VAXCEL INC
S-4/A, 1997-04-17
PHARMACEUTICAL PREPARATIONS
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<PAGE>   1
 
   
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 1997
    
 
                                                      REGISTRATION NO. 333-19125
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                               ------------------
 
   
                                AMENDMENT NO. 4
    
                                       TO
                                    FORM S-4
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                               ------------------
 
                                  VAXCEL, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                <C>                              <C>
           DELAWARE                            2830                       58-2027283
(STATE OR OTHER JURISDICTION OF    (PRIMARY STANDARD INDUSTRIAL        (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)      CLASSIFICATION CODE NUMBER)     IDENTIFICATION NUMBER)
</TABLE>
 
                             154 TECHNOLOGY PARKWAY
                            NORCROSS, GEORGIA 30092
                                 (770) 453-0195
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
                               PAUL J. WILSON III
                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                                  VAXCEL, INC.
                             154 TECHNOLOGY PARKWAY
                            NORCROSS, GEORGIA 30092
                                 (770) 453-0195
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
 
                               ------------------
 
                                with copies to:
 
<TABLE>
<S>                        <C>                                      <C>
GEORGE M. MAXWELL, JR.              MARTYN D. GREENACRE                         DEBRA J. POUL
     ALSTON & BIRD                CHAIRMAN, PRESIDENT AND                MORGAN, LEWIS & BOCKIUS LLP
  ONE ATLANTIC CENTER             CHIEF EXECUTIVE OFFICER                   2000 ONE LOGAN SQUARE
  1201 WEST PEACHTREE                  ZYNAXIS, INC.                PHILADELPHIA, PENNSYLVANIA 19103-6993
        STREET
   ATLANTA, GEORGIA                371 PHOENIXVILLE PIKE                        (215) 963-5280
      30309-3424
    (404) 881-7570              MALVERN, PENNSYLVANIA 19355
                                      (610) 889-2202
</TABLE>
 
 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
    As soon as practicable after the merger (the "Merger") described in this
                   Registration Statement becomes effective.
 
     If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
 
                               ------------------
 
     THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), SHALL
DETERMINE.
 
================================================================================
<PAGE>   2
 
                            [LETTERHEAD OF ZYNAXIS]
 
   
                                                                  April 18, 1997
    
 
To the Shareholders of Zynaxis, Inc.:
 
   
     You are cordially invited to attend a Special Meeting of the Shareholders
(the "Special Meeting") of Zynaxis, Inc. ("Zynaxis") to be held at the main
office of Zynaxis located at 371 Phoenixville Pike, Malvern, Pennsylvania 19355,
at 9:00 A.M., local time, on May 21, 1997.
    
 
     At the Special Meeting, you will be asked to consider and vote upon three
separate but related proposals. The first proposal is to approve an Agreement
and Plan of Merger and Contribution (the "Agreement"), dated December 6, 1996,
by and among Zynaxis, CytRx Corporation ("CytRx"), Vaxcel, Inc. ("Vaxcel"), a
wholly-owned subsidiary of CytRx, and Vaxcel Merger Subsidiary, Inc. ("Vaxcel
Merger Sub"), a newly-formed, wholly-owned subsidiary of Vaxcel, which provides
for the merger (the "Merger") of Vaxcel Merger Sub with and into Zynaxis, with
the effect that Zynaxis, as the surviving corporation resulting from the Merger,
will be a wholly-owned subsidiary of Vaxcel. The second proposal is to approve a
plan of asset transfer which calls for the sale of substantially all of the
assets of Zynaxis (the "Asset Sales"). Under the proposal, the Asset Sales will
be conducted pursuant to terms and conditions determined by the Board of
Directors of Zynaxis and pursuant to an asset purchase agreement ("Asset
Purchase Agreement"), dated March 21, 1997, entered into by Zynaxis with
ProClinical, Inc. for the sale of the Cauldron Process Chemistry division
assets. The third and final proposal is to approve an amendment (the "Charter
Amendment") to the Amended and Restated Articles of Incorporation, as amended
("Articles of Incorporation"), of Zynaxis to "opt out" of Subchapter 25E of the
Pennsylvania Business Corporation Law of 1988, as amended ("PBCL"). If the
Charter Amendment is approved and the Merger is approved, the Merger may be
consummated without obligating Zynaxis and CytRx to comply with Subchapter 25E
of the PBCL. As a result of the Merger and the other transactions contemplated
by the Agreement, the former shareholders of Zynaxis will own approximately
12.5% of the outstanding shares of common stock of Vaxcel, par value $.001 per
share ("Vaxcel Common Stock"), and CytRx will own the remaining approximately
87.5% of such shares (assuming no exercise of any options or warrants with
respect to Vaxcel Common Stock).
 
     Pursuant to the Agreement, when the Merger is consummated, each share of
capital stock of Zynaxis will be converted into the right to receive shares of
Vaxcel Common Stock. Specifically, each share of common stock of Zynaxis, par
value $.01 per share ("Zynaxis Common Stock"), issued and outstanding
immediately prior to the effective time ("Effective Time") of the Merger
(excluding certain shares as set forth in the Agreement), will be exchanged for
the right to receive a number of shares of Vaxcel Common Stock equal to the
Exchange Ratio (as described below and defined in the Agreement), with cash
being paid in lieu of any fractional shares. In addition, each share of Series A
convertible preferred stock of Zynaxis, no par value ("Zynaxis Preferred Stock,"
and, together with Zynaxis Common Stock, "Zynaxis Capital Stock") issued and
outstanding immediately prior to the Effective Time (excluding certain shares as
set forth in the Agreement), will be exchanged for the right to receive a number
of shares of Vaxcel Common Stock equal to two times the Exchange Ratio, with
cash being paid in lieu of any fractional shares. Assuming no changes in the
capitalization of either Vaxcel or Zynaxis, the Exchange Ratio is approximately
 .0947.
 
     As part of the transaction contemplated by the Agreement and pursuant to
the Agreement, when the Merger is consummated, CytRx will contribute to Vaxcel a
credit facility (the "Senior Credit Facility") and a cash payment (the "Cash
Payment"). The Senior Credit Facility to be contributed by CytRx was entered
into by CytRx and Zynaxis simultaneously with the execution of the Agreement to
provide Zynaxis with working capital pending the consummation of the Merger. The
Senior Credit Facility is made up of a secured note, certain security
agreements, and a secured loan agreement, pursuant to which CytRx agreed to loan
up to $2,000,000 to Zynaxis. The amount of the Cash Payment will be equal to the
difference, as of the Effective
<PAGE>   3
 
Time, between $4,000,000 and the sum of (i) the outstanding balance under the
Senior Credit Facility and (ii)(a) the Per Share Price (as defined in the
Agreement) of approximately $.2754, multiplied by (b) the number of votes
entitled to be cast by the holders of Zynaxis Capital Stock, if any, who elect
to exercise their statutory dissenters' rights under Subchapter 15D of the PBCL
or their statutory objection rights under Subchapter 25E of the PBCL in excess
of three percent of the votes that could be cast by all holders of Zynaxis
Capital Stock voting together as a class. In general terms, pursuant to the
Agreement, when the Merger is consummated, CytRx will be contributing up to
$4,000,000 in consideration in the form of the $2,000,000 Senior Credit Facility
and the Cash Payment. However, CytRx's contribution will be decreased to account
for cash payments which must be made to dissenting or objecting shareholders of
Zynaxis.
 
     In exchange for the contribution of the Senior Credit Facility and the Cash
Payment, Vaxcel will deliver to CytRx a warrant to purchase shares of Vaxcel
Common Stock (the "CytRx Warrant") and a certain number of shares of Vaxcel
Common Stock. The CytRx Warrant will have an exercise price equal to one-half of
the Per Share Price multiplied by the Exchange Ratio and may be exercised if,
and only if, CytRx reasonably determines that Vaxcel's total assets and capital
and surplus are insufficient to satisfy the total assets and capital surplus
requirements for inclusion of Vaxcel Common Stock on the Nasdaq SmallCap Market.
In addition to the CytRx Warrant, CytRx will receive 1,374,996 shares of Vaxcel
Common Stock, plus an additional number of shares of Vaxcel Common Stock equal
to the product of the Exchange Ratio multiplied by the number of votes entitled
to be cast by the holders of Zynaxis Capital Stock, if any, who elect to
exercise their statutory dissenters' rights under Subchapter 15D of the PBCL or
their statutory objection rights under Subchapter 25E of the PBCL.
 
     At the time that the Agreement was executed, three other agreements were
executed which will permit the consummation of the Merger. Zynaxis, CytRx,
Vaxcel, and the holders of all of the outstanding shares of Zynaxis Preferred
Stock, who also hold certain warrants to purchase Zynaxis Common Stock ("Zynaxis
Warrants"), entered into an agreement ("Preferred Stock and Warrant Agreement"),
conditioned upon the consummation of the Merger, making certain agreements with
respect to their rights, and converting the Zynaxis Warrants, upon consummation
of the Merger, into warrants for the purchase of Vaxcel Common Stock. Zynaxis,
CytRx, and Vaxcel entered into an agreement ("Note Exchange Agreement") with
Euclid Partners III, L.P. and S.R. One, Ltd., who hold convertible notes
("Zynaxis Notes") issued by Zynaxis, conditioned upon the consummation of the
Merger, converting the Zynaxis Notes, upon consummation of the Merger, into the
right to receive shares of Vaxcel Common Stock. Finally, CytRx and certain
holders of Zynaxis Capital Stock entered into shareholder voting agreements
(each a "Shareholder Voting Agreement") pursuant to which each of such
shareholders granted CytRx an irrevocable proxy to vote shares of Zynaxis
Capital Stock held by such shareholders in favor of the Agreement and the Merger
contemplated thereby, the Asset Sales, and the Charter Amendment.
 
     At the time that the Agreement was executed, another set of three
agreements was executed which permit Zynaxis to continue as a going concern
pending the consummation of the Merger. As described above, CytRx entered into
the Senior Credit Facility with Zynaxis. Zynaxis and CytRx also entered into a
letter agreement ("Liquidation Agreement") which provides for CytRx to serve as
Zynaxis' agent in the Asset Sales. Finally, Vaxcel and Zynaxis entered into a
technology development agreement ("Technology Development Agreement") concerning
the development, by Vaxcel, of certain technologies owned by or licensed to
Zynaxis. Each of the Senior Credit Facility, the Liquidation Agreement, the
Preferred Stock and Warrant Agreement, the Note Exchange Agreement, the
Shareholder Voting Agreements, and the Technology Development Agreement are
incorporated into the Agreement as exhibits thereto.
 
     At the Special Meeting, you also will be asked to consider and vote upon a
proposal to approve the Asset Sales. Approval of the proposal will constitute
approval of the Asset Purchase Agreement and general approval for the Zynaxis
Board to sell the other assets of Zynaxis on terms and conditions acceptable to
the Zynaxis Board. Pursuant to the Liquidation Agreement and subject to
shareholder approval, CytRx will serve as Zynaxis' agent and assist Zynaxis in
conducting the Asset Sales. The approval of the Asset Sales by the shareholders
of Zynaxis is a condition to consummation of the Merger.
 
                                        2
<PAGE>   4
 
     At the Special Meeting, you also will be asked to consider and vote upon a
proposal to approve the Charter Amendment. Subchapter 25E of the PBCL, relating
to control transactions, provides that if any person or group acquires 20% or
more of the voting power of a covered corporation, the remaining shareholders
may demand from such person or group the "fair value," as defined in the
statute, of their shares, including a proportionate amount of any control
premium. Pursuant to Section 2541(a)(4) of the PBCL, the articles of
incorporation of a Pennsylvania corporation can explicitly provide that
Subchapter 25E is not applicable by means of an amendment adopted by the
shareholders of such corporation prior to a control transaction. The adoption of
the Charter Amendment amending the Articles of Incorporation and making
Subchapter 25E inapplicable to the Merger is a condition to consummation of the
Merger. This condition, however, may be waived by Vaxcel, as described below.
 
     The Charter Amendment will be the first matter put before the shareholders
for consideration and for a vote at the Special Meeting. If the Charter
Amendment is approved by the shareholders, the Special Meeting will be adjourned
pending the filing of the articles of amendment amending Zynaxis' Articles of
Incorporation ("Articles of Amendment") reflecting the Charter Amendment, with
the Department of State of the Commonwealth of Pennsylvania. The Special Meeting
shall be adjourned for approximately two hours or for such shorter period of
time as is necessary to file the Articles of Amendment. After the filing of the
Articles of Amendment and the effectiveness of the Charter Amendment, the
Special Meeting will be reconvened to consider and vote upon the Agreement and
the Merger contemplated thereby, the Asset Sales, and such other business as may
properly come before the Special Meeting. If the shareholders do not approve the
Charter Amendment, the Special Meeting will not be adjourned and the
shareholders will be asked to consider and vote upon the Agreement and the
Merger contemplated thereby, the Asset Sales, and such other business as may
properly come before the Special Meeting.
 
     If the Charter Amendment is not approved, Vaxcel intends to waive the
requirement that the Charter Amendment be approved and each holder of shares of
Zynaxis Capital Stock will have the right to object to the Merger and the right
to receive cash for each of such holder's shares of Zynaxis Capital Stock in an
amount equal to the "fair value" of each share of Zynaxis Capital Stock as of
the date of consummation of the Merger. The right of any such shareholder to
such rights and remedies is contingent upon the consummation of the Merger and
upon strict compliance with the requirements set forth in Subchapter 25E of the
PBCL, the full text of which is attached as Appendix E to the accompanying Proxy
Statement/Prospectus.
 
     Enclosed are the (i) Notice of Special Meeting, (ii) Proxy
Statement/Prospectus, (iii) Proxy for the Special Meeting, and (iv) Zynaxis'
Annual Report to Shareholders for the year ended December 31, 1996. The Proxy
Statement/Prospectus describes in more detail the Agreement and the proposed
Merger (including a description of the conditions to consummation of the Merger
and the rights of Zynaxis shareholders), the proposed Asset Sales, and the
proposed Charter Amendment. Please read these materials carefully and consider
thoughtfully the information set forth in them.
 
     THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AGREEMENT AND THE
MERGER CONTEMPLATED THEREBY, THE ASSET SALES, AND THE CHARTER AMENDMENT AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE AGREEMENT AND THE
MERGER CONTEMPLATED THEREBY, THE ASSET SALES, AND THE CHARTER AMENDMENT.
 
     THE BOARD OF DIRECTORS BELIEVES THAT, IF THE MERGER IS NOT CONSUMMATED, IT
IS HIGHLY PROBABLE THAT ZYNAXIS WILL CEASE TO EXIST AS A GOING CONCERN. THE
BOARD OF DIRECTORS BELIEVES THAT, IF THE MERGER IS NOT CONSUMMATED, ZYNAXIS MAY
NOT HAVE CASH SUFFICIENT TO FUND ITS ONGOING OPERATIONS AND THAT THE MERGER
REPRESENTS THE ONLY OPPORTUNITY FOR THE ZYNAXIS SHAREHOLDERS TO PARTICIPATE IN
THE DEVELOPMENT AND COMMERCIALIZATION OF THE ZYNAXIS VACCINE DELIVERY
TECHNOLOGIES. IN ADDITION, IF THE MERGER IS NOT CONSUMMATED, THE BOARD OF
DIRECTORS BELIEVES THAT ZYNAXIS MAY NOT BE ABLE TO PAY THE OUTSTANDING BALANCE
UNDER THE SENIOR CREDIT FACILITY WHEN IT COMES DUE. IF ZYNAXIS DEFAULTS UNDER
THE SENIOR CREDIT FACILITY, CYTRX MAY EXERCISE ITS RIGHTS AS A SECURED CREDITOR
WITH RESPECT TO CERTAIN ASSETS OF ZYNAXIS, INCLUDING, BUT NOT LIMITED TO,
FORECLOSING ON ZYNAXIS' RIGHTS IN ITS VACCINE DELIVERY TECHNOLOGIES.
 
     Approval of each of these matters will require the affirmative vote of: (i)
a majority of the votes cast, whether in person or by proxy, by all holders of
Zynaxis Preferred Stock (voting on an as converted basis) and
 
                                        3
<PAGE>   5
 
by all holders of Zynaxis Common Stock, entitled to vote and voting together as
a class; and (ii) a majority of the votes cast, whether in person or by proxy,
by all holders of Zynaxis Preferred Stock, entitled to vote and voting as a
separate class. Accordingly, whether or not you plan to attend the Special
Meeting, you are urged to complete, sign, and return promptly the enclosed proxy
card. If you attend the Special Meeting, even if you previously have returned
your proxy card, you may withdraw your proxy and vote in person if you wish. The
proposed Merger with Vaxcel, the Asset Sales, and the Charter Amendment are
significant steps for Zynaxis and your vote on these matters is of great
importance.
 
     ON BEHALF OF THE BOARD OF DIRECTORS, I URGE YOU TO VOTE FOR APPROVAL OF THE
AGREEMENT AND THE MERGER CONTEMPLATED THEREBY, THE ASSET SALES, AND THE CHARTER
AMENDMENT BY MARKING THE ENCLOSED PROXY CARD "FOR" ITEMS ONE, TWO, AND THREE,
RESPECTIVELY.
 
     We look forward to seeing you at the Special Meeting.
 
                                          Sincerely,
 
   
                                          /s/ MARTYN D. GREENACRE
    
                                          --------------------------------------
                                          MARTYN D. GREENACRE
                                          President and Chief Executive Officer
 
                                        4
<PAGE>   6
 
                                 ZYNAXIS, INC.
                             371 PHOENIXVILLE PIKE
                          MALVERN, PENNSYLVANIA 19355
                            ------------------------
 
   
                   NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
                    TO BE HELD AT 9:00 A.M. ON MAY 21, 1997
    
                            ------------------------
 
   
     NOTICE IS HEREBY GIVEN that a special meeting of the shareholders (the
"Special Meeting") of Zynaxis, Inc. ("Zynaxis") will be held at 371 Phoenixville
Pike, Malvern, Pennsylvania 19355, on May 21, 1997, at 9:00 A.M., local time,
for the following purposes.
    
 
     1. CHARTER AMENDMENT.  To consider and vote upon a proposal to approve an
amendment (the "Charter Amendment") to the Amended and Restated Articles of
Incorporation, as amended (the "Articles of Incorporation"), of Zynaxis to make
Subchapter 25E of the Pennsylvania Business Corporation Law of 1988, as amended
("PBCL"), inapplicable to Zynaxis. Subchapter 25E, relating to control
transactions, provides that if any person or group acquires 20% or more of the
voting power of a covered corporation, the remaining shareholders may demand
from such person or group the "fair value," as defined in the statute, of their
shares, including a proportionate amount of any control premium. Pursuant to
Section 2541(a)(4) of the PBCL, the articles of incorporation of a Pennsylvania
corporation can explicitly provide that Subchapter 25E is not applicable by an
amendment adopted by the shareholders of such corporation prior to a control
transaction. The adoption of the Charter Amendment amending the Articles of
Incorporation to make Subchapter 25E inapplicable to the Merger (as defined
below) is a condition to consummation of the Merger. This condition, however,
may be waived by Vaxcel, as described below. A copy of the Charter Amendment is
set forth in Appendix C to the accompanying Proxy Statement/Prospectus and is
hereby incorporated by reference herein.
 
     2. MERGER.  To consider and vote upon a proposal to approve an Agreement
and Plan of Merger and Contribution (the "Agreement"), dated December 6, 1996,
by and among Zynaxis, CytRx Corporation ("CytRx"), a Delaware corporation,
Vaxcel, Inc. ("Vaxcel"), a Delaware corporation and a wholly-owned subsidiary of
CytRx, and Vaxcel Merger Subsidiary, Inc. ("Vaxcel Merger Sub"), a Georgia
corporation and a newly-formed, wholly-owned subsidiary of Vaxcel, which
provides (i) for the merger (the "Merger") of Vaxcel Merger Sub with and into
Zynaxis, with the effect that Zynaxis will be the surviving corporation
resulting from the Merger, and will continue to conduct its business and
operations as a wholly-owned subsidiary of Vaxcel; (ii) upon consummation of the
Merger, (a) each share of common stock of Zynaxis, par value $.01 per share
("Zynaxis Common Stock"), issued and outstanding immediately prior to the
effective time ("Effective Time") of the Merger (excluding shares held by any
Zynaxis company or any Vaxcel company, and excluding shares held by shareholders
who perfect their statutory dissenters' rights under Subchapter 15D of the PBCL
or statutory objection rights under Subchapter 25E of the PBCL), will be
exchanged for the right to receive a number of shares of common stock of Vaxcel,
par value $.001 per share ("Vaxcel Common Stock"), equal to the Exchange Ratio
(as defined in the Agreement) of approximately .0947, with cash being paid in
lieu of any fractional shares, and (b) each share of Series A convertible
preferred stock of Zynaxis, no par value ("Zynaxis Preferred Stock," and,
together with Zynaxis Common Stock, "Zynaxis Capital Stock"), issued and
outstanding immediately prior to the Effective Time (excluding shares held by
any Zynaxis company or any Vaxcel company, and excluding shares held by
shareholders who perfect their statutory dissenters' rights under Subchapter 15D
of the PBCL or statutory objection rights under Subchapter 25E of the PBCL) will
be exchanged for the right to receive a number of shares of Vaxcel Common Stock
equal to two times the Exchange Ratio, with cash being paid in lieu of any
fractional shares. In addition, at the closing of the Merger, CytRx will
contribute to Vaxcel the Senior Credit Facility (as defined below) plus a cash
payment (the "Cash Payment") in an amount equal to the difference, as of the
Effective Time, between $4,000,000 and the sum of (i) the outstanding balance
under the Senior Credit Facility and (ii)(a) the Per Share Price (as defined in
the Agreement) of approximately $.2754, multiplied by (b) the number of votes
entitled to be cast by the holders of Zynaxis Capital Stock, if any, who elect
to exercise their statutory dissenters' rights under Subchapter 15D of the PBCL
or their statutory objection rights
<PAGE>   7
 
under Subchapter 25E of the PBCL in excess of three percent of the votes that
could be cast by all holders of Zynaxis Capital Stock voting together as a
class. In exchange for the contribution of the Senior Credit Facility and the
Cash Payment, Vaxcel will deliver to CytRx: (i) a warrant to purchase shares of
Vaxcel Common Stock (the "CytRx Warrant") at an exercise price equal to one-half
of the Per Share Price multiplied by the Exchange Ratio which may be exercised
if, and only if, CytRx reasonably determines that Vaxcel's total assets and
capital and surplus are insufficient to satisfy the total assets and capital and
surplus requirements for inclusion of the Vaxcel Common Stock in the Nasdaq
SmallCap Market; (ii) 1,374,996 shares of Vaxcel Common Stock; and (iii) that
number of shares of Vaxcel Common Stock equal to the product of the Exchange
Ratio multiplied by the number of votes entitled to be cast by the holders of
Zynaxis Capital Stock, if any, who elect to exercise their statutory dissenters'
rights under Subchapter 15D of the PBCL or their statutory objection rights
under Subchapter 25E of the PBCL, all as more fully described in the
accompanying Proxy Statement/Prospectus. As a result of the Merger, the former
shareholders of Zynaxis will own approximately 12.5% of the issued and
outstanding shares of Vaxcel Common Stock, and CytRx will own approximately
87.5% of such shares (assuming no exercise of any options or warrants with
respect to Vaxcel Common Stock). A copy of the Agreement is set forth in
Appendix A to the accompanying Proxy Statement/ Prospectus and is hereby
incorporated herein by reference.
 
     Simultaneously with the execution of the Agreement: (i) Zynaxis and CytRx
entered into a secured loan agreement, pursuant to which CytRx agreed to loan up
to $2,000,000 to Zynaxis on a secured basis (together with a related senior
secured note and certain security agreements, the "Senior Credit Facility");
(ii) Zynaxis and CytRx entered into a letter agreement ("Liquidation Agreement")
which provides for CytRx to serve as Zynaxis' agent in the sale of substantially
all of the assets of Zynaxis; (iii) Zynaxis, CytRx, Vaxcel, and the holders of
all of the outstanding shares of Zynaxis Preferred Stock, who also hold certain
warrants to purchase Zynaxis Common Stock ("Zynaxis Warrants"), entered into a
certain agreement ("Preferred Stock and Warrant Agreement"), conditioned upon
the consummation of the Merger, making certain agreements with respect to their
rights, and converting the Zynaxis Warrants, upon consummation of the Merger,
into warrants for the purchase of Vaxcel Common Stock; (iv) Zynaxis, CytRx and
Vaxcel entered into a certain agreement ("Note Exchange Agreement") with Euclid
Partners III, L.P. and S.R. One, Ltd., who hold convertible notes ("Zynaxis
Notes") issued by Zynaxis, conditioned upon the consummation of the Merger,
converting the Zynaxis Notes, upon consummation of the Merger, into the right to
receive shares of Vaxcel Common Stock; (v) CytRx and certain holders of Zynaxis
Capital Stock entered into shareholder voting agreements (each a "Shareholder
Voting Agreement") pursuant to which each of such shareholders granted CytRx an
irrevocable proxy to vote shares of Zynaxis Capital Stock held by such
shareholders in favor of the Agreement and the Merger contemplated thereby, the
Asset Sales (as defined below), and the Charter Amendment; and (vi) Vaxcel and
Zynaxis entered into a technology development agreement ("Technology Development
Agreement") concerning the development, by Vaxcel, of certain technologies owned
by or licensed to Zynaxis. Each of the Senior Credit Facility, the Liquidation
Agreement, the Preferred Stock and Warrant Agreement, the Note Exchange
Agreement, the Shareholder Voting Agreements, and the Technology Development
Agreement are incorporated into the Agreement as exhibits thereto.
 
     3. ASSET SALES.  To consider and vote upon a proposal to approve the sale
of substantially all of the assets of Zynaxis ("Asset Sales"). The Asset Sales
are to be conducted pursuant to the terms of an asset purchase agreement, dated
March 21, 1997, by and between Zynaxis and ProClinical, Inc., a Pennsylvania
corporation, and pursuant to other terms and conditions to be determined by the
Zynaxis Board of Directors. Pursuant to the Liquidation Agreement and subject to
shareholder approval, CytRx will serve as Zynaxis' agent and assist Zynaxis in
conducting the Asset Sales. The approval of the Asset Sales by the shareholders
of Zynaxis is a condition to consummation of the Merger, all as more fully
described in the accompanying Proxy Statement/ Prospectus. A copy of the
Liquidation Agreement is set forth in Appendix B to the accompanying Proxy
Statement/Prospectus and is hereby incorporated herein by reference.
 
     4. OTHER BUSINESS.  To transact such other business as may come properly
before the Special Meeting or any adjournments or postponements of the Special
Meeting.
 
     NOTICE OF APPRAISAL RIGHTS.  If Proposal 2 is approved and the Merger
contemplated thereby is consummated, or if Proposal 3 is approved and the Asset
Sales contemplated thereby are consummated, each
 
                                        2
<PAGE>   8
 
holder of shares of Zynaxis Capital Stock would have the right to demand
appraisal of such holder's shares of Zynaxis Capital Stock and would be entitled
to the rights and remedies of Subchapter 15D of the PBCL. The right of any such
shareholder to any such rights and remedies is contingent upon consummation of
the Merger or the Asset Sales, as the case may be. In addition, the right of any
such shareholder to such rights and remedies is contingent upon strict
compliance with the requirements set forth in Subchapter 15D of the PBCL, the
full text of which is attached as Appendix D to the accompanying Proxy
Statement/Prospectus. For a summary of the requirements of Subchapter 15D of the
PBCL, see "Description of the Transaction -- Dissenters' Rights" in the
accompanying Proxy Statement/Prospectus.
 
     NOTICE OF OBJECTION RIGHTS.  If Proposal 1 is not approved but Proposal 2
is approved, Vaxcel intends to waive the requirement that the Charter Amendment
be approved and each holder of shares of Zynaxis Capital Stock who objects to
the Merger would have the right to demand "fair value" for such holder's shares
of Zynaxis Capital Stock and would be entitled to the rights and remedies of
Subchapter 25E of the PBCL. The right to demand "fair value" is contingent on
the consummation of the Merger. Such written demand must state the number and
class or series, if any, of the Zynaxis Capital Stock owned with respect to
which the demand is made and must be made on CytRx within thirty days of the
date of this Notice.
 
   
     The minimum value an objecting holder of Zynaxis Capital Stock would be
able to receive under Subchapter 25E of the PBCL equals the highest price paid
per share by CytRx within the 90-day period ending on and including the date on
which CytRx acquires voting power over shares of Zynaxis Capital Stock which
entitle CytRx to cast 20% or more of the votes that all shareholders would be
entitled to cast in an election of directors of Zynaxis, plus to the extent not
reflected in such price paid, an increment representing any value, including,
without limitation, any proportion of any value payable for control of Zynaxis.
CytRx believes that the date of the Merger would be the last day of the 90-day
period. If a holder of Zynaxis Capital Stock believes the fair value to be
higher than that described above, Subchapter 25E of the PBCL entitles such
holder to utilize the appraisal procedure established by the Court of Common
Pleas of Chester County, Court House, West Chester, PA 19380 pursuant to a
petition to be filed by CytRx under the caption "In re: Zynaxis, Inc., Docket
No. 97-02907" requesting such determination.
    
 
     The right of any such shareholder to any such rights and remedies is
contingent upon the consummation of the Merger. In addition, the right of any
such shareholder to such rights and remedies is contingent upon strict
compliance with the requirements of Subchapter 25E of the PBCL, the full text of
which is attached hereto as Appendix E to the accompanying Proxy
Statement/Prospectus. For a summary of the requirements of Subchapter 25E of the
PBCL, see "Description of Transaction -- Objection Rights Under Subchapter 25E
of the PBCL" in the accompanying Proxy Statement/Prospectus.
 
     At the Special Meeting, the Charter Amendment will be the first matter put
before the shareholders for consideration and for a vote. If the Charter
Amendment is approved by the shareholders, the Special Meeting will be adjourned
pending the filing of the articles of amendment ("Articles of Amendment")
reflecting the Charter Amendment and amending Zynaxis' Articles of Incorporation
with the Department of State of the Commonwealth of Pennsylvania. The Special
Meeting shall be adjourned for approximately two hours or for such shorter
period of time as is necessary to file the Articles of Amendment. After the
filing of the Articles of Amendment and the effectiveness of the Charter
Amendment, the Special Meeting will be reconvened to consider and vote upon the
Agreement and the Merger contemplated thereby, the Asset Sales, and such other
business as may properly come before the Special Meeting. If the shareholders do
not approve the Charter Amendment, the Special Meeting will not be adjourned and
the shareholders will be asked to consider and vote upon the Agreement and the
Merger contemplated thereby, the Asset Sales, and such other business as may
properly come before the Special Meeting.
 
     If the Charter Amendment is not approved, Vaxcel intends to waive the
requirement that the Charter Amendment be approved and each holder of shares of
Zynaxis Capital Stock will have the right to object to the Merger and the right
to receive cash for each of such holder's shares of Zynaxis Capital Stock in an
amount equal to the "fair value" of each share of Zynaxis Capital Stock as of
the date of consummation of the Merger. The right of any such shareholder to
such rights and remedies is contingent upon the consummation
 
                                        3
<PAGE>   9
 
of the Merger and upon strict compliance with the requirements set forth in
Subchapter 25E of the PBCL, the full text of which is attached as Appendix E to
the accompanying Proxy Statement/Prospectus.
 
     Only shareholders of record at the close of business on March __ , 1997
will be entitled to receive notice of and to vote at the Special Meeting or any
adjournment or postponement thereof. Approval of each of the Agreement and the
Merger contemplated thereby, the Asset Sales, and the Charter Amendment will
require the affirmative vote of: (i) a majority of the votes cast, whether in
person or by proxy, by all holders of Zynaxis Preferred Stock (voting on an as
converted basis) and by all holders of Zynaxis Common Stock, entitled to vote
and voting together as a class; and (ii) a majority of the votes cast, whether
in person or by proxy, by all holders of Zynaxis Preferred Stock, entitled to
vote and voting as a separate class.
 
     THE BOARD OF DIRECTORS OF ZYNAXIS (THE "ZYNAXIS BOARD") UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE AGREEMENT AND THE MERGER
CONTEMPLATED THEREBY, THE ASSET SALES, AND THE CHARTER AMENDMENT.
 
     THE ZYNAXIS BOARD BELIEVES THAT, IF THE MERGER IS NOT CONSUMMATED, IT IS
HIGHLY PROBABLE THAT ZYNAXIS WILL CEASE TO EXIST AS A GOING CONCERN. THE ZYNAXIS
BOARD BELIEVES THAT, IF THE MERGER IS NOT CONSUMMATED, ZYNAXIS MAY NOT HAVE CASH
SUFFICIENT TO FUND ITS ONGOING OPERATIONS AND THAT THE MERGER REPRESENTS THE
ONLY OPPORTUNITY FOR THE ZYNAXIS SHAREHOLDERS TO PARTICIPATE IN THE DEVELOPMENT
AND COMMERCIALIZATION OF THE ZYNAXIS VACCINE DELIVERY TECHNOLOGIES. IN ADDITION,
IF THE MERGER IS NOT CONSUMMATED, THE ZYNAXIS BOARD BELIEVES THAT ZYNAXIS MAY
NOT BE ABLE TO PAY THE OUTSTANDING BALANCE UNDER THE SENIOR CREDIT FACILITY WHEN
IT COMES DUE. IF ZYNAXIS DEFAULTS UNDER THE SENIOR CREDIT FACILITY, CYTRX MAY
EXERCISE ITS RIGHTS AS A SECURED CREDITOR WITH RESPECT TO CERTAIN ASSETS OF
ZYNAXIS, INCLUDING, BUT NOT LIMITED TO, FORECLOSING ON ZYNAXIS' RIGHTS IN ITS
VACCINE DELIVERY TECHNOLOGIES.
 
                                          By Order of the Board of Directors
 
   
                                          /s/ MICHAEL A. CHRISTIE
    
                                          --------------------------------------
                                          MICHAEL A. CHRISTIE
                                          Secretary
 
Malvern, Pennsylvania
   
April 18, 1997
    
 
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE,
AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE PAID RETURN ENVELOPE IN ORDER TO ENSURE THAT YOUR SHARES WILL BE
REPRESENTED AT THE SPECIAL MEETING.
 
                                        4
<PAGE>   10
 
   
                                  VAXCEL, INC.
    
                         AN ESTIMATED 1,807,719 SHARES
                         COMMON STOCK, $0.001 PAR VALUE
 
                                PROXY STATEMENT
                     FOR SPECIAL MEETING OF SHAREHOLDERS OF
                                 ZYNAXIS, INC.
 
    This Prospectus of Vaxcel, Inc. ("Vaxcel"), a corporation organized and
existing under the laws of the State of Delaware, relates to up to 1,807,719
shares of common stock, $0.001 par value, of Vaxcel ("Vaxcel Common Stock"),
including shares subject to assumed options and warrants, which are issuable to
the shareholders and certain holders of convertible promissory notes of Zynaxis,
Inc. ("Zynaxis"), a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania, upon consummation of the proposed merger (the
"Merger") described herein by which Vaxcel Merger Subsidiary, Inc. ("Vaxcel
Merger Sub"), a corporation organized and existing under the laws of the State
of Georgia and a newly formed, wholly owned subsidiary of Vaxcel, will merge
with and into Zynaxis pursuant to the terms of the Agreement and Plan of Merger
and Contribution, dated as of December 6, 1996 (the "Agreement"), by and among
Vaxcel, CytRx Corporation ("CytRx"), a corporation organized and existing under
the laws of the State of Delaware and the sole shareholder of Vaxcel, Vaxcel
Merger Sub, and Zynaxis, with the effect that Zynaxis will be the surviving
corporation resulting from the Merger, and will continue to conduct its business
and operations as a wholly owned subsidiary of Vaxcel. As a result of the
Merger, the former shareholders of Zynaxis will own approximately 12.5% of the
issued and outstanding shares of Vaxcel Common Stock, and CytRx will own
approximately 87.5% of such shares (assuming no exercise of any options or
warrants to purchase Vaxcel Common Stock).
 
   
    This Prospectus also serves as a Proxy Statement of Zynaxis, and is being
furnished to the shareholders of Zynaxis in connection with the solicitation of
proxies by the Board of Directors of Zynaxis ("Zynaxis Board") for use at its
special meeting of shareholders (including any adjournment or postponement
thereof, the "Special Meeting"), to be held on April    , 1997, to consider and
vote upon: (i) the Agreement and the Merger contemplated thereby; (ii) a plan of
asset transfer for the sale of substantially all of the assets of Zynaxis
("Asset Sales") pursuant to the terms of an asset purchase agreement ("Asset
Purchase Agreement"), dated March 21, 1997, by and between Zynaxis and
ProClinical, Inc. ("ProClinical"), a corporation organized and existing under
the laws of the Commonwealth of Pennsylvania, and pursuant to other terms and
conditions to be determined by the Zynaxis Board; and (iii) an amendment (the
"Charter Amendment") to the Amended and Restated Articles of Incorporation, as
amended ("Articles of Incorporation"), of Zynaxis to make Subchapter 25E of the
Pennsylvania Business Corporation Law of 1988, as amended ("PBCL"), inapplicable
to Zynaxis. This Proxy Statement/Prospectus ("Proxy Statement") and related
materials enclosed herewith are being mailed to shareholders of Zynaxis on or
about April 21, 1997.
    
 
    Pursuant to the Agreement, when the Merger is consummated, each share of
capital stock of Zynaxis will be converted into the right to receive shares of
Vaxcel Common Stock. Each share of common stock of Zynaxis, par value $.01 per
share ("Zynaxis Common Stock"), issued and outstanding immediately prior to the
effective time ("Effective Time") of the Merger (excluding certain shares as set
forth in the Agreement), will be exchanged for the right to receive a number of
shares of Vaxcel Common Stock equal to the Exchange Ratio (as described below
and defined in the Agreement), with cash being paid in lieu of any fractional
shares. Each share of Series A convertible preferred stock of Zynaxis, no par
value ("Zynaxis Preferred Stock," and, together with Zynaxis Common Stock,
"Zynaxis Capital Stock") issued and outstanding immediately prior to the
Effective Time (excluding certain shares as set forth in the Agreement), will be
exchanged for the right to receive a number of shares of Vaxcel Common Stock
equal to two times the Exchange Ratio, with cash being paid in lieu of any
fractional shares. Assuming no changes in the capitalization of either Vaxcel or
Zynaxis, the Exchange Ratio is approximately .0947.
 
    As part of the transaction contemplated by the Agreement and pursuant to the
Agreement, when the Merger is consummated, CytRx will contribute to Vaxcel a
credit facility (the "Senior Credit Facility") and a cash payment (the "Cash
Payment"). The Senior Credit Facility, executed simultaneously with the
Agreement, is made up of a secured note, certain security agreements, and a
secured loan agreement, pursuant to which CytRx agreed to loan up to $2,000,000
to Zynaxis. The amount of the Cash Payment is further described herein. In
general terms, pursuant to the Agreement, when the Merger is consummated, CytRx
will be contributing up to $4,000,000 in consideration in the form of the
$2,000,000 Senior Credit Facility and the Cash Payment. However, CytRx's
contribution will be decreased to account for cash payments which must be made
to dissenting or objecting shareholders of Zynaxis.
 
    In exchange for the contribution of the Senior Credit Facility and the Cash
Payment, Vaxcel will deliver to CytRx a warrant to purchase shares of Vaxcel
Common Stock (the "CytRx Warrant") and 1,374,996 shares of Vaxcel Common Stock,
plus an additional number of shares of Vaxcel Common Stock equal to the product
of the Exchange Ratio multiplied by the number of votes entitled to be cast by
the holders of Zynaxis Capital Stock, if any, who elect to exercise their
statutory dissenters' rights under Subchapter 15D of the PBCL or their statutory
objection rights under Subchapter 25E of the PBCL.
 
    At the time that the Agreement was executed, three other agreements were
executed which will permit the consummation of the Merger. Two of these
agreements provide for the treatment of holders of Zynaxis Preferred Stock,
holders of certain warrants to purchase Zynaxis Common Stock and holders of
certain convertible notes of Zynaxis. Specifically Zynaxis, CytRx, Vaxcel, and
the holders of all of the outstanding shares of Zynaxis Preferred Stock, who
also hold certain warrants to purchase Zynaxis Common Stock ("Zynaxis
Warrants"), entered into a certain agreement ("Preferred Stock and Warrant
Agreement"), conditioned upon the consummation of the Merger, making certain
agreements with respect to their rights, and converting the Zynaxis Warrants,
upon consummation of the Merger, into warrants for the purchase of Vaxcel Common
Stock. Zynaxis, CytRx, and Vaxcel entered into a certain agreement ("Note
Exchange Agreement") with Euclid Partners III, L.P. ("Euclid") and S.R. One,
Ltd., who hold convertible notes ("Zynaxis Notes") issued by Zynaxis,
conditioned upon the consummation of the Merger, converting the Zynaxis Notes,
upon consummation of the Merger, into the right to receive shares of Vaxcel
Common Stock. Finally, CytRx and certain holders of Zynaxis Capital Stock
entered into shareholder voting agreements (each a "Shareholder Voting
Agreement") pursuant to which each of such shareholders granted CytRx an
irrevocable proxy to vote shares of Zynaxis Capital Stock held by such
shareholders in favor of the Agreement and the Merger contemplated thereby, the
Asset Sales, and the Charter Amendment. Each of the Senior Credit Facility, the
Preferred Stock and Warrant Agreement, the Note Exchange Agreement, and the
Shareholder Voting Agreements are incorporated into the Agreement as exhibits
thereto.
 
                                             (Cover continued on following page)
 
     IN EVALUATING THE MERGER, ZYNAXIS SHAREHOLDERS SHOULD CAREFULLY CONSIDER
THE FACTORS DESCRIBED IN "RISK FACTORS" BEGINNING ON PAGE 15.
                            ------------------------
 
  THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
 EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
   AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
 ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
                      THE CONTRARY IS A CRIMINAL OFFENSE.
                            ------------------------
 
   
              THE DATE OF THIS PROXY STATEMENT IS APRIL 18, 1997.
    
<PAGE>   11
 
(Continued from previous page)
 
    The shares of Vaxcel Common Stock issuable to CytRx pursuant to the
Agreement, the CytRx Warrant issuable to CytRx pursuant to the Agreement, the
Vaxcel Warrants issuable to certain holders of Zynaxis Warrants pursuant to the
Preferred Stock and Warrant Agreement, and the warrants to purchase Vaxcel
Common Stock ("Vaxcel Non-Financing Warrants") issuable to certain holders of
other warrants to purchase Zynaxis Common Stock ("Zynaxis Non-Financing
Warrants") pursuant to the Agreement are not being registered pursuant to the
Registration Statement (as defined below) of which this Proxy Statement is a
part. These securities are being concurrently privately placed with CytRx and
the holders of Zynaxis Warrants and Zynaxis Non-Financing Warrants in
transactions exempt from the registration requirements of the Securities Act
pursuant to the exemptions provided in Section 4(2) thereof.
 
    The Registration Statement of which this Proxy Statement is a part also
registers for resale: (i) the shares of Vaxcel Common Stock issued by Vaxcel
hereunder to any persons who may be deemed to be "affiliates" of Zynaxis within
the meaning of Rule 145 of the Securities Act of 1933, as amended (the
"Securities Act"); (ii) the shares of Vaxcel Common Stock issued by Vaxcel
hereunder to certain shareholders of Zynaxis who have entered into the
Shareholder Voting Agreements; (iii) the shares of Vaxcel Common Stock issuable
upon the exercise of Vaxcel Warrants issued by Vaxcel pursuant to the Preferred
Stock and Warrant Agreement to holders of Zynaxis Warrants in exchange for such
Zynaxis Warrants; and (iv) the shares of Vaxcel Common Stock issuable upon the
exercise of Vaxcel Non-Financing Warrants by certain holders of Zynaxis'
Non-Financing Warrants assumed by Vaxcel pursuant to the Agreement (such
"persons," "shareholders," and "holders" being collectively, the "Selling
Shareholders"). The total number of shares of Vaxcel Common Stock being
registered for resale is 1,040,023. Such shares of Vaxcel Common Stock
registered for resale pursuant to the Registration Statement are referred to
herein as the "Resale Shares." The Selling Shareholders have not advised Vaxcel
of any specific plans for the distribution of the Resale Shares covered by this
Proxy Statement, but it is anticipated that the Resale Shares will be offered
for sale under this Proxy Statement from time to time primarily in transactions
(which may include block transactions) on the Nasdaq SmallCap Market, in
negotiated transactions, through the writing of options on the shares, or any
combination of these and other methods of sale, at prices related to prevailing
market prices or at negotiated prices. The Selling Shareholders may sell their
shares directly or through agents, dealers or underwriters. The Selling
Shareholders may sell some, all, or none of their shares offered hereby. Vaxcel
will not receive any proceeds from the sale of the Resale Shares by the Selling
Shareholders. Vaxcel and Zynaxis have agreed to bear all expenses (other than
underwriting discounts and selling commissions, and fees and expenses of counsel
and other advisors to the Selling Shareholders) in connection with the
registration of the shares being offered by the Selling Shareholders. See
"Selling Shareholders of Zynaxis" and "Plan of Distribution."
 
                                        2
<PAGE>   12
 
                             AVAILABLE INFORMATION
 
     Zynaxis is subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, is
required to file reports, proxy and information statements, and other
information with the Securities and Exchange Commission (the "SEC"). Copies of
such reports, proxy and information statements, and other information can be
obtained, at prescribed rates, from the SEC by addressing written requests for
such copies to the Public Reference Section at the SEC at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549. In addition, such reports, proxy
and information statements, and other information can be inspected at the public
reference facilities referred to above and at the regional offices of the SEC at
7 World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
SEC also maintains a web site on the World Wide Web that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC and the address is http://www.sec.gov.
 
     This Proxy Statement constitutes part of the Registration Statement on Form
S-4 of Vaxcel (including any exhibits and amendments thereto, the "Registration
Statement") filed with the SEC under the Securities Act, relating to the
securities offered hereby. This Proxy Statement does not include all of the
information in the Registration Statement, certain portions of which have been
omitted pursuant to the rules and regulations of the SEC. For further
information about Vaxcel and the securities offered hereby, reference is made to
the Registration Statement. The Registration Statement may be inspected and
copied, at prescribed rates, at the SEC's public reference facilities at the
addresses set forth above.
 
     All information contained in this Proxy Statement or incorporated herein by
reference with respect to Vaxcel was supplied by Vaxcel, and all information
contained in this Proxy Statement or incorporated herein by reference with
respect to Zynaxis was supplied by Zynaxis.
 
     NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS PROXY STATEMENT IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT NOR ANY DISTRIBUTION
OF THE SECURITIES BEING OFFERED PURSUANT TO THIS PROXY STATEMENT SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF VAXCEL OR ZYNAXIS OR THE INFORMATION SET FORTH OR INCORPORATED BY
REFERENCE HEREIN SINCE THE DATE OF THIS PROXY STATEMENT.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     The following document previously filed with the SEC by Zynaxis pursuant to
the Exchange Act is hereby incorporated by reference herein:
 
          (a) Zynaxis' Annual Report on Form 10-K for the fiscal year ended
     December 31, 1996 (provided that any information included or incorporated
     by reference in response to Items 402(a)(8), (i), (k) or (l) of Regulation
     S-K of the SEC shall not be deemed to be incorporated herein and is not a
     part of the Registration Statement).
 
     This Proxy Statement is accompanied by a copy of Zynaxis' Annual Report to
Shareholders for the fiscal year ended December 31, 1996.
 
   
     Zynaxis will provide without charge, upon the written or oral request of
any person, including any beneficial owner, to whom this Proxy Statement is
delivered, a copy of any and all information (excluding certain exhibits)
relating to Zynaxis that has been incorporated by reference in the Registration
Statement of which this Proxy Statement is a part. Such requests should be
directed to Michael A. Christie, Secretary, Zynaxis, Inc., 371 Phoenixville
Pike, Malvern, Pennsylvania 19355 (telephone (610) 889-2200). In order to ensure
timely delivery of the documents, any request should be made by May 10, 1997.
    
 
                                        i
<PAGE>   13
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                                         PAGE
                                                                                         ----
<S>                                                                                      <C>
SUMMARY...............................................................................     1
     The Parties......................................................................     1
     Meeting of Shareholders..........................................................     2
     The Merger.......................................................................     4
     Proposed Asset Sales.............................................................    10
     Proposed Charter Amendment.......................................................    11
     Comparative Market Prices of Common Stock........................................    11
     Comparative Per Share Data.......................................................    12
SELECTED HISTORICAL FINANCIAL DATA OF VAXCEL..........................................    13
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ZYNAXIS............................    14
RISK FACTORS..........................................................................    15
     No Assurance of Successful Development and Commercialization of Products.........    15
     CytRx Control of Vaxcel..........................................................    15
     Future Capital Needs; Outstanding Options; Potential Dilution....................    16
     Limited Operating History and Lack of Profitability..............................    16
     Dependence on Collaborations and Other Commercial Arrangements...................    16
     Market Acceptance; Need for Industry Group Recommendation........................    17
     Intense Competition..............................................................    17
     Lack of Manufacturing Capabilities; Reliance on Third-Party Manufacturers........    18
     Product Liability Risks..........................................................    18
     Uncertainty of Patent Protection and Proprietary Technology......................    18
     Unfavorable Licensing Terms for PLG Technology...................................    19
     Impact of Government Regulation; No Assurance of FDA Approval....................    19
     Impact of Technology Transfer Act of 1986; Bayh-Dole Act.........................    20
     Health Care Reform Initiatives...................................................    20
     No Assurance of Adequate Reimbursement...........................................    21
     Lack of Marketing Experience.....................................................    21
     Recruiting and Retaining of Key Personnel........................................    21
     No Prior Public Market for Common Stock; Possible Volatility of Stock Price......    22
     Uncertainty of Listing on the Nasdaq SmallCap Market; Risks Relating to
      Low-Priced Stocks...............................................................    22
     Absence of Dividends.............................................................    23
     Anti-Takeover Protections........................................................    23
SPECIAL MEETING OF ZYNAXIS SHAREHOLDERS...............................................    23
     Date, Place, Time, and Purpose...................................................    23
     Record Dates, Voting Rights, Required Votes, and Revocability of Proxies.........    23
     Solicitation of Proxies..........................................................    25
     Recommendation...................................................................    26
DESCRIPTION OF TRANSACTION............................................................    27
     General..........................................................................    27
     Background of and Reasons for the Merger.........................................    28
     The Merger.......................................................................    34
     Exchange Ratio...................................................................    34
     Per Share Price..................................................................    34
     The Transaction Documents........................................................    35
     Effect of the Merger on Stock Options, Warrants, and Promissory Notes............    41
     Effective Time of the Merger.....................................................    42
     Distribution of Vaxcel Stock Certificates and Warrants...........................    43
     Conditions to Consummation of the Merger.........................................    43
     Regulatory Approvals.............................................................    44
     Waiver, Amendment, and Termination...............................................    44
</TABLE>
 
                                       ii
<PAGE>   14
 
<TABLE>
<CAPTION>
                                                                                         PAGE
                                                                                         ----
<S>                                                                                      <C>
     Dissenters' Rights...............................................................    45
     Objection Rights Under Subchapter 25E of the PBCL................................    48
     Conduct of Business Pending the Merger...........................................    50
     Management and Operations After the Merger.......................................    51
     Interests of Certain Persons in the Merger.......................................    52
     Certain Federal Income Tax Consequences..........................................    53
     Accounting Treatment.............................................................    54
     Expenses and Fees................................................................    54
     Resales of Vaxcel Common Stock...................................................    55
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS........................................    56
     Anti-takeover Provisions Generally...............................................    56
     Authorized Capital Stock.........................................................    56
     Amendment of Certificate of Incorporation and Bylaws.............................    57
     Removal of Directors.............................................................    57
     Limitations on Director Liability................................................    57
     Indemnification..................................................................    58
     Special Meetings of Shareholders.................................................    58
     Actions by Shareholders Without a Meeting........................................    59
     Business Combinations with Certain Persons.......................................    59
     Mergers, Consolidations, and Sales of Assets Generally...........................    60
     Dissenters' Rights of Appraisal..................................................    60
     Shareholders' Rights to Examine Books and Records................................    61
     Dividends........................................................................    61
COMPARATIVE MARKET PRICES AND DIVIDENDS...............................................    62
PRO FORMA FINANCIAL INFORMATION.......................................................    63
     Pro Forma Condensed Combined Balance Sheet at December 31, 1996..................    64
     Pro Forma Condensed Combined Statement of Operations for Year Ended
       December 31, 1996..............................................................    65
VAXCEL, INC. NOTES TO PRO FORMA FINANCIAL STATEMENTS..................................    66
SELECTED HISTORICAL FINANCIAL DATA OF VAXCEL..........................................    68
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS AND OPERATIONS
  OF VAXCEL...........................................................................    69
     General..........................................................................    69
     Financial Condition and Liquidity................................................    69
     Results of Operations............................................................    70
     Impact of Recently Issued Accounting Standards...................................    70
BUSINESS OF VAXCEL....................................................................    72
     General..........................................................................    72
     Certain Transactions.............................................................    83
     Facilities and Employees.........................................................    86
     Properties.......................................................................    86
     Legal Proceedings................................................................    86
MANAGEMENT OF VAXCEL..................................................................    87
     Directors and Executive Officers.................................................    87
     Director Compensation............................................................    88
     Executive Compensation and Other Information.....................................    89
     Employment Agreement.............................................................    89
     1993 Stock Option Plan...........................................................    90
     Limitation of Liability and Indemnification......................................    91
PRINCIPAL STOCKHOLDERS OF VAXCEL......................................................    92
</TABLE>
 
                                       iii
<PAGE>   15
 
<TABLE>
<CAPTION>
                                                                                         PAGE
                                                                                         ----
<S>                                                                                      <C>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ZYNAXIS............................    93
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OF ZYNAXIS..........................................................................    94
     Background and Summary of 1996 Events............................................    94
     Liquidity, Capital Resources and Plans to Fund Future Operations.................    95
     Results of Operations............................................................    97
     Basis of Accounting..............................................................    98
BUSINESS OF ZYNAXIS...................................................................   100
SELLING SHAREHOLDERS OF ZYNAXIS.......................................................   101
PLAN OF DISTRIBUTION..................................................................   104
PROPOSED ASSET SALES..................................................................   105
AMENDMENT OF ZYNAXIS ARTICLES OF INCORPORATION........................................   107
DESCRIPTION OF VAXCEL CAPITAL STOCK...................................................   108
     Common Stock.....................................................................   108
     Preferred Stock..................................................................   108
     Vaxcel Warrants..................................................................   108
     CytRx Warrant....................................................................   109
     Vaxcel Non-Financing Warrants....................................................   110
LEGAL MATTERS.........................................................................   111
EXPERTS...............................................................................   112
OTHER MATTERS.........................................................................   112
APPENDICES:
     Appendix A -- Agreement and Plan of Merger and Contribution
     Appendix B -- Liquidation Agreement
     Appendix C -- Charter Amendment
     Appendix D -- Subchapter 15D of the Pennsylvania Business Corporation Law,
      relating to dissenters' rights of appraisal
     Appendix E -- Subchapter 25E of the Pennsylvania Business Corporation Law,
      relating to objectors' rights of appraisal
     Appendix F -- Note Exchange Agreement
     Appendix G -- Preferred Stock and Warrant Agreement
     Appendix H -- Vaxcel Warrant
     Appendix I -- CytRx Warrant
     Appendix J -- Asset Purchase Agreement
</TABLE>
 
                                       iv
<PAGE>   16
 
                                    SUMMARY
 
     The following is a summary of certain information contained in this Proxy
Statement and the documents incorporated herein by reference. This summary is
not intended to be a complete description of the matters covered in this Proxy
Statement and is qualified in its entirety by the more detailed information
appearing elsewhere or incorporated by reference in this Proxy Statement.
Holders of Zynaxis Capital Stock are urged to read carefully the entire Proxy
Statement, including the Appendices. In addition, holders of Zynaxis Capital
Stock should carefully consider the factors set forth under "Risk Factors." As
used in this Proxy Statement, the terms "CytRx," "Vaxcel," "Vaxcel Merger Sub"
and "Zynaxis" refer to those entities, respectively, and, where the context
requires, to those entities and their respective subsidiaries.
 
     This Proxy Statement contains certain statements of a forward-looking
nature relating to future events or the future financial performance of Vaxcel.
Holders of Zynaxis Capital Stock are cautioned that such statements are only
predictions and that actual events or results may differ materially. In
evaluating such statements, the holders should specifically consider the various
factors identified in this Proxy Statement, including the matters set forth
under "Risk Factors," which would cause actual results to differ materially from
those indicated by such forward-looking statements.
 
THE PARTIES
 
     CytRx.  CytRx is the sole shareholder of Vaxcel and is engaged in the
development and commercialization of pharmaceutical related products and
services.
 
     CytRx is a Delaware corporation, founded and incorporated in 1985. CytRx
files reports with the SEC under the Exchange Act. The common stock of CytRx is
traded on the Nasdaq National Market. The principal executive offices of CytRx
are located at 154 Technology Parkway, Norcross, Georgia 30092, and its
telephone number at such address is (770) 368-9500.
 
     Vaxcel.  Vaxcel is engaged in the development of a proprietary vaccine
delivery system ("OPTIVAX(R)") to enhance the effectiveness of a wide range of
existing vaccines and to aid in the development of new vaccines. OPTIVAX
includes a range of formulations containing certain proprietary nonionic block
copolymers which are then combined with antigens to form vaccines. Vaxcel
derives its rights to develop and commercialize OPTIVAX from a license agreement
with CytRx, which became effective in January 1993.
 
     Since its inception, Vaxcel has devoted substantially all of its resources
to the research, development and commercialization of OPTIVAX. Vaxcel has not
received significant revenues from the sale of any of its products and has
sustained continuing operating losses. Vaxcel's accumulated deficit through
December 31, 1996 is approximately $4,500,000. Accordingly, Vaxcel has been
dependent on CytRx for capital to fund Vaxcel's operations. There can be no
assurance that Vaxcel will not require additional capital from investors to fund
its operations after the Merger. If additional capital is obtained through the
sale of securities, then the ownership position of shareholders of Vaxcel may be
diluted.
 
     Vaxcel is a Delaware corporation, founded and incorporated in 1993 by CytRx
in order to focus on the commercial potential of OPTIVAX. Since the inception of
Vaxcel, CytRx has owned, and, until the date of the consummation of the Merger
(the "Closing"), CytRx will own all of the issued and outstanding shares of
Vaxcel Common Stock. The principal executive offices of Vaxcel are located at
154 Technology Parkway, Norcross, Georgia 30092, and its telephone number at
such address is (770) 453-0195. See "Business of Vaxcel."
 
     Vaxcel Merger Sub.  Vaxcel Merger Sub is a Georgia corporation and a newly
formed, wholly owned subsidiary of Vaxcel. Vaxcel Merger Sub has been
established for the sole purpose of merging with and into Zynaxis, in accordance
with the terms of the Agreement. As such, Vaxcel Merger Sub has no assets and
engages in no business activities. The principal executive offices of Vaxcel
Merger Sub are located at 154 Technology Parkway, Norcross, Georgia 30092, and
its telephone number at such address is (770) 453-0195.
<PAGE>   17
 
   
     Zynaxis.  Zynaxis is engaged in the development of delivery systems
designed to enhance the performance of vaccines and drugs. In July 1995, through
a merger, Zynaxis acquired Secretech, Inc. ("Secretech"), a company engaged in
the development of oral and mucosal vaccine delivery technologies. Vaccines
using Zynaxis' proprietary delivery systems can be administered orally or
nasally rather than by injection and have the potential to increase protective
immunity by stimulating formation of antibodies at the most common points of
entry for infectious agents. In October 1995, Zynaxis entered into a development
and licensing agreement with ALK A/S ("ALK"), a Danish company and a leader in
the area of specific immunotherapy for allergies, which grants to ALK exclusive
rights to evaluate and develop Zynaxis' vaccine technologies for delivery of
bioactive substances to treat allergies. Prior to the acquisition of Secretech,
Zynaxis focused on the development of proprietary cell linker molecule
technology ("Zyn-Linkers(R)") for the retention at disease sites of therapeutic
drugs and radiopharmaceuticals, as well as the development of cellular
diagnostic products (Zymmune(TM) CD4/CD8 Cell Monitoring Kit) to type and
enumerate blood cells for diagnosis and disease monitoring. In October 1995,
Zynaxis sold the assets of its cellular diagnostic products business to Intracel
Corporation. In July 1995, Zynaxis sold to Phanos Technologies, Inc. ("Phanos")
rights to its Zyn-Linker technology for use as research and diagnostic reagents,
but retained all rights to therapeutic uses. In September 1996, Zynaxis entered
into an exclusive license and purchase option agreement with Phanos pursuant to
which it granted Phanos a license for all of its proprietary Zyn-Linker
technology and an option to acquire such technology. Phanos exercised the option
and purchased the technology on January 21, 1997. Zynaxis also operates the
Cauldron Process Chemistry ("Cauldron") division which provides collaborative
consulting services on all aspects of bulk pharmaceutical production and
provides research, development and pilot scale-up facilities to the
pharmaceutical, biochemical and fine chemical industries.
    
 
     Since its inception, Zynaxis has devoted substantially all of its resources
to the research and development of its technologies. Zynaxis has not received
significant revenues from the sale of any of its products and has sustained
continuing operating losses. Zynaxis' accumulated deficit through December 31,
1996 is approximately $49,751,000. The operations of Zynaxis will continue to
require additional capital investment by Vaxcel after the Merger.
 
     Zynaxis is a Pennsylvania corporation, founded and incorporated in 1988.
Zynaxis files reports with the SEC under the Exchange Act. Until December 24,
1996, Zynaxis Common Stock was traded on the Nasdaq SmallCap Market under the
symbol "ZNXS." Currently, Zynaxis Common Stock is not traded in any established
market. The principal executive offices of Zynaxis are located at 371
Phoenixville Pike, Malvern, Pennsylvania 19355, and its telephone number at such
address is (610) 889-2200. Additional information with respect to Zynaxis and
its subsidiaries is included in "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Zynaxis" and Zynaxis'
Consolidated Financial Statements and related notes thereto included in this
Proxy Statement and in documents incorporated by reference in this Proxy
Statement. See "Available Information," "Documents Incorporated by Reference,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operation of Zynaxis," and "Business of Zynaxis."
 
MEETING OF SHAREHOLDERS
 
   
     This Proxy Statement is being furnished to the holders of Zynaxis Capital
Stock in connection with the solicitation by the Zynaxis Board of proxies for
use at the Special Meeting at which Zynaxis shareholders will be asked to vote
upon (i) proposals to approve each of the Agreement and the Merger contemplated
thereby, the Asset Sales, and the Charter Amendment, and (ii) such other
business as may properly come before the meeting. The Special Meeting will be
held at 371 Phoenixville Pike, Malvern, Pennsylvania 19355, at 9:00 A.M. local
time, on May 21, 1997. See "Special Meeting of Zynaxis Shareholders -- Date,
Place, Time, and Purpose."
    
 
     At the Special Meeting, the Charter Amendment will be the first matter put
before the shareholders for consideration and for a vote. If the Charter
Amendment is approved by the shareholders, the Special Meeting will be adjourned
pending the filing of the Articles of Amendment, reflecting the Charter
Amendment, with the Department of State of the Commonwealth of Pennsylvania. The
Special Meeting shall be adjourned for approximately two hours or for such
shorter period of time as is necessary to file the Articles of Amendment. After
the filing of the Articles of Amendment and the effectiveness of the Charter
Amendment, the Special
 
                                        2
<PAGE>   18
 
Meeting will be reconvened to consider and vote upon the Agreement and the
Merger contemplated thereby, the Asset Sales, and such other business as may
properly come before the Special Meeting. If the shareholders do not approve the
Charter Amendment, the Special Meeting will not be adjourned and the
shareholders will be asked to consider and vote upon the Agreement and the
Merger contemplated thereby, the Asset Sales, and such other business as may
properly come before the Special Meeting.
 
     Vaxcel intends to waive the requirement that the Charter Amendment be
approved if the shareholders of Zynaxis fail to approve the Charter Amendment.
If the Merger is consummated, the shareholders of Zynaxis will have the right to
object to the Merger pursuant to Subchapter 25E of the PBCL and demand fair
value for their shares of Zynaxis Capital Stock. See "Description of
Transaction -- Objection Rights Under Subchapter 25E of the PBCL."
 
   
     The Zynaxis Board has fixed the close of business on March 7, 1997 as the
record date (the "Record Date") for determination of the shareholders entitled
to notice of and to vote at the Special Meeting. Only holders of record of
shares of Zynaxis Capital Stock on the Record Date will be entitled to notice of
and to vote at the Special Meeting. Holders of Zynaxis Common Stock are entitled
to one vote for each share of Zynaxis Common Stock held. When voting together as
a class with holders of Zynaxis Common Stock, holders of Zynaxis Preferred Stock
are entitled to vote on an as converted basis and are, therefore, entitled to
two votes for each share of Zynaxis Preferred Stock held. When voting separately
as a class, holders of Zynaxis Preferred Stock are entitled to one vote for each
share of Zynaxis Preferred Stock held. Shareholders who execute proxies retain
the right to revoke them at any time prior to being voted at the Special
Meeting. If the Charter Amendment is approved and the Special Meeting is
adjourned, when the Special Meeting is reconvened, each shareholder of Zynaxis
retains the right to revoke his proxy with respect to any proposal not yet acted
upon. On the Record Date, there were 10,377,240 shares of Zynaxis Common Stock
issued and outstanding and 1,412,500 shares of Zynaxis Preferred Stock issued
and outstanding. See "Special Meeting of Zynaxis Shareholders -- Record Dates,
Voting Rights, Required Votes, and Revocability of Proxies."
    
 
     The vote required for approval of each of the Agreement and the Merger
contemplated thereby, the Asset Sales, and the Charter Amendment, is the
affirmative vote of: (i) a majority of the votes cast, whether in person or by
proxy, by all holders of Zynaxis Preferred Stock (voting on an as converted
basis) and by all holders of Zynaxis Common Stock, entitled to vote and voting
together as a class ("Zynaxis Combined Voting Stock"); and (ii) a majority of
the votes cast, whether in person or by proxy, by all holders of Zynaxis
Preferred Stock, entitled to vote and voting as a separate class. As of the
Record Date, the directors and executive officers of Zynaxis and their
affiliates were entitled to vote 24.5% of the issued and outstanding shares of
Zynaxis Combined Voting Stock and 46.7% of the issued and outstanding shares of
Zynaxis Preferred Stock. EACH MEMBER OF THE ZYNAXIS BOARD INTENDS TO VOTE THOSE
SHARES OF ZYNAXIS CAPITAL STOCK OVER WHICH SUCH MEMBER HAS VOTING AUTHORITY
(OTHER THAN IN A FIDUCIARY CAPACITY) IN FAVOR OF THE AGREEMENT AND THE MERGER
CONTEMPLATED THEREBY, THE ASSET SALES, AND THE CHARTER AMENDMENT, RESPECTIVELY.
See "Special Meeting of Shareholders -- Record Dates, Voting Rights, Required
Votes, and Revocability of Proxies."
 
     In addition, simultaneously with the execution of the Agreement, CytRx
entered into the Shareholder Voting Agreements with certain of the shareholders
of Zynaxis. The following shareholders executed Shareholder Voting Agreements:
Senmed Medical Ventures, Alphi Fund L.P., CIP Capital L.P., Gus G. Casten,
Commonwealth Venture Partners I, L.P., and Philadelphia Ventures-Japan I L.P.
Collectively, as of the Record Date, these shareholders held approximately 14.1%
of the issued and outstanding shares of Zynaxis Combined Voting Stock and
approximately 25.1% of the issued and outstanding shares of Zynaxis Preferred
Stock. Pursuant to the Shareholder Voting Agreements, each of the shareholders
agreed, among other things, that at any meeting of shareholders of Zynaxis
called to vote upon any of the matters contemplated by the Agreement (including,
without limitation, the Asset Sales and the Charter Amendment) or at any
adjournment thereof or in any other circumstances upon which a vote, consent or
other approval with respect to any of the matters contemplated by the Agreement
is sought, the shareholder will vote (or cause to be voted) the holder's shares
in favor of each of the matters contemplated by the Agreement. See " --The
Merger -- Shareholder Voting Agreements" and "Description of Transaction -- The
Transaction Documents -- Shareholder Voting Agreements."
 
                                        3
<PAGE>   19
 
     Therefore, as of the Record Date, those parties who are committed to vote
for the Agreement, the directors and executive officers of Zynaxis and their
affiliates and the shareholders of Zynaxis who executed the Shareholder Voting
Agreement, were entitled to vote approximately 38.6% of the issued and
outstanding shares of Zynaxis Combined Voting Stock and approximately 71.8% of
the issued and outstanding shares of Zynaxis Preferred Stock. Accordingly,
although the approval by the holders of Zynaxis Combined Voting Stock is not
assured, the approval by the holders of Zynaxis Preferred Stock is assured.
 
THE MERGER
 
     General.  At the Effective Time, Vaxcel Merger Sub will merge with and into
Zynaxis, with the effect that Zynaxis will be the surviving corporation
resulting from the Merger, and will continue to conduct its business and
operations as a wholly owned subsidiary of Vaxcel. Pursuant to the Agreement,
when the Merger is consummated, each share of capital stock of Zynaxis will be
converted into the right to receive shares of Vaxcel Common Stock. Specifically,
each share of Zynaxis Common Stock issued and outstanding immediately prior to
the Effective Time of the Merger (excluding certain shares as set forth in the
Agreement), will be exchanged for the right to receive a number of shares of
Vaxcel Common Stock equal to the Exchange Ratio (as described below and defined
in the Agreement), with cash being paid in lieu of any fractional shares. In
addition, each share of Zynaxis Preferred Stock issued and outstanding
immediately prior to the Effective Time (excluding certain shares as set forth
in the Agreement), will be exchanged for the right to receive a number of shares
of Vaxcel Common Stock equal to two times the Exchange Ratio, with cash being
paid in lieu of any fractional shares. Assuming no changes in the capitalization
of either Vaxcel or Zynaxis, the Exchange Ratio is approximately .0947.
 
     As part of the transaction contemplated by the Agreement and pursuant to
the Agreement, when the Merger is consummated, CytRx will contribute to Vaxcel
the Senior Credit Facility and the Cash Payment. The Senior Credit Facility to
be contributed by CytRx was entered into by CytRx and Zynaxis simultaneously
with the execution of the Agreement to provide Zynaxis with working capital
pending the consummation of the Merger. The Senior Credit Facility is made up of
a secured note, certain security agreements, and a secured loan agreement,
pursuant to which CytRx has agreed to loan up to $2,000,000 to Zynaxis. The
amount of the Cash Payment will be equal to the difference, as of the Effective
Time, between $4,000,000 and the sum of (i) the outstanding balance under the
Senior Credit Facility and (ii)(a) the Per Share Price (as defined in the
Agreement) of approximately $.2754, multiplied by (b) the number of votes
entitled to be cast by the holders of Zynaxis Capital Stock, if any, who elect
to exercise their statutory dissenters' rights under Subchapter 15D of the PBCL
or their statutory objection rights under Subchapter 25E of the PBCL in excess
of three percent of the votes that could be cast by all holders of Zynaxis
Capital Stock voting together as a class. In general terms, pursuant to the
Agreement, when the Merger is consummated, CytRx will be contributing up to
$4,000,000 in consideration in the form of the $2,000,000 Senior Credit Facility
and the Cash Payment. However, CytRx's contribution will be decreased to account
for cash payments which must be made to dissenting or objecting shareholders of
Zynaxis.
 
   
     The following table illustrates the calculation of the Cash Payment under
certain circumstances using various assumptions for two variables -- (i) the
outstanding balance of the Senior Credit Facility and (ii) the number of shares
held by shareholders who elect to exercise their statutory dissenter's rights.
    
 
   
<TABLE>
<CAPTION>
                                               EXAMPLE 1     EXAMPLE 2     EXAMPLE 3     EXAMPLE 4
                                               ----------    ----------    ----------    ----------
<S>                                            <C>           <C>           <C>           <C>
Gross Cash Payment............................ $4,000,000    $4,000,000    $4,000,000    $4,000,000
Amount Outstanding Under Senior Credit
  Facility.................................... $1,275,000    $1,275,000    $2,000,000    $2,000,000
Reduction for Dissenter's Rights(1)........... $       --    $   57,365    $       --    $   57,365
                                               ----------    ----------    ----------    ----------
Net Cash Payment.............................. $2,725,000    $2,667,635    $2,000,000    $1,942,635
                                                =========     =========     =========     =========
</TABLE>
    
 
                                        4
<PAGE>   20
 
- ---------------
 
   
(1) The reduction of the Cash Payment based on the exercise of dissenter's
    rights was calculated as follows:
    
 
   
<TABLE>
      <S>                                                   <C>            <C>            <C>            <C>
      Zynaxis Common Shares Outstanding...................  10,377,240     10,377,240     10,377,240     10,377,240
      Dissenting Shares
        Percentage........................................          1%             5%             1%             5%
        Number............................................     103,772        518,862        103,772        518,862
      3% "Floor" for Purposes of Cash Payment.............     311,317        311,317        311,317        311,317
                                                            ----------     ----------     ----------     ----------
      Number Shares in Excess of Floor....................          --        207,545             --        207,545
      Per Share Price.....................................  $   0.2764     $   0.2764     $   0.2764     $   0.2764
                                                            ----------     ----------     ----------     ----------
      Cash Payment Reduction..............................  $       --     $   57,365     $       --     $   57,365
</TABLE>
    
 
     In exchange for the contribution of the Senior Credit Facility and the Cash
Payment, Vaxcel will deliver the CytRx Warrant and a certain number of shares of
Vaxcel Common Stock. The CytRx Warrant will have an exercise price equal to
one-half of the Per Share Price multiplied by the Exchange Ratio and may be
exercised if, and only if, CytRx reasonably determines that Vaxcel's total
assets and capital and surplus are insufficient to satisfy the total assets and
capital surplus requirements for inclusion of Vaxcel Common Stock on the Nasdaq
SmallCap Market. Vaxcel does not anticipate that it will be necessary to
exercise the CytRx Warrant, provided that Vaxcel's financial position and the
listing requirements for the Nasdaq SmallCap Market do not differ materially
from Vaxcel's current assessment. In addition to the CytRx Warrant, CytRx will
receive 1,374,996 shares of Vaxcel Common Stock, plus an additional number of
shares of Vaxcel Common Stock equal to the product of the Exchange Ratio
multiplied by the number of votes entitled to be cast by the holders of Zynaxis
Capital Stock, if any, who elect to exercise their statutory dissenters' rights
under Subchapter 15D of the PBCL or their statutory objection rights under
Subchapter 25E of the PBCL.
 
     As a result of the Merger, assuming that no holder of Zynaxis Capital Stock
exercises its appraisal or objection rights and assuming no exercise of any
options or warrants to purchase Vaxcel Common Stock, the former shareholders of
Zynaxis will own approximately 12.5% of the issued and outstanding shares of
Vaxcel Common Stock, and CytRx will own approximately 87.5% of such shares.
Assuming conversion or exercise of all stock options and warrants, except the
CytRx Warrant, outstanding, CytRx would own approximately 79% of Vaxcel, current
holders of Vaxcel stock options would own approximately 6.5%, and the former
shareholders and holders of stock options and warrants of Zynaxis would own
approximately 14.5%.
 
   
     The following table sets forth in general terms what CytRx and the Zynaxis
shareholders are exchanging and receiving in the Merger.
    
 
   
<TABLE>
<CAPTION>
                     PARTY                           CONTRIBUTING               RECEIVING
- ------------------------------------------------  ------------------    -------------------------
<S>                                               <C>                   <C>
CytRx...........................................  - 100% of Vaxcel      - 87.5% of "new" Vaxcel
                                                  - Cash Payment        - CytRx Warrant
                                                  ($4,000,000)
Zynaxis Shareholders............................  - 100% of Zynaxis     - 12.5% of "new" Vaxcel
</TABLE>
    
 
     The negotiation by the parties of the Agreement was at arms-length. Neither
CytRx nor Vaxcel own any shares of Zynaxis Capital Stock. No officer or director
of CytRx or Vaxcel has a business relationship with Zynaxis. No officer or
director of Zynaxis has a business relationship with CytRx or Vaxcel. In
addition, no officer or director of Zynaxis and no affiliate thereof has been
granted preferential treatment under the terms of the Agreement. See
"Description of Transaction -- Background of and Reasons for the Merger."
 
     Transaction Documents.  At the time that the Agreement was executed, three
other agreements were executed which will permit the consummation of the Merger.
Zynaxis, CytRx, Vaxcel, and the holders of all of the outstanding shares of
Zynaxis Preferred Stock, who also hold Zynaxis Warrants, entered into the
Preferred Stock and Warrant Agreement, conditioned upon the consummation of the
Merger, making certain agreements with respect to their rights, and converting
the Zynaxis Warrants, upon consummation of the Merger, into warrants for the
purchase of Vaxcel Common Stock. Zynaxis, CytRx, and Vaxcel entered into the
Note Exchange Agreement with Euclid and S.R. One, Ltd. (the "Noteholders") who
hold the Zynaxis Notes, conditioned upon the consummation of the Merger,
converting the Zynaxis Notes, upon consummation
 
                                        5
<PAGE>   21
 
of the Merger, into the right to receive shares of Vaxcel Common Stock. Finally,
CytRx and certain holders of Zynaxis Capital Stock entered into the Shareholder
Voting Agreements pursuant to which each of such shareholders granted CytRx an
irrevocable proxy to vote shares of Zynaxis Capital Stock held by such
shareholders in favor of the Agreement and the Merger contemplated thereby, the
Asset Sales, and the Charter Amendment.
 
     Another set of three agreements was also executed concurrent with the
Agreement, which permit Zynaxis to continue as a going concern pending the
consummation of the Merger. As described above, CytRx entered into the Senior
Credit Facility with Zynaxis. Zynaxis and CytRx also entered into a letter
agreement ("Liquidation Agreement") which provides for CytRx to serve as
Zynaxis' agent in the Asset Sales. Finally, Vaxcel and Zynaxis entered into a
technology development agreement ("Technology Development Agreement") concerning
the development, by Vaxcel, of certain technologies owned by or licensed to
Zynaxis. Each of the Senior Credit Facility, the Liquidation Agreement, the
Preferred Stock and Warrant Agreement, the Note Exchange Agreement, the
Shareholder Voting Agreements, and the Technology Development Agreement are
incorporated into the Agreement as exhibits thereto.
 
     Effect of the Merger on Stock Options, Warrants, and Promissory Notes.  The
Agreement contemplates that at the Effective Time, each option or other equity
right to purchase shares of Zynaxis Common Stock pursuant to stock options or
stock appreciation rights ("Zynaxis Options") granted by Zynaxis under the
Zynaxis Stock Plan, as defined in the Agreement, which are outstanding at the
Effective Time, whether or not exercisable, will be converted into and become
rights with respect to Vaxcel Common Stock, and Vaxcel will assume each Zynaxis
Option, in accordance with the terms of the Zynaxis Stock Plan, and stock option
agreement by which it is evidenced, subject to certain terms as further
described herein. See "Description of the Transaction -- Effect of the Merger on
Stock Options, Warrants, and Promissory Notes."
 
     The Agreement also contemplates that upon consummation of the Merger, each
Zynaxis Warrant which is outstanding upon consummation of the Merger and is held
by a party to the Preferred Stock and Warrant Agreement will be exchanged for a
Vaxcel Warrant, in accordance with the terms of the Preferred Stock and Warrant
Agreement. See "Description of the Transaction -- Effect of the Merger on Stock
Options, Warrants, and Promissory Notes."
 
     Additionally, each warrant to purchase Zynaxis Common Stock which is
outstanding at the Effective Time and is not being exchanged for a Vaxcel
Warrant in accordance with the Agreement and pursuant to the Preferred Stock and
Warrant Agreement (a "Zynaxis Non-Financing Warrant") will be converted into and
become a Vaxcel Non-Financing Warrant, at the Effective Time, and Vaxcel will
assume each such Zynaxis Non-Financing Warrant, in accordance with the terms of
the warrant agreement by which it is evidenced, except that from and after the
Effective Time, (i) each Zynaxis Non-Financing Warrant assumed by Vaxcel may be
exercised solely for shares of Vaxcel Common Stock, (ii) the number of shares of
Vaxcel Common Stock subject to such Zynaxis Non-Financing Warrant will be equal
to the number of shares of Zynaxis Common Stock subject to such Zynaxis
Non-Financing Warrant immediately prior to the Effective Time multiplied by the
Exchange Ratio, and (iii) the per share exercise price under each such Zynaxis
Non-Financing Warrant will be adjusted by dividing the per share exercise price
under each such Zynaxis Non-Financing Warrant by the Exchange Ratio and rounding
up to the nearest cent. See "Description of the Transaction -- Effect of the
Merger on Stock Options, Warrants, and Promissory Notes."
 
     The Zynaxis Warrants and the Zynaxis Non-Financing Warrants are being
treated differently because they are governed by different instruments and have
different terms. The Zynaxis Warrants were issued pursuant to a certain
Preferred Stock and Warrant Purchase Agreement dated March 29, 1995, as amended.
Such agreement gave the holders of Zynaxis Warrants and Zynaxis Preferred Stock
certain rights which they agreed to modify pursuant to the Preferred Stock and
Warrant Agreement. Among these rights were rights triggered by a change of
control. The Vaxcel Warrants to be received by the holders of Zynaxis Warrants
have a shorter term and, after 60 days, a higher exercise price (after adjusting
for the Exchange Ratio). The rights of holders of Zynaxis Non-Financing Warrants
are governed by the terms of the warrants themselves. The obligation of Zynaxis
under the Zynaxis Non-Financing Warrants will be assumed by Vaxcel after
adjusting
 
                                        6
<PAGE>   22
 
the exercise price and the number of shares to be issued under the Zynaxis
Non-Financing Warrants by the Exchange Ratio.
 
     Each Zynaxis Note on which Zynaxis is the obligor and which is held by a
party to the Note Exchange Agreement, will be exchanged for shares of Vaxcel
Common Stock in accordance with the terms of the Note Exchange Agreement. See
"Description of Transaction -- The Transaction Documents -- Note Exchange
Agreement" and " -- Effect of the Merger on Stock Options, Warrants, and
Promissory Notes."
 
     Reasons for the Merger; Recommendations of the Board of Directors of
Zynaxis.  The Zynaxis Board believes that the Agreement and the Merger, the
Asset Sales, and the Charter Amendment are fair to and in the best interests of
Zynaxis and its shareholders. THE ZYNAXIS DIRECTORS UNANIMOUSLY RECOMMEND THAT
ZYNAXIS SHAREHOLDERS VOTE FOR APPROVAL OF THE AGREEMENT AND THE MERGER
CONTEMPLATED THEREBY, THE ASSET SALES, AND THE CHARTER AMENDMENT.
 
     THE ZYNAXIS BOARD BELIEVES THAT THE MERGER IS FAIR TO AND IN THE BEST
INTEREST OF THE ZYNAXIS SHAREHOLDERS BECAUSE IT PROVIDES THE SHAREHOLDERS WITH
THE OPPORTUNITY TO PARTICIPATE IN THE EQUITY GROWTH THAT MAY RESULT FROM THE
DEVELOPMENT AND COMMERCIALIZATION OF THE ZYNAXIS VACCINE DELIVERY TECHNOLOGIES,
AND IF THE MERGER IS NOT CONSUMMATED, IT IS HIGHLY PROBABLE THAT ZYNAXIS WILL
CEASE TO EXIST AS A GOING CONCERN. The Zynaxis Board believes that if Zynaxis
had not borrowed funds under the Senior Credit Facility, the Company would
already have ceased to exist as a going concern, and if the Merger is not
consummated, Zynaxis may not have cash sufficient to fund its ongoing operations
or to repay the funds that will have been borrowed under the Senior Credit
Facility. If Zynaxis defaults under the Senior Credit Facility, CytRx may
exercise its rights as a secured creditor with respect to certain assets of
Zynaxis, including, but not limited to, foreclosing on Zynaxis' rights in its
vaccine delivery technologies. See "Description of Transaction -- Background of
and Reasons for the Merger."
 
   
     In unanimously approving the Agreement and the Merger contemplated thereby,
the Asset Sales, and the Charter Amendment, Zynaxis' directors considered, among
other things, (i) the highly dilutive nature of the proposed transaction, (ii)
the loss of control of Zynaxis' shareholders and management, (iii) the
concentration of risk in the area of vaccine technology as opposed to the
diversification of risk attributable to having both drug and vaccine development
programs, (iv) the risk that, if the Merger is not consummated, there was a
substantial likelihood that Zynaxis would not be able to repay the Senior Credit
Facility, (v) Zynaxis' financial condition, (vi) the financial terms and the
income tax consequences of the Merger, and (vii) legal advice concerning the
proposed Merger. All material factors, including risks and other negative
factors, considered by the Zynaxis Board in deciding that the Merger is fair to
and in the best interests of Zynaxis and its shareholders are described in
"Description of Transaction -- Background of and Reasons for the Merger." The
Zynaxis Board determined that the reasons for the Merger outweighed the negative
factors because Zynaxis could not survive as a going concern without the Senior
Credit Facility provided by CytRx as part of the Merger.
    
 
                                        7
<PAGE>   23
 
     Exchange Ratio.  Assuming no changes in the capitalization of either Vaxcel
or Zynaxis, the Exchange Ratio is approximately .0947. The following table
illustrates how the exchange ratio will be applied to the different Zynaxis
securities described above.
 
<TABLE>
<CAPTION>
                 ZYNAXIS SECURITIES                                    VAXCEL SECURITIES
                     PRE-MERGER                                           POST-MERGER
- ----------------------------------------------------  ----------------------------------------------------
     ZYNAXIS SECURITY                NUMBER                 VAXCEL SECURITY                NUMBER
- ---------------------------  -----------------------  ---------------------------  -----------------------
<S>                          <C>                      <C>                          <C>
ZYNAXIS COMMON STOCK.......  One share                VAXCEL COMMON STOCK........  .0947 shares
ZYNAXIS PREFERRED STOCK....  One share                VAXCEL COMMON STOCK........  .1894 shares
  (Convertible into two
    shares of Zynaxis
    Common Stock)
ZYNAXIS NOTES(1)...........  One share for            VAXCEL COMMON STOCK........  .3439 shares
                             each dollar of                                        for each dollar of
                             principal and interest                                principal and interest
                             outstanding                                           outstanding at 9/30/96
ZYNAXIS WARRANTS(2)........  One warrant              VAXCEL WARRANTS(2).........  One warrant
                             to purchase two shares                                to purchase .1894
                                                                                   shares
ZYNAXIS NON-FINANCING                                 VAXCEL NON-FINANCING
  WARRANTS(2)..............  One warrant              WARRANTS(2)................  One warrant
                             to purchase one share                                 to purchase .0947
                                                                                   shares
ZYNAXIS OPTIONS............  One option               VAXCEL OPTIONS.............  One option
                             to purchase one share                                 to purchase .0947
                                                                                   shares
</TABLE>
 
- ---------------
(1) Plexus Ventures, Inc., a holder of a convertible demand note of Zynaxis, has
    exercised its right under the demand note to have the principal and interest
    accrued on its note repaid at the Closing. See "Description of
    Transaction -- Interests of Certain Persons in the Merger."
 
(2) The term of the Zynaxis Warrants is five years from July 27, 1995. The term
    of the Vaxcel Warrants is one year from the Effective Time. The term of each
    Vaxcel Non-Financing Warrant is the same as the term of each Zynaxis
    Non-Financing Warrant. See "Description of Vaxcel Capital Stock."
 
     For a detailed description of the Exchange Ratio calculation, see
"Description of Transaction -- Exchange Ratio."
 
     Per Share Price.  Assuming no changes in the capitalization of either
Vaxcel or Zynaxis, the Per Share Price is approximately $.2754. For a detailed
description of the Per Share Price calculation, see "Description of
Transaction -- Per Share Price."
 
     Effective Time.  Subject to the conditions to the obligations of the
parties to effect the Merger, the Effective Time of the Merger and other
transactions contemplated by the Agreement will occur upon the last to occur of:
(i) the filing of the Articles of Merger in the Department of State of the
Commonwealth of Pennsylvania; and (ii) the filing of the Certificate of Merger
with the Secretary of State of the State of Georgia. Unless otherwise agreed
upon by Vaxcel and Zynaxis, and subject to the conditions to the obligations of
the parties to effect the Merger, the parties will use their reasonable efforts
to cause the Effective Time to occur as soon as practical following the last to
occur of: (i) the effective date (including the expiration of any applicable
waiting period) of the last consent of any regulatory authority required for the
Merger; and (ii) the date on which the shareholders of Zynaxis approve the
matters relating to this Agreement required to be approved by such shareholders
by applicable law. See "Description of Transaction -- Effective Time,"
"-- Conditions to Consummation of the Merger," and "-- Waiver, Amendment, and
Termination."
 
   
     NO ASSURANCE CAN BE PROVIDED THAT THE NECESSARY SHAREHOLDER APPROVALS CAN
BE OBTAINED OR THAT THE OTHER CONDITIONS PRECEDENT TO THE MERGER CAN OR WILL BE
SATISFIED. ZYNAXIS AND VAXCEL ANTICIPATE THAT ALL CONDITIONS TO THE CONSUMMATION
OF THE MERGER WILL BE SATISFIED SO THAT THE MERGER CAN BE CONSUMMATED DURING THE
SECOND HALF OF MAY 1997. HOWEVER, DELAYS IN THE CONSUMMATION OF THE MERGER COULD
OCCUR.
    
 
     Exchange of Stock Certificates, Warrants and Promissory Notes.  Promptly
after the Effective Time, Vaxcel will cause American Stock Transfer and Trust
Company, acting in its capacity as exchange agent for Vaxcel (the "Exchange
Agent"), to mail to each holder of record of a certificate or certificates
(collectively,
 
                                        8
<PAGE>   24
 
the "Certificates") which, immediately prior to the Effective Time, represented
outstanding shares of Zynaxis Capital Stock, a letter of transmittal and
instructions for use in effecting the surrender and cancellation of the
Certificates in exchange for certificates representing shares of Vaxcel Common
Stock. Cash will be paid to the holders of Zynaxis Capital Stock in lieu of the
issuance of any fractional shares of Vaxcel Common Stock. In no event will the
holder of any surrendered Certificate(s) be entitled to receive interest on any
cash to be issued to such holder, and in no event will Zynaxis, Vaxcel, or the
Exchange Agent be liable to any holder of Zynaxis Capital Stock for any Vaxcel
Common Stock or dividends thereon or cash delivered in good faith to a public
official pursuant to any applicable abandoned property, escheat, or similar law.
See "Description of Transaction -- General" and "-- Distribution of Vaxcel Stock
Certificates and Warrants."
 
     Pursuant to the Preferred Stock and Warrant Agreement, at the Closing (as
defined in the Agreement), each holder of a Zynaxis Warrant who is a party to
the Preferred Stock and Warrant Agreement will surrender the Zynaxis Warrant and
Vaxcel will deliver to each such holder in exchange a Vaxcel Warrant. At the
Closing, each holder of a Zynaxis Non-Financing Warrant will surrender such
warrant and Vaxcel will deliver to each such holder in exchange a Vaxcel
Non-Financing Warrant. At the Closing, each holder of a Zynaxis Note will
deliver its Zynaxis Notes to Vaxcel who shall then contribute such Zynaxis Notes
to the capital of Zynaxis by marking the Zynaxis Notes "Paid in Full" and
delivering them to Zynaxis. Vaxcel shall thereupon deliver to each such holder a
certificate representing all the Note Shares to be issued in exchange therefor.
See "Description of Transaction -- Distribution of Vaxcel Stock Certificates and
Warrants."
 
     Regulatory Approvals and Conditions to Consummation.  Other than certain
filings and approvals which may be required under certain state securities or
"blue sky" laws, Vaxcel and Zynaxis are not aware of any federal or state
regulatory requirements that must be complied with or approval obtained in
connection with the Merger. See "Description of Transaction -- Regulatory
Approvals."
 
     Consummation of the Merger is subject to various conditions, including
receipt of the required approvals of Zynaxis shareholders, receipt of an opinion
of counsel as to the tax-free nature of certain aspects of the Merger and
certain other conditions. See "Description of Transaction -- Conditions to
Consummation of the Merger."
 
     Waiver, Amendment, and Termination.  The Agreement may be terminated and
the Merger abandoned at any time prior to the Effective Time (i) by the mutual
consent of the Boards of Directors of Zynaxis and CytRx; and (ii) by the Boards
of Directors of either Zynaxis or CytRx under certain circumstances set forth in
the Agreement. To the extent permitted by law, the Agreement may be amended upon
the written agreement of the parties to the Agreement without the approval of
shareholders; provided, however, that after the Special Meeting, no amendment
may reduce or modify in any material respect the consideration to be received by
holders of Zynaxis Capital Stock without the requisite approval of the holders
of the issued and outstanding shares of Zynaxis Capital Stock entitled to vote
thereon. In addition, prior to or at the Effective Time, either Zynaxis or
Vaxcel, or both, acting through their respective Boards of Directors or chief
executive officers or other authorized officers may waive any default in the
performance of any term of the Agreement by the other party, may waive or extend
the time for the compliance or fulfillment by the other party of any and all of
its obligations under the Agreement, and may waive any of the conditions
precedent to the obligations of such party under the Agreement, except any
condition that, if not satisfied, would result in the violation of any
applicable law or governmental regulation. No such waiver will be effective
unless written and unless executed by a duly authorized officer of Zynaxis or
Vaxcel, as the case may be. See "Description of Transaction -- Waiver,
Amendment, and Termination."
 
     Dissenters' Rights.  Pursuant to Subchapter 15D of the PBCL, the holders of
Zynaxis Capital Stock have dissenters' rights with respect to the Merger and the
Asset Sales. Any Zynaxis shareholder who does not vote in favor of the proposal
to approve the Agreement and the Merger contemplated thereby, or the Asset Sales
and who complies with certain requirements of the applicable provisions of the
PBCL may have the right to an appraisal and payment for such person's shares of
Zynaxis Capital Stock.
 
     TO PERFECT DISSENTERS' RIGHTS OF APPRAISAL, A HOLDER OF ZYNAXIS CAPITAL
STOCK MUST STRICTLY COMPLY WITH THE APPLICABLE STATUTORY PROVISIONS THEREOF, A
COPY OF WHICH IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX D. ANY HOLDER OF
ZYNAXIS CAPITAL STOCK WHO RETURNS A SIGNED PROXY BUT WHO FAILS TO PROVIDE VOTING
 
                                        9
<PAGE>   25
 
INSTRUCTIONS WITH RESPECT TO THE PROPOSALS TO APPROVE THE AGREEMENT AND THE
MERGER CONTEMPLATED THEREBY, AND THE ASSET SALES WILL BE DEEMED TO HAVE VOTED IN
FAVOR OF SUCH PROPOSAL AND WILL NOT BE ENTITLED TO ASSERT DISSENTERS' RIGHTS OF
APPRAISAL. See "Description of Transaction -- Dissenters' Rights."
 
     Objection Rights Under Subchapter 25E of the PBCL.  If the Charter
Amendment is not approved by the holders of Zynaxis Capital Stock and Vaxcel
elects to proceed with the Merger, each of the holders of Zynaxis Capital Stock,
pursuant to Subchapter 25E of the PBCL, who objects to the Merger and complies
with certain procedural requirements will be entitled to receive cash for each
of such shareholder's shares of Zynaxis Capital Stock in an amount equal to the
"fair value" of each share of Zynaxis Capital Stock as of the date of
consummation of the Merger.
 
     TO BE ENTITLED TO THE RIGHTS AND REMEDIES UNDER SUBCHAPTER 25E, A HOLDER OF
ZYNAXIS CAPITAL STOCK MUST STRICTLY COMPLY WITH THE APPLICABLE STATUTORY
PROVISIONS THEREOF, A COPY OF WHICH IS ATTACHED TO THIS PROXY STATEMENT AS
APPENDIX E. See "Description of Transaction -- Objection Rights Under Subchapter
25E of the PBCL."
 
     Interests of Certain Persons in the Merger.  Certain members of Zynaxis'
management and the Zynaxis Board have interests in the Merger in addition to
their interests as shareholders of Zynaxis generally. Specifically, certain
members of the Zynaxis Board, including Stephen K. Reidy, Lyle A. Hohnke, John
F. Chappell and Donald E. Morel, Jr. are affiliated with shareholders of Zynaxis
who will receive certain securities of Vaxcel in exchange for securities of
Zynaxis upon the consummation of the Merger. Another member of the Zynaxis
Board, Dennis P. Schafer, holds shares of Zynaxis Common Stock and will receive
shares of Vaxcel Common Stock in exchange for such shares upon the consummation
of the Merger. Messrs. Chappell, Morel and Schafer will receive options to
purchase Vaxcel Common Stock in exchange for Zynaxis Options held by them upon
the consummation of the Merger. A company affiliated with Mr. Chappell will be
paid the full amount of its convertible demand note issued by Zynaxis, with
unpaid interest accrued thereon, upon the Merger. Both executive officers of
Zynaxis, including Martyn D. Greenacre, who is also Chairman of the Zynaxis
Board of Directors, and Michael A. Christie, will receive options to purchase
Vaxcel Common Stock in exchange for Zynaxis Options held by such officers upon
the consummation of the Merger.
 
     Additionally, Mr. Greenacre has entered into an amendment to his employment
agreement which provides that (a) Mr. Greenacre shall continue to serve as the
President and Chief Executive Officer of Zynaxis until the first to occur of (i)
termination of his employment under the terms of his employment agreement or
(ii) the closing of the Merger (the "Closing"); (b) compensation payable to Mr.
Greenacre under the employment agreement and deferred through the Closing shall
be paid to Mr. Greenacre in a lump sum at the Closing; (c) severance shall be
paid to Mr. Greenacre at the Closing; and (d) upon the occurrence of certain
events, performance bonuses shall be paid to Mr. Greenacre at the Closing.
Zynaxis also has agreed to pay Mr. Christie a bonus on the closing of the sale
of the Cauldron division upon the occurrence of certain events. Additionally,
Zynaxis has agreed to pay Mr. Christie deferred salary with interest from May
1996 upon the sale of Cauldron. See "Description of Transaction -- Interests of
Certain Persons in the Merger" for a more detailed discussion of the interests
of Zynaxis' management and directors in the Merger.
 
     Certain Federal Income Tax Consequences of the Merger.  As a condition to
consummation of the Merger, each party has received a written opinion from
Alston & Bird to the effect that for federal income tax purposes the
contributions solely in exchange for Vaxcel Common Stock will constitute a
tax-free exchange under Section 351 of the Code. TAX CONSEQUENCES OF THE MERGER
FOR INDIVIDUAL TAXPAYERS CAN VARY, HOWEVER, AND ALL ZYNAXIS SHAREHOLDERS,
WARRANTHOLDERS AND NOTEHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO
DETERMINE THE EFFECT OF THE MERGER ON THEM UNDER FEDERAL, STATE, LOCAL, AND
FOREIGN TAX LAWS. NO OPINION IS EXPRESSED AS TO THE TAXATION OF THE EXCHANGE BY
HOLDERS OF WARRANTS FOR ZYNAXIS COMMON STOCK FOR WARRANTS FOR VAXCEL COMMON
STOCK. For a further discussion of the federal income tax consequences of the
Merger, see "Description of Transaction -- Certain Federal Income Tax
Consequences."
 
     Accounting Treatment.  It is intended that the Merger will be accounted for
as a purchase by Vaxcel of Zynaxis for accounting and financial reporting
purposes. See "Description of Transaction -- Accounting Treatment."
 
     Certain Differences in Shareholders' Rights.  At the Effective Time,
Zynaxis shareholders, whose rights are governed by Zynaxis' Articles of
Incorporation and Bylaws and by the PBCL, will automatically become
 
                                       10
<PAGE>   26
 
Vaxcel shareholders, and their rights as Vaxcel shareholders will be determined
by Vaxcel's Amended and Restated Certificate of Incorporation (the "Certificate
of Incorporation") and Bylaws and by the Delaware General Corporation Law
("DGCL"). See "Effect of the Merger on Rights of Shareholders."
 
     The rights of Vaxcel shareholders differ from the rights of Zynaxis
shareholders in certain important respects, some of which constitute additional
anti-takeover provisions provided for in Vaxcel's governing documents. See
"Effect of the Merger on Rights of Shareholders."
 
     Conduct of Business Pending the Merger.  Each party has agreed in the
Agreement to, among other things, operate its business only in the ordinary
course, except for the Asset Sales, and to take no action that would adversely
affect its ability to perform its covenants and agreements under the Agreement.
In addition, Zynaxis has agreed not to take certain actions relating to the
operation of Zynaxis pending consummation of the Merger without the prior
written consent of Vaxcel, except as otherwise permitted by the Agreement,
including, among other things: (i) incurring any additional debt obligation or
other obligation for borrowed money, except in the ordinary course of business
consistent with past practices; (ii) paying any dividends, exchanging any shares
of its capital stock, or, subject to certain exceptions, issuing any additional
shares of its capital stock or giving any person the right to acquire any such
shares; (iii) acquiring control over any other entity; (iv) subject to certain
exceptions, granting any increase in compensation or benefits, or paying any
bonus, to any of its officers or employees; or (v) subject to certain
exceptions, modifying or adopting any employee benefit plans, including any
employment contract. See "Description of Transaction -- Conduct of Business
Pending the Merger."
 
     Risk Factors.  HOLDERS OF ZYNAXIS CAPITAL STOCK SHOULD TAKE INTO ACCOUNT
THE SPECIFIC CONSIDERATIONS SET FORTH UNDER "RISK FACTORS" AS WELL AS THE OTHER
INFORMATION SET FORTH IN THIS PROXY STATEMENT.
 
PROPOSED ASSET SALES
 
     At the Special Meeting, the shareholders of Zynaxis will also be asked to
consider and vote upon the approval of Asset Sales. The Asset Sales are to be
conducted pursuant to the terms of the Asset Purchase Agreement, dated March 21,
1997, by and between Zynaxis and ProClinical and pursuant to other terms and
conditions to be determined by the Zynaxis Board of Directors. Pursuant to the
Liquidation Agreement and subject to shareholder approval, CytRx will serve as
Zynaxis' agent and assist Zynaxis in conducting the Asset Sales prior to the
Merger. Approval of the proposed Asset Sales will constitute approval of the
Asset Purchase Agreement and general approval for the Zynaxis Board to sell the
other assets of Zynaxis on terms and conditions acceptable to the Zynaxis Board.
 
     CytRx is authorized pursuant to the Liquidation Agreement to serve as
Zynaxis' agent and assist Zynaxis in selling assets for minimum amounts
specified in the Liquidation Agreement. In particular, the Liquidation Agreement
provides for the sale of various assets located at Zynaxis' Malvern,
Pennsylvania facility, including the leasehold improvements, physical plant and
laboratory equipment related to the Cauldron division and the leasehold
improvements, physical plant and laboratory equipment associated with Zynaxis'
research and development programs for its Zyn-Linker and vaccine delivery
technologies. The Liquidation Agreement contemplated minimum proposed
consideration amounts of $1,500,000 for the Cauldron division and $350,000 in
the aggregate for leasehold improvements, physical plant, and laboratory
equipment associated with Zynaxis' research and development programs. Since
entering into the Liquidation Agreement on December 6, 1996, Zynaxis has sold,
in the ordinary course of business, leasehold improvements, laboratory equipment
and office furniture and equipment related to its discontinued research and
development programs for an aggregate purchase price of approximately $160,000,
thereby reducing the amount of such assets to be sold pursuant to the
Liquidation Agreement.
 
     On March 21, 1997, Zynaxis entered into the Asset Purchase Agreement with
ProClinical. Pursuant to the Asset Purchase Agreement, ProClinical will purchase
substantially all of the assets used or related to Zynaxis' Cauldron division
(the "Cauldron Assets"). The purchase price for the Cauldron Assets under the
Asset Purchase Agreement is $832,000. As a condition of the Asset Purchase
Agreement, Zynaxis has agreed to prepay $250,000 under a lease dated August 30,
1988 between Zynaxis and PMRA III, c/o PM Realty Advisors, as amended, for
facilities used by the Cauldron division (the "Lease"). Upon closing of the
sale,
 
                                       11
<PAGE>   27
 
ProClinical will assume all liabilities and obligations under the Lease,
contracts and open orders with customers, and certain other contracts and
agreements. See "Proposed Asset Sales."
 
     There can be no assurance that Zynaxis will be able to obtain buyers for
any of the assets, or that Zynaxis will be able to obtain the minimum proposed
consideration amounts contemplated by the Liquidation Agreement. All sales of
material assets will be contingent on shareholder approval of the Asset Sales.
The approval of the Asset Sales by the shareholders of Zynaxis is a condition to
consummation of the Merger. See "Description of Transaction -- The Transaction
Documents" and "Proposed Asset Sales."
 
PROPOSED CHARTER AMENDMENT
 
     At the Special Meeting, the shareholders of Zynaxis will be asked to
consider and vote upon the approval of the Charter Amendment to the Articles of
Incorporation of Zynaxis to make Subchapter 25E of the PBCL inapplicable to
Zynaxis. Subchapter 25E (relating to control transactions) provides that if any
person or group acquires 20% or more of the voting power of a covered
corporation, the remaining shareholders may demand from such person or group the
fair value of their shares, including a proportionate amount of any control
premium. Pursuant to Section 2541(a)(4) of the PBCL, the articles of
incorporation of a Pennsylvania corporation can explicitly provide that
Subchapter 25E is not applicable by an amendment adopted by the shareholders of
such corporation prior to a control transaction. The adoption of the Charter
Amendment amending the Articles of Incorporation and making Subchapter 25E
inapplicable to the Merger is a condition to consummation of the Merger. See
"Description of the Transaction -- Objection Rights Under Subchapter 25E of the
PBCL."
 
COMPARATIVE MARKET PRICES OF COMMON STOCK
 
     There is no public trading market for Vaxcel Common Stock. Zynaxis Common
Stock was, until December 24, 1996, traded in the over-the-counter market and
quoted on the Nasdaq SmallCap Market under the symbol "ZNXS." As discussed
below, Zynaxis Common Stock currently is not traded in any established market.
The following table sets forth, as of the indicated dates, the last sale price
of Zynaxis Common Stock as reported by the Nasdaq SmallCap Market or as known by
management of Zynaxis. Because there is no public trading market for Vaxcel
Common Stock, no equivalent per share price of Zynaxis Common Stock based on the
Exchange Ratio can be calculated. The indicated dates of December 5, 1996 and
March   , 1997 represent, respectively, the last trading day immediately
preceding public announcement of the proposed acquisition of Zynaxis by Vaxcel
and the latest practicable date prior to the mailing of this Proxy Statement.
For more information, see "Comparative Market Prices and Dividends."
 
   
<TABLE>
<CAPTION>
  MARKET PRICE             ZYNAXIS
  PER SHARE AT:          COMMON STOCK
- -----------------        ------------
<S>                      <C>
December 5, 1996           $ 0.1875
April 14, 1997             $   0.18
</TABLE>
    
 
     Prior to December 20, 1995, Zynaxis Common Stock was traded on the Nasdaq
National Market. The By-Laws of the National Association of Securities Dealers,
Inc. required that Zynaxis maintain certain quantitative standards for continued
listing on the Nasdaq National Market. These standards included, among other
things, a minimum bid price of $1.00 per share or, in the alternative, market
value of public float of $8,000,000 and net tangible assets of $4,000,000.
Additionally, an issuer such as Zynaxis, which had sustained losses from
continuing operations and/or net losses in three of its last four most recent
fiscal years, was required to have net tangible assets of at least $4,000,000.
Due to Zynaxis' inability to continue to consistently meet the standards, the
Zynaxis Common Stock was removed from the Nasdaq National Market and began
trading on the Nasdaq SmallCap Market in December 1995. Zynaxis was delisted
from the Nasdaq SmallCap Market on December 24, 1996 due to its continued
noncompliance with quantitative listing standards, including Zynaxis' failure to
maintain a bid price greater than or equal to $1.00 per share or, in the
alternative, to maintain capital and surplus of $2,000,000 and a market value of
public float of $1,000,000.
 
                                       12
<PAGE>   28
 
COMPARATIVE PER SHARE DATA
 
     The following table sets forth certain unaudited selected financial
information on a pro forma and pro forma equivalent basis per common share. The
information presented in this table should be read in conjunction with the
separate historical financial statements and the interim unaudited condensed
financial statements of Vaxcel and Zynaxis and the notes thereto and in
conjunction with the unaudited pro forma condensed combined financial
information included elsewhere herein.
 
     The pro forma combined net loss per share assumes that the Merger was
effective as of the first day of each period reported. The pro forma combined
book value per share assumes that the Merger was effective as of the date
reported. The number of common shares outstanding used to calculate pro forma
combined net loss per share and pro forma combined book value per share is based
on the presumption that there would be 11,000,000 shares of Vaxcel Common Stock
outstanding upon each of the pro forma effective dates of the Merger. The pro
forma equivalent data for Zynaxis was computed by multiplying the pro forma
combined net loss per share or the pro forma combined book value per share by
the Exchange Ratio. No cash dividends have been declared or paid by Vaxcel or
Zynaxis during the periods reported. For more information, see "Pro Forma
Financial Information."
 
   
<TABLE>
<CAPTION>
                                                         HISTORICAL         ZYNAXIS       PRO FORMA
                                                      -----------------    PRO FORMA      COMBINED
                                                      VAXCEL    ZYNAXIS    EQUIVALENT   (AS ADJUSTED)
                                                      ------    -------    ---------    -------------
    <S>                                               <C>       <C>        <C>          <C>
    Net loss per share:
         Year ended December 31, 1996..............   $(.14)    $ (0.42)     $(.05)         $(.53)
    Book value per share:
         December 31, 1996.........................     .02       (0.11)       .06            .64
</TABLE>
    
 
                                       13
<PAGE>   29
 
                  SELECTED HISTORICAL FINANCIAL DATA OF VAXCEL
 
     The selected financial data as of December 31, 1996 and 1995 and for each
of the three years in the period ended December 31, 1996, is derived from the
financial statements of Vaxcel, which are included herein. Such financial
statements have been audited by Ernst & Young LLP, independent auditors of
Vaxcel. The selected financial data as of December 31, 1994 and 1993, and for
the period from inception (January 6, 1993) through December 31, 1993, is
derived from the audited financial statements of Vaxcel, not included or
incorporated by reference herein. The following selected financial data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Vaxcel" and the financial statements of
Vaxcel and notes thereto included in this Proxy Statement.
 
<TABLE>
<CAPTION>
                                                                                                   PERIOD FROM
                                                                                                    INCEPTION
                                                                                                   (JANUARY 6,
                                                                                                      1993)
                                                               YEAR ENDED DECEMBER 31,               THROUGH
                                                      -----------------------------------------    DECEMBER 31,
                                                         1996           1995           1994            1993
                                                      -----------    -----------    -----------    ------------
<S>                                                   <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:
    Revenues.......................................   $   128,435    $   121,709    $   500,814    $    506,317
Operating Expenses:
    Cost of sales..................................            --             --         72,636          74,066
    Research and development.......................       852,849        894,754        570,548         791,996
    Selling, general and administrative............       406,897        534,542        845,901       1,027,803
    Write-off of patent costs......................            --        128,216             --              --
                                                      -----------    -----------    -----------    ------------
                                                        1,259,746      1,557,512      1,489,085       1,893,865
Other Income (Expense):
    Interest income (expense), net.................         7,128         56,998       (111,572)        (55,635)
    Sale of animal adjuvant rights.................            --             --        500,000              --
                                                      -----------    -----------    -----------    ------------
                                                            7,128         56,998        388,428         (55,635)
                                                      -----------    -----------    -----------    ------------
Net loss...........................................   $(1,124,183)   $(1,378,805)   $  (599,843)   $ (1,443,183)
                                                      ============   ============   ============   ============
Net loss per common share..........................   $      (.14)   $      (.17)   $      (.09)   $       (.24)
                                                      ============   ============   ============   ============
Shares used in computing net loss per common
  share............................................     8,104,782      8,000,000      6,826,027       6,000,000
</TABLE>
 
<TABLE>
<CAPTION>
                                                                         AS OF DECEMBER 31,
                                                      ---------------------------------------------------------
                                                         1996           1995           1994            1993
                                                      -----------    -----------    -----------    ------------
<S>                                                   <C>            <C>            <C>            <C>
BALANCE SHEET DATA:
    Cash and cash equivalents......................   $    84,481    $   515,522    $   527,948    $     40,423
    Working capital (deficiency)...................       (84,303)       402,861        521,913         (45,117)
    Total assets...................................       377,992        701,868      1,043,575         825,900
    Stockholder's equity (deficit).................       159,986        584,169        962,974      (1,437,183)
</TABLE>
 
                                       14
<PAGE>   30
 
           SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ZYNAXIS
 
     The selected consolidated financial data as of December 31, 1996 and 1995,
and for each of the three years in the period ended December 31, 1996, is
derived from the consolidated financial statements of Zynaxis, which are
included herein. Such financial statements have been audited by Arthur Andersen
LLP, independent public accountants, whose report on the financial statements
includes an explanatory paragraph concerning Zynaxis' ability to continue as a
going concern. The selected consolidated financial data as of December 31, 1994,
December 31, 1993 and December 31, 1992 and for the years ended December 31,
1993 and 1992, is derived from the audited financial statements of Zynaxis, not
included or incorporated by reference herein. The following selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Zynaxis" and the consolidated financial statements of Zynaxis and notes thereto
included in this Proxy Statement.
 
<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                      -------------------------------------------------------------------------
                                         1996            1995            1994           1993           1992
                                      -----------    ------------    ------------    -----------    -----------
<S>                                   <C>            <C>             <C>             <C>            <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................  $ 2,050,467    $    761,792    $  1,163,955    $ 1,573,550    $ 1,166,658
Operating Expenses:
Cost of sales.......................      --               40,262         273,088        --             --
Research and development............    3,642,195       5,168,912       6,344,221      7,042,790      4,341,691
Marketing, general and
  administrative....................    2,019,042       2,239,921       3,397,948      2,875,112      1,263,317
Charge for acquired research and
  development.......................      --            5,165,793         --             --             --
Restructuring charge................      --              347,436         --             --             --
Provision for asset impairment......    1,152,130         --            1,466,360        --             --
                                      -----------    ------------    ------------    -----------    -----------
                                        6,813,367      12,962,324      11,481,617      9,917,902      5,605,008
Other Income (Expense):
Interest income (expense), net......      (58,934)         44,023         106,259        574,261      1,023,676
Other income (expense)..............      591,364         162,232         --             --             --
Net gain on sale of diagnostics
  technologies and assets...........      --            1,616,840         --             --             --
                                      -----------    ------------    ------------    -----------    -----------
                                          532,430       1,823,095         106,259        574,261      1,023,676
Net loss............................  $(4,230,470)   $(10,377,437)   $(10,211,403)   $(7,770,091)   $(3,414,674)
Net loss per common share...........  $     (0.42)   $      (1.57)   $      (1.95)   $     (1.49)   $     (0.71)
Shares used in computing net loss
  per common share(1)...............   10,126,676       6,602,813       5,241,317      5,204,967      4,837,661
</TABLE>
 
<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                      -------------------------------------------------------------------------
                                         1996            1995            1994           1993           1992
                                      -----------    ------------    ------------    -----------    -----------
<S>                                   <C>            <C>             <C>             <C>            <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
  investments.......................  $   124,348    $    509,143    $  2,216,456    $15,375,621    $22,901,516
Working capital (deficit)...........   (2,029,680)       (733,698)      1,122,483     12,917,242     13,005,985
Total assets........................    1,398,283       3,987,828       6,399,135     20,888,148     24,429,508
Long-term debt and other long-term
  obligations.......................       65,511         183,403         212,245      3,833,841        312,058
Stockholders' equity (deficit)(2)...   (1,110,557)      2,357,595       5,277,193     15,463,531     23,063,154
</TABLE>
 
- ---------------
(1) Computed on basis described for net loss per common share in Note 2 to Notes
    to Consolidated Financial Statements.
 
(2) Includes accretion of $2,543,068 to convertible preferred stock redemption
    value. No dividends on the Zynaxis Common Stock have been declared or paid
    since Zynaxis' inception.
 
                                       15
<PAGE>   31
 
                                  RISK FACTORS
 
     Holders of Zynaxis Capital Stock and Zynaxis Notes should be aware that
ownership of the shares of Vaxcel Common Stock to be exchanged for shares of
Zynaxis Capital Stock and Zynaxis Notes involves a high degree of risk. In
addition to other information in this Proxy Statement, the following risk
factors should be considered carefully by such shareholders and note holders in
evaluating the Merger. Except for historical information contained herein, the
discussion in this Proxy Statement contains forward-looking statements that
involve risks and uncertainties, such as statements of Vaxcel's plans,
objectives, expectations, and intentions. The cautionary statements made in this
Proxy Statement should be read as being applicable to all related
forward-looking statements wherever they appear in this Proxy Statement.
Vaxcel's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include those
discussed below, as well as those discussed elsewhere herein.
 
NO ASSURANCE OF SUCCESSFUL DEVELOPMENT AND COMMERCIALIZATION OF PRODUCTS
 
     Vaxcel's OPTIVAX adjuvant and the Zynaxis vaccine technologies to be
acquired by Vaxcel pursuant to the Merger are in the early stages of development
and significant amounts of money and time will be required to commercialize
vaccines in partnering or other collaborative arrangements based on the
technologies. Research and development activities, by their nature, preclude
definitive statements as to the time required and costs involved in reaching
certain objectives. Therefore, actual research and development costs could
exceed budgeted amounts, and estimated time frames may require extension. Cost
overruns due to unanticipated regulatory delays or demands, unexpected adverse
side effects or insufficient therapeutic efficacy would prevent or substantially
slow development efforts and ultimately could have a material adverse effect on
Vaxcel and its partners. If Vaxcel or its partners encounter technical problems
in the further development of the technologies, Vaxcel could be required either
to abandon or substantially modify its development program. There can be no
assurance that OPTIVAX or any of the Zynaxis technologies will prove to be safe
and effective with any vaccine. There can be no assurance that OPTIVAX or any of
the Zynaxis technologies will be approved by the United States Food and Drug
Administration (the "FDA") or equivalent foreign authorities for use with any
vaccine that is currently on the market or under development or that, if
approved, the product will be accepted in the market or that such product can be
commercialized in a profitable manner. Furthermore, OPTIVAX and/or the Zynaxis
technologies could produce adverse side effects after commercialization that
would cause the vaccine to be withdrawn from the market. Vaxcel does not expect
that vaccines utilizing OPTIVAX or the Zynaxis technologies will be
commercialized for several years, if at all. The failure of Vaxcel to
successfully commercialize OPTIVAX and/or the Zynaxis technologies or delays in
the development and commercialization process could materially adversely affect
the business, financial condition and results of operations of Vaxcel. See
"Business of Vaxcel -- Vaxcel's Adjuvant/Vaccine Delivery System Technologies"
and "Business of Vaxcel -- Government Regulation."
 
CYTRX CONTROL OF VAXCEL
 
     CytRx currently holds all of the issued and outstanding shares of capital
stock of Vaxcel. Following the consummation of the Merger, CytRx will own
approximately 87.5% of the issued and outstanding shares of Vaxcel Common Stock,
assuming that no holder of Zynaxis Capital Stock exercises its appraisal or
objection rights and assuming no exercise of any options or warrants to purchase
Vaxcel Common Stock. Assuming conversion or exercise of all stock options and
warrants outstanding, CytRx would own approximately 79% of Vaxcel, current
holders of Vaxcel stock options would own approximately 6.5%, and the former
shareholders and holders of stock options and warrants of Zynaxis would own
approximately 14.5%. These figures assume no exercise of the CytRx Warrant,
which entitles CytRx to purchase a number of shares of Vaxcel Common Stock equal
to: (i) the amount that the Board of Directors of CytRx reasonably determines is
the minimum amount that must be contributed to the capital of Vaxcel in order
for Vaxcel to satisfy or continue to satisfy quantitative requirements for
inclusion or continued inclusion of Vaxcel Common Stock in the Nasdaq SmallCap
Market divided by (ii) one-half of the Per Share Price and multiplied by (iii)
the Exchange Ratio. Vaxcel does not anticipate that it will be necessary to
exercise the CytRx Warrant, provided that Vaxcel's financial position and the
listing requirements for the Nasdaq SmallCap Market do not differ materially
from
 
                                       15
<PAGE>   32
 
Vaxcel's current assessment. See "Description of Vaxcel Capital Stock -- CytRx
Warrant." Accordingly, CytRx will have the ability to control the management and
policies of Vaxcel and the outcome of matters submitted to the shareholders for
approval, including the election of directors. See "Description of Transaction
- -- General."
 
FUTURE CAPITAL NEEDS; OUTSTANDING OPTIONS; POTENTIAL DILUTION
 
     Since their inception, neither Vaxcel nor Zynaxis has recorded an operating
profit. Vaxcel has been dependent upon CytRx for its continuing capital needs.
CytRx has formally committed, by adopting appropriate board resolutions, to
continue its financial support of Vaxcel's current operations as necessary at
least through 1997 in the event the Merger is not consummated. Under the terms
of the Agreement, assuming the Merger is consummated, CytRx has committed to
contribute $4,000,000 (less amounts previously loaned to Zynaxis) to Vaxcel,
which Vaxcel's management believes will be sufficient to support Vaxcel's
operations for two years. In the event such funding is unavailable, Vaxcel would
quickly become insolvent.
 
     After consummation of the Merger, Vaxcel may need to raise substantial
additional funds to conduct the research and development activities necessary to
receive FDA approval for vaccines containing OPTIVAX and the Zynaxis
technologies. Adequate funds for these purposes may not be available when needed
or on terms satisfactory to Vaxcel. Lack of funding when needed may cause Vaxcel
to delay, reduce and/or abandon certain or all aspects of its research and
development programs. Vaxcel may seek additional funding for its research and
development activities through a variety of financing mechanisms, including the
issuance of equity securities. Any such financing may dilute the existing
shareholders of Vaxcel.
 
     Vaxcel has granted options to employees and directors to purchase 794,953
shares of Vaxcel Common Stock at an exercise price of $1.50 per share. Holders
of such options are likely to exercise them when, in all likelihood, Vaxcel
could obtain additional capital on terms more favorable than those provided by
the options. In addition, the exercise of such options will result in dilution
to the interests of the shareholders of Vaxcel to the extent that the exercise
price is less than the fair market value of the Vaxcel Common Stock. See "Pro
Forma Financial Information" and "Principal Stockholders of Vaxcel."
 
LIMITED OPERATING HISTORY AND LACK OF PROFITABILITY
 
     Zynaxis and Vaxcel commenced operations in 1988 and 1993, respectively, and
both companies have been unprofitable since their inception. The report of
Zynaxis' independent public accountants on the audited financial statements of
Zynaxis for the year ended December 31, 1996 includes an explanatory paragraph
regarding Zynaxis' inability to continue as a going concern. After the
consummation of the Merger, Vaxcel will experience further losses, which could
be significant, during the next several years and there can be no assurance that
further significant losses will not be realized by Vaxcel over a longer period
of time. In addition, Vaxcel's cash needs could be affected by higher than
anticipated costs of preclinical and clinical trials, delays in the FDA
regulatory process, the inability of Vaxcel to enter into collaborative
arrangements with third parties, the inability of Vaxcel to find third-party
manufacturing facilities, the inability of Vaxcel to sell Cauldron at the
anticipated price and other factors.
 
     To achieve profitable operations after the consummation of the Merger,
Vaxcel, through collaborations with vaccine companies, must successfully
develop, manufacture, introduce and market products containing its technologies.
The development of vaccines utilizing Vaxcel's technologies will require
substantial resources to conduct research, preclinical trials and clinical
trials; to establish pilot scale and commercial scale manufacturing processes
and facilities; and to establish quality control, regulatory and administrative
capabilities. The time required to reach sustained profitability is highly
uncertain, and there can be no assurance that Vaxcel will be able to achieve
profitability on a sustained basis, if at all. If profitability is achieved, the
level of the profitability cannot be predicted. See "Pro Forma Financial
Information."
 
DEPENDENCE ON COLLABORATIONS AND OTHER COMMERCIAL ARRANGEMENTS
 
     At the present time, Vaxcel does not own or have the right to any vaccines
or antigens that can be used with OPTIVAX or the Zynaxis technologies, nor does
it expect to conduct research and development on
 
                                       16
<PAGE>   33
 
antigens internally in the near future. Vaxcel's success is dependent upon its
ability to license its technologies to vaccine manufacturers for use with their
vaccines. Pharmaceutical companies seeking collaborative agreements in order to
avail themselves of products in the development stage have become increasingly
more selective and have required substantial proof of principal, safety and
efficacy before agreeing to provide any collaborative funding. After
consummation of the Merger, Vaxcel will have two license agreements, two option
agreements, and several research agreements. There can be no assurance that any
of the option or research agreements between Vaxcel and vaccine manufacturers
and institutions will be expanded into licensing or other collaboration
agreements or that any new license, option, or research agreements will be
entered into in the future. Even if a vaccine company or other third party is
interested in entering into an arrangement to use OPTIVAX or the Zynaxis
technologies with its vaccine, there can be no assurance that any such
arrangement will be on terms satisfactory to Vaxcel or that any funds received
by Vaxcel from the collaboration will be sufficient to cover Vaxcel's expenses
related to the product. Moreover, if Vaxcel does enter into a licensing or other
collaboration arrangement with respect to a vaccine, it may be required to rely
on the third party for important research, development, regulatory,
manufacturing, and marketing activities involving Vaxcel's technologies. There
can be no assurance that Vaxcel's licensees or collaborative partners will
perform such activities in a timely or adequate manner, or that any products
resulting from any such arrangement will be successfully commercialized. See
"Business of Vaxcel -- Vaxcel's Business Strategy."
 
MARKET ACCEPTANCE; NEED FOR INDUSTRY GROUP RECOMMENDATION
 
     Even if products being developed by Vaxcel and its collaborators are
approved for commercial use, there can be no assurance that a vaccine
administered with OPTIVAX or the Zynaxis technologies will be widely used.
Although Vaxcel will attempt to license the technologies for use with vaccines
that present attractive market opportunities, the widespread usage of vaccines
is often determined by the immunization policies of a country. In the United
States, three medical groups develop the immunization policies of an
FDA-approved vaccine for the general population: (i) the Committee on Infectious
Diseases of the American Academy of Pediatrics establishes policies for private
practicing pediatricians; (ii) the Immunization Practices Advisory Committee
develops similar policies for city, county and state public health clinics; and
(iii) the Committee on Immunization of the Council of Medical Societies of the
American College of Physicians determines policies for generalists and
internists. The support of these groups is critical to the commercial success of
a vaccine. A recommendation for routine use of a new vaccine in the general
population is typically required for widespread acceptance by the medical
community, especially for pediatric vaccines. There can be no assurance that any
vaccine used with OPTIVAX or the Zynaxis technologies will be recommended for
use by any of these committees. See "Business of Vaxcel -- Marketing and Sales."
 
INTENSE COMPETITION
 
     Research and development of vaccine adjuvants/delivery systems is a
relatively new field. Management of Vaxcel is aware of certain companies that
have experience in this field, some of which have licensed compounds to major
vaccine manufacturers. Some of the products being developed by these companies
have been tested in human clinical trials. In addition, a variety of smaller
companies and academic and research institutions are attempting to develop
vaccine adjuvants/delivery systems. To date, there have been limited preclinical
and human studies comparing the various delivery systems. There can be no
assurance that OPTIVAX or the Zynaxis technologies will perform better than or
equal to competitive vaccine adjuvants/ delivery systems. These competitors or
others may develop products or technologies that could render OPTIVAX and the
Zynaxis technologies either obsolete or less competitive. In addition, advances
in disease prevention or treatment methods also could adversely affect the
market for OPTIVAX and the Zynaxis technologies. The research, development,
manufacturing, and marketing of vaccines is a growing field that is becoming
increasingly competitive and is subject to rapid technological change. The major
vaccine manufacturers have larger research and development staffs and financial
resources than Vaxcel and, therefore, could devote substantial resources to the
development of vaccine adjuvants/delivery systems, which if successful, would
eliminate the need for Vaxcel's technologies. See "Business of
Vaxcel -- General -- Competition."
 
                                       17
<PAGE>   34
 
LACK OF MANUFACTURING CAPABILITIES; RELIANCE ON THIRD-PARTY MANUFACTURERS
 
     After the consummation of the Merger, the success of Vaxcel will depend in
part upon its ability to manufacture, or have manufactured through licensees or
other third parties, the supplies of products needed for clinical trials and
commercial purposes. Neither Vaxcel nor CytRx currently has the capability to
manufacture any component of OPTIVAX or the Zynaxis technologies alone or with a
vaccine and therefore Vaxcel must rely on third parties for its manufacturing
needs. If Vaxcel enters into licensing or collaborative arrangements with third
parties related to OPTIVAX or the Zynaxis technologies, it may be required to
rely on such third parties for manufacturing the finished products or seek to
use third-party contract manufacturers to manufacture Vaxcel's requirements of
finished product. There can be no assurance that Vaxcel can obtain and/or
maintain a reliable manufacturing source for its products at a reasonable price.
See "Business of Vaxcel -- General -- Manufacturing."
 
     Vaxcel has an exclusive supply agreement with CytRx to obtain its
requirements of the bulk OPTIVAX copolymers being developed by Vaxcel. Such
copolymers consist of a hydrophobic polyoxypropylene (POP) core block and
hydrophilic polyoxyethylene (POE) blocks on the ends. The inability of CytRx or
CytRx's designated third-party contract manufacturers to supply the bulk OPTIVAX
copolymers could have a material adverse affect on Vaxcel. The OPTIVAX
copolymers being supplied to Vaxcel by CytRx under GMP conditions cannot be
obtained from unrelated third parties because the process for manufacturing the
OPTIVAX copolymers is unique and covered by pending patent applications by CytRx
in both the United States and certain foreign countries. While it is possible
that an unrelated third party could develop an alternative manufacturing process
in the future that does not infringe on CytRx's process patent applications,
there can be no assurances that (a) such an alternative process will be
developed, (b) such an alternative process would yield copolymers with the same
specifications as the OPTIVAX copolymers being produced by CytRx from a safety,
efficacy, and stability standpoint, and (c) such an alternative process would
yield volumes of copolymers sufficient to meet Vaxcel's anticipated market
demand on terms acceptable to Vaxcel. See "Business of Vaxcel -- Certain
Transactions."
 
PRODUCT LIABILITY RISKS
 
     Vaxcel faces an inherent risk of product liability claims in the event that
the use of OPTIVAX or the Zynaxis technologies causes or is alleged to have
caused adverse effects. There can be no assurance that it will avoid significant
product liability exposure that would materially adversely effect the business
or financial condition of Vaxcel.
 
     Based on historical data, a small number of healthy individuals can be
expected to have severe adverse reactions to certain vaccines. In an effort to
compensate injured parties and protect the nation's immunization program, the
U.S. Congress enacted the National Childhood Vaccine Injury Act (the "NCVI Act")
in 1986, which provides for excise-tax financing of a compensation system for
childhood vaccine injuries resulting from immunizations administered after
October 1, 1988. Liability exposure for manufacturers is not totally eliminated
under the NCVI Act, because it only applies to claims resulting from vaccines
administered to children and because a claimant may reject an award and
institute a lawsuit. There can be no assurance that if products manufactured or
sold by Vaxcel or its partners cause or are alleged to have caused adverse
effects, a claimant will not reject an award under the NCVI Act and institute a
lawsuit against a vaccine manufacturer. There can be no assurance that the NCVI
Act will be extended after expiration of its current term, or that, if exposed
to such product liability, Vaxcel will receive any benefit from the NCVI Act or
other similar statutes.
 
UNCERTAINTY OF PATENT PROTECTION AND PROPRIETARY TECHNOLOGY
 
     After the consummation of the Merger, the success of Vaxcel will depend, in
part, on its ability to obtain patents, maintain trade secret protection, and
operate without infringing on the proprietary rights of third parties. There can
be no assurance that any of OPTIVAX or the Zynaxis technology patent
applications will issue, that Vaxcel will develop additional proprietary
products that are patentable, that any patents issued to date will provide any
competitive advantages or will not be challenged by any third parties, or that
the patents of others will not have an adverse effect on the ability of Vaxcel
to do business. Furthermore, there can be no assurance that others will not
independently develop similar products, duplicate any products of Vaxcel or, if
patents are issued to Vaxcel, design around its patented products. Vaxcel could
incur substantial costs in
 
                                       18
<PAGE>   35
 
defending itself in lawsuits brought against it alleging infringement of such
patents or in lawsuits by it against another party. See "Business of
Vaxcel -- General -- Patents and Proprietary Technology."
 
UNFAVORABLE LICENSING TERMS FOR PLG TECHNOLOGY
 
     Vaxcel will acquire rights to the poly-(DL-lactide-co-glycolide) ("PLG")
microencapsulation technology via the Merger with Zynaxis. Vaxcel considers the
PLG technology to be the most valuable technology to which Zynaxis has rights.
These rights to develop, commercialize, and sublicense the PLG
microencapsulation technology are based on the terms of an exclusive, worldwide
license agreement (the "PLG Agreement"), effective July 1987, in the field of
oral vaccine delivery with Southern Research Institute ("SRI") and The
University of Alabama at Birmingham Research Foundation ("UAB"). Under the terms
of the PLG Agreement, Vaxcel will be required to pay SRI and UAB 6% of net sales
for the life of the patent or patents or 5% of net sales for 15 years after the
effective date of the PLG Agreement should a patent or patents fail to issue or
be invalidated if third parties (other than ALK) generate any product sales
using the microencapsulation technology. Such a high royalty rate may make it
difficult for Vaxcel to sublicense the PLG microsphere technology to corporate
partners. Other unfavorable terms and conditions of the PLG Agreement include:
(i) Vaxcel will not be able to withhold royalty payments to SRI and UAB during
patent infringement disputes, if any; (ii) Vaxcel will owe SRI and UAB an annual
minimum fee of $80,000 in 1997, which shall increase by $10,000 per year from
1998 through 2002; and (iii) under the terms of the license agreement with ALK,
Vaxcel will receive no royalty income on sales of products using the Zynaxis
technologies in countries where no valid patent exists, but Vaxcel would still
owe SRI and UAB 5% royalty payments on sales in such countries. In 1995, Zynaxis
approached both SRI and UAB to renegotiate the PLG Agreement. While UAB agreed
to revised terms in connection with the ALK development and licensing agreement
and indicated that it was open to discussion regarding future collaborations
between Zynaxis and third parties utilizing the licensed technology, SRI was
unwilling to renegotiate terms at that time. Recently, Vaxcel informed SRI and
UAB of the unfavorable terms discussed above and is currently attempting to
renegotiate the PLG Agreement with SRI and UAB. However, there can be no
assurances that Vaxcel can renegotiate the PLG Agreement on terms and conditions
acceptable to Vaxcel, if at all. The failure of Vaxcel to successfully
renegotiate the PLG Agreement could have an adverse effect on the business of
Vaxcel or cause Vaxcel to abandon development of the PLG microencapsulation
technology. See "Business of Vaxcel -- Certain Transactions."
 
IMPACT OF GOVERNMENT REGULATION; NO ASSURANCE OF FDA APPROVAL
 
     Pharmaceutical products are subject to regulation under the federal Food,
Drug and Cosmetics Act, and the marketing of vaccines utilizing OPTIVAX and the
Zynaxis technologies will require the approval of the FDA and comparable
regulatory authorities in foreign countries. The approval process can be lengthy
and there can be no assurance that the FDA or any other foreign regulatory
authority will review the vaccines utilizing OPTIVAX or the Zynaxis technologies
on a timely basis. The FDA has established regulations, guidelines and policies
which apply to the preclinical evaluation, clinical testing, manufacture and
marketing of pharmaceutical products. The process of obtaining FDA approval for
a new product generally takes several years and involves the expenditure of
substantial resources. Additional government regulations may be promulgated
which could impose additional costly testing procedures necessary to obtain
regulatory approval and delay regulatory approval of Vaxcel's vaccine
adjuvant/delivery system. Furthermore, some regulatory authorities in foreign
countries may require testing beyond that required by the FDA, and any such
additional testing could result in delays in the approval process as well as
additional expenditures by Vaxcel.
 
     The steps required before a vaccine product can be produced and marketed
for human use in the United States include preclinical studies in animal models,
the filing of an Investigational New Drug ("IND") application, the conduct of
human clinical trials (usually in three separate phases) and the submission and
approval of a Product License Application ("PLA"). The PLA involves considerable
data collection, verification and analysis, as well as the preparation of
summaries of, among other issues, the manufacturing and testing processes,
preclinical studies, and clinical trials. The administration of any product
utilizing OPTIVAX or the Zynaxis technologies may produce undesirable side
effects in humans, which must be reported to the FDA and other regulatory
authorities. Vaxcel or the FDA may suspend clinical trials at any time if it is
believed that the people participating in such trials are being exposed to
unacceptable health risks.
 
                                       19
<PAGE>   36
 
Such side effects could interrupt or delay clinical testing of such products and
could ultimately prevent their approval by the FDA or foreign regulatory
authorities for any or all targeted indications. There can be no assurance that
Vaxcel and its collaborators will be able to obtain the required FDA approvals
for any of the vaccines containing OPTIVAX or the Zynaxis technologies, or that
the FDA will not require additional clinical studies in order to approve the
products. In addition, some foreign jurisdictions require pricing and
reimbursement approval before a vaccine can be marketed, which may require the
submission of data from additional studies. There can be no assurance that
pricing or reimbursement approvals will be obtained at all or on terms that
would allow the vaccine to be accepted in the market and profitable to Vaxcel.
 
     In addition to obtaining FDA approval for each product, the manufacturing
establishment for any vaccine utilizing OPTIVAX and the Zynaxis technologies
used in humans must also be approved by the FDA. The facilities and process for
the manufacture of such vaccine, whether manufactured directly by Vaxcel or by a
third party, are subject to rigorous regulation, including the need to comply
with the FDA's current Good Manufacturing Practice ("GMP") regulations, and may
also be subject to regulation by foreign regulatory authorities. There can be no
assurance that Vaxcel, CytRx or any third-party manufacturer of their products
will be able to comply with such requirements.
 
     In addition to these general manufacturing requirements, samples of
internal testing release data for each manufactured batch of vaccines must be
submitted to the FDA. For certain types of vaccines, samples of every batch of
vaccine intended for commercial use also must be submitted to the FDA prior to
distribution. In addition, certain vaccines may not be distributed for
commercial use in the United States until written notification of official
release of the batch is received from the FDA. The FDA also has the authority to
request batch samples for all vaccines. The FDA may test a batch before
releasing it to the market, and any such testing could result in delays in the
distribution process. There can be no assurance that the vaccines utilizing
OPTIVAX or the Zynaxis technologies will pass the FDA tests and be released for
human use in a timely manner, or at all.
 
     The FDA frequently revises the rules, regulations, and guidelines
applicable to the approval requirements for vaccines and drug products. Vaxcel
is conducting research and development activities based on what it believes are
current FDA regulations. There can be no assurance that the FDA will not change
the approval requirements for products under development by Vaxcel during the
development period or that Vaxcel will be able to comply with any changes in the
approval requirements for such products.
 
     Vaxcel is also subject to regulation under a variety of federal, state, and
local statutes including, at the federal level, the Occupational Safety and
Health Act, the Environmental Protection Act, the Nuclear Energy and Radiation
Control Act, the Toxic Substance Control Act, and the Resource Conservation and
Recovery Act. There can be no assurance that Vaxcel will be able to comply with
the applicable requirements of these statutes or that such compliance will be at
a reasonable cost.
 
IMPACT OF TECHNOLOGY TRANSFER ACT OF 1986; BAYH-DOLE ACT
 
     Vaxcel has acquired from CytRx several OPTIVAX copolymers for use as
vaccine adjuvants/delivery systems. Vaxcel believes that development of the
OPTIVAX copolymers being pursued for commercialization by Vaxcel have not been
supported with federal funds. However, federal funds were used to support
development of certain other OPTIVAX copolymers. If Vaxcel were to pursue
commercialization of OPTIVAX copolymers which utilized federal funds during
development, such OPTIVAX copolymers would be subject to the Technology Transfer
Act of 1986 or the Bayh-Dole Act, whereby the federal government retains a
non-exclusive right to make, have made, or sell any invention that results from
the activities of the federal government or the use of federal funds. If the
federal government were to exercise any of such rights in the future, the
business and financial condition of Vaxcel could be materially adversely
affected. See "Business of Vaxcel -- General -- Government Regulation."
 
HEALTH CARE REFORM INITIATIVES
 
     Health care reform remains an area of increasing national and international
attention. Several proposals to modify the current health care system in the
United States to improve access and control costs currently are being considered
by both federal and state governments. Any such reform measures could adversely
affect the amount of reimbursement available from governmental or private payers
or could affect the ability to set prices
 
                                       20
<PAGE>   37
 
for newly approved products. Similar proposals are being considered by
governmental officials in other significant pharmaceutical markets, including
Europe. It is uncertain what proposals will be adopted or what actions
governmental or private payers for health care goods and services may take in
response to proposed or actual legislation in the United States or other
important markets. Any such health care reform proposals may materially
adversely affect the business of Vaxcel.
 
     In addition to these general health care reform proposals, the Clinton
administration has proposed methods to increase the immunization rates of all
children in the United States. The administration has considered in the past
having the federal government become the sole purchaser of vaccines and
distribute them free of charge to all children, regardless of ability to pay.
Some proposals would allow individual states to purchase unlimited supplies of
vaccines at federally negotiated prices under the annual contracts of the
Centers for Disease Control and Prevention. Prices in these public sector
contracts typically are lower than the prices for vaccines that could be
obtained in the private sector. At present, about half of all major childhood
vaccines are purchased using state and federal funds and are distributed to
public health clinics throughout the country. Any dramatic shift in vaccine
purchases from the private sector to the public sector could have a material
adverse impact on the vaccine market in general and on the business of Vaxcel.
 
NO ASSURANCE OF ADEQUATE REIMBURSEMENT
 
     The success of vaccines utilizing OPTIVAX or the Zynaxis technologies in
the United States and other significant markets will depend in part upon the
extent to which a consumer will be able to obtain reimbursement for the cost of
such products from government health administration authorities, private health
insurers and other organizations. Uncertainty exists as to the reimbursement
status of any newly approved product. Government and other third-party payors
are increasingly attempting to contain health care costs by refusing, in some
cases, to provide any coverage for uses of approved products for disease
indications for which the FDA has not granted marketing approval and by limiting
both coverage and the level of reimbursement for new technologies approved for
marketing by the FDA. If adequate coverage and reimbursement levels are not
provided by government and third-party payors for use of products containing
OPTIVAX or the Zynaxis technologies, the market acceptance of the technology
would be adversely affected. Even if a product is approved for marketing, there
can be no assurance that patients will have sufficient resources to pay for the
therapy or that governmental or private payers will provide adequate
reimbursement for such product, if at all.
 
LACK OF MARKETING EXPERIENCE
 
     At present, Vaxcel plans to commercialize vaccines containing OPTIVAX or
the Zynaxis technologies utilizing the sales and marketing capabilities of its
collaborators. However, there can be no assurance that any such arrangement with
collaborators will be available at all or on acceptable terms. If Vaxcel
develops a vaccine without a co-development partner, Vaxcel will need to build a
sales and marketing force or enter into an agreement with a third-party
distributor to successfully market the vaccine. There can be no assurance that
Vaxcel will be able to build a sales force or that its sales and marketing
efforts will be successful. See "Business of Vaxcel -- General -- Marketing and
Sales."
 
RECRUITING AND RETAINING OF KEY PERSONNEL
 
     The success of Vaxcel will depend, in part, upon the ability of Vaxcel to
attract and retain highly qualified scientific and management personnel. At
present, Mr. Paul J. Wilson, Vaxcel's President and CEO, is the only Vaxcel
employee covered by an employment agreement and such agreement expires on August
14, 1998. See "Management of Vaxcel -- Employment Agreement." Vaxcel faces
competition for personnel from other companies, research and academic
institutions, government entities, and other organizations. There can be no
assurance that Vaxcel will be successful in hiring or retaining qualified
personnel. The inability of Vaxcel to hire or retain qualified employees could
delay the development and introduction of its products. See "Business of
Vaxcel -- Facilities and Employees" and "Management of Vaxcel -- Employment
Agreement."
 
                                       21
<PAGE>   38
 
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
 
     Prior to this Merger, there has been no public market for Vaxcel Common
Stock. Until December 24, 1996, Zynaxis was traded on the Nasdaq SmallCap
Market. Zynaxis is not now actively traded in any established market. After the
consummation of the Merger, there can be no assurance that an active public
market for Vaxcel Common Stock will develop or be sustained. The market prices
for securities of comparable companies have been highly volatile and the market
has experienced significant price and volume fluctuations that are unrelated to
the operating performance of particular companies. Announcements of
technological innovations or new commercial products by Vaxcel or its
competitors, developments concerning proprietary rights, including patents and
litigation matters, publicity regarding actual or potential results with respect
to products or compounds under development by Vaxcel or its collaborative
partners, regulatory developments in both the United States and foreign
countries, public concern as to the efficacy of new technologies, general market
conditions, as well as quarterly fluctuations in Vaxcel's revenues and financial
results and other factors, may have a significant impact on the market price of
the Vaxcel Common Stock. In particular, the realization of any of the risks
described in these "Risk Factors" could have a dramatic and adverse impact on
such market price.
 
UNCERTAINTY OF LISTING ON THE NASDAQ SMALLCAP MARKET; RISKS RELATING TO
LOW-PRICED STOCKS
 
     Vaxcel plans to apply for listing of Vaxcel Common Stock on the Nasdaq
SmallCap Market. Approval of Vaxcel's application is subject to the discretion
of the staff of The Nasdaq Stock Market, Inc. ("Nasdaq"). The staff's approval
will be based in large part upon Vaxcel's satisfaction of quantitative listing
criteria that include minimum requirements for public float, total assets, and
the bid price of Vaxcel Common Stock. Currently, a company that wishes to be
considered for listing on the Nasdaq SmallCap Market must have a public float of
at least $1 million, at least $4 million in total assets, and a bid price of at
least $3.00 per share. There can be no assurance that Vaxcel and Vaxcel Common
Stock will satisfy such criteria or that, even if such criteria are satisfied,
the staff of Nasdaq will approve the inclusion of Vaxcel Common Stock in the
Nasdaq SmallCap Market. If Vaxcel Common Stock is not included in the Nasdaq
SmallCap Market, Vaxcel Common Stock will likely be traded on the
over-the-counter market and holders of Vaxcel Common Stock may have less
liquidity and Vaxcel may be less visible in the public markets than would be the
case if Vaxcel Common Stock were included in the Nasdaq SmallCap Market.
 
     If shares of Vaxcel Common Stock are approved for listing on the Nasdaq
SmallCap Market, in order to continue to be listed on Nasdaq, Vaxcel must
maintain $2,000,000 in total assets, a $200,000 market value of public float and
$1,000,000 in total capital and surplus. In addition, continued inclusion in the
Nasdaq SmallCap Market requires two market-makers and a minimum bid price of
$1.00 per share; provided, however, that if Vaxcel falls below such minimum bid
price, it will remain eligible for continued inclusion in the Nasdaq SmallCap
Market if the market value of the public float is at least $1,000,000 and Vaxcel
has $2,000,000 in capital surplus. The failure to meet these maintenance
criteria in the future may result in the delisting of Vaxcel Common Stock from
the Nasdaq SmallCap Market, and trading, if any, in the Vaxcel Common Stock
would thereafter be conducted in the non-Nasdaq over-the-counter market. As a
result of such delisting, an investor could find it more difficult to dispose
of, or to obtain accurate quotations as to the market value of, Vaxcel Common
Stock.
 
     In addition, if Vaxcel Common Stock were to become delisted from trading on
Nasdaq and the trading price of Vaxcel Common Stock were to fall below $5.00 per
share, trading in Vaxcel Common Stock would also be subject to Rule 15g-9
promulgated under the Exchange Act, which requires additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. The additional
burdens imposed upon broker-dealers by such requirements may discourage broker-
 
                                       22
<PAGE>   39
 
dealers from effecting transactions in Vaxcel Common Stock, which could severely
limit the market liquidity of the Vaxcel Common Stock and the ability of holders
of Vaxcel Common Stock to sell shares in the secondary market.
 
     In February 1997, the Board of Directors of Nasdaq adopted proposed changes
to the quantitative and qualitative criteria for issuers listing on Nasdaq that
would raise the quantitative requirements for listing. The proposed changes in
quantitative standards include: (i) an increase in minimum public float from $1
million to $5 million, (ii) an increase in minimum assets from $4 million in
total assets to $4 million in net tangible assets, and (iii) an increase in
minimum bid price from $3.00 per share to $4.00 per share. These proposed
changes are subject to the approval of the SEC before they can be implemented.
Management of Vaxcel does not expect that Vaxcel and Vaxcel Common Stock would
meet these more stringent listing criteria, if they are adopted by the SEC prior
to the Closing of the Merger, without significant additional funding from CytRx
and without other changes in the terms of the proposed transactions. Vaxcel
cannot predict if or when the proposed changes in the listing criteria will be
implemented or what the new listing criteria, if any, will be. There can be no
assurance that the listing criteria will not be implemented prior to the Closing
of the Merger, preventing the inclusion of Vaxcel Common Stock on the Nasdaq
SmallCap Market, or that the staff of Nasdaq will not exercise its discretion to
apply the proposed listing criteria prior to their adoption. If either occurs,
there can be no assurance that CytRx and Vaxcel will take measures necessary to
cause Vaxcel to satisfy the more stringent listing criteria.
 
ABSENCE OF DIVIDENDS
 
     Neither Vaxcel nor Zynaxis has paid any cash dividends in the past on its
common stock and Vaxcel does not anticipate paying any such cash dividends in
the foreseeable future. Earnings, if any, will be retained to finance future
growth. See "Pro Forma Financial Information."
 
ANTI-TAKEOVER PROTECTIONS
 
     Following the consummation of the Merger, CytRx will own approximately
87.5% of the issued and outstanding shares of Vaxcel Common Stock, assuming that
no holder of Zynaxis Capital Stock exercises its appraisal or objection rights
and before giving effect to the exercise of any Vaxcel Warrants or the CytRx
Warrant. Accordingly, Vaxcel will not be able to engage in any strategic
transactions without the approval of CytRx. Even if CytRx's ownership interest
were substantially reduced below such level, Vaxcel's Certificate of
Incorporation contains certain provisions that could make it more difficult for
a third party to acquire, or discourage a third party from attempting to
acquire, control of Vaxcel. Such provisions could limit the price that certain
investors are willing to pay in the future for shares of Vaxcel Common Stock.
Certain of such provisions allow Vaxcel to issue preferred stock with rights
senior to those of Vaxcel Common Stock and impose various procedural and other
requirements which could make it more difficult for shareholders to effect
certain corporate actions. See "Description of Vaxcel Capital Stock" and "Effect
of the Merger on Rights of Shareholders."
 
                    SPECIAL MEETING OF ZYNAXIS SHAREHOLDERS
 
DATE, PLACE, TIME, AND PURPOSE
 
   
     This Proxy Statement is being furnished to the holders of Zynaxis Capital
Stock in connection with the solicitation by the Zynaxis Board of proxies for
use at the Special Meeting. At the Special Meeting, holders of Zynaxis Capital
Stock will be asked to consider and act upon a proposal to approve the
Agreement, the Asset Sales, and the Charter Amendment. The Special Meeting will
be held at 371 Phoenixville Pike, Malvern, Pennsylvania 19355, at 9:00 A.M.,
local time, on May 21, 1997. See "Description of Transaction."
    
 
RECORD DATES, VOTING RIGHTS, REQUIRED VOTES, AND REVOCABILITY OF PROXIES
 
     The close of business on March 7, 1997 has been fixed as the Record Date
for determining holders of outstanding shares of Zynaxis Capital Stock entitled
to notice of and to vote at the Special Meeting. Only
 
                                       23
<PAGE>   40
 
   
holders of Zynaxis Capital Stock of record on the books of Zynaxis at the close
of business on the Record Date are entitled to notice of and to vote at the
Special Meeting. As of the Record Date, there were 10,377,240 shares of Zynaxis
Common Stock issued and outstanding and held by 302 holders of record and
1,412,500 shares of Zynaxis Preferred Stock issued and outstanding and held by
17 holders of record.
    
 
     Holders of Zynaxis Capital Stock are entitled to vote on each matter
considered and voted upon at the Special Meeting. Holders of Zynaxis Common
Stock are entitled to one vote for each share of Zynaxis Common Stock held. When
voting together as a class with holders of Zynaxis Common Stock, holders of
Zynaxis Preferred Stock are entitled to vote on an as converted basis and are,
therefore, entitled to two votes for each share of Zynaxis Preferred Stock held.
When voting separately as a class, holders of Zynaxis Preferred Stock are
entitled to vote one vote for each share of Zynaxis Preferred Stock held.
Shareholders who execute proxies retain the right to revoke them at any time
prior to being voted at the Special Meeting. To hold a vote on any proposal, a
quorum must be assembled. In determining whether a quorum exists at the Special
Meeting for purposes of all matters to be voted on, all votes "for" or
"against," as well as all abstentions, with respect to the proposal receiving
the most such votes, will be counted. The vote required for approval of each of
the Agreement and the Merger contemplated thereby, the Asset Sales, and the
Charter Amendment, is: (i) a majority of the votes cast, whether in person or by
proxy, by all holders of Zynaxis Preferred Stock (voting on an as converted
basis) and by all holders of Zynaxis Common Stock, entitled to vote and voting
together as a class; and (ii) a majority of the votes cast, whether in person or
by proxy, by all holders of Zynaxis Preferred Stock, entitled to vote and voting
as a separate class.
 
     Abstentions may be specified on the proposals to approve the Merger, the
Asset Sales and the Charter Amendment. Such abstentions will be considered
present and entitled to vote at the Special Meeting but will not be counted as
votes cast in the affirmative. Abstentions on the proposals, therefore, will
have the effect of a negative vote because these proposals require the
affirmative vote of a majority of the shares present in person or represented by
proxy at the Special Meeting and entitled to vote. Zynaxis believes that brokers
that are member firms of the New York Stock Exchange and that hold shares of
Zynaxis Common Stock in "street" name for customers do not have the authority to
vote those shares with respect to the proposals to approve the Merger, the Asset
Sales and the Charter Amendment if they have not received instructions from the
beneficial owners of such shares. A failure by brokers to vote those shares will
have the same effect as a vote against the proposals to approve the Merger, the
Asset Sales and the Charter Amendment.
 
     At the Special Meeting, the Charter Amendment will be the first matter put
before the shareholders for consideration and for a vote. If the Charter
Amendment is approved by the shareholders, the Special Meeting will be adjourned
pending the filing of the Articles of Amendment, reflecting the Charter
Amendment, with the Department of State of the Commonwealth of Pennsylvania. The
Special Meeting shall be adjourned only so long as is necessary to file the
Articles of Amendment which should require less than two hours. After the filing
of the Articles of Amendment and the effectiveness of the Charter Amendment, the
Special Meeting will be reconvened to consider and vote upon the Agreement and
the Merger contemplated thereby, the Asset Sales, and such other business as may
properly come before the Special Meeting. If the Charter Amendment is approved
and the Special Meeting is adjourned, when the Special Meeting is reconvened, a
shareholder of Zynaxis retains the right to revoke his proxy with respect to any
issue not yet acted upon. If the shareholders do not approve the Charter
Amendment, the Special Meeting will not be adjourned and the shareholders will
be asked to consider and vote upon the Agreement and the Merger contemplated
thereby, the Asset Sales, and such other business as may properly come before
the Special Meeting.
 
     Vaxcel intends to waive the requirement that the Charter Amendment be
approved if the shareholders of Zynaxis fail to approve the Charter Amendment.
If the Merger is consummated the shareholders of Zynaxis would have the right to
object to the Merger pursuant to Subchapter 25E of the PBCL and demand fair
value for their shares of Zynaxis Capital Stock. See "-- Objection Rights Under
Subchapter 25E of the PBCL."
 
     Shares of Zynaxis Capital Stock represented by properly executed proxies,
if such proxies are received in time and not revoked, will be voted in
accordance with the instructions indicated on the proxies. IF NO INSTRUCTIONS
ARE INDICATED, SUCH PROXIES WILL BE VOTED FOR APPROVAL OF EACH OF THE AGREEMENT
AND THE MERGER CONTEMPLATED THEREBY, THE ASSET SALES, AND THE CHARTER AMENDMENT
AND, IN THE DISCRETION OF THE PROXY
 
                                       24
<PAGE>   41
 
HOLDER, AS TO ANY OTHER MATTER WHICH MAY COME PROPERLY BEFORE THE SPECIAL
MEETING. IF NECESSARY, THE PROXY HOLDER MAY VOTE IN FAVOR OF A PROPOSAL TO
ADJOURN THE SPECIAL MEETING IN ORDER TO PERMIT FURTHER SOLICITATION OF PROXIES
IN THE EVENT THERE ARE NOT SUFFICIENT VOTES TO APPROVE THE FOREGOING PROPOSALS
AT THE TIME OF THE SPECIAL MEETING.
 
     A Zynaxis shareholder who has given a proxy may revoke it at any time prior
to its exercise at the Special Meeting by (i) giving written notice of
revocation to the Secretary of Zynaxis, (ii) properly submitting to Zynaxis a
duly executed proxy bearing a later date or (iii) attending the Special Meeting
and voting in person. All written notices of revocation and other communications
with respect to revocation of proxies should be addressed as follows: Zynaxis,
Inc., 371 Phoenixville Pike, Malvern, Pennsylvania 19355; Attention: Michael A.
Christie, Secretary.
 
     As of the Record Date, the directors and executive officers of Zynaxis and
their affiliates were entitled to vote 24.5% of the issued and outstanding
shares of Zynaxis Combined Voting Stock and 46.7% of the issued and outstanding
shares of Zynaxis Preferred Stock. EACH MEMBER OF THE ZYNAXIS BOARD INTENDS TO
VOTE THOSE SHARES OF ZYNAXIS CAPITAL STOCK OVER WHICH SUCH MEMBER HAS VOTING
AUTHORITY (OTHER THAN IN A FIDUCIARY CAPACITY) IN FAVOR OF THE AGREEMENT AND THE
MERGER CONTEMPLATED THEREBY, AND THE ASSET SALES AND THE CHARTER AMENDMENT,
RESPECTIVELY.
 
     In addition, simultaneously with the execution of the Agreement, CytRx
entered into the Shareholder Voting Agreements with six of the 17 holders of
Zynaxis Preferred Stock. The following shareholders executed Shareholder Voting
Agreements: Senmed Medical Ventures, Alphi Fund L.P., CIP Capital L.P., Gus G.
Casten, Commonwealth Venture Partners I, L.P., and Philadelphia Ventures-Japan I
L.P. Collectively, as of the Record Date, these shareholders held approximately
14.1% of the issued and outstanding shares of Zynaxis Combined Voting Stock and
approximately 25.1% of the issued and outstanding shares of Zynaxis Preferred
Stock. Pursuant to the Shareholder Voting Agreements, each of the shareholders
agreed, among other things, that: at any meeting of shareholders of Zynaxis
called to vote upon any of the matters contemplated by the Agreement (including,
without limitation, the Asset Sales and the Charter Amendment) or at any
adjournment thereof or in any other circumstances upon which a vote, consent or
other approval with respect to any of the matters contemplated by the Agreement
is sought, the shareholder will vote (or cause to be voted) the holder's shares
in favor of each of the matters contemplated by the Agreements. See
Summary -- The Merger -- Shareholder Voting Agreements" and "Description of
Transaction -- The Transaction Documents -- Shareholder Voting Agreements."
 
     Therefore, as of the Record Date, those parties who are committed to vote
for the Agreement, the directors and executive officers of Zynaxis and their
affiliates and the shareholders of Zynaxis who executed the Shareholder Voting
Agreement, were entitled to vote approximately 38.6% of the issued and
outstanding shares of Zynaxis Combined Voting Stock and approximately 71.8% of
the issued and outstanding shares of Zynaxis Preferred Stock.
 
SOLICITATION OF PROXIES
 
     Proxies may be solicited by the directors, officers, and employees of
Zynaxis by mail, in person, or by telephone or telegraph. Such persons will
receive no additional compensation for such services. Zynaxis may make
arrangements with brokerage firms and other custodians, nominees, and
fiduciaries, if any, for the forwarding of solicitation materials to the
beneficial owners of Zynaxis Capital Stock held of record by such persons. Any
such brokers, custodians, nominees, and fiduciaries will be reimbursed for the
reasonable out-of-pocket expenses incurred by them for such services. All
expenses associated with the solicitation of proxies, other expenses associated
with the Special Meeting, and expenses related to the printing and mailing of
this Proxy Statement, will be shared by Vaxcel and Zynaxis as provided in the
Agreement. See "Description of Transaction -- Expenses and Fees."
 
                                       25
<PAGE>   42
 
RECOMMENDATION
 
     THE ZYNAXIS BOARD HAS UNANIMOUSLY APPROVED THE AGREEMENT AND THE MERGER
CONTEMPLATED THEREBY, THE ASSET SALES, AND THE CHARTER AMENDMENT, BELIEVES THAT
THE PROPOSAL TO APPROVE THE AGREEMENT AND THE MERGER CONTEMPLATED THEREBY IS IN
THE BEST INTERESTS OF ZYNAXIS AND ITS SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS
THAT THE ZYNAXIS SHAREHOLDERS VOTE FOR APPROVAL OF EACH OF THE PROPOSALS TO
APPROVE THE AGREEMENT AND THE MERGER CONTEMPLATED THEREBY, THE ASSET SALES, AND
THE CHARTER AMENDMENT.
 
                                       26
<PAGE>   43
 
                           DESCRIPTION OF TRANSACTION
 
     The following information describes certain aspects of the Merger. This
description does not purport to be complete and is qualified in its entirety by
reference to the Appendices hereto, including the Agreement, which is attached
as Appendix A to this Proxy Statement and incorporated herein by reference. All
shareholders are urged to read the Appendices in their entirety.
 
GENERAL
 
     Pursuant to the Agreement, at the Effective Time, Vaxcel Merger Sub will
merge with and into Zynaxis, with the effect that Zynaxis will be the surviving
corporation resulting from the Merger, and will continue to conduct its business
and operations as a wholly owned subsidiary of Vaxcel. As a result of the
Merger, assuming that no holder of Zynaxis Capital Stock exercises its appraisal
or objection rights and assuming no exercise of options or warrants with respect
to Vaxcel, the former shareholders of Zynaxis will own approximately 12.5% of
the outstanding shares of Vaxcel Common Stock, and CytRx will own approximately
87.5% of the shares of Vaxcel Common Stock. Assuming conversion or exercise of
all stock options and warrants outstanding, CytRx would own approximately 79% of
Vaxcel, current holders of Vaxcel stock options would own approximately 6.5%,
and the former shareholders and holders of stock options and warrants of Zynaxis
would own approximately 14.5%. These figures assume no exercise of the CytRx
Warrant, which entitles CytRx to purchase a number of shares of Vaxcel Common
Stock equal to: (i) the amount that the Board of Directors of CytRx reasonably
determines is the minimum amount that must be contributed to the capital of
Vaxcel in order for Vaxcel to satisfy or continue to satisfy quantitative
requirements for inclusion or continued inclusion of Vaxcel Common Stock in the
Nasdaq SmallCap Market divided by (ii) one-half of the Per Share Price and
multiplied by (iii) the Exchange Ratio. Vaxcel does not anticipate that it will
be necessary to exercise the CytRx warrant, provided that Vaxcel's financial
position and the listing requirements for the Nasdaq SmallCap Market do not
differ materially from Vaxcel's current assessment. See "Description of Vaxcel
Capital Stock -- CytRx Warrant."
 
     The negotiation by the parties of the Agreement was at arms-length. Neither
CytRx nor Vaxcel own any shares of Zynaxis Capital Stock. No officers or
directors of CytRx or Vaxcel are officers or directors of Zynaxis. See
"-- Background of and Reasons for the Merger."
 
     At the Effective Time, (i) each share of Zynaxis Common Stock (excluding
shares held by any Zynaxis company or any Vaxcel company, and excluding shares
held by shareholders who perfect their statutory dissenters' rights under
Subchapter 15D of the PBCL or statutory objection rights under Section 2546 of
the PBCL) issued and outstanding immediately prior to the Effective Time will be
exchanged for the right to receive a number of shares of Vaxcel Common Stock
equal to the Exchange Ratio of approximately .0947, with cash being paid in lieu
of issuing fractional shares, and (ii) each share of Zynaxis Preferred Stock
(excluding shares held by any Zynaxis company or any Vaxcel company, and
excluding shares held by shareholders who perfect their statutory dissenters'
rights under Subchapter 15D of the PBCL or statutory objection rights under
Section 2546 of the PBCL) issued and outstanding immediately prior to the
Effective Time will be exchanged for the right to receive a number of shares of
Vaxcel Common Stock equal to two times the Exchange Ratio, with cash being paid
in lieu of issuing fractional shares. The rate of exchange for the shares of
Zynaxis Preferred Stock is two times the Exchange Ratio for shares of Zynaxis
Common Stock because under the terms of the Zynaxis Preferred Stock, each share
of Zynaxis Preferred Stock is convertible into two shares of Zynaxis Common
Stock.
 
     In addition, at the Effective Time, upon consummation of the Merger, CytRx
will contribute to Vaxcel the Senior Credit Facility and the Cash Payment in an
amount equal to the difference, as of the Closing, between $4,000,000 and the
sum of: (i) the aggregate principal and interest balance outstanding under the
Senior Credit Facility; and (ii) (a) the Per Share Price multiplied by (b) the
number of votes entitled to be cast by the holders of Zynaxis Capital Stock, if
any, who elect to exercise their statutory dissenters' rights under Subchapter
15D of the PBCL or their objection rights under Section 2546 of the PBCL in
excess of three percent (3%) of the votes that could be cast by all holders of
Zynaxis Capital Stock voting together as a single class. In exchange for the
contribution of the Senior Credit Facility and the Cash Payment, Vaxcel will
 
                                       27
<PAGE>   44
 
deliver to CytRx: (i) the CytRx Warrant; (ii) 1,374,996 shares of Vaxcel Common
Stock; and (iii) a number of shares of Vaxcel Common Stock equal to the product
of the Exchange Ratio, as defined in the Agreement and described below, times
the number of votes entitled to be cast by the shareholders of Zynaxis Capital
Stock, if any, who elect to exercise their statutory dissenters' rights under
Subchapter 15D of the PBCL or their statutory objection rights under Section
2546 of the PBCL.
 
     Several factors came into play resulting in the figure of 1,374,996 shares:
(i) CytRx established a target capitalization of 11 million shares (post-merger)
for Vaxcel in order to meet its objectives for dilution of management options
and other equity market considerations; (ii) Post-merger ownership of Vaxcel by
the former Zynaxis shareholders of 12.5%; (iii) Pre-merger outstanding shares of
Vaxcel held by CytRx of 8,250,004; and (iv) CytRx's commitment to provide $4
million in cash (less outstanding loans) to Vaxcel upon consummation of the
Merger, which was equivalent to CytRx's valuation of Zynaxis. Therefore, upon
Zynaxis shareholders receiving 12.5% of the post-merger shares (1,375,000),
CytRx would receive the same number of shares for its $4 million contribution
(adjusted slightly to round out the total capitalization to 11 million shares).
 
     The consideration being paid to the Zynaxis shareholders (approximately
1,375,000 shares of Vaxcel Common Stock, or 12.5% of the targeted post-Merger
capitalization) was determined by Vaxcel's management based upon a number of
objective and subjective factors including, but not limited to (i) an assessment
of the synergistic value of Zynaxis' oral and mucosal vaccine delivery
technology in combination with its own injectable technology in attracting
corporate sponsors, facilitating technology licenses and other fund raising
activities, and providing a greater balance to shareholders; (ii) the fact that
Vaxcel will acquire a license agreement with ALK; and (iii) Vaxcel management's
estimation that the outstanding liabilities and operating costs of Zynaxis
through the Closing and the Merger transaction costs would generally offset the
realizable value of Zynaxis' tangible assets. As there is no trading market for
the Vaxcel Common Stock, an objective measurement of its fair value is
difficult. Management of Vaxcel has determined the value of the consideration
being paid to the Zynaxis shareholders to be $4,000,000, based primarily upon
the cash contribution being made by CytRx for the same number of shares. Even
though the cash contribution by CytRx is not at arms-length (and therefore may
not necessarily represent the fair value of Vaxcel Common Stock), management
determined that this was the most objective evidence available in the absence of
an active trading market for Vaxcel Common Stock.
 
     Zynaxis' management and the Zynaxis Board believes that the consideration
being paid by Vaxcel is fair to Zynaxis shareholders in light of the current
financial condition of Zynaxis. The factors considered by the Zynaxis Board in
reaching this conclusion are discussed under "-- Background of and Reasons for
the Merger -- Zynaxis' Reasons for the Merger."
 
     No fractional shares of Vaxcel Common Stock will be issued. Rather, cash
(without interest) will be paid in lieu of any fractional share interest to
which any Zynaxis shareholder would be entitled upon consummation of the Merger,
in an amount equal to such fractional part of a share of Vaxcel Common Stock
divided by the Exchange Ratio and multiplied by the Per Share Price.
 
     As of the Record Date, Zynaxis had 10,377,240 shares of Zynaxis Common
Stock issued and outstanding and 1,412,500 shares of Zynaxis Preferred Stock
issued and outstanding. It is anticipated that upon consummation of the Merger,
Vaxcel would issue approximately 2,750,000 shares of Vaxcel Common Stock,
excluding shares subject to assumed options or warrants. Accordingly, Vaxcel
would then have issued and outstanding approximately 11,000,000 shares of Vaxcel
Common Stock based on the number of shares of Vaxcel Common Stock issued and
outstanding on December 31, 1996.
 
BACKGROUND OF AND REASONS FOR THE MERGER
 
     Deteriorating Financial Condition of Zynaxis.  Zynaxis was formed in 1988
for the purpose of the development and commercialization of cellular diagnostic
products for disease monitoring and new delivery systems for therapeutic drugs.
Since its inception, Zynaxis has sustained continuing operating losses as it
devoted substantially all of its resources to the research and development of
its products. Because Zynaxis has
 
                                       28
<PAGE>   45
 
not received significant revenues from the sale of any of its products, Zynaxis
is dependent on financial investors and strategic corporate partnerships and
collaborations for cash to fund its operations.
 
     Zynaxis received its first funding from venture capital investors. Zynaxis
completed an initial public offering of Zynaxis Common Stock in 1992, but was
unable to sell additional securities at acceptable prices in 1993 or 1994. As a
result, Zynaxis announced its intention to discontinue its cellular diagnostic
products business in January 1995, and limited its focus to its therapeutic
delivery systems. Zynaxis' merger with Secretech in July 1995 provided Zynaxis
with additional capital which was contributed by the then existing stockholders
of Zynaxis and Secretech, as well as new investors. Although Secretech had also
been unprofitable since inception, Zynaxis believed that acquiring the Secretech
oral vaccine delivery technology would enhance the ability of Zynaxis to attract
capital in the short-term and collaborative partners in the long-term.
 
     During the latter part of 1995, Zynaxis established a strategic goal of
raising cash through corporate partnerships and collaborations, and the sale of
assets unrelated to its core drug delivery technologies. Although Zynaxis
devoted its best efforts toward achieving this goal, the company was unable to
raise the required capital. In September 1995, Zynaxis entered into a
development and licensing agreement with ALK and, as of the end of 1996, ALK has
paid Zynaxis $1,000,000 under the agreement. ALK, however, has no obligation to
make any additional payments until specified regulatory approvals have been
obtained, and Zynaxis has not been able to enter into any other partnerships or
collaborations. The Zynaxis Board has been unable to obtain any assurance that
Zynaxis will be able to enter into any of such strategic alliances in the
future.
 
   
     In October 1995, Zynaxis sold the assets related to its discontinued
diagnostics business and, in July 1996, Zynaxis signed a letter of intent to
sell the Cauldron division assets to Seloc AG ("Seloc"), a subsidiary of Schwarz
Pharma. Seloc made a nonrefundable, up-front option payment to Zynaxis upon
execution of the letter of intent and an up-front payment of $50,000 on a
contract for chemical process development. The purchase price for the Cauldron
division under consideration was $3.0 to 3.5 million. On August 27, 1996,
however, Seloc terminated its agreement in principle to purchase the Cauldron
division for internal business reasons that were not formally communicated to
Zynaxis by Seloc. On March 21, 1997, Zynaxis entered into the Asset Purchase
Agreement with ProClinical, whereby ProClinical will purchase substantially all
of the Cauldron Assets. The purchase price for the Cauldron Assets is $832,000.
As a condition of the agreement, Zynaxis has agreed to prepay $250,000 under the
lease dated August 30, 1988 between Zynaxis and PMRA III, c/o PM Realty
Advisors, as amended, for the facilities used by Cauldron (the "Lease"). Upon
closing of the sale, ProClinical will assume all liabilities and obligations
under the Lease, contracts and open orders with customers, and certain other
contracts and agreements.
    
 
     Zynaxis' deteriorating cash position became critical during the latter part
of 1996. On August 27, 1996, Southern Research Technologies, Inc. ("SRT"), the
company responsible for administering and commercializing SRI's intellectual
property, declared Zynaxis in default under the PLG Agreement as a result of
Zynaxis' failure to pay approximately $5,000 in patent expenses and $70,000 in
minimum license dues under the PLG Agreement, and that the PLG agreement would
be terminated unless Zynaxis made the delinquent payments before the end of the
90-day cure period provided by the agreement. Also, on August 27, 1996, Nasdaq
notified Zynaxis that the Zynaxis Common Stock failed to meet the criteria for
continued listing on the Nasdaq SmallCap Market and that Nasdaq would delist the
Zynaxis Common Stock, unless, if Zynaxis demonstrated to the satisfaction of
Nasdaq before November 27, 1996 that Zynaxis Common Stock would maintain a
minimum bid price of $1.00 or that Zynaxis would maintain capital and surplus of
$2,000,000 and a market value of public float of $1,000,000. On October 2, 1996,
Fox Realty Co. notified Zynaxis that Zynaxis had failed under the lease
agreement for the Zynaxis Malvern facility to pay approximately $93,988 due for
the months of September and October 1996, and threatened to declare the lease in
default and accelerate the remaining payments if Zynaxis did not make the
delinquent payments before October 15, 1996.
 
     In response to the problems caused by Zynaxis' deteriorating cash position,
Zynaxis accelerated its search for a significant private placement of its equity
securities, a business combination through a merger, acquisition or joint
venture or technology sales and acquisitions. Although Zynaxis had engaged LBC
Capital Resources, Inc. ("LBC") in January 1996, to identify potential
investors, LBC had been able to generate only two qualified candidates, neither
of which could close a financing in time to provide cash needed by Zynaxis to
continue its operations. As a result, Zynaxis focused specifically on a merger
or other opportunities that would
 
                                       29
<PAGE>   46
 
   
offer the needed short-term financing. Martyn D. Greenacre, the President and
Chief Executive Officer of Zynaxis, contacted seven potential merger partners
and investigated several opportunities for short-term financing using the assets
of the Cauldron division as collateral. Although Mr. Greenacre's investigations
yielded several financing proposals, the Zynaxis Board determined that only one
of these proposals would provide the short-term financing needed by Zynaxis.
Under this proposal, Zynaxis would receive $1,300,000, payable over 12 to 24
months and secured by the Cauldron assets, and the lender would receive rights
to participate in the profit, if any, from the sale of the Cauldron division.
The Zynaxis Board suspended negotiations with this lender when the execution of
the Seloc letter of intent prevented Zynaxis from using the assets of the
Cauldron division as collateral. Discussions between Zynaxis and other potential
merger partners ultimately did not progress beyond the preliminary stages with
the exception of the Vaxcel proposal and the other merger proposal described
below. The other parties either were unable to develop timely proposals
providing for Zynaxis' immediate cash requirements or determined that Zynaxis
was not a suitable merger candidate.
    
 
     Background of the Merger.  The terms of the Agreement are the result of
arm's-length negotiations between representatives of Zynaxis and CytRx and
Vaxcel. The following is a brief discussion of the background of these
negotiations, the Merger and related transactions. Representatives of Zynaxis
and Vaxcel met initially to discuss opportunities for a strategic alliance.
Although representatives of the companies had engaged in general technical
discussions of their respective technologies in previous years, Mr. Greenacre
and Paul J. Wilson, the President and Chief Executive Officer of Vaxcel, met in
Malvern, Pennsylvania on May 21, 1996, to review Zynaxis' drug and vaccine
delivery technologies for the purpose of exploring a strategic alliance between
the two companies. On June 10, 1996, the executives held a similar meeting in
Norcross, Georgia during which they reviewed the Vaxcel vaccine technologies.
 
     Subsequently, representatives of Zynaxis and CytRx met to discuss
opportunities for a merger of Zynaxis with a subsidiary of CytRx. On July 19,
1996, Jack J. Luchese, the Chairman of the Board, President and Chief Executive
Officer of CytRx, Frank Casieri, President and Chief Executive Officer of
Proceutics, Inc. ("Proceutics"), and Howard Wachtler, an advisor to CytRx, met
with Mr. Greenacre and Frank Conway, the Zynaxis Controller, to tour the Zynaxis
facilities and acquire information about Zynaxis that would allow CytRx to
formulate a proposal for the acquisition of Zynaxis by CytRx or one of its
subsidiaries. Proceutics is a wholly-owned subsidiary of CytRx that provides
contract research pre-clinical development services to the pharmaceutical
industry. Messrs. Luchese, Wachtler, Greenacre and Conway met again on August 8,
1996, to review additional information related to the capital structure,
outstanding liabilities and asset value of Zynaxis for the purpose of allowing
CytRx to formulate a formal merger proposal. On August 12, 1996, Messrs. Luchese
and Wachtler presented a proposal for the merger of Zynaxis and Proceutics to
Mr. Greenacre, Stephen R. Reidy, a director of Zynaxis and general partner of
Euclid Associates III, L.P., the general partner of a substantial investor in
Zynaxis, and John F. Chappell, a director of Zynaxis and President of Plexus
Ventures, Inc., which is an investor in Zynaxis. The proposed merger required
Zynaxis to become a contract research organization and to license its
technologies to CytRx and its subsidiaries. The proposed merger assumed the sale
of the Cauldron division and the satisfaction of all Zynaxis liabilities with
the proceeds of asset sales. CytRx also agreed to purchase at least $1 million
in services from Proceutics over three years. The Zynaxis Board expressed
concern that the proposed merger between Zynaxis and Proceutics did not
adequately value the Zynaxis technologies. In particular, the Zynaxis Board
believed that the royalties payable by Vaxcel to Proceutics in the event of a
successful product or products were too limited in scope and the percentage too
low to provide adequate return to the Zynaxis shareholders for the value of the
technologies. As an alternative, Zynaxis proposed a merger between Zynaxis and
Vaxcel. When CytRx declined to consider a merger of Zynaxis and Vaxcel, the
Zynaxis Board decided to allow the merger proposal to expire according to its
terms on August 30, 1996 and to continue to pursue unanimously a merger of
Zynaxis and Vaxcel.
 
   
     At the same time that representatives of Zynaxis were meeting with
representatives of CytRx and its subsidiaries, Mr. Greenacre continued to hold
discussions with other merger partners, and potential purchasers of the Zynaxis
technologies. The results of his efforts were reported to the Zynaxis Board. As
previously noted, other than the Phanos technology sale, the Vaxcel proposal and
the merger proposal received from another party described below, discussions
with others regarding potential merger or acquisition opportunities did not
continue beyond the preliminary stages. On August 21, 1996, Messrs. Luchese,
Wachtler and Greenacre held
    
 
                                       30
<PAGE>   47
 
   
a telephone conference during which Mr. Greenacre expressed the consensus of the
Zynaxis Board members that the August 12 offer be deferred pending completion of
certain preconditions to the offer, including the sale of Cauldron to Seloc.
Although such consensus was not the result of a formal vote by the Zynaxis
Board, Mr. Greenacre had discussed the August 12 offer with the Board members
and they concurred that the offer should be deferred.
    
 
     On August 27, 1996, the Zynaxis Board (with only Dr. Morel absent) met to
review Zynaxis' situation in light of the termination of the letter of intent
with Seloc. The Zynaxis Board determined that the Company had less than one
month's cash on hand given the historical "cash burn" rate and that immediate
action was required to arrange for both short and long-term financing. The
Zynaxis Board discussed interest in the purchase of the Cauldron division,
merger possibilities and other financing alternatives. In particular, the
Zynaxis Board considered the continuing interest of CytRx and a recently
received inquiry from another company. The Zynaxis Board also agreed to revive
the negotiations for a loan suspended at the signing of the Seloc letter of
intent, but did not believe that negotiations could be completed without an
identified buyer for the Cauldron division or in time to meet the financial
needs of Zynaxis.
 
   
     Messrs. Luchese, Wachtler, Greenacre and Conway met on September 4, 1996 to
discuss a revised proposal which recognized the termination of the Seloc letter
of intent and the need of Zynaxis for short-term financing. The proposal set
forth alternate deal structures for a merger of Zynaxis with Proceutics and a
merger of Zynaxis with Vaxcel. Mr. Luchese proposed a merger of Zynaxis and
Proceutics that would result in the holders of Zynaxis owning 25% of the
resulting entity and a merger of Zynaxis and Vaxcel that would result in the
holders of Zynaxis owning 10% of the resulting entity. Under the Proceutics
structure, the surviving entity would license the Zynaxis technologies to the
other CytRx subsidiaries as appropriate according to a variable royalty rate.
The transaction would be subject to the successful closing of Seloc's
acquisition of Cauldron, settlement by Zynaxis of all of Zynaxis' liabilities
and certain other requirements. The valuation for Zynaxis in the Proceutics
proposal was approximately $4 million. Mr. Luchese also proposed a senior
secured loan to fund the Zynaxis operations until the closing of the
transaction.
    
 
   
     On September 5, 1996, the Zynaxis Board met to review and approve plans to
reduce its workforce by 40% to conserve cash resources and to consider the
status of the merger proposals. CytRx was at the time evaluating whether, and
under what conditions, it would assume the liabilities of Zynaxis. The other
potential merger partner had presented a proposal for the merger of the two
companies based on a ratio of 6:1 in favor of the other party. The Zynaxis Board
felt that the merger would be beneficial to both companies and compared
favorably to the proposed merger terms from CytRx. However, the ownership ratio
was felt to be unfavorable at the time and the proposal did not provide Zynaxis
with needed short-term financial support, requiring Zynaxis to continue to
search for alternative sources of funds. Consequently, the Zynaxis Board
recommended further negotiations to improve the offer.
    
 
     The Zynaxis Board (with only Dr. Morel absent) met again on the following
day, September 6, 1996, to approve the license and purchase option agreement
with Phanos pursuant to which Phanos ultimately paid Zynaxis $725,000 to
purchase the Zyn-Linker technology. The Zynaxis Board also reviewed the two
merger proposals and continued its discussion of both offers.
 
     On September 10, 1996, the Zynaxis Board (with only Mr. Gonder absent) met
to review the options available to Zynaxis. The discussion focused on the need
to provide short-term financing for Zynaxis to enable it to continue operating
pending consummation of either merger transaction. The offer from CytRx provided
short-term financing, but contained the substantial risk that the ultimate
holding of Zynaxis shareholders in the surviving entity would be decreased if
the cost of Zynaxis' settlement of liabilities exceeded proceeds from the sale
of its assets. The alternative option provided no immediate short-term
financing. The Zynaxis Board concluded that Zynaxis did not have enough cash to
fund its operations until the closing of a transaction and requested a meeting
with CytRx. The Zynaxis Board agreed that without firm committed funding,
Zynaxis would have no choice but to pursue the merger with CytRx.
 
     The next day, September 11, 1996, Messrs. Lyle A. Hohnke, Dennis P.
Schafer, and Messrs. Chappell and Reidy, each a director of Zynaxis, and Messrs.
Greenacre, Luchese and Wachtler held a telephone conference to discuss the
revised proposal and to review additional information about the Vaxcel
technology. The Zynaxis Board members expressed a number of concerns about the
proposal to Messrs. Luchese and
 
                                       31
<PAGE>   48
 
Wachtler, including the profitability and prospects of the preclinical contract
research business of Proceutics, the development and usefulness of the Vaxcel
OPTIVAX technology, the proposed equity adjustment for unsatisfied Zynaxis
liabilities and the effect of a default by Zynaxis under the proposed interim
financing.
 
     On September 12, 1996, the Zynaxis Board (with only Mr. Gonder absent)
carefully considered both offers and unanimously voted to reject the proposal
primarily because of the risk to the Zynaxis shareholders of a substantial
reduction in their ultimate ownership. The Zynaxis Board, with two directors
abstaining, voted to pursue the offer from the other potential merger partner.
Under the terms of the proposal made by the other potential partner, the Zynaxis
shareholders would own 15% of the resulting entity with the potential to
increase their ownership percentage based on the sale of the Cauldron division
and the Zyn-Linker technology. The proposed transaction, however, required
Zynaxis to raise additional capital to fund its operations until the closing.
 
     Following communication of the Zynaxis Board's decisions, Messrs. Luchese
and Wachtler made a new proposal to Messrs. Greenacre and Conway for the merger
of Zynaxis with Vaxcel on economic terms and conditions substantially the same
as those set forth in the Agreement. On September 13, 1996, the Zynaxis Board
(with only Mr. Steigrod absent) met to consider the new proposal. The Zynaxis
Board agreed that the new proposal was a significant improvement over the prior
offer because CytRx offered to finance the operating needs of Zynaxis and the
settlement of its outstanding liabilities and to remove the proposed equity
adjustment for unsatisfied Zynaxis liabilities. CytRx, however, conditioned its
willingness to continue negotiating on the execution by Zynaxis of a "no shop"
agreement that precluded Zynaxis from continuing its negotiations with the other
potential merger partner. The Zynaxis Board voted unanimously to agree to the
"no shop" agreement, and to authorize Mr. Greenacre to negotiate definitive
agreements for a merger with Vaxcel. The principal factor in the Zynaxis Board's
determination to proceed with the proposed merger with Vaxcel was the Board's
belief that Zynaxis would lose its principal vaccine license if it failed to
cure the default under the PLG Agreement. Without the merger with Vaxcel,
Zynaxis lacked the financial resources to cure the default or continue the
development of the technology forward to commercialization. The Zynaxis Board
unanimously agreed not to engage a financial advisor to confirm the Board's
fairness determination because the determination did not depend on a financial
analysis of the value of competing offers and because Zynaxis could not pay an
advisor's fee and meet the other expenses required to continue its operations.
 
     During the second half of September and early October, representatives of
CytRx, Vaxcel, Zynaxis and their respective legal and financial counsel met both
face-to-face and by teleconference to negotiate the terms of the merger
agreement and to carry out their respective "due diligence" reviews. On October
14, 1996, the Zynaxis Board met by teleconference to review the draft terms of
the Agreement. While the terms of the merger remained subject to modifications
for legal reasons, the Zynaxis Board reaffirmed its support of the proposed
merger. Following further discussions between both parties to the merger, final
documents were presented independently to the Boards of Zynaxis, Vaxcel and
CytRx on November 7, 1996. Each of the Boards unanimously recommended approval
of the Agreement and the transactions contemplated thereby subject to
satisfactory completion of certain events, including, but not limited to the
agreement of all holders of Zynaxis Preferred Stock to convert their Zynaxis
Preferred Stock to Vaxcel Common Stock in the Merger, the agreement among
certain shareholders to vote in favor of the Merger, and the agreement of
Zynaxis' landlord to amend its lease. CytRx, Vaxcel, Vaxcel Merger Sub and
Zynaxis entered into the Agreement on the morning of December 6, 1996, and
announced the Agreement that day through a press release.
 
     On a number of occasions in September and October 1996, Zynaxis contacted
personnel at Nasdaq in order to attempt to persuade Nasdaq not to delist Zynaxis
Common Stock pending the closing of the Merger because it was anticipated that
as a result of the Merger shareholders of Zynaxis would receive stock satisfying
Nasdaq's continued listing criteria. On October 11, 1996, Zynaxis submitted a
written summary of the proposed transaction and a written request not to delist
Zynaxis Common Stock prior to consummation of the Merger. Zynaxis was informed
that in order to consider the continued listing of Zynaxis Common Stock, Nasdaq
would need to receive and review a more detailed written proposal from Zynaxis
regarding Zynaxis' plans for bringing its common stock into compliance with the
listing criteria of the Nasdaq SmallCap Market. On November 27, 1996, Zynaxis
sent Nasdaq a package notifying Nasdaq of the expected execution of the
Agreement, explaining the details of the Merger, and repeating its request that
the listing of Zynaxis Common
 
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<PAGE>   49
 
Stock on the Nasdaq SmallCap Market be continued until consummation of the
Merger. By letter dated December 14, 1996, Nasdaq informed Zynaxis that,
notwithstanding the Merger, Zynaxis would not be afforded an extension of time
in which to achieve compliance with the continued listing requirements of the
Nasdaq SmallCap Market and that the securities of Zynaxis would be delisted from
the Nasdaq SmallCap Market effective with the opening of business on Tuesday,
December 24, 1996.
 
     Zynaxis' Reasons for the Merger.  The Zynaxis Board believes that the
Merger and related transactions are in the best interests of its shareholders.
In approving and recommending the Merger, the Charter Amendment and related
transactions, the Zynaxis Board believes that liquidation was the probable
alternative to the agreements with CytRx and Vaxcel, and that liquidation would
not yield any value to the Zynaxis shareholders. The Zynaxis Board believes
that, if the Merger is not consummated, then it is highly probable that Zynaxis
will be unable to repay the funds that will have been borrowed under the Senior
Credit Facility. If Zynaxis defaults under the Senior Credit Facility, then
CytRx may exercise its rights as a secured creditor under the Uniform Commercial
Code (as adopted in the State of Georgia) with respect to certain assets of
Zynaxis, including, but not limited to, foreclosing on Zynaxis' rights in its
vaccine delivery technologies. In addition, although Zynaxis contacted a number
of interested merger partners and began negotiations with several of them,
Vaxcel was the only one willing to enter into a transaction on terms acceptable
to the Zynaxis Board. The terms of the Agreement and the other Transaction
Documents provide Zynaxis with short-term financing that allows Zynaxis to
continue its operations until the Merger can be consummated, and provides the
Zynaxis shareholders with the opportunity to participate in the equity growth
that may result from the development and commercialization of the Zynaxis
vaccine delivery technologies. The Zynaxis Board believes that Vaxcel's and
Zynaxis' vaccine technologies are complementary and may afford the combined
company greater access to corporate development partnerships generating research
and development funding as well as greater access to capital markets than
Zynaxis would have had by remaining independent. The vaccine technologies are
complementary because together they provide broader protection against specific
diseases through stimulation of different elements of the immune system than
either technology does alone, and because together they combine the adjuvant
properties of the Vaxcel technology with the oral delivery capability of the
Zynaxis technologies. The Zynaxis Board believes that the combined company will
have greater access to corporate partners because its portfolio of potential
products includes the ability to improve the performance of vaccines delivered
both orally and by injection. The Zynaxis Board decided not to spend its limited
funds to engage a financial advisor in connection with the Merger because the
Board believed that the Merger was the only acceptable transaction and that
Zynaxis would not survive as a going concern without the Senior Credit Facility
available as part of the Merger.
 
     The Zynaxis Board also considered the disadvantages of the Merger and
related transactions, including the following: (i) the highly dilutive nature of
the proposed Merger; (ii) the loss of control by Zynaxis' shareholders and
management; (iii) the concentration of risk in the area of vaccine technology as
opposed to the diversification of risk attributable to having both drug and
vaccine development programs; and (iv) the risk that, if the Merger is not
consummated, Zynaxis would probably not be able to repay the Senior Credit
Facility and a default would allow CytRx to foreclose on the Zynaxis assets,
including the PLG Agreement. The Zynaxis Board believes that these disadvantages
were outweighed by the advantages of the transaction.
 
     THE ZYNAXIS BOARD RECOMMENDS THAT THE ZYNAXIS SHAREHOLDERS VOTE IN FAVOR OF
THE CHARTER AMENDMENT, THE AGREEMENT AND THE MERGER CONTEMPLATED THEREBY, AND
THE ASSET SALES.
 
   
     In reaching its conclusions, the Zynaxis Board considered a number of
factors, including, among other things, the terms and conditions of the
Agreement, information with respect to the financial condition, business
operations and prospects of both Zynaxis and Vaxcel on both a historical and
prospective basis, including information reflecting the two companies on a pro
forma basis, and the views and opinions of its management. All material factors
considered by the Zynaxis Board in deciding that the Merger is fair to and in
the best interests of Zynaxis and its shareholders are described above.
    
 
     The Zynaxis Board did not establish a separate committee to consider the
Agreement, the Merger and the Asset Sales. The interests in the Merger and the
Asset Sales of each member of the Zynaxis Board was fully disclosed. The vote to
approve the Agreement, the Merger and the Asset Sales was unanimous among
 
                                       33
<PAGE>   50
 
disinterested directors. Finally, members of the Zynaxis Board and their
affiliates who had an interest in the Merger or the Asset Sales were giving up
rights and not obtaining additional rights in the transaction.
 
     Vaxcel's Reasons for the Merger.  Vaxcel has rights to injectable vaccine
delivery technology, but it does not currently have rights to oral or mucosal
delivery technology or a significant public holding of its stock that would
provide a liquid market for those shares. The Vaxcel Board of Directors (the
"Vaxcel Board") believes that the Zynaxis oral technologies may have commercial
application for many marketed vaccines currently administered by parenteral
injection, as well as certain new vaccines under development. The Zynaxis oral
technologies can be administered alone or in combination with other vaccine
carriers, delivery systems, and adjuvants; and oral immunization is an
attractive alternative to injectable administration of vaccines, particularly
when mucosal immunity is important. Accordingly, the Merger is consistent with
Vaxcel's goal of building its competitive strength through the expansion of its
vaccine delivery portfolio and enhancing its shareholder value by increasing
liquidity for the Vaxcel Common Stock. The Board of Directors of Vaxcel also
considered other advantages of the Merger, such as the fact that Vaxcel will
acquire a license agreement with ALK. This license agreement may be beneficial
to Vaxcel as Vaxcel would receive milestone and royalty payments from ALK if ALK
receives FDA or certain other regulatory approvals for allergy products using
the Zynaxis technologies. In addition, Vaxcel does not expect to devote
significant resources to the ALK project, since under the terms of the license
agreement, ALK is responsible for conducting development, regulatory
submissions, and marketing activities for ALK's allergy products using the
Zynaxis technologies.
 
     The Vaxcel Board also identified and considered certain potential
disadvantages related to the Merger with Zynaxis. The disadvantages included,
among others, (i) the uncertainty regarding divestiture of the Cauldron
division; (ii) the cost of satisfying the current and expected liabilities of
Zynaxis; and (iii) the absence of cash that Vaxcel could have obtained through
an initial public offering.
 
THE MERGER
 
     Subject to the terms and conditions of the Agreement, at the Effective
Time, Vaxcel Merger Sub will be merged with and into Zynaxis in accordance with
the provisions of Section 1921 et seq. of the PBCL and Sections 14-2-1101 and
14-2-1107 of the Georgia Business Corporation Code ("GBCC") and with the effects
provided in Section 1929 of the PBCL and Section 14-2-1106 of the GBCC. Zynaxis
will be the surviving corporation resulting from the Merger and will become a
wholly owned subsidiary of Vaxcel and will continue to be governed by the laws
of the Commonwealth of Pennsylvania.
 
EXCHANGE RATIO
 
     Assuming no changes in the capitalization of either Vaxcel or Zynaxis the
Exchange Ratio is approximately .0947. The Exchange Ratio is calculated based
upon approximately 11,000,000 total shares outstanding of Vaxcel Common Stock
subsequent to the Closing, with approximately 9,625,000 being held by CytRx and
approximately 1,375,000 being held by the former Zynaxis shareholders.
 
     Generally, the Exchange Ratio is defined as: (i) 1,375,000, divided by (ii)
the number of shares of Zynaxis Common Stock outstanding immediately prior to
the Effective Time, giving effect to all issuances of common stock to which
Zynaxis is committed as of the time of the Closing (other than issuances to
occur upon the exercise of outstanding stock options and warrants) including but
not limited to: (a) the number of shares of Zynaxis Capital Stock issuable upon
conversion of all outstanding shares of Zynaxis Preferred Stock, and (b) the
number of shares of Zynaxis Capital Stock issuable upon conversion of the
principal and accrued interest of the Zynaxis Notes at the Per Share Price.
 
     Specifically, under the Agreement, the Exchange Ratio is defined as: (i)
the number of shares of Vaxcel Common Stock held by CytRx immediately prior to
the Closing, giving effect to the issuance of shares to CytRx in connection with
the Closing pursuant to the Agreement (other than shares issued as a result of
dissenting and objecting Zynaxis shareholders), divided by (ii) 7 and further
divided by (iii) the sum of (a) the number of shares of Zynaxis Common Stock
outstanding immediately prior to the Closing, giving effect to all issuances of
common stock to which Zynaxis is committed as of the time of the Closing other
than issuances to occur upon the exercise of outstanding stock options and
warrants including but not limited to: (1) the delivery of 34,548 shares of
Zynaxis Common Stock to certain officers and employees of Plexus Ventures, Inc.
pursuant to the settlement agreement set forth in the letter from Zynaxis to
Plexus Ventures,
 
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<PAGE>   51
 
Inc. dated October 10, 1996, and (2) the issuance of approximately 38,500
additional shares of Zynaxis Common Stock to the Zynaxis 401(k) plan for the
fourth quarter of 1996; (b) two times the number of shares of Zynaxis Preferred
Stock outstanding as of the Closing; and (c) 1,320,706. The number 1,320,706
will be adjusted for splits and reverse splits of Vaxcel Common Stock.
 
PER SHARE PRICE
 
     Assuming no changes in the capitalization of either Vaxcel or Zynaxis, the
Per Share Price is approximately $.2754. The Per Share Price represents the
value per share assigned to Zynaxis Capital Stock in the Merger transaction.
Both CytRx and the Zynaxis shareholders will receive approximately 1,375,000
shares of Vaxcel Common Stock upon consummation of the Merger. As the CytRx
contribution will principally be in the form of cash, the transaction price per
share (of Vaxcel Common Stock) is easily determined as $4,000,000 divided by
1,375,000, or $2.909. To arrive at the Per Share Price of Zynaxis Common Stock,
the Vaxcel per share price is multiplied by the Exchange Ratio (approximately
 .0947), yielding an estimated Per Share Price of .2754.
 
     Specifically, in the Agreement, the Per Share Price is defined as: (i)
$4,000,000, divided by (ii) the sum of (a) the number of shares of Zynaxis
Common Stock outstanding immediately prior to the Closing, giving effect to all
issuances of Zynaxis Common Stock to which Zynaxis is committed as of the time
of the Closing other than issuances to occur upon the exercise of outstanding
stock options and warrants including but not limited to: (1) the delivery of
34,548 shares of Zynaxis Common Stock to certain officers and employees of
Plexus Ventures, Inc. pursuant to the settlement agreement set forth in the
letter from Zynaxis to Plexus Ventures, Inc. dated October 10, 1996, and (2) the
issuance of approximately 38,500 additional shares of Zynaxis Common Stock to
the Zynaxis 401(k) plan for the fourth quarter of 1996; (b) two times the number
of shares of Zynaxis Preferred Stock outstanding immediately prior to the
Closing; and (c) 1,320,706. The number 1,320,706 will be adjusted for splits and
reverse splits of Vaxcel Common Stock.
 
THE TRANSACTION DOCUMENTS
 
     Simultaneously with the execution of the Agreement: (i) Zynaxis and CytRx
entered into the Senior Credit Facility; (ii) Zynaxis and CytRx entered into the
Liquidation Agreement, which provides for CytRx to serve as Zynaxis' agent in
the Asset Sales; (iii) Zynaxis, CytRx, Vaxcel, and the holders of all of the
outstanding shares of Zynaxis Preferred Stock, who also hold certain Zynaxis
Warrants, entered into the Preferred Stock and Warrant Agreement, conditioned
upon the consummation of the Merger, making certain agreements with respect to
their rights and converting the Zynaxis Warrants, upon consummation of the
Merger, into Vaxcel Warrants; (iv) Zynaxis, CytRx and Vaxcel entered into the
Note Exchange Agreement with Euclid and S.R. One, Ltd., who hold Zynaxis Notes,
conditioned upon the consummation of the Merger, converting the Zynaxis Notes,
upon consummation of the Merger, into the right to receive shares of Vaxcel
Common Stock; (v) CytRx and certain holders of Zynaxis Capital Stock entered
into the Shareholder Voting Agreements granting CytRx an irrevocable proxy to
vote the shares held by such shareholders in favor of the Agreement and the
Merger contemplated thereby, the Asset Sales, and the Charter Amendment, and
(vi) Vaxcel and Zynaxis entered into the Technology Development Agreement
concerning the development, by Vaxcel, of certain technologies owned by or
licensed to Zynaxis. Each of the Senior Credit Facility, the Liquidation
Agreement, the Preferred Stock and Warrant Agreement, the Note Exchange
Agreement, the Shareholder Voting Agreements, and the Technology Development
Agreement are incorporated into the Agreement as exhibits to the Agreement.
 
     The Senior Credit Facility.  Simultaneously with the execution of the
Agreement, in order to provide necessary funding for the operations of Zynaxis
pending the Merger, Zynaxis and CytRx entered into a secured loan agreement (the
"Secured Loan Agreement"), pursuant to which CytRx agreed to lend up to
$2,000,000 (the "Loan") to Zynaxis. Repayment of the Loan is evidenced by a
Senior Secured Note (the "Senior Secured Note"), and is subject to various
security agreements which grant to CytRx a security interest in all of the
assets of Zynaxis and its subsidiaries (each a "Security Agreement" and
collectively the "Security Agreements"). In addition, to secure the Senior
Secured Note, Zynaxis Vaccine Technologies, Inc. ("ZVT"), a Pennsylvania
corporation and a wholly owned subsidiary of Zynaxis, entered into a Collateral
Assignment of License Agreement, a Guaranty and a Security Agreement ("ZVT
Security Agreement"). The Collateral Assignment of License Agreement grants a
security interest to CytRx in all of ZVT's right,
 
                                       35
<PAGE>   52
 
title, and interest in, to and under a certain license agreement, as amended,
dated July 1, 1987, by and among ZVT, SRI and UAB, licensing certain technology.
The ZVT Security Agreement grants CytRx a security interest in all of the assets
of ZVT. The Secured Loan Agreement, the Senior Secured Note and the Security
Agreements are collectively referred to as the "Senior Credit Facility."
 
     The Liquidation Agreement.  The Zynaxis Board has appointed CytRx as its
agent for the sale of certain assets listed in the Liquidation Agreement at the
prices, and the settlement of the liabilities listed in the Liquidation
Agreement for the amounts, identified in the Liquidation Agreement. The Zynaxis
Board (and any applicable committees thereof) also have approved (i) an
operating budget for the period between the date of the Liquidation Agreement
and the Closing, (ii) certain agreements to be entered into by Zynaxis and CytRx
with Martyn D. Greenacre and Michael A. Christie, and (iii) an agreement dated
September 23, 1996 between QED Technologies, L.P. ("QED") and Zynaxis (the "QED
Agreement").
 
     The assets to be sold include Zynaxis' Cauldron Process Chemistry division
together with all related property and equipment and accounts receivables and
other non-Cauldron property and equipment consisting of leasehold improvements,
laboratory equipment, office equipment and furnishings. The liabilities to be
settled consist primarily of non-material overdue trade payables to Zynaxis'
vendors and other service providers, as well as the demand note payable to a
company affiliated with John F. Chappell, a member of the Zynaxis Board.
 
     The operating budget approved by the Zynaxis Board projects the working
capital requirements of Zynaxis for the period preceding the anticipated Closing
Date (as defined in the Agreement) and contemplates expected cash received and
expended in the settlement of assets and liabilities, the termination of certain
personnel, and other efforts to reduce operating expenses, and transaction costs
associated with the Merger. The operating budget estimates that Zynaxis' maximum
cash requirements prior to consummation of the Merger would be $2,000,000. The
maximum Loan amount was determined in accordance with the operating budget. At
March 15, 1997, Zynaxis had net borrowings under the Loan of $925,000.
 
     Zynaxis has committed to exert its commercially reasonable best efforts to
sell the assets and to cooperate with CytRx in its efforts to assist Zynaxis in
selling the assets. Zynaxis has committed to approve and execute documents
evidencing and perform any agreement negotiated by Zynaxis or CytRx with any
prospective purchaser of any asset if (i) the purchase price is no lower than
the amount and is consistent with the terms set forth in the Liquidation
Agreement, and (ii) the other terms and conditions of the transaction are not
less favorable to Zynaxis in any material respect than the terms and conditions
of similar transactions.
 
     Zynaxis has committed to exert its commercially reasonable best efforts to
settle the liabilities and to cooperate with CytRx in its efforts to assist
Zynaxis in settling the liabilities. Zynaxis has committed to approve and
execute documents evidencing and perform any agreement negotiated by Zynaxis or
CytRx with any creditor for any liability, if (i) the cash payment required to
be paid by Zynaxis to such creditor is no greater than the settlement amount and
is consistent with the terms set forth for such liability in the Liquidation
Agreement, and (ii) the other terms and conditions of the transaction are not
less favorable to Zynaxis in any material respect than the terms and conditions
of similar transactions.
 
     The Liquidation Agreement further provides that, subject to approval by the
Committee (as defined below), which approval will not be unreasonably withheld,
Zynaxis will approve and execute documents evidencing and perform any agreement
negotiated by CytRx with any counsel, accountants, appraisers, brokers and other
advisors in connection with the transactions (all for the account of Zynaxis),
if (i) such person is not an affiliate of CytRx, and (ii) the terms and
conditions of such agreement, taken as a whole, are fair to Zynaxis.
 
   
     The QED Agreement governs QED's relationship with Zynaxis as agent for the
sale of the Cauldron division. Under the QED Agreement, QED has acted as the
exclusive agent for Zynaxis in the sale of the Cauldron division in all
territories of the world excluding Italy and Japan. Under the QED Agreement, QED
will be entitled to its full fee as described below for its role in negotiating
and closing the sale of Cauldron in Italy and Japan, but will not act in a
finder's capacity in such countries. Compensation to QED for the successful sale
of the Cauldron division will be 5% if the purchase price for the facility is
less than $1,000,000, 6% if the purchase price is $1,000,000 to $3,000,000, and
7% if the purchase price exceeds $3,000,000. In no case shall compensation to
QED be less than $25,000. All of QED's cash expenses related to this transaction
    
 
                                       36
<PAGE>   53
 
   
shall be paid by Zynaxis. The term of QED's exclusivity shall be six months from
the execution date of the QED Agreement. In the event that the Cauldron division
is sold after such six month period to a party introduced to Zynaxis by QED,
Zynaxis will be obligated to pay the aforementioned fee to QED. Based on the
purchase price set forth in the Asset Purchase Agreement, the compensation to be
paid to QED upon the closing of the transaction with ProClinical is
approximately $29,100 plus expenses.
    
 
     In connection with CytRx's activities on Zynaxis' behalf, Zynaxis has
agreed to cooperate with CytRx, to furnish or cause to be furnished to CytRx
such information and data as CytRx may reasonably request, and to give CytRx
reasonable access to Zynaxis' officers, directors, employees, appraisers and
independent accountants.
 
     The Zynaxis Board has established a committee (the "Committee") of the
Board consisting of John F. Chappell, Stephen K. Reidy and Martyn D. Greenacre,
which has the full authority of the Board to authorize the transactions and the
institution and prosecution of actions (including arbitration proceedings)
relating to the transactions contemplated by the Liquidation Agreement. The
Committee will confer with CytRx at such times as CytRx reasonably requests.
 
     The Liquidation Agreement also provides that Zynaxis will reimburse CytRx
promptly for all reasonable out-of-pocket expenses, including reasonable fees
and expenses of CytRx's counsel, incurred in connection with the rendering of
CytRx services under the Liquidation Agreement. Zynaxis also has agreed to
indemnify CytRx in accordance with certain indemnification provisions.
 
     CytRx may terminate the Liquidation Agreement at any time upon written
notice, without liability or continuing obligation to Zynaxis. Zynaxis may not
terminate the Liquidation Agreement unless and until the Agreement is
terminated.
 
     Preferred Stock and Warrant Agreement.  Simultaneously with the execution
of the Agreement, Zynaxis, CytRx, Vaxcel, and the holders of Zynaxis Preferred
Stock entered into the Preferred Stock and Warrant Agreement to modify, as of
the Effective Time, the rights of the holders of Zynaxis Preferred Stock.
 
     Prior to the execution of the Preferred Stock and Warrant Agreement, the
rights of holders of Zynaxis Preferred Stock were governed by a Preferred Stock
and Warrant Purchase Agreement dated March 29, 1995, as amended (the "Preferred
Stock and Warrant Purchase Agreement"), and the Statement with Respect to Shares
filed by Zynaxis in the Department of State of the Commonwealth of Pennsylvania
on April 6, 1995 ("Statement with Respect to Shares"). Pursuant to the Preferred
Stock and Warrant Agreement, the holders of Zynaxis Preferred Stock agreed that
the Preferred Stock and Warrant Purchase Agreement and all rights of the holders
of Zynaxis Preferred Stock thereunder will terminate upon consummation of the
Merger.
 
     The Preferred Stock and Warrant Agreement also provides that each of the
holders of Zynaxis Preferred Stock elects that the consummation of the
transactions contemplated by the Agreement and the Transaction Documents,
including but not limited to the Liquidation Agreement, will not be deemed a
liquidation for purposes of the Zynaxis Articles of Incorporation. In addition,
each of the holders of Zynaxis Preferred Stock consented to the Senior Credit
Facility and all liens, pledges, mortgages, security interests and other
encumbrances to which the assets or properties of Zynaxis may become subject as
part of the Senior Credit Facility.
 
     Pursuant to the Preferred Stock and Warrant Agreement, each of the holders
of Zynaxis Preferred Stock agreed that upon consummation of the Merger, each
Zynaxis Warrant held by the holders of Zynaxis Preferred Stock will be exchanged
for a Vaxcel Warrant for a number of shares of Vaxcel Common Stock equal to: (i)
the number of shares of Zynaxis Common Stock that the Zynaxis Warrants held by
such shareholder are exercisable to purchase at that time multiplied by (ii) the
Exchange Ratio.
 
     Each of the holders of Zynaxis Preferred Stock further agreed that: (i)
upon execution of the Preferred Stock and Warrant Agreement, all rights that the
holder of Zynaxis Preferred Stock may have had to require Zynaxis to register
securities of Zynaxis for sale under applicable state and federal securities
laws, whether granted pursuant to the Preferred Stock and Warrant Purchase
Agreement or otherwise ("Preferred Stock Holder Registration Rights"), are
suspended pending the Merger, and (ii) upon consummation of the Merger, all such
Preferred Stock Holder Registration Rights will be terminated and such holder of
Zynaxis Preferred Stock will have such registration rights as are provided in
the Agreement. If the Agreement is terminated for any reason, then effective
upon such termination, each holder of Zynaxis Preferred Stock will have such
 
                                       37
<PAGE>   54
 
Preferred Stock Holder Registration Rights as such holder of Zynaxis Preferred
Stock would have had if such Registration Rights had not been suspended.
 
     Note Exchange Agreement.  Simultaneously with the execution of the
Agreement, Zynaxis, CytRx, and Vaxcel entered into a Note Exchange Agreement
with Euclid and S.R. One, Ltd. (together the "Noteholders"). The Noteholders
hold Zynaxis Notes on which Zynaxis is the obligor.
 
     The Note Exchange Agreement provides that upon consummation of the Merger,
each Zynaxis Note will be exchanged for the number of shares of Vaxcel Common
Stock equal to the Exchange Ratio multiplied by the quotient (rounded down to
the nearest whole share) obtained by dividing the unpaid principal amount of
such Zynaxis Note, together with unpaid interest thereon accrued through
September 30, 1996, by the Per Share Price, as such term is defined in the
Agreement. At the Closing, each holder of a Zynaxis Note will deliver its
Zynaxis Notes to Vaxcel who shall then contribute such Zynaxis Notes to the
capital of Zynaxis by marking the Zynaxis Note, "Paid in Full" and delivering
them to Zynaxis. Vaxcel shall thereupon deliver to each such holder a
certificate representing all the Note Shares to be issued in exchange therefor.
 
     The Note Exchange Agreement also provides that: (i) upon execution of the
Note Exchange Agreement, all rights that a Noteholder may have to require
Zynaxis to register securities of Zynaxis for sale under applicable state and
federal securities laws ("Noteholder Registration Rights") are suspended pending
the consummation of the Merger; and (ii) upon consummation of the Merger, all
such Noteholder Registration Rights will be terminated and such Noteholder will
have such Noteholder Registration Rights as are provided for such Noteholder in
the Agreement. If the Agreement is terminated for any reason, then effective
upon such termination, the Noteholders will have the registration rights as such
Noteholder would have had at such time if such rights had not been suspended.
 
     Technology Development Agreement.  Pursuant to a license agreement dated
July 1, 1987 by and between SRI, UAB, and Molecular Engineering Associates,
Ltd., as amended, Zynaxis has an exclusive right and license to the PLG
microencapsulation technology. Zynaxis also owns certain oral vaccine delivery
technology related to compounds which bind to mucosal tissues (the
"mucoadhesive").
 
     Because the Merger will take several months to consummate and the parties
want to ensure the continued development of the PLG and the mucoadhesive
technologies during the time period between execution of the Agreement and the
consummation of the Merger, Vaxcel and ZVT entered into the Technology
Development Agreement. Pursuant to the Technology Development Agreement, ZVT
granted to Vaxcel during the term of the Agreement the exclusive right to
continue to develop the PLG and the mucoadhesive technologies at Vaxcel's own
cost and expense, subject to the rights granted to ALK in a development and
licensing agreement dated September 21, 1995, by and between Zynaxis, ZVT, and
ALK.
 
     Under the Technology Development Agreement, Vaxcel may, at its option and
its sole discretion, elect to undertake the following activities: (i) perform
preclinical experiments using the PLG and the mucoadhesive technologies at
Vaxcel facilities or with other third parties and potential sublicensees; (ii)
negotiate and execute agreements for the PLG and the mucoadhesive technologies,
including, but not limited to, materials transfer agreements, research
agreements, option agreements, sublicense agreements, or other similar
agreements, subject to Zynaxis' right of approval as provided for in the
Technology Development Agreement; (iii) conduct research activities involving
the PLG and the mucoadhesive technologies and receive compensation from
potential sublicensees regarding such research activities; (iv) gain access to
data from current Zynaxis sublicensees for the PLG and the mucoadhesive
technologies; (v) attend scientific conferences and present information to the
conferences on the PLG and the mucoadhesive technologies; (vi) handle all patent
application matters on behalf of Zynaxis as they arise, provided that in the
event Vaxcel elects not to handle a patent application matter, then Zynaxis
shall have the option to handle such matter; and (vii) perform other development
activities that may arise during the term of the Technology Development
Agreement. Vaxcel shall inform and provide updates to Zynaxis on a regular basis
regarding development activities undertaken by Vaxcel.
 
     In the event Vaxcel obtains an agreement for the PLG and the mucoadhesive
technologies as provided for under the Technology Development Agreement, Vaxcel
will retain a maximum of the first $50,000 received from such agreement in
consideration of the services performed under the Technology Development
 
                                       38
<PAGE>   55
 
Agreement. Any amounts received in excess of $50,000 will be transferred to
Zynaxis to be used in satisfaction of Zynaxis' obligations under the Agreement
and the Senior Credit Facility. In the event that the Technology Development
Agreement is terminated due to the termination of the Agreement, then (i) if the
Agreement is terminated under certain circumstances described below, all
payments received following termination of the Agreement as a result of
agreements for the PLG and the mucoadhesive technologies entered into by Vaxcel
during the term of the Technology Development Agreement shall be divided such
that 90% of all payments are promptly paid to Vaxcel, or (ii) if the Agreement
is terminated for other reasons, all payments received following termination of
the Technology Development Agreement as a result of agreements for the
technologies entered into by Vaxcel during the term of the Technology
Development Agreement will be paid to Zynaxis.
 
     Vaxcel would generally be entitled to receive 90% of all payments if the
Merger is not consummated due to (i) the failure of the Zynaxis shareholders to
vote their approval of the matters relating to the Merger and the transactions
contemplated at the Special Meeting; (ii) the failure of Zynaxis to satisfy
certain conditions and obligations for consummation of the Merger due to
intentional action or inaction on the part of Zynaxis or any of its officers,
directors, employees, or agents; (iii) the Zynaxis Board taking action to
directly or indirectly solicit an acquisition proposal of Zynaxis by a third
party; (iv) the failure of the Zynaxis Board to recommend to the Zynaxis
shareholders approval of matters to be considered at the Special Meeting; or (v)
the failure of the Zynaxis Board to use its reasonable efforts to obtain
shareholders' approval for the Merger.
 
     The Zynaxis Board believes that the uninterrupted development of the
Zynaxis vaccine technologies is in the best interest of the Zynaxis
shareholders, but Zynaxis lacks the resources to continue that development.
Access to the Zynaxis technology given to Vaxcel should facilitate continued
development and the payments made to Vaxcel for any development agreements
(limited to the first $50,000) represent fair value for the anticipated effort
required by Vaxcel to achieve the collaborative agreements. The Board considered
it fair to assign 90% of any future payments made to Zynaxis for agreements made
by Vaxcel to the latter if the Merger failed to close. An alternative way of
viewing this transaction would be that Zynaxis would earn a 10% royalty on
payments made on agreements negotiated by Vaxcel.
 
     Shareholder Voting Agreements.  Simultaneously with the execution of the
Agreement, CytRx entered into the Shareholder Voting Agreements with six of the
17 holders of Zynaxis Preferred Stock. The following shareholders executed
Shareholder Voting Agreements: Senmed Medical Ventures, Alphi Fund L.P., CIP
Capital L.P., Gus G. Casten, Commonwealth Venture Partners I, L.P., and
Philadelphia Ventures-Japan I L.P. Collectively, as of the Record Date, these
shareholders held approximately 14.1% of the issued and outstanding shares of
Zynaxis Combined Voting Stock and approximately 25.1% of the issued and
outstanding shares of Zynaxis Preferred Stock. Pursuant to the Shareholder
Voting Agreements, each of the shareholders agreed that: (i) at any meeting of
shareholders of Zynaxis called to vote upon any of the matters contemplated by
the Agreement (including, without limitation, the Asset Sales and the Charter
Amendment) or at any adjournment thereof or in any other circumstances upon
which a vote, consent or other approval with respect to any of the matters
contemplated by the Agreement is sought, the shareholder will vote (or cause to
be voted) the holder's shares in favor of each of the matters contemplated by
the Agreement; and (ii) at any meeting of shareholders of Zynaxis or at any
adjournment thereof or in any other circumstances upon which their vote, consent
or other approval is sought, the holder will vote (or cause to be voted) such
shareholder's shares against (a) any merger, consolidation, combination, sale of
substantial assets, reorganization, recapitalization, dissolution, liquidation
or winding up of or by Zynaxis (other than the transactions contemplated by the
Agreement), or (b) any amendment of Zynaxis' Articles of Incorporation, or
Bylaws or other proposal or transaction involving Zynaxis or any of its
subsidiaries, which amendment or other proposal or transaction would in any
manner impede, frustrate, prevent or nullify any of the transactions
contemplated by the Agreement (each of the foregoing in clause (a) or (b) above,
a "Competing Transaction").
 
     As a matter of law CytRx, is deemed to beneficially own the Zynaxis
Combined Voting Stock subject to the Shareholder Voting Agreements. This
beneficial ownership does not trigger any super-majority voting requirement for
approval of the Merger as the level of ownership is less that 20% of the Zynaxis
Combined Voting Stock. For a more detailed description of anti-takeover statutes
applicable to Zynaxis, see "Effect of the Merger on Rights of
Shareholders -- Business Combinations with Certain Persons."
 
                                       39
<PAGE>   56
 
     The Shareholder Voting Agreements are substantially identical except for
two of the Shareholder Voting Agreements. CIP Capital L.P. and Alphi Fund L.P.,
as of the Record Date, held approximately 3.5% of the issued and outstanding
shares of Zynaxis Combined Voting Stock and approximately 13.8% of the issued
and outstanding shares of Zynaxis Preferred Stock. CIP Capital L.P. and Alphi
Fund L.P. executed Shareholder Voting Agreements that do not restrict the
shareholder's ability to transfer its shares prior to consummation of the
Merger. Each of the other Shareholder Voting Agreements provide that such
shareholder will not transfer (which term includes, without limitation, any
sale, gift, pledge or other disposition), or consent to any transfer of, any or
all of such shareholder's shares or any interest therein; provided, that such
shareholder may transfer any of the shareholder's shares to any other person who
is, or to any family member of a person or charitable institution which prior to
such transfer becomes, a party to the Shareholder Voting Agreements.
 
     Each of the Shareholder Voting Agreements provides that such shareholder
will not (i) grant any proxy, power of attorney or other authorization in or
with respect to such shareholder's shares, except for this Agreement, or (ii)
deposit such shareholder's shares into a voting trust or enter into a voting
agreement or arrangement with respect to such shareholder's shares. Further,
each of the shareholders agreed: (i) to waive any rights of appraisal, or rights
to dissent from the transactions contemplated by the Agreement, that such
shareholder may have (including, without limitation, any rights arising under
Subchapter 25E of the PBCL) and (ii) not to, nor permit any investment banker,
attorney or other adviser or representative of the shareholder to, directly or
indirectly, (a) solicit, initiate or encourage the submission of, any takeover
proposal or (b) participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other action
to facilitate any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any takeover proposal. "Takeover
proposal" means any proposal for a merger or other business combination
involving Zynaxis or any of its subsidiaries or any proposal or offer to acquire
in any manner, directly or indirectly, an equity interest in any voting
securities of, or a substantial portion of the assets of Zynaxis or any of its
subsidiaries, other than the transactions contemplated by the Agreement and
other than any transfer expressly permitted by the Shareholder Voting
Agreements.
 
     Also pursuant to the Shareholder Voting Agreements, each shareholder
irrevocably granted to, and appointed, CytRx, Jack J. Luchese, Chairman of the
Board, President and Chief Executive Officer of CytRx, and Mark W. Reynolds,
Chief Financial Officer of CytRx, in their respective capacities as officers of
CytRx, and any individual who should succeed to any such office of CytRx, and
each of them individually, the shareholder's proxy and attorney-in-fact (with
full power of substitution), for and in the name, place and stead of the
shareholder, to vote the shareholder's shares, or grant a consent or approval in
respect of such shares (i) in favor of each of the matters contemplated by the
Agreement, and (ii) against any Competing Transaction.
 
     Finally, each of the Shareholder Voting Agreements, and all rights and
obligations of the parties thereunder, terminates upon the first to occur of (i)
the Closing, or (ii) the date upon which the Agreement is terminated in
accordance with its terms; provided that if an Extension Event, as such term is
defined below, shall have occurred as of or prior to termination of the
Agreement, then, for a period of one year following such termination, certain of
the rights and obligations of the parties under the Shareholder Voting
Agreements will continue in full force and effect and the shareholder agrees not
to transfer any or all of the shareholder's shares in connection with any
Competing Transaction or takeover proposal. Each of the Shareholder Voting
Agreements defines an "Extension Event" to mean any of the following events: (i)
the Special Meeting to approve the matters contemplated by the Agreement is not
held or the requisite approval at the Special Meeting by the holders of Zynaxis
Capital Stock is not obtained, or (ii) any person (other than CytRx or any
subsidiary of CytRx) has made, or disclosed an intention to make, a takeover
proposal or proposal for a Competing Transaction.
 
     Vaxcel Warrants.  The Vaxcel Warrants to be issued in exchange for the
Zynaxis Warrants upon consummation of the Merger are governed by the Preferred
Stock and Warrant Agreement and their own terms. The Vaxcel Warrants are
convertible into shares of Vaxcel Common Stock. Pursuant to their terms, the
Vaxcel Warrants are immediately exercisable upon consummation of the Merger and
have a term of one year from the Closing. The Vaxcel Warrants are exercisable at
a price per share equal to: (i) the Per Share Price divided by (ii) the Exchange
Ratio (the "Vaxcel Warrant Price"). Beginning at the 60th day following the
 
                                       40
<PAGE>   57
 
Closing, the Vaxcel Warrants are exercisable at a price per share equal to two
times the Vaxcel Warrant Price in effect immediately prior to such time, subject
to adjustment by the terms of such Vaxcel Warrant in the case of a Merger,
consolidation, or reorganization of Vaxcel.
 
     The Vaxcel Warrants may be exercised during their term in whole or in part
by the surrender of such Vaxcel Warrant, with the purchase agreement attached to
such Vaxcel Warrant properly completed and executed, at the principal office of
Vaxcel and upon payment to it by certified check or bank draft to the order of
Vaxcel for the purchase price for the shares to be purchased upon such exercise.
See "Description of Vaxcel Capital Stock -- Vaxcel Warrants."
 
     CytRx Warrant.  The CytRx Warrant, to be issued to CytRx upon consummation
of the Merger pursuant to the Agreement, provides that CytRx is entitled to
purchase from Vaxcel a number of shares of Vaxcel Common Stock equal to: (i) the
amount that the Board of Directors of CytRx reasonably determines is the minimum
amount that must be contributed to the capital of Vaxcel in order for Vaxcel to
satisfy or continue to satisfy quantitative requirements for inclusion or
continued inclusion of the Vaxcel Common Stock on the Nasdaq SmallCap Market
divided by (ii) one-half of the Per Share Price and multiplied by (iii) the
Exchange Ratio.
 
     The per share price for the shares which may be purchased upon the exercise
of the CytRx Warrant (the "Exercise Price") is initially equal to: (i) one-half
of the Per Share Price, divided by (ii) the Exchange Ratio, subject to
adjustment pursuant to the terms of the CytRx Warrant for any mergers,
consolidations or reorganizations of Vaxcel. The CytRx Warrant may be exercised
by giving written notice to Vaxcel and providing Vaxcel with the Exercise Price.
 
     CytRx has the right to purchase shares of Vaxcel Common Stock under the
terms of the CytRx Warrant from the time that the CytRx Board reasonably
determines that Vaxcel's total assets and capital and surplus are insufficient
to satisfy the total assets and capital and surplus requirements for inclusion
of the Vaxcel Common Stock in the Nasdaq SmallCap Market until December 6, 1997.
See "Description of Vaxcel Capital Stock -- CytRx Warrant."
 
EFFECT OF THE MERGER ON STOCK OPTIONS, WARRANTS, AND PROMISSORY NOTES
 
     The Agreement contemplates that at the Effective Time, each of the Zynaxis
Options granted by Zynaxis under the Zynaxis Stock Plan, as that term is defined
in the Agreement, which are outstanding at the Effective Time, whether or not
exercisable, will be converted into and become rights with respect to Vaxcel
Common Stock, and Vaxcel will assume each Zynaxis Option, in accordance with the
terms of the Zynaxis Stock Plan and stock option agreement by which it is
evidenced, except that from and after the Effective Time, (i) Vaxcel and its
Compensation Committee will be substituted for Zynaxis and the committee of the
Zynaxis Board (including, if applicable, the entire Zynaxis Board) administering
such Zynaxis Stock Plan, (ii) each Zynaxis Option assumed by Vaxcel may be
exercised solely for shares of Vaxcel Common Stock (or cash, if so provided
under the terms of the Zynaxis Option), (iii) the number of shares of Vaxcel
Common Stock subject to such Zynaxis Option will be equal to the number of
shares of Zynaxis Common Stock subject to such Zynaxis Option immediately prior
to the Effective Time multiplied by the Exchange Ratio, and (iv) the per share
exercise price under each such Zynaxis Option will be adjusted by dividing the
per share exercise price under each such Zynaxis Option by the Exchange Ratio
and rounding up to the nearest cent. Notwithstanding the provisions of clause
(iii) of the preceding sentence, Vaxcel will not be obligated to issue any
fraction of a share of Vaxcel Common Stock upon exercise of Zynaxis Options and
any fraction of a share of Vaxcel Common Stock that otherwise would be subject
to a converted Zynaxis Option will represent the right to receive a cash payment
equal to the product of such fraction and the difference between the market
value of one share of Vaxcel Common Stock and the per share exercise price of
such option. In addition, notwithstanding any other term in the Agreement, each
Zynaxis Option which is an "incentive stock option" will be adjusted as required
by Section 424 of the Code, and the regulations promulgated thereunder, so as
not to constitute a modification, extension, or renewal of the option, within
the meaning of Section 424(h) of the Code.
 
                                       41
<PAGE>   58
 
     All restrictions or limitations on transfer with respect to Zynaxis Common
Stock awarded under the Zynaxis Stock Plans or any other plan, program,
contract, or arrangement of any Zynaxis company, to the extent that such
restrictions or limitations will not have already lapsed (whether as a result of
the Merger or otherwise), and except as otherwise expressly provided in such
plan, program, contract, or arrangement, will remain in full force and effect
with respect to shares of Vaxcel Common Stock into which such restricted stock
is converted pursuant to the Agreement.
 
     The Agreement also contemplates that at the Effective Time, each Zynaxis
Warrant which is outstanding at the Effective Time and is held by a party to the
Preferred Stock and Warrant Agreement shall be exchanged for a warrant to
purchase Vaxcel Common Stock in accordance with the terms of the Preferred Stock
and Warrant Agreement.
 
     Each Zynaxis Non-Financing Warrant which is outstanding at the Effective
Time will be converted into and become a Vaxcel Non-Financing Warrant and Vaxcel
will assume each such warrant, in accordance with the terms of the warrant
agreement by which it is evidenced, except that from and after the Effective
Time, (i) each Zynaxis Non-Financing Warrant assumed by Vaxcel may be exercised
solely for shares of Vaxcel Common Stock, (ii) the number of shares of Vaxcel
Common Stock subject to such Vaxcel Non-Financing Warrant will be equal to the
number of shares of Zynaxis Common Stock subject to such Zynaxis Non-Financing
Warrant immediately prior to the Effective Time multiplied by the Exchange
Ratio, and (iii) the per share exercise price under each such Vaxcel
Non-Financing Warrant will be adjusted by dividing the per share exercise price
under each such Zynaxis Non-Financing Warrant by the Exchange Ratio and rounding
up to the nearest cent. Notwithstanding the foregoing, Vaxcel will not be
obligated to issue any fraction of a share of Vaxcel Common Stock upon exercise
of such Vaxcel Non-Financing Warrants and any fraction of a share of Vaxcel
Common Stock that otherwise would be subject to a converted Vaxcel Non-Financing
Warrant will represent the right to receive a cash payment upon exercise of such
converted Vaxcel Non-Financing Warrant equal to the product of such fraction and
the difference between the market value of one share of Vaxcel Common Stock at
the time of exercise of such converted Vaxcel Non-Financing Warrant and the per
share exercise price of such converted Vaxcel Non-Financing Warrant. The market
value of one share of Vaxcel Common Stock at the time of exercise of a converted
Vaxcel Non-Financing Warrant will be the last sale price of a share of Vaxcel
Common Stock on the Nasdaq SmallCap Market (as reported by The Wall Street
Journal or, if not reported thereby, any other authoritative source selected by
Vaxcel) on the last trading day preceding the date of exercise.
 
     Each Zynaxis Note which is held by a party to the Note Exchange Agreement
will be exchanged for shares of Vaxcel Common Stock in accordance with the terms
of the Note Exchange Agreement, as described above.
 
     Additionally, Plexus Ventures, Inc., a holder of a convertible demand note
of Zynaxis, has exercised its right under the demand note to have the principal
and interest accrued on its note through September 30, 1996 of approximately
$104,600 be paid at the Closing. John F. Chappell, a member of the Zynaxis
Board, is the President and sole shareholder of Plexus Ventures, Inc.
 
EFFECTIVE TIME OF THE MERGER
 
     Subject to the conditions to the obligations of the parties to effect the
Merger, the Effective Time of the Merger and other transactions contemplated by
the Agreement will occur upon the last to occur of: (i) the filing of the
Articles of Merger in the Department of State of the Commonwealth of
Pennsylvania and (ii) the filing of the Certificate of Merger with the Secretary
of State of the State of Georgia. Unless otherwise agreed upon by Vaxcel and
Zynaxis, and subject to the conditions to the obligations of the parties to
effect the Merger, the parties will use their reasonable efforts to cause the
Effective Time to occur as soon as practical following the last to occur of (i)
the effective date (including the expiration of any applicable waiting period)
of the last consent of any regulatory authority required for the Merger and (ii)
the date on which the shareholders of Zynaxis approve the matters relating to
this Agreement required to be approved by such shareholders by applicable law.
 
                                       42
<PAGE>   59
 
     No assurance can be provided that the necessary shareholder approval can be
obtained or that other conditions precedent to the Merger can or will be
satisfied. Zynaxis and Vaxcel anticipate that all conditions to consummation of
the Merger will be satisfied so that the Merger can be consummated during the
first quarter of 1997. However, delays in the consummation of the Merger could
occur.
 
     The Board of Directors of Zynaxis, Vaxcel, or CytRx generally may terminate
the Agreement if the Merger is not consummated by March 31, 1997, unless the
failure to consummate by that date is the result of a breach of the Agreement by
the party seeking termination. The parties intend to waive this condition. See
"-- Conditions to Consummation of the Merger" and "-- Waiver, Amendment, and
Termination."
 
DISTRIBUTION OF VAXCEL STOCK CERTIFICATES AND WARRANTS
 
     Promptly after the Effective Time, Vaxcel will cause American Stock
Transfer and Trust Company, acting in its capacity as Exchange Agent as such
term is defined in the Agreement, to mail a letter of transmittal, together with
instructions for the exchange of the Certificates representing shares of Zynaxis
Capital Stock for certificates representing shares of Vaxcel Common Stock, to
the former shareholders of Zynaxis.
 
     ZYNAXIS SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL AND INSTRUCTIONS.
 
     Upon surrender to the Exchange Agent of Certificates for Zynaxis Capital
Stock, together with a properly completed letter of transmittal, there will be
issued and mailed to each holder of Zynaxis Capital Stock surrendering such
items a certificate or certificates representing the number of shares of Vaxcel
Common Stock to which such holder is entitled, if any, and a check for the
amount to be paid in lieu of any fractional share (without interest), together
with all undelivered dividends or distributions in respect of such shares
(without interest thereon). After the Effective Time, to the extent permitted by
law, Zynaxis shareholders of record as of the Effective Time will be entitled to
vote at any meeting of Vaxcel shareholders the number of whole shares of Vaxcel
Common Stock into which their shares of Zynaxis Capital Stock have been
converted, regardless of whether such shareholders have surrendered their
Zynaxis Capital Stock Certificates. Whenever a dividend or other distribution is
declared by Vaxcel on Vaxcel Common Stock, the record date for which is at or
after the Effective Time, the declaration will include dividends or other
distributions on all shares issuable pursuant to the Agreement, but, beginning
30 days after the Effective Time, no dividend or other distribution payable
after the Effective Time with respect to Vaxcel Common Stock will be paid to the
holder of any unsurrendered Zynaxis Common Stock Certificate until the holder
duly surrenders such certificate. Upon surrender of such Zynaxis Common Stock
Certificate, however, both the Vaxcel Common Stock certificate, together with
all undelivered dividends or other distributions (without interest) and any
undelivered cash payments to be paid in lieu of fractional shares (without
interest), will be delivered and paid with respect to each share represented by
such certificate.
 
     After the Effective Time, there will be no transfers of shares of Zynaxis
Capital Stock on Zynaxis' stock transfer books. If Certificates representing
shares of Zynaxis Capital Stock are presented for transfer after the Effective
Time, they will be canceled and exchanged for the shares of Vaxcel Common Stock
and a check for the amount due in lieu of fractional shares and undelivered
dividends, if any, deliverable in respect thereof. In no event will the holder
of any surrendered Certificate(s) be entitled to receive interest on any cash to
be issued to such holder, and in no event will Zynaxis, Vaxcel, or the Exchange
Agent be liable to any holder of Zynaxis Capital Stock for any Vaxcel Common
Stock or dividends thereon or cash delivered in good faith to a public official
pursuant to any applicable abandoned property, escheat, or similar law.
 
     Pursuant to the Preferred Stock and Warrant Agreement, at the Closing, each
holder of a Zynaxis Warrant who is a party to the Preferred Stock and Warrant
Agreement will surrender the Zynaxis Warrant and Vaxcel will deliver to each
such holder in exchange a Vaxcel Warrant. At the Closing, each holder of a
Zynaxis Non-Financing Warrant will surrender such warrant and Vaxcel will
deliver to each such holder in exchange a Vaxcel Non-Financing Warrant. At the
Closing, each holder of a Zynaxis Note will deliver its Zynaxis Notes to Vaxcel
who shall then contribute such Zynaxis Notes to the capital of Zynaxis by
marking
 
                                       43
<PAGE>   60
 
the Zynaxis Notes "Paid in Full" and delivering them to Zynaxis. Vaxcel shall
thereupon deliver to each such holder a certificate representing all the Note
Shares to be issued in exchange therefor.
 
CONDITIONS TO CONSUMMATION OF THE MERGER
 
     Consummation of the Merger is subject to various conditions, including the
following: (i) receipt of the approval of the Agreement and the Merger
contemplated thereby, the Asset Sales, and the Charter Amendment by the
shareholders of Zynaxis as required by the PBCL; (ii) receipt of any regulatory
approvals required for consummation of the Merger; (iii) receipt of an opinion
of Alston & Bird in form reasonably satisfactory to the parties, to the effect
that for federal income tax purposes the contributions in exchange for Vaxcel
Common Stock will constitute a transaction described in Section 351 of the Code;
(iv) receipt of approval of the shares of Vaxcel Common Stock issuable pursuant
to the Merger for listing on the Nasdaq SmallCap market, subject to official
notice of issuance; (v) the Registration Statement being declared effective and
all necessary SEC and state approvals relating to the issuance or trading of the
shares of Vaxcel Common Stock issuable pursuant to the Merger shall have been
received; (vi) the accuracy, as of the date of the Agreement and as of the
Effective Time, of the representations and warranties of Zynaxis and Vaxcel as
set forth in the Agreement; (vii) the performance of all agreements and the
compliance with all covenants of Zynaxis and Vaxcel as set forth in the
Agreement; (viii) receipt of all consents required for consummation of the
Merger or for the preventing of any default under any contract or permit which,
if not obtained or made, is reasonably likely to have, individually or in the
aggregate, a material adverse effect; (ix) the absence of any law or order or
any action taken by any court, governmental, or regulatory authority
prohibiting, restricting, or making illegal the consummation of the transaction;
(x) receipt by the parties of legal opinions as to the matters set forth in the
Agreement; (xi) receipt by Vaxcel, from each affiliate of Zynaxis, of the
affiliates letters referred to in the Agreement; (xii) execution of the
Transaction Documents by each of the intended parties and no party can be in
default under the Transaction Documents; (xiii) execution by Zynaxis of an
amendment to its lease that is reasonably satisfactory to CytRx, Vaxcel and
Vaxcel Merger Sub; (xiv) releases from liability under a sublease of which
Zynaxis is a sublessor being obtained by Zynaxis that are satisfactory to CytRx,
Vaxcel, and Vaxcel Merger Sub; (xv) the Zynaxis Board and all relevant
committees thereof must have adopted resolutions that in the judgment of CytRx
and its counsel are sufficient to prevent immediate vesting of outstanding
options of Zynaxis, to approve the treatment of outstanding options of Zynaxis
in the Merger and to find the options to be received "comparable" to currently
outstanding options of Zynaxis within the meaning of the Zynaxis Stock Plan;
(xvi) the holders of shares of Zynaxis Capital Stock having the right to vote no
more than 10% of the votes that could be cast by all holders of Zynaxis Capital
Stock voting together as a single class will have elected to exercise their
statutory dissenters' rights or their statutory objection rights, if any, under
Section 2546 of the PBCL; (xvii) the execution by every holder of shares of
Zynaxis Preferred Stock or of Zynaxis Warrants referenced in the Preferred Stock
and Warrant Agreement must have executed the Preferred Stock and Warrant
Agreement; and (xvii) satisfaction of certain other conditions, including the
receipt of certain legal opinions and various certificates from the officers of
Zynaxis and Vaxcel. See "-- Regulatory Approvals" and "-- Waiver, Amendment, and
Termination."
 
     No assurance can be provided as to when or if all of the conditions
precedent to the Merger can or will be satisfied or waived by the party
permitted to do so. In the event the Merger is not effected on or before March
31, 1997, the Agreement may be terminated and the Merger abandoned by a vote of
a majority of the Board of Directors of either Zynaxis, Vaxcel, or CytRx. See
"-- Waiver, Amendment, and Termination."
 
REGULATORY APPROVALS
 
     Other than certain filings and approvals which may be required under
certain state securities or "blue sky" laws, Vaxcel and Zynaxis are not aware of
any federal or state regulatory requirements that must be complied with or
approval that must be obtained in connection with the Merger. Should any
approval or action be required, it presently is contemplated that such approval
or action would be sought.
 
     The Merger may not proceed in the absence of receipt of any requisite
regulatory approvals. There can be no assurance that any such approvals, if
necessary, will not impose conditions or be restricted in a manner (including
requirements relating to the raising of additional capital or the disposition of
assets) which in the
 
                                       44
<PAGE>   61
 
reasonable judgment of the Board of Directors of either Vaxcel or Zynaxis would
so materially adversely impact the economic or business benefits of the
transactions contemplated by the Agreement that, had such condition or
requirement been known, such party would not, in its reasonable judgment, have
entered into the Agreement.
 
WAIVER, AMENDMENT, AND TERMINATION
 
     To the extent permitted by applicable law, the parties to the Agreement,
with the approval of their respective Boards of Directors, may amend the
Agreement by written agreement at any time before or after approval of the
Agreement by the Zynaxis shareholders; provided, however, that after the Special
Meeting, no amendment may reduce or modify in any material respect the
consideration to be received by holders of Zynaxis Capital Stock without the
requisite approval of the holders of the issued and outstanding shares of
Zynaxis Capital Stock entitled to vote thereon. In addition, prior to or at the
Effective Time, either Zynaxis or Vaxcel, or both, acting through their
respective Boards of Directors or chief executive officers or other authorized
officers may waive any default in the performance of any term of the Agreement
by the other party, may waive or extend the time for the compliance or
fulfillment by the other party of any and all of its obligations under the
Agreement, and may waive any of the conditions precedent to the obligations of
such party under the Agreement, except any condition that, if not satisfied,
would result in the violation of any applicable law or governmental regulation.
No such waiver will be effective unless written and unless executed by a duly
authorized officer of Zynaxis or Vaxcel, as the case may be.
 
     The Agreement may be terminated and the Merger abandoned at any time prior
to the Effective Time (i) by the mutual consent of the Boards of Directors of
Zynaxis and CytRx, (ii) by the Board of Directors of Zynaxis or CytRx (a) in the
event of any material breach of any representation or warranty of the other
party contained in the Agreement which cannot be or has not been cured within 30
days after giving written notice to the breaching party of such inaccuracy and
which breach is reasonably likely, in the opinion of the non-breaching party, to
have, individually or in the aggregate, a Material Adverse Effect, as defined in
the Agreement, on the breaching party (provided that the terminating party is
not then in material breach of any representation, warranty, covenant, or other
agreement contained in the Agreement), (b) in the event of a material breach by
the other party of any covenant or agreement contained in the Agreement which
cannot be or has not been cured within 30 days after the giving of written
notice to the breaching party of such breach (provided that the terminating
party is not then in material breach of any representation, warranty, covenant,
or other agreement contained in the Agreement), (c) in the event (1) any consent
of any regulatory authority required for consummation of the Merger and the
other transactions contemplated hereby shall have been denied by final
nonappealable action of such authority or if any action taken by such authority
is not appealed within the time limit for appeal, or (2) the shareholders of
Zynaxis fail to vote their approval of the matters relating to the Agreement and
the transactions contemplated thereby at the Special Meeting where such matters
were presented to such shareholders for approval and voted upon (provided that
the terminating party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in the Agreement), (d) if the
Merger is not consummated by March 31, 1997, provided that the failure to
consummate is not due to the breach by the party electing to terminate, or (e)
if any of the conditions precedent to the obligations of such party to
consummate the Merger have not been satisfied, fulfilled, or waived by the
appropriate party by March 31, 1997 (provided that the terminating party is not
then in material breach of any representation, warranty or covenant or other
agreement contained in the Agreement).
 
     If the Merger is terminated as described above, the Agreement will become
void and have no effect, except that certain provisions of the Agreement,
including those relating to the obligations to share certain expenses, maintain
the confidentiality of certain information obtained, and return all documents
obtained from the other party under the Agreement, will survive. In addition,
termination of the Agreement will not relieve any breaching party from liability
for any uncured willful breach of a representation, warranty, covenant, or
agreement giving rise to such termination. See "-- Expenses and Fees."
 
                                       45
<PAGE>   62
 
DISSENTERS' RIGHTS
 
     Pursuant to the PBCL, the owners of shares of Zynaxis Capital Stock at the
Record Date (collectively, the "Eligible Shares") will have dissenters rights in
connection with the Merger under PBCL Subchapter 15D (hereinafter "Subchapter
15D"), a copy of which is attached to this Proxy Statement as Appendix D, and
may object to the Agreement and the Merger contemplated thereby, and the Asset
Sales, and demand in writing that Vaxcel pay the fair value of their Eligible
Shares.
 
     FAILURE BY ANY DISSENTING SHAREHOLDER TO COMPLY WITH ANY PROCEDURE REQUIRED
BY SUBCHAPTER 15D MAY CAUSE A TERMINATION OF SUCH SHAREHOLDER'S DISSENTERS
RIGHTS. THE PARTIES WILL NOT GIVE ANY NOTICE OF THE FOLLOWING REQUIREMENTS OTHER
THAN AS DESCRIBED IN THIS PROXY STATEMENT AND AS REQUIRED BY THE PBCL.
 
     A holder of record of Eligible Shares may assert dissenters rights as to
fewer than all of the Eligible Shares registered in such holder's name only if
the holder dissents with respect to all the Eligible Shares of the same class or
series beneficially owned by any one person and discloses the name and address
of the person or persons on whose behalf the holder dissents. In that event, the
holder's rights shall be determined as if the shares as to which the holder has
dissented and the other shares were registered in the names of different
holders. A beneficial owner of Eligible Shares, who is not also the record
holder of such shares, may assert dissenters rights with respect to shares held
on the owner's behalf and shall be treated as a dissenting shareholder under the
terms of Subchapter 15D if the beneficial owner submits to Zynaxis not later
than the time of filing the Notice of Intention to Dissent (as defined below) a
written consent of the record holder. Such beneficial owner may not dissent with
respect to some but less than all Eligible Shares of the same class or series so
owned.
 
     Holders of Eligible Shares (or beneficial owners thereof as provided above)
who follow the procedures of Subchapter 15D as outlined below will be entitled
to receive from Vaxcel the fair value of their Eligible Shares immediately
before the Effective Time of the Merger, taking into account all relevant
factors but excluding any appreciation or depreciation in anticipation of the
Merger. Holders of Eligible Shares (or beneficial owners thereof) who elect to
exercise their dissenters rights must comply with all of the following
procedures to preserve those rights.
 
   
     Holders of Eligible Shares (or beneficial owners thereof) who wish to
exercise dissenters rights must file a written notice of intention to demand the
fair value of their Eligible Shares if one or more of the Merger, or the Asset
Sales is effectuated (the "Notice of Intention to Dissent"). Such dissenters
must file the Notice of Intention to Dissent with the Secretary of Zynaxis prior
to the vote for the proposal to which the holder objects, but in no event later
than 9:00 A.M. on May 21, 1997, the time and date of the Special Meeting; they
must make no change in their beneficial ownership of Eligible Shares from the
date of such filing until the Effective Time of the Merger; and they must
refrain from voting their Eligible Shares for the adoption of the proposal or
proposals to which the holder objects. Neither a proxy nor a vote against a
proposal will constitute the giving of the Notice of Intention to Dissent.
Shareholders who return signed, unvoted proxy cards will be deemed to have voted
for the proposals set forth on such cards and will not be entitled to dissenters
rights.
    
 
     If either the Agreement and the Merger contemplated thereby, or the Asset
Sales is approved by the required vote at the Special Meeting, Vaxcel will mail
a notice (the "Notice of Approval") to all dissenters who filed a Notice of
Intention to Dissent prior to the vote on each of the Agreement, or the Asset
Sales who refrained from voting for the adoption of one or more of the
proposals. Vaxcel expects to mail the Notice of Approval promptly after
effectuation of the Merger. The Notice of Approval will state where and when
(the "Demand Deadline") a demand for payment must be sent and certificates for
Eligible Shares must be deposited in order to obtain payment; it will supply a
form for demanding payment (the "Demand Form") which includes a request for
certification of the date on which the holder, or the person on whose behalf the
holder dissents, acquired beneficial ownership of Eligible Shares; and it will
be accompanied by a copy of Subchapter 15D. Dissenters must ensure that the
Demand Form and their certificates for Eligible Shares are received by Vaxcel on
or before the Demand Deadline. All mailings to Vaxcel are at the risk of the
dissenter.
 
                                       46
<PAGE>   63
 
Accordingly, Vaxcel recommends that the Notice of Intention to Dissent, the
Demand Form and the holder's stock certificates be sent by certified mail.
 
     Any holder (or beneficial owner) of Eligible Shares who fails to file a
Notice of Intention to Dissent, fails to complete and return the Demand Form, or
fails to deposit stock certificates with Vaxcel, each within the time periods
provided above, will lose the holder's (or beneficial owner's) dissenters rights
under Subchapter 15D. A dissenter will retain all rights of a shareholder, or
beneficial owner, as the case may be, until those rights are modified by
effectuation of the Merger.
 
     Upon timely receipt of the completed Demand Form, Vaxcel is required by the
PBCL either to remit to dissenters who have returned the Notice of Intention to
Dissent and the completed Demand Form and have deposited their certificates, the
amount Vaxcel estimates to be the fair value for their shares or to give written
notice that no such remittance will be made. Vaxcel will determine whether to
make such a remittance or to defer payment for such shares until completion of
the necessary appraisal proceedings, after giving due consideration to the
number of shares, if any, with respect to which shareholders have dissented and
any objections that may be raised with respect to the standing of the dissenting
shareholder. The remittance or notice will be accompanied by:
 
          (1) The closing balance sheet and statement of operations of Vaxcel
     for the fiscal year ended December 31, 1996, together with the latest
     available interim financial statements.
 
          (2) A statement of Vaxcel's estimate of the fair value of the Eligible
     Shares.
 
          (3) A notice of the right of the dissenter to demand payment or
     supplemental payment, as the case may be, accompanied by a copy of
     Subchapter 15D.
 
     If Vaxcel does not remit the amount of its estimate of the fair value of
the Eligible Shares, it will return any certificates that have been deposited,
and may make a notation on any such certificates that a demand for payment in
accordance with Subchapter 15D has been made. If shares carrying such notation
are thereafter transferred, each new certificate issued therefor may bear a
similar notation, together with the name of the original dissenting holder or
owner of such shares. A transferee of such shares will not acquire by such
transfer any rights in Vaxcel other than those which the original dissenter had
after making demand for payment of their fair value.
 
     If Vaxcel gives notice of its estimate of the fair value of the shares as
provided above, without remitting such amount, or remits payment of its estimate
of the fair value of a dissenter's shares and the dissenter believes that the
amount remitted or stated is less than the fair value of such shares, the
dissenter may send to Vaxcel the dissenter's own estimate (the "Holder's
Estimate") of the fair value of the shares as contemplated by PBCL sec. 1578,
which will be deemed a demand for payment of the amount of the deficiency. If a
dissenter does not file a Holder's Estimate within 30 days after the mailing by
Vaxcel of its remittance or notice, the dissenter will be entitled to no more
than the amount stated in the notice or remitted to the dissenter by Vaxcel.
 
     If, within 60 days after the Effective Time of the Merger or after the
timely receipt by Vaxcel of any Holder's Estimate, whichever is later, any
demands for payment remain unsettled, Vaxcel may file in the Court of Common
Pleas of Chester County an application for relief requesting that the fair value
of the shares be determined by the court. There is no assurance that Vaxcel will
file such an application. All dissenters, wherever residing, whose demands have
not been settled will be made parties to any such appraisal proceeding. The
court may appoint an appraiser to receive evidence and recommend a decision on
the issue of fair value. Each dissenter who is made a party will be entitled to
recover the amount by which the fair value of the dissenter's shares is found to
exceed the amount, if any, previously remitted, plus interest. If Vaxcel fails
to file an application for relief, any dissenter who has made a demand and who
has not already settled the dissenter's claim against Vaxcel may do so in the
name of Vaxcel at any time within 30 days after the expiration of the 60-day
period. If a dissenter does not file an application within the 30-day period,
each dissenter entitled to file an application shall be paid Vaxcel's estimate
of the fair value of the shares and no more, and may bring an action to recover
any amount not previously remitted.
 
                                       47
<PAGE>   64
 
     The costs and expenses of such court proceedings, including the reasonable
compensation and expenses of the appraiser appointed by the court, will be
determined by the court and assessed against Vaxcel, except that any part of the
costs and expenses may be apportioned and assessed as the court deems
appropriate against all or some of the dissenters who are parties and whose
action in demanding supplemental payment the court finds to be dilatory,
obdurate, arbitrary, vexatious, or in bad faith. Fees and expenses of counsel
and of experts for the respective parties may be assessed as the court deems
appropriate against Vaxcel, and in favor of any or all dissenters, if Vaxcel
fails to comply substantially with the requirements of Subchapter 15D. Such fees
and expenses may be assessed against either Vaxcel or a dissenter, if the court
finds that the party against whom the fees and expenses are assessed acted in
bad faith or in a dilatory manner. If the court finds that the services of
counsel for any dissenter were of substantial benefit to other dissenters
similarly situated and should not be assessed against Vaxcel, it may award such
counsel reasonable fees to be paid out of the amounts awarded to the dissenters
who were benefited.
 
     Under the PBCL, a shareholder of Zynaxis has no right to obtain, in the
absence of fraud or fundamental unfairness, an injunction against the Merger or
Asset Sales, nor any right to valuation and payment of the fair value of the
holder's shares because of the Merger or Asset Sales, except to the extent
provided by the dissenters rights provisions of Subchapter 15D. The PBCL also
provides that absent fraud or fundamental unfairness, the rights and remedies
provided by Subchapter 15D are exclusive.
 
     The foregoing description of the rights of dissenters under Subchapter 15D
should be read in conjunction with Appendix D to this Proxy Statement, and is
qualified in its entirety by the provisions of Subchapter 15D.
 
OBJECTION RIGHTS UNDER SUBCHAPTER 25E OF THE PBCL
 
     The adoption of the Charter Amendment amending the Articles of
Incorporation of Zynaxis and making PBCL Subchapter 25E (hereinafter "Subchapter
25E") inapplicable to the Merger is a condition to the consummation of the
Merger. If the Charter Amendment is not approved by holders of Zynaxis Capital
Stock and Vaxcel elects to proceed with the Merger, each of the holders of
Eligible Shares pursuant to Subchapter 25E of the PBCL who objects to the Merger
and complies with certain procedural requirements will be entitled to receive
cash from CytRx for each of such shareholder's Eligible Shares in an amount
equal to the "fair value" of each Eligible Share as of the date the control
transaction occurs. Although Subchapter 25E of the PBCL provides for a judicial
appraisal procedure, "fair value" is defined to be not less than the highest
price per share paid by the acquiror in a control transaction at any time during
the 90-day period ending on and including the date of the control transaction,
plus to the extent not reflected in such price paid, an increment representing
any value, including, without limitation, any proportion of any value payable
for control of such corporation. A control transaction is the acquisition by a
person (or group of persons acting in concert) of voting power over voting
shares of a registered corporation (of which Zynaxis is one) which would entitle
the holders of such shares to cast 20% or more of the votes that all
shareholders would be entitled to cast in an election of directors of such
corporation.
 
     FAILURE BY ANY OBJECTING SHAREHOLDER TO COMPLY WITH ANY PROCEDURE REQUIRED
BY SUBCHAPTER 25E MAY CAUSE A TERMINATION OF SUCH SHAREHOLDER'S RIGHT TO RECEIVE
PAYMENT THEREUNDER. THE PARTIES WILL NOT GIVE ANY NOTICE OF THE FOLLOWING
REQUIREMENTS OTHER THAN AS DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS AND AS
REQUIRED BY THE PBCL.
 
     Pursuant to Subchapter 25E, prompt notice (the "Notice") that a control
transaction has occurred is required to be given to each holder of Eligible
Shares and the Court of Common Pleas of Chester County (the "Court"),
accompanied by a petition (the "Petition") to the Court requesting that the fair
value of the Eligible Shares be determined pursuant to Subchapter 25E if the
Court receives certificates from holders of Eligible Shares or an equivalent
request for transfer of uncertificated securities. The Notice must include a
copy of Subchapter 25E and inform all holders of Eligible Shares that they are
entitled to demand fair value for their shares. It must also set forth the
minimum value a holder of Eligible Shares can receive under Subchapter 25E and
inform the holders of Eligible Shares (who believe the fair value to be higher
than the minimum value described above) of the appraisal procedure for
determining fair value provided for under
 
                                       48
<PAGE>   65
 
Subchapter 25E. Subchapter 25E permits a person or group that proposes to engage
in a control transaction to comply with its requirements even though the control
transaction has not yet occurred, and the effectiveness of the rights afforded
by Subchapter 25E may be conditioned upon the consummation of the control
transaction. In such event, prompt written notice of the satisfaction of any
such condition must be given to each shareholder who has made the written demand
on CytRx. This procedure is described in the next paragraph.
 
     In the event Zynaxis shareholders do not approve the Charter Amendment and
Vaxcel elects to proceed with the Merger, any holder of Eligible Shares may,
prior to or within thirty days after the Notice is given, make written demand
(the "Objector's Demand") on CytRx for payment of cash for each Eligible Share
in an amount equal to the fair value thereof as of the date on which the control
transaction occurs, taking into account all relevant factors. Such Objector's
Demand must state the number and class or series, if any, of Eligible Shares
owned with respect to which the Objectors Demand is made. CytRx will be required
to pay this amount to the holders of Eligible Shares pursuant to the procedures
in Subchapter 25E. Nothing in Subchapter 25E precludes CytRx from offering to
purchase Eligible Shares at a price other than that provided in Subchapter 25E,
and nothing therein precludes any holder of Eligible Shares from agreeing to
sell such shares at that or any other price to any person. ALL MAILINGS TO CYTRX
ARE AT THE RISK OF THE OBJECTOR. ACCORDINGLY, CYTRX AND VAXCEL RECOMMEND THAT
THE OBJECTORS DEMAND AND ANY OTHER DOCUMENTS BE SENT BY CERTIFIED MAIL.
 
     CytRx, at its option, may supply with the Notice a form for the holder of
Eligible Shares to demand payment (the "Alternative Demand Form") of an amount
equal to the highest price paid per Eligible Share by CytRx within the 90-day
period ending on and including the date of the control transaction (the "Partial
Payment") directly from CytRx without utilizing the Court-appointed appraisal
procedure set forth in Subchapter 25E. The Alternative Demand Form requires the
holder of Eligible Shares to state the number and class or series, if any, of
Eligible Shares, where the payment demand must be sent and the procedures to be
followed.
 
     If, within 45 days (or such other period required by applicable law) after
the date of the Notice, or, if such Notice was not provided prior to the date of
the Objectors Demand by the holder of Eligible Shares, then within 45 days (or
such other time required by applicable law) of the date of such Objectors
Demand, CytRx and the holder of Eligible Shares are unable to agree on the fair
value of the Eligible Shares or on a binding procedure to determine the fair
value of the Eligible Shares, then each holder of Eligible Shares who is unable
to agree on both the fair value and on such a procedure with CytRx and who so
desires to obtain the rights and remedies provided in Subchapter 25E must, no
later than 30 days after the expiration of the applicable 45-day or other
period, surrender to the Court certificates representing any of the Eligible
Shares that are certificated shares, duly endorsed for transfer to CytRx, or
cause any uncertificated share to be transferred to the Court as escrow agent
under Subchapter 25E. A notice must also be included which states that the
certificates or uncertificated shares are being surrendered or transferred, as
the case may be, in connection with the Petition or, if no Petition has
theretofore been filed, the holder of Eligible Shares may file a petition within
the 30-day period in the Court, requesting that the fair value of the Eligible
Shares be determined.
 
     Any holder of Eligible Shares who does not give notice and surrender any
certificates or cause uncertificated shares to be transferred within such time
period will have no further right to receive, with respect to shares the
certificates of which were not so surrendered or the uncertificated shares which
were not so transferred, payment under Subchapter 25E from CytRx with respect to
the transaction giving rise to the rights of the holder of Eligible Shares under
Subchapter 25E.
 
     The Court shall hold the certificates and uncertificated shares in escrow
for, and following the expiration of the time period during which certificates
may be surrendered and uncertificated shares transferred, shall promptly provide
notice to CytRx of the number of Eligible Shares surrendered or transferred.
 
     CytRx will make the Partial Payment for the Eligible Shares so surrendered
or transferred to the Court, within ten business days of receipt of the notice
from the Court, at a per-share price equal to the Partial Payment amount. The
Court will then make payment as soon as practicable, but in any event within ten
business days, to the holders of Eligible Shares who surrendered or transferred
their shares to the Court.
 
                                       49
<PAGE>   66
 
     Any amount owed including interest, as determined pursuant to the appraisal
procedures shall be payable by CytRx after it is determined and concurrently
with the delivery or transfer to CytRx by the Court of the certificates
representing the Eligible Shares surrendered or uncertificated shares
transferred to the Court. The Court shall promptly make payment to the holder of
Eligible Shares.
 
     Upon receipt of any Eligible Share certificate surrendered or
uncertificated share transferred under Subchapter 25E, the Court will, as soon
as practicable, but in any event within 30 days, appoint an appraiser with
experience in appraising share values of companies of like nature to Zynaxis to
determine the fair value of the Eligible Shares. The appraiser shall determine
the fair value of the Eligible Shares subject to its appraisal and the
appropriate market rate of interest owned by CytRx to the holder of the Eligible
Shares. The determination of any appraiser will be final and binding on both
CytRx and all holders of Eligible Shares who so surrendered their share
certificates or transferred their shares to the Court, except that the
determination of the appraiser is subject to judicial review.
 
     Holders of Eligible Shares who surrender their shares to the Court pursuant
to Subchapter 25E will retain the right to vote their shares and receive
dividends or other distributions thereon until the Court receives payment in
full for each of the Eligible Shares so surrendered or transferred of the
Partial Payment amount. Thereafter, CytRx will be entitled to vote such shares
and receive dividends or other distributions thereon. The fair value (as
determined by the appraiser) of any dividends or other distributions so received
by the holders of Eligible Shares will be subtracted from any amount owing to
such holders under Subchapter 25E. The costs and expenses of any appraiser or
other agents appointed by the Court shall be assessed against CytRx and the
costs and expenses of any other procedure to determine fair value shall be paid
as agreed to by CytRx and the holders of Eligible Shares.
 
     Zynaxis is required to comply with requests for information, which may be
submitted pursuant to procedures maintaining the confidentiality of the
information, made by the Court or the appraiser selected by the Court. If any of
the Eligible Shares are not represented by certificates, the transfer, escrow or
retransfer of those shares contemplated by Subchapter 25E must be registered by
Zynaxis, which must give the written notice to the transferring holder, CytRx
and the Court.
 
     Any amount agreed upon or determined pursuant to the procedure set forth in
Subchapter 25E will be payable by CytRx after it is agreed upon or determined
and concurrently with the delivery of any certificate or certificates
representing such Eligible Shares or the transfer of any uncertificated shares
to CytRx by the holder. Upon full payment by CytRx to the holder of Eligible
Shares, or to the Court, as appropriate, the holder will cease to have any
interest in the Eligible Shares.
 
     The foregoing description of objection rights under Subchapter 25E should
be read in conjunction with Appendix E to this Proxy Statement, and is qualified
in its entirety by the provisions of Subchapter 25E.
 
CONDUCT OF BUSINESS PENDING THE MERGER
 
     Pursuant to the Agreement, Zynaxis has agreed that unless the prior written
consent of Vaxcel has been obtained, and except as otherwise expressly
contemplated in the Agreement, the Transaction Documents, or as previously
disclosed by Zynaxis to Vaxcel, Zynaxis will (i) operate its business only in
the usual, regular, and ordinary course, (ii) preserve intact its business
organization and assets and maintain its rights and franchises, and (iii) take
no action which would (a) materially adversely affect the ability of any party
to obtain any consents required for the transactions contemplated by the
Agreement without imposition of a condition or restriction of the type referred
to in the Agreement or (b) materially adversely affect the ability of any party
to perform its covenants and agreements under the Agreement.
 
     In addition, Zynaxis has agreed that, prior to the earlier of the Effective
Time or termination of the Agreement, Zynaxis will not, except with the prior
written consent of Vaxcel or as expressly contemplated or permitted by the
Agreement, the Transaction Documents, or as previously disclosed by Zynaxis to
Vaxcel, agree or commit to do, any of the following: (i) amend the Articles of
Incorporation, Bylaws, or other governing instruments of any Zynaxis company;
(ii) incur any additional debt obligation or other obligation for borrowed money
except in the ordinary course of business of Zynaxis and its subsidiaries
consistent with
 
                                       50
<PAGE>   67
 
past practices or impose, or suffer the imposition, on any asset of any Zynaxis
company any lien or permit any such lien to exist; (iii) repurchase, redeem, or
otherwise acquire or exchange (other than exchanges in the ordinary course under
employee benefit plans or in their capacity as transfer agent), directly or
indirectly, any shares, or any securities convertible into any shares, of the
capital stock of any Zynaxis company, or declare or pay any dividend or make any
other distribution in respect of any Zynaxis Capital Stock; (iv) except pursuant
to the conversion of Zynaxis Preferred Stock or pursuant to the exercise of
stock options or warrants previously disclosed by Zynaxis to Vaxcel, issue,
sell, pledge, encumber, authorize the issuance of, enter into any contract to
issue, sell, pledge, encumber, or authorize the issuance of, or otherwise permit
to become outstanding, any additional shares of Zynaxis Capital Stock, or any
other capital stock of any Zynaxis company, or any stock appreciation rights, or
any option, warrant, conversion, or other right to acquire any such stock, or
any security convertible into any such stock; (v) adjust, split, combine, or
reclassify any capital stock of any Zynaxis company or issue or authorize the
issuance of any other securities in respect of or in substitution for shares of
Zynaxis Capital Stock or sell, lease, mortgage, or otherwise dispose of or
otherwise encumber any shares of capital stock of any Zynaxis company (unless
any such shares of stock are sold or otherwise transferred to another Zynaxis
company) or any assets other than in the ordinary course of business for
reasonable and adequate consideration; (vi) except for purchases of U.S.
Treasury securities or U.S. government agency securities, which in either case
have maturities of three years or less, purchase any securities or make any
material investment, either by purchase of stock or securities, contributions to
capital, asset transfers, or purchase of any assets, in any person other than a
wholly owned Zynaxis subsidiary, or otherwise acquire direct or indirect control
over any person, other than in connection with foreclosures in the ordinary
course of business; (vii) grant any increase in compensation or benefits to the
employees or officers of any Zynaxis company except in the ordinary course of
business or as previously disclosed to Vaxcel by Zynaxis or as required by law;
pay any severance or termination or any bonus other than pursuant to written
policies or written contracts in effect on December 6, 1996, and previously
disclosed to Vaxcel by Zynaxis; enter into or amend any severance agreements
with officers of any Zynaxis company; or grant any increase in fees or other
increases in compensation or other benefits to directors of any Zynaxis company
except as previously disclosed to Vaxcel by Zynaxis; (viii) enter into or amend
any employment contract between any Zynaxis company and any person (unless such
amendment is required by law) that the Zynaxis company does not have the
unconditional right to terminate without liability (other than liability for
services already rendered), at any time on or after the Effective Time; (ix)
adopt any new employee benefit plan of any Zynaxis company or make any material
change in or to any existing employee benefit plans of any Zynaxis company other
than any such change that is required by law or that, in the opinion of counsel,
is necessary or advisable to maintain the tax qualified status of any such plan;
(x) make any significant change in any tax or accounting methods or systems of
internal accounting controls, except as may be appropriate to conform to changes
in tax laws or regulatory accounting requirements or generally accepted
accounting principles; (xi) commence or settle any litigation other than in
accordance with past practice or settle any litigation involving any liability
of any Zynaxis company for material money damages or restrictions upon the
operations of any Zynaxis company; or (xii) enter into, modify, amend or
terminate any material contract or waive, release, compromise or assign any
material rights or claims.
 
     The Agreement also provides that from the date of the Agreement until the
earlier of the Effective Time or the termination of the Agreement, unless the
prior written consent of Zynaxis is obtained, Vaxcel covenants and agrees that
it will (i) continue to conduct its business and the business of its
subsidiaries in a manner designed in its reasonable judgment, to enhance the
long-term value of the Vaxcel Common Stock and the business prospects of the
Vaxcel companies and to the extent consistent therewith, use all reasonable
efforts to preserve intact the Vaxcel companies' core businesses and goodwill
with their respective employees and the communities they serve, and (ii) take no
action which would (a) materially adversely affect the ability of any party to
obtain any consents required for the transactions contemplated by the Agreement
without imposition of a condition or restriction of the type referred to in the
Agreement or (b) materially adversely affect the ability of any party to perform
its covenants and agreements under the Agreement; provided, that any Vaxcel
company may acquire any other company or discontinue or dispose of any of its
assets or business if such action is, in the reasonable judgment of Vaxcel,
desirable in the conduct of the business of Vaxcel and its subsidiaries,
provided that such actions may not materially delay the Effective Time or
materially hinder
 
                                       51
<PAGE>   68
 
consummation of the Merger. Vaxcel further agrees that it will not, without the
prior written consent of Zynaxis, which consent may not be unreasonably
withheld, amend the Certificate of Incorporation or Bylaws of Vaxcel or, except
as expressly contemplated by the Agreement or the Transaction Documents, in any
manner adverse to the holders of Zynaxis Capital Stock as compared to rights of
holders of Vaxcel Common Stock generally as of December 6, 1996.
 
MANAGEMENT AND OPERATIONS AFTER THE MERGER
 
     Consummation of the Merger will not alter the present management of Vaxcel
or the Vaxcel Board. Information concerning the management of Vaxcel is included
herein. See "Business of Vaxcel -- Directors and Executive Officers."
 
     Subsequent to the Merger, Vaxcel plans to retain the Zynaxis proprietary
vaccine delivery technologies and such technologies will be transferred to
Vaxcel's research facilities in Norcross, Georgia for further development. After
such transfer, Vaxcel plans to divest virtually all of the other assets of
Zynaxis, including the Cauldron division, in order to generate cash to help fund
its future operations. Vaxcel does not plan to retain any of the existing
Zynaxis employees to work for the new entity other than the employees of the
Cauldron division who are expected to be retained until this division is sold.
As discussed previously, Vaxcel currently has the exclusive right to develop
certain of the Zynaxis technologies. See "--The Transaction Documents
- --Technology Development Agreement." For additional information regarding the
interests of certain persons in the Merger, see "-- Interests of Certain Persons
in the Merger."
 
     Vaxcel will be the parent of Zynaxis as a result of the Merger and shall
continue to be governed by the laws of the State of Delaware and operate in
accordance with its Certificate of Incorporation and Bylaws as in effect on the
date of the Agreement until otherwise amended or repealed after the Effective
Time.
 
INTERESTS OF CERTAIN PERSONS IN THE MERGER
 
     No director or executive officer of CytRx or Vaxcel had or will have a
business relationship with Zynaxis prior to the Effective Time. No director or
executive officer of Zynaxis had or will have a business relationship with CytRx
or Vaxcel prior to the Effective Time. In considering the recommendation of the
Zynaxis Board with respect to the Merger, however, the Zynaxis shareholders
should be aware that certain directors and executive officers of Zynaxis have an
interest in the consummation of the Merger arising from their ownership of
securities of Zynaxis. Stephen K. Reidy, a member of the Zynaxis Board, is a
general partner of the general partner of Euclid, which is a holder of 1,467,417
shares of Zynaxis Common Stock, 260,000 shares of Zynaxis Preferred Stock,
Zynaxis Warrants to purchase 680,775 shares of Zynaxis Common Stock, and a
convertible demand note of Zynaxis which had principal and interest outstanding
as of September 30, 1996 of approximately $105,000. Lyle A. Hohnke, a member of
the Zynaxis Board, is a member of a limited liability company which is a general
partner of Javelin Capital Fund, L.P. ("Javelin"), which is a holder of 250,000
shares of Zynaxis Preferred Stock and Zynaxis Warrants to purchase 500,000
shares of Zynaxis Common Stock. John F. Chappell, a member of the Zynaxis Board,
is the President and sole shareholder of Plexus Ventures, Inc. ("Plexus"), which
is a holder of 306,155 shares of Zynaxis Common Stock, 25,000 shares of Zynaxis
Preferred Stock, Zynaxis Warrants to purchase 150,000 shares of Zynaxis Common
Stock, and a convertible demand note of Zynaxis which had principal and interest
outstanding as of September 30, 1996 of approximately $104,600. Donald E. Morel,
Jr., a member of the Zynaxis Board, is a vice president of The West Company
("West"), which is a holder of 125,000 shares of Zynaxis Preferred Stock and
Zynaxis Warrants to purchase 250,000 shares of Zynaxis Common Stock.
Additionally, each of Euclid and Messrs. Chappell and Morel owns Zynaxis Options
to purchase 20,000 shares of Zynaxis Common Stock and Dennis P. Schafer, a
member of the Zynaxis Board, is a holder of 139,074 shares of Zynaxis Common
Stock and Zynaxis Options to purchase 50,000 shares of Zynaxis Common Stock.
Martyn D. Greenacre, the President and Chief Executive Officer of Zynaxis and a
member of the Zynaxis Board, is a holder of Zynaxis Options to purchase 595,000
shares of Zynaxis Common Stock. Michael A. Christie, an executive officer of
Zynaxis, is a holder of Zynaxis Options to purchase 16,000 shares of Zynaxis
Common Stock.
 
     Upon the consummation of the Merger, (i) Euclid, Javelin, Plexus, West, and
Mr. Schafer will receive approximately 188,209, 47,350, 33,728, 23,675, and
13,170 shares of Vaxcel Common Stock, respectively, in
 
                                       52
<PAGE>   69
 
exchange for their shares of Zynaxis Common Stock and Zynaxis Preferred Stock,
if any; (ii) Euclid, Javelin, Plexus, and West will receive Vaxcel Warrants to
purchase approximately 64,469, 47,350, 14,205, and 23,675 shares of Vaxcel
Common Stock, respectively, in exchange for their Zynaxis Warrants; (iii) Euclid
will receive approximately 36,103 shares of Vaxcel Common Stock in exchange for
the surrender and cancellation of its Zynaxis Note; (iv) Plexus will be paid the
full amount of its convertible demand note, with unpaid interest accrued
thereon, of approximately $104,600; (v) Euclid will receive options to purchase
approximately 1,894 shares of Vaxcel Common Stock in exchange for its Zynaxis
Options; and (vi) each of Messrs. Chappell, Morel, Schafer, Greenacre, and
Christie will receive options to purchase approximately 1,894, 1,894, 4,735,
56,346, and 1,515 shares of Vaxcel Common Stock, respectively, in exchange for
their Zynaxis Options.
 
     Mr. Greenacre has entered into an amendment to his employment agreement
which provides that (a) Mr. Greenacre shall continue to serve as the President
and Chief Executive Officer of Zynaxis until the first to occur of (i)
termination of his employment under the terms of his employment agreement or
(ii) the Closing of the Merger; (b) compensation payable to Mr. Greenacre under
the employment agreement and deferred through the Closing shall be paid to Mr.
Greenacre in a lump sum at the Closing (currently estimated to be $38,800); (c)
severance of $29,960 shall be paid to Mr. Greenacre at the Closing; and (d)
performance bonuses up to an aggregate amount of $55,000 shall be paid to Mr.
Greenacre at the Closing upon the occurrence of certain events, including, among
others, (i) if Zynaxis operates within the operating budget agreed to by Zynaxis
and CytRx over a specified period, (ii) certain assets sales for specified gross
proceeds, (iii) Zynaxis subleases certain leased space at its corporate
headquarters under specified terms, and (iv) Phanos exercises its purchase
option for the Zyn-Linker(R) technology. Additionally, Zynaxis has agreed to pay
Mr. Christie a bonus of $25,000 on the closing of the sale of the Cauldron
division if a definitive agreement of sale is executed before the Closing of the
Merger and Mr. Christie continues to be employed by Zynaxis at that time, and
after the Closing, provided Mr. Christie remains employed by Zynaxis or Vaxcel,
a bonus of $10,000 on the closing of the sale of the Cauldron division. Mr.
Christie also is owed deferred salary with interest from May 1996, that will be
paid upon the sale of the Cauldron division. The total amount owed to Mr.
Christie is estimated to be $22,500 as of the Closing.
 
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
 
     THE FOLLOWING IS A SUMMARY OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER TO ZYNAXIS SHAREHOLDERS. THIS SUMMARY IS BASED ON THE FEDERAL
INCOME TAX LAWS AS NOW IN EFFECT AND AS CURRENTLY INTERPRETED; IT DOES NOT TAKE
INTO ACCOUNT POSSIBLE CHANGES IN SUCH LAWS OR INTERPRETATIONS, INCLUDING
AMENDMENTS TO APPLICABLE STATUTES OR REGULATIONS OR CHANGES IN JUDICIAL OR
ADMINISTRATIVE RULINGS, SOME OF WHICH MAY HAVE RETROACTIVE EFFECT. THIS SUMMARY
DOES NOT PURPORT TO ADDRESS ALL ASPECTS OF THE POSSIBLE FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER AND IS NOT INTENDED AS TAX ADVICE TO ANY PERSON. IN
PARTICULAR, AND WITHOUT LIMITING THE FOREGOING, THIS SUMMARY DOES NOT ADDRESS
THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO ZYNAXIS SHAREHOLDERS IN
LIGHT OF THEIR PARTICULAR CIRCUMSTANCES OR STATUS (FOR EXAMPLE, AS FOREIGN
PERSONS, TAX-EXEMPT ENTITIES, DEALERS IN SECURITIES, INSURANCE COMPANIES, AND
CORPORATIONS, AMONG OTHERS). NOR DOES THIS SUMMARY ADDRESS: (I) ANY CONSEQUENCES
OF THE MERGER UNDER ANY STATE, LOCAL, ESTATE, OR FOREIGN TAX LAWS, OR (II) THE
TAXATION OF THE EXCHANGE OF WARRANTS FOR ZYNAXIS COMMON STOCK FOR WARRANTS FOR
VAXCEL COMMON STOCK. ZYNAXIS SHAREHOLDERS, THEREFORE, ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER,
INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICATION AND EFFECT OF
FEDERAL, FOREIGN, STATE, LOCAL, AND OTHER TAX LAWS, AND THE IMPLICATIONS OF ANY
PROPOSED CHANGES IN THE TAX LAWS.
 
   
     A federal income tax ruling with respect to this transaction was not
requested from the Internal Revenue Service ("IRS"). Instead, Alston & Bird,
counsel to Vaxcel, has rendered an opinion ("Tax Opinion") to CytRx, Zynaxis and
Vaxcel concerning the material federal income tax consequences of the proposed
Merger under federal income tax law. It is such firm's opinion that, based upon
the assumption the Merger is consummated pursuant to Delaware law and that the
proposed transactions are consummated in accordance with the terms of the
Agreement and in conformity with the representations made by the managements of
CytRx, Zynaxis and Vaxcel, the Merger, together with CytRx's contribution of the
Senior Credit Facility and
    
 
                                       53
<PAGE>   70
 
the Cash Payment to Vaxcel, will constitute a transaction described in Section
351 of the Code with each of CytRx, the Zynaxis shareholders and the Noteholders
being a "Transferor," and with the following tax consequences generally
resulting (subject to the limitations and qualifications referred to herein):
 
          (a) Generally, no gain or loss will be recognized to CytRx, the
     Zynaxis shareholders, or the Noteholders upon the transfer of property to
     Vaxcel solely in exchange for Vaxcel Common Stock.
 
          (b) No gain or loss will be recognized to Vaxcel upon its receipt of
     property solely in exchange for Vaxcel Common Stock.
 
          (c) The basis of the Vaxcel Common Stock to be received by each
     Transferor will be the same as the basis of the property exchanged
     therefor, plus any gain recognized by such Transferor on the exchange and
     less the basis allocated to any fractional share of Vaxcel Common Stock
     settled by cash payment.
 
          (d) The basis to Vaxcel of the property to be received in the exchange
     will be the same as the basis of such property in the hands of the
     Transferor immediately prior to the exchange, increased by the amount of
     gain recognized by such Transferor as a result of the exchange.
 
          (e) The holding period of the Vaxcel Common Stock to be received by
     each Transferor will include the holding period of the property exchanged
     therefor, provided that such property is held as a capital asset on the
     date of the exchange or as property described in Section 1231 of the Code.
 
          (f) The holding period of the property to be received by Vaxcel in the
     exchange will, in each instance, include the period during which such
     property was held by the Transferor.
 
          (g) The payment of cash in lieu of fractional shares of Vaxcel Common
     Stock will be treated as if the fractional shares were issued as part of
     the exchange and then redeemed by Vaxcel. These cash payments will be
     treated as having been received as distributions in full payment in
     exchange for the fractional shares of Vaxcel Common Stock as provided in
     Section 302(a). Generally, any gain or loss recognized upon such exchange
     will be capital gain or loss, provided the fractional share would
     constitute a capital asset in the hands of the exchanging shareholder.
 
          (h) Where solely cash is received by a transferor in exchange for its
     shares of Zynaxis Capital Stock pursuant to the exercise of dissenters'
     rights, such cash will be treated as having been received in redemption of
     its shares of Zynaxis Capital Stock, subject to the provisions and
     limitations of Section 302 of the Code.
 
     The Tax Opinion does not address any state, local, or other tax
consequences of the Merger. The Tax Opinion does not bind the IRS nor preclude
the IRS from adopting a contrary position. In addition, the Tax Opinion is
subject to certain assumptions and qualifications and will be based on the truth
and accuracy of certain representations made by the management of Zynaxis and
Vaxcel. FINALLY, THE TAX OPINION DOES NOT ADDRESS THE TAXATION OF THE EXCHANGE
OF WARRANTS FOR ZYNAXIS COMMON STOCK FOR WARRANTS FOR VAXCEL COMMON STOCK.
 
     A successful IRS challenge to the status of the transaction as a
transaction described in Section 351 of the Code would result in a Zynaxis
shareholder recognizing gain or loss with respect to each share of Zynaxis
Capital Stock surrendered equal to the difference between the shareholder's
basis in such share and the fair market value, as of the Effective Time of the
Merger, of the Vaxcel Common Stock received in exchange therefor. In such event,
a Zynaxis shareholder's aggregate basis in the Vaxcel Common Stock received
would equal its fair market value and his or her holding period for such stock
would begin the day after the Merger.
 
ACCOUNTING TREATMENT
 
     It is anticipated that the Merger will be accounted for as a purchase of
Zynaxis by Vaxcel as that term is used pursuant to generally accepted accounting
principles, for accounting and financial reporting purposes. Under the purchase
method of accounting, the assets and liabilities of Zynaxis as of the Effective
Time will be recorded at their estimated respective fair values and added to
those of Vaxcel. Financial statements of Vaxcel issued after the Effective Time
will reflect such values and will not be restated retroactively to include the
historical financial position or results of operations of Zynaxis.
 
                                       54
<PAGE>   71
 
EXPENSES AND FEES
 
     The Agreement provides, in general, that each of the parties will bear and
pay all direct costs and expenses incurred by it or on its behalf in connection
with the transactions contemplated by the Agreement, including filing,
registration and application fees, printing fees, and fees and expenses of its
own financial or other consultants, investment bankers, accountants, and
counsel, except that: (i) each of the parties will bear and pay one-half of the
filing fees payable in connection with the Proxy Statement and printing costs
incurred in connection with the printing of the Proxy Statement; and (ii)
Zynaxis will pay all fees and expenses of counsel to CytRx and Vaxcel which are
estimated to be approximately $350,000. However, if the Agreement is terminated
for any reason other than as set forth below, then the amount of fees and
expenses of Alston & Bird, counsel to CytRx and Vaxcel, paid by Zynaxis through
the date of termination will be deducted from the balance due under the Senior
Credit Facility.
 
     The Zynaxis Board considered the additional requirement that Zynaxis pay
the fees and expenses of counsel for CytRx and Vaxcel, but did not believe that,
in the circumstances in which the Merger was being executed, this requirement
had a material effect on the fairness of the transaction.
 
     Notwithstanding the foregoing: (a) if the Agreement is terminated by CytRx
based on the failure of Zynaxis' shareholders to approve the Agreement; (b) if
the Merger is not consummated as a result of the failure, due to intentional
action or inaction on the part of Zynaxis or any of its officers, directors,
employees, or agents of Zynaxis to satisfy any of the conditions to the
obligations of Vaxcel, CytRx and Vaxcel Merger Sub to consummation of the
transactions contemplated by the Agreement; or (c) if the Agreement is
terminated for any reason after the Zynaxis Board supplies information to
another potential acquiror or fails to recommend the approval of the Agreement
to its shareholders, then Zynaxis will be obligated to promptly pay CytRx all
the out-of-pocket costs and expenses of CytRx and its subsidiaries, including
reasonable costs of counsel, investment bankers, actuaries, and accountants,
incurred in connection with the transactions contemplated by the Agreement.
 
     In addition, if, after the date of the Agreement and within 12 months
following (a) any termination of the Agreement by CytRx on the basis of the
failure of Zynaxis to satisfy certain conditions, or by either party based on
the failure of the shareholders of Zynaxis to approve the Agreement and the
Merger contemplated thereby, or (b) failure to consummate the Merger by reason
of any failure of Zynaxis to satisfy certain conditions, including approval of
the Agreement by the shareholders of Zynaxis, any third party shall acquire,
merge with, combine with, purchase a substantial part of the assets of, or
engage in any other business combination with, or purchase any equity securities
involving an acquisition of 20% or more of the voting stock of Zynaxis, or enter
into any binding agreement to do any of the foregoing (collectively, a "Business
Combination"), such third party that is a party to the Business Combination must
pay to CytRx, prior to the earlier of consummation of the Business Combination
or execution of any letter of intent or definitive agreement with Zynaxis
relating to such Business Combination, an amount in cash equal to the sum of:
(x) the certain direct costs and expenses or portion incurred by or on behalf of
CytRx or Vaxcel in connection with the transactions contemplated by the
Agreement, and (y) 5% of the aggregate fair market value of the consideration
received by the shareholders of Zynaxis in such Business Combination, less (z)
any certain other expense amounts previously paid by Zynaxis to CytRx or Vaxcel
pursuant to the Agreement which would represent additional compensation for
CytRx's loss as the result of the transactions contemplated by the Agreement not
being consummated. In the event such third party shall refuse to pay such
amounts within ten days of demand therefor by CytRx, the amounts shall be an
obligation of Zynaxis and shall be paid by Zynaxis promptly upon notice to
Zynaxis by CytRx.
 
RESALES OF VAXCEL COMMON STOCK
 
     The shares of Vaxcel Common Stock issuable in connection with the Merger
have been registered under the Securities Act. Accordingly, there will be no
federal securities law restrictions upon the resale or transfer of such shares
by Zynaxis shareholders except for those shareholders who are deemed
"affiliates" of Zynaxis, as that term is defined in Rule 144 and Rule 145
adopted under the Securities Act. Under the Agreement, Zynaxis has agreed to
keep the Registration Statement effective to cover the resale by such
affiliates. The
 
                                       55
<PAGE>   72
 
Vaxcel Warrants and the Vaxcel Non-Financing Warrants and the shares of Vaxcel
Common Stock issuable pursuant to such warrants have not been registered under
the Securities Act, by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to the exemption
provided in Section 4(2) thereof, and will not be registered under state
securities laws by reason of their issuance in a transaction exempt from such
registration requirements. Consequently, the Vaxcel Warrants and the Vaxcel
Non-Financing Warrants and the shares of Vaxcel Common Stock issuable pursuant
to such warrants may not be sold, transferred or otherwise disposed of unless
registered under the Securities Act and applicable state securities laws or
exempted from such registration. However, under the Agreement, Vaxcel has agreed
to keep the Registration Statement effective to cover the resale of shares
issued pursuant to the Vaxcel Warrants and the Vaxcel Non-Financing Warrants.
See "Selling Shareholders of Zynaxis" and "Plan of Distribution."
 
                                       56
<PAGE>   73
 
                 EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS
 
     As a result of the Merger, holders of Zynaxis Capital Stock will be
exchanging their shares of a Pennsylvania corporation governed by the PBCL and
Zynaxis' Articles of Incorporation (the "Articles") and Bylaws, for shares of
Vaxcel, a Delaware corporation governed by the DGCL and Vaxcel's Certificate of
Incorporation and Bylaws. Certain significant differences exist between the
rights of Zynaxis shareholders and those of Vaxcel shareholders. The differences
deemed material by Zynaxis and Vaxcel are summarized below. In particular,
Vaxcel's Certificate and Bylaws contain several provisions that may be deemed to
have an anti-takeover effect in that they could impede or prevent an acquisition
of Vaxcel unless the potential acquirer has obtained the approval of Vaxcel's
Board. The following discussion is necessarily general; it is not intended to be
a complete statement of all differences affecting the rights of shareholders and
their respective entities, and it is qualified in its entirety by reference to
the PBCL and the DGCL as well as to Vaxcel's Certificate and Bylaws and Zynaxis'
Articles and Bylaws.
 
ANTI-TAKEOVER PROVISIONS GENERALLY
 
     The provisions of Vaxcel's Certificate and Bylaws described below under the
headings, "Authorized Capital Stock," "Amendment of Certificate of Incorporation
and Bylaws," "Removal of Directors," "Limitations on Director Liability,"
"Special Meetings of Shareholders," "Actions by Shareholders Without a Meeting,"
and "Mergers, Consolidations, and Sales of Assets Generally," and the provisions
of the DGCL described under the heading "Business Combinations with Certain
Persons" are referred to herein as the "Protective Provisions." In general, one
purpose of the Protective Provisions is to assist Vaxcel's Board in playing a
role if any group or person attempts to acquire control of Vaxcel, so that the
Board can further protect the interests of Vaxcel and its shareholders as
appropriate under the circumstances, including, if the Vaxcel Board determines
that a sale of control is in their best interests, by enhancing the Board's
ability to maximize the value to be received by the shareholders upon such a
sale.
 
     Although Vaxcel's management believes the Protective Provisions are,
therefore, beneficial to Vaxcel's shareholders, the Protective Provisions also
may tend to discourage some takeover bids. As a result, Vaxcel's shareholders
may be deprived of opportunities to sell some or all of their shares at prices
that represent a premium over prevailing market prices. On the other hand,
defeating undesirable acquisition offers can be a very expensive and
time-consuming process. To the extent that the Protective Provisions discourage
undesirable proposals, Vaxcel may be able to avoid those expenditures of time
and money.
 
     The Protective Provisions also may discourage open market purchases by a
potential acquirer. Such purchases may increase the market price of Vaxcel
Common Stock temporarily, enabling shareholders to sell their shares at a price
higher than that which otherwise would prevail. In addition, the Protective
Provisions may decrease the market price of Vaxcel Common Stock by making the
stock less attractive to persons who invest in securities in anticipation of
price increases from potential acquisition attempts. The Protective Provisions
also may make it more difficult and time consuming for a potential acquirer to
obtain control of Vaxcel through replacing the Board of Directors and
management. Furthermore, the Protective Provisions may make it more difficult
for Vaxcel's shareholders to replace the Board of Directors or management, even
if a majority of the shareholders believe such replacement is in the best
interests of Vaxcel. As a result, the Protective Provisions may tend to
perpetuate the incumbent Board of Directors and management.
 
AUTHORIZED CAPITAL STOCK
 
   
     Vaxcel.  The Certificate authorizes the issuance of up to 30,000,000 shares
of Vaxcel Common Stock, of which 8,250,004 shares were issued as of March 7,
1997, and 2,000,000 shares of Vaxcel Preferred Stock of which no shares have
been issued. Vaxcel's shareholders do not have the preemptive right to purchase
or subscribe to any unissued authorized shares of Vaxcel Common Stock or any
option or warrant for the purchase thereof. Subject to the limitations set forth
in the DGCL, Vaxcel's Board may authorize the issuance of one or more classes,
or series thereof, of Vaxcel's Preferred Stock, without further action by
Vaxcel's shareholders.
    
 
                                       57
<PAGE>   74
 
     Zynaxis.  Zynaxis' authorized capital stock consists of 25,000,000 shares
of Zynaxis Common Stock, of which, as of the Record Date, 10,377,240 shares were
issued and outstanding and 2,000,000 shares of no par value Preferred Stock, of
which, as of the Record Date, 1,412,500 shares were designated Series A
Convertible Preferred Stock and were issued and outstanding. Zynaxis'
shareholders do not have the preemptive right to purchase or subscribe to any
unissued authorized shares of Zynaxis Capital Stock or any option or warrant for
the purchase thereof. In addition, 500,000 shares of Preferred Stock of Zynaxis
can be issued in a new series by authorization of the Zynaxis Board without the
approval of the shareholders, except in certain instances prescribed by the
PBCL.
 
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS
 
     Vaxcel.  The DGCL generally provides that the approval of a corporation's
board of directors and the affirmative vote of a majority of (i) all shares
entitled to vote thereon and (ii) the shares of each class of stock entitled to
vote thereon as a class, is required to amend a corporation's certificate of
incorporation, unless the certificate specifies a greater voting requirement.
The Certificate provides that the Vaxcel Board has the power to adopt, amend,
alter, change, or repeal the Bylaws.
 
     Zynaxis.  The PBCL requires the affirmative vote of the holders entitled to
cast at least a majority of the votes actually cast on an amendment to the
articles of incorporation, provided that shareholder approval is not required
for certain non-material amendments, such as a change in the corporate name, a
provision for perpetual existence or, if the corporation has only one class of
shares outstanding, a change in the number and par value of the authorized
shares to effect a stock split. The Zynaxis Articles provide that the Zynaxis
Articles may be amended as provided by the PBCL, and all rights conferred upon
the shareholders therein are granted subject to such reservation. Under
Pennsylvania law the power to adopt, amend or repeal bylaws may be vested by the
bylaws in the directors, with certain statutory exceptions for certain actions
and subject to the power of shareholders to change such action. Pennsylvania law
provides that unless the articles of incorporation otherwise provide, the board
of directors does not have the authority to adopt or change a bylaw on any
subject that is committed expressly to the shareholders by statute. The Zynaxis
Bylaws provide that the Zynaxis Bylaws may be amended by the Zynaxis
shareholders or, with respect to those matters not expressly committed to the
shareholders by statute, by the vote of a majority of the directors.
 
REMOVAL OF DIRECTORS
 
     Vaxcel.  Pursuant to the Bylaws, any director or the entire Vaxcel Board
may be removed with or without cause by the affirmative vote of the holders of a
majority of the shares of Vaxcel's voting stock.
 
     Zynaxis.  Under the PBCL, unless a bylaw adopted by the shareholders
provides otherwise, the entire board of directors, a class of the board where
the board is classified with respect to the power to select directors, or any
individual director, may be removed with or without cause by the holders of the
class or series of shares entitled to elect the class of directors, and by the
board of directors for any proper cause specified in the bylaws. Because the
Zynaxis Board is classified by directors elected by holders of Zynaxis Common
Stock and directors elected by holders of Zynaxis Preferred Stock, only the
holders of Zynaxis Common Stock may remove Zynaxis Common Stock directors and
only the holders of Zynaxis Preferred Stock may remove Zynaxis Preferred Stock
directors. The Zynaxis Bylaws provide that directors may be removed without
cause by the Zynaxis shareholders.
 
LIMITATIONS ON DIRECTOR LIABILITY
 
     Vaxcel.  The Certificate provides that a director of Vaxcel will have no
personal liability to Vaxcel or its shareholders for monetary damages for breach
of fiduciary duty as a director, except liability for (i) any breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) acts or
omissions that are not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) the payment of certain unlawful dividends and
the making of certain unlawful stock purchases or redemptions, or (iv) any
transaction from which the director derived an improper personal benefit.
 
                                       58
<PAGE>   75
 
     Although this provision does not affect the availability of injunctive or
other equitable relief as a remedy for a breach of duty by a director, it does
limit the remedies available to a shareholder who has a valid claim that a
director acted in violation of his duties, if the action is among those as to
which liability is limited. This provision may reduce the likelihood of
shareholder derivative litigation against directors and may discourage or deter
shareholders or management from bringing a lawsuit against directors for breach
of their duties, even though such action, if successful, might have benefited
Vaxcel and its shareholders. The SEC has taken the position that similar
provisions added to other corporations' certificates of incorporation would not
protect those corporations' directors from liability for violations of the
federal securities laws.
 
     Zynaxis.  Zynaxis' Bylaws generally provide that a director shall not be
held personally liable for any action taken or failure to take action, unless
(i) the director has breached or failed to perform his fiduciary duties and the
breach constitutes self-dealing, willful misconduct or recklessness, or (ii) the
director has been held liable under a criminal statute or for failure to pay
federal, state or local taxes.
 
INDEMNIFICATION
 
     Vaxcel.  Vaxcel's Certificate and Bylaws contain a provision which
generally provides that Vaxcel will indemnify its directors and Board-elected
officers to the full extent permitted by the DGCL. Under Section 145 of the DGCL
as currently in effect, other than in actions brought by or in the right of
Vaxcel, such indemnification would apply if it were determined in the specific
case that the proposed indemnitee acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of
Vaxcel and, with respect to any criminal proceeding, if such person had no
reasonable cause to believe that the conduct was unlawful. In actions brought by
or in the right of Vaxcel, such indemnification probably would be limited to
reasonable expenses (including attorneys' fees) and would apply if it were
determined in the specific case that the proposed indemnitee acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interests of Vaxcel, except that no indemnification may be made with
respect to any matter as to which such person is adjudged liable to Vaxcel,
unless, and only to the extent that, the court determines upon application that,
in view of all the circumstances of the case, the proposed indemnitee is fairly
and reasonably entitled to indemnity for such expenses as the court deems
proper. To the extent that any director, officer, employee, or agent of Vaxcel
has been successful on the merits or otherwise in defense of any action,
lawsuit, or proceeding, whether civil, criminal, administrative, or
investigative, such person must be indemnified against reasonable expenses
incurred by him in connection therewith. The Certificate and the Bylaws provide
that indemnification also may be extended to any other officers, agents or
employees of Vaxcel on a case-by-case basis.
 
     Zynaxis.  The Zynaxis Bylaws provide that directors, officers and any other
person designated by the Zynaxis Board are entitled to be indemnified as
provided in the Zynaxis Bylaws. Zynaxis will indemnify such a representative of
the corporation against any liability incurred in connection with any proceeding
in which the representative may be involved as a party or otherwise by reason of
the fact that such person is or was serving in an indemnified capacity,
including, without limitation, liabilities resulting from any actual or alleged
breach or neglect of duty, error, misstatement or misleading statement,
negligence, gross negligence or act giving rise to strict or products liability.
Such representatives are not entitled to indemnification (i) where such
indemnification is expressly prohibited by applicable law or has been finally
determined in a final adjudication to be otherwise unlawful, or (ii) where the
conduct of the representative has been finally determined to constitute willful
misconduct or recklessness or to be based upon or attributable to the receipt by
the representative from the corporation of a personal benefit to which the
representative is not legally entitled.
 
SPECIAL MEETINGS OF SHAREHOLDERS
 
     Vaxcel.  Vaxcel's Bylaws provide that such meetings may be called at any
time, by the Chairman of the Board, a majority of the Vaxcel Board, the
President, or at the request, in writing, of the holders of a majority of shares
of voting stock of Vaxcel entitled to vote at the special meeting of Vaxcel.
 
                                       59
<PAGE>   76
 
     Zynaxis.  The Zynaxis Bylaws provide that special meetings of the
shareholders may be called at any time by resolution of the board of directors.
Under the PBCL, shareholders of a registered corporation, like Zynaxis, are not
entitled to call a special meeting of the shareholders.
 
ACTIONS BY SHAREHOLDERS WITHOUT A MEETING
 
     Vaxcel.  The Bylaws provide that any action required or permitted to be
taken at a meeting by Vaxcel shareholders may be effected by any written consent
by the shareholders.
 
     Zynaxis.  The PBCL provides that any action which may be taken at a meeting
of the shareholders may be taken without a meeting by less than unanimous
written consent of the shareholders who would have been entitled to vote at a
meeting if permitted by the articles of incorporation of a registered
corporation (of which Zynaxis is one). Zynaxis' Articles of Incorporation permit
shareholder action without a meeting by less than unanimous consent.
 
BUSINESS COMBINATIONS WITH CERTAIN PERSONS
 
     Vaxcel.  Section 203 of the DGCL ("Section 203") places certain
restrictions on "business combinations" (as defined in Section 203, generally
including mergers, sales and leases of assets, issuances of securities, and
similar transactions) by Delaware corporations with an "interested shareholder"
(as defined in Section 203, generally the beneficial owner of 15% or more of the
corporation's outstanding voting stock). Section 203 generally applies to
Delaware corporations that have a class of voting stock listed on a national
securities exchange, authorized for quotation on an interdealer quotation system
of a registered national securities association, or held of record by more than
2,000 shareholders, unless the corporation expressly elects in its certificate
of incorporation or bylaws not to be governed by Section 203.
 
     Vaxcel has not specifically elected to avoid the application of Section
203. As a result, Section 203 generally would prohibit a business combination by
Vaxcel or a subsidiary with an interested shareholder within three years after
the person or entity becomes an interested shareholder, unless (i) prior to the
time when the person or entity became an interested shareholder, Vaxcel's Board
approved either the business combination or the transaction pursuant to which
such person or entity became an interested shareholder, (ii) upon consummation
of the transaction in which the person or entity became an interested
shareholder, the interested shareholder held at least 85% of the outstanding
Vaxcel voting stock (excluding shares held by persons who are both officers and
directors and shares held by certain employee benefit plans), or (iii) once the
person or entity became an interested shareholder, the business combination was
approved by Vaxcel's Board and by the holders of at least two-thirds of the
outstanding Vaxcel voting stock, excluding shares owned by the interested
shareholder.
 
     Zynaxis.  The PBCL provides that if a shareholder of a registered
corporation (of which Zynaxis is one) is a party to a sale of assets
transaction, share exchange, merger or consolidation involving the corporation
or a subsidiary, or if a shareholder is to be treated differently in a corporate
dissolution from other shareholders of the same class, then approval must be
obtained of the shareholders entitled to cast at least a majority of the votes
which all shareholders other than the interested shareholder are entitled to
cast with respect to the transaction, without counting the votes of the
interested shareholder. Such additional shareholder approval is not required if
the consideration to be received by the other shareholders in such transaction
for shares of any class is not less than the highest amount paid by the
interested shareholder in acquiring shares of the same class, or if the proposed
transaction is approved by a majority of the board of directors other than
certain directors ("disqualified directors") affiliated or associated with, or
nominated by, the interested shareholder. The PBCL provides that a director who
has held office for at least 24 months prior to the date of vote on the proposed
transaction is not a disqualified director.
 
     Further, the PBCL prohibits certain "business combinations" between the
corporation and an "interested shareholder" except under specified
circumstances. An "interested shareholder" in this instance is one who, directly
or indirectly, is the beneficial owner of shares entitling that person to cast
at least 20% of the votes that all shareholders would be entitled to cast in an
election of directors of the corporation or is an affiliate or associate of such
corporation and at any time within the five-year period immediately prior to the
date in
 
                                       60
<PAGE>   77
 
question was the beneficial owner, directly or indirectly, of shares entitling
that person to cast at least 20% of the votes that all shareholders would be
entitled to cast in an election of directors of the corporation. A "business
combination" includes a merger, consolidation, share exchange or division of the
corporation or any subsidiary of the corporation with the interested shareholder
or with, involving or resulting in any other corporation which is, or, after the
merger, consolidation, share exchange or division would be, an affiliate or
associate of the interested shareholder. A "business combination" also includes
a sale or other disposition to the interested shareholder or any affiliate or
associate of the interested shareholder of assets of the corporation or any
subsidiary (1) having an aggregate market value equal to 10% or more of the
aggregate market value of the corporation's consolidated assets, (2) having an
aggregate market value equal to 10% or more of the aggregate market value of all
the outstanding shares of such corporation, or (3) representing 10% or more of
the consolidated earning power or net income of such corporation. A "business
combination" also includes certain transactions with an interested shareholder
involving the issuance of shares of a corporation or its subsidiary having an
aggregate market value equal to 5% or more of the aggregate market value of all
outstanding shares under certain circumstances, the adoption of a plan for the
liquidation or dissolution of the corporation pursuant to certain agreements
with an interested shareholder and certain reclassifications and loans involving
the interested shareholder. The prohibition against such business combinations
does not apply under specified circumstances and if the corporation has opted
out of this provision. Zynaxis has not opted out of this statutory provision.
 
MERGERS, CONSOLIDATIONS, AND SALES OF ASSETS GENERALLY
 
     Vaxcel.  Under the DGCL generally a merger, consolidation, share exchange,
dissolution or sale of substantially all of a corporation's assets other than in
the ordinary course of business must be approved by the affirmative vote of a
majority of the votes cast by all shareholders entitled to vote thereon. Neither
the Vaxcel Certificate nor the Vaxcel Bylaws contain a provision relating to the
approval of mergers, consolidations, share exchanges, dissolutions or sales of
assets.
 
     Zynaxis.  The PBCL provides that the affirmative vote of a majority of the
votes cast is required to effect a merger, consolidation, share exchange,
dissolution or sale of substantially all of a corporation's assets other than in
the ordinary course of business.
 
DISSENTERS' RIGHTS OF APPRAISAL
 
     Vaxcel.  The rights of appraisal of dissenting shareholders of Vaxcel are
governed by the DGCL. Pursuant thereto, except as described below, any
shareholder has the right to dissent from any merger of which Vaxcel could be a
constituent corporation. No appraisal rights are available, however, for (i) the
shares of any class or series of stock that is either listed on a national
securities exchange, quoted on the Nasdaq National Market, or held of record by
more than 2,000 shareholders or (ii) any shares of stock of the constituent
corporation surviving a merger if the merger did not require the approval of the
surviving corporation's shareholders, unless, in either case, the holders of
such stock are required by an agreement of merger or consolidation to accept for
that stock something other than: (a) shares of stock of the corporation
surviving or resulting from the merger or consolidation; (b) shares of stock of
any other corporation that will be listed at the effective time of the merger on
a national securities exchange, quoted on the Nasdaq National Market, or held of
record by more than 2,000 shareholders; (c) cash in lieu of fractional shares of
stock described in clause (a) or (b) immediately above; or (d) any combination
of the shares of stock and cash in lieu of fractional shares described in
clauses (a) through (c) immediately above.
 
     Zynaxis.  Under the PBCL, shareholders may perfect dissenters' rights with
regard to corporate actions involving certain mergers, consolidations, and the
sale, lease or exchange of substantially all the assets of the corporation
(under limited circumstances). However, under the PBCL, dissenters' rights may
be denied when a corporation's shares are listed on a national securities
exchange or held of record by more than 2,000 persons.
 
                                       61
<PAGE>   78
 
SHAREHOLDERS' RIGHTS TO EXAMINE BOOKS AND RECORDS
 
     Vaxcel.  The DGCL provides that a shareholder may inspect books and records
upon written demand under oath stating the purpose of the inspection, if such
purpose is reasonably related to such person's interest as a shareholder.
 
     Zynaxis.  Pursuant to the PBCL, Zynaxis' shareholders generally have the
right to inspect in person or by agent or attorney and copy certain of Zynaxis'
corporate documents, upon a verified written demand stating a proper purpose for
such inspection.
 
DIVIDENDS
 
     Vaxcel.  The DGCL provides that, subject to any restrictions in the
corporation's certificate of incorporation, dividends may be declared from the
corporation's surplus, or, if there is no surplus, from its net profits for the
fiscal year in which the dividend is declared and the preceding fiscal year.
Dividends may not be declared, however, if the corporation's capital has been
diminished to an amount less than the aggregate amount of all capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets.
 
     Zynaxis.  Zynaxis has not paid any dividends on the Zynaxis Common Stock to
date. Zynaxis currently intends to retain its cash to finance current needs and
therefore does not intend to pay any cash dividends prior to the Effective Time
of the Merger.
 
                                       62
<PAGE>   79
 
                    COMPARATIVE MARKET PRICES AND DIVIDENDS
 
     Because Vaxcel is a wholly owned subsidiary of CytRx, Vaxcel Common Stock
is not traded in any established market. Zynaxis Common Stock was, until
December 23, 1996, quoted on the Nasdaq SmallCap Market under the symbol "ZNXS."
Currently, as discussed below, Zynaxis Common Stock is not traded in any
established market. The following table sets forth, for the indicated periods,
the high and low closing sale prices for Zynaxis Common Stock as reported on the
Nasdaq SmallCap Market (or the Nasdaq National Market for the periods prior to
the fourth quarter of 1995) or as known by management of Zynaxis. Neither Vaxcel
nor Zynaxis has ever declared a cash dividend on the shares of Vaxcel Common
Stock and Zynaxis Common Stock, respectively, issued and outstanding.
 
<TABLE>
<CAPTION>
                                                                           ZYNAXIS
                                                                         ------------
                                                                         PRICE RANGE
                                                                         ------------
                                                                         HIGH     LOW
                                                                         ----     ---
        <S>                                                              <C>      <C>
        1994
          First Quarter................................................    5        27/8
          Second Quarter...............................................    3 1/8    21/4
          Third Quarter................................................    2 7/8    13/4
          Fourth Quarter...............................................    2 1/4    11/8
        1995
          First Quarter................................................    2 1/8    1
          Second Quarter...............................................    1 7/8    1
          Third Quarter................................................    2 1/4       /16
          Fourth Quarter...............................................    1 1/2     5/8
        1996
          First Quarter................................................    1 3/8     5/8
          Second Quarter...............................................    1 3/4     3/4
          Third Quarter................................................    1 5/32     /16
          Fourth Quarter (through December 23, 1996)...................      7/16     /32
</TABLE>
 
   
     On April 14, 1997, the last reported sale price of Zynaxis Common Stock
that management of Zynaxis is aware of was $.18. On December 5, 1996, the last
business day prior to public announcement of the proposed Merger, the last
reported sale price of Zynaxis Common Stock as reported on the Nasdaq SmallCap
Market was $0.1875.
    
 
     Prior to December 20, 1995, Zynaxis Common Stock was traded on the Nasdaq
National Market. The By-Laws of the National Association of Securities Dealers,
Inc. required that Zynaxis maintain certain quantitative standards for continued
listing on the Nasdaq National Market. These standards included, among other
things, a minimum bid price of $1.00 per share or, in the alternative, market
value of public float of $8,000,000 and net tangible assets of $4,000,000.
Additionally, an issuer such as Zynaxis, which had sustained losses from
continuing operations and/or net losses in three of its last four most recent
fiscal years, was required to have net tangible assets of at least $4,000,000.
Due to Zynaxis' inability to continue to consistently meet the standards, the
Zynaxis Common Stock was removed from the Nasdaq National Market and began
trading on the Nasdaq SmallCap Market in December 1995. Zynaxis was delisted
from the Nasdaq SmallCap Market on December 24, 1996 due to its continued
noncompliance with quantitative listing standards, including Zynaxis' failure to
maintain a bid price greater than or equal to $1.00 per share or, in the
alternative, to maintain capital and surplus of $2,000,000 and a market value of
public float of $1,000,000.
 
                                       63
<PAGE>   80
 
                        PRO FORMA FINANCIAL INFORMATION
 
   
     The accompanying Pro Forma Condensed Combined Balance Sheet as of December
31, 1996 and the related Pro Forma Condensed Combined Statement of Operations
for the year ended December 31, 1996 give effect to (i) the proposed Merger of
Zynaxis with and into Vaxcel and (ii) the proposed sale of the Cauldron
division.
    
 
   
     The pro forma adjustments assume that these transactions had occurred as of
December 31, 1996 in the case of the Pro Forma Condensed Combined Balance Sheet,
or January 1, 1996 in the case of the Pro Forma Condensed Combined Statement of
Operations.
    
 
     These pro forma financial statements have been prepared by management of
Vaxcel and should be read in conjunction with the historical financial
statements of Vaxcel and Zynaxis. The historical balances represent the
financial position and results of operations for each company and have been
prepared in accordance with generally accepted accounting principles. The pro
forma statements are based on certain assumptions and estimates which are
subject to change. These statements do not purport to be indicative of the
financial position or results of operations that might have occurred, nor are
they necessarily indicative of future results.
 
                                       64
<PAGE>   81
 
                   PRO FORMA CONDENSED COMBINED BALANCE SHEET
                               DECEMBER 31, 1996
                                  (UNAUDITED)
 
   
<TABLE>
<CAPTION>
                                                                                          CAULDRON
                                                         MERGER                         DIVESTITURE
                               HISTORICAL           -----------------                 ----------------     PRO FORMA
                       --------------------------    PRO FORMA           PRO FORMA     PRO FORMA           COMBINED
                         VAXCEL        ZYNAXIS      ADJUSTMENTS   REF    COMBINED     ADJUSTMENTS  REF   (AS ADJUSTED)
                       -----------   ------------   ------------  ---   -----------   -----------  ---   -------------
<S>                    <C>           <C>            <C>           <C>   <C>           <C>          <C>   <C>
ASSETS
  Current assets:
    Cash and cash
      equivalents...... $    84,481  $    124,348   $  3,025,000  (1)   $ 3,233,829    $ 282,000   (5)    $ 3,515,829
    Accounts
      receivable.......      49,222       182,047                           231,269                           231,269
    Other current
      assets...........     --            107,254        525,000  (4)       630,254                           632,254
                       -----------   ------------   ------------        -----------   -----------        -------------
    Total current
      assets...........     133,703       413,649      3,550,000          4,097,352      282,000            4,379,352
  Net property and
    equipment..........      95,176        40,588                           135,764                           135,764
  Acquired developed
    technology.........                                3,500,000  (4)     3,500,000                         3,500,000
  Other assets:
    Cauldron -- net
      assets...........     --            600,000                           600,000     (600,000)  (5)        --
    Note receivable....     --            324,046                           324,046      300,000   (5)        624,046
    Other assets.......     149,113        20,000       (113,439) (2)        55,674                            55,674
                       -----------   ------------   ------------        -----------   -----------        -------------
      Total other
         assets........     149,113       944,046       (113,439)           979,720     (300,000)             679,720
                       -----------   ------------   ------------        -----------   -----------        -------------
  Total assets......... $   377,992  $  1,398,283   $  6,936,561        $ 8,712,836    $ (18,000)         $ 8,694,836
                       ============  =============  =============       ============  ===========        =============
LIABILITIES AND STOCKHOLDER'S EQUITY
  Current liabilities:
    Accounts payable... $    32,039  $    232,243                       $   264,282                       $   264,282
    Accrued
      liabilities......     185,967       752,809   $    275,000  (2)     1,198,997                         1,198,997
                                                         (14,779) (3)
    Note payable to
      CytRx............     --            975,000       (975,000) (1)            --                           --
    Notes payable to
      shareholders.....     --            450,000       (350,000) (3)       100,000                           100,000
    Other current
      liabilities......     --             33,277                            33,277                            33,277
                       -----------   ------------   ------------        -----------   -----------        -------------
    Total current
      liabilities......     218,006     2,443,329     (1,064,779)         1,596,556       --                1,596,556
  Long-term debt and
    other long-term
    obligations........     --             65,511                            65,511                            65,511
  Stockholder's equity:
    Preferred stock....     --          2,554,304     (2,554,304) (3)       --                                --
    Common stock.......       8,250       103,387          1,375  (1)        11,000                            11,000
                                                             393  (3)
                                                        (102,405) (4)
    Additional paid-in
      capital..........   4,697,750    45,982,992      3,998,625  (1)    12,306,561                        12,306,561
                                                        (388,439) (2)
                                                       2,918,690  (3)
                                                     (44,903,057) (4)
    Accumulated
      deficit..........  (4,546,014)  (49,751,240)    49,030,462  (4)    (5,266,792)   $ (18,000)  (5)     (5,284,792)
                       -----------   ------------   ------------        -----------                ---
      Total
         stockholder's
         equity........     159,986    (1,110,557)     8,001,340          7,050,769      (18,000)           7,032,769
                       -----------   ------------   ------------        -----------   -----------        -------------
Total liabilities and
  stockholder's
  equity............... $   377,992  $  1,398,283   $  6,936,561        $ 8,712,836    $ (18,000)         $ 8,694,836
                       ============  =============  =============       ============  ===========        =============
</TABLE>
    
 
                                       65
<PAGE>   82
 
- ---------------
Pro Forma Adjustments:
 
(1) To reflect the cash contribution and note cancellation by CytRx.
 
(2) To record the estimated remaining transaction costs and reclassification of
    amounts capitalized by Vaxcel as deferred transaction costs.
 
(3) To reflect the conversion of Zynaxis Preferred Stock and the Zynaxis Notes,
    together with accrued interest thereon, into Vaxcel Common Stock (at the
    Merger transaction price) as a condition of the Merger.
 
(4) To reflect the elimination of Zynaxis equity accounts, issuance of Vaxcel
    Common Stock to complete the Merger and allocation of the purchase price in
    excess of net tangible assets acquired. See Note 2.
 
   
(5) To reflect the sale of the Cauldron division for $832,000 less $250,000 of
    rent to be prepaid pursuant to the Asset Purchase Agreement.
    
 
                                       66
<PAGE>   83
 
              PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1996
                                  (UNAUDITED)
 
   
<TABLE>
<CAPTION>
                                                                                       CAULDRON
                                                      MERGER                         DIVESTITURE
                            HISTORICAL           ----------------                  ----------------      PRO FORMA
                     -------------------------    PRO FORMA           PRO FORMA     PRO FORMA            COMBINED
                       VAXCEL        ZYNAXIS     ADJUSTMENTS  REF     COMBINED     ADJUSTMENTS  REF    (AS ADJUSTED)
                     -----------   -----------   -----------  ---    -----------   -----------  ---    -------------
<S>                  <C>           <C>           <C>          <C>    <C>           <C>          <C>    <C>
Revenues:
  License fees...... $    50,000   $        --                       $    50,000   $        --          $    50,000
  Collaborative,
    contract and
    grant revenue...      78,435     2,050,467                         2,128,902      (808,633) (10)      1,320,269
                     -----------   -----------   -----------         -----------   -----------          -----------
                         128,435     2,050,467            --           2,178,902      (808,633)           1,370,269
Operating Expenses:
  Research and                                                (6) 
    development.....     852,849     3,642,195      (262,024) (7)      4,738,224    (1,649,359) (10)      3,088,865
                                                     505,204
  General and
   administrative...     406,897     2,019,042       163,547  (8)      2,589,486                          2,589,486
  Provision for
    asset
    impairment......          --     1,152,130       838,870  (5)      1,991,000                          1,991,000
                     -----------   -----------   -----------         -----------   -----------          -----------
                       1,259,746     6,813,367     1,245,597           9,318,710    (1,649,359)           7,669,351
Other Income
  (Expense):
  Interest income...       7,128        56,881                            64,009                             64,009
  Interest
    expense.........          --      (115,815)       19,940  (9)        (95,875)                           (95,875)
  Other income......          --       591,364                           591,364      (100,000) (10)        491,364
                     -----------   -----------   -----------         -----------   -----------          -----------
                           7,128       532,430        19,940             559,498      (100,000)             459,498
                     -----------   -----------   -----------         -----------   -----------          -----------
Net loss............ $(1,124,183)  $(4,230,470)  $(1,225,657)         (6,580,310)  $   740,726          $(5,839,584)
                     ===========   ===========   ===========                       ===========
Net loss per common
  share............. $      (.14)  $      (.42)                      $      (.60)                       $      (.53)
                     ===========   ===========                       ===========                        ===========
</TABLE>
    
 
- ---------------
Pro Forma Adjustments:
 
 (5) To reflect the write-down of Cauldron assets to net realizable value if it
     had been calculated as of January 1, 1996. See Note 6 to Zynaxis historical
     financial statements.
 
 (6) To reflect the reduction of depreciation expense associated with the pro
     forma write-down of Cauldron net assets as of January 1, 1996.
 
 (7) To record charge for acquired research and development.
 
 (8) To record amortization of intangible assets acquired. An amortization
     period of 15 years is assumed. See Note 2.
 
 (9) Elimination of interest expense associated with the Zynaxis Notes converted
     into Vaxcel Common Stock as of the Merger date, and of interest expense
     associated with the CytRx note payable cancelled upon the Merger date.
 
   
(10) To reflect the sale of the Cauldron division as if it had occurred on
     January 1, 1996.
    
 
                                       67
<PAGE>   84
 
                                  VAXCEL, INC.
 
                    NOTES TO PRO FORMA FINANCIAL STATEMENTS
 
1.  DETERMINATION OF PURCHASE PRICE
 
     The purchase price for Zynaxis was determined in accordance with APB 16 and
was based upon a number of objective and subjective factors including, but not
limited to (a) reference to the $4 million cash contribution being made to
Vaxcel by CytRx for the same number of shares of Vaxcel Common Stock as are
being exchanged for the outstanding shares of Zynaxis Common Stock, (b)
reference to the market price of Zynaxis Common Stock during the negotiation
period and leading up to the execution of the Merger agreement, (c) Vaxcel
management's estimation that the outstanding liabilities, transaction costs and
ongoing operating costs of Zynaxis through the closing of the Merger would
generally offset the realizable value of tangible assets, such that the only
material assets of Zynaxis remaining as of the Effective Time of Merger would be
intangible assets consisting of technology rights and license agreements, (d)
Vaxcel management's assessment of the synergistic value of Zynaxis' oral and
mucusal vaccine delivery technology in combination with its own injectible
technology in attracting corporate sponsors, facilitating technology licenses
and other fund raising activities, and providing a greater balance to
shareholders, and (e) the fact that Vaxcel will acquire a license agreement with
ALK.
 
     APB 16 states that the cost of an acquired company is measured by the fair
value of the consideration received. As there is no trading market for the
Vaxcel Common Stock, an objective measurement of its fair value is difficult.
Based upon the factors stated above, the $4,000,000 cash contribution by CytRx
was used as the basis to assign a value to the purchase price and of the
consideration to be exchanged. Even though the cash contribution by CytRx to
Vaxcel is not at arms'-length (and therefore may not necessarily represent the
fair value of Vaxcel Common Stock), management determined that this was the most
objective evidence available in the absence of an active trading market for the
Vaxcel Common Stock. This valuation has been corroborated by an independent
valuation of Zynaxis' assets which indicated a value of approximately $3,500,000
for the Developed Technology (as defined below), which is the primary asset
being acquired by Vaxcel, given its current business strategy.
 
     In the event the Zynaxis shareholders do not approve the Charter Amendment
and Vaxcel elects to proceed with the Merger, CytRx may be required to purchase
shares of Zynaxis Common Stock from objecting shareholders at the fair value of
such shares as of the date of the Merger. Any such purchase of objectors shares
by CytRx will have no effect on the purchase price or on the purchase accounting
treatment.
 
2. ACCOUNTING FOR MERGER AND ALLOCATION OF PURCHASE PRICE
 
     The Merger will be accounted for as a purchase transaction with Vaxcel as
the acquiring company. The total estimated purchase price of $4 million has been
allocated to the fair market values of the assets acquired and the liabilities
assumed. The pro forma allocation of the purchase price is based upon
information available at the date of preparation of the pro forma financial
statements and is subject to change, although this preliminary allocation is not
expected to materially differ from the final allocation.
 
     In accordance with the provisions of APB Nos. 16 and 17, all identifiable
assets acquired, including identifiable intangible assets, were assigned a
portion of the purchase price on the basis of their fair values. To this end, an
independent valuation of Zynaxis' assets (the "Acquired Assets") was performed
and used as an aid in determining the fair value of the identifiable assets in
allocating the purchase price among the Acquired Assets.
 
     Both the cost and income approaches were used to value the Acquired Assets.
Standard valuation procedures indicate the cost approach is an appropriate
methodology for valuing intangible assets such as chemical formulations and
laboratory documentation. In the case of Zynaxis, the base microencapsulation
and mucoadhesive technologies for vaccine delivery (the "Developed Technology")
have an ascertainable development timeline and no additional human or financial
resources need to be expended for further development in order to realize
economic benefits. Since the technology is well defined and understood by the
 
                                       68
<PAGE>   85
 
vaccine manufacturing community, the cost approach provides a reliable
valuation. Other intangible assets considered included licensing agreements,
patent value, reputation and associated goodwill, as well as the potential for
incomplete research and development projects. A review of the assets and
liabilities carried on Zynaxis' balance sheet as of December 31, 1996 indicated
that the carrying value of such assets and liabilities approximated their fair
values at that date.
 
     A summary of the allocation of the purchase price to the Acquired Assets is
as follows:
 
<TABLE>
        <S>                                                                <C>
        Net tangible assets, less outstanding liabilities................  $ (745,778)(1)
        Phanos license agreement receivable..............................     525,000(2)
        Developed technology.............................................   3,500,000
        In-process research and development
          (charged to accumulated deficit)...............................     720,778
                                                                           ----------
                                                                           $4,000,000
                                                                           ==========
</TABLE>
 
- ---------------
(1)  Adjusted for conversion of Zynaxis Notes into Vaxcel Common Stock.
 
(2)  Phanos purchase option was exercised in January 1997, resulting in payment
     of $525,000 to Zynaxis. See Note 1 to Zynaxis' historical financial
     statements.
 
     The capitalized value of the intangible assets acquired will be amortized
on a straight-line basis over a period of 15 years. This period was determined
based upon an analysis of competitive technology under development which may
render the Zynaxis technology obsolete. Consideration was also given to the fact
that Zynaxis' base science will have many alternative uses during that time as
many different vaccines may incorporate the technology. Any remaining property
and equipment acquired from Zynaxis will be depreciated on a straight-line basis
over their estimated remaining useful lives.
 
   
3.  DIVESTITURE OF CAULDRON
    
 
   
     On March 21, 1997, Zynaxis entered into an agreement to sell substantially
all of the assets of the Cauldron division (see "Proposed Asset Sales"),
contingent upon the consummation of the Merger and shareholder approval.
    
 
                                       69
<PAGE>   86
 
                  SELECTED HISTORICAL FINANCIAL DATA OF VAXCEL
 
     The selected financial data as of December 31, 1996 and 1995 and for each
of the three years in the period ended December 31, 1996, is derived from the
financial statements of Vaxcel, which are included herein. Such financial
statements have been audited by Ernst & Young LLP, independent auditors of
Vaxcel. The selected financial data as of December 31, 1994 and 1993, and for
the period from inception (January 6, 1993) through December 31, 1993, is
derived from the audited financial statements of Vaxcel, not included or
incorporated by reference herein. The following selected financial data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Vaxcel" and the financial statements of
Vaxcel and notes thereto included in this Proxy Statement.
 
<TABLE>
<CAPTION>
                                                                                                   PERIOD FROM
                                                                                                    INCEPTION
                                                                                                   (JANUARY 6,
                                                                                                      1993)
                                                                                                     THROUGH
                                                               YEAR ENDED DECEMBER 31,             DECEMBER 31,
                                                      -----------------------------------------    ------------
                                                         1996           1995           1994            1993
                                                      -----------    -----------    -----------    ------------
<S>                                                   <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:
    Revenues.......................................   $   128,435    $   121,709    $   500,814    $    506,317
Operating Expenses:
    Cost of sales..................................            --             --         72,636          74,066
    Research and development.......................       852,849        894,754        570,548         791,996
    Selling, general and administrative............       406,897        534,542        845,901       1,027,803
    Write-off of patent costs......................            --        128,216             --              --
                                                      -----------    -----------    -----------    ------------
                                                        1,259,746      1,557,512      1,489,085       1,893,865
Other Income (Expense):
    Interest income (expense), net.................         7,128         56,998       (111,572)        (55,635)
    Sale of animal adjuvant rights.................            --             --        500,000              --
                                                      -----------    -----------    -----------    ------------
                                                            7,128         56,998        388,428         (55,635)
Net loss...........................................   $(1,124,183)   $(1,378,805)   $  (599,843)   $ (1,443,183)
                                                      ============   ============   ============   ============
Net loss per common share..........................   $      (.14)   $      (.17)   $      (.09)   $       (.24)
                                                      ============   ============   ============   ============
Shares used in computing net loss per common
  share............................................     8,104,782      8,000,000      6,826,027       6,000,000
</TABLE>
 
<TABLE>
<CAPTION>
                                                                         AS OF DECEMBER 31,
                                                      ---------------------------------------------------------
                                                         1996           1995           1994            1993
                                                      -----------    -----------    -----------    ------------
<S>                                                   <C>            <C>            <C>            <C>
BALANCE SHEET DATA:
    Cash and cash equivalents......................   $    84,481    $   515,522    $   527,948    $     40,423
    Working capital deficiency.....................       (84,303)       402,861        521,913         (45,117)
    Total assets...................................       377,992        701,868      1,043,575         825,900
    Stockholder's equity (deficit).................       159,986        584,169        962,974      (1,437,183)
</TABLE>
 
                                       70
<PAGE>   87
 
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS AND OPERATIONS OF VAXCEL
 
GENERAL
 
     In conjunction with Vaxcel's organization and commencement of operations in
January 1993, Vaxcel entered into certain licensing agreements with CytRx which
granted Vaxcel exclusive rights to OPTIVAX and to Titermax(R), a vaccine
adjuvant marketed by Vaxcel exclusively for research purposes. In December 1994,
Vaxcel relinquished its rights to Titermax, as discussed below.
 
FINANCIAL CONDITION AND LIQUIDITY
 
     At December 31, 1996, Vaxcel had cash and cash equivalents of $84,481 and
net assets of $159,986, compared to $515,522 and $584,169, respectively, at
December 31, 1995.
 
     Since its inception, Vaxcel has incurred operating losses and has been
economically dependent upon CytRx to provide the funding necessary to conduct
its operations. During 1994, the principal source of capital was from a
$3,000,000 line of credit provided by CytRx pursuant to two convertible
promissory notes. In July and August 1994, the full amount of the debt owed to
CytRx ($3,000,000) was converted into shares of Vaxcel Common Stock. Since then,
additional cash funding has been provided by CytRx as needed by Vaxcel through
the direct purchase of Vaxcel Common Stock.
 
     Vaxcel's primary requirement for capital will be to continue its
development activities for OPTIVAX and technologies acquired pursuant to the
Merger (PLG microspheres and mucoadhesives) and for general corporate purposes.
Vaxcel anticipates substantial losses over the next several years resulting
primarily from research and development expenses. However, definitive statements
as to the time required and costs involved in reaching certain objectives for
OPTIVAX are difficult to project due to the uncertainties of the medical
research field. It is generally recognized that the FDA approval process for a
new vaccine from Phase I to commercialization can take seven or more years. For
certain improved versions of existing vaccines, the amount of time may be
reduced if the company only needs to prove safety and increased antibody levels
compared to the original version of the vaccine. It should be noted that
companies which in-license OPTIVAX for use with their vaccines will assume
responsibility for product development, regulatory approval and marketing,
thereby allowing Vaxcel to maintain a relatively moderate cash burn rate.
 
     CytRx has formally committed to continue its financial support of Vaxcel's
current operations as necessary at least through 1997, in the event the Merger
is not consummated. Subject to the closing of the Merger, CytRx has committed to
provide $4,000,000 (less amounts previously loaned to Zynaxis) in equity funding
to Vaxcel. Management believes that the net proceeds of CytRx's cash
contribution pursuant to the Merger, combined with cash on hand, will be
sufficient to support Vaxcel's operation for the next two years. Management
further expects that proceeds from corporate partnering arrangements may further
supplement Vaxcel's liquidity and capital resources. Vaxcel will consider
additional sources of funding as appropriate and available.
 
     At December 31, 1996, the Company has net operating loss carryforwards for
income tax purposes of approximately $4,600,000, which will expire at various
dates through 2011, if not utilized. The Company also had research and
development credits available to reduce income taxes, if any, of approximately
$63,000. Based on an assessment of all available evidence including, but not
limited to, the Company's limited operating history and lack of profitability,
uncertainties of the commercial viability of the Company's technology, the
impact of government regulation and healthcare reform initiatives, and other
risks normally associated with biotechnology companies, the Company has
concluded that it is more likely than not that these net operating loss
carryforwards and credits will not be realized and, as a result, a 100% deferred
tax valuation allowance has been recorded against these assets. Such valuation
allowance had no impact on reported net losses. See Note 6 to Notes to Financial
Statements.
 
                                       71
<PAGE>   88
 
RESULTS OF OPERATIONS
 
     During 1994, Vaxcel reported net sales of $500,814 related to Titermax. In
December 1994, CytRx repurchased the rights to Vaxcel's OPTIVAX technology for
use in non-human animals, including the rights to Titermax, for $500,000. Cost
of sales and selling and marketing expense during 1994 related entirely to sales
of Titermax, thus no such expenses are shown for 1995 or 1996.
 
     During 1995 Vaxcel signed option agreements with Connaught Laboratories,
Inc. ("Connaught") and Medeva PLC ("Medeva") to evaluate OPTIVAX in combination
with vaccines being developed by Connaught and Medeva. These agreements give
Connaught and Medeva the right to negotiate licenses to further develop and
market OPTIVAX in the specific disease fields. During 1996 Vaxcel signed a
definitive license agreement with Corixa Corporation ("Corixa") for use of
OPTIVAX in combination with vaccines being developed by Corixa. During 1996 and
1995, Vaxcel reported license fee income of $50,000 and $115,000, respectively,
representing initial payments pursuant to these agreements. If vaccines
utilizing OPTIVAX are successfully developed by any of these companies, Vaxcel
will receive further milestone payments, royalties on sales, and payments under
a supply agreement for having OPTIVAX manufactured for the licensee.
 
     During 1996 and 1995 Vaxcel recorded collaborative and grant revenues of
$78,435 and $6,709, respectively. These amounts related to research funding
pursuant to Vaxcel's agreement with Medeva (see Note 7 to Notes to Financial
Statements) and pursuant to a Small Business Innovative Research ("SBIR") grant
to Vaxcel from the National Institutes of Health ("NIH") during 1996. The costs
associated with these arrangements approximate the revenues recorded and are
reflected in research and development expense. Vaxcel will continue to seek
government assistance for its product development efforts as appropriate and
available.
 
     Interest income was $7,128 during 1996, as compared to $56,998 during 1995
and $8,072 during 1994. During much of 1994, no excess cash balances were
carried by Vaxcel as expenditures were funded by CytRx on an as-needed basis,
pursuant to a convertible line of credit. During 1995, Vaxcel benefited from
excess cash balances carried over from the December 1994 sale of non-human
adjuvant rights to CytRx, as well as an additional $1,000,000 cash contribution
by CytRx in January 1995. During 1996, investment income declined due to lower
cash balances. CytRx continues to provide financial support through periodic
purchases of Vaxcel Common Stock.
 
     Research and development expenditures were $852,849 during 1996, as
compared to $894,754 during 1995 and $570,548 during 1994. During the second
half of 1994, Vaxcel curtailed its development program spending and initiated
staff reductions as it sought to conserve cash resources. Subsequent to the sale
of non-human adjuvant rights in December 1994 and an additional cash infusion by
CytRx in January 1995, Vaxcel accelerated its development efforts.
 
     General and administrative expenses were $406,897 during 1996, $534,542
during 1995 and $664,359 during 1994. The decline from 1994 to 1995 was due to
staff reductions and other cash conservation measures taken in late 1994,
including the relocation of Vaxcel's operations from its leased facility to
CytRx's headquarters. In January 1996, Vaxcel subleased its former facility at a
full recovery of its ongoing carrying cost, resulting in annual savings of
approximately $110,000. As discussed in Note 2 to Notes to Financial Statements,
during 1995, Vaxcel recorded a one-time charge of $128,216 related to a change
in the method of accounting for patent costs.
 
     Interest expense of $119,644 during 1994 related entirely to interest
accrued on two convertible lines of credit from CytRx. The outstanding principal
and accrued interest under these loans was converted into Vaxcel Common Stock in
July and August 1994.
 
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
 
     In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 121 ("Statement No. 121") which
established accounting standards for the
 
                                       72
<PAGE>   89
 
impairment of long-lived assets, certain identifiable intangibles and goodwill.
Vaxcel adopted Statement No. 121 in the first quarter of 1996, and such adoption
had no material effect on its financial statements.
 
     In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 ("Statement No. 123") which provides an alternative to
Accounting Principles Board Opinion No. 25 ("APB 25") in accounting for
stock-based compensation issued to employees. For companies that continue to
account for stock-based compensation arrangements under APB 25, Statement No.
123 requires disclosure of the pro forma effect on net income and earnings per
share of its "fair value" based accounting for those arrangements, effective for
fiscal years beginning after December 15, 1995. Vaxcel plans to continue
accounting for stock option grants in accordance with APB 25, and, accordingly,
recognizes no compensation expense for the stock option grants. The additional
disclosures required by Statement 123 are contained in Note 5 to Notes to
Financial Statements.
 
                                       73
<PAGE>   90
 
                               BUSINESS OF VAXCEL
 
GENERAL
 
     Executive Summary.  Vaxcel is currently a wholly-owned subsidiary of CytRx
engaged in the development and commercialization of OPTIVAX(R), the tradename
for a family of proprietary nonionic block copolymers which may augment or
modulate the immune response to vaccines when administered injectably. Vaxcel
derives its rights to OPTIVAX from an exclusive, worldwide license agreement
with CytRx. Vaxcel believes OPTIVAX may improve the effectiveness and/or
convenience of existing vaccines and may contribute to the development of new
vaccines. Vaxcel and its institutional/corporate collaborators have conducted
preclinical studies in which OPTIVAX appears to act both as a delivery system
and as a vaccine adjuvant. In addition, Vaxcel initiated a Phase I trial in
early 1996 to help demonstrate that OPTIVAX was safe and adjuvant active in
humans when given by the injectable route. The results from this Phase I trial
are expected in the first quarter of 1997. Vaxcel's business strategy is to
license OPTIVAX on a vaccine-by-vaccine basis to pharmaceutical and
biotechnology companies engaged in vaccine research and development. Under such
arrangements, these companies would combine OPTIVAX with their vaccines and
assume responsibility for product development, regulatory approval, and
marketing at their expense. In return, Vaxcel would receive licensing fees,
milestone payments, and royalty on sales. At present, Vaxcel has entered into
option agreements for the development of OPTIVAX with Medeva and Connaught and a
license agreement with Corixa.
 
     As a result of the Merger, Vaxcel will acquire the PLG microencapsulation
and mucoadhesive vaccine technologies of Zynaxis. These technologies appear to
be complementary to Vaxcel's current technology, as OPTIVAX is primarily focused
on enhancing the effectiveness of injectable vaccines, while the Zynaxis
technologies are primarily targeted toward development of vaccines for oral and
mucosal delivery. Vaxcel believes the Zynaxis oral delivery technologies may
have commercial application for many marketed vaccines currently administered by
parenteral injection, as well as certain new vaccines under development. In
addition, the Zynaxis technologies can be administered alone or in combination
with other vaccine carriers, delivery systems, and adjuvants. Similar to
OPTIVAX, Vaxcel's business strategy for the PLG microencapsulation and
mucoadhesive vaccine technologies will be to license these technologies to
companies engaged in vaccine research and development. In September 1995, ALK
executed a development and licensing agreement which granted ALK exclusive,
worldwide rights to evaluate and develop the Zynaxis technologies for oral
delivery of bioactive substances for the treatment of allergy. ALK is a world
leader in the preparation and standardization of allergen extracts for allergy
immunotherapy. ALK is currently conducting a Phase II human clinical trial.
 
  Vaccines
 
     One of the most desirable and cost effective ways to control a disease is
to prevent it from ever occurring. Vaccines are medicines designed to prevent
the occurrence of diseases by stimulating the body's natural defenses, the
immune system. In some circumstances, when an individual is exposed to a
pathogen (a microbial organism which causes disease), the body's immune system
may not react quickly enough to prevent it from causing disease. After repeated
exposure to the pathogen, however, the immune system may recognize the organism
and develop an immune response to prevent or eliminate the disease. This ability
of the immune system to "remember" is the basis for immunization. By vaccinating
people with antigens, which are components of pathogens, subsequent exposure to
the pathogen should result in an effective immune response, thereby protecting
the individual from the disease.
 
  The Vaccine Market
 
     According to industry publications, annual worldwide sales for vaccines has
grown quite dramatically during the past decade, from approximately a few
hundred million dollars in the early 1980s to over $3 billion dollars today. At
present, there are 16 vaccines in routine use in the United States which protect
individuals against major diseases such as polio, tetanus, diphtheria,
pertussis, hepatitis A and B, measles, mumps, rubella, Haemophilus influenzae
type B, chickenpox, influenza, and pneumococcal pneumonia.
 
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     The vaccine market is expected to continue to grow at double-digit rates in
the future. Discussed below are several factors that have contributed to the
historical double-digit growth of the vaccine market and are expected to help
fuel strong growth in the future:
 
     - New Vaccine Introductions:  New techniques in molecular genetics and
       biology, as well as a better understanding of the human immune process,
       have increased the probability that new vaccines can be successfully
       developed. These advances in medical technology have already contributed
       to the licensure and commercialization of new vaccines within the past
       few years. Industry publications estimate that many new vaccines are in
       various stages of development and could be marketable within the next
       decade.
 
     - Favorable Environment for Vaccines:  Immunization programs are supported
       by state and federal governments and managed health care organizations
       because of their favorable impact on reducing both the incidence and cost
       of disease. This support for vaccines is critical as both the private and
       public sectors debate methods for controlling rising health care costs.
 
     - Antibiotic Resistance:  Not too long ago, antibiotics were considered to
       be "wonder drugs." Unfortunately, certain bacteria are becoming
       increasingly resistant to currently available antibiotics. Vaccines are
       one of the most promising alternatives for dealing with the growing
       problem of antibiotic resistance.
 
     - Success of Vaccine Programs:  Vaccines may have contributed more to
       disease eradication and reduction than any other modern medical
       intervention as some of the most devastating human diseases (polio,
       tetanus, measles, and others) have been significantly controlled by safe
       and effective vaccines. Many health experts believe similar successes can
       be achieved with future vaccines.
 
     - Cost Effectiveness of Vaccines:  Because of their ability to prevent
       diseases from occurring, vaccines are one of the most cost-effective
       methods for controlling health care costs. The Centers for Disease
       Control and Prevention ("CDC") estimates that every dollar spent on
       immunization in the United States saves $16 in health care costs. This
       positive cost/benefit ratio is powerful data given global efforts to
       control disease and associated health care costs.
 
     - Reduced Vaccine Liability:  During the mid 1980s, manufacturers were
       exposed to significant expenditures associated with lawsuits arising from
       alleged vaccine associated side effects. In an effort to foster
       development of new vaccines and protect the supply of existing vaccines,
       the United States federal government enacted the National Childhood
       Vaccine Injury Act ("NCVI Act"), which established a trust mechanism to
       limit manufacturers' liability associated with certain pediatric
       vaccines.
 
     - Improvement of Existing Vaccines:  Some currently available vaccines
       require multiple doses in order to adequately protect an individual and
       others are only marginally effective. Technological improvements in
       formulations that could address the shortcomings of existing vaccines
       could further expand the dollar size of the vaccine market.
 
     Need for Enhanced Vaccine Adjuvants/Delivery Systems.  Adjuvants are
compounds that augment or modulate immune responses when administered in
conjunction with a vaccine. Delivery systems are compounds which appropriately
target vaccines to cells of the immune system. Vaxcel believes there are several
strong medical/technical needs in the market for adjuvants/delivery systems
which will enhance the effectiveness and/or convenience of both vaccines
currently on the market and vaccines under development, including:
 
     - Reduce Number of Doses:  Many currently marketed injectable vaccines
       require multiple doses and several visits to a physician or medical
       center to adequately protect individuals against disease. This is a
       complex and costly procedure that often leads to noncompliance by
       individuals and higher costs to society. Therefore, benefits would be
       gained by reducing the number of required injections with an effective
       vaccine adjuvant/delivery system.
 
     - Increase Effectiveness of Existing Vaccines:  Some currently marketed
       injectable vaccines are only marginally effective, and consequently,
       patients contract disease even though they are properly
 
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<PAGE>   92
 
       immunized. Safe and effective adjuvants/delivery systems may increase the
       effectiveness of marginally effective vaccines, thereby improving patient
       response rates.
 
     - Increase Potency of New Vaccines:  A promising approach to new vaccine
      development is the area of subunit injectable vaccines. These subunit
      vaccines are highly purified, as only the active components of the
      microorganism are used in the formulation. While promising, many new
      subunit vaccine candidates are poorly immunogenic or induce inappropriate
      immune responses, and therefore, lack the efficacy required for FDA
      approval. Safe and effective adjuvants/delivery systems may enhance the
      effectiveness of injectable subunit vaccines, thereby providing the
      required efficacy for approval and ultimate commercialization.
 
     - Aid Development of Combination Vaccines:  Today, children receive
      multiple injections per physician visit in order to become properly
      immunized. One strategy for reducing the number of injections required is
      to combine several vaccines into a single formulation. Safe and effective
      adjuvants delivery systems may aid in the development of combination
      vaccines.
 
     - Aid in Development of Oral Vaccines:  Oral immunization has advantages
      over injectable vaccines, including patient acceptability, ease of
      administration, and induction of mucosal immunity. Adjuvants/ delivery
      systems which could possibly lead to the development of additional oral
      vaccines should be attractive in the marketplace.
 
     Vaxcel's Adjuvant/Vaccine Delivery System Technologies.  Prior to the
Merger, Vaxcel has been totally focused on development and commercialization of
OPTIVAX. After consummation of the Merger, Vaxcel will possess a portfolio of
proprietary injectable and oral vaccine adjuvants and delivery systems which are
designed to improve the effectiveness and/or convenience of currently marketed
vaccines and vaccines under development. The following table summarizes the
portfolio of technologies Vaxcel will possess once the Merger with Zynaxis is
consummated:
 
<TABLE>
<CAPTION>
 ADJUVANT/DELIVERY                                     ROUTE OF
      SYSTEM                  COMPOSITION            ADMINISTRATION
- -------------------    --------------------------    -------------
<S>                    <C>                           <C>
      OPTIVAX          Nonionic Block Copolymers      Injectable
Microencapsulation                PLG                    Oral
   Mucoadhesives         Mucoadhesive Polymers       Oral & Nasal
</TABLE>
 
     Discussed below is a brief description and current status of development of
OPTIVAX and the Zynaxis technologies.
 
     Vaxcel's Injectable Technology.  Vaxcel is developing OPTIVAX, the
tradename for a family of proprietary nonionic block copolymers which augment or
modify the immune response to vaccines when administered injectably. Each
copolymer molecule consists of a hydrophobic polyoxypropylene ("POP") core block
and hydrophilic polyoxyethylene ("POE") blocks on the ends. The ratio of POP to
POE and the molecular weight of the copolymers represent the proprietary
features of the molecule and are two factors that may dictate the ability of
OPTIVAX to enhance the activity of injectable vaccines.
 
     OPTIVAX is combined with an antigen, and in some instances other active or
inactive ingredients, to form a final vaccine formulation. OPTIVAX can
self-assemble into microparticles in saline solutions, and can therefore, be
used in the absence of oils and other surfactants which may contribute to
toxicities. This simple aqueous environment also preserves the integrity of the
antigen. OPTIVAX appears to act both as a delivery system that targets vaccines
to cells of the immune system and as a vaccine adjuvant that augments the immune
system's response to vaccines.
 
     Preclinical studies have been performed at Vaxcel and with
institutional/corporate collaborators to characterize the activity of injectable
OPTIVAX as an adjuvant/delivery system, including the following:
 
     - Vaxcel concluded a study evaluating the magnitude, kinetics, duration and
      function of antibody responses induced by a commercially available
      injectable trivalent influenza virus vaccine supplemented with several
      block copolymers. The results of this study demonstrated the adjuvant
      activity of
 
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<PAGE>   93
 
      OPTIVAX in animals and allowed for the identification of a certain
      copolymer, termed OPTIVAX CRL1005 copolymer, for possible use with this
      type of vaccine. The OPTIVAX CRL1005 copolymer increased the levels of
      antibodies specific for total virus preparations and HAI antibody
      responses in mice by approximately ten-fold.
 
     - Vaxcel completed a study of the OPTIVAX CRL1005 copolymer in combination
      with a currently marketed injectable influenza virus vaccine in non-human
      primates, a species that is more similar to humans than mice. In this
      study, the influenza vaccine alone proved to be only marginally
      immunogenic in these animals and required two immunizations to induce any
      detectable serum antibodies. However, the immunogenicity of the vaccine
      was increased by the addition of the OPTIVAX CRL1005 copolymer which
      augmented responses to both the influenza B virus and the influenza A
      virus strains.
 
     - In a study comparing the OPTIVAX CRL1005 copolymer to certain competitive
      injectable adjuvants, the activity of OPTIVAX CRL1005 copolymer in animals
      was comparable to or greater than these competitive adjuvants with respect
      to antibody responses, cytokines produced following antigen stimulation,
      and cytotoxic T-lymphocyte ("CTL") responses. The OPTIVAX CRL1005
      copolymer augmented antibody responses greater than certain single
      component adjuvants and was comparable to certain multicomponent systems.
      Vaxcel also demonstrated that OPTIVAX CRL1005 copolymer augmented both
      Type-l and Type-2 cytokine responses and induced CTL.
 
     - As part of an IND application filed with the FDA in late 1995, Vaxcel
      preclinically tested the injectable OPTIVAX CRL1005 copolymer in
      combination with a synthetic peptide based on the beta chain of human
      chonionic gonadotropin ("BetahCG") conjugated to diphtheria toxoid ("DT").
      In this study, the OPTIVAX CRL1005 copolymer augmented antibody responses
      specific for BetahCG to levels comparable to a Complete Freund's
      Adjuvant-like water-in-oil emulsion.
 
     - In addition to the OPTIVAX CRL1005 copolymer, Vaxcel has also evaluated a
      series of injectable copolymers with POP core units identical in size to
      CRL1005 (12,000), but with increasing concentrations of POE (2.5%-20%).
      Copolymers with POP core sizes ranging from 9,000 to 15,000 have also been
      evaluated.
 
       Vaxcel evaluated the adjuvant activity of these different, but related,
      injectable OPTIVAX copolymers in animals using two different protein
      immunogens: a currently marketed influenza virus vaccine and ovalbumin
      ("OVA"). The copolymers with the lowest POE concentration (2.5%-5.0%)
      functioned best with the influenza virus proteins and OVA was most
      compatible with OPTIVAX copolymers with slightly higher POE concentrations
      (7.5%-10%).
 
     Safety is critical when considering any new injectable vaccine
adjuvant/delivery system, as several compounds can induce an immune response,
but are too toxic either systemically or at the site of injection for use in
humans. For this reasons, Vaxcel has performed the following safety trials on
OPTIVAX:
 
     - Nonionic block copolymers consisting of POE and POP in the same
      orientation as OPTIVAX, but with different ratios and/or lower molecular
      weight blocks, have been used as wetting agents in a number of consumer
      products, such as toothpaste and mouth wash solutions. These products are
      considered to be safe and are listed in the National Formulary.
 
     - A toxicology study on the OPTIVAX CRL1005 copolymer was performed by
      Pharmakon Research International, Inc., Waverly, Pennsylvania, under
      contract with Vaxcel. In this study, no systemic or site of injection
      reactions were observed.
 
     - Under contract with Vaxcel, Coming Hazelton, Madison, Wisconsin,
      performed a series of general vaccine safety tests in accordance with the
      applicable federal regulations on the OPTIVAX CRL1005 copolymer
      administered in combination with the (LOGO)hCG-DT immunogen. All OPTIVAX
      CRL1005 copolymer formulations "passed" the regulatory general safety
      tests.
 
     - A pyrogenicity test was performed by Hazelton on (LOGO)hCG-DT in
      combination with the OPTIVAX CRL1005 copolymer and the product was found
      to be non-pyrogenic.
 
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<PAGE>   94
 
     Some potential injectable adjuvant products have appeared to be promising
in laboratory animals, but have not lived up to expectations in humans due to
lack of efficacy or toxicities. For this reason, Vaxcel believed it was
important to attempt to prove that OPTIVAX was safe and adjuvant active in
humans when given by the injectable route. Therefore, an IND was filed with the
FDA in late 1995 and an open-label, dose escalation Phase I clinical trial was
initiated in January 1996 to evaluate the safety and adjuvant activity of the
OPTIVAX CRL1005 copolymer in humans. In this trial, the OPTIVAX CRL1005
copolymer was administered in combination with BetahCG-DT, an antigen being
developed as an immunotherapeutic vaccine for patients with metastatic cancer.
The BetahCG-DT vaccine is a very poor immunogen without an adjuvant and
therefore had been tested in prior human trials only in adjuvant supplemented
formulations. The doses of OPTIVAX CRL1005 copolymer evaluated in this trial
were 3 mg, 10 mg, 25 mg, and 75 mg. All patients were scheduled to receive
three doses of the OPTIVAX+BetahCG-DT vaccine administered at monthly intervals.
The results from this Phase I trial are expected in the first quarter of 1997.
 
     Vaxcel's Oral Technologies.  To date, Vaxcel has been employing OPTIVAX in
the development of injectable vaccines. After consummation of the Merger, Vaxcel
will expand its program by using the Zynaxis proprietary delivery technologies
to develop oral vaccines. Discussed below is a description of this program.
 
     Most currently available vaccines are administered by needle injection to
stimulate the body's immune system by producing circulating antibodies against a
specific disease. Of the 16 vaccines currently in routine use in the United
States, 14 are delivered by the injection route as only polio and typhoid
vaccines are administered orally. Research has led to the increased recognition
that oral immunization is an important alternative to injectable administration
of vaccines, particularly when mucosal immunity is important. Also, oral
immunization has certain advantages over injectable vaccines, including patient
acceptability and ease of administration.
 
     As a result of the Merger, Vaxcel will acquire two different types of oral
vaccine delivery technologies: (i) microencapsulation and (ii) bioadhesives.
Vaxcel believes these oral delivery technologies may have commercial application
for many marketed vaccines currently administered by parenteral injection (e.g.,
influenza and hepatitis B), as well as certain new vaccines under development.
In addition, these technologies can be administered alone or in combination with
other vaccine carriers, delivery systems, and adjuvants.
 
     The PLG microencapsulation technology is based on the use of lactide and
glycolide polymers. The safety of PLG in humans is well recognized as these
polymers are both biocompatible and biodegradable and have been widely used as
synthetic absorbable sutures. The actual microencapsulation process involves the
trapping of an antigen into pockets or cavities formed within the PLG
microspheres during production. When the final vaccine formulation is
administered to humans, the PLG microspheres degrade and the encapsulated
antigen is then released to the appropriate immunological site in the body.
 
     While vaccines encapsulated in PLG microspheres can be administered by
parenteral injection, it is the oral delivery of vaccines using this technology
that may hold the most promise. Vaxcel believes the PLG microspheres may be
ideally suited for oral delivery of vaccines for several reasons. First, the PLG
microspheres appear to protect antigens from degradation during passage through
the acidic environment of the stomach. This property of PLG may allow the
antigen to be appropriately delivered to the Peyer's Patches, which are the
lymphoid tissues of the small intestines. Secondly, microspheres in the 1-10
micron size range can be reproducibly synthesized using PLG and there is certain
scientific evidence that this size range may be ideal for uptake by the Peyer's
Patches. Thirdly, the PLG polymers are hydrophobic, an important property since
hydrophobic materials may be more efficiently taken up through the Peyer's
Patches.
 
     Experimental vaccines encapsulated using PLG have been evaluated in
laboratory animals and non-human primates by academic and industrial scientific
groups. PLG encapsulated vaccines have induced systemic and mucosal antibody
responses following oral administration. They have also induced immune responses
that protected animals from experimental infectious challenge with both
bacterial and viral pathogens, including Helicobactor species (the causative
agent of common peptic ulcers), influenza virus, and simian immunodeficiency
virus. PLG-encapsulated vaccines have been and are continuing to be evaluated in
human clinical trials.
 
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<PAGE>   95
 
     The second oral vaccine delivery technology Vaxcel will acquire in the
Merger is based on bioadhesives, which are natural or synthetic polymers that
interact with the membrane surfaces of tissues. Bioadhesives that bind to
mucosal tissues or the mucin that coats these tissues are called mucoadhesives.
To date, mucoadhesive polymers have been favorably evaluated by others as
components in oral drug formulations.
 
     The bioadhesive oral vaccine delivery program is predominantly focused on
mucoadhesive polymers. The lead mucoadhesive polymer has been evaluated in a
mouse influenza vaccine model where it was shown to induce a stronger mucosal
immune response following a single oral dose than the injected vaccine. The oral
route was also used as a second vaccination to boost the pre-existing immune
responses induced by either injected or orally administered vaccines. This
second observation supports its potential use in humans where most adults have
pre-existing immunity either from previous vaccines or infection with influenza
virus.
 
     Vaxcel's Business Strategy.  Once the Merger is consummated, Vaxcel's
business strategy will be to develop and commercialize its portfolio of
proprietary vaccine adjuvants and delivery systems that can be used in
conjunction with existing vaccines and new vaccines under development. Vaxcel
plans to attempt to license its adjuvant/delivery system technologies on an
antigen-by-antigen basis to pharmaceutical/biotechnology companies engaged in
vaccine research and development. In the short-term, Vaxcel will focus its
licensing efforts on the OPTIVAX injectable delivery technology, because this
technology is more advanced from a development standpoint than the oral delivery
technologies being acquired from Zynaxis. At present, Vaxcel has option
agreements for the development of its OPTIVAX technology with Medeva and
Connaught and a license agreement with Corixa. Also, Vaxcel will acquire in the
Merger a development and licensing agreement with ALK for oral delivery of
bioactive substances for the treatment of allergy. Vaxcel will seek additional
corporate partners for development and commercialization of specific vaccines
incorporating its adjuvant/delivery system technologies. The strategy will be to
build a data package on each of its technologies in order to assure maximum
value under sublicensing agreements with its collaborators. Under such
agreements, sublicensees will combine Vaxcel's technologies with the
sublicensee's vaccines and assume responsibility for product development,
regulatory approval, and marketing at the expense of the sublicensee. In return,
Vaxcel will receive up-front licensing fees, milestone payments, and royalties
on sales. The structure of these arrangements and Vaxcel's responsibilities will
vary depending upon a number of factors, including the identity of Vaxcel's
collaborator, the potential market for the vaccine, and the stage of development
of the vaccine. Vaxcel believes these arrangements will limit its research and
development costs and speed market entry by capitalizing upon the expertise of
its partners.
 
     Current Corporate Collaborations.  Once the Merger is consummated, Vaxcel
will have four corporate collaboration agreements for the development of its
technologies:
 
          Connaught.  In August 1995, Vaxcel signed an option agreement with
     Connaught to evaluate OPTIVAX in combination with a Connaught vaccine being
     developed for the prevention of an infectious disease. Connaught, located
     in Swiftwater, Pennsylvania, is one of the largest vaccine companies in the
     world and offers the broadest range of human vaccines and biologicals
     commercially available from any single U.S. company. Connaught is a
     subsidiary of Connaught Laboratories Ltd. and a member of the Pasteur
     Merieux Serums & Vaccins family of companies.
 
          The option agreement gives Connaught exclusive rights to evaluate
     OPTIVAX with a vaccine currently under development at Connaught through
     Phase I human clinical trials. Under the terms of this agreement, Vaxcel
     received an upfront cash payment and Connaught will assume responsibility
     for all preclinical, clinical and regulatory activities. If the Phase I
     trials are successful, Connaught will have the right to negotiate an
     exclusive license to further develop and market OPTIVAX in the specific
     disease field. Under such a licensing arrangement, Vaxcel will receive
     further milestone payments, royalties on sales, and payments under a supply
     agreement for having OPTIVAX manufactured for Connaught.
 
          Medeva.  In October 1995, Vaxcel signed an option agreement with
     Medeva to evaluate OPTIVAX in combination with a Medeva viral antigen.
     Medeva is a London based pharmaceutical company specializing in the
     therapeutic areas of vaccines, respiratory products, and pain management.
     Medeva currently markets a variety of important vaccines and is also in
     late-stage development of a hepatitis B
 
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<PAGE>   96
 
     vaccine that may show utility in people for whom existing hepatitis B
     vaccines offer limited or no protection.
 
          This agreement gives Medeva rights to evaluate OPTIVAX in combination
     with their viral antigen in both preclinical and Phase I human clinical
     testing. In return, Vaxcel received an upfront cash payment and will
     receive milestone payments for successful product development. In addition,
     Medeva will fund product development activities. If the Phase I trials are
     successful, Medeva will have the right to negotiate a co-exclusive license
     to further develop and market OPTIVAX in the specific disease field. Under
     such a licensing arrangement, Vaxcel will receive further milestone
     payments, royalties on sales, and payments under a supply agreement for
     having OPTIVAX manufactured for Medeva.
 
          Corixa.  In April 1996, Vaxcel signed a definitive license agreement
     with Corixa for use of Vaxcel's OPTIVAX in combination with vaccines being
     developed by Corixa. Corixa, a privately-held Seattle-based biotechnology
     company formed in late 1994, is discovering and developing T cell
     therapeutic vaccines for the treatment of certain infectious diseases and
     cancer.
 
          Under terms of the agreement, Corixa received worldwide, exclusive
     rights to use OPTIVAX with a variety of cancer and infectious disease
     vaccines being developed by Corixa. Corixa also has the right to sublicense
     vaccines containing OPTIVAX. Corixa or its sublicensees will be responsible
     for conducting all development, regulatory submissions and marketing
     activities for their vaccines combined with OPTIVAX. In return, if vaccines
     are successfully developed, Vaxcel will receive milestone payments,
     royalties on sales, and payments under a supply agreement for having
     OPTIVAX manufactured for Corixa or its sublicenses.
 
          ALK.  Vaxcel will assume an agreement with ALK in the Merger. ALK is a
     world leader in the preparation and standardization of allergen extracts
     for allergy immunotherapy. In September 1995, ALK executed a development
     and licensing agreement under which Zynaxis granted ALK exclusive,
     worldwide rights to evaluate and develop Zynaxis' oral technologies for
     delivery of bioactive substances for the treatment of allergy.
 
          Prior to the Merger, Zynaxis received four quarterly payments from ALK
     totaling $1,000,000. Once the Merger is consummated, Vaxcel may receive
     additional milestone and royalty payments from ALK if ALK receives FDA or
     certain other regulatory approvals for allergy products using the Zynaxis
     vaccine delivery technologies. Under the terms of this agreement, ALK is
     responsible for conducting all development, regulatory submissions and
     marketing activities for ALK's allergy products using the Zynaxis
     technologies. In addition, ALK has the right to make or have made the PLG
     microspheres.
 
     In addition to the above mentioned corporate collaborations, Vaxcel has
several research and materials transfer agreements with leading vaccine
manufacturers and biotechnology companies whereby Vaxcel has provided its
adjuvant/delivery system technology for evaluation with their antigens. Under
other arrangements, some companies have provided Vaxcel with their antigens to
be tested in conjunction with Vaxcel's adjuvant/delivery system technology.
Assuming successful results from such evaluations, Vaxcel intends to pursue
sublicensing agreements or other arrangements with certain of these research
partners.
 
     Product Development Activities.  Discussed below is the current status of
two product development programs Vaxcel will have after the Merger is
consummated:
 
          Influenza Products.  Pursuant to an agreement with a corporate
     collaborator, the collaborator is attempting to develop an
     OPTIVAX-adjuvanted influenza virus vaccine. The influenza virus (commonly
     referred to as the "flu") is a significant health care problem almost every
     year, infecting about 20% of the global population. In an average year in
     the United States, influenza and its complications account for 20,000
     deaths (most notably in the elderly), 10-15 million patient visits to
     physicians, 600,000 or more hospitalizations, over 15 million days of lost
     work, and almost $10 billion in total direct health care costs. Some
     experts estimate that influenza causes more deaths and direct health care
     expenditures than acquired immune deficiency syndrome ("AIDS").
 
                                       80
<PAGE>   97
 
          At present, there is no effective therapy for influenza and vaccines
     are used to help prevent the incidence of the disease. The influenza
     vaccines that are administered in the United States may vary each year and
     their composition is determined by the CDC and others based on the types of
     viruses expected to be prevalent during the upcoming influenza season.
 
          The annual volume for flu vaccines in the United States has grown from
     about 20,000,000 doses in 1991 to over 70,000,000 doses today. A similar
     growth pattern has occurred in Western Europe. This strong growth has
     occurred even though: (a) currently marketed vaccines are only 30-80%
     effective in preventing influenza depending upon the age of the vaccinee
     (efficacy is generally lower in the elderly); (b) no new influenza vaccine
     has been developed in years; (c) compliance to annual immunizations is low
     even among high risk groups, despite strong recommendations to vaccinate by
     organizations such as the CDC; and (d) no major promotional effort has been
     initiated by marketers of flu vaccines for several years.
 
          Currently marketed influenza vaccines are considered to be highly cost
     effective despite their reduced efficacy. A 1994 large scale health
     maintenance organization study demonstrated a direct cost savings of
     approximately $117 per person vaccinated.
 
          Current vaccines have reached the limit of their potency and
     conventional approaches to improve efficacy, such as formulating with
     aluminium salts ("alum"), have failed to increase potency. In preclinical
     studies conducted by Vaxcel and a corporate collaborator, an OPTIVAX
     adjuvanted influenza vaccine increased the levels of antibodies specific
     for total virus preparations and HAI antibody responses versus the
     collaborator's influenza vaccine alone or supplemented with alum.
 
          Allergy Products.  Most individuals respond to pollens, animal
     proteins, or other environmental substances in a controlled fashion. In
     individuals who are allergic, the immune system responds inappropriately,
     resulting in congestion, allergic rhinitis and other symptoms. In severe
     cases, allergic reactions can include anaphylaxis and systemic shock.
 
          It is estimated that there are forty million individuals in the United
     States suffering from various allergies. The most common allergies are to
     grass pollens, ragweed, house dust mites, and cat dander. Steroids,
     antihistamines, decongestants, and cough syrups are used to treat allergy
     associated symptoms, but can cause substantial side effects and do not
     effect the underlying immune response. Approximately one to three million
     people who suffer severe or debilitating allergies are treated using
     immunotherapy. This typically requires weekly or monthly injections with
     allergen extracts over prolonged time periods, sometimes as long as several
     years.
 
          The allergy products being developed by a collaborator using the
     Zynaxis technologies may provide effective therapy in a convenient oral
     formulation. These products may increase the size of the allergy
     immunotherapy market by offering a more patient-friendly alternative to
     routine injections.
 
          At present, ALK is performing a Phase II human clinical trial with the
     PLG microencapsulation technology.
 
     Marketing and Sales.  If Vaxcel obtains approval for commercialization of
vaccines using its vaccine adjuvant/delivery system technologies, Vaxcel intends
to market and sell such products directly through its collaborators. Pediatric
vaccines are sold and distributed in the United States directly to private
practicing physicians (primarily pediatricians and generalists), pharmacies,
surgical supply dealers, and government agencies such as the CDC, the military,
and city, county and state health departments. For pediatric vaccines
recommended for routine use in children, approximately 50% of the doses are
distributed through the private sector and 50% through the public sector. Adult
vaccines are sold through the same channels, except with minimal pediatrician
and less extensive public sector involvement. The United States government
negotiates annual contracts for vaccines to be used in the public health sector.
These contracts are awarded based on price, ability to supply and product
innovation. Prices in the public sector are generally lower than those in the
private sector.
 
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     Because of well-documented reports on the cost-effectiveness of vaccines,
some managed health care organizations have initiated programs to increase the
immunization rates of their members. Other groups have implemented creative
programs, including incentives, to accomplish this goal. Vaxcel believes that
these programs will result in an increased demand for vaccines in the future.
 
     Patents and Proprietary Technology.  Vaxcel actively seeks patent
protection for its technologies, processes, uses, and ongoing improvements and
considers its patents and other intellectual property to be critical to its
business.
 
     Vaxcel has received a worldwide, exclusive license from CytRx for the use
of a series of certain copolymers as a vaccine adjuvants/delivery system. See
"-- Certain Transactions." The patent rights obtained by Vaxcel under the
agreement include three patents and patent applications in the United States and
selected foreign countries including, but not limited to, Japan, Canada, Israel,
Australia, China and the European Patent Office. These patents and patent
applications contain claims directed to the use of copolymers as vaccine
adjuvants/delivery systems and the use of the copolymers in any vaccine
preparation. The patent applications also cover novel copolymers, including the
composition of the OPTIVAX CRL1005 copolymer currently being developed by
Vaxcel. The patent applications also contain composition of matter claims for
certain vaccine delivery systems and vaccine formulations which contain
copolymers.
 
     The compositions and methods for the administration of bioactive agents to
and through the Peyer's Patches by means of microencapsulation in biocompatible,
biodegradable microspheres of 1-10 microns in diameter are protected by issued
patents, pending United States patent applications, and foreign counterparts
held by SRI and UAB. By means of the Merger with Zynaxis, this
microencapsulation technology will be exclusively licensed to Vaxcel in the
field of oral vaccine delivery. See "-- Certain Transactions."
 
     The European patent on the PLG microencapsulation technology is currently
being challenged by certain third parties and is the subject of an opposition
hearing. Based on the opinions of certain patent counsel, Vaxcel is optimistic
that the challenge by third parties will be unsuccessful and the patent will be
upheld.
 
     Through the Merger, Vaxcel will also acquire rights to pending United
States patent applications and foreign counterparts relating to the use of
polymeric mucoadhesives for the oral delivery of vaccines at mucosal surfaces
and compositions and methods for preparation of solid, orally administered
dosage units for live viral vaccines.
 
     Vaxcel continually evaluates the patentability of new inventions and
improvements developed by its employees and collaborators. Whenever appropriate,
Vaxcel will endeavor to file United States and international patent applications
to protect these new inventions and improvements. However, there can be no
assurance that any of the current pending patent applications or any new patent
applications that may be filed will result in issued United States or foreign
patents.
 
     Vaxcel also attempts to protect its proprietary products, processes and
other information by relying on trade secrets and non-disclosure agreements with
its employees, consultants and certain other persons who have access to such
products, processes and information. Under the agreements, all inventions
conceived by employees are the exclusive property of Vaxcel. Nevertheless, there
can be no assurance that these agreements will afford significant protection
against misappropriation or unauthorized disclosure of Vaxcel's trade secrets
and confidential information.
 
     Government Regulation.  The manufacture and sale of any product based on
Vaxcel's proprietary injectable and oral vaccine adjuvants and delivery systems
is subject to extensive regulation by United States and foreign governmental
authorities. In particular, vaccines and vaccine delivery systems are subject to
rigorous preclinical and clinical testing and other approval requirements by the
FDA in the United States under the federal Food, Drug and Cosmetics Act and by
comparable agencies in most foreign countries.
 
     As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animals to assess safety and efficacy. For
certain diseases, animal models exist which are believed to be predictive of
human efficacy, and the vaccine candidate is tested in such animal models. For
other diseases for which no animal model exists, the testing of a vaccine may
proceed to human trials, provided that preclinical
 
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<PAGE>   99
 
testing in animals establishes the safety of the vaccine and suggests a
relationship of the vaccine to the human immune response.
 
     After preclinical studies are completed, an IND must be submitted to the
FDA which contains, among other things, data regarding the results of all
preclinical studies, detailed characteristics of the vaccine (for example,
stability and chemical structure), methods of manufacturing and a detailed
description of the intended clinical trials. The data must be reviewed and
approved by the FDA prior to the initiation of clinical trials.
 
     Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. In Phase I, which frequently begins with the
introduction of the vaccine into healthy adult humans, the vaccine will be
tested for safety and, if possible, to gain early information on effectiveness.
Phase II typically involves studies in a small sample of the intended population
to assess the safety and efficacy of the vaccine and to determine the
appropriate dosing regimen. Phase III trials are undertaken in an expanded
target population at geographically dispersed study sites in order to confirm
safety and efficacy, determine the overall risk/benefit ratio of the vaccine,
and provide an adequate basis for physician labeling. Each trial is conducted in
accordance with certain standards under protocols that detail the objectives of
the study, the parameters to be used to monitor safety and the efficacy criteria
to be evaluated. Each protocol must be submitted to the FDA as part of the IND.
Furthermore, each clinical study must be evaluated by an independent
Institutional Review Board ("IRB") at the institution at which the study will be
conducted. The IRB will consider, among other things, ethical factors, the
safety of human subjects and the possible liability of the institution.
 
     The clinical trial requirements for FDA approval of an improved version of
a vaccine that is already on the market may differ from the requirements for a
new vaccine. For a new vaccine, a company must demonstrate in clinical trials
that the vaccine actually reduces the incidence of disease in healthy
individuals and that a certain antibody level has been achieved. This process of
establishing a clinical correlate usually takes place during Phase III trials,
can take two or more years to complete and can be extremely costly. Therefore,
the FDA approval process for a new vaccine from Phase I to commercialization can
take seven or more years. For certain improved versions of an existing vaccine,
however, the company may be required to demonstrate only that the vaccine
induces equal or greater antibody levels as compared to the original version of
the vaccine. Therefore, lengthy and costly clinical trials might be avoided for
these vaccine improvements, and the amount of time required to commercialize a
product might be reduced significantly.
 
     Data from preclinical testing, clinical trials, and related information on
a vaccine are submitted to the FDA in a Product License Application ("PLA") for
marketing approval. The process of completing clinical testing and obtaining FDA
approval for a new vaccine is likely to take a number of years and require the
expenditure of substantial resources. Preparing a PLA involves considerable data
collection, verification, analysis and expense, and there can be no assurance
that any approval will be granted on a timely basis, if at all. The approval
process is affected by a number of factors, including the severity of the
disease, the availability of alternative treatments and the risks and benefits
demonstrated in clinical trials. The FDA may deny a PLA if applicable regulatory
criteria are not satisfied, or it may require additional testing or information.
 
     Among the conditions for marketing approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to the FDA's GMP regulations, which must be followed at all times. In complying
with standards set forth in these regulations, manufacturers must continue to
expend time, money and effort in the area of production and quality control to
ensure full technical compliance. Manufacturing establishments, both foreign and
domestic, also are subject to inspections by or under the authority of the FDA
and by other federal, state or local agencies. In addition, manufacturers of
certain vaccines must submit a sample of each vaccine batch to the FDA.
Manufacturers of all vaccines must submit internal testing data for each batch.
For certain vaccines, the FDA is required to release each batch for commercial
sale which may involve additional testing by the FDA of the particular batch.
 
     Pursuant to the Prescription Drug User Fee Act of 1992, pharmaceutical
manufacturers now will be required to pay three types of user fees: (i) a
one-time application fee for a prescription New Drug Application ("NDA") or PLA;
(ii) an annual product fee imposed on prescription drug products after FDA
 
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<PAGE>   100
 
approval; and (iii) an annual establishment fee imposed on facilities used to
manufacture prescription drugs. Vaxcel estimates that its fees for the original
submission of a NDA or PLA involving clinical data could range up to $233,000
over the next five years, and annual establishment fees could range up to
$138,000; annual product fees will be less significant, but will be required for
each specific strength or potency of the marketed drug. Although there are
exemptions for certain products, and deferrals of payment and significant
discounts for small businesses, it still is uncertain how the FDA will interpret
and apply these provisions of the legislation.
 
     Even if a license to manufacture the vaccine has been obtained, further
studies, including post-marketing studies, may be required to provide additional
data on safety. Results of post-marketing programs may limit or expand the
further marketing of the products. Further, if there are any modifications to
the vaccine, including changes in indication, manufacturing process, labeling,
or a change in manufacturing facility, a PLA supplement may be required to be
submitted to the FDA. If the FDA has reasonable grounds to believe that a
vaccine presents a danger to health, and the regulatory grounds for license
revocation are met, the FDA may suspend a product license.
 
     Whether or not FDA approval has been obtained, approval of a product by
regulatory authorities in foreign countries must be obtained prior to the
commencement of commercial sales of the product in such countries. The
requirements governing the conduct of clinical trials and product approvals vary
widely from country to country, and the time required for approval may be longer
or shorter than that required for FDA approval. Although there are some
procedures for unified filings for certain European countries, in general each
country at this time has its own procedures and requirements.
 
     Competition.  Given the attractiveness of the vaccine market in terms of
sales potential, the number of biotechnology and large pharmaceutical companies
that are engaged in vaccine research and development has increased dramatically
over the past decade. In addition, Vaxcel is aware of significant vaccine
research and development activities at certain major universities and research
institutions. Consequently, competition is quite intense.
 
     The field of vaccine adjuvants/delivery systems has emerged in recent years
as immunologists have recognized the need for technologies capable of generating
potent immune responses. At present, the only adjuvant used in licensed human
vaccines is alum. While alum has been sufficient to augment human immunological
responses to certain potent antigens, alum is not effective with the new
generation of highly purified subunit vaccines under development which are
inherently less potent. In addition, alum has been evaluated with currently
marketed influenza vaccines in human clinical trials with unfavorable results.
 
     A number of companies are attempting to develop new injectable and oral
vaccine adjuvants/delivery systems and some have already licensed their
technologies to large pharmaceutical and/or biotechnology companies for the
development of certain vaccines. Vaxcel believes its major competitors in the
vaccine adjuvant/delivery field are: (i) Adjumer, Micromer, and VibrioVec
adjuvants/delivery systems by Virus Research Institute, Inc.; (ii) QS-21 by
Aquila Biopharm; (iii) MF59 by Chiron Biocine; (iv) MPL by Ribi Immunochem
Research, Inc., (v) ISCOMs by Isotec AB/CSL Limited; and (vi) liposomes by
multiple developers. After showing promising results in early development, some
of these competitive technologies have experienced problems (formulation
difficulties, systemic or site of injection toxicities, etc.) when subjected to
more extensive preclinical or clinical testing. These problems may limit the
usefulness of some of these competitive adjuvants/delivery systems.
 
     Regarding product development, Vaxcel is aware of competitors who are
attempting to develop improved influenza virus vaccines based on recombinant
antigens, injectable adjuvants, oral delivery systems, and intranasal
administration of attenuated strains, some of which are currently being
evaluated in human studies. Vaxcel and its corporate partner believe that the
OPTIVAX formulated influenza virus vaccine can effectively compete against these
alternative approaches based on the ease of formulation, safety, efficacy, and
development timetable of this formulation. In addition, Vaxcel will likely seek
additional corporate partners to develop oral influenza virus vaccines using the
acquired PLG microsphere and mucoadhesive technologies.
 
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<PAGE>   101
 
     The primary competitor in the allergy immunotherapy market is Immunologic,
a company developing peptide-based injectable products for cat dander, ragweed,
and other common allergies, some of which are in clinical development. Because
of the efficacy, ease of administration, and improved patient acceptance of the
oral allergy formulations being developing using the PLG technology, Vaxcel
believes these formulations will effectively compete with Immunologic's
peptide-based injectable products.
 
     Manufacturing.  Vaxcel currently does not have the capabilities to
manufacture any of its vaccine delivery/adjuvant technologies and plans to rely
upon collaborators and/or contract manufacturers to produce both its
technologies and final vaccine products for preclinical, clinical, and
commercial purposes.
 
     Vaxcel is required to purchase its requirements for bulk OPTIVAX copolymers
from CytRx or CytRx's designated third party contract manufacturer under the
terms of a supply agreement between Vaxcel and CytRx. See "-- Certain
Transactions." To date, Vaxcel has been contracting with CytRx to synthesize and
supply the bulk OPTIVAX copolymers under GMP conditions for both preclinical and
clinical purposes. Vaxcel believes that the manufacturing process used by CytRx
for the OPTIVAX copolymers currently under development can be readily scaled up
to permit bulk manufacture in commercial quantities by either CytRx or CytRx's
designated third-party contract manufacturer. After the bulk OPTIVAX copolymers
are supplied to Vaxcel by CytRx, Vaxcel plans to send this bulk material to
sublicensees at prices per kilogram which have been predetermined in a supply
agreement between Vaxcel and the sublicensee. The sublicensees will be
responsible for bulk manufacture of the antigen and for formulation of the final
vaccine product.
 
     Upon consummation of the Merger, Vaxcel will have no internal manufacturing
capabilities and no written agreement with a contract manufacturer for
production of the PLG microencapsulation technology. The PLG microspheres
currently being used in the ALK Phase II clinical trial were produced by SRI,
one of the original patent holders for the technology. In the near future,
Vaxcel will continue to rely on contract manufacturers, including SRI, for
supplying PLG microspheres for both preclinical studies and clinical trials of
the technology. Vaxcel believes that there are several third-party contract
manufacturers which could produce the PLG technology under GMP conditions and
Vaxcel will seek to identify and negotiate a written supply agreement with such
a supplier. In addition, under the terms of the license agreement for the
technology with SRI and UAB, Vaxcel will have the right to transfer the know-how
for manufacturing the PLG microspheres to its sublicenses and Vaxcel may employ
this strategy with certain sublicenses.
 
     Upon consummation of the Merger,Vaxcel will have no capabilities of
internally or externally manufacturing the mucoadhesive technology in accordance
with GMP conditions. To date, mucoadhesives have been produced at the laboratory
level in order to conduct preclinical studies. Assuming preclinical studies
continue to be positive, Vaxcel will seek a third-party contract manufacturer to
produce mucoadhesives for further development and clinical testing and Vaxcel
will attempt to negotiate a written supply agreement with such a manufacturer.
Vaxcel believes the mucoadhesives can be produced at commercial scale under GMP
conditions since this technology has been manufactured by others as components
in oral drug formulations.
 
CERTAIN TRANSACTIONS
 
     Vaxcel derives its rights to develop and commercialize OPTIVAX from a
license agreement with CytRx effective January 1993, as amended (the "OPTIVAX
Agreement"), which grants to Vaxcel the exclusive, worldwide right to develop
and sell certain copolymers covered by claims of certain United States and
foreign patent rights of CytRx, for use to enhance immune response in humans, in
combination with an antigen in a vaccine delivery system (the "OPTIVAX Field").
Expressly excluded from the OPTIVAX Field are use of the copolymers alone as
non-specific immune stimulants and use of the copolymers as therapeutic agents
for infectious diseases. Under the terms of the OPTIVAX Agreement, Vaxcel is
required to pay CytRx a 10% royalty on net sales by Vaxcel or its affiliates of
vaccines directly commercialized by Vaxcel in the OPTIVAX Field for the longer
of ten years from the first commercial sale of the product or the life of any
patent right covering the licensed product. CytRx has licensed certain of its
technology from Emory University and BASF Corporation. CytRx has agreed to pay
royalty owed to Emory University or BASF Corporation, if any, as a result of
Vaxcel's commercialization of licensed products. Vaxcel is responsible for all
other third-party royalties resulting from its activities under the OPTIVAX
Agreement. The OPTIVAX Agreement gives
 
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<PAGE>   102
 
Vaxcel the right to sublicense its rights, subject to certain conditions and the
payment to CytRx of 15% of the sublicense compensation received by Vaxcel.
Royalties paid to CytRx pursuant to this OPTIVAX Agreement amounted to $7,500,
$17,250, and $49,476 during 1996, 1995 and 1994, respectively.
 
     CytRx has the right to an exclusive license of any improvements made by
Vaxcel relating to the licensed products, to the extent such improvements fall
outside of the OPTIVAX Field, on terms that would be no less favorable to CytRx
than those included in the OPTIVAX Agreement. Vaxcel has the exclusive right and
title to any improvements made by Vaxcel within the OPTIVAX Field. Vaxcel has
agreed, during the term of the OPTIVAX Agreement and for a period of five years
thereafter, not to develop or commercialize any product that competes with the
development and commercialization activities of CytRx related to surfactant,
surfactant-like and glycosaminoglycan molecules and derivatives. CytRx has
agreed, during the term of the OPTIVAX Agreement, not to develop or sell any
product that consists of polyoxyethylene/polyoxypropylene copolymer in the
OPTIVAX Field. If CytRx discovers a copolymer that has a potential use in the
OPTIVAX Field that it has elected not to develop for any use, CytRx is required
to offer the copolymer to Vaxcel for licensing on substantially the same terms
as the OPTIVAX Agreement.
 
     The OPTIVAX Agreement may be terminated by CytRx under certain customary
circumstances (such as breach of the OPTIVAX Agreement by Vaxcel) and also may
be terminated by CytRx under the following circumstances: (i) Vaxcel fails to
use its best efforts to file a PLA with the FDA by January 1, 2000, for a
product not requiring full-scale efficacy trials; or (ii) Vaxcel fails to use
its best efforts to make any commercial sales of a licensed product in the
United States, Japan or Europe by January 1, 2001. The OPTIVAX Agreement may be
terminated by Vaxcel at any time upon sixty days' notice following breach of the
agreement by CytRx.
 
     The OPTIVAX Agreement gives Vaxcel the right to make finished vaccines but
does not provide the right to make the bulk copolymers, which are supplied by
CytRx under a supply agreement entered into between Vaxcel and CytRx effective
January 1993 and amended as of October 10, 1997 (the "Supply Agreement"). Under
the terms of the Supply Agreement, CytRx is to provide the OPTIVAX CRL1005
copolymer at prices per kilogram which have been predetermined in the Supply
Agreement. If Vaxcel requests CytRx to synthesize and supply a copolymer
different than the OPTIVAX CRL1005 copolymer, CytRx will offer to supply such
copolymers to Vaxcel upon terms similar to the OPTIVAX CRL1005 copolymer if such
copolymer is similar in structure and requires similar manufacturing procedures
with similar cost. In the event the cost of CytRx supplying such copolymers to
Vaxcel is not similar to the OPTIVAX CRL1005 copolymer or involves other
manufacturing processes, the parties will negotiate revised prices per kilogram
and all other terms of the Supply Agreement will remain unchanged. Vaxcel's
requirements of the copolymers are to be provided either directly by CytRx or
through a third-party supplier selected by CytRx. If CytRx or its licensed
third-party chemical manufacturer is unwilling or unable to supply the
copolymers, then Vaxcel and/or its sublicensees shall have the right to make or
have made the copolymers and CytRx will make appropriate manufacturing know-how
available to Vaxcel or its designee. The Supply Agreement is subject to
termination by CytRx upon a termination event under the OPTIVAX Agreement and in
other customary circumstances (such as a breach by Vaxcel). Amounts paid to
CytRx for production of copolymers were $10,923, $15,915, and $9,500 during
1996, 1995 and 1994, respectively.
 
     Upon consummation of the Merger, Vaxcel will acquire rights to the PLG
microencapsulation technology. The rights to develop, commercialize, and
sublicense the PLG microencapsulation technology is based on the terms of the
PLG Agreement, effective July 1987, in the field of oral vaccine delivery with
SRI and UAB. The PLG Agreement will grant Vaxcel the right to make, have made,
use, sell, and sublicense (with the consent of SRI and UAB) the oral PLG
technology. Expressly excluded from the PLG Agreement are use of the PLG
technology for vaccines administered via injection; non-vaccine drugs,
nutrients, proteins, and peptides; and enterically coated antigens. Under the
terms of the PLG Agreement, Vaxcel will be required to pay SRI and UAB: (i) an
annual minimum fee of $80,000 in 1997, which shall increase by $10,000 per year
from 1998 through 2002; (ii) 3.5% of net sales if ALK generates any product
sales using the microencapsulation technology; and (iii) 6% of net sales for the
life of the patent or patents or 5% of net sales for 15 years after the
effective date of the PLG Agreement should a patent or patents fail to issue or
be invalidated if third parties other than ALK generate any product sales using
the microencapsulation technology.
 
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<PAGE>   103
 
     The PLG Agreement may be terminated by SRI and UAB under certain customary
circumstances (such as breach of the agreement by Vaxcel) and also may be
terminated by SRI and UAB under the following circumstances after the
consummation of the Merger: (i) Vaxcel discontinues the business of developing,
making, or selling (directly and through sublicensees) the PLG technology for
more than 90 consecutive days; or (ii) Vaxcel becomes insolvent or declares
bankruptcy. After the Merger, the PLG Agreement may be terminated by Vaxcel at
any time upon giving 90 days' notice to SRI and UAB.
 
     Effective June 1, 1993 and amended October 10, 1996, Vaxcel and CytRx
entered into a services and facilities use agreement pursuant to which CytRx
agreed to provide Vaxcel with certain management, administrative, and scientific
services, as well as the use of certain administrative space at the CytRx
facility in Norcross, Georgia. CytRx has made available to Vaxcel certain
employees at various hourly rates based on salary plus overhead factors. Vaxcel
has no obligation to use any employees from CytRx, except in relation to the
supply of OPTIVAX copolymers, for any period during the agreement. For certain
administrative office space, Vaxcel will pay CytRx a monthly fee of $15 per
square foot of space used by Vaxcel. This fee paid by Vaxcel to CytRx includes
basic office furniture, utilities, taxes, general management and maintenance,
basic phone service, and reasonable usage of copy machines, office supplies,
postage, conference rooms, and other common areas. Pursuant to the services and
facilities agreement, out-of-pocket expenditures for such items as long distance
telephone, office equipment, large office supplies are paid directly by Vaxcel.
The agreement continues in force unless terminated by either party. At any time,
the agreement may be terminated by either party upon eight months' notice.
Amounts paid to CytRx pursuant to this agreement were $69,963, $105,246 and
$79,823 during 1996, 1995 and 1994, respectively.
 
     Effective January 1, 1996 and amended October 16, 1996, Vaxcel and
Proceutics entered into a facilities use agreement whereby Proceutics has
reserved and made available to Vaxcel approximately two-thirds of its vivarium
facility, together with the necessary support functions, and a 570 square foot
laboratory. Under the services and facilities agreement, for use of the vivarium
space, Vaxcel will pay Proceutics a monthly fee of $2,000 for the balance of
1996 and $3,250 for 1997, and for use of the laboratory space, Vaxcel will pay
Proceutics a monthly fee of $1,425 in 1996. Such fees will increase or decrease
annually on January 1 based on changes in the Producer Price Index. Upon three
months' written notice to Proceutics, Vaxcel may occupy less space in the
vivarium, with a corresponding reduction in monthly fees, if Vaxcel's planned
volume of experiments decreases. These fees paid by Vaxcel to Proceutics include
all utilities, taxes, maintenance, basic phone service, veterinarian services,
and reasonable usage of copy machines, warehouse, conference rooms and other
common areas. Vaxcel is responsible for all direct costs associated with animal
care and experiments in this facility. The agreement continues in force unless
terminated by either party. At any time, the agreement may be terminated by
either party upon 12 months' notice. During 1996 Vaxcel paid $51,000 to
Proceutics pursuant to the agreement.
 
     Effective March 15, 1997, in order to provide necessary funding for certain
expenses and operations of Vaxcel pending the Merger, CytRx and Vaxcel entered
into a Loan Agreement (the "Vaxcel Loan"), pursuant to which CytRx agreed to
lend up to $400,000 to Vaxcel. The purpose of the Vaxcel Loan is to provide
funding to Vaxcel for (a) certain expenses of the Merger incurred by either
CytRx or Vaxcel which, for various reasons, had not been paid directly by
Zynaxis, (b) certain expenses incurred by Vaxcel which are intended to benefit
Vaxcel post-merger, such as investment banking fees associated with a valuation
report to support Vaxcel's Nasdaq SmallCap Market listing application, and (c)
ongoing operational cash needs commencing April 1.
 
     As the anticipated closing date of the Merger has extended well beyond the
original timeframe contemplated at the date of the Agreement, CytRx's management
determined that it was in its best interest to require that its continued
funding of Vaxcel's operational cash needs beyond April 1 be repaid to CytRx
upon closing of the Merger. The financial impact to Vaxcel under this
arrangement is equivalent to that which would have occurred had the Merger
closed on April 1 or earlier.
 
     The Vaxcel Loan also includes approximately $48,000 of expenses paid by
Vaxcel (with previous funding from CytRx) pursuant to its collaborative research
arrangement with Medeva and which are reimbursable by
 
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<PAGE>   104
 
Medeva to Vaxcel. This amount will be included in the Vaxcel Loan, only to the
extent that reimbursement is not received from Medeva by Vaxcel prior to closing
of the Merger.
 
     The Vaxcel Loan is unsecured, has no conversion feature, and bears interest
at the rate of prime plus 2% per annum. However, interest will not begin to
accrue on outstanding balances under the Vaxcel Loan until May 1, 1997. All
principal and interest outstanding under the Vaxcel Loan will be due and payable
upon either the closing of the Merger, or upon termination of the Loan
Agreement.
 
FACILITIES AND EMPLOYEES
 
     In total, Vaxcel leases approximately 2,500 square feet of space within the
CytRx and Proceutics Norcross, Georgia complex. Vaxcel believes that these
facilities are sufficient for its needs for the near future.
 
     At present, Vaxcel has a staff of six individuals dedicated to the
development of its vaccine adjuvant/ delivery system technologies, two of whom
are Ph.D.s. None of Vaxcel's employees is represented by a labor union. Vaxcel
believes that its employee relations are good.
 
     Effective June 1, 1993, and amended October 10, 1996, Vaxcel and CytRx
entered into a services agreement pursuant to which CytRx agreed to provide
Vaxcel with certain management, administrative, and scientific services. CytRx
has made available to Vaxcel certain employees at various hourly rates based on
salary plus overhead factors. Vaxcel has no obligation to use any employees from
CytRx, except in relation to the supply of OPTIVAX copolymers, for any period
during the agreement. At any time, the agreement may be terminated by either
party upon eight months notice. See "Business of Vaxcel -- Certain
Transactions."
 
     A supply agreement has also been executed for CytRx to manufacture and
supply GMP copolymer for Vaxcel's development and commercial requirements for
OPTIVAX. See "Business of Vaxcel -- Certain Transactions".
 
PROPERTIES
 
     From January 1994 to August 1995, Vaxcel occupied administrative offices
and laboratories in a separate facility in Norcross, Georgia under a five-year
lease agreement. In August 1995, Vaxcel relocated its administrative offices and
laboratories to the CytRx and Proceutics complex in Norcross and subleased its
prior facility to SeaLite Sciences, Inc. commencing January 23, 1996. This
sublease agreement will remain in effect until January 22, 1999. The rental
income received by Vaxcel under this sublease agreement with SeaLite Sciences,
Inc. approximates Vaxcel's costs under the original lease agreement.
 
LEGAL PROCEEDINGS
 
     Vaxcel is not a party to any legal proceedings.
 
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<PAGE>   105
 
                              MANAGEMENT OF VAXCEL
 
DIRECTORS AND EXECUTIVE OFFICERS
 
     Vaxcel's directors and executive officers are as follows:
 
<TABLE>
<CAPTION>
                     NAME                     AGE                   POSITION
    ---------------------------------------   ---    ---------------------------------------
    <S>                                       <C>    <C>
    Paul J. Wilson.........................   44     President and Chief Executive Officer
    Jack J. Luchese........................   47     Chairman(1)
    Jack L. Bowman.........................   63     Director(1)
    Raymond C. Carnahan, Jr................   70     Director(1)
    Herbert H. McDade, Jr..................   69     Director(1)
    Mark J. Newman.........................   41     Vice President, Research & Development
    Mark W. Reynolds.......................   35     Chief Financial Officer and Secretary
</TABLE>
 
- ---------------
(1) Each Director holds office until his or her successor is elected and
     qualified or until his or her earlier resignation or removal.
 
     Mr. Wilson has served as President, Chief Executive Officer and a Director
of Vaxcel since August 1993. Prior to joining Vaxcel, Mr. Wilson was employed by
American Cyanamid (now part of American Home Products) from November 1974 to
August 1993. From 1992 to August 1993, Mr. Wilson served as Vice President and
General Manager of American Cyanamid's Lederle-Praxis Vaccine Division. In this
position, he had worldwide responsibility for sales, earnings, marketing, market
research, manufacturing, and quality control for Lederle-Praxis' complete line
of vaccine products. In other recent positions at American Cyanamid, Mr. Wilson
was Vice President of Marketing for Lederle Laboratories from 1991 to 1992,
where he had full marketing responsibility for Lederle Laboratories' United
States pharmaceuticals business. Prior to that, he was General Manager for
Lederle International's Canadian operations from 1988 to 1991. Throughout his
career, Mr. Wilson has held similar increasingly responsible positions in sales,
market research, marketing, and commercial operations. In various management and
marketing capacities during his career, Mr. Wilson has commercialized eight new
pharmaceutical products in both the United States and Canada, four of which were
vaccines.
 
     Mr. Luchese has been a Director of Vaxcel since its inception in January
1993 and the Chairman of the Board since October 1993. From January 1993 to
August 1993, Mr. Luchese served as President and Chief Executive Officer of
Vaxcel. Mr. Luchese has been President and Chief Executive Officer of CytRx
since March 1989 and became Chairman of the Board in June 1995. Prior to joining
CytRx, Mr. Luchese served as Vice President and General Manager of the Armour
Pharmaceutical Corporation, and as Vice President, Corporate Business
Development and a member of the Management Committee of Rorer Group, Inc. (now
Rhone-Poulenc Rorer). Prior to joining Rorer Group, Inc., Mr. Luchese was with
Johnson & Johnson Company for 15 years where he held various positions in
business development, licensing, sales, new products marketing, and finance. Mr.
Luchese also serves as a director of Proceutics, Inc. and Vetlife, Inc., wholly
owned subsidiaries of CytRx.
 
     Mr. Bowman has been a Director of Vaxcel since October 1993. Prior to his
retirement at the end of 1993, Mr. Bowman was Company Group Chairman at Johnson
& Johnson Company, a position he held from 1987. From 1991 to 1993, Mr. Bowman
was responsible for Johnson & Johnson Company's diagnostic, blood glucose
monitoring, and certain over-the-counter pharmaceutical businesses. Prior to
that assignment at Johnson & Johnson, he was responsible for a major portion of
Johnson & Johnson's global pharmaceutical businesses. From 1983 to 1987, he was
Executive Vice President of American Cyanamid Company where he was responsible
for the pharmaceutical, medical device, and over-the-counter and toiletry
businesses. Mr. Bowman has also served as President, Lederle Laboratories
Division and Executive Vice President, CIBA-GEIGY Pharmaceutical Division. Mr.
Bowman serves as a director of CytRx, NeoRx Corporation,
 
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<PAGE>   106
 
Pharmagenics, Inc., Cell Therapeutics, Inc. and Coating Technologies
International. He also is a director of Proceutics, Inc. and Vetlife, Inc., two
wholly owned subsidiaries of CytRx and is a former member of the Johns Hopkins
University Board of Trustees.
 
     Mr. Carnahan has been a Director of Vaxcel since March 1996. Mr. Carnahan
has over 39 years experience in cost controls and operational systems in a
variety of industries. Prior to his retirement in 1991, Mr. Carnahan served as
Manager, International Cost Analysis planning for Johnson & Johnson
International from 1974 to 1991. Mr. Carnahan is an arbitrator for the American
Arbitration Association and has provided consulting services to
Waterford-Wedgewood Corporation in England and to Torf Pharmaceutical
Corporation in Portland. Mr. Carnahan also serves as Treasurer for the
Morristown Memorial Hospital Chaplaincy Service in Morristown, New Jersey, and
is a director of CytRx. He also is a director of Proceutics, Inc. and Vetlife,
Inc., two wholly owned subsidiaries of CytRx.
 
     Mr. McDade has been a Director of Vaxcel since March 1996. From 1989 to
1996, Mr. McDade was Chairman, President, and Chief Executive Officer of Chemex
Pharmaceuticals, Inc., becoming Chairman of Access Pharmaceutical Co. (the
successor corporation to Chemex) in January 1996. From 1986 to 1989, he was
Chairman and President of Armour Pharmaceutical Corporation, a wholly owned
subsidiary of Rorer Group, Inc. (now Rhone-Poulenc Rorer). Prior to 1986, Mr.
McDade served as Vice President of the Revlon Corporation. Mr. McDade also
serves as a director of CytRx and is a member of the Board of Trustees of Thomas
Acquinas College. He also is a director of Proceutics, Inc. and Vetlife, Inc.,
two wholly owned subsidiaries of CytRx.
 
     Dr. Newman has served as Vice President, Research and Development of
Vaxcel, Inc. since January 1995. In this position, Dr. Newman is responsible for
all aspects of Vaxcel's research and development efforts. Prior to joining
Vaxcel, Dr. Newman was Associate Vice President, Research and Development, for
Apollon, Inc. during 1994 where he was responsible for developing DNA-based
vaccines. Prior to that, he was Director, Immunology and Virology Section and
Senior Director, Clinical Research, at the Biopharmaceuticals Division of
Cambridge Biotech Corporation (now called Aquila Biopharm) from 1989 to 1993. At
Cambridge, he was heavily involved with the development and clinical testing of
the QS21 saponin adjuvant for use with subunit vaccines. During his career, Dr.
Newman has received numerous grants from the National Institutes of Health and
over 50 articles written or co-authored by Dr. Newman have been published in
scientific journals. In addition, he has been involved with several new vaccine
review articles and book chapters. Recently, Dr. Newman co-edited a 900+ page
book entitled Vaccine Design: The Subunit and Adjuvant Approach.
 
     Mr. Reynolds has been Chief Financial Officer and Secretary of Vaxcel since
November 1996, prior to which time he served as Controller and Assistant
Secretary. Mr. Reynolds is concurrently serving as Chief Financial Officer and
Secretary of CytRx. Prior to his joining CytRx in 1988, Mr. Reynolds was
employed as a certified public accountant with Arthur Andersen LLP.
 
DIRECTOR COMPENSATION
 
     Directors who are employees of Vaxcel ("Employee Directors") or of CytRx
("Affiliate Employee Directors") do not currently receive any compensation for
their services as members of the Board of Directors of Vaxcel. Directors who are
also non-employee Directors of CytRx ("Affiliate Directors") currently receive
$3,000 for each two-day Board meeting cycle of CytRx and its subsidiaries
attended. These fees, and any travel-related costs incurred by Affiliate
Directors, are allocated among CytRx and its subsidiaries on a pro rata basis.
There are currently no Directors who are neither Employee Directors, Affiliate
Employee Directors, or Affiliate Directors ("Outside Directors"). Vaxcel expects
that, subsequent to the Merger, there will be one or more Outside Directors on
its Board. There are currently no established committees of the Board. Upon
consummation of the Merger, Vaxcel will establish an Audit Committee and a
Compensation Committee of the Board.
 
                                       90
<PAGE>   107
 
     All Directors, except Employee Directors, each receive an option to
purchase 5,000 shares of Vaxcel Common Stock upon joining the Board, and each
will receive 2,500 stock options each year thereafter upon their re-election to
the Board.
 
EXECUTIVE COMPENSATION AND OTHER INFORMATION
 
     The following table provides certain summary information concerning the
compensation earned for services rendered in all capacities to Vaxcel by the
executive officers of Vaxcel.
 
<TABLE>
<CAPTION>
                                                                              LONG-TERM
                                                                             COMPENSATION
                                                                             ------------
                                                    ANNUAL COMPENSATION       SECURITIES
                                                   ----------------------     UNDERLYING
                                                                 BONUS/         STOCK         ALL OTHER
           NAME AND POSITION               YEAR     SALARY     COMMISSION      OPTIONS       COMPENSATION
- ----------------------------------------   ----    --------    ----------    ------------    ------------
<S>                                        <C>     <C>         <C>           <C>             <C>
Paul J. Wilson..........................   1996    $205,250     $     --             --       $ 4,750(1)
  President & Chief Executive Officer      1995    $191,875     $     --             --       $ 4,620(1)
                                           1994    $179,500     $     --        100,000       $    --
 
Mark J. Newman..........................   1996    $122,500     $ 22,000         40,000       $ 4,750(1)
  Vice President                           1995    $108,513     $ 20,000        175,000       $29,128(2)
  R&D                                      1994    $     NA     $     NA             --       $    --
 
Mark W. Reynolds(3).....................   1996    $ 82,333     $ 25,000             --       $ 4,750(4)
  Chief Financial Officer and Secretary    1995    $ 76,000     $  8,000             --       $ 4,620(4)
                                           1994    $ 71,000     $  8,000             --       $ 4,620(4)
 
James M. Yahres(3)......................   1996    $151,000     $  5,000             --       $ 4,750(4)
  Former Chief Financial Officer           1995    $146,500     $ 15,000             --       $ 4,620(4)
  and Secretary                            1994    $141,000     $ 25,000             --       $ 4,620(4)
</TABLE>
 
- ---------------
(1) Vaxcel's matching contribution to CytRx's 401(k) Plan. Vaxcel does not have
     a 401(k) Plan. Employees of Vaxcel are eligible to participate in CytRx's
     401(k) Plan.
 
(2) Includes $3,830 of Vaxcel's matching contributions to CytRx's 401(k) Plan
     and $25,298 of costs associated with relocation.
 
(3) Mr. Reynolds and Mr. Yahres are employees of CytRx. No compensation is paid
     by Vaxcel directly to these individuals; the amounts shown in the table
     above represent total compensation paid to Mr. Reynolds and Mr. Yahres by
     CytRx for services rendered in all capacities for CytRx and its
     subsidiaries. Pursuant to a services and facilities use agreement between
     Vaxcel and CytRx (see "Business of Vaxcel -- Certain Transactions"), Vaxcel
     pays to CytRx a fee for the services rendered by these individuals as well
     as for other administrative services.
 
(4) CytRx's matching contribution to 401(k) Plan.
 
EMPLOYMENT AGREEMENT
 
     The employment agreement for Paul J. Wilson, President and Chief Executive
Officer of Vaxcel (the "Employment Agreement"), provides for a five-year term of
employment beginning August 16, 1993. Pursuant to the terms of the Employment
Agreement, Mr. Wilson's annual cash compensation is currently $214,000 and will
increase to $229,000, effective August 16, 1997, during the remaining term of
the Employment Agreement. In addition, Mr. Wilson has received options to
purchase up to 500,000 shares of Vaxcel Common Stock. Such options have an
exercise price of $1.50 per share. All of the options will vest
 
                                       91
<PAGE>   108
 
over the five-year period of Mr. Wilson's Employment Agreement if Vaxcel
achieves during such time period certain milestones related to both the vaccine
technologies and Vaxcel.
 
     The Employment Agreement may be terminated by Vaxcel under customary
circumstances, including "for cause" (as defined in the Employment Agreement),
without cause and upon the death or disability of Mr. Wilson. Upon termination
for cause, Mr. Wilson would be entitled to receive severance equal to from one
to three months' salary, depending upon the specific "for cause" event. Upon
termination of employment without cause by Vaxcel, Mr. Wilson would receive his
salary for one year (at the then current salary rate). Upon termination of
employment by reason of death or disability, Mr. Wilson would receive severance
equal to six months' salary. The vesting of options shall cease upon any
employment termination for cause; if Mr. Wilson's employment is terminated by
Vaxcel for any other reason, certain options that would have vested on the next
anniversary will be accelerated to vest immediately and certain others may vest
during the twelve-month period after termination.
 
     The current annual cash compensation for Dr. Mark J. Newman, Vice President
of Research and Development of Vaxcel, is $122,500 and will increase to $129,500
effective January 1, 1997. Dr. Newman is also eligible for an annual cash bonus
based on performance. Pursuant to his employment, Dr. Newman has also received
options to purchase up to 215,000 shares of Vaxcel Common Stock. Such options
have an exercise price of $1.50 per share. All of the options will vest over a
four-year period ending January 1999 if Vaxcel achieves during such time period
certain milestones related to its vaccine adjuvant/delivery system technologies.
 
     Option Grants in Last Fiscal Year.  The following table summarizes the
stock options granted during the fiscal year ended December 31, 1996, to each of
Vaxcel's executive officers named in the Summary Compensation Table.
 
<TABLE>
<CAPTION>
                              NUMBER OF
                              SECURITIES     % OF TOTAL                                    POTENTIAL REALIZED VALUE
                              UNDERLYING      OPTIONS                                      AT ASSUMED ANNUAL RATES
                               OPTIONS       GRANTED TO     EXERCISE OR                  OF STOCK PRICE APPRECIATION
                               GRANTED      EMPLOYEES IN    BASE PRICE     EXPIRATION    ----------------------------
           NAME                  (#)        FISCAL YEAR      ($/SHARE)        DATE            5%             10%
- ---------------------------   ----------    ------------    -----------    ----------    ------------    ------------
<S>                           <C>           <C>             <C>            <C>           <C>             <C>
Mark J. Newman.............     40,000          85.8           $1.50         12/05/06      $ 37,734        $ 95,625
</TABLE>
 
1993 STOCK OPTION PLAN
 
     Effective June 1, 1993, Vaxcel adopted its 1993 Stock Option Plan, as later
amended (the "Stock Option Plan" or the "Plan") for the purpose of promoting the
interests of Vaxcel by granting options to purchase Vaxcel Common Stock to key
employees, consultants, and non-employee and affiliate employee directors in
order to attract and retain qualified persons in those positions and in order to
provide an additional incentive to each such person to increase the value of the
Vaxcel Common Stock. Vaxcel has reserved 1,000,000 shares of Vaxcel Common Stock
for issuance under the Stock Option Plan, and the Plan is administered by the
Vaxcel Board. Pursuant to the Stock Option Plan, the Vaxcel Board, in its
complete discretion may grant options qualified under Section 422 of the Code to
"key employees" or consultants. The Stock Option Plan defines the term "key
employee" to mean any employee or officer of Vaxcel or the parent corporation or
any subsidiary of Vaxcel who, in the judgment of the Vaxcel Board acting in its
discretion, is a key to the success of Vaxcel or such parent or subsidiary.
Non-employee and affiliate employee directors also receive options pursuant to
the Stock Option Plan. The exercise price for all options granted under the Plan
shall be determined in accordance with the terms of the Plan, but in no event
shall the exercise price be less than the fair market value of a share of the
Vaxcel Common Stock on the date the option is granted. All qualified stock
options granted to key employees and consultants shall be exercisable as
determined by the Vaxcel Board at the time the option is granted, but in no
event shall the exercise date be later than the tenth anniversary of the date
the option is granted if the key employee or consultant is not a 10% stockholder
of Vaxcel. The options granted to non-
 
                                       92
<PAGE>   109
 
employee and affiliate employee Directors shall become exercisable with respect
to 33% of the Vaxcel Common Stock underlying such option on each anniversary
date following the date of the grant.
 
LIMITATION OF LIABILITY AND INDEMNIFICATION
 
     Provisions of Certificate of Incorporation.  As allowed by the DGCL,
Vaxcel's Certificate of Incorporation provides for the limitation of the
liability of the directors of Vaxcel for monetary damages to the fullest extent
permissible under Delaware law. This is intended to limit the personal liability
of a director to monetary damages incurred in an action brought by or in the
right of Vaxcel for breach of a director's duties to Vaxcel or its stockholders:
(i) for acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law; (ii) for any breach of the director's duty of loyalty
to Vaxcel or its stockholders; (iii) for any transaction from which a director
has derived an improper personal benefit; and (iv) as expressly imposed by
statute, for approval of certain improper distributions to stockholders or the
wasting of Vaxcel assets.
 
     Bylaws.  Vaxcel's Bylaws also permit Vaxcel to indemnify its officers and
directors to the fullest extent permitted by law.
 
     Directors and Officers Insurance.  As a majority-owned subsidiary of CytRx,
Vaxcel directors and officers are covered by CytRx's directors and officers
liability insurance policy which has a $3,000,000 limit.
 
                                       93
<PAGE>   110
 
                        PRINCIPAL STOCKHOLDERS OF VAXCEL
 
     The following table sets forth certain information, as of December 31,
1996, regarding the beneficial ownership of the Vaxcel Common Stock, and the
issuing of Vaxcel Common Stock pursuant to the Merger with respect to: (i) each
director of Vaxcel, (ii) each person who is known by Vaxcel to own beneficially
5% or more of the Vaxcel Common Stock, (iii) each of the named executive
officers, and (iv) all directors and executive officers of Vaxcel as a group.
The table sets forth the number and percentage of the outstanding shares
projected to be beneficially owned by each of such shareholders after
consummation of the Merger.
 
<TABLE>
<CAPTION>
                                               SHARES BENEFICIALLY           SHARES BENEFICIALLY
                                                      OWNED                         OWNED
                                                 PRIOR TO MERGER              AFTER THE MERGER
                                              ---------------------         ---------------------
  NAME AND ADDRESS OF BENEFICIAL OWNER(1)      NUMBER       PERCENT          NUMBER       PERCENT
- -------------------------------------------   ---------     -------         ---------     -------
<S>                                           <C>           <C>             <C>           <C>
CytRx Corporation..........................   8,250,004      97.8%          9,625,000      86.1%
  154 Technology Parkway
  Norcross, Georgia 30092
Paul J. Wilson.............................     120,000(2)    1.4%            120,000(2)    1.1%
  5775 Commons Lane
  Alpharetta, Georgia 30202
Mark J. Newman.............................      25,000(2)    0.3%             25,000(2)    0.2%
  230 Lazy Shade Court
  Duluth, Georgia 30136
Jack L. Bowman.............................       6,500(2)    0.1%              6,500(2)    0.1%
  9102 Mt. Vista Avenue
  Lummi Island, Washington 98262
Raymond C. Carnahan, Jr....................           0       0.0%                  0       0.0%
  2 Tiffany Road
  Morristown, New Jersey 07960
Jack J. Luchese............................           0       0.0%                  0       0.0%
  3915 River Hollow Run
  Duluth, Georgia 30136
Herbert H. McDade, Jr......................       6,500(2)    0.1%              6,500(2)    0.1%
  19 Beechwood Way
  Scarborough, New York 10510
Mark W. Reynolds...........................           0       0.0%                  0       0.0%
  9325 Delft Way
  Alpharetta, Georgia 30202
All directors and executive officers as a
  group (7 individuals)....................     158,000        1.9%           158,000        1.4%
</TABLE>
 
- ---------------
(1) Unless otherwise indicated and subject to community property laws where
    applicable, each of the stockholders named in this table has sole voting and
    investment power with respect to the shares shown as beneficially owned by
    such stockholder. A person is deemed to be the beneficial owner of
    securities that can be acquired by such person within 60 days from the date
    of this Proxy Statement upon exercise of options and warrants. Each
    beneficial owner's percentage ownership is determined by assuming options
    that are held by such person (but not those held by any other person) and
    that are exercisable within sixty days from the date of this Proxy Statement
    have been exercised.
 
(2) Made up of shares of Vaxcel Common Stock that the individual has option
    rights to acquire which are vested as of the date of this Proxy Statement
    and which are immediately exercisable as of the date of this Proxy
    Statement.
 
                                       94
<PAGE>   111
 
           SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ZYNAXIS
 
     The selected consolidated financial data as of December 31, 1996 and 1995,
and for each of the three years in the period ended December 31, 1996, is
derived from the consolidated financial statements of Zynaxis, which are
included herein. Such financial statements have been audited by Arthur Andersen
LLP, independent public accountants, whose report on the financial statements
includes an explanatory paragraph concerning Zynaxis' ability to continue as a
going concern. The selected consolidated financial data as of December 31, 1994,
December 31, 1993 and December 31, 1992, and for the years ended December 31,
1993 and December 31, 1992, is derived from the audited financial statements of
Zynaxis, not included or incorporated by reference herein. The following
selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Zynaxis" and the consolidated financial statements of Zynaxis and
notes thereto included in this Proxy Statement.
<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                               ----------------------------------------------------------------------
                                   1996           1995           1994          1993          1992
                               ------------   ------------   ------------   -----------   -----------
<S>                            <C>            <C>            <C>            <C>           <C>
STATEMENT OF OPERATIONS DATA:
  Revenues...................  $  2,050,467   $    761,792   $  1,163,955   $ 1,573,550   $ 1,166,658
Operating Expenses:
  Cost of sales..............            --         40,262        273,088            --            --
  Research and development...     3,642,195      5,168,912      6,344,221     7,042,790     4,341,691
  Marketing, general and
     administrative..........     2,019,042      2,239,921      3,397,948     2,875,112     1,263,317
  Charge for acquired
     research and
     development.............            --      5,165,793             --            --            --
  Restructuring charge.......            --        347,436             --            --            --
  Provision for asset
     impairment..............     1,152,130             --      1,466,360            --            --
                               ------------   ------------   ------------   -----------   -----------
                                  6,813,367     12,962,324     11,481,617     9,917,902     5,605,008
Other Income (Expense):
  Interest income (expense),
     net.....................       (58,934)        44,023        106,259       574,261     1,023,676
  Other income (expense).....       591,364        162,232             --            --            --
  Net gain on sale of
     diagnostics technologies
     and assets..............            --      1,616,840             --            --            --
                               ------------   ------------   ------------   -----------   -----------
                                    532,430      1,823,095        106,259       574,261     1,023,676
Net loss.....................  $ (4,230,470)  $(10,377,437)  $(10,211,403)  $(7,770,091)  $(3,414,674)
                               ------------   ------------   ------------   -----------   -----------
Net loss per common share....  $      (0.42)  $      (1.57)  $      (1.95)  $     (1.49)  $     (0.71)
                                ===========    ===========    ===========    ==========    ==========
Shares used in computing net
  loss per common share(1)...    10,126,676      6,602,813      5,241,317     5,204,967     4,837,661
 
<CAPTION>
                                                            DECEMBER 31,
                               ----------------------------------------------------------------------
                                   1996           1995           1994          1993          1992
                               ------------   ------------   ------------   -----------   -----------
<S>                            <C>            <C>            <C>            <C>           <C>
BALANCE SHEET DATA:
  Cash, cash equivalents and
     investments.............  $    124,348   $    509,143   $  2,216,456   $15,375,621   $22,901,516
  Working capital
     (deficit)...............    (2,029,680)      (733,698)     1,122,483    12,917,242    13,005,985
  Total assets...............     1,398,283      3,987,828      6,399,135    20,888,148    24,429,508
  Long-term debt and other
     long-term obligations...        65,511        183,403        212,245     3,833,841       312,058
  Stockholders' equity
     (deficit)(2)............    (1,110,557)     2,357,595      5,277,193    15,463,531    23,063,154
</TABLE>
 
- ---------------
(1) Computed on basis described for net loss per common share in Note 2 to Notes
     to Consolidated Financial Statements.
 
(2) Includes accretion of $2,543,068 to convertible preferred stock redemption
     value. No dividends on the Zynaxis Common Stock have been declared or paid
     since Zynaxis' inception.
 
                                       95
<PAGE>   112
 
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS OF ZYNAXIS
 
BACKGROUND AND SUMMARY OF 1996 EVENTS
 
     This review should be read in conjunction with the information presented in
the Consolidated Financial Statements of Zynaxis and the related Notes to the
Consolidated Financial Statements.
 
     Zynaxis commenced operations in July 1988 and initially focused on the
development of cell-mediated therapies and cellular diagnostic products
including research reagents for cell tracking. Between 1988 and 1991, Zynaxis
received funding primarily through venture capital financing involving the
issuance of convertible preferred stock and convertible notes, all of which have
since been converted into Zynaxis Common Stock. In January 1992, Zynaxis
completed an initial public offering of Zynaxis Common Stock, receiving net
proceeds of approximately $23,300,000 through the sale of 2,875,000 shares of
Zynaxis Common Stock. Between 1992 and 1994, Zynaxis focused on development of
products for site-directed drug delivery using its proprietary Zyn-Linker
molecules and on development of cellular diagnostic products, including its
Zymmune CD4/CD8 Cell Monitoring Kit.
 
     During 1995, Zynaxis modified its strategic direction, divesting its
diagnostic products, acquiring vaccine delivery technologies, and focusing its
resources on selected drug and vaccine delivery opportunities. Four key events
occurred in 1995 as a result of Zynaxis' restructuring: (i) the sales of
Zynaxis' diagnostic operations, accompanied by a significant reduction in
workforce, (ii) the acquisition by merger of Secretech and associated
technologies for oral and mucosal vaccine delivery, (iii) the completion of a
private placement which raised net proceeds of $2,700,000 to fund operations,
and (iv) the completion of a significant corporate collaboration agreement for
the development of certain technologies acquired through the merger with
Secretech. These events are described in detail within "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained in
Zynaxis' Annual Report on Form 10-K, as amended, for the year ended December 31,
1995.
 
     During 1996, Zynaxis attempted to develop its technologies and enter into
significant corporate collaborations. Other than Zynaxis' development and
licensing agreement with ALK, Zynaxis had limited success in entering into
significant collaborations.
 
   
     As part of its continued efforts to raise cash in order to finance its
ongoing operations, Zynaxis, in 1996, began to focus on the possibility of
selling its Cauldron process chemistry/pilot plant operations and its related
assets for cash. Cauldron was established by Zynaxis to utilize its process
chemistry expertise in response to growing demand for contract services.
Cauldron provides collaborative consulting services on all aspects of bulk
pharmaceutical production and provides research, development and pilot scale-up
facilities to the pharmaceutical, biochemical and fine chemical industries. In
July 1996, Zynaxis signed a letter of intent giving Seloc an exclusive option to
buy Cauldron. In conjunction with the execution of the letter of intent, Zynaxis
received a nonrefundable exclusive option payment of $100,000 and an up-front
payment of $50,000 on a Seloc process development contract. On August 27, 1996,
Zynaxis received notification that Seloc was terminating its option to purchase
Cauldron (the "Seloc Termination"). On March 21, 1997, Zynaxis entered into the
Asset Purchase Agreement with ProClinical, whereby ProClinical will purchase
substantially all of the Cauldron Assets. The purchase price for the Cauldron
Assets is $832,000. As a condition of the agreement, Zynaxis has agreed to
prepay $250,000 under the Lease. Upon closing of the sale, ProClinical will
assume all liabilities and obligations under the Lease, contracts and open
orders with customers, and certain other contracts and agreements.
    
 
     The Seloc Termination precipitated three significant strategic decisions,
described below. These included (i) a 40% reduction in operations and workforce
in September 1996 in order to conserve cash, (ii) the sale to Phanos of
intellectual property related to Zynaxis' Zyn-Linker technologies and (iii) the
decision to enter into a merger agreement with CytRx and Vaxcel.
 
                                       96
<PAGE>   113
 
     Zynaxis determined that, in order to conserve its limited cash resources,
it must limit its activities to those which were cash positive or were essential
to Zynaxis' operations. Accordingly, in September 1996, Zynaxis terminated
nearly all of its employees engaged in the research and development of Zynaxis'
Zyn-Linker and vaccine delivery technologies. As a result, Zynaxis' operations
were reduced to Cauldron process chemistry operations, research and development
funded through SBIR grants and other essential corporate functions. Zynaxis'
current staffing level is twelve full-time employees.
 
     On September 23, 1996, Zynaxis entered into an exclusive license agreement
and purchase option with Phanos for intellectual property related to its
Zyn-Linker technologies. At that time, Zynaxis received initial deposits
totaling $200,000, of which $195,000 was refundable should Phanos have decided
not to exercise the option. On January 21, 1997, Zynaxis received notification
that Phanos had exercised its option and Zynaxis received $525,000, representing
the balance of the purchase price. Under the terms of the agreement, Phanos
acquired all of Zynaxis' Zyn-Linker technologies.
 
     On December 6, 1996, Zynaxis entered into the Agreement with CytRx, Vaxcel,
and Vaxcel Merger Sub, as discussed more fully in "Description of Transaction."
 
     Zynaxis has not received significant revenues from the sale of any of its
products. For the period from its inception to December 31, 1996, Zynaxis had an
accumulated deficit of $49,751,000.
 
LIQUIDITY, CAPITAL RESOURCES AND PLANS TO FUND FUTURE OPERATIONS
 
     At December 31, 1996, Zynaxis had cash and cash equivalents of $124,348 and
a working capital deficit of $2,029,680. For the year ended December 31, 1996,
net operating cash outflow was $2,307,000.
 
     Zynaxis has funded operations since December 31, 1995 primarily through the
issuance of short-term promissory notes to certain holders of Zynaxis Preferred
Stock (the "Preferred Shareholders"), the completion of an additional private
offering, and a secured loan from CytRx.
 
     Zynaxis issued an aggregate of $450,000 of Zynaxis Notes to three of its
Preferred Shareholders in exchange for cash to fund operations. These Zynaxis
Notes bear interest at an annual rate of 11-1/4% and are to be repaid on the
earlier of (a) the date Zynaxis receives aggregate proceeds of at least
$1,000,000 from the sale of Cauldron, as discussed previously, or (b) upon
demand on selected dates in the third or fourth quarters of 1996. As additional
consideration, Zynaxis issued an aggregate of 225,000 Zynaxis Warrants with an
exercise price of $1.00 per share. In conjunction with the signing of the
Agreement in December 1996, the Note Exchange Agreement was entered into whereby
two of these three notes payable to shareholders will be exchanged for Vaxcel
Common Stock upon consummation of the Merger.
 
     During the first half of 1996, Zynaxis continued to attempt to raise
significant additional funds in a private offering. On February 29, 1996,
Zynaxis received cash proceeds of $500,000 in a private placement of Zynaxis
Common Stock to an institutional investor. Under the terms of the purchase
agreement, Zynaxis issued 500,000 shares of unregistered Zynaxis Common Stock at
a price of $1.00 per share, and a warrant to purchase 150,000 shares of
unregistered Zynaxis Common Stock at an exercise price of $1.00 per share.
 
     Additionally, on February 29, 1996, Zynaxis converted a $150,000 bridge
loan from a Preferred Shareholder and accrued interest thereon into 152,582
shares of unregistered Zynaxis Common Stock and issued a Zynaxis Warrant to
purchase 45,775 shares of Zynaxis Common Stock at an exercise price of $1.00 per
share.
 
     Simultaneously with the execution of the Agreement, Zynaxis and CytRx
entered into the Secured Loan Agreement in order for Zynaxis to have sufficient
funding for continued operations pending the Merger. The terms of the Loan allow
Zynaxis to borrow up to $2,000,000 from CytRx between December 6, 1996 and the
closing of the Merger. Proceeds from any amounts borrowed are to be used to
satisfy existing liabilities and to fund operations pending the Merger. As of
December 31, 1996, $975,000 had been advanced at a rate of prime plus 2%.
 
     Zynaxis is subject to significant uncertainty and risk which could have a
severe impact upon the ability of Zynaxis to continue as a going concern.
Zynaxis' independent public accountants have included an
 
                                       97
<PAGE>   114
 
explanatory paragraph in their report covering Zynaxis' financial statements for
the fiscal year ended December 31, 1996, expressing substantial doubt about
Zynaxis' ability to continue as a going concern.
 
     The estimated effort, timing, and resources necessary to develop the
Zynaxis vaccine delivery technologies into commercially viable products are
difficult to predict and will vary based on the products under development.
Management believes that the closest products to commercialization using the
Zynaxis technologies at present are the allergy products being developed by ALK.
Assuming continued successful development, it is possible that such allergy
products using the Zynaxis technologies may be commercialized in three to four
years. It should be noted that the resources necessary to develop the allergy
products using the Zynaxis technologies will be borne by ALK, since under the
terms of the ALK development and licensing agreement, ALK is responsible for
conducting all development, regulatory submissions, and marketing activities.
Products using the Zynaxis technologies other than the ALK allergy products will
require additional effort and resources to develop. For the PLG technology,
development efforts will be undertaken to increase the efficiency of uptake
through the Peyer's Patches or increase the immunogenicity of PLG-encapsulated
vaccines. For the mucoadhesive technology, the aim of the development program
will be to evaluate mucoadhesives with a variety of different antigens in
well-controlled preclinical studies. The objective for both of these programs is
to develop a data package on each Zynaxis technology in order to secure
licensing agreements with pharmaceutical/biotechnology companies engaged in
vaccine research and development. Under such licensing agreements, partners will
assume responsibility for product development, regulatory approval and
marketing. Consequently, the major expense of commercializing products using the
Zynaxis technologies will be borne by the sublicensees. Given that such
development programs are currently at the preclinical stage, the process for a
new vaccine from Phase I to commercialization can take seven or more years. This
timetable may be significantly reduced if partners are using the Zynaxis
technologies to commercialize improved versions of existing vaccines such as
influenza virus or Hepatitis B vaccines.
 
     Zynaxis is critically short of cash to fund its operations and has a
working capital deficit of $2,030,000. The ability of Zynaxis to operate as a
going concern beyond December 31, 1996 will be determined by its ability to
complete the Merger with Vaxcel. There can be no assurance that Zynaxis will
ultimately complete this transaction. Additionally, certain matters associated
with the transaction require the approval of shareholders. If Zynaxis is unable
to complete the transaction, if the shareholders fail to approve the Merger or
if certain conditions precedent to the closing of the Merger do not occur,
Zynaxis will not be able to continue operations. No assurance can be provided as
to when or if all of the conditions precedent to the Merger can or will be
satisfied. Pursuant to the terms of the Agreement, if the Merger is not
completed on or before March 31, 1997, the Agreement may be terminated by
Zynaxis, CytRx or Vaxcel. The parties intend to waive this condition.
 
     Should Zynaxis determine that it is no longer in the best interest of its
shareholders to continue operations, the ability of Zynaxis to fund an orderly
disposition of assets, pay off its then outstanding liabilities and return any
remaining cash to its shareholders will be limited by the amount of working
capital then on hand, if any.
 
     Zynaxis' net cash used for operations was $2,307,000, $5,104,000, and
$8,772,000 for the years ended December 31, 1996, 1995, and 1994, respectively.
The 55% decrease in the use of cash for operations between 1995 and 1996 was
primarily due to the full year effect of the divestiture of Zynaxis' diagnostic
operations and related reductions in workforce. Additionally, the growth in
Zynaxis' notes payable favorably impacted the change. The 42% decrease in the
use of cash for operations between 1994 and 1995 reflected the divestiture of
Zynaxis' diagnostics operations during 1995, combined with an increase in
accounts payable and accrued expenses.
 
     Zynaxis' net cash from investing activities was $205,000, $2,924,000, and
$7,575,000 for the years ended December 31, 1996, 1995, and 1994, respectively.
Included in 1996 cash flows were proceeds of $143,000 from the sale of equipment
and leasehold improvements and purchases of equipment of $35,000. Included in
1995 cash flows were proceeds from the sale of Zynaxis' diagnostic technologies
of $1,329,000, payment of Secretech merger-related expenses of $380,000 and
purchases of equipment and leasehold improvements of $54,000. In 1994, Zynaxis
used $652,000 to purchase property and leasehold improvements, primarily related
 
                                       98
<PAGE>   115
 
to the construction of Cauldron process chemistry/pilot plant operations and
expansion of available laboratory space.
 
     Zynaxis' net cash from financing activities was $1,815,000, $2,501,000, and
$(3,735,000) for the years ended December 31, 1996, 1995, and 1994,
respectively. For the years ended December 31, 1996 and 1995, Zynaxis received
net cash proceeds from private placements totaling $500,000 and $2,712,000,
respectively, and proceeds from bridge loans of $450,000 and $150,000,
respectively. Additionally, $975,000 was received in 1996 from a secured loan
with CytRx, as discussed above. In November 1996, a ten-year collateralized note
with Zynaxis' lessor of office and research facilities was satisfied in full for
$91,000, the amount of the collateral certificate of deposit. In 1995, Zynaxis
fully repaid a four-year $4,000,000 variable rate secured bank term loan which
had been obtained in 1993 to finance Zynaxis' leasehold improvements and
equipment purchases.
 
RESULTS OF OPERATIONS
 
     Revenues totaled $2,050,000 in 1996, $762,000 in 1995, and $1,164,000 in
1994. Revenues by major source in each of these years were as follows:
 
<TABLE>
<CAPTION>
                                                         1996          1995          1994
                                                      ----------     --------     ----------
    <S>                                               <C>            <C>          <C>
    Collaborative revenue from ALK..................  $  750,000     $250,000     $       --
    Collaborative revenue from Lilly................          --           --        749,000
    Other collaborative revenues....................      92,000       75,000             --
    Research reagent sales..........................          --       77,000        241,000
    Zymmune-related sales...........................          --       65,000        164,000
    Government grant revenues.......................     399,000      251,000             --
    Contract revenues...............................     809,000       44,000             --
                                                      ----------     --------     ----------
                                                      $2,050,000     $762,000     $1,164,000
                                                       =========     ========      =========
</TABLE>
 
   
     Collaborative revenue from ALK is a result of the development and licensing
agreement entered into between ALK and Zynaxis in October 1995. The agreement
provided that Zynaxis would receive $1,000,000 over a twelve-month period in
four equal installments of $250,000. The first installment was received in the
fourth quarter of 1995 and the three remaining installments were received within
the first eight months of 1996. Other collaborative revenues stem from research
done on behalf of ALK as well as a few other minor collaborations. The Lilly
agreement was terminated by Lilly in August 1994. Research reagent and
Zymmune-related sales were from Zynaxis' diagnostic operations, which were at
their highest level in 1994 and were subsequently divested during 1995. Grant
revenues increased from 1995 to 1996 due to an additional SBIR grant
(Zyn-Linker/Taxol-Phase I) that Zynaxis was awarded in April 1996, under which
$88,000 of revenue was recorded during 1996, and the existing SBIR grant
(Zyn-Linker/Heparin-Phase II) that Zynaxis was awarded in July 1995.
Consequently, Zynaxis had a full year of funded research in 1996 as compared to
only six months in 1995. Contract revenues were from Cauldron process
chemistry/pilot facility services provided to pharmaceutical, biotechnology and
chemical companies. These efforts commenced in late 1995 and were marketed more
aggressively in 1996, resulting in increased revenues.
    
 
     Zynaxis' revenues have fluctuated in the past and are expected to continue
to fluctuate in the future. Zynaxis does not expect to generate any ALK or
collaborative revenues in 1997. Zynaxis expects to generate approximately
$200,000 in grant revenue in 1997 based upon existing grants. There is no
assurance additional grant revenue will be received. Contract revenues are
dependent upon Zynaxis' ability to continue to market its process
chemistry/pilot facility services. Zynaxis is uncertain as to expected revenues
and there is no assurance that 1996 revenues are representative of future
results.
 
     Costs of sales in 1995 and 1994 related to the sale of both Zymmune and
research reagent products. With the divestiture of Zynaxis' diagnostic
technologies in 1995, and Zynaxis' focus on partnering its drug and vaccine
technologies with other companies, there were no costs of sales in 1996.
 
                                       99
<PAGE>   116
 
     Research and development expenses totaled $3,642,000, $5,169,000, and
$6,344,000 in 1996, 1995, and 1994, respectively. The 30% decrease between 1995
and 1996 resulted from the headcount reduction of nearly 40% in September 1996,
as well as the overall cost reduction measures adopted by Zynaxis during 1996
due to its dire financial condition. The 19% decrease between 1994 and 1995 was
primarily attributable to the divestiture of the diagnostic technologies, which
began in January 1995 with a 24% reduction in Zynaxis' workforce. Partially
offsetting the favorable effect of these reductions were nonrecurring costs of
approximately $820,000 related to the funding of Secretech's operations prior to
the effective date of the Secretch merger in July 1995, and additional
depreciation expense of Zynaxis' pilot plant which was operational for a full
twelve months in 1995.
 
     Marketing, general and administrative costs were $2,019,000 in 1996,
$2,239,000 in 1995, and $3,398,000 in 1994. Expenses in 1996 were higher for
legal fees of approximately $300,000, primarily due to extensive work regarding
the Vaxcel matters. This amount was more than offset by an overall reduction in
general and administrative expenses due to reduced operating activities and a
reduction of marketing, general and administrative expenses of approximately
$150,000 related to the December 1996 settlement of certain outstanding
liabilities at less than 100% of amounts owed and the adjustment relating to
Zynaxis' lease amendment. The 34% decrease between 1994 and 1995 was principally
due to 1994's significant Zymmune-related marketing costs of $1,219,000, which
ended with the January 1995 decision to divest the diagnostic operations.
 
     In connection with the acquisition of Secretech, in 1995 Zynaxis recorded a
charge of $5,166,000 for acquired research and development. This charge
represented the purchase of in-process research and development equal to the
value of the 4,132,075 total shares of Zynaxis Common Stock issued to the
Secretech shareholders, the excess of liabilities assumed over assets acquired,
as well as fees and expenses to effect the transaction.
 
     During 1995, in connection with the decision to divest its diagnostic
operations, Zynaxis recorded a restructuring charge of $347,000 representing
severance payments, inventory buy-back payments, and certain other costs
associated with and directly attributable to the decision to terminate its
diagnostic operations.
 
     During 1994, Zynaxis recorded a provision of $1,466,000 for the impairment
in the value of the assets associated with Zynaxis' diagnostic operations.
During 1996, Zynaxis recorded a provision of $1,152,000 for the impairment in
the value of the assets associated with Zynaxis' Cauldron operations.
 
     Zynaxis recognized interest income of $57,000, $81,000, and $367,000 in
1996, 1995, and 1994, respectively. The decreasing interest revenue was
attributable to declining investable assets.
 
     Zynaxis recognized interest expense of $116,000, $37,000, and $261,000 in
1996, 1995, and 1994, respectively. Interest expense in 1996 included a $60,000
charge deemed to be the value of 225,000 warrants to purchase Zynaxis Common
Stock that were issued during 1996. Also included in 1996 was approximately
$36,000 of interest expense accrued for notes payable to shareholders and the
note payable to CytRx. The higher interest expense in 1994 was the result of
Zynaxis' $4,000,000 term loan obtained in December 1993, which was substantially
repaid in the fourth quarter of 1994 and fully paid off in the second quarter of
1995.
 
     Other income of $591,000 in 1996 was primarily comprised of (1) $238,000
from Zynaxis' subleasing of certain excess space at its Malvern facility, (2)
$46,400 of royalty income earned from Phanos for manufacturing and distributing
its research reagent products, (3) the option payment from Seloc of $100,000
which was forfeited by Seloc when Seloc terminated the proposed acquisition of
Cauldron, and (4) approximately $131,000 of gain recognized by Zynaxis on the
sale of certain fixed assets during the fourth quarter of 1996. In 1995, other
income of $162,000 was primarily generated by the sublease agreements for the
excess space in Zynaxis' Malvern, Pennsylvania facility.
 
     In connection with the divestiture of its diagnostic technologies and
assets, Zynaxis recognized a net gain of $1,617,000 in 1995. This represented
the cash received from both the Intracel Corporation ("Intracel") and Phanos
transactions, and the discounted value of the secured promissory note received
from Intracel, reduced by certain lease termination and other technology
transfer costs.
 
                                       100
<PAGE>   117
 
BASIS OF ACCOUNTING
 
     The Zynaxis financial statements were prepared assuming Zynaxis will
continue as a going concern. Zynaxis' most significant assets are the Cauldron
assets, which are valued at $600,000, based upon the most recent non-binding
purchase proposal for these assets. All of the other assets are principally
monetary assets or are based on contractual arrangements. Zynaxis' liabilities
consist principally of trade payables and notes payable to its shareholders and
CytRx. The only other significant commitment is its facility lease, which is
expected to be assumed by the buyer of the Cauldron assets (see Notes 6 and 13
to Notes to the Consolidated Financial Statements). The asset and liability
carrying amounts do not purport to represent realizable or final settlement
values.
 
     The ability of Zynaxis to operate as a going concern beyond December 31,
1996 will be determined by its ability to complete the Merger with Vaxcel. In
the absence of the consummation of the Merger, the management of Zynaxis does
not believe that sufficient cash could be generated to support its operations
during 1997. If Zynaxis is unable to continue operations, the ability to fund an
orderly disposition of assets, pay off its then outstanding liabilities and
return any remaining cash to its shareholders will be limited by the amount of
working capital then on hand, if any.
 
                                       101
<PAGE>   118
 
                              BUSINESS OF ZYNAXIS
 
   
     Zynaxis, which commenced operations in 1988 and completed its initial
public offering in 1992, is a company engaged in the development of delivery
systems designed to enhance the performance of vaccines and drugs. In July 1995,
through a merger, Zynaxis acquired Secretech, a biotechnology company engaged in
the development of oral and mucosal vaccine delivery technologies. Vaccines
using Zynaxis' proprietary delivery systems can be administered orally or
nasally rather than by injection and have the potential to increase protective
immunity by stimulating formation of antibodies at the most common points of
entry for infectious agents. In October 1995, Zynaxis entered into a development
and licensing agreement with ALK, a Danish company and a leader in the area of
specific immunotherapy for allergies, which grants to ALK exclusive rights to
evaluate and develop Zynaxis' vaccine technologies for delivery of bioactive
substances to treat allergies. Prior to the acquisition of Secretech, Zynaxis
focused on the development of proprietary cell linker molecule technology
(Zyn-Linkers(R)) for the retention at disease sites of therapeutic drugs and
radiopharmaceuticals, as well as the development of cellular diagnostic products
(Zymmune(TM) CD4/CD8 Cell Monitoring Kit) to type and enumerate blood cells for
diagnosis and disease monitoring. In October 1995, Zynaxis sold the assets of
its cellular diagnostic products business to Intracel. In July 1995, Zynaxis
sold to Phanos rights to its Zyn-Linker technology for use as research and
diagnostic reagents, but retained all rights to therapeutic uses. In September
1996, Zynaxis entered into an exclusive license and purchase option agreement
with Phanos pursuant to which it granted Phanos a license for all of its
proprietary Zyn-Linker technology and an option to acquire such technology.
Phanos exercised the option and purchased the technology on January 21, 1997.
Zynaxis also operates the Cauldron division which provides collaborative
consulting services on all aspects of bulk pharmaceutical production and
provides research, development and pilot scale-up facilities to the
pharmaceutical, biochemical and fine chemical industries. On March 21, 1997,
Zynaxis entered into the Asset Purchase Agreement with ProClinical, whereby
ProClinical will purchase substantially all of the Cauldron Assets. The purchase
price for the Cauldron Assets is $832,000. As a condition of the agreement,
Zynaxis has agreed to prepay $250,000 under the Lease. Upon closing of the sale,
ProClinical will assume all liabilities and obligations under the Lease,
contracts and open orders with customers, and certain other contracts and
agreements.
    
 
                                       102
<PAGE>   119
 
                        SELLING SHAREHOLDERS OF ZYNAXIS
 
     The table below sets forth certain information regarding ownership of the
Vaxcel Common Stock by the Selling Shareholders as of February 15, 1997 (after
giving effect to the Merger and the exercise of the Vaxcel Warrants), and the
number of Resale Shares to be sold by them under this Proxy Statement. The
Resale Shares include (i) the shares of Vaxcel Common Stock issued by Vaxcel
hereunder to any persons who may be deemed to be "affiliates" of Zynaxis within
the meaning of Rule 145 of the Securities Act, (ii) the shares of Vaxcel Common
Stock issued by Vaxcel hereunder to certain shareholders of Zynaxis who have
entered into agreements with CytRx to vote in favor of the Merger at the Special
Meeting, (iii) the shares of Vaxcel Common Stock issuable upon the exercise of
Vaxcel Warrants issued by Vaxcel pursuant to the Preferred Stock and Warrant
Agreement and the Agreement to holders of Zynaxis Warrants in exchange for such
Zynaxis Warrants, and (iv) the shares of Vaxcel Common Stock issuable upon the
exercise of Vaxcel Non-Financing Warrants assumed pursuant to the Agreement in
exchange for the Zynaxis Non-Financing Warrants.
 
     In recognition of the fact that investors may wish to be legally permitted
to sell their Resale Shares when they deem appropriate, Vaxcel has filed with
the SEC, under the Securities Act, a Registration Statement, of which this Proxy
Statement forms a part, with respect to the resale of the Resale Shares from
time to time in transactions on the Nasdaq SmallCap Market, in negotiated
transactions or through other methods of sale and intends to prepare and file
such amendments and supplements to the Registration Statement as may be
necessary to keep the Registration Statement effective until the earlier of the
date on which the Resale Shares may be sold without restriction under the
Securities Act and the fifth anniversary of the Closing of the Merger. See "Plan
of Distribution."
 
<TABLE>
<CAPTION>
                                                 SHARES OWNED                              SHARES OWNED
                                             PRIOR TO OFFERING(1)                         AFTER OFFERING
                                            ----------------------       SHARES       ----------------------
                                            NUMBER OF                    BEING        NUMBER OF
       NAME OF SELLING SHAREHOLDER           SHARES     PERCENT(2)     OFFERED(1)      SHARES     PERCENT(2)
- ------------------------------------------  ---------   ----------     ----------     ---------   ----------
<S>                                         <C>         <C>            <C>            <C>         <C>
Euclid Partners III, L.P.(3)..............   288,781        2.6%         288,781            --        --
S.R. One, Limited(4)......................   226,836        2.1%         226,836            --        --
Sentron Medical, Inc.(5)..................   145,314        1.3%         145,314            --        --
Javelin Capital Fund, L.P.(6).............    94,700          *           94,700            --        --
Alphi Fund L.P.(7)........................    63,184          *           63,184            --        --
MassMutual Life Insurance Company(8)......    61,555          *           14,205        47,350         *
Plexus Ventures, Inc.(9)..................    47,933          *           47,933            --        --
The West Company(10)......................    47,350          *           47,350            --        --
William M. Spencer, III(11)...............    45,684          *           10,417        35,267         *
CIP Capital L.P.(12)......................    33,619          *           33,619            --        --
Grotech Partners III, L.P.(13)............    29,006          *            5,017        23,989         *
The UAB Research Foundation(14)...........    28,142          *           18,940         9,202         *
Biotechnology Venture Fund S.A.(15).......    18,940          *            9,470         9,470         *
Gus G. Casten(16).........................    13,660          *           13,660            --        --
Dennis P. Schafer(17).....................    13,170          *           13,170            --        --
Grotech Partners II, L.P.(18).............     3,792          *              654         3,138         *
Commonwealth Venture Partners I,
  L.P.(19)................................     3,788          *            3,788            --        --
Grotech III Companion Fund, L.P.(20)......     3,495          *              597         2,898         *
Grotech III Pennsylvania Fund, L.P.(21)...     2,100          *              360         1,740         *
Comdisco, Inc.(22)........................     1,081          *            1,081            --        --
Philadelphia Ventures-Japan I, L.P.(23)...       947          *              947            --        --
</TABLE>
 
- ---------------
 (*) Less than 1%.
 
 (1) Assumes the issuance of the Vaxcel Common Stock in the Merger in exchange
     for Zynaxis Common Stock, Zynaxis Preferred Stock and Zynaxis Notes and the
     exercise of Vaxcel Warrants to be issued in
 
                                       103
<PAGE>   120
 
     the Merger in exchange for Zynaxis Warrants and Vaxcel Non-Financing
     Warrants assumed in exchange for Zynaxis Non-Financing Warrants.
 
 (2) Based on 11,000,000 shares of Vaxcel Common Stock to be outstanding upon
     the consummation of the Merger.
 
 (3) Includes 64,469 shares of Vaxcel Common Stock issuable upon the exercise of
     Vaxcel Warrants to be issued to the Selling Shareholder in the Merger.
     Stephen K. Reidy, a director of Zynaxis from April 1995 to the Merger, is a
     general partner of Euclid Associates III, L.P., the general partner of
     Euclid Partners III, L.P.
 
 (4) Includes 17,619 shares owned of record by SmithKline Beecham Corporation,
     the parent of S.R. One, Limited. Also includes 51,138 shares of Vaxcel
     Common Stock issuable upon the exercise of Vaxcel Warrants to be issued to
     the Selling Shareholder in the Merger.
 
 (5) Includes 25,569 shares of Vaxcel Common Stock issuable upon the exercise of
     Vaxcel Warrants to be issued to the Selling Shareholder in the Merger.
 
 (6) Includes 47,350 shares of Vaxcel Common Stock issuable upon the exercise of
     Vaxcel Warrants to be issued to the Selling Shareholder in the Merger. Lyle
     A. Hohnke, a director of Zynaxis from April 1996 to the Merger, is a member
     of Javelin Venture Partners, L.L.C., a general partner of Javelin Capital
     Fund, L.P.
 
 (7) Includes 28,410 shares of Vaxcel Common Stock issuable upon the exercise of
     Vaxcel Warrants to be issued to the Selling Shareholder in the Merger.
 
 (8) Includes 14,205 shares of Vaxcel Common Stock issuable upon the exercise of
     Vaxcel Warrants to be issued to the Selling Shareholder in the Merger.
     Barry Gonder, a director of Zynaxis from March 1996 to September 1996, was
     an officer of Connecticut Mutual Life Insurance Company, the predecessor to
     MassMutual Life Insurance Company.
 
 (9) Includes 14,205 shares of Vaxcel Common Stock issuable upon the exercise of
     Vaxcel Warrants to be issued to the Selling Shareholder in the Merger. John
     F. Chappell, a director of Zynaxis from July 1995 to the Merger, is the
     President and sole shareholder of Plexus Ventures, Inc.
 
(10) Includes 23,675 shares of Vaxcel Common Stock issuable upon the exercise of
     Vaxcel Warrants to be issued to the Selling Shareholder in the Merger.
     Donald E. Morel, Jr., a director of Zynaxis from July 1995 to the Merger,
     is a vice president of The West Company.
 
(11) Also includes 10,417 shares of Vaxcel Common Stock issuable upon the
     exercise of Vaxcel Warrants to be issued to the Selling Shareholder in the
     Merger.
 
(12) Includes 25,095 shares of Vaxcel Common Stock issuable upon the exercise of
     Vaxcel Warrants to be issued to the Selling Shareholder in the Merger.
 
(13) Includes 5,017 shares of Vaxcel Common Stock issuable upon the exercise of
     Vaxcel Warrants to be issued to the Selling Shareholder in the Merger.
     Grotech Partners III, L.P., Grotech Partners II, L.P., Grotech III
     Companion Fund, L.P. and Grotech III Pennsylvania Fund, L.P. are affiliated
     venture capital funds, of which Grotech Capital Group, Inc. ("GCGI") is the
     general partner, except for Grotech Partners II, L.P. for which it is the
     general partner of the general partner. Deborah A. Smeltzer, a director of
     Zynaxis from 1990 to February 1995, was a managing director of GCGI during
     that time.
 
(14) Includes 18,940 shares of Vaxcel Common Stock issuable upon the exercise of
     Vaxcel Warrants to be issued to the Selling Shareholder in the Merger.
 
(15) Includes 9,470 shares of Vaxcel Common Stock issuable upon the exercise of
     Vaxcel Warrants to be issued to the Selling Shareholder in the Merger.
 
(16) Includes 2,367 shares of Vaxcel Common Stock issuable upon the exercise of
     Vaxcel Warrants to be issued to the Selling Shareholder in the Merger.
 
(17) Mr. Schafer was a director of Zynaxis from July 1995 to the Merger.
 
                                       104
<PAGE>   121
 
(18) Includes 654 shares of Vaxcel Common Stock issuable upon the exercise of
     Vaxcel Warrants to be issued to the Selling Shareholder in the Merger. See
     note (13) with respect to information regarding the Selling Shareholder's
     relationship to Zynaxis.
 
(19) Includes 1,894 shares of Vaxcel Common Stock issuable upon the exercise of
     Vaxcel Warrants to be issued to the Selling Shareholder in the Merger.
     Commonwealth Venture Partners I, L.P. ("Commonwealth") is an affiliated
     venture capital fund of Philadelphia Ventures-Japan I, L.P., both of which
     are managed by Philadelphia Ventures, Inc. ("PVI"). Thomas R. Morse, a
     director of Zynaxis from 1988 to July 1995, is a general partner of
     Commonwealth and an officer and shareholder of PVI.
 
(20) Includes 597 shares of Vaxcel Common Stock issuable upon the exercise of
     Vaxcel Warrants to be issued to the Selling Shareholder in the Merger. See
     note (13) with respect to information regarding the Selling Shareholder's
     relationship to Zynaxis.
 
(21) Includes 360 shares of Vaxcel Common Stock issuable upon the exercise of
     Vaxcel Warrants to be issued to the Selling Shareholder in the Merger. See
     note (13) with respect to information regarding the Selling Shareholder's
     relationship to Zynaxis.
 
(22) Represents 1,081 shares of Vaxcel Common Stock issuable upon the exercise
     of Vaxcel Warrants to be issued to the Selling Shareholder in the Merger.
 
(23) Includes 473 shares of Vaxcel Common Stock issuable upon the exercise of
     Vaxcel Warrants to be issued to the Selling Shareholder in the Merger. See
     note (19) with respect to information regarding the Selling Shareholder's
     relationship to Zynaxis.
 
                                       105
<PAGE>   122
 
                              PLAN OF DISTRIBUTION
 
     The Registration Statement of which this Proxy Statement is a part relates
to and covers the reoffering and resale by the Selling Shareholders (who are
listed in the Selling Shareholders of Zynaxis table included herein), or their
pledgees, donees, transferees or other successors, of the Resale Shares issued
or issuable to them by Vaxcel. Any Resale Shares owned by the Selling
Shareholders may be offered by them from time to time in transactions (which may
involve crosses and block transactions) on the Nasdaq SmallCap Market, in
negotiated transactions or otherwise, at market prices prevailing at the time of
sale or at negotiated prices. Selling Shareholders may sell some or all of the
shares in transactions involving broker-dealers, who may act solely as agent or
who may acquire shares as principal. There is no assurance that the Selling
Shareholders will sell any or all of the shares offered hereby. Broker-dealers,
agents or underwriters participating in such transactions as agent may receive
commissions from the Selling Shareholders and, if they act as agent for the
purchaser of the shares, from the purchaser. Participating broker-dealers may
agree with the Selling Shareholders to sell a specified number of shares at a
stipulated price per share, and to the extent such broker-dealer is unable to do
so as agent for the Selling Shareholders, the broker-dealer may purchase as
principal any unsold shares at the price required to fulfill the broker-dealer's
commitment to the Selling Shareholders. In addition, shares may be sold by
Selling Shareholders by or through broker-dealers in special offerings, exchange
distributions or secondary distributions, and in connection therewith
commissions in excess of the customary commission prescribed by applicable rules
may be paid to participating broker-dealers or, in the case of certain secondary
distributions, a discount or concession from the offering price may be allowed
to participating broker-dealers in excess of such customary commissions.
Broker-dealers who acquire shares as principal may thereafter resell such shares
from time to time in transactions on the Nasdaq SmallCap Market, in negotiated
transactions or otherwise, at market prices prevailing at the time of sale or at
negotiated prices, and in connection with such resales may pay to or receive
commissions from the purchaser of such shares.
 
     The Selling Shareholders and any underwriters, broker-dealers or agents
that participate in a distribution of such shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any discounts,
commissions or concessions received by any such underwriters, dealers or agents
might be deemed to be underwriting discounts and commissions under the
Securities Act. Under applicable rules and regulations under the Exchange Act,
any person engaged in a distribution of any of the Resale Shares may not
simultaneously engage in market activities with respect to any of the Resale
Shares for a period of nine business days prior to the commencement of such
distribution. In addition, the Selling Shareholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation Rules 10b-6 and 10b-7, which provisions
may limit the timing of purchases and sales of Resale Shares by the Selling
Shareholders. All of the foregoing may affect the marketability of the Resale
Shares.
 
     Vaxcel and Zynaxis will pay substantially all expenses incident to the
reoffering of the Resale Shares by the Selling Shareholders to the public, other
than commissions and discounts of underwriters, dealers or agents. Vaxcel will
receive no proceeds from any sales of such shares under this Proxy Statement by
any Selling Shareholders.
 
                                       106
<PAGE>   123
 
                              PROPOSED ASSET SALES
 
   
     Under Section 1932 of the PBCL, a sale of substantially all of the assets
of a Pennsylvania corporation may be made only pursuant to a plan of asset
transfer approved by the shareholders of such corporation. Pursuant to Section
1932(b) of the PBCL, the plan of asset transfer shall set forth the terms and
conditions of the sale, lease, exchange or other disposition or may authorize
the board of directors to fix any or all of the terms and conditions, including
the consideration to be received by the corporation therefor. The terms,
conditions and consideration to be received in connection with the sale of
substantially all the assets of Zynaxis, excepting the sale of the Cauldron
division, are not determinable until some future time when Zynaxis has
identified purchasers for the assets and negotiated terms, conditions and
consideration. Consequently, the plan of asset transfer adopted by the Zynaxis
Board and proposed by the Zynaxis Board to the holders of the Zynaxis Capital
Stock grants to the Zynaxis Board unrestricted authority to sell any and all of
the assets of Zynaxis (the "Assets") on any terms and conditions deemed
necessary or appropriate by the Zynaxis Board.
    
 
   
     Pursuant to the Liquidation Agreement, the Zynaxis Board has authorized
CytRx to serve as Zynaxis' agent and assist Zynaxis in selling the Assets at the
prices and settling of the liabilities listed in the Liquidation Agreement for
the amounts specified in the Liquidation Agreement no greater than indicated. In
particular, the Liquidation Agreement provides for the sale of various assets
located at Zynaxis' Malvern, Pennsylvania facility, including the leasehold
improvements, physical plant and laboratory equipment related to the Cauldron
division and the leasehold improvements, physical plant and laboratory equipment
associated with Zynaxis' research and development program for its Zyn-Linker(R)
and vaccine delivery technologies. Zynaxis also may sell the rights to a patent
for intranasal delivery of vaccines that may have no value to Vaxcel after the
proposed Merger. All Asset Sales, if any, are expected to be made to third
parties who are unrelated to Zynaxis or Vaxcel. As described above, the
Liquidation Agreement provides for certain proposed minimum amounts for which
certain classes of Assets may be sold. Specifically, the Liquidation Agreement
contemplated minimum proposed consideration amounts of $1,500,000 for the
Cauldron division and $350,000 in the aggregate for leasehold improvements,
physical plant and laboratory equipment associated with Zynaxis' research and
development programs. The Zynaxis Board established minimum amounts above the
prices that the Board believed represented fair market value for the assets to
be sold because the Board wanted to retain the authority to approve any sale in
which Zynaxis did not realize a premium price and because the Board knew that
the Company would not be able to sell the assets for more than the minimum
amounts. Since entering into the Liquidation Agreement on December 6, 1996,
Zynaxis has sold, in the ordinary course of business, leasehold improvements,
laboratory equipment and office furniture and equipment related to its
discontinued research and development programs for an aggregate purchase price
of approximately $160,000, thereby reducing the amount of such assets to be sold
pursuant to the Liquidation Agreement.
    
 
   
     The Zynaxis Board granted to a committee of Martyn Greenacre, John Chappell
and Stephen Reidy (the "Cauldron Committee") the authority to act on behalf of
the Board in connection with the sale of the Cauldron Assets. Pursuant to the
Liquidation Agreement, the Cauldron Committee engaged QED to assist the Company
in locating a buyer for the assets and to advise Zynaxis in connection with
negotiation of the sale. Zynaxis needed to sell the Cauldron Assets quickly
because the division was operating at a loss of approximately $15,000 per month.
QED mailed an information package to more than thirty brokers, financial
advisors and potential buyers, and followed-up with each of them. None of the
brokers or financial advisors identified additional potential buyers and only
three of the potential buyers that received information packages entered into
serious discussions with the Company.
    
 
   
     On November 20, 1996, a start-up life sciences company (the "First Bidder")
offered to pay $1.2 million for the Cauldron Assets, subject to the completion
of a due diligence review. The offer obligated the First Bidder (a) to execute a
promissory note for $100,000, which would be paid in 36 equal monthly
installments (after an initial 3 month grace period) and bear interest at the
rate of 8% per year, (b) to pay 18% of the quarterly gross revenues generated by
the Cauldron Assets over $250,000 until the payments totaled $1.1 million (the
"Earn-out Cap"), and (c) to assume the obligations of Zynaxis under the Lease.
Zynaxis allowed the First Bidder to begin its due diligence review, but did not
accept the offer. Zynaxis believed that
    
 
                                       107
<PAGE>   124
 
   
the assets had a present value of between $1.2 million and $1.4 million (4 to 8
times the $300,000 in quarterly gross revenues then being generated by the
Cauldron Assets).
    
 
   
     After completing part of its due diligence review of the Cauldron Assets,
the First Bidder modified its offer on December 9, 1996. The modified offer (a)
obligated the First Bidder to pay $50,000 in cash at the closing, (b) reduced
the Earn-out Cap to $1.05 million, (c) required the landlord under the Lease to
enter into a new lease with the First Bidder that (1) continued the rent at the
current rental rate, and (2) either reduced the space subject to the Lease, or
allowed the First Bidder to sublet approximately one-third of the leased space
without obtaining the landlord's consent, (d) conditioned the closing on the
First Bidder having obtained working capital financing based on the Cauldron
Assets having a liquidation value of at least $300,000, and (e) required Zynaxis
to accept the offer before December 23, 1996. The other terms of the offer
remained the same.
    
 
   
     On December 10, 1996, the Cauldron Committee consulted and unanimously
agreed to allow the modified offer to expire in accordance with its terms. The
committee allowed the offer to expire because it (a) had no assurance that the
First Bidder would earn the revenues required for the royalty payments to reach
the Earn-out Cap, (b) did not believe that the landlord would agree to the new
lease without lengthy negotiations, and (c) had no assurance that the First
Bidder would be able to obtain the required working capital financing.
    
 
   
     On February 4, 1997, Mr. Gary Casey, President and CEO of ProClinical, met
with Mr. Jack Luchese and Mr. Howard Wachtler, Managing Officer of QED, to
negotiate a purchase price for the Cauldron Assets. At the end of the
negotiations, Mr. Casey offered to purchase the assets for $600,000. The offer
obligated ProClinical (a) to pay $100,000 at the closing, an additional $200,000
within one year after the closing, and an additional $300,000 within two years
after the closing, and (b) to assume the obligations of Zynaxis under the Lease.
The offer was subject to completion of a limited due diligence review.
    
 
   
     After reviewing the ProClinical offer, Mr. Wachtler confirmed with the
financial advisors of the First Bidder that the company remained interested in
the Cauldron Assets, but would not improve its offer. The Cauldron Committee and
Messrs. Luchese and Wachtler met by telephone conference call on February 14,
1997, to revisit the First Bidder's offer and to review ProClinical's offer. The
committee unanimously agreed to authorize Mr. Greenacre to accept the
ProClinical offer subject to any modifications that he could negotiate to
increase the closing payment by a portion of the later payments. The Cauldron
Committee determined that ProClinical's offer was superior to the First Bidder's
offer because (a) the purchase price was not contingent upon ProClinical's
operation of the Cauldron Assets, (b) ProClinical assumed all of the obligations
of Zynaxis under the Lease, (c) ProClinical had completed substantially all of
its due diligence review of the assets, and (d) ProClinical did not need to
obtain financing to close the sale. Although the Cauldron Committee had
initially believed that it would find a buyer willing to pay more than the
purchase price offered by ProClinical, the committee determined that the
ProClinical offer was fair to and in the best interest of the Zynaxis
shareholders because the Company could not continue to absorb the operating
losses caused by operation of the Cauldron facility and QED had not been able to
locate another qualified buyer.
    
 
   
     On February 21, 1997, ProClinical delivered a letter of intent to Zynaxis
for the purchase of the Cauldron Assets. The letter of intent modified
ProClinical's previous offer by (a) increasing the closing payment to $832,000,
(b) eliminating the $200,000 second payment, and (c) obligating Zynaxis to
prepay $250,000 under the Lease. The increased closing payment represented the
original $600,000 plus $182,000 to reflect the present discounted value of the
eliminated $200,000 second payment and $250,000 to reflect the Lease prepayment.
    
 
   
     On February 27, 1997, a publicly-held life sciences company (the "Third
Bidder") offered to pay $750,000 for the Cauldron Assets, subject to the
completion of a due diligence review. The offer obligated the Third Bidder to
pay the purchase price over 18 months. On March 6, 1997, the Cauldron Committee
met by telephone conference call and unanimously agreed to reject the offer. The
committee rejected the offer because (a) the Third Bidder had not begun its due
diligence review and, accordingly, the committee had no
    
 
                                       108
<PAGE>   125
 
   
assurance that the Third Bidder could close the sale before the early April date
scheduled for the sale to ProClinical, (b) several key employees threatened to
quit rather than work for the Third Bidder since the Third Bidder intended to
use the assets only to perform services for itself and, accordingly, the
committee had no assurance that Zynaxis could continue to meet its contractual
obligations to customers before the closing or that the Third Bidder would meet
those obligations after the closing, and (c) the committee did want to enter
into an agreement subject to a due diligence review.
    
 
   
     On March 21, 1997, Zynaxis and ProClinical entered into the Asset Purchase
Agreement for the sale of the Cauldron Assets on terms substantially the same as
the terms set forth in the letter of intent. Upon closing of the sale,
ProClinical will assume all liabilities and obligations under the Lease,
contracts and open orders with customers, and certain other contracts and
agreements.
    
 
     The Cauldron Assets consist of (i) all inventories, (ii) certain furniture,
fixtures, machinery and equipment, (iii) all rights and privileges under
contracts and open orders with customers, (iv) all rights and privileges under
certain leases, licenses and agreements, (v) all accounts receivable and
customer deposits, (vi) all rights and interest under the Lease, and (vii) all
intangible assets, files, records and other assets used by Cauldron. The sale of
the Cauldron Assets is contingent upon the consummation of the Merger and
shareholder approval, as well as certain other conditions, and subject to all
conditions having been satisfied or waived, is expected to close on or before
May 31, 1997.
 
   
     Pursuant to the Liquidation Agreement, the Zynaxis Board (and any
applicable committees thereof) also approved (i) an operating budget for the
period between the date of the Liquidation Agreement and the Closing and (ii)
certain agreements to be entered into by Zynaxis and CytRx with Martyn D.
Greenacre and Michael A. Christie. Because the plan of asset transfer grants the
Zynaxis Board unrestricted authority to sell the Assets, the Zynaxis Board may
amend the Liquidation Agreement to change the Assets to be sold, the selling
prices of such Assets, the liabilities to be settled or the settlement value of
such liabilities, all without obtaining any further approval of the holders of
the Zynaxis Capital Stock.
    
 
     Pursuant to the Liquidation Agreement, Zynaxis has committed to exert its
commercially reasonable best efforts to sell the Assets and to cooperate with
CytRx in its efforts to assist Zynaxis in selling the Assets. Zynaxis has
committed to approve and execute documents evidencing and perform any agreement
negotiated by Zynaxis or CytRx with any prospective purchaser of any Zynaxis
asset if (i) the purchase price is no lower than the amount and is consistent
with the terms set forth in the Liquidation Agreement, and (ii) the other terms
and conditions of the transaction are not less favorable to Zynaxis in any
material respect than the terms and conditions of similar transactions.
 
     Zynaxis has committed to exert its commercially reasonable best efforts to
settle the liabilities and to cooperate with CytRx in its efforts to assist in
settling the liabilities. Zynaxis has committed to approve and execute documents
evidencing and perform any agreement negotiated by Zynaxis or CytRx with any
creditor for any liability, if (i) the cash payment required to be paid by
Zynaxis to such creditor is no greater than the settlement amount and is
consistent with the terms set forth for such liability in the Liquidation
Agreement, and (ii) the other terms and conditions of the transaction are not
less favorable to Zynaxis in any material respect than the terms and conditions
of similar transactions.
 
     The Liquidation Agreement further provides that, subject to approval by the
Committee (as defined below), which approval will not be unreasonably withheld,
Vaxcel shall approve and execute documents evidencing and perform any agreement
negotiated by CytRx with any counsel, accountants, appraisers, brokers and other
advisors in connection with the transactions (all for the account of Zynaxis),
if (i) such person is not an affiliate of CytRx, and (ii) the terms and
conditions of such agreement, taken as a whole, are fair to Zynaxis.
 
     In connection with CytRx's activities on Zynaxis' behalf, the Liquidation
Agreement provides that Zynaxis agrees to cooperate with CytRx, to furnish or
cause to be furnished to CytRx such information and data as CytRx may reasonably
request, and to give CytRx reasonable access to Zynaxis' officers, directors,
employees, appraisers and independent accountants.
 
                                       109
<PAGE>   126
 
     The members of the Committee are John F. Chappell, Stephen K. Reidy and
Martyn D. Greenacre, and the Committee has full authority of the Zynaxis Board
to authorize the transactions and the institution and prosecution of actions
(including arbitration proceedings) relating to the transactions contemplated by
the Liquidation Agreement. The Committee will confer with CytRx at such times as
CytRx reasonably requests.
 
     The Liquidation Agreement also provides that Zynaxis will reimburse CytRx
promptly for all reasonable out-of-pocket expenses, including reasonable fees
and expenses of CytRx's counsel, incurred in connection with the rendering of
CytRx's services under the Liquidation Agreement. Zynaxis also agrees to
indemnify CytRx in accordance with certain indemnification provisions.
 
     CytRx may terminate the Liquidation Agreement at any time upon written
notice, without liability or continuing obligation to Zynaxis. Zynaxis may not
terminate the Liquidation Agreement unless and until the Agreement is
terminated.
 
     THE BOARD OF DIRECTORS OF ZYNAXIS RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE ASSET SALES.
 
                                       110
<PAGE>   127
 
                              AMENDMENT OF ZYNAXIS
                           ARTICLES OF INCORPORATION
 
     The text of the proposed amendment to the Articles of Incorporation of
Zynaxis to be effected by the Charter Amendment, is attached as Appendix C to
this Proxy Statement and is incorporated herein by reference. The following
summary is qualified in its entirety by reference to Appendix C to the Proxy
Statement.
 
     Zynaxis is subject to various statutory "anti-takeover" provisions of the
PBCL, including Subchapter 25E of the PBCL. Subchapter 25E of the PBCL generally
provides that any holder of voting shares of a Pennsylvania registered
corporation that becomes the subject of a control transaction (as described
below) is entitled to receive cash for each of such person's voting shares in an
amount equal to the "fair value" of each voting share as of the date on which
such control transaction occurred. Although Subchapter 25E of the PBCL provides
for a judicial appraisal procedure, "fair value" is defined to be not less than
the highest price per share paid by the acquiror in a control transaction at any
time during the 90-day period ending on and including the date of the control
transaction, plus, to the extent not reflected in such price paid, an increment
representing any value, including, without limitation, any proportion of any
value payable for control of such corporation. A control transaction is the
acquisition by a person (or group of persons acting in concert) of voting power
over voting shares of a registered corporation which would entitle the holders
of such shares to cast 20% or more of the votes that all shareholders would be
entitled to cast in an election of directors of such corporation.
 
     Because of Subchapter 25E of the PBCL, CytRx could not purchase 20% or more
of the shares of Zynaxis Capital Stock in a tender offer or other transaction
without all holders of shares of Zynaxis Capital Stock having the right to
immediately put the shares of Zynaxis Capital Stock to CytRx for at least the
cash value of the consideration to be offered in the Agreement. Unless the
Zynaxis shareholders approve the Charter Amendment, Vaxcel and CytRx will have
to comply with the provisions of Subchapter 25E.
 
     Pursuant to Section 2541(a)(4) of the PBCL, the articles of incorporation
of a Pennsylvania corporation can explicitly provide that Subchapter 25E is not
applicable either by a provision contained in the original articles of
incorporation of such corporation or by an amendment adopted by the shareholders
of such corporation prior to a control transaction.
 
     The Articles of Incorporation of Zynaxis do not currently contain a
provision making Subchapter 25E inapplicable to Zynaxis. The adoption of the
Charter Amendment amending the Articles of Incorporation and making Subchapter
25E inapplicable to the Merger is a condition to consummation of the Merger. The
vote required for approval of the Charter Amendment is an affirmative vote of
(i) a majority of the votes cast, whether in person or by proxy, by all holders
of Zynaxis Preferred Stock (voting on an as converted basis) and by all holders
of Zynaxis Common Stock, entitled to vote and voting together as a class; and
(ii) a majority of the votes cast, whether in person or by proxy, by all holders
of Zynaxis Preferred Stock, entitled to vote and voting as a separate class.
 
     THE ZYNAXIS BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE CHARTER
AMENDMENT.
 
                                       111
<PAGE>   128
 
                      DESCRIPTION OF VAXCEL CAPITAL STOCK
 
     The authorized capital stock of Vaxcel consists of 30,000,000 shares of
Vaxcel Common Stock, par value $.001 per share, and 2,000,000 shares of
Preferred Stock, par value $.001 per share ("Vaxcel Preferred Stock").
 
COMMON STOCK
 
     As of February 20, 1997, there were 8,250,004 shares of Vaxcel Common Stock
outstanding, all of which are held by CytRx. Holders of shares of Vaxcel Common
Stock are entitled to one vote per share on all matters to be voted upon by the
shareholders and are not entitled to cumulative votes for the election of
directors. Holders of shares of Vaxcel Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors of Vaxcel out of funds legally available therefor. In the
event of liquidation, dissolution or winding up of Vaxcel, the holders of shares
of Vaxcel Common Stock are entitled to share ratably in all assets remaining
outstanding. Shares of Vaxcel Common Stock have no preemptive, conversion or
other subscription rights and there are no redemption or sinking fund provisions
applicable to Vaxcel Common Stock.
 
     For a further description of Vaxcel Common Stock, see "Effects of the
Merger on Rights of Shareholders."
 
PREFERRED STOCK
 
     Vaxcel is authorized to issue up to 2,000,000 shares of Vaxcel Preferred
Stock, none of which are outstanding. The shares of Vaxcel Preferred Stock may
be issued by the Vaxcel Board, from time to time, in one or more classes or
series, the shares of each class or series having such voting powers, full or
limited, or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions, as are stated and expressed in the Certificate of Incorporation
or in the resolution or resolutions providing for the issue of such class or
series, adopted by Vaxcel's Board.
 
VAXCEL WARRANTS
 
     The Vaxcel Warrants to be issued in exchange for the Zynaxis Warrants upon
consummation of the Merger are governed by the Preferred Stock and Warrant
Agreement and their own terms. The Vaxcel Warrants are convertible into shares
of Vaxcel Common Stock. Pursuant to their terms, the Vaxcel Warrants are
immediately exercisable upon consummation of the Merger and have a term of one
year from the Closing. The Vaxcel Warrants are exercisable at a price per share
equal to: (i) the Per Share Price divided by (ii) the Exchange Ratio (the
"Vaxcel Warrant Price"). Beginning at the sixtieth day following the Closing,
the Vaxcel Warrants are exercisable at a price per share equal to two times the
Vaxcel Warrant Price in effect immediately prior to such time, subject to
adjustment by the terms of such Vaxcel Warrant in the case of a merger,
consolidation, or reorganization of Vaxcel.
 
     The Vaxcel Warrants may be exercised during their term in whole or in part
by the surrender of such Vaxcel Warrant, with the purchase agreement attached to
such Vaxcel Warrant properly completed and executed, at the principal office of
Vaxcel and upon payment to it by certified check or bank draft to the order of
Vaxcel for the purchase price for the shares to be purchased upon such exercise.
 
     The Vaxcel Warrants and the shares of Vaxcel Common Stock that may be
issued upon exercise thereof have not been registered under the Securities Act,
by reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act pursuant to the exemption provided in Section
4(2) thereof, and have not been registered under state securities laws by reason
of their issuance in a transaction exempt from such registration requirements.
The Vaxcel Warrants may not be sold, transferred or otherwise disposed of unless
registered under the Securities Act and applicable state securities laws
registration. However, under the Agreement, Vaxcel has agreed to keep the
Registration Statement effective to cover the resale of shares issued pursuant
to the Vaxcel Warrants.
 
                                       112
<PAGE>   129
 
     The Vaxcel Warrants also provide that, prior to any transfer of such a
Warrant, the holder will give written notice to Vaxcel of such holder's
intention to effect such transfer and to comply with the terms of the Vaxcel
Warrant. Each such notice must contain (i) a statement setting forth the
intention of such holder's prospective transferee with respect to its retention
or disposition of the Vaxcel Warrant, and (ii) unless waived by Vaxcel, an
opinion of counsel for such holder (who may be the inside or staff counsel
employed by such holder), as to the necessity or non-necessity for registration
under the Securities Act and applicable state securities laws in connection with
such transfer and stating the factual and statutory bases relied upon by
counsel. If in the opinion of counsel for Vaxcel the proposed transfer of the
Vaxcel Warrant may be effected without registration or qualification under the
Securities Act and any applicable state securities laws, then the registered
holder of the Vaxcel Warrant shall be entitled to transfer the Vaxcel Warrant in
accordance with the intended method of disposition specified in the statement
delivered by such holder to Vaxcel. If in the opinion of counsel for Vaxcel the
proposed transfer of the Vaxcel Warrant may not be effected without registration
under the Securities Act or registration or qualification under any applicable
state securities laws, the registered holder of the Vaxcel Warrant shall not be
entitled to transfer the Vaxcel Warrant until the requisite registration or
qualification is effective.
 
CYTRX WARRANT
 
     The CytRx Warrant, to be issued to CytRx upon consummation of the Merger
pursuant to the Agreement, provides that CytRx is entitled to purchase from
Vaxcel a number of shares of Vaxcel Common Stock equal to: (i) the amount that
the Board of Directors of CytRx reasonably determines is the minimum amount that
must be contributed to the capital of Vaxcel in order for Vaxcel to satisfy or
continue to satisfy quantitative requirements for inclusion or continued
inclusion of Vaxcel Common Stock in the Nasdaq SmallCap Market divided by (ii)
one-half of the Per Share Price and multiplied by (iii) the Exchange Ratio.
 
     The per share price for the shares which may be purchased upon the exercise
of the CytRx Warrant (the "CytRx Warrant Exercise Price") shall be initially
equal to: (i) one-half of the Per Share Price, divided by (ii) the Exchange
Ratio, subject to adjustment pursuant to the terms of the CytRx Warrant for any
mergers, consolidations or reorganizations of Vaxcel. The CytRx Warrant may be
exercised by giving written notice to Vaxcel and providing Vaxcel with the CytRx
Warrant Exercise Price.
 
     CytRx has the right to purchase shares of Vaxcel Common Stock under the
terms of the CytRx Warrant from the time that the CytRx Board reasonably
determines that Vaxcel's total assets and capital and surplus are insufficient
to satisfy the total assets and capital and surplus requirements for inclusion
of Vaxcel Common Stock in the Nasdaq SmallCap Market until December 6, 1997.
 
     Pursuant to the CytRx Warrant, Vaxcel must provide written notice to CytRx
if: (i) Vaxcel declares any discretionary dividend upon any class of its capital
stock payable in securities or makes any special dividend or other distribution;
(ii) Vaxcel offers for subscription pro rata to the holders of any class of its
capital stock any additional securities of any class or other rights; (iii)
there shall be any capital reorganization, or reclassification of the capital
stock of Vaxcel, or consolidation or merger of Vaxcel with, or sale of all or
substantially all its assets or stock to, another corporation; (iv) Vaxcel
enters into a voluntary or involuntary dissolution, liquidation or winding-up of
Vaxcel; or (v) Vaxcel enters into an agreement or adopts a plan for the purpose
of effecting a consolidation, merger, or sale of all or substantially all of its
assets or stock, other than a merger where Vaxcel is the surviving corporation
and the terms of Vaxcel's capital stock remain unchanged. Such written notice
shall be given at least 30 days prior to the action in question if practicable
and not less than 30 days prior to the record date or the date on which Vaxcel's
transfer books are closed in respect thereto if practicable.
 
     The CytRx Warrant and the shares of Vaxcel Common Stock that may be issued
upon exercise thereof have not been registered under the Securities Act, by
reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act pursuant to the exemption provided in Section
4(2) thereof, and have not been registered under state securities laws by reason
of their issuance in a transaction exempt from such registration requirements.
The CytRx Warrant may not be sold, transferred or otherwise disposed of unless
registered under the Securities Act and applicable state securities laws
registration.
 
                                       113
<PAGE>   130
 
VAXCEL NON-FINANCING WARRANTS
 
     Zynaxis issued the Zynaxis Non-Financing Warrants to Comdisco, Inc.
("Comdisco"), The UAB Research Foundation ("UAB") and Connecticut Mutual Life
Insurance Company ("Connecticut Mutual"). The Agreement provides that each such
warrant shall be converted into and become a Vaxcel Non-Financing Warrant, and
Vaxcel shall assume each such warrant in accordance with the terms of the
warrant agreement by which it is evidenced, except that from and after the
Effective Time, (i) each Zynaxis Non-Financing Warrant assumed by Vaxcel may be
exercised solely for shares of Vaxcel Common Stock, (ii) the number of shares of
Vaxcel Common Stock subject to such Vaxcel Non-Financing Warrant will be equal
to the number of shares of Zynaxis Common Stock subject to such Zynaxis
Non-Financing Warrant immediately prior to the Effective Time multiplied by the
Exchange Ratio, and (iii) the per share exercise price under each such Vaxcel
Non-Financing Warrant will be adjusted by dividing the per share exercise price
under each such Zynaxis Non-Financing Warrant by the Exchange Ratio and rounding
up to the nearest cent. Notwithstanding the provisions of clause (ii) of the
preceding sentence, Vaxcel will not be obligated to issue any fraction of a
share of Vaxcel Common Stock upon exercise of such Vaxcel Non-Financing Warrants
and any fraction of a share of Vaxcel Common Stock that otherwise would be
subject to a converted Vaxcel Non-Financing Warrant shall represent the right to
receive a cash payment upon exercise of such converted Vaxcel Non-Financing
Warrant equal to the product of such fraction and the difference between the
market value of one share of Vaxcel Common Stock at the time of exercise of such
converted Vaxcel Non-Financing Warrant and the per share exercise price of such
converted Vaxcel Non-Financing Warrant. The market value of one share of Vaxcel
Common Stock at the time of exercise of a converted Vaxcel Non-Financing Warrant
will be the last sale price of a share of Vaxcel Common Stock on the Nasdaq
SmallCap Market (as reported by the Wall Street Journal or, if not reported
thereby, any other authoritative source selected by Vaxcel) on the last trading
day preceding the date of exercise.
 
  Comdisco Warrants
 
     The Zynaxis Non-Financing Warrants held by Comdisco are evidenced by a
Warrant Agreement dated as of December 14, 1988, and amended on March 4, 1989
and January 17, 1992, between Zynaxis and Comdisco (the "1988 Comdisco
Warrant"), and a Warrant Agreement dated as of November 9, 1990, and amended
January 17, 1992, between Zynaxis and Comdisco (the "1990 Comdisco Warrant").
The 1988 Comdisco Warrant grants Comdisco the right to purchase 8,955 shares of
Zynaxis Common Stock at an exercise price of $7.035 per share. The exercise
price may be paid in cash or by cancelling shares otherwise issuable under the
warrant with a fair market value equal to the exercise price. The term of the
1988 Comdisco Warrant began on December 1, 1988, and ends on December 1, 1998.
Comdisco has not purchased any shares under the warrant. The exercise price and
the number of shares of Zynaxis Common Stock subject to the warrant are subject
to adjustment in the event of a merger or sale of assets, reclassification of
shares, subdivision or combination of shares, or stock dividends. Comdisco has
limited registration rights with respect to the shares of Zynaxis Common Stock
issuable under the 1988 Comdisco Warrant.
 
     The 1990 Comdisco Warrant grants Comdisco the right to purchase 2,459
shares of Zynaxis Common Stock at an exercise price of $7.035 per share. The
exercise price may be paid in cash or by cancelling shares otherwise issuable
under the warrant with a fair market value equal to the exercise price. The term
of the 1990 Comdisco Warrant began on November 9, 1990, and ends on November 9,
2000. Comdisco has not purchased any shares under the warrant. The exercise
price and the number of shares of Zynaxis Common Stock subject to the warrant
are subject to adjustment in the event of a merger or sale of assets,
reclassification of shares, subdivision or combination of shares, or stock
dividends. Comdisco has limited registration rights with respect to the shares
of Zynaxis Common Stock issuable under the 1990 Comdisco Warrant.
 
  UAB Warrants
 
     The Zynaxis Non-Financing Warrants held by UAB are evidenced by a Common
Stock and Warrant Purchase Agreement dated as of December 1, 1995, between
Zynaxis and UAB and related warrant agreement (the "UAB Warrant"). The UAB
Warrant grants UAB the right to purchase 200,000 share of Zynaxis Common Stock
at an exercise price of $1.325 per share. The term of the UAB Warrant begins on
the
 
                                       114
<PAGE>   131
 
date of the first royalty payment which would otherwise be due to UAB under the
Agreement for Assignment of Royalties dated December 1, 1995, between UAB and
Zynaxis and ends on December 31, 2007; provided, however, that the term shall
terminate automatically 60 days after the Zynaxis Common Stock has traded at an
average closing price per share as reported on the Nasdaq National Market of
greater than $10 for any 30 consecutive trading days. UAB has not purchased any
shares under the warrant. The exercise price shall be increased or decreased as
appropriate, to avoid dilution of the exercise rights under the UAB Warrant in
the event of a dividend on Zynaxis Common Stock payable in such common stock, or
in any right to acquire Zynaxis Common Stock for any consideration less than the
exercise price, or a subdivision or a combination or consolidation (by reverse
stock split, reclassification or otherwise) of the Zynaxis Common Stock. In the
event of a reclassification, change, or consolidation of the Zynaxis Common
Stock, or the merger, sale or transfer of Zynaxis or its assets, the UAB Warrant
shall be converted into a new warrant that grants to UAB the right (upon terms
not less favorable to UAB than those set forth in the warrant) to purchase, in
lieu of Zynaxis Common Stock, the stock or other property that UAB would have
received had UAB exercised the warrant immediately prior to such transaction.
Subject to limited exceptions, Zynaxis is obligated to register for resale under
the Securities Act all of the Zynaxis Common Stock issued or issuable under the
warrant in the event that Zynaxis registers any of its other securities (other
than shares of Zynaxis Common Stock issued or issuable to holders of Zynaxis
Preferred Stock which are registered under the Preferred Stock and Warrant
Purchase Agreement dated March 29, 1995, as amended, among Zynaxis and certain
purchasers identified therein) under the Securities Act. Zynaxis shall pay all
expenses of such registration, other than selling commissions, underwriting fees
and stock transfer taxes applicable to the securities and all fees and
disbursements of counsel for UAB.
 
  Connecticut Mutual Warrants
 
     The Zynaxis Non-Financing Warrants held by Connecticut Mutual are evidenced
by a Common Stock and Warrant Purchase Agreement dated as of February 28, 1996,
between Zynaxis and Connecticut Mutual and related warrant agreement (the
"Connecticut Mutual Warrant"). The Connecticut Mutual Warrant grants Connecticut
Mutual the right to purchase 150,000 share of Zynaxis Common Stock at an
exercise price of $1.00 per share. The term of the Connecticut Mutual Warrant
began on November 28, 1996 and ends on February 28, 2001; provided, however,
that the term shall terminate automatically 60 days after the Zynaxis Common
Stock has traded at an average closing price per share as reported on the Nasdaq
SmallCap Market or the OTC Bulletin Board, as the case may be, of $3 or greater
for any 30 consecutive trading days. Connecticut Mutual has not purchased any
shares under the warrant. The exercise price shall be increased or decreased, as
appropriate, to avoid dilution of the exercise rights under the Connecticut
Mutual Warrant in the event of a dividend on Zynaxis Common Stock payable in
such common stock or in any right to acquire Zynaxis Common Stock for any
consideration less than the exercise price, or a subdivision or a combination or
consolidation (by reverse stock split, reclassification or otherwise) of the
Zynaxis Common Stock. In the event of a reclassification, change, or
consolidation of the Zynaxis Common Stock, or the merger, sale or transfer of
Zynaxis or its assets, the Connecticut Mutual Warrant shall be converted into a
new warrant that grants to Connecticut Mutual the right (upon terms not less
favorable to Connecticut Mutual than those set forth in the warrant) to
purchase, in lieu of Zynaxis Common Stock, the stock or other property that
Connecticut Mutual would have received had Connecticut Mutual exercised the
warrant immediately prior to such transaction. Zynaxis is obligated to file with
the SEC and use its best efforts to have declared effective and keep effective
for five years a registration statement on Form S-3 that includes shares of the
Zynaxis Common Stock issued or issuable under the warrant.
 
                                 LEGAL MATTERS
 
     Alston & Bird, counsel for Vaxcel, has delivered its opinion to the effect
that Vaxcel Common Stock to be issued to the holders of Zynaxis Capital Stock in
connection with the Merger, when issued as contemplated in the Agreement, will
be validly issued, fully paid, and nonassessable. In addition, Alston & Bird has
delivered its opinion concerning the federal income tax consequences of the
Merger. See "Description of Transaction -- Certain Federal Income Tax
Consequences." Certain other legal matters in connection with the Merger will be
passed upon for Vaxcel by Alston & Bird and for Zynaxis by Morgan, Lewis &
Bockius LLP.
 
                                       115
<PAGE>   132
 
                                    EXPERTS
 
     The financial statements of Vaxcel at December 31, 1996 and 1995, and for
each of the three years in the period ended December 31, 1996, included in this
Proxy Statement and Registration Statement, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
 
     The consolidated financial statements of Zynaxis included in this Proxy
Statement and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included in reliance upon the authority of
said firm as experts in giving said report. Reference is made to said report
which includes an explanatory paragraph regarding Zynaxis' ability to continue
as a going concern.
 
     The financial statements of Secretech at June 30, 1995 and for the year
ended June 30, 1995 and for the period from inception (August 22, 1989) through
June 30, 1995 included in this Proxy Statement and elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
in reliance upon the authority of said firm as experts in giving said report.
Reference is made to said report which includes an explanatory paragraph
regarding Secretech's ability to continue as a going concern.
 
     The financial statements of Secretech at June 30, 1994 and for the year
ended June 30, 1994, and for the period from inception (August 22, 1989) through
June 30, 1994, included in this Proxy Statement and Registration Statement, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
Reference is made to said report which includes an explanatory paragraph
regarding Secretech's ability to continue as a going concern.
 
                                 OTHER MATTERS
 
     As of the date of this Proxy Statement, the Zynaxis Board knows of no
matters that will be presented for consideration at the Special Meeting other
than as described in this Proxy Statement. However, if any other matters shall
properly come before the Special Meeting or any adjournment thereof and be voted
upon, the enclosed proxy shall be deemed to confer discretionary authority to
the individuals named as proxies therein to vote the shares represented by such
proxy as to any such matters.
 
                                       116
<PAGE>   133
 
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<S>                                                                                     <C>
VAXCEL, INC.
Report of Independent Auditors........................................................  F-2
Balance Sheets as of December 31, 1996 and 1995.......................................  F-3
Statements of Operations for the years ended December 31, 1996, 1995, and 1994........  F-4
Statements of Stockholder's Equity for the years ended December 31, 1996, 1995, and
  1994................................................................................  F-5
Statements of Cash Flows for the years ended December 31, 1996, 1995, and 1994........  F-6
Notes to Financial Statements.........................................................  F-7
 
ZYNAXIS, INC. AND SUBSIDIARIES
Report of Independent Public Accountants..............................................  F-13
Consolidated Balance Sheets as of December 31, 1996 and 1995..........................  F-14
Consolidated Statements of Operations for the years ended December 31, 1996, 1995, and
  1994................................................................................  F-15
Statements of Stockholders' Equity for the years ended December 31, 1996, 1995, and
  1994................................................................................  F-16
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995, and
  1994................................................................................  F-17
Notes to Consolidated Financial Statements............................................  F-18
 
SECRETECH, INC. (A DEVELOPMENT-STAGE COMPANY)
Report of Independent Public Accountants..............................................  F-33
Balance Sheet as of June 30, 1995.....................................................  F-34
Statements of Operations for the year ended June 30, 1995 and for the period from
  inception (August 22, 1989) to June 30, 1995........................................  F-35
Statements of Cash Flows for the year ended June 30, 1995 and for the period from
  inception (August 22, 1989) to June 30, 1995........................................  F-36
Statements of Stockholders' Equity (Deficit) for the period from inception (August 22,
  1989) to June 30, 1995..............................................................  F-37
Notes to Financial Statements.........................................................  F-38
Report of Independent Auditors........................................................  F-42
Balance Sheet as of June 30, 1994.....................................................  F-43
Statements of Operations for the year ended June 30, 1994 and for the period from
  inception (August 22, 1989) to June 30, 1994........................................  F-45
Statements of Cash Flows for the year ended June 30, 1994 and for the period from
  inception (August 22, 1989) to June 30, 1994........................................  F-46
Statement of Stockholders' Equity (Deficit) for the period from inception (August 22,
  1989) to June 30, 1994..............................................................  F-47
Notes to Financial Statements.........................................................  F-48
</TABLE>
 
                                       F-1
<PAGE>   134
 
                         REPORT OF INDEPENDENT AUDITORS
 
THE BOARD OF DIRECTORS
VAXCEL, INC.
 
     We have audited the accompanying balance sheets of Vaxcel, Inc. as of
December 31, 1996 and 1995, and the related statements of operations,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes, examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation. We believe that our
audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vaxcel, Inc. at December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
 
                                          /s/ ERNST & YOUNG LLP
                                          --------------------------------------
                                          Ernst & Young LLP
 
Atlanta, Georgia
February 14, 1997
 
                                       F-2
<PAGE>   135
 
                                  VAXCEL, INC.
 
                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                    ---------------------------
                                                                       1996            1995
                                                                    -----------     -----------
<S>                                                                 <C>             <C>
                              ASSETS
Current assets:
     Cash and cash equivalents....................................  $    84,481     $   515,522
     Accounts receivable..........................................       49,222           5,038
                                                                    -----------     -----------
          Total current assets....................................      133,703         520,560
Property and equipment:
     Furnishings and equipment....................................      264,801         261,894
     Accumulated depreciation.....................................     (169,625)       (118,025)
                                                                    -----------     -----------
          Net property and equipment..............................       95,176         143,869
Other assets:
     Deferred transaction costs...................................      113,439         --
     Deposits.....................................................       35,674          37,439
                                                                    -----------     -----------
          Total other assets......................................      149,113          37,439
                                                                    -----------     -----------
          Total assets............................................  $   377,992     $   701,868
                                                                    ===========     ===========
               LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
     Accounts payable.............................................  $    32,039     $    61,386
     Accrued liabilities..........................................      155,540          41,896
     Amounts due to affiliates....................................       30,427          14,417
                                                                    -----------     -----------
          Total current liabilities...............................      218,006         117,699
Commitments
Stockholder's equity:
     Preferred stock ($.001 par value, 2,000,000 shares
      authorized; no shares issued and outstanding)...............      --              --
     Common stock ($.001 par value, 30,000,000 shares authorized;
      8,250,004 and 8,000,000 shares issued and outstanding at
      December 31, 1996 and 1995, respectively)...................        8,250           8,000
     Additional paid-in capital...................................    4,697,750       3,998,000
     Accumulated deficit..........................................   (4,546,014)     (3,421,831)
                                                                    -----------     -----------
          Total stockholder's equity..............................      159,986         584,169
                                                                    -----------     -----------
          Total liabilities and stockholder's equity..............  $   377,992     $   701,868
                                                                    ===========     ===========
</TABLE>
 
                            See accompanying notes.
 
                                       F-3
<PAGE>   136
 
                                  VAXCEL, INC.
 
                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                       ------------------------------------------
                                                          1996            1995            1994
                                                       -----------     -----------     ----------
<S>                                                    <C>             <C>             <C>
REVENUES:
  Net sales........................................    $   --          $   --          $  500,814
  License fees.....................................         50,000         115,000         --
  Collaborative and grant revenue..................         78,435           6,709         --
                                                       -----------     -----------     ----------
                                                           128,435         121,709        500,814
OPERATING EXPENSES:
  Cost of sales....................................        --              --              72,636
  Research and development.........................        779,686         814,876        522,717
  Selling and marketing............................        --              --             181,542
  General and administrative.......................        336,634         476,009        573,391
  Transactions with affiliates:
     Research and development......................         73,163          79,878         47,831
     General and administrative....................         70,263          58,533         90,968
  Write-off of patent costs........................        --              128,216         --
                                                       -----------     -----------     ----------
                                                         1,259,746       1,557,512      1,489,085
OTHER INCOME (EXPENSE):
  Sale of animal adjuvant rights to affiliate......        --              --             500,000
  Interest income..................................          7,128          56,998          8,072
  Interest expense paid to affiliate...............        --              --            (119,644)
                                                       -----------     -----------     ----------
                                                             7,128          56,998        388,428
                                                       -----------     -----------     ----------
  Net loss.........................................    $(1,124,183)    $(1,378,805)    $ (599,843)
                                                       ===========     ===========     ==========
  Net loss per common share........................    $     (0.14)    $     (0.17)    $    (0.09)
                                                       ===========     ===========     ==========
</TABLE>
 
                            See accompanying notes.
 
                                       F-4
<PAGE>   137
 
                                  VAXCEL, INC.
 
                       STATEMENTS OF STOCKHOLDER'S EQUITY
 
<TABLE>
<CAPTION>
                                             COMMON STOCK
                                         --------------------   ADDITIONAL
                                           SHARES                PAID-IN     ACCUMULATED
                                         OUTSTANDING   AMOUNT    CAPITAL       DEFICIT        TOTAL
                                         -----------   ------   ----------   -----------   -----------
<S>                                      <C>           <C>      <C>          <C>           <C>
Balance at December 31, 1993.........     6,000,000    $6,000   $   --       $(1,443,183)  $(1,437,183)
  Conversion of CytRx note payable...     2,000,000     2,000    2,998,000       --          3,000,000
  Net loss...........................        --          --         --          (599,843)     (599,843)
                                         -----------   ------   ----------   -----------   -----------
Balance at December 31, 1994.........     8,000,000     8,000    2,998,000    (2,043,026)      962,974
  Capital contribution by CytRx......        --          --      1,000,000       --          1,000,000
  Net loss...........................        --          --         --        (1,378,805)   (1,378,805)
                                         -----------   ------   ----------   -----------   -----------
Balance at December 31, 1995.........     8,000,000     8,000    3,998,000    (3,421,831)      584,169
  Issuance of stock to CytRx.........       250,004       250      374,756       --            375,006
  Capital contribution by CytRx......                              324,994       --            324,994
  Net loss...........................        --          --         --        (1,124,183)   (1,124,183)
                                         -----------   ------   ----------   -----------   -----------
Balance at December 31, 1996.........     8,250,004    $8,250   $4,697,750   $(4,546,014)  $   159,986
                                          =========    ======   ==========   ===========   ===========
</TABLE>
 
                            See accompanying notes.
 
                                       F-5
<PAGE>   138
 
                                  VAXCEL, INC.
 
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                       ------------------------------------------
                                                          1996            1995            1994
                                                       -----------     -----------     ----------
<S>                                                    <C>             <C>             <C>
Cash Flows From Operating Activities:
  Net loss...........................................  $(1,124,183)    $(1,378,805)    $ (599,843)
  Adjustments to reconcile net loss to net cash used
     by operating activities:
     Depreciation and amortization...................       51,600          70,084         69,468
     Write-off of patent costs.......................           --         128,216             --
     Write-off of fixed assets.......................           --          71,503             --
     Change in assets and liabilities:
       Receivables...................................      (44,184)         62,577         (1,538)
       Inventories...................................           --           6,651          4,242
       Other assets..................................     (111,674)            300        (10,395)
       Accounts payable..............................      (29,347)         36,328        (62,237)
       Amounts due to affiliates.....................       16,010         (18,985)        33,402
       Other liabilities.............................      113,644          19,755       (324,674)
                                                       -----------     -----------     ----------
          Total adjustments..........................       (3,951)        376,429       (291,732)
                                                       -----------     -----------     ----------
  Net cash used by operating activities..............   (1,128,134)     (1,002,376)      (891,575)
Cash Flows From Investing Activities:
  Capital expenditures, net..........................       (2,907)        (10,050)       (63,527)
  Loans to officer...................................           --              --         96,600
  Escrow account.....................................           --              --        175,000
                                                       -----------     -----------     ----------
  Net cash provided (used) by investing activities...       (2,907)        (10,050)       208,073
Cash Flows From Financing Activities:
  Borrowings on convertible note.....................           --              --      1,171,027
  Equity contribution by CytRx.......................      324,994       1,000,000             --
  Proceeds from sale of common stock.................      375,006              --             --
                                                       -----------     -----------     ----------
  Net cash provided by financing activities..........      700,000       1,000,000      1,171,027
                                                       -----------     -----------     ----------
Net increase (decrease) in cash and cash
  equivalents........................................     (431,041)        (12,426)       487,525
Cash and cash equivalents at beginning of period.....      515,522         527,948         40,423
                                                       -----------     -----------     ----------
Cash and cash equivalents at end of period...........  $    84,481     $   515,522     $  527,948
                                                       ===========     ===========     ==========
Supplemental Disclosure Of Information Not Affecting
  Cash Flows:
  Conversion of CytRx note payable into common
     stock...........................................  $        --     $        --     $3,000,000
                                                       ===========     ===========     ==========
</TABLE>
 
                            See accompanying notes.
 
                                       F-6
<PAGE>   139
 
                                  VAXCEL, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1996
 
1. DESCRIPTION OF BUSINESS
 
     Vaxcel, Inc. ("Vaxcel" or the "Company") was formed on January 6, 1993
(date of inception). The Company is a wholly-owned subsidiary of CytRx
Corporation ("CytRx"). The Company is engaged in the development and
commercialization of proprietary vaccine delivery system technology to improve
the effectiveness and convenience of existing vaccines and contribute to the
development of new vaccines. The Company's core technology (the "Optivax(R)
System") is based upon novel vaccine formulations containing certain
biologically active copolymers licensed exclusively for this purpose by the
Company from CytRx.
 
     Since its inception the Company has incurred operating losses and has been
economically dependent upon CytRx to provide the funding necessary to conduct
its operations. In the event the merger transaction discussed in Note 9 (the
"Merger") is not consummated, CytRx has expressed its commitment to continue
financial support of the Company's current operations as necessary at least
through 1997. Subject to the closing of the Merger, CytRx has committed to
provide $4 million (less amounts previously loaned to Zynaxis, Inc.) in equity
funding to Vaxcel.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Cash Equivalents -- The Company considers all highly liquid debt
instruments with an original maturity of 90 days or less to be cash equivalents.
Cash equivalents consist primarily of auction-market preferred stock, commercial
paper, and amounts invested in money market accounts.
 
     Short-term Investments -- Management determines the appropriate
classification of debt securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Debt securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold
the securities to maturity. Held-to-maturity securities are stated at amortized
cost. Marketable equity securities and debt securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with the unrealized gains and losses
reported in a separate component of stockholders' equity. Realized gains and
losses are included in investment income and are determined on a first-in,
first-out basis.
 
     Inventories -- Inventories are valued at the lower of cost or market. Cost
is determined using the first-in, first-out method.
 
     Property and Equipment -- Property and equipment are stated at cost and
depreciated using the straight-line method based on the estimated useful lives
of the related assets. Leasehold improvements are amortized over the remaining
term of the related lease using the straight-line method.
 
     Patents and Patent Application Costs -- Prior to 1995, the Company
capitalized the costs associated with obtaining patents on its technologies.
During the first quarter of 1995 the Company changed from deferring and
amortizing such costs to recording them as expenses when incurred because, even
though the Company believes the patents and underlying technology have
continuing value, the amount of future benefits to be derived therefrom is
uncertain. Accordingly, the new accounting method has been adopted in
recognition of a possible change in estimated future benefits. Since the effect
of this change in accounting principle is inseparable from the effect of the
change in accounting estimate, such change has been accounted for as a change in
estimate in accordance with Opinion No. 20 of the Accounting Principles Board.
As a result, the Company recorded a non-cash write-off of $128,216 during 1995
($.02 per share). Future patent costs are expected to be expensed since the
benefits to be derived therefrom are likely to be uncertain.
 
     Fair Value of Financial Instruments -- The carrying amounts reported in the
balance sheets for cash and cash equivalents, accounts receivable and accounts
payable approximate their fair values.
 
     Loss Per Common Share -- Loss per common share is based on the weighted
average number of common shares and common share equivalents outstanding during
each period. Stock options outstanding are
 
                                       F-7
<PAGE>   140
 
                                  VAXCEL, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
normally excluded from the computation of net loss per share since the effect is
antidilutive. However, in accordance with Securities and Exchange Commission
("SEC") requirements, all common stock issuable pursuant to options granted
during 1996 are treated as outstanding for all periods reported, using the
treasury stock method. Historical net loss per share measured in accordance with
generally accepted accounting principles does not differ from net loss per share
measured in accordance with SEC requirements.
 
     Revenue Recognition -- Sales reported during 1994 were recognized at the
time the products were shipped. Funding from collaborative research arrangements
is based upon out-of-pocket expenses incurred by the Company, and revenues under
such arrangements are recognized as the related costs are incurred. Funding from
Small Business Innovative Research ("SBIR") grants is based upon a pre-approved
grant budget which includes amounts for specific percentages of time for Company
personnel, extramural and other out-of-pocket expenses incurred by the Company,
and indirect costs. Revenues from SBIR grants are recognized using the
percentage of completion method, except for reimbursements of out-of-pocket
expenses, which are recognized as the related costs are incurred. The costs
incurred under collaborative research arrangements and grants during 1996 and
1995 were $78,435 and $6,709, respectively. License fees reported in the
accompanying Statement of Operations consist entirely of nonrefundable fees
received upon the signing of certain technology license and option agreements
(see Note 7). These fees were recognized as income when they were received. Such
agreements generally contain provisions for additional fees upon the achievement
of certain development milestones by the licensee and upon approval of the
related products, followed by a royalty based upon net sales. Such fees, if any,
will be recognized as income when they become receivable under the terms of the
related contracts.
 
     Stock Based Compensation -- The Company grants stock options for a fixed
number of shares to key employees, directors and consultants with an exercise
price equal to the fair market value of the shares at the date of grant. The
Company accounts for stock option grants in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and, accordingly,
recognizes no compensation expense for the stock option grants (see Note 5).
 
     In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock-based Compensation ("Statement 123"),
which provides an alternative to APB 25 in accounting for stock-based
compensation issued to employees. However, the Company plans to continue to
account for stock-based compensation in accordance with APB 25.
 
     Use of Estimates -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
 
     New Accounting Standard -- Statement of Financial Accounting Standards No.
121, "Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of"
("Statement 121") establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles and goodwill. The Company
adopted Statement 121 in the first quarter of 1996, and such adoption had no
material effect on the accompanying financial statements.
 
3. SHORT-TERM INVESTMENTS
 
     Effective January 1, 1994 the Company adopted Statement of Financial
Accounting Standards No 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("Statement 115"). In accordance with Statement 115, the
Company did not restate prior period financial statements. There was no
cumulative effect of adopting Statement 115.
 
     At December 31, 1995 the Company has classified all of its short-term
investments as held-to-maturity. The costs of such short-term investments
totaling $399,000 at December 31, 1995 approximate their fair values and are
classified as cash equivalents in the accompanying balance sheets. There were no
short-term
 
                                       F-8
<PAGE>   141
 
                                  VAXCEL, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
investments held at December 31, 1996. The contractual maturities of all
securities held at December 31, 1995 are 90 days or less.
 
     Concentrations of Credit Risk -- Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
principally of cash investments. The Company maintains cash equivalents and
short-term investments in large well-capitalized financial institutions, and the
Company's investment policy disallows investment in any debt securities rated
less than "investment-grade" by national ratings services.
 
4. LEASE COMMITMENTS
 
     Rental expense under operating leases during the years ended December 31,
1996, 1995, and 1994 approximated $56,000, $45,000, and $40,000, respectively.
Minimum future obligations for operating leases are shown below.
 
<TABLE>
    <S>                                                                         <C>
    1997......................................................................  $ 60,000
    1998......................................................................    57,000
    1999......................................................................     3,000
                                                                                --------
                                                                                $120,000
                                                                                ========
</TABLE>
 
     Aggregate minimum rentals the Company expects to receive under
noncancellable subleases through January 1999 total approximately $114,000 at
December 31, 1996.
 
5. STOCK OPTIONS
 
     The Company's 1993 Stock Option Plan (the "Plan") has authorized the grant
of options for up to 1 million shares of the Company's common stock to key
employees, directors and consultants of the Company. The options granted under
the Plan have lives of ten years from the dates of grant and generally become
exercisable over a three year period from the dates of grant, with the exception
of certain options granted to the Company's Chief Executive Officer and its Vice
President of Research and Development, which are subject to additional vesting
criteria as set forth in their respective employment agreements. Exercise prices
are set at the fair market values of the common stock on the dates of grant, as
determined by the Company's Board of Directors.
 
     The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options, because, as discussed below, the
alternative fair value accounting provided for under Statement 123 requires use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the fair market value of the underlying stock on
the date of grant, no compensation expense is recognized.
 
     Pro forma information regarding net loss and loss per share is required by
Statement 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions: weighted-average risk-free
interest rates of 7.49% for 1995 and 6.34% for 1996; dividend yields of 0.0%;
volatility factors of the expected market price of the Company's common stock of
 .378; and a weighted average expected life of the option of 8 years.
 
     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the
 
                                       F-9
<PAGE>   142
 
                                  VAXCEL, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
 
     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The Company's
pro forma information is as follows:
 
<TABLE>
<CAPTION>
                                                                     1996           1995
                                                                  ----------     ----------
    <S>                                                           <C>            <C>
    Pro forma net loss..........................................  $1,182,382     $1,430,572
    Pro forma net loss per share................................  $      .15     $      .18
</TABLE>
 
     Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1998.
 
     A summary of the Company's stock option activity, and related information
for the three years ended December 31, 1996 is as follows:
 
<TABLE>
<CAPTION>
                                                                                   WEIGHTED AVERAGE
                                                        OPTIONS                     EXERCISE PRICE
                                             -----------------------------    --------------------------
                                              1994       1995       1996        1994      1995     1996
                                             -------    -------    -------    --------    -----    -----
<S>                                          <C>        <C>        <C>        <C>         <C>      <C>
Outstanding -- beginning of year..........   423,000    531,500    735,000      $1.75     $1.50    $1.50
Granted...................................   127,000    203,500     73,620       2.13      1.50     1.50
Exercised.................................        --         --         --       
Forfeited.................................   (18,500)        --    (14,167)      1.76               1.50
Expired...................................        --         --         --       
                                             -------    -------    -------       
Outstanding -- end of year................   531,500    735,000    794,453      $1.50     $1.50    $1.50
                                             =======    =======    =======       
Exercisable at end of year................    44,998     95,498    184,332      $1.50     $1.50    $1.50
Weighted average fair value of options
  granted during the year.................        --      $0.87      $0.83
</TABLE>
 
     In December 1994 options as to 521,500 shares with exercise prices ranging
from $1.75 to $2.25 were repriced to $1.50. The exercise price for all options
outstanding as of December 31, 1996 was $1.50. The weighted average remaining
contractual life of those options is 7.4 years.
 
6. INCOME TAXES
 
     Although Vaxcel is a wholly-owned subsidiary of CytRx, the Company files
separate income tax returns. For income tax purposes, as of December 31, 1996
the Company has an aggregate of approximately $4,600,000 of net operating losses
available to offset against future taxable income, subject to certain
limitations. Such losses expire in 2008 through 2011. The Company also has an
aggregate of approximately $63,000 of research and development credits available
for offset against future income taxes which expire in 2008 through 2010.
 
     Net deferred income tax assets of approximately $1,800,000 and $1,300,000
exist at December 31, 1996 and 1995, respectively, principally with respect to
the net operating losses. Based on assessments of all available evidence as of
those dates, management has concluded that the respective deferred income tax
assets should be reduced by valuation allowances equal to the amounts of the net
deferred income tax assets.
 
                                      F-10
<PAGE>   143
 
                                  VAXCEL, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
7. OPTION AND LICENSE AGREEMENTS
 
     In August 1995 Vaxcel signed an option agreement with Connaught
Laboratories, Inc. ("Connaught") which gives Connaught exclusive rights to
evaluate OPTIVAX with a vaccine currently under development at Connaught through
Phase I human clinical trials. Under the terms of this agreement, Vaxcel
received an upfront cash payment and Connaught will assume responsibility for
all preclinical, clinical and regulatory activities. If the Phase I trials are
successful, Connaught will have the right to negotiate an exclusive license to
further develop and market OPTIVAX in the specific disease field. Under such a
licensing arrangement, Vaxcel will receive further milestone payments, royalties
on sales, and payments under a supply agreement for having OPTIVAX manufactured
for Connaught.
 
     In October 1995 Vaxcel signed an option agreement with Medeva PLC
("Medeva") which gives Medeva rights to evaluate OPTIVAX with a viral antigen in
both preclinical and Phase I human clinical testing. Under the terms of this
agreement, Vaxcel received an upfront cash payment and will receive milestone
payments for successful product development. In addition, Medeva will fund
product development activities. If the Phase I trials are successful, Medeva
will have the right to negotiate a co-exclusive license to further develop and
market OPTIVAX in the specific disease field. Under such a licensing
arrangement, Vaxcel will receive further milestone payments, royalties on sales,
and payments under a supply agreement for having OPTIVAX manufactured for
Medeva.
 
     In April 1996, Vaxcel signed a definitive license agreement with Corixa
Corporation ("Corixa") which gives Corixa worldwide, exclusive rights to use
OPTIVAX with a variety of cancer and infectious disease vaccines being developed
by Corixa. Corixa also has the right to sublicense vaccines containing OPTIVAX.
Corixa or its sublicensees will be responsible for conducting all development,
regulatory submissions and marketing activities for their vaccines combined with
OPTIVAX. Under the terms of this agreement, Vaxcel received an upfront cash
payment and, if vaccines are successfully developed, will receive milestone
payments, royalties on sales, and payments under a supply agreement for having
OPTIVAX manufactured for Corixa or its sublicensees.
 
     The Company has recognized $50,000 and $115,000 in revenues associated with
these agreements during 1996 and 1995, respectively.
 
8. RELATED PARTY TRANSACTIONS
 
CONVERTIBLE NOTE
 
     In January 1993 CytRx made available to the Company a revolving line of
credit pursuant to a convertible note agreement. The note accrued interest at
the prime rate plus two percentage points per annum. In August 1994 CytRx
converted the outstanding balance of the note plus interest ($3 million in the
aggregate) into common stock of the Company at a price of $1.50 per share (2
million shares). Interest accrued pursuant to the note during 1994 amounted to
$119,644.
 
LICENSE AGREEMENTS
 
     At inception, the Company obtained from CytRx through license agreements,
exclusive rights to Titermax(R) and the Optivax(R) vaccine delivery system
technology. Royalties paid to CytRx pursuant to these agreements amounted to
$7,500, $17,250, and $49,476 during the years ended December 31, 1996, 1995, and
1994, respectively.
 
     In December 1994 CytRx repurchased the rights to use of its vaccine
delivery technology in animals, including the rights to Titermax, for $500,000.
Net sales, cost of sales, and selling and marketing expense in the accompanying
Statements of Operations during 1994 relate entirely to sales of Titermax. The
term of the
 
                                      F-11
<PAGE>   144
 
                                  VAXCEL, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
remaining license to the Optivax technology will expire upon the later of ten
years after the first commercial sale of products covered by the license, or
upon expiration of the last-to-expire patent covered by the license.
 
SUPPLY AGREEMENT
 
     During the term of the related license agreement, CytRx agreed to supply
the Company with certain copolymers required in the manufacture and development
of the Optivax vaccine delivery system. Amounts paid to CytRx for production of
copolymers were $10,923, $15,915, and $9,500 during the years ended December 31,
1996, 1995, and 1994, respectively.
 
SERVICES AND FACILITIES AGREEMENTS
 
     The Company entered into service and facilities agreements with CytRx and
Proceutics, Inc., ("Proceutics") another wholly-owned subsidiary of CytRx,
whereby CytRx and Proceutics provide the Company with office and laboratory
space, certain administrative and laboratory services, and the services of
certain CytRx executives. The charges to Vaxcel for space utilization are based
upon the current market rental rate per square foot for the actual space used by
Vaxcel. Charges to Vaxcel for services are based upon a pro rata share of the
actual salaries of certain individuals, plus an overhead factor intended to
cover all payroll taxes, fringe benefits and other personnel carrying costs. At
the beginning of each calendar quarter, the parties review and agree upon the
level of services and the appropriate allocation of personnel time. Pursuant to
these agreements, the Company expensed a total of $120,963, $105,246, and
$79,823 during the years ended December 31, 1996, 1995, and 1994, respectively.
Management believes that the methods used in allocating these costs are
reasonable and that such charges approximate the fair value of the space and
services provided which would have been incurred on a stand alone basis.
 
9. POTENTIAL MERGER WITH ZYNAXIS, INC.
 
       In December 1996 the Company, CytRx and Zynaxis, Inc. ("Zynaxis") signed
an agreement whereby a wholly-owned subsidiary of the Company will be merged
into Zynaxis. Zynaxis is a publicly-held biotechnology company engaged in the
development of certain vaccine technologies. Under the terms of the agreement
all of the outstanding shares of Zynaxis will be converted into shares of the
Company based upon certain exchange ratios defined in the agreement resulting in
the issuance of an aggregate of 12.5% of the outstanding shares of Vaxcel common
stock at the date of closing. The merger will be treated as a purchase and is
expected to constitute a tax-free reorganization for Zynaxis stockholders.
 
     Pursuant to the agreement, CytRx will provide up to $2 million to Zynaxis
under a secured credit facility during the period prior to the closing of the
merger, at which time the outstanding principal and interest will be contributed
to the capital of Vaxcel, together with additional equity in the amount of $4
million less the outstanding principal and interest of the secured note.
 
     It is anticipated that the proposed transaction will be submitted for the
approval of the Zynaxis stockholders in early 1997. The transaction is also
subject to effectiveness of a registration statement filed with the SEC on
December 31, 1996.
 
                                      F-12
<PAGE>   145
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Zynaxis, Inc.:
 
     We have audited the accompanying consolidated balance sheets of Zynaxis,
Inc. (a Pennsylvania corporation) and Subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, cash flows and
stockholders' equity (deficit) for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Zynaxis, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
 
     The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
incurred significant losses from operations since its inception, has a
shareholders' deficit and requires substantial additional capital to fund its
operations. In addition, the Company has a significant operating lease
commitment. As discussed in Note 1, on December 6, 1996 the Company entered into
an agreement and plan of merger and contribution with CytRx Corporation, Vaxcel,
Inc. (a wholly-owned subsidiary of CytRx), and Vaxcel Merger Subsidiary, Inc. (a
wholly-owned subsidiary of Vaxcel). The merger is subject to approval of the
shareholders of each company except CytRx. If the merger is not consummated,
management will be required to consider other alternatives, including the
liquidation of the Company's remaining assets and the payment of its liabilities
and commitments. Management's plans in regard to these matters are described in
Notes 1, 6 and 13. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
 
                                          ARTHUR ANDERSEN LLP
 
Philadelphia, Pa.
January 21, 1997
 
                                      F-13
<PAGE>   146
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                    ---------------------------
                                                                        1996           1995
                                                                    ------------   ------------
<S>                                                                 <C>            <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents (Note 2)..............................  $    124,348   $    411,706
  Short-term securities (Note 8)..................................            --         97,437
  Collaborative, contract and grant revenue receivable (Note
     17)..........................................................       182,047        111,263
  Restricted cash (Note 12).......................................            --         23,735
  Other current assets............................................       107,254         68,991
                                                                    ------------   ------------
          Total current assets....................................       413,649        713,132
                                                                    ------------   ------------
PROPERTY AND EQUIPMENT:
  Equipment.......................................................     1,610,520      1,935,739
  Leasehold improvements..........................................        35,570        249,349
                                                                    ------------   ------------
                                                                       1,646,090      2,185,088
  Less -- Accumulated depreciation and amortization...............    (1,605,502)    (1,930,127)
                                                                    ------------   ------------
     Net property and equipment...................................        40,588        254,961
OTHER ASSETS:
  Restricted cash (Note 12).......................................            --        109,711
  Other long-term assets..........................................        20,000         31,869
  Cauldron -- net assets (Note 6).................................       600,000      2,590,580
  Note receivable (Note 4)........................................       324,046        287,575
                                                                    ------------   ------------
          Total other assets......................................       944,046      3,019,735
                                                                    ------------   ------------
                                                                    $  1,398,283   $  3,987,828
                                                                    ============   ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
  Accounts payable................................................  $    232,243   $    747,777
  Accrued expenses (Note 9).......................................       752,809        487,794
  Notes payable to shareholders (Note 10).........................       450,000        150,000
  Note payable to CytRx (Notes 3 and 11)..........................       975,000             --
  Current maturities of long-term debt (Note 12)..................            --         25,050
  Current portion of other long-term obligations (Note 13)........        33,277         36,209
                                                                    ------------   ------------
          Total current liabilities...............................     2,443,329      1,446,830
                                                                    ------------   ------------
LONG-TERM DEBT (NOTE 12)..........................................            --         79,909
                                                                    ------------   ------------
OTHER LONG-TERM OBLIGATIONS (NOTE 13).............................        65,511        103,494
                                                                    ------------   ------------
COMMITMENTS AND CONTINGENCIES (NOTES 1 AND 13)
STOCKHOLDERS' EQUITY (DEFICIT) (NOTE 14):
  Series A preferred stock, 2,000,000 shares authorized. 1,412,500
     and 1,500,000 issued and outstanding at December 31, 1996 and
     December 31, 1995, respectively. (Liquidation preference of
     $3,207,230 and $3,149,655 at December 31, 1996 and 1995,
     respectively). ..............................................     2,554,304      2,712,535
Common Stock, $.01 par value, 25,000,000 shares authorized.
  10,338,768 and 9,460,676 issued and outstanding at December 31,
  1996 and 1995, respectively.....................................       103,387         94,607
Additional paid-in capital........................................    45,982,992     45,071,223
Accumulated deficit...............................................   (49,751,240)   (45,520,770)
                                                                    ------------   ------------
          Total stockholders' equity (deficit)....................    (1,110,557)     2,357,595
                                                                    ------------   ------------
                                                                    $  1,398,283   $  3,987,828
                                                                    ============   ============
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-14
<PAGE>   147
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                       ------------------------------------------
                                                           1996           1995           1994
                                                       ------------   ------------   ------------
<S>                                                    <C>            <C>            <C>
REVENUES:
  Collaborative, contract and grant revenues (Note
     17).............................................  $  2,050,467   $    620,603   $    760,196
  Sales..............................................            --        141,189        403,759
                                                       ------------   ------------   ------------
                                                          2,050,467        761,792      1,163,955
COSTS AND EXPENSES:
  Cost of sales......................................            --         40,262        273,088
  Research and development...........................     3,642,195      5,168,912      6,344,221
  Marketing, general and administrative..............     2,019,042      2,239,921      3,397,948
  Restructuring charge (Note 4)......................            --        347,436             --
  Charge for acquired research and development (Note
     3)..............................................            --      5,165,793             --
  Provision for asset impairment (Notes 4, 5 and
     6)..............................................     1,152,130             --      1,466,360
                                                       ------------   ------------   ------------
                                                          6,813,367     12,962,324     11,481,617
Operating loss.......................................    (4,762,900)   (12,200,532)   (10,317,662)
OTHER INCOME (EXPENSE):
  Interest income....................................        56,881         80,919        366,910
  Interest expense...................................      (115,815)       (36,896)      (260,651)
  Other (Note 18)....................................       591,364        162,232             --
  Net gain on sale of diagnostic technologies and
     assets (Note 4).................................            --      1,616,840             --
                                                       ------------   ------------   ------------
                                                            532,430      1,823,095        106,259
Net loss.............................................  $ (4,230,470)  $(10,377,437)  $(10,211,403)
                                                       ------------   ------------   ------------
Net loss per common share............................  $      (0.42)  $      (1.57)  $      (1.95)
                                                       ------------   ------------   ------------
Shares used in computing net loss per common share...    10,126,676      6,602,813      5,241,317
                                                       ------------   ------------   ------------
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-15
<PAGE>   148
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
 
<TABLE>
<CAPTION>
                           PREFERRED STOCK           COMMON STOCK        ADDITIONAL
                        ----------------------   ---------------------     PAID-IN     ACCUMULATED      DEFERRED
                         SHARES       AMOUNT       SHARES      AMOUNT      CAPITAL       DEFICIT      COMPENSATION      TOTAL
                        ---------   ----------   ----------   --------   -----------   ------------   ------------   ------------
<S>                     <C>         <C>          <C>          <C>        <C>           <C>            <C>            <C>
BALANCE, DECEMBER 31,
 1993.................     --           --        5,233,734   $ 52,337   $40,353,316   $(24,931,930)    $(10,192)    $ 15,463,531
                        ---------   ----------   -----------  --------   -----------   ------------     --------     ------------
  Exercise of options
    to purchase shares
    of Common Stock...     --           --           14,820        149        11,124        --            --               11,273
  Issuance of Common
    Stock to 401k
    Plan..............     --           --            3,500         35         7,336        --            --                7,371
  Amortization of
    deferred
    compensation......     --           --           --          --          --             --             6,421            6,421
  Net loss............     --           --           --          --          --         (10,211,403)      --          (10,211,403)
                        ---------   ----------   -----------  --------   -----------   ------------     --------     ------------
BALANCE, DECEMBER 31,
  1994................     --           --        5,252,054   $ 52,521   $40,371,776   $(35,143,333)    $ (3,771)    $  5,277,193
                        ---------   ----------   -----------  --------   -----------   ------------     --------     ------------
  Issuance of Common
    Stock upon the
    exercise of stock
    options...........     --           --            7,107         71         4,929        --            --                5,000
  Issuance of Common
    Stock to 401k
    Plan..............     --           --           12,911        129        17,655        --            --               17,784
  Amortization of
    deferred
    compensation......     --           --           --          --          --             --             3,771            3,771
  Issuance of Common
    Stock in
    connection with
    the acquistion of
    Secretech, Inc....     --           --        4,132,000     41,320     4,552,429        --            --            4,593,749
  Issuance of Common
    Stock and warrants
    in connection with
    reduction in
    royalty
    obligation........     --           --           56,604        566       124,434        --            --              125,000
  Issuance of Series A
    Convertible
    Preferred Stock,
    net of $287,465 in
    issue costs.......  1,500,000    2,712,535       --          --          --             --            --            2,712,535
  Net loss............     --           --           --          --          --         (10,377,437)      --          (10,377,437)
                        ---------   ----------   -----------  --------   -----------   ------------     --------     ------------
BALANCE, DECEMBER 31,
  1995................  1,500,000   $2,712,535    9,460,676   $ 94,607   $45,071,223   $(45,520,770)    $ --         $  2,357,595
                        ---------   ----------   -----------  --------   -----------   ------------     --------     ------------
  Issuance of Common
    Stock upon the
    exercise of stock
    options...........     --           --            2,989         30         2,074        --            --                2,104
  Issuance of Common
    Stock to 401k
    Plan..............     --           --           12,973        129         8,503        --            --                8,632
  Conversion of
    Preferred Stock
    into Common
    Stock.............    (87,500)    (158,231)     175,000      1,750       156,481        --            --              --
  Issuance of warrants
    in connection with
    notes payable.....     --           --           --          --           60,000        --            --               60,000
  Issuance of Common
    Stock in
    connection with
    the conversion of
    notes payable.....     --           --          152,582      1,526       151,056        --            --              152,582
  Issuance of Common
    Stock in
    connection with
    closing of private
    placement.........     --           --          500,000      5,000       495,000        --            --              500,000
  Issuance of Common
    Stock in
    settlement of
    consulting
    agreement.........     --           --           34,548        345        38,655        --            --               39,000
  Net loss............     --           --           --          --          --          (4,230,470)      --           (4,230,470)
                        ---------   ----------   -----------  --------   -----------   ------------     --------     ------------
BALANCE, DECEMBER 31,
  1996................  1,412,500   $2,554,304   10,338,768   $103,387   $45,982,992   $(49,751,240)    $ --         $ (1,110,557)
                        ---------   ----------   -----------  --------   -----------   ------------     --------     ------------
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-16
<PAGE>   149
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                    ---------------------------------------------
                                                       1996             1995             1994
                                                    -----------     ------------     ------------
<S>                                                 <C>             <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss........................................  $(4,230,470)    $(10,377,437)    $(10,211,403)
  Adjustments to reconcile net loss to net cash
     used for operating activities:
     Charge for acquired research and
       development................................      --             5,165,793          --
     Gain on sale of diagnostic technologies and
       assets.....................................      --            (1,616,840)         --
     Gain on asset disposals......................     (131,658)         --               --
     Gain on liability settlements................     (152,717)         --               --
     Depreciation and amortization................    1,037,672        1,171,521          751,809
     Imputed interest income on note receivable...      (36,472)         --               --
     Provision for asset impairment...............    1,152,130          --             1,466,360
     Deferred compensation........................      --                 3,771            6,421
     Charge for reduction in royalty obligation...      --               125,000          --
     Issuance of Common Stock to 401k plan........        8,632           17,784            7,371
     Imputed interest expense on notes payable....       60,000          --               --
     Stock issuance for payables..................       39,000          --               --
     Decrease (increase) in
     Accounts receivable..........................      --                12,493          (14,625)
     Inventories..................................      --               --              (316,945)
     Restricted cash..............................      133,446            1,456           41,966
     Collaborative, contract & grant revenue
       receivable.................................      (70,784)         (96,089)         --
     Other current assets.........................       26,737           (6,820)          84,933
     Other long-term assets.......................       11,869            8,812           12,279
     Increase (decrease) in
     Accounts payable.............................     (394,737)         455,132         (107,370)
     Accrued expenses.............................      267,600           61,503         (463,054)
     Other long-term obligations..................      (27,489)         (29,986)         (29,717)
                                                    -----------      -----------      -----------
     Net cash used for operating activities.......   (2,307,241)      (5,103,907)      (8,771,975)
CASH FLOWS FROM INVESTING ACTIVITIES:
     Proceeds from sale of property and
       equipment..................................      142,788          --               --
     Cash used for purchase of property and
       equipment..................................      (35,337)         (54,257)        (651,733)
     Proceeds from sale of diagnostic
       technologies and assets....................      --             1,329,595          --
     Payment of merger related costs..............      --              (379,850)         --
     Sales of long-term and short-term
       securities.................................      196,166        2,968,257       27,404,253
     Purchases of long-term and short-term
       securities.................................      (98,729)        (939,518)     (19,177,465)
                                                    -----------      -----------      -----------
     Net cash from investing activities...........      204,888        2,924,227        7,575,055
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net proceeds from issuance of Preferred
       Stock......................................      --             2,712,535          --
     Proceeds from issuance of Common Stock.......      500,000          --               --
     Proceeds from issuance of short-term
       promissory notes to shareholders...........      450,000          150,000          --
     Proceeds from note payable to CytRx..........      975,000          --               --
     Proceeds from exercise of Common Stock
       options....................................        2,104            5,000           11,273
     Principal payments on note payable...........     (104,959)        (342,578)      (3,698,341)
     Principal payments on capital lease
       obligations................................       (7,150)         (23,851)         (48,389)
                                                    -----------      -----------      -----------
     Net cash (used for) provided by financing
       activities.................................    1,814,995        2,501,106       (3,735,457)
Net increase (decrease) in cash and cash
equivalents.......................................     (287,358)         321,426       (4,932,377)
Cash and cash equivalents, beginning of year......      411,706           90,280        5,022,657
                                                    -----------      -----------      -----------
Cash and cash equivalents, end of year............  $   124,348     $    411,706     $     90,280
                                                    -----------      -----------      -----------
Supplemental disclosure of cash flow information:
          Cash paid for interest expense..........  $    14,242     $     30,050     $    244,459
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-17
<PAGE>   150
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 -- BACKGROUND, SIGNIFICANT UNCERTAINTIES AND SUBSEQUENT EVENTS
 
     Zynaxis, Inc. ("Zynaxis" or the "Company") was incorporated in Pennsylvania
on March 5, 1987 and commenced operations in July 1988. The Company initially
focused on development of cell-mediated therapies and cellular diagnostic
products including research reagents for cell tracking. Between 1988 and 1991,
the Company received funding primarily through venture capital financing
involving the issuance of convertible preferred stock and convertible notes, all
of which have since been converted into Common Stock. In January 1992, the
Company completed an initial public offering of its Common Stock, receiving net
proceeds of approximately $23,300,000 through the sale of 2,875,000 shares of
Common Stock. Between 1992 and 1994, the Company focused on development of
products for site-directed drug delivery using its proprietary Zyn-Linker(R)
molecules and on the development of cellular diagnostic products including its
Zymmune CD4/CD8 Cell Monitoring Kit.
 
     During 1995 the Company modified its strategic direction, divesting its
diagnostic products, acquiring vaccine technologies, and focusing its resources
on selected drug and vaccine delivery opportunities. Four key events occurred in
1995 as a result of the Company's modified strategic direction: (i) the sales of
the Company's diagnostic operations, accompanied by a significant reduction in
work-force, (ii) the acquisition by merger of Secretech, Inc. ("Secretech") and
associated technologies for oral and mucosal vaccine delivery, (iii) the
completion of a private placement which raised net proceeds of $2,700,000 to
fund operations, and (iv) the completion of a significant corporate
collaborative agreement for the development of certain technologies acquired
through the merger with Secretech.
 
     During 1996, the Company began to focus on the possibility of selling its
process chemistry/pilot plant operations, known as Cauldron Process Chemistry
("Cauldron") and its related assets for cash. Cauldron provides collaborative
consulting services on all aspects of bulk pharmaceutical production and offers
process research, development and pilot scale-up facilities for the
pharmaceutical, biochemical industries and fine chemical industries. In July
1996, the Company signed a binding letter of intent to sell Cauldron to Seloc AG
("Seloc"), a subsidiary of Schwarz Pharma. On August 27, 1996, the Company
received notification that Seloc was terminating its agreement in principle to
purchase Cauldron (See Note 6).
 
     On September 23, 1996, the Company entered into an Exclusive License
Agreement and Purchase Option with Phanos Technologies, Inc ("Phanos") related
to intellectual property related to its Zyn-Linker technologies. At that time,
the Company received initial deposits totaling $200,000, of which $195,000 was
refundable should Phanos have decided not to exercise the option. On January 21,
1997, the Company received notification that Phanos had exercised its option and
the Company received $525,000, representing the balance of the purchase price.
Under the terms of the agreement, Phanos acquired all of the Company's
Zyn-Linker technologies.
 
     On December 6, 1996 the Company entered into an Agreement and Plan of
Merger and Contribution (the "Merger Agreement") with CytRx Corporation
("CytRx"), Vaxcel, Inc., a wholly-owned subsidiary of CytRx ("Vaxcel"), and
Vaxcel Merger Subsidiary, Inc., a wholly-owned subsidiary of Vaxcel ("Vaxcel
Merger Sub"). Pursuant to the Merger Agreement, subject to approval by
shareholders of Zynaxis and certain other conditions, Vaxcel Merger Sub will be
merged (the "Merger") with and into Zynaxis, which will be the surviving
corporation and will be a wholly-owned subsidiary of Vaxcel. The Company
anticipates that, subject to shareholder approval and the satisfaction of
conditions to the Merger, the Merger will be consummated in the first half of
April 1997. In the Merger, the security holders of Zynaxis will exchange their
Zynaxis securities for securities of Vaxcel and will own approximately 12.5% of
the outstanding Common Stock of Vaxcel immediately following the Merger. CytRx
will own the remaining approximately 87.5% of Common Stock of Vaxcel immediately
following the Merger. The Merger will be accounted for as a purchase
transaction, with Vaxcel as the acquirer. Simultaneously with the execution of
the Merger Agreement, Zynaxis and CytRx entered into a secured loan agreement in
order for the Company to have sufficient funding for continued operations
pending the Merger. As discussed in Note 6 to the Consolidated Financial
 
                                      F-18
<PAGE>   151
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Statements, CytRx agreed to loan up to $2,000,000 to the Company on a secured
basis, as defined in the loan agreement. Among other agreements entered into in
connection with the Merger is an agreement providing for the sale of
substantially all assets of the Company.
 
     At December 31, 1996, the Company had cash, cash equivalents of $124,348
and a working capital deficit of $2,030,000. For the year ended December 31,
1996, net operating cash outflow was $2,307,000.
 
     The Company has not received significant revenues from the sale of any of
its products. For the period from its inception to December 31, 1996, the
Company had an accumulated deficit of $49,751,000.
 
     The ability of the Company to survive as a going concern beyond December
31, 1996 is dependent on the consummation of the Merger. There is no assurance
that the Company will ultimately complete this transaction. Additionally,
certain matters associated with the transaction require the approval of
shareholders. If the Company is unable to complete the transaction, if the
shareholders fail to approve the Merger or if certain conditions precedent to
closing of the Merger do not occur, the Company will not be able to continue
operations. Should the Company determine that it is no longer in the best
interest of its shareholders to continue operations, the ability of the Company
to fund an orderly disposition of assets, pay off its then outstanding
liabilities and return any remaining cash to its shareholders will be limited by
the amount of working capital then on hand, if any. Refer to Note 6 regarding
the Cauldron assets and Note 13 regarding the Company's operating lease
commitment.
 
     The Financial Statements were prepared assuming the Company will continue
as a going concern. The asset and liability carrying amounts do not propose to
represent realizable or final settlement values. See "Report of Independent
Public Accountants" regarding the Company's ability to continue as a going
concern.
 
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
 
  Basis of Presentation
 
     The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and include the accounts of Zynaxis and
its wholly-owned subsidiaries. All intercompany transactions and accounts have
been eliminated.
 
  Management's Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
  Cash Equivalents
 
     The Company considers all investments with an original maturity of less
than three months to be cash equivalents. Cash equivalents at December 31, 1996
and December 31, 1995 consisted of a bank repurchase agreement collateralized by
a United States government security.
 
  Supplemental Cash Flow Information
 
     In 1995, the Company acquired Secretech through the issuance of 4,132,075
shares of Common Stock with a value of $4,593,749. Refer to Note 3 to the
Consolidated Financial Statements.
 
     In 1996 and 1995, the Company financed $25,642 and $33,628, respectively,
of equipment purchases with capital leases.
 
                                      F-19
<PAGE>   152
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Property and Equipment
 
     Property and equipment are carried at cost. Equipment consists of
laboratory and office equipment which is depreciated on a straight-line basis,
generally over three to five years. Property and equipment under capital leases
are amortized over the term of the lease. Leasehold improvements are amortized
over the then remaining lease term or the estimated useful life of the
improvement, whichever is shorter. Maintenance and repairs are charged to
expenses as incurred and were $142,677, $178,440, and $171,753 in 1996, 1995,
and 1994, respectively. Major renewals and betterments are capitalized. Upon
disposition, the net book value of assets is relieved and resulting gains or
losses are reflected in the results of operations. Included in other current
assets is a receivable of $65,000 relating to the sale of certain fixed assets
that were sold during the fourth quarter of 1996.
 
     In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and undiscounted cash flows estimated to be generated by those assets are less
than the assets carrying amount. SFAS No. 121 also addresses the accounting for
long-lived assets where disposal is expected. The Company adopted SFAS No. 121
in the first quarter of 1996 and the adoption did not have any impact on the
Company's financial position or results of operations. See Note 6 regarding the
Cauldron assets.
 
  Revenue Recognition
 
     Government Small Business Innovative Research ("SBIR") grants revenue is
recognized on the percentage of completion method as the related expenses are
incurred. The Company receives payment based on the level of its related
research and development. Revenues recognized approximate costs incurred.
Collaboration revenues are recognized over the expected estimated period
services or work will be performed. Contract revenues are recognized according
to contract terms and milestones achieved on the percentage of completion
method. Sales are recognized upon product shipment. See Note 17 for further
disclosure.
 
  Research and Development
 
     Research and development costs are charged to expense as incurred. These
costs include personnel costs, materials consumed, depreciation on equipment and
cost of facilities used for research and development. Payments related to the
acquisition of technology rights for which development work is in process are
expensed and considered a component of research and development costs. Included
in research and development costs in 1994 are certain manufacturing, process
development and start-up costs associated with the Company's Zymmune CD4/CD8
Cell Monitoring Kit.
 
  Net Loss Per Common Share
 
     Net loss per share has been computed by dividing the net loss by the
weighted average number of shares of Common Stock outstanding during the periods
presented. The weighted average number of shares of Common Stock used in the
computation were 10,126,676, 6,602,813, and 5,241,317 for the years ended
December 31, 1996, 1995, and 1994, respectively. Common shares obtainable from
the assumed conversion of the Series A Convertible Preferred Stock and the
exercises of outstanding options and warrants have been excluded from the
computation of net loss per common share for all periods presented because their
inclusion would be antidilutive.
 
  Reclassifications
 
     The Company has reclassified certain prior year amounts to conform to the
current year presentation.
 
                                      F-20
<PAGE>   153
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 3 -- ACQUISITION OF SECRETECH, INC.
 
     Effective July 27, 1995, the Company consummated the merger of Secretech, a
company engaged in the development of oral vaccines which stimulate mucosal and
systemic immunity, with and into a wholly-owned subsidiary of the Company.
 
     In connection with this merger, the Company initially issued 3,000,000
shares of its Common Stock, independent of any fluctuations in its underlying
market value, to the former Secretech shareholders. Based on the July 27, 1995
market value of $1.03125 per share, the estimated total purchase price was
$3,093,750.
 
     Pursuant to the terms of the merger agreement, as a result of the Company's
consummation of the collaborative agreement discussed in Note 17 to the
Consolidated Financial Statements, the Company issued an additional 1,132,075
shares (the "Contingent Shares") of Common Stock, with a market value at the
time of issuance of $1,500,000, to the former shareholders of Secretech. The
number of Contingent Shares was determined by dividing $1,500,000 by the then
current price per share of Zynaxis Common Stock based upon the ten day average
of the closing price on the Nasdaq National Market prior to public announcement
of the collaborative agreement.
 
     The transaction was accounted for as a purchase. Revenues and expenses
related to Secretech are included in the results of operations for the Company
from the date of acquisition. The Company had recorded a total charge to 1995
earnings of $5,165,793 for acquired research and development equal to the value
of the initial 3,000,000 shares issued, the value of the 1,132,075 Contingent
Shares issued, the excess of liabilities assumed over assets acquired, as well
as fees and expenses to effect the transaction.
 
     In connection with the merger of Secretech, Zynaxis' management performed
an analysis of all identifiable assets acquired. Such analysis included the
identification and evaluation of each significant development project to
determine if the technological feasibility had been achieved and if there were
any alternative future uses. As of the date of the merger, Secretech was a
development stage biotechnology company and had an accumulated deficit of
approximately $5 million. In addition, Secretech had no product sales since
inception and a shareholder deficit. Prior to the merger with Zynaxis, Secretech
was focused on developing new classes of oral vaccines. At the time of the
merger, one of Secretech's development programs was in human clinical trials and
was several years away from regulatory approval and ultimate commercialization.
The remaining development programs were preclinical. At that time, there were
significant risks that any of these product development efforts would be
successfully completed, that regulatory approval would be obtained or that any
products, if introduced, would be successfully marketed or achieve customers'
acceptance. The cost of developing this technology was significant. As a result
of the substantial time and effort to continue the development of the product
and the associated risk thereof, it was determined that technological
feasibility had not been achieved. In addition, since alternative uses of this
developmental technology did not exist at that time, the cost of such technology
had been charged to expense in accordance with SFAS No. 2.
 
     Note 5 to the Consolidated Financial Statements presents consolidated
condensed pro forma financial results of this transaction, and the pro forma
financial results of the diagnostic divestiture discussed in Note 4 below.
 
NOTE 4 -- DIVESTITURE OF DIAGNOSTIC TECHNOLOGIES
 
     In January 1995, Zynaxis' management and Board of Directors committed to a
plan to divest its diagnostic products and technologies. Accordingly, the
realizability of all diagnostic assets was reviewed by the Company as of
December 31, 1994. As a result of the review of its diagnostic technologies and
assets, the Company recorded a charge in the statement of operations for the
year ended December 31, 1994 totaling $1,466,360 for the impairment of certain
of its diagnostic-related assets. The impairment represented
 
                                      F-21
<PAGE>   154
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
substantially all of the identifiable diagnostic-related assets, including
equipment, prepaid royalties, accounts receivable and leasehold improvements.
 
     Also as a result of the decision to divest its diagnostic technologies and
assets, in January 1995 the Company recorded a restructuring charge of $347,436.
This charge consisted of severance and severance-related expenses resulting from
the termination of certain diagnostic employees, as well as amounts due to
certain distributors of the Company's Zymmune Cell Monitoring Kit pursuant to
the terms of their Zymmune distribution agreements.
 
     Subsequent to these actions, the Company sold its diagnostic technologies
in two separate transactions and has recognized a combined net gain of
$1,616,840 on these transactions.
 
  Sale of Cell Tracking Molecule Technology
 
     In June 1995, the Company announced that it had reached an agreement with
Phanos for the sale of the Company's cell tracking molecules for use as research
and diagnostic reagents, including certain Zyn-Linker patents owned by the
Company.
 
     The Company retained all rights to the therapeutic uses of the Zyn-Linker
technology. Upon signing, the Company received a lump sum payment of $1,100,000,
which is included in the gain on the sale of diagnostic technologies.
 
     Under the terms of the agreement, the Company continued to manufacture and
distribute the research and diagnostic reagents for Phanos and receive royalty
and other payments based upon the sales of these products, if any. In December
1996, the Company assigned its rights under this agreement to a consulting firm,
the founders of which are former vice presidents of Zynaxis. As the result of
this assignment, the Company is no longer responsible for the manufacture or
distribution of the research reagents, nor does it collect a royalty.
 
  Sale of Zymmune Technology
 
     In July 1995, the Company announced that it had reached an agreement (the
"Asset Purchase Agreement") with Intracel Corporation ("Intracel") for the sale
of the Company's Zymmune technology, Zymmune inventory, certain laboratory
equipment, patents, patent applications and certain other rights.
 
     Under the terms of the Asset Purchase Agreement, as amended by a release
agreement dated October 24, 1995, the Company received $560,000 of cash and a
$450,000 four-year promissory note secured by certain of the purchased assets.
This promissory note is interest-free for several years; accordingly, the
Company recorded the discounted value of the note receivable of $285,000 as a
long-term asset. In 1996, imputed interest of $36,000 was charged to the
statement of operations and the current carrying value of the note is $324,000.
In connection with the asset and technology transfer, the Company was required
to make a cash payment of $152,000 to terminate an operating lease on certain
equipment and incurred other costs of $180,000 principally related to employee
costs during the technology transfer period.
 
     The Company could receive milestone payments of up to $1,250,000 upon
Intracel's achievement of certain milestones, including, among other things, the
approval by the FDA of the 510(k) application submitted by Zynaxis for U.S.
marketing approval of the Zymmune CD4/CD8 Cell Monitoring Kit ("FDA approval")
and certain manufacturing milestones.
 
     Disputes have arisen between the Company and Intracel regarding certain
provisions of the Asset Purchase Agreement. On or about November 14, 1995,
Intracel was notified that FDA approval had been granted. On February 7, 1996,
the Company was notified by Intracel that Intracel was withholding payment of a
$500,000 milestone payment due upon FDA approval, asserting that final approval
had not been received, along with other claims. The Company is considering
options available to it regarding collection of this
 
                                      F-22
<PAGE>   155
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
milestone payment. The Company has given no financial statement recognition to
this milestone payment pending its final resolution.
 
     There can be no assurance that Intracel will be able to achieve any of the
other remaining milestones.
 
     Zynaxis will be entitled to royalties on future sales, if any, of the
Zymmune CD4/CD8 Cell Monitoring Kit and certain related technologies.
 
NOTE 5 -- PRO FORMA INFORMATION: SECRETECH MERGER AND DIAGNOSTIC DIVESTITURES
 
     The unaudited consolidated results of operations on a pro forma basis as if
the acquisition of Secretech and the divestiture of the diagnostic technologies
discussed in Notes 3 and 4 to the Consolidated Financial Statements had occurred
at the beginning of the respective periods are as follows:
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                                ---------------------------
                                                                   1995            1994
                                                                -----------     -----------
    <S>                                                         <C>             <C>
    Revenues..................................................  $   904,359     $ 1,362,411
    Net loss..................................................   (6,807,187)     (6,958,468)
    Net loss per common share.................................  $      (.63)    $      (.74)
</TABLE>
 
     These pro forma financial results of operations do not purport to be
indicative of the financial results of operations that might have occurred, nor
are they indicative of future results.
 
NOTE 6 -- IMPAIRMENT OF CAULDRON ASSET VALUE
 
     In efforts to raise capital, and in conjunction with the Vaxcel Merger, the
Company has been soliciting bids from third parties who may have an interest in
purchasing the Cauldron operations and related assets. The net book value of the
Cauldron assets at December 31, 1996 was $1,752,130. Notwithstanding the
aforementioned, the most recent bid that the Company has received for the
Cauldron assets is significantly less than this amount. Accordingly,
conservative measures have been taken and the entire Cauldron asset base has
been reduced to $600,000. The difference between the net book value and $600,000
is shown as a Provision for Asset Impairment in 1996. See Note 13 regarding the
Company's operating lease commitment.
 
NOTE 7 -- VAXCEL MERGER AGREEMENT
 
     On December 6, 1996, the Company entered into the Merger Agreement with
CytRx, Vaxcel, a wholly-owned subsidiary of CytRx, and Vaxcel Merger Sub, a
newly-formed, wholly-owned subsidiary of Vaxcel, which provides for the merger
of Vaxcel Merger Sub with and into Zynaxis, with the effect that Zynaxis, as the
surviving corporation resulting from the Merger, will be a wholly-owned
subsidiary of Vaxcel.
 
     Upon consummation of the Merger, shares of Common Stock of Zynaxis will be
exchanged for the right to receive a number of shares of Vaxcel Common Stock
equal to an exchange ratio defined in the Merger Agreement (approximately
 .0947). Shares of the Company's Series A Convertible Preferred Stock will be
exchanged for the right to receive a number of shares of Vaxcel Common Stock
equal to two times the exchange ratio. CytRx will own approximately 87.5% of
Vaxcel Common Stock upon consummation of the Merger.
 
     Simultaneously with the execution of the Merger Agreement, Zynaxis and
CytRx entered into a secured loan agreement in order for the Company to have
sufficient funding for continuing operations until the Merger is approved by
shareholder vote and consummated, anticipated to be in the first half of April
1997. CytRx agreed to loan up to $2,000,000 to the Company on a secured basis.
At December 31, 1996, $975,000 had been advanced and was used in settling a
major portion of the Company's outstanding liabilities as well as funding
December operations. All advances accrue interest at a rate of prime plus 2%.
Upon the consummation of the
 
                                      F-23
<PAGE>   156
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Merger between Zynaxis and Vaxcel, CytRx will contribute to Vaxcel an amount of
funding equal to the outstanding principal and interest of the loan, as well as
additional amounts specified in the Merger Agreement. Another agreement entered
into in connection with the Merger Agreement provides for the sale of
substantially all assets of the Company.
 
     The transaction documents further provide that Zynaxis preferred
stockholders who also hold warrants to purchase the Company's Common Stock, and
three other warrant holders, will exchange the Zynaxis warrants for warrants to
purchase Vaxcel Common Stock. Additionally, certain shareholders who hold
convertible notes issued by Zynaxis will exchange such notes for shares of
Vaxcel Common Stock.
 
     Upon execution of the Merger Agreement, a Technology Development Agreement
was also executed by the Company and Vaxcel relating to the development of the
Company's vaccine delivery technology pending the Merger.
 
NOTE 8 -- SECURITIES
 
     At December 31, 1996, the Company held no securities. All securities at
December 31, 1995 were classified as available-for-sale and were carried at fair
value. The adoption of Statement of Financial Accounting Standard No. 115 had no
effect on the Company's accumulated deficit or stockholders' equity as fair
market value equals the investments' amortized cost.
 
NOTE 9 -- ACCRUED EXPENSES
 
     Accrued expenses at December 31, 1996 and 1995, respectively, consisted of
the following:
 
<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER
                                                                              31,
                                                                     ---------------------
                                                                       1996         1995
                                                                     --------     --------
    <S>                                                              <C>          <C>
    Professional fees..............................................  $178,159     $251,889
    Research costs.................................................    10,000       76,462
    Compensation, payroll withholding and related items............   262,925       14,615
    License costs..................................................    40,002       18,813
    Deposits.......................................................   195,000           --
    Other..........................................................    66,723      126,015
                                                                     --------     --------
                                                                     $752,809     $487,794
                                                                     ========     ========
</TABLE>
 
NOTE 10 -- NOTES PAYABLE TO SHAREHOLDERS
 
     On December 28, 1995, the Company issued a $150,000 Demand Promissory Note
(the "December 1995 Note") to one of its principal shareholders. A general
partner of the shareholder is a member of the Board of Directors. On February
29, 1996, the holder of the December 1995 Note converted the outstanding
principal balance and all accrued interest thereon to Common Stock with transfer
restrictions, as described in Note 14 below.
 
     On May 3, 1996, the Company issued Demand Promissory Notes (the "May 1996
Notes") aggregating $200,000 to two of its principal shareholders. A general
partner of one shareholder and the president of another shareholder are members
of the Board of Directors. These May 1996 Notes bear interest at the annual rate
of 11 1/4% and are due on the earlier of (i) the receipt by the Company of
proceeds from the sale of Cauldron aggregating at least $1,000,000 or (ii) upon
demand if the closing on the sale of Cauldron does not occur by September 30,
1996. The May 1996 Notes are convertible at the option of the holder into an
aggregate of 200,000 shares of the Company's Common Stock at any time prior to
repayment. In connection
 
                                      F-24
<PAGE>   157
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
with the issuance of the May 1996 Notes, the Company issued warrants with five
year terms to purchase 200,000 shares of the Company's Common Stock at an
exercise price of $1.00 per share.
 
     On June 7, 1996, the Company issued a $250,000 Demand Promissory Note to
another of its principal shareholders. This note was canceled and reissued on
July 17, 1996 due to a revision of the repayment terms (the "July 1996 Note").
This July 1996 Note bears interest at the annual rate of 11 1/4% and is due on
the earlier of (i) the receipt by the Company of proceeds from the sale of
Cauldron aggregating at least $1,000,000 or (ii) upon demand if the closing on
the sale of Cauldron does not occur by October 15, 1996. This July 1996 Note is
convertible at the option of the holder into an aggregate of 150,000 shares of
the Company's Common Stock at any time prior to repayment. In connection with
the issuance, the Company also issued a warrant with a five year term to
purchase 25,000 shares of the Company's Common Stock at an exercise price of
$1.00 per share.
 
     The value of these 225,000 warrants, relating to the May 1996 Notes and the
July 1996 Note, has been deemed to be $60,000 for accounting purposes and was
expensed in 1996 as a component of interest expense.
 
     In conjunction with the signing of the Merger Agreement in December 1996, a
Note Exchange Agreement was entered into whereby two of these three notes
payable to shareholders will be exchanged for Vaxcel Common Stock upon
consummation of the Merger.
 
NOTE 11 -- NOTE PAYABLE TO CytRx
 
     As discussed in Note 7, the Company has entered into a Merger Agreement
with Vaxcel, an Atlanta based vaccine technology company. In conjunction with
the Merger Agreement, Zynaxis also entered into a secured loan agreement with
CytRx, Vaxcel's parent company. The terms of the loan agreement allow for the
Company to borrow up to $2,000,000 from CytRx between December 1996 and the
closing of the Merger, anticipated to be in the first half of April 1997.
Proceeds from any amounts borrowed are to be used to satisfy accounts payable
and accrued expenses as well as to fund operations until the transaction is
completed. Through December 31, 1996, the Company had borrowed a total of
$975,000. The borrowings accrue interest at prime plus 2%. Interest expense on
these borrowings totaled $5,090 for the year ended December 31, 1996.
 
NOTE 12 -- LONG-TERM DEBT
 
     Long-term debt consisted of the following:
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,     DECEMBER 31,
                                                                     1996             1995
                                                                 ------------     ------------
    <S>                                                          <C>              <C>
    Other note payable.........................................       $--           $104,959
                                                                     ---            --------
                                                                      --             104,959
    Less current maturities....................................       --             (25,050)
                                                                     ---            --------
                                                                      $--           $ 79,909
                                                                     ===            ========
</TABLE>
 
  Other Note Payable
 
     In 1989, the Company issued a ten-year note to the then lessor of its
office and research facility to finance certain leasehold and other
improvements. The note, with interest at 13%, was fully collateralized by a
certificate of deposit, which had been categorized as restricted cash in prior
years. During 1996, the Company was frequently unable to make the monthly
payments on a timely basis as required by the terms of the note. In November
1996, the holder of the note agreed to accept the full amount of the collateral
certificate of deposit, $91,142, in satisfaction of all obligations under the
note.
 
                                      F-25
<PAGE>   158
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 13 -- OTHER LONG-TERM OBLIGATIONS AND LEASE COMMITMENTS
 
     Other long-term obligations consisted of the following:
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,     DECEMBER 31,
                                                                     1996             1995
                                                                 ------------     ------------
    <S>                                                          <C>              <C>
    Capital lease obligations..................................    $ 50,908         $ 32,418
    Deferred rent liability....................................      47,880          107,285
                                                                   --------         --------
                                                                     98,788          139,703
    Less current maturities....................................     (33,277)         (36,209)
                                                                   --------         --------
                                                                   $ 65,511         $103,494
                                                                   ========         ========
</TABLE>
 
  Lease Obligations
 
     The Company leases real property and equipment under noncancelable lease
agreements that expire at various dates through 2001. The future minimum lease
payments as of December 31, 1996, under all leases are as follows:
 
<TABLE>
<CAPTION>
                                                                     CAPITAL      OPERATING
                                                                     --------     ---------
    <S>                                                              <C>          <C>
    1997...........................................................    18,822       302,620
    1998...........................................................    18,822       299,966
    1999...........................................................    18,822        29,180
    2000...........................................................     9,400            --
    2001...........................................................     4,010            --
    2002 & beyond..................................................        --            --
                                                                     --------     ---------
                                                                       69,876       631,766
    Less amounts representing interest.............................   (18,968)           --
                                                                     --------     ---------
                                                                     $ 50,908     $ 631,766
                                                                     ========     =========
</TABLE>
 
     Rent expense on the Company's leased facility in Malvern, Pennsylvania was
$411,856 in 1996, $439,609 in 1995, and $405,173 in 1994.
 
     Management believes the Company's operating lease commitment will be
transferred to the buyer of the Cauldron assets. If the Cauldron assets are not
sold, management believes that the related facility, or a portion thereof, will
be sublet to cover the commitment. If the Company is unable to find a new tenant
for the facility, either through the Cauldron sale or subletting, the related
commitments could be accelerated (See Notes 1 and 6).
 
  Deferred Rent Expense
 
     The Company records rent expense on a straight-line basis and records the
excess of rent expense over cash paid as deferred rent. During November 1996,
the Company's lease was amended to reduce the occupied space from 39,200 square
feet to 23,460 square feet, a 40% reduction. As a result of the amendment, the
deferred rent liability was reduced and booked as a reduction of marketing,
general and administrative expense in 1996. Deferred rent was $47,880 and
$107,285 at December 31, 1996 and 1995, respectively, with $22,982 and $29,988
classified as current at December 31, 1996 and 1995, respectively.
 
                                      F-26
<PAGE>   159
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 14 -- STOCKHOLDERS' EQUITY
 
  Common Stock
 
     On February 29, 1996, the Company completed a private placement of Common
Stock with transfer restrictions, raising proceeds of $500,000. Additionally, a
$150,000 short-term promissory note payable held by a related party, plus
accrued interest of $2,582, was converted to Common Stock with transfer
restrictions on February 29, 1996.
 
     Under terms of the above agreements, the Company issued an aggregate of
652,582 shares of Common Stock at a price of $1.00 per share. Additionally, the
Company issued warrants to purchase 195,775 shares of Common Stock at an
exercise price of $1.00 per share.
 
     In June 1995, the Company had entered into a Business Development
Consulting Agreement with a principal shareholder, of which the president is a
member of the Board of Directors. The terms of the one year agreement stated
that a portion of the compensation was to be in shares of Common Stock. In
November 1996, the Company issued 34,548 shares of Common Stock in settlement of
the amounts owed.
 
  Series A Convertible Preferred Stock
 
     In 1995, the Company issued 1,500,000 of Series A Convertible Preferred
Stock ("Preferred Stock") at $2.00 per share for aggregate proceeds, net of
offering costs, of $2,712,535. Each share of Preferred Stock is convertible into
two shares of Common Stock at an initial conversion price of $1.00 per share.
 
     In 1996, a holder of Preferred Stock converted 87,500 shares of Preferred
Stock into 175,000 shares of Common Stock.
 
  Stock Warrants
 
     At December 31, 1996, there were warrants issued and outstanding to
purchase an aggregate of 3,647,189 shares of Common Stock at prices ranging from
$1.325 to $7.035 and expiration dates ranging from 1998 through 2007.
 
     As discussed above, in connection with (i) the completion of a private
placement in February 1996 and (ii) the conversion of a short-term note into
equity in February 1996, the Company issued 195,775 warrants to purchase Common
Stock at $1.00 per share.
 
     As discussed in Note 10, in connection with the issuance of the May 1996
Notes and the July 1996 Note, the Company issued warrants to purchase an
aggregate of 225,000 shares of Common Stock at $1.00 per share.
 
     In addition to the above, as part of the 1995 private placement, the
Company issued 1,500,000 warrants to purchase up to 3,000,000 shares of Common
Stock. Each warrant is exercisable for two shares of Common Stock at an exercise
price of $1.00 per share. The warrants have five year terms and contain certain
automatic termination conditions.
 
     In connection with a royalty abatement agreement entered into in 1995, the
Company issued warrants to purchase 200,000 shares of Common Stock at an
exercise price of $1.325 per share. These warrants expire on December 31, 2007.
 
     A five year warrant to purchase 15,000 shares of Common Stock at $1.00 per
share was issued in December 1995 in connection with the issuance of a note
payable.
 
     Warrants to purchase 11,414 shares of Common Stock at $7.035 per share are
currently outstanding. These warrants were issued to the lessor upon the
execution of certain capital leases. These capital leases for laboratory and
office equipment have since expired and been bought out.
 
                                      F-27
<PAGE>   160
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Stock Option Plan
 
     The Company's stock option plan reserves shares of Common Stock for
issuance upon the exercise of incentive and nonqualified stock options. On July
27, 1995, the shareholders of the Company approved an increase in the number of
shares issuable under the Company's Amended and Restated 1989 Stock Option Plan
from 800,000 to 1,750,000. Incentive stock options are granted at market value
or above, and non-qualified stock options are granted at a price fixed by the
Board of Directors on the grant date. Options are exercisable for five to ten
years from the grant date and generally vest over a four-year period. Options
granted after December 31, 1991 are exercisable for ten years from the date of
grant.
 
     The Company accounts for this plan under APB Opinion No. 25 under which no
compensation cost has been recognized.
 
     Had compensation cost for this plan been determined consistent with FASB
Statement No. 123, the Company's net loss and loss per share would have been
increased to the following pro forma amounts:
 
<TABLE>
<CAPTION>
                                                                  1996             1995
                                                               -----------     ------------
    <S>                                                        <C>             <C>
    NET LOSS:
      As Reported............................................  $(4,230,470)    $(10,377,437)
      Pro Forma..............................................  $(4,324,976)    $(10,520,218)
    PRIMARY EPS:
      As Reported............................................  $     (0.42)    $      (1.57)
      Pro Forma..............................................  $     (0.43)    $      (1.59)
</TABLE>
 
     Because the Statement 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
 
     At December 31, 1996, 98,070 options had been exercised, 394,634 were
exercisable at prices ranging from $.7035 to $7.125, and 755,021 shares of
Common Stock remained available for grant. A summary of the status of the
Company's stock option plan at December 31, 1996 and 1995 and changes during the
years then ended are presented in the table and narrative below.
 
<TABLE>
<CAPTION>
                                                    1996                               1995
                                       ------------------------------     ------------------------------
                                                     WEIGHTED AVERAGE                   WEIGHTED AVERAGE
                                        SHARES        EXERCISE PRICE       SHARES        EXERCISE PRICE
                                       ---------     ----------------     ---------     ----------------
<S>                                    <C>           <C>                  <C>           <C>
Outstanding at the beginning of
  year...............................  1,038,370          $ 3.44            825,784          $ 3.65
Granted..............................         --              --            512,800          $ 1.27
Exercised............................      2,989          $  .70              7,107          $ 0.70
Forfeited............................    128,472          $ 3.36            292,210          $ 3.76
Expired..............................         --              --                897          $ .070
Outstanding at the end of year.......    906,909          $ 3.71          1,038,370          $ 3.44
                                       =========                          =========
Exercisable at the end of the year...    404,634          $ 3.44            296,077          $ 3.68
                                       =========                          =========
Weighted average fair value of
  options granted....................  $      --                          $    0.95
</TABLE>
 
     404,634 of the 906,909 options outstanding at December 31, 1996 have
exercise prices between $0.70 and $7.13, with a weighted average exercise price
of $3.44 and a weighted average remaining contractual life of seven years. All
of these options are exercisable. The remaining 502,275 options outstanding at
December 31, 1996 have exercise prices between $0.70 and $7.13, with a weighted
average exercise price of $3.71 and a weighted average remaining contractual
life of seven years.
 
                                      F-28
<PAGE>   161
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1995: risk-free interest rates ranging from 5.7%
to 7.2%, expected dividend yield of $0, expected life of seven years and
expected volatility of 70%. No options were granted in 1996.
 
     In December 1995, 10,000 stock options outside of the Amended and Restated
1989 Stock Option Plan were granted to a board member. These options became
fully vested in June 1996 at an exercise price of $0.875.
 
  401(k) Savings Plan
 
     In June 1994, the Company began to provide a match to the contributions to
the Zynaxis Inc. 401(k) Savings Plan (the "Plan") comprised of both cash and
Company stock. In July 1996, the cash portion of the match was eliminated and
the match was comprised entirely of Company stock. The shares are generally
contributed quarterly and valued at the closing market price on the last day of
each quarter. The Company contributed 12,973 and 12,836 shares to the Plan
during 1996 and 1995, respectively.
 
NOTE 15 -- 401(k) SAVINGS PLAN
 
     In 1994, the Company began making matching contributions to the Plan. The
matching contribution is determined each year by the Board of Directors and
vests over four years with credit given for prior service. For the year ended
December 31, 1996, the Company contributed 50% of the salary deferred by
participants, up to a maximum of 4% of each participant's deferred salary. For
the first half of 1996, the matching contribution was equally comprised of the
Company's Common Stock and cash. Effective July 1, 1996, the Board resolved to
eliminate the cash aspect of the match, thereby making the entire match in
Company stock. The matching contributions are made on a quarterly basis and the
shares of the Company's Common Stock which are contributed are valued at the
closing market price on the last business day of the quarter. Total Company
contributions to the Plan, in both cash and stock, were $19,659 in 1996 and
$30,641 in 1995. In 1997, the Board of Directors resolved that the Zynaxis Inc.
401(k) Savings Plan would be terminated effective January 7, 1997.
 
NOTE 16 -- INCOME TAXES
 
     As of December 31, 1996, the Company had federal net operating loss
carryforwards of approximately $31,000,000. The net operating loss and credit
carryforwards will expire at various dates beginning in 2003, if not utilized.
 
     The Tax Reform Act of 1986 contains various provisions that limit the
utilization of net operating loss and tax credit carryforwards if there has been
an ownership change. Such an ownership change as described in Section 382 of the
Internal Revenue Code may limit the Company's utilization of its net operating
loss and tax credit carryforwards. Additionally, a portion of the net operating
loss carryforward relating to the 1995 Secretech acquisition (see Note 3) are
subject to SRLY restrictions as defined in the Internal Revenue Code. The
proposed Merger with Vaxcel (Notes 1 and 6), if consummated, will significantly
limit the availability of the net operating loss and tax credit carryforwards.
 
     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount reported for income tax purposes.
 
                                      F-29
<PAGE>   162
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Significant components of the Company's deferred tax assets for federal and
state income taxes as of December 31, 1996 and 1995 were as follows:
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,     DECEMBER 31,
                                                                  1996             1995
                                                              ------------     ------------
    <S>                                                       <C>              <C>
    Deferred tax assets
      Net operating loss carryforwards......................  $ 10,910,000     $  8,829,000
      Capitalization of research and development............     5,449,000        4,982,000
      Asset impairment......................................       392,000               --
      Other -- net..........................................       779,000          369,000
                                                              ------------     ------------
    Total deferred tax assets...............................    17,530,000       14,180,000
    Valuation allowance for deferred tax assets.............   (17,530,000)     (14,180,000)
                                                              ------------     ------------
    Net deferred tax assets.................................  $         --     $         --
                                                              ============     ============
</TABLE>
 
     A valuation allowance has been established as realization of the tax assets
is uncertain.
 
NOTE 17 -- COLLABORATIVE, CONTRACT AND GRANT REVENUES
 
  Collaboration with ALK A/S
 
     In October 1995, the Company announced a development and licensing
agreement with ALK A/S ("ALK"), a leading European pharmaceutical company in the
field of allergy immunotherapy. The collaboration involves certain of the
technologies acquired in the merger with Secretech relating to bioactive
substance delivery technology.
 
     Under the terms of the ALK development and licensing collaboration, the
Company has received payments aggregating $1,000,000. $250,000 was received in
November 1995 and three additional payments totaling $750,000 were received
during 1996. These amounts are reflected in collaborative, contract and grant
revenues. The Company incurred costs related to the ALK collaboration of
approximately $200,000 and $500,000 in 1995 and 1996, respectively. This
agreement can be unilaterally terminated by either party in certain
circumstances and with notification periods stated in the agreement. During
1996, the Company also provided ALK with significant research and development
support of the licensed technology for which it received additional revenues of
$36,000 based on costs incurred.
 
     The Company will receive a royalty of 7% on net sales of products that
utilize the Company's technology, increasing based upon certain sales criteria
established within the agreement. The Company could also receive additional
milestone payments of up to $2,000,000 based upon either FDA or certain other
regulatory approvals of additional products using the Company's vaccine delivery
technologies. There can be no assurance that ALK will ever obtain the
appropriate regulatory approvals, or will ever generate any sales using the
technology licensed from the Company.
 
     Should the Company receive royalties under this agreement, it will be
required to pay approximately 3% of the net sales of the licensed product to the
original patent holder of the technology.
 
  Contract Manufacturing
 
     During 1996, the Company's Cauldron division had a substantial increase in
business with third parties in providing process chemistry and pilot
manufacturing services to other biotechnology, pharmaceutical and chemical
organizations. Revenue recognized in connection with these contracts totaled
$809,000 and $45,000 for the years ended December 31, 1996 and 1995,
respectively.
 
                                      F-30
<PAGE>   163
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Grant Revenue
 
     For the years ended December 31, 1996 and 1995, the Company recognized
$311,000 and $251,000, respectively, pursuant to a SBIR grant awarded by the
National Heart, Lung and Blood Institute. Revenues recognized approximate costs
incurred. This grant is funding the preclinical development of Zyn-Linker
molecules linked with heparin and the investigation of their ability to inhibit
post-angioplasty restonosis and local thrombosis. In July 1996, this grant was
extended until June 1997. At December 31, 1996, the grant has a balance of
$198,000.
 
     During 1996, the Company received a Phase I SBIR grant for up to $100,000
to develop Zyn-Linker molecules linked with Taxol and for the investigation of
their ability to inhibit post-angioplasty restonosis and local thrombosis. The
Company has recorded $88,000 of revenue related to this grant for the year ended
December 31, 1996. Revenues recognized approximate costs incurred.
 
     Notwithstanding the January 1997 purchase by Phanos of the Zyn-Linker
technology, the studies conducted under these grants will continue to be
performed by Zynaxis. However, any patents, inventions or other intellectual
property that may arise from this SBIR research will become the property of
Phanos.
 
  Collaboration with Eli Lilly and Company
 
     The Company's agreement with Eli Lilly and Company ("Lilly") to apply the
Company's drug delivery technology to vascular drugs which have the potential to
reduce the rate of restenosis after angioplasty was terminated by Lilly,
effective in August 1994. The Company recognized revenues of $749,122 under this
agreement in 1994.
 
  Various Other Collaborations
 
     During 1996, in an effort to obtain on-going collaborative arrangements,
the Company entered into a few small collaborative agreements, primarily related
to the Zyn-Linker technology as it pertains to oligonucleotide studies. Total
revenue recognized under these agreements was $56,000.
 
NOTE 18 -- OTHER INCOME
 
  Sublease Income
 
     As a result of the divestiture of the diagnostics technologies in 1995, the
Company had certain laboratory and office space that was not being utilized. In
order to fully maximize the leased facility, Zynaxis began to sublet portions of
its laboratory and office space to independent third parties in 1995. These
sublease arrangements continued until November 1996, when the Company's lease
was amended to decrease the total square footage occupied by Zynaxis. Rental
income recognized under the sublease arrangements was $238,000 and $139,000 for
the years ended December 31, 1996 and 1995, respectively.
 
  Royalty Income
 
     As discussed in Note 4 to the Consolidated Financial Statements, through
November 1996 Zynaxis continued to manufacture and distribute the research and
diagnostic reagents for Phanos, pursuant to the June 1995 agreement. In
accordance with the agreement between the two companies, Zynaxis realized a 10%
royalty in exchange for providing these manufacturing and distribution services,
subject to certain minimum royalty amounts. Royalty income recognized was
$46,400 and $13,800 for the years ended December 31, 1996 and 1995,
respectively.
 
  Seloc
 
     As discussed in Note 1 to the Consolidated Financial Statements, during
1996 the Company entered into a binding letter of intent with Seloc for the sale
of Cauldron. In conjunction with this letter, Seloc made an
 
                                      F-31
<PAGE>   164
 
                         ZYNAXIS, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
option payment in the amount of $100,000, which, except under limited
circumstances, would be nonrefundable if the sale of Cauldron were not
consummated. For reasons beyond Zynaxis' control, in August 1996 Seloc decided
not to proceed with the acquisition, at which time the $100,000 was recognized
as other income.
 
  Asset Sales
 
     In conjunction with the November 1996 lease amendment and in anticipation
of the consummation of the Merger, the Company began to sell various fixed
assets during the fourth quarter of 1996. A net gain on these asset disposals of
$131,600 was recorded in other income on the statement of operations for the
year ended December 31, 1996.
 
NOTE 19 -- RELATED PARTY TRANSACTIONS
 
     As described in Note 10 to the Consolidated Financial Statements, the
Company issued a $150,000 note to a related party in December 1995. This note
was extinguished in February 1996 as the note plus accrued interest, totaling
$152,582, was converted to equity.
 
     As discussed in Note 14 to the Consolidated Financial Statements, business
development services were rendered to the Company by a consulting firm of which
a director of the Company is President and sole shareholder. Terms of the
consulting agreement provided that a portion of the fees be paid in Company
stock. The Company issued 34,548 shares of Common Stock in November 1996 in
settlement of this obligation. The number of shares issued was based upon the
fair market value of the services provided.
 
     Consulting services were provided to the Company by a director of the
Company who was the former president of Secretech. This consulting arrangement
commenced on September 30, 1995 and ended September 30, 1996. Under the terms of
the agreement, the director was entitled to compensation at the annual rate of
$135,000 through March 31, 1996 and at an annual rate of $150,000 from April
through September 1996. During 1996, the Company recognized expense of $108,750
related to this agreement.
 
                                      F-32
<PAGE>   165
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Zynaxis, Inc.:
 
     We have audited the accompanying balance sheet of Secretech, Inc. (a
Delaware corporation in the development stage) as of June 30, 1995, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the year then ended and the related statements of operations, stockholders'
equity (deficit), and cash flows for the period from inception (August 22, 1989)
to June 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. We did not audit the financial
statement of Secretech, Inc. for the period from inception to June 30, 1994.
Such statements are included in the from inception to June 30, 1995 totals of
the statements of operations, shareholders' equity (deficit) and cash flows and
reflect total revenues and net loss of 81% and 71%, respectively, of the related
cumulative totals. Those statements were audited by other auditors whose report
dated August 5, 1994 includes an explanatory paragraph with respect to the
Company's ability to continue as a going concern. This report has been furnished
to us and our opinion, insofar as it relates to amounts included for the period
from inception to June 30, 1994, is based solely upon the report of the other
auditors.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
 
     In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Secretech, Inc. as of June 30, 1995, and the results
of its operations and its cash flows for the year then ended and for the period
from inception to June 30, 1995, in conformity with generally accepted
accounting principles.
 
     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred significant losses since
inception, has a net capital deficiency, and needs to raise substantial
additional financing to continue its operations. The above factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 1. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
 
                                          /s/ ARTHUR ANDERSEN LLP
 
Philadelphia, Pa.
November 30, 1995
 
                                      F-33
<PAGE>   166
 
                                SECRETECH, INC.
                         (A DEVELOPMENT-STAGE COMPANY)
 
                                 BALANCE SHEET
 
<TABLE>
<CAPTION>
                                                                                    JUNE 30,
                                                                                      1995
                                                                                  -------------
<S>                                                                               <C>
CURRENT ASSETS:
  Cash and cash equivalents...................................................     $     48,620
  Accounts receivable.........................................................           29,828
                                                                                   ------------
          Total current assets................................................           78,448
                                                                                   ------------
          Total assets........................................................     $     78,448
                                                                                   ------------
 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
CURRENT LIABILITIES:
  Accounts payable............................................................     $    371,382
  Accounts payable -- Molecular Engineering Associates, Inc...................           41,188
  Accrued interest payable....................................................          106,051
  Accrued payroll and related taxes...........................................           18,670
  Notes payable to stockholders...............................................        1,294,868
                                                                                   ------------
          Total current liabilities...........................................        1,832,159
                                                                                   ------------
PRE-MERGER FUNDING ADVANCE....................................................          531,500
                                                                                   ------------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (DEFICIT)
  Series A preferred stock, 10% cumulative, nonparticipating, $01 par value;
     authorized, issued and outstanding shares 950,004. Liquidation preference
     of $1,485,000............................................................            9,500
  Series B preferred stock, 10% cumulative, nonparticipating, $01 par value;
     authorized shares 1,862,057, issued and outstanding shares 1,581,877.
     Liquidation preference of $2,456,100.....................................           15,819
  Common Stock, $.01 par value; authorized shares -- 4,697,060; issued and
     outstanding shares -- 1,393,700..........................................           13,937
  Additional paid-in capital..................................................        2,713,733
  Deficit accumulated during development state................................       (5,038,200)
                                                                                   ------------
          Total stockholders' (deficit).......................................       (2,285,211)
                                                                                   ------------
          Total liabilities and stockholders' equity (deficit)................     $     78,448
                                                                                   ------------
</TABLE>
 
    The accompanying notes are an integral part of this financial statement.
 
                                      F-34
<PAGE>   167
 
                                SECRETECH, INC.
                         (A DEVELOPMENT-STAGE COMPANY)
 
                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED        AUGUST 22, 1989
                                                                 JUNE 30,       (INCEPTION) THROUGH
                                                                   1995            JUNE 30, 1995
                                                                -----------     -------------------
<S>                                                             <C>             <C>
REVENUES:
  Collaborative agreements....................................  $   276,048         $   923,944
  Government grants...........................................      211,185           1,674,718
                                                                -----------         -----------
                                                                    487,233           2,598,662
                                                                -----------         -----------
OPERATING EXPENSES:
  Research and development....................................    1,116,368           5,057,932
  Administrative salaries, benefits and payroll taxes.........      183,921           1,021,793
  Other general and administrative............................      552,211           1,058,525
  Depreciation and amortization...............................       23,819             310,342
                                                                -----------         -----------
OTHER INCOME/(EXPENSE):
  Interest income.............................................          886              54,494
  Interest expense............................................      (84,270)           (242,764)
                                                                -----------         -----------
NET LOSS......................................................  $(1,472,470)        $(5,038,200)
                                                                ===========         ===========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-35
<PAGE>   168
 
                                SECRETECH, INC.
                         (A DEVELOPMENT-STAGE COMPANY)
 
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED        AUGUST 22, 1989
                                                                 JUNE 30,       (INCEPTION) THROUGH
                                                                   1995            JUNE 30, 1995
                                                                -----------     -------------------
<S>                                                             <C>             <C>
OPERATING ACTIVITIES:
  Net loss....................................................  $(1,472,470)        $(5,038,200)
  Adjustments to reconcile net loss to net cash operating
     activities
     Depreciation and amortization............................       23,819             310,342
     Stock-based compensation expense.........................      --                    1,115
     Changes in operating assets and liabilities
       Accounts receivable....................................       10,636             (29,828)
       Other assets...........................................        8,426               6,125
       Accounts payable.......................................      248,521             412,570
       Accrued payroll and related taxes......................       (1,644)             18,670
       Accrued interest payable...............................       84,270             106,051
                                                                -----------         -----------
          Net cash provided by financing activities...........   (1,098,442)         (4,213,155)
                                                                -----------         -----------
INVESTING ACTIVITIES:
  Purchases of property and equipment.........................      --                  (99,041)
                                                                -----------         -----------
FINANCING ACTIVITIES:
  Proceeds from notes payable.................................      583,000           1,294,868
  Proceeds from sale of common and preferred stock............           47           2,745,749
  Proceeds from pre-merger funding advances from Zynaxis,
     Inc. ....................................................      531,500             531,500
  Principal payments on capital lease obligation..............      (27,070)           (211,301)
                                                                -----------         -----------
          Net cash provided by financing activities...........    1,087,477           4,360,816
                                                                -----------         -----------
          Increase (decrease) in cash and cash equivalents....      (10,965)             48,620
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR OR PERIOD.........       59,585           --
                                                                -----------         -----------
CASH AND CASH EQUIVALENTS, END OF YEAR PERIOD.................  $    48,620         $    48,620
                                                                -----------         -----------
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-36
<PAGE>   169
 
                                SECRETECH, INC.
                         (A DEVELOPMENT-STAGE COMPANY)
 
                  STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
          FOR THE PERIOD AUGUST 22, 1989 (INCEPTION) TO JUNE 30, 1995
 
<TABLE>
<CAPTION>
                                                                                  DEFICIT
                                                                                ACCUMULATED      TOTAL
                                 SERIES A    SERIES B              ADDITIONAL     DURING      STOCKHOLDERS
                                 PREFERRED   PREFERRED   COMMON     PAID-IN     DEVELOPMENT     EQUITY
                                   STOCK       STOCK      STOCK     CAPITAL        STAGE       (DEFICIT)
                                 ---------   ---------   -------   ----------   -----------   -----------
<S>                              <C>         <C>         <C>       <C>          <C>           <C>
BALANCE, AUGUST 22, 1989........  $    --     $     --   $    --   $       --   $        --   $        --
  Issuance of 942,500 shares of
     common stock for certain
     technology and intellectual
     property rights............       --           --     9,425       (4,425)           --         5,000
Sale of 84,825 shares of common
  stock.........................       --           --       848         (398)           --           450
Grants of 235,625 shares of
  common stock..................       --           --     2,357       (1,107)           --         1,250
Sale of 599,995 shares of Series
  A preferred stock.............    6,000           --        --      553,995            --       559,995
Net loss........................       --           --        --           --      (344,811)     (344,811)
                                   ------      -------   -------   ----------   -----------   -----------
BALANCE, JUNE 30, 1990..........    6,000           --    12,630      548,065      (344,811)      221,884
  Sale of 350,008 shares of
     Series A preferred stock...    3,500           --        --      346,508            --       350,008
  Exercise of option to purchase
     1,320 shares of common
     stock......................       --           --        13           --            --            13
  Sale of 732,739 shares of
     Series B preferred stock...       --        7,327        --      842,651            --       849,978
Net loss........................       --           --        --           --      (529,204)     (529,204)
                                   ------      -------   -------   ----------   -----------   -----------
BALANCE JUNE 30, 1991...........    9,500        7,327    12,643    1,737,224      (874,015)      892,679
Net Loss........................       --           --        --           --      (981,511)     (981,511)
                                   ------      -------   -------   ----------   -----------   -----------
BALANCE JUNE 30, 1992...........    9,500        7,327    12,643    1,737,224    (1,855,526)      (88,832)
  Exercise of option to purchase
     5,081 shares of common
     stock......................       --           --        51           --            --            51
  Sale of 849,138 shares of
     Series B preferred stock...       --        8,492        --      976,509            --       985,001
Net Loss........................       --           --        --           --      (937,091)     (937,091)
                                   ------      -------   -------   ----------   -----------   -----------
BALANCE JUNE 30, 1993...........    9,500       15,819    12,694    2,713,733    (2,792,617)      (40,871)
  Grant of 117,813 shares of
     common stock...............       --           --     1,178           --            --         1,178
  Exercise of option to purchase
     1,800 shares of common
     stock......................       --           --        18           --            --            18
Net loss........................       --           --        --           --      (773,113)     (773,113)
                                   ------      -------   -------   ----------   -----------   -----------
BALANCE JUNE 30, 1994...........    9,500       15,819    13,890    2,713,733    (3,565,730)     (812,788)
  Exercise of options to
     purchase 4,736 shares of
     common stock...............       --           --        47           --                          47
Net loss........................       --           --        --           --    (1,472,470)   (1,472,470)
                                   ------      -------   -------   ----------   -----------   -----------
BALANCE JUNE 30, 1995...........  $ 9,500     $ 15,819   $13,937   $2,713,733   $(5,038,200)  $(2,285,211)
                                   ------      -------   -------   ----------   -----------   -----------
</TABLE>
 
  The accompanying notes are an integral part of these financial statements.
 
                                      F-37
<PAGE>   170
 
                                SECRETECH, INC.
                         (A DEVELOPMENT-STAGE COMPANY)
 
                         NOTES TO FINANCIAL STATEMENTS
 
1.  BACKGROUND AND GOING CONCERN FACTORS:
 
     Secretech, Inc. (the "Company"), a Delaware corporation, is a
development-stage biotechnology company with a variety of proprietary vaccine
delivery technologies. Since inception on August 22, 1989, the Company has
focused on the use of its technologies to develop oral vaccines designed to
protect against infections of the mucosal tissues of the body. The Company's
product development portfolio includes anti-allergy, influenza and rotavirus
vaccines in various stages of preclinical and clinical development. The Company
has been unprofitable since inception. For the period from inception to June 30,
1995, the Company has an accumulated net loss of approximately $5,038,000.
 
     During 1993 and 1994, the Company unsuccessfully attempted to raise
additional equity funding through the private placement of its equity
securities. In order to fund operations while attempting to market its equity
securities, the Company issued notes to certain of its shareholders aggregating
approximately $1,295,000 through June 30, 1995.
 
     During mid-1994, the Company began to explore other strategic options,
including a business combination or corporate partnering relationship, and other
means of equity of debt financing, after it appeared that the proposed private
placement would not be consummated. In March 1995, the Company entered into an
agreement and plan of merger (the "Merger Agreement") with Zynaxis, Inc.
("Zynaxis"). The merger ("Merger") was consummated on July 27, 1995. (See Note
8.)
 
     Concurrent with the execution of the Merger Agreement on March 29, 1995,
Zynaxis entered into a preferred stock and warrant purchase agreement (the
"Purchase Agreement") with purchasers (the "Purchasers") for the sale of
1,500,000 units at a price of $2 per unit, for total gross proceeds of
$3,000,000 (the "Private Placement"). Each unit consists of one share of Zynaxis
Series A Convertible Preferred Stock, convertible into two shares of Zynaxis
Common Stock, and one Zynaxis Common Stock purchase warrant, exercisable for two
shares of Zynaxis Common Stock. The closing of the Purchase Agreement occurred
on April 13, 1995. The Purchasers included, among others, certain Zynaxis
shareholders as well as certain shareholders of the Company.
 
     The gross proceeds of the Private Placement were deposited in escrow
pending the Merger and were disbursed to Zynaxis on a monthly basis to fund its
operations as well as the operations and certain past liabilities of the
Company. Through June 30, 1995, the Company had received funding of $531,500
from Zynaxis which appears as a pre-merger funding advance on the accompanying
balance sheet.
 
     During the year ended June 30, 1995, the Company issued 8% and 10% demand.
 
2.  SIGNIFICANT ACCOUNTING POLICIES:
 
  Basis of Presentation
 
     As discussed above, during the development stage the Company has incurred
significant losses relating to the development of its products. There is
substantial doubt about the Company's ability to continue as a going concern
unless additional sources of financing are obtained by the Company. The
financial statements for the year ended June 30, 1995, do not include any
adjustments that might result from the outcome of this uncertainty.
 
  Property and Equipment
 
     Property and equipment are stated at cost. Depreciation expense is computed
using an accelerated method over the useful life of purchased assets and a
straight-line method over the term of the lease for assets that have been leased
and capitalized.
 
                                      F-38
<PAGE>   171
 
                                SECRETECH, INC.
                         (A DEVELOPMENT-STAGE COMPANY)
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
  Cash Equivalents
 
     The Company considers all investments with an original maturity of three
months or less when purchased to be cash equivalents.
 
  Income Tax
 
     In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting No. 109, "Accounting for Income Taxes" ("SFAS 109"). The
Company adopted the provisions of SFAS 109 in its financial statements for the
year ended June 30, 1994. The adoption of SFAS 109 had no effect on previously
reported deficits accumulated during the development stage.
 
     Under SFAS 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax laws and laws that will be in
effect when the differences are expected to reverse.
 
  Revenue Recognition
 
     Research and development revenue on cost reimbursement agreements is
recognized as expenses are incurred up to contractual limits. Research and
development payments irrevocably received are recognized as revenues when they
are received, and payments irrevocably received which are related to future
performance are deferred and taken into income as earned over specific future
performance periods.
 
3.  NOTES PAYABLE TO STOCKHOLDERS:
 
     Notes payable at June 30, 1995, consist of 6%, 8% and 10% demand promissory
notes issued to certain shareholders of the Company. Certain of the 8% demand
promissory notes and all of the 10% demand promissory notes are exchangeable for
Common Stock under certain circumstances.
 
     During the year ended June 30, 1995, the Company issued 8% and 10% demand
promissory notes totaling $734,867 to several shareholders in exchange for
$51,867 of 8% demand promissory notes and accrued interest and $583,000 of cash.
In connection with these demand promissory notes, the Company issued warrants
for the purchase of 41,540 shares of Common Stock exercisable at a price of
$.226 per share and for 265,500 shares of Common Stock exercisable at a price of
$.10 per share for a period of five years.
 
     Pursuant to agreements between the Company and its noteholders in
connection with the Manufacturing Apparatus, immediately prior to the
Manufacturing Apparatus, all the outstanding 6%, 8% and 10% demand promissory
notes payable and accrued interest payable thereon were exchanged for Common
Stock of the Company, and ultimately converted into Zynaxis Common Stock.
 
4.  RESEARCH AND DEVELOPMENT CONTRACTS:
 
     The Company recognizes revenues from Small Business Innovation Research
Program ("SBIR") grants, as well as from certain third party cost
reimbursement-type contracts, and from other third party research arrangements.
Revenue is recognized on a percentage of completion basis as costs are incurred.
 
  SBIR Grants
 
     On July 1, 1993, the Company entered into a Phase II SBIR contract with a
division of the National Institute of Health ("NIH"). The contract expired on
June 30, 1995 and was a cost reimbursement-type contract. Incremental funding of
approximately $207,500 was received during the year ended June 30, 1995.
 
                                      F-39
<PAGE>   172
 
                                SECRETECH, INC.
                         (A DEVELOPMENT-STAGE COMPANY)
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
During the year ended June 30, 1995, incremental funding of approximately $3,700
was received related to Phase I SBIR contract with a division of NIH.
 
  Other Contracts
 
     The Company performs research for a third party under a cash
reimbursement-type contract. The Company incurred costs and recorded revenues of
approximately $276,000 for the year ended June 30, 1995.
 
5.  LEASES:
 
  Capital Leases
 
     All capital leases had terminated at June 30, 1995. The Company paid $3,066
in interest during the year ended June 30, 1995 for capital lease obligations.
 
  Operating Leases
 
     Future operating lease commitments for the year ending June 30, 1996 are
$5,200.
 
6.  STOCKHOLDERS' EQUITY:
 
  Series A Preferred Stock and Series B Preferred Stock
 
     The shares of both Series A Preferred Stock and Series B Preferred Stock
are convertible by the holder into Common Stock at any time at a conversion rate
defined by a formula, such rate being one-to-one at June 30, 1995. The Company
is required to reserve, and has reserved, shares of Common Stock sufficient to
satisfy conversion requirements of the Preferred Stock.
 
     Undeclared dividends in arrears totaled $535,000 at June 30, 1995 for
Series A Preferred Stock and $621,112 at June 30, 1995 for Series B Preferred
Stock. In connection with the Merger, all undeclared dividends in arrears were
forfeited.
 
  Stock Options
 
     The Company established a stock option plan during 1991 whereby key
employees, officers or directors of the Company may be granted options to
purchase shares of Common Stock. The terms of the stock options are determined
at the discretion of the Board of Directors. All options issued to employees
vest over a 50-month period and may be exercised at a price of $.01 per share. A
summary of activity in the Company's stock option plan is presented below:
 
<TABLE>
<CAPTION>
                                                                           NUMBER OF SHARES
                                                                           ----------------
    <S>                                                                    <C>
    Outstanding at June 30, 1994.......................................         181,880
      Granted..........................................................          44,168
      Exercised........................................................          (4,736)
      Canceled.........................................................         (20,000)
                                                                                -------
    Outstanding at June 30, 1995.......................................         201,312
                                                                                -------
</TABLE>
 
     In connection with the Merger, all options outstanding immediately prior to
the Effective Time of the Merger became fully exercisable for shares of Common
Stock. In addition, all issued and then outstanding shares of Common Stock and
Preferred Stock at the Effective Time were exchanged for 3,000,000 shares of
Zynaxis Common Stock.
 
                                      F-40
<PAGE>   173
 
                                SECRETECH, INC.
                         (A DEVELOPMENT-STAGE COMPANY)
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
7.  INCOME TAXES:
 
     The Company has not had taxable income since its incorporation and,
therefore, has not paid any income tax. Effective July 1, 1993, the Company
changed its method of accounting for income taxes from the deferred method to
the liability method required by SFAS 109, "Accounting for Income Taxes." There
was no effect from the adoption of SFAS 109 as of July 1, 1993 due to the
establishment of a valuation allowance of $972,000 equal to the tax benefit
recognized. Deferred tax assets of approximately $1,848,000 at June 30, 1995
have been recognized principally for the net operating loss and research and
development credit carryforwards and have been reduced by a valuation allowance
of $1,848,000 which will remain until it is more likely than not that the
related tax benefits will be realized.
 
     At June 30, 1995, the Company had net operating loss and research and
development credit carry-forwards of approximately $4,940,000 and $192,000,
respectively, which expire in years 2005 through 2010. These carryforwards will
be subject to limitations due to the Merger with Zynaxis (see Note 8).
 
8.  MERGER WITH ZYNAXIS:
 
     On July 27, 1995, the Company merged with and into Zynaxis Acquisition,
Inc., a Pennsylvania corporation and a wholly-owned subsidiary of Zynaxis formed
for the purpose of the Merger. Zynaxis is a publicly-held biotechnology company
engaged in the development and commercialization of new delivery systems for
therapeutic drugs. Zynaxis maintains its executive offices and research and
development facilities near Philadelphia, Pennsylvania. In connection with the
merger, all of the Company's Notes Payable and related accrued interest were
converted into Common Stock of the Company. Additionally, the vesting of all
issued and outstanding options and warrants of the Company was accelerated and
the holders thereof were able to exercise such options or warrants for Common
Stock of the Company. Zynaxis issued 3,000,000 shares of its Common Stock
("Zynaxis Common Stock") which were divided among the shareholders of the
Company pursuant to the terms of the Merger Agreement.
 
     Additionally, pursuant to the terms of the Merger Agreement, Zynaxis
October 26, 1995 consummation of a collaborative agreement with a company in the
allergy field will trigger the issuance of an additional 1,132,075 shares of
Zynaxis Common Stock, with a value of $1,500,000, to the former shareholders of
the Company.
 
     The Company and Zynaxis have consolidated operations at Zynaxis'
facilities. Zynaxis will need to obtain additional sources of financing for the
combined company to continue as a growing concern.
 
                                      F-41
<PAGE>   174
 
                         REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors
Secretech, Inc.
 
     We have audited the accompanying balance sheet of Secretech, Inc. (a
development stage company) as of June 30, 1994 and the related statements of
operations, stockholders' equity (deficit) and cash flows for the year ended
June 30, 1994, and the period from inception (August 22, 1989) through June 30,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
 
     We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Secretech, Inc. at June 30,
1994, and the results of its operations and its cash flows for the year ended
June 30, 1994, and the period from August 22, 1989 to June 30, 1994, in
conformity with generally accepted accounting principles.
 
     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred significant losses relating to
the development of its products and has a net capital deficiency. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern.
 
                                          /s/ ERNST & YOUNG LLP
                                          --------------------------------------
                                          Ernst & Young LLP
 
Birmingham, Alabama
August 5, 1994
 
                                      F-42
<PAGE>   175
 
                                SECRETECH, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                                 BALANCE SHEET
                                 JUNE 30, 1994
 
<TABLE>
<S>                                                                                <C>
ASSETS:
Current assets:
  Cash and cash equivalents......................................................  $  59,585
  Accounts receivable............................................................     40,464
                                                                                   ---------
Total current assets.............................................................    100,049
Property and equipment
  Office and research equipment..................................................    248,175
  Leasehold improvements.........................................................     62,167
                                                                                   ---------
                                                                                     310,342
  Less accumulated depreciation..................................................   (286,523)
                                                                                   ---------
                                                                                      23,819
Deferred offering costs..........................................................     79,136
Other assets.....................................................................      8,426
                                                                                   ---------
TOTAL ASSETS.....................................................................  $ 211,430
                                                                                   =========
</TABLE>
 
                            See accompanying notes.
 
                                      F-43
<PAGE>   176
 
                                SECRETECH, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                                 BALANCE SHEET
 
                                 JUNE 30, 1994
 
<TABLE>
<S>                                                                               <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
  Accounts payable..............................................................  $   207,243
  Accounts payable-Molecular Engineering Associates, Inc. ......................       35,942
  Accrued interest payable......................................................       23,648
  Accrued payroll and related taxes.............................................       20,314
  Notes payable to shareholders.................................................      710,001
  Current portion of capital lease obligations..................................       27,070
                                                                                  -----------
Total current liabilities.......................................................    1,024,218
Capital lease obligations.......................................................           --
Commitments and Contingencies...................................................           --
Stockholders' deficit:
  Series A preferred stock, 10% cumulative, nonparticipating, $.01 par value;
     authorized shares -- 950,004, issued and outstanding shares -- 950,004.
     Liquidation preference at June 30, 1994 $1,390,004.........................        9,500
  Series B preferred stock, 10% cumulative, nonparticipating, $.01 par value;
     authorized shares -- 1,862,057, issued and outstanding shares -- 1,581,877.
     Liquidation preference at $2,297,901.......................................       15,819
  Common stock, $.01 par value; authorized shares -- 4,697,060, issued and
     outstanding shares -- 1,388,964............................................       13,890
Additional paid-in-capital......................................................    2,713,733
Deficit accumulated during the development stage................................   (3,565,730)
                                                                                  -----------
Total stockholders' deficit.....................................................     (812,788)
                                                                                  -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT.....................................  $   211,430
                                                                                  ===========
</TABLE>
 
                            See accompanying notes.
 
                                      F-44
<PAGE>   177
 
                                SECRETECH, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                                     INCEPTION
                                                                                    (AUGUST 22,
                                                                                       1989)
                                                                     YEAR ENDED       THROUGH
                                                                      JUNE 30,       JUNE 30,
                                                                        1994           1994
                                                                     ----------     -----------
<S>                                                                  <C>            <C>
REVENUES:
  Collaborative agreements.........................................  $  220,644     $   647,896
  Government grants................................................     454,336       1,463,533
                                                                     ----------     -----------
                                                                        674,980       2,111,429
OPERATING EXPENSES:
  Research and development.........................................   1,064,217       3,941,564
  Administrative salaries, benefits and payroll taxes..............     183,722         837,872
  Other general and administrative.................................     105,109         506,314
  Depreciation and amortization....................................      58,903         286,523
                                                                     ----------     -----------
                                                                      1,411,951       5,572,273
OTHER INCOME (EXPENSE):
Interest income....................................................       1,342          53,608
Interest expense...................................................     (37,484)       (158,494)
                                                                     ----------     -----------
                                                                        (36,142)       (104,886)
                                                                     ----------     -----------
Net loss...........................................................  $ (773,113)    $(3,565,730)
                                                                     ==========     ===========
</TABLE>
 
                            See accompanying notes.
 
                                      F-45
<PAGE>   178
 
                                SECRETECH, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                        INCEPTION
                                                                                       (AUGUST 22,
                                                                                          1989)
                                                                     YEAR ENDED          THROUGH
                                                                    JUNE 30, 1994     JUNE 30, 1994
                                                                    -------------     -------------
<S>                                                                 <C>               <C>
OPERATING ACTIVITIES
Net loss..........................................................    $(773,113)       $ (3,565,730)
Adjustments to reconcile net loss to net cash used in operating
  activities:
Depreciation and amortization.....................................       58,903             286,523
Stock-based compensation expense..................................        1,115               1,115
Changes in operating assets and liabilities:
  Accounts receivable.............................................       19,061             (40,464)
  Interest receivable.............................................      --                 --
  Other assets....................................................       14,190              (2,301)
  Accounts payable................................................       68,464             164,049
  Accrued payroll and related taxes...............................        2,991              20,314
  Accrued interest payable........................................       23,648              23,648
  Billings in excess of related costs and uncompleted contracts...      --                 --
                                                                      ---------        ------------
Net cash used in operating activities.............................     (584,741)         (3,112,846)
INVESTING ACTIVITIES
Purchase of property and equipment................................      (10,165)            (99,041)
FINANCING ACTIVITIES
Proceeds from notes payable.......................................      675,001             710,001
Proceeds from sale of common and preferred stock..................           81           2,745,702
Proceeds from Pre merger funding and advances from Zynaxis,
  Inc. ...........................................................      --                 --
Principal payments on capital lease obligation....................      (46,073)           (184,231)
                                                                      ---------        ------------
Net cash provided by financing activities.........................      629,009           3,271,472
Increase in cash and cash equivalents.............................       34,103              59,585
Cash and cash equivalents at beginning of year or period..........       25,482            --
                                                                      ---------        ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR OR PERIOD................    $  59,585        $     59,585
                                                                      =========        ============
</TABLE>
 
                            See accompanying notes.
 
                                      F-46
<PAGE>   179
 
                                SECRETECH, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                  STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
     FOR THE PERIOD FROM INCEPTION (AUGUST 22, 1989) THROUGH JUNE 30, 1994
 
<TABLE>
<CAPTION>
                                                                                   DEFICIT
                                                                                 ACCUMULATED       TOTAL
                                  SERIES A    SERIES B              ADDITIONAL   DURING THE    STOCKHOLDERS'
                                  PREFERRED   PREFERRED   COMMON     PAID-IN     DEVELOPMENT      EQUITY
                                    STOCK       STOCK      STOCK     CAPITAL        STAGE        (DEFICIT)
                                  ---------   ---------   -------   ----------   -----------   -------------
<S>                               <C>         <C>         <C>       <C>          <C>           <C>
BALANCE AT AUGUST 22, 1989......   $ --        $ --       $ --      $   --       $   --          $ --
Issuance of 942,500 shares of
  common stock for certain
  technology and intellectual
  property rights...............     --          --         9,425       (4,425)      --              5,000
Sale of 84,825 shares of common
  stock.........................     --          --           848         (398)      --                450
Grants of 235,625 shares of
  common stock..................     --          --         2,357       (1,107)      --              1,250
Sale of 599,995 shares of Series
  A preferred stock.............     6,000       --         --         553,995       --            559,995
Net loss........................     --          --         --          --          (344,811)     (344,811)
                                   -------     --------   -------   ----------   -----------     ---------
BALANCE AT JUNE 30, 1990........     6,000       --        12,630      548,065      (344,811)      221,884
Sale of 350,008 shares of Series                                                                 
  A preferred stock.............     3,500       --         --         346,508       --            350,008
Exercise of option to purchase                                                                   
  1,320 shares of common                                                                         
  stock.........................     --          --            13       --           --                 13
Sale of 732,739 shares of Series                                                                 
  B preferred stock.............     --           7,327     --         842,651       --            849,978
Net loss........................     --          --         --          --          (529,204)     (529,204)
                                   -------     --------   -------   ----------   -----------     ---------
BALANCE AT JUNE 30, 1991........     9,500        7,327    12,643    1,737,224      (874,015)      892,679
Net loss........................     --          --         --          --          (981,511)     (981,511)
                                   -------     --------   -------   ----------   -----------     ---------
BALANCE AT JUNE 30, 1992........     9,500        7,327    12,643    1,737,224    (1,855,526)      (88,832)
Exercise of option to purchase                                                                   
  5,081 shares of common                                                                         
  stock.........................     --          --            51       --           --                 51
Sale of 849,138 shares of Series                                                                 
  B preferred stock.............     --           8,492     --         976,509       --            985,001
Net loss........................     --          --         --          --          (937,091)     (937,091)
                                   -------     --------   -------   ----------   -----------     ---------
BALANCE AT JUNE 30, 1993........     9,500       15,819    12,694    2,713,733    (2,792,617)      (40,871)
Grant of 117,813 shares of                                                                       
  common stock..................     --          --         1,178       --           --              1,178
Exercise of option to purchase                                                                   
  1,800 shares of common                                                                         
  stock.........................     --          --            18       --           --                 18
Net loss........................     --          --         --          --          (773,113)     (773,113)
                                   -------     --------   -------   ----------   -----------     ---------
BALANCE AT JUNE 30, 1994........   $ 9,500     $ 15,819   $13,890   $2,713,733   $(3,565,730)    $(812,788)
                                   =======     ========   =======    =========    ==========     =========
</TABLE>
 
                            See accompanying notes.
 
                                      F-47
<PAGE>   180
 
                                SECRETECH, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                         NOTES TO FINANCIAL STATEMENTS
 
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
 
  Background
 
     Secretech, Inc. (the "Company"), a Delaware corporation, is a development
stage biotechnology company with a variety of proprietary vaccine delivery
technologies. Since inception on August 22, 1989, the Company has focused on the
use of its technologies to develop a new class of oral vaccines designed to
protect against infections of the mucosal tissues of the body. The Company's
product development portfolio includes anti-allergy, influenza and rotavirus
vaccines in various stages of preclinical and clinical development. The Company
has been unprofitable since inception. For the period from inception to June 30,
1994, the Company has an accumulated net loss of approximately $3,565,730.
 
     Two members of the Board of Directors of the Company were also officers
and/or members of the Board of Directors of Molecular Engineering Associates,
Inc. and Mega Holdings, Inc. until the liquidation of those entities on June 3,
1994.
 
     The Company funded its operations through the placement of its common stock
("Common Stock"), Series A preferred stock ("Series A Preferred Stock") and
Series B preferred stock ("Series B Preferred Stock," and together with Series A
Preferred Stock, "Preferred Stock") to a limited group of investors,
collaborative research agreements, government-related grants and the issuance of
notes to certain of its shareholders. Operations have been limited to the
research and development of various vaccine delivery systems. Although Small
Business Innovation Research Program ("SBIR") grants have provided consistent
revenues, the Company has not developed a source of significant and sustainable
cash inflows.
 
  Basis of presentation
 
     As discussed above, during the development stage the Company has incurred
significant losses relating to the development of its products. There is
substantial doubt about the Company's ability to continue as a going concern
unless additional sources of financing are obtained. In addition to further
investment by current investors, the Company plans to obtain research contracts
as well as corporate partners and additional equity investors as additional
sources of financing. The financial statements for the year ended June 30, 1994
do not include any adjustments that might result from the outcome of this
uncertainty.
 
  Property and equipment
 
     Property and equipment are stated at cost. Depreciation expense is computed
using an accelerated method over the useful life of purchased assets and a
straight-line method over the term of the lease for assets that have been leased
and capitalized.
 
  Cash equivalents
 
     The Company considers all investments with an original maturity of three
months or less when purchased to be cash equivalents.
 
  Income tax
 
     In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting No. 109, "Accounting for Income Taxes" ("SFAS 109"). The
Company adopted the provisions of SFAS 109 in its financial statements for the
year ended June 30, 1994. The adoption of SFAS 109 had no effect on previously
reported deficits accumulated during the development stage.
 
     Under SFAS 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax
 
                                      F-48
<PAGE>   181
 
                                SECRETECH, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
bases of assets and liabilities and are measured using the enacted tax laws and
laws that will be in effect when the differences are expected to reverse.
 
  Revenue recognition
 
     Research and development revenue on cost reimbursement agreements is
recognized as expenses are incurred up to contractual limits. Research and
development payments irrevocably received are recognized as revenues when they
are received, and payments received which are related to future performance are
deferred and taken into income as earned over specific future performance
periods.
 
NOTE 2 -- NOTES PAYABLE
 
     Notes Payable at June 30, 1994 consist of 8% demand promissory notes issued
to certain shareholders of the Company. Certain of the 8% demand promissory
notes are exchangeable for Common Stock under certain circumstances.
 
NOTE 3 -- RESEARCH AND DEVELOPMENT CONTRACTS
 
     The Company recognizes revenues from SBIR grants, as well as from certain
third party cost reimbursement-type contracts, and from other third party
research arrangements. Revenue is recognized on the percentage of completion
basis as costs are incurred.
 
     SBIR provides federal research and development funds to small businesses,
minorities and disadvantaged persons in order to stimulate technological
innovation. The SBIR program consists of three phases. Phase I is to establish
technical merit and feasibility of the proposed research. Phase II is a
continuation of the research initiated in Phase I. Phase III is the
commercialization of the research project. Financing of the SBIR program is
based on its relative phase; Phase I awards do not exceed $75,000 for a period
of not more than six months, Phase II awards do not exceed $750,000 for a period
of not more than two years and Phase III does not allow for the receipt of
federal funds.
 
     On July 1, 1993, the Company entered into a Phase II SBIR contract with a
division of the National Institute of Health ("NIH"). The contract expires on
June 30, 1995 and is a cost reimbursement-type contract. Incremental funding of
approximately $197,000 was received during the year ended June 30, 1994.
 
     On September 1, 1992, the Company entered into a Phase II SBIR contract
with a division of NIH. The contract expired on November 30, 1993 and is a cost
reimbursement-type contract. Incremental funding of approximately $30,000 was
received during the year ended June 30, 1994.
 
  Phase I SBIR's
 
     During the year ended June 30, 1994, the Company entered into three Phase I
SBIR contracts with a division of NIH. Incremental funding of approximately
$143,000 was received during the year ended June 30, 1994.
 
     During the year ended June 30, 1993, the Company also entered into three
Phase I SBIR contracts with a division of NIH. Incremental funding of
approximately $84,000 was received during the year ended June 30, 1994.
 
  Other contracts
 
     The Company performs research for a third party under a cash
reimbursement-type contract. The Company incurred costs and recorded revenues of
approximately $186,000 for the year ended June 30, 1994.
 
                                      F-49
<PAGE>   182
 
                                SECRETECH, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
     The Company has recorded revenues of approximately $35,000, to perform
specific research for various third parties for the year ended June 30, 1994.
 
NOTE 4 -- LEASES
 
  Capital lease
 
     Future minimum lease payments under a capital lease for research and office
equipment as of June 30, 1994 are as follows:
 
<TABLE>
            <S>                                                          <C>
            1995.....................................................     $29,006
              Less amount representing interest......................       1,936
                                                                          -------
                                                                          $27,070
                                                                          =======
</TABLE>
 
     The cost and accumulated amortization of equipment under the capital lease
included in property and equipment was $212,346 and $200,369, at June 30, 1994.
 
     The Company paid $13,836, in interest during the year ended June 30, 1994,
related to capital lease obligations.
 
  Operating leases
 
     The Company also leased laboratory and office space from Molecular
Engineering Associates, Inc., a related party, until April 30, 1994 on a
month-to-month basis. The Company incurred costs of $35,942, during the year
ended June 30, 1994, for rent and reimbursement of utilities and other operating
costs.
 
     In May 1994, the Company's sublease with Molecular Engineering Associates,
Inc. terminated. The Company then entered into a lease directly with the owners
of the property, an unrelated party, expiring on April 30, 1995.
 
NOTE 5 -- STOCKHOLDERS' EQUITY
 
  Series A Preferred Stock and Series B Preferred Stock
 
     The shares of both Series A Preferred Stock and Series B Preferred Stock
are convertible by the holder into Common Stock at any time at a conversion rate
defined by a formula, such rate being one-to-one at June 30, 1994. The Company
is required to reserve, and has reserved, shares of Common Stock sufficient to
satisfy conversion requirements of the Preferred Stock.
 
     Undeclared dividends in arrears totaled $440,000 at June 30, 1994
respectively, for Series A Preferred Stock and $462,924 at June 30, 1994 for
Series B Preferred Stock. In connection with the conversion that will occur
pursuant to the terms of the Merger Agreement, all undeclared dividends in
arrears will be forfeited.
 
  Common Stock
 
     In August 1989, the Company issued 942,500 shares of Common Stock to
Molecular Engineering Associates, Inc., Mega Holdings, Inc. and scientific
founders who, in exchange, assigned patent rights and various other technology
rights to the Company.
 
     This transaction was recorded at the fair value of the Common Stock
($.0053), which was more clearly evident than the fair value of the
consideration received. As a result of the exchange of patent and technology
rights for Common Stock, the Company assumed a licensing agreement which
provides for the payment of minimum royalties (which are material to the
Company's financial statements and escalate annually through the year 2002) or
royalties based on sales of products that are developed under the agreement. In
August
 
                                      F-50
<PAGE>   183
 
                                SECRETECH, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
1989, the Company also sold 84,825 shares of Common Stock at $.0053 per share to
the president of the Company. A restriction on the sale of the 84,825 shares
provides that if upon sale the price exceeds $.0053 per share, an additional
payment would be required from the president in an amount equal to the lesser of
the sale price or the issue price of the Series A Preferred Stock ($1) less
$.0053 per share.
 
     On September 25, 1989, the Company granted 235,625 shares of Common Stock
to its scientific founders in exchange for continued consultation with the
Company. These Common Stock grants are fully vested. Full voting and dividend
privileges are effective as of the date of the grant. Common Stock in the above
exchange was recorded at $.0053 a share representing the fair value of the
Common Stock.
 
     On August 31, 1993, the Company entered into a restrictive stock grant
agreement with the president of the Company which was previously approved on
June 9, 1993 by the Board of Directors. Under the terms of the agreement, the
Company granted to the president 117,813 shares of Common Stock for $62.50 and
recorded compensation expense of $1,115. Substantially all of the shares vested
immediately with the remaining shares vesting through November 1, 1993. The
Common Stock is subject to certain restrictions involving the right to dispose
of the stock.
 
  Stock options
 
     The Company established a stock option plan during 1991 whereby key
employees, officers or directors of the Company may be granted options to
purchase shares of Common Stock. The terms of the stock options are determined
at the discretion of the Board of Directors. All options issued to employees
vest over a 50-month period and may be exercised at a price of $.01 per share.
During fiscal 1993, the Company granted options to purchase 96,000 shares of
Common Stock to a shareholder of the Company pursuant to a three year consulting
agreement entered into with such shareholder. The options vest 3,667 shares per
month for the first twenty-four months and 666 shares per month for the next
twelve months. A summary of activity in the Company's stock option plan is
presented below:
 
<TABLE>
<CAPTION>
                                                                                NUMBER OF
                                                                                 SHARES
                                                                                ---------
    <S>                                                                         <C>
    Outstanding at June 30, 1993..............................................   159,080
      Granted.................................................................    24,600
      Exercised...............................................................    (1,800)
      Canceled................................................................        --
                                                                                 -------
    Outstanding at June 30, 1994..............................................   181,880
                                                                                 =======
</TABLE>
 
NOTE 6 -- INCOME TAXES
 
     The Company has not had taxable income since its incorporation and,
therefore, has not paid any income tax. Effective July 1, 1993, the Company
changed its method of accounting for income taxes from the deferred method to
the liability method required by SFAS 109, "Accounting for Income Taxes." There
was no effect from the adoption of SFAS 109 as of July 1, 1993 due to the
establishment of a valuation allowance of $972,000 equal to the tax benefit
recognized. Deferred tax assets of approximately $1,303,000 at June 30, 1994
have been recognized principally for the net operating loss and research and
development credit carryforwards and have been reduced by a valuation allowance
of $1,303,000 which will remain until it is more likely than not that the
related tax benefits will be realized.
 
     At June 30, 1994, the Company had net operating loss and research and
development credit carryforwards of approximately $3,470,000 and $150,000,
respectively, which expire in years 2005 through 2009. Additional sales of the
Company's equity securities may result in annual limitations on the utilization
of
 
                                      F-51
<PAGE>   184
 
                                SECRETECH, INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
operating loss carryforwards and research and development credit carryforwards
against taxable income in future years due to the ownership change provisions of
the federal Tax Reform Act of 1986.
 
NOTE 7 -- DEFERRED OFFERING COSTS
 
     During the year ended June 30, 1994, the Company incurred certain legal
costs related to a planned private placement of Series C preferred stock which
the Company expected to subsequently complete. The issuance of Series C
preferred stock was approved in July 1994 by the Board of Directors.
 
NOTE 8 -- SUBSEQUENT EVENTS
 
     Subsequent to June 30, 1994, the Company issued 8% convertible promissory
notes of $439,367 to several stockholders in exchange for $151,867 of 8% demand
promissory notes and accrued interest and $287,500 of cash. The convertible
promissory notes are convertible into Series C Preferred Stock at a conversion
price of $1 per share on or before December 31, 1994. In connection with these
convertible promissory notes, the Company issued warrants for the purchase of
shares of common stock exercisable at a price of $.226 per share any time from
July 27, 1994 to July 27, 1999.
 
                                      F-52
<PAGE>   185
 
                                                                      APPENDIX A
 
                 AGREEMENT AND PLAN OF MERGER AND CONTRIBUTION
                                  BY AND AMONG
                               CYTRX CORPORATION,
                                 VAXCEL, INC.,
                        VAXCEL MERGER SUBSIDIARY, INC.,
                                      AND
                                 ZYNAXIS, INC.
                          DATED AS OF DECEMBER 6, 1996
 
                                       A-1
<PAGE>   186
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                                          PAGE
                                                                                          ----
<C>         <S>                                                                           <C>
PARTIES                                                                                    A-6
SECTION 351 PLAN.......................................................................    A-6
ARTICLE 1 -- SUMMARY OF THE CONTRIBUTION AND THE MERGER................................    A-6
    1.1     Contribution by CytRx......................................................    A-6
    1.2     Issuance of Shares.........................................................    A-7
    1.3     Merger.....................................................................    A-7
    1.4     Time and Place of Closing..................................................    A-7
    1.5     Effective Time.............................................................    A-7
ARTICLE 2 -- TERMS OF MERGER AND MANAGEMENT AFTER THE MERGER...........................    A-7
    2.1     Charter....................................................................    A-7
    2.2     Bylaws.....................................................................    A-7
    2.3     Directors and Officers of Surviving Corporation............................    A-7
    2.4     Board of Directors of Vaxcel...............................................    A-8
    2.5     Officers of Vaxcel.........................................................    A-8
ARTICLE 3 -- MANNER OF CONVERTING SHARES...............................................    A-8
    3.1     Conversion of Shares.......................................................    A-8
    3.2     Shares Held by Zynaxis or Vaxcel...........................................    A-8
    3.3     Dissenting Shareholders....................................................    A-8
    3.4     Fractional Shares..........................................................    A-9
    3.5     Conversion of Stock Options; Restricted Stock..............................    A-9
    3.6     Conversion of Financing Warrants...........................................   A-10
    3.7     Conversion of Warrants Other Than Financing Warrants.......................   A-10
    3.8     Conversion of Promissory Notes.............................................   A-11
ARTICLE 4 -- EXCHANGE OF SHARES........................................................   A-11
    4.1     Exchange Procedures........................................................   A-11
    4.2     Rights of Former Zynaxis Shareholders......................................   A-12
ARTICLE 5 -- REPRESENTATIONS AND WARRANTIES OF ZYNAXIS.................................   A-12
    5.1     Organization, Standing, and Power..........................................   A-12
    5.2     Authority; No Breach By Agreement..........................................   A-12
    5.3     Capital Stock..............................................................   A-13
    5.4     Zynaxis Subsidiaries.......................................................   A-13
    5.5     SEC Filings; Financial Statements..........................................   A-14
    5.6     Absence of Undisclosed Liabilities.........................................   A-14
    5.7     Absence of Certain Changes or Events.......................................   A-15
    5.8     Tax Matters................................................................   A-15
    5.9     Assets.....................................................................   A-15
    5.10    Intellectual Property......................................................   A-16
    5.11    Environmental Matters......................................................   A-17
    5.12    Compliance with Laws.......................................................   A-17
    5.13    Labor Relations............................................................   A-18
    5.14    Employee Benefit Plans.....................................................   A-18
    5.15    Material Contracts.........................................................   A-19
    5.16    Legal Proceedings..........................................................   A-19
    5.17    Reports....................................................................   A-20
    5.18    Statements True and Correct................................................   A-20
    5.19    Regulatory Matters.........................................................   A-20
    5.20    Charter Provisions.........................................................   A-20
</TABLE>
 
                                       A-2
<PAGE>   187
 
<TABLE>
<CAPTION>
                                                                                          PAGE
                                                                                          ----
ARTICLE 6 -- REPRESENTATIONS AND WARRANTIES OF CYTRX, VAXCEL AND
<C>         <S>                                                                           <C>
VAXCEL MERGER SUB......................................................................   A-21
    6.1     Organization, Standing, and Power..........................................   A-21
    6.2     Authority; No Breach By Agreement..........................................   A-21
    6.3     Capital Stock..............................................................   A-22
    6.4     Vaxcel Subsidiaries........................................................   A-22
    6.5     Vaxcel Financial Statements................................................   A-23
    6.6     Absence of Undisclosed Liabilities.........................................   A-23
    6.7     Absence of Certain Changes or Events.......................................   A-23
    6.8     Tax Matters................................................................   A-23
    6.9     Assets.....................................................................   A-24
    6.10    Intellectual Property......................................................   A-25
    6.11    Environmental Matters......................................................   A-25
    6.12    Compliance With Laws.......................................................   A-25
    6.13    Labor Relations............................................................   A-26
    6.14    Employee Benefit Plans.....................................................   A-26
    6.15    Material Contracts.........................................................   A-27
    6.16    Legal Proceedings..........................................................   A-28
    6.17    Reports....................................................................   A-28
    6.18    Statements True and Correct................................................   A-28
    6.19    Regulatory Matters.........................................................   A-28
ARTICLE 7 -- CONDUCT OF BUSINESS PENDING CONSUMMATION                   ...............   A-29
    7.1     Affirmative Covenants of Zynaxis...........................................   A-29
    7.2     Negative Covenants of Zynaxis..............................................   A-29
    7.3     Covenants of Vaxcel........................................................   A-30
    7.4     Adverse Changes in Condition...............................................   A-30
    7.5     Reports....................................................................   A-31
ARTICLE 8 -- ADDITIONAL AGREEMENTS                                                  ...   A-31
    8.1     Registration Statement; Proxy Statement; Shareholder Approval..............   A-31
    8.2     Applications...............................................................   A-31
    8.3     Filings with State Offices.................................................   A-32
    8.4     Agreement as to Efforts to Consummate......................................   A-32
    8.5     Investigation and Confidentiality..........................................   A-32
    8.6     Press Releases.............................................................   A-32
    8.7     Certain Actions............................................................   A-32
    8.8     State Antitakeover Laws....................................................   A-33
    8.9     Charter Provisions.........................................................   A-33
    8.10    Cure of Defaults...........................................................   A-33
    8.11    Negotiation of Malvern Lease Amendment.....................................   A-33
    8.12    Nasdaq Listing.............................................................   A-33
    8.13    Agreements of Affiliates...................................................   A-33
    8.14    Use of Proceeds of Senior Credit Facility..................................   A-34
    8.15    Registration Rights Agreement..............................................   A-34
ARTICLE 9 -- CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE      ...................   A-34
    9.1     Conditions to Obligations of Each Party....................................   A-34
    9.2     Conditions to Obligations of CytRx, Vaxcel and Vaxcel Merger Sub...........   A-35
    9.3     Conditions to Obligations of Zynaxis.......................................   A-36
</TABLE>
 
                                       A-3
<PAGE>   188
 
<TABLE>
<CAPTION>
                                                                                          PAGE
                                                                                          ----
<C>         <S>                                                                           <C>
ARTICLE 10 -- TERMINATION..............................................................   A-37
   10.1     Termination................................................................   A-37
   10.2     Effect of Termination......................................................   A-38
   10.3     Non-Survival of Representations and Covenants..............................   A-38
ARTICLE 11 -- MISCELLANEOUS............................................................   A-38
   11.1     Definitions................................................................   A-38
   11.2     Expenses...................................................................   A-46
   11.3     Brokers and Finders........................................................   A-47
   11.4     Entire Agreement...........................................................   A-48
   11.5     Amendments.................................................................   A-48
   11.6     Waivers....................................................................   A-48
   11.7     Assignment.................................................................   A-48
   11.8     Notices....................................................................   A-48
   11.9     Governing Law..............................................................   A-49
   11.10    Counterparts...............................................................   A-49
   11.11    Captions; Articles and Sections............................................   A-49
   11.12    Interpretations............................................................   A-50
   11.13    Severability...............................................................   A-50
SIGNATURES.............................................................................   A-50
</TABLE>
 
                                       A-4
<PAGE>   189
 
                                LIST OF EXHIBITS
 
<TABLE>
<CAPTION>
EXHIBIT NUMBER                                     DESCRIPTION
- --------------    ------------------------------------------------------------------------------
<C>               <S>
       1.         Warrant Agreement. (sec. 1.2).
       2.         Agreement of Affiliates. (sec. 8.13).
       3.         Matters as to which Morgan, Lewis & Bockius will opine. (sec. 9.2(d)).
       4.         Matters as to which Alston & Bird will opine. (sec. 9.3(d)).
       5.         Form of Charter Amendments. (sec. 11.1(a)).
       6.         Example of Calculation of Exchange Ratio. (sec. 11.1(a)).
       7.         Liquidation Agreement. (sec. 11.1(a)).
       8.         Note Exchange Agreement. (sec. 11.1(a)).
       9.         Preferred Stock and Warrant Agreement. (sec. 11.1(a)).
      10.         Registration Rights Agreement. (sec. 11.1(a)).
      11.         Secured Loan Agreement. (sec. 11.1(a)).
      12.         Senior Secured Note. (sec. 11.1(a)).
      13.         Shareholder Voting Agreement. (sec. 11.1(a)).
      14.         Technology Development Agreement. (sec. 11.1(a)).
      15.         Zynaxis Pledge Agreement. (sec. 11.1(a)).
      16.         Zynaxis Security Agreement. (sec. 11.1(a)).
      17.         Zynaxis Vaccine Technologies Collateral Assignment of License Agreement.
                  (sec. 11.1(a)).
      18.         Zynaxis Vaccine Technologies Guaranty. (sec. 11.1(a)).
      19.         Zynaxis Vaccine Technologies Security Agreement. (sec. 11.1(a)).
</TABLE>
 
                                       A-5
<PAGE>   190
 
                 AGREEMENT AND PLAN OF MERGER AND CONTRIBUTION
 
     THIS AGREEMENT AND PLAN OF MERGER AND CONTRIBUTION (this "Agreement") is
made and entered into as of December 6, 1996, by and among CYTRX CORPORATION
("CytRx"), a Delaware corporation, VAXCEL, INC.("Vaxcel"), a Delaware
corporation and a wholly owned subsidiary of CytRx, VAXCEL MERGER SUBSIDIARY,
INC. ("Vaxcel Merger Sub"), a Georgia corporation, and a newly formed, wholly
owned subsidiary of Vaxcel, and ZYNAXIS, INC. ("Zynaxis"), a Pennsylvania
corporation.
 
                                SECTION 351 PLAN
 
     The respective Boards of Directors of CytRx, Vaxcel, Vaxcel Merger Sub and
Zynaxis are of the opinion that the transactions described herein are in the
best interests of the Parties to this Agreement and their respective
shareholders. This Agreement provides for the issuance to CytRx of shares of
Vaxcel Common Stock and a warrant to purchase shares of Vaxcel Common Stock in
exchange for CytRx's contribution to Vaxcel of the Senior Secured Note and an
amount of cash equal to the difference, as of the Closing Date, between the
aggregate principal and interest balance outstanding under the Senior Credit
Facility and Four Million Dollars ($4,000,000). This Agreement also provides for
the issuance of shares of Vaxcel Common Stock to the existing shareholders of
Zynaxis in exchange for the contribution to Vaxcel by the existing shareholders
of Zynaxis of all of the outstanding shares of Zynaxis Capital Stock by means of
a merger of Vaxcel Merger Sub with and into Zynaxis. At the Effective Time of
the Merger, the outstanding shares of the Zynaxis Capital Stock shall be
converted into the right to receive shares of Vaxcel Common Stock (except as
provided herein) and the outstanding shares of Vaxcel Merger Sub Common Stock
shall be converted into Zynaxis Common Stock. As a result, shareholders of
Zynaxis shall become shareholders of Vaxcel and Zynaxis shall continue to
conduct its business and operations as a wholly owned subsidiary of Vaxcel. The
transactions described in this Agreement are subject to the approval of the
shareholders of Zynaxis, and the satisfaction of certain other conditions
described in this Agreement. It is the intention of the Parties to this
Agreement that the transactions contemplated by this Agreement shall qualify for
federal income tax purposes for treatment under Section 351 of the Internal
Revenue Code. The execution of this Agreement by each of the Parties hereto
shall constitute its adoption by such Party.
 
     Simultaneously with the execution of this Agreement: (i) CytRx is extending
the Senior Credit Facility to Zynaxis; (ii) CytRx and Zynaxis are entering into
a Liquidation Agreement pursuant to which CytRx will serve as Zynaxis's agent
and assist Zynaxis in selling its assets and settling its liabilities prior to
the Merger; (iii) holders of Zynaxis Preferred Stock, warrants and convertible
notes issued by Zynaxis are entering into agreements regarding the exchange of
their warrants and the exchange of their convertible notes for shares of Zynaxis
Common Stock in the Merger and certain other matters; and (iv) Vaxcel and
Zynaxis are entering into the Technology Development Agreement.
 
     Certain terms used in this Agreement are defined in Section 11.1 of this
Agreement.
 
     NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, the Parties agree
as follows:
 
                                   ARTICLE 1
 
                   SUMMARY OF THE CONTRIBUTION AND THE MERGER
 
     1.1 Contribution by CytRx.  For the consideration hereinafter provided and
subject to the terms and conditions of this Agreement, at the Closing, CytRx
shall contribute to Vaxcel the Senior Credit Facility and a cash payment (the
"Cash Payment") in an amount equal to the difference, as of the Closing Date,
between Four Million Dollars ($4,000,000) and the sum of: (i) the aggregate
principal and interest balance outstanding under the Senior Secured Note; and
(ii) (A) the Per Share Price multiplied by (B) the number of votes entitled to
be cast by the holders of Zynaxis Capital Stock who elect to exercise their
statutory dissenters' rights or their objection rights, if any, under Section
2545 of the PBCL in excess of three percent
 
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<PAGE>   191
 
(3%) of the votes that could be cast by all holders of Zynaxis Capital Stock
voting together as a single class. The Cash Payment shall be made by wire
transfer of immediately available funds to an account specified in writing by
Vaxcel.
 
     1.2 Issuance of Shares.  Subject to the terms and conditions of this
Agreement, at the Closing, Vaxcel shall: (i) deliver to CytRx, in exchange for
the contribution of the Senior Secured Note and the Cash Payment, one warrant
agreement substantially in the form of Exhibit 1 hereto (the "CytRx Warrant")
and one certificate representing One Million Three Hundred Seventy Four Thousand
Nine Hundred Ninety-Six (1,374,996) shares of Vaxcel Common Stock; and (ii)
deliver to CytRx one certificate representing a number of shares of Vaxcel
Common Stock equal to the product of the Exchange Ratio, as defined below, times
the number of votes entitled to be cast by the holders of Zynaxis Capital Stock
who elect to exercise their statutory dissenters' rights or their objection
rights, if any, under Section 2545 of the PBCL. Each certificate of Vaxcel
Common Stock issued pursuant to this Section 1.2 shall be registered in the name
of CytRx, free and clear of any Liens.
 
     1.3 Merger.  Subject to the terms and conditions of this Agreement, at the
Effective Time, Vaxcel Merger Sub shall be merged with and into Zynaxis in
accordance with the provisions of Section 1921 et seq. of the PBCL and Sections
14-2-1101 and 14-2-1107 of the GBCC and with the effects provided in Section
1929 of the PBCL and Section 14-2-1106 of the GBCC (the "Merger"). Zynaxis shall
be the Surviving Corporation resulting from the Merger and shall become a wholly
owned Subsidiary of Vaxcel and shall continue to be governed by the Laws of the
Commonwealth of Pennsylvania. The Merger shall be consummated pursuant to the
terms of this Agreement, which has been approved and adopted by the respective
Boards of Directors of CytRx, Zynaxis, Vaxcel Merger Sub, and Vaxcel and by
Vaxcel, as the sole shareholder of Vaxcel Merger Sub.
 
     1.4 Time and Place of Closing.  The closing of the transactions
contemplated hereby (the "Closing") will take place at 10:00 A.M. on the date on
which the Effective Time occurs (or the immediately preceding day if the
Effective Time is earlier than 10:00 A.M.), or at such other time as the
Parties, acting through their authorized officers, may mutually agree. The
Closing shall be held at such location as may be mutually agreed upon by the
Parties.
 
     1.5 Effective Time.  The Merger and other transactions contemplated by this
Agreement shall become effective upon the last to occur of: (i) the filing of
the Articles of Merger in the Department of State of the Commonwealth of
Pennsylvania and (ii) the filing of the Certificate of Merger with the Secretary
of State of the State of Georgia (the "Effective Time"). Subject to the terms
and conditions hereof, unless otherwise mutually agreed upon in writing by the
authorized officers of each Party, the Parties shall use their reasonable
efforts to cause the Effective Time to occur on the first business day following
the last to occur of (i) the effective date (including expiration of any
applicable waiting period) of the last required Consent of any Regulatory
Authority having authority over and approving or exempting the Merger, and (ii)
the date on which the shareholders of Zynaxis approve this Agreement to the
extent such approval is required by applicable Law.
 
                                   ARTICLE 2
 
                              TERMS OF MERGER AND
                          MANAGEMENT AFTER THE MERGER
 
     2.1 Charter.  The Articles of Incorporation, as amended, of Zynaxis in
effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation until duly amended or repealed.
 
     2.2 Bylaws.  The Bylaws of Zynaxis in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation until duly
amended or repealed.
 
     2.3 Directors and Officers of Surviving Corporation.  Jack L. Bowman,
Raymond C. Carnahan, Jr., Jack J. Luchese, Herbert H. McDade, Jr., and Paul
Wilson shall serve as the directors of the Surviving
 
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Corporation from and after the Effective Time in accordance with the Bylaws of
the Surviving Corporation until their successors are elected and qualify. The
following persons shall serve as the officers of the Surviving Corporation from
and after the Effective Time in accordance with the Bylaws of the Surviving
Corporation until their successors are elected and qualify: Paul Wilson,
President and Chief Executive Officer; Mark Newman, Vice President -- Research
and Development; and Mark W. Reynolds, Chief Financial Officer, Controller and
Secretary.
 
     2.4 Board of Directors of Vaxcel.  Jack L. Bowman, Raymond C. Carnahan,
Jr., Lyle A. Hohnke, Jack J. Luchese, Herbert H. McDade, Jr., and Paul Wilson
shall serve as the directors of Vaxcel from and after the Effective Time in
accordance with the Bylaws of Vaxcel until their successors are elected and
qualify.
 
     2.5 Officers of Vaxcel.  The officers of Vaxcel in office immediately prior
to the Effective Time, together with such additional persons as may thereafter
be elected, shall serve as the officers of Vaxcel from and after the Effective
Time in accordance with the Bylaws of Vaxcel until their successors are elected
and qualify.
 
                                   ARTICLE 3
 
                          MANNER OF CONVERTING SHARES
 
     3.1 Conversion of Shares.  Subject to the provisions of this Article 3, at
the Effective Time, by virtue of the Merger and without any action on the part
of Vaxcel, Vaxcel Merger Sub or Zynaxis, or the shareholders of any of the
foregoing, the shares of the constituent corporations shall be converted as
follows:
 
          (a) Each share of capital stock of Vaxcel issued and outstanding
     immediately prior to the Effective Time shall remain issued and outstanding
     from and after the Effective Time.
 
          (b) Each share of Vaxcel Merger Sub Common Stock issued and
     outstanding immediately prior to the Effective Time shall cease to be
     outstanding and shall be converted into one share of Zynaxis Common Stock.
 
          (c) Each share of Zynaxis Common Stock (excluding shares held by any
     Zynaxis Company or any Vaxcel Company, and excluding shares held by
     shareholders who perfect their statutory dissenters' rights or objection
     rights under Section 2545 of the PBCL as provided in Section 3.3) issued
     and outstanding immediately prior to the Effective Time shall cease to be
     outstanding and shall be converted into and exchanged for the right to
     receive a number of shares of Vaxcel Common Stock equal to two times the
     Exchange Ratio.
 
          (d) Each share of Zynaxis Preferred Stock (excluding shares held by
     any Zynaxis Company or any Vaxcel Company, and excluding shares held by
     shareholders who perfect their statutory dissenters' rights or objection
     rights under Section 2545 of the PBCL as provided in Section 3.3) issued
     and outstanding immediately prior to the Effective Time shall cease to be
     outstanding and shall be converted into and exchanged for the right to
     receive a number of shares of Vaxcel Common Stock equal to two times the
     Exchange Ratio.
 
     3.2 Shares Held by Zynaxis or Vaxcel.  Each of the shares of Zynaxis Common
Stock held by any Zynaxis Company or by any Vaxcel Company shall be canceled and
retired at the Effective Time and no consideration shall be issued in exchange
therefor.
 
     3.3 Dissenting Shareholders.
 
     (a) Any holder of shares of Zynaxis Capital Stock who perfects his or her
dissenters' rights in accordance with and as contemplated by Section 1930 of the
PBCL shall be entitled to receive the value of such shares in cash as determined
pursuant to such provision of Law; provided, that no such payment shall be made
to any dissenting shareholder unless and until such dissenting shareholder has
complied with the applicable provisions of the PBCL and surrendered to Zynaxis
the certificate or certificates representing the shares for which payment is
being made. In the event that after the Effective Time a dissenting shareholder
of Zynaxis fails to perfect, or effectively withdraws or loses, his right to
appraisal and of payment for his shares, Vaxcel shall issue and deliver the
consideration to which such holder of shares of Zynaxis Capital Stock is
 
                                       A-8
<PAGE>   193
 
entitled under this Article 3 (without interest) upon surrender by such holder
of the certificate or certificates representing shares of Zynaxis Capital Stock
held by him. If and to the extent required by applicable Law, Vaxcel will
establish (or cause to be established) an escrow account with an amount
sufficient to satisfy the maximum aggregate payment that may be required to be
paid to dissenting shareholders. Upon satisfaction of all claims of dissenting
shareholders, the remaining escrowed amount, reduced by payment of the fees and
expenses of the escrow agent, will be returned to Vaxcel.
 
     (b) Any holder of shares of Zynaxis Capital Stock who objects to the
transaction and in accordance with and as contemplated by Sections 2544 and 2546
of the PBCL shall be entitled to receive the value of such shares in cash as
determined pursuant to such provision of Law; provided, that no such payment
shall be made to any objecting shareholder unless and until such objecting
shareholder has complied with the applicable provisions of the PBCL and
surrendered to Zynaxis the certificate or certificates representing the shares
for which payment is being made. In the event that after the Effective Time an
objecting shareholder of Zynaxis fails to give proper notice and surrender his
certificates as required by Section 2547 of the PBCL, or otherwise effectively
withdraws or loses his right to appraisal and of payment for his shares, Vaxcel
shall issue and CytRx and Vaxcel shall deliver the consideration to which such
holder of shares of Zynaxis Capital Stock is entitled under this Article 3
(without interest) upon surrender by such holder of the certificate or
certificates representing shares of Zynaxis Capital Stock held by him. If and to
the extent required by applicable Law, Vaxcel will establish (or cause to be
established) an escrow account with an amount sufficient to satisfy the maximum
aggregate payment that may be required to be paid to objecting shareholders.
Upon satisfaction of all claims of objecting shareholders, the remaining
escrowed amount, reduced by payment of the fees and expenses of the escrow
agent, will be returned to Vaxcel.
 
     3.4 Fractional Shares.  Notwithstanding any other provision of this
Agreement, each holder of shares of Zynaxis Common Stock and each holder of
shares of Zynaxis Preferred Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Vaxcel Common
Stock (after taking into account all whole shares delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in an amount equal to
such fractional part of a share of Vaxcel Common Stock divided by the Exchange
Ratio and multiplied by the Per Share Price.
 
     3.5 Conversion of Stock Options; Restricted Stock.
 
     (a) At the Effective Time, each option or other Equity Right to purchase
shares of Zynaxis Common Stock pursuant to stock options or stock appreciation
rights ("Zynaxis Options") granted by Zynaxis under the Zynaxis Stock Plan which
are outstanding at the Effective Time, whether or not exercisable, shall be
converted into and become rights with respect to Vaxcel Common Stock, and Vaxcel
shall assume each Zynaxis Option, in accordance with the terms of the Zynaxis
Stock Plan and stock option agreement by which it is evidenced, except that from
and after the Effective Time, (i) Vaxcel and its Compensation Committee shall be
substituted for Zynaxis and the Committee of Zynaxis's Board of Directors
(including, if applicable, the entire Board of Directors of Zynaxis)
administering such Zynaxis Stock Plan, (ii) each Zynaxis Option assumed by
Vaxcel may be exercised solely for shares of Vaxcel Common Stock (or cash, if so
provided under the terms of such Zynaxis Option), (iii) the number of shares of
Vaxcel Common Stock subject to such Zynaxis Option shall be equal to the number
of shares of Zynaxis Common Stock subject to such Zynaxis Option immediately
prior to the Effective Time multiplied by the Exchange Ratio, and (iv) the per
share exercise price under each such Zynaxis Option shall be adjusted by
dividing the per share exercise price under each such Zynaxis Option by the
Exchange Ratio and rounding up to the nearest cent. Notwithstanding the
provisions of clause (iii) of the preceding sentence, Vaxcel shall not be
obligated to issue any fraction of a share of Vaxcel Common Stock upon exercise
of Zynaxis Options and any fraction of a share of Vaxcel Common Stock that
otherwise would be subject to a converted Zynaxis Option shall represent the
right to receive a cash payment upon exercise of such converted Zynaxis Option
equal to the product of such fraction and the difference between the market
value of one share of Vaxcel Common Stock at the time of exercise of such Option
and the per share exercise price of such Zynaxis Option. The market value of one
share of Vaxcel Common Stock at the time of exercise of an Option shall be the
last sale price of a share of Vaxcel Common Stock on the Nasdaq SmallCap Market
(as reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source selected by Vaxcel) on the last trading day preceding the
date of exercise. In
 
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<PAGE>   194
 
addition, notwithstanding the provisions of clauses (iii) and (iv) of the first
sentence of this Section 3.5, each Zynaxis Option which is an "incentive stock
option" shall be adjusted as required by Section 424 of the Internal Revenue
Code, and the regulations promulgated thereunder, so as not to constitute a
modification, extension or renewal of the option, within the meaning of Section
424(h) of the Internal Revenue Code. Each of Zynaxis and Vaxcel agrees to take
all necessary steps to effectuate the foregoing provisions of this Section 3.5,
including using its reasonable efforts to obtain from each holder of a Zynaxis
Option any Consent or Contract that may be deemed necessary or advisable in
order to effect the transactions contemplated by this Section 3.5. Anything in
this Agreement to the contrary notwithstanding, Vaxcel shall have the right, in
its sole discretion, not to deliver the consideration provided in this Section
3.5 to a former holder of a Zynaxis Option who has not delivered such Consent or
Contract.
 
     (b) As soon as practicable after the Effective Time, Vaxcel shall deliver
to the participants in the Zynaxis Stock Plan an appropriate notice setting
forth such participant's rights pursuant thereto and the grants subject to the
Zynaxis Stock Plan shall continue in effect on the same terms and conditions
(subject to the adjustments required by Section 3.5(a) after giving effect to
the Merger), and Vaxcel shall comply with the terms of the Zynaxis Stock Plan to
ensure, to the extent required by, and subject to the provisions of, such
Zynaxis Stock Plan, that Zynaxis Options which qualified as incentive stock
options prior to the Effective Time continue to qualify as incentive stock
options after the Effective Time. At or prior to the Effective Time, Vaxcel
shall take all corporate action necessary to reserve for issuance sufficient
shares of Vaxcel Common Stock for delivery upon exercise of Zynaxis Options
assumed by it in accordance with this Section 3.5. As soon as practicable after
the Effective Time, Vaxcel shall file a registration statement on Form S-3 or
Form S-8, as the case may be (or any successor or other appropriate forms), with
respect to the shares of Vaxcel Common Stock subject to such options and shall
use its reasonable efforts to maintain the effectiveness of such registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such options remain outstanding.
 
     (c) All contractual restrictions or limitations on transfer with respect to
Zynaxis Common Stock awarded under the Zynaxis Stock Plan or any other plan,
program, Contract or arrangement of any Zynaxis Company, to the extent that such
restrictions or limitations shall not have already lapsed (whether as a result
of the Merger or otherwise), and except as otherwise expressly provided in such
plan, program, Contract or arrangement, shall remain in full force and effect
with respect to shares of Vaxcel Common Stock into which such restricted stock
is converted pursuant to Section 3.1.
 
     3.6 Conversion of Financing Warrants.  At the Effective Time, each warrant
to purchase shares of Zynaxis Common Stock which is outstanding at the Effective
Time and is held by a party to the Preferred Stock and Warrant Agreement shall
be exchanged for a warrant to purchase Vaxcel Common Stock in accordance with
the terms of the Preferred Stock and Warrant Agreement.
 
     3.7 Conversion of Warrants Other Than Financing Warrants.  At the Effective
Time, each warrant to purchase shares of Zynaxis Common Stock which is
outstanding at the Effective Time and is not being exchanged for a warrant to
purchase Vaxcel Common Stock in accordance with Section 3.6 and pursuant to the
Preferred Stock and Warrant Agreement (a "Non-Financing Warrant") shall be
converted into and become a warrant to purchase shares of Vaxcel Common Stock,
and Vaxcel shall assume each such warrant, in accordance with the terms of the
warrant agreement by which it is evidenced, except that from and after the
Effective Time, (i) each Non-Financing Warrant assumed by Vaxcel may be
exercised solely for shares of Vaxcel Common Stock, (ii) the number of shares of
Vaxcel Common Stock subject to such Non-Financing Warrant shall be equal to the
number of shares of Zynaxis Common Stock subject to such Non-Financing Warrant
immediately prior to the Effective Time multiplied by the Exchange Ratio, and
(iii) the per share exercise price under each such Non-Financing Warrant shall
be adjusted by dividing the per share exercise price under each such
Non-Financing Warrant by the Exchange Ratio and rounding up to the nearest cent.
Notwithstanding the provisions of clause (ii) of the preceding sentence, Vaxcel
shall not be obligated to issue any fraction of a share of Vaxcel Common Stock
upon exercise of such Non-Financing Warrants and any fraction of a share of
Vaxcel Common Stock that otherwise would be subject to a converted Non-Financing
Warrant shall represent the right to receive a cash payment upon exercise of
such converted Non-Financing Warrant equal to the product of such fraction and
the difference between the market value of one share of
 
                                      A-10
<PAGE>   195
 
Vaxcel Common Stock at the time of exercise of such converted Non-Financing
Warrant and the per share exercise price of such converted Non-Financing
Warrant. The market value of one share of Vaxcel Common Stock at the time of
exercise of a converted Non-Financing Warrant shall be the last sale price of a
share of Vaxcel Common Stock on the Nasdaq SmallCap Market (as reported by The
Wall Street Journal or, if not reported thereby, any other authoritative source
selected by Vaxcel) on the last trading day preceding the date of exercise.
 
     (b) As soon as practicable after the Effective Time, Vaxcel shall deliver
to the holders of Non-Financing Warrants an appropriate notice setting forth
such participant's rights pursuant thereto and the converted Non-Financing
Warrants shall continue in effect on the same terms and conditions (subject to
the adjustments required by Section 3.7(a) after giving effect to the Merger).
At or prior to the Effective Time, Vaxcel shall take all corporate action
necessary to reserve for issuance sufficient shares of Vaxcel Common Stock for
delivery upon exercise of converted Non-Financing Warrants assumed by it in
accordance with this Section 3.7.
 
     3.8 Conversion of Promissory Notes.  At the Effective Time, each promissory
note on which Zynaxis is the obligor and which is held by a party to the Note
Exchange Agreement shall be exchanged for shares of Vaxcel Common Stock in
accordance with the terms of the Note Exchange Agreement.
 
                                   ARTICLE 4
 
                               EXCHANGE OF SHARES
 
     4.1 Exchange Procedures.  Promptly after the Effective Time, Vaxcel and
Zynaxis shall cause the exchange agent selected by Vaxcel (the "Exchange Agent")
to mail to each holder of record of a certificate or certificates which
represented shares of Zynaxis Capital Stock immediately prior to the Effective
Time (the "Certificates") appropriate transmittal materials and instructions
(which shall specify that delivery shall be effected, and risk of loss and title
to such Certificates shall pass, only upon proper delivery of such Certificates
to the Exchange Agent). The Certificate or Certificates of Zynaxis Capital Stock
so delivered shall be duly endorsed as the Exchange Agent may require. In the
event of a transfer of ownership of shares of Zynaxis Capital Stock represented
by Certificates that are not registered in the transfer records of Zynaxis, the
consideration provided in Section 3.1 may be issued to a transferee if the
Certificates representing such shares are delivered to the Exchange Agent,
accompanied by all documents required to evidence such transfer and by evidence
satisfactory to the Exchange Agent that any applicable stock transfer taxes have
been paid. If any Certificate shall have been lost, stolen, mislaid or
destroyed, upon receipt of (i) an affidavit of that fact from the holder
claiming such Certificate to be lost, mislaid, stolen or destroyed, (ii) such
bond, security or indemnity as Vaxcel and the Exchange Agent may reasonably
require and (iii) any other documents necessary to evidence and effect the bona
fide exchange thereof, the Exchange Agent shall issue to such holder the
consideration into which the shares represented by such lost, stolen, mislaid or
destroyed Certificate shall have been converted. The Exchange Agent may
establish such other reasonable and customary rules and procedures in connection
with its duties as it may deem appropriate. After the Effective Time, each
holder of shares of Zynaxis Capital Stock (other than shares to be canceled
pursuant to Section 3.2, or as to which statutory dissenters' rights have been
perfected as provided in Section 3.3(a), or as to which proper notice has been
given as provided in Section 3.3(b)) issued and outstanding at the Effective
Time shall surrender the Certificate or Certificates representing such shares to
the Exchange Agent and shall promptly upon surrender thereof receive in exchange
therefor the consideration provided in Section 3.1, together with all
undelivered dividends or distributions in respect of such shares (without
interest thereon) pursuant to Section 4.2. To the extent required by Section
3.4, each holder of shares of Zynaxis Capital Stock issued and outstanding at
the Effective Time also shall receive, upon surrender of the Certificate or
Certificates, cash in lieu of any fractional share of Vaxcel Common Stock to
which such holder may be otherwise entitled (without interest). Vaxcel shall not
be obligated to deliver the consideration to which any former holder of Zynaxis
Capital Stock is entitled as a result of the Merger until such holder surrenders
such holder's Certificate or Certificates for exchange as provided in this
Section 4.1. Any other provision of this Agreement notwithstanding, neither
Vaxcel, the Surviving Corporation nor the Exchange Agent shall be liable to a
holder of Zynaxis Capital Stock
 
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for any amounts paid or property delivered in good faith to a public official
pursuant to any applicable abandoned property, escheat or similar Law. Adoption
of this Agreement by the shareholders of Zynaxis shall constitute ratification
of the appointment of the Exchange Agent.
 
     4.2 Rights of Former Zynaxis Shareholders.  At the Effective Time, the
stock transfer books of Zynaxis shall be closed as to holders of Zynaxis Capital
Stock immediately prior to the Effective Time and no transfer of Zynaxis Capital
Stock by any such holder shall thereafter be made or recognized. Until
surrendered for exchange in accordance with the provisions of Section 4.1, each
Certificate theretofore representing shares of Zynaxis Capital Stock (other than
shares to be canceled pursuant to Section 3.2, or as to which statutory
dissenters' rights have been perfected as provided in Section 3.3(a), or as to
which proper notice has been given as provided in Section 3.3(b)) shall from and
after the Effective Time represent for all purposes only the right to receive
the consideration provided in Sections 3.1 and 3.4 in exchange therefor,
subject, however, to the Surviving Corporation's obligation to pay any dividends
or make any other distributions with a record date prior to the Effective Time
which have been declared or made by Zynaxis in respect of such shares of Zynaxis
Capital Stock in accordance with the terms of this Agreement and which remain
unpaid at the Effective Time. To the extent permitted by Law, former
shareholders of record of Zynaxis shall be entitled to vote after the Effective
Time at any meeting of Vaxcel shareholders the number of whole shares of Vaxcel
Common Stock into which their respective shares of Zynaxis Capital Stock are
converted, regardless of whether such holders have exchanged their Certificates
for certificates representing Vaxcel Common Stock in accordance with the
provisions of this Agreement. Whenever a dividend or other distribution is
declared by Vaxcel on the Vaxcel Common Stock, the record date for which is at
or after the Effective Time, the declaration shall include dividends or other
distributions on all shares of Vaxcel Common Stock issuable pursuant to this
Agreement, but beginning 30 days after the Effective Time no dividend or other
distribution payable to the holders of record of Vaxcel Common Stock as of any
time subsequent to the Effective Time shall be delivered to the holder of any
Certificate until such holder surrenders such Certificate for exchange as
provided in Section 4.1. However, upon surrender of such Certificate, both the
Vaxcel Common Stock certificate (together with all such undelivered dividends or
other distributions without interest) and any undelivered dividends and cash
payments payable hereunder (without interest) shall be delivered and paid with
respect to each share represented by such Certificate.
 
                                   ARTICLE 5
 
                   REPRESENTATIONS AND WARRANTIES OF ZYNAXIS
 
     Zynaxis hereby represents and warrants to Vaxcel as follows:
 
     5.1 Organization, Standing, and Power.  Zynaxis is a corporation duly
organized, validly existing, and in good standing under the Laws of the
Commonwealth of Pennsylvania, and has the corporate power and authority to carry
on its business as now conducted and to own, lease and operate its Assets.
Zynaxis is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Zynaxis. The minute book and other organizational documents for
Zynaxis have been made available to Vaxcel for its review and, except as
disclosed in Section 5.1 of the Zynaxis Disclosure Memorandum, are true and
complete in all material respects as of the date of this Agreement and
accurately reflect in all material respects all amendments thereto and all
proceedings of the Board of Directors and shareholders thereof.
 
     5.2 Authority; No Breach By Agreement.
 
     (a) Zynaxis has the corporate power and authority necessary to execute,
deliver, and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery, and performance of
this Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of Zynaxis, subject to the
adoption of this Agreement: (i) by a majority vote of the votes
 
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cast by all shareholders entitled to vote thereon (the holders of shares of
Zynaxis Common Stock and the holders of shares of Zynaxis Preferred Stock,
voting on an as-converted basis), and (ii) by a majority of the votes cast by
all holders of Zynaxis Preferred Stock entitled to vote thereon, voting as a
class. These are the only shareholder votes required for approval of this
Agreement and consummation of the transactions contemplated herein, including
the Merger, by Zynaxis. Subject to approval of this Agreement by the
shareholders of Zynaxis, this Agreement represents a legal, valid, and binding
obligation of Zynaxis, enforceable against Zynaxis in accordance with its terms.
 
     (b) The execution and delivery of this Agreement by Zynaxis, and, upon
approval of this Agreement and the transactions contemplated hereby by the
shareholders of Zynaxis, the consummation by Zynaxis of the transactions
contemplated hereby and the compliance by Zynaxis with any of the provisions
hereof, will not (i) conflict with or result in a breach of any provision of
Zynaxis's Articles of Incorporation, as amended, or Bylaws or the certificate or
articles of incorporation or bylaws of any Zynaxis Subsidiary or any resolution
adopted by the board of directors or the shareholders of any Zynaxis Company, or
(ii) except as disclosed in Section 5.2 of the Zynaxis Disclosure Memorandum,
constitute or result in a Default under, or require any Consent pursuant to, or
result in the creation of any Lien on any Asset of any Zynaxis Company under,
any Contract or Permit of any Zynaxis Company, or, (iii) subject to receipt of
the requisite Consents referred to in Section 9.1(b), constitute or result in a
Default under, or require any Consent pursuant to, any Law or Order applicable
to any Zynaxis Company or any of their respective material Assets (including any
Vaxcel Company or any Zynaxis Company becoming subject to or liable for the
payment of any Tax or any of the Assets owned by any Vaxcel Company or any
Zynaxis Company being reassessed or revalued by any Taxing authority).
 
     (c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NASD, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
no notice to, filing with, or Consent of, any public body or authority is
necessary for the execution, delivery and performance by Zynaxis of its
obligations under this Agreement.
 
     5.3 Capital Stock.
 
     (a) The authorized capital stock of Zynaxis consists of (i) 25,000,000
shares of Zynaxis Common Stock, of which 10,338,768 shares are issued and
outstanding, and (ii) 2,000,000 shares of preferred stock, 1,500,000 shares of
which are designated Series A Convertible Preferred Stock and of which 1,412,500
shares are issued and outstanding. The Conversion Price (as that term is defined
in the Statement With Respect to Shares) of the Zynaxis Preferred Stock is One
Dollar ($1.00) per share. All of the issued and outstanding shares of capital
stock of Zynaxis are duly and validly issued and outstanding and are fully paid
and nonassessable under the PBCL. None of the outstanding shares of Zynaxis
Capital Stock has been issued in violation of any preemptive rights of the
current or past shareholders of Zynaxis.
 
     (b) Except as set forth in Section 5.3(a) or as disclosed in Section 5.3 of
the Zynaxis Disclosure Memorandum, there are no shares of capital stock or other
equity securities of Zynaxis outstanding and no outstanding Equity Rights
relating to the Zynaxis Capital Stock.
 
     5.4 Zynaxis Subsidiaries.  Zynaxis has disclosed in Section 5.4 of the
Zynaxis Disclosure Memorandum all of the Zynaxis Subsidiaries (in each case
identifying its jurisdiction of incorporation, each jurisdiction in which it is
qualified and/or licensed to transact business, and the number of shares owned
by Zynaxis and percentage ownership interest represented by such share
ownership). Except as disclosed in Section 5.4 of the Zynaxis Disclosure
Memorandum, Zynaxis or one of its Subsidiaries owns all of the issued and
outstanding shares of capital stock (or other equity interests) of each Zynaxis
Subsidiary. No capital stock (or other equity interest) of any Zynaxis
Subsidiary is or may become required to be issued (other than to another Zynaxis
Company) by reason of any Equity Rights, and there are no Contracts by which any
Zynaxis Subsidiary is bound to issue (other than to another Zynaxis Company)
additional shares of its capital stock (or other equity interests) or Equity
Rights or by which any Zynaxis Company is or may be bound to transfer any shares
of the capital stock (or other equity interests) of any Zynaxis Subsidiary
(other than to another Zynaxis Company). There are no Contracts relating to the
rights of any Zynaxis Company to vote or to dispose of any shares of the
 
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capital stock (or other equity interests) of any Zynaxis Subsidiary. All of the
shares of capital stock (or other equity interests) of each Zynaxis Subsidiary
held by a Zynaxis Company are fully paid and nonassessable under the applicable
corporation Law of the jurisdiction in which such Subsidiary is incorporated or
organized and are owned by the Zynaxis Company free and clear of any Lien,
except as contemplated in the Transaction Documents. Except as disclosed in
Section 5.4 of the Zynaxis Disclosure Memorandum, each Zynaxis Subsidiary is a
corporation, and each such Subsidiary is duly organized, validly existing, and
(as to corporations) in good standing under the Laws of the jurisdiction in
which it is incorporated or organized, and has the corporate power and authority
necessary for it to own, lease, and operate its Assets and to carry on its
business as now conducted. Each Zynaxis Subsidiary is duly qualified or licensed
to transact business as a foreign corporation in good standing in the States of
the United States and foreign jurisdictions where the character of its Assets or
the nature or conduct of its business requires it to be so qualified or
licensed, except for such jurisdictions in which the failure to be so qualified
or licensed is not reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on Zynaxis. The minute book and other organizational
documents for each Zynaxis Subsidiary have been made available to Vaxcel for its
review, and, except as disclosed in Section 5.4 of the Zynaxis Disclosure
Memorandum, are true and complete in all material respects as in effect as of
the date of this Agreement and accurately reflect in all material respects all
amendments thereto and all proceedings of the Board of Directors and
shareholders thereof.
 
     5.5 SEC Filings; Financial Statements.
 
     (a) Zynaxis has timely filed and made available to Vaxcel all SEC Documents
required to be filed by Zynaxis since December 31, 1992 (the "Zynaxis SEC
Reports"). The Zynaxis SEC Reports (i) at the time filed, complied in all
material respects with the applicable requirements of the Securities Laws and
(ii) did not, at the time they were filed (or, if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such Zynaxis SEC Reports or necessary in order to make
the statements in such Zynaxis SEC Reports, in light of the circumstances under
which they were made, not misleading. No Zynaxis Subsidiary is required to file
any SEC Documents.
 
     (b) Each of the Zynaxis Financial Statements (including, in each case, any
related notes) contained in the Zynaxis SEC Reports, including any Zynaxis SEC
Reports filed after the date of this Agreement until the Effective Time,
complied or will comply as to form in all material respects with the applicable
published rules and regulations of the SEC with respect thereto, was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited interim statements, as permitted by Form 10-Q of
the SEC), and fairly presented in all material respects the consolidated
financial position of Zynaxis and its Subsidiaries as at the respective dates
and the consolidated results of operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not or are not
expected to be material in amount or effect.
 
     5.6 Absence of Undisclosed Liabilities.  Except as disclosed in Section 5.6
of the Zynaxis Disclosure Memorandum, no Zynaxis Company has any Liabilities
that are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Zynaxis, except Liabilities which are accrued or reserved
against in the consolidated balance sheets of Zynaxis as of December 31, 1995
and June 30, 1996, included in the Zynaxis Financial Statements delivered prior
to the date of this Agreement or reflected in the notes thereto. Except as
disclosed in Section 5.6 of the Zynaxis Disclosure Memorandum, no Zynaxis
Company has incurred or paid any Liability since June 30, 1996, except for such
Liabilities incurred or paid (i) in the ordinary course of business consistent
with past business practice and which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Zynaxis or (ii)
in connection with the transactions contemplated by this Agreement. Except as
disclosed in Section 5.6 of the Zynaxis Disclosure Memorandum or in the Zynaxis
Financial Statements, no Zynaxis Company is directly or indirectly liable, by
guarantee, indemnity, or otherwise, upon or with respect to, or obligated, by
discount or repurchase agreement or in any other way, to provide funds in
respect to, or obligated to guarantee or assume any Liability of any Person for
any amount in excess of $10,000.
 
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     5.7 Absence of Certain Changes or Events.  Since December 31, 1995, except
as disclosed in the Zynaxis Financial Statements delivered prior to the date of
this Agreement or as disclosed in Section 5.7 of the Zynaxis Disclosure
Memorandum, (i) there have been no events, changes, or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Zynaxis, and (ii) the Zynaxis Companies have not
taken any action, or failed to take any action, prior to the date of this
Agreement, which action or failure, if taken after the date of this Agreement,
would represent or result in a material breach or violation of any of the
covenants and agreements of Zynaxis provided in Article 7.
 
     5.8 Tax Matters.
 
     (a) All material Tax Returns required to be filed by or on behalf of any of
the Zynaxis Companies have been timely filed or requests for extensions have
been timely filed, granted, and have not expired for periods ended on or before
December 31, 1995, and on or before the date of the most recent fiscal year end
immediately preceding the Effective Time, and all Tax Returns filed are complete
and accurate. All Taxes shown on filed Tax Returns have been paid. As of the
date of this Agreement, there is no audit examination, deficiency, or refund
Litigation with respect to any Taxes, except as reserved against in the Zynaxis
Financial Statements delivered prior to the date of this Agreement. All Taxes
and other Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid. There are no Liens with respect to Taxes
upon any of the Assets of the Zynaxis Companies, except for any such Liens which
are not reasonably likely to have a Material Adverse Effect on Zynaxis.
 
     (b) None of the Zynaxis Companies has executed an extension or waiver of
any statute of limitations on the assessment or collection of any Tax due
(excluding such statutes that relate to years currently under examination by the
Internal Revenue Service or other applicable taxing authorities) that is
currently in effect.
 
     (c) The provision for any Taxes due or to become due for any of the Zynaxis
Companies for the period or periods through and including the date of the
respective Zynaxis Financial Statements that has been made and is reflected on
such Zynaxis Financial Statements is sufficient to cover all such Taxes.
 
     (d) Deferred Taxes of the Zynaxis Companies have been provided for in
accordance with GAAP.
 
     (e) None of the Zynaxis Companies is a party to any Tax allocation or
sharing agreement and none of the Zynaxis Companies has been a member of an
affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which was Zynaxis) or has any Liability for Taxes of
any Person (other than Zynaxis and its Subsidiaries) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local or foreign Law) as a
transferee or successor or by Contract or otherwise.
 
     (f) Each of the Zynaxis Companies is in compliance with, and its records
contain all information and documents (including properly completed IRS Forms
W-9) necessary to comply with, all applicable information reporting and Tax
withholding requirements under federal, state, and local Tax Laws, and such
records identify with specificity all accounts subject to backup withholding
under Section 3406 of the Internal Revenue Code.
 
     (g) Except as disclosed in Section 5.8 of the Zynaxis Disclosure
Memorandum, none of the Zynaxis Companies has made any payments, is obligated to
make any payments, or is a party to any Contract that could obligate it to make
any payments that would be disallowed as a deduction under Section 280G or
162(m) of the Internal Revenue Code.
 
     (h) There has not been an ownership change, as defined in Internal Revenue
Code Section 382(g), of the Zynaxis Companies that occurred during or after any
taxable period in which the Zynaxis Companies incurred a net operating loss that
carries over to any taxable period ending after December 31, 1995.
 
     (i) No Zynaxis Company has or has had in any foreign country a permanent
establishment, as defined in any applicable tax treaty or convention between the
United States and such foreign country.
 
     5.9 Assets.
 
     (a) Except as disclosed in Section 5.9 of the Zynaxis Disclosure Memorandum
or as disclosed or reserved against in the Zynaxis Financial Statements
delivered prior to the date of this Agreement, the
 
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Zynaxis Companies have good and marketable title, free and clear of all Liens,
to all of their respective Assets, except for any such Liens or other defects of
title which are not reasonably likely to have a Material Adverse Effect on
Zynaxis.
 
     (b) Except as disclosed in Section 5.9(b) of the Zynaxis Disclosure
Memorandum, the accounts receivable of the Zynaxis Companies as set forth on the
most recent balance sheet included in the Zynaxis Financial Statements delivered
prior to the date of this Agreement or arising since the date thereof are valid
and genuine; have arisen solely out of bona fide sales and deliveries of goods,
performance of services and other business transactions in the ordinary course
of business consistent with past practice; are not subject to valid defenses,
set-offs or counterclaims. The allowance for collection losses on such balance
sheet has been determined in accordance with GAAP.
 
     (c) All Assets which are material to Zynaxis's business on a consolidated
basis, held under leases or subleases by any of the Zynaxis Companies, are held
under valid Contracts enforceable in accordance with their respective terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceedings may be brought), and each such
Contract is in full force and effect.
 
     (d) Set forth in Section 5.9(d) of the Zynaxis Disclosure Memorandum is a
description of each insurance policy maintained by any of the Zynaxis Companies,
including the type of policy, the name of the insurer, the coverage limits and
the premiums. None of the Zynaxis Companies has received notice from any
insurance carrier that (i) any policy of insurance will be canceled or that
coverage thereunder will be reduced or eliminated, or (ii) premium costs with
respect to such policies of insurance will be substantially increased. There are
presently no claims for amounts exceeding in any individual case $5,000 pending
under such policies of insurance and no notices of claims in excess of such
amounts have been given by any Zynaxis Company under such policies.
 
     (e) The Assets of the Zynaxis Companies include all Assets required to
operate the business of the Zynaxis Companies as presently conducted. The
Zynaxis Companies have no Inventory.
 
     5.10 Intellectual Property.  Except as disclosed in Section 5.10 of the
Zynaxis Disclosure Memorandum, each Zynaxis Company owns or has a license to use
all of the Intellectual Property used by such Zynaxis Company in the course of
its business. Each Zynaxis Company is the owner of or has a license to any
Intellectual Property sold or licensed to a third party by such Zynaxis Company
in connection with such Zynaxis Company's business operations, and such Zynaxis
Company has the right to convey by sale or license any Intellectual Property so
conveyed. Except as disclosed in Section 5.10 of the Zynaxis Disclosure
Memorandum, no Zynaxis Company is in Default under any of its Intellectual
Property licenses. Except as disclosed in Section 5.10 of the Zynaxis Disclosure
Memorandum, no proceedings have been instituted, or are pending or to the
Knowledge of Zynaxis threatened, which challenge the rights of any Zynaxis
Company with respect to Intellectual Property used, sold or licensed by such
Zynaxis Company in the course of its business, nor has any person claimed or
alleged any rights to such Intellectual Property. To the Knowledge of Zynaxis,
the conduct of the business of the Zynaxis Companies does not infringe any
Intellectual Property of any other person. Except as disclosed in Section 5.10
of the Zynaxis Disclosure Memorandum, no Zynaxis Company is obligated to pay any
recurring royalties to any Person with respect to any such Intellectual
Property. Except as disclosed in Section 5.10 of the Zynaxis Disclosure
Memorandum, every officer, director, or employee of any Zynaxis Company is a
party to a Contract which requires such officer, director or employee to assign
any interest in any Intellectual Property to a Zynaxis Company and to keep
confidential any trade secrets, proprietary data, customer information, or other
business information of a Zynaxis Company, and, to the Knowledge of Zynaxis, no
such officer, director or employee is party to any Contract with any Person
other than a Zynaxis Company which requires such officer, director or employee
to assign any interest in any Intellectual Property to any Person other than a
Zynaxis Company or to keep confidential any trade secrets, proprietary data,
customer information, or other business information of any Person other than a
Zynaxis Company. Except as disclosed in Section 5.10 of the Zynaxis Disclosure
Memorandum, to the Knowledge of
 
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Zynaxis, no officer, director or employee of any Zynaxis Company is party to any
Contract which restricts or prohibits such officer, director or employee from
engaging in activities competitive with any Person, including any Zynaxis
Company.
 
     5.11 Environmental Matters.
 
     (a) Each Zynaxis Company, its Participation Facilities, and its Operating
Properties are, and have been, in compliance with all Environmental Laws.
 
     (b) There is no Litigation pending or, to the Knowledge of Zynaxis,
threatened before any court, governmental agency, or authority or other forum in
which any Zynaxis Company or any of its Operating Properties or Participation
Facilities (or Zynaxis in respect of such Operating Property or Participation
Facility) has been or, with respect to threatened Litigation, may be named as a
defendant (i) for alleged noncompliance (including by any predecessor) with any
Environmental Law or (ii) relating to the release, discharge, spillage, or
disposal into the environment of any Hazardous Material, whether or not
occurring at, on, under, adjacent to, or affecting (or potentially affecting) a
site owned, leased, or operated by any Zynaxis Company or any of its Operating
Properties or Participation Facilities, nor is there any reasonable basis for
any Litigation of a type described in this sentence.
 
     (c) During the period of (i) any Zynaxis Company's ownership or operation
of any of their respective current properties, (ii) any Zynaxis Company's
participation in the management of any Participation Facility, or (iii) any
Zynaxis Company's holding of a security interest in an Operating Property, there
have been no releases, discharges, spillages, or disposals of Hazardous Material
in, on, under, adjacent to, or affecting (or potentially affecting) such
properties. Prior to the period of (i) any Zynaxis Company's ownership or
operation of any of their respective current properties, (ii) any Zynaxis
Company's participation in the management of any Participation Facility, or
(iii) any Zynaxis Company's holding of a security interest in a Operating
Property, to the Knowledge of Zynaxis, there were no releases, discharges,
spillages, or disposals of Hazardous Material in, on, under, or affecting any
such property, Participation Facility or Operating Property.
 
     5.12 Compliance with Laws.  Each Zynaxis Company has in effect all Permits
necessary for it to own, lease, or operate its material Assets and to carry on
its business as now conducted, except for those Permits the absence of which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Zynaxis, and there has occurred no Default under any such
Permit other than Defaults which are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on Zynaxis. Except as disclosed
in Section 5.12 of the Zynaxis Disclosure Memorandum, none of the Zynaxis
Companies:
 
          (a) is in Default under any of the provisions of its Articles of
     Incorporation, as amended, or Bylaws (or other governing instruments);
 
          (b) is in Default under any Laws, Orders, or Permits applicable to its
     business or employees conducting its business, except for Defaults which
     are not reasonably likely to have, individually or in the aggregate, a
     Material Adverse Effect on Zynaxis; or
 
          (c) since January 1, 1993, has received any notification or
     communication from any agency or department of federal, state, or local
     government or any Regulatory Authority or the staff thereof (i) asserting
     that any Zynaxis Company is not in compliance with any of the Laws or
     Orders which such governmental authority or Regulatory Authority enforces,
     where such noncompliance is reasonably likely to have, individually or in
     the aggregate, a Material Adverse Effect on Zynaxis, (ii) threatening to
     revoke any Permits, the revocation of which is reasonably likely to have,
     individually or in the aggregate, a Material Adverse Effect on Zynaxis, or
     (iii) requiring any Zynaxis Company to enter into or consent to the
     issuance of a cease and desist order, formal agreement, directive,
     commitment, or memorandum of understanding, or to adopt any Board
     resolution or similar undertaking.
 
Copies of all material reports, correspondence, notices and other documents
relating to any inspection, audit, monitoring or other form of review or
enforcement action by a Regulatory Authority have been made available to Vaxcel.
 
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     5.13 Labor Relations.  No Zynaxis Company is the subject of any Litigation
asserting that it or any other Zynaxis Company has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state Law) or seeking to compel it or any other Zynaxis Company to bargain with
any labor organization as to wages or conditions of employment, nor is any
Zynaxis Company party to any collective bargaining agreement, nor is there any
strike or other labor dispute involving any Zynaxis Company, pending or
threatened, nor to the Knowledge of Zynaxis, is there any activity involving any
Zynaxis Company's employees seeking to certify a collective bargaining unit or
engaging in any other organization activity.
 
     5.14 Employee Benefit Plans.
 
     (a) Zynaxis has disclosed in Section 5.14 of the Zynaxis Disclosure
Memorandum, and has delivered or made available to Vaxcel prior to the execution
of this Agreement, copies in each case of, all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus, or other incentive plan, all other written
employee programs, arrangements, or agreements, all medical, vision, dental, or
other health plans, all life insurance plans, and all other employee benefit
plans or fringe benefit plans, including "employee benefit plans" as that term
is defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored
in whole or in part by, or contributed to by any Zynaxis Company or ERISA
Affiliate (as defined below) thereof for the benefit of employees, retirees,
dependents, spouses, directors, independent contractors, or other beneficiaries
and under which employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries are eligible to participate (collectively,
the "Zynaxis Benefit Plans"). Any of the Zynaxis Benefit Plans which is an
"employee pension benefit plan," as that term is defined in Section 3(2) of
ERISA, is referred to herein as a "Zynaxis ERISA Plan." Each Zynaxis ERISA Plan
which is also a "defined benefit plan" (as defined in Section 414(j) of the
Internal Revenue Code) is referred to herein as a "Zynaxis Pension Plan." No
Zynaxis Pension Plan is or has been a multiemployer plan within the meaning of
Section 3(37) of ERISA.
 
     (b) All Zynaxis Benefit Plans are in compliance with the applicable terms
of ERISA, the Internal Revenue Code, and any other applicable Laws the breach or
violation of which are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Zynaxis. Each Zynaxis ERISA Plan which
is intended to be qualified under Section 401(a) of the Internal Revenue Code
has received a favorable determination letter from the Internal Revenue Service,
and Zynaxis is not aware of any circumstances likely to result in revocation of
any such favorable determination letter. To the Knowledge of Zynaxis, no Zynaxis
Company has engaged in a transaction with respect to any Zynaxis Benefit Plan
that, assuming the taxable period of such transaction expired as of the date
hereof, would subject any Zynaxis Company to a Tax imposed by either Section
4975 of the Internal Revenue Code or Section 502(i) of ERISA that, individually
or in the aggregate, is reasonably likely to have a Material Adverse Effect on
Zynaxis.
 
     (c) No Zynaxis Pension Plan has any "unfunded current liability," as that
term is defined in Section 302(d)(8)(A) of ERISA, and the fair market value of
the assets of any such plan exceeds the plan's "benefit liabilities," as that
term is defined in Section 4001(a)(16) of ERISA when determined under actuarial
factors that would apply if the Zynaxis Pension Plan were terminated in
accordance with all applicable legal requirements. Since the date of the most
recent actuarial valuation, there has been (i) no material change in the
financial position of any Zynaxis Pension Plan, (ii) no change in the actuarial
assumptions with respect to any Zynaxis Pension Plan, and (iii) no increase in
benefits under any Zynaxis Pension Plan as a result of plan amendments or
changes in applicable Law which is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Zynaxis or materially adversely
affect the funding status of any such plan. Neither any Zynaxis Pension Plan nor
any "single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any Zynaxis Company, or the single-employer
plan of any entity which is considered one employer with Zynaxis under Section
4001 of ERISA or Section 414 of the Internal Revenue Code or Section 302 of
ERISA (whether or not waived) (an "ERISA Affiliate") has an "accumulated funding
deficiency" within the meaning of Section 412 of the Internal Revenue Code or
Section 302 of ERISA. No Zynaxis Company has provided, or is required to
provide, security to a Zynaxis Pension Plan or to any single-employer plan of an
ERISA Affiliate pursuant to Section 401(a)(29) of the Internal Revenue Code.
 
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<PAGE>   203
 
     (d) No Liability under Subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by any Zynaxis Company with respect to any ongoing,
frozen, or terminated single-employer plan or the single-employer plan of any
ERISA Affiliate. No Zynaxis Company has incurred any withdrawal Liability with
respect to a multiemployer plan under Subtitle B of Title IV of ERISA
(regardless of whether based on contributions of an ERISA Affiliate). No notice
of a "reportable event," within the meaning of Section 4043 of ERISA for which
the 30-day reporting requirement has not been waived, has been required to be
filed for any Zynaxis Pension Plan or by any ERISA Affiliate within the 12-month
period ending on the date hereof.
 
     (e) Except as disclosed in Section 5.14 of the Zynaxis Disclosure
Memorandum, no Zynaxis Company has any Liability for retiree health and life
benefits under any of the Zynaxis Benefit Plans and there are no restrictions on
the rights of such Zynaxis Company to amend or terminate any such retiree health
or benefit Plan without incurring any Liability thereunder.
 
     (f) Except as disclosed in Section 5.14 of the Zynaxis Disclosure
Memorandum, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any director or any employee of any Zynaxis Company
from any Zynaxis Company under any Zynaxis Benefit Plan or otherwise, (ii)
increase any benefits otherwise payable under any Zynaxis Benefit Plan, or (iii)
result in any acceleration of the time of payment or vesting of any such
benefit.
 
     (g) The actuarial present values of all accrued deferred compensation
entitlements (including entitlements under any executive compensation,
supplemental retirement, or employment agreement) of employees and former
employees of any Zynaxis Company and their respective beneficiaries, other than
entitlements accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
have been fully reflected on the Zynaxis Financial Statements to the extent
required by and in accordance with GAAP.
 
     5.15 Material Contracts.  Except as disclosed in Section 5.15 of the
Zynaxis Disclosure Memorandum or otherwise reflected in the Zynaxis Financial
Statements, none of the Zynaxis Companies, nor any of their respective Assets,
businesses, or operations, is a party to, or is bound or affected by, or
receives benefits under, (i) any employment, severance, termination, consulting,
or retirement Contract providing for aggregate payments to any Person in any
calendar year in excess of $10,000, (ii) any Contract relating to the borrowing
of money by any Zynaxis Company or the guarantee by any Zynaxis Company of any
such obligation (other than Contracts evidencing trade payables and Contracts
relating to borrowings or guarantees made in the ordinary course of business),
(iii) any Contract which prohibits or restricts any Zynaxis Company from
engaging in any business activities in any geographic area, line of business or
otherwise in competition with any other Person, (iv) any Contract between or
among Zynaxis Companies, (v) any Contract involving Intellectual Property (other
than Contracts entered into in the ordinary course with customers and "shrink-
wrap" software licenses), (vi) any Contract relating to the provision of data
processing, network communication, or other technical services to or by any
Zynaxis Company, (vii) any Contract relating to the purchase or sale of any
goods or services (other than Contracts entered into in the ordinary course of
business and involving payments under any individual Contract not in excess of
$20,000), and (viii) any other Contract or amendment thereto that would be
required to be filed as an exhibit to a Form 10-K filed by Zynaxis with the SEC
as of the date of this Agreement (together with all Contracts referred to in
Sections 5.9 and 5.14(a), the "Zynaxis Contracts"). With respect to each Zynaxis
Contract and except as disclosed in Section 5.15 of the Zynaxis Disclosure
Memorandum: (i) the Contract is in full force and effect; (ii) no Zynaxis
Company is in Default thereunder; (iii) no Zynaxis Company has repudiated or
waived any material provision of any such Contract; and (iv) no other party to
any such Contract is, to the Knowledge of Zynaxis, in Default in any respect or
has repudiated or waived any material provision thereunder. Except as disclosed
in Section 5.15 of the Zynaxis Disclosure Memorandum, all of the indebtedness of
any Zynaxis Company for money borrowed is prepayable at any time by such Zynaxis
Company without penalty or premium.
 
     5.16 Legal Proceedings.  Except as disclosed in Section 5.16 of the Zynaxis
Disclosure Memorandum, there is no Litigation instituted or pending, or, to the
Knowledge of Zynaxis, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an
 
                                      A-19
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unfavorable outcome) against any Zynaxis Company, or against any director,
employee or employee benefit plan of any Zynaxis Company, or against any Asset,
interest, or right of any of them, that are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Zynaxis, nor are
there any Orders of any Regulatory Authorities, other governmental authorities,
or arbitrators outstanding against any Zynaxis Company that is reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on Zynaxis.
Section 5.16 of the Zynaxis Disclosure Memorandum contains a summary of all
Litigation as of the date of this Agreement to which any Zynaxis Company is a
party and which names a Zynaxis Company as a defendant or cross-defendant or for
which any Zynaxis Company has any potential Liability.
 
     5.17 Reports.  Since January 1, 1993, or the date of organization, if
later, each Zynaxis Company has timely filed all reports and statements,
together with any amendments required to be made with respect thereto, that it
was required to file with Regulatory Authorities (except, in the case of state
securities authorities, failures to file which are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on Zynaxis).
As of their respective dates, each of such reports and documents, including the
financial statements, exhibits, and schedules thereto, complied in all material
respects with all applicable Laws. As of its respective date, each such report
and document did not, in all material respects, contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
 
     5.18 Statements True and Correct.  No statement, certificate, instrument,
or other writing furnished or to be furnished by any Zynaxis Company or any
officer, director, employee or Subsidiary thereof to any Vaxcel Company pursuant
to this Agreement or any other document, agreement, or instrument referred to
herein contains or will contain any untrue statement of material fact or will
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by any Zynaxis Company or any officer,
director, employee or Subsidiary thereof for inclusion in the Registration
Statement to be filed by Vaxcel with the SEC will, when the Registration
Statement becomes effective, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein not misleading. None of the information supplied or to be supplied by
any Zynaxis Company or any officer, director, employee or Subsidiary thereof for
inclusion in the Proxy Statement to be mailed to Zynaxis's shareholders in
connection with the Shareholders' Meeting, and any other documents to be filed
by a Zynaxis Company or any officer, director, employee or Subsidiary thereof
with the SEC or any other Regulatory Authority in connection with the
transactions contemplated hereby, will, at the respective time such documents
are filed, and with respect to the Proxy Statement, when first mailed to the
shareholders of Zynaxis, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the Shareholders' Meeting, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for the Shareholders' Meeting. All documents that
any Zynaxis Company or any officer, director, employee or Subsidiary thereof is
responsible for filing with any Regulatory Authority in connection with the
transactions contemplated hereby will comply as to form in all material respects
with the provisions of applicable Law.
 
     5.19 Regulatory Matters.  No Zynaxis Company or any officer, director,
employee or Subsidiary thereof has taken or agreed to take any action or has any
Knowledge of any fact or circumstance that is reasonably likely to materially
impede or delay receipt of any Consents of Regulatory Authorities referred to in
Section 7.1(b) or result in the imposition of a condition or restriction of the
type referred to in the last sentence of such Section.
 
     5.20 Charter Provisions.  Each Zynaxis Company has taken all action so that
the entering into of this Agreement and the consummation of the Merger and the
other transactions contemplated by this Agreement do not and will not result in
the grant of any rights to any Person under the Articles of Incorporation, as
amended, Bylaws or other governing instruments of any Zynaxis Company, except
such rights as exist on the date hereof, or restrict or impair the ability of
Vaxcel or any of its Subsidiaries to vote, or otherwise to exercise the rights
of a shareholder with respect to, shares of any Zynaxis Company that may be
directly or indirectly acquired or controlled by them.
 
                                      A-20
<PAGE>   205
 
                                   ARTICLE 6
 
                       REPRESENTATIONS AND WARRANTIES OF
                      CYTRX, VAXCEL AND VAXCEL MERGER SUB
 
     CytRx, Vaxcel and Vaxcel Merger Sub hereby represent and warrant to Zynaxis
as follows:
 
     6.1 Organization, Standing, and Power.
 
     (a) CytRx is a corporation duly organized, validly existing, and in good
standing under the Laws of the State of Delaware, and has the corporate power
and authority to carry on its business as now conducted and to own, lease and
operate its Assets. CytRx is duly qualified or licensed to transact business as
a foreign corporation in good standing in the states of the United States and
foreign jurisdictions where the character of its Assets or the nature or conduct
of its business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on CytRx.
 
     (b) Vaxcel is a corporation duly organized, validly existing, and in good
standing under the Laws of the State of Delaware, and has the corporate power
and authority to carry on its business as now conducted and to own, lease and
operate its Assets. Vaxcel is duly qualified or licensed to transact business as
a foreign corporation in good standing in the States of the United States and
foreign jurisdictions where the character of its Assets or the nature or conduct
of its business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Vaxcel. The minute book and other organizational documents for Vaxcel
have been made available to Zynaxis for its review and, except as disclosed in
Section 6.1 of the Vaxcel Disclosure Memorandum, are true and complete in all
material respects as of the date of this Agreement and accurately reflect in all
material respects all amendments thereto and all proceedings of the Board of
Directors and shareholders thereof.
 
     (c) Vaxcel Merger Sub is a corporation duly organized, validly existing,
and in good standing under the Laws of the State of Georgia, and has the
corporate power and authority to carry on its business as now conducted and to
own, lease and operate its Assets. The minute book and other organizational
documents for Vaxcel Merger Sub have been made available to Zynaxis for its
review and are true and complete in all material respects as of the date of this
Agreement and accurately reflect in all material respects all amendments thereto
and all proceedings of the Board of Directors and shareholders thereof.
 
     6.2 Authority; No Breach By Agreement.
 
     (a) Each of CytRx, Vaxcel and Vaxcel Merger Sub has the corporate power and
authority necessary to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein, including the Merger, have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of such corporations. Vaxcel, as the sole shareholder of Vaxcel Merger Sub,
has voted all outstanding shares of Vaxcel Merger Sub Common Stock in favor of
adoption of this Agreement, as and to the extent required by applicable Law.
This Agreement represents a legal, valid, and binding obligation of each of
CytRx, Vaxcel and Vaxcel Merger Sub, enforceable against each of CytRx, Vaxcel
and Vaxcel Merger Sub in accordance with its terms.
 
     (b) Neither the execution and delivery of this Agreement by CytRx, Vaxcel
and Vaxcel Merger Sub, nor the consummation by CytRx, Vaxcel and Vaxcel Merger
Sub of the transactions contemplated hereby, nor compliance by CytRx, Vaxcel and
Vaxcel Merger Sub with any of the provisions hereof, will (i) conflict with or
result in a breach of any provision of the Certificate of Incorporation or
Bylaws of any of CytRx, Vaxcel or Vaxcel Merger Sub, or any resolution adopted
by the Board of Directors or the Shareholders of any Vaxcel Company, or (ii)
constitute or result in a Default under, or require any Consent pursuant to, or
result in the creation of any Lien on any Asset of any Vaxcel Company under, any
Contract or Permit of any Vaxcel Company, or, (iii) subject to receipt of the
requisite Consents referred to in Section 9.1(b), constitute or result in a
Default under, or require any Consent pursuant to, any Law or Order applicable
to any Vaxcel
 
                                      A-21
<PAGE>   206
 
Company or any of their respective material Assets (including any Vaxcel Company
or any Zynaxis Company becoming subject to or liable for the payment of any Tax
or any of the Assets owned by any Vaxcel Company or any Zynaxis Company being
reassessed or revalued by any Taxing authority).
 
     (c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NASD, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
no notice to, filing with, or Consent of, any public body or authority is
necessary for the execution, delivery and performance by CytRx, Vaxcel and
Vaxcel Merger Sub of their obligations under this Agreement.
 
     6.3 Capital Stock.
 
     (a) The authorized capital stock of Vaxcel consists of (i) 30,000,000
shares of Vaxcel Common Stock, of which 8,250,004 are issued and outstanding,
and (ii) 2,000,000 shares of Vaxcel Preferred Stock, none of which are issued
and outstanding. All of the issued and outstanding shares of Vaxcel Capital
Stock are, and all of the shares of Vaxcel Common Stock to be issued in exchange
for shares of Zynaxis Common Stock upon consummation of the Merger, when issued
in accordance with the terms of this Agreement, will be, duly and validly issued
and outstanding and fully paid and nonassessable under the DGCL. None of the
outstanding shares of Vaxcel Capital Stock has been, and none of the shares of
Vaxcel Common Stock to be issued in exchange for shares of Zynaxis Common Stock
upon consummation of the Merger will be, issued in violation of any preemptive
rights of the current or past stockholders of Vaxcel.
 
     (b) The authorized capital stock of Vaxcel Merger Sub consists of (i) 1,000
shares of Common Stock, of which 500 shares are issued and outstanding as of the
date of this Agreement. All of the issued and outstanding shares of Vaxcel
Merger Sub Common Stock are duly and validly issued and fully paid and
nonassessable under the GBCC. None of the outstanding shares of Vaxcel Merger
Sub Common Stock has been issued in violation of any preemptive rights of the
current or past shareholders of Vaxcel Merger Sub.
 
     (c) Except as set forth in Sections 6.3(a) and 6.3(b), or as disclosed in
Section 6.3 of the Vaxcel Disclosure Memorandum, there are no shares of capital
stock or other equity securities of Vaxcel or Vaxcel Merger Sub outstanding and
no outstanding Equity Rights relating to Vaxcel or Vaxcel Merger Sub Capital
Stock.
 
     Vaxcel and Vaxcel Merger Sub hereby represent and warrant to Zynaxis as
follows:
 
     6.4 Vaxcel Subsidiaries.  Vaxcel has disclosed in Section 6.4 of the Vaxcel
Disclosure Memorandum all of the Vaxcel Subsidiaries as of the date of this
Agreement that are corporations (identifying its jurisdiction of incorporation,
each jurisdiction in which the character of its Assets or the nature or conduct
of its business requires it to be qualified and/or licensed to transact
business, and the number of shares owned and percentage ownership interest
represented by such share ownership) and all of the Vaxcel Subsidiaries that are
general or limited partnerships or other non-corporate entities (identifying the
Law under which such entity is organized, each jurisdiction in which the
character of its Assets or the nature or conduct of its business requires it to
be qualified and/or licensed to transact business, and the amount and nature of
the ownership interest therein). Except as disclosed in Section 6.4 of the
Vaxcel Disclosure Memorandum, Vaxcel or one of its Subsidiaries owns all of the
issued and outstanding shares of capital stock (or other equity interests) of
each Vaxcel Subsidiary. No capital stock (or other equity interest) of any
Vaxcel Subsidiary is or may become required to be issued (other than to another
Vaxcel Company) by reason of any Equity Rights, and there are no Contracts by
which any Vaxcel Subsidiary is bound to issue (other than to another Vaxcel
Company) additional shares of its capital stock (or other equity interests) or
Equity Rights or by which any Vaxcel Company is or may be bound to transfer any
shares of the capital stock (or other equity interests) of any Vaxcel Subsidiary
(other than to another Vaxcel Company). There are no Contracts relating to the
rights of any Vaxcel Company to vote or to dispose of any shares of the capital
stock (or other equity interests) of any Vaxcel Subsidiary. All of the shares of
capital stock (or other equity interests) of each Vaxcel Subsidiary held by a
Vaxcel Company are fully paid and nonassessable under the applicable corporation
Law of the jurisdiction in which such Subsidiary is incorporated or organized
and are owned by the Vaxcel Company free and clear of any Lien. Each Vaxcel
 
                                      A-22
<PAGE>   207
 
Subsidiary is duly organized, validly existing, and (as to corporations) in good
standing under the Laws of the jurisdiction in which it is incorporated or
organized, and has the power and authority necessary for it to own, lease and
operate its Assets and to carry on its business as now conducted. Each Vaxcel
Subsidiary is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Vaxcel. The minute book and other organizational documents for each
Vaxcel Subsidiary have been made available to Zynaxis for its review, and are
true and complete in all material respects as in effect as of the date of this
Agreement and accurately reflect in all material respects all amendments thereto
and all proceedings of the Board of Directors and shareholders thereof.
 
     6.5 Vaxcel Financial Statements.  The books and records of Vaxcel are
accurate and complete. The Vaxcel Financial Statements have been prepared from
such books and records and reflect, in all material respects and in reasonable
detail, the transactions and assets and liabilities of Vaxcel.
 
     6.6 Absence of Undisclosed Liabilities.  No Vaxcel Company has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Vaxcel, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of Vaxcel as of
December 31, 1995 and September 30, 1996, included in the Vaxcel Financial
Statements delivered prior to the date of this Agreement or reflected in the
notes thereto. No Vaxcel Company has incurred or paid any Liability since
September 30, 1996, except for such Liabilities incurred or paid (i) in the
ordinary course of business consistent with past business practice and which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Vaxcel or (ii) in connection with the transactions
contemplated by this Agreement. Except as disclosed in the Vaxcel Financial
Statements, no Vaxcel Company is directly or indirectly liable, by guarantee,
indemnity, or otherwise, upon or with respect to, or obligated, by discount or
repurchase agreement or in any other way, to provide funds in respect to, or
obligated to guarantee or assume any Liability of any Person for any amount in
excess of $10,000.
 
     6.7 Absence of Certain Changes or Events.  Since December 31, 1995, except
as disclosed in the Vaxcel Financial Statements delivered prior to the date of
this Agreement, (i) there have been no events, changes or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Vaxcel, and (ii) the Vaxcel Companies have not taken
any action, or failed to take any action, prior to the date of this Agreement,
which action or failure, if taken after the date of this Agreement, would
represent or result in a material breach or violation of any of the covenants
and agreements of Vaxcel provided in Article 7.
 
     6.8 Tax Matters.
 
     (a) All material Tax Returns required to be filed by or on behalf of any of
the Vaxcel Companies have been timely filed or requests for extensions have been
timely filed, granted, and have not expired for periods ended on or before
December 31, 1995, and on or before the date of the most recent fiscal year end
immediately preceding the Effective Time and all Tax Returns filed are complete
and accurate. All material Taxes shown on filed Tax Returns have been paid. As
of the date of this Agreement, there is no audit examination, deficiency, or
refund Litigation with respect to any Taxes except as reserved against in the
Vaxcel Financial Statements delivered prior to the date of this Agreement. All
Taxes and other Liabilities due with respect to completed and settled
examinations or concluded Litigation have been paid. There are no Liens with
respect to Taxes upon any of the Assets of the Vaxcel Companies, except for such
Liens which are not reasonably likely to have a Material Adverse Effect on
Vaxcel.
 
     (b) None of the Vaxcel Companies has executed an extension or waiver of any
statute of limitations on the assessment or collection of any Tax due (excluding
such statutes that relate to years currently under examination by the Internal
Revenue Service or other applicable taxing authorities) that is currently in
effect.
 
                                      A-23
<PAGE>   208
 
     (c) The provision for any Taxes due or to become due for any of the Vaxcel
Companies for the period or periods through and including the date of the
respective Vaxcel Financial Statements that has been made and is reflected on
such Vaxcel Financial Statements is sufficient to cover all such Taxes.
 
     (d) Deferred Taxes of the Vaxcel Companies have been provided for in
accordance with GAAP.
 
     (e) None of the Vaxcel Companies is a party to any Tax allocation or
sharing agreement and none of the Vaxcel Companies has been a member of an
affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which was Vaxcel) has any Liability for Taxes of any
Person (other than Vaxcel and its Subsidiaries) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local or foreign Law) as a
transferee or successor or by Contract or otherwise.
 
     (f) Each of the Vaxcel Companies is in compliance with, and its records
contain all information and documents (including properly completed IRS Forms
W-9) necessary to comply with, all applicable information reporting and Tax
withholding requirements under federal, state, and local Tax Laws, and such
records identify with specificity all accounts subject to backup withholding
under Section 3406 of the Internal Revenue Code.
 
     6.9 Assets.
 
     (a) Except as reserved against in the Vaxcel Financial Statements delivered
prior to the date of this Agreement, the Vaxcel Companies have good and
marketable title, free and clear of all Liens, to all of their respective
Assets, except for any such Liens or other defects of title which are not
reasonably likely to have a Material Adverse Effect on Vaxcel. All tangible
properties used in the businesses of the Vaxcel Companies are in good condition,
reasonable wear and tear excepted, and are usable in the ordinary course of
business consistent with Vaxcel's past practices of the Vaxcel Companies.
 
     (b) The Vaxcel Companies have no Inventory.
 
     (c) The accounts receivable of the Vaxcel Companies as set forth on the
most recent balance sheet included in the Vaxcel Financial Statements delivered
prior to the date of this Agreement or arising since the date thereof are valid
and genuine; have arisen solely out of bona fide sales and deliveries of goods,
performance of services and other business transactions in the ordinary course
of business consistent with past practice; are not subject to valid defenses,
set-offs or counterclaims; and are collectible within 90 days after billing at
the full recorded amount thereof less, in the case of accounts receivable
appearing on the most recent balance sheet included in the Vaxcel Financial
Statements delivered prior to the date of this Agreement, the recorded allowance
for collection losses on such balance sheet. The allowance for collection losses
on such balance sheet has been determined in accordance with GAAP.
 
     (d) All Assets which are material to Vaxcel's business on a consolidated
basis, held under leases or subleases by any of the Vaxcel Companies, are held
under valid Contracts enforceable in accordance with their respective terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other Laws affecting the enforcement of creditors'
rights generally and except that the availability of the equitable remedy of
specific performance or injunctive relief is subject to the discretion of the
court before which any proceedings may be brought), and each such Contract is in
full force and effect.
 
     (e) The Vaxcel Companies currently maintain insurance similar in amounts,
scope and coverage to that maintained by other peer companies. None of the
Vaxcel Companies has received notice from any insurance carrier that (i) such
insurance will be canceled or that coverage thereunder will be reduced or
eliminated, or (ii) premium costs with respect to such policies of insurance
will be substantially increased. There are presently no claims for amounts
exceeding in any individual case $5,000 pending under such policies of insurance
and no notices of claims in excess of such amount have been given by any Vaxcel
Company under such policies.
 
     (f) The Assets of the Vaxcel Companies include all Assets required to
operate the business of the Vaxcel Companies as presently conducted.
 
                                      A-24
<PAGE>   209
 
     6.10 Intellectual Property.  Each Vaxcel Company owns or has a license to
use all of the Intellectual Property used by such Vaxcel Company in the course
of its business. Each Vaxcel Company is the owner of or has a license to any
Intellectual Property sold or licensed to a third party by such Vaxcel Company
in connection with such Vaxcel Company's business operations, and such Vaxcel
Company has the right to convey by sale or license any Intellectual Property so
conveyed. No Vaxcel Company is in Default under any of its Intellectual Property
licenses. No proceedings have been instituted, or are pending or, to the
Knowledge of Vaxcel, threatened, which challenge the rights of any Vaxcel
Company with respect to Intellectual Property used, sold or licensed by such
Vaxcel Company in the course of its business, nor has any person claimed or
alleged any rights to such Intellectual Property. To the knowledge of Vaxcel and
Vaxcel Merger Sub, the conduct of the business of the Vaxcel Companies does not
infringe any Intellectual Property of any other person. Except as disclosed in
Section 6.10 of the Vaxcel Disclosure Memorandum, no Vaxcel Company is obligated
to pay any recurring royalties to any Person with respect to any such
Intellectual Property. Every officer, director, or employee of any Vaxcel
Company is a party to a Contract which requires such officer, director or
employee to assign any interest in any Intellectual Property to a Vaxcel Company
and to keep confidential any trade secrets, proprietary data, customer
information, or other business information of a Vaxcel Company, and to the
Knowledge of Vaxcel and Vaxcel Merger Sub, no such officer, director or employee
is party to any Contract with any Person other than a Vaxcel Company which
requires such officer, director or employee to assign any interest in any
Intellectual Property to any Person other than a Vaxcel Company or to keep
confidential any trade secrets, proprietary data, customer information, or other
business information of any Person other than a Vaxcel Company. To the Knowledge
of Vaxcel and Vaxcel Merger Sub, no officer, director or employee of any Vaxcel
Company is party to any Contract which restricts or prohibits such officer,
director or employee from engaging in activities competitive with any Person,
including any Vaxcel Company.
 
     6.11 Environmental Matters.
 
     (a) Each Vaxcel Company, its Participation Facilities, and its Operating
Properties are, and have been, in compliance with all Environmental Laws.
 
     (b) There is no Litigation pending or, to the Knowledge of Vaxcel and
Vaxcel Merger Sub, threatened before any court, governmental agency, or
authority or other forum in which any Vaxcel Company or any of its Operating
Properties or Participation Facilities (or Vaxcel in respect of such Operating
Property or Participation Facility) has been or, with respect to threatened
Litigation, may be named as a defendant (i) for alleged noncompliance (including
by any predecessor) with any Environmental Law or (ii) relating to the release,
discharge, spillage, or disposal into the environment of any Hazardous Material,
whether or not occurring at, on, under, adjacent to, or affecting (or
potentially affecting) a site owned, leased, or operated by any Vaxcel Company
or any of its Operating Properties or Participation Facilities nor is there any
reasonable basis for any Litigation of a type described in this sentence.
 
     (c) During the period of (i) any Vaxcel Company's ownership or operation of
any of their respective current properties, (ii) any Vaxcel Company's
participation in the management of any Participation Facility, or (iii) any
Vaxcel Company's holding of a security interest in a Operating Property, there
have been no releases, discharges, spillages, or disposals of Hazardous Material
in, on, under, adjacent to, or affecting (or potentially affecting) such
properties. Prior to the period of (i) any Vaxcel Company's ownership or
operation of any of their respective current properties, (ii) any Vaxcel
Company's participation in the management of any Participation Facility, or
(iii) any Vaxcel Company's holding of a security interest in a Operating
Property, to the Knowledge of Vaxcel, there were no releases, discharges,
spillages, or disposals of Hazardous Material in, on, under, or affecting any
such property, Participation Facility or Operating Property.
 
     6.12 Compliance with Laws.  Each Vaxcel Company has in effect all Permits
necessary for it to own, lease or operate its material Assets and to carry on
its business as now conducted, except for those Permits the absence of which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Vaxcel, and there has occurred no Default under any such
Permit, other than Defaults which are not
 
                                      A-25
<PAGE>   210
 
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Vaxcel. None of the Vaxcel Companies:
 
          (a) is in Default under its Certificate of Incorporation or Bylaws (or
     other governing instruments); or
 
          (b) is in Default under any Laws, Orders or Permits applicable to its
     business or employees conducting its business, except for Defaults which
     are not reasonably likely to have, individually or in the aggregate, a
     Material Adverse Effect on Vaxcel; or
 
          (c) since January 1, 1993, has received any notification or
     communication from any agency or department of federal, state, or local
     government or any Regulatory Authority or the staff thereof (i) asserting
     that any Vaxcel Company is not in compliance with any of the Laws or Orders
     which such governmental authority or Regulatory Authority enforces, where
     such noncompliance is reasonably likely to have, individually or in the
     aggregate, a Material Adverse Effect on Vaxcel, (ii) threatening to revoke
     any Permits, the revocation of which is reasonably likely to have,
     individually or in the aggregate, a Material Adverse Effect on Vaxcel, or
     (iii) requiring any Vaxcel Company to enter into or consent to the issuance
     of a cease and desist order, formal agreement, directive, commitment or
     memorandum of understanding, or to adopt any Board resolution or similar
     undertaking.
 
     6.13 Labor Relations.  No Vaxcel Company is the subject of any Litigation
asserting that it or any other Vaxcel Company has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state Law) or seeking to compel it or any other Vaxcel Company to bargain with
any labor organization as to wages or conditions of employment, nor is any
Vaxcel Company party to any collective bargaining agreement, nor is there any
strike or other labor dispute involving any Vaxcel Company, pending or
threatened, nor to the Knowledge of Vaxcel, is there any activity involving any
Vaxcel Company's employees seeking to certify a collective bargaining unit or
engaging in any other organization activity.
 
     6.14 Employee Benefit Plans.
 
     (a) Vaxcel has delivered or made available to Zynaxis prior to the
execution of this Agreement copies in each case of all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus, or other incentive plan, all other written
employee programs, arrangements, or agreements, all medical, vision, dental, or
other health plans, all life insurance plans, and all other employee benefit
plans or fringe benefit plans, including "employee benefit plans" as that term
is defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored
in whole or in part by, or contributed to by any Vaxcel Company or ERISA
Affiliate thereof for the benefit of employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries and under which
employees, retirees, dependents, spouses, directors, independent contractors, or
other beneficiaries are eligible to participate (collectively, the "Vaxcel
Benefit Plans"). Any of the Vaxcel Benefit Plans which is an "employee pension
benefit plan," as that term is defined in Section 3(2) of ERISA, is referred to
herein as a "Vaxcel ERISA Plan." Each Vaxcel ERISA Plan which is also a "defined
benefit plan" (as defined in Section 414(j) of the Internal Revenue Code) is
referred to herein as a "Vaxcel Pension Plan." No Vaxcel Pension Plan is or has
been a multiemployer plan within the meaning of Section 3(37) of ERISA.
 
     (b) All Vaxcel Benefit Plans are in compliance with the applicable terms of
ERISA, the Internal Revenue Code, and any other applicable Laws the breach or
violation of which are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Vaxcel. Each Vaxcel ERISA Plan which is
intended to be qualified under Section 401(a) of the Internal Revenue Code has
received a favorable determination letter from the Internal Revenue Service, and
Vaxcel is not aware of any circumstances likely to result in revocation of any
such favorable determination letter. To the Knowledge of Vaxcel, no Vaxcel
Company has engaged in a transaction with respect to any Vaxcel Benefit Plan
that, assuming the taxable period of such transaction expired as of the date
hereof, would subject any Vaxcel Company to a Tax imposed by either Section 4975
of the Internal Revenue Code or Section 502(i) of ERISA that, individually or in
the aggregate, is reasonably likely to have a Material Adverse Effect on Vaxcel.
 
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<PAGE>   211
 
     (c) No Vaxcel Pension Plan has any "unfunded current liability," as that
term is defined in Section 302(d)(8)(A) of ERISA, and the fair market value of
the assets of any such plan exceeds the plan's "benefit liabilities," as that
term is defined in Section 4001(a)(16) of ERISA when determined under actuarial
factors that would apply if the Vaxcel Pension Plan were terminated in
accordance with all applicable legal requirements. Since the date of the most
recent actuarial valuation, there has been (i) no material change in the
financial position of a Vaxcel Pension Plan, (ii) no change in the actuarial
assumptions with respect to any Vaxcel Pension Plan, and (iii) no increase in
benefits under any Vaxcel Pension Plan as a result of plan amendments or changes
in applicable Law which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Vaxcel or materially adversely affect
the funding status of any such plan. Neither any Vaxcel Pension Plan nor any
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any Vaxcel Company, or the single-employer
plan of any ERISA Affiliate has an "accumulated funding deficiency" within the
meaning of Section 412 of the Internal Revenue Code or Section 302 of ERISA. No
Vaxcel Company has provided, or is required to provide, security to a Vaxcel
Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to
Section 401(a)(29) of the Internal Revenue Code.
 
     (d) No Liability under Subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by any Vaxcel Company with respect to any ongoing,
frozen or terminated single-employer plan or the single-employer plan of any
ERISA Affiliate. No Vaxcel Company has incurred any withdrawal Liability with
respect to a multiemployer plan under Subtitle B of Title IV of ERISA
(regardless of whether based on contributions of an ERISA Affiliate). No notice
of a "reportable event," within the meaning of Section 4043 of ERISA for which
the 30-day reporting requirement has not been waived, has been required to be
filed for any Vaxcel Pension Plan or by any ERISA Affiliate within the 12-month
period ending on the date hereof.
 
     (e) No Vaxcel Company has any Liability for retiree health and life
benefits under any of the Vaxcel Benefit Plans and there are no restrictions on
the rights of such Vaxcel Company to amend or terminate any such retiree health
or benefit Plan without incurring any Liability thereunder.
 
     (f) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any director or any employee of any Vaxcel Company
from any Vaxcel Company under any Vaxcel Benefit Plan or otherwise, (ii)
increase any benefits otherwise payable under any Vaxcel Benefit Plan, or (iii)
result in any acceleration of the time of payment or vesting of any such
benefit.
 
     (g) The actuarial present values of all accrued deferred compensation
entitlements (including entitlements under any executive compensation,
supplemental retirement, or employment agreement) of employees and former
employees of any Vaxcel Company and their respective beneficiaries, other than
entitlements accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
have been fully reflected on the Vaxcel Financial Statements to the extent
required by and in accordance with GAAP.
 
     6.15 Material Contracts.  Except as disclosed in Section 6.15 of the Vaxcel
Disclosure Memorandum or otherwise reflected in the Vaxcel Financial Statements,
none of the Vaxcel Companies, nor any of their respective Assets, businesses, or
operations, is a party to, or is bound or affected by, or receives benefits
under, (i) any employment, severance, termination, consulting or retirement
Contract providing for aggregate payments to any Person in any calendar year in
excess of $10,000, (ii) any Contract relating to the borrowing of money by any
Vaxcel Company or the guarantee by any Vaxcel Company of any such obligation
(other than Contracts evidencing trade payables and Contracts relating to
borrowings or guarantees made in the ordinary course of business), (iii) any
Contract which prohibits or restricts any Vaxcel Company from engaging in any
business activities in any geographic area, line of business or otherwise in
competition with any other Person, (iv) any Contract between or among Vaxcel
Companies, (v) any Contract involving Intellectual Property (other than
Contracts entered into in the ordinary course with customers and "shrink-wrap"
software licenses), (vi) any Contract relating to the provision of data
processing, network communication, or other technical services to or by any
Vaxcel Company, and (vii) any Contract relating to the purchase
 
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or sale of any goods or services (other than Contracts entered into in the
ordinary course of business and involving payments under any individual Contract
not in excess of $20,000) (together with all Contracts referred to in Sections
6.9 and 6.14(a), the "Vaxcel Contracts"). With respect to each Vaxcel Contract:
(i) the Contract is in full force and effect; (ii) no Vaxcel Company is in
Default thereunder; (iii) no Vaxcel Company has repudiated or waived any
material provision of any such Contract; and (iv) no other party to any such
Contract is, to the Knowledge of Vaxcel, in Default in any respect or has
repudiated or waived any material provision thereunder. All of the indebtedness
of any Vaxcel Company for money borrowed is prepayable at any time by such
Vaxcel Company without penalty or premium.
 
     6.16 Legal Proceedings.  There is no Litigation instituted or pending, or,
to the Knowledge of Vaxcel, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against any Vaxcel Company, or against any director,
employee or employee benefit plan of any Vaxcel Company, or against any Asset,
interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Vaxcel, nor are
there any Orders of any Regulatory Authorities, other governmental authorities,
or arbitrators outstanding against any Vaxcel Company, that are reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Vaxcel.
 
     6.17 Reports.  Since January 1, 1993, or the date of organization if later,
each Vaxcel Company has timely filed all reports and statements, together with
any amendments required to be made with respect thereto, that it was required to
file with Regulatory Authorities (except, in the case of state securities
authorities, failures to file which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Vaxcel). As of
their respective dates, each of such reports and documents, including the
financial statements, exhibits, and schedules thereto, complied in all material
respects with all applicable Laws. As of its respective date, each such report
and document did not, in all material respects, contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
 
     6.18 Statements True and Correct.  No statement, certificate, instrument or
other writing furnished or to be furnished by any Vaxcel Company or any officer,
director, employee or Subsidiary thereof to Zynaxis pursuant to this Agreement
or any other document, agreement or instrument referred to herein contains or
will contain any untrue statement of material fact or will omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by any Vaxcel Company or any officer,
director, employee or Subsidiary thereof for inclusion in the Registration
Statement to be filed by Vaxcel with the SEC, will, when the Registration
Statement becomes effective, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein not misleading. None of the information supplied or to be supplied by
any Vaxcel Company or any officer, director, employee or Subsidiary thereof for
inclusion in the Proxy Statement to be mailed to Zynaxis's shareholders in
connection with the Shareholders' Meeting, and any other documents to be filed
by any Vaxcel Company or any officer, director, employee or Subsidiary thereof
with any Regulatory Authority in connection with the transactions contemplated
hereby, will, at the respective time such documents are filed, and with respect
to the Proxy Statement, when first mailed to the shareholders of Zynaxis, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or, in the case of the
Proxy Statement or any amendment thereof or supplement thereto, at the time of
the Shareholders' Meeting, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to correct any statement in
any earlier communication with respect to the solicitation of any proxy for the
Shareholders' Meeting. All documents that any Vaxcel Company or any officer,
director, employee or Subsidiary thereof is responsible for filing with any
Regulatory Authority in connection with the transactions contemplated hereby
will comply as to form in all material respects with the provisions of
applicable Law.
 
     6.19 Regulatory Matters.  Neither CytRx nor any Vaxcel Company or any
officer, director, employee or Subsidiary thereof has taken or agreed to take
any action or has any Knowledge of any fact or circumstance that is reasonably
likely to materially impede or delay receipt of any Consents of Regulatory
Authorities referred to in Section 9.1(b) or result in the imposition of a
condition or restriction of the type referred to in the last sentence of such
Section.
 
                                      A-28
<PAGE>   213
 
                                   ARTICLE 7
 
                    CONDUCT OF BUSINESS PENDING CONSUMMATION
 
     7.1 Affirmative Covenants of Zynaxis.  From the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement,
unless the prior written consent of Vaxcel shall have been obtained, and except
as otherwise expressly contemplated by the Transaction Documents or disclosed in
the Zynaxis Disclosure Memorandum, Zynaxis shall and shall cause each of its
Subsidiaries to (a) operate its business only in the usual, regular, and
ordinary course, (b) preserve intact its business organization and Assets and
maintain its rights and franchises, and (c) take no action which would (i)
materially adversely affect the ability of any Party to obtain any Consents
required for the transactions contemplated hereby without imposition of a
condition or restriction of the type referred to in the last sentences of
Section 9.1(b) or 9.1(c), or (ii) materially adversely affect the ability of any
Party to perform its covenants and agreements under this Agreement.
 
     7.2 Negative Covenants of Zynaxis.  From the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement, unless
the prior written consent of Vaxcel shall have been obtained, and except as
otherwise expressly contemplated by the Transaction Documents or disclosed in
the Zynaxis Disclosure Memorandum, Zynaxis covenants and agrees that it will not
do or agree or commit to do, or permit any of its Subsidiaries to do or agree or
commit to do, any of the following:
 
          (a) amend the Articles of Incorporation, as amended, Bylaws, or other
     governing instruments of any Zynaxis Company; or
 
          (b) incur any additional debt obligation or other obligation for
     borrowed money except in the ordinary course of the business of the Zynaxis
     Companies consistent with past practices, or impose, or suffer the
     imposition, on any Asset of any Zynaxis Company of any Lien or permit any
     such Lien to exist; or
 
          (c) repurchase, redeem, or otherwise acquire or exchange (other than
     exchanges in the ordinary course under employee benefit plans), directly or
     indirectly, any shares, or any securities convertible into any shares, of
     the capital stock of any Zynaxis Company, or declare or pay any dividend or
     make any other distribution in respect of Zynaxis's capital stock; or
 
          (d) except as pursuant to the conversion of Zynaxis Preferred Stock or
     the exercise of stock options or warrants listed in Section 5.3 of the
     Zynaxis Disclosure Memorandum, issue, sell, pledge, encumber, authorize the
     issuance of, enter into any Contract to issue, sell, pledge, encumber, or
     authorize the issuance of, or otherwise permit to become outstanding, any
     additional shares of capital stock of any Zynaxis Company, or any stock
     appreciation rights, or any option, warrant, or other Equity Right; or
 
          (e) adjust, split, combine or reclassify any capital stock of any
     Zynaxis Company or issue or authorize the issuance of any other securities
     in respect of or in substitution for shares of Zynaxis Capital Stock, or
     sell, lease, mortgage or otherwise dispose of or otherwise encumber any
     shares of capital stock of any Zynaxis Subsidiary (unless any such shares
     of stock are sold or otherwise transferred to another Zynaxis Company); or
 
          (f) sell, lease, mortgage or otherwise dispose of or otherwise
     encumber any Asset other than in the ordinary course of business for
     reasonable and adequate consideration; or
 
          (g) except for purchases of U.S. Treasury securities or U.S.
     Government agency securities, which in either case have maturities of three
     years or less, purchase any securities or make any material investment,
     either by purchase of stock or securities, contributions to capital, Asset
     transfers, or purchase of any Assets, in any Person other than a wholly
     owned Zynaxis Subsidiary, or otherwise acquire direct or indirect control
     over any Person, other than in connection with foreclosures in the ordinary
     course of business; or
 
          (h) grant any increase in compensation or benefits to the employees or
     officers of any Zynaxis Company, except in accordance with past practice
     disclosed in Section 7.2(h) of the Zynaxis Disclosure
 
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<PAGE>   214
 
     Memorandum or as required by Law; pay any severance or termination pay or
     any bonus other than pursuant to written policies or Contracts in effect on
     the date of this Agreement and disclosed in Section 7.2(h) of the Zynaxis
     Disclosure Memorandum or as required by Law; and enter into or amend any
     severance agreements with officers of any Zynaxis Company; grant any
     material increase in fees or other increases in compensation or other
     benefits to directors of any Zynaxis Company except in accordance with past
     practice disclosed in Section 7.2(h) of the Zynaxis Disclosure Memorandum;
     or
 
          (i) enter into or amend any employment Contract between any Zynaxis
     Company and any Person (unless such amendment is required by Law) that the
     Zynaxis Company does not have the unconditional right to terminate without
     Liability (other than Liability for services already rendered), at any time
     on or after the Closing; or
 
          (j) adopt any new employee benefit plan of any Zynaxis Company or
     terminate or withdraw from, or make any material change in or to, any
     existing employee benefit plans of any Zynaxis Company other than any such
     change that is required by Law or that, in the opinion of counsel, is
     necessary or advisable to maintain the tax qualified status of any such
     plan, or make any distributions from such employee benefit plans, except as
     required by Law, the terms of such plans or consistent with past practice;
     or
 
          (k) make any significant change in any Tax or accounting methods or
     systems of internal accounting controls, except as may be appropriate to
     conform to changes in Tax Laws or regulatory accounting requirements or
     GAAP; or
 
          (l) commence any Litigation other than in accordance with past
     practice, settle any Litigation involving any Liability of any Zynaxis
     Company for material money damages or restrictions upon the operations of
     any Zynaxis Company; or
 
          (m) enter into, modify, amend or terminate any material Contract
     (including any loan Contract with an unpaid balance exceeding $10,000) or
     waive, release, compromise or assign any material rights or claims.
 
     7.3 Covenants of Vaxcel.  From the date of this Agreement until the earlier
of the Effective Time or the termination of this Agreement, unless the prior
written consent of Zynaxis shall have been obtained, and except as otherwise
expressly contemplated herein, Vaxcel covenants and agrees that it shall (a)
continue to conduct its business and the business of its Subsidiaries in a
manner designed, in its reasonable judgment, to enhance the long-term value of
the Vaxcel Common Stock and the business prospects of the Vaxcel Companies and
to the extent consistent therewith use all reasonable efforts to preserve intact
the Vaxcel Companies' core businesses and goodwill with their respective
employees and the communities they serve, and (b) take no action which would (i)
materially adversely affect the ability of any Party to obtain any Consents
required for the transactions contemplated hereby without imposition of a
condition or restriction of the type referred to in the last sentences of
Section 9.1(b) or 9.1(c), or (ii) materially adversely affect the ability of any
Party to perform its covenants and agreements under this Agreement; provided,
that the foregoing shall not prevent any Vaxcel Company from acquiring any
Assets or other businesses or from discontinuing or disposing of any of its
Assets or business if such action is, in the reasonable judgment of Vaxcel,
desirable in the conduct of the business of Vaxcel and its Subsidiaries,
provided that such actions shall not materially delay the Effective Time or
materially hinder consummation of the Merger. Vaxcel further covenants and
agrees that it will not, without the prior written consent of Zynaxis, which
consent shall not be unreasonably withheld, amend the Certificate of
Incorporation or Bylaws of Vaxcel or, except as expressly contemplated by this
Agreement or the Transaction Documents, in any manner adverse to the holders of
Zynaxis Capital Stock as compared to rights of holders of Vaxcel Common Stock
generally as of the date of this Agreement.
 
     7.4 Adverse Changes in Condition.  Each Party agrees to give written notice
promptly to the other Party upon becoming aware of the occurrence or impending
occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it or (ii) would cause or constitute a
material breach of any of its representations, warranties, or covenants
contained herein, and to use its reasonable efforts to prevent or promptly to
remedy the same.
 
                                      A-30
<PAGE>   215
 
     7.5 Reports.  Each Party and its Subsidiaries shall file all reports
required to be filed by it with Regulatory Authorities between the date of this
Agreement and the Effective Time and shall deliver to the other Party copies of
all such reports promptly after the same are filed. If financial statements are
contained in any such reports filed with the SEC, such financial statements will
fairly present the consolidated financial position of the entity filing such
statements as of the dates indicated and the consolidated results of operations,
changes in shareholders' equity, and cash flows for the periods then ended in
accordance with GAAP (subject in the case of interim financial statements to
normal recurring year-end adjustments that are not material). As of their
respective dates, such reports filed with the SEC will comply in all material
respects with the Securities Laws and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Any financial statements contained
in any other reports to another Regulatory Authority shall be prepared in
accordance with Laws applicable to such reports.
 
                                   ARTICLE 8
 
                             ADDITIONAL AGREEMENTS
 
     8.1 Registration Statement; Proxy Statement; Shareholder Approval.
 
     (a) As soon as practicable after the date hereof Vaxcel shall prepare and
file the Registration Statement with the SEC to register the issuance of the
Merger Shares and to register for resale by the holders thereof the Affiliate
Shares, the Lock-Up Shares and the Warrant Shares (collectively, the "Resale
Shares"), and shall use its reasonable efforts to cause the Registration
Statement to become effective under the 1933 Act and take any action required to
be taken under the applicable state Blue Sky or securities Laws in connection
with the issuance of the Merger Shares and the resale of the Resale Shares upon
consummation of the transactions contemplated by the Transaction Documents.
Zynaxis shall cooperate in the preparation and filing of the Registration
Statement and shall furnish all information concerning it and the holders of
Zynaxis Capital Stock and Equity Rights of Zynaxis as Vaxcel may reasonably
request in connection with such action. Zynaxis shall call a Shareholders'
Meeting, to be held as soon as reasonably practicable after the Registration
Statement is declared effective by the SEC, for the purpose of voting upon
adoption of this Agreement and such other related matters as it deems
appropriate. In connection with the Shareholders' Meeting, (i) Zynaxis and
Vaxcel shall prepare and file with the SEC a Proxy Statement and mail such Proxy
Statement to the shareholders of Zynaxis, (ii) the Parties shall furnish to each
other all information concerning them that they may reasonably request in
connection with such Proxy Statement, (iii) the Board of Directors of Zynaxis
shall recommend to its shareholders the approval of the matters submitted for
approval (subject to the Board of Directors of Zynaxis, after having consulted
with and considered the advice of outside counsel, reasonably determining in
good faith that the making of such recommendation, or the failure to withdraw or
modify its recommendation, would constitute a breach of fiduciary duties of the
members of such Board of Directors to Zynaxis's shareholders under applicable
Law), and (iv) the Board of Directors and officers of Zynaxis shall use their
reasonable efforts to obtain such shareholders' approval (subject to the Board
of Directors of Zynaxis after having consulted with and considered the advice of
outside counsel, reasonably determining in good faith that the taking of such
actions would constitute a breach of fiduciary duties of the members of such
Board of Directors to Zynaxis's shareholders under applicable Law). Vaxcel and
Zynaxis shall make all necessary filings with respect to the Merger under the
Securities Laws.
 
     (b) Vaxcel shall use its best efforts to maintain the effectiveness of the
Registration Statement until the earlier of (i) the date on which the Resale
Shares may be sold without restriction under the 1933 Act or (ii) the fifth
anniversary of the Closing Date subject to such periods of time when Vaxcel must
suspend the use of the prospectus forming a part of the Registration Statement
until such time as an amendment is filed and declared effective or an
appropriate report is filed by Vaxcel with the SEC.
 
     8.2 Applications.  The Parties shall promptly prepare and file, and each of
the Parties shall cooperate with each of the other Parties in the preparation
and, where appropriate, filing of, applications with all Regulatory Authorities
having jurisdiction over the transactions contemplated by this Agreement seeking
the requisite Consents necessary to consummate the transactions contemplated by
this Agreement. The Parties
 
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<PAGE>   216
 
shall deliver to each other copies of all filings, correspondence and orders to
and from all Regulatory Authorities in connection with the transactions
contemplated hereby.
 
     8.3 Filings with State Offices.  Upon the terms and subject to the
conditions of this Agreement, Zynaxis and Vaxcel Merger Sub shall execute and
file the Articles of Merger in the Department of State of the Commonwealth of
Pennsylvania and the Certificate of Merger with the Secretary of State of the
State of Georgia in connection with the Merger.
 
     8.4 Agreement as to Efforts to Consummate.  Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the transactions
contemplated by this Agreement, including using its reasonable efforts to lift
or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article 9; provided, that nothing herein shall preclude either
Party from exercising its rights under this Agreement. Each Party shall use, and
shall cause each of its Subsidiaries to use, its reasonable efforts to obtain
all Consents necessary or desirable for the consummation of the transactions
contemplated by this Agreement.
 
     8.5 Investigation and Confidentiality.
 
     (a) Prior to the Effective Time, each Party shall keep the other Parties
advised of all material developments relevant to its business and the
consummation of the Merger and shall permit the other Parties to make or cause
to be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the other
Party reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. No investigation by a Party shall affect
the representations and warranties of the other Party.
 
     (b) In addition to the Parties' respective obligations under the
Confidentiality Agreement, which is hereby reaffirmed and adopted, and
incorporated by reference herein each Party shall, and shall cause its advisers
and agents to, maintain the confidentiality of all confidential information
furnished to it by the other Party concerning its and its Subsidiaries'
businesses, operations, and financial positions and shall not use such
information for any purpose except in furtherance of the transactions
contemplated by this Agreement. If this Agreement is terminated prior to the
Effective Time, each Party shall promptly return or certify the destruction of
all documents and copies thereof, and all work papers containing confidential
information received from the other Party.
 
     (c) Each Party agrees to give the other Party notice as soon as practicable
after any determination by it of any fact or occurrence relating to the other
Party which it has discovered through the course of its investigation and which
represents, or is reasonably likely to represent, either a material breach of
any representation, warranty, covenant or agreement of the other Party or which
has had or is reasonably likely to have a Material Adverse Effect on the other
Party.
 
     8.6 Press Releases.  Prior to the Effective Time, each of the Parties shall
consult with the other Parties as to the form and substance of any press release
or other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, that nothing in this Section 8.6
shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by Law.
 
     8.7 Certain Actions.  Except with respect to the Transaction Documents, no
Zynaxis Company nor any officer, director, employee or Subsidiary thereof nor
any Representatives thereof retained by any Zynaxis Company shall directly or
indirectly solicit any Acquisition Proposal by any Person. Except to the extent
the Board of Directors of Zynaxis, after having consulted with and considered
the advice of outside counsel, reasonably determines in good faith that the
failure to take such actions would constitute a breach of fiduciary duties of
the members of such Board of Directors to Zynaxis's shareholders under
applicable Law, no Zynaxis Company or any officer, director, employee or
Subsidiary or Representative thereof shall furnish any non-
 
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<PAGE>   217
 
public information that it is not legally obligated to furnish, negotiate with
respect to, or enter into any Contract with respect to, any Acquisition
Proposal, but Zynaxis may communicate information about such an Acquisition
Proposal to its shareholders if and to the extent that it is required to do so
in order to comply with its legal obligations as advised by outside counsel.
Zynaxis shall promptly advise Vaxcel following the receipt of any Acquisition
Proposal and the details thereof, and advise Vaxcel of any developments with
respect to such Acquisition Proposal promptly upon the occurrence thereof.
Zynaxis shall (i) immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any Persons conducted heretofore
with respect to any of the foregoing, and (ii) direct and use its reasonable
efforts to cause all of its officer, director, employee or Subsidiaries and
Representatives not to engage in any of the foregoing.
 
     8.8 State Antitakeover Laws.  Each Zynaxis Company shall exerts its best
efforts to take all necessary and reasonably possible steps to assure that the
entering into of the Transaction Documents will not and, upon performance of the
covenants set forth in the Transaction Documents, no facet of the consummation
of the transactions contemplated by the Transaction Documents will:
 
          (a) be prohibited by any provision of the PBCL, including Chapter 25
     of the PBCL (the "Antitakeover Laws");
 
          (b) cause any shareholder of Zynaxis to exercise any right or remedy
     under the Antitakeover Laws;
 
          (c) cause the rights of CytRx to vote the shares of Vaxcel Common
     Stock issued pursuant to this Agreement or to exercise its rights as a
     shareholder of Vaxcel with respect to such shares to be impaired by action
     of any provision of the Antitakeover Laws or otherwise;
 
          (d) cause CytRx to be subject to any Liability, including any
     obligation or potential obligation to pay money or disgorge profits (other
     than an obligation to make payments pursuant to Subchapter E of the
     Antitakeover Laws), under the provisions of the Antitakeover Laws; or
 
          (e) cause the termination, impairment, modification, or extension of
     any Contract to which Zynaxis is a party by action of the provisions of the
     Antitakeover Laws.
 
     8.9 Charter Provisions.  Each Zynaxis Company shall take all necessary
action to ensure that the entering into of this Agreement and the consummation
of the Merger and the other transactions contemplated by the Transaction
Documents do not and will not result in the grant of any rights to any Person
under the Articles of Incorporation, as amended, Bylaws or other governing
instruments of any Zynaxis Company, except such rights as exist on the date
hereof, or restrict or impair the ability of Vaxcel or any of its Subsidiaries
to vote, or otherwise to exercise the rights of a shareholder with respect to,
shares of any Zynaxis Company that may be directly or indirectly acquired or
controlled by them.
 
     8.10 Cure of Defaults.  Zynaxis shall use proceeds from its initial loan
under the Senior Credit Facility to cure all Defaults under the Secretech
License Agreement and the Malvern Lease by 5:00 p.m. on the earlier of: (i)
November 27, 1996 or (ii) the fifth (5th) business day after Zynaxis first
receives money from CytRx pursuant to the Senior Credit Facility, and after such
cure shall not Default under the Secretech License Agreement.
 
     8.11 Negotiation of Malvern Lease Amendment.  Zynaxis shall negotiate in
good faith to obtain an amendment to the Malvern Lease and releases from the
Adolor Sublease that are reasonably satisfactory to CytRx.
 
     8.12 Nasdaq Listing.  Vaxcel shall use its reasonable efforts to list,
prior to the Effective Time, on the Nasdaq SmallCap Market, the shares of Vaxcel
Common Stock to be issued pursuant to this Agreement and upon exercise of
outstanding warrants and options to purchase shares of Zynaxis Common Stock that
are assumed by Vaxcel in the Merger, and Vaxcel shall give all notices and make
all required filings with the NASD in connection with the transactions
contemplated herein.
 
     8.13 Agreements of Affiliates.  Zynaxis has disclosed in Section 8.13 of
the Zynaxis Disclosure Memorandum all Persons whom it reasonably believes is an
"affiliate" of Zynaxis for purposes of Rule 145 under the 1933 Act. Zynaxis
shall use its reasonable efforts to cause each such Person to deliver to Vaxcel
not
 
                                      A-33
<PAGE>   218
 
later than 30 days after the date of this Agreement, a written agreement,
substantially in the form of Exhibit 2, providing that such Person will not
sell, pledge, transfer, or otherwise dispose of the shares of Zynaxis Capital
Stock held by such Person except as contemplated by such agreement or by this
Agreement and will not sell, pledge, transfer, or otherwise dispose of the
shares of Vaxcel Common Stock to be received by such Person upon consummation of
the Merger except in compliance with applicable provisions of the 1933 Act and
the rules and regulations thereunder.
 
     8.14 Use of Proceeds of Senior Credit Facility.  Zynaxis shall use proceeds
of loans made under the Senior Credit Facility only in accordance with the
Secured Loan Agreement.
 
     8.15 Registration Rights Agreement.  At the Closing CytRx and Vaxcel shall
enter into the Registration Rights Agreement.
 
                                   ARTICLE 9
 
               CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
 
     9.1 Conditions to Obligations of Each Party.  The respective obligations of
each Party to perform this Agreement and consummate the Merger and the other
transactions contemplated by the Transaction Documents are subject to the
satisfaction of the following conditions, unless waived by both Parties pursuant
to Section 11.6:
 
          (a) Shareholder Approval.  The holders of Zynaxis Common Stock voting
     together with holders of Zynaxis Preferred Stock (on an as-converted basis)
     and the holders of Zynaxis Preferred Stock voting as a separate class of
     Zynaxis shall have approved (i) the Charter Amendments, (ii) this Agreement
     and the consummation of the transactions contemplated hereby, including the
     Merger, as and to the extent required by Law, by the provisions of any
     governing instruments or by the rules of the NASD, (iii) the sale of
     substantially all of the Assets of Zynaxis as contemplated in the
     Liquidation Agreement as and to the extent required by Law, the provisions
     of any governing instruments, or by the rules of the NASD, and (iv) such
     other related matters deemed necessary by the Parties to assure that the
     transactions contemplated by the Transaction Documents are permitted under
     the Law as and to the extent required by Law, by the provisions of any
     governing instruments, or by the rules of the NASD.
 
          (b) Regulatory Approvals.  All Consents of, filings and registrations
     with, and notifications to, all Regulatory Authorities required for
     consummation of the Merger shall have been obtained or made and shall be in
     full force and effect and all waiting periods required by Law shall have
     expired. No Consent obtained from any Regulatory Authority which is
     necessary to consummate the transactions contemplated hereby shall be
     conditioned or restricted in a manner (including requirements relating to
     the raising of additional capital or the disposition of Assets) which in
     the reasonable judgment of the Boards of Directors of either CytRx or
     Vaxcel would so materially adversely impact the economic or business
     benefits of the transactions contemplated by this Agreement that, had such
     condition or requirement been known, such Party would not, in its
     reasonable judgment, have entered into this Agreement.
 
          (c) Consents and Approvals.  Each Party shall have obtained any and
     all Consents required for consummation of the Merger (other than those
     referred to in Section 9.1(b)) or for the preventing of any Default under
     any Contract or Permit of such Party which, if not obtained or made, is
     reasonably likely to have, individually or in the aggregate, a Material
     Adverse Effect on such Party. No Consent so obtained which is necessary to
     consummate the transactions contemplated hereby shall be conditioned or
     restricted in a manner which in the reasonable judgment of the Boards of
     Directors of either CytRx or Vaxcel would so materially adversely impact
     the economic or business benefits of the transactions contemplated by this
     Agreement that, had such condition or requirement been known, such Party
     would not, in its reasonable judgment, have entered into this Agreement.
 
          (d) Legal Proceedings.  No court or governmental or regulatory
     authority of competent jurisdiction shall have enacted, issued,
     promulgated, enforced or entered any Law or Order (whether temporary,
 
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     preliminary or permanent) or taken any other action which prohibits,
     restricts or makes illegal consummation of the transactions contemplated by
     this Agreement.
 
          (e) Registration Statement.  The Registration Statement shall be
     effective under the 1933 Act, no stop orders suspending the effectiveness
     of the Registration Statement shall have been issued, no action, suit,
     proceeding or investigation by the SEC to suspend the effectiveness thereof
     shall have been initiated and be continuing, and all necessary approvals
     under state securities Laws or the 1933 Act or 1934 Act relating to the
     issuance or trading of the shares of Vaxcel Common Stock issuable pursuant
     to the transaction contemplated by this Agreement shall have been received.
 
          (f) Exchange Listing.  The shares of Vaxcel Common Stock issuable
     pursuant to the Merger shall have been approved for listing on the Nasdaq
     SmallCap Market.
 
          (g) Tax Matters.  Each Party shall have received a written opinion of
     counsel from Alston & Bird, in form reasonably satisfactory to such Parties
     (the "Tax Opinion"), to the effect that for federal income tax purposes the
     Contributions in exchange for Vaxcel Common Stock will constitute a
     transaction described in Section 351 of the Internal Revenue Code. In
     rendering such Tax Opinion, such counsel shall be entitled to rely upon
     representations of CytRx, Vaxcel, and Zynaxis reasonably satisfactory in
     form and substance to such counsel.
 
          (h) Antitakeover Laws.  No facet of the consummation of the
     transactions contemplated by the Transaction Documents shall have been
     found to:
 
             (i) be prohibited by any provision of the PBCL, including the
        Antitakeover Laws;
 
             (ii) cause the rights of CytRx to vote the shares of Vaxcel Common
        Stock issued pursuant to this Agreement or to exercise its rights as a
        shareholder of Vaxcel with respect to such shares to be impaired by
        action of any provision of the Antitakeover Laws or otherwise;
 
             (iii) cause CytRx to be subject to any Liability, including any
        obligation or potential obligation to pay money or disgorge profits
        (other than an obligation to make payments pursuant to Subchapter E of
        the Antitakeover Laws), under the provisions of the Antitakeover Laws;
 
             (iv) cause the termination, impairment, modification or extension
        of any Contract to which Zynaxis is a party by action of the provisions
        of the Antitakeover Laws; or
 
             (v) except as set forth in Section 8.9 of the Zynaxis Disclosure
        Memorandum, result in the grant of any rights to any Person under the
        Articles of Incorporation, Bylaws, or other governing instruments of any
        Zynaxis Company.
 
     9.2 Conditions to Obligations of CytRx, Vaxcel and Vaxcel Merger Sub.  The
obligations of CytRx, Vaxcel and Vaxcel Merger Sub to perform this Agreement and
consummate the Merger and the other transactions contemplated hereby are subject
to the satisfaction of the following conditions, unless waived by CytRx, Vaxcel
and Vaxcel Merger Sub pursuant to Section 11.6(a):
 
          (a) Representations and Warranties.  For purposes of this Section
     9.2(a), the accuracy of the representations and warranties of Zynaxis set
     forth in this Agreement shall be assessed as of the date of this Agreement
     and as of the Effective Time with the same effect as though all such
     representations and warranties had been made on and as of the Effective
     Time (provided that representations and warranties which are confined to a
     specified date shall speak only as of such date). The representations and
     warranties made in Sections 5.18 and 5.19 with respect to officers,
     directors, employees and Subsidiaries of Zynaxis shall be true and correct
     with respect to all Affiliates of Zynaxis. The representations and
     warranties set forth in Section 5.3 shall be true and correct (except for
     inaccuracies which are de minimus in amount). The representations and
     warranties set forth in Sections 5.19 and 5.20 shall be true and correct in
     all material respects. There shall not exist inaccuracies in the
     representations and warranties of Zynaxis set forth in this Agreement
     (including the representations and warranties set forth in Sections 5.3,
     5.19 and 5.20) such that the aggregate effect of such inaccuracies has, or
     is reasonably likely to have, a Material Adverse Effect on Zynaxis;
     provided that, for purposes of this sentence only,
 
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<PAGE>   220
 
     those representations and warranties which are qualified by references to
     "material" or "Material Adverse Effect" or to the "Knowledge" of any Person
     shall be deemed not to include such qualifications.
 
          (b) Performance of Agreements and Covenants.  Each and all of the
     agreements and covenants of Zynaxis to be performed and complied with
     pursuant to, the Transaction Documents prior to the Effective Time shall
     have been duly performed and complied with in all material respects.
 
          (c) Certificates.  Zynaxis shall have delivered to Vaxcel (i) a
     certificate, dated as of the Effective Time and signed on its behalf by its
     chief executive officer, to the effect that the conditions set forth in
     Section 9.1 as relates to Zynaxis and in Section 9.2(a) and 9.2(b) have
     been satisfied, and (ii) certified copies of resolutions duly adopted by
     Zynaxis's Board of Directors and shareholders evidencing the taking of all
     corporate action necessary to authorize the execution, delivery and
     performance of this Agreement, and the consummation of the transactions
     contemplated hereby, all in such reasonable detail as Vaxcel and its
     counsel shall request.
 
          (d) Opinion of Counsel.  CytRx and Vaxcel shall have received an
     opinion of Morgan, Lewis & Bockius LLP, counsel to Zynaxis, dated as of the
     Closing, in form reasonably satisfactory to Vaxcel, as to the matters set
     forth in Exhibit 3.
 
          (e) Affiliates Agreements.  Vaxcel shall have received from each
     affiliate of Zynaxis the affiliates letter referred to in Section 8.13.
 
          (f) Execution of Agreements.  The Transaction Documents shall have
     been executed and delivered by each of the intended Parties thereto and no
     Party shall be in Default thereunder.
 
          (g) Execution of Malvern Lease Amendment.  Zynaxis shall have entered
     into an amendment to the Malvern Lease that is reasonably satisfactory to
     CytRx, Vaxcel and Vaxcel Merger Sub.
 
          (h) Releases from Adolor Lease.  Zynaxis shall have obtained releases
     from liability under the Adolor Sublease that are satisfactory to CytRx,
     Vaxcel and Vaxcel Merger Sub.
 
          (i) Board Resolutions Regarding Zynaxis Options.  The Board of
     Directors of Zynaxis and all relevant committees thereof shall have adopted
     resolutions that in the judgment of CytRx and its counsel are sufficient to
     prevent immediate vesting of outstanding Zynaxis Options, to approve the
     treatment of outstanding Zynaxis Options in the Merger and to find the
     options to be received "comparable" to currently outstanding Zynaxis
     Options within the meaning of the Zynaxis Stock Plan.
 
          (j) Dissenters.  The holders of shares of Zynaxis Capital Stock having
     the right to vote no more than ten percent (10%) of the votes that could be
     cast by all holders of Zynaxis Capital Stock voting together as a single
     class shall have elected to exercise their statutory dissenters' rights or
     their objection rights, if any, under Section 2545 of the PBCL.
 
          (k) Execution of Preferred Stock and Warrant Agreement.  Every holder
     of shares of Zynaxis Preferred Stock or of Warrants referenced in the
     Preferred Stock and Warrant Agreement shall have executed the Preferred
     Stock and Warrant Agreement.
 
     9.3 Conditions to Obligations of Zynaxis.  The obligations of Zynaxis to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by Zynaxis pursuant to Section 11.6(b):
 
          (a) Representations and Warranties.  For purposes of this Section
     9.3(a), the accuracy of the representations and warranties of Vaxcel set
     forth in this Agreement shall be assessed as of the date of this Agreement
     and as of the Effective Time with the same effect as though all such
     representations and warranties had been made on and as of the Effective
     Time (provided that representations and warranties which are confined to a
     specified date shall speak only as of such date). The representations and
     warranties set forth in Section 6.3 shall be true and correct (except for
     inaccuracies which are de minimus in amount). There shall not exist
     inaccuracies in the representations and warranties of Vaxcel set forth in
     this Agreement (including the representations and warranties set forth in
     Section 6.3) such that the aggregate effect of such inaccuracies has, or is
     reasonably likely to have, a Material Adverse
 
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<PAGE>   221
 
     Effect on Vaxcel; provided that, for purposes of this sentence only, those
     representations and warranties which are qualified by references to
     "material" or "Material Adverse Effect" or to the "Knowledge" of any Person
     shall be deemed not to include such qualifications.
 
          (b) Performance of Agreements and Covenants.  Each and all of the
     agreements and covenants of Vaxcel to be performed and complied with
     pursuant to, the Transaction Documents prior to the Effective Time shall
     have been duly performed and complied with in all material respects.
 
          (c) Certificates.  Vaxcel shall have delivered to Zynaxis (i) a
     certificate, dated as of the Effective Time and signed on its behalf by its
     chief executive officer, to the effect that the conditions set forth in
     Section 9.1 as relates to Vaxcel and in Section 9.3(a) and 9.3(b) have been
     satisfied, and (ii) certified copies of resolutions duly adopted by CytRx's
     Board of Directors, Vaxcel's Board of Directors, CytRx as sole shareholder
     of Vaxcel, Vaxcel Merger Sub's Board of Directors and Vaxcel as sole
     shareholder of Vaxcel Merger Sub evidencing the taking of all corporate
     action necessary to authorize the execution, delivery and performance of
     this Agreement, and the consummation of the transactions contemplated
     hereby, all in such reasonable detail as Zynaxis and its counsel shall
     request.
 
          (d) Opinion of Counsel.  Zynaxis shall have received an opinion of
     Alston & Bird, counsel to CytRx and Vaxcel, dated as of the Effective Time,
     in form reasonably acceptable to Zynaxis, as to the matters set forth in
     Exhibit 4.
 
                                   ARTICLE 10
 
                                  TERMINATION
 
     10.1 Termination.  Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement by the shareholders of
Zynaxis, this Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time:
 
          (a) By mutual consent of CytRx and Zynaxis; or
 
          (b) By either CytRx or Zynaxis (provided that the terminating Party is
     not then in material breach of any representation, warranty, covenant, or
     other agreement contained in this Agreement) in the event of a material
     breach by the other Party of any representation or warranty contained in
     this Agreement which cannot be or has not been cured within 30 days after
     the giving of written notice to the breaching Party of such breach and
     which breach is reasonably likely, in the opinion of the non-breaching
     Party, to have, individually or in the aggregate, a Material Adverse Effect
     on the breaching Party; or
 
          (c) By either CytRx or Zynaxis (provided that the terminating Party is
     not then in material breach of any representation, warranty, covenant, or
     other agreement contained in this Agreement) in the event of a material
     breach by the other Party of any covenant or agreement contained in this
     Agreement which cannot be or has not been cured within 30 days after the
     giving of written notice to the breaching Party of such breach; or
 
          (d) By either CytRx or Zynaxis (provided that the terminating Party is
     not then in material breach of any representation, warranty, covenant, or
     other agreement contained in this Agreement) in the event (i) any Consent
     of any Regulatory Authority required for consummation of the Merger and the
     other transactions contemplated hereby shall have been denied by final
     nonappealable action of such authority or if any action taken by such
     authority is not appealed within the time limit for appeal, or (ii) the
     shareholders of Zynaxis fail to vote their approval of the matters relating
     to this Agreement and the transactions contemplated hereby at the
     Shareholders' Meeting where such matters were presented to such
     shareholders for approval and voted upon; or
 
          (e) By any Party in the event that the Merger shall not have been
     consummated by March 31, 1997, if the failure to consummate the
     transactions contemplated hereby on or before such date is not caused by
     any breach of this Agreement by the Party electing to terminate pursuant to
     this Section 10.1(e); or
 
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<PAGE>   222
 
          (f) By either CytRx or Zynaxis (provided that the terminating Party is
     not then in material breach of any representation, warranty, covenant, or
     other agreement contained in this Agreement) in the event that any of the
     conditions precedent to the obligations of such Party to consummate the
     Merger cannot be satisfied or fulfilled by the date specified in Section
     10.1(e).
 
     10.2 Effect of Termination.  In the event of the termination and
abandonment of this Agreement pursuant to Section 10.1, this Agreement shall
become void and have no effect, except that (i) the provisions of this Section
10.2 and Article 11 and Section 8.5(b) shall survive any such termination and
abandonment, and (ii) a termination pursuant to Sections 10.1(b), 10.1(c) or
10.1(f) shall not relieve the breaching Party from Liability for an uncured
willful breach of a representation, warranty, covenant, or agreement giving rise
to such termination.
 
     10.3 Non-Survival of Representations and Covenants.  The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Effective Time except this Section 10.3 and
Articles 1, 2, 3, 4 and 11.
 
                                   ARTICLE 11
 
                                 MISCELLANEOUS
 
     11.1 Definitions.
 
     (a) Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
 
          "1933 ACT" shall mean the Securities Act of 1933, as amended.
 
          "1934 ACT" shall mean the Securities Exchange Act of 1934, as amended.
 
          "ACQUISITION PROPOSAL" with respect to a Party shall mean any tender
     offer or exchange offer or any proposal for a merger, acquisition of all of
     the stock or assets of, or other business combination involving the
     acquisition of such Party or any of its Subsidiaries or the acquisition of
     a substantial equity interest in, or a substantial portion of the assets
     of, such Party or any of its Subsidiaries.
 
          "ADOLOR SUBLEASE" shall mean that certain Sublease Agreement dated May
     15, 1996 between Zynaxis, Inc. and Adolor Corporation, as amended.
 
          "AFFILIATE" of a Person shall mean: (i) any other Person directly, or
     indirectly through one or more intermediaries, controlling, controlled by
     or under common control with such Person; (ii) any officer, director,
     partner, employer, or direct or indirect beneficial owner of any 10% or
     greater equity or voting interest of such Person; or (iii) any other Person
     for which a Person described in clause (ii) acts in any such capacity.
 
          "AFFILIATE SHARES" shall mean the shares of Vaxcel Common Stock to be
     issued to the holders of Zynaxis Common Stock and Zynaxis Preferred Stock
     in accordance with Section 3.1 hereof who are "affiliates" of Zynaxis for
     purposes of Rule 145 under the 1933 Act as set forth in Section 8.13 of the
     Zynaxis Disclosure Memorandum.
 
          "AGREEMENT" shall mean this Agreement and Plan of Merger and
     Contribution, including the Exhibits and Disclosure Memoranda delivered
     pursuant hereto and incorporated herein by reference.
 
          "ARTICLES OF MERGER" shall mean the Articles of Merger to be executed
     by Zynaxis and filed in the Department of State of the Commonwealth of
     Pennsylvania relating to the Merger as contemplated by Section 1.5.
 
          "ASSETS" of a Person shall mean all of the assets, properties,
     businesses and rights of such Person of every kind, nature, character and
     description, whether real, personal or mixed, tangible or intangible,
     accrued or contingent, or otherwise relating to or utilized in such
     Person's business, directly or indirectly,
 
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<PAGE>   223
 
     in whole or in part, whether or not carried on the books and records of
     such Person, and whether or not owned in the name of such Person or any
     Affiliate of such Person and wherever located.
 
          "CERTIFICATE OF MERGER" shall mean the Certificate of Merger to be
     executed by Zynaxis and filed with the Secretary of State of the State of
     Georgia relating to the Merger as contemplated by Section 1.5.
 
          "CHARTER AMENDMENTS" shall mean the proposals substantially in the
     form attached hereto at Exhibit 5 to be submitted to the shareholders of
     Zynaxis in connection with the transactions contemplated by this Agreement.
 
          "CLOSING DATE" shall mean the date on which the Closing occurs.
 
          "CONFIDENTIALITY AGREEMENT" shall mean that certain Confidentiality
     Agreement, dated September 18, 1996, between Zynaxis and CytRx.
 
          "CONSENT" shall mean any consent, approval, authorization, clearance,
     exemption, waiver, or similar affirmation by any Person pursuant to any
     Contract, Law, Order, or Permit.
 
          "CONTRACT" shall mean any written or oral agreement, arrangement,
     authorization, commitment, contract, indenture, instrument, lease,
     obligation, plan, practice, restriction, understanding, or undertaking of
     any kind or character, or other document to which any Person is a party or
     that is binding on any Person or its capital stock, Assets or business.
 
          "CONTRIBUTIONS" shall mean the contribution of the Cash Payment and
     the Senior Credit Facility and conversion of the Zynaxis shares, as
     provided in Section 1.1 hereof.
 
          "DEFAULT" shall mean (i) any breach or violation of, default under,
     contravention of, or conflict with, any Contract, Law, Order, or Permit,
     (ii) any occurrence of any event that with the passage of time or the
     giving of notice or both would constitute a breach or violation of, default
     under, contravention of, or conflict with, any Contract, Law, Order, or
     Permit, or (iii) any occurrence of any event that with or without the
     passage of time or the giving of notice would give rise to a right of any
     Person to exercise any remedy or obtain any relief under, terminate or
     revoke, suspend, cancel, or modify or change the current terms of, or
     renegotiate, or to accelerate the maturity or performance of, or to
     increase or impose any Liability under, any Contract, Law, Order, or
     Permit, where, in any such event, such Default is reasonably likely to
     have, individually or in the aggregate, a Material Adverse Effect on a
     Party.
 
          "DGCL" shall mean the Delaware General Corporation Law, as amended.
 
          "ENVIRONMENTAL LAWS" shall mean all Laws relating to pollution or
     protection of human health or the environment (including ambient air,
     surface water, ground water, land surface, or subsurface strata) and which
     are administered, interpreted, or enforced by the United States
     Environmental Protection Agency and state and local agencies with
     jurisdiction over, and including common law in respect of, pollution or
     protection of the environment, including the Comprehensive Environmental
     Response Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq.
     ("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42
     U.S.C. 6901 et seq. ("RCRA"), and other Laws relating to emissions,
     discharges, releases, or threatened releases of any Hazardous Material, or
     otherwise relating to the manufacture, processing, distribution, use,
     treatment, storage, disposal, transport, or handling of any Hazardous
     Material.
 
          "EQUITY RIGHTS" shall mean all arrangements, calls, commitments,
     Contracts, options, rights to subscribe to, scrip, understandings,
     warrants, or other binding obligations of any character whatsoever relating
     to, or securities or rights convertible into or exchangeable for, shares of
     the capital stock of a Person or by which a Person is or may be bound to
     issue additional shares of its capital stock or other Equity Rights.
 
          "ERISA" shall mean the Employee Retirement Income Security Act of
     1974, as amended.
 
          "EXCHANGE RATIO" shall mean: (i) the number of shares of Vaxcel Common
     Stock held by CytRx immediately prior to the Closing, giving effect to the
     issuance of shares to CytRx in connection with the
 
                                      A-39
<PAGE>   224
 
     Closing pursuant to Section 1.2 of this Agreement, divided by (ii) seven
     (7) and further divided by (iii) the sum of (A) the number of shares of
     Zynaxis Common Stock outstanding immediately prior to the Closing, giving
     effect to all issuances of common stock to which Zynaxis is committed as of
     the time of Closing other than issuances to occur upon the exercise of
     outstanding stock options and warrants including but not limited to: (I)
     the delivery of Thirty Four Thousand Five Hundred Forty-Eight (34,548)
     shares of common stock of Zynaxis to John Chappell pursuant to the
     settlement agreement set forth in the letter from Zynaxis to John Chappell
     dated October 10, 1996, and (II) the issuance of approximately Six Thousand
     (6,000) additional shares of Zynaxis common stock to the Zynaxis 401(k)
     plan for the fourth quarter of 1996, (B) two times the number of shares of
     Zynaxis Preferred Stock outstanding as of the Closing, and (C) 1,320,706.
     The number 1,320,706 will be adjusted for splits and reverse splits of
     Vaxcel Common Stock, e.g., if Vaxcel effects a 1-for-2 reverse stock split
     the number 1,320,706 shall be deemed changed to 660,353, etc. An example
     calculation of the Exchange Ratio based on current information is attached
     as Exhibit 6.
 
          "EXHIBITS" 1 through 19, inclusive, shall mean the Exhibits so marked,
     copies of which are attached to this Agreement. Such Exhibits are hereby
     incorporated by reference herein and made a part hereof, and may be
     referred to in this Agreement and any other related instrument or document
     without being attached hereto.
 
          "GAAP" shall mean generally accepted accounting principles,
     consistently applied during the periods involved.
 
          "GBCC" shall mean the Georgia Business Corporation Code, as amended.
 
          "HAZARDOUS MATERIAL" shall mean (i) any hazardous substance, hazardous
     material, hazardous waste, regulated substance, or toxic substance (as
     those terms are defined by any applicable Environmental Laws) and (ii) any
     chemicals, pollutants, contaminants, petroleum, petroleum products, or oil
     (and specifically shall include asbestos requiring abatement, removal, or
     encapsulation pursuant to the requirements of governmental authorities and
     any polychlorinated biphenyls).
 
          "INTELLECTUAL PROPERTY" shall mean copyrights, patents, trademarks,
     service marks, service names, trade names, applications therefor,
     technology rights and licenses, computer software (including any source or
     object codes therefor or documentation relating thereto), trade secrets,
     franchises, know-how, inventions, and other intellectual property rights.
 
          "INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986,
     as amended, and the rules and regulations promulgated thereunder.
 
          "INVENTORY" shall mean (a) all inventory of Zynaxis and all goods
     intended for sale or lease by Zynaxis, or for display or demonstration; (b)
     all work-in-process; (c) all raw materials and other materials and supplies
     of every nature and description used or which might be used in connection
     with the manufacture, packing, shipping, advertising, selling, leasing or
     furnishing of such goods or otherwise used or consumed in Zynaxis's
     business; and (d) all documents relating to any of the foregoing.
 
          "KNOWLEDGE" as used with respect to a Person (including references to
     such Person being aware of a particular matter) shall mean the personal
     knowledge after due inquiry of the chairman, president, chief financial
     officer, chief accounting officer, chief operating officer, general
     counsel, any assistant or deputy general counsel, or any senior, executive
     or other vice president of such Person and the knowledge of any such
     persons obtained or which would have been obtained from a reasonable
     investigation.
 
          "LAW" shall mean any code, law (including common law), ordinance,
     regulation, reporting or licensing requirement, rule, or statute applicable
     to a Person or its Assets, Liabilities, or business, including those
     promulgated, interpreted or enforced by any Regulatory Authority.
 
          "LIABILITY" shall mean any direct or indirect, primary or secondary,
     liability, indebtedness, obligation, penalty, cost or expense (including
     costs of investigation, collection and defense), claim, deficiency,
     guaranty or endorsement of or by any Person (other than endorsements of
     notes, bills, checks, and drafts
 
                                      A-40
<PAGE>   225
 
     presented for collection or deposit in the ordinary course of business) of
     any type, whether accrued, absolute or contingent, liquidated or
     unliquidated, matured or unmatured, or otherwise.
 
          "LIEN" shall mean any conditional sale agreement, default of title,
     easement, encroachment, encumbrance, hypothecation, infringement, lien,
     mortgage, pledge, reservation, restriction, security interest, title
     retention or other security arrangement, or any adverse right or interest,
     charge, or claim of any nature whatsoever of, on, or with respect to any
     property or property interest, other than (i) Liens for current property
     Taxes not yet due and payable, and (iii) Liens which do not materially
     impair the use of or title to the Assets subject to such Lien.
 
          "LIQUIDATION AGREEMENT" shall mean that certain agreement in the form
     attached hereto as Exhibit 7 being entered into simultaneously with the
     execution of this Agreement between Zynaxis and CytRx regarding the sale of
     assets and settlement of liabilities of Zynaxis.
 
          "LITIGATION" shall mean any action, arbitration, cause of action,
     claim, complaint, criminal prosecution, governmental or other examination
     or investigation, hearing, administrative or other proceeding relating to
     or affecting a Party, its business, its Assets (including Contracts related
     to it), or the transactions contemplated by this Agreement.
 
          "LOCK-UP SHARES" shall mean the shares of Vaxcel Common Stock to be
     issued to the holders of Zynaxis Common Stock and Zynaxis Preferred Stock
     in accordance with Section 3.1 hereof who are parties to the Shareholder
     Voting Agreement.
 
          "MALVERN LEASE" shall mean that certain Agreement of Lease dated
     August 30, 1988 between Rouse & Associates and Zynaxis Cell Science, Inc.,
     as amended.
 
          "MATERIAL" for purposes of this Agreement shall be determined in light
     of the facts and circumstances of the matter in question; provided that any
     specific monetary amount stated in this Agreement shall determine
     materiality in that instance.
 
          "MATERIAL ADVERSE EFFECT" on a Party shall mean an event, change or
     occurrence which, individually or together with any other event, change or
     occurrence, has a material adverse impact on (i) the financial position,
     business, or results of operations of such Party and its Subsidiaries,
     taken as a whole, or (ii) the ability of such Party to perform its
     obligations under this Agreement or to consummate the Merger or the other
     transactions contemplated by this Agreement, provided that "Material
     Adverse Effect" shall not be deemed to include the impact of (a) changes in
     Laws of general applicability or interpretations thereof by courts or
     governmental authorities, (b) changes in generally accepted accounting
     principles or regulatory accounting principles, (c) actions and omissions
     of a Party (or any of its Subsidiaries) taken with the prior informed
     written Consent of the other Party in contemplation of the transactions
     contemplated hereby, and (d) the direct effects of compliance with this
     Agreement on the operating performance of the Parties, including expenses
     incurred by the Parties in consummating the transactions contemplated by
     this Agreement.
 
          "MERGER SHARES" shall mean the shares of Vaxcel Common Stock to be
     issued to the holders of Zynaxis Common Stock and Zynaxis Preferred Stock
     in accordance with Section 3.1 hereof.
 
          "NASD" shall mean the National Association of Securities Dealers, Inc.
 
          "NASDAQ SMALLCAP MARKET" shall mean the SmallCap Market System of the
     National Association of Securities Dealers Automated Quotations System.
 
          "NOTE EXCHANGE AGREEMENT" shall mean that certain Note Exchange
     Agreement on the form attached hereto as Exhibit 8 being entered into
     simultaneously with the execution of this Agreement by and among Zynaxis,
     CytRx, Vaxcel, Euclid Partners III, L.P. and S.R. One, Ltd.
 
          "OPERATING PROPERTY" shall mean any property owned, leased, or
     operated by the Party in question or by any of its Subsidiaries or in which
     such Party or Subsidiary holds a security interest or other interest
     (including an interest in a fiduciary capacity), and, where required by the
     context, includes the owner or operator of such property, but only with
     respect to such property.
 
                                      A-41
<PAGE>   226
 
          "ORDER" shall mean any administrative decision or award, decree,
     injunction, judgment, order, quasi-judicial decision or award, ruling, or
     writ of any federal, state, local or foreign or other court, arbitrator,
     mediator, tribunal, administrative agency, or Regulatory Authority.
 
          "PARTICIPATION FACILITY" shall mean any facility or property in which
     the Party in question or any of its Subsidiaries participates in the
     management and, where required by the context, said term means the owner or
     operator of such facility or property, but only with respect to such
     facility or property.
 
          "PARTY" shall mean any of CytRx, Zynaxis, Vaxcel, or Vaxcel Merger
     Sub, and "PARTIES" shall mean CytRx, Zynaxis, Vaxcel, and Vaxcel Merger
     Sub.
 
          "PBCL" shall mean the Pennsylvania Business Corporation Law, as
     amended.
 
          "PERMIT" shall mean any federal, state, local, and foreign
     governmental approval, authorization, certificate, easement, filing,
     franchise, license, notice, permit, or right to which any Person is a party
     or that is or may be binding upon or inure to the benefit of any Person or
     its securities, Assets, or business.
 
          "PER SHARE PRICE" shall mean: (i) Four Million Dollars
     ($4,000,000.00), divided by (ii) the sum of (A) the number of shares of
     Zynaxis Common Stock outstanding immediately prior to the Closing, giving
     effect to all issuances of common stock to which Zynaxis is committed as of
     the time of Closing other than issuances to occur upon the exercise of
     outstanding stock options and warrants including but not limited to: (I)
     the delivery of Thirty Four Thousand Five Hundred Forty-Eight (34,548)
     shares of common stock of Zynaxis to John Chappell pursuant to the
     settlement agreement set forth in the letter from Zynaxis to John Chappell
     dated October 10, 1996, and (II) the issuance of approximately Six Thousand
     (6,000) additional shares of Zynaxis common stock to the Zynaxis 401(k)
     plan for the fourth quarter of 1996, (B) two times the number of shares of
     Zynaxis Preferred Stock outstanding immediately prior to the Closing, and
     (C) 1,320,706. The number 1,320,706 will be adjusted for splits and reverse
     splits of Vaxcel Common Stock, e.g., if Vaxcel effects a 1-for-2 reverse
     stock split the number 1,320,706 shall be deemed changed to 660,353, etc.
 
          "PERSON" shall mean a natural person or any legal, commercial or
     governmental entity, such as, but not limited to, a corporation, general
     partnership, joint venture, limited partnership, limited liability company,
     trust, business association, group acting in concert, or any person acting
     in a representative capacity.
 
          "PREFERRED STOCK AND WARRANT AGREEMENT" shall mean the Preferred Stock
     and Warrant Agreement in the form attached hereto as Exhibit 9.
 
          "PROXY STATEMENT" shall mean the proxy statement used by Zynaxis to
     solicit the approval of its shareholders of the transactions contemplated
     by this Agreement, which shall include the prospectus of Vaxcel relating to
     the issuance of the Vaxcel Common Stock to holders of Zynaxis Common Stock.
 
          "REGISTRATION RIGHTS AGREEMENT" shall mean that certain Registration
     Rights Agreement in the form attached hereto as Exhibit 10 to be entered
     into at the Closing between CytRx and Vaxcel, pursuant to which CytRx and
     Vaxcel make certain agreements regarding the registration for resale under
     the 1933 Act of Shares of Vaxcel Common Stock held by CytRx.
 
          "REGISTRATION STATEMENT" shall mean the Registration Statement(s) on
     Form S-4, or other appropriate form, including any pre-effective or
     post-effective amendments or supplements thereto, filed with the SEC by
     Vaxcel under the 1933 Act to register the issuance of the Merger Shares and
     to register the resale of the Resale Shares.
 
          "REGULATORY AUTHORITIES" shall mean, collectively, the SEC, the NASD,
     the Federal Trade Commission, the United States Department of Justice, and
     all other federal, state, county, local or other governmental or regulatory
     agencies, authorities (including self-regulatory authorities),
     instrumentalities, commissions, boards or bodies having jurisdiction over
     the Parties and their respective Subsidiaries.
 
          "REPRESENTATIVE" shall mean any investment banker, financial advisor,
     attorney, accountant, consultant, or other representative engaged by a
     Person.
 
                                      A-42
<PAGE>   227
 
          "SEC" shall mean the United States Securities and Exchange Commission.
 
          "SEC DOCUMENTS" shall mean all forms, proxy statements, registration
     statements, reports, schedules, and other documents filed, or required to
     be filed, by a Party or any of its Subsidiaries with any Regulatory
     Authority pursuant to the Securities Laws.
 
          "SECRETECH LICENSE AGREEMENT" shall mean that certain License
     Agreement dated July 1, 1987 between Southern Research Institute and
     Molecular Engineering Associates, Ltd.
 
          "SECURED LOAN AGREEMENT" shall mean that certain Secured Loan
     Agreement in the form attached hereto as Exhibit 11 being entered into
     simultaneously with the execution of this Agreement between CytRx and
     Zynaxis.
 
          "SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act, the
     Investment Company Act of 1940, as amended, the Investment Advisors Act of
     1940, as amended, the Trust Indenture Act of 1939, as amended, and the
     rules and regulations of any Regulatory Authority promulgated thereunder.
 
          "SENIOR CREDIT FACILITY" shall mean, collectively, the Secured Loan
     Agreement, the Senior Secured Note, the Zynaxis Pledge Agreement, the
     Zynaxis Security Agreement, the Zynaxis Vaccine Technologies Guaranty, the
     Zynaxis Vaccine Technologies Security Agreement and the Zynaxis Vaccine
     Technologies Collateral Assignment of License Agreement.
 
          "SENIOR SECURED NOTE" shall mean that certain Secured Promissory Note
     in the form attached hereto as Exhibit 12 being entered into simultaneously
     with the execution of this Agreement by Zynaxis, as the maker, and CytRx,
     as the holder, outlining the terms governing the lending of up to Two
     Million Dollars ($2,000,000) by CytRx to Zynaxis.
 
          "SHAREHOLDER VOTING AGREEMENT" shall mean the Shareholder Voting
     Agreement in the form attached hereto as Exhibit 13 being entered into
     simultaneously with the execution of this Agreement.
 
          "SHAREHOLDERS' MEETING" shall mean the meeting of the shareholders of
     Zynaxis to be held pursuant to Section 8.1, including any adjournment or
     adjournments thereof.
 
          "STATEMENT WITH RESPECT TO SHARES" shall mean the Statement With
     Respect to Shares filed by Zynaxis in the Department of State of the
     Commonwealth of Pennsylvania on April 6, 1995.
 
          "SUBSIDIARIES" shall mean all those corporations, associations, or
     other business entities of which the entity in question either (i) owns or
     controls 50% or more of the outstanding equity securities either directly
     or through an unbroken chain of entities as to each of which 50% or more of
     the outstanding equity securities is owned directly or indirectly by its
     parent (provided, there shall not be included any such entity the equity
     securities of which are owned or controlled in a fiduciary capacity), (ii)
     in the case of partnerships, serves as a general partner, (iii) in the case
     of a limited liability company, serves as a managing member, or (iv)
     otherwise has the ability to elect a majority of the directors, trustees or
     managing members thereof.
 
          "SURVIVING CORPORATION" shall mean Zynaxis as the surviving
     corporation resulting from the Merger.
 
          "TAX RETURN" shall mean any report, return, information return, or
     other information required to be supplied to a taxing authority in
     connection with Taxes, including any return of an affiliated or combined or
     unitary group that includes a Party or its Subsidiaries.
 
          "TAX" or "TAXES" shall mean any federal, state, county, local, or
     foreign taxes, charges, fees, levies, imposts, duties, or other
     assessments, including income, gross receipts, excise, employment, sales,
     use, transfer, license, payroll, franchise, severance, stamp, occupation,
     windfall profits, environmental, federal highway use, commercial rent,
     customs duties, capital stock, paid-up capital, profits, withholding,
     Social Security, single business and unemployment, disability, real
     property, personal property, registration, ad valorem, value added,
     alternative or add-on minimum, estimated, or other tax or governmental fee
     of any kind whatsoever, imposed or required to be withheld by the United
     States or any state, county, local or
 
                                      A-43
<PAGE>   228
 
     foreign government or subdivision or agency thereof, including any
     interest, penalties, and additions imposed thereon or with respect thereto.
 
          "TECHNOLOGY DEVELOPMENT AGREEMENT" shall mean that certain Technology
     Development Agreement in the form attached hereto as Exhibit 14 being
     entered into simultaneously with the execution of this Agreement between
     Vaxcel and Zynaxis regarding the joint development of the technology that
     is the subject of the Secretech License Agreement by Vaxcel and Zynaxis.
 
          "TRANSACTION DOCUMENTS" shall mean this Agreement and the other
     documents executed by any of CytRx, Vaxcel, Vaxcel Merger Sub or Zynaxis
     that are referenced by this Agreement.
 
          "VAXCEL CAPITAL STOCK" shall mean, collectively, the Vaxcel Common
     Stock and any other class or series of capital stock of Vaxcel.
 
          "VAXCEL COMMON STOCK" shall mean the $0.001 par value common stock of
     Vaxcel.
 
          "VAXCEL COMPANIES" shall mean, collectively, Vaxcel and all Vaxcel
     Subsidiaries.
 
          "VAXCEL DISCLOSURE MEMORANDUM" shall mean the written information
     entitled "Vaxcel, Inc. Disclosure Memorandum" delivered prior to the date
     of this Agreement to Zynaxis describing in reasonable detail the matters
     contained therein and, with respect to each disclosure made therein,
     specifically referencing each Section of this Agreement under which such
     disclosure is being made. Information disclosed with respect to one Section
     shall not be deemed to be disclosed for purposes of any other Section not
     specifically referenced with respect thereto.
 
          "VAXCEL FINANCIAL STATEMENTS" shall mean (i) the balance sheets of
     Vaxcel as of December 31, 1995 and 1994, and the related statements of
     operations, changes in shareholders' equity, and cash flows for each of the
     three fiscal years ended December 31, 1995, 1994 and 1993, and (ii) the
     balance sheet of Vaxcel as of September 30, 1996 and the related statements
     of operations, changes in shareholders' equity, and cash flows with respect
     to the nine-month period then ended.
 
          "VAXCEL MERGER SUB COMMON STOCK" shall mean the $0.01 par value common
     stock of Vaxcel Merger Sub.
 
          "VAXCEL PREFERRED STOCK" shall mean the $.001 par value preferred
     stock of Vaxcel.
 
          "VAXCEL SUBSIDIARIES" shall mean the Subsidiaries of Vaxcel, which
     shall include the Vaxcel Subsidiaries described in Section 6.4 and any
     corporation or other organization acquired as a Subsidiary of Vaxcel in the
     future and held as a Subsidiary by Vaxcel at the Effective Time.
 
          "WARRANT SHARES" shall mean the shares of Vaxcel Common Stock issuable
     upon the exercise of warrants to purchase Vaxcel Common Stock to be assumed
     by Vaxcel or issued by Vaxcel, as the case may be, in accordance with
     Sections 3.6 and 3.7 hereof.
 
          "ZYNAXIS CAPITAL STOCK" shall mean, collectively, the Zynaxis Common
     Stock, the Zynaxis Preferred Stock, and any other class or series of
     capital stock of Zynaxis.
 
          "ZYNAXIS COMMON STOCK" shall mean the $0.01 par value common stock of
     Zynaxis.
 
          "ZYNAXIS COMPANIES" shall mean, collectively, Zynaxis and all Zynaxis
     Subsidiaries.
 
          "ZYNAXIS DISCLOSURE MEMORANDUM" shall mean the written information
     entitled "Zynaxis, Inc. Disclosure Memorandum" delivered prior to the date
     of this Agreement to Vaxcel describing in reasonable detail the matters
     contained therein and, with respect to each disclosure made therein,
     specifically referencing each Section of this Agreement under which such
     disclosure is being made. Information disclosed with respect to one Section
     shall not be deemed to be disclosed for purposes of any other Section not
     specifically referenced with respect thereto.
 
          "ZYNAXIS FINANCIAL STATEMENTS" shall mean (i) the consolidated balance
     sheets (including related notes and schedules, if any) of Zynaxis as of
     June 30, 1996, and as of December 31, 1995 and 1994, and the related
     statements of operations, changes in stockholders' equity, and cash flows
     (including related
 
                                      A-44
<PAGE>   229
 
     notes and schedules, if any) for the six months ended June 30, 1996, and
     for each of the three fiscal years ended December 31, 1995, 1994 and 1993,
     as filed by Zynaxis in SEC Documents, and (ii) the consolidated balance
     sheets of Zynaxis (including related notes and schedules, if any) and
     related statements of operations, changes in shareholders' equity, and cash
     flows (including related notes and schedules, if any) included in SEC
     Documents filed with respect to periods ended subsequent to June 30, 1996.
 
          "ZYNAXIS PLEDGE AGREEMENT" shall mean that certain Pledge Agreement in
     the form attached hereto as Exhibit 15 being entered into simultaneously
     with the execution of this Agreement between Zynaxis, as pledgor, and
     CytRx, as pledgee, pursuant to which Zynaxis pledges the stock of its
     Subsidiaries to CytRx as security in connection with the lending of funds
     under the Senior Secured Note.
 
          "ZYNAXIS PREFERRED STOCK" shall mean the no par value Series A
     Convertible Preferred Stock of Zynaxis.
 
          "ZYNAXIS SECURITY AGREEMENT" shall mean that certain Security
     Agreement in the form attached hereto as Exhibit 16 being entered into
     simultaneously with the execution of this Agreement between Zynaxis, as
     debtor, and CytRx, as secured party, pursuant to which Zynaxis grants to
     CytRx a security interest in certain of Zynaxis assets in connection with
     the lending of funds under the Senior Secured Note.
 
          "ZYNAXIS STOCK PLAN" shall mean the Zynaxis, Inc. Amended and Restated
     1989 Stock Option Plan.
 
          "ZYNAXIS SUBSIDIARIES" shall mean the Subsidiaries of Zynaxis, which
     shall include the Zynaxis Subsidiaries described in Section 5.4 and any
     corporation or other organization acquired as a Subsidiary of Zynaxis in
     the future and held as a Subsidiary by Zynaxis at the Effective Time.
 
          "ZYNAXIS VACCINE TECHNOLOGIES COLLATERAL ASSIGNMENT OF LICENSE
     AGREEMENT" shall mean that certain Collateral Assignment of License
     Agreement in the form attached hereto as Exhibit 17 being entered into
     simultaneously with the execution of this Agreement between CytRx and
     Zynaxis Vaccine Technologies, Inc., pursuant to which Zynaxis Vaccine
     Technologies, Inc. grants to CytRx a security interest in its license of
     certain technology from Southern Research Institute.
 
          "ZYNAXIS VACCINE TECHNOLOGIES GUARANTY" shall mean that certain
     Guaranty in the form attached hereto as Exhibit 18 being entered into
     simultaneously with the execution of this Agreement between Zynaxis Vaccine
     Technologies, Inc., as guarantor and CytRx Corporation.
 
          "ZYNAXIS VACCINE TECHNOLOGIES SECURITY AGREEMENT" shall mean that
     certain Security Agreement in the form attached hereto as Exhibit 19 being
     entered into simultaneously with the execution of this Agreement between
     Zynaxis Vaccine Technologies, Inc., as guarantor and CytRx Corporation.
 
                                      A-45
<PAGE>   230
 
     (b) The terms set forth below shall have the meanings ascribed thereto in
the referenced sections:
 
<TABLE>
        <S>                                                             <C>
        Cash Payment                                                    Section 1.1
        Certificates                                                    Section 4.1
        Closing                                                         Section 1.4
        CytRx Warrant                                                   Section 1.2
        Effective Time                                                  Section 1.5
        ERISA Affiliate                                                 Section 5.14(c)
        Exchange Agent                                                  Section 4.1   
        Merger                                                          Section 1.3   
        Non-Financing Warrants                                          Section 3.7   
        Resale Shares                                                   Section 8.1   
        Tax Opinion                                                     Section 9.1(g)
        Vaxcel Benefit Plans                                            Section 6.14  
        Vaxcel Contracts                                                Section 6.15  
        Vaxcel ERISA Plan                                               Section 6.142 
        Vaxcel Pension Plan                                             Section 6.14  
        Zynaxis Benefit Plans                                           Section 5.14  
        Zynaxis Contracts                                               Section 5.15  
        Zynaxis ERISA Plan                                              Section 5.14  
        Zynaxis Options                                                 Section 3.5   
        Zynaxis Pension Plan                                            Section 5.14  
        Zynaxis SEC Reports                                             Section 5.5(a)
</TABLE>
 
     (c) Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Any masculine or neuter personal
pronoun shall be considered to mean the corresponding masculine, feminine or
neuter personal pronoun, as the context requires. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
 
     11.2 Expenses.
 
     (a) Except as otherwise provided in this Section 11.2, each of the Parties
shall bear and pay all direct costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including filing,
registration and application fees, printing fees, and fees and expenses of its
own financial or other consultants, investment bankers, accountants, and
counsel, except that: (i) each of the Parties shall bear and pay one-half of the
filing fees payable in connection with the Registration Statement and the Proxy
Statement and printing costs incurred in connection with the printing of the
Registration Statement and the Proxy Statement; and (ii) Zynaxis shall pay all
fees and expenses of counsel to CytRx and Vaxcel. Notwithstanding the foregoing,
if this Agreement is terminated for any reason other than as set forth in
Section 11.2(b) below then the amount of fees and expenses of Alston & Bird paid
by Zynaxis through the date of termination shall be deducted from the balance
due under the Senior Credit Facility.
 
     (b) Notwithstanding the foregoing,
 
          (i) if this Agreement is terminated by CytRx pursuant to Section
     10.1(d)(ii) (as relates to approval of Zynaxis's shareholders), or
 
          (ii) if the Merger is not consummated as a result of the failure, due
     to intentional action or inaction on the part of Zynaxis or any of its
     officers, directors, employees or agents of Zynaxis to satisfy any of the
     conditions set forth in Section 9.2, other than Section 9.2(d), or,
 
          (iii) if this Agreement is terminated for any reason after the Board
     of Directors of Zynaxis takes any action in reliance upon the first clause
     of the second sentence of Section 8.7 or either of the parenthetical
     phrases in clauses (iii) and (iv) of the penultimate sentence of Section
     8.1,
 
                                      A-46
<PAGE>   231
 
then Zynaxis shall promptly pay CytRx all the out-of-pocket costs and expenses
of CytRx and its Subsidiaries, including reasonable costs of counsel, investment
bankers, actuaries and accountants, incurred in connection with the transactions
contemplated by this Agreement.
 
     (c) In addition to the foregoing, if, after the date of this Agreement and
within twelve (12) months following
 
          (i) any termination of this Agreement
 
             (1) by CytRx pursuant to Sections 10.1(b), 10.1(c), 10.1(f) (but
        only on the basis of the failure of Zynaxis to satisfy any of the
        conditions enumerated in Section 9.2, other than Section 9.2(d)), or
 
             (2) by either Party pursuant to Section 10.1(d)(ii) (with respect
        to approval of the shareholders of Zynaxis), or
 
          (ii) failure to consummate the Merger by reason of any failure of
     Zynaxis to satisfy the conditions enumerated in Section 9.2, other than
     Section 9.2(d), or 9.1(a) (as such section relates to approval by the
     shareholders of Zynaxis),
 
any third-party shall acquire, merge with, combine with, purchase a substantial
part of the Assets of, or engage in any other business combination with, or
purchase any equity securities involving an acquisition of 20% or more of the
voting stock of, Zynaxis, or enter into any binding agreement to do any of the
foregoing (collectively, a "Business Combination"), such third-party that is a
party to the Business Combination shall pay to CytRx, prior to the earlier of
consummation of the Business Combination or execution of any letter of intent or
definitive agreement with Zynaxis relating to such Business Combination, an
amount in cash equal to the sum of
 
          (x) the direct costs and expenses or portion thereof referred to in
     subsection (a) above incurred by or on behalf of CytRx or Vaxcel in
     connection with the transactions contemplated by this Agreement, plus
 
          (y) 5% of the aggregate fair market value of the consideration
     received by the shareholders of Zynaxis in such Business Combination, less
 
          (z) any amounts previously paid by Zynaxis to CytRx or Vaxcel pursuant
     to subsection (b) of this Section 11.2,
 
which sum represents additional compensation for CytRx's loss as the result of
the transactions contemplated by this Agreement not being consummated. In the
event such third-party shall refuse to pay such amounts within ten days of
demand therefor by CytRx, the amounts shall be an obligation of Zynaxis and
shall be paid by Zynaxis promptly upon notice to Zynaxis by CytRx.
 
     (d) The Parties acknowledge that the loss to either Party resulting from
breach of this Agreement by the other Party or other failure of the transactions
contemplated by this Agreement to be consummated is not susceptible of ready
measurement and, therefore, that the payments provided in this Section 11.2 are
intended by the Parties to constitute liquidated damages for any breach by a
Party of the terms of this Agreement, and not a penalty.
 
     11.3 Brokers and Finders.  With the exception of the agreement established
by a letter dated June 17, 1996 from QED Technologies, L.P., to CytRx
Corporation, as amended by that letter dated November 8, 1996 From Vaxcel, Inc.
to QED Technologies, L.P., for which Vaxcel shall be responsible, each of the
Parties represents and warrants that neither it nor any of its officers,
directors, employees, or Affiliates has employed any broker or finder or
incurred any Liability for any financial advisory fees, investment bankers'
fees, brokerage fees, commissions, or finders' fees in connection with this
Agreement or the transactions contemplated hereby. In the event of a claim by
any broker or finder based upon his or its representing or being retained by or
allegedly representing or being retained by Zynaxis or Vaxcel, each of Zynaxis
and Vaxcel, as the case may be, agrees to indemnify and hold the other Party
harmless of and from any Liability in respect of any such claim.
 
                                      A-47
<PAGE>   232
 
     11.4 Entire Agreement.  Except as otherwise expressly provided herein, this
Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral (except, as to Section
8.5(b), for the Confidentiality Agreement). Nothing in this Agreement expressed
or implied, is intended to confer upon any Person, other than the Parties or
their respective successors, any rights, remedies, obligations, or liabilities
under or by reason of this Agreement.
 
     11.5 Amendments.  To the extent permitted by Law, this Agreement may be
amended by a subsequent writing signed by each of the Parties upon the approval
of each of the Parties, whether before or after shareholder approval of this
Agreement has been obtained; provided, that after any such approval by the
holders of Zynaxis Capital Stock, there shall be made no amendment that reduces
or modifies in any material respect the consideration to be received by holders
of Zynaxis Capital Stock or pursuant to applicable Law requires the further
approval by such shareholders without the further approval of such shareholders.
 
     11.6 Waivers.
 
     (a) Prior to or at the Effective Time, Vaxcel, acting through its Board of
Directors, chief executive officer or other authorized officer, shall have the
right to waive any Default in the performance of any term of this Agreement by
Zynaxis, to waive or extend the time for the compliance or fulfillment by
Zynaxis of any and all of its obligations under this Agreement, and to waive any
or all of the conditions precedent to the obligations of Vaxcel under this
Agreement, except any condition which, if not satisfied, would result in the
violation of any Law. No such waiver shall be effective unless in writing signed
by a duly authorized officer of Vaxcel.
 
     (b) Prior to or at the Effective Time, Zynaxis, acting through its Board of
Directors, chief executive officer or other authorized officer, shall have the
right to waive any Default in the performance of any term of this Agreement by
Vaxcel, to waive or extend the time for the compliance or fulfillment by Vaxcel
of any and all of its obligations under this Agreement, and to waive any or all
of the conditions precedent to the obligations of Zynaxis under this Agreement,
except any condition which, if not satisfied, would result in the violation of
any Law. No such waiver shall be effective unless in writing signed by a duly
authorized officer of Zynaxis.
 
     (c) The failure of any Party at any time or times to require performance of
any provision hereof shall in no manner affect the right of such Party at a
later time to enforce the same or any other provision of this Agreement. No
waiver of any condition or of the breach of any term contained in this Agreement
in one or more instances shall be deemed to be or construed as a further or
continuing waiver of such condition or breach or a waiver of any other condition
or of the breach of any other term of this Agreement.
 
     11.7 Assignment.  Except as expressly contemplated hereby, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the Parties and their respective successors and assigns.
 
     11.8 Notices.  All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage pre-paid, or by
courier or overnight carrier, to the persons at the addresses set forth below
(or at such other
 
                                      A-48
<PAGE>   233
 
address as may be provided hereunder), and shall be deemed to have been
delivered as of the date so delivered:
 
<TABLE>
<S>                   <C>
Zynaxis:              Zynaxis, Inc.
                      371 Phoenixville Pike
                      Malvern, Pennsylvania 19355
                      Telecopy Number: (610) 889-2222

                      Attention:  Martyn D. Greenacre
                                  Chairman, President and
                                  Chief Executive Officer
 
Copy to Counsel:      Morgan, Lewis & Bockius LLP
                      2000 One Logan Square
                      Philadelphia, Pennsylvania 19103-6993
                      Telecopy Number: (215) 963-5299

                      Attention:  Debra J. Poul
 
CytRx:                CytRx Corporation
                      154 Technology Parkway
                      Norcross, Georgia 30092
                      Telecopy Number: (770) 448-3357

                      Attention:  Jack J. Luchese
                                  Chairman, President and
                                  Chief Executive Officer
 
Copy to Counsel:      Alston & Bird
                      1201 West Peachtree Street
                      Atlanta, Georgia 30309-3424
                      Telecopy Number: (404) 881-7777

                      Attention:  George M. Maxwell, Jr.
 
Vaxcel:               Vaxcel, Inc.
                      154 Technology Parkway
                      Norcross, Georgia 30092
                      Telecopy Number: (770) 368-9500

                      Attention:  Paul Wilson
 
Copy to Counsel:      Alston & Bird
                      One Atlantic Center
                      1201 West Peachtree Street
                      Atlanta, Georgia 30309
                      Telecopy Number: (404) 881-7777

                      Attention:  George M. Maxwell, Jr.
</TABLE>
 
     11.9 Governing Law.  This Agreement shall be governed by and construed in
accordance with the Laws of the State of Georgia, without regard to any
applicable conflicts of Laws.
 
     11.10 Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
 
     11.11 Captions; Articles and Sections.  The captions contained in this
Agreement are for reference purposes only and are not part of this Agreement.
Unless otherwise indicated, all references to particular Articles or Sections
shall mean and refer to the referenced Articles and Sections of this Agreement.
 
                                      A-49
<PAGE>   234
 
     11.12 Interpretations.  Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any Party, whether under
any rule of construction or otherwise. No Party to this Agreement shall be
considered the draftsman. The Parties acknowledge and agree that this Agreement
has been reviewed, negotiated, and accepted by all Parties and their attorneys
and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of all Parties
hereto.
 
     11.13 Severability.  Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
 
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed
on its behalf and its corporate seal to be hereunto affixed and attested by
officers thereunto as of the day and year first above written.
 
<TABLE>
<S>                                              <C>
ATTEST:                                          VAXCEL, INC.
 
                                                 By:
- --------------------------------------------     --------------------------------------------
Secretary                                        Paul J. Wilson, III
                                                     President and Chief Executive Officer
 
[CORPORATE SEAL]
 
ATTEST:                                          VAXCEL MERGER SUBSIDIARY, INC.
 
                                                 By:
- --------------------------------------------     --------------------------------------------
Secretary                                        Paul J. Wilson, III
                                                     President and Chief Executive Officer
 
[CORPORATE SEAL]
 
ATTEST:                                          Zynaxis, Inc.
 
                                                 By:
- --------------------------------------------     --------------------------------------------
Secretary                                        Martyn D. Greenacre
                                                     Chairman, President and Chief Executive
                                                     Officer
 
[CORPORATE SEAL]
 
ATTEST:                                          CYTRX CORPORATION
 
                                                 By:
- --------------------------------------------     --------------------------------------------
                                                 Secretary
 
[CORPORATE SEAL]
</TABLE>
 
                                      A-50
<PAGE>   235
 
                                                                      APPENDIX B
 
                                                                December 6, 1996
 
Mr. Martyn D. Greenacre
Chairman and CEO
Zynaxis, Inc.
371 Phoenixville Pike
Malvern, PA 19355
 
Dear Martyn:
 
     We understand that the Board of Directors of Zynaxis (the "Company") has
approved the sale of the assets listed in Exhibit A attached hereto (the
"Assets") for prices no less than the values indicated for such assets on
Exhibit A and the settlement of the liabilities listed in Exhibit B attached
hereto (the "Liabilities") for amounts no greater than the amounts indicated on
Exhibit B (collectively, the "Transactions"). We further understand that the
Board of Directors (and any applicable committees thereof) of Zynaxis have
approved: (i) the operating budget attached as Exhibit C for the period between
the date of this letter and the closing of the proposed business combination
transaction between the Company and CytRx Corporation, (ii) the agreements to be
entered into by the Company and CytRx Corporation with Martyn D. Greenacre and
Michael A. Christie attached as Exhibit D and Exhibit E, respectively, and (iii)
the agreement between QED and Zynaxis covering QED's relationship as Zynaxis's
agent for the sale of the Cauldron Division attached as Exhibit F.
 
     1. The Company will exert its commercially reasonable best efforts to sell
the Assets and to cooperate with CytRx Corporation in its efforts to assist you
in selling the Assets. The Company shall approve and execute documents
evidencing and perform any agreement negotiated by the Company or us with any
prospective purchaser of any Asset if (a) the purchase price is no lower than
the amount and is consistent with the terms set forth for such Asset in Exhibit
A, and (b) the other terms and conditions of the Transaction are not less
favorable to the Company in any material respect than the terms and conditions
of similar transactions.
 
     2. The Company will exert its commercially reasonable best efforts to
settle the Liabilities and to cooperate with CytRx Corporation in its efforts to
assist you in settling the Liabilities. The Company shall approve and execute
documents evidencing and perform any agreement negotiated by the Company or us
with any creditor for any Liability, if (a) the cash payment required to be paid
by the Company to such creditor is no greater than the settlement amount and is
consistent with the terms set forth for such Liability in Exhibit B, and (b) the
other terms and conditions of the Transaction are not less favorable to the
Company in any material respect than the terms and conditions of similar
transactions.
 
     3. Subject to approval by the Committee (as defined below), which approval
shall not be unreasonably withheld, the Company shall approve and execute
documents evidencing and perform any agreement negotiated by us with any
counsel, accountants, appraisers, brokers and other advisors in connection with
the Transactions (all for the account of the Company), if (a) such person is not
an affiliate of ours, and (b) the terms and conditions of such agreement, taken
as a whole, are fair to the Company.
 
     4. In connection with our activities on your behalf, the Company agrees to
cooperate with us, to furnish or cause to be furnished to us such information
and data as we may reasonably request, and to give us reasonable access to the
Company's officers, directors, employees, appraisers and independent
accountants. The Company represents that all information made available to us by
the Company will be complete and correct in all material respects and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in light of the
circumstances under which such statements are made.
 
     5. The Board of Directors of the Company (the "Board") shall establish a
committee (the "Committee") of the Board consisting of John Chappell, Stephen
Reidy and Martyn Greenacre, which shall have full
 
                                       B-1
<PAGE>   236
 
authority of the Board to authorize the Transactions and the institution and
prosecution of actions (including arbitration proceedings) relating to the
Transactions. The Committee shall confer with us at such times as we reasonably
request.
 
     6. The Company shall reimburse us promptly for all reasonable out-of-pocket
expenses, including reasonable fees and expenses of our counsel, incurred in
connection with the rendering of our services hereunder.
 
     7. The benefits of this Agreement shall inure to the respective successors
and assigns of the parties hereto and of the Indemnified Persons referred to in
the attached indemnification provisions, and the obligations and liabilities
assumed in this Agreement by the parties hereto shall be binding upon their
respective successors and assigns.
 
     8. The Company agrees to indemnify us in accordance with the
indemnification provisions attached as Exhibit G hereto, which are incorporated
herein by reference and made a part hereof.
 
     9. We may terminate this Agreement at any time upon written notice, without
liability or continuing obligation to you. The Company may not terminate this
Agreement unless and until the Agreement and Plan of Merger and Contribution
dated as of the date hereof between us and the Company is terminated. Neither
termination nor completion of this assignment shall affect the provisions of
paragraphs 6 and 8, which shall remain operative and in full force and effect
until 5:00 p.m. Eastern time on the third anniversary of the execution of this
Agreement.
 
     10. The validity and interpretation of this Agreement shall be governed by,
and construed and enforced in accordance with, the substantive laws of the State
of Delaware applicable to agreements made and to be fully performed therein.
This agreement may not be modified or amended except in writing signed by the
parties hereto. Nothing in this Agreement, expressed or implied, is intended to
confer upon any person, other than the parties hereto or their respective
successors, any rights, remedies, obligations or liabilities under or by reason
of this Agreement. The parties acknowledge that this Agreement is not to be
construed as creating a partnership or joint venture between the parties hereto.
 
     If the above terms are in accordance with our understanding, please sign
the enclosed copy of this letter and return it to us.
 
                                          Very truly yours,
 
                                          CYTRX CORPORATION
 
                                          By:
                                            ------------------------------------
                                                      JACK J. LUCHESE
                                               President and Chief Executive
                                                           Officer
 
Confirmed and Agreed to this
6th day of December, 1996:
 
ZYNAXIS, INC.
 
By:
 
    ----------------------------------
           MARTYN D. GREENACRE
       Chairman and Chief Executive
                 Officer
 
                                       B-2
<PAGE>   237
 
                                 EXHIBIT INDEX
 
<TABLE>
<S>               <C>  <C>
Exhibit A         --   Assets to be Sold
Exhibit B         --   Liabilities to be Settled
Exhibit C         --   Operating Budget
Exhibits D and E  --   Agreements with Greenacre and Christie
Exhibit F         --   Agreement with QED
Exhibit G         --   Indemnification Provisions
</TABLE>
<PAGE>   238
 
                                                                      APPENDIX C
 
<TABLE>
<S>                                           <C>
Microfilm Number                              Filed with the Department of State on
                ----------------------------                                       ----------
Entity Number
             -------------------------------  -----------------------------------------------
                                                       Secretary of the Commonwealth
</TABLE>
 
             ARTICLES OF AMENDMENT -- DOMESTIC BUSINESS CORPORATION
                             DSCB:15-1915 (Rev 91)
 
     In compliance with the requirements of 15 Pa.C.S. sec. 1915 (relating to
articles of amendment), the undersigned business corporation, desiring to amend
its Articles, hereby states that:
 
1. The name of the corporation is:                Zynaxis, Inc.
                                  ----------------------------------------------
 
2. The (a) address of this corporation's current registered office in this
   Commonwealth or (b) name of its commercial registered office provider and the
   county of venue is (the Department is hereby authorized to correct the
   following information to conform to the records of the Department):
 
<TABLE>
<S>  <C>                        <C>         <C>              <C>       <C>
(a)  371 Phoenixville Pike      Malvern     Pennsylvania     19355     Chester
     -------------------------------------------------------------------------
     Number and Street           City          State          Zip      County
 
(b)  c/o:
          --------------------------------------------------------------------
         Name of Commercial Registered Office Provider          County
</TABLE>
 
  For a corporation represented by a commercial registered office provider, the
  county in (b) shall be deemed the county in which the corporation is located
  for venue and official publication purposes.
 
3. The statute by or under which it was incorporated is: The Pennsylvania
                                                         -----------------------
   Business Corporation Law of 1988, as amended
   -----------------------------------------------------------------------------
 
4. The date of its incorporation is:        March 5, 1987
                                    --------------------------------------------
 
5. (CHECK, AND IF APPROPRIATE COMPLETE, ONE OF THE FOLLOWING):
 
  [X] The amendment shall be effective upon filing these Articles of Amendment
      in the Department of State.
 
  [ ] The amendment shall be effective on:                    at 
                                           ------------------    ---------------
                                                 Date                Hour
 
6. (CHECK ONE OF THE FOLLOWING):
 
  [X] The amendment was adopted by the shareholders (or members) pursuant to 15
      Pa.C.S. sec. 1914(a) and (b).
 
  [ ] The amendment was adopted by the board of directors pursuant to 15 Pa.C.S.
      sec. 1914(c).
 
7. (CHECK, AND IF APPROPRIATE COMPLETE, ONE OF THE FOLLOWING):
 
  [ ] The amendment adopted by the corporation, set forth in full, is as
      follows:
 
  [X] The amendment adopted by the corporation is set forth in full in Exhibit A
      attached hereto and made a part hereof.
 
                                       C-1
<PAGE>   239
 
8. (CHECK IF THE AMENDMENT RESTATES THE ARTICLES):
 
  [ ] The restated Articles of Incorporation supersede the original Articles and
      all amendments thereto.
 
     IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles
of Amendment to be signed by a duly authorized officer thereof this ______ day
of ______, 19__.
 
                                                       Zynaxis, Inc.
                                          --------------------------------------
                                                  (Name of Corporation)
 
                                          By:
                                             -----------------------------------
 
                                          Title:
                                                --------------------------------
 
                                       C-2
<PAGE>   240
 
                                                                       EXHIBIT A
 
                             ARTICLES OF AMENDMENT
                                       OF
                                 ZYNAXIS, INC.
 
     The Amended and Restated Articles of Incorporation of Zynaxis, Inc., as
amended, are amended to add a new Article 8 to read as follows:
 
          "8. Subchapter E of Chapter 25 of the Business Corporation Law of
     1988, as amended, as codified at 15 Pa.C.S. Sections 2541-2548, shall not
     be applicable to the corporation."
 
                                       C-3
<PAGE>   241
 
                                                                      APPENDIX D
 
                     PENNSYLVANIA BUSINESS CORPORATION LAW
 
                        SUBCHAPTER D:  DISSENTERS RIGHTS
 
SEC. 1571. APPLICATION AND EFFECT OF SUBCHAPTER.
 
     (a) General rule.  Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
 
        Section 1906(c) (relating to dissenters rights upon special treatment).
        Section 1930 (relating to dissenters rights).
        Section 1931(d) (relating to dissenters rights in share exchanges).
        Section 1932(c) (relating to dissenters rights in asset transfers).
        Section 1952(d) (relating to dissenters rights in division).
        Section 1962(c) (relating to dissenters rights in conversion).
        Section 2104(b) (relating to procedure).
        Section 2324 (relating to corporation option where a restriction on
         transfer of a
         security is held invalid).
        Section 2325(b) (relating to minimum vote requirement).
        Section 2704(c) (relating to dissenters rights upon election).
        Section 2705(d) (relating to dissenters rights upon renewal of
         election).
        Section 2907(a) (relating to proceedings to terminate breach of
         qualifying conditions).
        Section 7104(b)(3) (relating to procedure).
 
     (b) Exceptions.
 
     (1) Except as otherwise provided in paragraph (2), the holders of the
shares of any class or series of shares that, at the record date fixed to
determine the shareholders entitled to notice of and to vote at the meeting at
which a plan specified in any of section 1930, 1931(d), 1932(c) or 1952(d) is to
be voted on, are either:
 
          (i) listed on a national securities exchange; or
 
          (ii) held of record by more than 2,000 shareholders;
 
shall not have the right to obtain payment of the fair value of any such shares
under this subchapter.
 
     (2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the case
of:
 
          (i) Shares converted by a plan if the shares are not converted solely
     into shares of the acquiring, surviving, new or other corporation or solely
     into such shares and money in lieu of fractional shares.
 
          (ii) Shares of any preferred or special class unless the articles, the
     plan or the terms of the transaction entitle all shareholders of the class
     to vote thereon and require for the adoption of the plan or the
     effectuation of the transaction the affirmative vote of a majority of the
     votes cast by all shareholders of the class.
 
          (iii) Shares entitled to dissenters rights under section 1906(c)
     (relating to dissenters rights upon special treatment).
 
     (3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares, property
or assets of another corporation by the issuance of shares, obligations or
otherwise, with or without assuming the liabilities of the other corporation and
with or without the intervention of another corporation or other person, shall
not be entitled to the rights and remedies of
 
                                       D-1
<PAGE>   242
 
dissenting shareholders provided in this subchapter regardless of the fact, if
it be the case, that the acquisition was accomplished by the issuance of voting
shares of the corporation to be outstanding immediately after the acquisition
sufficient to elect a majority or more of the directors of the corporation.
 
     (c) Grant of optional dissenters rights.  The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall have
dissenters rights in connection with any corporate action or other transaction
that would otherwise not entitle such shareholders to dissenters rights.
 
     (d) Notice of dissenters rights.  Unless otherwise provided by statute, if
a proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
 
          (1) A statement of the proposed action and a statement that the
     shareholders have a right to dissent and obtain payment of the fair value
     of their shares by complying with the terms of this subchapter; and
 
          (2) A copy of this subchapter.
 
     (e) Other statutes.  The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenters
rights.
 
     (f) Certain provisions of articles ineffective.  This subchapter may not be
relaxed by any provision of the articles.
 
     (g) Cross references.  See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
 
SEC. 1572. DEFINITIONS.
 
     The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
 
     "Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have the sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
 
     "Dissenter." A shareholder or beneficial owner who is entitled to and does
assert dissenters rights under this subchapter and who has performed every act
required up to the time involved for the assertion of those rights.
 
     "Fair value." The fair value of shares immediately before the effectuation
of the corporate action to which the dissenter objects taking into account all
relevant factors, but excluding any appreciation or depreciation in anticipation
of the corporate action.
 
     "Interest." Interest from the effective date of the corporate action until
the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors including the average
rate currently paid by the corporation on its principal bank loans.
 
SEC. 1573. RECORD AND BENEFICIAL HOLDERS AND OWNERS.
 
     (a) Record holders of shares.  A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of the
same class or series beneficially owned by any one person and discloses the name
and address of the person or persons on whose behalf he dissents. In that event,
his rights shall be determined as if the shares as to which he has dissented and
his other shares were registered in the names of different shareholders.
 
     (b) Beneficial owners of shares.  A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a
 
                                       D-2
<PAGE>   243
 
dissenting shareholder under the terms of this subchapter if he submits to the
corporation not later than the time of the assertion of dissenters rights a
written consent of the record holder. A beneficial owner may not dissent with
respect to some but less than all shares of the same class or series owned by
the owner, whether or not the shares so owned by him are registered in his name.
 
SEC. 1574. NOTICE OF INTENTION TO DISSENT.
 
     If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed corporate
action shall constitute the written notice required by this section.
 
SEC. 1575. NOTICE TO DEMAND PAYMENT.
 
     (a) General rule.  If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice of
intention to demand payment of the fair value of their shares and who refrained
from voting in favor of the proposed action. If the proposed corporate action is
to be taken without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of the fair value of
their shares a notice of the adoption of the plan or other corporate action. In
either case, the notice shall:
 
          (1) State where and when a demand for payment must be sent and
     certificates for certificated shares must be deposited in order to obtain
     payment.
 
          (2) Inform holders of uncertificated shares to what extent transfer of
     shares will be restricted from the time that demand for payment is
     received.
 
          (3) Supply a form for demanding payment that includes a request for
     certification of the date on which the shareholder, or the person on whose
     behalf the shareholder dissents, acquired beneficial ownership of the
     shares.
 
          (4) Be accompanied by a copy of this subchapter.
 
     (b) Time for receipt of demand for payment.  The time set for receipt of
the demand and deposit of certificated shares shall be not less than 30 days
from the mailing of the notice.
 
SEC. 1576. FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.
 
     (a) Effect of failure of shareholder to act.  A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575 (relating
to notice to demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
 
     (b) Restriction on uncertificated shares.  If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms of
section 1577(a) (relating to failure to effectuate corporate action).
 
     (c) Rights retained by shareholder.  The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
 
                                       D-3
<PAGE>   244
 
SEC. 1577. RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES.
 
     (a) Failure to effectuate corporate action.  Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for payment.
 
     (b) Renewal of notice to demand payment.  When uncertificated shares have
been released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming to
the requirements of section 1575 (relating to notice to demand payment), with
like effect.
 
     (c) Payment of fair value of shares.  Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
 
          (1) The closing balance sheet and statement of income of the issuer of
     the shares held or owned by the dissenter for a fiscal year ending not more
     than 16 months before the date of remittance or notice together with the
     latest available interim financial statements.
 
          (2) A statement of the corporation's estimate of the fair market value
     of the shares.
 
          (3) A notice of the right of the dissenter to demand payment or
     supplemental payment, as the case may be, accompanied by a copy of this
     subchapter.
 
     (d) Failure to make payment.  If the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by subsection (c),
it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenter had after
making demand for payment of their fair value.
 
SEC. 1578. ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES.
 
     (a) General rule.  If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or remits
payment of its estimate of the fair value of a dissenter's shares as permitted
by section 1577(c) (relating to payment of fair value of shares) and the
dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the fair
value of the shares, which shall be deemed a demand for payment of the amount or
the deficiency.
 
     (b) Effect of failure to file estimate.  Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the corporation.
 
                                       D-4
<PAGE>   245
 
SEC. 1579. VALUATION PROCEEDINGS GENERALLY.
 
     (a) General rule.  Within 60 days after the latest of:
 
          (1) Effectuation of the proposed corporate action;
 
          (2) Timely receipt of any demand for payment under section 1575
     (relating to notice to demand payment); or
 
          (3) Timely receipt of any estimates pursuant to section 1578 (relating
     to estimate by dissenter of fair value of shares);
 
if any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the court.
 
     (b) Mandatory joinder of dissenters.  All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
 
     (c) Jurisdiction of the court.  The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
 
     (d) Measure of recovery.  Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
 
     (e) Effect of corporation's failure to file application.  If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not previously
remitted.
 
SEC. 1580. COSTS AND EXPENSES OF VALUATION PROCEEDINGS.
 
     (a) General rule.  The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578 (relating
to estimate by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
 
     (b) Assessment of counsel fees and expert fees where lack of good faith
appears.  Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided by this subchapter.
 
     (c) Award of fees for benefits to other dissenters.  If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.
 
                                       D-5
<PAGE>   246
 
                                                                      APPENDIX E
 
                     PENNSYLVANIA BUSINESS CORPORATION LAW
 
                       SUBCHAPTER E. CONTROL TRANSACTIONS
 
     2541 APPLICATION AND EFFECT OF SUBCHAPTER. -- (a) General rule. -- Except
as otherwise provided in this section, this subchapter shall apply to a
registered corporation unless:
 
     (1) the registered corporation is one described in section 2502(i)(ii) or
(2) (relating to registered corporation status):
 
     (2) the bylaws, by amendment adopted either:
 
     (i) by March 23, 1984; or
 
     (ii) on or after March 23, 1988, and on or before June 21, 1988;
 
and, in either event, not subsequently rescinded by an article amendment,
explicitly provide that this subchapter shall not be applicable to the
corporation in the case of a corporation which on June 21, 1988, did not have
outstanding one or more classes or series of preference shares entitled, upon
the occurrence of a default in the payment of dividends or another similar
contingency, to elect a majority of the members of the board of directors (a
bylaw adopted on or before June 21, 1988, by a corporation excluded from the
scope of this paragraph by the restriction of this paragraph relating to certain
outstanding preference shares shall be ineffective unless ratified under
paragraph (3));
 
     (3) the bylaws of which explicitly provide that this subchapter shall not
be applicable to the corporation by amendment ratified by the board of directors
on or after December 19, 1990, and on or before March 19, 1991, in the case of a
corporation:
 
     (i) which on June 21, 1988, had outstanding one or more classes or series
of preference shares entitled, upon the occurrence of a default in the payment
of dividends or another similar contingency, to elect a majority of the members
of the board of directors; and
 
     (ii) the bylaws of which on that date contained a provision described in
paragraph (2); or
 
     (4) the articles explicitly provide that this subchapter shall not be
applicable to the corporation by a provision included in the original articles,
by an article amendment adopted prior to the date of the control transaction and
prior to or on March 23, 1988, pursuant to the procedures then applicable to the
corporation, or by an article amendment adopted prior to the date of the control
transaction and subsequent to March 23, 1988, pursuant to both:
 
     (i) the procedures then applicable to the corporation; and
 
     (ii) unless such proposed amendment has been approved by the board of
directors of the corporation, in which event this subparagraph shall not be
applicable, the affirmative vote of the shareholders entitled to cast at least
80% of the votes which all shareholders are entitled to cast thereon.
 
     A reference in the articles or bylaws to former section 910 (relating to
right of shareholders to receive payment for shares following a control
transaction) of the act of May 5, 1933 (P.L. 364, No. 106), known as the
Business Corporation Law of 1933, shall be a reference to this subchapter for
the purposes of this section. See section 101(c) (relating to references to
prior statutes).
 
     (b) Inadvertent transactions. -- This subchapter shall not apply to any
person or group that inadvertently becomes a controlling person or group if that
controlling person or group, as soon as practicable, divests itself of a
sufficient amount of its voting shares so that it is no longer a controlling
person or group.
 
                                       E-1
<PAGE>   247
 
     (c) Certain subsidiaries. -- This subchapter shall not apply to any
corporation that on December 23, 1983, was a subsidiary of any other
corporation. (Last amended by Act 169, L. '92, eff. 2-16-93.)
 
     2542 DEFINITIONS. -- The following words and phrases when used in this
subchapter shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
 
     "Control transaction." The acquisition by a person or group of the status
of a controlling person or group.
 
     "Controlling person or group." A controlling person or group as defined in
section 2543 (relating to controlling person or group).
 
     "Fair value." A value not less than the highest price paid per share by the
controlling person or group at any time during the 90-day period ending on and
including the date of the control transaction plus an increment representing any
value, including, without limitation, any proportion of any value payable for
acquisition of control of the corporation, that may not be reflected in such
price.
 
     "Partial payment amount." The amount per share specified in section
2545(c)(2) (relating to contents of notice).
 
     "Subsidiary." Any corporation as to which any other corporation has or has
the right to acquire, directly or indirectly, through the exercise of all
warrants, options and rights and the conversion of all convertible securities,
whether issued or granted by the subsidiary or otherwise, voting power over
voting shares of the subsidiary that would entitle the holders thereof to cast
in excess of 50% of the votes that all shareholders would be entitled to cast in
the election of directors of such subsidiary, except that a subsidiary will not
be deemed to cease being a subsidiary as long as such corporation remains a
controlling person or group within the meaning of this subchapter.
 
     "Voting shares." The term shall have the meaning specified in section 2552
(relating to definitions). (Last amended by Act 36, L. '89, eff. 4-27-90.)
 
     2543 CONTROLLING PERSON OR GROUP. -- (a) General rule. -- For the purpose
of this subchapter, a "controlling person or group" means a person who has, or a
group of persons acting in concert that has, voting power over voting shares of
the registered corporation that would entitle the holders thereof to cast at
least 20% of the votes that all shareholders would be entitled to cast in an
election of directors of the corporation.
 
     (b) Exceptions generally. -- Notwithstanding subsection (a):
 
     (1) A person or group which would otherwise be a controlling person or
group within the meaning of this section shall not be deemed a controlling
person or group unless, subsequent to the later of March 23, 1988, or the date
this subchapter becomes applicable to a corporation by bylaw or article
amendment or otherwise, that person or group increases the percentage of
outstanding voting, shares of the corporation over which it has voting power to
in excess of the percentage of outstanding voting shares of the corporation over
which that person or group had voting power on such later date, and to at least
the amount specified in subsection (a), as the result of forming or enlarging a
group or acquiring, by purchase, voting power over voting shares of the
corporation.
 
     (2) No person or group shall be deemed to be a controlling person or group
at any particular time if voting power over any of the following voting shares
is required to be counted at such time in order to meet the 20% minimum:
 
     (i) Shares which have been held continuously by a natural person since
January 1, 1983, and which are held by such natural person at such time.
 
- ---------------
Act 169, L. '92, eff. 2-16-93, deleted "-- (d) Rights cumulative. -- The rights
and remedies provided in this subchapter shall be in addition to, and not in
lieu of, any other rights or remedies provided by this subpart, the articles or
bylaws of the corporation, any, securities'. option rights or obligations of the
corporation or otherwise."
 
Act 36, L. '89, eff. 4-27-90, added matter in italic.
 
                                       E-2
<PAGE>   248
 
     (ii) Shares which are held at such time by any natural person or trust,
estate, foundation or other similar entity to the extent the shares were
acquired solely by gift, inheritance, bequest, devise or other testamentary
distribution or series of these transactions, directly or indirectly, from a
natural person who had acquired the shares prior to January 1, 1983.
 
     (iii) Shares which were acquired pursuant to a stock split, stock dividend,
reclassification or similar recapitalization with respect to shares described
under this paragraph that have been held continuously since their issuance by
the corporation by the natural person or entity that acquired them from the
corporation or that were acquired, directly or indirectly, from such natural
person or entity, solely pursuant to a transaction or series of transactions
described in subparagraph (ii), and that are held at such time by a natural
person or entity described in subparagraph (ii).
 
     (iv) Control shares as defined in section 2562 (relating to definitions)
which have not yet been accorded voting rights pursuant to section 2564(a)
(relating to voting rights of shares acquired in a control share acquisition).
 
     (v) Shares, the voting rights of which are attributable to a person under
subsection (d) if:
 
     (A) the person acquired the option or conversion right directly from or
made the contract, arrangement or understanding or has the relationship directly
with the corporation; and
 
     (B) the person does not at the particular time own or otherwise
effectively-possess the voting rights of the shares.
 
     (vi) Shares acquired directly from the corporation or an affiliate or
associate, as defined in section 2552 (relating to definitions), of the
corporation by a person engaged in business as an underwriter of securities who
acquires the shares through his participation in good faith in a firm commitment
underwriting registered under the Securities Act of 1933.
 
     (3) In determining whether a person or group is or would be a controlling
person or group at any particular time, there shall be disregarded voting power
arising from a contingent right of the holders of one or more classes or series
of preference shares to elect one or more members of the board of directors upon
or during the continuation of a default in the payment of dividends on such
shares or another similar contingency.
 
     (c) Certain record holders. -- A person shall not be a controlling person
under subsection (a) if the person holds voting power, in good faith and not for
the purpose of circumventing this subchapter, as an agent, bank, broker, nominee
or trustee for one or more beneficial owners who do not individually or, if they
are a group acting in concert, as a group have the voting power specified in
subsection (a), or who are not deemed a controlling person or group under
subsection (b).
 
     (d) Existence of voting power. -- For the purposes of this subchapter, a
person has voting power over a voting share if the person has or shares,
directly or indirectly, through any option, contract, arrangement,
understanding, conversion right or relationship, or by acting jointly or in
concert or otherwise, the power to vote, or to direct the voting of, the voting
share. (Last amended by Act 198, L. '90, eff. 12-19-(O.)
 
     2544 RIGHT OF SHAREHOLDERS TO RECEIVE PAYMENT FOR SHARES. -- Any holder of
voting shares of a registered corporation that becomes the subject of a control
transaction who shall object to the transaction shall be entitled to the rights
and remedies provided in this subchapter.
 
     2545 NOTICE TO SHAREHOLDERS. -- (a) General rule. -- Prompt notice that a
control transaction has occurred shall be given by the controlling person or
group to:
 
     (1) Each shareholder of record of the registered corporation holding voting
shares.
 
     (2) To the court, accompanied by a petition to the court praying that the
fair value of the voting shares of the corporation be determined pursuant to
section 2547 (relating to valuation procedures) if the court should receive
pursuant to section 2547 certificates from shareholders of the corporation or an
equivalent request for transfer of uncertificated securities.
 
- ---------------
Act 198, L. '90, eff. 12-19-90, added matter in italic.
 
                                       E-3
<PAGE>   249
 
     (b) Obligations of the corporation. -- If the controlling person or group
so requests, the corporation shall, at the option of the corporation and at the
expense of the person or group, either furnish a list of all such shareholders
to the person or group or mail the notice to all such shareholders.
 
     (c) Contents of notice. -- The notice shall state that:
 
     (1) All shareholders are entitled to demand that they be paid the fair
value of their shares.
 
     (2) The minimum value the shareholder can receive under this subchapter is
the highest price paid per share by the controlling person or group within the
90-day period ending on and including the date of the control transaction, and
stating that value.
 
     (3) If the shareholder believes the fair value of his shares is higher,
that this subchapter provides an appraisal procedure for determining the fair
value of such shares, specifying the name of the court and its address and the
caption of the petition referenced in subsection (a)(2), and stating that the
information is provided for the possible use by the shareholder in electing to
proceed with a court-appointed appraiser under section 2547. There shall be
included in, or enclosed with, the notice a copy of this subchapter.
 
     (d) Optional procedure. -- The controlling person or group may, at its
option, supply with the notice referenced in subsection (c) a form for the
shareholder to demand payment of the partial payment amount directly from the
controlling person or group without utilizing the court-appointed appraiser
procedure of section 2547, requiring the shareholder to state the number and
class or series, if any, of the shares owned by him, and stating where the
payment demand must be sent and the procedures to be followed.
 
     2546 SHAREHOLDER DEMAND FOR FAIR VALUE. -- (a) General rule. -- after the
occurrence of the control transaction, any holder of voting shares of the
registered corporation may, prior to or within a reasonable time after the
notice required by section 2545 (relating to notice to shareholders) is given,
which time period may be specified in the notice, make written demand on the
controlling person or group for payment of the amount provided in subsection (c)
with respect to the voting shares of the corporation held by the shareholder,
and the controlling person or group shall be required to pay that amount to the
shareholder pursuant to the procedures specified in section 2547 (relating to
valuation procedures).
 
     (b) Contents of demand. -- The demand of the shareholder shall state the
number and class or series, if any, of the shares owned by him with respect to
which the demand is made.
 
     (c) Measure of value. -- A shareholder making written demand under this
section shall be entitled to receive cash for each of his shares in an amount
equal to the fair value of each voting share as of the date on which the control
transaction occurs, taking into account all relevant factors, including an
increment representing a proportion of any value payable for acquisition of
control of the corporation.
 
     (d) Purchases independent of subchapter. -- The provisions of this
subchapter shall not preclude a controlling person or group subject to this
subchapter from offering, whether in the notice required by section 2545 or
otherwise, to purchase voting shares of the corporation at a price other than
that provided in subsection (c), and the provisions of this subchapter shall not
preclude any shareholder from agreeing to sell his voting shares at that or any
other price to any person.
 
     2547 VALUATION PROCEDURES. -- (a) General rule. -- If, within 45 days (or
such other time period, if any, as required by applicable law) after the date of
the notice required by section 2545 (relating to notice to shareholders), or, if
such notice was not provided prior to the date of the written demand by the
shareholder under section 2546 (relating to shareholder demand for fair value),
then within 45 days (or such other time period, if any, required by applicable
law) of the date of such written demand, the controlling person or group and the
shareholder are unable to agree on the fair value of the shares or on a binding
procedure to determine the fair value of the shares, then each shareholder who
is unable to agree on both the fair value and on such a procedure with the
controlling person or group and who so desires to obtain the rights and remedies
provided in this subchapter shall, no later than 30 days after the expiration of
the applicable 45-day or other period, surrender to the court certificates
representing any of the shares that are certificated shares, duly endorsed for
transfer to the controlling person or group, or cause any uncertificated shares
to be transferred to the court as escrow agent under subsection (c) with a
notice stating that the certificates or
 
                                       E-4
<PAGE>   250
 
uncertificated shares are being surrendered or transferred, as the case may be,
in connection with the petition referenced in section 2545 or, if no petition
has theretofore been filed, the shareholder may file a petition within the
30-day period in the court praying that the fair value (as defined in this
subchapter) of the shares be determined.
 
     (b) Effect of failure to give notice and surrender certificates. -- Any
shareholder who does not so give notice and surrender any certificates or cause
uncertificated shares to be transferred within such time period shall have no
further right to receive, with respect to shares the certificates of which were
not so surrendered or the uncertificated shares which were not so transferred
under this section, payment under this subchapter from the controlling person or
group with respect to the control transaction giving rise to the rights of the
shareholder under this subchapter.
 
     (c) Escrow and notice. -- The court shall hold the certificates surrendered
and the uncertificated shares transferred to it in escrow for, and shall
promptly, following the expiration of the time period during which the
certificates may be surrendered and the uncertificated shares transferred,
provide a notice to the controlling person or group of the number of shares so
surrendered or transferred.
 
     (d) Partial payment for shares. -- The controlling person or group shall
then make a partial payment for the shares so surrendered or transferred to the
court, within ten business days of receipt of the notice from the court, at a
per-share price equal to the partial payment amount. The court shall then make
payment as soon as practicable, but in any event within ten business days, to
the shareholders who so surrender or transfer their shares to the court of the
appropriate per-share amount received from the controlling person or group.
 
     (e) Appointment of appraiser. -- Upon receipt of any share certificate
surrendered or uncertificated share transferred under this section, the court
shall, as soon as practicable but in any event within 30 days, appoint an
appraiser with experience in appraising share values of companies of like nature
to the registered corporation to determine the fair value of the shares.
 
     (f) Appraisal procedure. -- The appraiser so appointed by the court shall,
as soon as reasonably practicable, determine the fair value of the shares
subject to its appraisal and the appropriate market rate of interest on the
amount then owed by the controlling person or group to the holders of the
shares. The determination of any appraiser so appointed by the court shall be
final and binding on both the controlling person or group and all shareholders
who so surrendered their share certificates or transferred their shares to the
court, except that the determination of the appraiser shall be subject to review
to the extent and within the time provided or prescribed by law in the case of
other appointed judicial officers. See 42 Pa.C.S. Sections 5105(a)(3) (relating
to right to appellate review) and 5571(b) (relating to appeals generally).
 
     (g) Supplemental payment. -- Any amount owed, together with interest, as
determined pursuant to the appraisal procedures of this section shall be payable
by the controlling person or group after it is so determined and upon and
Concurrently with the delivery or transfer to the controlling person or group by
the court (which shall make delivery of the certificate or certificates
surrendered or the uncertificated shares transferred to it to the controlling
person or group as soon as practicable but in any event within ten business days
after the final determination of the amount owed) of the certificate or
certificates representing shares surrendered or the uncertified shares
transferred to the court, and the court shall then make payment, as soon as
practicable but in any event within ten business days after receipt of payment
from the controlling person or group, to the shareholders who so surrendered or
transferred their shares to the court of the appropriate per-share amount
received from the controlling person or group.
 
     (h) Voting and dividend rights during appraisal proceedings. -- 
Shareholders who surrender their shares to the court pursuant to this section 
shall retain the right to vote their shares and receive dividends or other 
distributions thereon until the Court receives payment in full for each of the 
shares so surrendered or transferred of the partial payment amount (and, 
thereafter, the controlling person or group shall be entitled to vote such
shares and receive dividends or other distributions thereon). The fair value (as
determined by the appraiser) of any dividends or other distributions so received
by the shareholders shall be subtracted from any amount owing to such
shareholders under this section.
 
                                       E-5
<PAGE>   251
 
     (i) Powers of the court. -- The court may appoint such agents, including
the transfer agent of the corporation, or any other institution, to hold the
share certificates so surrendered and the shares surrendered or transferred
under this section, to effect any necessary change in record ownership of the
shares after the payment by the controlling person or group to the court of the
amount specified in subsection (h), to receive and disburse dividends or other
distributions, to provide notices to shareholders and to take such other actions
as the court determines are appropriate to effect the purposes of this
subchapter.
 
     (j) Costs and expenses. -- The costs and expenses of any appraiser or other
agents appointed by the court shall be assessed against the controlling person
or group. The costs and expenses of any other procedure to determine fair value
shall be paid as agreed to by the parties agreeing to the procedure.
 
     (k) Jurisdiction exclusive. -- The jurisdiction of the court under this
subchapter is plenary and exclusive and the controlling person or group and all
shareholders who so surrendered or transferred their shares to the court shall
be made a party to the proceeding as in an action against their shares.
 
     (1) Duty of corporation. -- The corporation shall comply with requests for
information, which may be submitted pursuant to procedures maintaining the
confidentiality of the information, made by the court or the appraiser selected
by the court. If any of the shares of the corporation are not represented by
certificates, the transfer, escrow or retransfer of those shares contemplated by
this section shall be registered by the corporation, which shall give the
written notice required by section 1528(f) (relating to uncertificated shares)
to the transferring shareholder, the court and the controlling shareholder or
group, as appropriate in the circumstances.
 
     (m) Payment under optional procedure. -- Any amount agreed upon between the
parties or determined pursuant to the procedure agreed upon between the parties
shall be payable by the controlling person or group after it is agreed upon or
determined and upon and concurrently with the delivery of any certificate or
certificates representing such shares or the transfer of any uncertificated
shares to the controlling person or group by the shareholder.
 
     (n) Title to shares. -- Upon full payment by the controlling person or
group of the amount owed to the shareholder or to the court, as appropriate, the
shareholder shall cease to have any interest in the shares.
 
     2548 COORDINATION WITH CONTROL TRANSACTION. -- (a) General rule. -- A
person or group that proposes to engage in a control transaction may comply with
the requirements of this subchapter in connection with the control transaction,
and the effectiveness of the rights afforded in this subchapter to shareholders
may be conditioned upon the consummation of the control transaction.
 
     (b) Notice. -- The person or group shall give prompt written notice of the
satisfaction of any such condition to each shareholder who has made demand as
provided in this subchapter.
 
                                       E-6
<PAGE>   252
 
                                                                      APPENDIX F
 
                            NOTE EXCHANGE AGREEMENT
 
     THIS AGREEMENT (this "Agreement") is made and entered into as of December
6, 1996, by and among ZYNAXIS, INC., a Pennsylvania corporation (the "Company"),
CYTRX CORPORATION, a Delaware corporation ("CytRx"), VAXCEL, INC., a Delaware
corporation and a wholly owned subsidiary of CytRx ("Vaxcel"), EUCLID PARTNERS
III, L.P., a Delaware limited partnership, and S.R. ONE, LTD., a Delaware
limited partnership (together with Euclid Partners III, L.P., the
"Noteholders").
 
                                  WITNESSETH:
 
     WHEREAS, the Noteholders hold certain convertible promissory notes on which
the Company is the obligor.
 
     WHEREAS, simultaneously with the execution of this Agreement the Company is
entering into an Agreement and Plan of Merger and Contribution (the "Agreement
and Plan of Merger and Contribution") with CytRx, Vaxcel, and Vaxcel Merger Sub,
Inc., a Georgia corporation and a newly formed, wholly owned subsidiary of
Vaxcel ("Vaxcel Merger Sub"), and certain other agreements, including, among
other things, a Liquidation Agreement (the "Liquidation Agreement")
contemplating the sale of Assets (as defined therein) of the Company and
documents (the "Secured Loan Documents") relating to a secured loan being
extended to the Company by CytRx (the "Secured Loan"). The Agreement and Plan of
Merger and Contribution provides for the issuance of shares of common stock of
Vaxcel and a warrant to purchase shares of common stock of Vaxcel to CytRx in
exchange for CytRx's contribution of the Secured Loan and cash in an amount
equal to Four Million Dollars ($4,000,000) minus the balance of the Secured Loan
at the time of contribution, subject to adjustment for payments made to
shareholders of Zynaxis pursuant to Section 3.3 of the Agreement and Plan of
Merger and Contribution. The Agreement and Plan of Merger and Contribution also
provides for the issuance of shares of common stock of Vaxcel to the existing
shareholders of the Company in exchange for the contribution to Vaxcel by the
existing shareholders of the Company of all of the outstanding shares of capital
stock of the Company by means of a merger of Vaxcel Merger Sub with and into the
Company (the "Merger"). At the effective time of the Merger, the outstanding
shares of the capital stock of the Company will be converted into the right to
receive shares of the common stock of Vaxcel. As a result, shareholders of the
Company will become shareholders of Vaxcel and the Company will continue to
conduct its business and operations as a wholly owned subsidiary of Vaxcel.
 
     WHEREAS, CytRx is unwilling to enter into the Agreement and Plan of Merger
and Contribution unless the Noteholders agree to exchange their promissory notes
for shares of common stock of Vaxcel upon the terms set forth in this Agreement
in connection with the Merger.
 
     NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
covenants, and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
 
     1. Agreement to Exchange.  Upon consummation of the Merger, each
convertible demand promissory note issued by the Company and held by a
Noteholder (each a "Company Demand Note") shall be exchanged for the number of
shares (the "Note Shares") of Vaxcel Common Stock equal to the Exchange Ratio
multiplied by the quotient (rounded down to the nearest whole share) obtained by
dividing the unpaid principal amount of such Company Demand Note, together with
unpaid interest thereon accrued through September 30, 1996, by the Per Share
Price, as such term is defined in the Agreement and Plan of Merger and
Contribution. At the closing of the transactions contemplated by the Agreement
and Plan of Merger and Contribution (the "Closing") each holder of a Company
Demand Note shall deliver to the Company the Company Demand Note, marked "Paid
in Full," and Vaxcel shall deliver to each such holder in exchange therefor a
certificate representing all the Note Shares to be issued in exchange therefor,
duly registered in the name of such holder, free and clear of any liens,
security interests or other defects of title.
 
                                       F-1
<PAGE>   253
 
     2. Termination of Registration Rights.  Each of the undersigned Noteholders
agrees that: (i) upon execution of this Agreement all rights that the Noteholder
may have to require the Company to register securities of the Company for sale
under applicable state and federal securities laws ("Registration Rights") are
suspended pending the Closing, and (ii) upon consummation of the Merger all such
Registration Rights will be terminated and such Noteholder will have such
registration rights as are provided for such Noteholder in the Agreement and
Plan of Merger and Contribution. If the Agreement and Plan of Merger and
Contribution is terminated for any reason, beginning at the time of such
termination the undersigned Noteholder shall have such Registration Rights as
such Noteholder would have had at such time if such Registration Rights had not
been suspended pursuant to the preceding sentence.
 
     3. Notices.  All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice): (i) if to the Company, CytRx
or Vaxcel, to the address set forth in Section 11.8 of the Agreement and Plan of
Merger and Contribution; and (ii) if to a Noteholder, to its address shown below
its signature on the last page hereof.
 
     4. Headings.  The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
 
     5. Counterparts.  This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement.
 
     6. Entire Agreement.  This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement, and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof.
 
     7. Governing Law.  This Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Pennsylvania, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
 
     8. Assignment.  Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise, by any of the parties without the prior written
consent of the other parties. Any assignment in violation of the foregoing shall
be void.
 
     9. Equitable Remedies.  Each Noteholder agrees that irreparable damage
would occur and that CytRx, Vaxcel and the Company would not have any adequate
remedy at law in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that CytRx, Vaxcel and the Company shall be entitled to an
injunction or injunctions to prevent breaches by a Noteholder of this Agreement
and to enforce specifically the terms and provisions of this Agreement.
 
     10. Severability.  If any term, provision, covenant or restriction herein,
or the application thereof to any circumstance, shall, to any extent, be held by
a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions herein and the
application thereof to any other circumstances, shall remain in full force and
effect, shall not in any way be affected, impaired or invalidated, and shall be
enforced to the fullest extent permitted by law.
 
                 [Remainder of page intentionally left blank.]
 
                                       F-2
<PAGE>   254
 
                  [SIGNATURE PAGE TO NOTE EXCHANGE AGREEMENT]
 
     IN WITNESS WHEREOF, the undersigned have duly executed this Agreement under
seal as of the day and year first above written.
 
<TABLE>
<S>                                               <C>
ZYNAXIS, INC.                                     CYTRX CORPORATION

By:                                               By:
   ---------------------------------------           ---------------------------------------
 
Name:                                             Name:
     -------------------------------------             -------------------------------------
 
Title:                                            Title:
      ------------------------------------              ------------------------------------

VAXCEL, INC.

By:
   ---------------------------------------
 
Name:
     -------------------------------------
 
Title:
      ------------------------------------

EUCLID PARTNERS III, L.P.                         S.R. ONE, LTD.

By:                                               By:
   ---------------------------------------           ---------------------------------------
 
Name:                                             Name:
     -------------------------------------             -------------------------------------
 
Title:                                            Title:
      ------------------------------------              ------------------------------------
 
Address:                                          Address:
        ----------------------------------                ----------------------------------

    --------------------------------------            --------------------------------------
                                                                                          
    --------------------------------------            --------------------------------------
                                                                                          
    --------------------------------------            --------------------------------------
</TABLE>
 
                                       F-3
<PAGE>   255
 
                                                                      APPENDIX G
 
                     PREFERRED STOCK AND WARRANT AGREEMENT
 
     THIS AGREEMENT (this "Agreement") is made and entered into as of December
6, 1996, by and among ZYNAXIS, INC., a Pennsylvania corporation ("Zynaxis"),
CYTRX CORPORATION, a Delaware corporation ("CytRx"), Vaxcel, Inc., a Delaware
corporation and a wholly owned subsidiary of CytRx ("Vaxcel") and the persons
listed in Exhibit A (the "Securityholders").
 
                                  WITNESSETH:
 
     WHEREAS, the Securityholders collectively hold all of the outstanding
shares of Series A Convertible Preferred Stock of Zynaxis (the "Series A Stock")
and each Securityholder holds the number of shares of Series A Stock and the
number of warrants to purchase additional shares of Common Stock of Zynaxis set
forth beside such Securityholder's name in Exhibit A (the "Warrants");
 
     WHEREAS, the Series A Stock and the Warrants were issued pursuant to that
certain Preferred Stock and Warrant Purchase Agreement dated March 29, 1995, as
amended (the "Preferred Stock and Warrant Purchase Agreement"), and in
connection with bridge loans extended by certain of the Securityholders to
Zynaxis;
 
     WHEREAS, simultaneously with the execution of this Agreement Zynaxis is
entering into an Agreement and Plan of Merger and Contribution (the "Merger and
Contribution Agreement") with CytRx, Vaxcel, and Vaxcel Merger Sub, Inc., a
Georgia corporation and a newly formed, wholly owned subsidiary of Vaxcel
("Vaxcel Merger Sub"), and certain other agreements, including, among other
things, a Liquidation Agreement (the "Liquidation Agreement") contemplating the
sale of Assets (as defined therein) of Zynaxis and documents (the "Secured Loan
Documents") relating to a secured loan being extended to Zynaxis by CytRx (the
"Secured Loan"). The Merger and Contribution Agreement provides for the issuance
of shares of Vaxcel Common Stock and a warrant to purchase shares of Vaxcel
Common Stock to CytRx in exchange for CytRx's contribution to Vaxcel of the
Secured Loan and a cash payment in an amount equal to Four Million Dollars
($4,000,000) minus the aggregate principal and interest balance outstanding
under the Secured Loan, subject to adjustment for payments made to shareholders
of Zynaxis pursuant to Section 3.3 of the Merger and Contribution Agreement. The
Merger and Contribution Agreement also provides for the issuance of shares of
Vaxcel Common Stock to the existing shareholders of Zynaxis in exchange for the
contribution to Vaxcel by the existing shareholders of Zynaxis of all of the
outstanding shares of capital stock of Zynaxis by means of a merger of Vaxcel
Merger Sub with and into Zynaxis. At the effective time of such merger, the
outstanding shares of the capital stock of Zynaxis will be converted into the
right to receive shares of the common stock of Vaxcel (except as provided
herein). As a result, shareholders of Zynaxis will become shareholders of Vaxcel
and Zynaxis will continue to conduct its business and operations as a wholly
owned subsidiary of Vaxcel.
 
     WHEREAS, CytRx is unwilling to enter into the Merger and Contribution
Agreement unless the rights of the Securityholders are modified as set forth in
this Agreement;
 
     NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
covenants, and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
 
     1. Treatment of Transactions.  Each of the undersigned elects that the
consummation of the transactions contemplated by the Merger and Contribution
Agreement and the other agreements contemplated by the Merger and Contribution
Agreement, including but not limited to the Liquidation Agreement, will not be
deemed a liquidation for purposes of Sections 3.1 and 3.2 of the Statement with
Respect to Shares filed by Zynaxis in the Department of State of the
Commonwealth of Pennsylvania on April 6, 1995.
 
                                       G-1
<PAGE>   256
 
     2. Consent to Secured Loan.  Each of the undersigned consents to the
Secured Loan and all liens, pledges, mortgages, security interests and other
encumbrances to which the assets or properties of Zynaxis may become subject as
part of the Secured Loan.
 
     3. Exchange of Warrants.  Each of the undersigned agrees that upon
consummation of the merger between Zynaxis and Vaxcel Merger Sub pursuant to the
Merger and Contribution Agreement (the "Merger"), each Warrant held by the
undersigned shall be exchanged for a new warrant substantially in the form
attached hereto as Exhibit B to purchase a number of shares of Vaxcel Common
Stock equal to: (i) the number of shares of Common Stock of Zynaxis as the
Warrants held by such undersigned are exercisable to purchase at that time
multiplied by (ii) the Exchange Ratio (the "New Warrant"). Each of the
undersigned Securityholders agrees that such undersigned Securityholder shall
surrender the Warrants held by such undersigned Securityholder and shall receive
in exchange therefor a New Warrant. Zynaxis shall not honor any warrant
agreement representing a Warrant after the Merger.
 
     4. Termination of Preferred Stock and Warrant Purchase Agreement and
Registration Rights.  Each of the undersigned agrees that the Preferred Stock
and Warrant Purchase Agreement and all rights of the Securityholders thereunder
shall terminate upon the Merger. Each of the undersigned further agrees that:
(i) upon execution of this Agreement all rights that the undersigned
Securityholder may have to require Zynaxis to register securities of Zynaxis for
sale under applicable state and federal securities laws, whether granted
pursuant to the Preferred Stock and Warrant Agreement or otherwise
("Registration Rights"), are suspended pending the Merger, and (ii) upon
occurrence of the Merger all such Registration Rights will be terminated and
such Securityholder will have such Registration Rights as are provided for such
Securityholder in the Merger and Contribution Agreement. If the Merger and
Contribution Agreement is terminated for any reason, beginning at the time of
such termination the undersigned Securityholder shall have such Registration
Rights as such Securityholder would have had at such time if such Registration
Rights had not been suspended pursuant to the preceding sentence.
 
     5. Accredited Investor Status of Securityholder.  Each of the undersigned
Securityholders represents and warrants to CytRx, Vaxcel and Zynaxis that he or
it is an "accredited investor" within the meaning of Regulation D promulgated
under the Securities Act of 1933, as amended (the "Securities Act"), and that he
or it is acquiring New Warrants for himself or itself and not for other persons.
Each Securityholder understands that the New Warrants and any Securities
purchased upon exercise of New Warrants (the "Warrant Securities") have not been
registered under the Securities Act and, therefore, cannot be resold unless such
Warrant Securities are registered under the Securities Act or unless an
exemption from such registration is available.
 
     6. Notices.  All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice): (i) if to Zynaxis, CytRx or
Vaxcel, to the address set forth in Section 11.8 of the Merger and Contribution
Agreement; and (ii) if to a Securityholder, to its address shown below its
signature on the last page hereof.
 
     7. Headings.  The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
 
     8. Counterparts.  This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement.
 
     9. Entire Agreement.  This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement, and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof.
 
     10. Governing Law.  This Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Pennsylvania, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
 
                                       G-2
<PAGE>   257
 
     11. Assignment.  Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise, by any of the parties without the prior written
consent of the other parties. Any assignment in violation of the foregoing shall
be void.
 
     12. Equitable Remedies.  Each Securityholder agrees that irreparable damage
would occur and that CytRx and Vaxcel would not have any adequate remedy at law
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that CytRx and Vaxcel shall be entitled to an injunction or
injunctions to prevent breaches by a Securityholder of this Agreement and to
enforce specifically the terms and provisions of this Agreement.
 
     13. Severability.  If any term, provision, covenant or restriction herein,
or the application thereof to any circumstance, shall, to any extent, be held by
a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions herein and the
application thereof to any other circumstances, shall remain in full force and
effect, shall not in any way be affected, impaired or invalidated, and shall be
enforced to the fullest extent permitted by law.
 
     14. Defined Terms.  Capitalized terms used in this Agreement but not
defined herein shall have the meanings given such terms in the Merger and
Contribution Agreement.
 
                 [Remainder of page intentionally left blank.]
 
                                       G-3
<PAGE>   258
 
 [FIRST OF THREE SIGNATURE PAGES TO PREFERRED STOCK AND WARRANT AGREEMENT DATED
                                NOVEMBER , 1996]
 
     IN WITNESS WHEREOF, the undersigned have duly executed this Agreement under
seal as of the day and year first above written.
 
<TABLE>
<S>                                               <C>
ZYNAXIS, INC.                                     CYTRX CORPORATION

By:                                               By:
   ---------------------------------------           ---------------------------------------
 
Name:                                             Name:
     -------------------------------------             -------------------------------------
 
Title:                                            Title:
      ------------------------------------              ------------------------------------
 
VAXCEL INC.                                       S.R. ONE, LTD.

By:                                               By:
   ---------------------------------------           ---------------------------------------
 
Name:                                             Name:
     -------------------------------------             -------------------------------------
 
Title:                                            Title:
      ------------------------------------              ------------------------------------
 
                                                  Address:
                                                          ----------------------------------

                                                      --------------------------------------

                                                      --------------------------------------

                                                      --------------------------------------
 
EUCLID PARTNERS III, L.P.                         ALPHI FUND L.P.

                                                  By: Alphi Investment Management Company,
By:                                                   General Partner
   ---------------------------------------           
 
Name:                                             Name:
     -------------------------------------             -------------------------------------
 
Title:                                            Title:
      ------------------------------------              ------------------------------------

Address:                                          By:
     -------------------------------------           ---------------------------------------
 
                                                  Name:
     -------------------------------------             -------------------------------------

                                                  Title:
     -------------------------------------              ------------------------------------

                                                  Address:
     -------------------------------------                ----------------------------------

                                                       -------------------------------------

                                                       -------------------------------------

JAVELIN CAPITAL FUND, L.P.

By:
   ---------------------------------------
 
Name:
     -------------------------------------
 
Title:
      ------------------------------------
 
Address:
        ----------------------------------

     -------------------------------------

     -------------------------------------

     -------------------------------------
</TABLE>
 
                                       G-4
<PAGE>   259
 
[SECOND OF THREE SIGNATURE PAGES TO PREFERRED STOCK AND WARRANT AGREEMENT DATED
                              NOVEMBER     , 1996]
 
<TABLE>
<S>                                               <C>
SENMED MEDICAL VENTURES                           CIP CAPITAL L.P.
                                                  By: CIP Capital Management Inc., General
                                                      Partner

By:                                               By:
   ---------------------------------------           ---------------------------------------
 
Name:                                             Name:
     -------------------------------------             -------------------------------------
 
Title:                                            Title:
      ------------------------------------              ------------------------------------
 
Address:                                          Address:
        ----------------------------------                ----------------------------------

    --------------------------------------            --------------------------------------
                                                                                          
    --------------------------------------            --------------------------------------
                                                                                          
    --------------------------------------            --------------------------------------
                                                  
THE WEST COMPANY                                  WILLIAM M. SPENCER, III

By:                                               By:
   ---------------------------------------            --------------------------------------
 
Name:                                             Name:
     -------------------------------------             -------------------------------------
 
Title:                                            Title:
      ------------------------------------              ------------------------------------
 
Address:                                          Address:
        ----------------------------------                ----------------------------------

    --------------------------------------             -------------------------------------
                                                                                      
    --------------------------------------             -------------------------------------
                                                                                      
    --------------------------------------             -------------------------------------
                                                                                      
BIOTECHNOLOGY VENTURE
FUND S.A.                                         COMMONWEALTH VENTURE PARTNERS I, L.P.

By:                                               By:
   ---------------------------------------           ---------------------------------------
 
Name:                                             Name:
     -------------------------------------             -------------------------------------
 
Title:                                            Title:
      ------------------------------------              ------------------------------------
 
Address:                                          Address:
        ----------------------------------                ----------------------------------

    --------------------------------------            --------------------------------------
                                                      
    --------------------------------------            --------------------------------------
                                                      
    --------------------------------------            --------------------------------------
                                                  
</TABLE>
 
                                       G-5
<PAGE>   260
 
 [THIRD OF THREE SIGNATURE PAGES TO PREFERRED STOCK AND WARRANT AGREEMENT DATED
                                NOVEMBER , 1996]
 
<TABLE>
<S>                                               <C>
PLEXUS VENTURES, INC.                             PHILADELPHIA VENTURES -- JAPAN I, L.P.

By:                                               By:
   ---------------------------------------           ---------------------------------------
 
Name:                                             Name:
     -------------------------------------             -------------------------------------
 
Title:                                            Title:
      ------------------------------------              ------------------------------------
 
Address:                                          Address:
        ----------------------------------                ----------------------------------

     -------------------------------------            ---------------------------------------
                                                                                           
     -------------------------------------            ---------------------------------------
                                                                                           
     -------------------------------------            ---------------------------------------

GROTECH PARTNERS II, L.P.                         GROTECH PARTNERS III, L.P.

                                                  GROTECH III COMPANION FUND, L.P.

By: Mid Atlantic Ventures II, L.P.,               GROTECH III PENNSYLVANIA FUND, L.P.
    General Partner
 
By: Grotech Capital Group, Inc.,                  By: Grotech Capital Group, Inc.,
    General Partner                                   General Partner

By:                                               By:
   ---------------------------------------           ----------------------------------------
 
Name:                                             Name:
     -------------------------------------             --------------------------------------
 
Title:                                            Title:
      ------------------------------------              -------------------------------------
 
Address:                                          Address:
        ----------------------------------                -----------------------------------

     -------------------------------------            ---------------------------------------
                                                                                           
     -------------------------------------            ---------------------------------------
                                                                                           
     -------------------------------------            ---------------------------------------


- ------------------------------------------
Dr. Gus G. Casten
 
Address:
        ----------------------------------                                                   
                                                                                             
     -------------------------------------                                                   
                                                                                             
     -------------------------------------                                                   
                                                                                             
     -------------------------------------                                                   
</TABLE>
 
                                       G-6
<PAGE>   261
 
                                   EXHIBIT A
 
        HOLDERS OF PREFERRED STOCK AND WARRANTS ISSUED BY ZYNAXIS, INC.
 
<TABLE>
<CAPTION>
                                                                          SERIES A
                                 NAME                                      SHARES      WARRANTS
- -----------------------------------------------------------------------   ---------    ---------
<S>                                                                       <C>          <C>
Euclid Partners III, L.P. .............................................     260,000      680,775
S.R. One, Ltd..........................................................     257,500      540,000
Javelin Capital Fund, L.P. ............................................     250,000      500,000
Alphi Fund L.P. .......................................................     150,000      300,000
Senmed Medical Ventures................................................     135,000      270,000
The West Company.......................................................     125,000      250,000
William M. Spencer, III................................................      55,000      110,000
Biotechnology Venture Fund S.A. .......................................      50,000      100,000
CIP Capital L.P. ......................................................      45,000      265,000
Grotech Partners III, L.P. ............................................      26,490       52,980
Plexus Ventures, Inc. .................................................      25,000      150,000
Dr. Gus G. Casten......................................................      12,500       25,000
Commonwealth Venture Partners I, L.P. .................................      10,000       20,000
Grotech Partners II, L.P. .............................................       3,455        6,910
Grotech III Companion Fund, L.P. ......................................       3,155        6,310
Philadelphia Ventures -- Japan I, L.P. ................................       2,500        5,000
Grotech III Pennsylvania Fund, L.P. ...................................       1,900        3,800
          Totals.......................................................   1,412,500    3,285,775
</TABLE>
 
                                       G-7
<PAGE>   262
 
                                   EXHIBIT B
 
                                [SEE APPENDIX H]
 
                                       G-8
<PAGE>   263
 
                                                                      APPENDIX H
 
THE WARRANTS REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE WARRANTS MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
 
THE WARRANTS REPRESENTED HEREBY AND THE RIGHTS OF HOLDERS THEREOF ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND OTHER RESTRICTIONS, AND THE HOLDER OF THE
WARRANTS REPRESENTED HEREBY (INCLUDING ANY HOLDERS) ARE BOUND BY THE TERMS OF A
PREFERRED STOCK AND WARRANT AGREEMENT DATED DECEMBER 6, 1996 AMONG ZYNAXIS,
INC., A PENNSYLVANIA CORPORATION, CYTRX CORPORATION, A DELAWARE CORPORATION,
VAXCEL, INC., A DELAWARE CORPORATION, AND THE HOLDERS OF SHARES OF SERIES A
CONVERTIBLE PREFERRED STOCK OF ZYNAXIS, INC. (THE "PREFERRED STOCK AND WARRANT
AGREEMENT") (COPIES OF WHICH MAY BE OBTAINED FROM THE COMPANY).
 
           Void after 5:00 p.m. (Eastern Standard Time), on the last
                  day of the Warrant Term, as provided herein.
 
Date: ______, 1996               Warrant to
                                 Purchase ______
                                 Shares of Common Stock
 
                                    WARRANT
                          TO PURCHASE COMMON STOCK OF
                                  VAXCEL, INC.
 
     THIS CERTIFIES THAT, FOR VALUE RECEIVED, ____________ or such person's
registered assigns (herein called "Warrant Holder"), is the holder of a warrant
(this "Warrant") to purchase, subject to the provisions of this Warrant, from
Vaxcel, Inc., a Delaware corporation (the "Company"), at any time and from time
to time during the Warrant Term, ____________ fully paid, validly issued and
nonassessable shares of Common Stock, par value $.001 per share, of the Company
("Common Stock"), at the Warrant Price. The Warrant Price and number and kind of
securities issuable hereunder are subject to adjustment as provided herein.
 
     1. Definitions.  For the purpose of this Warrant:
 
     (a) "Additional Shares of Capital Stock" means all shares of capital stock
issued by the Company, except shares of capital stock of the Company issued and
outstanding at the time of issuance of this Warrant or expressly authorized to
be issued in the future pursuant to any contract, option, warrant or benefit or
compensation plan in existence and/or outstanding at the time of issuance of
this Warrant.
 
     (b) "Capital Stock" means the Company's Common Stock, and any other stock
of any class, whether now or hereafter authorized, which has the right to
participate in the distribution of earnings and assets of the Company without
limit as to amount or percentage.
 
     (c) "Merger and Contribution Agreement" means that certain Agreement and
Plan of Merger and Contribution entered into by and among CytRx Corporation, a
Delaware corporation, the Company, Vaxcel Merger Subsidiary, Inc., a Georgia
corporation, and Zynaxis, Inc., a Pennsylvania corporation.
 
     (d) "Per Share Price" means the Per Share Price as defined in the Merger
and Contribution Agreement.
 
     (e) "Warrants" mean the warrants to purchase Common Stock of the Company
issued by the Company pursuant to the Preferred Stock and Warrant Agreement and
any and all warrants which are issued in exchange or substitution for any
outstanding Warrant pursuant to the terms of that Warrant.
 
                                       H-1
<PAGE>   264
 
     (f) "Warrant Price" means the price per share at which shares of Common
Stock are purchasable hereunder, as such price may be adjusted from time to time
hereunder. The Warrant Price shall initially be equal to: (i) the Per Share
Price divided by (ii) the Exchange Ratio, and beginning at 5:00 p.m. Eastern
Time on the sixtieth (60th) day following the Closing Date, as such term is
defined in the Merger and Contribution Agreement, shall be equal to two (2)
times the Warrant Price in effect immediately prior to such time.
 
     (g) "Warrant Shares" mean shares of Common Stock or other securities
purchased upon exercise of this Warrant.
 
     (h) "Warrant Term" means a period of one year commencing on the Closing
Date and ending at 5:00 p.m. Eastern Time on the first anniversary of the
Closing Date, as such term is defined in the Merger and Contribution Agreement.
 
     2. Exercise of Warrants.  This Warrant may be exercised during the Warrant
Term in whole or in part by the surrender of the Warrant, with the purchase
agreement attached hereto as Exhibit A properly completed and executed, at the
principal office of the Company at 154 Technology Parkway, Norcross, Georgia
30092 or such other location which shall at that time be the principal office of
the Company (the "Principal Office"), and upon payment to it by certified check
or bank draft to the order of the Company for the purchase price for the shares
to be purchased upon such exercise. The persons entitled to the shares so
purchased shall be treated for all purposes as the holders of such shares as of
the close of business on the date of exercise and certificates for the shares of
stock so purchased shall be delivered to the persons so entitled within a
reasonable time, not exceeding thirty (30) days, after such exercise. Unless
this Warrant has expired, a new Warrant of like tenor and for such number of
shares as the holder of this Warrant shall direct, representing in the aggregate
the right to purchase a number of shares with respect to which this Warrant
shall not have been exercised, shall also be issued to the holder of this
Warrant within such time.
 
     3. Exchange.  This Warrant is exchangeable from the date hereof until the
expiration of the Warrant Term, upon the surrender thereof by the holder thereof
at the Principal Office, for new Warrants of like tenor registered in such
holder's name and representing in the aggregate the right to purchase the number
of shares purchasable under the Warrant being exchanged, each of such new
Warrants to represent the right to subscribe for and purchase such number of
shares as shall be designated by said holder at the time of such surrender.
 
     4. Transfer.  The transferability of this Warrant and the Warrant Shares
are subject to the restrictions on transfer set forth below:
 
     (a) Registration Restrictions.  This Warrant and any Warrant Shares that
may be issued upon exercise thereof have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to the exemption provided in Section 4(2) thereof, and
have not been registered under state securities laws by reason of their issuance
in a transaction exempt from such registration requirements. This Warrant and
such Warrant Shares may not be sold, transferred or otherwise disposed of unless
registered under the Securities Act and applicable state securities laws (the
Company being under no obligation so to register such Warrant or Warrant Shares
except as set forth in the Merger and Contribution Agreement) or exempted from
such registration. Warrant Shares issuable upon exercise of this Warrant will
bear a legend to this effect. The restrictions contained herein shall be binding
on any transferee of this Warrant and the Company may require any such
transferee to execute an instrument agreeing in writing to be so bound by these
restrictions as a condition to transfer.
 
     (b) Notice of Transfer and Opinion of Counsel.  Warrant Holder agrees that,
prior to any transfer of this Warrant, such holder will give written notice to
the Company of such holder's intention to effect such transfer and to comply in
all other respects with the provisions of this Section 4. Each such notice shall
contain (i) a statement setting forth the intention of such holder's prospective
transferee with respect to its retention or disposition of this Warrant, and
(ii) unless waived by the Company, an opinion of counsel for such holder (who
may be the inside or staff counsel employed by such holder), as to the necessity
or non-necessity for
 
                                       H-2
<PAGE>   265
 
registration under the Securities Act and applicable state securities laws in
connection with such transfer and stating the factual and statutory bases relied
upon by counsel. The following provisions shall then apply:
 
     (A) If in the opinion of counsel for the Company the proposed transfer of
this Warrant may be effected without registration or qualification under the
Securities Act and any applicable state securities laws, then the registered
holder of this Warrant shall be entitled to transfer this Warrant in accordance
with the intended method of disposition specified in the statement delivered by
such holder to the Company.
 
     (B) If in the opinion of counsel for the Company the proposed transfer of
this Warrant may not be effected without registration under the Securities Act
or registration or qualification under any applicable state securities laws, the
registered holder of this Warrant shall not be entitled to transfer this Warrant
until the requisite registration or qualification is effective.
 
     (c) Transfer. Subject to the restrictions on transfer set forth in this
Section 4 and in Section 11 hereof, this Warrant is transferable, in whole or in
part, at the Principal Office by the registered holder thereof, in person or by
duly authorized attorney, upon presentation of this Warrant, properly endorsed,
for transfer. Each holder of this Warrant, by holding it, agrees that this
Warrant, when endorsed in blank, may be deemed negotiable, and that the holder
thereof, when the Warrant shall have been so endorsed, may be treated by the
Company and all other persons dealing with the Warrant as the absolute owner
thereof for any purpose and as the person entitled to exercise the rights
represented by this Warrant, or to the transfer thereof on the books of the
Company, any notice to the contrary notwithstanding.
 
     5. Certain Covenants of the Company.  The Company covenants and agrees that
all shares which may be issued upon the exercise of this Warrant, will, upon
issuance, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof; and without
limiting the generality of the foregoing, the Company covenants and agrees that
it will from time to time take all such action as may be required to assure that
the par value per share of the Common Stock is at all times equal to or less
than the then effective purchase price per share of the Common Stock issuable
pursuant to this Warrant. The Company further covenants and agrees that during
the period within which the rights represented by this Warrant may be exercised,
the Company will at all times have authorized, and reserved for the purpose of
issue upon exercise of the purchase rights evidenced by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant.
 
     6. Adjustments of Warrant Price.  In the event that the Company at any time
or from time to time after the issuance of the Warrants shall declare any
dividend on the Common Stock payable in Common Stock or in any right to acquire
Common Stock for any consideration less than the Warrant Price, or shall effect
a subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, reclassification or otherwise than by
payment of a dividend in Common Stock or in any right to acquire Common Stock),
or in the event the outstanding shares of Common Stock shall be combined or
consolidated, by reverse stock split, reclassification or otherwise, into a
lesser number of shares of Common Stock, then the Warrant Price shall,
concurrently with the effectiveness of such event, be proportionately decreased
or increased, as appropriate, to avoid dilution of the exercise rights
hereunder. In the event that the Company shall declare or pay any dividend on
the Common Stock payable in any right to acquire Common Stock for no
consideration, then the Company shall be deemed to have made a dividend payable
in Common Stock in an amount of shares equal to the maximum number of shares
issuable upon exercise of such rights to acquire Common Stock. The Warrant Price
will be adjusted on a weighted-average basis in the event of the sale of
Additional Shares of Capital Stock for consideration less than the Warrant Price
(except in connection with corporate partnership or research and development
agreements). For the purposes of this Section 6, the value of consideration
other than cash received for the issuance of Additional Shares of Capital Stock
shall be computed at the fair value thereof at the time of such issuance, as
determined in good faith by the Board of Directors of the Company.
 
     7. Adjustments for Reclassification and Reorganization.  In case of any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant (other than a change in par value, or from par value to no par
value, or from no par value to par value or as a result of a subdivision or
combination) or in case of any consolidation or merger of the Company with or
into another corporation or in case of any sale or
 
                                       H-3
<PAGE>   266
 
transfer to another corporation of the property of the Company as an entirety or
substantially as an entirety, the Company, or such successor or purchasing
corporation, as the case may be, shall, without payment of any additional
consideration therefor, execute or require the execution of new warrants
providing that the holders of the Warrants shall have the right to exercise such
new warrants (upon terms not less favorable to the holders than those then
applicable to the Warrants) and to receive upon such exercise, in lieu of each
share of Common Stock theretofore issuable upon exercise of the Warrants, the
kind and amount of shares of stock, other securities, money or property
receivable upon such reclassification, change, consolidation, merger, sale or
transfer by the holder of one share of Common Stock issuable upon exercise of
the Warrants had the Warrants been exercised immediately prior to such
reclassification, change, consolidation, merger, sale or transfer. Such new
warrants shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in Section 6 hereof and this
Section 7. The provisions of this Section 7 shall similarly apply to successive
reclassifications, changes, consolidations, mergers, sales and transfers.
 
     8. Notices.  Whenever the Warrant Price shall be adjusted pursuant to
Section 6 hereof, or there shall be a reclassification, reorganization or other
event specified in Section 7 hereof, the Company shall promptly prepare a
certificate signed by its President or a Vice President and by its Treasurer or
Assistant Treasurer or its Secretary or Assistant Secretary, setting forth in
reasonable detail, as the case may be, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated,
the Warrant Price after giving effect to such adjustment, and information
regarding the execution of new warrants, and shall promptly cause copies of such
certificate to be mailed (by first class mail and postage prepaid) to the
registered holders of the Warrants.
 
     In the event the Company shall take any action which pursuant to Section 6
may result in an adjustment of the Warrant Price, or pursuant to Section 7 may
result in the execution of new warrants, the Company will give to the registered
holders of the Warrants at their last addresses known to the Company written
notice of such action ten (10) days in advance of its effective date in order to
afford to such holders of the Warrants an opportunity to exercise the Warrants
and to purchase shares of Common Stock of the Company prior to such action
becoming effective.
 
     9. Fractional Shares.  No fractional shares of Common Stock will be issued
in connection with any purchase hereunder.
 
     10. Loss, Theft, Destruction or Mutilation.  Upon receipt by the Company of
reasonable evidence satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and (in the case of loss, theft or
destruction) of reasonable indemnity and (in case of mutilation) upon surrender
and cancellation thereof, the Company will execute and deliver, in lieu thereof
a new Warrant of like tenor.
 
     11. Restrictions on Transfer.  This Warrant is, and any Warrant Shares
issued upon the exercise of this Warrant will be, issued subject to the
restrictions on transfer contained in this Warrant or any certificate for
Warrant Shares issued in exchange or substitution for this Warrant or any
outstanding certificate for Warrant Shares and shall bear the restrictive
legend(s), if any, on this Warrant or such outstanding certificate for Warrant
Shares unless, in the opinion of counsel for the Company, such legend(s) may be
removed therefrom.
 
     12. Headings.  The description headings of the several sections of this
Warrant are inserted for convenience only and do not constitute a part of this
Warrant.
 
     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer under its corporate seal, attested by its duly
authorized officer, on the date of this Warrant.
 
                                          VAXCEL, INC.
 
                                          By:
                                             -----------------------------------
                                             As its:
ATTEST:
 
                                       H-4
<PAGE>   267
 
                                                                       EXHIBIT A
 
                               PURCHASE AGREEMENT
 
                                                              Date: ____________
 
TO:
 
     The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to purchase shares of Common Stock covered by such
Warrant, and makes payment herewith in full therefor at the price per share
provided by this Warrant.
 
                                          Signature:
                                                    ----------------------------
 
                                          Address:
                                                  ------------------------------
 
                               *       *       *
 
                                   ASSIGNMENT
 
     For Value Received, ____________ hereby sells, assigns and transfers all of
the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered by such Warrant to:
 
NAME OF ASSIGNEE               ADDRESS               NO. OF SHARES
 
, and appoints ____________ Attorney to make such transfer of the books of
Vaxcel, Inc. maintained for such purpose, with full power of substitution in the
premises.
 
Dated:
                                             Signature:  
                                                       -------------------------
 
                                             Witness:
                                                     ---------------------------
 
                                       H-5
<PAGE>   268
 
                                                                      APPENDIX I
 
                                  VAXCEL, INC.
                                 SHARE WARRANT
 
                              NEITHER THIS WARRANT
                  NOR THE SHARES ISSUABLE UPON THE EXERCISE OF
             THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES
                            ACT OF 1933, AS AMENDED
 
                                              , 1997         Warrant to Purchase
                                                          Shares of Common Stock
                                   WARRANT
 
                For the Purchase of Shares of the Common Stock,
                       $0.001 Par Value, of Vaxcel, Inc.,
                             a Delaware Corporation
 
     This is to certify that, for good and valuable consideration received,
CytRx Corporation, a Delaware corporation ("Investor"), or registered assigns,
is entitled to purchase from Vaxcel, Inc., a Delaware corporation (the
"Company"), a number of shares of common stock of the Company ("Common Stock")
equal to: (i) the amount that the Board of Directors of Investor reasonably
determines is the minimum amount that must be contributed to the capital of the
Company in order for the Company to satisfy or continue to satisfy quantitative
requirements for inclusion or continued inclusion of the Common Stock in the
Nasdaq Small Cap Market divided by (ii) one-half of the Per Share Price and
multiplied by (iii) the Exchange Ratio. This Warrant is subject to the terms and
conditions hereinafter set forth, including, without limitation, the terms
governing exercise of this Warrant set forth in Section 1 below. Unless
otherwise defined herein, capitalized terms that are not defined herein and that
are defined terms in the Agreement and Plan of Merger and Contribution dated
December 6, 1996 among Investor, the Company, Vaxcel Merger Subsidiary, Inc. and
Zynaxis, Inc. (the "Merger and Contribution Agreement") shall have the meanings
given such terms in the Merger and Contribution Agreement.
 
     1. Exercise of Warrant.
 
     1.1 EXERCISE PERIOD.
 
     Investor shall have the right to purchase shares of Common Stock under the
terms of this Warrant from the time that the Board of Directors of Investor
reasonably determines that the Company's total assets and capital and surplus
are insufficient to satisfy the total assets and capital and surplus
requirements for inclusion of the Common Stock in the Nasdaq Small Cap Market
until 5:00 p.m. Eastern time on the date that is one year after the date of this
Warrant.
 
     1.2 EXERCISE PRICE.
 
     The per share price for the shares which may be purchased upon the exercise
of this Warrant (the "Exercise Price") shall be initially equal to: (i) one-half
of the Per Share Price, divided by (ii) the Exchange Ratio, subject to
adjustment from time to time as provided in Section 1.3 hereof.
 
     1.3 ADJUSTMENT.
 
     (a) Upon each adjustment of the Exercise Price, the holder of this Warrant
shall thereafter be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of shares obtained by multiplying the Exercise Price
in effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment and dividing
the product thereof by the exercise price resulting from such adjustment, and
rounding down to the nearest whole share.
 
                                       I-1
<PAGE>   269
 
     (b) If the number of outstanding shares of Common Stock is increased by a
stock split, stock dividend, or other similar event, the exercise price in
effect immediately prior to such event shall be proportionately reduced, and
conversely, if the number of outstanding shares of Common Stock is decreased by
a combination or reclassification of shares, or other similar event, the
exercise price in effect immediately prior to such event shall be
proportionately increased.
 
     (c) If the Company shall effect a reorganization, shall merge with or
consolidate into another corporation, or shall sell, transfer or otherwise
dispose of all or substantially all of its property, assets or business and,
pursuant to the terms of such reorganization, merger, consolidation or
disposition of assets, property or assets of the Company, successor or
transferee or an affiliate thereof or cash are to be received by or distributed
to the holders of Common Stock, then the holder of this Warrant shall have the
right thereafter to receive, upon the exercise of this Warrant, the number of
shares of stock or other securities, property or assets of the Company,
successor, transferee or affiliate thereof or cash receivable upon or as a
result of such reorganization, merger, consolidation or disposition of assets by
a holder of the number of shares of Common Stock equal to that to which the
holder of this Warrant upon the exercise thereof immediately prior to such event
would be entitled. The provisions of this paragraph shall similarly apply to
successive reorganizations, mergers, consolidations or dispositions of assets.
Upon any reorganization, consolidation, merger or transfer hereinabove referred
to, this Warrant shall continue in full force and effect and the terms hereof
shall be applicable to the shares of stock and other securities, property,
assets and cash receivable upon the exercise of this Warrant after the
consummation of such reorganization, consolidation, merger or transfer, as the
case may be. The Company shall not effect any such reorganization,
consolidation, merger or transfer, unless prior to the consummation thereof the
successor corporation (if other than the Company) resulting therefrom or the
corporation purchasing such assets shall, by written instrument executed and
mailed to the registered holder hereof at the last address of such holder
appearing on the books of the Company, (i) assume the obligation to deliver to
such holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to purchase, and (ii)
agree to be bound by all the terms of this Warrant.
 
     1.4 METHOD OF EXERCISE.
 
     In order to exercise this Warrant, the registered owner hereof shall
present this Warrant to the Company at the office of the Company, accompanied by
written notice to the Company that the owner elects to exercise this Warrant, in
form attached hereto as Schedule A. Such notice shall also state the name or
names (with address) in which the certificate or certificates for shares which
shall be issuable on such exercise shall be issued. As soon as practicable after
the receipt of such notice, the presentation of this Warrant, and the receipt by
the Company of the full Exercise Price for such shares in current U.S. funds,
the Company shall issue and deliver to the owner a certificate or certificates
for the number of full shares which the owner seeks the Company to issue upon
that exercise of this Warrant.
 
     Such exercise shall be deemed to have been effected immediately prior to
the close of business on the date on which such notice shall have been received
by the Company and this Warrant shall have been presented as aforesaid, and
exercise shall be at the Exercise Price in effect at such time, and at such time
the rights of the owner of this Warrant as such owner shall cease with respect
to that number of shares, and the person or persons in whose name or names any
certificate or certificates for shares, shall be issuable upon such exercise
shall be deemed to have become the owner(s) of record of the shares represented
thereby.
 
     1.5 NOTICE OF CERTAIN ACTIONS.
 
     In case at any time:
 
     (1) the Company shall declare any discretionary dividend upon any class of
its capital stock payable in securities or make any special dividend or other
distribution;
 
     (2) the Company shall offer for subscription pro rata to the holders of any
class of its capital stock any additional securities of any class or other
rights;
 
                                       I-2
<PAGE>   270
 
     (3) there shall be any capital reorganization, or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with, or
sale of all of substantially all its assets or stock to, another corporation;
 
     (4) there shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Company; or
 
     (5) the Company shall enter into an agreement or adopt a plan for the
purpose of effecting a consolidation, merger, or sale of all or substantially
all of its assets or stock, other than a merger where the Company is the
surviving corporation and the terms of the Company's capital stock remain
unchanged;
 
then, in any one or more of said cases, the Company shall give written notice,
by first class mail, postage prepaid, to the registered owner of this Warrant,
of the date on which (a) the books of the Company shall close or a record shall
be taken for such dividend, distribution or subscription rights, or (b) such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up shall take place, as the case may be. Such notice
shall also specify the date as of which the owners of any class of capital stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their capital stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up as the case
may be. Such written notice shall be given at least 30 days prior to the action
in question if practicable and not less than 30 days prior to the record date or
the date on which the Company's transfer books are closed in respect thereto if
practicable.
 
     1.6 RESERVATION OF SHARES.
 
     The Company will at all times reserve and keep available out of its
authorized shares of capital stock, solely for the purpose of issuance upon the
exercise of this Warrant as herein provided, such number of Common Shares as
shall then be issuable upon the exercise of this Warrant. The Company covenants
that all shares which shall be so issuable shall, upon the exercise of this
Warrant as herein provided, be duly and validly issued and fully paid and
nonassessable by the Company.
 
     1.7 TAXES.
 
     The issuance of certificates for shares upon exercise of this Warrant shall
be made without charge to the owner of this Warrant for any issuance tax in
respect thereto, provided that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the registered owner of
this Warrant.
 
     1.8 PARTIAL EXERCISE.
 
     The purchase rights represented by this Warrant are exercisable at the
option of the registered owner hereof in whole at any time, or in part from time
to time, within the period above specified, provided, however, that such
purchase rights shall not be exercisable with respect to a fraction of a share.
In case of the purchase of less than all the shares purchasable under this
Warrant, the Company shall cancel this Warrant upon the surrender hereof and
shall execute and deliver a new Warrant of like tenor and date for the balance
of the shares purchasable hereunder.
 
     2. Shareholder Rights.  This Warrant shall not entitle the owner hereof to
any voting rights or other rights as a shareholder of the Company, or to any
other rights whatsoever except the rights herein expressly set forth, and no
dividends shall be payable or accrue in respect of this Warrant or the interest
represented hereby or the shares purchasable hereunder until or unless, and
except to the extent that, this Warrant shall be exercised. No provision hereof,
in the absence of affirmative action by the owner hereof to exercise this
Warrant, and no mere enumeration herein of the rights or privileges of the owner
hereof, shall give rise to any liability of such owner for the exercise price or
as a shareholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
 
     3. Exchange of Warrant.  This Warrant is exchangeable upon the surrender
hereof by the registered owner to the Company for a reasonable number of new
Warrants issued to the registered owner of like tenor and date representing in
the aggregate the right to purchase the number of shares purchasable hereunder,
each
 
                                       I-3
<PAGE>   271
 
of such new Warrants to represent the right to purchase such number of shares as
shall be designated by the registered owner at the time of such surrender.
 
     4. Transfer.  This Warrant and the shares which may be purchased by the
exercise of this Warrant have not been registered under the Securities Act of
1933, as amended, or any applicable state securities laws. By accepting this
Warrant, the owner or any successor or assignee of the owner who may hereafter
become the owner of this Warrant, hereby agrees to be bound by the provisions of
such statutes. Except as otherwise provided above, this Warrant and all rights
hereunder are transferable by the registered owner hereof in person or by duly
authorized attorney on the books of the Company upon surrender of this Warrant,
properly endorsed, to the Company.
 
     5. Investment Representation and Legend.  The owner of this Warrant, by
acceptance of this Warrant, represents and warrants to the Company that it is
acquiring this Warrant and the shares (or other securities) issuable upon the
exercise hereof for investment purposes only and not with a view towards the
resale or other distribution thereof and agrees that the Company may affix upon
this Warrant the following legend:
 
        "Neither this Warrant nor the shares issuable upon exercise of this
        Warrant have been registered under the Securities Act of 1933, as
        amended."
 
The owner of this Warrant, by acceptance of this Warrant, further agrees that
the Company may affix the following legend (in addition to any other legend(s),
if any, required by applicable state securities laws) to certificates for shares
(or other securities) issued upon exercise of this Warrant ("Warrant Shares"):
 
        "The shares represented by this certificate have been acquired for
        investment and have not been registered under the Securities Act of
        1933, as amended. None of such shares may be offered, sold or
        transferred in the absence of such registration or an exemption
        therefrom."
 
     6. Lost, Stolen, Mutilated or Destroyed Warrant.  If this Warrant is lost,
stolen, mutilated or destroyed, the Company may, on such terms as to
indemnification or otherwise as it may in its discretion reasonably impose
(which shall, in the case of a mutilated Warrant, include the surrender
thereof), issue a new Warrant of like denomination and tenor as the Warrant so
lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute a
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
 
     7. Presentment.  Prior to due presentment for registration of transfer of
this Warrant, the Company may deem and treat the registered owner hereof as the
absolute owner of this Warrant, notwithstanding any notation of ownership or
other writing thereon, for the purpose of any exercise thereof and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
 
     8. Notice.  Notice or demand pursuant to this Warrant shall be sufficiently
given or made, if sent by first-class mail, postage prepaid, addressed, if to
the owner of this Warrant, to such owner at its last known address as it shall
appear in the records of the Company, and if to the Company, at Vaxcel, Inc.,
154 Technology Parkway, Norcross, Georgia 30092, Attention: President. The
Company may alter the address to which communications are to be sent by giving
notice of such change of address in conformity with the provision of this
Section 8 for the giving of notice.
 
     9. Governing Law.  The validity, interpretation and performance of this
Warrant shall be governed by the laws of the State of Delaware.
 
     10. Successors, Assigns.  All the terms and provisions of this Warrant
shall be binding upon, inure to the benefit of and be enforceable by the
respective successors and assigns of the parties hereto.
 
                                       I-4
<PAGE>   272
 
IN WITNESS WHEREOF, the Company has created this Warrant to be executed by the
signatures of its duly authorized officers and the corporate seal hereunto
affixed.
 
                                          VAXCEL, INC.
 
                                          By:
                                             -----------------------------------
                                            Paul J. Wilson, III
                                            President and Chief Executive
                                            Officer
  
                                          [CORPORATE SEAL]
 
                                       I-5
<PAGE>   273
 
                             SCHEDULE A TO WARRANT
 
Vaxcel, Inc.
154 Technology Parkway
Norcross, Georgia 30092
 
Attention: Paul J. Wilson, III
           Re: Warrant dated as of        , 1997, issued to CytRx Corporation 
           (the "Warrant")
 
Gentlemen:
 
We hereby exercise the Warrant for ______ shares of Common Stock, $0.001 par
value, at the current exercise price of $________ per share. Certificates for
such shares should be issued in the name of CytRx Corporation. Enclosed is a
check in the aggregate amount of $____________.
 
                                          --------------------------------------
                                          Holder
 
                                          --------------------------------------
                                          Dated:
 
                                       I-6
<PAGE>   274
 
                                                                      APPENDIX J
 
                            ASSET PURCHASE AGREEMENT
 
     THIS ASSET PURCHASE AGREEMENT (this "Agreement") dated as of March 21,
1997, is made between ZYNAXIS, INC., a Pennsylvania corporation (the "Seller"),
and PROCLINICAL, INC., a Pennsylvania corporation (the "Purchaser").
 
     The Seller has entered into an Agreement and Plan of Merger Contribution,
dated December 6, 1996, by and among the Seller, CytRx Corporation, Vaxcel, Inc.
("Vaxcel"), a Delaware corporation and a wholly-owned subsidiary of CytRx
Corporation, and Vaxcel Merger Subsidiary, Inc. ("Vaxcel Merger Sub"), a Georgia
corporation and a newly-formed, whollyowned subsidiary of Vaxcel, which provides
for the merger (the "Merger") of Vaxcel Merger Sub with and into the Seller,
with the effect that the Seller, as the surviving corporation resulting from the
Merger, will be a wholly-owned subsidiary of Vaxcel.
 
     The Seller operates a division known as the Cauldron Process Chemistry
Operations (the "Cauldron Division"). The Seller desires to sell to the
Purchaser, and the Purchaser desires to buy from the Seller, substantially all
of the assets, properties and rights of the Seller used in or related to the
Cauldron Division (the "Assets").
 
     In consideration of the mutual covenants herein, and intending to be
legally bound hereby, the parties agree as follows:
 
Section 1.  Sale and Purchase of the Assets:
 
     1.1. Agreement to Sell.  At the Closing (hereinafter defined), the Seller
shall sell, grant, convey, transfer, assign and deliver the Assets to the
Purchaser, upon the terms and subject to the conditions of this Agreement. The
Assets consist of all of the Seller's right, title and interest in and to the
following:
 
          (a) All inventory owned by the Cauldron Division on the Closing Date;
 
          (b) All furniture, fixtures, machinery and equipment of the Cauldron
     Division as listed on Exhibit "A" hereto (the "Fixed Assets");
 
          (c) All rights and privileges of the Cauldron Division under contracts
     and open orders with its customers, including pre-paid orders, in existence
     on the Closing Date, or in existence on the date hereof as set forth on
     Exhibit "B" hereto and not completed prior to the Closing (the
     "Contracts");
 
          (d) All rights and privileges of the Cauldron Division under the
     leases, licenses, and agreements set forth on Exhibit "C" hereto. It is
     understood that Seller will use commercially reasonable efforts prior to
     the Closing Date to have the lessor of the UV-VIS system and plate reader
     terminate the existing single equipment lease for those two assets and
     reissue two separate equipment leases for the two assets (since the UV-VIS
     system will be part of the assets sold to Purchaser, while the plate reader
     shall be retained by Seller). If Seller is unable to obtain separate
     equipment leases for the two assets, Seller shall pay to Purchaser from and
     after the Closing Date a monthly payment equal to a percentage of the
     monthly payment due under the combined equipment lease that reflects the
     relative original value of the plate reader compared to the UV-VIS system;
 
          (e) All accounts receivable and customer deposits, if any, of the
     Cauldron Division in existence as of the Closing, but only to the extent
     that such receivables or deposits are for work that has not been performed
     by Seller under the Contracts prior to the Closing;
 
          (f) All of Seller's right, title and interest under the lease (the
     "Lease") dated August 30, 1988, between PMRA III, c/o PM Realty Advisors, a
     California corporation, successors to Rouse & Associates, a Pennsylvania
     limited partnership, ("Landlord") and Seller, as amended, for the
     facilities used by the Cauldron Division (the "Premises"), a copy of which
     is attached hereto as Exhibit "D". Seller represents and warrants to
     Purchaser that at the time of transfer of the Lease from Seller to
     Purchaser at Closing, Seller shall have prepaid $250,000 of the basic rent
     under the Lease;
 
                                       J-1
<PAGE>   275
 
          (g) All patents, trademarks, service marks, copyrights or applications
     therefore, licenses, trade names, fictitious names, slogans, royalty
     agreements and brand or private label names of which the Seller is the
     owner and which are used by the Cauldron Division, as and to the extent set
     forth on Exhibit "E", hereto, and all customer lists, correspondence files
     and records, customers, files, production records, inventory records,
     software, hardware and firmware and disks, data files or other media,
     goodwill, and other assets owned by Seller and used by the Cauldron
     Division.
 
     Attached hereto and incorporated herein as Exhibit "F" is a schedule (the
"Balance Sheet") on which is shown a condensed, summarized balance sheet of the
Cauldron Division as of February 28, 1997, the pro forma eliminations therefrom
to show the assets and liabilities of the Cauldron Division shown thereon which
are not subject to this Agreement, and the assets and liabilities of the Seller
shown thereon which are the subject of this Agreement. Seller agrees that it
will update the information set forth in the Balance Sheet and deliver a revised
Balance Sheet to Purchaser shortly before the Closing. It is understood,
however, that no change in the Balance Sheet shall affect the Purchase Price
(defined hereafter).
 
     1.2. Agreement To Purchase.  At the Closing, the Purchaser shall purchase
the Assets from the Seller, upon the terms and subject to the conditions of this
Agreement and in reliance upon the representations and warranties of the Seller
in this Agreement, and, as consideration therefore, shall: (a) pay to the Seller
as set forth in paragraph 2.1 the purchase price for the Assets; and (b) assume
and agree to pay or discharge promptly when due all of the Seller's liabilities
and obligations of any nature whatsoever under or pursuant to the Lease, the
Contracts and the Additional Contracts.
 
Section 2.  Purchase Price
 
     2.1. The purchase price for the Assets (the "Purchase Price") shall be
Eight Hundred Thirty-Two Thousand Dollars ($832,000), which shall be paid as
follows:
 
          (a) $50,000 on the date hereof, to be held in escrow until the Closing
     by the Purchaser's counsel;
 
          (b) $482,000 to Seller at the Closing, in immediately available funds;
     and
 
          (c) a promissory note (the "Note") payable to the Seller in the
     original principal amount of $300,000 in substantially the form of Exhibit
     "G" hereto.
 
     2.2. Assumption of Liabilities.  At the Closing, in addition to its other
obligations under this Agreement, the Purchaser shall assume and then be solely
liable and responsible for, and agree to pay, discharge and perform on a timely
basis, and hold Seller harmless and indemnify Seller from, all liabilities and
obligations of any nature whatsoever of the Cauldron Division arising under: (i)
the Lease, (ii) the Contracts; (iii) the Additional Contracts (as hereinafter
defined); and (iv) any orders for inventory placed by Seller between the date of
this Agreement and the Closing (to the extent Seller may not have paid for such
inventory by the Closing). Except for those liabilities recited in the
immediately preceding sentence, all liabilities and obligations of the Cauldron
Division, whether known or unknown, direct or contingent, in litigation or
threatened, or not yet ascertainable but attributable to Seller shall be
Seller's responsibility. Specifically excluded from the liabilities assumed by
Purchaser are any liabilities of the Seller with respect to any federal, state,
local or foreign income, franchise, or other tax imposed upon the Seller, any
obligation of the Seller for any employee grievance pending at the Closing Date,
any obligations of the Seller for the adjustment or payment for returned or
defective goods at any time shipped by the Seller except under the Contracts,
for all of which Seller shall remain responsible.
 
Section 3.  Closing Procedures
 
     3.1. Closing.  The closing of the sale and purchase of the Assets (the
"Closing") shall be held as soon as practicable after all conditions to the
Closing set forth in Sections 7 and 8 hereto have been satisfied or waived, but
in any event, on or before May 31, 1997 (the "Closing Date"), at the offices of
the Purchaser, 300 Kimberton Road, Phoenixville, Pennsylvania, or on any other
date and at such other place or places as the parties may mutually agree in
writing.
 
                                       J-2
<PAGE>   276
 
     3.2. Transfer of the Assets.  At the Closing, the Seller shall deliver to
the Purchaser the following:
 
          (a) Such bills of sale, endorsements, assignments and other good and
     sufficient instruments of conveyance and transfer, in form and substance
     reasonably satisfactory to the Purchaser's counsel, as shall be effective
     to vest in the Purchaser all of the Seller's right, title and interest in
     and to the Assets; and
 
          (b) Evidence that all Contracts and Additional Contracts which cannot
     be transferred effectively without the consent of third parties have
     received such consent, or if such consent is unobtainable, an agreement
     reasonably satisfactory to the Purchaser and its counsel assuring to the
     Purchaser the benefits and obligations of such Contracts and Additional
     Contracts.
 
     3.3. Purchase Price.  At the Closing, the Purchaser shall pay to the Seller
the portion of the Purchase Price in accordance with Section 2 hereof and
deliver the Note.
 
     3.4. Release of Liens.  At or prior to the Closing, the Seller shall
deliver all necessary releases of liens and Uniform Commercial Code termination
statements in forms reasonably acceptable to the Purchaser's counsel so that the
Seller's title to the Assets is in conformity with paragraph 4.2 hereof.
 
Section 4.  Representations and Warranties of the Seller
 
     The Seller hereby represents and warrants to the Purchaser, intending for
the Purchaser to rely hereon, as of the date hereof as follows:
 
     4.1. Organization and Good Standing.  The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania.
 
     4.2. Title to the Properties.  Seller owns, and has good and marketable
title to, or at the Closing date will own and have good and marketable title to,
all of the Assets, free and clear of all liens, pledges, mortgages, security
interests, leases, conditional sales contracts or other encumbrances or
conflicting claims of any nature whatsoever, for immaterial liens or
encumbrances that do not affect the use of the Assets by the Purchaser and
except as set forth in Exhibit "H" hereto.
 
     4.3. Tax Matters.  The Seller has filed or caused to be filed all federal,
state and local tax returns and reports of the Seller, through the taxable year
ending December 31, 1995 which are due and required to be filed and has paid or
caused to be paid all taxes due through December 31, 1995 and any assessment of
taxes received, except taxes or assessments that are being contested in good
faith. Seller has received no notice of, any pending or threatened proceeding or
claim by any governmental agency for assessment or collection of taxes from the
Seller. All such returns and reports have been prepared on the same basis as
that of previous years and in accordance with all applicable laws, regulations
and requirements, and accurately reflect the taxable income of the Seller.
 
     4.4. Litigation.  Except as disclosed in Exhibit "I" hereto:
 
          (a) there is no dispute, claim, action, suit, proceeding, arbitration
     or governmental investigation, either administrative or judicial, pending,
     or to the knowledge of the Seller threatened, against the Seller, relating
     to the Cauldron Division or the Assets; and
 
          (b) the Seller is not in default with respect to any order, writ,
     injunction or decree of any court or governmental department, commission,
     board, bureau, agency or instrumentality, which involves the possibility of
     any judgment or liability which may result in any material adverse change
     in the financial condition of the Cauldron Division or the Assets.
 
     4.5. Absence of Undisclosed Liabilities.  There are no liabilities or
obligations accrued, absolute, contingent or otherwise, of the Cauldron Division
except as set forth in the Balance Sheet, as disclosed or referred to in this
Agreement or the Exhibits hereto or otherwise disclosed to the Seller, or as
incurred, consistent with past business practice, in the normal and ordinary
course of its business since the date of the Balance Sheet.
 
                                       J-3
<PAGE>   277
 
     4.6. Financial Statements.  The Seller has previously delivered to the
Purchaser the Cauldron Division balance sheet as of February 28, 1997, and a
statement of income for the year ended December 31, 1996 (collectively the
"Prior Financial Statements"). The Prior Financial Statements have been prepared
on an unaudited basis, in accordance with the books and records of the Cauldron
Division, and present fairly the financial position of the Cauldron Division at
February 28, 1997 and the results of operations for the year ended December 31,
1996.
 
     4.7. Absence of Certain Changes and Events.  Since the date of the Balance
Sheet, except as set forth in Exhibit "J" attached hereto, there has not been:
(a) any material adverse change in the condition, financial or other, of the
Cauldron Division; (b) any damage, destruction or loss, whether covered by
insurance or not, materially adversely affecting the business of the Cauldron
Division or the Assets; (c) any claim of unfair labor practice or union
organizing activity involving the Seller's Cauldron Division; (d) any increase
in compensation payable or to become payable to any employee or amounts payable
under any bonus, insurance, pension or other benefit plan.
 
     4.8. Additional Contracts.  Except as disclosed in Exhibit "K" hereto or
elsewhere in this Agreement or the Exhibits attached hereto, the Cauldron
Division neither owns, has in existence, has any rights or interest in or to,
nor uses in its business:
 
          (a) any employment agreement or arrangement, oral or written, with any
     employee of the Cauldron Division, under which any amount will remain
     unpaid on the Closing Date or become payable after the Closing Date;
 
          (b) any lease pursuant to which the Cauldron Division leases personal
     property to or from any person or entity;
 
          (c) any agreement or other arrangement under which the Cauldron
     Division has agreed or is obligated to sell or supply products or perform
     any services;
 
          (d) any contract or commitment for the future purchase of, or payment
     for, raw materials, supplies or products;
 
          (e) any contract or commitment for any charitable contribution;
 
          (f) any consulting, agency or representative contract to which the
     Cauldron Division is a party or is otherwise bound;
 
          (g) any commission program for salesmen, representatives or agents of
     the Cauldron Division;
 
          (h) any collective bargaining agreement of the Cauldron Division with
     any labor union or other representative of employees; or
 
          (i) any fictitious name utilized by the Cauldron Division.
 
The agreements, contracts or obligations listed on Exhibit "K" hereto are
referred to as "Additional Contracts."
 
     4.9. Compliance With Laws.  To the knowledge of the Seller, the Cauldron
Division has complied with and is not in default under, or in violation of, any
law, ordinance, rule, regulation or order (including, without limitation, any
environmental, zoning, safety, health or price or wage control law, ordinance,
rule, regulation or order) applicable to its operations, or business as
presently constituted, except where the failure to be in compliance with the
foregoing would not materially adversely affect or, so far as the Seller can now
foresee, in the future materially adversely affect, the business of the Cauldron
Division or the Assets.
 
     4.10. Employee Benefit Plans.  Exhibit "L" sets forth a true and complete
list of all pension, profit-sharing, stock bonus, stock option, employment or
severance agreements, deferred compensation plans, health, life, accident or
disability plans, and any other agreement, arrangement, commitment or other
employee benefit plan (including, but not limited to, "employee benefit plans"
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended and the regulations promulgated thereunder ("ERISA"))
(the "Benefit Plans") currently maintained with respect to the Cauldron
Division, or with
 
                                       J-4
<PAGE>   278
 
respect to which the Seller has, or may in the future have, any liability with
respect to any current or former employee of the Cauldron Division. Except as
specifically set forth in Section 11, Purchaser is not assuming any obligations
of Seller under any such Benefit Plans.
 
     4.11. Authorization.  The Seller has full corporate power and authority to
enter into this Agreement and, upon and subject to receipt of approval of
Seller's shareholders to sell all or substantially all the assets of the Seller,
to consummate the transactions on its part contemplated hereby. The execution
and delivery of this Agreement, and the sale, transfer, and other actions
contemplated hereby have been duly authorized by the board of directors of
Seller, and, except for the requirement to obtain shareholder approval and
required consents for assignment of the Contracts, Lease and the Additional
Contracts. This Agreement constitutes the legal, valid and binding obligation of
the Seller enforceable in accordance with its terms, and neither the execution
and delivery of this Agreement nor the consummation of the transactions
anticipated hereby by the Seller constitutes or will constitute a violation or
breach of (i) applicable law, (ii) the Seller's Articles of Incorporation or
By-laws, (iii) any contract or instrument to which the Seller is a party or by
which it is bound, or (iv) any order, writ, injunction, decree or judgment
applicable to Seller.
 
     4.12. Employees.  Exhibit "M" hereto is a true and complete list of the
names of all current Cauldron Division employees, with their annual compensation
and expected accrued vacation to March 31, 1997. Seller agrees that it will
update the information set forth on Exhibit M and deliver a revised Exhibit M to
Purchaser shortly before the Closing. It is understood, however, that no change
in the information set forth on Exhibit M shall affect the Purchase Price.
 
     4.13. Inventories.  A correct and complete summary of all inventory of the
Cauldron Division as of March 6, 1997 is set forth as Exhibit "N" hereto.
 
     4.14. Product Warranties.  Except as set forth in Exhibit "P" hereto and
except for warranties mandated by law, including implied warranties pursuant to
the Uniform Commercial Code of Pennsylvania, the Seller's Cauldron Division has
neither given nor made any oral, written or implied warranties or assurances
with respect to products to be distributed or sold pursuant to the Contracts.
 
     4.15. Suppliers and Customers.  Since the date of the Balance Sheet, there
has been no cancellation or modification in any material respect to the major
suppliers and customers of the Cauldron Division.
 
     4.16. Environmental.  (a) To the Seller's knowledge, no pollutants or other
toxic or hazardous substances, including any solid, liquid, gaseous or thermal
irritant or contaminant, such as smoke, vapor, soot, fumes, acids, alkalis,
chemicals or waste (including materials to be recycled, reconditioned or
reclaimed) (collectively "Materials") have been discharged, dispersed, released,
stored, treated, generated, disposed of, or allowed to escape (collectively
referred to as the "Incident") on or from the Premises or disposed of by the
Cauldron Division, in material violation of any federal, state or local statute,
law or regulation.
 
          (b) To the Seller's knowledge, no asbestos or asbestos-containing
     materials have been installed (and have not since been removed), used,
     incorporated into, or disposed of on the Premises.
 
          (c) To the Seller's knowledge, no polychlorinated biphenyls ("PCBs")
     are located on the Premises in the form of electrical transformers,
     fluorescent light fixtures, cooling oils, or other devices in violation of
     any federal, state or local statutes, laws or regulations.
 
          (d) To the Seller's knowledge, no underground storage tanks are
     located on the Premises or were located on the Premises and subsequently
     removed or filled.
 
          (e) To the Seller's knowledge, no investigation, administrative order,
     consent order, agreement, litigation or settlement is proposed, or
     threatened, or anticipated with respect to the Premises.
 
          (f) To the Seller's knowledge, the Premises have at all times been in
     substantial compliance with all federal, state and local statutes, laws and
     regulations relating to the environment.
 
     4.17. Disclosure.  No representation or warranty by the Seller in this
Agreement contains any untrue statement of material fact or omits or will omit
to state any material fact necessary to make any statement herein and therein
not misleading.
 
                                       J-5
<PAGE>   279
 
Section 5.  Representation and Warranties of the Purchaser
 
     The Purchaser hereby warrants to the Seller, intending for the Seller to
rely hereon, as follows:
 
     5.1. Organization and Good Standing.  The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania.
 
     5.2. Authorization.  The execution and delivery of this Agreement, and
other actions contemplated hereby, have been duly authorized by all requisite
corporate action on the part of Purchaser. The Purchaser has the corporate power
and authority to consummate the transaction on its part contemplated hereby,
including without limitation, issuance of the Note, none of which will
constitute any violation or breach of its Articles of Incorporation or By-Laws.
This Agreement and the Note constitute the legal, valid and binding obligations
of the Purchaser, enforceable in accordance with their respective terms.
 
Section 6.  Conduct Pending the Closing
 
     The Seller hereby covenants and agrees that, pending the Closing and except
as otherwise agreed in writing by the Purchaser:
 
     6.1. Conduct of Business.  The Seller shall carry on the business of the
Cauldron Division diligently and substantially in the same manner as heretofore
and refrain from any action that would result in any material breach of any of
the representations, warranties or covenants of the Seller hereunder.
 
     6.2. Access.  The Purchaser and its authorized representatives shall have
full access during normal business hours upon prior arrangement with the Seller
to all books, records, contracts and documents of the Cauldron Division, as well
as to the Premises, and Seller shall furnish or cause to be furnished to the
Purchaser and its authorized representatives, all information with respect to
the Assets and the business of the Cauldron Division as the Purchaser may
reasonably request. In the event of a termination of this Agreement, all such
information shall remain confidential and shall not be used by the Purchaser,
its officers, directors, employees or agents, and all copies thereof shall be
returned to the Seller.
 
     6.3. Contracts and Commitments; Liabilities.  The Cauldron Division shall
not enter into any contract, commitment or transaction except in the ordinary
course of business and consistent with past practices. The Seller will not, and
will not agree to, create any indebtedness or any other fixed or contingent
liability in connection with its operation of the Cauldron Division or the
Assets including, without limitation, liability as a guarantor or otherwise with
respect to the obligations of others, other than that created or incurred: (i)
in the usual and ordinary course of the business of the Cauldron Division; or
(ii) pursuant to existing contracts to be assumed by Purchaser, which contracts
are disclosed in the Exhibits attached hereto.
 
     6.4. Insurance.  All present insurance insuring the Cauldron Division, its
employees and the Assets, will be maintained by the Seller.
 
     6.5. Preservation of Organization and Employees.  The Seller will use its
best efforts, to the extent deemed reasonable by the Seller given its current
financial condition, to preserve the business of the Cauldron Division intact,
to keep available its respective key officers and employees, and preserve the
present relationships of the Cauldron Division with its suppliers, customers,
referring sources and others having business relations with it. The Seller will
not increase the compensation payable or to become payable to the employees of
the Cauldron Division or otherwise offer contractual changes in the terms of
Seller's employment of such employees.
 
     6.6. No Default.  The Seller will not do anything to omit or do anything to
permit any act or omission to act, which will cause a material breach of the
Agreement.
 
                                       J-6
<PAGE>   280
 
Section 7.  Conditions Precedent to the Purchaser's Obligations
 
     All obligations of the Purchaser under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions
unless otherwise waived in writing by the Purchaser:
 
     7.1. Representations and Warranties.  The Seller's representations and
warranties contained in this Agreement or in any list, certificate or document
delivered pursuant to the provisions hereof shall be true and correct in all
material respects.
 
     7.2. Performance of Agreements.  The Seller shall have performed and
complied in all material respects with all agreements and conditions required by
this Agreement to be performed or complied with by it prior to or at the
Closing.
 
     7.3. Adverse Change.  There shall not have been a material adverse change,
occurrence or casualty, financial or otherwise, relating to the Cauldron
Division whether covered by insurance or not.
 
     7.4. Closing Deliveries.  The Seller shall have delivered the bills of sale
and releases of liens referred to herein.
 
     7.5. Closing Certificates.  The Seller shall have delivered to the
Purchaser: (i) a certificate of the Secretary or Assistant Secretary of the
Seller certifying and attaching true and complete copies of the Articles of
Incorporation and By-laws of the Seller as the same are in force on the Closing
Date and of the resolutions adopted by the board of directors relating to this
Agreement and the transactions contemplated hereby, and certifying the
incumbency of the officers of the Seller executing this Agreement or any
documents delivered hereunder; and (ii) a certificate signed by the President of
the Seller, confirming to the best of his knowledge, satisfaction of the
conditions set forth in this Section 7.
 
     7.6. No Litigation.  There shall not be any pending (or to the knowledge of
the Seller threatened) action, proceeding or investigation by or before any
court, arbitrator, governmental body or agency which shall seek to restrain,
prohibit or invalidate the transactions contemplated hereby or which, if
adversely determined, would result in a breach of a representation, warranty or
covenant of either party herein.
 
     7.7. Assignment of Lease.  The Purchaser shall have obtained an assignment
of the Lease in a form reasonably satisfactory to Purchaser.
 
Section 8.  Conditions Precedent to the Seller's Obligations
 
     All obligations of the Seller under this Agreement are subject to the
fulfillment, prior to or at the Closing, of the following conditions:
 
     8.1. Representations and Warranties.  The Purchaser's representations and
warranties contained in this Agreement shall be true and correct in all material
respects.
 
     8.2. Performance of Agreements.  The Purchaser shall have performed and
complied with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing.
 
     8.3. Closing Deliveries.  The Purchaser shall have obtained its financing
as anticipated by the commitment letter therefore previously received by the
Purchaser (a copy of which is attached hereto as Exhibit "Q") and if received,
shall make payment of the purchase price as specified by this Agreement.
 
     8.4. Closing Certificates.  The Purchaser shall have delivered to the
Seller: (i) a certificate of the Secretary or Assistant Secretary of the
Purchaser certifying and attaching true and complete copies of the resolutions
of the board of directors of the Purchaser authorizing the execution and
delivery of this Agreement and the performance of the obligations of the
Purchaser hereunder; and (ii) a certificate of the President or Vice President
of the Purchaser confirming, to the best of his knowledge, satisfaction of the
conditions set forth in this Section 8.
 
     8.5. No Litigation.  There shall not be any pending or threatened action,
proceeding or investigation by or before any court, arbitrator, governmental
body or agency which shall seek to restrain, prohibit or invalidate
 
                                       J-7
<PAGE>   281
 
the transactions contemplated hereby or which, if adversely determined, would
result in a breach of a representation, warranty or covenant of either party
herein.
 
     8.6. Lease Agreement.  The Lease shall have been assigned to the Purchaser,
the Seller shall have been released from all of its obligations under the Lease,
and the deposit held by the Landlord shall be returned to the Seller.
 
     8.7. Shareholder Approval.  The shareholders of the Seller shall have
approved the sale of substantially all the assets of the Seller.
 
     8.8. Merger.  The Merger shall have been consummated.
 
Section 9.  Fees and Expenses
 
     9.1. Expenses of the Transaction.  Each party hereto shall pay its own
expenses incidental to the preparation of this Agreement and the consummation of
the transactions contemplated hereby. Transfer taxes, if any, shall be split by
the parties.
 
Section 10.  Indemnification
 
     10.1. Survival of Representations, Warranties and Agreements.  All
representations, warranties and agreements made by the parties in this Agreement
or in any certificate delivered pursuant hereto shall survive the Closing for a
period of one year after Closing.
 
     10.2. Indemnification by the Seller.  Subject to Section 10.1, the Seller
shall defend, indemnify and hold the Purchaser, its successors and assigns,
harmless from and against: (a) any and all liabilities and obligations of, or
claims against, the Seller not expressly assumed by the Purchaser hereunder and
all claims, demands, liabilities, damages, losses and out-of-pocket expenses
including reasonable attorneys fees, whether or not reduced to judgment, order
or award, caused by the breach of any agreement or of any representation or
warranty made by the Seller in this Agreement or in any exhibit, list,
certificate or document delivered by it pursuant hereto.
 
     10.3. Indemnification by the Purchaser.  The Purchaser shall defend,
indemnify and hold the Seller harmless from and against: (a) the liabilities and
obligations assumed by the Purchaser pursuant to this Agreement; and (b) all
damages, losses and out-of-pocket expenses including reasonable attorneys fees,
caused by or arising out of the breach of any of the agreements or
representation or warranties made by the Purchaser in this Agreement or any
certificate or document delivered by it pursuant hereto.
 
     10.4. Defense of Claims.  Promptly after any service of process by any
third party in any litigation in respect of which indemnity may be sought from
the other party pursuant to Section 10, the party so served shall notify the
indemnifying party of the commencement of such litigation, and the indemnifying
party shall be entitled to assume the defense thereof at its expense with
counsel reasonably satisfactory to the indemnified party.
 
Section 11.  Cauldron Division Employees
 
     From and after the Closing Date, the Purchaser shall continue to employ all
employees of the Cauldron Division in substantially the same positions as held
by such individuals immediately prior to the Closing, but with the benefit
package offered by Purchaser to its current employees as in effect as on the
Closing Date, for a period of not less than ninety (90) days after the Closing;
provided, that nothing herein shall be deemed to prohibit the Purchaser from
discharging any of such employees for cause at any time or modifying any such
employment or benefit package after ninety (90) days from the Closing Date or
from making after such 90-day period such changes in pay, benefits and
conditions of employment as the Purchaser, in its sole discretion, may deem
necessary or advisable. All such employees will receive full credit from
Purchaser for any unused vacation days or otherwise for their amount of service
with the Seller. The Purchaser shall have no liability for, and the Seller shall
defend, indemnify and hold the Purchaser harmless from with respect to, any
claims arising out of services prior to the Closing Date by any persons employed
prior to the Closing by the
 
                                       J-8
<PAGE>   282
 
Seller. The Seller shall have no liability for, and the Purchaser shall defend,
indemnify and hold the Seller harmless with respect, to any claims arising out
of services on or after the Closing Date or relating to or caused by termination
of employment of any persons on or after the Closing Date.
 
Section 12.  Miscellaneous
 
     12.1. Arbitration.  If any dispute arises under or in connection with this
Agreement or the performance of enforcement thereof, it shall be decided finally
by three arbitrators in an arbitration proceeding conforming to the Rules of the
American Arbitration Association applicable to commercial arbitration. The
arbitrators shall be appointed as follows: one by the Seller, one by the
Purchaser, and the third by the said two arbitrators, or, if they cannot agree,
then the third arbitrator shall be appointed by the American Arbitration
Association. The third arbitrator shall be chairman of the panel and the
arbitration shall take place in Chester County, Pennsylvania. The decision of a
majority of the Arbitrators shall be conclusively binding upon the parties,
final and nonappealable, and such decision shall be enforceable as a judgment in
any court of competent jurisdiction. Each party shall pay the fees and expenses
of the arbitrator appointed by it, its counsel and its witnesses. The parties
shall share equally in the fees and expenses of the impartial arbitrator.
 
     12.2. Governing Law.  This Agreement shall be governed by, and construed
and enforced in accordance with the laws of the Commonwealth of Pennsylvania.
 
     12.3. Assignment.  This Agreement shall not be assignable by either party
without the prior written approval of the other party; provided, however, that
Purchaser may assign its interest in this Agreement to its wholly-owned
subsidiary, Cauldron, Inc., as long as Purchaser unconditionally guarantees the
timely performance when due of all obligations of the Purchaser hereunder, such
guarantee to be in a form reasonably acceptable to the Seller. To the extent so
assignable, this Agreement shall be binding upon, and inure to the benefit of,
the Purchaser and its successors and assigns and the Seller and its successors
and assigns.
 
     12.4. Headings for Reference Only.  The section and paragraph headings in
this Agreement are for convenience of reference only and shall not be deemed to
modify or limit the provisions of this Agreement.
 
     12.5. Notices.  Any notice, communication, demand or other writing (a
"notice") required or permitted to be given, made or accepted by any party to
this Agreement shall be given by personal delivery or by depositing the same in
the United States mail, properly addressed, postage prepaid and registered or
certified with return receipt requested. A notice given by personal delivery
shall be effective upon delivery and a notice given by registered or certified
mail shall be deemed effective on the second day after such deposit. For
purposes of notice, the addresses of the parties shall be, until changed by a
notice given in accordance herewith, as follows:
 
          If to the Purchaser:
 
             Proclinical, Inc., 300 Kimberton Road, Phoenixville, PA 19460
 
          With a required copy to:
 
             James C. Walker, Esquire, P.O. Box 259, Perkasie, PA 18944-0259
 
          If to the Seller:
 
           Zynaxis, Inc., 371 Phoenixville Pike, Malvern, PA 19355
 
          With a required copy to:
 
             Vaxcel, Inc., 154 Technology Parkway, Technology Park, Norcross, GA
        30042.
 
     12.6. Entire Agreement and Amendment.  This document states the entire
agreement reached between the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior or contemporaneous agreements,
understandings, representations and warranties between the parties, and may not
be amended except by written instrument executed by the duly authorized officers
of the parties hereto.
 
                                       J-9
<PAGE>   283
 
     12.7. Termination of Agreement.  Notwithstanding anything to the contrary
in this Agreement, if the Closing shall not have occurred by June 30, 1997, then
either party shall have the right to terminate this Agreement by delivery of
notice to the other party, in which case the deposit monies paid by Purchaser
under this Agreement shall be promptly returned to Purchaser; provided, however,
that no party may terminate this Agreement if that party is in default of any of
its obligations to the other party under this Agreement.
 
     12.8. Counterparts; Facsimile Delivery.  This Agreement may be executed and
delivered in one or more counterparts, each of which shall be an original, but
all of which together shall constitute one and the same instrument. This
Agreement may also be executed and delivered by facsimile with the same force
and effect as if originally executed copies of this Agreement had been delivered
by the parties hereto. If this Agreement is executed and delivered in
counterparts or by facsimile, any party may thereafter require that both parties
originally execute and deliver a sufficient number of additional copies of this
Agreement so that each party may have two fully executed originals of this
Agreement.
 
     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered on the day and year first above written.
 
<TABLE>
<S>                                               <C>
ATTEST:                                           ZYNAXIS, INC.
 
                                                  By: /s/ MARTYN D. GREENACRE
- ---------------------------------------------         -----------------------------------------
Name:                                                 Martyn D. Greenacre
Title:                                                President
 
ATTEST:                                           PROCLINICAL, INC.
 
                                                  By: /s/ GARY CASEY
- ---------------------------------------------         -----------------------------------------
Name:                                                 Gary Casey
Title:                                                President
</TABLE>
 
                                      J-10
<PAGE>   284
 
                                 EXHIBIT INDEX
 
<TABLE>
<S>        <C>  <C>
Exhibit A    -- List of Fixed Assets
 
Exhibit B    -- Contracts, Open Orders with Suppliers & Customers
Exhibit C    -- Significant Service/Preventative Maintenance Agreement
Exhibit D    -- Agreement of Lease and Amendments
Exhibit E    -- Patents, Trademarks, etc.
Exhibit F    -- Balance Sheet of Cauldron as of February 28, 1997
Exhibit G    -- Promissory Note
Exhibit H    -- Title to Properties
Exhibit I    -- Litigation
Exhibit J    -- Absence of Certain Changes & Events
Exhibit K    -- Additional Contracts
Exhibit L    -- Employee Benefit Plans
Exhibit M    -- Employees
Exhibit N    -- Inventory of Major Chemicals as of March 6, 1997
Exhibit P    -- Development, Supply and License Agreement
Exhibit Q    -- Lease Commitment with Transamerica Business Credit Corporation
</TABLE>
 
                                      J-11
<PAGE>   285
 
                                    PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 20.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
ARTICLE VI OF THE CERTIFICATE OF INCORPORATION OF THE REGISTRANT PROVIDES:
 
     SECTION 6.1.  RIGHT TO INDEMNIFICATION.  Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, and whether formal or
informal (hereinafter a "proceeding"), by reason of the fact:
 
          (a) that he or she, or a person of whom he or she is the legal
     representative, is or was a director or Board-elected officer of the
     Corporation, or
 
          (b) that he or she, being at the time a director or Board-elected
     officer of the Corporation, is or was serving at the request of the
     Corporation as a director, trustee, officer, employee or agent of another
     corporation or of a partnership, limited liability company, joint venture,
     trust or other enterprise, including service with respect to an employee
     benefit plan (collectively, "another enterprise" or "other enterprise"),
 
whether either in case (a) or in case (b) the basis of such proceeding is
alleged action or inaction (x) in an official capacity as a director or officer
of the Corporation, or as a director, trustee, officer, employee or agent of
such other enterprise, or (y) in any other capacity related to the Corporation
or such other enterprise while so serving as a director, trustee, officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent permitted by Section 145 of the Delaware General Corporation
Law (or any successor provision or provisions) as the same exists or may
hereafter be amended (but, in the case of any such amendment, with respect to
alleged action or inaction occurring prior to such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than permitted prior thereto), against all expense, liability and loss
(including without limitation attorneys' fees and expenses, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) actually and
reasonably incurred by such person in connection therewith. The persons
indemnified by this Article VI are hereinafter referred to as "indemnitees."
Such indemnification as to such alleged action or inaction shall continue as to
an indemnitee who has after such alleged action or inaction ceased to be a
director or officer of the Corporation, or director, trustee, officer, employee
or agent of such other enterprise; and shall inure to the benefit of the
indemnitee's heirs, executors and administrators. Notwithstanding the foregoing,
except as may be provided in the Bylaws or by the Board of Directors, the
Corporation shall not indemnify any such indemnitee in connection with a
proceeding (or portion thereof) initiated by such indemnitee (but this
prohibition shall not apply to a counterclaim, cross-claim or third-party claim
brought by the indemnitee in any proceeding) unless such proceeding (or portion
thereof) was authorized by the Board of Directors. The right to indemnification
conferred in this Article VI: (i) shall be a contract right; (ii) shall not be
affected adversely as to any indemnitee by any amendment of this Certificate of
Incorporation with respect to any alleged action or inaction occurring prior to
such amendment; and (iii) shall, subject to any requirements imposed by law and
the Bylaws, include the right to be paid by the Corporation the expenses
(including attorneys' fees) incurred in defending any such proceeding in advance
of its final disposition.
 
     SECTION 6.2.  RELATIONSHIP TO OTHER RIGHTS AND PROVISIONS CONCERNING
INDEMNIFICATION.  The rights to indemnification and to the advancement of
expenses conferred in this Article VI shall not be exclusive of any other right
which any person may have or hereafter acquire under this Certificate of
Incorporation, any statute, bylaw, agreement, vote of shareholders or
disinterested directors or otherwise. The Bylaws may contain such other
provisions concerning indemnification, including provisions specifying
reasonable procedures relating to and conditions to the receipt by indemnitees
of indemnification, provided that such provisions are not inconsistent with the
provisions of this Article VI.
 
     SECTION 6.3.  OTHER OFFICERS, EMPLOYEES AND AGENTS.  The Corporation may,
to the extent authorized from time to time by the Board of Directors, grant
rights to indemnification, and to the advancement of
 
                                      II-1
<PAGE>   286
 
expenses, to any other officer, employee or agent of the Corporation (or any
person serving at the Corporation's request as a director, trustee, officer,
employee or agent of another enterprise) or to any person who is or was a
director, officer, employee or agent of any of the Corporation's affiliates,
predecessor or subsidiary corporations or of a constituent corporation absorbed
by the Corporation in a consolidation or merger or who is or was serving at the
request of such affiliate, predecessor or subsidiary corporation or of such
constituent corporation as a director, trustee, officer, employee or agent of
another enterprise, in each case as determined by the Board of Directors to the
fullest extent of the provisions of this Article VI in cases of the
indemnification and advancement of expenses of directors and Board-elected
officers of the Corporation, or to any lesser extent (or greater extent, if
permitted by law) determined by the Board of Directors. If so indemnified, such
persons shall be included in the term "indemnitee" or "indemnitees" as used in
this Article VI and in the Bylaws of the Corporation.
 
ARTICLE VII OF THE BYLAWS OF REGISTRANT PROVIDES:
 
     SECTION 7.01.  INDEMNIFICATION PROVISIONS IN CERTIFICATE OF
INCORPORATION.  The provisions of this Article VII are intended to supplement
Article VI of the Certificate of Incorporation pursuant to Sections 6.2 and 6.3
thereof. To the extent that this Article VII contains any provisions
inconsistent with said Article VI, the provisions of the Certificate of
Incorporation shall govern. Terms defined in such Article VI shall have the same
meaning in this Article VII.
 
     SECTION 7.02.  INDEMNIFICATION OF OTHERS.  The Corporation may indemnify
and advance expenses to its other officers, employees and agents to the same
extent as to its directors and Board-elected officers, as set forth in the
Certificate of Incorporation and in this Article VII of the Bylaws of the
Corporation, and, if so indemnified, such persons shall be included in the term
"indemnitee" or "indemnitees" as used in this Article VII of the Bylaws.
 
     SECTION 7.03.  UNDERTAKINGS FOR ADVANCES OF EXPENSES.  If and to the extent
the Delaware General Corporation Law requires, an advancement by the Corporation
of expenses incurred by an indemnitee pursuant to clause (iii) of the last
sentence of Section 6.1 of the Certificate of Incorporation (hereinafter an
"advancement of expenses") shall be made only upon delivery to the Corporation
of an undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not entitled
to be indemnified for such expenses under Article VI of the Certificate of
Incorporation or otherwise.
 
     SECTION 7.04.  CLAIMS FOR INDEMNIFICATION.  If a claim for indemnification
under Section 6.1 of the Certificate of Incorporation is not paid in full by the
Corporation within 60 days after it has been received in writing by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be 20 days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If the indemnitee is successful in whole or in part in any such
suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses only upon
a final adjudication that, the indemnitee has not met the applicable standard of
conduct set forth in Section 145 of the Delaware General Corporation Law (or any
successor provision or provisions). Neither the failure of the Corporation
(including the Board of Directors, independent legal counsel, or its
shareholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
Section 145 of the Delaware General Corporation Law (or any successor provision
or provisions), nor an actual determination by the Corporation (including the
Board of Directors, independent legal counsel, or its shareholders) that the
indemnitee has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard of conduct
or, in the case of such a suit brought by the
 
                                      II-2
<PAGE>   287
 
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to have or retain such advancement of expenses,
under Article VI of the Certificate of Incorporation or this Article VII or
otherwise, shall be on the Corporation.
 
     SECTION 7.05.  INSURANCE.  The Corporation may maintain insurance, at its
expense, to protect itself and any director, trustee, officer, employee or agent
of the Corporation or another enterprise against any expense, liability or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation
Law.
 
     SECTION 7.06.  SEVERABILITY.  In the event that any of the provisions of
this Article VII (including any provision within a single section, paragraph or
sentence) is held by a court of competent jurisdiction to be invalid, void or
otherwise unenforceable, the remaining provisions are severable and shall remain
enforceable to the full extent permitted by law.
 
     Section 145 of the Delaware General Corporation law empowers Vaxcel to
indemnify its officers and directors under certain circumstances. The pertinent
provisions of that statute read as follows:
 
          "(a) A corporation may indemnify any person who was or is a party or
     is threatened to be made a party to any threatened, pending or completed
     action, suit or proceeding, whether civil, criminal, administrative or
     investigative (other than an action by or in the right of the corporation)
     by reason of the fact that he is or was a director, officer, employee or
     agent of the corporation, or is or was serving at the request of the
     corporation as a director, officer, employee or agent of another
     corporation, partnership, joint venture, trust or other enterprise, against
     expenses (including attorneys' fees), judgments, fines and amounts paid in
     settlement actually and reasonably incurred by him in connection with such
     action, suit or proceeding if he acted in good faith and in a manner he
     reasonably believed to be in or not opposed to the best interests of the
     corporation, and, with respect to any criminal action or proceeding, had no
     reasonable cause to believe his conduct was unlawful. The termination of
     any action, suit or proceeding by judgment, order, settlement, conviction,
     or upon a plea of nolo contendere or its equivalent, shall not, of itself,
     create a presumption that the person did not act in good faith and in a
     manner which he reasonably believed to be in or not opposed to the best
     interests of the corporation, and, with respect to any criminal action or
     proceeding, had reasonable cause to believe that his conduct was unlawful.
 
          "(b) A corporation may indemnify any person who was or is a party or
     is threatened to be made a party to any threatened, pending or completed
     action or suit by or in the right of the corporation to procure a judgment
     in its favor by reason of the fact that he is or was a director, officer,
     employee or agent of the corporation, or is or was serving at the request
     of the corporation as a director, officer, employee or agent of another
     corporation, partnership, joint venture, trust or other enterprise against
     expenses (including attorneys' fees) actually and reasonably incurred by
     him in connection with the defense or settlement of such action or suit if
     he acted in good faith and in a manner he reasonably believed to be in or
     not opposed to the best interests of the corporation and except that no
     indemnification shall be made in respect of any claim, issue or matter as
     to which such person shall have been adjudged to be liable to the
     corporation unless and only to the extent that the Court of Chancery or the
     court in which such action or suit was brought shall determine upon
     application that, despite the adjudication of liability but in view of all
     the circumstances of the case, such person is fairly and reasonably
     entitled to indemnity for such expenses which the Court of Chancery or such
     other court shall deem proper.
 
          "(c) To the extent that a director, officer, employee or agent of a
     corporation has been successful on the merits or otherwise in defense of
     any action, suit or proceeding referred to in subsections (a) and (b) of
     this section, or in defense of any claim, issue or matter therein, he shall
     be indemnified against expenses (including attorneys' fees) actually and
     reasonably incurred by him in connection therewith.
 
          "(d) Any indemnification under subsections (a) and (b) of this section
     (unless ordered by a court) shall be made by the corporation only as
     authorized in the specific case upon a determination that indemnification
     of the director, officer, employee or agent is proper in the circumstances
     because he has
 
                                      II-3
<PAGE>   288
 
     met the applicable standard of conduct set forth in subsections (a) and (b)
     of this section. Such determination shall be made (1) by a majority vote of
     the directors who are not parties to such action, suit or proceeding, even
     though less than a quorum, or (2) if there are no such directors, or if
     such directors so direct, by independent legal counsel in a written
     opinion, or (3) by the shareholders.
 
          "(e) Expenses (including attorneys' fees) incurred by an officer or
     director in defending any civil, criminal, administrative or investigative
     action, suit or proceeding may be paid by the corporation in advance of the
     final disposition of such action, suit or proceeding upon receipt of an
     undertaking by or on behalf of such director or officer to repay such
     amount if it shall ultimately be determined that he is not entitled to be
     indemnified by the corporation as authorized in this section. Such expenses
     (including attorneys' fees) incurred by other employees and agents may be
     so paid upon such terms and conditions, if any, as the board of directors
     deems appropriate.
 
          "(f) The indemnification and advancement of expenses provided by, or
     granted pursuant to, the other subsections of this section shall not be
     deemed exclusive of any other rights to which those seeking indemnification
     or advancement of expenses may be entitled under any bylaw, agreement, vote
     of shareholders or disinterested directors or otherwise, both as to action
     in his official capacity and as to action in another capacity while holding
     such office.
 
          "(g) A corporation shall have power to purchase and maintain insurance
     on behalf of any person who is or was a director, officer, employee or
     agent of the corporation, or is or was serving at the request of the
     corporation as a director, officer, employee or agent of another
     corporation, partnership, joint venture, trust or other enterprise against
     any liability asserted against him and incurred by him in any such
     capacity, or arising out of his status as such, whether or not the
     corporation would have the power to indemnify him against such liability
     under this section.
 
          "(h) For purposes of this section, references to 'the corporation'
     shall include, in addition to the resulting corporation, any constituent
     corporation (including any constituent of a constituent) absorbed in a
     consolidation or merger which, if its separate existence had continued,
     would have had power and authority to indemnify its directors, officers,
     and employees or agents, so that any person who is or was a director,
     officer, employee or agent of such constituent corporation, or is or was
     serving at the request of such constituent corporation as a director,
     officer, employee or agent of another corporation, partnership, joint
     venture, trust or other enterprise, shall stand in the same position under
     this section with respect to the resulting or surviving corporation as he
     would have with respect to such constituent corporation if its separate
     existence had continued.
 
          "(i) For purposes of this section, references to 'other enterprises'
     shall include employee benefit plans; references to 'fines' shall include
     any excise taxes assessed on a person with respect to any employee benefit
     plan; and references to 'serving at the request of the corporation' shall
     include any service as a director, officer, employee or agent of the
     corporation which imposes duties on, or involves services by, such
     director, officer, employee or agent with respect to an employee benefit
     plan, its participants or beneficiaries; and a person who acted in good
     faith and in a manner he reasonably believed to be in the interest of the
     participants and beneficiaries of an employee benefit plan shall be deemed
     to have acted in a manner 'not opposed to the best interests of the
     corporation' as referred to in this section.
 
          "(j) The indemnification and advancement of expenses provided by, or
     granted pursuant to, this section shall, unless otherwise provided when
     authorized or ratified, continue as to a person who has ceased to be a
     director, officer, employee or agent and shall inure to the benefit of the
     heirs, executors and administrators of such a person.
 
          "(k) The Court of Chancery is hereby vested with exclusive
     jurisdiction to hear and determine all actions for advancement of expenses
     or indemnification brought under this section or under any bylaw,
     agreement, vote of shareholders or disinterested directors, or otherwise.
     The Court of Chancery may summarily determine a corporation's obligation to
     advance expenses (including attorneys' fees)."
 
     As permitted by applicable statutes, the Registrant has purchased a
standard directors' and officers' liability policy that will, subject to certain
limitations, indemnify the Registrant and its officers and directors
 
                                      II-4
<PAGE>   289
 
for damages they become legally obligated to pay as a result of any negligent
act, error, or omission committed by directors or officers while acting in their
capacities as such.
 
     The indemnification provisions in the Bylaws may be sufficiently broad to
permit indemnification of the Registrant's officers and directors for
liabilities arising under the Securities Act.
 
ITEM 21.  EXHIBITS.
 
     The following exhibits are filed herein:
 
   
<TABLE>
<CAPTION>
EXHIBIT NO.                                          DESCRIPTION
- -----------       ---------------------------------------------------------------------------------
<C>          <C>  <S>
    *2.1       -- Agreement and Plan of Merger, dated as of December 6, 1996, by and among CytRx
                  Corporation, Vaxcel, Inc., Vaxcel Merger Subsidiary, Inc., and Zynaxis, Inc.
                  (included as Appendix A to the Proxy Statement/Prospectus included in this
                  Registration Statement)
    *3.1       -- Amended and Restated Certificate of Incorporation of Vaxcel, Inc.
    *3.2       -- Bylaws of Vaxcel, Inc.
    *4.1       -- Warrant to purchase shares of common stock of Vaxcel, Inc., to be issued to
                  certain shareholders of Zynaxis, Inc. (included as Appendix H in the Proxy
                  Statement/Prospectus included in this Registration Statement)
    *4.2       -- Warrant to purchase shares of the common stock of Vaxcel, Inc., to be issued to
                  CytRx Corporation (included as Appendix I to the Proxy Statement/Prospectus
                  included in this Registration Statement)
     5.1       -- Opinion of Alston & Bird as to the legality of the shares of the common stock of
                  Vaxcel, Inc. being issued
     8.1       -- Opinion of Alston & Bird regarding certain tax matters
   *10.1       -- Agreement of Sublease dated January 18, 1996 by and between Vaxcel, Inc. and
                  SeaLite Sciences, Inc.
   *10.2       -- Amendment to Sublease dated October 15, 1996 by and between Vaxcel, Inc. and
                  SeaLite Sciences, Inc.
   *10.3       -- Amended and Restated License Agreement (OPTIVAX(R)) dated October 10, 1996 by and
                  between Vaxcel, Inc. and CytRx Corporation
  *+10.4       -- Amended and Restated Supply Agreement dated October 10, 1996 by and between
                  Vaxcel, Inc. and CytRx Corporation
   *10.5       -- Employment Agreement dated August 16, 1993 by and between Vaxcel, Inc. and Paul
                  J. Wilson
   *10.6       -- Amendment No. 1 to Employment Agreement dated March 6, 1994 by and between
                  Vaxcel, Inc. and Paul J. Wilson
   *10.7       -- Form of amendment No. 1 to Non-Qualified Stock Option Agreement by and between
                  Vaxcel, Inc. and Paul J. Wilson
   *10.8       -- Facilities Use Agreement dated October 16, 1996 by and between Vaxcel, Inc. and
                  Proceutics, Inc.
   *10.9       -- Feasibility Evaluation/Development Option Agreement dated August 4, 1995 by and
                  between Vaxcel, Inc. and Connaught Laboratories, Inc.
   *10.10      -- Lease Agreement dated November 23, 1993 by and between Vaxcel, Inc. and New
                  England Mutual Life Insurance Company
   *10.11      -- First Amendment to Lease Agreement dated January 23, 1996 by and between Vaxcel,
                  Inc. and Regency Holdings, Inc.
   *10.12      -- Second Amendment to Lease Agreement dated October 15, 1996 by and between Vaxcel,
                  Inc. and Regency Holdings, Inc.
   *10.13      -- License Agreement (OPTIVAX(R) Copolymer Adjuvant) dated April 9, 1996 by and
                  between Vaxcel, Inc. and Corixa Corporation
   *10.14      -- Option Agreement dated October 15, 1995 by and between Vaxcel, Inc. and Medeva
                  Europe Limited
</TABLE>
    
 
                                      II-5
<PAGE>   290
 
   
<TABLE>
<CAPTION>
EXHIBIT NO.                                          DESCRIPTION
- -----------       ---------------------------------------------------------------------------------
<C>          <C>  <S>
   *10.15      -- Services and Facilities Use Agreement dated October 10, 1996 by and between
                  Vaxcel, Inc. and CytRx Corporation
   *10.16      -- Vaxcel, Inc. 1993 Stock Option Plan
   *10.17      -- Secured Loan Agreement dated December 6, 1996 between CytRx Corporation and
                  Zynaxis, Inc.
   *10.18      -- Senior Secured Note for $2,000,000
   *10.19      -- Security Agreement dated as of December 6, 1996 executed and delivered by
                  Zynaxis, Inc. in favor of CytRx Corporation
   *10.20      -- Pledge Agreement dated as of December 6, 1996 by and between Zynaxis, Inc. and
                  CytRx Corporation
   *10.21      -- Guaranty dated as of December 6, 1996 executed and delivered by Zynaxis Vaccine
                  Technologies, Inc. in favor of CytRx Corporation
   *10.22      -- Security Agreement dated as of December 6, 1996 executed and delivered by Zynaxis
                  Vaccine Technologies, Inc. in favor of CytRx Corporation
   *10.23      -- Collateral Assignment of License Agreement dated as of December 6, 1996 executed
                  and delivered by Zynaxis Vaccine Technologies, Inc. in favor of CytRx Corporation
   *10.24      -- Amended Employment Agreement of Martyn D. Greenacre dated May 5, 1995 and amended
                  as of November 15, 1996
   *10.25      -- Technology Development Agreement dated as of December 6, 1996 by and between
                  Vaxcel, Inc. and Zynaxis Vaccine Technologies, Inc.
   *10.26      -- Liquidation Agreement (included as Appendix B to the Proxy Statement/Prospectus
                  included in this Registration Statement)
   *10.27      -- Asset Purchase Agreement dated March 21, 1997 by and between Zynaxis, Inc. and
                  ProClinical, Inc. (included as Appendix J to the Proxy Statement/Prospectus
                  included in this Registration Statement)
   *13.1       -- Zynaxis' Annual Report to Shareholders for the year ended December 31, 1995
                  (Incorporated herein by reference to Zynaxis' Annual Report on Form 10-K/A-1 for
                  the fiscal year ended December 31, 1995)
    23.1       -- Consent of Ernst & Young LLP, independent auditors for Vaxcel, Inc.
    23.2       -- Consent of Ernst & Young LLP, independent auditors of Secretech, Inc.
    23.3       -- Consent of Arthur Andersen LLP, independent public accountants for Zynaxis, Inc.
    23.4       -- Consent of Arthur Andersen LLP, independent public accountants for Secretech,
                  Inc.
    23.5       -- Consents of Alston & Bird (contained in exhibits 5.1 and 8.1)
   *24.1       -- Power of Attorney (contained on the signature page hereof)
   *27.1       -- Financial Data Schedule
   *99.1       -- Form of Proxy of Zynaxis, Inc.
</TABLE>
    
 
- ---------------
 
 * Previously filed.
 + Portions of this exhibit have been deleted pursuant to a request for
   confidential treatment and have been filed separately with the Secretary of
   the Securities and Exchange Commission.
 
ITEM 22.  UNDERTAKINGS.
 
     A. The undersigned Registrant hereby undertakes:
 
          (1) To file, during any period in which offers or sales are being
     made, a post-effective amendment to this registration statement:
 
             (i) To include any prospectus required by Section 10(a)(3) of the
        Securities Act of 1933;
 
             (ii) To reflect in the prospectus any facts or events arising after
        the effective date of the registration statement (or the most recent
        post-effective amendment) which, individually or in the
 
                                      II-6
<PAGE>   291
 
        aggregate, represent a fundamental change in the information set forth
        in the registration statement. Notwithstanding the foregoing, any
        increase or decrease in volume of securities offered (if the total
        dollar value of securities offered would not exceed that which was
        registered) and any deviation from the low or high end of the estimated
        maximum offering range may be reflected in the form of prospectus filed
        with the Commission pursuant to Rule 424(b)) if, in the aggregate, the
        changes in volume and price represent no more than 20% change in the
        maximum aggregate offering price set forth in the "Calculation of
        Registration Fee" table in the effective registration statement.
 
             (iii) To include any material information with respect to the plan
        of distribution not previously disclosed in the registration statement
        or any material change to such information in the registration
        statement.
 
          (2) That, for the purposes of determining any liability under the
     Securities Act of 1933, each such post-effective amendment shall be deemed
     to be a new registration statement relating to the securities offered
     therein, and the offering of such securities at that time shall be deemed
     to be the initial bona fide offering thereof.
 
          (3) To remove from registration by means of a post-effective amendment
     any of the securities being registered which remain unsold at the
     termination of the offering.
 
     B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
 
     C.(1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
 
     (2) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
 
     D. The undersigned Registrant hereby undertakes to respond to requests for
information that are incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
 
     E. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
 
                                      II-7
<PAGE>   292
 
                                   SIGNATURES
 
   
     Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Norcross,
State of Georgia on this the 17th day of April, 1997.
    
 
                                                       VAXCEL, INC.
                                                        (Registrant)
                                          By:     /s/ PAUL J. WILSON III
 
                                            ------------------------------------
                                                     PAUL J. WILSON III
                                               PRESIDENT AND CHIEF EXECUTIVE
                                                         OFFICER
 
     Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
 
   
<TABLE>
<CAPTION>
               SIGNATURES                                CAPACITY                      DATE
- ----------------------------------------    ----------------------------------    ---------------
 
<C>                                         <S>                                   <C>
            JACK J. LUCHESE*                Chairman of the Board, Director        April 17, 1997
- ----------------------------------------
            JACK J. LUCHESE
 
         /s/ PAUL J. WILSON III             Director, President and Chief          April 17, 1997
- ----------------------------------------      Executive Officer
           PAUL J. WILSON III                 (Principal Executive Officer)
 
            JACK L. BOWMAN*                 Director                               April 17, 1997
- ----------------------------------------
             JACK L. BOWMAN
 
       RAYMOND C. CARNAHAN, JR.*            Director                               April 17, 1997
- ----------------------------------------
        RAYMOND C. CARNAHAN, JR.
 
        HERBERT H. MCDADE, JR.*             Director                               April 17, 1997
- ----------------------------------------
         HERBERT H. MCDADE, JR.
 
           MARK W. REYNOLDS*                Chief Financial Officer                April 17, 1997
- ----------------------------------------      (Principal Financial and
            MARK W. REYNOLDS                  Principal Accounting Officer)
 
      *By: /s/ PAUL J. WILSON III
- ----------------------------------------
           PAUL J. WILSON III
          AS ATTORNEY-IN-FACT
</TABLE>
    
 
                                      II-8
<PAGE>   293
 
                                 EXHIBIT INDEX
 
   
<TABLE>
<CAPTION>
                                                                                        SEQUENTIALLY
EXHIBIT                                                                                   NUMBERED
NUMBER                                      DESCRIPTION                                     PAGE
- -------       -----------------------------------------------------------------------   ------------
<C>      <C>  <S>                                                                       <C>
  *3.1     -- Certificate of Incorporation of Vaxcel, Inc. ..........................
  *3.2     -- Bylaws of Vaxcel, Inc. ................................................
   5.1     -- Opinion of Alston & Bird as to the legality of the shares of the
              Securities being issued................................................
   8.1     -- Opinion of Alston & Bird regarding certain tax matters.................
 *10.1     -- Agreement of Sublease dated January 18, 1996 by and between Vaxcel,
              Inc. and SeaLite Sciences, Inc. .......................................
 *10.2     -- Amendment to Sublease dated October 15, 1996 by and between Vaxcel,
              Inc. and SeaLite Sciences, Inc. .......................................
 *10.3     -- Amended and Restated License Agreement (OPTIVAX(R)) dated October 10,
              1996 by and between Vaxcel, Inc. and CytRx Corporation.................
*+10.4     -- Amended and Restated Supply Agreement dated October 10, 1996 by and
              between Vaxcel, Inc. and CytRx Corporation.............................
 *10.5     -- Employment Agreement dated August 16, 1993 by and between Vaxcel, Inc.
              and Paul J. Wilson.....................................................
 *10.6     -- Amendment No. 1 to Employment Agreement dated March 6, 1994 by and
              between Vaxcel, Inc. and Paul J. Wilson................................
 *10.7     -- Form of amendment No. 1 to Non-Qualified Stock Option Agreement 1997 by
              and between Vaxcel, Inc. and Paul J. Wilson............................
 *10.8     -- Facilities Use Agreement dated October 16, 1996 by and between Vaxcel,
              Inc. and Proceutics, Inc. .............................................
 *10.9     -- Feasibility Evaluation/Development Option Agreement dated August 4,
              1995 by and between Vaxcel, Inc. and Connaught Laboratories, Inc. .....
 *10.10    -- Lease Agreement dated November 23, 1993 by and between Vaxcel, Inc. and
              New England Mutual Life Insurance Company..............................
 *10.11    -- First Amendment to Lease Agreement dated January 23, 1996 by and
              between Vaxcel, Inc. and Regency Holdings, Inc. .......................
 *10.12    -- Second Amendment to Lease Agreement dated October 15, 1996 by and
              between Vaxcel, Inc. and Regency Holdings, Inc. .......................
 *10.13    -- License Agreement (OPTIVAX(R) Copolymer Adjuvant) dated April 9, 1996
              by and between Vaxcel, Inc. and Corixa Corporation.....................
 *10.14    -- Option Agreement dated October 15, 1995 by and between Vaxcel, Inc. and
              Medeva Europe Limited..................................................
 *10.15    -- Services and Facilities Use Agreement dated October 10, 1996 by and
              between Vaxcel, Inc. and CytRx Corporation.............................
 *10.16    -- Vaxcel, Inc. 1993 Stock Option Plan....................................
 *10.17    -- Secured Loan Agreement dated December 6, 1996 between CytRx Corporation
              and Zynaxis, Inc.......................................................
 *10.18    -- Senior Secured Note for $2,000,000.....................................
 *10.19    -- Security Agreement dated as of December 6, 1996 executed and delivered
              by Zynaxis, Inc. in favor of CytRx Corporation.........................
 *10.20    -- Pledge Agreement dated as of December 6, 1996 by and between Zynaxis,
              Inc. and CytRx Corporation.............................................
 *10.21    -- Guaranty dated as of December 6, 1996 executed and delivered by Zynaxis
              Vaccine Technologies, Inc. in favor of CytRx Corporation...............
 *10.22    -- Security Agreement dated as of December 6, 1996 executed and delivered
              by Zynaxis Vaccine Technologies, Inc. in favor of CytRx Corporation....
</TABLE>
    
<PAGE>   294
 
   
<TABLE>
<CAPTION>
                                                                                        SEQUENTIALLY
EXHIBIT                                                                                   NUMBERED
NUMBER                                      DESCRIPTION                                     PAGE
- -------       -----------------------------------------------------------------------   ------------
<C>      <C>  <S>                                                                       <C>
 *10.23    -- Collateral Assignment of License Agreement dated as of December 6, 1996
              executed and delivered by Zynaxis Vaccine Technologies, Inc. in favor
              of CytRx Corporation...................................................
 *10.24    -- Amended Employment Agreement of Martyn D. Greenacre dated May 5, 1995
              and amended as of November 15, 1996....................................
 *10.25    -- Technology Development Agreement dated as of December 6, 1996 by and
              between Vaxcel, Inc. and Zynaxis Vaccine Technologies, Inc.............
 *10.26    -- Liquidation Agreement (included as Appendix B to the Proxy Statement/
              Prospectus included in this Registration Statement)....................
 *10.27    -- Asset Purchase Agreement dated March 21, 1997 by and between Zynaxis,
              Inc. and ProClinical, Inc. (included as Appendix J to the Proxy
              Statement/Prospectus included in this Registration Statement)..........
  23.1     -- Consent of Ernst & Young, LLP, independent auditors of Vaxcel, Inc. ...
  23.2     -- Consent of Ernst & Young, LLP, independent auditors of Secretech,
              Inc. ..................................................................
  23.3     -- Consent of Arthur Andersen LLP, independent public accountants for
              Zynaxis, Inc. .........................................................
  23.4     -- Consent of Arthur Andersen LLP, independent public accountants for
              Secretech, Inc. .......................................................
  23.5     -- Consents of Alston & Bird, counsel to Vaxcel, Inc. (contained in
              exhibits 5.1 and 8.1) .................................................
 *27.1     -- Financial Data Schedule................................................
 *99.1     -- Form of Proxy of Zynaxis, Inc. ........................................
</TABLE>
    
 
- ---------------
 
 * Previously filed.
 
 + Portions of this exhibit have been deleted pursuant to a request for
   confidential treatment and have been filed separately with the Secretary of
   the Securities and Exchange Commission.

<PAGE>   1
                                                                   Exhibit 5.1
                           [Alston & Bird Letterhead]

Vaxcel, Inc.
154 Technology Parkway
Norcross, Georgia  30092

Gentlemen:

         This opinion is given in connection with the filing by Vaxcel, Inc., a
corporation organized and existing under the laws of the State of Delaware
("Vaxcel"), with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, of a Registration Statement on Form S-4 (the "Registration
Statement"), pursuant to which up to approximately 1,807,719 shares of Vaxcel's
common stock, $0.001 par value per share (the "Common Stock"), are to be
registered for issuance in connection with the proposed Merger (the "Merger") of
Vaxcel Merger Subsidiary, Inc. ("Vaxcel Merger Sub"), a newly formed
wholly-owned subsidiary of Vaxcel, organized and existing under the laws of the
State of Georgia, with and into Zynaxis, Inc. ("Zynaxis"), a corporation
organized and existing under the laws of the Commonwealth of Pennsylvania. 

         The Merger is intended to be effected pursuant to an Agreement and Plan
of Merger and Contribution, dated as of December 6, 1996 (the "Agreement"), by
and among Zynaxis, Vaxcel, Vaxcel Merger Sub and CytRx Corporation ("CytRx"), a
corporation organized and existing under the laws of the state of Delaware and
the sole shareholders of Vaxcel, pursuant to which each issued and outstanding
share of the $.01 par value common stock and the no par value Series A
convertible preferred stock of Zynaxis (collectively, the "Zynaxis Capital
Stock") issued and outstanding immediately prior to the effective time of the
Merger will be exchanged for the right to receive shares of Vaxcel Common
Stock.  

         In addition, pursuant to a Note Exchange Agreement, dated December 6,
1996, by and among Zynaxis, CytRx, Vaxcel and Euclid Partners III, L.P. and
S.R. One Ltd. (the "Noteholders"), the Noteholders agreed to convert convertible
promissory notes of Zynaxis to shares of Vaxcel Common Stock in connection 
with the Merger.

         In rendering this opinion, we have examined such corporate records and
documents as we have deemed, relevant and necessary as the basis for the opinion
set forth herein.

         Based on the foregoing, it is our opinion that the shares of Vaxcel
Common Stock included in the Registration Statement when issued to the holders
of Zynaxis Capital Stock in connection with the Merger will have been duly
authorized by all requisite actions on the part of Vaxcel, will be legally and
validly issued, fully paid, and nonassessable.

         We hereby consent to the filing of this opinion Statement and to the
reference made to the firm under the caption "Legal Matters" in the Proxy
Statement/Prospectus constituting part of the Registration Statement.


                                                  Very truly yours,
                                                
                                                  /s/ Alston & Bird
                                                  Alston & Bird


<PAGE>   1
                          [Alston & Bird Letterhead]


                                                                     EXHIBIT 8.1

Philip C. Cook                                         Direct Dial: 404-881-7000

                              
                                 April 17, 1997


CytRx Corporation
154 Technology Parkway
Norcross, Georgia  30092
Attn:  Jack I Luchese

Vaxcel, Inc.
154 Technology Parkway
Norcross, Georgia  30092
Attn:  Paul Wilson

Zynaxis, Inc.
371 Phoenixville Pike
Malvern, Pennsylvania  19355
Attn:  Martyn D. Greenacre

     Re:  PROPOSED CONTRIBUTIONS TO VAXCEL, INC. BY CYTRX CORPORATION, THE
          ZYNAXIS SHAREHOLDERS AND THE ZYNAXIS NOTEHOLDERS

Gentlemen:

         We have acted as counsel to CytRx Corporation ("CytRx") and Vaxcel,
Inc., a wholly-owned subsidiary of CytRx ("Vaxcel"), in connection with the
transfer of property to Vaxcel by a group of transferors (collectively, the
"Transferor Group," and individually a "Transferor") in exchange for Vaxcel
Common Stock and warrants to purchase Vaxcel Common Stock (the "Exchange"). The
Transferor Group consists of (i) CytRx, (ii) the existing shareholders of
Zynaxis (the "Zynaxis Shareholders"), and (iii) Euclid Partners III, L.P. and
S.R. ONE, Ltd. (the "Noteholders").

         In our capacity as counsel to CytRx and Vaxcel, our opinion has been
requested with respect to the qualification of the Exchange as a tax-free
organization under Section 351 of the Internal Revenue Code of 1986, as amended
(the "Code"). All capitalized terms used herein without definition shall have
the respective meanings specified in the 


<PAGE>   2
April 17, 1997
Page 2



Agreement and Plan of Merger and Contribution dated as of December 6, 1996 (the
"Agreement"). Unless otherwise specified, all Section references herein are to
the Code.

                             INFORMATION RELIED UPON

         In rendering the opinions expressed herein, we have examined such
documents as we have deemed appropriate, including:

         (1)      The Agreement;

         (2)      the Note Exchange Agreement;

         (3)      the Preferred Stock and Warrant Agreement;

         (4)      the Secured Loan Agreement;

         (5)      the Senior Secured Note; and

         (6)      Such additional documents as we have considered relevant 
                  (together, the "Transaction Documents").

         In our examination of such documents, we have assumed, with your
consent, that all documents submitted to us as photocopies faithfully reproduce
the originals thereof, that such originals are authentic, that all such
documents have been or will be duly executed to the extent required, and that
all statements set forth in such documents are accurate.

         We have also obtained such additional information and representations
as we have deemed relevant and necessary through consultation with various
officers and representatives of CytRx, Vaxcel, and Zynaxis.

                           SUMMARY OF THE TRANSACTION

         You have advised us that the Transferor Group desires to consolidate
the activities of Vaxcel and Zynaxis, including the development of technologies.
To achieve this goal, the members of the Transferor Group will transfer the
following property to Vaxcel pursuant to the Agreement:

         (i) CytRx will contribute the Senior Credit Facility and an amount of
cash (the "Cash Payment");

<PAGE>   3
April 17, 1997
Page 3



         (ii) the Zynaxis Shareholders will contribute all of the outstanding
shares of Zynaxis Capital Stock and warrants to purchase Zynaxis Capital Stock
to Vaxcel by means of a merger (the "Merger") of Vaxcel Merger Sub, a
newly-formed, wholly-owned subsidiary of Vaxcel, with and into Zynaxis; and

         (iii) the Noteholders will contribute the convertible demand promissory
notes issued by Zynaxis (the "Notes") to Vaxcel by means of the Merger.

                                      CYTRX

         (1) In the Exchange, CytRx will contribute the Senior Credit Facility
and the Cash Payment. The amount of the Cash Payment to be contributed by CytRx
will be equal to the excess, if any, of $4,000,000 over the sum, as of the
Closing Date, of (i) the aggregate principal and interest balance outstanding
under the Senior Secured Note; and (ii) the product of (A) the Per Share Price
multiplied by (B) the number of votes entitled to be cast by the holders of
Zynaxis Capital Stock who elect to exercise their statutory dissenters' rights
or their objection rights, if any, under Section 2545 of the PBCL in excess of
three percent (3%) of the votes that could be cast by all holders of Zynaxis
Capital Stock voting together as a single class. In the Exchange, Vaxcel will
deliver to CytRx: (a) one certificate for One Million Three Hundred Seventy Four
Thousand Nine Hundred Ninety-Six (1,374,996) shares of Vaxcel Common Stock; (b)
a certificate for a number of shares of Vaxcel Common Stock equal to the product
of the Exchange Ratio, as defined in the Agreement, times the number of shares
of Zynaxis Common Stock for which Vaxcel is required to pay cash pursuant to
Section 3.4(b) of the Agreement and the provisions of the PBCL to which it
refers; and (c) a warrant agreement substantially in the form of Exhibit 1 to
the Agreement (the "CytRx Warrant").

                                 ZYNAXIS MERGER

         (2) Vaxcel Merger Sub will be organized as a corporation under the laws
of the State of Georgia, but will conduct no business activities other than
consummation of the Merger.

         (3) Subject to the terms and conditions of the Agreement, at the
Effective Time, Vaxcel Merger Sub shall be merged with and into Zynaxis in
accordance with the provisions of Section 1921 et seq. of the PBCL and Sections
252 and 258 of the DGCL and with the effects provided in Section 1929 of the
PBCL and 259 of the DGCL. Zynaxis shall be the Surviving Corporation resulting
from the Merger and shall become a wholly owned Subsidiary of Vaxcel and shall
continue to be governed by the Laws of the Commonwealth of Pennsylvania. The
Merger shall be consummated pursuant to the terms of this Agreement, which has
been approved and adopted by the respective Boards of

<PAGE>   4
April 17, 1997
Page 4




Directors of CytRx, Zynaxis, Vaxcel Merger Sub, and Vaxcel, and by Vaxcel, as
the sole stockholder of Vaxcel Merger Sub.

         (4) Subject to the provisions of Article 3 of the Agreement, at the
Effective Time, by virtue of the Merger and without any action on the part of
CytRx, Vaxcel, Vaxcel Merger Sub, or Zynaxis, or the shareholders of any of the
foregoing, the shares of the constituent corporations shall be converted as
follows:

                  (a) Each share of capital stock of Vaxcel issued and
       outstanding immediately prior to the Effective Time shall remain issued
       and outstanding from and after the Effective Time.

                  (b) Each share of Vaxcel Merger Sub Common Stock issued and
       outstanding immediately prior to the Effective Time shall cease to be
       outstanding and shall be converted into one share of Zynaxis Common
       Stock.

                  (c) Each share of Zynaxis Common Stock (excluding shares held
       by any Zynaxis Company or any Vaxcel Company, and excluding shares held
       by shareholders who perfect their statutory dissenters' rights or
       objection rights under Section 2545 of PBCL as provided in Section 3.3 of
       the Agreement) issued and outstanding immediately prior to the Effective
       Time shall cease to be outstanding and shall be converted into and
       exchanged for the right to receive a number of shares of Vaxcel Common
       Stock equal to the Exchange Ratio.

                  (d) Each share of Zynaxis Preferred Stock (excluding shares
       held by any Zynaxis Company or any Vaxcel Company, and excluding shares
       held by shareholders who perfect their statutory dissenters' rights or
       objection rights under Section 2545 of PBCL as provided in Section 3.3 of
       the Agreement) issued and outstanding immediately prior to the Effective
       Time shall cease to be outstanding and shall be converted into and
       exchanged for the right to receive the number of shares of Vaxcel Common
       Stock equal to two times the Exchange Ratio.

         (5) Any holder of shares of Zynaxis Capital Stock who perfects his or
her dissenters' rights in accordance with and as contemplated by Section 1930 of
the PBCL shall be entitled to receive the value of such shares in cash as
determined pursuant to such provision of Law; provided, that no such payment
shall be made to any dissenting shareholder unless and until such dissenting
shareholder has complied with the applicable provisions of the PBCL and
surrendered to Zynaxis the certificate or certificates representing the shares
for which payment is being made. In the event that after the Effective Time a
dissenting shareholder of Zynaxis fails to perfect, or effectively withdraws or
loses, his right to appraisal and of payment for his shares, Vaxcel shall issue

<PAGE>   5
April 17, 1997
Page 5




and deliver the consideration to which such holder of shares of Zynaxis Capital
Stock is entitled under Article 3 of the Agreement (without interest) upon
surrender by such holder of the certificate or certificates representing shares
of Zynaxis Capital Stock held by him. If and to the extent required by
applicable Law, Vaxcel will establish (or cause to be established) an escrow
account with an amount sufficient to satisfy the maximum aggregate payment that
may be required to be paid to dissenting shareholders. Upon satisfaction of all
claims of dissenting shareholders, the remaining escrowed amount, reduced by
payment of the fees and expenses of the escrow agent, will be returned to
Vaxcel.

         (6) Any holder of shares of Zynaxis Capital Stock who objects to the
transaction and in accordance with and as contemplated by Sections 2544 and 2546
of the PBCL shall be entitled to receive the value of such shares in cash as
determined pursuant to such provision of Law; provided, that no such payment
shall be made to any objecting shareholder unless and until such objecting
shareholder has complied with the applicable provisions of the PBCL and
surrendered to Zynaxis the certificate or certificates representing the shares
for which payment is being made. In the event that after the Effective Time an
objecting shareholder of Zynaxis fails to give proper notice and surrender his
certificates as required by Section 2547 of the PBCL, or otherwise effectively
withdraws or loses his right to appraisal and of payment for his shares, Vaxcel
shall issue and CytRx and Vaxcel shall deliver the consideration to which such
holder of shares of Zynaxis Capital Stock is entitled under Article 3 of the
Agreement (without interest) upon surrender by such holder of the certificate or
certificates representing shares of Zynaxis Capital Stock held by him. If and to
the extent required by applicable Law, Vaxcel will establish (or cause to be
established) an escrow account with an amount sufficient to satisfy the maximum
aggregate payment that may be required to be paid to objecting shareholders.
Upon satisfaction of all claims of objecting shareholders, the remaining
escrowed amount, reduced by payment of the fees and expenses of the escrow
agent, will be returned to Vaxcel.

         (7) Notwithstanding any other provision of the Agreement, each holder
of shares of Zynaxis Common Stock and each holder of shares of Zynaxis Preferred
Stock exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Vaxcel Common Stock (after taking into account
all whole shares delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of
Vaxcel Common Stock divided by the Exchange Ratio and multiplied by the Per
Share Price.

         (8) At the Effective Time, each option or other Equity Right to
purchase shares of Zynaxis Common Stock pursuant to stock options or stock
appreciation rights ("Zynaxis Options") granted by Zynaxis under the Zynaxis
Stock Plan which are 
<PAGE>   6
April 17, 1997
Page 6




outstanding at the Effective Time, whether or not exercisable, shall be
converted into and become rights with respect to Vaxcel Common Stock, and Vaxcel
shall assume each Zynaxis Option, in accordance with the terms of the Zynaxis
Stock Plan and stock option agreement by which it is evidenced on substantially
the same terms and conditions.

         (9) As soon as practicable after the Effective Time, Vaxcel shall
deliver to the participants in the Zynaxis Stock Plan an appropriate notice
setting forth such participant's rights pursuant thereto and the grants subject
to the Zynaxis Stock Plan shall continue in effect on the same terms and
conditions (subject to the adjustments required by Section 3.5(a) of the
Agreement after giving effect to the Merger), and Vaxcel shall comply with the
terms of the Zynaxis Stock Plan to ensure, to the extent required by, and
subject to the provisions of, such Zynaxis Stock Plan, that Zynaxis Options
which qualified as incentive stock options prior to the Effective Time continue
to qualify as incentive stock options after the Effective Time. At or prior to
the Effective Time, Vaxcel shall take all corporate action necessary to reserve
for issuance sufficient shares of Vaxcel Common Stock for delivery upon exercise
of Zynaxis Options assumed by it in accordance with Section 3.5 of the
Agreement. As soon as practicable after the Effective Time, Vaxcel shall file a
registration statement on Form S-3 or Form S-8, as the case may be (or any
successor or other appropriate forms), with respect to the shares of Vaxcel
Common Stock subject to such options and shall use its reasonable efforts to
maintain the effectiveness of such registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such options remain outstanding.

         (10) All contractual restrictions or limitations on transfer with
respect to Zynaxis Common Stock awarded under the Zynaxis Stock Plan or any
other plan, program, Contract or arrangement of any Zynaxis Company, to the
extent that such restrictions or limitations shall not have already lapsed
(whether as a result of the Merger or otherwise), and except as otherwise
expressly provided in such plan, program, Contract or arrangement, shall remain
in full force and effect with respect to shares of Vaxcel Common Stock into
which such restricted stock is converted pursuant to Section 3.1 of the
Agreement.

                                ZYNAXIS WARRANTS

         (11) At the Effective Time, each warrant to purchase shares of Zynaxis
Common Stock which is outstanding at the Effective Time and is held by a party
to the Preferred Stock and Warrant Agreement (a "Securityholder") shall be
exchanged for a warrant to purchase a number of shares of Vaxcel Common Stock
equal to: (i) the number of shares of Common Stock of Zynaxis as the Warrants
held by such undersigned are exercisable to purchase at that time multiplied by
(ii) the Exchange Ratio (the "New 
<PAGE>   7
April 17, 1997
Page 7




Warrant") in accordance with the terms of the Agreement and the Preferred Stock
and Warrant Agreement.

         (12) At the Effective Time, each warrant to purchase shares of Zynaxis
Common Stock which is outstanding at the Effective Time and is not being
exchanged for a warrant to purchase Vaxcel Common Stock in accordance with
Section 3.6 of the Agreement and pursuant to the Preferred Stock and Warrant
Agreement (a "Non-Financing Warrant") shall be converted into and become a
warrant to purchase shares of Vaxcel Common Stock, and Vaxcel shall assume each
such warrant, in accordance with the terms of the warrant agreement by which it
is evidenced, except that from and after the Effective Time, (i) each
Non-Financing Warrant assumed by Vaxcel may be exercised solely for shares of
Vaxcel Common Stock, (ii) the number of shares of Vaxcel Common Stock subject to
such Non-Financing Warrant shall be equal to the number of shares of Zynaxis
Common Stock subject to such Non-Financing Warrant immediately prior to the
Effective Time multiplied by the Exchange Ratio, and (iii) the per share
exercise price under each such Non-Financing Warrant shall be adjusted by
dividing the per share exercise price under each such Non-Financing Warrant by
the Exchange Ratio and rounding up to the nearest cent. Notwithstanding the
provisions of clause (ii) of the preceding sentence, Vaxcel shall not be
obligated to issue any fraction of a share of Vaxcel Common Stock upon exercise
of such Non-Financing Warrants and any fraction of a share of Vaxcel Common
Stock that otherwise would be subject to a converted Non-Financing Warrant shall
represent the right to receive a cash payment upon exercise of such converted
Non-Financing Warrant equal to the product of such fraction and the difference
between the market value of one share of Vaxcel Common Stock at the time of
exercise of such converted Non-Financing Warrant and the per share exercise
price of such converted Non-Financing Warrant. The market value of one share of
Vaxcel Common Stock at the time of exercise of a converted Non-Financing Warrant
shall be the last sale price of a share of Vaxcel Common Stock on the Nasdaq
SmallCap Market (as reported by The Wall Street Journal or, if not reported
thereby, any other authoritative source selected by Vaxcel) on the last trading
day preceding the date of exercise.

         (13) As soon as practicable after the Effective Time, Vaxcel shall
deliver to the holders of Non-Financing Warrants an appropriate notice setting
forth such participant's rights pursuant thereto and the converted Non-Financing
Warrants shall continue in effect on the same terms and conditions (subject to
the adjustments required by Section 3.7(a) of the Agreement after giving effect
to the Merger). At or prior to the Effective Time, Vaxcel shall take all
corporate action necessary to reserve for issuance sufficient shares of Vaxcel
Common Stock for delivery upon exercise of converted Non-Financing Warrants
assumed by it in accordance with Section 3.7 of the Agreement.

<PAGE>   8
April 17, 1997
Page 8



                               ZYNAXIS NOTEHOLDERS

         (14) Upon consummation of the Merger, each Note held by a Noteholder
shall be exchanged for the number of shares (the "Note Shares") of Vaxcel Common
Stock equal to the Exchange Ratio multiplied by the quotient (rounded down to
the nearest whole share) obtained by dividing the unpaid principal amount of
such Note, together with unpaid interest thereon accrued through September 30,
1996, by the Per Share Price. At the Closing each holder of a Note shall deliver
its Notes to Vaxcel who shall then contribute such Notes to the capital of
Zynaxis by marking the Notes "Paid in Full" and delivering them to Zynaxis.
Vaxcel shall thereupon deliver to each such Noteholder in exchange therefor a
certificate representing all the Note Shares to be issued in exchange therefor,
duly registered in the name of such holder, free and clear of any liens,
security interests or other defects of title.

         (15) Each of the undersigned Noteholders agrees that: (i) upon
execution of the Note Exchange Agreement all rights that the Noteholder may have
to require the Zynaxis to register securities of the Zynaxis for sale under
applicable state and federal securities laws ("Registration Rights") are
suspended pending the Closing, and (ii) upon consummation of the Merger all such
Registration Rights will be terminated and such Noteholder will have such
registration rights as are provided for such Noteholder in the Agreement. If the
Agreement is terminated for any reason, beginning at the time of such
termination the undersigned Noteholder shall have such Registration Rights as
such Noteholder would have had at such time if such Registration Rights had not
been suspended pursuant to the preceding sentence.

         (16) The Vaxcel Common Stock received by the Transferor Group for the
property transferred, together with shares of Vaxcel Capital Stock held by CytRx
prior to the Exchange, will represent one hundred percent (100%) of the
outstanding Vaxcel Capital Stock following the transaction.

                                 REPRESENTATIONS

         With your consent, we have also assumed that the following statements
are true on the date hereof and will be true on the date the proposed
transaction is consummated:

         (1) The property being transferred by the Transferor Group to Vaxcel in
the Exchange consists of (i) the Senior Secured Credit Facility, (ii) the Cash
Payment, (iii) Zynaxis Capital Stock, and (iv) the Notes. Other than with
respect to any cash received by shareholders of Zynaxis Capital Stock pursuant
to Section 3.3 of the Agreement ("Dissenters' Rights") or cash received in lieu
of fractional shares of Vaxcel Common 





<PAGE>   9
April 17, 1997
Page 9



Stock, there is no consideration being issued to any Transferor in exchange for
such property other than Vaxcel Common Stock or warrants for Vaxcel Common
Stock.

         (2) No accounts receivable, commissions due, patents, patent
applications, copyrights, technical know-how, or licenses (other than
third-party licenses as to which all rights will be transferred) will be
transferred to Vaxcel in the Exchange, except as provided in the Technology
Development Agreement.

         (3) No Vaxcel Common Stock or warrants for Vaxcel Common Stock will be
issued for services rendered to or for the benefit of Vaxcel, Vaxcel Merger Sub
or Zynaxis in connection with the Exchange.

         (4) No Vaxcel Common Stock or warrants for Vaxcel Common Stock will be
issued in the Exchange for any indebtedness of Vaxcel or for interest on
indebtedness of Vaxcel.

         (5) Aside from the indebtedness which has arisen in the ordinary course
of business, there is no indebtedness between any Transferor and Vaxcel, and
there will be no indebtedness created in favor of any Transferor as a result of
the Exchange.

         (6) None of the assets to be transferred to Vaxcel will be received by
a Transferor as part of a plan of liquidation of another corporation.

         (7) None of the Transferors will retain any rights or interest in the
property transferred to Vaxcel in the Exchange.

         (8) The Exchange is not the result of the solicitation by a promoter,
broker, or investment banking house.

         (9) The Exchange will occur pursuant to a plan agreed upon before the
consummation of the proposed transaction in which the rights of the parties are
defined.

         (10) The Exchange will occur at approximately the same time.

         (11) There is no plan or intention on the part of Vaxcel to redeem or
otherwise reacquire any of the Vaxcel Common Stock to be issued or issuable upon
the exercise of any warrants issued in the Exchange.

         (12) As of the date of the Exchange, the Transferors have no plan or
intention to sell or otherwise dispose of an amount of the Vaxcel Common Stock
or warrants for Vaxcel Common Stock received by them in the Exchange that would
cause the 




<PAGE>   10
April 17, 1997
Page 10



Transferors to not be in "control" of Vaxcel. For purposes of this Tax Opinion,
"control" means ownership of stock possessing at least 80% of the total combined
voting power of all classes of stock entitled to vote and at least 80% of the
total number of shares of all other classes of stock.

         (13) Other than as set forth in the Transaction Documents, Vaxcel has
no plan or intention to issue any additional shares of Vaxcel Common Stock or
options or rights to acquire Vaxcel Common Stock, except shares of Vaxcel Common
Stock issued pursuant to the exercise of warrants issued in the Exchange.

         (14) Taking into account any issuance of additional shares of Vaxcel
Capital Stock; any issuance of Vaxcel Capital Stock for services; the exercise
of stock rights, warrants, or subscriptions for Vaxcel Capital Stock; a public
offering of Vaxcel Capital Stock; and the sale, exchange, transfer by gift or
other disposition of any of the Vaxcel Common Stock to be received in the
Exchange, the Transferor Group will be in control of Vaxcel immediately after
the Exchange.

         (15) The fair market value of the Vaxcel Common Stock or warrants for
Vaxcel Common Stock, or both, to be received by each Transferor will, in each
instance, be approximately equal to the fair market value of the property (less
any liabilities assumed or any liabilities to which the transferred property is
taken subject to) surrendered by such Transferor in exchange therefor.

         (16) Vaxcel will remain in existence and use the property transferred
to it in the Exchange in a trade or business. There is no plan or intention to
liquidate Vaxcel.

         (17) As of the consummation of the Exchange, Vaxcel has no plan or
intention to dispose of any of the property transferred to it in the Exchange,
other than in the normal course of business operations.

         (18) Each of the parties to the Exchange will pay its own expenses, if
any, incurred in connection with the proposed transaction (except as provided in
Article 11.2 of the Agreement).

         (19) Vaxcel is not now an investment company and will not become an
investment company as a result of the Exchange. For purposes of the foregoing,
an "investment company" is a corporation that is a regulated investment company,
a real estate investment trust, or a corporation more than eighty percent (80%)
of the value of whose assets (excluding cash and nonconvertible debt
obligations) are held for investment and are readily marketable stocks or
securities, or interests in regulated investment companies or real estate
investment trusts. In making this determination, stock and 


<PAGE>   11
April 17, 1997
Page 11



securities held by a parent corporation in subsidiary corporations shall be
disregarded and the parent corporation will be deemed to own its ratable share
of its subsidiaries' assets. A corporation will be considered a subsidiary if
the parent owns fifty percent (50%) or more of (i) the combined voting power of
all classes of stock entitled to vote, or (ii) the total value of shares of all
classes of stock outstanding.

         (20) No Transferor is under the jurisdiction of a court in a case under
Title 11 of the United States Code or a receivership, foreclosure or similar
proceeding in a federal or state court, and none of the Vaxcel Common Stock or
the warrants for Vaxcel Common Stock, or both, received by each Transferor in
the Exchange will be used to satisfy the indebtedness of any debtor.

         (21) Vaxcel will not be a "personal service corporation" within the
meaning of Section 269A of the Code. For this purpose, "personal service
corporation" means a corporation the principal activity of which is the
performance of personal services and such services are substantially performed
by employee-owners (i.e., employees who actually or constructively own on any
day of the taxable year more than 10% of the outstanding stock such
corporation).

         (22) The adjusted basis and the fair market value of the property to be
transferred by each Transferor will, in each instance, be equal to or exceed the
sum of such Transferor's liabilities, if any, to be assumed by Vaxcel and to
which the transferred property is subject.

         (23) The liabilities, if any, of each Transferor to be assumed by
Vaxcel were incurred in the ordinary course of business and are associated with
the property to be transferred.

         (24) Compensation, if any, paid to the former employee-shareholders of
Zynaxis who continue as employees of Zynaxis or Vaxcel (i) will be for services
actually rendered, (ii) will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services, and (iii) will not represent
consideration for (i) Zynaxis Capital Stock, (ii) warrants for Zynaxis Capital
Stock, or (iii) Notes surrendered in the Zynaxis Exchange or Noteholder
Exchange.

         (25) The fair market value of the property transferred by CytRx to
Vaxcel in the Exchange is equal to, or in excess of, ten percent (10%) of the
fair market value of the stock and securities of Vaxcel already owned by CytRx.

         (26) The Transaction Documents represent the entire understanding of 
the parties to the Exchange with respect to the Exchange.


<PAGE>   12
April 17, 1997
Page 12



         (27) The transactions relating to the Exchange are being undertaken for
bona fide business purposes, are based on arms-length negotiation, and are not
being undertaken and are not expected to have a tax avoidance purpose or affect.

                                    OPINIONS

         Based solely on the information submitted and the representations set
forth above, we are of the opinion that for federal income tax purposes:

         (1) Generally, no gain or loss will be recognized to CytRx, the 
Zynaxis Shareholders, or the Noteholders upon the transfer of property to 
Vaxcel solely in exchange for Vaxcel Common Stock. Sections 351(a).

         (2) No gain or loss will be recognized to Vaxcel upon its receipt of
property solely in exchange for Vaxcel Common Stock. Section 1032(a).

         (3) The basis of the Vaxcel Common Stock to be received by each
Transferor will be the same as the basis of the property exchanged therefor,
plus any gain recognized by such Transferor on the exchange and less the basis
allocated to any fractional share of Vaxcel Common Stock settled by cash
payment. Section 358.

         (4) The basis to Vaxcel of the property to be received in the exchange
will be the same as the basis of such property in the hands of the Transferor
immediately prior to the exchange, increased by the amount of gain recognized by
such Transferor as a result of the exchange. Section 362(a)(1).

         (5) The holding period of the Vaxcel Common Stock to be received by
each Transferor will include the holding period of the property exchanged
therefor, provided that such property is held as a capital asset on the date of
the exchange or as property described in Section 1231. Section 1223(1).

         (6) The holding period of the property to be received by Vaxcel in the
exchange will, in each instance, include the period during which such property
was held by the Transferor. Section 1223(2).

         (7) The payment of cash in lieu of fractional shares of Vaxcel Common
Stock will be treated as if the fractional shares were issued as part of the
exchange and then redeemed by Vaxcel. These cash payments will be treated as
having been received as 



<PAGE>   13
April 17, 1997
Page 13



distributions in full payment in exchange for the fractional shares of Vaxcel
Common Stock as provided in Section 302(a). Generally, any gain or loss
recognized upon such exchange will be capital gain or loss, provided the
fractional share would constitute a capital asset in the hands of the exchanging
shareholder.

         (8) Where solely cash is received by a Transferor in exchange for its
shares of Zynaxis Capital Stock pursuant to the exercise of Dissenters' Rights,
such cash will be treated as having been received in redemption of its shares of
Zynaxis Capital Stock, subject to the provisions and limitations of Section 302
of the Code.

         The opinions expressed herein are based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time with
retroactive effect. In addition, our opinions are based solely on the documents
that we have examined, the additional information that we have obtained, and the
statements set out herein, which we have assumed are true on the date hereof and
will be true on the date on which the proposed transaction is consummated. Our
opinions cannot be relied upon if any of the facts contained in such documents
or if such additional information is, or later becomes, inaccurate, or if any of
the statements set out herein is, or later becomes, inaccurate. Our opinions are
limited to the tax matters specifically covered thereby, and we have not been
asked to address, nor have we addressed, any other tax consequences of the
proposed transactions, including, but not limited to, adjustments that may be
determined to be necessary by reason of a change in method of accounting, any
possible recognition of deferred inter-company gain, the recovery of tax benefit
items (under Section 111 or otherwise), any recapture of investment tax credits,
the application of the assignment of income doctrine (and similar principles),
the conversion of Zynaxis Options, the exchange of warrants for Zynaxis Common
Stock for either New Warrants or Non-Financing Warrants, the receipt by CytRx of
a warrant for shares of Vaxcel Common Stock, and any limitations on the use of
Zynaxis' net operating losses.


<PAGE>   14
April 17, 1997
Page 14



         This opinion is being provided solely for the benefit of CytRx, Vaxcel 
and Zynaxis. No other person or party shall be entitled to rely on this opinion.


                                         Very truly yours,

                                         ALSTON & BIRD


                                         By:      /s/ Philip C. Cook
                                             ---------------------------------
                                                     Philip C. Cook

<PAGE>   1

                                                                    EXHIBIT 23.1

               CONSENT OF INDEPENDENT AUDITORS OF VAXCEL, INC.

     We consent to the references to our firm under the captions "Selected
Historical Financial Data of Vaxcel" and "Experts" and to the use of our 
report dated February 14, 1997, with respect to the financial statements of
Vaxcel, Inc. included in this Registration Statement (No. 333-19125)
and related Prospectus of Vaxcel, Inc.

/s/ Ernst & Young, LLP

Atlanta, Georgia
April 15, 1997


<PAGE>   1
                                                                    EXHIBIT 23.2



              CONSENT OF INDEPENDENT AUDITORS OF SECRETECH, INC.



We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated August 5, 1994, with respect to the financial
statements of Secretech, Inc. included in this Registration Statement (No.
333-19125) and related Prospectus of Vaxcel, Inc.




/s/ Ernst & Young, LLP

Birmingham, Alabama
April 15, 1997








<PAGE>   1




                                                                    EXHIBIT 23.3

                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the inclusion in this
Amendment No. 4 to Form S-4 Registration Statement of our report dated January
21, 1997 included herein for the year ended December 31, 1996 and to all
references to our Firm included in this Amendment No. 4 to Form S-4 Registration
Statement.       

                                                        
                                                  /s/ ARTHUR ANDERSEN LLP


Philadelphia, Pa.,
 April 16, 1997


<PAGE>   1

                                                                   EXHIBIT 23.4

                  CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
                                           

As independent public accountants, we hereby consent to the inclusion in this 
Amendment No. 4 to Form S-4 Registration Statement of our report dated 
November 30, 1995 included herein for the year ended June 30, 1995 and for the
period from inception (August 22, 1989) to June 30, 1995 and to all references
to our Firm included in this Amendment No. 4 to Form S-4 Registration
Statement.

                                                  /s/ ARTHUR ANDERSEN LLP


Philadelphia, Pa.,
 April 16, 1997



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