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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-19635
GENTA INCORPORATED
(Exact name of Registrant as specified in its certificate of incorporation)
Delaware 33-0326866
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3550 General Atomics Court
San Diego, California 92121
(Address of principal executive offices) (Zip Code)
(619) 455-2700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ___
As of August 6, 1998, the registrant had 6,516,089 shares of common
stock outstanding.
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<PAGE>
Genta Incorporated
INDEX TO FORM 10
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at June 30, 1998 3
and December 31, 1997
Condensed Consolidated Statements of Operations for the 4
Three and Six months Ended June 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows for the 5
Six months Ended June 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES
<PAGE>
<TABLE>
<CAPTION>
Genta Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30 DECEMBER 31
--------------------------------------------------
ASSETS 1998 1997
--------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................$ 417,966 $ 1,202,668
Short term investments................................................ 4,773,378 7,253,756
Trade accounts receivable............................................. 645,664 431,046
Inventories........................................................... 786,184 826,008
Other current assets.................................................. 276,717 218,513
--------------------------------------------------
Total current assets..................................................... 6,899,909 9,931,991
--------------------------------------------------
Property and equipment, net.............................................. 1,559,923 1,718,150
Intangibles, net ........................................................ 3,142,145 3,390,032
Deposits and other assets................................................ 708,580 713,730
--------------------------------------------------
Total Assets $ 12,310,557 $ 15,753,903
==================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .....................................................$ 573,751 $ 849,108
Payable to Research Institutions...................................... 635,661 635,661
Accrued payroll payable............................................... 123,745 548,295
Other accrued expenses................................................ 1,030,933 992,660
Deferred revenue...................................................... 232,730 198,570
Current portion of notes payable and
capital lease obligations.......................................... 1,067,374 900,558
--------------------------------------------------
Total current liabilities................................................$ 3,664,194 $ 4,124,852
--------------------------------------------------
Notes payable, less current portion...................................... - -
Deficit in joint venture................................................. 2,777,633 2,204,053
Stockholders' equity:
Preferred stock; 5,000,000 shares authorized:
Series A convertible preferred stock, $.001 par value;
451,100 and 456,600 shares issued and outstanding at
June 30, 1998 and December 31, 1997, respectively, liquidation
value is $27,066,000 at June 30, 1998 451 457
Series D convertible preferred stock, $.001 par value; 226,995
shares issued and outstanding at June 30, 1998 and December 31, 1997
liquidation value is $31,779,300 at June 30, 1998. 227 227
Common stock, $.001 par value; 70,000,000 shares authorized;
5,752,116 and 5,712,364 shares issued and outstanding at
June 30, 1998 and December 31, 1997, respectively.................. 5,752 5,712
Additional paid-in capital............................................ 129,375,459 129,320,493
Accumulated deficit................................................... (128,024,159) (124,467,891)
Accrued dividends payable............................................. 4,511,000 4,566,000
Notes receivable from stockholders.................................... - -
--------------------------------------------------
Total stockholders' equity............................................... 5,868,730 9,424,998
--------------------------------------------------
Total Liabilities and Stockholders' Equity $ 12,310,557 $ 15,753,903
==================================================
</TABLE>
3
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GENTA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------- ----------------------------------
1998 1997 1998 1997
------------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Product sales..............................$ 1,032,367 $ 1,093,214 $ 2,634,546 $ 2,252,053
Contract Revenue for Genta Jago............ 17,396 87,524 34,792 175,049
Collaborative research
and development.......................... 7,036 - 24,432 50,000
------------------- ---------------- --------------- -----------------
$ 1,056,799 $ 1,180,738 $ 2,693,770 $ 2,477,102
------------------- ---------------- --------------- -----------------
Cost and expenses:
Cost of products sold......................$ 738,033 $ 792,860 $ 1,608,914 $ 1,505,086
Research and development................... 484,151 1,229,108 1,433,734 2,423,672
Selling, general and
administrative.......................... 1,303,992 2,115,131 2,810,207 3,574,589
------------------- ---------------- --------------- -----------------
$ 2,526,176 $ 4,137,099 $ 5,852,855 $ 7,503,347
------------------- ---------------- --------------- -----------------
Loss from operations..........................$ (1,469,377) $ (2,956,361) $ (3,159,085) $ (5,026,246)
Equity in net loss of
joint venture............................... (286,790) (477,393) (573,580) (780,522)
Other income (expense):
Interest and other income.................. 97,149 85,740 183,666 203,844
Interest expense........................... (3,839) (930,299) (7,269) (1,541,249)
------------------- ---------------- --------------- -----------------
Sub Total Other Income (Expense) 93,310 (844,559) 176,397 (1,337,405)
------------------- ---------------- --------------- -----------------
Net loss......................................$ (1,662,857) $ (4,278,313) $ (3,556,268) $ (7,144,173)
Dividends Accrued on Preferred Stock.......... - (573,163) - (1,148,318)
Dividends Imputed on Preferred Stock........ - (16,158,000) - (16,158,000)
------------------- ---------------- --------------- -----------------
Net loss applicable to
common shares...............................$ (1,662,857) $ (21,009,476) $ (3,556,268) $ (24,450,491)
=================== ================ =============== =================
Net loss per common share.....................$ (.29) $ (4.89) $ (.62) $ (5.90)
=================== ================ =============== =================
Shares used in computing net
loss per common share....................... 5,745,333 4,293,722 5,745,250 4,147,358
=================== ================ =============== =================
</TABLE>
See accompanying notes.
4
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Genta Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss...............................................................$ (3,556,268) $ (7,144,172)
Items reflected in net loss not requiring cash:
Depreciation and amortization....................................... 406,114 466,889
Equity in net loss of joint venture................................. 573,580 780,522
Interest Imputed on Convertible Debentures.......................... - 1,363,333
Changes in operating assets and liabilities......................... (860,472) 1,474,580
-------------- -------------
Net cash used in operating activities.................................. (3,437,046) (3,058,848)
INVESTING ACTIVITIES
Maturities of Short Term Investments................................... 2,480,378 (11,556)
Purchase of property and equipment..................................... - 338,161
Loans Receivable from joint venture.................................... - (384,012)
Deposits and other..................................................... 5,150 (77,950)
-------------- --------------
Net cash provided by investing activities.............................. 2,485,528 (135,357)
FINANCING ACTIVITIES
Proceeds from notes payable............................................ - 3,000,000
Repayments of notes payable and capital leases......................... - (312,849)
Proceeds from issuance of preferred stock, net......................... - 9,882,765
Proceeds from Notes Receivable......................................... - 62,000
Increase in Current Portion Capital Leases/Notes Payable............... 166,816 -
-------------- -------------
Net cash provided by financing activities.............................. 166,816 12,631,916
-------------- --------------
Increase (decrease) in cash and cash equivalents....................... (784,702) 9,437,711
Cash and cash equivalents at beginning of period....................... 1,202,668 532,013
-------------- --------------
Cash and cash equivalents at end of period.............................$ 417,966 $ 9,969,724
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid..........................................................$ 7,269 $ 26,584
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Preferred stock dividends accrued...................................... - 1,148,318
Common stock issued in payment of dividends on preferred stock......... 55,000 12,074
Common stock issued upon conversion of convertible debentures
and accrued interest................................................ - 358,559
Preferred stock issued upon conversion of short term notes payable..... - 650,000
Preferred stock issued for receivable.................................. - 4,154,007
</TABLE>
See accompanying notes.
5
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Genta Incorporated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
(1) Basis of Presentation
The unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required to be presented for
complete financial statements. The accompanying financial statements reflect all
adjustments (consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the results for the
interim periods presented. Certain balances in 1997 have been reclassified to
conform with the presentation in 1998.
The condensed consolidated financial statements and related disclosures
have been prepared with the presumption that users of the interim financial
information have read or have access to the audited financial statements for the
preceding fiscal year. Accordingly, these financial statements should be read in
conjunction with the audited consolidated financial statements and the related
notes thereto included in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997, as amended.
The Company has experienced significant quarterly fluctuations in
operating results and it expects that these fluctuations in revenues, expenses
and losses will continue.
(2) Inventories
Inventories are comprised of the following:
June 30, December 31,
1998 1997
------- ------------
Raw materials and supplies $ 309,962 $ 329,681
Work-in-process 178,840 141,120
Finished goods 297,382 355,197
----------- -----------
$ 786,184 $ 826,008
============ ===========
(3) Net Loss Per Common Share
As required, the Company adopted SFAS No. 128, "Earnings Per Share", for
the year ended December 31, 1997. SFAS No. 128 changes the method used to
calculate earnings per share and requires the restatement of all prior periods.
Under SFAS No. 128, the Company is required to present basic and diluted
earnings per share if applicable. Basic earnings per share is based on the
weighted average number of shares outstanding during the period. Diluted
earnings per share includes the weighted average number of shares outstanding
and gives effect to potentially dilutive common shares such as options, warrants
and convertible debt and preferred stock outstanding.
Net loss per common share for six months ended June 30, 1998 and 1997 is
based on the weighted average number of shares of common stock outstanding
during the periods. Potentially dilutive securities include options, warrants
and convertible preferred stock; however, such securities have not been included
in the calculation of the net loss per common share as their effect is
antidilutive where, as here, there is loss rather than earnings.
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Therefore, there is no difference between the basic and diluted net loss per
common share for any of the periods presented.
(4) Stockholders' Equity
During May 1998, an aggregate of 2,000 shares of Series A Preferred
Stock and accrued dividends were converted at the option of the respective
holders thereof into an aggregate of 14,510 shares of Genta's common stock at a
conversion price of $8.27 per share.
(5) Legal Proceedings
LBC Capital Resources, Inc. ("LBC"), a Philadelphia-based broker/dealer,
has asserted claims against the Company and others, including Paramount Capital
Inc., of which Dr. Rosenwald is the sole stockholder and Mr. Weiss is a Senior
Managing Director, and various related entities and persons. LBC's claims relate
to the alleged breach by the Company of certain letter agreements (the "LBC
Agreements"), allegedly entered into by LBC and the Company in 1995 and 1996
with respect to brokerage and/or investment banking services, particularly in
connection with a $3 million investment for which LBC is seeking a fee. In April
1998 a Complaint was filed in the United States District Court for the Southern
District of New York (98 Civ. 2491) by LBC against the Company and the same
other parties. The Company is engaged in settlement discussions with LBC.
On June 4, 1998, the Company's statutory process agent received a
Summons and Complaint in a lawsuit brought by Johns Hopkins against the Company
in Maryland Circuit Court for Baltimore City (Case No. 98120110). Johns Hopkins
alleges in the Complaint that the Company has breached the Johns Hopkins
Agreement and owes it licensing royalty fees and related expenses in the amount
of $308,832.24. Johns Hopkins also alleges the existence of a separate March
1993 letter agreement wherein the Company agreed to support a fellowship program
at the Johns Hopkins School of Hygiene and Public Health and the Company's
breach thereof, with damages of $326,829.00. On August 10, 1998, the Company's
statutory process agent received a Summons and Complaint in a related lawsuit
brought by the Ts'o/Miller Partnership and others against the Company in the
same court (Case No. 98182113). The Ts'o/Miller Partnership claims that it is
owed licensing royalty fees in the amount of $287,671.23. The Company currently
intends to retain Maryland counsel so that it can properly evaluate these
lawsuits and respond.
On June 30, 1998, the Director General of the Company's subsidiary,
Genta Pharmaceuticals Europe, SA, ("Genta Europe"), was served notice of a suit
in Marseille, France by Marseille Amenagement, the manager of the Company's
facilities in Marseille. On July 30, 1998, the Company's office in San Diego,
California was also served with Notice of the suit. The suit seeks the payment
of unpaid past rents in the amount of 473,464.50 FF (as of August 11, 1998,
approximately $79,000), the removal of the Company from the facility and an
indemnity payment of 1,852,429 FF (as of August 11, 1998, approximately
$310,000), which is allegedly equal to the balance of the first nine years'
rent. On July 1, 1998, the ANVAR notified Genta Europe of its claim that the
Company remains liable for 4,187,423 FF (as of August 11, 1998, approximately
$701,000) and is required to pay this amount immediately. In view of these
events, the Board of Directors of Genta Europe directed the Director General to
declare "Cessation of Payment" in the commercial court in France, which
declaration was made in July 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Since its inception in February 1988, Genta has devoted its principal
efforts toward drug discovery, research and development. Genta has been
unprofitable to date and, even if it obtains financing to continue its
- --------
7
<PAGE>
operations, expects to incur substantial operating losses for the next several
years due to continued requirements for ongoing research and development
activities, preclinical and clinical testing, manufacturing activities,
regulatory activities, establishment of a sales and marketing organization, and
development activities undertaken by Genta Jago, the Company's joint venture
with Jagotec. From the period since its inception to June 30, 1998, the Company
has incurred a cumulative net loss of $128.0 million. The Company has
experienced significant quarterly fluctuations in operating results and it
expects that these fluctuations in revenues, expenses and losses will continue.
The Company's independent auditors have included an explanatory
statement in their report to the Company's financial statements at December 31,
1997, that expresses substantial doubt as to the Company's ability to continue
as a going concern. There are several factors that must be considered risks in
that regard and those that are known to management are discussed under the
caption "Certain Trends and Uncertainties," in this Management's Discussion and
Analysis of Financial Condition and Results of Operations ("MD&A").
The statements contained in this Quarterly Report on Form 10-Q that are
not historical are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding the
expectations, beliefs, intentions or strategies regarding the future. The
Company intends that all forward-looking statements be subject to the
safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements reflect the Company's views as of the date they
are made with respect to future events and financial performance, but are
subject to many risks and uncertainties, which could cause the actual results of
the Company to differ materially from any future results expressed or implied by
such forward-looking statements. Examples of such risks and uncertainties
include, but are not limited to, obtaining sufficient financing to maintain the
Company's planned operations, the timely development, receipt of necessary
regulatory approvals and acceptance of new products, the successful application
of the Company's technology to produce new products, the obtaining of
proprietary protection for any such technology and products, the impact of
competitive products and pricing and reimbursement policies, changing market
conditions and the other risks detailed in the Certain Trends and Uncertainties
section of this MD&A and elsewhere in this Quarterly Report on Form 10-Q. The
Company does not undertake to update any forward-looking statements.
Results of Operations
Operating revenues totaled $1.06 million in the second quarter of 1998
compared to $1.18 million in the second quarter of 1997, and $2.7 million for
the six months ended June 30, 1998 compared to $2.5 million in the comparable
period of 1997. This revenue is the result of sales by the Company's subsidiary,
JBL Scientific, Inc. All of the Company's product sales are attributable to JBL.
Sales of specialty chemical and pharmaceutical intermediate products used in the
clinical diagnostics, pharmaceutical research and development and pharmaceutical
manufacturing were $1.03 million in the second quarter of 1998 compared to $1.09
million in the same period in 1997, and $2.6 million for the six months ended
June 30, 1998 compared to $2.3 million in the comparable period of 1997. While
the annual demand for many of JBL's products is relatively stable, there are
significant quarter to quarter variations in sales due to the timing of
customers' production schedules and demands. Overall, demand for the Company's
products has been increasing, while competition has caused prices to decrease.
Sales of products used in pharmaceutical manufacturing and pharmaceutical
research and development increased due to increased market penetration while
sales of products used in clinical diagnostics trended slightly downward.
Europa Bioproducts ("Europa"), JBL's European distributor, accounted for
approximately 16.5%, of product sales in the second quarter, compared to 14.5%
in the comparable period in 1997. Two other customers each accounted for more
than 10% of product sales in the second quarter of 1998, representing 21.7% and
15.3%. Individual customers' demands for JBL products generally fluctuates with
the outcomes of clinical trials or the
8
<PAGE>
availability of funding. The Company believes that the loss of any material
customer, if not replaced, could have an adverse effect on the Company.
Costs and expenses were $2.5 million in the second quarter of 1998, down
from $4.1 million for the same quarter in 1997, and $5.9 million for the six
months ended June 30, 1998 compared to $7.5 million in the comparable period in
1997. The costs of products sold by JBL decreased from $0.79 million in the
second quarter of 1997 to $0.74 million in the second quarter of 1998, and were
$1.6 million for the six months ended June 30, 1998 compared to $1.5 million for
the six months ended June 30, 1997. Gross margins for JBL in the quarter were
$0.29 million compared to $0.30 million in the second quarter of 1997, and $1.0
million for the six months ended June 30, 1998 compared to $0.74 million in the
comparable period of 1997. The stability in gross margins largely reflects the
level sales with relatively stable fixed overhead costs.
Research and Development expenses decreased in the second quarter from
$1.23 million in 1997 to $0.47 million in 1998, and in the six months ended June
30 from $2.4 million in 1997 to $1.4 million in 1998. Included in these expenses
is $0.26 million in the second quarter of 1998 and $0.71 million in the first
half of 1998 for the purchase of bulk G3139 to support the Company's expanded
clinical research program. The remaining decrease in on-going research and
development expenses is primarily attributable to the Company's research and
development workforce reductions implemented in 1997 together with the
discontinuation of several programs.
Selling, General & Administrative Expenses were $1.3 million in the
second quarter of 1998, compared to $2.1 million in the second quarter of 1997,
and $2.8 million for the six months ended June 30, 1998 compared to $3.6 million
in the comparable period of 1997. The reduction is attributable to the expenses
of $868,000 of accrued severance costs recorded in the second quarter of 1997.
The Company's net loss totaled $1.7 million, or $0.29 per common share,
for the second quarter of 1998 compared to a net loss of $21.0 million, or $4.89
per common share, for the second quarter of 1997. For the first six months of
1998, the Company's net loss was $3.6 million, or $0.62 per share, compared to a
net loss of $24.5 million for the first six months of 1997, or $5.90 per share.
The Company's net losses for the second quarter and first half of 1998 were
lower than those reported for the comparable periods of 1997 primarily as a
result of the following which occurred in 1997: a one time charge of $16.1
million of imputed dividends due to the value associated with the discounted
conversion terms and liquidation preference of the Series D Preferred Stock;
$0.57 million in accrued dividends on the Series A Preferred Stock; $0.87
million of accrued severance costs, which were partially offset by $0.75 million
Research and Development cost-savings related to workforce and program
reductions implemented in 1995 through 1997; and $0.82 million in interest
expense from the amortization of debt issuance costs of Bridge Warrants issued
in the first quarter of 1997.
The Company's equity in net loss of joint venture (Genta Jago) decreased
to $0.29 million in the second quarter of 1998 from $0.48 million in the
comparable period of 1997, and $0.57 million for the six months ended June 30,
1998 compared to $0.78 million in the comparable period of 1997. The decrease in
the Company's equity in net loss of joint venture is largely attributable to the
fact that a greater portion of development activities were funded pursuant to
Genta Jago's collaborative agreements with third parties. The equity in net loss
of joint venture is determined by reducing the loss per Genta Jago's financials
by Genta's 20% markup on internal costs for which the joint venture is billed
plus the interest accrued on the working capital loans. For more detailed
interim financial information regarding Genta Jago, see Exhibit 99.1, "Genta
Jago Technologies B.V. (a development stage company) Statement of Operations
(unaudited)" filed herewith.
Since the formation of Genta Jago, no products have been successfully
developed and marketed. Since the initial plans called for earlier introductions
and since there have been significant changes in the market environment since
the Company entered into the joint venture, there is reason to believe that any
products that may be marketed in the future could represent significantly poorer
financial opportunities than those that were anticipated in the earlier plans.
This reduction in opportunity derives from factors such as the presence of
direct competitors to Genta Jago's products being in the marketplace before
Genta Jago, and increasing pricing pressures on pharmaceuticals, particularly
multisource or generic products from payors such as reimbursers and government
buyers. On May 20, 1998, Genta Jago received notice from Apothecon that they
have terminated the agreement for the development of ketoprofen. Apothecon
stated that their decision to terminate was based on the facts that a competing
generic is already being successfully marketed, other competitors already have
ANDAs pending for their own generic formulations of such drug and they consider
the Geomatrix capsule size competitively disadvantageous. See "MD&A--Certain
Trends and Uncertainties--Uncertainty of Technological Change and Competition"
and "MD&A--Certain Trends and Uncertainties--Uncertainty of Product Pricing,
Reimbursement and Related Matters." Both of these factors may adversely affect
Genta Jago even if it is successful in developing products to obtain regulatory
approval. As a result and in consideration of the Company's need to reduce
expenses and focus its efforts, the Company is seeking to direct its resources
away from the joint venture to its Anticode(TM) drug development, specifically
G3139, for the immediate future.
Interest income has fluctuated significantly each year and is
anticipated to continue to fluctuate primarily due to changes in the levels of
cash, investments and interest rates each period.
9
<PAGE>
In consideration of EITF D-60, which was issued by the SEC in March
1997, the Company recorded debt issuance costs totaling $3.0 million related to
value associated with 6.4 million Bridge Warrants issued in connection with a
$3.0 million debt issue in February 1997 that matured in December 1997. The
Company has amortized such costs to interest expense over the life of the debt.
In the three months ended June 30, 1997, the Company recorded a charge to
interest expense totaling $818,333 ($.14 per share) related to amortization of
such debt issuance costs.
Liquidity and Capital Resources
Since inception, the Company has financed its operations primarily from
private and public offerings of its equity securities. Cash provided from these
offerings totaled approximately $124.5 million through June 30, 1998. At June
30, 1998, the Company had cash, cash equivalents and short-term investments
totaling $5.2 million compared to $8.5 million at December 31, 1997.
The Company will need substantial additional funds. The Company projects
that, at its current rate of spending and for its current activities, its
existing cash funds will enable the Company to maintain its present operations
into the first quarter of 1999. To the extent that the Company is successful in
accelerating its development of G3139 or in expanding its development portfolio
or acquiring or adding new development candidates, the current cash resources
would be consumed at a greater rate. Similarly, the Company has been seeking to
identify and hire additional senior managers to direct the business of the
Company. To the extent it is successful in these endeavors, the rate of cash
utilization would also increase. Certain parties with whom the Company has
agreements have claimed default and some have instituted legal proceedings.
Should the Company be obligated to pay these claims or should the Company be
obliged to incur significant legal fees to defend or negotiate its positions or
both, its ability to continue operations could be significantly reduced or
shortened. See "MD&A--Certain Trends and Uncertainties--Claims of Genta's
Default Under Various Agreements." The Company anticipates that significant
additional sources of financing, including equity financings, will be required
in order for the Company to continue its planned principal operations. The
Company also anticipates seeking additional product development opportunities
from external sources. Such acquisitions may consume cash reserves or require
additional cash or equity. The Company's working capital and additional funding
requirements will depend upon numerous factors, including: (i) the progress of
the Company's research and development programs; (ii) the timing and results of
preclinical testing and clinical trials; (iii) the level of resources devoted to
Genta Jago; (iv) the level of resources that the Company devotes to sales and
marketing capabilities; (v) technological advances; (vi) the activities of
competitors; and (vii) the ability of the Company to establish and maintain
collaborative arrangements with others to fund certain research and development
efforts, to conduct clinical trials, to obtain regulatory approvals and, if such
approvals are obtained, to manufacture and market products. See "MD&A--Certain
Trends and Uncertainties--Need for Additional Funds; Risk of Insolvency."
If the Company successfully secures sufficient levels of collaborative
revenues and other sources of financing, it expects to use such financing to
continue and expand its ongoing research and development activities, preclinical
testing and clinical trials, manufacturing activities, costs associated with the
market introduction of potential products, expansion of its administrative
activities.
In the second quarter of 1998, the holders of an aggregate of 2,000
shares of Series A Preferred Stock converted those shares into 14,510 shares of
Common Stock. After the close of the second quarter of 1998, an aggregate of
7,210 shares of Series D Preferred Stock were converted by their respective
holders into an aggregate of 763,971 shares of Common Stock (approximately 11.7%
of the outstanding Common Stock).
Impact of Year 2000
Some older computer programs were written using two digits rather than
four to define the applicable year. As a result, those computer programs have
sensitive software that recognizes a date using 00 as the year 1900 rather than
the year 2000 (the "Year 2000 Issue"). This could cause a system failure or
miscalculations causing disruption of operations, including a temporary
inability to process transactions or engage in similar normal business
10
<PAGE>
activities.
The Company has completed its assessment of whether it will have to
modify or replace portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter. The
Company is currently implementing a plan to acquire and install new computer
hardware and upgraded software in its facilities that will accommodate dating
beyond 1999. The total year 2000 project cost is not expected to be material and
is expected to be completed not later than December 31, 1998, which is prior to
any anticipated impact on its operating systems. The Company believes that with
the modifications to existing software and conversions to new software, the Year
2000 Issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material adverse effect on
the operations of the Company.
The Company has initiated formal communications with all of its
significant suppliers to determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to remediate their own
Year 2000 Issues. There is no assurance that the systems of other companies on
which the Company's systems rely will be timely converted and will not have a
material adverse effect on the Company's systems. The costs of the project and
the date on which the Company believes it will complete the Year 2000
modifications are based on management's best estimates, which were derived using
numerous assumptions of future events, including the continued availability of
certain resources and factors. However, there can be no assurance that these
estimates will be achieved and actual results could differ materially from those
anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertainties.
Certain Trends and Uncertainties
In addition to the other information contained in this Quarterly Report
on Form 10-Q, the following factors should be considered carefully.
Need for Additional Funds; Risk of Insolvency.
Genta's operations to date have consumed substantial amounts of cash.
The Company will need to raise substantial additional funds to continue its
operations and to conduct the costly and time-consuming research, pre-clinical
development and clinical trials necessary to bring its products to market and to
establish production and marketing capabilities. The Company intends to seek
additional funding through public or private financings, including equity
financings, and through collaborative arrangements. Adequate funds for these
purposes, whether obtained through financial markets or collaborative or other
arrangements with corporate partners or from other sources, may not be available
when needed or on terms acceptable to the Company. Insufficient funds may
require the Company: to delay, scale back or eliminate some or all of its
research and product development programs; to license third parties to
commercialize products or technologies that the Company would otherwise seek to
develop itself; to sell itself to a third party; to cease operations; or to
declare bankruptcy. The Company's future cash requirements will be affected by
results of research and development, results of pre-clinical studies and
bioequivalence and clinical trials, relationships with corporate collaborators,
changes in the focus and direction of the Company's research and development
programs, competitive and technological advances, resources devoted to Genta
Jago, the FDA and foreign regulatory processes, potential litigation by
companies seeking to prevent or delay marketing approval of Genta Jago's
products and other factors.
Loss History; Uncertainty of Future Profitability.
Genta has been unprofitable to date, incurring substantial operating
losses associated with ongoing research and development activities, pre-clinical
testing, clinical trials, manufacturing activities and development activities
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undertaken by Genta Jago. From the period since its inception to June 30, 1998,
the Company has incurred a cumulative net loss of $128.0 million. The Company
has experienced significant quarterly fluctuations in operating results and
expects that these fluctuations in revenues, expenses and losses will continue.
The Company's independent auditors have included an explanatory paragraph in
their report to the Company's financial statements at December 31, 1997, which
paragraph expresses substantial doubt as to the Company's ability to continue as
a going concern. See "Report of Ernst & Young LLP, Independent Auditors" in the
1997 Annual Report and "MD&A -- Certain Trends and Uncertainties -- Need for
Additional Funds; Risk of Insolvency."
Subordination of Common Stock to Series A and Series D Preferred Stock; Risk of
Dilution; Anti-Dilution Adjustments.
In the event of the liquidation, dissolution or winding up of the
Company, the Common Stock is expressly subordinate to the approximately $27.1
million preference of the 451,100 outstanding shares of Series A Preferred Stock
and the approximately $37.4 million preference of 267,390 shares of Series D
Preferred Stock (including 40,395 shares of Series D Preferred Stock issuable
upon exercise of certain warrants). Dividends may not be paid on the Common
Stock unless full cumulative dividends on the Series A and Series D Preferred
Stocks have been paid or funds have been set aside for such preferred dividends
by the Company.
The conversion rate of the Series A Preferred Stock and the exercise
price of warrants issued in connection with the Series A Preferred Stock (the
"Series A Warrants") are subject to adjustment, among other things, upon certain
issuances of Common Stock or securities convertible into Common Stock at $67.50
per share or less. As of June 30, 1998, each share of Series A Preferred Stock
is convertible into approximately 7.255 shares of Common Stock at a conversion
price of $8.27 per share and the exercise price of the Series A Warrants is
presently $9.32 per share. There are outstanding Series A Warrants to purchase
an aggregate of 675,966 shares of Common Stock, which expire on September 24,
1998. The conversion rate of the Series D Preferred Stock and the exercise
prices of the Class D Warrants are subject to adjustment, among other things,
upon certain issuances of Common Stock or securities convertible into Common
Stock at prices per share below certain levels. In addition, the Conversion
Price of the Series D Preferred Stock in effect on January 29, 1999 (the "Reset
Date") will be adjusted and reset effective as of the Reset Date if the average
closing bid price of the Common Stock for the 20 consecutive trading days
immediately preceding the Reset Date (the "19 Month Trading Price") is less than
140% of the then applicable Conversion Price (a "Reset Event"). Upon the
occurrence of a Reset Event, the then applicable Conversion Price will be
reduced to be equal to the greater of (i) the 19 Month Trading Price divided by
1.40 and (ii) 25% of the then applicable Conversion Price. Each share of Series
D Preferred Stock is presently convertible into approximately 106 shares of
Common Stock, at a conversion price of $0.94375 per share of Common Stock, and
the exercise price of the Class D Warrants is presently $0.94375 per share.
There are 807,900 Class D Warrants outstanding and another 201,975 Class D
Warrants issuable upon the exercise of certain warrants. Finally, the Company
has outstanding Bridge Warrants to purchase an aggregate of 6,357,616 shares of
Common Stock at an exercise price of $0.471875 per share, Line of Credit
Warrants to purchase an aggregate of 50,000 shares of Common Stock at an
exercise price of $2.50 per share, warrants to purchase an aggregate of 95,768
shares of Common Stock at various exercise prices between approximately $13 and
$21 per share and outstanding employee stock options. The Note and Warrant
Purchase Agreement provides that a number of additional Bridge Warrants
("Penalty Warrants") equal to 1.5% of the number of Bridge Warrants then held by
the Aries Funds shall be issued to the Aries Funds for each day beyond 30 days
after the final closing of the Private Placement (as defined below) that a shelf
registration statement covering the Common Stock underlying the securities
purchased pursuant to the Note and Warrant Purchase Agreement is not filed with
the SEC and for each day beyond 210 days after the closing date of the
investment contemplated by the Note and Warrant Purchase Agreement that such
shelf registration statement is not declared effective by the SEC. The Company
filed such shelf registration statement with the SEC on September 9, 1997,
however, the Company has to date been unable to have such shelf registration
statement declared effective by the SEC. As a result, the Company could be
obligated to issue Penalty Warrants to the Aries Funds. The Aries Funds have
not, to date, requested that the Company issue such Penalty Warrants. The
Company
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and the Aries Funds are currently conducting negotiations to determine whether,
and to what extent, Penalty Warrants will be issued. See "Market for
Registrant's Common Equity and Related Stockholder Matters -- Recent Sales of
Unregistered Securities" in the 1997 Annual Report.
Claims of Genta's Default Under Various Agreements.
On May 7, 1997 Jago and Jagotec gave Genta Jago formal notices of its
assertion that Genta Jago is in breach of the Restated GEOMATRIX(R) Services
Agreement, the Restated GEOMATRIX(R) Research and Development Agreement and the
Restated GEOMATRIX(R) License Agreement, stating that should the breach not be
cured within the applicable cure period, Genta Jago would reserve the right to
terminate the agreements in accordance with their terms. Each of these
Agreements provides for a cure period of 30 days, except that if the default is
not capable of being cured within this period and the defaulting party is
diligently undertaking to cure such default as soon as commercially feasible
thereafter under the circumstances, then the non-breaching party shall have no
right to terminate the agreement. In addition each of these agreements contains
a provision providing for the final resolution of any disputes, claims or
controversies, whether before or after termination of the agreement, by
arbitration in Paris, France. After the 30-day cure period expired, Jago did not
take action purporting to terminate these agreements but did not rescind the
notices of default. Jago, Jagotec and Jago Holding AG also gave formal notice of
default under the Restated Joint Venture and Shareholders Agreement, contending
that due to Genta's failure to meet its funding obligations to Genta Jago, Genta
Jago was unable to fulfill its obligations to Jago. The amount claimed by Jago
to be in default is approximately $1.2 million, of which $200,000 relates to
1997 and $1.0 million relates to development costs and license fees for 1996.
There is no specific cure period contained in the Restated Joint Venture and
Shareholders Agreement but rather a provision providing for resolution of
disputes, claims or controversies by arbitration in Paris, France. The Company
met with Jago and is attempting to resolve the situation without resort to
arbitration. While a termination of these agreements may have a material adverse
effect on the Company, the Company intends to oppose vigorously Jago's position.
Stating that it was without prejudice to Genta's position, Genta provided
approximately $129,000 to Genta Jago for the payment by Genta Jago of all
amounts claimed by Jago under the Restated GEOMATRIX(R) License Agreement and
certain other amounts owed by Genta Jago to third parties (both included in
Jago's notice of default). On May 15, 1997, Johns Hopkins University ("Johns
Hopkins") sent Genta a letter stating that the license agreement entered into
between the Company and Johns Hopkins in May 1990 (the "Johns Hopkins
Agreement") was terminated. On November 26, 1997 Drs. Paul O.P. Ts'o and Paul
Miller (the "Ts'o/Miller Partnership") sent Genta a letter claiming that Genta
was in material breach of the February 1989 license agreement between the
Company and the Ts'o/Miller Partnership (the "Ts'o/Miller Agreement") for
failing to pay royalties from 1995 through 1997. This notice further advised
that if the alleged breach were not cured within 90 days of the notice the
license would be terminated. By letter dated April 28, 1998, the Ts'o/Miller
Partnership advised the Company that it was terminating the license granted
pursuant to the Ts'o/Miller Agreement. On June 4, 1998, the Company's statutory
process agent received a Summons and Complaint in a lawsuit brought by Johns
Hopkins against the Company in Maryland Circuit Court for Baltimore City (Case
No. 98120110). Johns Hopkins alleges in the Complaint that the Company has
breached the Johns Hopkins Agreement and owes it licensing royalty fees and
related expenses in the amount of $308,832.24. Johns Hopkins also alleges the
existence of a separate March 1993 letter agreement wherein the Company agreed
to support a fellowship program at the Johns Hopkins School of Hygiene and
Public Health and the Company's breach thereof, with damages of $326,829.00. On
August 10, 1998, the Company's statutory process agent received a Summons and
Complaint in a related lawsuit brought by the Ts'o/Miller Partnership and others
against the Company in the same court (Case No. 98182113). The Ts'o/Miller
Partnership claims that it is owed licensing royalty fees in the amount of
$287,671.23. The Company currently intends to retain Maryland counsel so that it
can properly evaluate these lawsuits and respond. See "Business -- Anticode(TM)
Brand of Antisense Oligonucleotide Programs -- Oligonucleotide Collaborative and
Licensing Agreements -- Ts'o/Miller/Hopkins" in the 1997 Annual Report and
"Legal Proceedings." The Company is currently engaged in settlement discussions
with Johns Hopkins and the Ts'o/Miller Partnership. The French government agency
L'Agence Nationale de Valorisation de la Recherche ("ANVAR") asserted, in a
letter dated February 13, 1998, that
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Genta Europe was not in compliance with the ANVAR Agreement and that ANVAR might
request the immediate repayment of such loan. On July 1, 1998, the ANVAR
notified Genta Europe of its claim that the Company remains liable for 4,187,423
FF (as of August 11, 1998, approximately $701,000) and is required to pay this
amount immediately. In July 1998, Genta Europe declared "Cessation of Payment"
in the commercial court in France. See "Legal Proceedings" and see "Business --
Genta Europe" in the 1997 Annual Report. LBC Capital Resources, Inc. ("LBC"), a
Philadelphia-based broker/dealer, has asserted claims against the Company and
others. See "Legal Proceedings." There can be no assurance that the Company will
not incur material costs in relation to these terminations and/or assertions of
default or liability. See "MD&A -- Liquidity and Capital Resources."
Early Stage of Development; Technological Uncertainty.
Genta is at an early stage of development. All of the Company's
potential therapeutic products are in research or development, and no revenues
have been generated from therapeutic product sales. To date, most of the
Company's resources have been dedicated to applying molecular biology and
medicinal chemistry to the research and development of potential Anticode(TM)
pharmaceutical products based upon oligonucleotide technology. While the Company
has demonstrated the activity of Anticode(TM) oligonucleotide technology in
model systems in vitro and the activity of antisense technology in animals and
has identified compounds that the Company believes are worthy of additional
testing, only one of these potential Anticode(TM) oligonucleotide products has
begun to be tested in humans, with such testing in its early stages. There can
be no assurance that the novel approach of oligonucleotide technology will
result in products that will receive necessary regulatory approvals or that will
be successful commercially. Further, results obtained in pre-clinical studies or
early clinical investigations or pilot bioequivalence trials are not necessarily
indicative of results that will be obtained in pivotal human clinical or
bioequivalence trials. There can be no assurance that any of the Company's or
Genta Jago's potential products can be successfully developed. Furthermore, the
Company's products in research or development may prove to have undesirable and
unintended side effects or other characteristics that may prevent or limit their
commercial use. There can be no assurance that the Company will be permitted to
undertake human clinical testing of the Company's products currently in
pre-clinical development, or, if permitted, that such products will be
demonstrated to be safe and efficacious. The Company is pursuing research and
development through Genta Jago of a range of oral controlled- release
formulations of currently available pharmaceuticals. Many of the products to be
developed through Genta Jago have not yet been formulated using GEOMATRIX
technology. On July 27, 1998, SkyePharma PLC, the parent company to Jago,
announced that an ANDA for naproxen sodium filed by Brightstone Pharma, its U.S.
sales and marketing subsidiary, had been accepted for filing by the FDA.
Brightstone has a license from Genta Jago to market this product. There can be
no assurance that any of the Company's or Genta Jago's products will obtain FDA
or foreign regulatory approval for any indication or that an approved compound
would be capable of being produced in commercial quantities at reasonable costs
and successfully marketed. Products, if any, resulting from Genta's or Genta
Jago's research and development programs are not expected to be commercially
available for a number of years. Certain competitive products have already been
filed with and/or approved by the FDA. See "MD&A -- Certain Trends and
Uncertainties -- Potential Adverse Effect of Technological Change and
Competition."
Limited Availability of Net Operating Loss Carry Forwards.
At December 31, 1997, the Company has federal and California net
operating loss carryforwards of approximately $71,697,000 and $15,236,000
respectively. The difference between the federal and California tax loss
carryforwards is primarily attributable to the capitalization of research and
development expenses for California tax purposes and the fifty percent
limitation on California loss carryforwards prior to 1997. The federal tax loss
carryforwards will begin expiring in 2003, unless previously utilized.
Approximately $2,767,000 of the California tax loss carryforward expired during
1997 and the related deferred tax asset and tax loss carryforward amounts have
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been reduced accordingly. The remaining California tax loss will continue to
expire in 1998, unless utilized. The Company also has federal and California
research and development tax credit carryforwards of $2,921,000 and $1,203,000,
respectively, which will begin expiring in 2003 unless previously utilized.
Federal and California tax laws limit the utilization of income tax net
operating loss and credit carryforwards that arise prior to certain cumulative
changes in a corporation's ownership resulting in change of control of the
Company. The future annual use of net operating loss carryforwards and research
and development tax credits will be limited due to the ownership changes that
occurred during 1990, 1991, 1993, 1996 and 1997. Because of the decrease in
value of the Company's stock, the ownership changes which occurred in 1996 and
1997 will have a material limitation on the Company's ability to utilize these
carryforwards.
Dividends.
The Company has never paid cash dividends on its Common Stock and does
not anticipate paying any such dividends in the foreseeable future. In addition,
the Company is restricted from paying cash dividends on its Common Stock until
such time as all cumulative dividends have been paid on outstanding shares of
its Series A and Series D Preferred Stocks. The Company currently intends to
retain its earnings, if any, after payment of dividends on outstanding shares of
Series A and Series D Preferred Stocks, for the development of its business.
No Assurance of Regulatory Approval; Government Regulation.
The FDA and comparable agencies in foreign countries impose substantial
premarket approval requirements on the introduction of pharmaceutical products
through lengthy and detailed pre-clinical and clinical testing procedures and
other costly and time-consuming procedures. Satisfaction of these requirements,
which includes demonstrating to the satisfaction of the FDA and foreign
regulatory agencies that the product is both safe and effective, typically takes
several years or more depending upon the type, complexity and novelty of the
product. There can be no assurance that such testing will show any product to be
safe or efficacious or, in the case of certain of Genta Jago's products, to be
bioequivalent to a currently marketed pharmaceutical. Government regulation also
affects the manufacture and marketing of pharmaceutical products. The effect of
government regulation may be to delay marketing of any new products for a
considerable or indefinite period of time, to impose costly procedures upon the
Company's or Genta Jago's activities and to diminish any competitive advantage
that the Company or Genta Jago may have attained. It may take years before
marketing approvals are obtained for the Company's or Genta Jago's products, if
at all. There can be no assurance that FDA or other regulatory approval for any
products developed by the Company or Genta Jago will be granted on a timely
basis, if at all, or, if granted, that such approval will cover all the clinical
indications for which the Company or Genta Jago is seeking approval or will not
sustain significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use. Further, with respect to
the reformulated versions of currently available pharmaceuticals being developed
through Genta Jago, there is a substantial risk that the manufacturers or
marketers of such currently available pharmaceuticals will seek to delay or
block regulatory approval of any reformulated versions of such pharmaceuticals
through litigation or other means. Any significant delay in obtaining, or
failure to obtain, such approvals could materially adversely affect the
Company's or Genta Jago's revenue. Moreover, additional government regulation
from future legislation or administrative action may be established which could
prevent or delay regulatory approval of the Company's or Genta Jago's products
or further regulate the prices at which the Company's or Genta Jago's proposed
products may be sold.
The Company is also subject to various foreign, federal, state and local
laws, regulations and recommendations (collectively "Governmental Regulations")
relating to safe working conditions, laboratory and manufacturing practices, the
experimental use of animals and the use, manufacture, storage, handling and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with the Company's
research and development work and manufacturing processes. In October
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1996, JBL retained a chemical consulting firm to advise it with respect to an
incident of soil and groundwater contamination (the "Spill"). Sampling conducted
at the JBL facility revealed the presence of chloroform and perchloroethylenes
("PCEs") in the soil and groundwater at this site. Six soil borings were drilled
and groundwater wells were installed at several locations around the site.
Chloroform was detected at levels of up to 190 ug/liter on-site, exceeding the
California Drinking Water Maximum Contamination Level for trihalomethanes of 100
ug/liter. PCEs were also detected at levels of up to 22 ug/liter on-site,
exceeding the California Drinking Water Maximum Contamination Level of 5
ug/liter. In addition, toluene was detected at levels of up to 2 ug/liter at
several points on-site, which is significantly below the California Toxicity
Action Level of 100 ug/liter. These toxicity levels are not binding, as the
final regulatory maximum levels may be higher or lower. JBL has notified the
appropriate regulatory agency, the California Regional Water Quality Control
Board, of conditions at the site, and with the agency's approval, JBL is
monitoring groundwater conditions at the site on a quarterly basis. JBL is
currently in the pre-regulatory action stage with ongoing site monitoring and
site assessment. In addition, current sampling results indicate that
contaminants may be migrating off-site. An off-site well, used as a domestic and
irrigation water source, has shown evidence of being impacted by chloroform at
1.0 ug/liter, significantly below the California Drinking Water Maximum
Contamination Level for trihalomethanes of 100 ug/liter, and toluene at 0.9
ug/liter, also significantly below (less than one percent of) the California
Toxicity Action Level of 100 ug/liter. While another off-site well has been
found to contain chloroform, the engineering consultant concluded that the
contaminants do not appear to relate to impact from the JBL site. The Company
believes that any costs associated with further investigating or remediating
this contamination will not have a material adverse effect on the business of
the Company, although there can be no assurance thereof. The Company believes
that it is in material compliance with Governmental Regulations, however, there
can be no assurance that the Company will not be required to incur significant
costs to comply with Governmental Regulations in the future.
Uncertainty Regarding Patents and Proprietary Technology.
The Company's and Genta Jago's success will depend, in part, on their
respective abilities to obtain patents, maintain trade secrets and operate
without infringing the proprietary rights of others. No assurance can be given
that patents issued to or licensed by the Company or Genta Jago will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide competitive advantages to the Company or Genta Jago. There can be
no assurance that the Company's or Genta Jago's patent applications will be
approved, that the Company or Genta Jago will develop additional products that
are patentable, that any issued patent will provide the Company or Genta Jago
with any competitive advantage or adequate protection for its inventions or will
not be challenged by others, or that the patents of others will not have an
adverse effect on the ability of the Company or Genta Jago to do business.
Competitors may have filed applications, may have been issued patents or may
obtain additional patents and proprietary rights relating to products or
processes competitive with those of the Company or Genta Jago. Furthermore,
there can be no assurance that others will not independently develop similar
products, duplicate any of the Company's or Genta Jago's products or design
around any patented products developed by the Company or Genta Jago. The Company
and Genta Jago rely on secrecy to protect technology in addition to patent
protection, especially where patent protection is not believed to be appropriate
or obtainable. No assurance can be given that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's or Genta Jago's trade secrets, or that
the Company or Genta Jago can effectively protect its rights to its unpatented
trade secrets.
Genta and Genta Jago have obtained licenses or other rights to patents
and other proprietary rights of third parties, and may be required to obtain
licenses to additional patents or other proprietary rights of third parties. No
assurance can be given that any existing licenses and other rights will remain
in effect or that any licenses required under any such additional patents or
proprietary rights would be made available on terms acceptable to the Company or
Genta Jago, if at all. If Genta's or Genta Jago's licenses and other rights are
terminated or if Genta or Genta Jago cannot obtain such additional licenses,
Genta or Genta Jago could encounter delays in product market introductions while
it attempts to design around such patents or could find that the development,
manufacture or sale
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of products requiring such licenses could be foreclosed. In addition, the
Company or Genta Jago could incur substantial costs, including costs caused by
delays in obtaining regulatory approval and bringing products to market, in
defending itself in any suits brought against the Company or Genta Jago claiming
infringement of the patent rights of third parties or in asserting the Company's
or Genta Jago's patent rights, including those granted by third parties, in a
suit against another party. The Company or Genta Jago may also become involved
in interference proceedings declared by the United States Patent and Trademark
Office (or any foreign counterpart) in connection with one or more of its
patents or patent applications, which could result in substantial cost to the
Company or Genta Jago, as well as an adverse decision as to priority of
invention of the patent or patent application involved. There can be no
assurance that the Company or Genta Jago will have sufficient funds to obtain,
maintain or enforce patents on their respective products or technology, to
obtain or maintain licenses that may be required in order to develop and
commercialize their respective products, to contest patents obtained by third
parties, or to defend against suits brought by third parties.
Dependence on Others.
The Company's and Genta Jago's strategy for the research, development
and commercialization of their products requires negotiating, entering into and
maintaining various arrangements with corporate collaborators, licensors,
licensees and others, and is dependent upon the subsequent success of these
outside parties in performing their responsibilities. No assurance can be given
that they will obtain such collaborative arrangements on acceptable terms, if at
all, nor can any assurance be given that any current collaborative arrangements
will be maintained.
Technology Licensed From Third Parties.
The Company has entered into certain agreements with, and licensed
certain technology and compounds from, third parties. The Company has relied on
scientific, technical, clinical, commercial and other data supplied and
disclosed by others in entering into these agreements, including the Genta Jago
agreements, and will rely on such data in support of development of certain
products. Although the Company has no reason to believe that this information
contains errors of omission or fact, there can be no assurance that there are no
errors of omission or fact that would materially affect the future approvability
or commercial viability of these products.
Potential Adverse Effect of Technological Change and Competition.
The biotechnology industry is subject to intense competition and rapid
and significant technological change. The Company and Genta Jago have numerous
competitors in the United States and other countries for their respective
technologies and products under development, including among others, major
pharmaceutical and chemical companies, specialized biotechnology firms,
universities and other research institutions. There can be no assurance that the
Company's or Genta Jago's competitors will not succeed in developing products or
other novel technologies that are more effective than any which have been or are
being developed by the Company or Genta Jago or which would render the Company's
or Genta Jago's technology and products non-competitive. Many of the Company's
and Genta Jago's competitors have substantially greater financial, technical,
marketing and human resources than the Company or Genta Jago. In addition, many
of those competitors have significantly greater experience than the Company or
Genta Jago in undertaking pre-clinical testing and human clinical trials of new
pharmaceutical products and obtaining FDA and other regulatory approvals of
products for use in healthcare. Accordingly, the Company's or Genta Jago's
competitors may succeed in obtaining regulatory approval for products more
rapidly than the Company or Genta Jago and such competitors may succeed in
delaying or blocking regulatory approvals of the Company's or Genta Jago's
products. As competitors of the Company or of Genta Jago receive approval to
products that share the same potential market as the Company's or Genta Jago's
potential products, the market share available to the Company or Genta Jago will
likely be reduced, thereby reducing the potential revenues and earnings
available to the Company or Genta Jago. In addition, increased pricing
competition would also likely result, further reducing the earnings potential of
the Company's or Genta Jago's products. The Company is aware
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that certain competitors of Genta Jago have filed, and received approval of,
ANDAs for generic formulations of drugs of which Genta Jago was working to
develop generic formulations. Furthermore, if the Company or Genta Jago is
permitted to commence commercial sales of products, it will also be competing
with respect to marketing capabilities, an area in which it has limited or no
experience, and manufacturing efficiency. There are many public and private
companies that are conducting research and development activities based on drug
delivery or antisense technologies. The Company believes that the industry-wide
interest in such technologies will accelerate and competition will intensify as
the techniques which permit drug design and development based on such
technologies are more widely understood.
Uncertainty of Clinical Trials and Results.
The results of clinical trials and pre-clinical testing are subject to
varying interpretations. Even if the development of the Company's or Genta
Jago's respective products advances to the clinical stage, there can be no
assurance that such products will prove to be safe and effective. The products
that are successfully developed, if any, will be subject to requisite regulatory
approval prior to their commercial sale, and the approval, if obtainable, may
take several years. Generally, only a very small percentage of the number of new
pharmaceutical products initially developed is approved for sale. Even if
products are approved for sale, there can be no assurance that they will be
commercially successful. The Company or Genta Jago may encounter unanticipated
problems relating to development, manufacturing, distribution and marketing,
some of which may be beyond the Company's or Genta Jago's respective financial
and technical capacity to solve. The failure to address such problems adequately
could have a material adverse effect on the Company's or Genta Jago's respective
businesses, financial conditions, prospects and results of operations. No
assurance can be given that the Company or Genta Jago will succeed in the
development and marketing of any new drug products, or that they will not be
rendered obsolete by products of competitors. "See "MD&A -- Certain Trends and
Uncertainties -- Potential Adverse Effect of Technological Change and
Competition."
Difficult Manufacturing Process; Access to Certain Raw Materials.
The manufacture of Anticode(TM) oligonucleotides is a time-consuming and
complex process. Management believes that the Company has the ability to acquire
or produce quantities of oligonucleotides sufficient to support its present
needs for research and its projected needs for its initial clinical development
programs. However, in order to obtain oligonucleotides sufficient to meet the
volume and cost requirements needed for certain commercial applications of
Anticode(TM) oligonucleotide products, Genta requires raw materials currently
provided by a single supplier which is itself a development stage biotechnology
company (and a competitor of the Company) and is subject to uncertainties
including the potential for a decision by such supplier to discontinue
production of such raw materials, the insolvency of such supplier, or the
failure of such supplier to follow applicable regulatory guidelines. Products
based on chemically modified oligonucleotides have never been manufactured on a
commercial scale. The manufacture of all of the Company's and Genta Jago's
products will be subject to current GMP requirements prescribed by the FDA or
other standards prescribed by the appropriate regulatory agency in the country
of use. There can be no assurance that the Company or Genta Jago will be able to
manufacture products, or have products manufactured for it, in a timely fashion
at acceptable quality and prices, that they or third party manufacturers can
comply with GMP or that they or third party manufacturers will be able to
manufacture an adequate supply of product. Failure to establish compliance with
GMP to the satisfaction of the FDA can result in delays in, or prohibition from,
initiating clinical trials or commercial marketing of a product.
Limited Sales, Marketing and Distribution Experience.
The Company and Genta Jago have very limited experience in
pharmaceutical sales, marketing and distribution. In order to market and sell
certain products directly, the Company or Genta Jago would have to develop or
subcontract a sales force and a marketing group with technical expertise. There
can be no assurance
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<PAGE>
that any direct sales or marketing efforts would be successful.
Uncertainty of Product Pricing, Reimbursement and Related Matters.
The Company's and Genta Jago's business may be materially adversely
affected by the continuing efforts of governmental and third party payers to
contain or reduce the costs of healthcare through various means. For example, in
certain foreign markets the pricing or profitability of healthcare products is
subject to government control. In the United States, there have been, and the
Company expects that there will continue to be, a number of federal and state
proposals to implement similar governmental control. While the Company cannot
predict whether any such legislative or regulatory proposals or reforms will be
adopted, the adoption of any such proposal or reform could adversely affect the
commercial viability of the Company's and Genta Jago's potential products. In
addition, in both the United States and elsewhere, sales of healthcare products
are dependent in part on the availability of reimbursement to the consumer from
third party payers, such as government and private insurance plans. Third party
payers are increasingly challenging the prices charged for medical products and
services, and therefore significant uncertainty exists as to the reimbursement
of existing and newly-approved healthcare products. If the Company or Genta Jago
succeeds in bringing one or more products to market, there can be no assurance
that these products will be considered cost effective and that reimbursement to
the consumer will be available or will be sufficient to allow the Company or
Genta Jago to sell its products on a competitive basis. Finally, given the above
potential market constraints on pricing, the availability of competitive
products in these markets may further limit the Company's and Genta Jago's
flexibility in pricing and in obtaining adequate reimbursement for its potential
products. See "MD&A -- Certain Trends and Uncertainties -- Potential Adverse
Effect of Technological Change and Competition."
Need for and Dependence on Qualified Personnel.
The Company's success is highly dependent on the hiring and retention of
key personnel and scientific staff. The loss of key personnel or the failure to
recruit necessary additional personnel or both is likely further to impede the
achievement of development objectives. There is intense competition for
qualified personnel in the areas of the Company's activities, and there can be
no assurance that Genta will be able to attract and retain the qualified
personnel necessary for the development of its business. The Company is actively
engaged in the search for a new Chief Financial Officer. In March 1998, the
Company's Controller resigned and a replacement is being sought.
Product Liability Exposure; Limited Insurance Coverage.
The Company's, JBL's and Genta Jago's businesses expose them to
potential product liability risks that are inherent in the testing,
manufacturing, marketing and sale of human therapeutic products. If available,
product liability insurance for the pharmaceutical industry generally is
expensive. The Company has obtained a level of liability insurance coverage that
it deems appropriate for its current stage of development. However, there can be
no assurance that the Company's present insurance coverage is adequate. Such
existing coverage may not be adequate as the Company further develops products,
and no assurance can be given that, in the future, adequate insurance coverage
will be available in sufficient amounts or at a reasonable cost, or that a
product liability claim would not have a material adverse effect on the business
or financial condition of the Company.
Fundamental Change.
The Company's Restated Certificate of Incorporation currently provides
that upon the occurrence of a "Fundamental Change," the holders of Series A
Preferred Stock have the option of requiring the Company to repurchase all of
each such holder's shares of Series A Preferred Stock at the Redemption Price,
an event that could result in the Company being required to pay to the holders
of Series A Preferred Stock stock or (in certain circumstances) cash in the
aggregate amount of approximately $27.1 million. Furthermore, if the Company is
required to redeem
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<PAGE>
the Series A Preferred Stock it would also be required (subject to certain
conditions) to offer to redeem the Series D Preferred Stock on a pari passu
basis with the Series A Preferred Stock and with the same type of consideration
paid in redemption of the Series A Preferred Stock; upon a Fundamental Change,
the Company could, under certain circumstances, be required to pay the holders
of Series D Preferred Stock cash in the aggregate amount of approximately $31.8
million (not including an additional $5.7 million that could be payable upon
redemption of 40,395 shares of Series D Preferred Stock issuable upon exercise
of certain warrants). "Fundamental Change" is defined as: (i) a "person" or
"Group" (as defined), together with any affiliates thereof, becoming the
beneficial owner (as defined) of Voting Shares (as defined) of the Company
entitled to exercise more than 60% of the total voting power of all outstanding
Voting Shares of the Company (including any Voting Shares that are not then
outstanding of which such person or Group is deemed the beneficial owner)
(subject to certain exceptions); (ii) any consolidation of the Company with, or
merger of the Company into, any other person, any merger of another person into
the Company, or any sale, lease or transfer of all or substantially all of the
assets of the Company to another person (subject to certain exceptions); (iii)
the sale, transfer or other disposition (or the entry into a commitment to sell,
transfer or otherwise dispose) of all or any portion of the shares of Genta Jago
held at any time by the Company (or the imposition of any material lien on such
shares which lien is not removed within 30 days of imposition) and the sale (or
functional equivalent of a sale) of all or substantially all of the assets of
Genta Jago or (iv) the substantial reduction or elimination of a public market
for the Common Stock as the result of repurchases, delisting or deregistration
of the Common Stock or corporate reorganization or recapitalization undertaken
by the Company.
The SEC Staff is currently in the process of reviewing a registration
statement filed by the Company, and has raised certain questions regarding the
Company's classification of the Preferred Stock as permanent (rather than
"mezzanine") equity. Management of the Company believes, based upon its
Certificate of Incorporation and the agreement pursuant to which the Preferred
Stock was issued, and after discussion with Company counsel, that the conditions
for redemption of the Preferred Stock require volitional acts undertaken by the
Company and are therefore solely within the control of the Company. If the SEC
Staff does not accept the Company's position, the Company will file an amendment
to this Form 10-Q reclassifying the Preferred Stock as "mezzanine" rather than
permanent equity.
Hazardous Materials; Environmental Matters.
The Company's research and development and manufacturing processes
involve the controlled storage, use and disposal of hazardous materials,
biological hazardous materials and radioactive compounds. The Company is subject
to federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of such materials and certain waste products.
Although the Company believes that its safety procedures for handling and
disposing of such materials comply with the standards prescribed by such laws
and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company may be held liable for any damages that result, and any such liability
could exceed the resources of the Company. There can be no assurance that the
Company will not be required to incur significant costs to comply with
environmental laws and regulations in the future, nor that the operations,
business or assets of the Company will not be materially adversely affected by
current or future environmental laws or regulations. See "MD&A -- Certain Trends
and Uncertainties -- No Assurance of Regulatory Approval; Government Regulation"
for a discussion of the Spill.
Volatility of Stock Price; Market Overhang from Outstanding Convertible
Securities and Warrants.
The market price of the Company's Common Stock, like that of the common
stock of many other biopharmaceutical companies, has been highly volatile and
may be so in the future. Factors such as, among other things, the results of
pre-clinical studies and clinical trials by Genta, Genta Jago or their
competitors, other evidence of the safety or efficacy of products of Genta,
Genta Jago or their competitors, announcements of technological
20
<PAGE>
innovations or new therapeutic products by the Company, Genta Jago or their
competitors, governmental regulation, developments in patent or other
proprietary rights of the Company, Genta Jago or their respective competitors,
including litigation, fluctuations in the Company's operating results, and
market conditions for biopharmaceutical stocks in general could have a
significant impact on the future price of the Common Stock. At the Company's
Annual Meeting of Stockholders held on April 4, 1997, the stockholders approved
an amendment to the Company's Restated Certificate of Incorporation effecting a
one-for-ten reverse stock split of its Common Stock. The stockholders also
approved a reduction of the Company's authorized shares of Common Stock from
150,000,000 to 70,000,000. The Company commenced trading on a post reverse split
basis at the commencement of trading on April 7, 1997. As of August 6, 1998, the
Company had 6,516,089 shares of Common Stock outstanding. The Company obtained
stockholder approval of two for three, one for two, two for five, one for three,
one for four, one for five, one for seven and one for ten reverse stock splits
at its annual stockholders' meeting held on July 14, 1998, and the Board may, in
its discretion, effect one of these reverse stock splits at any time on or prior
to the Company's next annual meeting of stockholders and would abandon the
remaining alternative reverse stock splits without further action by the
stockholders of the Company. Future sales of shares of Common Stock by existing
stockholders, holders of preferred stock who might convert such preferred stock
into Common Stock, and option and warrant holders also could adversely affect
the market price of the Common Stock.
No predictions can be made of the effect that future market sales of the
shares of Common Stock underlying the convertible securities and warrants
referred to under the caption "MD&A -- Certain Trends and Uncertainties - -
Subordination of Common Stock to Series A and Series D Preferred Stock; Risk of
Dilution; Anti-dilution Adjustments," or the availability of such securities for
sale, will have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock, or the perception that such
sales might occur, could adversely affect prevailing market prices.
Certain Interlocking Relationships; Potential Conflicts of Interest.
The Aries Funds have the contractual right to appoint a majority of the
members of the Board of Directors of the Company. The Aries Funds have
designated Michael S. Weiss, Glenn L. Cooper, M.D., Donald G. Drapkin, Bobby W.
Sandage, Jr., Ph.D., and Andrew J. Stein as nominees to the Board of Directors.
Such persons were elected as Directors of the Company. David R. Walner, the
Secretary of the Company, is an Associate Director and Secretary of Paramount
Capital Asset Management, Inc. ("PCAM"). PCAM is the investment manager and
general partner of The Aries Trust and the Aries Domestic Fund, L.P.,
respectively. The Aries Funds currently do not hold a controlling block of
voting stock, although the Aries Funds have the present right to appoint a
majority of the Board of Directors, and to convert and exercise their securities
into a significant portion of the outstanding Common Stock. See "MD&A -- Certain
Trends and Uncertainties -- Concentration of Ownership and Control" below. In
addition to the Aries Funds' investments in the Company that are disclosed in
"Market for Registrant's Common Equity and Related Stockholder Matters -- Recent
Sales of Unregistered Securities," in the 1997 Annual Report, the Aries Funds
also engaged in the following transactions: as of June 30, 1997, the Aries Funds
purchased an aggregate of 10,000 shares of Series D Preferred Stock and 50,000
Class D Warrants in a private placement (the "Private Placement"); on December
2, 1997, the Aries Funds purchased an aggregate of 54,000 shares of Series A
Preferred Stock; on December 29, 1997, warrants to purchase an aggregate of
1,000 shares of Series D Preferred Stock and 5,000 Class D Warrants were
allocated to the Aries Funds by Paramount Capital, Inc., which warrants were
received in connection with the Private Placement; on December 31, 1997, the
Aries Funds converted the outstanding principal of, and interest on, their
respective Senior Secured Convertible Bridge Notes of the Company into an
aggregate of 52,415 shares of Series D Preferred Stock; and in July 1998, the
Aries Funds purchased 40,000 shares of Series A Preferred Stock. Furthermore,
the Company may be required to issue Penalty Warrants to the Aries Funds. See
"Risk Factors--Subordination of Common Stock to Series A and Series D Preferred
Stock; Risk of Dilution; Anti-Dilution Adjustments." Dr. Lindsay A. Rosenwald,
the President and sole stockholder of PCAM, is also the President of Paramount
Capital, Inc. and of Paramount Capital Investments LLC, a New York-based
merchant banking and venture capital firm specializing in biotechnology
21
<PAGE>
companies ("PCI"). In the regular course of its business, PCI identifies,
evaluates and pursues investment opportunities in biomedical and pharmaceutical
products, technologies and companies. Generally, Delaware corporate law requires
that any transactions between the Company and any of its affiliates be on terms
that, when taken as a whole, are substantially as favorable to the Company as
those then reasonably obtainable from a person who is not an affiliate in an
arms-length transaction. Nevertheless, neither such affiliates nor PCI is
obligated pursuant to any agreement or understanding with the Company to make
any additional products or technologies available to the Company, nor can there
be any assurance, and the Company does not expect and investors in the Company
should not expect, that any biomedical or pharmaceutical product or technology
identified by such affiliates or PCI in the future will be made available to the
Company. In addition, certain of the current officers and directors of the
Company or certain of any officers or directors of the Company hereafter
appointed may from time to time serve as officers or directors of other
biopharmaceutical or biotechnology companies. There can be no assurance that
such other companies will not have interests in conflict with those of the
Company.
Concentration of Ownership and Control.
The Company's directors, executive officers and principal stockholders
and certain of their affiliates have the ability to influence the election of
the Company's directors and most other stockholder actions. See "MD&A - -
Certain Trends and Uncertainties -- Certain Interlocking Relationships;
Potential Conflicts of Interest." Accordingly, the Aries Funds have the ability
to exert significant influence over the election of the Company's Board of
Directors and other matters submitted to the Company's stockholders for
approval. These arrangements may discourage or prevent any proposed takeover of
the Company, including transactions in which stockholders might otherwise
receive a premium for their shares over the then current market prices. Such
stockholders may influence corporate actions, including influencing elections of
directors and significant corporate events. See also "MD&A -- Certain Trends and
Uncertainties -- Effect of Certain Anti-Takeover Provisions" below.
Effect of Certain Anti-Takeover Provisions.
The Company's Restated Certificate of Incorporation and By-laws include
provisions that could discourage potential takeover attempts and make attempts
by stockholders to change management more difficult. The approval of 66-2/3% of
the Company's voting stock is required to approve certain transactions and to
take certain stockholder actions, including the amendment of the By-laws.
Additionally, the Company has contractual obligations to certain of its security
holders that may impair potential takeovers. See "MD&A -- Certain Trends and
Uncertainties -- Certain Interlocking Relationships; Potential Conflicts of
Interest." Further, pursuant to the terms of its stockholder rights plan adopted
in December 1993, the Company has distributed a dividend of one right for each
outstanding share of Common Stock. These rights will cause a substantial
dilution to a person or group that attempts to acquire the Company on terms not
approved by the Board of Directors and may have the effect of deterring hostile
takeover attempts. The stockholder rights plan was amended to permit the
consummation of the $3 million private placement in February 1997 and the
Private Placement in June 1997. Additionally, pursuant to the Company's Restated
Certificate of Incorporation, if any "person" or "Group" (as defined), together
with any affiliates thereof, becomes the beneficial owner (as defined) of Voting
Shares (as defined) of the Company entitled to exercise more than 60% of the
total voting power of all outstanding Voting Shares of the Company (including
any Voting Shares that are not then outstanding of which such person or Group is
deemed the beneficial owner) (subject to certain exceptions), then a Fundamental
Change (as defined) would occur and the Company would be obligated to redeem the
Series A and Series D Preferred Stocks. See "MD&A -- Certain Trends and
Uncertainties -- Fundamental Change." This Fundamental Change provision is a
further disincentive for any person attempting to acquire 60% or more of the
total voting power of the Company's Voting Shares.
Risks of Low-Priced Stock; Possible Effect of "Penny Stock" Rules on Liquidity
for the Company's Securities.
If the Company's securities were not listed on a national securities
exchange nor listed on a qualified
22
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automated quotation system, they may become subject to Rule 15g-9 under the
Exchange Act, which imposes additional sales practice requirements on
broker-dealers that sell such securities to persons other than established
customers and "accredited investors" (generally, individuals with a net worth in
excess of $1,000,000 or annual incomes exceeding $200,000 or $300,000 together
with their spouses). Rule 15g-9 defines "penny stock" to be any equity security
that has a market price (as therein defined) of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions including (i) the securities being quoted on the Nasdaq National
Market or SmallCap Market; (ii) the securities' issuer having net tangible
assets in excess of $2,000,000 and having been in continuous operation for at
least three years and (iii) the securities' issuer having average revenues of at
least $6,000,000 for the last three years (all three exceptions enumerated above
are currently met by the Company). For transactions covered by Rule 15g-9, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. For any transaction involving a penny stock, unless exempt, the rules
require delivery, prior to any transaction in a penny stock, of a disclosure
schedule prepared by the SEC relating to the penny stock market. Disclosure is
also required to be made about sales commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stock. Consequently, such Rule may affect the
ability of broker-dealers to sell the Company's securities and may affect the
ability of purchasers to sell any of the Company's securities in the secondary
market.
There can be no assurance that the Company's securities will continue to
qualify for exemption from the penny stock restrictions. In any event, even if
the Company's securities are exempt from such restrictions, the Company would
remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the
authority to restrict any person from participating in a distribution of penny
stock, if the SEC finds that such a restriction would be in the public interest.
If the Company's securities were subject to the rules on penny stocks,
the market liquidity for the Company's securities could be materially adversely
affected.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
LBC Capital Resources, Inc. ("LBC"), a Philadelphia-based broker/dealer,
has asserted claims against the Company and others, including Paramount Capital
Inc., of which Dr. Rosenwald is the sole stockholder and Mr. Weiss is a Senior
Managing Director, and various related entities and persons. LBC's claims relate
to the alleged breach by the Company of certain letter agreements, allegedly
entered into by LBC and the Company in 1995 and 1996 with respect to brokerage
and/or investment banking services, particularly in connection with a $3 million
investment for which LBC is seeking a fee. In April 1998 a Complaint was filed
in the United States District Court for the Southern District of New York (98
Civ. 2491) by LBC against the Company and the same other parties.
The Company is engaged in settlement discussions with LBC.
On June 4, 1998, the Company's statutory process agent received a
Summons and Complaint in a lawsuit brought by Johns Hopkins against the Company
in Maryland Circuit Court for Baltimore City (Case No. 98120110). Johns Hopkins
alleges in the Complaint that the Company has breached the Johns Hopkins
Agreement and owes it licensing royalty fees and related expenses in the amount
of $308,832.24. Johns Hopkins also alleges the existence of a separate March
1993 letter agreement wherein the Company agreed to support a fellowship program
at the Johns Hopkins School of Hygiene and Public Health and the Company's
breach thereof, with damages of $326,829.00. On August 10, 1998, the Company's
statutory process agent received a Summons and Complaint in a related lawsuit
brought by the Ts'o/Miller Partnership and others against the Company in the
same court (Case No. 98182113). The Ts'o/Miller Partnership claims that it is
owed licensing royalty fees in the amount of $287,671.23. The Company currently
intends to retain Maryland counsel so that it can properly evaluate these
lawsuits and respond.
On June 30, 1998, the Director General of the Company's subsidiary,
Genta Europe, was served notice of a suit in Marseille, France by Marseille
Amenagement, the manager of the Company's facilities in Marseille. On July 30,
1998, the Company's office in San Diego, California was also served with Notice
of the suit. The suit seeks the payment of unpaid past rents in the amount of
473,464.50 FF (as of August 11, 1998, approximately $79,000), the removal of the
Company from the facility and an indemnity payment of 1,852,429 FF (as of August
11, 1998, approximately $310,000), which is allegedly equal to the balance of
the first nine years' rent. On July 1, 1998, the ANVAR notified Genta Europe of
its claim that the Company remains liable for 4,187,423 FF (as of August 11,
1998, approximately $701,000) and is required to pay this amount immediately. In
view of these events, the Board of Directors of Genta Europe directed the
Director General to declare "Cessation of Payment" in the commercial court in
France, which declaration was made in July 1998.
No material legal proceedings were terminated in the quarter ended June
30, 1998.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company held its Annual Meeting of Stockholders (the "Annual
Meeting") on July 14, 1998. After voting on certain of the matters, the Annual
Meeting was temporarily adjourned and then reconvened and permanently adjourned
on July 28, 1998.
(b) Proxies for the meeting were solicited pursuant to Regulation 14A of
the Exchange Act. There was
24
<PAGE>
no solicitation in opposition to the Board of Directors' nominees for the Class
I directors listed in the definitive proxy statement of the Company dated as of
June 22, 1998.
(c) Briefly described below is each matter voted upon at the Annual
Meeting.
(i) Approval of the amendment to the Company's Restated
Certificate of Incorporation to effectuate a reverse stock split of the
Company's outstanding Common Stock. Total combined voting power of the shares of
Common Stock and Series D Preferred Stock voted was 18,735,940 in favor, 938,894
against, 8,265 abstained and no broker non-votes.
(ii) Approval of the amendment to the Company's Restated
Certificate of Incorporation to remove the requirement that stockholder action
be taken at a meeting. Total combined voting power of the shares of Common Stock
and Series D Preferred Stock voted was 20,047,308 in favor, 695,117 against,
81,550 abstained and 2,997,831 broker non-votes.
(iii) Approval of the amendment to the Company's Restated
Certificate of Incorporation to remove the classification of the Board of
Directors. Total combined voting power of the shares of Common Stock and Series
D Preferred Stock voted was 20,138,695 in favor, 575,644 against, 109,636
abstained and 2,997,831 broker non-votes.
(iv) Election of four Class I directors. Total combined voting
power of the shares of Common Stock and Series D Preferred Stock voted and
withheld for the election of each director was as follows:
Directors Votes For Withheld
--------- --------- --------
Kenneth G. Kasses, Ph.D. 19,503,907 179,193
Peter Salomon, M.D. 19,504,307 178,793
Andrew J. Stein 19,503,437 179,663
Harlan J. Wakoff 19,503,097 180,003
(v) Approval of the 1998 Stock Incentive Plan and approval of
grants of option under such Plan. Total combined voting power of the shares of
Common Stock and Series D Preferred Stock voted was 15,494,338 in favor, 878,636
against, 99,614 abstained and 3,210,511 broker non-votes.
(vi) Approval of the Non-Employee Directors' 1998 Stock Incentive
Plan and approval of grants of option under such Plan. Total combined voting
power of the shares of Common Stock and Series D Preferred Stock voted was
15,517,715 in favor, 813,906 against, 140,967 abstained and 3,210,511 broker
non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number Description of Document
- ------ -----------------------
10.1(1) Genta Incorporated 1998 Stock Incentive Plan
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10.2(1) Genta Incorporated Non-Employee Directors' 1998 Stock Option Plan
10.3(1) Stock Option Agreement dated as of May 28, 1998 between the
Company and Kenneth G. Kasses, Ph.D. pursuant to the Company's
1998 Stock Incentive Plan
10.4(1) Form of Stock Option Agreement dated as of May 28, 1998 between
the Company and each of the directors listed in Section 5(c) of
the Company's Non-Employee Directors' 1998 Stock Option Plan
27.1(1) Financial Data Schedule
99.1(1) Genta Jago Technologies B.V. (a development stage company)
Statement of Operations (unaudited)
(1) Filed herewith.
(b) Reports on Form 8-K
(i) On April 2, 1998, the Company filed a Report on Form 8-K dated as of
April 1, 1998 reporting under Item 5 that the Company issued a press release
entitled "Genta Announces Issue of Patent for Lead Antisense Compound that
Targets the BCL-2 Gene, Implicated in Prostate and Other Cancers."
(ii) On May 20, 1998, the Company filed a Report on Form 8-K dated as of
May 19, 1998 reporting under Item 5 that the Company issued a press release
entitled "Genta Incorporated Announces First Quarter 1998 Results."
(iii) On June 17, 1998, the Company filed a Report on Form 8-K dated as
of June 17, 1998 reporting under Item 5 that the Company issued a press release
entitled "Genta Announces the Issuance of Two Patents Directed To High Potency
Antisense Compounds that Target the Production of Disease Causing pre-RNA."
(iv) On June 23, 1998, the Company filed a Report on Form 8-K dated as
of June 18, 1998 reporting under Item 5 that the Company issued a press release
entitled "Genta to Commence Phase I/IIa Malignant Melanoma Trial of bcl-2
Antisense Compound in Combination with a Chemotherapeutic Drug."
(v) On June 25, 1998, the Company filed a Report on Form 8-K dated as of
June 24, 1998 reporting under Item 5 that the Company issued a press release
entitled "Genta Signs Letter of Intent with National Cancer Institute for
Collaborative Research & Development Agreement."
(vi) On July 2, 1998, the Company filed a Report on Form 8-K dated as of
July 1, 1998 reporting under Item 5 that the Company issued a press release
entitled "Genta Receives Consent to Waive Registration of Common Stock
Underlying Its Series D Preferred Stock."
(vii) On July 15, 1998, the Company filed a Report on Form 8-K dated as
of July 14, 1998 reporting under Item 5 that the Company issued a press release
entitled "Genta to Commence Second Phase I/IIa Prostate Cancer Trial of bcl-2
Antisense Compound."
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENTA INCORPORATED
(Registrant)
By: /s/Kenneth G. Kasses, Ph.D.
---------------------------
Name: Kenneth G. Kasses, Ph.D.
Title: President, Principal Executive Officer and
Principal Financial Officer
Date: August 14, 1998
27
EXHIBIT 10.1
GENTA INCORPORATED
1998 STOCK INCENTIVE PLAN
<PAGE>
Table of Contents
Page
ARTICLE I
GENERAL
1.1 Purpose............................................................... 1
1.2 Administration........................................................ 1
1.3 Persons Eligible for Awards........................................... 2
1.4 Types of Awards Under Plan............................................ 2
1.5 Shares Available for Awards........................................... 2
1.6 Definitions of Certain Terms.......................................... 4
ARTICLE II
AWARDS UNDER THE PLAN
2.1 Agreements Evidencing Awards.......................................... 5
2.2 No Rights as a Shareholder............................................ 6
2.3 Grant of Stock Options, Stock Appreciation Rights and Reload Options.. 6
2.4 Exercise of Options and Stock Appreciation Rights..................... 8
2.5 Termination of Employment; Death...................................... 9
2.6 Grant of Restricted Stock............................................. 9
2.7 Grant of Restricted Stock Units....................................... 10
2.8 Other Stock-Based Awards.............................................. 10
2.9 Grant of Dividend Equivalent Rights................................... 11
2.10 Right of Recapture.................................................... 11
ARTICLE III
MISCELLANEOUS
3.1 Amendment of the Plan; Modification of Awards......................... 11
3.2 Tax Withholding....................................................... 12
3.3 Restrictions.......................................................... 12
3.4 Nonassignability...................................................... 13
3.5 Requirement of Notification of Election
Under Section 83(b) of the Code....................................... 13
3.6 Requirement of Notification Upon Disqualifying Disposition Under
Section 421(b) of the Code.......................................... 13
3.7 Change in Control, Dissolution, Liquidation, Merger................... 13
3.8 Right of Discharge Reserved........................................... 15
3.9 Nature of Payments.................................................... 15
3.10 Non-Uniform Determinations............................................ 16
3.11 Other Payments or Awards.............................................. 16
3.12 Section Headings...................................................... 16
3.13 Effective Date and Term of Plan....................................... 16
3.14 Governing Law......................................................... 16
i
<PAGE>
ARTICLE I
GENERAL
1.1 Purpose
The purpose of the Genta Incorporated 1998 Stock Incentive Plan (the
"Plan") is to provide for officers, other employees and directors of, and
consultants to, Genta Incorporated (the "Company") and its subsidiaries an
incentive (a) to enter into and remain in the service of the Company, (b) to
enhance the long-term performance of the Company, and (c) to acquire a
proprietary interest in the success of the Company.
1.2 Administration
1.2.1 Subject to Section 1.2.6, the Plan shall be administered by the
Compensation Committee (the "Committee") of the board of directors of the
Company (the "Board"), which shall consist of not less than two directors. The
members of the Committee shall be appointed by, and serve at the pleasure of,
the Board. To the extent required for transactions under the Plan to qualify for
the exemptions available under Rule 16b-3 ("Rule 16b-3") promulgated under the
Securities Exchange Act of 1934 (the "1934 Act"), all actions relating to awards
to persons subject to Section 16 of the 1934 Act shall be taken by the Board
unless each person who serves on the Committee is a "non-employee director"
within the meaning of Rule 16b-3 or such actions are taken by a sub-committee of
the Committee (or the Board) comprised solely of "non-employee directors". To
the extent required for compensation realized from awards under the Plan to be
deductible by the Company pursuant to section 162(m) of the Internal Revenue
Code of 1986 (the "Code"), the members of the Committee shall be "outside
directors" within the meaning of section 162(m).
1.2.2 The Committee shall have the authority (a) to exercise all of the
powers granted to it under the Plan; (b) to construe, interpret and implement
the Plan and any plan agreements executed pursuant to Section 2.1; (c) to
prescribe, or amend and rescind rules and regulations relating to the Plan,
including rules governing its own operations; (d) to make all determinations
necessary or advisable in administering the Plan; (e) to correct any defect,
supply any omission and reconcile any inconsistency in the Plan; (f) to amend
the Plan to reflect changes in applicable law; (g) to determine whether, to what
extent and under what circumstances awards may be settled or exercised in cash,
Shares of Common Stock, other securities, other awards or other property, or
canceled, forfeited or suspended and the method or methods by which awards may
be settled, canceled, forfeited or suspended; and (h) to determine whether, to
what extent and under what circumstances cash, shares of Common Stock, other
securities, other awards or other property and other amounts payable with
respect to an award shall be deferred either automatically or at the election of
the holder thereof or of the Committee.
1.2.3 Actions of the Committee shall be taken by the vote of a majority
of its members. Any action may be taken by a written instrument signed by a
majority of the
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Committee members, and action so taken shall be fully as effective as if it had
been taken by a vote at a meeting.
1.2.4 The determination of the Committee on all matters relating to the
Plan or any plan agreement shall be final, binding and conclusive.
1.2.5 No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
thereunder.
1.2.6 Notwithstanding anything to the contrary contained herein: (a)
until the Board shall appoint the members of the Committee, the Plan shall be
administered by the Board; and (b) the Board may, in its sole discretion, at any
time and from time to time, grant awards or resolve to administer the Plan. In
either of the foregoing events, the Board shall have all of the authority and
responsibility granted to the Committee herein.
1.3 Persons Eligible for Awards
Awards under the Plan may be made to such directors (including directors
who are not employees), officers and other employees of the Company and its
subsidiaries (including prospective employees conditioned on their becoming
employees), and to such consultants, advisers and other independent contractors
of the Company and its subsidiaries (collectively, "key persons"), as the
Committee shall select in its discretion.
1.4 Types of Awards Under Plan
Awards may be made under the Plan in the form of (a) incentive stock
options (within the meaning of section 422 of the Code); (b) non-qualified stock
options; (c) stock appreciation rights; (d) dividend equivalent rights; (e)
restricted stock; (f) restricted stock units; and (g) other stock-based awards,
all as more fully set forth in Article II. The term "award" means any of the
foregoing. No incentive stock option (other than an incentive stock option that
may be assumed or issued by the Company in connection with a transaction to
which section 424(a) of the Code applies) may be granted to a person who is not
an employee of the Company on the date of grant.
1.5 Shares Available for Awards
1.5.1 Total shares available. The total number of shares of common stock
of the Company, par value $.001 per share ("Common Stock"), which may be
transferred pursuant to awards granted under the Plan shall not exceed
6,750,000; provided, however, that such number of shares may be increased at any
time or from time to time, at the discretion of the Board of Directors, by an
aggregate amount up to the product of (x) .15 and (y) the sum of (1) the
difference between (A) the number of shares of Common Stock which may be
obtained upon conversion of the Series D Convertible Preferred Stock pursuant to
the modification in the
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conversion price effected by the Reset, as defined in the fifth paragraph of
Subsection 4 (a) of the Certificate of Designations for the Series D Convertible
Preferred Stock, as amended from time to time, or any contractual modification
to such Reset (collectively, the "Reset"); and (B) the number of shares of
Common Stock obtainable upon conversion of the Series D Convertible Preferred
Stock immediately prior to such Reset and (2) the number of shares of Common
Stock which may be obtained upon the exercise of any Penalty Warrants (as
defined in the Company's Annual Report on Form 10-K for the year ended December
31, 1997). Notwithstanding the foregoing, the total number of incentive stock
options (as defined in Section 1.6.2) which may be granted may not exceed
5,000,000 shares. Such shares may be authorized but unissued Common Stock or
authorized and issued Common Stock held in the Company's treasury or acquired by
the Company for the purposes of the Plan. The Committee may direct that any
stock certificate evidencing shares issued pursuant to the Plan shall bear a
legend setting forth such restrictions on transferability as may apply to such
shares pursuant to the Plan. If, after the effective date of the Plan, any award
is forfeited or any award otherwise terminates or is cancelled without the
delivery of shares of Common Stock, then the shares covered by such award or to
which such award relates shall again become available for transfer pursuant to
awards granted or to be granted under this Plan. Any shares of Common Stock
delivered by the Company, any shares of Common Stock with respect to which
awards are made by the Company and any shares of Common Stock with respect to
which the Company becomes obligated to make awards, through the assumption of,
or in substitution for, outstanding awards previously granted by an acquired
entity, shall not be counted against the shares available for awards under this
Plan.
1.5.2 Individual Limit. The total number of shares of Common Stock with
respect to which stock options and stock appreciation rights may be granted to
any one employee of the Company or a subsidiary during any two-year period shall
not exceed 8,000,000 shares.
1.5.3 Adjustments. Subject to any required action by the shareholders of
the Company, the number of shares of Common Stock covered by each outstanding
award, the number of shares available for awards, the number of shares that may
be subject to awards to any one employee, and the price per share of Common
Stock covered by each such outstanding award shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein or in the applicable plan
agreement, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an award. After any adjustment made
pursuant to this Section 1.5.3, the number of shares subject to each outstanding
award
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shall be rounded to the nearest whole number.
1.5.4 Except as provided in this Section 1.5 and in Section 2.3.8, there
shall be no limit on the number or the value of the shares of Common Stock that
may be subject to awards to any individual under the Plan.
1.6 Definitions of Certain Terms
1.6.1 The "Fair Market Value" of a share of Common Stock on any day
shall be determined as follows.
(a) If the principal market for the Common Stock (the "Market")
is a national securities exchange or the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") National Market or Small Cap
Market, the last sale price or, if no reported sales take place on the
applicable date, the average of the high bid and low asked price of Common Stock
as reported for such Market on such date or, if no such quotation is made on
such date, on the next preceding day on which there were quotations, provided
that such quotations shall have been made within the ten (10) business days
preceding the applicable date;
(b) If the Common Stock is actively traded but paragraph (a) does
not apply, the average of the high bid and low asked price for Common Stock on
the applicable date, or, if no such quotations shall have been made on such
date, on the next preceding day on which there were quotations, provided that
such quotations shall have been made within the ten (10) business days preceding
the applicable date; or,
(c) In the event that neither paragraph (a) nor (b) shall apply,
the Fair Market Value of a share of Common Stock on any day shall be determined
in good faith by the Committee.
1.6.2 The term "incentive stock option" means an option that is intended
to qualify for special federal income tax treatment pursuant to sections 421 and
422 of the Code, as now constituted or subsequently amended, or pursuant to a
successor provision of the Code, and which is so designated in the applicable
plan agreement. Any option that is not specifically designated as an incentive
stock option shall under no circumstances be considered an incentive stock
option. Any option that is not an incentive stock option is referred to herein
as a "nonqualified stock option."
1.6.3 The term "employment" means, in the case of a grantee of an award
under the Plan who is not an employee of the Company, the grantee's association
with the Company or a subsidiary as a director, consultant, adviser, other
independent contractor or otherwise.
1.6.4 A grantee shall be deemed to have a "termination of employment"
upon
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ceasing to be employed by the Company and all of its subsidiaries or by a
corporation assuming awards in a transaction to which section 424(a) of the Code
applies. The Committee may in its discretion determine (a) whether any leave of
absence constitutes a termination of employment for purposes of the Plan; (b)
the impact, if any, of any such leave of absence on awards theretofore made
under the Plan; and (c) when a change in a non-employee's association with the
Company constitutes a termination of employment for purposes of the Plan. The
Committee shall have the right to determine whether a grantee's termination of
employment is a dismissal for cause and the date of termination in such case,
which date the Committee may retroactively deem to be the date of the action
that is cause for dismissal. Such determinations of the Committee shall be
final, binding and conclusive.
1.6.5 The term "cause," when used in connection with termination of a
grantee's employment, shall have the meaning set forth in any then-effective
employment agreement between the grantee and the Company or a subsidiary
thereof. In the absence of such an employment agreement provision, "cause"
means: (a) conviction of any crime (whether or not involving the Company or its
subsidiaries) constituting a felony in the jurisdiction involved; (b) engaging
in any act which, in each case, subjects, or if generally known would subject,
the Company or its subsidiaries to public ridicule or embarrassment; (c)
material violation of the Company's or a subsidiary's policies, including,
without limitation, those relating to sexual harassment or the disclosure or
misuse of confidential information; (d) serious neglect or misconduct in the
performance of the grantee's duties for the Company or a subsidiary or willful
or repeated failure or refusal to perform such duties; in each case as
determined by the Committee, which determination shall be final, binding and
conclusive.
ARTICLE II
AWARDS UNDER THE PLAN
2.1 Agreements Evidencing Awards
Each award granted under the Plan (except an award of unrestricted
stock) shall be evidenced by a written agreement ("plan agreement") which shall
contain such provisions as the Committee in its discretion deems necessary or
desirable. Such provisions may include, without limitation, a requirement that
the grantee become a party to a shareholders' agreement with respect to any
shares of Common Stock acquired pursuant to the award, a requirement that the
grantee acknowledge that such shares are acquired for investment purposes only,
and a right of first refusal exercisable by the Company in the event that the
grantee wishes to transfer any such shares. The Committee may grant awards in
tandem with or in substitution for any other award or awards granted under this
Plan or any award granted under any other plan of the Company or any subsidiary.
Payments or transfers to be made by the Company or any subsidiary upon the
grant, exercise or payment of an award may be made in such form as the Committee
shall determine, including cash, shares of Common Stock, other securities, other
awards or other property and may be made in a single payment or transfer, in
installments or
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on a deferred basis, in each case in accordance with rules established by the
Committee. By accepting an award pursuant to the Plan, a grantee thereby agrees
that the award shall be subject to all of the terms and provisions of the Plan
and the applicable plan agreement.
2.2 No Rights as a Shareholder
No grantee of an option or stock appreciation right (or other person
having the right to exercise such award) shall have any of the rights of a
shareholder of the Company with respect to shares subject to such award until
the issuance of a stock certificate to such person for such shares. Except as
otherwise provided in Section 1.5.3, no adjustment shall be made for dividends,
distributions or other rights (whether ordinary or extraordinary, and whether in
cash, securities or other property) for which the record date is prior to the
date such stock certificate is issued.
2.3 Grant of Stock Options, Stock Appreciation
Rights and Reload Options
2.3.1 The Committee may grant incentive stock options and nonqualified
stock options (collectively, "options") to purchase shares of Common Stock from
the Company, to such key persons, in such amounts and subject to such terms and
conditions, as the Committee shall determine in its discretion, subject to the
provisions of the Plan.
2.3.2 The Committee may grant stock appreciation rights to such key
persons, in such amounts and subject to such terms and conditions, as the
Committee shall determine in its discretion, subject to the provisions of the
Plan. Stock appreciation rights may be granted in connection with all or any
part of, or independently of, any option granted under the Plan. A stock
appreciation right granted in connection with a nonqualified stock option may be
granted at or after the time of grant of such option. A stock appreciation right
granted in connection with an incentive stock option may be granted only at the
time of grant of such option.
2.3.3 The grantee of a stock appreciation right shall have the right,
subject to the terms of the Plan and the applicable plan agreement, to receive
from the Company an amount equal to (a) the excess of the Fair Market Value of a
share of Common Stock on the date of exercise of the stock appreciation right
over (b) the exercise price of such right as set forth in the plan agreement (or
over the option exercise price if the stock appreciation right is granted in
connection with an option), multiplied by (c) the number of shares with respect
to which the stock appreciation right is exercised. Payment upon exercise of a
stock appreciation right shall be in cash or in shares of Common Stock (valued
at their Fair Market Value on the date of exercise of the stock appreciation
right) or both, all as the Committee shall determine in its discretion. Upon the
exercise of a stock appreciation right granted in connection with an option, the
number of shares subject to the option shall be correspondingly reduced by the
number of shares with respect to which the stock appreciation right is
exercised. Upon the exercise of an option in connection with which a stock
appreciation right has been granted, the number of
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shares subject to the stock appreciation right shall be correspondingly reduced
by the number of shares with respect to which the option is exercised.
2.3.4 Each plan agreement with respect to an option shall set forth the
amount (the "option exercise price") payable by the grantee to the Company upon
exercise of the option evidenced thereby. The option exercise price per share
shall be determined by the Committee in its discretion; provided, however, that
the option exercise price of an incentive stock option shall be at least 100% of
the Fair Market Value of a share of Common Stock on the date the option is
granted (except as permitted in connection with the assumption or issuance of
options in a transaction to which section 424(a) of the Code applies), and
provided further that in no event shall the option exercise price be less than
the par value of a share of Common Stock.
2.3.5 Each plan agreement with respect to an option or stock
appreciation right shall set forth the periods during which the award evidenced
thereby shall be exercisable, whether in whole or in part. Such periods shall be
determined by the Committee in its discretion; provided, however, that no
incentive stock option (or a stock appreciation right granted in connection with
an incentive stock option) shall be exercisable more than 10 years after the
date of grant.
2.3.6 The Committee may in its discretion include in any plan agreement
with respect to an option (the "original option") a provision that an additional
option (the "additional option") shall be granted to any grantee who, pursuant
to Section 2.4.3(b), delivers shares of Common Stock in partial or full payment
of the exercise price of the original option. The additional option shall be for
a number of shares of Common Stock equal to the number thus delivered, shall
have an exercise price equal to the Fair Market Value of a share of Common Stock
on the date of exercise of the original option, and shall have an expiration
date no later than the expiration date of the original option. In the event that
a plan agreement provides for the grant of an additional option, such Agreement
shall also provide that the exercise price of the original option be no less
than the Fair Market Value of a share of Common Stock on its date of grant, and
that any shares that are delivered pursuant to Section 2.4.3(b) in payment of
such exercise price shall have been held for at least six months.
2.3.7 To the extent that the aggregate Fair Market Value (determined as
of the time the option is granted) of the stock with respect to which incentive
stock options granted under this Plan and all other plans of the Company and any
subsidiary are first exercisable by any employee during any calendar year shall
exceed the maximum limit (currently, $100,000), if any, imposed from time to
time under section 422 of the Code, such options shall be treated as
nonqualified stock options.
2.3.8 Notwithstanding the provisions of Sections 2.3.4 and 2.3.5, to the
extent required under section 422 of the Code, an incentive stock option may not
be granted under the Plan to an individual who, at the time the option is
granted, owns stock possessing more than 10% of the total combined voting power
of all classes of stock of his employer corporation or
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of its parent or subsidiary corporations (as such ownership may be determined
for purposes of section 422(b)(6) of the Code) unless (a) at the time such
incentive stock option is granted the option exercise price is at least 110% of
the Fair Market Value of the shares subject thereto and (b) the incentive stock
option by its terms is not exercisable after the expiration of five (5) years
from the date it is granted.
2.4 Exercise of Options and Stock Appreciation Rights
Subject to the provisions of this Article II, each option or stock
appreciation right granted under the Plan shall be exercisable as follows:
2.4.1 Unless the applicable plan agreement otherwise provides, an option
or stock appreciation right shall become exercisable in four substantially equal
installments, on each of the first, second, third and fourth anniversaries of
the date of grant, and each installment, once it becomes exercisable, shall
remain exercisable until expiration, cancellation or termination of the award.
2.4.2 Unless the applicable plan agreement otherwise provides, an option
or stock appreciation right may be exercised from time to time as to all or part
of the shares as to which such award is then exercisable (but, in any event,
only for whole shares). A stock appreciation right granted in connection with an
option may be exercised at any time when, and to the same extent that, the
related option may be exercised. An option or stock appreciation right shall be
exercised by the filing of a written notice with the Company, on such form and
in such manner as the Committee shall prescribe.
2.4.3 Any written notice of exercise of an option shall be accompanied
by payment for the shares being purchased. Such payment shall be made: (a) by
certified or official bank check (or the equivalent thereof acceptable to the
Company) for the full option exercise price; or (b) unless the applicable plan
agreement provides otherwise, by delivery of shares of Common Stock (which, if
acquired pursuant to exercise of a stock option, were acquired at least six
months prior to the option exercise date) and having a Fair Market Value
(determined as of the exercise date) equal to all or part of the option exercise
price and a certified or official bank check (or the equivalent thereof
acceptable to the Company) for any remaining portion of the full option exercise
price; or (c) at the discretion of the Committee and to the extent permitted by
law, by such other method as the Committee may from time to time prescribe.
2.4.4 Promptly after receiving payment of the full option exercise
price, or after receiving notice of the exercise of a stock appreciation right
for which payment will be made partly or entirely in shares, the Company shall,
subject to the provisions of Section 3.3 (relating to certain restrictions),
deliver to the grantee or to such other person as may then have the right to
exercise the award, a certificate or certificates for the shares of Common Stock
for which the award has been exercised. If the method of payment employed upon
option exercise so requires,
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and if applicable law permits, an optionee may direct the Company to deliver the
certificate(s) to the optionee's stockbroker.
2.5 Termination of Employment; Death
2.5.1 Except to the extent otherwise provided in Section 2.5.2 or 2.5.3
or in the applicable plan agreement, all options and stock appreciation rights
not theretofore exercised shall terminate upon termination of the grantee's
employment for any reason (including death).
2.5.2 Except to the extent otherwise provided in the applicable plan
agreement, if a grantee's employment terminates for any reason other than death
or dismissal for cause, the grantee may exercise any outstanding option or stock
appreciation right on the following terms and conditions: (a) exercise may be
made only to the extent that the grantee was entitled to exercise the award on
the date of employment termination; and (b) exercise must occur within ninety
(90) days after employment terminates, except that this ninety day period shall
be increased to one year if the termination is by reason of disability, but in
no event after the expiration date of the award as set forth in the plan
agreement. In the case of an incentive stock option, the term "disability" for
purposes of the preceding sentence shall have the meaning given to it by section
422(c)(6) of the Code.
2.5.3 Except to the extent otherwise provided in the applicable plan
agreement, if a grantee dies while employed by the Company or any subsidiary, or
after employment termination but during the period in which the grantee's awards
are exercisable pursuant to Section 2.5.2, any outstanding option or stock
appreciation right shall be exercisable on the following terms and conditions:
(a) exercise may be made only to the extent that the grantee was entitled to
exercise the award on the date of death; and (b) exercise must occur by the
earlier of the first anniversary of the grantee's death or the expiration date
of the award. Any such exercise of an award following a grantee's death shall be
made only by the grantee's executor or administrator, unless the grantee's will
specifically disposes of such award, in which case such exercise shall be made
only by the recipient of such specific disposition. If a grantee's personal
representative or the recipient of a specific disposition under the grantee's
will shall be entitled to exercise any award pursuant to the preceding sentence,
such representative or recipient shall be bound by all the terms and conditions
of the Plan and the applicable plan agreement which would have applied to the
grantee.
2.6 Grant of Restricted Stock
2.6.1 The Committee may grant restricted shares of Common Stock to such
key persons, in such amounts, and subject to such terms and conditions as the
Committee shall determine in its discretion, subject to the provisions of the
Plan. Restricted stock awards may be made independently of or in connection with
any other award under the Plan. A grantee of a restricted stock award shall have
no rights with respect to such award unless such grantee accepts the award
within such period as the Committee shall specify by executing a plan
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agreement in such form as the Committee shall determine and, if the Committee
shall so require, makes payment to the Company by certified or official bank
check (or the equivalent thereof acceptable to the Company) in such amount as
the Committee may determine.
2.6.2 Promptly after a grantee accepts a restricted stock award, the
Company shall issue in the grantee's name a certificate or certificates for the
shares of Common Stock covered by the award. Upon the issuance of such
certificate(s), the grantee shall have the rights of a shareholder with respect
to the restricted stock, subject to the non-transferability restrictions and
Company repurchase rights described in Sections 2.6.4 and 2.6.5 and to such
other restrictions and conditions as the Committee in its discretion may include
in the applicable plan agreement.
2.6.3 Unless the Committee shall otherwise determine, any certificate
issued evidencing shares of restricted stock shall remain in the possession of
the Company until such shares are free of any restrictions specified in the
applicable plan agreement.
2.6.4 Shares of restricted stock may not be sold, assigned, transferred,
pledged or otherwise encumbered or disposed of except as specifically provided
in this Plan or the applicable plan agreement. The Committee at the time of
grant shall specify the date or dates (which may depend upon or be related to
the attainment of performance goals and other conditions) on which the
non-transferability of the restricted stock shall lapse. Unless the applicable
plan agreement provides otherwise, additional shares of Common Stock or other
property distributed to the grantee in respect of shares of restricted stock, as
dividends or otherwise, shall be subject to the same restrictions applicable to
such restricted stock.
2.6.5 During the 120 days following termination of the grantee's
employment for any reason, the Company shall have the right to require the
return of any shares to which restrictions on transferability apply, in exchange
for which the Company shall repay to the grantee (or the grantee's estate) any
amount paid by the grantee for such shares.
2.7 Grant of Restricted Stock Units
2.7.1 The Committee may grant awards of restricted stock units to such
key persons, in such amounts, and subject to such terms and conditions as the
Committee shall determine in its discretion, subject to the provisions of the
Plan. Restricted stock units may be awarded independently of or in connection
with any other award under the Plan.
2.7.2 At the time of grant, the Committee shall specify the date or
dates on which the restricted stock units shall become fully vested and
nonforfeitable, and may specify such conditions to vesting as it deems
appropriate. In the event of the termination of the grantee's employment by the
Company and its subsidiaries for any reason, restricted stock units that have
not become nonforfeitable shall be forfeited and cancelled.
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2.7.3 At the time of grant, the Committee shall specify the maturity
date applicable to each grant of restricted stock units, which may be determined
at the election of the grantee. Such date may be later than the vesting date or
dates of the award. On the maturity date, the Company shall transfer to the
grantee one unrestricted, fully transferable share of Common Stock for each
restricted stock unit scheduled to be paid out on such date and not previously
forfeited. The Committee shall specify the purchase price, if any, to be paid by
the grantee to the Company for such shares of Common Stock.
2.8 Other Stock-Based Awards
The Committee may grant other types of stock-based awards (including the
grant of unrestricted shares) to such key persons, in such amounts and subject
to such terms and conditions, as the Committee shall in its discretion
determine, subject to the provisions of the Plan. Such awards may entail the
transfer of actual shares of Common Stock to Plan participants, or payment in
cash or otherwise of amounts based on the value of shares of Common Stock.
2.9 Grant of Dividend Equivalent Rights
The Committee may in its discretion include in the plan agreement with
respect to any award a dividend equivalent right entitling the grantee to
receive amounts equal to the ordinary dividends that would be paid, during the
time such award is outstanding and unexercised, on the shares of Common Stock
covered by such award if such shares were then outstanding. In the event such a
provision is included in a plan agreement, the Committee shall determine whether
such payments shall be made in cash, in shares of Common Stock or in another
form, whether they shall be conditioned upon the exercise of the award to which
they relate, the time or times at which they shall be made, and such other terms
and conditions as the Committee shall deem appropriate.
2.10 Right of Recapture
2.10.1 If at any time within one year after the date on which a
participant exercises an option or stock appreciation right, or on which
restricted stock vests, or which is the maturity date of restricted stock units,
or on which income is realized by a participant in connection with any other
stock-based award (each of which events is a "realization event"), the
participant (a) is terminated for cause or (b) engages in any activity
determined in the discretion of the Committee to be in competition with any
activity of the Company, or otherwise inimical, contrary or harmful to the
interests of the Company (including, but not limited to, accepting employment
with or serving as a consultant, adviser or in any other capacity to an entity
that is in competition with or acting against the interests of the Company),
then any gain realized by the participant from the realization event shall be
paid by the participant to the Company upon notice from the Company. Such gain
shall be determined as of the date of the realization event, without regard to
any subsequent change in the Fair Market Value of a share of Common Stock.
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The Company shall have the right to offset such gain against any amounts
otherwise owed to the participant by the Company (whether as wages, vacation
pay, or pursuant to any benefit plan or other compensatory arrangement).
ARTICLE III
MISCELLANEOUS
3.1 Amendment of the Plan; Modification of Awards
3.1.1 The Board may from time to time suspend, discontinue, revise or
amend the Plan in any respect whatsoever, except that no such amendment shall
materially impair any rights or materially increase any obligations under any
award theretofore made under the Plan without the consent of the grantee (or,
after the grantee's death, the person having the right to exercise the award).
For purposes of this Section 3.1, any action of the Board or the Committee that
alters or affects the tax treatment of any award shall not be considered to
materially impair any rights of any grantee.
3.1.2 Shareholder approval of any amendment shall be obtained to the
extent necessary to comply with section 422 of the Code (relating to incentive
stock options) or other applicable law or regulation.
3.1.3 The Committee may amend any outstanding plan agreement, including,
without limitation, by amendment which would accelerate the time or times at
which the award becomes unrestricted or may be exercised, or waive or amend any
goals, restrictions or conditions set forth in the Agreement. However, any such
amendment (other than an amendment pursuant to Section 3.7.2, relating to change
in control) that materially impairs the rights or materially increases the
obligations of a grantee under an outstanding award shall be made only with the
consent of the grantee (or, upon the grantee's death, the person having the
right to exercise the award).
3.2 Tax Withholding
3.2.1 As a condition to the receipt of any shares of Common Stock
pursuant to any award or the lifting of restrictions on any award, or in
connection with any other event that gives rise to a federal or other
governmental tax withholding obligation on the part of the Company relating to
an award (including, without limitation, FICA tax), the Company shall be
entitled to require that the grantee remit to the Company an amount sufficient
in the opinion of the Company to satisfy such withholding obligation.
3.2.2 If the event giving rise to the withholding obligation is a
transfer of shares of Common Stock, then, unless otherwise specified in the
applicable plan agreement, the grantee may satisfy the withholding obligation
imposed under Section 3.2.1 by electing to have the
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Company withhold shares of Common Stock having a Fair Market Value equal to the
amount of tax to be withheld. For this purpose, Fair Market Value shall be
determined as of the date on which the amount of tax to be withheld is
determined (and any fractional share amount shall be settled in cash).
3.3 Restrictions
3.3.1 If the Committee shall at any time determine that any consent (as
hereinafter defined) is necessary or desirable as a condition of, or in
connection with, the granting of any award under the Plan, the issuance or
purchase of shares or other rights thereunder, or the taking of any other action
thereunder (each such action a "plan action"), then such plan action shall not
be taken, in whole or in part, unless and until such consent shall have been
effected or obtained to the full satisfaction of the Committee.
3.3.2 The term "consent" as used herein with respect to any plan action
means (a) any and all listings, registrations or qualifications in respect
thereof upon any securities exchange or under any federal, state or local law,
rule or regulation, (b) any and all written agreements and representations by
the grantee with respect to the disposition of shares, or with respect to any
other matter, which the Committee shall deem necessary or desirable to comply
with the terms of any such listing, registration or qualification or to obtain
an exemption from the requirement that any such listing, qualification or
registration be made and (c) any and all consents, clearances and approvals in
respect of a plan action by any governmental or other regulatory bodies.
3.4 Nonassignability
Except to the extent otherwise provided in the applicable plan
agreement, no award or right granted to any person under the Plan shall be
assignable or transferable other than by will or by the laws of descent and
distribution, and all such awards and rights shall be exercisable during the
life of the grantee only by the grantee or the grantee's legal representative.
3.5 Requirement of Notification of
Election Under Section 83(b) of the Code
If any grantee shall, in connection with the acquisition of shares of
Common Stock under the Plan, make the election permitted under section 83(b) of
the Code (that is, an election to include in gross income in the year of
transfer the amounts specified in section 83(b)), such grantee shall notify the
Company of such election within ten (10) days of filing notice of the election
with the Internal Revenue Service, in addition to any filing and notification
required pursuant to regulations issued under the authority of Code section
83(b).
3.6 Requirement of Notification Upon Disqualifying
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Disposition Under Section 421(b) of the Code
If any grantee shall make any disposition of shares of Common Stock
issued pursuant to the exercise of an incentive stock option under the
circumstances described in section 421(b) of the Code (relating to certain
disqualifying dispositions), such grantee shall notify the Company of such
disposition within 10 days thereof.
3.7 Change in Control, Dissolution, Liquidation, Merger
3.7.1 For purposes of this Section 3.7, a "change in control" shall have
occurred if:
(a) any "person", as such term is used in Sections 13(d) and
14(d) of the 1934 Act (other than (i) the shareholders of the Company as of the
effective date of the Plan (the "Current Shareholders", such term to include
their heirs or estates, or trusts or other entities the primary beneficiaries of
which are the Current Shareholders or persons designated by them), (ii) the
Company or any subsidiary of the Company, (iii) any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
subsidiary of the Company, or (iv) any company owned, directly or indirectly, by
the shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities
of the Company representing more than 50% of the combined voting power of the
Company's then outstanding securities without the prior written consent of the
Committee or the Board; or
(b) during any period of twenty-four (24) consecutive months,
individuals who at the effective date of the Plan constitute the Board and any
new director whose election by the Board or nomination for election by the
Company shareholders was approved by a vote of at least a majority of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof;
(c) the shareholders of the Company approve a merger or
consolidation of the Company with any other company (other than a wholly-owned
subsidiary of the Company), other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) 50% or more of the
combined voting power of voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or (ii) a
merger or consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no "person" (as defined in Section 3.7.1(a)
above with the exceptions noted in section 3.7.1(a)) acquires more than 50% of
the combined voting power of the Company's then outstanding
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securities; or
(d) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets (or any transaction
having a similar effect).
3.7.2 Upon the happening of a change in control:
(a) notwithstanding any other provision of this Plan, any option
or stock appreciation right then outstanding shall become fully vested and
immediately exercisable upon the subsequent termination of employment of the
grantee by the Company or its successors without cause within one year of such
change in control unless the applicable plan agreement expressly provides
otherwise;
(b) to the fullest extent permitted by law, the Committee may, in
its sole discretion, amend any plan agreement in such manner as it deems
appropriate, including, without limitation, by amendments that advance the dates
upon which any or all outstanding awards of any type shall terminate.
3.7.3 In the event of the proposed dissolution or liquidation of the
Company, all outstanding awards will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee. The Committee may, in the exercise of its sole discretion in such
instances, accelerate the date on which any award becomes exercisable or fully
vested and/or declare that any award shall terminate as of a specified date.
3.7.4 In the event of a merger or consolidation ("merger") of the
Company with or into any other corporation or entity ("successor corporation"),
outstanding awards shall be assumed or an equivalent option or right shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Committee determines, in the exercise of its
sole discretion, to accelerate the date on which an award becomes exercisable or
fully vested. In the absence of an assumption or substitution of awards, awards
shall, to the extent not exercised, terminate as of the date of the closing of
the merger. For the purposes of this Section 3.7.4, an award shall be considered
assumed if, for every share of Common Stock subject thereto immediately prior to
the merger, the grantee has the right, following the merger, to acquire the
consideration received in the merger transaction by holders of shares of Common
Stock (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares);
provided, however, that if such consideration received in the merger was not
solely common stock of the successor corporation or its parent, the Committee
may, with the consent of the successor corporation and the participant, provide
for the consideration to be acquired pursuant to the award, for each share of
Common Stock subject thereto, to be solely common stock of the successor
corporation or its parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger. For purposes
hereof, the term "merger" shall include any transaction in which another
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corporation acquires all of the issued and outstanding Common Stock of the
Company.
3.8 Right of Discharge Reserved
Nothing in the Plan or in any plan agreement shall confer upon any
grantee the right to continue in the employ of the Company or any subsidiary or
affect any right which the Company or any subsidiary may have to terminate such
employment.
3.9 Nature of Payments
3.9.1 Any and all grants of awards and issuances of shares of Common
Stock under the Plan shall be in consideration of services performed for the
Company by the grantee.
3.9.2 All such grants and issuances shall constitute a special incentive
payment to the grantee and shall not be taken into account in computing the
amount of salary or compensation of the grantee for the purpose of determining
any benefits under any pension, retirement, profit-sharing, bonus, life
insurance or other benefit plan of the Company or of any subsidiary or under any
agreement with the grantee, unless such plan or agreement specifically provides
otherwise.
3.10 Non-Uniform Determinations
The Committee's determinations under the Plan need not be uniform and
may be made by it selectively among persons who receive, or are eligible to
receive, awards under the Plan (whether or not such persons are similarly
situated). Without limiting the generality of the foregoing, the Committee shall
be entitled, among other things, to make non-uniform and selective
determinations, and to enter into non-uniform and selective Plan agreements, as
to (a) the persons to receive awards under the Plan, (b) the terms and
provisions of awards under the Plan and (c) the treatment of leaves of absence
pursuant to Section 1.6.4.
3.11 Other Payments or Awards
Nothing contained in the Plan shall be deemed in any way to limit or
restrict the Company from making any award or payment to any person under any
other plan, arrangement or understanding, whether now existing or hereafter in
effect.
3.12 Section Headings
The section headings contained herein are for the purpose of convenience
only and are not intended to define or limit the contents of the sections.
3.13 Effective Date and Term of Plan
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3.13.1 The Plan was adopted by the Board on May ___, 1998 (the
"effective date"), subject to approval by the Company's shareholders. All awards
under the Plan prior to such shareholder approval are subject in their entirety
to such approval. If such approval is not obtained prior to the first
anniversary of the date of adoption of the Plan, the Plan and all awards
thereunder shall terminate on that date.
3.13.2 Unless sooner terminated by the Board, the provisions of the Plan
respecting the grant of incentive stock options shall terminate on the day
before the tenth anniversary of the effective date of the Plan, and no incentive
stock option awards shall thereafter be made under the Plan. All awards made
under the Plan prior to its termination shall remain in effect until such awards
have been satisfied or terminated in accordance with the terms and provisions of
the Plan and the applicable plan agreements.
3.14 Governing Law
All rights and obligations under the Plan shall be construed and
interpreted in accordance with the laws of the State of Delaware, without giving
effect to principles of conflict of laws.
17
EXHIBIT 10.2
GENTA INCORPORATED
NON-EMPLOYEE DIRECTORS' 1998 STOCK OPTION PLAN
1. Purpose
The purpose of the Genta Incorporated Non-Employee Directors' 1998 Stock
Option Plan (the "Plan") is to provide an incentive to those directors of Genta
Incorporated (the "Company") who are not employees of the Company to serve on
the board of directors of the Company (the "Board") and to maintain and enhance
the Company's long-term performance.
2. Administration
The terms of the stock options to be awarded under the Plan are set
forth herein and may not be varied other than by amendment of the Plan in
accordance with Section 10. To the extent that any administrative action is
required in connection with the Plan, such action shall be taken by the Board,
whose determination in such case shall be final, binding and conclusive.
3. Shares Available for Awards
The total number of shares of common stock of the Company, par value
$.001 per share ("Common Stock"), which may be transferred upon the exercise of
options granted under the Plan shall not exceed 3,000,000 shares plus the number
of shares underlying the options referred to in Section 5(c) (as adjusted as
provided therein). Such shares may be authorized and unissued shares, treasury
shares or shares acquired by the Company for the purposes of the Plan. Any
shares of Common Stock that are subject to a stock option under the Plan and
that have not been transferred at the time such option is cancelled or
terminated shall again be available for options under the Plan.
4. Persons Eligible for Stock Options
Stock options shall be granted under the Plan only to persons who are
members of the Board and are not employees of the Company or any subsidiary
thereof ("Eligible Directors").
<PAGE>
5. Grant of Stock Options
(a) Every option granted under the Plan shall be subject to the
terms and conditions set forth in the Plan, and shall be evidenced by an option
agreement which shall not be inconsistent with the provisions of the Plan.
(b) As of the close of each annual meeting of the Company's
shareholders ("Annual Meeting"), commencing with the Annual Meeting in 1999,
each individual who qualifies as an Eligible Director at the conclusion of such
meeting, excluding any Eligible Director who is then receiving a grant under the
Company's 1998 Stock Incentive Plan or any other stock-based compensation plan
or arrangement of the Company in connection with his or her initial election or
appointment to the Board, shall be granted an option to purchase 50,000 shares
of Common Stock, provided that the Eligible Director has served as a director of
the Company for at least six months prior to the date of such Annual Meeting.
(c) Each Eligible Director serving as a director on May 28, 1998
shall be granted stock options to purchase the number of shares of Common Stock
set forth below under the heading "Number of Initial Shares" at an exercise
price of $.94375 per share (subject to proportional adjustment for any stock
split or reverse stock split of the Common Stock). The exercise price and number
of shares subject to such stock options shall be subject to adjustment if the
number of shares of Fairly-Diluted Common Stock (as defined below) as of
February 26, 1999 (the "Adjustment Date") is other than 44,725,266 shares
(subject to proportional adjustment for any stock split or reverse stock split
of the Common Stock) as a result of any and all Covered Events (as defined
below) occurring prior to such time, in which case (x) the number of shares of
Common Stock covered by the stock option shall increase by a number of shares
equal to the percentage set forth below under the caption "Applicable
Percentage" of the number of shares of Fairly-Diluted Common Stock as of the
Adjustment Date in excess of 44,725,266 that are attributable to Covered Events
and (y) the per share exercise price shall be adjusted to equal the conversion
price of the Company's Series D Convertible Preferred Stock immediately after
the Reset (as defined in the fifth paragraph of Subsection 4(a) of the
Certificate of Designations for the Series D Convertible Preferred Stock, as
amended from time to time) as modified by any contractual modification to such
Reset agreed to by at least a majority of the holders of Series D Preferred
Stock. "Fairly-Diluted Common Stock" shall mean, as of a specified date, the
number of shares of Common Stock that would be outstanding on such date assuming
(i) the conversion into Common Stock on such date of all preferred stock of the
Company outstanding on May 28, 1998 or issuable upon exercise of warrants
outstanding on May 28, 1998; and (ii) the exercise of all warrants of the
Company outstanding on May 28, 1998 or contractually required to be issued
pursuant to an agreement in effect on May 28, 1998, in each case having an
exercise price per share of Common Stock of less than $2.00 on May 28, 1998
(subject to proportional adjustment for any stock split or reverse stock split
of the Common Stock) including, but not limited to, any Penalty Warrants (as
defined in the Company's Annual Report on Form 10-K, as amended, for the year
ended December 31, 1997) that may
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be issued. "Covered Events" mean any issuance of Penalty Warrants or alteration
of the conversion price of the Series D Preferred Stock pursuant to the Reset
referred to above or any contractual modification thereof.
Applicable
Director Number of Initial Shares Percentage (%)
- -------- ------------------------ --------------
Drapkin 675,000 1.5
Cooper 337,500 .75
Sandage 337,500 .75
Kessel 75,000 .167
Salomon 75,000 .167
Stein 75,000 .167
Wakoff 75,000 .167
Weiss 75,000 .167
6. Terms of Stock Options
(a) The exercise price per share of Common Stock under each
option granted under Section 5(b) shall be equal to the "Fair Market Value" per
share of Common Stock on the date of option grant. For purposes of the Plan, the
"Fair Market Value" of a share of Common Stock on any day shall be as follows:
(i) if the principal market for the Common Stock (the "Market") is a national
securities exchange or the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") National Market or SmallCap Market, the last sale
price or, if no reported sales take place on the applicable date, the average of
the high bid and low asked price of Common Stock as reported for such Market on
such date or, if no such quotation is made on such date, on the next preceding
day on which there were quotations, provided that such quotations shall have
been made within the ten (10) business days preceding the applicable date; (ii)
If the Common Stock is actively traded but clause (i) does not apply, the
average of the high bid and low asked price for Common Stock on the applicable
date, or, if no such quotations shall have been made on such date, on the next
preceding day on which there were quotations, provided that such quotations
shall have been made within the ten (10) business days preceding the applicable
date; or (iii) In the event that neither clause (i) or (ii) shall apply, the
Fair Market Value of a share of Common Stock on any day shall be determined in
good faith by the Board. The exercise price of each option granted under Section
5(c) shall be $0.94375 per share, subject to adjustment as provided in Section
5(c).
(b) Each option granted under the Plan shall have a term of ten
years, and shall not be exercisable after the tenth anniversary of the date of
grant.
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(c) Each option granted under Section 5(b) shall become
exercisable in full on the date of the Annual Meeting next following the date of
grant provided that the optionee continues to serve as a member of the Board of
Directors immediately following such Annual Meeting. Each option granted under
Section 5(c) shall become exercisable in 16 substantially equal installments on
the last day of each calendar quarter after October 1, 1997 provided that
adjustments to the number of options contemplated by Section 5(c) shall be
pro-rated as to vesting over the remaining quarterly periods after the
adjustment. An option may be exercised from time to time for all or part of the
shares as to which it is then exercisable (but, in any event, only for whole
shares).
7. Exercise of Options
(a) An option shall be exercised by the filing of a written
notice with the Company, on such form and in such manner as the Company shall
prescribe, accompanied by payment for the shares being purchased. Such payment
shall be made: (i) by certified or official bank check (or the equivalent
thereof acceptable to the Company) for the full option exercise price; (ii) by
delivery of shares of Common Stock (which, if acquired pursuant to the exercise
of a stock option, were acquired at least six months prior to the option
exercise date) and having a Fair Market Value (determined as of the exercise
date) equal to all or part of the option exercise price and a certified or
official bank check (or the equivalent thereof acceptable to the Company) for
any remaining portion of the full option exercise price; or (iii) at the
discretion of the Board and to the extent permitted by law, by such other method
as the Board may authorize, including, without limitation, at the discretion of
the Board, by the withholding of shares (valued at their Fair Market Value on
the date of exercise) underlying the Option.
(b) Promptly after receiving payment of the full option exercise
price, the Company shall deliver to the Eligible Director, or to such other
person as may then have the right to exercise the option, a certificate for the
shares of Common Stock for which the option has been exercised.
(c) The holder of a stock option (or other person having the
right to exercise the option) shall have none of the rights of a shareholder of
the Company with respect to the shares subject to the option until the issuance
of a stock certificate to such person for such shares. Except as otherwise
provided in Section 9, no adjustment shall be made for dividends, distributions
or other rights (whether ordinary or extraordinary, and whether in cash,
securities or other property) for which the record date is prior to the date
such stock certificate is issued.
8. Termination of Directorship; Change of Control
(a) If an optionee's membership on the Board terminates for any
reason other than death, the optionee may exercise any outstanding option to the
extent that the
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optionee was entitled to exercise it on the date of termination. Exercise must
occur within six months after termination, except that the six-month period
shall be increased to one year if the termination is by reason of disability,
but in no event after the expiration date of the option.
(b) If an optionee dies while serving on the Board, or during the
period in which an option is exercisable pursuant to paragraph (a) of this
Section 8, any outstanding option shall be exercisable to the extent that the
optionee was entitled to exercise it on the date of death. Exercise must occur
by the earlier of the first anniversary of death or the expiration date of the
option. Such exercise shall be made only by the optionee's executor or
administrator, unless the optionee's will specifically disposes of the option,
in which case exercise shall be made only by the recipient of such specific
disposition. If an optionee's personal representative or the recipient of a
specific disposition under the optionee's will shall be entitled to exercise any
award pursuant to the preceding sentence, such representative or recipient shall
be bound by all the terms and conditions of the Plan and the applicable
agreement which would have applied to the optionee including, without
limitation, the provisions of Section 11 hereof.
(c) Upon expiration of the applicable six-month or one-year
period described in paragraph (a) or (b) of this Section 8, any unexercised
option shall be null and void.
(d) Upon the happening of a change in control (as hereinafter
defined) notwithstanding any other provision of this Plan, any option granted
under Section 5(c) then outstanding shall become fully vested and immediately
exercisable (i) upon the termination of the Eligible Director's status as an
Eligible Director as a result of the removal of such person from the Board
(other than for cause) by shareholder action within one year of such change in
control or (ii) in the case of any liquidation, sale, disposition or other
transaction described in clause (D) of the next sentence, immediately upon the
consummation of such liquidation, sale, disposition or other transaction. A
"change in control" shall have occurred if: (A) any "person", as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act") (other than (i) the shareholders of the Company as of
the effective date of the Plan (the "Current Shareholders", such term to include
their heirs or estates, or trusts or other entities the primary beneficiaries of
which are the Current Shareholders or persons designated by them, (ii) the
Company or any subsidiary of the Company, (iii) any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
subsidiary of the Company, or (iv) any company owned, directly or indirectly, by
the shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities
of the Company representing more than 50% of the combined voting power of the
Company's then outstanding securities without the prior written consent of the
Board; or (B) during any period of twenty-four (24) consecutive months,
individuals who at the effective date of the
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Plan constitute the Board and any new director whose election by the Board or
nomination for election by the Company shareholders was approved by a vote of at
least a majority of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof; or (C) the shareholders of the Company approve a merger or
consolidation of the Company with any other company (other than a wholly-owned
subsidiary of the Company), other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) 50% or more of the
combined voting power of voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or (ii) a
merger or consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no "person" (as defined in clause (A) above
with the exceptions noted in said clause (A)) acquires more than 50% of the
combined voting power of the Company's then outstanding securities; or (D) the
shareholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets (or any transaction having a similar
effect).
(e) In the event of a merger or consolidation ("merger") of the
Company with or into any other corporation or entity ("successor corporation"),
outstanding awards granted under this Plan shall be assumed or an equivalent
option or right shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation. For the purposes of this paragraph
(e), an award shall be considered assumed if, for every share of Common Stock
subject thereto immediately prior to the merger, the grantee has the right,
following the merger, to acquire the consideration received in the merger
transaction by holders of shares of Common Stock (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding shares); provided, however, that if such
consideration received in the merger was not solely common stock of the
successor corporation or its parent, the Board may, with the consent of the
successor corporation and the participant, provide for the consideration to be
acquired pursuant to the award, for each share of Common Stock subject thereto,
to be solely common stock of the successor corporation or its parent equal in
fair market value to the per share consideration received by holders of Common
Stock in the merger. For purposes hereof, the term "merger" shall include any
transaction in which another corporation acquires all of the issued and
outstanding Common Stock of the Company.
9. Change in Capitalization
In the event of any change in the Common Stock by reason of a stock
split, reverse stock split, stock dividend, recapitalization, reclassification,
merger, consolidation, split-up, combination, exchange of shares or the like,
the Board shall appropriately adjust the number and kind of shares authorized
for issuance under the Plan, the number of shares
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subject to each option then outstanding or subsequently granted under the Plan
and the exercise price of each such option. The Board's determination as to
what, if any, adjustments shall be made shall be final, binding and conclusive
on the Company and on all Eligible Directors who receive option grants under the
Plan.
10. Amendment of the Plan
(a) The Board may from time to time suspend, discontinue, revise
or amend the Plan in any respect whatsoever; provided, however, that no such
amendment shall impair any material rights or increase any material obligations
under any option theretofore granted under the Plan without the consent of the
optionee (or, after the optionee's death, the person having the right to
exercise the option). For purposes of this Section 10, any action of the Board
that alters or affects the tax treatment of any option shall not be considered
to materially impair any rights of any optionee.
(b) Shareholder approval shall be required with respect to any
amendment if the failure to obtain such approval would adversely affect the
compliance of the Plan with the requirements of any applicable law, rule or
regulation.
11. Restrictions
(a) If the Board shall at any time determine that any Consent (as
hereinafter defined) is necessary or desirable as a condition of, or in
connection with, the granting of any option under the Plan, the issuance or
purchase of shares or other rights thereunder, or the taking of any other action
thereunder (each such action being hereinafter referred to as a "Plan Action"),
then such Plan Action shall not be taken, in whole or in part, unless and until
such Consent shall have been effected or obtained to the full satisfaction of
the Board.
(b) The term "Consent" as used herein with respect to any Plan
Action means (i) any and all listings, registrations or qualifications in
respect thereof upon any securities exchange or under any federal, state or
local law, rule or regulation, (ii) any and all written agreements and
representations by the optionee with respect to the disposition of shares, or
with respect to any other matter, which the Board shall deem necessary or
desirable to comply with the terms of any such listing, registration or
qualification or to obtain an exemption from the requirement that any such
listing, qualification or registration be made and (iii) any and all consents,
clearances and approvals in respect of a Plan Action by any governmental or
other regulatory bodies.
12. Nonassignability
No award or right granted to any person under the Plan shall be
assignable or transferable other than by will or by the laws of descent and
distribution, and all such awards and rights shall be exercisable during the
life of the grantee only by the grantee or the
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grantee's legal representative.
13. No Right to Re-election
Nothing in the Plan shall be deemed to create any obligation on
the part of the Board to nominate any of its members for re-election by the
Company's shareholders, nor confer upon any Eligible Director the right to
remain a member of the Board for any period of time or at any particular rate of
compensation.
14. No Limitation on Corporate Actions
This Plan shall not affect in any way the right or power of the Company
or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of stock or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks whose rights are superior to or
affect the Common Stock or the rights thereof or which are convertible into or
exchangeable for Common Stock, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
15. Section Headings
The section headings contained herein are for the purpose of convenience
only and are not intended to define or limit the contents of the sections.
16. Effective Date and Term of Plan
The Plan was adopted by the Board on May 28, 1998, subject to approval
by the Company's shareholders. Unless sooner terminated by the Board, the Plan
shall terminate on the date when no more shares are available for transfer under
the Plan. Options outstanding upon Plan termination shall continue in effect in
accordance with their terms.
17. Governing Law
All rights and obligations under the Plan shall be construed and
interpreted in accordance with the laws of the State of Delaware, without giving
effect to principles of conflict of laws.
8
EXHIBIT 10.3
GENTA INCORPORATED
1998 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated as of May 28th, 1998,
between GENTA INCORPORATED, a Delaware corporation (the "Company"), and the
other party signatory hereto (the "Optionee"). Capitalized terms used here
without definition shall have the meanings ascribed thereto in the Plan (as
defined below).
The Company's Board of Directors or its Compensation Committee (the
"Committee") has determined that the objectives of the Company's 1998 Stock
Incentive Plan (the "Plan"), will be furthered by granting to the Optionee a
stock option pursuant to the Plan.
The Plan and the grant of the options described herein were approved by
the Company's stockholders at the annual meeting of the stockholders held on
July 14, 1998.
In consideration of the foregoing and of the mutual undertakings set
forth in this Agreement, the Company and the Optionee agree as follows:
SECTION 1. Grant of Option.
The Company hereby grants to the Optionee a stock option (the "Option")
to purchase 2,236,263 shares of common stock of the Company, $.001 par value per
share (the "Common Stock"), at an initial exercise price of $0.94375 per share.
The exercise price and
1
<PAGE>
the number of shares subject to the Option are subject to adjustment if the
number of shares of Fairly-Diluted Common Stock (as defined below) on February
26, 1999 (the "Adjustment Date") is other than 44,725,266 shares (subject to
proportional adjustment for any stock split or reverse stock split of the Common
Stock after the date hereof) as a result of any Covered Events (as defined
below) occurring prior to the Adjustment Date, in which case the Option shall
automatically be adjusted: (x) to adjust the number of shares of Common Stock
covered to the extent necessary to equal the sum of: (a) 2,236,263 shares of
Common Stock (subject to proportional adjustment for any stock split or reverse
stock split of the Common Stock after the date hereof); and (b) 5% of any
additional shares of Fairly-Diluted Common Stock as of the Adjustment Date that
are attributable to Covered Events (subject to proportional adjustment for any
stock split or reverse stock split of the Common Stock); and (y) to adjust the
exercise price so that the exercise price per share is equal to the Series D
Reset Price (as defined below) of the Company's Series D Convertible Preferred
Stock (the "Series D Preferred Stock"). "Fairly-Diluted Common Stock" means, as
of a specified date, the number of shares of Common Stock that would be
outstanding on such date assuming: (i) the conversion into Common Stock on such
date of all preferred stock of the Company outstanding on the date hereof or
issuable upon exercise of warrants outstanding on the date hereof; and (ii) the
exercise on such date of all warrants of the Company outstanding on the date
hereof or contractually required to be issued pursuant to an agreement in effect
on the date hereof, in each case having an exercise price per share of Common
Stock of less than $2.00 on the date hereof, including, but not limited to,
Penalty Warrants (as defined in the Company's Annual Report on Form 10-K, as
amended, for the year ended December 31
2
<PAGE>
1997). "Covered Events" means any issuance of Penalty Warrants or alteration of
the conversion price of the Series D Preferred Stock pursuant to the Reset (as
defined in the fifth paragraph of Subsection 4(a) of the Certificate of
Designations for the Series D Preferred Stock, as amended from time to time), or
any contractual modification to such Reset (the altered conversion price
effected by such Reset, as contractually modified by agreement of the holders of
at least a majority of the Series D Preferred Stock, being referred to herein as
the "Series D Reset Price"). It is intended that the Option shall not qualify as
an "incentive stock option" as defined in Section 422 of the Internal Revenue
Code of 1986, as amended.
SECTION 2. Exercisability.
Subject to the further terms of this Agreement, the Option shall become
exercisable in 16 substantially equal installments on the last day of each
calendar quarter after October 1, 1997 provided that adjustments to the number
of options as provided in Section 1 hereof shall be pro-rated as to vesting over
the remaining quarterly periods after the adjustment. Unless earlier terminated
pursuant to the provisions of the Plan, the unexercised portion of the Option
shall expire and cease to be exercisable at 12:01 a.m. on the tenth anniversary
of the date of this Agreement.
SECTION 3. Method of Exercise.
The Option or any part thereof may be exercised only by the giving of
written notice to the Company on such form and in such manner as the Committee
shall prescribe. Such written notice must be accompanied by payment of the full
purchase price for the
3
<PAGE>
number of shares being purchased. Such payment may be made by one or a
combination of the following methods: (a) by a certified or official bank check
(or the equivalent thereof acceptable to the Company); (b) by delivery of shares
of Common Stock acquired at least six months prior to the option exercise date
and having a Fair Market Value on the exercise date equal to part or all of the
purchase price; or (c) at the discretion of the Committee and to the extent
permitted by law, by such other method as the Committee may authorize,
including, without limitation, at the discretion of the Committee, by the
withholding of shares (valued at their Fair Market Value on the exercise date)
underlying the Option. Pursuant to Section 3.2 of the Plan, it shall be a
condition precedent to the issuance of shares upon exercise of the Option that
the Optionee shall remit to the Company any amount sufficient to satisfy all
applicable withholding tax requirements, which may be satisfied through the
withholding of Common Stock as provided in Section 3.2.2 of the Plan. The date
of the exercise of the Option shall be the date on which written notice of
exercise is delivered to the Company, during normal business hours, at its
address as provided in Section 9 of this Agreement, or if mailed, the date on
which it is postmarked, provided such notice is actually received.
SECTION 4. Termination of Employment; Death.
4.1 Upon termination of the Optionee's employment with the Company and
its subsidiaries, for any reason (including death), the Option shall terminate
and expire except as provided in Section 4.2 or 4.3 of this Agreement.
4.2 If the Optionee's employment with the Company and its subsidiaries
s 4
<PAGE>
terminates for any reason other than death or dismissal for cause (as defined in
Section 1.6.5 of the Plan), the Option shall be exercisable but only to the
extent it was exercisable at the time of such termination and only until the
earlier of the expiration date of the Option, determined pursuant to Section 2
of this Agreement, or the expiration of one year following the date of
termination.
4.3 If the Optionee dies while an employee of the Company and its
subsidiaries or following the termination of the Optionee's employment with the
Company and its subsidiaries, but during the period in which the Option is
exercisable pursuant to Section 4.2 of this Agreement, the Option shall be
exercisable but only to the extent it was exercisable at the time of death and
only until the earlier of the expiration date of the Option, determined pursuant
to Section 2 of this Agreement, or the first anniversary of the date of the
Optionee's death.
SECTION 5. Plan Provisions to Prevail.
This Agreement is subject to all of the terms and provisions of the
Plan. Without limiting the generality of the foregoing, by entering into this
Agreement the Optionee agrees that no member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any award thereunder or this Agreement. In the event
that there is any inconsistency between the provisions of this Agreement and of
the Plan, the provisions of the Plan shall govern.
SECTION 6. Nontransferability.
5
<PAGE>
The Option shall not be assignable or transferable, voluntarily or
involuntarily, by operation of law, or otherwise, and any such assignment or
transfer which may be attempted shall be null and void and of no effect;
provided, however, that this Section 6 shall not prevent transfers by will or by
the laws of descent and distribution. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee.
SECTION 7. No Rights as a Shareholder
The Optionee shall have no rights as a shareholder of the Company with
respect to the shares subject to the Option until the issuance to the Optionee
of a stock certificate for such shares. Except as otherwise provided in Section
1.5.3 of the Plan, no adjustment shall be made for dividends, distributions or
other rights (whether ordinary or extraordinary, and whether in cash, securities
or other property) for which the record date is prior to the date such stock
certificate is issued.
SECTION 8. Right of Discharge Preserved.
Nothing in this Agreement shall confer upon the Optionee the right to
continue in the employ of the Company and its subsidiaries, or to continue in
the service of the Company and its subsidiaries as a consultant or director, or
affect any right which the Company and its subsidiaries may have to terminate
such employment or service.
SECTION 9. Notices.
6
<PAGE>
All notices required or permitted hereunder shall be given in writing by
personal delivery; by confirmed facsimile transmission (with a copy dispatched
by express delivery or registered or certified mail); or by express delivery via
express mail or any reputable express courier service. Notice shall be addressed
(a) to Genta Incorporated, c/o Michael S. Weiss, 787 Seventh Avenue, 48th Floor,
New York, New York 10019; and (b) to the Optionee at the address set forth on
the signature page hereto; or (c) as to either party, at such other address as
may be designated by notice in the manner set forth herein. Notices which are
delivered personally, by confirmed facsimile transmission, or by courier as
aforesaid, shall be effective on the date of delivery.
SECTION 10. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and the successors and assigns of the Company and, to the extent
consistent with Section 4 of this Agreement and with the Plan, the heirs and
personal representatives of the Optionee.
SECTION 11. Entire Contract; Waiver; Amendment.
This Agreement constitutes the entire contract between the parties
hereto and supersedes all prior oral and written agreements between the parties
with regard to the subject matter hereof. No waiver of any breach or condition
of this Agreement shall be deemed to be a waiver of any other or subsequent
breach or condition, whether of like or
s 7
<PAGE>
different nature. This Agreement may be amended as provided in Section 3.1.3 of
the Plan.
SECTION 12. Severability.
If any provision of this Agreement (including any provision of the Plan
that is incorporated herein by reference) shall hereafter be held to be invalid,
unenforceable or illegal in whole or in part, in any jurisdiction under any
circumstances for any reason, (a) such provision shall be reformed to the
minimum extent necessary to cause such provision to be valid, enforceable and
legal while preserving the intent of the parties as expressed in, and the
benefits to the parties provided by, this Agreement and the Plan or (b) if such
provision cannot be so reformed, such provision shall be severed from this
Agreement and an equitable adjustment shall be made to this Agreement
(including, without limitation, addition of necessary further provisions to this
Agreement) so as to give effect to the intent as so expressed and the benefits
so provided. Such holding shall not affect or impair the validity,
enforceability or legality of such provision in any other jurisdiction or under
any other circumstances. Neither such holding nor such reformation or severance
shall affect or impair the legality, validity or enforceability of any other
provision of this Agreement or the Plan.
SECTION 13. Governing Law.
This Agreement shall be interpreted, construed and administered in
accordance with the laws of the State of New York, without giving effect to
principles of conflicts of laws, as they apply to contracts made, delivered and
performed in the State of New York.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
agreement as of the date and year first written above.
GENTA INCORPORATED
By: _________________________
Name: Michael S. Weiss
Title: Vice Chairman
OPTIONEE
________________________
Kenneth G. Kasses, Ph.D.
________________________
Address
________________________
Social Security Number
9
EXHIBIT 10.4
GENTA INCORPORATED
NON-EMPLOYEE DIRECTORS'
1998 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated as of May 28th, 1998,
between GENTA INCORPORATED, a Delaware corporation (the "Company"), and the
other party signatory hereto (the "Optionee"). Capitalized terms used here
without definition shall have the meanings ascribed thereto in the Plan (as
defined below).
The Company's Non-Employee Directors' 1998 Stock Option Plan (the
"Plan") contemplates the grant of the stock option set forth in this Agreement.
The Plan is being submitted for approval by the Company's stockholders.
In consideration of the foregoing and of the mutual undertakings set
forth in this Agreement, the Company and the Optionee agree as follows:
SECTION 1. Grant of Option.
Subject to receipt of stockholder approval of the Plan, the Company
hereby grants to the Optionee the stock option (the "Option") referred to in
Section 5(c) of the Plan. It is intended that the Option shall not qualify as an
"incentive stock option" as defined in Section 422 of the Internal Revenue Code
of 1986, as amended.
SECTION 2. Exercisability.
Subject to the further terms of this Agreement, the Option shall become
exercisable in 16 substantially equal installments on the last day of each
calendar quarter after October 1, 1997 provided that adjustments to the number
of options as provided in
<PAGE>
Section 5(c) of the Plan shall be pro-rated as to vesting over the remaining
quarterly periods after the adjustment. Unless earlier terminated pursuant to
the provisions of the Plan, the unexercised portion of the Option shall expire
and cease to be exercisable at 12:01 a.m. on the tenth anniversary of the date
of this Agreement.
SECTION 3. Method of Exercise.
The Option or any part thereof may be exercised only by the giving of
written notice to the Company on such form and in such manner as the Board of
Directors shall prescribe. Such written notice must be accompanied by payment of
the full purchase price for the number of shares being purchased. Such payment
may be made by one or a combination of the following methods: (a) by a certified
or official bank check (or the equivalent thereof acceptable to the Company);
(b) by delivery of shares of Common Stock acquired at least six months prior to
the option exercise date and having a Fair Market Value on the exercise date
equal to part or all of the purchase price; or (c) at the discretion of the
Board of Directors and to the extent permitted by law, by such other method as
the Board of Directors may authorize, including as contemplated by Section 7 of
the Plan. The date of the exercise of the Option shall be the date on which
written notice of exercise is delivered to the Company, during normal business
hours, at its address as provided in Section 9 of this Agreement, or if mailed,
the date on which it is postmarked, provided such notice is actually received.
SECTION 4. Termination of Employment; Death.
4.1 Upon termination of the Optionee's status as a director of the
Company for any reason (including death), the Option shall terminate and expire
except as provided in
2
<PAGE>
Section 4.2 or 4.3 of this Agreement.
4.2 If the Optionee's status as a director of the Company terminates for
any reason other than death, the Option shall be exercisable but only to the
extent it was exercisable at the time of such termination and only until the
earlier of the expiration date of the Option, determined pursuant to Section 2
of this Agreement, or the expiration of six months (or one year in the case of
termination by reason of disability) following the date of termination.
4.3 If the Optionee dies while a director of the Company or following
the termination of the Optionee's status as a director of the Company, but
during the period in which the Option is exercisable pursuant to Section 4.2 of
this Agreement, the Option shall be exercisable but only to the extent it was
exercisable at the time of death and only until the earlier of the expiration
date of the Option, determined pursuant to Section 2 of this Agreement, or the
first anniversary of the date of the Optionee's death.
SECTION 5. Plan Provisions to Prevail.
This Agreement is subject to all of the terms and provisions of the
Plan. Without limiting the generality of the foregoing, by entering into this
Agreement the Optionee agrees that no member of the Board of Directors shall be
liable for any action or determination made in good faith with respect to the
Plan or any award thereunder or this Agreement. In the event that there is any
inconsistency between the provisions of this Agreement and of the Plan, the
provisions of the Plan shall govern.
3
<PAGE>
SECTION 6. Nontransferability.
The Option shall not be assignable or transferable, voluntarily or
involuntarily, by operation of law, or otherwise, and any such assignment or
transfer which may be attempted shall be null and void and of no effect;
provided, however, that this Section 6 shall not prevent transfers by will or by
the laws of descent and distribution. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee.
SECTION 7. No Rights as a Shareholder
The Optionee shall have no rights as a shareholder of the Company with
respect to the shares subject to the Option until the issuance to the Optionee
of a stock certificate for such shares. Except as otherwise provided in Section
9 of the Plan, no adjustment shall be made for dividends, distributions or other
rights (whether ordinary or extraordinary, and whether in cash, securities or
other property) for which the record date is prior to the date such stock
certificate is issued.
SECTION 8. Right of Discharge Preserved.
Nothing in this Agreement shall confer upon the Optionee the right to
continue in the service of the Company as a director or affect any existing
right to terminate such service.
SECTION 9. Notices.
All notices required or permitted hereunder shall be given in writing by
4
<PAGE>
personal delivery; by confirmed facsimile transmission (with a copy dispatched
by express delivery or registered or certified mail); or by express delivery via
express mail or any reputable express courier service. Notice shall be addressed
(a) to Genta Incorporated, c/o Kenneth G. Kasses, 3550 General Atomics Ct., San
Diego, California 92121; and (b) to the Optionee at the address set forth on the
signature page hereto; or (c) as to either party, at such other address as may
be designated by notice in the manner set forth herein. Notices which are
delivered personally, by confirmed facsimile transmission, or by courier as
aforesaid, shall be effective on the date of delivery.
SECTION 10. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and the successors and assigns of the Company and, to the extent
consistent with Section 4 of this Agreement and with the Plan, the heirs and
personal representatives of the Optionee.
SECTION 11. Entire Contract; Waiver; Amendment.
This Agreement constitutes the entire contract between the parties
hereto and supersedes all prior oral and written agreements between the parties
with regard to the subject matter hereof. No waiver of any breach or condition
of this Agreement shall be deemed to be a waiver of any other or subsequent
breach or condition, whether of like or different nature. This Agreement may be
amended as provided in Section 10 of the Plan.
5
<PAGE>
SECTION 12. Severability.
If any provision of this Agreement (including any provision of the Plan
that is incorporated herein by reference) shall hereafter be held to be invalid,
unenforceable or illegal in whole or in part, in any jurisdiction under any
circumstances for any reason, (a) such provision shall be reformed to the
minimum extent necessary to cause such provision to be valid, enforceable and
legal while preserving the intent of the parties as expressed in, and the
benefits to the parties provided by, this Agreement and the Plan or (b) if such
provision cannot be so reformed, such provision shall be severed from this
Agreement and an equitable adjustment shall be made to this Agreement
(including, without limitation, addition of necessary further provisions to this
Agreement) so as to give effect to the intent as so expressed and the benefits
so provided. Such holding shall not affect or impair the validity,
enforceability or legality of such provision in any other jurisdiction or under
any other circumstances. Neither such holding nor such reformation or severance
shall affect or impair the legality, validity or enforceability of any other
provision of this Agreement or the Plan.
SECTION 13. Governing Law.
This Agreement shall be interpreted, construed and administered in
accordance with the laws of the State of New York, without giving effect to
principles of conflicts of laws, as they apply to contracts made, delivered and
performed in the State of New York.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
agreement as of the date and year first written above.
GENTA INCORPORATED
By: ___________________________
Name: Kenneth G. Kasses, Ph.D.
Title: President
OPTIONEE
______________________________
______________________________
Address
______________________________
______________________________
______________________________
Social Security Number
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS
OF OPERATIONS CONTAINED IN THE COMPANY'S QUARTERLY REPORT ON FORM
10-Q FOR THE PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 417,966
<SECURITIES> 4,773,378
<RECEIVABLES> 645,664
<ALLOWANCES> 0
<INVENTORY> 786,184
<CURRENT-ASSETS> 6,899,909
<PP&E> 4,644,026
<DEPRECIATION> 3,084,103
<TOTAL-ASSETS> 12,310,557
<CURRENT-LIABILITIES> 3,664,194
<BONDS> 2,777,633
0
678
<COMMON> 5,752
<OTHER-SE> 5,868,730
<TOTAL-LIABILITY-AND-EQUITY> 12,310,557
<SALES> 2,634,546
<TOTAL-REVENUES> 2,693,770
<CGS> 1,608,914
<TOTAL-COSTS> 5,852,855
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (176,397)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,556,268)
<EPS-PRIMARY> (0.62)
<EPS-DILUTED> 0
</TABLE>
Exhibit 99.1
GENTA JAGO TECHNOLOGIES B.V.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------
1998 1997 1998 1997
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Collaborative Research
and Development................... $ 395,980 $ 908,629 $ 942,408 $ 1,817,258
-------------------------------- ---------------------------------
Total Revenues 395,980 908,629 942,408 1,817,258
-------------------------------- ---------------------------------
COSTS AND EXPENSES:
Research and Development.......... $ 39,426 $ 1,185,075 $ 1,014,426 $ 2,370,150
General and Administrative........ 45,201 12,717 78,801 25,435
-------------------------------- ---------------------------------
Total Costs and Expenses.......... 84,627 1,197,792 1,093,227 2,395,584
-------------------------------- ---------------------------------
Income (Loss) from Operations..... $ 311,353 $ (289,163) $ (150,819) $ (578,326)
================================ =================================
OTHER INCOME AND EXPENSE:
Interest Income - 52 - 105
Interest Expense 194,295 (293,853) 507,658 (587,706)
-------------------------------- ---------------------------------
Total Other Income and Expense........ $ 194,295 $ (293,801) $ 507,658 $ (587,706)
-------------------------------- ---------------------------------
Net Income (Loss) $ 117,058 $ (582,964) $ (658,477) $ (1,166,032)
================================ =================================
</TABLE>
