CYTRX CORP, DEF 14A, 1997-05-20

CYTRX CORP
DEF 14A, 1997-05-20
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )

[X] Filed by the Registrant

[ ] Filed by a Party other than the Registrant

Check the appropriate box:

[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e(2))
[X] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

CytRx Corporation
------------------------------------------------
(Name of Registrant as Specified in its Charter)

------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:
-------
(2) Aggregate number of securities to which transaction applies:
----------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was determined):

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

(4) Proposed maximum aggregate value of transaction:

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

(5) Total fee paid:
------------------

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount previously paid:
--------------------------

(2) Form, Schedule or Registration Statement No.:
---------------------

(3) Filing Party:
-----------------------------

(4) Date Filed:
-------------------------------

<PAGE> 2

CYTRX CORPORATION
154 TECHNOLOGY PARKWAY
NORCROSS, GEORGIA 30092

May 27, 1997

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders of
CytRx Corporation, which will be held at the Hilton Hotel at Peachtree Corners,
5993 Peachtree Industrial Boulevard, Norcross, Georgia 30092, on Thursday, June
26, 1997, at 10:00 a.m. local time.

We look forward to your attendance at the Annual Meeting so that you can
vote your shares in person and become better acquainted with members of the
Board of Directors and management team. Five items of business, which will be
considered and voted upon this year, are explained in the accompanying Proxy
Statement. Even if you are planning to attend, please complete the enclosed
proxy card and return it in the enclosed envelope so that your shares may be
voted. You will still be able to vote your shares in person if you attend the
Annual Meeting.

If you have any questions about the Proxy Statement or the 1996 Annual
Report, please contact Mark W. Reynolds at (770) 368-9500.

Sincerely,

/s/ Jack J. Luchese
-----------------------

Jack J. Luchese
President and
Chief Executive Officer

<PAGE> 3

CYTRX CORPORATION
154 TECHNOLOGY PARKWAY
NORCROSS, GEORGIA 30092

NOTICE TO THE HOLDERS OF COMMON STOCK
OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 26, 1997

Notice is hereby given to the holders of the $.001 par value per share
Common Stock (the "Common Stock") of CytRx Corporation (the "Company") that the
Annual Meeting of Stockholders of the Company will be held at the Hilton Hotel
at Peachtree Corners, 5993 Peachtree Industrial Boulevard, Norcross, Georgia
30092, on Thursday, June 26, 1997, at 10:00 a.m. local time (the "Annual
Meeting") for the following purposes:

(i) to elect five directors to the Company's Board of Directors;

(ii) to amend the Company's Bylaws to classify the Board of Directors into
three classes, each of which shall contain an equal number of directors to the
extent possible, with directors in each class to be elected to three-year
terms;

(iii) to amend the Company's Certificate of Incorporation to provide that
stockholder action by written consent without a meeting must be taken by the
holders of at least 80% of the Company's outstanding shares of Common Stock;

(iv) to amend the Company's Certificate of Incorporation to increase the
Company's authorized capital stock to 25,000,000 shares of Common Stock, par
value $.001 per share, and 1,000,000 shares of Preferred Stock, par value $.01
per share;

(v) to ratify the selection of Ernst & Young LLP as independent auditors
for the fiscal year ending December 31, 1997; and

(vi) to transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.

Only those stockholders of record at the close of business on April 28,
1997, are entitled to notice of and to vote at the Annual Meeting or any
adjournments thereof. The transfer books will not be closed. A complete list
of stockholders entitled to vote at the Annual Meeting will be available at the
Annual Meeting.

By Order of the Board of Directors,

/s/ Mark W. Reynolds
-----------------------------------

Mark W. Reynolds
May 27, 1997 Secretary

WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE VOTE, SIGN,
DATE, AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED BUSINESS REPLY
ENVELOPE. IF YOU ATTEND THE ANNUAL MEETING YOU MAY, IF YOU WISH, WITHDRAW YOUR
PROXY APPOINTMENT AND VOTE IN PERSON.

<PAGE> 4

CYTRX CORPORATION
154 TECHNOLOGY PARKWAY
NORCROSS, GEORGIA 30092

MAY 27, 1997
PROXY STATEMENT

INTRODUCTION

This Proxy Statement is furnished to holders of the $.001 par value per
share Common Stock ("Common Stock") of CytRx Corporation, a Delaware
corporation (the "Company" or "CytRx"), in connection with the solicitation of
proxies by the Company's Board of Directors from holders of the outstanding
shares of Common Stock for use at the Annual Meeting of Stockholders to be held
at 10:00 a.m. local time at the Hilton Hotel at Peachtree Corners, 5993
Peachtree Industrial Boulevard, Norcross, Georgia 30092, on Thursday, June 26,
1997, and at any adjournments thereof (the "Annual Meeting").

At the Annual Meeting, the stockholders of the Company will vote upon the
following matters: (i) a proposal to elect five directors to the Company's
Board of Directors; (ii) a proposal to amend the Company's Bylaws to classify
the Board of Directors of the Company; (iii) a proposal to amend the Company's
Certificate of Incorporation to provide that stockholder action by written
consent without a meeting must be taken by the holders of at least 80% of the
Company's outstanding shares of Common Stock; (iv) a proposal to amend the
Company's Certificate of Incorporation to increase the Company's authorized
capital stock to 25,000,000 shares of Common Stock, par value $.001 per share,
and 1,000,000 shares of Preferred Stock, par value $.01 per share; (v) a
proposal to ratify the selection of Ernst & Young LLP as independent auditors
for the fiscal year ending December 31, 1997; and (vi) such other matters as
may properly come before the Annual Meeting or any adjournment thereof.

The Company's mailing address and the location of its principal executive
offices are 154 Technology Parkway, Norcross, Georgia 30092. This Proxy
Statement and the accompanying Proxy are first being mailed to stockholders of
the Company on or about May 27, 1997.

STOCKHOLDERS ENTITLED TO VOTE

Only stockholders of record of the Company at the close of business on
April 28, 1997 (the "Record Date") will be entitled to notice of, and to vote
at, the Annual Meeting. Notwithstanding the Record Date specified above, the
Company's stock transfer books will not be closed and shares may be transferred
subsequent to the Record Date. However, all votes must be cast in the names of
stockholders of record on the Record Date.

On the Record Date, there were 7,411,120 shares of the Common Stock issued
and outstanding held by approximately 1,500 stockholders of record. Holders of
Common Stock are entitled to one vote per share.

The Bylaws provide that the holders of shares of the Common Stock entitled
to cast a majority of the votes on the matters at issue at the Annual Meeting,
present in person or by proxy, shall constitute a quorum. For the purpose of
determining the presence of a quorum, abstentions will be counted as present,
but broker non-votes will not be counted.

The affirmative vote of a plurality of the votes cast at the Annual
Meeting will be required for approval of Proposal I to elect five directors to
the Company's Board of Directors. The affirmative vote of a majority of the
votes cast at the Annual Meeting will be required for approval of Proposal II,
to amend the Company's Bylaws to classify the Company's Board of Directors, and
Proposal V, to ratify Ernst & Young LLP as independent auditors for the fiscal
year ending December 31, 1997. The affirmative vote

<PAGE> 5

of the holders of a majority of the shares of the Company's shares of Common
Stock that are outstanding and entitled to vote will be required for approval
of Proposal III, to amend the Company's Certificate of Incorporation to provide
that stockholder action by written consent without a meeting must be taken by
the holders of at least 80% of the Company's outstanding shares of Common
Stock, and Proposal IV, to increase the Company's authorized capital stock to
25,000,000 shares of Common Stock, par value $.001 per share, and 1,000,000
shares of Preferred Stock, par value $.01 per share.

With regard to the election of directors: (i) votes that are withheld will
be excluded entirely from the vote and will have no effect and votes that are
withheld for a particular nominee will be excluded from the vote for that
nominee only; and (ii) abstentions and broker non-votes will have no effect
since approval by a percentage of the shares present or outstanding is not
required.

Abstentions may be specified on proposals other than the election of
directors. Abstentions will be considered present and entitled to vote at the
meeting but will not be counted as votes cast. Therefore, abstentions will
have no effect on the adoption of Proposal II or Proposal V but will have the
effect of a vote against Proposal III or Proposal IV. Broker non-votes are not
considered entitled to vote and thus will have no effect on the adoption of any
of the proposals.

PROXIES

If the enclosed Proxy is executed, returned in time and not revoked, the
shares represented thereby will be voted in accordance with the instructions
indicated in such Proxy. IF NO INSTRUCTIONS ARE INDICATED, PROXIES WILL BE
VOTED IN FAVOR OF ALL PROPOSALS DESCRIBED IN THIS PROXY STATEMENT AND IN THE
BEST JUDGMENT OF THE HOLDERS OF SUCH PROXIES AS TO ANY OTHER MATTERS WHICH MAY
PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENTS THEREOF.

A stockholder who has given a Proxy may revoke it at any time prior to its
exercise at the Annual Meeting by either (i) giving written notice of
revocation to the Secretary of the Company, (ii) properly submitting to the
Company a duly executed Proxy bearing a later date, or (iii) appearing at the
Annual Meeting and voting in person. All written notices of revocation of
Proxies should be addressed as follows: CytRx Corporation, 154 Technology
Parkway, Norcross, Georgia 30092, Attention: Mark W. Reynolds, Secretary.

PROPOSAL I
ELECTION OF DIRECTORS

Pursuant to the Company's Bylaws, the Board of Directors has set the
number of directors of the Company at five and proxies cannot be voted for a
greater number of persons. The Board of Directors has nominated the following
individuals for election by the holders of Common Stock as directors of the
Company:

Jack L. Bowman
Raymond C. Carnahan, Jr.
Max Link
Jack J. Luchese
Herbert H. McDade, Jr.

Each of these nominees is currently a director of the Company. If
Proposal II is approved, Mr. Luchese will be elected as a Class I director to
serve until the Company's 1998 annual meeting of stockholders, Messrs. Carnahan
and McDade will be elected as Class II directors to serve until the Company's
1999 annual meeting of stockholders, and Messrs. Bowman and Link will be
elected as Class III directors to serve until the Company's 2000 annual meeting
of stockholders (or, in each case, until his

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<PAGE> 6

successor is elected and qualified or his earlier death, resignation or
removal). If Proposal II is approved, after this year's election directors
will be elected for three-year terms. If Proposal II is not approved, each
director will serve until the Company's 1998 annual meeting of stockholders or
until his successor is duly elected and qualified. The persons designated as
proxies intend to vote the shares represented thereby in favor of the election
to the Board of Directors of the nominees whose names appear above, unless
either authority to vote for any or all of the nominees is withheld or such
proxy has previously been revoked. It is believed that the nominees will be
available and able to serve as directors. In the event that a nominee is unable
to serve (which is not anticipated), the persons designated as proxies will
cast votes for the remaining nominees and for such other person as they may
select. It is anticipated that management stockholders of the Company will
vote for the election of the nominees.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE NOMINEES FOR ELECTION AS DIRECTORS. IF A CHOICE IS SPECIFIED ON THE
PROXY BY THE STOCKHOLDER, THE SHARES WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE NOMINEES. THE
AFFIRMATIVE VOTE OF A PLURALITY OF THE VOTES CAST IS REQUIRED FOR THE ELECTION
OF THE NOMINEES.

CERTAIN INFORMATION CONCERNING NOMINEES

The following table sets forth the names and ages of the current directors
of the Company, who are also the nominees for election as directors, the year
in which each such person was first elected a director, all positions and
offices with the Company held by each such person, the business experience
during at least the last five years of each such person, and any other
directorships held by such person in companies that are subject to the
reporting requirements of the Securities Exchange Act of 1934 or any company
registered as an investment company under the Investment Company Act of 1940.
Each of the following directors has served continuously as a director since the
year in which he was first elected a director, and the term of each director
ends with the Annual Meeting or when his successor is elected and qualified.
None of the following persons serves as a director or is nominated to be
elected a director pursuant to any arrangement or understanding between him and
any other person. For information concerning membership on Committees of the
Board of Directors, see "Meetings of the Board of Directors and Committees"
below. For information concerning directors' ownership of Common Stock, see
"Beneficial Owners of More Than Five Percent of the Company's Common Stock;
Shares Held by Directors and Executive Officers" below.

<TABLE>
<CAPTION>
POSITIONS WITH THE COMPANY, BUSINESS EXPERIENCE
NAME AND YEAR DURING AT LEAST THE PAST FIVE YEARS, AND OTHER
FIRST ELECTED DIRECTOR AGE DIRECTORSHIPS
- ---------------------- --- -------------------------------------------------
<S> <C> <C>
Jack L. Bowman 64 Prior to his retirement at the end of 1993, Mr.
(1994) 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

</TABLE>

-3-

<PAGE> 7

<TABLE>
<S> <C> <C>
Jack L. Bowman Pharmaceutical Division. Mr. Bowman serves as a
(1994) (CON'T.) director of NeoRx Corporation, Pharmagenics,
Inc., Cell Therapeutics, Inc. and Coating
Technologies International. He also is a
director of Proceutics, Inc., Vaxcel, Inc. and
Vetlife, Inc., wholly-owned subsidiaries of
CytRx Corporation, and is a former member of the
Johns Hopkins University Board of Trustees.

Raymond C. Carnahan, Jr. 71 Mr. Carnahan has over 39 years of experience in
(1991) 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 the Treasurer for the
Morristown Memorial Hospital Chaplaincy Service
in Morristown, New Jersey, and is a director of
Proceutics, Inc., Vaxcel, Inc. and Vetlife,
Inc., wholly-owned subsidiaries of CytRx
Corporation.

Max Link 56 Dr. Link joined the Board of Directors in
(1996) November 1996. From May 1993 to June 1994, Dr.
Link served as the Chief Executive Officer of
Corange U.S. Holdings Inc. (the holding company
for Boehringer Mannheim Therapeutics, Boehringer
Manheim Diagnostics and DePuy International).
From 1992 to 1993, Dr. Link was Chairman of
Sandoz Pharma. From 1990 to 1992, Dr. Link was
the Chief Executive Officer of Sandoz and from
1987 to 1989, he was head of the Pharmaceutical
Division and a member of the Executive Board of
Sandoz, Ltd., Basel. Prior to 1987, Dr. Link
served in various capacities with the United
States operations of Sandoz, including President
and Chief Executive Officer. Dr. Link also
serves on the Boards of Directors of Protein
Design Laboratories, Alexion Pharmaceuticals,
Human Genome Sciences and Procept.

Jack J. Luchese 48 Mr. Luchese was named President and Chief
(1989) Executive Officer of the Company in March, 1989
and became Chairman of the Board in June, 1995.
Prior to joining the Company, 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., Vaxcel, Inc. and Vetlife,
Inc., wholly-owned subsidiaries of CytRx
Corporation.

</TABLE>

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<PAGE> 8

<TABLE>
<S> <C> <C>
Herbert H. McDade, Jr. 70 From 1989 to 1996 Mr. McDade was Chairman,
(1990) 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 Proceutics, Inc., Vaxcel, Inc. and
Vetlife, Inc., wholly-owned subsidiaries of
CytRx Corporation, and is a member of the Board
of Trustees of Thomas Acquinas College.
</TABLE>

MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES

Board of Directors. The property, affairs and business of the Company are
under the general management of its Board of Directors as provided by the laws
of Delaware and the Bylaws of the Company. The Company has standing Audit and
Compensation Committees of the Board of Directors. The Company does not have a
standing nominating committee.

The Board of Directors held six meetings during 1996. Each director,
during the period he was a director, attended at least 75% of the meetings of
the Board of Directors, with the exception of Max Link, who was unable to
attend the single Board meeting held subsequent to his election as a director.
Each member of a committee, during the period he was a committee member,
attended at least 75% of the meetings of each committee on which he served.

Audit Committee. The Audit Committee makes recommendations concerning the
engagement of independent public accountants, reviews with the independent
public accountants the plans and results of the audit engagement, approves
professional services provided by the independent public accountants, reviews
the independence of the independent public accountants, considers the range of
audit and non-audit fees and reviews the adequacy of the Company's internal
accounting controls. The current members of the Audit Committee are Raymond C.
Carnahan, Jr. (Chairman), Jack L. Bowman and Herbert H. McDade, Jr. The Audit
Committee held two meetings during 1996.

Compensation Committee. The Compensation Committee is authorized to
review annual salaries and bonuses and has the authority to determine the
recipients of options, the time or times at which options shall be granted, the
exercise price of each option, and the number of shares to be issuable upon the
exercise of each option. The Compensation Committee also is authorized to
interpret the CytRx Corporation 1986, 1994 and 1995 Stock Option Plans
(collectively, "the Plans"), to prescribe, amend and rescind rules and
regulations relating to the Plans, to determine the term and provisions of the
respective option agreements, and to make all other determinations deemed
necessary or advisable for the administration of the Plans. Its current
members are Jack L. Bowman (Chairman), Raymond C. Carnahan, Jr. and Herbert H.
McDade, Jr. The Compensation Committee held four regular meetings and one
special meeting during 1996.

COMPENSATION OF DIRECTORS

Directors who are employees of the Company receive no compensation for
their services as directors or as members of committees. Non-employee
directors receive a fee of $3,000 for each two-day Board meeting attended and
$500 for each committee meeting attended. Non-employee directors who chair a
Board committee will receive an additional $250 for each committee meeting
attended.

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<PAGE> 9

Prior to March 1996, non-employee members of the Board of Directors
received a quarterly retainer of $1,000. The non-employee Chairman of the
Board and directors who chaired a Board committee received an additional
quarterly retainer of $250. The non-employee directors also were eligible to
receive fees of $500 and $250 for each regularly-scheduled Board meeting and
committee meeting attended, respectively, and a fee of $1,000 for each special
Board meeting attended. Non-employee directors who also served on the Board of
one of the Company's wholly-owned subsidiaries also received a quarterly
retainer of $1,000 and a fee of $500 for each subsidiary Board meeting
attended. Effective in March 1996, the Board compensation structure was
revised to eliminate the quarterly retainers as well as fees for service as a
director of wholly-owned subsidiaries.

Pursuant to the CytRx Corporation 1994 Stock Option Plan (the "Plan"),
each non-employee director receives an initial stock option grant to purchase
5,000 shares upon the date he or she first becomes a member of the Board.
Options to purchase 1,875 shares of Common Stock are granted to each
non-employee director annually. Stock option grants to directors pursuant to
the Plan contain the same terms and provisions as stock option grants to
employees, except that options granted to directors are considered
Non-Qualified Stock Options for income tax reporting purposes. Non-employee
directors who also serve as a director of one of the Company's wholly-owned
subsidiaries receive an initial stock option grant to purchase 5,000 shares of
the subsidiary's common stock upon the date he or she first becomes a member of
the subsidiary's Board and an annual stock option grant to purchase 2,500
shares.

During 1996, Mr. Raymond C. Carnahan, Jr. performed certain consultation
services for the Company for which he received a fee of $2,000.

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<PAGE> 10

BENEFICIAL OWNERS OF MORE THAN FIVE PERCENT OF THE COMPANY'S COMMON STOCK;
SHARES HELD BY DIRECTORS AND EXECUTIVE OFFICERS

Based solely upon information made available to the Company, the following
table sets forth certain information with respect to the beneficial ownership
of Common Stock as of April 28, 1997 by (i) each person who is known by the
Company to beneficially own more than five percent of the Common Stock; (ii)
each director and nominee for director of the Company; (iii) each of the Named
Executive Officers (as defined under "Executive Compensation" below); and (iv)
all executive officers and directors as a group. Except as otherwise
indicated, the holders listed below have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.

<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
-----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENTAGE(1)
- ------------------------------------ ------ -------------

<C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS (2):
Jack L. Bowman (3) 5,379 *
Raymond C. Carnahan, Jr. (4) 4,440 *
R. Martin Emanuele (5) 89,066 1.2
William B. Fleck (6) 24,073 *
Max Link 10,000 *
Jack J. Luchese (7) 678,988 8.4
Herbert H. McDade, Jr. (8) 10,333 *
Mark W. Reynolds (9) 24,715 *
All executive officers and directors as a group (8 persons) (10) 846,994 10.4

OTHER 5% STOCKHOLDERS:
Robert L. Hunter, Jr. 515,428 7.0
3640 Churchwell Court
Tucker, Georgia 30084
</TABLE>

- -------------------------------
* Less than 1%.

(1) Based on 7,411,120 shares of Common Stock outstanding on April 28, 1997.
(2) The business address of all such persons is: c/o CytRx Corporation, 154
Technology Parkway, Norcross, Georgia 30092.
(3) Includes options to purchase 4,654 shares of Common Stock exercisable
within 60 days.
(4) Includes options to purchase 4,190 shares of Common Stock exercisable
within 60 days.
(5) Includes options to purchase 77,764 shares of Common Stock exercisable
within 60 days.
(6) Includes options to purchase 17,912 shares of Common Stock exercisable
within 60 days.
(7) Includes warrants to purchase 644,927 shares of Common Stock exercisable
within 60 days.
(8) Includes options to purchase 9,333 shares of Common Stock exercisable
within 60 days.
(9) Includes options to purchase 21,043 shares of Common Stock exercisable
within 60 days.
(10) Includes options to purchase 779,823 shares of Common Stock exercisable
within 60 days.

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<PAGE> 11

EXECUTIVE OFFICERS OF THE COMPANY

Except for Jack J. Luchese, discussed above under "Certain Information
Concerning Nominees", the following table sets forth the names and ages of the
executive officers of the Company and all persons chosen to become executive
officers, all positions and offices with the Company held by each such person,
the period(s) during which such person has held such positions and offices and
the business experience during at least the last five years of each such
person. Each of the following executive officers serves until his successor is
elected and qualified or until his earlier death, resignation or removal. None
of the following persons serves as an officer or is to be selected as an
officer pursuant to any arrangement or understanding between him and any other
person(s). For information concerning executive officers' ownership of Common
Stock, see "Beneficial Owners of More Than Five Percent of the Company's Common
Stock; Shares Held by Directors and Executive Officers."

<TABLE>
<CAPTION>
POSITIONS WITH THE COMPANY AND
NAME AGE BUSINESS EXPERIENCE DURING AT LEAST THE PAST FIVE YEARS
- ---- --- -------------------------------------------------------
<S> <C> <C>
R. Martin Emanuele, 42 Dr. Emanuele has been Vice President of Development of
Ph.D. the Company since June 1990. Previously, Dr. Emanuele
served as the RheothRx project director at the
Company. Before joining CytRx in 1988, he worked as a
clinical research scientist at DuPont Critical Care
and as a visiting scientist at Institute Choay.

William B. Fleck 39 Mr. Fleck joined CytRx in April 1993 as Vice
President, Human Resources. From 1992 to 1993 Mr.
Fleck served as Director, Human Resources and Training
for Central Health Services (CHS). During 1991, he
was Director, Human Resources for Knowledgeware, Inc.
Prior to joining Knowledgeware, Mr. Fleck held senior
human resources management positions with MCI
Communications from 1989 to 1991 and Harris/3M from
1984 to 1989.

Mark W. Reynolds 35 Mr. Reynolds joined CytRx in 1988 as Controller,
becoming Chief Financial Officer and Corporate
Secretary in November 1996. Prior to joining CytRx,
Mr. Reynolds was employed as a certified public
accountant with Arthur Andersen LLP in Atlanta,
Georgia.
</TABLE>

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<PAGE> 12

EXECUTIVE COMPENSATION

The following table presents certain summary information concerning
compensation paid or accrued by the Company for services rendered in all
capacities during the fiscal years ended December 31, 1994, 1995 and 1996 for
(i) the President and Chief Executive Officer of the Company; (ii) each of the
other most highly compensated executive officers of the Company who were
serving as executive officers at December 31, 1996 and whose total salary and
bonus exceeded $100,000; and (iii) one additional individual who would have
been one of the registrant's four most highly compensated executive officers
other than the President and Chief Executive Officer but for the fact that the
individual was not serving as an executive officer of the registrant at
December 31, 1996 (determined as of December 31, 1996 and collectively, the
"Named Executive Officers").

SUMMARY COMPENSATION TABLE

Long-Term
Compensation
------------
Annual Compensation Securities
---------------------- Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Options(#) Compensation($)(1)
- --------------------------- ---- ---------- -------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Jack J. Luchese 1996 $307,000 $ 80,000 200,000 $4,750
President and Chief 1995 295,000 75,000 132,427(2) 4,620
Executive Officer 1994 64,500 100,000 75,000 4,620

R. Martin Emanuele 1996 162,500 15,000 5,000 4,750
Vice President, 1995 157,500 25,000 50,265(2) 4,620
Preclinical Research & 1994 146,250 17,500 6,250 4,620
Development

William B. Fleck 1996 113,500 -- 20,000 4,750
Vice President, 1995 110,000 15,000 17,912(2) 4,620
Human Resources 1994 105,000 25,000 3,750 4,620

Mark W. Reynolds 1996 82,333 25,000 25,000 4,750
Chief Financial Officer 1995 76,000 8,000 36,877(2) 4,620
Corporate Secretary 1994 71,000 8,000 1,875 4,620

James M. Yahres 1996 151,000 5,000 -- 4,750
Former Vice President, 1995 146,500 15,000 27,031(2) 4,620
Finance & 1994 141,000 25,000 3,750 4,620
Administration
</TABLE>

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

(1) Amounts represent matching contributions by the Company under the
Company's 401(k) Profit Sharing Plan.

(2) Includes shares underlying options and warrants which were reissued and
repriced concurrent with the cancellation of previously issued options and
warrants.

-9-
<PAGE> 13

OPTION GRANTS IN LAST FISCAL YEAR

The following table summarizes the stock options and warrants granted
during the fiscal year ended December 31, 1996 to each of the Named Executive
Officers.

<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------------
Potential Realizable
Value at Assumed Annual
% of Total Rates of Stock Price
Number of Options Granted to Exercise or Appreciation for Option Term($)
Securities Underlying Employees Base Price Expiration -------------------------------
Name Options Granted (#) in Fiscal Year ($/Share) Date 5% 10%
- ---- ---------------------- -------------------- -------------------- ---------- ---------------- -------------

<S> <C> <C> <C> <C> <C> <C>
Jack J. Luchese 200,000 (1) 78.4% $3.69 3/27/06 $463,810 $1,175,385

R. Martin Emanuele 5,000 (2) 2.0 3.63 12/5/06 11,399 28,887

William B. Fleck 20,000 (2) 7.8 3.63 12/5/06 45,595 115,546

Mark W. Reynolds 20,000 (2) 7.8 3.63 12/5/06 45,595 115,546
5,000 (2) 2.0 4.00 11/1/06 12,578 31,875
</TABLE>

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

(1) Warrants granted to Mr. Luchese are subject to the terms described under
"Employment Agreement."

(2) These options vest in equal annual installations over a three-year period
and are exercisable for ten years from the date of grant. Exercise price
is based on the market price of CytRx Common Stock as of the date of
grant.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND OPTION VALUES AT DECEMBER
31, 1996

The following table sets forth the number and total value of unexercised
in-the-money options at December 31, 1996 for each of the Named Executive
Officers using the price per share of the Common Stock of $3.44 on December 31,
1996. No stock options were exercised during 1996 by any of the Named
Executive Officers.

Number of Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at December 31, 1996(#) at December 31, 1996($)
------------------------------- ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Jack J. Luchese 632,427 250,000 $ -- $--

R. Martin Emanuele 77,764 8,334 8,594 --

William B. Fleck 17,912 23,750 -- --

Mark W. Reynolds 21,043 26,875 5,781 --

James M. Yahres 27,031 3,750 -- --
</TABLE>

EMPLOYMENT AGREEMENT

Jack J. Luchese was named President and Chief Executive Officer of the
Company in March 1989. Mr. Luchese's current employment agreement was amended
and restated in February 1995 (the "Agreement") to extend his employment with
the Company until December 31, 1998, subject to earlier termination. The
Agreement also consolidates (through cancellation and reissuance) all warrants
previously granted to Mr. Luchese. Under the Agreement, Mr. Luchese is paid an
annual base salary of

-10-
<PAGE> 14

$295,000 (effective January 1, 1995), adjusted annually in proportion to the
average annual merit increases for all other employees. In addition to his
annual base salary, Mr. Luchese is eligible to receive cash bonuses with
respect to each calendar year during the term of the Agreement as determined
from time to time by the Board of Directors of the Company in its sole
discretion. The Agreement also contains confidentiality and noncompetition
provisions.

The Agreement also grants Mr. Luchese warrants to purchase an aggregate of
682,427 shares of CytRx Common Stock (the "Warrants") subject to the exercise
requirements set forth in the agreement. Warrants to purchase 50,000 shares at
$4.50 per share expire on February 22, 2001. Warrants to purchase 32,427
shares at $7.00 per share expire on March 24, 2003. Warrants to purchase
100,000 shares at $7.00 per share expire on December 31, 2004. Warrants to
purchase 500,000 shares at $4.50 per share expire on December 31, 2004. As of
April 28, 1997, 644,927 of the Warrants are vested. The remaining Warrants
vest at the rate of 6,250 shares at the beginning of each calendar quarter
until October 1, 1998. All of the Warrants that have vested on the termination
of the Agreement may be exercised by Mr. Luchese at any time until the
expiration of the Warrants. In March 1996 Mr. Luchese was granted additional
warrants to purchase an aggregate of 200,000 shares at $3.69 per share (the
"1996 Warrants"). The 1996 Warrants will vest upon the achievement of certain
corporate financing milestones as set forth in the agreement. As of April 28,
1997, none of the 1996 Warrants are vested. The shares of stock that may be
acquired upon exercise of the Warrants and 1996 Warrants have been or will be
registered by the Company under the Securities Act of 1933, as amended. The
Warrants contain certain anti-dilution provisions and provide for accelerated
vesting in the event that Mr. Luchese's employment is terminated by the Board
of Directors without cause, in the event of his death or disability or in the
event of a change of control.

In April 1997, the Company again amended the Agreement in order to delete
the provisions relating to a change in control of the Company. In
consideration of that amendment, the Company has entered into a separate Change
in Control Employment Agreement (the "Change in Control Agreement") with Mr.
Luchese. The Change in Control Agreement will become effective if and when a
Change in Control (as defined) occurs during the three-year period following
the date of the Change in Control Agreement or during any of the one-year
annual renewal periods (the "Change of Control Period"), or if Mr. Luchese's
employment is terminated in connection with or in anticipation of a Change of
Control (in either case, the "Effective Date").

A Change in Control is defined in the Change in Control Agreement to
include the following: (i) an acquisition (other than directly from the
Company) by an individual, entity or group (excluding the Company or an
employee benefit plan of the Company or a corporation controlled by the
Company's shareholders) of 25% or more of the Company's Common Stock or the
Company's then outstanding voting securities; (ii) a change in a majority of
the current Board of Directors (the "Incumbent Board") (excluding any persons
approved by a vote of at least a majority of the Incumbent Board other than in
connection with an actual or threatened proxy contest); (iii) consummation of a
reorganization, merger, consolidation or sale of all or substantially all of
the Company's assets (collectively, a "Business Combination") other than a
Business Combination in which all or substantially all of the shareholders of
the Company prior to such transaction own, in the same proportion, more than
60% of the voting power of the entity resulting from the Business Combination,
at least a majority of the board of directors of the resulting entity were
members of the Incumbent Board, and after which no person (other than the
resulting entity and certain affiliates) beneficially owns 25% or more of the
voting power of the resulting entity, except to the extent such ownership
existed prior to the Business Combination; or (iv) the approval by the
Company's stockholders of a complete liquidation or dissolution of the Company.

Mr. Luchese's employment period under the Change in Control Agreement
begins on the Effective Date and continues for two years. During the
employment period, Mr. Luchese's position, authority, duties and
responsibilities will be at least commensurate in all material respects with
those held by him during the 120-day period prior to the Change in Control and
he will receive (i) a monthly base salary equal to or greater than the highest
monthly base salary paid to him by the Company during the

-11-
<PAGE> 15
previous year; (ii) an annual cash bonus at least equal to the highest bonus
paid to him in any of the three fiscal years prior to the Effective Date, and
(iii) the ability to participate in all incentive, savings, welfare benefit,
fringe benefit and retirement plans of the Company.

If Mr. Luchese's employment terminates during the employment period he
will receive certain severance benefits under the Change in Control Agreement.
If his employment terminates by reason of his death or disability, he will
receive certain obligations accrued through the date of termination (e.g.,
salary, prorata bonus, deferred compensation and vacation pay) plus the normal
death and disability benefits, if any, to which he is otherwise entitled,
including those under the Agreement. If he is terminated by the Company for
cause (as defined), or if he voluntarily resigns without good reason (as
defined) other than during the 30-day period beginning on the first anniversary
of the Effective Date, he will receive only his accrued benefits through the
termination date and any previously-deferred benefits, plus any other
post-termination benefits, if any, to which he is otherwise entitled, including
those under the Agreement. If he is terminated by the Company (i) without
cause, (ii) resigns voluntarily for good reason, or (iii) resigns for any
reason during the 30-day period beginning on the first anniversary of the
Effective Date, he will receive a lump sum cash payment equal to: (a) his base
salary through the date of termination, (b) a prorata bonus for the year of
termination, based upon his actual bonus earned in the prior year ("Most Recent
Bonus"), (c) an amount equal to two times the sum of his base salary and Most
Recent Bonus, and (d) any unpaid deferred compensation and vacation pay. In
addition, Mr. Luchese would be entitled to continued employee welfare benefits
for two years after the date of termination, and a lump sum payment equal to
the actuarial value of the service and compensation credit under the Company's
qualified and supplemental retirement plans that he would have received had he
remained employed for two years after the date of his termination. Mr. Luchese
will be required to repay to the Company, with interest, the lump-sum benefit
equal to two times the sum of his base salary and Most Recent Bonus if, during
the two-year employment period, he violates a certain non-competition covenant
in the Change in Control Agreement.

If the total payments to Mr. Luchese under the Change in Control Agreement
and from any other source would result in the imposition of an excise tax under
Section 4999 of the Code, the payments will be reduced to the extent necessary
to avoid the imposition of such excise tax, but only if such reduction would
result in a net after-tax benefit to Mr. Luchese. The Change in Control
Agreement further provides that Mr. Luchese has no obligation to mitigate
severance payments, the Company will reimburse Mr. Luchese for all legal fees
incurred in enforcing or contesting the Change in Control Agreement, and Mr.
Luchese will hold for the benefit of the Company all confidential information
concerning the Company obtained over the course of his employment. The Company
will require its successors to expressly assume its obligations under the
Change in Control Agreement.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The following report shall not be deemed incorporated by reference into
any filing under the Securities Act of 1933 (the "1933 Act") or under the
Securities Exchange Act of 1934 (the "1934 Act"), except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under either the 1933 Act or the 1934 Act.

The Compensation Committee of the Board of Directors (the "Committee")
establishes the general compensation practices of the Company, establishes the
compensation plans and specific compensation levels for executive officers and
administers the Company's stock option plans.

The Committee believes that the Chief Executive Officer's compensation
should be heavily influenced by Company performance, although "performance" for
a company in the biotechnology industry does not necessarily correlate to
profits. The Committee considers "performance" to include achievement of
product development targets and milestones, and effective management of
personnel and capital resources, among other criteria. The Committee also
reviews the Chief Executive Officer's

-12-
<PAGE> 16

compensation in light of the level of similar executive compensation
arrangements within the biotechnology industry.

The Committee also believes that stock options should be granted to the
Chief Executive Officer, as well as to other executives, primarily based on the
executive's ability to influence the Company's long-term growth and
profitability. As such, Mr. Luchese has been granted warrants to purchase
882,427 shares of CytRx Common Stock at prices ranging from $3.69 to $7.00 per
share. These warrants cover the period from Mr. Luchese's initial employment
(March 13, 1989) through December 31, 1998. See "Employment Agreement" for a
full discussion of the terms of Mr. Luchese's employment agreement. The
Committee believes that this arrangement provides Mr. Luchese with the greatest
incentive to accelerate achievement of corporate objectives and thereby enhance
long-term stockholder value.

Under his employment agreement, Mr. Luchese is eligible to be considered
for an annual cash bonus, which is solely at the discretion of the Committee
based upon such factors as the Committee deems appropriate. Mr. Luchese's
performance period for purposes of this report is January 1, 1995 through
December 31, 1995. During 1995 the Company experienced disappointing results
with its lead compound, RheothRx, and the Company's licensee, Glaxo-Wellcome,
decided not to pursue further development of the RheothRx project. However,
the Company was well prepared to respond to this situation, having established
contingency plans in advance of the Glaxo decision. These responsive plans,
which were implemented immediately and concurrently, included: the elimination
of the Company's in-house clinical research department; downsizing of related
preclinical resources; initiation of a "defensive response plan" which included
a renal dysfunction study as well as a chemistry purification/fractionation
process; and, the formation of the Company's Proceutics subsidiary which was
established to maximize opportunities for existing personnel and capital
resources. The Company has well positioned its subsidiary operations to
generate a balanced, focused and high-value potential for its shareholders.
Also, with the completion of the RheothRx purification project, the Company
can now evaluate CRL-5861 (purified RheothRx)in other disease states, with
initial focus on Sickle Cell Crisis. Based upon these accomplishments, the
Committee awarded Mr. Luchese a cash bonus for 1995 of $80,000 which was paid
in January 1996. Mr. Luchese is also eligible for an annual salary increase
based upon the overall company average merit increases.

The Committee has adopted similar practices with respect to compensation
of other executive officers of the Company. In establishing base salaries and
cash bonuses for executive officers, the Committee considers relative company
performance, the individual's past performance and future potential, and
compensation for persons holding similarly responsible positions at other
companies in the pharmaceutical and biotechnology industries. The relative
importance of these factors varies depending upon the individual's
responsibilities; all facts are considered in establishing both base salaries
and cash bonuses. When making comparison to other companies, the Committee
generally considers those companies included in the Nasdaq Pharmaceutical
Index. The Committee, in conjunction with the Chief Executive Officer, has
also established a model composed of salary categories with specified
percentages to be applied to each employee's salary (including executive
officers) to provide a guideline for annual cash bonuses and the number of
stock options to be granted. This model is used only as a guideline, as some
subjectivity must be applied in evaluating each individual's performance. As
with the Chief Executive Officer, the number of options granted is determined
by the evaluation of the Executive's ability to influence the Company's
long-term growth and profitability. The Committee also considers the aggregate
number of options granted in past years. All options are granted at the
current market price. Because the value of an option bears a direct
relationship to the Company's stock price, it is an effective incentive for
executives to create value for stockholders. The Committee therefore views
stock options as an important component of its long-term, performance-based
compensation philosophy.

For 1996, the Committee considered Section 162(m), which limits tax
deductions of public companies on compensation to certain executive officers in
excess of $1 million dollars, along with other factors in determining executive
compensation. The committee will continue to consider the effect of

-13-
<PAGE> 17

Section 162(m) on its compensation decisions, but has no formal policy to
structure executive compensation so that it complies with the requirements of
Section 162(m).

Respectfully submitted,

Compensation Committee:

Jack L. Bowman
Raymond C. Carnahan, Jr.
Herbert H. McDade, Jr.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

There are no "interlocks," as defined by the Securities and Exchange
Commission, with respect to any member of the Compensation Committee. From
January 1 to June 25, 1996, the Compensation Committee consisted of Messrs.
Carnahan and McDade and Mr. Selvia Vescovi, a director who did not stand for
reelection at the Company's 1996 annual meeting. Since June 25, 1996, the
Compensation Committee has consisted of Messrs. Bowman, Carnahan and McDade.

STOCKHOLDER RETURN COMPARISON

The following line graph presentation compares cumulative total
stockholder returns of the Company with the Nasdaq Stock Market Index and the
Nasdaq Pharmaceutical Index (the "Peer Index") for the five year period from
December 31, 1991 to December 31, 1996. The graph and table assume that $100
was invested in each of the Company's Common Stock, the Nasdaq Stock Market
Index and the Peer Index on December 31, 1991, and that all dividends were
reinvested. This data was furnished by the Center for Research in Security
Prices, The University of Chicago.

[GRAPH]

-14-
<PAGE> 18

COMPARISON OF CUMULATIVE TOTAL RETURNS

<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------
1991 1992 1993 1994 1995 1996
- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CYTRX CORPORATION $100 $124 $147 $ 31 $ 26 $ 20
- -----------------------------------------------------------
THE NASDAQ STOCK MARKET 100 116 134 131 185 227
- -----------------------------------------------------------
PEER INDEX 100 83 74 56 102 102
- -----------------------------------------------------------
</TABLE>

SECTION 16(A) REPORTING

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's common stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
common stock and other equity securities of the registrant. Directors,
executive officers and greater than ten percent stockholders are required by
Securities and Exchange Commission regulation to furnish the registrant with
copies of all Section 16(a) reports they file. To the Company's knowledge,
based solely on review of the copies of such reports furnished to the Company
and written representations that no other reports were required, during the
year ended December 31, 1996 all Section 16(a) filing requirements applicable
to directors, executive officers and greater than ten percent beneficial owners
were complied with by such persons.

PROPOSAL II
CLASSIFICATION OF BOARD OF DIRECTORS

The Company's Board of Directors unanimously recommends that holders of
Common Stock approve Proposal II, which would amend the Company's Bylaws to
classify the Board of Directors into three classes, each having three year
terms.

DESCRIPTION OF THE PROPOSAL TO CLASSIFY THE BOARD OF DIRECTORS

The Company's Board of Directors, by resolution, has set the number of
directors at five (5). The Company's Bylaws now provide that all Directors are
to be elected to the Company's Board of Directors annually for a term of one
year. Proposal II is a proposal to amend the Company's Bylaws to provide that
immediately upon approval of this Proposal, the Company's Board will be divided
into three classes of directors, to be classified as follows: Class I - one (1)
director who will serve for a term expiring at the Company's annual meeting of
stockholders in 1998; Class II - two (2) directors who will serve for a term
expiring at the Company's annual meeting of stockholders in 1999; and Class III
- - two (2) directors who will serve for a term expiring at the Company's annual
meeting of stockholders in 2000 (or, in each case, until their respective
successors are duly elected and qualified or their earlier death, resignation
or removal). Starting with the Company's 1998 annual meeting, one class of
directors will be elected by holders of Company Common Stock each year for a
three-year term. Assuming that pursuant to Proposal I each of the nominees for
election to the Company's Board of Directors is in fact elected, then upon the
approval of this Proposal II, the Company's Board of Directors will
automatically, without further action, be classified as set forth in the
following table:

-15-
<PAGE> 19

<TABLE>
<CAPTION>
Class Term Name(s) of Director(s)
- ----- ---- ----------------------

<S> <C> <C>
Class I Term Expires at the 1998 Annual Meeting Mr. Luchese

Class II Term Expires at the 1999 Annual Meeting Messrs. Carnahan and McDade

Class III Term Expires at the 2000 Annual Meeting Messrs. Bowman and Link
</TABLE>

If all of the current nominees for election to the Board of Directors are not
elected pursuant to Proposal I, then the Board of Directors shall determine by
majority vote into which classes the which members of the Board of Directors
will be placed The amendment also provides that the number of directors shall
be fixed by resolution of the Board of Directors.

The classification of directors will have the effect of making it more
time-consuming to change majority control of the Company's Board of Directors.
Generally at least two stockholder meetings, instead of one, would be required
to effect a change in the majority control of the Company's Board of Directors.
It should also be noted that the classification provision will apply to every
election of directors, rather than only an election occurring after a change in
control, and will apply whether or not a majority of the stockholders believes
a change in the Company Board would be beneficial to the Company and its
stockholders and whether or not a majority of the Company's stockholders
believes that such a change would be desirable.

Under Delaware corporate law, unless a corporation's certificate of
incorporation provides otherwise a member of a classified board of directors
may be removed only for cause. Because permitting removal of directors of a
classified board of directors without cause largely defeats the purpose of
classifying the board of directors, the Board of Directors does not intend to
effect an amendment to the Company's Certificate of Incorporation that would
permit removal of members of the Board of Directors without cause.

If the classified Board of Directors proposal is adopted, a director
appointed to fill a vacancy that occurs during the year shall serve until the
end of the term of the position filled or until his successor is elected and
qualified or his earlier death, resignation or removal.

REASONS FOR AND ADVANTAGES OF A CLASSIFIED BOARD OF DIRECTORS

This proposal is not prompted by any specific efforts of which the Company
is aware to accumulate the Company's securities or to obtain control of the
Company. The Board of Directors is making this proposal at this time because
management believes that the Company may be vulnerable to proposals that would
not be in the best interests of the Company's stockholders at this time and the
Board of Directors desires to decrease the probability that the Company will be
caused to enter into a transaction that is not in the best interests of the
Company's stockholders.

The Company's Board of Directors is asking the Company's stockholders to
adopt and approve an amendment to the Company's Bylaws that would provide for a
classified board of directors in order to discourage certain types of
transactions, described below, which involve an actual or threatened change of
control of the Company. The classified board is designed to make it more
difficult and time-consuming to change majority control of the Company's Board
of Directors and thus to reduce the vulnerability of the Company to an
unsolicited offer to acquire the Company, particularly an offer that does not
contemplate the acquisition of all of the Company's outstanding shares, or for
the restructuring or sale of all or part of the Company. As more fully
described below, the Company's Board believes that, as a general rule, such
unsolicited offers would not be in the best interests of the Company and its
stockholders.

-16-
<PAGE> 20

In the past, third parties have sometimes acquired substantial stock
positions in some public companies as a prelude to proposing a takeover or a
restructuring or sale of all or part of the company or other similar
extraordinary corporate action. Such actions are often undertaken by the third
party without advance notice to or consultation with management of the company.
In many cases, the purchaser seeks representation on the company's board of
directors in order to increase the likelihood that his or her proposal will be
implemented by the company. If the company resists the efforts of the
purchaser to obtain representation on the company's board, the purchaser may
commence a proxy contest to have itself or its nominees elected to the board in
place of certain directors or the entire board. In some cases, the purchaser
may not truly be interested in acquiring the company, but uses the threat of a
proxy fight and/or bid to acquire the company as a means of forcing the company
to repurchase his equity position at a substantial premium over market price.

The Company's Board of Directors believes that an imminent threat of
removal of the Company's Board of Directors may curtail the Board's ability to
negotiate effectively with such purchasers, and that, absent the protection
afforded by a classified board, management would be deprived of the time and
information necessary to evaluate the takeover proposal, to study alternative
proposals and to help ensure that the best price and structure are obtained in
any transaction involving the Company which may ultimately be undertaken. If
the real purpose of a takeover bid is to force the Company to repurchase an
accumulated stock interest at a premium price, management faces the risk that
if it does not repurchase the purchaser's stock interest, the Company's
business and management may be disrupted, perhaps permanently, if such shares
are not repurchased. On the other hand, such a repurchase diverts valuable
corporate resources to the benefit of a single shareholder.

In addition, the longer time required to elect a majority of a classified
board will also help to preserve continuity and stability of the Company's
management and policies by increasing the likelihood a majority of the
directors at any given time will have at least one year of prior experience as
directors of the Company. In the past, the Company has not experienced problems
with continuity in its Board or with proxy contests relating to the election of
directors.

CERTAIN EFFECTS AND DISADVANTAGES OF A CLASSIFIED BOARD OF DIRECTORS

The Company's Certificate of Incorporation does not currently permit
cumulative voting in the election of Company directors and the proposal
relating to the classified board will not permit cumulative voting.
Accordingly, the holders of a majority of the shares voting at a meeting for
the election of directors can currently elect all of the directors then being
elected at any annual or special meeting of the Company's stockholders. The
adoption and approval of an amendment to the Company's Bylaws requiring a
classified board would make more difficult or discourage (i) a proxy contest
for control of the Company by a holder of a substantial block of the Company's
capital stock or (ii) the removal of the incumbent Board of Directors and,
therefore, could have the effect of entrenching incumbent management. At least
two annual meetings would be needed to change a majority of the Company's Board
of Directors.

Takeovers or changes in management of the Company that are proposed and
effected without prior consultation and negotiation with the Company's
management are not necessarily detrimental to the Company and the stockholders.
The classified board could have the effect of discouraging a third party from
making a tender offer or otherwise attempting to obtain control of the Company,
even though such an attempt might be beneficial to the Company's stockholders
or favored by a majority of the Company's stockholders. However, the Company's
Board of Directors believes that the benefits of being able to negotiate with
the proponent of an unfriendly or unsolicited proposal to acquire or
restructure the Company outweigh the disadvantages of discouraging such
proposals.

In addition, since the classified board is designed in part to discourage
accumulations of large blocks of the Company's stock by purchasers whose
objective is to have such stock repurchased by the Company at a premium, the
classified board could tend to reduce the temporary fluctuation in the market

-17-
<PAGE> 21

price of the Company's Common Stock which can be caused by such accumulation.
Accordingly, holders of the Company's Common Stock could be deprived of certain
opportunities to sell their stock at a temporarily higher market price.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR CLASSIFICATION OF THE BOARD OF DIRECTORS AS HEREIN SPECIFIED. IF A CHOICE
IS SPECIFIED ON THE PROXY BY THE STOCKHOLDER, THE SHARES WILL BE VOTED AS
SPECIFIED. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE
PROPOSAL. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES CAST IS REQUIRED FOR
THE APPROVAL OF PROPOSAL II.

PROPOSAL III
STOCKHOLDER ACTION BY WRITTEN CONSENT

The Company's Board of Directors unanimously recommends that holders of
Common Stock approve Proposal III, which would provide that stockholders of the
Company may not act by written consent in lieu of a meeting of the stockholders
unless holders of at least eighty percent (80%) of the issued and outstanding
shares of the Company's Common Stock consent to the proposed action in writing.

DESCRIPTION OF THE STOCKHOLDER ACTION BY WRITTEN CONSENT AMENDMENT

The Stockholder Action by Written Consent amendment to the Company's
Certificate of Incorporation would prohibit the Company's stockholders from
acting by written consent in lieu of a meeting of stockholders unless such
action is consented to in writing by holders of at least 80% of the issued and
outstanding shares of Common Stock of the Company.

Delaware law and the Company's Bylaws currently permit Company
stockholders to take any action that may be taken by stockholders at any annual
or special meeting of stockholders without a meeting, provided that such action
is consented to in writing by stockholders having not less than the number of
votes necessary to take such action at a meeting at which all outstanding
shares are voted. The proposed amendment would provide that no action required
or permitted to be taken by the stockholders may be taken by written consent in
lieu of a meeting unless such action is consented to in writing by holders of
at least 80% of the shares of the Company's Common Stock.

REASONS FOR AND ADVANTAGES OF THE STOCKHOLDER ACTION BY WRITTEN CONSENT
AMENDMENT

The Company's Board of Directors believes that the use of a consent
procedure in lieu of a meeting and vote available to all stockholders is
inappropriate for a publicly owned corporation, unless holders of at least 80%
of the shares of Common Stock consent to the proposed action. The Board
believes that the stockholders of a publicly owned corporation should have an
opportunity to participate in determining any proposed action and to express
their views thereon unless agreed upon by an overwhelming majority of the
stockholders. This provision provides management and nonconsenting holders of
at least 21% of the Common Stock the opportunity to review any proposed action,
to express their views and to take any necessary action deemed appropriate by
them.

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<PAGE> 22

CERTAIN EFFECTS AND DISADVANTAGES OF THE STOCKHOLDER ACTION BY WRITTEN CONSENT
AMENDMENT

One effect of this Proposal III may be to preclude a takeover bidder who
acquires a simple majority of the outstanding shares of the Company's Common
Stock from voting in favor of a merger, business combination, or other similar
transaction, or voting in favor of the removal of directors, outside the
process of a stockholder meeting. Because of the delay that would be involved
in undertaking fundamental corporate changes requiring stockholder action, this
provision may deter a future takeover attempt, merger or business combination,
even if a substantial number of such stockholders favored such takeover attempt
or other action. The provision could also result in incumbent directors
retaining their positions until the next annual meeting at which their terms
expire even though holders of a majority of the Company's Common Stock desired
a change and could otherwise remove directors through a majority consent
procedure.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR PROPOSAL III. IF A CHOICE IS SPECIFIED ON THE PROXY BY THE STOCKHOLDER,
THE SHARES WILL BE VOTED FOR THE PROPOSAL. THE AFFIRMATIVE VOTE OF THE HOLDERS
OF A MAJORITY OF THE OUTSTANDING SHARES OF THE COMMON STOCK IS REQUIRED FOR
APPROVAL OF PROPOSAL III.

PROPOSAL IV
INCREASE IN THE NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK AND PREFERRED STOCK

The Company's Board of Directors unanimously recommends that holders of
Common Stock approve Proposal IV, which would approve the adoption of an
amendment to the Company's Certificate of Incorporation to increase the
Company's authorized capital stock.

DESCRIPTION OF AMENDMENT

Currently the Company's Certificate of Incorporation authorizes Eighteen
Million Seven Hundred Fifty Thousand (18,750,000) shares of common stock, $.001
par value per share, and One Thousand (1,000) shares of preferred stock, par
value $.01 per share, all of which shares of preferred stock have been
designated as Series A Junior Participating Preferred Stock ("Series A
Preferred Stock"). As of the Record Date, the Company had 7,411,120 shares of
Common Stock issued and outstanding and no shares of Series A Preferred Stock
issued and outstanding.

On April 16, 1997, the Board of Directors adopted a resolution approving
an amendment to the Company's Certificate of Incorporation (i) to increase the
number of authorized shares of the Company's $.001 par value per share Common
Stock to 25,000,000, and (ii) to increase the number of authorized shares of
the Company's $.01 par value per share preferred stock ("Preferred Stock") to
1,000,000. The amendment is subject to stockholder approval, and is presented
to the holders of the Common Stock at the Annual Meeting for consideration and
approval. If approved by the stockholders, the proposed amendment will become
effective upon the filing of an amendment to the Company's Certificate of
Incorporation with the Secretary of State of Delaware, which will occur as soon
as reasonably practicable.

The authorized shares of Common Stock and Preferred Stock in excess of
those issued and outstanding would be available for issuance at such times and
for such corporate purposes as the Board of Directors may deem advisable,
without further action by the Company's stockholders, except as may be required
by applicable law or by the rules of the Nasdaq National Market or other stock
exchange or national securities association trading system on which the
securities may be listed or traded. Upon issuance, the additional authorized
shares of Common Stock would have the same rights as the outstanding shares of
Common Stock. The Board of Directors, without approval of the stockholders,
could provide for issuance of shares of the Preferred Stock in series, and
could establish the number of shares included in such series, and fix the
designations, powers, preferences, and rights of the shares of such series, and
any qualifications, limitations or restructuring thereof.

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<PAGE> 23

The Company has no arrangements, agreements, understandings or plans at
the present time for the issuance or use of the additional shares of Common
Stock or Preferred Stock proposed to be authorized. The Board of Directors
does not intend to issue any Common Stock or Preferred Stock except on terms
which the Board deems to be in the best interests of the Company and its then
existing stockholders. Any future issuance of Common Stock will be subject to
the rights of holders of outstanding shares of Preferred Stock, as determined
by the Board of Directors.

The Company's stockholders do not now have preemptive rights to subscribe
for or purchase additional shares of Common Stock or Preferred Stock, and the
stockholders will have no preemptive rights to subscribe for or purchase any of
the additional shares to be authorized by the proposed amendment.

REASONS FOR AND ADVANTAGES OF THE AMENDMENT

The Board of Directors of the Company has recommended the amendment to the
Certificate in order to provide the Company with a sufficient number of
authorized shares of Common Stock and Preferred Stock for the Company's general
corporate needs. The Board of Directors believes that the availability of
additional shares will provide the Company with the flexibility to issue Common
Stock or Preferred Stock for possible future financings, stock dividends or
distributions, acquisitions, stock option plans or other proper corporate
purposes which may be identified in the future by the Board of Directors,
without the possible expense and delay of a special stockholders' meeting. The
issuance of additional shares of Common Stock may have a dilutive effect on
earnings per share and, for persons who do not purchase additional shares to
maintain their pro rata interest in the Company, on such stockholders'
percentage voting power.

CERTAIN EFFECTS AND DISADVANTAGES OF THE AMENDMENT

Although the Company has proposed adoption by the stockholders of
proposals that may have certain anti-takeover effects, and the Board of
Directors has approved, and the Company has entered into, a Shareholder
Protection Rights Agreement (the "Rights Agreement") with American Stock
Transfer & Trust Company for the purpose of defending against hostile takeovers
of the Company, the Company has no present intention to issue shares of Common
Stock or Preferred Stock in the future in order to make acquisition of control
of the Company more difficult. See "Other Antitakeover Measures Taken or
Anticipated" below. Nevertheless, future issuances of Common Stock or
Preferred Stock could have that effect. For example, the acquisition of shares
of the Common Stock or Preferred Stock by an entity in order to acquire control
of the Company might be discouraged through the public or private issuance of
additional shares of Common Stock or Preferred Stock, since such issuance would
dilute the stock ownership of the acquiring entity. Common Stock or Preferred
Stock also could be issued to existing stockholders as a dividend or privately
placed with purchasers who might side with the Board of Directors in opposing a
takeover bid, thus discouraging such a bid.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL
OF THE PROPOSED INCREASE OF THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AND
PREFERRED STOCK. IF A CHOICE IS SPECIFIED ON THE PROXY BY THE STOCKHOLDER, THE
SHARES WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THE SHARES
WILL BE VOTED FOR THE PROPOSAL. THE AFFIRMATIVE VOTE OF THE HOLDERS

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<PAGE> 24

OF A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK IS REQUIRED FOR THE
APPROVAL OF PROPOSAL IV.

OTHER ANTITAKEOVER MEASURES TAKEN OR ANTICIPATED

RIGHTS PLAN

On April 16, 1997, the Board of Directors of the Company declared a
distribution of one right (a "Right") for each outstanding share of the
Company's Common Stock to stockholders of record at the close of business on
May 15, 1997 and for each share of Common Stock issued (including shares
distributed from treasury) by the Company thereafter and prior to the
Separation Time (defined below). Each Right entitles the registered holder to
purchase from the Company one ten-thousandth (1/10,000th) of a share (a "Unit")
of Series A Preferred Stock at a purchase price of $30 per Unit (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are
set forth in the Rights Agreement.

The Rights have been distributed to protect the Company's stockholders
from coercive or abusive takeover tactics and to give the Board of Directors
more negotiating leverage in dealing with prospective acquirors. Initially,
the Rights will attach to all certificates representing shares of outstanding
Company Common Stock, and no separate rights certificates will be distributed.
The Rights will separate from the Common Stock and the "Separation Time" will
occur upon the earlier of (i) ten business days (unless otherwise accelerated
or delayed by the Board of Directors) following public announcement that a
person or group of affiliated or associated persons (an "Acquiring Person") has
acquired, obtained the right to acquire, or otherwise obtained beneficial
ownership of 15% or more of the then-outstanding shares of Common Stock (a
"Flip-In Date"), or (ii) ten business days (unless otherwise delayed by the
Board) following the commencement of a tender offer or exchange offer that
would result in a person or group beneficially owning 15% or more of the
then-outstanding shares of Common Stock. An Acquiring Person does not include
(a) any person who is a beneficial owner of 15% or more of the Common Stock on
April 16, 1997 (the date of adoption of the Rights Agreement), unless such
person or group shall thereafter acquire beneficial ownership of additional
Common Stock, (b) a person who acquires beneficial ownership of 15% or more of
the Common Stock without any intention to affect control of the Company and who
thereafter promptly divests sufficient shares so that such person ceases to be
the beneficial owner of 15% or more of the Common Stock, or (c) a person who is
or becomes a beneficial owner of 15% or more of the Common Stock as a result of
an option granted by the Company in connection with an agreement to acquire or
merge with the Company prior to a Flip-In Date.

The Rights are not exercisable until the Separation Time and will expire
at the close of business on the tenth anniversary of the Rights Agreement
unless earlier terminated by the Company as described below.

If a Flip-In Date occurs (i.e., the close of business ten business days
following announcement by the Company that a person has become an Acquiring
Person), and if the Company has not terminated the Rights as described below,
then the Rights entitle the holders thereof to acquire shares of Common Stock
(rather than Series A Preferred Stock) having a value equal to twice the
Right's exercise price. Instead of issuing shares of Common Stock upon
exercise of a Right following a Flip-In Date, the Company may substitute cash,
property, a reduction in the exercise price of the Rights, Series A Preferred
Stock or other securities (or any combination of the above) with a value equal
to the Common Stock which would otherwise be issuable. In addition, at the
option of the Board of Directors prior to the time that any person becomes the
beneficial owner of more than 50% of the Common Stock, and rather than payment
of the cash purchase price, each Right may be exchanged for one share of Common
Stock if a Flip-In Date occurs. Notwithstanding any of the foregoing, all
Rights that are, or (under certain circumstances set forth in the Rights
Agreement) were, beneficially owned by any person on or after the date such
person becomes an Acquiring Person will be null and void.

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<PAGE> 25

Following the Flip-In Date, if the company is acquired in a merger or
consolidation where the Company does not survive or the Common Stock is changed
or exchanged, or 50% or more of the Company's assets or assets generating 50%
or more of the Company's operating income or cash flow is transferred in one or
more transactions to persons who at that time control the Company, then the
Rights entitle the holders thereof to acquire for the exercise price shares of
the acquiring party having a value equal to twice the Right's exercise price.

The exercise price payable and the number of Rights outstanding are
subject to adjustment from time to time to prevent dilution in the event of a
stock dividend, stock split or reverse stock split, or other recapitalization
which would change the number of shares of Common Stock outstanding.

At any time until the close of business on the Flip-In Date, the Board of
Directors may terminate the Rights without any payment to the holders thereof.
The Board of Directors may condition termination of the Rights upon the
occurrence of a specified future time or event.

Any provisions of the Rights Agreement may be amended at any time prior to
the close of business on the Flip-In Date without the approval of holders of
the Rights, and thereafter, the Rights Agreement may be amended without
approval of the Rights holders in any way which does not materially adversely
affect the interests of the Rights holders.

The Rights may have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board of Directors of the Company (with, where
required by the Rights Agreement, the concurrence of a majority of the
continuing directors) unless the offer is conditioned on a substantial number
of Rights being acquired. However, the Rights should not interfere with any
merger, statutory share exchange or other business combination approved by a
majority of the directors since the Rights may be terminated by the Board of
Directors at any time on or prior to the close of business ten business days
after announcement by the Company that a person has become an Acquiring Person.
Thus, the Rights are intended to encourage persons who may seek to acquire
control of the Company to initiate such an acquisition through negotiations
with the Board of Directors. However, the effect of the Rights may be to
discourage a third party from making a partial tender offer or otherwise
attempting to obtain a substantial equity position in the equity securities of,
or seeking to obtain control of, the Company. To the extent any potential
acquirors are deterred by the Rights, the Rights may have the effect of
preserving incumbent management in office.

OTHER BYLAWS PROVISIONS THAT MAY HAVE AN ANTITAKEOVER EFFECT

Proposals II and III are part of a series of measures being taken by the
Board of Directors in order to make the Company less vulnerable to transactions
that may not be in the best interests of the Company's stockholders. At its
April 16, 1997 meeting the Board of Directors effected two amendments to the
Company's Bylaws that may be deemed to have an antitakeover effect:

FIXING NUMBER OF DIRECTORS. The Board of Directors amended Article
II, Section 2 of the Company's Bylaws to provide that the number of
directors shall be as fixed by resolution of the Board of Directors.
This amendment will prevent the stockholders of the Company from changing
the size of the Board of Directors. Therefore, the stockholders of the
Company will be unable to obtain immediate majority control of the Board
of Directors by voting to enlarge the size of the Board and electing
directors to fill the newly created positions.

REQUIREMENTS FOR AMENDING CERTAIN PROVISIONS OF BYLAWS. The Board
of Directors amended the Bylaws to provide that Article II, Section 2 of
the Bylaws (and the provisions of the Bylaws specifying the vote required
to amend Article II, Section 2 of the Bylaws) may not be amended without
the approval of at least two-thirds (2/3rds) of the Board of Directors or
the holders of at least eighty percent (80%) of the issued and
outstanding shares of the Company's Common Stock. This amendment will
have the effect of providing holders of less than eighty percent (80%) of
the outstanding shares of the Company's

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<PAGE> 26

Common Stock from circumventing the amendment of Article II, Section 2
by voting to repeal that amendment.

In addition, the Company's Board of Directors approved each of the
following amendments to the Company's Bylaws contingent upon the adoption and
approval by the stockholders of the Company of certain other amendments as
described below:

REMOVAL OF DIRECTORS. Currently, the Company's Bylaws provide that
any or all of the directors of the Company may be removed for cause or
without cause by the stockholders, but there is not a similar provision in
the Company's Certificate of Incorporation. Delaware law provides that
unless a corporation's certificate of incorporation provides otherwise, a
member of a classified board of directors may be removed only for cause.
Therefore, if Proposal II is adopted and approved by the stockholders,
this provision of the Bylaws would be inconsistent with the Delaware
General Corporation law unless an amendment were to be adopted to the
Company's Certificate of Incorporation that permits removal of members of
the classified board of directors without cause. Because permitting
removal of members of a classified board of directors without cause
largely defeats the purpose of classifying the Board of Directors, the
Board of Directors does not intend to effect an amendment to the Company's
Certificate of Incorporation that would permit removal of members of the
Board of Directors without cause. Therefore, the Board of Directors has
adopted an amendment to the Bylaws that removes the language permitting
removal of directors without cause, contingent upon adoption of Proposal
II.

STOCKHOLDER ACTION BY WRITTEN CONSENT. Currently, the Company's
Bylaws provide that whenever the vote of stockholders at a meeting
thereof is required or permitted to be taken for or in connection with
any corporate action, the meeting and vote of stockholders may be
dispensed with if a number of the stockholders having at least the
minimum voting power required to take corporate action under the
provisions of the Delaware General Corporation Law shall consent in
writing to such corporate action. This provision is inconsistent with
the amendment to the Company's Certificate of Incorporation that is
proposed in Proposal III. Therefore, the Board of Directors has adopted
an amendment to the Bylaws that removes the provision in the Company's
Bylaws relating to the taking of stockholder action without meetings,
contingent upon adoption of Proposal III.

REQUIREMENTS FOR AMENDING CERTAIN PROVISIONS OF CERTIFICATE OF
INCORPORATION AND BYLAWS. The Board of Directors has adopted resolutions
providing in advance for an amendment to the Company's Bylaws that
provides that upon the voting upon Proposals II, III and IV by the
Company's stockholders, the provisions of the Company's Certificate of
Incorporation and Bylaws that are amended as proposed above (including
any contingent amendments) may not be amended without the approval of at
least two-thirds (2/3) of the Board of Directors or the holders of at
least eighty percent (80%) of the outstanding shares of the Company's
Common Stock. This amendment will have the effect of preventing holders
of less than eighty percent (80%) of the outstanding shares of the
Company's Common Stock from circumventing one or more of such amendments
by voting to repeal such amendments.

FUTURE PLANS

Assuming adoption of Proposals II, III and IV, and implementation of the
Rights Agreement and the above-mentioned amendments to the Company's Bylaws,
the Company's Board of Directors has no current plans to adopt any further
agreements or changes in its Bylaws or to recommend any further amendments to
its Certificate of Incorporation that may have anti-takeover effects.

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<PAGE> 27

PROPOSAL V
RATIFICATION OF AUDITORS

The Company's Board of Directors has selected Ernst & Young LLP to conduct
the annual audit of the financial statements of the Company for the fiscal year
ending December 31, 1997. Ernst & Young LLP has no financial interest, direct
or indirect, in the Company, and does not have any connection with the Company
except in its professional capacity as an independent auditor.

The ratification by the holders of Common Stock of the selection of Ernst
& Young LLP as independent auditors is not required by law or by the Bylaws of
the Company. The Board of Directors, consistent with the practice of many
publicly held corporations, is nevertheless submitting this selection to the
holders of Common Stock. If this selection is not ratified at the Annual
Meeting, the Board of Directors intends to reconsider its selection of
independent auditors for the fiscal year ending December 31, 1997.

The Audit Committee, which is composed of directors who are not employees
of the Company, approves in advance all material non-audit services to be
provided by Ernst & Young LLP and believes that these services have no effect
on audit independence.

Representatives of Ernst & Young LLP will be present at the Annual Meeting
and will have an opportunity to make a statement, if they so desire, and will
be available to respond to appropriate questions.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997. IF A CHOICE IS SPECIFIED ON THE
PROXY BY THE STOCKHOLDER, THE SHARES WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE PROPOSAL. THE
AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES CAST IS REQUIRED FOR APPROVAL OF
PROPOSAL V.

STOCKHOLDER PROPOSALS

Any proposal which a Company stockholder intends to be presented at the
next annual meeting of stockholders to be held in 1998 must be received by the
Company on or before January 27, 1998. Only proper proposals which are timely
received will be included in the Proxy Statement and Proxy.

OTHER MATTERS

EXPENSES OF SOLICITATION

The cost of soliciting proxies will be borne by the Company. In addition
to the use of the mails, proxies may be solicited by directors, officers or
other employees of the Company, personally, by telephone or by telegraph. The
Company has engaged Beacon Hill Partners, Inc. to distribute proxy materials to
brokers and banks for distribution to beneficial owners of the Company's Common
Stock and to solicit proxies from brokerage firms, banks and institutional
holders of shares. Beacon Hill Partners, Inc. will be paid a fee of $2,000.00
plus reimbursement of expenses of approximately $1,500.00 for its services.

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<PAGE> 28

MISCELLANEOUS

Management does not know of any matters to be brought before the Annual
Meeting other than as described in this Proxy Statement. Should any other
matters properly come before the Annual Meeting, the persons designated as
proxies will vote in accordance with their best judgment on such matters.

AVAILABILITY OF ANNUAL REPORT

ACCOMPANYING THIS PROXY STATEMENT IS A COPY OF THE COMPANY'S ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1996. IN ADDITION, COPIES OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ARE AVAILABLE WITHOUT CHARGE, EXCEPT FOR
EXHIBITS. STOCKHOLDERS WHO WOULD LIKE ADDITIONAL COPIES OF THE ANNUAL REPORT
OR THE COMPANY'S FORM 10-K SHOULD DIRECT THEIR REQUESTS IN WRITING TO: CYTRX
CORPORATION, 154 TECHNOLOGY PARKWAY, NORCROSS, GEORGIA 30092, ATTENTION: MARK
W. REYNOLDS.

By Order of the Board of Directors

/s/ Mark W. Reynolds
----------------------------------
May 27, 1997 Mark W. Reynolds
Secretary

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<PAGE> 29
APPENDIX

PROXY CYTRX CORPORATION
154 TECHNOLOGY PARKWAY
NORCROSS, GEORGIA 30092
1997 ANNUAL MEETING OF STOCKHOLDERS

The undersigned stockholder of CytRx Corporation (the "Company"),
Norcross, Georgia, hereby constitutes and appoints Jack J. Luchese and Mark W.
Reynolds, or either one of them, each with full power of substitution, to vote
the number of shares of Common Stock which the undersigned would be entitled to
vote if personally present at the Annual Meeting of Stockholders to be held at
the Hilton Hotel at Peachtree Corners, 5993 Peachtree Industrial Boulevard,
Norcross, Georgia, on Thursday, June 26, 1997, at 10:00 a.m. local time, or at
any adjournments thereof (the "Annual Meeting"), upon the proposals described
in the Notice of Annual Meeting of Stockholders and Proxy Statement, both dated
May 27, 1997, the receipt of which is acknowledged, in the manner specified
below.

1. ELECTION OF DIRECTORS. On the proposal to elect the following slate of
directors:

Jack L. Bowman Max Link Herbert H. McDade, Jr.
Raymond C. Carnahan, Jr. Jack J. Luchese

For [ ] Withhold Authority [ ]

To withhold authority for any individual nominee(s), write the name of
the nominee(s) in the space provided:

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

2. CLASSIFICATION OF BOARD OF DIRECTORS. On the proposal to classify the
Company's Board of Directors:

For [ ] Against [ ] Abstain [ ]

3. RESTRICTION ON ACTIONS TAKEN BY WRITTEN CONSENT OF STOCKHOLDERS. On the
proposal to amend the Company's Certificate of Incorporation to provide
that stockholder action by written consent without a meeting must be taken
by the holders of at least 80% of the Company's outstanding shares of
Common Stock:

For [ ] Against [ ] Abstain [ ]

4. INCREASE IN AUTHORIZED CAPITAL STOCK. On the proposal to amend the
Company's Certificate of Incorporation in order to increase the Company's
authorized capital stock:

For [ ] Against [ ] Abstain [ ]

5. RATIFICATION OF SELECTION OF AUDITORS. On the proposal to ratify the
selection of Ernst & Young LLP as the Company's independent auditors for
the fiscal year ending December 31, 1997:

For [ ] Against [ ] Abstain [ ]

6. OTHER PROPOSALS. In their sole discretion, the Proxies are authorized to
vote upon such other business as may properly come before the Annual
Meeting or any adjournments thereof.

For [ ] Withhold Authority [ ]

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL PROPOSALS AND WITH DISCRETIONARY AUTHORITY ON ALL OTHER MATTERS
THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENTS THEREOF.
THIS PROXY IS SOLICITED ON BEHALF OF CYTRX CORPORATION'S BOARD OF DIRECTORS AND
MAY BE REVOKED BY THE STOCKHOLDER PRIOR TO ITS EXERCISE.

Please sign exactly as your name appears on your stock certificate and
date. Where shares are held jointly, each stockholder should sign. When
signing as executor, administrator, trustee, or guardian, please give full
title as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.

<TABLE>
<S> <C>
Shares Held:
--------------------------------------------
Dated: , 1997
-------------------------- --------------------------------------------------------
Month Day Signature of Stockholder

--------------------------------------------------------
Signature of Stockholder (If held Jointly)

</TABLE>