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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-19635
GENTA INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF INCORPORATION)
Delaware 33-0326866
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
99 Hayden Avenue, Suite 200 02421-7966
Lexington, Massachusetts (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(781) 860-5150
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of May 10, 2000, the registrant had 31,378,338 shares of common stock
outstanding.
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GENTA INCORPORATED
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INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at December 31, 1999
and March 31, 2000 3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1999 and 2000 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 2000 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
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GENTA INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------
ASSETS 1999 2000
----------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................................... $ 10,100,603 $ 7,950,518
Short term investments ........................................................ -- 2,295,624
Notes receivable .............................................................. 1,333,739 1,294,739
Prepaid expenses .............................................................. -- 300,000
Other current assets .......................................................... 22,087 29,180
----------------------------------
Total current assets ............................................................. 11,456,429 11,870,061
----------------------------------
Property and equipment, net ...................................................... 30,357 38,286
Intangibles, net ................................................................. 576,904 524,078
Deposits and other assets ........................................................ 164,500 --
----------------------------------
Total assets ..................................................................... $ 12,228,190 $ 12,432,425
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................................. $ 362,465 $ 340,484
Payable to research institutions .............................................. 52,500 --
Accrued compensation .......................................................... 487,609 464,198
Other accrued expenses ........................................................ 544,728 599,893
Net liabilities of liquidated foreign subsidiary .............................. 574,812 574,812
----------------------------------
Total current liabilities ........................................................ 2,022,114 1,979,387
----------------------------------
Stockholders' equity:
Preferred stock; 5,000,000 shares authorized, convertible
preferred shares outstanding:
Series A convertible preferred stock, $ 001 par value;
277,100 and 273,300 shares issued and outstanding at
December 31, 1999 and March 31, 2000, respectively, liquidation
value is $13,665,000 at March 31,2000 ..................................... 277 273
Series D convertible preferred stock, $.001 par value; 123,451 and 101,180
shares issued and outstanding at December 31, 1999 and March 31, 2000,
respectively; liquidation value is $22,742,673 at March 31, 2000 .......... 124 101
Common stock; $.001 par value; 95,000,000 shares authorized,
25,456,123 and 29,796,782 shares issued and outstanding at
December 31, 1999 and March 31, 2000, respectively .......................... 25,456 29,797
Additional paid-in capital .................................................... 146,862,374 152,065,595
Accumulated deficit ........................................................... (139,497,618) (148,235,213)
Accrued dividends payable ..................................................... 5,134,912 8,577,473
Deferred compensation ......................................................... (2,319,449) (1,984,988)
----------------------------------
Total stockholders' equity ....................................................... 10,206,076 10,453,038
----------------------------------
Total liabilities and stockholders' equity ....................................... $ 12,228,190 $ 12,432,425
==================================
</TABLE>
See accompanying notes.
3
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GENTA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------
1999 2000
------------ ------------
(RESTATED)
<S> <C> <C>
Operating expenses:
Research and development (excluding non-cash stock
compensation of zero and $1,207,280)................. $1,089,966 $ 505,791
General and administrative (excluding non-cash stock
compensation of $142,500 and $6,783,399).............. 969,912 853,724
Non-cash equity related compensation ................... 142,500 7,990,679
------------ ------------
2,202,378 9,350,194
------------ ------------
Loss from operations....................................... (2,202,378) (9,350,194)
Equity in net income of
joint venture............................................ 2,284,018 501,945
Other income (expense):
Interest income......................................... 51,864 115,360
Interest expense........................................ (173) (4,706)
Other expense........................................... (149,114) --
------------ ------------
Net loss from continuing operations........................ (15,783) (8,737,595)
Income (loss) from discontinued operations................. (189,407) --
------------ ------------
Net loss................................................... (205,190) (8,737,595)
Dividends accrued on preferred stock....................... (888,700) (3,442,561)
============ ============
Net loss applicable to common shares....................... $ (1,093,890) $(12,180,156)
============ ============
Net loss per share
Continuing operations.................................... $ (0.07) $ (0.44)
Discontinued operations.................................. (0.01) --
------------ ------------
Net loss per common share.................................. $ (0.08) $ (0.44)
============ ============
Shares used in computing net
loss per common share.................................... 12,902,237 27,767,794
============ ============
</TABLE>
See accompanying notes.
4
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GENTA INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------
1999 2000
------------ ------------
(restated)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss......................................................... $ (205,190) $ (8,737,595)
Items reflected in net loss not requiring cash:
Depreciation and amortization................................. 259,862 57,114
Equity in net gain of joint venture........................... (2,284,018) --
Compensation expense related to stock options................. 76,134 7,990,679
Loss on sale of fixed assets.................................. 149,026 --
Changes in operating assets and liabilities...................... 218,286 (197,373)
------------ ------------
Net cash used in operating activities............................ (1,785,900) (887,175)
INVESTING ACTIVITIES
Purchase of short-term investments............................... 892,372 (2,295,624)
Purchase of property and equipment............................... (24,551) (12,217)
Proceeds from sale of property and equipment..................... 5,087 --
Principal payments received on notes receivable.................. -- 60,000
Purchase of intangibles.......................................... (99,635) --
Deposits and other............................................... (1,200) --
------------ ------------
Net cash provided by investing activities........................ 772,073 (2,247,841)
FINANCING ACTIVITIES
Issuance of common stock upon exercise of warrants............... 35,391 993,878
Proceeds from equipment conversion to lease...................... 60,085 --
------------ ------------
Net cash provided by financing activities........................ 95,476 993,878
------------ ------------
(Decrease) increase in cash and cash equivalents................. (918,351) (2,141,138)
Less cash at liquidated foreign subsidiary....................... (8,947) (8,947)
Cash and cash equivalents at beginning of period................. 1,566,288 10,100,603
------------ ------------
Cash and cash equivalents at end of period....................... $ 638,990 $ 7,950,518
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid.................................................... $ 173 $ 4,706
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Preferred stock dividends accrued................................ 888,700 3,442,561
Common stock issued in payment of dividends on preferred stock... 18,597 --
</TABLE>
See accompanying notes.
5
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GENTA INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
(1) BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of Genta
Incorporated, a Delaware corporation ("Genta" or the "Company"), presented
herein have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the information and note
disclosures required to be presented for complete financial statements. The
accompanying financial statements reflect all adjustments (consisting only of
normal recurring accruals) which are, in the opinion of management, necessary
for a fair presentation of the results for the interim periods presented.
Accrued dividends have been restated for the three months ended March 31, 1999
to conform with the 1999 year end presentation and to record accrued dividends
at fair market value. The impact for the three months ended March 31, 1999 was
an increase in net loss of $546,291 or $0.04 per share.
The unaudited condensed consolidated financial statements and related
disclosures have been prepared with the presumption that users of the interim
financial information have read or have access to the audited financial
statements for the preceding fiscal year. Accordingly, these financial
statements should be read in conjunction with the audited consolidated financial
statements and the related notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 (the "1999 Form 10-K").
The Company has experienced significant quarterly fluctuations in operating
results and it expects that these fluctuations will continue.
(2) DISCONTINUED OPERATIONS
On March 19, 1999, the Company entered into an Asset Purchase Agreement
(the "JBL Agreement") with Promega Corporation ("Promega"), whereby a wholly
owned subsidiary of Promega acquired substantially all of the assets and assumed
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 with a gain on the sale of approximately $1.6
million being recognized.
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 the three months ended March 31, 1999. The assets and liabilities
relating to the discontinued operations 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 condensed consolidated statements of
operations for the three months ended March 31, 1999. In connection with the
sale of JBL's business, 246,000 options were granted to the former employees of
JBL upon the closing of the sale of JBL's business, pursuant to an ongoing
service arrangement between Promega and the Company. Those options have been
accounted for pursuant to guidelines in Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," and EITF
96-18 using the Black-Scholes option pricing model. These options were granted
at $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 $1.9
million as of March 31, 2000 of which $970,400 is included in continuing
operations for the three months ended March 31, 2000 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.
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Net current assets of discontinued operations consisted of the following:
<TABLE>
<CAPTION>
March 31, 1999
--------------
<S> <C>
Accounts receivable, net ............................. $ 494,859
Inventories, net ..................................... 971,573
Property and equipment, net .......................... 626,681
Other assets ......................................... 958,034
Liabilities .......................................... (514,301)
-----------
Total ....................................... $ 2,536,846
===========
</TABLE>
Operating results of the discontinued segment consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
------------------
<S> <C>
Product sales ...................................... $ 1,273,598
Operating expenses ................................. (1,461,553)
Other income (expense) ............................. (1,452)
-----------
Income (loss) ...................................... $ (189,407)
===========
</TABLE>
(3) 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 March 31, 2000. The estimated fair value of each
investment security approximates the amortized cost and therefore, no unrealized
gains or losses existed as of March 31, 2000.
(4) NET LOSS PER COMMON SHARE
Under SFAS No. 128, "Earnings per Share," the Company is required to
present basic and diluted earnings per share if applicable. Basic earnings per
share includes 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 three months ended March 31, 1999 and
2000 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.
(5) STOCKHOLDERS' EQUITY
On March 27, 2000, the Board of Directors approved the mandatory conversion
of all Series D Convertible Preferred Stock, par value $.001 per share ("Series
D Preferred Stock"), and the mandatory redemption of all outstanding Class D
Warrants. As a result of the conversion of the Series D Convertible Preferred
Stock, and assuming all holders of Class D Warrants exercise their conversion
rights, the Company will be required to issue approximately
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<PAGE> 8
12.2 million shares of Common Stock. The Company expects to realize $1.0 million
from the exercise of the Class D Warrants. The Company did not accrue dividends
for the months of February and March 2000 due to the mandatory conversion of the
Series D Preferred Stock.
During the three months ended March 31, 2000, an aggregate of 26,088 shares
of the Company's Series D Convertible Preferred Stock, were converted at the
option of the holders thereof into an aggregate of 2,934,069 shares of Common
Stock at a conversion price of $0.88477 per share. An aggregate of 3,800 shares
of the Company's Series A Preferred Stock, par value $.001 per share ("Series A
Preferred Stock"), were converted at the option of the holders of thereof into
an aggregate of 26,810 shares of Common Stock at a conversion price of $6.77 per
share. An aggregate of 773,329 shares of Common Stock were issued pursuant to
the exercise of warrants.
On January 29, 2000, the Company declared a dividend for the Series D
Preferred Stock. An aggregate of 953,028 shares of Common Stock will be issued
which are valued at $8.6 million.
On March 27, 2000, four members of the Company's Board of Directors
resigned. The Company accelerated the vesting of their outstanding options and
extended the exercise period for one year. The Company expensed $6.6 million
during the first quarter of 2000 in connection with these options.
(6) 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 Agreement (see Note 2).
The Company also accepted a non-interest bearing promissory note from
HealthStar, Inc. for $200,000 for the sale of equipment to be paid in 10 equal
monthly installments, of which $20,000 was outstanding at March 31, 2000.
(7) GENTA JAGO
On March 4, 1999, Genta and SkyePharma (on behalf of itself and its
affiliates) entered into an interim agreement (the "Interim JV 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 Technologies B.V. ("Genta Jago"), the joint venture formed by Genta 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 Genta and
SkyePharma as set forth in the Interim JV Agreement. The Company reversed its
$2.3 million deficit in the Genta Jago and effectively forgiving payment of
working capital loans to Genta Jago, for the three months ended March 31, 1999.
In accordance with revised revenue sharing agreements, Genta reported $502,000
in income for the three months ended March 31, 2000 for its share of net income
of Genta Jago in relation to Skyepharma's royalty agreement with Elan
Corporation for Genta Jago's product, Naproxen.
(8) COMMITMENTS AND CONTINGENCIES
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 the
purpose of determining whether the levels of chloroform and PCEs have decreased
over time. The results of the latest sampling conducted by JBL shows that PCEs
and chloroform have decreased in all but one of the monitoring sites. The
Company has agreed to indemnify Promega in respect of this matter. Based on an
estimate provided to the Company by the consulting firm, at December 31, 1999
and March 31, 2000 the Company has $39,100 and $50,000, respectively, accrued to
cover remedial costs. Prior to 1999, such costs were not estimable and,
therefore, no loss provision had been
8
<PAGE> 9
recorded. 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 (the "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 during the second quarter of 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 investigation 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.
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 March 31, 2000, approximately $791,100) 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 March 31, 2000, approximately
$613,500) 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 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 March 31, 2000, approximately $97,200) and early termination payment of
FF1,852,429 (as of March 31, 2000, approximately $271,400). 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 March 31, 2000, 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.
(9) RECENT DEVELOPMENTS
In April 2000, Genta entered into an Asset Purchase Agreement (the "Relgen
Agreement") with Relgen LLC, a privately held corporation, in which Genta will
acquire all assets, rights and technology to a portfolio of gallium containing
compounds, known as Ganite(TM), in exchange for 10,000 shares of Common Stock.
These compounds are used to treat cancer-related hypercalcemia.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Since its inception in February 1988, the Company has devoted its principal
efforts toward drug discovery and research and development. The Company has been
unprofitable to date and, even if it obtains financing to continue its
operations, expects to incur substantial operating losses for the next several
years due to continued requirements for ongoing research and development
activities, preclinical and clinical testing activities, regulatory activities,
possible establishment of manufacturing activities and a sales and marketing
organization. From the period since its inception to March 31, 2000, the Company
has incurred a cumulative net loss of approximately $148.2 million. The Company
has experienced significant quarterly fluctuations in operating results and it
expects that these fluctuations in revenues, expenses and losses will continue.
The unaudited condensed consolidated financial statements contained in this
Quarterly Report on Form 10-Q that are not historical are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including statements regarding the expectations, beliefs, intentions or
strategies regarding the future. The Company intends that all forward-looking
statements be subject to the safe-harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements reflect the
Company's views as of the date they are made with respect to future events and
financial performance, but are subject to many risks and uncertainties, which
could cause the actual results of the Company to differ materially from any
future results expressed or implied by such forward-looking statements. Examples
of such risks and uncertainties include, but are not limited to, obtaining
sufficient financing to maintain the Company's planned operations, the timely
development and 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 ("MD&A") and elsewhere in this
Quarterly Report on Form 10-Q. The Company does not undertake to update any
forward-looking statements.
RESULTS OF OPERATIONS
The following discussion of results of operations relates to the Company's
continuing business and accordingly excludes the operations of the Company's
discontinued segment JBL Scientific.
On March 19, 1999, the Company entered into the JBL Agreement with Promega,
whereby a wholly owned subsidiary of Promega acquired substantially all of the
assets and assumed certain liabilities of JBL for cash, a promissory note and
certain pharmaceutical development services in support of the Company's
development activities (see Note 2). The sale of the assets of JBL was completed
on May 10, 1999, and has resulted in a significant decrease in ongoing revenues,
as all of the Company's product sales had been attributable to JBL.
Costs and expenses totaled approximately $2.2 million in the three months
ended March 31, 1999, and increased to approximately $9.4 million for the same
period in 2000. Primarily, the overall increase reflects greater activity in
non-cash stock compensation charges as a result of acceleration of stock options
for retiring Board members, which was partially offset by lower drug supply.
Research and development expenses totaled approximately $1.1 million in the
three months ended March 31, 1999, and increased to approximately $1.7 million
for the same period in 2000. The increase in research and development expenses
is primarily attributable to non-cash stock compensation charges, partially
offset by lower drug supply. During the three months ended March 31, 2000, $1.2
million was recorded for non-cash stock compensation charges.
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<PAGE> 11
As a result of the recent initiation of Phase 3 clinical trials for
melanoma, it is anticipated that research and development expenses will increase
in the future, 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 pursuits, 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.
General and administrative expenses were approximately $1.1 million for the
three months ended March 31, 1999, and increased to $7.6 million for the same
period in 2000. The increase reflects primarily non-cash stock compensation
charges, partially offset by lower consulting expenses. During the quarter ended
March 31, 2000, $6.8 million was recorded as non-cash stock compensation
charges.
On March 4, 1999, the Company and SkyePharma (on behalf of itself and its
affiliates) entered into 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. 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
equity interest in the net loss of the joint venture and, as such, recorded a
gain of approximately $2.3 million for the three months ended March 31, 1999. In
accordance with revised revenue sharing agreements, the Company recorded
$502,000 in income for the three months ended March 31, 2000 for its share of
net income of Genta Jago in relation to Skyepharma's royalty agreement with Elan
Corporation for Genta Jago's product, Naproxen.
The Company's net loss from continuing operations before accrued dividends
totaled approximately $8.7 million, or $0.31 per share of Common Stock, for the
three months ended March 31, 2000 compared to a net loss from continuing
operations of approximately $.02 million, or $0.01 per share of Common Stock,
for the same period in 1999. During the three months ended March 31, 2000, as a
result of accrued dividends on the Company's preferred stock of approximately
$3.4 million, the Company's net loss per common share was $0.44. The Company's
net loss applicable to common shares for the three months ended March 31, 2000
was higher than those reported for the comparable period of 1999 primarily as a
result of recording non-recurring income of approximately $2.3 million relating
to its equity interest in the net loss of the joint venture in 1999 and non-cash
stock compensation charges and an increase of dividends accrued on preferred
stock in 2000.
Since the formation of Genta Jago, no products have been successfully
developed and marketed. Since the initial plans called for earlier introductions
and since there have been significant changes in the market environment since
the Company entered into the joint venture, any products that may be marketed in
the future would have significantly poorer financial opportunities than those
that were anticipated in the earlier plans. This reduction in opportunity
derives from factors such as the presence of direct competing products currently
in the marketplace, and increasing pricing pressures on pharmaceuticals,
particularly multisource or generic products, from governmental and third-party
payers. On May 20, 1998, Genta Jago received notice from Apothecon that they had
terminated the agreement for the development of ketoprofen. Apothecon stated
that their decision to terminate was based on the facts that a competing generic
is already being successfully marketed, other competitors already have
Abbreviated New Drug Applications (ANDAs ) pending for their own generic
formulations and they consider the GEOMATRIX(R) capsule size competitively
disadvantageous. These factors may adversely affect Genta Jago even if it is
successful in developing products that obtain regulatory approval. As a result
and in consideration of the Company's need to reduce expenses and focus its
efforts, the Company is directing its resources away from the joint venture to
its Anticode(TM) drug development, specifically G3139, for the immediate future.
On July 27, 1998, SkyePharma PLC, the parent company to SkyePharma, announced
that an ANDA for naproxen sodium filed by Brightstone Pharma, its U.S. sales and
marketing subsidiary, had been accepted for filing by the FDA. Brightstone has a
license from Genta Jago to market this product.
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 for each period.
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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 March 31, 2000, including
net proceeds of $10.4 million raised in 1999 and $17.0 million raised during
1997. At March 31, 2000, the Company had cash, cash equivalents and short-term
investments totaling $10.2 million compared to approximately $10.1 million at
December 31, 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.
As discussed in Note 2 to the Company's condensed consolidated financial
statements, the Company entered into the JBL Agreement with Promega 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
approximately $4.8 million in cash, a promissory note for $1.2 million at a 7%
annual interest rate maturing on the later of June 30, 2000 or the Environmental
Compliance Date, 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 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 -- We May Be Liable For Claims of 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 and expand its ongoing research and development activities, preclinical
and clinical testing activities, the manufacturing and/or market introduction of
potential products and expansion of its administrative activities.
On March 27, 2000, the Board of Directors approved the mandatory conversion
of all Series D Preferred Stock and the mandatory redemption of all outstanding
Class D Warrants. As a result of the conversion of the Series D Preferred Stock,
and assuming all holders of Class D Warrants exercise their conversion rights,
the Company will be required to issue approximately 12.2 million shares of
Common Stock. The Company expects to realize $1.0 million from the exercise of
the Class D Warrants. The Company did not accrue dividends for the months of
February and March 2000 due to the mandatory conversion of the Series D
Preferred Stock.
In the three months ended March 31, 2000, the holders of an aggregate of
26,088 shares of Series D Preferred Stock converted those shares into an
aggregate of 2,934,069 shares of Common Stock, and the holders of an aggregate
of 3,800 shares of Series A Preferred Stock converted those shares into an
aggregate of 26,810 shares of Common Stock. An aggregate of 773,329 shares of
common stock were issued pursuant to the exercise of warrants.
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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 Quarterly Report on
Form 10-Q, the following factors should be considered carefully.
Our business will suffer if we fail to obtain timely funding.
Our Company's 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 private offering in December 1999, will be
adequate to satisfy our capital needs through December 31, 2000. Our future
capital requirements will depend on the results of our research and development
activities, pre-clinical 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 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.
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
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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;
* our inability to supply a significant amount of product to meet market
demand; and
* the number and 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
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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 depends 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.
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 in 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.
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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 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.
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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.
Based on an estimate provided to the Company by the consulting firm, at December
31, 1999 and March 31, 2000, the Company has $39,100 and $50,000, respectively,
accrued to cover remedial costs. 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 during 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 the liquidation, dissolution or winding up of the Company,
the Common Stock is expressly subordinate to the approximately $13.7 million
preference of the 273,300 outstanding shares of Series A Preferred Stock and the
approximately $22.7 million preference of the 101,180 outstanding shares of
Series D Preferred Stock (not including an additional 27,892 shares of Series D
Preferred Stock that are issuable upon exercise of certain warrants). Dividends
may not be paid on the Common Stock unless full cumulative dividends on the
Series D Preferred Stock have been paid or funds have been set aside for such
preferred dividends by the Company.
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 the Board of Directors of the Company.
Paramount Capital Asset Management, Inc. ("PCAM") 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 PCAM, is also the
Chairman of Paramount Capital, Inc. and of Paramount Capital Investments LLC
("PCI"), a New York-based merchant banking and venture
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capital firm specializing in biotechnology companies. In the regular course of
its business, PCI 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 its 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 PCAM and PCI 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 of the Company or certain of any officers or directors of the Company
hereafter appointed may from time to time serve as officers or directors of
other biopharmaceutical or biotechnology companies. We can not assure you that
such other companies will not have interests in conflict with those of the
Company.
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.
We have a history of operating losses and anticipate future losses.
The Company has been unprofitable to date, incurring substantial operating
losses associated with ongoing research and development activities,
pre-clinical testing, clinical trials, manufacturing activities and development
activities undertaken by Genta Jago. From the period since its inception to
March 31, 2000, the Company has incurred a cumulative net loss of approximately
$148.2 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 have decreased. See "Certain Trends and Uncertainties--Our Business
Will Suffer if We Fail to Obtain Timely Funding."
We may be liable for claims of 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 March 31, 2000, approximately $791,100) 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 March 31, 2000 approximately
$613,500), 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 it does not agree that the
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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 March 31, 2000, approximately $97,200) and early termination payment of
FF1,852,429 (as of March 31, 2000, approximately $271,400). 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 March 31, 2000, 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 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.
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 the Company 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
preclinical 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 their
respective competitors, including litigation, fluctuations in the Company's
operating results, and market conditions for biopharmaceutical stocks in general
could have a significant impact on the future price of the Common Stock. As of
May 10, 2000, the Company had 31,378,338 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.
No predictions can be made of the effect that future market sales of the
shares of Common Stock underlying outstanding convertible securities and
warrants, 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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 the
purpose of determining whether the levels of chloroform and PCEs have decreased
over time. The results of the latest sampling conducted by JBL shows that PCEs
and chloroform have decreased in all but one of the monitoring sites. The
Company has agreed to indemnify Promega in respect of this matter. Based on an
estimate provided to the Company by the consulting firm, at December 31, 1999
and March 31, 2000 the Company has $39,100 and $50,000, respectively, accrued to
cover remedial costs. Prior to 1999, such costs were not estimable and,
therefore, no loss provision had been recorded. 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 (the "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 during the second quarter of 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 investigation 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.
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 March 31, 2000, approximately $791,100) 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 March 31, 2000, approximately
$613,500) 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 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 March 31,
20
<PAGE> 21
2000, approximately $97,200) and early termination payment of FF1,852,429 (as of
March 31, 2000, approximately $271,400). 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 March 31, 2000, 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting of Stockholders (the "Annual
Meeting") on May 9, 2000.
(b) Proxies for the meeting were solicited pursuant to Regulation 14A of
the Exchange Act. There was no solicitation in opposition to the Board
of Directors' nominees for directors listed in the definitive proxy
statement of the Company dated as of April 17, 2000. All of the Board
of Directors' nominees were elected.
(c) Briefly described below is each matter voted upon at the Annual
Meeting.
(i) Election of eight directors. Total combined voting power of the
shares of Common Stock and Series D Preferred Stock voted and
withheld for the election of each director was as follows:
Directors Votes For Withheld
--------- --------- --------
Mark C. Rogers, M.D 30,974,672 28,553
Raymond P. Warrell, Jr., M.D 30,975,244 27,981
Donald G. Drapkin 30,850,444 152,781
Kenneth G. Kasses, Ph.D 30,977,172 26,053
Ralph Snyderman, M.D 30,977,394 25,831
Daniel D. Von Hoff, M.D 30,977,744 25,481
Harlan J. Wakoff 30,976,872 26,353
Michael S. Weiss 30,974,668 28,557
(ii) Approval of an amendment to the Company's 1998 Stock Incentive
Plan to increase the number of shares authorized for issuance
thereunder, the result of the voting was as follows:
For: 21,081,100 votes
Against: 466,541 votes
Abstain: 87,023 votes
Broker Non-Votes: 9,368,561 votes
(iii) Approval of an amendment to the Company's Non-Employee
Directors' 1998 Stock Option Plan to increase the number of
shares authorized for issuance thereunder, the result of the
voting was as follows:
For: 21,011,417 votes
Against: 531,374 votes
Abstain: 85,873 votes
Broker Non-Votes: 9,374,561 votes
21
<PAGE> 22
(iv) Approval of an amendment to the Company's Non-Employee Directors'
1998 Stock Option Plan to change the vesting rights of the stock
options granted thereunder, the result of the voting was as
follows:
For: 21,092,337 votes
Against: 460,944 votes
Abstain: 75,383 votes
Broker Non-Votes: 9,374,561 votes
(v) Approval of an amendment to the Company's Non-Employee Directors'
1998 Stock Option Plan to change the amount and the time when
stock options are granted thereunder, the result of the voting
was as follows:
For: 21,109,006 votes
Against: 450,570 votes
Abstain: 72,088 votes
Broker Non-Votes: 9,371,561 votes
(vi) Approval of an amendment to the Company's Restated Certificate of
Incorporation to increase the authorized capital stock, the
result of the voting was as follows:
For: 21,354,015 votes
Against: 205,668 votes
Abstain: 68,981 votes
Broker Non-Votes: 9,374,561 votes
(vii) Ratification of the selection of Deloitte & Touche LLP as the
Company's independent auditors, the result of voting was as
follows:
For: 30,856,801 votes
Against: 47,818 votes
Abstain: 98,606 votes
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description of Document
------ -----------------------
10.1 Asset Purchase Agreement, dated as of April 11, 2000,
between Relgen LLC and Genta Incorporated.
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENTA INCORPORATED
(Registrant)
By: /s/ Raymond P. Warrell, Jr., M.D.
------------------------------------
Name: Raymond P. Warrell, Jr., M.D.
Title: President and Chief Executive Officer
And Principal Executive Officer
By: /s/ Gerald M. Schimmoeller
-----------------------------------
Name: Gerald M. Schimmoeller
Title: Vice President, Chief Financial Officer
and Principal Accounting Officer
Date: May 15, 2000
23
<PAGE> 1
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
This asset purchase agreement (this "AGREEMENT") is dated April 11, 2000,
and is between GENTA INCORPORATED, a Delaware corporation (hereafter "GENTA"),
located at 99 Hayden Avenue, Suite 200, Lexington, MA 02421, and RELGEN LLC, a
Delaware limited liability company (hereafter "RELGEN"), located at 6 Kimball
Circle, Westfield, NJ 07090.
Relgen and Genta agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 ACQUIRED ASSETS. Subject to the terms of this Agreement, Relgen
hereby sells to Genta, and Genta hereby purchases from Relgen, all of Relgen's
rights under the license agreement dated April 9, 1999, between Sloan-Kettering
Institute for Cancer Research ("SKI") and Relgen (the "RELGEN CONTRACT";
Relgen's rights thereunder, the "RELGEN CONTRACT RIGHTS").
1.2 EXCLUDED ASSETS. Relgen hereby retains and is not selling to Genta,
and Genta is not purchasing from Relgen, any assets of Relgen other than the
Relgen Contract Rights.
1.3 ASSUMED LIABILITIES. Subject to the terms of this Agreement, Genta
hereby assumes those Liabilities of Relgen specifically set forth in writing in
the Relgen Contract. Genta also assumes a specific liability in the amount of
five thousand two hundred seventy eight dollars and fifty three cents
($5,278.53) for patent expenses incurred by Relgen as of March 21, 2000 that are
payable to SKI. Genta also agrees to assume liabilities that may accrue due to
additional patent expenses incurred by SKI and payable by Relgen prior to the
date of this Agreement to the extent that such expenses do not exceed an
aggregate total of five thousand dollars ($5,000.00). (The foregoing are termed
collectively the "ASSUMED LIABILITIES"). Genta is not assuming any Liabilities
of Relgen or of any other Person other than the Assumed Liabilities, as set
forth above.
1.4 ASSUMED OBLIGATIONS. Subject to the terms of this Agreement, Genta
hereby assumes those Obligations of Relgen specifically set forth in writing in
the Relgen Contract.
1.5 PURCHASE PRICE. As the purchase price for the Relgen Contract Rights,
Genta shall issue to Relgen within 30 days of the date of this Agreement 10,000
shares of Genta's common stock (those shares, the "SHARES"). Registration of the
Shares under the Securities Act of 1933 is governed by the Registration Rights
Agreement that Genta and Relgen are entering into concurrently with execution
and delivery of this Agreement.
<PAGE> 2
ARTICLE 2
REPRESENTATIONS OF RELGEN
Relgen represents to Genta as follows:
2.1 ORGANIZATION; QUALIFICATION: Relgen is a limited liability company
validly existing and in good standing under the laws of the State of Delaware
with power and authority to own all of its properties and assets and carry on
its business as it is currently being conducted.
2.2 AUTHORIZATION. Relgen has all requisite power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by Relgen have been duly
authorized by the relevant partners and officers of Relgen, and no other
proceedings on the part of Relgen are necessary with respect thereto. Assuming
that Genta has duly authorized the execution and delivery of this Agreement,
this Agreement constitutes the valid and binding obligation of Relgen,
enforceable in accordance with its terms, except as enforceability may be
limited by (1) any applicable bankruptcy, insolvency, reorganization, moratorium
or similar law affecting creditors' rights generally or (2) general principles
of equity, whether considered in a proceeding in equity or at law.
2.3 CONSENTS AND APPROVALS. Other than as provided in the Relgen
Contract, Relgen is not required to obtain any permit, make any filing with, or
obtain the consent of any Governmental Authority, any party to any Relgen
Contract, or any other Person in connection with the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby.
2.4 NO WARRANTEE. Relgen represents and warrants that it has licensed the
assets, rights, and technology from SKI, pursuant to SKI's having regained
rights to same via a bankruptcy proceeding involving SKI's previous licensee.
Said previous licensee successfully marketed the lead product, Ganite(TM), in
the United States. Relgen makes in this Agreement the reservations made by SKI
in the Relgen Contract regarding the absence of representations and warranties.
Genta, its affiliates and sublicensees shall not hold Relgen liable for any
cause of action that arises because of inadequacy or insufficiency of the
acquired assets, rights, and technology data.
2.5 NO VIOLATIONS. Relgen's execution and delivery of this Agreement and
performance by Relgen of its obligations under this Agreement do not (1) violate
any provision of the organizational documents of Relgen, (2) conflict with,
result in a breach of, constitute a default under (or an event that, with notice
or lapse of time or both, would constitute a default under), accelerate the
performance required by, result in the creation of any Lien upon any of the
properties or assets of Relgen under, or create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under, any
Contract to which either Relgen is a party or by which any properties or assets
of Relgen are bound, or (3) violate any Law or Order currently in effect to
which Relgen is subject.
2.6 CONTRACTS. Relgen has made available to Genta a copy of the Relgen
Contract. The Relgen Contract is in full force and effect and is valid and
enforceable in accordance with its
2
<PAGE> 3
terms. Relgen is not in default under the Relgen Contract, and to Relgen's
knowledge no event or circumstance has occurred that would, with notice or lapse
of time or both, constitute an event of default under the Relgen Contract. To
the knowledge of Relgen, no other party to the Relgen Contract is in default
under the Relgen Contract.
2.7 ASSETS. The Relgen Contract Rights constitute more than 80% of the
assets of Relgen. Neither Relgen or any of its Affiliates nor any member of
Relgen or any of its Affiliates owns any assets that relate in any manner to the
Patent Rights or the SKI Technology (as those terms are defined in the Relgen
Contract).
2.8 INVESTMENT REPRESENTATIONS. Relgen is acquiring the Shares for its
own account, not as a nominee or agent, and not with a view to distributing any
of the Shares in violation of the securities laws. Relgen understands that
investment in the Shares is speculative and involves a high degree of risk.
Relgen is knowledgeable in business and financial matters and is capable of
evaluating the merits and risks of an investment in Holdings. Relgen is an
"accredited investor" as defined in Rule 501(a) of Regulation D under the
Securities Act of 1933, as amended.
ARTICLE 3
REPRESENTATIONS OF GENTA
Genta represents to Relgen as follows:
3.1 ORGANIZATION. QUALIFICATION. Genta is a corporation validly existing
and in good standing under the laws of Delaware with corporate power and
authority to own all of its properties and assets and to carry on its business
as it is currently being conducted.
3.2 AUTHORIZATION. Genta has all requisite corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by Genta have been duly
authorized by the responsible corporate officers of Genta and no other
proceedings on the part of Genta are necessary with respect thereto. Assuming
that Relgen has duly authorized the execution and delivery of this Agreement,
this Agreement constitutes the valid and binding obligation of Genta,
enforceable in accordance with its terms, except as enforceability may be
limited by (1) any applicable bankruptcy, insolvency, reorganization, moratorium
or similar law affecting creditors' rights generally or (2) general principles
of equity, whether considered in a proceeding in equity or at law.
3.3 CONSENTS AND APPROVALS. Genta is not required to obtain any permit,
make any filing with, or obtain the consent of any Governmental Authority or any
other Person in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby.
3.4 NO VIOLATIONS. Genta's execution and delivery of this Agreement and
performance by it of its obligations under this Agreement do not (1) violate any
provision of the certificate of incorporation or by-laws of Genta, (2) conflict
with, result in a breach of, constitute a default under (or an event that, with
notice or lapse of time or both, would constitute a default
3
<PAGE> 4
under), accelerate the performance required by, result in the creation of any
Lien upon any of the properties or assets of Genta under, or create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under, any Contract to which Genta is a party or by which any properties or
assets of Genta are bound, or (3) violate any Law or Order currently in effect
to which Genta is subject.
3.5 INDEMNIFICATION. Genta agrees to fully indemnify, defend, and hold
harmless Relgen and each of its employees and officers against all claims and
expenses, including legal expenses and attorney's fees, arising out of the death
or injury to any person(s) or out of damage to property, and against any other
claim, proceeding, demand, expense, and liability of any kind whatsoever that
may arise from the production, manufacture, sale, use, consumption, or
advertisement of the acquired assets, rights, and technology. Genta shall
maintain adequate insurance against such product liability claims sufficient to
protect the interests of Relgen and shall furnish proof of such insurance upon
reasonable notice by Relgen.
3.6 SHARES. When issued in accordance with the terms of this Agreement,
the Shares will be duly authorized, validly issued, fully paid, and
non-assessable.
ARTICLE 4
MISCELLANEOUS
4.1 DEFINITION OF CERTAIN TERMS. When used in this Agreement (including
in the Schedules), the following terms shall have the following meanings.
"AFFILIATE" means, with respect to any given Person, (1) any other Person at the
time directly or indirectly controlling, controlled by or under common control
with that Person, (2) any other Person of which that Person at the time owns or
has the right to acquire, directly or indirectly, 10% or more on a consolidated
basis of any class of the capital stock or other ownership interest, (3) any
other Person which at the time owns or has the right to acquire, directly or
indirectly, 10% or more of any class of the capital stock or other ownership
interest of that Person, or (4) any director, officer or employee of that
Person.
"CONTROL" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through ownership of voting securities, by contract or otherwise.
"GOVERNMENTAL AUTHORITY" means any governmental or regulatory body, or political
subdivision thereof, whether federal, state, local or foreign, or any agency,
instrumentality or authority thereof, or any court or arbitrator (public or
private).
"LAW" means any laws, statutes, ordinances, regulations, rules, and orders of
any Governmental Authority.
"LIABILITY" means any direct or indirect liability, indebtedness, obligation,
commitment, expense, claim, deficiency, guaranty or endorsement of or by any
Person of any type, whether accrued, absolute, contingent, matured or unmatured.
4
<PAGE> 5
"LIEN" means, with respect to the assets or property of any Person, any claim,
lien, security interest, deed of trust, mortgage, encumbrance or charge of any
kind in favor of any other Person, whether voluntarily incurred or arising by
operation of law, and includes, without limitation, any agreement to give any of
the foregoing in the future, and any contingent sale or other title retention
agreement or lease in the nature thereof.
"ORDER" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court, arbitral
tribunal, administrative agency, or other Governmental Body.
"PERSON" means any individual, corporation, partnership, firm, joint venture,
association, joint-stock company, trust, unincorporated organization,
Governmental Authority or other entity.
4.2 SEVERABILITY. If any provision of this Agreement is held in any
jurisdiction to be prohibited or unenforceable for any reason, that provision
will, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions of this
Agreement, and any such prohibition or unenforceability in any jurisdiction will
not invalidate or render unenforceable that provision in any other jurisdiction.
4.3 NOTICES. Every notice or other communication required or contemplated
by this Agreement must be in writing and sent by one of the following methods:
(1) personal delivery, in which case delivery is deemed to occur the day of
delivery; (2) certified or registered mail, postage prepaid, return receipt
requested, in which case delivery is deemed to occur the day it is officially
recorded by the U.S. Postal Service as delivered to the intended recipient; or
(3) next-day delivery to a U.S. address by recognized overnight delivery service
such as Federal Express, in which case delivery is deemed to occur one business
day after being sent. In each case, a notice or other communication sent to a
party must be directed to the address for that party set forth below, or to
another address designated by that party by written notice:
If to Genta, to:
Genta Incorporated
99 Hayden Avenue
Lexington, MA 02421
Attention: Gerald Schimmoeller, Chief Financial Officer
with a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
Attention: Monica C. Lord, Esq.
5
<PAGE> 6
If to Relgen, to:
Relgen LLC
6 Kimball Circle
Westfield, NJ 07090
Attention: Raymond P. Warrell, Jr., Chairman
4.4 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties pertaining to the subject matter hereof and supersede all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the parties pertaining to the subject matter hereof.
4.5 AMENDMENTS AND WAIVERS. This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties. No waiver by
any party of any default, breach or misrepresentation under this Agreement will
be deemed to extend to any prior or subsequent default, breach or
misrepresentation or affect in any way any rights arising by virtue of any prior
or subsequent such occurrence.
4.6 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which is deemed an original and all of which together constitute one and
the same instrument.
4.7 GOVERNING LAW. This Agreement is governed by New York law, without
giving effect to the conflicts of laws provisions.
4.8 BINDING EFFECT. This Agreement is binding upon and inures to the
benefit of the parties and their respective heirs, successors and permitted
assigns.
4.9 ASSIGNMENT. Neither Relgen nor Genta may assign any of their rights
or obligations under this Agreement without the prior written consent of the
other, which the other may not reasonably withhold.
6
<PAGE> 7
Relgen and Genta hereby execute this Agreement on the date stated in the
introductory clause.
GENTA INCORPORATED
By: /s/ Gerald Schimmoeller
--------------------------------
Gerald Schimmoeller
Chief Financial Officer
By: /s/ Mark S. Rogers
--------------------------------
Mark S. Rogers
Chairman of the Board
RELGEN LLC
By: /s/ Raymond P. Warrell, Jr.
--------------------------------
Name: Raymond P. Warrell, Jr.
Title: Chairman
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS CONTAINED
IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR PERIOD ENDED MARCH 31, 2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-2000
<PERIOD-START> JAN-01-1999 JAN-01-2000
<PERIOD-END> MAR-01-1999 MAR-01-2000
<CASH> 638,990 7,950,518
<SECURITIES> 0 2,295,624
<RECEIVABLES> 261,000 1,294,739
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,051,843 11,870,061
<PP&E> 27,799 38,286
<DEPRECIATION> 0 524,078
<TOTAL-ASSETS> 5,446,967 12,432,425
<CURRENT-LIABILITIES> 2,486,862 1,979,387
<BONDS> 0 0
0 0
574 374
<COMMON> 15,030 29,797
<OTHER-SE> 2,944,501 10,422,867
<TOTAL-LIABILITY-AND-EQUITY> 5,446,967 12,432,425
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> (2,202,378) (9,350,194)
<OTHER-EXPENSES> (149,114) 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 51,691 110,654
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 (8,737,595)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 0 0
<EPS-BASIC> (0.08) (0.44)
<EPS-DILUTED> (0.08) (0.44)
</TABLE>
