CYTRX CORP (Form: 10-K, Received: 05/14/2004 06:14:18)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO

SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the fiscal year ended December 31, 2003

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-15327

CytRx Corporation

(Exact name of Registrant as specified in its charter)


Delaware		58-1642740
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

11726 San Vicente Blvd, Suite 650, Los Angeles, California (Address of principal executive offices)		90049 (Zip Code)

Registrant’s telephone number, including area code:

(310) 826-5648

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value per share

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 and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o

Indicate by check mark with the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No þ

The aggregate market value of the Registrant’s common stock held by non-affiliates on June 30, 2003 was approximately $42,682,165. On May 7, 2004, there were 34,589,081 shares of the Registrant’s common stock outstanding, exclusive of treasury shares.

TABLE OF CONTENTS


PART I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	Item 9A. Controls and Procedures
PART III
	Item 10. Directors and Executive Officers of the Registrant
PART IV
	Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SIGNATURES
Exhibit 3.5
Exhibit 4.8
Exhibit 10.14
Exhibit 10.15
Exhibit 10.57
Exhibit 10.58
Exhibit 10.59
Exhibit 10.60
Exhibit 10.61
Exhibit 10.62
Exhibit 10.63
Exhibit 10.64
Exhibit 10.65
Exhibit 10.66
Exhibit 10.67
Exhibit 14.1
Exhibit 21.1
Exhibit 23.1
Exhibit 23.2
Exhibit 23.3
Exhibit 23.4
Exhibit 23.5
Exhibit 31
Exhibit 32

CYTRX CORPORATION

2003 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS


		Page

PART I
Item 1.	Business		1
Item 2.	Properties		10
Item 3.	Legal Proceedings		10
Item 4.	Submission of Matters to a Vote of Security Holders		10
PART II
Item 5.	Market for Registrant’s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities		11
Item 6.	Selected Financial Data		13
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		34
Item 8.	Financial Statements and Supplementary Data		34
Item 9.	Changes and Disagreements with Accountants on Accounting and Financial Disclosure		34
Item 9A.	Controls and Procedures		37
PART III
Item 10.	Directors and Executive Officers of the Registrant		37
Item 11.	Executive Compensation		40
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		42
Item 13.	Certain Relationships and Related Transactions		44
Item 14.	Principal Accountant Fees and Services		45
PART IV
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K		46
	Signatures		51

Exhibit Index located on page 47 of this report.

“SAFE HARBOR” STATEMENT UNDER THE

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

From time to time, we make oral and written statements that may constitute “forward-looking statements” (rather than historical facts) as defined in the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission (the “SEC”) in its rules, regulations and releases, including Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Securities and Exchange Act”). We desire to take advantage of the “safe harbor” provisions in the Private Securities Litigation Reform Act of 1995 for forward-looking statements made from time to time, including, but not limited to, the forward-looking statements made in this Annual Report on Form 10-K (the “Annual Report”), as well as those made in other filings with the SEC.

All statements in this Annual Report, including in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” other than statements of historical fact are forward-looking statements for purposes of these provisions, including any projections of financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” or “could” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein and in documents incorporated by this Annual Report are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including but not limited to the risk factors set forth in the “Risk Factors” and for the reasons described elsewhere in this Annual Report. All forward-looking statements and reasons why results may differ included in this Annual Report are made as of the date hereof, and we assume no obligation to update any such forward-looking statement or reason why actual results might differ.

PART I


Item 1.	*Business*

General

CytRx Corporation is a biopharmaceutical research and development company, based in Los Angeles, California, with a subsidiary in Worcester, Massachusetts. We are in the process of developing products, primarily in the areas of ribonucleic acid interference (RNAi) and small molecule therapeutics, for the human health care market. RNAi is a new technology for silencing genes in living cells and organisms. In addition to our work in RNAi, we are involved in the development of a DNA-based HIV vaccine and have entered into strategic alliances with respect to the development of several other products using our other technologies.

Since our incorporation, in 1985, we have been engaged in the development of pharmaceutical products. July 2002, when we merged with Global Genomics Capital, Inc. (Global Genomics), marked a change in the focus of our company. Subsequent to the Global Genomics merger, we modified our corporate business strategy by discontinuing any further research and development efforts for our pre-merger pharmaceutical technologies and began to seek strategic relationships with other pharmaceutical companies to complete the development of those technologies. Instead of continuing research and development for those technologies, we focused our efforts on acquiring new technologies and products to serve as the foundation for the future of the company.

In April 2003, we acquired our first new technologies by entering into exclusive license agreements with the University of Massachusetts Medical School (UMMS) covering potential applications for the medical

school’s proprietary RNAi technology in the treatment of specified diseases, including those within the areas of obesity and type 2 diabetes; amyotrophic lateral sclerosis (ALS), commonly referred to as Lou Gehrig’s disease, which is a progressive neurodegenerative disease that results in motor neuron degeneration of the brain and spinal cord and eventual paralysis; and human cytomegalovirus (CMV), which is a herpes virus that often affects HIV patients. At that time, we also acquired an exclusive license from UMMS covering the medical school’s proprietary technology with potential gene therapy applications within the area of cancer. In May 2003, we broadened our strategic alliance with UMMS by acquiring an exclusive license from that institution covering a proprietary DNA-based HIV vaccine technology.

As part of our strategic alliance with UMMS, we agreed to fund certain discovery and pre-clinical research at the medical school relating to the use of our technologies, licensed from UMMS, for the development of therapeutic products within certain fields. To date, we have entered into agreements with UMMS to sponsor research in the areas of obesity and type 2 diabetes, ALS and CMV retinitis. In addition, we have entered into an agreement with Massachusetts General Hospital to sponsor research at that institution that will utilize our proprietary gene silencing technology in the area of ALS.

Although we intend to internally fund the early stage development work for certain of these product applications (including obesity, type 2 diabetes and ALS) and may seek to fund the completion of the development of certain of these product applications (such as ALS), we may also seek to secure strategic alliances or license agreements with larger pharmaceutical companies to fund the early stage development work for other gene silencing product applications and for subsequent development of those potential products where we fund the early stage development work.

In conjunction with our work with UMMS, in September 2003, we formed a subsidiary to develop RNAi-based and small molecule therapeutics for the prevention, treatment and cure of obesity and type 2 diabetes. This subsidiary will focus on using genomic and proteomic based drug discovery technologies combined with our proprietary gene silencing technology to accelerate the process of screening and identifying potential drug targets and pathways for these diseases. Through this subsidiary, we will seek to develop orally active drugs against promising targets and pathways relevant to obesity and type 2 diabetes.

Prior to 2003, our primary products were FLOCOR ^TM , an intravenous agent for treatment of sickle cell disease and other acute vaso-occlusive disorders, and TranzFect ^TM , a delivery technology for DNA and conventional-based vaccines. In October 2003, we entered into a strategic relationship with another entity, which was recently formed, to complete the development of FLOCOR. Our TranzFect technology has been licensed to two companies. We have granted a third party an option to license our TranzFect technology for development as a potential DNA-based prostate cancer adjuvant and may also seek to license this technology as a potential conventional adjuvant for hepatitis C, human pappiloma virus, herpes simplex virus and other viral diseases. Adjuvants are agents added to a vaccine to increase its effectiveness. In addition, we may seek to license TranzFect for use as a non-clinical research reagent to increase transfection in vitro or in laboratory animals. FLOCOR and TranzFect are further described under “Pre-Global Genomics Merger Technologies.”

In addition, through our merger with Global Genomics, we acquired minority interests in two development stage genomics companies, Blizzard Genomics, Inc. and Psynomics, Inc. In 2003, we recorded a write-off of our investments in those companies. Our decision to record the write-off was based upon several factors. Those investments, and the write-off of those investments, are further described under “Genomics Investments.”

RNAi Technology

RNAi technology is a recently discovered technology that uses short double-stranded RNA (dsRNA) molecules to silence targeted genes and, as a result, is commonly referred to as “gene silencing.” RNAi has been shown to effectively silence targeted genes within living cells with great specificity and potency. As a result, RNAi technology is able to effectively silence targeted genes without impacting other, non-targeted, genes.

RNA is a polymeric constituent of all living cells and many viruses, consisting of a long, usually single-stranded chain of alternating phosphate and ribose units with the bases adenine, guanine, cytosine, and uracil bonded to the ribose. The structure and base sequence of RNA are determinants of protein synthesis and the transmission of genetic information. RNAi is a technique of using short pieces of double-stranded RNA to precisely target the messenger RNA (mRNA) of a specific gene. The end result is the destruction of the specific mRNA, thus silencing that gene.

RNAi is regarded as a significant advancement in gene silencing and was featured in Science magazine as the “Breakthrough of the Year” in 2002. Delivery of RNAi can be in vitro and in vivo to target specific mRNAs, thus reducing the levels of the specific protein product coded for by that gene in the targeted cells. This allows the use of RNAi either as a therapeutic product itself or as a drug discovery tool. We intend to develop RNAi technology as both a drug discovery tool and for therapeutic applications. As a therapeutic, we will seek to demonstrate its efficacy in human clinical trials using RNAi to silence specific genes that cause diseases. As a drug discovery tool, we intend to use RNAi to identify and validate novel targets, which will then be used to develop small molecules or RNAi-based therapeutics to treat and prevent specific diseases, including those in the areas of obesity, type 2 diabetes, ALS and CMV. In March 2004, Dr. Craig Mello, the co-discoverer of RNAi, joined our Scientific Advisory Board and will act in an advisory capacity to help us develop therapeutics for specific diseases.

In mammals and human cells, RNAi can be triggered by delivering dsRNA molecules directly into the cell’s cytoplasm (the region inside the cell membrane but outside the cell nucleus). Specific enzymes (proteins) in the cell called dicer enzymes cut the dsRNA to form small interfering RNA (siRNA). These siRNA are approximately 21 to 25 nucleotide long pieces of RNA. The siRNA then interact with other cellular enzymes called the RNA-induced silencing complex (RISC), which causes the unwinding of the bound siRNA. This unwound strand of the siRNA can then bind with the complementary target mRNA, which carries the coding, or instructions, from the cell nucleus DNA. These instructions determine which proteins the cell will produce. When the siRNA binds with the mRNA, that “message” is degraded and the cell does not produce the specific protein. Since the siRNA can be designed to specifically interact with a single gene through its mRNA, it can prevent the creation of a specific protein without affecting other genes.

One reason for the potential of RNAi to be effective, where previous nucleic acid-based technologies have, to date, been unsuccessful, is that the cell already has in place all of the enzymes and proteins to effectively silence genes once the dsRNA is introduced into the cell. This is in direct contrast to the older technology of antisense RNA, where there were no enzymes present in the cells to facilitate the effectiveness of the antisense RNA molecule. In fact, one major problem with the successful development of antisense has been the poor stability of the antisense products in vivo. Because antisense RNA is single-stranded, it is very unstable and tends to break down rapidly in vivo. This is one of the reasons for the poor success rate, to date, for antisense RNA products.

Another reason for the interest in RNAi is its potential to completely suppress or eliminate the viral replicon. A replicon is a DNA or RNA element that can act as a template to replicate itself. Once a virus is established in a cell, there are very few drugs that are effective in eliminating the virus. The RNAi process, however, has the potential of eliminating viral nucleic acids and, therefore, to cure certain viral diseases. Development work on RNAi is still at an early stage, and we are not aware of any clinical testing of medical applications using RNAi that have yet been initiated by any party.

Product Development


	*University of Massachusetts Medical School*

Through our strategic alliance with UMMS, we have acquired the rights to a portfolio of technologies, including the rights to use UMMS’s proprietary RNAi technology with potential therapeutic applications in certain defined areas that include obesity, type 2 diabetes, ALS and CMV, as well as a DNA-based HIV vaccine technology and a cancer therapeutic technology.

Our agreements with UMMS may require us to make significant expenditures to fund research at the institution relating to developing therapeutic products based on UMMS’s proprietary technologies that have been licensed to us. We estimate that the aggregate amount of these sponsored research expenditures under our current commitments will be approximately $1,400,000 for 2004, approximately $1,500,000 for 2005 and approximately $800,000 for 2006. Our license agreements with UMMS require us to make payments of an aggregate of up to $85,000 per year to maintain all of our licenses, with such aggregate annual payments increasing to as much as $125,000 if we are not then conducting certain sponsored research at the institution. Our UMMS license agreements also provide, in certain cases, for milestone payments, from us to UMMS, based on the progress we make in the clinical development and marketing of products utilizing the technologies licensed from UMMS. In the event that we were to successfully develop a product in each of the categories of obesity/ type 2 diabetes, ALS, CMV, cancer and an HIV vaccine, under our licenses, those milestone payments could aggregate up to $16,055,000. Those milestone payments, however, could vary significantly based upon the milestones we achieve and the number of products we ultimately undertake to develop.

The HIV vaccine technology that we have licensed from UMMS is based upon a unique mixture of human HIV-1 primary isolates from several genetic subtypes of HIV. This polyvalent naked DNA (isolated, purified DNA) vaccine approach has the potential advantages of maintaining efficacy despite the high mutation rate of HIV, a broader immune response against divergent HIV-1 glycoproteins and the possible ability to neutralize a wide spectrum of HIV-1 viruses. UMMS has conducted animal studies of this vaccine, and UMMS and Advanced BioScience Laboratories (ABL), which provides an adjuvant for use with the vaccine, have received a $16 million grant from the NIH. This grant will fund a Phase I clinical trial of a vaccine candidate using our licensed technology. The investigational new drug application (IND) for that trial was filed in January 2004 and allowed, by the FDA, to go into effect in March 2004. Enrollment of volunteers for this trial began in April 2004. We have a commercial relationship with ABL which gives us the ownership of, and responsibility for, the further development of the vaccine and subsequent FDA registration following the completion of the Phase I trial, which is being conducted by UMMS and ABL. We do not have a commercial relationship with a company that is providing another adjuvant for the HIV vaccine candidate in the currently planned Phase I clinical trial. We may also elect to use a different adjuvant in conjunction with our HIV vaccine technology, in which case we may not be able to utilize some or all of the results of the currently planned trial as part of our clinical data for obtaining FDA approval of a vaccine.

Finally, we have also licensed a cancer treatment technology from UMMS that is based on a naked DNA approach in which the DNA material will be delivered by direct injection into the tumor or other localized administration.


	*Obesity and Type 2 Diabetes*

Obesity and type 2 diabetes are significant health problems. The World Health Organization estimates that, on a worldwide basis, there are more than 250 million cases of obesity and 176 million cases of type 2 diabetes. According to the American Obesity Association, there are currently more than 55 million cases of obesity in the United States, and the American Diabetes Association reports that there are more than 16 million cases of type 2 diabetes in the United States. Scientists at UMMS, as part of our strategic alliance, are researching, with funding that we have provided, the specific genetic relationship of type 2 diabetes to obesity. The research is focused on using cultured adipocytes (fat cells) as a model system for studying the regulation of gene expression involved in adipocyte differentiation and function. This research may lead to the identification of specific drug targets which regulate insulin signaling as well as other metabolic pathways regulating glucose and fatty acids. With this understanding, the program will focus on drug discovery of RNAi-based and small molecule therapeutics for type 2 diabetes (e.g., drugs that act as insulin sensitizers and compounds that alleviate obesity). We believe that RNAi could potentially be a reliable method to selectively inhibit certain genes or their protein expression in adipocytes.


	*Research and Development Subsidiary*

In addition to the obesity and diabetes work being done under our sponsored research agreement with UMMS, in September 2003, we purchased 95% of CytRx Laboratories, Inc. (formerly known as Araios, Inc.), our research and development subsidiary, which had been recently formed by Dr. Michael P. Czech to develop orally active small molecule and RNAi-based drugs for the prevention, treatment and cure of obesity and type 2 diabetes. Our business strategy is to use our portfolio of state of the art drug discovery technologies and our relationships with leading diabetes and obesity researchers to discover and develop first in class medicines to prevent, treat and cure obesity and type 2 diabetes. Utilizing the RNAi technology that we have licensed from UMMS, in combination with state of the art target identification methods, our research and development subsidiary will focus on using a structure based drug discovery approach to accelerate the process of screening and identifying potential drug targets and pathways for these diseases. Through our subsidiary, we will seek to develop orally administered drugs that are based on promising targets and pathways that we may be able to identify.

Dr. Czech is a prominent scientist in the fields of obesity and type 2 diabetes at UMMS, is a member of our Scientific Advisory Board, heads our subsidiary’s Scientific Advisory Board and holds a 5% equity interest in the subsidiary. We have provided the subsidiary with initial capital of approximately $7,000,000 to fund the staffing of its operations with managerial and scientific personnel and its initial drug development activities.

Through our license and sponsored research agreement with UMMS, we have secured rights to novel drug targets believed to be involved in obesity and type 2 diabetes. We will seek to validate these targets using the proprietary high throughput RNAi technology that we have licensed from UMMS and by applying structure-based medicinal chemistry. We will then work to develop small molecules and RNAi-based therapeutic products.


	*ALS*

The development of therapeutics for the treatment of various forms of ALS is an area of significant interest for us. ALS is a debilitating disease. According the ALS Survival Guide, 50% of ALS patients die within 18 months of diagnosis and 80% of ALS patients die within five years of diagnosis. According to the ALS Association, in the United States, alone, approximately 30,000 people are living with ALS and nearly 6,000 new cases are diagnosed each year.

In October 2003, we entered into sponsored research agreements with UMMS and Massachusetts General Hospital, pursuant to which we will sponsor certain ALS research at those institutions utilizing our proprietary gene silencing technology targeted at the mutant SOD1 gene, which is the subject of the ALS technology we have licensed from UMMS. The mutant SOD1 gene is responsible for causing ALS in a subset of the 10% of all ALS patients who suffer from the familial, or genetic, form of the disease.

Dr. Zuoshang Xu, an Associate Professor of Biochemistry and Molecular Pharmacology at UMMS, is the principal investigator under our sponsored research agreement with UMMS. We have committed to fund approximately $302,000 of research under that agreement during the first year, approximately $280,000 of research under that agreement during the second year and approximately $288,000 of research under that agreement during the third year of the program.

Dr. Robert B. Brown, Jr., a Professor of Neurology at Harvard Medical School, Founder and Director of the Cecil B. Day Laboratory for Neuromuscular Research and a co-discoverer of the mutant SOD1 gene as a cause for certain ALS cases, is the principal investigator under our sponsored research agreement with Massachusetts General Hospital. We have committed to fund approximately $279,000 of research under that agreement during the first year and approximately $278,000 under that agreement during the second year of the program. In addition, in March 2004, Dr. Brown joined our Scientific Advisory Board and entered into a consulting agreement with us.

Pre-Global Genomics Merger Technologies


	Therapeutic Copolymer Program

Prior to the merger with Global Genomics, our primary focus was on CRL-5861 (purified poloxamer 188), which we also call FLOCOR. FLOCOR is an intravenous agent for the treatment of sickle cell disease and other acute vaso-occlusive disorders. Sickle cell disease is an inherited disease caused by a genetic mutation of hemoglobin in the blood, and acute vaso-occlusive disorders are a blockage of blood flow caused by deformed, or “sickled,” red blood cells which can cause intense pain in sickle cell disease patients. In October 2003, we entered into an agreement to license our copolymer technologies, including FLOCOR, on an exclusive basis, to SynthRx, Inc., a Houston, Texas-based biopharmaceutical company that was recently formed by Dr. Robert Hunter. As a result of the SynthRx license, we will receive a 19.9% ownership interest in SynthRx and a cash payment from SynthRx of approximately $228,000, in return for our rights to the licensed technologies, with this license arrangement expected to be completed in the second quarter of 2004. In addition, upon commercialization of any products developed under our alliance with SynthRx, we may also receive significant milestone payments and royalties. Prior to the change in our business strategy that led us to seek licensees for our FLOCOR technology, we had internally developed FLOCOR. In December 1999, we reported results from a Phase III clinical study of FLOCOR for treatment of acute sickle cell crisis. Although the study did not demonstrate statistical significance in the primary endpoint, or objective, of the study, statistically significant and clinically important benefits associated with FLOCOR were observed in certain subgroups.


	Vaccine Enhancement and Gene Therapy

Gene therapy and/or gene based vaccines are mediated through the delivery of DNA containing selected genes into cells by a process known as transfection. We refer to our gene delivery technology as TranzFect. A large majority of the revenues we have generated over the past three years has been due to license fees paid to us with respect to our TranzFect technology, representing 81%, 94% and 94% of our total revenues for 2003, 2002 and 2001, respectively.


	Merck License

In November 2000, we entered into an exclusive, worldwide license agreement with Merck & Co., Inc. whereby we granted Merck the right to use our TranzFect technology in DNA-based vaccines for HIV and three other targets. To date, Merck has focused its efforts on the HIV application, which is still at an early stage of clinical development, and, in July 2003, Merck notified us that it was returning to us the rights to the three other targets covered by its license, which we are now able to license to other third parties. In November 2000, Merck paid us a signature payment of $2 million. In February 2002, we received an additional $1 million milestone fee related to the commencement of Merck’s first FDA Phase I study for a product incorporating TranzFect designed for the prevention and treatment of HIV. Merck completed a multi-center, blinded, placebo controlled Phase I trial of an HIV vaccine utilizing TranzFect as a component. Although the formulation of this tested vaccine was generally safe, well-tolerated and generated an immune response, the addition of TranzFect to the vaccine did not increase this immune response. Moreover, the DNA single-modality vaccine regimen with TranzFect, when tested in humans, yielded immune responses that were inferior to those obtained with the DNA vaccines in macaque monkeys. All amounts paid to us by Merck are non-refundable upon termination of the agreement and require no additional effort on our part.


	Vical License

In December 2001, we entered into a license agreement with Vical Incorporated granting Vical exclusive, worldwide rights to use or sublicense our TranzFect poloxamer technology to enhance viral or non-viral delivery of polynucleotides, such as DNA and RNA, in all preventive and therapeutic human and animal health applications, except for (1) the four targets previously licensed by us to Merck, (2) DNA vaccines or therapeutics based on prostate-specific membrane antigen (PSMA) and (3) sale of a non-regulated product for use as a non-clinical research reagent to increase transfection in vitro or in laboratory animals. In addition,

the Vical license permits Vical to use TranzFect poloxamer technology to enhance the delivery of proteins in prime-boost vaccine applications that involve the use of polynucleotides (short segments of DNA or RNA). Under the Vical license, we received a non-refundable up-front payment of $3,750,000, and we have the potential to receive milestone and royalty payments in the future based on criteria described in the agreement. In April 2004, we received an additional $100,000 milestone fee related to the commencement of Vical’s first FDA Phase I clinical trial for a product incorporating our TranzFect technology. All amounts paid to us by Vical are non-refundable upon termination of the agreement and require no additional effort on our part.


	PSMA Development Company Option Agreement

In December 2002, we granted an option to PSMA Development Company (PDC) to license TranzFect for use as an adjuvant in a prostate cancer vaccine. Under the terms of the option agreement, PDC has a 24-month right of first refusal to enter into a strategic alliance with us, through a license agreement for TranzFect, under pre-negotiated terms.

2002 Merger with Global Genomics

On July 19, 2002, we completed the acquisition of Global Genomics. The acquisition of Global Genomics was accomplished through a merger of our wholly-owned subsidiary, GGC Merger Corporation, with and into Global Genomics. Global Genomics was the surviving corporation in the merger with GGC Merger Corporation and is now our wholly-owned subsidiary. We have changed Global Genomics’ name to GGC Pharmaceuticals, Inc., but for purposes of this Annual Report, we will continue to refer to the company as Global Genomics. For accounting purposes, we were deemed the acquiror of Global Genomics.

In the Global Genomics merger, each outstanding share of common stock of Global Genomics was converted into 0.765967 shares of our common stock. Accordingly, a total of 8,948,204 shares of our common stock, or approximately 41.7% of our common stock outstanding immediately after the merger, were issued to the common stockholders of Global Genomics, and an additional 1,014,677 shares of our common stock were reserved for issuance upon the exercise of the outstanding Global Genomics warrants that we assumed in the merger. Other than the foregoing stock, we paid no other consideration to the Global Genomics shareholders.

At the time of the Global Genomics merger, there were no material relationships between Global Genomics or any of its shareholders or affiliates and us, except that on July 16, 2002, Global Genomics’ three designees to our Board of Directors, Steven A. Kriegsman, Louis J. Ignarro, Ph.D. and Joseph Rubinfeld, Ph.D., were elected directors and Mr. Kriegsman became our Chief Executive Officer. Mr. Kriegsman was Global Genomics’ Chairman and Dr. Ignarro was a director of Global Genomics at that time. On the date of the merger, the controlling shareholder of Global Genomics was Mr. Kriegsman, who beneficially owned, on a fully diluted basis, approximately 40.4% of Global Genomics’ equity interests.

Genomics Investments

In connection with our merger with Global Genomics, we acquired equity interests in two development-stage genomics companies, a 40% equity interest in Blizzard and a 5% equity interest in Psynomics. In the fourth quarter of 2003, we decided that we would cease funding our investments in those genomics companies to focus on our core strategy of developing human therapeutics for large market indications. In May 2004, we determined that a write-off of those investments in the third quarter of 2003 should have been made. Our decision to record the write-off was based upon several factors, including Blizzard’s lack of success in raising a significant amount of the financing necessary for it to pursue the commercialization strategy for its products, current financial projections prepared by Blizzard, application of a discounted cash flow valuation model of Blizzard’s projected cash flows and the consideration of other qualitative factors. Based upon the quantitative and qualitative factors described above, in addition to others, we determined that the investment in Blizzard had no remaining value as of September 30, 2003 and that a write-off of this investment should have been made in the third quarter of 2003. We have filed with the SEC an amended Form 10-Q for the quarter ended September 30, 2003 to reflect this write-off.

Research and Development Expenditures

Expenditures for research and development activities related to continuing operations were $4,388,000, $767,000 and $1,844,000 during the years ended December 31, 2003, 2002 and 2001, respectively.

Manufacturing

We do not have the facilities or expertise to manufacture any of the clinical or commercial supplies of any of our products. To be successful, our products and the products of our partners must be manufactured in commercial quantities in compliance with regulatory requirements and at an acceptable cost. To date, we have not commercialized any products, nor have we demonstrated that we can manufacture commercial quantities of our product candidates in accordance with regulatory requirements. If we cannot manufacture products in suitable quantities and in accordance with regulatory standards, either on our own or through contracts with third parties, it may delay clinical trials, regulatory approvals and marketing efforts for such products. Such delays could adversely affect our competitive position and our chances of achieving profitability. We cannot be sure that we can manufacture, either on our own or through contracts with third parties, such products at a cost or in quantities, which are commercially viable. We currently rely and intend to continue to rely on third-party contract manufacturers to produce materials needed for research, clinical trials and, ultimately, for product commercialization.

Patents and Proprietary Technology

Patents are important to our company and we actively seek patent protection for our technologies, processes, uses, and ongoing improvements and consider our patents and other intellectual property to be critical to our business. We have filed applications for a number of patents and have been granted patents related to technologies, primarily TranzFect and FLOCOR, we were developing prior to our 2002 merger with Global Genomics. Subsequent to the merger, we have licensed a number of technologies covered by patents or patent applications, most of which have been in the RNAi field.

As part of our development process, we evaluate the patentability of new inventions and improvements developed by us or our collaborators. Whenever appropriate, we will endeavor to file United States and international patent applications to protect these new inventions and improvements. However, we cannot be certain that any of the current pending patent applications we have filed or licensed, or any new patent applications we may file or license, will ever be issued in the United States or any other country. Even if issued, there can be no assurance that those patents will be sufficiently broad to prevent others from using our products or processes. Furthermore, our patents, as well as those we have licensed or may license in the future, may be held invalid or unenforceable by a court, or may be infringed or circumvented by third parties, or third parties could obtain patents that we would need to either license or circumvent. Current and future competitors may have licensed or filed patent applications or received patents, and may acquire additional patents and proprietary rights relating to RNAi technology, small molecule technology, DNA-based vaccines or other compounds, products or processes competitive with ours.

In addition to patent protection, we also attempt to protect our proprietary products, processes and other information by relying on trade secrets and non-disclosure agreements with our employees, consultants and certain other persons who have access to such products, processes and information. Under the agreements, all inventions conceived by employees are our exclusive property. Nevertheless, there can be no assurance that these agreements will afford significant protection against misappropriation or unauthorized disclosure of our trade secrets and confidential information.

Competition

The RNAi field, though at an early stage of development, is already a competitive one and the competition is expected to increase. We face competition on many fronts — ranging from large and small pharmaceutical, chemical and biotechnology companies to universities, government agencies and other public and private research organizations. Examples of companies that are focusing their commercial efforts in the RNAi field are Sirna Therapeutics, Alnylam Pharmaceuticals and Benitec Ltd. A number of the multinational

pharmaceutical companies also either have their own gene silencing product development programs or are working with smaller biopharmaceutical companies in this area. In addition to our RNAi competitors, companies in other fields may be using other technologies to target the same diseases that we are targeting. The competition from other firms and institutions will manifest itself not only in our potential product markets but also, and importantly at this stage in development of RNAi technology, in recruiting and retaining key scientific and management personnel.

Companies developing HIV vaccines that could compete with our HIV vaccine technology include Merck, VaxGen, Inc., Epimmune, Inc., AlphaVax, Inc. and Immunitor Corporation, and ABL may also seek to develop competing HIV vaccines that could utilize a portion of the technology that we have licensed from UMMS and ABL.

With respect to both our RNAi and non-RNAi products, many companies, including large pharmaceutical, chemical and biotechnology firms with financial resources, research and development staffs, and facilities that may, in certain cases, be substantially greater than those of ours or our strategic partners or licensees, are engaged in the research and development of pharmaceutical products that could compete with our potential products. To the extent that we seek to acquire, through license or otherwise, existing or potential new products, we will be competing with numerous other companies, many of which will have substantially greater financial resources, large acquisition and research and development staffs that may give those companies a competitive advantage over us in identifying and evaluating these drug acquisition opportunities. Any products that we acquire will be competing with products marketed by companies that in many cases will have substantially greater marketing resources than we have. The industry is characterized by rapid technological advances and competitors may develop their products more rapidly and such products may be more effective than those currently under development or that may be developed in the future by our strategic partners or licensees. Competitive products for a number of the disease indications that we have targeted are currently being marketed by other parties, and additional competitive products are under development and may also include products currently under development that we are not aware of or products that may be developed in the future.

Government Regulation

The marketing of pharmaceutical products requires the approval of the FDA and comparable regulatory authorities in foreign countries. The FDA has established guidelines and safety standards which apply to the pre-clinical evaluation, clinical testing, manufacture and marketing of pharmaceutical products. The process of obtaining FDA approval for a new drug product generally takes a number of years and involves the expenditure of substantial resources. The steps required before such a product can be produced and marketed for human use in the United States include preclinical studies in animal models, the filing of an Investigational New Drug (IND) application, human clinical trials and the submission and approval of a New Drug Application (NDA) or a Biologics License Application (BLA). The NDA or BLA involves considerable data collection, verification and analysis, as well as the preparation of summaries of the manufacturing and testing processes, preclinical studies, and clinical trials. The FDA must approve the NDA or BLA before the drug may be marketed. There can be no assurance that we or our strategic alliance partners or licensees will be able to obtain the required FDA approvals for any of our products.

The manufacturing facilities and processes for our products, which we anticipate will be manufactured by our strategic partners or licensees or other third parties, will be subject to rigorous regulation, including the need to comply with Federal Good Manufacturing Practice regulations. Our manufacturers also will be subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Nuclear Energy and Radiation Control Act, the Toxic Substance Control Act and the Resource Conservation and Recovery Act.

Employees

As of December 31, 2003, we had 13 full-time employees, four of whom were engaged in research and development activities and nine of whom were involved in management and administrative operations. Of the

employees engaged in research and development activities, all four held Ph.D. degrees and one also held an M.D. degree.


Item 2.	*Properties*

Our operations are based in Los Angeles, California and Worcester, Massachusetts. The lease for our headquarters facility, in Los Angeles, consists of approximately 3,300 square feet of office space and expires in June 2005. The lease for our subsidiary, in Worcester, consists of approximately 6,900 square feet of office and laboratory space and expires in December 2005 and is suitable and adequate for our current operations. We have the right to extend the Worcester lease until December 2007.


Item 3.	*Legal Proceedings*

We are occasionally involved in claims arising out of our operations in the normal course of business, none of which are expected, individually or in the aggregate, to have a material adverse effect on us.

We have recently been notified by the Massachusetts State Ethics Commission (Massachusetts Commission) that it has initiated a Preliminary Inquiry into whether our previous retention of a consultant who introduced us to UMMS constituted an improper conflict of interest under Massachusetts’ ethics laws. Since the inquiry is at a very preliminary stage, it is inherently difficult to predict whether the Massachusetts Commission will decide to initiate any formal proceedings, whether these proceedings will be directed at us or whether we will be found in any such proceedings to have violated any Massachusetts ethics laws. We also cannot estimate what our legal costs will be in connection with this matter, although these expenses could be substantial if a formal proceeding is initiated. Moreover, if the Massachusetts Commission were to determine that our conduct was unlawful, the Commission could impose a number of different penalties or sanctions upon us which, under certain circumstances, would have a material adverse effect on our business and financial condition.

On April 5, 2004, we were served with a complaint for breach of contract, filed by Madison & Wall Worldwide, Inc. (“M&W”), in the Superior Court of California, County of Orange on April 1, 2004. M&W, a former independent contractor to us, engaged to provide investor relations services, was seeking damages in excess of $700,000 in that lawsuit. On May 11, 2004, we reached an agreement in principle with M&W to settle this lawsuit by issuing the 200,000 shares of our common stock that were to have been earned and received by M&W upon our entering into the investor relations services contract with them and by our making an additional payment of $50,000 to M&W. We are in the process, with M&W, of preparing the documentation for this settlement.


Item 4.	*Submission of Matters to a Vote of Security Holders*

Our annual meeting of stockholders was held on October 10, 2003, for the following purposes:

      1. To elect four directors, two to serve until our 2005 annual meeting of stockholders, and two to serve until our 2006 annual meeting of stockholders;

      2. To approve an amendment to our 2000 Long-Term Incentive Plan (the “Plan”) to increase the number of shares of common stock available under the Plan from 3,000,000 to 10,000,000;

      3. To approve an amendment to the Plan to increase from 500,000 shares to 1,000,000 shares the maximum number of stock options or stock appreciation rights that may be granted to any one participant in any calendar year;

      4. To approve an amendment to our Restated Certificate of Incorporation (the “Certificate”) to increase the authorized number of shares of common stock from 50,000,000 to 100,000,000 and to increase the authorized number of shares of preferred stock from 1,000 to 5,000,000; and

      5. To ratify the selection of Ernst & Young LLP as independent auditors for the fiscal year ending December 31, 2003.

The number of outstanding shares of our common stock as of the record date for the annual meeting was 28,347,499, out of which in excess of 25,889,384 shares were represented at the annual meeting.

Alexander L. Cappello and Max Link were reelected as our Class III directors to serve until the 2006 annual meeting of stockholders. Richard L. Wennekamp and Marvin R. Selter were elected as our Class II directors to serve until the 2005 annual meeting of stockholders, to fill the vacancies created by the retirement of Raymond C. Carnahan, Jr. and Herbert H. McDade, Jr. Louis Ignarro, Joseph Rubinfeld and Steven A. Kriegsman, our Class I directors, continued to serve as directors after the annual meeting.

The following table sets forth the number of votes cast for, against, or withheld for each director nominee, as well as the number of abstentions and broker non-votes as to each such director nominee:


			Votes Cast Against				Broker
Director Nominee	Votes Cast For		or Withheld		Abstentions		Non-Votes

Alexander L. Cappello		24,835,744		686,570		367,070		—
Max Link		25,333,963		188,351		367,070		—
Richard L. Wennekamp		25,198,102		342,212		367,070		—
Marvin R. Selter		25,197,552		324,762		367,070		—

With respect to the proposal to approve an amendment to the Plan to increase the number of shares of common stock available under the Plan from 3,000,000 to 10,000,000: (i) 14,638,959 votes were cast for, (ii) 1,119,418 votes were cast against, (iii) 278,729 shares abstained and (iv) there were 10,103,278 broker non-votes with respect to the proposal. Accordingly, the proposal was approved by our stockholders.

With respect to the proposal to approve an amendment to the Plan to increase from 500,000 shares to 1,000,000 the maximum number of stock options or stock appreciation rights that may be granted to any one participant in any calendar year: (i) 14,439,008 votes were cast for, (ii) 1,068,369 votes were cast against, (iii) 278,729 shares abstained and (iv) there were 10,103,278 broker non-votes with respect to the proposal. Accordingly, the proposal was approved by our stockholders.

With respect to the proposal to approve an amendment to the Certificate to increase the authorized number of shares of common stock from 50,000,000 to 100,000,000 and to increase the authorized number of shares of preferred stock from 1,000 to 5,000,000: (i) 14,613,192 votes were cast for, (ii) 888,854 votes were cast against, (iii) 284,060 shares abstained and (iv) there were 10,103,278 broker non-votes with respect to the proposal. Accordingly, the proposal was approved by our stockholders.

With respect to the proposal to ratify the selection of Ernst & Young LLP as independent auditors for the fiscal year ending December 31, 2003: (i) 25,779,651 votes were cast for, (ii) 75,086 votes were cast against, (iii) 34,647 shares abstained and (iv) there were no broker non-votes with respect to the proposal. Accordingly, the proposal was approved by our stockholders.

PART II


Item 5.	*Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities*

Our common stock is currently traded on the Nasdaq SmallCap Market under the symbol “CYTRE.” The following table sets forth the high and low sale prices for our common stock for the periods indicated as

reported by the NASDAQ Stock Market. Such prices represent prices between dealers without adjustment for retail mark-ups, mark-downs, or commissions and may not necessarily represent actual transactions.


		High		Low

2004
	January 1 to April 20		2.43		1.43
2003
	Fourth Quarter		2.50		1.75
	Third Quarter		2.81		1.58
	Second Quarter		3.74		0.62
	First Quarter		0.61		0.23
2002
	Fourth Quarter		0.41		0.21
	Third Quarter		0.75		0.34
	Second Quarter		1.05		0.52
	First Quarter		1.00		0.57

On April 20, 2004, the closing price of our common stock as reported on the Nasdaq SmallCap Market, was $1.89 and there were approximately 9,570 holders of record of our common stock. The number of record holders does not reflect the number of beneficial owners of our common stock for whom shares are held by brokerage firms and other institutions. We have not paid any dividends since our inception and do not contemplate payment of dividends in the foreseeable future.

On October 25, 2003, we issued a total of 25,000 shares of our common stock and warrants to purchase a total of 6,250 shares of our common stock, at $3.05 per share, to Troy & Gould Professional Corporation, which renders legal services to us, for a total purchase price of $52,500. On November 15, 2003, we issued 5,000 shares of our common stock to a company upon its exercise of a warrant to purchase 5,000 shares of our common stock at $0.72 per share. On November 22, 2003 we issued 15,000 shares of our common stock to an individual upon his exercise of a warrant to purchase 15,000 shares of our common stock at $0.72 per share. On December 1, 2003, we issued warrants to purchase up to 600,000 shares (100,000 of which vested at the time of issuance and 500,000 of which have subsequently been cancelled) of our common stock, at $2.25 per share, to an investor relations company in partial consideration for services to be rendered by that firm. The shares of common stock and warrants were issued to each of the foregoing companies and individual in reliance on an exemption from registration under the Securities Act of 1933 provided by Regulation D.


Item 6.	*Selected Financial Data*

The following selected financial data are derived from our audited financial statements. Our financial statements for 2003 have been audited by BDO Seidman, LLP, independent auditors. Our financial statements for 2002, 2001, 2000 and 1999 have been audited by Ernst & Young LLP, independent auditors. These historical results do not necessarily indicate future results. When you read this data, it is important that you also read our financial statements and related notes, as well as the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


		2003			2002			2001			2000			1999

Statement of Operations Data:
Revenues
	Service revenues	$	—		$	22,453		$	101,463		$	451,031		$	322,536
	License fees		94,000			1,051,000			3,751,000			2,000,000			—
	Grant income		—			46,144			156,729			348,790			464,442
	Other income		—			—			—			225,000			—

Total revenues		$	94,000		$	1,119,597		$	4,009,192		$	3,024,821		$	786,978

Loss from continuing operations		$	(17,844,600	)	$	(6,175,636	)	$	(931,341	)	$	(1,147,457	)	$	(15,269,918	)
Income from discontinued operations			—			—			—			799,355			240,627

Net loss		$	(17,844,600	)	$	(6,175,636	)	$	(931,341	)	$	(348,102	)	$	(15,029,291	)

Basic and diluted loss per common share:
	Loss from continuing operations	$	(0.65	)	$	(0.39	)	$	(0.09	)	$	(0.12	)	$	(1.99	)
	Income from discontinued operations		—			—			—			0.08			0.03

	Net Loss	$	(0.65	)	$	(0.39	)	$	(0.09	)	$	(0.04	)	$	(1.96	)

Balance Sheet Data:
Total Assets		$	12,324,284		$	9,283,584		$	7,610,596		$	6,859,238		$	6,128,063
Long-term debt			—			—			—			—			650,000
Other long-term liabilities			—			—			—			—			1,693,638
Total stockholders’ equity		$	10,192,616		$	7,959,347		$	6,582,751		$	5,618,814		$	1,032,688

Factors Affecting Comparability

In 2003, we recorded an impairment charge of $5,869,000 related to our investments in Blizzard’s acquired developed technology and Psynomics, based upon our analysis of the recoverability of the carrying amount of these assets in accordance with the Accounting Principles Board (“APB”) Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock . This impairment charge represented the total net book value of these assets at the time of the write-off. See Note 11 to our financial statements.

In 2002, we recorded an impairment charge of $921,000 related to certain equipment and leasehold improvements based on our evaluation of the recoverability of the carrying amount of those assets in accordance with the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 144 — Accounting for the Impairment or Disposal of Long-Lived Assets . This impairment charge represented the total net book value of those assets. See Note 5 to our financial statements.

During 2002, we recorded a loss of $478,000 associated with the closure of our Atlanta headquarters and relocation to Los Angeles, subsequent to our merger with Global Genomics. This loss represents the total remaining lease obligations and estimated operating costs through the remainder of the lease, which expires in 2008, less estimated sublease income. This accrued charge was combined with deferred rent of $85,000 already recorded, so that the total accrual related to the facility abandonment was $563,000 as of December 31, 2002. To the extent that we are able to negotiate a termination of the Atlanta lease, our operating costs are different or our estimates related to sublease income are different, the total loss ultimately recognized may be different than the amount recorded as of December 31, 2002 and such difference may be material. As of December 31, 2003, we have a remaining lease closure accrual of $418,000.

Pursuant to his employment agreement, our former President and CEO, Jack Luchese, was entitled to a payment of $435,000 upon the execution of the merger agreement between Global Genomics and us and an additional $435,000 upon the closing of the merger. In order to reduce the amount of cash that we had to pay Mr. Luchese, Mr. Luchese and we agreed that approximately $325,000 of the first $435,000 payment would be satisfied by CytRx granting a stock award to Mr. Luchese under our 2000 Long-Term Incentive Plan pursuant to which we issued Mr. Luchese 558,060 shares of our common stock. Those shares of stock were issued at a value equal to 85% of the volume weighted average price of our common stock for the 20 trading days ended on February 8, 2002. The cash payment and fair value of the shares issued were recognized as expense (total of $428,000) during the first quarter of 2002.

The terms of our merger with Global Genomics contemplated that its management team would replace ours subsequent to the closing of the merger. On July 16, 2002, we terminated the employment of all of our then-current officers, resulting in total obligations for severance, stay bonuses, accrued vacation and other contractual payments of $1,394,000 (including the final $435,000 owed to Mr. Luchese as discussed above). Prior to the merger closing date, we advanced part of these amounts to three of our officers (through salary continuance), such that the total remaining obligation at the closing date was $1,179,000. Four of our officers agreed to accept an aggregate total of $177,000 of this amount in the form of our common stock, in lieu of cash, resulting in the issuance of 248,799 shares. Thus, the net cash payout in satisfaction of these obligations was $1,002,000, before taxes. The severance payments and fair value of the shares issued (total expense of $1,394,000) was recognized as expense during the third quarter of 2002 and is reported as a separate line item on the accompanying consolidated statement of operations, together with the final payment to Mr. Luchese discussed above.

License fees for 2002 include a $1,000,000 milestone payment received from Merck related to the commencement by Merck of a Phase I human clinical trial incorporating our TranzFect technology.

License fees for 2001 include a $3,750,000 up-front payment received from Vical related to a license of our TranzFect technology.

License fees for 2000 consist of a $2,000,000 signature payment received from Merck related to a license of our TranzFect technology.

From 1987 to 2000, we manufactured, marketed and distributed Titermax, an adjuvant used to produce immune responses in research animals. Effective June 15, 2000, we entered into a Purchase Agreement with Titermax USA, Inc. (an unaffiliated company) whereby Titermax USA purchased the worldwide rights to market and distribute Titermax, including all accounts receivable, inventory and other assets used in the Titermax business. The gross purchase price was $750,000, consisting of $100,000 in cash and a $650,000 five-year secured promissory note bearing interest of 10% annually. Net income associated with the Titermax activities included in income (loss) from discontinued operations was approximately $119,000 and $241,000 for 2000 and 1999, respectively. A gain related to the sale of $680,000 was recorded in 2000 and is also classified as discontinued operations.

From 1996 to 2002, we marketed the services of a small group of human resource professionals under the name of Spectrum Recruitment Research (“Spectrum”) as a way of offsetting our cost of maintaining this function. In February 2002, the operations of Spectrum were terminated and the rights to use the Spectrum tradenames were transferred to Albert, Isaac & Alexander, Inc., a consulting firm comprised of former CytRx

(Spectrum) employees. Net income (loss) associated with the Spectrum activities included in income (loss) from operations was approximately $5,000, $(18,000), $146,000 and $75,000 for 2002, 2001, 2000, and 1999, respectively.


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

The following discussion and analysis of our financial condition and results of operations should be read together with “Selected Financial Data”, and our consolidated financial statements included in this Annual Report. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many important factors, including those set forth under “Risk Factors” and elsewhere in this Annual Report.


	*Overview*

We are in the process of developing products, primarily in the areas of RNAi and small molecule therapeutics, for the human health care market. RNAi is a new technology for silencing genes in living cells and organisms. Development work on RNAi is still at an early stage, and we are not aware of any clinical testing of medical applications using RNAi that have yet been initiated by any party. In addition to our work in RNAi, we are involved in the development of a DNA-based HIV vaccine and have entered into strategic alliances with respect to the development of several other products using our other technologies.

Subsequent to our merger with Global Genomics, in July 2002, we modified our business strategy by discontinuing any further research and development efforts for our pre-merger pharmaceutical technologies and began to seek strategic relationships with other pharmaceutical companies to complete the development of those technologies. Instead of continuing research and development for those technologies, we focused our efforts on acquiring new technologies and products to serve as the foundation for the future of the company.

In April 2003, we acquired our first new technologies by entering into exclusive license agreements with UMMS covering potential applications for its proprietary RNAi technology in the treatment of specified diseases. At that time, we also acquired an exclusive license from UMMS covering its proprietary technology with potential gene therapy applications within the area of cancer. In May 2003, we broadened our strategic alliance with UMMS by acquiring an exclusive license from it covering a proprietary DNA-based HIV vaccine technology.

As part of our strategic alliance with UMMS, we agreed to fund certain discovery and pre-clinical research at the medical school relating to the use of our technologies, licensed from UMMS, for the development of therapeutic products within certain fields. Although we intend to internally fund the early stage development work for certain product applications (including obesity, type 2 diabetes and ALS) and may seek to fund the completion of the development of certain of these product applications (such as ALS), we may also seek to secure strategic alliances or license agreements with larger pharmaceutical companies to fund the early stage development work for other gene silencing product applications and for subsequent development of those potential products where we fund the early stage development work.

We have not achieved profitability on a quarterly or annual basis and we expect to continue to incur significant additional losses over the next several years. We expect our net losses to increase primarily due to activities related to our collaborations, technology acquisitions, research and development programs and other general corporate activities. We anticipate that our operating results will fluctuate for the foreseeable future. Therefore, period-to-period comparisons should not be relied upon as predictive of the results in future periods.

To date, we have relied primarily upon the sale of equity securities and payments from our strategic partners and licensees to generate the funds needed to finance the implementation of our business plans. We will be required to obtain additional funding in order to execute our long-term business plans. Our sources of potential funding for the next several years are expected to consist primarily of proceeds from sales of equity,

but could also include license and other fees, funded research and development payments, and milestone payments under existing and future collaborative arrangements.


	*Research and Development*

Following our 2003 acquisition of rights from UMMS to the new technologies, we initiated research and development programs for products based upon those technologies. Expenditures for research and development activities related to continuing operations were $4,388,000, $767,000 and $1,844,000 during the years ended December 31, 2003, 2002 and 2001, respectively, with research and development expenses representing approximately 39% of our total expenses for 2003. Research and development expenses are further discussed below under “Critical Accounting Policies and Estimates” and “Results of Operations.”

In September 2003, we invested in a subsidiary to develop orally active small molecule-based drugs for the prevention, treatment and cure of obesity and type 2 diabetes. Utilizing the RNAi technology that we have licensed from UMMS, in combination with state of the art target identification methods, our subsidiary will focus on using a genomic and proteomic based drug discovery approach to accelerate the process of screening and identifying potential drug targets and pathways for these diseases to discover and develop molecular based medicines for the treatment of obesity and type 2 diabetes. We have provided our subsidiary with initial capital of approximately $7,000,000 to fund the staffing of its operations with managerial and scientific personnel and its initial drug development activities.

There is a risk that any drug discovery and development program may not produce revenue because of the risks inherent in drug discovery and development. Moreover, there are uncertainties specific to any new field of drug discovery, including RNAi. The successful development of any product candidate we develop is highly uncertain. We cannot reasonably estimate or know the nature, timing and costs of the efforts necessary to complete the development of, or the period in which material net cash inflows are expected to commence from any product candidate, due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

• our ability to advance product candidates into pre-clinical and clinical trials;

• the scope, rate and progress of our pre-clinical trials and other research and development activities;

• the scope, rate of progress and cost of any clinical trials we commence;

• the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

• future clinical trial results;

• the terms and timing of any collaborative, licensing and other arrangements that we may establish;

• the cost and timing of regulatory approvals;

• the cost and timing of establishing sales, marketing and distribution capabilities;

• the cost of establishing clinical and commercial supplies of our product candidates and any products that we may develop; and

• the effect of competing technological and market developments.

Any failure to complete any stage of the development of our products in a timely manner could have a material adverse effect on our operations, financial position and liquidity. A discussion of the risks and uncertainties associated with completing our projects on schedule, or at all, and the potential consequences of failing to do so, are set forth in the “Risk Factors” section of this Annual Report.


	*Critical Accounting Policies and Estimates*

Management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles

generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, bad debts, impairment of long-lived assets, including finite lived intangible assets, accrued liabilities and certain expenses. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

Our significant accounting policies are summarized in Note 2 to our financial statements. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.


	Revenue Recognition

Nonrefundable license fee revenue is recognized when collectibility is reasonably assured, which is generally upon receipt, when no continuing involvement on our part is required and payment of the license fee represents the culmination of the earnings process. Nonrefundable license fees received subject to future performance by us or that are credited against future payments due to us are deferred and recognized as services are performed and collectibility is reasonably assured, which is generally upon receipt, or upon termination of the agreement and all related obligations thereunder, whichever is earliest. Our revenue recognition policy may require us to defer significant amounts of revenue.


	Research and Development Expenses

Research and development expenses consist of costs incurred for direct and overhead-related research expenses and are expensed as incurred. Costs to acquire technologies which are utilized in research and development and which have no alternative future use are expensed when incurred. Technology developed for use in our products is expensed as incurred, until technological feasibility has been established. Expenditures, to date, have been classified as research and development expense in the consolidated statements of operations and we expect to continue to expense research and development for the foreseeable future.


	Stock-based Compensation

We grant stock options and warrants for a fixed number of shares to key employees and directors with an exercise price equal to the fair market value of the shares at the date of grant. We account for stock option grants and warrants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) and related interpretations, and, accordingly, recognize no compensation expense for the stock option grants and warrants issued to employees for which the terms are fixed.

For stock option grants and warrants which vest based on certain corporate performance criteria, compensation expense is recognized to the extent that the quoted market price per share exceeds the exercise price on the date such criteria are achieved or are probable. At each reporting period end, we must estimate the probability of the criteria specified in the stock based awards being met. Different assumptions in assessing this probability could result in additional compensation expense being recognized.

In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-based Compensation (SFAS 123), which provides an alternative to APB 25 in accounting for stock-based compensation issued to employees. However, we have continued to account for stock-based compensation in accordance with APB 25 (See Notes 2 and 13 to financial statements).

We have also granted stock options and warrants to certain consultants and other third parties. Stock options and warrants granted to consultants and other third parties are accounted for in accordance with SFAS 123 and related interpretations and are valued at the fair market value of the options and warrants granted, as of the date of grant or services received, whichever is more reliably measurable. Expense is

recognized in the period in which a performance commitment exists or the period in which the services are received, whichever is earlier. The Company anticipates that it will continue to rely on the use of consultants and that it will be required to expense the associated costs. The Company anticipates continuing the use of stock options to compensate employees, and continuing to expense the options in accordance with APB 25.


	Impairment of Long-Lived Assets

We review long-lived assets, including finite lived intangible assets, for impairment on an annual basis, as of December 31, or on an interim basis if an event occurs that might reduce the fair value of such assets below their carrying values. An impairment loss would be recognized based on the difference between the carrying value of the asset and its estimated fair value, which would be determined based on either discounted future cash flows or other appropriate fair value methods.

In 2002, we recorded an impairment charge of $921,000 related to certain equipment and leasehold improvements based on our evaluation of the recoverability of the carrying amount of these assets in accordance with the FASB Statement of Financial Accounting Standards No. 144 — Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). This impairment charge represented the total net book value of these assets. See Note 5 to our financial statements.

In 2003, we recorded an impairment charge of $5,869,000 related to our investments in Blizzard Genomics acquired developed technology and Psynomics, based upon our analysis of the recoverability of the carrying amount of these assets in accordance with the Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock (APB 18). This impairment charge represented the total net book value of these assets at the time of the write-off. See Note 11 to our financial statements.


	Estimated Facility Abandonment Accrual

During 2002, we recorded a loss of $478,000 associated with the closure of our Atlanta headquarters and relocation to Los Angeles, subsequent to our merger with Global Genomics. This loss represents the total remaining lease obligations and estimated operating costs through the remainder of the lease term, less estimated sublease income. This accrued charge was combined with deferred rent of $85,000 already recorded, so that the total accrual related to the facility abandonment was $563,000 as of December 31, 2002. To the extent that we are able to negotiate a termination of the Atlanta lease, our operating costs are different or our estimates related to sublease income are different, the total loss ultimately recognized may be different than the amount recorded as of December 31, 2002 and such difference may be material. As of December 31, 2003, we have a remaining lease closure accrual of $418,000.


	*Quarterly Financial Data*

The following table sets forth unaudited statement of operations data for our most recent two completed fiscal years. This quarterly information has been derived from our unaudited financial statements and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the periods covered. The quarterly financial data should be read in

conjunction with our financial statements and related notes. The operating results for any quarter are not necessarily indicative of the operating results for any future period.



		Quarter Ended

		March 31			June 30			September 30			December 31


		(In thousands, except per share data)
2003
Total revenues		$	—		$	3		$	1		$	90
Net loss			(914	)		(5,046	)		(8,777	)		(3,108	)
Basic and diluted loss per common share:
	Net loss		(0.04	)		(0.21	)		(0.30	)		(0.09	)
2002
Total revenues			1,054			15			1			50
Gross profit			11			—			—			—
Net loss			(179	)		(931	)		(2,547	)		(2,519	)
Basic and diluted loss per common share:
	Net loss	$	(0.02	)	$	(0.08	)	$	(0.13	)	$	(0.12	)


	*Liquidity and Capital Resources*

At December 31, 2003, we had cash, cash equivalents and short-term investments of $11,644,000 and net assets of $10,193,000, compared to $1,789,000 and $7,959,000, respectively, at December 31, 2002. Working capital totaled $10,761,000 at December 31, 2003, compared to $1,638,000 at December 31, 2002.

To date, we have relied primarily upon selling equity securities and payments from our strategic partners and licensees to generate funds needed to finance the implementation of our plans of operations. We believe that the cash and cash equivalents balances will be sufficient to meet cash requirements through the next twelve months. We will be required to obtain significant additional funding in order to execute our long-term business plans. We cannot assure that additional funding will be available on favorable terms, if at all. If we fail to obtain additional funding when needed, we may not be able to execute our business plan and our business may suffer, which would have a material adverse effect on our financial position, results of operations and cash flows.

Net cash flows provided by investing activities was $1,200,000 in 2003, compared to net cash used in investing activities of $2,000,000 in 2002. The change was primarily due to (i) the purchase, in 2002, of held-to-maturity investments, which subsequently matured in 2003, (ii) an increase in fixed asset purchases in 2003, as compared to 2002 and (iii) the absence of acquisition costs in 2003, as compared to 2002.

Net cash provided by financing activities was $14,400,000 in 2003, compared to net cash provided by financing activities of $628,000 in 2002. In May 2003, we completed a private equity financing raising net proceeds of $4,800,000. In September 2003, we completed a private equity financing raising net proceeds of $7,700,000. In 2003, we also received proceeds from the exercise of stock options and warrants totaling $1,900,000. Cash provided by financing activities in 2002 was comprised primarily of the exercise of stock options and warrants.

Net cash used in operating activities was $4,300,000 in 2003, compared to net cash used in operating activities of $3,500,000 in 2002. Net cash inflows decreased, due primarily to significantly higher license revenues in 2002, relating to a $1,000,000 milestone payment received from Merck, during the first quarter, related to the commencement by Merck of a Phase I human clinical trial incorporating our TranzFect technology. In 2002, we paid $1,000,000 in severance and other contractual payments to officers. In 2003, we paid $1,100,000 in licensing, patent and sponsored research fees in connection with our new business strategy.

There can be no assurance that we will become profitable. If we do, we may never be able to sustain profitability. We expect to incur significant losses for the foreseeable future. We are making efforts to reduce expenses and may take steps to raise additional capital.

The above statements regarding our plans and expectations for future financing are forward-looking statements that are subject to a number of risks and uncertainties. Our ability to obtain future financings through joint ventures, product licensing arrangements, equity financings or otherwise is subject to market conditions and our ability to identify parties that are willing and able to enter into such arrangements on terms that are satisfactory to us. There can be no assurance that we will be able to obtain future financing from these sources. Additionally, depending upon the outcome of our fund raising efforts, the accompanying financial information may not necessarily be indicative of future operating results or future financial condition.


	Contractual Obligations

We have no current commitments for capital expenditures in 2004, however, we anticipate incurring capital expenditures in connection with the expansion of our subsidiary’s laboratory. We have no committed lines of credit or other committed funding or long-term debt. Minimum annual future obligations for operating leases, minimum annual future obligations under various license agreements and minimum annual future obligations under employment agreements consist of the following:


	Operating		License		Employment
	Leases		Agreements		Agreements		Total


	(In thousands)
2004	$	560	$	1,778		1,075	$	3,413
2005		478		1,810		670		2,958
2006		285		897		375		1,557
2007		229		310		—		539
2008		76		330		—		406
2009 and thereafter		—		1,320		—		1,320

Total	$	1,628	$	6,445	$	2,120	$	10,193

We have employment agreements with our executive officers, the terms of which expire at various times through July 2006. Certain agreements, which have been revised from time to time, provide for minimum salary levels, adjusted annually at the Compensation Committee’s determination, as well as for minimum bonuses that are payable. The aggregate commitment for future salaries at December 31, 2003, including guaranteed bonuses and salary continuation, was approximately $2,120,000. Certain of these employment agreements have been terminated and the guaranteed salaries may be less.


	License Agreements

In April 2003, we acquired new technologies by entering into exclusive license arrangements with UMMS covering potential applications of the medical institution’s proprietary RNAi technology in the treatment of specified diseases, including those within the areas of obesity, type 2 diabetes ALS, CMV and covering UMMS’s proprietary technology with potential gene therapy applications within the area of cancer. In consideration of the licenses, we made cash payments to UMMS totaling $186,000 and issued it a total of 1,613,258 shares of our common stock which were valued, for financial statement purposes, at $1,468,000. In May 2003, we broadened our strategic alliance with UMMS by acquiring an exclusive license from that institution covering a proprietary DNA-based HIV vaccine technology. In consideration of this license, we made cash payments to UMMS totaling $18,000 and issued it 215,101 shares of our common stock which were valued, for financial statement purposes, at $361,000. As the RNAi technology from UMMS had not achieved technological feasibility at the time of its license by us, had no alternative future uses and, therefore, no separate economic value, the aggregate total of $2,033,000 in cash payments and stock issued for acquisition of the technology was expensed as research and development in our financial statements.


	Net Operating Loss Carryforward

At December 31, 2003, we had consolidated net operating loss carryforwards for income tax purposes of $67,200,000, which will expire in 2004 through 2023 if not utilized. We also have research and development

tax credits and orphan drug tax credits available to reduce income taxes, if any, of $6,600,000, which will expire in 2004 through 2020 if not utilized. Based on an assessment of all available evidence including, but not limited to, our limited operating history in our core business and lack of profitability, uncertainties of the commercial viability of our technology, the impact of government regulation and healthcare reform initiatives, and other risks normally associated with biotechnology companies, we have concluded that it is more likely than not that these net operating loss carryforwards and credits will not be realized and, as a result, a 100% deferred tax valuation allowance has been recorded against these assets.


	Impairment Test of Intangible Assets

In accordance with the provisions of Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock (“APB 18”), we reviewed the net values on our balance sheet, as of September 30, 2003, assigned to Investment in Minority — Owned Entity — Acquired Developed Technology resulting from our acquisition of Global Genomics. APB 18 requires that a loss in value of an investment, which is other than a temporary decline, should be recognized as an impairment loss. Through the third quarter of 2003, Blizzard had been unsuccessful in its attempts to raise a significant amount of financing necessary for it to pursue its commercialization strategy for its products and we subsequently decided not to further invest in this entity. Our analysis consisted of a review of the financial projections prepared by Blizzard, application of a discounted cash flow valuation model of Blizzard’s projected cash flows, and consideration of other qualitative factors. Based upon the quantitative and qualitative factors described above, in addition to others, our management determined that the estimated fair value of our investment in Blizzard was $0 and that an impairment charge of $5,869,000 was necessary. The write off had no impact upon our cash or working capital position.


	*Results of Operations*



	Year Ended December 31,

	2003		2002		2001


	(in thousands)
Service revenue	$	—	$	23	$	101
Grant revenue		94		1,051		3,751
License fees		—		46		157

	$	94	$	1,120	$	4,009

Service revenue — From 1996 to 2002, we marketed the services of a small group of human resources professionals under the name of Spectrum Recruitment Research as a way of offsetting our cost of maintaining this function. In February 2002, the operations of Spectrum were terminated and the rights to use the Spectrum tradenames were transferred to Albert, Isaac & Alexander, Inc., a consulting firm comprised of former Spectrum employees. Service revenues related to Spectrum were $22,000 in 2002 and $101,000 in 2001. Cost of service revenues was $11,000 in 2002 and $71,000 in 2001, or 50% and 70% of service revenues, respectively.

Grant revenue — Grant income was $0 in 2003 compared to $46,000 in 2002 and $157,000 in 2001. Grant income primarily relates to several Small Business Innovative Research (SBIR) grants we received from the NIH in support of our FLOCOR studies. We do not currently plan to seek NIH or other similar grants that would provide us with any funding during 2004.

License fees — License fee income was $94,000 in 2003, $1,051,000 in 2002 and $3,751,000 in 2001 and relates primarily to our licenses of TranzFect to Vical and Merck. License fees for 2002 include a $1,000,000 milestone payment received from Merck, during the first quarter, related to the commencement by Merck of a Phase I human clinical trial incorporating our TranzFect technology. License fees in 2001 include a $3,750,000 up-front payment received from Vical related to a license of our TranzFect technology. Other than a $100,000 milestone fee that we received from Vical in April 2004, we do not anticipate receiving any

significant licensing fee revenue during 2004 with respect to either our FLOCOR or TranzFect technologies, although our agreement with SynthRx contemplates that company making a payment to us in 2004.

Research and development



	Year Ended December 31,

	2003		2002		2001


	(in thousands)
Research and development expense	$	1,485	$	689	$	1,844
Non-cash research and development expense		2,903		—		—
Acquired in-process research and development expense		—		78		—

	$	4,388	$	767	$	1,844

Research and development expense during 2003 were $4,388,000 versus $767,000 in 2002 and $1,844,000 in 2001. In 2003, as a result of the change in our business strategy following our merger with Global Genomics, our research and development expenditures related primarily to new licensing and sponsored research agreements, and the commencement of our subsidiary’s operations. Research and development expenditures for 2002 and 2001 were primarily related to the development of our FLOCOR technology. The research and development expense for 2002 also includes $78,000 which was allocated from the purchase price of Global Genomics as in-process research and development and, therefore, expensed in connection with the acquisition. Although our actual research and development expenditures for 2004 could vary substantially, depending upon the progress we make in certain of our research programs and the possible addition of new programs, we anticipate that these expenditures will be somewhat larger than were our research and development expenditures in 2003.

Selling, general and administrative



	Year Ended December 31,

	2003		2002		2001


	(in thousands)
Common stock, stock options and warrants issued for selling, general and administrative expense	$	3,148	$	230	$	1,441
Selling, general and administrative expense		3,841		1,703		1,161

	$	6,989	$	1,933	$	2,602

We recorded non-cash charges of $3,148,000, $230,000, and $1,441,000 during 2003, 2002 and 2001, respectively, related to the issuance of stock warrants to certain consultants and certain vesting events for management stock options. These fees relate primarily to common stock, stock options and warrants issued in connection with the engagement and retention of financial and business development advisors. The significant increase in 2003 was due primarily to the change in our business strategy, which led to an increase in activity and, as a result, a greater use of consultants for financial and business development advisory services. The difference between 2002 and 2001 is primarily due to the warrant that we granted to Cappello Capital, in 2001, as compensation for its services.

Selling, general and administrative expenses during 2003 were $3,841,000 as compared to $1,703,000 in 2002 and $1,161,000 in 2001. The increase in 2003 was due primarily to the change in our business strategy following our merger with Global Genomics, which led to an increase in activity and, as a result, a greater use of consultants for technical, financial and business development advisory services, in addition to higher legal and accounting costs. The increase from 2001 to 2002 is due primarily to the increase in the percentage of facilities costs allocated to administrative expense versus research and development expense, and higher legal and accounting costs subsequent to the merger. Our legal and accounting costs are expected to increase during 2004 as a result of certain costs associated with our change of accountants during the first half of 2004 and certain pending legal proceedings.

Depreciation and amortization expense — Depreciation and amortization expense was $2,000, $794,000 and $586,000 in 2003, 2002 and 2001, respectively. Due to the impairment charge (discussed below), our property balances had been reduced to a nominal amount as of December 31, 2002 and, therefore, our depreciation expense will be nominal for the foreseeable future.

Severance and other contractual payments to officers — Pursuant to his employment agreement, our former President and CEO, Jack Luchese, was entitled to a payment of $435,000 upon the execution of the merger agreement between Global Genomics and us and an additional $435,000 upon the closing of the merger. In order to reduce the amount of cash that we had to pay to Mr. Luchese, Mr. Luchese and we agreed that approximately $325,200 of the first $435,000 payment would be satisfied by CytRx granting a stock award to Mr. Luchese under our 2000 Long-Term Incentive Plan pursuant to which we issued Mr. Luchese 558,060 shares of our common stock. Those shares of stock were issued at a value equal to 85% of the volume weighted average price of our common stock for the 20 trading days ended on February 8, 2002. The cash payment and fair value of the shares issued were recognized as expense (total of $428,000) during the first quarter of 2002.

The terms of our merger with Global Genomics contemplated that their management team would replace ours subsequent to the closing of the merger. On July 16, 2002, we terminated the employment of all of our then current officers, resulting in total obligations for severance, stay bonuses, accrued vacation and other contractual payments of $1,394,000 (including the final $435,000 owed to Mr. Luchese as discussed above). Prior to the merger closing date, we advanced part of these amounts to three of our officers (through salary continuance), such that the total remaining obligation at the closing date was $1,179,000. Four of our officers agreed to accept an aggregate total of $177,000 of this amount in the form of our Common Stock in lieu of cash, resulting in the issuance of 248,799 shares. Thus, the net cash payout in satisfaction of these obligations was $1,002,000, before taxes. The severance payments and fair value of the shares issued (total expense of $1,394,000) was recognized as expense during the third quarter of 2002 and is reported as a separate line item on the accompanying consolidated statement of operations, together with the final payment to Mr. Luchese discussed above.

Asset impairment charge — During the fourth quarter of 2002, we recognized an asset impairment charge of approximately $921,000 related to our equipment and facility used for FLOCOR production. We recorded an impairment loss equal to the net book value of the equipment and related leasehold improvements.

Loss on facility abandonment — During the fourth quarter of 2002, we recognized a loss of $478,000 associated with the closure of our Atlanta headquarters and relocation to Los Angeles subsequent to our merger with Global Genomics. This loss represents the difference between the total remaining lease obligations and estimated operating costs through the remainder of the lease, which expires in 2008, less estimated sublease income.

Interest income — Interest income was $82,000 in 2003 as compared to $96,000 in 2002 and $162,000 in 2001. The variance between years is primarily attributable to fluctuating cash balances.

Equity losses from minority-owned entity



	Year Ended December 31,

	2003		2002		2001


	(in thousands)
Equity losses from minority-owned entity	$	245	$	330	$	—
Asset impairment charge		5,869		—		—
Amortization of acquired developed technology		548		335		—

	$	6,662	$	665	$	—

We record our portion of the net loss of Blizzard Genomics in accordance with the equity method of accounting. In 2003, we recorded $6,662,000 in equity losses, of which $5,869,000 was an asset impairment charge, $237,000 was our 40% share of the net loss in Blizzard Genomics and $731,000 was amortization of acquired developed technology. For the period July 19, 2002 (date of acquisition of Global Genomics) to

December 31, 2002, we recorded $665,000 in equity losses, of which $330,000 was our share in the net loss of Blizzard Genomics and $335,000 was amortization of acquired developed technology.

Minority interest in losses of subsidiary — We recorded $20,000 related to the 5% minority interest in losses of our subsidiary, which we established in September 2003.


	*Recently Issued Accounting Standards*

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150). This statement changes the classification of certain financial instruments from equity to liabilities. The three types of financial instruments requiring the change in classification are: (1) mandatorily redeemable shares, which the issuing company is obligated to buy back in exchange for cash or other assets; (2) put options and forward purchase contracts; and (3) obligations that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuer’s shares. This statement is effective for all financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. We adopted SFAS 150 as of July 1, 2003, which did not have a material impact on our consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS 149). This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133 is generally effective for contracts entered into or modified after June 30, 2003 and hedging relationships designated after June 30, 2003. We will apply the provisions of SFAS 149 for any derivative instruments or hedging activities entered into after June 30, 2003. As we have not entered into derivative instruments or hedging activities, adoption of this statement does not have a material impact on our consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46) as superseded in December 2003 by FASB-issued Interpretation No. 46R, Consolidation of Variable Interest Entities — an interpretation of ARB 51 (FIN 46R). FIN 46R requires the primary beneficiary of a variable interest entity (“VIE”) to consolidate the entity and also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the equity investors do not have a controlling interest, equity investors participate in losses or residual interests of the entity on a basis that differs from its ownership interest, or the equity investment at risk is insufficient to finance the entity’s activities without receiving additional subordinated financial support from the other parties. FIN 46R is applicable starting January 1, 2004. We do not believe the effect of FIN 46R on our consolidated financial statements will be material.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor’s Accounting for Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 clarifies the requirements for a guarantor’s accounting for and disclosure of certain guarantees issued and outstanding. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN 45 also incorporates without reconsideration the guidance in FASB Interpretation No. 34, which is being superseded. We adopted FIN 45 effective January 1, 2003. Adoption did not have a material impact on our financial statements.


	*Related Party Transactions*

In July 2002, we entered into an agreement with Kriegsman Capital Group (“KCG”), whereby KCG or its affiliate The Kriegsman Group (“TKG”) agreed to provide us with office space and certain administrative services. KCG and TKG are owned by Steven A. Kriegsman, our President and CEO. During the years ended December 31, 2003 and 2002, we paid approximately $70,000 and $59,000, respectively, to KCG under this

agreement. The charges were determined based upon actual space used and estimated percentages of employee time used. We believe that such charges approximate the fair value of the space and services provided. In October 2003, the services and facilities agreement with KCG was terminated as substantially all of the on-going operations of KCG have ceased. The obligations under the facility lease at our headquarters were transferred from KCG to us in July 2003.

We entered into various agreements, expiring in May 2004, with Cappello Capital Corp. (Cappello Capital) in which Cappello Capital will serve as our exclusive financial advisor. Alexander L. Cappello, one of our directors, is Chairman and Chief Executive Officer of Cappello Group, Inc., an affiliate of Cappello Capital. Under these agreements, Cappello Capital assisted us with the analysis of potential transactions and strategic alternatives. The types of transactions that Cappello Capital may assist us with include the private placement of equity, debt or convertible securities, strategic alliances, the sale of all or a portion of us, a recapitalization or strategic acquisitions. If we proceed with any of the transactions described in the agreement, we are to pay Cappello Capital a fee of between 3% and 7.5%, depending upon the nature of the transaction and the dollar amount involved. In 2001, as compensation for its services, we granted Cappello Capital a ten-year warrant to purchase 1,272,492 shares of our common stock (subject to downward adjustment under certain conditions) with an exercise price of $1.00 per share (fair value of $1,063,000), which was fully vested at December 31, 2003. During 2002, we paid Cappello Capital a monthly retainer of $10,000 for the final six months of the year, or a total of $60,000. The fair value of the warrant issued to Cappello Capital was recognized as common stock, stock options and warrants issued for services in the accompany statements of operations and recognized based on the vesting terms of the warrant. The fee paid to Cappello Capital upon the closing of the merger with Global Genomics was 448,330 shares of our common stock, or 4.5% of the shares issuable in the merger. The fair value of those shares issued ($247,000) was considered as a transaction cost of the merger and was included in the purchase price of Global Genomics. Fees paid to Cappello Capital in connection with the closing of the May 2003 Financing and the September 2003 Financing consisted of $1,076,000 and fully vested, ten-year warrants to purchase 794,771 shares of common stock with exercise prices ranging from $1.85 per share to $3.05 per share. During 2003 from May through December, we paid Cappello Capital a monthly retainer of $20,000, or a total of $160,000.

Dr. Michael Czech, a 5% minority shareholder of our subsidiary (see Note 9) and a member of our and our subsidiary’s Scientific Advisory Boards, is an employee of UMMS and party, as the principal investigator, to a sponsored research agreement between UMMS and us. We recorded a minority interest liability of $350,000 representing the 5% interest in our subsidiary held by Dr. Czech. Additionally, we have recorded the fair value of 300,000 shares of our common stock as additional paid-in capital for our right to call and the Dr. Czech’s right to put the remaining 5% interest to us in exchange for a guaranteed amount of 300,000 shares of our common stock. The fair value of these shares on the purchase date was approximately $723,000. During 2003, Dr. Czech was paid $18,000 for his Scientific Advisory Board services. During 2003, we paid UMMS $403,000 under a sponsored research agreement to fund a portion of Dr. Czech’s research.


	*Off-Balance Sheet Arrangements*

We have not entered into off-balance sheet financing arrangements, other than operating leases.

RISK FACTORS

If any of the following risks actually occur, our business or prospects could be materially adversely affected. You should also refer to the other information in this Annual Report, including our financial statements and the related notes.

We Have Operated at a Loss and Will Likely Continue to Operate at a Loss For the Foreseeable Future

We have incurred significant losses over the past five years, including net losses of approximately $17,845,000, $6,176,000, and $931,000 for 2003, 2002, and 2001, respectively, and we had an accumulated deficit of approximately $89,802,000 as of December 31, 2003. Our operating losses have been due primarily to our expenditures for research and development on our products and for general and administrative expenses,

and our lack of significant revenues. We are likely to continue to incur operating losses until such time, if ever, that we generate significant recurring revenues. Unless we are able to acquire products from third parties that are already being marketed and that can be profitably marketed by us, it will take a minimum of three years (and possibly longer) for us to generate recurring revenues, since we anticipate that it will take at least several years before the development of any of our licensed or other current potential products is completed, FDA marketing approvals are obtained and commercial sales of any of these products can begin.

We Have No Source of Significant Recurring Revenues, Which May Make Us Dependent on Financing to Sustain Our Operations

Although we generated $3,751,000 in revenues from milestone payments and license fees from our licensees during 2001 and $1,051,000 from these sources during 2002, we generated only $94,000 in such revenues in 2003 and we do not have any significant sources of recurring operating revenues. We will not have significant recurring operating revenues until at least one of the following occurs:

• we are able to complete the development of and commercialize one or more of the products that we are currently developing, which may require us to first enter into license or other arrangements with third parties

• one or more of our currently licensed products is commercialized by our licensees, thereby generating royalty income for us

• we are able to acquire products from third parties that are already being marketed or are approved for marketing

We are likely to incur negative cash from operations until such time, if ever, as we can generate significant recurring revenues. Although we believe that we have adequate financial resources to support our currently planned levels of operations through at least early 2005, should we thereafter be unable to generate recurring revenues, it is likely that we will become dependent on obtaining financing from third parties to continue to meet our obligations to the University of Massachusetts Medical School (UMMS) and maintain our operations, including our planned levels of operations for our obesity and type 2 diabetes subsidiary. We have no commitments from third parties to provide us with any debt or equity financing. Accordingly, financing may be unavailable to us or only available on terms that substantially dilute our existing stockholders. A lack of needed financing could force us to reduce the scope of or terminate our operations, or to seek to merge with or be acquired by another company. There can be no assurance that we would be able to identify an appropriate company to merge with or be acquired by or that we could consummate such a transaction on terms that would be attractive to our stockholders or at all.

Most of Our Revenues Have Been Generated by License Fees for TranzFect, Which May Not be a Recurring Source of Revenue for Us

License fees paid to us with respect to our TranzFect technology have represented 81%, 94% and 94% of our total revenues for 2003, 2002 and 2001, respectively. We have already licensed most of the potential applications for this technology, and there can be no assurance that we will be able to generate additional license fee revenues from any new licensees for this technology. Our current licensees for TranzFect, Merck & Co. (Merck) and Vical Incorporated (Vical) may be required to make further milestone payments to us under their licenses based on their future development of products using TranzFect. However, Merck is at an early stage of clinical trials of a product utilizing TranzFect, and Vical has only recently commenced a Phase I clinical trial of a product utilizing TranzFect. In the Merck trials, although the formulation of the tested vaccine using TranzFect was generally safe, well-tolerated and generated an immune response, the addition of TranzFect to the vaccine did not increase this immune response. Moreover, the DNA single-modality vaccine regimen with TranzFect, when tested in humans, yielded immune responses that were inferior to those obtained with the DNA vaccines in macaque monkeys. Accordingly, there is likely to be a substantial period of time, if ever, before we receive any further significant payments from Merck or Vical under their TranzFect licenses.

We Have Changed Our Business Strategy, Which Will Require Us, in Certain Cases, to Find and Rely Upon Third Parties for the Development of Our Products and to Provide Us With Products

Following our merger with Global Genomics, we modified our business strategy of internally developing FLOCOR and the other, then-current, potential products that we had not yet licensed to third parties. Instead, we began to seek to enter into strategic alliances, license agreements or other collaborative arrangements with other pharmaceutical companies that would provide for those companies to be responsible for the development and marketing of those products. In October 2003, we entered into an agreement to license FLOCOR, the primary potential product that we held prior to the Global Genomics merger and which we had not already licensed to a third party, to SynthRx and entered into a strategic alliance with that company. Although we intend to internally fund or carry out, through our obesity and type 2 diabetes subsidiary, the early stage development work for certain product applications based on the RNAi and other technologies that we licensed from UMMS, and we may seek to fund all of the later stage development work for our potential ALS products, the completion of the development, manufacture and marketing of these products is likely to require, in many cases, that we enter into strategic alliances, license agreements or other collaborative arrangements with larger pharmaceutical companies for this purpose.

There can be no assurance that our products will have sufficient potential commercial value to enable us to secure strategic alliances, license agreements or other collaborative arrangements with suitable companies on attractive terms or at all. If we enter into these arrangements, we will be dependent upon the timeliness and effectiveness of the development and marketing efforts of our contractual partners. If these companies do not allocate sufficient personnel and resources to these efforts or encounter difficulties in complying with applicable regulatory (including FDA) requirements, the timing of our receipt or the volume of revenues we receive from these arrangements may be materially adversely affected. By entering into these arrangements rather than completing the development and marketing of these products on our own, we may ultimately receive less income for these products. In addition, if we are unable to enter into a strategic relationship for a particular product, we may be required to either sell our rights in the product to a third party or abandon it unless we are able to raise sufficient capital to fund the substantial expenditures necessary for the development and marketing of that product.

We will also seek to acquire products from third parties that already are being marketed or have previously been marketed. We have not yet identified any of these products. Even if we do identify such products, it may be difficult for us to acquire them with our limited financial resources, and, if we acquire products using our securities as currency, we may incur substantial shareholder dilution. We do not have any prior experience in acquiring or marketing products and may need to find third parties to market these products for us. We may also seek to acquire products through a merger with one or more companies that own such products. In any such merger, the owners of our merger partner could be issued or hold a substantial, or even controlling, amount of stock in our company or, in the event that the other company is the surviving company, in that other company.

Our Current Financial Resources May Limit Our Ability to Execute Certain Strategic Initiatives

On December 31, 2003 we had approximately $11,644,000 in cash and cash equivalents and approximately $10,761,000 in working capital. Our significantly improved working capital position is due primarily to our completing a $5,440,000 private equity financing in May 2003 and an $8,695,000 private equity financing in September 2003, although we have used approximately $7,000,000 of the net proceeds of the September 2003 financing as initial capital for our obesity and type 2 diabetes subsidiary and we currently expect the balance of such proceeds to be available for the future operating needs of that subsidiary.

In October 2003, we entered into an agreement to license FLOCOR to SynthRx, which will be responsible for developing potential product applications for FLOCOR. As a result of the agreement, we may be entitled to receive future milestone payments and royalties. Although we are not doing any further development work on TranzFect, should our two principal licensees for this technology successfully meet the defined milestones, we could receive future milestone payments and, should either of the licensees commercialize products based upon our technology, future royalty payments. However, there can be no assurance that

our licensees will continue to develop or ever commercialize any products that are based on our FLOCOR or our TranzFect technology.

Our strategic alliance with UMMS may require us to make significant expenditures to fund research at the institution relating to the development of therapeutic products based on the UMMS proprietary technology that we have licensed. We estimate that the aggregate amount of these sponsored research expenditures under our current commitments will be approximately $1,400,000 for 2004, approximately $1,500,000 for 2005 and approximately $800,000 for 2006. We have also agreed to fund approximately $487,000 of sponsored research at Massachusetts General Hospital over the next two years. Our license agreements with UMMS also provide, in certain cases, for milestone payments based on the progress we make in the clinical development and marketing of products utilizing the licensed technologies. In the event that we were to successfully develop a product in each of the categories of obesity/type 2 diabetes, ALS, CMV, cancer and an HIV vaccine, under our licenses, those milestone payments could aggregate up to $16,055,000. Those milestone payments, however, could vary significantly based upon the milestones we achieve and the number of products we ultimately undertake to develop.

Although we believe that an existing NIH grant will be sufficient to fund substantially all of the costs of the currently planned Phase I trial of the HIV vaccine candidate using the technology we licensed from UMMS and Advanced BioScience Laboratories (ABL), we could be required to fund expenses of the trial not covered by the grant, which expenses could be significant. Under our license for this technology, following the completion of the currently planned Phase I trial, we will be responsible for all of the costs for subsequent clinical trials for this vaccine. The costs of subsequent trials for the HIV vaccine will be very substantial. We do not have any NIH or other governmental funding for these future trials, and there can be no assurance that we will be able to secure such funding for any of these trials.

The expenditures potentially required under our agreements with the UMMS and ABL, together with the operating capital requirements of our obesity and type 2 diabetes subsidiary and our planned sponsored research funding for Massachusetts General Hospital, substantially exceed our current financial resources. Those required expenditures could require us to raise additional capital or to secure a licensee or strategic partner to fulfill our obligations to UMMS and to develop any products based on the technologies that we have licensed from UMMS, or to continue the operations of our obesity and type 2 diabetes subsidiary at the currently contemplated level. If we are unable to meet our various financial obligations under license agreements with UMMS, we could lose all of our rights under those agreements. If we were to have inadequate financial resources at that time, we also could be forced to reduce the level of, or discontinue, operations at our subsidiary.

Our New Obesity and Type 2 Diabetes Subsidiary May Not Be Able to Develop Products

In order to develop obesity and type 2 diabetes products, our new subsidiary will first need to identify appropriate drug targets and pathways. We will be using novel RNAi-based techniques to accelerate this process, but there is no assurance that these techniques will accelerate our work or that we will be able to identify highly promising targets or pathways using these techniques or otherwise. Even if we are successful in identifying targets or pathways, we will also need to develop proprietary molecules that are safe and effective against those targets. The development process and the clinical testing of potential products will take a lengthy period of time and involve expenditures substantially in excess of our current financial resources. We currently plan to seek a strategic alliance with a major pharmaceutical company at a relatively early stage in our development work to complete the development, clinical testing, manufacturing and marketing of our obesity and type 2 diabetes products, but we may not be able to secure such a strategic partner on attractive terms or at all. Furthermore, we do not have prior experience in operating a genomic and proteomic-based drug discovery company. Accordingly, we will be heavily dependent on the prior experience and current efforts of Dr. Michael P. Czech, the Chairman of the Scientific Advisory Board of our subsidiary, in establishing the scientific goals and strategies of our subsidiary, and Dr. Mark A. Tepper, the President of our subsidiary, in managing the operations of this subsidiary.

We Will Be Reliant Upon SynthRx to Develop and Commercialize FLOCOR

In October 2003, we entered into an agreement under which we will license FLOCOR and our other co-polymer technologies to SynthRx and acquire a 19.9% equity interest in that newly formed biopharmaceutical company. SynthRx has limited financial resources and will have to either raise significant additional capital or secure a licensee or strategic partner to complete the development and commercialization of FLOCOR and these other technologies. SynthRx does not have any commitments from third parties to provide the capital that it will require and there can be no assurance that it will be able to obtain this capital or a licensee or strategic partner on satisfactory terms or at all.

Our prior Phase III clinical trial of FLOCOR for the treatment of sickle cell disease patients experiencing an acute vaso-occlusive crisis did not achieve its primary objective. However, in that study, for patients 15 years of age and younger, the number of patients achieving a resolution of crisis was higher for FLOCOR-treated patients at all time periods than for placebo-treated patients, which may indicate that future clinical trials should focus on juvenile patients. To generate sufficient data to seek FDA approval for FLOCOR will require additional clinical studies, which will entail substantial time and expense for SynthRx.

The manufacture of FLOCOR involves obtaining new raw drug substance and a supply of the purified drug from the raw drug substance, which requires specialized equipment. Should SynthRx encounter difficulty in obtaining the purified drug substance in sufficient amounts or at acceptable prices, SynthRx may be unable to complete the development or commercialization of FLOCOR on a timely basis or at all.

If Our Products Are Not Successfully Developed and Approved by the FDA, We May Be Forced to Reduce or Terminate Our Operations

Each of our products is in the development stage and must be successfully developed and then approved by the FDA or similar foreign governmental agencies before it can be marketed. The process for obtaining FDA approval is both time-consuming and costly, with no certainty of a successful outcome. This process typically includes the conduct of extensive pre-clinical and clinical testing, which may take longer or cost more than we or our licensees currently anticipate, due to numerous factors such as:

• difficulty in securing centers to conduct trials

• difficulty in enrolling patients in conformity with required protocols or projected timelines

• unexpected adverse reactions by patients in trials

• difficulty in obtaining clinical supplies of the product

• changes in the FDA’s requirements for our testing during the course of that testing

• inability to generate statistically significant data confirming the efficacy of the product being tested

The RNAi and other technologies that we have acquired from UMMS have not yet been clinically tested by us, nor are we aware of any clinical trials having been conducted by third parties involving similar technologies. Successful development of RNAi-based products will require solving a number of issues, including providing suitable methods of stabilizing the RNAi drug material and delivering it into target cells in the human body.

In connection with the currently planned Phase I clinical trial being conducted by UMMS and ABL, we do not have a commercial relationship with a company that is providing an adjuvant for the HIV vaccine candidate, utilizing the technology that we have licensed from UMMS, that will be tested in that trial. We may be unable to use some or all of the results of that trial as part of our clinical data for obtaining FDA approval of this vaccine if we are unable or choose not to enter into an agreement to acquire the rights to use that third party’s adjuvant.

Our TranzFect technology is currently in Phase I clinical trials that are being conducted by our licensee, Merck, as a component of a vaccine to prevent AIDS. Since TranzFect is to be used as a component in vaccines, we do not need to seek FDA approval, but the vaccine manufacturer will need to seek FDA approval

for the final vaccine formulation containing TranzFect. Merck has completed a multi-center, blinded, placebo controlled Phase I trial of an HIV vaccine utilizing TranzFect as a component. Although the formulation of this tested vaccine was generally safe and well-tolerated and generated an immune response, the addition of TranzFect to the vaccine did not increase this immune response. Moreover, the DNA single-modality vaccine regimen with TranzFect when tested in humans yielded immune responses that were inferior to those obtained with the DNA vaccines in macaque monkeys.

We Are Unlikely to Recover Any Amounts from Global Genomics’ Portfolio Companies

Due to its inability to raise needed capital, Blizzard Genomics, Inc. (Blizzard), which was Global Genomics’ principal portfolio company, has been unable to complete the development of any of its products and has been notified by the licensor of its core technologies that it is in default under its license for those technologies. Global Genomics’ other portfolio company is at a very early stage, is operating without any full-time or salaried employees and has not been able to raise the capital it will need to fund its planned operations and to acquire licenses to certain technologies that it will require. Accordingly, it appears unlikely that either of Global Genomics’ portfolio companies will generate revenues for us in the future and, in 2003, we recorded a write-off of the carrying value of our investments in those companies.

We May Be Involved in Legal Proceedings That Could Affect Our Business Operations or Financial Condition

The Company may be involved, from time to time, in investigations and proceedings by governmental and self-regulatory agencies, certain of which could result in adverse judgments, fines, or other sanctions. We have recently been notified by the Massachusetts State Ethics Commission (Massachusetts Commission) that it has initiated a Preliminary Inquiry into whether our previous retention of a consultant who introduced us to UMass constituted an improper conflict of interest under Massachusetts’ ethics laws. Since the inquiry is at a very preliminary stage, it is inherently difficult to predict whether the Massachusetts Commission will decide to initiate any formal proceedings, whether these proceedings will be directed at us or whether we will be found in any such proceedings to have violated any Massachusetts ethics laws. We also cannot estimate what our legal costs will be in connection with this proceeding, although these expenses could be substantial if a formal proceeding is initiated. Moreover, if the Massachusetts Commission were to determine that our conduct was unlawful, the Commission could impose a number of different penalties or sanctions upon us which under certain circumstances would have a material adverse effect on our business and financial condition.

We Are Subject to Intense Competition That Could Materially Impact Our Operating Results

We and our strategic partners or licensees may be unable to compete successfully against our current or future competitors. The pharmaceutical, biopharmaceutical and biotechnology industry is characterized by intense competition and rapid and significant technological advancements. Many companies, research institutions and universities are working to develop new products in a number of areas similar to our primary fields of interest. There also is intense competition among companies seeking to acquire products that are already being marketed. Many of the companies with which we compete have, or are likely to have, substantially greater research and product development capabilities and financial, technical, scientific, manufacturing, marketing, distribution and other resources than we and at least some of our present or future strategic partners or licensees.

As a result, competitors may:

• succeed in developing competitive products earlier than we or our strategic partners or licensees

• obtain approvals for such products from the FDA or other regulatory agencies more rapidly than we or our strategic partners or licensees do

• develop or otherwise obtain patents that block or inhibit the development and commercialization of our product candidates

• develop treatments or cures that are safer or more effective than those we propose for our products

• devote greater resources to marketing or selling their products

• introduce or adapt more quickly to new technologies or scientific advances

• introduce products that make the continued development of our product candidates uneconomical

• withstand price competition more successfully than we or our strategic partners or licensees can

• more effectively negotiate third-party strategic alliances or licensing arrangements

• take advantage of product acquisition or other opportunities more readily than we can

A number of medical institutions and pharmaceutical companies are seeking to develop products based on gene silencing technologies. Companies working in this area include a number of biopharmaceutical companies such as Sirna Therapeutics, Inc., Alnylam, Inc. and Benitec Ltd., as well as the multinational pharmaceutical companies that either have their own gene silencing product development programs or are working in collaboration with smaller biopharmaceutical companies that are focused on this area. A number of products currently are being marketed by a variety of the multinational or other pharmaceutical companies for treating type 2 diabetes, including among others the diabetes drugs Avandia by Glaxo SmithKline PLC, Actos by Eli Lilly & Co., Glucophage by Bristol Myers Squibb Co., and Starlix by Novartis and the obesity drugs Xenical by F. Hoffman-La Roche Ltd. and Meridia by Abbott Laboratories. Many major pharmaceutical companies are also seeking to develop new therapies for these disease indications. Companies developing HIV vaccines that could compete with our HIV vaccine technology include Merck, VaxGen, Inc., Epimmune, Inc., AlphaVax, Inc. and Immunitor Corporation, and ABL may also seek to develop competing HIV vaccines that could utilize a portion of the technology that we have licensed from UMMS and ABL.

Although we do not expect FLOCOR to have direct competition from other products currently available or that we are aware of that are being developed related to FLOCOR’s ability to reduce blood viscosity in the cardiovascular area, there are a number of anticoagulant products that FLOCOR would have to compete against, such as tissue plasminogen activator (t-PA) and streptokinase (blood clot dissolving enzymes) as well as blood thinners such as heparin and coumatin, even though FLOCOR acts by a different mechanism to prevent damage due to blood coagulation. In the sickle cell disease area, FLOCOR would compete against companies that are developing or marketing other products to treat sickle cell disease, such as Droxia (hydroxyurea) marketed by Bristol-Myers Squibb Co. and Decitabine, which is being developed by SuperGen, Inc. Our TranzFect technology will compete against a number of companies that have developed adjuvant products, such as the adjuvant QS-21 marketed by Antigenics, Inc. and adjuvants marketed by Corixa Corp. Blizzard Genomics’ products, if ever developed, would compete with a number of currently marketed products, including those offered by Axon Instruments, Inc., Affymetrix, Inc., Applied Precision, LLC, Perkin Elmer, Inc. and Agilent Technologies, Inc.

We Do Not Have the Ability to Manufacture Any of Our Products and Will Need to Rely upon Third Parties for the Manufacture of Our Clinical and Commercial Product Supplies

We do not currently have the facilities or expertise to manufacture any of the clinical or commercial supplies of any of our products. Accordingly, we will be dependent upon contract manufacturers or our strategic alliance partners to manufacture these supplies, or we will need to acquire the ability to manufacture these supplies ourselves, which could be very difficult, time-consuming and costly. We do not have manufacturing supply arrangements for our products, including any of the licensed RNAi technology or, with the exception of the clinical supplies for the currently planned Phase I trial, the HIV vaccine product that utilizes the HIV vaccine technology that we have licensed from UMMS. There can be no assurance that we will be able to secure needed manufacturing supply arrangements, or acquire the ability to manufacture the products ourselves, on attractive terms or at all. Delays in, or a failure to, secure these arrangements or abilities could have a materially adverse effect on our ability to complete the development of our products or to commercialize them.

We May Be Unable to Obtain or Protect Our Intellectual Property Rights, Which Could Adversely Affect the Value of Our Assets

Obtaining and maintaining patent and other intellectual property rights for our technologies and potential products is critical to establishing and maintaining the value of our assets and our business. Although we believe that we have significant patent coverage for our TranzFect technologies, there can be no assurance that this coverage will be broad enough to prevent third parties from developing or commercializing similar or identical technologies, that the validity of our patents will be upheld if challenged by third parties or that our technologies will not be deemed to infringe the intellectual property rights of third parties. We have a non-exclusive license to a patent owned by UMMS and the Carnegie Institution of Washington that covers the general field of gene silencing. The specific medical applications of the gene silencing technology and the other technologies that we have licensed from the UMMS are covered by a number of pending patent applications, but there can be no assurance that any of these patents will be issued. Moreover, other organizations and researchers have been active in the field of gene silencing, many patent applications covering different methods and compositions in the field of RNAi therapeutics have been and are expected to be filed, and certain organizations or researchers may hold or seek to obtain patents that could make it more difficult or impossible for us to develop products based on the gene silencing technology that we have licensed. At least one of our competitors is seeking broad patent coverage in the RNAi field that could restrict the ability of others to develop certain RNAi-based therapeutics.

Any litigation brought by us to protect our intellectual property rights or by third parties asserting intellectual property rights against us could be costly and have a material adverse effect on our operating results or financial condition, make it more difficult for us to enter into strategic alliances with third parties to develop our products, or discourage our existing licensees from continuing their development work on our potential products. If our patent coverage is insufficient to prevent third parties from developing or commercializing similar or identical technologies, the value of our assets is likely to be materially and adversely affected.

We are sponsoring research at UMMS and Massachusetts General Hospital under agreements that give us certain rights to acquire licenses to inventions that arise from that research and we may enter into additional research agreements with those institutions, or others, in the future. There can be no assurance, however, that we will be able to acquire those licenses under satisfactory terms or at all.

We May Incur Substantial Costs from Future Clinical Testing or Product Liability Claims

If any of our products are alleged to be defective, they may expose us to claims for personal injury by patients in clinical trials of our products or by patients using our commercially marketed products. Even if the commercialization of one or more of our products is approved by the FDA, users may claim that such products caused unintended adverse effects. We currently do not carry product liability insurance covering the use of our products in human clinical trials or the commercial marketing of these products, but anticipate that our licensees who are developing our products will carry liability insurance covering the clinical testing and marketing of those products. We may, in the future, seek to obtain clinical trial or product liability insurance for trials that we sponsor or products that we market, although there can be no assurance that we will be able to obtain this insurance at economically attractive rates or at all. However, if someone asserts a claim against us and the insurance coverage of our licensees or their other financial resources are inadequate to cover a successful claim, such successful claim may exceed our financial resources and cause us to discontinue operations. Even if claims asserted against us are unsuccessful, they may divert management’s attention from our operations and we may have to incur substantial costs to defend such claims.

Our Anti-Takeover Provisions May Make It More Difficult to Change Our Management or May Discourage Others from Acquiring Us and, Thereby, Adversely Affect Stockholder Value

We have a stockholder rights plan and provisions in our bylaws that may discourage or prevent a person or group from acquiring us without the approval of our board of directors. The intent of the rights plan and our

bylaw provisions is to protect our stockholders’ interests by encouraging anyone seeking control of our company to negotiate with our board of directors.

We have a classified board of directors, which requires that at least two stockholder meetings, instead of one, will be required to effect a change in the majority control of our board of directors. This provision applies to every election of directors, not just an election occurring after a change in control. The classification of our board increases the amount of time it takes to change majority control of our board of directors and may cause potential purchasers to lose interest in the potential to purchase us, regardless of whether our purchase would be beneficial to us or our stockholders. The additional time and cost to change a majority of the members of our board of directors makes it more difficult and may discourage our existing stockholders from seeking to change our existing management in order to change the strategic direction or operational performance of our company.

Our bylaws provide that directors may only be removed for cause by the affirmative vote of the holders of at least a majority of the outstanding shares of our capital stock then entitled to vote at an election of directors. This provision prevents stockholders from removing any incumbent director without cause. Our bylaws also provide that a stockholder must give us at least 120 days notice of a proposal or director nomination that such stockholder desires to present at any annual meeting or special meeting of stockholders. Such provision prevents a stockholder from making a proposal or director nomination at a stockholder meeting without our having advance notice of that proposal or director nomination. This could make a change in control more difficult by providing our directors with more time to prepare an opposition to a proposed change in control. By making it more difficult to remove or install new directors, the foregoing bylaw provisions may also make our existing management less responsive to the views of our stockholders with respect to our operations and other issues such as management selection and compensation.

Our Outstanding Options and Warrants and the Registrations of Our Shares Issued in the Global Genomics Merger and Our Recent Private Financings May Adversely Affect the Trading Price of Our Common Stock

As of December 31, 2003, there were outstanding stock options and warrants to purchase 10,130,119 shares of our common stock at exercise prices ranging from $0.01 to $7.75 per share. Our outstanding options and warrants could adversely affect our ability to obtain future financing or engage in certain mergers or other transactions, since the holders of options and warrants can be expected to exercise them at a time when we may be able to obtain additional capital through a new offering of securities on terms more favorable to us than the terms of outstanding options and warrants. For the life of the options and warrants, the holders have the opportunity to profit from a rise in the market price of our common stock without assuming the risk of ownership. To the extent the trading price of our common stock, at the time of exercise of any such options or warrants, exceeds the exercise price, such exercise will also have a dilutive effect to our stockholders.

In August 2003, we registered a total of 14,408,252 shares of our outstanding common stock and an additional 3,848,870 shares of our common stock issuable upon exercise of outstanding options and warrants, which shares and options and warrants were issued primarily in connection with our merger with Global Genomics and the $5,440,000 private equity financing that we completed in May 2003. In December 2003, we registered a total of 6,113,448 shares of our common stock, consisting of the 5,175,611 shares we issued or that are issuable upon exercise of the warrants that we issued to the investors in connection with the $8,695,000 private equity financing in September 2003, and an additional 937,837 shares of our common stock that we issued or that are issuable upon the exercise of warrants having exercise prices ranging from $2.00 to $3.05 per share that we issued to certain other third parties. Both the availability for public resale of these various shares and the actual resale of these shares could adversely affect the trading price of our common stock.

We May Experience Volatility in Our Stock Price, Which May Adversely Affect the Trading Price of Our Common Stock

The market price of our common stock has experienced significant volatility in the past and may continue to experience significant volatility from time to time. Our stock price has ranged from $0.21 to $3.74 over the past three years. Factors such as the following may affect such volatility:

• our quarterly operating results

• announcements of regulatory developments or technological innovations by us or our competitors

• government regulation of drug pricing

• developments in patent or other technology ownership rights

• public concern regarding the safety of our products

Other factors which may affect our stock price are general changes in the economy, financial markets or the pharmaceutical or biotechnology industries.


Item 7A.	*Quantitative and Qualitative Disclosures About Market Risk*

Our exposure to market risk is limited primarily to interest income sensitivity, which is affected by changes in the general level of United States interest rates, particularly because a significant portion of our investments are in short-term debt securities issued by the U.S. government and institutional money market funds. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income received without significantly increasing risk. Due to the nature of our short-term investments, we believe that we are not subject to any material market risk exposure. We do not have any derivative financial instruments.


Item 8.	*Financial Statements and Supplementary Data*

Our consolidated financial statements and supplemental schedule and notes thereto as of December 31, 2003 and 2002, and for each of the three years ended December 31, 2003, 2002 and 2001, together with the independent auditors’ reports thereon, are set forth on pages F-1 to F-23 of this Annual Report.

Blizzard Genomics’ financial statements and the notes thereto as of December 31, 2003 and 2002, and for each of the three years ended December 31, 2003, 2002, and 2001 and the period from December 1, 1999 (date of inception) to December 31, 2003, together with the independent auditors’ reports thereon are set forth on pages F-25 to F-41 of this Annual Report.


Item 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure*

Effective as of January 20, 2004, the Audit Committee of our Board of Directors dismissed Ernst & Young LLP (“E&Y”) as our independent auditors. Effective as of January 30, 2004, the Audit Committee of our Board of Directors engaged PricewaterhouseCoopers LLP (“PwC”) as our new independent auditors. During the years ended December 31, 2002 and December 31, 2001 and the subsequent period through January 30, 2004, neither we nor anyone on our behalf consulted with PwC regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed or the type of audit opinion that might be rendered on our financial statements, and either a written report was provided to us or oral advice was provided that PwC concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions thereof, or a reportable event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K.

On April 12, 2004, the Audit Committee of our Board of Directors dismissed PwC as our independent auditors. PwC was dismissed prior to completing its audit procedures and did not issue any report on our financial statements. On April 14, 2004, the Audit Committee engaged BDO Seidman, LLP (“BDO”) to serve as our independent auditors and to audit our financial statements for the year ended December 31, 2003.

Based on our desire to have the audit of these financial statements completed in as expeditious a fashion as possible, our Audit Committee had concluded that it was in our best interests to dismiss PwC and to engage new independent accountants to complete the audit of these financial statements.

During the period from January 30, 2004 through April 12, 2004, there had been no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of PwC would have caused it to make reference thereto in its report had it completed an audit and issued a report on our financial statements, except as disclosed in the sixth paragraph below. In addition, for the same period, there had been no reportable events (as defined in Regulation S-K Item 304(a)(1)(v)), except as described in the sixth paragraph below.

As previously reported in our Current Report on Form 8-K that was filed on April 1, 2004, we were unable to file this Annual Report by the extended April 14, 2004 deadline for that filing. Our Form 8-K also indicated that we were reviewing, with the assistance of PwC, the accounting treatment of our July 2002 acquisition of Global Genomics and Global Genomics’ assets at the time of its merger with us, which included Global Genomics and its existing investments in two genomics companies, Blizzard and Psynomics. These investments had an aggregate carrying value on our financial statements, as of September 30, 2003, of approximately $5.87 million. This accounting review delayed the completion of our financial statements for the year ended December 31, 2003 and, therefore, the filing of this Annual Report.

Although we had previously disclosed, in our Current Report on Form 8-K dated January 16, 2004, that we would write off our investments in the two genomics companies in the quarter ended December 31, 2003, the following principal issues were identified during our accounting review:

(a) whether a portion of the purchase price in our July 2002 merger with Global Genomics (accounted for as a purchase of a group of assets, not a business combination) should have been allocated to an acquired assembled workforce, which would have reduced the amount of the purchase price allocated to the Blizzard and Psynomics investments ($7,309,000 and $78,000, respectively) and whether the amount originally determined to be the fair value of the Blizzard investment was overstated, and

(b) whether an other-than-temporary impairment charge should have been taken by us against the appropriate carrying value of the Blizzard investment earlier than in the fourth quarter of 2003.

The resolution of these issues in a manner that would result in a different accounting than originally reported would have had no effect on our cash or working capital position for any accounting period nor would it have had a material effect on our net worth as of December 31, 2003. One possible resolution could, however, have resulted in our net loss for the year ended December 31, 2002 being materially larger than that reported by us in our financial statements for that year and in our reporting a net worth significantly lower than the net worth we reported in our financial statements for that year. Such a resolution, in turn, could have required a restatement of those financial statements as well as our unaudited financial statements for the quarterly periods ended March 31, 2003, June 30, 2003 and September 30, 2003. Other possible resolutions could have resulted in the recognition of an other-than-temporary impairment charge in an earlier 2003 quarter and could have required a restatement of our unaudited financial statements for that and any subsequent quarter(s). However, the impact of the resolution of these issues on our net loss for the year ended December 31, 2002 and/or subsequent periods were not readily estimable by us because it would have depended on the amount of the purchase price to be allocated to other assets and the nature of those assets and the valuation of our investment in Blizzard as of December 31, 2002 and as of the end of each of the three subsequent quarters, each of which would be dependent upon various assumptions and valuation methods.

Based upon the issues raised by PwC we thoroughly re-reviewed, in late March and early April 2004, the prior accounting treatment for the Global Genomics acquisition and the Blizzard investment. This review included, among other things, (i) our submission of additional documentation to PwC, (ii) discussions of these issues by our Audit Committee with PwC, (iii) discussions between PwC and us, (iv) discussions between E&Y and us and (v) the retention of a nationally respected valuation firm to review certain of the methodologies that were used by us in connection with the purchase price allocation for Global Genomics, including amounts, if any, that would be attributable to an acquired assembled workforce and methodologies utilized in our other-than-temporary impairment analyses and to assess what amount of the

purchase price for Global Genomics could appropriately have been attributable to an acquired assembled work force, if any.

Following our re-review of the accounting treatment for the purchase price for the Global Genomics merger and the carrying value of the Blizzard investment, we advised PwC, in early April 2004, that we continued to believe that the prior accounting treatment was correct in all material respects. We also advised PwC that our valuation firm had concluded that, even if any amount were to be allocated to an acquired assembled workforce, the valuation of such an acquired workforce would be only $250,000.

During the course of its engagement PwC informed us that it disagreed with the timing of the fourth quarter 2003 other-than-temporary impairment charge that we had recorded related to our investment in Blizzard. PwC also informed us that PwC needed to significantly expand the scope of its audit procedures with respect to the matters identified in (a) and (b) above, including procedures designed to understand the impact, if any, of certain third party comments regarding indicators of value, and that it had not completed audit procedures regarding the nature and timing of our impairment of Blizzard and the original purchase price allocation upon our acquisition of Global Genomics in 2002.

E&Y’s report on our financial statements for the years ended December 31, 2001 and December 31, 2002 did not contain any adverse opinion or a disclaimer of an opinion or any qualification as to uncertainty, audit scope or accounting principles. In connection with E&Y’s audits for those years there were no “disagreements” or “reportable events” as defined in Item 304 of Regulation S-K, except as described in this paragraph. However, we were informed by E&Y, in April 2004, that, until such time as the impact of the third party comments regarding indicators of value concerning Blizzard, referred to by PwC, were further evaluated, E&Y was not able to conclude as to whether the prior accounting treatment was appropriate in all material respects. E&Y advised us that, depending upon the outcome of those procedures, the financial statements for the year ended December 31, 2002, audited by E&Y, or the unaudited interim financial statements for the quarters ended March 31, June 30, and September 30, 2003, might require restatement. However, at no time did E&Y withdraw its opinion on our 2002 audited financial statements.

A special committee of our Audit Committee subsequently performed an evaluation of the impact of the third party comments regarding indicators of value concerning Blizzard. This special committee concluded that we did not withhold from E&Y any documents that would have changed the conclusions reached by E&Y relative to the carrying value of Blizzard and its audit of our financial statements. After reviewing this evaluation, E&Y advised us that it had concluded that our audited 2002 financial statements and our unaudited interim financial statements for the quarters ended March 31, 2003 and June 30, 2003 did not require any restatement.

During our two fiscal years ended December 31, 2002 and December 31, 2003 and the interim period through the date of our engagement of BDO to perform the audit of our financial statements for the year ended December 31, 2003, we did not consult with BDO regarding (i) the application of accounting principles to a specified transaction, either completed or proposed or the type of audit opinion that might be rendered on our financial statements, and either a written report was provided to us or oral advice was provided that BDO concluded was an important factor considered by us in reaching a decision as to an accounting, auditing or financial reporting issue or (ii) any matter that was either the subject of a disagreement (as defined in paragraph 304(a)(1)(iv) of Regulation S-K and the related instructions to this item) or a reportable event (as described in paragraph 304(a)(1)(v) of Regulation S-K), except as follows:

(a) On April 3, 2004, our Audit Committee engaged BDO to perform an extensive number of specified procedures with respect to our financial statements for the year ended December 31, 2003 which did not constitute an examination or review of those financial statements but which would assist BDO in completing an audit of those financial statements in a timely fashion in the event the Audit Committee subsequently engaged BDO to audit those financial statements. Subsequent to engaging BDO to perform these preliminary procedures, we consulted with BDO concerning the need to include separate audited financial statements of Blizzard in this Annual Report. BDO orally advised us that separate audited Blizzard financial statements were required to be included in this Annual Report. This advice was consistent with the advice previously received by us from PwC on this issue, no disagreement on this issue

existed between PwC and us, and we subsequently filed these financial statements in this Annual Report, together with our financial statements.

(b) During the course of BDO’s performance of the above preliminary procedures, we did not solicit or receive any oral or written opinion from BDO with respect to the proper accounting treatment for the allocation of the purchase price paid by us in connection with its merger with Global Genomics or the subsequent carrying value of our investment in Blizzard. However, we did discuss with BDO our views on the proper accounting treatment for these items and provided BDO with certain of our accounting records, a valuation analysis prepared by a valuation firm in 2002 utilized by management in connection with its allocation of the purchase price for the Global Genomics merger and an analysis prepared in April 2004 by another valuation firm covering certain aspects of the allocation of that purchase price and the subsequent carrying value of Blizzard.


Item 9A.	*Controls and Procedures*

An evaluation was performed by our management team, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2003 to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2003, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART III


Item 10.	*Directors and Executive Officers of the Registrant*

The following table provides information concerning our directors and executive officers:


			Class of
Name	Age		Directors(1)		Position

Steven A. Kriegsman		62		II	Director, Chief Executive Officer, President
Alexander L. Cappello		48		III	Director
Louis Ignarro, Ph.D.		62		I	Director
Max Link		63		III	Director, Chairman(2)
C. Kirk Peacock		36		—	Chief Financial Officer, Treasurer(3)
Joseph Rubinfeld, Ph.D.		71		I	Director(2)
Marvin R. Selter		76		II	Director(2)
Mark A. Tepper, Ph.D.		46		—	Vice President; President, CytRx Laboratories, Inc.
Richard L. Wennekamp		61		II	Director(2)

(1) Class I directors serve on the Board of Directors until the 2004 annual meeting of stockholders, Class II directors serve on the Board of Directors until the 2005 annual meeting of stockholders and Class III directors serve on the Board of Directors until the 2006 annual meeting of stockholders.

(2) These directors constitute the four members of the Company’s Audit Committee. Marvin R. Selter is the Chairman of the Audit Committee.

(3) Mr. Peacock will continue to serve as our Chief Financial Officer and Treasurer until June 15, 2004.

Steven A. Kriegsman has been a director and our Chief Executive Officer since July 2002. He previously served as a director and the Chairman of Global Genomics since June 2000. Mr. Kriegsman is Chairman and founder of Kriegsman Capital Group LLC, a financial advisory firm specializing in the development of alternative sources of equity capital for emerging growth companies. Mr. Kriegsman has advised such companies as Closure Medical Corporation, Novoste Corporation, Miravant Medical Technologies, Maxim Pharmaceuticals and Supergen Inc. Mr. Kriegsman has a B.S. degree from New York University in accounting and completed the Executive Program in Mergers and Acquisitions at New York University, The Management Institute. Mr. Kriegsman serves as a director of Bradley Pharmaceuticals, Inc.

Alexander L. Cappello has been a director since January 2001. Since 1981, Mr. Cappello has served as Chairman of Cappello Group, Inc. Mr. Cappello has been active in the investment banking, merchant banking, project finance and venture capital arena since 1975. Prior to his current role with Cappello Group Inc., he was the founder of both Swiss American Financial and Euro American Financial Corp., two merchant and investment banking firms that progressively expanded operations throughout North America and Europe. Mr. Cappello’s early career experience was in sales with IBM and corporate finance with Union Bank of California. Mr. Cappello also serves as a director of Advanced Biotherapy, Inc.

Louis Ignarro, Ph.D. has been a director since July 2002. He previously served as a director of Global Genomics since November 20, 2000. Dr. Ignarro serves as the Jerome J. Bezler, M.D. Distinguished Professor of Pharmacology in the Department of Molecular and Medical Pharmacology at the UCLA School of Medicine. Dr. Ignarro has been at the UCLA School of Medicine since 1985 as a professor, acting chairman and assistant dean. Dr. Ignarro received the Nobel Prize for Medicine in 1998. Dr. Ignarro received a B.S. in pharmacy from Columbia University and his Ph.D. in Pharmacology from the University of Minnesota.

Max Link has been a director since 1996. Dr. Link has been retired from business since 1994. From May 1993 to June 1994, Dr. Link served as the Chief Executive Officer of Corange U.S. Holdings, Inc. (the holding company for Boehringer Mannheim Therapeutics, Boehringer Mannheim Diagnostics and DePuy International). From 1992 to 1993, Dr. Link was Chairman of Sandoz Pharma, Ltd.. From 1987 to 1992, Dr. Link was the Chief Executive Officer of Sandoz Pharma and a member of the Executive Board of Sandoz, Ltd., Basel. Prior to 1987, Dr. Link served in various capacities with the United States operations of Sandoz, including President and Chief Executive Officer. Dr. Link also serves as a director of Access Pharmaceuticals, Inc., Alexion Pharmaceuticals, Inc., Cell Therapeutics, Inc., Celsion Corporation, Columbia Laboratories, Inc., Discovery Laboratories, Inc., Human Genome Sciences, Inc. and Protein Design Laboratories, Inc.

C. Kirk Peacock has been our Chief Financial Officer since August 2003. From December 2001 to March 2003, he was the Chief Financial Officer and Vice President of Operations at DigitalMed, Inc., a venture-backed subsidiary of Tenet Healthcare, the second largest U.S. healthcare provider. Prior to that, from October 2000 to July 2001, he was Chief Financial Officer at Ants.com, Inc., a venture-backed enterprise software concern, and Director-Accounting of Global Crossing Ltd. from February 1999 to October 2000. He also was the Controller at Equity Marketing, Inc. from August 1997 to February 1999. Mr. Peacock is a CPA who worked at Arthur Andersen LLP until August 1997.

Joseph Rubinfeld, Ph.D. has been a director since July 2002. He co-founded SuperGen, Inc. in 1991 and has served as its Chief Executive Officer and President and as a director since its inception. Dr. Rubinfeld was also Chief Scientific Officer of SuperGen from 1991 until September 1997. Dr. Rubinfeld was one of the four initial founders of Amgen, Inc. in 1980 and served as a Vice President and its Chief of Operations until 1983. From 1987 until 1990, Dr. Rubinfeld was a Senior Director at Cetus Corporation and from 1968 to 1980, Dr. Rubinfeld was employed at Bristol-Myers Company, International Division in a variety of positions. Dr. Rubinfeld is a member of the board of directors of AVI BioPharma, Inc. and NeoTherapeutics, Inc. Dr. Rubinfeld received a BS degree in chemistry from C.C.N.Y. and a M.A. and Ph.D. in chemistry from Columbia University.

Marvin R. Selter has been a director since October 2003. He has been the President of CMS, Inc. since he founded that firm in 1968. CMS, Inc. is a national management consulting firm. Mr. Selter serves on the Executive Committee of the SFV Economic Alliance, is Chairman of the Valley Economic Development Center, is a member of the Business Tax Advisory Committee-City of Los Angeles, and is a member of the

Small Business Board and Small Business Advisory Commission-State of California. He has served, and continues to serve, as a member of boards of directors of various hospitals, universities, private medical companies and other organizations. Mr. Selter attended Rutgers University and majored in Accounting and Business Administration.

Mark A. Tepper, Ph.D. is the President and co-founder of our subsidiary CytRx Laboratories (formerly Araios, Inc.) and our Corporate Vice President since September 2003. From November 2002 to August 2003, he served as an independent pharmaceutical consultant. Prior to that, from April 2002 to October 2002, he served as President and CEO of Arradial, Inc., an Oxford Biosciences Venture-backed company developing a novel microfluidics based drug discovery platform. From April 1995 to March 2002, Dr. Tepper served in a number of senior management roles at Serono including Vice President, Research and Operations for the US Pharmaceutical Research Institute and Executive Director of Lead Discovery. From 1988 to 1995, Dr. Tepper was Sr. Research Investigator at the Bristol Myers Squibb Pharmaceutical Research Institute where he worked on the discovery and development of novel drugs in the area of Oncology and Immunology. Prior to that, Dr. Tepper was a post-doctoral fellow at the University of Massachusetts Medical School in the laboratory of Dr. Michael Czech. Dr. Tepper received a B.A. in Chemistry from Clark University with highest honors, and a Ph.D. in Biochemistry and Biophysics from Columbia University.

Richard L. Wennekamp has been a director since October 2003. He has been the Senior Vice President-Credit Administration of Community Bank since October 2002. From September 1998 to July 2002, Mr. Wennekamp was an executive officer of Bank of America Corporation, holding various positions, including Managing Director-Credit Product Executive for the last four years of his 22-year term with the bank. From 1977 through 1980, Mr. Wennekamp was a Special Assistant to former President of the United States, Gerald R. Ford, and the Executive Director of the Ford Transition Office. Prior thereto, he served as Staff Assistant to the President of the United States for one year, and as the Special Assistant to the Assistant Secretary of Commerce of the U.S.

The Board of Directors has determined that Max Link, Joseph Rubinfeld, Marvin Selter and Richard Wennekamp are independent, under the current independence standards of both the Nasdaq Stock Market and the Securities and Exchange Commission, and have no material relationships with us (either directly or as a partner, shareholder or officer of any entity) which could be inconsistent with a finding of their independence as members of our Board of Directors or as the members of our Audit Committee. In making these determinations, the Board of Directors has broadly considered all relevant facts and circumstances, recognizing that material relationships can include commercial, banking, consulting, legal, accounting, and familial relationships, among others.

The Board of Directors has determined that Marvin R. Selter is an independent director serving on the Audit Committee who is an audit committee financial expert as defined by the SEC’s rules.

Section 16(a) Beneficial Ownership Reporting Compliance

Our executive officers and directors and any person who owns more than 10% of our outstanding shares of common stock are required by Section 16(a) of the Securities Exchange Act to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and to furnish us with copies of those reports. Based solely on our review of copies of reports we have received and written representations from certain reporting persons, we believe that all Section 16(a) filing requirements applicable to our directors and executive officers and greater than 10% shareholders for 2003 were complied with, except as follows:

Messrs. Ignarro, Rubinfeld, Link and Cappello, directors of the Company, each did not file a timely report on Form 4 of a grant to each of them of stock options. As to Mr. Cappello, the late filing included two grants of warrants that would otherwise have been filed on two additional reports. Messrs. McDade and Carnahan, former directors of the Company, each did not file a timely report on Form 4 of a grant to each of them of stock options. Forms 3 and/or 4 reporting each of the above transactions were subsequently filed by these individuals.

Code of Ethics

We have adopted a Code of Ethics applicable to our principal executive officer, principal financial officer, and principal accounting officer or controller, a copy of which is filed as an exhibit to this Form 10-K.


Item 11.	*Executive Compensation*

Summary Compensation Table

The following table presents summary information concerning compensation paid or accrued by us for services rendered in all capacities during the fiscal years ended December 31, 2001, 2002 and 2003 for our President and Chief Executive Officer.


								Long-Term
								Compensation

								Securities
								Underlying		All Other
Name and Principal Position	Year			Salary		Bonus		Options (#)		Compensation

Steven A. Kriegsman		2003		$	313,772	$	150,000		1,000,000	$	—
President and Chief Executive Officer		2002	(1)		110,000		—		—		—
		2001	(1)	$	—	$	—		—	$	—

(1) Mr. Kriegsman has been our Chief Executive Officer since July 2002.

Option Grants in Last Fiscal Year

As a bonus for his services under his prior employment agreement with us, Mr. Kriegsman was granted as of June 20, 2003 a fully vested ten-year, nonqualified option under the 2000 Long-Term Incentive Plan to purchase 250,000 shares of our common stock at a price of $2.47 per share. As an incentive to enter into the amended and restated employment agreement, Mr. Kriegsman was granted as of June 20, 2003 a ten-year, nonqualified option under the Plan to purchase 750,000 shares of our common stock at a price of $2.47 per share.

The following table contains information concerning grants of stock options during the fiscal year ended December 31, 2003 to the named executive officer listed in the Summary Compensation Table.

Option Grants in Twelve Months Ended December 31, 2003

Individual Grants

Potential Realized Value at

Number of

% of Total

Assumed Annual Rates of

Shares

Options

Stock Price Appreciation for

Underlying

Granted to

Option Term(2)

Options

Employees In

Exercise

Name

Granted(1)

Fiscal Year

Price

10%

Steven A. Kriegsman

1,000,000

71.2

2.47

1,553,370

6,114,908

(1) Options to purchase 250,000 shares vested on the date of grant. The options to purchase up to 750,000 shares will vest as to 250,000 shares of common stock on June 20, 2004 and will vest as to the remaining 500,000 shares in monthly installments of 1/24th each on the 20th day of each month thereafter, provided that Mr. Kriegsman remains in our continuous employ.

(2) The potential realizable value shown in this table represents the hypothetical gain that might be realized based on assumed 5% and 10% annual compound rates of stock price appreciation over the full option term. These prescribed rates are not intended to forecast possible future appreciation of the common stock.

Fiscal Year-End Option Values

The following table sets forth the number of options and total value of unexercised in-the-money options and warrants at December 31, 2003 for the executive officer named in the Summary Compensation Table

above, using the price per share of our common stock of $1.86 on December 31, 2003. No stock options were exercised during 2003 by the named executive officer listed in the Summary Compensation Table above. The following table includes warrants issued to Steven A. Kriegsman by Global Genomics prior to our merger with that company that have been assumed by us covering 459,352 shares of our common stock.

Number of Securities

Value of Unexercised

Underlying Unexercised Options

In-the-Money Options at

at December 31, 2003 (#)

December 31, 2003 ($)

Name

Exercisable

Unexercisable

Exercisable

Unexercisable

Steven A. Kriegsman

709,352

750,000

849,801

—

Compensation of Directors

Periodically, our Board of Directors reviews the then-current director compensation policies and, from time to time, makes changes to such policies based on various criteria the Board deems relevant. Directors who are employees of our company receive no compensation for their service as directors or as members of Board committees.

For the period January 1, 2003 to December 31, 2003, non-employee directors received a quarterly retainer of $1,500 and a fee of $1,500 for each Board meeting attended ($750 for meetings attended by teleconference and for Board actions taken by unanimous written consent) and $750 for each committee meeting attended. Non-employee directors who chair the Board or a Board committee receive an additional $250 for each meeting attended as the chair. During 2003, a payment of $2,500 was made to Raymond Carnahan, formerly the Chairman of our Audit Committee, in connection with internal auditing services provided to that committee. Options to purchase 10,000 shares of common stock are granted to each non-employee director annually. Such option grants are made subject to vesting in annual increments of one-third each.

Employment Agreements; Change in Control Agreements


	*Employment Agreement with Steven A. Kriegsman.*

Steven A. Kriegsman became our Chief Executive Officer on July 16, 2002 pursuant to a one-year employment agreement with us. Mr. Kriegsman’s employment agreement with us was amended and restated as of June 10, 2003 to continue through July 15, 2006. The employment agreement will automatically renew in July 2006 for an additional one-year period, unless either Mr. Kriegsman or we elect not to renew it.

Under his prior employment agreement with us, Mr. Kriegsman was permitted to serve as the President of the Kriegsman Capital Group and its affiliates, otherwise known as The Kriegsman Group. Pursuant to Mr. Kriegsman’s amended and restated employment agreement with us, we have agreed that he shall serve on a full-time basis as our Chief Executive Officer and that he may continue to serve as President of The Kriegsman Group only so long as necessary to complete certain current assignments.

Under his prior employment agreement with us, Mr. Kriegsman was paid an annual base salary of $240,000. Under our amended and restated employment agreement with Mr. Kriegsman, effective July 16, 2003 his annual base salary was increased to $360,000. Our Board of Directors (or its Compensation Committee) will review the base salary annually and may increase (but not decease) the base salary at its sole discretion. In addition to his annual base salary, Mr. Kriegsman is eligible to receive an annual bonus, determined by our Board of Directors (or its Compensation Committee) in its sole discretion, but not to be less than $150,000. As a bonus for his services under his prior employment agreement with us, Mr. Kriegsman was paid a cash bonus of $150,000 on June 16, 2003.

share. This option will vest as to 1/3rd of the shares covered thereby on June 20, 2004 and will vest as to the remaining 2/3rds of such shares in monthly installments of 1/24 each on the 20th day of each month thereafter, provided that Mr. Kriegsman remains in our continuous employ.

Mr. Kriegsman is also eligible to receive additional grants of options to purchase shares of our common stock. The number and terms of those options, including the vesting schedule, will be determined by our Board of Directors (or its Compensation Committee) in its sole discretion.

In the event we terminate Mr. Kriegsman’s employment without “cause” (as defined), or if Mr. Kriegsman terminates his employment with “good reason” (as defined), (i) we have agreed to pay Mr. Kriegsman a lump-sum equal to his salary and prorated minimum annual bonus through to his date of termination, plus his salary and minimum annual bonus for a period of two years after his termination date, or until the expiration of the amended and restated employment agreement, whichever is later, (ii) he will be entitled to immediate vesting of all stock options or other awards based on our equity securities, and (iii) he will also be entitled to continuation of his life insurance premium payments and continued participation in any of our health plans through to the later of the expiration of the amended and restated employment agreement or 24 months following his termination date. Mr. Kriegsman will have no obligation in such events to seek new employment or offset the severance payments to him by the Company by any compensation received from any subsequent reemployment by another employer.

Under Mr. Kriegsman’s amended and restated employment agreement with us, he and The Kriegsman Group are to provide us during the term of his employment with the first opportunity to conduct or take action with respect to any acquisition opportunity or any other potential transaction identified by them within the biotech, pharmaceutical or health care industries and that is within the scope of the business plan adopted by our Board of Directors. Mr. Kriegsman’s amended and restated employment agreement with us also contains confidentiality provisions relating to our trade secrets and any other proprietary or confidential information, which provisions shall remain in effect for five years after the expiration of the employment agreement with respect to proprietary or confidential information and for so long as our trade secrets remain trade secrets.


	*Change in Control Agreement with Steven A. Kriegsman.*

Mr. Kriegsman’s amended and restated employment agreement with us contains no provision for payment to him in the event of a change in control of CytRx. If, however, a change in control (as defined in our 2000 Long-Term Incentive Plan) occurs during the term of the amended and restated employment agreement, and if, during the term and within two years after the date on which the change in control occurs, Mr. Kriegsman’s employment is terminated by us without cause or by him for good reason, then, to the extent that any payment or distribution of any type to or for Mr. Kriegsman by us resulting from the termination of his employment is or will be subject to the excise tax (“Excise Tax”) imposed under Section 4999 of the Internal Revenue Code of 1986, as amended, we have agreed to pay Mr. Kriegsman, prior to the time the Excise Tax is payable with respect to any such payment (through withholding or otherwise), an additional amount that, after the imposition of all income, employment, excise and other taxes, penalties and interest thereon, is equal to the sum of (i) the Excise Tax on such payments plus (ii) any penalty and interest assessments associated with such Excise Tax.

Compensation Committee Interlocks and Insider Participation in Compensation Decisions

There are no “interlocks,” as defined by the SEC, with respect to any member of the compensation committee. Joseph Rubinfeld, Ph.D., Marvin R. Selter and Richard L. Wennekamp are the current members of the compensation committee.


Item 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

The following table sets forth certain information as of December 31, 2003 regarding securities authorized for issuance under our equity compensation plans. This table excludes warrants previously issued to

Steven A. Kriegsman by Global Genomics that we assumed in connection with our merger with Global Genomics.


						(c)
		(a)				Number of securities
		Number of securities		(b)		remaining available
		to be issued upon		Weighted-average		for issuance under
		exercise of outstanding		exercise price of		equity compensation
		options, warrants		outstanding options,		plans (excluding securities
		and rights		warrants and rights		reflected in column (a))

Plan Category
Equity compensation plans approved by our stockholders:
	1994 Stock Option Plan		40,834	$	1.80		60,850
	1995 Stock Option Plan		—		—		22,107
	1998 Long-Term Incentive Plan		132,541	$	1.00		29,517
	2000 Long-Term Incentive Plan		1,604,667	$	2.00		6,270,702
Equity compensation plans not approved by our stockholders:
	Outstanding Warrants(1)		6,892,725	$	1.72		—

Total:			8,670,767	$	1.76		6,383,176

(1) Issued as compensation for various services.

Based solely upon information made available to us, the following table sets forth information with respect to the beneficial ownership of our common stock as of April 20, 2004 by (1) each person who is known by us to beneficially own more than five percent of the common stock; (2) each director and nominee for director; (3) the named executive officer listed in the Summary Compensation Table under Item 11; and (4) all executive officers and directors as a group. Except as otherwise indicated, the holders listed below have sole voting and investment power with respect to all shares of common stock beneficially owned by them.



		Shares of Common Stock

Name of Beneficial Owner**		Number		Percentage

University of Massachusetts Medical School			1,828,359		5.3	%
	365 Plantation Street, Suite 130 Worcester, MA 01605-2398
Alexander L. Cappello(1)			966,344		2.8	%
Louis Ignarro, Ph.D.(2)			255,541		*
Steven A. Kriegsman(3)			4,521,100		13.3	%
Max Link(4)			42,083		*
Joseph Rubinfeld(5)			5,333		*
Marvin R. Selter(6)			357,451		1.0	%
Richard Wennekamp			—		—
All executive officers and directors as a group (9 persons)(7)			6,147,852		18.0	%

* Represents beneficial ownership of less than one percent of common stock.

** Except as otherwise indicated, the address of each of the beneficial owners listed below is c/o CytRx Corporation, 11726 San Vicente Boulevard, Suite 650, Los Angeles, CA 90049

(1) Includes 813,082 shares subject to options or warrants exercisable within 60 days. Shares of our common stock and options to purchase shares of our common stock beneficially owned by Mr. Cappello are held through the Alexander L. and Linda Cappello 2001 Family Trust.

(2) Includes 163,625 shares subject to options or warrants exercisable within 60 days.

(3) Includes 959,352 shares subject to options or warrants exercisable within 60 days.

(4) Includes 12,876 shares subject to options or warrants exercisable within 60 days.

(5) Includes 5,333 shares subject to options or warrants exercisable within 60 days.

(6) Shares of our common stock beneficially owned by Mr. Selter are held through the Selter Family Trust and Selter IRA Rollover.

(7) Includes 1,954,268 shares subject to options or warrants exercisable within 60 days.


Item 13.	*Certain Relationships and Related Transactions*

Effective January 1, 2001, we entered into an agreement with Cappello Capital Corp. in which Cappello Capital served as our exclusive financial advisor. The initial term of that agreement was for a period of twelve months and was subsequently extended for an additional twelve-month period to December 31, 2002. Under the agreement, Cappello Capital assisted us with analysis of potential transactions and strategic alternatives, including possible private placements of equity, debt or convertible securities, strategic alliances, the sale of all or a portion of CytRx, recapitalization or strategic acquisitions.

In May 2003, we entered into a new agreement with Cappello Capital in which Cappello Capital serves as our exclusive financial advisor and offers similar services as under the prior agreement described above. The term of this agreement is for a period of twelve months, subject to earlier termination by either party upon 30 days notice. As compensation for its services, we agreed to pay Cappello Capital a retainer fee of $20,000 per month for the duration of the engagement. Additionally, if we proceed with any of the transactions described in the agreement, we are required to pay Cappello Capital a fee equal to between 3% and 7.5% of the value of the applicable transaction, depending upon the nature of the transaction and the dollar amount involved. We also will be required upon the closing of a financing transaction to issue Cappello Capital a warrant to purchase shares of our common stock equal to 10% of the number of our shares issued in the transaction at the same exercise price at which the shares were issued in that transaction.

Pursuant to our May 2003 agreement, we paid Cappello Capital a placement fee of $408,000 in connection with our May 2003 private placement and issued warrants to purchase a total of 367,569 shares of our common stock to certain persons designated by that firm. One of the designees was the Alexander L. and Linda Cappello 2001 Family Trust, to which we issued warrants to purchase 133,767 shares of our common stock at $1.85 per share and warrants to purchase 33,132 shares of our common stock at $3.05 per share. We valued all of the warrants to purchase 367,569 of shares of our common stock at $1,060,066 and the warrants issued to the Alexander L. and Linda Cappello 2001 Family Trust to purchase a total of 166,899 shares of our common stock at $481,357 for financial statement purposes. Alexander L. Cappello, one of our directors, is Chairman and Chief Executive Officer of Cappello Group, Inc., an affiliate of Cappello Capital. We believe that the terms under which we engaged Cappello Capital were at least as favorable to us as could have been obtained from an unrelated third party.

Since July 16, 2002, Steven A. Kriegsman has been our Chief Executive Officer and one of our directors. In July 2002, we entered into an agreement with the Kriegsman Capital Group, an affiliate of Mr. Kriegsman, whereby the Kriegsman Capital Group agreed to provide us with office space and certain administrative services. In 2003, we paid a total of approximately $70,000 to the Kriegsman Capital Group under this agreement. The charges were determined based upon actual space used and estimated percentages of employee time used. We believe that the terms under which we paid the Kriegsman Capital Group for rent and other expenses are at least as favorable to us as could have been obtained from an unrelated third party.

We entered into an agreement, dated as of July 17, 2003 (and subsequently amended on October 18, 2003), with Louis Ignarro, Ph.D., one of our current directors. Pursuant to the agreement, Dr. Ignarro agreed to serve as our Chief Scientific Spokesperson to the medical and financial communities. As payment for his services, Dr. Ignarro was granted a non-qualified stock option under our 2000 Long-Term Incentive Plan to purchase 350,000 registered shares of our common stock at an exercise price equal to $1.89, the closing price for our common stock on Nasdaq on the date of grant. The option has a term of seven years, from July 17, 2003 to October 17, 2003, vested monthly at the rate of 4,839 shares for each day of services provided by

Dr. Ignarro in that month and, from October 18, 2003, vests monthly at a rate of 15,975 shares for the remaining term of the agreement. Either party may terminate the agreement at any time, and any unvested shares under the option as of the date of termination of the agreement will be cancelled. As of December 31, 2003, 62,442 shares of common stock under the option had vested.


Item 14.	*Principal Accountant Fees and Services*

In April 2004, we engaged BDO Seidman, LLP (“BDO”) to audit our financial statements for the year ended December 31, 2003, but have not paid or agreed to pay that firm any fees for services rendered with respect to any period ending on or before December 31, 2003, except for their fees to audit our financial statements for the year ended December 31, 2003. Ernst & Young LLP (“E&Y”) previously served as our independent accountants and audited our financial statements for the year ended December 31, 2002.

Audit Fees

The aggregate fees billed for professional services rendered for the audit of the Company’s annual financial statements for the fiscal year ended December 31, 2002 and the estimated fees for the audit for the fiscal year ended December 31, 2003 are as follows:


Year:	BDO		E&Y

2003	$	45,000		n/a
2002		n/a	$	226,100

E&Y reviewed our financial statements included in our Form 10-Qs during the years ended December 31, 2002 and December 31, 2003. The aggregate fees billed for professional services rendered by E&Y for the review of such financial statements were as follows:


2003 Quarterly Reviews:	$	23,000
2002 Quarterly Reviews:	$	12,100

Audit Related Fees

For the fiscal year ended December 31, 2003, BDO rendered $160,000 of other audit-related services. No assurance or other audit related services were rendered by E&Y for the fiscal years ended December 31, 2002 or December 31, 2003.

Tax Fees

The aggregate fees billed by E&Y for professional services for tax compliance, tax advice and tax planning for the year ended December 31, 2002 and during the year ended December 31, 2003 and the estimated fees for such services being provided by BDO for the year ended December 31, 2003 are as follows:


Year:	BDO		E&Y

2003	$	25,000	$	0
2002		n/a	$	14,190

All Other Fees

No other services were rendered by E&Y or BDO for the years ended December 31, 2002 or December 31, 2003. Our Audit Committee has pre-approved all services (audit and non-audit) provided or to be provided to us by E&Y or BDO for the years ended December 31, 2002 and December 31, 2003.

PART IV


Item 15.	*Exhibits, Financial Statement Schedules, and Reports on Form 8-K*

(a) Documents filed as part of this 10-K:

(1) Financial Statements

The consolidated financial statements of the Company and the related report of independent auditors thereon are set forth on pages F-1 to F-22 of this Annual Report on Form 10-K. These consolidated financial statements are as follows:

      Consolidated Balance Sheets as of December 31, 2003 and 2002

      Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001

      Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2003, 2002 and 2001

      Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001

      Notes to Consolidated Financial Statements

      Reports of Independent Auditors

The financial statements of the Blizzard Genomics, Inc. and the related report of independent auditors thereon are set forth on pages F-25 to F-41 of this Annual Report on Form 10-K. These consolidated financial statements are as follows:

      Balance Sheets as of December 31, 2003 and 2002

      Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001

      Statements of Stockholders’ Equity for the Years Ended December 31, 2003, 2002 and 2001

      Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001

      Notes to Consolidated Financial Statements

      Reports of Independent Auditors

(2) Financial Statement Schedules

The following financial statement schedule is set forth on page F-24 of this Annual Report on Form 10-K.

Schedule II — Valuation and Qualifying Accounts for the years ended December 31, 2003, 2002 and 2001

All other schedules are omitted because they are not required, not applicable, or the information is provided in the financial statements or notes thereto.

(3) Exhibits

See Exhibit Index on page 47 of this Annual Report on Form 10-K.

(b) Reports on Form 8-K.

None.

CytRx Corporation

Form 10-K Exhibit Index


Exhibit
Number

	2.1	Agreement and Plan of Merger dated February 11, 2002 among CytRx Corporation, GGC Merger Corporation and Global Genomics Capital, Inc.	(m	)
	2.2	First Amendment to Agreement and Plan of Merger dated May 22, 2002 among CytRx Corporation, GGC Merger Corporation and Global Genomics Capital, Inc.	(m	)
	3.1	Restated Certificate of Incorporation	(a	)
	3.2	Restated By-Laws	(b	)
	3.3	Certificate of Amendment to Restated Certificate of Incorporation	(m	)
	3.4	Corrected Restated Certificate of Incorporation	(n	)
	3.5	Certificate of Amendment to Restated Certificate of Incorporation
	4.1	Shareholder Protection Rights Agreement dated April 16, 1997 between CytRx Corporation and American Stock Transfer & Trust Company as Rights Agent	(c	)
	4.2	Amendment No. 1 to Shareholder Protection Rights Agreement	(k	)
	4.3	Stock Restriction and Registration Rights Agreement	(o	)
	4.4	Warrant issued on July 20, 2002 to Corporate Consulting International Group pursuant to Consulting Engagement Letter dated July 20, 2002	(p	)
	4.5	Warrant issued on February 21, 2003 to Corporate Capital Group International Ltd. Inc.	(r	)
	4.6	Form of Common Stock Purchase Warrant between CytRx Corporation and each of the investors in the May 29, 2003 private placement	(s	)
	4.7	Form of Common Stock Purchase Warrant between CytRx Corporation and each of the investors in the September 16, 2003 private placement	(v	)
	4.8	Warrant issued on December 1, 2003 to MBN Consulting, LLC
	10.1	Agreement with Emory University, as amended	(d	)
	10.2	Option Agreement granting PSMA Development Company option to enter into a license agreement with CytRx Corporation dated December 23, 2002	(q	)
	10.3*	Amended and Restated Employment Agreement between CytRx Corporation and Jack J. Luchese	(i	)
	10.4*	Amended and Restated Change of Control Employment Agreement between CytRx Corporation and Jack J. Luchese	(i	)
	10.5*	Amendment No. 1 to Employment Agreement with Jack J. Luchese	(k	)
	10.6*	Amendment No. 1 to Change in Control Employment Agreement with Jack J. Luchese	(k	)
	10.7*	1986 Stock Option Plan, as amended and restated	(f	)
	10.8*	1994 Stock Option Plan, as amended and restated	(e	)
	10.9*	1995 Stock Option Plan	(g	)
	10.10*	1998 Long-Term Incentive Plan	(h	)
	10.11*	2000 Long-Term Incentive Plan	(k	)
	10.12*	Amendment No. 1 to 2000 Long-Term Incentive Plan	(m	)
	10.13*	Amendment No. 2 to 2000 Long-Term Incentive Plan	(m	)
	10.14*	Amendment No. 3 to 2000 Long-Term Incentive Plan
	10.15*	Amendment No. 4 to 2000 Long-Term Incentive Plan
	10.16+	License Agreement dated November 1, 2000 by and between CytRx Corporation and Merck & Co., Inc.	(j	)
	10.17	License Agreement dated February 16, 2001 by and between CytRx Corporation and Ivy Animal Health, Inc.	(k	)


Exhibit
Number

	10.18+	License Agreement dated December 7, 2001 by and between CytRx Corporation and Vical Incorporated	(l	)
	10.19*	Amended and Restated Employment Agreement dated as of May 2002 between CytRx Corporation and Steven A. Kriegsman	(p	)
	10.20	Extension of financial advisory agreement between CytRx Corporation and Cappello Capital Corp. dated January 1, 2002	(p	)
	10.21	Agreement between Kriegsman Capital Group and CytRx Corporation dated February 11, 2002 regarding office space rental	(p	)
	10.22	Marketing Agreement with Madison & Wall Worldwide, Inc. dated August 14, 2002	(p	)
	10.23	Non-exclusive financial advisory agreement between CytRx Corporation and Sands Brothers & Co. Ltd. dated September 12, 2002	(p	)
	10.24	Agreement between Kriegsman Capital Group and CytRx Corporate dated January 29, 2003 regarding office space rental and shared services	(r	)
	10.25	Consulting Agreement, dated February 21, 2003 between CytRx Corporation and Corporate Capital Group International Ltd. Inc.	(r	)
	10.26	Securities Purchase Agreement, dated as of May 29, 2003, between CytRx Corporation and the Purchasers identified on the signatory page thereof	(s	)
	10.27	Registration Rights Agreement, dated as of May 29, 2003, between CytRx Corporation and the Purchasers identified on the signature page thereof	(s	)
	10.28+	Non-Exclusive License Agreement dated as of April 15, 2003 between University of Massachusetts Medical School and CytRx Corporation covering RNA sequence specific mediators of RNA interference	(t	)
	10.29+	Exclusive License Agreement dated as of April 15, 2003 between University of Massachusetts Medical School and CytRx Corporation covering in vivo production of small interfering RNAs	(t	)
	10.30+	Exclusive License Agreement dated as of April 15, 2003 between University of Massachusetts Medical School and CytRx Corporation covering inhibitation of gene expression in adipocytes using interference RNA	(t	)
	10.31+	Exclusive License Agreement dated as of April 15, 2003 between University of Massachusetts Medical School and CytRx Corporation covering RNAi targeting of viruses	(t	)
	10.32+	Exclusive License Agreement dated as of April 15, 2003 between University of Massachusetts Medical School and CytRx Corporation covering primary and polyvalent HIV-1 envelope glycoprotein DNA vaccines	(t	)
	10.33+	Exclusive License Agreement dated as of April 15, 2003 between University of Massachusetts Medical School and CytRx Corporation covering gene based therapeutics for solid tumor treatments	(t	)
	10.34+	Exclusive License Agreement dated as of April 15, 2003 between University of Massachusetts Medical School and CytRx Corporation covering selective silencing of a dominant ALS gene by RNAi	(t	)
	10.35	Investment Banking Agreement dated April 1, 2003 between Rockwell Asset Management Inc. and CytRx Corporation	(u	)
	10.36	Investment Banking Agreement dated April 3, 2003 between J.P. Turner & Company, LLC and CytRx Corporation	(u	)
	10.37	First Amendment to Investment Banking Agreement dated June 4, 2003 between J.P. Turner & Company, LLC and CytRx Corporation	(u	)
	10.38	Exclusive Financial Advisor Engagement Agreement dated May 16, 2003 between Cappello Capital Corp. and CytRx Corporation	(u	)
	10.39	Modification letter dated June 6, 2003 to Engagement Agreement between Cappello Capital Corp. and CytRx Corporation	(u	)
	10.40	Engagement Letter dated May 27, 2003 between Cardinal Securities, LLC and CytRx Corporation	(u	)


Exhibit
Number

	10.41*	Second Amended and Restated Employment Agreement dated June 10, 2003 between Steven A. Kriegsman and CytRx Corporation	(u	)
	10.42	Financial Consulting Agreement dated May 10, 2003 between James Skalko and CytRx Corporation	(u	)
	10.43	Form of Securities Purchase Agreement, dated as of September 15, 2003, between CytRx Corporation and the Purchasers identified on the signatory page thereof	(v	)
	10.44	Form of Registration Rights Agreement, dated as of September 15, 2003, between CytRx Corporation and the Purchasers identified on the signature page thereof	(v	)
	10.45+	Amended and Restated License Agreement dated as of September 15, 2003 between University of Massachusetts Medical School and CytRx Corporation covering inhibition of gene expression in adipocytes using interference RNA, certain data bases, the use of endoplasmic reticulum stress response pathway of adipose cells to enhance whole body insulin sensitivity, and receptor-activated reporter systems	(w	)
	10.46	Second Amendment to Investment Banking Agreement dated as of August 13, 2003 between J.P. Turner & Company, LLC and CytRx Corporation	(w	)
	10.47*	Agreement dated as of July 17, 2003 between Dr. Louis J. Ignarro and CytRx Corporation	(w	)
	10.48*	Employment Agreement dated as of August 1, 2003 between C. Kirk Peacock and CytRx Corporation	(w	)
	10.49*	Employment Agreement dated as of September 17, 2003 between Mark A. Tepper and Araios, Inc.	(w	)
	10.50	Agreement of Settlement and Release dated August 8, 2003 among Corporate Capital Group International Ltd., Inc, Peter Simone and CytRx Corporation	(w	)
	10.51	Confirming letter dated September 19, 2003 to the engagement agreement dated May 16, 2003 between Cappello Capital Corp. and CytRx Corporation	(w	)
	10.52	Preferred Stock Purchase Agreement dated as of September 16, 2003 between Araios, Inc. and CytRx Corporation	(w	)
	10.53	Stockholders Agreement dated as of September 17, 2003 among Araios, Inc., Dr. Michael Czech and CytRx Corporation	(w	)
	10.54	Private Placement Agent Agreement dated September 15, 2003 between Dunwoody Brokerage Services, Inc. and CytRx Corporation	(w	)
	10.55	Private Placement Agent Agreement dated September 15, 2003 between Gilford Securities Incorporated and CytRx Corporation	(w	)
	10.56	Agreement dated as of September 16, 2003 between Maxim Group, LLC and CytRx Corporation	(w	)
	10.57	Amended and Restated Professional Services Agreement among CytRx Corporation, The Kriegsman Group and Kriegsman Capital Group, dated as of July 1, 2003
	10.58+	Agreement among University of Massachusetts, Advanced BioScience Laboratories, Inc. and CytRx Corporation, dated as of December 3, 2003
	10.59+	Amended and Restated Exclusive License Agreement among University of Massachusetts Medical School, CytRx Corporation and Advanced BioScience Laboratories, Inc., dated as of December 22, 2003
	10.60+	Collaboration Agreement among University of Massachusetts, Advanced BioScience Laboratories, Inc. and CytRx Corporation, dated as of December 22, 2003
	10.61+	Sublicense Agreement between CytRx Corporation and Advanced BioScience Laboratories, Inc., dated as of December 22, 2003
	10.62+	Agreement between CytRx Corporation and Dr. Robert Hunter regarding SynthRx, Inc. dated October 20, 2003
	10.63	Office Lease between The Kriegsman Group and Douglas Emmett, dated April 13, 2000


Exhibit
Number

	10.64	Assignment to CytRx Corporation effective July 1, 2003 of Office Lease between The Kriegsman Group and Douglas Emmett, dated April 13, 2000
	10.65*	Amendment dated October 18, 2003 to Agreement between Dr. Louis J. Ignarro and CytRx Corporation dated as of July 17, 2003
	10.66	Consulting Agreement dated December 1, 2003 between CytRx Corporation and MBN Consulting, LLC
	10.67	Office Lease between Araios, Inc. and Are-One Innovation Drive, LLC dated 11-19-03
	14.1	Code of Ethics
	21.1	Subsidiaries
	23.1	Consent of BDO Seidman, LLP
	23.2	Consent of Ernst & Young LLP
	23.3	Consent of BDO Seidman, LLP
	23.4	Consent of Silverman Olson Thorvilson & Kaufmann, Ltd.
	23.5	Consent of Ernst & Young LLP
	31	Rule 13a-14(a)/15d-14(a) Certifications
	32	Certifications Pursuant to 18 U.S.C. Section 1350


*		Indicates a management contract or compensatory plan or arrangement.
+		Confidential treatment has been requested or granted for certain portions which have been blanked out in the copy of the exhibit filed with the Securities and Exchange Commission. The omitted information has been filed separately with the Securities and Exchange Commission.
(a)		Incorporated by reference to the Registrant’s Registration Statement on Form S-3 (File No. 333-39607) filed on November 5, 1997
(b)		Incorporated by reference to the Registrant’s Registration Statement on Form S-8 (File No. 333-37171) filed on July 21, 1997
(c)		Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on April 21, 1997
(d)		Incorporated by reference to the Registrant’s Registration Statement on Form S-l (File No. 33-8390) filed on November 5, 1986
(e)		Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on November 13, 1997
(f)		Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed on March 27, 1996
(g)		Incorporated by reference to the Registrant’s Registration Statement on Form S-8 (File No. 33-93818) filed on June 22, 1995
(h)		Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed on March 30, 1998
(i)		Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed on March 30, 2000
(j)		Incorporated by reference to the Registrant’s Current Report on Form 8-K/ A filed on March 16, 2001
(k)		Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed on March 27, 2001
(l)		Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on December 21, 2001
(m)		Incorporated by reference to the Registrant’s Proxy Statement filed June 10, 2002
(n)		Incorporated by reference to the Registrant’s Form S-8 (File No. 333-91068) filed on June 24, 2002
(o)		Incorporated by reference to the Registrant’s 8-K filed on August 1, 2002
(p)		Incorporated by reference to the Registrant’s 10-Q filed on November 14, 2002
(q)		Incorporated by reference to the Registrant’s 10-K filed on March 31, 2003
(r)		Incorporated by reference to the Registrant’s 10-Q filed on May 15, 2003
(s)		Incorporated by reference to the Registrant’s 8-K filed on May 30, 2003
(t)		Incorporated by reference to the Registrant’s S-3 Amendment No. 4 (File No. 333-100947) filed on August 5, 2003
(u)		Incorporated by reference to the Registrant’s 10-Q filed on August 14, 2003
(v)		Incorporated by reference to the Registrant’s 8-K filed on September 17, 2003
(w)		Incorporated by reference to the Registrant’s 10-Q filed on November 12, 2003

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

CYTRX CORPORATION

By: /s/ STEVEN A. KRIEGSMAN



	Steven A. Kriegsman


	President and Chief Executive Officer

Date: May 13, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



Signature	Title	Date


/s/ STEVEN A. KRIEGSMAN Steven A. Kriegsman	President and Chief Executive Officer and Director (principal executive officer)	May 13, 2004

/s/ C. KIRK PEACOCK C. Kirk Peacock	Chief Financial Officer (principal financial and accounting officer)	May 13, 2004

/s/ ALEXANDER L. CAPPELLO Alexander L. Cappello	Director	May 13, 2004

/s/ LOUIS J. IGNARRO, PH.D. Louis J. Ignarro, Ph.D.	Director	May 13, 2004

/s/ MAX LINK Max Link	Director	May 13, 2004

/s/ JOSEPH RUBINFELD, PH.D. Joseph Rubinfeld, Ph.D.	Director	May 13, 2004

/s/ MARVIN R. SELTER Marvin R. Selter	Director	May 13, 2004

/s/ RICHARD L. WENNEKAMP Richard L. Wennekamp	Director	May 13, 2004

INDEX TO FINANCIAL STATEMENTS

AND FINANCIAL STATEMENT SCHEDULE


CytRx Corporation
	Consolidated Balance Sheets		F-2
	Consolidated Statements of Operations		F-3
	Consolidated Statements of Stockholders’ Equity		F-4
	Consolidated Statements of Cash Flows		F-5
	Notes to Consolidated Financial Statements		F-6
	Reports of Independent Auditors		F-22
	Financial Statement Schedule
		Schedule II — Valuation and Qualifying Accounts	F-24
Blizzard Genomics, Inc.
	Balance Sheets		F-25
	Statements of Operations		F-26
	Statements of Shareholders’ Deficit		F-27
	Statements of Cash Flows		F-28
	Notes to Financial Statements		F-29
	Reports of Independent Auditors		F-39

F-1

CYTRX CORPORATION

CONSOLIDATED BALANCE SHEETS



			December 31,

			2003			2002

ASSETS
Current assets:
	Cash and cash equivalents		$	11,644,446		$	387,314
	Short-term investments			—			1,401,358
	Current portion of note receivable			—			135,291
	Prepaid and other current assets			236,349			222,027

		Total current assets		11,880,795			2,145,990

Property and equipment, net				227,413			1,084

Other assets:
	Investment in minority-owned entity — acquired developed technology			—			6,644,492
	Note receivable, less current portion			—			229,958
	Prepaid and other assets			216,076			262,060

		Total other assets		216,076			7,136,510

		Total assets	$	12,324,284		$	9,283,584


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	738,135		$	79,947
	Accrued expenses and other current liabilities			381,977			428,490

		Total current liabilities		1,120,112			508,437
Accrued loss on facility abandonment				312,433			419,038
Deferred gain on sale of building				93,836			121,762
Deferred revenue				275,000			275,000

		Total liabilities		1,801,381			1,324,237

Minority interest				330,287			—

Commitments and contingencies				—			—
Stockholders’ equity:
	Preferred Stock, $.01 par value, 5,000,000 shares authorized, including 5,000 shares of Series A Junior Participating Preferred Stock; no shares issued and outstanding			—			—
	Common stock, $.001 par value, 100,000,000 shares authorized; 34,392,000 and 22,143,927 shares issued at December 31, 2003 and 2002, respectively			34,392			22,144
	Additional paid-in capital			102,239,460			82,173,839
	Treasury stock, at cost (633,816 shares held at December 31, 2003 and 2002)			(2,279,238	)		(2,279,238	)
	Accumulated deficit			(89,801,998	)		(71,957,398	)

		Total stockholders’ equity		10,192,616			7,959,347

		Total liabilities and stockholders’ equity	$	12,324,284		$	9,283,584

The accompanying notes are an integral part of these consolidated balance sheets.

F-2

CYTRX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS



		Year Ended December 31,

		2003			2002			2001

Income:
	Service revenues	$	—		$	22,453		$	101,463
	License fees		94,000			1,051,000			3,751,000
	Grant revenue		—			46,144			156,729

			94,000			1,119,597			4,009,192

Expenses:
	Cost of service revenues		—			11,287			70,501
	Research and development (includes non-cash stock compensation of $2,902,484 in 2003)		4,387,599			767,102			1,844,038
	Common stock, stock options and warrants issued for selling, general and administrative		3,148,047			229,550			1,440,934
	Selling, general and administrative		3,840,620			1,703,402			1,161,095
	Depreciation and amortization		2,130			793,563			586,249
	Severance and other contractual payments to officers		—			1,822,454			—
	Asset impairment charge		—			920,939			—
	Loss on facility abandonment		—			477,686			—

			11,378,396			6,725,983			5,102,817

Loss before other income			(11,284,396	)		(5,606,386	)		(1,093,625	)
Other income —
	Interest income		82,064			95,508			162,284

			(11,202,332	)		(5,510,878	)		(931,341	)
Equity in losses from minority-owned entity			(6,662,031	)		(664,758	)		—
Minority interest in losses of subsidiary			19,763			—			—

Net loss		$	(17,844,600	)	$	(6,175,636	)	$	(931,341	)

Basic and diluted loss per common share			(0.65	)		(0.39	)		(0.09	)

Basic and diluted weighted average shares outstanding			27,324,794			16,004,155			10,358,381

The accompanying notes are an integral part of these consolidated financial statements.

F-3

CYTRX CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY



		Common Stock
						Additional		Accumulated			Treasury
		Shares Issued		Amount		Paid-in Capital		Deficit			Stock			Total

Balance at January 1, 2001			10,734,012	$	10,734	$	72,737,739	$	(64,850,421	)	$	(2,279,238	)	$	5,618,814
	Issuance of common stock		725,000		725		453,619		—			—			454,344
	Issuance of stock options/warrants		—		—		1,440,934		—			—			1,440,934
	Net loss		—		—		—		(931,341	)		—			(931,341	)

Balance at December 31, 2001			11,459,012		11,459		74,632,292		(65,781,762	)		(2,279,238	)		6,582,751
	Issuance of common stock		324,999		326		109,408		—			—			109,734
	Common stock issued for Acquisition of Global Genomics		8,948,204		8,948		5,785,014		—			—			5,793,962
	Common stock and warrants issued in conjunction with acquisition of Global Genomics		548,330		548		899,693		—			—			900,241
	Common stock issued in lieu of cash for officers severance and bonuses		863,382		863		517,882		—			—			518,745
	Issuance of stock options/warrants		—		—		229,550		—			—			229,550
	Net loss		—		—		—		(6,175,636	)		—			(6,175,636	)

Balance at December 31, 2002			22,143,927		22,144		82,173,839		(71,957,398	)		(2,279,238	)		7,959,347
	Issuance of common stock for research and development		1,828,359		1,828		2,550,606		—			—			2,552,434
	Common stock and warrants issued in connection with private placements		7,081,025		7,081		12,485,543		—			—			12,492,624
	Issuance of common stock for services		700,000		700		1,534,050		—			—			1,534,750
	Issuance of stock options/warrants		—		—		1,613,297		—			—			1,613,297
	Options and warrants exercised		2,638,689		2,639		1,882,125		—			—			1,884,764
	Net loss		—		—		—		(17,844,600	)		—			(17,844,600	)

Balance at December 31, 2003			34,392,000	$	34,392	$	102,239,460	$	(89,801,998	)	$	(2,279,238	)	$	10,192,616

The accompanying notes are an integral part of these consolidated financial statements.

F-4

CYTRX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS



				Years Ended December 31,

				2003			2002			2001

Cash flows from operating activities:
	Net loss			$	(17,844,600	)	$	(6,175,636	)	$	(931,341	)
	Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
		Depreciation and amortization			2,130			793,563			586,249
		Equity in losses from minority-owned entity			6,662,031			664,758			—
		Minority interest in losses of subsidiary			(19,763	)		—			—
		Stock option and warrant expense			1,613,297			229,550			1,440,934
		Common stock issued for services			1,534,750			—			—
		Non-cash research and development			2,902,484			—			—
		Asset impairment charge			—			920,939			—
		Changes in assets and liabilities:
			Note receivable		365,249			122,467			110,860
			Prepaid and other assets		14,123			(379,849	)		45,071
			Accounts payable		658,188			(98,830	)		(119,459	)
			Other liabilities		(181,044	)		395,222			(93,120	)

	Total adjustments				13,551,445			2,647,820			1,970,535

		Net cash (used in) provided by operating activities			(4,293,155	)		(3,527,816	)		1,039,194

Cash flows from investing activities:
	Purchases of held-to-maturity securities				—			(1,401,358	)		—
	Redemption of held-to-maturity securities				1,401,358			—			—
	Net cash paid related to acquisition				—			(615,064	)		—
	Purchases of property and equipment				(228,459	)		—			—
	Disposals of property and equipment, net				—			30,142			—

	Net cash provided by (used in) investing activities				1,172,899			(1,986,280	)		—

Cash flows from financing activities — Net proceeds from issuance of common stock					14,377,388			628,496			454,344

	Net increase (decrease) in cash and cash equivalents				11,257,132			(4,885,600	)		1,493,538
	Cash and cash equivalents at beginning of year				387,314			5,272,914			3,779,376

	Cash and cash equivalents at end of year			$	11,644,446		$	387,314		$	5,272,914

The accompanying notes are an integral part of these consolidated financial statements.

F-5

CYTRX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business

CytRx Corporation (“CytRx” or the “Company”) is a biopharmaceutical research and development company, based in Los Angeles, California, with a development-stage subsidiary, CytRx Laboratories, Inc. (the “Subsidiary”), based in Worcester, Massachusetts (see Note 10). The Company owns the rights to a portfolio of technologies, including ribonueleic acid interference (RNAi or gene silencing) technology in the treatment of specified diseases, including those within the areas of amyotrophic lateral sclerosis (ALS or Lou Gehrig’s disease), obesity and type 2 diabetes and human cytomegalovirus (CMV), as well as a DNA-based HIV vaccine technology and a cancer therapeutic technology. In addition, the Company has entered into strategic alliances with third parties to develop several of the Company’s other products.

On July 19, 2002, CytRx consummated a merger with Global Genomics Capital, Inc., a development-stage company which became a wholly-owned subsidiary of the Company (see Note 11). This subsidiary was renamed GGC Pharmaceuticals, Inc., but is referred to herein as “Global Genomics.” Global Genomics is a genomics holding company that has a 40% ownership interest in Blizzard Genomics, Inc. (“Blizzard”), a development-stage company based in Minneapolis, Minnesota, and a 5% ownership interest in Psynomics, Inc. (“Psynomics”), a development-stage company based in San Diego, California. The Company accounts for its investment in Blizzard using the equity method and in Psynomics using the cost method. The Company recorded a write off of its investments in Blizzard and Psynomics in 2003 (See Note 11).

To date, the Company had relied primarily upon selling equity securities and payments from our strategic partners and licensees to generate the funds needed to finance its operations. Management believes the Company’s cash and cash equivalents balances will be sufficient to meet cash requirements through the next twelve months. The Company will be required to obtain additional funding in order to execute its long-term business plans. The Company cannot assure that additional funding will be available on favorable terms, or at all. If the Company fails to obtain significant additional funding when needed, it may not be able to execute its business plans and its business may suffer, which would have a material adverse effect on its financial position, results of operations and cash flows.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation — The consolidated financial statements include the accounts of CytRx together with those of its majority-owned subsidiaries. The accounts of the Subsidiary are included since September 17, 2003 (see Note 10). The accounts of Global Genomics are included since July 19, 2002 (see Note 11).

Revenue Recognition — Service revenues relate to recruiting services rendered and are recognized at the time services are rendered because all obligations necessary to earn such revenues have been completed by the Company at that time. Revenues from collaborative research arrangements and grants are generally recorded as the related costs are incurred. The costs incurred under such arrangements are recorded as research and development expense and approximate the revenues reported in the accompanying statements of operations. Non-refundable license fee revenue is recognized when collectibility is reasonably assured, which is generally upon receipt, when no continuing involvement of the Company is required and payment of the license fee represents the culmination of the earnings process. Non-refundable license fees received subject to future performance by the Company or that are credited against future payments due to the Company are deferred and recognized as services are performed and collectibility is reasonably assured, which is generally upon receipt, or recognized upon termination of the agreement and all related obligations thereunder.

Cash Equivalents — The Company considers all highly liquid debt instruments with an original maturity of 90 days or less to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts.

F-6

CYTRX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Investments — Management determines the appropriate classification of debt securities at the time of purchase. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. Marketable equity securities and debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported as a separate component of stockholders’ equity. Realized gains and losses are included in investment income and are determined on a first-in, first-out basis.

Fair Value of Financial Instruments — The carrying amounts reported in the balance sheet for cash and cash equivalents, short-term investments, notes receivable and accounts payable approximate their fair values.

Property and Equipment — Property and equipment are stated at cost and depreciated using the straight-line method based on the estimated useful lives (generally five years for equipment and furniture) of the related assets. Whenever there is a triggering event that might suggest an impairment, management evaluates the realizability of recorded long-lived assets to determine whether their carrying values have been impaired. The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the nondiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. Any impairment loss is measured by comparing the fair value of the asset to its carrying amount.

Patents and Patent Application Costs — Although the Company believes that its patents and underlying technology have continuing value, the amount of future benefits to be derived therefrom is uncertain. Patent costs are therefore expensed rather than capitalized.

Basic and Diluted Loss per Common Share — Basic and diluted loss per common share are computed based on the weighted average number of common shares outstanding. Common share equivalents (which consist of options, warrants and convertible Subsidiary common stock) are excluded from the computation of diluted loss per share since the effect would be antidilutive. Common share equivalents which could potentially dilute basic earnings per share in the future, and which were excluded from the computation of diluted loss per share, totaled approximately 10,430,000 shares, 6,627,000 and 5,532,000 shares at December 31, 2003, 2002 and 2001, respectively.

Shares Reserved for Future Issuance — As of December 31, 2003, the Company has reserved approximately 6,383,000 of its authorized but unissued shares of common stock for future issuance pursuant to its employee stock option plans and warrants issued to consultants and investors.

Stock-based Compensation — The Company grants stock options and warrants for a fixed number of shares to key employees and directors with an exercise price equal to the fair market value of the shares at the date of grant. The Company accounts for stock option grants and warrants in accordance with Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) and related interpretations, and, accordingly, recognizes no compensation expense for the stock option grants and warrants issued to employees for which the terms are fixed. For stock option grants and warrants which vest based on certain corporate performance criteria, compensation expense is recognized to the extent that the quoted market price per share exceeds the exercise price on the date such criteria are achieved or are probable. Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-based Compensation (“SFAS 123”), provides an alternative to APB 25 in accounting for stock-based compensation issued to employees. However, the Company has continued to account for stock-based compensation for employees in accordance with APB 25 (See Note 13). The Company has also granted stock options and warrants to certain consultants and other third parties. Stock options and warrants granted to consultants and other third parties are accounted for in accordance with SFAS 123 and related interpretations and are valued at the fair market value of the options and warrants granted or the services received, whichever is more reliably measurable.

F-7

CYTRX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Expense is recognized in the period in which a performance commitment exists or the period in which the services are received, whichever is earlier.

SFAS 123, as amended by SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure (“SFAS 148”), requires the presentation of pro forma information as if the Company had accounted for its employee stock options and performance awards under the fair value method of that statement. For purposes of pro forma disclosure, the estimated fair value of the options and performance awards at the date of the grant is amortized to expense over the vesting period. The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation (amounts in thousands except per share data):


	2003			2002			2001

Net loss, as reported	$	(17,845	)	$	(6,176	)	$	(931	)
Total stock-based employee compensation expense determined under fair value-based method for all awards		(928	)		(1,229	)		(663	)

Pro forma net loss	$	(18,773	)	$	(7,405	)	$	(1,594	)

Loss per share, as reported (basic and diluted)	$	(0.65	)	$	(0.39	)	$	(0.09	)
Loss per share, pro forma (basic and diluted)	$	(0.69	)	$	(0.46	)	$	(0.15	)

The fair value for the Company’s options and warrants was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:


	2003			2002			2001

Weighted average risk free interest rate		2.82	%		2.74	%		5.29	%
Dividend yields		0	%		0	%		0	%
Volatility factors of the expected market price of the Company’s common stock		0.99			0.99			0.98
Weighted average years outstanding		5.1			3.6			7.2

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its warrants and employee stock options.

Research and Development Expenses — Research and development expenses consist of costs incurred for direct and overhead-related research expenses and are expensed as incurred. Costs to acquire technologies which are utilized in research and development and which have no alternative future use are expensed when incurred. Technology developed for use in our products is expensed as incurred until technological feasibility has been established. Expenditures to date have been classified as research and development expense.

Income Taxes — Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. A valuation allowance is established to reduce deferred tax assets if all, or some portion, of such assets will more than likely not be realized.

Concentrations of Credit Risk — Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, short-term investments and note receivable. The Company maintains cash and cash equivalents in large well-capitalized financial

F-8

CYTRX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

institutions and the Company’s investment policy disallows investment in any debt securities rated less than “investment-grade” by national ratings services. The Company has not experienced any losses on its deposits of cash and cash equivalents. The Company generally does not require collateral or other security from its customers for sales made on credit. The Company is at risk to the extent accounts receivable and note receivable amounts become uncollectible.

Use of Estimates — The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Segment Information — Management uses consolidated financial information in determining how to allocate resources and assess financial performance. For this reason, the Company has determined that it is principally engaged in one industry segment.

Reclassifications — Certain prior year balances have been reclassified to conform with the 2003 presentation.

Recently Issued Accounting Standards — In May 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“SFAS 150”). This statement changes the classification of certain financial instruments from equity to liabilities. The three types of financial instruments requiring the change in classification are: (1) mandatorily redeemable shares, which the issuing company is obligated to buy back in exchange for cash or other assets; (2) put options and forward purchase contracts; and (3) obligations that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuer’s shares. This statement is effective for all financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted SFAS 150 as of July 1, 2003, which did not have a material impact on its consolidated financial statements.

In April 2003, the FASB issued SFAS Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (“SFAS 149”). This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This Statement is generally effective for contracts entered into or modified after June 30, 2003 and hedging relationships designated after June 30, 2003. The Company will apply the provisions of SFAS 149 for any derivative instruments or hedging activities entered into after June 30, 2003. As the Company has not entered into derivative instruments or hedging activities, adoption of this statement does not have a material impact on the Company’s consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, (“FIN No. 46”) as superseded in December 2003 by FASB-issued Interpretation No. 46R, “Consolidation of Variable Interest Entities — an interpretation of ARB 51 (“FIN 46R”). FIN 46R requires the primary beneficiary of a variable interest entity (“VIE”) to consolidate the entity and also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the equity investors do not have a controlling interest, equity investors participate in losses or residual interests of the entity on a basis that differs from its ownership interest, or the equity investment at risk is insufficient to finance the entity’s activities without receiving additional subordinated financial support from the other parties. FIN 46R is applicable starting January 1, 2004. The Company does not believe the effect of FIN 46R on the Company’s consolidated financial statements will be material.

In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting for Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of

F-9

CYTRX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others (“FIN 45”). FIN 45 clarifies the requirements for a guarantor’s accounting for and disclosure of certain guarantees issued and outstanding. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. This Interpretation also incorporates without reconsideration the guidance in FASB Interpretation No. 34, which is being superseded. The Company adopted FIN 45 effective January 1, 2003. Adoption did not have a material impact on the Company’s financial statements.

3. Investments

At December 31, 2003 and 2002, the Company held approximately $0 and $1,401,000, respectively, in investments, reported as short-term investments in the accompanying consolidated balance sheets. The contractual maturities of securities held at December 31, 2002 were one year or less. At December 31, 2002, the Company classified all of its investments (consisting entirely of U.S. Government obligations) as held-to-maturity. The fair market value approximated the carrying costs and gross unrealized and realized gains/losses were immaterial.

4. Restricted Assets

At December 31, 2003 and 2002, the Company held approximately $50,000 and $0, respectively, in investments (consisting entirely of Certificates of Deposit), reported in Prepaid and Other Current Assets in the accompanying consolidated balance sheets. The contractual maturities of securities held at December 31, 2003 were one year or less. At December 31, 2003, the investments were pledged as collateral for a letter of credit for the same amount issued in connection with one of the Company’s lease agreements.

5. Property and Equipment

Property and equipment at December 31 consist of the following (in thousands):


	2003			2002

Equipment and furnishings	$	229		$	1
Less accumulated depreciation		(2	)		—

	$	227		$	1

Asset Impairment Loss — In May 2002, Organichem, Corp., which was to provide CytRx with commercial supplies of FLOCOR purified drug substance, advised CytRx that it did not intend to renew the Company’s agreement when it expired in December 2003. During the fourth quarter of 2002, the Company determined that, in light of the relatively short remaining term of the Organichem contract, the significant costs that would be associated with relocating the equipment owned by CytRx in connection with this contract and the Company’s lack of success to date in its continuing search for a strategic partner for the development of FLOCOR, an impairment loss of approximately $921,000 should be recorded, which equals the then net book value of this equipment and related leasehold improvements. This charge is reflected as a separate line item in the accompanying consolidated statement of operations for the year ended December 31, 2002 as an asset impairment charge.

F-10

CYTRX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


6.	Accrued Expenses

Accrued Expenses — Accrued expenses and other current liabilities at December 31, 2003 and 2002 are summarized below (in thousands).


	2003		2002

Clinical research activities	$	—	$	97
Deferred gain on sale of building (current portion)		28		28
Accrued loss on facility abandonment (current portion)		106		144
Professional fees		171		151
Other miscellaneous		77		8

Total	$	382	$	428


7.	Facility Abandonment

In the fourth quarter of 2002, the Company recorded a loss of approximately $478,000 associated with the closure of its Atlanta headquarters and relocation to Los Angeles subsequent to its merger with Global Genomics (see Note 11). This loss represents the total remaining lease obligations and estimated operating costs through the remainder of the lease term, less estimated sublease income and is reflected in Note 8 — Commitments and Contingencies. This accrued charge was combined with deferred rent of $85,000 already recorded, so that the total accrual related to the facility abandonment was $563,000 as of December 31, 2002, $144,000 of which was reflected as a current liability and $419,000 as a non-current liability. As of December 31, 2003, the accrued loss on facility abandonment was $418,000, $106,000 of which was reflected as a current liability and $312,000 as a non-current liability. During 2003, the Company incurred expenditures totaling $224,000 for the abandoned facility and utilized $145,000 of the accrual related to the facility abandonment.


8.	Commitments and Contingencies

Minimum annual future obligations under operating leases, minimum annual future obligations under various license agreements and minimum annual future obligations under employment agreements consist of the following (in thousands):


	Operating		License		Employment
(in thousands)	Leases		Agreements		Agreements		Total

2004	$	560	$	1,778	$	1,075	$	3,413
2005		478		1,810		670		2,958
2006		285		897		375		1,557
2007		229		310		—		539
2008		76		330		—		406
2009 and thereafter		—		1,320		—		1,320

Total	$	1,628	$	6,445	$	2,120	$	10,193

Under the various license agreements and sponsored research agreements with University of Massachusetts Medical School (“UMMS”) (see Note 19) and other institutions, CytRx will be required to make annual license maintenance payments as well as milestone payments, ranging from $11,000,000 to $14,000,000 per approved product, to UMMS and/or other institutions based on the development of products utilizing the licensed technology and will be required to pay royalties, based on future sales of those products, which will generally range from 3% to 7.5% of such sales, depending upon the product and the technology being utilized.

F-11

CYTRX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In connection with the sponsored research agreements, CytRx agreed to fund certain pre-clinical research at UMMS and other institutions related to the use of CytRx’s licensed technologies for the development of therapeutic products.

The Company has employment agreements with its executive officers, the terms of which expire at various times through July 2006. Certain agreements, which have been revised from time to time, provide for minimum salary levels, adjusted annually at the Compensation Committee’s determination, as well as for minimum bonuses that are payable. The aggregate commitment for future salaries at December 31, 2003, including guaranteed bonuses and salary continuation, was approximately $2,120,000.

Rent expense under operating leases during 2003, 2002 and 2001 was approximately $258,000, $171,000 and $154,000, respectively.

9. Private Placement of Common Stock

In September 2003, the Company entered into a Stock Purchase Agreement with a group of institutional and other investors (the “September 2003 Investors”). The September 2003 Investors purchased, for an aggregate purchase price of $8,695,000, 4,140,486 shares of the Company’s common stock and warrants to purchase an additional 1,035,125 shares of the Company’s common stock, at $3.05 per share, expiring in 2008. After consideration of offering expenses, net proceeds to the Company were approximately $7,667,000. The shares and the shares underlying the warrants issued to the September 2003 Investors were subsequently registered.

In May 2003, the Company entered into a Stock Purchase Agreement with a group of institutional investors (the “May 2003 Investors”). The May 2003 Investors purchased, for an aggregate purchase price of $5,440,000, 2,940,539 shares of the Company’s common stock and warrants to purchase an additional 735,136 shares of the Company’s common stock, at $3.05 per share, expiring in 2008. After consideration of offering expenses, net proceeds to the Company were approximately $4,826,000. The shares and the shares underlying the warrants issued to the May 2003 Investors were subsequently registered.

10. Investment in Subsidiary

On September 17, 2003, CytRx purchased 2,000 shares of convertible preferred stock for $7 million, representing a 95% ownership interest in the Subsidiary. The Subsidiary is a newly formed entity that plans to develop orally active small molecule based drugs to prevent, treat and cure obesity and type 2 diabetes. This funding was provided out of the proceeds of CytRx’s private placement financing that was completed in September 2003. Since September 17, 2003, CytRx has consolidated the Subsidiary, based on CytRx’s ability to control the stockholders’ votes and the Board of Directors of the Subsidiary, and recorded a minority interest liability of $350,000, representing the 5% interest in the Subsidiary held by Dr. Michael Czech (see Note 19). Prior to September 17, 2003, the Subsidiary had no operations. Additionally, the Company has recorded the fair value of 300,000 shares of its common stock as additional paid-in capital for the Company’s right to call and Dr. Czech’s right to put his remaining 5% interest in the Subsidiary to CytRx in exchange for a guaranteed amount of 300,000 shares of CytRx common stock. The fair value of these shares on the purchase date was approximately $723,000. In addition, upon the occurrence of certain events, Dr. Czech may receive up to an additional 350,000 shares of CytRx common stock.

In connection with the investment in the Subsidiary, CytRx acquired the rights to certain in-process research and development related to obesity and type 2 diabetes, which was owned by Dr. Czech. Because the in-process research and development acquired was not yet technologically feasible, CytRx recorded research and development expense of $1,073,000.

F-12

CYTRX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11. Merger with Global Genomics

On February 11, 2002, CytRx entered into an agreement to acquire Global Genomics, a privately-held genomics holding company, through a merger of GGC Merger Corporation, a wholly-owned subsidiary of CytRx, into Global Genomics. Global Genomics is a genomics holding company that currently has a 40% ownership interest in Blizzard and a 5% ownership interest in Psynomics. CytRx’s primary reasons for the acquisition were to (a) expand its business into the genomics field to diversify its product and technology base, and (b) gain the management and directors of Global Genomics, who could assist CytRx in developing corporate partnerships and acquisition, investment and financing opportunities not previously available to CytRx.

The transaction closed on July 19, 2002, after approval by the stockholders of each company and satisfaction of other customary closing conditions. Pursuant to the merger agreement, each outstanding share of common stock of Global Genomics was converted into .765967 shares of the Company’s common stock. The merger resulted in the issuance of 8,948,204 shares of the Company’s common stock and options and warrants to purchase 1,014,677 shares of the Company’s common stock to the former security holders of Global Genomics, with 498,144 shares of the Company’s common stock being held in escrow and subject to cancellation in whole or in part to satisfy any indemnification claims made by the Company under the merger agreement. These shares were released from escrow in 2003. CytRx issued an additional 548,330 shares of its Common Stock for investment banking and legal fees as part of the merger.

The merger was accounted for as a purchase by CytRx of a group of assets of Global Genomics in a transaction other than a business combination and was not considered to be a reverse acquisition. The Company considered the provisions of Statement of Financial Accounting Standards No. 141, Business Combinations (“SFAS 141”) and determined CytRx to be the acquiror for accounting purposes. Because the current activities of Global Genomics were focused on the development of a business rather than the operation of a business and planned principal operations of Global Genomics had not yet commenced, Global Genomics was considered a development-stage company. Therefore, in accordance with the guidance in Emerging Issues Task Force Issue No. 98-3 (“EITF 98-3”), “Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business,” Global Genomics did not constitute a business as defined in SFAS 141. Therefore, the Company allocated the purchase price in accordance with the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”) related to the purchase of a group of assets. SFAS 142 provides that the cost of a group of assets acquired in a transaction other than a business combination shall be allocated to the individual assets acquired based on their relative fair values and shall not give rise to goodwill.

The purchase price was determined in accordance with SFAS 141 and SFAS 142. A summary of the determination of the purchase price is as follows:


Issuance of 8,948,204 shares of CytRx common stock at $0.6475 per share	$	5,793,962
Fair value of 1,014,677 vested warrants issued to purchase CytRx common stock		598,659
Transaction costs		971,869

Total purchase price	$	7,364,490

Since Global Genomics was a development-stage company and no goodwill can arise from the purchase of a development-stage company, in accordance with the provisions of SFAS 141 and SFAS 142, all identifiable assets acquired, including identifiable intangible assets, were assigned a portion of the purchase price on the basis of their relative fair values. To this end, an independent appraisal of Global Genomics’ assets was used as an aid in determining the fair value of the identifiable assets, including identified intangible assets, in allocating the purchase price among the acquired assets. Global Genomics’ primary assets were its investments in Blizzard and Psynomics and thus, the fair value of each of these entities was determined. The

F-13

CYTRX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

discounted cash flow approach was used to determine the estimated fair value of the acquired intangible assets of Blizzard and Psynomics underlying Global Genomics’ investment in each company. Cash flows were projected for a period of 10 years and were discounted to net present value using discount factors of 46% to 60%. Material cash inflows from product sales were projected to begin in 2003 for Blizzard. A summary of the purchase price allocation is as follows:


Current assets	$	33,129
Investment in minority-owned entity – acquired developed technology		7,309,250
In-process research and development (recognized as an expense)		78,394
Less: Liabilities assumed		(56,283	)

Total purchase price	$	7,364,490

The in-process research and development was recorded as a charge for acquired incomplete research and development in the accompanying consolidated statement of operations and relates primarily to Global Genomics’ investment in Psynomics. The acquired developed technology primarily represents values assigned to Global Genomics’ investment in Blizzard’s DNA chip reader, thermal gradient station and T-Chips. The acquired technology was being amortized over a period of ten years until 2003, when CytRx wrote off its investment in Blizzard. The ten-year amortization period was determined through consideration of relevant patent terms (legal life), estimated technological and economic life, and the range of useful lives observed in public filings of other companies involved in similar DNA technologies.

Equity in Losses of Blizzard. The Company recorded its portion of the losses of Blizzard using the equity method. The equity in losses of Blizzard and the amortization of the acquired developed technology are reported as a separate line item in the accompanying consolidated statement of operations.

Impairment Test of Intangible Assets. In accordance with the provisions of Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock (“APB 18”), the Company reviewed the net values on its balance sheet as of September 30, 2003 assigned to Investment in Minority — Owned Entity — Acquired Developed Technology resulting from its acquisition of Global Genomics. APB 18 requires that a loss in value of an investment, which is other than a temporary decline, should be recognized as an impairment loss. Through the third quarter of 2003, Blizzard had been unsuccessful in its attempts to raise a significant amount of the financing necessary for it to pursue the commercialization strategy for its products.

CytRx’s analysis consisted of a review of current financial projections prepared by Blizzard, application of a discounted cash flow valuation model of Blizzard’s projected cash flows, and consideration of other qualitative factors. Based upon the quantitative and qualitative factors described above and in addition to others, CytRx’s management determined that the estimated fair value of CytRx’s investment in Blizzard was $0 and that an impairment charge of $5,868,000 was necessary in 2003.

F-14

CYTRX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, 2003 and 2002, the following assets related to Blizzard were reflected in CytRx’s balance sheets:


	2003			2002

Investment in minority owned entity — acquired developed technology	$	7,309,250		$	7,309,250
Receivable from Blizzard		16,640			16,640
Less: Accumulated amortization		(883,311	)		(335,049	)
Less: Equity-method losses to date		(574,381	)		(329,709	)
Less: Impairment charge		(5,868,198	)		—

	$	—		$	6,661,132

In addition, $16,640 of receivable from Blizzard was recorded in prepaid and other current assets as of December 31, 2002.


12.	Severance Payments to Officers

Pursuant to his employment agreement, CytRx’s former President and CEO (“Former CEO”) was entitled to a payment of $435,150 upon the execution of the merger agreement between CytRx and Global Genomics (see Note 10) and an additional $435,150 upon the closing of the merger. In order to reduce the amount of cash that CytRx had to pay to the Former CEO, CytRx and the Former CEO agreed that approximately $325,200 of the first $435,150 payment would be satisfied by CytRx granting a stock award to the Former CEO under the CytRx Corporation 2000 Long-Term Incentive Plan under which CytRx issued the Former CEO 558,060 shares of the Company’s common stock. Those shares of stock were issued at a value equal to 85% of the volume weighted average price of CytRx common stock for the 20 trading days ended on February 8, 2002. The cash payment and fair value of the shares issued were recognized as expense during the first quarter of 2002.

The terms of CytRx’s merger with Global Genomics contemplated that Global Genomics’ management team would replace that of CytRx’s subsequent to the closing of the merger. On July 16, 2002, CytRx terminated the employment of all of its then-current officers, resulting in total obligations for severance, stay bonuses, accrued vacation and other contractual payments of $1,394,000 (including the final $435,150 owed to the Former CEO). Prior to the merger closing date, CytRx advanced part of these amounts to three of its officers, such that the total remaining obligation at the closing date was $1,179,000. Four officers agreed to accept an aggregate total of $177,000 of such amount in the form of the Company’s common stock, in lieu of cash, resulting in the issuance of 248,799 shares. Thus, the net cash payout in satisfaction of these obligations was $1,002,000, before taxes. The severance payments and fair value of the shares issued were recognized as expense during the third quarter of 2002 and is reported as a separate line item on the accompanying consolidated statement of operations together with the cash payment and fair value of shares issued to the Former CEO discussed above.


13.	Stock Options and Warrants

CytRx has stock option plans pursuant to which certain key employees, directors and consultants are eligible to receive incentive and/or nonqualified stock options to purchase shares of CytRx’s common stock. Fixed options granted under the plans generally become exercisable over a three-year period from the dates of grant and have lives of ten years. The Company may also grant stock options and/or warrants to its Chief Executive Officer and other executive officers containing alternative or additional vesting provisions based on the achievement of corporate objectives. Exercise prices of all stock options and warrants for employees and directors are set at the fair market values of the common stock on the dates of grant.

F-15

CYTRX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During 2001 and 2000, the Company made modifications to and repriced certain outstanding employee and director stock options and warrants. As a result of the modification, these employee and director stock options and warrants are required to be accounted for as variable options under APB 25 and related Interpretations. Potential compensation expense is measured for each reporting period based on the intrinsic value of these employee stock options and warrants until the stock options or warrants are ultimately exercised, forfeited, cancelled or expire unexercised. In July 2002, certain employees were terminated (see Note 12) and their then outstanding stock options and warrants were modified to extend the exercise period to the original contract term. At the time of modification, no intrinsic value existed for these stock options and warrants; therefore, no additional compensation expense was recognized. For the years ended December 31, 2003, 2002 and 2001, compensation expense recognized was $20,000, $0 and $0, respectively, related to these employee and director stock options and warrants.

In connection with the Company’s acquisition of Global Genomics in July 2002 (see Note 11), CytRx issued 1,014,677 warrants to the holders of Global Genomics warrants in return for the cancellation of all of their outstanding Global Genomics warrants. The new warrants were 100% vested upon their issuance, have an exercise price of $0.01 per share and expire on January 31, 2007. Additionally, the acquisition of Global Genomics triggered the “Change of Control” provisions contained in the Company’s stock option plans and in the warrants held by the Company’s Former CEO, resulting in the immediate vesting of all outstanding warrants held by the Former CEO and of all outstanding stock options issued pursuant to the Company’s various stock options plans.

During 2003, 2002 and 2001, services were received in exchange for stock options and warrants issued to certain consultants, resulting in aggregate non-cash charges of $1,613,000, $230,000 and $1,441,000, respectively.

A summary of the Company’s stock option and warrant activity and related information for the years ended December 31 is shown below.



										Weighted Average Exercise
	Stock Options and Warrants									Price

	2003			2002			2001			2003		2002		2001

Outstanding — beginning of year		6,626,826			5,532,478			3,685,682		$	1.00	$	1.22	$	1.57
Granted		8,074,917			1,752,178			2,404,297			1.95		0.32		1.03
Exercised		(2,900,881	)		(200,000	)		(500,000	)		0.78		0.01		0.50
Forfeited		(875,000	)		(275,000	)		(7,501	)		0.35		0.80		1.45
Expired		(795,743	)		(182,830	)		(50,000	)		2.30		1.28		1.00

Outstanding — end of year		10,130,119			6,626,826			5,532,478			1.74		1.00		1.22

Exercisable at end of year		7,402,886			6,559,326			4,764,137		$	1.58	$	1.00	$	1.26
Weighted average fair value of stock options and warrants granted during the year:	$	0.78		$	0.52		$	0.66

F-16

CYTRX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes additional information concerning stock options and warrants outstanding and exercisable at December 31, 2003:



							Stock Options and Warrants
	Stock Options and Warrants Outstanding						Exercisable

			Weighted Average
			Remaining				Number of
	Number of		Contractual Life		Weighted Average		Shares		Weighted Average
Range of Exercise Prices	Shares		(years)		Exercise Price		Exercisable		Exercise Price

$0.01		608,291		3.1	$	0.01		608,291	$	0.01
0.20 - 1.05		3,544,412		5.2		0.80		3,417,737		0.80
1.80 - 2.67		4,014,353		8.3		2.19		1,413,795		2.11
3.05		1,958,063		4.8		3.05		1,958,063		3.05
7.75		5,000		1.2		7.75		5,000		7.75

		10,130,119		6.2	$	1.74		7,402,886	$	1.58

14. Stockholder Protection Rights Plan

Effective April 16, 1997, the Company’s Board of Directors declared a distribution of one right (“Rights”) for each outstanding share of the Company’s common stock to stockholders of record at the close of business on May 15, 1997 and for each share of common stock issued by the Company thereafter and prior to a Flip-in Date (as defined below). Each Right entitles the registered holder to purchase from the Company one-ten thousandth (1/10,000th) of a share of Series A Junior Participating Preferred Stock, at an exercise price of $30. The Rights are generally not exercisable until 10 business days after an announcement by the Company that a person or group of affiliated persons (an “Acquiring Person”) has acquired beneficial ownership of 15% or more of the Company’s then outstanding shares of common stock (a “Flip-in Date”). In connection with the merger agreement with Global Genomics, the Company’s Board of Directors amended the stockholders protection rights agreement to exempt the merger from triggering a Flip-in Date.

In the event the Rights become exercisable as a result of the acquisition of shares, each Right will enable the owner, other than the Acquiring Person, to purchase at the Right’s then-current exercise price a number of shares of common stock with a market value equal to twice the exercise price. In addition, unless the Acquiring Person owns more than 50% of the outstanding shares of common stock, the Board of Directors may elect to exchange all outstanding Rights (other than those owned by such Acquiring Person) at an exchange ratio of one share of common stock per Right. All Rights that are owned by any person on or after the date such person becomes an Acquiring Person will be null and void.

The Rights have been distributed to protect the Company’s stockholders from coercive or abusive takeover tactics and to give the Board of Directors more negotiating leverage in dealing with prospective acquirors.

15. Income Taxes

For income tax purposes, CytRx and its subsidiaries have an aggregate of approximately $67.2 million of net operating losses available to offset against future taxable income, subject to certain limitations. Such losses expire in 2004 through 2023 as of December 31, 2003. CytRx also has an aggregate of approximately $6.6 million of research and development and orphan drug credits available for offset against future income taxes that expire in 2004 through 2021.

Deferred income taxes reflect the net effect of temporary differences between the financial reporting carrying amounts of assets and liabilities and income tax carrying amounts of assets and liabilities. The

F-17

CYTRX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

components of the Company’s deferred tax assets and liabilities, all of which are long-term, are as follows (in thousands):



		December 31,

		2003			2002

Deferred tax assets:
	Net operating loss carryforward	$	27,047		$	22,101
	Tax credit carryforward		6,628			6,627
	Property and equipment and capital losses		5,488			3,129

Total deferred tax assets			39,163			31,857
Deferred tax liabilities — Depreciation and other			(2,683	)		(2,793	)
Net deferred tax assets			36,476			29,064
Valuation allowance			(36,476	)		(29,064	)

		$	—		$	—

Based on assessments of all available evidence as of December 31, 2003 and 2002, management has concluded that the respective deferred income tax assets should be reduced by valuation allowances equal to the amounts of the net deferred income tax assets since it is management’s conclusion that it is more likely than not that the deferred tax assets will not be realized. Furthermore, it is likely the July 19, 2002 acquisition of Global Genomics caused a change of ownership as defined by Internal Revenue Code Section 382 which may substantially limit the ability of the Company to utilize net operating losses. Generally, the net operating losses will be limited to an annual utilization of approximately 4.9% of the purchase price of Global Genomics.

For all years presented, the Company did not recognize any deferred tax assets or liabilities and deferred tax provision or benefit.

The provision for income taxes differs from the provision computed by applying the Federal statutory rate to net loss before income taxes as follows (in thousands):



	December 31,

	2003			2002			2001

Federal benefit at statutory rate	$	(6,066	)	$	(2,100	)	$	(317	)
State income taxes, net of Federal taxes		(1,070	)		(371	)		(56	)
Provision (benefit) related to change in valuation allowance		7,414			1,976			(94	)
Other		(278	)		495			467

	$	—		$	—		$	—

16. License Agreements

University of Massachusetts Medical School — In April 2003, CytRx acquired the rights to new technologies by entering into exclusive license arrangements with the UMMS covering potential applications of the medical institution’s proprietary gene silencing technology in the treatment of specified diseases, including those within the areas of obesity and type 2 diabetes, and amyotrophic lateral sclerosis, commonly known as Lou Gehrig’s disease (ALS), human cytomegalovirus, and covering UMMS’s proprietary technology with potential gene therapy applications within the area of cancer. In consideration of the licenses, CytRx made cash payments to UMMS totaling approximately $186,000 and issued it a total of 1,613,258 shares of CytRx common stock, which were valued for financial statement purposes at approximately $1,468,000. In May 2003, CytRx broadened its strategic alliance with UMMS by acquiring an exclusive license from that

F-18

CYTRX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

institution covering a proprietary DNA-based HIV vaccine technology. In consideration of this license, CytRx made cash payments to UMMS totaling approximately $18,000 and issued it 215,101 shares of CytRx common stock, which were valued for financial statement purposes at approximately $361,000. As the gene silencing technology from UMMS had not achieved technological feasibility at the time of its license by CytRx and had no alternative future uses and, therefore, no separate economic value, the aggregate total of $2,033,000 in cash payments and stock issued for acquisition of the technology was expensed as research and development in 2003.

17. Discontinued and Transferred Operations

Spectrum Recruitment Research — From 1996 to 2002, CytRx marketed the services of a small group of human resources professionals under the name of Spectrum Recruitment Research (“Spectrum”) as a way of offsetting the Company’s cost of maintaining this function. In February 2002, the operations of Spectrum were terminated and the rights to use the Spectrum tradenames were transferred to Albert, Isaac & Alexander, Inc., a consulting firm comprised of former CytRx (Spectrum) employees. Net income (loss) associated with the Spectrum activities included in loss from operations was approximately $5,000 and $(18,000) for 2002 and 2001, respectively.

18. Quarterly Financial Data (unaudited)

Summarized quarterly financial data for 2003 and 2002 is as follows (in thousands, except per share data):



	Quarter Ended

	March 31			June 30			September 30			December 31

2003
Total revenues	$	—		$	3		$	1		$	90
Net loss		(914	)		(5,046	)		(8,777	)		(3,108	)
Basic and diluted loss per common share		(0.04	)		(0.21	)		(0.30	)		(0.09	)

2002
Total revenues		1,054			15			1			50
Net loss		(179	)		(931	)		(2,547	)		(2,519	)
Basic and diluted loss per common share	$	(0.02	)	$	(0.08	)	$	(0.13	)	$	(0.12	)

19. Related Party Transactions

In July 2002, the Company entered into an agreement with Kriegsman Capital Group (“KCG”), whereby KCG or its affiliate The Kriegsman Group (“TKG”) agreed to provide CytRx with office space and certain administrative services. KCG and TKG are owned by Steven A. Kriegsman, CytRx’s President and CEO. During the years ended December 31, 2003 and 2002, the Company made net payments of $70,000 and $59,000, respectively, to KCG under this agreement. The charges were determined based upon actual space used and estimated percentages of employee time used. The Company believes that such charges approximated the fair value of the space and services provided. In October 2003, the services and facilities agreement with KCG was terminated as substantially all of the on-going operations of KCG have ceased. The obligations under the facility lease at the Company’s headquarters were transferred from KCG to CytRx in July 2003 and are reflected in Note 8 — Commitments and Contingencies.

CytRx has entered into various agreements, expiring in May 2004, with Cappello Capital Corp. (“Cappello Capital”), pursuant to which Cappello Capital will serve as the Company’s exclusive financial advisor. Alexander L. Cappello, one of the Company’s directors, is Chairman and Chief Executive Officer of

F-19

CYTRX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cappello Group, Inc., an affiliate of Cappello Capital. Under these agreements, Cappello Capital has assisted the Company with the analysis of potential transactions and strategic alternatives. The types of transactions that Cappello Capital may assist the Company with include private placements of equity, debt or convertible securities, strategic alliances, sale of all or a portion of CytRx, recapitalization or strategic acquisitions. If the Company proceeds with any of the transactions described in the agreement, CytRx is to pay Cappello Capital a fee equal to between 3% and 7.5% of the value of such a transaction, depending upon the nature of the transaction and the dollar amount involved. In 2001, as compensation for its services, the Company granted Cappello Capital a ten-year warrant to purchase 1,272,492 shares of CytRx’s common stock (subject to downward adjustment under certain conditions) with an exercise price of $1.00 per share (fair value of $1,063,000), which was fully vested at December 31, 2002. The fair value of the warrant issued was recognized as common stock, stock options and warrants issued for selling, general and administrative in the accompanying statements of operations and recognized based on the vesting terms of the warrant. During 2002, CytRx paid Cappello Capital a total retainer of $60,000. The fee paid to Cappello Capital upon the closing of the merger with Global Genomics was 448,330 shares of CytRx common stock, or 4.5% of the shares issuable in the merger. The fair value of those shares issued ($247,000) was considered a transaction cost of the merger and was included in the purchase price of Global Genomics. Fees paid to Cappello Capital in connection with the closing of the May 2003 Financing and the September 2003 Financing were $1,076,000 and fully-vested, ten-year warrants to purchase 794,771 shares of common stock with exercise prices ranging from $1.85 per share to $3.05 per share. During 2003, CytRx paid Cappello Capital a total retainer of $160,000.

Dr. Michael Czech, a 5% minority stockholder of the Subsidiary (see Note 10) and a member of CytRx’s and the Subsidiary’s Scientific Advisory Boards, is an employee of UMMS and party, as the principal investigator, to a sponsored research agreement between CytRx and UMMS. The Company recorded a minority interest liability of $350,050, representing the 5% interest in the Subsidiary held by Dr. Czech. Additionally, the Company recorded the fair value of 300,000 shares of its common stock as additional paid-in capital for the Company’s right to call and Dr. Czech’s right to put the remaining 5% interest in the Subsidiary to CytRx in exchange for a guaranteed amount of 300,000 shares of CytRx common stock. The fair value of these shares on the purchase date was approximately $723,000. During 2003, Dr. Czech was paid $18,000 for his Scientific Advisory Board services. In addition, upon the occurrence of certain events, Dr. Czech may receive up to an additional 350,000 shares of CytRx common stock. During 2003, CytRx paid UMMS $403,000 under the sponsored research agreement to fund a portion of Dr. Czech’s research.

20. Subsequent Events

SynthRx, Inc. — In October 2003, CytRx entered into an agreement to license its co-polymer technologies, including FLOCOR, Opti-Vax and related anti-infective products, on an exclusive basis to SynthRx, Inc., a Houston, Texas-based biopharmaceutical company that was formed by Dr. Robert Hunter in January 2004. Upon the final closing of this agreement, which the Company anticipates will occur in the second quarter of 2004, CytRx will receive a 19.9% ownership interest in SynthRx and an upfront payment of approximately $228,000 from SynthRx in return for rights to the technologies. CytRx will also receive significant milestone payments and royalties upon commercialization of any products developed under this alliance. The Company has no commitment for continuing involvement to earn the upfront payment or the future milestone payments. Dr. Hunter is a member of CytRx’s Scientific Advisory Board. In 2003, the Company did not record any revenues or costs related to transaction with SynthRx.

Massachusetts State Ethics Commission — In February 2004, CytRx was notified by the Massachusetts State Ethics Commission (the “MSEC”) that it has initiated a Preliminary Inquiry into whether the Company’s previous retention of a consultant who introduced the Company to UMMS constituted an improper conflict of interest under Massachusetts’s ethics laws. Since the inquiry is at a very preliminary stage, it is inherently difficult to predict whether the MSEC will decide to initiate any formal proceedings,

F-20

CYTRX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

whether any such proceedings will be directed at the Company or whether the Company will be found in any such proceedings to have violated any Massachusetts ethics laws. The Company also cannot estimate what its legal costs will be in connection with the matter, although such expenses could be substantial if a formal proceeding is initiated. Moreover, if the MSEC were to determine that CytRx’s conduct was unlawful, the MSEC could impose a number of different penalties or sanctions on the Company which, under certain circumstances, would have a material adverse effect on the Company’s business, results of operations, cash flows or financial condition.

Madison & Wall Worldwide, Inc. — On April 5, 2004, the Company was served with a complaint for breach of contract, filed by Madison & Wall Worldwide, Inc. (“M&W”), in the Superior Court of California, County of Orange on April 1, 2004. M&W, a former independent contractor to the Company, engaged to provide investor relations services, was seeking damages in excess of $700,000 in that lawsuit. On May 11, 2004, the Company reached an agreement in principle with M&W to settle this lawsuit by issuing the 200,000 shares of the Company’s common stock that were to have been earned and received by M&W upon the Company’s entering into the investor relations services contract with them and by the Company making an additional payment of $50,000 to M&W. The Company is in the process, with M&W, of preparing the documentation for this settlement.

F-21

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors

CytRx Corporation

We have audited the accompanying consolidated balance sheet of CytRx Corporation as of December 31, 2003 and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended. We have also audited the schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CytRx Corporation at December 31, 2003 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

Also, in our opinion, the schedule presents fairly, in all material respects, the information set forth therein.

/s/ BDO SEIDMAN, LLP

Los Angeles, California

May 10, 2004

F-22

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

CytRx Corporation

We have audited the accompanying consolidated balance sheet of CytRx Corporation as of December 31, 2002, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of CytRx Corporation at December 31, 2002 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ ERNST & YOUNG LLP

Atlanta, Georgia

March 25, 2003

F-23

CYTRX CORPORATION

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



					Additions

			Balance at		Charged to		Charged to
			Beginning of		Costs and		Other				Balance at
Description			Period		Expenses		Accounts		Deductions		End of Period

Reserve Deducted in the Balance Sheet from the Asset to Which it Applies:
	Allowance for Bad Debts
		Year ended December 31, 2003	$	—	$	4,939	$	16,640	$	21,579	$	—
		Year ended December 31, 2002		39,050		—		—		39,050		—
		Year ended December 31, 2001	$	11,900	$	27,150	$	—	$	—	$	39,050
	Allowance for Deferred Tax Assets
		Year ended December 31, 2003	$	29,064,000	$	—	$	7,414,000	$	—	$	36,478,000
		Year ended December 31, 2002		27,088,000		—		1,976,000		—		29,064,000
		Year ended December 31, 2001	$	27,182,000	$	—	$	—	$	94,000	$	27,088,000

F-24

BLIZZARD GENOMICS, INC.

(A Development-stage Company)

BALANCE SHEETS



		December 31,

		2003			2002

ASSETS
Current assets:
	Cash	$	337		$	28,264
	Prepaid expense		542			810

Total current assets			879			29,074
Property and equipment, net			1,582			13,274
Lease deposit			—			1,920

Total assets		$	2,461		$	44,268

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
	Accounts payable	$	308,285		$	288,527
	Accounts payable — shareholder		174,902			134,725
	Notes payable		25,000			—
	Accrued liabilities		560,460			167,137

Total current liabilities			1,068,647			590,389

Long-term convertible notes payable, net			191,040			129,708

Commitments and contingencies
Shareholders’ deficit:
	Common stock, no par value; 10,000,000 shares authorized; 3,251,109 issued and outstanding		2,359,303			2,350,803
	Deficit accumulated during the development stage		(3,616,529	)		(3,026,632	)

Total shareholders’ deficit			(1,257,226	)		(675,829	)

Total liabilities and shareholders’ deficit		$	2,461		$	44,268

The accompanying notes are an integral part of these balance sheets.

F-25

BLIZZARD GENOMICS, INC.

(A Development-stage Company)

STATEMENTS OF OPERATIONS


											December 1,
											1999
		Years Ended December 31,									(Inception) to
											December 31,
		2003			2002			2001			2003

Revenues		$	—		$	—		$	—		$	—
Expenses:
	Research and development		139,992			970,268			493,590			2,003,850
	Marketing		29,600			55,557			29,053			114,210
	General and administrative		378,712			755,724			269,737			1,516,662

Total expenses			548,304			1,781,549			792,380			3,634,722

Loss before other income and expense			(548,304	)		(1,781,549	)		(792,380	)		(3,634,722	)
Interest expense			(34,663	)		(10,220	)		—			(44,883	)
Interest income			—			5,116			56,125			70,006
Loss on disposal of equipment			(6,930	)		—			—			(6,930	)

Net loss		$	(589,897	)	$	(1,786,653	)	$	(736,255	)	$	(3,616,529	)

The accompanying notes are an integral part of these financial statements.

F-26

BLIZZARD GENOMICS, INC.

(A Development-stage Company)

STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)


					Deficit
					Accumulated
	Common Stock				During the
					Development
	Shares		Amount		Stage			Total

Initial capitalization		1,010,000	$	1,112	$	—		$	1,112
Common stock issued in connection with December 1999 sublicense agreement		673,332		200,000		—			200,000
Net loss — 1999		–		–		(200,000	)		(200,000	)

Balance at December 31, 1999		1,683,332		201,112		(200,000	)		1,112
Common stock issued in November 2000 upon the exercise of stock warrants at $0.20 per share		67,333		13,467		—			13,467
Common stock issued in connection with December 2000 sublicense agreement at $1.00 per share		200,000		200,000		—			200,000
Common stock issued for cash during 2000 at $1.254 per share		1,300,444		1,630,577		—			1,630,577
Net loss — 2000		—		—		(303,724	)		(303,724	)

Balance at December 31, 2000		3,251,109		2,045,156		(503,724	)		1,541,432
Issuance of compensatory stock options		—		25,936		—			25,936
Net loss — 2001		—		—		(736,255	)		(736,255	)

Balance at December 31, 2001		3,251,109		2,071,092		(1,239,979	)		831,113
Issuance of compensatory stock options and warrants		—		254,211		—			254,211
Issuance of warrants with convertible debt		—		25,500		—			25,500
Net loss — 2002		—		—		(1,786,653	)		(1,786,653	)

Balance at December 31, 2002		3,251,109		2,350,803		(3,026,632	)		(675,829	)
Issuance of warrants with convertible debt		—		8,500		—			8,500
Net loss — 2003		—		—		(589,897	)		(589,897	)

Balance at December 31, 2003		3,251,109	$	2,359,303	$	(3,616,529	)	$	(1,257,226	)

The accompanying notes are an integral part of these financial statements.

F-27

BLIZZARD GENOMICS, INC.

(A Development-stage Company)

STATEMENTS OF CASH FLOWS


													December 1,
													1999
				Years Ended December 31,									(Inception) to
													December 31,
				2003			2002			2001			2003

Cash flows from operating activities:
Net loss				$	(589,897	)	$	(1,786,653	)	$	(736,255	)	$	(3,616,529	)
Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization			4,449			4,229			2,085			12,411
		Loss on sale of assets			6,930			—			—			6,930
		Research and development from issuance of common stock			—			—			—			400,000
		Write-off of sublicense agreement and organization costs			—			61,769			31,880			93,649
		Accretion of interest on debt discount			19,832			5,208			—			25,040
		Compensation from issuance of options			—			254,211			25,936			280,147
		Changes in assets and liabilities:
			Prepaid expense		268			(810	)		1,206			(542	)
			Lease deposit		1,920			—			(1,920	)		—
			Accounts payable		19,758			189,093			92,403			306,144
			Accounts payable — shareholder		40,177			43,862			(7,500	)		84,039
			Other liabilities		393,323			164,637			2,500			560,460

Net cash used in operating activities					(103,240	)		(1,064,454	)		(589,665	)		(1,848,251	)

Cash flows from investing activities:
Purchase of property and equipment					—			(4,904	)		(10,877	)		(17,110	)
Proceeds received from the sale of assets					313			—			—			313
Payment for other assets					—			—			—			(2,000	)

Net cash provided by (used in) investing activities					313			(4,904	)		(10,877	)		(18,797	)

Cash flows from financing activities:
Proceeds from issuance of common stock					—			—			—			1,645,044
Payment due to shareholder					—			—			—			(2,659	)
Proceeds from issuance of notes payable					25,000			—			—			25,000
Proceeds from issuance of convertible notes and warrants					50,000			150,000			—			200,000

Net cash provided by financing activities					75,000			150,000			—			1,867,385

(Decrease) increase in cash					(27,927	)		(919,358	)		(600,542	)		337
Cash at beginning of period					28,264			947,622			1,548,164			—

Cash at end of period				$	337		$	28,264		$	947,622		$	337

Supplemental disclosure of cash flow information:
	Cash paid during the period for interest			$	14,831		$	5,012		$	—		$	19,843
	Cash paid during the period for taxes			$	—		$	—		$	—		$	—

The accompanying notes are an integral part of these financial statements.

F-28

BLIZZARD GENOMICS, INC.

(A Development-stage Company)

NOTES TO FINANCIAL STATEMENTS

Years Ended December 31, 2003, 2002 and 2001 and the Period From

December 1, 1999 (Date of Inception) to December 31, 2003


1.	Nature of Organization and Development Stage Operations

Blizzard Genomics, Inc. (the Company or Blizzard) is a Minnesota Corporation incorporated and capitalized on December 1, 1999. The Company is a development-stage company that, pursuant to an exclusive worldwide sublicense agreement, participates in the design, development and eventual marketing and selling of instrumentation used in genomics research.

To date, the Company has relied primarily upon selling equity securities and borrowings to generate the funds needed to finance its operations. Currently, the Company doesn’t have enough cash on hand to sustain operations and is trying to find additional investors to invest capital. As of December 31, 2003, current liabilities exceed current assets by $1,067,768. Unless the Company raises significant amounts of cash in the near future, the Company will not be able to continue as a going concern.


2.	Summary of Significant Accounting Policies

Property and Equipment — Property and equipment are stated at cost and depreciated using the straight-line methods based on the estimated useful lives (generally three to five years) of the related assets. Whenever there is a triggering event that might suggest an impairment, management evaluates the realizability of recorded long-lived assets to determine whether their carrying values have been impaired. The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the nondiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. Any impairment loss is measured by comparing the fair value of the asset to its carrying amount.

Patent Costs — Through 2001, costs incurred to reimburse the University of Minnesota (UofM) for patent related costs, as provided for in the sublicense agreement (Note 4), were capitalized. As the genomics products were still in development, no amortization was recognized during the period from December 1, 1999 (date of inception) to December 31, 2001.

During 2002, all previously capitalized patent costs of $58,983 were written-off due to the continued uncertainty that Blizzard will develop viable genomics products and the substantial doubt about Blizzard’s ability to continue as a going concern. Costs to reimburse UofM for patent-related costs will continue to be expensed as incurred until the Company has developed viable genomics products. The write-off of previously capitalized costs is classified in general and administrative expense in the accompanying statement of operations.

Research and Development Costs — Research and development expenses consist of costs incurred for direct research and are expensed as incurred.

Stock Based Compensation — Statements of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation (SFAS 123), establishes a fair value method of accounting for stock-based compensation plans and for transactions in which a company acquires goods or services from non-employees in exchange for equity instruments. These transactions must be accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The Company has accounted for the transactions based on the fair values of the equity instruments issued and has used the guidance in the Emerging Issues Task Force Abstract (EITF) No. 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, to measure and record the compensation expense.

F-29

BLIZZARD GENOMICS, INC.

(A Development-stage Company)

NOTES TO FINANCIAL STATEMENTS — (Continued)

One of the Company’s non-employee related-party consultants who received warrants became an employee in 2002. The Company accounted for these warrants in accordance with Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related interpretations once the individual became an employee. No stock-based employee compensation cost is reflected in the accompanying statement of operations from the time the individual became an employee, as the warrants had an exercise price equal to or greater than the market value of the underlying common stock on the date of the individual became an employee.

In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123 (SFAS 148). SFAS 148 amends SFAS 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for companies that voluntarily change to the fair value based method of accounting for stock-based compensation. It also amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and quarterly financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company will continue to account for employee-based stock compensation in accordance with APB No. 25 and related interpretations.

The following table illustrates the effect on net loss if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:


										December 1,
	Years Ended December 31,									1999 (Inception) to
										to December 31,
	2003			2002			2001			2003

Net loss as reported	$	(589,897	)	$	(1,786,653	)	$	(736,255	)	$	(3,616,529	)
Deduct: Total employee stock-based compensation expense determined under the fair value method		—			(40,906	)		—			(40,906	)

Pro forma net loss	$	(589,897	)	$	(1,827,559	)	$	(736,255	)	$	(3,657,435	)

Income Taxes — Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes, if any. Deferred taxes represent the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Fair Value of Financial Instruments — The carrying amounts reported in the balance sheets for cash, accounts payable, accounts payable — shareholder, and notes payable approximate their fair values.

Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions about the future outcome of current transactions which may affect the reporting and disclosure of these transactions. Accordingly, actual results could differ from those estimates used in the preparation of these financial statements.

Recently Issued Accounting Standards — In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). This statement changes the classification of certain financial instruments from equities to liabilities. The three types of financial instruments requiring the change in classification are: (1) mandatorily redeemable shares, which the issuing company is obligated to buy back in exchange for cash or other assets; (2) put options and forward purchase contracts; and (3) obligations that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such

F-30

BLIZZARD GENOMICS, INC.

(A Development-stage Company)

NOTES TO FINANCIAL STATEMENTS — (Continued)

as a market index, or varies inversely with the value of the issuer’s shares. This statement is effective for all financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted SFAS 150 as of July 1, 2003, which did not have a material impact on its financial statements.

In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (SFAS 149). This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This Statement is generally effective for contracts entered into or modified after June 30, 2003 and hedging relationships designated after June 30, 2003. The Company will apply the provisions of SFAS 149 for any derivative instruments or hedging activities entered into after June 30, 2003. As the Company has not entered into derivative instruments or hedging activities, adoption of this statement does not have a material impact on the Company’s financial statements.


3.	Property and Equipment

Property and equipment as of December 31, 2003 and 2002, consist of the following:


	2003			2002

Computer and office equipment	$	3,163		$	13,096
Furniture and fixtures		—			6,284

		3,163			19,380
Less: accumulated depreciation		(1,581	)		(6,106	)

Property and equipment, net	$	1,582		$	13,274

Depreciation expense was $4,449, $4,229, and $1,157 in 2003, 2002, and 2001, respectively, and $10,555 for the period from December 1999 (date of inception) to December 31, 2003.


4.	License and Sublicense Agreements and Rights

In December 1999, two of the Company’s shareholders, SOTA TEC Fund (STF) and the U of M entered into a license agreement whereby STF was granted the exclusive worldwide right to sublicense the right to help develop, use, sell, lease or otherwise dispose of genomics products, services, and technology being developed by U of M (specified R&D activities). In exchange for the license, STF is required to share with U of M one-half of any income generated by sublicensing the products, services and technology resulting from the specified R&D activities. In addition, STF granted $200,000 to U of M to fund the on-going specified R&D activities. U of M retains sole title to any patent and patent applications filed on the products, services and technology.

In December 1999, STF and the Company entered into a sublicense agreement whereby the Company was granted the worldwide right under U of M’ s and STF’s license to help develop, use, sell, lease or otherwise dispose of products, services, and technology being developed by the specified R&D activities. Pursuant to this sublicense agreement, the Company issued 673,332 shares of common stock valued at $200,000. This cost was expensed in 1999 as research and development. In addition, Blizzard issued warrants to purchase 67,333 shares of its common stock at $.20 per common share. These warrants were exercised during the year ended December 31, 2000.

F-31

BLIZZARD GENOMICS, INC.

(A Development-stage Company)

NOTES TO FINANCIAL STATEMENTS — (Continued)

In November 2000, STF and U of M renegotiated the license agreement under substantially similar terms with STF granting an additional $200,000 to U of M to fund the specified R&D activities. The agreement will expire on the later of the last expiration date of any patent ultimately issued as a result of the specified R&D activities (or should no patent be issued, on November 2015) or upon the termination of the last effective sublicense granted by STF.

In December 2000, STF and the Company renegotiated their sublicense agreement under substantially similar terms as the previous sublicense agreement. Pursuant to the renegotiated sublicense agreement, the Company issued an additional 200,000 shares of common stock valued at $200,000. This cost was expensed in 2000 as research and development. The agreement will expire the later of the last expiration date of any patent subject to the agreement or December 2015, but in any case, no later than the termination of the STF and U of M license agreement.

Pursuant to both sublicense agreements, the Company agreed to reimburse U of M for all reasonable out-of-pocket expenses incurred by U of M for STF or the Company’s requested filing, maintenance, and prosecution of U.S. and foreign patents and patent applications. Beginning in 2002, all such costs are expensed as incurred. Prior to 2002, the Company capitalized these costs and reflected them as an asset in the balance sheet. In 2002, all previously capitalized costs were written-off (Note 2).


5.	Related-Party Transactions


	*Consulting Agreements*

During 2003, 2002 and 2001, the Company entered into consulting agreements with various parties, including several related-parties, including officers, directors and minority shareholders. These transactions are more fully discussed in Notes 6 and 7.


	*Officer, Director and Minority Shareholder Stock Options*

The Company had outstanding the following stock options that were granted to officers, directors and minority shareholders as additional compensation under the terms of the related party consulting contracts as of December 31, 2003:


Common Shares		Exercise Price
Under Option		Per Share		Expiration Date

	195,000	$	1.30		December 2004
	45,000	$	1.30		May 2005

	240,000

Of the total outstanding options granted under these consulting contracts as discussed above, options to acquire up to an aggregate of 240,000 shares of common stock are exercisable at December 31, 2003.

The Company also issued 620,000 warrants to related parties during 2002. One of these individuals who were granted warrants as a non-employee consultant became an employee during the year. The warrants have an exercise price of $1.30, a contractual life of five years, and will be fully vest by March 2004 (Note 6).

Patent Costs

At December 31, 2003, and 2002, the Company was indebted to a shareholder for patent development costs incurred per the sublicense agreement totaling $174,902 and $134,725, respectively (Note 4), which is included in accounts payable — shareholder on the accompanying balance sheets.

F-32

BLIZZARD GENOMICS, INC.

(A Development-stage Company)

NOTES TO FINANCIAL STATEMENTS — (Continued)

Other Liabilities

At December 31, 2003 and 2002, the Company was indebted to a shareholder for $17,475, which is included in other liabilities.

The Company agreed to issue common stock with a value of $2,500 to a shareholder when the Company next issues shares of stock in exchange for cash. The Company received $2,500 of services from the shareholder in exchange for the promise to issue common stock. The $2,500 commitment is recorded in other liabilities.

Rent

During 2000 through October 2001, the Company rented office space on a month-to-month basis from an officer, who was also a director and shareholder. Rent expense to this related party was $4,000 and $3,500 for 2001 and 2000, respectively. Rent expense to this related party for the period from December 1, 1999 (date of inception) to December 31, 2003 aggregated $7,500.

6. Shareholders’ Deficit

Stock Options

In November 2000, the Company adopted a stock option plan. Pursuant to the plan, a committee appointed by the Board of Directors may grant, at its discretion, qualified or nonqualified stock options to key individuals, including employees, non-employee directors and independent contractors. Option prices for qualified incentive stock options (which may only be granted to employees) issued under the plan may not be less than 100% of the fair market value of the common stock on the date the option is granted (unless the option is granted to an employee who, at the time of grant, owns more than 10% of the total combined voting power of all classes of stock of the Company; in which case the option price may not be less than 110% of the fair market value of the common stock on the date the option is granted). Option prices for nonqualified stock options issued under the plan are at the discretion of the committee and may be equal to, greater or less than fair market value of the common stock on the date the option is granted. The options vest over periods determined by the Board of Directors and are exercisable no later than ten years from date of grant (unless they are qualified incentive stock options granted to an employee owning more than 10% of the total combined voting power of all classes of stock of the Company, in which case the options are exercisable no later than five years from date of grant). As of December 31, 2003, the Company has reserved 800,000 shares of common

F-33

BLIZZARD GENOMICS, INC.

(A Development-stage Company)

NOTES TO FINANCIAL STATEMENTS — (Continued)

stock for issuance under the plan and has granted nonqualified options for up to 412,500 shares. A summary of stock options granted is as follows:


					Weighted
					Average
		Options			Exercise Price
		Outstanding			Per Share

Balance at November 30, 2000			—		$	—
	Granted		339,000			1.30

Balance at December 31, 2000			339,000			1.30
	Granted		405,500			1.30
	Canceled		(6,000	)		1.30

Balance at December 31, 2001			738,500			1.30
	Granted		186,250			1.30
	Canceled		(363,000	)		1.30

Balance at December 31, 2002			561,750			1.30
	Granted		135,000			1.30
	Canceled		(284,250	)		1.30

Balance at December 31, 2003			412,500			1.30

The nonqualified stock options granted to purchase 412,500 shares of the Company’s common stock were all issued to non-employee consultants, with the exception of an option granted in 2003 to an employee to purchase 15,000 shares, including certain related parties (Note 5). The Company has accounted for these options in accordance with SFAS No. 123 and the guidance provided by EITF 96-18. As a result, the Company recognized consulting expense when services are received equal to the fair market value of the stock options issued as determined at the measurement dates prescribed in EITF 96-18. The Company estimates fair value of each stock option at the measurement date by using the Black-Scholes option-pricing model with the following weighted-average assumptions:



	December 31,

	2003			2002			2001

Weighted-average estimated option life		1.3			2-3.5			4
Expected volatility		—			.4			—
Weighted-average risk-free interest rate		1.45	%		3.10	%		3.59	%
Dividend yield		—			—			—

As a result, the Company has recorded $0, $71,655, and $25,936 of consulting expense relating to these options for the years ended December 31, 2003, 2002, and 2001, respectively. Consulting expense for the period from December 1, 1999 (date of inception) to December 31, 2003 aggregated $197,591.

The following table summarizes information about stock options outstanding at December 31, 2003:

Options Outstanding

Options Exercisable

Weighted-

Average

Weighted-

Number

Remaining

Weighted-

Number

Average

Exercise

Outstanding

Contractual

Average

Outstanding at

Exercise

Price

at 12/31/03

Life

Exercise Price

12/31/03

Price

$1.30

412,500

1.3 years

1.30

367,500

1.30

F-34

BLIZZARD GENOMICS, INC.

(A Development-stage Company)

NOTES TO FINANCIAL STATEMENTS — (Continued)

Of the 367,500 options which are exercisable at December 31, 2003, 240,000 relate to options granted to related parties (Note 5).

Warrants

On February 1, 2002, the Company granted 300,000 warrants each to two related-party non-employee consultants. The warrants vest over a two-year period, have an exercise price of $1.30, and a contractual life of 5 years.

The Company has accounted for these warrants in accordance with SFAS No. 123 and EITF 96-18. As a result, the Company has recognized consulting expense equal to the fair market value of the warrants issued as determined at the measurement dates prescribed in EITF 96-18. The Company estimates fair value of each warrant at the measurement date by using the Black-Scholes option-pricing model with the following assumptions as of December 31, 2003: no dividend yield, expected volatility of 0%, contractual option life of 1.3 years, and risk-free interest rate of 1.45%. As of December 31, 2003, the Company’s warrants were estimated to have no material value. The Company has recorded $0 and $172,825 of consulting expense relating to these warrants in 2003 and 2002, respectively.

During 2002, one of the individuals who was granted warrants as a non-employee became an employee of the Company. The Company has elected to account for equity instruments issued to employees under APB No. 25. Accordingly, the Company measured the intrinsic value of the warrants on the date the individual became an employee. No intrinsic value existed on this date, and thus, no expense related to these warrants has been recognized since the individual became an employee (Note 2). Had the warrants been accounted for in accordance with SFAS No. 123 during the time the individual was an employee, the Company would have recognized additional expense of $40,906. The assumptions used to measure this pro forma expense were the same as those described in the preceding paragraph.

The Company also granted 20,000 warrants to a related party during 2002. The warrants vest in April 2003. The Company has estimated the fair value of these warrants using the Black-Scholes option-pricing model, with similar assumptions to those described above. The expense is being recognized ratably over the 12-month period from the date of grant through the vesting date in April 2003. As a result, the Company has recorded $0 and $7,081 of expense relating to these warrants, in 2003 and 2002, respectively.

The Company also issued 5,000 warrants to other non-employees during the 2002. Total consulting expense recognized in 2002 related to these warrants was $2,650.

7. Commitments and Contingencies

Consulting Agreements

During 2003, 2002, 2001 and 2000, the Company entered into consulting agreements with various individuals, including independent third parties (third parties) and several officers, directors and minority shareholders (related parties). Pursuant to the consulting agreements, the individuals provide the Company guidance and direction with the research and development and marketing plans for the genomics instrumentation and/or the overall business strategy and growth of the Company. The consulting agreements are for various terms expiring through March, 2004 (or, if applicable, until such time the individual is no longer employed by U of M) with the exception of one related party and one third-party consulting agreement, both of which have month-to-month terms. As of December 31, 2003, all remaining consulting agreements are based upon an hourly rate for services rendered on an on-going basis.

In addition to the cash compensation paid to these individuals, stock options to purchase a total of 412,500 shares (240,000 and 172,500 shares to related parties and third parties, respectively) of common stock

F-35

BLIZZARD GENOMICS, INC.

(A Development-stage Company)

NOTES TO FINANCIAL STATEMENTS — (Continued)

at $1.30 per share were also issued to the consultants (Note 6). Along with the above future minimum cash consulting payments, the Company will recognize compensation expense on an annual basis over the consulting contracts’ terms for the fair value of such options as determined at that time.

During 2003, 2002, and 2001, consulting expense incurred, including expense recognized for the fair value of the portion of the stock options and warrants relating to the lapsed period of the contracts, was as follows:



	2003

	Third		Related
	Parties		Parties		Total

Cash compensation	$	80,075	$	207,001	$	287,076



	2002

	Third		Related
	Parties		Parties		Total

Cash compensation	$	70,605	$	277,400	$	348,005
Stock-based compensation		21,356		232,855		254,211

	$	91,961	$	510,255	$	602,216



	2001

	Third		Related
	Parties		Parties		Total

Cash compensation	$	33,850	$	255,754	$	289,604
Stock-based compensation		4,811		21,125		25,936

	$	38,661	$	276,879	$	315,540

Total related-party and third-party consulting expense for the period December 1, 1999 (date of inception) to December 31, 2003 aggregated $1,031,135 and $210,697, respectively.

At December 31, 2003 and 2002, $252,515 and $93,250, respectively, were due to related-party consultants and included in accounts payable on the accompanying balance sheets.

At December 31, 2003 and 2002, $131,925 and $19,550, respectively, were due to independent third-party consultants and included in accounts payable on the accompanying balance sheets.


	*Operating Lease*

The Company currently is utilizing a portion of the office space of a related party at no cost. In 2003, the Company leased office space under an operating lease agreement that commenced in November 2001 and expired in October 2003. Monthly rent under that agreement included a base rent of approximately $1,100, plus operating expenses.

During 2000 through October 2001, the Company rented office space from an officer, who was also a director and shareholder, on a month-to-month basis (Note 5.)

Total rent expense aggregated $12,980, $23,411, and $9,759 for 2003, 2002, and 2001, respectively. Total rent expense for the period from December 1, 1999 (date of inception) to December 31, 2003 aggregated $49,650.

F-36

BLIZZARD GENOMICS, INC.

(A Development-stage Company)

NOTES TO FINANCIAL STATEMENTS — (Continued)

8. Income Taxes

Deferred taxes represent the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax reporting purposes. Temporary differences result primarily from the recording of tax benefits of net operating loss carryforwards and start-up costs, of which start-up costs will be amortized for tax purposes once the Company begins doing business as defined by tax code.

As of December 31, 2003, the Company has an insufficient history to support the likelihood of ultimate realization of the benefit associated with the deferred tax asset. Accordingly, a valuation allowance has been established for the full amount of the net deferred tax asset.

Deferred taxes consisted of the following at December 31:


	2003			2002

Net operating loss carryforwards and other assets	$	1,136,000		$	935,000
Less valuation allowance		(1,136,000	)		(935,000	)

Net deferred tax asset	$	—		$	—

At December 31, 2003, the Company had net operating loss carryforwards aggregating approximately $2.0 million, which expire through 2023. The utilization of the carryforwards is dependent upon the Company’s ability to generate sufficient taxable income during the carryforward period.

9. Convertible Notes

The Company issued convertible debentures with detachable warrants during 2003 and 2002 in the amounts of $50,000 and $150,000, respectively, to related-party investors. The face amounts of the debentures aggregate $200,000. The debentures issued in 2003 and 2002 mature in October 2004 and March 2004, and bear an annual interest rate of 8%. In the event that the Company completes, during the term of the debentures, a sale of common and/or preferred stock for an amount equal to or in excess of $500,000, the principal and accrued interest due under the debenture will be automatically converted into the same class of shares sold in the sale of common and/or preferred stock at a price per-share equal to 90% of the per share price for which such shares were sold. In the event the debentures have not been converted prior to their maturity date, the holders have the right to convert all, but not less than all, of the principal and accrued interest due at maturity into shares of common stock at a conversion price per share equal to 80% of the fair-value price per-share of common stock at the time of conversion. Fair value of the common stock will be the price per-share paid by the last independent outside investor who purchased shares of common stock of the Company after the date the debentures were issued having a value of the least $100,000 in a single investment. If no such purchase has been made, fair value will be defined as the greater of two times per share revenue (on a fully diluted basis) of the Company for the last calendar year or $1.30. Through March 30, 2004, the Company has not sold any shares of common or preferred stock since the issuance of the debentures.

The convertible debentures include detachable warrants. The warrants are exercisable into 66,667 shares of the Company’s common stock at an exercise price of $1.30. The warrants were immediately vested upon issuance of the debentures and can be exercised at any time through their expiration date in 2007. The Company accounted for the issuance of the convertible debentures with detachable warrants under APB No. 14, Accounting for Convertible Debt and Debt Issued With Stock Purchase Warrants (APB 14). APB 14 requires the issuer to allocate fair value to each of the instruments issued — the warrants and the debentures. The value allocated to the warrants is a discount of the debenture’s face amount and is amortized to interest expense over the life of the debentures using the effective interest rate method. The fair value of the warrants

F-37

BLIZZARD GENOMICS, INC.

(A Development-stage Company)

NOTES TO FINANCIAL STATEMENTS — (Continued)

was determined using the Black-Scholes option-pricing model with the following assumptions: no dividend yield; weighted average life of five years; expected volatility of .4; and weighted average risk-free interest rate of 3.82%. As a result, the Company allocated $34,000 of fair value to the warrants, which was initially recorded as a debt discount and issuance of common stock. During 2003 and 2002, $19,832 and $5,208, respectively, of the discount was amortized to interest expense.

10. Supplemental Disclosures of Non-Cash Flow Transactions

During the years ended December 31, 2003 and 2002, the Company recorded a reduction in its convertible notes payable for the value of the stock warrants issued in connection with such notes in the amount of $8,500 and $25,500, respectively.

During the year ended December 31, 2001, $48,166 of patent costs were capitalized and incurred through issuance of accounts payable — shareholder.

In December 2000, the Company incurred $200,000 of research and development expense pursuant to the sublicense agreement by issuing 200,000 shares of common stock (Note 4).

In January 2000, in connection with the initial capitalization, the Company recorded certain assets received and liabilities assumed as follows and recorded common stock as follows:


Property and equipment	$	2,270
Sublicense costs		42,697
Other assets		2,642
Accounts payable		(2,141	)
Accounts payable — shareholder		(42,697	)
Other liabilities		(2,659	)
Common stock		(112	)

	$	—

In December 1999, the Company incurred $200,000 of research and development expense pursuant to the sublicense agreement by issuing 673,332 shares of common stock (Note 4).

11. Subsequent Event

Sale of Certain Assets — On February 11, 2004, the Company entered into an agreement with Lokoya Advisors, LLC (“LA”), whereby LA was engaged to assist the Company in the sale of some, or all, of the Company’s assets.

F-38

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors

Blizzard Genomics, Inc.

We have audited the accompanying balance sheet of Blizzard Genomics, Inc. as of December 31, 2003 and the related statements of operations, stockholders’ deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Blizzard Genomics, Inc. at December 31, 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. In addition, as discussed in Note 11 to the financial statements, on February 11, 2004, the Company entered into an agreement to sell some or all of the Company’s assets. The financial statements do not include any adjustments that might result from these uncertainties and potential liquidation.

/s/ BDO SEIDMAN, LLP

May 10, 2004

F-39

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders

Blizzard Genomics, Inc.

We have audited the accompanying balance sheet of Blizzard Genomics, Inc. (a development-stage company) as of December 31, 2002, and the related statements of operations, shareholders’ equity (deficit), and cash flows for the year then ended and for the period December 1, 1999 (date of inception) through December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements for the period December 1, 1999 (date of inception) through December 31, 2001, were audited by other auditors whose report dated March 26, 2002 expressed an unqualified opinion on those statements. The financial statements for the period December 1, 1999 (date of inception) through December 31, 2001 include a net loss of $1,239,979. Our opinion on the statements of operations, shareholders’ equity (deficit), and cash flows for the period December 1, 1999 (date of inception) through December 31, 2002, insofar as it relates to amounts for prior periods through December 31, 2001, is based solely on the report of other auditors.

We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Blizzard Genomics, Inc. at December 31, 2002, and the results of its operations and cash flows for the year then ended and for the period from December 1, 1999 (date of inception) through December 31, 2002, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 1 to the financial statements, the Company’s recurring losses and net capital deficiency raise substantial doubt about its ability to continue as a going concern. The 2002 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ ERNST & YOUNG LLP

Atlanta, Georgia

March 5, 2003

F-40

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders

Blizzard Genomics, Inc.

St. Paul, Minnesota

We have audited the accompanying statements of operations, shareholders’ equity and cash flows for the year ended December 31, 2001 and the period from December 1, 1999 (date of inception) to December 31, 2001 of Blizzard Genomics, Inc. (a development-stage company). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows for the year then ended and the period December 1, 1999 (date of inception) to December 31, 2001 of Blizzard Genomics, Inc. (a development-stage company), in conformity with accounting principles generally accepted in the United States of America.

/s/ SILVERMAN OLSON THORVILSON
& KAUFMANN LTD

SILVERMAN OLSON THORVILSON &
KAUFMANN LTD

CERTIFIED PUBLIC ACCOUNTANTS

Minneapolis, Minnesota

March 26, 2002

F-41

Exhibit 3.5

CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF CYTRX CORPORATION

CytRx Corporation, a Delaware corporation (the "Company"), hereby certifies that:

1. The following resolution has been unanimously adopted by the Company's Board of Directors and has been approved by the holders of a majority of the Company's outstanding common stock in accordance with the Delaware General Corporation Law for the purpose of amending the Company's Restated Certificate of Incorporation:

RESOLVED, that the Restated Certificate of Incorporation of the Corporation be amended by deleting in its entirety the Fourth Article and by replacing it with the following:

"FOURTH: The total number of shares of all classes of stock that the corporation shall have the authority to issue is One Hundred and Five Million (105,000,000), of which One Hundred Million (100,000,000) shall be common stock, par value $.001 per share (the "Common Stock"), and Five Million (5,000,000) shall be preferred stock, par value $.01 per share (the "Preferred Stock").

The Board of Directors is hereby authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, and by filing a Certificate pursuant to the applicable law of the State of Delaware (hereinafter referred to as a "Preferred Stock Designation"), to establish from time to time the number of shares to be included in each such series, and to fix the designations, powers, preferences, and rights of the shares of each such series, any qualifications, limitations or restrictions thereof."

2. The above amendment was duly adopted by the Company in accordance with the provisions of Section 242 of the Delaware General Corporation Law.

IN WITNESS WHEREOF, CytRx Corporation has caused this Certificate of Amendment to be signed by a duly authorized officer of this 16th day of October, 2003

CytRx Corporation

By:  /s/ Steven A. Kriegsman
     -------------------------------
Name:  Steven A. Kriegsman
Title: Chief Executive Officer

Exhibit 4.8

THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE LAW, AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE LAW, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND STATE LAW IS AVAILABLE.

Void after 5:00 P.M. California Time, on November 30, 2007

Warrant to Purchase 600,000 Shares of Common Stock

WARRANT TO PURCHASE COMMON STOCK

CYTRX CORPORATION

This is to certify that, FOR VALUE RECEIVED, MBN Consulting, LLC, a Florida limited liability company, or its assigns ("Holder"), is entitled to purchase, subject to the provisions of this Warrant, from CytRx Corporation, a Delaware corporation ("Company"), at any time on or after December 1, 2003, and not later than 5:00 P.M., California time, on November 30, 2007, 600,000 shares of common stock, $0.01 par value, of Company ("Common Stock") at a purchase price per share of U.S. $2.25. The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for a share of Common Stock may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Stock" and the exercise price of a share of Common Stock in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price."

This Warrant is being issued to Holder in connection with the Consulting Agreement between Holder and the Company, effective as of December 1, 2003 (the "Consulting Agreement").

1. Vesting; Termination.

This Warrant shall be vested and exercisable as to 100,000 shares of Common Stock covered hereby immediately upon the execution and delivery by Company of this Warrant. This Warrant shall vest and become exercisable as to the balance of 500,000 shares of Common Stock covered hereby only upon Company's meeting all of the requirements for the listing of Common Stock on the NASDAQ National Market on or before June 30, 2004 (or by such

extended date as specifically provided for by Section 4 of the Consulting Agreement), and the Company shall have received official notification that all of such listing requirements have been met. This Warrant shall remain vested and exercisable (to the extent not previously exercised as provided herein) with respect to 100,000 shares and shall terminate as to the balance of 500,000 shares covered hereby if the Company does not satisfy all of the foregoing NASDAQ National Market requirements by the foregoing deadline.

2. Exercise of Warrant.

(a) This Warrant, to the extent then vested as provided in
Section 1, may be exercised in whole or in part at any time or from time to time on or after December 1, 2003, and not later than 5:00 p.m., California Time, on November 30, 2007, or if November 30, 2007 is a day on which banking institutions are authorized by law to close, then on the next succeeding day, which shall not be such a day, by presentation and surrender hereof to Company or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto, duly endorsed and accompanied by payment in full of the Exercise Price for the number of shares specified in such form, together with all federal and state taxes applicable upon such exercise.

(b) Upon receipt by the Company of this Warrant at the office or agency of the Company, in proper form for exercise, together with payment in full of the Exercise Price for the number of shares indicated in the Purchase Form, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder.

(c) Company hereby agrees that at all times there shall be reserved for issuance and delivery upon exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance or delivery upon exercise of this Warrant.

3. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current "Fair Market Value" of a share of Common Stock, determined as follows:

(a) If the Common Stock is listed on a national securities exchange or the Nasdaq National Market, the current Fair Market Value shall be the last reported (as reported by Bloomberg's Financial Service) sale price of the Common Stock on such exchange or the Nasdaq National Market on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the average closing bid and asked prices for such day on such exchange or the Nasdaq National Market; or

(b) If the Common Stock is not so listed, the current Fair Market Value shall be the mean of the last reported bid and asked prices reported by the National Association of Securities Dealers Quotation System (or, if not so quoted on NASDAQ, by the National Quotation Bureau, Inc.) on the last business day prior to the date of the exercise of this Warrant; or

(c) If the Common Stock is not so listed and bid and asked prices are not so reported, the current Fair Market Value shall be an amount, not less than book value, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company, such determination to be final and binding on the Holder.

4. Exchange Assignment or Loss of Warrant. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. This Warrant may not be sold, transferred, assigned or hypothecated without the prior written consent of Company, except that it may be transferred by operation of law as a result of the death of Holder or his lawful successors. Any such assignment shall be made by surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax; whereupon the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants issued in substitution for or replacement of this Warrant, or into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction, or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfied indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone.

5. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against Company except to the extent set forth herein.

6. Anti-Dilution Provisions.

(a) Adjustment of Exercise Price. Anything in this Section 5 to the contrary notwithstanding, in case the Company shall at any time issue shares of Common Stock or Convertible Securities by way of dividend or other distribution on the Common Stock or subdivide or combine the outstanding shares of Common Stock, the Exercise Price shall be proportionately decreased in the case of such issuance (on the day following the date fixed for determining shareholders entitled to receive such dividend or other distribution) or decreased in the cases of such subdivision or increased in the case of such combination (on the date that such subdivision or combination shall become effective).

(b) No Adjustment for Small Amounts. Anything in this Section 5 to the contrary notwithstanding, the Company shall not be required to give effect to any adjustment in

the Exercise Price unless and until the net effect of one or more adjustments, determined as above provided, shall have required a change of the Exercise Price by at least one cent, but when the cumulative net effect of more than one adjustment so determined shall be to change the actual Exercise Price by at least one cent, such change in the Exercise Price shall thereupon be given effect.

(c) Number of Shares Adjusted. Upon any adjustment of the Exercise Price pursuant to Section 5(a), the Holder of this Warrant shall thereafter (until another such adjustment) be entitled to purchase, at the new Exercise Price, the number of shares, calculated to the nearest full share, obtained by multiplying the number of shares of Common Stock initially issuable upon exercise of this Warrant by the original Exercise Price and dividing the product so obtained by the new Exercise Price.

7. Officer's Certificate. Whenever the Exercise Price shall be adjusted as required by the provisions of Section 5 hereof, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office, and with its stock transfer agent, if any, an officer's certificate showing the adjusted Exercise Price determined as herein provided and setting forth in reasonable detail the facts requiring such adjustment. Each such officer's certificate shall be made available at all reasonable times for inspection by the Holder and the Company shall, forthwith after each such adjustment, deliver a copy of such certificate to the Holder. Such certificate shall be conclusive as to the correctness of such adjustment.

8. Notices to Warrant Holder. So long as this Warrant shall be outstanding and unexercised (i) if Company shall pay any dividend or make any distribution upon the Common Stock or (ii) if Company shall offer to the holders of Common Stock for subscription or purchase by them any shares of stock of any class or any other rights or (iii) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, then in any such case, the Company shall cause to be delivered to the Holder, at least ten days prior to the date specified in
(x) or (y) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any, is to be fixed, as of which the holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up.

9. Reclassification, Reorganization or Merger. In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of an issuance of Common Stock by way of dividend or other distribution or of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification, capital

reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the Company shall cause effective provision to be made so that the holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization or other change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section 8 shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances.

10. Spin-Offs. In the event the Company spins-off a subsidiary by distributing to the shareholders of the Company as a dividend or otherwise the stock of the subsidiary, the Company shall reserve for the life of the Warrant shares of the subsidiary to be delivered to the Holder of this Warrant upon exercise to the same extent as if such Holder were an owner of record of the Warrant Stock on the record date for payment of the shares of the subsidiary.

11. Notices. Any notices or certificates by the Company to Holder shall be deemed delivered if in writing and delivered personally or sent by either certified mail or overnight mail (e.g., Federal Express or similar carrier) to Holder at the address for Holder registered on the Company's books, and by Holder to Company by notice in writing to the Company addressed to it at 11726 San Vicente Blvd., Suite 650, Los Angeles, CA 90049, to the attention of Steven
A. Kriegsman, or such other address of which the Company shall give notice. The Company may change its address by written notice to the Holder registered as the owner on the Company's books and Holder may change its address by written notice to the Company.

12. Transfer. Subject to Section 12, this Warrant may be assigned, transferred, sold or otherwise disposed of, in whole or in part, by the Holder; provided, however, that no such assignment, transfer, sale or other disposition shall be effective unless and until the Holder shall have notified the Company of the name and address of the proposed transferee or transferees.

13. Restrictive Legend. The Company may cause the following legend to be set forth on each certificate representing Warrant Stock or any other security issued or issuable upon exercise of this Warrant, unless counsel for the Company is of the opinion as to any such certificate that such legend is unnecessary:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT MADE UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND APPLICABLE STATE LAW, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE LAW.

14. Applicable Law. This Warrant shall be governed by, and construed in accordance with, the internal laws of the State of California.

Dated: as of December 1, 2003            CYTRX CORPORATION



                                         By: /s/Steven A. Kriegsman
                                             -----------------------------------
                                             Steven A. Kriegsman

PURCHASE FORM

Date ___________, 200_

[ ] The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing _____ shares of Common Stock and hereby makes payment of $___________ in payment of the actual exercise price thereof.

INSTRUCTIONS FOR REGISTRATION OF STOCK

NAME:

(Please type or print in block letters)

NAME:

ADDRESS:

TAX I.D. NO.:

SIGNATURE:

ASSIGNMENT FORM

FOR VALUE RECEIVED,

hereby sells, assigns and transfers unto:

NAME:

(Please type or print in block letters)

ADDRESS:

the right to purchase Common Stock represented by this Warrant to the extent of_____ shares as to which such right is exercisable and does hereby irrevocably constitute and appoint ______________________________________, attorney, to transfer the same on the books of the Company with fill power of substitution in the premises.

Date:_______________, 200__

By:
Name:

Exhibit 10.14

AMENDMENT NO. 3 TO THE

CYTRX CORPORATION 2000 LONG-TERM INCENTIVE PLAN

This Amendment No. 3 (the "Amendment") to the CytRx Corporation 2000 Long-Term Incentive Plan, as previously amended (as so amended, the "Plan"), is made and shall be effective as of this 4th day of September, 2003, subject to stockholder approval of this Amendment.

WHEREAS, the Board of Directors of CytRx Corporation (the "Company") has determined that it is desirable and in the best interests of the Company and its stockholders to amend the Plan to increase by 7,000,000 the number of shares of common stock of the Company as to which Awards may be issued thereunder;

NOW, THEREFORE, in accordance with Section 15.1 of the Plan, the Plan is hereby amended as follows:

The text of Section 5.1 of the Plan is hereby deleted in its entirety and replaced with the following:

"Subject to adjustment as provided in Section 14.1, the aggregate number of shares of Stock reserved and available for Awards or which may be used to provide a basis of measurement for or to determine the value of an Award (such as with a Stock Appreciation Right or Performance Unit Award) shall be 10,000,000."

2. As modified hereby, the provisions of the Plan shall remain in full force and effect, and the Plan may be restated, as amended hereby, in its entirety.

Exhibit 10.15

AMENDMENT NO. 4 TO THE
CYTRX CORPORATION 2000 LONG-TERM INCENTIVE PLAN

This Amendment No. 4 (the "Amendment") to the CytRx Corporation 2000 Long-Term Incentive Plan, as previously amended (as so amended, the "Plan"), is made and shall be effective as of this 4th day of September, 2003, subject to stockholder approval of this Amendment.

WHEREAS, the Board of Directors of the Company has determined that it is desirable and in the best interests of the Company and its stockholders to amend the Plan to increase certain limitations on the amount of Awards that may be granted thereunder;

1. The text of Section 5.4 of the Plan is amended by deleting each reference to "500,000" and replacing it with "1,000,000."

2. As modified hereby, the provisions of the Plan shall remain in full force and effect, and the Plan may be restated, as amended hereby, in its entirety.

NOW, THEREFORE, in accordance with Section 15.1 of the Plan, the Plan is hereby amended as follows:

Exhibit 10.57

AMENDED AND RESTATED PROFESSIONAL SERVICES AGREEMENT

This Amended and Restated Professional Services Agreement, dated as of July 1, 2003, is made by and between CytRx Corporation ("CytRx"), The Kriegsman Group, an institutional division of Financial West Group ("TKG"), and Kriegsman Capital Group ("KCG") with reference to the following facts:

A. TKG and KCG are wholly owned affiliates of Steven A. Kriegsman.

B. Pursuant to an Agreement, dated February 11, 2002 between CytRx and KCG (the "Original Agreement"), TKG furnished certain office space ("Space") and professional services ("Services") to CytRx from July 16, 2002 through November 30, 2002 and CytRx made payments to KCG for such Space and Services, which payments were assigned by KCG to TKG.

C. Pursuant to the Professional Services Agreement, dated as of January 29, 2003 (the "Prior Professional Services Agreement"), CytRx, TKG and KCG revised and restated the Prior Agreement to provide that the Space and Services are being provided by TKG to CytRx and to cover the payment to be made by CytRx to TKG for Space and Services to be provided to CytRx subsequent to November 30, 2002.

D. CytRx, TKG and KCG wish to revise and restate the Prior Professional Services Agreement to provide for revised payments to be made by CytRx to TKG for Services and Space for the months of April, May and June 2003 and for the assignment of TKG's lease for the Space to CytRx.

The parties hereby agree as follows:

1. Payment for Prior Period. CytRx and TKG hereby agree that the total amount owing for Services provided by TKG during the period from April 1, 2003 through June 30, 2003 shall be $18,781.89, against which $10,819.50 had been previously paid by CytRx and the balance of which was paid on June 19, 2003. CytRx and TKG hereby agree that the total amount owing for Space provided by TKG during the period from April 1, 2003 through June 30, 2003 shall be $21,162.81, against which $8,427.60 had previously been paid by CytRx and the balance of which was paid on June 19, 2003. CytRx, TKG and KCG hereby agree that no other amounts are owing by CytRx to TKG and KCG for Services or Space for any period prior to July 1, 2003.

2. Monthly Space and Services Payment. Commencing on December 1, 2002, TKG became responsible for providing the Space and Services to CytRx and KCG shall have no further rights or obligations with respect to providing the Space and Services under the Prior Professional Services Agreement or this Agreement. CytRx shall pay TKG a monthly amount (the "Monthly Payment"), which shall be paid on the 15th day of each such month, with the first payment having been made on December 15, 2002. The amount of the Monthly Payment shall be calculated based on the provision for each such month by TKG to CytRx of the following:

(i) Space conforming to the specific space and percentage of usage used by CytRx, which for the period from April 1, 2003 through June 30, 2003 is as set forth in Exhibit A hereto.

(ii) Services provided to CytRx by the TKG personnel listed in Exhibit B hereto which for the period from April 1, 2003 through June 30, 2003 were at the monthly salaries and in the percentages allocable to CytRx as set forth in Exhibit B hereto, which (except as to Carolyn French, who will become an employee of CytRx) are also the anticipated monthly salaries and percentage allowable to CytRx for the period commencing with July 1, 2003. The Services shall consist of the services described in Exhibit B. Personnel shall not be added to Exhibit B hereto or Services modified from those described in Exhibit B hereto without the prior written consent of CytRx.

(iii) Effective as of July 1, 2003, Carolyn French shall become an employee of CytRx, with her employment by TKG ceasing as of June 30, 2003. CytRx shall pay her entire salary and any related payroll costs for all periods commencing with July 1, 2003. Commencing on February 1, 2003, TKG has been making a monthly payment to CytRx on the 15th day of each month based on the percentage usage by TKG of the time of Kathy Hernandez and shall make a monthly payment to CytRx on the 15th day of each month based on the percentage usage by TKG of the time of Carolyn French for the period commencing on July 1, 2003. The anticipated percentage of time spent on TKG matters and salary levels of Kathy Hernandez and Carolyn French for the period commencing with July 1, 2003 are as set forth in Exhibit B.

Subject to Section 3, (i) the Monthly Payment by CytRx shall be $7,054.27 for July 2003 and for subsequent monthly periods, and (ii) the monthly payment by TKG to CytRx for the services of Kathy Hernandez and Carolyn French shall be $652.28 for July 2003 and for subsequent monthly periods.

3. Future Adjustments to Monthly Payment. The Monthly Payment shall be reviewed by CytRx and TKG on a quarterly basis (with the next review to be made for the three-month period ending as of September 30, 2003) to make appropriate adjustments as shall be agreed to by CytRx and TKG to reflect changes in the rental rates paid by TKG for and percentage usage by CytRx of the Space and to salary levels of and percentage usage by CytRx of the TKG personnel providing the Services. The monthly payment to be made by TKG to CytRx for the services of Kathy Hernandez and Carolyn French shall also be reviewed by CytRx and TKG on a quarterly basis (with the first review to be made for the three-month period ending as of September 30, 2003) to make appropriate changes as shall be agreed to by CytRx and TKG to reflect changes in Ms. Hernandez's or Ms. French's salary level and the percentage usage of their time by TKG.

4. Assignment of Lease. TKG shall use its commercially reasonable best efforts to assign its lease for the Space to CytRx, effective as of July 1, 2003 or as soon thereafter as reasonably practicable (the "Assignment Date"). The security deposit of TKG shall be replaced by an equivalent security deposit by CytRx, if agreed to by the lessor of the Space or CytRx shall promptly deliver to TKG any remaining portion of the TKG security deposit that CytRx receives from the lessor upon expiration or termination of the lease. Commencing on

the Assignment Date, CytRx shall be responsible for making all lease payments for the Space and shall indemnify TKG for any rental obligations payable to the lessor for the Space for any period commencing on or after the Assignment Date. Commencing on the Assignment Date, TKG shall pay CytRx on the 15th day of each month for TKG's percentage usage of the Space, which initially shall be as set forth in Exhibit A hereto. CytRx and TKG shall review on a quarterly basis after the Assignment Date and make appropriate adjustments to the rental payment to be made by TKG to CytRx for the Space based on its percentage usage and the rental rates for the Space.

5. Miscellaneous. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed one and the same document. This Agreement may not be amended without the prior written consent of each of the parties hereto. Any amendment to this Agreement or increase in the amount of the Monthly Payment from the amounts specified in Section 2 shall require the approval of CytRx's Board of Directors. This Agreement may not be assigned or transferred by either party hereto without the consent of the other party hereto. Either party may terminate this Agreement at any time upon thirty days prior written notice without any further liability among the parties hereto, other than the accrued Monthly Amount (including any pro rata amount for a partial month) through the effective time of such termination. This Agreement shall terminate automatically and without any further action by the parties hereto upon the termination of Steven A. Kriegsman's employment with CytRx and CytRx shall have no further liability to TKG hereunder other than the accrued Monthly Payment through the date of such termination pursuant to its indemnification obligation pursuant to Section 4 and TKG shall have no further liability to CytRx hereunder other than the accrued monthly payments for Kathy Hernandez and Carolyn French and payments for Space after the Assignment Date through the date of such termination.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

CYTRX CORPORATION                           KRIEGSMAN CAPITAL GROUP, LLC


By: /s/ M. Link                             By: /s/ Steven A. Kriegsman
   ----------------------------                ---------------------------------
   Max Link                                    Steven A. Kriegsman
   Chairman of the Board

THE KRIEGSMAN GROUP, An
Institutional Division of Financial West Group

By: /s/ Steven A. Kriegsman
   ----------------------------------
        Steven A. Kriegsman

EXHIBIT A

CYTRX OFFICE SPACE

                         Square        % used by      Approximate Cytrx
                         footage         CytRx            footage
                         -------       ---------      -----------------
Steve office               210            95                200
Bookkeeper Office          195            100               195
Mark office                195            100               195
Board room                 210            95                200
Ed/Dave                    196            50                 98
Kathy                      120            100               120
Reception                  70             90                 63
Work area                  105            84                 88
Kitchen                    133            84                112
*Open area                 833            84                700
Vacant offices             489             0                 --

TOTAL AREA                2756            71%               1971

TKG MONTHLY RENT: **$9,935.59

CYTRX PORTION OF RENT SHOULD BE: $7,054.27

* includes walkways that are used for Cytrx but is not being included in the calculation

** includes $21.00 common area maintenance fee

CURRENT OFFICE SPACE USAGE

EXHIBIT B

CytRx work performed April 1, 2003 thru June 30, 2003, and to continue to be performed until further notice to the Board.

                                                                                                   CYTRX PORTION
                TKG MONTHLY                                                          % WORK      APRIL 1 -- JUNE 30  CYTRX PORTION
EMPLOYEE           SALARY            CYTRX DUTIES                   TIME            FOR CYTRX           2003          JULY 1, 2003
--------        -----------          ------------                   ----            ---------    ------------------  -------------
David Haen       $ 3,105.00     Assists in identifying and        Continual            50%         $ 1,552.50        $ 1,552.50
                                structuring potential
                                business opportunities
                                (in-licensing, outlicensing,
                                M&A), researches current
                                healthcare transactions and
                                trends, helps with other
                                administrative duties for
                                Steve and CytRx employees and
                                consultants on an ongoing
                                basis

Kathy Hernandez                 Corporate Secretary of CytRx,       6.5%*            93.5%*
                                assist CEO (Total monthly
                                salary $5,833.33)

Carolyn French   $ 2,731.25     Answer phones, assist             Continual            90%         $ 2,458.13            0**
                                Corporate Secretary, assist
                                CEO, assemble investor
                                packages, edit press
                                releases, arrange travel
                                schedule

Ed Umali         $ 4,500.00     Assist Scientific Consultant      Continual            50%         $ 2,250.00        $ 2,250.00
                                with power point and other
                                presentations, assist
                                Financial Consultant with
                                payroll and invoices, assist
                                attorney with corporate
                                files, oversee Atlanta
                                facility, supervise Los
                                Angeles phones and
                                information systems,
                                organized CytRx files in
                                storage
                 ----------                                                                        ----------        ----------
                 $10,980.00                                                                        $ 6,260.63        $ 3,577.50

* has been a full-time employee of CytRx Corporation since February 1, 2003.

** effective July 1, 2003 Carolyn French becomes a full-time employee of CytRx Corporation

Exhibit 10.58

AGREEMENT

This Agreement, dated as of December 3, 2003 is entered into by and among University of Massachusetts, a public institution of higher education of the Commonwealth of Massachusetts having an address at 365 Plantation Street, Suite 130, Worcester, MA 01605 ("UMass"), Advanced BioScience Laboratories, Inc., a Delaware corporation having its principal place of business at 5510 Nicholson Lane, Kensington, MD 20895 ("ABL") and CytRx Corporation, a Delaware corporation having an address at 11726 San Vicente Boulevard, Suite 650, Los Angeles, California 90049 ("CytRx") with reference to the following facts:

A. In December 2002, UMass filed a provisional patent application, U.S. Patent Application Serial Number 60/430,732 (the "03-24 Patent Filing") with the United States Patent and Trademark Office covering a foundational HIV vaccine technology invention referred to by UMass as UMMC 03-24 (the "03-24 Technology").

B. In May 2003, UMass granted an exclusive worldwide license to the 03-24 Patent Filing and 03-24 Technology to CytRx pursuant to an Exclusive License Agreement, dated as of April 15, 2003 by and between UMass and CytRx and which UMass and CytRx have agreed to clarify Section 4.8 of the Exclusive License Agreement pursuant to an amendment that will be substantially in the form as provided to ABL (such Agreement, as so amended, being referred to herein as the "03-24 License Agreement").

C. In June, 2000, ABL was awarded a $15 million NIH grant (NIAID Prime Contract N01-05394) (the "NIH Grant") in connection with the development of a DNA-based HIV vaccine that incorporates the 03-24 Technology (the "HIV Vaccine") and on June 26, 2000, ABL entered into a subcontract with UMass (Subcontract No. 00454B-UMM-NAID-N01-A1-05395) (the "UMass Subcontract") in connection with the development of the HIV Vaccine.

D. ABL anticipates filing in December 2003 or January 2004 an IND with the United States Food and Drug Administration ("FDA") for a Phase I clinical trial of the HIV Vaccine (the "IND") and to commence this Phase I trial (the "Phase I Trial") within 30 to 60 days following the IND being cleared by the FDA.

E. In September, 2003, ABL filed a provisional patent application U. S. Patent Application Serial Number 60/503,907 (the "03-111 Patent Filing") covering an HIV protein boost technology invention referred to by UMass and ABL as UMMC 03-111 (the "03-111 Technology").

F. ABL, UMass and CytRx are willing to make the filing with the United States Patent and Trademark Office of a combined patent application (the "Joint Patent Filing") for the 03-24 Technology and the 03-111 Technology that will include all of the claims of the 03-24 Patent Filing and 03-111 Patent Filing, with the Joint Patent Filing to be conditioned on the terms set forth in this Agreement. Both a U.S. non-provisional patent application and a PCT application designating all countries will be filed simultaneously. Both the non-provisional and the PCT applications will claim priority to the 03-24 Patent Filing.

G. ABL, CytRx and UMass have had discussions concerning the development and commercialization of the HIV Vaccine, as described in this Agreement, and wish to provide for the framework for negotiation of a definitive agreement covering such development and commercialization (the "Definitive Collaborative Agreement"), as well for the rights and obligations of each of the parties in the event they are unable to conclude the Definitive Collaborative Agreement within the time period specified in this Agreement.

NOW, THEREFORE, in consideration of the mutual representations and covenants contained herein, the parties hereby agree as follows:

1. Joint Patent Filing. The parties hereby agree that the Joint Patent Filing will be made with the United States Patent and Trademark Office by no later than December 3, 2003. The Joint Patent Filing shall be prepared by Fish & Richardson, as counsel for UMass, in consultation with patent counsel for ABL and CytRx. The Joint Patent Filing shall be submitted and prosecuted by Fish & Richardson (or another patent firm retained by UMass and reasonably acceptable to ABL and CytRx). The Joint Patent Filing shall also be filed in such foreign jurisdictions as shall be requested by either ABL or CytRx. The costs of preparing, submitting and prosecuting the Joint Patent Filing (limited to the actual fees of the appropriate patent offices and expenses of patent counsel for UMass) shall be borne by CytRx, except that ABL shall bear all of the legal fees and other expenses of preparing, submitting and prosecuting the Joint Patent Filing in any foreign jurisdiction that it requests be made. The Joint Patent Filing will be submitted in a form so as to avoid or minimize any prejudice to the rights of the parties in the event the Joint Patent Filing is divided into divisional patent applications pursuant to Section 6 hereof.

UMass shall decide all patent prosecution matters in consultation with ABL and CytRx. ABL and CytRx shall receive copies of all material correspondence from any patent office within a reasonable amount of time and shall be provided with copies of all proposed material filings or other submissions to any patent office so as to afford ABL and CytRx with a reasonable opportunity to comment upon such proposed filing or submission.

2. Filing of IND; Commencement of Phase I Trial. ABL shall use its commercially reasonable best efforts to file the IND by no later than January 31, 2004, to obtain clearance of the IND by the FDA and to commence the Phase I Trial by no later than February 2004. ABL shall notify UMass and CytRx in writing within one business day following the IND filing and the commencement of the Phase I Trial and shall promptly provide UMass and CytRx with all material correspondence received from or delivered to the FDA or the institution at which the Phase I Trial will be conducted relating to the IND or Phase I Trial.

3. Disclosure. Upon the signing of the Definitive Collaborative Agreement, the parties shall jointly issue a press release announcing such signing, with the text of such press release to contain a summary description of the material terms of the Definitive Collaborative Agreement (but not the specific royalty rates or other similar financial terms) and to be reasonably acceptable to all of the parties (the "Collaborative Press Release"). In the event ABL determines to file and does file the IND prior to the signing of the Definitive Collaborative Agreement or the issuance of the Collaborative Press Release, CytRx shall be entitled immediately following such filing to issue a press release in substantially the form attached

hereto as Exhibit A (the "IND Press Release"). If the IND is filed after the issuance of the Collaborative Press Release, the parties shall jointly issue a press release announcing such filing, with the text of such press release to be reasonably acceptable to all of the parties.

4. Definitive Collaborative Agreement. The parties shall negotiate in good faith to enter into the Definitive Collaborative Agreement by no later than January 31, 2004. The parties agree that, apart from the obligation to negotiate in good faith upon the terms stated herein, this Section 4 represents only the intent of the parties and shall not be binding upon the parties. The Definitive Collaborative Agreement shall contain the following provisions, together with such other terms and conditions as would customarily be included in an agreement of that type:

4.1 Phase I Trial. UMass, in consultation with CytRx, will be responsible as provided in the UMass Subcontract for carrying out the Phase I Trial. CytRx will have no financial responsibility for carrying out the Phase I Trial.

4.2 Assignment of HIV Vaccine. Following completion of the Phase I Trial, ABL will assign to CytRx ownership of the HIV Vaccine (subject to its economic interest in the vaccine as described below), with CytRx to thereafter be the sponsor for FDA purposes of the HIV Vaccine. ABL and UMass will cooperate with CytRx in making all necessary FDA and foreign healthcare regulatory agency filings to reflect this assignment and will provide CytRx with copies of all filings and correspondence with the FDA and any foreign healthcare regulatory agencies in connection with the HIV Vaccine.

4.3 Subsequent Clinical Development of HIV Vaccine. CytRx will be responsible at its own expense for carrying out and completing all clinical trials after the Phase I Trial that are required to obtain FDA marketing approval for the HIV Vaccine and marketing approval for any other countries that shall be agreed to by ABL and CytRx. The parties acknowledge that CytRx may seek to obtain additional NIH or other government or private grants to support the foregoing clinical development of the HIV Vaccine, and UMass agrees to reasonably assist CytRx in filing for and obtaining such grants. CytRx shall consult with ABL and UMass in connection with all material matters relating to the development of the HIV Vaccine.

4.4 Manufacture of HIV Vaccine. Provided that ABL or its affiliate has the required regulatory approvals and manufacturing capacity at the time, ABL or its affiliate shall have an option (which must be exercised within 30 days of being notified by CytRx that CytRx has received an "approvable NDA" letter from the FDA for the HIV Vaccine or equivalent notification from any foreign healthcare regulatory agency) to acquire the commercial manufacturing rights for the HIV Vaccine for the United States or any other applicable territory. The terms of the commercial manufacturing agreement shall be negotiated in good faith by ABL and CytRx and shall include such economic and other terms as are customarily contained in an agreement of that type.

4.5 Marketing of HIV Vaccine. CytRx will be responsible at its own expense for the marketing of the HIV Vaccine.

4.6 CytRx Licensee or Strategic Partner. CytRx shall have the right to enter into sublicense or strategic alliance or other agreements with one or more third parties pursuant to which the sublicensee or strategic partner may be responsible (either jointly with CytRx or alone) for the development, commercial manufacture (unless ABL or its affiliate is the commercial manufacturer) or marketing of the HIV Vaccine. Any such agreement shall be subject to the terms of the 03-24 License Agreement, as such license agreement shall be modified pursuant to Section 4.8 hereof.

4.7 Compensation Payable to ABL. UMass, CytRx and ABL agree that as payment in full for ABL's assignment of the HIV Vaccine to CytRx and its other agreements under this Agreement, ABL shall be entitled to receive from CytRx (i) {***} of the payments that are due to UMass under Sections 4.3, 4.5, 4.6, 4.7 and 4.8 of the 03-24 License Agreement; (ii) {***} of the following milestone payments listed under Section 4.4 of said agreement: for entry into Phase II clinical trial; for entry into Phase III clinical trial; upon filing for market approval outside the US; for commencement of product marketing in the US; and for market approval for the first three European countries; and (iii) {***} of the milestone payment so listed for the filing of IND; provided, that amounts payable by CytRx to UMass under the terms of said Sections 4.3 thru 4.8 shall be reduced by {***} of the amounts so paid by CytRx to ABL pursuant to the terms of this Section.

4.8 03-24 License Agreement. The parties agree that upon the Joint Patent Filing, the 03-111 Technology shall become part of the Patent Rights as defined in the 03-24 License Agreement. ABL agrees that the inclusion of the 03-111 Technology into the 03-24 License Agreement shall occur without further compensation to UMass or ABL, except as specified in this Agreement, and at no additional cost to CytRx. ABL shall also grant CytRx a non-exclusive, royalty-bearing license to any additional technologies outside of the 03-24 Technology and the 03-111 Technology that are owned or licensed to ABL (including those acquired by ABL pursuant to its right of first refusal under the UMass Subcontract) and that result from work done by UMass under the UMass Subcontract for a DNA-based HIV vaccine with protein boost and that are necessary or advantageous to CytRx for the development or commercialization of the HIV Vaccine, with the amount of the royalty to be established in the Definitive Collaborative Agreement and to be negotiated in good faith by the parties. UMass shall grant CytRx a right of first negotiation to obtain a royalty-bearing license to UMass' exclusive or non-exclusive rights to any additional technology outside of the 03-24 Technology and 03-111 Technology that are owned by UMass and have not been acquired or licensed to ABL pursuant to its right of first refusal under the UMass Subcontract and that result from work done under the UMass Subcontract and that are necessary or advantageous to CytRx for the development or commercialization of the HIV Vaccine. ABL shall represent that it does not currently own or have any other rights to any other technology that would be infringed by the development or commercialization of the HIV Vaccine.

4.9 Competing Vaccines. ABL and CytRx each shall be permitted to develop and commercialize other HIV vaccines that may compete with the HIV Vaccine; provided, however, that if such other vaccine would infringe any of the claims set forth in the Joint Patent Filing but for the existing ownership rights of that party in the Joint Patent Filing, the party seeking to commercialize such other vaccine (the "New Vaccine Party") shall pay to the other

party {***} of the net sales by the New Vaccine Party of the other HIV vaccine (or {***} of the milestone payments and other income received if the New Vaccine Party sublicenses the vaccine). However, the percentage of the net sales to be paid by the New Vaccine Party to the other party shall be increased to {***} (or {***} of the milestone payments and other income received if the New Vaccine Party sublicenses the vaccine) in the event the HIV Vaccine has been commercialized and will compete with the other HIV vaccine. The exact percentage of net sales to be paid by the New Vaccine Party shall be agreed to by ABL and CytRx in the Definitive Collaborative Agreement. Any payments received by CytRx from ABL pursuant to the foregoing provisions shall be treated as Sublicense Income pursuant to the 03-24 License Agreement.

Subject to the other provisions of this Section 4.9, ABL shall have the right to use the 03-24 Technology and 03-111 Technology, provided that such use is solely for the purpose of developing and commercializing other HIV vaccines. CytRx agrees to grant ABL a non-exclusive sublicense under the 03-24 License Agreement and as amended to include the 03-111 Technology pursuant to the preceding sentence.

5. Option for UMMC 91-03. UMass hereby grants CytRx an option for a fee of {***} (with such fee creditable to the cost of the exclusive license) to acquire for its sole use and benefit an exclusive, worldwide license (the "91-03 License Agreement") to a HIV vaccine related technology referred to by UMass as UMMC 91-03 (the "91-03 Technology"). The 91-03 License Agreement will be on such economic terms as shall be agreed to by UMass and CytRx, but shall be no less attractive to CytRx than those set forth in UMass's licensing term sheet delivered to CytRx on November 25, 2003. The other terms and conditions of the 91-03 License Agreement shall be substantially similar to those set forth in the 03-24 License Agreement. The foregoing option shall be exercised by CytRx at its sole discretion at any time prior to April 1, 2004.

6. Failure to Conclude Definitive Collaborative Agreement. Each of the parties acknowledges that the signing and performance of the Definitive Collaborative Agreement is an essential part of their agreement to make the Joint Patent Filing. The parties will negotiate in good faith with a goal of signing the Definitive Collaborative Agreement by no later than December 31, 2003. In the event the parties have been unable to conclude the Definitive Collaborative Agreement by January 31, 2004 for any reason, the parties hereby agree that upon such failure (a "Termination Event") the Joint Patent Filing will immediately be divided (or will be divided as soon as legally permitted under the PCT rules for the PCT portion of the Joint Patent Filing) into divisional applications separately covering the 03-24 Technology (with UMass as the sole owner) and the 03-111 Technology (with UMass and ABL as the co-owners).

Upon a Termination Event, each of the parties will be entitled to assert against each other all of their legal rights, if any, with respect to the HIV Vaccine, the 03-24 Technology and the 03-111 Technology as if the Joint Patent Filing had not been previously made. In such an event, each of the parties further agrees to not assert that the Joint Patent Filing by itself (i) has created any implied licenses to the HIV Vaccine, the 03-24 Technology or the 03-111 Technology in favor of any party who would not otherwise have such a license or (ii) has constituted a waiver by any party of any of its rights that it possessed prior to the Joint Patent Filing. The parties

agree that in the event of any dispute following a Termination Event as to the ownership or other rights of any party in the HIV Vaccine, the 03-24 Technology or the 03-111 Technology, such dispute shall be resolved to the maximum extent possible so that no party to this Agreement shall have gained an advantage over another party to this Agreement solely as the result of the Joint Patent Filing having been made (including without limitation the creation of any implied licenses or waivers or the advancement of any filing priority date).

Upon a Termination Event, the 03-24 License Agreement between UMass and CytRx and the Subcontract between UMass and ABL shall continue in full force and effect, and UMass shall have the right to license its interest in the 03-111 Technology to CytRx or any third party deemed appropriate by UMass on a non-exclusive basis.

7. Parties' Reliance on Counsel. All the parties have each consulted and relied upon their respective attorneys' legal advice and their own judgment and choice in deciding to enter into this Agreement. The parties to this Agreement have read it completely and their attorneys have explained it to them. The undersigned parties voluntarily accept the terms of this Agreement and fully understand those terms.

8. Entire Agreement; Transaction Costs. This Agreement constitutes the entire agreement between the parties with regard to the subject matter of this Agreement. It supersedes all prior understandings, transactions and communications, whether written or oral, between the parties with respect to the matters referred to herein. Each party shall bear its own fees and expenses in connection with negotiating this Agreement and the Definitive Collaborative Agreement. Subject to Sections 4 hereof, no party shall have any liability to any other party under this Agreement or be required to enter into and perform the Definitive Collaboration Agreement based on such party's failure to enter into the Definitive Collaborative Agreement unless such party has failed to negotiate in good faith to enter into the Definitive Collaborative Agreement.

9. Amendments. No modification of this Agreement, nor any future representation, promise or agreement in connection with the subject matter of this Agreement shall be binding on the parties unless made in writing and signed on their respective behalf by their respective authorized representatives.

10. Assignment. The parties shall not assign or transfer this Agreement or any of its obligations hereunder without the prior written consent of the other parties, except as otherwise permitted by Section 4.6 hereof.

11. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California (United States of America) without reference to any conflict of law provisions thereof. The parties hereby submit to the exclusive jurisdiction of, and venue in, the state and federal courts located in Los Angeles, California.

12. Waivers. The waiver by one or several parties of any right hereunder, or of any failure to perform or breach by one party hereunder, shall not be deemed a waiver of any other right hereunder or of any other breach or failure by the other parties hereunder whether of a similar nature or otherwise.

In witness whereof, the parties have caused this Agreement to be signed, in multiple identical originals, by their duly authorized representatives, with effect as of the date first written above.

UNIVERSITY OF MASSACHUSETTS

By: /s/ CHESTER A. BISBEE
  ------------------------------------

Its:      Acting Director, OTM
     ---------------------------------

Date: December 3, 2003
     ---------------------------------

CYTRX CORPORATION

By: /s/ STEVEN A. KRIEGSMAN
   -----------------------------------
          Steven A. Kriegsman
Its:      Chief Executive Officer

Date: December 3, 2003
     ---------------------------------

ADVANCED BIOSCIENCE LABORATORIES, INC.

By: /s/ JOHANNES BURLIN
   -----------------------------------
          Johannes Burlin
Its:      President and CEO

Date: December 3, 2003
     -------------------------------

EXHIBIT A

CYTRX ANNOUNCES FILING OF INVESTIGATIONAL NEW DRUG APPLICATION
FOR HIV VACCINE

Los Angeles, December ___, 2003 -- CytRx Corporation (Nasdaq: CYTR) announced today that an Investigational New Drug Application (IND) has been filed with the Food and Drug Administration (FDA) for a Phase I clinical trial for a new DNA-based HIV vaccine.

The new HIV vaccine incorporates proprietary technology exclusively licensed to CytRx by the University of Massachusetts Medical School (UMMS). The Phase I trial will be funded out of a portion of a $15 million National Institutes of Health grant previously provided to Advanced BioScience Laboratories (ABL) and subcontracted in part to UMMS to develop an enhanced HIV vaccine that utilizes UMMS' technology licensed to CytRx. ABL and CytRx expect that the Phase I trial will begin in February 2004 and take approximately twelve to eighteen months to complete.

"There is a worldwide urgent need for an effective HIV vaccine," said Steven A. Kriegsman, Chief Executive Officer of CytRx. "With the anticipated launch of the Phase I trial for this vaccine utilizing our licensed UMMS technology, CytRx will take a major step forward in efforts to create such a vaccine." In addition to the HIV vaccine technology, CytRx also has exclusive technology licenses from UMMS for RNAi-based therapies for Amyotrophic Lateral Sclerosis (ALS, also known as Lou Gehrig's Disease) and for obesity and Type II Diabetes.

ABL and UMMS have filed a joint patent application covering CytRx's licensed foundational technology and ABL's and UMMS' protein boost technology that are incorporated into the HIV vaccine. CytRx believes that this joint filing should substantially bolster CytRx's patent position for its licensed technology.

[STANDARD TRAILERS FOR CYTRX]

This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including risks or uncertainties related to the risk that ABL may encounter delays in having the IND cleared by the FDA or in starting the Phase I vaccine trial due to delays in obtaining clinical supplies of the vaccine or for other reasons, the risk of delays in completing and the uncertainty of the results of the Phase I trial or future trials, the risk of obtaining adequate or any patent coverage for the HIV vaccine and the need for CytRx to separately obtain or develop a new protein boost technology and to separately organize and fund Phase I and subsequent clinical trials for an HIV vaccine if it is unable to enter into an agreement with ABL for the development and commercialization of the HIV vaccine that is described in this press release. Additional uncertainties and risks are described in CytRx's most recently filed SEC documents, such as its most recent annual report on Form 10-K, all quarterly reports on Form 10-Q and any current reports on Form 8-K filed since the date of the last Form 10-K. All forward-looking statements are based upon information available to CytRx on the date the statements are first published. CytRx undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Exhibit 10.59

AMENDED AND RESTATED

EXCLUSIVE LICENSE AGREEMENT

This Amended and Restated Exclusive License Agreement (the "Agreement"), effective as of December 22, 2003 (the "Effective Date"), is by and among the University of Massachusetts Medical School ("Medical School"), a public institution of higher education of the Commonwealth of Massachusetts having an address of 55 Lake Avenue North, Worcester, MA 01655, CytRx Corporation ("Company"), a Delaware corporation having an address of 11726 San Vicente Boulevard, Suite 650, Los Angeles, California 90049, and Advanced BioScience Laboratories, Inc. ("ABL"), a Delaware corporation having its principal place of business at 5510 Nicholson Lane, Kensington, Maryland 20895.

R E C I T A L S

WHEREAS, Medical School is owner by assignment of the invention listed in Exhibit A pertaining to the Medical School's invention disclosure number UMMC 03-24 entitled Primary and Polyvalent HIV-1 Envelope Glycoprotein DNA Vaccines (the "03-24 Technology");

WHEREAS, Medical School granted Company effective as of April 15, 2003 an exclusive worldwide license in the field of therapeutics limited to the generation of DNA-based primary and polyvalent HIV-1 envelope vaccines under the rights of Medical School in any patent rights claiming those inventions of the 03-24 Technology pursuant to an Exclusive License Agreement, dated as of April 25, 2003 between Medical School and Company (the "Original License Agreement");

WHEREAS, in December 2002, Medical School filed a provisional patent application, U.S. Patent Application Serial Number 60/430,732 (the "03-24 Patent Filing") with the United States Patent and Trademark Office covering the 03-24 Technology;

WHEREAS, in June 2000, ABL was awarded a $15 million contract from the National Institutes of Health (NIAID Prime Contract N01-05394) (the "NIH Prime Contract") in connection with the development of a DNA-based HIV vaccine and on June 26, 2000, ABL entered into a subcontract with Medical School (Subcontract No. 00454B-UMM-NAID-N01-A1-05395) (the "Medical School Subcontract") in connection with the development of an HIV vaccine using the 03-24 Technology and 03-111 Technology (as hereinafter defined) and currently being developed by Medical School and ABL under the NIH Prime Contract and Medical School Subcontract. The HIV Vaccine will include for purposes of this Agreement the foregoing vaccine product notwithstanding the expiration or early termination of either the NIH Prime Contract or the Medical School Subcontract;

WHEREAS, ABL anticipates filing in late December 2003 or early January 2004 an investigational new drug application (as defined in the United States Federal Food, Drug and Cosmetic Act of 1938, as amended from time to time (the "Act")) with the United States Food and Drug Administration ("FDA") for a Phase I clinical trial of the HIV Vaccine (the "ABL

IND") and expects to commence this Phase I trial (the "Phase I Trial") within 30 to 60 days following the ABL IND being cleared by the FDA;

WHEREAS, in September 2003, ABL filed a provisional patent application, U. S. Patent Application Serial Number 60/503,907 (the "03-111 Patent Filing") covering an HIV protein boost technology invention referred to by Medical School and ABL as UMMC 03-111 (the "03-111 Technology");

WHEREAS, on December 3, 2003, ABL, Medical School and Company agreed to make and Medical School and ABL made a joint filing with the United States Patent and Trademark Office of a combined patent application for the 03-24 Technology and the 03-111 Technology that included all of the claims of the 03-24 Patent Filing and 03-111 Patent Filing and other claims relating to the 03-24 Technology and 03-111 Technology, with both a U.S. non-provisional patent application and a PCT application designating all countries being filed simultaneously and with both the non-provisional and the PCT applications claiming priority to the 03-24 Patent Filing (the "Joint Patent Filing");

WHEREAS, in conjunction with the Joint Patent Filing, ABL, Company and Medical School entered into an Agreement, dated as of December 3, 2003, regarding the development and commercialization of the HIV Vaccine and providing for the framework for negotiation of a definitive agreement covering such development and commercialization (the "Definitive Collaborative Agreement");

WHEREAS, ABL, Company and Medical School have entered into the Definitive Collaborative Agreement, effective as of December 22, 2003, which provides for the Original License Agreement to be amended to add the 03-111 Technology to the license granted by the Original License Agreement and which also provides for certain other amendments to the Original License Agreement;

WHEREAS, Medical School and ABL are willing to grant Company an exclusive license to the 03-111 Technology on the terms set forth in this Agreement; and

WHEREAS, Company has agreed pursuant to the Definitive Collaborative Agreement to grant ABL a non-exclusive sublicense to the Patent Rights (as hereinafter defined) (the "ABL Sublicense");

WHEREAS, ABL has agreed pursuant to the Definitive Collaborative Agreement to grant Company and its Affiliates the right to acquire a non-exclusive, worldwide, royalty-bearing license to any additional technologies outside of the 03-24 Technology and the 03-111 Technology that (i) are now or subsequently owned or licensed to ABL, including any technologies that may be acquired by ABL pursuant to its option for an exclusive license under Section 9 of the Medical School Subcontract, (ii) result from work done by the Medical School under the Medical School Subcontract for a DNA-based HIV vaccine with protein boost, and (iii) are deemed necessary or advantageous by Company for the development or commercialization of the HIV Vaccine (the "ABL Related Technologies License").

WHEREAS, Medical School, Company and ABL are willing to amend and restate the Original License Agreement on the terms set forth in this Agreement.

NOW, THEREFORE, Medical School, Company and ABL hereby agree as follows:

1. Definitions.

1.1 "Affiliate" means any legal entity (such as a corporation, partnership, or limited liability company) that is controlled by Company or ABL, as the case may be. For the purposes of this definition, the term "control" means (a) beneficial ownership of at least fifty percent (50%) of the voting securities of a corporation or other business organization with voting securities or (b) a fifty percent (50%) or greater interest in the net assets or profits of a partnership or other business organization without voting securities.

1.2 "ABL Related Technologies" means any additional technologies outside of the 03-24 Technology and the 03-111 Technology that SATISFIES ALL OF THE FOLLOWING: (i) are now or subsequently owned or licensed to ABL, including any technologies that may be acquired by ABL pursuant to its option for an exclusive license under Section 9 of the Medical School Subcontract, (ii) result from work done by Medical School under the Medical School Subcontract for a DNA-based HIV vaccine with protein boost, and (iii) are deemed necessary or advantageous by Company for the development or commercialization of the HIV Vaccine.

1.3 "Biological Materials" means certain tangible biological materials that are necessary for the effective exercise of the Patent Rights, which materials are described on Exhibit A, as well as tangible materials that are routinely produced through use of the original materials, including, for example, any progeny derived from a cell line, monoclonal antibodies produced by hybridoma cells, DNA or RNA replicated from isolated DNA or RNA, recombinant proteins produced through use of isolated DNA or RNA, and substances routinely purified from a source material included in the original materials (such as recombinant proteins isolated from a cell extract or supernatant by non-proprietary affinity purification methods). These Biological Materials shall be listed on Exhibit A, which will be periodically amended to include any additional Biological Materials that Medical School may furnish to Company.

1.4 "Combination Product" means a product that contains a Licensed Product component and at least one other essential functional component.

1.5 "Confidential Information" means any confidential or proprietary information furnished by one party (the "Disclosing Party") to the other party (the "Receiving Party") in connection with this Agreement, provided that such information is specifically designated as confidential. Such Confidential Information shall include, without limitation, any diligence reports furnished to Medical School under Section 3.1 and royalty reports furnished to Medical School and ABL under Section 5.2.

1.6 "Field" means therapeutics and prophylactics limited to the generation of DNA-based HIV-1 vaccines.

1.7 "Licensed Product" means the HIV Vaccine and any product that cannot be developed, manufactured, used, or sold without (a) infringing one or more claims under the Patent Rights, (b) using or incorporating some portion of one or more Biological Materials, or (c) using some portion of the Related Technology.

1.8 "Net Sales" means the gross amount billed or invoiced on sales by Company and its Affiliates and Sublicensees of Licensed Products, less the following: (a) customary trade, quantity, or cash discounts and commissions to non-affiliated brokers or agents to the extent actually allowed and taken; (b) amounts repaid or credited by reason of rejection or return; (c) to the extent separately stated on purchase orders, invoices, or other documents of sale, any taxes or other governmental charges levied on the production, sale, transportation, delivery, or use of a Licensed Product which is paid by or on behalf of Company; (d) outbound transportation costs prepaid or allowed and costs of insurance in transit; and (e) allowance for bad debt that is customary and reasonable for the industry and in accordance with generally accepted accounting principles. Notwithstanding anything to the contrary in this Section 1.7, Net Sales does not include sales of Licensed Products at or below the fully burdened cost of manufacturing solely for research or clinical testing or for indigent or similar public support or compassionate use programs.

In any transfers of Licensed Products between Company and an Affiliate or Sublicensee, Net Sales shall be calculated based on the final sale of the Licensed Product to an independent third party. In the event that Company or an Affiliate or Sublicensee receives non-monetary consideration for any Licensed Products, Net Sales shall be calculated based on the fair market value of such consideration.

In the case of Combination Products, Net Sales means the gross amount billed or invoiced on sales of the Combination Product less the deductions set forth above, multiplied by a proration factor that is determined as follows:

(i) If all components of the Combination Product were sold separately during the same or immediately preceding Royalty Period, the proration factor shall be determined by the formula [A / (A+B)], where A is the aggregate gross sales price of all Licensed Product components during such period when sold separately from the other essential functional components, and B is the aggregate gross sales price of the other essential functional components during such period when sold separately from the Licensed Product Components; or

(ii) If all components of the Combination Product were not sold separately during the same or immediately preceding Royalty Period, the proration factor shall be determined by the formula [C / (C+D)], where C is the aggregate fully absorbed cost of the Licensed Product components during the prior Royalty Period and D is the aggregate fully absorbed cost of the other essential functional components during the prior Royalty Period, with such costs being determined in accordance with generally accepted accounting principles.

1.9 "Patent Rights" means the U.S. and international patent applications listed on Exhibit A, and any divisional, continuation, or continuation-in-part of such patent applications to the extent the claims are directed to subject matter specifically described therein, as well as any patent issued thereon and any reissue or reexamination of such patent, and any foreign counterparts to such patents and patent applications. Exhibit A shall be periodically amended to include any additional Patent Rights that may arise. "Patent Rights" shall not include patents or patent applications covering any of the ABL Related Technologies, to the extent that such

technologies would not if owned by a third party infringe any of the claims of the Patent Rights.

1.10 "Related Technology" means any know-how, technical information, research and development information, test results, and data necessary for the effective exercise of the Patent Rights which (a) has been developed by Dr. Shan Lu and his associates in his laboratory at the Medical School as of the Effective Date and (b) which is owned by Medical School. "Related Technology" shall not include any of the ABL Related Technologies.

1.11 "Royalty Period" means the partial calendar quarter commencing on the date on which the first Licensed Product is sold or used and every complete or partial calendar quarter thereafter during which either (a) this Agreement remains in effect or (b) Company has the right to complete and sell work-in-progress and inventory of Licensed Products pursuant to Section 8.5.

1.12 "Sublicense Income" means any payments that Company receives from a Sublicensee in consideration of the sublicense of the rights granted Company under Section 2.1., including without limitation license fees, royalties, milestone payments, and license maintenance fees, but excluding the following payments: (a) payments made in consideration for the issuance of equity or debt securities of Company at fair market value, and (b) payments specifically committed to the development of Licensed Products.

1.13 "Sublicensee" means any permitted sublicensee of the rights granted Company under this Agreement, as further described in Section 2.2.

2. Grant of Rights.

2.1 License Grants.

(a) Patent Rights and Biological Materials. Subject to the terms of this Agreement, Medical School and ABL each hereby grants to Company and its Affiliates an exclusive, worldwide, royalty-bearing license (with the right to sublicense) under their respective commercial rights in the Patent Rights and Biological Materials to develop, make, have made, use, and sell Licensed Products in the Field.

(b) Related Technology. Subject to the terms of this Agreement, Medical School hereby grants to Company and its Affiliates a non-exclusive, royalty-bearing license (with the right to sublicense) under its commercial rights in the Related Technology to develop, make, have made, use, and sell Licensed Products in the Field and ABL hereby consents to such grant by Medical School.

(c) Subject to applicable law or the rights of research sponsors, the Medical School shall use its best efforts to make any improvements to the Patent Rights available to Company.

(d) ABL hereby grants to Company and its Affiliates the right to acquire a non-exclusive, worldwide, royalty-bearing license (with the right to sublicense) to any ABL Related Technologies. ABL shall promptly disclose in writing to Company each of the ABL

Related Technologies at the time such technologies are acquired or licensed by ABL. ABL and Company shall negotiate in good faith the terms of the ABL Related Technologies License.

2.2 Sublicenses. Company shall have the right to grant sublicenses of its rights under Section 2.1. with the consent of Medical School, which consent shall not be unreasonably withheld or delayed. All sublicense agreements executed by Company pursuant to this Article 2 shall expressly bind the Sublicensee to the terms of this Agreement. Company shall promptly furnish Medical School and ABL with a fully executed copy of any such sublicense agreement. Medical School hereby consents to the ABL Sublicense, which shall be in the form attached as Exhibit B.

2.3 Retained Rights.

(a) Medical School. Medical School retains the right to make and use Licensed Products for academic research, teaching, and non-commercial patient care, without payment of compensation to Company. Medical School may license its retained rights under this Section to research collaborators of Medical School faculty members, post-doctoral fellows, and students.

(b) Federal Government. To the extent that any invention claimed in the Patent Rights has been partially funded by the federal government, this Agreement and the grant of any rights in such Patent Rights are subject to and governed by federal law as set forth in 35 U.S.C. Sections 201-211, and the regulations promulgated thereunder, as amended, or any successor statutes or regulations. Company acknowledges that these statutes and regulations reserve to the federal government a royalty-free, non-exclusive, non-transferable license to practice any government-funded invention claimed in any Patent Rights. If any term of this Agreement fails to conform with such laws and regulations, the relevant term shall be deemed an invalid provision and modified in accordance with Section 10.1 Upon execution of this Agreement, the Medical School shall disclose in writing to Company any funding that would be subject to this Section 2.3(b).

(c) Other Organizations. To the extent that any invention claimed in the Patent Rights has been partially funded by a non-profit organization or state or local agency, this Agreement and the grant of any rights in such Patent Rights are subject to and governed by the terms and conditions of the applicable research grant. If any term of this Agreement fails to conform with such terms and conditions, the relevant term shall be deemed an invalid provision and modified by the parties pursuant to Section 10.1 Upon execution of this Agreement, the Medical School shall disclose in writing to Company any funding that would be subject to this Section 2.3(c).

(d) ABL shall retain the right to use the Patent Rights to develop and commercialize HIV vaccines other than the HIV Vaccine pursuant to the terms of the ABL Sublicense.

3. Company Obligations Relating to Commercialization.

3.1 Diligence Requirements. Company shall use diligent efforts, or shall cause its Affiliates and Sublicensees to use diligent efforts, to develop Licensed Products and to

introduce Licensed Products into the commercial market; thereafter, Company or its Affiliates or Sublicensees shall make Licensed Products reasonably available to the public. Specifically, Company or Affiliate or Sublicensee shall fulfill the following obligations:

(a) Within ninety (90) days after the initiation of the Phase I Trial, Company shall furnish Medical School and ABL with a written research and development plan under which Company intends to develop Licensed Products.

(b) Within sixty (60) days after each anniversary of the Effective Date, Company shall furnish Medical School and ABL with a written report on the progress of its efforts during the prior year to develop and commercialize Licensed Products, including without limitation research and development efforts, efforts to obtain regulatory approval, marketing efforts, and sales figures. The report shall also contain a discussion of intended efforts and sales projections for the current year.

(c) Company shall endeavor to obtain all necessary governmental approvals for the manufacture, use and sale of Combination Product and Licensed Product. Specifically, Company shall:

(i) Within eight (8) years after the Effective Date, file an Investigational New Drug Application ("IND") or its equivalent covering at least one Combination Product or Licensed Product with the FDA with this requirement to be deemed to have been satisfied upon the filing of the ABL IND;

(ii) Within thirteen (13) years after the Effective Date, file a New Drug Application ("NDA") with the FDA covering at least one Combination Product or Licensed Product;

(iii) Within eighteen (18) months after receiving FDA approval of the NDA for a Combination Product or Licensed Product, market at least one Combination Product or Licensed Product in the U.S. ; and

(iv) reasonably fill the market demand for any Combination Product or Licensed Product following commencement of marketing of such product at any time during the exclusive period of this Agreement.

Company shall have the responsibility to finance its obligations in this Section 3.1, and the Medical School and ABL shall provide reasonable cooperation to Company in this regard. In the event that Medical School or ABL determines that Company (or an Affiliate or Sublicensee) has not fulfilled its obligations under this Section 3.1., Medical School or ABL shall furnish Company with written notice of such determination. Within sixty (60) days after receipt of such notice, Company shall either (i) fulfill the relevant obligation or (ii) negotiate with Medical School and ABL a mutually acceptable schedule of revised diligence obligations, failing which Medical School and ABL shall have the right, immediately upon written notice to Company and subject to Sections 8.2 and 9, to terminate this Agreement or to grant additional licenses to third parties to the Patent Rights and Biological Materials in the Field. Neither Medical School nor ABL may not unreasonably withhold acceptance of Company's revised diligence obligations.

3.2 Indemnification.

(a) Indemnity. Company shall indemnify, defend, and hold harmless Medical School and its trustees, officers, faculty, students, employees, and agents and their respective successors, heirs and assigns and ABL and its officers, directors and agents and their respective successors, heirs and assigns (the "Indemnitees"), against any liability, damage, loss, or expense (including reasonable attorneys fees and expenses of litigation) incurred by or imposed upon any of the Indemnitees in connection with any claims, suits, actions, demands or judgments arising out of any theory of liability (including without limitation actions in the form of tort, warranty, or strict liability and regardless of whether such action has any factual basis) concerning any product, process, or service that is made, used, or sold pursuant to any right or license granted under this Agreement; provided, however, that such indemnification shall not apply to any liability, damage, loss, or expense to the extent directly attributable to (i) the negligent activities or intentional misconduct of the Indemnitees or (ii) the settlement of a claim, suit, action, or demand by Indemnitees without the prior written approval of Company.

(b) Procedures. The Indemnitees agree to provide Company with prompt written notice of any claim, suit, action, demand, or judgment for which indemnification is sought under this Agreement. Company agrees, at its own expense, to provide attorneys reasonably acceptable to Medical School and ABL to defend against any such claim. The Indemnitees shall cooperate fully with Company in such defense and will permit Company to conduct and control such defense and the disposition of such claim, suit, or action (including all decisions relative to litigation, appeal, and settlement); provided, however, that any Indemnitee shall have the right to retain its own counsel, at the expense of Company, if representation of such Indemnitee by the counsel retained by Company would be inappropriate because of actual or potential differences in the interests of such Indemnitee and any other party represented by such counsel. Company agrees to keep Medical School and ABL informed of the progress in the defense and disposition of such claim and to consult with Medical School and ABL with regard to any proposed settlement. Any settlement that requires any payment by an Indemnitee or the sublicensing by Company of any of its rights granted under this Agreement that has an adverse economic impact on ABL or Medical School shall require the consent of Medical School and ABL, to the extent that such party is so impacted.

(c) Insurance. Company shall maintain insurance or self-insurance that is reasonably adequate to fulfill any potential obligation to the Indemnitees, but in any event not less than one million dollars ($1,000,000) for injuries to any one person arising out of a single occurrence and five million dollars ($5,000,000) for injuries to all persons arising out of a single occurrence. Company shall provide Medical School and ABL, upon request, with written evidence of such insurance or self-insurance. Company shall continue to maintain such insurance or self-insurance after the expiration or termination of this Agreement during any period in which Company or any Affiliate or Sublicensee continues to make, use, or sell a product that was a Licensed Product under this Agreement and thereafter for a period of two (2) years.

3.3 Use of Medical School and ABL Name. In accordance with Section
7.3. and except as otherwise required by law, Company and its Affiliates and Sublicensees shall not use

the name "University of Massachusetts Medical School" or any variation of that name or ABL's name in connection with the marketing or sale of any Licensed Products.

3.4 Marking of Licensed Products. To the extent commercially feasible and consistent with prevailing business practices, Company shall mark, and shall cause its Affiliates and Sublicensees to mark, all Licensed Products that are manufactured or sold under this Agreement with the number of each issued patent under the Patent Rights that applies to such Licensed Product.

3.5 Compliance with Law. Company shall comply with, and shall ensure that its Affiliates and Sublicensees (to the extent commercially feasible) comply with, all local, state, federal, and international laws and regulations relating to the development, manufacture, use, and sale of Licensed Products. Company expressly agrees to comply with the following:

(a) Company or its Affiliates or Sublicensees shall obtain all necessary approvals from the FDA and any similar governmental authorities of any foreign jurisdiction in which Company or an Affiliate or Sublicensee intends to make, use, or sell Licensed Products.

(b) Company and its Affiliates and Sublicensees shall comply with all United States laws and regulations controlling the export of certain commodities and technical data, including without limitation all Export Administration Regulations of the United States Department of Commerce. Among other things, these laws and regulations prohibit, or require a license for, the export of certain types of commodities and technical data to specified countries. Company hereby gives written assurance that it will comply with, and will cause its Affiliates and Sublicensees to comply with, all United States export control laws and regulations, that it bears sole responsibility for any violation of such laws and regulations by itself or its Affiliates or Sublicensees, and that it will indemnify, defend, and hold Medical School and ABL harmless (in accordance with Section 3.2.) for the consequences of any such violation.

(c) To the extent that any invention claimed in the Patent Rights has been partially funded by the United States government, and only to the extent required by applicable laws and regulations, Company agrees that any Licensed Products used or sold in the United States will be manufactured substantially in the United States or its territories. Current law provides that if domestic manufacture is not commercially feasible under the circumstances, Medical School may seek a waiver of this requirement from the relevant federal agency on behalf of Company.

4. Consideration for Grant of Rights.

4.1 License Fee. In partial consideration of the rights granted Company under this Agreement, Company paid the Medical School prior to the Effective Date (a) a license fee of {***}, and (b) a payment in the amount of {***} to reimburse Medical School for its actual expenses incurred as of January 31, 2003 in connection with obtaining the Patent Rights. These license fee payments are nonrefundable and are not creditable against any other payments due to Medical School or ABL under this Agreement.

4.2 Equity. In partial consideration of the license granted to Company under this Agreement, Company issued to Medical School prior to the Effective Date a total number of shares of Common Stock of Company, ($.01 par value per share) equal to {***} of the outstanding shares of Company. Company registered the shares that were issued to the Medical School within ninety (90) days after their issuance and those shares are now unrestricted.

4.3 License Maintenance Fee. Beginning on the first anniversary of the Effective Date, and on each anniversary of the Effective Date thereafter during the term of the Agreement, Company shall pay to Medical School {***} and to ABL {***}. This annual license maintenance fee is nonrefundable and is not creditable against any other payments due to Medical School or ABL under this Agreement.

4.4 Milestone Payments. Company shall pay Medical School and ABL the following milestone payments within thirty (30) days after the occurrence of each event with such payments to be allocated between Medical School and ABL as follows:

------------------------------------------------------------------------------------------------------------------
               Milestone                                 Total Payment                          Payee
               ---------                                 -------------                          -----
------------------------------------------------------------------------------------------------------------------
Filing of ABL IND                         {***} shares of Company common stock   {***} to {***}
------------------------------------------------------------------------------------------------------------------
Filing of ABL IND                         {***}                                  {***} to {***}
------------------------------------------------------------------------------------------------------------------
Filing of IND or equivalent for each      {***}                                  {***} to Medical School; {***}
Licensed Product other than the HIV                                              to ABL
Vaccine
------------------------------------------------------------------------------------------------------------------
Entry into Phase II clinical trial or     {***} for first product and {***}      {***} to Medical School;
equivalent for each Licensed Product      for each subsequent product            {***} to ABL
------------------------------------------------------------------------------------------------------------------
Entry into Phase III clinical trial or    {***} for first product and {***}      {***} to Medical School;
equivalent for each Licensed Product      for each subsequent product            {***} to ABL
------------------------------------------------------------------------------------------------------------------
Filing for market approval (NDA or        {***} for first product and {***}      {***} to Medical School;
equivalent) in any country besides the    for each subsequent product            {***} to ABL
United States
------------------------------------------------------------------------------------------------------------------
Commencement of product marketing in      {***}                                  {***} to Medical School;
the United States                                                                {***} to ABL
------------------------------------------------------------------------------------------------------------------
First market approval for first three     {***}                                  {***} to Medical School;
European countries in total                                                      {***} to ABL
------------------------------------------------------------------------------------------------------------------

These milestone payments are nonrefundable and are not creditable against any other payments due to Medical School or ABL under this Agreement. In the event Company is required to pay any of the expenses to complete the Phase I Trial and submit the data generated from the Phase I Trial to the FDA, the total amount of such expenses shall be offset against the next milestone payment or payments set forth above, except that no offset shall be permitted against

the milestone payments with respect to the ABL IND filing. In the event any license fee or milestone payments are required to be paid by Company to Antigenics in connection with any Licensed Product, two-thirds of the total amount of such fees and payments shall be offset against the next milestone payment or payments set forth above, except that no offset shall be permitted against the milestone payments with respect to the ABL IND filing.

Company shall pay Medical School a one-time bonus in the amount of {***} in the event that cumulative gross sales of Licensed Products by Company and its Affiliates or Sublicense Income exceed {***} in one calendar year in the United States. Company shall pay Medical School a one-time bonus in the amount of {***} in the event that cumulative gross sales of Licensed Products by Company and its Affiliates or Sublicense Income exceed {***} in one calendar year in Japan and Europe.

4.5 Royalties.

(a) Base Royalty. In partial consideration of the rights granted Company under this Agreement, Company shall pay to Medical School and ABL each a royalty of {***} of Net Sales of Licensed Products by Company and its Affiliates (but not Sublicensees).

(i) If a particular Licensed Product is within the definition of "Licensed Product" solely because it uses or incorporates Related Technology, the royalty rate applicable to such Licensed Product shall be reduced by {***}.

(ii) If there is a competing product in the marketplace, no royalties are due for a Licensed Product that is within the definition of "Licensed Product" because it uses or incorporates only Related Technology or Biological Materials.

(iii) If during the Royalty Period, patents under the Patent Rights have expired or have been abandoned in a particular country,
(I) no royalty is payable by Company for Net Sales in that country, if there is a competing product in that country, and (II) if Company reduces its prices for Licensed Products in that country, even if there is no competing product in that country, Company and Medical School and ABL shall negotiate in good faith a reduction in the royalty rate to reflect the reduction in Company's gross margins caused by the price reduction.

(iv) Company shall pay Medical School and ABL each {***} of Net Sales of commercial clinical laboratory services by Company and its Affiliates.

(b) Royalty Reduction. If Medical School and ABL grant additional licenses to third parties pursuant to Section 3.1, the royalty rates set forth in Subsection 4.5.(a) shall be adjusted, if necessary, so as not to exceed the royalty rates charged any other licensee of the Patent Rights during the term of the non-exclusive license.

4.6 Minimum Royalty. At the beginning of each calendar year during the term of this Agreement, beginning January 1, 2016, Company shall pay to Medical School and ABL each a minimum royalty of {***}. If the actual royalty payments to Medical School and ABL in any calendar year are less than the minimum royalty payment required for that year, Company shall have the right to pay Medical School and ABL the difference between the

actual royalty payment and the minimum royalty payment in full satisfaction of its obligations under this Section, provided such minimum payment is made to Medical School and ABL within sixty (60) days after the conclusion of the calendar year. Waiver of any minimum royalty payment by Medical School or ABL shall not be construed as a waiver of any subsequent minimum royalty payment. If Company fails to make any minimum royalty payment within the sixty-day period, such failure shall constitute a material breach of its obligations under this Agreement, and Medical School and ABL shall have the right to terminate this Agreement in accordance with Sections 8.2 and 9.

4.7 Sublicense Income. Company shall pay Medical School and ABL each {***} of all Sublicense Income; except that in the case of Sublicense Income that is received by Company from the ABL Sublicense, Company shall pay ABL {***} and Medical School {***} of such Sublicense Income. Such amounts shall be due and payable within sixty (60) days after Company receives the relevant payment from the Sublicensee.

4.8 Third-Party and Other Payments. If Company is legally required to make royalty or sublicense income payments to Medical School under any other license agreement as well as this Agreement or to one or more third parties as well as this Agreement in the same Royalty Period for which payments are due under Section 4.5 or 4.7 in order for Company to make, use or sell Licensed Products or have its Sublicensee make, use, or sell Licensed Products:

(a) Other Medical School Payments. In the case of payments to Medical School and ABL under Sections 4.5 and 4.7 with respect to any Licensed Product, Company shall pay only the highest rate among this Agreement and any other Medical School licenses, and that one payment shall be deemed to satisfy the payment requirements for the applicable period under not only this Agreement but each of the other Medical School licenses.

(b) Third Party Payments. In the case of payments to one or more third parties with respect to any Licensed Product under this Agreement, Company may reduce its payment to Medical School and ABL under Section 4.5 or 4.7 of this Agreement for the applicable Royalty Period by fifty percent (50%) of the amount actually paid to third parties. However, in no event will the reductions made pursuant to this Section 4.8(b) result in more than a fifty percent (50%) reduction in the payments that would otherwise be payable to Medical School and ABL under Section 4.5 and 4.7 (after taking into account
Section 4.8(a)).

(c) Example: Royalty Reductions. By way of illustration for Section 4.5 royalty payment reductions, for a particular Licensed Product, assume a royalty of {***} under another Medical School license and a payment of {***} to a third party. The reduction calculation would be as follows: The total {***} royalty rate in this Agreement would apply, and Company would reduce that rate by {***} of the {***} due to the third party, resulting in a {***} royalty each to Medical School and ABL under this Agreement, and {***} royalties payable to the Medical School under the other Medical School license.

(d) Example: Sublicense Income Payments. By way of illustration for Section 4.7 Sublicense Income payment reductions, assume (i) the total Sublicense Income received by Company from the Sublicensee is {***}, and (ii) Company paid a third party

{***} in order to allow the sublicensee to make Licensed Products. Company would then be required to pay the Medical School and ABL under this Agreement each {***} (Medical School and ABL sharing equally {***} of the {***} reduced by {***} paid to the third party). If Company also sublicensed another Medical School license with respect to the Licensed Products, Company would not be required to make additional sublicense income payments.

5. Royalty Reports; Payments; Records.

5.1 First Sale. Company shall report to Medical School and ABL the date of first commercial sale of each Licensed Product within thirty (30) days of occurrence in each country.

5.2 Reports and Payments. Within sixty (60) days after the conclusion of each Royalty Period, Company shall deliver to Medical School and ABL a report containing the following information:

(a) the number of Licensed Products sold to independent third parties in each country;

(b) the gross sales price for each Licensed Product sold by Company and its Affiliates during the applicable Royalty Period in each country;

(c) calculation of Net Sales for the applicable Royalty Period in each country, including a listing of applicable deductions;

(d) total royalty payable on Net Sales in U.S. dollars, together with the exchange rates used for conversion; and

(e) the portion of royalty-based Sublicense Income due to Medical School and ABL for the applicable Royalty Period from each Sublicensee.

All such reports shall be considered Company Confidential Information. If no royalties are due to Medical School and ABL for any Royalty Period, the report shall so state. Concurrent with this report, Company shall remit to Medical School and ABL any payment due for the applicable Royalty Period.

5.3 Payments in U.S. Dollars. All payments due under this Agreement shall be payable in United States dollars. Conversion of foreign currency to U.S. dollars shall be made at the conversion rate existing in the United States (as reported in the Wall Street Journal) on the last working day of the calendar quarter preceding the applicable Royalty Period. Such payments shall be without deduction of exchange, collection, or other charges.

5.4 Payments in Other Currencies. If by law, regulation, or fiscal policy of a particular country, conversion into United States dollars or transfer of funds of a convertible currency to the United States is restricted or forbidden, Company shall give Medical School and ABL prompt written notice of such restriction, which notice shall satisfy the sixty-day payment deadline described in Section 5.2. Company shall pay any amounts due Medical School and ABL through whatever lawful methods Medical School and ABL reasonably

designates; provided, however, that if Medical School or ABL fails to designate such payment method within thirty (30) days after Medical School or ABL is notified of the restriction, Company may deposit such payment in local currency to the credit of Medical School or ABL in a recognized banking institution selected by Company and identified by written notice to Medical School or ABL, and such deposit shall fulfill all obligations of Company to Medical School or ABL with respect to such payment.

5.5 Records. Company shall maintain, and shall cause its Affiliates and Sublicensees to maintain, complete and accurate records of Licensed Products that are made, used, sold, or performed under this Agreement and any amounts payable to Medical School and ABL in relation to such Licensed Products, which records shall contain sufficient information to permit Medical School and ABL to confirm the accuracy of any reports delivered to Medical School and ABL under Section 5.2. The relevant party shall retain such records relating to a given Royalty Period for at least three (3) years after the conclusion of that Royalty Period, during which time Medical School or ABL shall have the right, at its expense, to cause its internal accountants or an independent, certified public accountant to inspect such records during normal business hours for the sole purpose of verifying any reports and payments delivered under this Agreement. Such accountant shall not disclose to Medical School or ABL any information other than information relating to accuracy of reports and payments delivered under this Agreement. The parties shall reconcile any underpayment or overpayment within thirty (30) days after the accountant delivers the results of the audit. In the event that any audit performed under this Section reveals an underpayment in excess of the greater of (a) five thousand dollars ($5,000) or (b) ten percent (10%) in any Royalty Period, Company shall bear the full cost of such audit. Medical School and ABL may each exercise its rights under this Section only once every year and only with reasonable prior notice to Company.

5.6 Late Payments. Any payments by Company that are not paid on or before the date such payments are due under this Agreement shall bear interest, to the extent permitted by law, at two percentage points above the Prime Rate of interest as reported in the Wall Street Journal on the date payment is due, with interest calculated based on the number of days that payment is delinquent.

5.7 Method of Payment. All payments under this Agreement should be made in the name of the "University of Massachusetts Medical School" or "Advanced BioScience Laboratories, Inc.," as the case may be, and sent to the address identified below. Each payment should reference this Agreement and identify the obligation under this Agreement that the payment satisfies.

5.8 Withholding and Similar Taxes. Royalty payments and other payments due to Medical School or ABL under this Agreement shall be reduced by reason of any withholding or similar taxes applicable to such payments to Medical School or ABL, which shall be paid by Company as required by applicable law and reported by Company to Medical School or ABL.

6. Patents and Infringement.

6.1 Responsibility for Patent Rights. Medical School shall have primary responsibility, at the expense of Company, for the preparation, filing, prosecution, and

maintenance of all Patent Rights, using patent counsel reasonably acceptable to Company and ABL. The Joint Patent Filing shall be filed in the United States and any foreign countries requested by Company or ABL. Medical School shall consult with Company and ABL as to the preparation, filing, prosecution, and maintenance of all Patent Rights reasonably prior to any deadline or action with the U.S. Patent & Trademark Office or any foreign patent office and shall furnish Company and ABL with copies of all relevant proposed filings or submissions reasonably in advance of such consultation and copies of all material correspondence with any patent office within a reasonable amount of time. ABL shall reimburse Company for the patent office fees and legal fees and expenses for any filings prepared, submitted or prosecuted and patents maintained for any foreign jurisdiction requested by ABL.

6.2 Cooperation. Medical School, Company and ABL shall cooperate fully in the preparation, filing, prosecution, and maintenance of all Patent Rights. Such cooperation includes, without limitation, (a) promptly executing all papers and instruments or requiring employees of Medical School, Company or ABL to execute such papers and instruments as reasonable and appropriate so as to enable Medical School, ABL or Company to file, prosecute, and maintain such Patent Rights in any country; and (b) promptly informing the other parties of matters that may affect the preparation, filing, prosecution, or maintenance of any such Patent Rights (such as becoming aware of an additional inventor who is not listed as an inventor in a patent application).

6.3 Payment of Expenses. Within thirty (30) days after Medical School invoices Company, Company shall reimburse Medical School for all reasonable patent-related expenses incurred by Medical School pursuant to
Section 6.1. Company may elect, upon sixty (60) days written notice to Medical School, to cease payment of the expenses associated with obtaining or maintaining patent protection for one or more Patent Rights in one or more countries. In such event, Company shall lose all rights under this Agreement with respect to such Patent Rights in such countries for which it has elected not to pay.

6.4 Abandonment. In the event that Medical School desires to abandon any patent or patent application within the Patent Rights for which it has primary responsibility, Medical School shall provide the other parties with reasonable prior written notice of such intended abandonment or decline of responsibility, and the other parties shall have the right, at their expense, to prepare, file, prosecute, and maintain the relevant Patent Rights.

6.5 Infringement.

(a) Notification of Infringement. Each party agrees to provide written notice to the other parties promptly after becoming aware of any infringement of the Patent Rights.

(b) Company Right to Prosecute. So long as Company remains the only licensee of the Patent Rights and Biological Materials in the Field, Company shall have the right, under its own control and at its own expense, to prosecute any third party infringement of the Patent Rights in the Field or, together with licensees of the Patent Rights in other fields (if any), to defend the Patent Rights in any declaratory judgment action brought by a third party which alleges invalidity, unenforceability, or non-infringement of the Patent Rights. Prior to commencing any such action, Company shall consult with Medical School and ABL and shall

consider the views of Medical School and ABL regarding the advisability of the proposed action and its effect on the public interest. Company shall not enter into any settlement, consent judgment, or other voluntary final disposition of any infringement action under this Subsection without the prior written consent of Medical School and ABL, which consent shall not be unreasonably withheld or delayed. Any recovery obtained in an action under this Subsection shall be distributed as follows: (i) each party shall be reimbursed for any expenses incurred in the action (including the amount of any royalty payments withheld from Medical School and ABL as described below), (ii) as to ordinary damages, Company shall receive an amount equal to its lost profits or a reasonable royalty on the infringing sales (whichever measure of damages the court shall have applied), less a reasonable approximation of the royalties that Company would have paid to Medical School and ABL if Company had sold the infringing products and services rather than the infringer, and (iii) as to special or punitive damages, the parties shall share any award fifty percent (50%) to Company, twenty-five percent (25%) to Medical School and twenty-five percent (25%) to ABL. Company may offset a total of fifty percent (50%) of any expenses incurred under this Subsection against any royalty payments due to Medical School and ABL under this Agreement, provided that in no event shall the royalty payments or sublicense income payments under Section 4.5 and 4.7., when aggregated with any other offsets and credits allowed under this Agreement, be reduced by more than fifty percent (50%) in any Royalty Period.

(c) Medical School and ABL as Indispensable Parties. Medical School and ABL each shall permit any action under this Section to be brought in its name if required by law, provided that Company shall hold Medical School and ABL harmless from, and if necessary indemnify Medical School and ABL against, any costs, expenses, or liability that Medical School or ABL may incur in connection with such action.

(d) Medical School Right to Prosecute. In the event that Company fails to initiate an infringement action within a reasonable time after it first becomes aware of the basis for such action, or to answer a declaratory judgment action within a reasonable time after such action is filed, Medical School (or ABL if Medical School does not elect on a timely basis to act) shall have the right to prosecute such infringement or answer such declaratory judgment action, under its sole control and at its sole expense, and any recovery obtained shall be given to Medical School and ABL, who shall share such recovery equally after Medical School or ABL, as the case may be, first recovers all of its expenses incurred in prosecuting such infringement.

(e) Cooperation. Each party agrees to cooperate fully in any action under this Section 6.6 which is controlled by another party, provided that the controlling party reimburses the cooperating party promptly for any costs and expenses incurred by the cooperating party in connection with providing such assistance.

7. Confidential Information; Publications; Publicity.

7.1 Confidential Information.

(a) Designation. Confidential Information that is disclosed in writing shall be marked with a legend indicating its confidential status (such as "Confidential" or "Proprietary"). Confidential Information that is disclosed orally or visually shall be

documented in a written notice prepared by the Disclosing Party and delivered to the Receiving Party within thirty (30) days of the date of disclosure; such notice shall summarize the Confidential Information disclosed to the Receiving Party and reference the time and place of disclosure.

(b) Obligations. For a period of five (5) years after disclosure of any portion of Confidential Information, the Receiving Party shall
(i) maintain such Confidential Information in strict confidence, except that the Receiving Party may disclose or permit the disclosure of any Confidential Information to its directors, officers, employees, consultants, and advisors who are obligated to maintain the confidential nature of such Confidential Information and who need to know such Confidential Information for the purposes of this Agreement; (ii) use such Confidential Information solely for the purposes of this Agreement; and (iii) allow its trustees or directors, officers, employees, consultants, and advisors to reproduce the Confidential Information only to the extent necessary for the purposes of this Agreement, with all such reproductions being considered Confidential Information.

(c) Exceptions. The obligations of the Receiving Party under Subsection 7.1.(b) above shall not apply to the extent that the Receiving Party can demonstrate that certain Confidential Information (i) was in the public domain prior to the time of its disclosure under this Agreement; (ii) entered the public domain after the time of its disclosure under this Agreement through means other than an unauthorized disclosure resulting from an act or omission by the Receiving Party; (iii) was independently developed or discovered by the Receiving Party without use of the Confidential Information; (iv) is or was disclosed to the Receiving Party at any time, whether prior to or after the time of its disclosure under this Agreement, by a third party having no fiduciary relationship with the Disclosing Party and having no obligation of confidentiality with respect to such Confidential Information; or (v) is required to be disclosed to comply with applicable laws or regulations, including without limitation in connection with the development or commercialization of Licensed Products, or with a court or administrative order, provided that the Disclosing Party receives reasonable prior written notice of such disclosure.

(d) Ownership and Return. The Receiving Party acknowledges that the Disclosing Party (or any third party entrusting its own information to the Disclosing Party) claims ownership of its Confidential Information in the possession of the Receiving Party. Upon the expiration or termination of this Agreement, and at the request of the Disclosing Party, the Receiving Party shall return to the Disclosing Party all originals, copies, and summaries of documents, materials, and other tangible manifestations of Confidential Information in the possession or control of the Receiving Party, except that the Receiving Party may retain one copy of the Confidential Information in the possession of its legal counsel solely for the purpose of monitoring its obligations under this Agreement.

7.2 Publications. Medical School and ABL and their employees will be free to publicly disclose (through journals, lectures, or otherwise) the results of any research in the Field or relating to the subject matter of the Patent Rights, except as otherwise provided by written agreement between Medical School and Company (e.g., a sponsored research agreement) and subject to the obligations and the government rights stated in the NIH Prime Contract and the Medical School Subcontract.

7.3 Publicity Restrictions. Company shall not use the name of Medical School or ABL or any of their trustees, officers, faculty, students, employees, or agents, or any adaptation of such names, or any terms of this Agreement in any promotional material or other public announcement or disclosure without the prior written consent of Medical School or ABL, as the case may be. The foregoing notwithstanding, Company shall have the right to disclose such information without the consent of Medical School or ABL in any prospectus, offering memorandum, or other document or filing required by applicable securities laws or other applicable law or regulation, provided that Company shall have given Medical School or ABL at least ten (10) days (or such prior shorter period in order to enable Company to make a timely announcement, while affording the Medical School or ABL the maximum feasible time to review the announcement) prior written notice of the proposed text for the purpose of giving Medical School or ABL the opportunity to comment on such text.

8. Term and Termination.

8.1 Term. This Agreement shall remain in effect until (a) the expiration of all issued patents within the Patent Rights or (b) for a period of ten (10) years after the Effective Date if no such patents have issued within that ten-year period, unless earlier terminated in accordance with the provisions of this Agreement.

8.2 Termination for Default. In the event that any party commits a material breach of its obligations under this Agreement and fails to cure that breach within sixty (60) days after receiving written notice thereof, the other parties who are materially damaged by such breach may terminate this Agreement immediately upon written notice to the party in breach and any other party to this Agreement. If the alleged breach involves nonpayment of any amounts due Medical School or ABL under this Agreement, Company shall have only one opportunity to cure a material breach for which it receives notice as described above; any subsequent material breach by Company will entitle Medical School or ABL to terminate this Agreement immediately upon written notice to Company, without the sixty-day cure period. If there are two parties who are materially damaged by any material breach under this Agreement and they cannot agree that this Agreement should be terminated, this disagreement shall be resolved under the procedures set forth in Section 9.

8.3 Force Majeure. No party to this Agreement will be responsible for delays resulting from causes beyond the reasonable control of such party, including without limitation fire, explosion, flood, war, strike, or riot, provided that the nonperforming party uses commercially reasonable efforts to avoid or remove such causes of nonperformance and continues performance under this Agreement with reasonable dispatch whenever such causes are removed.

8.4 Effect of Termination. The following provisions shall survive the expiration or termination of this Agreement: Articles 1 and 9; Sections 3.2., 3.5., 5.2 (obligation to provide final report and payment), 5.5., 6.4., 7.1., 7.3., 8.4., and 10.9. Upon the early termination of this Agreement, Company and its Affiliates and Sublicensees may complete and sell any work-in-progress and inventory of Licensed Products that exist as of the effective date of termination, provided that (a) Company is current in payment of all amounts due Medical School and ABL under this Agreement, (b) Company pays Medical School and ABL the applicable royalty on

such sales of Licensed Products in accordance with the terms and conditions of this Agreement, and (c) Company and its Affiliates and Sublicensees shall complete and sell all work-in-progress and inventory of Licensed Products within six (6) months after the effective date of termination.

9. Dispute Resolution.

9.1 Procedures Mandatory. The parties agree that any dispute arising out of or relating to this Agreement shall be resolved solely by means of the procedures set forth in this Article, and that such procedures constitute legally binding obligations that are an essential provision of this Agreement; provided, however, that all procedures and deadlines specified in this Article may be modified by written agreement of the parties. If any party fails to observe the procedures of this Article, as modified by their written agreement, either of the other parties may bring an action for specific performance in any court of competent jurisdiction.

9.2 Dispute Resolution Procedures.

(a) Negotiation. In the event of any dispute arising out of or relating to this Agreement, the affected party shall notify the other parties, and the parties shall attempt in good faith to resolve the matter within ten (10) days after the date of such notice (the "Notice Date"). Any disputes not resolved by good faith discussions shall be referred to senior executives of each party, who shall meet at a mutually acceptable time and location within thirty (30) days after the Notice Date and attempt to negotiate a settlement.

(b) Mediation. If the matter remains unresolved within sixty (60) days after the Notice Date, or if the senior executives fail to meet within thirty (30) days after the Notice Date, any party may initiate mediation upon written notice to the other parties, whereupon all of the parties shall be obligated to engage in a mediation proceeding under the then current Center for Public Resources ("CPR") Model Procedure for Mediation of Business Disputes, except that specific provisions of this Section shall override inconsistent provisions of the CPR Model Procedure. The mediator will be selected from the CPR Panels of Neutrals. If the parties cannot agree upon the selection of a mediator within ninety (90) days after the Notice Date, then upon the request of any party, the CPR shall appoint the mediator. The parties shall attempt to resolve the dispute through mediation until one of the following occurs: (i) the parties reach a written settlement; (ii) the mediator notifies the parties in writing that they have reached an impasse; (iii) the parties agree in writing that they have reached an impasse; or (iv) the parties have not reached a settlement within one hundred and twenty (120) days after the Notice Date.

(c) Trial Without Jury. If the parties fail to resolve the dispute through mediation, or if neither party elects to initiate mediation, each party shall have the right to pursue any other remedies legally available to resolve the dispute, provided, however, that the parties expressly waive any right to a jury trial in any legal proceeding under this Section.

9.3 Preservation of Rights Pending Resolution.

(a) Performance to Continue. Each party shall continue to perform its obligations under this Agreement pending final resolution of any dispute arising out or relating

to this Agreement; provided, however, that a party may suspend performance of its obligations during any period in which another party fails or refuses to perform its obligations.

(b) Provisional Remedies. Although the procedures specified in this Article are the sole and exclusive procedures for the resolution of disputes arising out of relating to this Agreement, any party may seek a preliminary injunction or other provisional equitable relief if, in its reasonable judgment, such action is necessary to avoid irreparable harm to itself or to preserve its rights under this Agreement.

(c) Statute of Limitations. The parties agree that all applicable statutes of limitation and time-based defenses (such as estoppel and laches) shall be tolled while the procedures set forth in Subsections 9.2.(a) and 9.2(b) are pending. The parties shall take any actions necessary to effectuate this result.

10. Miscellaneous.

10.1 Representations and Warranties. Medical School and ABL each represents and warrants that its employees have assigned to Medical School or ABL, as the case may be, their entire right, title, and interest in the Patent Rights, that it has authority to grant the rights and licenses set forth in this Agreement, and that, to its best knowledge, it does not hold any other intellectual property rights that would be infringed by the exploitation of the Patent Rights. Neither MEDICAL SCHOOL NOR ABL MAKES ANY OTHER WARRANTIES CONCERNING THE PATENT RIGHTS, RELATED TECHNOLOGY, AND BIOLOGICAL MATERIALS, INCLUDING WITHOUT LIMITATION ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Specifically, neither Medical School nor ABL makes any warranty or representation (a) regarding the validity or scope of the Patent Rights, (b) that the exploitation the Patent Rights or any Licensed Product will not infringe any patents or other intellectual property rights of a third party, and (c) that any third party is not currently infringing or will not infringe the Patent Rights.

10.2 Compliance with Law and Policies. Company agrees to comply with applicable law and the policies of Medical School in the area of technology transfer and shall promptly notify Medical School of any violation that Company knows or has reason to believe has occurred or is likely to occur. The Medical School policies currently in effect at the Worcester campus are listed on the http://www.umassmed.edu web site.

10.3 Tax-Exempt Status. Company and ABL acknowledge that Medical School, as a public institution of the Commonwealth of Massachusetts, holds the status of an exempt organization under the United States Internal Revenue Code. Company and ABL also acknowledge that certain facilities in which the licensed inventions were developed may have been financed through offerings of tax-exempt bonds. If the Internal Revenue Service determines, or if counsel to Medical School reasonably determines, that any term of this Agreement jeopardizes the tax-exempt status of Medical School or the bonds used to finance Medical School facilities, the relevant term shall be deemed an invalid provision and modified in accordance with Section 10.11.

10.4 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument.

10.5 Headings. All headings are for convenience only and shall not affect the meaning of any provision of this Agreement.

10.6 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective permitted successors and assigns.

10.7 Assignment. This Agreement may not be assigned by any party without the prior written consent of the other party, except that Company and ABL may assign this Agreement to an Affiliate or to a successor in connection with the merger, consolidation, or sale of all or substantially all of their assets or that portion of its business to which this Agreement relates.

10.8 Amendment and Waiver. This Agreement may be amended, supplemented, or otherwise modified only by means of a written instrument signed by all of the parties. Any waiver of any rights or failure to act in a specific instance shall relate only to such instance and shall not be construed as an agreement to waive any rights or fail to act in any other instance, whether or not similar.

10.9 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts irrespective of any conflicts of law principles.

10.10 Notice. Any notices required or permitted under this Agreement shall be in writing, shall specifically refer to this Agreement, and shall be sent by hand, recognized national overnight courier, confirmed facsimile transmission, confirmed electronic mail, or registered or certified mail, postage prepaid, return receipt requested, to the following addresses or facsimile numbers of the parties:

If to Medical School:

Office of Technology Management University of Massachusetts Medical School 365 Plantation Street, Suite 130 Worcester, MA 01605
Attention: Chester A. Bisbee Acting Director
Tel: (508) 856-1626
Fax: (508) 856-5004

If to Company:

CytRx Corporation
11726 San Vicente Boulevard, Suite 650 Los Angeles, California 90049 Attention: Steven A. Kriegsman Chief Executive Officer Invoices to: Steven A. Kriegsman Tel: (310) 826-5648
Fax: (310) 826-6139

If to ABL:

Advanced BioScience Laboratories, Inc.
5510 Nicholson Lane
Kensington, Maryland 20895

Attention: Johannes Burlin
President and CEO Tel: (301) 881-5600
Fax: (301) 984-3608

All notices under this Agreement shall be deemed effective upon receipt. A party may change its contact information immediately upon written notice to the other party in the manner provided in this Section.

10.11 Severability. In the event that any provision of this Agreement shall be held invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect any other provision of this Agreement, and the parties shall negotiate in good faith to modify the Agreement to preserve (to the extent possible) their original intent. If the parties fail to reach a modified agreement within sixty (60) days after the relevant provision is held invalid or unenforceable, then the dispute shall be resolved in accordance with the procedures set forth in Article 9. While the dispute is pending resolution, this Agreement shall be construed as if such provision were deleted by agreement of the parties.

10.12 Entire Agreement. Except for the Definitive Collaborative Agreement, this Agreement constitutes the entire agreement among the parties with respect to its subject matter

and supersedes all prior agreements or understandings between the parties relating to its subject matter.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the Effective Date.

UNIVERSITY OF              CYTRX CORPORATION             ADVANCED BIOSCIENCE
MASSACHUSETTS MEDICAL                                    LABORATORIES, INC.
SCHOOL

By: /s/ CHESTER A. BISBEE  By: /s/ STEVEN A. KRIEGSMAN   By: /s/ Johannes Burlin
    ---------------------      -----------------------       -------------------
   Acting Director            Steven A. Kriegsman           Johannes Burlin
   Office of Technology       Chief Executive Officer       President and CEO
   Management
                                       23

EXHIBIT A

List of Patent Rights

United States Provisional Patent Application filed December 3, 2002 serial number 60/430,732 entitled " Polyvalent, Primary HIV-1 Envelope Glycoprotein DNA Vaccine.

United States Provisional Patent Application filed in September 2003, serial number 60/503/907 entitled "Polyvalent DNA and Protein Vaccines."

United States Utility Patent Application filed December 3, 2003 and its foreign counterparts referred to by the parties as the Joint Patent Filing.

NO BIOLOGICAL MATERIALS AS OF THE EFFECTIVE DATE

A-1

EXHIBIT B

Form of ABL Sublicense

FILED SEPARATELY IN CYTRX CORPORATION'S FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2003

Exhibit 10.60

COLLABORATION AGREEMENT

This Collaboration Agreement, dated as of December 22, 2003 (the "Agreement") is entered into by and among University of Massachusetts, a public institution of higher education of the Commonwealth of Massachusetts having an address at 365 Plantation Street, Suite 130, Worcester, MA 01605 ("UMass"), Advanced BioScience Laboratories, Inc., a Delaware corporation having its principal place of business at 5510 Nicholson Lane, Kensington, MD 20895 ("ABL") and CytRx Corporation, a Delaware corporation having an address at 11726 San Vicente Boulevard, Suite 650, Los Angeles, California 90049 ("CytRx") with reference to the following facts:

B. In May 2003, UMass granted an exclusive worldwide license to the 03-24 Patent Filing and 03-24 Technology to CytRx pursuant to an Exclusive License Agreement, dated as of April 15, 2003 by and between UMass and CytRx (the "03-24 License Agreement" and as amended and restated pursuant to this Agreement, the "Amended and Restated 03-24 License Agreement").

C. In June 2000, ABL was awarded a $15 million contract from the National Institutes of Health (NIAID Prime Contract N01-05394) (the "NIH Prime Contract") in connection with the development of a DNA-based HIV vaccine and on June 26, 2000, ABL entered into a subcontract with UMass (Subcontract No. 00454B-UMM-NAID-N01-A1-05395) (the "UMass Subcontract") in connection with the development of an HIV vaccine using the 03-24 Technology and the 03-111 Technology and currently being developed by UMass and ABL under the NIH Prime Contract and the UMass Subcontract (the "HIV Vaccine"). The HIV Vaccine will include for purposes of this Agreement the foregoing vaccine product notwithstanding the expiration or early termination of either the NIH Prime Contract or the UMass Subcontract.

D. ABL anticipates filing in January 2004 an investigational new drug application (as defined in the United States Federal Food, Drug and Cosmetic Act of 1938, as amended from time to time (the "Act")) with the United States Food and Drug Administration ("FDA") for a Phase I clinical trial of the HIV Vaccine (the "IND") and expects to commence this Phase I trial (the "Phase I Trial") within 30 to 60 days following the IND being cleared by the FDA.

E. In September 2003, ABL filed a provisional patent application, U. S. Patent Application Serial Number 60/503,907 (the "03-111 Patent Filing") covering an HIV protein boost technology invention referred to by UMass and ABL as UMMC 03-111 (the "03-111 Technology").

F. On December 3, 2003, ABL and UMass made a joint filing with the United States Patent and Trademark Office of a combined patent application (the "Joint Patent

Filing") for the 03-24 Technology and the 03-111 Technology that included all of the claims of the 03-24 Patent Filing and 03-111 Patent Filing and other claims relating to the 03-24 Technology and 03-111 Technology. Both a U.S. non-provisional patent application and a PCT application designating all countries were filed simultaneously. Both the non-provisional and the PCT applications claim priority to the 03-24 Patent Filing.

G. In conjunction with the Joint Patent Filing, ABL, CytRx and UMass entered into an Agreement dated as of December 3, 2003 (the "Patent Filing Agreement"), regarding the development and commercialization of the HIV Vaccine and providing for the framework for negotiation of this Agreement as a definitive agreement covering such development and commercialization.

H. ABL, CytRx and UMass now wish to enter into this Agreement regarding the development and commercialization of the HIV Vaccine in accordance with the Patent Filing Agreement.

NOW, THEREFORE, in consideration of the mutual representations and covenants contained herein, the parties hereby agree as follows:

1. Definitions.

1.1 "ABL Licensed Product" means any product that cannot be developed, manufactured, used, or sold without (i) infringing one or more claims under the ABL Related Technology, or (ii) using some portion of the ABL Related Technology.

1.2 "ABL Related Technology" means any additional technologies outside of the 03-24 Technology and the 03-111 Technology that satisfy all of the following: (i) are now or subsequently owned or licensed to ABL, including any technologies that may be acquired by ABL pursuant to its option for an exclusive license under Section 9 of the UMass Subcontract, (ii) result from work done by UMass under the UMass Subcontract for a DNA-based HIV vaccine with protein boost, and (iii) are deemed necessary or advantageous by CytRx for the development or commercialization of the HIV Vaccine.

1.3 "ABL Sublicense Agreement" means the sublicense agreement between CytRx and ABL described in Section 14.4.

1.4 "ABL Royalty Period" means the partial calendar quarter commencing on the date on which the first ABL Licensed Product is sold or used and every complete or partial calendar quarter thereafter during which
(i) this Agreement remains in effect and each country where ABL's patent rights to the ABL Related Technology have not expired or been abandoned or revoked and
(ii) CytRx, its Affiliates and/or sublicensees are selling ABL Licensed Product.

1.5 "Affiliate" means any legal entity (such as a corporation, partnership, or limited liability company) that is controlled by or controls the entity in question. For the purposes of this definition, the term "control" means (i) beneficial ownership of at least 50% of the voting securities of a corporation or other business organization with voting securities

or (ii) a 50% or greater interest in the net assets or profits of a partnership or other business organization without voting securities.

1.6 "Collaborative Press Release" means the joint ABL and CytRx press release announcing the signing of this Agreement.

1.7 "Good Manufacturing Practices" means the then-current good manufacturing practices required by the FDA, as set forth in the Act and the regulations promulgated thereunder, for the manufacture and testing of pharmaceutical materials, and comparable laws or regulations applicable to the manufacture and testing of pharmaceutical materials in jurisdictions outside the United States.

1.8 "Phase I Completion" means the completion of the Phase I Trial.

1.9 "Manufacturing Agreement" means the commercial manufacturing agreement that may be entered into by and between ABL or its Affiliate and CytRx or its Affiliate pursuant to the terms of Section 7.2.

1.10 "Net Sales" means the gross amount received based on billed or invoiced sales by the applicable party or its Affiliates or sublicensees of ABL Licensed Products or New Vaccine products (as applicable, the "Product"), less the following: (i) customary trade, quantity, or cash discounts and commissions to non-affiliated brokers or agents to the extent actually allowed and taken; (ii) amounts repaid or credited by reason of rejection or return; (iii) to the extent separately stated on purchase orders, invoices, or other documents of sale, any taxes or other governmental charges levied on the production, sale, transportation, delivery, or use of a Product which is paid by or on behalf of the applicable party or its Affiliates or sublicensees; (iv) outbound transportation costs prepaid or allowed and costs of insurance in transit; and (v) sales at or below the fully burdened cost of manufacturing Product, solely for research or clinical testing of such Product or for indigent or similar public support or compassionate use programs. In any transfers of Products between the applicable party or its Affiliates or sublicensees and its Affiliate or sublicensee, Net Sales shall be calculated based on the final sale of the Product to an independent third party. In the event that the applicable party or its Affiliates or sublicensees receives non-monetary consideration for any Products, Net Sales shall be calculated based on the fair market value of such consideration. In the event that CytRx or ABL or their Affiliates or sublicensees use or dispose of a Product in the provision of a commercial service, the Product shall be considered sold and the Net Sales shall be calculated based on the sales price of the Product to an independent third party during the same period or, in the absence of such sales, on the fair market value of the Product as determined by CytRx and ABL in good faith.

1.11 "New Vaccine" means any HIV vaccine other than the HIV Vaccine.

1.12 "New Vaccine Party" means a party to this Agreement seeking to commercialize a New Vaccine.

1.13 "UMass Related Technology" means any additional technologies outside of the 03-24 Technology and 03-111 Technology that (i) are owned or licensed to UMass, and have not been acquired by or licensed to ABL pursuant to ABL's option for an

exclusive license under Section 9 of the UMass Subcontract, (ii) result from work done by UMass under the UMass Subcontract, and (iii) are deemed necessary or advantageous to CytRx for the development or commercialization of the HIV Vaccine.

1.14 "Vaccine Assignment" means the irrevocable assignment by ABL to CytRx of all of ABL's rights, title and interest in and to the HIV Vaccine, including without limitation ABL's right to develop, make, have made, use, offer for sale, market and sell the HIV Vaccine worldwide. Notwithstanding the foregoing, the Vaccine Assignment will be subject to and subordinate to any rights that the Government of the United States may have to the HIV Vaccine by virtue of the NIH Prime Contract funding.

1.15 "91-03 License" means the exclusive, worldwide license for the 91-03 Technology.

1.16 "91-03 Technology" means the technology referred to by UMass as UMMC 91-03.

2. Joint Patent Filing. The Joint Patent Filing shall be prosecuted by Fish & Richardson (or another patent firm retained by UMass and reasonably acceptable to ABL and CytRx). The Joint Patent Filing shall also be filed in such foreign jurisdictions as shall be requested by either ABL or CytRx. The costs of preparing, submitting and prosecuting the Joint Patent Filing (limited to the actual fees of the appropriate patent offices and expenses of patent counsel for UMass) shall be borne by CytRx, except that ABL shall bear all of the legal fees and other expenses of preparing, submitting and prosecuting the Joint Patent Filing in any foreign jurisdiction that it requests be made. In the event any patent office divides or takes other similar action with respect to the Joint Patent Filing, each of the parties to this Agreement shall have the same rights and obligations and access to the 03-24 Technology and 03-111 Technology under this Agreement that it would have had in the absence of any such division or other similar action.

3. IND Filing. ABL shall use its commercially reasonable best efforts to file the IND by no later than January 31, 2004, to obtain clearance of the IND by the FDA, to commence the Phase I Trial within 30 days following FDA clearance of the IND and to complete the Phase I Trial within 18 months from the commencement of the trial. ABL shall notify UMass and CytRx in writing within two business days following the IND filing and the commencement of the Phase I Trial and shall promptly provide UMass and CytRx with all material correspondence received from or delivered to the FDA or the institution at which the Phase I Trial will be conducted relating to the IND or Phase I Trial.

4. Phase I Trial.

4.1 Conduct of Phase I Trial. As set forth in the UMass Subcontract, UMass will be responsible for carrying out the Phase I Trial, including the preparation of all elements required for conducting a human Phase I clinical trial, the recruiting of patients, the conduct and management of the Phase I Trial and assistance with the collation of data and preparation of required reports summarizing the data generated by the Phase I Trial for submission to the FDA upon the Phase I Completion. Subject to applicable confidentiality obligations, UMass shall consult with ABL and CytRx with respect to the status and conduct of the Phase I Trial and the submission of any required reports to the FDA in connection with the Phase I Trial. ABL and UMass shall provide each of the parties to this Agreement with copies of all correspondence delivered to or received from the FDA during and after the Phase I Trial relating to such trial, subject to applicable federal laws and regulations covering confidentiality as applied either under the NIH Prime Contract or FDA regulations. In the event all of the required patients to complete the Phase I Trial have not been enrolled within 30 days following the IND being cleared by the FDA, CytRx will be permitted to direct the patient recruitment efforts in consultation with UMass, to the extent CytRx's activities are consistent with applicable FDA and other federal regulations. ABL, UMass and CytRx shall agree on a schedule for each stage of the Phase I Trial and the submission of the data generated by the Phase I Trial that is consistent with the final submission of such data to the FDA within 18 months of FDA clearance of the IND. Should performance of the Phase I Trial fall more than 30 days behind this schedule, CytRx shall be entitled, subject to the terms of the NIH Prime Contract and the UMass Subcontract, in consultation with UMass to direct the work necessary to complete that stage of the Phase I Trial. CytRx shall be entitled to be reimbursed out of the NIH Prime Contract or the UMass Subcontract to the maximum extent permitted under the terms of those contracts for its out-of-pocket expenses incurred in performing the recruitment or other work described in this Section 4.1.

4.2 Expenses of Phase I Trial. Except as specifically set forth in Section 4.1 and this Section 4.2, CytRx shall bear no responsibility for carrying out any aspect of the Phase I Trial or incur any costs or liabilities in connection therewith. In the event completion of the Phase I Trial requires expenditures not covered under the UMass Subcontract, such expenditures shall be funded, to the maximum extent possible, under the remaining funds from the NIH Prime Contract. In the event the remaining funds from the NIH Prime Contract are insufficient to cover all of the costs to complete the Phase I Trial, CytRx may elect to pay for all of those expenses (after all of the available funds from the NIH Prime Contract have first been applied). CytRx shall be entitled to offset all of the foregoing excess expenses that it pays against any milestone payments (other than the first milestone payments to ABL due upon the IND filing) that it becomes obligated to pay under the Amended and Restated 03-24 License Agreement.

4.3 Maintenance of NIH Prime Contract. ABL and UMass shall use their commercially reasonable efforts to maintain in effect the NIH Prime Contract and UMass Subcontract, which are currently anticipated to continue through completion of the Phase I Trial. In the event of the early cancellation of the NIH Prime Contract for any reason, UMass agrees to continue to conduct the Phase I Trial as contemplated by the UMass Subcontract, provided that it receives compensation for its services comparable to that which was provided

for by the UMass Subcontract. Subject to complying with this Section 4.3, ABL shall have no liability to UMass and CytRx due to such cancellation.

4.4 Insurance; Indemnification. ABL shall maintain clinical trial insurance for the Phase I Trial in an amount and form in accordance with the NIH Prime Contract and UMass Subcontract and shall provide CytRx with evidence of such insurance coverage. ABL or, to the extent allowable by law, UMass, as the case may be, shall indemnify and hold harmless CytRx and its officers, directors, employees, agents and affiliates from and against all liabilities and expenses (including reasonable attorneys fees) resulting directly from ABL's or UMass's negligence or intentional misconduct in the conduct of the Phase I Trial.

5. Assignment of HIV Vaccine.

5.1 Assignment. The Vaccine Assignment shall occur immediately following the Phase I Completion. ABL hereby represents that to the best of its knowledge no other party has any rights to, liens upon or interest in the HIV Vaccine, except to the extent of the Joint Patent Filing, any government retained rights which may arise by operation of federal laws governing products and intellectual property developed under government contracts and certain intellectual property rights of Antigenics which the HIV Vaccine may infringe if the vaccine is commercialized.

5.2 Sole Sponsorship. Following the Vaccine Assignment and provided CytRx elects to undertake further clinical trials after the Phase I Trial, CytRx will be the sole sponsor of the HIV Vaccine for FDA purposes. ABL and UMass will cooperate with CytRx, at CytRx's expense in making all necessary FDA and foreign healthcare regulatory agency filings to reflect the Vaccine Assignment and will provide CytRx with copies of all filings and correspondence with the FDA and any foreign healthcare regulatory agencies made in connection with the HIV Vaccine.

6. Subsequent Clinical Development of HIV Vaccine.

6.1 Conduct of Clinical Development. Following the Phase I Completion, CytRx will be responsible at its own expense for carrying out and completing all subsequent clinical trials that are required to obtain FDA marketing approval for the HIV Vaccine and marketing approval for any other countries. The parties acknowledge that CytRx may seek to obtain additional governmental or private grants, including grants from the National Institutes of Health, to support the clinical development of the HIV Vaccine, and UMass agrees to provide reasonable assistance to CytRx in filing for and obtaining such grants. CytRx shall advise ABL and UMass regarding all material matters relating to the development of the HIV Vaccine, but all decisions concerning the development of the HIV Vaccine shall be made by CytRx in its sole discretion.

6.2 Insurance; Indemnification. CytRx shall maintain clinical trial insurance for all subsequent clinical trials of the HIV Vaccine in an amount and form customary for clinical trials of this type and shall provide UMass and ABL with evidence of such insurance coverage. CytRx shall indemnify and hold harmless UMass and ABL for any liabilities arising from the HIV Vaccine in accordance with Section 3.2 of the Amended and Restated 03-24 License Agreement.

7. Manufacture of HIV Vaccine.

7.1 ABL Supplies and Assistance. ABL shall provide all Phase I clinical trial supplies for the HIV Vaccine in accordance with the NIH Prime Contract. Following the completion of any Phase I trials for the HIV Vaccine, ABL shall provide reasonable assistance to CytRx in providing relevant information to a third party manufacturer for clinical supplies of the HIV Vaccine for any remaining clinical trials, including consulting with such manufacturer and providing such manufacturer with access to drug master files or other FDA filings in connection with the manufacturing process. CytRx shall reimburse ABL for its time and out-of-pocket expenses incurred in providing the foregoing assistance at the same rate that it would charge the government.

7.2 Manufacturing Agreement. Within 30 days of being notified by CytRx that CytRx has received an "approvable BLA" letter from the FDA for the HIV Vaccine or an equivalent notification from any foreign healthcare regulatory agency, ABL or its Affiliates shall have the option to acquire the commercial manufacturing rights for the HIV Vaccine for the United States or any other applicable territory, provided that ABL or its Affiliate then has the required regulatory approvals and manufacturing capacity. The terms of such manufacturing rights shall be set forth in the Manufacturing Agreement, which will be negotiated in good faith by ABL and CytRx and entered into within 60 days of the date ABL is notified by CytRx that CytRx has received the "approvable BLA" letter, and will include such economic and other terms as are customarily contained in an agreement of that type, including without limitation representations and warranties of ABL or its Affiliate that it shall ensure that the HIV Vaccine is manufactured in accordance with the then-current Good Manufacturing Practices, as specified by the applicable laws and regulations in the territory, and the relevant specifications as determined in writing by the parties.

7.3 Supply of HIV Vaccine. The Manufacturing Agreement shall require ABL or its Affiliate to use its best efforts, consistent with Good Manufacturing Practices, to conduct all manufacturing of the HIV Vaccine so that ABL can supply HIV Vaccines in sufficient quantities to meet all purchase orders for HIV Vaccine in the territory covered by the Manufacturing Agreement.

7.4 Alternate Manufacturer. The Manufacturing Agreement shall permit CytRx to utilize an alternate manufacturer in the event ABL or its Affiliate is unable or unwilling to meet all of the supply requirements for the HIV Vaccine for any reason for more than an agreed to period of time. In that event, ABL or its Affiliate shall provide a royalty-free license to the alternate manufacturer for any manufacturing processes required to produce the HIV Vaccine.

8. Marketing of HIV Vaccine. CytRx will be solely responsible, at its own expense, for the commercial marketing of the HIV Vaccine. All decisions concerning the countries in which the HIV Vaccine shall be marketed, the methods of marketing and all other matters concerning the marketing of the HIV Vaccine shall be made by CytRx in its sole discretion.

9. CytRx Licensee or Strategic Partner. CytRx shall have the right to enter into sublicense, strategic alliance or other agreements with one or more third parties pursuant to

which the sublicensee or strategic partner may be responsible (either jointly with CytRx or alone) for the development, commercial manufacture (subject to ABL's option set forth in Section 7) or marketing of the HIV Vaccine; provided, however, that nothing contained in this Section 9 shall alter the obligations and undertakings of CytRx under the Amended and Restated 03-24 License Agreement.

10. Amendment to 03-24 License Agreement. Concurrently with the execution of this Agreement, the parties shall enter into the Amended and Restated 03-24 License Agreement in the form attached hereto as Exhibit B. ABL and UMass agree that the inclusion of the 03-111 Technology into the Amended and Restated 03-24 License Agreement shall occur without further compensation to UMass or ABL, except for the payments specified in the Amended and Restated 03-24 License Agreement, and at no additional cost to CytRx.

11. Compensation Payable to ABL. UMass, CytRx and ABL agree that as payment in full for ABL's Vaccine Assignment to CytRx and its other agreements under this Agreement, ABL shall be entitled to receive from CytRx the following sums, as and if applicable:

(i) {***} of all payments due to UMass under Sections 4.3, 4.5, 4.6, 4.7 and 4.8 of the Amended and Restated 03-24 License Agreement;

(ii) subject to the offset provisions of Section 4.2, {***} of any sums due to UMass under the following milestone payments listed under Section 4.4 of the Amended and Restated 03-24 License Agreement: for "entry into Phase II clinical trial"; for "entry into Phase III clinical trial"; upon "filing for market approval in any country besides the United States"; for "commencement of product marketing in the United States"; and for "first market approval for the first three European countries"; and

(iii) {***} of the milestone payment listed under Section 4.4 of the Amended and Restated 03-24 License Agreement, for "filing of IND or equivalent for each product";

(iv) {***} shares of CytRx common stock (100% of which shall be retained by ABL) concurrently with the payment set forth in clause
(iii) above, with such shares to have customary piggyback rights, which shall entitle ABL, among other things, to have a registration statement filed on CytRx covering such shares with the applicable federal and state securities commissions within 120 days of the IND filing and to use its commercially reasonable efforts to complete the registration within 60 days after the filing of the registration statement; provided, however, that UMass hereby agrees that all amounts payable to it by CytRx under the terms of Sections 4.3 thru 4.8 of the original 03-24 License Agreement shall be modified in the Amended and Restated 03-24 License Agreement by reducing those originally provided for amounts by {***} of the corresponding amounts payable by CytRx to ABL under clauses (i) through (iii) above.

12. License to ABL Related Technologies.

12.1 Grant. Subject to the terms of this Agreement, ABL hereby grants to CytRx and its Affiliates the right to acquire at their sole discretion a non-exclusive,

worldwide, royalty-bearing license to the ABL Related Technology. CytRx shall have the right to grant sublicenses of its rights obtained under this Section 12.1.

12.2 Royalty. In consideration of the rights granted to CytRx under Section 12.1, CytRx shall pay to ABL during the applicable ABL Royalty Period a royalty on sales of the ABL License Products by CytRx or its Affiliates in an amount that shall be negotiated in good faith by ABL and CytRx or its Affiliates at the time they acquire such license rights.

12.3 Other Terms. The license granted pursuant to Section 12.1 shall have such other customary terms as shall be agreed to by ABL and CytRx.

13. Right of First Negotiation to UMass Related Technologies.

13.1 Grant. UMass hereby grants to CytRx and its Affiliates a right of first negotiation to obtain a worldwide, royalty-bearing license to all of UMass's exclusive or non-exclusive rights to the UMass Related Technology. If CytRx acquires any license pursuant to the foregoing right, that license shall include sublicense rights for CytRx or UMass and CytRx shall agree on the provision of related non-exclusive licenses from UMass to any strategic partner or licensee of CytRx.

13.2 Royalty and Other Terms. The royalty rate for any license obtained by CytRx pursuant to Section 13.1 shall be negotiated in good faith by CytRx and UMass. The non-economic terms of such license shall be substantially the same as those set forth in the 03-24 License Agreement.

13.3 Prior ABL Rights. UMass may not grant any rights to UMass Related Technology to CytRx unless UMass has first offered such rights to ABL in accordance with the right of first refusal provisions of the UMass Subcontract.

14. Competing Vaccines.

14.1 New Vaccine. Subject to the terms of this Agreement, ABL and CytRx each shall be permitted to develop and commercialize New Vaccines that may compete with the HIV Vaccine; provided, however, that if the New Vaccine infringes any of the claims set forth in the Joint Patent Filing but for the existing ownership rights of the New Vaccine Party in the Joint Patent Filing, the New Vaccine Party shall pay to the other party {***} of the Net Sales by the New Vaccine Party of the New Vaccine; provided, however, that the percentage of the Net Sales to be paid by the New Vaccine Party to the other party shall be increased to {***} in the event the HIV Vaccine has received FDA or similar foreign agency approval and is at such time being marketed for use in humans.

14.2 Sublicenses. In the event the New Vaccine Party sublicenses the New Vaccine to a sublicensee, the New Vaccine Party shall pay to the other party {***} of any royalties, fees and milestone payments or other income received by the New Vaccine Party from the sublicensee; provided, however, that in the event the HIV Vaccine has been commercialized and will be in competition with the New Vaccine, the percentage of any royalties, fees and milestone payments or other income received by the New Vaccine Party from the sublicensee shall be increased to {***}.

14.3 Treatment of Payments under Amended and Restated 03-24 License Agreement. Any payments received by CytRx from ABL pursuant to Sections 14.1 and 14.2 above shall be treated as "Sublicense Income" pursuant to the Amended and Restated 03-24 License Agreement; provided, however, that the Amended and Restated 03-24 License Agreement shall provide that out of "Sublicense Income" received by CytRx from ABL under Sections 14.1 and 14.2 above, CytRx shall pay an amount to ABL equal to {***} of such Sublicense Income and an amount to UMass equal to {***} of such Sublicense Income.

14.4 ABL Sublicense. Subject to the other provisions of this Section 14, ABL shall have the right to continue using the 03-111 Technology and to use the 03-24 Technology, provided that such use is solely for the purpose of developing and commercializing HIV vaccines other than the HIV Vaccine. Concurrently with the signing of the Amended and Restated 03-24 License Agreement pursuant to Section 10, CytRx shall grant ABL a non-exclusive license to the 03-111 Technology and 03-24 Technology in the form attached as Exhibit C hereto (the "ABL Sublicense Agreement"). Payments made by ABL to CytRx under the ABL Sublicense Agreement shall be subject to the payment requirements of Sections 14.1 and 14.2 and payment by ABL of those amounts shall satisfy the payment obligations of ABL to CytRx under Sections 14.1 and 14.2.

15. Option for UMMC 91-03. UMass hereby grants CytRx an option for a fee of {***} (with such fee creditable to the cost of the exclusive license) to acquire for its sole use and benefit the 91-03 License. The 91-03 License will cover all potential uses of the 91-03 Technology and will be on such economic terms as shall be agreed to by UMass and CytRx, but shall be no less attractive to CytRx than those set forth in UMass's licensing term sheet delivered to CytRx on November 25, 2003. The other terms and conditions of the 91-03 License shall be substantially similar to those set forth in the 03-24 License Agreement. The foregoing option shall be exercised by CytRx at its sole discretion at any time prior to April 1, 2004.

16. Representations and Warranties.

16.1 Authority to Enter Into Agreement. Each of the parties hereto, and the persons signing this Agreement on their behalf, represent and warrant that each is a legal entity with full right and authority in law and in fact to enter into and perform this Agreement, and that such execution will not conflict or result in a breach of any other agreement to which such party is a party or by which it is bound.

16.2 ABL Other Technology. ABL hereby represents and warrants that it does not as of the date of this Agreement own or have any rights, title or interest to or in any other technology or patent that would be infringed by the development or commercialization of the HIV Vaccine.

16.3 NIH Prime Contract. ABL hereby represents to the best of its knowledge that it is compliance with all of the terms of the NIH Prime Contract, that it has not been notified by the NIH of any non-compliance or default by ABL under the NIH Prime Contract and has no reason to believe that it will be unable to continue to comply with all of the terms of the NIH Prime Contract for the rest of the term of that contract.

17. Miscellaneous.

17.1 Term of Agreement. This Agreement shall continue in force until terminated in writing by all of the parties hereto.

17.2 Disclosure.

(a) Upon the signing of this Agreement, the parties promptly shall jointly issue the Collaborative Press Release announcing such signing, with the text of such press release to contain a summary description of the material terms of the this Agreement (but not the specific royalty rates or other similar financial terms) and to be reasonably acceptable to all of the parties. If the IND is filed after the issuance of the Collaborative Press Release, the parties shall promptly jointly issue a press release announcing such filing, with the text of such press release to be reasonably acceptable to all of the parties. Upon the commencement of the Phase I Trial, the parties shall promptly jointly issue a press release announcing such filing, with the text of such press release to be reasonably acceptable to all of the parties. No party to this Agreement shall make any public disclosure concerning this Agreement, the IND, the Phase I Trial or any other matter concerning the development of the HIV Vaccine without the consent of the other parties to this Agreement, which shall not be unreasonably withheld. All press releases shall be consistent with the requirements of the NIH Prime Contract and any other applicable federal laws governing disclosure and confidentiality (including HHSAR 352.224-70) and shall be acceptable to the Contracting Officer of the NIH Prime Contract or other representative of the NIAID.

(b) Notwithstanding anything to the contrary in
Section 17.2(a), CytRx shall have the right to disclose factual information related to this Agreement, the IND, the Phase I Trial and any other matter related to the development or commercialization of the HIV Vaccine to research collaborators, business entities in any and all filings and disclosures necessary or required by the FDA and/or by any other governmental agency in connection with the development, licensing, sublicensing and approval of any products relating to the HIV Vaccine or as otherwise required by law to be disclosed by CytRx as determined by CytRx's counsel but only so long as all such disclosures are consistent with the requirements of the NIH Prime Contract and any other applicable federal laws governing disclosure and confidentiality (including HHSAR 352.224-70). Prior to the Vaccine Assignment, CytRx shall provide ABL and UMass with copies of any material new information disclosures of this type prior to making such disclosures.

(c) Except as required by law or to perform the terms of this Agreement, no party hereto shall use the name, symbols or marks of any other party in connection with any product, promotion or advertising, including in connection with the development and marketing of the HIV Vaccine, without the prior written consent of such other party, which shall not be unreasonably withheld..

17.3 Confidential Information.

(a) Any non-disclosure agreements between any of the parties to this Agreement shall continue in full force and effect. However, each party to this Agreement shall be permitted to use or disclose any of the confidential information supplied to it prior to

or after the date of this Agreement, but solely for regulatory and manufacturing purposes as specified in this Agreement and provided that the party making such disclosure takes reasonable steps to limit the number of persons receiving the confidential information and to maintain the confidentiality of the disclosed information (where public disclosure is not required). Notwithstanding the foregoing, no such disclosure shall be made unless the parties have determined that the disclosure does not violate any confidentiality provisions governing the NIH Prime Contract (including HHSAR 352.224-70) or that the Contracting Officer has consented to such disclosure.

(b) The parties to this Agreement acknowledge their respective obligations under this Agreement to maintain the security and confidentiality of individually identifiable patient health information. The parties agree to abide by the terms of any research authorization and informed consent signed by participants in any clinical trials and research related to the development and commercialization of the HIV Vaccine, and to comply with applicable federal and state health information confidentiality laws and regulations, including as applicable, the Standards for Privacy of Individually Identifiable Health Information published at Title 45 of the United States Code of Federal Regulations parts 160 and 164.

17.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California (United States of America) without reference to any conflict of law provisions thereof. The parties hereby submit to the exclusive jurisdiction of, and venue in, the state and federal courts located in Los Angeles, California.

17.5 Severability. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or the unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. If any of the provisions of this Agreement is held to be excessively broad, it shall be reformed and construed by limiting and reducing it so as to be enforceable to the maximum extent permitted by law.

17.6 Parties' Reliance Upon Counsel. All the parties have each consulted and relied upon their respective attorneys' legal advice and their own judgment and choice in deciding to enter into this Agreement. The parties to this Agreement have read it completely and their attorneys have explained it to them. The undersigned parties voluntarily accept the terms of this Agreement and fully understand those terms.

17.7 Assignment; Binding Effect. Subject to Section 9, no party may assign or transfer this Agreement or any of its rights or obligations hereunder, without the express prior written consent of the other parties. However, nothing in this Section 17.7 shall prohibit any party from assigning this Agreement to a successor in interest by merger, assignment, purchase or otherwise of substantially all of the assets and business of that party or any division or subsidiary of CytRx within which the HIV Vaccine is being developed or commercialized. This Agreement shall inure to the benefit of and be binding upon each party hereto, its successors and permitted assigns.

17.8 Independent Contractors. In the performance of the respective obligations and responsibilities hereunder, each of the parties shall be deemed to be and shall

be an independent contractor. No party is authorized or empowered to act as agent for the other for any purpose and shall not, on behalf of, the other enter into any contract, warranty or representation as to any matter. No party hereto shall be bound by the acts or conduct of any other party.

17.9 Notices. Any notice required or permitted herein shall be in writing and shall be deemed given as of the date it is (a) delivered by hand, (b) received by registered or certified mail, postage prepaid, return receipt requested, (c) delivered to a party by a nationally-recognized overnight courier service such as FedEx or Airborne, with evidence of delivery, or (d) received by facsimile and addressed to the party to receive such notice at the address set forth below, or such other address as is subsequently specified in writing:

If to CytRx:                              If to UMass:

CytRx Corporation                         Office of Technology Management
Attention: Steven A. Kriegsman            University of Massachusetts Medical
Chief Executive Officer                     School
11726 San Vicente Blvd., Suite 650        Attention: Chester A. Bisbee
Los Angeles, CA 90049                     Acting Director
Tel: (310) 826-5449                       365 Plantation Street, Suite 130
Fax: (310) 826-5529                       Worcester, MA 01605
                                          Tel: (508) 856-1626
                                          Fax: (508) 856-1482
If to ABL:

Advanced BioScience Laboratories, Inc.
Attention: Johannes Burlin
President and CEO
5510 Nicholson Lane
Kensington, Maryland 20895
Tel: (301 ) 881-5600
Fax: (301 ) 984-3608

17.10 Entire Agreement; Transaction Costs. This Agreement, together with the Amended and Restated 03-24 License Agreement, the ABL Sublicense Agreement and the Confidentiality and Non-Disclosure Agreement, dated November 21, 2003, between ABL and CytRx (the "ABL/CytRx NDA"), constitutes the entire agreement between the parties with regard to the subject matter of this Agreement. It supersedes all other prior understandings, transactions and communications, whether written or oral, between the parties with respect to the matters referred to herein. In the event of any direct conflict between the terms of this Agreement and the Amended and Restated 03-24 License Agreement or the ABL/CytRx NDA, the terms of this Agreement shall prevail; except that in the event of a dispute relating to the Amended and Restated 03-24 License Agreement in which UMass is a party, the governing law provisions of Section 10.9 of the Amended and Restated 03-24 License Agreement shall control. Each party shall bear its own fees and expenses in connection with negotiating this Agreement and the Definitive Collaborative Agreement.

17.11 Amendments. No modification of this Agreement, nor any future representation, promise or agreement in connection with the subject matter of this Agreement shall be binding on the parties unless made in writing and signed on their respective behalf by their respective authorized representatives.

17.12 Waivers. The waiver by one or several parties of any right hereunder, or of any failure to perform or breach by one party hereunder, shall not be deemed a waiver of any other right hereunder or of any other breach or failure by the other parties hereunder whether of a similar nature or otherwise.

In witness whereof, the parties have caused this Agreement to be signed, in multiple identical originals, by their duly authorized representatives, with effect as of the date first written above.

UNIVERSITY OF MASSACHUSETTS

By: /s/ CHESTER A. BISBEE
   -------------------------------------

Its:      Acting Director, Office of
          Technology Management
      ----------------------------------
Date: December 22, 2003
      ----------------------------------

CYTRX CORPORATION

By: /s/ STEVEN A. KRIEGSMAN
   ------------------------------------
          Steven A. Kriegsman
Its:      Chief Executive Officer

Date:
     ---------------------------------

ADVANCED BIOSCIENCE LABORATORIES, INC.

By: /s/ JOHANNES BURLIN
   -----------------------------------
          Johannes Burlin
Its:      President and CEO

Date: December 22, 2003
     --------------------------------

EXHIBIT B

Form of Amended and Restated 03-24 License Agreement

FILED SEPARATELY IN CYTRX CORPORATION'S FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2003

EXHIBIT C

Form of ABL Sublicense

FILED SEPARATELY IN CYTRX CORPORATION'S FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2003

Exhibit 10.61

SUBLICENSE AGREEMENT

THIS SUBLICENSE AGREEMENT is made the 22nd day of December 2003 BETWEEN CytRx Corporation, a Delaware corporation having an address of 11726 San Vicente Boulevard, Suite 650, Los Angeles, California 90049 (referred to as "CYTRX"), and Advanced BioScience Laboratories, Inc., a Delaware corporation having its principal place of business at 5510 Nicholson Lane, Kensington, Maryland 20895 (referred to as "ABL").

RECITALS

WHEREAS, in June 2000, ABL was awarded a $15 million contract from the National Institutes of Health (NIAID Prime Contract N01-05394) (the "NIH Prime Contract") and on June 26, 2000, ABL entered into a subcontract No. 00454B-UMM-NAID-N01-A1-05395 with University of Massachusetts Medical School ("UMass") (the "UMass Subcontract") in connection with the development of a DNA-based HIV vaccine that incorporates the 03-24 Technology and the 03-111 Technology (as further described below) (the "HIV Vaccine").

WHEREAS, in December 2002, UMass filed a provisional patent application, U.S. Patent Application Serial Number 60/430,732 covering invention disclosure number UMMC 03-24 entitled Primary and Polyvalent HIV-1 Envelope Glycoprotein DNA Vaccines (the "03-24 Technology");

WHEREAS, in September 2003, ABL filed a provisional patent application, U.S. Patent Application Serial Number 60/503,907 covering an HIV protein boost technology invention referred to by UMass and ABL as UMMC 03-111 (the "03-111 Technology");

WHEREAS, on December 3, 2003, ABL and UMass made a joint filing with the United States Patent and Trademark Office of a combined patent application for the 03-24 Technology and the 03-111 Technology that included all of the claims of the 03-24 Patent Filing and 03-111 Patent Filing, with both a U.S. non-provisional patent application and a PCT application designating all countries being filed simultaneously and with both the non-provisional and the PCT applications (the "Joint Patent Filing");

WHEREAS, on December 22, 2003 UMass and ABL granted CYTRX a worldwide exclusive license to the Joint Patent Filing, which includes the 03-24 Technology and 03-111 Technology (the "Amended and Restated Exclusive License Agreement");

WHEREAS, in conjunction with the Joint Patent Filing, ABL, CYTRX and UMass entered into an Agreement, dated as of December 22, 2003, regarding the development and commercialization of the HIV Vaccine and other rights (the "Definitive Collaborative Agreement");

WHEREAS, pursuant to the Definitive Collaborative Agreement and the Amended and Restated Exclusive License Agreement CYTRX hereby grants ABL sublicense rights to the Patent Rights granted to CYTRX in the Amended and Restated Exclusive License

Agreement under said rights to make, have made, use, manufacture and sell products using the Joint Patent Filing technology under the following conditions (the "Sublicense Agreement");

IT IS HEREBY AGREED AS FOLLOWS:

1. Definitions. For this Sublicense Agreement, and solely for this purpose, the terms set forth below shall be defined as follows. All terms not defined herein shall have the meaning set forth in the Amended and Restated Exclusive License Agreement.

1.1 "Affiliate(s)" shall mean any corporation, firm, partnership or other entity which directly or indirectly owns or is owned by or is under common ownership with a party to this Sublicense Agreement to the extent of at least fifty-one percent (51%) of the equity having the power to vote on or direct the affairs of the entity.

1.2 "Amended and Restated Exclusive License Agreement" shall mean the exclusive license agreement entered into between UMass, CytRx and ABL related to the Joint Patent Filing and as defined in the Whereas provision above.

1.3 "Biological Materials" shall mean certain tangible biological materials that are necessary for the effective exercise of the Patent Rights, which materials may be described on Exhibit A, as well as tangible materials that are routinely produced through use of the original materials, including, for example, any progeny derived from a cell line, monoclonal antibodies produced by hybridoma cells, DNA or RNA replicated from isolated DNA or RNA, recombinant proteins produced through use of isolated DNA or RNA, and substances routinely purified from a source material included in the original materials (such as recombinant proteins isolated from a cell extract or supernatant by non-proprietary affinity purification methods).

1.4 "CPR" shall mean the CPR Institute for Dispute Resolution.

1.5 "Effective Date" shall mean January 1, 2004.

1.6 "Field" shall mean all HIV vaccines.

1.7 "Licensed Product" shall mean any HIV vaccine product other than the HIV Vaccine that cannot be developed, manufactured, used, or sold without infringing one or more Valid Claim(s) under the Patent Rights (without taking into account any co-ownership rights of ABL or its Affiliates in the Patent Rights).

1.8 "Net Sales" shall mean the gross amount billed or invoiced on sales of Licensed Products by ABL and its Affiliates to third parties, less (i) 9% as an allowance to reflect each of the following irrespective of the amounts actually incurred for these items: the (a) customary trade, quantity, or cash discounts and commissions to non-affiliated brokers or agents to the extent actually allowed and taken; and (b) amounts repaid or credited by reason of rejection or return and (ii) 5% of the amount of Net Sales after the foregoing 9% allowance, with the 5% allowance to reflect each of the following irrespective of the amounts actually incurred for these items: (a) to the extent separately stated on

purchase orders, invoices, or other documents of sale, any taxes or other governmental charges levied on the production, sale, transportation, delivery, or use of a Licensed Product which is paid by or on behalf of ABL; (b) outbound transportation costs prepaid or allowed and costs of insurance in transit; and
(c) allowance for bad debt that is customary and reasonable for the industry and in accordance with generally accepted accounting principles. Notwithstanding anything to the contrary in this Section 1.7, Net Sales does not include sales of Licensed Products at or below the fully burdened cost of manufacturing solely for research or clinical testing or for indigent or similar public support or compassionate use programs.

In any transfers of Licensed Products between ABL and an Affiliate, Net Sales shall be calculated based on the final sale of the Licensed Product to an independent third party. In the event that ABL or an Affiliate receives non-monetary consideration for any Licensed Products, Net Sales shall be calculated based on the fair market value of such consideration.

1.9 "New Vaccine" shall mean any HIV vaccine other than the HIV Vaccine.

1.10 "Notice Date" shall mean the date on which an affected party notifies the other parties of any dispute arising out of or relating to this Sublicense Agreement.

1.11 "Patent Rights" shall mean the U.S. patent applications listed on Exhibit A, and any divisional, continuation, or continuation-in-part of such patent applications to the extent the claims are directed to subject matter specifically described therein, as well as any patent issued thereon and any reissue or reexamination of such patent, and any foreign counterparts to such patents and patent applications.

1.12 "Parties" shall mean ABL and CytRx.

1.13 "Royalty Period" means any calendar quarter commencing on January 1, April 1, July 1 or October 1 during which a Licensed Product is sold or used and every complete or partial calendar quarter thereafter during which this Agreement remains in effect.

1.14 "Sublicense" shall mean a nonexclusive worldwide sublicense with right to sublicense to third parties under CYTRX's commercial rights in the Patent Rights to make, have made, use, sell and have sold Licensed Products other than the HIV Vaccine in the Field within the Territory.

1.15 "Territory" shall mean the world.

1.16 "Valid Claim" shall mean on a country by country basis any issued or pending claim of a Patent Right which has not expired or been abandoned or allowed to expire or been declared invalid by a court of competent jurisdiction in any unappealed or unappealable decision.

2. Sublicense. Subject to the Patent Rights granted to CYTRX under the Amended and Restated Exclusive License Agreement and the terms of this Sublicense Agreement, CYTRX grants ABL and its Affiliates the Sublicense. This Sublicense shall be effective as of January 1, 2004 and shall remain in force until expiration of the last to expire of the Patent Rights, unless terminated earlier in accordance with Article 6. Any sublicensee of ABL shall specifically agree to be bound by the terms of this Sublicense Agreement.

3. Payments and Reporting.

3.1 Payments. In consideration for the rights granted hereunder, ABL shall pay to CYTRX the following amounts:

(a) Royalties. ABL shall pay to CYTRX on sales of Licensed Products made by ABL and its Affiliates from the Effective Date, (1) royalties of {***} of the Net Sales or (2) if CYTRX has commercial sales of the HIV Vaccine or any New Vaccine competing with the Licensed Products in the marketplace, the royalties shall be {***} of the Net Sales. For any royalties, license fees and milestone payments paid by a third party to ABL under any sublicense rights granted by ABL, ABL shall pay to CYTRX {***} of those royalties, license fees and milestone payments except if CYTRX has commercial sales of the HIV Vaccine or any New Vaccine competing with the Licensed Products in the marketplace, the payment to be made to CYTRX by ABL under any such sublicense granted to a third party shall be {***} of royalties, license fees and milestone payments paid to ABL.

The royalties shall be paid by ABL on a quarterly basis within thirty
(30) days of the end of each calendar quarter on sales made during such quarter. Any withholding taxes which ABL shall be required by law to withhold on remittance of the royalties payments shall be deducted from royalties paid to CYTRX and paid by ABL as required by applicable law and reported by ABL to CYTRX. Upon CYTRX's written request, ABL shall furnish CYTRX with copies of official receipts for such taxes.

(b) Royalty Reduction. If CYTRX grants additional sublicenses to third parties pursuant to this Sublicense Agreement (and as permitted by the Amended and Restated Exclusive Licensed Agreement) for vaccines other than the HIV Vaccine, CYTRX shall notify ABL of any lower royalty rate and any accompanying payments or other consideration, and the royalties rates set forth in Section 3.1(a) shall be adjusted, if necessary, so as not to exceed the royalty rates and other accompanying payments or other consideration charged any other sublicensee of the Patent Rights during the term of the non-exclusive sublicense rights granted herein.

3.2 Reporting. Together with each royalty payment due under Section 3.1, ABL shall submit to CYTRX on a quarterly basis a written statement indicating, on a country-by-country basis, only for those countries where the Patent Rights are in force or are still pending, (i) the actual sales volume of all Licensed Products, (ii) the actual gross sales and Net Sales of 3.2(i), and (iii) the amount of royalties, calculated as above, payable thereon to CYTRX. For this purpose, ABL shall maintain appropriate books of account and records of all sales of Licensed Products and the Net Sales thereof, for a period of three (3) years after each royalties payment. At CYTRX's request and expense, ABL shall make such books of account and records available for inspection during normal business hours by independent public accountants, who are appointed by CYTRX for the purpose of verification of ABL's statements referred to above and are acceptable to ABL. CYTRX agrees to require such accountants to keep all information obtained during the inspection as strictly confidential and to only provide CYTRX with such information which is necessary to verify ABL's statements. The accountant shall report to CYTRX only the amount of royalties due in each period and any discrepancy with payments made during such period. In the event of an underpayment that is in excess of the greater of
(i) $5,000 or (ii) 10% of the royalty payment for that period, ABL shall bear the full cost of the CYTRX audit.

3.3 Payments. All payments shall be made in U.S dollars. Monetary conversions from the currency of a foreign country into U.S. dollars shall be made at the average exchange rate in force on the last business day of the period to which the payments relate as reported by The Wall Street Journal (New York Edition), or on another basis mutually agreed upon by both Parties in writing.

4. Warranties and Liability.

4.1 CYTRX's Patent Rights. As of the Effective Date, CYTRX represents and warrants that: (a) CYTRX has the right to grant the sublicense granted by it hereunder; and (b) CYTRX has not received any written communication or challenge by any third party to the legality, validity, enforceability, use, or ownership of the whole or any part of the Patents Rights.

4.2 CYTRX warrants and represents that it has an exclusive license to all of the Patent Rights, with the right to grant sublicenses thereto upon the approval of UMass, and further warrants and represents that it has the full power and authority to enter into this Sublicense Agreement and to carry out its obligations herein.

4.3 EXCEPT AS PROVIDED IN SECTIONS 4.1 AND 4.2 ABOVE, CYTRX MAKES NO WARRANTIES OR REPRESENTATIONS WHATSOEVER, WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR THAT THE MANUFACTURE, USE OR SALE OF LICENSED PRODUCTS BY ABL OR ANY OF ITS AFFILIATES WILL NOT CONSTITUTE AN INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY.

4.4 Without limiting the generality of the foregoing, the Parties agree that ABL shall indemnify CYTRX (including the officers, directors, employees, agents, consultants and other representatives of CYTRX) from any and all damages, losses, costs, or other consequences which CYTRX may incur as a direct result of any claim by a third party (including, without limitation, any customer or employee of ABL) resulting from or relating to the development, manufacture, use or sale of Licensed Products by ABL or its Affiliates; provided that such indemnification shall not apply to any damages, losses, costs or other consequences that are directly attributable to the negligent activities or intentional misconduct of CYTRX.

4.5 Infringement of CYTRX's Patent Rights by Third Parties.

(a) Should ABL become aware of any infringement or alleged infringement of any of the Patent Rights, ABL shall promptly notify CYTRX in writing of the name and address of the alleged infringer and of the alleged acts of infringement and provide any available evidence of the alleged acts of infringement.

(b) CYTRX shall not be obligated to prosecute against any third party any suit for infringement of the aforesaid Patent Rights.

(c) If, at any time during this Sublicense Agreement, the Patent Rights, in whole, shall be declared invalid in an unappealed or unappealable decision by a court of competent jurisdiction, this Sublicense Agreement shall automatically terminate. In such event, ABL shall not have to pay any royalties to CYTRX.

(d) In the event that CYTRX or UMass under
Section 6.5(d) of the Amended and Restated Exclusive License Agreement chooses to prosecute any third party for infringement of the Patent Rights or defends the validity of the Patent Rights against any alleged infringer, ABL shall render reasonable assistance to CYTRX or UMass, at the reasonable expense of CYTRX or UMass. Any recovery obtained in an action under this Subsection shall be distributed as among CYTRX, ABL and UMass according to clauses (i) through
(iii) of Section 6.5(b) of the Amended and Restated Exclusive License Agreement.

(e) In the event that CYTRX and UMass choose not to prosecute any third party for infringement of the Patent Rights or not to defend the validity of the Patent Rights against any alleged infringer, ABL shall have the right to prosecute such third party for infringement of the Patent Rights or to defend the validity of the Patent Rights

against any alleged infringer and one hundred percent (100%) of all costs incurred by ABL in such pursuit may be credited by ABL against the royalties payable after such date to CYTRX hereunder, provided that in no event shall such royalty payments be reduced by more than fifty percent (50%) in any Royalty Period. CYTRX shall render all reasonable assistance to ABL, at the reasonable expense of ABL. Any proceeds recovered shall be applied firstly for the payment of any royalties to CYTRX against which ABL has deducted amounts under this
Section 4.5(e) and then any remaining proceeds shall be distributed as follows:
(i) each party shall be reimbursed for any expenses incurred in the action (including the amount of any royalty payments withheld from CYTRX as described below), (ii) as to ordinary damages, ABL shall receive an amount equal to its lost profits or a reasonable royalty on the infringing sales (whichever measure of damages the court shall have applied), less a reasonable approximation of the royalties that ABL would have paid to CYTRX if ABL had sold the infringing products and services rather than the infringer, and (iii) as to special or punitive damages, the parties shall share any award fifty percent (50%) to ABL and fifty percent (50%) to CYTRX.

5. Marketing.

5.1 ABL undertakes to use its reasonable efforts to develop, obtain regulatory approval for and market Licensed Products.

5.2 ABL shall not make any use of the name of CYTRX in connection with the use, manufacture or sale of Licensed Products by ABL and in any advertising, promotional or sales literature, without the prior written consent of CYTRX.

5.3 ABL shall be responsible for the compliance of Licensed Products sold by it hereunder with all relevant applicable laws and regulations. Without limiting the foregoing, all Licensed Products sold by ABL hereunder shall be labeled with such legends and statements as may be required by applicable laws or regulations. To the extent commercially feasible and consistent with prevailing business practices, ABL shall mark all Licensed Products with the number of each issued patent under the Patent Rights that applies to such Licensed Product.

5.4 In the event an unlicensed third party markets in any country a Licensed Product which infringes a claim of an issued Patent Rights in such country, and CYTRX does not bring an infringement action against such third party or license such third party within ninety (90) days of a written request from ABL to take action, ABL and CYTRX shall meet and discuss whether such infringement has an adverse impact on ABL's sales of Licensed Products in such country and, if so, negotiate in good faith an adjustment to the terms of this Sublicense Agreement, provided that ABL acknowledges that it is only receiving a non-exclusive license under this Sublicense Agreement and that any adjustment to the terms of this Sublicense Agreement shall take into account that the Parties did not intend that ABL receive, and ABL does not hold, an exclusive sublicense of any Patent Rights.

6. Duration and Termination.

6.1 This Sublicense Agreement shall commence on the Effective Date and shall continue until expiration of the last to expire of the Patent Rights, unless terminated earlier in accordance with this Article 6.

6.2 The obligations of ABL to pay royalties in each country shall end on a country-by-country basis upon the expiration, invalidation, withdrawal or abandonment of the last remaining Patent Rights covering the manufacture, use or sale of Licensed Products in such country.

6.3 Notwithstanding anything in this Article to the contrary, a Party hereto shall have the right, by notice in writing, to terminate this Sublicense Agreement (i) in the event that the other Party is in default or breach of any material covenant, undertaking or obligation to be performed by that Party hereunder, and such default or breach is not corrected or cured within thirty (30) days after written notice thereof has been given by the non-defaulting Party; or (ii) in the event that the other Party shall enter into any arrangement or composition with its creditors or enter or be put into voluntary or compulsory liquidation (except for the purpose of any reorganization reasonably acceptable to the other Party), or have its business enjoined or ordered into receivership by executive or judicial authorities.

6.4 Any termination under this Article shall be without prejudice to the rights of either Party against the other then accruing or otherwise accrued under this Sublicense Agreement.

6.5 Termination of this Sublicense Agreement shall terminate all outstanding obligations and liabilities between ABL and CYTRX arising from this Sublicense Agreement except those provided for in Articles 4, 6, 7 and 10.

7. Confidentiality.

7.1 During the term of this Sublicense Agreement and for a period of five (5) years thereafter, ABL and CYTRX shall treat all confidential information received from the other under this Sublicense Agreement (including information pursuant to Section 3.2) as the exclusive property of the other Party and agrees not to disclose to any third Party or use any such information, except as permitted hereunder, without first obtaining the other Party's written consent. Each Party further agrees to take all practicable steps to ensure that any such information shall not be used by its directors, officers, employees or agents, except on like terms of confidentiality as aforesaid, and that it shall be kept fully private and confidential by them.

7.2 The above provision of confidentiality and non-use shall not apply to that part of such information which a Party is clearly able to demonstrate:

(a) was rightfully in its possession without restriction on disclosure or use prior to receipt from the other; or

(b) was in the public domain at the time of receipt from the other; or

(c) became part of the public domain through no default of the Party receiving such information, its directors, officers or employees; or

(d) was lawfully received without restriction on disclosure or use from some third Party having a right of further disclosure; or

(e) is required to be disclosed by law or applicable government regulations; or

(f) is independently developed by employees or representatives of a Party who have had no access to or the benefit of any disclosure hereunder.

8. Notices. Any notice required or permitted to be given hereunder shall be sent in writing by registered or certified airmail, postage prepaid, return receipt requested, or by fax, air courier or hand delivery, addressed to the Party to whom it is to be given, as follows:

If to CYTRX:               CytRx Corporation
                           11726 San Vicente Boulevard, Suite 650
                           Los Angeles, California 90049
                           Fax: (310) 826-5529
                           Attention: Steven A. Kriegsman
                           Invoices to: Steven A. Kriegsman

If to ABL:                 Advanced BioScience Laboratories, Inc.
                           5510 Nicholson Lane
                           Kensington, Maryland 20895
                           U.S.A.
                           Fax: (301) 981-3608
                           Attention: President & CEO
                           With copy to: General Counsel

or to such other address or addresses as may from time to time be given in writing by either Party to the other pursuant to the terms hereof.

9. Assignment. This Sublicense Agreement shall not be assigned by either Party without the prior written consent of the other Party, except to any of their Affiliates, any of the Parties' respective successors in business, or any of the Parties' Affiliates' respective successors in business (including in connection with a merger or sale of all or substantially all of the assets of the entity or of a business division of the entity). In the event of any such transfer, the transferee shall assume and agree to be bound by the provisions of this Sublicense Agreement.

10. Miscellaneous.

10.1 Force Majeure. Any delays in or failures of performance by either Party under this Sublicense Agreement shall not be considered a breach of this Sublicense Agreement if and to the extent caused by occurrences beyond the reasonable control of the Party affected, including, but not limited to: acts of god; acts, regulations or laws of any government (including, without limitation, import and export regulations); strikes or other concerted acts of workers; fires; floods; explosions; riots; wars; rebellion and sabotage; and any time for performance hereunder shall be extended by the actual time of delay caused by such occurrence. Each Party shall promptly give notice to the other of the start and stop should it be so affected by any of the above-mentioned occurrences and shall provide a reasonable estimate of its expected duration.

10.2 Entire Agreement. This Sublicense Agreement constitutes the entire understanding between the Parties with respect to the subject matter hereof, and supersedes and replaces all prior agreements, understandings, writings and discussions between the Parties relating to said subject matter. ABL expressly agrees to be bound by the terms of the Amended and Restated Exclusive License Agreement.

10.3 Amendments: Waivers. This Sublicense Agreement may be amended and any of its terms or conditions may be waived only by a written instrument executed by both Parties, or, in the case of a waiver, by the Party waiving compliance. The failure of either Party at any time to require performance of any provision hereof shall in no manner affect its rights at a later time to enforce the same. No waiver by either Party of any condition or term in any instance shall be construed as a further or continuing waiver of such condition or term or of another condition or term.

10.4 Severability. If any provision of this Sublicense Agreement is or becomes or is deemed invalid, illegal, or unenforceable in any jurisdiction, then the Parties shall agree upon and add a substitute provision which shall be intended to provide a legal and enforceable clause with economic and business purposes similar to the original provision.

10.5 Successors and Assigns. This Sublicense Agreement shall be binding upon and inure to the benefit of and be enforceable by the Parties hereto and their respective successors and permitted assigns.

10.6 Law of the Agreement and Dispute Resolution.

(a) Applicable Law. This Sublicense Agreement shall be governed by and construed in accordance with the laws of the State of Massachusetts, without regard to the conflicts of law principles thereof. The parties hereby submit to the exclusive jurisdiction of, and venue in, the state and federal courts located in Los Angeles, California.

(b) Negotiation. In the event of any dispute arising out of or relating to this Sublicense Agreement, the affected party shall notify the other parties, and the parties shall attempt in good faith to resolve the matter within ten (10) days after the

Notice Date. Any disputes not resolved by good faith discussions shall be referred to senior executives of each party, who shall meet at a mutually acceptable time and location within thirty (30) days after the Notice Date and attempt to negotiate a settlement.

(c) Mediation. If the matter remains unresolved within sixty (60) days after the Notice Date, or if the senior executives fail to meet within thirty (30) days after the Notice Date, either party may initiate mediation upon written notice to the other party, whereupon both parties shall be obligated to engage in a mediation proceeding in Los Angeles, California under the then current CPR Model Procedure for Mediation of Business Disputes, except that specific provisions of this Section shall override inconsistent provisions of the CPR Model Procedure. The mediator will be selected from the CPR Panels of Neutrals. If the parties cannot agree upon the selection of a mediator within ninety (90) days after the Notice Date, then upon the request of either party, the CPR shall appoint the mediator. The parties shall attempt to resolve the dispute through mediation until one of the following occurs: (i) the parties reach a written settlement; (ii) the mediator notifies the parties in writing that they have reached an impasse; (iii) the parties agree in writing that they have reached an impasse; or (iv) the parties have not reached a settlement within one hundred and twenty (120) days after the Notice Date.

(d) Trial Without Jury. If the parties fail to resolve the dispute through mediation, or if neither party elects to initiate mediation, each party shall have the right to pursue any other remedies legally available to resolve the dispute, provided, however, that the parties expressly waive any right to a jury trial in any legal proceeding under this Section.

IN WITNESS WHEREOF, the Parties hereto have caused this Sublicense Agreement to be executed by their duly authorized officers on the date and year first above written.

ADVANCED BIOSCIENCE LABORATORIES, INC.    CYTRX CORPORATION


/s/ JOHANNES BURLIN                       /s/ STEVEN A. KRIEGSMAN
--------------------------------------    --------------------------------------
By:    Johannes Burlin                    By:
                                             -----------------------------------
Title: President & CEO                    Title:
                                                --------------------------------

Exhibits

Exhibit A - Patent Rights

EXHIBIT A

List of Patent Rights

United States Provisional Patent Application filed December 3, 2002 serial number 60/430,732 entitled " Polyvalent, Primary HIV-1 Envelope Glycoprotein DNA Vaccine.

United States Provisional Patent Application filed in September 2003, serial number 60/503/907 entitled "Polyvalent DNA and Protein Vaccines."

United States Utility Patent Application filed December 3, 2003 and its foreign counterparts referred to by the parties as the Joint Patent Filing.

[NO BIOLOGICAL MATERIALS AS OF THE EFFECTIVE DATE]

Exhibit 10.62

AGREEMENT

THIS AGREEMENT (this "Agreement") is made and is effective as of October 20, 2003, (the "Effective Date") between Dr. Robert L. Hunter ("Hunter") and CytRx Corporation, a Delaware corporation ("CytRx") with reference to the following facts:

A. CytRx has developed CytRx Know-How (as hereinafter defined) and has CytRx Patent Rights (as hereinafter defined) in the fields of:

(i) The composition and use of surface-active copolymers exemplified by poloxamer 188 to treat ischemic tissue, myocardial damage, stroke, pathological hydrophobic interactions in biological fluids, tissue damaged by reperfusion injury, sickle cell disease, and in performing angioplasty procedures (with the CytRx Know-How and CytRx Patent Rights in this field referred to collectively as the "FLOCOR Intellectual Property");

(ii) the composition and use of surface active copolymers (exemplified by poloxamers, reverse poloxamers and diether fatty acid conjugates of poloxyethylene) to treat infections caused by microorganisms, including bacteria, fungi, and viruses and to treat tumors (with the CytRx Know-How and CytRx Patent Rights in this field referred to collectively as the "Anti-Infectives Intellectual Property"); and

(iii) conventional vaccine adjuvants exemplified by poloxamer P1005 (with the CytRx Know-How and CytRx Patent Rights in this field referred to collectively as the "OptiVax Intellectual Property").

B. CytRx has exclusively licensed to Merck & Co. ("Merck), Ivy Animal Health, Inc. ("Ivy Animal Health"), TiterMax USA, Inc. ("TiterMax"), and Vical Inc. ("Vical"), and has granted an option to acquire an exclusive license to Progenics Pharmaceuticals, Inc. ("Progenics"), CytRx Know-How and CytRx Patent Rights in certain fields under agreements collectively referred to as the CytRx Licenses, copies of which are attached hereto as SCHEDULE A.

C. Hunter has previously participated in the development of most of the poloxamer technology that is the subject of the Licensed Intellectual Property (as hereinafter defined) and has developed Hunter Know-How (as hereinafter defined).

D. CytRx and Hunter wish to continue the development and subsequent commercialization of the FLOCOR Intellectual Property, the Anti-Infectives Intellectual Property and the Opti-Vax Intellectual Property (collectively referred to as the "Licensed Intellectual Property") and other potential technologies in the field of FLOCOR, Opti-Vax and Anti-Infectives (as such terms are hereinafter defined) through a jointly owned new corporation to be formed by them and named SynthRx Inc. ("SynthRx").

E. CytRx and Hunter wish to provide for the formation and operation of SynthRx, for Hunter to provide the initial capital for SynthRx, for SynthRx to obtain an exclusive license under the Licensed Intellectual Property from CytRx and for both CytRx and Hunter to provide know how to SynthRx upon the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereby agree as follows:

ARTICLE I.
DEFINITIONS

Unless specifically set forth to the contrary herein, the following terms, whether used in the singular or plural, shall have the respective meanings set forth below:

1.1 The term "Affiliate" shall mean (i) any corporation or business entity of which 50% or more of the securities or other ownership interests representing the equity, the voting stock or general partnership interest are owned, controlled or held, directly or indirectly, by SynthRx, Hunter or CytRx; or (ii) any corporation or business entity which, directly or indirectly, owns, controls or holds 50% or more of the securities or other ownership interests representing the equity or the voting stock of SynthRx or CytRx.

1.2 The term "Anti-Infectives" shall mean polyoxypropylene/polyoxyethylene copolymers and other polyoxyethylene conjugates having therapeutic activity or having the ability to enhance the therapeutic activity of other agents against infective organisms, including bacteria, viruses and fungi.

1.3 The term "CytRx Know-How" shall mean contracts, information and materials, including but not limited to, discoveries, Improvements, processes, formulas, data, know-how and trade secrets, patentable or otherwise, which (i) are in CytRx's possession or control at the Effective Date or are developed by CytRx during the term of this Agreement, if any, (ii) are not generally known, (iii) are valuable to SynthRx in connection with the research, development, marketing, use or sale of Licensed Products in the Field in the Territory, and (iv) CytRx has the right to provide to SynthRx.

1.4 The term "CytRx Licenses" shall mean the previously entered into exclusive license agreements between CytRx and Merck, Ivy Animal Health, Titermax and Vical and the exclusive license agreement to be entered into between CytRx and Progenics upon Progenics exercising the option previously granted to it by CytRx for certain CytRx Know-How and CytRx Patent Rights for certain fields as defined in each license agreement listed in SCHEDULE A.

1.5 The term "CytRx Patent Rights" shall mean (i) all United States or foreign patents or patent applications, and patents to be issued pursuant thereto, owned by or licensed to CytRx, related to Flocor, Opti-vax or the Anti-Infectives, excluding the use in certain fields that are covered in the CytRx Licenses listed in SCHEDULE A hereto; or (ii) are divisions, continuations, reissues, renewals, extensions, supplementary protection certificates, utility models and the like of any such United States patents and patent applications and foreign equivalents thereof. Hunter and CytRx acknowledge that the patent rights licensed from Rush-Presbyterian-St. Luke's Medical Center have reverted to Rush, that they are no longer part of CytRx Patent Rights and that SynthRx must negotiate directly with Rush if it is to obtain rights to these parts of the Anti-Infectives Intellectual Property.

1.6 The term "Field" shall mean the use of Licensed Intellectual Property in all fields for FLOCOR, Anti-Infectives and Opti-Vax, set forth in recital A to this Agreement except for those fields of use that are or will be licensed under the CytRx Licenses.

1.7 The term "FLOCOR" shall mean surface-active copolymers of an ethylene oxide-propylene oxide condensation product that have cytoprotective, rheologic and antithrombotic activities exemplified by poloxamer 188.

1.8 The term "Opti-Vax" shall mean novel polyoxyethylene/polyoxypropylene copolymers that are high molecular weight molecules and are useful as vaccine adjuvants.

1.9 The term "Hunter Know-How" shall mean information and materials, including but not limited to, discoveries, improvements, processes, formulas, dates, know-how and trade secrets, patentable or otherwise, which are in Hunter's possession or control at the Effective Date or are developed by Hunter alone or with others during the term of this Agreement, if any, (i) are not generally known, (ii) are valuable to SynthRx in connection with the research, development, marketing, use or sale of the Licensed Products in the Field in the Territory, and (iii) which Hunter has the right to provide to SynthRx. Hunter's rights are subject to an employment agreement with the University of Texas-Houston.

1.10 The term "Hunter Patent Rights" shall mean in the fields of Flocor, the antiinfectives and OptiVax (i) all United States or foreign patents or patent applications and patents to be issued pursuant thereto, owned by or licensed to Hunter, including but not limited to those listed in SCHEDULE B hereto; or (ii) are divisions, continuations, reissues, renewals, extensions, supplementary protection certificates, utility models and the like of any such United States patents and patent applications and foreign equivalents thereof.

1.11 The term "License Agreement" shall mean the License Agreement between CytRx and SynthRx in the form set forth in SCHEDULE C hereto.

1.12 The term "Licensed Product" shall mean a Product for use in the Field, which in the absence of this Agreement would infringe one or more claims of the CytRx Patent Rights, or a Product that is made using a process or method covered by one or more claims of the CytRx Patent Rights.

1.13 The term "Proprietary Information" shall mean all SynthRx Know-How, Hunter Know-How and CytRx Know-How, and all other scientific, clinical, regulatory, marketing, financial and commercial information or data, whether communicated in writing or orally or by sensory detection, which is provided by one party to the other party in connection with this Agreement.

1.14 The term "Product" shall mean any prescription or over-the-counter prophylactic, diagnostic or therapeutic product, vaccine or device for use in the Field in the Territory.

1.15 The term "Territory" shall mean all of the countries in the world.

ARTICLE II.
FORMATION AND OPERATION OF SYNTHRX

2.1 Formation and Initial Capitalization of SynthRx. Within 20 business days following the Effective Date (the "Closing Date"), Hunter and CytRx shall form SynthRx and provide it with the CytRx Know How and Hunter Know How components of their capital contributions (which shall be returned to them by SynthRx in the event Hunter or CytRx fails to make the balance of his or its capital contribution as set forth in this Section 2.1). Within 20 business days following Hunter's completion of the sale of his CytRx shares (described below), Hunter and CytRx shall provide the additional contributions of capital for SynthRx described in this Section 2.1, with each of these contributions to be conditioned upon the other and with the date on which such contributions are made being referred to herein as the "Second Closing Date." The initial capital to be provided by Hunter pursuant to this Section 2.1 (the "Hunter Capital Contribution") shall be in the form of the foregoing Hunter Know-How and a cash contribution to SynthRx in an amount equal to 85% of the net proceeds (after brokerage commissions) from sale of 497,000 shares of CytRx common stock (the "Hunter Shares") to a third party, which sale shall be effected by Hunter not later than the 90th business day following the Effective Date. Hunter hereby represents that, subject to applicable community property laws, he is the sole owner of the Hunter Shares, free and clear of all liens, claims and encumbrances, and has the right to sell and transfer all of the Hunter Shares without the consent of any third party in a Rule 144(k) transaction under the Securities Act of 1933. CytRx shall provide reasonable assistance to Hunter in identifying and completing the sale of the Hunter Shares to a third party but makes no representation or warranty as to the price per share that will be received by Hunter or the amount of federal or state taxes that will be payable by Hunter in connection with his sale of the Hunter Shares. CytRx will make its capital contribution, which will be in the form of the foregoing CytRx Know-How and a transfer of property in the form of the grant of the license described in
Section 2.2 hereof (the "CytRx Capital Contribution") with the license grant to be made concurrently with Hunter making the cash portion of the Hunter Capital Contribution. In consideration of the Hunter Capital Contribution and CytRx Capital Contribution, SynthRx shall issue Hunter a number of shares of its common stock equal to 80.1% of the total outstanding capital stock of SynthRx on the Closing Date and shall issue CytRx a number of shares of its common stock equal to 19.9% of the total outstanding capital stock of SynthRx on the Closing Date.

2.2 Transfer of License for Stock and Cash Payment. On the Second Closing Date, SynthRx shall, in consideration of the grant of the license to the Licensed Intellectual Property set forth in Section 3.1 hereof, (i) issue CytRx all of the shares of common stock described in Section 2.1 hereof and (ii) make a cash payment to CytRx equal in amount to the Hunter Capital Contribution, less $500,000 that will be retained by SynthRx for its initial working capital (the "CytRx Cash License Payment"). The common shares issued to Hunter and CytRx pursuant to Section 2.1 hereof shall be the only capital shares of SynthRx that will be initially issued, and SynthRx shall as of the Closing and the Second Closing Date have no other obligation to issue any of its securities or have any other debt or financial obligations to Hunter other than reimbursement of actual direct expenditures for the establishment of SynthRx, CytRx or any third party (except for other obligations set forth in this Agreement).

2.3 CytRx Data Transfer. CytRx will transfer to SynthRx all regulatory filings (including, without limitation, all INDs), tangible materials (including finished drug, work-in-progress, drug substance and drug product) and records, notes, data and other information or know how pertaining to FLOCOR, OptiVax and its Anti-Infectives patent portfolio. SynthRx acknowledges that CytRx has agreed to permit TransForm Pharmaceuticals, Inc. ("TransForm") access to and the right to reference certain existing FLOCOR data under an agreement that has been provided to SynthRx (the "TransForm Agreement"). SynthRx agrees to comply with the terms of the TransForm Agreement, and CytRx will be entitled to retain any amounts payable by TransForm to CytRx under the terms of that agreement. CytRx shall have the right to sublicense the rights to use Poloxamer 188 to TransForm Pharmaceuticals as an "excepient" in animal drug products and with written permission from SynthRx for human drug products, and CytRx shall be entitled to retain all license fees, royalties or other compensation generated by such sublease. CytRx agrees to reimburse any SynthRx expenses associated with the TransForm Agreement, including employee time.

2.4 CytRx Materials Transfer. CytRx will transfer all product and data related to the product being stored and transferred pursuant to this
Section 2.4 covered by this Agreement to SynthRx on the Second Closing Date. SynthRx will be assigned ownership by CytRx of all existing FLOCOR product currently in storage and any existing polymer products related to any of the licensed technologies, which will be held at their current storage sites at SynthRx's expense or at SynthRx's election will be transferred to alternative locations at SynthRx's expense. This includes FLOCOR at Hanson Cold Storage, an undetermined amount in storage at Quintiles that has been put into vials with a buffer for clinical trial use, a small amount at HITEX in France, data and samples in storage at Covance, and samples that are in the freezer at CytRx's Atlanta office. The material at Hanson and Quintiles will have to be retested by SynthRx before use. SynthRx will reserve up to 2 kg of purified FLOCOR material and will make that available at no charge to CytRx. CytRx makes no representation or warranty as to the physical condition or usability in any future clinical trials of any of these drug products or materials.

2.5 Hunter Know-How Transfer. Hunter will transfer to SynthRx all information and materials related to Flocor, OptiVax and the Anti-Infectives, including but not limited to, discoveries, improvements, processes, formulas, dates, know-how and trade secrets, patentable or otherwise, which are in Hunter's possession or control at the Effective Date or are developed by Hunter alone or with others during the term of this Agreement, if any, that (i) are not generally known, (ii) are necessary to SynthRx in connection with the research, development, manufacture, marketing, use or sale of the Licensed Products in the Field in the Territory, and (iii) which Hunter has the right to provide to SynthRx.

2.6 Management of SynthRx. SynthRx shall have a Board of Directors consisting of five members, who shall be Hunter, three additional directors designated by Hunter and a fifth director designated by CytRx. At CytRx's sole discretion, CytRx may, in lieu of designating a director to SynthRx Board of Directors, designate an observer who shall be entitled to attend all SynthRx Board of Director meetings. The Chief Executive Officer of SynthRx shall be Hunter or an individual designated by Hunter or the SynthRx Board of Directors.

2.7 Additional Financings. CytRx shall have the right with respect to any subsequent issuance of securities by SynthRx to maintain its then percentage interest (19.9% on a fully

diluted basis) in SynthRx's capital stock by purchasing up to its pro rata share of the securities proposed to be issued so as to maintain CytRx's percentage interest in SynthRx, upon the same financial terms as which SynthRx proposes to issue these securities to any third party. CytRx shall be required to exercise this pre-emptive right not later than 30 days following written notice from SynthRx of the proposed issuance, and this pre-emptive right shall not apply to any issuance of (i) securities offered to the public pursuant to an IPO by SynthRx or (ii) securities issued or to be issued to officers, directors, employees or consultants pursuant to a stock option plan, employee stock purchase plan or other similar plan that is approved by SynthRx's Board of Directors. SynthRx shall not initiate any action (such as the repurchase of outstanding shares of its common stock) that would cause CytRx's ownership percentage of SynthRx to increase to in excess of 19.9% if such increase, in the opinion of CytRx's independent public accountants would require CytRx to consolidate SynthRx's operating results with those of CytRx or have any other materially adverse accounting impact on CytRx.

2.8 Right of First Refusal. In the event Hunter or his Affiliates propose to sell or transfer any of their SynthRx securities to a third party in a transaction not covered by Section 2.10, CytRx shall have a right of first refusal to purchase all or any portion of those securities (the "Hunter Transfer Shares") upon the same financial terms as proposed to be paid by the third party. CytRx shall have 30 days from receipt of a written notice from Hunter or his Affiliate identifying the proposed purchaser, the financial terms of the proposed sale or transfer and all other material terms and conditions of the proposed transaction in which to exercise this right of first refusal and to pay for the Hunter Transfer Shares that it elects to purchase. Hunter or his Affiliate thereafter will have 90 days to complete the sale or transfer of the Hunter Transfer Shares not purchased by CytRx on financial and other terms no less favorable to Hunter or his Affiliate than those set forth in the foregoing notice.

2.9 Registration Rights. CytRx will have customary piggyback registration rights with respect to all of its SynthRx securities. In addition, CytRx shall have the right at any time commencing on or after 9 months from an Initial Public Offering to require SynthRx to register on the appropriate SEC form of registration statement any or all of CytRx's SynthRx securities for resale or in connection with the distribution by CytRx of these securities to its shareholders. SynthRx shall bear all of the expenses of any registration of CytRx's SynthRx securities under this Section 2.9.

2.10 Strategic Transactions. In the event of a merger, consolidation or sale of assets by SynthRx in which SynthRx's shareholders are to receive any payments for or with respect to their SynthRx shares, CytRx shall have the right to require its payment options be no less favorable than any other shareholder. In the event SynthRx seeks to enter into any strategic alliance, joint venture, merger or acquisition, financing, any in-licensing or out-licensing of a technology or other similar transaction (a "Strategic Transaction"), it may request the assistance of CytRx in structuring and completing such Strategic Transaction. If CytRx provides this assistance, SynthRx shall pay CytRx for this assistance an amount equal to 10% of all consideration received or paid (including debt assumed) by SynthRx throughout the term of the Strategic Transaction, including without limitation license payments, milestone payments, or royalties, with any such payment to be deemed to be an additional payment for the license granted to SynthRx under Article III hereof. In the case of payments to CytRx for this assistance in connection with any sublicensee of the license granted to SynthRx under Article III hereof, the

total amount to be paid to CytRx under this Section 2.10 and under the license shall not exceed 25% of the license fee, milestone payments and royalties paid by the sublicensee to SynthRx.

ARTICLE III.
LICENSE

3.1 SynthRx License Grant. Subject to the payment set forth in
Section 2.2 hereof, CytRx shall grant to SynthRx effective as of the Second Closing Date an exclusive license in the Territory, with the right to sublicense, the Licensed Intellectual Property to research, develop, use, manufacture, have manufactured, sell, offer to sell or have sold (i) Licensed Products; and (ii) Opti-Vax as it relates to use in the Field. The license shall be in the form of the License Agreement attached hereto as SCHEDULE C, which shall be executed by SynthRx and CytRx effective as of the Closing Date.

3.2 Assignment of Hunter Intellectual Property. Hunter shall assign to SynthRx without any further payment by SynthRx all of Hunter's rights, title and interest in and to the Hunter Know-How effective as of the Closing Date. Within 60 days of the Closing Date, Hunter shall make available to SynthRx in English and in writing for its use, Hunter Know-How in Hunter's possession as of the Closing Date, including but not limited to the embodiments of such Hunter Know-How as set forth on the attached SCHEDULE D. Hunter also warrants that he has no pending patent applications. During the term of this Agreement Hunter shall promptly disclose to SynthRx in writing on an ongoing basis all Hunter Know-How not previously disclosed.

ARTICLE IV.
CONFIDENTIALITY AND PUBLICATION

4.1 Nondisclosure Obligation. All Proprietary Information disclosed by a disclosing party to a receiving party hereunder shall be maintained in confidence by the receiving party and shall not be disclosed to a non-party or used for any purpose except as set forth herein without the prior written consent of the disclosing party, except to the extent that such Proprietary Information:

(a) is known by recipient at the time of its receipt, and not through a prior disclosure by the disclosing party, as documented by business records;

(b) is properly in the public domain;

(c) is subsequently disclosed to the receiving party by a third party who may lawfully do so and is not under an obligation of confidentiality to the disclosing party;

(d) is developed by the receiving party independently of Proprietary Information received from the disclosing party as documented by business records;

(e) is disclosed to governmental or other regulatory agencies in order to obtain patents or to gain approval to conduct clinical trials or to market Licensed Product, but such disclosure may be only to the extent reasonably necessary to obtain patents or authorizations upon prior review and consent of the disclosing party;

(f) is deemed necessary by SynthRx to be disclosed to sublicensees, agents, consultants, Affiliates, distributors and/or other third parties for the research and development, manufacture, use sale or offer for sale of Licensed Products (or for such parties to determine their interest in performing such activities) in accordance with this Agreement on the condition that such third parties agree to be bound by the confidentiality obligations contained in this Agreement, provided the term of confidentiality for such third parties shall be no less than ten (10) years; or

(g) is required to be disclosed by law or court order, provided that notice is promptly delivered to the other party in order to provide an opportunity to challenge or limit the disclosure obligations.

ARTICLE V.
TERM AND TERMINATION

5.1 Term and Expiration. This Agreement shall continue in effect until the later of ten years from the Effective Date or expiration of all royalty obligations under the License Agreement.

5.2 Termination for Cause. Either CytRx or Hunter may terminate this Agreement by written notice to the other party prior to the Second Closing Date in the event the other party fails to cure a breach of its obligations under this Agreement within 10 days after receiving written notice of such breach. After the Second Closing Date, either CytRx or SynthRx may terminate this Agreement by written notice to the other party in the event the other party fails to cure a breach of its obligations under this Agreement within 30 days after receiving written notice of such breach. In addition to terminating this Agreement and any other remedies that may be available to CytRx as a result of any uncured breach by Hunter or SynthRx under this Agreement, CytRx shall be entitled to terminate the license granted under the License Agreement.

ARTICLE VI.
MISCELLANEOUS

6.1 Assignment. This Agreement may not be assigned by Hunter or CytRx prior to the Closing Date. After the Closing Date, CytRx or SynthRx may assign this Agreement without the other party's consent in connection with a merger into, a consolidation with, or a transfer of all or substantially all of its corporate assets or the transfer of all or substantially all of the assets related to the product line to which this Agreement pertains as an entirety or to any corporation, partnership or other person or entity, so long as the successor surviving person or entity in any such merger, consolidation, partnership or other person or entity transfer or reorganization assumes in writing the obligations of this Agreement. Such merger, consolidation, transfer or reorganization shall not in any way be a breach of this Section 6.1, nor be a default under this Agreement. Any permitted assignee shall assume all obligations of its assignor under the Agreement.

6.2 Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality

and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, unless the absence of the invalidated provision(s) adversely affect the substantive rights of the parties. The parties shall in such an instance use their best efforts to replace the invalid, illegal or unenforceable provision(s) with valid, legal and enforceable provision(s) which, insofar as practical, implement the purposes of this Agreement.

6.3 Notices. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered personally, sent by telecopier (and promptly confirmed by personal delivery, registered or certified mail or overnight courier), sent by internationally-recognized overnight or second day courier or sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

if to CytRx, to:            CytRx Corporation
                            11726 San Vicente Boulevard
                            Suite 650
                            Los Angeles, California 90049
                            Attention: President & CEO
                            Facsimile No. (310) 826-5529

if to Hunter, to:           Robert L. Hunter
                            4606 Willow
                            Bellaire, TX 77401

                            Facsimile No.: (713) 500 - 0732

if to SynthRx, to:          To be provided when SynthRx becomes
                            operational________________________
                            ___________________________________
                            Facsimile No.:  (_____)____________

or to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith. Any such communication shall be deemed to have been given when delivered if personally delivered or sent by telecopier on a business day, on the business day after dispatch if sent by nationally-recognized overnight courier and on the third business day following the date of mailing if sent by mail.

6.4 Applicable Law. The Agreement shall be governed by and construed in accordance with the laws of the State of Texas and the United States without reference to any rules of conflict of laws.

6.5 Dispute Resolution. The parties shall negotiate in good faith and use reasonable efforts to settle any dispute, controversy or claim arising from or related to this Agreement or the breach thereof. If the parties do not fully settle, and a party wishes to pursue the matter, each such dispute, controversy or claim that is not an "Excluded Claim" shall be finally resolved by binding arbitration in Las Vegas, Nevada in accordance with the Commercial Arbitration Rules and Supplementary Procedures for Large Complex Disputes of the American Arbitration Association ("AAA"), and judgment on the arbitration award may be entered in any court having

jurisdiction thereof. A panel of three persons experienced in the pharmaceutical business shall conduct the arbitration. Within 30 days after initiation of arbitration, each party shall select one person to act as arbitrator and the two party-selected arbitrators shall select a third arbitrator within 30 days of their appointment. If the arbitrators selected by the parties are unable or fail to agree upon the third arbitrator, the AAA shall appoint the third arbitrator. Any party may apply to the arbitrators for interim injunctive relief until the arbitration award is rendered or the controversy is otherwise resolved. Any party also may, without waiving any remedy under this Agreement, seek from any court having jurisdiction any injunctive or provisional relief necessary to protect the rights or property of that party pending the arbitration award. The arbitrators shall have no authority to award punitive or any other type of damages not measured by a party's compensatory damages. Each party shall bear its own costs and expenses and attorneys' fees and an equal share of the arbitrators' and any administrative fees of arbitration. Except to the extent necessary to confirm an award or as may be required by law, neither a party nor an arbitrator may disclose the existence, content, or results of an arbitration without the prior written consent of both parties. In no event shall an arbitration be initiated after the date when commencement of a legal or equitable proceeding based on the dispute, controversy or claim would be barred by the applicable Texas statute of limitations. As used in this Section, the term "Excluded Claim" shall mean a dispute, controversy or claim that concerns
(a) the validity or infringement of a patent, trademark or copyright; or (b) any antitrust, anti-monopoly or competition law or regulation, whether or not statutory.

6.6 Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof. All express or implied agreements and understandings, either oral or written, heretofore made are expressly merged in and made a part of the Agreement. The Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by each of the parties hereto.

6.7 Headings. The captions to the several Articles and Sections hereof are not a part of the Agreement, but are merely guides or labels to assist in locating and reading the several Articles and Sections hereof.

6.8 Independent Contractors. It is expressly agreed that the parties shall be independent contractors and that the relationship between the parties shall not constitute a partnership, joint venture or agency. No party shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on any other party, without the prior consent of the other party.

6.9 Waiver. The waiver by either party hereto of any right hereunder or the failure to perform or of a breach by the other party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said other party whether of a similar nature or otherwise.

6.10 Counterparts. The Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

6.11 Waiver of Rule of Construction. Each party has had the opportunity to consult with counsel in connection with the review, drafting and negotiation of this Agreement. Accordingly, the parties agree that the rule of construction that any ambiguity in this Agreement shall be construed against the drafting party shall not apply.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.

/s/ ROBERT L. HUNTER
--------------------------------
Dr. Robert L. Hunter

Date: October 21, 2003
     --------------------------

CYTRX CORPORATION

By: /s/ STEVEN A. KRIEGSMAN
   ---------------------------

Title:
      ------------------------

Date:
     -------------------------

SCHEDULE A

PATENTS & LICENSES

U.S. PATENT

5,554,372 (subject to U.S. government regulations) 5,990,241
6,086,899
RE 36,665
5,567,859
5,696,298
5,824,322
Pending application 90/104,088

RELATED FOREIGN PATENTS

WO96/04932

U.S. PATENT

5,234,683
5,114,708
5,824,322

RELATED FOREIGN PATENTS

596,986               Australia             556              Spain
1,279,822             Canada                228,448          France
36,564                Chile                 228,448          United Kingdom
96,104,742            China                 176,179          Mexico
228,448               Germany               228,448          Netherlands
228,448               EPO                   864,556          South Africa

A - 1

LICENSE AGREEMENTS

       AGREEMENT                                    DATE
       ---------                                    ----
TiterMax, USA, Inc.                            June 15, 2000
Merck & Co.                                    November 1, 2000
Ivy Animal Health                              February 16, 2001
Vical Incorporated                             December 7, 2001
PSMA Development Co., LLC                      December 23, 2002
(option agreement)
TransForm Pharmaceuticals, Inc.                April 22, 2003

A-2

SCHEDULE B

HUNTER PATENT RIGHTS

None

B - 1

SCHEDULE C

LICENSE AGREEMENT

THIS LICENSE AGREEMENT (this "Agreement") is made and is effective as of ______ ___, 2003, (the "Effective Date") between SynthRx, Inc. a Texas corporation ("SynthRx") and CytRx Corporation, a Delaware corporation ("CytRx") with reference to the following facts:

A. CytRx has developed CytRx Know-How (as hereinafter defined) and has CytRx Patent Rights (as hereinafter defined) in the fields of:

(i) the composition and use of surface-active copolymers exemplified by poloxamer 188 to treat ischemic or damaged tissue, myocardial damage, stroke, pathological hydrophobic interactions in biological fluids, tissue damaged by reperfusion injury, sickle cell disease, cancer and in performing angioplasty procedures (with the CytRx Know-How and CytRx Patent Rights in this field referred to collectively as the "FLOCOR Intellectual Property");

(ii) the composition and use of surface active copolymers (exemplified by poloxamers, reverse poloxamers and diether, diester or diamide fatty acid conjugates of poloxyethylene) to treat infections caused by microorganisms, including bacteria, fungi, and viruses and to treat tumors (with the CytRx Know-How and CytRx Patent Rights in this field referred to collectively as the "Anti-Infectives Intellectual Property"); and

(iii) conventional vaccine adjuvants exemplified by poloxamer P1005 (with the CytRx Know-How and CytRx Patent Rights in this field referred to collectively as the "OptiVax Intellectual Property").

B. CytRx has exclusively licensed to Merck & Co. ("Merck), Ivy Animal Health, Inc. ("Ivy Animal Health"), TiterMax USA, Inc. ("TiterMax") and Vical Inc. ("Vical") and has granted an option to acquire an exclusive license to Progenics Pharmaceuticals, Inc. ("Progenics"), CytRx Know-How and CytRx Patent Rights in certain fields under agreements collectively referred to as the CytRx Licenses, copies of which are attached hereto as SCHEDULE A.

C. Dr. Robert L. Hunter ("Hunter") has previously participated in the development of most of the poloxamer technology that is the subject of the Licensed Intellectual Property (as hereinafter defined) and has developed Hunter Know-How (as hereinafter defined) and has no Hunter Patent Rights (as hereinafter defined).

D. CytRx and SynthRx wish to continue the development and subsequent commercialization of the FLOCOR Intellectual Property, the Anti-Infectives Intellectual Property and the OptiVax Intellectual Property (collectively referred to as the "Licensed Intellectual Property") pursuant to a license to the Licensed Intellectual Property to be granted by CytRx to SynthRx and upon the terms and conditions set forth herein.

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NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereby agree as follows:

ARTICLE I.
DEFINITIONS

Unless specifically set forth to the contrary herein, the following terms, whether used in the singular or plural, shall have the respective meanings set forth below:

         1.3      The term "Calendar Quarter" shall mean the respective periods
of three consecutive calendar months ending on March 31, June 30, September 30
and December 31.

1.4 The term "Calendar Year" shall mean each successive period of twelve consecutive calendar months commencing on January 1 and ending on December 31.

1.5 The term "CytRx Know-How" shall mean information and materials, including but not limited to, discoveries, Improvements, processes, formulas, data, know-how and trade secrets, patentable or otherwise, which (i) are in CytRx's possession or control at the Effective Date or are developed by CytRx during the term of this Agreement, if any, (ii) are not generally known,
(iii) are necessary to SynthRx in connection with the research, development, marketing, use or sale of Licensed Products in the Field in the Territory, and
(iv) CytRx has the right to provide to SynthRx.

1.6 The term "CytRx Licenses" shall mean the previously entered into exclusive license agreements between CytRx and Merck, Ivy Animal Health, TiterMax and Vical and the exclusive license agreement to be entered into between CytRx and Progenics upon Progenics exercising the option granted to it by CytRx for certain CytRx Know-How and CytRx Patent Rights for certain fields as defined in each license agreement listed in SCHEDULE A.

1.7 The term "CytRx Patent Rights" shall mean (i) all United States or foreign patents or patent applications, and patents to be issued pursuant thereto, owned by or licensed to CytRx, pertaining to Flocor, the Anti-Infectives or Optivax, excluding the use in certain fields that are covered in the CytRx Licenses listed in SCHEDULE A hereto; or (ii) are divisions, continuations, reissues, renewals, extensions, supplementary protection certificates, utility models and the like of any such United States patents and patent applications and foreign equivalents thereof.

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1.8 The term "Field" shall mean the use of Licensed Intellectual Property in all fields for FLOCOR, Anti-Infectives and OptiVax Agreements, except for those fields of use that are or will be licensed under the CytRx Licenses set forth in recital A to this Agreement.

1.9 The term "FLOCOR" shall mean surface-active copolymers of an ethylene oxide-propylene oxide condensation products that have cytoprotective, rheologic and antithrombotic activities exemplified by poloxamer 188.

1.10 The term "Hunter Know-How" shall mean information and materials, including but not limited to, discoveries, Improvements, processes, formulas, dates, know-how and trade secrets, patentable or otherwise, which are in Hunter's possession or control at the Effective Date or are developed by Hunter alone or with others during the term of this Agreement, if any, (i) are not generally known, (ii) are necessary to SynthRx in connection with the research, development, marketing, use or sale of the Licensed Products in the Field in the Territory, and (iii) which Hunter has the right to provide to SynthRx.

1.11 The term "Hunter Patent Rights" shall mean (i) all United States or foreign patents or patent applications and patents to be issued pursuant thereto, owned by or licensed to Hunter, including but not limited to those listed in Schedule B hereto; or (ii) are divisions, continuations, reissues, renewals, extensions, supplementary protection certificates, utility models and the like of any such United States patents and patent applications and foreign equivalents thereof in the fields of FLOCOR, the Anti-Infectives and OptiVax.

1.12 The term "Improvement" shall mean any improvement or enhancement by SynthRx, CytRx or Hunter to any of the Licensed Intellectual Property, including without limitation in the synthesis, purification or manufacture of FLOCOR, OptiVax or the Anti-Infectives.

1.13 The term "Licensed Product" shall mean a Product for use in the Field, that in the absence of this Agreement would infringe one or more claims of the CytRx Patent Rights or Hunter Patent Rights, or a Product that is made using a process or method covered by one or more claims of the CytRx Patent Rights or Hunter Patent Rights.

1.14 The term "Major Market Country" shall mean the United States, Japan or one half of the countries of the European Union.

1.15 The term "Net Sales" shall mean with respect to any Licensed Product, the gross sales price of such Licensed Product invoiced by SynthRx or Affiliates to customers who are not Affiliates (or are Affiliates but are end users of such Licensed Product) less, to the extent actually paid or accrued by SynthRx or Affiliates (as applicable), (a) normal and customary credits, allowances, discounts and rebates to, and chargebacks from the account of, such customers for spoiled, damaged, out-dated or returned Licensed Product; (b) normal and customary outer packing, freight and insurance costs incurred in transporting such Licensed Product to such customers; (c) normal and customary cash, quantity and trade discounts, rebates and other price reductions for such Licensed Product given to such customers; (d) sales, use, excise, value-added and other taxes (but not income taxes of any kind) imposed upon the sale of such Licensed Product in final form to such customers; and (e) customs duties, surcharges and

C - 3

other governmental charges incurred in exporting or importing such Licensed Product to such customers.

In the case of a Combination Product, as defined below, for which the agent or ingredient constituting a Licensed Product and each of the other active agents or active ingredients not constituting a Licensed Product have established market prices when sold separately, Net Sales shall be determined by multiplying the Net Sales for each such Combination Product by a fraction, the numerator of which shall be the established market price for the Licensed Product contained in the Combination Product and the denominator of which shall be the sum of the established market prices for the Licensed Product plus the other active agents or active ingredients contained in the Combination Product. When such separate market prices are not established, then the parties shall negotiate in good faith to determine a fair and equitable method of calculating Net Sales for the Combination Product in question. For purposes of the foregoing, "Combination Product" shall mean any product containing both an agent or ingredient, which constitutes a Licensed Product and one or more other active agents which do not by themselves constitute Licensed Products, whether such Combination Product is packaged separately but sold together or are both packaged and sold together.

1.16 The term "OptiVax" shall mean novel polyoxyethylene/polyoxypropylene copolymers that are high molecular weight molecules and are useful as vaccine adjuvants.

1.17 The term "Organization Agreement", shall mean the Agreement dated as of October 20, 2003, by and among CytRx, SynthRx and Hunter.

1.18 The term "Phase I Clinical Trial" shall mean that portion of the clinical development program, which includes one or more trials of a Licensed Product on human patients to estimate initial safety and tolerability for the desired claims and indications.

1.19 The term "Phase II Clinical Trial" shall mean that portion of the clinical development program conducted after the completion of the required Phase I Clinical Trials and which includes one or more human clinical trials, which trials are intended to evaluate the safety and effectiveness of a Licensed Product for a particular indication or indications in patients with the disease or indication under study or that would otherwise satisfy the requirements of 21 CFR 312.21(b), any future revisions thereof, any future substitutes therefor, or foreign equivalents thereof.

1.20 The term "Phase III Clinical Trial" shall mean that portion of the clinical development program which includes one or more human clinical trials, the results of which could be used to establish the safety and efficacy of a Licensed Product as a basis for a NDA or that would otherwise satisfy requirements of 21 CFR 312.21(c), any future revisions thereof, any future substitutes therefor, or foreign equivalents thereof.

1.21 The term "Product" shall mean any prescription or over-the-counter prophylactic, diagnostic or therapeutic product, vaccine or medical device for use in the Field in the Territory.

1.22 The term "Proprietary Information" shall mean all SynthRx Know-How, Hunter Know-How and CytRx Know-How, and all other scientific, clinical, regulatory, marketing, financial and commercial information or data, whether communicated in writing or orally or by

C - 4

sensory detection, which is provided by one party to the other party in connection with this Agreement.

1.23 The term "Regulatory Approval" shall mean notification from the United States Food and Drug Administration or a comparable regulatory authority in a country that all approvals for the marketing of a Licensed Product, including pricing approvals, have been granted.

1.24 The term "SynthRx Know-How" shall mean any SynthRx information and materials, including but not limited to, discoveries, Improvements, processes, formulas, data, inventions, know-how and trade secrets, patentable or otherwise, which during the term of this Agreement are not generally known.

1.25 The term "Territory" shall mean all of the countries in the world.

1.26 The term "separately branded Licensed Products" shall mean two or more Licensed Products that are not interchangeable. It does not include different dosage forms, modified labeling or different names used in conjunction with different languages.

ARTICLE II.
LICENSE; DEVELOPMENT AND COMMERCIALIZATION

2.1 SynthRx License Grant. CytRx hereby grants to SynthRx effective as of the Effective Date an exclusive license to CytRx Patent Rights in the Territory with the right to sublicense the Licensed Intellectual Property to research, develop, use, manufacture, have manufactured, sell, offer to sell or have sold (i) Licensed Products; and (ii) OptiVax as it relates to use in the Field.

2.2 Exchange of Information; Supply of Material.

(a) Initial Data Transfer. CytRx shall make available to SynthRx on or prior to the Closing Date in English and in writing for its use, CytRx Know-How in CytRx's possession as of the Closing Date (as defined in the Organization Agreement), including but not limited to the embodiments of such CytRx Know-How as set forth on the attached SCHEDULE C. CytRx also agrees to disclose to SynthRx, upon execution of this Agreement CytRx's pending United States patent applications, if any. CytRx shall also transfer to SynthRx within 60 days of the Closing Date copies of all regulatory filings (including without limitation IND's) and data pertaining to FLOCOR, OptiVax and CytRx's Anti-Infectives patent portfolio.

(b) Additional Data Transfer. During the term of this Agreement and so long as SynthRx continues to have an obligation to pay royalties to CytRx under this Agreement, CytRx shall promptly disclose to SynthRx in writing on an ongoing basis all CytRx Know-How not previously disclosed.

(c) Reports. During the term of this Agreement, and upon written request from CytRx, but not more than once per Calendar Year, SynthRx agrees to provide CytRx with a written report summarizing research and development activities related to the Licensed Intellectual Property over the previous Calendar Year.

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(d) Sublicense Agreements. SynthRx shall provide to CytRx a copy of all sublicense agreements pertaining to Licensed Intellectual Property within 30 days of execution.

(e) Supply of Flocor and other drug product. CytRx shall assign ownership to SynthRx on or before the Second Closing Date (as defined in the Organization Agreement) of all of its drug product relating to OptiVax, the Anti-Infectives and FLOCOR, including FLOCOR finished drug product, work in progress drug product and drug substance in accordance with the provisions of the Organization Agreement but makes no representation or warranty as to the physical condition or usability in future clinical trials of any of these drug materials. CytRx also agrees to sell to SynthRx all equipment owned by CytRx that is located at the Organichem Corp. facility and to use its commercially reasonable best efforts to negotiate on behalf of SynthRx a new supply agreement for FLOCOR with Organichem Corp. If SynthRx accepts the equipment at Organichem Corp., SynthRx will pay a one time payment to CytRx of $200,000. This amount will be due at the time of first commercial sale of a product produced by the Organichem facility for SynthRx.

2.3 Development and Commercialization. SynthRx shall use its commercially reasonable best efforts at its own expense, to develop and commercialize Licensed Products in the Territory and to maximize the sales of Licensed Products. SynthRx shall provide CytRx with summaries of all of its development plans for Licensed Products as well as copies of all material correspondence with the FDA and other foreign regulatory authorities with respect to the development, manufacture and sale of Licensed Products.

ARTICLE III.
CONFIDENTIALITY AND PUBLICATION

3.1 Nondisclosure Obligation. All Proprietary Information disclosed by a disclosing party to a receiving party hereunder shall be maintained in confidence by the receiving party and shall not be disclosed to a non-party or used for any purpose except as set forth herein without the prior written consent of the disclosing party, except to the extent that such Proprietary Information:

(a) is known by recipient at the time of its receipt, and not through a prior disclosure by the disclosing party, as documented by business records;

(b) is properly in the public domain;

(c) is subsequently disclosed to the receiving party by a third party who may lawfully do so and is not under an obligation of confidentiality to the disclosing party;

(d) is developed by the receiving party independently of Proprietary Information received from the disclosing party as documented by business records;

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ARTICLE IV.
PAYMENTS; ROYALTIES AND REPORTS

4.1 Initial Payment. In partial consideration for the license granted pursuant to Section 2.1 hereof under the Licensed Intellectual Property, upon the terms and conditions contained herein, SynthRx shall pay to CytRx on the Effective Date the CytRx cash license payment provided for by Section 2.2 of the Organization Agreement. This cash payment shall be non-refundable and not creditable against the royalty or other payments called for by Section 4.2 or
Section 4.3 hereof

4.2 Milestone Payments. Subject to the terms and conditions in this Agreement and as further consideration for the license granted herein, SynthRx shall pay to CytRx the following milestone payments, which shall be non-refundable and not creditable against the royalty called for under Section 4.3 hereof:

(a) With respect to the development of Licensed Products being developed by SynthRx or an affiliate based on FLOCOR Intellectual Property:

(i) A {***} payment for the first Major Market Country upon obtaining Regulatory Approval and first commercial sale due to such approval in that country.

(ii) For each additional separately branded License Product:

A {***} payment for the first Major Market Country in which a Regulatory Approval is obtained, upon the securing the first commercial sale due to such approval.

(b) With respect to the development of Licensed Products being developed by SynthRx or an affiliate based on Anti-Infectives Intellectual Property:

(i) A {***} payment for the first Major Market Country in which Regulatory Approval is obtained, upon the securing the first commercial sale due to such approval.

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(ii) For each additional separately branded Licensed Product:

A {***} payment for the first Major Market Country in which a Regulatory Approval is obtained, upon the securing the first commercial sale due to such approval.

Except as otherwise provided above, SynthRx shall notify CytRx in writing within 30 days upon the achievement of each milestone. Payment shall be divided and spread over time, as follows: {***} will be due on market introduction; the remaining {***} will be payable over time at a rate of 25% of net sales quarterly as set forth in the reports described in Section 4.3.3 hereof until the total amount specified is paid.

4.3 Royalties.

4.3.1 Royalties Payable By SynthRx. Subject to the terms and conditions of this Agreement, SynthRx shall pay to CytRx royalties for sales by SynthRx or an affiliate of Licensed Product on a country-by-country basis in an amount equal to:

(a) Subject to Paragraph 4.3.1(b) below, for Net Sales by SynthRx or Affiliates of Licensed Products sold:

(i) under the license to FLOCOR Intellectual Property granted under Section 2.1(a) hereof, a royalty of {***}.

(ii) under the license for Anti-Infectives Intellectual Property granted under Section 2.1(a) hereof, a royalty of {***}; and

(iii) under the license for OptiVax Intellectual Property granted under Section 2.1(a) hereof, a royalty of {***}.

(b) If in any country, the total royalty payments on a Licensed Product (including royalties payable to CytRx) being paid by SynthRx or its Affiliates exceeds double the royalty obligation to CytRx, the royalty to CytRx for such country shall be reduced by the formula set forth below, provided that in no event shall the royalty payable to CytRx be reduced by more than 50% on a country-by-country basis. It is understood that royalty reductions are intended to be equitably applied to all of SynthRx's licensors of technology related to Licensed Products. If SynthRx concludes that a royalty reduction formula is applicable, SynthRx shall inform CytRx of the total amount of its royalty burden on Licensed Product. SynthRx represents and warrants that as of the Effective Date, it has no reason to know that total royalty payments on Licensed Products will exceed 10%.

Formula. The amount payable to CytRx will be the larger of (1) the contracted royalty to CytRx multiplied by the fraction that is double the total royalty obligation of SynthRx or (2) 50% of the contracted royalty to CytRx.

Example: CytRx royalty is {***} and total royalty burden on Licensed Product is 30%. Royalty due CytRx would be as follows: {***} multiplied by {***}. This is {***}.

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(c) Royalties on Licensed Product at the rates set forth in this Section 4.3.1 shall be effective as of the date of first commercial sale of Licensed Product in a country and shall continue for the longer of 7 years from the first commercial sale of Licensed Product in that country or until the expiration of the last applicable patent on Licensed Product in such country in the case of sales under Subsection 4.3.1 (unless a generic equivalent for Licensed Product is then being marketed in such country, in which case the royalty rate will be reduced by 50%) subject to the following conditions.

(A) that only one royalty shall be due under this Agreement with respect to the each unit of Licensed Product;

(B) that no royalties shall be due upon the sale or other transfer among SynthRx or its Affiliates, but in such cases the royalty shall be due and calculated upon SynthRx's or its Affiliate's Net Sales; no royalties shall accrue on the disposition of Licensed Product by SynthRx or its Affiliates as samples (promotion or otherwise) or as donations (for example, to non-profit institutions, government agencies for a non-commercial purpose); and

(C) sales of Licensed Product by SynthRx, any Affiliate of SynthRx or any sublicensee or distributor of SynthRx solely for research or clinical testing or for indigent or similar public support or compassionate use programs, which sales are made at or below the cost of goods of such Licensed Product or at or below the cost of purchasing such Licensed Product from a third party manufacturer if such Licensed Product is so purchased by SynthRx (plus, in each case, the costs of shipping and administration of such clinical, indigent or compassionate use program) shall be excluded from the computation of Net Sales.

4.3.2 Royalty Payable Under Managed Pharmaceutical Contract. It is understood by the parties that SynthRx may sell Licensed Product to an independent third party (such as a retailer or wholesaler) and may subsequently perform services relating to Licensed Products under a managed pharmaceutical benefits contract or other similar contract. In such cases, it is agreed by the Parties that Net Sales shall be based on the invoice price to an independent retailer or wholesaler, provided that such invoice price represents a fair market price for such Licensed Products.

4.3.3 Reports; Payment of Royalty. During the term of this Agreement following the first commercial sale of a Licensed Product, SynthRx shall furnish to CytRx a quarterly written report for the Calendar Quarter showing the sales of all Licensed Products subject to royalty payments sold by SynthRx, its Affiliates and its sublicensees in the Territory during the reporting period and the royalties payable under this Agreement. Reports shall be due on the 45th day following the close of each Calendar Quarter. Royalties shown to have accrued by each royalty report shall be due and payable on the date such royalty report is due. SynthRx shall keep complete and accurate records in sufficient detail to enable the royalties payable hereunder to be determined.

4.3.4 Audits.

(a) Upon the written request of CytRx and not more than once in each Calendar Year, SynthRx shall permit an independent certified public accounting firm of

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nationally recognized standing selected by CytRx and reasonably acceptable to SynthRx, at CytRx's expense, to have access during normal business hours to such of the records of SynthRx as may be reasonably necessary to verify the accuracy of the royalty reports hereunder for any year ending not more than 24 months prior to the date of such request. The accounting firm shall disclose to CytRx only whether the royalty reports are correct or incorrect and the specific details concerning any discrepancies. No other information shall be provided to CytRx.

(b) If such accounting firm correctly concludes that additional royalties were owed during such period, SynthRx shall pay the additional royalties within 30 days of the date CytRx delivers to SynthRx such accounting firm's written report so correctly concluding, and will also pay the fees charged by such accounting firm. In addition, if the additional royalties found due exceed 5% of the amounts paid, the SynthRx will pay CytRx interest on such additional royalties at the rate of prime rate plus 2% (as published in the Wall Street Journal on the last Friday of the month) from the date such additional royalties were due to the date such additional royalties are paid.

(c) SynthRx shall include in each sublicense granted by it pursuant to this Agreement a provision requiring the sublicensee to make reports to SynthRx, to keep and maintain records of sales made pursuant to such sublicense and to grant access to such records by CytRx's independent accountant to the same extent required of SynthRx under this Agreement. Upon the expiration of 24 months following the end of any year, the calculation of royalties payable with respect to such year shall be binding and conclusive upon CytRx, and SynthRx and its sublicensees shall be released from any liability or accountability with respect to royalties for such year.

(d) CytRx shall treat all financial information subject to review under this Section 4.3.4 or under any sublicense agreement in accordance with the confidentiality provisions of this Agreement, and shall cause its accounting firm to enter into an acceptable confidentiality agreement with SynthRx obligating it to retain all such financial information in confidence pursuant to such confidentiality agreement.

4.3.5 Payment Exchange Rate. All payments to be made by SynthRx to CytRx under this Agreement shall be made in United States dollars and may be paid by check made to the order of CytRx or bank wire transfer in immediately available funds to such bank account in the United States designated in writing by CytRx from time to time. In the case of sales outside the United States, the rate of exchange to be used in computing the amount of currency equivalent in United States dollars shall be made according to the prevailing rate of exchange on the last business day of the month in which such sales were recorded as published in the Wall Street Journal.

4.3.6 Income Tax Withholding. If laws, rules or regulations require withholding of income taxes or other taxes imposed upon payments set forth in this Article IV, SynthRx shall make such withholding payments as required and subtract such withholding payments from the payments set forth in this Article IV. SynthRx shall submit appropriate proof of payment of the withholding taxes to CytRx within a reasonable period of time.

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4.3.7 Sublicense Income. If SynthRx elects to sublicense CytRx Patent Rights as provided for in Section 2.1, then after such sublicense the milestone payments (Section 4.2) and royalties (Section 4.3) will not apply to any Licensed Product sold by the sublicensee. Instead, SynthRx shall pay CytRx an amount equal to {***} of any sublicensing income that it receives from any third party within 30 days after receiving the sublicense payment from the sub licensee. Sublicense income includes all payments received by SynthRx in consideration of any sublicense of the rights granted to SynthRx by CytRx pursuant to Section 2.1 hereof, including without limitation, license fees, royalties, milestone payments, license maintenance fees and strategic alliance payments, whether in cash, equity or other property, with the payment by SynthRx to CytRx to be in the same form as the payment received by SynthRx.

ARTICLE V.
REPRESENTATIONS AND DISCLAIMER OF WARRANTIES

5.1 NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO BE A REPRESENTATION OR WARRANTY BY CYTRX OF THE VALIDITY OF ANY OF THE PATENTS OR THE ACCURACY, SAFETY, OR USEFULNESS FOR ANY PURPOSE, OF ANY CYTRX KNOW-HOW AND ANY OTHER TECHNICAL INFORMATION, TECHNIQUES, OR PRACTICES AT ANY TIME MADE AVAILABLE BY CYTRX. CYTRX SHALL HAVE NO LIABILITY WHATSOEVER TO SYNTHRX OR ANY OTHER PERSON FOR OR ON ACCOUNT OF ANY INJURY, LOSS, OR DAMAGE, OF ANY KIND OR NATURE, SUSTAINED BY, OR ANY DAMAGE ASSESSED OR ASSERTED AGAINST, OR ANY OTHER LIABILITY INCURRED BY OR IMPOSED UPON SYNTHRX OR ANY OTHER PERSON, ARISING OUT OF OR IN CONNECTION WITH OR RESULTING FROM (a) THE PRODUCTION, USE, OR SALE OF ANY PRODUCT, OR THE PRACTICE OF THE PATENT RIGHTS AND/OR CYTRX KNOW-HOW; (b) THE USE OF ANY CYTRX KNOW-HOW OR ANY OTHER TECHNICAL INFORMATION, TECHNIQUES, OR PRACTICES DISCLOSED BY CYTRX; OR (c) ANY ADVERTISING OR OTHER PROMOTIONAL ACTIVITIES BY SYNTHRX WITH RESPECT TO ANY OF THE FOREGOING.

ARTICLE VI.
INVENTIONS AND PATENT PROVISIONS

6.1 Filing, Prosecution and Maintenance of Patents. SynthRx, at its own expense shall have primary responsibility for filing, prosecuting, and maintaining any and all CytRx Patent Rights, including any Improvements to the CytRx Patent Rights. SynthRx shall have the right to determine whether or not, and where to abandon the prosecution of any patent or patent application, to discontinue the maintenance of any patent or patent application, or to seek patent term restoration or supplemental protection certificates or their equivalents in any country in the Territory where applicable to patents. SynthRx shall provide CytRx with copies of all material correspondence and filings with the U.S. Patent and Trademark Office and any foreign patent office. CytRx may, at its own expense, file for or maintain any patent that SynthRx elects to not pursue or to abandon, in which case such patent shall be excluded from the CytRx Patent Rights that are licensed to SynthRx. However, some CytRx patents are overlapping, providing multiple layers of protection. SynthRx may elect to abandon such patents that are deemed not necessary for protection of the technology. Consequently, if CytRx files for or maintains any patent that

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SynthRx elects to not pursue or to abandon, then CytRx agrees not to enforce that patent against any activities of SynthRx permitted by this Agreement that are protected by patents that SynthRx has elected to maintain.

6.2 Interference, Opposition, Reexamination and Reissue.

(a) CytRx and SynthRx shall, within ten 10 days of learning of such event, inform the other party of any request for, or filing or declaration of any interference, opposition, or reexamination relating to any of the CytRx Patent Rights. SynthRx and CytRx shall thereafter consult and cooperate fully to determine a course of action with respect to any such proceeding, with SynthRx having primary responsibility, at its own expense, for implementing such agreed upon action.

(b) SynthRx shall not institute any reexamination, or reissue proceeding relating to any of the CytRx Patent Rights without the prior written consent to CytRx, which consent shall not be unreasonably withheld.

(c) In connection with any interference, opposition, reissue, or reexamination proceeding relating to any of the CytRx Patent Rights, SynthRx and CytRx will cooperate fully and will provide each other with any information or assistance that either may reasonably request. SynthRx shall keep CytRx informed of developments in any such action or proceeding, including, to the extent permissible, the status of any settlement negotiations and the terms of any offer related thereto.

6.3 Enforcement Rights.

(a) CytRx and SynthRx shall give each other notice of either (i) any infringement of any of the CytRx Patent Rights, or (ii) any misappropriation or misuse of CytRx Know-How, that may come to CytRx's or SynthRx's attention. SynthRx and CytRx shall thereafter consult and cooperate fully to determine a course of action, including but not limited to the commencement of legal action by SynthRx at its own expense to terminate any infringement of any of the CytRx Patent Rights or any misappropriation or misuse of CytRx Know-How. SynthRx shall promptly inform CytRx if SynthRx elects not to exercise its right to commence legal action and CytRx shall thereafter have the right, but not the obligation, to either initiate and prosecute such action.

(b) In the event that SynthRx elects not to initiate and prosecute an action as provided in paragraph (a), and CytRx elects to do so, the costs of any course of action to terminate infringement of any of the CytRx Patent Rights or misappropriation or misuse of CytRx Know-How, including the costs of any legal action commenced shall be shared equally by CytRx and SynthRx.

(c) For any action to terminate any infringement of any of the CytRx Patent Rights or any misappropriation or misuse of CytRx Know-How, in the event that SynthRx is unable to initiate or prosecute such action solely in its own name, CytRx will join such action voluntarily and will execute and cause its Affiliates to execute all documents necessary for SynthRx to initiate litigation to prosecute and maintain such action. In connection with any action, SynthRx and CytRx will cooperate fully and will provide each other with any information

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or assistance that either may reasonably request. Each party shall keep the other informed of developments in any action or proceeding, including, to the extent permissible by law, the status of any settlement negotiations and the terms of any offer related thereto.

(d) Any recovery obtained by either SynthRx or CytRx in connection with or as a result of any action contemplated by this section, whether by settlement or otherwise, shall be shared in order as follows:

(i) the party which initiated and prosecuted the action shall recoup all of its costs and expenses incurred in connection with the action;

(ii) the other party or parties shall then, to the extent possible, recover its costs and expenses incurred in connection with the action; and

(iii) the amount of any recovery remaining shall then be allocated between the parties on a pro rata basis under which CytRx shall receive a proportion based on the royalties it lost and SynthRx shall receive any remaining amounts.

(e) CytRx shall immediately give notice to SynthRx of any certification regarding any Patent Rights it has received pursuant to the United States "Drug Price Competition and Patent Term Restoration Act of 1984" under either 21 U.S.C. Sections 355(b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) or equivalent foreign provision and shall provide SynthRx with a copy of such certification within 5 days of receipt. CytRx's and SynthRx's rights with respect to the initiation and prosecution of any legal action as a result of such certification or any recovery obtained as a result of such legal action shall be defined in paragraphs (a)-(d) hereof; provided, however, if SynthRx decides not to bring infringement proceedings against the entity making such a certification, SynthRx shall give notice to CytRx of such decision not to bring suit within 30 days after receipt of notice of such certification. CytRx may then, but is not required to, bring suit against the party that filed the certification. Any such suit by SynthRx or CytRx shall either be in the name of SynthRx or in the name of CytRx, or jointly.

6.4 Patent Term Restoration. SynthRx and CytRx shall cooperate with each other in obtaining patent term restoration or supplemental protection certificates or their equivalents in any country in the Territory where applicable to the CytRx Patent Rights. SynthRx shall have the opportunity to make any election with respect to obtaining such patent term restoration to the extent possible and shall bear the cost thereof, which shall be fully creditable toward any future royalty payments owed by SynthRx pursuant to Section 5.3 hereof.

6.5 Patent Markings. SynthRx agrees to mark the Licensed Products and OptiVax sold in the United States with all applicable United States patent numbers. All Licensed Products and OptiVax shipped to or sold in other countries shall be marked in such a manner as to conform with the patent laws and practice of the country of manufacture or sale.

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ARTICLE VII.
TERM AND TERMINATION

7.1 Term and Expiration. This Agreement shall be effective as of the Effective Date and the term of this Agreement shall continue in effect until the expiration of all royalty obligations hereunder. Upon expiration of all royalty obligations hereunder, SynthRx's license pursuant to Section 2.1 hereof shall become a fully paid-up, perpetual license.

7.2 Termination Without Cause by SynthRx. Notwithstanding anything contained herein to the contrary, SynthRx shall have the right to terminate the license granted under this Agreement at any time in its sole discretion by giving 90 days advance written notice to CytRx. In the event of such termination under this Section 7.2, the rights and obligations under SynthRx's license pursuant to Section 2.1 hereof and any payment obligations not due and owing as of the termination date shall terminate, but the provisions of Article III shall survive such termination.

7.3 Termination for Cause.

7.3.1 Termination for Non-Payment. The parties agree that in the event that SynthRx fails to make any non-disputed payment due by virtue of Article IV and such failure to make such non-disputed payment continues for 30 days after written notice of such breach is provided to SynthRx by CytRx, then the license granted to SynthRx under Section 2.1 hereof shall automatically terminate at the conclusion of the such 30-day period, unless otherwise mutually agreed to in writing by SynthRx and CytRx.

7.3.2 Termination for Cause. This Agreement may be terminated by notice by either SynthRx or CytRx at any time during the term of this Agreement if the other party is in breach of its material obligations hereunder by causes and reasons within its control and has not cured such breach within 60 days after notice requesting cure of the breach. This Agreement may be terminated by notice by CytRx upon the filing or institution of bankruptcy, reorganization, liquidation or receivership proceedings by SynthRx, or upon a general assignment of a substantial portion of all of SynthRx's assets for the benefit of creditors; provided, however, in the case of any involuntary bankruptcy proceeding such right to terminate shall only become effective if the party consents to the involuntary bankruptcy or such proceeding is not dismissed within 90 days after the filing thereof.

7.3.3 Effect of Termination for Cause on License.

(a) In the event that CytRx terminates this Agreement under Section 7.3.1 hereof or 7.3.2 hereof, SynthRx's license pursuant to
Section 2.1 hereof shall terminate as of such termination date, but the provisions of Article III shall survive such termination.

(b) In accordance with Section 365(n) of the United States Bankruptcy Code, 11 USC 365(n), in the event an order for relief becomes effective in any bankruptcy case under any chapter of the Bankruptcy Code, in which CytRx is a debtor, SynthRx shall, as licensee from CytRx, upon the rejection of such license by CytRx, have the right, without limitation and in addition to all rights provided for by the Bankruptcy Code or otherwise, to elect to retain its rights (including a right to enforce any exclusivity provision of such license, but excluding any

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other right under applicable nonbankruptcy law to specific performance of such license) under such license and under any agreement supplementary to such license, to such intellectual property (including any embodiment of such intellectual property to the extent protected by applicable nonbankruptcy law), as such rights existed immediately before the bankruptcy case commenced, for:

(i) the duration of such license; and

(ii) any period for which such contract may be extended by the licensee as of right under applicable nonbankruptcy law.

(c) In the event that CytRx materially breaches this Agreement and fails to cure such breach as permitted by Section 7.3.1 hereof, SynthRx may, in lieu of terminating this Agreement, recover the damages from CytRx specifically resulting from such breach; provided, however, that SynthRx will continue to be obligated to make and shall make all of the payments to CytRx provided for by Article IV hereof or otherwise under this Agreement.

7.4 Effect of Termination. Expiration or termination of the Agreement shall not relieve the parties of any obligation accruing prior to such expiration or termination. Any expiration or early termination of this Agreement shall be without prejudice to the rights of either party against the other accrued or accruing under this Agreement prior to termination, including the obligation to pay royalties for Licensed Products sold prior to such termination. Notwithstanding the foregoing, any termination by either party pursuant to Section 7.3.1 hereof or Section 7.3.2 hereof shall not limit any other remedies that either party may have against the other arising out of or related to such breach, including claims for damages. To the extent SynthRx's license in CytRx Know-How is terminated, SynthRx shall promptly transfer to CytRx all copies and materials containing CytRx Know-How in its possession and control and in the possession and control of its Affiliates, sublicensees and distributors and shall delete all CytRx Know-How, or any portion thereof, from its and their computer data bases.

ARTICLE VIII.
MISCELLANEOUS

8.1 Force Majeure. Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached the Agreement for failure or delay in fulfilling or performing any term of the Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected party including, but not limited to, fire, floods, embargoes, war, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or the other party. The affected party shall notify the other party of such force majeure circumstances as soon as reasonably practical.

8.2 Assignment. This Agreement may not be assigned by SynthRx without the consent of CytRx and may not be assigned by CytRx without the consent of SynthRx. Notwithstanding the foregoing, either party hereto may assign this Agreement without the other party's consent in connection with a merger into, a consolidation with, or a transfer of all or substantially all of its corporate assets or the transfer of all or substantially all of the assets

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related to the product line to which this Agreement pertains as an entirety or to any corporation, partnership or other person or entity, so long as the successor surviving person or entity in any such merger, consolidation, partnership or other person or entity transfer or reorganization assumes in writing the obligations of this Agreement. Such merger, consolidation, transfer or reorganization shall not in any way be a breach of this Section 8.2, nor be a default under this Agreement. Any permitted assignee shall assume all obligations of its assignor under the Agreement.

8.3 Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, unless the absence of the invalidated provision(s) adversely affect the substantive rights of the parties. The parties shall in such an instance use their best efforts to replace the invalid, illegal or unenforceable provision(s) with valid, legal and enforceable provision(s) which, insofar as practical, implement the purposes of this Agreement.

8.4 Notices. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered personally, sent by telecopier (and promptly confirmed by personal delivery, registered or certified mail or overnight courier), sent by internationally-recognized overnight or second day courier or sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

if to CytRx, to:               CytRx Corporation
                               11726 San Vicente Boulevard
                               Suite 650
                               Los Angeles, California 90049
                               Attention:  President & CEO
                               Facsimile No. (310) 826-5529

if to SynthRx, to:             _________________________________
                               _________________________________
                               _________________________________
                               Facsimile No.: (_____)___________

8.5 Applicable Law. The Agreement shall be governed by and construed in accordance with the laws of the State of Texas and the United States without reference to any rules of conflict of laws.

8.6 Dispute Resolution. The parties shall negotiate in good faith and use reasonable efforts to settle any dispute, controversy or claim arising from or related to this Agreement or the breach thereof. If the parties do not fully settle, and a party wishes to pursue the matter, each

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such dispute, controversy or claim that is not an "Excluded Claim" shall be finally resolved by binding arbitration in Las Vegas, Nevada in accordance with the Commercial Arbitration Rules and Supplementary Procedures for Large Complex Disputes of the American Arbitration Association ("AAA"), and judgment on the arbitration award may be entered in any court having jurisdiction thereof. The arbitration shall be conducted by a panel of three persons experienced in the pharmaceutical business. Within 30 days after initiation of arbitration, each party shall select one person to act as arbitrator and the two party-selected arbitrators shall select a third arbitrator within 30 days of their appointment. If the arbitrators selected by the parties are unable or fail to agree upon the third arbitrator, the AAA shall appoint the third arbitrator. Either party may apply to the arbitrators for interim injunctive relief until the arbitration award is rendered or the controversy is otherwise resolved. Either party also may, without waiving any remedy under this Agreement, seek from any court having jurisdiction any injunctive or provisional relief necessary to protect the rights or property of that party pending the arbitration award. The arbitrators shall have no authority to award punitive or any other type of damages not measured by a party's compensatory damages. Each party shall bear its own costs and expenses and attorneys' fees and an equal share of the arbitrators' and any administrative fees of arbitration. Except to the extent necessary to confirm an award or as may be required by law, neither a party nor an arbitrator may disclose the existence, content, or results of an arbitration without the prior written consent of both parties. In no event shall an arbitration be initiated after the date when commencement of a legal or equitable proceeding based on the dispute, controversy or claim would be barred by the applicable Texas statute of limitations. As used in this Section, the term "Excluded Claim" shall mean a dispute, controversy or claim that concerns (a) the validity or infringement of a patent, trademark or copyright; or (b) any antitrust, anti-monopoly or competition law or regulation, whether or not statutory.

8.7 Entire Agreement. This Agreement, together with the Organization Agreement, contains the entire understanding of the parties with respect to the subject matter hereof. All express or implied agreements and understandings, either oral or written, heretofore made are expressly merged in and made a part of the Agreement. The Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by each of the parties hereto.

8.8 Headings. The captions to the several Articles and Sections hereof are not a part of the Agreement, but are merely guides or labels to assist in locating and reading the several Articles and Sections hereof.

8.9 Independent Contractors. It is expressly agreed that the parties shall be independent contractors and that the relationship between the parties shall not constitute a partnership, joint venture or agency. Neither party shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other, without the prior consent of the other party.

8.10 Waiver. The waiver by either party hereto of any right hereunder or the failure to perform or of a breach by the other party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said other party whether of a similar nature or otherwise.

C - 17

8.11 Counterparts. The Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

8.12 Waiver of Rule of Construction. Each party has had the opportunity to consult with counsel in connection with the review, drafting and negotiation of this Agreement. Accordingly, the parties agree that the rule of construction that any ambiguity in this Agreement shall be construed against the drafting party shall not apply.

8.13 Exportation of Technical Information. SynthRx agrees to comply with the laws and rules of the United States Government regarding prohibition of exportation of CytRx Know-How furnished to SynthRx either directly or indirectly by CytRx.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.

CYTRX CORPORATION

By:___________________________________

Title:________________________________

Date:_________________________________

SYNTHRX, INC.

By:___________________________________

Title:________________________________

Date:_________________________________

C - 18

SCHEDULE A
TO
LICENSE AGREEMENT

PATENTS & LICENSES

U.S. PATENT

5,554,372 (subject to U.S. government regulations) 5,990,241
6,086,899
RE 36,665
5,567,859
5,696,298
5,824,322
Pending application 90/104,088

RELATED FOREIGN PATENTS

WO96/04932

U.S. PATENT

5,234,683
5,114,708
5,824,322

RELATED FOREIGN PATENTS

596,986               Australia                  556              Spain
1,279,822             Canada                     228,448          France
36,564                Chile                      228,448          United Kingdom
96,104,742            China                      176,179          Mexico
228,448               Germany                    228,448          Netherlands
228,448               EPO                        864,556          South Africa

C(A) - 1

LICENSE AGREEMENTS

                AGREEMENT                            DATE
                ---------                            ----
TiterMax, USA, Inc.                            June 15, 2000
Merck & Co.                                    November 1, 2000
Ivy Animal Health                              February 16, 2001
Vical Incorporated                             December 7, 2001
PSMA Development Co., LLC (option agreement)   December 23, 2002
TransForm Pharmaceuticals, Inc.                April 22, 2003

C(A) - 2

SCHEDULE D

HUNTER KNOW HOW

None

D - 1

Exhibit 10.63

OFFICE LEASE

BETWEEN

DOUGLAS EMMETT JOINT VENTURE,
A CALIFORNIA GENERAL PARTNERSHIP

AS LANDLORD

AND

THE KRIEGSMAN CAPITAL GROUP, LLC,
A CALIFORNIA LIMITED LIABILITY COMPANY

AS TENANT

DATED

APRIL 13, 2000

OFFICE LEASE
BASIC LEASE INFORMATION

Date:                                     April 17, 2000
Landlord:                                 DOUGLAS EMMETT JOINT VENTURE,
                                          a California general partnership
Tenant:                                   THE KRIEGSMAN CAPITAL GROUP, LLC,
                                          a California limited liability company
--------------------------------------------------------------------------------

SECTION
  1.1     Premises:                            117216 San Vicente Boulevard,
                                               Suite 650 Los Angeles, California
                                               90049
  1.4     Rentable Area of Premises:           approximately 3,313 square feet
  1.4     Usable Area of Premises:             approximately 2,756 square feet
  2.1     Term:                                Five (5) Years
          Anticipated Commencement Date:       July 1, 2000 (as modified by Section 2.1)
          Anticipated Expiration:              June 30, 2005 (as modified by Section 2.1)
  3.1     Fixed Monthly Rent:                  $9,110.75
  3.3     Fixed Monthly Rent Increase          Three percent (3%) per annum
          Date of First Increase:              July l, 2001 (as modified by Section 2.1)
          Frequency of Increase:               Annually thereafter
  3.7     Security Deposit:                    $20,508.46
  4.1     Tenant's Share:                      3.69%
  4.2     Base Year for Operating Expenses:    2000
  6.1     Use of Premises:                     Investment banking offices
 16.1     Tenant's Address for Notices:
            Before the Commencement Date:      860 Via de la Paz
                                               Pacific Palisades, California 90272
            After the Commencement Date:       11726 San Vicente Boulevard, Suite
                                               650 Los Angeles, California 90049
         Contact:                              Mr. Donald Kreiss
         Landlord's Address for Notices:       DOUGLAS EMMETT JOINT VENTURE
                                               C/o Douglas, Emmett and Co.
                                               12121 Wilshire Boulevard, Suite 600
                                               Los Angeles, California 90025
20.5     Brokers:                              Douglas, Emmett and Company
                                               12121 Wilshire Boulevard, Suite 600
                                               Los Angeles, California 90025                    AND
                                               Mr. Donald Kreiss
                                               860 Via de la Paz
                                               Pacific Palisades, California 90272
21.1     Parking Permits:                      Eight (8) permits for unreserved spaces

Except as noted hereinbelow, the foregoing Basic Lease information is hereby incorporated into and made a part of the Lease. The Section reference in the left margin of the Basic Lease Information exists solely to indicate where such reference initially appears in the Lease document, Except as specified hereinbelow, each such reference shall in the Lease document shall incorporate the applicable Basic Lease information. However, in the event of any conflict between any reference contained in the Basic Lease Information and the specific information wording of the Lease, the wording of the Lease shall control.

OFFICE LEASE
TABLE OF CONTENTS

ARTICLE                                                                      PAGE
  1    Demise of Premises .................................................    1
  2    Commencement Date and Term .........................................    2
  3    Payment of Rent, Late Charge and Security Deposit ..................    3
  4    Additional Rent                                                         5
  5    Ethics .............................................................    6
  6    Use of Premises ....................................................    6
  7    Condition Upon Vacating and Removal of Personal Property ...........    7
  8    Utilities and Services .............................................    7
  9    Tenant's Indemnification and Limitation on Landlord's Liability ....    9
  10   Compliance with Laws ...............................................   10
  11   Assignment and Subletting ..........................................   11
  12   Maintenance, Repairs, Damage, Destruction, Renovation and/or
       Alteration .........................................................   13
  13   Condemnation .......................................................   17
  14   Mortgage Subordination and Attornment ..............................   18
  15   Estoppel Certificates ..............................................   18
  16   Notices ............................................................   18
  17   Default and Landlord's Option to Cure ..............................   19
  18   Damages; Remedies; Re- Entry by Landlord; Etc ......................   20
  19   Insurance ..........................................................   22
  20   Miscellaneous ......................................................   23
  21   Parking ............................................................   25
  22   Concierge Services .................................................   26
  23   Option to Extend ...................................................   27
  24   Guaranty of Lease ..................................................   29
  Signatures ..............................................................   29

Exhibits

  A-      Suite Plan
  B-      Improvement Construction Agreement
  B-I--   Construction by Tenant During Term
  C --    Rules and Regulations
  D --    First Amendment - Commencement Date and Term

iii

OFFICE LEASE

THIS OFFICE LEASE, dated April 13, 2000, is by and between DOUGLAS EMMETT JOINT VENTURE, a California general partnership ("Landlord"), with an office at 12121 Wilshire Boulevard, Suite 600, Los Angeles, California 90025, and THE KRIEGSMAN CAPITAL GROUP, LLC, a California limited liability company ("Tenant").

ARTICLE 1
DEMISE OF PREMISES

SECTION 1.1. DEMISE. Subject to the covenants and agreements contained in this Lease, Landlord leases to Tenant and Tenant hires from Landlord, Suite Number 650 (the "Premises") on the sixth (6th) floor, in the building located at 11726 San Vicente Boulevard, Los Angeles, California 90049 (the "Building"). The configuration of the Premises is highlighted on Exhibit A, attached hereto and made a part hereof by reference, and Landlord and Tenant acknowledge and agree that the intent of both parties hereto is that said configuration shall not be materially altered by construction of the demising walls separating the same from the balance of the space from which it is being demised.

Tenant acknowledges that it has made its own inspection of and inquiries regarding the Premises, which are already improved. Therefore, Tenant accepts the Premises in their "as-is" condition. Tenant further acknowledges that Landlord has made no representation or warranty, express or implied, except as are contained in this Lease and its Exhibits, regarding the condition, suitability or usability of the Premises or the Building for the purposes intended by Tenant.

The Building, the Building's parking facilities, any outside plaza. areas, land and other improvements surrounding the Building which are designated from time to time by Landlord as common areas appurtenant to or servicing the Building, and the land upon which any of the foregoing are situated, are herein sometimes collectively referred to as the "Real Property."

SECTION 1.2. TENANT'S NON-EXCLUSIVE USE. Subject to the contingencies contained herein, Tenant is granted the nonexclusive use of the common corridors and hallways, stairwells, elevators, restrooms, parking facilities, lobbies and other public or common areas located on the Real Property. However, the manner in which such public and common areas are maintained and operated shall be at the sole discretion of Landlord, and Tenant's use thereof shall be subject to such reasonable rules, regulations and restrictions as Landlord may make from time to time.

SECTION 1.3. LANDLORD'S RESERVATION OF RIGHTS. Landlord specifically reserves to itself use, control and repair of the structural portions of all perimeter walls of the Premises, any balconies, terraces or roofs adjacent to the Premises (including any flagpoles or other installations on said walls, balconies, terraces or roofs) and any space in and/or adjacent to the Premises used for shafts, stairways, pipes, conduits, ducts, mail chutes, conveyors, pneumatic tubes, electric or other utilities, sinks, fan rooms or other Building facilities, and the use thereof, as well as reasonable access thereto through the Premises. Landlord also specifically reserves to itself the following rights:

a) To designate all sources furnishing sign painting or lettering;

b) To constantly have pass keys to the Premises;

c) To grant to anyone the exclusive right to conduct any particular business or undertaking in the Building, so long as Landlord's granting of the same does not prohibit Tenant's use of the Premises for Tenant's Specified Use, as defined in Article 6;

d) To enter the Premises at any reasonable time upon twenty-four (24) hours notice (except for emergencies) to inspect, repair, alter, improve, update or make additions (in a good and workmanlike fashion, including clean-up) to the Premises or the Building;

e) During the last six (6) months of the Term, to exhibit the Premises to prospective-future tenants;

f) Subject to the provisions of Article 12, to, at any time, and from time to time, whether at Tenant's request or pursuant to governmental requirement, repair, alter, make additions to, improve, or decorate all or any portion of the Real Property, Building or Premises. In connection therewith, and without limiting the generality of the foregoing rights, Landlord shall specifically have the right to remove, alter, improve or rebuild all or any part of the lobby of the Building as the same is presently or shall hereafter be constituted;

g) Subject to the provisions of Article 12, Landlord reserves the right to make alterations or additions to or change the location of elements of the Real Property and any common areas appurtenant thereto; and/or

h) To take such other actions as may reasonably be necessary when the same are required to preserve, protect or improve the Premises, the Building, or Landlord's interest therein.

SECTION 1.4. AREA. Landlord and Tenant agree that the Usable Area of the Premises has been measured according to the June, 1996 standards published by the Building Owners' and Managers' Association ("BOMA"), and that Landlord is utilizing a deemed add-on factor of 20.20% to compute the Rentable Area of the Premises. Rentable Area herein is calculated as 1.2020 times the estimated Usable Area, regardless of what the actual square footage of the common areas of the Building may be, and whether or not they are more or less than 20.20% of the total estimated Usable Area of the Building. The purpose of this calculation is solely to provide a general basis for comparison and pricing of this space in relation to other spaces in the market area.

Landlord and Tenant further agree that even if the Rentable or Usable Area of the Premises and/or the total Building Area are later determined to be more or less than the figures stated herein, for all purposes of the Lease, the figures stated herein shall be conclusively deemed to be the actual Rentable or Usable Area of the Premises, as the case may be.

SECTION 1.5. QUIET ENJOYMENT. Contingent upon Tenant keeping, observing and performing (within any applicable notice and cure period) all of the covenants, agreements, terms, provisions and conditions of this Lease on its part to be kept, observed and performed, and subject to the limitations imposed under Article 14 of this Lease, Tenant shall lawfully and quietly hold, occupy and enjoy the Premises during the Term.

SECTION 1.6. NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of light, air or view by any structure which is now or may hereafter be erected on lands adjacent to the Building shall in no way affect this Lease or impose any liability on Landlord. Noise, dust or vibration or other ordinary incidents to new construction of improvements on lands adjacent to the Building, whether or not by Landlord, shall in no way affect this Lease or impose any liability on Landlord.

SECTION 1.7. RELOCATION. Landlord shall have the right at any time, except during the last six (6) months, of the Term, and after giving Tenant a minimum of sixty (60) days prior written notice, to:

a) provide and furnish Tenant with space elsewhere in the Building pf approximately the same size as the Premises (the "Substitute Premises") and

b) relocate Tenant to such Substitute Premises.

Landlord shall pay all reasonable costs and expenses incurred as a result of such relocation. If Landlord moves Tenant to the Substitute Premises, each and every term, covenant and condition of this Lease shall remain in full force and effect and be deemed applicable to the Substitute Premises, as though Landlord and Tenant had entered into an express written amendment of this Lease with respect thereto, except that if the approximate Rentable square footage of the Substitute Premises is less than that of the Premises, the Fixed Monthly Rent and Tenant's Proportionate Share of Operating Expense increases shall be appropriately reduced.

If Tenant refuses to permit Landlord to relocate Tenant as specified above, Landlord shall have the right to terminate this Lease effective ninety
(90) days from the date Landlord provided Tenant with the original notification of intent to relocate.

ARTICLE 2
COMMENCEMENT DATE AND TERM

SECTION 2.1. COMMENCEMENT DATE AND TERM. This Lease shall commence upon the earlier to occur of (i) the date Tenant commences to conduct business from the Premises, or (ii) July 1, 2000 (the earlier to occur of such dates shall be referred to as the "Commencement Date"), and shall end, unless sooner terminated as otherwise provided herein, at midnight on the last calendar day of the calendar month which occurs five (5) years (the "Term") after the Commencement Date (the "Termination Date"). Landlord and Tenant shall promptly execute an amendment to this Lease (the "First Amendment") substantially in the form attached hereto as Exhibit D, confirming the finalized Commencement Date and Term as soon as they are determined.

If for any reason Landlord is unable to deliver possession of the Premises to Tenant on or before June 15, 2000 ("Anticipated Delivery Date"), this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for any damage resulting from Landlord's inability to deliver such possession. However, any contrary provision of this Section 2.1 notwithstanding, Tenant shall not be obligated to pay the Fixed Monthly Rent or Additional Rent that Tenant is required to pay pursuant to Section 3.1 hereof until fifteen (15) days have passed since Landlord's delivery of possession to Tenant. Except for such delay in the commencement of Rent, Landlord's failure to deliver possession shall in no way affect Tenant's obligations hereunder.

If possession of the Premises is not tendered by Landlord within one hundred twenty (120) days after the Anticipated Delivery Date, then Landlord and Tenant shall each have the right to terminate this Lease by giving written notice, one to the other, within ten (10) days after such failure. If such notice of termination is not given by either Landlord or Tenant within said ten
(10) day time period, then this Lease shall continue in full force and effect.

If, due to Force Majeure, Landlord is unable to tender possession of the Premises within one hundred eighty (180) days after the Anticipated Delivery Date, then this Lease, and the rights and obligations of Landlord and Tenant hereunder, shall terminate automatically, without further liability by either party to the other, and without further documentation being required.

SECTION 2.2. HOLDING OVER. If Tenant fails to deliver possession of the Premises on the Termination Date, but holds over after the expiration or earlier termination of this Lease without the express prior written consent of Landlord, such tenancy shall be construed as a tenancy from month-to-month on the same terms and conditions as are contained herein, except that the Fixed Monthly Rent payable by Tenant during such period of holding over shall automatically increase as of the Termination Date to an amount equal to one hundred fifty percent (150%) for the initial sixty (60) days and two hundred percent (200%) thereafter of the Fixed Monthly Rent payable by Tenant the calendar month immediately prior to the date when Tenant commences such holding over (the "Holdover Rent"). Such Holdover Rent shall be paid during such period as Tenant retains possession of the Premises. However, Tenant's payment of such Holdover Rent, and Landlord's acceptance thereof, shall not constitute a waiver by Landlord of any of Landlord's rights or remedies with respect to such holding over, nor shall it be deemed to be a consent by Landlord to Tenant's continued occupancy or possession of the Premises past the time period covered Tenant's payment of the Holdover Rent.

Furthermore, if Tenant fails to deliver possession of the Premises to Landlord upon the expiration or earlier termination of this Lease, then, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys' fees and expenses) and liability resulting from such failure, including without limiting the foregoing, any claims made by any succeeding tenant arising out of Tenant's failure to so surrender, and any lost profits to Landlord resulting therefrom.

Notwithstanding the provisions contained hereinabove regarding Tenant's liability for a continuing holdover, Landlord agrees to use commercially reasonable efforts to insert into any future lease of another tenant proposing to occupy the Premises provisions similar to those contained in Section 2.1 , permitting mitigation of Tenant's damages arising out of Tenant's temporary holdover.

ARTICLE 3
PAYMENT OF RENT, LATE CHARGE

SECTION 3.1. PAYMENT OF FIXED MONTHLY RENT AND ADDITIONAL RENT. "Rent" shall mean: all payments of monies in any form whatsoever required under the terms and provisions of this Lease, and shall consist of:

a) "Fixed Monthly Rent," which shall be payable in equal monthly installments of $9,110.75 ; plus

b) Additional Rent as provided in Article 4 and elsewhere in this Lease.

SECTION 3.2. MANNER OF PAYMENT. Tenant shall pay Fixed Monthly Rent and Additional Rent immediately upon the same becoming due and payable, without demand therefor, and without any abatement, set off or deduction whatsoever, except as may be expressly provided in this Lease. Landlord's failure to submit statements to Tenant stating the amount of Fixed Monthly Rent or Additional Rent then due, including Landlord's failure to provide to Tenant a calculation of the adjustment as required in Section 3.3 or the Escalation Statement referred to in Article 4, shall not constitute Landlord's waiver of Tenant's requirement to pay the Rent called for herein. Tenant's failure to pay Additional Rent as provided herein shall constitute a material default equal to Tenant's failure to pay Fixed Monthly Rent when due. However, any contrary provision of this Lease notwithstanding, Tenant's payment of Rent pursuant to any billing by Landlord shall not constitute a waiver of Tenant's right to dispute the accuracy or validity of such bill.

Rent shall be payable in advance on the first day of each and every calendar month throughout the Term, in lawful money of the United States of America, to Landlord at 11726 San Vicente Boulevard, Suite 230, Los Angeles, California 90049, or at such other place(s) as Landlord designates in writing to Tenant. Tenant's obligation to pay Rent shall begin on the Commencement Date and continue throughout the Term, without abatement, setoff or deduction, except as otherwise specified hereinbelow.

Concurrent with Tenant's execution and delivery to Landlord of this Lease, Tenant shall pay to Landlord the Fixed Monthly Rent due for the first month of the Term.

SECTION 3.3. FIXED MONTHLY RENT INCREASE. Commencing the first calendar day of the thirteenth calendar month of the Term, and continuing through the last calendar day of the twenty-fourth (24th) calendar month of the Term, the Fixed Monthly Rent payable by Tenant shall increase from $9110.75 per month to $9,384.07 per month.

Commencing the first calendar day of the twenty-fifth (25th) calendar month of the Term, and continuing through the last calendar day of the thirty-sixth (36th) calendar month of the Term, the Fixed Monthly Rent payable by Tenant shall increase from $9,384.07 per month to $9,665.59 per month.

Commencing the first calendar day of the thirty-seventh (37th) calendar month of the Term, and continuing through the last calendar day of the forty-eighth (48th) calendar month of the Term, the Fixed Monthly Rent payable by Tenant shall increase from $9,665.59 per month to $9,955.56 per month.

Commencing the first calendar day of the forty-ninth (49th) calendar month of the Term, and continuing throughout the remainder of the initial Term, the Fixed Monthly Rent payable by Tenant shall increase from $9,955.56 per month to $10,254.23 per month.

Landlord and Tenant shall, in the First Amendment, confirm the actual dates upon which the changes in Fixed Monthly Rent specified above shall occur.

SECTION 3.4. TENANT'S PAYMENT OF CERTAIN TAXES. Tenant shall, concurrent with Tenant's next scheduled payment of Fixed Monthly Rent, reimburse Landlord, as Additional Rent, for any and all taxes, surcharges, levies, assessments, fees and charges payable by Landlord when:

a) assessed on, measured by, or reasonably attributable to:

i) the cost or value of Tenant's equipment, furniture, fixtures and other personal property located in the Premises, or

ii) the cost or value of any leasehold improvements in or to the Premises in excess of $35.00 per square foot, provided the same have been made in connection with Tenant's execution of this Lease, and without regard to whether title to or payment for such improvements vests with Tenant or Landlord;

b) on or measured by any rent payable hereunder, including, without limitation, any gross income tax, gross receipts tax, or excise tax levied by the City or County of Los Angeles or any other governmental body with respect to the receipt of such rent (computed as if such rent were the only income of Landlord), but solely when levied by the appropriate City or County agency in lieu of, or as an adjunct to, such business license(s), fees or taxes as would otherwise have been payable by Tenant directly to such taxing authority;

c) upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof; or

d) solely because Landlord and Tenant entered into this transaction or executed any document transferring an interest in the Premises to Tenant. If it becomes unlawful for Tenant so to reimburse Landlord, the rent payable to Landlord under this Lease shall be revised to net Landlord the same rent after imposition of any such tax as would have been payable to Landlord prior to the imposition of any such tax.

Said taxes shall be due and payable whether or not now customary or within the contemplation of Landlord and Tenant. Notwithstanding the above, in no event shall the provisions of this Section 3.4 serve to entitle Landlord to reimbursement from Tenant for any federal, state, county or city income tax or business license fee payable by Landlord or the managing agent of Landlord.

SECTION 3.5. CERTAIN ADJUSTMENTS. If:

a) the Commencement Date occurs on other than January 1st of a calendar year, or the Lease expires or terminates on other than December 31st of a calendar year;

b) the size of the Premises changes during a calendar year;

c) or any abatement of Fixed Monthly Rent or Additional Rent occurs during a calendar year, then

the amount payable by Tenant or reimbursable by Landlord during such year shall be adjusted proportionately on a daily basis, and the obligation to pay such amount shall survive the expiration or earlier termination of this Lease.

If the Commencement Date occurs on other than the first day of a calendar month, or the Lease expires on a day other than the last day of a calendar month, then the Fixed Monthly Rent and Additional Rent payable by Tenant shall be appropriately apportioned on a prorata basis for the number of days remaining in the month of the Term for which such proration is calculated.

If the amount of Fixed Monthly Rent or Additional Rent due is modified pursuant to the terms of this Lease, such modification shall take effect the first day of the calendar month immediately following the date such modification would have been scheduled.

SECTION 3.6. LATE CHARGE AND INTEREST. Tenant acknowledges that late payment by Tenant to Landlord of Fixed Monthly Rent or Additional Rent will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which are extremely difficult and impracticable to fix. Such costs include, without limitation, processing and accounting charges and late charges that may be imposed on Landlord by the terms of any encumbrance and note secured by any encumbrance covering the Premises. Therefore, if any installment of Fixed Monthly Rent or Additional Rent and other payment due from Tenant hereunder is not received by Landlord within five (5) business days of the date it becomes due, Tenant shall pay to Landlord on demand an additional sum equal to five percent (5%) of the overdue amount as a late charge. The parties agree that this late charge represents a fair and reasonable settlement against the costs that Landlord will incur by reason of Tenant's late payment. Acceptance of any late charge shall not constitute a waiver of Tenant's default with respect to the overdue amount, or prevent Landlord from exercising any of the other rights and remedies available to Landlord.

Every installment of Fixed Monthly Rent and Additional Rent and any other payment due hereunder from Tenant to Landlord which is not paid within twelve (12) days after the same becomes due and payable shall, in addition to any Late Charge already paid by Tenant, bear interest at the rate of ten percent (10%) per annum from the date that the same originally became due and payable until the date it is paid. Landlord shall bill Tenant for said interest, and Tenant shall pay the same within five (5) days of receipt of Landlord's billing.

SECTION 3.7. SECURITY DEPOSIT. Concurrent with Tenant's execution and tendering or this Lease to Landlord, Tenant shall deposit the sum of $20,508.46 (the "Security Deposit"), which amount Tenant shall thereafter at all times maintain on deposit with Landlord as security for Tenant's full and faithful observance and performance of its obligations under this Lease (expressly including, without limitation, the payment as and when due of the Fixed Monthly Rent, Additional Rent and any other sums or damages payable by Tenant hereunder and the payment of any and all other damages for which Tenant shall be liable by reason of any act or omission contrary to any of said covenants or agreements). Landlord shall have the right to commingle the Security Deposit with its general assets and shall not be obligated to pay Tenant interest thereon.

If at any time Tenant defaults in the performance of any of its obligations under this Lease, after the expiration of notice and the opportunity to cure, then, Landlord may:

a) apply as much of the Security Deposit as may be necessary cure Tenant's non-payment of the Fixed Monthly Rent, Additional Rent and/or other sums or damages due from Tenant; and/or;

b) if Tenant is in default of any of the covenants or agreements of this Lease; apply so much of the Security Deposit as may be necessary to reimburse all expenses incurred by Landlord in curing such default; or

c) if the Security Deposit is insufficient to pay the sums specified in
Section 3.7 (a) or (b), elect to apply the entire Security Deposit in partial payment thereof, and proceed against Tenant pursuant to the provisions of Article 17 and Article 18 herein.

If, as a result of Landlord's application of any portion or all of the Security Deposit, the amount held by Landlord declines to less than $20,508.46, Tenant shall, within ten (10) business days after demand therefor, deposit with Landlord additional cash sufficient to bring the then-existing balance held as the Security Deposit to the amount specified hereinabove. Tenant's failure to deposit said amount shall constitute a material breach of this Lease.

At the expiration or earlier termination of this Lease, Landlord shall deduct from the Security Deposit being held on behalf of Tenant any unpaid sums, costs, expenses or damages payable by Tenant pursuant to the provisions of this Lease; and/or any costs required to cure Tenant's default or performance of any other covenant or agreement of this Lease, and shall, within thirty (30) days after the expiration or earlier termination of this Lease, return to Tenant, without interest, all or such part of the Security Deposit as then remains on deposit with Landlord.

ARTICLE 4
ADDITIONAL RENT

SECTION 4.1. CERTAIN DEFINITIONS. As used in this Lease:

a) "ESCALATION STATEMENT" means a statement by Landlord, setting forth the amount payable by Tenant or by Landlord, as the case may be, for a specified calendar year pursuant to this Article 4.

b) "OPERATING EXPENSES" means the following in a referenced calendar year, including the Base Year as hereinafter defined, calculated assuming the Building is at least ninety-five percent (95%) occupied: all costs of management, operation, maintenance, and repair of the Building.

By way of illustration only, Operating Expenses shall include, but not be limited to: management fees paid by Landlord to any third-party, which shall not exceed those reasonable and customary in the geographic area in which the Building is located; water and sewer charges; any and all insurance premiums not otherwise directly payable by Tenant; license, permit and inspection fees; air conditioning (including repair of same); heat; light; power and other utilities; steam; labor; cleaning and janitorial services; guard services; supplies; materials; equipment and tools.

Operating Expenses shall also include the cost or portion thereof of those capital improvements made to the Building by Landlord during the Term:

i) to the extent that such capital improvements reduce other direct expenses, when the same were made to the Building by Landlord after the Commencement Date, or

ii) that are required under any governmental law or regulation that was not applicable to the Building as of the Commencement Date.

Said capital improvement costs, or the allocable portion thereof (as referred to in clauses (i) and (ii) above), shall be amortized pursuant to generally-accepted accounting principles, together with interest on the unamortized balance at the rate of ten percent (10%) per annum.

Operating Expenses shall also include all general and special real estate taxes, increases in assessments or special assessments and any other ad valorem taxes, rates, levies and assessments paid during a calendar year (or portion thereof) upon or with respect to the Building and the personal property used by Landlord to operate the Building, whether paid to any governmental or quasi-governmental authority, and all taxes specifically imposed in lieu of any such taxes (but excluding taxes referred to in Section 3.4 for which Tenant or other tenants in the Building are liable) including fees of counsel and experts, reasonably incurred by, or reimbursable by Landlord in connection with any application for a reduction in the assessed valuation of the Building and/or the land thereunder or for a judicial review thereof, (collectively "Appeal Fees"), but solely to the extent that the Appeal Fees result directly in a reduction of taxes otherwise payable by Tenant. However, in no event shall the portion of Operating Expenses used to calculate any billing to Tenant attributable to real estate taxes and assessments for any expense year be less than the billing for real estate taxes and assessments during the Base Year.

Operating Expenses shall also include, but not be limited to, the premiums for the following insurance coverage: all-risk, structural, fire, boiler and machinery, liability, earthquake and for replacement of tenant improvements to a maximum of $35.00 per usable square foot, and for such other coverage(s), and at such policy limit(s) as Landlord deems reasonably prudent and/or are required by any lender or ground lessor, which coverage and limits Landlord may, in Landlord's reasonable discretion, change from time to time.

If, in any calendar year following the Base Year, as defined hereinbelow (a "Subsequent Year"), a new expense item (e.g. earthquake insurance, concierge services; entry card systems), is included in Operating Expenses which was not included in the Base Year Operating Expenses, then the cost of such new item shall be added to the Base Year Operating Expenses for purposes of determining the Additional Rent payable under this Article 4 for such Subsequent Year. During each Subsequent Year, the same amount shall continue to be included in the computation of Operating Expenses for the Base Year, resulting in each such Subsequent Year Operating Expenses only including the increase in the cost of such new item over the Base Year, as so adjusted. However, if in any Subsequent Year thereafter, such new item is not included in Operating Expenses, no such addition shall be made to Base Year Operating Expenses.

Conversely, as reasonably determined by Landlord, when an expense item that was originally included in the Base Year Operating Expenses is, in any Subsequent Year, no longer included in Operating Expenses, then the cost of such item shall be deleted from the Base Year Operating Expenses for purposes of determining the Additional Rent payable under this Article 4 for such Subsequent Year. The same amount shall continue to be deleted from the Base Year Operating

Expenses for each Subsequent Year thereafter that the item is not included. However, if such expense item is again included in the Operating Expenses for any Subsequent Year, then the amount of said expense item originally included in the Base Year Operating Expenses shall again be added back to the Base Year Operating Expenses.

c) "TENANT'S SHARE" means 3.69%.

SECTION 4.2. CALCULATION OF TENANT'S SHARE OF INCREASES IN OPERATING EXPENSES. If, commencing with the calendar year 2001, the Operating Expenses for any calendar year during the Term, or portion thereof, (including the last calendar year of the Term), have increased over the Operating Expenses for the calendar year 2000 (the "Base Year"), then within thirty (30) days after Tenant's receipt of Landlord's computation of such increase (an "Escalation Statement"), Tenant shall pay to Landlord, as Additional Rent, an amount equal to the product obtained by multiplying such increase by Tenant's Share.

Landlord may, at or after the start of any calendar year subsequent to the Base Year, notify Tenant of the amount which Landlord estimates will be Tenant's monthly share of any such increase in Operating Expenses for such calendar year over the Base Year and the amount thereof shall be added to the Fixed Monthly Rent payments required to be made by Tenant in such year. If Tenant's Share of any such increase in rent payable hereunder as shown on the Escalation Statement is greater or less than the total amounts actually billed to and paid by Tenant during the year covered by such statement, then within thirty (30) days thereafter, Tenant shall pay in cash any sums owed Landlord or, if applicable, Tenant shall either receive a credit against any Fixed Monthly Rent and/or Additional Rent next accruing for any sum owed Tenant, or if Landlord's Escalation Statement is rendered after the expiration or earlier termination of this Lease and indicates that Tenant's estimated payments have exceeded the total amount to which Tenant was obligated, then provided that Landlord is not owed any other sum by Tenant, Landlord shall issue a cash refund to Tenant within thirty (30) days after Landlord's completion of such Escalation Statement.

SECTION 4.3. TENANT'S PAYMENT OF DIRECT CHARGES AS ADDITIONAL RENT. Tenant shall promptly and duly pay all costs and expenses incurred for or in connection with any Tenant Change or Tenant Service, and discharge any mechanic's or other lien created against the Premises, Building or the Real Property arising as a result of or in connection with any Tenant Change or Tenant Service as Additional Rent by paying the same, bonding or manner otherwise provided by law.

Any other cost, expense, charge, amount or sum (other than Fixed Monthly Rent) payable by Tenant as provided in this Lease shall also be considered Additional Rent.

Certain individual items of cost or expense may, in the reasonable determination of Landlord, be separately charged and billed to Tenant by Landlord, either alone or in conjunction with another party or parties, if they are deemed in good faith by Landlord to apply solely to Tenant and/or such other party or parties and are not otherwise normally recaptured by Landlord as part of normal operating expenses. Insofar as is reasonable, Landlord shall attempt to give Tenant prior notice and the opportunity to cure any circumstance that would give rise to such separate and direct billing.

Said separate billing shall be paid as Additional Rent, regardless of Tenant's Share. Such allocations by Landlord shall be binding on Tenant unless patently unreasonable, and shall be payable within ten (10) days after receipt of Landlord's billing therefor.

ARTICLE 5
ETHICS

SECTION 5.1. ETHICS. Landlord and Tenant agree to conduct their business or practice in compliance with any appropriate and applicable codes of professional or business practice.

ARTICLE 6
USE OF PREMISES

SECTION 6.1. USE. The Premises shall only be used as business offices for an investment banking company, specifically including related investment and securities uses (the "Specified Use") and for no other purposes, without Landlord's prior written consent, which consent shall be in Landlord's sole discretion. Any proposed revision of the Specified Use by Tenant shall be for a use consistent with those customarily found in first-class office buildings. Reasonable grounds for Landlord withholding its consent shall include, but not be limited to:

a) the proposed use will place a disproportionate burden on the Building systems;

b) the proposed use is for governmental or medical purposes or for a company whose primary business is that of conducting boiler-room type transactions or sales;

c) the proposed use would generate excessive foot traffic to the Premises and/or Building.

So long as Tenant is in control of the Premises, Tenant covenants and agrees that it shall not use, suffer or permit any person(s) to use all or any portion of the Premises for any purpose in violation of the laws of the United States of America, the State of California, or the ordinances, regulations or requirements of the City of Los Angeles or County of Los Angeles, or other lawful authorities having jurisdiction over the Building.

Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or unreasonably interfere with the rights of other tenants or occupants of the Building, or injure or annoy them. Tenant shall not use or allow the Premises to be used for any pornographic or violent purposes, nor shall Tenant cause, commit, maintain or permit the continuance of any nuisance or waste in, on or about the Premises. Tenant shall not use the Premises in any manner that in Landlord's reasonable judgment would adversely affect or interfere with any services Landlord is

required to furnish to Tenant or to any other tenant or occupant of the Building, or that would interfere with or obstruct the proper and economical rendition of any such service.

SECTION 6.2. EXCLUSIVE USE. Landlord represents that Tenant's Specified Use of the Premises does not conflict with exclusive use provisions granted by Landlord in other leases for the Building. Landlord further agrees that it shall, in the future, not grant an exclusive use privilege to any other tenant in the Building that will prevent Tenant from continuing to use the Premises for its Specified Use.

Tenant acknowledges and agrees that it shall not engage, as a primary business, in high volume document reproduction.

Provided that Tenant has received written notice of the same from Landlord, and further provided that Landlord does not grant a future exclusive use right that prohibits Tenant from engaging in the Specified Use, then Tenant agrees that it shall not violate any exclusive use provision(s) granted by Landlord to other tenants in the Building.

SECTION 6.3. RULES AND REGULATIONS. Tenant shall observe and comply with the rules and regulations set forth in Exhibit C, and such other and further reasonable and non-discriminatory rules and regulations as Landlord may make or adopt and communicate to Tenant at any time or from time to time, when said rules, in the reasonable judgment of Landlord, may be necessary or desirable to ensure the first-class operation, maintenance, reputation or appearance of the Building. However, if any conflict arises between the provisions of this Lease and any such rule or regulation, the provisions of this Lease shall control.

Provided Landlord makes commercially reasonable efforts to seek compliance by all occupants of the Building with the rules and regulations adopted by Landlord, Landlord shall not be responsible to Tenant for the failure of any other tenants or occupants of the Building to comply with said rules and regulations.

ARTICLE 7
CONDITION UPON VACATING & REMOVAL OF PROPERTY

SECTION 7.1. CONDITION UPON VACATING. At the expiration or earlier termination of this Lease, Tenant-shall:

a) terminate its occupancy of, quit and surrender to Landlord, all or such portion of the Premises upon which this Lease has so terminated, broom-clean and in the same condition as received except for:

i) ordinary wear and tear, or

ii) loss or damage by fire or other casualty which shall not have been caused by the gross negligence or willful misconduct of Tenant or its agents, clients, contractors, employees, invitees, licensees, officers, partners or shareholders; and

b) surrender the Premises free of any and all debris and trash and any of Tenant's personal property, furniture, fixtures and equipment that do pot otherwise become a part of the Real Property, pursuant to the provisions contained in Section 7.2 hereinbelow; and

c) at Tenant's sole expense, forthwith and with all due diligence remove any Tenant Change made by Tenant and restore the Premises to their original condition, reasonable wear and tear excepted. However, Tenant shall only be obligated to remove said Tenant Change if it was made without Landlord's approval and/or if Landlord notified Tenant of its obligation to do so at the time Landlord approved Tenant's request for a Tenant Change. If Tenant fails to complete such removal and/or to repair any damage caused by the removal of any Tenant Change, Landlord may do so and may charge the cost thereof to Tenant.

SECTION 7.2. TENANT'S PROPERTY. All fixtures, equipment, improvements and installations attached or built into the Premises at any time during the Term shall, at the expiration or earlier termination of this Lease, be deemed the property of Landlord; become a permanent part of the Premises and remain therein. However, if said equipment improvements and/or installations can be removed without causing any structural damage to the Premises, men, provided after such removal Tenant restores the Premises to the condition existing prior to installation of Tenant's trade fixtures or equipment, Tenant shall be permitted, at Tenant's sole expense, to remove said trade fixtures and equipment.

ARTICLE 8
UTILITIES AND SERVICES

SECTION 8.1. NORMAL BUILDING HOURS / HOLIDAYS. The "Normal Business Hours" of the Building, during which Landlord shall furnish the services specified in this Article 8 are defined as 8:00 A M to 6:00 P.M., Monday through Friday, and 9:00
A.M. to 1:00 P.M. on Saturday, any one or more Holiday(s) excepted.

The "Holidays" which shall be observed by Landlord in the Building are defined as any federally-recognized holiday and any other holiday specified enumerated herein, which are: New Years Day, Presidents' Day, Memorial Day, the 4th of July, Labor Day, Thanksgiving Day, the day after Thanksgiving, and Christmas Day (each individually a "Holiday"). Tenant acknowledges that the Building shall be closed on each and every such Holiday, and Tenant shall not be guaranteed access to Landlord or Landlord's managing agent(s) on each such Holiday.

SECTION 8.2. ACCESS TO THE BUILDING AND GENERAL SERVICES. Subject to Force Majeure and any power outage(s) which may occur in the Building when the same are out of Landlord's reasonable control, Landlord shall furnish the following services to the Premises twenty-four (24) hours per day, seven days per week:

a) during Normal Business Hours, bulb replacement for building standard lights;

b) access to and Use of the parking facilities for persons holding valid parking permits;

c) access to and use of the elevators and Premises;

d) use of electrical lighting on an as-needed basis within the Premises; and

e) use of a reasonable level of water for kitchen and toilet facilities in the Premises and common area bathrooms.

SECTION 8.3. JANITORIAL SERVICES. Landlord shall furnish the Premises with reasonable and customary janitorial services five (5) days per business week, except when the Building is closed on any Holiday. Landlord shall retain the sole discretion to choose and/or revise the janitorial company providing said services to the Premises and/or Building.

SECTION 8.4. SECURITY SERVICES. Tenant acknowledges that Landlord currently provides uniformed guard service to the Building from 5 p.m. to 11 p.m., Monday through Friday, and 8:00 a.m. to 1:00 p.m. on Saturdays, solely for the purposes of providing surveillance of, information and directional assistance to persons entering the Building.

Tenant acknowledges that such guard service shall not provide any measure of security or safety to the Building or the Premises, and that Tenant shall take such actions as it may deem necessary and reasonable to ensure the safety and security of Tenant's property or person or the property or persons of Tenant's agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders. Tenant agrees and acknowledges that, except in the case of the gross negligence or willful misconduct of Landlord or its directors, employees, officers, partners or shareholders, Landlord shall not be liable to Tenant in any manner whatsoever arising out of the failure of Landlord's guard service to secure any person or property from harm.

Tenant agrees and acknowledges that Landlord, in Landlord's sole discretion, shall have the option, but not the obligation to add, decrease, revise the hours of and/or change the level of services being provided by any guard company serving the Building, Tenant further agrees that Tenant shall not engage or hire any outside guard or security company without Landlord's prior written consent, which shall be in Landlord's sole discretion.

SECTION 8.5. UTILITIES. During Normal Business Hours Landlord shall furnish a reasonable level of water, heat, ventilation and air conditioning ("HVAC"), and a sufficient amount of electric current to provide customary business lighting and to operate ordinary office business machines, such as a single personal computer and ancillary printer per one hundred and twenty (120) Rentable square feet contained in the Premises, facsimile machines, small copiers customarily used for general office purposes, and such other equipment and office machines as do not result in above-standard use of the existing electrical system. So long as the same remain reasonably cost competitive, Landlord shall retain the sole discretion to choose the utility vendor(s) to supply such services to the Premises and the Building.

Except with the prior written consent of Landlord, which shall not be unreasonably withheld, conditioned and/or delayed, Tenant shall not install or use any equipment, apparatus or device in the Premises that requires the installation of a 220 voltage circuit; consumes more than five (5) kilowatts per hour per item; or the aggregate use of which will in any way increase the connected load to more than 5 Watts per square foot, or cause the amount of electricity to be furnished or supplied for use in the Premises to more than 1.2 kWh per usable square foot, per month.

Except with the prior written consent of Landlord, Tenant shall not connect any electrical equipment to the electrical system of the Building, except through electrical outlets already existing in the Premises, nor shall Tenant pierce, revise, delete or add to the electrical, plumbing, mechanical or HVAC systems in the Premises.

SECTION 8.6. AFTER HOURS HVAC AND/OR EXCESS UTILITY USAGE. If tenant requires HVAC service during other than Normal Business Hours ("Excess HVAC"), Tenant shall make its request in writing at least six (6) hours before the close of the normal business day. Otherwise, Landlord shall have no obligation to provide Excess HVAC. Tenant's request shall be deemed conclusive evidence of its willingness to pay the costs specified herein,

If Tenant requires electric current in excess of the amounts specified hereinabove, water or gas in excess of that customarily furnished to the Premises as office space ("Excess Utility Use"), Tenant shall first procure Landlord's prior written consent to such Excess Utility Use, which Landlord may reasonably refuse.

In lieu of Landlord's refusal, Landlord may cause a meter or sub-meter to be installed to measure the amount of water, gas and/or electric current consumed by Tenant in the Premises. The cost of any such meter(s), and the installation, maintenance, and repair thereof, shall be paid by Tenant as Additional Rent.

After completing installation of said meter(s), and/or if Tenant requests Excess HVAC, then Tenant shall pay, as Additional Rent, within thirty
(30) calendar days after Tenant's receipt of Landlord's billing, for the actual amounts of all water, steam, compressed air, electric current and/or Excess HVAC consumed beyond the normal levels Landlord is required herein to provide. Said billing shall be calculated on the usage indicated by such meter(s), sub-meter(s), or Tenant's written request thereto, and shall be issued by Landlord at the rates charged for such services by the local public utility furnishing the same, plus any additional expense reasonably incurred by Landlord in providing said Excess Utility Use and/or in keeping account of the water, steam, compressed air and electric current so consumed, plus an administrative and billing fee equal to twenty-five percent (25%) of the costs so billed.

SECTION 8.7. CHANGES AFFECTING HVAC. Tenant shall also pay as Additional Rent for any additional costs Landlord incurs to repair any failure of the HVAC equipment and systems to perform their function when said failure arises out of or in connection with any change in, or alterations to, the arrangement of partitioning in the Premises after the Commencement Date, or from occupancy by, on average, more than one person for every one hundred and twenty-five (125) usable square feet of the Premises, or from Tenant's failure to keep all HVAC vents within the Premises free of obstruction.

SECTION 8.8. DAMAGED OR DEFECTIVE SYSTEMS. Tenant shall give written notice to Landlord within twenty-four (24) hours of any alleged damage to, Or defective condition in any part or appurtenance of the Building's sanitary, electrical, HVAC or other systems serving, located in, or passing through, the Premises. Provided that the repair or remedy of said damage or defective condition is within the reasonable control of Landlord, it shall be remedied by Landlord with reasonable diligence. Otherwise, Landlord shall make such commercially reasonable efforts as may be available to Landlord to effect such remedy or repair, but except in the case of Landlord's gross negligence and/or willful misconduct or the gross negligence and/or willful misconduct of Landlord's agents, contractors, directors, employees, officers, partners, and/or shareholders, Landlord shall not be liable to Tenant for any failure thereof.

Tenant shall not be entitled to claim any damages arising from any such damage or defective condition nor shall Tenant be entitled to claim any eviction by reason of any such damage or defective condition unless:

a) the same was caused by Landlord's gross negligence or willful misconduct while operating or maintaining the Premises or the Building;

b) the damage or defective condition has substantially prevented Tenant from conducting its normal business operations or obtaining access to at least seventy-five percent (75%) of the Premises; and

c) Landlord shall have failed to commence the remedy thereof and proceeded with reasonable diligence to complete the same after Landlord's receipt of notice thereof from Tenant.

Furthermore, if such damage or defective condition was caused by, or is attributed to, a Tenant Change or the unreasonable or improper use of such system(s) by Tenant or its employees, licensees or invitees:

d) the cost of the remedy thereof shall be paid by Tenant as Additional Rent pursuant to the provisions of Section 4.3;

e) in no event shall Tenant be entitled to any abatement of rent as specified above; and

f) Tenant shall be estopped from making any claim for damages arising out of Landlord's repair thereof.

SECTION 8.9. LIMITATION ON LANDLORD'S LIABILITY FOR FAILURE TO PROVIDE UTILITIES AND/OR SERVICES. Except in the case of Landlord's gross negligence, or willful misconduct or the gross negligence or willful misconduct of Landlord's agents, contractors, directors, employees, licensees, officers, partners or shareholders, Tenant hereby releases Landlord from any liability for damages, by abatement of rent or otherwise, for any failure or delay in furnishing any of the services or utilities specified in this Article 8 (including, but not limited to telephone and telecommunication services), or for any diminution in the quality or quantity thereof.

Tenant's release of Landlord's liability shall be applicable when such failure, delay or diminution is occasioned, in whole or in part, by repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by Landlord's inability to secure electricity, gas, water or other fuel at the Building after Landlord's reasonable effort to do so, by accident or casualty whatsoever, by act or default of Tenant or parties other man Landlord, or by any other cause beyond Landlord's reasonable control. Such failures, delays or diminution shall never be deemed to constitute a constructive eviction or disturbance of Tenant's use and possession of the Premises, or serve to relieve Tenant from paying Rent or performing any of its obligations under the Lease.

Furthermore, Landlord shall not be liable finder any circumstances for a loss of, injury to, or interference with, Tenant's business, including, without limitation, any loss of profits occurring or arising through or in connection with or incidental to Landlord's failure to furnish any of the services or utilities required by this Article 8.

Notwithstanding the above, Landlord shall use commercially reasonable efforts to remedy any delay, defect or insufficiency in providing the services and or utilities required hereunder.

SECTION 8.10. TENANT PROVIDED SERVICES. Tenant shall make no contract or employ any labor in connection with the maintenance, cleaning or other servicing of the physical structures of the Premises or for installation of any computer, telephone or other cabling, equipment or materials provided in or to the Premises (collectively and individually a "Tenant Service") without the prior consent of Landlord, which consent shall not be unreasonably withheld. Tenant shall not permit the use of any labor, material or equipment in the performance of any Tenant Service if the use thereof, in Landlord's reasonable judgment, would violate the provisions of any agreement between Landlord and any union providing work, labor or services in or about the Premises, Building and/or create labor disharmony in the Building.

ARTICLE 9
TENANT'S INDEMNIFICATION AND LIMITATION ON LANDLORD'S LIABILITY

SECTION 9.1. TENANT'S INDEMNIFICATION AND HOLD HARMLESS. For the purposes of this Section 9.1, "Indemnitee(s)" shall jointly and severally refer to Landlord and Landlord's agents, clients, contractors, directors, employees, officers, partners, and/or shareholders.

Tenant shall indemnify and hold indemnitees harmless from and against all claims, suits, demands, damages, judgments, costs, interest and expenses (including attorneys fees and costs incurred in the defense thereof) to which any Indemnitee may be subject or suffer when the same arise out of the negligence or willful misconduct of Tenant or the negligence or willful misconduct of Tenant's agents, contractors, directors, employees, licensees, officers, partners or shareholders in connection with the use of, work in, construction to, or actions in, on, upon or about the Premises, including any actions relating to the installation, placement, removal or financing of any Tenant Change, improvements, fixtures and/or equipment in, on, upon or about the Premises.

Tenant's indemnification shall extend to any and all claims and occurrences, whether for injury to or death of any person or persons, or for damage to property (including any loss of use thereof), or otherwise, occurring during the Term or prior to the Commencement Date (if Tenant has been given early access to the Premises for whatever purpose), and to all claims arising from any condition of the Premises due to or resulting from any default by Tenant in the keeping, observance or performance of any covenant or provision of this Lease, or from the negligence or willful misconduct of Tenant or the negligence or willful misconduct of Tenant's agents, contractors, directors, employees, licensees, officers, partners or shareholders.

SECTION 9.2. NULLITY OF TENANT'S INDEMNIFICATION IN EVENT OF GROSS NEGLIGENCE. Notwithstanding anything to the contrary contained in this .Lease, Tenant's indemnification shall not extend to the gross negligence or willful misconduct of Landlord or the gross negligence or willful misconduct of Landlord's agents, contractors, directors, employees, officers, partners or shareholders, nor to such events and occurrences for which Landlord otherwise carries insurance coverage.

SECTION 9.3. TENANT'S WAIVER OF LIABILITY. Provided that any injury or damage suffered by Tenant or Tenant's agents, clients, contractors, directors, employees, invitees, officers, partners, and/or shareholders did not arise out of the gross negligence or willful misconduct of Landlord or the gross negligence or willful misconduct of Landlord's agents, Contractors, employees, officers, partners or shareholders, Tenant shall make no claim against Landlord and Landlord shall not be liable or responsible in any way for, and Tenant hereby waives all claims against Landlord with respect to or arising out of injury or damage to any person or property in or about the Premises by or from any cause whatsoever under the reasonable control or management of Tenant.

SECTION 9.4. LIMITATION OF LANDLORD'S LIABILITY. Tenant expressly agrees that, notwithstanding anything in this Lease and/or any applicable law to the contrary, the liability of Landlord and Landlord's agents, contractors, directors, employees, licensees, officers, partners or shareholders, including any successor in interest thereto (collectively and individually the "Landlord Parties"), and any recourse by Tenant against Landlord or the Landlord Parties shall be limited solely and exclusively to an amount which is equal to the interest of Landlord in the Building.

Tenant specifically agrees that neither Landlord nor any of the Landlord Parties snail have any personal liability therefor. Further Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant.

SECTION 9.5. TRANSFER OF LANDLORD'S LIABILITY. Tenant expressly agrees that, to the extent that any transferee assumes the obligations of Landlord hereunder, and provided Landlord has either transferred the complete Security Deposit held pursuant to this Lease or refunded the same to Tenant as of the date of such transfer, then the covenants and agreements on the part of Landlord to be performed under this Lease which arise and/or accrue after the date of such transfer shall not be binding upon Landlord herein named from and after the date of transfer of its interest in the Building.

SECTION 9.6. LANDLORD'S INDEMNIFICATION. Landlord shall indemnify, and hold Tenant and Tenant's agents, contractors, directors, employees, officers, partners or shareholders harmless from and against any and all claims, causes of action, liabilities, losses, reasonable costs and expenses, including reasonable attorneys' fees and court costs, arising from or in connection with:

a) any activity occurring, or condition existing, at or in the Building (other than in the Premises) when such activity or condition is under the reasonable Control of Landlord, except when the same is caused in whole or in part by the negligence or willful misconduct of Tenant or Tenant's employees, agents, or contractors, or by Tenant's breach or default in the performance of any obligation under this Lease; or

b) any activity occurring, or condition existing in the Premises when solely caused by the gross negligence or willful misconduct of Landlord or landlord's employees, agents, or contractors.

ARTICLE 10
COMPLIANCE WITH LAWS

SECTION 10.1. TENANT'S COMPLIANCE WITH LAWS. Tenant shall not use, permit to be used, or permit anything to be done in or about all or any portion of the Premises which will in any way violate any laws, statutes, ordinances, rules, orders or regulations duly issued by any governmental authority having jurisdiction over the Premises, or by the Board of Fire Underwriters (or any successor thereto) (collectively "Codes").

SECTION 10.2. TENANT TO COMPLY AT SOLE EXPENSE. Tenant shall, at its sole expense, promptly remedy any violation of such Codes, provide, however, that nothing contained in this Section 10.2 shall require Tenant to make any structural changes to the Premises, unless such changes are required due to either Tenant or Tenant's agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders use of the Premises for purposes other than general office purposes consistent with a Class A office building.

SECTION 10.3. CONCLUSIVE EVIDENCE OF VIOLATION. The judgment of any court of competent jurisdiction; Tenant's admission; or the admission of any one or more of Tenant's agents, contractors directors employees, officers, partners or shareholders in any action against Tenant, whether or not Landlord is a party thereto, that Tenant has so violated any one or more Codes shall be conclusive evidence of such violation as between Landlord and Tenant.

ARTICLE 11
ASSIGNMENT AND SUBLETTING

SECTION 11.1. PERMISSION REQUIRED FOR ASSIGNMENT OR SUBLET. Unless Landlord's prior written consent has been given, which consent shall not be unreasonably withheld, conditioned and/or delayed, this Lease shall not, nor shall any interest herein, be assignable as to the interest of Tenant by operation of law; nor shall Tenant:

a) assign, mortgage, pledge, encumber or otherwise transfer this Lease, the Term and estate hereby granted or any interest hereunder;

b) permit the Premises or any part thereof to be utilized by anyone other than Tenant (whether as by a concessionaire, franchisee, licensee, permittee or otherwise); or

c) except as hereinafter provided, sublet the Premises or any part thereof (collectively with the items contained in this Section 11.1, a "Transfer").

Any assignment, mortgage, pledge, encumbrance, transfer or sublease without Landlord's prior written consent shall be voidable, and, in Landlord's sole election, shall constitute a material default under this Lease.

SECTION 11.2. VOLUNTARY ASSIGNMENT DUE TO CHANGES IN STRUCTURE OF TENANT. Any dissolution, merger, consolidation, or other reorganization of Tenant, or the single sale or other transfer of a controlling percentage of the capital stock of Tenant (other than the sale of such stock pursuant to a public offering that results in a majority of the same members of the Board and executive officers remaining in control of said corporation) and or the single sale of fifty percent (50%) or more of the value of the assets of Tenant, shall be deemed a voluntary assignment. The phrase "controlling percentage" means the ownership of, and the right to vote stock possessing fifty percent (50%) or more of the total combined voting power of all classes of Tenant's capital stock issued, outstanding, and entitled to vote for the election of directors. Notwithstanding anything to the contrary contained herein, the preceding paragraph shall not apply to corporations whose stock is traded through a recognized United States exchange or over the counter.

Any withdrawal or change (whether Voluntary, involuntary, or by operation of law) in the partnership by one or more partners who own, in the aggregate fifty percent (50%) or more of the partnership, or the dissolution of the partnership, shall be deemed a voluntary assignment.

If Tenant is comprised of more than one individual, a purported assignment (whether voluntary, involuntary, or by operation of law), by any one of the persons executing this Lease shall be deemed a voluntary assignment.

SECTION 11.3. REQUEST TO ASSIGN OR SUBLEASE. If at any time during the Term, Tenant wishes to assign this Lease or any interest therein, or to sublet all or any portion of the Premises, then at least thirty (30) days prior to the date when Tenant desires the assignment or sublease to be effective, Tenant shall give written notice to Landlord setting forth the name, address, and business of the proposed assignee or sublessee, business and personal credit applications completed on Landlord's standard application forms, and information (including references and such financial documentation as Landlord shall reasonably prescribe) concerning the character and financial condition of the proposed assignee or sublessee, the effective date of the assignment or sublease, and all the material terms and conditions of the proposed assignment, and with reference solely to a sublease: a detailed description of the space proposed to be sublet, together with any rights of the proposed sublessee to use Tenant's improvements and/or ancillary services with the Premises.

SECTION 11.4. LANDLORD'S CONSENT. Landlord shall have twenty (20) days after Tenant's notice of assignment and/or sublease is received with the financial information reasonably requested by Landlord to advise Tenant of Landlord's consent to or disapproval of such proposed assignment or sublease, which consent shall not be unreasonably withheld, conditioned and/or delayed. Any disapproval by Landlord shall contain Landlord's detailed reasons for such disapproval.

Tenant acknowledges that Landlord's consent shall be based upon the criteria listed in Sections 11.4 (a) through (e) below, and subject to Landlord's right to unilaterally disapprove of any proposed assignment and/or sublease, based on the existence of any condition contained within Section 11.5 hereinbelow. If Landlord provides its consent or fails to provide its disapproval within the time period specified, Tenant shall be free to complete the assignment and/or sublet such space to the party contained in Tenant's notice, subject to the following conditions:

a) The assignment and/or sublease shall be on the same terms as were set forth in the notice given to Landlord;

b) The assignment and/or sublease shall be documented in a written format that is reasonably acceptable to Landlord, which form shall specifically include the assignee's and/or sublessee's acknowledgement and acceptance of the obligation contained in this Lease, in so far as applicable;

c) The assignment and/or sublease shall not be valid, nor shall the assignee or sublessee take possession of the Premises, or subleased portion thereof, until an executed duplicate original of such sublease and/or assignment has been delivered to Landlord;

d) The assignee and/or sublessee shall have no further right to assign this Lease and/or sublease the Premises;

e) Tenant shall pay monthly to Landlord one-half(1/2) of the "Net Rental Profit" per square foot received by Tenant. Such Net Rental Profit shall be payable to Landlord as Additional Rental under this Lease without affecting or reducing and other obligation of Tenant hereunder.

Net Rental Profit shall be calculated by subtracting the Rent and Additional Rent paid to Landlord by Tenant, as well as Tenant's reasonable costs of subletting such space (such as rent abatement, fair market leasing commissions, reasonable marketing expenses, new leasehold improvements, and reasonable attorney fees and expenses, as well as any economic consideration received by Tenant arising out of the sale of Tenant's business, or because Tenant provides ancillary business services to the sublessee, such as reception or secretarial services, or office furnishings or equipment, from the total rent per square foot that Tenant is paid by any sublessee.

Tenant shall deliver to Landlord a statement within thirty (30) days after the end of each calendar year and/or within thirty (30) days after the expiration or earlier termination of the Term of this Lease in which any sublease of the Premises has occurred, specifying for each such sublease:

i) the date of its execution and delivery, the number of square feet of the Rentable Area demised thereby and the Term thereof, and

ii) a computation in reasonable detail showing

1) the amounts (if any) paid and payable by Tenant to Landlord pursuant to this Section 11.4 with respect to such sublease for the period covered by such statement and

2) the amounts (if any) paid and payable by Tenant to Landlord pursuant to this Section 11.4 with respect to any payments received from a sublessee during such period but which relate to an earlier period.

SECTION 11.5. REASONABLE GROUNDS FOR DENIAL OF ASSIGNMENT AND/OR SUBLEASE. Landlord and Tenant agree that, in addition to such other reasonable grounds as Landlord may assert for withholding its consent, it shall be reasonable under this Lease and any applicable law for Landlord to withhold its consent to any proposed Transfer, where any one or more of the following conditions exists:

a) The proposed sublessee or assignee (a "Transferee") is, in Landlord's reasonable judgment, of a character or reputation which is not consistent with those businesses customarily found in a Class A office building;

b) The Transferee is engaged in a business or intends to use all or any portion of the Premises for purposes which are not consistent with those generally found in the Building or other Class A office buildings in the vicinity of the Building, provided, however, that in no event shall Landlord be permitted to decline Tenant's request for a Transfer solely on the basis of said Transferee's intent to change the Specified Use from that of Tenant, unless such proposed change shall violate any Exclusive Use provision already granted by Landlord;

c) The Transferee is either a governmental agency or instrumentality thereof;

d) The Transfer will result in more than a reasonable and safe number of occupants within the Premises;

e) The Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities involved under the sublease, if a sublessee, or the Lease, if an assignee, on the date consent is requested, or has demonstrated a prior history of credit instability or unworthiness;

f) The Transfer will cause Landlord to be in violation of another lease or agreement to which Landlord is a party, or would give another occupant of the Building a right to cancel its lease;

g) The Transferee will retain any right originally granted to Tenant to exercise a right of renewal, right of expansion, right of first offer or other similar right held by Tenant. However, nothing contained herein shall prevent Tenant from exercising, any Option to Extend the Term hereof it may have early, concurrent with Tenant's request for such transfer;

h) Either the proposed Transferee, or any person on entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee:

i) is a tenant in the Building at the time Tenant requests approval of the proposed Transfer and Landlord has other similar space available in the Building; or

ii) is engaged in on-going negotiations with Landlord to lease space in the Building at the time Tenant requests approval of the proposed Transfer;

i) The Transferee intends to use all or a portion of the Premises for medical procedures or for a primary business which is as a boiler-room type sales or marketing organization.

If Landlord withholds or conditions its consent and Tenant believes that Landlord did so contrary to the terms of this Lease, Tenant may, as its sole remedy, prosecute an action for declaratory relief to determine if Landlord properly withheld or conditioned its consent, and Tenant hereby waives all other remedies, including without limitation those set forth in California Civil Code
Section 1995.310.

SECTION 11.6. TENANT'S CONTINUED OBLIGATION. Any consent by Landlord to an assignment of this Lease and/or sublease of the Premises shall not release Tenant from any of Tenant's obligations hereunder or be deemed to be a consent by Landlord to any subsequent hypothecation, assignment, subletting, occupation or use by another person, and Tenant shall remain liable to pay the Rent and/or perform all other obligations to be performed by Tenant hereunder. Landlord's acceptance of Rent or Additional Rent from any other person shall not be deemed to be a waiver by Landlord of any provision of this Lease. Landlord,s consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting.

If any assignee or sublessee of Tenant or any successor of Tenant defaults in the performance of any of the provisions of this Lease, whether or not Landlord has collected Rent directly from said assignee or sublessee, Landlord may proceed directly against Tenant without the necessity of

exhausting remedies against such assignee, sublessee or other successor-in-interest, provided Landlord gives Tenant at least five (5) days notice and opportunity to cure prior to proceeding directly against Tenant.

Provided that in no event shall any further assignment, sublease, amendment or modification to this Lease serve to either increase Tenant's liability or expand Tenant's duties or obligations hereunder, or relieve Tenant of its liability under this Lease, then Landlord may consent to subsequent assignments or subletting of this Lease or amendments or modifications to this Lease with any assignee, without notifying Tenant or any successor of Tenant, and without obtaining their consent thereto.

SECTION 11.7. TENANT TO PAY LANDLORD'S COSTS. If Tenant assigns or sublets the Premises or requests the consent of Landlord to any assignment, subletting or other modification of this Lease, or if Tenant requests the consent of Landlord for any act that Tenant proposes to do, whether or not Landlord shall grant consent thereto, then Tenant shall, concurrent with Tenant's submission of any written request therefor, pay Landlord's reasonably anticipated costs: for review of Tenant's documentation, credit check and processing fees, as well as any reasonable legal fees incurred by Landlord in connection therewith, which costs shall not exceed $750.00 in the aggregate.

SECTION 11.8. SUCCESSORS AND ASSIGNS. Subject to the provisions contained herein, the covenants and agreements contained in this Lease shall bind and inure to the benefit of Landlord and Tenant, their respective successors and assigns and all persons claiming by, through or under them.

ARTICLE 12
MAINTENANCE, REPAIRS, DAMAGE, DESTRUCTION, RENOVATION AND/OR
ALTERATION

SECTION 12.1. TENANT'S OBLIGATION TO MAINTAIN. Tenant shall, at Tenant's sole expense, maintain the Premises in good order and repair, and shall also keep clean any portion of the Premises which Landlord is not obligated to clean. Such obligation shall include the clean-out; repair and/or replacement of Tenant's garbage disposal(s), Instant-Heat or other hot water producing equipment, if any, and the cleaning and removal of any dishes and/or food prior to the same becoming unsanitary. If Tenant becomes obligated to repair anything within the Premises, Tenant shall advise Landlord's managing agent of such need, which request shall be presumed conclusive evidence of Tenant's obligation and willingness to reimburse Landlord for such repair(s).

Further, Tenant shall pay the cost of any injury, damage or breakage in, upon or to the Premises created by Tenant's gross negligence or willful misconduct or the gross negligence or willful misconduct of Tenant's agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders.

Subject to Tenant's obligation for reimbursement to Landlord, as specified herein, Landlord shall make all repairs to the Premises and the exterior walls, foundation and roof of the Building, the structural portions of the floors of the Building, the systems and equipment of the Building and the Tenant Improvements installed in the Premises. However, if such repairs, maintenance or cleaning are required due to Tenant's gross negligence or willful misconduct or the gross negligence or willful misconduct of Tenant's agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders, then, Tenant shall, within ten (10) days after receipt of Landlord's billing therefor, reimburse Landlord, as Additional Rent, for any expense of such repairs, cleaning and/or maintenance in excess of any insurance proceeds available for reimbursement thereof, including for any deductible anticipated in connection therewith.

Tenant hereby waives all right to make repairs at Landlord's expense under the provisions of Section 1932(1), 1941 and 1942 of the Civil Code of California.

SECTION 12.2. REPAIR PERIOD NOTICE. Tenant shall give prompt notice to Landlord of Tenant's actual knowledge of any damage or destruction to all or any part of the Premises or Building resulting from or arising out of any fire, earthquake, or other identifiable event of a sudden, unexpected or unusual nature (individually or collectively a "Casualty"). The time periods specified in this
Section 12.2. shall commence after Landlord receives said written notice from Tenant of the occurrence of a Casualty. After receipt of Tenant's written notice that a Casualty has occurred, Landlord shall, within the later of:

a) sixty (60) days after the date on which Landlord determines the full extent of the damage caused by the Casualty; or

b) thirty (30) days after Landlord has determined the extent of the insurance proceeds available to effectuate repairs, but

c) in no event more than one hundred and twenty (120) days after the Casualty,

provide written notice to Tenant indicating the anticipated time period for repairing the Casualty (the "Repair Period Notice"). The Repair Period Notice shall also state, if applicable, Landlord's election either to repair the Premises, or to terminate this Lease, pursuant to the provisions of Section 12.3, and if Landlord elects to terminate this Lease, Landlord shall use commercially reasonable efforts to provide Tenant with a minimum period of ninety (90) days within which to fully vacate the Premises.

SECTION 12.3. LANDLORD'S OPTION TO TERMINATE OR REPAIR. Notwithstanding anything to the contrary contained herein, Landlord shall have the option, but not the obligation to elect not to rebuild or restore the Premises and/or the Building if one or more of the following conditions is present:

a) repairs to the Premises cannot reasonably be completed within one hundred and eighty (180) days after the date of the Casualty (when such repairs are made without the payment of overtime or other premiums);

b) repairs required cannot be made pursuant to the then-existing laws or regulations affecting the Premises or Building, or the Building cannot be restored except in a substantially different structural or architectural form than existed before the Casualty;

c) the holder of any mortgage on the Building or ground or underlying lessor with respect to the Real Property and/or the Building shall require that all or such large a portion of the insurance proceeds be used to retire the mortgage debt, so that the balance of insurance proceeds remaining available to Landlord for completion of impairs shall be insufficient to repair said damage or destruction;

d) the holder of any mortgage on the Building or ground or underlying lessor with respect to the Real Property and/or the Building shall terminate the mortgage, ground or underlying lease, as the case may be;

e) provided Landlord has carried the coverage Landlord is required to obtain under Section 19.1 of this Lease, the damage is not fully covered, except for deductible amounts, by Landlord's insurance policies;

f) more than thirty-three and one-third percent (33 1/3%) of the Building is damaged or destroyed, whether or not the Premises is affected, provided that Landlord elects to terminate all other leases for offices of a similar size in the Building.

If Landlord elects not to complete repairs to the Building or Premises, pursuant to this Section 12.3, Landlord's election to terminate this Lease shall be stated in the Repair Period Notice, in which event this Lease shall cease and terminate as of the date contained in Landlord's Repair Period Notice.

If one hundred percent of the Building is damaged or destroyed, as certified by an independent building inspector, this Lease shall automatically terminate after Tenant's receipt of written notice of such termination from Landlord, and without action beyond the giving of such notice being required by either Landlord or Tenant.

Upon any termination of this Lease pursuant to this Section 12.3, Tenant shall pay its prorata share of Fixed Monthly Rent and Additional Rent, properly apportioned up to the date of such termination, reduced by any abatement of Rent to which Tenant is entitled under Section 12.5; after which both Landlord and Tenant shall thereafter be freed and discharged of all further obligations under the Lease, except for those obligations which by their provisions specifically survive the expiration or earlier termination of the Term.

SECTION 12.4. TENANT'S OPTION TO TERMINATE. If

a) the Repair Period Notice provided by Landlord indicates that the anticipated period for repairing the Casualty exceeds one hundred and eighty (180) days after the Casualty (the "Repair Period"), or

b) the Casualty to the Premises occurs during the last twelve (12) months of the Term; then

Tenant shall have the option, but not the obligation, to terminate this Lease by providing written notice ("Tenant's Termination Notice") to Landlord within thirty (30) days after receiving the Repair Period Notice in the case of
12.4 (a); or within thirty (30) days after the Casualty, in the case of Section
12.4 (b). Furthermore, if:

c) Landlord does not complete the repairs required hereinabove within the Repair Period, and

d) further provided Landlord has not diligently commenced and continued to prosecute to completion repair of the damage and/or destruction caused by the Casualty, and

e) Landlord has not completed the repairs thereafter on or before thirty (30) days after the expiration of the Repair Period,

then Tenant shall also have the option, but not the obligation, to terminate then Lease by giving Landlord written notice of its intention to so terminate, which notice shall be given not more than forty-five (45) days after expiration of the Repair Period.

Tenant's failure to provide Landlord with Tenant's Termination Notice within the time periods specified hereinabove shall be deemed conclusive evidence that Tenant has waived its option to terminate this Lease.

SECTION 12.5. TEMPORARY SPACE AND/OR RENT ABATEMENT DURING REPAIRS OR RENOVATION. During the Repair Period or during any such period that Landlord completes Work (as defined hereinbelow) or Renovations (as defined hereinbelow), if available, and if requested by Tenant, Landlord shall make available to Tenant other space in the Building which, in Tenant's reasonable opinion, is suitable for the temporary conduct of Tenant's business. However, if such temporary space is smaller than the Premises, Tenant shall pay Fixed Monthly Rent and Additional Rent for the temporary space based upon the calculated rate per Rentable square foot payable hereunder for the Premises, times the number of Rentable square feet available for Tenant's use in the temporary space.

If no temporary space is available that is reasonably satisfactory to Tenant, and any part of the Premises is rendered untenantable by reason of such Casualty, Work or optional renovation; and further provided that the Casualty was not the result of the gross negligence or willful misconduct of Tenant or the gross negligence and/or willful misconduct of Tenant's agents, contractors, directors, employees, licensees, officers, partners or shareholders, then to the extent that all or said portion of the usable area of the Premises is so rendered untenantable by reason of such Casualty, Work or optional renovation, Tenant shall be provided with a proportionate abatement of Fixed Monthly Rent and Additional Rent. Said proportional abatement shall be based on the Usable Square Footage of the Premises that cannot and is not actually used by Tenant, divided by the total Usable square feet contained in the Premises. That proportional abatement, if any, shall be provided during the period beginning on the later of:

a) the date of the Casualty; or

b) the actual date on which Tenant ceases to conduct Tenant's normal business operations in all or any portion of the Premises, and

shall end on the date Landlord achieves substantial completion of restoration of the Premises. Tenant's acceptance of said abatement of Rent shall be deemed conclusive evidence of Tenant's waiver of any further claim or right of future claim for any loss or damage asserted by Tenant arising out of the Casualty Repair, Work or Renovation, as the case may be.

SECTION 12.6. TENANT'S WAIVER OF CONSEQUENTIAL DAMAGES. Subject to Section 12.4, the provisions contained in Section 12.5 are Tenant's sole remedy arising out of any Casualty. Landlord shall not be liable to Tenant or any other person or entity for any direct, indirect, or consequential damage (including but not limited to lost profits of Tenant or loss of or interference with Tenant's business), unless caused by the gross negligence or willful misconduct of Landlord or the gross negligence or willful misconduct of Landlord's agents, contractors, directors, employees, licensees, officers, partners or shareholders, due to, arising out of, or as a result of the Casualty (including but not limited to the termination of the Lease in connection with the Casualty).

SECTION 12.7. REPAIR OF THE PREMISES WHEN CASUALTY NOT CAUSED BY TENANT. If the cost of repair of any Casualty is covered under one or more of the insurance policies Landlord is required herein to provide, then, provided such Casualty is not a result of Tenant's gross negligence or willful misconduct or the gross negligence or willful misconduct of Tenant's agents, contractors, directors, employees, licensees, officers, partners or shareholders, Landlord shall restore the base core and shell of the Premises to its condition prior to the Casualty and repair and/or replace the Improvements previously installed in the Premises, to a maximum of $35.00 per usable square foot. Tenant shall have the option to either, at Tenant's sole expense, complete the balance of repairs needed to restore the Improvements contained in the Premises to their condition prior to the Casualty or to continue Tenant's normal business operations in the Premises in the condition to which Landlord has so restored the Improvements.

If Landlord has elected to complete repairs to the Premises, and has not elected to terminate this Lease, as specified in Section 12.3, then Landlord shall complete such repairs within the Repair Period, in a manner, and at times, which do not unreasonably interfere with Tenant's use of that portion of the Premises remaining unaffected by the Casualty. Provided Landlord has elected to make the repairs required hereunder, this Lease shall not be void or voidable during the Repair Period, nor shall Landlord be deemed to have constructively evicted Tenant thereby.

SECTION 12.8. REPAIR OF THE PREMISES WHEN CASUALTY CAUSED BY TENANT. If the Casualty to all or any portion of the Premises resulted from the gross negligence and/or willful misconduct of Tenant or the gross negligence and/or willful misconduct of Tenant's agents, contractors, directors, employees, licensees, officers, partners or shareholders, Landlord shall not be required to repair any such injury or damage. Landlord shall only repair, at its expense, damage or destruction to the Building, and Tenant shall pay the cost of repairing the Premises and any deductible payable by Landlord for repair of the Building. Furthermore, Tenant hereby waives the provisions of California Civil Code Sections 1932(2) and 1933(4) and the provisions of any successor or other law of like import.

If the Casualty to all or any portion of the Premises was caused by the gross negligence and/or willful misconduct of Tenant or the gross negligence and/or willful misconduct of Tenant's agents, contractors, directors, employees, officers, partners, and/or shareholders, then, except in the case of Landlord's gross negligence and/or willful misconduct, Landlord shall not be liable for any inconvenience or annoyance to Tenant or Tenant's agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders, or for injury to the business of Tenant resulting in any way from such damage, or from Landlord's undertaking of such repairs.

SECTION 12.9. REPAIR OF THE BUILDING. Except as specified hereinabove, unless Landlord terminates this Lease as permitted hereinabove, Landlord shall repair the Building, parking structure or other supporting structures and facilities within two hundred and seventy (270) days after Landlord becomes aware of such damage and/or destruction.

SECTION 12.10. GOVERNMENT-REQUIRED REPAIRS. If, during the Term, additional inspections other than those standard annual or biannual inspections to which the Building may generally be subject; testing, repairs and/or reconstruction (collectively the "Work") are required by any governmental authority, or if, upon the recommendation of its engineers, Landlord independently elects to undertake all or any portion of the Work prior to being required to do so by such governmental authority, Landlord shall give written notice thereof to Tenant and shall use its best efforts not to unreasonably interfere with Tenant's use of the Premises while completing the Work. Tenant shall cooperate fully with Landlord in connection with the Work and, upon the prior written request of Landlord, shall make the Premises available for completion of the Work. Tenant agrees that Landlord shall allocate all costs associated with completion of the Work to the Building's Operating Expenses, when permitted under to the provisions of Section 4.1 of this Lease.

If Landlord elects to undertake the Work during the Term, pursuant to the applicable provisions of this Lease, then Tenant shall be entitled to an abatement of rent, pursuant to the provisions of Section 12.5 hereinabove, and Landlord shall be completely responsible for repair of any damage to the Premises and all costs associated with the removal, moving and/or storage of Tenant's furniture, artwork, office equipment and files. Landlord will restore any and all areas damaged by completion of the Work to their previous quality and pay all clean-up costs. Landlord further agrees that it shall use commercially reasonable efforts to see that all construction, such as coring or power nailing that could be disruptive to Tenant's normal business operations shall, in so far as is reasonably possible, be performed between the hours of 7:00 p.m. to 7:00 a.m. Monday through Friday, after 1:00 p.m. on Saturdays and/or at any time on Sundays.

Except in the case of Landlord's gross negligence and/or willful misconduct or the gross negligence and/or willful misconduct of Landlord's agents, contractors, directors, employees, officers, partners, and/or shareholders, Tenant shall not have the right to terminate this Lease as a result of Landlord undertaking the Work, nor shall Tenant or any third party claiming under Tenant be entitled to make any claim against Landlord for any interruption, interference or disruption of Tenant's business or loss of profits therefrom as a result of the Work, and Tenant hereby releases Landlord from any claim which Tenant may have against Landlord arising from Or relating to, directly or indirectly, the performance of the Work by Landlord.

SECTION 12.11. OPTIONAL LANDLORD RENOVATION. It is specifically understood and agreed that Landlord has no obligation and has made no promises to alter, remodel, improve, renovate or decorate the Premises, Building, or any part thereof and that, except as set forth herein, no representations respecting the condition of the Premises or the Building have been made by Landlord to Tenant,

However, Tenant acknowledges that, at any time and from time to time during the Term, Landlord may elect, in Landlord's sole discretion, to renovate, improve, alter or modify the Building and/or Premises including without limitation, the parking facilities, common areas, systems, equipment, roof, and structural portion of the same, which Renovations may include, without limitation:

a) modifying the common areas and tenant spaces to comply with applicable laws and regulations, including regulations relating to the physically disabled, seismic conditions and building safety and security and

b) installing new carpeting, lighting and wall covering in the Building common areas,

which Sections 12.11 (a) and 12.11 (b) shall hereinafter collectively be known as the "Renovations",

In connection with such Renovations, Landlord may, among other things, erect scaffolding or other necessary structures in the Building, limit or eliminate access to portions of the Building, common areas or parking facilities serving the Building, or perform other work in the Building, which work may create noise, dust or debris that remains in the Building, provided however, Landlord shall make commercially reasonable efforts to provide Tenant and its clients with reasonable access to and use of the Premises.

Landlord shall have the right to access through the Premises as well as the right to take into and upon and through all or any part of the Premises, or any other part of the Building, all materials that may reasonably be required to make such repairs, alterations, decorating, additions or improvements pursuant to the provisions of this Section 12.11. So long as Tenant shall maintain reasonable access to the Premises, Building and parking facilities, Landlord shall also have the right, in the course of the Renovations, to close entrances, doors, corridors, elevators, or other building facilities, or temporarily to abate the operation of such facilities.

So long as Tenant is not required to vacate the Premises for any reason arising out of the Renovations, and maintains reasonable access to the Premises, Tenant shall permit all of the Renovations to be done, and except in the case of Landlord's gross negligence or willful misconduct or the gross negligence or willful misconduct of Landlord's contractors, directors, employees, officers, partners or shareholders, without claiming Landlord is guilty of the constructive eviction or disturbance of Tenant's use and possession.

Further, except in the case of Landlord's gross negligence or willful misconduct, or that of its agents, contractors, employees, officers, partners or shareholders, Landlord shall not be liable to Tenant in any manner, whether for reimbursement of any expense, injury, loss or damage to Tenant's property, business, or any person claiming by or under Tenant, and whether by reason of interference with the business of Tenant or inconvenience or annoyance to Tenant or the customers of Tenant resulting from any work done in or about the Premises or the Building or to any adjacent or nearby building, land, street or alley. However, Landlord agrees that the Renovations shall be scheduled insofar' as is commercially reasonable to permit Tenant to continue its normal business operations, with advance notice thereof, and in such commercially reasonable manner so as to minimize Tenant's inconvenience.

SECTION 12.12. OPTIONAL TENANT CHANGES DURING THE TERM. After completion of the initial Improvements contemplated hereunder, if any, Tenant shall make no alteration, change, addition, removal, demolition, improvement, repair or replacement in, on, upon, to or about the Premises, or at any time to any portion of the Building (collectively or individually a "Tenant Change"), without the prior written consent of Landlord, which consent shall be in Landlord's reasonable discretion. Except as otherwise specified in Article 7, any Tenant Change shall, at the termination of mis Lease, become a part of the Building and belong to Landlord, pursuant to the provisions of Article 7, Any application for Landlord's consent to a Tenant Change, and the completion thereof, shall be in conformance with the provisions of Exhibit B-l, attached hereto and made a part hereof by reference.

Tenant shall not knowingly permit Tenant's agents, clients, contractors, directors, employees invitees, licensees, officers, partners or shareholders, to deface the walls, floors and/or ceilings of the Premises, nor mark, drive nails, screws or drill holes into, paint, or in any way mar any surface in the Building. Notwithstanding the above, Tenant is hereby permitted to install such pictures, certificates, licenses, artwork, bulletin boards and similar items as are normally used in Tenant's business so long as such installation is carefully attached to the walls by Tenant in a manner reasonably prescribed by Landlord,

If Tenant desires, as a part of any Tenant Change, to make any revisions whatsoever to the electrical, HVAC, mechanical, plumbing, or structural systems of the Building or Premises, such revisions must be completed by subcontractors specified by Landlord and in the manner and location(s) reasonably prescribed by Landlord. If Tenant desires to install any telephone outlets, the same shall be installed in the manner and location(s) reasonably prescribed by Landlord.

If Landlord consents to any requested Tenant Change, Tenant shall give Landlord a minimum of fifteen (15) days written notice prior to commencement thereof. Landlord reserves the option, but not the obligation, to enter upon the Premises for the purpose of posting and maintaining such notices on the Premises as may be reasonably necessary to protect Landlord against mechanic's liens, material man's liens or other liens, and/or for posting any other notices that may be proper and necessary in connection with Tenant's completion of the Tenant Change.

If any alterations, additions or improvements made by Tenant result in Landlord being required to make any alterations to other portions of the Building in order to comply with any applicable statutes, ordinances or regulations (e.g., "handicap ordinances") then Tenant shall reimburse Landlord upon demand for all costs and expenses incurred by Landlord in making such alterations.

SECTION 12.13. EXPRESS AGREEMENT. The provisions of this Lease, including those contained in this Article 12, constitute an express agreement between Landlord and Tenant that applies in the event of any Casualty to the Premises, Building or Real Property. Tenant, therefore, fully waives the provisions of any statute or regulations, including California Civil Code Sections 1932(2) and 1933(4), and any other law or statute which purports to govern the rights or obligations of Landlord and Tenant concerning a Casualty in the absence of express agreement. Tenant and Landlord expressly agree and accept that any successor or other law of like import shall have no application hereunder.

ARTICLE 13
CONDEMNATION

SECTION 13.1. CONDEMNATION OF THE PREMISES. If more than twenty five percent (25%) of the Premises is lawfully condemned or taken in any manner for any public or quasi-public use, or if any portion of the Building is condemned or taken in such a manner that Tenant is reasonably prevented from obtaining access to the Building or the Premises, this Lease may be terminated at the option of either Landlord or Tenant by one party giving the other thirty (30) days written notice of its intent to do so. If either Landlord or Tenant provide the other party written notice of termination, the Term and estate hereby granted shall forthwith cease and terminate as of the earlier of the date of vesting of title in such condemnation or taking or the date of taking of possession by the condemning authority.

If less than twenty-five percent (25%) of the Premises is so condemned or taken, then the term and estate hereby granted with respect to such part shall forthwith cease and terminate as of the earlier of the date of vesting of title in such condemnation or taking or the date of taking of possession by the condemning authority, and the Fixed Monthly Rent payable hereunder (and Additional Rent payable pursuant to Articles 3 or 4) shall be abated on a prorated basis, by dividing the total number of Usable square feet so taken by the total number of Usable square feet contained in the Premises, then multiplying said percentage on a monthly basis, continuing from the date of such vesting of title to the date specified in this Lease for the expiration of the Term hereof.

Notwithstanding the above, if any vacant space remains in the Building, Landlord shall provide Tenant a first right of offer to lease such vacant space on the same terms and conditions as are contained in this Lease, in which case this Lease shall be amended to replace the Premises with such vacant space.

SECTION 13.2. CONDEMNATION OF THE BUILDING. If less than twenty-five percent (25%) of the Building is so condemned or taken, then Landlord shall, to the extent of the proceeds of the condemnation payable to Landlord and with reasonable diligence, restore the remaining portion of the Building as nearly as practicable to its condition prior to such condemnation or taking; except that, if such proceeds constitute less than ninety percent (90%) of Landlord's estimate of the cost of rebuilding or restoration, then Landlord may terminate this Lease on thirty (30) days prior written notice to Tenant.

If more than twenty-five percent (25%) of the Building is so condemned or taken, but the Premises are unaffected thereby, then Landlord shall have the option but not the obligation, which election shall be in Landlord's sole discretion, to terminate this-Lease, effective the earlier of the date of vesting of title in such condemnation or the date Landlord delivers actual possession of the Building and Premises to the condemning authority, which election by Landlord shall be provided to Tenant in writing.

SECTION 13.3. AWARD. If any condemnation or taking of all or a part of the Building takes place, Tenant shall be entitled to join in any action claiming compensation therefore, and Landlord shall be entitled to receive that portion of the award made for the value of the Building, Premises, leasehold improvements made or reimbursed by Landlord, or bonus value of the Lease, and Tenant shall only be entitled to receive any award made for the value of the estate vested by this Lease in Tenant, including Tenant's proximate damages to Tenant's business and reasonable relocation expenses. Nothing shall preclude Tenant from intervening in any such condemnation proceeding to claim or receive from the condemning authority any compensation to which Tenant may otherwise lawfully be entitled in such case in respect of Tenant's property or for moving to a new location.

SECTION 13.4. CONDEMNATION FOR A LIMITED PERIOD. Notwithstanding the provisions of Section 13.1, 13.2 or 13.3, except during the final twelve (12) months of the Term, if all or any portion of the Premises are condemned or taken for governmental occupancy for a limited period, anticipated to be no longer than sixty (60) days then this Lease shall not terminate; mere shall be no abatement of Fixed Monthly Rent or Additional Rent payable hereunder; and Tenant shall be entitled to receive the entire award therefor (whether paid as damages, rent or otherwise).

If, during the final twelve (12) months of the Term, all or any portion of the Premises are condemned or taken for governmental occupancy for a limited period anticipated to be in excess of sixty (60) days, or for a period extended after the expiration of the initial Term, Tenant shall have the option, but not the obligation, to terminate this Lease, in which case, Landlord shall be entitled to such part of such award as shall be properly allocable to the cost of restoration of the Premises, and the balance of such award shall be apportioned between Landlord and Tenant as of the date of such termination.

If the termination of such governmental occupancy is prior to expiration of this Lease, and Tenant has not elected to terminate this Lease, Tenant shall, upon receipt thereof and to the extent an award has been made, restore the Premises as nearly as possible to the condition in which they were prior to the condemnation or taking.

ARTICLE 14
MORTGAGE SUBORDINATION; ATTORNMENT AND MODIFICATION OF LEASE

SECTION 14.1. SUBORDINATION. This Lease, the Term and estate hereby granted, are and shall be subject and subordinate to the lien of each mortgage which may now or at any time hereafter affect Landlord's interest in the real property, Building, parking facilities, common areas or portions thereof and/or the land thereunder (an "underlying mortgage"), regardless of the interest rate, the terms of repayment, the use of the proceeds or any other provision of any such mortgage. Tenant shall from time to time execute and deliver such instruments as Landlord or the holder of any such mortgage may reasonably request to confirm the subordination provided in this Section 14.1.

SECTION 14.2. ATTORNMENT. Tenant confirms that if by reason of a default under an underlying mortgage the interest of Landlord in the Premises is terminated, provided Tenant is granted in writing continued quiet enjoyment of the Premises pursuant to the terms and provisions of this Lease, Tenant shall attorn to the holder of the reversionary interest in the Premises and shall recognize such holder as Tenant's landlord under this Lease. Tenant shall, within ten (10) calendar days after request therefor, execute and deliver, at any time and from time to time, upon the request of Landlord or of the holder of an underlying mortgage any instrument which may be necessary or appropriate to evidence such attornment. If Tenant fails to so execute and deliver any such instrument, then Tenant hereby irrevocably appoints Landlord or such holder as its attorney-in-fact to execute and deliver for and on behalf of Tenant any such instrument.

SECTION 14.3. MODIFICATION OF LEASE. If any current or prospective mortgagee or ground lessor for the Building requires a modification or modifications of this Lease, which modification or modifications will not cause an increased cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, then in such event, Tenant agrees that this Lease may be so modified. Tenant agrees to execute and deliver to Landlord within ten (10) calendar days following the request therefor whatever documents are required to effectuate said modification. Should Landlord or any such current or prospective mortgagee or ground lessor require execution of a short form of Lease for recording, containing, among other customary provisions, the names of the parties, a description of the Premises and the Term, Tenant agrees to execute and deliver to Landlord such short form of Lease within ten (10) calendar days following the request therefor.

ARTICLE 15
ESTOPPEL CERTIFICATES

SECTION 15.1. ESTOPPEL CERTIFICATES. Tenant shall, within ten (10) business days after receipt of Landlord's written request therefor, execute, acknowledge and deliver to Landlord an Estoppel Certificate, which may be conclusively relied upon by any prospective purchaser, mortgagee or beneficiary under any deed of trust covering the Building or any part thereof. Said Estoppel Certificate shall certify the following:

a) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect, as modified, and stating the date and nature of each modification);

b) the date, if any, to which rental and other sums payable hereunder have been paid;

c) that no notice has been received by Tenant of any default which has not been cured, except as to defaults specified in the certificate;

d) that Landlord is not in default under this Lease or, if so, specifying such default; and

e) such other factual matters as may be reasonably requested by Landlord.

Tenant's failure to deliver the Estoppel Certificate within the time period specified above shall constitute a material default under the Lease, and Landlord shall have the option, but not the obligation, to enforce the remedies contained in Article 18.

ARTICLE 16
NOTICES

SECTION 16.1. NOTICES. Any notice, consent, approval, agreement, certification, request, bill, demand, statement, acceptance or other communication hereunder (a "notice") shall be in writing and shall be considered duly given or furnished when:

a) delivered personally or by messenger or overnight delivery service, with signature evidencing such delivery;

b) upon the date of delivery, after being mailed in a postpaid envelope, sent certified mail, return receipt requested, when addressed to Landlord as set forth in the Basic Lease Information and to Tenant at the Premises and any other address for Tenant specified in the Basic Lease Information;

or to such other address or addressee as either party may designate by a written notice given pursuant hereto; or

c) upon confirmation of good transmission if sent via facsimile machine to such phone number as shall have been provided in writing by Landlord or Tenant, one to the other.

If Tenant fails to provide another valid address, other than the Premises, upon which service to Tenant can be perfected, then Tenant hereby appoints as its agent to receive the service of all dispossessory or distraint proceedings and notices thereunder the person in charge of or occupying the Premises at the time, and if no person shall be in charge of or occupy the same, then such service may be made by attaching the same to the main entrance of the Premises.

ARTICLE 17
DEFAULT AND LANDLORD'S OPTION TO CURE

SECTION 17.1. TENANT'S DEFAULT. For the purposes of this Section 17.1, if the term "Tenant", as used in this Lease, refers to more than one person, then, such term shall be deemed to include all of such persons or any one of them; if any of the obligations of Tenant under this Lease are guaranteed, the term "Tenant," as used in Section 17.1(e) and Section 17.1(f), shall be deemed to also include the guarantor or, if there is more than one guarantor, all or any one of them; and if this Lease has been assigned, the term "Tenant," as used in Sections 17.1
(a) through (h), inclusive, shall be deemed to include the assignee and assignor, jointly and severally, unless Landlord shall have, in connection with such assignment, previously released the assignor from any further liability under this Lease, in which event the term "Tenant," as used in said subparagraphs, shall not include the assignor that was previously released.

Tenant's continued occupancy and quiet enjoyment of the Premises and this Lease and the covenants and estate hereby granted are subject to the limitation that:

a) if Tenant fails to make payment of any Fixed Monthly Rent or Additional Rent within five (5) days of the date such payment becomes due, or

b) if Tenant abandons or vacates the Premises, or

c) if Tenant defaults in the keeping, observance or performance of any covenant or agreement set forth in Sections 6.1, 6.2, 12.12, or 19.3, and if such default continues and is not cured by Tenant before the expiration of Landlord's written 3-Day Notice to Cure or Quit; or

d) if Tenant defaults in the keeping, observance or performance of any covenant or agreement including any provisions of the rules and regulations established by Landlord (other than a default of the character referred to in Sections 17.1 (a), (b) or (c)), and if such default continues and is not cured by Tenant within fifteen (15) days after Landlord has given to Tenant a notice specifying the same, or, in the case of such a default which for causes beyond Tenant's reasonable control (including occupancy of a sublessee) cannot with due diligence be cured within such period of fifteen (15) days, if Tenant:

i) does not, promptly upon Tenant's receipt of such notice, advise Landlord of Tenant's intention duly to institute all steps necessary to cure such default or

ii) does not duly institute and thereafter diligently prosecute to completion all steps (including, if appropriate, legal proceedings against a defaulting sublessee) necessary to cure the same, or

e) if Tenant fails to deliver the Estoppel Certificate required under Article 15 hereof within the time period specified, or

f) if Tenant:

i) applies for or consents to the appointment of, or the taking of possession by a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property;

ii) admits in writing its inability, or is generally unable, to pay its debts as such debts become due;

iii) makes a general assignment for the benefit of its creditors;

iv) commences a voluntary case under federal bankruptcy laws (as now or hereafter in effect);

v) files a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding up, or composition or adjustment of debts;

vi) fails to controvert in a timely or appropriate manner, or acquiesces in writing to, any petition filed against it in an involuntary case under such bankruptcy laws;

vii) take any action for the purpose of effecting any of the foregoing, or

g) if a proceeding or case is commenced, without the application or consent of Tenant, in any court of competent jurisdiction, seeking:

i) the liquidation, reorganization, dissolution, winding up, or composition or readjustment of debts, of Tenant; or

ii) the appointment of a trustee, receiver, custodian, liquidator or the like of Tenant or of all or a substantial part of its assets; or

iii) similar relief with respect of Tenant under any law relating to bankruptcy, insolvency, reorganization winding up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of sixty (60) days, or an order for relief against Tenant shall be entered in an involuntary case under such bankruptcy laws, or

h) if Tenant fails to take possession of and move into the Premises within fifteen (15) calendar days after Landlord tenders the same in writing to Tenant, unless Tenant acknowledges and accepts the Commencement Date as occurring within such fifteen-day time period, and pays Rent thereon from such Commencement Date;

then, in any or each such event, Tenant shall be deemed to have committed a material default under this Lease.

SECTION 17.2. LANDLORD'S OPTION TO CURE TENANT'S DEFAULT. If Tenant enters into a default under this Lease, in lieu of Landlord's issuance of a written notice, as specified hereinbelow, Landlord may cure the same at the sole expense of Tenant:

a) immediately and without notice in the case of emergency; if said default is specified in Sections 17.1 (a), (b) or (c), or if such default unreasonably interferes with the use by any other tenant of the Building; with the efficient operation of the Building; or will result in a violation of law or in a cancellation of any insurance policy maintained by Landlord, and

b) after the expiration of Landlord's 3-Day Notice of Intent to Cure, in the case of any default other than those specified in Section 17.2 (a) hereinabove.

SECTION 17.3. LANDLORD'S OPTION TO TERMINATE THIS LEASE. Upon the expiration of any applicable notice and cure period (as more specifically set forth in Section 17.1 above), and in addition to any other remedies Landlord may have at law or in equity, Landlord shall be entitled to give to Tenant a written notice of intention to terminate this Lease at the expiration of three (3) days from the date of the giving of such notice, and if such notice is given by Landlord, and Tenant fails to cure the defaults specified therein, then this Lease and the Term and estate hereby granted (whether or not the Commencement Date has already occurred) shall terminate upon the expiration of such three (3) day period (a "Default Termination"), with the same effect as if the last of such three (3) days were the Termination Date, except that Tenant shall remain liable for damages as provided hereinbelow or pursuant to law.

SECTION 17.4. CERTAIN PAYMENTS. Bills for all reasonable costs and expenses incurred by Landlord in connection with any performance by it under Section 17.2 shall be payable, as Additional Rent, pursuant to the provisions of Section 4.3.

SECTION 17.5. CERTAIN WAIVERS. Unless Tenant has submitted documentation that it validly disputes Landlord's billing for Fixed Monthly Rent hereunder, or is completing an audit of Landlord's Operating Expense Statement, if Tenant is in default in payment of Fixed Monthly Rent or Additional Rent hereunder, Tenant waives the right to designate the items against which any payments made by Tenant are to be credited. In lieu thereof, Landlord may apply any payments received from Tenant to the then-oldest billing remaining unpaid on Tenant's rental account or to any other payment due from Tenant, as Landlord sees fit.

SECTION 17.6. LANDLORD DEFAULT. Notwithstanding anything to the contrary set forth in this Lease, Landlord shall not be in default in the performance of any obligation required to be performed by Landlord pursuant to this Lease unless:

a) in the event such default is with respect to the payment of money, Landlord fails to pay such unpaid amounts within five (5) business days of written notice from Tenant that the same was not paid when due, or

b) in the event such default is other than the obligation to pay money, Landlord fails to perform such obligation within thirty (30) days after the receipt of notice from Tenant specifying in detail Landlord's failure to perform; provided, however, if the nature of Landlord's obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be in default under this Lease if it shall commence such performance within such thirty (30) days period and thereafter diligently pursue the same to completion within a reasonable time period.

Upon any such default by Landlord under this Lease, Tenant may, except as otherwise specifically provided in this Lease to the contrary, exercise any of its rights provided at law or in equity.

ARTICLE 18
DAMAGES; REMEDIES; RE-ENTRY BY LANDLORD; ETC.

SECTION 18.1. DAMAGES. If Landlord terminates this Lease, pursuant to the provisions of Section 17.3 (a "Default Termination"), then Landlord may recover from Tenant the total of:

a) the worth at the time of award of the unpaid Fixed Monthly Rent and Additional Rent earned to the date of such Default Termination; and

b) the worth at the time of award of the amount by which the unpaid Fixed Monthly Rent and Additional Rent which would have been earned after the date of such Default Termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; and

c) the worth at the time of award of the amount by which the unpaid Fixed Monthly Rent and Additional Rent which would have been earned for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; and

d) any other amount reasonably necessary to compensate Landlord for all of the detriment proximately caused by Tenant's failure to observe or perform any of its covenants and agreements under this Lease or which in the ordinary course of events would be likely to result therefrom, including, without limitation, the payment of the reasonable expenses incurred or paid by Landlord in re-entering and securing possession of the Premises and in the reletting thereof (including, without limitation, altering and preparing the Premises for new tenants and brokers' commission); and

e) at Landlord's sole election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time under applicable California laws.

SECTION 18.2. COMPUTATIONS: The "worth at the time of award" is computed:

a) in paragraphs (a) and (b) above, by allowing interest at the rate of ten percent (10%) per annum (but in no event in excess of the maximum rate permitted by law); and

b) in paragraph (c) above, by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

c) For purposes of computing unpaid rental which would have accrued and become payable under this Lease, unpaid rental shall consist of the sum of:

i) the total Fixed Monthly Rent for the balance of the Term, plus

ii) a computation of Tenant's Share of Additional Rent due under the Lease including, without limitation, Tenant's Proportionate Share of any increase in Operating Expenses (including real estate taxes) for the balance of the Term. For purposes of computing any increases due Landlord hereunder, Additional Rent for the calendar year of the default and for each future calendar year in the Term shall be assumed to be equal to the Additional Rent for the calendar year prior to the year in which default occurs, compounded at a rate equal to the mean average rate of inflation for the preceding five calendar years as determined by the United States Department of Labor, Bureau of Labor Statistics Consumer Price Index (All Urban Consumers, all items, 1982-84 equals 100) for the metropolitan area or region of which Los Angeles, California is a part. If such index is discontinued or revised, the average rate of inflation shall be determined by reference to the index designated as the successor or substitute index by the government of the United States.

SECTION 18.3. RE-ENTRY BY LANDLORD.

a) If a Default Termination occurs or any default specified in Sections 17.1
(a) through (g) occurs and continues beyond the period of grace (if any) therefor, Landlord or Landlord's authorized representatives may re-enter the Premises and remove all persons and all property therefrom, either by summary dispossession proceedings or by any suitable action or proceeding at law, without being liable to indictment, prosecution or damages therefor, and may repossess and enjoy the Premises. No re-entry or repossession of the Premises by Landlord or its representatives under this
Section 18.3 shall be construed as an election to terminate this Lease unless a notice of such election is given to Tenant or unless the termination thereof is decreed by a court of competent jurisdiction. The words "re-enter", "re-entry" and "re-entering" as used herein are not restricted to their technical legal meanings,.

b) If any default specified in Sections 17.1 (a) through (g) occurs and continues beyond the period of grace (if any) therefor, then if Landlord does not elect to terminate this Lease Landlord may, from time to time and without terminating this Lease, enforce all its rights and remedies under this Lease, including the right to recover the Fixed Monthly Rent and Additional Rent as the same becomes payable by Tenant hereunder.

If Landlord consents thereto, Tenant may sublet the Premises or any part thereof (which consent Landlord agrees will not be unreasonably withheld), subject to Tenant's compliance with the requirements of Article 11 of this Lease. So long as Landlord is exercising this remedy it will not terminate Tenant's right to possession of the Premises, but it may engage in the acts permitted by Section 1951.4(c) of the California Civil Code,

c) If Tenant abandons the Premises in breach of this Lease, Landlord shall have the right to relet the Premises or any part thereof on such terms and conditions and at such rentals as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs in and to the Premises necessary to reletting. If Landlord so elects to relet, then gross rentals received by Landlord from the reletting shall be applied:

i) FIRST, to the payment of the reasonable expenses incurred or paid by Landlord in re-entering and securing possession of the Premises and in the reletting thereof (including, without limitation, altering and preparing the Premises for new tenants and brokers' commissions);

ii) SECOND, to the payment of the Fixed Monthly Rent and Additional Rent payable by Tenant hereunder; and

iii) THIRD, the remainder, if any, to be retained by Landlord and applied to the payment of future Fixed Monthly Rent and Additional Rent as the same become due.

Should the gross rentals received by Landlord from the reletting be insufficient to pay in full the sums stated in Section 18.3 (a) and (b) hereinabove, Tenant shall, upon demand, pay the deficiency to Landlord.

SECTION 18.4. CERTAIN WAIVERS. After Landlord has actually obtained possession of the Premises pursuant to any lawful order of possession granted in a valid court of law, Tenant thereafter waives and surrenders for Tenant, and for all claiming under Tenant, all rights and privileges now or hereafter existing to redeem the Premises (whether by order or judgment of any court or by any legal process or writ); to assert Tenant's continued right to occupancy of the Premises; or to have a continuance of this Lease for the Term hereof. Tenant also waives the provisions of any law relating to notice and/or delay in levy of execution in case of an eviction or dispossession for nonpayment of rent, and of any successor or other law of like import.

SECTION 18.5. CUMULATIVE REMEDIES. The remedies of Landlord provided for in this Lease are cumulative and are not intended to be exclusive of any other remedies to which Landlord may be lawfully entitled. The exercise by Landlord of any remedy to which it is entitled shall not preclude or hinder the exercise of any other such remedy,

ARTICLE 19
INSURANCE

SECTION 19.1. LANDLORD OBLIGATIONS: Landlord agrees to at all times secure from a company holding a Best's rating of A-7 or better and admitted to do business in the State of California, and maintain during the entire Term of this Lease the following coverage:

a) A Commercial General Liability policy with extended Risk endorsements and a combined single limit of Two Million Dollars ($2,000,000).

b) An All Risk policy of standard fire and extended coverage, with vandalism and malicious mischief endorsements, covering full replacement value of the Building, the parking facilities, common area improvements and any and all improvements installed in, on or upon the Premises and affixed thereto, provided that the premium cost for coverage of the Improvements to the Premises in excess of a total value equal to thirty-five Dollars ($35.00) per usable square foot of the Premises shall, at the sole option of Tenant be directly reimbursed from Tenant to Landlord, pursuant to the provisions of Article 4 of this Lease, or be covered by Tenant's self-insurance, at Tenant's sole risk.

Tenant acknowledges and agrees that Landlord shall have no obligation and shall not carry insurance of any kind on Tenant's goods, furniture or furnishings or on Tenant's Property, nor shall Landlord be obligated to repair any damage thereto or to replace the same.

SECTION 19.2. TENANT OBLIGATIONS. Within ten (10) days prior to the earlier of the Commencement Date or Tenant's anticipated early possession date of the Premises, Tenant shall secure and maintain during the entire Term insurance coverage from a company holding a Best's rating of A-7 or better, and admitted to do business in the State of California, as follows:

a) A Commercial General Liability policy, with extended Risk endorsements and a Combined Single Limit of Two Million Dollars ($2,000,000);

b) An All Risk policy of standard fire and extended coverage, with vandalism and malicious mischief endorsements, covering the full replacement value of its personal property, for losses occurring in, on, or about the Premises. The proceeds from any such policy shall first be used by Tenant for the replacement of the personal property so damaged or destroyed;

c) Workmen's Compensation insurance in a minimum amount of $500,000, and in full compliance with the requirements of the State of California; and

d) A policy of insurance covering Tenant's losses from interruption of Tenant's normal business activities.

Each and every policy which Tenant is to provide hereunder shall specifically include the liability assumed by Tenant pursuant to the provisions of this Lease (provided that the amount of such insurance shall not serve to limit the liability of Tenant hereunder), and shall be primary insurance for such liability, and not excess over or contributory with any other existing or new insurance in force for or on behalf of Landlord. Each policy shall not eliminate cross-liability and shall contain a severability of interest clause.

SECTION 19.3. COMPLIANCE WITH BUILDING INSURANCE REQUIREMENTS. After Tenant takes occupancy of the Premises, Tenant shall not violate or knowingly permit in, on or upon the Premises the violation of any condition imposed by such standard fire insurance policies as are normally issued for office buildings in the City or County in which the Building is located. Tenant shall not do, suffer or permit anything to be done, or keep, suffer or permit anything to be kept, in the Premises which would increase the risk ratings or premium calculation factors on the Building or property therein (collectively an "Increased Risk"), or which would result in insurance companies of good standing refusing to insure the Building or any property appurtenant thereto in such amounts and against such risks as Landlord may reasonably determine from time to time are appropriate.

Notwithstanding the above, if additional insurance is available to cover such Increased Risk, Tenant shall not be in default hereunder if:

a) Tenant authorizes Landlord in writing to obtain such additional insurance; and

b) prepays the annual cost thereof to Landlord for such additional coverage, as well as the additional costs, if any, of any increase in Landlord's other insurance premiums resulting from the existence or continuance of such Increased Risk;

SECTION 19.4. ADDITIONAL INSUREDS. Tenant agrees that Landlord shall be named as an additional insured or loss payee on the aforementioned policies of insurance, as appropriate in the insurance industry.

SECTION 19.5. WAIVER OF SUBROGATION. Provided Landlord and Tenant have each and both obtained the policies of insurance required pursuant to the provisions of Sections 19.1 and 19.2 hereinabove, Tenant and Landlord agree that if a loss occurs due to any of the perils for which they are required hereunder to provide insurance, that each party shall look solely to the insurance policies covering such loss or risk for recovery. Landlord and Tenant hereby grant to each other, on behalf of any insurer providing insurance to either of them with respect to the demised premises, a waiver of any right of subrogation which any such insurer of one party may acquire against the other by virtue of payment of any loss under such insurance.

If either Landlord or Tenant fails to provide the insurance policy or policies required hereinabove, the waiver of subrogation contained in this
Section 19.5 shall no longer inure to the benefit of the party failing to provide such insurance, and the party claiming against such uninsured party shall be entitled to restitution of all damages and expenses suffered and/or claimed, without limitation.

SECTION 19.6. PROOF OF COVERAGE. Upon written request from one to the other, the parties hereto shall each provide the other a certified copy or copies of the certificate(s) of insurance evidencing the existence of the coverage required hereunder.

SECTION 19.7. PROTECTION AGAINST CANCELLATION. Upon written request, proof must also be given by each parry to the other, that each of the policies required pursuant to this Article 19 expressly provides that the policy shall not be canceled until the expiration of thirty (30) days' prior written notice to the other party.

SECTION 19.8. FAILURE TO SECURE. If at any time during the Term, and after expiration of five (5) business days prior written demand therefore from Landlord, Tenant fails to:

a) Provide Landlord with access to a registered insurance broker of record that can verify Tenant's compliance with the requirement contained in this Article 19; or

b) provide documentation reasonably acceptable to Landlord that Tenant has secured and maintained the insurance coverage required hereunder, then

such failure shall be considered a material default under the Lease, and Landlord shall have the option, but not the obligation, without further notice or demand to obtain such insurance on behalf of or as the agent of Tenant and in Tenant's name.

Tenant shall pay Landlord's billing for the premiums associated with such insurance policy or policies within five (5) days after receipt of Landlord's billing, as well as such other reasonable costs and fees arising out of such default, together with interest on the entire amount so advanced by Landlord, at the rate of ten percent (10%) per annum, computed from the date of such advance. Such advances, if made by Landlord, shall be construed as and considered Additional Rent under this Lease.

SECTIONS 19.9. PROCEEDS. Proceeds from any such policy or policies shall be payable to both Landlord and Tenant as their respective interests may appear.

ARTICLE 20
MISCELLANEOUS

SECTION 20.1. ENTIRE AGREEMENT. This Lease, including the exhibits and guaranty of lease, if any, annexed hereto, contains all of the agreements and understandings relating to the leasing of the Premises and the obligations of Landlord and Tenant in connection therewith and neither party and no agent or representative thereof has made or is making, and neither party in executing and delivering this Lease is relying upon, any warranties or representations, except to the extent set forth in this Lease, All understandings and agreements heretofore had between Landlord and Tenant relating to the leasing of the Premises are merged in this Lease, which alone fully and completely expresses their agreement. The Riders (if any) and Exhibits annexed to this Lease and the Construction Agreement are hereby incorporated herein and made a part hereof.

SECTION 20.2. NO WAIVER OR MODIFICATION. The failure of Landlord or Tenant to insist in any instance upon the strict keeping, observance or performance of any covenant or agreement contained in this Lease or to exercise any election herein contained shall not be construed as a waiver or relinquishment for the future of such covenant or agreement, but the same shall continue and remain in full force and effect. No waiver or modification by either Landlord or Tenant of any covenant or agreement contained in this Lease shall be deemed to have been made unless the same is in writing executed by the party whose rights are being waived or modified. No surrender of possession of any part of the Premises shall release Tenant from any of its obligations hereunder unless accepted in writing by Landlord, The receipt and retention by Landlord, and the payment by Tenant, of Fixed Monthly Rent or Additional Rent with knowledge of the breach of any covenant or agreement contained in this Lease shall not be deemed a waiver of such breach by either Landlord or Tenant.

SECTION 20.3. TIME OF THE ESSENCE. Time is of the essence of this Lease and of all provisions hereof, except in respect to the delivery of possession of the Premises at the Commencement Date.

SECTION 20.4. FORCE MAJEURE. For the purposes of this Lease, "Force Majeure" shall be defined as any or all prevention, delays or stoppages and/or the inability to obtain services, labor, materials or reasonable substitutes therefor, when such prevention, delay, stoppage or failure is due to strikes, lockouts, labor disputes, acts of God, governmental actions, civil commotion, fire or other casualty, and/or other causes beyond the reasonable control of the party obligated to perform, except that Force Majeure may not be raised as a defense for Tenant's non-performance of any obligations imposed by the Lease with regard to the payment of Fixed Monthly Rent and/or Additional Rent.

Notwithstanding anything to the contrary contained in this Lease, Force Majeure shall excuse the performance of such party for a period equal to any such prevention, delay, stoppage or inability. Therefore, if this Lease specifies a time period for performance of an obligation by either party, that time period shall be extended by the period of any delay in such party's performance caused by a Force Majeure.

SECTION 20.5. BROKER. Landlord and Tenant represent to one another that each has dealt with no broker in connection with this Lease other than Douglas, Emmett & Company and Mr. Donald Kreiss. Landlord and Tenant shall hold one another harmless from and against any and all liability, loss, damage, expense, claim, action, demand, suit or obligation arising out of or relating to a breach by the indemnifying party of such representation. Landlord agrees to pay all commissions due to the brokers listed above created by Tenant's execution of this Lease.

SECTION 20.6. GOVERNING LAW. This Lease shall be governed by and construed in accordance with the laws of the State of California.

SECTION 20.7. SUBMISSION OF LEASE. Whether or not rental deposits have been received by Landlord from Tenant, and whether or not Landlord has delivered to Tenant an unexecuted draft version of this Lease for Tenant's review and/or signature, no contractual or other rights shall exist between Landlord and Tenant with respect to the Premises, nor shall this Lease be valid and/or in effect until this Lease has been fully executed and a duplicate original of said fully-executed Lease has been delivered to both Landlord and Tenant.

The submission of this Lease to Tenant shall be for examination purposes only, and does not and shall not constitute a reservation of or an option for Tenant to lease, or otherwise create any interest by Tenant in the Premises or any other offices or space situated in the Building. Execution of this Lease by Tenant and its return to Landlord shall not be binding upon Landlord, notwithstanding any time interval, until Landlord has in fact executed and delivered a fully-executed duplicate original of this Lease to Tenant. Landlord and Tenant agree hereby to authorize transmission of all or portions of documents, including signature lines thereon, by facsimile machines, and further authorize the other party to rely conclusively upon such facsimile transmissions as if the original had been received.

SECTIONS 20.8. CAPTIONS. The captions in this Lease are for convenience only and shall not in any way limit or be deemed to construe or interpret the terms and provisions hereof.

SECTION 20.9. SINGULAR AND PLURAL, ETC. The words "Landlord" and "Tenant", as used herein, shall include the plural as well as the singular. Words used in the masculine gender include the feminine and neuter. If there be more than one Landlord or Tenant the obligations hereunder imposed upon Landlord and Tenant shall be joint and several.

SECTION 20.10. INDEPENDENT COVENANTS. Except where the covenants contained in one Article of this Lease are clearly affected by or contingent. upon fulfillment by either party of another Article or paragraph of this Lease, this Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any actions hereunder at Landlord's expense or to any set-off of the Rent or other amounts owing hereunder against Landlord; provided, however, that the foregoing shall in no way impair the right of Tenant to commence a separate action against Landlord for the violation by Landlord of the provisions hereof so long as notice is first given to Landlord and any holder of a mortgage or deed of trust covering the Building, Real Property or any portion thereof, of whose address Tenant has theretofore been notified, and an opportunity is granted to Landlord and such holder to correct such violations as provided above.

SECTION 20.11. SEVERABILITY. If any covenant or agreement of this Lease or the application thereof to any person or circumstance shall be held to be invalid or unenforceable, then and in each such event the remainder of this Lease or the application of such covenant or agreement to any other person or any other circumstance shall not be thereby affected, and each covenant and agreement hereof shall remain valid and enforceable to the fullest extent permitted by law.

SECTION 20.12. WARRANTY OF AUTHORITY. If Landlord or Tenant signs as a corporation or a partnership, each of the persons executing this Lease on behalf of Landlord or Tenant hereby covenant and warrant that each is a duly authorized and existing entity, that each has and is qualified to do business in California, that the persons signing on behalf of Landlord or Tenant have full right and authority to enter into this Lease, and that each and every person signing on behalf of either Landlord or Tenant are authorised to do so. If either party hereto is a corporation, said party shall affix the appropriate corporate seal to each area on the document where request therefore is noted, and the other party shall be entitled to conclusively presume that by doing so the party so affixing said seal is attesting to and ratifying this Lease.

SECTION 20.13. NO REPRESENTATIONS OR WARRANTIES. Neither Landlord-nor Landlord's agents or attorneys have made any representations or warranties with respect to the-Premises, the Building or this Lease, except as expressly set forth herein, and no rights, easements or licenses are or shall be acquired by Tenant by implication or otherwise.

SECTION 20.14. NO JOINT VENTURE OR PARTNERSHIP. This Lease shall not be deemed or construed to create or establish any relationship of partnership or joint venture or similar relationship or arrangement between Landlord and Tenant hereunder.

SECTION 20.15. TENANT'S OBLIGATIONS AT ITS SOLE EXPENSE. Notwithstanding the fact that certain references in this Lease to acts required to be performed by Tenant hereunder, or to breaches or defaults of this Lease by Tenant, omit to state that such acts shall be performed at Tenant's sole expense, or omit to state that such breaches or defaults by Tenant are material, unless the context clearly implies to the contrary each and every act to be performed or obligation to be fulfilled by Tenant pursuant to this Lease shall be performed or fulfilled at Tenant's sole expense, and all breaches or defaults by Tenant hereunder shall be deemed material.

SECTION 20.16. ATTORNEYS' FEES. If litigation is instituted between Landlord and Tenant, the cause for which arises out of or in relation to this Agreement, the prevailing party in such litigation shall be entitled to receive its costs (not limited to court costs), expenses and reasonable attorneys' fees from the non-prevailing party as the same may be awarded by the court.

SECTION 20.17. WAIVER OF TRIAL BY JURY. IN THE INTEREST OF SAYING TIME AND EXPENSE, LANDLORD AND TENANT HEREBY CONSENT TO TRIAL WITHOUT A JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR THEIR SUCCESSOR-IN-INTEREST IN RESPECT TO ANY UNLAWFUL DETAINER ACTION ARISING OUT OF OR RELATING TO THIS LEASE.

SECTION 20.18. NO. MERGER. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord terminate all or any existing subleases or subtenancies, or may, at the option of Landlord, operate as an assignment to it of any or all such subleases or subtenancies.

SECTION 20.19. PROHIBITION AGAINST RECORDING. Except as provided in Section 14.3 of this Lease, neither this Lease, nor any memorandum., affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant, and the recording thereof in violation of this provision shall make this Lease null and void at Landlord's election.

SECTION 20.20. HAZARDOUS WASTE. Tenant specifically agrees that, except for such limited quantities of office materials and supplies as are customarily used in Tenant's normal business operations, Tenant shall not engage or permit at any time, any operations or activities upon, or any use or occupancy of the Premises, or any portion thereof, for the purpose of or in any way involving the handling, manufacturing, treatment, storage, use, transportation spillage, leakage, dumping, discharge or disposal (whether legal or illegal, accidental or intentional) of any hazardous substances, materials or wastes, or any wastes regulated under any local, state or federal law.

Tenant shall, during the Term, remain in full compliance with all applicable laws governing its use and occupancy of the Premises, including, without limitation, the handling, manufacturing, treatment, storage, disposal, discharge, use, and transportation of hazardous substances, materials or wastes, and any wastes regulated under any local, state or federal law. Tenant will remain in full compliance with the terms and conditions of all permits and licenses issued to it by any governmental authority on account of any or all of its activities on the Premises.

SECTION 20.21. TRANSPORTATION MANAGEMENT. Tenant shall, at Tenant's sole expense, fully comply with all present or future programs intended to manage parking, transportation or traffic in and around the Building, when the same have been mandated by an outside governmental authority having jurisdiction therefor and not when required for the convenience of Landlord.

In connection therewith, Tenant shall be responsible for the transportation planning and management for all of Tenant's employees while located at the Premises, by working directly with Landlord, any governmental transportation management organization or any other transportation-related committees or entities reasonably designated by Landlord. Such programs may include, without limitation:

a) restrictions on the number of peak-hour vehicle trips generated by Tenant;

b) requirements for increased vehicle occupancy;

c) implementing an in-house ride-sharing program and/or appointing an employee transportation coordinator;

d) working with employees of any Building (or area-wide) ridesharing program manager;

e) instituting employer-sponsored incentives (financial or in-kind) to encourage employees to ridesharing; and

f) utilizing flexible work shifts for employees.

SECTION 20.22. SIGNAGE. Tenant may not install, inscribe, paint or affix any awning, shade, sign, advertisement or notice on or to any part of the outside or inside of the Building, or in any portion of the Premises visible to the outside of the Building or common areas without Landlord's prior written consent, which shall not be unreasonably withheld, conditioned or delayed.

All signage and/or directory listings installed on behalf of Tenant, whether installed in, on or upon the public corridors, doorways, Building directory and/or parking directory (if any), or in any other location whatsoever visible outside of the Premises, shall be installed by Landlord, at Tenant's sole expense.

Tenant's identification on or in any common area of the Building shall be limited to Tenant's name and suite designation, and in no event shall Tenant be entitled to the installation of Tenant's logo in any portion of the Building or common areas. Furthermore, the size, style, and placement of letters to be used in any of Tenant's signage shall be determined by Landlord, in landlord's sole discretion, in full conformance with previously-established signage program for the Building.

Except as specified hereinbelow, Tenant shall only be entitled to one (1) listing on the Building directory, or any parking directory ancillary thereto, which shall only show Tenant's business name and suite designation. Tenant shall also be entitled to a maximum of three (3) additional listings on said Building and/or parking directory, which listings shall be limited solely to Tenant's officers, employees, subsidiaries, affiliates and/or sublessees, if any. All of said listings shall be subject to Landlord's prior written approval, which shall not be unreasonably withheld, conditioned or delayed.

SECTION 20.23. DISCLOSURE. Landlord and Tenant, acknowledge that principals of Landlord have a financial interest in Douglas Emmett Realty Advisors and P.L.E. Builders.

SECTION 20.24. CONFIDENTIALITY. Landlord and Tenant agree that the covenants and provisions of this Lease shall not be divulged to anyone not directly involved in the management, administration, ownership, lending against, or subleasing of the Premises, which permitted disclosure shall include, but not be limited to, the board members, legal counsel and/or accountants of either Landlord or Tenant.

ARTICLE 21
PARKING

SECTION 21.1. PARKING. Throughout the Term, Tenant shall purchase and assign to its employees monthly parking permits up to the maximum number of permits set forth in Section 21.1 of the Basic

Lease Information ("BLI"). Except as otherwise permitted by Landlord's management agent in its reasonable discretion, and based on the availability thereof, in no event shall Tenant be entitled to purchase more than the maximum nor less than fifty percent (50%) of the total number of parking permits listed in the BLI. However, to the minimum limit specified hereinabove, Tenant may decrease the total number of parking permits purchased pursuant to this Article 21 at any time during the Term after Tenant has given Landlord at least thirty
(30) days prior written notice of such reduction.

Furthermore, if additional parking permits are available on a month-to-month basis, which determination shall be in the sole, discretion of Landlord's parking agent, Tenant shall be permitted to purchase one or more of said permits on a first-come, first-served basis.

At any time that Tenant either elects to purchase less than the total number of permits to which Tenant is entitled, or fails to pay for the total number of parking permits to which Tenant is entitled, Tenant shall lose the right to purchase any additional parking permits beyond the lesser of the amount, either purchased or paid for by Tenant the calendar month immediately preceding the date of such loss, until the expiration of sixty (60) days prior written notice given from Tenant to Landlord, indicating Tenant's intention to reclaim one or more of said lost parking permits, at which time, to the extent that Landlord has not already leased one or more of the parking permits Tenant had previously surrendered to another occupant of the Building on a long-term basis, Landlord shall restore the total number of parking permits contained in Tenant's written notice to Landlord.

The initial rates to be paid by Tenant for such permits shall be: $93.50 per single unreserved permit; $82.50 per tandem reserved permit, and $156.20 per single reserved permit per month, including the ten percent (10%) tax currently charged by the City of Los Angeles.

Said parking permits shall allow Tenant to park in the Building parking facility at the prevailing monthly parking rate then in effect, which rate may be thereafter changed from time to time, in Landlord's sole discretion. Landlord shall retain sole discretion to designate the location of each parking space, and whether it shall be assigned, or unassigned, unless specifically agreed to otherwise in writing between Landlord and Tenant.

Guests and invitees of Tenant shall have the right to use, in common with guests and invitees of other tenants of the Building, the transient parking facilities of the Building at the then-posted parking rates and charges, or at such other rate or rates and charges as may be agreed upon from time to time between Landlord and Tenant in writing. Such rate(s) or charges may be changed by Landlord from time to time in Landlord's sole discretion, and shall include, without limitation, any and all fees or taxes relating to parking assessed to Landlord for such parking facilities.

Tenant or Tenant's agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders continued use of said transient, as well as monthly parking, shall be contingent upon Tenant and Tenant's agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders continued compliance with the reasonable and non-discriminatory rules and regulations adopted by Landlord, which rules and regulations may change at any time or from time to time during the Term hereof in Landlord's sole discretion.

ARTICLE 22
CONCIERGE SERVICES

SECTION 22.1. PROVISION OF SERVICES. Landlord and Tenant acknowledge and understand that Landlord may, from time to time, make it possible for Tenant to use or purchase a variety of personal services which may include, but not be limited to, personal shopping, assistance with choosing or obtaining travel reservations, accommodations and/or tickets; tickets to performances, recommendations to eating establishments; and the like (collectively "Concierge Services").

Tenant acknowledges that said Concierge Services are provided by Landlord solely as an accommodation to and for the convenience of Tenant and Tenant's agents, contractors, directors, employees, licensees, officers, partners or shareholders, and Landlord does not make any representation, warranty or guarantee, express or implied, as to the quality, value, accuracy, or completeness of said Concierge Services, or whether or not Tenant shall be satisfied with the services and/or goods so provided and/or recommended. Landlord hereby disclaims any control over the variety or sufficiency of such services to be provided.

Tenant acknowledges that Tenant is not required to use such Concierge Services as a condition precedent to compliance with the Lease; that Tenant's use of such Concierge Services is strictly voluntary, and at the sole discretion and control of Tenant. Tenant shall independently make such financial arrangements for payment of the services provided as Tenant deems reasonable and of value.

SECTION 22.2. INDEMNIFICATION AND RELEASE BY TENANT. Notwithstanding anything to the contrary contained in the Lease, any city, county, state or federal ordinance, statute, regulation or law, Tenant's signature hereon indicates Tenant's agreement that solely as it relates to the purchase or use of Concierge Services by Tenant or the agents, contractors, employees, officers, partners, and/or shareholders of Tenant, Tenant, on behalf of itself and its agents, contractors, directors, employees, licensees, officers, partners or shareholders, does and shall hereby forever hold Landlord and Landlord's affiliates, agents, assigns, contractors, directors, employees, officers, parent organization, partners, representatives, shareholders, and subsidiaries (collectively the "Indemnitees") harmless from and forever release, remise, discharge, acquit and relieve the Indemnitees from and against any and all claims, demands, causes of action, obligations, liabilities, agreements, damages, cost (including, without limitation, reasonable attorneys' fees), loss, or liability of any kind or nature, whether asserted, known or unknown, suspected or unsuspected, in any way connected with, which any one or more of the Indemnitees may sustain or incur by reason of, related to, associated with, or arising out of the provision, use or the rendering of any such Concierge Services or the delivery of such Concierge

Services to Tenant or Tenant's agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders.

Solely as it relates to the purchase or use of Concierge Services by Tenant or the agents, contractors, employees, officers, partners, and/or shareholders of Tenant, Tenant hereby expressly waives all rights and benefits conferred by the provisions of Section 1542 of the Civil Code of the State of California, which reads as follows:

"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE AND WHICH, IF KNOWN BY HIM, MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."

In so doing, Tenant acknowledges that it will be unable to make any claim against Landlord or any other Indemnitees for damages that may exist as of the date or after the date of this release, but which Tenant does not know to exist, and which, if known, would materially have affected Tenant's decision to execute this document, regardless of whether Tenant's lack of knowledge, if any, is the result of ignorance, oversight, error, negligence or other cause.

ARTICLE 23
OPTION TO EXTEND TERM

SECTION 23.1. OPTION TO EXTEND TERM. Provided Tenant is not in material default after the expiration of notice and the opportunity to cure on the date or at any time during the remainder of the Term after Tenant gives notice to Landlord of Tenant's intent to exercise its rights pursuant to this Article 23, Tenant is given the option to extend the term for an additional three (3) year period (the "Extended Term"), commencing the next calendar day after the expiration of the Term (the "Option"). The Option shall apply only to the entirety of the Premises, and Tenant shall have no right to exercise the Option as to only a portion of the Premises.

Tenant's exercise of this Option is contingent upon Tenant giving written notice to Landlord (the "Option Notice") of Tenant's election to exercise its rights pursuant to this Option by Certified Mail, Return Receipt Requested, no more than twelve (12) and no less than eight (8) months prior to the Termination Date.

SECTION 23.2. FIXED MONTHLY RENT PAYABLE. As Fixed Monthly Rent during the Extended Term, Tenant shall pay Landlord the Fair Market Value of the Premises for the Extended Term. The term "Fair Market Value" shall be defined as the effective rent reasonably achievable by Landlord, and shall include but not be limited to, all economic benefits obtainable by Landlord, such as Fixed Monthly Rent, periodic Fixed Rent adjustments, Additional Rent in the form of Operating Expense reimbursements, and any and all other monetary or non-monetary consideration that may be given in the market place to a non-renewal tenant, as is chargeable for a similar use of comparable space in the geographic area of the Premises.

Said computation shall specifically be based on the Premises in its "as-is" condition, without payment of any brokerage commission to any broker. If either Landlord or Tenant elect to have a broker represent them during negotiations for extension of the Term, and/or Tenant requests the installation of any further improvements into the Premises, the cost of such improvements to be made and/or commissions to be paid shall be amortized over the Extended Term on a straight-line basis, with interest thereon at ten percent (10%), by appropriately increasing the Fair Market Value previously determined.

Landlord and Tenant shall have 30 days (the "Negotiation Period") after Landlord receives the Option Notice in which to agree on the Fair Market Value. If Landlord and Tenant agree on the Fair Market Value during the Negotiation Period, they shall immediately execute an amendment to the Lease extending the Term and stating the Fair Market Value.

SECTION 23.3 APPRAISERS TO SET FIXED RENT. If Landlord and Tenant are unable to agree on the Fair Market Value, during the Negotiation Period, then:

a) Within five (5) days after the expiration of the Negotiation Period, Tenant shall have the right to void the Option Notice by hand delivery of written notice (the "Termination Notice") to Landlord within such five (5) days period, and the Lease shall expire on the Termination Date; or

b) If the Termination Notice is not timely delivered by Tenant, Landlord and Tenant, each at its own cost, shall select an independent real estate appraiser with at least ten (10) years full-time commercial appraisal experience in the area in which the Premises are located, and shall provide written notice to the other party of the identity and address of the appraiser so appointed. Landlord and Tenant shall make such selection within ten (10) days after the expiration of the Negotiation Period.

c) Within thirty (30) days of having been appointed to do so (the "Appraisal Period"), the two (2) appraisers so appointed shall meet and set the Fair Market Value for the Extended Term. In setting the Fair Market Value, the appraisers shall solely consider the use of the Premises for general office purposes.

SECTION 23.4 FAILURE BY APPRAISERS TO SET FAIR MARKET VALUE. If the two (2) appointed appraisers are unable to agree on the Fair Market Value within ten
(10) days after expiration of the Appraisal Period, they shall elect a third appraiser of like or better qualifications, and who has not previously acted in any capacity for either Landlord or Tenant. Landlord and Tenant shall each bear one half of the costs of the third appraiser's fee.

Within 30 days after the selection of the third appraiser (the "Second Appraisal Period") the Fair Market Value for the Extended Term shall be set by a majority of the appraisers now appointed.

If a majority of the appraisers are unable to set the Fair Market Value within the Second Appraisal Period, the three (3) appraisers shall individually render separate appraisals of the Fair Market Value, and their three (3) appraisals shall be added together, then divided by three (3); resulting in an average of the appraisals, which shall be the Fair Market Value during the Extended Term.

However, if the low appraisal or high appraisal varies by more than Ten Percent (10%) from the middle appraisal, then one (1) or both shall be disregarded, If only one (1) appraisal is disregarded, the remaining two (2) appraisals shall be added together and their total divided by two (2), and the resulting average shall be the Fair Market Value. If both the low and high appraisal are disregarded, the middle appraisal shall be the Fair Market Value for the Premises during the Extended Term. The appraisers shall immediately notify Landlord and Tenant of the Fair Market Value so established, and Landlord and Tenant shall immediately execute an amendment to the Lease, extending the Term and revising the Fixed Rent payable pursuant to the Fair Market Value so established.

Landlord or Tenant's failure to execute such amendment establishing the Fair Market Value within fifteen (15) days after the other party's request therefor shall constitute a material default under the Lease, and if Tenant is the party failing to so execute, this Option shall become null and void and of no further force or effect.

SECTION 23.5. NO RIGHT OF REINSTATEMENT OR FURTHER EXTENSION. Once Tenant has either failed to exercise its rights to extend the term pursuant to this Article 23 or failed to execute the amendment called for hereunder, it shall have no right of reinstatement of its Option to Extend the Term, nor shall Tenant have any right to a further or second extension of the Term beyond the period stated in Section 23.1 hereinabove.

SECTION 23.6. NO ASSIGNMENT OF OPTION. This Option is personal to the original Tenant signing the Lease, and shall be null, void and of no further force or effect as of the date that Tenant assigns the Lease to an unaffiliated entity and/or subleases more than forty-nine percent (49%) of the total Rentable Area of the Premises.

ARTICLE 24
GUARANTY OF LEASE

SECTION 24.1. GUARANTY OF LEASE. Mr. Steven A. Kriegsman, an individual ("Guarantor"), whose Social Security number is 000-00-0000, and whose home address is 920 Greentree Road, Pacific Palisades, California 90272, as a material inducement to and in consideration of Landlord entering into this Lease with Tenant, unconditionally guarantees and promises to and for the benefit of Landlord that Tenant shall perform the provisions of the Lease that Tenant is to perform; provided however, Guarantor's obligation to Landlord pursuant to this Article 24 shall in no event exceed the sum of $50,000,00.

If Guarantor is more than one person, Guarantor's obligations are joint and several and are independent of Tenant's obligations. A separate action may be brought or prosecuted against any Guarantor whether the action is brought or prosecuted against any other Guarantor or Tenant, or all, or whether any other Guarantor or Tenant, or all, are joined in the action.

The provisions of the Lease may be changed by agreement between Landlord and Tenant at any time, or by course of conduct, without the consent of or notice to Guarantor, and this Guaranty shall guarantee the performance of the Lease as changed. An assignment of this Lease (as permitted by the Lease) shall not affect this Guaranty, nor shall this Guaranty be affected by Landlord's failure or delay to enforce any of its rights.

If Tenant defaults under the Lease, Landlord can proceed immediately against Guarantor or Tenant, or both, or Landlord can enforce against Guarantor or Tenant, or both, any rights that it has under the Lease, or pursuant to applicable laws. If the Lease terminates and Landlord has any rights it can enforce against Tenant after termination, Landlord can enforce those rights against Guarantor without giving previous notice to Tenant or Guarantor, or without making any demand on either of them, provided however that if at any time, Guarantor provides Landlord with written notice that Guarantor is no longer affiliated with Tenant, then Landlord shall thereafter provide Guarantor with a contemporaneous copy of any default notice sent to Tenant pursuant to the requirements of this Lease, prior to enforcing any rights Landlord may have against Guarantor pursuant to this Article 24.

Guarantor waives the benefit of any statute of limitations affecting Guarantor's liability under this Guaranty, and Guarantor waives the right to require Landlord to:

a) proceed against Tenant;

b) proceed against or exhaust any security that Landlord holds from Tenant; or

c) pursue any other remedy in Landlord's power.

Guarantor waives any defense by reason of any disability of Tenant, and waives any other defense based on the termination of Tenant's liability from any cause. Until all Tenant's obligations to Landlord have been discharged in full, Guarantor has no right of subrogation against Tenant. Guarantor waives its right to enforce any remedies that Landlord now has, or later may have, against Tenant. Guarantor waives any right to participate in any security now or later held by Landlord. Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this Guaranty, and waives all notices of the existence, creation, or incurring of new or additional obligations.

If Landlord disposes of its interest in the Lease, "Landlord," as used in this Guaranty, shall mean Landlord's successors, and Guarantor's obligations under this Guaranty shall be binding on Guarantor's successors or assigns.

This Guaranty of Lease will continue unchanged by any bankruptcy, reorganization or insolvency of Tenant or any successor or assignee thereof or by any disaffirmance or abandonment by a trustee of Tenant. The bankruptcy, reorganization or insolvency of one or more of the undersigned or a default hereunder by one or more of the undersigned shall not affect the obligations of the other undersigned party or parties under this Guaranty. Each of the undersigned hereby waives notice of any demand by Landlord as well as any notice of nonpayment of rent or other default under the Lease by Tenant. If notice is given to any of the undersigned, it shall constitute notice to each of the undersigned.

If Landlord incurs costs or attorneys' fees in connection with any legal proceeding involving the enforcement or interpretation of the rights or obligations of the undersigned under this Guaranty of Lease, or to enforce any provisions under the Lease against Tenant or Guarantor, including Landlord's instituting an unlawful detainer action to obtain possession of the Premises, Guarantor agrees to pay Landlord's costs and reasonable attorneys' fees if Landlord prevails in such proceeding, regardless of whether such proceeding is prosecuted to judgment.

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease, effective the day and year first above written.

LANDLORD:                             TENANT:

DOUGLAS EMMETT JOINT VENTURE,         THE KRIEGSMAN CAPITAL GROUP, LLC,
a California general partnership      a California limited liability company

By:  DOUGLAS, EMMETT AND COMPANY,
     its agent

By:  /s/ Kenneth Panzer               By: /s/ Steven A. Kriegsman
     ---------------------------          --------------------------------
     Kenneth Panzer                       Signer's Name: STEVEN A. KRIEGSMAN

Date: 4/27/00                         [ ] President [ ] Vice President or
                                      [ ] Chief Executive Officer
                                                 (Check Title Above)

                                                        AND

                                      By: --------------------------------
                                          Signer's Name:------------------

                                      [ ] Secretary [ ] Treasurer or
                                      [ ] Chief Financial Officer
                                              (Check Title Above)

                                            AFFIX CORPORATE SEAL HERE

                                      GUARANTOR:

                                      By executing below, Guarantor acknowledges
                                      receipt of the foregoing Lease, including
                                      Exhibits A through D.

                                      /s/ Steven A. Kriegsman
                                      ------------------------------------
                                      Mr. Steven A. Kriegsman, an individual

                                      Dated: APRIL 20, 2000

EXHIBIT A -PREMISES PLAN

Suite 650 at 11726 San Vicente Boulevard, Los Angeles California 90049

RENTABLE AREA: APPROXIMATELY 3,313 SQUARE FEET
USABLE AREA: APPROXIMATELY 2,756 SQUARE FEET
(MEASURED PURSUANT TO THE PROVISIONS OF SECTION 1.4 OF THE LEASE)

[FLOOR PLAN]

A-1

EXHIBIT B
CONSTRUCTION AGREEMENT

CONSTRUCTION PERFORMED BY TENANT

SECTION 1. TENANT TO COMPLETE CONSTRUCTION. Tenant's general contractor ("Contractor") shall furnish and install within the Premises those items of general construction (the "Improvements"), shown on the final Plans and Specifications approved by Landlord and Tenant pursuant to the Schedule of Approvals below, and in compliance with all applicable codes and regulations.

All Tenant selections of finishes shall be indicated in the Plans and Specifications and shall be equal to or better than the minimum Building standards and specifications.

Any work not shown in the final construction Plans and Specifications or included in the Improvements such as, but not limited to, telephone service, furnishings, or cabinetry, for which Tenant contracts separately shall be subject to Landlord's policies and shall be conducted in such a way as to not unreasonably hinder or delay the work of Improvements.

SECTION 2. TENANT'S PAYMENT OF COSTS. Subject to Landlord's reimbursement as specified hereinbelow, Tenant shall bear all costs of the Improvements, and shall timely pay said costs directly to the Contractor, From time to time, Tenant shall provide Landlord with such evidence as Landlord may reasonably request that the Contractor has been paid in full for the work completed to-date.

Tenant shall also pay the cost of any renovations or revisions which Landlord is required to make to any common area or portion of the Building, which such renovations, repairs or revisions arise out of or are required in connection with Tenant's completion of the Improvements contemplated herein.

SECTION 3. LIEN RELEASES. Contractor shall provide Landlord with lien releases as requested by Landlord and confirmation that no liens have been filed against the Premises or the Building. If any liens arise against the Premises or the Building as a result of Tenant's Improvements, Tenant shall immediately, at Tenant's sole expense, remove such liens and provide Landlord evidence that the title to the Building and Premises have been cleared of such liens.

SECTION 4. PERFORMANCE BONDS. Unless waived by Landlord as specified herein, Contractor shall provide payment and performance bonds in an amount equal to 100% of Contractor's contract with Tenant. Landlord agrees to waive performance bonds on the condition that Tenant contracts with a qualified contractor that has been mutually agreed upon.

SECTION 5. LANDLORD'S REIMBURSEMENT FOR COSTS. After completion of Tenant's Improvements, and as specified herein, Landlord shall pay to Tenant for the Improvements in Paragraph 1 above, an allowance, not to exceed the sum of $6.00 per square foot of Usable Area within the Premises (the "Allowance"). Said Allowance shall be paid within five (5) days after completion of the Improvements and Landlord's receipt of invoices and lien releases, or such other documentation that the work has been completed in a good and workmanlike manner and has been paid for, as Landlord may reasonably request.

SECTION 6. PRE-CONSTRUCTION REQUIREMENTS. Prior to Tenant or Contractor commencing any work:

a) Contractor, and its subcontractors and suppliers, shall be approved in writing by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed. As a condition of such approval, so long as the same are reasonably cost competitive, Contractor shall use Landlord's heating, venting, air-conditioning, plumbing, and electrical subcontractors for such work;

b) Tenant or Tenant's Contractor shall submit all Plans and Specifications to Landlord, and no work on the Premises shall be commenced before Tenant has received Landlord's final written approval thereof, which shall not be unreasonably withheld, delayed or conditioned;

c) Contractor shall concurrently submit to Landlord and Tenant a written bid for completion of the Improvements. Said bid shall include Contractor's overhead, profit, and fees, and an administration fee of five percent (5%) which Contractor shall pay directly to Landlord's managing agent to defray said agent's costs for supervision of the construction;

d) Contractor shall complete all architectural and planning review and obtain all permits, including signage, required by the city, state or county in which the Premises are located; and

e) Contractor shall submit to Landlord verification of public liability and workmen's compensation insurance adequate to fully protect Landlord and Tenant from and against any and all liability,for death or injury to persons or damage to property caused in, on or about the Premises or the Building from any cause whatsoever arising out completion of the Improvements or any other work done by Contractor.

SECTION 7. LANDLORD'S ADMINISTRATION OF CONSTRUCTION. Tenant's Contractor and its subcontractors and suppliers shall be subject to Landlord's reasonable administrative control and supervision. Landlord shall provide the Contractor and its subcontractors reasonable access to the Premises so as to timely complete the Improvements; reasonable use of the freight elevators for the movement of Contractor's and its subcontractor's materials and laborers; and use of parking spaces in the parking facilities serving the Building at no cost so long as the same are available therefor without disturbing the quiet enjoyment or reasonable access of any other occupant of the Building.

SECTION 8. COMPLIANCE WITH CONSTRUCTION POLICIES. During construction of the Improvements, Tenant's Contractor shall adhere to the Construction Policies specified hereinbelow, which represent Landlord's minimum requirements for completion of the Improvements.

EXHIBIT B (CONTINUED)
CONSTRUCTION PERFORMED BY TENANT

CONSTRUCTION POLICY

The following policies outlined are the construction procedures for the Building. As a material consideration to Landlord for granting Landlord's permission to Tenant to complete the construction contemplated hereunder, Tenant agrees to be bound by and follow the provisions contained hereinbelow:

SECTION 9. ADMINISTRATION.

a) Contractors to notify Building Office at 11726 San Vicente Boulevard, Suite 230, Los Angeles, California 90049 prior to starting any work. No exceptions. All jobs must be scheduled by the general contractor or sub-contractor when no general contractor is being used.

b) The general contractor is to provide the Building Manager with a copy of the projected work schedule for the suite, prior to the start of construction.

c) Contractor will make sure that at least one set of drawings will have the Building Manager's initials approving the plans and a copy delivered to the Building Office.

d) As-built construction, including mechanical drawings and air balancing reports will be submitted at the end of each project.

e) The HVAC contractor is to provide the following items to the Building Manager upon being awarded the contract from the general contractor:

i) A plan showing the new ducting layout, all supply and return air grille locations and all thermostat locations. The plan sheet should also include the location of any fire dampers.

ii) An Air Balance Report reflecting the supply air capacity throughout the suite, which is to be given to the Chief Building Engineer at the finish of the HVAC installation.

f) All paint bids should reflect a one-time touch-up paint on all suites. This is to be completed approximately five (5) days after move-in date.

g) The general contractor must provide for the removal of all trash and debris arising during the course of construction. At no time are the building's trash compactors and/or dumpsters to be used by the general contractor's clean-up crews for the disposal of any trash or debris accumulated during construction. The Building Office assumes no responsibility for bins. Contractor is to monitor and resolve any problems with bin usage without involving the Building Office. Bins are to be emptied on a regular basis and never allowed to overflow. Trash is to be placed in the bin.

h) Contractors will include in their proposals all costs to include: parking, elevator service, additional security (if required), restoration of carpets, etc. Parking will be validated only if contractor is working directly for the Building Office.

i) Any problems with construction per the plan, will be brought to the attention of and documented to the Building Manager. Any changes that need additional work not described in the bid will be approved in writing by the Building Manager. All contractors doing work on this project should first verify the scope of work (as stated on the plans) before submitting bids; not after the job has started.

SECTION 10. BUILDING FACILITIES COORDINATION.

a) All deliveries of material will be made through the parking lot entrance.

b) Construction materials and equipment will not be stored in any area without prior approval of the Building Manager.

c) Only the freight elevator is to be used by construction personnel and equipment. Under no circumstances are construction personnel with materials and/or tools to use the "passenger" elevators.

SECTION 11. HOUSEKEEPING.

a) Suite entrance doors are to remain closed at all times, except when hauling or delivering construction materials.

b) All construction done on the property that requires the use of lobbies or common area corridors will have carpet or other floor protection. The following are the only prescribed methods allowed:

i) Mylar -- Extra heavy-duty to be taped from the freight elevator to the suite under construction.

ii) Masonite -- 1/4 inch Panel, Taped to floor and adjoining areas. All corners, edges and joints to have adequate anchoring to provide safe and "trip-free" transitions. Materials to be extra heavy-duty and installed from freight elevator to the suite under construction.

c) Restroom wash basins will not be used to fill buckets, make pastes, wash brushes, etc. If facilities are required, arrangements for utility closets will be made with the Building Office.

d) Food and related lunch debris are not to be left in the suite under construction.

e) All areas the general contractor or their sub-contractors work in must be kept clean. All suites the general contractor works in will have construction debris removed prior to completion inspection. This includes dusting of all window sills, light diffusers, cleaning of cabinets and sinks. All common areas are to be kept clean of building materials at all times so as to allow tenants access to their suites or the building.

SECTION 12. CONSTRUCTION REQUIREMENTS.

a) All Life and Safety and applicable Building Codes will be strictly enforced (i.e. tempered glass, fire dampers, exit signs, smoke detectors, alarms, etc.). Prior coordination with the Building Manager is required.

B-2

EXHIBIT B (CONTINUED)

CONSTRUCTION PERFORMED BY TENANT

b) Electric panel schedules must be brought up to date identifying all new circuits added.

c) All electrical outlets and lighting circuits are to be properly identified. Outlets will be labeled on back side of each cover plate.

d) All electrical and phone closets being used must have panels replaced and doors shut at the end of each day's work. Any electrical closet that is opened with the panel exposed must have a work person present.

e) All electricians, telephone personnel, etc. will, upon completion of their respective projects, pick up and discard their trash leaving the telephone and electrical rooms clean. If this is not complied with, a clean-up will be conducted by the building janitors and the general contractor will be back-charged for this service.

f) Welding or burning with an open flame will not be done without prior approval of the Building Manager. Fire extinguishers must be on hand at all times.

g) All "anchoring" of walls or supports to the concrete are not to be done during normal working hours (7:30 AM - 6:00 PM, Monday through Friday). This work must be scheduled before or after these hours during the week or on the weekend.

h) All core drilling is not to be done during normal working hours (7:30 AM - 6:00 PM, Monday through Friday). This work must be scheduled before or after these hours during the week or on the weekend.

i) All HVAC work must be inspected by the Building Engineer. The following procedures will be followed by the general contractor:

i) A preliminary inspection of the HVAC work in progress will be scheduled through the Building Office prior to the reinstallation of the ceiling grid.

ii) A second inspection of the HVAC operation will also be scheduled through the Building Office and will take place with the attendance of the HVAC contractor's Air Balance Engineer. This inspection will take place when the suite in question is ready to be air-balanced.

iii) The Building Engineer will inspect the construction on a periodic basis as well.

[INTENTIONALLY LEFT BLANK]

B-3

EXHIBIT B (CONTINUED)

CONSTRUCTION PERFORMED BY TENANT

j) All existing thermostats, ceiling tiles, lighting fixtures and air conditioning grilles shall be saved and turned over to the Building Engineer.

         GOOD HOUSEKEEPING RULES AND REGULATIONS WILL BE STRICTLY ENFORCED. THE
BUILDING OFFICE AND ENGINEERING DEPARTMENT WILL DO EVERYTHING POSSIBLE TO MAKE
YOUR JOB EASIER. HOWEVER, CONTRACTORS WHO DO NOT OBSERVE THE CONSTRUCTION POLICY
WILL NOT BE ALLOWED TO PERFORM WITHIN THIS BUILDING. THE COST OF REPAIRING ANY
DAMAGES THAT ARE CAUSED BY TENANT OR TENANT'S CONTRACTOR DURING THE COURSE OF
CONSTRUCTION SHALL BE DEDUCTED FROM TENANT'S ALLOWANCE OR TENANT'S SECURITY
DEPOSIT, AS APPROPRIATE.

LANDLORD:                                 TENANT:

DOUGLAS EMMETT JOINT VENTURE,             THE KRIEGSMAN CAPITAL GROUP, LLC,
a California general partnership          a California limited liability company

By: DOUGLAS, EMMETT AND COMPANY,
    its agent

By: /s/ Kenneth Panzer                    By: /s/ Steven A. Kriegsman
    --------------------------------          -------------------------------
    Kenneth Panzer                            Signer's Name: STEVEN A. Kriegsman
                                              [X] President [ ] Vice President
                                              or [ ] Chief Executive Officer
Dated: 4/27/00                                       (Check Title Above)
                                                            AND

                                          By:__________________________________
                                             Signer's Name: ___________________
                                             [ ] Secretary [ ] Treasurer or
                                             [ ] Chief Financial Officer
                                                    (Chick Title Above)

                                                    AFFIX CORPORATE SEAL HERE

                                          Dated:______________________________

                                          GUARANTOR

                                          /s/ Steven A. Kriegsman
                                          --------------------------------------
                                          Mr. Steven A. Kriegsman, an individual

                                          Dated: April 20, 2000

B-4

EXHIBIT B-1
CONSTRUCTION BY TENANT DURING TERM

1. If Tenant wishes to make a Tenant Change, as specified in Section 12.12 of the Lease, such Tenant Change shall be completed pursuant to the provisions of Section 12.12. of the Lease and this Exhibit B-1. Tenant shall bear all costs of said Tenant Change, which shall be paid directly to Tenant's general contractor ("Contractor").

Contractor shall complete construction to the Premises pursuant to the final Plans and Specifications approved in writing by Landlord and Tenant (the "Tenant Change"), in compliance with all applicable codes and regulations. Tenant's selections of finishes and materials shall be indicated on the Plans and Specifications, and shall be equal to or better than the minimum Building standards and specifications. All work not shown on the final Plans and Specifications, but which is to be included in the Tenant Change, including but not limited to, telephone service installation, furnishings or cabinetry, shall be installed pursuant to Landlord's reasonable directives.

2. Prior to commencing any work:

a) Tenant's proposed Contractor and the Contractor's proposed subcontractors and suppliers shall be approved in writing by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed. As a condition of such approval, so long as the same are reasonably cost competitive, then Contractor shall use Landlord's Heating, Venting, and Air-conditioning, plumbing, and electrical subcontractors for such work.

During completion of any Tenant Change, neither Tenant or Contractor shall permit any subcontractors, workmen, laborers, material or equipment to come into or upon the Building if the use thereof, in Landlord's reasonable judgment, would violate Landlord's agreement with any union providing work, labor or services in or about the Building.

b) Contractor shall submit to Landlord and Tenant a written bid for completion of the Tenant Change. Said bid shall include Contractor's overhead, profit, and fees, and, if the proposed Tenant Change is for cosmetic work in excess of $5,000 in aggregate value per occurrence or for structural work of any kind, Contractor shall:

i) pre-pay to Landlord's managing agent $250.00 as partial payment of said managing agent's construction administration fee, as specified hereinbelow, and

ii) upon completion of said Tenant Change, pay an administration fee for. supervision of said Tenant Change equal to fifty dollars ($50.00) per hour, to a maximum of seven and one-half percent (7.5%) of the total cost of the Tenant Change, to defray said agent's costs for supervision of the construction;

c) Tenant or Contractor shall submit all Plans and Specifications to Landlord, and no work on the Premises shall be commenced before Tenant has received Landlord's final written approval thereof, which shall not be unreasonably withheld, delayed or conditioned;

d) Contractor shall complete all architectural and planning review and obtain all permits, including signage, required by the city, state or county in which the Premises are located; and

e) Contractor shall submit to Landlord verification of public liability and workmen's compensation insurance adequate to fully protect Landlord and Tenant from and against any and all liability for death or injury to persons or damage to property caused in or about or by reason of the construction of any work done by Contractor or Contractor's subcontractors or suppliers.

f) Unless otherwise waived in writing by Landlord, which waiver shall be in Landlord's sole discretion, Contractor shall provide payment and performance bonds in an amount equal to 100% of the estimated amount of Tenant Change, as specified to Landlord pursuant to Paragraph 2 (b).

3. Contractor and Contractor's subcontractors and suppliers shall be subject to Landlord's reasonable administrative control and supervision. Landlord shall provide Contractor and Contractor's subcontractors and suppliers with reasonable access to the Premises.

4. During construction of the Tenant Change, Contractor shall adhere to the procedures contained hereinbelow, which represent Landlord's minimum requirements for completion of the Tenant Change.

5. Upon completion of the Tenant Change, Tenant shall provide Landlord with such evidence as Landlord may reasonably request that the Contractor has been paid in full, and Contractor shall provide Landlord with lien releases as requested by Landlord, confirmation that no liens have been filed against the Premises or the Building. If any liens arise against the Premises or the Building as a result of the Tenant Change, Tenant shall immediately, at Tenant's sole expense, remove such liens and provide Landlord evidence that the title to the Building and Premises have been cleared of such liens.

6. Whether or not Tenant or Contractor timely complete the Tenant Change, unless the Lease is otherwise terminated pursuant to the provisions contained therein, Tenant acknowledges and agrees that Tenant's obligations under the Lease to pay Fixed Monthly Rent and/or Additional Rent shall continue unabated.

CONSTRUCTION POLICY

The following policies outlined are the construction procedures for the Building. As a material consideration to Landlord for granting Landlords permission to Tenant to complete the construction contemplated hereunder, Tenant agrees to be bound by and follow the provisions contained hereinbelow:

1. ADMINISTRATION

a) Contractors to notify the management office for the Building prior to starting any work. All jobs must be scheduled by the general contractor or sub-contractor when no general contractor is being used.

B1-1

EXHIBIT B-1 (CONTINUED)
CONSTRUCTION BY TENANT DURING TERM

b) The general contractor is to provide the Building Manager with a copy of the projected work schedule for the suite, prior to the start of construction.

c) Contractor will make sure that at least one set of drawings will have the Building Manager's initials approving the plans and a copy delivered to the Building Office.

d) As-built construction, including mechanical drawings and air balancing reports will be submitted at the end of each project.

e) The HVAC contractor is to provide the following items to the Building Manager upon being awarded the contract from the general contractor:

i) A plan showing the new ducting layout, all supply and return air grille locations and all thermostat locations. The plan sheet should also include the location of any fire dampers.

ii) An Air Balance Report reflecting the supply air capacity throughout the suite, which is to be given to the Chief Building Engineer at the finish of the HVAC installation.

f) All paint bids should reflect a one-time touch-up paint on all suites. This is to be completed approximately five (5) days after move-in date.

h) Contractors will include in their proposals all costs to include:
parking, elevator service, additional security (if required), restoration of carpets, etc. Parking will be validated only if contractor is working directly for the Building Office.

2. BUILDING FACILITIES COORDINATION

a) All deliveries of material will be made through the parking lot entrance.

b) Construction materials and equipment will not be stored in any area without prior approval of the Building Manager.

c) Only the freight elevator is to be used by construction personnel and equipment. Under no circumstances arc construction personnel with materials and/or tools to use the "passenger" elevators.

3. HOUSEKEEPING

a) Suite entrance doors are to remain closed at all times, except when hauling or delivering construction materials.

b) All construction done on the property that requires the use of lobbies or common area corridors will have carpet or other floor protection. The following are the only prescribed methods allowed:

i) Mylar: Extra heavy-duty to be taped from the freight elevator to the suite under construction.

ii) Masonite: 1/4 inch Panel, Taped to floor and adjoining areas. All corners, edges and joints to have adequate anchoring to provide safe and "trip-free" transitions. Materials to be extra heavy-duty and installed from freight elevator to the suite under construction.

c) Restroom wash basins will not be used to fill buckets, make pastes, wash brushes, etc. If facilities are required, arrangements for utility closets will be made with the Building Office.

d) Food and related lunch debris are not to be left in the suite under construction.

4. CONSTRUCTION REQUIREMENTS

b) Electric panel schedules must be brought up to date identifying all new circuits added.

c) All electrical outlets and lighting circuits are to be properly identified. Outlets will be labeled on back side of each cover plate.

B1-2

EXHIBIT B-1
CONSTRUCTION BY TENANT DURING TERM

f) Welding or burning with an open flame will not be done without prior approval of the Building Manager. Fire extinguishers must be on hand at all times.

i) All HVAC work must be inspected by the Building Engineer. The following procedures will be followed by the general contractor:

i) A preliminary inspection of the HVAC work in progress will be scheduled through the Building Office prior to the reinstallation of the ceiling grid.

iii) The Building Engineer will inspect the construction on a periodic basis as well.

j) All existing thermostats, ceiling tiles, lighting fixtures, and air conditioning grilles shall be saved and turned over to the Building Engineer.

         GOOD HOUSEKEEPING RULES AND REGULATIONS WILL BE STRICTLY ENFORCED. THE
BUILDING OFFICE AND ENGINEERING DEPARTMENT WILL DO EVERYTHING POSSIBLE TO MAKE
YOUR JOB EASIER. HOWEVER, CONTRACTORS WHO DO NOT OBSERVE THE CONSTRUCTION POLICY
WILL NOT BE ALLOWED TO PERFORM WITHIN THIS BUILDING. THE COST OF REPAIRING ANY
DAMAGES THAT ARE CAUSED BY TENANT OR TENANT'S CONTRACTOR DURING THE COURSE OF
CONSTRUCTION SHALL BE DEDUCTED FROM TENANT'S ALLOWANCE OR TENANT'S SECURITY
DEPOSIT, AS APPROPRIATE.

LANDLORD:                                 TENANT:

DOUGLAS EMMETT JOINT VENTURE,             THE KRIEGSMAN CAPITAL GROUP, LLC.
a California general partnership          a California limited liability company

By: DOUGLAS, EMMETT AND COMPANY,
    its agent

By: /s/ Kenneth Panzer                    By: /s/ Steven A. Kriegsman
    ----------------------------------        --------------------------------
    Kenneth Panzer       `                    Signer's Name: STEVEN A. Kriegsman
                                              [X] President [ ] Vice President
                                              or [ ] Chief Executive Officer
 Dated: 4/27/00                                    (Check Title Above)
                                                            AND

                                          By:________________________________

                                             Signer's Name:_____________________
                                             [ ] Secretary [ ] Treasurer or
                                             [ ] Chief Financial Officer
                                                   (Check Title Above)

                                                AFFIX CORPORATE SEAL HERE

                                          GUARANTOR:

                                          /s/ Steven A. Kriegsman
                                          ----------------------------------
                                          Mr. Steven A. Kriegsman, an individual

                                          Dated: April 20,2000

B1-3

EXHIBIT C
RULES AND REGULATIONS

BUILDING RULES AND REGULATIONS

1. ACCESS. Tenant and/or Tenant's agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders shall only use the sidewalks, entrances, lobby(ies), garage(s), elevators, stairways, and public corridors as a means of ingress and egress, and shall take such actions as may reasonably be necessary to ensure that the same remain unobstructed at all times.

The entrance and exit doors to the Premises are to be kept closed at all times except as required for orderly passage to and from the Premises. Except on balconies available for the joint or exclusive use of Tenant as otherwise specified hereinabove, Tenant shall not permit its agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders to loiter in any part of the Building or obstruct any means of ingress or egress. Tenant shall not cover any doors, and shall not cover any window, other than with vertical or mini-blinds pre-approved in writing by Landlord. Landlord specifically disapproves the installation of any film or foil covering whatsoever on the windows of the Premises.

Neither Tenant, nor its agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders shall go up on the roof or onto any balcony serving the Building, except upon such roof, portion thereof, or balcony as may be contiguous to the Premises and is designated in writing by Landlord as a roof-deck, roof-garden area, or exclusive use balcony area.

2. RESTROOM FACILITIES. The toilet rooms, toilets, urinals, wash bowls and other apparatus (the "Restroom Facilities"), whether contained in the common areas of the Building and/or the interior of the Premises, shall not be used for any purpose other than that for which they were designed. Tenant shall not permit its agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders to throw foreign substances of any kind whatsoever or papers not specifically designated for use in the Restroom facilities down any toilet, or to dispose of the same in any way not in keeping with the instructions provided to Tenant by the management of the Building regarding same, and Tenant hereby specifically agrees to reimburse Landlord directly for the expense of any breakage, stoppage or damage resulting from Tenant's violation of this rule.

3. HEAVY EQUIPMENT. Landlord reserves the right, in Landlord's sole discretion, to decline, limit or designate the location for installation of any safes, other unusually heavy, or unusually large objects to be used or brought into the Premises the Building. In each case where Tenant requests installation of one or more such unusually heavy item(s), which request shall be conclusively evidenced by Tenant's effort to bring such item(s) into the Building or Premises. Tenant shall reimburse Landlord for the costs of any engineering or structural analysis required by Landlord in connection therewith. In all cases, each such heavy object shall be placed on a metal stand or metal plates or such other mounting detail of such size as shall be prescribed by Landlord.

Tenant hereby indemnifies Landlord against any damage or injury done to persons, places, things or the Building or its common areas when such damage or injury primarily arises out of Tenant's installation or use of one or more unusually heavy objects. Tenant further agrees to reimburse Landlord for the costs of repair of any damage done to the Building or property therein by putting in, taking out, or maintaining such safes or other unusually heavy objects.

4. TRANSPORTATION OF FREIGHT. Except as otherwise agreed to by Landlord in writing, Tenant or Tenant's agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders shall only carry freight, furniture or bulky materials in or out of the Building before or after Normal Business Hours, as specified in Section 15 of these rules. Tenant may only install and/or move such freight, furniture or bulky material after previous written notice of its intention to complete such a move, given to the Office of the Building. The persons and/or company employed by Tenant for such work must be professional movers, reasonably acceptable to Landlord, and said movers must provide Landlord with a certificate of insurance evidencing the existence of workmen's compensation and all risk liability coverage in a minimum amount of $2,000,000.

Tenant may, subject to the provisions of the immediately preceding paragraph, move freight, furniture, bulky matter and other material in or out of the Premises on Saturdays between the hours of 8:00 A.M. and 6:00 P.M., provided that Tenant pays in advance for Landlord's reasonably anticipated additional costs, if any, for elevator operators, security guards and other expenses arising by reason of such move fay Tenant.

5. FLAMMABLE MATERIALS. Except for such limited quantities of office materials and supplies as are customarily utilized in Tenant's normal business operations, Tenant shall not use or keep in the Premises or the Building any kerosene, gasoline, flammable or combustible fluid or material, other than those limited quantities of normal business operating materials as may reasonably be necessary for the operation or maintenance of office equipment. Nor shall Tenant keep or bring into the Premises or the Building any other toxic or hazardous material specifically disallowed pursuant to California state law.

6. COOKING / ODORS / NUISANCES. Tenant shall not permit its agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders to engage in the preparation and/or serving of foods unless the Premises includes a self-contained kitchen area. Nor shall Tenant permit

EXHIBIT C (CONTINUED)
RULES AND REGULATIONS

the odors arising from such cooking, or any other improper noises, vibrations, or odors to be emanate from the Premises. Tenant shall not obtain for use in the Premises, ice, drinking water, food, beverage, towel or other similar services except at such reasonable hours and under such reasonable regulations as may be specified by Landlord.

Tenant hereby agrees to instruct all persons entering the Premises to comply with the requirements of the Building, by advising all persons entering the Premises that smoking of any tobacco or other substance is prohibited at all times, except in such common areas located outside the Building as may be designated by the Building management.

Tenant shall not permit Tenant's agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders to interfere in any way with other tenants of the Building or with those having business with them.

Tenant shall not permit its agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders to bring or keep within the Building any animal, bird or bicycle, except such seeing-eye dog or other disability assistance type animal as may comply with the requirements of any handicapped ordinances having jurisdiction therefor.

Tenant shall store its trash and garbage within the Premises, No material shall be placed in the trash boxes or receptacles if such material is a hazardous waste or toxic substance or is of such a nature that its disposal in Landlord's ordinary and customary manner of removing and disposing of trash and garbage would be a violation of any law, ordinance or company regulation governing such disposal. All garbage and refuse disposal shall be made only through, entry ways and elevators provided for such purposes and at such times as Landlord shall designate. As and when directed by Landlord and/or if required by any governmental agency having jurisdiction therefor, Tenant shall comply with all directives for recycling and separation of trash.

Tenant shall not employ any person to do janitorial work in any part of the Premises without the prior written consent of Landlord, which consent may be withheld in Landlord's sole discretion.

Landlord reserves the right to exclude or expel from the Building any person who in Landlord's sole discretion is intoxicated or under the influence of liquor or drugs or who, in any manner, engages in any act in violation of the Rules and Regulations of the Building.

Tenant shall not conduct any public or private auction, fire sale or other sale of Tenant's personal property, furniture, fixtures or equipment or any other property located in or upon the Premises, without Landlord's prior written consent, which consent shall be in Landlord's sole discretion.

7. STORAGE. Tenant may only store goods, wares, or merchandise on or in the Premises in areas specifically designated by Landlord for such storage.

8. DIRECTIVES TO MANAGEMENT. Tenant's requirements, other than those Landlord specifically agrees to perform elsewhere in this Lease, shall only be attended to upon the Building management's receipt of Tenant's written request therefor. Landlord's employees shall not perform any work or do anything outside of their regular duties unless under special instruction from the Building management. No security guard, janitor or engineer or other employee of the Building management shall admit any person (Tenant or otherwise) to the Premises without specific instructions from the Office of the Building and written authorization for such admittance from Tenant.

9. KEYS AND LOCKS. Landlord shall furnish Tenant with two keys to each door lock existing in the Premises. Tenant shall reimburse Landlord a reasonable charge for these and any additional keys. Tenant shall not be permitted to have keys made, nor shall Tenant alter any lock or install a new or additional lock or bolts on any door of the Premises without Landlord's prior written consent. Tenant shall, in each case, furnish Landlord with a key for any additional lock installed or changed by Tenant or Tenant's agent(s). Tenant, upon the expiration or earlier termination of this Lease, shall deliver to Landlord all keys in the possession of Tenant or Tenant's agents, clients, contractor, directors, employees, invitees, licensees, officers, partners or shareholders for doors in the Building, whether or not furnished to Tenant by Landlord. If Tenant, or Tenant's agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders, lose or misplace any key(s) to the Building, Landlord shall, in Landlord's sole discretion, either replace said key(s) or re-key such locks as may be affected thereby, and Tenant shall reimburse Landlord for all such costs of such re-keying and/or replacement.

10. SOLICITATION. Tenant and/or its agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders shall not permit any canvassing, peddling, soliciting and/or distribution of handbills or any other written materials to occur in the Premises and/or the Building, nor shall Tenant or Tenant's agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders engage in such solicitation or distribution activities.

C-2

EXHIBIT C (CONTINUED)
RULES AND REGULATIONS

11. RETAIL SALES, SERVICES AND MANUFACTURING PROHIBITED. Except with the prior written consent of Landlord, Tenant shall not sell, or permit the retail sale of, newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises, nor shall Tenant carry on or permit or allow any employee or other person to carry on the independent business of stenography, typewriting or any similar business in or from the Premises for the service or accommodation of other occupants of any other portion of the Building. Tenant shall not permit the Premises to be used for manufacturing or for any illegal activity of any kind, or for any business or activity other than for Tenant's specific use.

12. CHANGE IN NAME OR ADDRESS. Landlord shall have the right, exercisable without notice and without liability to Tenant, to change the name and street address of the Building, upon thirty (30) days written notice to Tenant.

13. PROJECTIONS FROM PREMISES. Tenant shall not install any radio or television antenna, loudspeaker or other device on the roof or the exterior walls of the Building or in any area projecting outside the interior walls of the Premises. Tenant shall not install or permit to be installed any awnings, air conditioning units or other projections, without the prior written consent of Landlord.

14. SUPERIORITY OF LEASE. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the covenants, agreements or provisions of this Lease. If a conflict or disagreement between the Lease and these Rules becomes apparent, this Lease shall prevail.

15. CHANGES TO RULES AND REGULATIONS. Provided such changes do not materially harm Tenant's ability to conduct its normal business operations, Landlord shall retain the right to change, add or rescind any rule or regulation contained herein, or to make such other and further reasonable and non-discriminatory Rules and Regulations as in Landlord's sole judgment may, from time to time, become necessary for the management, safety, care and cleanliness of the Premises, the Building or the Parking Facilities, or for the preservation of good order therein, or for the convenience of other occupants and tenants therein, so long as such recision, addition, deletion or change is thereafter reasonably applied to all occupants of the Building affected thereby.

PARKING RULES AND REGULATIONS

A. Tenant shall strictly comply with all posted speed limits, directional signs, yield signs, stops signs and all other signs within or about the parking facilities.

B. Tenant shall register all vehicle license plate numbers with the Building management.

C. Tenant shall be responsible for the cost of repairing any damage to the parking facilities or cleaning any debris create or left by Tenant, including, without limitation, oil leakage from motor vehicles parked in the parking facilities under its auspices.

D. Landlord, in addition to reserving the right to designate one or more areas solely for visitor parking, which areas may be changed by Landlord from time to time with or without prior notice to Tenant, reserves the right to allocate additional visitor spaces on any floor of the parking facilities. Tenant shall not park any vehicles in any spaces designated as visitor only spaces or customer spaces within the parking facilities.

E. Tenant shall strictly comply with all rules, regulations, ordinances, speed limits, and statutes affecting handicapped parking and/or access, and shall not park any vehicles within the fire lanes, along parking curbs or in striped areas.

F. Tenant shall only use the number of parking permits allocated to it and shall not permit more than one of its employees to utilize the same parking permit. Landlord reserves the right to assign or re-assign parking spaces within the Parking facilities, to Tenant from time to time, and provided Landlord is required to do so by reason of any action arising out of a governmental mandate imposed on Landlord, Landlord further reserves the right at any time to substitute an equivalent number of parking spaces in a parking facilities or subterranean or surface parking facility within a reasonable distance of the Premises.

G. Except with Landlord's managing agent(s)' prior written consent, Tenant shall not leave vehicles in the parking facilities overnight, nor park any vehicles in the parking facilities other than automobiles, motorcycles, motor-driven or non-motor-driven bicycles or four-wheeled trucks or vans. Landlord may, in its sole discretion, designate separate areas for bicycles and motorcycles. Tenant shall ensure that vehicles parking in the parking facilities by using the parking permits assigned to Tenant shall be parked entirely within the striped lines designating a single space and are not so situated or of such a width or length as to impede access to or egress from vehicles parked in adjacent areas or doors or loading docks. Further, all vehicles utilizing Tenant's parking permits shall not be higher than any height limitation that may be posted, or of such a size, weight or dimension so that entry of such vehicle into the parking facilities would cause any damage or injury thereto.

C-3

EXHIBIT C (CONTINUED)
RULES AND REGULATIONS

H. Tenant shall not allow any of the vehicles parked using Tenant's permits, or the vehicles of any of Tenant's suppliers, shippers, customers or invitees to be loaded or unloaded in any area other than those specifically designated by Landlord for loading.

I. Tenant shall not use or occupy the parking facilities in any manner which will unreasonably interfere with the use of the parking facilities by other tenants or occupants of the Building. Without limitation, Tenant agrees to promptly turn off any vehicle alarm system activated and sounding an alarm in the parking facilities. In the event said alarm system fails to turn off and no longer sound an intruder alert fifteen (15) minutes after commencing such an alarm, Landlord shall reserve the right to remove the vehicle from the parking facilities at Tenant's sole expense.

J. Tenant acknowledges that the Rules and Regulations as posted herein shall be in effect twenty-four hours per day, seven days per week, without exception.

K. Tenant acknowledges that the uniformed guard officers and parking attendants serving the parking facilities are authorized to issue verbal and written warnings of Tenant's violations of any of the rules and regulations contained herein. Except in the case of a car alarm continuing to sound in excess of a maximum of fifteen minutes, in which case no further notice by Landlord shall be required. If Tenant or Tenant's agents, contractors, directors, employees, officers, partners or shareholders continue to materially breach these rules and regulations after expiration of written notice and the opportunity to cure has been given to Tenant, then in addition to such other remedies and request for injunctive relief it may have, Landlord shall have the right, without additional notice, to remove or tow away the vehicle involved and store the same, all costs of which shall be borne exclusively by Tenant and/or revoke Tenant's parking privileges and rights under the Lease.

LANDLORD:                            TENANT:

DOUGLAS EMMETT JOINT VENTURE,        THE KRIEGSMAN CAPITAL GROUP, LLC,
a California general partnership     a California limited liability company

By: DOUGLAS, EMMETT AND COMPANY,     By:  /s/ Steven A. Kriegsman,
    its agent                             ----------------------------------
                                          Signer's Name: Steven A. Kriegsman
By: /s/ Kenneth Panzer                    [X] President [ ] Vice President or
    --------------------------------      [ ] Chief Executive Officer
    Kenneth Panzer                              (Check Title Above)

Dated: 4/27/00                                      AND

                                     By:___________________________________

                                     Signer's Name:_________________________

                                          [ ] Secretary  [ ] Treasurer or
                                          [ ] Chief Financial Officer
                                                 (Check Title Above)

                                         AFFIX CORPORATE SEAL HERE

                                     GUARANTOR:

                                     /s/ Steven A. Kriegsman
                                     ----------------------------------------
                                     Mr. Steven A. Kriegsman, an individual

                                     Dated: April 20,2000

C-4

EXHIBIT D
FIRST AMENDMENT - COMMENCEMENT DATE AND TERM

THIS__________ AMENDMENT TO LEASE (the "_________ Amendment"), dated April 13, 2000, is made by and between ________________ ("LANDLORD"), with offices at 12121 Wilshire Boulevard, Suite 600, Los Angeles, California 90025, and ____________ ("Tenant"), with offices at________________.

WHEREAS,

A. Landlord, pursuant to the provisions of that certain written ___________, dated ______ (the "Lease"), leased to Tenant and Tenant leased from Landlord space in the property located at__________ (the "Building"), commonly known as Suite ____________ (the "Premises");

B. The provisions of said Lease specify that the Commencement Date shall be the date Landlord substantially completes the Improvements for which Landlord is obligated under the Lease, as conclusively evidenced by Tenant taking possession of the Premises;

C. Tenant took possession of the Premises on;

NOW, THEREFORE, IN CONSIDERATION of the covenants and provisions contained herein, and other good and valuable consideration, the sufficiency of which Landlord and Tenant hereby acknowledge, Landlord and Tenant agree;

1. CONFIRMATION OF DEFINED TERMS. Unless modified herein, all terms previously defined and capitalized in the Lease shall hold the same meaning for the purposes of this______________ Amendment.

2. CONFIRMATION OF COMMENCEMENT DATE AND TERM. The Commencement Date is hereby confirmed to be___________, and the Term is hereby confirmed from and including_______________ to and including________________.

3. REVISION IN FIXED MONTHLY RENT. Tenant acknowledges and agrees commencing ________ and continuing through_____________, Tenant shall pay the initial Fixed Monthly Rent of $_____________ per month. Furthermore, as of the Commencement Date, the provisions of Section 3.3 are hereby deleted in their entirety, and replaced in lieu thereof, with the following:

"Commencing_____________, and continuing through __________, the Fixed Monthly Rent payable by Tenant shall increase from $_________ per month to $___________ per month;

Commencing__________, and continuing through ____________ the Fixed Monthly Rent payable by Tenant shall increase from $__________ per month to $_________ per month;

Commencing___________,and continuing through __________, the Fixed Monthly Rent payable by Tenant shall increase from $_________ per month to $__________ per month; and

Commencing __________, and continuing throughout the remainder of the initial Term, the Fixed Monthly Rent payable by Tenant shall increase from $_________ per month to $ ____________per month."

4. ACCEPTANCE OF PREMISES. Tenant acknowledges and agrees that Landlord has completed the Improvements for which Landlord was obligated under the Lease to Tenant's satisfaction, and, as of the Commencement Date, the Premises were in good order and repair.

- WARRANTY OF AUTHORITY. If Landlord or Tenant signs as a corporation or a partnership, each of the persons executing this ____________ Amendment on behalf of Landlord or Tenant hereby covenants and warrants that the corporation executing hereinbelow is a duly authorized and existing entity that is qualified to do business in California; that the person(s) signing on behalf of either Landlord or Tenant have full right and authority to enter into this ____________ Amendment; and that each and every person signing on behalf of either Landlord or Tenant are authorized in writing to do so.

If either signatory hereto is a corporation, the person(s) executing on behalf of said entity shall affix the appropriate corporate seal to each area in the document where request therefor is noted, and the other party shall be entitled to conclusively presume that by doing so the entity for which said corporate seal has been affixed is attesting to and ratifying this_________ Amendment.

- BROKER REPRESENTATION. Landlord and Tenant represent to one another that it has dealt with no broker in connection with this ___________ Amendment other than Douglas, Emmett and Company. Landlord and Tenant shall hold one another harmless from and against any and all liability, loss, damage, expense, claim, action, demand, suit or obligation arising out of or relating to a breach by the indemnifying party of such representation. Landlord agrees to pay all commissions due to the brokers listed above created by Tenant's execution of this ________ Amendment.

- SUCCESSORS AND HEIRS. The provisions of this_____________ Amendment shall inure to the benefit of Landlord's and Tenant's respective successors, assigns, heirs and all persons claiming by, through or under them.

- CONFIDENTIALITY. Landlord and Tenant agree that the covenants and provisions of this ___________ Amendment shall not be divulged to anyone not directly involved in the management, administration, ownership, lending against, or subleasing of the Premises, other than Tenant's or Landlord's counsel-of-record or leasing or sub-leasing broker of record.

- SUBMISSION OF DOCUMENT. No expanded contractual or other rights shall exist between Landlord and Tenant with respect to the Premises, as contemplated under this________________Amendment, until both Landlord and Tenant have executed and delivered this________________Amendment, whether or not

D-1

EXHIBIT D (CONTINUED)
FIRST AMENDMENT - COMMENCEMENT DATE AND TERM

any additional rental or security deposits have been received by Landlord, and notwithstanding that Landlord has delivered to Tenant an unexecuted copy of this________________Amendment.

The submission of this ____________ Amendment to Tenant shall be for examination purposes only, and does not and shall not constitute a reservation of or an option for the Tenant to lease the Premises, or otherwise create any interest by Tenant in the Premises or any other portion of the Building other than the original Premises currently occupied by Tenant. Execution of this _______________Amendment by Tenant and its return to Landlord shall not be binding upon Landlord, notwithstanding any time interval, until Landlord has in fact executed and delivered this_______________ Amendment to Tenant.

- DISCLOSURE. Landlord and Tenant acknowledge that principals of Landlord have a financial interest in Douglas Emmett Realty Advisors, Douglas Emmett and Company, and P.L.E. Builders.

- Governing Law. The provisions of this _________ Amendment shall be governed by the laws of the State of California.

- REAFFIRMATION. Landlord and Tenant acknowledge and agree that the Lease, as amended herein, constitutes the entire agreement by and between Landlord and Tenant, and supersedes any and all other agreements written or oral between the parties hereto. Furthermore, except as modified herein, all other covenants and provisions of the Lease shall remain unmodified and in full force and effect.

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this document as of the day and year written below.

LANDLORD:                              TENANT:

DOUGLAS EMMETT JOINT VENTURE,          THE KRIEGSMAN CAPITAL GROUP, LLC,
a California general partnership       a California limited liability company

By: DOUGLAS, EMMETT AND COMPANY,       By : /s/ Steven A. Kriegsman
    its agent                               ---------------------------------
                                            Signer Name: Steven A. Kriegsman,
By : /s/ Kenneth Panzer                     [X] President [ ] Vice President or
     ------------------------------         [ ] Chief Executive  Officer
     Kenneth Panzer                                  (Check Title Above)

Dated:  4/27/00                                       AND

                                       By :__________________________________

                                       Signer Name:__________________________

                                            [ ] Secretary  [ ] Treasurer or
                                            [ ] Chief Financial Officer
                                                     (Check Title Above)

                                              AFFIX CORPORATE SEAL HERE

                                       GUARANTOR :

                                       /s/ Steven A. Kriegsman
                                       ------------------------------------
                                       Mr. Steven A. Kriegsman, an Individual

                                       Dated: 4-19-2000

EXHIBIT 10.64

ASSIGNMENT, ASSUMPTION AND CONSENT

SECTION I: ASSIGNMENT OF LEASE

For valuable consideration, the receipt and adequacy of which are hereby acknowledged, the undersigned, THE KRIEGSMAN CAPITAL GROUP, LLC, a California limited liability company ("Assignor"), hereby assigns and transfers to CytRx CORPORATION, a Delaware corporation ("Assignee"), all of Assignor's right, title and interest in and under that certain Office Lease dated April 13, 2000 (the "Lease"), between DOUGLAS EMMETT JOINT VENTURE, a California general partnership, as Landlord, and Assignor, as Tenant, covering that certain space more commonly known as Suite 650 (the "Premises"), located at 11726 San Vicente Boulevard, Los Angeles, California 90049 (the "Building"), as more particularly described in the Lease.

This Assignment is made pursuant to the provisions of Article 11 of the Lease and in connection therewith the undersigned:

a) Agrees the effectiveness of this Assignment and the Assumption of Lease provided for herein are subject to the consent of Landlord, which consent is predicated upon satisfaction of the conditions set forth in
Section 3 of this instrument.

b) Agrees that Assignor and Guarantor shall continue to remain personally liable for the payment of all amounts payable by the Tenant and the performance of all obligations of the Tenant pursuant to the Lease, subject to the terms of Article 24 of the Lease. In the event Assignee shall hold over, enter into a new lease or modification of the existing lease, Assignor and Guarantor shall be released from Assignor's and Guarantor's personal liability for any of the obligations of the Tenant under the Lease as of such date.

c) Warrants that, as of the Effective Date specified below, there will be no uncured default on the part of Assignor pursuant to the Lease, and agrees to indemnify and defend Assignee against any claims arising out of such a claimed default.

d) Acknowledges that Assignor has read the disclaimer set forth in
Section 4 and the general provisions set forth in Section 5 of this instrument and executes this instrument with full knowledge and acceptance of such sections, both of which are incorporated herein.

This Assignment shall be effective as of July 1, 2003 (the "Effective Date").

SECTION 2: ASSUMPTION OF LEASE

Assignee hereby accepts the foregoing assignment and assumes and agrees to be bound by and perform all obligations of the Tenant pursuant to the Lease arising on or after the Effective Date and to abide by all of the terms, provisions, covenants and conditions of the Lease, including but not limited to those providing for the payment of Rent, Additional Rent and other charges. The undersigned acknowledges and agrees that:

a) It has inspected the Premises and the Building and has received and read a copy of the Lease and is assuming the obligations of Tenant pursuant to the Lease based upon its own independent investigation, and not upon any statements or representations made by or on behalf of the Landlord.

b) In connection with this transaction, no person has had any authority to make any representations on behalf of Landlord concerning the Premises and/or the Building and such representations, if any, have not been relied upon by the undersigned.

c) The effectiveness of this Assumption and the Assignment of Lease provided for herein are subject to the consent of Landlord, which consent is predicated upon satisfaction of the conditions set forth in Section 3 of this instrument.

d) There may be no further assignment or transfer of the Lease or subletting of the Premises, or any portion thereof.

e) There may be no change in the use of the Premises, except that Landlord shall permit Assignee to use the Premises as an administrative office for a pharmaceutical company, and there shall be no remodeling of or alterations to the Premises without, in each instance, the prior written consent of Landlord and in conformance with the terms of the Lease.

f) Assignee's use of the Premises shall not conflict with other exclusive use provisions in current leases ( or with exclusive use provisions in future leases, which do not, when made, conflict with Assignee's actual and specifically permitted use of the Premises).

g) If Assignee defaults in payment or performance of any Tenant obligation accruing after the Effective Date, Assignee shall indemnify and hold Assignor harmless against any liability therefor and shall promptly reimburse Assignor for all amounts paid by Assignor to cure any such default, together with interest thereon at the rate specified in the Lease from date of expenditure to date of repayment.

h) Assignee has read the disclaimer set forth in Section 4 and the general provisions set forth in Section 5 of this instrument and executes this instrument with full knowledge and acceptance of such sections, both of which are incorporated herein.

SECTION 3: CONSENT TO ASSIGNMENT

Contingent upon Assignor's and Assignee's acceptance of the requirements contained hereinbelow, Landlord hereby consents to the foregoing Assignment in accordance with the provisions of Article 11 of the Lease. Said consent is subject to Assignor and Assignee acknowledging and agreeing that:

a) The foregoing consent is not a waiver of Landlord's right to consent to or impose restrictions upon any future assignment or subletting.

b) Nothing contained herein shall be deemed or construed to relieve Assignor of any obligation of the Tenant pursuant to the Lease, whether accrued through the Effective Date or thereafter.

c) Landlord now holds a security deposit pursuant to the Lease of $20,508.46, which sum shall continue to be held by Landlord after the Effective Date. Adjustments concerning such deposit are the sole responsibility of Assignor and Assignee, and Landlord need not be concerned therewith. At the expiration of the term of the Lease, Landlord shall return said security deposit in accordance with the terms of the Lease to Assignee.

d) The foregoing consent does not include a consent to the transfer of any renewal, extension or expansion rights, or any other special privileges or rights granted to Tenant pursuant to the Lease and all such rights and privileges shall terminate upon the Effective Date.

e) In the event of any defaults under the Lease, Landlord will send to Assignor any notice of such default that Landlord sends to Assignee.

This consent shall become effective only upon the execution of a copy of this instrument by each other party hereto and delivery of such fully executed copy to the undersigned.

SECTION 4: DISCLAIMER

Assignor and Assignee each acknowledge that the Lease, as currently amended, provides for payment of Additional Rent (as that term is defined in the Lease) periodically on an estimated basis with adjustment to actual amounts due as specified in the Lease. Notwithstanding any estimate or allocation of such amounts provided by Landlord to Assignor and Assignee to facilitate the transfer provided for herein, Assignor and Assignee understand and acknowledge that (i) any such estimate or allocation is only an estimate by Landlord and is not intended as and shall not be construed as a limitation or ceiling upon the actual amounts which may be due, (ii) as respects Landlord, Assignee shall be solely responsible for any additional amounts of Additional Rent due to Landlord by virtue of such adjustments and shall be solely entitled to any refunds or credits resulting from such adjustments, and (iii) any proration of any such amounts between Assignor and Assignee shall be strictly between them, and Landlord need not be concerned therewith.

SECTION 5: GENERAL PROVISIONS

a) If any party hereto commences any action against any other party hereto arising out of or in connection with this instrument, or the Lease, the prevailing party or parties shall be entitled to recover from the losing party or parties reasonable attorneys' fees as determined by the court as well as costs of suit.

b) Any notice, demand, request, consent, approval or communication that any party hereto desires or is required to give to any other party or parties hereto shall be in writing and either served personally or sent by prepaid, first class mail properly addressed and deposited in the State of California to the address appearing below the signatures of each party hereto. Notice shall be deemed communicated three business days after the time of mailing if mailed as provided in this paragraph.

c) Assignor and Assignee agree that Landlord has no liability for any fees or commissions to any real estate broker or agent in connection with the assignment and assumption of the Lease. All such fees and commissions shall be the responsibility of Assignor and Assignee.

d) This instrument shall be binding upon and inure to the benefit of the parties hereto and their respective successors in interest.

e) In the event of any conflict between the terms of this instrument and the terms of the Lease, the terms of the Lease shall control.

f) In connection with the within assignment, and to defray the costs of processing such assignment, and Landlord's legal fees, Assignor shall pay to Douglas, Emmett and Company upon Landlord's execution of this instrument a processing fee of$750.00.

IN WITNESS WHEREOF, the parties hereto have affixed their signatures the date hereinbelow.

ASSIGNOR:                                 ASSIGNEE:
THE KRIEGSMAN CAPITAL GROUP, LLC,         CytRx CORPORATION,
a California limited liability company    a Delaware corporation

By: /s/ Steven A. Kriegsman               By: /s/ Steven A. Kriegsman
   -----------------------------------       ---------------------------------

Signer's Name: Steven Kriegsman           Signer's Name: Steven Kriegsman
               -----------------------                   ---------------------
[X] President [ ] Vice President or       [ ] President [ ] Vice President or
[ ] Chief Executive Officer               [X] Chief Executive Officer
        (Check Title Above)                       (Check Title Above)

              and                                         and

By: /s/ Edward Umali                      By: /s/ Kathy R. Hernandez
   -----------------------------------       ---------------------------------

Signer's Name: Edward Umali               Signer's Name: Kathy Hernandez
               -----------------------                   ---------------------
[ ] Secretary [ ] Treasurer or            [X] Secretary [ ] Treasurer or
[ ] Chief Financial Officer               [ ] Chief Financial Officer
[X]Managing Director                               (Check Title Above)
        (Check Title Above)

Dated: 9/9/03                             Dated: 9/9/03
       ------

Notice Address:                           Notice Address:

11726 San Vicente Boulevard, Suite 650    11726 San Vicente Boulevard,
Los Angeles, California 90049             Suite 650
                                          Los Angeles, California 90049

LANDLORD:                                 GUARANTOR:
DOUGLAS EMMETT JOINT VENTURE
a California general partnership          /s/ Steven A. Kriegsman
                                          -----------------------------------
By: DOUGLAS, EMMETT AND COMPANY,          Steven A. Kriegsman, an individual
    its agent                             Dated: 9/9/03
                                                 ------

By: /s/ Michael J. Means
   --------------------------------
   Michael J. Means, Vice President


Dated: 9/15/03
       -------

Notice Address:
---------------
808 Wilshire Boulevard, Suite 200
Santa Monica, California 90401

Exhibit 10.65

AMENDMENT NO. 1
TO
CHIEF SCIENTIFIC SPOKESPERSON
AGREEMENT

This Amendment No. 1 (the "Amendment"), effective as of October 18 , 2003 (the "Effective Date") is being made to the Agreement between CytRx Corporation, a Delaware corporation (the "Company") and Dr. Louis J. Ignarro ("Dr. Ignarro"), dated as of July 17, 2003 (the "Agreement").

R E C I T A L S

WHEREAS, the Company and Dr. Ignarro previously have entered into the Agreement;

WHEREAS, Article 4 of the Agreement describes the vesting terms of the Option (as defined in the Agreement);

WHEREAS, the Company and Dr. Ignarro each desires to amend the vesting provisions related to the Option, for the portion of the Option that has not vested as of the Effective Date;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

1. Amendment to Article 4 -- "Compensation".

Article 4 of the Agreement is hereby amended and restated, in its entirety, as follows:

"4. Compensation. As payment in full for the Services, Dr. Ignarro will be granted a non-qualified stock option on the Grant Date under the CytRx Corporation 2000 Long-Tern Incentive Plan to purchase 350,000 registered shares of the Company's common stock at an exercise price equal to the closing price for the Company's common stock on Nasdaq on the Grant Date (the "OPTION"). The Option will have a term of seven years and, from the date hereof until October 17, 2003, will vest monthly at the rate of 4,839 shares for each day of consulting services provided by Dr. Ignarro in that month and, thereafter, shall vest monthly at a rate of 15,975 shares for the remaining term of this Agreement. Any unvested shares under the Option as of the date of termination of this Agreement shall be cancelled."

2. Continuation of All Other Terms of Agreement.

Except for the amendment of Article 4, provided for in Article 1 of this Amendment, all of the terms and conditions of the Agreement shall continue in full force and effect.

3. Miscellaneous.

3.1 Dispute Resolution. The parties agree that any dispute arising out of or relating to this Amendment shall be resolved solely by means of the procedures set forth in Article 12 of the Agreement.

3.2 Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument.

3.3 Headings. All headings are for convenience only and shall not affect the meaning of any provision of this Amendment.

3.4 Binding Effect. This Amendment shall be binding upon and inure to the benefit of the parties and their respective permitted successors and assigns.

3.5 Amendment. This Amendment may be amended, supplemented, or otherwise modified only by means of a written instrument signed by all of the parties.

3.6 Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of California irrespective of any conflicts of law principles.

IN WITNESS WHEREOF, the parties have executed this Amendment effective as of the Effective Date.

CYTRX CORPORATION                        DR. LOUIS J. IGNARRO




By: /s/ Steven A. Kriegsman              /s/ Louis J. Ignarro
   -------------------------------       -------------------------------
   Steven A. Kriegsman
   Chief Executive Officer

Exhibit 10.66

CONSULTING AGREEMENT

This CONSULTING AGREEMENT ("Agreement"), effective as of December 1, 2003 ("Effective Date"), is entered into by and between CytRx Corporation, a Delaware corporation (the "Company") with offices at 11726 San Vicente Boulevard, Suite 650, Los Angeles, CA 90049 and MBN Consulting, LLC, a Florida limited liability company with offices at 3151 Clint Moore Road, Suite 204, Boca Raton, FL 33496 (the "Consultant").

RECITALS

WHEREAS, the Company desires to engage the services of the Consultant to represent the Company on a non-exclusive basis in investors' communications with existing shareholders, brokers, dealers and other investment professionals as to the Company's current and proposed activities, and to consult with management concerning the Company activities;

NOW THEREFORE, in consideration of the promises and the mutual covenants and agreements set forth below, the legal sufficiency of which is acknowledged, the parties covenant and agree as follows:

1. Term of Consultancy. The Company agrees to retain the Consultant to act in a consulting capacity to the Company, and the Consultant agrees to provide services to the Company, during the term commencing on the Effective Date and ending on November 30, 2004, unless earlier terminated pursuant to
Section 4 hereof (the "Term").

2. Duties of Consultant. The Consultant agrees that it will provide the following consulting services through its officers and employees during the Term:

(a) Consult with and assist the Company in developing and implementing appropriate plans and means for presenting the Company and its business plans, strategy and personnel to the financial community and establishing an image for the Company in the financial community;

(b) Introduce the Company to the financial community;

(c) With the cooperation of the Company, maintain an awareness in the financial community of the Company's plans, strategy and personnel, as they may evolve, and consult and assist the Company in communicating appropriate information regarding such plans, strategy and personnel to the financial community;

(d) Consult with and assist the Company with respect to relations with stockholders, relations with brokers, dealers, analysts and other investment professionals; and

(e) Upon the Company's approval, initiate meetings, in person or by telephone, with brokers, dealers, analysts and other investment professionals to communicate with them regarding the Company's plans, goals and activities.

3. Allocation of Time and Energies. The Consultant hereby promises to perform and discharge faithfully its responsibilities so long as such activities are in compliance with

applicable securities laws and regulations. The Consultant and its staff shall diligently and thoroughly provide the consulting services required hereunder. Although no specific hours-per-day requirement will be required, the Consultant and the Company agree that the Consultant will perform the duties set forth herein above in a diligent and professional manner. It is explicitly understood that, subject to Section 4 hereof, the Consultant's performance of its duties hereunder will in no way be measured by the price of the Company's common stock, nor the trading volume of the Company's common stock. It is also understood that the Company is entering into this Agreement with the Consultant and not any individual member of the Consultant, and, as such, the Consultant will not be deemed to have breached this Agreement if any member, officer or director of the Consultant leaves the firm or dies or becomes physically unable to perform any meaningful activities during the term of the Agreement, provided the Consultant otherwise performs its obligations under this Agreement. The Consultant will provide the Company with a written summary every two weeks describing the activities of the Consultant during that time period, including a summary of all of the contacts the Consultant had with members of the financial community concerning the Company. The Consultant also will provide the Company with copies of all written correspondence, including e-mails (but excluding personal correspondence), that the Consultant has with members of the financial community. The Consultant will not during the Term provide similar services to any other pharmaceutical or biopharmaceutical company whose activities are primarily or significantly directed to the area of gene silencing.

4. Remuneration. As full and complete compensation for services described in this Agreement, the Company shall compensate the Consultant as follows:

(a) The Company agrees to issue to the Consultant, within seven business days of the signing of this Agreement, one or more four-year warrants to purchase an aggregate of 600,000 shares of common stock of the Company at an exercise price of $2.25 per share and otherwise in the form set forth as Exhibit A hereto. The Consultant will not assign any of the warrants, or any interest therein, to any third party without prior written notice to the Company. The shares underlying the warrants shall have customary piggyback registration rights. The warrants will vest and become exercisable as to the shares covered thereby as follows: (i) as to 100,000 shares immediately upon issuance; (ii) as to the balance of 500,000 shares covered thereby only upon the Company meeting all requirements for NASDAQ National Market listing of its common stock by no later than June 30, 2004 and receiving official notification that it has met those requirements. If this is not achieved, this Agreement, and the warrants as to such 500,000 shares, shall terminate effective as of June 30, 2004. However, in the event that, as of June 1, 2004, the Company has met all the NASDAQ National Market requirements for listing of its common stock and the 90-day trading period required by NASDAQ for National Market qualification has begun and is still in the process of running because the stock trading price is then above the Nasdaq required level (the "Contingent Event"), this Agreement and the warrants will stay in full force until the earlier of: the first day thereafter on which the stock trades below the Nasdaq required level or the other NASDAQ National Market listing requirements are not met, or (ii) November 30, 2004, if all of the NASDAQ National Market Listing requirements have been satisfied by no later than August 29, 2004, and the Company receives official notification that it has met all of those requirements. If, as of the expiration of such 90-day period, the Company's common stock shall not have been listed on the NASDAQ National

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Market, this Agreement, and the warrants as to 500,000 shares covered thereby, shall immediately terminate.

(b) Additionally, the Company shall on the first of every month pay the Consultant $10,000 (ten thousand) per month beginning December 1, 2003 and continuing through the expiration or earlier cancellation of the Term. In a Contingency Event, no monthly payment shall be due for any month after June 2004 unless and until all of the NASDAQ National Market Listing requirements have been satisfied by the extended deadline date of August 29, 2004.

5. Representations and Warranties. In connection with the acquisition of Warrants, the Consultant represents and warrants to the Company, to the best of its knowledge, as follows:

(a) The Consultant acknowledges that the Consultant has been afforded the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Company concerning an investment in the Company, and any additional information which the Consultant has requested.

(b) The Consultant is an "accredited investor" as defined by Regulation D under the Securities Act of 1933.

6. Expenses. The Consultant agrees to pay for all its own expenses other than extraordinary items (travel required by/or specifically requested by the Company, luncheons or dinners to large groups of investment professionals, investor conference calls, print advertisements in publications, etc.) approved in writing by the Company prior to its incurring an obligation for reimbursement.

7. Indemnification. The Company warrants and represents that all oral communications, written documents or materials furnished to the Consultant by the Company with respect to financial affairs, operations, profitability and strategic planning of the Company are accurate and the Consultant may rely upon the accuracy thereof without independent investigation. The Company will protect, indemnify and hold harmless the Consultant against any claims or litigation including any damages, liability, cost and reasonable attorney's fees as incurred with respect thereto resulting from the Consultant' communication or dissemination of any said information, documents or materials, provided that the Consultant has reviewed any presentation that it makes to third parties with the Company and excluding any such claims or litigation resulting from the Consultant's communication or dissemination of information not provided or authorized by the Company.

8. Representations. The Consultant represents that it is not required to maintain any licenses and registrations under federal or any state regulations necessary to perform the services set forth herein. The Consultant acknowledges that, to the best of its knowledge, the performance of the services set forth under this Agreement will not violate any rule or provision of any regulatory agency having jurisdiction over the Consultant. The Consultant acknowledges that, to the best of its knowledge, the Consultant and its officers and directors are not the subject of any investigation, claim, decree or judgment involving any violation of the federal or state securities laws. The Consultant further acknowledges that it is not a securities broker dealer or a registered investment advisor. The Company acknowledges that, to the best of its knowledge,

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that it has not violated any rule or provision of any regulatory agency having jurisdiction over the Company. The Company acknowledges that, to the best of its knowledge, the Company is not the subject of any investigation, claim, decree or judgment involving any violation of any federal or state securities laws.

9. Legal Representation. The Company acknowledges that it has been represented by independent legal counsel in the preparation of this Agreement. The Consultant represents that it has consulted with independent legal counsel and/or tax, financial and business advisors, to the extent the Consultant deemed necessary.

10. Status as Independent Contractor. The Consultant' engagement pursuant to this Agreement shall be as independent contractor, and not as an employee, officer or other agent of the Company. Neither party to this Agreement shall represent or hold itself out to be the employer or employee of the other. The Consultant further acknowledges the consideration provided hereinabove is a gross amount of consideration and that the Company will not withhold from such consideration any amounts as to income taxes, social security payments or any other payroll taxes. All such income taxes and other such payment shall be made or provided for by the Consultant and the Company shall have no responsibility or duties regarding such matters. Neither the Company nor the Consultant possesses the authority to bind each other in any agreements without the express written consent of the entity to be bound.

11. Attorneys' Fee. If any legal action or any arbitration or other proceeding is brought for the enforcement or interpretation of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with or related to this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs in connection with that action or proceeding, in addition to any other relief to which it or they may be entitled

12. Waiver. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by such other party.

13. Notices. All notices, requests, and other communications hereunder shall be deemed to be duly given if sent by U.S. mail, postage prepaid, addressed to the other party at the address as set forth herein below:

To the Company:            CytRx Corporation
                           11726 Vicente Blvd.
                           Suite 650
                           Los Angeles, CA 90049
                           Attention:  Chief Executive Officer

To the Consultant:         MBN Consulting, LLC
                           3151 Clint Moore Rd.
                           Suite 204
                           Boca Raton, FL 33496

- 4 -

Either party may change the address to which notices for it shall be addressed by providing notice of such change to the other party in the manner set forth in this Section 12.

14. Choice of Law, Jurisdiction and Venue. This Agreement shall be governed by, construed and enforced in accordance with the internal laws of the State of California and venue shall be in the federal and state courts located in Los Angeles, California.

15. Complete Agreement. This Agreement contains the entire agreement of the parties relating to the subject matter of this Agreement. This Agreement and its terms may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.

IN WITNESS WHEREOF, the parties have executed this Consulting Agreement as of the Effective Date.

"Company"                                    CytRx Corporation


Date:                                        By: /s/ Steven A. Kriegsman
     ----------------------                      -------------------------
                                                 Steven A. Kriegsman


"Consultant"                                 MBN Consulting, LLC


Date:        12-1-03                         By: /s/ Steven Sanders
     ----------------------                      -------------------------
                                                 Steven Sanders

- 5 -

EXHIBIT A

Void after 5:00 P.M. California Time, on November 30, 2007

Warrant to Purchase 600,000 Shares of Common Stock

WARRANT TO PURCHASE COMMON STOCK

CYTRX CORPORATION

This Warrant is being issued to Holder in connection with the Consulting Agreement between Holder and the Company, effective as of December 1, 2003 (the "Consulting Agreement").

1. Vesting; Termination.

have been met. This Warrant shall remain vested and exercisable (to the extent not previously exercised as provided herein) with respect to 100,000 shares and shall terminate as to the balance of 500,000 shares covered hereby if the Company does not satisfy all of the foregoing NASDAQ National Market requirements by the foregoing deadline.

2. Exercise of Warrant.

6. Anti-Dilution Provisions.

(b) No Adjustment for Small Amounts. Anything in this Section 5 to the contrary notwithstanding, the Company shall not be required to give effect to any adjustment in the Exercise Price unless and until the net effect of one or more adjustments, determined as above provided, shall have required a change of the Exercise Price by at least one cent, but when the cumulative net effect of more than one adjustment so determined shall be to change the actual Exercise Price by at least one cent, such change in the Exercise Price shall thereupon be given effect.

with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the Company shall cause effective provision to be made so that the holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization or other change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section 8 shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances.

14. Applicable Law. This Warrant shall be governed by, and construed in accordance with, the internal laws of the State of California.

Dated:                                   CYTRX CORPORATION



                                         By:
                                            -----------------------------------
                                                   Steven A. Kriegsman

PURCHASE FORM

Date ___________, 200_

INSTRUCTIONS FOR REGISTRATION OF STOCK

NAME:

(Please type or print in block letters)

NAME:

ADDRESS:

TAX I.D. NO.:

SIGNATURE:

ASSIGNMENT FORM

FOR VALUE RECEIVED,

hereby sells, assigns and transfers unto:

NAME:

(Please type or print in block letters)

ADDRESS:

Date:_______________, 200__

By:__________________________ Name:

EXHIBIT 10.67

LEASE AGREEMENT

THIS LEASE AGREEMENT (this "LEASE") is made this 19th day of November, 2003, between ARE-ONE INNOVATION DRIVE, LLC, a Delaware limited liability company ("LANDLORD"), and ARAIOS, INC., a Delaware corporation ("TENANT").

ADDRESS:          One Innovation Drive, Worcester, Massachusetts

PREMISES:         That portion of the Project, containing approximately 6,897
                  rentable square feet, as determined by Landlord, as shown on
                  EXHIBIT A.

PROJECT:          The real property on which the building (the "BUILDING") In
                  which the Premises are located, together with all improvements
                  thereon and appurtenances thereto as described on EXHIBIT B.

BASE RENT:        $12,069.75 per month, subject to adjustment as provided for in
                  Section 4 below.

RENTABLE AREA OF PREMISES: 6,897 sq. ft.

RENTABLE AREA OF PROJECT: 115,179 sq. ft.

TENANT'S SHARE OF OPERATING EXPENSES: 5.99%

SECURITY DEPOSIT: $50,000.00 TARGET COMMENCEMENT DATE: JANUARY 1, 2004

RENT ADJUSTMENT PERCENTAGE: 3%

BASE TERM:        24 months from the first day of the first full month following
                  the month in which the Commencement Date occurs.

PERMITTED USE:    Research and development laboratory, executive and
                  administrative office and other related uses consistent with
                  the character of the Project and otherwise in compliance with
                  the provisions of Section 7 hereof.

ADDRESS FOR RENT PAYMENT:                   LANDLORD'S NOTICE ADDRESS:
135 N. Los Robles Avenue, Suite 250         135 N. Los Robles Avenue, Suite 250
Pasadena, CA 91101                          Pasadena, CA 91101
Attention: Accounts Receivable              Attention: Corporate Secretary

TENANT'S NOTICE ADDRESS:
Araios, Inc.
One Innovation Drive, Suite___
Worcester, MA  01605
Attention: President

The following Exhibits and Addenda are attached hereto and incorporated herein by this reference:

[X] EXHIBIT A - PREMISES DESCRIPTION [X] EXHIBIT B - DESCRIPTION OF PROJECT
[X] EXHIBIT C - SCOPE OF WORK AND [X] EXHIBIT D - COMMENCEMENT DATE
BUDGET

[X] EXHIBIT E - RULES AND REGULATIONS [X] EXHIBIT F - TENANT'S PERSONAL

PROPERTY

[X] EXHIBIT G - EXPANSION PREMISES

NET MULTI-TENANT LABORATORY ONE INNOVATION/ARAIOS - PAGE 2

1. LEASE OF PREMISES. Upon and subject to all of the terms and conditions hereof, Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord. The portions of the Project which are for the non-exclusive use of tenants of the Project are collectively referred to herein as the "COMMON AREAS." Landlord reserves the right to modify Common Areas, provided that such modifications do not materially adversely affect Tenant's access to or use of the Premises for the Permitted Use. Tenant shall have the right, in common with other tenant's at the Building and subject to entering into a license agreement with Landlord on Landlord's standard form of license agreement, to use a glasswash and autoclave facility in the Building. Tenant shall be required to reimburse Landlord for Tenant's proportionate share, as reasonably determined by Landlord, of the costs associated with operating and maintaining such glasswash and autoclave facility.

2. DELIVERY; ACCEPTANCE OF PREMISES: COMMENCEMENT DATE. Subject to the provisions of the second paragraph of this Section 2, Landlord shall use reasonable efforts to deliver the Premises to Tenant on or before the Target Commencement Date, with Landlord's Work Substantially Completed ("DELIVERY" or "DELIVER"). If Landlord fails to timely Deliver the Premises, Landlord shall not be liable to Tenant for any loss or damage resulting therefrom, and this Lease shall not be void or voidable except as provided herein. If Landlord does not Deliver the Premises within 60 days of the Target Commencement Date for any reason other than delays caused by Force Majeure and/or Tenant, this Lease may be terminated by Landlord or Tenant by written notice to the other, and if so terminated by either: (a) the Security Deposit, or any balance thereof (i.e., after deducting therefrom all amounts to which Landlord is entitled under the provisions of this Lease), shall be returned to Tenant, and (b) neither Landlord nor Tenant shall have any further rights, duties or obligations under this Lease, except with respect to provisions which expressly survive termination of this Lease. If neither Landlord nor Tenant elects to void this Lease within 5 business days of the lapse of such 60 day period, such right to void this Lease shall be waived and this Lease shall remain in full force and effect.

The "COMMENCEMENT DATE" shall be the earlier to occur of: (i) the date Landlord Delivers the Premises to Tenant; and (ii) the date Landlord could have Delivered the Premises but for delays caused by Tenant. Upon request of Landlord, Tenant shall execute and deliver a written acknowledgment of the Commencement Date and the expiration date of the Term when such are established in the form of the "Acknowledgement of Commencement Date" attached to this Lease as EXHIBIT D; provided, however, Tenant's failure to execute and deliver such acknowledgment shall not affect Landlord's rights hereunder. The "TERM" of this Lease shall be the Base Term, as defined above on the first page of this Lease and the Extension Term which Tenant may elect pursuant to Section 41 hereof.

Landlord shall endeavor to make approximately 1,500 to 2,000 rentable square feet of the Premises as depicted on EXHIBIT A attached hereto (the "EARLY OCCUPANCY SPACE") available for Tenant's use for the period commencing upon the execution of this Lease until the Commencement Date (the "EARLY OCCUPANCY PERIOD"). Tenant's use of the Early Occupancy Space during the Early Occupancy Period shall be subject to all of the terms and conditions of this Lease, except that (i) commencing on the date that the Early Occupancy Space is delivered to Tenant, Tenant shall pay Base Rent on a monthly basis at an annual rate of $20.00 per rentable square foot of the Early Occupancy Space, and (ii) Tenant shall not be required to pay Operating Expenses. Any occupancy by Tenant of any other portion of the Premises before the Commencement Date shall be subject to all of the terms and conditions of this Lease, including the obligation to pay Base Rent and Operating Expenses. Tenant agrees not to interfere with Landlord's Work nor with any inspections or the issuance of any approvals by any applicable governmental authority in connection with Landlord's Work and to comply with any reasonable requirements imposed by Landlord in connection with Landlord's Work. Tenant acknowledges that Landlord's Work may adversely impact Tenant's use of the Early Occupancy Space and Tenant agrees that Landlord shall have no liability to Tenant in connection with Landlord's Work.

Landlord shall provide Tenant with a tenant improvement allowance ("TI ALLOWANCE") of up to $8.00 per rentable square foot of the Premises which shall be used by Landlord to pay for the cost of Landlord's Work. Landlord shall be paid administrative rent equal to $0.50 per rentable square foot of the Premises ("ADMINISTRATIVE RENT") for monitoring and inspecting the construction of Landlord's Work, which sum shall be payable from the TI Allowance. Any unused portion of the TI Allowance shall be

NET MULTI-TENANT LABORATORY ONE INNOVATION/ARAIOS - PAGE 3

applied against Base Rent next coming due under the Lease. Tenant shall have no right to use any unused portion of the TI Allowance for any other purpose. It is understood and agreed that Landlord is under no obligation to bear any portion of the cost of any of Landlord's Work except to the extent of the TI Allowance. If at any time and from time-to-time, the remaining costs of Landlord's Work exceed the remaining unexpended TI Allowance, Tenant shall deposit with Landlord, as a condition precedent to Landlord's obligation to complete Landlord's Work, 100% of the difference between the amount required to complete Landlord's Work and the remaining TI Allowance. As used herein, the term "LANDLORD'S WORK" shall mean all of the work described on Exhibit C. Landlord's Work shall not be considered "SUBSTANTIALLY COMPLETED" unless (a) such work is completed in a good and workmanlike manner, and (b) such work is substantially completed except for normal "punch list items" of a non-material nature which do not interfere with Tenant's use of the Premises.

Tenant shall be entitled to receive the benefit of all construction warranties and manufacturer's equipment warranties relating to equipment installed in the Premises. Tenant shall have 1 year after Substantial Completion within which to notify Landlord of any construction defect with respect to Landlord's Work discovered by Tenant, and Landlord shall use reasonable efforts to remedy or cause the responsible contractor to remedy any such construction defect within 30 days thereafter. Notwithstanding the foregoing, Landlord shall not be in default under the Lease if the applicable contractor, despite Landlord's reasonable efforts, fails to remedy such construction defect within such 30-day period, in which case Landlord shall have no further obligation with respect to such construction defect other than to cooperate, at no cost to Landlord, with Tenant should Tenant elect to pursue a claim against such contractor, provided that Tenant indemnifies and holds Landlord harmless from and against any liability, loss, cost damage or expense in connection with any such claim.

Except for Landlord's Work: (i) Tenant shall accept the Premises in their condition as of the Commencement Date, subject to all applicable Legal Requirements (as defined in Section 7 hereof); (ii) Landlord shall have no obligation for any defects in the Premises except as expressly provided herein; and (iii) Tenant's taking possession of the Premises shall be conclusive evidence that Tenant accepts the Premises and that the Premises were in good condition at the time possession was taken.

Tenant agrees and acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the condition of all or any portion of the Premises or the Project, and/or the suitability of the Premises or the Project for the conduct of Tenant's business, and Tenant waives any implied warranty that the Premises or the Project are suitable for the Permitted Use. This Lease constitutes the complete agreement of Landlord and Tenant with respect to the subject matter hereof and supersedes any and all prior representations, inducements, promises, agreements, understandings and negotiations which are not contained herein. Landlord in executing this Lease does so in reliance upon Tenant's representations, warranties, acknowledgments and agreements contained herein.

3. RENT.

(a) BASS RENT. One month's Base Rent and the Security Deposit shall be due and payable on delivery of an executed copy of this Lease to Landlord. Tenant shall pay to Landlord in advance, without demand, abatement, deduction or set-off, monthly installments of Base Rent on or before the first day of each calendar month during the Term hereof in lawful money of the United States of America, at the office of Landlord for payment of Rent set forth above, or to such other person or at such other place as Landlord may from time to time designate in writing. Payments of Base Rent for any fractional calendar month shall be prorated. The obligation of Tenant to pay Base Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations. Tenant shall have no right at any time to abate, reduce, or set-off any Rent (as defined in Section 5) due hereunder except for any abatement as may be expressly provided in this Lease. Notwithstanding anything to the contrary contained herein, (i) Tenant shall not be required to pay Base Rent for the first 2 months of the Base Term, and (i) the one month's Base Rent which is delivered to Landlord along with an executed copy of this Lease shall be applied by Landlord towards Base Rent for the 3rd month of the Base Term.

NET MULTI-TENANT LABORATORY ONE INNOVATION ARAIOS - PAGE 4

(b) ADDITIONAL RENT. In addition to Base Rent, Tenant agrees to pay to Landlord as additional rent ("ADDITIONAL RENT"): (i) Tenant's Share of "Operating Expenses" (as defined in Section 5), and (ii) any and all other amounts Tenant assumes or agrees to pay under the provisions of this Lease, including, without limitation, any and all other sums that may become due by reason of any default of Tenant or failure to comply with the agreements, terms, covenants and conditions of this Lease to be performed by Tenant, after any applicable notice and cure period.

4. BASE RENT ADJUSTMENTS. Base Rent shall be increased on each annual anniversary of the first day of the first full month during the Term of this Lease (each an "ADJUSTMENT DATE") by multiplying the Base Rent payable immediately before such Adjustment Date by the Rent Adjustment Percentage and adding the resulting amount to the Base Rent payable immediately before such Adjustment Date. Base Rent, as so adjusted, shall thereafter be due as provided herein.

5. OPERATING EXPENSE PAYMENTS. Landlord shall deliver to Tenant a written estimate of Operating Expenses for each calendar year during the Term (the "ANNUAL ESTIMATE"), which may be revised by Landlord from time to time during such calendar year. On or before the first day of each calendar month during the Term, Tenant shall pay Landlord an amount equal to 1/12th of Tenant's Share of the Annual Estimate. Payments for any fractional calendar month shall be prorated.

The term "OPERATING EXPENSES" means all costs and expenses of any kind or description whatsoever incurred or accrued each calendar year by Landlord with respect to the Project (including, without duplication, Taxes (as defined in Section 9), reasonable reserves consistent with good business practice for future repairs and replacements, capital repairs and improvements undertaken by Landlord during the Term amortized over the lesser of 7 years and the useful life of such capital items, and the costs of Landlord's third party property manager (provided said cost does not exceed 5% of Base Rent) or, if there is no third party property manager, administration rent in the amount of 5.0% of Base Rent), excluding only:

(a) the original construction costs of the Project and renovation prior to the date of the Lease and costs of correcting defects in such original construction or renovation;

(b) capital expenditures for expansion of the Project;

(c) interest, principal payments of Mortgage (as defined in
Section 27) debts of Landlord, financing costs and amortization of funds borrowed by Landlord, whether secured or unsecured and all payments of base rent (but not taxes or operating expenses) under any ground lease or other underlying lease of all or any portion of the Project;

(d) depreciation of the Project (except for capital improvements undertaken by Landlord during the Term, the cost of which are includable in Operating Expenses);

(e) advertising, legal and space planning expenses and leasing commissions and other costs and expenses incurred in procuring and leasing space to tenants for the Project, including any leasing office maintained in the Project, free rent and construction allowances for tenants;

(f) legal and other expenses incurred in the negotiation or enforcement of leases;

(g) completing, fixturing, improving, renovating, painting, redecorating or other work, which Landlord pays for or performs for other tenants within their premises, and costs of correcting defects in such work;

(h) costs of utilities outside normal business hours sold to tenants of the Project;

(i) costs to be reimbursed by other tenants of the Project or Taxes to be paid directly by Tenant or other tenants of the Project, whether or not actually paid;

NET MULTI-TENANT LABORATORY ONE INNOVATION ARAIOS - PAGE 5

(j) salaries, wages, benefits and other compensation paid to officers and employees of Landlord who are not assigned in whole or in part to the operation, management, maintenance or repair of the Project;

(k) general organizational, administrative and overhead costs relating to maintaining Landlord's existence, either as a corporation, partnership, or other entity, including general corporate, legal and accounting expenses;

(l) costs (including attorneys' fees and costs of settlement, judgments and payments, in lieu thereof) incurred in connection with disputes with tenants, other occupants, or prospective tenants, and costs and expenses, including legal fees, incurred in connection with negotiations or disputes with employees, consultants, management agents, leasing agents, purchasers or mortgagees of the Building;

(m) costs incurred by Landlord due to the violation by Landlord, its employees, agents or contractors or any tenant of the terms and conditions of any lease of space In the Project or any Legal Requirement (as defined in
Section 7);

(n) penalties, fines or interest Incurred as a result of Landlord's inability or failure to make payment of Taxes and/or to file any tax or informational returns when due, or from Landlord's failure to make any payment of Taxes required to be made by Landlord hereunder before delinquency;

(o) overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in or to the Project to the extent the same exceeds the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis;

(p) costs of Landlord's charitable or political contributions, or of fine art maintained at the Project;

(q) costs in connection with services (including electricity), items or other benefits of a type which are not standard for the Project and which are not available to Tenant without specific charges therefor, but which are provided to another tenant or occupant of the Project, whether or not such other tenant or occupant is specifically charged therefor by Landlord;

(r) costs incurred in the sale or refinancing of the Project;

(s) net income taxes of Landlord or the owner of any interest in the Project, franchise, capital stocK, gift, estate or inheritance taxes or any federal, state or local documentary taxes imposed against the Project or any portion thereof or interest therein; and

(t) any expenses otherwise includable within Operating Expenses to the extent actually reimbursed by persons other than tenants of the Project under leases for space in the Project.

Within 90 days after the end of each calendar year (or such longer period as may be reasonably required), Landlord shall furnish to Tenant a statement (an "ANNUAL STATEMENT") showing in reasonable detail: (a) the total and Tenant's Share of actual Operating Expenses for the previous calendar year, and (b) the total of Tenant's payments in respect of Operating Expenses for such year. If Tenant's Share of actual Operating Expenses for such year exceeds Tenant's payments of Operating Expenses for such year, the excess shall be due and payable by Tenant as Rent within 30 days after delivery of such Annual Statement to Tenant. If Tenant's payments of Operating Expenses for such year exceed Tenant's Share of actual Operating Expenses for such year Landlord shall pay the excess to Tenant within 30 days after delivery of such Annual Statement, except that after the expiration, or earlier termination of the Term or if Tenant is delinquent in its obligation to pay Rent, Landlord shall pay the excess to Tenant after deducting all other amounts due Landlord.

NET MULTI-TENANT LABORATORY ONE INNOVATION ARAIOS - PAGE 6

The Annual Statement shall be final and binding upon Tenant unless Tenant, within 60 days after Tenant's receipt thereof, shall contest any item therein by giving written notice to Landlord, specifying each item contested and the reason therefor. Operating Expenses for the calendar years in which Tenant's obligation to share therein begins and ends shall be prorated. Notwithstanding anything set forth herein to the contrary, if the Project is not at least 95% occupied on average during any year of the Term. Tenant's Share of Operating Expenses for such year shall be computed as though the Project had been 95% occupied on average during such year.

"TENANT'S SHARE" shall be the percentage set forth on the first page of this Lease as Tenant's Share as reasonably adjusted by Landlord. Landlord may equitably increase Tenant's Share for any item of expense or cost reimbursable by Tenant that relates to a repair, replacement, or service that benefits only the Premises or only a portion of the Project that includes the Premises or that varies with occupancy or use. Base Rent, Tenant's Share of Operating Expenses and all other amounts payable by Tenant to Landlord hereunder are collectively referred to herein as "RENT."

6. SECURITY DEPOSIT. Tenant shall deposit with Landlord, upon delivery of an executed copy of this Lease to Landlord, a security deposit (the "SECURITY DEPOSIT") for the performance of all of Tenant's obligations hereunder in the amount set forth in the provisions on page 1 of this Lease, which Security Deposit shall be in the form of an unconditional and irrevocable letter of credit (the "LETTER OF CREDIT"): (i) in form and substance satisfactory to Landlord, (ii) naming Landlord as beneficiary, (iii) expressly allowing Landlord to draw upon it at any time from time to time by delivering to the issuer notice that Landlord is entitled to draw thereunder, (iv) issued by an FDIC-insured financial institution satisfactory to Landlord, and (v) redeemable by presentation of a sight draft in the state of Landlord's choice. If Tenant does not provide Landlord with a substitute Letter of Credit complying with all of the requirements hereof at least 10 days before the stated expiration date of any then current Letter of Credit, Landlord shall have the right to draw the full amount of the current Letter of Credit and hold the funds drawn in cash without obligation for interest thereon as the Security Deposit. The Security Deposit shall be held by Landlord as security for the performance of Tenant's obligations under this Lease. The Security Deposit is not an advance rental deposit or a measure of Landlord's damages in case of Tenant's default. Upon each occurrence of a Default (as defined in Section 20), Landlord may use all or any part of the Security Deposit to pay delinquent payments due under this Lease, and the cost of any damage. Injury, expense or liability caused by such Default, without prejudice to any other remedy provided herein or provided by law. Upon any such use of all or any portion of the Security Deposit, Tenant shall pay Landlord on demand the amount that will restore the Security Deposit to the amount set forth on Page 1 of this Lease. Tenant hereby waives the provisions of any law, now or hereafter in force, which provide that Landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of Rent, to repair damage caused by Tenant or to clean the Premises, it being agreed that Landlord may, in addition, claim those sums reasonably necessary to compensate Landlord for any other loss or damage, foreseeable or unforeseeable, caused by the act or omission of Tenant or any officer, employee, agent or invitee of Tenant. Upon bankruptcy or other debtor-creditor proceedings against Tenant, the Security Deposit shall be deemed to be applied first to the payment of Rent and other charges due Landlord for periods prior to the filing of such proceedings. Upon any such use of all or any portion of the Security Deposit, Tenant shall, within 5 days after demand from Landlord, restore the Security Deposit to its original amount. If Tenant shall fully perform every provision of this Lease to be performed by Tenant, the Security Deposit, or any balance thereof (i.e., after deducting therefrom all amounts to which Landlord is entitled under the provisions of this Lease), shall be returned to Tenant (or, at Landlord's option, to the last assignee of Tenant's interest hereunder) within 60 days after the expiration or earlier termination of this Lease.

If Landlord transfers its interest in the Project or this Lease, Landlord shall either (a) transfer any Security Deposit then held by Landlord to a person or entity assuming Landlord's obligations under this Section 6, or (b) return to Tenant any Security Deposit then held by Landlord and remaining after the deductions permitted herein. Upon such transfer to such transferee or the return of the Security Deposit to Tenant. Landlord shall have no further obligation with respect to the Security Deposit, and Tenant's right to the return of the Security Deposit shall apply solely against Landlord's transferee. The Security Deposit is not an advance rental deposit or a measure of Landlord's damages in case of Tenant's default.

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Landlord's obligation respecting the Security Deposit is that of a debtor, not a trustee, and no interest shall accrue thereon.

7. USE. The Premises shall be used solely for the Permitted Use set forth in the basic lease provisions on page 1 of this Lease, and in compliance with all laws, orders, judgments, ordinances, regulations, codes, directives, permits, licenses, covenants and restrictions now or hereafter applicable to the Premises, and to the use and occupancy thereof, including, without limitation, the Americans With Disabilities Act, 42 U.S.C. Section 12101, et seq. (together with the regulations promulgated pursuant thereto, "ADA') (collectively. "LEGAL REQUIREMENTS" and each, a "LEGAL REQUIREMENT"). Tenant shall, upon 5 days' written notice from Landlord, discontinue any use of the Premises which is declared by any Governmental Authority (as defined in
Section 9) having jurisdiction to be a violation of a Legal Requirement. Tenant will not use or permit the Premises to be used for any purpose or in any manner that would void Tenant's or Landlord's insurance, increase the insurance risk, or cause the disallowance of any sprinkler or other credits. Tenant shall not permit any part of the Premises to be used as a "place of public accommodation", as defined in the ADA or any similar legal requirement. Tenant shall reimburse Landlord promptly upon demand for any additional premium charged for any such insurance policy by reason of Tenant's failure to comply with the provisions of this Section or otherwise caused by Tenant's use and/or occupancy of the Premises. Tenant will use the Premises in a careful, safe and proper manner and will not commit or permit waste, overload the floor or structure of the Premises, subject the Premises to use that would damage the Premises or obstruct or interfere with the rights of Landlord or other tenants or occupants of the Project, including conducting or giving notice of any auction, liquidation, or going out of business sale on the Premises, or using or allowing the Premises to be used for any unlawful purpose. Tenant shall cause any equipment or machinery to be installed in the Premises so as to reasonably prevent sounds or vibrations from the Premises from extending into Common Areas, or other space in the Project. Tenant shall not place any machinery or equipment weighing 500 pounds or more in or upon the Premises or transport or move such items through the Common Areas of the Project or in the Project elevators without the prior written consent of Landlord. Except as may be provided in connection with Landlord's Work, Tenant shall not, without the prior written consent of Landlord, use the Premises in any manner which will require ventilation, air exchange, heating, gas, steam, electricity or water beyond the existing capacity of the Project as proportionately allocated to the Premises based upon Tenant's Share as usually furnished for the Permitted Use.

Tenant, at its sole expense, shall make any alterations or modifications to the interior or the exterior of the Premises or the Project that are required by Legal Requirements (including, without limitation, compliance of the Premises with the ADA related to Tenant's use or occupancy of the Premises. Notwithstanding any other provision herein to the contrary, Tenant shall be responsible for any and all demands, claims, liabilities, losses, costs, expenses, actions, causes of action, damages or judgments, and all reasonable expenses incurred in investigating Or resisting the same (including, without limitation, reasonable attorneys' fees, charges and disbursements and costs of suit) (collectively, "Claims") arising out of or in connection with Legal Requirements, and Tenant shall indemnify, defend, hold and save Landlord harmless from and against any and all Claims arising out of or in connection with any failure of the Premises to comply with any Legal Requirement.

Notwithstanding anything to the contrary contained herein, except as part of Operating Expenses, Tenant shall not be responsible for any structural changes to the Premises or lavatories or in connection with access to the same required to comply with Legal Requirements unless such changes are required as a result of Tenant's particular use of the Premises or are required as a result of alterations or improvements made by Tenant to the Premises.

8. HOLDING OVER. If, with Landlord's express written consent, Tenant retains possession of the Premises after the termination of the Term, (i) unless otherwise agreed in such written consent, such possession shall be subject to immediate termination by Landlord at any time, (ii) all of the other terms and provisions of this Lease (including, without limitation, the adjustment of Base Rent pursuant to Section 4 hereof) shall remain in full force and effect (excluding any expansion or renewal option or other similar right or option) during such holdover period, (iii) Tenant shall continue to pay Base Rent in the amount payable upon the date of the expiration or earlier termination of this Lease or such other amount

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as Landlord may indicate, in Landlord's sole and absolute discretion, in such written consent, and (iv) all other payments shall continue under the terms of this Lease. If Tenant remains in possession of the Premises after the expiration or earlier termination of the Term without the express written consent of Landlord, (A) Tenant shall become a tenant at sufferance upon the terms of this Lease except that the monthly rental shall be equal to 150% of Rent in effect during the last 30 days of the Term, and (B) Tenant shall be responsible for all damages suffered by Landlord resulting from or occasioned by Tenant's holding over, including consequential damages. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided, and this Section 8 shall not be construed as consent for Tenant to retain possession of the Premises. Acceptance by Landlord of Rent after the expiration of the Term or earlier termination of this Lease shall not result in a renewal or reinstatement of this Lease.

9. TAXES. Landlord shall pay, as part of Operating Expenses, all taxes, levies, assessments and governmental charges of any kind (collectively referred to as "Taxes") imposed by any federal, state, regional, municipal, local or other governmental authority or agency, including, without limitation, quasi-public agencies (collectively, "GOVERNMENTAL AUTHORITY") during the Term, including, without limitation, all Taxes: (i) imposed on or measured by or based, in whole or in part, on rent payable to Landlord under this Lease and/or from the rental by Landlord of the Project or any portion thereof, or (ii) based on the square footage, assessed value or other measure or evaluation of any kind of the Premises or the Project, or (iii) assessed or imposed by or on the operation or maintenance of any portion of the Premises or the Project, including parking, or (iv) assessed or imposed by, or at the direction of, or resulting from statutes or regulations, or interpretations thereof, promulgated by, any Governmental Authority, or (v) imposed as a license or other fee on Landlord's business of leasing space in the Project. Landlord may contest by appropriate legal proceedings the amount, validity, or application of any Taxes or liens securing Taxes. Taxes shall not include any net income taxes imposed on Landlord unless such net income taxes are in substitution far any Taxes payable hereunder. If any such Tax is levied or assessed directly against Tenant, then Tenant shall be responsible for and shall pay the same at such times and in such manner as the taxing authority shall require. Tenant shall pay, prior to delinquency, any and all Taxes levied or assessed against any personal property or trade fixtures placed by Tenant in the Premises, whether levied or assessed against Landlord or Tenant. If any Taxes on Tenant's personal property or trade fixtures are levied against Landlord or Landlord's property, or if the assessed valuation of the Project is increased by a value attributable to improvements in or alterations to the Premises, whether owned by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, higher than the base valuation on which Landlord from time-to-time allocates Taxes to all tenants in the Project, Landlord shall have the right, but not the obligation, to pay such Taxes. Landlord's determination of any excess assessed valuation shall be binding and conclusive, absent manifest error. The amount of any such payment by Landlord shall constitute Additional Rent due from Tenant to Landlord immediately upon demand.

10. PARKING. Subject to all matters of record, Force Majeure, a Taking (as defined in Section 19 below) and the exercise by Landlord of its rights hereunder. Tenant shall have the right, in common with other tenants of the Project pro rata in accordance with the rentable area of the Premises and the rentable areas of the Project occupied by such other tenants, to park in those areas designated for non-reserved parking, subject in each case to Landlord's rules and regulations. Landlord may allocate parking spaces among Tenant and other tenants in the Project pro rata as described above if Landlord determines that such parking facilities are becoming crowded. Landlord shall not be responsible for enforcing Tenant's parking rights against any third parties, including other tenants of the Project.

11. UTILITIES, SERVICES. Landlord shall provide, subject to the terms of this Section 11, water, electricity, heat, light, power, telephone, sewer, and Other utilities (including gas and fire Sprinklers to the extent the Project is plumbed for such services), refuse and trash collection and janitorial services (collectively, "Utilities"). Landlord shall pay, as Operating Expenses or subject to Tenant's reimbursement obligation, for all Utilities used on the Premises, all maintenance charges for Utilities, and any storm sewer charges or other similar charges for Utilities imposed by any Governmental Authority or Utility provider, and any taxes, penalties, surcharges or similar charges thereon. Landlord may cause, at Tenant's expense, any Utilities to be separately metered or charged directly to Tenant by the provider.

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Tenant shall pay directly to the Utility provider, prior to delinquency, any separately metered Utilities and services which may be furnished to Tenant or the Premises during the Term. Tenant shall pay, as part of Operating Expenses, its share of all charges for jointly metered Utilities based upon consumption, as reasonably determined by Landlord. No interruption or failure of Utilities, from any cause whatsoever other than Landlord's willful misconduct, shall result in eviction or constructive eviction of Tenant, termination of this Lease or the abatement of Rent. Tenant agrees to limit use of water and sewer with respect to Common Areas to normal restroom use.

12. ALTERATIONS AND TENANT'S PROPERTY. Any alterations, additions, or improvements made to the Premises by or on behalf of Tenant, including additional locks or bolts of any kind or nature upon any doors or windows in the Premises, but excluding installation, removal or realignment of furniture systems (other than removal of furniture systems owned or paid for by Landlord) not involving any modifications to the structure or connections (other then by ordinary plugs or jacks) to Building Systems (as defined in Section 13) ("ALTERATIONS") shall be subject to Landlord's prior written consent, which may be given or withheld in Landlord's sole discretion if any such Alteration affects the structure or Building Systems. If Landlord approves any Alterations, Landlord may impose such conditions on Tenant in connection with the commencement, performance and completion of such Alterations as Landlord may deem appropriate in Landlord's sole and absolute discretion. Any request for approval shall be in writing, delivered not less than 15 business days in advance of any proposed construction, and accompanied by plans, specifications, bid proposals, work contracts and such other information concerning the nature and cost of the alterations as may be reasonably requested by Landlord, including the identities and mailing addresses of all persons performing work or supplying materials. Landlord's right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to ensure that such plans and specifications or construction comply with applicable Legal Requirements. Tenant shall cause, at its sole cost and expense, all Alterations to comply with Insurance requirements and with Legal Requirements and shall implement at its sole cost and expense any alteration or modification required by Legal Requirements as a result of any Alterations. Tenant shall pay to Landlord, as Additional Rent, on demand an amount equal to 10% of all charges incurred by Tenant or its contractors or agents in connection with any Alteration to cover Landlord's overhead and expenses for plan review, coordination, scheduling and supervision. Before Tenant begins any Alteration, Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law. Tenant shall reimburse Landlord for, and indemnify and hold Landlord harmless from, any expense incurred by Landlord by reason of faulty work done by Tenant or its contractors, delays caused by such work, or inadequate cleanup.

Tenant shall furnish security or make other arrangements satisfactory to Landlord to assure payment for the completion of all Alterations work free and clear of liens, and shall provide (and cause each contractor or subcontractor to provide) certificates of insurance for workers' compensation and other coverage in amounts and from an insurance company satisfactory to Landlord protecting Landlord against liability for personal injury or properly damage during construction. Upon completion of any Alterations, Tenant shall deliver to Landlord: (1) sworn statements setting forth the names of all contractors and subcontractors who did the work and final lien waivers from all such contractors and subcontractors; and (ii) "as built" plans for any such Alteration.

Other than (i) the items, if any, listed on EXHIBIT F attached hereto,
(ii) any items installed by Tenant and agreed by Landlord in writing to be included on EXHIBIT F in the future, and (iii) any trade fixtures, machinery, equipment and other personal property not paid for out of the TI Allowance which may be removed without material damage to the Premises, which damage shall be repaired (including capping or terminating utility hook-ups behind walls) by Tenant during the Term (collectively, "TENANT'S PROPERTY"), all property of any kind paid for with the TI Allowance, all Alterations, real property fixtures, built-in machinery and equipment, built-in casework and cabinets and other similar additions and improvements built into the Premises so as to become an integral part of the Premises such as fume hoods which penetrate the roof or plenum area, built-in cold rooms, built-in warm rooms, walk-in cold rooms, walk-in warm rooms, deionized water systems, glass washing equipment, autoclaves, chillers, built-in plumbing, electrical and mechanical equipment and systems, and any power generator and transfer switch (collectively, "INSTALLATIONS") shall be and shall remain the property of Landlord during the

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Term and following the expiration or earlier termination of the Term, shall not be removed by Tenant at any time during the Term and shall remain upon and be surrendered with the Premises as a part thereof in accordance with Section 28 following the expiration or earlier termination of this Lease; provided, however, that Landlord shall, at the time its approval of such Installation is requested notify Tenant if it has elected to cause Tenant to remove such Installation upon the expiration or earlier termination of this Lease. If Landlord so elects, Tenant shall remove such Installation upon the expiration or earlier termination of this Lease and restore any damage caused by or occasioned as a result of such removal, including, when removing any of Tenant's Property which was plumbed, wired or otherwise connected to any of the Building Systems, capping off all such connections behind the walls of the Premises and repairing any holes. During any such restoration period, Tenant shall pay Rent to Landlord as provided herein as if said space were otherwise occupied by Tenant.

13. LANDLORD'S REPAIRS. Landlord, as an Operating Expense, shall maintain all of the structural, exterior, parking and other Common Areas of the Project, including HVAC, plumbing, fire sprinklers, elevators and all other building systems serving the Premises and other portions of the Project ("BUILDING SYSTEMS"), in good repair, reasonable wear and tear and uninsured losses and damages caused by Tenant, or by any of Tenant's agents, servants, employees, invitees and contractors (collectively, "TENANT PARTIES") excluded. Losses and damages caused by Tenant or any Tenant Party shall be repaired by Landlord, to the extent not covered by insurance, at Tenant's sole cost and expense. Landlord reserves the right to stop Building Systems services when necessary (i) by reason of accident or emergency, or (ii) for planned repairs, alterations or improvements, which are, in the judgment of Landlord, desirable or necessary to be made, until said repairs, alterations or improvements shall have been completed. Landlord shall have no responsibility or liability for failure to supply Building Systems services during any such period of interruption; provided, however, that Landlord shall, except in case of emergency, make a commercially reasonable effort to give Tenant 24 hours advance notice of any planned stoppage of Building Systems services for routine maintenance, repairs, alterations or improvements. Tenant shall promptly give Landlord written notice of any repair required by Landlord pursuant to this Section, after which Landlord shall make a commercially reasonable effort to effect such repair. Landlord shall not be liable for any failure to make any repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after Tenant's written notice of the need for such repairs or maintenance. Tenant waives its rights under any state or local law to terminate this Lease or to make such repairs at Landlord's expense and agrees that the parties' respective rights with respect to such matters shall be solely as set forth herein. Repairs required as the result of fire, earthquake, flood, vandalism, war, or similar cause of damage or destruction shall be controlled by
Section 18.

14. TENANT'S REPAIRS. Subject to Section 13 hereof, Tenant, at its expense, shall repair, replace and maintain in good condition all portions of the Premises, including, without limitation, entries, doors, ceilings, interior windows, interior walls, and the interior side of demising walls. Such repair and replacement may include capital expenditures and repairs whose benefit may extend beyond the Term. Should Tenant fait to make any such repair or replacement or fail to maintain the Premises Landlord shall give Tenant notice of such failure. If Tenant fails to commence cure of such failure within 10 days Of Landlord's notice, and thereafter diligently prosecute such cure to completion, Landlord may perform such work and shall be reimbursed by Tenant within 10 days after demand therefor; provided, however, that if such failure by Tenant creates or could create an emergency, Landlord may immediately commence cure of such failure and shall thereafter be entitled to recover the costs of such cure from Tenant. Subject to Sections 17 and 18, Tenant shall bear the full uninsured cost of any repair or replacement to any part of the Project that results from damage caused by Tenant or any Tenant Party and any repair that benefits only the Premises.

15. MECHANIC'S LIENS. Tenant shall discharge, by bond or otherwise, any mechanic's lien filed against the Premises or against the Project for work claimed to have been done for, or materials claimed to have been furnished to, Tenant within 10 days after the filing thereof, at Tenant's sole cost and shall otherwise keep the Premises and the Project free from any liens arising out of work performed, materials furnished or obligations incurred by Tenant. Should Tenant fail to discharge any lien described herein, Landlord shall have the right, but not the obligation, to pay such claim or post a bond or otherwise provide security to eliminate the lien as a claim against title to the Project and the cost thereof shall be

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immediately due from Tenant as Additional Rent. If Tenant shall lease or finance the acquisition of office equipment, furnishings, or other personal property of a removable nature utilized by Tenant in the operation of Tenant's business. Tenant warrants that any Uniform Commercial Code Financing Statement filed as a matter of public record by any lessor or creditor of Tenant will upon its face or by exhibit thereto indicate that Such Financing Statement is applicable only to removable personal property of Tenant located within the Premises. In no event shall the address of the Project be furnished on the statement without qualifying language as to applicability of the lien only to removable personal property, located in an identified suite held by Tenant.

16. INDEMNIFICATION. Tenant hereby indemnifies and agrees to defend, save and hold Landlord harmless from and against any and all Claims for injury or death to persons or damage to property occurring within or about the Premises, arising directly or indirectly out use or occupancy of the Premises or a breach or default by Tenant in the performance of any of its obligations hereunder. unless caused solely by the willful misconduct or negligence of Landlord. Landlord shall not be liable to Tenant for, and Tenant assumes all risk of damage to, personal property (including, without limitation, loss of records kept within the Premises). Tenant further hereby irrevocably waives any and all Claims for injury to Tenant's business or loss of income relating to any such damage or destruction of personal property (including, without limitation, any loss of records), unless caused by the willful misconduct or negligence of Landlord. Landlord shall not be liable for any damages arising from any act, omission or neglect of any tenant in the Project or of any other third party.

17. INSURANCE. Landlord shall maintain all risk property and, if applicable, sprinkler damage insurance covering the full replacement cost of the Project - or such lesser coverage amount as Landlord may elect provided such coverage amount is not less than 90% of such full replacement cost. Landlord shall further procure and maintain commercial general liability insurance with a single loss limit of not less than $2,000,000 for bodily injury and property damage with respect to the Project. Landlord may, but is not obligated to, maintain such other insurance and additional coverages as it may deem necessary, including, but not limited to, flood, environmental hazard and earthquake, loss or failure of building equipment, errors and omissions, rental loss during the period of repair or rebuilding, workers' compensation insurance and fidelity bonds for employees employed to perform services and insurance for any improvements installed by Tenant or which are in addition to the standard improvements customarily furnished by Landlord without regard to whether or not such are made a part of the Project. All such insurance shall be included as part of the Operating Expenses. The Project may be included in a blanket policy (in which case the cost of such insurance allocable to the Project will be determined by Landlord based upon the insurer's cost calculations). Tenant shall also reimburse Landlord for any increased premiums or additional insurance which Landlord reasonably deems necessary as a result of Tenant's use of the Premises.

Tenant, at its sole cost and expense, shall maintain during the Term:
all risk property insurance with business interruption and extra expense coverage, covering the full replacement cost of all property and improvements installed or placed in the Premises by Tenant at Tenant's expense; workers' compensation insurance with no less than the minimum limits required by law; employer's liability insurance with such limits as required by law; commercial general liability insurance, with a minimum limit of not less than $2,000,000 per occurrence for bodily injury and property damage with respect to the Premises and pollution legal liability insurance with a minimum limit of not less than $1,000,000 per occurrence. Notwithstanding anything to the contrary contained herein, Tenant shall have 30 days from the date of the execution of this Lease to obtain such pollution legal liability insurance. The commercial general liability insurance policy shall name Landlord, its officers, directors, employees, managers, agents, invitees and contractors (collectively, "LANDLORD PARTIES"), as additional insureds. The commercial general liability and pollution legal liability insurance policies shall Insure on an occurrence and not a claims-made basis; shall be issued by insurance companies which have a rating of not less than policyholder rating of A and financial category rating of at least Class X in "Best's Insurance Guide"; shall not be cancelable for nonpayment of premium unless 30 days prior written notice shall have been given to Landlord from the insurer; contain a hostile fire endorsement and a contractual liability endorsement; and provide primary coverage to Landlord (any policy issued to Landlord providing duplicate or similar coverage shall be deemed excess over Tenant's policies). Copies of such policies (if

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requested by Landlord), or certificates of insurance showing the limits of coverage required hereunder and showing Landlord as an additional insured, along with reasonable evidence of the payment of premiums for the applicable period, shall be delivered to Landlord by Tenant upon commencement of the Term and upon each renewal of said insurance. Tenant's policy may be a "blanket policy" with an aggregate per location endorsement which specifically provides that the amount of insurance shall not be prejudiced by other losses covered by the policy. Tenant shall, at least 5 days prior to the expiration of such policies, furnish Landlord with renewal certificates.

In each instance where insurance is to name Landlord as an additional insured, Tenant shall upon written request of Landlord also designate and furnish certificates so evidencing Landlord as additional insured to: (i) any lender of Landlord holding a security interest in the Project or any portion thereof, (ii) the landlord under any lease wherein Landlord is tenant of the real property on which the Project is located, if the interest of Landlord is or shall become that of a tenant under a ground or other underlying lease rather than that of a fee owner, and/or (iii) any management company retained by Landlord to manage the Project.

The property insurance obtained by Landlord and Tenant shall include a waiver of subrogation by the insurers and all rights based upon an assignment from its insured, against Landlord or Tenant, and their respective officers, directors, employees, managers, agents, invitees and contractors ("RELATED PARTIES"), in connection with any loss or damage thereby insured against. Neither party nor its respective Related Parties shall be liable to the other for loss or damage caused by any risk insured against under property insurance required to be maintained hereunder, and each party waives any claims against the other party, and its respective Related Parties, for such loss or damage. The failure of a party to insure its property shall not void this waiver. Landlord and its respective Related Parties shall not be liable for, and Tenant hereby waives all claims against such parties for, business interruption and losses occasioned thereby sustained by Tenant or any person claiming through Tenant resulting from any accident or occurrence in or upon the Premises or the Project from any cause whatsoever. If the foregoing waivers shall contravene any law with respect to exculpatory agreements, the liability of Landlord or Tenant shall be deemed not released but shall be secondary to the other's insurer.

Landlord may require insurance policy limits to be raised to conform with requirements of Landlord's lender and/or to bring coverage limits to levels then being generally required of new tenants within the Project.

18. RESTORATION. If, at any time during the Term, the Project or the Premises are damaged or destroyed by a fire or other insured casualty, Landlord shall notify Tenant within 60 days after discovery of such damage as to the amount of time Landlord reasonably estimates it will take to restore the Project or the Premises, as applicable (the "RESTORATION PERIOD"). If the Restoration Period is estimated to exceed 9 months (the "MAXIMUM RESTORATION PERIOD"), Landlord may, in such notice, elect to terminate this Lease as of the date that is 75 days after the date of discovery of such damage or destruction; provided, however, that notwithstanding Landlord's election to restore. Tenant may elect to terminate this Lease by written notice to Landlord delivered within 5 business days of receipt of a notice from Landlord estimating a Restoration Period for the Premises longer than the Maximum Restoration Period. Unless Landlord or Tenant so elect to terminate this Lease, Landlord shall, subject to receipt of sufficient insurance proceeds (with any deductible to be treated as a current Operating Expense), promptly restore the Premises (excluding the improvements installed by Tenant or by Landlord and paid for by Tenant, subject to delays arising from the collection of insurance proceeds, from Force Majeure events or as needed to obtain any license, clearance or other authorization of any kind required to enter into and restore the Premises issued by any Governmental Authority having jurisdiction over the use, storage, handling, treatment, generation, release, disposal, removal or remediation of Hazardous Materials (as defined in Section 30) in, on or about the Premises (collectively referred to herein as "Hazardous Materials Clearances'); provided, however, that if repair or restoration of the Premises is not substantially complete as of the end of the Maximum Restoration Period or, if longer, the Restoration Period, Landlord may, in its sole and absolute discretion, elect not to proceed with such repair and restoration, in which event Landlord shall be relieved of its obligation to make such repairs or restoration and this Lease shall terminate as of the date that is 75 days after the later of: (i) discovery of such

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damage or destruction, or (ii) the date all required Hazardous Materials Clearances are obtained, but Landlord shall retain any Rent paid and the right to any Rent payable fay Tenant prior to such election by Landlord or Tenant.

Notwithstanding the foregoing, Landlord may terminate this Lease if the Premises are damaged during the last 1 year of the Term and Landlord reasonably estimates that it will take man than 2 months to repair such damage, or if insurance proceeds are not available for such restoration.

Tenant, at its expense, shall promptly perform, subject to delays arising from the collection of insurance proceeds, from Force Majeure (as defined in Section 34) events or to obtain Hazardous Material Clearances, all repairs or restoration not required to be done by Landlord and shall promptly re-enter the Premises and commence doing business in accordance with this Lease. Rent shall be abated from the date all required Hazardous Material Clearances are obtained until the Premises are repaired and restored, in the proportion which the area of the Premises, if any, which is not usable by Tenant bears to the total area of the Premises, unless Landlord provides Tenant with other space during the period of repair that is suitable for the temporary conduct of Tenant's business. Such abatement shall be the sole remedy of Tenant, and except as provided in this Section 18, Tenant waives any right to terminate the Lease by reason of damage or casualty loss.

The provisions of this Lease, including this Section 18, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, or any other portion of the Project, and any statute or regulation which is now or may hereafter be in effect shall have no application to this Lease or any damage or destruction to all or any part of the Premises or any other portion of the Project, the parties hereto expressly agreeing that this Section 18 sets forth their entire understanding and agreement with respect to such matters.

19. CONDEMNATION. If the whole or any material part of the Premises or the Project is taken for any public or quasi-public use under governmental law, ordinance, or regulation, or by right of eminent domain, or by private purchase in lieu thereof (a "TAKING" or "TAKEN"), and the Taking would in Landlord's reasonable judgment either prevent or materially interfere with Tenant's use of the Premises or materially interfere with or impair Landlord's ownership or operation of the Project, then upon written notice by Landlord this Lease Shall terminate and Rent shall be apportioned as of said date. If part of the Premises shall be Taken, and this Lease is not terminated as provided above, Landlord shall promptly restore the Premises and the Project as nearly as is commercially reasonable under the circumstances to their condition prior to such partial Taking and the rentable square footage of the Building, the rentable square footage of the Premises, Tenant's Share of Operating Expenses and the Rent payable hereunder during the unexpired Term shall be reduced to such extent as may be fair and reasonable under the circumstances. Upon any such Taking, Landlord shall be entitled to receive the entire price of award from any such Taking without any payment to Tenant, and Tenant hereby assigns to Landlord Tenant's interest, if any, in such award. Tenant shall have the right, to the extent that same shall not diminish Landlord's award, to make a separate claim against the condemning authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant for moving expenses and damage to Tenant's trade fixtures, if a separate award for such items is made to Tenant. Tenant hereby waives any and all rights it might otherwise have pursuant to any provision of state law to terminate this Lease upon a partial Taking of the Premises or the Project.

20. EVENTS OF DEFAULT. Each of the following events shall be a default ("DEFAULT") by Tenant under this Lease:

(a) PAYMENT DEFAULTS. Tenant shall fail to pay any installment of Rent or any other payment hereunder when due; provided, however, that Landlord will give Tenant notice and an opportunity to cure any failure to pay Rent within 3 days of any such notice not more than once in any 12 month period.

(b) INSURANCE. Any insurance required to be maintained by Tenant pursuant to this Lease shall be canceled or terminated or shall expire or shall be reduced or materially changed, or Landlord

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shall receive a notice of nonrenewal of any such insurance and Tenant shall fail to obtain replacement insurance at least 20 days before the expiration of the current coverage.

(c) ABANDONMENT. Tenant shall abandon the Premises except if Tenant has complied with all of its obligations under Section 28 and continues to perform all of its other obligations under this Lease.

(d) IMPROPER TRANSFER. Tenant shall assign, sublease or otherwise transfer or attempt to transfer all or any portion of Tenant's interest in this Lease or the Premises except as expressly permitted herein, or Tenant's interest in this Lease shall be attached, executed upon, or otherwise judicially seized and such action is not released within 90 days of the action.

(e) LIENS. Tenant shall fail to discharge or otherwise obtain the release of any lien placed upon the Premises in violation of this Lease within 10 days after any such lien is filed against the Premises.

(f) INSOLVENCY EVENTS. Tenant or any guarantor or surety of Tenant's obligations hereunder shall: (A) make a general assignment for the benefit of creditors; (B) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property (collectively a "PROCEEDING FOR RELIEF"); (C) become the subject of any Proceeding for Relief which is not dismissed within 90 days of its filing or entry; or (D) die or suffer a legal disability (if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise fail to maintain its legal existence (if Tenant, guarantor or surety is a corporation, partnership or other entity).

(g) ESTOPPEL CERTIFICATE OR SUBORDINATION AGREEMENT. Tenant fails to execute any document required from Tenant under Sections 23 or 27 within 5 days after a second notice requesting such document.

(h) OTHER DEFAULTS. Tenant shall fail to comply with any provision of this Lease other than those specifically referred to in this Section 20, and, except as otherwise expressly provided herein, such failure shall continue for a period of 10 days after written notice thereof from Landlord to Tenant.

Any notice given under Section 20(h) hereof shall; (i) specify the alleged default, (it) demand that Tenant cure such default, (iii) be in lieu of, and not in addition to, or shall be deemed to be, any notice required under any provision of applicable law, and (iv) not be deemed a forfeiture or a termination of this Lease unless Landlord elects otherwise in such notice; provided that if the nature of Tenant's default pursuant to Section 20(h) is such that it cannot be cured by the payment of money and reasonably requires more than 10 days to cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said 10 day period and thereafter diligently prosecutes the same to completion; provided, however, that such cure shall be completed no later than 30 days from the date of Landlord's notice.

21. LANDLORD'S REMEDIES.

(a) PAYMENT BY LANDLORD; INTEREST. Upon a Default by Tenant hereunder, Landlord may, without waiving or releasing any obligation of Tenant hereunder, make such payment or perform such act. All sums so paid or incurred by Landlord, together with interest thereon, from the date such sums were paid or incurred, at the annual rate equal to 12% per annum or the highest rate permitted by law (the "DEFAULT RATE"), whichever is less, shall be payable to Landlord on demand as Additional Rent. Nothing herein shall be construed to create or impose a duty on Landlord to mitigate any damages resulting from Tenant's Default hereunder.

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(b) LATE PAYMENT RENT. Late payment by Tenant to Landlord of Rent and other sums due will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult and impracticable to ascertain. Such costs include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord under any Mortgage covering the Premises. Therefore, if any installment of Rent due from Tenant is not received by Landlord within 5 days after the date such payment is due, Tenant shall pay to Landlord an additional sum of 6% of the overdue Rent as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs landlord will incur by reason of late payment by Tenant. In addition to the late charge, Rent not paid when due shall bear interest at the Default Rate from the 5th day after the date due until paid.

(c) REMEDIES. Upon the occurrence of a Default, Landlord, at its option, without further notice or demand to Tenant, shall have in addition to all other rights and remedies provided in this Lease, at law or in equity, the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

(i) Terminate this Lease, or at Landlord's option, Tenant's right to possession only, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefor;

(ii) Upon any termination of this Lease, whether pursuant to the foregoing Section 21 (c)(i) or otherwise, Landlord may recover from Tenant the following:

(A) The worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus

(B) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(C) The worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(D) Any other amount necessary to compensate landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use; and

(E) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

The term "RENT" as used in this Section 21 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Sections 21(c)(ii) (A) and (B), above, the "WORTH AT THE TIME OF AWARD" shall be computed by allowing interest at the Default Rate. As used in
Section 21(c)(ii)(C) above, the "WORTH AT THE TIME OF AWARD" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus 1%.

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(iii) Landlord may continue this Lease in effect after Tenant's Default and recover rent as it becomes due. Accordingly, if Landlord does not elect to terminate this Lease following a Default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies hereunder, including the right to recover all Rent as it becomes due.

(iv) Whether or not Landlord elects to terminate this Lease following a Default by Tenant, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed to Tenant's interest in such subleases, licenses, concessions or arrangements. Upon Landlord's election to succeed to Tenant's interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.

(v) Independent of the exercise of any other remedy of Landlord hereunder or under applicable law, Landlord may conduct an environmental test of the Premises as generally described in Section 30(d) hereof.

(d) EFFECT OF EXERCISE. Exercise by Landlord of any remedies hereunder or otherwise available shall not be deemed to be an acceptance of surrender of the Premises and/or a termination of this Lease by Landlord, it being understood that such surrender and/or termination can be effected only by the express written agreement of Landlord and Tenant. Any law, usage, or custom to the contrary notwithstanding. Landlord shall have the right at all times to enforce the provisions of this Lease in strict accordance with the terms hereof; and the failure of Landlord at any time to enforce its rights under this Lease strictly in accordance with same shall not be construed as having created a custom in any way or manner contrary to the specific terms, provisions, and covenants of this Lease or as having modified the same and shall not be deemed a waiver of Landlord's right to enforce one or more of its rights in connection with any subsequent default. A receipt by Landlord of Rent or other payment with knowledge of the breach of any covenant hereof shall not be deemed a waiver of such breach, and no waiver by Landlord of any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by Landlord. To the greatest extent permitted by law, Tenant waives the service of notice of Landlord's intention to re-enter, re-take or otherwise obtain possession of the Premises as provided in any statute, or to institute legal proceedings to that end, and also waives all right of redemption in case Tenant shall be dispossessed by a judgment or by warrant of any court or judge. Any reletting of the Premises or any portion thereof shall be on such terms and conditions as Landlord in its sole discretion may determine. Landlord shall not be liable, nor shall Tenant's obligations hereunder be diminished because of, Landlord's failure to relet the Premises or collect rent due in respect of such reletting or otherwise to mitigate any damages arising by reason of Tenant' Default.

22. ASSIGNMENT AND SUBLETTING.

(a) GENERAL PROHIBITION. Without Landlord's prior written consent subject to and on the conditions described in this Section 22. Tenant shall not, directly or indirectly, voluntarily or by operation of law, assign this Lease or sublease the Premises or any part thereof or mortgage, pledge, or hypothecate its leasehold interest or grant any concession or license within the Premises, and any attempt to do any of the foregoing shall be void and of no effect. If Tenant is a corporation, partnership or limited liability company, the shares or other ownership interests thereof which are not actively traded upon a stock exchange or in the over-the-counter market, a transfer or series of transfers whereby 49% or more of the issued and outstanding shares or other ownership interests of such corporation are, or voting control is, transferred (but excepting transfers upon deaths of individual owners) from a person or persons or entity or entities which were owners thereof at time of execution of this Lease to persons or entities who were not owners of shares or other ownership interests of the corporation, partnership or limited liability company at time of execution of this Lease, shall be deemed an assignment of this Lease requiring the consent of Landlord as provided in this Section 22.

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(b) PERMITTED TRANSFERS. If Tenant desires to assign, sublease, hypothecate or otherwise transfer this Lease or sublet the Premises other than pursuant to a Permitted Assignment (as defined below), then at least 15 business days, but not more than 45 business days, before the date Tenant desires the assignment or sublease to be effective (the "ASSIGNMENT DATE"), Tenant shall give Landlord a notice (the "ASSIGNMENT NOTICE") containing such information about the proposed assignee or sublessee, including the proposed use of the Premises and any Hazardous Materials proposed to be used, stored handled, treated, generated in or released or disposed of from the Premises, the Assignment Date, any relationship between Tenant and the proposed assignee or sublessee, and all material terms and conditions of the proposed assignment or sublease, including a copy of any proposed assignment or sublease in its final form, and such other information as Landlord may deem reasonably necessary or appropriate to its consideration whether to grant its consent. Landlord may, by giving written notice to Tenant within 15 business days after receipt of the Assignment Notice: (i) grant such consent, (ii) refuse such consent, in its sole and absolute discretion, if the proposed assignment, hypothecation or other transfer or subletting concerns more than (together with all other then effective subleases) 50% of the Premises, (iii) refuse such consent, in its reasonable discretion, if the proposed subletting concerns (together with all other then effective subleases) 50% or less of the Premises (provided that Landlord shall further have the right to review and approve or disapprove the proposed form of sublease prior to the effective date of any such subletting), or (iv) terminate this Lease with respect to the space described in the Assignment Notice as of the Assignment Date (an "ASSIGNMENT TERMINATION"). If Landlord delivers notice of its election to exercise an Assignment Termination, Tenant shall have the right to withdraw such Assignment Notice by written notice to Landlord of such election within 5 business days after Landlord's notice electing to exercise the Assignment Termination. If Tenant withdraws such Assignment Notice, this Lease shall continue in full force and effect. If Tenant does not withdraw such Assignment Notice, this Lease, and the term and estate herein granted, shall terminate as of the Assignment Date with respect to the space described in such Assignment Notice. No failure of Landlord to exercise any such option to terminate this Lease, or to deliver a timely notice in response to the Assignment Notice, shall be deemed to be Landlord's consent to the proposed assignment, sublease or other transfer. Tenant shall reimburse Landlord for all of Landlord's reasonable out-of-pocket expenses in connection with its consideration of any Assignment Notice. Notwithstanding the foregoing, Landlord's consent to an assignment of this Lease or a subletting of any portion of the Premises to any entity controlling, controlled by or under common control with Tenant or to any entity wholly owned by Tenant (a "CONTROL PERMITTED ASSIGNMENT") shall not be required, provided that Landlord shall have the right to approve the farm of any such Sublease or assignment.

In addition, Tenant shall have the right to assign this Lease, upon 30 days prior Written notice to Landlord, to a corporation or other entity which is a successor in interest to Tenant, by way of merger, consolidation or corporate reorganization, or by the purchase of all or substantially all of the assets or the ownership interests of Tenant (a "CORPORATE PERMITTED ASSIGNMENT") provided that (i) such merger or consolidation, or such acquisition or assumption, as the case may be, is for a good business purpose and not principally for the purpose of transferring the Lease, and (ii) the net worth (as determined in accordance with GAAP of the assignee is not less than the net worth (as determined in accordance with GAAP) of Tenant as of the date of this Lease or as of the date of Tenant's most current quarterly or annual financial statements, and (iii) neither the business nor financial reputation of such assignee is objectionable in Landlord's reasonable judgment, and (iv) such assignee is not engaged in areas of highly controversial scientific business activities which Landlord determines in its reasonable judgment to be detrimental to Landlord's business operations or reputation, should such assignee become a tenant of Landlord, and
(v) such assignee shall agree in writing to assume all of the terms, covenants and conditions of this Lease arising after the effective date of the assignment. A Control Permitted Assignment and a Corporate Permitted Assignment are hereinafter referred to as "PERMITTED ASSIGNMENTS."

(c) ADDITIONAL CONDITIONS. As a condition to any such assignment or subletting, whether or not Landlord's consent is required, Landlord may require:

(i) that any assignee or subtenant agree, in writing at the time of such assignment or subletting, that if Landlord gives such party notice that Tenant is in default under this Lease,

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such party shall thereafter make all payments otherwise due Tenant directly to Landlord, which payments will be received by Landlord without any liability except to credit such payment against those due under the Lease, and any such third party shall agree to attorn to Landlord or its successors and assigns should this Lease be terminated for any reason; provided, however, in no event shall Landlord or its successors or assigns be obligated to accept such attornment; and

(ii) A list of Hazardous Materials, certified by the proposed assignee or sublessee to be true and correct, which the proposed assignee or sublessee intends to use, store, handle, treat, generate in or release or dispose of from the Premises, together with copies of all documents relating to such use, storage, handling, treatment, generation, release or disposal of Hazardous Materials by the proposed assignee or subtenant in the Premises or on the Project, prior to the proposed assignment or subletting, including, without limitation: permits; approvals; reports and correspondence; Storage and management plans; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only be permitted after Landlord has given its written consent to do so, which consent may be withheld in Landlord's sole and absolute discretion); and all closure plans or any other documents required by any and all federal, state and local Governmental Authorities for any storage tanks installed in, on or under the Project for the closure of any such tanks. Neither Tenant nor any such proposed assignee or subtenant is required, however, to provide Landlord with any portion(s) of the such documents containing information of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities.

(d) NO RELEASE OF TENANT, SHARING OF EXCESS RENTS. Notwithstanding any assignment or subletting, Tenant and any guarantor or surety of Tenant's obligations under this Lease shall at all times remain fully and primarily responsible and liable for the payment of Rent and for compliance with all of Tenant's other obligations under this Lease. If the Rent due and payable by a sublessee or assignee (or a combination of the rental payable under such sublease or assignment plus any bonus or other consideration therefor or incident thereto in any form) exceeds the sum of the rental payable under this Lease (excluding however, any Rent payable under this Section) and actual and reasonable brokerage fees, legal costs and any design or construction fees directly related to and required pursuant to the terms of any such sublease) ("EXCESS RENT") then Tenant shall be bound and obligated to pay Landlord as Additional Rent hereunder 50% of such Excess Rent within 10 days following receipt thereof by Tenant, if Tenant shall sublet the Premises or any part thereof, Tenant hereby immediately and irrevocably assigns to Landlord, as security for Tenant's obligations under this Lease, all rent from any such subletting, and Landlord as assignee and as attorney-in-fact for Tenant, or a receiver for Tenant appointed on Landlord's application, may collect such rent and apply it toward Tenant's obligations under this Lease; except that, until the occurrence of a Default, Tenant shall have the right to collect such rent.

(e) NO WAIVER. The consent by Landlord to an assignment or subletting shall not relieve Tenant or any assignees of this Lease or any sublessees of the Premises from obtaining the consent of Landlord to any further assignment or subletting nor shall it release Tenant or any assignee or sublessee of Tenant from full and primary liability under the Lease. The acceptance of Rent hereunder, or the acceptance of performance of any other term, covenant, or condition thereof, from any other person or entity shall not be deemed to be a waiver of any of the provisions of this Lease or a consent to any subletting, assignment or other transfer of the Premises.

(f) PRIOR CONDUCT OF PROPOSED TRANSFEREE. Notwithstanding any other provision of this Section 22. if (i) the proposed assignee or sublessee of Tenant has been required by any prior landlord, lender or Governmental Authority to take remedial action In connection with Hazardous Materials contaminating a property, where the contamination resulted from such party's action or use of the property in question, (ii) the proposed assignee or sublessee is subject to an enforcement order issued by any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority), or (iii) because of the existence of a pre-existing environmental condition in the vicinity of or underlying the Project, the risk that Landlord would be targeted as a responsible party in connection with the remediation of such pre-existing environmental

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condition would be materially increased or exacerbated by the proposed use of Hazardous Materials by such proposed assignee or sublessee. Landlord shall have the absolute right to refuse to consent to any assignment or subletting to any such party.

23. ESTOPPEL CERTIFICATE. Tenant shall, within 10 business days of written notice from Landlord, execute, acknowledge and deliver a statement in writing in any form reasonably requested by a proposed lender or purchaser, (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified is in full force and effect) and the dates to which the rental and other charges are paid in advance, if any, (ii) acknowledging that there are not any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed, and (iii) setting forth such further information with respect to the status of this Lease or the Premises as may be requested thereon. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part. Tenant's failure to deliver such statement within such time shall, at the option of Landlord, constitute a Default under this Lease, and, in any event, shall be conclusive upon Tenant that the Lease is in full force and effect and without modification except as may be represented by Landlord in any certificate prepared by Landlord and delivered to Tenant for execution.

24. QUIET ENJOYMENT. So long as Tenant shall perform all of the covenants and agreements herein required to be performed by Tenant. Tenant shall, subject to the terms of this Lease, at all times during the Term, have peaceful and quiet enjoyment of the Premises against any person claiming by, through or under Landlord.

25. PRORATIONS. All prorations required or permitted to be made hereundar shall be made on the basis of a 360 day year and 30 day months.

26. RULES AND REGULATIONS. Tenant shall, at all times during the Term and any extension thereof, comply with all reasonable rules and regulations at any time or from time to time established by Landlord covering use of the Premises and the Project; provided, however, that such rules and regulations do not materially interfere with the use of the Premises for the Permitted Use. The current rules and regulations are attached hereto as EXHIBIT E. If there is any conflict between said rules and regulations and other provisions of this Lease, the terms and provisions of this Lease shall control. Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Project and shall not enforce such rules and regulations in a discriminatory manner.

27. SUBORDINATION. This Lease and Tenant's interest and rights hereunder are hereby made and shall be subject and subordinate at all times to the lien of any Mortgage now existing or hereafter created on or against the Project or the Premises, and all amendments, restatements, renewals, modifications, consolidations, refinancing, assignments and extensions thereof, without the necessity of any further instrument or act on the part of Tenant; provided, however that so long as there is no Default hereunder. Tenant's right to possession of the Premises shall not be disturbed by the Holder of any such Mortgage, Tenant agrees, at the election of the Holder of any such Mortgage, to attorn to any such Holder. Tenant agrees upon demand to execute, acknowledge and deliver such instruments, confirming such subordination, and such instruments of attornment as shall be requested by any such Holder, provided any such instruments contain appropriate non-disturbance provisions assuring Tenant's quiet enjoyment of the Premises as set forth in Section. 24 hereof. Tenant hereby appoints Landlord attorney-in-fact for Tenant irrevocably (such power of attorney being coupled with an interest) to execute, acknowledge and deliver any such instrument and instruments for and in the name of Tenant and to cause any such instrument to be recorded. Notwithstanding the foregoing, any such Holder may at any time subordinate its Mortgage to this Lease, without Tenant's consent, by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such Mortgage without regard to their respective dates of execution, delivery or recording and in that event such Holder shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution, delivery and recording of such Mortgage and had been assigned to such Holder. The term "MORTGAGE" whenever used in this Lease shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the "HOLDER" of a Mortgage shall be deemed to include the beneficiary under a deed of trust.

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28. SURRENDER. Upon the expiration of the Term or earlier termination of Tenant's right of possession, Tenant shall surrender the Premises to Landlord in the same condition as received, subject to any Alterations or installations permitted by Landlord to remain in the Premises, free of Hazardous Materials brought upon, kept, used, stored, handled, treated, generated in, or released or disposed of from, the Premises by any person other than a Landlord Party (collectively, "TENANT HAZMAT OPERATIONS") and released of all Hazardous Materials Clearances, broom clean, ordinary wear and tear and casualty loss and condemnation covered by Sections 18 and 19 excepted. At least 3 months prior to the surrender of the Premises. Tenant shall deliver to Landlord a narrative description of the actions proposed (or required by any Governmental Authority) to be taken by Tenant in order to surrender the Premises (including any Installations permitted by Landlord to remain in the Premises) at the expiration or earlier termination of the Term, free from any residual impact from the Tenant HazMat Operations and otherwise released for unrestricted use and occupancy (the "SURRENDER PLAN"). Such Surrender Plan shall be accompanied by a current listing of (i) all Hazardous Materials licenses and permits held by or on behalf of any Tenant Party with respect to the Premises, and (ii) all Hazardous Materials used, stored, handled, treated, generated, released or disposed of from the Premises, and shall be subject to the review and approval of Landlord's environmental consultant. In connection with the review and approval of the Surrender Plan, upon the request of Landlord. Tenant shall deliver to Landlord or its consultant such additional non-proprietary information concerning Tenant HazMat Operations as Landlord shall request. On or before such surrender, Tenant shall deliver to Landlord evidence that the approved Surrender Plan shall have been satisfactorily completed and Landlord shall have the right, subject to reimbursement at Tenant's expense as set forth below, to cause Landlord's environmental consultant to inspect the Premises and perform such additional procedures as may be deemed reasonably necessary to confirm that the Premises are, as of the effective date of such surrender or early termination of the Lease, free from any residual impact from Tenant HazMat Operations. Tenant shall reimburse Landlord, as Additional Rent, for the actual out-of pocket expense incurred by Landlord for Landlord's environmental consultant to review and approve the Surrender Plan and to visit the Premises and verify satisfactory completion of the same, which cost shall not exceed $5,000. Landlord shall have the unrestricted right to deliver such Surrender Plan and any report by Landlord's environmental consultant with respect to the surrender of the Premises to third parties.

If Tenant shall fail to prepare or submit a Surrender Plan approved by Landlord, or if Tenant shall fall to complete the approved Surrender Plan, or if such Surrender Plan, whether or not approved by Landlord, shall fail to adequately address any residual effect of Tenant HazMat Operations in, on or about the Premises, Landlord shall have the right to take such actions as Landlord may deem reasonable or appropriate to assure that the Premises and the Project are surrendered free from any residual impact from Tenant HazMat Operations, the cost of which actions shall be reimbursed by Tenant as Additional Rent, without regard to the limitation set forth in the first paragraph of this Section 28.

Tenant shall immediately return to Landlord all keys and/or access cards to parking, the Project, restrooms or all or any portion of the Premises furnished to or otherwise procured by Tenant. If any such access card or key is lost, Tenant shall pay Landlord, at Landlord's election, either the cost of replacing such lost access card or key or the cost of reprogramming the access security system in which such access card was used or changing the lock or locks opened by such lost key. Any Tenant's Property, Alterations and property not so removed by Tenant as permitted or required herein shall be deemed abandoned and may be stored, removed, and disposed of by Landlord at Tenant's expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord's retention and/or disposition of such property. All obligations of Tenant hereunder not fully performed as of the termination of the Term, including the obligations of Tenant under Section 30 hereof, shall survive the expiration or earlier termination of the Term, including, without limitation, indemnity obligations, payment obligations with respect to Rent and obligations concerning the condition and repair of the Premises.

29. WAIVER OF JURY TRIAL. TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.

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30. ENVIRONMENTAL REQUIREMENTS.

(a) PROHIBITION/COMPLIANCE/INDEMNITY. Tenant shall not cause or permit any Hazardous Materials (as hereinafter defined) to be brought upon, kept, used, stored, handled, treated, generated in or about, or released or disposed of from, the Premises or the Project in violation of applicable Environmental Requirements (as hereinafter defined) by Tenant or any Tenant Party. If Tenant breaches the obligation stated in the preceding sentence, or if the presence of Hazardous Materials in the Premises during the Term or any holding over results in contamination of the Premises, the Project or any adjacent property or if contamination of the Premises, the Project or any adjacent property by Hazardous Materials brought into, kept, used, stored, handled, treated, generated in or about, or released or disposed of from, the Premises by anyone other than Landlord and Landlord's employees, agents and contractors otherwise occurs during the Term or any holding over, Tenant hereby indemnifies and shall defend and hold Landlord, its officers, directors, employees, agents and contractors harmless from any and all actions (including, without limitation, remedial or enforcement actions of any kind, administrative or judicial proceedings, and orders or judgments arising out of or resulting therefrom), costs, claims, damages (including, without limitation, punitive damages and damages based upon diminution in value of the Premises or the Project, or the loss of, or restriction on, use of the Premises or any portion of the Project), expenses (including, without limitation, attorneys', consultants' and experts' fees, court costs and amounts paid in settlement of any claims or actions), fines, forfeitures or other civil, administrative or criminal penalties, injunctive or other relief (whether or not based upon personal injury, property damage, or contamination of, or adverse effects upon, the environment, water tables or natural resources), liabilities or losses (collectively, "ENVIRONMENTAL CLAIMS") which arise during or after the Term as a result of such contamination. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, treatment, remedial, removal, or restoration work required by any federal, state or local Governmental Authority because of Hazardous Materials present in the air, soil or ground water above, on, or under the Premises. Without limiting the foregoing, if the presence of any Hazardous Materials on the Premises, the Project or any adjacent property caused or permitted by Tenant or any Tenant Party results in any contamination of the Premises, the Project or any adjacent property, Tenant shall promptly take all actions at its sole expense and in accordance with applicable Environmental Requirements as are necessary to return the Premises, the Building, the Project or any adjacent property to the condition existing prior to the time of such contamination, provided that Landlord's approval of such action shall first be obtained, which approval shall not unreasonably be withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the Premises or the Project.

(b) BUSINESS. Landlord acknowledges that it is not the intent of this Section 30 to prohibit Tenant from using the Premises for the Permitted Use. Tenant may operate its business according to prudent industry practices so long as the use or presence of Hazardous Materials is strictly and property monitored according to all then applicable Environmental Requirements. As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business. Tenant agrees to deliver to Landlord prior to the Commencement Date a list identifying each type of Hazardous Materials to be brought upon, kept, used, stored, handled, treated, generated on, or released or disposed of from, the Premises and setting forth any and all governmental approvals or permits required in connection with the presence, use, storage, handling, treatment, generation, release or disposal of such Hazardous Materials on or from the Premises ("HAZARDOUS MATERIALS LIST"). Tenant shall deliver to Landlord an updated Hazardous Materials List at least once a year and shall also deliver an updated list before any new Hazardous Material is brought onto, kept, used, stored, handled, treated, generated on, or released or disposed of from, the Premises. Tenant shall deliver to Landlord true and correct copies of the following documents (the "HAZ MAT DOCUMENTS") relating to the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials prior to the Commencement Date, or if unavailable at that time, concurrent with the receipt from or submission to a Governmental Authority: permits; approvals; reports and correspondence; storage and management plans, notice of violations of any Legal Requirements; plans relating to the installation of any storage tanks to be installed in or under the Project (provided, said installation of tanks shall only be permitted after Landlord has given Tenant its written consent to do so, which consent may be withheld in Landlord's sole and absolute discretion); all closure plans or any other documents required by any and all federal, state and local Governmental Authorities

NET MULTI-TENANT LABORATORY ONE INNOVATION/ARAIOS-PAGE 22

for any storage tanks installed in, on or under the Project for the closure of any such tanks; and a Surrender Plan (to the extent surrender in accordance with
Section 28 cannot be accomplished in 3 months). Tenant is not required, however, to provide Landlord with any portion(s) of the Haz Mat Documents containing information of a proprietary nature which, in and of themselves, do not contain a reference to any Hazardous Materials or hazardous activities. It is not the intent of this Section to provide Landlord with Information which could be detrimental to Tenant's business should such information become possessed by Tenant's competitors.

(c) TENANT REPRESENTATION AND WARRANTY. Tenant hereby represents and warrants to Landlord that (i) neither Tenant nor any of its legal predecessors has been required by any prior landlord, lender or Governmental Authority at any time to take remedial action in connection with Hazardous Materials contaminating a property which contamination was permitted by Tenant of such predecessor or resulted from Tenant's or such predecessor's action or use of the property in question, and (ii) Tenant is not subject to any enforcement order issued by any Governmental Authority in connection with the use, storage, handling, treatment, generation, release or disposal of Hazardous Materials (including, without limitation, any order related to the failure to make a required reporting to any Governmental Authority). If Landlord determines that this representation and warranty was not true as of the date of this lease, Landlord shall have the right to terminate this Lease in Landlord's sole and absolute discretion.

(d) TESTING. Landlord shall have the right to conduct annual tests of the Premises to determine whether any contamination of the Premises or the Project has occurred as a result of Tenant's use. Such tests shall be conducted at Landlord's expense, unless such tests are conducted pursuant to Section 21 hereof or reveal that Tenant has not complied with any Environmental Requirement, in which case Tenant shall reimburse Landlord for the reasonable cost of such tests. Landlord and Tenant shall cooperate with one another in connection with scheduling any such testing. If Tenant, at Tenant's expense, conducts its own tests of the Premises using third party contractors and test procedures acceptable to Landlord which tests are certified to Landlord, Landlord shall accept such tests in lieu of the annual tests. In addition, at any time, and from time to time, prior to the expiration or earlier termination of the Term, Landlord shall have the right to conduct appropriate tests of the Premises and the Project to determine if contamination has occurred as a result of Tenant's use of the Premises. In connection with such testing, upon the request of Landlord, Tenant shall deliver to Landlord or its consultant such non-proprietary information concerning the use of Hazardous Materials in or about the Premises by Tenant or any Tenant Party. If contamination has occurred for which Tenant is liable under this Section 30, Tenant shall pay all costs to conduct such tests. If no such contamination is found. Landlord shall pay the costs of such tests (which shall not constitute an Operating Expense). Landlord shall provide Tenant with a copy of all third party, non-confidential reports and tests of the Premises made by or on behalf of Landlord during the Term without representation or warranty and subject to a confidentiality agreement. Tenant shall, at its sole cost and expense, promptly and satisfactorily remediate any environmental conditions identified by such testing in accordance with all Environmental Requirements. Landlord's receipt of or satisfaction with any environmental assessment in no way waives any rights which Landlord may have against Tenant.

(e) UNDERGROUND TANKS. If underground or other storage tanks storing Hazardous Materials located on the Premises or the Project are used by Tenant or are hereafter placed on the Premises or the Project by Tenant, Tenant shall install, use, monitor, operate, maintain, upgrade and manage such storage tanks, maintain appropriate records, obtain and maintain appropriate insurance, implement reporting procedures, property close any underground storage tanks, and take or cause to be taken all other actions necessary or required under applicable state and federal Legal Requirements, as such now exists or may hereafter be adopted or amended in connection with the installation, use, maintenance, management, operation, upgrading and closure of such storage tanks.

(f) TENANT'S OBLIGATIONS. Tenant's obligations under this Section 30 shall survive the expiration or earlier termination of the Lease. During any period of time after the expiration or earlier termination of this Lease required by Tenant or Landlord to Complete the removal from the Premises of any Hazardous Materials (including, without limitation, the release and termination of any licenses or permits restricting the use of the Premises and the completion of the approved Surrender Plan), Tenant

NET MULTI-TENANT LABORATORY ONE INNOVATION/ARAIOS-PAGE 23

shall continue to pay the full Rent in accordance with this Lease for any portion of the Premises not relet by Landlord in Landlord's sole discretion, which Rent shall be prorated daily.

(g) DEFINITIONS. As used herein, the term "ENVIRONMENTAL REQUIREMENTS" means all applicable present and future statutes, regulations, ordinances, rules, codes, judgments, orders or other similar enactments of any Governmental Authority regulating or relating to health, safety, or environmental conditions on, under, or about the Premises or the Project, or the environment, including without limitation, the following: the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; and all state and local counterparts thereto, and any regulations or policies promulgated or issued thereunder. As used herein, the term "HAZARDOUS MATERIALS" means and includes any substance, material, waste, pollutant, or contaminant listed or defined as hazardous or toxic, or regulated by reason of its impact or potential impact on humans, animals and/or the environment under any Environmental Requirements, asbestos and petroleum, including crude oil or any fraction thereof, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas). As defined in Environmental Requirements, Tenant is and shall be deemed to be the "OPERATOR" of Tenant's "FACILITY" and the "OWNER" of all Hazardous Materials brought on the Premises by Tenant or any Tenant Party, and the wastes, by-products, or residues generated, resulting, or produced therefrom.

31. TENANT'S REMEDIES/LIMITATION OF LIABILITY. Landlord shall not be in default hereunder unless Landlord fails to perform any of its obligations hereunder within 30 days after written notice from Tenant specifying such failure (unless such performance will, due to the nature of the obligation, require a period of time in excess of 30 days, then after such period of time as is reasonably necessary). Upon any default by Landlord, Tenant shall give notice by registered or certified mail to any Holder of a Mortgage covering the Premises and to any landlord of any lease of property in or on which the Premises are located and Tenant shall offer such Holder and/or landlord a reasonable opportunity to cure the default, including time to obtain possession of the Project by power of sale or a judicial action if such should prove necessary to effect a cure; provided Landlord shall have furnished to Tenant in writing the names and addresses of all such persons who are to receive such notices. All obligations of Landlord hereunder shall be construed as covenants, not conditions; and, except as may be otherwise expressly provided in this Lease, Tenant may not terminate this Lease for breach of Landlord's obligations hereunder.

All obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Premises and not thereafter. The term "LANDLORD" in this Lease shall mean only the owner for the time being of the Premises. Upon the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all obligations of Landlord thereafter accruing, but such obligations shall be binding during the Term upon each new owner for the duration of such owner's ownership.

32. INSPECTION AND ACCESS. Landlord and its agents, representatives, and contractors may enter the Premises at any reasonable time to inspect the Premises and to make such repairs as may be required or permitted pursuant to this Lease and for any other business purpose. Landlord and Landlord's representatives may enter the Premises during business hours on not less than 48 hours advance written notice (except in the case of emergencies in which case no such notice shall be required and such entry may be at any time) for the purpose of effecting any such repairs, inspecting the Premises, showing the Premises to prospective purchasers and, during the last year of the Term, to prospective tenants or for any other business purpose. Landlord may erect a suitable sign on the Premises stating the Premises are available to let or that the Project is available for sale. Landlord may grant easements, make public dedications, designate Common Areas and create restrictions on or about the Premises, provided that no such easement, dedication, designation or restriction materially, adversely affects Tenant's use or occupancy of the Premises for the Permitted Use. At Landlord's request, Tenant shall execute such instruments as may be necessary for such easements, dedications or restrictions. Tenant shall at all times, except in the case of emergencies, have the right to escort Landlord or its agents, representatives, contractors or guests while the same are in the Premises, provided such escort does not materially and adversely affect Landlord's access rights hereunder.

NET MULTI-TENANT LABORATORY ONE INNOVATION/ARAIOS-PAGE 24

33. SECURITY. Tenant acknowledges and agrees that security devices and services, if any, while intended to deter crime may not in given instances prevent theft or other criminal acts and that Landlord is not providing any security services with respect to the Premises. Tenant agrees that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises. Tenant shall be solely responsible for the personal safety of Tenant's officers, employees, agents, contractors, guests and invitees while any such person is in, on or about the Premises and/or the Project. Tenant shall at Tenant's cost obtain insurance coverage to the extent Tenant desires protection against such criminal acts.

34. FORCE MAJEURE. Landlord shall not be held responsible for delays in the performance of its obligations hereunder when caused by strikes, lockouts, labor disputes, weather, natural disasters, inability to obtain labor or materials or reasonable substitutes therefor, governmental restrictions, governmental regulations, governmental controls, delay in issuance of permits, enemy or hostile governmental action, civil commotion, fire or other casualty, and other causes beyond the reasonable control of Landlord ("FORCE MAJEURE").

35. BROKERS, ENTIRE AGREEMENT, AMENDMENT. Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, "BROKER) in connection with this transaction and that no Broker brought about this transaction, other than CB Richard Ellis, Inc., and GVA Thompson Doyle Hennessey and Stevens. Landlord shall be responsible for paying commissions to CB Richard Ellis, Inc., and GVA Thompson Doyle Hennessey and Stevens pursuant to separate agreements between Landlord and CB Richard Ellis, Inc., and GVA Thompson Doyle Hennessey and Stevens. Landlord and Tenant each hereby agree to indemnify and hold the other harmless from and against any claims by any Broker, other than the broker, if any named in this Section 35, claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to this leasing transaction.

36. LIMITATION ON LANDLORD'S LIABILITY. NOTWITHSTANDING ANYTHING SET FORTH HEREIN OR IN ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT TO THE CONTRARY: (A) LANDLORD SHALL NOT BE LIABLE TO TENANT OR ANY OTHER PERSON FOR (AND TENANT AND EACH SUCH OTHER PERSON ASSUME ALL RISK OF) LOSS, DAMAGE OR INJURY, WHETHER ACTUAL OR CONSEQUENTIAL TO: TENANT'S PERSONAL PROPERTY OF EVERY KIND AND DESCRIPTION, INCLUDING, WITHOUT LIMITATION TRADE FIXTURES, EQUIPMENT, INVENTORY, SCIENTIFIC RESEARCH, SCIENTIFIC EXPERIMENTS, LABORATORY ANIMALS, PRODUCT, SPECIMENS, SAMPLES, AND/OR SCIENTIFIC, BUSINESS, ACCOUNTING AND OTHER RECORDS OF EVERY KIND AND DESCRIPTION KEPT AT THE PREMISES AND ANY AND ALL INCOME DERIVED OR DERIVABLE THEREFROM; (B) THERE SHALL BE NO PERSONAL RECOURSE TO LANDLORD FOR ANY ACT OR OCCURRENCE IN, ON OR ABOUT THE PREMISES OR ARISING IN ANY WAY UNDER THIS LEASE OR ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT WITH RESPECT TO THE SUBJECT MATTER HEREOF AND ANY LIABILITY OF LANDLORD HEREUNDER SHALL BE STRICTLY LIMITED SOLELY TO LANDLORD'S INTEREST IN THE PROJECT OR ANY PROCEEDS FROM SALE OR CONDEMNATION THEREOF AND ANY INSURANCE PROCEEDS PAYABLE IN RESPECT OF LANDLORD'S INTEREST IN THE PROJECT OR IN CONNECTION WITH ANY SUCH LOSS; AND (C) IN NO EVENT SHALL ANY PERSONAL LIABILITY BE ASSERTED AGAINST LANDLORD IN CONNECTION WITH THIS LEASE NOR SHALL ANY RECOURSE BE HAD TO ANY OTHER PROPERTY OR ASSETS OF LANDLORD OR ANY OF LANDLORD'S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS. UNDER NO CIRCUMSTANCES SHALL LANDLORD OR ANY OF LANDLORD'S OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR CONTRACTORS BE LIABLE FOR INJURY TO TENANT'S BUSINESS OR FOR ANY LOSS OF INCOME OR PROFIT THEREFROM.

37. SEVERABILITY. If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby. It is also the intention of the parties to this Lease

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that in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be added, as a part of this Lease, a clause or provision as similar in effect to such illegal, invalid or unenforceable clause or provision as shall be legal, valid and enforceable.

38. SIGNS; EXTERIOR APPEARANCE. Tenant shall not, without the prior written consent of Landlord, which may be granted or withheld in Landlord's sole discretion: (i) attach any awnings, exterior lights, decorations, balloons, flags, pennants, banners, painting or other projection to any outside wall of the Project, (ii) use any curtains, blinds, shades or screens other than Landlord's standard window coverings, (iii) coat or otherwise sunscreen the interior or exterior of any windows, (iv) place any bottles, parcels, or other articles on the window sills, (v) place any equipment, furniture or other items of personal property on any exterior balcony, or (vi) paint, affix or exhibit on any part of the Premises or the Project any signs, notices, window or door lettering, placards, decorations, or advertising media of any type which can be viewed from the exterior of the Premises. Landlord shall install signage identifying Tenant in the 3rd floor lobby and corridor and the same shall be of a size, color and type acceptable to Landlord. Nothing may be placed on the exterior of corridor walls or corridor doors other than Landlord's standard lettering. Landlord shall include Tenant's name in the directory in the Building lobby, which directory is provided exclusively for the display of the name and location of tenants.

39. INTENTIONALLY OMITTED.

40. RIGHT TO EXPAND.

(a) EXPANSION IN THE BUILDING. During the Base Term, Tenant shall have the right, but not the obligation, to expand the Premises (the "EXPANSION RIGHT") to include any Available Space in the Building upon the terms and conditions in this Section 40. For purposes of this Section 40(a). "AVAILABLE SPACE" shall mean the Expansion Premises A and/or Expansion Premises B identified on EXHIBIT G attached hereto provided that the same is not occupied by a tenant or is occupied by an existing tenant whose lease is expiring within 6 months or less and such tenant does not wish to renew (whether or not such tenant has a right to renew) its occupancy of such space. If there is any Available Space, Landlord shall, at such time as Landlord shall elect so long as Tenant's rights hereunder are preserved, deliver to Tenant written notice (the "EXPANSION NOTICE") of such Available Space, together with the terms and conditions on which Landlord is prepared to lease Tenant such Available Space. Tenant shall have 7 days following delivery of the Expansion Notice to deliver to Landlord written notification of Tenant's exercise of the Expansion Right. Provided that no right to expand is exercised by any tenant with superior rights, Tenant shall be entitled to lease, such Available Space upon the terms and conditions set forth in the Expansion Notice.

(b) AMENDED LEASE. If: (i) Tenant fails to timely deliver notice accepting the terms of an Expansion Notice, or (ii) after the expiration of a period of 30 days from the date Tenant gives notice accepting Landlord's offer to lease such Available Space, no lease amendment or lease agreement for the Available Space has been executed, and Landlord tenders to Tenant an amendment to this Lease setting forth the terms for the rental of the Available Space consistent with those set forth in the Expansion Notice and otherwise consistent with the terms of this Lease and Tenant fails to execute such Lease amendment within 10 days following such tender. Tenant shall be deemed to have waived its right to lease such Available Space.

(c) EXCEPTIONS. Notwithstanding the above, the Expansion Right shall not be in effect and may not be exercised by Tenant:

(i) during any period of time that Tenant is in Default under any provision of the Lease; or

(ii) if Tenant has been in Default under any provision of the Lease 3 or more times, whether or not the Defaults are cured, during the 12 month period prior to the date on which Tenant seeks to exercise the Expansion Right.

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(d) TERMINATION. The Expansion Right shall terminate and be of no further force or effect even after Tenant's due and timely exercise of the Expansion Right, if, after such exercise, but prior to the commencement date of the lease of such Available Space, (i) Tenant fails to timely cure any default by Tenant under the Lease; or (ii) Tenant has Defaulted 3 or more times during the period from the date of the exercise of the Expansion Right to the date of the commencement of the lease of the Available Space, whether or not such Defaults are cured.

(e) RIGHTS PERSONAL. Expansion Rights are personal to Tenant and are not assignable without Landlord's consent, which may be granted or withheld in Landlord's sole discretion separate and apart from any consent by Landlord to an assignment of Tenant's interest in the Lease, except in connection with Permitted Assignments.

(f) NO EXTENSIONS. The period of time within which any Expansion Rights may be exercised shall not be extended or enlarged by reason of Tenant's inability to exercise the Expansion Rights.

41. RIGHT TO EXTEND TERM. Tenant shall have the right to extend the Term of the Lease upon the following terms and conditions:

(a) EXTENSION RIGHT. Tenant shall have the right (the "EXTENSION RIGHT") to extend the term of this Lease for 2 years (the "EXTENSION TERM") on the same terms and conditions as this Lease (other than Base Rent) by giving Landlord written notice of its election to exercise the Extension Right at least 6 months prior to the expiration of the Base Term of the Lease.

Base Rent shall be adjusted on the commencement date of the Extension Term and on each annual anniversary of the commencement of the Extension Term by multiplying the Base Rent payable immediately before such adjustment by the Rent Adjustment Percentage and adding the resulting amount to the Base Rent payable immediately before such adjustment.

(b) RIGHTS PERSONAL. The Extension Right is personal to Tenant and is not assignable without Landlord's consent, which may be granted or withheld in Landlord's sole discretion separate and apart from any consent by Landlord to an assignment of Tenant's interest in the Lease, except in connection with Permitted Assignments.

(c) EXCEPTIONS. Notwithstanding anything set forth above to the contrary, the Extension Right shall not be in effect and Tenant may not exercise the Extension Right:

(i) during any period of time that Tenant is in Default under any provision of this Lease; or

(ii) if Tenant has been in Default under any provision of this Lease 3 or more times, whether or not the Defaults are cured, during the 12 month period immediately prior to the date that Tenant intends to exercise the Extension Right, whether or not the Defaults are cured.

(d) NO EXTENSIONS. The period of time within which the Extension Right may be exercised shall not be extended or enlarged by reason of Tenant's inability to exercise the Extension Right.

(e) TERMINATION. The Extension Right shall terminate and be of no further force or effect even after Tenant's due and timely exercise of the Extension Right, if, after such exercise, but prior to the commencement date of the Extension Term, (i) Tenant fails to timely cure any default by Tenant under this Lease; or (ii) Tenant has Defaulted 3 or more times during the period from the date of the exercise of the Extension Right to the date of the commencement of the Extension Term, whether or not such Defaults are cured.

42. MISCELLANEOUS.

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(a) NOTICES. All notices or other communications between the parties shall be in writing and shall be deemed duly given upon delivery or refusal to accept delivery by the addressee thereof if delivered in person, or upon actual receipt if delivered by reputable overnight guaranty courier, addressed and sent to the parties at their addresses set forth above. Landlord and Tenant may from time to time by written notice to the other designate another address for receipt of future notices.

(b) JoINT AND SEVERAL LIABILITY. If and when included within the term "TENANT", as used in this instrument, there is more than one person or entity, each shall be jointly and severally liable for the obligations of Tenant.

(c) FINANCIAL INFORMATION. Tenant shall furnish Landlord with true and complete copies of (i) Tenant's most recent audited annual financial statements within 90 days of the end of each of Tenant's fiscal years during the Term, (ii) Tenant's most recent unaudited quarterly financial statements within 45 days of the end of each of Tenant's first three fiscal quarters of each of Tenant's fiscal years during the Term, (iii) at Landlord's request from time to time, updated business plans, including cash flow projections and/or pro forma balance sheets and income statements, all of which shall be treated by Landlord as confidential information belonging to Tenant, (iv) at Landlord's request from time to time, corporate brochures and/or profiles prepared by Tenant for prospective investors, and (v) at Landlord's request from time to time, any other financial information or summaries that Tenant typically provides to its lenders or shareholders. Notwithstanding anything to the contrary contained herein, for so long as Tenant is majority owned by a publicly traded company ("PARENT"), Landlord shall accept audited financial statements from Parent and unaudited financial statements from Tenant in place of the audited financial statements required in (i) in the preceding sentence.

(d) RECORDATION. Neither this Lease nor a memorandum of lease shall be filed by or on behalf of Tenant in any public record. Landlord may prepare and file, and upon request by Landlord Tenant will execute, a memorandum of lease.

(e) INTERPRETATION. The normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Lease or any exhibits or amendments hereto. Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease.

(f) NOT BINDING UNTIL EXECUTED. The submission by Landlord to Tenant of this Lease shall have no binding force or effect, shall not constitute an option for the leasing of the Premises, nor confer any right or impose any obligations upon either party until execution of this Lease by both parties.

(g) LIMITATIONS ON INTEREST. It is expressly the intent of Landlord and Tenant at all times to comply with applicable law governing the maximum rate or amount of any interest payable on or in connection with this Lease. If applicable law is ever judicially interpreted so as to render usurious any interest called for under this Lease, or contracted for, charged, taken, reserved, or received with respect to this Lease, then it is Landlord's and Tenant's express intent that all excess amounts theretofore collected by Landlord be credited on the applicable obligation (or, if the obligation has been or would thereby be paid in full, refunded to Tenant), and the provisions of this Lease immediately shall be deemed reformed and the amounts thereafter collectible hereurder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder.

(h) CHOICE OF LAW. Construction and interpretation of this Lease shall be governed by the internal laws of the state in which the Premises are located, excluding any principles of conflicts of laws.

(i) TIME. Time is of the essence as to the performance of Tenant's obligations under this Lease.

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(j) INCORPORATION BY REFERENCE. All exhibits and addenda attached hereto are hereby incorporated into this Lease and made a part hereof. If there is any conflict between such exhibits or addenda and the terms of this Lease, such exhibits or addenda shall control.

(k) HAZARDOUS ACTIVITIES. Notwithstanding any other provision of this Lease, Landlord, for itself and its employees, agents and contractors, reserves the right to refuse to perform any repairs or services in any portion of the Premises which, pursuant to Tenant's routine safety guidelines, practices or custom or prudent industry practices, require any form of protective clothing or equipment other than safety glasses. In any such case, Tenant shall contract with parties who are acceptable to Landlord, in Landlord's reasonable discretion, for all such repairs and services, and Landlord shall, to the extent required, equitably adjust Tenant's Share of Operating Expenses in respect of such repairs or services to reflect that Landlord is not providing such repairs or services to Tenant.

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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written.

TENANT:

ARAIOS, INC.
a Delaware corporation

By: /s/ Mark A. Tepper
    --------------------
Its:  President

LANDLORD:

ARE-ONE INNOVATION DRIVE, LLC,
a Delaware limited liability company

By: AREE-HOLDINGS, L.P.,
a Delaware limited partnership,
managing member

By: ARE-GP HOLDINGS QRS CORP.,
a Delaware corporation,
general partner

By: /s/ Joel S. Marcus
    --------------------
Its: CEO

NET MULTI-TENANT LABORATORY ONE INNOVATION/ARAIOS-Page 1

EXHIBIT A TO LEASE

DESCRIPTION OF PREMISES

EXHIBIT A

ONE INNOVATION DRIVE
THIRD FLOOR

[FLOOR PLAN]

NET MULTI-TENANT LABORATORY ONE INNOVATION/ARAIOS - PAGE 1

EXHIBIT B TO LEASE

DESCRIPTION OF PROJECT

PARCEL I

The land with the buildings thereon in Worcester, Worcester County, Massachusetts consisting of Area A containing 2,7893 acres, more or less, Area B containing 5,6169 acres, more or less, and a portion of Innovation Drive containing 17,361 square feet, more or less, all as shown on a plan entitled "Plan of Property Owned by Worcester Business Development Corporation, Three Biotech Park, off Plantation Street, Worcester, Massachusetts" dated January 31,1990, prepared by Cullinan Engineering Co., Inc. and recorded with Worcester District Registry of Deeds (the "Registry") in Plan Book 633, Plan 79 (the "Parcel I Plan"), bounded and described as follows:

BEGINNING at the most northerly corner of the premises at the intersection of the southerly line of land now or formerly of The Commonwealth of Massachusetts and the westerly line of other land now or formerly of Worcester Business Development Corporation ("WBDC") as shown on the Parcel I Plan:

THENCE S 07 degrees 38' 48" E one hundred thirty-eight and 71/100 (138.71) feet by WBDC land and land shown on the Parcel I Plan as Two Biotech Park to a point;

THENCE S 00 degrees 45' 00" W two hundred fifty and 45/100 (250.45) feet by Two Biotech Park to a point;

THENCE S 04 degrees 12' 20" W one hundred ninety-five and 54/100 (195.54) feet by Two Biotech Park to a point;

THENCE S 04 degrees 04' 59" W seventy (70) feet by Two Biotech Park and land shown on the Parcel I Plan as C.M.M.I.C. Parcel to a point;

THENCE S 18 degrees 32' 25" W one hundred eighty-seven and 62/100 (187.62) feet by C.M.M.I.C. parcel to a point at land shown on the Parcel I Plan as One Biotech Park;

THENCE N 67 degrees 02' 30" W nineteen and 33/100 (19.33) feet by One Biotech Park to a point;

THENCE S 81 degrees 31' 00" W eighty (80) feet by One Biotech Park to a point at other land now or formerly of WBDC;

THENCE N 89 degrees 43' 26" W one hundred forty and 03/100 (140.03) feet by land now or formerly of WBDC to a point at the roadway easement, Innovation Drive, shown on the Parcel I Plan;

THENCE N 64 degrees 42' 20" W fifty (50) feet across Innovation Drive to a point;

THENCE S 48 degrees 20' 06" W three hundred ninety-six and 74/100 (396.74) feet by WBDC land to a point at land shown on the Parcel I Plan as B. A. S. F, Parcel;

THENCE N 30 degrees 42' 06" W two hundred fifty-five and 04/100 (255.04) feet by B, A. S. F. Parcel to a point at The Commonwealth of Massachusetts land;

THENCE N 63 degrees 33' 40" E twenty and 06/100 (20.06) feet to a point;

THENCE N 40 degrees 43' 36" E two hundred sixteen and 21/100 (216.21) feet to a point;

THENCE N 49 degrees 56' 15" E three hundred fifty (350) feet to a point;

THENCE by a curve to the left having a radius of 225.00 feet and an arc distance of three hundred thirty-seven and 01/100 (337.01) feet go a point;

NET MULTI-TENANT LABORATORY ONE INNOVATION/ARAIOS - PAGE 2

THENCE N 67 degrees 21' 00" E three hundred ninety-nine and 15/100 (393.15) feet to the point of beginning, the last five courses being by The Commonwealth of Massachusetts land.

Containing 8.8048 acres, more or less, according to the Parcel I Plan. Area A and Area B shown on the Plan are the same parcels shown as Parcel 7B and Parcels 7A, respectively, on a plan entitled "Amended Definitive Subdivision Plan for Worcester Business Development Corporation, Belmont Street (Route 9) & Plantation Street, Worcester, Massachusetts" dated January 3,1990 prepared by Maguire Group, Inc. and Cullinan Engineering Co., Inc. recorded at the Registry in Plan Book 633, Plan 7B ("Amended Subdivision Plan").

The premises are conveyed together with the following rights, easements, benefits and appurtenances:

1. Easements in common with others to use for all public way purposes, Research Drive (shown as RE-1), Innovation Drive (shown as RE-2) and Roadway Easement 3 (shown as RE-3) on the "Amended Definitive Subdivision Plan for Worcester Business Development Corporation, Belmont Street (Route 9) & Plantation Street, Worcester, Massachusetts" dated January 3,1990 prepared by Maguire Group, Inc. and Cullinan Engineering Co., Inc. recorded at the Registry in Plan Book 633, Plan 7B ("Amended Subdivision Plan").

2. An Easement in common with others to use, for all public way purposes, Easement Areas A and B which are described in the deed from the Commonwealth of Massachusetts, acting by and through its Division of Capital Planning and Operations, to Worcester Business Development Corporation dated June 13,1984 and recorded at the Registry in Book 8233, Page 105;

3. An easement in common with others to use for all public way purposes, Easement "C", as shown on the Amended Subdivision Plan;

4. The provisions of Declaration of easement dated March 27,1990 recorded with the Registry in Book 12717, Page 3;

5. Rights in common with others to use for their intended purposes those Utility Easements shown on the Amended Subdivision Plan which service the premises.

Parcel II

Parcel of land in The Commonwealth of Massachusetts, County of Worcester, City of Worcester on the westerly side of Innovation Drive owned by Worcester Business Development Corporation and shown as Parcel 4 on a plan by Cullinan Engineering Co., Inc. titled "Plan Of Property - Worcester, Mass." and dated July 5,1998 and recorded with the Worcester District Registry of Deeds in Plan Book 736, Page 34 ("Parcel II Plan") and bounded and described as follows:

BEGINNING at a point of tangency on the westerly sideline of Innovation Drive at the most northerly corner of the parcel to be described; said point being N 54 degrees 42' 20" W and 2.00 feet from a Worcester Highway Bound;

THENCE along the westerly sideline of Innovation Drive the following three (3) courses;

S 25 degrees 17' 40" W, a distance of 212.23 feet to a point of curvatures;

In a southerly direction by a curve to the left having a radius of 500.00 feet, and are distance of 402.55 feet to a point of tangency;

AND S 20 degrees 50' 05" E, a distance of 3.29 feet to a point at land now or formerly of BASF Bioresearch Corp;

NET MULTI-TENANT LABORATORY ONE INNOVATION/ARAIOS - PAGE 3

THENCE N 30 degrees 42' 12" W along land now or formerly of BASF Bioresearch Corp., a distance of 375.30 feet to a point at other land now or formerly of Worcester Business Development Corporation.

THENCE N 48 degrees 20' 06" S along land now or formerly of Worcester Business Development Corporation, a distance of 396.74 feet to the Point of Beginning,

Containing 1.0508 acres, more or less, according to the Parcel II Plan.

Also including the fee interest in that portion of Innovation Drive abutting the above-described Parcel II, to the center line Of Innovation Drive.

NET MULTI-TENANT LABORATORY ONE INNOVATION/ARAIOS - PAGE 1

EXHIBIT C TO LEASE
[Landlord Build]

SCOPE OF WORK AND BUDGET
[Attached]

ARAIOS

3 BIOTECH
PROPOSED RENOVATIONS NOVEMBER 6, 2003
BUDGET ESTIMATE

                 DIVISION / DESCRIPTION                     QTY       UNIT $  LINE SUM        DIV.SUM
-----------------------------------------------------      ------     ------  --------        -------
 DEMOLITION & CLEANING

   CLEANOUT EXISTING  SPACE                                                     BY OTHERS
   DECON EXISTING LAB SPACE                                                     BY OTHERS
   REMOVE EXISTING HIGH DENSITY FILE SYSTEM                                     BY OTHERS
   REMOVE EXISTING DOORS & FRAMES                            2 EA                 INC
   REMOVE EXISTING PLYWOOD RAISED FLOOR AT CONF. ROOM        1 LS       160       160
   REMOVE EXISTING OFFICE CARPET                           600 SF      0.25       150
   REMOVE EXISTING P.LAMINATE TOP AT SINK                    1 EA                 INC
   REMOVE EXISTING CONF ROOM CABINET $ TOP                   1 EA                 INC
   DEMO PARTIAL CONF ROOM PARTITION                          1 LS       240       240
   REMOVE EXISTING CORRIDOR DOOR & FRAME                     1 EA       200       200
   REMOVE CONF ROOM CEILING                                  1 LS       300       300
   REMOVE CEILING AS REQUIRED FOR CORRIDOR DOORS             2 EA        60       120
   DEMOLITION DUMPSTER                                       1 EA       650       650
                                                                                              $ 1,820
                                                           ------     -----   --------        -------
CARPENTRY/MILLWORK/LAB CASEWORK

  INSTALL NEW DOORS & HARDWARE                               3 EA                  INC
  INSTALL RELOCATED DOORS & HARDWARE                         1 PR                  INC
  CUTOUT & FRAME FOR RELOCATED DOOR                          1 EA       200        200
  NEW P.LAM TOP AT CONF ROOM SINK                           10 SF        25        250
  MISC. CARPENTRY                                                                  INC
                                                                                              $   450
                                                           ------     -----   --------        -------
GLASS & GLAZING

  GLASS AT ENTRY DOOR SIDELITES                              2 EA       125        280
  GLASS AT CONF. ROOM BORROWED LITES                         2 EA                  INC
                                                                                              $   250
                                                           ------     -----   --------        -------
DOORS, FRAMES & HARDWARE

  BORROWED LITE H.M. FRAMES (3' X 4')                        2 EA                  INC
  NEW 3' X 7' CONF, ROOM DOOR/FRAME & HARDWARE               1 EA                  INC
  SUBCONTRACTOR QUOTE                                        1 QT     1,050      1,050
  NEW 3' X 7' W/2' SIDELIGHT METAL FRAME                     1 EA                  INC
  NEW 3' X 7' DOOR & ELECTRIC HARDWARE                       1 EA                  INC
  SUBCONTRACTOR QUOTE                                        1 QT     1,255      1,255
  NEW 3' X 7' DOOR/FRAME & HARDWARE W/DETEX ALARM LOCK       1 EA     1,000      1,000
  CARD ACCESS (10% PURINTON PER ARE)                         1 LS     1,371      1,371
                                                                                              $ 4,676
                                                           ------     -----   --------        -------
GYPSUM WALLBOARD

  NEW GWB PARTITION TO SOFFIT FOR CONF. ROOM                 1 LS       250       250
  INFILL AT ABANDONED DOOR OPENINGS                          2 EA       200       400
  MISC. MINOR PATCH THRUOUT                                  1 LS                 INC
  NEW DEMISING WALL AT CORRIDOR (TENANT SEPARATION)          2 EA       400       800
                                                                                              $ 1,450
                                                           ------     -----   --------        -------
CEILINGS

  REPLACE MINOR STAINED & DAMAGED CEILING TILES (LABOR)                            INC
  CEILING MATERIALS                                          1 LS       125        125
  NEW REVEAL EDGE CEILING AT CONF. ROOM                    300 SF         3        800
  REWORK CEILING AT NEW SEPARATION WALL                      2 EA                  INC
                                                                                              $ 1,025
                                                           ------     -----   --------        -------

ARAIOS
9 BIOTECH
PROPOSED RENOVATIONS
BUDGET ESTIMATE NOVEMBER 6,2003

----------------------------------------------------------------------------------------------
           DIVISION / DESCRIPTION                     QTY      UNIT $    LINE SUM    DIV. SUM
----------------------------------------------------------------------------------------------
FLOORING
  FLOOR PREP                                          1 LS        200          200
  NEW CARPET &, VNYL BASE AT CONF, ROOM ($24/S.Y.)    1 LS                     873
  NEW CARPET AT OFFICE AREAS ($24 /S.Y)               1 LS                   1,524
  PATCH VCT AT DAMAGED LAB AREAS ( 4' X 6' APPROX)    4 EA                     540
  PATCH DAMAGED SHEETVINYL AT WALKIN HOODS (1' X 10") 3 EA                   1,780
                                                                                       $4,717
---------------------------------------------------------------------------------------------
PAINTING
  LATEX PAINT ALL CONF ROOM WALLS                     1 LS                     INC
  LATEX PAINT NEW GWD PARTITION & INFILLS             1 LS                     INC
  PAINT NEW BORROWED LITE FRAMES                      2 EA                     INC
  PAINT NEW METAL DOOR FRAMES                         3 EA                     INC
  CLEAR  FINISH  ON NEW OAK DOORS                     3 EA                     INC
  SUBCONTRACTOR QUOTE                                 1 OY      1,330        1,330
  ALLOWANCE FOR MINOR TOUCHUP                         3 DYS                  1,050
                                                                                       $2,380
---------------------------------------------------------------------------------------------
SPECIALTIES
  LAB EQUIPMENT                                                           EXISTING
  CHEMICAL FUME HOODS                                                     EXISTING
  SIGNAGE                                                                BY OTHERS
  FURNITURE                                                              BY OTHERS
                                                                                       $    0
---------------------------------------------------------------------------------------------
LAB CASEWORK                                                                          NO WORK
---------------------------------------------------------------------------------------------
FIRE PROTECTION
  RELOCATE HEADS AS REQUIRED FOR DEMISING DOORS       1 ALW       800          800
                                                                                       $  600
---------------------------------------------------------------------------------------------
PLUMBING
  CUT /CAP & REMOVE EXISTING SINK                     1 EA                     INC
  SUPPLY & INSTALL HEW CONF. ROOM SINK & TRIM         1 EA                     INC
  CONNECT TO DRAIN & WATER WITHIN 100 L.F.            1 LS                     INC
  SUBCONTRACTOR BUDGET                                1 ALW      8,500       8,500
                                                                                      $ 6,500
---------------------------------------------------------------------------------------------
HVAC
                                                                                      NO WORK
---------------------------------------------------------------------------------------------

ARAIOS
3 BIOTECH
PROPOSED RENOVATION
BUDGET ESTIMATE                                                 NOVEMBER 6, 2003

                         DIVISION DESCRIPTION               QTY        UNIT $        LINE SUM             DIV. SUM
                         --------------------               ---        ------        --------             --------
ELECTRICAL

  DEMO & MAKE SAFE                                          1 LS                         INC
  RELOCATE CONE ROOM LIGHT SWITCH                           1 EA                         INC
  RELOCATE ROBOTICS LAB LIGHT SWITCH                        1 EA                         INC
  SUPPLY & INSTALL 2 X 2 PARABOLIC LIGHTS AT CONF ROOM      3 EA                         INC
  RECIRCUIT COMMON CORRIDOR LIGHT SWITCHING FOR ARAJOS      2 EA                         INC
  SUPPLY & INSTALL 120 V OUTLETS AT CONF ROOM               3 EA                         INC
  SUPPLY & INSTALL EXIT SIGNS                               2 EA                         INC
  SUBCONTRACTOR QUOTE                                       1 QT       1,400           1,490
  75% ELECTRIC SCOPE ASSOCIATED WITH EXIT VESTIBULE         1 LS       1,233           1,233
  TEL DATA WIRING (PER ARE DIRECTION)                       1 LS       1.500           1,500
                                                                                                          $ 4,223
-----------------------------------------------------------------------------------------------------------------
SUPERVISION

  WORKING SUPERINTENDENT                                   3 WKS       2,100           6,300
  PROJECT MANAGER (1/5 TIME)                               2 WKS         520           1,040
  SECRETARY                                                1 WKS         250             350
  ACCOUNTANT                                               1 WKS         350             330
                                                                                                          $ 7,940
-----------------------------------------------------------------------------------------------------------------
GENERAL CONDITIONS

JOBSITE TELEPHONE/FAX                                      3 WKS          50             150
  COURIER / OVERNITE / POSTAGE                             1  LS          40              40
  MISC. TOOLS & SUPPLIES                                   3 WKS         125             575
  JOBSITE CLEANUP LABOR                                    3 DYS         220             680
  JOBSITE DUMPSTER                                                                   IN DEMO
  FINAL CLEANUP OCCUPANCY READY                            1 ALW         600             800
                                                                                                          $ 1,825
-----------------------------------------------------------------------------------------------------------------
INSURANCE AND PERMITS

  GENERAL LIABILITY INSURANCE                               1 LS         300             900
  BUILDERS RISK                                                                          NIC
  CITY Of WORCESTER GENERAL BUILDING PERMIT                 1 LS         500             500
                                                                                                          $   800
-----------------------------------------------------------------------------------------------------------------
ENGINEERING SERVICES

  ARCHITECTURAL SERVICES (ARCHDESIGN)                       1 QY       1,500           1,500
  MEP ENGINEERING                                                                        NIC
  STRUCTURAL ENGINEERING                                                                 NIC
                                                                                                          $ 1,500
-----------------------------------------------------------------------------------------------------------------
CONTINGENCY                                                 1 LS       1,000           1,000
                                                                                                          $ 1,000
-----------------------------------------------------------------------------------------------------------------
OVERHEAD & PROFIT                                            8.0%      3,282           3,282
                                                                                                          $ 3,292
-----------------------------------------------------------------------------------------------------------------
TOTAL COST                                                                                                $44,448
-----------------------------------------------------------------------------------------------------------------

QUALIFICATIONS

1. Work based on Normal Working hours: 7-3:30

2. Labor figured as Non-Union.

3. Estimate is based on scope on proposed SKA-2

4. Clean Out of existing equipment and space by others.

NET MULTI-TENANT LABORATORY ONE INNOVATION/ARAIOS - PAGE 1

EXHIBIT D TO LEASE

ACKNOWLEDGMENT OF COMMENCEMENT DATE

This ACKNOWLEDGMENT OF COMMENCEMENT DATE is made this ________ day of ____________, 2003, between ARE-ONE INNOVATION DRIVE, LLC. a Delaware limited liability Company ("LANDLORD"), and ARAIOS, INC., a Delaware corporation ("TENANT"), and is attached to and made a part of the Lease dated_____, 2003 (the "LEASE"), by and between Landlord and Tenant. Any initially capitalized terms used but not defined herein shall have the meanings given them in the Lease.

Landlord and Tenant hereby acknowledge and agree, for all purposes of the Lease, that the Commencement Date of the Base Term of the Lease is ____, __________________and the termination date of the Base Term of the Lease shall be midnight on___,____.

IN WITNESS WHEREOF, Landlord and Tenant have executed this ACKNOWLEDGMENT OF COMMENCEMENT DATE to be effective on the date first above written.

TENANT:

ARAIOS, INC.,
a Delaware corporation

By:__________________________________________
Its:_________________________________________

LANDLORD;

ARE-ONE INNOVATION DRIVE, LLC,
a Delaware limited liability company

By: AREE-HOLDINAS, L.P.,
a Delaware limited partnership,
managing member

By: ARE-GP HOLDINGS QRS CORP.,
a Delaware corporation,
general partner

By:______________________________________
Its:_____________________________________

RULES AND REGULATIONS ONE INNOVATION/ARAIOS - PAGE 1

EXHIBIT E TO LEASE

RULES AND REGULATIONS

1. The sidewalk, entries, and driveways of the Project shall not be obstructed by Tenant, or any Tenant Party, or used by them for any purpose other than ingress and egress to and from the Premises,

2. Tenant shall not place any objects, including antennas, outdoor furniture, etc., in the parking areas, landscaped areas or other areas outside of its Premises, or on the roof of the Project,

3. Except for animals assisting the disabled, no animals shall be allowed in the offices, halls, or corridors in the Project.

4. Tenant shall not disturb the occupants of the Project or adjoining buildings by the use of any radio or musical instrument or by the making of loud or improper noises.

5. If Tenant desires telegraphic, telephonic or other electric connections in the Premises, Landlord or its agent will direct the electrician as to where and how the wires may be Introduced: and. without such direction, no boring or cutting of wires will be permitted. Any such installation or connection shall be made at Tenant's expense.

6. Tenant shall not install or operate any steam or gas engine or boiler, or other mechanical apparatus in the Premises, except as specifically approved In the Lease. The use of oil, gas or inflammable liquids for heating, lighting or any other purpose is expressly prohibited- Explosives or other articles deemed extra hazardous shall not be brought into the Project.

7. Parking any type of recreational vehicles is specifically prohibited on or about the Project. Except for the overnight parking of operative vehicles, no vehicle of any type shall be stored in the parking areas at any time. In the event that a vehicle is disabled, it shall be removed within 48 hours. There shall be no "For Sale" or other advertising signs on or about any parked vehicle. All vehicles shall be parked in the designated parking areas in conformity with all signs and other markings. All parking will be open parking, and no reserved parking, numbering or lettering of individual spaces will be permitted except as specified by Landlord.

8. Tenant shall maintain the Premises free from rodents, insects and other pests.

9. Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of the Rules and Regulations of the Project.

10. Tenant shall not cause any unnecessary labor by reason of Tenant's carelessness or indifference in the preservation of good order and cleanliness. Landlord shall not be responsible to Tenant for any loss of property on the Premises, however occurring, or for any damage done to the effects of Tenant by the janitors or any other employee or person.

11. Tenant shall give Landlord prompt notice of any defects in the water, lawn sprinkler, sewage, gas pipes, electrical lights and fixtures, heating apparatus, or any other service equipment affecting the Premises.

12. Tenant shall not permit storage outside the Premises, including without limitation, outside storage of trucks and other vehicles, or dumping of waste or refuse or permit any harmful materials to be placed in any drainage system or sanitary system in or about the Premises.

RULES AND REGULATIONS ONE INNOVATION/ARAIOS - PAGE 2

13. All moveable trash receptacles provided by the trash disposal firm for the Premises must be kept in the trash enclosure areas, if any, provided for that purpose.

14. No auction, public or private, will be permitted on the Premises or the Project.

15. No awnings shall be placed over the windows in the Premises except with the prior written consent of Landlord.

16. The Premises shall not be used for lodging, sleeping or cooking or for any immoral or illegal purposes or for any purpose other than that specified in the Lease. No gaming devices shall be operated in the Premises.

17. Tenant shall ascertain from Landlord the maximum amount of electrical current which can safely be used in the Premises, taking into account the capacity of the electrical wiring in the Project and the Premises and the needs of other tenants, and shall not use more than such safe capacity. Landlord's consent to the installation of electric equipment shall not relieve Tenant from the obligation not to use more electricity than such safe capacity.

18. Tenant assumes full responsibility for protecting the Premises from theft, robbery and pilferage.

19. Tenant shall not install or operate on the Premises any machinery or mechanical devices of a nature not directly related to Tenant's ordinary use of the Premises and shall keep all such machinery free of vibration, noise and air waves which may be transmitted beyond the Premises.

ONE INNOVATION/ARAIOS

EXHIBIT F TO LEASE

TENANT'S PERSONAL PROPERTY

None except AS set forth below:

ONE INNOVATION/ARAIOS

EXHIBIT G TO LEASE

EXPANSION PREMISES

EXHIBIT

ONE INNOVATION DRIVE
THIRD FLOOR

[FLOOR PLAN]

Exhibit 14.1

CODE OF BUSINESS CONDUCT AND ETHICS

INTRODUCTION.

CytRx Corporation and its subsidiaries (the "Company") will conduct its business honestly and ethically wherever we operate. We will constantly attempt to improve the quality of our services, products and operations and will maintain a reputation for honesty, fairness, respect, responsibility, integrity, trust and sound business judgment. No illegal or unethical conduct on the part of our directors, officers or employees or their affiliates is in the Company's best interest. The Company will not compromise its principles for short-term advantage. The honest and ethical performance of the Company is the sum of the ethics of the men and women who work here. Therefore, we are all expected to adhere to high standards of personal integrity.

This Code of Business Conduct and Ethics (this "Code") covers a wide range of business practices and procedures. It does not cover every issue that may arise, but it sets out basic principles to guide all directors, officers and employees of the Company. All of our directors, officers and employees must conduct themselves accordingly and seek to avoid even the appearance of improper behavior. This Code should also be provided to and followed by the Company's other agents and representatives, including consultants.

In accordance with applicable law and stock exchange regulations, this Code will be filed with the Securities and Exchange Commission (the "SEC"), posted on the Company's website and/or otherwise made available for examination by our stockholders.

1. COMPLIANCE WITH APPLICABLE LAWS, RULES AND REGULATIONS.

Obeying the law, both in letter and in spirit, is the foundation on which the Company's ethical standards are built. All directors, officers and employees must respect and obey the laws of the United States and of the cities, states and countries in which we operate. In particular, all directors, officers and employees must comply with federal securities laws, rules and regulations that govern the Company.

2. AVOIDANCE OF CONFLICTS OF INTEREST.

The Company's directors, officers and employees must never permit their personal interests to conflict, or even appear to conflict, with the interests of the Company. A "conflict of interest" exists when a person's private interests interfere in any way, or even appear to interfere, with the Company's interests. A conflict situation can arise when a director, officer or employee takes actions, or has interests, that may make it difficult to perform his or her Company work objectively and effectively. Conflicts of interest may also arise when a director, officer or employee, or a member of his or her family, receives improper personal benefits as a result of his or her position with the Company. Loans to, or guarantees of the obligations of, directors, officers and employees and their family members may create conflicts of interest and may also be illegal.

For example, it is a conflict of interest for a director, officer or employee to work simultaneously for a competitor or customer, even as a consultant or board member. Each director, officer and employee must be particularly careful to avoid representing the Company in any transaction with a third party with whom the director, officer or employee has any outside business affiliation or relationship. The best policy is to avoid any direct or indirect business connection with our customers and competitors, except on our behalf.

Conflicts of interest (including both actual and apparent conflicts of interest) are prohibited under this Code except in limited cases under guidelines or exceptions specifically approved in advance by the Company's Board of Directors.

Conflicts of interest may not always be clear-cut, so if you have a question, you should consult with our General Counsel. Our General Counsel's telephone number and address are set forth in Section 15 below. Any director, officer or employee who becomes aware of any transaction or relationship that is a conflict of interest or a potential conflict of interest should bring it to the attention of our General Counsel.

3. BRIBES, KICKBACKS AND GIFTS.

No bribes, kickbacks or other similar remuneration or consideration may be given to any person or organization in order to attract or influence business activity. The United States Foreign Corrupt Practices Act prohibits giving anything of value, directly or indirectly, to officials of foreign governments or foreign political candidates in order to obtain or retain business. Therefore, this Code strictly prohibits making illegal payments to government officials of any country.

The Company's directors, officers and employees are also prohibited from receiving or providing gifts, gratuities, fees or bonuses as an inducement to attract or influence business activity. No entertainment should ever be offered, given or accepted by any director, officer or employee (or any family member of any such person) in connection with our business activities unless it: (a) is consistent with customary business practices; (b) is not excessive in value; (c) cannot be construed as a bribe or payoff; and (d) does not violate any laws or regulations. Please discuss with our General Counsel any entertainment that you are not certain is appropriate.

4. CONFIDENTIAL INFORMATION.

Our directors, officers and employees will often come into contact with, or have possession of, confidential information about the Company or our suppliers, customers or affiliates, and they must take all appropriate steps to assure that the confidentiality of such information is maintained. Confidential information includes all nonpublic information that might be of use to competitors or harmful to the Company if disclosed. It also includes nonpublic information that our suppliers, customers or affiliates have entrusted to us.

Confidential information, whether it belongs to the Company or any of our suppliers, customers or affiliates, may include, among other things, strategic business plans, actual operating results, projections of future operating results, marketing strategies, customer lists, personnel records, proposed acquisitions and divestitures, new investments, changes in dividend policies, the proposed issuance of additional securities, management changes or manufacturing costs, processes and methods. Confidential information about our Company and other companies, individuals and entities must be treated with sensitivity and discretion and only be disclosed to persons within the Company whose positions require use of that information or if disclosure is required by applicable laws, rules and regulations. You should consult with our General Counsel concerning any confidential information that you believe may need to be disclosed to third parties under any applicable laws, rules or regulations.

5. INSIDER TRADING.

Trading in the Company's securities is covered by the Company's Insider Trading Policy previously distributed to all employees, which Policy is hereby incorporated in its entirety in this Code. If

you would like to receive another copy of the Insider Trading Policy or have any questions regarding such Policy, please contract our General Counsel.

6. PUBLIC DISCLOSURE OF INFORMATION REQUIRED BY THE SECURITIES LAWS.

The Company is a public company that is required to file various reports and other documents with the SEC. An objective of this Code is to ensure full, fair, accurate, timely and understandable disclosure in the reports and other documents that we file with, or otherwise submit to, the SEC and in the press releases and other public communications that we distribute.

The federal securities laws, rules and regulations require the Company to maintain "disclosure controls and procedures," which are controls and other procedures that are designed to ensure that financial information and non-financial information that is required to be disclosed by us in the reports that we file with or otherwise submit to the SEC (i) is recorded, processed, summarized and reported within the time periods required by applicable federal securities laws, rules and regulations and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner allowing timely decisions by them regarding required disclosure in the reports.

Some of our directors, officers and employees will be asked to assist management in the preparation and review of the reports that we file with the SEC, including recording, processing, summarizing and reporting to management information for inclusion in these reports. If you are asked to assist in this process, you must comply with all disclosure controls and procedures that are communicated to you by management regarding the preparation of these reports. You must also perform with diligence any responsibilities that are assigned to you by management in connection with the preparation and review of these reports, and you may be asked to sign a certification to the effect that you have performed your assigned responsibilities.

SEC regulations impose upon our Chief Executive Officer and Chief Financial Officer various obligations in connection with annual and quarterly reports that we file with the SEC, including responsibility for:

- Establishing and maintaining disclosure controls and procedures and internal control over financial reporting that, among other things, ensure that material information relating to the Company is made known to them on a timely basis;

- Designing the Company's internal control over financial reporting to provide reasonable assurances that the Company's financial statements are fairly presented in conformity with generally accepted accounting principles;

- Evaluating the effectiveness of the Company's disclosure controls and procedures and internal control over financial reporting;

- Disclosing (i) specified deficiencies and weaknesses in the design or operation of the Company's internal control over financial reporting, (ii) fraud that involves management or other employees who have a significant role in the Company's internal control over financial reporting, and (iii) specified changes relating to the Company's internal control over financial reporting; and

- Providing certifications in the Company's annual and quarterly reports regarding the above items and other specified matters.

This Code requires our Chief Executive Officer and Chief Financial Officer to carry out their designated responsibilities in connection with our annual and quarterly reports, and this Code requires you, if asked, to assist our executive officers in performing their responsibilities under these SEC regulations.

7. RECORD-KEEPING.

The Company requires honest and accurate recording and reporting of information in order to make responsible business decisions. For example, only the true and actual number of hours worked should be reported. Also, business expense accounts must be documented and recorded accurately. If you are not sure whether a certain expense is legitimate, ask our General Counsel.

All of the Company's books, records, accounts and financial statements must be maintained in reasonable detail, must accurately and appropriately reflect the Company's transactions and must conform both to applicable legal requirements and to the Company's internal control over financial reporting and disclosure controls and procedures. All transactions must be recorded in a manner that will present accurately and fairly our financial condition, results of operations and cash flows and that will permit us to prepare financial statements that are accurate, complete and in full compliance with applicable laws, rules and regulations. Unrecorded or "off the books" funds or assets should not be maintained unless expressly permitted by applicable laws, rules and regulations.

Business records and communications often become public, and we should avoid exaggeration, derogatory remarks, guesswork or inappropriate characterizations of people and companies that can be misunderstood. This applies equally to e-mail, internal memoranda and formal reports.

Records should be retained in accordance with the Company's record retention policies, and records should be destroyed only if expressly permitted by our record retention policies and applicable laws, rules and regulations. If you become the subject of a subpoena, lawsuit or governmental investigation relating to your work at the Company, please contact our General Counsel immediately.

8. CORPORATE OPPORTUNITIES.

Directors, officers and employees are prohibited from taking for themselves personally opportunities that are discovered through the use of the Company's property or confidential information or as a result of their position with the Company, except upon the prior written consent of the Board of Directors. No director, officer or employee may use corporate property, information or position for improper personal gain; no director, officer or employee may use Company contacts to advance his or her private business or personal interests at the expense of the Company or its customers, suppliers or affiliates; and no director, officer or employee may directly or indirectly compete with the Company. Directors, officers and employees owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises.

9. COMPETITION AND FAIR DEALING.

We seek to outperform our competition fairly and honestly. We seek competitive advantage through superior performance, never through unethical or illegal business practices. Stealing proprietary information, possessing trade secret information that was obtained without the owner's consent, or inducing such disclosures by past or present employees of other companies is prohibited. Each director, officer and employee should endeavor to respect the rights of and deal fairly with the Company's customers, suppliers, competitors and affiliates. No director, officer or employee should take unfair

advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other intentional unfair-dealing practice.

To maintain the Company's valuable reputation, compliance with our quality processes and safety requirements is essential. In the context of ethics, quality requires that our products and services be designed to meet our obligations to customers. All inspection and testing documents must be handled in accordance with all applicable laws, rules and regulations.

10. PROTECTION AND PROPER USE OF COMPANY ASSETS.

Directors, officers and employees should endeavor to protect the Company's assets and ensure their efficient use. Theft, carelessness and waste have a direct impact on the Company's profitability. Any suspected incident of fraud or theft should be immediately reported for investigation. Company equipment should not be used for non-Company business, though incidental personal use of items such as telephones and computers may be permitted pursuant to written policies approved by the Board of Directors.

The obligation of directors, officers and employees to protect the Company's assets includes its proprietary information. Proprietary information includes intellectual property such as trade secrets, patents, trademarks and copyrights, as well as business, marketing and service plans, engineering and manufacturing ideas, designs, databases, records, salary information and any unpublished financial data and reports. Unauthorized use or distribution of this information would violate Company policy. It could also be illegal and result in civil or even criminal penalties.

11. DISCRIMINATION AND HARASSMENT.

The diversity of the Company's directors, officers and employees is a tremendous asset. We are firmly committed to providing equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or harassment or any kind. Examples include derogatory comments based on racial or ethnic characteristics and unwelcome sexual advances.

12. HEALTH AND SAFETY.

The Company strives to provide each director, officer and employee with a safe and healthful work environment. Each director, officer and employee has responsibility for maintaining a safe and healthy workplace for all other persons by following safety and health rules and practices and reporting accidents, injuries and unsafe equipment, practices or conditions.

Violence and threatening behavior are not permitted. Directors, officers and employees should report to work in condition to perform their duties, free from the influence of illegal drugs or alcohol. The use of illegal drugs or alcohol in the workplace will not be tolerated.

13. WAIVERS AND AMENDMENTS OF THE CODE OF BUSINESS CONDUCT AND ETHICS.

A waiver of any provision of this Code may be granted to any director, officer or employee only by the Company's Board of Directors, and any such waiver promptly will be publicly disclosed to the extent required by law or stock exchange regulations.

This Code can be amended only by the Board of Directors, and any such amendment promptly will be publicly disclosed as required by law or stock exchange regulations.

14. ENFORCEMENT OF THE CODE OF BUSINESS CONDUCT AND ETHICS.

A violation of this Code by any director, officer or employee will be subject to disciplinary action, including possible termination of employment. The degree of discipline imposed by the Company may be influenced by whether the person who violated this Code voluntarily disclosed the violation to the Company and cooperated with the Company in any subsequent investigation. In some cases, a violation of this Code may constitute a criminal offense that is subject to prosecution by federal or state authorities.

15. COMPLIANCE PROCEDURES; REPORTING MISCONDUCT OR OTHER ETHICAL VIOLATIONS.

Directors, officers and employees should promptly report any unethical, dishonest or illegal behavior, or any other violation of this Code or of other Company policies and procedures, to our General Counsel. Our General Counsel's telephone number is (310) 826-5648, and his address is c/o General Counsel, CytRx Corporation, 11726 San Vicente Blvd., Suite 650, Los Angeles, California. If you ever have any doubt about whether your conduct or that of another person violates this Code or compromises the Company's reputation, please discuss the issue with our General Counsel.

The Company's Audit Committee has established procedures for (i) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and (ii) the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. The Company has distributed a copy of the procedures to all directors, officers and employees.

The Company's policy is not to allow retaliation for a report of unethical, dishonest or illegal behavior, or of any other violation of this Code or of other Company policies and procedures, if the report about another person's conduct is made in good faith by a director, officer or employee. Directors, officers and employees are expected to cooperate in internal investigations regarding possible unethical, dishonest or illegal behavior or any other possible violation of this Code or of other Company policies and procedures.

Exhibit 21.1

CytRx Corporation
Subsidiaries

GGC Pharmaceuticals, Inc.
CytRx Laboratories, Inc. (formerly known as Araios, Inc.)

Exhibit 23.1

CytRx Corporation
Los Angeles, California

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-42259, 33-93816, 33-93818, 333-84657, 333-68200, 333-91068 and 333-93305) of CytRx Corporation of our report dated May 10, 2004, relating to the consolidated financial statements and financial statement schedule, which appears in this Form 10-K.

                                        /s/ BDO Seidman, LLP

Los Angeles, CA
May 10, 2004

Exhibit 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements on Form S-8 No 33-42259 pertaining to the CytRx Corporation 1986 Stock Option Plan, No. 33-93816 pertaining to the CytRx Corporation 1994 Stock Option Plan, No. 33-93818 pertaining to the CytRx Corporation 1995 Stock Option Plan, No. 333-84657 pertaining to the CytRx Corporation 1998 Long Term Incentive Plan and No. 333-68200 pertaining to the CytRx Corporation 2000 Long Term Incentive Plan, and No. 333-91068 and No. 333-93305 pertaining to the CytRx Corporation Employee Benefit Plan of our report dated March 25, 2003, with respect to the consolidated financial statements and schedule of CytRx Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 2003.

                                        /s/ Ernst & Young LLP

Atlanta, Georgia
May 10, 2004

Exhibit 23.3

CytRx Corporation
Los Angeles, California

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-42259, 33-93816, 33-93818, 333-84657, 333-68200, 333-91068 and 333-93305) of CytRx Corporation of our report dated May 10, 2004, relating to the financial statements of Blizzard Genomics, Inc., which appears in this Form 10-K.

                                        /s/ BDO Seidman, LLP

Los Angeles, CA
May 10, 2004

Exhibit 23.4

CytRx Corporation
Los Angeles, California

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-42259, 33-93816, 33-93818, 333-84657, 333-68200, 333-91068 and 333-93305) of CytRx Corporation of our report dated March 26, 2002, relating to the financial statements of Blizzard Genomics, Inc., which appears in this Form 10-K.

                                        /s/ Silverman Olson Thorvilson &
                                                Kaufmann, LTD
                                        --------------------------------
                                            SILVERMAN OLSON THORVILSON &
                                                KAUFMAN LTD


Minneapolis, Minnesota
May 11, 2004

Exhibit 23.5

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements on Form S-8 No. 33-42259 pertaining to the CytRx Corporation 1986 Stock Option Plan, No. 33-93816 pertaining to the CytRx Corporation 1994 Stock Option Plan, No. 33-93818 pertaining to the CytRx Corporation 1995 Stock Option Plan, No. 333-84657 pertaining to the CytRx Corporation 1998 Long Term Incentive Plan and No. 333-68200 pertaining to the CytRx Corporation 2000 Long Term Incentive Plan, and No. 333-91068 and No. 333-93305 pertaining to the CytRx Corporation Employee Benefit Plan of our report dated March 5, 2003, with respect to the financial statements of Blizzard Genomics, Inc. included in the CytRx Corporation Annual Report (Form 10-K) for the year ended December 31, 2003.

                                                       /s/ Ernst & Young LLP


Atlanta, Georgia
May 10, 2004

EXHIBIT 31

CERTIFICATION

I, Steven A. Kriegsman, Chief Executive Officer of CytRx Corporation, certify that:

1. I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2003 of CytRx Corporation;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periods covered by this annual report based on such evaluation; and

(c) Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 13, 2004 /s/ STEVEN A. KRIEGSMAN

Steven A. Kriegsman

Chief Executive Officer

CERTIFICATION

I, C. Kirk Peacock, Chief Financial Officer of CytRx Corporation, certify that:

1. I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2003 of CytRx Corporation;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 13, 2004 /s/ C. KIRK PEACOCK

C. Kirk Peacock

Chief Financial Officer

EXHIBIT 32

CERTIFICATION

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer of CytRx Corporation (the “Company”) hereby certifies that:

(i) the accompanying Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2003 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 13, 2004 /s/ STEVEN A. KRIEGSMAN

Steven A. Kriegsman

Chief Executive Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 (“Section 906”), or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to CytRx Corporation and will be retained by CytRx Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

CERTIFICATION

Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Financial Officer of CytRx Corporation (the “Company”) hereby certifies that:

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 13, 2004 /s/ C. KIRK PEACOCK

C. Kirk Peacock

Chief Financial Officer


	1. To elect four directors, two to serve until our 2005 annual meeting of stockholders, and two to serve until our 2006 annual meeting of stockholders;

	2. To approve an amendment to our 2000 Long-Term Incentive Plan (the “Plan”) to increase the number of shares of common stock available under the Plan from 3,000,000 to 10,000,000;

	3. To approve an amendment to the Plan to increase from 500,000 shares to 1,000,000 shares the maximum number of stock options or stock appreciation rights that may be granted to any one participant in any calendar year;

	4. To approve an amendment to our Restated Certificate of Incorporation (the “Certificate”) to increase the authorized number of shares of common stock from 50,000,000 to 100,000,000 and to increase the authorized number of shares of preferred stock from 1,000 to 5,000,000; and

	5. To ratify the selection of Ernst & Young LLP as independent auditors for the fiscal year ending December 31, 2003.


	•	our ability to advance product candidates into pre-clinical and clinical trials;

	•	the scope, rate and progress of our pre-clinical trials and other research and development activities;

	•	the scope, rate of progress and cost of any clinical trials we commence;

	•	the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

	•	future clinical trial results;

	•	the terms and timing of any collaborative, licensing and other arrangements that we may establish;

	•	the cost and timing of regulatory approvals;

	•	the cost and timing of establishing sales, marketing and distribution capabilities;

	•	the cost of establishing clinical and commercial supplies of our product candidates and any products that we may develop; and

	•	the effect of competing technological and market developments.


	•	we are able to complete the development of and commercialize one or more of the products that we are currently developing, which may require us to first enter into license or other arrangements with third parties

	•	one or more of our currently licensed products is commercialized by our licensees, thereby generating royalty income for us

	•	we are able to acquire products from third parties that are already being marketed or are approved for marketing


	•	difficulty in securing centers to conduct trials

	•	difficulty in enrolling patients in conformity with required protocols or projected timelines

	•	unexpected adverse reactions by patients in trials

	•	difficulty in obtaining clinical supplies of the product

	•	changes in the FDA’s requirements for our testing during the course of that testing

	•	inability to generate statistically significant data confirming the efficacy of the product being tested


	•	succeed in developing competitive products earlier than we or our strategic partners or licensees

	•	obtain approvals for such products from the FDA or other regulatory agencies more rapidly than we or our strategic partners or licensees do

	•	develop or otherwise obtain patents that block or inhibit the development and commercialization of our product candidates


	•	develop treatments or cures that are safer or more effective than those we propose for our products

	•	devote greater resources to marketing or selling their products

	•	introduce or adapt more quickly to new technologies or scientific advances

	•	introduce products that make the continued development of our product candidates uneconomical

	•	withstand price competition more successfully than we or our strategic partners or licensees can

	•	more effectively negotiate third-party strategic alliances or licensing arrangements

	•	take advantage of product acquisition or other opportunities more readily than we can


	•	our quarterly operating results

	•	announcements of regulatory developments or technological innovations by us or our competitors

	•	government regulation of drug pricing

	•	developments in patent or other technology ownership rights

	•	public concern regarding the safety of our products


	(a) whether a portion of the purchase price in our July 2002 merger with Global Genomics (accounted for as a purchase of a group of assets, not a business combination) should have been allocated to an acquired assembled workforce, which would have reduced the amount of the purchase price allocated to the Blizzard and Psynomics investments ($7,309,000 and $78,000, respectively) and whether the amount originally determined to be the fair value of the Blizzard investment was overstated, and

	(b) whether an other-than-temporary impairment charge should have been taken by us against the appropriate carrying value of the Blizzard investment earlier than in the fourth quarter of 2003.


	existed between PwC and us, and we subsequently filed these financial statements in this Annual Report, together with our financial statements.

	(b) During the course of BDO’s performance of the above preliminary procedures, we did not solicit or receive any oral or written opinion from BDO with respect to the proper accounting treatment for the allocation of the purchase price paid by us in connection with its merger with Global Genomics or the subsequent carrying value of our investment in Blizzard. However, we did discuss with BDO our views on the proper accounting treatment for these items and provided BDO with certain of our accounting records, a valuation analysis prepared by a valuation firm in 2002 utilized by management in connection with its allocation of the purchase price for the Global Genomics merger and an analysis prepared in April 2004 by another valuation firm covering certain aspects of the allocation of that purchase price and the subsequent carrying value of Blizzard.


(1)	Class I directors serve on the Board of Directors until the 2004 annual meeting of stockholders, Class II directors serve on the Board of Directors until the 2005 annual meeting of stockholders and Class III directors serve on the Board of Directors until the 2006 annual meeting of stockholders.

(2)	These directors constitute the four members of the Company’s Audit Committee. Marvin R. Selter is the Chairman of the Audit Committee.

(3)	Mr. Peacock will continue to serve as our Chief Financial Officer and Treasurer until June 15, 2004.


(1)	Mr. Kriegsman has been our Chief Executive Officer since July 2002.


(1)	Options to purchase 250,000 shares vested on the date of grant. The options to purchase up to 750,000 shares will vest as to 250,000 shares of common stock on June 20, 2004 and will vest as to the remaining 500,000 shares in monthly installments of 1/24th each on the 20th day of each month thereafter, provided that Mr. Kriegsman remains in our continuous employ.

(2)	The potential realizable value shown in this table represents the hypothetical gain that might be realized based on assumed 5% and 10% annual compound rates of stock price appreciation over the full option term. These prescribed rates are not intended to forecast possible future appreciation of the common stock.


	*	Represents beneficial ownership of less than one percent of common stock.


**	Except as otherwise indicated, the address of each of the beneficial owners listed below is c/o CytRx Corporation, 11726 San Vicente Boulevard, Suite 650, Los Angeles, CA 90049


(1)	Includes 813,082 shares subject to options or warrants exercisable within 60 days. Shares of our common stock and options to purchase shares of our common stock beneficially owned by Mr. Cappello are held through the Alexander L. and Linda Cappello 2001 Family Trust.

(2)	Includes 163,625 shares subject to options or warrants exercisable within 60 days.


(3)	Includes 959,352 shares subject to options or warrants exercisable within 60 days.

(4)	Includes 12,876 shares subject to options or warrants exercisable within 60 days.

(5)	Includes 5,333 shares subject to options or warrants exercisable within 60 days.

(6)	Shares of our common stock beneficially owned by Mr. Selter are held through the Selter Family Trust and Selter IRA Rollover.

(7)	Includes 1,954,268 shares subject to options or warrants exercisable within 60 days.


	Consolidated Balance Sheets as of December 31, 2003 and 2002

	Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001

	Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2003, 2002 and 2001

	Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001

	Notes to Consolidated Financial Statements

	Reports of Independent Auditors


	Balance Sheets as of December 31, 2003 and 2002

	Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001

	Statements of Stockholders’ Equity for the Years Ended December 31, 2003, 2002 and 2001

	Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001

	Notes to Consolidated Financial Statements

	Reports of Independent Auditors


	Schedule II — Valuation and Qualifying Accounts for the years ended December 31, 2003, 2002 and 2001

	All other schedules are omitted because they are not required, not applicable, or the information is provided in the financial statements or notes thereto.


	SILVERMAN OLSON THORVILSON & KAUFMANN LTD
	CERTIFIED PUBLIC ACCOUNTANTS



Date: May 13, 2004	/s/ STEVEN A. KRIEGSMAN
	Steven A. Kriegsman
	Chief Executive Officer



Date: May 13, 2004	/s/ C. KIRK PEACOCK
	C. Kirk Peacock
	Chief Financial Officer