<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
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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-12
</TABLE>
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 15, 2000
Dear Stockholder:
You are cordially invited to attend the 2000 Annual Meeting of Stockholders
of CytRx Corporation. The meeting will be held in the Medlock Auditorium at the
Northeast Atlanta Hilton Hotel, 5993 Peachtree Industrial Boulevard, Norcross,
Georgia. It will begin at 10:00 a.m. local time on Tuesday, June 27, 2000.
The Notice of Meeting and the Proxy Statement on the following pages cover
the formal business of the meeting, which includes five items to be voted on by
the stockholders. At the Annual Meeting, I will also report on the current
operations of the Company and will be available to respond to questions from
stockholders.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted at the meeting. Particularly with
respect to Proposals II and III, it is important that you vote your shares,
since approval of these items requires the affirmative vote of a majority of all
shares outstanding, rather than a majority of the votes cast. You are urged to
complete, sign, date and return the enclosed proxy card (or use the telephone or
internet voting procedures, if offered by your broker), even if you plan to
attend the meeting.
We hope you will plan to join us.
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 27, 2000
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 in the Medlock
Auditorium at the Northeast Atlanta Hilton Hotel, 5993 Peachtree Industrial
Boulevard, Norcross, Georgia 30092, on Tuesday June 27, 2000, at 10:00 a.m.,
local time (the "Annual Meeting"), for the following purposes:
(i) To elect one Class III director to serve until the 2003 Annual
Meeting of Stockholders;
(ii) To approve an amendment to the Company's Certificate of Incorporation
to increase the Company's authorized Common Stock from 18,750,000 to
50,000,000 shares;
(iii) To approve an amendment to the Company's Certificate of Incorporation
to increase the Company's authorized Preferred Stock, par value $.01
per share, from 1,000 to 1,001,000 shares;
(iv) To approve the issuance and sale from time to time to Majorlink
Holdings Limited of up to 5,000,000 shares of Common Stock in
accordance with the terms of a Private Equity Line of Credit
Agreement;
(v) To ratify the selection of Ernst & Young LLP as independent auditors
for the fiscal year ending December 31, 2000; and
(vi) To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
Only those stockholders of record at the close of business on April 28,
2000, are entitled to notice of and to vote at the Annual Meeting or any
adjournments thereof. The Company's 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
Secretary
May 15, 2000
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
PROXY STATEMENT
May 15, 2000
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 Tuesday, June 27, 2000, 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 one Class III director to the
Company's Board of Directors; (ii) a proposal to amend the Company's Certificate
of Incorporation to increase the Company's authorized Common Stock from
18,750,000 to 50,000,000 shares; (iii) a proposal to amend the Company's
Certificate of Incorporation to increase the Company's authorized Preferred
Stock, par value $.01 per share (the "Preferred Stock"), from 1,000 to 1,001,000
shares; (iv) a proposal to approve the issuance and sale from time to time to
Majorlink Holdings Limited of up to 5,000,000 shares of Common Stock in
accordance with the terms of a Private Equity Line of Credit Agreement; (v) a
proposal to ratify the selection of Ernst & Young LLP as independent auditors
for the fiscal year ending December 31, 2000; 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 15, 2000.
STOCKHOLDERS ENTITLED TO VOTE
Only stockholders of record of the Company at the close of business on
April 28, 2000 (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 9,580,050 shares of the Common Stock issued
and outstanding held by approximately 1,500 stockholders of record.
QUORUM AND VOTING REQUIREMENTS
The Bylaws provide that the presence, in person or by proxy, of the holders
of a majority of the shares of Common Stock entitled to be cast on a matter at
the Annual Meeting shall constitute a quorum. Holders of Common Stock are
entitled to one vote per share. 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 one Class III director to
the Company's Board of Directors. The affirmative vote of the holders of a
majority of the shares of the Company's Common Stock that are outstanding will
be required for approval of Proposal II, to increase the Company's authorized
shares of Common Stock from 18,750,000 to 50,000,000 shares, and Proposal III,
to increase the Company's authorized shares of Preferred Stock from 1,000 to
1,001,000 shares. The affirmative vote of a majority of the votes cast at the
Annual Meeting will be required for approval of Proposal IV, to approve the
issuance and sale from time to time to Majorlink Holdings
<PAGE> 5
Limited of up to 5,000,000 shares of Common Stock in accordance with the terms
of a Private Equity Line of Credit Agreement, and Proposal V, to ratify Ernst &
Young LLP as independent auditors for the fiscal year ending December 31, 2000.
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 (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 and broker non-votes will be considered present and entitled to
vote at the meeting but will not be counted as votes cast. Therefore,
abstentions and broker non-votes will have the effect of a vote against
Proposals II and III, but will have no effect on the adoption of Proposals IV or
V.
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
(1) IN FAVOR OF ALL PROPOSALS DESCRIBED IN THIS PROXY STATEMENT AND (2) IF THE
COMPANY DID NOT HAVE NOTICE ON OR BEFORE MARCH 27, 2000 OF ANY OTHER MATTERS
PROPERLY BROUGHT BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENTS THEREOF, IN THE
SOLE DISCRETION OF THE PROXIES AS TO SUCH MATTERS.
A stockholder who has given a Proxy may revoke it at any time prior to its
exercise at the Annual Meeting by (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 Restated Certificate of Incorporation and Bylaws of the
Company provide that the members of the Board of Directors are divided into
three classes, one class to be elected at each annual meeting of stockholders
and to serve for a term of three years.
Mr. Jack L. Bowman, whose term expires at the Annual Meeting, is not
standing for re-election at the Annual Meeting. As a result, the Board reduced
the size of the Board from six to five directors and the number of Class III
directors from two to one. The Board of Directors has nominated Max Link for
election as a Class III director of the Company to serve until the Company's
2003 annual meeting of stockholders, his successor is elected and qualified, or
his earlier death, resignation or removal. The Board would like to take this
opportunity to thank Mr. Bowman for his many years of excellent service to the
CytRx Corporation.
The following is certain information concerning the nominee for election as
well as the directors whose terms of office will continue after the Annual
Meeting, which information includes each directors age in parentheses after his
name.
CURRENT NOMINEE
CLASS III -- NOMINEE TO SERVE AS DIRECTOR UNTIL THE 2003 ANNUAL MEETING
MAX LINK (59) first became a director of CytRx in 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 Mannheim Diagnostics and DePuy International). From 1992 to 1993, Dr.
Link was Chairman of Sandoz Pharma. From 1987 to 1992, Dr. Link was the Chief
Executive Officer of Sandoz Pharma, Ltd. and a member of the Executive Board of
Sandoz, Ltd., Basel. Prior to 1987, Dr. Link
2
<PAGE> 6
served in various capacities with the United States operations of Sandoz,
including President and Chief Executive Officer. Dr. Link also serves as a
director of Access Pharmaceuticals, Alexion Pharmaceuticals, Inc., Cell
Therapeutics, Inc., Discovery Laboratories, Inc., Human Genome Sciences, Inc.
and Protein Design Laboratories, Inc.
The persons designated as proxies intend to vote the shares represented
thereby in favor of the election to the Board of Directors of the nominee,
unless either authority to vote for the nominee is withheld or such proxy has
previously been revoked. It is believed that the nominee will be available and
able to serve as director. In the event that the nominee is unable to serve
(which is not anticipated), the persons designated as proxies will cast votes
for such other person as they may select. It is anticipated that management
stockholders of the Company will vote for the election of the nominee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEE FOR ELECTION AS
DIRECTOR. THE AFFIRMATIVE VOTE OF A PLURALITY OF THE VOTES REPRESENTED AND
ENTITLED TO VOTE IN THE ELECTION AT THE ANNUAL MEETING AT WHICH A QUORUM IS
PRESENT IS REQUIRED FOR THE ELECTION OF THE NOMINEE.
CONTINUING DIRECTORS
CLASS I -- TERM EXPIRING AT THE 2001 ANNUAL MEETING
LYLE A. HOHNKE (57) first became a director of CytRx in 1996. Since 1994,
Dr. Hohnke has served as a member of Javelin Capital Fund, LLC, a general
partner of Javelin Ventures, LP, a company engaged in venture capital
investments. From 1991 to 1994 Dr. Hohnke was General Partner for Heart Land
Seed Capital Fund. Dr. Hohnke also serves as a director of Heska Corporation as
well as a number of privately-held companies.
JACK J. LUCHESE (51) has been President and Chief Executive Officer and a
director of the Company since March 1989. 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 product marketing, and finance.
CLASS II -- TERM EXPIRING AT THE 2002 ANNUAL MEETING
RAYMOND C. CARNAHAN, JR. (74) first become a director of CytRx in 1991. Mr.
Carnahan has over 39 years of experience in cost controls and operational
systems in a variety of industries. Prior to his retirement in 1991, Mr.
Carnahan served as Manager, International Cost Analysis planning for Johnson &
Johnson International from 1974 to 1991. Mr. Carnahan has provided consulting
services to Waterford-Wedgewood Corporation in England and to Torf
Pharmaceutical Corporation in Poland and serves as President for the Morristown
Memorial Hospital Chaplaincy Service in Morristown, New Jersey.
HERBERT H. MCDADE, JR. (73) first became a director of CytRx in 1990. From
1989 to 1996 Mr. McDade has served as Chairman, President and Chief Executive
Officer of Chemex Pharmaceuticals, Inc. (now Access Pharmaceuticals, Inc.). 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 serves as a director of Access Pharmaceuticals, Inc., Discovery
Laboratories, Inc. and CellPath, Inc.
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 Board of Directors held nine meetings during 1999. Each director
attended at least 75% of the total meetings of the Board and the committees on
which they served during 1999.
3
<PAGE> 7
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 Lyle A. Hohnke. The Audit Committee
held one meeting during 1999.
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 Committee also is authorized to interpret the CytRx Corporation
1986, 1994 and 1995 Stock Option Plans and the CytRx Corporation 1998 Long-Term
Incentive Plan (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 Herbert H. McDade, Jr. (Chairman), Raymond C.
Carnahan, Jr. and Lyle A. Hohnke. The Compensation Committee held three meetings
during 1999.
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 $2,000 for each Board meeting attended ($750 for meetings
attended by teleconference) and $500 for each committee meeting attended. Non-
employee directors who chair a Board committee receive an additional $250 for
each committee meeting attended.
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 2,500 shares of Common Stock are granted to each
non-employee director annually. Stock option grants to directors pursuant to the
Plan discussed above 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.
During 1999, Mr. Raymond C. Carnahan, Jr. performed certain consultation
services for the Company for which he received a fee of $2,500.
4
<PAGE> 8
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, 2000 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 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
- ------------------------------------ --------- ----------
<S> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS:
Jack L. Bowman(1)........................................... 17,078 *%
Raymond C. Carnahan, Jr.(2)................................. 16,299 *
R. Martin Emanuele(3)....................................... 164,835 1.7
William B. Fleck(4)......................................... 124,844 1.3
J. Michael Grindel(5)....................................... 110,010 1.1
Lyle A. Hohnke(6)........................................... 4,165 *
Max Link(7)................................................. 23,748 *
Jack J. Luchese(8).......................................... 1,402,908 12.9
Herbert H. McDade, Jr.(9)................................... 24,929 *
Mark W. Reynolds(10)........................................ 131,545 1.4
All executive officers and directors as a group (10
persons)(11).............................................. 1,934,142 17.0
OTHER 5% STOCKHOLDERS:
Robert L. Hunter, Jr........................................ 497,087 5.2
University of Texas Medical School
Department of Pathology
6431 Fannin MSB2136
Houston, Texas 77030
AMRO International, S.A.(12)................................ 565,445 5.8
C/o Ultra Finanz AG
Grosmuensterplatz 6
Zurich CH-8022 Switzerland
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 16,353 shares subject to options exercisable within 60 days.
(2) Includes 16,049 shares subject to options exercisable within 60 days.
(3) Includes 147,389 shares subject to options exercisable within 60 days.
(4) Includes 103,995 shares subject to options exercisable within 60 days.
(5) Includes 101,083 shares subject to options exercisable within 60 days.
(6) Includes 4,165 shares subject to options exercisable within 60 days.
(7) Includes 6,207 shares subject to options exercisable within 60 days.
(8) Includes 1,332,427 shares subject to warrants exercisable within 60 days.
Mr. Luchese's business address is c/o CytRx Corporation, 154 Technology
Parkway, Norcross, GA 30092.
(9) Includes 23,096 shares subject to options exercisable within 60 days.
(10) Includes 112,126 shares subject to options exercisable within 60 days.
(11) Includes 1,863 723 shares subject to options and warrants exercisable
within 60 days.
(12) Includes 165,445 shares subject to warrants exercisable within 60 days.
5
<PAGE> 9
EXECUTIVE OFFICERS OF THE COMPANY
Except for Jack J. Luchese, discussed above in "Continuing Directors", set
forth below is certain information regarding the executive officers of the
Company including their ages, positions with the Company and principal
occupations and employers for at least the last five years. 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."
R. MARTIN EMANUELE, PH.D. (45) joined CytRx in 1988 as the project director
for the Company's RheothRx(R) project (now FLOCOR(TM)). Dr. Emanuele assumed the
duties of Vice President, Preclinical Development in June 1990 and became Vice
President, Research and Business Development in October 1997. Before joining
CytRx, he worked as a clinical research scientist at DuPont Critical Care and as
a visiting scientist at Institute Choay.
WILLIAM B. FLECK (42) 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.
J. MICHAEL GRINDEL, PH.D. (53) joined CytRx in October 1997 as Vice
President, Drug Development. From 1994 to 1997 Dr. Grindel served as Vice
President, Preclinical Development for Hybridon, Inc. in Cambridge, MA. From
1989 to 1994 Dr. Grindel was Vice President for Project Planning and Management
at the R. W. Johnson Pharmaceutical Research Institute (a subsidiary of Johnson
& Johnson) in Raritan, NJ. Prior to that Dr. Grindel served in various research
and development management positions with McNeil Pharmaceutical from 1976 to
1989 and the Walter Reed Army Institute of Research from 1973 to 1976.
MARK W. REYNOLDS (38) joined CytRx in 1988 as Controller, becoming Chief
Financial Officer and Corporate Secretary in 1996 and Vice President, Finance in
1999. Prior to joining CytRx, Mr. Reynolds was employed as a certified public
accountant with Arthur Andersen LLP in Atlanta, Georgia.
6
<PAGE> 10
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, 1997, 1998 and 1999 for
(i) the President and Chief Executive Officer of the Company; and (ii) each of
the four other most highly compensated executive officers of the Company whose
total salary and bonus exceeded $100,000 (determined as of December 31, 1999 and
collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS (#) COMPENSATION ($)
- --------------------------- ---- --------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Jack J. Luchese........................ 1999 $342,125 $75,000 $ 500,000 $ 5,000(2)
President and Chief 1998 334,250 65,750 1,382,427(1) 5,000(2)
Executive Officer 1997 321,000 37,500 50,000 4,750(2)
R. Martin Emanuele..................... 1999 $174,200 $15,000 $ 32,500 $ 5,000(2)
Vice President, 1998 170,850 15,000 154,098(1) 5,000(2)
Research & Business 1997 167,500 7,500 5,000 4,750(2)
Development
William B. Fleck....................... 1999 $127,650 $15,000 $ 25,000 $ 5,000(2)
Vice President, 1998 84,375 42,500 112,162(1) 5,000(2)
Human Resources 1997 120,000 40,000 7,500 4,750(2)
J. Michael Grindel..................... 1999 $199,150 $30,000 $ 20,000 $ 5,000(2)
Vice President, 1998 195,000 20,000 173,000(1) 81,172(3)
Drug Development 1997 40,000 20,000 100,000 1,200(2)
Mark W. Reynolds....................... 1999 $115,000 $20,000 $ 32,500 $ 5,000(2)
Vice President, Finance 1998 101,000 25,000 118,418(1) 5,000(2)
and Secretary 1997 94,000 12,500 7,500 4,750(2)
</TABLE>
- ---------------
(1) Includes shares underlying previously issued options and warrants which were
repriced during 1998.
(2) Represents matching contributions by the Company under the Company's 401(k)
Profit Sharing Plan.
(3) Amount shown includes $5,000 in matching contributions by the Company under
the Company's 401(k) Profit-Sharing Plan and $76,172 in costs associated
with the officer's relocation.
7
<PAGE> 11
OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes the stock options and warrants granted
during the fiscal year ended December 31, 1999 to each of the Named Executive
Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM ($)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION -------------------------
NAME GRANTED (#) IN FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---- ----------- -------------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jack J. Luchese......... 500,000(1)(2) 79.8% $2.125 8/30/09 $668,201 $1,693,351
R. Martin Emanuele...... 32,500(1)(2) 5.2 2.125 8/30/09 43,433 110,068
William B. Fleck........ 25,000(1)(2) 4.0 2.125 8/30/09 33,410 84,668
J. Michael Grindel...... 20,000(1)(2) 3.2 2.125 8/30/09 26,728 67,734
Mark W. Reynolds........ 32,500(1)(2) 5.2 2.125 8/30/09 43,433 110,068
</TABLE>
- ---------------
(1) These options vest upon a combination of tenure and the achievement of
Company performance criteria. As of December 31, 1999, none of these options
were vested.
(2) All options and warrants were granted at an exercise price equal to the fair
market value of the underlying shares at the date of grant, and are
exercisable for ten years from the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND OPTION VALUE AT DECEMBER 31,
1999
The following table sets forth the number and total value of unexercised
in-the-money options at December 31, 1999 for each of the executive officers of
the Company named in the Summary Compensation Table above, using the price per
share of the Common Stock of $.90625 on December 31, 1999. No stock options were
exercised during 1999 by any of the Company's Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1999 (#) AT DECEMBER 31, 1999 ($)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jack J. Luchese.................................. 1,332,427 550,000 $ -- $ --
R. Martin Emanuele............................... 142,514 42,834 -- --
William B. Fleck................................. 100,995 36,167 -- --
J. Michael Grindel............................... 99,333 93,667 -- --
Mark W. Reynolds................................. 107,251 43,667 -- --
</TABLE>
EMPLOYMENT AGREEMENT
Jack J. Luchese was named President and Chief Executive Officer of the
Company in March 1989. His Employment Agreement with the Company was amended and
restated as of September 1, 1999 (the "Agreement") and terminates on December
31, 2002. Under the Agreement, Mr. Luchese is paid an annual base salary of
$350,000. The base salary will be reviewed no less than once each 18 months and
will be adjusted from time to time consistent with average overall 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.
Pursuant to the original Agreement, and subsequent amendments, Mr. Luchese
has been granted warrants to purchase an aggregate of 1,882,427 shares of Common
Stock. Warrants as to 1,332,427 shares have an exercise price of $1.00 and
warrants as to 500,000 shares have an exercise price of $2.125. The vesting
criteria of such warrants include a combination of tenure and achievement of
defined corporate objectives. As of April 24, 2000, 1,332,427 of the 1,882,427
warrants held by Mr. Luchese are vested.
8
<PAGE> 12
The shares of stock that may be acquired upon exercise of warrants held by
Mr. Luchese 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 entered into a separate Change in Control
Agreement (the "Change in Control Agreement") with Mr. Luchese, which was
amended and restated in September 1999 merely to conform references to his
amended and restated Employment Agreement. 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").
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 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
(i) is terminated by the Company without cause, (ii) resigns voluntarily with
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 this employment. The Company
will require its successors to expressly assume its obligations under the Change
in Control Agreement.
9
<PAGE> 13
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 influenced by Company performance, although "performance" for a
company engaged in pharmaceutical research and development does not necessarily
correlate to profits. The Committee considers "performance" to include
achievement of product development targets and milestones, effective
fund-raising efforts, and effective management of personnel and capital
resources, among other criteria. The Committee also reviews the Chief Executive
Officer's compensation in light of the level of similar executive compensation
arrangements within the biopharmaceutical industry.
The specific terms of Mr. Luchese's employment agreement are discussed
under "Employment Agreement". Under his employment agreement, Mr. Luchese is
eligible for annual salary increases based upon the overall Company average
merit increases. Mr. Luchese is also 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, 1999 through December 31, 1999. Based on
its assessment of Mr. Luchese's effectiveness in attaining corporate objectives,
the Committee awarded Mr. Luchese a cash bonus of $75,000 for 1999 (paid in
January 2000) or 21% of his base salary for such year.
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, over the course of his employment, Mr. Luchese has been
granted warrants to purchase an aggregate of 1,882,427 shares of CytRx Common
Stock. These warrants include a combination of tenure-based vesting as well as
vesting upon the achievement of corporate objectives. The Committee believes
that this arrangement provides Mr. Luchese with the greatest incentive to
accelerate achievement of corporate objectives and thereby enhance long-term
shareholder value.
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
(see "Company Performance").
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 the overall level of employees' salaries (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.
10
<PAGE> 14
For 1999, the Committee considered Section 162(m), which limits tax
deductions of public companies on compensation to certain executive officers in
excess of $1 million, along with other factors in determining executive
compensation. The committee will continue to consider the effect of 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:
Raymond C. Carnahan, Jr.
Lyle A. Hohnke
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. Raymond C. Carnahan, Jr., Lyle A.
Hohnke and Herbert H. McDade, Jr. are the current members of the Compensation
Committee.
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, 1994 to December 31, 1999. 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, 1994, and that all dividends were reinvested. This
data was furnished by the Center for Research in Security Prices, The University
of Chicago.
11
<PAGE> 15
COMPARISON OF CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
NASDAQ STOCK MARKET
CYTRX CORPORATION INDEX PEER INDEX
----------------- ------------------- ----------
<S> <C> <C> <C>
December 31,
1994 100 100 100
1995 86 141 183
1996 65 174 184
1997 56 213 190
1998 18 300 242
1999 17 542 452
</TABLE>
SECTION 16(A) REPORTING
Section 16(a) of the Securities 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 Company 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, 1999 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
INCREASE IN THE NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK
The Company's Board of Directors unanimously recommends that holders of
Common Stock approve Proposal II, which would approve the adoption of an
amendment to the Company's Certificate of Incorporation to increase the
Company's authorized Common Stock from 18,750,000 to 50,000,000 shares.
DESCRIPTION OF AMENDMENT
Currently, the Company's Restated Certificate of Incorporation 18,750,000
shares of Common Stock. As of the Record Date, the Company had 9,580,050 shares
of Common Stock issued and outstanding and 5,225,482 shares reserved for
issuance (i) upon the exercise of outstanding options and warrants and (ii) in
connection with future awards under the Company's stock option plans.
12
<PAGE> 16
On April 4, 2000, the Board of Directors adopted a resolution approving an
amendment to the Company's Certificate of Incorporation to increase the number
of authorized shares of the Company's Common Stock from 18,750,000 to
50,000,000. 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 Restated Company's Certificate
of Incorporation with the Secretary of State of Delaware, which will occur as
soon as reasonably practicable after such stockholder approval.
The authorized shares of Common Stock in excess of those issued and
outstanding or reserved for issuance (i) upon the exercise of outstanding
options and warrants and (ii) in connection with future awards under the
Company's stock option plans, 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 Stock Market or other stock
exchange or securities trading system on which the securities may be listed or
traded. The proposed additional authorized shares of Common Stock have the same
rights as the currently authorized shares of Common Stock.
The Board of Directors does not intend to issue any Common Stock except on
terms which the Board deems to be in the best interests of the Company and its
then existing stockholders.
The Company's stockholders do not now have preemptive rights to subscribe
for or purchase additional shares of Common 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 AMENDMENT
The Board of Directors of the Company has recommended the amendment to the
Restated Certificate of Incorporation in order to provide the Company with a
sufficient number of authorized shares of Common Stock to facilitate future
equity financings to raise funds for the Company's general corporate needs
without the possible expense and delay of a calling a special stockholders'
meeting. The Board of Directors believes that the availability of additional
shares also will provide the Company with the flexibility to issue Common Stock
in connection with future stock dividends or distributions, acquisitions or
other proper purposes that may be identified by the Board of Directors. The
issuance of additional shares of Common Stock may have a dilutive effect on
earnings per share and net tangible book value 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL
OF THE PROPOSED INCREASE OF THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK. THE
AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF
COMMON STOCK IS REQUIRED FOR THE APPROVAL OF PROPOSAL II.
PROPOSAL III
INCREASE IN NUMBER OF AUTHORIZED SHARES
OF PREFERRED STOCK
The Company's Board of Directors unanimously recommends that holders of
Common Stock approve Proposal III, which would approve the adoption of an
amendment to the Company's Restated Certificate of Incorporation to increase the
Company's authorized Preferred Stock from 1,000 to 1,001,000 shares.
DESCRIPTION OF AMENDMENT
Currently the Company's Restated Certificate of Incorporation authorizes
1,000 shares of Preferred Stock, all of which have been designated as Series A
Junior Participating Preferred Stock ("Series A Preferred Stock"). As of the
Record Date, the Company had no shares of Series A Preferred Stock issued and
outstanding.
13
<PAGE> 17
On April 4, 2000, the Board of Directors adopted a resolution approving an
amendment to the Company's Restated Certificate of Incorporation to increase the
number of authorized shares of the Company's Preferred Stock from 1,000 to
1,001,000. 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 Restated Certificate
of Incorporation with the Secretary of State of Delaware, which will occur as
soon as reasonably practicable after such stockholder approval.
The authorized shares of Preferred Stock would be available for issuance at
such times and for such 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 Stock Market or other stock
exchange or securities trading system on which the Company's securities may be
listed or traded. The Board of Directors, without approval of the stockholders,
may provide for the issuance of shares of the Preferred Stock in series, and may
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 restrictions thereof.
The Company has no arrangements, agreements, understandings or plans at the
present time for the issuance or use of the additional shares of Preferred Stock
proposed to be authorized. The Board of Directors does not intend to issue any
Preferred Stock except on terms which the Board deems to be in the best
interests of the Company and its then existing stockholders.
REASONS FOR AMENDMENT
The Board of Directors of the Company has recommended the amendment to the
Restated Certificate of Incorporation in order to provide the Company with a
sufficient number of authorized shares of Preferred Stock to facilitate future
equity financings to raise funds for the Company's general corporate needs
without the possible expense and delay of calling a special stockholder's
meeting. The Board may designate a series of Preferred Stock which has voting,
liquidation and other rights which are superior to those of the Common Stock.
The issuance of shares of Preferred Stock may have a dilutive effect on earnings
per share and net tangible book value per share. The Board of Directors believes
that the availability of additional shares also may provide the Company with the
flexibility to issue Preferred Stock for other proper purposes which may be
identified in the future by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL
OF THE PROPOSED INCREASE OF THE NUMBER OF AUTHORIZED SHARES OF PREFERRED STOCK.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF
COMMON STOCK IS REQUIRED FOR THE APPROVAL OF PROPOSAL III.
PROPOSAL IV
APPROVAL OF ISSUANCE AND SALE TO MAJORLINK HOLDINGS LIMITED OF
UP TO 5,000,000 SHARES OF COMMON STOCK UNDER
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
On April 26, 2000, the Company entered into a Private Equity Line of Credit
Agreement (the "Credit Agreement") with Majorlink Holdings Limited
("Majorlink"), a copy of which is attached hereto as Appendix A. Under the terms
of the Credit Agreement, the Company has the right (but not the obligation) to
put shares of Common Stock to Majorlink from time to time during the "commitment
period" to raise up to $5,000,000, subject to certain conditions and
restrictions. All sales of Common Stock are at the Company's option, not
Majorlink's. The "commitment period" begins on the effective date of a
registration statement filed by the Company to register the resale by Majorlink
of the shares of Common Stock that Majorlink purchases under the Credit
Agreement and ends on the earliest of (1) the date thirty months from such date,
(2) the date on which Majorlink shall have purchased $5,000,000 of Common Stock
under the Credit Agreement and (3) the date either party terminates the Credit
Agreement in accordance with its terms.
14
<PAGE> 18
Each time the Company desires to raise a specific amount of cash under the
Credit Agreement (up to an aggregate of $5,000,000), the Company shall issue to
Majorlink a number of shares of Common Stock determined by (1) dividing the
amount of cash desired to be raised by the Company by (2) 90% of the average of
the nine lowest daily volume weighted average prices for the Company's Common
Stock during the period commencing nine trading days prior to the date the
Company provide notice of a put (which must be a trading date) and ending on the
date five trading days after such date. Under such formula, the issuance and
sale of Common Stock under the Credit Agreement would be lower than the
then-current market price of the Common Stock and would most likely be lower
than the then-current book price of the Common Stock. From each put exercised by
the Company, 7% of the funds raised by such put are paid to Ladenburg Thalmann &
Co. Inc. as a brokerage fee.
As a condition to any put by the Company, the Company must have filed and
the Securities and Exchange Commission must have declared effective a
registration statement which registers the resale by Majorlink of the Common
Stock issued to Majorlink under the Credit Agreement. Such registration
statement would allow Majorlink to sell immediately all shares it acquires under
the Credit Agreement.
In addition, in connection with the Credit Agreement, the Company issued
Majorlink a warrant to purchase up to 200,000 shares of Common Stock at a per
share exercise price of $3.438. The warrant is exercisable for a period of three
years. The Company also entered into a Registration Rights Agreement with
Majorlink, under which the Company has an obligation to register the resale by
Majorlink of shares of Common Stock that it purchases under the Credit Agreement
and upon exercise of the warrant.
The rules of The Nasdaq Stock Market, Inc. require that the Company obtain
the approval of its stockholders prior to the sale or issuance of common stock
at a price less than the greater of book or market value which equals 20% or
more of the common stock outstanding prior to such sale or issuance. As of April
28, 2000, the Company had approximately 9,580,050 shares of its Common Stock
outstanding. If the Company desires to issue more than approximately 1,900,000
shares of Common Stock under the Credit Agreement at a price lower than the
then-current book and market values of the Common Stock, the Company must have
prior stockholder approval under applicable Nasdaq rules. If approved by the
stockholders, the Company could exercise its put rights under the Credit
Agreement from time to time during the commitment period to raise up to
$5,000,000 without further stockholder action.
The approval of the sale and issuance to Majorlink of up to 5,000,000
shares at a price lower than the book and market values of the Common Stock
under the Credit Agreement is not required under applicable law or the Company's
Restated Certificate of Incorporation or bylaws. Such approval only is required
under Nasdaq rules. If the stockholders do not approve Proposal IV, the Company
will not issue shares of Common Stock to Majorlink at a price lower than the
book and market values of the Common Stock under the Credit Agreement in excess
of 19.9% of the outstanding shares of Common Stock.
The Board of Directors requests approval of the issuance and sale to
Majorlink of up to 5,000,000 shares of Common Stock under the Credit Agreement
at a price lower than the book and market values of the Common Stock because the
Company needs to raise funds for ongoing operations. Based on management's
estimates, the Company currently has enough cash to fund operations through the
end of 2000. Management believes that the Company has no significantly more
favorable terms under which it currently can raise capital and if the Company
does not raise sufficient capital under the Credit Agreement, the Company may
not be able to continue its operations.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL
OF THE PROPOSED ISSUANCE AND SALE TO MAJORLINK OF UP TO 5,000,000 SHARES OF
COMMON STOCK UNDER THE CREDIT AGREEMENT. THE AFFIRMATIVE VOTE OF A MAJORITY OF
THE TOTAL VOTES CAST IS REQUIRED FOR APPROVAL OF PROPOSAL IV.
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, 2000. Ernst & Young LLP has
15
<PAGE> 19
no financial interest, direct or indirect, in the Company, and does not have any
connection with the Company except in its professional capacity as 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, 2000.
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 RECOMMENDS THAT STOCKHOLDERS VOTE FOR RATIFICATION
OF THE SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR THE FISCAL
YEAR ENDING DECEMBER 31, 2000. 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 present in accordance
with Rule 14a-8 of the Securities Exchange Act of 1937 (the "Exchange Act") at
the next annual meeting of stockholders to be held in 2001 must be received by
the Company on or before January 11, 2001. Notice of shareholder proposals
submitted outside of Rule 14a-8 of the Exchange Act will be considered untimely
if received by the Company after April 1, 2001. Only proper proposals under Rule
14-a-8 of the Exchange Act which are timely received will be included in the
Proxy Statement and Proxy.
OTHER MATTERS
EXPENSES OF SOLICITATION
The cost of soliciting proxies in the accompanying form 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 approximately $7,500 plus reimbursement of expenses for
its services.
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 of which the Company did not
receive notice on or before March 27, 2000, the persons designated as proxies
will vote in their sole discretion on such matters.
16
<PAGE> 20
AVAILABILITY OF ANNUAL REPORT
ACCOMPANYING THIS PROXY STATEMENT IS A COPY OF THE COMPANY'S ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1999. IN ADDITION, COPIES OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999, AS AMENDED,
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ARE AVAILABLE WITHOUT CHARGE,
EXCEPT FOR EXHIBITS THERETO. STOCKHOLDERS WHO WOULD LIKE ADDITIONAL COPIES OF
THE ANNUAL REPORT OR THE COMPANY'S FORM 10-K, AS AMENDED, 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
Mark W. Reynolds
Secretary
May 15, 2000
17
<PAGE> 21
APPENDIX A
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
BETWEEN
CYTRX CORPORATION
AND
MAJORLINK HOLDINGS LIMITED
PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated as of April 26, 2000 (the
"Agreement"), between Majorlink Holdings Limited, a British Virgin Islands
corporation (the "Investor") and CytRx Corporation, a corporation organized and
existing under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to Investor from
time to time as provided herein, and Investor shall purchase, up to $5,000,000
(the "Aggregate Purchase Price") of the Common Stock (as defined below); and
WHEREAS, such investments will be made by the Investor as statutory
underwriter of a registered indirect primary offering of such Common Stock by
the Company.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Bid Price" shall mean the closing bid price (as reported by
Bloomberg L.P.) of the Common Stock on the Principal Market on the date in
question.
Section 1.2 "Capital Shares" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.3 "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for or give any
right to subscribe for any Capital Shares of the Company or any warrants,
options or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.4 "Closing" shall mean one of the closings of a purchase and
sale of the Common Stock pursuant to Section 2.1.
Section 1.5 "Closing Date" shall mean, with respect to a Closing, the
fifth Trading Day following the end of the Valuation Period related to such
Closing, provided all conditions to such Closing have been satisfied on or
before such Trading Day.
Section 1.6 "Commitment Amount" shall mean the dollar amount necessary
which the Investor has agreed to provide to the Company in order to purchase up
to $5,000,000 of Put Shares pursuant to the terms and conditions of this
Agreement.
Section 1.7 "Commitment Period" shall mean the period commencing on the
Effective Date and expiring on the earliest to occur of (x) the date on which
the Investor shall have purchased $5,000,000 of Put Shares pursuant to this
Agreement, (y) the date this Agreement is terminated pursuant to Section 2.4, or
(z) the date occurring thirty (30) months from the date of commencement of the
Commitment Period.
Section 1.8 "Common Stock" shall mean the Company's common stock, par
value $.001 per share.
Section 1.9 "Condition Satisfaction Date" shall have the meaning set forth
in Section 7.2.
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Section 1.10 "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the sale by the Company
and resale by the Investor of the Registrable Securities as set forth in Section
7.2(f).
Section 1.11 "Escrow Agent" shall mean the escrow agent designated in the
Escrow Agreement.
Section 1.12 "Escrow Agreement" shall mean the escrow agreement in the
form attached hereto as Exhibit A.
Section 1.13 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.14 "Investment Amount" shall mean the dollar amount to be
invested by the Investor to purchase Put Shares with respect to any Put Date as
notified by the Company to the Investor, all in accordance with Section 2.2
hereof.
Section 1.15 "Market Price" on any given date shall mean the average of
the nine (9) lowest VWAP of the Common Stock on any Trading Day during the
Valuation Period relating to such date.
Section 1.16 "Material Adverse Effect" shall mean any effect on the
business, Bid Price, operations, properties, prospects, or financial condition
of the Company that is material and adverse to the Company and its subsidiaries
and affiliates, taken as a whole, and/or any condition, circumstance, or
situation that would prohibit or otherwise interfere with the ability of the
Company to enter into and perform any of its obligations under this Agreement,
the Registration Rights Agreement or the Escrow Agreement in any material
respect.
Section 1.17 "Maximum Put Amount" shall mean, as of any Put Date, 4.125%
of the weighted average price for the three (3) month period prior to the Put
Date multiplied by the total trading volume for the three (3) month period prior
to the Put Date.
Section 1.18 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.19 "Outstanding" when used with reference to shares of Common
Stock or Capital Shares (collectively the "Shares"), shall mean, at any date as
of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that "Outstanding" shall not mean any such Shares
then directly or indirectly owned or held by or for the account of the Company.
Section 1.20 "Person" shall mean an individual, a corporation, a
partnership, a limited liability company, an association, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.21 "Principal Market" shall mean the NASDAQ National Market, the
NASDAQ SmallCap Market, the American Stock Exchange, the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock. Principal Market shall not include the OTC Bulletin Board
without the express written consent of the Investor.
Section 1.22 "Purchase Price" shall mean with respect to Put Shares,
ninety percent (90%) (the "Purchase Price Percentage") of the Market Price
during the Valuation Period related to a Put (or such other date on which the
Purchase Price is calculated in accordance with the terms and conditions of this
Agreement).
Section 1.23 "Put" shall mean each occasion the Company elects to exercise
its right to tender a Put Notice requiring the Investor to purchase shares of
the Company's Common Stock, subject to the terms of this Agreement.
Section 1.24 "Put Date" shall mean the Trading Day during the Commitment
Period that a Put Notice to sell Common Stock to the Investor is deemed
delivered pursuant to Section 2.2(b) hereof.
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Section 1.25 "Put Notice" shall mean a written notice to the Investor
setting forth the Investment Amount that the Company intends to sell to the
Investor in the form attached hereto as Exhibit B.
Section 1.26 "Put Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to a Put that has occurred or may occur
in accordance with the terms and conditions of this Agreement.
Section 1.27 "Registrable Securities" shall mean the Put Shares and the
Warrant Shares until (i) all Put Shares and Warrant Shares have been disposed of
pursuant to the Registration Statement, (ii) all Put Shares and Warrant Shares
have been sold under circumstances under which all of the applicable conditions
of Rule 144 (or any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) all Put Shares and Warrant Shares have been
otherwise transferred to persons who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictive legend
or (iv) such time as, in the opinion of counsel to the Company, all Put Shares
and Warrant Shares may be sold without any time, volume or manner limitations
pursuant to Rule 144(k) (or any similar provision then in effect) under the
Securities Act.
Section 1.28 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the sale and resale of
the Registrable Securities annexed hereto as Exhibit C.
Section 1.29 "Registration Statement" shall mean a registration statement
on Form S-3 (if use of such form is then available to the Company pursuant to
the rules of the SEC and, if not, on such other form promulgated by the SEC,
such as Form S-1 or SB-2, for which the Company then qualifies and which counsel
for the Company shall deem appropriate, and which form shall be available for
the resale by the Investor of the Registrable Securities to be registered
thereunder in accordance with the provisions of this Agreement, the Registration
Rights Agreement, and in accordance with the intended method of distribution of
such securities), for the registration of the resale by the Investor of the
Registrable Securities under the Securities Act.
Section 1.30 "SEC" shall mean the Securities and Exchange Commission.
Section 1.31 "Securities Act" shall mean the Securities Act of 1933, as
amended.
Section 1.32 "SEC Documents" shall mean the Company's latest Form 10-K or
10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K filed
thereafter, and the Proxy Statement for its latest fiscal year as of the time in
question until such time as the Company no longer has an obligation to maintain
the effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.
Section 1.33 "Trading Cushion" shall mean the mandatory sixteen (16)
Trading Days between Put Dates, unless waived by the Investor.
Section 1.34 "Trading Day" shall mean any day during which the Principal
Market shall be open for business.
Section 1.35 "Valuation Event" shall mean an event in which the Company at
any time prior to the end of the Commitment Period takes any of the following
actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend on its Capital Shares or makes any other
distribution of its Capital Shares;
(c) issues any additional Capital Shares ("Additional Capital
Shares"), otherwise than as provided in the foregoing Subsections (a) and
(b) above or (d) and (e) below, at a price per share less, or for other
consideration lower, than the Bid Price in effect immediately prior to such
issuance, or without consideration (other than pursuant to this Agreement);
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant
to such warrants, options or other rights shall be less than the Bid Price
in effect immediately prior to such issuance;
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(e) issues any securities convertible into or exchangeable for Capital
Shares and the consideration per share for which Additional Capital Shares
may at any time thereafter be issuable pursuant to the terms of such
convertible or exchangeable securities shall be less than the Bid Price in
effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of indebtedness to
the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or
surplus legally available for dividends under applicable law or any
distribution to such holders made in respect of the sale of all or
substantially all of the Company's assets (other than under the
circumstances provided for in the foregoing subsections (a) through (e); or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Subsections
(a) through (f) hereof, inclusive, which in the opinion of the Company's
Board of Directors, determined in good faith, would have a Material Adverse
Effect upon the rights of the Investor at the time of a Put.
Section 1.36 "Valuation Period" shall mean the period of fifteen (15)
Trading Days beginning nine (9) Trading Days before the Trading Day on which a
Put Notice is deemed to be delivered and ending five (5) Trading Days after such
date; provided, however, that if a Valuation Event occurs during a Valuation
Period, a new Valuation Period shall begin on the Trading Day immediately after
the occurrence of such Valuation Event and end on the fifteenth (15th) Trading
Day thereafter.
Section 1.37 "VWAP" shall mean the daily volume weighted average price of
the Company's Common Stock on the Nasdaq National Market or on any Principal
Market as reported by Bloomberg Financial using the AQR function.
Section 1.38 "Warrants" shall mean the 200,000 Common Stock Purchase
Warrants in the form of Exhibit D hereto to be delivered to the Investor at the
initial Closing. "Warrant Shares" shall mean the shares of Common Stock issuable
upon exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 Investments.
(a) Puts. Upon the terms and conditions set forth herein (including,
without limitation, the provisions of Article VII hereof), on any Put Date
the Company may make a Put by the delivery of a Put Notice. The number of
Put Shares that the Investor shall receive pursuant to such Put shall be
determined by dividing the Investment Amount specified in the Put Notice by
the Purchase Price for such Valuation Period.
(b) Maximum Aggregate Amount of Puts. Anything in this Agreement to
the contrary notwithstanding, (i) unless the Company obtains shareholder
approval of this Agreement pursuant to the applicable corporate governance
rules of the Nasdaq Stock Market, the Company may not make a Put (or issue
any additional shares under Section 2.5) which results in the issuance of
more than 19.9% of the number of shares of Common Stock issued and
outstanding on the Closing Date hereof in the aggregate pursuant to all
Puts made under the terms of this Agreement and the exercise of the
Warrants and (ii) the Company may not make a Put to the extent that, after
such purchase by the Investor, the sum of the number of shares of Common
Stock and Warrants beneficially owned by the Investor and its affiliates
would result in beneficial ownership by the Investor and its affiliates of
more than 9.9% of the then outstanding shares of Common Stock. For purposes
of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities and Exchange
Act of 1934, as amended.
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Section 2.2 Mechanics.
(a) Put Notice. At any time during the Commitment Period, the Company
may deliver a Put Notice to the Investor, subject to the conditions set
forth in Section 7.2; provided, however, that the Investment Amount for
each Put as designated by the Company in the applicable Put Notice shall be
neither less than $100,000 nor more than the Maximum Put Amount.
(b) Date of Delivery of Put Notice. A Put Notice shall be deemed
delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received prior to 12:00 noon Eastern
Time, or (ii) the immediately succeeding Trading Day if it is received by
facsimile or otherwise after 12:00 noon Eastern Time on a Trading Day or at
any time on a day which is not a Trading Day. No Put Notice may be deemed
delivered on a day that is not a Trading Day.
Section 2.3 Closings. On or before each Closing Date for a Put the
Investor shall deliver the Investment Amount specified in the Put Notice by wire
transfer of immediately available funds to the Escrow Agent. In addition, on or
prior to the Closing Date, each of the Company and the Investor shall deliver to
the Escrow Agent all documents, instruments and writings required to be
delivered or reasonably requested by either of them pursuant to this Agreement
in order to implement and effect the transactions contemplated herein. Upon
receipt of notice from the Escrow Agent that the Escrow Agent has possession of
the Investment Amount, the Company shall, if possible, deliver the Put Shares to
the Investor's account through the Depository Trust Company DWAC system, per
written account instructions delivered by the Investor to the Company, and if
the Company is not eligible to participate in the DWAC system, to deliver to the
Escrow Agent one or more certificates, as requested by the Investor,
representing the Put Shares to be purchased by the Investor pursuant to Section
2.1 herein, registered in the name of the Investor or, at the Investor's option,
registered in the name of such account or accounts as may be designated by the
Investor. Payment of funds to the Company and delivery of the certificates to
the Investor (unless delivered by DWAC) shall occur out of escrow in accordance
with the Escrow Agreement, provided, however, that to the extent the Company has
not paid the fees, expenses, and disbursements of the Investor's counsel in
accordance with Section 13.7, the amount of such fees, expenses, and
disbursements shall be paid in immediately available funds, at the direction of
the Investor, to Investor's counsel with no reduction in the number of Put
Shares issuable to the Investor on such Closing Date.
Section 2.4 Termination of Investment Obligation.
(a) The obligation of the Investor to purchase shares of Common Stock
shall terminate permanently (including with respect to a Closing Date that
has not yet occurred) in the event that (i) there shall occur any stop
order or suspension of the effectiveness of the Registration Statement for
an aggregate of thirty (30) Trading Days during the Commitment Period, for
any reason other than deferrals or suspensions in accordance with the
Registration Rights Agreement as a result of corporate developments
subsequent to the Effective Date that would require such Registration
Statement to be amended to reflect such event in order to maintain its
compliance with the disclosure requirements of the Securities Act or (ii)
the Company shall at any time fail to comply in any material respect with
the requirements of Section 6.2, 6.3 or 6.5 or (iii) the Registration
Statement shall not have become effective by August 31, 2000.
(b) The obligation of the Company to sell Put Shares to the Investor
shall terminate if the Investor fails to honor any Put Notice within two
(2) Trading Days of the Closing Date scheduled for such Put, and the
Company notifies Investor of such termination. Upon such termination, the
Company may immediately withdraw the Registration Statement, and the
Purchaser shall return to the Company for cancellation a pro-rata portion
of the Warrants, based upon that portion of the $5,000,000 Commitment
Amount that has not been previously honored. After the Purchaser has
accepted and paid for Puts totaling up to $300,000 in the aggregate, such
termination shall be the Company's sole remedy for the Investor's failure
to honor a Put.
Section 2.5 Additional Shares. In the event that (a) within five (5)
Trading Days of any Closing Date, the Company gives notice to the Investor of an
impending "blackout period" in accordance with
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Section 3(f) of the Registration Rights Agreement and (b) the Bid Price on the
Trading Day immediately preceding such "blackout period" (the "Old Bid Price")
is greater than the Bid Price on the first Trading Day following such "blackout
period" (the "New Bid Price") the Company shall issue to the Investor a number
of additional shares (the "Blackout Shares") equal to the difference between (y)
the product of the number of Registrable Securities purchased by the Investor on
such most recent Closing Date and still held by the Investor during such
"blackout period" that are not otherwise freely tradable during such "blackout
period" and the Old Bid Price, divided by the New Bid Price and (z) the number
of Registrable Securities purchased by the Investor on such most recent Closing
Date and still held by the Investor during such "blackout period" that are not
otherwise freely tradable during such "blackout period". If any such issuance
would result in the issuance of a number of shares which exceeds the number set
forth in Section 2.1(b), then in lieu of such issuance, the Company shall pay
Investor the closing ask price of the Blackout Shares on the first Trading Day
following the end of the blackout period in cash within five Trading Days.
Section 2.6 Liquidated Damages. The parties hereto acknowledge and agree
that the obligation to issue Registrable Securities under Section 2.5 above
shall constitute liquidated damages and not penalties. The parties further
acknowledge that (a) the amount of loss or damages likely to be incurred is
incapable or is difficult to precisely estimate, (b) the amounts specified in
such Sections bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred by the Investor in
connection with the failure by the Company to timely cause the registration of
the Registrable Securities or in connection with a "blackout period" under the
Registration Rights Agreement, and (c) the parties are sophisticated business
parties and have been represented by legal and financial counsel and negotiated
this Agreement at arm's length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company that:
Section 3.1 Intent. The Investor is entering into this Agreement for its
own account and the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2 Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it has the capacity to protect
its own interests in connection with this transaction and is capable of
evaluating the merits and risks of an investment in Common Stock. The Investor
acknowledges that an investment in the Common Stock is speculative and involves
a high degree of risk.
Section 3.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4 Not an Affiliate. Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5 Organization and Standing. Investor is a corporation duly
organized, validly existing, and in good standing under the laws of the British
Virgin Islands.
Section 3.6 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
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order, writ, judgment, injunction, decree or award binding on Investor, or, to
the Investor's knowledge, (a) violate any provision of any indenture, instrument
or agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound; (b) conflict with or constitute a material default
thereunder; (c) result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by Investor to any third party; or (d) require the
approval of any third-party (which has not been obtained) pursuant to any
material contract, agreement, instrument, relationship or legal obligation to
which Investor is subject or to which any of its assets, operations or
management may be subject.
Section 3.7 Disclosure. Access to Information. Investor has received and
reviewed all documents, records, books and other publicly available information
pertaining to Investor's investment in the Company that have been requested by
Investor. The Company is subject to the periodic reporting requirements of the
Exchange Act, and Investor has reviewed copies of any such reports that have
been requested by it.
Section 3.8 Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
Section 3.9 Financial Capacity. Investor currently has the financial
capacity to meet its obligations to the Company hereunder, and the Investor has
no present knowledge of any circumstances which could cause it to become unable
to meet such obligations in the future.
Section 3.10 Underwriter Liability. Investor understands that it is the
position of the SEC that the Investor is an underwriter within the meaning of
Section 2(11) of the Securities Act and that the Investor will be identified as
an underwriter of the Put Shares in the Registration Statement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that, except as set
forth on the Disclosure Schedule prepared by the Company and attached hereto:
Section 4.1 Organization of the Company. The Company is a corporation
duly incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2 Authority. (i) The Company has the requisite corporate power
and corporate authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement, and the
Warrants and to issue the Put Shares, the Warrants and the Warrant Shares
pursuant to their respective terms, (ii) the execution, issuance and delivery of
this Agreement, the Registration Rights Agreement, the Escrow Agreement and the
Warrants by the Company and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
and no further consent or authorization of the Company or its Board of Directors
or stockholders is required, and (iii) this Agreement, the Registration Rights
Agreement, the Escrow Agreement and the Warrants have been duly executed and
delivered by the Company and at the initial Closing shall constitute valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application. The Company has duly and validly authorized and reserved
for issuance shares of Common Stock sufficient in number for the issuance of the
Put Shares and for the exercise of the Warrants.
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Section 4.3 Capitalization. As of April 26, 2000, the authorized capital
stock of the Company consists of 18,750,000 shares of Common Stock, $0.001 par
value per share, of which 9,580,050 shares are issued and outstanding, 1,000
shares of preferred stock, $0.01 par value per share, of which none are issued
or outstanding. Except for (i) outstanding options and warrants as set forth in
the SEC Documents and (ii) as set forth in the Disclosure Schedule, there are no
outstanding Capital Share Equivalents nor any agreements or understandings
pursuant to which any Capital Shares Equivalents may become outstanding. The
Company is not a party to any agreement granting registration or anti-dilution
rights to any person with respect to any of its equity or debt securities. All
of the outstanding shares of Common Stock of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable.
Section 4.4 Common Stock. The Company has registered its Common Stock
pursuant to Section 12(b) or (g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company is in
compliance with all requirements for the continued listing or quotation of its
Common Stock, and such Common Stock is currently listed or quoted on, the
Principal Market. As of the date hereof, the Principal Market is the Nasdaq
National Market and the Company has not received any notice regarding, and to
its knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
Section 4.5 SEC Documents. The Company has made available to the Investor
true and complete copies of the SEC Documents. The Company has not provided to
the Investor any information that, according to applicable law, rule or
regulation, should have been disclosed publicly prior to the date hereof by the
Company, but which has not been so disclosed. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Exchange Act, and rules and regulations of the SEC promulgated thereunder and
the SEC Documents did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
Section 4.6 Valid Issuances. When issued and paid for in accordance with
the terms hereof or of the Warrants, the Put Shares and the Warrant Shares will
be duly and validly issued, fully paid, and non-assessable. Neither the sales of
the Put Shares, the Warrants or the Warrant Shares pursuant to, nor the
Company's performance of its obligations under, this Agreement, the Registration
Rights Agreement, the Escrow Agreement or the Warrants will (i) result in the
creation or imposition by the Company of any liens, charges, claims or other
encumbrances upon the Put Shares, the Warrants or the Warrant Shares or, except
as contemplated herein, any of the assets of the Company, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other rights to subscribe
for or acquire the Capital Shares or other securities of the Company. The Put
Shares, the Warrants and the Warrant Shares shall not subject the Investor to
personal liability to the Company or its creditors by reason of the possession
thereof.
Section 4.7 No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without
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limitation the issuance of the Put Shares, the Warrants and the Warrant Shares,
do not and will not (i) result in a violation of the Company's Certificate of
Incorporation or By-Laws or (ii) conflict with, or constitute a material default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument, or any
"lock-up" or similar provision of any underwriting or similar agreement to which
the Company is a party, or (iii) result in a violation of any federal, state or
local law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations) applicable to the Company or by which any
material property or asset of the Company is bound or affected, nor is the
Company otherwise in violation of, conflict with or default under any of the
foregoing (except in each case for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not have,
individually or in the aggregate, a Material Adverse Effect). The business of
the Company is not being conducted in violation of any law, ordinance or
regulation of any governmental entity, except for possible violations that
either singly or in the aggregate would not have a Material Adverse Effect. The
Company is not required under any Federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or issue
and sell the Put Shares or the Warrants in accordance with the terms hereof
(other than any SEC, Principal Market or state securities filings that may be
required to be made by the Company subsequent to the initial Closing, any
registration statement that may be filed pursuant hereto, and any shareholder
approval required by the rules applicable to companies whose common stock trades
on the Principal Market); provided that, for purposes of the representation made
in this sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Investor herein.
Section 4.8 No Material Adverse Change. Since December 31, 1999 no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents.
Section 4.9 No Undisclosed Events or Circumstances. Since December 31,
1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the SEC Documents.
Section 4.10 Litigation and Other Proceedings. Except as disclosed in the
SEC Documents, there are no lawsuits or proceedings pending or, to the knowledge
of the Company, threatened, against the Company or any subsidiary, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which could reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, to the knowledge of the
Company, requested of any court, arbitrator or governmental agency which could
result in a Material Adverse Effect.
Section 4.11 No Misleading or Untrue Communication. The Company and, to
the knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Put Shares or the Warrants in connection
with the transaction contemplated by this Agreement, have not made, at any time,
any oral communication in connection with the offer or sale of the same which
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
Section 4.12 Material Non-Public Information. The Company has not
disclosed to the Investor any material non-public information that (i) if
disclosed publicly, would reasonably be expected to have a material effect on
the price of the Common Stock or (ii) according to applicable law, rule or
regulation, should have been disclosed publicly by the Company prior to the date
hereof but which has not been so disclosed.
Section 4.13 Insurance. The Company and each subsidiary maintains
property and casualty, general liability, workers' compensation, environmental
hazard, personal injury and other similar types of insurance with financially
sound and reputable insurers that is adequate, consistent with industry
standards and the Company's historical claims experience. The Company has not
received notice from, and has no knowledge of
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any threat by, any insurer (that has issued any insurance policy to the Company)
that such insurer intends to deny coverage under or cancel, discontinue or not
renew any insurance policy presently in force.
Section 4.14 Tax Matters.
The Company and each subsidiary has filed all Tax Returns which it is
required to file under applicable laws; all such Tax Returns are true and
accurate in all material respects and has been prepared in compliance with all
applicable laws in all material respects; the Company has paid all Taxes due and
owing by it or any subsidiary (whether or not such Taxes are required to be
shown on a Tax Return) and have withheld and paid over to the appropriate taxing
authorities all Taxes which it is required to withhold from amounts paid or
owing to any employee, stockholder, creditor or other third parties; and since
December 31, 1998, the charges, accruals and reserves for Taxes with respect to
the Company (including any provisions for deferred income taxes) reflected on
the books of the Company are adequate to cover any Tax liabilities of the
Company if its current tax year were treated as ending on the date hereof.
To the knowledge of the Company, no claim has been made by a taxing
authority in a jurisdiction where the Company does not file tax returns that the
Company or any subsidiary is or may be subject to taxation by that jurisdiction.
There are no foreign, federal, state or local tax audits or administrative or
judicial proceedings pending or being conducted with respect to the Company or
any subsidiary; no information related to Tax matters has been requested by any
foreign, federal, state or local taxing authority; and, except as disclosed
above, no written notice indicating an intent to open an audit or other review
has been received by the Company or any subsidiary from any foreign, federal,
state or local taxing authority. There are no material unresolved questions or
claims concerning the Company's Tax liability. The Company (A) has not executed
or entered into a closing agreement pursuant to sec. 7121 of the Internal
Revenue Code or any predecessor provision thereof or any similar provision of
state, local or foreign law; or (B) has not agreed to or is required to make any
adjustments pursuant to sec. 481(a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting method, or
has any application pending with any taxing authority requesting permission for
any changes in accounting methods that relate to the business or operations of
the Company. The Company has not been a United States real property holding
corporation within the meaning of sec. 897(c)(2) of the Internal Revenue Code
during the applicable period specified in sec. 897(c)(1)(A)(ii) of the Internal
Revenue Code.
The Company has not made an election under sec. 341(f) of the Internal
Revenue Code. The Company is not liable for the Taxes of another person that is
not a subsidiary of the Company (A) under Treas. Reg. sec. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate it
to make any payments that would not be deductible under sec. 280G of the
Internal Revenue Code.
For purposes of this Section 4.14:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications,
real or personal property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp, occupation,
alternative or add-on minimum, estimated and other taxes of any kind
whatsoever (including, without limitation, deficiencies, penalties,
additions to tax, and interest attributable thereto) whether disputed or
not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including
any amendment thereof.
Section 4.15 Property. Neither the Company nor any of its subsidiaries
owns any real property. Each of the Company and its subsidiaries has good and
marketable title to all personal property owned by it, free and clear of all
liens, encumbrances and defects except such as do not materially affect the
value of such
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property and do not materially interfere with the use made and proposed to be
made of such property by the Company; and to the Company's knowledge any real
property and buildings held under lease by the Company as tenant are held by it
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and intended to be made of such
property and buildings by the Company.
Section 4.16 Intellectual Property. Each of the Company and its
subsidiaries owns or possesses adequate and enforceable rights to use all
patents, patent applications, trademarks, trademark applications, trade names,
service marks, copyrights, copyright applications, licenses, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "Intangibles") necessary for the conduct of
its business as now being conducted. To the Company's knowledge, except as
disclosed in the SEC Documents neither the Company nor any of its subsidiaries
is infringing upon or in conflict with any right of any other person with
respect to any Intangibles. Except as disclosed in the SEC Documents, no adverse
claims have been asserted by any person to the ownership or use of any
Intangibles and the Company has no knowledge of any basis for such claim.
Section 4.17 Internal Controls and Procedures. The Company maintains
books and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company or any subsidiary is a
party or by which its properties are bound are executed with management's
authorization; (ii) the recorded accounting of the Company's consolidated assets
is compared with existing assets at regular intervals; (iii) access to the
Company's consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
U.S. generally accepted accounting principles.
Section 4.18 Payments and Contributions. Neither the Company, any
subsidiary, nor any of its directors, officers or, to its knowledge, other
employees has (i) used any Company funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating to political
activity; (ii) made any direct or indirect unlawful payment of Company funds to
any foreign or domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or
other similar payment to any person with respect to Company matters.
Section 4.19 No Misrepresentation. The representations and warranties of
the Company contained in this Agreement, any schedule, annex or exhibit hereto
and any agreement, instrument or certificate furnished by the Company to the
Investor pursuant to this Agreement, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE V
COVENANTS OF THE INVESTOR
Investor covenants with the Company that:
Section 5.1 Compliance with Law. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed. Without limiting the generality of the foregoing, the Investor agrees
that it will, whenever required by federal securities laws, deliver the
prospectus included in the Registration Statement to any purchaser of Put Shares
from the Investor.
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ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.
Section 6.2 Listing of Common Stock. The Company hereby agrees to
maintain the listing of the Common Stock on a Principal Market, and as soon as
practicable (but in any event prior to the commencement of the Commitment
Period) to list the Put Shares and the Warrant Shares. The Company further
agrees, if the Company applies to have the Common Stock traded on any other
Principal Market, it will include in such application the Put Shares and the
Warrant Shares and will take such other action as is necessary or desirable in
the opinion of the investor to cause the Common Stock to be listed on such other
Principal Market as promptly as possible. The Company will take all action to
continue the listing and trading of its Common Stock on the Principal Market (or
another Principal Market, including, without limitation, maintaining sufficient
net tangible assets) and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market and shall provide Investor with copies of any correspondence to
or from such Principal Market which questions or threatens delisting of the
Common Stock, within one Trading Day of the Company's receipt thereof.
Section 6.3 Exchange Act Registration. The Company will cause its Common
Stock to continue to be registered under Section 12(g) or 12(b) of the Exchange
Act, will use its best efforts to comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by Exchange Act or the rules thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Act.
Section 6.4 Legends. The certificates evidencing the Common Stock to be
sold to the Investor shall be free of restrictive legends.
Section 6.5 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.6 Additional SEC Documents. During the Commitment Period, the
Company will deliver to the Investor, as and when the originals thereof are
submitted to the SEC for filing, copies of all SEC Documents so furnished or
submitted to the SEC, or else notify the Investor that such documents are
available on the EDGAR system.
Section 6.7 Notice of Certain Events Affecting Registration; Suspension of
Right to Make a Put. The Company will immediately notify the Investor upon the
occurrence of any of the following events in respect of a registration statement
or related prospectus in respect of an offering of Registrable Securities; (i)
receipt of any request for additional information from the SEC or any other
federal or state governmental authority during the period of effectiveness of
the Registration Statement the response to which would require any amendments or
supplements to the registration statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company
will promptly make available to the Investor any such
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supplement or amendment to the related prospectus. The Company shall not deliver
to the Investor any Put Notice during the continuation of any of the foregoing
events.
Section 6.8 Expectations Regarding Put Notices. Within ten (10) days
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company must notify the Investor, in
writing, as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Put Notices.
Such notification shall constitute only the Company's good faith estimate and
shall in no way obligate the Company to raise such amount, or any amount, or
otherwise limit its ability to deliver Put Notices. The failure by the Company
to comply with this provision can be cured by the Company's notifying the
Investor, in writing, at any time as to its reasonable expectations with respect
to the current calendar quarter.
Section 6.9 Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Investor such shares of stock
and/or securities as the Investor is entitled to receive pursuant to this
Agreement.
ARTICLE VII
CONDITIONS TO DELIVERY OF PUTS AND CONDITIONS TO CLOSING
Section 7.1 Conditions Precedent to the Obligation of the Company to Issue
and Sell Common Stock. The obligation hereunder of the Company to issue and sell
the Put Shares to the Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) Accuracy of the Investor's Representation and Warranties. The
representations and warranties of the Investor shall be true and correct in
all material respects as of the date of this Agreement and as of the date
of each such Closing as though made at each such time, except as disclosed
by the Purchaser to the Company.
(b) Performance by the Investor. The Investor shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Investor at or prior to such Closing, and
Investor shall provide a certificate to the Company, substantially in the
form of that delivered by the Investor.
Section 7.2 Conditions Precedent to the Right of the Company to Deliver a
Put Notice and the Obligation of the Investor to Purchase Put Shares. The right
of the Company to deliver a Put Notice and the obligation of Investor hereunder
to acquire and pay for the Put Shares incident to a Closing is subject to the
satisfaction, on both (i) the date of delivery of such Put Notice and (ii) the
applicable Closing Date (each a "Condition Satisfaction Date"), of each of the
following conditions:
(a) Closing Certificate. All representations and warranties of the
Company contained herein shall remain true and correct as of the Closing
Date as though made as of such date, except as set forth in such
certificate and the Company shall have delivered into escrow an Officer's
Certificate signed by its Chief Executive Officer certifying that all of
the Company's representations and warranties herein remain true and correct
as of the Closing Date, except as set forth in such certificate and that
the Company has performed all covenants and satisfied all conditions to be
performed or satisfied by the Company prior to such Closing;
(b) Blue Sky. The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the Common
Stock to the Investor and by the Investor as set forth in the Registration
Rights Agreement or shall have the availability of exemptions therefrom;
(c) Delivery of Put Shares. Delivery into escrow or to DTC of the Put
Shares;
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(d) Opinion of Counsel. Receipt by the Investor of an opinion of
counsel to the Company, in the form of Exhibit E hereto; and
(e) Transfer Agent. Delivery to the Company's transfer agent of
instructions to such transfer agent in form and substance reasonably
satisfactory to the Investor.
(f) Registration of the Common Stock with the SEC. The Registration
Statement shall have previously become effective and shall remain effective
and available for making resales of the Put Shares and Warrant Shares by
the Investor on each Condition Satisfaction Date and (i) neither the
Company nor the Investor shall have received notice that the SEC has issued
or intends to issue a stop order with respect to the Registration Statement
or that the SEC otherwise has suspended or withdrawn the effectiveness of
the Registration Statement, either temporarily or permanently, or intends
or has threatened to do so (unless the SEC's concerns have been addressed
and the Investor is reasonably satisfied that the SEC no longer is
considering or intends to take such action), and (ii) no other suspension
of the use or withdrawal of the effectiveness of the Registration Statement
or related prospectus shall exist.
(g) Authority. The Company will satisfy all laws and regulations
pertaining to the sale and issuance of the Put Shares.
(h) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, the Registration
Rights Agreement and the Escrow Agreement to be performed, satisfied or
complied with by the Company at or prior to each Condition Satisfaction
Date.
(i) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent
jurisdiction that prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall have
been commenced that may have the effect of prohibiting or adversely
affecting any of the transactions contemplated by this Agreement.
(j) Adverse Changes. Since the date of filing of the Company's most
recent SEC Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred.
(k) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock (including, without limitation, the Put Shares)
is not suspended by the SEC or a Principal Market, and the Common Stock
(including, without limitation, the Put Shares) shall have been approved
for listing or quotation on and shall not have been delisted from a
Principal Market. The issuance of shares of Common Stock with respect to
the applicable Closing, if any, shall not violate the shareholder approval
requirements of the Principal Market. The Company shall not have received
any notice threatening to delist the Common Stock from the Principal
Market.
(l) No Knowledge. The Company has no knowledge of any event more
likely than not to have the effect of causing such Registration Statement
to be suspended or otherwise ineffective (which event is reasonably likely
to occur within the thirty (30) Trading Days following the Trading Day on
which such Notice is deemed delivered).
(m) Trading Cushion. The Trading Cushion shall have elapsed since the
next preceding Put Date.
(n) Other. On each Condition Satisfaction Date, the Investor shall
have received and been reasonably satisfied with such other certificates
and documents as shall have been reasonably requested by the Investor in
order for the Investor to confirm the Company's satisfaction of the
conditions set forth in this Section 7.2.
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ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1 Due Diligence Review. The Company shall make available for
inspection and review by the Investor, advisors to and representatives of the
Investor (who may or may not be affiliated with the Investor and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investor pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD, AMEX or other filing, all SEC
Documents and other filings with the SEC, and all other publicly available
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such publicly available information reasonably requested
by the Investor or any such representative, advisor or underwriter in connection
with such Registration Statement (including, without limitation, in response to
all questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investor and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2 Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information to the
Investor, advisors to or representatives of the Investor unless prior to
disclosure of such information the Company identifies such information as
being non-public information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to
disclosing any non-public information hereunder, require the Investor's
advisors and representatives to enter into a confidentiality agreement in
form reasonably satisfactory to the Company and the Investor.
(b) Nothing herein shall require the Company to disclose material
non-public information to the Purchaser or its advisors or representatives,
and the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however,
that notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of
the Purchaser and, if any, underwriters, of any event or the existence of
any circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration
Statement would cause such prospectus to include a material misstatement or
to omit a material fact required to be stated therein in order to make the
statements, therein in light of the circumstances in which they were made,
not misleading. Nothing contained in this Section 8.2 shall be construed to
mean that such persons or entities other than the Purchaser (without the
written consent of the Purchaser prior to disclosure of such information as
set forth in Section 8.2(a)) may not obtain non-public information in the
course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities
from notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which
they were made, not misleading.
ARTICLE IX
TRANSFER AGENT INSTRUCTIONS
Section 9.1 Transfer Agent Instructions. Upon each Closing, the Company
will issue to the transfer agent for its Common Stock (and to any substitute or
replacement transfer agent for its Common Stock upon
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the Company's appointment of any such substitute or replacement transfer agent)
instructions to deliver the Put Shares without restrictive legends to the Escrow
Agent.
Section 9.2 No Legend or Stock Transfer Restrictions. No legend shall be
placed on the share certificates representing the Put Shares and no instructions
or "stop transfer orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto.
Section 9.3 Investor's Compliance. Nothing in this Article shall affect
in any way the Investor's obligations under any agreement to comply with all
applicable securities laws upon resale of the Put Shares.
ARTICLE X
CHOICE OF LAW
Section 10.1 Governing Law/Arbitration. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
or any Exhibit attached hereto shall be submitted to arbitration under the
American Arbitration Association (the "AAA") in New York City, New York, and
shall be finally and conclusively determined by the decision of a board of
arbitration consisting of three (3) members (hereinafter referred to as the
"Board of Arbitration") selected as according to the rules governing the AAA.
The Board of Arbitration shall meet on consecutive business days in New York
City, New York, and shall reach and render a decision in writing (concurred in
by a majority of the members of the Board of Arbitration) with respect to the
amount, if any, which the losing party is required to pay to the other party in
respect of a claim filed. In connection with rendering its decisions, the Board
of Arbitration shall adopt and follow the laws of the State of New York. To the
extent practical, decisions of the Board of Arbitration shall be rendered no
more than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. The Board of Arbitration shall
be authorized and is directed to enter a default judgment against any party
refusing to participate in the arbitration proceeding within thirty days of any
deadline for such participation. Any decision made by the Board of Arbitration
(either prior to or after the expiration of such thirty (30) calendar day
period) shall be final, binding and conclusive on the parties to the dispute,
and entitled to be enforced to the fullest extent permitted by law and entered
in any court of competent jurisdiction. The prevailing party shall be awarded
its costs, including attorneys' fees, from the non-prevailing party as part of
the arbitration award. Any party shall have the right to seek injunctive relief
from any court of competent jurisdiction in any case where such relief is
available. The prevailing party in such injunctive action shall be awarded its
costs, including attorney's fees, from the non-prevailing party.
ARTICLE XI
ASSIGNMENT
Section 11.1 Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person except by operation of law. Notwithstanding the foregoing, upon the prior
written consent of the Company, which consent shall not unreasonably be withheld
or delayed in the case of an assignment to an affiliate of the Investor, the
Investor's interest in this Agreement may be assigned at any time, in whole or
in part, to any other person or entity (including any affiliate of the Investor)
who agrees to make the representations and warranties contained in Article III
and who agrees to be bound hereby.
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ARTICLE XII
NOTICES
Section 12.1 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by reputable courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
<TABLE>
<S> <C>
If to CytRx Corporation: 154 Technology Parkway
Technology Park/Atlanta
Norcross, Georgia 30092
Attention: Jack J. Luchese
Telephone: (770) 368-9500
Facsimile: (770)
</TABLE>
<TABLE>
<S> <C>
if to the Investor: c/o Dr. Dr. Batliner & Partner
Aeulestrasse 74
FL-9490 Vaduz, Liechtenstein
Attention: Hans Gassner
Telephone: 011-075-236-0404
Facsimile: 011-075-236-0405
with a copy to: Robert F. Charron, Esq.
(shall not constitute notice)
Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
</TABLE>
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 12.1 by giving at least ten (10) days'
prior written notice of such changed address or facsimile number to the other
party hereto.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Counterparts/Facsimile/Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2 Entire Agreement. This Agreement, the Exhibits hereto, which
include, but are not limited to the Escrow Agreement, the Registration Rights
Agreement and the Warrants, set forth the entire
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<PAGE> 38
agreement and understanding of the parties relating to the subject matter hereof
and supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits to this
Agreement are incorporated herein by this reference and shall constitute part of
this Agreement as is fully set forth herein.
Section 13.3 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive each Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 13.4 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 13.5 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.
Section 13.6 Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Put Shares and (ii) in the case of
any such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form and amount to
the Company (which shall not exceed that required by the Company's transfer
agent in the ordinary course) or (iii) in the case of any such mutilation, on
surrender and cancellation of such certificate, the Company at its expense will
execute and deliver, in lieu thereof, a new certificate of like tenor.
Section 13.7 Fees and Expenses. Each of the Company and the Investors
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay the fees, expenses and
disbursements of Investors' counsel in the amount of $10,000 plus $750 per
Closing of a Put.
Section 13.8 Brokerage. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party Ladenburg
Thalmann & Co. Inc. whose fee shall be paid by the Company. The Company on the
one hand, and the Investor, on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any person
claiming brokerage commissions or finder's fees on account of services purported
to have been rendered on behalf of the indemnifying party in connection with
this Agreement or the transactions contemplated hereby.
Section 13.9 Publicity. The Company agrees that it will not issue any
press release or other public announcement of the transactions contemplated by
this Agreement without the prior consent of the Investor, which shall not be
unreasonably withheld nor delayed by more than two (2) Trading Days from its
receipt of such proposed release; provided, however, that if the Company is
advised by its outside counsel that it is required by law or the applicable
rules of any Principal Market to issue any such press release or public
announcement, then, it may do so without the prior consent of the Investor,
although it shall be required to provide prior notice (which may be by
telephone) to the Investor that it intends to issue such press release or public
announcement. No release shall name the Investor without its express consent.
Section 13.10 Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.
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<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity Line
of Credit Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
CYTRX CORPORATION
By:
-----------------------------------
Jack J. Luchese, President and CEO
MAJORLINK HOLDINGS LIMITED
By:
-----------------------------------
Hans Gassner, Authorized Signatory
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<PAGE> 40
PROXY
CYTRX CORPORATION
154 TECHNOLOGY PARKWAY
NORCROSS, GEORGIA 30092
ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of CytRx Corporation (the "Company"), 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
Tuesday, June 27, 2000, 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 15, 2000, the
receipt of which is acknowledged, in the manner specified below.
1. ELECTION OF DIRECTORS. On the proposal to elect the following nominee
for Class III director to serve until the 2003 Annual Meeting of
Stockholders of the Company and until his successor is elected and
qualified:
Max Link
For [ ] Withhold Authority [ ]
2. INCREASE IN AUTHORIZED SHARES OF COMMON STOCK. On the proposal to
approve an amendment to the Company's Restated Certificate of
Incorporation to increase the Company's authorized shares of Common
Stock from 18,750,000 to 50,000,000 shares:
For [ ] Against [ ] Abstain [ ]
3. INCREASE IN AUTHORIZED SHARES OF PREFERRED STOCK. On the proposal to
approve an amendment to the Company's Restated Certificate of
Incorporation to increase the Company's authorized shares of Preferred
Stock from 1,000 to 1,001,000 shares:
For [ ] Against [ ] Abstain [ ]
4. APPROVAL OF ISSUANCE OF UP TO 5,000,000 SHARES OF COMMON STOCK UNDER
PRIVATE EQUITY LINE OF CREDIT. On the proposal to issue and sell to
Majorlink Holdings Limited up to 5,000,000 shares of Common Stock under
a Private Equity Line of Credit Agreement:
For [ ] Against [ ] Abstain [ ]
5. 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, 2000:
For [ ] Against [ ] Abstain [ ]
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 PROPOSALS 1 THROUGH 5 AND WITH DISCRETIONARY AUTHORITY ON ALL OTHER MATTERS
THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT THEREOF OF
WHICH THE COMPANY DID NOT HAVE NOTICE ON OR BEFORE MARCH 27, 2000.
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: ---------------------------------------
- ---------------------------------------------------- -----------------------------------------------------
Signature of Stockholder Signature of Stockholder (if held jointly)
Dated: ------------------------------------ , 2000 Dated: ------------------------------------ , 2000
</TABLE>
THIS PROXY IS SOLICITED ON BEHALF OF CYTRX CORPORATION'S BOARD OF
DIRECTORS AND MAY BE REVOKED BY THE STOCKHOLDER PRIOR TO ITS EXERCISE.
