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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
FOR ANNUAL AND TRANSITIONAL REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
/ / 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)
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DELAWARE 33-0326866
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
99 HAYDEN AVENUE, SUITE 200
LEXINGTON, MASSACHUSETTS 02421
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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(781) 860-5150
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS,
$.001 PAR VALUE
(TITLE OF CLASS)
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The approximate aggregate market value of the voting common equity held by
non-affiliates of the registrant was $270,069,748 as of March 10, 2000. For
purposes of determining this number, 7,874,769 shares of common stock held by
affiliates are excluded.
As of March 10, 2000, the registrant had 28,649,365 shares of Common Stock
outstanding. As of March 10, 2000, 555 persons held common stock of the
registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Certain provisions of the registrant's definitive proxy statement to be filed
not later than May 1, 2000 pursuant to Regulation 14A are incorporated by
reference in Items 10 through 13 of Part III of this Annual Report on Form 10-K.
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The statements contained in this Annual Report on Form 10-K 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: the obtaining of 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; the changing of
market conditions and the other risks detailed in the Certain Trends and
Uncertainties section of Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") in this Annual Report on Form 10-K
and elsewhere herein. The Company does not undertake to update any
forward-looking statements.
See "MD&A -- Certain Trends and Uncertainties" for a discussion of certain
risks and uncertainties applicable to the Company and its stockholders,
including the Company's need for additional funds to sustain its operations.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Genta Incorporated ("Genta" or the "Company"), incorporated under the laws
of the State of Delaware on February 4, 1988, is an emerging biopharmaceutical
company. The Company's research efforts have been focused on the development of
proprietary oligonucleotide pharmaceuticals intended to block or regulate the
production of disease-related proteins at the genetic level. The Company's
oligonucleotide programs are focused in the area of cancer. In late 1995, a
Phase 1/2A clinical trial was initiated in the United Kingdom using Genta's
anti-bcl-2 Anticode(TM) oligonucleotide, G3139, in non-Hodgkin's lymphoma
patients for whom prior therapies have failed. This clinical trial, which was
conducted in collaboration with the Royal Marsden NHS Trust and the Institute
for Cancer Research, is now complete. In late 1996, an Investigational New Drug
("IND") application for the G3139 clinical program was filed in the United
States and allowed to proceed by the United States Food and Drug Administration
("FDA"). In late 1997, a Phase 1 trial was initiated in the United States at the
Memorial Sloan-Kettering Cancer Center ("MSKCC") in New York City using G3139 in
patients diagnosed with various types of cancer and was followed by a Phase 2A
trial in prostate cancer. In 1998, several additional trials were initiated in
North America and Europe. In each of these trials, G3139 is being investigated
for safety and preliminary evidence of effectiveness when administered with
standard chemotherapeutic agents in different cancers. In 1999, the Company
entered into a Cooperative Research and Development Agreement ("CRADA") with the
National Cancer Institute ("NCI"), acquired Androgenics Technologies, Inc., a
company with license rights to a series of compounds that inhibit the growth of
prostate cancer cells, granted fast-track designation by the FDA to its bcl-2
antisense compound, G3139, for use in combination with Dacarbazine (DTIC) for
treatment of advanced malignant melanoma and initiated three clinical trials
sponsored by the NCI.
The Company had manufactured and marketed specialty biochemicals and
intermediate products to the in vitro diagnostic and pharmaceutical industries
through its manufacturing subsidiary, JBL Scientific, Inc. ("JBL"), a California
corporation acquired by the Company in February 1991, which was sold in 1999.
The Company owns 50% of a drug delivery system joint venture, Genta Jago
Technologies B.V. ("Genta Jago"), with SkyePharma, PLC ("SkyePharma," formerly
with Jagotec AG ("Jagotec"), which was acquired by SkyePharma) established to
develop oral controlled-release drugs. To date, no products from this joint
venture have been commercialized although an abbreviated New Drug Application
("NDA") was submitted in 1998 by the joint venture's marketing partner for one
product. The joint venture's original plan was to use Jagotec's patented
GEOMATRIX(R) drug delivery technology ("GEOMATRIX") in a two-pronged
commercialization strategy: the development of generic versions of successful
brand-name controlled-release drugs; and the development of controlled-release
formulations of drugs currently marketed in only immediate-release form. The
only products in development to date are those intended to be comparable to the
commercially available, brand name, controlled-release drugs.
Since 1997, the Company has been reducing its human and other resources to
reduce expenses while focusing its research and development efforts on its
Anticode(TM) brand of antisense products. To this end the Company's primary
efforts are directed toward the clinical development of G3139.
Consistent with this strategic direction, on March 19, 1999, the Company
entered into an Asset Purchase Agreement with Promega Corporation whereby its
wholly owned subsidiary Promega Biosciences, Inc. ("Promega") acquired
substantially all of the assets and assumed certain liabilities of JBL. JBL has
been reported as a discontinued operation in the accompanying consolidated
financial statements. The closing of the sale of JBL was completed on May 10,
1999.
On March 4, 1999, Genta and SkyePharma (on behalf of itself and its
affiliates) entered into an interim agreement pursuant to which the parties to
the joint venture released each other from all liability relating to unpaid
development costs and funding obligations of Genta Jago. SkyePharma agreed to be
responsible for substantially all of the obligations of the joint venture to
third parties and for the further development of the joint venture's products,
with any net income resulting therefrom to be allocated in agreed-upon
percentages between Genta and SkyePharma
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as set forth in such interim agreement. In the first quarter 2000, the Company
received $689,500 from SkyePharma as a royalty payment based on SkyePharma's
agreement with Elan Pharmaceuticals for the sale of Naproxen.
In August 1999, Genta acquired Androgenics Technologies, Inc.,
("Androgenics") a company with license rights to a series of compounds invented
at the University of Maryland, Baltimore to treat prostate cancer. These
compounds have the potential to broaden Genta's product portfolio of drugs.
Effective December 1, 1999, Kenneth K. Kasses, Ph.D., resigned as
President, Chief Executive Officer and Chairman of the Board of Directors of
the Company. Also effective December 1, 1999, the Company appointed Raymond P.
Warrell Jr., M.D. to serve as President and Chief Executive Officer and elected
Mark C. Rogers, M.D. to serve as Chairman of the Board of Directors of the
Company.
In 1998, the Company completed the closure of its research and development
facilities in San Diego, California and in the second quarter of 1999 moved its
headquarters from San Diego, California, to Lexington, Massachusetts.
SUMMARY OF BUSINESS AND RESEARCH AND DEVELOPMENT PROGRAMS
The Company is currently focusing most of its research and product
development efforts on Genta's lead anti-bcl-2 molecule, G3139. The Androgenics
program is in early preclinical development. The Company is actively seeking
additional products, technologies and alliances to expand its development
programs.
ANTICODE(TM) BRAND OF ANTISENSE OLIGONUCLEOTIDE PROGRAMS
Oligonucleotides represent a new approach to drug development based upon
genetic control of disease. Many human diseases have genetic origins that
involve either the expression of a harmful foreign gene or the aberrant
expression of a normal or mutated human gene. The Company's Anticode(TM)
oligonucleotides are short strands of synthetic nucleic acids designed to bind
to ("hybridize" with) specific sequences of disease-related RNA, thereby
blocking or controlling production of disease-related proteins. Because of their
highly selective binding properties, the Company believes that Anticode(TM)
oligonucleotides should not interfere with the function of normal cells, and
therefore should elicit fewer side effects than traditional drugs.
Oligonucleotide drugs may attack a disease at one of two levels. Our approach is
to prevent the synthesis of essential disease-related proteins. In this
approach, certain oligonucleotides are used to interrupt the processing of, or
selectively to bind to and destroy, individual messenger RNA (mRNA) sequences,
which leads to the down-regulation (lowering of levels) of specific proteins and
thereby effectively eliminates the disease or the disease promoter. This is
referred to as the "antisense" mechanism of action.
Genta has focused its Anticode(TM) research on oligonucleotides with mixed
phosphorothioate and methylphosphonate backbones. The Company has licensed
patents covering phosphorothioate oligonucleotide constructions and has applied
for patents covering the mixed backbone constructions. Genta's scientists have
improved the backbone technologies by introducing mixed chirally-enriched or
chirally-pure oligonucleotides. In preclinical studies, these oligonucleotides
effectively interfere with the action of targeted mRNA sequences inside cells.
Intravenous administration of the improved technology oligonucleotides to
certain animals demonstrates that these compounds have greater stability in the
circulatory system and are eventually excreted intact in the urine. These
improved backbone technologies represent opportunities for advanced generation
Anticode(TM) antisense oligonucleotides, and one of these approaches is
currently in preclinical development. Management believes that the Company has
the ability to acquire quantities of oligonucleotides sufficient to support its
present needs for research and its projected needs for initial clinical
development programs, assuming adequate funding. 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. There can be no
assurance that such supplier will continue satisfactorily to provide the
requisite raw materials. See "MD&A -- Certain Trends and Uncertainties -- The
Raw Materials for Our Products are Produced by a Limited Number of Suppliers."
The Company's oligonucleotide research and development efforts are currently
focused on its cancer program as described below. Extensive additional
development will be required, and there can be no assurance that any product
will be successfully developed or will receive the necessary regulatory
approvals. See "MD&A -- Certain Trends and Uncertainties -- We Cannot Market and
Sell Our Products in the United States or in Other Countries if We Fail to
Obtain the Necessary Regulatory Approvals" and "Clinical Trials are Costly and
Time Consuming and are Subject to Delays."
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Bcl-2 Gene Target
The bcl-2 gene is a proto-oncogene and a major inhibitor of the natural
process the body uses to eliminate genetically damaged cancerous cells, which is
called apoptosis (programmed cell death). The protein produced by this gene has
two known critical functions in the progression of cancer: it creates a survival
advantage of malignant over normal cells, and it confers resistance to radiation
and chemotherapy, rendering those treatments ineffective in the late stages of
many types of cancer. Genta's lead anti-bcl-2 molecule, G3139, is designed to
bind to and destroy the mRNA that produces the bcl-2 protein product, thereby
interfering with the cellular production of the protein. This targeted reduction
of the bcl-2 protein may facilitate the natural process of apoptosis to kill the
cancer cell. High levels of bcl-2 are associated with a poor clinical prognosis
in many solid tumors and hematological cancers such as lymphoma, leukemia,
melanoma, multiple myeloma, lung, colon, prostate and breast cancers. The
Company believes that its Anticode(TM) antisense strategy against the bcl-2 gene
has the potential to represent a significant therapeutic opportunity in many of
these cancers.
Preclinical studies showed that an anti-bcl-2 oligonucleotide cured a
lymphoma-like disease induced by the injection of human B-cell lymphoma cells in
immunodeficient mice. Anti-bcl-2 Anticode(TM) oligonucleotides have also been
found to inhibit the growth of human lymphoma, melanoma, colon, prostate and
breast cancer tumors in immunodeficient mice when administered alone or in
combination with chemotherapeutic agents. In the February 1998 issue of Nature
Medicine, G3139 administered with Dacarbazine was reported to produce
significantly greater tumor volume reduction than Dacarbazine alone or than
G3139 alone. In ten of thirteen animals there was no tumor after the combination
treatment.
In late 1995, a Phase 1/2A clinical trial was initiated in the United
Kingdom using Genta's anti-bcl-2 Anticode(TM) oligonucleotide, G3139, in human
non-Hodgkin's lymphoma patients for whom prior therapies had failed. Other than
mild irritation at the site of the subcutaneous infusion in most of the patients
and a low-grade reversible thrombocytopenia (decrease in number of blood
platelets), no serious drug-attributable or dose-limiting adverse effects were
seen until the maximum tolerated dose was reached. Four of nine patients
observed showed improvements in their disease and in one patient the tumor had
completely disappeared. Of the 21 patients treated to date, three suffered what
were considered to be serious drug-related adverse events at high levels of drug
presentation above the predicted efficacy range. These events included a skin
reaction due to the subcutaneous method of administration in the study,
hypotension, and thrombocytopenia. These patients were removed from the study
and recovered from the reaction. The patient who had experienced hypotension was
later re-challenged at a lower dose without any untoward event.
The Company filed an IND, with the FDA in December 1996. The Company
initiated several clinical trials in 1998 and 1999, and on-going trials are
summarized in the table below. Additional trials are also under review.
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STATUS OF G3139 CLINICAL TRIALS
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TRIAL LOCATION/INVESTIGATOR STATUS INDICATION TREATMENT
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Royal Marsden Hospital Phase 2 Lymphoma G3139 with Rituxan
David Cunningham, MD in Progress
London, England
MSKCC Phase 1/2 G3139 with Taxotere(R)
Howard Scher, MD in Progress Prostate Cancer
New York, NY
University of Vienna Phase 2 G3139 with DTIC
Burkhard Jansen, MD in Progress Melanoma
Vienna, Austria
Lombardi Cancer Center Phase 1/2 Breast Cancer G3139 with Taxotere(R)
Marc Lippmann, MD
Washington, DC
Institute of Drug Development Phase 2 Prostate Cancer G3139 with Taxotere(R)
Anthony Tolcher, MD
San Antonio, TX
Institute of Drug Development Phase 2 Colo-rectal Cancer G3139 with Camptosar(R)
Anthony Tolcher, MD
San Antonio, TX
Case Western University
Timothy Spiro, MD
Cleveland, OH
University of Chicago Phase 2 Small Cell Lung Cancer G3139 with Taxotere(R)
Charles Rudin, MD
Chicago, IL
Ohio State University
Gregg Otterson, MD
Columbus, OH
Ohio State University Phase 1 Acute Leukemia G3139
Guido Marcucci, MD Fludara(R); Cytosine(R)
Columbus, OH
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In May 1999, the Company signed a CRADA with the NCI regarding additional
Phase 2 clinical trials. The Company will collaborate with the NCI on the design
of such clinical studies and the selection of tumor targets. Under the
arrangement, NCI will cover the costs of running both pre-clinical and clinical
studies while Genta would be responsible for supplying NCI with necessary
quantities of G3139 to carry out this work. See "MD&A -- Certain Trends and
Uncertainties -- We Cannot Market and Sell our Products in the United States or
in Other Countries if we Fail to Obtain the Necessary Regulatory Approvals and
Clinical Trials are Costly and Time Consuming and are Subject to Delays."
On March 31, 1998, the United States Patent and Trademark Office ("USPTO")
issued a patent, to which the Company has an exclusive license, for claims
covering antisense oligonucleotide compounds targeted against bcl-2. These
claims cover the Company's proprietary Anticode(TM) oligonucleotide molecules
that target bcl-2, including its lead clinical candidate, G3139. Other related
patents and claims in the United States and corresponding foreign patent
applications are still pending.
In July 1999, USPTO issued a notice of allowance for claims covering the use
of antisense targeted to the bcl-2 gene, which included Genta's lead drug
candidate G3139, to sensitize or kill cancer cells with BCL-2 antisense,
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either alone or in combination with chemotherapy agents. See "MD&A -- Certain
Trends and Uncertainties -- We may be Unable to Obtain or Enforce Patents and
Proprietary Rights to Protect our Business."
Oligonucleotide Collaborative and Licensing Agreements
Gen-Probe (Chugai). In February 1989, Genta entered into a development,
license and supply agreement with Gen-Probe Incorporated ("Gen-Probe"). Chugai
Pharmaceutical Company, Ltd. ("Chugai"), a Japanese corporation, subsequently
acquired Gen-Probe. Gen-Probe had the option to acquire an exclusive worldwide
license to any product consisting of, including, derived from or based on
oligonucleotides for the treatment or prevention of Epstein-Barr virus,
cytomegalovirus, HIV, human T-cell leukemia virus-1 and all leukemias and
lymphomas. Genta was obligated to pursue the development of a therapeutic
compound for the treatment of one of these indications as its first therapeutic
development program, which it did. In February 1996, Gen-Probe elected not to
exercise such option with respect to Genta's anti-bcl-2 products, waiving any
rights it may have had to develop or commercialize such products. The Gen-Probe
agreement provides for perpetual worldwide licenses in applicable proprietary
rights; royalty payments shall not accrue beyond the later of fifteen years
after the first commercial sale of each product and the duration of patent in
the country of sale.
Ts'o/Miller/Hopkins. In February 1989, the Company entered into a license
agreement with Drs. Paul Ts'o and Paul Miller (the "Ts'o/Miller Agreement")
pursuant to which Drs. Ts'o and Miller (the "Ts'o/Miller Partnership") granted
an exclusive license to the Company to certain issued patents, patent
applications and related technology regarding the use of nucleic acids and
oligonucleotides including methylphosphonate as pharmaceutical agents. Dr. Ts'o
is a Professor of Biophysics, Department of Biochemistry, and Dr. Miller is a
Professor of Biochemistry, both at the School of Public Health and Hygiene,
Johns Hopkins University ("Johns Hopkins"). In May 1990, the Company entered
into a license agreement with Johns Hopkins (the "Johns Hopkins Agreement," and
collectively with the Ts'o/Miller Agreement, referred to herein as the
"Ts'o/Miller/Hopkins Agreements") pursuant to which Johns Hopkins granted Genta
an exclusive license to its rights in certain issued patents, patent
applications and related technology developed as a result of research conducted
at Johns Hopkins by Drs. Ts'o and Miller and related to the use of nucleic acids
and oligonucleotides as pharmaceutical agents. In addition, Johns Hopkins
granted Genta certain rights of first negotiation to inventions made by Drs.
Ts'o and Miller in their laboratories in the area of oligonucleotides and to
inventions made by investigators at Johns Hopkins in the course of research
funded by Genta, which inventions are not otherwise included in the
Ts'o/Miller/Hopkins Agreements. Genta had agreed to pay Dr. Ts'o, Dr. Miller and
Johns Hopkins royalties on net sales of products covered by the issued patents
and patent applications, but not the related technology, licensed to the Company
under the Ts'o/ Miller/Hopkins Agreements. The Company also agreed to pay
certain minimum royalties prior to commencement of commercial sales of such
products, which royalties may be credited under certain conditions against
royalties payable on subsequent sales.
On February 14, 1997, the Company received notice from Johns Hopkins that
the Company was in material breach of the Johns Hopkins Agreement. The Johns
Hopkins Agreement provides that, if a material payment default is not cured
within 90 days of receipt of notice of such breach, Johns Hopkins may terminate
the Johns Hopkins Agreement. In February 1997, the Company paid Johns Hopkins
$100,000 towards the post-doctoral support program. On May 15, 1997, Johns
Hopkins sent Genta a letter stating that the Johns Hopkins Agreement was
terminated. On November 26, 1997, the Ts'o/Miller Partnership sent Genta a
letter claiming that Genta was in material breach of the Ts'o/Miller Agreement
for failing to pay royalties from 1995 through 1997. 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 alleged in the Complaint that
the Company had breached the Johns Hopkins Agreement and owed it licensing
royalty fees and related expenses in the amount of $308,832; which amount
included, $287,671 representing claims made by the Ts'O/Miller Partnership
pursuant in a Summons and Complaint received by the Company's statutory process
agent on August 10, 1998. Johns Hopkins also alleged 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. Based on a review of the
research conducted with the technology provided by these licenses, the Company
concluded that it could not develop potential products using this technology.
Management's current strategy, therefore, is to employ alternative technologies
that are available to it through other licenses or its own intellectual
property.
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In August 1999, the Company settled lawsuits with Johns Hopkins and the
Ts'o/Miller Partnership for $380,000. As part of the settlement of claims, the
Company agreed to pay $180,000 in cash over a six-month period of which $52,500
remains outstanding as of December 31, 1999 and issued 69,734 shares of Common
Stock to Johns Hopkins, acting on its behalf and on behalf of Ts'o/Miller
Partnership, sufficient to provide a value of $200,000.
GENTA JAGO
As previously mentioned, on March 4, 1999, Genta and SkyePharma entered into
an interim agreement pursuant to which the parties to the joint venture released
each other from all liability relating to unpaid development costs and funding
obligations of Genta Jago. SkyePharma agreed to be responsible for substantially
all of the obligations of the joint venture to third parties and for the further
development of the joint venture's products, with any net income resulting
therefrom to be allocated in agreed-upon percentages between Genta and
SkyePharma as set forth in such interim agreement. In the first quarter 2000,
the Company received $689,500 from SkyePharma as a royalty payment based on
SkyePharma's agreement with Elan Pharmaceuticals, for the sale of Naproxen, of
which $187,500 was attributable to 1999. Historical information relative to
Genta Jago follows.
In 1992, Genta and Jagotec determined to enter into a joint venture (Genta
Jago). The Company's purpose in establishing Genta Jago was to develop products
using a limited-scope license to Jagotec's GEOMATRIX technology in the hopes of
producing shorter-term earnings than were expected from the Company's
Anticode(TM) antisense programs. Genta contributed $4 million in cash to Genta
Jago as well as the rights to apply its Anticode(TM) oligonucleotide technology
to six products. Genta issued 120,000 shares of Common Stock valued at $7.2
million to Jagotec and its affiliates in 1992 as consideration for its interest
in Genta Jago, to induce Jagotec to license to Genta Jago, for what the parties
believed was a substantial discount from the underlying value of such license,
Jagotec's GEOMATRIX technology with respect to approximately 25 products (the
"Initial License") and to license to Genta Jagotec's GEOMATRIX technology for
use in Genta's Anticode(TM) oligonucleotide development programs. The Common
Stock issued by Genta was unregistered and therefore was recorded at a discount
to the then-current trading value of registered shares. Jagotec's contribution
to the joint venture consisted of its issuance of the Initial License to Genta
Jago for $425,000, which the parties believed to be a substantial discount from
the underlying value of such license.
In 1994, separate from the original 1992 joint venture agreement, Genta and
Jagotec began negotiations to expand Genta Jago to include the GEOMATRIX
technology as applied to 35 additional products (the "Additional License"). In
1994, Jagotec granted Genta, for $1.85 million, an option (the "Expansion
Option"), exercisable solely at Genta's discretion through April 30, 1995, to
expand the joint venture by requiring Jagotec to contribute rights under the
Additional License at what the parties believed was a substantial discount to
its actual fair value. An additional $2.0 million (the "Deposit") was deposited
with Jagotec in 1994, but would only be retained by Jagotec, as partial payment
of the exercise price for the Expansion Option, if Genta actually exercised the
Expansion Option. If such Expansion Option was not exercised, the $2.0 million
Deposit would be transferred to Genta Jago in the form of working capital loans
payable by Genta Jago to Genta.
Pursuant to the terms of the Expansion Option, for Genta to exercise the
Expansion Option, Genta would have had to pay Jagotec an aggregate of $3.15
million in cash and 124,000 shares of Common Stock, valued at $1.6 million
(based on the trading price at such time). The parties agreed the $3.15 million
in cash would consist of (i) the $2.0 million Deposit made by Genta in 1994,
which would be applied to the Expansion Option's exercise price upon Genta's
election, in 1995, to exercise such Expansion Option; and (ii) an additional
cash payment of $1.15 million to exercise the Expansion Option to be paid by
Genta in 1995. Genta exercised the Expansion Option in 1995.
The Company has provided funding to Genta Jago pursuant to a working capital
loan agreement that expired in October 1998. The Company believes it has
fulfilled all obligations of the working capital agreement to the Joint Venture.
See "MD&A -- Liquidity and Capital Resources." From 1992 through 1997, Genta
advanced an aggregate of $15.8 million in such working capital loans. In 1995,
Genta Jago returned the Anticode(TM) technology to Genta in exchange for Genta's
forgiveness of $4.4 million of principal and $0.3 million of interest
outstanding under existing working capital loans to Genta Jago. This amount was
determined by an arm's-length negotiation between Genta, Jagotec, and Genta Jago
and was based on the amount actually expended by Genta Jago for research and
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development related to the Anticode(TM) technology from the time Genta Jago
originally acquired the relevant license in 1992 through the date of return in
1995.
Genta has the option (the "Purchase Option") to purchase Jagotec's interest
in Genta Jago during the period beginning on December 31, 1998 and continuing
through December 31, 2000 at a purchase price equal to the remainder of (a) the
sum of (i) the lesser of (x) 50% of the fair market value of Genta Jago,
excluding the fair market value of Genta Jago's rights to the Initial License
and the Additional License, or (y) $100 million, plus (ii) 50% of the fair
market value of Genta Jago's rights to the Initial License and the Additional
License, less (b) 1.714286 times the fair market value of the 70,000 shares of
Common Stock issued to Jagotec pursuant to a Common Stock Transfer Agreement
dated as of December 15, 1992, between Genta and Jagotec.
Oral Controlled-Release Drugs
Formulations of drugs using the GEOMATRIX technology are designed to swell
and gel when exposed to gastrointestinal fluids. This swelling and gelling is
designed to allow the active drug component to diffuse from the tablet into the
gastrointestinal fluids, gradually over a period of up to 24 hours. The Company
believes that the GEOMATRIX technology may have other benefits that,
collectively, may distinguish it from competing controlled-release technologies.
More specifically, the Company believes these formulations can control drug
release and potentially modulate pharmacokinetic profiles to produce a variety
of desired clinical effects. For example, the GEOMATRIX technology may be used
to formulate tablets with a rapid or a delayed therapeutic effect by varying the
release characteristics of the drug from the tablet. The GEOMATRIX technology
may also be used to formulate tablets that release two drugs at the same or
different rates, or tablets that release a drug in several pulses after
administration.
Genta Jago may use the GEOMATRIX drug delivery technology to develop oral
controlled-release formulations for a broad range of presently marketed drugs
which have lost, or will, in the near to mid-term, lose patent protection and/or
marketing exclusivity. Certain of these presently marketed drugs are already
available in a controlled-release format, while others are only available in an
immediate release format that requires dosing several times daily. In the case
of drugs already available in a controlled-release format, Genta Jago is seeking
to develop bioequivalent products which would be therapeutic substitutes for the
branded products. In the case of currently marketed products that are only
available in immediate release form requiring multiple daily dosing, Genta Jago
is seeking to develop once or twice-daily controlled-release formulations. The
potential benefits of Genta Jago's oral controlled-release formulations may
include improved compliance, greater efficacy and reduced side effects as a
result of a more constant drug plasma concentration than that associated with
immediate release drugs administered several times daily.
Brightstone Pharma, Inc., a subsidiary of SkyePharma and the marketing
partner of Genta Jago for naproxen sodium, submitted an abbreviated NDA in 1998.
(Recently, SkyePharma has announced that it no longer plans to market its
generic pharmaceutical candidates exclusively through its Brightstone subsidiary
and is seeking marketing partners for these products.) Nifedipine (Procardia
XL(R)) and ketoprofen (Oruvail(R)) are currently undergoing formulation
development by SkyePharma. In December 1997, a competitor of the Company, Elan
Pharmaceuticals, received approval of its ANDA for a generic formulation of
Oruvail(R) (ketoprofen), and another company, Mylan Laboratories, Inc., has
filed an ANDA for a generic formulation of Procardia XL(R) (nifedipine). See
"MD&A -- Certain Trends and Uncertainties -- Our Business will Suffer if We Fail
to Compete Effectively with our Competitors and to Keep Up with New
Technologies."
Oral Controlled-Release Collaborative and Licensing Agreements
Genta Jago's strategy is to commercialize its GEOMATRIX controlled-release
products worldwide by forming alliances with pharmaceutical companies. Genta
Jago has established three such collaborations.
Genta Jago/Gensia/Brightstone. In January 1993, Genta Jago entered into a
collaboration agreement with Gensia for the development and commercialization of
certain oral controlled-release pharmaceutical products for treatment of
cardiovascular disease. Under the agreement, Gensia provides funding for
formulation and preclinical development to be conducted by Genta Jago and is
responsible for clinical development, regulatory submissions and marketing.
Terms of the agreement provide Gensia exclusive rights to market and distribute
the products in North America, Europe and certain other countries. The agreement
has a term of the longer of twelve years and the patent
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term in the respective countries within the territory. Genta Jago received $1.0
million, $1.2 million and $2.2 million of funding in 1998, 1997, and 1996,
respectively, pursuant to the agreement. Collaborative revenues of $2.2 million,
$1.5 million and $2.8 million were recognized under the agreement during the
years ended December 31, 1998, 1997, and 1996, respectively. Effective October
1996, Gensia and SkyePharma reached an agreement whereby a SkyePharma
subsidiary, Brightstone Pharma, Inc. ("Brightstone"), was assigned Gensia's
rights (and those of Gensia's partner, Boehringer Mannheim) to develop and
co-promote the potentially bioequivalent nifedipine product under the
collaboration agreement with Genta Jago. The assignment was accepted by Genta
Jago and has no impact on the terms of the original agreement. Genta Jago is
still entitled to receive additional milestone payments from Brightstone
triggered upon regulatory submissions and approvals, as well as royalties or
profit sharing ranging from 10% to 21% of product sales, if any.
Genta Jago/Apothecon. In March 1996, Genta Jago entered into a collaborative
licensing and development agreement (the "Genta Jago/Apothecon Agreement") with
Apothecon, Inc. ("Apothecon"). In 1998, Apothecon advised Genta Jago that it was
terminating its license. Genta Jago is seeking an alternative partner for future
development and marketing of this product.
Genta Jago/Krypton. In October 1996, Genta Jago entered into five
collaborative licensing and development agreements (the "Genta Jago/Krypton
Agreements") with Krypton, Ltd. ("Krypton"), a subsidiary of SkyePharma, whereby
Genta Jago would sublicense to Krypton rights to develop and commercialize
potentially bioequivalent GEOMATRIX(R) versions of five currently marketed
products, as well as another agreement granting Krypton an option to sublicense
rights to develop and commercialize an improved version of a sixth product. The
Genta Jago/Krypton Agreements have terms of the shorter of fifteen years from
first commercial sale or the expiration of the patent term on a
territory-by-territory basis. During 1997, Genta Jago received funding of $1.9
million under the Genta Jago/Krypton Agreements and recognized $2.3 million of
collaborative revenue therefrom. There were no revenues under this agreement in
1998 and 1999.
RESEARCH AND DEVELOPMENT
In an effort to focus its research and development efforts on areas that
provide the most significant commercial opportunities, the Company continually
evaluates its ongoing programs in light of the latest market information and
conditions, availability of third-party funding, technological advances, and
other factors. As a result of such evaluation, the Company's product development
plans have changed from time to time, and the Company anticipates that it will
continue to do so in the future. The Company recorded research and development
expenses of $3.3 million, $2.1 million and $5.3 million during 1997, 1998 and
1999, respectively, of which approximately $50,000, $50,000 and zero,
respectively, were funded pursuant to collaborative research and development
agreements and of which approximately $0.3 million, $0.1 million and zero,
respectively, were funded pursuant to a related party contract revenue agreement
with Genta Jago. See "MD&A -- Results of Operations."
MANUFACTURING/JBL
On March 19, 1999, the Company signed an Asset Purchase Agreement with
Promega Corporation whereby a wholly owned subsidiary of Promega acquired
substantially all of the assets and assumed certain liabilities of JBL. The
closing of the sale of JBL was completed on May 10, 1999. The accompanying
financial information therefore reflects JBL as a discontinued operation for all
periods presented.
Genta acquired JBL in early 1991. JBL is a manufacturer of high-quality
specialty chemicals and intermediate products for the pharmaceutical and in
vitro diagnostic industries. The products JBL manufactures include: enzyme
substrates that are used as color-generating reagents in clinical diagnostic
tests, such as pregnancy tests, developed by JBL's customers; and fine chemical
raw materials used in pharmaceutical research and development and manufacturing,
such as those used to make biological polymers like peptides and
oligonucleotides. JBL manufactures approximately 110-125 products on a recurring
basis. A number of Fortune 500 companies use JBL products as raw material in the
production of a final product. JBL markets its products to over 100 purchasers
in the pharmaceutical and diagnostic industries. JBL holds a California site
license to manufacture drugs for use in clinical research, but the manufacturing
facilities at JBL have not been inspected by the FDA for compliance with
requirements for Good Manufacturing Practices ("GMP"). The Company is currently
having G3139 made on a contract-manufacturing basis by a third party supplier
and is evaluating the establishment of affiliate relationships
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with third parties for the long-term manufacture of oligonucleotides. See "MD&A
- -- Certain Trends and Uncertainties -- The Raw Materials of our Products are
Produced by a Limited Number of Suppliers."
GENTA EUROPE
During 1995, Genta Pharmaceuticals Europe S.A. ("Genta Europe"), a
wholly-owned subsidiary of the Company, received approximately 5.4 million
French Francs (as of December 31, 1999, approximately $826,600) of funding in
the form of a loan from the French government agency L'Agence Nationale de
Valorisation de la Recherche ("ANVAR") towards research and development
activities pursuant to an agreement (the "ANVAR Agreement") between ANVAR, Genta
Europe and Genta. In October 1996, as part of the Company's restructuring
program, Genta Europe terminated all scientific personnel. ANVAR asserted, in a
letter dated February 13, 1998, that 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, ANVAR notified Genta Europe by letter of its claim that
the Company remains liable for FF4,187,423 (as of December 31, 1999,
approximately $641,000) and is required to pay this amount immediately. The
Company does not believe that under the terms of the ANVAR Agreement ANVAR is
entitled to request early repayment. ANVAR notified Genta Incorporated that it
was responsible as a guarantor of the note for the repayment. Genta's legal
counsel in Europe has again notified ANVAR that it does not agree that the note
is payable. The Company is working with ANVAR to achieve a mutually satisfactory
resolution. However, there can be no assurance that such a resolution will be
obtained.
On June 30, 1998, Marseille Amenagement, a company affiliated with the city
of Marseilles, France, filed suit in France to evict Genta Europe from its
facilities in Marseilles and to demand payment of alleged back rent due and of a
lease guarantee for nine years' rent. Following the filing of this claim and in
consideration of the request for repayment of the loan from ANVAR, Genta
Europe's Board of Directors directed the management to declare a "Cessation of
Payment." Under this procedure, Genta Europe ceased any operations and
terminated its only employee. A liquidator was appointed by the Court to take
control of any assets of Genta Europe and to make payment to creditors. In
December 1998, the Court in Marseilles dismissed the case against Genta Europe
and indicated that it had no jurisdiction against Genta Incorporated. In August
1999, Marseille Amenagement instituted legal proceedings against the Company at
the Commercial Court in France, claiming alleged back rent payment of FF663,413
(as of December 31, 1999, approximately $101,500) and early termination payment
of FF1,852,429 (as of December 31, 1999, approximately $283,600). A court
hearing has been scheduled for May 15, 2000. The Company is working with its
counsel in France to achieve a mutually satisfactory resolution. However, there
can be no assurance that such a resolution will be obtained. On December 31,
1999, the Company has $574,800 of net liabilities of liquidated subsidiary
recorded and, therefore, management believes no additional accrual is necessary.
There can be no assurance that the Company will not incur material costs in
relation to this claim.
SALES AND MARKETING
Genta Jago has secured collaborative agreements with three entities for the
development and commercialization of selected controlled-release
pharmaceuticals. See "Genta Jago -- Oral Controlled-Release Collaborative and
Licensing Agreements." Genta Jago's collaborative agreements generally provide
the collaborative partner exclusive rights to market and distribute the products
in exchange for royalty payments to Genta Jago on product sales. Genta Jago's
goal is to form additional collaborations to develop and market a number of its
GEOMATRIX controlled-release products. There can be no assurance that any such
potential product will be successfully developed or that any prospective
collaborations or licensing arrangements will be entered into.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's policy is to protect its technology by, among other things,
filing patent applications with respect to technology considered important to
the development of its business. The Company also relies upon trade secrets,
unpatented know-how, continuing technological innovation and the pursuit of
licensing opportunities to develop and maintain its competitive position.
Genta has a portfolio of intellectual property rights to aspects of
oligonucleotide technology, which includes novel compositions of matter, methods
of large-scale synthesis, methods of controlling gene expression and cationic
lipid delivery systems. In addition, foreign counterparts of certain
applications have been filed or will be filed at the appropriate time. Allowed
patents generally would not expire until 17 years after the date of allowance if
filed in the
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United States before June 8, 1995 or, in other cases, 20 years from the date of
application. Generally, it is the Company's strategy to apply for patent
protection in the United States, Canada, Western Europe, Japan, Australia and
New Zealand.
Since its incorporation, Genta has separately filed an aggregate of over 400
United States and foreign patent applications covering new compositions and
improved methods to use, synthesize and purify oligonucleotides, linker-arm
technology, and compositions for their delivery. Thirty-five patents have been
issued; 22 in the United States (13 in 1998 and five in 1999) and 13 have issued
overseas.
Under the agreement with Gen-Probe, Genta gained non-exclusive access to all
technology developed by Gen-Probe, as of February 1989, related to the use of
DNA probes for therapeutic applications. This technology is related to nucleic
acid probes for quantitation of organisms and viruses, methods for their
production, including non-nucleotide linking reagents, labeling, and
purification, and methods for their use including hybridization and enhanced
hybridization. This includes rights to 14 issued patents and several pending
United States patent applications and corresponding issued and pending
applications in foreign countries. See "Genta Jago -- Oligonucleotide
Collaborative and Licensing Agreements -- Gen-Probe (Chugai)."
Genta also gained access to certain rights from the National Institutes of
Health ("NIH") covering phosphorothioate oligonucleotides. This includes rights
to three United States issued patents, one issued European patent, one issued in
Japan and other corresponding foreign applications that are still pending. In
addition, under an agreement with the University of Pennsylvania, Genta has
acquired exclusive rights to antisense oligonucleotides directed against the
bcl-2 gene as well as methods of their use for the treatment of cancer. On March
31, 1998 and November 3, 1998, two United States patents were issued
encompassing the Company's licensed antisense oligonucleotide compounds targeted
against the bcl-2 gene and in vitro uses of the same. These claims cover the
Company's proprietary Anticode(TM) oligonucleotide molecules, which target the
bcl-2 gene including its lead clinical candidate, G3139. Other related United
States and corresponding foreign patent applications are still pending.
Jagotec's GEOMATRIX technology is the subject of issued patents and pending
applications. Jagotec currently holds four issued United States patents, five
granted foreign patents, and other corresponding foreign patent applications
still pending that cover the GEOMATRIX technology. Certain rights to GEOMATRIX
technology have been licensed to Genta Jago. See "Genta Jago."
The patent positions of biopharmaceutical and biotechnology firms, including
Genta, can be uncertain and involve complex legal and factual questions.
Consequently, even though Genta is currently prosecuting its patent applications
with the United States and foreign patent offices, the Company does not know
whether any of its applications will result in the issuance of any patents or if
any issued patents will provide significant proprietary protection or will be
circumvented or invalidated. Since patent applications in the United States are
maintained in secrecy until patents issue, and since publication of discoveries
in the scientific or patent literature tend to lag behind actual discoveries by
several months, Genta cannot be certain that others have not filed patent
applications directed to inventions covered by its pending patent applications
or that it was the first to file patent applications for such inventions.
Competitors or potential competitors may have filed applications for, or
have received patents and may obtain additional patents and proprietary rights
relating to, compounds or processes competitive with those of the Company. See
"Competition." Accordingly, there can be no assurance that the Company's patent
applications will result in issued patents or that, if issued, the patents will
afford protection against competitors with similar technology; nor can there be
any assurance that any patents issued to Genta will not be infringed or
circumvented by others; nor can there be any assurance that others will not
obtain patents that the Company would need to license or design around. There
can be no assurance that the Company will be able to obtain a license to
technology that it may require or that, if obtainable, such a license would be
available on reasonable terms.
There can be no assurance that the Company's patents, if issued, would be
held valid by a court of competent jurisdiction. Moreover, the Company may
become involved in interference proceedings declared by the United States Patent
and Trademark Office (or comparable foreign office or process) in connection
with one or more of its patents or patent applications to determine priority of
invention, which could result in substantial cost to the Company, as well as a
possible adverse decision as to priority of invention of the patent or patent
application involved.
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The Company also relies upon unpatented trade secrets and no assurance can
be given that third parties will not independently develop substantially
equivalent proprietary information and techniques or gain access to the
Company's trade secrets or disclose such technologies to the public, or that the
Company can meaningfully maintain and protect unpatented trade secrets.
Genta requires its employees, consultants, outside scientific collaborators
and sponsored researchers and other advisors to execute a confidentiality
agreement upon the commencement of an employment or consulting relationship with
the Company. The agreement generally provides that all confidential information
developed or made known to the individual during the course of the individual's
relationship with Genta shall be kept confidential and shall not be disclosed to
third parties except in specific circumstances. In the case of employees, the
agreement generally provides that all inventions conceived by the individual
shall be assigned to, and made the exclusive property of, the Company. There can
be no assurance, however, that these agreements will provide meaningful
protection for the Company's trade secrets or adequate remedies in the event of
unauthorized use or disclosure of such information, or in the event of an
employee's refusal to assign any patents to the Company in spite of such
contractual obligation. See "MD&A -- Certain Trends and Uncertainties -- We May
be Unable to Obtain or Enforce Patents and Other Proprietary Rights to Protect
our Business and We Could Become Involved in Time Consuming and Expensive Patent
Litigation and Adverse Decisions in Patent Litigation Could Cause us to Incur
Additional Costs and Experience Delays in Bringing New Drugs to Market."
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the manufacture and marketing of the
Company's proposed products and in its ongoing research and product development
activities. All of the Company's therapeutic products will require regulatory
approval by governmental agencies prior to commercialization. In particular,
human therapeutic products are subject to rigorous preclinical and clinical
testing and pre-market approval procedures by the FDA and similar authorities in
foreign countries. Various federal, and in some cases state, statutes and
regulations also govern or influence the manufacturing, safety, labeling,
storage, record keeping and marketing of such products. The lengthy process of
seeking these approvals, and the subsequent compliance with applicable federal,
and in some cases state, statutes and regulations, require the expenditure of
substantial resources. Any failure by the Company, its collaborators or its
licensees to obtain, or any delay in obtaining, regulatory approvals could
adversely affect the marketing of any products developed by the Company and its
ability to receive product or royalty revenue.
The activities required before a new pharmaceutical agent may be marketed in
the United States begin with preclinical testing. Preclinical tests include
laboratory evaluation of product chemistry and animal studies to assess the
potential safety and efficacy of the product and its formulations. The results
of these studies must be submitted to the FDA as part of an IND. An IND becomes
effective within 30 days of filing with the FDA unless the FDA imposes a
clinical hold on the IND. In addition, the FDA may, at any time, impose a
clinical hold on ongoing clinical trials. If the FDA imposes a clinical hold,
clinical trials cannot commence or recommence, as the case may be, without prior
FDA authorization and then only under terms authorized by the FDA. Typically,
clinical testing involves a three-phase process. In Phase 1, clinical trials are
conducted with a small number of subjects to determine the early safety profile
and the pattern of drug distribution and metabolism. In Phase 2, clinical trials
are conducted with groups of patients afflicted with a specific disease in order
to determine preliminary efficacy, optimal dosages and expanded evidence of
safety. In Phase 3, large-scale, multi-center, comparative clinical trials are
conducted with patients afflicted with a target disease in order to provide
enough data for the statistical proof of efficacy and safety required by the FDA
and others. In the case of products for life-threatening diseases, the initial
human testing is generally done in patients rather than in healthy volunteers.
Since these patients are already afflicted with the target disease, it is
possible that such studies may provide results traditionally obtained in Phase 2
trials. These trials are frequently referred to as "Phase 1/2A" trials.
The results of the preclinical and clinical testing, together with
chemistry, manufacturing and control information, are then submitted to the FDA
for a pharmaceutical product in the form of a New Drug Application ("NDA"), for
a biological product in the form of a Product License Application ("PLA") or for
medical devices in the form of a Premarket Approval Application ("PMA") for
approval to commence commercial sales. In responding to an NDA, PLA or PMA, the
FDA may grant marketing approval, request additional information or deny the
application if it determines that the application does not satisfy its
regulatory approval criteria. There can be no
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assurance that approvals will be granted on a timely basis, if at all, or if
granted will cover all the clinical indications for which the Company is seeking
approval or will not contain significant limitations in the form of warnings,
precautions or contraindications with respect to conditions of use.
In circumstances where a company intends to develop and introduce a novel
formulation of an active drug ingredient already approved by the FDA, clinical
and preclinical testing requirements may not be as extensive. Limited additional
data about the safety and/or effectiveness of the proposed new drug formulation,
along with chemistry and manufacturing information and public information about
the active ingredient, may be satisfactory for product approval. Consequently,
the new product formulation may receive marketing approval more rapidly than a
traditional full NDA, although no assurance can be given that a product will be
granted such treatment by the FDA.
For clinical investigation and marketing outside the United States, the
Company is or may be subject to foreign regulatory requirements governing human
clinical trials and marketing approval for drugs. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to country. The Company's approach is to design its European
clinical trial studies to meet FDA, European Economic Community ("EEC") and
other European countries' standards. At present, the marketing authorizations
are applied for at a national level, although certain EEC procedures are
available to companies wishing to market a product in more than one EEC member
state. If the competent authority is satisfied that adequate evidence of safety,
quality and efficacy has been presented, a market authorization will be granted.
The registration system proposed for medicines in the EEC after 1992 is a dual
one in which products, such as biotechnology and high technology products and
those containing new active substances, will have access to a central regulatory
system that provides registration throughout the entire EEC. Other products will
be registered by national authorities under the local laws of each EEC member
state. With regulatory harmonization finalized in the EEC, the Company's
clinical trials will be designed to develop a regulatory package sufficient for
multi-country approval in the Company's European target markets without the need
to duplicate studies for individual country approvals. This approach also takes
advantage of regulatory requirements in some countries, such as in the United
Kingdom, which allow Phase 1 studies to commence after appropriate toxicology
and preclinical pharmacology studies, prior to formal regulatory approval.
Prior to the enactment of the Drug Price Competition and Patent Term
Restoration Act of 1984 (the "Waxman/Hatch Act"), the FDA, by regulation,
permitted certain pre-1962 drugs to be approved under an abbreviated procedure
which waived submission of the extensive animal and human studies of safety and
effectiveness normally required to be in a NDA. Instead, the manufacturer only
needed to provide an Abbreviated New Drug Application ("ANDA") containing
labeling; information on chemistry and manufacturing procedures and data
establishing that the original "pioneer" product and the proposed "generic"
product are bioequivalent when administered to humans.
Originally, the FDA's regulations permitted this abbreviated procedure only
for copies of a drug that was approved by the FDA as safe before 1962 and which
was subsequently determined by the FDA to be effective for its intended use. In
1984, the Waxman/Hatch Act extended permission to use the abbreviated procedure
established by the FDA to copies of post-1962 drugs subject to the submission of
the required data and information, including data establishing bioequivalence.
However, effective approval of such ANDAs was dependent upon there being no
outstanding patent or non-patent exclusivity.
Additionally, the FDA allows, under section 505(b)(2) of the Food Drug and
Cosmetic Act, for the submission and approval of a hybrid application for
certain changes in drugs which, but for the changes, would be eligible for an
effective ANDA approval. Under these procedures the applicant is required to
submit the clinical efficacy and/or safety data necessary to support the changes
from the ANDA eligible drug (without submitting the basic underlying safety and
efficacy data for the chemical entity involved) plus manufacturing and chemistry
data and information. Effective approval of a 505(b)(2) application is dependent
upon the ANDA-eligible drug upon which the applicant relies for the basic safety
and efficacy data being subject to no outstanding patent or non-patent
exclusivity. As compared to a NDA, an ANDA or a 505(b)(2) application typically
involves reduced research and development costs. However, there can be no
assurance that any such applications will be approved. Furthermore, the supply
of raw materials must also be approved by the FDA.
The Company is also subject to various foreign, federal, state and local
laws, regulations and recommendations 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
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radioactive compounds and infectious disease agents, used in connection with the
Company's research and development work and manufacturing processes. Although
the Company believes it is in compliance with these laws and regulations in all
material respects (except as disclosed under "MD&A -- Liquidity and Capital
Resources"), there can be no assurance that the Company will not be required to
incur significant costs to comply with such regulations in the future. See "MD&A
- -- Certain Trends and Uncertainties -- We Cannot market and Sell our Products in
the United States or in Other Countries if we Fail to Obtain the Necessary
Regulatory Approvals."
COMPETITION
For many of their applications, the Company's products under development
will be competing with existing therapies for market share. In addition, a
number of companies are pursuing the development of antisense technology and
controlled-release formulation technology and the development of pharmaceuticals
utilizing such technologies. The Company competes with fully integrated
pharmaceutical companies that have more substantial experience, financial and
other resources and superior expertise in research and development,
manufacturing, testing, obtaining regulatory approvals, marketing and
distribution. Smaller companies may also prove to be significant competitors,
particularly through their collaborative arrangements with large pharmaceutical
companies or academic institutions. Furthermore, academic institutions,
governmental agencies and other public and private research organizations have
conducted and will continue to conduct research, seek patent protection and
establish arrangements for commercializing products. Such products may compete
directly with any products that may be offered by the Company. In December 1997,
a competitor of the Company, Elan Corporation, received approval of their ANDA
for a generic formulation of Oruvail(R) (ketoprofen), and another company, Mylan
Laboratories, Inc., filed an ANDA for a generic formulation of procardia XL(R)
(nifedipine). See "MD&A -- Certain Trends and Uncertainties -- Our Business Will
Suffer if We Fail to Compete Effectively with Our Competitors and to Keep up
with New Technologies."
The Company's competition will be determined in part by the potential
indications for which the Company's products are developed and ultimately
approved by regulatory authorities. For certain of the Company's potential
products, an important factor in competition may be the timing of market
introduction of the Company's or competitors' products. See "MD&A -- Certain
Trends and Uncertainties. -- Our Business will Suffer if we Fail to Compete
Effectively with Our Competitors and to Keep up with New Technologies."
Accordingly, the relative speed with which Genta and Genta Jago can develop
products, complete the clinical trials and approval processes and supply
commercial quantities of the products to the market are expected to be important
competitive factors. The Company expects that competition among products
approved for sale will be based, among other things, on product efficacy,
safety, reliability, availability, price, patent position and sales, marketing
and distribution capabilities. The development by others of new treatment
methods could render the Company's and Genta Jago's products under development
non-competitive or obsolete.
The Company's competitive position also depends upon its ability to attract
and retain qualified personnel, obtain patent protection or otherwise develop
proprietary products or processes and secure sufficient capital resources for
the often substantial period between technological conception and commercial
sales. See "MD&A -- Certain Trends and Uncertainties -- Need for and Dependence
on Qualified Personnel. We may be Unable to Obtain or Enforce Patents and Other
Proprietary Rights to Protect our Business and our Business will Suffer if we
Fail to Obtain Timely Funding."
JBL's products address several markets including clinical chemistry,
diagnostics, molecular biology and pharmaceutical development. While many
customers have specified JBL products in their manufacturing protocols,
competition from several international competitors, many of whom have more
substantial experience, financial and other resources and superior expertise in
research and development, manufacturing, testing, obtaining regulatory
approvals, marketing and distribution, could undermine JBL's competitive
position. Competition has come primarily on price for some key JBL products for
pharmaceutical development and from competing technologies in diagnostics and
molecular biology.
HUMAN RESOURCES
As of March 1, 2000, Genta had nine employees, three of whom held doctoral
degrees. Four employees were engaged in development activities and five were in
administration. Most of the management and professional employees of the Company
have had prior experience and positions with pharmaceutical and biotechnology
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companies. Genta believes it maintains satisfactory relations with its
employees. See "MD&A -- Certain Trends and Uncertainties -- Need for and
Dependence on Qualified Personnel."
ITEM 2. PROPERTIES
Effective March 1, 1998, the Company reduced its leased space in San Diego
to 4,732 square feet and closed its laboratory facilities at this site. The
Company further reduced its leased space in December 1, 1998 to 3,944 square
feet. In April 1999, the Company moved its headquarters to Lexington,
Massachusetts, and entered into a two-year sub-lease effective April 1, 1999 for
2,400 square feet. In February 2000, the Company received notice of lease
cancellation by the overtenant, effective August 31, 2000. The Company is
currently searching for new lease space.
Genta Europe leased approximately 10,000 square feet of office, laboratory
and manufacturing space in Marseilles, France. The lease was cancelable in 2003
and expired in 2005. In June 1998, Marseille Amenagement, a company affiliated
with the city of Marseilles, France, filed suit in France to evict Genta Europe
from its facilities in Marseille. Following the filing of this claim and in
consideration of the request for payment of the loan from the ANVAR, Genta
Europe's Board of Directors directed management to declare a "Cessation of
Payment". In December 1998, the Court in Marseilles dismissed the case against
Genta Europe and indicated that it had no jurisdiction against Genta. In August
1999, Marseille Amenagement instituted legal proceedings against the Company at
the Commercial Court in France, claiming alleged back rent payment of FF663,413
(as of December 31, 1999, approximately $101,500) and early termination payment
of FF1,852,429 (as of December 31, 1999, approximately $283,600). A court
hearing has been scheduled for May 15, 2000. The Company is working with its
counsel in France to achieve a mutually satisfactory resolution.
ITEM 3. LEGAL PROCEEDINGS
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
alleged in the Complaint that the Company had breached the Johns Hopkins
Agreement (see "Business -- Anticode(TM) Brand of Antisense Oligonucleotide
Programs -- Oligonucleotide Collaborative and Licensing Agreements --
Ts'o/Miller/Hopkins") and owed it licensing royalty fees and related expenses in
the amount of $308,832; of which amount included, $287,671 representing claims
made by the Ts'o/Miller Partnership pursuant in a Summons and Complaint received
by the Company's statutory process agent on August 10, 1998. Johns Hopkins also
alleged 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. As of December 31, 1998, the Company had accrued $635,000 relating to
the estimated cost to settle these claims.
In August 1999, the Company settled lawsuits with Johns Hopkins and the
Ts'o/Miller Partnership for $380,000. As part of the settlement of claims, the
Company agreed to pay $180,000 in cash over a six-month period of which $52,500
remains outstanding as of December 31, 1999 and issued 69,734 shares of Common
Stock to Johns Hopkins, acting on its behalf and on behalf of Ts'o/Miller
Partnership, sufficient to provide a value of $200,000. The stock was sold by a
broker under an agreement between the Company and Johns Hopkins, with the
proceeds from such sales delivered to Johns Hopkins. The excess of the
previously accrued settlement costs over the actual settlement cost has been
recorded as a reduction to general and administrative expenses in 1999.
During 1995, Genta Europe received approximately 5.4 million French Francs
(as of December 31, 1999, approximately $826,600) of funding in the form of a
loan from the French government agency L'Agence Nationale de Valorisation de la
Recherche ("ANVAR") towards research and development activities pursuant to an
agreement (the "ANVAR Agreement") between ANVAR, Genta Europe and the Company.
In October 1996, as part of the Company's restructuring program, Genta Europe
terminated all scientific personnel. ANVAR asserted, in a letter dated February
13, 1998, that 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,
ANVAR notified Genta Europe by letter of its claim that the Company remains
liable for FF4,187,423 (as of December 31, 1999, approximately $641,000) and is
required to pay this amount immediately. The Company does not believe that under
the terms of the ANVAR Agreement ANVAR is entitled to request early repayment.
ANVAR notified the Company that it was responsible as a guarantor of the note
for the repayment. The Company's legal counsel in Europe has again notified
ANVAR
16
<PAGE> 17
that the Company does not agree that the note is payable. The Company is working
with ANVAR to achieve a mutually satisfactory resolution. However, there can be
no assurance that such a resolution will be obtained. 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.
On June 30, 1998, Marseille Amenagement, a company affiliated with the city
of Marseilles, France, filed suit in France to evict Genta Europe from its
facilities in Marseilles and to demand payment of alleged back rent due and of a
lease guarantee for nine years' rent. Following the filing of this claim and in
consideration of the request for repayment of the loan from ANVAR, Genta
Europe's Board of Directors directed management to declare a "Cessation of
Payment." Under this procedure, Genta Europe ceased any operations and
terminated its only employee. A liquidator was appointed by the Court to take
control of any assets of Genta Europe and to make payment to creditors. In
December 1998, the Court in Marseilles dismissed the case against Genta Europe
and indicated that it had no jurisdiction against Genta Incorporated. In August
1999, Marseille Amenagement instituted legal proceedings against the Company at
the Commercial Court in France, claiming alleged back rent payment of FF663,413
(as of December 31, 1999, approximately $101,500) and early termination payment
of FF1,852,429 (as of December 31, 1999, approximately $283,600). A court
hearing has been scheduled for May 15, 2000. The Company is working with its
counsel in France to achieve a mutually satisfactory resolution. However, there
can be no assurance that such a resolution will be obtained. On December 31,
1999, the Company has $574,800 of net liabilities of liquidated subsidiary
recorded and, therefore, management believes no additional accrual is necessary.
There can be no assurance that the Company will not incur material costs in
relation to this claim.
In October 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. A
semi-annual groundwater-monitoring program is being conducted, under the
supervision of the California Regional Water Quality Control Board, for purposes
of determining whether the levels of chloroform and PCEs have decreased over
time. The results of the latest sampling conducted by JBL show that PCEs and
chloroform have decreased in all but one of the monitoring sites. Based on an
estimate provided to the Company by the consulting firm, the Company accrued
$65,000 in 1999 relating to remedial costs. Prior to 1999, such costs were not
estimable, and therefore, no loss provision had been recorded. The company has
agreed to indemnify Promega in respect of this matter. The Company believes that
any costs stemming from 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.
JBL received notice on October 16, 1998 from Region IX of the Environmental
Protection Agency ("EPA") that it had been identified as a potentially
responsible party ("PRP") at the Casmalia Disposal Site, which is located in
Santa Barbara, California. JBL has been designated as a de minimis PRP by the
EPA. Based on volume amounts from the EPA, the Company concluded that it was
probable that a liability had been incurred and accrued $75,000 during 1998. In
1999, the EPA estimated that the Company would be required to pay approximately
$63,200 to settle their potential liability. The Company expects to receive a
revised settlement proposal from the EPA by the second quarter 2000. While the
terms of the settlement with the EPA have not been finalized, they should
contain standard contribution protection and release language. The Company
believes that any costs stemming from 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 has agreed to
indemnify Promega in respect of this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the quarter ended
December 31, 1999.
17
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
Throughout 1996 and in the beginning of 1997, the Company's Common Stock was
traded on the Nasdaq National Market under the symbol "GNTA." Beginning February
7, 1997, the Company's Common Stock traded in the over-the-counter market on the
Nasdaq SmallCap Market, initially under the symbol "GNTAC." During the 20
trading days immediately following the Company's reverse stock split effected on
April 7, 1997, the Company's Common Stock traded under the symbol "GNTCD." Genta
resumed trading under the symbol "GNTA" on July 24, 1997. In February 2000, the
Company filed an application to Nasdaq to resume trading on the Nasdaq National
Market. The following table sets forth, for the periods indicated, the high and
low sales prices for the Common Stock as reported by Nasdaq (as adjusted for the
Reverse Stock Split).
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1998
First Quarter................................................... 1 5/32 3/4
Second Quarter.................................................. 1 1/2 23/32
Third Quarter................................................... 1 5/32 5/8
Fourth Quarter.................................................. 1 11/32 7/8
1999
First Quarter................................................... 3 1 5/32
Second Quarter.................................................. 4 1/16 1 15/16
Third Quarter................................................... 2 3/32 2
Fourth Quarter.................................................. 8 1/4 2 7/16
</TABLE>
(b) Holders
There were 555 holders of record of the Company's common stock as of March
10, 2000.
(c) 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 D convertible preferred stocks. The Company currently intends to retain
its earnings, if any, after payment of dividends on outstanding shares of Series
D convertible preferred stock, for the development of its business. See "MD&A --
Liquidity and Capital Resources."
(d) Recent Sales of Unregistered Securities
In February 1997, the Company raised gross proceeds of $3 million in a
private placement, to The Aries Fund, a Cayman Islands Trust, and the Aries
Domestic Fund, LP (collectively the "Aries Funds"), of Convertible Notes and
warrants to purchase common stock ("Bridge Warrants"). The Convertible Notes,
together with accrued interest thereon, were converted pursuant to their terms
into an aggregate of 65,415 shares of Series D Preferred Stock, which in turn
are convertible, at $ 0.8848 per share, into 7,393,203 shares of common stock.
The Bridge Warrants permit the purchase of up to an aggregate of 7,741,935
shares of Common Stock at an exercise price of $0.3875 per share (subject to
adjustment upon the occurrence of certain events). Pursuant to the Note and
Warrant Purchase Agreement dated as of January 28, 1997 between the Company and
the Aries Funds (the "Note and Warrant Purchase Agreement"), the Aries Funds
have the right to appoint a majority of the members of the Board of Directors of
the Company. See "MD&A -- Certain Trends and Uncertainties -- There Currently
Exists Certain Interlocking Relationships and Potential Conflicts of Interest."
On June 6, 1997, the Aries Funds entered into a Line of Credit Agreement
with the Company pursuant to which the Aries Funds provided the Company with a
line of credit of up to $500,000, which subsequently was repaid, in
consideration for warrants (the "Line of Credit Warrants") to purchase 62,035
shares of Common Stock exercisable at $ 2.015 per share, subject to adjustment
upon the occurrence of certain events.
18
<PAGE> 19
As of August 27, 1997, the Company entered into separate consulting
agreements with each of Dr. Paul O.P. Ts'o and Dr. Sharon B. Webster (both
former directors of the Company), pursuant to which, in addition to certain
other compensation for consulting services to be rendered thereunder, the
Company issued 15,400 shares of Common Stock to Dr. Ts'o and 15,500 shares of
Common Stock to Dr. Webster.
On June 30, 1997, a total of 161.58 Premium Preferred Units(TM) ("Units")
were sold to accredited investors in a private placement (the "Private
Placement"). Such sale was made in reliance on the exemption from registration
pursuant to Rule 506 of Regulation D of the Securities Act of 1933, as amended
("The Securities Act"). Each unit sold in the Private Placement consists of
1,000 shares of Premium Preferred Stock(TM) (Series D Preferred Stock), par
value $0.001 per share, stated value $100.00 per share, and warrants to purchase
5,000 shares of the Company's common stock, par value $0.001 per share, at any
time prior to the fifth anniversary of the final closing date ("Class D
Warrants"). A total of $16,158,000 was raised. The net proceeds to the Company
were $13,957,262. The respective conversion and exercise price of the Series D
Preferred Stock and the Class D Warrants is $0.8848 and $0.8754 per share of
common stock, respectively, subject to adjustment upon the occurrence of certain
events. In connection with the Private Placement, the placement agent --
Paramount Capital, Inc. -- received cash commissions equal to 9% of the gross
sales price and a non-accountable expense allowance equal to 4% of the gross
sales price, and the placement agent received warrants to purchase up to 10% of
the Units sold in the Private Placement for 110% of the offering price per Unit.
Furthermore, the Company has entered into a financial advisory agreement with
the placement agent pursuant to which the financial advisor is entitled to
receive certain cash fees and has received warrants (the "Advisory Warrants") to
purchase up to 15% of the Units sold in the Private Placement for 110% of the
offering price per Unit.
The Company was contractually required to file, and had filed, a
Registration Statement on Form S-3 with the Securities and Exchange Commission
(the "SEC") under the Securities Act with respect to the common stock issuable
upon conversion and upon exercise of the securities issued in the private
placement consummated in February 1997 and the Private Placement. This
registration statement has not been declared effective. In November 1999, the
Company issued warrants to acquire 550,000 shares of Common Stock in full
satisfaction of its obligation to file and have declared effective a shelf
registration statement pursuant to the Note and Warrant Purchase Agreement.
On May 29, 1998, the Company requested, and subsequently received, consents
(the "Letter Agreements") from the holders of a majority of the Series D
Preferred Stock to waive the Company's obligation to use best efforts to obtain
the effectiveness of a registration statement with the SEC as to Common Stock
issuable upon conversion of Series D Preferred Stock and exercise of Class D
Warrants. In exchange, the Company agreed to waive the contractual "lock-up"
provisions to which such consenting holders were subject and which provisions
would have prevented the sale of up to 75% of their securities for a nine-month
period following the effectiveness of the registration statement; and to extend
to January 29, 1999 from June 29, 1998 the Reset Date referred to in the
Certificate of Designations of the Series D Preferred Stock. In addition,
through the Letter Agreements, the Company agreed to issue to such holders
warrants to purchase at $0.8754 per share, an aggregate of up to 807,900 shares
of Common Stock, subject to certain anti-dilution adjustments, exercisable until
June 29, 2002. The shares were valued at approximately $633,000 and recorded as
a dividend. The Company had conditioned the effectiveness of such consent on its
acceptance by a majority of the Series D Preferred Stockholders. The Series D
Preferred Stock began earning dividends, payable in shares of the Company's
Common Stock, at the rate of 10% per annum subsequent to the new Reset Date of
January 29, 1999.
In December 1999, the Company raised gross proceeds of approximately $11.4
million (approximately $10.4 million net of placement costs) through the private
placement of 114 units at $100,000 per unit or $3.00 per share. Each unit sold
in the private placement consisted of (i) 33,333 shares of Common Stock, par
value $.001 per share, and (ii) warrants to purchase 8,333 shares of the
Company's common stock at any time prior to the fifth anniversary of the final
closing (the "Warrants"). The Warrants are convertible at the option of the
holder into shares of Common Stock at an initial conversion rate equal to the
average closing bid price for 20 days preceding the closing date of the private
placement, or $4.83 per share (subject to antidilution adjustment). In
connection with the private placement, the placement agent -- Paramount Capital,
Inc. -- received cash commissions equal to 7.5% of the gross sales price,
reimbursable expenses up to $125,000 and warrants to purchase up to 10% of the
units sold in the private placement for 110% of the offering price per unit. See
"MD&A -- Certain Trends
19
<PAGE> 20
and Uncertainties -- If We Cease Doing Business and Liquidate our Assets, We are
Required to Distribute Proceeds to Holders of our Preferred Stock Before we
Distribute Proceeds to Holders of our Common Stock and Volatility of Stock
Price; Market Overhang From Convertible Securities and Warrants."
20
<PAGE> 21
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Gain on sale of technology ..................................... $ - $ 373 $ - $ - $ -
Related party contract revenue ................................. -- 1,559 350 55 --
Collaborative research and development ......................... 1,125 -- 50 50 --
-------- -------- -------- -------- --------
1,125 1,932 400 105 --
-------- -------- -------- -------- --------
Costs and expenses
Research and development ....................................... 9,764 4,592 3,309 2,116 5,334
Charge for acquired in-process research and development ........ 4,762 -- -- -- --
General and administrative ..................................... 4,493 5,096 6,132 4,020 5,999
LBC Settlement ................................................. -- -- 600 547 --
-------- -------- -------- -------- --------
19,019 9,688 10,041 6,683 11,333
-------- -------- -------- -------- --------
Loss from operations .............................................. (17,894) (7,756) (9,641) (6,578) (11,333)
Equity in net income (loss) of joint venture ...................... (6,913) (2,712) (1,193) (132) 2,449
Net loss of liquidated foreign subsidiary ......................... -- -- -- (98) --
Other income (expense), net ....................................... 7 (745) (2,850) (38) 22
-------- -------- -------- -------- --------
Net loss from continuing operations ............................... $(24,800) $(11,213) $(13,684) $ (6,846) $ (8,862)
Loss from discontinued operations ................................. (566) (879) (1,741) (739) (189)
Gain on sale of discontinued operations ........................... -- -- -- -- 1,607
-------- -------- -------- -------- --------
Net loss .......................................................... (25,366) (12,092) (15,425) (7,586) (7,444)
Preferred Stock dividends ......................................... (3,551) (4,873) (17,853) (633) (10,085)
-------- -------- -------- -------- --------
Net loss applicable to common shares .............................. $(28,917) $(16,965) $(33,278) $ (8,219) $(17,529)
======== ======== ======== ======== ========
Continuing operations ............................................. $ (14.53) $ (5.39) $ (7.13) $ (1.06) $ (1.07)
Discontinued operations ........................................... (0.29) (0.30) (0.39) (0.11) 0.08
-------- -------- -------- -------- --------
Net loss per share (1) ............................................ $ (14.82) $ (5.69) $ (7.52) $ (1.17) $ (0.99)
======== ======== ======== ======== ========
Weighted average shares used in computing net loss per share ...... 1,952 2,983 4,422 7,000 17,784
Deficiency of earnings to meet combined fixed charges and preferred
stock dividends (2) ........................................ $(28,917) $(16,965) $(33,278) $ (8,219) $(17,529)
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments ............... $ 262 $ 532 $ 8,456 $ 2,458 $ 10,101
Working capital (deficit) ...................................... (2,981) (3,816) 5,807 3,629 9,434
Total assets .................................................... 11,351 8,806 15,079 7,551 12,228
Notes payable and capital lease obligations, less current portion 2,334 118 -- -- --
Total stockholders' equity ...................................... 4,258 4,074 9,425 2,959 10,206
</TABLE>
(1) Computed on the basis of net loss per common share described in Note 1
of Notes to Consolidated Financial Statements.
(2) The Company has incurred losses and, thus, has had a deficiency in
fixed charges and preferred stock dividend coverage since inception.
The above selected financial data reflects discontinued operations and balance
sheet data of JBL as a result of the sale of JBL in May 1999. See Note 2 of the
Notes to Consolidated Financial Statements.
21
<PAGE> 22
ITEM 7. 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
operations, expects to incur substantial operating losses due to continued
requirements for ongoing research and development activities, preclinical and
clinical testing, manufacturing activities, regulatory activities, and
establishment of a sales and marketing organization. From the period since its
inception to December 31, 1999, the Company has incurred a cumulative net loss
of $139.5 million. The Company has experienced significant quarterly
fluctuations in operating results and it expects that these fluctuations in
revenues, expenses and losses will continue, although mitigated by recent
developments.
The Company has been reducing its human and other resources to reduce
expenses while focusing its research and development ("R&D") efforts. Genta's
strategy is to build a product and technology portfolio, primarily, but not
exclusively, focused on its Anticode(TM) (antisense) products. To this end, the
Company has significantly reduced its involvement with respect to its 50%
investment in an R&D joint venture, Genta Jago, through an interim agreement
reached in March 1999. The Company also entered into an Asset Purchase Agreement
on March 19, 1999 for the sale of substantially all of the assets and certain
liabilities of the Company's wholly owned specialty chemicals subsidiary JBL
Scientific, Inc. ("JBL") for cash, a promissory note and certain pharmaceutical
development services in support of Genta's G3139 development project. The
transaction was completed on May 10, 1999. Following the sale of JBL, the
Company is operating as one business segment. Accordingly, the following
information and accompanying financial statements reflect JBL as a discontinued
operation. The Company has closed its operation in France. The Company has also
closed its facilities in San Diego, California and has moved its headquarters to
Lexington, Massachusetts as of the second quarter of 1999.
In August 1999, the Company acquired Androgenics Technologies, Inc., a
wholly owned entity of the Company's majority stockholder. Androgenics is a
company with license rights to a series of compounds invented at the University
of Maryland, Baltimore to treat prostate cancer. As consideration for the
acquisition, the Company paid $132,000 in cash (including reimbursements of
pre-closing expenses and on-going research funding) and issued warrants (with
exercise prices ranging from $1.25 to $2.50 per share) to purchase an aggregate
of 1,000,000 shares of Common Stock, 90% of which will not become exercisable
until the successful conclusion of certain development milestones, ranging from
the initial clinical patient trial through the submission of an application for
marketing authorization.
The Company has recently completed a private placement for $11.4 million;
however, its ability to continue operations beyond the first quarter of 2001
depends upon the Company's success in obtaining additional funding. There can be
no assurance that the Company will be able to obtain additional funds on
satisfactory terms or at all. There are several factors that must be considered
risks in that regard and those that are known to management are discussed in
"MD&A -- Certain Trends and Uncertainties."
The statements contained in this Annual Report on Form 10-K 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 Management's Discussion and Analysis of Financial Condition and
Results of Operations and elsewhere in this Annual Report on Form 10-K. The
Company does not undertake to update any forward-looking statements.
22
<PAGE> 23
RESULTS OF OPERATIONS
The following discussion of results of operations relates to the Company's
continuing business.
Operating revenues totaled $0.4 million in 1997 compared to $0.1 million in
1998 and zero in 1999. The changes in operating revenue have largely reflected
the Company's lessened involvement in Genta Jago development activities. Related
party contract revenues decreased from $350,000 in 1997, to $55,000 in 1998 and
zero in 1999. It is anticipated that, as the Company has reduced its resources
and focused them on its development of its lead Anticode(TM) oligonucleotide,
G3139, this trend will continue. It should be noted that at the same time, the
Company has reduced its commitment to provide funds to Genta Jago. On March 4,
1999, Genta and SkyePharma (on behalf of itself and its affiliates) entered into
an interim agreement pursuant to which the parties to the joint venture released
each other from all liability relating to unpaid development costs and funding
obligations of Genta Jago. SkyePharma agreed to be responsible for substantially
all the obligations of the joint venture to third parties and for the further
development of the joint venture's products, with any net income resulting
therefrom to be allocated in agreed-upon percentages between Genta and
SkyePharma as set forth in such interim agreement. The completion of the sale of
the assets of JBL resulted in a significant decrease in ongoing revenues, as all
of the Company's historical product sales have been attributable to JBL.
Collaborative research and development revenues were $50,000 annually in
1997 and 1998 and zero in 1999, recognized pursuant to the Company's
collaboration with Johnson & Johnson Consumer Products, Inc. See "Business --
Anticode(TM) Brand of Antisense Oligonucleotide Programs, -- Oligonucleotide
Collaborative and Licensing Agreements and -- Other Anticode Agreements." The
above agreement has expired.
Costs and expenses totaled $10.0 million in 1997 compared to $6.7 million in
1998 and $11.3 million in 1999. Primarily, the overall decrease between 1997 and
1998 reflects reduced research and development and general and administrative
charges offset by non-recurring charges related to restructuring. The decrease
in R&D expenses is the result of work force reductions and related closure of
research and development facilities in San Diego. The increase from 1998 to 1999
reflects increases in clinical trials and related drug supply, salaries and
non-cash stock compensation charges.
Services and capabilities that have not been retained within the Company are
out-sourced through short-term contracts or from consultants. All preclinical
biology and clinical trial work are now conducted through such collaborations
with external scientists and clinicians. The Company anticipates that, if
sufficient collaborative revenues and other funding are available, research and
development expenses may increase in future years due to requirements for
preclinical studies, clinical trials, the G3139 Anticode oligonucleotide program
and increased regulatory costs. The Company will be required to assess the
potential costs and benefits of developing its own Anticode(TM) oligonucleotide
manufacturing, marketing and sales activities if and as such products are
successfully developed and approved for marketing, as compared to establishing a
corporate partner relationship.
Research and development expenses totaled $3.3 million in 1997, $2.1 million
in 1998, and $5.3 million in 1999. The decrease in research and development
expenses between 1997 and 1998 is primarily attributable to the Company's
re-deployment of certain employees, and related workforce reductions implemented
in 1997 together with the discontinuation of several programs. Research and
development and certain other services the Company provided to Genta Jago under
the terms of the joint venture were significantly reduced over the period from
1997 through 1999. These amounts were $350,000 in 1997, $55,000 in 1998 and zero
in 1999. The increase between 1998 and 1999 is due primarily to expanded
clinical trials and non-cash stock compensation charges of $1,128,900.
It is anticipated that research and development expenses will continue to
increase in the future, assuming the Company obtains sufficient financing, as
the development program for G3139 expands and more patients are treated in
clinical trials at higher doses, through longer or more treatment cycles, or
both. Furthermore, the Company is pursuing other opportunities for new product
development candidates, which, if successful, will require additional research
and development expenses. There can be no assurance, however, that the trials
will proceed in this manner or that the Company will initiate new development
programs.
23
<PAGE> 24
In an effort to focus its research and development on areas that provide the
most significant commercial opportunities, the Company continually evaluates its
ongoing programs in light of the latest market information and conditions,
availability of third-party funding, technological advances, and other factors.
As a result of such evaluation, the Company's product development plans have
changed from time to time, and the Company anticipates that they will continue
to do so in the future.
General and administrative expenses were $6.1 million in 1997, $4.0 million
in 1998, and $6.0 million in 1999. The $2.1 million decrease from 1997 to 1998
reflects reductions in staff and in accounting and legal expenses. Legal
expenses were higher in 1997 due to several factors: successfully defending the
litigation brought by certain of the Company's preferred stockholders
challenging a $3.0 million investment made in February 1997, which litigation
was resolved in the Company's favor in April 1997; and the Company's successful
efforts to avoid a potential Nasdaq delisting associated with the equity
offerings consummated in 1997. The increase from 1998 to 1999 reflects primarily
non-cash stock compensation charges of $1,945,400 and accrual for severance due
to change in management. See "Legal Proceedings" and "Market for Registrant's
Common Equity and Related Stockholder Matters -- Recent Sales of Unregistered
Securities." As a continuation of its 1995 restructuring plan, in May 1997,
Genta again reassessed its personnel requirements and established another
termination plan involving the termination of 12 research and administrative
employees. The Company recorded general and administrative expenses of $868,000
in the second quarter of 1997 for accrued severance costs. In 1998, three
additional staff personnel left the Company, and two senior managers joined the
Company. Another senior manager joined the Company in 1999. Although the Company
has reduced its work force to a core group of corporate personnel, the remaining
team is able to maintain Genta's operations in the development of G3139.
The Company recorded charges to general and administrative expenses of
$600,000, $577,000 and $523,400 in 1997, 1998 and 1999, respectively, to account
for the carrying value of abandoned patents no longer related to the research
and development efforts of the Company. The Company's policy is to evaluate the
appropriateness of carrying values of the unamortized balances of intangible
assets on the basis of estimated future cash flows (undiscounted) and other
factors. If such evaluation were to identify a material impairment of these
intangible assets, such impairment would be recognized by a write-down of the
applicable assets. The Company continues to evaluate the continuing value of
patents and patent applications, particularly as expenses to prosecute or
maintain these patents come due. Through this evaluation, the Company may elect
to continue to maintain these patents, seek to out-license them, or abandon
them.
The Company's equity in net loss of its joint venture (Genta Jago) totaled
$1.2 million in 1997, compared to $0.1 million in 1998 and a net gain of $2.4
million in 1999. The decrease in the Company's equity in net loss of its joint
venture during 1998 relative to 1997 is largely attributable to the fact that
development efforts became focused exclusively on GEOMATRIX-based products and a
greater portion of development activities were funded pursuant to Genta Jago's
collaborative agreements with third parties. The operating results of Genta Jago
are based primarily on three factors. First, Genta Jago receives collaborative
research and development revenue from third parties. Secondly, Genta Jago is
billed by Jagotec and Genta for research and development costs associated with
Genta Jago projects. Thirdly, there are general and administrative costs
associated with the joint venture.
The increase in equity in net income of joint venture from 1998 to 1999 is
due to an agreement signed on March 4, 1999, between the Company and SkyePharma
(on behalf of itself and its affiliates) entered into an interim agreement (the
"Interim JV Agreement") pursuant to which the Company was released from all
liability relating to unpaid development costs and funding obligations of Genta
Jago, the joint venture between the Company and SkyePharma. SkyePharma agreed to
be responsible for substantially all the obligations of the joint venture to
third parties and for the further development of the joint venture's products,
with any net income resulting therefrom to be allocated in agreed-upon
percentages between the Company and SkyePharma. As a result of the Interim JV
Agreement, the Company wrote off its liability relative to the Company's
recorded deficit in the joint venture and, as such, recorded a gain of
approximately $2.3 million for the three months ended March 31, 1999. Also,
according to revised revenue sharing agreements, the Company reported
approximately $164,500 for its proportionate share of net income of Genta Jago
in relation to SkyePharma's royalty agreement, with Elan Pharmaceuticals, for
Genta Jago's product, Naproxen.
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 during each period.
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<PAGE> 25
Interest expense was $3.3 million in 1997, $8,700 in 1998 and $ 200 in 1999.
In consideration of a beneficial conversion feature on a debt instrument, the
Company recorded $666,667 in imputed interest on $2.0 million in 4% Convertible
Debentures due August 1, 1997, that were originally issued in September 1996 and
were converted at a 25% discount to market. The discount represents an effective
interest rate of 38%. The Company recorded a $3.0 million charge to imputed
interest in 1997 related to value associated with 6.4 million Bridge Warrants
issued in connection with a $3.0 million debt issue in February 1997.
In consideration of a beneficial conversion feature on a convertible equity
security, the Company recorded $16,158,000 in imputed dividends for discounted
conversion terms and liquidation preference of the Series D Preferred Stock
issued in the Private Placement.
RECENT ACCOUNTING PRONOUNCEMENTS
On June 16, 1998 the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
standard is effective for fiscal years beginning after June 15, 2000. SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
instruments at fair value. The Company is currently evaluating the impact of
this pronouncement and does not believe adoption of SFAS No. 133 will have a
material impact on the Company's consolidated financial statements.
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 $134.9 million through December 31, 1999,
including net proceeds of $10.4 million raised in 1999 and $17.0 million raised
during 1997. At December 31, 1999, the Company had cash, cash equivalents and
short-term investments totaling $10.1 million compared to $2.5 million at
December 31, 1998. Management believes that at the current rate of spending, the
Company will have sufficient cash funds to maintain its present operations
through December 31, 2000.
The Company will need substantial additional funds before it can expect to
realize significant product revenue. 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. Certain parties with
whom the Company has agreements have claimed default and, should the Company be
obligated to pay these claims or should the Company engage legal services 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 financing, will be required in order for the Company to continue its
planned 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 that the Company devotes to sales and marketing
capabilities; (iv) technological advances; (v) the activities of competitors;
and (vi) 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 -- Our Business Will Suffer if We Fail to Obtain Timely
Funding."
If the Company successfully secures sufficient levels of collaborative
revenues and other sources of financing, it expects to use such financing to
continue to expand its ongoing research and development activities, preclinical
testing and clinical trials, costs associated with the market introduction of
potential products, and expansion of its administrative activities. As
previously discussed in the MD&A Overview, the Company entered into an Asset
Purchase Agreement with Promega Corporation on March 19, 1999. Under the
agreement, a wholly owned subsidiary of Promega acquired substantially all of
the assets and assumed certain liabilities of JBL for $4.8 million in cash, a
$1.2 million promissory note, and pharmaceutical development services to be
provided to Genta.
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<PAGE> 26
In connection with the Genta Jago joint venture formed in late 1992 and
expanded in May 1995, the Company provided funding to Genta Jago pursuant to a
working capital loan agreement that expired in October 1998. As of December 31,
1998, the Company had advanced working capital loans of approximately $15.8
million to Genta Jago, net of principal repayments and credits, which amount
fully satisfied what the Company believes is the loan commitment established by
the parties through December 31, 1998 and in relation to the interim agreement
signed on March 4, 1999. Such loans bore interest at rates per annum ranging
from 5.81% to 7.5%, and were payable in full on October 20, 1998. Genta Jago
repaid Genta $1 million in principal of its working capital loans, in November
1996, from license fee revenues. See "MD&A -- Certain Trends and Uncertainties
- -- Claims of Genta's Default Under Various Agreements."
On March 4, 1999, Genta and SkyePharma (on behalf of itself and its
affiliates) entered into the interim agreement pursuant to which the parties to
the joint venture released each other from all liability relating to unpaid
development costs and funding obligations of Genta Jago and SkyePharma agreed to
be responsible for the obligations of the joint venture to third parties and for
the further development of the joint venture's products, with any net income
resulting therefrom to be allocated in agreed-upon percentages between Genta and
SkyePharma as set forth in such interim agreement. Accordingly, the Company
reversed its $2.3 million deficit in joint venture and effectively forgiving
payment of working capital loans to Genta Jago.
In August 1999, the Company acquired Androgenics Technologies, Inc.
("Androgenics"), a wholly owned entity of the Company's majority stockholder. As
consideration for the acquisition, the Company paid $132,000 in cash (including
reimbursements of pre-closing expenses and on-going research funding) and issued
warrants (with exercise prices ranging from $1.25 to $2.50 per share) to
purchase an aggregate of 1,000,000 shares of Common Stock, 90% of which will not
become exercisable until the successful conclusion of certain development
milestones, ranging from the initial clinical patient trial through the
submission of an application for marketing authorization. The acquisition was
accounted for as a transfer between companies under common control. The cash and
warrants were issued in exchange for 100% of the shares of Androgenics and
licensed technology and the assumption of a research and development agreement
with the University of Maryland, Baltimore. The 1,000,000 warrants were
accounted for as a deemed distribution based on their fair value of $440,500.
The $132,000 in cash was also accounted for as a deemed distribution. The assets
and liabilities of Androgenics as of December 31, 1999 and the results of its
operations for the year ended are immaterial.
Through December 31, 1999, the Company had acquired $10.4 million in
property and equipment of which $5.5 million was financed through capital leases
and other equipment financing arrangements, $3.6 million was funded in cash and
the remainder was acquired through the Company's acquisition of JBL. The Company
has commitments associated with its operating leases as discussed further in
Note 7 to the Company's consolidated financial statements. In 1997, the Company
bought out its equipment finance loan balance with the $251,000 in security
deposits then held by the equipment finance company. During 1998 and 1999, fixed
assets decreased due to the sale of furniture and equipment incident to the
reduction of operations at Genta Pharmaceuticals Europe and the closure of the
research and development laboratory at Genta's San Diego facility. Leasehold
improvements were written off by approximately $353,000 to general and
administrative expense due to the elimination of operations at Genta
Pharmaceuticals Europe. In 1997, the Company discontinued its effort to develop
a capability at JBL to manufacture oligonucleotides and wrote off $530,000 to
research and development expense.
In October 1996, JBL retained a chemical consulting firm to advise it with
respect to an incident of soil and groundwater contamination. Sampling conducted
at the JBL facility revealed the presence of chloroform and perchloroethylenes
("PCEs") in the soil and groundwater at this site. A semi-annual
groundwater-monitoring program is being conducted, under the supervision of the
California Regional Water Quality Control Board, for purposes of determining
whether the levels of chloroform and PCEs have decreased over time. The results
of the latest sampling conducted by JBL show that PCEs and chloroform have
decreased in all but one of the monitoring sites. Based on an estimate provided
to the Company by the consulting firm, the Company accrued $65,000 in 1999,
relating to remedial costs. Prior to 1999, such costs were not estimable, and
therefore, no loss provisions had been recorded. Pursuant to the JBL agreement,
the Company has agreed to indemnify Promega in respect of this matter. The
Company believes that any costs associated with further investigation or
remediation will not have a material adverse effect on the business of the
Company, although there can be no assurance thereof.
JBL received notice on October 16, 1998 from Region IX of the Environmental
Protection Agency (the "EPA") that it had been identified as a potentially
responsible party ("PRP") at the Casmalia Disposal Site, which is located
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<PAGE> 27
in Santa Barbara, California. JBL has been designated as a de minimis PRP by the
EPA. Based on volume amounts from the EPA, the Company concluded that it was
probable that a liability had been incurred and accrued $75,000 during 1998. In
1999, the EPA estimated that the Company would be required to pay approximately
$63,200 to settle their potential liability. The Company expects to receive a
revised settlement proposal from the EPA by the second quarter 2000. While the
terms of a settlement with the EPA have not been finalized, they should contain
standard contribution, protection and release language. JBL is investigating all
factual and legal defenses that are available to it and plans on responding to
this matter accordingly. See "MD&A -- Certain Trends and Uncertainties -- We
Cannot Market and Sell our Products in the United States or in Other Countries
if We Fail to Obtain the Necessary Regulatory Approvals." 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 has agreed to
indemnify Promega in respect of this matter.
In December 1999, the Company raised gross proceeds of approximately $11.4
million (approximately $10.4 million net of placement costs) through the private
placement of 114 units. Each unit sold in the private placement consists of (i)
33,333 shares of Common Stock, par value $.001 per share, and (ii) warrants to
purchase 8,333 shares of the Company's common stock at any time prior to the
fifth anniversary of the final closing (the "Warrants"). The Warrants are
convertible at the option of the holder into shares of Common Stock at an
initial conversion rate equal to the market price of $4.83 per share (subject to
antidilution adjustment).
In June 1997, the Company raised gross proceeds of approximately $16.2
million (approximately $14 million net of placement costs) through the private
placement of 161.58 Premium Preferred Units(TM). Each unit sold in the private
placement consists of (i) 1,000 shares of Premium Preferred Stock(TM), par value
$.001 per share, stated value $100 per share (the "Series D Preferred Stock"),
and (ii) warrants to purchase 5,000 shares of the Company's common stock at any
time prior to the fifth anniversary of the final closing (the "Class D
Warrants"). The Series D Preferred Stock is immediately convertible at the
option of the holder into shares of common stock at an initial conversion price
of $0.94375 per share (subject to antidilution adjustment).
On May 29, 1998, the Company requested, and subsequently received, consents
(the "Letter Agreements") from the holders of a majority of the Series D
Preferred Stock to waive the Company's obligation to use best efforts to obtain
the effectiveness of a registration statement with the SEC as to Common Stock
issuable upon conversion of Series D Preferred Stock and exercise of Class D
Warrants. In exchange, the Company agreed to waive the contractual "lock-up"
provisions to which such consenting holders were subject and which provisions
would have prevented the sale of up to 75% of their securities for a nine-month
period following the effectiveness of the registration statement; and to extend
to January 29, 1999 from June 29, 1998 the Reset Date referred to in the
Certificate of Designation of the Series D Preferred Stock. In addition, through
the Letter Agreements, the Company agreed to issue and did issue to such holders
warrants to purchase at $0.94375 per share, an aggregate of up to 807,900 shares
of Common Stock, subject to certain anti-dilution adjustments, exercisable until
June 29, 2002. The shares were valued at approximately $633,000 and recorded as
a dividend. The Company had conditioned the effectiveness of such consent on its
acceptance by a majority of the Series D Preferred Stockholders. The Series D
Preferred Stock began earning dividends, payable in shares of the Company's
Common Stock, at the rate of 10% per annum subsequent to the new Reset Date of
January 29, 1999.
In February 1997, the Company raised gross proceeds of $3 million in a
private placement of units consisting of (i) Senior Secured Convertible Bridge
Notes (the "Convertible Notes") that bore interest at a stated rate of 12% per
annum and matured on December 31, 1997, as extended, and (ii) warrants to
purchase an aggregate of approximately 6.4 million shares of common stock. The
Convertible Notes were convertible into Series D Convertible Preferred Stock at
the option of the holder, at an initial conversion price of $50.00 per share,
subject to antidilution adjustments. In May 1997, $650,000 of the Convertible
Notes were converted into 13,000 shares of Series D Preferred Stock and in
December 1997, the remaining $2,350,000 of the Convertible Notes and accrued
interest were converted into 52,415 shares of Series D Preferred Stock.
In September 1996, the Company raised gross proceeds of $2 million
(approximately $1.9 million net of offering costs) through the sale of
Convertible Debentures to investors in a private placement outside the United
States. The Convertible Debentures were convertible, at the option of the
holders, at any time on or after October 23, 1996, into shares of common stock
at a conversion price equal to 75% of the average Nasdaq closing bid price of
Genta's common stock for a specified period prior to the date of conversion.
Terms of the Convertible Debentures also provided for interest payable in shares
of the Company's common stock. In November 1996, $1.65 million of the
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<PAGE> 28
Convertible Debentures and the related accrued interest was converted into
approximately 590,000 shares of common stock and in 1997, the remaining $350,000
and related accrued interest was converted into 204,263 shares of common stock.
In March 1996, the Company raised gross proceeds of $6 million
(approximately $5.5 million net of offering fees) through the issuance of Series
C Convertible Preferred Stock (the "Series C Preferred Stock") sold to
institutional investors in a private placement. The Series C Preferred Stock was
immediately convertible, at the option of the holder, into shares of common
stock at a conversion price equal to 75% of the average Nasdaq closing bid price
of Genta's common stock for a specified period prior to the date of conversion.
In 1996, 5,620 shares of the Series C Preferred Stock and accrued dividends were
converted at the option of the holders into 524,749 shares of Genta's common
stock. In 1997, 1,424 shares of the Series C Preferred Stock and accrued
dividends were converted at the option of the holders into 952,841 shares of
Genta's common stock. In April 1998, in consideration of EITF D-60, which was
issued in March 1997, the Company recorded imputed non-cash dividends on
preferred stock totaling $2,348,000 in 1996 for discounted conversion terms
related to Series C convertible preferred stock.
In December 1995, the Company completed the sale of 3,000 shares of Series B
Convertible preferred stock (the "Series B Preferred Stock") at a price of
$1,000 per share to institutional investors outside of the United States.
Proceeds from the offering totaling approximately $2.8 million were reflected as
a receivable from sale of preferred stock at December 31, 1995 and were received
by the Company on January 2, 1996. The Series B Preferred Stock was immediately
convertible, at the option of the holder, into shares of common stock at a
conversion price equal to 75% of the average Nasdaq closing bid prices of
Genta's common stock for a specified period prior to the date of conversion. The
Series B Preferred Stock was converted into 226,943 shares of the Company's
common stock in February 1996 pursuant to terms of the Series B stock purchase
agreements.
In October 1993, the Company completed the sale of 600,000 shares of Series
A convertible preferred stock ("the Series A Preferred Stock") in a private
placement of units consisting of (i) one share of Series A Preferred Stock and
(ii) one warrant to acquire one share of common stock, sold at an aggregate
price of $50 per unit. Each share of Series A Preferred Stock is immediately
convertible, at any time prior to redemption, into shares of the Company's
common stock, at a rate determined by dividing the aggregate liquidation
preference of the Series A Preferred Stock by the conversion price. The
conversion price is subject to adjustment for antidilution. From January 1
through October 31, 1998, each share of Series A Preferred Stock was convertible
into 7.255 shares of Common Stock. From November 1 through December 31, 1998,
each share of Series A Preferred Stock was convertible into 7.333 shares of
Common Stock. At December 31, 1999 each share of Series A Preferred Stock was
convertible into 7.3825 shares of common stock.
Terms of the Company's Series A Preferred Stock require the payment of
dividends annually in amounts ranging from $3 per share per annum for the first
year to $5 per share per annum in the third and fourth years. Dividends were to
be paid in cash or common stock or a combination thereof, at the Company's
option. Dividends on the Series A Preferred Stock accrued on a daily basis
(whether or not declared) and accumulated to the extent not paid on the annual
dividend payment date following the dividend period for which they accrued. The
Company may redeem the Series A Preferred Stock under certain circumstances, and
was required to redeem the Series A Preferred Stock, subject to certain
conditions, in September 1996 at a redemption price of $50 per share, plus
accrued and unpaid dividends (the "Redemption Price"). The Company elected to
pay the Redemption Price in Common Stock in order to conserve cash and was
required under the terms of the Series A Preferred Stock to use its best efforts
to arrange for a firm commitment underwriting for the resale of such Common
Stock which would allow the holders ultimately to receive cash instead of
securities for their Series A Preferred Stock. Despite using its best efforts,
the Company was unable to arrange for a firm commitment underwriting. Therefore,
under the terms of the Series A Preferred Stock, Genta was not required to
redeem such Series A Preferred Stock in cash, but rather was required to redeem
all shares of Series A Preferred Stock held by holders who elected to waive the
firm commitment underwriting requirement and receive the redemption price in
shares of Common Stock. A waiver of the firm commitment underwriting was
included as a condition of such redemption. The terms of the Series A Preferred
Stock do not impose adverse consequences on the Company if it is unable to
arrange for such an underwriting despite its reasonable efforts in such regard.
In September 1996, holders of 55,900 shares of Series A Preferred Stock redeemed
such shares and related accrued and unpaid dividends for an aggregate of 242,350
shares of the Company's Common Stock. The effect on the financial statements of
the redemption was a reduction in Accrued dividends on preferred stock, a
reduction in the Par value of convertible preferred stock, an increase in the
Par value of Common Stock, and an increase in Additional paid-in capital. Should
the remaining shares of Series A Preferred
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stock be redeemed for, or converted into, the Company's Common Stock, the effect
on the financial statements will be the same as that previously described. The
Company is restricted from paying cash dividends on Common Stock until such time
as all cumulative dividends on outstanding shares of Series A and Series D
Preferred Stock have been paid. The Company currently intends to retain its
earnings, if any, after payment of dividends on outstanding shares of Series A
and Series D Preferred Stock, for the development of its business. See "MD&A --
If We Cease Doing Business and Liquidate our Assets, We are Required to
Distribute Proceeds to Holders of our Preferred Stock Before we Distribute
Proceeds to Holders of our Common Stock and Volatility of Stock Price; Market
Overhang From Convertible Securities and Warrants."
The Company continually evaluates its intangible assets for impairment. If
evidence of impairment is noted, the Company determines the amount of impairment
and charges such impairment to expense in the period that impairment is
determined. Through December 31, 1998, management has considered projected
future cash flows from product sales, collaborations and proceeds on sale of
such assets and, other than the $600,000, $577,000 and $523,400 charge recorded
in 1997, 1998 and 1999 respectively, related to the disposal of certain patents,
has determined that no additional impairment exists. See "MD&A -- Results of
Operations."
IMPACT OF YEAR 2000
The Company has acquired and installed new computer hardware and upgraded
software in its facility. The total year 2000 project cost was $31,600 and has
been completed. As a result of the modifications to existing software and
conversions to new software, the Company experienced no significant operational
problems for its computer systems related to the year 2000 date change. The
Company will continue to monitor its mission critical computer application and
those of its suppliers throughout the year 2000 to ensure that any latent year
2000 matters that may arise are addressed promptly.
CERTAIN TRENDS AND UNCERTAINTIES
In addition to the other information contained in this Annual Report on Form
10-K, the following factors should be considered carefully.
Our business will suffer if we fail to obtain timely funding.
Our operations to date have consumed substantial amounts of cash. Based on
our current operating plan, we believe that our available resources, including
the proceeds from our recent private offering, will be adequate to satisfy our
capital needs into the first quarter 2001. Our future capital requirements will
depend on the results of our research and development activities, preclinical
studies and bioequivalence and clinical trials, competitive and technological
advances, and regulatory processes of the FDA and other regulatory authority. If
our operations do not become profitable before we exhaust existing resources, we
will need to raise substantial additional financing in order to continue our
operations. We may seek additional financing through public and private
resources, including debt or equity financing, or through collaborative or other
arrangements with research institutions and corporate partners. We may not be
able to obtain adequate funds for our operations from these sources when needed
or on acceptable terms. If we raise additional capital by issuing equity, or
securities convertible into equity, the ownership interest of existing Genta
stockholders will be subject to further dilution and share prices may decline.
If we are unable to raise additional financing, we will need to do the
following:
- - delay, scale back or eliminate some or all of our research and product
development programs;
- - license third parties to commercialize products or technologies that we
would otherwise seek to develop ourselves;
- - sell Genta to a third party;
- - to cease operations; or
- - declare bankruptcy.
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<PAGE> 30
Our products are in an early stage of development.
Most of our 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 we have
demonstrated the activity of Anticode(TM) oligonucleotide technology in model
systems in vitro in animals, only one of these potential Anticode(TM)
oligonucleotide products, G3139, has begun to be tested in humans. Results
obtained in preclinical studies or early clinical investigations are not
necessarily indicative of results that will be obtained in extended human
clinical trials. Our products may prove to have undesirable and unintended side
effects or other characteristics that may prevent our obtaining FDA or foreign
regulatory approval for any indication. In addition, it is possible that
research and discoveries by others will render our oligonucleotide technology
obsolete or noncompetitive.
Clinical trials are costly and time consuming and are subject to delays.
Clinical trials are very costly and time-consuming. How quickly we are able
to complete a clinical study depends upon several factors, including the size of
the patient population, how easily patients can get to the site of the clinical
study, and the criteria for determining which patients are eligible to join the
study. Delays in patient enrollment could delay completion of a clinical study
and increase its costs, and could also delay the commercial sale of the drug
that is the subject of the clinical trial.
Our commencement and rate of completion of clinical trials also may be
delayed by many other factors, including the following:
- inability to obtain sufficient quantities of materials used for
clinical trials;
- inability to adequately monitor patient progress after treatment;
- unforeseen safety issues;
- the failure of the products to perform well during clinical
trials; and
- government or regulatory delays.
We cannot market and sell our products in the United States or in other
countries if we fail to obtain the necessary regulatory approvals.
The United States Food and Drug Administration and comparable agencies in
foreign countries impose substantial premarket approval requirements on the
introduction of pharmaceutical products through lengthy and detailed preclinical
and clinical testing procedures and other costly and time-consuming procedures.
Satisfaction of these requirements typically takes several years or more
depending upon the type, complexity and novelty of the product. While limited
trials of our products have produced favorable results, we cannot apply for FDA
approval to market any of our products under development until the product
successfully completes its preclinical and clinical trials. Several factors
could prevent successful completion or cause significant delays of these trials,
including an inability to enroll the required number of patients or failure to
demonstrate adequately that the product is safe and effective for use in humans.
If safety concerns develop, the FDA could stop our trials before completion. If
we are not able to obtain regulatory approvals for use of our products under
development, or if the patient populations for which they are approved are not
sufficiently broad, the commercial success of our products could be limited.
We cannot assure the commercial success of our products.
Even if our products are successfully developed and approved by the FDA and
corresponding foreign regulatory agencies, they may not enjoy commercial
acceptance or success, which would adversely affect our business and results of
operations. Several factors could limit our success, including:
- possible limited market acceptance among patients, physicians,
medical centers and third-party payors;
- our inability to access a sales force capable of marketing the
product;
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<PAGE> 31
- our inability to supply a significant amount of product to meet market
demand; and
- the number an relative efficacy of competitive products that may
subsequently enter the market.
In addition, it is possible that we, or our collaborative partners, will be
unsuccessful in developing, marketing and implementing a commercialization
strategy for our products.
We may be unable to obtain or enforce patents and other proprietary rights to
protect our business.
Our success will depend to a large extent on our ability to (1) obtain U.S.
and foreign patent or other proprietary protection for our technologies,
products and processes, (2) preserve trade secrets and (3) operate without
infringing the patent and other proprietary rights of third parties. Legal
standards relating to the validity of patents covering pharmaceutical and
biotechnological inventions and the scope of claims made under such patents are
still developing. There is no consistent policy regarding the breadth of claims
allowed in biotechnology patents. As a result, our ability to obtain and enforce
patents that protect our drugs is highly uncertain and involves complex legal
and factual questions.
We have more than 100 U.S. and international patents and applications to
aspects of oligonucleotide technology, which includes novel compositions of
matter, methods of large-scale synthesis and methods of controlling gene
expression. We may not receive any issued patents based on pending or future
applications. Our issued patents may not contain claims sufficiently broad to
protect us against competitors with similar technology. Additionally, our
patents, our partners' patents and patents for which we have license rights may
be challenged, narrowed, invalidated or circumvented. Furthermore, rights
granted under our patents may not cover commercially valuable drugs or processes
and may not provide us with any competitive advantage.
We may have to initiate arbitration or litigation to enforce our patent and
license rights. If our competitors file patent applications that claim
technology also claimed by us, we may have to participate in interference or
opposition proceedings to determine the priority of invention. An adverse
outcome could subject us to significant liabilities to third parties and require
us to cease using the technology or to license the disputed rights from third
parties. We may not be able to obtain any required licenses on commercially
acceptable terms or at all.
The cost to us of any litigation or proceeding relating to patent rights,
even if resolved in our favor, could be substantial. Some of our competitors may
be able to sustain the costs of complex patent litigation more effectively than
we can because of their substantially greater resources. Uncertainties resulting
from the initiation and continuation of any pending patent or related litigation
could have a material adverse effect on our ability to compete in the
marketplace.
We rely on our collaborative arrangements with research institutions and
corporate partners for development of our products.
Our business strategy depend in part on our continued ability to develop
and maintain relationships with leading academic and research institutions and
independent researchers. The competition for such relationships is intense, and
we can give no assurances that we will be able to develop and maintain such
relationships on acceptable terms. We have entered into a number of
collaborative relationships relating to specific disease targets and other
research activities in order to augment our internal research capabilities and
to obtain access to specialized knowledge and expertise. The loss of any of
these collaborative relationships could have a material adverse effect on our
business.
Similarly, strategic alliances with corporate partners, primarily
pharmaceutical and biotechnology companies, may help us develop and
commercialize drugs. Various problems can arise in strategic alliances. A
partner responsible for conducting clinical trials and obtaining regulatory
approval may fail to develop a marketable drug. A partner may decide to pursue
an alternative strategy or alternative partners. A partner that has been granted
marketing rights for a certain drug within a geographic area may fail to market
the drug successfully. Consequently, strategic alliances that we may enter into
in the future may not be scientifically or commercially successful. We may be
unable to negotiate advantageous strategic alliances in the future. The absence
of, or failure of, strategic alliances could harm our efforts to develop and
commercialize our drugs.
31
<PAGE> 32
The raw materials for our products are produced by a limited number of
suppliers.
The raw materials that we require to manufacture our drugs, particularly
oligonucleotides, are available from only a few suppliers, namely those with
access to our patented technology. Furthermore, we currently rely on a potential
competitor, which is itself a development stage biotechnology company, to supply
us with chemical compounds necessary to the development of our drugs. If these
few suppliers cease to provide us with the necessary raw materials or fail to
provide us with adequate supply of materials at an acceptable price and quality,
we could be materially adversely affected.
Our business will suffer if we fail to compete effectively with our
competitors and to keep up with new technologies.
The industries in which we operate are highly competitive and may become
even more competitive. We will need to continue to devote substantial efforts
and expense to research and development in order to maintain a competitive
position. It is possible that developments by others may succeed in developing
other new therapeutic drug candidates that are more effective and less costly
than those that we propose to develop and may render our current and proposed
products or technologies obsolete. Many of our competitors have greater
financial and human resources and more experience in research and development
than we have. Competitors that complete clinical trials, obtain regulatory
approvals and begin commercial sales of their products before us will enjoy a
significant competitive advantage. We anticipate that we will face increased
competition in the future as new companies enter the market and alternative
technologies become available.
Furthermore, biotechnology and related pharmaceutical technologies have
undergone and continue to be subject to rapid and significant change. We expect
that the technologies associated with biotechnology research and development
will continue to develop rapidly. Our future will depend in large part on our
ability to compete with these technologies. Any compounds, drugs or processes
that we develop may become obsolete before we recover the expenses incurred in
developing them.
The successful commercialization of our products will depend on obtaining
coverage and reimbursement for use of our products from third-party payors.
Our ability to commercialize drugs successfully will depend in part on the
extent to which various third parties are willing to reimburse patients for the
costs of our drugs and related treatments. These third parties include
government authorities, private health insurers, and other organizations, such
as health maintenance organizations. Third-party payors often challenge the
prices charged for medical products and services. Accordingly, if less costly
drugs are available, third party payors may not authorize or may limit
reimbursement for our drugs, even if they are safer or more effective than the
alternatives. In addition, the federal government and private insurers have
considered ways to change, and have changed, the manner in which health care
services are provided and paid for in the United States. In particular, these
third party payors are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement for new therapeutic
products. In the future, it is possible that the government may institute price
controls and further limits on Medicare and Medicaid spending. These controls
and limits could affect the payments we collect from sales of our products.
Internationally, medical reimbursement systems vary significantly, with some
medical centers having fixed budgets, regardless of levels of patient treatment,
and other countries requiring application for, and approval of, government or
third party reimbursement. Even if we or our partners succeed in bringing
therapeutic products to market, uncertainties regarding future health care
policy, legislation and regulation, as well as private market practices, could
affect our ability to sell our products in commercially acceptable quantities at
profitable prices.
We could become involved in time-consuming and expensive patent litigation
and adverse decisions in patent litigation could cause us to incur additional
costs and experience delays in bringing new drugs to market.
The pharmaceutical and biotechnology industries have been characterized by
time-consuming and extremely expensive litigation regarding patents and other
intellectual property rights. We may be required to commence, or may be made a
party to, litigation relating to the scope and validity of our intellectual
property rights, or the intellectual property rights of others. Such litigation
could result in adverse decisions regarding the patentability of our inventions
and products, or the enforceability, validity, or scope of protection offered by
our patents. Such decisions could make us liable for substantial money damages,
or could bar us from the manufacture, use, or sale of
32
<PAGE> 33
certain products, resulting in additional costs and delays in bringing drugs to
market. We may not have sufficient resources to bring any such proceedings to a
successful conclusion. It may be that entry into a licensing arrangement would
allow us to avoid any such proceedings. We may not be able, however, to enter
into any such licensing arrangement on terms acceptable to us, or at all.
We also may be required to participate in interference proceedings declared
by the U.S. Patent and Trademark Office and in International Trade Commission
proceedings aimed at preventing the importing of drugs that would compete
unfairly with our drugs. Such proceedings could cause us to incur considerable
costs.
Our business exposes us to potential product liability.
The nature of our business exposes us to potential product and professional
liability risks, which are inherent in the testing, production, marketing and
sale of human therapeutic products. While we are covered against those claims by
a product liability insurance policy (subject to various deductibles), we cannot
be certain that our insurance coverage will be sufficient to cover any claim.
Uninsured product liability could have a material adverse effect on our
financial results. Additionally, it is possible that any insurance will not
provide us with adequate protection against potential liabilities.
We have used hazardous materials and could be held liable for damages for
past or accidental contamination or injury.
In October of 1996, JBL hired an environmental consulting firm to
investigate an incident of soil and groundwater contamination at JBL's facility.
Sampling of soil and groundwater revealed the presence of contaminants. The
California Regional Water Quality Control Board is monitoring the situation.
Results of recent testing have indicated a reduction in contaminant levels. The
Company accrued $65,000 in 1999 to pay for any potential liability. We have
agreed to indemnify Promega Corporation, the purchaser of JBL's assets, for any
liability that may result from this alleged contamination. We believe that any
costs that result from further investigation or remediation will not have a
material adverse effect on our operation, but we can give no assurance to that
end.
On October 16, 1998, the Environmental Protection Agency identified JBL as
a de minimis potentially responsible party at a California waste disposal
facility showing evidence of environmental contamination. The EPA currently
estimates that Genta will be required to pay approximately $63,200 to settle its
potential liability. We have agreed to indemnify Promega Corporation for any
costs resulting from this contamination. Based on the volume amount from the
EPA, Genta accrued $75,000 to pay for any potential liability arising from this
incident. We are expecting to finalize the terms of settlement by the second
quarter of 2000. We believe that any costs that result from further
investigation or remediation will not have a material adverse affect on our
operation, but we can give no assurance to that end.
If we cease doing business and liquidate our assets, we are required to
distribute proceeds to holders of our preferred stock before we distribute
proceeds to holders of our common stock.
In the event of a dissolution or liquidation of Genta, holders of Genta
common stock will not receive any proceeds until holders of 277,100 outstanding
shares of Genta Series A preferred stock are paid a $13.9 million dollar
liquidation preference and holders of 123,451 outstanding shares of Genta Series
D preferred stock are paid a $18.0 million dollar liquidation preference. We are
also obligated to issue an additional 36,838 shares of Series D Preferred Stock,
with a liquidation preference of $5.2 million, upon the exercise of some
outstanding warrants. Furthermore, holders of shares of Genta Series A and D
Preferred Stock are contractually entitled to receive cumulative dividends
before any dividend payment may be made on the common stock.
There currently exist certain interlocking relationships and potential
conflicts of interest.
Certain of our affiliates, Aries Domestic Fund, LP, Aries Domestic Fund II,
LP, and Aries Trust (together the "Aries Funds") have the contractual right to
appoint a majority of the members of our Board of Directors. Paramount Capital
Asset Management, Inc. is the investment manager of the Aries Funds. The Aries
Funds have the right to convert and exercise their securities into a significant
portion of the outstanding common stock. Dr. Lindsay A. Rosenwald, the Chairman
and sole stockholder of Paramount Capital Asset Management, is also the
33
<PAGE> 34
Chairman of Paramount Capital, Inc. and of Paramount Capital Investments, LLC, a
New York-based merchant banking and venture capital firm specializing in
biotechnology companies. In the regular course of its business, Paramount
Capital Inc. identifies, evaluates and pursues investment opportunities in
biomedical and pharmaceutical products, technologies and companies. Generally,
the law requires that any transactions between Genta and any of our affiliates
be on terms that, when taken as a whole, are substantially as favorable to us as
those then reasonably obtainable from a person who is not an affiliate in an
arms-length transaction. Nevertheless, our affiliates, including Paramount
Capital Asset Management and Paramount Capital Inc., are not 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 we do not expect and you should not expect, that any biomedical
or pharmaceutical product or technology developed by any affiliate in the future
will be made available to us. In addition, some of our officers and directors
may from time to time serve as officers or directors of other biopharmaceutical
or biotechnology companies. We cannot assure you that these other companies will
not have interests in conflict with ours.
Concentration of ownership of our stock could lead to a delay or prevent a
change of control.
Our directors, executive officers and principal stockholders and their
affiliates own a significant percentage of our outstanding common stock and
preferred stock. They also own, through the exercise of options and warrants,
the right to acquire even more common stock and preferred stock. As a result,
these stockholders, if acting together, have the ability to influence the
outcome of corporate actions requiring stockholder approval. This concentration
of ownership may have the effect of delaying or preventing a change in control
of Genta.
Anti-takeover provisions in our certificate of incorporation and Delaware law
may prevent our stockholders from receiving a premium for their shares.
Our certificate of incorporation and by-laws include provisions that could
discourage takeover attempts and impede stockholders ability to change
management. The approval of 66-2/3% of our voting stock is required to approve
certain transactions and to take certain stockholder actions, including the
amendment of the by-laws and the amendment, if any, of the anti-takeover
provisions contained in our certificate of incorporation.
Loss History; Uncertainty of Future Profitability
The Company has been unprofitable to date, incurring substantial operating
losses associated with ongoing research and development activities, preclinical
testing, clinical trials, manufacturing activities and development activities
undertaken by Genta Jago. From the period since its inception to December 31,
1999, the Company has incurred a cumulative net loss of $139.6 million. The
Company has experienced significant quarterly fluctuations in operating results
and expects that these fluctuations in revenues, expenses and losses will
continue, although, as a result of the sale of JBL's business, revenues from
product sales have discontinued. "MD&A -- Certain Trends and Uncertainties --
Need for Additional Funds; Risk of Insolvency."
Authorized Capital Stock
Following completion of the Offering, the company has an insufficient number
of authorized shares of Common Stock to raise additional capital through the
issuance of equity securities. The Company intends, at its next annual meeting
of stockholders, to submit to a vote of its stockholders an amendment to its
Amended and Restated Certificate of Incorporation to increase the number of
shares of Common Stock that the company is authorized to issue. Approval of this
amendment will require the favorable vote of the holders of a majority of the
voting power of the outstanding stock entitled to vote thereon. There can be no
assurance that the Company's stockholders will approve such amendment.
Claims of Genta's Default Under Various Agreements
During 1995, Genta Pharmaceuticals Europe S.A. ("Genta Europe"), a
wholly-owned subsidiary of the Company, received approximately 5.4 million
French Francs (or, as of December 31,1999 approximately $826,600) of funding in
the form of a loan from the French government agency L'Agence Nationale de
Valorisation de la Recherche ("ANVAR") towards research and development
activities pursuant to an agreement (the "ANVAR Agreement") between ANVAR, Genta
Europe and Genta. In October 1996, as part of the Company's restructuring
34
<PAGE> 35
program, Genta Europe terminated all scientific personnel. ANVAR asserted, in a
letter dated February 13, 1998, that 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, ANVAR notified Genta Europe by letter of its claim that
the Company remains liable for FF4,187,423 (as of December 31, 1999),
approximately $641,000 and is required to pay this amount immediately. The
Company does not believe that under the terms of the ANVAR Agreement ANVAR is
entitled to request early repayment. ANVAR notified Genta Incorporated that it
was responsible as a guarantor of the note for the repayment. Genta's agent in
Europe has again notified ANVAR that it does not agree that the note is payable.
The Company is working with ANVAR to achieve a mutually satisfactory resolution.
However, there can be no assurance that such a resolution will be obtained.
On June 30, 1998, Marseille Amenagement, a company affiliated with the city
of Marseilles, France, filed suit in France to evict Genta Europe from its
facilities in Marseilles and to demand payment of alleged back rent due and of a
lease guarantee for nine years' rent. Following the filing of this claim and in
consideration of the request for repayment of the loan from ANVAR, Genta
Europe's Board of Directors directed the management to declare a "Cessation of
Payment". Under this procedure, Genta Europe ceased any operations and
terminated its only employee. A liquidator was appointed by the Court to take
control of any assets of Genta Europe and to make payment to creditors. In
December 1998, the Court in Marseilles dismissed the case against Genta Europe
and indicated that it had no jurisdiction against Genta Incorporated. In August
1999, Marseille Amenagement instituted legal proceedings against the Company at
the Commercial Court in France, claiming alleged back rent payment of FF663,413
(as of December 31, 1999, approximately $101,500) and early termination payment
of FF1,852,429 (as of December 31, 1999, approximately $283,600). A court
hearing has been scheduled for May 15, 2000. The Company is working with its
counsel in France to achieve a mutually satisfactory resolution. However, there
can be no assurance that such a resolution will be obtained. On December 31,
1999, the Company has $574,800 of net liabilities of liquidated subsidiary
recorded and, therefore, management believes no additional accrual is necessary.
There can be no assurance that the Company will not incur material costs in
relation to this claim.
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 D Preferred Stocks. The Company currently intends to retain its earnings,
if any, after payment of dividends on outstanding shares of Series D Preferred
Stocks, for the development of its business. See "MD&A -- Liquidity and Capital
Resources."
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.
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 the Company or its competitors,
other evidence of the safety or efficacy of products of the Company or its
competitors, announcements of technological innovations or new therapeutic
products by the Company or its competitors, governmental regulation,
developments in patent or other proprietary rights of the Company or its
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. As of
March 10, 2000, the Company had 28,549,365 shares of Common Stock outstanding.
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.
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<PAGE> 36
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Since the Company has liquidated its Genta Europe subsidiary, the Company
has no material currency exchange or interest rate risk exposure as of December
31, 1999. With the liquidation, there will be no ongoing exposure to material
adverse effect on the Company's business, financial condition, or results of
operation for sensitivity to changes in interest rates or to changes in currency
exchange rates.
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<PAGE> 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
GENTA INCORPORATED
INDEX TO FINANCIAL STATEMENTS COVERED
BY REPORTS OF INDEPENDENT AUDITORS
<TABLE>
<S> <C>
Genta Incorporated
Reports of Independent Auditors................................................................................ 38
Consolidated Balance Sheets at December 31, 1998 and 1999...................................................... 40
Consolidated Statements of Operations for the years ended December 31, 1997, 1998 and 1999..................... 41
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1998 and 1999........... 42
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1998 and 1999..................... 45
Notes to Consolidated Financial Statements..................................................................... 46
Genta Jago Technologies B.V. (a development stage company)
Reports of Independent Auditors................................................................................ 67
Balance Sheets at December 31, 1997 and 1998................................................................... 69
Statements of Operations for the years ended December 31, 1996, 1997 and 1998 and for the period
December 15, 1992 (inception) through December 31, 1998.................................................... 70
Statement of Stockholders' Equity (Net Capital Deficiency) for the Period December 15, 1992
(inception) Through December 31, 1998....................................................................... 71
Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998 and for the period
December 15, 1992 (inception) through December 31, 1998................................................... 72
Notes to Financial Statements.................................................................................. 73
</TABLE>
37
<PAGE> 38
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Genta Incorporated
We have audited the accompanying consolidated balance sheets of Genta
Incorporated and its subsidiaries as of December 31, 1998 and 1999 and the
related statements of operations, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1998 and 1999, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 2, 2000
38
<PAGE> 39
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Genta Incorporated
We have audited the accompanying consolidated statement of operations,
stockholders' equity, and cash flows of Genta Incorporated for the year ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of Genta Incorporated's
operations and its cash flows of for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
The Company has incurred substantial and continuing operating losses since
inception and management expects that these losses will continue for the
foreseeable future. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The 1997 financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
ERNST & YOUNG LLP
San Diego, California
June 18, 1998
39
<PAGE> 40
GENTA INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
ASSETS 1998 1999
----------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .......................................................... $ 1,566,288 $10,100,603
Short term investments ............................................................. 892,372 --
Notes receivable ................................................................... -- 1,333,739
Prepaid expenses ................................................................... 405,700 --
Property held for sale ............................................................. 290,000 --
Other current assets ............................................................... 176,700 22,087
Net current assets of discontinued operations ...................................... 2,606,304 --
----------------------------
Total current assets .................................................................. 5,937,364 11,456,429
----------------------------
Property and equipment, net ........................................................... 148,245 30,357
Intangibles, net ...................................................................... 1,460,383 576,904
Deposits and other assets ............................................................. 5,301 164,500
----------------------------
Total assets .......................................................................... $ 7,551,293 $12,228,190
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................... $ 432,116 $ 362,465
Payable to research institution .................................................... 635,661 52,500
Accrued compensation ............................................................... 84,888 487,609
Other accrued expenses ............................................................. 580,779 544,728
Net liabilities of liquidated foreign subsidiary ................................... 574,812 574,812
----------------------------
Total current liabilities ............................................................. 2,308,256 2,022,114
----------------------------
Deficit in joint venture .............................................................. 2,284,018 --
Stockholders' equity:
Preferred stock; 5,000,000 shares authorized, convertible
preferred stock outstanding:
Series A convertible preferred stock, $.001 par value;
447,600 and 277,100 shares issued and outstanding at
December 31, 1998 and December 31, 1999, respectively, liquidation
value is $13,855,000 at December 31, 1999 ...................................... 448 277
Series D convertible preferred stock, $.001 par value; 186,021 and 123,451
shares issued and outstanding at December 31, 1998 and December 31, 1999,
respectively; liquidation value is $22,418,052 at December 31, 1999 ............ 186 124
Common stock; $.001 par value; 65,000,000 shares authorized,
10,426,215 and 25,456,437 shares issued and outstanding at
December 31, 1998 and 1999, respectively ......................................... 10,426 25,456
Additional paid-in capital ......................................................... 131,260,041 146,862,374
Accumulated deficit ................................................................ (132,053,657) (139,497,618)
Accrued dividends payable .......................................................... 4,476,000 5,134,912
Deferred compensation .............................................................. (734,425) (2,319,449)
----------------------------
Total stockholders' equity ............................................................ 2,959,019 10,206,076
----------------------------
Total liabilities and stockholders' equity ............................................ $ 7,551,293 $ 12,228,190
============================
</TABLE>
See accompanying notes.
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<PAGE> 41
GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Related party contract revenue ............................... $ 350,097 $ 55,087 $ --
Collaborative research and development ....................... 50,000 50,000 --
------------ ------------ ------------
400,097 105,087 --
Costs and expenses:
Research and development (including non-cash stock compensation
of zero, $2,410 and $1,128,931) .............................. 3,309,216 2,115,954 5,333,843
General and administrative (including non-cash stock compensation
of zero, $151,957 and $1,945,415) ............................ 6,131,355 4,020,169 5,999,295
LBC settlement .................................................. 600,000 547,000 --
------------ ------------ ------------
10,040,571 6,683,123 11,333,138
------------ ------------ ------------
Loss from operations ............................................ (9,640,474) (6,578,036) (11,333,138)
Equity in net (loss) income of
joint venture ................................................. (1,193,321) (131,719) 2,448,518
Net loss of liquidated foreign subsidiary ....................... -- (98,134) --
Other income (expense):
Interest income .............................................. 458,437 272,336 172,310
Interest expense ............................................. (3,309,120) (8,661) (173)
Other expense ................................................ -- (301,587) (149,027)
------------ ------------ ------------
Net loss from continuing operations ............................. (13,684,478) (6,845,801) (8,861,510)
Loss from discontinued operations ............................... (1,741,339) (739,965) (189,407)
Gain on sale of discontinued operations ......................... -- -- 1,606,956
------------ ------------ ------------
Net loss ........................................................ (15,425,817) (7,585,766) (7,443,961)
Preferred stock dividends ....................................... (17,852,677) (632,790) (10,084,580)
------------ ------------ ------------
Net loss applicable to common shares ............................ $(33,278,494) $ (8,218,556) $(17,528,541)
============ ============ ============
Net income (loss) per share :
Continuing operations ......................................... $ (7.13) $ (1.06) $ (1.07)
Discontinued operations ....................................... (0.39) (0.11) 0.08
------------ ------------ ------------
Net loss per common share ....................................... $ (7.52) $ (1.17) $ (0.99)
============ ============ ============
Weighted average shares used in computing net
income (loss) per common share ................................ 4,422,409 7,000,191 17,783,516
============ ============ ============
</TABLE>
See accompanying notes.
41
<PAGE> 42
GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
For the Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional
--------------------- --------------------- Paid-in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1996 .......................... 529,524 $ 529 3,999,367 $ 3,999 $ 109,490,222
Issuance of common stock for
services rendered and
severance ................. -- -- 38,400 38 42,000
Return of common stock in
exchange for forgiveness of
note receivable ........... -- -- (1,250) (1) --
Issuance of common stock
upon conversion of Series A
convertible preferred stock
and related accrued
dividends ................. (71,500) (71) 518,742 519 714,552
Issuance of common stock
upon conversion of Series C
convertible preferred stock
and related accrued
dividends ................. (1,424) (1) 952,841 953 84,257
Issuance of common stock
upon conversion of
convertible debentures .... -- -- 204,263 204 358,355
Issuance of Series D
convertible preferred stock 161,580 162 -- -- 13,957,100
Issuance of Series D
convertible preferred stock
upon conversion of senior
secured convertible bridge
notes and accrued
interest .................. 65,415 65 -- -- 3,270,684
Dividends accrued on
preferred stock .......... -- -- -- -- (1,694,677)
Issuance of warrants to
purchase common stock in
connection with line of
credit ................... -- -- -- -- 98,000
Interest imputed on
convertible debentures ... -- -- -- -- 3,000,000
Net loss ...................... -- -- -- -- --
------- ----- --------- ------- -------------
BALANCE AT DECEMBER 31,
1997 .......................... 683,595 $ 684 5,712,363 $ 5,712 $ 129,320,493
</TABLE>
<TABLE>
<CAPTION>
Notes
Accrued Receivable Total
Accumulated Dividends from Deferred Stockholders'
Deficit Payable Stockholders Compensation Equity
------- ------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1996 .......................... $(109,042,074) $ 3,671,532 $(49,976) $ -- $ 4,074,232
Issuance of common stock for
services rendered and
severance ................. -- -- -- -- 42,038
Return of common stock in
exchange for forgiveness of
note receivable ........... -- -- 49,976 -- 49,975
Issuance of common stock
upon conversion of Series A
convertible preferred stock
and related accrued
dividends ................. -- (715,000) -- -- --
Issuance of common stock
upon conversion of Series C
convertible preferred stock
and related accrued
dividends ................. -- (85,209) -- -- --
Issuance of common stock
upon conversion of
convertible debentures .... -- -- -- -- 358,559
Issuance of Series D
convertible preferred stock -- -- -- -- 13,957,262
Issuance of Series D
convertible preferred stock
upon conversion of senior
secured convertible bridge
notes and accrued
interest .................. -- -- -- -- 3,270,749
Dividends accrued on
preferred stock .......... -- 1,694,677 -- -- --
Issuance of warrants to
purchase common stock in
connection with line of
credit ................... -- -- -- -- 98,000
Interest imputed on
convertible debentures ... -- -- -- -- 3,000,000
Net loss ...................... (15,425,817) -- -- -- (15,425,817)
------------- ----------- ------ ----- ------------
BALANCE AT DECEMBER 31,
1997 .......................... $(124,467,891) $ 4,566,000 $ -- $ -- $ 9,424,998
</TABLE>
See accompanying notes.
42
<PAGE> 43
GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
For the Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional
-------------------- --------------------- Paid-in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1997 (CONTINUED) ............. 683,595 $ 684 5,712,363 $ 5,712 $ 129,320,493
Issuance of common stock
upon conversion of Series A
convertible preferred stock
and related accrued dividends (9,000) (9) 65,295 65 89,944
Issuance of common stock
upon conversion of Series D
convertible preferred stock . (43,874) (44) 4,648,557 4,649 (4,605)
Shares and warrants issued in
connection with legal
settlement .................. 2,900 3 -- -- 965,417
Deferred Compensation
related to stock options .... -- -- -- -- 888,792
Amortization of deferred
compensation ................ -- -- -- -- --
Dividends accrued on preferred
stock ....................... -- -- -- -- (632,790)
Payment of dividend on Series
D convertible preferred stock 632,790
Net loss ........................ -- -- -- -- --
--------- --------- ---------- ------- -------------
BALANCE AT DECEMBER 31,
1998 ............................ $ 633,621 $ 634 10,426,215 $10,426 $ 131,260,041
Issuance of common stock
upon conversion of Series A
convertible preferred stock
and related accrued dividends (170,500) (171) 1,366,388 1,366 1,641,805
Issuance of common stock
upon conversion of Series D
convertible preferred stock . (69,499) (69) 7,552,118 7,552 (7,483)
Issuance of common stock in
connection with a private
placement, net of issuance
costs of $1,071,756 ......... -- -- 3,809,502 3,809 10,352,940
Issuance of common stock
in connection with legal
settlement .................. -- -- 69,734 70 199,930
Dividends accrued on Series D
preferred stock ............. -- -- -- -- (7,677,413)
</TABLE>
<TABLE>
<CAPTION>
Notes
Accrued Receivable Total
Accumulated Dividends from Deferred Stockholders'
Deficit Payable Stockholders Compensation Equity
------- ------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1997 (CONTINUED) ............. $(124,467,891) $ 4,566,000 $ -- $ -- $ 9,424,998
Issuance of common stock
upon conversion of Series A
convertible preferred stock
and related accrued dividends -- (90,000) -- -- --
Issuance of common stock
upon conversion of Series D
convertible preferred stock . -- -- -- -- --
Shares and warrants issued in
connection with legal
settlement .................. -- -- -- -- 965,420
Deferred Compensation
related to stock options .... -- -- -- (888,792) --
Amortization of deferred
compensation ................ -- -- -- 154,367 154,367
Dividends accrued on preferred
stock ....................... -- 632,790 -- -- --
Payment of dividend on Series
D convertible preferred stock (632,790)
Net loss ........................ (7,585,766) -- -- -- (7,585,766)
------------- ----------- ---- --------- ------------
BALANCE AT DECEMBER 31,
1998 ............................ $(132,053,657) $ 4,476,000 $ -- $(734,425) $ 2,959,019
Issuance of common stock
upon conversion of Series A
convertible preferred stock
and related accrued dividends -- (1,643,000) -- -- --
Issuance of common stock
upon conversion of Series D
convertible preferred stock . -- -- -- -- --
Issuance of common stock in
connection with a private
placement, net of issuance
costs of $1,071,756 ......... -- -- -- -- 10,356,749
Issuance of common stock
in connection with legal
settlement .................. -- -- -- -- 200,000
Dividends accrued on Series D
preferred stock ............. -- 7,677,413 -- -- --
</TABLE>
See accompanying notes.
43
<PAGE> 44
GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
For the Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional
--------------------- --------------------- Paid-in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Payment of dividends in
common stock for Series
A and D convertible preferred
stock including cash for
fractional shares ........... -- -- 2,009,939 2,010 5,373,417
Issuance of Series D
convertible preferred stock
upon exercise of placement
agency warrants ............. 6,929 7 -- -- (7)
Exercise of Class D warrants .. -- -- 178,541 179 166,574
Exercise of stock options ....... -- -- 44,000 44 41,981
Deferred Compensation
related to stock options .... -- -- -- -- 4,659,370
Amortization of deferred
compensation ................ -- -- -- -- --
Preferred stock dividends
accrued in connection with
related party acquisition ... -- -- -- -- (572,495)
Payment of preferred stock
dividends in connection with
related party acquisition,
including warrants and cash
of $131,967 ................. -- -- -- -- 440,528
Preferred stock dividends
accrued in connection with
issuance of penalty
warrants .................... -- -- -- -- (1,834,672)
Payment of preferred stock
dividends in connection with
issuance of penalty
warrants .................... -- -- -- -- 1,834,672
Issuance of stock options in
connection with the sale of
discontinued operation ...... -- -- -- -- 983,186
Net loss ........................ -- -- -- -- --
-------- ---------- ---------- ---------- -------------
BALANCE AT DECEMBER 31,
1999 ............................ 400,551 $ 401 25,456,437 $ 25,456 $ 146,862,374
======== ========== ========== ========== =============
</TABLE>
<TABLE>
<CAPTION>
Notes
Accrued Receivable Total
Accumulated Dividends from Deferred Stockholders'
Deficit Payable Stockholders Compensation Equity
------- ------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C>
Payment of dividends in
common stock for Series
A and D convertible preferred
stock including cash for
fractional shares ........... -- (5,375,501) -- -- (74)
Issuance of Series D
convertible preferred stock
upon exercise of placement
agency warrants ............. -- -- -- -- --
Exercise of Class D warrants .. -- -- -- -- 166,753
Exercise of stock options ....... -- -- -- -- 42,025
Deferred Compensation
related to stock options .... -- -- -- (4,659,370) --
Amortization of deferred
compensation ................ -- -- -- 3,074,346 3,074,346
Preferred stock dividends
accrued in connection with
related party acquisition ... -- 572,495 -- -- --
Payment of preferred stock
dividends in connection with
related party acquisition,
including warrants and cash
of $131,967 ................. -- (572,495) -- -- (131,967)
Preferred stock dividends
accrued in connection with
issuance of penalty
warrants .................... -- 1,834,672 -- -- --
Payment of preferred stock
dividends in connection with
issuance of penalty
warrants .................... -- (1,834,672) -- -- --
Issuance of stock options in
connection with the sale of
discontinued operation ...... -- -- -- -- 983,186
Net loss ........................ (7,443,961) -- -- -- (7,443,961)
------------- ---------- ------ ----------- ------------
BALANCE AT DECEMBER 31,
1999 ............................ $(139,497,618) $5,134,912 $ -- $(2,319,449) $ 10,206,076
============= ========== ====== =========== ============
</TABLE>
See accompanying notes.
44
<PAGE> 45
GENTA INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss .............................................................. $(15,425,817) $(7,585,766) $ (7,443,961)
Items reflected in net loss not requiring cash:
Depreciation and amortization ..................................... 1,022,432 957,583 524,552
Equity in net loss (income) of joint venture ...................... 1,193,321 131,719 (2,448,518)
Gain on sale of discontinued operations ........................... -- -- (1,606,956)
Loss on disposal of fixed assets .................................. 1,130,809 340,808 149,026
Loss on abandonment of patents .................................... 600,000 576,544 523,786
Interest accrued on convertible notes and debentures .............. 279,308 -- --
Fair value of warrants issued in connection with line of credit ... 98,000 -- --
LBC settlement .................................................... 568,420 547,000 --
Forgiveness of shareholder note ................................... 49,976 -- --
Fair value of common stock issued for severance and services ...... 42,038 -- --
Compensation expense related to stock options ..................... -- 154,367 3,074,346
Interest imputed on convertible debentures ........................ 3,000,000 -- --
Changes in operating assets and liabilities:
Accounts receivable .......................................... 233,650 (400,962) 352,410
Inventories .................................................. 166,235 (137,603) (2,904)
Prepaids and other assets .................................... (33,349) (382,166) 408,944
Accounts payable, accrued expenses and other ................. (1,036,342) 268,278 (789,775)
Deferred revenue ............................................. 5,449 (198,570) --
----------- ------------ ------------
Net cash used in operating activities ................................. (8,105,870) (5,728,768) (7,259,050)
INVESTING ACTIVITIES:
Purchase of short-term investments ................................ (8,771,737) (1,882,290) (501,400)
Maturities of short-term investments .............................. 2,509,737 7,251,918 1,393,772
Purchase of property and equipment ................................ (34,246) (303,556) (37,983)
Proceeds from sale of property and equipment ...................... 70,691 57,686 66,087
Principal payments received on notes receivable ................... -- -- 120,000
Proceeds from sale of discontinued operations, net of expenses .... -- -- 4,371,380
Purchase of intangibles ........................................... -- -- (100,000)
Acquisition of related party ...................................... -- -- (131,967)
Loans receivable from joint venture ............................... (595,771) (51,754) --
Deposits and other ................................................ (67,331) 37,575 5,069
----------- ------------ ------------
Net cash provided (used in) by investing activities ................... (6,888,657) 5,109,579 5,184,958
FINANCING ACTIVITIES:
Proceeds from notes payable ....................................... 3,000,000 -- --
Repayment of notes payable and capital leases ..................... (300,324) -- --
Proceeds from issuance of preferred stock, net .................... 13,957,262 -- --
Proceeds from issuance of common stock for the private
placement, net .................................................. -- -- 10,356,749
Issuance of common stock upon exercise of warrants and options .... -- -- 208,778
Proceeds from equipment conversion to lease ....................... -- -- 51,827
------------ ------------ ------------
Net cash provided by financing activities ............................. 16,656,938 -- 10,617,354
Increase (decrease) in cash and cash equivalents ...................... 1,662,411 (619,189) 8,543,262
Less cash at liquidated foreign subsidiary ............................ -- (8,947) (8,947)
Cash and cash equivalents at beginning of year ........................ 532,013 2,194,424 1,566,288
------------ ------------ ------------
Cash and cash equivalents at end of year .............................. $ 2,194,424 $ 1,566,288 $ 10,100,603
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ......................................................... $ 33,914 $ 8,661 $ 173
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Warrant dividend ...................................................... -- 632,790 --
Preferred stock dividend accrued ...................................... 1,694,677 -- 7,677,413
Preferred stock dividend imputed on penalty warrants .................. -- -- 1,834,672
Dividends imputed on preferred stock .................................. 16,158,000 -- --
Common stock issued in payment of dividends on preferred stock ........ 800,209 90,000
Common stock issued upon conversion of notes and convertible debentures
and accrued interest .............................................. 358,559 -- --
Exchange of deposits for purchase of equipment ........................ 251,000 -- --
Preferred stock issued upon conversion of short-term notes payable
and accrued interest .............................................. 3,270,749 -- --
Conversion of accrued expenses into paid in capital related to LBC
settlement ........................................................ -- 418,417 --
Notes Receivable and accrued interest from sale of discontinued
operations ......................................................... -- -- 1,253,739
Notes Receivable from sale of equipment ............................... -- -- 200,000
Dividends imputed in connection with related party acquisition ........ -- -- 440,528
Issuance of common stock in connection with legal settlement .......... -- -- 200,000
</TABLE>
See accompanying notes.
45
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Genta Incorporated ("Genta" or the "Company") is an emerging
biopharmaceutical company engaged in the development of a pipeline of
pharmaceutical products. The Company's research efforts have been focused on the
development of proprietary oligonucleotide pharmaceuticals intended to block or
regulate the production of disease-related proteins at the genetic level. The
Company had also manufactured and marketed specialty biochemicals and
intermediate products to the in vitro diagnostic and pharmaceutical industries
through its manufacturing subsidiary, JBL Scientific, Inc. ("JBL"), until the
Company entered into an Asset Purchase Agreement with Promega Corporation
("Promega") on March 19, 1999, which closed on May 10, 1999. Accordingly, JBL is
presented as discontinued operations (See Note 2). The Company also has a 50%
equity interest in a drug delivery system joint venture with SkyePharma, PLC
("SkyePharma," formerly with Jagotec AG ("Jagotec")), Genta Jago Technologies
B.V. ("Genta Jago"), established to develop oral controlled-release drugs. On
March 4, 1999, Genta and SkyePharma, entered into an interim agreement pursuant
to which the parties to the joint venture released each other from all liability
relating to unpaid development costs and funding obligations. In August 1999,
the Company acquired Androgenics Technologies, Inc. ("Androgenics"), who is
developing a proprietary series of compounds that act to inhibit the growth of
prostate cancer cells.
The Company has had recurring operating losses since inception, and
management expects that they will continue for the next several years.
Management's plans for funding future losses include the recent funding from an
$11.4 million Private Placement of common stock and warrants, which closed on
December 23, 1999. Management believes that at the current rate of spending, the
Company will have sufficient cash funds to maintain its present operations
through December 31, 2000.
The Company is also actively seeking collaborative agreements, equity
financing and other financing arrangements with potential corporate partners and
other sources. However, there can be no assurance that any such collaborative
agreements or other sources of funding will be available on favorable terms, if
at all. The Company will need substantial additional funds before it can expect
to realize significant product revenue.
Principles of Consolidation
The 1997 consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Genta Pharmaceuticals Europe, S.A.
("Genta Europe"), the Company's European subsidiary based in Marseilles, France.
During 1998, pursuant to a filing for "Cessation of Payment" in Marseilles,
France, the Company has deconsolidated the accounts for Genta Europe and has
recorded all remaining net liabilities at their estimated liquidation value as
of December 31, 1998 and 1999. During 1999, the Company closed on an Asset
Purchase Agreement whereby the Company's wholly owned subsidiary JBL was sold to
Promega Biosciences, Inc. Accordingly, JBL is presented as discontinued
operations in 1997, 1998 and 1999. In August 1999, the Company acquired
Androgenics in a transaction accounted for as a transfer of assets between
companies under common control. The financial position and results of operations
of Androgenics are reflected in the Consolidated Financial Statements included
herein. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Investment in Joint Venture
The Company has a 50% ownership interest in a joint venture, Genta Jago,
a Netherlands corporation. The investment in joint venture is accounted for
under the equity method (Note 5).
46
<PAGE> 47
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the financial statements. Actual
results could differ from those estimates.
Revenue Recognition
Revenue from JBL product sales is recognized upon shipment. As a result
of the Company's sale of JBL, all product sales are reported in discontinued
operations.
Collaborative research and development revenues, including related party
contract revenues, are recorded as earned, generally ratably, as research and
development activities are performed under the terms of the contracts. Royalty
revenues from license arrangements are recognized when earned.
Cash, Cash Equivalents and Short-Term Investments
Cash and cash equivalents consisted of money market funds and highly
liquid debt instruments with remaining maturities of three months or less when
purchased. Short-term investments consisted of corporate notes, all of which
matured within 90 days from December 31, 1998. The estimated fair value of each
investment security approximates the amortized cost and therefore, no unrealized
gains or losses existed as of December 31, 1998.
Fair Value of Financial Instruments
The carrying amounts of cash, JBL accounts receivable and accounts
payable approximates fair value due to the short-term nature of these
instruments. The fair value of investments available for sale is based on
current market value.
The Company invests its excess cash primarily in debt instruments of
domestic corporations with "AA" or greater credit ratings as defined by Standard
& Poors, although the Company's investment guidelines permit investment in "A"
rated domestic corporate obligations and other eligible investments. The Company
has established guidelines relative to diversification and maturities that
attempt to maintain safety and liquidity. These guidelines are periodically
reviewed and modified to take advantage of trends in yields and interest rates.
The Company has not experienced any material losses on its cash equivalents or
short-term investments.
Inventories
JBL inventories are stated at the lower of cost (first-in, first-out) or
market. As a result of the Company's sale of JBL, all inventories are included
in net current assets of discontinued operations. See Note 2.
Property Held for Sale
As of December 31, 1998, the Company had entered into an agreement to
sell equipment for $290,000 and, therefore, recorded this asset as property held
for sale and correspondingly recorded a $223,994 loss on the impairment of such
asset as of December 31, 1998. Pursuant to the agreement, the Company received a
$200,000 non-interest bearing promissory note of which $80,000 remains
outstanding in notes receivable at December 31, 1999.
Property and Equipment
Property and equipment is stated at cost and depreciated over the
estimated useful lives, ranging from three to five years, of the assets using
the straight-line method. The Company's policy is to evaluate the
appropriateness of the carrying value of the undepreciated value of the
long-lived assets on the basis of estimated future cash flows (undiscounted) and
other factors.
47
<PAGE> 48
Intangible Assets
Intangible assets, consisting primarily of capitalized patent costs, are
amortized using the straight-line method over a term of five years for issued
patents and 14 years for purchased proprietary technology. The Company's policy
is to evaluate the appropriateness of the carrying values of the unamortized
balances of intangible assets on the basis of estimated future cash flows
(undiscounted) and other factors. If such evaluation were to indicate an
impairment of these intangible assets, such impairment would be recognized by a
write-down of the applicable assets. The Company evaluates, each financial
reporting period, the continuing value of patents and patent applications.
Through this evaluation, the Company may elect to continue to maintain these
patents, seek to out-license them, or abandon them. As a result of such
evaluation, the Company recorded charges to general and administrative expenses
of $600,000, $577,000 and $523,000 in 1997, 1998 and 1999, respectively, for
specific capitalized patents no longer related to the research and development
efforts of the Company.
Dividends
The number of shares of common stock issued in payment of dividends on
Series A Preferred Stock were based on the fair market value of such shares of
common stock on the date the dividends became due. Dividends on Series D
Preferred Stock are payable in shares of common stock, and are based on the fair
market value of such shares on the date the dividends become due.
Income Taxes
The Company uses the liability method of accounting for income taxes.
Deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws.
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109 the Company records valuation allowances against net deferred tax
assets. If based upon the available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income and when temporary differences become
deductible. The Company considers, among other available information,
uncertainties surrounding the recoverability of deferred tax assets, scheduled
reversals of deferred tax liabilities, projected future taxable income, and
other matters in making this assessment.
Research and Development
Research and development costs are expensed as incurred.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employee stock options as provided for
under SFAS No. 123, "Accounting for Stock-Based Compensation." The Company
provides pro forma disclosure pursuant to SFAS No. 123 in Note 10 to the
financial statements.
Under APB No. 25, deferred compensation is recorded for the excess of
the fair value of the stock on the measurement date (which is the latter of the
date of the option grant or the date of stockholder approval of options
available for grant), over the exercise price of the option (intrinsic value
method). The deferred compensation is amortized over the vesting period of the
option.
The Company accounts for stock option grants and similar equity
instruments granted to non-employees under the fair value method provided for in
SFAS No. 123 and Emerging Issues Task Force ("EITF"), Issue No. 96-18
"Accounting for Equity Instruments That are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services."
48
<PAGE> 49
Net Loss Per Common Share
Basic earnings per share are based upon 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 the years ended December 31, 1997, 1998
and 1999 is based on the weighted average number of shares of common stock
outstanding during the periods. Basic and diluted loss per share are the same
for all periods presented as potentially dilutive securities, including options,
warrants and convertible preferred stock, have not been included in the
calculation of the net loss per common share as their effect is antidilutive.
Net loss per common share is based on net loss adjusted for imputed and accrued
dividends on preferred stock.
Comprehensive Loss
Other than net loss, the Company had no other material components of
comprehensive loss.
Recently Issued Accounting Standards
On June 16, 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
standard is effective for fiscal years beginning after June 15, 2000. SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
instruments at fair value. The Company is currently evaluating the impact of
this pronouncement and currently does not believe adoption of SFAS No. 133 will
have a material impact on the Company's financial statements.
2. DISCONTINUED OPERATION
On March 19, 1999 (the "Measurement Date"), the Company entered into an
Asset Purchase Agreement (the "JBL Agreement") with Promega whereby its wholly
owned subsidiary Promega Biosciences Inc. would acquire substantially all of the
assets and assume certain liabilities of JBL for approximately $4.8 million in
cash, a promissory note for $1.2 million, and certain pharmaceutical development
services in support of the Company's development activities. The closing of the
sale of JBL was completed on May 10, 1999 (the "Disposal Date"), with a gain on
the sale of approximately $1.6 million being recognized, based upon the purchase
price of JBL, less its net assets and costs and expenses associated with the
sale, including lease termination costs of $1.1 million, JBL losses of $147,000,
and legal, accounting, tax and other miscellaneous costs of the sale
approximating $653,000.
Additionally, in connection with the sale of JBL's business and pursuant
to a lease termination agreement, the Company granted stock options to acquire
450,000 shares of the Company's common stock, par value $.001 per share ("Common
Stock"), to the owners of the building previously leased to JBL, some of whom
were employees of JBL. Those options have been accounted for pursuant to
guidelines in SFAS No. 123 and EITF 96-18 using the Black-Scholes option pricing
model and have an approximate value of $1.0 million and have been charged
against the gain on the sale of JBL. In addition, there were 246,000 options
granted to former employees of JBL upon the closing of the sale of JBL's
business in connection with an ongoing service arrangement between Promega and
the Company, which has been accounted for prospectively pursuant to SFAS No. 123
using the Black-Scholes guidelines. These options were granted at an exercise
price of $2.03 per share with a one year vesting period and will expire two
years after the date of grant. The estimated value of these options totaled $1.2
million as of December 31, 1999 of which $756,700 is included in continuing
operations for the year ended December 31, 1999, and is based on services
provided and have been charged to research and development expense. The Company
will continue to estimate and expense the value of these options over the
vesting period, which will be no later than one year from the closing date of
the sale.
As a result of the sale of JBL's business, the Company's specialty
biochemical manufacturing segment, JBL, has been presented as discontinued
operations for all periods presented. The assets and liabilities relating to the
discontinued operations are included in net assets of discontinued operations in
the consolidated balance sheet at December 31, 1998 and have been charged to
gain on sale of JBL as of May 10, 1999. The results of operations for the
discontinued segment are included in discontinued operations in the consolidated
statements of operations for the years
49
<PAGE> 50
ended December 31, 1997, 1998 for the period January 1, 1999 through the
measurement date, March 19, 1999. Losses incurred by JBL from the measurement
date through the disposal date have been deferred and charged to gain on sale of
JBL
Net assets of discontinued operations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MAY 10, 1999
----------------- ------------
<S> <C> <C>
Accounts receivable, net ................. $ 832,018 $ 479,608
Inventories, net ......................... 963,611 966,515
Property and equipment, net .............. 763,082 605,364
Other assets ............................. 897,399 947,125
Liabilities .............................. (849,806) (546,171)
----------- -----------
Total .......................... $ 2,606,304 $ 2,452,441
=========== ===========
</TABLE>
Results of discontinued operations consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD FROM
DECEMBER 31, DECEMBER 31, JANUARY 1, 1999
1997 1998 TO MAY 10, 1999
----------- ----------- ---------------
<S> <C> <C> <C>
Product sales ............................ $ 4,701,649 $ 5,346,795 $ 1,718,721
Operating expenses ....................... (6,520,831) (6,087,565) (2,051,720)
Other income (expense) ................... 77,843 805 (3,835)
Losses from March 19, 1999 through May 10,
1999 charged to Gain on Sale of JBL .... -- -- 147,427
----------- ----------- -----------
Loss ..................................... $(1,741,339) $ (739,965) $ (189,407)
=========== =========== ===========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED -------------------
USEFUL LIVES 1998 1999
------------ -------- -------
<S> <C> <C> <C>
Equipment .................................... 3 $148,997 $30,538
Software ..................................... 3 -- 6,932
Furniture and fixtures ....................... 5 9,768 11,731
-------- -------
158,765 49,201
Less accumulated depreciation and amortization (10,520) (18,844)
-------- -------
Total ............................... $148,245 $ 30,357
======== =======
</TABLE>
4. NOTES RECEIVABLE
The Company accepted a $1.2 million promissory note (accruing 7% annual
interest rate) from Promega as part of the sale price of JBL (see Note 2). The
principal of the note and accrued interest is due and payable as follows:
$700,000 plus interest is due on June 30, 2000 and $500,000 plus interest is due
on the later of June 30, 2000 or the Environmental Compliance Date as defined in
the JBL Agreement (See Note 2). Accrued interest at December 31, 1999 was
$53,700.
The Company also accepted a non-interest bearing promissory note in May
1999 from HealthStar, Inc. in the amount of $200,000 for the sale of equipment
to be paid in 10 equal monthly installments with an aggregate principal balance
due of $80,000 on December 31, 1999.
5. GENTA JAGO JOINT VENTURE
As previously mentioned, the Company has had a 50% ownership interest in
Genta Jago since 1992. However, beginning in 1996 and through the first quarter
of 1999, the Company has significantly reduced its involvement in Genta Jago.
The following represents a history of the formation, activities and accounting
of Genta Jago.
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<PAGE> 51
In 1992, Genta and Jagotec AG ("Jagotec") determined to enter into a
joint venture (Genta Jago). The Company's purpose in establishing Genta Jago was
to develop products using a limited-scope license to Jagotec's GEOMATRIX
technology with the objective of producing shorter-term earnings than were
expected from the Company's Anticode(TM) antisense programs. Genta originally
contributed $4 million in cash to Genta Jago as well as the rights to apply its
Anticode(TM) oligonucleotide technology to six products. Genta issued 120,000
shares of Common Stock valued at $7.2 million to Jagotec and its affiliates in
1992 as consideration for its interest in Genta Jago, to induce Jagotec to
license to Genta Jago, for what the parties believed was a substantial discount
from the underlying value of such license, Jagotec's GEOMATRIX technology with
respect to approximately 25 products (the "Initial License") and to license to
Genta Jagotec's GEOMATRIX technology for use in Genta's Anticode(TM)
oligonucleotide development programs. The $7.2 million fair value assigned to
the 120,000 unregistered common shares issued to Jagotec by Genta for the
GEOMATRIX license represented a 33% discount from the trading market price of
registered shares on the date of formation of the joint venture (December 15,
1992) and was expensed by Genta as acquired in-process research and development
in 1992 as there were no alternative future uses for the acquired technology,
and realization of ultimate profits from the acquired technology was not
assured. Since Genta had no carrying value assigned to the technology Genta
contributed to Genta Jago, there was no accounting for such capital
contribution. The Common Stock issued by Genta was unregistered and therefore
was recorded at a discount to the then-current trading value of registered
shares. The $4.0 million in cash paid to Genta Jago was recorded by Genta as
investment in joint venture.
In 1994, separate from the original 1992 joint venture agreement, Genta
and Jagotec began negotiations to expand Genta Jago to include the GEOMATRIX
technology as applied to 35 additional products (the "Additional License"). In
1994, Jagotec granted Genta, for $1.85 million, an option (the "Expansion
Option"), exercisable solely at Genta's discretion through April 30, 1995, to
expand the joint venture by requiring Jagotec to contribute rights under the
Additional License at what the parties believed was a substantial discount to
its actual fair value. The $1.85 million was considered by Genta to be a partial
cost of acquiring the Additional License, and, since it was not refundable under
any circumstances and there was no assurance of future recoverability of the
$1.85 million (i.e. recoverability was dependent upon Genta Jago achieving
profitability), Genta expensed such payment in 1994 as acquired in-process
research and development. An additional $2.0 million (the "Deposit") was
deposited with Jagotec in 1994, but would only be retained by Jagotec, as
partial payment of the exercise price for the Expansion Option, if Genta
actually exercised the Expansion Option. If such Expansion Option was not
exercised, the $2.0 million Deposit would be transferred to Genta Jago in the
form of working capital loans payable by Genta Jago to Genta. Accordingly, at
December 31, 1994, the Deposit was recorded by Genta as a loan receivable from
joint venture, and would remain so until its ultimate use was identified.
Pursuant to the terms of the Expansion Option, for Genta to exercise the
Expansion Option Genta would have had to pay Jagotec an aggregate of $3.15
million in cash and 124,000 shares of Common Stock, valued at $1.6 million
(based on the trading price at such time). The parties agreed the $3.15 million
in cash would consist of (i) the Deposit made by Genta in 1994, which would be
applied to the Expansion Option's exercise price upon Genta's election, in 1995,
to exercise such Expansion Option; and (ii) an additional cash payment of $1.15
million to exercise the Expansion Option to be paid by Genta in 1995. Genta
exercised the Expansion Option in 1995. Consideration for the Expansion Option
exercise paid in 1995 represented an aggregate amount of $4.8 million. This
amount was expensed as acquired in-process research and development in 1995, as
there were no identified alternative future uses for the Additional License and
recoverability of the $4.8 million was not assured.
In each instance, the technological feasibility of the aforementioned
acquired in-process research and development had not yet been established and
the technology had no future alternative uses at the dates of the acquisitions.
Furthermore, due to continuing uncertainties regarding the Company's ability to
demonstrate bioequivalence of potential products at that time, management was
unable to make estimates regarding the remaining efforts necessary to develop
the acquired, in-process technology into a commercially viable product. However,
it was expected that any such development would require significant cash
resources.
Genta Jago entered into collaborative development agreements with
Gensia, Inc., Apothecon, Inc., a subsidiary of Bristol-Myers Squibb Co., and
Krypton, Ltd., a subsidiary of SkyePharma, during January 1993, March 1996 and
October 1996, respectively. Such agreements provide funding to Genta Jago for
the development and clinical testing of selected controlled-release
pharmaceuticals in addition to potential milestone payments and royalties on
future product sales. Effective October 1996, Gensia and SkyePharma reached an
agreement whereby a SkyePharma subsidiary, Brightstone Pharma, Inc.
("Brightstone"), was assigned Gensia's rights (and those of Gensia's partner,
51
<PAGE> 52
Boehringer Mannheim) to develop and co-promote the potentially bioequivalent
nifedipine product under the collaboration agreement with Genta Jago. The
assignment was accepted by Genta Jago and has no impact on the terms of the
original agreement.
From 1992 through December 31, 1998, the Company has provided funding to
Genta Jago pursuant to a working capital loan agreement, which expired in
October 1998. These advances were structured as working capital loans, to give
Genta the protections of a debt holder with respect to such amounts and to
maintain Genta's and Jagotec's respective equity ownership in Genta Jago at a
50/50 ratio. The Company has recorded all of the net losses incurred by Genta
Jago as a reduction of the Company's investment in joint venture or loans
receivable from joint venture. Genta initially carried the advances as "loans
receivable from joint venture" until Genta Jago actually spent the funds, since
Genta believed it had the legal right to recover any unexpended funds as a
debt-holder. However, as the funds were spent by Genta Jago, Genta was no longer
assured of the collectibility of such loans, so the carrying value was reduced
accordingly as the offset to Genta's recognition of its equity in the net loss
of Genta Jago. Therefore, at all times Genta's recorded asset "loans receivable
from joint venture" never exceeded the amount of Genta Jago's unexpended cash.
Genta did not believe it was appropriate to carry its investment in or loans
receivable from Genta Jago at any amount in excess of Genta Jago's cash, as
there was no assurance of recoverability of such additional amounts.
Accordingly, Genta recognized 100% of the losses of Genta Jago.
In 1995, Genta Jago returned certain Anticode(TM) technology to Genta in
exchange for Genta's forgiveness of $4.4 million of principal and $0.3 million
of interest outstanding under existing working capital loans to Genta Jago. This
amount was determined by an arm's length negotiation between Genta and Jagotec
and was based on the amount actually expended by Genta Jago for research and
development related to such Anticode(TM) oligonucleotide technology from the
time Genta Jago originally acquired the relevant technology in 1992 through the
date of return in 1995. This forgiveness had no impact on Genta's financial
statements, as Genta had already expensed Genta Jago's expenditures of such
cash, and had no carrying value for the loans at the time of the forgiveness.
Genta Jago treated the forgiveness as a gain on the waiver of debt because this
reflected the legal form of the transaction. As of December 31, 1998, the
Company had advanced working capital loans of approximately $15.8 million to
Genta Jago, net of principal repayments and $4.4 million in forgiven principal
and $0.3 million in forgiven interest accrued thereon. Such loans bore interest
at rates per annum ranging from 5.81% to 7.5%, and were payable in full on
October 20, 1998. However, Genta Jago did not repay such loans to Genta as Genta
and Jagotec were in the process of renegotiating the terms of the joint venture
agreement.
On March 4, 1999, Genta and SkyePharma, PLC ("SkyePharma" formerly with
Jagotec AG ("Jagotec") which was acquired by SkyePharma), on behalf of itself
and its affiliates, entered into an interim agreement (the "Interim Agreement")
pursuant to which the parties to the joint venture released each other from all
liability relating to unpaid development costs and funding obligations and
SkyePharma agreed to be responsible for substantially all of the obligations of
the joint venture to third parties and for the further development of the joint
venture's products, with any net income resulting therefrom to be allocated in
agreed-upon percentages between Genta and SkyePharma as set forth in such
interim agreement. As a result of the interim JV agreement, the Company wrote
off its liability relative to the Company's recorded deficit in the joint
venture and, as such, recorded a gain of approximately $2.3 million for three
months ended March 31, 1999. Accordingly, during 1999, Genta Jago recorded an
extraordinary gain for its extinguishment of debt payable to Genta approximating
$21.2 million.
Pursuant to the Interim Agreement, in the first quarter 2000, the
Company received $689,500 from SkyePharma as a royalty payment based on
SkyePharma's agreement with Elan Pharmaceuticals, for the sale of Naproxen, of
which $187,500 was attributable to 1999 and recorded, net of expenses of
approximately $23,000 in equity in net income of joint venture and other assets
at December 31, 1999.
Additionally, under terms of the joint venture, Genta Jago contracted
with the Company to conduct research and development and provide certain other
services. Revenues associated with providing such services totaled $350,000,
$55,000 and zero, for the years ended December 31, 1997, 1998 and 1999
respectively. Terms of the arrangement also grant the Company an option to
purchase Jagotec's interest in Genta Jago exercisable from December 31, 1998
through December 31, 2000.
52
<PAGE> 53
Condensed financial information for Genta Jago Technologies B.V. is set
forth below.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1999
------------ -----------
<S> <C> <C>
BALANCE SHEET DATA:
Receivables under collaboration agreements .... $ 3,348,000 $ 1,000,000
Other current assets .......................... 24,000 9,500
------------ -----------
Total current assets .......................... 3,372,000 1,009,500
Other assets .................................. 12,000 --
------------ -----------
Total Assets .................................... $ 3,384,000 $ 1,009,500
============ ===========
Current liabilities ........................... $ 8,426,000 902,800
Payable to Genta .............................. 15,837,000 187,500
Net capital deficiency ........................ (20,879,000) (80,800)
------------ -----------
Total liabilities and capital deficiency ........ $ 3,384,000 $ 1,009,500
============ ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Collaborative research and development revenues . $ 3,634,000 $ 2,162,000 $ 1,000,000
Costs and expenses .............................. 4,791,000 2,112,000 473,000
----------- ----------- -----------
Income (loss) from operations ................... (1,157,000) 50,000 527,000
Interest expense to Genta, net of interest income (1,175,000) (1,314,000) --
Extraordinary items - extinguishment of debt .... -- -- 21,228,600
----------- ----------- -----------
Net (loss)/income ............................... $(2,332,000) $(1,264,000) $21,755,600
=========== =========== ===========
</TABLE>
6. INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1998 1999
----------- -----------
<S> <C> <C>
Patent and patent applications ........... $ 1,952,956 $ 1,429,523
Other amortizable costs .................. 134,521 86,935
----------- -----------
2,087,477 1,516,458
Less accumulated amortization ............ (627,094) (939,554)
----------- -----------
$ 1,460,383 $ 576,904
=========== ===========
</TABLE>
7. DEBT
In February 1997, the Company raised gross proceeds of $3 million in a
private placement of units consisting of (i) Senior Secured Convertible Bridge
Notes (the "Convertible Notes") that bore interest at a stated rate of 12% per
annum and matured on December 31, 1997, as extended, and (ii) warrants to
purchase an aggregate of approximately 6.4 million shares of common stock. Since
it is unclear that the convertible notes had any value as indebtedness, all of
the $3.0 million proceeds were allocated to the warrants. Accordingly, the $3.0
million attributed to the value of the warrants as well as interest at the
stated rate of 12% on the Convertible Notes were recorded during the period the
notes were outstanding as interest expense. The Convertible Notes were
convertible into Series D Convertible Preferred Stock at the option of the
holder, at an initial conversion price of $50.00 per share, subject to
antidilution adjustments. In May 1997, $650,000 of the Convertible Notes were
converted into 13,000 shares of Series D Preferred Stock and in December 1997,
the remaining $2,350,000 of the Convertible Notes and accrued interest of
approximately $271,000, were converted into 52,415 shares of Series D Preferred
Stock.
In 1997, pursuant to the 1996 sale of $2 million of Convertible
Debentures to investors in a private placement outside the United States, the
remaining $350,000 of principal and related accrued interest of approximately
$8,600, was converted into 204,263 shares of common stock. The Convertible
Debentures bore interest at an effective interest rate of 38% per annum.
8. NET LIABILITIES OF LIQUIDATED FOREIGN SUBSIDIARY
As previously described, Genta Europe S.A. ("Genta Europe"), a wholly
owned subsidiary of the Company, is in the process of liquidation, and the fair
value of its debt obligations is not readily determinable. The carrying value at
December 31, 1999, approximating $964,000, represents the value of the original
issuance of such debt instruments
53
<PAGE> 54
which may be liquidated against Genta Europe's $590,000 deposit with such French
governmental agency. As previously mentioned, pursuant to a filing for
"Cessation of Payment," the Company has deconsolidated the accounts for Genta
Europe and, accordingly, the aforementioned note payable and deposit are
recorded in net liabilities of liquidated foreign subsidiary at December 31,
1998 and 1999. The following represents a history of the funding obligations of
Genta Europe.
During 1995, Genta Pharmaceuticals Europe received approximately 5.4
million French Francs (or, as of December 31, 1999, approximately $826,600) of
funding in the form of a loan from the French government agency L'Agence
Nationale de Valorisation de la Recherche ("ANVAR") toward research and
development activities pursuant to an agreement (the "ANVAR Agreement") between
ANVAR, Genta Europe and Genta. In October 1996, as part of the Company's
restructuring program, Genta Europe terminated all scientific personnel. ANVAR
asserted, in a letter dated February 13, 1998, that 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, ANVAR notified Genta Europe by letter
of its claim that the Company remains liable for FF4,187,423 (as of December 31,
1999, approximately $641,000) and is required to pay this amount immediately.
The Company does not believe that under the terms of the ANVAR Agreement that
ANVAR is entitled to request early repayment. ANVAR notified Genta that it was
responsible as a guarantor of the note for the repayment. Genta's legal counsel
in Europe, has again notified ANVAR that it does not agree that the note is
payable. The Company is working with ANVAR to achieve a mutually satisfactory
resolution. However, there can be no assurance that such a resolution will be
obtained. 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.
On June 30, 1998, Marseille Amenagement, a company affiliated with the
city of Marseilles, France, filed suit in France to evict Genta Europe from its
facilities in Marseilles and to demand payment of alleged back rent due and of a
lease guarantee for nine years' rent. Following the filing of this claim and in
consideration of the request for repayment of the loan from ANVAR, Genta
Europe's Board of Directors directed the management to declare a "Cessation of
Payment". Under this procedure, Genta Europe ceased any operations and
terminated its only employee. A liquidator was appointed by the Court to take
control of any assets of Genta Europe and to make payment to creditors. In
December 1998, the Court in Marseilles dismissed the case against Genta Europe
and indicated that it had no jurisdiction against Genta Incorporated. In August
1999, Marseille Amenagement instituted legal proceedings against the Company at
the Commercial Court in France, claiming alleged back rent payment of FF663,413
(as of December 31, 1999, approximately $101,500) and early termination payment
of FF1,852,429 (as of December 31, 1999, approximately $283,600). A court
hearing has been scheduled for May 15, 2000. The Company is working with its
counsel in France to achieve a mutually satisfactory resolution. However, there
can be no assurance that such a resolution will be obtained.
On December 31, 1999, the Company has $574,800 of net liabilities of
liquidated subsidiary recorded and, therefore, pursuant to guidelines
established in SFAS No. 5 "Accounting for Contingencies" and Financial
Accounting Standards Board Interpretation No. 14 "Reasonable Estimation of the
Amount of a Loss," such amount is sufficient to cover any potential liability.
Therefore, management believes no additional accrual is necessary. However,
there can be no assurance that the Company will not incur additional material
costs in relation to this claim.
9. OPERATING LEASES
The Company leases its facility under an operating lease that generally
provides for annual cost of living related increases. Minimum future obligations
under operating leases at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
----------------
<S> <C>
2000 ........................................................ $29,000
</TABLE>
Total rent expense under operating leases for the years ended December
31, 1997, 1998 and 1999 was $346,000, $57,000 and $42,000, respectively. Rent
expense for discontinued operations was approximately $428,000 annually. The JBL
facilities were leased from its prior owners, who include an executive officer
and other stockholders of the
54
<PAGE> 55
Company. In February 2000, the Company received notice of lease cancellation by
the overtenant, effective August 31, 2000. The Company is currently searching
for new lease space.
10. STOCKHOLDERS' EQUITY
Common Stock
The Company has authorized 65,000,000 shares of common stock. As of
December 31, 1999, the Company has issued and outstanding 25,456,437 shares. On
January 12, 2000, the Board of Directors approved an amendment to increase the
authorized common stock to 95,000,000 shares. This amendment is subject to
shareholder approval at the next annual meeting of stockholders.
In December 1999, the Company raised gross proceeds of approximately
$11.4 million (approximately $10.4 million net of placement costs) through the
private placement of 114 units ("the 1999 Private Placement"). Each unit sold in
the 1999 Private Placement consisted of (i) 33,333 shares of Common Stock, par
value $.001 per share ("Common Stock"), and (ii) warrants to purchase 8,333
shares of the Company's Common Stock at any time prior to the fifth anniversary
of the final closing (the "Warrants"). The Warrants are convertible at the
option of the holder into shares of Common Stock at an initial conversion rate
equal to the market price of $4.83 per share (subject to antidilution
adjustment). There were a total of 3,809,502 shares of Common Stock and 952,388
warrants issued in connection with the 1999 Private Placement. The placement
agent, a related party, received cash commissions equal to 7.5% of the gross
sales price, reimbursable expenses up to $125,000 and warrants (the "Placement
Warrants") to purchase up to 10% of the units sold in the private placement for
110% of the offering price per Unit. (See Warrants below for Placement Agency
Warrants).
In August 1999, the Company settled lawsuits with Johns Hopkins
University ("Johns Hopkins") and Drs. Paul Ts'o and Paul Miller ("Ts'o/Miller
Partnership") for $380,000. As part of the settlement of claims, the Company
paid $180,000 in cash and issued 69,734 shares of Common Stock to Johns Hopkins,
acting on its behalf and on behalf of Ts'o/Miller Partnership, sufficient to
provide a value of $200,000. The stock was sold by a broker under an agreement
between the Company and Johns Hopkins, with the proceeds from such sales
delivered to Johns Hopkins.
On March 24, 1999, the Company agreed to grant 50,000 shares of common
stock to Georgetown University ("the University") as consideration for services
to be performed pursuant to a clinical trials agreement. ("the Agreement").
According to the terms of the Agreement, the University will perform studies of
the Company's leading anticode drug G3139 on 24 patients, commencing April 20,
1999. According to the terms of the grant, Genta is to issue 25,000 of the
shares to the University upon the completion of the first 12 patient studies,
with the remaining shares to be issued upon the completion of the remaining
patients. In accordance with FAS No. 123, "Accounting for Stock Based
Compensation," and EITF 96-18, "Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or Conjunction with Selling, Goods
or Services," the cost associated with the issuance of these shares will be the
fair market value of the shares as of the date on which each tranche of 12
patients studies is completed. As of December 31, 1999, the estimated fair
market value of these shares is $321,900, of which $147,537 has been included as
a charge to research and development expense in 1999, based on the completion of
11 patient studies.
In August and December 1997, 7,500 shares of common stock were issued to
a former Officer of the Company pursuant to the terms of a severance agreement
and 30,900 shares of common stock were issued to two former board members of the
Company pursuant to the terms of their consulting agreements, respectively,
resulting in compensation expense of $42,000. Also in December 1997, 1,250
shares of common stock that had been previously issued to a former board member
were returned to the Company in exchange for the forgiveness of a note
receivable from such former board member.
On April 4, 1997, the Board of Directors authorized, and the
Shareholders approved, a ten for one reverse stock split. All share and per
share amounts and stock option data have been restated to reflect the stock
split retroactively.
In 1997, pursuant to the 1996 sale of $2 million of Convertible
Debentures to investors in a private placement outside the United States, the
remaining principle amount of $350,000 and related accrued interest of $8,600,
was converted into 204,263 shares of common stock.
Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock. The
Company has issued and outstanding 447,600 and 277,100 shares of Series A
Convertible Preferred Stock and 186,021 and 123,451 shares of Series D
Convertible Preferred Stock as of December 31, 1998 and 1999, respectively.
Previously, the Company's authorized,
55
<PAGE> 56
issued, and outstanding Series B and Series C Preferred Stock were converted in
their entirety into shares of Common Stock during 1996 and 1997, respectively.
The Series B and Series C Preferred Stock have been retired. There are no
accrued dividends nor any outstanding warrants relating to the Series B and
Series C Preferred Stock at December 31, 1999. The Series A and Series D
Preferred Stock are convertible into shares of Common Stock, based on specified
conversion rates, and have certain rights as to dividends and a preference upon
liquidation, pursuant to the terms and conditions discussed in the following
paragraphs. In 1999, the Board of Directors of the Company and certain holders
of Common Stock, Series A and D Preferred Stock approved, in accordance with
Delaware law, an amendment to the Company's Restated Certificate of
Incorporation to remove the "Fundamental Change" redemption right. The Company
has formally amended its Restated Certificate of Incorporation after the
expiration of the 20-day period provided for in Rule 14c-5 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Series D Preferred Stock
History
On November 30, 1998, the Company entered into a Settlement Agreement
and Release (the "Settlement Agreement") with LBC Capital Resources, Inc.
("LBC") and others. Pursuant to the Settlement Agreement, the Company agreed to
issue to LBC 2,900 shares of Series D Convertible Preferred Stock; to issue to
LBC or its designee five year warrants (the "LBC Warrants") to acquire 700,000
shares of Common Stock at an exercise price of $0.52 per share; to make certain
payments to LBC totaling approximately $182,000; and to pay to LBC, upon the
exercise of certain warrants, a commission equal to up to $150,000 in the
aggregate. The respective conversion and exercise prices of the Series D
Preferred Stock and the LBC Warrants are subject to adjustment upon the
occurrence of certain events. Such Series D Preferred Stock and LBC Warrants
were valued at $965,000 aggregating a total settlement of $1,147,000 of which
$600,000 in 1997 and $547,000 in 1998 were charged to operations. The $150,000
in commissions was not accrued, as such commissions are payable upon the
exercise of warrants which have not occurred.
In June 1997, the Company raised gross proceeds of approximately $16.2
million (approximately $14 million net of placement costs) through the private
placement of 161.58 Premium Preferred Units(TM). Each unit sold in the private
placement consisted of (i) 1,000 shares of Premium Preferred Stock(TM), par
value $.001 per share, stated value $100 per share (the "Series D Preferred
Stock"), and (ii) warrants to purchase 5,000 shares of the Company's common
stock, (the "Class D Warrants") at any time prior to the fifth anniversary of
the final closing (the "Class D Warrants"). Due to the increase in value
associated with the discounted conversion terms and liquidation preference of
the Series D Preferred Stock, the Company has accounted for such increase by
charging $16,158,000 to dividends imputed on preferred stock in fiscal year
1997.
On May 29, 1998, the Company requested, and subsequently received,
consents (the "Letter Agreements") from the holders of a majority of the Series
D Preferred Stock to waive the Company's obligation to use best efforts to
obtain the effectiveness of a registration statement with the SEC as to Common
Stock issuable upon conversion of Series D Preferred Stock and exercise of Class
D Warrants. In exchange, the Company agreed to waive the contractual "lock-up"
provisions to which such consenting holders were subject and which provisions
would have prevented the sale of up to 75% of their securities for a nine-month
period following the effectiveness of the registration statement; and to extend
to January 29, 1999 from June 29, 1998 the Reset Date referred to in the
Certificate of Designation of the Series D Preferred Stock. In addition, through
the Letter Agreements, the Company agreed to issue to such holder's warrants to
purchase at $0.94375 per share, an aggregate of up to 807,900 shares of Common
Stock, subject to certain anti-dilution adjustments, exercisable until June 29,
2002. The shares were valued at approximately $633,000 and recorded as a
dividend in fiscal year 1998. The Company had conditioned the effectiveness of
such consent on its acceptance by a majority of the Series D Preferred
Stockholders.
In February 1997, the Company raised gross proceeds of $3 million in a
private placement of units consisting of (i) Senior Secured Convertible Bridge
Notes (the "Convertible Notes") that bore interest at a stated rate of 12% (see
Warrants) per annum and matured on December 31, 1997, as extended, and (ii)
warrants to purchase an aggregate of approximately 6.4 million shares of common
stock. The Convertible Notes were convertible into Series D Convertible
Preferred Stock at the option of the holder, at an initial conversion price of
$50.00 per share, subject to antidilution adjustments. In May 1997, $650,000 of
the Convertible Notes were converted into 13,000 shares of Series D Preferred
Stock and in December 1997, the remaining $2,350,000 of the Convertible Notes
and accrued interest were
56
<PAGE> 57
converted into 52,415 shares of Series D Preferred Stock. Since it is unclear
that the bridge notes had any value as indebtedness, all of the $3.0 million
proceeds were allocated to the warrants. Accordingly, the $3.0 million
attributed to the value of the warrants, as well as interest at the stated rate
of 12% on the Convertible Notes, was recorded during the period the notes were
outstanding.
Series D Preferred Stock Rights and Preferences
The Series D Preferred Stock is immediately convertible at the option of
the holder into shares of common stock at an initial conversion price ("the
Conversion Price") of $0.94375 per share (subject to antidilution adjustment,
$0.88477 per share as of December 31, 1999). The Series D conversion factor
("the Conversion Factor") is calculated by dividing 100 shares of Common Stock
by the Conversion Price in effect as of the date of the conversion. As of
December 31, 1998 and 1999, each share of Series D Preferred Stock was
convertible into 105.96 and 113.02 shares of Common Stock, respectively.
Additionally, the Company may cause, at its option, a mandatory conversion of
all or part of all of the outstanding Series D Preferred Stock, at the
applicable Conversion Rate, if the fair market value of the Company's Common
Stock exceeds 300% of the then applicable Conversion Price for at least 20
trading days in any 30 consecutive trading day.
The Series D Preferred Stock began earning dividends, payable in shares
of the Company's Common Stock, at the rate of 10% per annum, based on a stated
value of $140 per share, subsequent to the new Reset Date of January 29, 1999.
In calculating the number of shares of Common Stock to be paid with respect to
each dividend, each share of Common Stock shall be deemed to have the value of
the Conversion Price at the time such dividend is paid. The Company is
restricted from paying cash dividends on Common Stock until such time as all
cumulative dividends on outstanding shares of Series D Preferred Stock have been
paid. Additionally, the Company may not declare a dividend to its Common Stock
shareholders until such time that a special dividend of $140 per share has been
paid on the Series D Preferred Stock. The Company currently intends to retain
its earnings, if any, after payment of dividends on outstanding shares of Series
D Preferred Stock, for the development of its business. During the third quarter
1999, the Company issued 924,519 shares of Common Stock to Series D Preferred
Stockholders, in payment of accrued dividends for the semi-annual period from
January 29, 1999 to July 29, 1999. This dividend was recorded based on the fair
market value of $2,542,427 as of the record date, July 29, 1999. As of December
31, 1999 the Company had accrued an estimated $5.1 million in Series D Preferred
Stock dividends for the period from July 30, 1999 to December 31, 1999 based on
the number of shares of Series D Preferred Stock outstanding at December 31,
1999 at the then current fair market value of the common stock. On January 29,
2000, the Company declared such dividend for Series D Preferred Stock
Shareholders of record on that date for the semi-annual period from July 30,
1999 to January 29, 2000. Such dividend declaration requires the issuance of
953,000 shares of common stock representing a final dividend amount of $8.6
million.
In the event of a liquidation of the Company, the holders of the Series D
Preferred Stock are entitled to a liquidation preference equal to $140 per share
plus accrued dividends.
Series A Preferred Stock
History
In October 1993, the Company completed the sale of 600,000 shares of
Series A convertible preferred stock ("the Series A Preferred Stock") in a
private placement of units consisting of (i) one share of Series A Preferred
Stock and (ii) one warrant to acquire one share of common stock, sold at an
aggregate price of $50 per unit.
Series A Preferred Stock Rights and Preferences
Each share of Series A Preferred Stock is immediately convertible, into
shares of the Company's common stock, at a rate determined by dividing the
aggregate liquidation preference of the Series A Preferred Stock by the
conversion price. The conversion price is subject to adjustment for
antidilution. As of December 31, 1998 and 1999, each share of Series A Preferred
Stock was convertible into 7.333 and 7.3825 shares of common stock,
respectively.
Terms of the Company's Series A Preferred Stock required the payment of
dividends annually in amounts ranging from $3 per share per annum for the first
year to $4 per share in the second year to $5 per share per annum in the third
and fourth years, payable in cash or in shares of Common Stock at the option of
the Company's Board of Directors. To the extent that the dividend is paid by
issuing shares of Common Stock, the number of shares to be issued is equal to
the amount that such dividend is payable in cash divided by the fair market
value of a share of Common Stock as of the date on which the dividend is paid.
Dividends were paid in Common Stock in September 1996, for the first and second
year, pursuant to these terms. As 1998 represented the fifth year of the Series
A Preferred Stock, no further
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<PAGE> 58
dividends were accrued. During the third quarter 1999, the Company issued
1,085,420 shares of Common Stock to Series A Preferred Stockholders in payment
of accrued dividends for the third and fourth year.
In the event of a liquidation of the Company, the holders of the Series
A Preferred Stock are entitled to a liquidation preference equal to $50 per
share.
Warrants
In 1993, the Company issued five-year warrants to purchase 600,000
shares of Common Stock in connection with a private placement of Series A
Preferred Stock ("the Series A Warrants"). The Series A Warrants expired in
September 1998.
In May 1995, the Company issued a five year warrant to purchase 23,525
shares of common stock at an exercise price of $17.00 per share in connection
with a private placement of common stock. Also in May 1995, five year warrants
to purchase an aggregate of 24,731 shares of common stock at exercise prices
ranging from $19.40 to $21.30 per share were issued to two equipment financing
companies. As of December 31, 1999, none of the above warrants have been
exercised.
In October 1996, the Company issued a five year warrant to purchase
37,512 shares of common stock at an exercise price of $13.20 per share to a
patent law firm, in exchange for legal services. Also in October 1996, the
Company issued a five year warrant to purchase 10,000 shares of common stock at
an exercise price of $15.00 per share in connection with the Convertible
Debentures issued in September 1996. To date, none of the above warrants have
been exercised.
In connection with the $3.0 million Convertible Notes issued in February
1997, the Company issued warrants to purchase 6.4 million shares of common stock
at $0.471875 per share (subject to antidilution adjustments of 1.3 million
shares). As of December 31, 1999, 7,741,935 of these warrants were outstanding.
In the absence of objective evidence of the separate values of the Convertible
Notes and the related warrants, the Company allocated the entire $3.0 million
cash consideration to the warrants. The Convertible Notes were accreted from the
original recorded value of zero to the face amount of $3.0 million over the
original maturity of the Convertible Notes, resulting in $3.0 million of
interest expense in 1997.
Also in 1997, the Company issued warrants to purchase 50,000 shares of
Common Stock at $2.50 per share, exercisable for five years in connection with a
short-term line of credit, which expired prior to December 31, 1997. The Company
recorded the fair market value of these warrants as interest expense of $98,000
for the year ended December 31, 1997. In June 1997, in connection with the
issuance of the Premium Preferred Units, the placement agent received warrants
(the "Placement Warrants") to purchase up to 10% of the Units sold in the
Private Placement for 110% of the offering price per Unit. Furthermore, the
Company had entered into a financial advisory agreement with the placement agent
pursuant to which the financial advisor received certain cash fees and has
received warrants (the "Advisory Warrants") to purchase up to 15% of the Units
sold in the Private Placement for 110% of the offering price per Unit. The
Financial Advisory Agreement terminated in June 1999. As of December 31, 1999,
670,957 have been exercised. The Placement Warrants and the Advisory Warrants
expire on June 29, 2007.
On August 6, 1999, the Company issued warrants to purchase 105,000
shares of Common Stock, at prices ranging from $1.62 to $2.25 per share, to two
consultants to the Company for management consulting services previously
provided. These warrants have a fair market value of $200,000, which has been
included as a charge to general and administrative expense in 1999. As of
December 31, 1999, none of these warrants had been exercised.
On August 30 1999, the Company acquired Androgenics Technologies, Inc.
("Androgenics"), a wholly owned entity of the Company's majority stockholder. As
consideration for the acquisition, the Company paid $132,000 in cash (including
reimbursements of pre-closing expenses and on-going research funding) and issued
warrants (with exercise prices ranging from $1.25 to $2.50 per share) to
purchase an aggregate of 1,000,000 shares of Common Stock, 90% of which will not
become exercisable until the successful conclusion of certain development
milestones, ranging from the initial clinical patient trial through the
submission of an application for marketing authorization. The acquisition was
accounted for as a transfer of interest between companies under common control.
The cash and warrants were issued in exchange for 100% of the shares of
Androgenics and licensed technology and the assumption
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<PAGE> 59
of a research and development agreement with the University of Maryland,
Baltimore. The 1,000,000 warrants were accounted for as a deemed distribution
based on their fair value of $440,500. The assets and liabilities of
Androgenics, as of December 31, 1999 and the results of its operations for the
year then ended are immaterial.
On November 5, 1999, the Company issued to the Aries Funds 550,000
Bridge Warrants in full settlement of the Company's obligation under the 1997
Note and Warrant Purchase Agreement (the "Purchase Agreement"). The Purchase
Agreement provides for additional Bridge Warrants ("Penalty Warrants") equal to
1.5% of the number of Bridge Warrants then held by the Aries Funds to be issued
to the Aries Funds for each day beyond 30 days after the final closing of the
Private Placement that a shelf registration statement covering the Common Stock
underlying the securities purchased pursuant to the Purchase Agreement is not
filed with the Securities and Exchange Commission ("the SEC") and for each day
beyond 210 days after the closing date of the investment contemplated by the
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. The
settlement of this obligation has been accounted for as a capital distribution,
since the Aries Funds are a shareholder of the Company. Accordingly, these
warrants have been accounted for at their fair value of $1.8 million and are
included in accrued dividends at December 31, 1999. As of December 31, 1999,
none of these warrants had been exercised.
In connection with the 1999 Private Placement, the placement agent, a
related party shareholder, received warrants (the "Related Party Warrants") to
purchase up to 10% of the Units sold in the Private Placement for 110% of the
offering price per Unit. The Related Party Warrants expire on December 23, 2004.
The Related Party Warrants have a fair value at the time of their issuance
approximating $1,376,500, resulting in no net effect to the Company's
stockholders' equity.
Stock Benefit Plans
1991 Plan
The Company's 1991 Stock Plan (the "Plan") provides for the sale of
stock and the grant of stock options to employees, directors, consultants and
advisors of the Company. Options may be designated as incentive stock options or
nonstatutory stock options; however, incentive stock options may be granted only
to employees of the Company. Options under the Plan have a term of up to 10
years and must be granted at not less than the fair market value (85% of fair
market value for non-statutory options) on the date of grant. Common stock sold
and options granted pursuant to the Plan generally vest over a period of four to
five years. Information with respect to the Company's 1991 Stock Plan is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES UNDER EXERCISE PRICE
1991 PLAN OPTION PER SHARE
- --------- ------------ --------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1996 .................. 164,930 $23.77
Granted ..................................... 6,670 3.71
Exercised ................................... -- --
Canceled .................................... (48,688) 23.21
-------- ------
BALANCE AT DECEMBER 31, 1997 .................. 122,912 22.90
Granted ..................................... 100,000 3.00
Exercised ................................... -- --
Canceled .................................... (88,674) 24.75
-------- ------
BALANCE AT DECEMBER 31, 1998 .................. 134,238 6.85
Granted ..................................... -- --
Exercised ................................... -- --
Canceled .................................... (26,670) 17.55
-------- ------
BALANCE AT DECEMBER 31, 1999 .................. 107,568 $ 4.20
======== ======
</TABLE>
At December 31, 1999, options to purchase approximately 107,397 shares
of common stock were exercisable at a weighted average exercise price of
approximately $4.17 per share and 170,946 shares of common stock were available
for grant or sale under the Plan.
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<PAGE> 60
1998 Plan
Pursuant to the Company's 1998 Stock Plan (the "1998 Plan"), 6,750,000
shares have been provided for the grant of stock options to employees,
directors, consultants and advisors of the Company. On January 12, 2000 and
February 22, 2000 the Board of Directors approved amendments to the 1998 Plan
which, if approved, would increase the number of shares authorized for issuance
to 11,000,000. Such amendments are subject to shareholder approval at the next
annual meeting of stockholders. Options may be designated as incentive stock
options or non-statutory stock options; however, incentive stock options may be
granted only to employees of the Company. Options under the Plan have a term of
up to 10 years and must be granted at not less than the fair market value, or
85% of fair market value for non-statutory options, on the date of the grant.
Common stock sold and options granted pursuant to the Plan generally vest over a
period of four to five years.
Grants to Employees and Directors - 1998 Plan
In May 1998, the Company granted options to purchase 2,236,263 shares of
the Company's Common Stock to the Company's Chief Executive Officer ("CEO"),
subject to shareholder approval, which was received in July 1998. As a result of
an increase in the Company's stock price between May and July 1998, the Company
recorded deferred compensation of $474,647 attributable to these options,
$53,000 of which was included as a charge to general and administrative expense
in 1998.
During the fourth quarter of 1999, the Company's CEO resigned. As of the
date of his resignation, the CEO was fully vested in 1,118,132 options and was
required to forfeit the remaining unvested 1,118,132 options, pursuant to the
terms of his original option grant. However, as a result of the CEO's
termination arrangement, the Company modified the CEO's original option grant
such that 618,131 of the unvested options would be forfeited and the remaining
500,000 unvested options would continue to vest over a period of one year. Since
no further service is required for these options to vest, the company recorded
compensation expense of $950,000 attributable to the intrinsic value of the
500,000 options as of the date of the modification. The total amount of
compensation expense recognized by the Company in 1999 attributable to the
former CEO's option grant is $1,118,200. The Company reversed a total of
$237,324 in deferred compensation expense applicable of the 618,131 options,
which were forfeited.
During 1999, the Company granted to certain key employees, including the
new CEO and the new Chairman of the Board, a total of 6,188,250 options with
exercise prices below the market value of the Company's Common Stock on the date
of grant. The Company recognized total deferred compensation expense of
$2,017,832 attributable to the intrinsic value of these options, of which
$497,987 has been amortized in 1999. In addition, the Company granted to its
employees 495,000 options with exercise prices equal to fair market value on the
date of grant.
Grants to Non-Employees - 1998 Plan
In connection with the sale of JBL's business in May, 1999 and pursuant
to a related lease termination agreement, the Company granted stock options to
acquire 450,000 shares of Common Stock, to the owners of the building previously
leased to JBL, some of whom were also employees of JBL. Those options are
accounted for pursuant to guidelines in SFAS No. 123, using the Black-Scholes
method and have an approximate value of $1 million, which has been charged
against the gain on the sale of JBL.
Also in May 1999, a total of 245,500 options were granted to employees of
JBL upon the closing of the sale of JBL, in connection with an ongoing service
arrangement between Promega and the Company, which will be accounted for
pursuant to SFAS No. 123 using the Black-Scholes method. The estimated value of
these options will be amortized to research and development expense until the
vesting date, which will be no later than one year from the closing date of the
sale. The Company has recognized $1,175,310 of deferred compensation expense
relative to these JBL options, $756,700 of which is included as a charge to
research and development expense in 1999.
The Company also granted 50,000 options to purchase Common Stock to
certain consultants and advisors to the Company during 1999, for which the
Company recognized a total of $136,400 in deferred compensation, of which
$99,900 has been included in operating expenses in 1999, as accounted for
pursuant to SFAS 123 and EITF 96-18.
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<PAGE> 61
Information with respect to the Company's 1998 Stock Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES UNDER EXERCISE PRICE
1998 PLAN OPTION PER SHARE
- --------- ------------ --------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1997 ................. -- --
Granted .................................... 2,836,263 $0.94
Exercised .................................. -- --
Canceled ................................... -- --
BALANCE AT DECEMBER 31, 1998 ................. 2,836,263 $0.94
---------- -----
Granted .................................... 7,428,750 $2.42
Exercised .................................. (44,000) $0.95
Canceled ................................... (618,131) $0.94
---------- -----
BALANCE AT DECEMBER 31, 1999 ................. 9,602,882 $2.08
========== =====
</TABLE>
At December 31, 1999, options to purchase approximately 2,842,695 shares
of common stock were exercisable at a weighted average exercise price of
approximately $1.66 per share and approximately 2,852,882 shares of common stock
were in excess of the amount authorized in the 1998 Plan. However, stock option
grants during 1999 have been approved by the Board of Directors, which now and
at the time of grant represented greater than 50% of the shareholders.
1998 Non-Employee Directors' Plan
Pursuant to the Company's Non-Employee Directors' 1998 Stock Plan (the
"Directors' Plan"), 3,000,000 shares have been provided for the grant of stock
options to directors of the Company who are not Company employees. On January
12, 2000, the Board of Directors approved an amendment to the Directors Plan
which, if approved, would increase the number of shares authorized for issuance
to 4,000,000. The amendment is subject to shareholder approval at the next
annual meeting of stockholders. Options under the Plan have a term of up to ten
years and must be granted at not less than the fair market value on the date of
grant. Each option granted shall become exercisable in full on the date of the
next Annual Meeting 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.
The Company granted stock options to purchase 1,725,000 shares of Common
Stock in May 1998, subject to shareholder approval which was received in July
1998. As a result of an increase in the stock price between May and July 1998,
the Company recorded deferred compensation expense of approximately $366,000, of
which $53,394 and $152,552 was amortized in 1998 and 1999, respectively.
In 1999, the Company granted to the Company's directors, options to
purchase a total of 350,000 shares of Common Stock. The exercise price of these
options was equal to the fair market value of the Common Stock on the date of
grant, and therefore no compensation expense has been recognized.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES UNDER EXERCISE PRICE
1998 DIRECTORS' PLAN OPTION PER SHARE
- -------------------- ------------ --------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1997 ................... -- --
Granted ...................................... 1,725,000 $ 0.94
Exercised .................................... -- --
Canceled ..................................... -- --
--------- ---------
BALANCE AT DECEMBER 31, 1998 ................... 1,725,000 0.94
Granted ...................................... 350,000 2.88
Exercised .................................... -- --
Canceled ..................................... -- --
--------- ---------
BALANCE AT DECEMBER 31, 1999 ................... 2,075,000 $ 1.26
========= =========
</TABLE>
At December 31, 1999, options granted under the Directors' Plan to
purchase approximately 970,315 shares of common stock were exercisable at a
weighted average exercise price of approximately $.94 per share and
approximately 925,000 shares of common stock were available for grant or sale
under the Plan.
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<PAGE> 62
In 1997, 100,000 options were granted pursuant to the 1991 Plan with an
exercise price above the grant date fair market value of the underlying Common
Stock, with a weighted average grant date fair value of $1.61 per share. In
1998, a total of 4,561,263 options were granted pursuant to the 1998 Plan and
the 1998 Directors Plan, of which 600,000 options were granted at fair market
value with a weighted average grant date fair value of $0.68 per share, and
3,961,263 were granted below fair market value with a weighted average grant
date fair value of $0.78 per share. In 1999, a total of 7,778,750 options were
granted pursuant to the 1998 Plan and the 1998 Directors Plan, of which
1,570,500 were granted at fair market value with a weighted average grant date
fair value of $1.37 per share, and 6,208,250 were granted below fair market
value with a weighted average grant date fair value of $1.87 per share.
Following is a further breakdown of the options outstanding as of December 31,
1999:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE WEIGHTED EXERCISE
REMAINING AVERAGE PRICE
OPTIONS LIFE IN EXERCISE OPTIONS OF OPTIONS
RANGE OF PRICES OUTSTANDING YEARS PRICE EXERCISABLE EXERCISABLE
----------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.88 - $ 0.97... 4,574,132 8.61 $ 0.94 2,574,135 $ 0.94
$ 2.03 - $ 5.00... 7,204,760 9.67 $ 2.59 1,339,881 $ 2.64
$17.50 - $25.00... 6,558 5.49 $22.40 6,391 $22.36
---------- ---- ------ --------- ------
11,785,450 9.25 $ 1.96 3,920,407 $ 1.56
========== ==== ====== ========= ======
</TABLE>
Pro Forma Disclosure
Pro forma information regarding net loss is required by SFAS 123, and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using the Black-Scholes method for
option pricing with the following weighted-average assumptions for 1997, 1998,
and 1999: volatility factors of the expected market value of the Company's
common stock of 102%, 72% and 90% respectively; risk-free interest rates of 6%;
dividend yields of 0%; and a weighted-average expected life of the options of
four to five years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1998 1999
------------ ----------- ------------
<S> <C> <C> <C>
Pro forma net loss per common shareholder $(33,493,186) $(8,699,775) $(21,832,897)
Pro forma loss per share ................ $ (7.57) $ (1.24) $ (1.23)
</TABLE>
The results above are not likely to be representative of the effects of
applying SFAS 123 on reported net income or loss for future years.
Common Stock Reserved
An aggregate of 45,086,254 shares of common stock were reserved for the
conversion of preferred stock and the exercise of outstanding options and
warrants at December 31, 1999.
11. INCOME TAXES
Significant components of the Company's deferred tax assets as of
December 31, 1998 and 1999 are shown below. A 100% valuation allowance has been
recognized at December 31, 1998 and 1999 to offset the deferred tax assets as it
is more likely than not that the net deferred tax assets will not be realized.
The valuation allowance at December 31, 1997 approximated $36,456,000.
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<PAGE> 63
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1999
------------ ------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Capitalized research expense ................. $ 2,922,000 $ --
Net operating loss carryforwards ............. 29,559,000 33,913,000
Research and development credits ............. 4,028,000 3,456,000
Purchased technology and license fees ........ 4,491,000 4,538,000
Other, net ................................... 1,130,000 857,000
------------ ------------
Total deferred tax assets .................... 42,130,000 42,764,000
Valuation allowance for deferred tax assets .. (41,214,000) (42,257,000)
------------ ------------
916,000 507,000
DEFERRED TAX LIABILITIES:
Patent expenses .............................. (585,000) (230,000)
Net depreciation ............................. (331,000) (277,000)
------------ ------------
(916,000) (507,000)
------------ ------------
Net deferred tax assets ........................ $ -- $ --
============ ============
</TABLE>
At December 31, 1999, the Company has federal and Massachusetts net
operating loss carryforwards of approximately $88.6 million and $46.8 million,
respectively. The difference between the federal and Massachusetts tax loss
carryforwards is primarily attributable to the fact that Massachusetts net
operating losses may only be carried forward for five years, as compared to
fifteen or twenty years for federal net operating losses, depending on the year
the losses were incurred. The federal tax loss carryforwards will begin expiring
in 2003, unless previously utilized. Approximately $8.6 million and $11.9
million of the Massachusetts tax loss carryforward expired during 1998 and 1999,
respectively, and the related deferred tax asset and tax loss carryforward
amounts have been reduced accordingly. The remaining Massachusetts tax loss will
continue to expire in 2000, unless utilized. The Company also has federal
research and development tax credit carryforwards of $3.5, which will begin
expiring in 2003, unless previously utilized.
Federal and Massachusetts 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 a 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.
12. EMPLOYEE SAVINGS PLAN
The Company adopted the Genta Incorporated Savings and Retirement Plan
(the "Genta 401(k) Plan") in 1994, allowing participating employees to
contribute up to 15% of their salary, subject to annual limits. In January 1998,
the Board of Directors approved an increase to 20%, effective April 1, 1998, and
subject to annual limits as established by the IRS. The Board of Directors may,
at its sole discretion, approve Company contributions. No such contributions
have been approved or made since the inception of the 401K Plan.
13. EMPLOYEE TERMINATIONS
In May 1997, Genta assessed its personnel requirements and established a
plan involving the termination of an aggregate of 12 research and administrative
employees at Genta and Genta Europe. The Company recorded general and
administrative expenses of $868,000 in the second quarter of 1997 for related
accrued severance costs. There have subsequently been no adjustments to the
liabilities originally recorded and the actual termination benefits paid were
equal to the liabilities recorded.
On November 12, 1999, the Company announced that it has elected a new
CEO and a new Chairman of the Board. The previous Chairman and CEO while
continuing as a member of the Board, will receive severance in the form of
salary continuation of approximately $300,000, to be paid in installments over
the next 12 months and had his stock option agreement modified as discussed in
Note 10, resulting in non-cash compensation expense of $950,000. Since the
previous Chairman and CEO has no continuing obligation of service to the Company
including in his capacity as a Board Member, these costs were entirely
recognized in 1999 as general and administrative expenses.
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<PAGE> 64
14. CONTINGENCIES
Pursuant to the Settlement Agreement (Note 10), the Company agreed: to
issue to LBC 2,900 shares of Series D Convertible Preferred Stock: to issue to
LBC or its designee five-year warrants (the "LBC Warrants") to acquire 700,000
shares of Common Stock at an exercise price of $0.52 per share; to make certain
payments to LBC totaling approximately $182,000; and to pay to LBC, upon the
exercise of certain warrants, a commission equal to up to $150,000 in the
aggregate (as of December 31, 1999, none of said warrants had been exercised).
The respective conversion and exercise prices of the Series D Preferred Stock
and the LBC Warrants are subject to adjustment upon the occurrence of certain
events. The fair value attributed to the 2,900 shares of Series D Preferred
Stock and the Class D Warrants approximated $965,000. The Company provided for
$600,000 of this $1,147,000 settlement in 1997 and the remaining amount in 1998.
On June 4, 1998, the Company's statutory process agent received a
Summons and Complaint in a lawsuit brought by Johns Hopkins University ("Johns
Hopkins") against the Company in Maryland Circuit Court for Baltimore City (Case
No. 98120110). Johns Hopkins alleged in the Complaint that the Company has
breached the Johns Hopkins Agreement and owed them licensing royalty fees and
related expenses in the amount of $308,832; of this amount, $287,671 represented
claims by the Ts'o/Miller Partnership pursuant to the terms of a Summons and
Complaint received by the Company's statutory process agent on August 10, 1998.
Johns Hopkins also alleged 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. As of December 31, 1998, the Company had
accrued $635,000 relating to the estimated cost to settle these claims. In
August 1999, the Company settled the lawsuits for $380,000. The Company will pay
$180,000 in cash over a six-month period of which $52,500 remains outstanding as
of December 31, 1999, and issued 69,734 shares of Common Stock to Johns Hopkins,
acting on its behalf and on behalf of Ts'o/Miller Partnership, sufficient to
provide a value of $200,000. The excess of the previously accrued settlement
costs over the actual settlement cost has been recorded as a reduction to
general and administrative expenses.
In October 1996, JBL retained a chemical consulting firm (the
"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. A semi-annual groundwater monitoring program is
being conducted, under the supervision of the California Regional Water Quality
Control Board, for purposes of determining whether the levels of chloroform and
PCEs have decreased over time. The results of the latest sampling conducted by
JBL show that PCEs and chloroform have decreased in all but one of the
monitoring sites. Based on an estimate provided to the Company by the Consulting
Firm, the Company accrued $65,000 in 1999, relating to remedial costs. Prior to
1999, such costs were not estimable, and therefore no loss provisions had been
recorded. Pursuant to the JBL agreement the Company has agreed to indemnify
Promega in respect of this matter. The Company believes that any costs stemming
from 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.
JBL received notice on October 16, 1998 from Region IX of the
Environmental Protection Agency ("EPA") that it had been identified as a
potentially responsible party ("PRP") at the Casmalia Disposal Site, which is
located in Santa Barbara, California. JBL has been designated as a de minimis
PRP by the EPA. Based on volume amounts from the EPA, the Company concluded that
it was probable that a liability had been incurred and accrued $75,000 during
1998. In 1999, the EPA estimated that the Company would be required to pay
approximately $63,200 to settle their potential liability. The Company will
continue to accrue $75,000 pursuant to SFAS No. 5 "Accounting for Contingencies"
until such amount is settled. The Company expects to receive a revised
settlement proposal from the EPA by the second quarter 2000. While the terms of
the settlement with the EPA have not been finalized, they should contain
standard contribution protection and release language. The Company has agreed to
indemnify Promega in respect of this matter. The Company believes that any costs
stemming from 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.
During 1995, Genta Pharmaceuticals Europe S.A ("Genta Europe"), a
wholly-owned subsidiary of the Company, received approximately 5.4 million
French Francs (as of December 31, 1999, approximately $826,600) of funding in
the form of a loan from the French government agency L'Agence Nationale de
Valorisation de la Recherche ("ANVAR")
64
<PAGE> 65
towards research and development activities pursuant to an agreement (the "ANVAR
Agreement") between ANVAR, Genta Europe and the Company. In October 1996, as
part of the Company's restructuring program, Genta Europe terminated all
scientific personnel. ANVAR asserted, in a letter dated February 13, 1998, that
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, ANVAR
notified Genta Europe by letter of its claim that the Company remains liable for
FF4,187,423 (as of December 31, 1999, approximately $641,000) and is required to
pay this amount immediately. The Company does not believe that under the terms
of the ANVAR Agreement ANVAR is entitled to request early repayment. ANVAR
notified the Company that it was responsible as a guarantor of the note for the
repayment. The Company's legal counsel in Europe, has again notified ANVAR that
the Company does not agree that the note is payable. The Company is working with
ANVAR to achieve a mutually satisfactory resolution. However, there can be no
assurance that such a resolution will be obtained. 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.
On June 30, 1998, Marseille Amenagement, a company affiliated with the
city of Marseilles, France, filed suit in France to evict Genta Europe from its
facilities in Marseilles and to demand payment of alleged back rent due and of a
lease guarantee for nine years' rent. Following the filing of this claim and in
consideration of the request for repayment of the loan from ANVAR, Genta
Europe's Board of Directors directed management to declare a "Cessation of
Payment." Under this procedure, Genta Europe ceased any operations and
terminated its only employee. A liquidator was appointed by the Court to take
control of any assets of Genta Europe and to make payment to creditors. In
December 1998, the Court in Marseilles dismissed the case against Genta Europe
and indicated that it had no jurisdiction against Genta Incorporated. In August
1999, Marseille Amenagement instituted legal proceedings against the Company at
the Commercial Court in France, claiming alleged back rent payment of FF663,413
(as of December 31, 1999, approximately $101,500) and early termination payment
of FF1,852,429 (as of December 31, 1999, approximately $283,600). A court
hearing has been scheduled for May 15, 2000. The company is working with its
counsel in France to achieve a mutually satisfactory resolution. However, there
can be no assurance that such a resolution will be obtained.
On December 31, 1999, the Company has $574,800 of net liabilities of
liquidated subsidiary recorded and, therefore, pursuant to guidelines
established in SFAS No. 5 "Accounting for Contingencies" and Financial
Accounting Standards Board Interpretation No. 14 "Reasonable Estimation of the
Amount of a Loss," such amount is sufficient to cover any potential liability.
Therefore, management believes no additional accrual is necessary. However,
there can be no assurance that the Company will not incur additional material
costs in relation to this claim.
15. GENTA EUROPE
The Company's loss on its European operations for the years ended
December 31, 1997, 1998 and 1999 was $806,687, $98,134, and zero respectively.
16. BUSINESS SEGMENTS
The Company has had two reportable segments: pharmaceutical (drug)
research and development at Genta and chemical manufacturing at JBL. Genta is an
emerging biopharmaceutical company. The Company's research efforts have been
focused on the development of proprietary oligonucleotide pharmaceuticals
intended to block or regulate the production of disease related proteins at the
genetic level. The Company's oligonucleotide programs are focused primarily in
the area of cancer. JBL is a manufacturer of high-quality specialty chemicals
and intermediate products for the pharmaceutical and in vitro diagnostic
industries. A number of Fortune 500 companies use JBL products as raw material
in the production of a final product. JBL markets its products to over 100
purchasers in the pharmaceutical and diagnostic industries.
Business segment accounting policies are the same as those described in
the summary of significant accounting policies. As further described in Note 2,
as a result of the sale, JBL has been presented as discontinued operations. The
Company evaluates performance based on profit or loss from operations before
income taxes, interest expense, and interest revenue. The Company also accounts
for inter-segment sales as if the sales were to third parties.
The Company's reportable segments are strategic business units that
offer different products and services. They are managed separately because each
business unit requires different technology and marketing strategies.
65
<PAGE> 66
The following table presents certain segment financial information and
the reconciliation of segment financial information to consolidated totals as of
and for the years ended December 31, 1997, 1998 and through May 10, 1999.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1998 1999
------------ ----------- ------------
<S> <C> <C> <C>
Revenues:
Drug Development -- external customers .......................... $ 50,000 $ 50,000 $ --
Drug Development -- related party ............................... 350,097 55,087 --
Drug development gain on sale of technology......................
------------ ----------- ------------
Total revenues from continuing operations ....................... $ 400,097 $ 105,087 $ --
Chemical Mfg. -- discontinued operations ........................ 4,701,649 5,346,795 1,718,720
Cost and Expenses:
Drug Development -- continuing operations ....................... $ 10,040,571 $ 6,683,123 $ 11,333,138
Chemical Mfg. -- discontinued operations ........................ 6,520,831 6,087,565 2,055,554
Net Loss from operations
Drug Development ................................................ $ (9,640,474) $(6,578,036) $(11,333,138)
Loss from discontinued operations through May 10, 1999 .......... (1,741,339) (739,965) (336,834)
Loss from discontinued operations included in gain on sale of JBL 147,427
Net loss of liquidated foreign subsidiary ....................... (98,134) --
Other income and (expenses) ..................................... (2,850,683) (37,912) 23,110
Equity in net loss of joint venture ............................. (1,193,321) (131,719) 2,448,518
Chemical manufacturing - gain on sale of JBL ...................... $ 1,606,956
------------ ----------- ------------
Total Net Loss .................................................. $(15,425,817) $(7,585,766) $ (7,443,961)
============ =========== ============
Segment Assets:
Drug Development -- continuing operations ....................... $ 15,078,949 $ 7,551,293 $ 12,251,190
Chemical Mfg. -- discontinued operations ........................ 2,449,002 2,606,304 3,051,134
</TABLE>
As a result of the closing of the sale of JBL, Genta operates in one
segment.
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<PAGE> 67
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Genta Jago Technologies B.V.
We have audited the accompanying balance sheet of Genta Jago Technologies B.V.
(a development stage company) (the "Company") as of December 31, 1998, and the
related statements of operations, stockholders' equity, and cash flows for the
year then ended, and for the period from December 15, 1992 (date of inception)
to December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The Company's financial statements for
the period December 15, 1992 (date of inception) through December 31, 1997 were
audited by other auditors whose report, dated June 18, 1998, expresses an
unqualified opinion and includes an explanatory paragraph which indicates that
there are matters that raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements for the period December
15, 1992 (date of inception) through December 31, 1997 reflect total revenues
and net loss of $19,040,894 and $23,868,479, respectively, of the related
totals. The other auditors' report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for such prior period, is based
solely on the report of such other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors, such
financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 1998, and the results of its
operations and its cash flows for the year then ended, and for the period from
December 15, 1992 (date of inception) to December 31, 1998, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in developing and commercializing pharmaceuticals. As
discussed in Note 1 to the Financial Statements, the deficiency in working
capital and net capital deficiency at December 31, 1998 and the Company's
operating losses since inception, raise substantial doubt about is ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
DELOITTE & TOUCHE EXPERTA LTD.
Basel, Switzerland
April 15, 1999
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<PAGE> 68
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Genta Jago Technologies, B.V.
We have audited the accompanying statements of operations, stockholders' equity
(net capital deficiency) and cash flows of Genta Jago Technologies, B.V. (a
development stage company) for the year ended December 31, 1997 and for the
period December 15, 1992 (inception) through December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of Genta Jago Technologies,
B.V. (a development stage company) and its cash flows for the year ended
December 31, 1997 and for the period December 15, 1992 (inception) through
December 31, 1997, in conformity with generally accepted accounting principles.
The Company has incurred operating losses since inception and requires
substantial additional sources of financing to fund its continuing operations.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. The 1997 financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
ERNST & YOUNG LLP
San Diego, California
June 18, 1998
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<PAGE> 69
GENTA JAGO TECHNOLOGIES B.V.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1998
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $9,247 $--
Receivables under collaboration agreements 1,399,854 3,348,178
Other current assets 22,246 24,349
------------ ------------
Total current assets 1,431,347 3,372,527
Property and equipment, net 2,300 1,000
Other assets 1,672 10,927
------------ ------------
$1,435,319 $3,384,454
============ ============
Liabilities and net capital deficiency Current liabilities:
Accounts payable and accrued expenses $1,792,293 $440,458
Payable to related parties 3,420,456 7,985,810
------------ ------------
Total current liabilities 5,212,749 8,426,268
Notes payable to Genta Incorporated 15,837,099 15,837,099
Stockholders' equity (net capital deficiency):
Common Stock, 14,700 shares authorized, 10,000 shares issued
and outstanding at stated value 512,000 512,000
Additional paid-in capital 3,741,950 3,741,950
Deficit accumulated during the development stage (23,868,479) (25,132,863)
------------ ------------
Net capital deficiency (19,614,529) (20,878,913)
------------ ------------
$1,435,319 $3,384,454
============ ============
</TABLE>
See accompanying notes.
69
<PAGE> 70
GENTA JAGO TECHNOLOGIES B.V.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative From
Years Ended December 31, December 15, 1992
---------------------------- (inception) Through
1997 1998 December 31, 1998
------------ ---------- ------------------
<S> <C> <C> <C>
REVENUES:
Collaborative research and development $3,634,516 $2,161,954 $21,202,848
COST AND EXPENSES:
Research and development, including
contractual amounts to related
parties of $4,540,067,
$1,876,444 and $40,169,225 in
1997, 1998 and the period from
December 15, 1992 (inception) to
December 31, 1998, respectively 4,740,299 1,963,326 44,967,209
General and administrative.......... 50,869 148,241 1,584,493
------------ ------------ --------------
4,791,168 2,111,567 46,551,702
------------ ------------ --------------
Loss from operations.................. (1,156,652) 50,387 (25,348,854)
OTHER INCOME (EXPENSE):
Gain on waiver of debt in exchange for
return of license rights to related
party............................ - - 4,703,352
Interest income....................... 209 92 19,847
Interest expense...................... (1,175,411) (1,314,863) (4,507,208)
------------ ------------ --------------
(1,175,202) (1,314,771) 215,991
------------ ------------ --------------
Net loss.............................. $(2,331,854) $(1,264,384) $(25,132,863)
=========== =========== ==============
</TABLE>
See accompanying notes.
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<PAGE> 71
GENTA JAGO TECHNOLOGIES B.V.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
December 15, 1992 (inception) to December 31, 1998
------------------------------------------------------------------------------
Deficit
Accumulated Stockholders'
Common Stock Additional During the Equity
----------------------- Paid-in Development (net capital
Shares Amount Capital Stage deficiency)
------ ------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock at $51.20
per share for cash $ 2,940 $150,528 $ -- $ -- $ 150,528
Capital contributions in excess of
stated value -- -- 12,882 -- 12,882
------- -------- --------- ------------- -------------
Balance at December 31, 1992 2,940 150,528 12,882 -- 163,410
Issuance of common stock at $51.20
per share for cash 7,060 361,472 -- -- 361,472
Capital contributions in excess of
stated value -- -- 3,729,068 -- 3,729,068
Net Loss -- -- -- (5,842,165) (5,842,165)
------- -------- --------- ------------- -------------
Balance at December 31, 1993 10,000 512,000 3,741,950 (5,842,165) (1,588,215)
Net Loss -- -- -- (8,351,381) (8,351,381)
------- -------- --------- ------------- -------------
Balance at December 31, 1994 10,000 512,000 3,741,950 (14,193,546) (9,939,596)
Net Loss -- -- -- (3,411,492) (3,411,492)
------- -------- --------- ------------- -------------
Balance at December 31, 1995 10,000 512,000 3,741,950 (17,605,038) (13,351,088)
Net Loss -- -- -- (3,931,587) (3,931,587)
------- -------- --------- ------------- -------------
Balance at December 31, 1996 10,000 512,000 3,741,950 (21,536,625) (17,282,675)
Net Loss -- -- -- (2,331,854) (2,331,854)
------- -------- --------- ------------- -------------
Balance at December 31, 1997 10,000 $512,000 $3,741,950 $(23,868,479) $(19,614,529)
Net Loss -- -- -- (1,264,384) (1,264,384)
------- -------- --------- ------------- -------------
Balance at December 31, 1998 10,000 $512,000 $3,741,950 $(25,132,863) $(20,878,913)
------- -------- --------- ------------- -------------
</TABLE>
See accompanying note.
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<PAGE> 72
GENTA JAGO TECHNOLOGIES B.V.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative From
Years Ended December 31, December 15, 1992
--------------------------- (inception) to
1997 1998 December 31, 1998
------------ ----------- -----------------
<S> <C> <C> <C>
Operating Activities
Net loss $(2,331,854) $(1,264,384) $(25,132,863)
Items reflected in net loss not
requiring cash:
Depreciation and amortization 2,600 1,300 17,068
Technology license fee -- -- 192,580
Gain on waiver of debt in exchange for
return of license rights to related party -- -- (4,703,352)
Changes in operating assets and liabilities:
Advance contract payments to related parties -- -- --
Receivables under collaboration agreements (496,016) (1,948,324) (3,348,178)
Other current assets 83,688 (11,358) (33,604)
Accounts payable and accrued expenses 1,220,754 (1,351,835) 440,458
Payable to related parties 939,004 4,565,354 7,985,810
Deferred contract revenue -- -- --
------------ ------------ -------------
Net cash used in operating activities (581,824) (9,247) (24,582,081)
Investing Activities
Purchase of property and equipment and other 4,979 -- (19,740)
------------ ------------ -------------
Net cash provided by (used in) investing activities 4,979 -- (19,740)
Financing Activities
Proceeds from issuance of common stock
and capital contributions -- -- 4,061,370
Proceeds from notes payable to related party 550,000 -- 21,140,643
Repayment of notes payable to related party -- -- (600,192)
------------ ------------ -------------
Net cash provided by financing activities 550,000 -- 24,601,821
------------ ------------ -------------
Increase (decrease) in cash and cash equivalents (26,845) (9,247) --
Cash and cash equivalents at beginning of period 36,092 9,247 --
------------ ------------ -------------
Cash and cash equivalents at end of period $9,247 $ -- $ --
============ ============ =============
Supplemental disclosure of cash flow information:
Interest paid $ $ -- $ 299,808
============ ============ =============
</TABLE>
See accompanying notes.
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<PAGE> 73
GENTA JAGO TECHNOLOGIES B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Genta Jago Technologies B.V. ("Genta Jago") was incorporated in December
1992 under the laws of the Netherlands. Genta Jago is a joint venture owned and
controlled 50% by Genta Incorporated ("Genta") and 50% by Jagotec AG
("Jagotec"), a subsidiary of Jago Holding AG which was acquired by SkyePharma in
May 1996. Genta Jago was formed to develop and commercialize pharmaceuticals in
six major therapeutic areas and commenced research and development activities in
January 1993. Genta Jago is managed under the direction of a Board of Managing
Directors consisting of two members appointed from each of Genta and Jagotec and
one outside member.
In connection with the formation of the joint venture in 1992, Genta Jago
obtained from Jagotec an exclusive license to GEOMATRIX oral controlled-release
technology for the development and commercialization of approximately 25
specified products. In May 1995, Genta and Jagotec entered into an agreement to
expand Genta Jago by adding the rights to develop and commercialize an
additional 35 products (see note 2, "Expansion of Genta Jago"). Genta Jago
maintains the rights to develop and to commercialize controlled- release
formulations of approximately 60 products using Jagotec's GEOMATRIX technology.
Genta Jago is dependent on future funding from Genta (see Note 2 "Capital
Contributions and Working Capital Agreement") and corporate partners and is
considered a development stage company. Genta has incurred significant operating
losses since inception and expects that they will continue for the next several
years. These conditions raise substantial doubt about the Company's ability to
continue as a going concern.
On March 4, 1999, Genta and SkyePharma (on behalf of itself and its
affiliates) entered into an interim agreement pursuant to which the parties to
the joint venture released each other from all liability relating to unpaid
development costs and funding obligations and SkyePharma agreed to be
responsible for substantially all the obligations of the joint venture to third
parties and for the further development of the joint venture's products, with
any net income resulting therefrom to be allocated in agreed-upon percentages
between Genta and SkyePharma as set forth in such interim agreement.
REVENUE RECOGNITION
Collaborative research and development revenues are recorded as earned as
research and development activities are performed under the terms of the
contracts, with such revenues generally approximating costs incurred on the
programs. Payments received in excess of amounts earned are deferred.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred.
DEPRECIATION
The costs of furniture and equipment are depreciated over the estimated
useful lives of the assets using the straight-line method.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
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<PAGE> 74
differ materially from those estimates.
INCOME TAXES
The Company uses the liability method of accounting for income taxes.
Deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
109 the Company records valuation allowances against net deferred tax assets. If
based upon the available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized. In assessing the realizability
of deferred assets, management considers whether it is more likely than not that
some or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income and when temporary differences become deductible. The Company
considers, among other available information, uncertainties surrounding the
recoverability of deferred tax assets, scheduled reversals of deferred tax
liabilities, projected future taxable income, and other matters in making this
assessment.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130, Reporting Comprehensive Income ("SFAS No.
130") and SFAS No. 131, Segment Information. Both of these standards are
effective for fiscal years beginning after December 15, 1997 and have been
adopted by the Company in 1998. SFAS No. 130 requires that all components of
comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Genta Jago had no
material component of comprehensive income other than net loss. SFAS No. 131
amends the requirements for public enterprises to report financial and
descriptive information about their enterprises for which separate financial
information is available and is evaluated regularly by the Company in deciding
how to allocate resources and in assessing performance. The financial
information is required to be reported, as disclosed in Note 17, on the basis
that is used internally for evaluating the segment performance. Genta Jago
operates in only one business segment.
In June 16, 1998 the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". This
standard is effective for fiscal years beginning after June 15, 1999. SFAS No.
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
instruments at fair value. The Company is currently evaluating the impact of
this pronouncement and does not believe adoption of SFAS No. 133 will have a
material impact on the Company's financial statements.
2. RELATED PARTY TRANSACTIONS
LICENSE AGREEMENTS
Genta Jago entered into license agreements with Genta in connection with the
planned development and commercialization of Anticode(TM) oligonucleotide
products and with Jagotec in connection with the planned development and
commercialization of GEOMATRIX oral controlled-release products. Genta Jago's
license with Genta in relation to the Anticode(TM) oligonucleotide products was
terminated in 1995; however, the license in relation to the GEOMATRIX oral
controlled-release products with Jagotec was not terminated. Pursuant to such
agreements, Genta Jago recorded license fee expense of $85,000, and
zero during the years ended December 31, 1997, and 1998, respectively.
RESEARCH AND DEVELOPMENT AND SERVICE AGREEMENTS
Genta Jago has contracted with Genta and Jagotec to conduct research and
development and provide certain other services. Under terms of such agreements,
Genta Jago generally is required to reimburse the parties for their respective
costs incurred plus a specified mark-up. Payments for research and development
services are generally made in advance and are refundable if the services are
not performed. For the years ended December 31, 1997, and 1998, Genta Jago
74
<PAGE> 75
incurred expenditures of $4.5 million, and $1.9, respectively, pursuant to such
research and development and service agreements.
CAPITAL CONTRIBUTIONS AND WORKING CAPITAL AGREEMENT
On March 4, 1999, Genta and SkyePharma (on behalf of itself and its
affiliates) entered into an interim agreement pursuant to which the parties to
the joint venture released each other from all liability relating to unpaid
development costs and funding obligations and SkyePharma agreed to be
responsible for substantially all the obligations of the joint venture to third
parties and for the further development of the joint venture's products, with
any net income resulting therefrom to be allocated in agreed-upon percentages
between Genta and SkyePharma as set forth in such interim agreement. However,
historically and in connection with the formation of the joint venture, Genta
contributed $4 million in cash to Genta Jago as well as the rights to apply its
Anticode(TM) oligonucleotide technology to six products. Genta issued 120,000
shares of Common Stock valued at $7.2 million to Jagotec and its affiliates in
1992, for its interest in Genta Jago, to induce Jagotec to license to Genta
Jago, for what the parties believed was a substantial discount from the
underlying value of such license, Jagotec's GEOMATRIX technology with respect to
approximately 25 products (the "Initial License") and to license to Genta
Jagotec's GEOMATRIX technology for use in Genta's Anticode(TM) oligonucleotide
development programs. In addition, Genta Jago entered into a working capital
agreement with Genta, which expired in October 1998. Pursuant to this agreement,
Genta was required to make working capital loans to Genta Jago up to a mutually
agreed upon maximum principal amount, which amount is established by Genta and
Genta Jago not less than once each calendar quarter, if necessary, based upon
the review and consideration by the parties of mutually-acceptable budgets,
expense reports, forecasts and work plans for research and development of the
products by Genta Jago. Genta was not required to fund amounts in excess of the
agreed-upon commitment amount. Working capital loans consist of cash advances to
Genta Jago from Genta and research expenses incurred by Genta on behalf of Genta
Jago. As of December 31, 1998, Genta had advanced working capital loans of
approximately $15.8 million to Genta Jago, net of principal repayments and the
loan credit discussed below. Such loans bore interest at rates per annum ranging
from 5.81% to 7.5%, and were payable in full on October 20, 1998, but payment
has not been received. As a result of the March 4, 1999 agreement, it is not
expected that the working capital loans will be paid.
EXPANSION OF GENTA JAGO
In 1995, Genta Jago obtained from Jagotec the rights to develop and
commercialize an additional 35 products (the "Additional Products") using
Jagotec's GEOMATRIX technology. With these Additional Products, Genta Jago now
maintains the rights to develop controlled-release formulations of approximately
60 products using Jagotec's GEOMATRIX technology. Genta Jago is required to pay
certain additional fees to Jagotec upon Genta Jago's receipt of revenues from
third parties, and pay manufacturing royalties to Jagotec.
RETURN OF ANTICODE(TM) ANTISENSE LICENSE
Also in 1995, the parties elected to focus Genta Jago's activities
exclusively on GEOMATRIX oral-controlled release products. As a result, Genta
Jago returned to Genta the rights to develop six Anticode(TM) Oligonucleotide
products originally licensed from Genta in connection with the formation of
Genta Jago in 1992. In connection with the return of the Anticode(TM)
Oligonucleotide license rights to Genta in May 1995, Genta Jago's note payable
to Genta was credited with a principal reduction of approximately $4.4 million
and accrued interest payable to Genta was reduced by approximately $300,000.
Genta Jago recorded the loan credit and related accrued interest as a gain on
waiver of debt in exchange for return of license rights to Genta, based on the
legal structure of the transaction.
3. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
Genta Jago/Gensia/Brightstone. In January 1993, Genta Jago entered into a
collaboration agreement with Gensia for the development and commercialization of
certain oral controlled-release pharmaceutical products for treatment of
cardiovascular disease. Under the agreement, Gensia provides funding for
formulation and preclinical development to be conducted by Genta Jago and is
responsible for clinical development, regulatory submissions and marketing.
Terms of the agreement provide Gensia exclusive rights to market and distribute
the products in North America, Europe and certain other countries. The agreement
has a term of the longer of twelve years and the patent term in the respective
countries within the territory. Genta Jago received $1.2 million and $1.0
million of funding in 1997 and 1998, respectively, pursuant to the agreement.
Collaborative revenues of $1.5 million and $2.2
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<PAGE> 76
million were recognized under the agreement during the years ended December 31,
1997 and 1998, respectively. Effective October 1996, Gensia and SkyePharma
reached an agreement whereby a SkyePharma subsidiary, Brightstone Pharma, Inc.
("Brightstone"), was assigned Gensia's rights (and those of Gensia's partner,
Boehringer Mannheim) to develop and co-promote the potentially bioequivalent
nifedipine product under the collaboration agreement with Genta Jago. The
assignment was accepted by Genta Jago and has no impact on the terms of the
original agreement. Genta Jago is still entitled to receive additional milestone
payments from Brightstone triggered upon regulatory submissions and approvals,
as well as royalties or profit sharing ranging from 10% to 21% of product sales,
if any.
Genta Jago/Apothecon. In March 1996, Genta Jago entered into a collaborative
licensing and development agreement (the "Genta Jago/Apothecon Agreement") with
Apothecon, Inc. ("Apothecon"). Under the terms of the Genta Jago/Apothecon
Agreement, Apothecon will provide funding to Genta Jago up to a specified
maximum amount for the formulation of Q-CR ketoprofen (Oruvail(R)). The Genta
Jago/Apothecon Agreement expires upon the expiration of the relevant patents in
each covered country subject to certain early termination rights. The agreement
also provides for Genta Jago to receive potential milestone payments and
royalties on product sales. Terms of the agreement provide Apothecon exclusive
rights to market and distribute the products on a worldwide basis.
Genta Jago/Krypton. In October 1996, Genta Jago entered into five
collaborative licensing and development agreements (the "Genta Jago/Krypton
Agreements") with Krypton, Ltd. ("Krypton"), a subsidiary of SkyePharma, whereby
Genta Jago would sublicense to Krypton rights to develop and commercialize
potentially bioequivalent GEOMATRIX(R) versions of five currently marketed
products, as well as another agreement granting Krypton an option to sublicense
rights to develop and commercialize an improved version of a sixth product. The
Genta Jago/Krypton Agreements have terms of the shorter of fifteen years from
first commercial sale and the expiration of the patent term on a
territory-by-territory basis. During 1997, Genta Jago received funding of $1.9
million under the Genta Jago/Krypton Agreements and recognized $2.1 million of
collaborative revenue therefrom.
4. INCOME TAXES
Significant components of Genta Jago's deferred tax assets as of December
31, 1997 and 1998 are shown below. A valuation allowance has been recognized to
offset the deferred tax assets as it is more likely than not that the net
deferred tax assets will not be realized.
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1998
------------ -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,387,000 $ 2,513,000
Valuation allowance for deferred tax assets (2,387,000 (2,513,000)
------------- -----------
Net deferred tax assets $ -- $ --
============= ===========
</TABLE>
At December 31, 1998, Genta Jago has foreign net operating loss
carryforwards of approximately $25,133,000. The foreign tax loss carryforwards
will begin expiring in 2000, unless previously utilized.
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<PAGE> 77
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Changes in Accountants
On November 3, 1998, the Company filed a Form 8-K disclosing that Ernst &
Young LLP had resigned as the Company's principal independent accountant on
October 28, 1998.
On February 10, 1999, the Company engaged Deloitte & Touche LLP as the
principal independent accountant to audit the Company's financial statements for
the fiscal year ended December 31, 1998.
Disagreements with Accountants
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required in this item is incorporated by reference from the
Company's definitive proxy statement to be filed not later than May 1, 2000
pursuant to Regulation 14A of the General Rules and Regulations under the
Securities Exchange Act of 1034, as amended ("Regulation 14A")
ITEM 11. EXECUTIVE COMPENSATION
The information required in this item is incorporated by reference from the
Company's definitive proxy statement to be filed not later than May 1, 2000
pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in this item is incorporated by reference from the
Company's definitive proxy statement to be filed not later than May 1, 2000
pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in this item is incorporated by reference from the
Company's definitive proxy statement to be filed not later than May 1, 2000
pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial statements
(1) Reference is made to the Index to Financial Statements under Item 8 of
this report on Form 10-K.
(2) All schedules are omitted because they are not required, are not
applicable, or the required information is included in the consolidated
financial statements or notes thereto.
(3) Reference is made to Paragraph (c) below for Exhibits required by Item
601 of Regulation S-K, including management contracts and compensatory plans and
arrangements.
(b) Reports on Form 8-K. The Company filed the following reports on Forms
8-K:
On November 12, 1999, the Company filed a Current Report on Form 8-K
disclosing the appointment of a new Chief Executive Officer and a new Chairman
of the Board of Directors.
77
<PAGE> 78
(c) Exhibits required by Item 601 of Regulation S-K with each management
contract, compensatory plan or arrangement required to be filed identified.
78
<PAGE> 79
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
3(i).1(7) Restated Certificate of Incorporation of the Company.
3(i).2(9) Certificate of Designations of Series D Convertible Preferred Stock of the Company.
3(i).3(15) Certificate of Amendment of Restated Certificate of Incorporation of the Company.
3(i).4(15) Amended Certificate of Designations of Series D Convertible Preferred Stock of the Company.
3(i).5(15) Certificate of Increase of Series D Convertible Preferred Stock of the Company.
3(i).6(13) Certificate of Amendment of Restated Certificate of Incorporation of the Company.
3(i).7(13) Certificate of Amendment of Restated Certificate of Incorporation of the Company.
3(i).8(15) Certificate of Amendment of Restated Certificate of Incorporation of the Company.
3(ii).1(13) Amended and Restated Bylaws of the Company.
4.1(1) Specimen Common Stock Certificate.
4.2(4) Specimen Series A Convertible Preferred Stock Certificate.
4.3* Specimen Series D Convertible Preferred Stock Certificate.
4.4(4) Form of Unit Purchase Agreement dated as of September 23, 1993 by and between the Company and the
Purchasers of the Series A Convertible Preferred Stock.
10.1(2) Amended and Restated 1991 Stock Plan of Genta Incorporated.
10(iii)(A).1(13) Non-Employee Directors' 1998 Stock Option Plan.
10(iii)(A).2(13) 1998 Stock Incentive Plan.
10.2(1) Form of Indemnification Agreement entered into between the Company and its directors and officers.
10.3(1) Preferred Stock Purchase Agreement dated September 30, 1991 and Amendment Agreement dated October
2, 1991.
10.4(1)+ Development, License and Supply Agreement dated February 2, 1989 between the Company and
Gen-Probe Incorporated.
10.5(3)+ Common Stock Transfer Agreement dated as of December 15, 1992, between the Company and Dr.
Jacques Gonella.
10.6(3) Consulting Agreement dated as of December 15, 1992, between the Company and Dr. Jacques Gonella.
10.7(3)+ Common Stock Transfer Agreement dated as of December 15, 1992, between the Company and Jagotec AG.
10.8(3)+ Collaboration Agreement dated as of January 22, 1993, between Jobewol Investments B.V. (now known
as Genta Jago Technologies B.V.) and Gensia, Inc.
10.9(5) Form of Purchase Agreement between the Company and certain purchasers of Common Stock.
</TABLE>
79
<PAGE> 80
<TABLE>
<CAPTION>
<S> <C>
10.10(5) Common Stock Purchase Warrant dated May 8, 1995 between the Company and Index Securities S.A.
10.11(6)+ Restated Joint Venture and Shareholders Agreement dated as of May 12, 1995 between the Company,
Jagotec AG, Jago Holding AG, Jago Pharma AG and Genta Jago Technologies B.V.
10.12(6)+ Limited Liability Company Agreement of Genta Jago Delaware LLC dated as of May 12, 1995 between
GPM Generic Pharmaceuticals Manufacturing Inc. and the Company.
10.13(6)+ Restated Transfer Restriction Agreement dated as of May 12, 1995 between the Company and Jagotec
AG.
10.14(6)+ Transfer Restriction Agreement dated as of May 12, 1995 between the Company, GPM Generic
Pharmaceuticals Manufacturing Inc. and Jago Holding AG.
10.15(6)+ Common Stock Transfer Agreement dated as of May 30, 1995 between the Company and Jago Finance
Limited.
10.16(6)+ Stockholders' Agreement dated as of May 30, 1995 between the Company, Jagotec AG, Dr. Jacques
Gonella and Jago Finance Limited.
10.17(6)+ Restated GEOMATRIX Research and Development Agreement dated as of May 12, 1995 between Jago
Pharma AG, the Company, Genta Jago Delaware, L.L.C. and Genta Jago Technologies B.V.
10.18(6)+ Restated Services Agreement dated as of May 12, 1995 between Jago Pharma AG, the Company, Genta
Jago Delaware, L.L.C. and Genta Jago Technologies B.V.
10.19(6)+ Restated Working Capital Agreement dated as of May 12, 1995 and Amendment No. 1 to Restated
Working Capital Agreement dated as of July 11, 1995 between the Company and Genta Jago
Technologies B.V.
10.20(6)+ Restated Promissory Note dated as of January 1, 1994 between Genta Jago Technologies B.V. and the
Company.
10.21(6)+ Restated License Agreement dated as of May 12, 1995 between Jagotec AG and the Company.
10.22(6)+ Restated GEOMATRIX License Agreement dated as of May 12, 1995 between Jagotec AG and Genta Jago
Technologies B.V.
10.23(6)+ GEOMATRIX Manufacturing License Agreement dated as of May 12, 1995 between Jagotec AG and Genta
Jago Technologies B.V.
10.24(6)+ Restated GEOMATRIX Supply Agreement dated as of May 12, 1995 between Jago Pharma AG and Genta
Jago Technologies B.V.
10.25(7) Common Stock Purchase Warrant dated December 14, 1995 between the Company and Lease Management
Services, Inc.
10.26(8) Common Stock Purchase Warrant for 375,123 shares of Common Stock issued to Lyon & Lyon.
10.27(8) Common Stock Purchase Warrant for 100,000 shares of Common Stock issued to Michael Arnouse.
10.28(9) Note and Warrant Purchase Agreement dated as of January 28, 1997 among the Company, The Aries
Fund and The Aries Domestic Fund, L.P.
10.29(9) Letter Agreement dated January 28, 1997 from the Company to The Aries Fund and The Aries Domestic
Fund, L.P.
10.30(9) Senior Secured Convertible Bridge Note of the Company dated January 28, 1997 for $1,050,000
</TABLE>
80
<PAGE> 81
<TABLE>
<CAPTION>
issued to The Aries Domestic Fund, L.P.
<S> <C>
10.31(9) Senior Secured Convertible Bridge Note of the Company dated January 28, 1997 for $1,950,000
issued to The Aries Trust.
10.32(9) Class A Bridge Warrant for the Purchase of 2,730,000 shares of Common Stock issued to The Aries
Domestic Fund, L.P.
10.33(9) Class A Bridge Warrant for the Purchase of 5,070,000 shares of Common Stock issued to The Aries
Trust.
10.34(9) Class B Bridge Warrant for the Purchase of 4,270,000 shares of Common Stock issued to The Aries
Domestic Fund, L.P.
10.35(9) Class B Bridge Warrant for the Purchase of 7,930,000 shares of Common Stock issued to the Aries
Trust.
10.36(9) Security Agreement dated as of January 28, 1997 between the Company and Paramount Capital, Inc.,
as agent for the holders of the Company's Senior Secured Convertible Bridge Notes
10.37(9) Letter Agreement dated January 28, 1997 among the Company, Paramount Capital, Inc., The Aries
Domestic Fund, L.P. and The Aries Trust.
10.38(10) Executive Compensation Agreement dated as of January 1, 1996 between the Company and Howard
Sampson.
10.39(10) Collaboration Agreement dated December 26, 1995 between the Company and Johnson & Johnson
Consumer Products, Inc.
10.40(10) Assignment Agreement (of Gensia Inc.'s rights in the Collaboration Agreement between Genta Jago
and Gensia, Inc., dated January 23, 1993) to Brightstone Pharma, Inc., dated October 1, 1996 among
Gensia, Inc., Genta Jago Technologies B.V., Brightstone Pharma, Inc., and SkyePharma PLC.
10.41(10)+ Development and Marketing Agreement effective February 28, 1996 between Apothecon, Inc. and Genta
Jago Technologies B.V.
10.42(10)+ License Agreement effective February 28, 1996 between Apothecon, Inc. and Genta Jago Technologies
B.V.
10.43(10)+ Option, Development & Sub-License Agreement (the Company has requested confidential treatment for the
name of this element) dated as of October 31, 1996 between Genta Jago Technologies B.V. and Krypton Ltd.
10.44(10)+ Development and Sub-License Agreement (the Company has requested confidential treatment for the
name of this element) dated as of October 31, 1996 between Genta Jago Technologies B.V. and
Krypton Ltd.
.
10.45(10)+ Development and Sub-License Agreement (the Company has requested confidential treatment for the name
of this element) dated as of October 31, 1996 between Genta Jago Technologies B.V. and Krypton Ltd.
10.46(10)+ Development and Sub-License Agreement/Diclofenac dated as of October 31, 1996 between Genta Jago
Technologies B.V. and Krypton Ltd.
10.47(10)+ Development and Sub-License Agreement/Naproxen dated as of October 31, 1996 between Genta Jago
Technologies B.V. and Krypton Ltd.
10.48(10)+ Development and Sub-License Agreement/Verapamil dated as of October 31, 1996 between Genta Jago
Technologies B.V. and Krypton Ltd.
</TABLE>
81
<PAGE> 82
<TABLE>
<CAPTION>
<S> <C>
10.49(10)+ License Termination Agreement dated December 2, 1996 between the Company and Wilton Licensing AG
and the Company.
10.50(10) Contract for Regional Aid for Innovation, effective July 1, 1993, between L'Agence Nationale de
Valorisation de la Recherche, Genta Pharmaceuticals Europe S.A. and the Company.
10.51(11) Warrant for the Purchase of 32,500 shares of Common Stock of the Company, issued to The Aries
Fund.
10.52(11) Warrant for the Purchase of 17,500 shares of Common Stock of the Company, issued to The Aries
Domestic Fund, L.P.
10.53(11) Amended and Restated Amendment Agreement dated June 23, 1997 among the Company and The Aries Fund
and The Aries Domestic Fund L.P.
10.54(11) Amended and Restated Senior Secured Convertible Bridge Note for $1,050,000 issued to The Aries
Domestic Fund, L.P.
10.55(11) Amended and Restated Senior Secured Convertible Bridge Note for $1,950,000 issued to The Aries
Trust.
10.56(11) New Class A Bridge Warrant for the Purchase of 350,000 shares of Common Stock issued to The Aries
Domestic Fund, L.P.
10.57(11) New Class A Bridge Warrant for the Purchase of 650,000 shares of Common Stock issued to The Aries
Trust.
10.58(11) New Class B Bridge Warrant for the Purchase of 350,000 shares of Common Stock issued to The Aries
Domestic Fund, L.P.
10.59(11) New Class B Bridge Warrant for the Purchase of 650,000 shares of Common Stock issued to The Aries
Trust.
10.60(11) Consulting Agreement dated as of August 27, 1997 by and between the Company and Paul O.P. Ts'o,
Ph.D.
10.61(11) Consulting Agreement dated as of August 27, 1997 by and between the Company and Sharon B.
Webster, Ph.D.
10.62(15) Warrant Agreement, dated as of May 20, 1997, among the Company, ChaseMellon Shareholder Services,
L.L.C., as warrant agent, and Paramount Capital, Inc.
10.63(12) Severance Agreement, Release and Covenant Not to Sue dated May 5, 1998 between Thomas H. Adams,
Ph.D. and the Company.
10.64(12) Consulting Agreement dated May 5, 1998 between the Company and Thomas H. Adams, Ph.D.
10.65(14) Asset Purchase Agreement, dated as of March 19, 1999, among JBL Acquisition Corp., JBL Scientific
Incorporated and the Company.
10.66(14) Agreement of Sublease dated March 31, 1999 between Interneuron Pharmaceuticals, Inc. and the
Company
10.67(15) Warrant Agreement, dated as of December 23, 1999, among the Company, ChaseMellon Shareholder Services, L.L.C.,
as warrant agent, and Paramount Capital, Inc.
10.68(15) Separation Letter Agreement dated December 1, 1999 from
the Company to Kenneth G. Kasses, Ph.D.
</TABLE>
82
<PAGE> 83
<TABLE>
<CAPTION>
<S> <C>
10.69(15) Amendment No. 1 to Stock Option Agreement, dated as of December 1, 1999, to the Stock Option
Agreement, dated as of May 28, 1998, between the Company and Kenneth G. Kasses, Ph.D.
10.70(15) Employment Letter Agreement, dated as of October 28, 1999, from the Company to Raymond P.
Warrell, Jr., M.D.
10.71(15) Stock Option Agreement, dated as of October 28, 1999, between the Company and Raymond P. Warrell,
Jr., M.D.
10.72(15) Letter Agreement, dated March 4, 1999, from SkyePharma Plc to the Company.
22.1(10) Subsidiaries of the Registrant.
23.1(15) Consent of Deloitte & Touche LLP, Independent Auditors.
23.2(15) Consent of Deloitte & Touche Experta Ltd., Independent Auditors.
23.3(15) Consent of Ernest & Young LLP, Independent Auditors.
27.1(15) Financial Data Schedule.
</TABLE>
- ----------
+ The Company has been granted confidential treatment of certain portions of
this exhibit.
* Filed supplementally.
(1) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1, Registration No. 33-43642.
(2) Exhibit 10.1 is incorporated herein by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-8, Registration No. 33-85887.
(3) Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-3, Registration No. 33-58362.
(4) Incorporated by reference to the exhibits to the Company's Current Report
on Form 8-K dated as of September 24, 1993, Commission File No. 0-19635.
(5) Incorporated by reference to the exhibits of the same number to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995, Commission File No. 0-19635.
(6) Incorporated by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q/A for the quarter ended June 30, 1995, Commission File
No. 0-19635.
(7) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, Commission File
No. 0-19635.
(8) Exhibits 10.26 and 10.27 are incorporated herein by reference to Exhibits
4.1 and 4.2, respectively, to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996, Commission File No. 0-19635.
(9) Exhibits 3(i).2, 10.28, 10.29, 10.30, 10.31, 10.32, 10.33, 10.34, 10.35,
10.36 and 10.37 are incorporated herein by reference to Exhibits 3(i),
10.1, 10.2, 10.3, 10.4, 10.5, 10.6, 10.7, 10.8, 10.9 and 10.10,
respectively, to the Company's Current Report on Form 8-K filed on
February 28, 1997, Commission File No. 0-19635.
(10) Exhibits 10.38, 10.39, 10.40, 10.41, 10.42, 10.43, 10.44, 10.45, 10.46,
10.47, 10.48, 10.49, 10.50 and 22.1 are incorporated herein by reference
to Exhibits 10.86, 10.87, 10.88, 10.89, 10.90, 10.91, 10.92, 10.93, 10.94,
10.95,
83
<PAGE> 84
10.96, 10.97, 10.98 and 22.1, respectively, the Company's Annual Report on
Form 10-K (Amendment No. 1) for the year ended December 31, 1996,
Commission File No. 0-19635.
(11) Exhibits 10.51, 10.52, 10.53, 10.54, 10.55, 10.56, 10.57, 10.58, 10.59,
10.60 and 10.61 are incorporated herein by reference to Exhibits 10.99,
10.100, 10.101, 10.102, 10.103, 10.104, 10.105, 10.106, 10.107, 10.108 and
10.109, respectively, to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, Commission File No. 0-19635.
(12) Exhibits 10.63 and 10.64 are incorporated herein by reference to Exhibits
10.1 and 10.2, respectively, to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998, Commission File No.
0-19635.
(13) Exhibits 3(i).6, 3(i).7, 3(ii).1, 10(iii)(A).1 and 10(iii)(A).2 are
incorporated herein by reference to Exhibits 3(i).4, 3(i).3, 3(ii).1,
10(iii)(A).1 and 10(iii)(A).2, respectively, to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998, Commission File
No. 0-19635.
(14) Exhibits 10.65 and 10.66 are incorporated herein by reference to Exhibits
10.2 and 10.1, respectively, to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999, Commission File No.
0-19635.
(15) Filed herewith.
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<PAGE> 85
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on this
27th day of March, 2000.
Genta Incorporated
/s/ RAYMOND P. WARRELL, JR., M.D.
----------------------------------
Raymond P. Warrell, Jr., M.D.
President, Chief Executive Officer and
Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
<S> <C> <C>
/s/ MARK C. ROGERS, M.D. Chairman of the Board of Directors March 27, 2000
- ----------------------------------
Mark C. Rogers, M.D.
/s/ RAYMOND P. WARRELL, JR., M.D. President, Chief Executive Officer and March 27, 2000
- ---------------------------------- Principal Executive Officer
Raymond P. Warrell, Jr., M.D.
/s/ GERALD M. SCHIMMOELLER Principal Accounting Officer, Principal March 27, 2000
- ---------------------------------- Financial Officer, Vice President
Gerald M. Schimmoeller
/s/ DONALD G. DRAPKIN Director March 27, 2000
- ----------------------------------
Donald G. Drapkin
/s/ KENNETH G. KASSES, PH.D. Director March 27, 2000
- ----------------------------------
Kenneth G. Kasses, Ph.D.
/s/ DANIEL D. VON HOFF, M.D. Director March 27, 2000
- ----------------------------------
Daniel D. Von Hoff, M.D.
/s/ HARLAN J. WAKOFF Director March 27, 2000
- -----------------------------------
Harlan J. Wakoff
/s/ MICHAEL S. WEISS Director March 27, 2000
- -----------------------------------
Michael S. Weiss
</TABLE>
85
<PAGE> 1
Exhibit 3(i).3
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
GENTA INCORPORATED
GENTA INCORPORATED (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY THAT:
FIRST: The name of the Corporation is Genta Incorporated.
SECOND: The original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of Delaware on February 4, 1988 and the
original name of the Corporation was GENTA Incorporated. The Restated
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of Delaware on August 8, 1994 and was subsequently amended on September
19, 1996.
THIRD: The first paragraph of Section A of Article IV of the Restated
Certificate of Incorporation of the Corporation is hereby amended to read in its
entirety as follows:
"A. Classes of Stock. The total number of shares of all
classes of capital stock which the corporation shall have authority to
issue is seventy-five million (75,000,000) of which seventy million
(70,000,000) shares of the par value of One Tenth of One Cent ($.001)
each shall be Common Stock (the "Common Stock") and Five Million
(5,000,000) shares of the par value of One Tenth of One Cent ($.001)
each shall be Preferred Stock (the "Preferred Stock"). At the time this
amendment becomes effective, each ten shares of the Common Stock, par
value of One Tenth of One Cent ($.001) per share, issued and
outstanding at such time shall be, and hereby are, reduced and
converted into one fully paid and nonassessable share of Common Stock,
par value of One Tenth of One Cent ($.001) per share, of the
corporation as herein authorized. Each outstanding stock certificate of
this corporation which immediately prior to the time this amendment
becomes effective represented one or more shares of Common Stock, par
value of One Tenth of One Cent ($.001) per share, shall thereafter
represent the number of whole shares of Common Stock, par value of One
Tenth of One Cent ($.001) per share, determined by dividing the number
of shares represented by such certificate immediately prior to the time
this amendment becomes effective by ten and rounding such number up to
the next whole integer. The amount of capital represented by the new
shares in the aggregate at the time this Certificate of Amendment
becomes effective shall be adjusted by the transfer of One Tenth of One
Cent ($.001) from the capital account of the Common Stock to the
additional paid in capital account for each new share issued (except
for new shares issued as the result of rounding up fractional shares in
which case no capital adjustment shall be made), such transfer to be
made at such time. The corporation shall not be required to issue or
deliver any fractional shares of Common Stock. There shall be
designated as capital in respect of such new shares an amount equal to
the aggregate par value of such shares. Upon surrender by a holder of
Common
<PAGE> 2
Stock of a certificate or certificates for Common Stock, par value of
One Tenth of One Cent ($.001), duly endorsed, at the office of the
corporation, the corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of Common Stock, or to
the nominee or nominees of such holder, a certificate or certificates
for the number of shares of Common Stock, par value of One Tenth of One
Cent ($.001) per share, to which such holder shall be entitled as
aforesaid."
FOURTH: This amendment to the Corporation's Restated Certificate of
Incorporation was duly adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Corporation has caused this certificate to be
signed by Thomas H. Adams, its Chairman of the Board, and by Robert Wang, its
Vice President, as of this 4th day of April, 1997.
GENTA INCORPORATED
By ___________________________
Name: Thomas H. Adams
Title: Chairman of the Board
By:___________________________
Name: Robert Wang
Title: Vice President
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<PAGE> 1
Exhibit 3(i).4
AMENDED
CERTIFICATE OF DESIGNATION
for
SERIES D CONVERTIBLE PREFERRED STOCK
of
GENTA INCORPORATED
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
GENTA INCORPORATED, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), does hereby certify that:
FIRST: Pursuant to a Certificate of Designation for Series D
Convertible Preferred Stock filed with the Secretary of State of the
State of Delaware on February 6, 1997 (the "Original Certificate of
Designation"), the Corporation established a series of its authorized
preferred stock, par value $.001 per share, designated "Series D
Convertible Preferred Stock" consisting of 3,750,000 shares.
SECOND: None of the authorized shares of the Corporation's
Series D Convertible Preferred Stock established pursuant to the
Original Certificate of Designation has been issued.
THIRD: In accordance with the provisions of Section 151(g) of
the General Corporation Law of the State of Delaware, at a duly held
meeting of the Board of Directors of the Corporation, resolutions were
adopted decreasing the number of shares designated in the Original
Certificate of Designation as Series D Preferred Stock and amending and
restating in their entirety the powers, preferences and relative
participating, optional and other special rights of, and the
qualifications, limitations and restrictions upon, the Series D
Convertible Preferred Stock, as set forth herein.
NOW, THEREFORE, IT IS RESOLVED, that the number of shares of
the Corporation's authorized preferred stock, par value $.001 per
share, designated in the Original Certificate of Designation as "Series
D Convertible Preferred Stock" shall be 223,860 (hereinafter the
"Series D Preferred Stock"), and the powers, preferences and relative
participating, optional and other special rights of, and the
qualifications, limitations and restrictions upon, the Series D
Preferred Stock are hereby amended in their entirety and shall be, as
follows:
<PAGE> 2
Series D Convertible Preferred Stock
1. Designation and Amount and Definitions. (a) There shall be
a series of Preferred Stock designated as "Series D Convertible Preferred Stock"
and the number of shares constituting such series shall be 223,860. Such series
is referred to herein as the "Series D Preferred Stock". Notwithstanding any
other provision in the Certificate of Designation of the Series D Preferred
Stock, as amended hereby, (the "Certificate of Designation") to the contrary,
such series shall be on a parity with the Series A Preferred Stock and Series C
Preferred Stock of the Corporation with respect to dividends and the
distribution of assets upon liquidation, dissolution or winding up. Such number
of shares may be increased or decreased by resolution of the Board of Directors;
provided, however, that no decrease shall reduce the number of shares of Series
D Preferred Stock to fewer than the number of shares then issued and
outstanding.
(b) As used in this Certificate of Designation, the following
terms shall have the following meanings:
(i) The "Closing Bid Price" for any security for each
trading day shall be the reported per share closing bid price
of such security regular way on the Stock Market on such
trading day, or, if there were no transactions on such trading
day, the average of the reported closing bid and asked prices,
regular way, of such security on the relevant Stock Market on
such trading day.
(ii) "Fair Market Value" of any asset (including any
security) means the fair market value thereof as mutually
determined by the Corporation and the holders of a majority of
the Series D Preferred Stock then outstanding. If the
Corporation and the holders of a majority of the Series D
Preferred Stock then outstanding are unable to reach agreement
on any valuation matter, such valuation shall be submitted to
and determined by a nationally recognized independent
investment bank selected by the Board of Directors and the
holders of a majority of the Series D Preferred Stock then
outstanding (or, if such selection cannot be agreed upon
promptly, or in any event within ten days, then such valuation
shall be made by a nationally recognized independent
investment banking firm selected by the American Arbitration
Association in New York City in accordance with its rules),
the costs of which valuation shall be paid for by the
Corporation.
(iii) "Market Price" shall mean the average Closing
Bid Price for twenty (20) consecutive trading days, ending
with the trading day prior to the date as of which the Market
Price is being determined (with appropriate adjustments for
subdivisions or combinations of shares effected during such
period), provided that if the prices referred to in the
definition of Closing Bid Price cannot be determined for such
period, "Market Price" shall mean Fair Market Value.
(iv) "Registered Holders" shall mean, at any time,
the holders of record of the Series D Preferred Stock.
(v) The "Stock Market" shall mean, with respect to
any security, the principal national securities exchange on
which such security is listed or admitted
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<PAGE> 3
to trading or, if such security is not listed or admitted to
trading on any national securities exchange, shall mean The
Nasdaq National Market System ("NNM") or The Nasdaq SmallCap
Market ("SCM" and, together with NNM, "Nasdaq") or, if such
security is not quoted on Nasdaq, shall mean the OTC Bulletin
Board or, if such security is not quoted on the OTC Bulletin
Board, shall mean the over-the-counter market as furnished by
any NASD member firm selected from time to time by the
Corporation for that purpose.
(vi) "Trading Price" shall mean the lower of (i) the
average Closing Bid Price of the Common Stock (with
appropriate adjustments for subdivisions or combinations of
shares effected during such period) for thirty (30)
consecutive trading days, ending with the trading day prior to
the date as of which the Trading Price is being determined,
and (ii) the average Closing Bid Price of the Common Stock
(with appropriate adjustments for subdivisions or combinations
of shares effected during such period) for five (5)
consecutive trading days, ending with the trading day prior to
the date as of which the Trading Price is being determined,
provided that if the prices referred to in the definition of
Closing Bid Price cannot be determined for any of such
periods, "Trading Price" shall mean Fair Market Value.
(vii) A "trading day" shall mean a day on which the
relevant Stock Market is open for the transaction of business.
2. Dividends and Distributions. (a) Commencing on the Reset
Date (as defined in Subsection 4(a)), the holders of the Series D Preferred
Stock shall be entitled to receive cumulative dividends on each share of Series
D Preferred Stock, payable in shares of Common Stock, at the rate of 10% per
annum (computed on the basis of a 360-day year of twelve 30 day months) of the
Dividend Base Amount (as defined below), payable semi-annually in arrears. Such
dividends shall be paid in duly authorized, fully paid and non assessable shares
of Common Stock. In calculating the number of shares of Common Stock to be paid
with respect to each dividend, each share of Common Stock shall be deemed to
have the value of the Conversion Price (as defined in Section 4(a) hereof) at
the time such dividend is paid. Such dividends shall accrue and accumulate
whether or not they have been declared and whether or not there are profits,
surplus or other funds of the Corporation legally available for the payment of
dividends. The "Dividend Base Amount" shall be $140.00 plus all accrued but
unpaid dividends (subject to appropriate adjustment to reflect any stock split,
combination, reclassification or reorganization of the Series D Preferred
Stock).
(b) In addition to the foregoing, subject to the rights of the
holders of any shares of any series or class of capital stock ranking prior, and
superior to, or pari passu with, the shares of Series D Preferred Stock with
respect to dividends, the holders of shares of Series D Preferred Stock shall be
entitled to receive, as, when and if declared by the Board of Directors, out of
assets legally available for that purpose, dividends or distributions in cash,
stock or otherwise.
(c) The Corporation shall not declare any dividend or
distribution on any Junior Stock (as defined below) of the Corporation unless
and until a special dividend or
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<PAGE> 4
distribution of $140.00 per share (subject to appropriate adjustment to reflect
any stock split, combination, reclassification or reorganization of the Series D
Preferred Stock) has been declared and paid on the Series D Preferred Stock. In
the event that such special dividend or distribution is declared and paid on the
Series D Preferred Stock, an aggregate per share dividend or distribution equal
to (i) $140.00 divided by (ii) the effective Conversion Rate (as defined below)
at the time of such special dividend or distribution on the Series D Preferred
Stock may be declared and paid on the Common Stock. Except as aforesaid, the
Corporation shall not declare any dividend or distribution on any Junior Stock
or stock on a parity with the Series D Preferred Stock, unless the Corporation
shall, concurrently with the declaration of such dividend or distribution on the
Junior Stock or stock on a parity with the Series D Preferred Stock, declare a
like dividend or distribution, as the case may be, on the Series D Preferred
Stock.
(d) Any dividend or distribution (other than that referenced
in the first sentence of Subsection 2(c)) payable to the holders of the Series D
Preferred Stock pursuant to this Section 2 shall be paid to such holders at the
same time as the dividend or distribution on the Junior Stock or any other
capital stock of the Corporation by which it is measured is paid.
(e) All dividends or distributions declared upon the Series D
Preferred Stock shall be declared pro rata per share.
(f) Any reference to "distribution" contained in this Section
2 shall not be deemed to include any distribution made in connection with or in
lieu of any Liquidation Event (as defined below).
(g) No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series D Preferred
Stock which may be in arrears.
(h) So long as any shares of the Series D Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on any class or series of
stock of the Corporation ranking, as to dividends, on a parity with the Series D
Preferred Stock, for any period unless all dividends have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof set apart for such payment, on the Series D Preferred Stock.
When dividends are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, upon the shares of the Series D Preferred Stock and any
other class or series of stock ranking on a parity as to dividends with the
Series D Preferred Stock, all dividends declared upon such other stock shall be
declared pro rata so that the amounts of dividends per share declared on the
Series D Preferred Stock and such other stock shall in all cases bear to each
other the same ratio that accrued dividends per share on the shares of the
Series D Preferred Stock and on such other stock bear to each other.
(i) So long as any shares of the Series D Preferred Stock are
outstanding, no other stock of the Corporation ranking on a parity with the
Series D Preferred Stock as to dividends or upon liquidation, dissolution or
winding up shall be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund or
otherwise for the purchase or redemption of any shares of any such stock) by the
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<PAGE> 5
Corporation unless the dividends, if any, accrued on all outstanding shares of
the Series D Preferred Stock shall have been paid or set apart for payment.
(j) "Junior Stock" shall mean the Common Stock and any shares
of preferred stock of any series or class of the Corporation, whether presently
outstanding or hereafter issued, which are junior to the shares of Series D
Preferred Stock with respect to (i) the distribution of assets on any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, (ii)
dividends or (iii) voting, except that the Junior Stock shall not include the
Series A Preferred Stock nor the Series C Preferred Stock of the Corporation.
Notwithstanding the foregoing, this Section 2 shall only be effective insofar as
it does not conflict with any provision of the Certificate of Incorporation
relating to the rights of the Series A Preferred Stock, and does not cause the
Series D Preferred Stock to be senior to the Series A Preferred Stock with
respect to dividends.
3. Liquidation Preference. (a) In the event of a (i)
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, (ii) a sale or other disposition of all or substantially all of the
assets of the Corporation or (iii) any consolidation, merger, combination,
reorganization or other transaction in which the Corporation is not the
surviving entity or shares of Common Stock constituting in excess of 50% of the
voting power of the Corporation are exchanged for or changed into stock or
securities of another entity, cash and/or any other property (a "Merger
Transaction") (items (i), (ii) and (iii) of this sentence being collectively
referred to as a "Liquidation Event"), after payment or provision for payment of
debts and other liabilities of the Corporation and subject to the Corporation's
prior compliance with Article IV of the Certificate of Incorporation, the
holders of the Series D Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders on a pari passu basis with the shares of Series A Preferred Stock
and Series C Preferred Stock of the Corporation, whether such assets are
capital, surplus, or earnings, before any payment or declaration and setting
apart for payment of any amount shall be made in respect of any Junior Stock of
the Corporation, an amount equal to $140.00 per share plus an amount equal to
all declared and/or unpaid dividends thereon; provided, however, in the case of
a Merger Transaction, such $140.00 per share may be paid in cash, property
(valued as provided in Subsection 3(b)) and/or securities (valued as provided in
Subsection 3(b)) of the entity surviving such Merger Transaction. In the case of
property or in the event that any such securities are subject to an investment
letter or other similar restriction on transferability, the value of such
property or securities shall be determined by agreement between the Corporation
and the holders of a majority of the Series D Preferred Stock then outstanding.
If upon any Liquidation Event, whether voluntary or involuntary, the assets to
be distributed to the holders of the Series D Preferred Stock shall be
insufficient to permit the payment to such shareholders of the full preferential
amounts aforesaid, then all of the assets of the Corporation to be distributed
shall be so distributed ratably to the holders of the Series D Preferred Stock
on the basis of the number of shares of Series D Preferred Stock held.
Notwithstanding item (iii) of the first sentence of this Subsection 3(a), any
consolidation, merger, combination, reorganization or other transaction in which
the Corporation is not the surviving entity but the stockholders of the
Corporation immediately prior to such transaction own in excess of 50% of the
voting power of the corporation surviving such transaction and own such interest
in substantially the same proportions as prior to such transaction, shall not be
considered a Liquidation Event provided
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<PAGE> 6
that the surviving corporation shall make appropriate provisions to ensure that
the terms of this Certificate of Designation survive any such transaction as
provided in Subsection 4(c)(ii). All shares of Series D Preferred Stock shall
rank as to payment upon the occurrence of any Liquidation Event senior to the
Common Stock as provided herein, on a pari passu basis with the shares of Series
A Preferred Stock and Series C Preferred Stock of the Corporation, and unless
the terms of such series shall provide otherwise, senior to all other series of
the Corporation's preferred stock.
(b) Any securities or other property to be delivered to the
holders of the Series D Preferred Stock pursuant to Subsection 3(a) hereof shall
be valued as follows:
(i) Securities not subject to an investment letter or
other similar restriction on free marketability:
(A) If actively traded on a Stock Market,
the value shall be deemed to be the Market Price as
of the third day prior to the date of valuation.
(B) If not actively traded on a Stock
Market, the value shall be the Fair Market Value.
(ii) For securities for which there is an active
public market but which are subject to an investment letter or
other restrictions on free marketability, the value shall be
the Fair Market Value thereof, determined by discounting
appropriately the Market Price thereof.
(iii) For all other securities, the value shall be
the Fair Market Value thereof.
4. Conversion.
(a) Right of Conversion. The shares of Series D Preferred
Stock shall be convertible, in whole or in part, at the option of the holder
thereof and upon notice to the Corporation as set forth in Subsection 4(b), into
fully paid and nonassessable shares of Common Stock and such other securities
and property as hereinafter provided. The initial conversion price per share of
Common Stock shall be equal to $3.00 (the "Conversion Price") and shall be
subject to adjustment as provided herein. The rate at which each share Series D
Preferred Stock is convertible at any time into Common Stock (the "Conversion
Rate") shall be determined by dividing the then existing Conversion Price into
$100.00.
Subject to adjustment pursuant to the provisions of Subsection
4(c) below, in the event that the Conversion Price in effect at the time of the
Initial Closing Date (as defined below), any Interim Closing Date (as defined
below) or the Final Closing Date (as defined below) is greater than 50% of the
Trading Price of the Common Stock as of (x) the initial closing date of the
issuance and sale of units (the "Premium Preferred Units") consisting of Series
D Preferred Stock and Class D Warrants pursuant to a confidential term sheet
dated May 20, 1997 (the "Initial Closing Date"), (y) any interim closing date of
the issuance and sale of the Premium Preferred Units (each an "Interim Closing
Date") or (z) the final closing date of the issuance and
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<PAGE> 7
sale of the Premium Preferred Units (the "Final Closing Date") pursuant to the
subscription agreements entered into in connection therewith, then the
Conversion Price shall be adjusted to equal 50% of the lesser of any such
Trading Price. If there is any change in Conversion Price as a result of the
preceding sentence, then the Conversion Rate shall be changed accordingly as set
forth above. In the event that there is no Initial, Interim nor Final Closing
Date (as defined above), or the above referenced offering of Premium Preferred
Units is otherwise terminated, then "Initial Closing Date", "Interim Closing
Date" and "Final Closing Date" as used herein shall refer to the initial,
interim and final closing date, respectively, in the next offering or series of
related offerings) of equity securities of the Corporation (or any securities
convertible into equity securities)("Qualified Offering Securities") with gross
proceeds in excess of $2,000,000.
The Board of Directors, or a committee designated by it for
such purpose, may specify an initial conversion price applicable to the shares
of Series D Preferred Stock issued at any closing lower than the initial
conversion price that would otherwise obtain pursuant to the preceding
paragraphs of this Subsection 4(a) and, in the event an initial conversion price
is so specified, it shall be applicable to all shares of the Series D Preferred
Stock.
The Corporation shall prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Corporation setting forth the
Conversion Rate as of the Final Closing Date, showing in reasonable detail the
facts upon which such adjusted Conversion Rate is based, and such certificate
shall forthwith be filed with the transfer agent of the Series D Preferred
Stock. A notice stating that the Conversion Rate has been adjusted pursuant to
the second preceding paragraph of this Subsection 4(a), or that no adjustment is
necessary, and setting forth the Conversion Rate in effect as of the Final
Closing Date shall be mailed as promptly as practicable after the Final Closing
Date by the Corporation to all record holders of the Series D Preferred Stock at
their last addresses as they shall appear in the stock transfer books of the
Corporation.
The Conversion Price (subject to adjustment pursuant to the
provisions of Subsection 4(c)) in effect immediately prior to the date that is
12 months after the Final Closing Date (the "Reset Date") shall be adjusted and
reset effective as of the Reset Date if the Market Price as of the Reset Date
(the "12-Month Trading Price") is less than 140% of the then applicable
Conversion Price (a "Reset Event"). Upon the occurrence of a Reset Event, the
Conversion Price shall be reduced to be equal to the greater of (A) the 12-Month
Trading Price divided by 1.40, and (B) 25% of the then applicable Conversion
Price. If there is any change in the Conversion Price as a result of the
preceding sentence, then the Conversion Rate shall be changed accordingly as set
forth above. The Corporation shall prepare a certificate signed by the principal
financial officer of the Corporation setting forth the Conversion Rate as of the
Reset Date, showing in reasonable detail the facts upon which such Conversion
Rate is based, and such certificate shall forthwith be filed with the transfer
agent of the Series D Preferred Stock. A notice stating that the Conversion Rate
has been adjusted pursuant to this paragraph, or that no adjustment is
necessary, and setting forth the Conversion Rate in effect as of the Reset Date
shall be mailed as promptly as practicable after the Reset Date by the
Corporation to all record holders of the Series D Preferred Stock at their last
addresses as they shall appear in the stock transfer books of the Corporation.
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<PAGE> 8
(b) Conversion Procedures. Any holder of shares of Series D
Preferred Stock desiring to convert such shares into Common Stock shall
surrender the certificate or certificates evidencing such shares of Series D
Preferred Stock at the office of the transfer agent for the Series D Preferred
Stock, which certificate or certificates, if the Corporation shall so require,
shall be duly endorsed to the Corporation or in blank, or accompanied by proper
instruments of transfer to the Corporation or in blank, accompanied by
irrevocable written notice to the Corporation that the holder elects so to
convert such shares of Series D Preferred Stock and specifying the name or names
(with address) in which a certificate or certificates evidencing shares of
Common Stock are to be issued. The Corporation need not deem a notice of
conversion to be received unless the holder complies with all the provisions
hereof. The Corporation will instruct the transfer agent (which may be the
Corporation) to make a notation of the date that a notice of conversion is
received, which date shall be deemed to be the date of receipt for purposes
hereof.
The Corporation shall, as soon as practicable after such
deposit of certificates evidencing shares of Series D Preferred Stock
accompanied by the written notice and compliance with any other conditions
herein contained, deliver at such office of such transfer agent to the person
for whose account such shares of Series D Preferred Stock were so surrendered,
or to the nominee or nominees of such person, certificates evidencing the number
of full shares of Common Stock to which such person shall be entitled as
aforesaid, together with a cash adjustment of any fraction of a share as
hereinafter provided. Subject to the following provisions of this paragraph,
such conversion shall be deemed to have been made as of the date of such
surrender of the shares of Series D Preferred Stock to be converted, and the
person or persons entitled to receive the Common Stock deliverable upon
conversion of such Series D Preferred Stock shall be treated for all purposes as
the record holder or holders of such Common Stock on such date; provided,
however, that the Corporation shall not be required to convert any shares of
Series D Preferred Stock while the stock transfer books of the Corporation are
closed for any purpose, but the surrender of Series D Preferred Stock for
conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books as if the
surrender had been made on the date of such reopening, and the conversion shall
be at the conversion rate in effect on such date. No adjustments in respect of
any dividends on shares surrendered for conversion or any dividend on the Common
Stock issued upon conversion shall be made upon the conversion of any shares of
Series D Preferred Stock.
The Corporation shall at all times, reserve and keep available
out of its authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of the shares of Series D Preferred Stock,
such number of shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding shares of the Series D Preferred
Stock.
All notices of conversion shall be irrevocable; provided,
however, that if the Corporation has sent notice of an event pursuant to
Subsection 4(g) hereof, a holder of Series D Preferred Stock may, at its
election, provide in its notice of conversion that the conversion of its shares
of Series D Preferred Stock shall be contingent upon the occurrence of the
record date or effectiveness of such event (as specified by such holder),
provided that such notice of conversion is received by the Corporation prior to
such record date or effective date, as the case may be.
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<PAGE> 9
(c) Adjustment of Conversion Rate and Conversion Price.
(i) Except as otherwise provided herein, in the event
the Corporation shall, at any time or from time to time after the date hereof,
(1) sell or issue any shares of Common Stock for a consideration per share less
than either (i) the Conversion Price in effect on the date of such sale or
issuance or (ii) the Market Price of the Common Stock as of the date of the sale
or issuance, (2) issue any shares of Common Stock as a stock dividend to the
holders of Common Stock, or (3) subdivide or combine the outstanding shares of
Common Stock into a greater or lesser number of shares (any such sale, issuance,
subdivision or combination being herein called a "Change of Shares"), then, and
thereafter upon each further Change of Shares, the Conversion Price in effect
immediately prior to such Change of Shares shall be changed to a price (rounded
to the nearest cent) determined by multiplying the Conversion Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to the
sale or issuance of such additional shares or such subdivision or combination
and the number of shares of Common Stock which the aggregate consideration
received (determined as provided in Subparagraph 4(c)(v)(F)) for the issuance of
such additional shares would purchase at the greater of (i) the Conversion Price
in effect on the date of such issuance or (ii) the Market Price of the Common
Stock as of such date, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after the sale or issuance of
such additional shares or such subdivision or combination. Such adjustment shall
be made successively whenever such an issuance is made.
(ii) In case of any reclassification, capital
reorganization or other change of outstanding shares of Common Stock, or in case
of any consolidation or merger of the Corporation with or into another entity
(other than a consolidation or merger in which the Corporation is the continuing
entity and which does not result in any reclassification, capital reorganization
or other change of outstanding shares of Common Stock other than the number
thereof), or in case of any sale or conveyance to another entity of the property
of the Corporation as, or substantially as, an entirety (other than a
sale/leaseback, mortgage or other financing transaction), the Corporation shall
cause effective provision to be made so that each holder of a share of Series D
Preferred Stock shall be entitled to receive, upon conversion of such share of
Series D Preferred Stock, the kind and number of shares of stock or other
securities or property (including cash) receivable upon such reclassification,
capital reorganization or other change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock into which such
share of Series D Preferred Stock was convertible immediately prior to such
reclassification, capital reorganization or other change, consolidation, merger,
sale or conveyance. Any such provision shall include provision for adjustments
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Subsection 4(c). The Corporation shall not effect any such
consolidation, merger or sale unless prior to or simultaneously with the
consummation thereof the successor (if other than the Corporation) resulting
from such consolidation or merger or the entity purchasing assets or other
appropriate entity shall assume, by written instrument executed and delivered to
the transfer agent for the Series D Preferred Stock (the "Transfer Agent"), the
obligation to deliver to the holder of each share of Series D Preferred Stock
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holders may be entitled to receive and the other obligations
under this Agreement. The foregoing provisions shall similarly apply to
successive reclassifications,
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<PAGE> 10
capital reorganizations and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.
(iii) [Reserved]
(iv) After each adjustment of the Conversion Price
pursuant to this Subsection 4(c), the Corporation will promptly prepare a
certificate signed by the Chairman or President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, of the
Corporation setting forth: (i) the Conversion Price as so adjusted, (ii) the
Conversion Rate corresponding to such Conversion and (iii) a brief statement of
the facts accounting for such adjustment. The Corporation will promptly file
such certificate with the Transfer Agent and cause a brief summary thereof to be
sent by ordinary first class mail to each registered holder of Series D
Preferred Stock at his or her last address as it shall appear on the registry
books of the Transfer Agent. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity of such adjustment.
The affidavit of an officer of the Transfer Agent or the Secretary or an
Assistant Secretary of the Corporation that such notice has been mailed shall,
in the absence of fraud, be prima facie evidence of the facts stated therein.
The Transfer Agent may rely on the information in the certificate as true and
correct and has no duty or obligation to independently verify the amounts or
calculations set forth therein.
(v) For purposes of Subsection 4(c)(i) hereof, the
following provisions (A) to (F)
shall also be applicable:
(A) The number of shares of Common Stock
deemed outstanding at any given time shall include
all shares of capital stock convertible into, or
exchangeable for, Common Stock (on an as converted
basis) as well as all shares of Common Stock issuable
upon the exercise of (x) any convertible debt, (y)
warrants outstanding on the date hereof and (z)
options outstanding on the date hereof.
(B) No adjustment of the Conversion Price
shall be made unless such adjustment would require an
increase or decrease of at least $.01 in such price;
provided that any adjustments which by reason of this
Subparagraph (B) are not required to be made shall be
carried forward and shall be made at the time of and
together with the next subsequent adjustment which,
together with adjustments so carried forward, shall
require an increase or decrease of at least $.01 in
the Conversion Price then in effect hereunder.
(C) In case of (1) the sale or other
issuance by the Corporation (including as a component
of a unit) of any rights or warrants to subscribe for
or purchase, or any options for the purchase of,
Common Stock or any securities convertible into or
exchangeable for Common Stock (such securities
convertible, exercisable or exchangeable into Common
Stock being herein called "Convertible Securities"),
or (2) the issuance by the Corporation, without the
receipt by the Corporation of any consideration
therefor, of any rights or warrants to subscribe for
or purchase, or any
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<PAGE> 11
options for the purchase of, Common Stock or
Convertible Securities, whether or not such rights,
warrants or options, or the right to convert or
exchange such Convertible Securities, are immediately
exercisable, and the consideration per share for
which Common Stock is issuable upon the exercise of
such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities
(determined by dividing (x) the minimum aggregate
consideration, as set forth in the instrument
relating thereto without regard to any antidilution
or similar provisions contained therein for a
subsequent adjustment of such amount, payable to the
Corporation upon the exercise of such rights,
warrants or options, plus the consideration received
by the Corporation for the issuance or sale of such
rights, warrants or options, plus, in the case of
such Convertible Securities, the minimum aggregate
amount, as set forth in the instrument relating
thereto without regard to any antidilution or similar
provisions contained therein for a subsequent
adjustment of such amount, of additional
consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number, as set
forth in the instrument relating thereto without
regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such
amount, of shares of Common Stock issuable upon the
exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible
Securities issuable upon the exercise of such rights,
warrants or options) is less than either the
Conversion Price or the Market Price of the Common
Stock as of the date of the issuance or sale of such
rights, warrants or options, then such total maximum
number of shares of Common Stock issuable upon the
exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible
Securities (as of the date of the issuance or sale of
such rights, warrants or options) shall be deemed to
be "Common Stock" for purposes of Subsection 4(c)(i)
and shall be deemed to have been sold for an amount
equal to such consideration per share and shall cause
an adjustment to be made in accordance with
Subsection 4(c)(i).
(D) In case of the sale by the Corporation
of any Convertible Securities, whether or not the
right of conversion or exchange thereunder is
immediately exercisable, and the price per share for
which Common Stock is issuable upon the
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<PAGE> 12
conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of
consideration received by the Corporation for the
sale of such Convertible Securities, plus the minimum
aggregate amount, as set forth in the instrument
relating thereto without regard to any antidilution
or similar provisions contained therein for a
subsequent adjustment of such amount, of additional
consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number, as set
forth in the instrument relating thereto without
regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such
amount, of shares of Common Stock issuable upon the
conversion or exchange of such Convertible
Securities) is less than either the Conversion Price
or the Market Price of the Common Stock as of the
date of the sale of such Convertible Securities, then
such total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such
Convertible Securities (as of the date of the sale of
such Convertible Securities) shall be deemed to be
"Common Stock" for purposes of Subsection 4(c)(i) and
shall be deemed to have been sold for an amount equal
to such consideration per share and shall cause an
adjustment to be made in accordance with Subsection
4(c)(i).
(E) In case the Corporation shall modify the
rights of conversion, exchange or exercise of any of
the securities referred to in (C) and (D) above or
any other securities of the Corporation convertible,
exchangeable or exercisable for shares of Common
Stock, for any reason other than an event that would
require adjustment to prevent dilution, so that the
consideration per share received by the Corporation
after such modification is less than either the
Conversion Price or the Market Price as of the date
prior to such modification, then such securities, to
the extent not theretofore exercised, converted or
exchanged, shall be deemed to have expired or
terminated immediately prior to the date of such
modification and the Corporation shall be deemed for
purposes of calculating any adjustments pursuant to
this Subsection 4(c) to have issued such new
securities upon such new terms on the date of
modification. Such adjustment shall become effective
as of the date upon which such modification shall
take effect. On the expiration or cancellation of any
such right, warrant or option or the termination or
cancellation of any such right to convert or exchange
any such Convertible Securities, the Conversion Price
then in effect hereunder shall forthwith be
readjusted to such Conversion Price as would have
obtained (a) had the adjustments made upon the
issuance or sale of such rights, warrants, options or
Convertible Securities been made upon the basis of
the issuance of only the number of shares of Common
Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of
such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities
and (b) had adjustments been made on the basis of the
Conversion Price as adjusted under clause (a) of this
sentence for all transactions (which would have
affected such adjusted Conversion Price) made after
the issuance or sale of such rights, warrants,
options or Convertible Securities.
(F) In case of the sale of any shares of
Common Stock, any Convertible Securities, any rights
or warrants to subscribe for or purchase, or any
options for the purchase of, Common Stock or
Convertible Securities, the consideration received by
the Corporation therefor shall be deemed to be the
gross sales price therefor without deducting
therefrom any expense paid or incurred by the
Corporation or any underwriting discounts or
commissions or concessions paid or allowed by the
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<PAGE> 13
Corporation in connection therewith. In the event
that any securities shall be issued in connection
with any other securities of the Corporation,
together comprising one integral transaction in which
no specific consideration is allocated among the
securities, then each of such securities shall be
deemed to have been issued for such consideration as
the Board of Directors of the Corporation determines
in good faith; provided, however that if the
Registered Holders of in excess of 25% of the then
outstanding Series D Preferred Stock disagree with
such determination, the Corporation shall retain, at
its own expense, an independent investment banking
firm for the purpose of obtaining an appraisal.
(vi) Notwithstanding any other provision hereof,
no adjustment to the Conversion Price will be made:
(A) upon the exercise of any of the options
outstanding on the date hereof under the
Corporation's existing stock option plans; or
(B) upon the issuance or exercise of options
which may hereafter be granted with the approval of
the Board of Directors, or exercised, under any
employee benefit plan of the Corporation to officers,
directors, consultants or employees, but only with
respect to such options as are exercisable at prices
no lower than the Closing Bid Price (or, if the price
referenced in the definition of Closing Bid Price
cannot be determined, the Fair Market Value) of the
Common Stock as of the date of grant thereof; or
(C) upon issuance or exercise of the
Placement Warrants, or the Advisory Warrants, (as
defined in the Placement Agency Agreement between the
Corporation and Paramount Capital, Inc. (the
"Placement Agent") dated as of May 1, 1997 (the
"Placement Agency Agreement")) (collectively, the
"Paramount Warrants"), upon the conversion of the
Series D Preferred Stock underlying the Bridge Notes
(as defined in the Note and Warrant Purchase
Agreement dated as of January 28, 1997 (the "Note and
Warrant Purchase Agreement")), upon the exercise of
the Class A and Class B Bridge Warrants (as defined
in the Note and Warrant Purchase Agreement) or upon
the issuance, conversion or exercise of the Series D
Preferred Stock or the Class D Warrants included in
the Premium Preferred Units of the Corporation issued
(i) on or prior to the Final Closing Date or (ii)
pursuant to the exercise of the Paramount Warrants,
or upon the issuance, conversion or exercise of any
Series D Preferred Stock or Class D Warrants approved
by the Placement Agent or upon the issuance of any
other equity securities of the Corporation to the
extent that such issuance causes an adjustment to the
Conversion Price pursuant to the second paragraph of
Subsection 4(a); or
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<PAGE> 14
(D) upon the issuance or sale of Common
Stock or Convertible Securities pursuant to the
exercise of any rights, options or warrants to
receive, subscribe for or purchase, or any options
for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants or
options were outstanding on the date of the original
issuance of the Series D Preferred Stock or were
thereafter issued or sold, provided that an
adjustment was either made or not required to be made
in accordance with Subsection 4(c)(i) in connection
with the issuance or sale of such securities or any
modification of the terms thereof; or
(E) upon the issuance or sale of Common
Stock upon conversion or exchange of any Convertible
Securities, provided that any adjustments required to
be made upon the issuance or sale of such Convertible
Securities or any modification of the terms thereof
were so made, and whether or not such Convertible
Securities were outstanding on the date of the
original sale of the Series D Preferred Stock or were
thereafter issued or sold; or upon the issuance of
Common Stock upon conversion of principal and
interest in respect of $350,000 principal amount of
the Company's 4% Convertible Debentures due August 1,
1997 outstanding on February 6, 1997 or upon the
conversion of 1,424 shares of the Company's Series C
Preferred Stock outstanding on February 6, 1997,
provided that any such conversion occurs at a
conversion price in excess of the Conversion Price at
such time.
Subparagraph 4(c)(v)(E) shall nevertheless apply to any modification of the
rights of conversion, exchange or exercise of any of the securities referred to
in Subparagraphs (A), (B) and (C) of this Subsection 4(c)(vi).
(vii) As used in this Subsection 4(c), the term
"Common Stock" shall mean and include the Corporation's Common Stock authorized
on the date of the original issue of the Series D Preferred Stock and shall also
include any capital stock of any class of the Corporation thereafter authorized
which shall not be limited to a fixed sum or percentage in respect of the rights
of the holders thereof to participate in dividends and in the distribution of
assets upon the voluntary liquidation, dissolution or winding up of the
Corporation; provided, however, that the shares issuable upon conversion of the
Series D Preferred Stock shall include only shares of such class designated in
the Certificate of Incorporation as Common Stock on the date of the original
issue of the Series D Preferred Stock or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Subsection 4(c)(ii) hereof, the stock, securities or
property provided for in such section or (ii), in the case of any
reclassification or change in the outstanding shares of Common Stock issuable
upon conversion of the Series D Preferred Stock as a result of a subdivision or
combination or consisting of a change in par value, or from par value to no par
value, or from no par value to par value, such shares of Common Stock as so
reclassified or changed.
(viii) Any determination as to whether an adjustment
in the Conversion Price in effect hereunder is required pursuant to Subsection
4(a) or 4(c), or as to the amount of
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<PAGE> 15
any such adjustment, if required, shall be binding upon the holders of the
Series D Preferred Stock and the Corporation if made in good faith by the Board
of Directors of the Corporation.
(d) No Fractional Shares. No fractional shares or scrip
representing fractional shares of Common Stock shall be issued upon conversion
of Series D Preferred Stock. If more than one certificate evidencing shares of
Series D Preferred Stock shall be surrendered for conversion at one time by the
same holder, the number of full shares issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series D Preferred
Stock so surrendered. Instead of any fractional share of Common Stock which
would otherwise be issuable upon conversion of any shares of Series D Preferred
Stock, the Corporation shall pay a cash adjustment in respect of such fractional
interest in an amount equal to the same fraction of the Market Price as of the
close of business on the day of conversion.
(e) Concurrent Grant. If the Corporation shall fix a record
date for the making of a Distribution on Common Stock to holders of its Common
Stock (other than any distribution referred to in Subsection 4(c) hereof and
cash dividends paid out of retained earnings of the Corporation determined under
generally accepted accounting principals consistently applied), the Corporation
shall set aside in an escrow reasonably acceptable to the holders of the Series
D Preferred Stock, the Distribution on Common Stock (as defined below) to which
they would have been entitled if they had converted all of the Series D
Preferred Stock held by them for the Corporation's Common Stock immediately
prior to the record date for the purpose of determining stockholders entitled to
receive such Distribution on Common Stock and any such Distribution on Common
Stock shall thereafter be distributed from time to time out of such escrow to
persons converting the Series D Preferred Stock (immediately upon conversion) to
the extent such Distribution on Common Stock relates to the shares of Series D
Preferred Stock then being converted. As used herein, the term "Distribution on
Common Stock" means a distribution to holders of the Common Stock (including any
such distribution made in connection with a consolidation or merger in which the
Corporation is the continuing corporation) of (i) assets (including any cash
dividends or distributions), (ii) evidences of indebtedness or other securities
of the Corporation or of any entity other than the Corporation or (iii)
subscription rights, options or warrants to purchase any of the foregoing assets
or securities, whether or not such rights, options or warrants are immediately
exercisable.
(f) Reservation of Shares; Transfer Taxes, Etc. The
Corporation shall at all times reserve and keep available, out of its authorized
and unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the Series D Preferred Stock, such number of shares of its Common
Stock free of preemptive rights as shall be sufficient to effect the conversion
of all shares of Series D Preferred Stock from time to time outstanding
(including, without limitation, shares of Common Stock issuable upon conversion
of the Series D Preferred Stock in the case of a Reset Event. The Corporation
shall use its best efforts from time to time, in accordance with the laws of the
State of Delaware to increase the authorized number of shares of Common Stock if
at any time the number of shares of authorized, unissued and unreserved Common
Stock shall not be sufficient to permit the conversion of all the
then-outstanding shares of Series D Preferred Stock.
The Corporation shall pay any and all issue or other taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of the Series D
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<PAGE> 16
Preferred Stock. The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue or
delivery of Common Stock (or other securities or assets) in a name other than
that in which the shares of Series D Preferred Stock so converted were
registered. and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Corporation the amount of such tax
or has established, to the satisfaction of the Corporation, that such tax has
been paid.
(g) Prior Notice of Certain Events. In case:
(i) the Corporation shall declare any dividend (or
any other distribution); or
(ii) the Corporation shall authorize the granting to
the holders of Common Stock of rights or warrants to subscribe
for or purchase any shares of stock of any class or of any
other rights or warrants; or
(iii) of any reclassification of Common Stock (other
than a subdivision or combination of the outstanding Common
Stock, or a change in par value, or from par value to no par
value, or from no par value to par value); or
(iv) of any consolidation or merger (including,
without limitation, a Merger Transaction) to which the
Corporation is a party and for which approval of any
stockholders of the Corporation shall be required, or of the
sale or transfer of all or substantially all of the assets of
the Corporation or of any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or
other property; or
(v) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation (including,
without limitation, a Liquidation Event);
then the Corporation shall cause to be filed with the transfer agent for the
Series D Preferred Stock, and shall cause to be mailed to the Registered
Holders, at their last addresses as they shall appear upon the stock transfer
books of the Corporation, at least 20 days prior to the applicable record date
hereinafter specified, a notice stating (x) the date on which a record (if any)
is to be taken for the purpose of such dividend. distribution or granting of
rights or warrants or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution,
rights or warrants are to be determined and a description of the cash,
securities or other property to be received by such holders upon such dividend,
distribution or granting of rights or warrants or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding up or other Liquidation Event is expected to
become effective, the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such exchange, dissolution,
liquidation or winding up or other Liquidation Event and the consideration,
including securities or other property, to be received by such holders upon such
exchange; provided, however, that no failure to mail such notice or any defect
therein or in the mailing thereof shall affect the validity of the corporate
action required to be specified in such notice.
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<PAGE> 17
(h) Other Changes in Conversion Rate. The Corporation from
time to time may increase the Conversion Rate by any amount for any period of
time if the period is at least 20 days and if the increase is irrevocable during
the period. Whenever the Conversion Rate is so increased, the Corporation shall
mail to the Registered Holders a notice of the increase at least 15 days before
the date the increased Conversion Rate takes effect, and such notice shall state
the increased Conversion Rate and the period it will be in effect.
The Corporation may make such increases in the Conversion
Rate, in addition to those required or allowed by this Section 4, as shall be
determined by it, as evidenced by a resolution of the Board of Directors, to be
advisable in order to avoid or diminish any income tax to holders of Common
Stock resulting from any dividend or distribution of stock or issuance of rights
or warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes.
Notwithstanding anything to the contrary herein, in no case
shall the Conversion Price be adjusted to an amount less than $.001 per share,
the current par value of the Common Stock into which the Series D Preferred
Stock is convertible.
(i) Ambiguities/Errors. The Board of Directors of the
Corporation shall have the power to resolve any ambiguity or correct any error
in the provisions relating to the convertibility of the Series D Preferred
Stock, and its actions in so doing shall be final and conclusive.
5. Mandatory Conversion. At any time on or after the Reset
Date, the Corporation at its option, may cause the Series D Preferred Stock to
be converted in whole or in part, on a pro rata basis, into fully paid and
nonassessable shares of Common Stock at the then effective Conversion Rate if
the Closing Bid Price (or, if the price referenced in the definition of Closing
Bid Price cannot be determined, the Fair Market Value) of the Common Stock shall
have exceeded 300% of the then applicable Conversion Price for at least 20
trading days in any 30 consecutive trading day period ending three days prior to
the date of notice of conversion. Any shares of Series D Preferred Stock so
converted shall be treated as having been surrendered by the holder thereof for
conversion pursuant to Section 4 on the date of such mandatory conversion
(unless previously converted at the option of the holder).
No greater than 60 nor fewer than 20 days prior to the date of
any such mandatory conversion, notice by first class mail, postage prepaid,
shall be given to the holders of record of the Series D Preferred Stock to be
converted, addressed to such holders at their last addresses as shown on the
stock transfer books of the Corporation. Each such notice shall specify the date
fixed for conversion, the place or places for surrender of shares of Series D
Preferred Stock, and the then effective Conversion Rate pursuant to Section 4.
Any notice which is mailed as herein provided shall be
conclusively presumed to have been duly given by the Corporation on the date
deposited in the mail, whether or not the holder of the Series D Preferred Stock
receives such notice; and failure properly to give such notice by mail, or any
defect in such notice, to the holders of the shares to be converted shall not
affect the validity of the proceedings for the conversion of any other shares of
Series D Preferred
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<PAGE> 18
Stock. On or after the date fixed for conversion as stated in such notice, each
holder of shares called to be converted shall surrender the certificate
evidencing such shares to the Corporation at the place designated in such notice
for conversion. Notwithstanding that the certificates evidencing any shares
properly called for conversion shall not have been surrendered, the shares shall
no longer be deemed outstanding and all rights whatsoever with respect to the
shares so called for conversion (except the right of the holders to convert such
shares upon surrender of their certificates therefor) shall terminate.
6. Voting Rights.
(a) General. Except as otherwise provided herein, in the
Certificate of Incorporation or the By-laws of the Corporation or as required by
applicable law, the holders of shares of Series D Preferred Stock, the holders
of shares of Common Stock and the holders of any other class or series of shares
entitled to vote with the Common Stock shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation. In any such
vote, each share of Series D Preferred Stock shall entitle the holder thereof to
cast the number of votes equal to the number of votes which could be cast in
such vote by a holder of the Common Stock into which such share of Series D
Preferred Stock is convertible on the record date for such vote, or if no record
date has been established, on the date such vote is taken. Any shares of Series
D Preferred Stock held by the Corporation or any entity controlled by the
Corporation shall not have voting rights hereunder and shall not be counted in
determining the presence of a quorum.
(b) Class Voting Rights. In addition to any vote specified in
Section 6(a), so long as at least 50% of the shares of Series D Preferred Stock
(including those shares of Series D Preferred Stock issued or issuable upon the
conversion of the Bridge Notes, the exercise of the warrants issued to Paramount
Capital, Inc., the placement agent in connection with the offer and sale of the
Series D Preferred Stock or any other warrants or options for the purchase of
Series D Preferred Stock) shall be outstanding, the Corporation shall not,
without the affirmative vote or consent of the holders of at least 50% of all
outstanding Series D Preferred Stock, voting separately as a class, (i) amend,
alter or repeal any provision of the Certificate of Incorporation or the Bylaws
of the Corporation so as adversely to affect the relative rights, preferences,
qualifications, limitations or restrictions of the Series D Preferred Stock,
(ii) approve the alteration or change to the rights, preferences or privileges
of the Series D Preferred Stock, (iii) incur or voluntarily repay prior to the
maturity thereof any indebtedness (other than the Bridge Notes) in excess of
$2,000,000 or (iv) authorize or issue, or increase the authorized amount of, any
equity security ranking prior to, or on a parity with, the Series D Preferred
Stock (other than additional Series D Preferred Stock approved in writing by the
Placement Agent) (A) upon a Liquidation Event, (B) with respect to the payment
of any dividends or distributions or (C) with respect to voting rights (except
for class voting rights required by law).
7. Outstanding Shares. For purposes of this Certificate of
Designation, a share of Series D Preferred Stock, when issued, shall be deemed
outstanding except (i) from the date, or the deemed date, of surrender of
certificates evidencing shares of Series D Preferred Stock, all shares of Series
D Preferred Stock converted into Common Stock and (ii) from the
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<PAGE> 19
date of registration of transfer, all shares of Series D Preferred Stock held of
record by the Corporation or any subsidiary of the Corporation.
8. Status of Acquired Shares. Shares of Series D Preferred
Stock received upon conversion pursuant to Section 4 or Section 5 or otherwise
acquired by the Corporation will be restored to the status of authorized but
unissued shares of Preferred Stock, without designation as to class, and may
thereafter be issued, but not as shares of Series D Preferred Stock.
9. Preemptive Rights. The Series D Preferred Stock is not
entitled to any preemptive or subscription rights in respect of any securities
of the Corporation.
10. Severability of Provisions. Whenever possible, each
provision hereof shall be interpreted in a manner as to be effective and valid
under applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such changes as
shall be necessary to render the provision in question effective and valid under
applicable law.
11. No Amendment or Impairment. The Corporation shall not
amend its Certificate of Incorporation or participate in any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, for the purpose of avoiding or seeking
to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in carrying out all such action as may be reasonably necessary or
appropriate in order to protect the rights of the holders of the Series D
Preferred Stock against impairment.
12. Redemption Parity. (a) If the Corporation is required to
repurchase, redeem or otherwise acquire (collectively, "Redeem") shares of
Series A Preferred Stock representing more than 5% of the aggregate stated value
of the Series A Preferred Stock, then the Corporation shall, subject to its
prior compliance with Article IV of the Certificate of Incorporation, offer to
Redeem the shares of Series D Preferred Stock, on a pari passu basis with the
Series A Preferred Stock based on the relative liquidation preferences of each
such series of Preferred Stock. The Corporation shall Redeem the shares of
Series D Preferred Stock with the same type of consideration that is paid to
Redeem the Series A Preferred Stock, and the Corporation shall Redeem the shares
of Series D Preferred Stock in the same manner, on the same schedule, and upon
the same notice (the "Company Notice"), as it Redeems the Series A Preferred
Stock.
(b) If the Corporation Redeems any Series D Preferred Stock,
the redemption price shall be $140.00 per share of Series D Preferred Stock,
subject to appropriate adjustment for stock splits, combinations and the like
(the "Redemption Price").
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<PAGE> 20
(c) If the Corporation Redeems any Series D Preferred Stock,
the Registered Holders shall be given the opportunity to elect to convert their
shares of Series D Preferred Stock at the then applicable Conversion Price in
lieu of having such shares Redeemed. If the Corporation uses Common Stock to
Redeem any Series D Preferred Stock, then such Common Stock will be valued at
its Market Price.
(d) The Corporation's obligation to provide moneys to Redeem
any Series D Preferred Stock shall be deemed fulfilled if, on or before the
redemption date, the Corporation shall deposit with a bank or trust company
having an office or agency in the Borough of Manhattan, City of New York, and
having a capital and surplus of at least $50,000,000, the principal amount of
funds necessary to so Redeem, in trust for the account of the Registered Holders
of the shares to be Redeemed (and so as to be and continue to be available
therefor), with irrevocable instructions and authority to such bank or trust
company that such funds be applied to Redeem the shares of Series D Preferred
Stock so called to be Redeemed. Any interest accrued on such funds shall be paid
to the Corporation from time to time. Any funds so deposited and unclaimed at
the end of three years from such redemption date shall be released or repaid to
the Corporation, after which, subject to any applicable laws relating to escheat
or unclaimed property, any Registered Holders of such shares of Series D
Preferred Stock so called to be Redeemed shall look only to the Corporation for
payment of the Redemption Price.
(e) Upon surrender of the certificates for any shares of
Series D Preferred Stock to be Redeemed by the Corporation (properly endorsed or
assigned for transfer, if the Board of Directors shall so require and the
Company Notice shall so state), such shares shall be Redeemed by the Corporation
at the Redemption Price.
[Signature page follows]
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<PAGE> 21
IN WITNESS WHEREOF, David R. Walner, Secretary of the
Corporation, acting for and on behalf of the Corporation, has hereunto
subscribed his name this 29th day of May, 1997.
GENTA INCORPORATED
By: __________________________
Name: David. R. Walner
Title: Secretary
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<PAGE> 1
Exhibit 3(i).5
CERTIFICATE OF INCREASE
OF
SERIES D CONVERTIBLE PREFERRED STOCK
OF
GENTA INCORPORATED
(Pursuant to Section 151
of the General Corporation Law of the State of Delaware)
------------------------------------------
Genta Incorporated (the "Company"), a corporation organized
and existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 151(g) thereof, DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by the Restated Certificate of Incorporation of the Company, the Board
of Directors of the Company has adopted the following resolution increasing the
number of authorized shares of Series D Convertible Preferred Stock of the
Company:
RESOLVED: That pursuant to the authority expressly
granted and vested in the Board of Directors of the Company in
accordance with the provisions of its Restated Certificate of
Incorporation the number of shares of the series of Preferred
Stock of the Company designated as Series D Convertible
Preferred Stock be, and hereby is, increased from 223,860
shares to 270,290 shares; and that the appropriate officers of
the Company be and hereby are authorized and directed in the
name and on behalf of the Company to execute and file a
Certificate of Increase with the Secretary of State of the
State of Delaware increasing the number of shares constituting
the Series D Convertible Preferred Stock from 223,860 to
270,290 and to take any and all other actions deemed necessary
or appropriate to effectuate this resolution.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Increase to be executed by its duly authorized officer on this 15th day of July,
1998.
GENTA INCORPORATED
By:________________________________
Name:
Office:
<PAGE> 1
Exhibit 3(i).8
CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
GENTA INCORPORATED
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
It is hereby certified that:
1. Genta Incorporated (the "Corporation") is a corporation formed under
the laws of the State of Delaware, and its Restated Certificate of Incorporation
was filed in the office of the Secretary of State on August 8, 1994.
2. The Restated Certificate of Incorporation of the Corporation is
hereby amended by making the following changes to Article IV(B):
a. The text of Section 1(k) is hereby deleted and replaced
with "[Reserved]."
b. The text in Section 6(d)(v)(x)(1) that reads "(assuming
conversion of all outstanding shares of Series A Preferred Stock into
Common Shares)" is hereby deleted.
c. The text in Section 6(d)(v)(x)(2) that reads "$6.75 per
share" is hereby deleted and replaced with "the Conversion Price in
effect on the date of such issuance".
d. The text in Section 6(d)(v)(y)(1) that reads "(assuming
conversion of all outstanding shares of Series A Preferred Stock into
Common Shares)" is hereby deleted.
e. The following paragraph is hereby added immediately after
Section 6(d)(v)(y)(2):
For purposes of this subsection, the number of Common
Shares deemed outstanding at any given time shall include all
shares of capital stock convertible into, or exchangeable for,
Common Shares (on an as converted basis) as well as all Common
Shares issuable upon the exercise of (x) any convertible debt,
(y) warrants outstanding and (z) options outstanding.
f. The text in the first sentence of Section 6(d)(v)(C) that
reads ", including, but not limited to, a change resulting from the
antidilution provisions thereof" is hereby deleted and replaced with
"for any reason other than an event that would require adjustment to
prevent dilution".
g. The current Section 6(d)(vi) is hereby deleted and replaced
with the following new Section 6(d)(vi);
<PAGE> 2
(vi) Additional Stock. "Additional Stock" shall mean
any Common Share issued by the corporation after the Issue
Date for a consideration per share equal to or less than the
Conversion Price in effect on the date of such issuance, as
adjusted for stock splits, dividends and combinations (or
Common Shares issuable pursuant to options or rights or
convertible or exchangeable securities as referred to in
paragraph (v) above if the consideration therefor as provided
in clause (A) therein is equal to or less than the Conversion
Price in effect on the date of such issuance, as adjusted as
aforesaid), other than
(A) Common Shares issued pursuant to any transaction
described in Section 2(d) or 6(d)(i)-(iv) hereof,
(B) Common Shares and options to purchase Common
Shares issued or issuable to employees, directors, consultants
or advisors of the corporation directly or pursuant to a stock
plan or stock purchase plan or agreement, which have been
issued as of the date hereof or are issuable pursuant to
agreements entered into on or prior to the date hereof. Any
further Common Shares and options to purchase Common Shares
issued or issuable to employees, directors, consultants or
advisors of the corporation other than those referenced in the
preceding sentence but only with respect to such options as
are exercisable at prices no lower than the Closing Bid Price
(as defined below) of the Common Shares as of the date of
grant thereof,
(C) Common Shares issued in payment of dividends or
upon conversion of the Series A Preferred Stock,
(D) Securities issued or issuable for consideration
other than solely cash in connection with any license,
collaborative, corporate partnership, co-marketing or
copromotion, research and development or similar arrangement,
(E) upon the issuance or sale of Common Shares or
securities convertible into or exchangeable for Common Shares
(such securities convertible, exercisable or exchangeable into
Common Shares being herein called "Convertible Securities")
pursuant to the exercise of any rights, options or warrants to
receive, subscribe for or purchase, or any options for the
purchase of, Common Shares or Convertible Securities, whether
or not such rights, warrants or options were outstanding on
the date of the original issuance of the Series A Preferred
Stock or were thereafter issued or sold, provided that an
adjustment was either made or not required to be made in
accordance with Subsection 6(d)(v) in connection with the
issuance or sale of such securities or any modification of the
terms thereof, or
(F) upon the issuance or sale of Common Shares upon
conversion or exchange of any Convertible Securities, provided
that any adjustments required to be made upon the issuance or
sale of such Convertible Securities or any modification of the
terms thereof were so made, and whether or not such
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<PAGE> 3
Convertible Securities were outstanding on the date of the
original sale of the Series A Preferred Stock or were
thereafter issued or sold.
For purposed of this section, the "Closing Bid Price" for any
security for a trading day shall be the reported per share
closing bid price of such security regular way on the Stock
Market (as defined below) on such trading day, or, if there
were no transactions on such trading day, the average of the
reported closing bid and asked prices, regular way, of such
security on the relevant Stock Market on such trading day. The
"Stock Market" shall mean, with respect to any security, the
principal national securities exchange on which such security
is listed or admitted to trading or, if such security is not
listed or admitted to trading on any national securities
exchange, shall mean The Nasdaq National Market System ("NNM")
or The Nasdaq SmallCap Market ("SCM" and, together with NNM,
"Nasdaq") or, if such security is not quoted on Nasdaq, shall
mean the OTC Bulletin Board or, if such security is not quoted
on the OTC Bulletin Board, shall mean the over-the-counter
market as furnished by any NASD member firm selected from time
to time by the corporation for that purpose.
h. The text of Section 7 is hereby deleted and replaced with
"[Reserved]."
3. This Amendment to the Certificate of Incorporation of the
Corporation has been duly adopted in accordance with Section 242 of the General
Corporation Law of the State of Delaware.
The undersigned has executed this certificate as of May 4, 1999.
GENTA INCORPORATED
By: __________________________
Kenneth G. Kasses, Ph.D.
President, Chief Executive Officer
and Chairman of the Board
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<PAGE> 1
Exhibit 10.62
WARRANT AGREEMENT
AGREEMENT, dated as of this 20th day of May, 1997, by and
among GENTA INCORPORATED, a Delaware corporation ("Company"), CHASEMELLON
SHAREHOLDER SERVICES, L.L.C., as warrant agent ("Warrant Agent"), and PARAMOUNT
CAPITAL, INC., a New York corporation ("Paramount").
W I T N E S S E T H
WHEREAS, the Company has commenced a private placement (the
"Private Placement") of a minimum (the "Minimum Offering") of 10 Units (as
defined below) and a maximum (the "Maximum Offering") of 75 Units, with an
option in favor of Paramount, to offer up to an additional 50 Units to cover
over-allotments, each "Unit" consisting of (a) 1,000 shares of Series D
Preferred Stock (as defined below) of the Company, convertible into shares of
common stock, par value $.001 per share, of the Company, (b) redeemable warrants
(the "Class D Warrants") to purchase at any time prior to the fifth anniversary
of the Final Closing Date (as defined below) 5,000 shares of Common Stock (as
defined below) at the initial conversion price of such Series D Preferred Stock,
pursuant to a placement agency agreement dated as of May 1, 1997 (the "Placement
Agency Agreement"), between the Company and Paramount;
WHEREAS, the Company may issue up to 781,250 Class D Warrants
pursuant to the Maximum Offering and the over-allotment option;
WHEREAS, each Class D Warrant entitles the Registered Holder
(as defined below) thereof to purchase one (1) share of Common Stock;
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in connection
with the issuance, registration, transfer, exchange and redemption of the Class
D Warrants, the issuance of certificates representing the Class D Warrants, the
exercise of the Class D Warrants, and the rights of the holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Class D Warrants and the certificates representing the Class D
Warrants and the respective rights and obligations thereunder of the Company,
the holders of certificates representing the Class D Warrants and the Warrant
Agent, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean stock of the Company of any
class, whether now or hereafter authorized, which has the right to participate
in the distribution of earnings and assets of the Company without limit as to
amount or percentage, which at the Initial Closing Date will consist of
4,327,752 (subject to possible adjustment resulting from rounding upwards to the
nearest whole share in connection with the one for ten reverse stock split of
the Common Stock that was effected on April 4, 1997 and possible conversions,
since April 18, 1997, of
<PAGE> 2
convertible securities issued by the Company) shares of Common Stock, par value
$.001 per share.
(b) "Closing Bid Price" for each trading day shall be the
reported per share closing bid price of the Common Stock regular way on the
Stock Market on such trading day, or, if there were no transactions on such
trading day, the average of the reported closing bid and asked prices, regular
way, of such security on the relevant Stock Market on such trading day.
(c) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which, at any particular time, its principal
business shall be administered, which office is located at the date hereof at
Overpeck Centre, 85 Challenger Road, Ridgefield Park, New Jersey, 07660.
(d) "Exercise Date" shall mean, as to any Class D Warrant, the
date on which the Warrant Agent shall have received both (a) the Warrant
Certificate representing such Class D Warrant, with the subscription form
thereon duly executed by the Registered Holder thereof or his attorney duly
authorized in writing, and (b) payment in cash, or by official bank or certified
check made payable to the Company, of an amount in lawful money of the United
States of America equal to the applicable Purchase Price.
(e) "Fair Market Value" of any asset (including any security)
means the fair market value thereof as mutually determined by the Company and
the Registered Holders of a majority of the Class D Warrants then outstanding.
If the Company and the Registered Holders of a majority of the Class D Warrants
then outstanding are unable to reach agreement on any valuation matter, such
valuation shall be submitted to and determined by a nationally recognized
independent investment bank selected by the board of directors of the Company
and the Registered Holders of a majority of the Class D Warrants then
outstanding (or, if such selection cannot be agreed upon promptly, or in any
event within ten days, then such valuation shall be made by a nationally
recognized independent investment banking firm selected by the American
Arbitration Association in New York City in accordance with its rules), the
costs of which valuation shall be paid for by the Company.
(f) "Final Closing Date" shall mean the final closing date of
the Private Placement.
(g) "Initial Closing Date" shall mean, as to each Class D
Warrant, the date of the initial closing of the Offering.
(h) "Initial Warrant Exercise Date" shall mean, as to each
Class D Warrant, the Final Closing Date.
(i) "Interim Closing Date" shall mean, as to each Class D
Warrant, any closing date of the Offering other than the Initial Closing Date
and the Final Closing Date.
(j) "Market Price" shall mean the average Closing Bid Price
for twenty (20) consecutive trading days, ending with the trading day prior to
the date as of which the Market Price is being determined (with appropriate
adjustments for subdivisions or combinations of shares effected during such
period), provided that if the prices referred to in the definition of
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<PAGE> 3
Closing Bid Price cannot be determined for such period, "Market Price" shall
mean Fair Market Value.
(k) "Preferred Stock" shall mean the Series D Convertible
Preferred Stock of the Company, stated value $100.00 per share, par value $.001
per share which at the Initial Closing Date will consist of 223,860 authorized
shares.
(l) "Purchase Price" shall mean the purchase price to be paid
upon exercise of each Class D Warrant in accordance with the terms hereof, which
price shall be the lesser of (i) $3.00 and (ii) 50% of the Trading Price as of
the day immediately preceding (a) the Initial Closing Date, (b) any Interim
Closing Date, or (c) the Final Closing Date of the Offering, whichever is
lowest, subject to adjustment from time to time pursuant to the provisions of
Section 9, and subject to the Company's right to reduce the Purchase Price upon
notice to all warrantholders (which may be given, without limitation, prior to
the Final Closing Date).
(m) "Redemption Price" shall mean the price at which the
Company may, at its option in accordance with the terms hereof, redeem the Class
D Warrants, which price shall be $0.10 per share of Common Stock subject to such
Class D Warrants, as adjusted as provided in Section 9.
(n) "Registered Holder" shall mean, as to any Class D Warrant
and as of any particular date, the person in whose name the certificate
representing the Class D Warrant shall be registered on that date on the books
maintained by the Warrant Agent pursuant to Section 6.
(o) "Series A Preferred Stock" means the Series A Preferred
Stock described in the Restated Certificate of Incorporation of the Company (the
"Certificate of Incorporation"), as in effect on the date hereof.
(p) The "Stock Market" shall mean the principal national
securities exchange on which the Common Stock is listed or admitted to trading
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange, shall mean The Nasdaq National Market System or The Nasdaq
SmallCap Market (collectively, "Nasdaq") or, if the Common Stock is not quoted
on Nasdaq, shall mean the OTC Bulletin Board or, if the Common Stock is not
quoted on the OTC Bulletin Board, shall mean the over-the-counter market as
furnished by any NASD member firm selected from time to time by the Company for
that purpose.
(q) "Trading Price" shall mean the lower of (i) the average
Closing Bid Price (with appropriate adjustments for subdivisions or combinations
of shares effected during such period) for thirty (30) consecutive trading days,
ending with the trading day prior to the date as of which the Trading Price is
being determined, and (ii) the average Closing Bid Price (with appropriate
adjustments for subdivisions or combinations of shares effected during such
period) for five (5) consecutive trading days, ending with the trading day prior
to the date as of which the Trading Price is being determined, provided that if
the prices referred to in the definition of Closing Bid Price cannot be
determined for any of such periods, "Trading Price" shall mean Fair Market
Value.
(r) A "trading day" shall mean a day on which the Stock Market
is open for the transaction of business.
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<PAGE> 4
(s) "Transfer Agent" shall mean ChaseMellon Shareholder
Services, L.L.C., as the Company's transfer agent, or its authorized successor,
as such.
(t) "Warrant Expiration Date" shall mean 5:00 P.M. (New York
time) on the day prior to the fifth anniversary of the Final Closing Date or the
Redemption Date as defined in Section 8, whichever is earlier; provided that if
such date shall in the State of New York be a holiday or a day on which banks
are authorized or required to close, then 5:00 P.M. (New York time) on the next
following day which in the State of New York is neither a holiday nor a day on
which banks are authorized or required to close. Upon notice to all Registered
Holders, the Company shall have the right to extend the Warrant Expiration Date.
(u) Unless otherwise stated, section references used within
this Warrant Agreement refer to sections of this Warrant Agreement.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) A Class D Warrant initially shall entitle the Registered
Holder of the Warrant Certificate representing such Class D Warrant to purchase
one share of Common Stock upon the exercise thereof, in accordance with the
terms hereof, subject to modification and adjustment as provided in Section 9.
(b) The Class D Warrants included in the offering of Units
will immediately be detachable and separately transferable from the shares of
Preferred Stock constituting part of such Units.
(c) Within five days after the Final Closing Date, Warrant
Certificates representing the number of Class D Warrants sold pursuant to the
Private Placement shall be executed by the Company and delivered to the Warrant
Agent. Within five days of receipt of the Warrant Certificates by the Warrant
Agent, the Warrant Agent shall send the Warrant Certificates to the Registered
Holders. The Company shall issue a written order, signed by its Chairman of the
Board, President or any Vice President and by its Secretary or an Assistant
Secretary, to the Warrant Agent directing that the Warrant Certificates shall be
countersigned, issued and delivered by the Warrant Agent in accordance with the
preceding sentence.
(d) From time to time, until the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 781,250 shares of
Common Stock, subject to adjustment as described herein, upon the exercise of
Class D Warrants in accordance with this Agreement.
(e) From time to time, until the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Class D Warrants represented by any Warrant
Certificate, to evidence any unexercised Class D Warrants held by the exercising
Registered Holder, (iii) those issued upon any transfer or exchange pursuant to
Section 6; (iv) those issued in replacement of lost, stolen, destroyed or
mutilated Warrant Certificates pursuant to Section 7 and (v) at the option of
the
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<PAGE> 5
Company, in such form as may be approved by its Board of Directors, to reflect
any adjustment to, or change in: the Purchase Price; the number of shares of
Common Stock purchasable upon exercise of the Class D Warrants; the Redemption
Price of the Class D Warrants; or the Warrant Expiration Date.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Class
D Warrants may be listed, or to conform to usage or to the requirements of
Section 2. The Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, exchange or in lieu of mutilated,
lost, stolen, or destroyed Warrant Certificates) and issued in registered form.
Warrant Certificates shall be numbered serially with the letters DW on Class D
Warrants of all denominations.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon. Warrant Certificates shall be manually countersigned
by the Warrant Agent and shall not be valid for any purpose unless so
countersigned. In case any officer of the Company who shall have signed any of
the Warrant Certificates shall cease to be an officer of the Company or to hold
the particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issuance and delivery thereof, such Warrant Certificates may
nevertheless be countersigned by the Warrant Agent, issued and delivered with
the same force and effect as though the person who signed such Warrant
Certificates had not ceased to be an officer of the Company or to hold such
office. After countersignature by the Warrant Agent, Warrant Certificates shall
be delivered by the Warrant Agent to the Registered Holder without further
action by the Company, except as otherwise provided by Subsection 4(a).
SECTION 4. Exercise.
(a) Each Class D Warrant may be exercised by the Registered
Holder thereof at any time on or after the Initial Exercise Date, but not after
the Warrant Expiration Date, upon the terms and subject to the conditions set
forth herein and in the applicable Warrant Certificate. A Class D Warrant shall
be deemed to have been exercised immediately prior to the close of business on
the Exercise Date and the person entitled to receive the securities deliverable
upon such exercise shall be treated for all purposes as the holder of those
securities upon the exercise of the Class D Warrant as of the close of business
on the Exercise Date. As soon as practicable on or after the Exercise Date the
Warrant Agent shall deposit the proceeds received from the exercise of a Class D
Warrant and shall notify the Company in writing of the exercise of the Class D
Warrants. Promptly following, and in any event within five days after the date
of such notice from the Warrant Agent, the Warrant Agent, on behalf of the
Company, shall cause to be issued and delivered by the Transfer Agent, to the
person or persons entitled to receive the same,
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<PAGE> 6
a certificate or certificates for the securities deliverable upon such exercise
(plus a certificate for any remaining unexercised Class D Warrants of the
Registered Holder). In the case of payment made in the form of a check drawn on
an account of Paramount or such other investment banks and brokerage houses as
the Company shall approve in writing to the Warrant Agent, certificates shall
immediately be issued without prior notice to the Company nor any delay. Upon
the exercise of any Class D Warrant and clearance of the funds received, the
Warrant Agent shall promptly remit the payment received for the Class D Warrant
(the "Warrant Proceeds") to the Company or as the Company may direct in writing,
subject to the provisions of Subsections 4(b) and 4(c).
(b) On the Exercise Date in respect of the exercise of any
Class D Warrant, the Warrant Agent shall, simultaneously with the distribution
of the Warrant Proceeds to the Company, on behalf of the Company, pay from the
Warrant Proceeds, a fee of 5% (the "Paramount Fee") of the Purchase Price to
Paramount for Class D Warrant exercises solicited by Paramount or its
representatives (of which a portion may be reallowed by Paramount to the dealer
who solicited the exercise, which may also be Paramount). In the event the
Paramount Fee is not received within seven days of the date on which the Company
receives Warrant Proceeds, then the Paramount Fee shall begin accruing interest
at an annual rate 300 basis points above prime payable by the Company to
Paramount at the time Paramount receives the Paramount Fee. Within five days
after exercise the Warrant Agent shall send Paramount a copy of the reverse side
of each Class D Warrant exercised. In addition, Paramount and the Company may at
any time during business hours, examine the records of the Warrant Agent,
including its ledger of original Warrant Certificates returned to the Warrant
Agent upon exercise of Class D Warrants. Paramount is intended by the parties
hereto to be, and is, a third-party beneficiary of this Agreement. The
provisions of this paragraph may not be modified, amended or deleted without the
prior written consent of Paramount. In addition to the foregoing, any costs
incurred by Paramount shall be promptly reimbursed by the Company.
(c) In order to enforce the provisions of Subsection 4(b)
above, in the event there is any dispute or question as to the amount or payment
of the Paramount Fee, the Warrant Agent is hereby expressly authorized to
withhold payment to the Company of the Warrant Proceeds unless and until the
Company establishes an escrow account for the purpose of depositing the entire
amount of the unpaid Paramount Fee claimed by Paramount, which amount will be
deducted from the net Warrant Proceeds to be paid to the Company. The funds
placed in the escrow account may not be released to the Company without a
written agreement from Paramount that the required Paramount Fee has been
received by Paramount. Paramount shall promptly notify the Warrant Agent by
facsimile and certified mail in the event of any such dispute or when the
Paramount Fee has been paid.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes;
etc.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issue upon exercise of Class D Warrants, such number of shares of Common Stock
as shall then be issuable upon the exercise of all outstanding Class D Warrants.
The Company covenants that all shares of Common Stock which shall be issuable
upon exercise of the Class D Warrants shall, at the time of delivery (assuming
full payment of the purchase price thereof), be duly and validly issued, fully
paid,
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<PAGE> 7
nonassessable and free from all issuance taxes, liens and charges with respect
to the issue thereof including, without limitation, adverse claims whatsoever
(with the exception of claims arising through the acts of the Registered Holders
themselves and except as arising from applicable Federal and state securities
laws), that the Company shall have paid all taxes, if any, in respect of the
original issuance thereof and that upon issuance such shares, to the extent
applicable, shall be listed on, or included in, the Stock Market.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Class D Warrants hereunder require
registration with, or the approval of, any governmental authority under any
federal securities law before such securities may be validly issued or delivered
upon such exercise, then the Company will in good faith and as expeditiously as
reasonably possible, endeavor to secure such registration or approval; provided,
however, that the Company shall have no obligation to register such securities
under the Securities Act of 1933, as amended, except as provided in the
Subscription Agreement dated as of the date hereof between the Company and each
Registered Holder. The Company will use reasonable efforts to obtain appropriate
approvals or registrations under state "blue sky" securities laws; provided,
that the Company shall not be required to qualify as a foreign corporation or
file a general or limited consent to service of process in any such
jurisdictions or make any changes in its capital structure or any other aspects
of its business or enter into any agreements with blue sky commissions,
including any agreement to escrow shares of its capital stock. With respect to
any such securities, however, Class D Warrants may not be exercised by, or
shares of Common Stock issued to, any Registered Holder in any state in which
such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other similar governmental charges that may be imposed with respect to
the issuance of Class D Warrants, or the issuance or delivery of any shares upon
exercise of the Class D Warrants; provided, however, that if the shares of
Common Stock are to be delivered in a name other than the name of the Registered
Holder of the Warrant Certificate representing any Class D Warrant being
exercised, then no such delivery shall be made unless the person requesting the
same has paid to the Warrant Agent the amount of transfer taxes or charges
incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock issuable upon exercise of the Class D
Warrants, and the Company will authorize the Transfer Agent to comply with all
such proper requisitions. The Company will file with the Warrant Agent a
statement setting forth the name and address of the Transfer Agent of the
Company for shares of Common Stock issuable upon exercise of the Class D
Warrants.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Class D Warrants of the
same class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute,
and the Warrant Agent shall countersign, issue and deliver in
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<PAGE> 8
exchange therefor, the Warrant Certificate or Certificates that the Registered
Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and any transfers thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Class D
Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent on
holders for any exchange or registration of transfer of Warrant Certificates of
such holders. In addition, the Company may require payment by such holder of a
sum sufficient to cover any tax or governmental or other charge that may be
imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise, or for
exchange in case of mutilated Warrant Certificates, shall be promptly cancelled
by the Warrant Agent and thereafter retained by the Warrant Agent in a manner
consistent with its customary practices until termination of this Warrant
Agreement or resignation as Warrant Agent, or, with the prior written consent of
Paramount, disposed of or destroyed at the direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Class D Warrant represented thereby (notwithstanding any notations of ownership
or writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary. The Class D Warrants, which are being offered in Units
with shares of Preferred Stock pursuant to the Placement Agency Agreement, will
immediately be detachable and separately transferable from the Preferred Stock.
SECTION 7. Loss or Mutilation. Upon receipt by the Warrant
Agent of evidence satisfactory to it of the ownership of and loss, theft,
destruction or mutilation of any Warrant Certificate and (in case of loss, theft
or destruction) of indemnity satisfactory to it, and (in the case of mutilation)
upon surrender and cancellation thereof, the Company shall execute and the
Warrant Agent shall (in the absence of notice to the Company and/or Warrant
Agent that the Warrant Certificate has been acquired by a bona fide purchaser)
countersign and deliver to the Registered Holder in lieu thereof a new Warrant
Certificate of like tenor representing an equal aggregate number of Class D
Warrants. Applicants for a substitute Warrant Certificate shall comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
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<PAGE> 9
SECTION 8. Redemption.
(a) If there is no Series A Preferred Stock outstanding, at
any time after the first anniversary of the Final Closing Date, on no fewer than
sixty (60) days' prior written notice to Registered Holders of the Class D
Warrants being redeemed, the Company may, at its option, redeem the Class D
Warrants at the Redemption Price, provided the Closing Bid Price exceeds 300% of
the Purchase Price per share of Common Stock subject to a Class D Warrant for at
least 20 trading days in any 30 consecutive trading day period ending three days
prior to the date of notice of redemption (which shall be the date of mailing of
such notice). In addition, regardless of whether there is any Series A Preferred
Stock outstanding at any time after the first anniversary of the Final Closing
Date, on no fewer than sixty (60) days' prior written notice to Registered
Holders of the Class D Warrants being redeemed, the Company may, at its option,
redeem the Class D Warrants at the Redemption Price, provided the Closing Bid
Price exceeds 600% of the Purchase Price per share of Common Stock subject to a
Class D Warrant for at least 20 trading days in any 30 consecutive trading day
period ending three days prior to the date of notice of redemption (which shall
be the date of mailing of such notice). All outstanding Class D Warrants must be
redeemed if any are redeemed. The date fixed for redemption of the Class D
Warrants is referred to herein as the "Redemption Date."
(b) If the conditions set forth in Subsection 8(a) are met,
and the Company desires to exercise its right to redeem the Class D Warrants, it
shall request the Warrant Agent to mail a notice of redemption to each of the
Registered Holders of the Class D Warrants to be redeemed, first class, postage
prepaid, not later than the sixtieth day before the date fixed for redemption,
at their last address as shall appear on the records maintained pursuant to
Subsection 6(b). Any notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given whether or not the Registered
Holder receives such notice.
(c) The notice of redemption shall specify (i) the Redemption
Price, (ii) the Redemption Date, (iii) the place where the Warrant Certificates
shall be delivered and the Redemption Price paid, (iv) that Paramount will
assist each Registered Holder of a Class D Warrant and be entitled to a
commission and reimbursement of costs in connection with the exercise thereof
and (v) that the right to exercise the Class D Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the Redemption
Date. No failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of the proceedings for such redemption except
as to a Registered Holder (a) to whom notice was not mailed or (b) whose notice
was defective. An affidavit of the Warrant Agent or of the Secretary or an
Assistant Secretary of the Company that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
(d) Any right to exercise a Class D Warrant shall terminate at
5:00 P.M. (New York time) on the business day immediately preceding the
Redemption Date. On and after the Redemption Date, Holders of the Class D
Warrants shall have no further rights except to receive, upon surrender of the
Class D Warrant, the Redemption Price.
(e) From and after the Redemption Date, the Company shall, at
the place specified in the notice of redemption, upon presentation and surrender
to the Company by or on behalf of the Registered Holder thereof of one or more
Warrant Certificates evidencing Class D
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<PAGE> 10
Warrants to be redeemed, deliver or cause to be delivered to or upon the written
order of such Holder a sum in cash equal to the Redemption Price of such Class D
Warrants. From and after the Redemption Date and upon the deposit or setting
aside by the Company of a sum sufficient to redeem all the Class D Warrants
called for redemption, such Class D Warrants shall expire and become void and
all rights hereunder and under the Warrant Certificates, except the right to
receive payment of the Redemption Price, shall cease.
SECTION 9. Adjustment of Purchase Price and Number of Shares
of Common Stock or Class D Warrants. Upon each adjustment of the Purchase Price
pursuant to this Section 9, the total number of shares of Common Stock
purchasable upon the exercise of each Class D Warrant shall (subject to the
provisions contained in Subsection 9(c)) be such number of shares (calculated to
the nearest tenth) purchasable at the Purchase Price in effect immediately prior
to such adjustment multiplied by a fraction, the numerator of which shall be the
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment.
(a) Except as otherwise provided herein, in the event the
Company shall, at any time or from time to time after the date hereof, (i) sell
or issue any shares of Common Stock for a consideration per share less than
either (a) the Purchase Price in effect on the date of such sale or issuance or
(b) the Market Price of the Common Stock as of the date of the sale or issuance,
(ii) issue any shares of Common Stock as a stock dividend to the holders of
Common Stock, or (iii) subdivide or combine the outstanding shares of Common
Stock into a greater or fewer number of shares (any such sale, issuance,
subdivision or combination being herein called a "Change of Shares"), then, and
thereafter upon each further Change of Shares, the Purchase Price in effect
immediately prior to such Change of Shares shall be changed to a price (rounded
to the nearest cent) determined by multiplying the Purchase Price in effect
immediately prior thereto by a fraction, the numerator of which shall be (x) the
sum of (A) the number of shares of Common Stock outstanding immediately prior to
the sale or issuance of such additional shares or such subdivision or
combination plus (B) the number of shares of Common Stock that the aggregate
consideration received (determined as provided in Paragraph 9(g)(vi)) for the
issuance of such additional shares would purchase at the greater of (1) the
Purchase Price in effect on the date of such issuance or (2) the Market Price as
of such date, and the denominator of which shall be (y) the number of shares of
Common Stock outstanding immediately after the sale or issuance of such
additional shares or such subdivision or combination. Such adjustment shall be
made successively whenever any such issuance is made.
(b) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another entity (other than a
consolidation or merger in which the Company is the continuing entity and which
does not result in any reclassification, capital reorganization or other change
of outstanding shares of Common Stock other than the number thereof), or in case
of any sale or conveyance to another entity of the property of the Company as,
or substantially as, an entirety (other than a sale/leaseback, mortgage or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of a Class D Warrant then outstanding shall have the right
thereafter, by exercising such Class D Warrant, upon the terms and conditions
specified in the Class D Warrants and in lieu of the shares of Common Stock
immediately theretofore purchasable upon exercise of the Class D Warrants, to
purchase the kind
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<PAGE> 11
and number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such Class D
Warrant immediately prior to such reclassification, capital reorganization or
other change, consolidation, merger, sale or conveyance. Any such provision
shall include provision for adjustments that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 9. The
Company shall not effect any such consolidation, merger or sale unless prior to,
or simultaneously with, the consummation thereof the successor (if other than
the Company) resulting from such consolidation or merger or the entity
purchasing assets or other appropriate entity shall assume, by written
instrument executed and delivered to the Warrant Agent, the obligation to
deliver to the holder of each Class D Warrant such shares of stock, securities
or assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassifications,
capital reorganizations and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.
(c) If, at any time or from time to time, the Company shall
issue or distribute to the holders of shares of Common Stock evidence of its
indebtedness, any other securities of the Company or any cash, property or other
assets (excluding an issuance or distribution governed by one of the preceding
subsections of this Section 9 and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor in the full
amount thereof (any such non-excluded event being herein called a "Special
Dividend")), then in each case the Purchase Price shall be adjusted by
multiplying the Purchase Price theretofore in effect by a fraction, the
numerator of which shall be the Market Price in effect on the record date of
such issuance or distribution less the Fair Market Value of the Special Dividend
applicable to one share of Common Stock and the denominator of which shall be
such Market Price. Such adjustment shall be made whenever any such distribution
is made and shall become effective on the date of distribution retroactive to
the record date for the determination of stockholders entitled to receive such
distribution.
(d) The Company may elect, upon any adjustment of the Purchase
Price hereunder, to adjust the number of Class D Warrants outstanding, in lieu
of the adjustment in the number of shares of Common Stock purchasable upon the
exercise of each Class D Warrant as hereinabove provided, so that each Class D
Warrant outstanding after such adjustment shall represent the right to purchase
one share of Common Stock. Each Class D Warrant held of record prior to such
adjustment of the number of Class D Warrants shall become that number of Class D
Warrants (calculated to the nearest tenth) determined by multiplying the number
one by a fraction, the numerator of which shall be the Purchase Price in effect
immediately prior to such adjustment and the denominator of which shall be the
Purchase Price in effect immediately after such adjustment. Upon each adjustment
of the number of Class D Warrants pursuant to this Section 9, the Company shall,
as promptly as practicable, cause to be distributed to each Registered Holder of
Warrant Certificates on the date of such adjustment Warrant Certificates
evidencing, subject to Section 10, the number of additional Class D Warrants to
which such Holder shall be entitled as a result of such adjustment or, at the
option of the Company, cause to be distributed to such Holder in substitution
and replacement for the Warrant Certificates held by him prior to the date of
adjustment (and upon surrender thereof, if required by the Company)
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<PAGE> 12
new Warrant Certificates evidencing the number of Class D Warrants to which such
Holder shall be entitled after such adjustment.
(e) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Class D Warrants, the Warrant Certificates theretofore and thereafter issued
shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Subsection 2(e), continue to express the same Purchase
Price per share, number of shares purchasable thereunder and Redemption Price
therefor as when the same were originally issued.
(f) After each adjustment of the Purchase Price pursuant to
this Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Class D Warrant after such adjustment, and, if
the Company shall have elected to adjust the number of Class D Warrants pursuant
to Subsection 9(d), the number of Class D Warrants to which the registered
holder of each Class D Warrant shall then be entitled, and the adjustment in
Redemption Price resulting therefrom, and (iii) a brief statement of the facts
accounting for such adjustment. The Company will promptly file such certificate
with the Warrant Agent and cause a brief summary thereof to be sent by ordinary
first class mail to Paramount and to each Registered Holder of Class D Warrants
at his or her last address as it shall appear on the registry books of the
Warrant Agent. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of such adjustment. The affidavit of
an officer of the Warrant Agent or the Secretary or an Assistant Secretary of
the Company that such notice has been mailed shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. The Warrant Agent may rely on
the information in the certificate as true and correct and has no duty or
obligation to independently verify the amounts or calculations set forth
therein.
(g) For purposes of Subsections 9(a) and 9(c), the following
provisions (i) to (v) shall also be applicable:
(i) the number of shares of Common Stock deemed
outstanding at any given time shall include all shares of capital stock
convertible into, or exchangeable for, Common Stock (on an as converted basis)
as well as all shares of Common Stock issuable upon the exercise of (x) any
convertible debt, (y) warrants outstanding on the date hereof and (z) options
outstanding on the date hereof.
(ii) No adjustment of the Purchase Price shall be
made unless such adjustment would require an increase or decrease of at least
$.01 in such price; provided that any adjustments which by reason of this
Paragraph (ii) are not required to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment which,
together with adjustments so carried forward, shall require an increase or
decrease of at least $.01 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company
(including as a component of a unit) of any rights or warrants to subscribe for
or purchase, or any options for the purchase
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<PAGE> 13
of, Common Stock or any securities convertible into or exchangeable for Common
Stock (such securities convertible, exercisable or exchangeable into Common
Stock being herein called "Convertible Securities"), or (2) the issuance by the
Company, without the receipt by the Company of any consideration therefor, of
any rights or warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or Convertible Securities, whether or not such rights,
warrants or options, or the right to convert or exchange such Convertible
Securities, are immediately exercisable, and the consideration per share for
which Common Stock is issuable upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the minimum aggregate consideration, as set forth in
the instrument relating thereto without regard to any antidilution or similar
provisions contained therein for a subsequent adjustment of such amount, payable
to the Company upon the exercise of such rights, warrants or options, plus the
consideration received by the Company for the issuance or sale of such rights,
warrants or options, plus, in the case of such Convertible Securities, the
minimum aggregate amount, as set forth in the instrument relating thereto
without regard to any antidilution or similar provisions contained therein for a
subsequent adjustment of such amount, of additional consideration, if any, other
than such Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number, as set forth in the instrument
relating thereto without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount, of shares of
Common Stock issuable upon the exercise of such rights, warrants or options or
upon the conversion or exchange of such Convertible Securities issuable upon the
exercise of such rights, warrants or options) is less than either the Purchase
Price or the Market Price of the Common Stock as of the date of the issuance or
sale of such rights, warrants or options, then such total maximum number of
shares of Common Stock issuable upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible Securities (as of
the date of the issuance or sale of such rights, warrants or options) shall be
deemed to be "Common Stock" for purposes of Subsections 9(a) and 9(c) and shall
be deemed to have been sold for an amount equal to such consideration per share
and shall cause an adjustment to be made in accordance with Subsections 9(a) and
9(c).
(iv) In case of the sale or other issuance by the
Company of any Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per share for
which Common Stock is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such Convertible
Securities, plus the minimum aggregate amount, as set forth in the instrument
relating thereto without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount, of additional
consideration, if any, other than such Convertible Securities, payable upon the
conversion or exchange thereof, by (y) the total maximum number, as set forth in
the instrument relating thereto without regard to any antidilution or similar
provisions contained therein for a subsequent adjustment of such amount, of
shares of Common Stock issuable upon the conversion or exchange of such
Convertible Securities) is less than either the Purchase Price or the Market
Price of the Common Stock as of the date of the sale of such Convertible
Securities, then such total maximum number of shares of Common Stock issuable
upon the conversion or exchange of such Convertible Securities (as of the date
of the sale of such Convertible Securities) shall be deemed to be "Common Stock"
for purposes of Subsections 9(a)
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<PAGE> 14
and 9(c) and shall be deemed to have been sold for an amount equal to such
consideration per share and shall cause an adjustment to be made in accordance
with Subsections 9(a) and 9(c).
(v) In case the Company shall modify the rights of
conversion, exchange or exercise of any of the securities referred to in
Paragraphs (iii) or (iv) of this Subsection 9(g) or any other securities of the
Company convertible, exchangeable or exercisable for shares of Common Stock, for
any reason other than an event that would require adjustment to prevent
dilution, so that the consideration per share received by the Company after such
modification is less than either the Purchase Price or the Market Price as of
the date prior to such modification, then such securities, to the extent not
theretofore exercised, converted or exchanged, shall be deemed to have expired
or terminated immediately prior to the date of such modification and the Company
shall be deemed, for purposes of calculating any adjustments pursuant to this
Section 9, to have issued such new securities upon such new terms on the date of
modification. Such adjustment shall become effective as of the date upon which
such modification shall take effect. On the expiration or cancellation of any
such right, warrant or option or the termination or cancellation of any such
right to convert or exchange any such Convertible Securities, the Purchase Price
then in effect hereunder shall forthwith be readjusted to such Purchase Price as
would have obtained (a) had the adjustments made upon the issuance or sale of
such rights, warrants, options or Convertible Securities been made upon the
basis of the issuance of only the number of shares of Common Stock theretofore
actually delivered (and the total consideration received therefor) upon the
exercise of such rights, warrants or options or upon the conversion or exchange
of such Convertible Securities and (b) had adjustments been made on the basis of
the Purchase Price as adjusted under clause (a) of this sentence for all
transactions (which would have affected such adjusted Purchase Price) made after
the issuance or sale of such rights, warrants, options or Convertible
Securities.
(vi) In case of the sale of any shares of Common
Stock, any Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefor shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith. In the event
that any securities shall be issued in connection with any other securities of
the Company, together comprising one integral transaction in which no specific
consideration is allocated among the securities, then each of such securities
shall be deemed to have been issued for such consideration as the Board of
Directors of the Company determines in good faith; provided, however that if
holders of more than of 10% of the then outstanding Class D Warrants disagree
with such determination, the Company shall retain an independent investment
banking firm for the purpose of obtaining an appraisal.
(h) Notwithstanding any other provision hereof, no adjustment
to the Purchase Price of the Class D Warrants or to the number of shares of
Common Stock purchasable upon the exercise of each Class D Warrant will be made:
(i) upon the exercise of any of the options
outstanding on the date hereof under the Company's existing stock option plans;
or
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<PAGE> 15
(ii) upon the issuance or exercise of options which
may hereafter be granted with the approval of the Board of Directors, or
exercised, under any employee benefit plan of the Corporation to officers,
directors, consultants or employees, but only with respect to such options as
are exercisable at prices no lower than the Closing Bid Price (or, if the price
referenced in the definition of Closing Bid Price cannot be determined, the Fair
Market Value) of the Common Stock as of the date of grant thereof; or
(iii) upon issuance or exercise of the Placement
Warrants or the Advisory Warrants (as defined in the Placement Agency Agreement)
(collectively, the "Paramount Warrants"), upon the conversion of the Series D
Preferred Stock underlying the Bridge Notes (as defined in the Note and Warrant
Purchase Agreement dated as of January 28, 1997 (the "Note and Warrant Purchase
Agreement")), upon the exercise of the Class A and Class B Bridge Warrants (as
defined in the Note and Warrant Purchase Agreement) or upon the issuance,
conversion or exercise of the Series D Preferred Stock or the Class D Warrants
included in the Units of the Corporation issued (A) on or prior to the Final
Closing Date or (B) pursuant to the exercise of the Paramount Warrants, or upon
the issuance, conversion or exercise of any Series D Preferred Stock or Class D
Warrants approved by Paramount; or (iv) upon the issuance or sale of Common
Stock or Convertible Securities pursuant to the exercise of any rights, options
or warrants to receive, subscribe for or purchase, or any options for the
purchase of, Common Stock or Convertible Securities, whether or not such rights,
warrants or options were outstanding on the date of the original sale of the
Class D Warrants or were thereafter issued or sold, provided that an adjustment
was either made or not required to be made in accordance with Subsections 9(a)
or 9(c) in connection with the issuance or sale of such securities or any
modification of the terms thereof; or
(v) upon the issuance or sale of Common Stock upon
conversion or exchange of any Convertible Securities, provided that any
adjustments required to be made upon the issuance or sale of such Convertible
Securities or any modification of the terms thereof were so made, and whether or
not such Convertible Securities were outstanding on the date of the original
sale of the Class D Warrants or were thereafter issued or sold.
Paragraph 9(g)(v) shall nevertheless apply to any modification of the rights of
conversion, exchange or exercise of any of the securities referred to in
Paragraphs (i), (ii) and (iii) of this Subsection 9(h).
(i) As used in this Section 9, the term "Common Stock" shall
mean and include the Company's Common Stock authorized on the date of the
original issue of the Units and shall also include any capital stock of any
class of the Company thereafter authorized which shall not be limited to a fixed
sum or percentage in respect of the rights of the holders thereof to participate
in dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Class D Warrants shall include only shares of such
class designated in the Certificate of Incorporation as Common Stock on the date
of the original issue of the Units or (i), in the case of any reclassification,
change, consolidation, merger, sale or conveyance of the character referred to
in Subsection 9(c), the stock, securities or property provided for in such
section or (ii), in the case of any reclassification or change in the
outstanding shares of Common
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<PAGE> 16
Stock issuable upon exercise of the Class D Warrants as a result of a
subdivision or combination or consisting of a change in par value, or from par
value to no par value, or from no par value to par value, such shares of Common
Stock as so reclassified or changed.
(j) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 9, or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of the Class D Warrants and the Company if made in good faith by the
Board of Directors of the Company.
(k) Notwithstanding anything to the contrary herein, in no
case shall the Purchase Price be adjusted to an amount less than $.001 per
share, the current par value of the Common Stock for which the Class D Warrants
are exerciseable.
(l) If and whenever the Company shall grant to the holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company may at its option elect concurrently therewith to grant to
each Registered Holder as of the record date for such transaction of the Class D
Warrants then outstanding, the rights, warrants or options to which each
Registered Holder would have been entitled if, on the record date used to
determine the stockholders entitled to the rights, warrants or options being
granted by the Company, the Registered Holder were the holder of record of the
number of whole shares of Common Stock then issuable upon exercise of his or her
Class D Warrants. If the Company shall so elect under this Subsection 9(l), then
such grant by the Company to the holders of the Class D Warrants shall be in
lieu of any adjustment which otherwise might be called for pursuant to this
Section 9.
SECTION 10. Fractional Warrants and Fractional Shares. If the
number of shares of Common Stock purchasable upon the exercise of each Class D
Warrant is adjusted pursuant to Section 9, the Company nevertheless shall not be
required to issue fractions of shares, upon exercise of the Class D Warrants or
otherwise, nor to distribute certificates that evidence fractional shares. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Registered Holder an amount in cash equal to such
fraction multiplied by the Market Price of one share of Common Stock as of the
date of exercise.
SECTION 11. Warrant Holders Not Deemed Stockholders. No holder
of Class D Warrants shall, as such, be entitled to vote or to receive dividends
or be deemed the holder of Common Stock that may at any time be issuable upon
exercise of such Class D Warrants for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon the holder of Class D Warrants, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issue or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Class D
Warrants and been issued shares of Common Stock in accordance with the
provisions hereof.
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<PAGE> 17
SECTION 12. Rights of Action. All rights of action with
respect to this Agreement are vested in the respective Registered Holders of the
Class D Warrants, and any Registered Holder of a Class D Warrant, without
consent of the Warrant Agent or of the holder of any other Class D Warrant, may,
in his own behalf and for his own benefit, enforce against the Company his right
to exercise his Class D Warrants for the purchase of shares of Common Stock in
the manner provided in the Warrant Certificate and this Agreement.
SECTION 13. Agreement of Warrant Holders. Every holder of any
Class D Warrant, by his acceptance thereof, consents and agrees with the
Company, the Warrant Agent and every other holder of any Class D Warrant that:
(a) The Class D Warrants are transferable only on the registry
books of the Warrant Agent by the Registered Holder thereof in person or by his
or her attorney duly authorized in writing and only if the Warrant Certificates
representing such Class D Warrants are surrendered at the office of the Warrant
Agent, duly endorsed or accompanied by a proper instrument of transfer
satisfactory to the Warrant Agent, in its sole discretion, together with payment
of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true and lawful owner of the Class D Warrants represented thereby
for all purposes, and neither the Company nor the Warrant Agent shall be
affected by any notice or knowledge to the contrary, except as otherwise
expressly provided in Section 6.
SECTION 14. Cancellation of Warrant Certificates. If the
Company shall purchase or acquire any Class D Warrant or Class D Warrants, the
Warrant Certificate or Warrant Certificates evidencing the same, by redemption
or otherwise, shall thereupon be delivered to the Warrant Agent and canceled by
it and retired. The Warrant Agent shall also cancel the Warrant Certificate or
Warrant Certificates following exercise of any or all of the Class D Warrants
represented thereby or delivered to it for transfer, split up, combination or
exchange.
SECTION 15. Concerning the Warrant Agent. The Warrant Agent
acts hereunder as agent and in a ministerial capacity for the Company, and its
duties shall be determined solely by the provisions hereof. The Warrant Agent
shall not, by issuing and delivering Warrant Certificates, or by any other act
hereunder, be deemed to make any representations as to the validity, value or
authorization of the Warrant Certificates or the Class D Warrants represented
thereby or of any securities or other property delivered upon exercise of any
Class D Warrant or whether any stock issued upon exercise of any Class D Warrant
is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists that may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered
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<PAGE> 18
or omitted by it in reliance on any Warrant Certificate or other document or
instrument believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties, (ii) be responsible for any failure on
the part of the Company to comply with any of its covenants and obligations
contained in this Agreement or in any Warrant Certificate, or (iii) be liable
for any act or omission in connection with this Agreement except for its own
negligence or willful misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order
or demand of the Company shall be sufficiently evidenced by an instrument signed
by the Chairman of the Board, President, or any Vice President and the
Secretary, or any Assistant Secretary (unless other evidence in respect thereof
is herein specifically prescribed). The Warrant Agent shall not be liable for
any action taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order or demand believed by it to be
genuine.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder as governed by a separate agreement to be entered into
between the Warrant Agent and the Company; the Company further agrees to
indemnify the Warrant Agent and save it harmless against any and all losses,
expenses and liabilities, including judgments, costs and reasonable counsel
fees, for anything done or omitted by the Warrant Agent in the execution of its
duties and powers hereunder except losses, expenses and liabilities arising as a
result of the Warrant Agent's negligence or willful misconduct.
The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or willful misconduct), after
giving 30 days' prior written notice to the Company. At least 15 days prior to
the date such resignation is to become effective, the Warrant Agent shall cause
a copy of such notice of resignation to be mailed to the Registered Holders of
each Warrant Certificate at the Company's expense. Upon such resignation, or any
inability of the Warrant Agent to act as such hereunder, the Company shall
appoint a new warrant agent in writing. If the Company shall fail to make such
appointment within a period of 15 days after it has been notified in writing of
such resignation by the resigning Warrant Agent, then the Registered Holder of
any Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having capital
and surplus, as shown by its last published report to its stockholders, of not
less than $10,000,000 or a stock transfer company. After acceptance in writing
of such appointment by the new warrant agent is received by the Company, such
new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and
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<PAGE> 19
delivered by the resigning Warrant Agent. Not later than the effective date of
any such appointment, the Company shall file notice thereof with the resigning
Warrant Agent and shall forthwith cause a copy of such notice to be mailed to
the Registered Holder of each Warrant Certificate.
Any entity into which the Warrant Agent or any new warrant
agent may be converted or merged or any entity resulting from any consolidation
to which the Warrant Agent or any new warrant agent shall be a party or any
entity succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent under this Agreement without any further act, provided
that such entity is eligible for appointment as successor to the Warrant Agent
under the provisions of the preceding paragraph. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed to the Company and to the Registered Holder of each Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Class D Warrants or
other securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effects as though it were not
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
SECTION 16. Modification of Agreement. Subject to the
provisions of Subsection 4(b), the parties hereto and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; (ii) to reflect an increase in the number of Class D Warrants which
are to be governed by this Agreement resulting from a subsequent offering of
Company securities which includes Class D Warrants having the same terms and
conditions as the Class D Warrants, originally covered by or subsequently added
to this Agreement under this Section 16; or (iii) that they may deem necessary
or desirable and that shall not adversely affect the interests of the holders of
Warrant Certificates; provided, however, that this Agreement shall not otherwise
be modified, supplemented or altered in any respect except with the consent in
writing of the Registered Holders of Warrant Certificates representing more than
50% of the Class D Warrants then outstanding; and provided, further, that no
change in the number or nature of the securities purchasable upon the exercise
of any Class D Warrant, or the Purchase Price therefor, or the acceleration of
the Warrant Expiration Date, shall be made without the consent in writing of the
Registered Holder of the Warrant Certificate representing such Class D Warrant,
other than such changes as are specifically prescribed by this Agreement
(including those contemplated in Subsection 9(d)) as originally executed or are
made in compliance with applicable law.
SECTION 17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed by means of first class registered or certified
mail, postage prepaid as follows: if to the Registered Holder of a Warrant
Certificate, at the address of such holder as shown on the registry books
maintained by the Warrant Agent; if to the Company, at 3550 General Atomics
Court, San Diego, California, 92121, Attention: Chief Executive Officer, or at
such other address as may have been furnished to the Warrant Agent in writing by
the Company; if to the Warrant Agent, at
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<PAGE> 20
its Corporate Office; and, if to Paramount, at Paramount Capital Inc., 787
Seventh Avenue, New York, New York 10019, Attention: Michael S. Weiss.
SECTION 18. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the Company, Paramount, the Warrant Agent and
their respective successors and assigns, and the holders from time to time of
Warrant Certificates. Nothing in this Agreement is intended nor shall be
construed to confer upon any other person any right, remedy or claim, in equity
or at law, or to impose upon any other person any duty, liability or obligation.
SECTION 20. Termination. This Agreement shall terminate at the
close of business on the Warrant Expiration Date of all the Class D Warrants or
such earlier date upon which all Class D Warrants have been exercised or
redeemed, except that the Warrant Agent shall account to the Company for cash
held by it and the provisions of Section 15 shall survive such termination.
SECTION 21. Counterparts. This Agreement may be executed in
several counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
GENTA INCORPORATED
By: ______________________________________
Authorized Officer
CHASEMELLON SHAREHOLDER SERVICES,
as Warrant Agent
By: _____________________________________
Authorized Officer
PARAMOUNT CAPITAL, INC.
By: _____________________________________
Authorized Officer
- 20 -
<PAGE> 21
EXHIBIT A
[FORM OF FACE OF CLASS D WARRANT CERTIFICATE]
No. __ _______________ Class D Warrants
VOID AFTER __________________, 2002
CLASS D WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
GENTA INCORPORATED
This certifies that FOR VALUE RECEIVED
_______________________________________________________________________________
______________________________ or registered assigns (the "Registered Holder")
is the owner of the number of Class D Warrants ("Class D Warrants") specified
above. Each Class D Warrant represented hereby initially entitles the Registered
Holder to purchase, subject to the terms and conditions set forth in this
Warrant Certificate and the Warrant Agreement (as hereinafter defined), one
fully paid and nonassessable share of Common Stock, par value $.001 per share
("Common Stock"), of Genta Incorporated, a Delaware corporation (the "Company"),
at any time between _______________, 1997, and the Expiration Date (as
hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the corporate office of ChaseMellon Shareholder Services, L.L.C., as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of the
Purchase Price (as defined in the Warrant Agreement) in lawful money of the
United States of America in cash or by official bank or certified check made
payable to the Company.
This Warrant Certificate and each Class D Warrant represented
hereby are issued pursuant to, and are subject in all respects to, the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
as of May 20, 1997, by and among the Company, the Warrant Agent and Paramount
Capital, Inc.
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price or the number of shares of Common Stock
subject to purchase upon the exercise of each Class D Warrant represented hereby
are subject to modification or adjustment.
Each Class D Warrant represented hereby is exercisable at the
option of the Registered Holder, but no fractional shares of Common Stock will
be issued. In the case of the exercise of fewer than every Class D Warrant
represented hereby, the Company shall cancel this Warrant Certificate upon the
surrender hereof and shall execute and deliver a new Warrant Certificate or
Warrant Certificates of like tenor, which the Warrant Agent shall countersign,
for the balance of such Class D Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York
time) on ____________, 2002, or such earlier date as the Class D Warrants shall
be redeemed. If such
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<PAGE> 22
date shall in the State of New York be a holiday or a day on which banks are
authorized to close, then the Expiration Date shall mean 5:00 P.M. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close. Upon notice to all Registered
Holders of the Class D Warrants, the Company shall have the right to extend the
Expiration Date.
The Registered Holder of this Class D Warrant shall have the
registration rights as provided in Section 5 of the Subscription Agreement (the
"Subscription Agreement") dated as of the date hereof between the Company and
such Registered Holder. The Class D Warrants represented hereby shall not be
exercisable by a Registered Holder in any state where such exercise would be
unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Class D Warrants, each of such new Warrant
Certificates to represent such number of Class D Warrants as shall be designated
by such Registered Holder at the time of such surrender. Upon due presentment
with any applicable transfer fee per certificate in addition to any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Class D
Warrants will be issued to the transferee in exchange therefor, subject to the
limitations provided in the Warrant Agreement.
Prior to the exercise of any Class D Warrant represented
hereby, the Registered Holder shall not be entitled to any rights of a
stockholder of the Company, including, without limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided in the
Warrant Agreement.
The Class D Warrants represented hereby may be redeemed at the
option of the Company, at a redemption price of $.10 per share subject to such
Class D Warrants (subject to adjustment under the circumstances set forth in
Section 9 of the Warrant Agreement) (the "Redemption Price"). Notice of
redemption shall be given not later than the sixtieth day before the date fixed
for redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no rights with respect to
the Class D Warrants represented hereby except to receive the Redemption Price
upon surrender of this Warrant Certificate.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Class D Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of 5% of the Purchase
Price to Paramount Capital, Inc. under certain conditions as specified in the
Warrant Agreement upon the exercise of the Class D Warrants represented hereby.
Any costs incurred by the Placement Agent in
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<PAGE> 23
connection with the solicitation of Class D Warrant exercises or the redemption
of Class D Warrants shall be reimbursed by the Company.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile, by two of its
officers thereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
GENTA INCORPORATED
Dated: _____________________ By: ______________________________
By: ______________________________
[seal]
Countersigned:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.,
as Warrant Agent
By: ______________________________
Authorized Officer
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<PAGE> 24
[FORM OF REVERSE OF WARRANT CERTIFICATE]
TRANSFER FEE: $___________ PER CERTIFICATE ISSUED
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Class D Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise _________ Class D Warrants represented by this Warrant Certificate, and
to purchase the securities issuable upon the exercise of such Class D Warrants,
and requests that certificates for such securities shall be issued in the name
of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
[please print or type name and address]
and be delivered to
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
[please print or type name and address]
and if such number of Class D Warrants shall not be all the Class D Warrants
evidenced by this Warrant Certificate, that a new Warrant Certificate for the
balance of such Class D Warrants be registered in the name of, and delivered to,
the Registered Holder at the address stated below.
The undersigned represents that the exercise of the within
Class D Warrant was solicited by a member of the National Association of
Securities Dealers, Inc. If not solicited by an NASD member, please write
"unsolicited" in the space below. Unless
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<PAGE> 25
otherwise indicated by listing the name of another NASD member firm, it will be
assumed that the exercise was solicited by Paramount Capital, Inc.
______________________________________________________________________________
(Name of NASD Member)
Dated: __________________________ X _______________________________________
______________________________________________________________________________
______________________________________________________________________________
Address
______________________________________________________________________________
Taxpayer Identification Number
______________________________________________________________________________
Signature Guaranteed
______________________________________________________________________________
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<PAGE> 26
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Class D Warrants
FOR VALUE RECEIVED, _______________________________________________ hereby
sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
[please print or type name and address]
________________________________ of the Class D Warrants represented by this
Warrant Certificate, and hereby irrevocably constitutes and appoints _________
_______________________________________________________________________________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated: _________________________ X ________________________________________
Signature Guaranteed
__________________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
- 26 -
<PAGE> 1
EXHIBIT 10.67
WARRANT AGREEMENT
AGREEMENT, dated as of this 23 day of December, 1999, by and among
GENTA INCORPORATED, a Delaware corporation (the "Company"), CHASEMELLON
SHAREHOLDER SERVICES, L.L.C., a New Jersey limited liability company, as warrant
agent (the "Warrant Agent"), and PARAMOUNT CAPITAL, INC., a New York corporation
("Paramount").
W I T N E S S E T H
WHEREAS, the Company has commenced a private placement (the "Private
Placement") of a minimum (the "Minimum Offering") of 15 Units (as defined below)
and a maximum (the "Maximum Offering") of 100 Units, with an option in favor of
Paramount to offer up to an additional 15 Units to cover over-allotments, each
"Unit" consisting of (a) a number of shares of Common Stock determined by
dividing one hundred thousand dollars ($100,000) by the lesser of (i) $3.00 and
(ii) 85% of the Trading Price (as defined below) of the Common Stock on the
Nasdaq SmallCap Market (the "SmallCap Market") and (b) warrants ("Warrants") to
purchase, at any time prior to the fifth anniversary of the Final Closing Date
(as defined below), a number of shares of Common Stock equal to 25% of the
number of shares of Common Stock included in such Unit, at an initial exercise
price equal to the Trading Price (subject to adjustment upon the occurrence of
certain events), pursuant to a placement agency agreement dated as of November
9, 1999 (the "Placement Agency Agreement"), between the Company and Paramount;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Business Day" shall mean any day other than a Saturday, a Sunday
or a day on which banking institutions in the State of New York or the city in
which the office of the Warrant Agent is located are authorized or obligated by
law or executive order to close.
(b) "Close of Business" on any given day shall mean 5:00 p.m. (New York
City time) on such date; provided, however, if such date is not a Business Day
it shall mean 5:00 p.m. (New York City time) on the next succeeding Business
Day.
1
<PAGE> 2
(c) "Closing Bid Price" for each trading day shall be the reported per
share closing bid price of the Common Stock, regular way, on the Stock Market on
such trading day, or, if there were no transactions on such trading day, the
average of the reported closing bid and asked prices, regular way, of such
security on the relevant Stock Market on such trading day.
(d) "Common Stock" shall mean the common stock, par value $0.001 per
share, of the Company.
(e) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which, at any particular time, its principal business shall be
administered, which office is located at the date hereof at Overpeck Centre, 85
Challenger Road, Ridgefield Park, New Jersey 07660, unless changed by sending
notice thereof to the Company.
(f) "Exercise Date" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the subscription form thereon duly executed by
the Registered Holder thereof or his attorney duly authorized in writing, and
(b) in the event the Registered Holder intends to exercise its Warrant other
than by cashless exercise under Section 4(b) of this Agreement, payment in cash,
or by official bank or certified check made payable to the Company, of an amount
in lawful money of the United States of America equal to the applicable Purchase
Price.
(g) "Fair Market Value" of any asset (including any security) means the
fair market value thereof as mutually determined by the Company and the
Registered Holders of a majority of the Warrants then outstanding. If the
Company and the Registered Holders of a majority of the Warrants then
outstanding are unable to reach agreement on any valuation matter, such
valuation shall be submitted to and determined by a nationally recognized
independent investment bank selected by the Board of Directors of the Company
and the Registered Holders of a majority of the Warrants then outstanding (or,
if such selection cannot be agreed upon promptly, or in any event within ten
days, then such valuation shall be made by a nationally recognized independent
investment banking firm selected by the American Arbitration Association in New
York City in accordance with its rules), the costs of which valuation shall be
paid for by the Company.
(h) "Final Closing Date" shall mean the final closing date of the
Private Placement.
(i) "Initial Closing Date" shall mean, as to each Warrant, the date of
the initial closing of the Private Placement.
(j) "Initial Warrant Exercise Date" shall mean, as to each Warrant, the
Final Closing Date.
(k) "Interim Closing Date" shall mean, as to each Warrant, any closing
date of the Private Placement other than the Initial Closing Date and the Final
Closing Date.
(l) "Market Price" shall mean the average Closing Bid Price for five
(5) consecutive trading days ending with the trading day prior to the date as of
which the Market
2
<PAGE> 3
Price is being determined (with appropriate adjustments for subdivisions or
combinations of shares effected during such period), provided that if the prices
referred to in the definition of Closing Bid Price cannot be determined for such
period, "Market Price" shall mean Fair Market Value.
(m) "Purchase Price" shall mean, as to each Warrant, the purchase price
to be paid upon exercise of such Warrant in accordance with the terms hereof,
which price shall be the Trading Price, subject to adjustment from time to time
pursuant to the provisions of Section 9, and subject to the Company's right to
reduce the Purchase Price upon notice to all warrantholders (which may be given,
without limitation, prior to the Final Closing Date).
(n) "Redemption Price" shall mean the price at which the Company may,
at its option in accordance with the terms hereof, redeem the Warrants, which
price shall be $0.01 per share of Common Stock subject to such Warrants, as
adjusted as provided in Section 9.
(o) "Registered Holder" shall mean, as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(p) "Stock Market" shall mean the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange, shall mean the Nasdaq National Market System or the Nasdaq SmallCap
Market (collectively, "Nasdaq") or, if the Common Stock is not quoted on Nasdaq,
shall mean the OTC Bulletin Board or, if the Common Stock is not quoted on the
OTC Bulletin Board, shall mean the over-the-counter market as furnished by any
NASD member firm selected from time to time by the Company for that purpose.
(q) A "trading day" shall mean a day on which the Stock Market is open
for the transaction of business.
(r) "Trading Price" shall mean the average Closing Bid Price (with
appropriate adjustments for subdivisions or combinations of shares effected
during such period) of the Common Stock for the five or 20 consecutive trading
days immediately preceding (a) the Initial Closing Date, (b) any Interim Closing
Date or (c) the Final Closing Date of this Offering, whichever is lowest;
provided that if the prices referred to in the definition of Closing Bid Price
cannot be determined for any of such periods, "Trading Price" shall mean Fair
Market Value.
(s) "Transfer Agent" shall mean ChaseMellon Shareholder Services,
L.L.C., as the Company's transfer agent, or its authorized successor, as such.
(t) "Warrant Expiration Date" shall mean, as to each Warrant, 5:00 p.m.
(New York time) on the day prior to earlier of (i) the fifth anniversary of the
Final Closing Date or (ii) the Redemption Date; provided that if such date shall
in the State of New York be a holiday or a day on which banks are authorized or
required to close, then 5:00 p.m. (New York time) on the next following day
which in the State of New York is neither a holiday nor a day on which banks are
authorized or required to close. Upon notice to all Registered Holders thereof,
the Company shall have the right to extend the Warrant Expiration Date.
3
<PAGE> 4
(u) Unless otherwise stated, section references used within this
Warrant Agreement refer to sections of this Warrant Agreement.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase one share of Common
Stock upon the exercise thereof, in accordance with the terms hereof, subject to
modification and adjustment as provided in Section 9.
(b) The Warrants included in the offering of Units will immediately be
detachable and separately transferable from the shares of Common Stock
constituting part of such Units.
(c) Within five Business Days after the Final Closing Date, Warrant
Certificates representing the number of Warrants sold pursuant to the Private
Placement shall be executed by the Company and delivered to the Warrant Agent.
Within five Business Days of receipt of the Warrant Certificates by the Warrant
Agent and receipt of all necessary information, the Warrant Agent shall send the
Warrant Certificates to the Registered Holders. The Company shall issue a
written order, signed by its Chairman of the Board of Directors, President or
any Vice President and by its Secretary or an Assistant Secretary, to the
Warrant Agent directing that the Warrant Certificates shall be countersigned,
issued and delivered by the Warrant Agent in accordance with the preceding
sentence.
(d) From time to time, until the Warrant Expiration Date, the Transfer
Agent, upon written instruction from the Company, shall countersign and deliver
stock certificates in required whole number denominations representing the
appropriate number of shares of Common Stock upon the exercise of Warrants in
accordance with this Agreement.
(e) From time to time, until the Warrant Expiration Date, the Warrant
Agent, upon written instruction from the Company, shall countersign and deliver
Warrant Certificates in required whole number denominations to the persons
entitled thereto in connection with any transfer or exchange permitted under
this Agreement; provided that no Warrant Certificates shall be issued except (i)
those initially issued pursuant to the Private Placement, (ii) those issued on
or after the Initial Warrant Exercise Date, upon the exercise of fewer than all
Warrants represented by any Warrant Certificate, to evidence any unexercised
Warrants held by the exercising Registered Holder, (iii) those issued upon any
transfer or exchange pursuant to Section 6; (iv) those issued in replacement of
lost, stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7
and (v) at the option of the Company, in such form as may be approved by its
Board of Directors, to reflect any adjustment to, or change in: the Purchase
Price; the number of shares of Common Stock purchasable upon exercise of the
Warrants; the Redemption Price of the Warrants; or the Warrant Expiration Date.
4
<PAGE> 5
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein) and
may have such letters, numbers or other marks of identification or designation
and such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate, which do not affect the duties and
responsibilities of the Warrant Agent or the Transfer Agent, and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or with
any rule or regulation of any stock exchange on which the Warrants may be
listed, or to conform to usage or to the requirements of Section 2. The Warrant
Certificates shall be dated the date of issuance thereof (whether upon initial
issuance, transfer, exchange or in lieu of mutilated, lost, stolen, or destroyed
Warrant Certificates) and issued in registered form. Warrant Certificates shall
be numbered serially with the letter "W" on Warrants of all denominations.
(b) Warrant Certificates shall be executed on behalf of the Company by
its Chairman of the Board of Directors, President or any Vice President and by
its Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon. Warrant Certificates shall be manually countersigned
by the Warrant Agent and shall not be valid for any purpose unless so
countersigned. In case any officer of the Company who shall have signed any of
the Warrant Certificates shall cease to be an officer of the Company or to hold
the particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issuance and delivery thereof, such Warrant Certificates may
nevertheless be countersigned by the Warrant Agent, issued and delivered with
the same force and effect as though the person who signed such Warrant
Certificates had not ceased to be an officer of the Company or to hold such
office. After countersignature by the Warrant Agent, Warrant Certificates shall
be delivered by the Warrant Agent to the Registered Holder without further
action by the Company, except as otherwise provided by Subsection 4(a).
SECTION 4. Exercise.
(a) Each Warrant may be exercised by the Registered Holder thereof at
any time on or after the Initial Warrant Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the Close of Business on the Exercise
Date and the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder of those securities
upon the exercise of the Warrant as of the Close of Business on the Exercise
Date. As soon as practicable on or after the Exercise Date the Warrant Agent
shall deposit the proceeds received from the exercise of a Warrant and shall
notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five Business Days after the date of such
notice from the Warrant Agent, the Warrant Agent, on behalf of the Company,
shall cause to be issued and delivered by the Transfer Agent, to the person or
persons entitled to receive the same, a certificate or certificates for the
securities deliverable upon such exercise (plus a certificate for any remaining
unexercised Warrants of the Registered Holder). In the case of payment made in
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the form of a check drawn on an account of Paramount or such other investment
banks and brokerage houses as the Company shall approve in writing to the
Warrant Agent, certificates shall immediately be issued without prior notice to
the Company nor any delay. Upon the exercise of any Warrant and receipt of
notice as to the clearance of the funds received, the Warrant Agent shall
promptly remit the payment received for the Warrant (the "Warrant Proceeds") to
the Company or as the Company may otherwise direct in writing.
(b) Beginning on the 121st day following the Final Closing Date,
provided that the registration statement referred to in Section 5 of the
Subscription Agreement, dated as of the date hereof, between the Company and the
Registered Holder is not effective, a Registered Holder may exercise all or any
part of this Warrant on a "cashless" basis by providing written notice of its
intention to do so and stating the maximum number (the "Maximum Number") of
shares of Common Stock the Registered Holder desires to purchase in
consideration of cancellation of Warrants in payment for such exercise. The
number of shares of Common Stock the Registered Holder shall receive upon such
exercise pursuant to this Section 4(b) shall be equal to the difference between
the Maximum Number and the quotient that is obtained when the product of the
Maximum Number and the Purchase Price is divided by the then Market Price per
share. The Warrant Agent shall have no duty or obligation under this subsection
unless and until it is notified by the Company that the Registered Holder may
exercise all or part of this Warrant on a "cashless" basis.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery (assuming full payment of the purchase
price thereof), be duly and validly issued, fully paid, nonassessable and free
from all issuance taxes, liens and charges with respect to the issue thereof
including, without limitation, adverse claims whatsoever (with the exception of
claims arising through the acts of the Registered Holders themselves and except
as arising from applicable federal and state securities laws), that the Company
shall have paid all taxes or charges, if any, in respect of the original
issuance thereof and that upon issuance such shares, to the extent applicable,
shall be listed on, or included in, the Stock Market.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Warrants hereunder require registration with, or the
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will in good faith and as expeditiously as reasonably possible, endeavor
to secure such registration or approval; provided, however, that the Company
shall have no obligation to register such securities under the Securities Act of
1933, as amended, except as provided in the Subscription Agreement dated as of
the date hereof between the Company and each Registered Holder. The Company will
use reasonable efforts to obtain appropriate approvals or registrations under
state "blue sky" securities laws; provided, that the Company shall not be
required to qualify as a foreign corporation or file a general or
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<PAGE> 7
limited consent to service of process in any such jurisdictions or make any
changes in its capital structure or any other aspects of its business or enter
into any agreements with blue sky commissions, including any agreement to escrow
shares of its capital stock. With respect to any such securities, however,
Warrants may not be exercised by, or shares of Common Stock issued to, any
Registered Holder in any state in which such exercise would be unlawful. The
Warrant Agent may conclude that no such exercise would be unlawful unless and
until it has received notice otherwise from the Company.
(c) The Company shall pay all documentary, stamp or similar taxes and
other similar charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of taxes or charges incident thereto, if any. The Warrant Agent
shall have no duty or obligation under this Section 5 unless and until it is
satisfied that all such taxes or charges have been paid.
(d) The Warrant Agent is hereby irrevocably authorized to requisition
the Company's Transfer Agent from time to time for certificates representing
shares of Common Stock issuable upon exercise of the Warrants, and the Company
will authorize the Transfer Agent to comply with all such proper requisitions.
The Company will file with the Warrant Agent a statement setting forth the name
and address of the Transfer Agent of the Company for shares of Common Stock
issuable upon exercise of the Warrants.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute,
and the Warrant Agent shall countersign, issue and deliver in exchange therefor,
the Warrant Certificate or Certificates that the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which, subject
to such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and any transfers thereof in accordance with its regular practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute and the Warrant Agent shall issue and
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for registration
or transfer, or for exchange or exercise, the subscription form on the reverse
thereof shall be duly endorsed, or be accompanied by a written instrument or
instruments of transfer and subscription, in form satisfactory to the Company
and the Warrant Agent, duly executed by the Registered Holder or his or its
attorney-in-fact duly authorized in writing.
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(d) A service charge may be imposed by the Warrant Agent on holders for
any exchange or registration of transfer of Warrant Certificates of such
holders. In addition, the Company may require payment by such holder of a sum
sufficient to cover any tax or other charge that may be imposed in connection
therewith.
(e) All Warrant Certificates surrendered for exercise, or for exchange
in case of mutilated Warrant Certificates, shall be promptly cancelled by the
Warrant Agent and thereafter retained by the Warrant Agent in a manner
consistent with its customary practices until termination of this Warrant
Agreement or resignation as Warrant Agent, or, with the prior written consent of
Paramount, disposed of or destroyed at the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants, which are being offered in Units with shares of
Common Stock pursuant to the Placement Agency Agreement, will immediately be
detachable and separately transferable from the Common Stock.
SECTION 7. Loss or Mutilation. Upon receipt by the Warrant Agent of
evidence satisfactory to it of the ownership of and loss, theft, destruction or
mutilation of any Warrant Certificate and (in case of loss, theft or
destruction) of indemnity satisfactory to it, and (in the case of mutilation)
upon surrender and cancellation thereof, the Company shall execute and the
Warrant Agent shall (in the absence of notice to the Company and/or Warrant
Agent that the Warrant Certificate has been acquired by a bona fide purchaser)
countersign and deliver to the Registered Holder in lieu thereof a new Warrant
Certificate of like tenor representing an equal aggregate number of Warrants.
Applicants for a substitute Warrant Certificate shall comply with such other
reasonable regulations and pay such other reasonable charges as the Warrant
Agent may prescribe.
SECTION 8. Redemption.
(a) At any time after the first anniversary of the Final Closing Date,
on no fewer than sixty (60) days' prior written notice to Registered Holders of
the Warrants being redeemed, the Company may, at its option, redeem the Warrants
at the Redemption Price, provided the Closing Bid Price exceeds 250% of the
Purchase Price per share of Common Stock subject to a Warrant for at least 20
trading days in any 30 consecutive trading day period ending three days prior to
the date of notice of redemption (which shall be the date of mailing of such
notice). All outstanding Warrants must be redeemed if any are redeemed. The date
fixed for redemption of the Warrants is referred to herein as the "Redemption
Date."
(b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall instruct
the Warrant Agent to mail, upon receipt of all necessary information, a notice
of redemption to each of the Registered Holders of the Warrants to be redeemed,
by first class, postage prepaid, not later than the sixtieth
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<PAGE> 9
Business Day before the date fixed for redemption, at his or its last address as
it shall appear on the registry books of the Warrant Agent. Any notice mailed in
the manner provided herein shall be conclusively presumed to have been duly
given whether or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the Redemption Price,
(ii) the Redemption Date, (iii) the place where the Warrant Certificates shall
be delivered and the Redemption Price paid, (iv) that Paramount will assist each
Registered Holder of a Warrant and be entitled to reimbursement of costs in
connection with the exercise thereof and (v) that the right to exercise the
Warrant shall terminate at 5:00 p.m. (New York time) on the Business Day
immediately preceding the Redemption Date. No failure to mail such notice nor
any defect therein or in the mailing thereof shall affect the validity of the
proceedings for such redemption except as to a Registered Holder (a) to whom
notice was not mailed or (b) whose notice was defective. An affidavit of the
Warrant Agent or of the Secretary or an Assistant Secretary of the Company that
notice of redemption has been mailed shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 p.m. (New
York time) on the Business Day immediately preceding the Redemption Date. On and
after the Redemption Date, Registered Holders of the Warrants shall have no
further rights except to receive, upon surrender of the Warrant, the Redemption
Price.
(e) From and after the Redemption Date, the Company shall, at the place
specified in the notice of redemption, upon presentation and surrender to the
Company by or on behalf of the Registered Holder thereof of one or more Warrant
Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Holder a sum in cash equal to the
Redemption Price of such Warrants. From and after the Redemption Date and upon
the deposit or setting aside by the Company of a sum sufficient to redeem all
the Warrants called for redemption, such Warrants shall expire and become null
and void and all rights hereunder and under the Warrant Certificates, except the
right to receive payment of the Redemption Price, shall cease.
SECTION 9. Adjustment of Purchase Price and Number of Shares of Common
Stock or Warrants. Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in
Subsections 9(c) and 9(d)) be such number of shares (calculated to the nearest
tenth) purchasable at the Purchase Price in effect immediately prior to such
adjustment multiplied by a fraction, the numerator of which shall be the
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment.
(a) Except as otherwise provided herein, in the event the Company
shall, at any time or from time to time after the date hereof, (i) sell or issue
any shares of Common Stock for a consideration per share less than either (a)
the Purchase Price in effect on the date of such sale or issuance or (b) the
Market Price of the Common Stock as of the date of the sale or issuance, (ii)
issue any shares of Common Stock as a stock dividend to the holders of Common
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<PAGE> 10
Stock, or (iii) subdivide or combine the outstanding shares of Common Stock into
a greater or fewer number of shares (any such sale, issuance, subdivision or
combination being herein called a "Change of Shares"), then, and thereafter upon
each further Change of Shares, the Purchase Price in effect immediately prior to
such Change of Shares shall be changed to a price (rounded to the nearest cent)
determined by multiplying the Purchase Price in effect immediately prior thereto
by a fraction, the numerator of which shall be (x) the sum of (A) the number of
shares of Common Stock outstanding immediately prior to the sale or issuance of
such additional shares or such subdivision or combination plus (B) the number of
shares of Common Stock that the aggregate consideration received (determined as
provided in Paragraph 9(g)(vi)) for the issuance of such additional shares would
purchase at the greater of (1) the Purchase Price in effect on the date of such
issuance or (2) the Market Price as of such date, and the denominator of which
shall be (y) the number of shares of Common Stock outstanding immediately after
the sale or issuance of such additional shares or such subdivision or
combination. Such adjustment shall be made successively whenever any such
issuance is made.
(b) In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another entity (other than a consolidation or
merger in which the Company is the continuing entity and which does not result
in any reclassification, capital reorganization or other change of outstanding
shares of Common Stock other than the number thereof), or in case of any sale or
conveyance to another entity of the property of the Company as, or substantially
as, an entirety (other than a sale/leaseback, mortgage or other financing
transaction), the Company shall cause effective provision to be made so that
each holder of a Warrant then outstanding shall have the right thereafter, by
exercising such Warrant, upon the terms and conditions specified in the Warrants
and in lieu of the shares of Common Stock immediately theretofore purchasable
upon exercise of the Warrants, to purchase the kind and number of shares of
stock or other securities or property (including cash) receivable upon such
reclassification, capital reorganization or other change, consolidation, merger,
sale or conveyance by a holder of the number of shares of Common Stock that
might have been purchased upon exercise of such Warrant immediately prior to
such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 9. The Company shall not effect any
such consolidation, merger or sale unless prior to, or simultaneously with, the
consummation thereof the successor (if other than the Company) resulting from
such consolidation or merger or the entity purchasing assets or other
appropriate entity shall assume, by written instrument executed and delivered to
the Warrant Agent, the obligation to deliver to the holder of each Warrant such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holders may be entitled to purchase and the other obligations
under this Agreement. The foregoing provisions shall similarly apply to
successive reclassifications, capital reorganizations and other changes of
outstanding shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
(c) If, at any time or from time to time, the Company shall issue or
distribute to the holders of shares of Common Stock evidence of its
indebtedness, any other securities of the Company or any cash, property or other
assets (excluding an issuance or distribution governed by one of the preceding
subsections of this Section 9 and also excluding cash dividends
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or cash distributions paid out of net profits legally available therefor in the
full amount thereof (any such non-excluded event being herein called a "Special
Dividend")), then in each case the Purchase Price shall be adjusted by
multiplying the Purchase Price theretofore in effect by a fraction, the
numerator of which shall be the Market Price in effect on the record date of
such issuance or distribution less the Fair Market Value of the Special Dividend
applicable to one share of Common Stock and the denominator of which shall be
such Market Price. Such adjustment shall be made whenever any such distribution
is made and shall become effective on the date of distribution retroactive to
the record date for the determination of stockholders entitled to receive such
distribution.
(d) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
shall be the Purchase Price in effect immediately prior to such adjustment and
the denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to this
Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10, the
number of additional Warrants to which such Holder shall be entitled as a result
of such adjustment or, at the option of the Company, cause to be distributed to
such Holder in substitution and replacement for the Warrant Certificates held by
him prior to the date of adjustment (and upon surrender thereof, if required by
the Company) new Warrant Certificates evidencing the number of Warrants to which
such Holder shall be entitled after such adjustment.
(e) Irrespective of any adjustments or changes in the Purchase Price or
the number of shares of Common Stock purchasable upon exercise of the Warrants,
the Warrant Certificates theretofore and thereafter issued shall, unless the
Company shall exercise its option to issue new Warrant Certificates pursuant to
Subsection 2(e), continue to express the same Purchase Price per share, number
of shares purchasable thereunder and Redemption Price therefor as when the same
were originally issued.
(f) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
Chairman of the Board of Directors or President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company
setting forth: (i) the Purchase Price as so adjusted, (ii) the number of shares
of Common Stock purchasable upon exercise of each Warrant after such adjustment,
and, if the Company shall have elected to adjust the number of Warrants pursuant
to Subsection 9(d), the number of Warrants to which the registered holder of
each Warrant shall then be entitled, and the adjustment in Redemption Price
resulting therefrom, and (iii) a brief statement of the facts and computations
accounting for such adjustment. The Company will promptly file such certificate
with the Warrant Agent and cause a brief summary thereof to be sent by ordinary
first class mail to Paramount and to each Registered Holder of Warrants at his
or its last address as it
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shall appear on the registry books of the Warrant Agent. No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect the
validity of such adjustment. The affidavit of an officer of the Warrant Agent or
the Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. The Warrant Agent may rely on the information in the certificate
as true and correct and has no duty or obligation to independently verify the
facts, amounts or calculations set forth therein.
(g) For purposes of Subsections 9(a) and 9(c), the following provisions
(i) to (v) shall also be applicable:
(i) The number of shares of Common Stock deemed outstanding at
any given time shall include all shares of capital stock convertible into, or
exchangeable for, Common Stock (on an as converted basis) as well as all shares
of Common Stock issuable upon the exercise of (w) any convertible debt, (x)
warrants outstanding on the date hereof, (y) options outstanding on the date
hereof, and (z) all shares issuable pursuant to the rights, options and warrants
referred to in Subsection 9(h)(iii).
(ii) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.05 in such
price; provided that any adjustments which by reason of this Paragraph (ii) are
not required to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with
adjustments so carried forward, shall require an increase or decrease of at
least $.01 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company (including as a
component of a unit) of any rights or warrants to subscribe for or purchase, or
any options for the purchase of, Common Stock or any securities convertible into
or exchangeable for Common Stock (such securities convertible, exercisable or
exchangeable into Common Stock being herein called "Convertible Securities"), or
(2) the issuance by the Company, without the receipt by the Company of any
consideration therefor, of any rights or warrants to subscribe for or purchase,
or any options for the purchase of, Common Stock or Convertible Securities,
whether or not such rights, warrants or options, or the right to convert or
exchange such Convertible Securities, are immediately exercisable, and the
consideration per share for which Common Stock is issuable upon the exercise of
such rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum aggregate
consideration, as set forth in the instrument relating thereto without regard to
any antidilution or similar provisions contained therein for a subsequent
adjustment of such amount, payable to the Company upon the exercise of such
rights, warrants or options, plus the consideration received by the Company for
the issuance or sale of such rights, warrants or options, plus, in the case of
such Convertible Securities, the minimum aggregate amount, as set forth in the
instrument relating thereto without regard to any antidilution or similar
provisions contained therein for a subsequent adjustment of such amount, of
additional consideration, if any, other than such Convertible Securities,
payable upon the conversion or exchange thereof, by (y) the total maximum
number, as set forth in the instrument relating thereto without regard to any
antidilution or similar provisions contained therein for a subsequent adjustment
of such amount, of shares of Common Stock issuable upon
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<PAGE> 13
the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities issuable upon the exercise of such
rights, warrants or options) is less than either the Purchase Price or the
Market Price of the Common Stock as of the date of the issuance or sale of such
rights, warrants or options, then such total maximum number of shares of Common
Stock issuable upon the exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities (as of the date of the
issuance or sale of such rights, warrants or options) shall be deemed to be
"Common Stock" for purposes of Subsections 9(a) and 9(c) and shall be deemed to
have been sold for an amount equal to such consideration per share and shall
cause an adjustment to be made in accordance with Subsections 9(a) and 9(c).
(iv) In case of the sale or other issuance by the Company of
any Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount, as set forth in the instrument relating thereto without regard to any
antidilution or similar provisions contained therein for a subsequent adjustment
of such amount, of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number, as set forth in the instrument relating thereto without regard
to any antidilution or similar provisions contained therein for a subsequent
adjustment of such amount, of shares of Common Stock issuable upon the
conversion or exchange of such Convertible Securities) is less than either the
Purchase Price or the Market Price of the Common Stock as of the date of the
sale of such Convertible Securities, then such total maximum number of shares of
Common Stock issuable upon the conversion or exchange of such Convertible
Securities (as of the date of the sale of such Convertible Securities) shall be
deemed to be "Common Stock" for purposes of Subsections 9(a) and 9(c) and shall
be deemed to have been sold for an amount equal to such consideration per share
and shall cause an adjustment to be made in accordance with Subsections 9(a) and
9(c).
(v) In case the Company shall modify the rights of conversion,
exchange or exercise of any of the securities referred to in Paragraphs (iii) or
(iv) of this Subsection 9(g) or any other securities of the Company convertible,
exchangeable or exercisable for shares of Common Stock, for any reason other
than an event that would require adjustment to prevent dilution, so that the
consideration per share received by the Company after such modification is less
than either the Purchase Price or the Market Price as of the date prior to such
modification, then such securities, to the extent not theretofore exercised,
converted or exchanged, shall be deemed to have expired or terminated
immediately prior to the date of such modification and the Company shall be
deemed, for purposes of calculating any adjustments pursuant to this Section 9,
to have issued such new securities upon such new terms on the date of
modification. Such adjustment shall become effective as of the date upon which
such modification shall take effect. On the expiration or cancellation of any
such right, warrant or option or the termination or cancellation of any such
right to convert or exchange any such Convertible Securities, the Purchase Price
then in effect hereunder shall forthwith be readjusted to such Purchase Price as
would have obtained (a) had the adjustments made upon the issuance or sale of
such rights, warrants, options or Convertible Securities been made upon the
basis of
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the issuance of only the number of shares of Common Stock theretofore actually
delivered (and the total consideration received therefor) upon the exercise of
such rights, warrants or options or upon the conversion or exchange of such
Convertible Securities and (b) had adjustments been made on the basis of the
Purchase Price as adjusted under clause (a) of this sentence for all
transactions (which would have affected such adjusted Purchase Price) made after
the issuance or sale of such rights, warrants, options or Convertible
Securities.
(vi) In case of the sale of any shares of Common Stock, any
Convertible Securities, any rights or warrants to subscribe for or purchase, or
any options for the purchase of, Common Stock or Convertible Securities, the
consideration received by the Company therefor shall be deemed to be the gross
sales price therefor without deducting therefrom any expense paid or incurred by
the Company or any underwriting discounts or commissions or concessions paid or
allowed by the Company in connection therewith. In the event that any securities
shall be issued in connection with any other securities of the Company, together
comprising one integral transaction in which no specific consideration is
allocated among the securities, then each of such securities shall be deemed to
have been issued for such consideration as the Board of Directors of the Company
determines in good faith; provided, however, that if holders of more than of 10%
of the then outstanding Warrants disagree with such determination, the Company
shall retain an independent investment banking firm for the purpose of obtaining
an appraisal.
(h) Notwithstanding any other provision hereof, no adjustment to the
Purchase Price of the Warrants or to the number of shares of Common Stock
purchasable upon the exercise of each Warrant will be made:
(i) upon the issuance or exercise of any of the options
outstanding on the date hereof or which may hereafter be granted under any stock
option plan or any employee benefit plan of the Company, but only with respect
to such options as are exercisable at prices no lower than the Closing Bid Price
(or, if the price referenced in the definition of Closing Bid Price cannot be
determined, the Fair Market Value) of the Common Stock as of the date of grant
thereof; or
(ii) upon issuance or exercise of the Placement Warrants (as
defined in the Placement Agency Agreement), upon the conversion of the Company's
Series A Convertible Preferred Stock or Series D Convertible Preferred Stock,
upon the issuance, conversion or exercise of the Common Stock or the Warrants
included in the Units of the Company issued (A) on or prior to the Final Closing
Date or (B) pursuant to the exercise of the Placement Warrants; or
(iii) upon the issuance or sale of Common Stock or Convertible
Securities pursuant to the exercise of any rights, options or warrants to
receive, subscribe for or purchase, or any options for the purchase of, Common
Stock or Convertible Securities, which securities were outstanding prior to the
date of the original issuance of the Warrants by the Company, including, without
limitation, rights, options or warrants issued in substitution of such existing
rights, options or warrants to Dr. Kasses or holders of Class D Warrants, or
which were
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disclosed under the caption "Securities Outstanding/Capitalization" in the Term
Sheet related to the Private Placement"; or
(iv) upon the issuance or sale of Common Stock or Convertible
Securities pursuant to the exercise of any rights, options or warrants to
receive, subscribe for or purchase, or any options for the purchase of, Common
Stock or Convertible Securities, which were issued or sold after the date of the
original issuance of the Warrants by the Company, provided that an adjustment
was either made or not required to be made in accordance with Section 9(a) or
9(c) in connection with the issuance or sale of such securities or any
modification of the terms thereof; or
(v) upon the issuance or sale of Common Stock upon conversion
or exchange of any Convertible Securities, provided that any adjustments
required to be made upon the issuance or sale of such Convertible Securities or
any modification of the terms thereof were so made, and whether or not such
Convertible Securities were outstanding on the date of the original sale of the
Warrants or were thereafter issued or sold.
Section 9(g)(v) shall nevertheless apply to any modification of the rights of
conversion, exchange or exercise of any of the securities referred to in
Paragraphs (i), (ii), (iii) and (iv) of this Section 9(h).
(i) As used in this Section 9, the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date of the original
issuance of the Units and shall also include any capital stock of any class of
the Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Certificate of Incorporation as Common Stock on the date of
the original issuance of the Units or (i), in the case of any reclassification,
change, consolidation, merger, sale or conveyance of the character referred to
in Subsection 9(c), the stock, securities or property provided for in such
section or (ii), in the case of any reclassification or change in the
outstanding shares of Common Stock issuable upon exercise of the Warrants as a
result of a subdivision or combination or consisting of a change in par value,
or from par value to no par value, or from no par value to par value, such
shares of Common Stock as so reclassified or changed.
(j) Any determination as to whether an adjustment in the Purchase Price
in effect hereunder is required pursuant to Section 9, or as to the amount of
any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of the
Company.
(k) Notwithstanding anything to the contrary herein, in no case shall
the Purchase Price be adjusted to an amount less than $.001 per share, the
current par value of the Common Stock for which the Warrants are exercisable.
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<PAGE> 16
(l) If and whenever the Company shall grant to the holders of Common
Stock, as such, rights or warrants to subscribe for or to purchase, or any
options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company may at its option elect concurrently therewith to grant to
each Registered Holder as of the record date for such transaction of the
Warrants then outstanding, the rights, warrants or options to which each
Registered Holder would have been entitled if, on the record date used to
determine the stockholders entitled to the rights, warrants or options being
granted by the Company, the Registered Holder were the holder of record of the
number of whole shares of Common Stock then issuable upon exercise of his or its
Warrants. If the Company shall so elect under this Subsection 9(l), then such
grant by the Company to the holders of the Warrants shall be in lieu of any
adjustment which otherwise might be called for pursuant to this Section 9.
SECTION 10. Fractional Warrants and Fractional Shares. If the number of
shares of Common Stock purchasable upon the exercise of each Warrant is adjusted
pursuant to Section 9, the Company nevertheless shall not be required to issue
fractions of shares, upon exercise of the Warrants or otherwise, nor to
distribute certificates that evidence fractional shares. With respect to any
fraction of a share called for upon any exercise hereof, the Company shall pay
to the Registered Holder an amount in cash equal to such fraction multiplied by
the Market Price of one share of Common Stock as of the date of exercise.
SECTION 11. Warrant Holders Not Deemed Stockholders. No holder of
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Warrants for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon the holder of Warrants, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issue or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
SECTION 12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his or its own behalf and for his or
its own benefit, enforce against the Company his or its right to exercise his or
its Warrants for the purchase of shares of Common Stock in the manner provided
in the Warrant Certificate and this Agreement.
SECTION 13. Agreement of Warrant Holders. Every holder of any Warrant,
by his or its acceptance thereof, consents and agrees with the Company, the
Warrant Agent and every other holder of any Warrant that:
(a) The Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his or its
attorney duly authorized in
16
<PAGE> 17
writing and only if the Warrant Certificates representing such Warrants are
surrendered at the office of the Warrant Agent, duly endorsed or accompanied by
a proper instrument of transfer satisfactory to the Warrant Agent, in its sole
discretion, together with payment of any applicable taxes or charges; and
(b) The Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary.
SECTION 14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same, by redemption or otherwise, shall thereupon be
delivered to the Warrant Agent and canceled by it and retired. The Warrant Agent
shall also cancel the Warrant Certificate or Warrant Certificates following
exercise of any or all of the Warrants represented thereby or delivered to it
for transfer, split up, combination or exchange.
SECTION 15. Concerning the Warrant Agent. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates, or by any other act
hereunder, be deemed to make any representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty, liability or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists that may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible or liable for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this Agreement or
in any Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own gross negligence or willful
misconduct, as determined by a court of competent jurisdiction.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
17
<PAGE> 18
Any notice, statement, instruction, request, direction, order or demand
of the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board President, or any Vice President and the Secretary or any
Assistant Secretary (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine,
or for any delay in acting while waiting for such notice, statement,
instruction, request, direction, order or demand.
The Company agrees to pay the Warrant Agent reasonable compensation for
its services hereunder and to reimburse it for its reasonable expenses hereunder
pursuant to the fee schedule attached hereto as Exhibit B; the Company further
agrees to indemnify the Warrant Agent and save it harmless against any and all
losses, expenses and liabilities, including, but not limited to, judgments,
damages, penalties, claims, demands, settlements, costs and reasonable counsel
fees, for any action taken, suffered or omitted by the Warrant Agent in
connection with the acceptance of this Agreement and the execution of its duties
and powers hereunder, except losses, expenses and liabilities arising as a
result of the Warrant Agent's gross negligence or willful misconduct, as
determined by a court of competent jurisdiction. The indemnity provided herein
shall survive the resignation or removal of the Warrant Agent or the termination
of the Warrant Agreement and the termination and expiration of the Warrants. The
costs and expenses incurred in enforcing this right of indemnification shall be
paid by the Company. Anything to the contrary notwithstanding, in no event shall
the Warrant Agent be liable for special, punitive, indirect, consequential or
incidental loss or damage of any kind whatsoever (including, but not limited to,
lost profits), even if the Warrant Agent has been advised of the likelihood of
such loss or damage. Any liability of the Warrant Agent under this Agreement
shall be limited to the amount of fees paid by the Company to the Warrant Agent.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's gross negligence or willful misconduct, as determined by
a court of competent jurisdiction), after giving 30 days' prior written notice
to the Company. At least 15 days prior to the date such resignation is to become
effective, the Warrant Agent shall cause a copy of such notice of resignation to
be mailed to the Registered Holders of each Warrant Certificate at the Company's
expense. Upon notice of such resignation, discharge, or any inability of the
Warrant Agent to act as such hereunder, the Company shall appoint a new warrant
agent in writing. If the Company shall fail to make such appointment within a
period of 15 days after it has been notified in writing of such resignation by
the resigning Warrant Agent, then the Registered Holder of any Warrant
Certificate may apply to any court of competent jurisdiction for the appointment
of a new warrant agent. Any new warrant agent, whether appointed by the Company
or by such a court, shall be (i) an entity having capital and surplus, as shown
by its last published report to its stockholders, of not less than $10,000,000
or a stock transfer company or (ii) an affiliate of the entity described in (i)
above. After acceptance in writing of such appointment by the new warrant agent
is received by the Company, such new warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
herein as the Warrant Agent, without any further assurance, conveyance, act or
18
<PAGE> 19
deed; but if for any reason it shall be necessary or expedient to execute and
deliver any further assurance, conveyance, act or deed, the same shall be done
at the expense of the Company and shall be legally and validly executed and
delivered by the resigning Warrant Agent. Not later than the effective date of
any such appointment, the Company shall file notice thereof with the resigning
Warrant Agent and shall forthwith cause a copy of such notice to be mailed to
the Registered Holder of each Warrant Certificate.
Any entity into which the Warrant Agent or any new warrant agent may be
converted or merged or any entity resulting from any consolidation to which the
Warrant Agent or any new warrant agent shall be a party or any entity succeeding
to the business of the Warrant Agent shall be a successor warrant agent under
this Agreement without any further act, provided that such entity is eligible
for appointment as successor to the Warrant Agent under the provisions of the
preceding paragraph. Any such successor warrant agent shall promptly cause
notice of its succession as warrant agent to be mailed to the Company and to the
Registered Holder of each Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
SECTION 16. Modification of Agreement. Subject to the provisions of
Subsection 4(b), the parties hereto and the Company may by supplemental
agreement make any changes or corrections in this Agreement (i) that they shall
deem appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or manifest mistake or error herein contained; (ii) to
reflect an increase in the number of Warrants which are to be governed by this
Agreement resulting from a subsequent offering of Company securities which
includes Warrants having the same terms and conditions as the Warrants,
originally covered by or subsequently added to this Agreement under this Section
16; or (iii) that they may deem necessary or desirable and that shall not
adversely affect the interests of the holders of Warrant Certificates; provided,
however, that this Agreement shall not otherwise be modified, supplemented or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing more than 50% of the Warrants then
outstanding; and provided, further, that no change in the number or nature of
the securities purchasable upon the exercise of any Warrant, or the Purchase
Price therefor, or the acceleration of the Warrant Expiration Date, shall be
made without the consent in writing of the Registered Holder of the Warrant
Certificate representing such Warrant, other than such changes as are
specifically prescribed by this Agreement (including those contemplated in
Subsection 9(d)) as originally executed or are made in compliance with
applicable law. Upon the delivery of a certificate from an appropriate officer
of the Company which states that the proposed supplement or amendment is in
compliance with this Section 16, the Warrant Agent shall execute such supplement
or amendment, unless the Warrant Agent determines that such supplement and
amendment will increase its duties, liabilities or obligations.
SECTION 17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed
19
<PAGE> 20
by means of first class registered or certified mail, postage prepaid as
follows: if to the Registered Holder of a Warrant Certificate, at the address of
such holder as shown on the registry books maintained by the Warrant Agent; if
to the Company, at 99 Hayden Avenue, Lexington, Massachusetts, 02421, Attention:
Chief Financial Officer, or at such other address as may have been furnished to
the Warrant Agent in writing by the Company; if to the Warrant Agent, at its
Corporate Office; and, if to Paramount, at Paramount Capital, Inc., 787 Seventh
Avenue, New York, New York 10019, Attention: David M. Tanen, Esq.
Notwithstanding anything else contained in this agreement to the contrary, any
notice to the Warrant Agent shall not be deemed to have been made or received
until actually received by the Warrant Agent.
SECTION 18. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company, Paramount, the Warrant Agent and their
respective successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended nor shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 20. Termination. This Agreement shall terminate at the Close of
Business on the Warrant Expiration Date of all the Warrants or such earlier date
upon which all Warrants have been exercised or redeemed, except that the Warrant
Agent shall account to the Company for cash held by it and the provisions of
Section 15 shall survive such termination.
SECTION 21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
20
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
GENTA INCORPORATED
By: ___________________________________
Authorized Officer
CHASEMELLON SHAREHOLDER SERVICES,
L.L.C., as Warrant Agent
By: ___________________________________
Authorized Officer
PARAMOUNT CAPITAL, INC.
By: ___________________________________
Authorized Officer
21
<PAGE> 22
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W-____ _________ Warrants
VOID AFTER __________________, 2004
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
GENTA INCORPORATED
This certifies that FOR VALUE RECEIVED
_______________________________________________________________________________
_______________________________________________ or registered assigns (the
"Registered Holder") is the owner of the number of warrants ("Warrants")
specified above. Each Warrant represented hereby initially entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Warrant Certificate and the Warrant Agreement (as hereinafter defined), one
fully paid and nonassessable share of common stock (or such smaller number as
provided under the cashless exercise provision of the Warrant Agreement), par
value $.001 per share ("Common Stock"), of Genta Incorporated, a Delaware
corporation (the "Company"), at any time between _______________, 1999, and the
Expiration Date (as hereinafter defined), upon the presentation and surrender of
this Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the corporate office of ChaseMellon Shareholder Services, L.L.C., a
New Jersey limited liability company, as Warrant Agent, or its successor (the
"Warrant Agent"), and, other than upon a cashless exercise, the payment of the
Purchase Price (as defined in the Warrant Agreement) in lawful money of the
United States of America in cash or by official bank or certified check made
payable to the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to, and are subject in all respects to, the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated as of
_______________, 1999, by and among the Company, the Warrant Agent and Paramount
Capital, Inc.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of fewer than every Warrant represented hereby, the
Company shall cancel this Warrant Certificate
A-1
<PAGE> 23
upon the surrender hereof and shall execute and deliver a new Warrant
Certificate or Warrant Certificates of like tenor, which the Warrant Agent shall
countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
_______________, 2004, or such earlier date as the Warrants shall be redeemed.
If such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close. Upon notice to all Registered
Holders of the Warrants, the Company shall have the right to extend the
Expiration Date.
THE REGISTERED HOLDER OF THIS WARRANT SHALL HAVE THE REGISTRATION
RIGHTS AS PROVIDED IN SECTION 5 OF THE SUBSCRIPTION AGREEMENT (THE "SUBSCRIPTION
AGREEMENT") DATED AS OF THE DATE HEREOF BETWEEN THE COMPANY AND SUCH REGISTERED
HOLDER. The Warrants represented hereby shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any applicable transfer fee
per certificate in addition to any tax or other governmental charge imposed in
connection therewith, for registration of transfer of this Warrant Certificate
at such office, a new Warrant Certificate or Warrant Certificates representing
an equal aggregate number of Warrants will be issued to the transferee in
exchange therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
The Warrants represented hereby may be redeemed at the option of the
Company, at a redemption price of $0.01 per share subject to such Warrants
(subject to adjustment under the circumstances set forth in Section 9 of the
Warrant Agreement) (the "Redemption Price"). Notice of redemption shall be given
not later than the sixtieth day before the date fixed for redemption, all as
provided in the Warrant Agreement. On and after the date fixed for redemption,
the Registered Holder shall have no rights with respect to the Warrants
represented hereby except to receive the Redemption Price upon surrender of this
Warrant Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon
A-2
<PAGE> 24
made by anyone other than a duly authorized officer of the Company or the
Warrant Agent) for all purposes and shall not be affected by any notice to the
contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
A-3
<PAGE> 25
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile, by two of its
officers thereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
GENTA INCORPORATED
Dated: _____________________ By: _______________________________
Authorized Officer
By: _______________________________
[seal]
Countersigned:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.,
as Warrant Agent
By: ________________________________
Authorized Officer
A-4
<PAGE> 26
[FORM OF REVERSE OF WARRANT CERTIFICATE]
TRANSFER FEE: $___________ PER CERTIFICATE ISSUED
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
(Check One)
[ ] The undersigned Registered Holder hereby irrevocably elects to
exercise _________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
[ ] The undersigned Registered Holder, pursuant to Section 4(b) of the
Warrant Agreement dated as of by and among Genta Incorporated, ChaseMellon
Shareholder Services, L.L.C, and Paramount Capital, Inc. (the "Warrant
Agreement"), hereby irrevocably elects to exchange ________ Warrants represented
by this Warrant Certificate for such number of shares of Common Stock as are
obtained by applying the provisions of Section 4(b) of the Warrant Agreement,
and requests that certificates for such securities shall be issued in the name
of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
[please print or type name and address]
and be delivered to
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
A-5
<PAGE> 27
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc. If
not solicited by an NASD member, please write "unsolicited" in the space below.
Unless otherwise indicated by listing the name of another NASD member firm, it
will be assumed that the exercise was solicited by Paramount Capital, Inc.
____________________________________
(Name of NASD Member)
Dated: __________________________ X __________________________________
____________________________________
____________________________________
Address
____________________________________
Taxpayer Identification Number
____________________________________
Signature Guaranteed
____________________________________
A-6
<PAGE> 28
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _______________________________________________ hereby
sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
[please print or type name and address]
_______________________ of the Warrants represented by this Warrant Certificate,
and hereby irrevocably constitutes and appoints ________________________________
________________________________________________________________________________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated: _________________________ X _________________________________
Signature Guaranteed
___________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-7
<PAGE> 1
EXHIBIT 10.68
December 1, 1999
Dr. Kenneth G. Kasses
41353 N. 106 Street
Scottsdale Arizona 85262
Dear Ken:
This letter agreement confirms the terms of the termination of your
employment with Genta Incorporated ("Genta" or the "Company").
1. As of the Termination Date (as defined below), all existing
employment agreements between you and Genta whether oral or written (including
but not limited to, your letter agreement entered into with Genta on September
4, 1997 (the "Agreement")), are hereby terminated.
2. Your employment as Chief Executive Officer, President and Chairman
of the Board of Directors of Genta (the "Board of Directors") shall terminate
effective December 1, 1999 (the "Termination Date"). You represent that you do
not have any claim, action, or pending proceeding against Genta and that there
is no existing basis for any claim action or proceeding against Genta.
3. Except as necessary to enforce the terms of this letter agreement,
and in exchange for and in consideration of the promises, covenants and
agreements set forth herein, you hereby release Genta from any and all manner of
claims, demands, causes of action, obligations, damages or liabilities
whatsoever of every kind and nature, at law or in equity, known or unknown, and
whether or not discoverable, which you have or may have for any period prior to
and including the date of the execution of this letter agreement, including, but
not limited to, any claim of defamation, wrongful discharge, breach of contract,
claims for unpaid wages, claims under the Agreement and claims of discrimination
under the Age Discrimination in Employment Act of 1967 or any other federal,
state or local laws, and any claim for attorneys' fees or costs.
4. In full consideration for your agreements set forth in this letter
agreement:
(a) Genta will continue to pay your base salary through
November 30, 2000. Such payments shall be made in accordance with Genta's normal
payroll practices, and all applicable withholdings for federal, state and local
income taxes, Social Security and all other customary withholdings will be made.
(b) Genta will enter into an amendment to your stock option
agreement in the form attached hereto as Exhibit A.
(c) Except as provided in the letter agreement entered into
between you and Genta dated September 4, 1997, to the extent permitted by the
applicable insurance plans and by law, Genta will continue to provide you with
medical insurance, dental insurance,
<PAGE> 2
life insurance and long-term disability insurance through December 31, 2000 in
accordance with its benefit plans or programs. Genta reserves its right, in its
sole discretion, to amend or terminate its benefit plans or programs at any
time. To the extent Genta is unable to keep you enrolled in these insurance
plans, Genta will reimburse you through December 31, 2000 for your COBRA
payments for continued medical insurance and will, to the extent practicable,
provide you with dental insurance, life insurance and long-term disability
insurance through December 31, 2000 substantially comparable to what you would
have had if you had continued in these plans.
(d) Genta will continue to provide you with voicemail and
electronic mail access through February 29, 2000.
(e) Except as provided in this paragraph 4, you shall not be
entitled to any sum of money or benefits from Genta.
5. Ownership of Proprietary Information. (a) You confirm and agree that
all information that has been, either prior to the Termination Date or at any
time thereafter, created, discovered or developed by the Company, or any of its
subsidiaries, affiliates, licensors, licensees, successors or assigns (each, an
"Affiliate" and, collectively, the "Affiliates") (including, without limitation,
information relating to the Company's business created, discovered, developed or
made known to the Company or an Affiliate by you during your employment with the
Company and information relating to the Company's customers, clients, suppliers,
vendors, consultants, licensors and licensees) or information in which
proprietary rights have been assigned, licensed or otherwise conveyed to the
Company or any Affiliate, has been, is and shall be the sole property of the
Company or such Affiliate, as applicable, and the Company or the Affiliate, as
the case may be, has been, is and shall be the sole owner of all patents, patent
applications, copyrights, copyright applications and other rights in connection
therewith, including but not limited to, the right to make application for
statutory protection of any kind in any country. All of the aforementioned
information is hereinafter called "Proprietary Information." By way of
illustration, but not limitation, Proprietary Information includes trade
secrets, processes, discoveries, structures, designs, ideas, works of
authorship, copyrightable works, trademarks, copyrights, formulas, data, data
structures, know-how, show-how, improvements, Intellectual Property (as defined
in Section 7), product concepts, specifications, techniques, information or
statistics contained in, or relating to, marketing plans, strategies, forecasts,
blueprints, sketches, records, notes, devices, drawings, customer lists, patent
applications, copyright and trademark applications of any kind and information
about the Company's or any Affiliate's employees and/or consultants (including,
without limitation, the compensation, job responsibility and job performance of
such employees and/or consultants).
(b) You further confirm and agree that at all times, both
prior to the Termination Date and thereafter, you have kept and will keep in
strictest confidence and trust all Proprietary Information, and you have not
used or disclosed and will not use or disclose any Proprietary Information or
anything directly relating to it without the prior written consent of the
Company or the Affiliates, as appropriate, except as may have been necessary
prior to the Termination Date in the ordinary course of performing your duties
as Chief Executive Officer, President and Chairman of the Board of Directors, or
as may be necessary after the Termination Date in performing your duties as a
member of the Board of Directors. You acknowledge that
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<PAGE> 3
the Proprietary Information constitutes a unique and valuable asset of the
Company and, as applicable, each Affiliate, acquired at great time and expense,
which is secret and confidential and which has been or will be communicated to
you, if at all, in confidence in the course of the performance of your duties,
and that any disclosure or other use of the Proprietary Information other than
for the sole benefit of the Company would be wrongful and could cause
irreparable harm to the Company or an Affiliate.
(c) Notwithstanding the foregoing, you are free to use
information which would otherwise be Proprietary Information, if such
information is in the public domain not as a result of a breach of this letter
agreement or the breach of any other duty owed to the Company by any third
party.
(d) You recognize that the Company has received and in the
future will receive confidential or proprietary information from third parties
subject to a duty on the Company's part to maintain the confidentiality of such
information and, in some cases, to use it only for certain limited purposes. You
confirm and agree that you have owed and will continue owe the Company and such
third parties, both during the term of your employment and thereafter, a duty to
hold all such confidential or proprietary information in the strictest
confidence and not to disclose it to any person, firm, partnership, joint
venture, corporation or other business entity (collectively, "Person") (except
in a manner that is consistent with the Company's agreement with the third
party) or use it for the benefit of anyone other than the Company or such third
party (consistent with the Company's agreement with the third party), unless
expressly authorized to act otherwise by the Board of Directors.
6. Confidential Information. (a) You confirm and agree that, both prior
to the Termination Date and thereafter, you have kept and will continue to keep
in strictest confidence and trust and have not disclosed or made accessible, and
will not use, disclose or make accessible, to any Person without the prior
written consent of the Company, the Company's or any Affiliate's products,
services and technology, promotion and marketing programs, lists, trade secrets
and other confidential and proprietary business information of the Company or
any Affiliate or any of its or their clients, consultants, suppliers, customers,
vendors, licensors, licensees and other third parties including, without
limitation, Proprietary Information (all the foregoing is referred to herein as
the "Confidential Information"), except as required in connection with the
performance of your duties to the Company. You confirm and agree that, both
during your employment with the Company prior to the Termination Date and
thereafter, (i) you have not used and will not use any such Confidential
Information for yourself or any third parties; and (ii) you have not taken and
will not take any material or reproductions embodying any Confidential
Information from the Company's facilities (or any of the Affiliates' facilities)
at any time, except as required in connection with the performance of your
duties to the Company.
Notwithstanding the foregoing, the parties agree that you are free to
use information which would otherwise be Confidential Information, if such
information is in the public domain not as a result of a breach of this letter
agreement or the breach of any other duty owed to the Company by any Person.
(b) You confirm and agree that, except with prior written
authorization by the Company, you have not disclosed or published and will not
disclose or publish any of the
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<PAGE> 4
Confidential Information or any confidential, technical or business information
of any other party to whom the Company or any of its Affiliates has owed or owes
an obligation of confidence, at any time prior to the Termination Date and
thereafter.
(c) Upon written notice by the Company, if you are no longer
serving on the Company's Board of Directors, you shall promptly deliver to the
Company, or, if requested by the Company, promptly destroy all written
Confidential Information and any other written material containing Confidential
Information (whether prepared by the Company, you or a third party). You agree
not to retain any copies, extracts, summaries or other reproductions in whole or
in part of such written Confidential Information (and you shall, upon request of
the Company, certify such delivery or destruction to the Company in a written
instrument reasonably acceptable to the Company and its counsel).
(d) In the event that you are requested or required (by oral
questions, deposition, interrogatories, requests for information or documents,
subpoena, civil investigative demand or any other process) to disclose all or
any part of any Confidential Information, you will provide the Company with
prompt notice of such request or requirement, as well as notice of the terms and
circumstances surrounding such request or requirement, so that the Company, or,
as applicable, one or more of its Affiliates, may seek an appropriate protective
order or waive compliance with the provisions of this letter agreement. In such
case, the parties will consult with each other on the advisability of pursuing
any such order or other legal action or available steps to resist or narrow such
request or requirement. If, failing the entry of a protective order or the
receipt of a waiver hereunder, you are, in the opinion of counsel reasonably
acceptable to the Company, legally compelled to disclose Confidential
Information, you may disclose that portion of such information which counsel
advises you that you are legally compelled to disclose. In any event, you will
use your best efforts to obtain, and will not oppose action by the Company (or,
as applicable, one or more of its Affiliates) to obtain, an appropriate
protective order or other reliable assurance that confidential treatment will be
accorded the disclosure of any Confidential Information.
7. Disclosure and Ownership of Intellectual Property. (a) You confirm
and agree that, both prior to the Termination Date and thereafter, you have
promptly disclosed and will promptly disclose to the Company, or any persons
designated by the Company, all improvements, inventions (whether patentable or
not), designs, ideas, works of authorship (whether copyrightable or not)
copyrightable works, discoveries, trademarks, copyrights, trade secrets,
formulas, processes, structures, product concepts, marketing plans, strategies,
customer lists, information about employees and/or consultants (including,
without limitation, job performance of such employees and/or consultants),
techniques, blueprints, sketches, records, notes, devices, drawings,
specifications, know-how, data, data structures, patent applications, copyright
applications and other applications for statutory protection of any kind in any
country relating to the current or reasonably foreseeable business of the
Company, made or conceived or reduced to practice or learned by you, either
alone or jointly with others, during the course of your employment prior to the
Termination Date or thereafter in the performance of your duties as a director
of the Company (collectively hereinafter referred to as the "Intellectual
Property").
(b) You confirm and agree that all Intellectual Property above
has been and shall be the sole property of the Company and to the extent
permitted by law shall be
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<PAGE> 5
"works made for hire" as that term is defined in the United States Copyright Act
(17 USCA, Section 101). The Company has been and shall be the sole owner of all
patents, copyrights, trade secret rights and other Intellectual Property and all
other rights in connection therewith. You hereby assign to the Company all
right, title and interest you have or acquire in all Intellectual Property. You
further agree to assist the Company in every proper way (but at the Company's
expense) to obtain and confirm and from time to time enforce patents, copyrights
or other rights in the Intellectual Property in any and all countries, and to
that end you will execute all documents necessary:
(i) to apply for, obtain and vest in the name of the Company alone
(unless the Company otherwise directs) letters patent,
copyrights or other analogous protection in any country
throughout the world and when so obtained or vested to renew
and restore the same on behalf of the Company; and
(ii) to defend any opposition proceedings in respect of such
applications and any opposition proceedings or petitions or
applications for revocation of such letters patent, copyright
or other analogous protection.
(c) Your obligation to assist the Company in obtaining,
confirming and enforcing patents and copyrights for the Intellectual Property
above in any and all countries shall continue beyond the Termination Date. The
Company agrees to compensate you at a reasonable rate after the Termination Date
for time actually spent by you at the Company's request on such assistance.
8. Enforcement. You agree that the remedy at law for any breach or
threatened breach of any covenant contained in Sections 5, 6 or 7 of this letter
agreement would be inadequate and cause irreparable damage to the Company. In
the event that you breach or threaten to breach any provisions of Sections 5, 6
or 7, in addition to any other rights which the Company may have at law or in
equity, the Company shall be entitled, without the posting of a bond or other
security, to injunctive relief to enforce the restrictions contained in this
letter agreement. In the event that an actual proceeding is brought in equity to
enforce any of the provisions of Sections 5, 6 or 7, you shall not assert as a
defense that there is an adequate remedy at law nor shall the Company be
prevented from seeking any other remedies, including without limitation monetary
damages, which may be available to it.
9. In executing this letter agreement, neither you nor Genta admits any
liability or wrongdoing, and the considerations exchanged herein do not
constitute an admission of any liability, error, contract violation, or
violation of any federal, state, or local law or regulation.
10. This letter agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
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<PAGE> 6
11. The unenforceability or invalidity of any provision or provisions
of this letter agreement shall not render any other provision or provisions
hereof unenforceable or invalid.
12. This letter agreement constitutes the entire agreement between you
and Genta and cannot be altered except in a writing signed by both you and
Genta. You acknowledge that you entered into this letter agreement voluntarily,
that you fully understand all of its provisions, and that no representations
were made to induce execution of this letter agreement that are not expressly
contained herein.
13. The parties agree that any disputes concerning the interpretation
or application of this letter agreement shall be governed by New York law,
without regard to principles of conflict of law or where the parties are located
at the time a dispute arises.
14. You acknowledge that you have been afforded an opportunity to take
at least (21) twenty-one days to consider this letter agreement and have been
advised to consult with the attorneys of your choice prior to executing this
letter agreement. You acknowledge that you have had an adequate opportunity to
review this letter agreement before its execution. You further acknowledge that
you will have a period of seven (7) calendar days following the execution and
delivery of this letter agreement in which to revoke your consent (by delivering
such written notice of revocation to Monica Lord, Esq. of Kramer Levin Naftalis
& Frankel LLP, 919 Third Avenue, New York, New York 10022 within such seven
calendar days), and that this letter agreement will not become effective until
the revocation period has expired.
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<PAGE> 7
Please indicate your acceptance of the terms of this letter agreement
by countersigning below and returning this letter agreement to me.
Very truly yours,
GENTA INCORPORATED
By: ___________________________________
Mark C. Rogers, M.D.
Agreed and accepted as of the date first set forth above:
__________________________________
Dr. Kenneth G. Kasses
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<PAGE> 1
Exhibit 10.69
GENTA INCORPORATED
1998 STOCK INCENTIVE PLAN
AMENDMENT NO. 1 TO STOCK OPTION AGREEMENT
AMENDMENT NO. 1 TO STOCK OPTION AGREEMENT (this "Amendment Agreement"),
dated as of December 1, 1999, to the Stock Option Agreement, dated as of May 28,
1998 (the "Original Agreement") between GENTA INCORPORATED, a Delaware
corporation (the "Company"), and Dr. Kenneth G. Kasses (the "Optionee").
Capitalized terms used here without definition shall have the meanings ascribed
thereto in the Company's 1998 Stock Incentive Plan (the "Plan"). Except as
specifically amended by this Amendment Agreement, the Original Agreement shall
remain in full force and effect and be fully applicable with respect all options
referred to herein.
Pursuant to the Original Agreement, the Optionee received stock options
(the "Options") 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. As of November 30, 1999, 1,118,131 of the Options had not
yet vested.
This Amendment Agreement is being entered into pursuant to a letter
agreement, dated as of the date hereof (the "Letter Agreement"), between
Optionee and the Company, and pursuant to Section 3.1.3 of the Plan.
Notwithstanding anything else contained in this Amendment Agreement to the
contrary, the 1,118,131 options (the "Original Options") already vested as of
November 30, 1999 under the Letter Agreement shall not be altered in any way.
<PAGE> 2
In consideration of the foregoing and of the mutual undertakings set forth
in this Amendment Agreement and the Letter Agreement, the Company and the
Optionee agree as follows:
SECTION 1. Exercisability.
(a) Subject to the further terms of this Amendment Agreement, the
Optionee shall immediately return to the Company 618,130 of the options not yet
vested as of November 30, 1999. Such options shall be treated for all purposes
as if such options had never been issued. The remaining 500,000 options (the
"Remaining Options") shall be fully vested as of November 30, 2000, but shall
be subject to the restrictions set forth in Section 1(b).
(b) If the Optionee (i) remains a consultant to the Company, (ii) remains
a member of the Board of Directors of the Company or (iii) voluntarily resigns
as a Director or consultant, then the Optionee shall not sell any shares
acquired upon exercise of the Original Options or the Remaining Options until
March 1, 2001.
SECTION 2. Termination.
Section 4 of the Original Agreement is hereby amended to provide that the
Original Options shall terminate and expire on the earlier of (x) May 28, 2008
and (y) the expiration of two years after the first date on which Optionee is
neither a consultant to, nor member of the Board of Directors of, the Company.
The Remaining Options shall also expire on the same date.
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<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
Agreement as of the date and year first written above.
GENTA INCORPORATED
----------------------------------------------
Name: Dr. Mark C. Rogers
Title: Chairman
OPTIONEE
----------------------------------------------
Kenneth G. Kasses, Ph.D.
41353 North 106 Street
Scottsdale Arizona
----------------------------------------------
Social Security Number
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<PAGE> 1
Exhibit 10.70
GENTA INCORPORATED
99 HAYDEN AVENUE, SUITE 200
LEXINGTON, MASSACHUSETTS 02421
Dated as of October 28, 1999
Raymond P. Warrell, Jr., MD.
6 Kimble Circle
Westfield, NJ 07090
Dear Dr. Warrell:
We are pleased that you are interested in becoming an employee
of Genta Incorporated, a Delaware corporation (the "Company"). Accordingly, I
would like to offer you the following terms of engagement (the "Agreement"):
1. Employment; Duties.
(a) As of October 28, 1999, the Company hereby engages and
employs you, and you hereby accept engagement and employment, as an employee of
the Company. Commencing on December 1, 1999, the Company will engage and employ
you, and you hereby accept engagement and employment, as Chief Executive Officer
and President of the Company.
(b) You shall perform your duties as are customarily
associated with your title, consistent with the By-laws of the Company and as
required by the Board of Directors of the Company (the "Board of Directors").
You shall perform your duties hereunder at such places as shall be necessary
according to the needs, business or opportunities of the Company; provided, that
you acknowledge and agree that the performance of the duties hereunder may
require significant domestic and international travel by you.
(c) Upon commencement of your employment as President and
Chief Executive Officer, you shall devote your full business time and best
efforts as shall be necessary to the proper discharge of your duties and
responsibilities under this Agreement. You shall not, directly or indirectly, on
a full time, part time, temporary, consulting, or any other basis, work for or
provide your services to any other person, firm, corporation, partnership, joint
venture or any other entity, except that you may engage in up to eight hours a
week of other activities, provided that such other activities are consistent in
all respects with your obligations under sections 5, 6, 7 and 8 of this
Agreement. However, notwithstanding anything else contained in this Agreement,
you shall not engage in any other business activities, whether or not pursued
for gain or profit, which will interfere with your ability to perform any of the
functions, powers or duties required under this Agreement.
<PAGE> 2
2. Term. Your employment hereunder shall be for a term of
three years commencing on October 28, 1999 (the "Effective Date") and continuing
through November 30, 1999 (the "Term"), unless sooner terminated as hereinafter
provided.
3. Compensation and Benefits.
(a) In consideration of the services you rendered as an
employee of the Company for the period beginning on the Effective Date and
ending upon commencement of your employment as Chief Executive Officer and
President on December 1 1999, you will be paid $15,000, less all applicable
federal state and local taxes, social security and worker's compensation
contributions and such other amounts as may be required by law.
(b) As compensation and benefits for the performance of your
duties on behalf of the Company as Chief Executive Officer and President, so
long as your employment has not been terminated in accordance with this
Agreement, you shall be compensated and shall receive benefits upon commencement
of your employment as President and Chief Executive Officer, as follows:
(i) a base salary of $325,000 per annum (the "Base
Salary"), payable in accordance with the Company's
standard payroll practice;
(ii) in consideration of your entry into this Agreement,
you will receive $100,000, which is payable within 30
days from the date this Agreement is executed or
later at your discretion;
(iii) a guaranteed bonus of $100,000 at the end of your
first twelve months of employment;
(iv) a provisional bonus of at least $100,000 at the end
of each subsequent twelve months of employment
provided that mutually agreed upon milestones have
been met.
The Company shall withhold all applicable federal, state and
local taxes, social security and workers' compensation contributions and such
other amounts as may be required by law or agreed upon by the parties with
respect to the compensation payable to you pursuant to this Section 3(a).
(c) Subject to subsection 3(n), you shall be entitled to
receive annual stock options for the purchase of 300,000 shares of Common Stock,
adjusted for stock splits, reverse stock splits, and stock reclassifications,
(at an exercise price equal to Fair Market Value, as defined in the Genta
Incorporated 1998 Stock Incentive Plan, on the date of grant, or, in the event
of a Trigger Event, calculated as provided below) provided that mutually agreed
upon milestones have been met. All stock options granted pursuant to this
subsection 3(c) (the "3(c) Options") shall be evidenced by a stock option
agreement, which shall contain customary terms and shall provide for immediate
vesting upon the occurrence of one of the events (each a "Trigger Event")
described in Section 4.1 of the Stock Option Agreement (as defined below). In
addition, if a Trigger Event occurs, whether or not your employment has been
terminated pursuant to clause 4.1(ii) of the Stock Option
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<PAGE> 3
Agreement, you shall be entitled to receive all Section 3(c) Options which you
would have been entitled to receive within twelve months following such Trigger
Event, provided that the relevant milestones have been met during such twelve
month period. The Company shall grant such options to you as soon as practicable
after you become entitled to receive them. Such options shall have an exercise
price equal to the average closing price of the Company's Common Stock for the
60 consecutive calendar days prior to the occurrence of the Trigger Event and
shall vest and be fully exercisable upon grant.
(d) In addition, from time to time, in the discretion of the
Board of Directors, you may be entitled to additional stock options pursuant to
the Company's stock option plans.
(e) The Company agrees to reimburse you for all reasonable and
necessary travel, business entertainment and other business expenses incurred by
you in connection with the performance of your duties under this Agreement. Such
reimbursements shall be made by the Company on a timely basis upon submission by
you of vouchers in accordance with the Company's standard procedures.
(f) You shall be entitled during the Term to four weeks per
annum vacation time. You may "carry over" up to four weeks of unused vacation
time to the succeeding year.
(g) The Company shall pay the premiums on an ordinary life
insurance policy on your behalf in the principal amount of not less than
$3,250,000, provided such premiums do not exceed $20,000 annually.
(h) You shall be entitled to participate in any and all
medical insurance, dental insurance, group health, disability insurance and
other benefit plans which are made generally available by the Company to its
senior executives. The Company, in its sole discretion, may at any time amend or
terminate any such benefit plans or programs.
(i) You shall be covered by the Company's director's and
officer's insurance policy as is generally provided to the Company's directors
and officers.
(j) The Company shall provide you with a car or car allowance
in an amount not to exceed $500 per month which shall be paid in appropriate pro
rata amounts at the same time Base Salary is paid unless the Company pays all
related expenses directly.
(k) The Company shall pay all of your reasonable relocation
expenses, provided that such expenses are incurred within 18 months from the
Effective Date of this Agreement.
(l) The Company shall pay attorney's fees incurred by you in
connection with this Agreement in an amount not to exceed $10,000.
(m) Subject to subsection 10(f) and Section 11, you must be an
employee of the Company at the time that any compensation is due in order to
receive such compensation.
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<PAGE> 4
(n) No option provided for under this Section 3 shall be
exercisable unless the Company's Amended and Restated Certificate of
Incorporation has been amended (the "Amendment") to increase the Company's
authorized capital stock by an amount sufficient to permit the issuance of
Common Stock issuable upon exercise or conversion of all options, warrants, and
convertible securities issued by the Company, including the shares and warrants
issuable in the Company's contemplated private placement and the options
provided for under this agreement. The Company shall use its best efforts,
subject to applicable law, to obtain shareholder approval of the Amendment;
provided, however, that nothing in this subsection 3(n) shall be interpreted so
as to require the Company pay a consent fee or hire third party proxy
solicitors.
(o) The Company shall pay the premiums on a medical
malpractice insurance policy on your behalf in the principal amount of not less
than $1,000,000, provided such premiums do not exceed $20,000 annually.
4. Representations and Warranties. You hereby represent and
warrant to the Company as follows:
(a) Neither the execution and delivery of this Agreement nor
the performance by you of your duties and other obligations hereunder violate or
will violate any statute, law, determination or award, or conflict with or
constitute a default under (whether immediately, upon the giving of notice or
lapse of time or both) any prior employment agreement, contract, or other
instrument to which you are a party or by which you are bound.
(b) You have the full right, power and legal capacity to
execute and deliver this Agreement and to perform your duties and other
obligations hereunder. This Agreement constitutes your legal, valid and binding
obligation, enforceable against you in accordance with its terms. No approvals
or consents of any persons or entities are required for you to execute and
deliver this Agreement or perform your duties and other obligations hereunder.
5. Non-competition and Non-solicitation.
(a) You understand and recognize that your services to the
Company are special and unique and agree that, upon commencement of your
employment as President and Chief Executive Officer on December 1, 1999, and,
except as provided below, for a period of two years following any termination of
your employment, you shall not in any manner directly or indirectly on behalf of
yourself or any person, firm, partnership, joint venture, corporation or other
business entity (collectively, "Person"), solicit, enter into, engage in any
business which is or proposes to be competitive with a technology or service of,
or product manufactured or distributed by, the Company or its subsidiaries or in
which the Company or any of its subsidiaries has intellectual property rights
(except as provided below, "Conflicting Field"), either as an individual for
your own account, or as a partner, joint venturer, executive, agent, consultant,
salesperson, officer, director or shareholder of such Person ("Competitor");
provided, however, that (x) following any termination of your employment,
Conflicting Field shall refer only to the field of using antisense technology as
therapy for cancer as its primary business and, subject to Section 1, nothing in
this agreement shall be interpreted so as to prevent you from accepting
employment with any Person which is or proposes to be competitive with a
Conflicting Field so long as you work solely in a division of such Person
- 4 -
<PAGE> 5
which division carries on a bona fide business that is not or does not propose
to be competitive with a Conflicting Field ; and (y) nothing herein will
preclude you from holding five percent (5%) or less of the stock of any publicly
traded company, calculated on a fully diluted basis.
(b) In further consideration of the payment by the Company to
you of amounts that may hereafter be paid to you pursuant to this Agreement
(including, without limitation, pursuant to Sections 3 and 11 hereof, and the
Stock Option Agreement between you and the Company dated October 28, 1999 (the
"Stock Option Agreement")), you agree that upon commencement of your employment
as President and Chief Executive Officer, and for a period of two years
thereafter or a period of two years subsequent to any termination hereunder, but
subject to section 5(f), you shall not, without the prior written consent of the
Company:
(i) directly or indirectly take any action, or attempt to
take any action, which is intended to, or could
reasonably be foreseen by you to, induce a material
breach of a contract or agreement known to you
between the Company and any of its licensors,
licensees, clients, customers, vendors, suppliers,
agents, consultants, employees (whether or not such
employees are "at will" employees) or other person or
entity with which the Company has an agreement (each,
a "Covered Party", collectively, "Covered Parties");
provided, however, that such action or attempted
action could reasonably be expected to cause a
material detriment to the Company; or
(ii) directly or indirectly solicit or attempt to solicit
any of the Covered Parties to terminate his, her or
its relationship with the Company in material breach
of a contract or agreement with the Company known to
you; provided, however, that such action or attempted
action is likely to cause a material detriment to the
Company; or
(iii) subject to subsection 5(f), directly or indirectly
solicit or attempt to solicit any of the employees or
consultants of the Company to become employees,
agents, consultants, representatives or advisors of
any other Person; or
(iv) directly or indirectly persuade or seek to persuade
any customer of or supplier to the Company to cease
to do business or to reduce the amount of business
which any customer or supplier has done or
contemplates doing with the Company, whether or not
the relationship between the Company and such Person
was originally established in whole or in part
through your efforts, in material breach of a
contract or agreement known to you between the
Company and such customer or supplier; provided,
however, that such action or attempted action could
reasonably be expected to cause a material detriment
to the Company.
(c) Upon commencement of your employment as President and
Chief Executive Officer, and for a period of two years following any termination
of your employment, you agree that upon the earlier of you (a) negotiating with
any Competitor concerning the possible employment of you by the Competitor, (b)
receiving an offer of employment from a Competitor, or (c) becoming
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<PAGE> 6
employed by a Competitor, you will (x) immediately provide notice to the Company
of such circumstances and (y) provide copies of Sections 5, 6, 7, 8 and 9 of
this Agreement to the Competitor. You further agree that the Company may provide
notice to a Competitor of your obligations under this Agreement, including
without limitation your obligations pursuant to Sections 5, 6, 7 and 8 hereof.
(d) You understand that the provisions of this Section 5 may
limit your ability to earn a livelihood in a business similar to the business of
the Company but nevertheless agree and hereby acknowledge that the consideration
provided under this Agreement, including any compensation or benefits provided
under Sections 3 and 11 hereof and the Stock Option Agreement, is sufficient to
justify the restrictions contained in such provisions. In consideration thereof
and in light of your education, skills and abilities, you agree that you will
not assert in any forum that such provisions prevent you from earning a living
or otherwise are void or unenforceable or should be held void or unenforceable.
(e) Section 5(a) hereof shall not apply to any Conflicting
Field that is identified on Annex I to this Agreement. Annex I to this Agreement
may hereafter be amended through a writing signed by you and the Company and
approved by the Company's Board of Directors.
(f) Nothing in subsection 5(b)(iii) shall be interpreted so as
to prohibit you from accepting offers from persons employed by the Company to be
employed by you or an entity with which you become associated, provided that
such offers were not solicited, directly or indirectly, or otherwise encouraged
by you.
6. Ownership of Proprietary Information.
(a) You confirm and agree that all information relating to the
Company's, or an Affiliate's (as defined below) business that has been created
by, discovered by, developed by, learned by, or made known to, the Company, or
any of its subsidiaries, affiliates, licensors, licensees, successors or assigns
(each, an "Affiliate" and, collectively, the "Affiliates") from the commencement
of your employment and at all times thereafter (including, without limitation,
information relating to the Company's business created by, discovered by,
developed by, learned by, reduced to practice by or made known to the Company,
an Affiliate, or you, either alone or jointly with others, during your
employment and information relating to the Company's customers, clients,
suppliers, vendors, consultants, licensors and licensees) or assigned, licensed
or otherwise conveyed to the Company or any Affiliate, has been, is and shall be
the sole property of the Company or such Affiliate, as applicable, and the
Company or the Affiliate, as the case may be, has been, is and shall be the sole
owner of all designs, ideas, patents, patent applications, copyrights, copyright
applications and other rights in connection therewith, including but not limited
to the right to make application for statutory protection of any kind in any
country. All of the aforementioned information is hereinafter called
"Proprietary Information" (and shall be deemed Proprietary Information
regardless of whether or not the Proprietary Information is patentable or
copyrightable). By way of illustration, but not limitation, Proprietary
Information includes trade secrets, processes, discoveries, structures, works of
authorship, copyrightable works, trademarks, copyrights, formulas, data, data
structures, know-how, show-how, improvements, information relating to products
(both
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<PAGE> 7
current and under development), services and technologies, product concepts,
specifications, techniques, information or statistics contained in, or relating
to, promotion or marketing plans and programs, strategies, forecasts,
blueprints, sketches, records, notes, devices, drawings, customer lists,
continuation applications of any kind, trademark applications and information
about the Company's or the Affiliate's employees and/or consultants and
confidential business information of the Company or any Affiliate or any of its
or their clients, consultants, suppliers, customers, vendors, licensors,
licensees and other third parties (including, without limitation, the
compensation, job responsibility and job performance of such employees and/or
consultants).
(b) You agree that all Proprietary Information shall be, the
extent permitted by law, "works made for hire" as that term is defined in the
United States Copyright Act (17 USA, Section 101). You hereby assign to the
Company all right, title and interest you may have or acquire in all Proprietary
Information; provided, that, subject to subsection 6(d) hereof, the provisions
of this Section 6 only applies to information, and Proprietary Information shall
only include such information which:
(i) relate at the time of conception or reduction to
practice of the invention to the Company's business,
or actual or demonstrably anticipated research or
development of the Company except when the
information more closely relates to the business, or
actual or demonstrably anticipated research or
development of a person or entity listed in Annex I
hereto, as amended; or
(ii) result from any work performed by you for the
Company; or
(iii) was developed on the Company's time or using the
Company's equipment, supplies, facilities, or trade
secret information.
(c) Notwithstanding the foregoing, Proprietary Information
shall not include; (i) information (x) in the public domain not as a result of
the breach of this Agreement or the breach of any other duty owed to the Company
or any other person (y) information lawfully in your possession prior to the
date hereof and not disclosed to you by the Company or an Affiliate and (z)
information disclosed to you without restriction by a third party who had the
right to disclose such information to you; and (ii) information that more
closely relates to the business, or actual or demonstrably anticipated research
or development, of a person or entity set forth on Annex I.
(d) It is understood that no patent, copyright, trademark, or
other proprietary right of license is granted to you under this Agreement. Any
disclosure of Proprietary Information and any materials which may accompany any
such disclosure pursuant to your employment under this Agreement shall not
result in the grant to you of any rights, express or implied, of any kind.
7. Confidential Information.
(a) You agree at all times, including after the Term, to keep
in strictest trust and confidence and will not disclose or make accessible to
any other person without the prior written consent of the Company, the Company's
or any Affiliate's Proprietary Information. You further
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<PAGE> 8
agree that upon commencement of your employment and at all times thereafter (i)
not to use any such Proprietary Information for yourself or others; and (ii) not
to take any such material or reproductions embodying Proprietary Information
from the Company's facilities (or any of the Affiliates' facilities) at any
time, except as required during the Term in connection with your duties to the
Company.
(b) Except with prior written authorization of the Board of
Directors, you agree not to disclose or publish any of the Proprietary
Information, except as required in the performance of your obligations under
this Agreement. You further agree not to disclose or publish information
relating to your former employers, to whom you, the Company or any of its
Affiliates owes an obligation of confidence, at the time of disclosure to you,
at any time during or after your employment with the Company.
(c) Upon written notice by the Company, you shall promptly
deliver to the Company, or, if requested by the Company, promptly destroy all
written Proprietary Information and any other written material containing any
Proprietary Information (whether prepared by the Company, you or a third party),
and will not retain any copies, extracts, summaries or other reproductions in
whole or in part of such written Proprietary Information or other material.
(d) You recognize that the Company has received and in the
future will receive confidential or proprietary information from third parties
subject to a duty on the Company's part to maintain the confidentiality of such
information and, in some cases, to use it only for certain limited purposes. You
agree that you owe the Company and such third parties, both during your
employment and thereafter, a duty to hold all such confidential or proprietary
information in the strictest confidence and not to disclose it to any Person
(except in a manner that is consistent with the Company's agreement with the
third party) or use it for the benefit of anyone other than the Company or such
third party (consistent with the Company's agreement with the third party),
unless expressly authorized to act otherwise by the Board of Directors.
(e) If during the term and thereafter you are requested or
required (by oral questions, deposition, interrogatories, requests for
information or documents, subpoena, civil investigative demand or any other
process) to disclose all or any part of any Confidential Information, you will
provide the Company with prompt notice of such request or requirement, as well
as notice of the terms and circumstances surrounding such request or
requirement, so that the Company, or, as applicable, one or more of its
Affiliates, may seek an appropriate protective order or waive compliance with
the provisions of this Agreement. In such case, the parties will consult with
each other on the advisability of pursuing any such order or other legal action
or available steps to resist or narrow such request or requirement. If, failing
the entry of a protective order or the receipt of a waiver hereunder, you are,
in the opinion of your counsel, legally compelled to disclose Proprietary
Information, you may disclose that portion of such information which counsel
advises you that you are legally compelled to disclose. In any event, you will
use reasonable efforts to cooperate with the Company in obtaining and will not
oppose action by the Company (or, as applicable, one or more of its Affiliates)
to obtain, an appropriate protective order or other reliable assurance that
confidential treatment will be accorded the disclosure of any Proprietary
Information.
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<PAGE> 9
All reasonable expenses incurred by you in compliance with this subsection 7(e)
will be reimbursed by the Company.
8. Disclosure of Proprietary Information.
(a) During the Term, and thereafter, you agree that you will
promptly disclose to the Company, or any persons designated by the Company, all
Proprietary Information developed, created, made, conceived, reduced to practice
or learned by the Company, any Affiliate or you, either alone or jointly with
others, during the Term and not otherwise known to the Company's officers and
directors.
(b) You further agree to assist the Company in every proper
way (but at the Company's expense) to obtain and confirm and from time to time
enforce patents, copyrights or other rights on said Proprietary Information in
any and all countries, and to that end you will execute all documents necessary:
(i) to apply for, obtain and vest in the name of the
Company alone (unless the Company otherwise directs)
letters patent, copyrights or other analogous
protection in any country throughout the world and
when so obtained or vested to renew and restore the
same on behalf of the Company; and
(ii) to defend any opposition proceedings in respect of
such applications and any opposition proceedings or
petitions or applications for revocation of such
letters patent, copyright or other analogous
protection.
(c) Your obligation to assist the Company in obtaining and
enforcing patents and copyrights for the Proprietary Information in any and all
countries shall continue beyond the Term, but the Company agrees to compensate
you at a reasonable rate after the expiration of the Term for time actually
spent by you at the Company's request on such assistance.
9. Enforcement. You agree that the remedy at law for any
breach or threatened breach of any covenant contained in Sections 5, 6, 7 or 8
of this Agreement would be inadequate and cause irreparable damage to the
Company. In the event that you breach or threaten to breach any provisions of
Sections 5, 6, 7 or 8, in addition to any other rights which the Company may
have at law or in equity, the Company shall be entitled, without the posting of
a bond or other security, to injunctive relief to enforce the restrictions
contained in this Agreement. In the event that an actual proceeding is brought
in equity to enforce any of the provisions of Sections 5, 6, 7 or 8, you shall
not assert as a defense that there is an adequate remedy at law nor shall the
Company be prevented from seeking any other remedies, including without
limitation monetary damages, which may be available to it.
10. Termination. Your employment hereunder as President and
Chief Executive Officer shall commence as provided for under subsection 1(a) and
shall continue for the period set forth in Section 2 hereof unless sooner
terminated upon the first to occur of the following events:
(a) Death. Your death;
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<PAGE> 10
(b) Disability. You have been unable, for a period of one
hundred eighty (180) consecutive business days, to perform your duties under
this Agreement, as a result of physical or mental illness or injury ("Becoming
Totally Disabled") and the Company shall have communicated to you the fact of
your termination by written notice, which termination shall be effective on the
30th day after receipt of such notice by you (the "Total Disability Effective
Date"), unless you return to full-time performance of your duties before the
Total Disability Effective Date;
(c) Termination by the Company for Cause. For purposes of this
Agreement, the term "Cause" shall mean any of the following; provided, however,
that the Company has terminated you pursuant to this subsection 10(c) within 60
days of the Board of Directors having first obtained knowledge of a basis for
termination under this subsection 10(c):
(i) A breach by you of any of the provisions of Sections
4, 5, 6, 7 or 8 of this Agreement which results in a
material detriment to the Company or any Affiliate
thereof;
(ii) Any breach by you of subsection 1(b) or (c) which is
not cured by you within 30 days of written notice
thereof from the Company; provided, however, your
right to such 30 day cure period shall be conditioned
upon your good faith attempt to cure such breach;
(iii) Any action or omission by you to intentionally harm
the Company which is in bad faith and likely to cause
a material harm to the Company or any other act or
bad faith omission having the effect of materially
harming the Company, its business or reputation;
(iv) The perpetration of an intentional and knowing fraud
against or adversely affecting the Company or any
Covered Party which causes or is likely to cause a
material detriment to the Company; or
(v) The conviction of you of any crime classified as a
felony.
(d) Termination by the Company Without Cause. The Company may
terminate your employment hereunder at any time for any reason or no reason by
giving you thirty (30) days prior written notice of the termination.
(e) Termination By You For Good Reason. You may terminate your
employment hereunder for "Good Reason" for (i) having been assigned duties by
the Board of Directors which are inconsistent in any material respect with
Section 1 of this Agreement or any other action by the Company that results in a
material diminution in your title, position, authority, duties or
responsibilities, either of which is not cured by the Company within 30 days of
written notice thereof from you; or (ii) any failure by the Company to comply
with Section 3 other than an isolated, insubstantial and inadvertent failure
that is not taken in bad faith and is remedied by the Company promptly after
receipt of notice thereof from you; (iii) your failure to be re-elected to the
Company's Board of Directors, unless , at the time you are not re-elected, the
Company has the right to terminate you for Cause under subsection 10(c) of this
Agreement and does so within 45 days of
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<PAGE> 11
your failure to be re-elected; or (iv) relocation of the Company's principal
place of operations, provided that such relocation results in a principal place
of operations more than 75 miles from New York, New York.
(f) Termination by You Without Good Reason. You may terminate
your employment hereunder at any time for any reason or no reason by giving
thirty (30) days prior written notice of termination. If you do, you shall be
entitled only to the following compensation:
(i) Any accrued but unpaid Base Salary as of the date of
termination for services rendered to the date of
termination;
(ii) Any accrued but unpaid expenses required to be
reimbursed pursuant to Section 3;
(iii) Any vacation accrued to the date of termination.
(iv) Any accrued but unpaid bonus payments; and
(v) The amounts set forth in subsection 3(b)(ii), if not
already paid.
11. Compensation Following Termination Prior to the End of the
Term.
In the event that your employment hereunder is terminated
prior to the end of the Term, you shall be entitled only to the following
compensation and benefits upon such termination:
(a) Termination by Reason of Death or Becoming Totally
Disabled; Termination by the Company for Cause.
In the event that your employment is terminated by reason of
your death or your becoming Totally Disabled, or by the Company for Cause,
pursuant to Sections 10(a), 10(b) or 10(c), the Company shall pay the following
amounts to you (or your estate, as the case may be):
(i) Any accrued but unpaid Base Salary as of the date of
termination for services rendered to the date of
termination;
(ii) Any accrued but unpaid expenses required to be
reimbursed pursuant to Section 3;
(iii) Any vacation accrued to the date of termination;
(iv) Any accrued but unpaid bonus payments; and
(v) The amounts set forth in subsection 3(b)(ii), if not
already paid.
The benefits to which you may be entitled upon termination
pursuant to the plans, programs and arrangements referred to in Section 3 hereof
shall be determined and paid in accordance with the terms of such plans,
policies and arrangements.
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<PAGE> 12
(b) Termination by the Company Without Cause; Termination by
You for Good Reason. In the event that your employment is terminated by the
Company without Cause pursuant to Section 10(d) or by you for Good Reason
pursuant to Section 10(e), the Company shall pay the following amounts to you:
(i) Any accrued but unpaid Base Salary as of the date of
termination for services rendered to the date of
termination, payable within 30 days;
(ii) Any accrued but unpaid expenses required to be
reimbursed pursuant to Section 3, payable within 30
days;
(iii) Any vacation accrued to the date of termination,
payable within 30 days; and
(iv) As your sole damages; (i) the Base Salary which you
would have received during the twelve month period
following the date on which your employment is
terminated and any bonus which would have been
payable to you within 12 months of the date of
termination pursuant to section 3(iii) or 3(iv) had
you still been employed by the Company; provided
that, in the event that you have terminated your
employment pursuant to subsection 10(e), and the
Company has provided you notice of a basis of a
breach, within 45 days of the Board of Director's of
the Company having obtained first knowledge of such
basis, of any covenant contained in Sections 5, 6, 7
or 8 hereof, you shall not be entitled to any payment
under this clause (iv) of this Section 11(b); and
(ii) all stock options received pursuant to
subsection 3(c) hereof shall become fully vested. Any
payments to be made pursuant to this subsection 11(b)
shall be made in accordance with the Company's
standard payroll practices then in effect; and
(v) The amounts set forth in subsection 3(b)(ii), if not
already paid.
The benefits to which you may be entitled upon termination
pursuant to the plans, policies and arrangements referred to in Section 3 hereof
shall be determined and paid in accordance with the terms of such plans,
policies and arrangements.
(c) It is the intention of the parties that all cash payouts
that may be due subject to this Section 11 shall be guaranteed by either
Paramount Capital, the Aries Funds, or some other party that the Company and you
mutually agree upon.
(d) No Other Benefits or Compensation. Except as may be
provided under this Agreement, under the terms of any incentive compensation,
employee benefit or fringe benefit plan applicable to you at the time of the
termination of your employment prior to the end of the Term, you shall have no
right to receive any other compensation, or to participate in any other plan,
arrangement or benefit, with respect to any future period after such
termination.
12. Notices. Any notice or other communication under this
Agreement shall be in writing and shall be deemed to have been given: when
delivered personally after receipt therefor;
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<PAGE> 13
one (1) day after being sent by Federal Express or similar overnight delivery;
or three (3) days after being mailed registered or certified mail, postage
prepaid, return receipt requested, to either party at the address set forth
below, or to such other address as such party shall give by notice hereunder to
the other party.
If to the Company:
Genta Incorporated
c/o Paramount Capital, Inc.
787 Seventh Avenue
New York, NY 10019
(212) 554-4514
Attention: Mark C. Rogers, M.D.
With a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
(212) 715-9100
Attention: Monica C. Lord, Esq.
If to you:
Raymond Warrell, Jr., M.D.
6 Kimball Circle
Westfield, NJ 07090
(908) 301-1022
With a copy to:
Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, CA 94304
(650) 813-5746
Attention: Joseph Lin, Esq.
13. Severability of Provisions. If any provision of this
Agreement shall be declared by a court of competent jurisdiction to be invalid,
illegal or incapable of being enforced in whole or in part, the remaining
conditions and provisions or portions thereof shall nevertheless remain in full
force and effect and enforceable to the extent they are valid, legal and
enforceable, and no provision shall be deemed dependent upon any other covenant
or provision unless so expressed herein. If any provision of this Agreement, or
any part thereof, is held to be invalid or unenforceable because of the scope or
duration of or the area covered by such provision, the parties hereto agree that
the court making such determination shall reduce the scope, duration and/or
area of such
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<PAGE> 14
provision (and shall substitute appropriate provisions for any such invalid or
unenforceable provisions) in order to make such provision enforceable to the
fullest extent permitted by law and/or shall delete specific words and phrases,
and such modified provision shall then be enforceable and shall be enforced. The
parties hereto recognize that if, in any judicial proceeding, a court shall
refuse to enforce any of the separate covenants contained in this Agreement,
then that invalid or unenforceable covenant contained in this Agreement shall be
deemed eliminated from these provisions to the extent necessary to permit the
remaining separate covenants to be enforced. In the event that any court
determines that the time period or the area, or both, are unreasonable and that
any of the covenants is to that extent invalid or unenforceable, the parties
hereto agree that such covenants will remain in full force and effect, first,
for the greatest time period, and second, in the greatest geographical area that
would not render them unenforceable.
14. Entire Agreement; Modification. This Agreement contains
the entire agreement of the parties relating to the subject matter hereof, and
the parties hereto have made no agreements, representations or warranties
relating to the subject matter of this Agreement which are not set forth herein.
No modification of this Agreement shall be valid unless made in writing and
signed by the parties hereto.
15. Binding Effect. The rights, benefits, duties and
obligations under this Agreement shall inure to, and be binding upon, the
Company, its successors and assigns, and upon you and your legal
representatives. This Agreement constitutes a personal service agreement, and
the performance of your obligations hereunder may not be transferred or assigned
by you.
16. Non-waiver. The failure of either party to insist upon the
strict performance of any of the terms, conditions and provisions of this
Agreement shall not be construed as a waiver or relinquishment of future
compliance therewith, and said terms, conditions and provisions shall remain in
full force and effect. No waiver of any term or condition of this Agreement on
the part of either party shall be effective for any purpose whatsoever unless
such waiver is in writing and signed by such party.
17. Governing Law. This Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New York
without regard to principles of conflict of laws.
18. Survivability. The provisions of this Agreement which by
their terms call for performance subsequent to termination of your employment
hereunder, or of this Agreement, shall so survive such termination.
19. Headings. The headings of paragraphs are inserted for
convenience and shall not affect any interpretation of this Agreement.
If this letter agreement meets with your approval and you
desire to accept this offer of employment on the terms and conditions set forth
herein, please execute the enclosed copy of this letter and return it to me as
soon as possible.
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<PAGE> 15
Sincerely,
GENTA INCORPORATED
By:___________________________
Mark C. Rogers, M.D.
AGREED AND ACCEPTED
AS OF THE DATE FIRST SET FORTH ABOVE:
____________________________________
Dr. Raymond P. Warrell, Jr.
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<PAGE> 1
Exhibit 10.71
GENTA INCORPORATED
1998 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated as of October 28, 1999,
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 Company's
1998 Stock Incentive Plan (the "Plan").
All options granted herein (the "Options") shall be appropriately
adjusted pursuant to Section 1.5.3 of the Plan.
The Company hereby represents and warrants to Optionee that, as of the
date of this Agreement, the sum of the number of outstanding shares of Common
Stock and the number of shares of Common Stock underlying all outstanding
convertible or exercisable derivative securities is 63,510,163 shares. In the
event that the foregoing representation is inaccurate, the number of shares
underlying the Options granted under Section 1 of this Agreement shall be
proportionately adjusted.
The Optionee hereby represents and warrants to the Company that, upon
commencing his employment with the Company on October 28, 1999, the Optionee was
not violating the terms of his employment with any third person, nor did the
commencement of his employment with the Company on October 28, 1999 provide the
basis for a claim of such a violation.
<PAGE> 2
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 Options.
(a) In consideration of the commencement of his employment by the
Company on October 28, 1999, the Company hereby grants to the Optionee Options
(the "Initial Options") to purchase 3,175,508 shares of the Company common
stock, par value $.001 (the "Common Stock"), at an initial exercise price per
share of $2.67 (the "Exercise Price"). These Initial Options are exercisable
immediately subject to the satisfaction of the Option Conditions (defined
below); provided, however, the unvested portion of the Common Stock issuable
upon exercise of the Initial Option shall be subject to the nontransferability,
forfeiture and repayment provisions of Section 2, 5 and 7 hereof, respectively,
until such shares vest in accordance with the following vesting schedule: 25% of
the Initial Options shall vest immediately: the remaining 75% of the Initial
Options and Common Stock issuable upon exercise thereof shall vest in 36
substantially equal installments on the last day of each month commencing
November 30, 1999; and provided, further, that the Initial Options granted
hereunder shall not be exercisable until all of the following conditions (the
"Option Conditions") have been satisfied: (x) the Company's Amended and Restated
Certificate of Incorporation has been amended to increase the Company's
authorized capital stock by an amount sufficient to permit the issuance of
Common Stock upon the exercise or conversion of all options, warrants and
convertible securities issued by the Company, including all of the Options
granted pursuant to this Agreement (the "Reservation Requirements"); and (y) the
Company's shareholders shall have approved an amendment to the Plan authorizing
an increase in the shares of Common Stock available under the Plan sufficient to
satisfy the Options referred to herein. The Company shall use its best efforts,
subject to
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<PAGE> 3
applicable law, to obtain shareholder approval of such amendments; provided,
however, that nothing in this Section 1(a) shall be interpreted so as to require
the Company pay a consent fee or hire third party proxy solicitors.
(b) The Company hereby grants to the Optionee Options (the "FDA
Option") to purchase 793,877 shares of Common Stock at the Exercise Price;
provided, however, that this FDA Option and the Common Stock issuable upon
exercise thereof shall only vest when the Optionee has been employed by the
Company for six years (the "Term Condition") and provided, further, that in no
event shall this FDA Option be exercisable unless all Option Conditions have
been satisfied. The FDA Option is immediately exercisable; provided, however,
that the Common Stock issuable upon exercise of the FDA Option shall be subject
to the nontransferability, forfeiture and repayment provisions of Section 2, 5
and 7 hereof, respectively. Notwithstanding the foregoing, the Term Condition
shall be waived in respect of this FDA Option and the FDA Option and Common
Stock issuable upon exercise thereof shall vest in their entirety when the
Company has received from the Food and Drug Administration a letter providing
that Company's product G3139, or its substantial equivalent, is approved for
marketing in any indication.
(c) The Company hereby grants to the Optionee Options (the "Market
Capitalization Option") (and, together with the FDA Option, the "Performance
Options") to purchase 793,877 shares of Common Stock at the Exercise Price;
provided, however, that this Market Capitalization Option and the Common Stock
issuable upon exercise thereof shall only vest upon the satisfaction of the Term
Condition; and provided, further, that in no event shall this Market
Capitalization Option be exercisable unless all Option Conditions have been
satisfied. The Market Capitalization Option is immediately exercisable;
provided, however, the unvested
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<PAGE> 4
portion of the Common Stock issuable upon exercise of the Market Capitalization
Option shall be subject to the nontransferability, forfeiture and repayment
provisions of Section 2, 5 and 7 hereof, respectively. Notwithstanding the
foregoing, the Term Condition shall be waived in respect of this Market
Capitalization Option and the Market Capitalization Option and Common Stock
issuable upon exercise thereof shall vest in its entirety when the average of
the product of the Fair Market Value of the Company Common Stock (or any
successor security issued as a replacement for Company Common Stock) multiplied
by the number of shares of Company Common Stock outstanding and issuable upon
exercise of all warrants, options and convertible securities, during any 60
consecutive calendar day period, exceeds $541,106,489.
(d) All the options described above may from time to time hereinafter
be referred to singularly as an "Option" and collectively as the "Options."
SECTION 2. Nontransferability.
(a) No Option shall 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 2 shall not prevent transfers by will or by
the laws of descent and distribution. During the lifetime of the Optionee, the
Options shall be exercisable only by the Optionee.
(b) Until a share of Common Stock vests in accordance with the
provisions of Section 1(a), (b) or (c), as the case may be, the Optionee
acknowledges that the Optionee may not, and the Optionee agrees that the
Optionee shall not, transfer or assign the Optionee's rights to such share of
Common Stock or to any cash payment related thereto. Until a share of Common
Stock so vests, no attempt to transfer or assign such shares or the right to any
cash
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<PAGE> 5
payment related thereto, whether by transfer, pledge, hypothecation or otherwise
and whether voluntary or involuntary, by operation of law or otherwise, shall
vest the transferee or assignee with any interest or right in or with respect to
such share of Common Stock or such cash payment, and the attempted transfer or
assignment shall be of no force and effect.
SECTION 3. Certificates; Custodianship.
(a) Reasonably promptly after Optionee has exercised his right to
acquire any such shares of Common Stock already vested pursuant to the
provisions of Section 1 or Section 6 of this Agreement, but in no event more
than ten (10) business days after such date, the Company (i) shall cause to be
issued certificates evidencing such shares of Common Stock, including such
legends as the Company deems necessary or appropriate to comply with federal and
applicable state securities laws, and (ii) shall cause such certificates to be
delivered to the Optionee (or such Optionee's legal representative, beneficiary
or heir), together with any other property directly related to such vested
shares of Common Stock of the Optionee.
(b) Reasonably promptly after the date that the Optionee exercises his
right to purchase any shares of Common Stock that have not theretofore vested or
been forfeited, but in no event more than ten (10) business days after such
date, provided that the Company has first received a stock power endorsed by the
Optionee in blank with respect to such shares of Common Stock, the Company shall
issue stock certificates, registered in the name of the Optionee, evidencing
such shares of Common Stock. Each such certificate shall bear the following
legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and conditions
(including forfeiture and restrictions against transfer) contained in the
Genta Incorporated 1998 Stock Incentive Plan and an
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<PAGE> 6
Agreement entered into between the registered owner of such shares and
Genta Incorporated. A copy of the Plan and Agreement is on file in the
office of the Secretary of Genta Incorporated."
Such legend shall not be removed from the certificates evidencing such
exercised shares of Common Stock until such shares vest pursuant to the
provisions of Section 1 and Section 6 of this Agreement.
(c) Each certificate issued pursuant to Section 3(b) hereof, together
with the stock powers relating to such shares of Common Stock, shall be
deposited by the Company with a custodian designated by the Company (the
"Certificate Custodian"). The Company may designate itself as Certificate
Custodian hereunder. The Company shall cause such Certificate Custodian to issue
to the Optionee a receipt evidencing the certificates held by it which are
registered in the name of the Optionee.
(d) Reasonably promptly after any previously unvested shares of Common
Stock vest pursuant to the provisions of Section 1 or Section 6 of this
Agreement, but in no event more than ten (10) business days after such date, the
Company (i) shall cause to be issued certificates evidencing such shares of
Common Stock, free of the legend provided in Section 3(b) hereof, but including
such legends as the Company deems necessary or appropriate to comply with
federal and applicable state securities laws, and (ii) shall cause such
certificates to be delivered to the Optionee (or such Optionee's legal
representative, beneficiary or heir), together with any other property directly
related to such vested shares of Common Stock of the Optionee held by the
Certificate Custodian pursuant to Section 3(e) hereof.
(e) Any securities or other property (excluding cash dividends)
received by the Optionee with respect to a share of Common Stock as a result of
any stock dividend, stock split,
-6-
<PAGE> 7
recapitalization, merger, consolidation, combination or exchange of shares and
for which the issue date of such Common Stock occurs prior to such event but
which has not vested as of the date of such event will not vest until such share
of Common Stock vests and shall be promptly deposited with the Certificate
Custodian as though such securities and other property were part of such share.
SECTION 4. Method of Exercise.
(a) The Options 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 number of shares being purchased. Such payment
may be made by one or a combination of the following methods:
(i) by a certified or official bank check (or the equivalent
thereof acceptable to the Company);
(ii) by delivery of shares of Common Stock having a Fair Market
Value on such date of exercise equal to part or all of the purchase price,
provided such shares of Common Stock would not upon delivery of such shares for
such purpose result in an accounting compensation charge with respect to the
shares of Common Stock used to pay the Exercise Price;
(iii) by delivery of a promissory note issued by Optionee for up to
the full amount of the purchase price of the optioned shares (except that an
amount equal to the par value of Common Stock shall be paid in cash), on terms
acceptable to the Company, which promissory note shall be full recourse to the
Optionee personally for all amounts due thereunder
-7-
<PAGE> 8
and shall be fully secured by the Common Stock purchased pursuant to the
exercise of the Option;
(iv) by payment through a broker-dealer sale and remittance
procedure pursuant to which the Optionee (i) shall provide written instructions
to a Company designated brokerage firm to effect the immediate sale of some or
all of the purchased Common Stock and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares of Common Stock and
(ii) shall provide written directives to the Company to deliver the certificates
for the purchased shares of Common Stock directly to such brokerage firm in
order to complete the sale transactions; or
(v) 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 of the Common Stock)
underlying the Options.
Pursuant to Section 3.2 of the Plan, it shall be a condition precedent
to the issuance of shares upon exercise of the Options 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
Options 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
10 of this Agreement, or if mailed, the date on which it is postmarked, provided
such notice is actually received.
-8-
<PAGE> 9
(b) The Optionee agrees not to exercise any Options granted hereunder
until the later of (i) the day the Option Conditions are satisfied or (ii) one
day after the Optionee has been employed by the Company for six (6) months.
Furthermore, the Optionee agrees that any disposition of any Options (and any
shares of Common Stock issuable upon exercise of any options) will be carried
out in a manner consistent with Section 16(b) of the Securities and Exchange Act
of 1934, as amended, and any and all other applicable requirements of law.
SECTION 5. Termination of Option.
(a) Except as otherwise provided for under this Section 5, the
unexercised portion of the Initial Option shall expire and cease to be
exercisable at 12:01 a.m. on October 27, 2009; the unexercised portion of the
Market Capitalization Option shall expire and cease to be exercisable on the
tenth anniversary of the date such option vests in accordance with the
provisions of Section 1(b) hereof; and the unexercised portion of the FDA Option
shall expire and cease to be exercisable on the tenth anniversary of the date
such option vests in accordance with the provisions of Section 1(c) hereof.
(b) Except as provided in Section 6 of this Agreement, upon termination
of the Optionee's employment with the Company or any of its subsidiaries for any
reason (including death), all unvested Options immediately shall terminate and
expire and all unvested shares of Common Stock exercised pursuant to any Option
hereunder shall be immediately and irrevocably forfeited except as provided in
Section 5(c) and (d) hereof.
(c) Except as provided in Section 6 of this Agreement, if the
Optionee's employment with the Company or any of its subsidiaries terminates for
any reason other than death, the Options shall be exercisable but only to the
extent they were exercisable and vested at
-9-
<PAGE> 10
the time of such termination and only until the earlier of the expiration date
of such Options, or the expiration of one year following the date of
termination.
(d) If the Optionee dies while still an employee of the Company or any
of its subsidiaries or following the termination of Optionee's employment with
the Company and its subsidiaries, but during the period in which any Option is
exercisable pursuant to Section 5(c) of this Agreement, such vested Option shall
be exercisable but only to the extent they were exercisable at the time of death
and only until the earlier of the expiration date of such Option or the first
anniversary of the date of the Optionee's death.
SECTION 6. Acceleration of Vesting.
If:
(i) prior to the termination of Optionee's employment with the
Company, there is (A) a sale or other disposition of all or substantially all of
the assets of the Company or the product G3139 or its substantial equivalent,
(B) an acquisition of the Company by another entity by means of any transaction
or series of related transactions (including, without limitation, any
reorganization, merger or consolidation but, excluding any merger effected
exclusively for the purpose of changing the domicile of the Company) unless the
Company's stockholders as constituted immediately prior to such acquisition
will, immediately after such acquisition (by virtue of securities issued as
consideration for the Company's acquisition or otherwise) hold at least fifty
percent (50%) of the voting power of the surviving or acquiring entity and
unless the Company's directors as constituted immediately prior to such
acquisition, constitute a majority of directors of the surviving or acquiring
entity, or (C) an acquisition by any person or related group of persons (other
than the Company, a Company-sponsored employee benefit plan
-10-
<PAGE> 11
or such person or entity who as of September 14, 1999, beneficially owned
(within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended) more than fifty percent (50%) of the Company's Common Stock) of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities; or
(ii) Optionee's employment is terminated by the Company pursuant to
Section 10(d) of the employment agreement between you and the Company dated as
of October 28, 1999 (the "Employment Agreement")) or the Optionee terminates his
employment for Good Reason under subsection 10(e) of the Employment Agreement;
or
(iii) prior to the termination of Optionee's employment with the
Company, at any time Lindsay Rosenwald, or after his death or incapacity, his
successor or legal representative (collectively "LR") directly or indirectly
(through Paramount Capital Management Inc., Paramount Capital Inc., or any fund,
trust or other entity for whom any of them, or any entity controlled by LR or
any of them, serves as investment advisor and/or general partner or otherwise
acts as an advisor or manager) ceases to control and direct at least 35% (thirty
five percent) of the total combined voting power of the Company's outstanding
securities; or
(iv) prior to termination of Optionee's employment with the Company
the Company, within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against
it in an involuntary case,
-11-
<PAGE> 12
(C) consents to the appointment of a Custodian of it or
for all or substantially all of its property, and
such Custodian is not discharged within 60 days; or
(v) prior to termination of Optionee's employment with the Company,
a court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that:
(A) is for relief in any involuntary case against the
Company,
(B) appoints a Custodian of the Company or for all or
substantially all of the property of the Company, or
(C) orders the liquidation of the Company, and, in each
case, the order or decree remains unstayed and in
effect for 60 consecutive days;
then any Initial Options previously granted and the Common Stock issuable
thereof under this Agreement but not yet vested shall immediately vest. In
addition, all Performance Options that would have vested during the 12-month
period following the events set forth in this Section 6 (the "Section 6 Events")
shall vest, if a Section 6 Event occurs within such 12-month period, immediately
upon the occurrence of such Section 6 Events; provided, however, that no Options
granted hereunder shall be exercisable unless the Option Conditions have been
met. At the time the Section 6 Event occurs, the Options referred to in this
Section 6 shall be fully exercisable.
The term "Bankruptcy Law" means Title 11 of the U.S. Code or any
similar federal, foreign or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, examiner or
similar official under any Bankruptcy Law.
SECTION 7. Right to Repayment.
If in accordance with the terms of Section 5 of this Agreement,
Optionee forfeits any unvested shares of Common Stock received upon exercise of
an Option, Optionee acknowledges and agrees that the Certificate Custodian shall
surrender to the Company as soon
-12-
<PAGE> 13
as practicable after the effective date of such forfeiture all certificates for
such shares issued to Optionee by the Company pursuant to Section 3(b) of this
Agreement. As soon as practicable after such surrender, but in no event later
than 30 days after such surrender, Optionee shall be entitled to a payment by
the Company in an amount, in cash equal to the aggregate of the Exercise Prices
paid for each exercised but unvested share of Common Stock so forfeited.
SECTION 8. 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. Notwithstanding the
foregoing, Section 2.10 of the Plan shall not apply to this Agreement.
SECTION 9. 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 10. Notices.
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
-13-
<PAGE> 14
courier service. Notice shall be addressed (a) to Genta Incorporated, c/o Dr.
Mark C. Rogers, Paramount Capital Inc., 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 11. 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 5 of this Agreement and with the Plan, the heirs and
personal representatives of the Optionee.
SECTION 12. 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 3.1.3 of the Plan. Headings are for convenience
only, and are not themselves part of the Agreement.
SECTION 14. 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
-14-
<PAGE> 15
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 15. 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.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the date and year first written above.
GENTA INCORPORATED
By:
-------------------------
Name: Mark C. Rogers
Title: Chairman of the Board of
Directors
-15-
<PAGE> 16
OPTIONEE
Dr. Raymond P. Warrell, Jr.
----------------------------
Address:
----------------------------
Social Security Number:
----------------------------
<PAGE> 1
Exhibit 10.72
4 March 1999
Mr K Kasses
Genta Incorporated
99 Hayden Avenue
Lexington
MA 02421
USA
Dear Ken
THE GENTA - JAGO JOINT VENTURE
The parties have been discussing a means of resolving their involvement in Genta
Jago Technologies BV (the Joint Venture) and the several agreements in being
between them concerning its operation and activities.
Genta is evaluating the fiscal and other consequences of acquiring SkyePharma's
interest in the Joint Venture. Regardless of the outcome of such evaluation, the
parties hare agreed to operate the activities of the Joint Venture in accordance
with what follows notwithstanding anything contained in the several agreements
referred to above. For the avoidance of doubt, SkyePharma shall mean all members
of the SkyePharma Group of Companies, on whose behalf SkyePharma commits.
SkyePharma is referred to as "Skye" hereafter.
1. The Parties waive, release and hold each other harmless and each of
their respective partners, affiliates, shareholders, directors, officers,
agents, advisors, representatives, employees, counsel and controlling
persons within the meaning of the Securities Act of 1933, as amended (the
"Act"), from any and all losses, liabilities, claims, damages and expenses,
whether known or unknown, contingent or matured (collectively, the
"Claims") whatsoever in any way related to, arising out of or in connection
with (i) any and all unpaid development costs accrued as of the date
hereof, (ii) the certain notes executed by the Joint Venture in favour of
Genta for the funding of development and operational costs, and (iii) any
and all obligations and/or responsibilities under the agreements set forth
in Schedule A, including, without limitation, specifically Genta shall be
released in all respects from the funding obligations under any such
agreements.
2. Henceforth, and pending the outcome of Genta's evaluation (mentioned
above) and/or such other agreement as may be made between the parties, Skye
shall benefit from all rights and become responsible for all obligations
under existing development and license agreements between the Joint Venture
and independent third parties, including Apothecon (now terminated),
Brightstone and Krypton. Skye shall be solely responsible for the further
development, marketing, distribution, manufacturing and funding of the
Joint Venture products listed in Schedule B of the Restated Geomatrix
License Agreement ("JV Products"), now being Schedule B to this agreement.
In order to enable these provisions to work Skye is hereby given authority
to commit the Joint Venture in
<PAGE> 2
all particulars, with third parties and without need of any further
assurance from Genta or the signature of any of its officers.
3. In consideration of the foregoing, the Joint Venture shall have a vested
interest in the qualified income share from the license revenues of Skye
relating to JV Products (the "Qualified Income Share"), including license
fees, milestones, royalties and other payments made in respect of a license
granted in respect of the JV Products ("License Income"), but excluding
reasonable and documented reimbursements by independent third parties for
development costs and expenses of Skye. The Qualified Income Share shall be
as follows:
(a) For JV Products for which the Joint Venture and/or Skye have
initiated development prior to the date hereof (as set forth
of Schedule B), that:
(i) have been, or are in the future, licensed to independent third
parties, the Qualified Income Share of the Joint Venture
shall be equal to one hundred percent (100%) of the License
Income; and
(ii) have been, or are in the future, licensed to an affiliate
company within the Skye group, the Qualified Income Share of
the Joint Venture shall be based on the terms for payments
owed to the Joint Venture pursuant to the license agreement
for Naproxen entered into on 25th October 1996 between the
Joint Venture and Krypton Ltd., a wholly owned subsidiary of
Skye.
(b) For JV Products for which no development has occurred prior to
the date hereof (as set forth in Schedule C), that are in the
future licensed to independent third parties or affiliates of Skye:
(i) within eighteen (18) months, then the Qualified Income Share
of the Joint Venture shall be 100% of the License Income; and
(ii) thereafter, the Qualified Income Share of the Joint Venture
shall be sixty-six percent (66%) of the License Income; and
(iii) 3.(a)(ii) above shall apply to the determination of licence
income for licences to affiliate companies within the Skye
Group.
(c) For JV Products for which no development has occurred prior to
the date hereof (as set forth in Schedule C), Skye is entitled
to deduct from License Income actually received from independent
third parties for each such product worked on prior to the
execution of the development/license agreement with such
independent third party up to an aggregate amount of CHF 500,000 per
product/license to cover unreimbursed development fees that are
incurred for such products.
4. Until the date that is nineteen (19) years from the date hereof, all
Qualified License Income shall be paid by Skye immediately upon receipt
into an escrow account in the
<PAGE> 3
name of the JV Company, jointly controlled (for payments out) by Genta and
Skye or their nominees (the "Escrow Account"). Any amounts received in the
Escrow Account shall be disbursed to the Parties and Vecap Venture Capital
Partners AG ("Vecap") pursuant to the Distribution List attached hereto as
Schedule D. Upon full recovery of all amounts set forth for the credit of
each of the Parties and Vecap, Genta and Skye shall each receive fifty
percent (50%) of all additional Qualified License Income.
5. Subject to the further agreement between the parties the Joint Venture
shall be maintained by an independent third party (appointed by agreement),
on behalf of the parties, on a minimal basis, with only those functions
performed by it or in relation to it, which are strictly necessary for
purposes of this agreement, and/or to maintain the integrity of its
Corporate being (audit and registration fees, etc). For avoidance of doubt
such independent third party will invoice both Genta and Skye for 50% each
of any necessary costs and expenses, reasonably incurred in the fulfillment
of this paragraph 5.
Both parties acknowledge that this agreement represents an interim solution and
that it shall obtain until they are able to resolve the relationship between
them to their mutual satisfaction.
If the foregoing accurately reflects your understanding of what we have agreed,
will you please evidence accordingly by signing and returning one copy of this
agreement.
Yours sincerely
PETER WARBURTON
COMPANY SECRETARY & INTERNATIONAL COUNSEL
FOR: GENTA INCORPORATED
BY: _________________________________ DATE: ____________________________
NAME:
TITLE:
<PAGE> 1
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
Nos. 33-72130, 33-58362,333-3846 and 333-35215 of Genta Incorporated on Form S-3
and Registration Statement Nos. 33-85887, 333-94181 and 333-94185 of Genta
Incorporated on Form S-8 of our report dated February 2, 2000 with respect to
the consolidated financial statements of Genta Incorporated and subsidiaries,
appearing in this Annual Report on Form 10-K for the year ended December 31,
1999.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 27, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF DELOITTE & TOUCHE EXPERTA LTD
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements Nos.
33-72130, 33-58362, 333-3846 and 333-35215 of Genta Incorporated on Form S-3 and
Registration Statement Nos. 33-85887, 333-94181 and 333-94185 of Genta
Incorporated on Form S-8 of our report dated April 15, 1999, with respect to the
financial statements of Genta Jago Technologies B.V., appearing in this Annual
Report on Form 10-K of Genta Incorporated for the year ended December 31, 1998
(which report expressed an unqualified opinion and includes an explanatory
paragraph which indicates that there are matters that raise substantial doubt
about the Company's ability to continue as a going concern).
DELOITTE & TOUCHE EXPERTA LTD.
Basel, Switzerland
March 27, 2000
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
on Form S-3 and S-8 of our reports dated June 18, 1998 with respect to the
consolidated financial statements of Genta Incorporated and the financial
statements of Genta Jago Technologies B.V. included in the Genta Incorporated
Annual Report on Form 10-K for the year ended December 31, 1999.
ERNST & YOUNG LLP
San Diego, California
March 24, 2000
<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 ANNUAL REPORT ON FORM 10-K FOR PERIOD ENDED DECEMBER 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 1,566,288 10,100,603
<SECURITIES> 892,372 0
<RECEIVABLES> 0 1,333,739
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,937,364 11,456,429
<PP&E> 148,245 30,357
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 7,551,293 12,228,190
<CURRENT-LIABILITIES> 2,308,256 2,022,114
<BONDS> 0 0
634 401
0 0
<COMMON> 10,426 25,456
<OTHER-SE> 2,947,959 10,180,219
<TOTAL-LIABILITY-AND-EQUITY> 7,551,293 12,228,190
<SALES> 0 0
<TOTAL-REVENUES> 105,087 0
<CGS> 0 0
<TOTAL-COSTS> 6,683,123 11,333,138
<OTHER-EXPENSES> 0 149,027
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 263,675 172,137
<INCOME-PRETAX> (8,218,556) 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (6,845,801) (8,861,510)
<DISCONTINUED> (739,965) (189,407)
<EXTRAORDINARY> 0 1,606,956
<CHANGES> 0 0
<NET-INCOME> (8,218,556) (17,528,541)
<EPS-BASIC> (1.17) (0.99)
<EPS-DILUTED> (1.17) (0.99)
</TABLE>
