliance upon an exemption from registration under the Securities Act of 1933 provided by Regulation D. In May 2003, we issued 25,000 shares of our common stock to Troy & Gould Professional Corporation for a cash purchase price of $25,000. The shares of common stock were issued in reliance upon an exemption from registration under the Securities Act of 1933 provided by Regulation D. In April 2003, we issued warrants to purchase 400,000 shares of our common stock at $0.20 per share to J.P. Turner & Company LLC in consideration of its agreement to provide us with certain investment banking services, and in June 2003, we issued that firm an additional 275,000 shares of our common stock and warrants to purchase 82,500 shares of our common stock at $2.00 per share in connection with an extension of that agreement. The shares of common stock and warrants were issued in reliance upon an exemption from registration under the Securities Act of 1933 provided by Regulation D. 23 In May 2003, we issued 100,000 shares of our common stock and warrants to purchase 200,000 shares of our common stock at $1.00 per share to James Skalko as the consideration for services he was to provide us under a financial consulting agreement. In April 2003, we issued warrants to purchase 100,000 shares of our common stock at $0.75 per share, 100,000 shares of our common stock at $0.90 per share and 200,000 shares of our common stock at $1.05 per share to Rockwell Asset Management, LLC in consideration of that firm's agreement to provide us with certain investment banking services. The shares of common stock and warrants issued to James Skalko and the warrants issued to Rockwell Asset Management, LLC were issued in reliance upon an exemption from registration under the Securities Act of 1933 provided by Regulation D. In April 2003, we issued to three family trusts 39,064, 39,064 and 13,022 shares of our common stock, respectively, upon the exercise of warrants for cash consideration of $391, $391 and $130, respectively. In May 2003 and June 2003, we issued 150,000 and 100,000 shares of our common stock, respectively, to an investment banking firm upon its exercise of warrants for cash consideration of $225,000 and $150,000, respectively. In July 2003, we issued 111,859 shares of our common stock to an individual upon his cashless exercise of a warrant to purchase 200,000 shares of our common stock and 70,339 shares of our common stock to a second individual upon his cashless exercise of a warranat to purchase 141,388 shares of our common stock. In July 2003, we also issued to two individuals 95,746 and 100,000 shares of our common stock, respectively, upon their exercise of warrants for cash consideration of $958 and $1,000, respectively. The shares of common stock issued to the foregoing individuals, trusts and investment banking firms were issued in reliance upon an exemption from registration under the Securities Act of 1933 provided by Regulation D. Item 6. -- Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits The exhibits listed in the accompanying Index to Exhibits are filed as part of this Quarterly Report on Form 10-Q. (b) Reports on Form 8-K On April 23, 2003, we filed a Current Report on Form 8-K disclosing that we had entered into a series of license agreements with the University of Massachusetts Medical School ("UMMS") pursuant to which we acquired a license to UMMS's proprietary RNAi technology and applications for that technology within areas that include obesity, diabetes II, and cancer. On May 29, 2003, we filed a Current Report on Form 8-K disclosing the completion of a private placement of our common stock and warrants to purchase shares of common stock. 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CYTRX CORPORATION (Registrant) Date: August 14, 2003 By: /s/ Steven A. Kriegsman --------------- -------------------------- Steven A. Kriegsman Chief Executive Officer and Interim Chief Financial Officer 25 INDEX TO EXHIBITS ----------------- Exhibit Number Description - -------------------------------------------------------------------------------- 4.1 Form of Common Stock Purchase Warrant between Company and each of the investors in the May 29, 2003 private placement (incorporated herein by reference to Exhibit 4.1 to the Company's current report on Form 8-K filed on May 30, 2003) 10.1 Securities Purchase Agreement, dated as of May 29, 2003, between the Company and the Purchasers identified on the signatory page thereof (incorporated herein by reference to Exhibit 10.1 to the Company's current report on Form 8-K filed on May 30, 2003) 10.2 Registration Rights Agreement, dated as of May 29, 2003, between the Company and the Purchasers identified on the signature page thereof (incorporated herein by reference to Exhibit 10.2 to the Company s current report on Form 8-K filed on May 30, 2003) 10.3 Non-Exclusive License Agreement dated as of April 15, 2003 between University of Massachusetts Medical School and Company covering RNA sequence specific mediators of RNA interference (incorporated herein by reference to Exhibit 10.2 to the Form S-3 Amendment No. 4 File Number 333-100947 filed on August 5, 2003)+ 10.4 Exclusive License Agreement dated as of April 15, 2003 between University of Massachusetts Medical School and Company covering in vivo production of small interfering RNA's (incorporated herein by reference to Exhibit 10.3 to the Form S-3 Amendment No. 4 File Number 333-100947 filed on August 5, 2003)+ 10.5 Exclusive License Agreement dated as of April 15, 2003 between University of Massachusetts Medical School and Company covering inhibition of gene expression in adipocytes using interference RNA (incorporated herein by reference to Exhibit 10.4 to the Form S-3 Amendment No. 4 File Number 333-100947 filed on August 5, 2003)+ 10.6 Exclusive License Agreement dated as of April 15, 2003 between University of Massachusetts Medical School and Company covering RNAi targeting of viruses (incorporated herein by reference to Exhibit 10.5 to the Form S-3 Amendment No. 4 File Number 333-100947 filed on August 5, 2003)+ 10.7 Exclusive License Agreement dated as of April 15, 2003 between University of Massachusetts Medical School and Company covering primary and polyvalent HIV-1 envelope glycoprotein DNA vaccines (incorporated herein by reference to Exhibit 10.6 to the Form S-3 Amendment No. 4 File Number 333-100947 filed on August 5, 2003)+ 10.8 Exclusive License Agreement dated as of April 15, 2003 between University of Massachusetts Medical School and Company covering gene based therapeutics for solid tumor treatments (incorporated herein by reference to Exhibit 10.7 to the Form S-3 Amendment No. 4 File Number 333-100947 filed on August 5, 2003)+ 10.9 Exclusive License Agreement dated as of April 15, 2003 between University of Massachusetts Medical School and Company covering selective silencing of a dominant ALS gene by RNAi (incorporated herein by reference to Exhibit 10.8 to the Form S-3 Amendment No. 4 File Number 333-100947 filed on August 5, 2003)+ 10.10 Investment Banking Agreement dated April 1, 2003 between Rockwell Asset Management Inc. and the Company 10.11 Investment Banking Agreement dated April 3, 2003 between J.P. Turner & Company, LLC and the Company 10.12 First Amendment to Investment Banking Agreement dated June 4, 2003 between J.P. Turner & Company, LLC and the Company 10.13 Exclusive Financial Advisor Engagement Agreement dated May 16, 2003 between Cappello Capital Corp. and the Company 10.14 Modification letter dated June 6, 2003 to Financial Advisor Engagement Agreement between Cappello Capital Corp. and the Company 26 Exhibit Number Description - -------------------------------------------------------------------------------- 10.15 Engagement Letter dated May 27, 2003 between Cardinal Securities, LLC and the Company 10.16 Second Amended and Restated Employment Agreement dated June 10, 2003 between Steven A. Kriegsman and the Company 10.17 Financial Consulting Agreement dated May 10, 2003 between James Skalko and the Company 31.1 Certification Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 + Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Securities and Exchange Commission. 27 EX-10.10 3 exhibit_1010.txt Exhibit 10.10 INVESTMENT BANKING AGREEMENT This Agreement is made as of this day April 1, 2003, by and between CytRx Corporation; having its business office at 11726 San Vicente Boulevard, Suite 650 , Los Angeles, California 90049 (the "Company") and Rockwell Asset Management Inc., with its principal office located at 175 Pinelawn Road, Suite 100, Melville, New York, 11747 (the "Consultant"). WHEREAS, the Company desires to retain the Consultant and the Consultant desires to be retained by the Company, all pursuant to the terms and conditions hereinafter set forth: NOW THEREFORE, in consideration of the foregoing and the mutual promises and covenants herein contained, it is agreed as follows: 1. RETENTION - The Company hereby retains the Consultant to perform non-exclusive consulting services related to corporate finance and other matters, and the Consultant hereby accepts such retention and shall perform for the Company the duties described herein, faithfully and to the best of its ability. In this regard, subject to paragraph 7 hereof, the Consultant shall devote such time and attention to the business of the Company, as shall be determined by the Consultant, subject to the direction of the Chief Executive Officer of the Company. a) The Consultant agrees, to the extent reasonably required in the conduct of the business of the Company, and at the Company's request, to place at the disposal of the Company its judgement and experience and to provide business development services to the Company including the following: (i) Review business plans and projections. (ii) Review financial data as it relates to financing. (iii) Advise on the Company's capital structure and on alternatives for raising capital (iv) Review and advise on prospective mergers and acquisitions, and on any financing required to complete such transactions. (v) Advise on issues relating to public offerings (vi) Review managerial needs. (vii) Advise on issues relating to public relations. (viii) Expose the Company to potential institutional and private investors. 2. TERM - The Consultant's retention hereunder shall be for a term of twelve months commencing on the date of this Agreement. 3. COMPENSATION - The Consultant shall be compensated in accordance with the following schedule: (a) The Company shall pay to the Consultant a one-time fee of $25,000, payable at the signing of this Agreement. 1 (b) The Company shall pay to the Consultant a monthly fee of $7,500 per month. The first three (3) months will be paid at the signing of this Agreement with monthly payments commencing July 15, 2003. (c) The Company shall grant to the Consultant a warrant (the "Warrant"); to purchase 400,000 shares of the common stock of the Company for a period of forty-eight (48) months according to the following schedule; 100,000 at an exercise price of $.75 per share, 100,000 at an exercise price of $.90 per share and 200,000 at an exercise price of $1.05 per share. The holder of the Warrant may exercise all or any part of the Warrant in a cashless exercise. Rockwell Asset Management retains the right to assign these warrants to a different entity or individual. 4. EXPENSES - The Company agrees to reimburse the Consultant for reasonable expenses incurred by the Consultant in connection with the services rendered hereunder, including but not limited to the Consultant's due diligence activities with respect to the Company. Any such expenses shall require the prior written approval of the Company. 5. INDEMNIFICATION - Since the Consultant will be acting on behalf of the Company in connection with its engagement hereunder, the Company and Consultant have entered into a separate indemnification agreement substantially in the form attached hereto as Exhibit A and dated the date hereof, providing for the indemnification of Consultant by the Company. The Consultant has entered into this Agreement in reliance on the indemnities set forth in such indemnification agreement. 6. STATUS OF CONSULTANT - The Consultant shall be deemed to be an independent contractor and, except as expressly provided or authorized in this Agreement, shall have no authority to act for or represent the Company. Rockwell Asset Management is not a registered Broker/Dealer. 7. OTHER ACTIVITIES OF CONSULTANT - The Company recognizes that the Consultant now renders and may continue to render financial consulting and other investment banking services to other companies, which may or may not conduct business and activities similar to those of the Company. The Consultant 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. The Consultant shall give written notice to the Company upon acceptance of any investment banking agreement with other companies in similar industries and businesses. The Consultant agrees to maintain as confidential any information it procures in rendering consulting services hereunder regarding the Company that is not generally known to the public, and agrees to not transmit any of such information to: (i.) any employees of Consultant engaged in the trading of the Company's securities; or (ii) any competitors of the Company for whom Consultant performs consulting services. 8. 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 2 statute or regulation, or to deprive its Board of Directors of their responsibility for any control of the conduct of the affairs of the Company. 9. NOTICES - Any notices hereunder shall be sent to the Company and the Consultant at their respective addresses above set forth. Any notice shall be given by registered or certified mail, postage prepaid, or overnight receipted delivery service (such as Federal Express) 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 in address in the manner herein provided. 10. GOVERNING LAW - This Agreement has been made in the State of California and shall be construed and governed in accordance with the laws thereof without regard to conflicts of laws. 11. ENTIRE AGREEMENT - This Agreement contains the entire agreement between the parties, may not be altered or modified, except in writing and signed by the party to be charged thereby and supersedes any and all previous agreements between the parties. 12. BINDING EFFECT - This Agreement shall be binding upon the parties hereto and their respective heirs, administrators, successors, and assigns. 13. TERMINATION - Either party may terminate this Agreement for cause, in writing. If the Agreement is terminated, the Consultant keeps all cash paid to date, and the warrants will have vested on the basis of 1/12 per month. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. CYTRX CORPORATION ROCKWELL ASSET MANAGEMENT /s/ Steven Kriegsman /s/ Bruce Guarino - ---------------------------- -------------------------- Steven Kriegsman Bruce Guarino Chief Executive Officer Chief Executive Officer 3 EXHIBIT A April 1, 2003 Rockwell Asset Management 175 Pinelawn Road Suite 100 Melville New York 1174 Gentlemen: In connection with our engagement of Rockwell Asset Management Inc. (the "Consultant") as our financial advisor and investment banker, we hereby agree to indemnify and hold the Consultant and its affiliates, and the directors, officers, partners, shareholders, agents and employees of the Consultant (collectively the "Indemnified Person"), harmless from and against any and all claims, actions, suits, proceedings, (including those of shareholders), damages, liabilities and expenses incurred by any of them (including but not limited to, reasonable fees and expenses of counsel) which are (A) related to or arise out of (i) any actions taken or omitted to be taken (including any untrue statements made or any statements omitted to be made) by, or (ii) any actions taken or omitted to be taken by any Indemnified Person in connection with our engagement of the Consultant pursuant to the Investment Banking Agreement, of even date herewith, between the Consultant and us (the "Investment Banking Agreement"), or (B) otherwise related to or arise out of the Consultant `s activities on our behalf pursuant to the Consultant's engagement under the Investment Banking Agreement, and we shall reimburse any Indemnified Person for all reasonable expenses (including, but not limited to, fees and expenses of counsel) incurred by such Indemnified Person in connection with investigating, preparing or defending any such claim, action, suit, or proceeding (collectively a "Claim"), whether or not in connection with pending or threatened litigation in which any Indemnified Person is a party. We will not, however, be responsible for any claim which is finally lawfully determined to have resulted exclusively from the gross negligence or willful misconduct of any person seeking indemnification hereunder. We further agree that no Indemnified Person shall have any liability to us for or in connection with the Consultants engagement under the Investment Banking Agreement except for any Claim incurred by us solely as a direct result of any Indemnified Person's gross negligence or willful misconduct. We further agree that we will not, without the prior written consent of the Consultant, settle, compromise or consent to the entry of any judgment in any pending or threatened Claim in respect of which indemnification may be sought hereunder (whether or not any Indemnified Person is an actual or potential party to such Claim), unless such settlement, compromise, or consent includes a legally binding, unconditional, and irrevocable release of each Indemnified Person hereunder from any and all liability arising out of such Claim. Promptly upon receipt by an Indemnified Person of notice of any complaint or the assertion or institution of any Claim with respect to which indemnification is being sought hereunder, such Indemnified Person shall notify us in writing of such complaint or of such assertion or institution, but failure to so notify us shall not relieve us from any obligation we have hereunder, unless, and only to the extent that, such failure results in the forfeiture by us of substantial rights and defenses, and such failure to so notify us will in any event relieve us from any other obligation or liability we may have to any Indemnified Person other than under this agreement. If we so elect or are requested by such Indemnified Person, we will assume the defense of such Claim, including the employment of counsel reasonable satisfactory to such Indemnified Person and the payment of the fees and expenses of such counsel. In the event, however, that such Indemnified Person reasonably determined in its sole judgment that having common counsel would present such counsel with a conflict of interest or such Indemnified Person concluded that there may be legal defenses available to it or other Indemnified Persons that are different from or in addition to those available to us, then such Indemnified Person may employ its own separate counsel to represent or defend it in any such Claim and we shall pay the reasonable fees and expenses of such counsel. Notwithstanding anything herein to the contrary, if we fail timely or diligently to defend, contest or otherwise protect against any Claim, the relevant Indemnified Party shall have the right, but not the obligation, to defend, contest, compromise, settle, assert cross claims or counterclaims, or otherwise protect against the same, and shall be fully indemnified by us, including, but not limited to, the reasonable fees and expenses of its counsel and all amounts paid as a result of such Claim or the compromise or the settlement thereof. In any Claim in which we assume the defense, the Indemnified Person shall have the right to participate in such defense and to retain its own counsel therefor at its own expense. It is understood that, in connection with the Consultant's engagement under the Investment Banking Agreement, the Consultant may be engaged to act in one or more additional capacities and that the terms of the original engagement or any such additional engagement may be embodied in one or more separate written agreements. The provisions of this Agreement shall apply to the original engagement and any such additional engagement and shall remain in full force and effect following the completion or termination of the Consultant's engagement(s). Very truly yours, CYTRX CORPORATION By: /s/ Steven Kriegsman ------------------------ Steven Kriegsman Chief Executive Officer CONFIRMED AND AGREED TO: ROCKWELL ASSET MANAGEMENT By: /s/ Bruce Guarino ------------------------------ Bruce Guarino Chief Executive Officer EX-10.11 4 exhibit_1011.txt Exhibit 10.11 [LOGO] J.P. TURNER & COMPANY, L.L.C. INVESTMENT BANKING DIVISION April 3, 2003 Steve Kriegsman President and Chairman CytRx Corporation 11726 San Vincente Blvd. Los Angeles, CA 90049 Phone: (310) 826-5658 RE: INVESTMENT BANKING AGREEMENT WITH J. P. TURNER & Company, LLC Dear Mr. Kriegsman, This letter (the "AGREEMENT") shall confirm the engagement of J.P. Turner & Company, LLC ("TURNER") by CytRx Corporation [NasdaqSC: CYTR] (the "COMPANY") for purposes of providing, on a non-exclusive basis, investor awareness and business advisory services as set forth below in consideration for the compensation described hereinafter. The Agreement shall be effective as of the date set forth above. The Company agrees to provide Turner such information, historical financial data, projections, proformas, business plans, due diligence documentation, and other information (collectively the "INFORMATION") in the possession of the Company or its agents that Turner may reasonably request or require to perform the Services (as hereinafter defined) set forth herein. The Information provided by the Company to Turner shall be true, complete, accurate and current in all respects and shall not set forth any untrue statements nor omit any fact required or necessary to make the Information provided not misleading. The Company acknowledges that Turner may rely on the accuracy and completeness of all Information provided by the Company without independent verification. The Company authorizes Turner to use such Information in connection with its performance of the Services. Turner shall use its commercially reasonable best efforts to preserve the confidentiality of Information expressly designated as confidential by the Company. Turner will use its best efforts to furnish ongoing investor awareness and business advisory services (the "SERVICES") as the Company may from time to time reasonably request. The Services may include without limitation the following: preparation and assistance with investor presentations; introduction to capital conferences; the identification and evaluation of financing transactions; and introductions to broker dealers, research analysts, and investment companies that Turner believes to be in the best interest of the Company. The term of this Agreement shall be 12 months from the effective date of this Agreement (the "TERM"). In the event that the Company desires to terminate this Agreement prior to the expiration date, it shall provide Turner with at least thirty (30) days prior written notice of its intention to terminate this CytRx Corporation Investment Banking Agreement 04/03/03 Page 2 of 6 Agreement and this Agreement shall so terminate following the expiration of this thirty (30) day period (the "Termination Date"), without any further responsibility for either party; provided, however, that Turner shall be entitled to receive all vested Warrants (as set forth below), and un-reimbursed expenses, if any, outstanding as of the Termination Date. In consideration for the services described herein, the Company shall issue and deliver to Turner a non-refundable common stock purchase warrant (the "INVESTMENT BANKING WARRANT") for the purchase of four hundred thousand (400,000) shares of the Company's common stock. The Investment Banking Warrant shall have an exercise price of twenty cents ($.20) upon issuance, be fully paid, non-assessable, and free of any restrictions on transfer, but for those restrictions that are the result of state or federal securities law. The Investment Banking Warrant shall immediately and completely vest in favor of Turner, and shall become immediately exercisable, in the event of the sale of the Company (or substantially all of the assets thereof) or the acquisition (or merger) transaction of the Company by or into another entity. The Warrant shall be issued to Turner in the form of a warrant agreement (the "WARRANT AGREEMENT"), which shall be in form and content satisfactory to Turner and its counsel. The Warrant Agreement shall provide for, among other provisions, the above terms and the following: (i) Turner may exercise the Warrant at any time after signing the Warrant Agreement. The Warrant shall expire three (3) years from the date that the Warrant Agreement is issued. (ii) anti-dilution provisions for stock dividends and splits. Upon a merger or sale of substantially all of the Company's assets, the Warrant will dilute in direct proportion with majority shareholders. (iii) in lieu of any cash payment required by Turner in connection with the exercise of the Warrant, the holder(s) of the Warrant shall have the right at any time and from time to time, to exercise the Warrant in full or in part by surrendering the Warrant Agreement as payment of the aggregated Strike Price ("Cashless Exercise"). (iv) the Company shall reserve, and at all times have available, a sufficient number of shares of its common stock to be issued upon the exercise of the Warrant. Furthermore, the Company shall accept, and shall so instruct its transfer agent to accept, an appropriate Rule 144 opinion letter from any qualified securities attorney (not just an opinion from the Company's counsel) representing Turner or any of its employees or agents that are holders of the Warrant. (v) the Company shall grant unlimited "piggy back" registration rights, at the Company's expense, to include the shares of the Underlying Common Stock in any registration statement filed by the Company under the Securities Act of 1933 relating to an underwriting of the sale of shares of common stock or other security of the Company. The Investment Banking Warrant shall be assigned to J.P. Turner & Company, L.L.C. and forwarded to CytRx Corporation Investment Banking Agreement 04/03/03 Page 3 of 6 the following address: J.P. Turner & Company, L.L.C. Attention: Patrick J. Power, Managing Director of Investment Banking 3340 Peachtree Road Suite 2300 Atlanta, GA 30326 Phone: 404-479-8300 Fax: 404-479-8345 The Company shall use its best efforts to supply to Turner, on a timely basis, with logos, trademarks, slogans, and similar designs of itself and all subsidiaries and hereby authorizes Turner in perpetuity, to use such logos, etc. in "Tombstones" that reflect Turner's role in the transaction pursuant to this Agreement. This provision shall survive the expiration or termination of this Agreement. The Company represents and warrants that it has provided Turner access to all Information available to the Company concerning its condition, financial and otherwise, its management, its business, and its prospects (the "DISCLOSURE DOCUMENTS"). The Company represents that it will continue to provide Turner with any Information or documentation necessary to verify and update the accuracy of the Information contained in the Disclosure Documents and will promptly notify Turner in writing upon the filing of any registration statement or other periodic reporting documents filed pursuant to the rules and regulations of the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. The Company recognizes that Turner 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. Turner shall be free to render such advice and other services and the Company hereby consents thereto. Turner 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 to fulfill its obligation hereunder. During the Term of this Agreement the Company covenants, promises and agrees that: (a) Company shall immediately notify Turner if it is contacted by NASDAQ for failing to maintain certain listing requirements or any other reason. (b) Company shall furnish Turner with copies of its annual, quarterly and proxy filings with the SEC, within thirty (30) days of the Company's filing thereof. (c) Company shall furnish Turner all press releases and any copies of any communication to the general public and its shareholders. (d) Company shall immediately notify Turner if it is the subject of any investigation or material litigation. CytRx Corporation Investment Banking Agreement 04/03/03 Page 4 of 6 (e) At least three (3) business days prior to the dissemination of any public announcement regarding this Agreement, including the fact of its existence, the Company shall submit to Turner, for its review and comment, the proposed public announcement. Turner shall thereafter have three (3) business days within which to submit its proposed amendments to the public announcement for inclusion therein. The proposed amendments shall be incorporated in the final version to be disseminated by the Company, unless, in the reasonable judgment of counsel to the Company, such amendments should not be incorporated. This Agreement shall be governed by and construed under the laws of the State of Georgia without regard to principals of conflicts of laws provisions. In the event of any dispute between the Company and Turner arising under or pursuant to the terms of this Agreement, or any matters arising under the terms of this Agreement, the same shall be settled only by arbitration through NASD Dispute Resolution in Fulton County, City of Atlanta, State of Georgia, in accordance with the Code of Arbitration Procedure published by NASD Dispute Resolution. The determination of the arbitrators shall be final and binding upon the Company and Turner and may be enforced in any court of appropriate jurisdiction. This Agreement shall be construed by and governed exclusively under the laws of the State of Georgia, without regard to its conflicts of law provisions. The venue shall be in Fulton County, GA. The Company shall reimburse Turner for all reasonable out of pocket expenses including without limitation acceptable travel and lodging, printing, legal, and mailing cost that Turner may incur in performance of the Services under this Agreement. Turner shall submit expense statements to the Company from time to time and the Company shall reimburse such expenses promptly thereafter. The Company shall indemnify and hold harmless Turner and its directors, officers, employees, agents, attorneys and assigns from and against any and all losses, claims, costs, damages or liabilities (including the reasonable fees and expenses of legal counsel) to which any of them may become subject in connection with the investigation, defense or settlement of any actions or claims: (i) caused by the Company's misstatement or alleged misstatement of a material fact or omission or alleged omission of a material fact required to make any statement not misleading; (ii) arising in any manner out of or in connection with the rendering of Services by Turner hereunder; or (iii) otherwise in connection with this Agreement. The Company acknowledges that Turner has made no guarantees that its performance hereunder will achieve any particular result with respect to the Company's business, stock price, trading volume, market capitalization or otherwise. All notices hereunder shall be in writing and shall be validly given, made or served if in writing and delivered in person or when received by facsimile transmission, or five days after being sent first class certified or registered mail, postage prepaid, or one day after being sent by nationally recognized overnight carrier to the party for whom intended at the address set forth after each parties signatures. If any clause or provision of this Agreement is illegal, invalid or unenforceable under applicable present or future Laws effective during the Term, the remainder of this Agreement shall not be affected. In lieu of each clause or provision of this Agreement that is illegal, invalid or unenforceable, there shall CytRx Corporation Investment Banking Agreement 04/03/03 Page 5 of 6 be added as a part of this Agreement a clause or provision as nearly identical as may be possible and as may be legal, valid and enforceable. In the event any clause or provision of this Agreement is illegal, invalid or unenforceable as aforesaid and the effect of such illegality, invalidity or unenforceability is that either party no longer has the substantial benefit of its bargain under this Agreement and a clause or provision as nearly identical as may be possible cannot be added, then, in such event, such party may in its discretion cancel and terminate this entire Agreement provided such party exercises such right within a reasonable time after such occurrence. The parties agree and acknowledge that they have jointly participated in the negotiation and drafting of this Agreement and that this Agreement has been fully reviewed and negotiated by the parties and their respective counsel. In the event of an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumptions or burdens of proof shall arise favoring any party by virtue of the authorship of any of the provisions of this Agreement. This Agreement may not be modified, amended, supplemented, canceled or discharged, except by written instrument executed by all parties. No failure to exercise, and no delay in exercising, any right, power or privilege under this Agreement shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege hereunder preclude the exercise of any other right, power or privilege. No waiver of any breach of any provision shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision, nor shall any waiver be implied from any course of dealing between the parties. To be effective, all waivers must be in writing, signed by both parties. The rights and remedies of the parties under this Agreement are in addition to all other rights and remedies, at law or equity, that they may have against each other except as may be specifically limited herein. This Agreement contains the entire understanding of the parties in respect of its subject matter and supersedes all prior agreements and understandings (oral or written) between or among the parties with respect to such subject matter. The parties agree that prior drafts of this Agreement shall not be deemed to provide any evidence as to the meaning of any provision hereof or the intent of the parties with respect thereto. Any amendment or modification to the Agreement shall be by written instrument only and must be executed by a representative, with complete authority, from the Company and Turner. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. A telecopy signature of any party shall be considered to have the same binding legal effect as an original signature. In the event that any dispute among the parties to this Agreement should result in litigation, the substantially prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such substantially prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals and collection. CytRx Corporation Investment Banking Agreement 04/03/03 Page 6 of 6 If the foregoing is in accordance with your understanding, kindly confirm your acceptance and agreement by signing and returning the enclosed duplicate of this Agreement that will thereupon constitute an agreement between us. Yours very truly, /s/ Patrick J. Power -------------------- Patrick J. Power Managing Director, Investment Banking J. P. Turner & Company, LLC Accepted and approved this 4th day of April, 2003. By: /s/ Steve Kriegsman ------------------------ Name: MR. STEVE KRIEGSMAN Title: PRESIDENT AND CHAIRMAN Company: CYTRX CORPORATION Address: 11726 SAN VINCENTE BLVD. LOS ANGELES, CA 90049 Phone: (310) 826-5658 EX-10.12 5 exhibit_1012.txt Exhibit 10.12 FIRST AMENDMENT TO INVESTMENT BANKING AGREEMENT THIS FIRST AMENDMENT (the "AMENDMENT") TO INVESTMENT BANKING AGREEMENT WITH J.P. TURNER & COMPANY, LLC dated April 3, 2003 (the "AGREEMENT") is entered into and effective as of June 4, 2003 (the "Effective Date") by and between CytRx Corporation ("CYTR") and J.P. Turner & Company, LLC ("TURNER"). 1. THE PARTIES 1.1 CYTR, with its principal office at 11726 San Vincente Blvd., CA 90049, USA; and Phone: (310) 826-5658. 1.2 Turner, with its principal office at 3340 Peachtree Road, Suite 2300, Atlanta, Georgia 30326, and Phone: 404-479-8192. 1.3 The persons executing this Amendment represent to each other that they have full and complete authority to do so. 2. THE AMENDMENT 2.1 The Term of the Agreement during which Turner shall provide the Services shall be extended to be twelve (12) months from the Effective Date. 2.2 As per page 2, within the compensation section of the Agreement, CYTR shall issue Turner an additional fully vested Investment Banking Warrant for the purchase of eighty two thousand five hundred (82,500) shares of CYTR's common stock at an exercise price of two dollars ($2.00) per share and a term of five (5) years. All other conditions and provisions of this warrant shall be identical to the Investment Banking Warrant as described in the Agreement. 2.3 CYTR shall also issue Turner two hundred seventy five thousand (275,000) shares of CYTR's common stock (the "INVESTMENT BANKING STOCK"). The Investment Banking Stock shall be restricted for resale into the public market for a period of eighteen (18) months (the "PUBLIC RESTRICTION"). The Investment Banking Stock shall immediately and completely vest in favor of Turner, be fully paid, and non-assessable. In the event of the sale of the Company (or substantially all of the assets thereof) or the acquisition (or merger) transaction of the Company by or into another entity at any time after twelve (12) months from the Effective Date, the Public Restriction shall be lifted and voided. 2.4 CYTR acknowledges that it desires to consider strategic alternatives available to it which include, but are not limited to, issuing and selling convertible debentures, common shares, preferred shares, or similar instruments (the "OFFERING"). The Offering shall be on terms and conditions satisfactory CYTR, in its sole discretion. As a result of an introduction made through Turner to an investor, either a single investor, several investors, or a related entity with which Investor has not made an investment in CYTR within the 90 days prior to the Effective Date (collectively the "INVESTOR"), should all or any part of the Offering be placed with the Investor, CYTR shall owe Turner a cash fee equal to ten percent (10%) of the gross proceeds of the Offering (the as received by CYTR from the Investor. CYTR shall also issue Turner a five-year warrant as part of the placement fee to purchase a number of shares equal to (a) ten percent (10%) of the gross proceeds of the Offering divided by (b) the exercise price of the warrant (the "WARRANT"). The exercise price of the Warrant shall be equal to the average closing market price per share of the CYTR's common stock for the five trading days preceding the date of closing of the Offering (or at each closing). Should CYTR close on any Offering with the Investor, it shall be understood that the Offering met terms and conditions satisfactory to CYTR. CYTR shall have no obligation to close any Offering. 2.5 CYTR agrees that any amendment or modification to the Agreement or the Amendment shall be by written instrument only and must be executed by a representative, with complete authority, from CYTR and Turner (the "PARTIES"). 2.6 This Amendment sets forth the entire understanding of the Parties with respect to the subject matter hereof and shall be binding and inure to the benefit of the Parties and their respective successors. IN WITNESS WHEREOF, if the foregoing is in accordance with the Parties understanding, the Parties shall accept and agree to this Amendment of the Agreement by signing and that will thereupon constitute an agreement between the Parties. J.P. Turner & Company, LLC /s/ Patrick J. Power Date: 4-3-03 - ------------------------------------------------ Mr. Patrick J. Power Managing Director - Investment Banking J.P. Turner & Company, LLC 3340 Peachtree Road, Suite 2300 Atlanta, GA 30326 (404) 479-8192 CytRx Corporation /s/ Steve Kriegsman Date: 4-3-03 - ------------------------------------------------ Name: Mr. Steve Kriegsman Title: President and Chairman Company: CytRx Corporation Address: 11726 San Vincente Blvd. Los Angeles, CA 90049 Phone: (310) 826-5658 2 EX-10.13 6 exhibit_1013.txt Exhibit 10.13 C A P P E L L O C A P I T A L C O R P . I N V E S T M E N T B A N K E R S -------------- DRAFT -------------- -------------- CONFIDENTIAL -------------- May 16, 2003 Mr. Steve Kriegsman President, CEO and Director CytRx Corporation 11726 San Vicente Blvd. Los Angeles, CA 90049 Dear Mr. Kriegsman, This letter shall confirm the engagement of Cappello Capital Corp. ("Advisor") as our exclusive financial advisor to CytRx Corporation ("Company") to perform such corporate finance advisory services as the Company and the Advisor may agree upon in writing. The Company, as defined herein, shall include CytRx Corporation, its subsidiaries, affiliates and any entities it may form, merge into, be acquired by, or invest in. The term of this agreement ("Agreement") shall run from the date of receipt by Advisor of the Company's signed acceptance of this letter, until twelve months thereafter, and may be extended by mutual written consent of the parties or cancelled pursuant to the terms hereof ("Term"). This Agreement may be canceled by either party as provided in the paragraph entitled "Termination of Agreement". TRANSACTION: The corporate finance advisory services that may be performed by the Advisor are the following types of Transactions with an investor or entity identified in writing by or on behalf of Advisor or who contacts Advisor or Company during the term of the Agreement (individually or collectively a "Covered Party"). Both the Company and the Advisor must agree on which of the following activities to pursue. As used in this letter, the term "Transaction" shall include, but not be limited to: a) a private placement, conducted pursuant to Regulation D of the U.S. Securities Act of 1933 with a Covered Party (a "Private Placement") including, without limitation, of up to $25 million of equity, debt, convertible securities, or such other amount as the Company and the Advisor may agree upon ("Placement Amount"); b) a strategic alliance (a "Strategic Alliance") that involves an agreement with a Covered Party that may, either directly or indirectly, enter into any type of sales, marketing and/or management agreement with the Company; c) the sale of the Company (a "Sale" or "Merger"), whether by merger, stock sale or sale in one or more transactions, of all or substantially all of the assets of the Company to a Covered Party or where the shareholders of the Company own less than a majority of the surviving entity; d) the sale of a portion of the Company (a "Divestiture"), whether by merger, stock sale or sale in one or more transactions, of a portion of the assets of the Company to a Covered Party; 100 Wilshire Boulevard, Suite 1200, Santa Monica, California 90401 Telephone 310.393.6632 Fax 310.393.4838 -------------- CONFIDENTIAL -------------- CYTRX CORPOATION -- CAPPELLO CAPITAL CORP. Engagement Letter -- May 16, 2003 -- Page 2 e) a recapitalization (a "Recapitalization") involving the issuance of any indebtedness or equity securities by the Company to a Covered Party which may involve, among other items, an extraordinary dividend being paid or equity securities being repurchased by the Company, whether as a stand alone Transaction or in connection with a related Transaction; f) a strategic acquisition (an "Acquisition") pursuant to which (i) the Company consummates a merger, consolidation or other business combination with a Covered Party, where the Company is the surviving entity (or its shareholders own a majority of the equity in the surviving entity) in such business combination, or (ii) the Company acquires a majority of the total equity ownership of a Covered Party, or all or substantially all of the assets of a Covered Party. DESCRIPTION OF SERVICES: The Advisor will, to the extent requested by the Company, assist the Company in analyzing potential Transactions according to the terms and conditions of this letter. In this regard, the Advisor may undertake certain activities on behalf of the Company, including the following: a) analyzing Transaction options available to the Company; b) counseling the Company as to strategy and tactics for effecting a potential Transaction; c) advising the Company as to the structure and form of a possible Transaction, including the form of any agreements related thereto; d) assisting the Company in obtaining appropriate information and in preparing due diligence presentations related to a potential Transaction; e) introducing the Company to institutional investors, accredited individual investors, strategic or financial buyers, distributors, licensees, and/or strategic partners, as may be appropriate; f) assisting in negotiations related to a potential Transaction, as may be appropriate, on behalf of the Company; g) rendering such other financial advisory and investment banking services as may from time to time be agreed upon by the Company and the Advisor. EXCLUSIVITY: The Company agrees that no other financial advisor is or will be authorized by it during the Term of this Agreement to perform services on the Company's behalf of the type which Advisor is authorized to perform hereunder. No fee payable to any other financial advisor either by the Company or any other entity shall reduce or otherwise affect the fees payable hereunder to Advisor, except as otherwise agreed to in writing by Advisor. Notwithstanding the foregoing, Advisor acknowledges that the Company has existing investment banking relationships with J. P. Turner, Rockwell Asset Management, Corporate Capital Group International Ltd. and Rip Grossman & Associates (the "Existing Firms"). In the event of the closing of a Transaction originated by any of the Existing Firms during the Term of this Agreement, the Company and Advisor shall negotiate in good faith the compensation to be paid to Advisor (based on such factors as the overall fees payable to the Existing Firms on that Transaction and Advisor's role, if any, in assisting to close that Transaction), but with such compensation to in no event exceed 25% of the compensation payable to the Existing Firms for that Transaction. -------------- CONFIDENTIAL -------------- CYTRX CORPOATION -- CAPPELLO CAPITAL CORP. Engagement Letter -- May 16, 2003 -- Page 3 CONFIDENTIALITY: The Company agrees that, without prior written consent, it will not disclose, and will not include in any public announcement, the name or names of any investor, buyer, or strategic partner, unless and until such disclosure is required by law or applicable regulation, and then only to the extent of such requirement, unless the Company has received approval from the other party. CLOSING: The Closing of a Transaction shall occur on the earlier of execution of all material legal documentation or the transfer (if applicable) of funds. Any Closing is subject to mutually satisfactory documentation and approval by the Company's Board of Directors. The Company has no obligation to Advisor to accept or close any proposed Transaction. INFORMATION FURNISHED BY THE COMPANY: The Company will furnish Advisor with all financial and other information and data as Advisor believes appropriate in connection with its activities on the Company's behalf, and shall provide Advisor full access to its officers, directors, employees and professional advisors. The Company agrees that it and its counsel will be solely responsible for ensuring that the Transaction complies in all respects with applicable law, provided that in the case of a financing transaction, Advisor will not knowingly conduct its activities on behalf of the Company in a manner so that the financing fails to qualify for applicable private placement exemptions under federal and state securities laws that the Company is relying upon. The Company represents and warrants that any material delivered to Advisor at all times through Closing, will not contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. The Company will promptly notify Advisor if it learns of any material inaccuracy or misstatement in, or material omission from, any information theretofore delivered to Advisor. The Company recognizes and confirms that Advisor, in connection with performing its services hereunder, (i) will be relying without investigation upon all information that is available from public sources or supplied to it by or on behalf of the Company or its advisors, (ii) will not in any respect be responsible for the accuracy or completeness of, or have any obligation to verify, the same and (iii) will not conduct any appraisal of any assets of the Company. The Company will also cause to be furnished to Advisor at the Closing copies of such agreements, opinions, certificates and other documents delivered at the Closing as Advisor may reasonably request. WAIVER OF CONFLICTS: The Company acknowledges that Advisor and its affiliates have and will continue to have investment banking and other relationships with parties other than the Company pursuant to which Advisor may acquire information of interest to the Company. Advisor shall have no obligation to disclose such information to the Company, or to use such information in connection with any contemplated transaction. The Company recognizes that Advisor is being engaged hereunder to provide the services described above only to the Company and to all other parties, if any, who execute this Agreement in specified other capacities and is not acting as an agent or a fiduciary of, and shall have no duties or liability to, the equity holders of the Company or any third party in connection with its engagement hereunder, all of which are hereby expressly waived. No one other than the Company (and such other parties in such capacities, if any) is authorized to rely upon the engagement of Advisor hereunder or any statements, advice, opinions or conduct by Advisor. -------------- CONFIDENTIAL -------------- CYTRX CORPOATION -- CAPPELLO CAPITAL CORP. Engagement Letter -- May 16, 2003 -- Page 4 FEES AND EXPENSES: With respect to the services rendered hereunder, the following describes the fees and expense reimbursements that the Company agrees to pay the Advisor: a) A retainer fee of $20,000 per month, with the first installment payable upon the execution of this letter. The Company may credit the retainer amounts paid to the Advisor against any fees it becomes obligated to pay Advisor under this Agreement. This retainer may be cancelled by the Company, after giving the Advisor 30 days written notice. Upon the closing of any Transaction, the Company and the Advisor may enter into a separate retainer agreement relative to the rendering by the Advisor of post-Transaction or follow-on Transaction advisory services. b) In the event that the Company proceeds with a Private Placement during the Term, the Advisor will assist the Company with preparation of an investor presentation package, identify potential investors, and negotiate on behalf of the Company the terms and funding of the Transaction. At Closing of a Private Placement, the Company will pay the Advisor a cash fee, or at the Advisor's option, a percentage of the same security privately placed, according to SCHEDULE A attached; provided, that at the Advisor's option up to 50% of its cash fee may be paid to it instead with the same securities that were privately placed, at the same valuation for those securities paid by the investors. c) In the event that the Company proceeds with a Strategic Alliance during the Term, the Advisor will negotiate the terms and the Closing of a Private Placement and / or a sales, marketing and/or management agreement, as the Company may require. At Closing of the Strategic Alliance, the Company will pay the Advisor a fee based upon the value to the Company of the Strategic Alliance ("Transaction Value"). Such Transaction Value shall include any revenues or revenue sharing fees, royalties, license fees or milestone payments, and/or other items as may be mutually agreed upon in good faith by the parties hereto, according to SCHEDULE B attached. The Company and the Advisor shall in good faith agree at Closing on the value of any such non-cash consideration that is included in the value of a Strategic Alliance. d) In the event that the Company proceeds with a Sale or Merger during the Term, either as a separate Transaction or in conjunction with another Transaction where financing is necessary, the Advisor will assist the Company with preparation of an investor presentation package, identify potential Investors, and negotiate the terms and funding of the Transaction. At the Closing of such Transaction, the Company will pay the Advisor a Transaction fee equal to the value of all debt or equity securities or other consideration that are issued or exchanged in connection therewith, according to SCHEDULE B attached. This fee shall be payable in consideration equivalent to that of the Purchase Price. The Company and the Advisor shall in good faith agree at Closing on the value of any such non-cash consideration that is included in the value of a Sale or Merger. e) In the event that the Company proceeds with a Divestiture during the Term, either as a separate Transaction or in conjunction with another Transaction where financing is necessary, the Advisor will assist the Company with preparation of an investor presentation package, identify potential Investors, and negotiate the terms and funding of the Transaction. At the Closing of such Transaction, the Company will pay the Advisor a Transaction fee equal to the value of all debt or equity securities or other consideration that are issued or exchanged in connection therewith, according to SCHEDULE B attached. This fee shall be payable in consideration equivalent to that of the Purchase Price. -------------- CONFIDENTIAL -------------- CYTRX CORPOATION -- CAPPELLO CAPITAL CORP. Engagement Letter -- May 16, 2003 -- Page 5 The Company and the Advisor shall in good faith agree at Closing on the value of any such non-cash consideration that is included in the value of a Divestiture. f) In the event that the Company proceeds with a Recapitalization during the Term, either as a separate Transaction or in conjunction with another Transaction where financing is necessary, the Advisor will assist the Company with preparation of an investor presentation package, identify potential Investors, and negotiate the terms and funding of the Transaction. At the Closing of such Transaction, the Company will pay the Advisor a Transaction fee equal to the value of all debt or equity securities or other consideration that are issued or exchanged in connection therewith, according to SCHEDULE B attached. This fee shall be payable in consideration equivalent to that of the Purchase Price. The Company and the Advisor shall in good faith agree at Closing on the value of any such non-cash consideration that is included in value of a Recapitalization. g) In the event that the Company proceeds with an Acquisition during the Term, the Advisor will assist the Company with due diligence and negotiation of Acquisition terms. The Company will pay the Advisor, immediately upon Closing of any Acquisition, a Transaction fee according to SCHEDULE B attached. This fee shall be payable in consideration equivalent to that of the Purchase Price. The Company and the Advisor shall in good faith agree at Closing on the value of any such non-cash consideration that is included in the value of an Acquisition. h) In the case of any Strategic Alliance, Sale or Merger, Divesture, Recapitalization or Acquisition, where there are future payments to be made as part of the Transaction Value (contingent or otherwise) the Company shall be required to pay Advisor its fees based on such additional Transaction Value only at such time as those payments are made or received by the Company. i) Notwithstanding the above, in the event Advisor receives compensation from a third party in connection with the consummation of a Transaction with the Company during the Term, such compensation shall be credited against any fees due to Advisor from Company per paragraphs (b), (c), (d), (e), (f), (g) or (h) of the Fees and Expenses section of this Agreement. j) Any securities payable to the Advisor under this Agreement shall entitle the Advisor to full, unconditional piggyback registration rights without any holdback obligations. k) The Company agrees to immediately reimburse any out of pocket expenses incurred by the Advisor during the Term of the Agreement, whether or not a Transaction is consummated, including, but not limited to legal, consulting, travel, lodging and due diligence expenses. Individual Advisor expenses in excess of $2,500 shall require the prior written approval of the Company. On a month to month basis, the Company will immediately reimburse the Advisor for all expenses related to arranging a Transaction, or other services provided described heretofore, including, but not limited to legal, consulting, travel, lodging and due diligence expenses. l) In the event that Advisor's fees, costs or other compensation, including warrants or other equity securities, are not paid on the due date, or the date of Advisor's invoice, if any, there will be an additional charge at a monthly rate of one percent (1%), or such lesser rate mandated by California law, upon the unpaid balance or fair market value of such securities, as applicable. -------------- CONFIDENTIAL -------------- CYTRX CORPOATION -- CAPPELLO CAPITAL CORP. Engagement Letter -- May 16, 2003 -- Page 6 ADDITIONAL INVESTMENT OPTION: Effective as of the Closing of any financing Transaction during the Term with a Covered Party that involves a Private Placement, in lieu of an over-allotment option, the Advisor or its designees shall have the right to purchase from the Company for $100.00 an option to purchase ten percent (10%) of the securities that are placed in this financing or a warrant to acquire ten percent (10%) of the shares into which such securities are convertible, at a price equal to the price paid by the investor(s) (or the price of the shares at the time the merger is agreed upon) at Closing. For example: Placement Amount: $10,000,000 Additional Investment Option: 1,000,100 ----------- Total Funds Raised: $11,000,100 ===========
The option shall expire ten (10) years from Closing. A cashless exercise may be used for all related option or warrant transactions. The common stock underlying these options or warrants will be subject to full, unconditional piggyback registration rights without any holdback obligations. FUTURE INVESTMENTS: Notwithstanding anything to the contrary herein, if any Covered Party or underwriter (or their collective affiliates) consummates a Transaction with the Company under the terms of this Agreement where Advisor is not the placement agent, at any time within two years of the termination of the Term, as extended, if extended, the Company agrees to promptly pay the Advisor according to the Fees and Expenses and Additional Investment Option sections of the Agreement. A Transaction shall be deemed consummated before such date if any agreement in principle which includes material terms of such Transaction is reached prior to such date even if the closing occurs later (so long as the Transaction actually is consummated). Within thirty (30) business days following the end or termination of the Term, Advisor shall deliver to the Company a list of Covered Parties, which list, subject to the reasonable concurrence of the Company, shall establish the basis for compensation under the provisions of the Agreement following the expiration of the Term. TERMINATION OF AGREEMENT: Except as otherwise provided for herein, this Agreement may be cancelled by either party at any time prior to the end of the Term, effective upon thirty (30) days prior written notice to either party. ATTORNEY'S FEE PROVISION: In the event of any legal dispute between the Company and the Advisor, all reasonable attorney's fees and related expenses of the prevailing party shall be paid by the other party (which shall include an award of interest at 10% per annum and recovery of costs by the prevailing party). GOVERNING LAW AND JURISDICTION: California Law and California Courts. All lawsuits, hearings, arbitration or other proceedings shall take place in Los Angeles County, State of California. The parties irrevocably waive any objections they may have based on improper venue or inconvenient forum in Los Angeles County, State of California. -------------- CONFIDENTIAL -------------- CYTRX CORPOATION -- CAPPELLO CAPITAL CORP. Engagement Letter -- May 16, 2003 -- Page 7 MISCELLANEOUS: All payments and reimbursements of expenses payable hereunder shall be made in U.S. dollars in immediately available funds. This Agreement contains all of the understandings between the parties hereto with reference to the subject matter hereof. No other understanding not specifically referred to herein, oral or otherwise, shall be deemed to exist or bind any of the parties hereto and any such understandings, oral or otherwise, not specifically referred to herein shall be merged into this Agreement and superseded by the provisions hereof. No officer or employee of any party has any authority to make any representation or promise not contained herein. Advisor has the right to publish a tombstone describing the transaction upon closing at its own expense. This Agreement cannot be modified or changed except by a written instrument signed by each party hereto. RESTRICTED TRADING: Upon execution of this Agreement, Advisor shall inform its personnel that the Company's publicly traded stock has been placed on its restricted trading list. INDEMNIFICATION: Recognizing that Advisor, in providing the services contemplated hereby, will be acting as representative of and relying on information provided by the Company, the Company agrees to the provisions of Attachment A hereto. The Company shall use its best efforts to cause any binding agreements with acquirers or providers of capital or financing to include exculpation and indemnification provisions in favor of Advisor which are equivalent to the foregoing and are binding on such persons. It is specifically understood and agreed that the indemnification provisions of Attachment A shall be binding on the successors and assigns of the parties hereto and of the indemnified parties, specifically including the continuing corporation after any Transaction and any successor thereto whether by subsequent merger, consolidation or transfer of all or substantial part of the assets or business of the Company or such continuing corporation. (signatures on following page) -------------- CONFIDENTIAL -------------- CYTRX CORPOATION -- CAPPELLO CAPITAL CORP. Engagement Letter -- May 16, 2003 -- Page 8 If this Agreement meets with your approval, please indicate your acceptance of the above by signing where indicated below and returning this Agreement by facsimile and the original by mail to the undersigned. Thank you for the opportunity to be of service. Sincerely, /s/ Gerard K. Cappello - ----------------------- Gerard K. Cappello President and C.E.O. Cappello Capital Corp. AGREED AND ACCEPTED: The foregoing accurately sets forth our understanding and agreement with respect to the matters set forth herein. CytRx Corporation By: /s/ Steve A. Kriegsman ---------------------- Title: CEO --------------------- Date: 5-16-03 ----------------------- -------------- CONFIDENTIAL -------------- CYTRX CORPOATION -- CAPPELLO CAPITAL CORP. Engagement Letter -- May 16, 2003 -- Page 9 SCHEDULE A - ------------------------------------------------------------------------------- SCHEDULE A For Amounts Raised (in millions) Fees(1) --------------------------------------------------------------- Up to $25.0 7.50% --------------------------------------------------------------- From $25.1 to $50.0 7.25% --------------------------------------------------------------- From $50.1 to $75.0 7.00% --------------------------------------------------------------- From $75.1 to $100.0 6.75% --------------------------------------------------------------- From $100.1 to $125.0 6.50% --------------------------------------------------------------- From $125.1 to $150.0 6.25% --------------------------------------------------------------- From $150.1 to $200.0 6.00% --------------------------------------------------------------- From $200.1 to $250.0 5.75% --------------------------------------------------------------- From $250.1 to $300.0 5.50% --------------------------------------------------------------- $300.1+ 5.25% ---------------------------------------------------------------
(1) As a percentage of amount raised for each Private Placement. Example: the fee for a Private Placement valued at $75.0 million would be calculated as follows: ($25.0 x 7.50%) + ($25.0 x 7.25%) + ($25.0 x 7.00%) = $1.875 + $1.8125 + $1.750 = $5.4375 million. - ------------------------------------------------------------------------------- SCHEDULE B - ------------------------------------------------------------------------------- SCHEDULE B For Transaction Value (in millions) Fees(1) --------------------------------------------------------------- Up to $25.0 4.50% --------------------------------------------------------------- From $25.1 to $50.0 4.25% --------------------------------------------------------------- From $50.1 to $75.0 4.00% --------------------------------------------------------------- From $75.1 to $100.0 3.75% --------------------------------------------------------------- From $100.1 to $125.0 3.50% --------------------------------------------------------------- From $125.1 to $150.0 3.25% --------------------------------------------------------------- $150.1+ 3.00% ---------------------------------------------------------------
(1) As a percentage of the total value of all cash and securities consideration for each Transaction. Example: the fee for a Transaction valued at $75.0 million would be calculated as follows: ($25.0 x 4.50%) + ($25.0 x 4.25%) + ($25.0 x 4.00%) = $1.125 + $1.0625 + $1.000 = $3.320 million. -------------- CONFIDENTIAL -------------- CYTRX CORPOATION -- CAPPELLO CAPITAL CORP. Engagement Letter -- May 16, 2003 -- Page 10 INDEMNIFICATION - ATTACHMENT A The Company shall indemnify and hold harmless the Advisor and its respective directors, officers, agents, employees, affiliates and representatives (collectively the "Indemnified Persons" and individually an "Indemnified Person"), to the full extent lawful, from and against any losses, liabilities, claims or damages, including reasonable fees and expenses of legal counsel, related to or arising out of the Advisor's engagement hereunder or the Advisor's role in the Transaction contemplated hereby, including any losses, liabilities, claims or damages arising out of any statements or omissions made in connection with the transaction contemplated hereby; provided, however, that such indemnity shall not apply to claims which are determined by a final judgment of a court of competent jurisdiction to have resulted directly from the fraud, gross negligence or willful misconduct of an Indemnified Person. No Indemnified Person shall have any liability to the Company for or in connection with this engagement, except for any which are determined by a final judgment of a court of competent jurisdiction to have resulted directly from the fraud, willful misconduct or gross negligence of the Indemnified Person. Notwithstanding any other provisions hereunder, in no event shall the Indemnified Persons be liable to the Company for an amount greater, in the aggregate, than the cash fees actually received by the Advisor hereunder. These indemnification provisions are not exclusive, and shall be in addition to any other rights that any Indemnified Person may have at common law or otherwise. If any action is brought against any Indemnified Person in respect to which indemnity may be sought against the Company pursuant to this Agreement, or if any Indemnified Person receives notice from any potential litigant of a claim which such person reasonably believes will result in the commencement of any action or proceeding, such Indemnified Person shall promptly notify the Company in writing. Failure to notify the Company of any such action or proceeding shall not, however, relieve the Company from any other obligation or liability which it may have to any Indemnified Person under this Agreement or otherwise, except to the extent that the Company demonstrates that defense of such action is materially prejudiced by this failure. In case any such action or proceeding shall be brought against any Indemnified Person, the Company shall be entitled (at its own expense) to participate in such action or proceeding with counsel of the Company's choice, or to compromise or settle the action or proceeding, at its expense. Counsel selected by the Company under these circumstances must be satisfactory to the Indemnified Person in the exercise of its reasonable judgment. Notwithstanding the Company's election to assume the defense of any action or proceeding, the Indemnified Person shall have the right to employ separate counsel and to participate in the defense of any action or proceeding, and the Company shall bear the reasonable fees, costs and expenses of this separate counsel, if (a) the use of counsel chosen by the Company to represent the Indemnified Person would, in the judgment of the Indemnified Person, create a conflict of interest; (b) the defendants in, or targets of, any action or proceeding include both an Indemnified Person and the Company, and the Indemnified Person shall have reasonably concluded that a conflict of interest exists between such Indemnified Person and the Company because, among other matters, there may be legal defenses available to it or to other Indemnified Persons which are different from or additional to those available to the Company (in which case the Company shall not have the right to direct the defense of such action or proceeding on behalf of the Indemnified Person; (c) the Company shall not have employed counsel satisfactory to such Indemnified Person in the exercise of the Indemnified Person's reasonable judgment to represent such Indemnified Person within a reasonable time after notice of the institution of such action or proceeding; or (d) the Company shall authorize such Indemnified Person to employ separate counsel at the Company's expense. The Company shall pay all reasonable fees, costs and expenses of any separate counsel retained pursuant to this paragraph at least quarterly. In order to provide for just and equitable contribution, if a claim for indemnification is found unenforceable in a final, non-appealable judgment by a court of competent jurisdiction, even though the -------------- CONFIDENTIAL -------------- CYTRX CORPOATION -- CAPPELLO CAPITAL CORP. Engagement Letter -- May 16, 2003 -- Page 11 express provisions of this Agreement provide for indemnification in such case, the Company and the Advisor shall contribute to the losses, claims, damages, judgments, liability, expenses or costs for which the Indemnified Person may be liable in accordance with the relative benefits received by, and the relative fault of each respective party in connection with the statements, acts or omissions which resulted in losses, claims, damages, judgments, liabilities, or costs. The Company agrees that under these circumstances, a pro rata allocation would be unfair. Under no circumstances, however, will the Advisor be obliged to make any contribution to any expenses described in this paragraph which is greater than the amount of cash previously received by Advisor for its services to the Company. No person found liable for a fraudulent misrepresentation or omission shall, however, be entitled to contribution from any person who is not also found liable for such fraudulent misrepresentation of omission. These indemnification provisions shall (i) remain operative and in full force and effect regardless of any termination or completion of the engagement of the Advisor; (ii) inure to the benefit of any successors, assigns, heirs or personal representative of any Indemnified Person; and (iii) be in addition to any other rights that any Indemnified Person may have at common law or otherwise. AGREED AND ACCEPTED: The foregoing accurately sets forth our understanding and agreement as pertains to the Agreement dated May 16, 2003. CYTRX CORPORATION By: /s/ Steven A. Kriegsman ---------------------------------------- Title: CEO ------------------------------------- Date: 5-16-03 ----------------------------------------------- EX-10.14 7 exhibit_1014.txt Exhibit 10.14 June 6, 2003 Mr. Steven Kriegsman CytRx Corporation 11726 San Vicente Blvd. Suite 650 Los Angeles, CA 90049 Dear Steve: This letter will memorialize our agreement to modify the Engagement Agreement between CytRx Corporation and Cappello Capital Corp. dated May 16, 2003. The Fees and Expenses section of the Engagement Agreement, subsection (a), is hereby amended to delete the provision that provides for the crediting of any retainer amounts against any fees to be paid to Cappello Capital Corp. under the Agreement. Please signify your agreement by executing this letter in the space provided below. Sincerely, /s/ Gerard K. Cappello - ----------------------- Gerard K. Cappello President and CEO Cappello Capital Corp. Agreed and Accepted: CYTRX CORPORATION By: /s/ Steven A. Kriegsman ------------------------ Title: P/CEO ---------------------- Date: 6-17-03 ----------------------- EX-10.15 8 exhibit_1015.txt Exhibit 10.15 3650 MANSELL ROAD 100 WILSHIRE BOULEVARD SUITE 135 SUITE 1755 ALPHARETTA, GA 30022 SANTA MONICA, CA 90401 VOICE: 678.722.2300 VOICE: 310.899.2085 FAX: 678.722.2323 FAX: 678.722.2323 May 27, 2003 Mr. Steven Kriegsman Chief Executive Officer CytRx Corporation 11726 San Vicente Boulevard Suite 650 Los Angeles, CA 90049 Re: Engagement Letter Dear Steven: Cardinal Securities, LLC ("we" or "CS") is pleased to act as a financial advisor and placement agent for CytRx Corporation ("CytRx Corporation" or the "Company") in connection with the Company's proposed private placement in a "PIPE" transaction involving the sale of securities to institutional investors (the "Offering"). The Company has entered into an engagement letter with Cappello Capital Corp. ("Cappello") under which Cappello is to serve as the Company's exclusive placement agent for any financing transaction, including the Offering. Cappello has agreed to our participation in the Offering on the terms set forth herein. We look forward to working with the Company. 1. The Offering. (a) The Company currently anticipates raising up to USD$6 million in the Offering. The actual terms of the Offering will depend on market conditions, and will be subject to negotiation among the Company, Cappello, CS and prospective investors; provided, however, that all terms must be acceptable to the Company in its sole and absolute discretion. (b) Although we cannot guarantee CytRx Corporation that we will be able to raise new capital, we will conduct the offering on a best efforts basis. We will offer the Company's securities in the Offering only to those investors listed in Exhibit A hereto and any other investors that Cappello and the Company in their sole discretion jointly agree to in writing (collectively, the "CS Investors"). The Company will have no obligation to accept any subscription from any proposed investor in the Offering or any minimum aggregate amount of subscriptions from CS Investors. 2. Fees (a) Concurrently with the consummation of the Offering, the Company will pay a total cash fee equal to 11.25% of the gross proceeds received from the sale of securities to the CS Investors, with a cash fee equal to 3.75% of such gross proceeds to be paid to CS and a cash fee equal to 7.5% of such gross proceeds to be paid to Cappello. (b) The Company shall also grant to CS, a warrant, which entitles CS to purchase a number of shares of common stock equal to 3 1/2% of the number of shares of common stock purchased by the CS Investors in the Offering (the "CS Warrants"), which shall be in addition to the warrants to be issued to Cappello with respect to the shares purchased by the CS Investors for an amount of shares equal to 10% of the number of shares of common stock purchased by the CS Investors in the Offering. The CS Warrants shall be delivered at the closing of the Offering ("Initial Closing Date"), registered on the CS Investor's Registration Statement, and shall be exercisable any time until the tenth (10th) anniversary of the Initial Closing Date hereof at one hundred percent (100%) of the initial exercise price of the warrants issued to the CS Investors in the Offering, and shall provide for cashless exercise provisions. (c) The payment of cash and warrant fees to CS and Cappello shall be disclosed in writing to the CS Investors. (d) If the Company consummates a financing transaction within two years after the expiration date of this Agreement with any CS Investors, the Company shall pay CS concurrently with the consummation of that financing the cash fee of 3.75% of gross proceeds provided by the CS Investors in such financing, as described in Section 2(a), and shall issue CS warrants to purchase shares of common stock equal to 3.5% of the number of shares of common stock purchased by the CS Investors in such financing, as described in Section 2(b). 3. Representations and Warranties. (a) The Company hereby authorizes CS to transmit to the prospective purchasers of the securities copies of the Company's most recent filings with the Securities and Exchange Commission, together with summary materials, if any, approved by the Company. (b) You agree that CytRx Corporation will enter into subscription, registration rights and other customary agreements, and that your counsel will supply an opinion letter on the transaction in form and substance reasonably acceptable to, and addressed to, us and the investors. (c) The Company further agrees that we may rely upon, and are a third party beneficiary of, the representations and warranties, and applicable covenants, set forth in any agreements with investors in the offering. (d) CS represents that the only persons to which it has offered the Company's securities during the past six months are listed in Exhibit B hereto. 4. Indemnification, Contribution, Confidentiality and Expenses. The Company shall be solely responsible for, and hold harmless and indemnify CS (including its successors, officers, directors, shareholders, employees, agents and representatives) from and against, all losses, claims, damages, liabilities, and expenses (including any and all reasonable expenses and attorneys fees incurred in investigating, preparing or defending against any litigation or proceeding, commenced or threatened, or any claim whatsoever whether or not resulting in any liability) in connection with CS's services to the Company, unless such loss, claim, damage, liability or expense results from the willful misconduct or gross negligence of CS or its employees or agents. CS shall maintain the confidentiality and shall not disclose to any CS Investor or other third party any confidential information supplied to it by the Company. The Company shall reimburse CS for up to $1,000 of out-of-pocket expenses for due diligence, etc. 5. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of California applicable to contracts executed and to be wholly performed therein without giving effect to its conflicts of laws principles or rules. The Company and CS agree that any dispute concerning this Agreement shall be resolved through binding arbitration before the NASD pursuant to its arbitration rules. 6. Announcement of Offering. If the Offering is consummated, CS may, at its expense, place an announcement in such newspapers and periodicals as CS may desire, provided that the contents of the announcement accurately reflects the Company's relationship with Cappello and Cappello's participation in the Offering and is disclosed in writing to the Company prior to its publication. 7. Advice to the Board. The Company acknowledges that any advice given by us to you is solely for the benefit and use of the Board of Directors of the Company and may not be used, reproduced, disseminated, quoted or referred to, without our prior written consent. 8. Attorneys' Fees. If either party hereto commences any action against the other party to enforce any of the terms hereof or because of the breach by such other party of any of the terms hereof, the prevailing party shall be entitled, in addition to any other relief granted, to all actual out-of-pocket costs and expenses incurred by such prevailing party in connection with such action, including, without limitation, all reasonable attorneys' fees, and a right to such costs and expenses shall be deemed to have accrued upon the commencement of such action and shall be enforceable whether or not such action is prosecuted to final judgment. 9. Entire Agreement. This Agreement constitutes the entire Agreement between the parties and supersedes and cancels any and all prior or contemporaneous arrangements, understandings and agreements, written or oral, between them relating to the subject matter hereof. We look forward to working with you toward the successful conclusion of this engagement, and developing a long-term relationship with the Company. Very truly yours, CARDINAL SECURITIES, LLC By: /s/ Scott F. Koch -------------------------------------- Scott F. Koch Senior Managing Director Confirmed and accepted as of this day of May 2003: ----- CYTRX CORPORATION By: /s/ Steven Kriegsman -------------------------------------- Steven Kriegsman Chief Executive Officer EX-10.16 9 exhibit_1016.txt Exhibit 10.16 SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Second Amended and Restated Employment Agreement (this "Agreement") is made and entered into as of this 10th day of June, 2003, by and between CytRx Corporation, a Delaware corporation ("Employer"), and Steven A. Kriegsman, an individual and resident of the State of California ("Employee"), with reference to the following facts: A. Employer and Employee previously entered into an Amended and Restated Employment Agreement, dated May ___, 2002 (the "Original Employment Agreement"), under which Employee has served as Chief Executive Officer of Employer since July 16, 2002 in accordance with the terms of that agreement, and Employer and Employee have agreed that the term of the Original Employment Agreement will expire on July 15, 2003. B. Under the terms of the Original Employment Agreement, Employee was permitted to serve as the President of the Kriegsman Capital Group and its affiliates (collectively, "The Kriegsman Group") and to devote significant time and attention to the operations of The Kriegsman Group. C. Employer and Employee have agreed on the terms of a bonus to be paid by Employer to Employee for his service under the Original Employment Agreement. D. Employer believes that Employee has been and will continue to be an integral part of its management and is and will continue to be responsible for developing its business. E. Employee possesses extensive knowledge regarding Employer's business, including confidential and proprietary information concerning marketing plans and strategy, business plans, projections, and the formulae and models pertaining thereto, customer needs and peculiarities, finances, operations, billing methods, customer lists and trade secrets. F. Employer and Employee desire to enter into a new employment agreement under which Employee shall serve on a full-time basis as Employer's Chief Executive Officer on the terms set forth in this Agreement, with the term of this new employment agreement to commence on July 16, 2003 (the "Effective Date"). NOW, THEREFORE, upon the above premises, and in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows. 1. CONTINUATION AND EXPIRATION OF ORIGINAL EMPLOYMENT AGREEMENT. Employer and Employee agree that Employee shall continue to be employed as Employer's Chief Executive Officer under the terms of the Original -1- Employment Agreement through July 15, 2003. As a bonus for his services under the Original Employment Agreement, Employer shall pay Employee a cash bonus of $150,000 on June 16, 2003 and on June 20, 2003 shall issue a fully vested, nonqualified stock option to Employee to purchase 250,000 shares of the Corporation's common stock at a price of $2.47 per share (the "Bonus Option"). The Bonus Option shall have a term of ten years, shall be issued under the Employer's 2000 Long-Term Incentive Plan (the "Plan") and shall have such other terms and conditions as are set forth under Employer's form of standard nonqualified stock option agreement under the Plan (the "Nonqualified Option Agreement"). Employer and Employee agree that with the exception of Employee's remaining scheduled salary payments from the date hereof through July 15, 2003 and reimbursement of any outstanding expense reports or expense reports of Employee that accrue for amounts from the date hereof through July 15, 2003 that are permitted under Employer's expense reimbursement policy, Employer will owe no further compensation or other amounts to Employee on July 15, 2003 under the Original Employment Agreement, including without limitation salary, bonus or vacation pay. 2. NEW EMPLOYMENT AGREEMENT. Effective as of the Effective Date, Employer hereby hires Employee as Employer's Chief Executive Officer, and Employee hereby accepts such employment and position with Employer, on the terms and conditions set forth in Sections 2 through 22 hereof, which shall constitute Employee's new employment agreement with Employer (the "New Employment Agreement"). Employer understands that his duties as Chief Executive Officer may change from time to time over the term of the New Employment Agreement in the discretion of Employer's Board of Directors, but such duties shall in all events be consistent with the duties customarily assigned to the Chief Executive Officer of a company such as Employer. 3. DUTIES. Employee shall perform all duties assigned to him by the Employer's Board of Directors faithfully, diligently and to the best of his ability. Such duties include, without limitation, the overseeing and implementation of the business plan adopted by the Board of Directors (as may be revised from time to time by the Board of Directors). Employee shall perform the services contemplated under this New Employment Agreement in accordance with the policies established by and under the direction of the Board of Directors. Employee shall have such corporate power and authority as shall reasonably be required to enable him to discharge his duties under the New Employment Agreement. 4. TIME AND EFFORTS. Subject to the exceptions set forth in this Section 4, Employee shall devote 100% of his business time, efforts, attention, and energies to Employer's business in order to implement Employer's business plan and discharge his duties under the New Employment Agreement. 4.1. DIRECTORSHIP EXCEPTION. Notwithstanding any other provision of this Section 4, while the New Employment Agreement is in effect, Employee may serve on the board of directors of up to three companies other than Employer, but in no event shall Employee serve on the board of directors of any company that is directly competitive with Employer or serve as the chairman of any audit committee or other -2- committee of any other board of directors that requires substantial additional time on the part of Employee beyond that customarily required to serve as a member of the board of directors unless such service is approved by the Board of Directors. Employee may make and manage personal business investments of his choice and serve in any capacity with any civic, educational or charitable organization, or any governmental entity or trade association, without seeking or obtaining approval by the Board of Directors, provided such activities and services do not materially interfere or conflict with the performance of his duties hereunder. 4.2. THE KRIEGSMAN GROUP EXCEPTION. Notwithstanding any other provision of this Section 4, Employee may continue to serve as the President of and to operate The Kriegsman Group while the New Employment Agreement is in effect, so long as his involvement with The Kriegsman Group is strictly limited to completing that company's current assignments for SuperGen, Inc. Employee agrees that immediately following completion of the SuperGen, Inc. assignments, Employee will either (i) terminate the operations of The Kriegsman Group or (ii) retain a new President for The Kriegsman Group and thereafter cease all personal activities on behalf of The Kriegsman Group. Nothing contained in this Section 4 shall limit Employee's right to engage in activities or receive benefits from The Kriegsman Group solely in his capacity as an equity owner of that firm. 5. TERM. Employee's employment under the New Employment Agreement shall commence on the Effective Date and shall continue until July 15, 2006 (the "Expiration Date"), unless sooner terminated by Employer or Employee in accordance with Section 6 (the "Term"); provided, however, that unless Employer or Employee gives written notice to the other party to the contrary at least 180 days prior to the Expiration Date, this Agreement shall automatically be extended for an additional term of one (1) year following the Expiration Date; and, provided further, that this Agreement shall continue to renew automatically for an additional term of one (1) year on each anniversary of the Expiration Date unless Employer or Employee gives written notice to the other party to the contrary at least 90 days prior to such anniversary date. References herein to the "Term" shall include any automatic extensions pursuant to the preceding sentence. Provision of a notice that the New Employment Agreement will not be extended shall not constitute a breach of the New Employment Agreement. 6. COMPENSATION. As the total consideration for Employee's services rendered under the New Employment Agreement, Employer shall pay Employee the following compensation: 6.1. SALARY. Commencing as of the Effective Date, Employer shall pay Employee an annual salary of $360,000 per year, in 24 equal semi-monthly installments, on the 15th and last day of each month during the Term, with the first payment due on July 31, 2003. Employee's annual salary shall be subject to review annually by the Board of Directors of Employer and may be increased (but not decreased) in the sole discretion of the Board of Directors or the Compensation Committee of the Board. -3- 6.2. BONUS COMPENSATION. Employee shall receive an annual cash bonus on the business day immediately preceding each anniversary of the Effective Date while the New Employment Agreement is in effect. The amount of each such bonus payment shall be determined by Employer's Board of Directors or Compensation Committee, in its sole discretion, but in no event shall any such bonus be less than $150,000 for each year (prorated for any period of less than a full year) during the Term. 6.3. STOCK OPTIONS. Employer shall grant to Employee as of June 20, 2003 a nonqualified stock option under the Plan to purchase 750,000 shares of Employer's common stock at a price of $2.47 per share (the "New Option"), which shall have a term of ten years, shall vest as to 1/3rd of the shares covered thereby on June 20, 2004 and shall vest as to the remaining 2/3rds of such shares in monthly installments of 1/24th each on the 20th day of each month thereafter, commencing on July 20, 2004, so that the New Option shall be fully vested as to all of the shares covered thereby on June 20, 2006, provided that Employee shall remain in the continuous employ of Employer through each such vesting date, and shall have such other terms and conditions as are set forth in Employer's Nonqualified Option Agreement evidencing the New Option. Employee recognizes that the Plan currently limits to 500,000 the aggregate number of shares covered by options that may be granted to Employee in any calendar year and that the New Option, when aggregated with the stock option granted to Employee as referred to in Section 1 of this Agreement, exceed this Plan limitation. In this respect, Employer shall amend the Plan, and hereby undertakes at the 2003 annual meeting of its shareholders to seek approval of its shareholder of such amendment to the Plan, to increase to at least 1,000,000 the number of shares of Employer's common stock covered by options that may be granted to any optionee in any calendar year. In the event, however, that Employer's shareholders fail to approve such amendment to the Plan at the 2003 annual meeting of shareholders, or such amendment is not otherwise approved by no later than December 31, 2003, (i) by its terms the New Option shall thereupon be modified (the "Modified New Option") to reduce the number of shares covered thereby from 750,000 to 250,000 and (ii) Employer shall grant to Employee on January 2, 2004, a new nonqualified option under the Plan to purchase 500,000 shares of Employer's common stock at an exercise price equal to the "Fair Market Value" (as defined in the Plan) on January 2, 2004 (the "2004 Option"), which shall vest in accordance with the vesting provisions and otherwise shall have the same terms and conditions as the Modified New Option. (The exercise price of the Modified New Option will remain unchanged at $2.47 per share.) In addition, to the extent the exercise price of the 2004 Option exceeds $2.47 per share, Employer also shall, to the extent permissible under the Plan and applicable Nasdaq governance standards, grant to Employee as of December 31, 2003 and/or January 2, 2004 performance units or other awards under the Plan which, in combination with the Modified Option and the 2004 Option, afford Employee aggregate economic benefits equivalent to those that would have been afforded Employee under the New Option had it not been modified as aforesaid. If necessary because of applicable Plan or Nasdaq governance standards limitations, Employer shall make a further grant or award to Employee on January 2, 2004 of a promissory note or other instrument of Employer payable in cash only so as to accomplish this objective. Employer and Employee understand and agree that such -4- performance units and awards shall be payable solely in shares of Employer common stock. Employer and Employee further understand and agree that such performance units and awards, and any such promissory note or other instrument, shall vest and become exercisable and/or payable ratably only in conjunction with the future exercise by Employee of the Modified New Option. Employee also shall be eligible for future grants of stock options and other equity awards based on Employer stock in accordance with Employer's practices and policies with respect to its senior executives. 6.4. EXPENSE REIMBURSEMENT. Employer shall promptly reimburse Employee for reasonable and necessary business and entertainment expenses incurred by Employee in connection with the performance of Employee's duties in accordance with Employer's usual reimbursement policies and procedures in effect from time to time. 6.5. VACATION. Employee shall be entitled to four weeks vacation time for each 12-month period during the Term without loss of compensation. Employee's vacation shall be governed by Employer's usual policies applicable to all employees. 6.6. EMPLOYEE BENEFIT PLANS AND FRINGE BENEFITS. Employee shall be eligible to participate in all employee benefit plans and programs, fringe benefits and perquisites as in effect generally with respect to other senior officers of Employer; provided, however, that unless and until Employer shall adopt a group medical benefit plan providing health care coverage for its employees, including Employee, Employer shall continue during the Term to pay on Employee's behalf the annual premiums for the medical insurance coverage currently maintained by Employee for himself and his family. During the Term, Employer shall also continue to make fixed annual premium payments of $5,000 on the Transamerica Occidental Life Insurance Company policy insuring Employee under which Employee or his designee is the beneficiary. 6.7. TAX WITHHOLDING. Employer shall have the right to deduct from the compensation due to Employee hereunder any and all sums required for social security and withholding taxes and for any other federal, state, or local tax or charge which may be in effect or hereafter enacted or required as a charge on the compensation of Employee. 7. TERMINATION. 7.1. TERMINATION BY EMPLOYER FOR CAUSE. Employer may terminate Employee's employment hereunder for "Cause" (as defined below), provided that Employer has complied with the provisions of this Section 7.1. Employee shall be given written notice by Employer's Board of Directors of the intention to terminate him for Cause. Such notice shall state in reasonable detail the particular circumstances that constitute Cause for termination. Employee shall have 15 days after receiving such notice in which to cure such circumstances, to the extent such cure is possible. If cure is not possible, or if he fails to cure such circumstances, Employee shall then be entitled to a hearing before the Board. Such hearing shall be held within 20 days of his receiving such notice, provided that he requests such hearing within 15 days of receiving such notice. If, within five days following such hearing, the Board gives written notice to -5- Employee confirming that, in the judgment a majority of the members of the Board (excluding Employee), Cause for terminating his employment on the basis set forth in the original notice exists, the Term and Employee's employment hereunder shall be terminated for Cause. The term "Cause" for purposes of this New Employment Agreement shall mean any of the following: (a) Employee has materially breached any material term of the New Employment Agreement; (b) Employee is (i) convicted of, or has entered a plea of guilty or nolo contendere to, any felony that in the reasonable judgment of Employer's Board of Directors is materially injurious to Employer or its reputation or (ii) is convicted of, or has entered a plea of guilty or nolo contendere to, any misdemeanor, felony or other crime of moral turpitude that in the reasonable judgment of the Board of Directors of Employer is materially injurious to Employer or its reputation; provided, however, that in the event Employee is indicted for, or charged with, the commission of any felony that in the judgment of the Board of Directors could reasonably be expected to result in substantial lasting harm to Employer or its reputation, Employer shall be entitled summarily to suspend Employee's services to Employer hereunder, without a loss to Employee of his compensation and other benefits hereunder, during the pendency of such indictment or charge; (c) Employee has willfully committed (i) any act of fraud or gross misconduct against Employer or (ii) any act of fraud or gross misconduct not directly involving Employer that in the reasonable judgment of the Board of Directors of Employer is materially injurious to Employer or its reputation; or (d) Employee has willfully failed or refused or is legally unable (other than due to his death or total disability as defined in Section 19), to perform his duties as required under the New Employment Agreement. If Employer terminates Employee's employment for Cause, the termination shall take effect on the effective date (determined under Section 16) of the final written notice to Employee pursuant to this Section 7.1, and Employee shall be entitled to (i) a lump sum cash payment, payable within ten (10) business days after the date of termination of Employee's employment, equal to the sum of (A) any accrued but unpaid salary as of the date of such termination, (B) any accrued but unpaid bonus due under Section 6.2 for any annual period ended prior to the date of such termination and (C) the minimum bonus under Section 6.2 for the annual period in which such termination occurs, prorated through the date of such termination, and (ii) such benefits, if any, to which Employee or his dependents or beneficiaries may then be entitled as a participant under the employee benefit plans referred to in Section 6.6. In the event of the termination of Employee's employment for Cause, Employee's stock options and any other equity awards based on Employer's securities, such as restricted stock, restricted stock units, stock appreciation rights, performance units, etc. shall, to the extent then vested and exercisable, remain vested and exercisable in accordance with their terms. -6- 7.2. TERMINATION BY EMPLOYER WITHOUT CAUSE. Employer may terminate Employee's employment without Cause, which termination shall take effect on the effective date (determined under Section 16 of this Agreement) of written notice of such termination to Employee. A termination by Employer in accordance with this Section 7.2 shall not be deemed a breach of this Agreement. Upon any termination of Employee's employment by Employer without Cause pursuant to this Section 7.2, Employee shall be entitled to (i) a lump sum cash payment, payable within ten (10) business days after the date of termination of Employee's employment, equal to the sum of (A) any accrued but unpaid salary as of the date of such termination, (B) any accrued but unpaid bonus due under Section 6.2 for any annual period ended prior to the date of such termination and (C) the minimum bonus under Section 6.2 for the annual period in which such termination occurs, prorated through the date of such termination; (ii) such benefits, if any, to which Employee and his dependents or beneficiaries may then be entitled as a participant under the employee benefit plans referred to in Section 6.6; (iii) immediate vesting of all of Employee's stock options and any other equity awards based on Employer securities, such as restricted stock, restricted stock units, stock appreciation rights, performance units, etc, all of which shall remain exercisable for their full term; (iv) continuation of the life insurance premium payments and medical insurance premium payments described in Section 6.6 (unless such medical insurance premium payments have been replaced by participation in an Employer-sponsored medical benefit plan as provided herein) through the expiration of the then current Term, but in no event for a period of less than 24 months; (vi) continued participation, through the expiration of the then current Term, but in no event for a period of less than 24 months, of Employee and each of his dependents in any Employer-sponsored health plan at the benefit level in effect from time to time and with COBRA benefits commencing thereafter. In addition to the foregoing payments and continuation of benefits, Employer shall pay Employee in a lump-sum within 10 days following the date of termination of Employee's employment an amount equal to the sum of (x) Employee's salary as provided in Section 6.1 and (y) the minimum bonus under Section 6.2 that would otherwise be payable for the period (the "Severance Period") commencing on the date of termination of Employee's employment and ending on the later of (1) the expiration of the Term and (2) the second anniversary of such termination date. 7.3. TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee may terminate his employment hereunder for "Good Reason," which shall mean any material breach by Employer of the terms hereof that is not corrected by Employer within five days after written notice by Employee to Employer, including, without limitation, (i) the assignment to Employee of any duties inconsistent in any respect with his position as Chief Executive Officer (including status, offices, titles, reporting requirements, authority, duties or responsibilities); (ii) any failure by Employer to comply with its compensation obligations under the New Employment Agreement; or (iii) Employer's requiring Employee to be based at any office or location other than in Los Angeles, California or within ten miles of the current location of the Company's headquarters. If Employee terminates his employment for Good Reason, subject to Employer's right to cure as set forth above, the termination shall take effect on the effective date (determined -7- under Section 16) of the written notice to Employer, and Employee shall be entitled to the same payments and benefits, at the same times, described in Section 7.2 for a termination by Employer without Cause. 7.4. TERMINATION BY EMPLOYEE WITHOUT GOOD REASON. Employee shall have the right to voluntarily terminate his employment hereunder at any time without Good Reason upon 30 days' written notice to Employer. A voluntary termination by Employee in accordance with this Section 7.4 shall not be deemed a breach of this Agreement. Upon any voluntary termination of employment by Employee without Good Reason pursuant to this Section 7.4, Employee shall be entitled only to such payments and benefits as those described in Section 7.1 for a termination by Employer for Cause. 7.5. TERMINATION IN CONNECTION WITH A CHANGE IN CONTROL. For purposes of this Section 7.5, a "Change in Control" shall have the meaning described to such term in Employer's 2000 Long-Term Incentive Plan. If a Change in Control occurs during the Term, and if, during the Term and within two years after the date on which the Change in Control occurs, Employee's employment is terminated by Employer without Cause or by Employee for Good Reason, then Employee will be entitled to the payments and benefits, at the same times, described in Section 7.2 for a termination by Employer without Cause. In addition, to the extent that any payment or distribution of any type to or for Employee by Employer (which for purposes of this Section 7.5 includes any parent, subsidiary or affiliate of Employer), whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (including, without limitation, any accelerated vesting of stock options or other equity awards based on Employer stock granted pursuant to this Agreement or otherwise) (collectively, the "Total Payments") is or will be subject to the excise tax ("Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any successor to such Section), Employer shall pay to Employee, prior to the time any Excise Tax is payable with respect to any of such Total Payments (through withholding or otherwise), an additional amount (a "Gross-Up Payment") that, after the imposition of all income, employment, excise and other taxes, penalties and interest thereon, is equal to the sum of (i) the Excise Tax on such Total Payments plus (ii) any penalty and interest assessments associated with such Excise Tax. The determination of whether any portion of the Total Payments is subject to an Excise Tax and, if so, the amount and time of any Gross-Up Payment pursuant to this Section 7.5, shall be made by an independent auditor (the "Auditor") jointly selected by Employee and Employer and paid by Employer. If Employee and Employer cannot agree on the firm to serve as the Auditor, then they shall each select an accounting firm and those two firms shall jointly select the accounting firm to serve as the Auditor. Unless Employee agrees otherwise in writing, the Auditor shall be a nationally recognized United States public accounting firm that has not during the two years preceding the date of its selection, acted in any way on behalf of Employer. Employee and Employer shall cooperate with each other in connection with any proceeding or claim relating to the existence or amount of any liability for Excise Tax. All expenses relating to any such proceeding or claim (including attorneys' fees and other expenses incurred by Employee in connection -8- therewith) shall be paid by Employer promptly upon demand by Employee, and any such payment shall be subject to a Gross-Up Payment under this Section 7.5 in the event that Employee is subject to Excise Tax on it. 8. NO MITIGATION; NO OFFSET. Employee shall have no obligation to seek other employment or to otherwise mitigate Employer's obligations to him arising from the termination of his employment, and no amounts paid or payable to Employee by Employer under this Agreement shall be subject to offset for any remuneration to which Employee may become entitled from any other source after his employment with Employer terminates, whether attributable to subsequent employment, self-employment or otherwise. 9. FIRST OFFER. Employee acknowledges and agrees that a material inducement to Employer to enter into the New Employment Agreement is the Employee's expertise in, knowledge of and ability to identify acquisition candidates within, the biotech, pharmaceutical and health care industries. Accordingly, Employee agrees that Employee will provide, and will cause The Kriegsman Group for so long as Employee is the principal owner of The Kriegsman Group to provide, Employer's Board of Directors with the first opportunity to conduct or take action with respect to any acquisition opportunity or any other potential transaction identified by Employee or The Kriegsman Group within the biotech, pharmaceutical or health care industries and that is within the scope of the business plan adopted by the Employer's Board of Directors. Employee's obligations under this Section 9 shall commence on the Effective Date and shall continue while the New Employment Agreement is in effect. 10. CONFIDENTIALITY. While the New Employment Agreement is in effect and for a period of five years thereafter, and except as otherwise required by law or legal process and after reasonable notice to Employer and opportunity for Employer to intervene, Employee shall hold and keep secret and confidential all Trade Secrets and other confidential or proprietary information of Employer and shall use such information only in the course of performing Employee's duties hereunder; provided, however, that with respect to "trade secrets" (as defined under applicable law), Employee's confidentiality obligations shall continue for so long as they remain "trade secrets" under applicable law. Employee shall maintain in trust all such "trade secret" or other confidential or proprietary information, as Employer's property, including, but not limited to, all documents concerning Employer's business, including Employee's work papers, telephone directories, customer information and notes, and any and all copies thereof in Employee's possession or under Employee's control. Upon expiration or earlier termination of Employee's employment with Employer, for any reason, or upon request by Employer, Employee shall deliver to Employer all such documents belonging to Employer, including any and all copies in Employee's possession or under Employee's control. 11. EQUITABLE REMEDIES; INJUNCTIVE RELIEF. Employee hereby acknowledges and agrees that monetary damages are inadequate to fully compensate Employer for the damages that would result from a breach or threatened breach of Sections 8 or 9 hereof -9- and, accordingly, that Employer shall be entitled to equitable remedies, including, without limitation, specific performance, temporary restraining orders, and preliminary injunctions and permanent injunctions, to enforce such Sections without the necessity of proving actual damages in connection therewith. This provision shall not, however, diminish Employer's right to claim and recover damages or enforce any other of its legal or equitable rights or defenses. 12. SEVERABLE PROVISIONS. The provisions of the New Employment Agreement are severable and if any one or more provisions is determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions, and any partially unenforceable provisions to the extent enforceable, shall nevertheless be binding and enforceable. 13. BINDING AGREEMENT. The New Employment Agreement shall inure to the benefit of and shall be binding upon Employer, its successors and assigns and Employee and his heirs and representatives. Neither party may assign the New Employment Agreement without the prior written consent of the other party. 14. ENTIRE AGREEMENT. The New Employment Agreement, together with the Original Employment Agreement, contains the entire agreement of the parties relating to the subject matter hereof, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of the New Employment Agreement or the Original Employment Agreement that are not set forth otherwise in the Original Employment Agreement or herein. The New Employment Agreement supersedes any and all prior agreements, written or oral, between Employee and Employer relating to the subject matter hereof. Any such prior agreements are hereby terminated and of no further effect and Employee, by the execution hereof, agrees that any compensation provided for under any such prior agreements is specifically superseded and replaced by the provisions of this Agreement. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto and unless such writing is made by an executive officer of Employer (other than Employee) after approval by Employer's Board of Directors. The parties hereto agree that in no event shall an oral modification of this Agreement be enforceable or valid. 15. GOVERNING LAW. This Agreement is and shall be governed and construed in accordance with the laws of the State of California without giving effect to California's choice of law rules. 16. NOTICE. All notices and other communications under this Agreement shall be in writing and mailed, telecopied or delivered by hand or by a nationally recognized courier service guaranteeing overnight delivery to a party at the following address (or to such other address as such party may have specified by notice given to the other party pursuant to this provision and shall be effective when personally delivered or two (2) business days after being mailed: -10- If to Employer: CytRx Corporation 11726 San Vicente Boulevard, Suite 650 Los Angeles, California 90049 Facsimile: (310) 826-5529 Attention: Corporate Secretary With a copy to: Sanford J. Hillsberg Troy & Gould Professional Corporation 1801 Century Park Boulevard Sixteenth Floor Los Angeles, California 90067 Facsimile: (310) 201-4746 If to Employee: Steven A. Kriegsman The Kriegsman Group 11726 San Vicente Blvd., Suite 650 Los Angeles, CA 90049 Facsimile: (310) 826-5529 With a copy to: Linda Griffey O'Melveny & Myers LLP 400 South Hope Street Los Angeles, CA 90071 Facsimile: (213) 430-6407 17. ATTORNEYS' FEES. Employee acknowledges that he has been represented in connection with this Agreement by O'Melveny & Myers LLP. Employer shall reimburse Employee for up to $6,000 of Employee's legal fees incurred in connection with the preparation of this Agreement. 18. ARBITRATION. The parties agree if any controversy or claim shall arise out of this Agreement or the breach hereof (other than claims (a) for equitable relief, including specific performance, injunctive relief or temporary restraining orders or (b) enforcing this Section 16 or an arbitration award granted in accordance herewith), and either party shall request that the matter be settled by arbitration the matter shall be settled exclusively by final and binding arbitration before JAMS (or its successor pursuant to the United States Arbitration Act, 9 U.S.C. Section 1 et seq.) in accordance -11- with the provisions of JAMS' Streamlined Arbitration Rules and Procedures in effect at such time, by a single arbitrator, if the parties shall agree upon one, or by one arbitrator appointee by each party and a third arbitrator appointed by the other arbitrators. In case of any failure of a party to make an appointment referred to above within two (2) weeks after written notice of controversy, such appointment shall be made by JAMS. All arbitration proceedings shall be held in the City of Los Angeles, and each party agrees to comply in all respects with any award made in such proceeding and to the entry of a judgment in any jurisdiction upon any award rendered in such proceeding. All costs and expenses of arbitration (including costs of preparation therefore and reasonable attorneys' fees and disbursements of counsel incurred in connection therewith) shall be borne by the respective party incurring such costs and expenses. Notwithstanding the foregoing, following a Change in Control, all reasonable costs and expenses (including costs of preparation therefore and attorneys' fees and disbursements of counsel) incurred by Employee pursuant to this section shall be paid on behalf of or reimbursed to Employee promptly by Employer; provided, however, that Employee shall repay such amounts to Employer in any contest brought by Employee if the arbitrator determines that Employer did not breach this Agreement and Employee's claim was not made in good faith. 19. DEATH OR DISABILITY. In the event of Employee's death or "Disability" (as defined below) during the Term, the Employee's employment shall automatically cease and terminate as of the date of Employee's death or the effective date of Employer's written notice to Employee of its decision to terminate his employment by reason of his Disability, as the case may be, and Employee shall be entitled to the same payments and benefits, at the same times, as described in Section 7.2 for a termination of employment by Employer without Cause. Likewise, any stock options and other equity awards held by Employee at the time of his death or Disability shall immediately vest in full upon such termination and shall remain exercisable thereafter for the full term of such options and equity rights. Notwithstanding the foregoing or any provision of Section 7.2, Employer's obligation to pay Employee the salary and bonus called for in Section 7.2 during the Severance Period following termination of his employment by reason of his Disability shall be subject to offset and shall be reduced by any and all amounts paid to Employee under any disability insurance policy paid or provided for by Employer as provided in Section 6.6 or otherwise. For purposes of this Agreement, the term "Disability" means the inability of Employee to perform substantially all of his duties hereunder for any period of at least 120 consecutive days by reason of any physical or mental incapacity. 20. SURVIVAL. In the event the New Employment Agreement expires after its Term or is terminated, the provisions of Sections 7, 10, 11, 12, 15, 16, 18, 19 and 22 shall survive. 21. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same agreement. -12- 22. INDEMNIFICATION. 22.1. EMPLOYER INDEMNITY. If Employee is made a party, or is threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that he is or was a director, officer or employee of Employer or any affiliate of Employer or was serving at the request of Employer or any affiliate of Employer as a director, officer, member, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether or not the basis of such Proceeding is Employee's alleged action in an official capacity while serving as a director, officer, member, employee or agent, then Employer will indemnify Employee and hold him harmless to the fullest extent legally permitted or authorized by Employer's certificate of incorporation or bylaws or resolution of the Board of Directors to the extent not inconsistent with the laws of the State of Delaware, against all cost, expense, liability and loss (including, without limitation, attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by Employee in connection therewith, except to the extent attributable to Employee's gross negligence or fraud), and such indemnification shall continue as to Employee even if he has ceased to be a director, member, officer, employee or agent of Employer or affiliate and shall inure to the benefit of Employee's heirs, executors and administrators. Employer will advance to Employee all reasonable costs and expenses to be incurred by him in connection with a Proceeding within 20 days after receipt by Employer of a written request for such advance. Such request shall include an undertaking by Employee to repay the amount of such advance if it shall ultimately be determined that he is not entitled to be indemnified against such costs and expenses. The provisions of this subsection 22.1 shall not be deemed exclusive of any other rights of indemnification to which Employee may be entitled or which may be granted to him and shall be in addition to any rights of indemnification to which he may be entitled under any policy of insurance. 22.2. NO PRESUMPTION REGARDING STANDARD OF CONDUCT. Neither the failure of Employer (including its Board of Directors, independent legal counsel or stockholders) to have made a determination prior to the commencement of any proceeding concerning payment of amounts claimed by Employee under the preceding subsection 22.1 of this Section 22 that indemnification of Employee is proper because he has met the applicable standard of conduct, nor a determination by Employer (including its Board of Directors, independent legal counsel or stockholders) that Employee has not met such applicable standers of conduct, shall create a presumption the Employer has not met the applicable standard of conduct. 22.3. LIABILITY INSURANCE. Employer will continue and maintain a directors and officers liability insurance policy covering Employee to the extent Employer provides such coverage for its other senior executive officers. -13- IN WITNESS WHEREOF, this Agreement is executed as of the day and year first above written. "EMPLOYER" CytRx Corporation, a Delaware corporation By: /s/ Max Link ------------------------------- Name: Max Link, Ph.D. Title: Chairman of the Board "EMPLOYEE" /s/ Steven A. Kriegsman ---------------------------------- Steven A. Kriegsman -14- EX-10.17 10 ex10_17.txt Exhibit 10.17 FINANCIAL CONSULTING AGREEMENT THIS AGREEMENT is made and entered into as of May 10, 2003, by and between CYTRX CORPORATION, located at 11726 San Vicente Blvd., Suite 650, Los Angeles, CA 90049 ("CytRx") and JAMES SKALKO, located 1858 Bridgewater Drive, Lake Mary, FL 32746 ("Consultant"). For further consideration of the mutual promises and covenants contained herein, the parties hereto agree as follows: 1. SERVICES. (a) CytRx hereby hires and employs Consultant as an independent contractor; and Consultant does hereby accept its position as an independent contractor to CytRx upon the terms and conditions hereinafter set forth. (b) Consultant will perform financial advisory services on a non-exclusive basis. Such services will be performed on a best efforts basis and will include the following: (1) Introduction of CytRx to brokerage firms to discuss potential investment banking relationships: (2) Identification of and introduction to potential merger or acquisition candidates; (3) Assistance to CytRx with capital structuring and the placement of new debt and equity securities; (4) Any such other activities as the parties may mutually agree to, all with the objective of accomplishing CytRx's business and financial goals. (c) Consultant shall devote such time as, in the sole discretion of the Consultant, to the performance of his duties, is needed to fulfill his duties under all of the terms and conditions of this Agreement. (d) Both parties intend this Agreement to be a personal contract and Consultant shall not assign or delegate any rights, duties or obligations arising under this Agreement without the prior written consent of CytRx, which consent may be withheld in CytRx's sole discretion. 2. COMPENSATION. Except as expressly provided herein, neither CytRx nor any parent, subsidiary, or affiliate of CytRx or joint venture in which CytRx an interest, shall be liable for any payment to Consultant. (a) CytRx shall pay to Consultant upon execution of this Agreement, a one time retainer fee of 100,000 restrictive common shares. During the term of Consultant's services. For further compensation of services rendered, Consultant shall be given 200,000 two-year warrants exercisable at $1.00 per shares. Such shares shall be fully paid and non assessable, issued pursuant to a valid board of director's resolution and plan of compensation, adopted by CytRx, in accordance with the laws of the State of Florida and California and all applicable federal securities laws. (b) Consultant shall be reimbursed by CytRx for all costs incurred by Consultant in the performance of his duties, as set forth in Section 1(b). Consultant will agree to obtain prior written approval for any expense item in excess of $200.00. (c) Requests by Consultant for reimbursement of expenses must be accompanied by an itemization of such expenses and reimbursed within thirty (30) days of Consultant submission. (d) All compensation and expense reimbursements are subject to audit by CytRx upon request by CytRx and Consultant agrees to cooperate fully with CytRx in the event of such a request. (e) Piggyback Registration Rights. If CytRx, during the period of time from May 10, 2003 to May 9, 2004 files a new Registration Statement on Form S-3 under the Securities Act of 1933, as amended, covering the sale of any CytRx's Common Stock, then on each such occasion, CytRx shall include in any such Registration Statement the shares of Common Stock previously issued to Consultant, provided that such shares are eligible for inclusion in the Form S-3 and that Consultant is eligible under NASD regulations. 3. TERM AND TERMINATION. The term of this Agreement shall commence May 10, 2003 and shall automatically terminate effective May 9, 2004. (a) Consultant shall have the right to full compensation as defined in Section 2 (a) and may terminated this Agreement at any time without notice (i) for illegal acts or willful neglect on the part of Cytrx or CytRx's agents or employees or (ii) in the event any representation, warranty, covenant, or agreement of CytRx contained in this Agreement shall prove to be inaccurate in whole or in part or (iii) in the event that CytRx materially breaches any of its obligations under this Agreement. 4. In connection with the performance of this Agreement, CytRx and Consultant shall comply with all applicable laws and regulations, including, without limitation, those of the National Association of Securities Dealers, Inc. and the Securities Exchange Commission. 5. This Agreement may not be executed in counterparts and by fax transmission, each counterpart being deemed an original. IN WITNESS WHEREOF, the Parties have executed this Agreement on the day and year first above written. CYTRX CORPORATION CONSULTANT By: /s/ Steve Kriegsman By: /s/ James Skalko ------------------- -------------------------------- Steve Kreigsman James Skalko 29 EX-31 11 ex31_1.txt Exhibit 31.1 CERTIFICATION I, Steven A. Kriegsman, 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 period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. I am 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 I have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me 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 my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation (the "Evaluation Date"); 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 that has materially affected or is reasonably likely to materially affect the registrant's internal control over financial reporting. 5. I have disclosed, based on my most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to 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. Dated: August 14, 2003 /s/ Steven A. Kriegsman - ----------------------------------- Steven A. Kriegsman Chief Executive Officer and Interim Chief Financial Officer EX-32 12 ex32_1.txt Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of CytRx Corporation (the "Company") on Form 10-Q for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Steven A. Kriegsman, Chief Executive Officer and interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original 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. /s/ STEVEN A. KRIEGSMAN - --------------------------------------- Steven A. Kriegsman Chief Executive Officer and Interim Chief Financial Officer Date: August 14, 2003 -----END PRIVACY-ENHANCED MESSAGE-----