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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NO. 0-14116
NEORX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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WASHINGTON 91-1261311
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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410 WEST HARRISON STREET, SEATTLE, WASHINGTON 98119
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (206) 281-7001
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.02 PAR VALUE
9 3/4% CONVERTIBLE SUBORDINATED DEBENTURES, DUE 2014
$2.4375 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK, SERIES 1
------------------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant as of March 1, 1996 was approximately $79 million (based on the
closing price for shares of the Registrant's Common Stock as reported by the
Nasdaq National Market for the last trading date prior to that date). Shares of
Common Stock held by each officer, director and holder of 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of March 1, 1996, approximately 15.3 million shares of the Registrant's
Common Stock, $.02 par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's 1996 Notice of Annual Meeting and Proxy
Statement for the Registrant's Annual Meeting of Shareholders to be held on May
14, 1996 are incorporated by reference in Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
NeoRx Corporation ("NeoRx" or the "Company") develops targeted
biopharmaceuticals for the diagnosis and treatment of certain types of cancer
and the reduction of restenosis following balloon angioplasty. NeoRx's most
advanced product under development is a lung cancer diagnostic imaging product,
Verluma(TM), for which Boehringer Ingelheim International GmbH ("Boehringer
Ingelheim") is licensed to manufacture and for which Boehringer Ingelheim has
filed with the United States Food and Drug Administration (the "FDA") a Product
License Application ("PLA"). Avicidin(R), the Company's lead cancer therapy
product under development, employs the Company's proprietary pretargeting
technology, which is designed to deliver high doses of a therapeutic agent to
tumor cells while minimizing toxicity to normal tissue, as compared with
conventional chemotherapy and radiation treatments. The Company is currently
conducting Phase I/II clinical trials of Avicidin. NeoRx is also developing
Biostent(TM), a pharmaceutical product that is designed to reduce restenosis
following balloon angioplasty through the inhibition of vascular remodeling, the
process of chronic constriction thought to be one of the primary causes of
restenosis. The Company is currently conducting a Phase I clinical trial of
Biostent.
Verluma is the Company's diagnostic imaging agent for staging lung cancer.
NeoRx believes that its clinical data support a first-use indication of this
product to establish the stage and extent of small cell lung cancer, and that
such use may result in significant cost savings, as well as reduced staging time
compared to conventional tests. Boehringer Ingelheim, the Company's
manufacturing and non-North American marketing collaborator, filed a PLA and an
Establishment License Application ("ELA") with the FDA for this product in March
1994. In December 1995, the Oncology Drugs Advisory Committee ("ODAC") for the
FDA recommended that the FDA approve Verluma. On March 22, 1996, Boehringer
Ingelheim advised the Company that it had decided to discontinue the use of a
contract manufacturer of a non-biologic component of the Verluma product and
assume responsibility for its manufacture. Because Boehringer Ingelheim must
validate its manufacturing processes and procedures for this component, the
Company does not expect FDA approval before the third quarter 1996. In September
1992, the Company executed an agreement with Boehringer Ingelheim whereby the
Company granted Boehringer Ingelheim worldwide manufacturing rights and
non-North American marketing rights to the Company's cancer imaging products. In
addition, Boehringer Ingelheim will pay royalties to NeoRx on future product
sales. In connection with this corporate alliance, Boehringer Ingelheim
purchased 731,534 shares of NeoRx Common Stock for $11.6 million. In October
1994, the Company granted The DuPont Merck Pharmaceutical Company ("DuPont
Merck") exclusive North American rights to market its cancer imaging products
and issued it 268,904 unregistered shares of NeoRx Common Stock. In exchange,
NeoRx received $2 million upon signing the agreement and will receive $4.5
million upon FDA approval to market Verluma in the United States. In addition,
NeoRx will receive royalties from DuPont Merck on future sales of Verluma in
North America.
The Company's Avicidin cancer therapy product under development employs
NeoRx's proprietary pretargeting technology, which involves the localization of
antibodies at tumor sites prior to administration of the radioactive isotope
yttrium-90, which subsequently binds to streptavidin that has been conjugated to
the antibody. Pretargeting technology is designed to allow the delivery of high
doses of a therapeutic agent to tumor cells while minimizing toxicity to normal
tissue associated with conventional therapy. In preclinical studies in animals,
the Company's pretargeting technology achieved a significant improvement in the
therapy ratio (the dose delivered to tumor divided by the dose delivered to
blood) compared to conventional radioimmunotherapy ("RIT"), and achieved
durable, complete regressions of chemotherapy-resistant human lung cancer
xenografts, as well as tumors of the colon and breast. The Company is currently
conducting Phase I/II clinical trials of its Avicidin cancer therapy product.
NeoRx is developing Avicidin initially for small cell lung cancer, and believes
that indications for other solid tumors may also be developed using pretargeting
technology.
NeoRx is also developing Biostent, a pharmaceutical product that is
designed to reduce restenosis following balloon angioplasty through the
inhibition of vascular remodeling. Biostent is designed to maintain
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the integrity of the dilated arterial wall, thereby preventing such remodeling.
Analysis of swine femoral arteries for as long as eight weeks and of swine
coronary arteries for as long as three weeks following a single exposure to
Biostent has indicated that the treatment sustains the increase in the luminal
area following balloon trauma compared to the ballooned, but untreated,
arteries. NeoRx is currently conducting a Phase I clinical trial of Biostent.
NeoRx is also researching Preverex(TM), a proprietary, sustained-release
formulation of the Company's Biostent agent, to address restenosis caused by
migration and proliferation of vascular smooth muscle cells in the arterial
wall.
When used in this discussion, the words "believes," "anticipates" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. See "Important Factors
Regarding Forward-Looking Statements." Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
BACKGROUND
CANCER
The American Cancer Society estimated that approximately 1,252,000 new
cases of cancer would occur in the United States in 1995, of which 59% were
expected to be tumors of the lung, colon, breast and prostate. Cancer is a large
group of diseases characterized by uncontrolled and proliferative cell growth.
Cancer cells have the tendency to dislodge from the sites where the tumors
originate and metastasize (spread from one part of the body to another). Early
diagnosis and precise detection of the malignant cells are thus important for
cancer treatment. Current diagnostic imaging techniques include x-rays,
computerized tomography or "CT", ultrasonography, radioisotopic imaging and
magnetic resonance imaging or "MRI". Once cancer is suspected, its presence must
be confirmed by biopsy (the examination of cells removed from the body). The
next step is to use diagnostic imaging to "stage" the patient, that is, to
determine the extent of the disease throughout the body. Accurate staging is
important for designing appropriate treatment. Using current methods, several
diagnostic imaging procedures may be required to determine the organs to which
the cancer has spread. Staging may be inaccurate if all possible body sites are
not examined or if tumor metastases are too small to be detected by the
diagnostic procedure used.
Surgery, radiation therapy and chemotherapy are the conventional methods of
cancer treatment. Chemotherapy drugs are generally administered intravenously so
that the drug can circulate throughout the body. With rare exceptions,
chemotherapy is the only available treatment for tumors that have spread
throughout the body, but it provides only modest benefits for patients with the
most frequently occurring malignancies, such as lung, colon or breast cancer.
When chemotherapy drugs circulate throughout the body, they kill cancer cells,
but are also toxic to normal cells. Consequently, cancer patients receiving
chemotherapy often suffer severe, sometimes life-threatening, side effects, such
as damage to bone marrow, lungs, heart, kidneys and nerves. The optimal drug
dose for killing cancer cells must therefore often be reduced to avoid
intolerable toxicities.
Each of NeoRx's cancer imaging and therapeutic products under development
employ monoclonal antibodies or their fragments to target tumors. Antibodies are
proteins produced by certain white blood cells in the body's immune system in
response to antigens (foreign substances) such as viruses, bacteria, toxins and
specific types of cancer cells. An antibody will recognize and bind specifically
only to a single type of antigen. This quality, known as "specificity," makes
antibodies potentially useful for the delivery of imaging and therapeutic agents
to disease sites. Monoclonal antibodies are laboratory-produced and share the
ability of natural human antibodies to bind to one particular antigen target. In
1975, the first practical method was demonstrated for producing monoclonal
antibodies in significant quantities. This method consists of obtaining
antibody-producing cells from mice immunized against a selected antigen and
fusing these cells with a type of cell that reproduces indefinitely. The
products of the fusion of these two types of cells are called hybridomas.
Hybridomas secrete the specific antibody desired, grow well in culture and
multiply to generate a vast number
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of duplicate hybridomas that also secrete the desired antibody. These antibodies
can be purified for use as pharmaceutical agents.
RESTENOSIS
Angioplasty is a medical procedure used to increase blood flow through
coronary arteries that have been partially blocked by the build-up of plaque on
the interior of the arterial wall. Restenosis is the recurrent narrowing of a
coronary artery following angioplasty. This narrowing, which reduces blood flow
through the artery, is believed to be caused by a combination of at least three
distinct but interrelated factors: vascular remodeling, or chronic constriction
of the artery, blood clot formation and the migration and proliferation of
smooth muscle cells at the site of the angioplasty procedure that encroach upon
the flow of blood. Studies have shown that vascular remodeling and smooth muscle
cell migration and proliferation account for the majority of occurrences of
restenosis. The Company believes that over 500,000 balloon angioplasties were
performed in the United States in 1994, and that approximately 40% of such
patients will experience restenosis following the angioplasty procedure. If
restenosis occurs, it may necessitate open heart surgery (coronary artery bypass
graft), sometimes on an emergency basis, or additional coronary angioplasty
procedures, such as the placement of a metallic stent in the artery.
PRODUCTS UNDER DEVELOPMENT
The following table summarizes products under development by NeoRx:
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COLLABORATIVE
PRODUCT INDICATION PARTNER STATUS
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CANCER IMAGING PRODUCTS:
Verluma Staging of small cell Boehringer PLA/ELA filed
lung cancer Ingelheim/
DuPont Merck
Non-Small Cell Lung Cancer Staging of non-small Boehringer Phase III human
Imaging Kit cell lung cancer Ingelheim/ clinicals completed
DuPont Merck
THERAPEUTIC PRODUCTS:
Cancer
Avicidin pretargeted cancer Solid tumors(1) -- Phase I/II human
therapy product clinicals
Colon cancer radiotherapy Colon cancer Organon Investigational New
product Drug application
filed(2)
Anti-restenosis
Biostent Restenosis -- remodeling -- Phase I human
clinicals
Preverex Restenosis -- -- Preclinical
proliferation/migration development
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(1) The Company's currently planned first indication for this product is for the
treatment of small cell lung cancer.
(2) NeoRx is currently collaborating with Organon International B.V. ("Organon")
in limited human testing of this product, which utilizes the Company's
rhenium-labeling technology and an Organon antibody. Organon has retained
ownership and marketing rights to this product, subject to payment of
royalties to NeoRx if Organon chooses to commercialize this product.
CANCER IMAGING PRODUCTS
VERLUMA. The American Cancer Society estimated that approximately 170,000
new cases of lung cancer would occur in the United States in 1995, of which the
Company believes approximately 45,000 would
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be small cell lung cancer. Symptoms of this disease usually appear only after
the disease has advanced beyond the stage when it may be surgically cured.
According to the American Cancer Society, the five-year survival rate for lung
cancer is less than 20%. Although most small cell lung cancer patients respond
to chemotherapy, most also suffer a relapse. Current treatment of this disease
is based on the degree to which the tumor has spread throughout the body. As a
result, accurate imaging to determine the extent of the disease is important for
designing appropriate treatment. Patients whose disease has not spread
extensively are generally treated with chemotherapy and externally applied
radiation. Those patients whose disease has spread to the point that radiation
treatment would produce intolerable toxicity are treated with chemotherapy only.
The degree to which small cell lung cancer has spread is generally
determined using a standard battery of four imaging tests, including CT scans of
the head, chest and abdomen and a bone scan. This standard battery of tests may
take up to one week. Bone marrow aspirate, a procedure in which a bone marrow
sample is removed for examination, is occasionally used as an additional test.
Verluma employs a Fab fragment of an antibody, designated NR-LU-10, linked
to a nontoxic dose of the gamma-emitting radionuclide technetium-99m that is
injected intravenously and allowed to concentrate at the tumor sites. A gamma
camera is then used to determine the location of the tumors. Data from NeoRx's
Phase III clinical trial show that Verluma is more sensitive than any single
test used in the standard battery of four tests to determine how far the tumor
has spread and has an accuracy level comparable to the standard battery of
tests. The Company believes that the use of Verluma may result in significant
cost savings as well as reduced staging time compared to the standard tests.
Boehringer Ingelheim, the Company's manufacturing and non-North American
marketing collaborator, filed a PLA and an ELA with the FDA for Verluma in March
1994. In December 1995, ODAC recommended that the FDA approve Verluma. On March
22, 1996, Boehringer Ingelheim advised the Company that it had decided to
discontinue the use of a contract manufacturer of a non-biologic component of
the Verluma product and assume responsibility for its manufacture. Because
Boehringer Ingelheim must validate its manufacturing processes and procedures
for this component, the Company does not expect FDA approval before the third
quarter 1996.
NON-SMALL CELL LUNG CANCER IMAGING KIT. Non-small cell lung cancer
("NSCLC") includes several different types of lung cancer that have a resistance
to currently available chemotherapy. The American Cancer Society estimated that
approximately 170,000 new cases of lung cancer would occur in the United States
in 1995, of which the Company believes approximately 125,000 would be non-small
cell lung cancer. The degree to which the tumor has spread is generally
determined using mediastinoscopy or thoracotomy, both of which are invasive
surgical procedures that involve removal of tissue from the chest, in
combination with CT scans.
NeoRx's NSCLC imaging kit is the same formulation as Verluma. Staging
classifications of NSCLC are considerably more complex than small cell lung
cancer. In Phase II clinical trials, the product detected the presence of
mediastinal metastases and detected metastases outside the chest in patients who
may have otherwise been considered surgical candidates. Those patients with
disease outside the chest need no further evaluation and are not candidates for
surgery or other invasive tests. Staging using the NSCLC imaging kit offers the
potential for avoiding unnecessary invasive tests and surgery. NeoRx has
completed Phase III clinical trials of its NSCLC imaging kit. The decision as to
whether to file this data with the FDA for a NSCLC imaging indication will be
made by Boehringer Ingelheim as the manufacturing licensee, and DuPont Merck as
the marketing licensee.
MARKETING. The Company has granted DuPont Merck North American marketing
rights and Boehringer Ingelheim non-North American marketing rights to the
Company's cancer imaging agents.
THERAPEUTIC PRODUCTS
CANCER PRODUCTS
AVICIDIN PRETARGETED CANCER THERAPY PRODUCT. Cancer is second only to
cardiovascular disease as a cause of death in the United States. Current
regimens for the treatment of cancer include chemotherapy,
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external-beam radiation and surgical intervention. Generally, existing cancer
therapy for high-incidence tumors such as lung, colon and breast is
characterized by both relatively low efficacy and considerable toxicity.
NeoRx's pretargeting technology employs an antibody-mediated targeting
strategy that is designed to deliver high doses of an active agent to tumor
cells, while minimizing toxicity to normal tissue associated with conventional
therapy. The pretargeting technology takes advantage of the high binding
affinity of two molecules: biotin and streptavidin. In NeoRx's Avicidin
application of pretargeting technology, an antibody covalently linked to
streptavidin is administered to the patient and allowed to accumulate on the
surface of the tumor cells. This accumulation occurs because the antibody
portion of the antibody-streptavidin conjugate recognizes and binds to antigen
markers on the tumor cell surface. In animal experiments, the conjugate attains
peak uptake in the tumor after 24-36 hours, at which time a clearing agent is
administered to remove circulating conjugate from the bloodstream. The last step
involves administering biotin linked to the therapeutic radionuclide,
yttrium-90. This small molecule biotin-yttrium complex is designed to bind
specifically to the streptavidin at the tumor cell surface, with the resultant
beta particle emission from the yttrium-90 killing tumor cells. Biotin-yttrium
that does not bind to the tumor-bound streptavidin is quickly removed from the
blood circulation by the kidneys, thereby reducing the radiation dose to the
bone marrow. In preclinical studies in animals, Avicidin achieved a tenfold
improvement in the therapy ratio compared to conventional RIT, accompanied by
durable, complete regressions of chemotherapy-resistant human lung, breast and
colon cancer tumors in mice. Results of preclinical studies are not necessarily
indicative of results that will be attained in human clinical trials.
NeoRx is developing Avicidin initially for the treatment of small cell lung
cancer. The Company began a Phase I/II clinical trial in December 1993, using
imaging radionuclides to demonstrate that the system performs in humans as it
has in mice and larger animals. During the third quarter of 1994, NeoRx began a
dose escalation study using the therapeutic radionuclide yttrium-90. Initial
Phase I/II clinical trials utilize a murine antibody. The Company has developed
a humanized version of the antibody that may reduce the "human anti-mouse
antibody" response, or "HAMA," and currently plans to substitute this humanized
version for the murine version.
In February 1996, the Company began a clinical study of the humanized
antibody to determine safety, pharmacokinetics and degree of immunogenicity. The
Company filed an Investigational New Drug application ("IND") in February 1996
to also determine biodistribution of the humanized antibody. If the results of
this testing are satisfactory, the Company plans to conduct a Phase I/II study
of humanized Avicidin, substituting the humanized antibody for the murine
version.
The Company believes that indications for non-small cell lung cancer, colon
cancer, prostate cancer and breast cancer may also be developed using
pretargeting technology.
NeoRx plans to fund the completion of the development and the
commercialization of the Avicidin product for small cell lung cancer through an
alliance with a pharmaceutical company or other corporate partner but has not
entered into any arrangements for such funding to date.
COLON CANCER RADIOTHERAPY PRODUCT (COLLABORATION WITH ORGANON). The
American Cancer Society estimated that approximately 138,000 new cases of colon
cancer would occur in the United States in 1995. The current therapies for colon
cancer are surgery and chemotherapy. RIT offers the potential of improving the
efficacy of colon cancer treatment by directing radiation to metastatic tumors.
Organon has developed monoclonal antibodies derived from human cells that
contain no "foreign" peptide sequences and thus may not induce an immune
response upon administration. NeoRx and Organon have entered into a
collaboration wherein NeoRx's rhenium-labeling technology is applied to
Organon's human antibody directed against colon cancer. Organon is currently
conducting limited human testing of a conjugate using an Organon human antibody
and NeoRx's rhenium-labeling technology. Under the terms of the collaboration,
depending on the clinical trial results, Organon is obligated to pay licensing
fees, clinical development milestone payments and royalties on sales if Organon
chooses to commercialize the product. NeoRx does not have rights to market any
products which may result from this collaboration.
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ANTI-RESTENOSIS PRODUCTS
BIOSTENT. The Company's Biostent agent under development is designed to
maintain the integrity of the dilated arterial wall to inhibit vascular
remodeling following balloon angioplasty. Since the agent addresses remodeling,
it may be complementary to the anti-thrombotics currently on the market or under
development by other companies for the treatment of restenosis. The drug is
intended to be delivered locally immediately following angioplasty using a
delivery catheter. The Company believes that this method delivers the drug to
the angioplasty site and reduces the chances of toxicity that might occur if
systemic treatment were used to deliver similar concentrations at the site.
Balloon angioplasty mechanically dilates the narrowed coronary artery.
After the angioplasty procedure is completed, the smooth muscle cells in the
dilated artery may begin constricting, thereby shrinking the luminal space in
the artery, a process called vascular remodeling. Preclinical studies have shown
that administering Biostent immediately after angioplasty impedes muscle
constriction and stabilizes the wall in its dilated condition. As a normal
response to injury caused by angioplasty, the muscle cells in the ballooned
arterial wall secrete a biological "cement" called collagen, a supportive
protein of the body. Through this response, the collagen forms a rigid matrix,
thereby biologically supporting or "stenting" the arterial wall during the
period that the Biostent treatment inhibits arterial constriction.
Biostent is unique with respect to other pharmaceutical agents that have
been evaluated in animal models and reported in the scientific literature in
that it not only inhibits restenosis, but actually sustains the increase in the
luminal area following balloon trauma compared to the ballooned, but untreated,
arteries. The effects of the Biostent treatment method have been assessed in a
pig femoral artery model. The pig femoral artery experiments have been extended
to evaluate the effects of the Biostent treatment method on pig coronary
arteries. Analysis of swine femoral arteries for as long as eight weeks and of
swine coronary arteries for as long as three weeks following a single exposure
to Biostent has indicated that the treatment sustains the increase in the
luminal area following balloon trauma compared to the ballooned, but untreated,
arteries.
The Biostent treatment method consists of the cytoskeletal inhibiting
agent, cytochalasin B, delivered through a specialized intracoronary delivery
catheter, the Micro-Infusion Catheter (the "MIC"), under development by Cordis
Corporation ("Cordis"). Commercialization of Biostent will depend on obtaining
FDA approval of the MIC. NeoRx has an exclusive catheter supply agreement with
Cordis for use of the catheter in the treatment of vascular remodeling under
which preclinical, clinical and commercial supplies of the catheter will be
furnished. The MIC is an over-the-wire design that allows rapid placement of the
MIC using the same guidewire used for balloon dilation. The MIC consists of a
porous balloon delivery catheter covered with an outer microporous membrane.
This unique, patented design provides for rapid, uniform delivery of a drug to
the arterial wall. Systemic toxicology studies have been completed in both rats
and dogs, with doses as high as 10,000-fold above projected clinical dose levels
with no evidence of systemic toxicity observed. NeoRx began a Phase I clinical
trial of Biostent in July 1995.
PREVEREX. The Company believes that a sustained-release formulation of
cytochalasin B or certain other compounds may address that portion of restenosis
that is believed to be the result of proliferation and migration of smooth
muscle cells in the arterial wall. The Company is investigating the proprietary
use of cytochalasin B and other compounds incorporated into polymer microspheres
or other sustained-release delivery vehicles that release the drug over a period
of weeks within the arterial wall. Laboratory analysis indicates that sustained
exposure to cytochalasin B inhibits both the proliferation and migration of
vascular smooth muscle cells.
The use of a sustained release delivery formulation potentially gives NeoRx
two important design advantages. First, the sustained-release delivery format is
designed to provide a constant release rate of therapeutic agent over a period
of weeks. In vitro studies have demonstrated that sustained exposure of vascular
smooth muscle cells to cytochalasin B reversibly inhibits proliferation and
migration. The Company believes these therapeutic effects are absent when
cytochalasin B is administered in the single, catheter-delivered bolus
administration employed in the Biostent formulation.
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The second design advantage of a sustained release delivery formulation is
the ability to target drug release to specific regions within the coronary
arterial wall. Cytochalasin B is a small molecule that does not easily lend
itself to direct targeting via attachment to various ligands. The attachment of
a targeting agent directly to cytochalasin B could interfere with its
therapeutic effect. However, the sustained-release vehicle may be targeted
through attachment of a targeting agent. Various sustained release delivery
formulations are currently being evaluated for in vitro efficacy prior to
assessment in animal models.
COLLABORATIONS
In September 1992, the Company executed an agreement with Boehringer
Ingelheim whereby the Company granted Boehringer Ingelheim worldwide
manufacturing rights and non-North American marketing rights to the Company's
cancer imaging products. In connection with this corporate alliance, Boehringer
Ingelheim purchased 731,534 shares of NeoRx Common Stock for $11.6 million. In
addition, the Company has issued Boehringer Ingelheim warrants expiring in
September 1997 to purchase 250,000 shares of Common Stock at an exercise price
of $15.84 per share and 375,000 shares at an exercise price of $21.12 per share.
Boehringer Ingelheim will produce the Company's cancer imaging products for
marketing, distribution and sale in North America by DuPont Merck and for
marketing outside North America by Boehringer Ingelheim or its sublicensee. To
sell the products in the United States, the Company must receive marketing
approval from the FDA. Boehringer Ingelheim filed a PLA and an ELA for FDA
approval of Verluma, the Company's small cell lung cancer imaging agent, in
March 1994. In December 1995, ODAC recommended that the FDA approve Verluma. On
March 22, 1996, Boehringer Ingelheim advised the Company that it had decided to
discontinue the use of a contract manufacturer of a non-biologic component of
the Verluma product and assume responsibility for its manufacture. Because
Boehringer Ingelheim must validate its manufacturing processes and procedures
for this component, the Company does not expect FDA approval before the third
quarter 1996.
In October 1994, the Company granted DuPont Merck exclusive North American
rights to market its cancer imaging products and issued 268,904 unregistered
shares of NeoRx Common Stock to DuPont Merck. In exchange, NeoRx received $2
million upon signing the agreement and will receive $4.5 million upon FDA
approval to market Verluma in the United States. In addition, NeoRx will receive
royalties from DuPont Merck on sales of Verluma in North America.
NeoRx and Organon are collaborating in the field of cancer RIT, wherein
NeoRx's rhenium-labeling technology is applied to Organon's human antibody
directed against colon cancer. Under the terms of the collaboration, depending
on the clinical trial results, Organon is obligated to pay licensing fees,
clinical development milestone payments and royalties on sales if Organon
chooses to commercialize the product. NeoRx does not have rights to market any
products which may result from this collaboration.
PATENTS AND PROPRIETARY RIGHTS
The Company's policy is to aggressively protect its proprietary technology.
In addition to filing patent applications in the United States for many of its
inventions, the Company files patent applications in Canada, major European
countries, Japan and additional foreign countries on a selective basis to
protect important inventions.
The Company has a co-exclusive license for the monoclonal antibody used in
its cancer imaging and treatment products and also has obtained numerous U.S.
and foreign patents relating to its cancer imaging products. NeoRx has obtained
an exclusive license from Stanford University for a patent that has been issued
in the United States and Europe that covers the pretargeting technology included
in its Avicidin cancer therapy product under development. In addition, the
Company has been awarded another U.S. patent pertaining to pretargeting
technology, and has developed a portfolio of patent applications building on
this patent. The Company is pursuing patent protection for its anti-restenosis
technology and products under development by filing numerous patent applications
in both the United States and foreign jurisdictions. In October 1994, NeoRx
obtained from Indiana University an exclusive license to a patent that broadly
covers
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the sustained release catheter delivery into blood vessel walls of therapeutic
agents contained within a particulate dosage form.
Competitors have filed applications for, or have been issued, patents and
may obtain additional patents and proprietary rights relating to products or
processes competitive with or relating to those of the Company. The scope and
validity of these patents, the extent to which the Company may be required to
obtain licenses thereunder or under other proprietary rights, and the cost and
availability of licenses are unknown. Accordingly, there can be no assurance
that the Company's patent applications will result in additional patents being
issued or that, if issued, the patents will afford protection against
competitors with similar technology, nor can there be any assurance that any
patents issued to the Company will not be infringed or designed around by others
or that others will not obtain patents that the Company would need to license or
design around.
As part of the Company's ongoing research activities, the Company in the
ordinary course seeks assurances that it will own or license any rights that may
be necessary or useful to its business. The Company believes that in certain
circumstances licensing or cross-licensing arrangements pertaining to the
relevant technologies and providing reasonable economic terms may be an
expedient way to resolve any potential infringement issues. In other
circumstances, such arrangements may not be warranted or obtainable on
commercially reasonable terms. In the event it were determined that one or more
of the Company's products infringe one or more of such patents, the Company
could seek to enter a licensing or cross-licensing arrangement, but there can be
no assurance that such an arrangement would be available or, if available, that
the terms of such an arrangement would be reasonable.
COMPETITION
Cancer imaging and therapy and anti-restenosis product development is
highly competitive. NeoRx faces competition from emerging companies and
established biotechnology, pharmaceutical and chemical companies. Many emerging
companies have corporate partnership arrangements with large, established
companies to support research, development and commercialization efforts of
products that may be competitive with those being developed by the Company. In
addition, a number of established pharmaceutical and chemical companies are
developing proprietary technologies or have enhanced their capabilities by
entering into arrangements with, or acquiring, companies with proprietary
monoclonal antibody-based technology or other technologies applicable to the
imaging or treatment of cancer or the prevention of restenosis. Many of the
Company's existing or potential competitors have or have access to substantially
greater financial, research and development, marketing and production resources
than those of the Company.
Other companies may develop and introduce products and processes
competitive with or superior to those of the Company. Further, the development
by others of new cancer diagnostic or treatment products, anti-restenosis
products or any cancer prevention products could render the Company's technology
and products under development less competitive, uneconomical or obsolete.
Timing of market introduction and healthcare reform, both uncertainties,
will affect the competitive position of the Company's products. The Company
believes that competition among products approved for sale will be based, among
other things, on product safety, efficacy, reliability, availability, price and
patent position.
Other companies are developing antibody-based cancer imaging products.
Conventional radiography, conventional nuclear medicine scanning (including an
indium-labeled peptide for neuroendocrine tumors), CT and MRI are already widely
available, are used by a large number of physicians, and constitute the current
competition for use of the Company's Verluma lung cancer imaging product.
The Company's cancer therapy products under development are designed for
the treatment of metastatic cancer or where there is a very high statistical
risk that the cancer has spread. The Company anticipates that the principal
competition in this type of cancer treatment will come from existing
chemotherapy, hormone therapy and biological therapies that are designed to
treat the same cancer stage. Many pharmaceutical, emerging pharmaceutical and
biotechnology companies are testing a large array of alternative cancer
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<PAGE> 10
treatments. If any of these proves to be more effective, safer or less expensive
than the Company's products under development, the Company's competitive
position could be adversely affected.
The Company's anti-restenosis products under development are designed to
prevent restenosis of blood vessels following angioplasty where such narrowing
is due to vascular remodeling or to smooth muscle cell migration and
proliferation. Due to the incidence and severity of cardiovascular diseases, the
market for therapeutic products that address such diseases is large, and
competition is intense and expected to increase.
GOVERNMENT REGULATION AND PRODUCT TESTING
The manufacture and marketing of the Company's proposed products and its
research and development activities are subject to regulation for safety,
efficacy and quality by numerous government authorities in the United States and
other countries. In the United States, drugs and biologics are subject to
rigorous FDA regulation. The Federal Food, Drug and Cosmetic Act of 1976, as
amended, and the regulations promulgated thereunder, and other federal and state
statutes and regulations govern, among other things, the testing, manufacture,
safety, efficacy, labeling, storage, record keeping, approval, advertising and
promotion of the Company's products. Product development and approval within
this regulatory framework take a number of years to accomplish and involve the
expenditure of substantial resources.
The steps required before a pharmaceutical agent may be marketed in the
United States include (i) preclinical laboratory tests, in vivo preclinical
studies and formulation studies, (ii) the submission to the FDA of an IND, which
must become effective before human clinical trials can commence, (iii) adequate
and well-controlled human clinical trials to establish the safety and efficacy
of the drug, (iv) the submission of a PLA or New Drug Application ("NDA") to the
FDA, and (v) FDA approval of the PLA or NDA prior to any commercial sale or
shipment of the drug. In addition to obtaining FDA approval for each product,
each domestic drug manufacturing establishment must be registered with, and
inspected by, the FDA. Domestic manufacturing establishments are subject to
biennial inspections by the FDA and must comply with current good manufacturing
practice ("GMP") regulations enforced by the FDA through its facilities
inspection program for both drugs and devices. To supply products for use in the
United States, foreign manufacturing establishments must comply with GMP and are
subject to periodic inspection by the FDA or by corresponding regulatory
agencies in such countries under reciprocal agreements with the FDA.
Preclinical studies include laboratory evaluation of product chemistry and
formulation, as well as animal studies, to assess the potential safety and
efficacy of the product. Preclinical safety tests must be conducted by
laboratories that comply with FDA regulations regarding Good Laboratory
Practice. The results of the preclinical studies are submitted to the FDA as
part of an IND and are reviewed by the FDA prior to commencement of human
clinical trials. Unless the FDA provides comments to an IND, the IND will become
effective 30 days following its receipt by the FDA. There can be no assurance
that submission of an IND will result in FDA authorization to commence clinical
trials.
Clinical trials involve the administration of the investigational new drug
to healthy volunteers or to patients under the supervision of a qualified
principal investigator. Clinical trials are conducted in accordance with the
FDA's Protection of Human Subjects regulations and Good Clinical Practices under
protocols that detail the objectives of the study, the parameters to be used to
monitor safety and the efficacy criteria to be evaluated. Each protocol must be
submitted to the FDA as part of the IND. Further, each clinical study must be
conducted under the auspices of an independent Institutional Review Board
("IRB") at the institution at which the study will be conducted. The IRB will
consider, among other things, ethical factors, the safety of human subjects and
the possible liability of the institution.
Clinical trials are typically conducted in three sequential phases, but the
phases may overlap. In Phase I, the drug is tested for safety (adverse effects),
dosage tolerance, metabolism, distribution, excretion and pharmacodynamics
(clinical pharmacology). Phase II involves studies in a limited patient
population to (i) determine the efficacy of the drug for specific, targeted
indications, (ii) determine dosage tolerance and optimal dosage, and (iii)
identify possible adverse effects and safety risks. When a compound is found to
have potential efficacy and to have an acceptable safety profile in Phase II
clinical trials, Phase III clinical trials are undertaken to further evaluate
clinical efficacy and to further test for safety within an expanded patient
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<PAGE> 11
population at geographically dispersed clinical study sites. There can be no
assurance that Phase I, Phase II or Phase III clinical trials will be completed
successfully within any specific time period, if at all, with respect to any of
the Company's products subject to such trials. Furthermore, the Company or the
FDA may suspend clinical trials at any time if it is determined that the
subjects or patients are being exposed to an unacceptable health risk.
The results of the pharmaceutical development, preclinical studies and
clinical trials are submitted to the FDA in the form of a PLA or NDA for
approval of the marketing and commercial shipment of the drug. The testing and
approval processes are likely to require substantial time and effort and there
can be no assurance that any approval will be granted on a timely basis, if at
all. The FDA may deny a PLA or NDA if applicable regulatory criteria are not
satisfied, may require additional testing or information, or may require
postmarketing testing and surveillance to monitor the safety of the Company's
products if it does not view the PLA or NDA as containing adequate evidence of
the safety and efficacy of the drug. Notwithstanding the submission of such
data, the FDA may ultimately decide that the application does not satisfy its
regulatory criteria for approval. Moreover, if regulatory approval of a drug is
granted, such approval may entail limitations on the indicated uses for which it
may be marketed. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing.
Among the conditions for PLA or NDA approval is the requirement that the
prospective manufacturers' quality control and manufacturing procedures conform
to GMP. In complying with standards set forth in these regulations,
manufacturers must continue to expend time, money and effort in the areas of
production and quality control to ensure full technical compliance.
In addition to regulations enforced by the FDA, the Company also is subject
to regulations under occupational safety and health laws, environmental
protection laws and other present and potential future federal, state or local
regulations. The Company's research and development involves the controlled use
of hazardous materials, chemicals, and various radioactive compounds. Although
the Company believes that its safety procedures for handling and disposing of
such materials comply with the standards prescribed by state and federal
regulations, the risk of accidental contamination or injury from these materials
cannot be completely eliminated. In the event of such an accident, the Company
could be held liable for any damages that result and any such liability could
exceed the Company's resources. In addition, federal and state agencies and
congressional committees have expressed interest in further regulation of
biotechnology. The Company is unable to estimate the extent and impact of
regulation in the biotechnology field resulting from any future federal, state
or local legislation or administrative action.
For clinical investigation and marketing outside the United States, the
Company or its collaborative partners also are subject to foreign regulatory
requirements governing human clinical trials and marketing approval for drugs.
The requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary widely for European countries both within and
outside the European Community.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
The following important factors, among others, could cause the Company's
actual results to differ materially from those expressed in the Company's
forward-looking statements in this report and presented elsewhere by management
from time to time.
Early Stage of Product Development; Technological Uncertainty. To date,
substantially all of the Company's revenues have consisted of payments received
under agreements with corporate partners and from government research contracts,
none of which provide for material future funding. The Company has received no
revenues to date from product sales, does not expect regulatory approval for
commercial sales of its lung cancer imaging product earlier than the third
quarter of 1996 and does not expect to seek U.S. regulatory approval for sales
of its cancer and anti-restenosis treatment products before 1999. The Company's
current research and development activities are focused primarily on its
proposed therapeutic products, which are in an early stage of development. In
preclinical studies the Company's pretargeting technology has shown promise for
the treatment of cancer tumors in animals. Results obtained in preclinical
studies are not necessarily indicative of results that will be obtained in human
clinical trials. The Company initiated a Phase I
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<PAGE> 12
dose escalation study in humans in mid-1994 and does not expect to complete such
study before the second half of 1996. The Company's proposed therapeutic
products for the prevention of restenosis are also in an early stage of
development.
The Company will require collaborative partners to assist in developing its
potential products, and there can be no assurance that the Company will be able
to negotiate acceptable collaborative arrangements in the future. In addition,
the Company's potential products will require significant additional research
and development and extensive clinical testing prior to commercial use. There
can be no assurance that these potential products will be successfully developed
into drugs that can be administered to humans or that any such drugs or related
therapies will prove to be safe and effective in clinical trials or
cost-effective to manufacture. Further, these potential products may prove to
have undesirable and unintended side effects that may prevent or limit their
commercial use.
History of Losses; Need for Additional Funds. The Company has been
unprofitable since inception and expects to incur additional operating losses
over the next several years. These operating losses may fluctuate from period to
period. For the period from February 13, 1984 (the Company's inception) to
December 31, 1995, the Company incurred net losses aggregating $105.9 million.
The Company's existing capital resources and interest income thereon are
currently expected to be sufficient to fund the Company's operations through
late 1997. The Company's actual expenditures will depend on numerous factors,
including results of research and development activities, clinical trials, the
levels of resources that the Company devotes to establishing and expanding
marketing and manufacturing capabilities, competitive and technological
developments and the timing and cost of relationships with parties to
collaborative agreements. The Company will require substantial additional funds
to complete the development of its therapeutic products. Adequate funds for
these purposes, whether through additional financings, collaborative
arrangements with corporate sponsors or other sources, may not be available when
needed or on terms favorable to the Company.
Dependence on Suppliers. The Company depends on the timely delivery from
suppliers of certain materials and services. In connection with its research,
preclinical studies and clinical trials, the Company has periodically
experienced interruption in the supply of monoclonal antibodies, including the
1990 loss of its former sole supplier of the antibody used in its cancer imaging
products. Interruptions in these and other supplies could occur in the future.
The Company will need to develop sources for commercial quantities of
yttrium-90, the radionuclide used in its proposed cancer therapeutic products,
and for the antibody, streptavidin and clearing agent used in Avicidin. The
catheter used to deliver the Company's proposed anti-restenosis products has not
yet been approved for sale by the FDA; commercial use of such catheter depends
on receiving such approval. In addition, the Company depends on a supply of the
catheter from its manufacturer, and there can be no assurance that the
manufacturer will provide a timely and adequate supply of catheters to the
Company. Any failure by the manufacturer to timely and adequately supply
catheters would have a material adverse effect on the Company's ability to
commercialize these products.
Dependence on Others for Commercial Manufacturing and Marketing. The
Company has no manufacturing facilities for commercial production of its
products under development. The Company also has no experience in sales,
marketing or distribution. The Company's strategy for commercialization of its
products requires entering into various arrangements with corporate
collaborators, licensors, licensees and others to manufacture, distribute and
market its products. The Company will depend on the success of these outside
parties in performing their responsibilities. Although the Company believes that
parties to its existing and any future arrangements will have an economic
motivation to successfully perform their contractual responsibilities, the
amount and timing of resources to be devoted to these activities are not within
the Company's control. There can be no assurance that such parties will perform
their obligations as expected, that the Company will derive any revenues from
such arrangements or that the Company's reliance on others for manufacturing
products will not result in unforeseen problems with product supply. The Company
entered into agreements with Boehringer Ingelheim and DuPont Merck under which
Boehringer Ingelheim has worldwide manufacturing rights and non-North American
marketing rights and DuPont Merck has exclusive North American marketing rights
to the Company's Verluma lung cancer imaging product. The Company intends to
seek collaborative partners to assist in developing, manufacturing and marketing
its therapeutic products under
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<PAGE> 13
development. There can be no assurance that the Company will be able to
negotiate acceptable collaborative arrangements in the future or that its
current or future collaborative arrangements will be successful.
Competition. Cancer imaging and therapy and anti-restenosis product
development is highly competitive. There are numerous competitors developing
products to detect, stage or treat each of the diseases for which the Company is
seeking to develop products. Some competitors have adopted product development
strategies similar to the Company's approach of targeting cancer cells by
linking radionuclides to monoclonal antibodies. Many emerging companies have
corporate partnership arrangements with large, established companies to support
research, development and commercialization efforts of products that may be
competitive with those being developed by the Company. In addition, a number of
established pharmaceutical and chemical companies are developing proprietary
technologies or have enhanced their capabilities by entering into arrangements
with, or acquiring, companies with proprietary monoclonal antibody-based
technology or other technologies applicable to the imaging or treatment of
cancer and restenosis. Many of the Company's existing or potential competitors
have or have access to substantially greater financial, research and
development, marketing and production resources than those of the Company and
may be better equipped than NeoRx to develop, manufacture and market competing
products. The Company's competitors may develop and introduce products that are
more effective than those of the Company or that would render the Company's
technology and products under development less competitive, uneconomical or
obsolete.
Technological Uncertainties Regarding Human Immune Response to Foreign
Proteins. The Company's Avicidin cancer therapy product, which is in Phase I/II
clinical testing, currently uses a monoclonal antibody of murine (mouse) origin
coupled to streptavidin, a protein of bacterial origin. These molecules appear
as foreign proteins to the human immune system, which develops its own antibody
in response. The HAMA response, or "human anti-streptavidin antibody" response,
or "HASA", may limit the number of doses that may be safely or effectively
administered to a patient, thereby limiting a product's efficacy. The Company
believes that humanized antibodies may reduce HAMA and that chemical
modification of streptavidin may reduce HASA. Gene cloning technology permits
splicing of human and murine antibody portions together, thereby yielding
humanized molecules. Although the Company has produced a humanized version of
the murine antibody used in Avicidin and has recently initiated a Phase I human
safety study of the humanized antibody, there can be no assurance that such
humanized antibody would reduce the extent to which HAMA or HASA may limit the
effectiveness of the Company's cancer therapy products or that the Company will
successfully commercialize products incorporating the humanized antibody.
Uncertainty Regarding Patents and Proprietary Rights. The patent position
of biotechnology firms generally is highly uncertain and involves complex legal
and factual questions, and currently no consistent policy has emerged regarding
the breadth of claims allowed in biotechnology patents. Products and processes
important to NeoRx are subject to this uncertainty. Accordingly, there can be no
assurance that the Company's patent applications will result in additional
patents being issued or that, if issued, patents will afford protection against
competitors with similar technology, nor can there be any assurance that any
patents issued to the Company will not be infringed by or designed around by
others or that others will not obtain patents that the Company would need to
license or design around. Moreover, the technology applicable to the Company's
products is developing rapidly. Research institutes, universities and
biotechnology companies, including the Company's competitors, have filed
applications for, or have been issued, numerous patents and may obtain
additional patents and proprietary rights relating to products or processes
competitive with or relating to those of the Company. The scope and validity of
such patents, the extent to which the Company may be required to obtain licenses
thereunder or under other proprietary rights and the cost and availability of
licenses are unknown. To the extent licenses are required, there can be no
assurance that they will be available on commercially reasonable terms, if at
all. The Company also relies on unpatented proprietary technology. There can be
no assurance that others will not independently develop substantially equivalent
proprietary information and techniques, that others will not otherwise gain
access to the Company's proprietary technology, or disclose such technology, or
that the Company can meaningfully protect its rights in such unpatented
proprietary technology.
Delays and Costs Resulting From Government Regulation. The manufacture and
marketing of the Company's proposed products and its research and development
activities are subject to regulation for safety,
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<PAGE> 14
efficacy and quality by numerous government authorities in the United States and
other countries. Clinical trials, manufacturing and marketing of products are
subject to the rigorous testing and approval processes of the FDA and equivalent
foreign regulatory authorities. Clinical trials and regulatory approval can take
a number of years to accomplish and require the expenditure of substantial
resources. There can be no assurance that clinical trials will be started or
completed successfully within any specified time period. Delays in approval can
occur for a number of reasons, including the Company's failure to obtain
necessary supplies of monoclonal antibodies or other materials or to obtain a
sufficient number of available patients to support the claims necessary for
regulatory approval. There can be no assurance that requisite FDA approvals will
be obtained on a timely basis, if at all, or that any approvals granted will
cover all the clinical indications for which the Company may seek approval.
Boehringer Ingelheim filed a PLA and an ELA with the FDA for approval to
manufacture and market Verluma in March 1994. In December 1995, ODAC recommended
that the FDA approve Verluma. On March 22, 1996, Boehringer Ingelheim advised
the Company that it had decided to discontinue the use of a contract
manufacturer of a non-biologic component of the Verluma product and assume
responsibility for its manufacture. Because Boehringer Ingelheim must validate
its manufacturing processes and procedures for this component, the Company does
not expect FDA approval before the third quarter 1996. The Company's business
would be adversely affected by significant delays in FDA approval of the
manufacture and marketing of this product by Boehringer Ingelheim or by failure
of the FDA to grant such approval. Delays or failure to obtain regulatory
approval would adversely affect or prevent the marketing of other products
developed by the Company and its ability to receive royalty or other product
revenues. The manufacture and marketing of drugs are subject to continuing FDA
review and later discovery of previously unknown problems with a product,
manufacturer or facility may result in restrictions, including withdrawal of the
product from the market. Marketing the Company's products abroad will require
similar regulatory approvals and is subject to similar risks. In addition, the
Company is unable to predict the extent of adverse governmental regulation that
might arise from future U.S. or foreign government action.
Risk of Product Liability. The testing, manufacturing, marketing and sale
of human healthcare products under development by the Company entail an inherent
risk that product liability claims will be asserted against the Company.
Although the Company is insured against such risks up to a $10 million annual
aggregate limit in connection with human clinical trials and commercial sales of
its products under development, there can be no assurance that the Company's
present product liability insurance is adequate. A product liability claim in
excess of the Company's insurance coverage could have a material adverse effect
on the Company and may prevent the Company from obtaining adequate product
liability insurance in the future on affordable terms. In addition, there can be
no assurance that product liability coverage will continue to be available in
sufficient amounts or at an acceptable cost.
Uncertainty of Pharmaceutical Pricing, Healthcare Reform and
Reimbursement. The levels of revenues and profitability of pharmaceutical
companies may be affected by the continuing efforts of government and
third-party payors to contain or reduce the costs of healthcare through various
means. For example, in certain foreign markets pricing or profitability of
prescription pharmaceuticals is subject to governmental control. In the United
States, there have been, and the Company expects that there will continue to be,
a number of federal and state proposals to implement similar governmental
control. It is uncertain what legislative proposals will be adopted or what
actions federal, state or private payors for healthcare goods and services may
take in response to any healthcare reform proposals or legislation. Even in the
absence of statutory change, market forces are changing the healthcare sector.
The Company cannot predict the effect healthcare reforms may have on its
business, and there can be no assurance that any such reforms will not have a
material adverse effect on the Company. Further, to the extent that such
proposals or reforms have a material adverse effect on the business, financial
condition and profitability of other pharmaceutical companies that are
prospective collaborators for certain of the Company's potential products, the
Company's ability to commercialize its products under development may be
adversely affected. In addition, both in the United States and elsewhere, sales
of prescription pharmaceuticals depend in part on the availability of
reimbursement to the consumer from third-party payors, such as governmental and
private insurance plans. Third-party payors are increasingly challenging the
prices charged for medical products and services. If the Company succeeds in
bringing one or more products to market, there can be no assurance that these
products will be considered cost-effective and
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that reimbursement to the consumer will be available or will be sufficient to
allow the Company to sell its products on a competitive basis.
Reliance on Key Personnel. The Company's success will depend in part on
the efforts of certain key scientists and management personnel. Because of the
specialized nature of the Company's business, the Company's ability to maintain
its competitive position will depend in part on its ability to attract and
retain qualified personnel. Competition for such personnel is intense. There can
be no assurance that the Company will be able to hire sufficient qualified
personnel on a timely basis or retain such personnel. The loss of key management
or scientific personnel could have an adverse effect on the Company's business.
The Company does not maintain key man insurance on any of its scientists or
management personnel.
Compliance With Environmental Regulations; Hazardous Materials. The
Company is subject to federal, state and local laws, rules, regulations and
policies governing the use, generation, manufacture, storage, air emission,
effluent discharge, handling and disposal of certain materials and wastes in
connection with its research and development activities and its manufacturing of
clinical trial materials. Although the Company believes that it has complied
with these laws and regulations in all material respects, there can be no
assurance that it will not be required to incur significant costs to comply with
environmental and health and safety regulations in the future. The Company's
research and development and clinical manufacturing processes involve the
controlled use of small amounts of hazardous and radioactive materials. Although
the Company believes that its safety procedures for handling and disposing of
such materials comply with the standards prescribed by such laws and
regulations, the risk of accidental contamination or injury from these materials
cannot be completely eliminated. In the event of such an accident, the Company
could be held liable for any resulting damages, and any such liability could
exceed the Company's resources.
EMPLOYEES
As of March 1, 1996, the Company had 70 full-time employees and 8 part-time
employees, 18 of whom hold Ph.D. degrees and two of whom hold M.D. degrees.
Fifty-seven employees were engaged in research, development and manufacturing
activities and 21 were employed in finance and administration.
The Company considers its relations with its employees to be excellent.
None of the Company's employees are covered by a collective bargaining
agreement.
ITEM 2. PROPERTIES
The Company occupies approximately 36,000 square feet of office, laboratory
and manufacturing space at 410 West Harrison Street, Seattle, Washington, under
a lease that expires May 31, 2001. The lease is renewable through May 31, 2006.
NeoRx believes its facilities are in good condition and are adequate for
all present uses. A portion of its facilities is used for pilot manufacturing to
produce certain of its products under development. The Company believes that the
production capacity of its pilot facility is adequate to satisfy the Company's
Phase I clinical trial requirements, and it passed an FDA inspection for these
purposes in 1993 and a Washington State Board of Pharmacy inspection in 1996.
The Company's strategy is to license manufacturing rights for its products, but
it may decide to produce certain components of its therapy products. Such
production would require a further investment in facilities and equipment, the
cost of which cannot be currently estimated.
ITEM 3. LEGAL PROCEEDINGS
The Company has been named as an additional codefendant in an amended
complaint filed in the United States District Court for the Southern District of
New York on March 27, 1995 in a pending purported class action suit against
David Blech, D. Blech & Co. and a number of other defendants, including 11
publicly traded biotechnology companies. The complaint seeks damages for alleged
unlawful manipulation of the stock market prices of the named biotechnology
companies. The Company believes that the claims against it have no factual or
legal basis and are without merit. Although the complaint alleges that D. Blech
& Co. was the
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principal market maker for NeoRx stock, to the Company's knowledge D. Blech &
Co. was never a significant market maker for such stock. The Company intends to
defend this suit vigorously.
In February 1995, the Company settled a lawsuit filed against it and
certain members of its Board of Directors and officers in May 1994 on behalf of
a class of purchasers of NeoRx Common Stock. Under the terms of the settlement,
NeoRx issued to the class 257,000 shares of NeoRx Common Stock valued at $1.5
million and collected insurance proceeds of $925,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE COMPANY
Information with respect to the Company's executive officers is set forth
below.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---------------------------------------- ---- ---------------------------------------------------
<S> <C> <C>
Paul G. Abrams, M.D., J.D. ............. 48 President, Chief Executive Officer and Director
Robert M. Littauer, M.B.A., C.P.A....... 47 Senior Vice President, Chief Financial Officer and
Treasurer
Jeffrey J. Miller, Ph.D., J.D. ......... 48 Senior Vice President, Business Development and
Legal Affairs, and Secretary
John M. Reno, Ph.D. .................... 49 Vice President, Research and Development
Robert W. Schroff, Ph.D., M.B.A. ....... 41 Vice President and General Manager, Cardiovascular
Products
Bruce H. Walters........................ 52 Vice President, Human Resources
</TABLE>
BUSINESS EXPERIENCE
DR. PAUL G. ABRAMS is a co-founder of the Company, has been a Director
since January 1985 and has been President and Chief Executive Officer since May
1990. He was the Company's Vice President, Medical Affairs from January 1985
through April 1990. From 1981 to 1984, Dr. Abrams held the position of Expert in
the Biological Response Modifiers Program of the National Cancer Institute. Dr.
Abrams holds J.D., M.D. and B.A (summa cum laude with exceptional distinction)
degrees from Yale University. He is a board-certified internist and medical
oncologist and is an Affiliate Associate Professor in the Department of
Radiology at the University of Washington.
ROBERT M. LITTAUER has been Senior Vice President, Chief Financial Officer
and Treasurer since April 1993. He was the Company's Vice President, Chief
Financial Officer and Treasurer from August 1988 to April 1993. From September
1987 to July 1988, he was the Company's Vice President and Chief Financial
Officer and from June 1987 to August 1987, Chief Financial Officer. From 1982 to
1987, Mr. Littauer was Vice President, Finance and Treasurer of Concept, Inc., a
manufacturer of surgical products. He holds an M.B.A. and a B.S. degree in
Industrial Engineering and Operations Research from Cornell University and is a
Certified Public Accountant.
DR. JEFFREY J. MILLER has been Senior Vice President, Business Development
and Legal Affairs since April 1993, and Secretary since August 1988. He was the
Company's Vice President, Business Development and Legal Affairs from September
1989 to April 1993 and Vice President and General Counsel from September 1987 to
August 1989. From 1985 to 1987, he was a partner in the Seattle law firm of Seed
and Berry. Dr. Miller holds a Ph.D. degree in Biology from the University of
California at Los Angeles, a J.D. degree from Loyola University of Los Angeles
and a B.A. degree from the University of California at Los Angeles.
DR. JOHN M. RENO has been Vice President, Research and Development since
January 1993. He was the Company's Director, Research and Development from May
1991 until December 1992 and Director, Product Development and Manufacturing
from November 1986 to April 1989. Dr. Reno joined NeoRx in 1984 as a Senior
Scientist. Prior to that time, he held positions as Group Leader with Seragen,
Inc., and
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<PAGE> 17
Project Leader with Dow Chemical Company. He holds a Ph.D. degree in
Biochemistry from Michigan State University.
DR. ROBERT W. SCHROFF has been Vice President and General Manager,
Cardiovascular Products since January 1993. He was the Company's Director,
Business Development and Analytical Labs from November 1991 to December 1992;
Director, Project Management from September 1990 to October 1991; Director,
Clinical Research from July 1986 to August 1990; and Senior Scientist,
Immunological Assessment from January 1985 to July 1986. From 1982 to 1984, Dr.
Schroff was a Senior Staff Fellow of the National Cancer Institute. Dr. Schroff
holds a Ph.D. degree in Immunology from the Bowman Gray School of Medicine of
Wake Forest University. He performed postdoctoral studies at the University of
California at Los Angeles. Dr. Schroff also holds an M.B.A. degree from the
University of Washington.
BRUCE H. WALTERS has been Vice President, Human Resources since May 1989.
From April 1987 to April 1989, he was the Company's Director, Human Resources.
From 1985 to 1987, he was Manager, Human Resources for Aviall, Inc., a provider
of aircraft repair and overhaul services, and from 1984 to 1985, Manager,
Management Services of American Hospital Supply Corporation. Mr. Walters holds a
B.A. degree in Bacteriology from the University of California at Los Angeles.
16
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
STOCK TRADING AND PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol NERX. The following table sets forth for the periods indicated the
high and low sales prices for NeoRx Common Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
SALES PRICE
----------------
HIGH LOW
----- ------
<S> <C> <C>
1995:
First Quarter....................................................... $7 1/8 $4 11/16
Second Quarter...................................................... 7 5/16 4 15/16
Third Quarter....................................................... 7 7/8 4 13/16
Fourth Quarter...................................................... 7 3/8 4 7/8
1994:
First Quarter....................................................... $9 1/2 $6 1/8
Second Quarter...................................................... 6 5/16 2 1/2
Third Quarter....................................................... 4 1/4 2 5/8
Fourth Quarter...................................................... 8 1/8 3 1/4
</TABLE>
There were approximately 1,100 shareholders of record at December 31, 1995.
The Company has not paid cash dividends on its Common Stock and does not intend
to pay cash dividends on its Common Stock in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------
THREE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
----------------------------- ------------------ ---------------------
1995 1994 1993 1992 1991 1992 1991
-------- -------- ------- ------- -------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Contract revenues and fees........... $ 307 $ 1,568 $ 3,676 $ 9,180 $ 355 $ 277 $ 119
Operating expenses................... 13,343 12,605 12,334 11,094 12,118 2,825 2,665
Loss from operations................. (13,036) (11,037) (8,658) (1,914) (11,763) (2,548) (2,546)
Net loss............................. (12,271) (11,144) (8,536) (2,763) (11,681) (2,425) (3,688)
Net loss per common share............ $ (0.98) $ (1.02) $ (1.10) $ (0.60) $ (3.49) $ (0.36) $ (0.78)
Weighted average common shares
outstanding........................ 13,142 11,616 8,449 6,530 3,813 7,303 5,169
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 7,182 $ 2,428 $14,347 $12,359 $ 1,616 $10,520 $11,094
Short-term investments............... 8,937 14,723 13,421 4,000 7,588 2,500 4,168
Working capital...................... 15,245 15,992 26,934 14,463 16,495 11,720 14,096
Total assets......................... 18,518 20,035 29,848 18,511 21,087 14,943 17,355
Long-term debt....................... 1,283 1,212 1,222 1,239 8,347 1,236 1,293
Shareholders' equity................. $ 14,892 $ 15,841 $26,776 $14,531 $ 8,963 $11,740 $13,146
</TABLE>
- ---------------
Note: In February 1993, the Company changed its fiscal year-end from September
30 to December 31.
17
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
NeoRx Corporation is a development stage enterprise and has received no
revenues from sales of its products under development. To date, the Company's
revenues have been derived principally from license fees from Boehringer
Ingelheim under a collaborative agreement executed in September 1992, payments
from DuPont Merck, Sterling Winthrop Inc. ("Sterling") and from federal
government research contracts. The Boehringer Ingelheim agreement does not
require future license or research payments to the Company from Boehringer
Ingelheim, although Boehringer Ingelheim is obligated to pay royalties on sales
of licensed products. The DuPont Merck agreement provides that the Company will
receive a licensing fee of $4.5 million upon FDA approval of Verluma and
royalties on sales of the product. The Company plans to enter into additional
collaborative agreements with corporate partners, but does not currently have
commitments for any such agreements. Expenses incurred have been primarily for
research and development and for administration, resulting in an accumulated
deficit since inception of $113.4 million. Successful future operations depend
on the Company's ability to develop, obtain regulatory approval for and
commercialize its products. The Company will require a substantial amount of
additional funds to complete the development of most of its products and to fund
additional operating losses that the Company expects to incur during the next
several years.
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The Company's revenues in 1995, 1994 and 1993 were $.3 million, $1.6
million and $3.7 million, respectively, and consisted of license fees and
payments received under its collaborative and license agreements. Revenues
received in 1994 consisted primarily of a license fee of $1.4 million from
DuPont Merck for exclusive North American rights to market NeoRx's Verluma lung
cancer imaging products as part of the DuPont Merck purchase of 269,000 shares
of NeoRx Common Stock in October 1994. In 1993, revenues included a $2.3 million
milestone payment received from Boehringer Ingelheim as part of its purchase of
234,000 shares of NeoRx Common Stock in September 1993, $.5 million received
from Sterling under a 1992 license agreement and $.9 million received under
collaborative research agreements.
The Company's total operating expenses were $13.3 million, $12.6 million
and $12.3 million in 1995, 1994 and 1993, respectively. Of these amounts,
research and development expenditures were $8.7 million, $7.5 million and $6.7
million in 1995, 1994 and 1993, respectively. Research and development expenses
increased 16% in 1995 and 11% in 1994. The increase in research and development
expenses in 1995 was primarily due to activities relating to antibody
humanization, a one-time license fee payment and increased clinical trial
activities. The increase in research and development expenses in 1994 was
generally due to activities relating to bringing the cardiovascular program to
the clinic. Approximately 100%, 98% and 94% of the Company's research and
development expenses in 1995, 1994 and 1993, respectively, were attributable to
the Company's self-funded research programs. General and administrative expenses
were $4.7 million, $5.1 million and $5.6 million in 1995, 1994 and 1993,
respectively. General and administrative expenses decreased 9% in 1995 and 8% in
1994. The decrease in general and administrative expenses in 1995 and 1994
resulted primarily from reduced legal fees and costs associated with the
Company's patent enforcement suit against and counterclaim by Immunomedics,
Inc., which was settled in 1994.
Investment and interest income was $1 million, $.9 million and $.3 million
in 1995, 1994 and 1993, respectively. The increase in 1995 and 1994 was
primarily due to higher average cash balances resulting from sales of Common
Stock. Interest expense was $.1 million in 1995, 1994 and 1993.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's operations have been financed primarily by
funds raised through the issuance of equity and debt securities and amounts
received under manufacturing and marketing licenses. As of December 31, 1995,
sales of the Company's Common Stock had raised an aggregate of $101.6 million,
cash fees received from license agreements totaled $9.2 million, net proceeds
from the June 1989 sale of convertible
18
<PAGE> 20
subordinated debentures amounted to $26.6 million and revenues received under
collaborative research agreements amounted to $24.7 million.
Since inception, the Company has invested $8.9 million in equipment,
furniture and leasehold improvements, primarily to support its research and
manufacturing activities. As of December 31, 1995, the Company was committed to
spending approximately $2.8 million pursuant to operating and capital lease
obligations.
The Company has no material commitments for capital expenditures. The
Company's strategy is to form corporate alliances with pharmaceutical companies
to provide for the manufacture of its products under development, thereby
avoiding the need to make significant investments in production capacity.
The Company's liquidity position has improved during 1995. Although total
cash, cash equivalents and short-term investments decreased $1 million during
1995, the Company's current ratio increased to 7.5 from 6.4, primarily due to
payment of a litigation settlement brought against the Company and certain of
its Directors and officers in 1994 on behalf of a class of purchasers of NeoRx
Common Stock. Under the terms of the 1995 settlement, NeoRx issued to the class
257,000 shares of NeoRx Common Stock, valued at $1.5 million, and collected
insurance proceeds of $.9 million.
In October 1995, the Company registered 650,000 shares of Common Stock for
sale from time to time. As of December 31, 1995, the Company had issued 186,000
shares and received net proceeds of $1.2 million. Also during 1995, the Company
received net proceeds of $8.3 million from the sale of 1.4 million units
consisting of Common Stock and warrants. During 1994, the Company received $2.0
million from DuPont Merck for Verluma North American marketing rights and the
purchase of 269,000 shares of NeoRx Common Stock. During 1993, the Company
received $23.8 million from the sale of 3.4 million shares of its Common Stock
in three transactions.
In January 1996, the Company issued 370,000 shares of Common Stock and
47,000 shares of Series 2 Convertible Preferred Stock, $.02 par value per share
and received net proceeds of $6.7 million. During January and February 1996, the
Company sold 428,000 shares of Common Stock for net proceeds of $3.5 million.
The combined net proceeds from these transactions, totaling $10.2 million, are
not reflected in the December 31, 1995 balance sheet.
The Company's cash investment policy is to earn a market rate of interest
on its marketable securities while assuming minimal risk of principal. The
investment portfolio must meet the following objectives: preservation of
principal, fulfillment of liquidity needs, reasonable yield and avoidance of
inappropriate concentrations. All investments must carry an investment grade
rating and no single non-Federal government issue may represent more than 10% of
portfolio assets.
The Company expects that its capital resources and interest income will be
sufficient to finance its currently anticipated working capital and capital
requirements through late 1997. The Company's working capital and capital
requirements will depend on numerous factors, including results of research and
development activities, clinical trials, the levels of resources that the
Company devotes to establishing and expanding marketing and manufacturing
capabilities, competitive and technological developments and the timing and cost
of relationships with parties to collaborative agreements. The Company will need
to raise substantial additional funds to conduct research and development
activities, preclinical studies and clinical trials necessary to bring its
products to market, and to establish marketing and limited manufacturing
capabilities. The Company intends to seek additional funding through public or
private equity financings, arrangements with corporate collaborators or other
sources. Adequate funds may not be available when needed or on terms acceptable
to the Company.
19
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
NUMBERS
-------
<S> <C>
Report of Independent Public Accounts....................................... 21
Balance Sheets -- December 31, 1995 and 1994................................ 22
Statements of Operations -- For the Years Ended December 31, 1995, 1994 and
1993 and since inception.................................................. 23
Statements of Cash Flows -- For the Years Ended December 31, 1995, 1994 and
1993 and since inception.................................................. 24
Statements of Shareholders' Equity -- For the Years Ended December 31, 1995,
1994 and 1993 and since inception......................................... 25
Notes to Financial Statements............................................... 26
</TABLE>
All financial schedules are omitted since the required information is applicable
or has been presented in the financial statements and the notes thereto.
20
<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Shareholders of NeoRx Corporation:
We have audited the accompanying balance sheets of NeoRx Corporation (a
Washington corporation in the development stage) as of December 31, 1995 and
1994, and the related statements of operations, cash flows and shareholders'
equity for each of the years ended December 31, 1995, 1994 and 1993, and for the
period from February 13, 1984 (inception) to December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NeoRx Corporation as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the years ended December 31, 1995, 1994 and 1993, and for the period
from inception to December 31, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Seattle, Washington
February 16, 1996
21
<PAGE> 23
NEORX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
--------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 7,182 $ 2,428
Short-term investments................................................ 8,937 14,723
Inventories........................................................... 538 393
Prepaids and other.................................................... 931 1,430
--------- --------
Total current assets........................................ 17,588 18,974
--------- --------
FACILITIES AND EQUIPMENT, AT COST:
Equipment and furniture............................................... 3,498 3,298
Leasehold improvements................................................ 3,233 3,204
--------- --------
6,731 6,502
Less: accumulated depreciation and amortization....................... (5,914) (5,555)
--------- --------
Facilities and equipment, net....................................... 817 947
--------- --------
OTHER ASSETS.......................................................... 113 114
--------- --------
$ 18,518 $ 20,035
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................................... $ 1,511 $ 603
Accrued liabilities................................................... 531 2,115
Deferred revenue...................................................... 250 250
Current portion of capital leases..................................... 51 14
--------- --------
Total current liabilities................................... 2,343 2,982
--------- --------
NON-CURRENT LIABILITIES:
Convertible subordinated debentures, 9 3/4%........................... 1,195 1,195
Capital leases, less current portion.................................. 88 17
--------- --------
Total non-current liabilities............................... 1,283 1,212
--------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Convertible exchangeable preferred stock, Series 1, $.02 par value,
3,000,000 shares authorized, 208,000 and 298,000 shares issued and
outstanding, respectively........................................... 4 6
Common stock, $.02 par value, 60,000,000 shares authorized, 14,359,000
and 11,865,000 shares issued and outstanding, respectively.......... 287 237
Additional paid-in capital............................................ 128,098 115,614
Deferred compensation................................................. (139) (232)
Accumulated deficit since inception................................... (113,358) (99,784)
--------- --------
Total shareholders' equity.................................. 14,892 15,841
--------- --------
$ 18,518 $ 20,035
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 24
NEORX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FEBRUARY 13,
1984
(INCEPTION)
YEARS ENDED DECEMBER 31, TO
--------------------------------- DECEMBER 31,
1995 1994 1993 1995
-------- -------- ------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Contract revenues and fees.................... $ 307 $ 1,568 $ 3,676 $ 37,640
-------- -------- ------- ---------
OPERATING EXPENSES:
Research and development...................... 8,690 7,464 6,723 92,031
General and administrative.................... 4,653 5,141 5,611 54,651
-------- -------- ------- ---------
Total operating expenses............ 13,343 12,605 12,334 146,682
-------- -------- ------- ---------
Loss from operations.......................... (13,036) (11,037) (8,658) (109,042)
OTHER INCOME (EXPENSE):
Investment and interest income, net......... 1,002 908 259 10,856
Interest expense............................ (140) (127) (137) (5,495)
Litigation expense, net..................... (97) (888) -- (985)
Debt conversion expense..................... -- -- -- (1,228)
-------- -------- ------- ---------
Net loss...................................... $(12,271) $(11,144) $(8,536) $ (105,894)
======== ======== ======= =========
Preferred stock dividends..................... (597) (725) (739) (5,903)
-------- -------- ------- ---------
Net loss applicable to common shares.......... $(12,868) $(11,869) $(9,275) $ (111,797)
======== ======== ======= =========
Net loss per common share..................... $ (.98) $ (1.02) $ (1.10) $ (21.02)
======== ======== ======= =========
Weighted average common shares outstanding.... 13,142 11,616 8,449 5,319
======== ======== ======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 25
NEORX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 13,
1984
YEARS ENDED DECEMBER 31, (INCEPTION) TO
------------------------------ DECEMBER 31,
1995 1994 1993 1995
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................... $(12,271) $(11,144) $ (8,536) $ (105,894)
--------- --------- --------- -----------
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization............... 402 290 456 9,453
(Increase) decrease in inventories.......... (145) 108 (80) (538)
(Increase) decrease in prepaids and other
assets................................... 699 (922) (269) (738)
Increase in accounts payable and accrued
liabilities.............................. 844 1,120 286 2,000
Increase (decrease) in deferred revenue..... -- 48 (391) 250
Compensation expense on stock awards
and options.............................. 184 204 112 1,124
Return of common stock for license.......... -- -- -- (3,850)
Debt conversion expense..................... -- -- -- 1,228
Common stock issued for consulting
services................................. 239 -- 303 2,042
--------- --------- --------- -----------
Total adjustments........................ 2,223 848 417 10,971
--------- --------- --------- -----------
Net cash (used in) operating activities.......... (10,048) (10,296) (8,119) (94,923)
--------- --------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (purchases of) short-term
investments, net.............................. 5,786 (1,302) (10,921) (8,937)
Facilities and equipment purchases............... (129) (280) (204) (8,920)
Other............................................ -- -- -- (17)
--------- --------- --------- -----------
Net cash provided by (used in) investing
activities.................................... 5,657 (1,582) (11,125) (17,874)
--------- --------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock and
warrants...................................... 9,215 635 23,810 100,186
Proceeds from sale of convertible debentures..... -- -- -- 26,606
Proceeds from capital lease obligations.......... -- -- -- 2,322
Repayments of capital lease obligations.......... (35) (44) (98) (3,564)
Proceeds from stock options exercised............ 423 95 98 1,373
Preferred stock issuance costs................... -- -- -- (792)
Preferred stock dividends........................ (458) (727) (727) (5,515)
Repurchase of preferred stock.................... -- -- -- (305)
Repurchase of common stock....................... -- -- (12) (332)
--------- --------- --------- -----------
Net cash provided by (used in) financing
activities.................................... 9,145 (41) 23,071 119,979
--------- --------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 4,754 (11,919) 3,827 7,182
CASH AND CASH EQUIVALENTS:
Beginning of period.............................. 2,428 14,347 10,520 --
--------- --------- --------- -----------
End of period.................................... $ 7,182 $ 2,428 $ 14,347 $ 7,182
========= ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 26
NEORX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ACCUMULATED
----------------- ----------------- ADDITIONAL DEFICIT TOTAL
NUMBER PAR NUMBER PAR PAID-IN DEFERRED SINCE SHAREHOLDERS'
OF SHARES VALUE OF SHARES VALUE CAPITAL COMPENSATION INCEPTION EQUITY
--------- ----- --------- ----- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 13, 1984
(INCEPTION).................... -- $-- -- $ -- $ -- $ -- $ -- $ --
Sale of common stock and
warrants....................... -- -- 6,213 124 65,771 -- -- 65,895
Common stock issued in exchange
for convertible subordinated
debentures..................... -- -- 438 9 8,094 -- -- 8,103
Issuance of common stock to
consultants and employees for
services ($.08-$20.00 per
share)......................... -- -- 356 7 271 (134) -- 144
Return of common stock for
license........................ -- -- (500) (10 ) (3,840) -- -- (3,850)
Issuance of restricted common
stock to employees............. -- -- 90 2 448 (450) -- --
Exercise of stock options
($.40-$20.00 per share)........ -- -- 284 5 741 -- -- 746
Issuance of stock purchase
warrants for 91,576 common
shares ($2.00-$4.80 per
share)......................... -- -- -- -- 200 -- -- 200
Issuance of preferred stock in
exchange for convertible
subordinated debentures........ 791 16 -- -- 18,002 -- -- 18,018
Repurchase of preferred stock.... (101) (2) -- -- (303) -- -- (305)
Repurchase of common stock....... -- -- (59) -- (196) 3 -- (193)
Common stock issued in exchange
for
preferred stock................ (392) (8) 522 10 1,039 -- (855) 186
Amortization of deferred
compensation................... -- -- -- -- -- 581 -- 581
Preferred stock dividends ($2.44
per share)..................... -- -- -- -- -- -- (3,842) (3,842)
Net loss......................... -- -- -- -- -- -- (73,943) (73,943)
---- --- ------ ---- -------- ----- --------- --------
BALANCE, DECEMBER 31, 1992....... 298 6 7,344 147 90,227 -- (78,640) 11,740
Exercise of stock options
($1.50-$5.25 per share)........ -- -- 61 1 97 -- -- 98
Issuance of common stock to
consultants for services
($8.00-$13.00 per share)....... -- -- 30 1 302 -- -- 303
Sale of common stock ($5.60-$8.00
per share)..................... -- -- 3,358 67 23,881 -- -- 23,948
Exchange of common stock for
warrants....................... -- -- 750 15 (165) -- -- (150)
Issuance of compensatory stock
option ($6.00 per share)....... -- -- -- -- 437 (437) -- --
Amortization of deferred
compensation................... -- -- -- -- -- 112 -- 112
Preferred stock dividends ($2.44
per share)..................... -- -- -- -- -- -- (739) (739)
Net loss......................... -- -- -- -- -- -- (8,536) (8,536)
---- --- ------ ---- -------- ----- --------- --------
BALANCE, DECEMBER 31, 1993....... 298 6 11,543 231 114,779 (325) (87,915) 26,776
Sale of common stock ($2.36 per
share)......................... -- -- 269 5 630 -- -- 635
Exercise of stock options
($1.50-$2.94 per share)........ -- -- 35 1 94 -- -- 95
Issuance of restricted common
stock to employees ($6.00-$6.38
per share)..................... -- -- 18 -- 111 -- -- 111
Amortization of deferred
compensation................... -- -- -- -- -- 93 -- 93
Preferred stock dividends ($2.44
per share)..................... -- -- -- -- -- -- (725) (725)
Net loss......................... -- -- -- -- -- -- (11,144) (11,144)
---- --- ------ ---- -------- ----- --------- --------
BALANCE, DECEMBER 31, 1994....... 298 6 11,865 237 115,614 (232) (99,784) 15,841
Sale of common stock and
warrants....................... -- -- 1,700 34 9,181 -- -- 9,215
Exercise of stock options
($1.50-$3.75 per share)........ -- -- 219 4 419 -- -- 423
Issuance of common stock in
payment of expenses
($5.71-$6.25 per share)........ -- -- 321 6 1,932 -- -- 1,938
Exchange of common stock for
preferred stock................ (90) (2) 225 5 703 -- (706) --
Issuance of compensatory stock
options ($5.13 per share)...... -- -- -- -- 91 -- -- 91
Amortization of deferred
compensation................... -- -- -- -- -- 93 -- 93
Preferred stock dividends ($2.44
per share)..................... -- -- 29 1 158 -- (597) (438)
Net loss......................... -- -- -- -- -- -- (12,271) (12,271)
---- --- ------ ---- -------- ----- --------- --------
BALANCE, DECEMBER 31, 1995....... 208 $ 4 14,359 $287 $128,098 $ (139) $(113,358) $ 14,892
==== === ====== ==== ======== ===== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE> 27
NEORX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. THE COMPANY
NeoRx Corporation ("NeoRx" or the "Company"), incorporated in the state of
Washington, develops biopharmaceutical products for the detection and treatment
of human diseases. The Company is a development stage enterprise. The Company's
revenues have consisted principally of license fees from Boehringer Ingelheim
International GmbH ("Boehringer Ingelheim"), payments from The DuPont Merck
Pharmaceutical Company ("DuPont Merck"), Sterling Winthrop Inc. and from federal
government research contracts. The Company has received no revenues from sales
of its products. The Company's development activities involve inherent risks.
These risks include, among others, dependence on key personnel, availability of
raw materials, determination of the patentability of the Company's products and
processes and approval by the United States Food and Drug Administration (the
"FDA") before the Company's products may be sold domestically. Expenses incurred
have been primarily for research and development activities and administration,
resulting in an accumulated deficit of $113.4 million. Successful future
operations depend upon the Company's ability to develop, obtain regulatory
approval for and commercialize its products. The Company will require a
substantial amount of additional funds to complete the development of most of
its products and to fund additional operating losses which the Company expects
to incur during the next several years.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Flows. For the purpose of the accompanying Statements of Cash Flows,
the Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Capital lease obligations incurred to acquire equipment were $1,381,000
since inception, of which $143,000 and $60,000 occurred in years the 1995 and
1993, respectively.
Interest paid by the Company was $141,000, $127,000 and $135,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
In June 1995, the Company exchanged 90,000 shares of Convertible
Exchangeable Preferred Stock, Series 1, $.02 par value ("Preferred Stock") for
225,000 shares of Common Stock.
Estimates and Uncertainties. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
Research and Development Revenues and Expenses. Revenues from
collaborative agreements are recognized as earned as the Company performs
research activities under the terms of each agreement. Billings in excess of
amounts earned are classified as deferred revenue. License fees earned are
recognized as revenue unless subject to a contingency, which results in a
deferral of revenue until the contingency is satisfied. Research and development
costs are expensed as incurred.
Inventories. Inventories consist primarily of raw materials priced at the
lower of cost (first-in, first-out) or market.
Facilities and Equipment. Facilities and equipment, including equipment
under capital leases, are stated at cost. Depreciation is provided using the
straight-line method over an estimated useful life of five years for equipment
and furniture. Leasehold improvements and equipment under capital leases are
amortized using the straight-line method over the shorter of the assets'
estimated useful lives or the terms of the leases.
Net Loss Per Common Share. Net loss per common share is computed after
deduction of Preferred Stock dividends and is based upon the weighted average
number of shares of Common Stock outstanding during each period. Common Stock
equivalents include shares issuable upon the exercise of outstanding
26
<PAGE> 28
NEORX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
warrants or stock options, but are not included in the computation of net loss
per share because the effect of including such shares would be antidilutive.
NOTE 3. SHORT-TERM INVESTMENTS
Short-term investments consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------ -------
<S> <C> <C>
Federal government and agency securities.................. $6,988 $ 6,421
Corporate debt securities................................. 1,949 8,302
------ ------
$8,937 $14,723
====== ======
</TABLE>
The Company adopted Statement of Financial Accounting Standards No. 115
("SFAS 115"), "Accounting for Certain Investments in Debt and Equity
Securities," effective January 1, 1994. Under SFAS 115, debt securities that the
Company has both the intent and ability to hold to maturity are carried at
amortized cost. As of December 31, 1995, the Company considers all short-term
investments as held-to-maturity securities and amortized cost approximates fair
value. All securities mature within one year. Realized gains and losses
generated from the sale of securities during 1995 that were classified as
available-for-sale at December 31, 1994 were not material.
NOTE 4. ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
---- ------
<S> <C> <C>
Litigation settlement....................................... $ -- $1,632
Compensation................................................ 450 379
Preferred stock dividends................................... 42 62
Interest.................................................... 9 10
Other....................................................... 30 32
---- ------
$531 $2,115
==== ======
</TABLE>
NOTE 5. LEASES
The Company leases certain equipment under capital leases which expire on
various dates through 1999. The total amount of equipment under capital leases
included in facilities and equipment on the accompanying balance sheets was
$294,000 and $195,000 at December 31, 1995 and 1994, respectively, and
accumulated amortization applicable to such leases was $122,000 and $115,000 at
December 31, 1995 and 1994, respectively.
The lease for the Company's principal location expires in 2001 and contains
one five-year renewal option. Total rent payments under operating leases were
$450,000, $418,000 and $405,000 for the years ended December 31, 1995, 1994 and
1993, respectively.
27
<PAGE> 29
NEORX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Minimum lease payments and the present value of capital lease obligations
as of December 31, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
1996...................................................... $ 501 $ 59
1997...................................................... 501 48
1998...................................................... 501 44
1999...................................................... 501 5
2000...................................................... 476 --
Thereafter................................................ 167 --
------ ----
Total minimum lease payments.............................. $ 2,647 156
======
Less: amount representing interes(5%-12% annual interest
rate)................................................... (17)
----
Present value of capital lease obligations................ 139
Less: current portion of capital leases................... (51)
----
Obligations under capital leases, non-current............. $ 88
====
</TABLE>
NOTE 6. REVENUES
In October 1994, the Company entered into a marketing agreement with DuPont
Merck, under which DuPont Merck received exclusive North American rights to
market NeoRx's Verluma lung cancer imaging product that incorporates the
NR-LU-10 antibody and received 269,000 shares of unregistered NeoRx Common
Stock. In exchange, NeoRx received $2,000,000 upon signing the agreement and
will receive $4,500,000 upon FDA approval to market Verluma in the United
States. In addition, the Company will receive royalties on sales of the product.
The excess of $2,000,000 over the fair value of the shares issued was recorded
as revenue.
In September 1993, NeoRx received a $3,639,000 milestone payment from
Boehringer Ingelheim and issued to Boehringer Ingelheim 234,000 shares of NeoRx
Common Stock. The excess of the amount received over the value of the shares
issued was recorded as revenue.
NOTE 7. CONVERTIBLE SUBORDINATED DEBENTURES
The Company has outstanding $1,195,000 principal amount of Convertible
Subordinated Debentures, 9 3/4% (the "debentures") that will be retired June 1,
2000. The debentures are convertible at the option of the holder into the
Company's Common Stock at a conversion price of $25.80 per share, subject to
adjustment under certain conditions. Interest is payable June 1 and December 1.
The debentures are redeemable, in whole or in part, at any time, at the option
of the Company at 103.9% of par, reducing to par by 1999, together with accrued
interest. The debentures are subordinated in right of payment to any outstanding
senior indebtedness of the Company, as defined in the indenture.
NOTE 8. CONTINGENCIES
Litigation. On March 27, 1995, the Company was named as an additional
codefendant in an amended complaint filed in the United States District Court
for the Southern District of New York in a class action suit against David
Blech, D. Blech & Co. and a number of other defendants, including 11 publicly
traded biotechnology companies. The complaint seeks damages for alleged unlawful
manipulation of the stock
28
<PAGE> 30
NEORX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
market prices of the named biotechnology companies. The Company believes that
the claims against it have no factual or legal basis and are without merit. The
Company intends to defend this suit vigorously.
In February 1995, the Company settled a lawsuit filed against it and
certain members of the Board of Directors and officers in May 1994 on behalf of
a class of purchasers of NeoRx Common Stock. Under the terms of the settlement,
NeoRx issued to the class 257,000 shares of NeoRx Common Stock, valued at
$1,500,000, and collected insurance proceeds of $925,000.
Product Liability. The testing, manufacturing, marketing and sale of human
healthcare products by the Company entail an inherent risk that product
liability claims will be asserted against the Company. The Company has product
liability insurance coverage of $10,000,000 for aggregate claims which may arise
from the use of its products.
NOTE 9. SHAREHOLDERS' EQUITY
Common Stock Transactions. In October 1995, the Company registered 650,000
shares of Common Stock to be sold from time to time. As of December 31, 1995,
the Company had issued 186,000 shares and received net proceeds of $1,155,000.
In April and September 1995, the Company sold 1,557,000 shares of unregistered
Common Stock and 1,635,000 three-year warrants to purchase 409,000 shares of
Common Stock, exercisable at a price of $5.31 per share. Net proceeds amounted
to $8,309,000. In October 1994, the Company issued to DuPont Merck 269,000
shares of NeoRx Common Stock in connection with a license agreement. In December
1993, the Company sold to the public 2,000,000 shares of its Common Stock and
received net proceeds of $14,565,000. In September 1993, NeoRx received a
$3,639,000 milestone payment from Boehringer Ingelheim and issued to Boehringer
Ingelheim 234,000 shares of Common Stock. In June 1993, the Company sold
privately 1,125,000 shares of its Common Stock and received net proceeds of
$8,093,000.
In June 1995, the Company exchanged 90,000 shares of Preferred Stock for
225,000 shares of Common Stock. Also at that time, preferred stock dividends
valued at $159,000 were paid by issuing 29,000 shares of Common Stock.
Preferred Stock. Holders of Preferred Stock are entitled to receive an
annual cash dividend of $2.4375 per share if declared by the Board of Directors,
payable on June 1 and December 1. Dividends are cumulative. Each share of
Preferred Stock is convertible into approximately 1.14 shares of Common Stock,
subject to adjustment in certain events. The holders of Preferred Stock have no
voting rights, except in limited circumstances. The Preferred Stock is
redeemable at the option of the Company at $25.98 per share, decreasing to
$25.00 per share by 1999.
The Board of Directors may, without further action by the shareholders of
the Company, issue preferred stock in one or more series and fix the rights and
preferences thereof, including dividend rights, dividend rates, conversion
rates, voting rights, terms of redemption, redemption price or prices,
liquidation preferences and the number of shares constituting any series or the
designations of such series.
Stock Options. The Company's 1994 Stock Option Plan (the "1994 Plan")
authorizes the Board of Directors or an Option Committee appointed by the Board
of Directors to grant options to purchase a maximum of 2,500,000 shares of
Common Stock. The 1994 Plan replaced the 1984 Stock Option Plan that expired
November 1, 1994. The 1994 Plan allows for the issuance of incentive stock
options and nonqualified stock options to employees, officers, agents,
consultants, advisors and independent contractors of the Company, subject to
certain restrictions. All option grants expire ten years from the date of grant.
In general, one half of the option grants becomes exercisable in increments at a
rate of 25% per year over a four-year period from the grant date, and the
remaining one half becomes exercisable nine years from the grant date unless
accelerated by the Option Committee. The exercise price of options granted under
the 1994 Plan is
29
<PAGE> 31
NEORX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
equal to the fair market value of the Common Stock at the date of grant. As of
December 31, 1995, there were 733,000 shares of Common Stock available for
issuance under the 1994 Plan.
The Company's 1991 Stock Option Plan for Non-Employee Directors, as amended
at its 1994 Annual Meeting of Shareholders, authorizes the grant of stock
options to non-employee Directors to purchase a maximum of 250,000 shares of
Common Stock. Under the terms of the amended plan, each eligible Director
receives annually, concurrent with the annual election of Directors, an option
to purchase 5,000 shares of Common Stock at an exercise price equal to the fair
market value of the Common Stock on the date of grant. The options become
exercisable in two equal annual installments beginning with the first annual
meeting of shareholders after the date of grant. In addition, each newly
appointed non-employee Director receives a one-time initial option to purchase
10,000 shares of Common Stock at an exercise price equal to the fair market
value of the Common Stock on the date of grant. Options expire on the earlier of
ten years from the date of grant or five years after the Director's termination
of service as a Director. There were 159,000 shares of Common Stock available
for issuance under this plan as of December 31, 1995.
In October 1995, Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation," effective for years beginning
after December 15, 1995, was issued. The Company has continued to measure
compensation cost for employee stock compensation plans under the guidelines of
Accounting Principles Board Opinion No. 25, as allowed by SFAS 123. In 1996, the
Company will adopt the disclosure requirements of SFAS 123.
Information relating to activity under the Company's stock option plans is
as follows:
<TABLE>
<CAPTION>
OPTION
PRICE RANGE
SHARES SUBJECT -------------
TO OPTION
--------------
(IN THOUSANDS)
<S> <C> <C>
Balance, December 31, 1992............................. 637 $1.50-$21.76
Granted.............................................. 478 8.00- 12.24
Exercised............................................ (61) 1.50- 5.25
Canceled............................................. (51) 5.25- 19.00
----- ------------
Balance, December 31, 1993............................. 1,003 1.50- 21.76
Granted.............................................. 2,657 2.94- 9.25
Exercised............................................ (35) 1.50- 2.94
Canceled............................................. (640) 1.50- 21.76
----- ------------
Balance, December 31, 1994............................. 2,985 1.50- 21.76
Granted.............................................. 174 5.13- 6.25
Exercised............................................ (219) 1.50- 3.75
Canceled............................................. (29) 1.50- 9.50
----- ------------
Balance, December 31, 1995............................. 2,911 $1.50-$21.76
===== ============
</TABLE>
Options to purchase 1,084,000 shares of Common Stock were exercisable at
December 31, 1995.
Warrants. In connection with financing transactions in April and September
1995, the Company issued 1,635,000 three-year warrants to purchase 409,000
shares of Common Stock, exercisable at a price of $5.31 per share. The warrants
expire in April 1998.
In September 1992, the Company issued Common Stock purchase warrants to
Boehringer Ingelheim to acquire 250,000 shares of the Company's Common Stock at
a per share exercise price of $15.84 and to acquire 375,000 shares of the
Company's Common Stock at a per share exercise price of $21.12. The warrants
expire in September 1997.
30
<PAGE> 32
NEORX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. FEDERAL INCOME TAXES
Federal income taxes are determined using an asset and liability approach.
The components of the deferred tax asset were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Net operating loss carryforwards....................... $ 16,700 $ 13,300
Research and development credits....................... 600 300
Amortization and depreciation.......................... 600 700
Other.................................................. 600 500
-------- --------
Deferred tax asset..................................... 18,500 14,800
Deferred tax asset valuation allowance................. (18,500) (14,800)
-------- --------
Net deferred taxes..................................... $ -- $ --
======== ========
</TABLE>
The Company has established a valuation allowance equal to the amount of
the deferred tax asset because the Company has not had taxable income since its
inception and significant uncertainty exists regarding the ultimate realization
of the deferred tax asset. Accordingly, no tax benefits have been recorded in
the accompanying Statements of Operations.
The Company's net operating loss carryforwards expire during the periods
1999 to 2010. During 1994, the Company experienced sufficient changes in
ownership such that the amount of net operating loss carryforwards and research
and development carryforwards available to be used in any given year will be
limited under Sections 382 and 383 of the Internal Revenue Code of 1986, as
amended. This limitation will result in the expiration of approximately
$43,000,000 of the Company's net operating loss carryforwards and $2,400,000 of
the research and development credit carryforwards. Accordingly, the deferred tax
asset and related valuation allowance related to these carryforwards were
reduced in 1994 by approximately $17,000,000.
NOTE 11. SUBSEQUENT EVENTS
In January 1996, the Company issued 370,000 shares of Common Stock and
47,000 shares of Series 2 Convertible Preferred Stock, $.02 par value per share,
in a private transaction and received net proceeds of $6,700,000. In October
1995, the Company registered 650,000 shares of Common Stock to be sold from time
to time, and subsequent to December 31, 1995, 428,000 shares were issued for net
proceeds of $3,512,000.
31
<PAGE> 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors. The information required by this item is incorporated
herein by reference to the section captioned "Election of Directors" in the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
May 14, 1996, filed with the Securities and Exchange Commission (the
"Commission") pursuant to Section 14(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
(b) Executive Officers. The information with respect to executive officers
required by this item is incorporated herein by reference to pages 15 and 16 of
this Form 10-K.
(c) Compliance With Section 16(a) of the Exchange Act. The information
required by this item is incorporated herein by reference to the section
captioned "Compliance With Section 16(a) of the Securities Exchange Act of 1934"
in the Company's Proxy Statement for the Annual Meeting of Shareholders to be
held on May 14, 1996, filed with the Commission pursuant to Section 14(a) of the
Exchange Act.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to the sections captioned "Executive Compensation," "Stock Options," "Option
Exercises in Fiscal 1995 and Year-End Value Table," "Report of the Compensation
Committee on Executive Compensation," "Stock Price Performance Graph,"
"Compensation of Directors" and "Employment Agreements, Termination of
Employment and Change of Control Agreements" in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on May 14, 1996, filed with
the Commission pursuant to Section 14(a) of the Exchange Act.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
to the section captioned "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 14, 1996, filed with the Commission pursuant to
Section 14(a) of the Exchange Act.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to the section captioned "Certain Relationships and Related Transactions" in the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held May
14, 1996, filed with the Commission pursuant to Section 14(a) of the Exchange
Act.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements -- See Index to Financial Statements.
(a) (2) Financial Statement Schedules -- Not applicable.
(a) (3) Exhibits -- See Exhibit Index filed herewith.
(b) Reports on Form 8-K -- Not applicable.
(c) Exhibits -- See Exhibit Index filed herewith.
32
<PAGE> 34
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
OR INCORPORATION
EXHIBIT DESCRIPTION BY REFERENCE TO
- ------- --------------------------------------------------------------------- ----------------
<S> <C> <C>
3.1(a) Restated Articles of Incorporation................................... *
3.1(b) Amendment to Restated Articles of Incorporation filed with the
Washington Secretary of State on March 15, 1990...................... ***
3.1(c) Articles of Amendment, dated November 6, 1991, to Articles of
Incorporation........................................................ ****
3.1(d) Articles of Amendment of NeoRx Corporation dated January 25, 1996.... 37
3.2 Bylaws, as amended, of the registrant................................ ***
4.1 Form of Indenture, dated as of June 1, 1989, between NeoRx
Corporation and First Interstate Bank of Washington, N.A., as
trustee.............................................................. **
4.2 Statement of Rights and Preferences relating to Convertible
Exchangeable Preferred Stock Series 1, par value $0.02 per share..... ***
4.3 Specimen Warrant Certificate......................................... +++
4.4 Form of Purchase Agreements dated as of April 18, 1995 between NeoRx
Corporation and the Purchasers....................................... +++
4.5 Form of Purchase Agreements dated as of January 30, 1996 between
NeoRx Corporation and the Purchasers................................. ++++
10.1 1994 Stock Option Plan............................................... ++
10.2 Option and Development Agreement, dated September 5, 1985, between
NeoRx Corporation and Merck Frosst Canada, Inc....................... *
10.3 Amendment, dated May 4, 1989, to Option and Development Agreement
between NeoRx Corporation and Merck Frosst Canada, Inc............... **
10.4 Lease Agreement for 410 West Harrison facility, dated February 15,
1996, between NeoRx Corporation and Diamond Parking, Inc............. 42
10.5 1991 Stock Option Plan for Non-Employee Directors, as amended........ ++
10.6 1991 Restricted Stock Option Plan.................................... *****
10.7 Stock and Warrant Purchase Agreement, dated as of September 11, 1992,
between NeoRx Corporation and Boehringer Ingelheim International
GmbH................................................................. *****
10.8 Amendment to Stock and Warrant Purchase Agreement, dated as of
September 17, 1992, between NeoRx Corporation and Boehringer
Ingelheim International GmbH......................................... +
10.9 Second Amendment to Stock and Warrant Purchase Agreement, dated as of
September 29, 1993, between NeoRx Corporation and Boehringer
Ingelheim International GmbH......................................... +
10.10 Development and License Agreement, dated as of September 11, 1992,
between NeoRx Corporation and Boehringer Ingelheim International
GmbH................................................................. *****
10.11 First Amendment to Development and License Agreement, dated September
22, 1994, between NeoRx Corporation and Boehringer Ingelheim
International GmbH................................................... ++
10.12 Second Amendment to Development and License Agreement, dated October
31, 1994, between NeoRx Corporation and Boehringer Ingelheim
International GmbH................................................... ++
10.13 Technology License Agreement, dated as of September 11, 1992, between
NeoRx Corporation and Boehringer Ingelheim International GmbH........ *****
10.14 License Agreement, dated as of September 18, 1992, between NeoRx
Corporation and Sterling Winthrop Inc................................ *****
10.15 Collaboration and License Option Agreement, dated August 10, 1992,
between NeoRx Corporation and Organon International B.V.............. *****
10.16 Contract for Support of Research Project, effective as of July 1,
1992, between NeoRx Corporation and the Curators of the University of
Missouri............................................................. *****
10.17 Amendment No. 1 to Contract for Support of Research Project,
effective as of July 1, 1993, between NeoRx Corporation and the
Curators of the University of Missouri............................... +
</TABLE>
33
<PAGE> 35
<TABLE>
<CAPTION>
PAGE NUMBER
OR INCORPORATION
EXHIBIT DESCRIPTION BY REFERENCE TO
- ------- --------------------------------------------------------------------- ----------------
<S> <C> <C>
10.18 Agreement, dated as of December 15, 1995............................. +++++
10.19 License Option Agreement, dated June 1, 1991, between NeoRx
Corporation and the UAB Research Foundation.......................... +
10.20 Research Agreement (With Option to License), dated February 8, 1993,
between NeoRx Corporation and Southern Research Institute............ +
10.21 Consulting Agreement, effective March 15, 1993, between NeoRx
Corporation and Oxford Molecular Inc................................. +
10.22 Agreement, dated as of August 1, 1993, between NeoRx Corporation and
Avalon Medical Partners.............................................. +
10.23 Registration Rights Agreement, dated September 1993, between NeoRx
Corporation and Avalon Medical Partners.............................. +
10.24 Consulting Agreement, dated as of July 7, 1993, between NeoRx
Corporation and Dr. Fred Craves...................................... +
10.25 Amendment to consulting agreement, dated May 9,1995 between NeoRx
Corporation and Dr. Fred Craves...................................... 61
10.26 Engagement letter, dated as of June 22, 1993, between NeoRx
Corporation and the Placement Agents................................. ******
10.27 Purchase Agreements, dated May 19, 1993, between NeoRx Corporation
and the Purchasers or representatives thereof........................ ******
10.28 Stock Purchase Agreement, dated as of October 5, 1994, between NeoRx
Corporation and The DuPont Merck Pharmaceutical Company.............. ++
10.29 License Agreement, dated as of October 5, 1994, between NeoRx
Corporation and The DuPont Merck Pharmaceutical Company.............. ++
10.30 Supply Agreement, dated November 10, 1994, between Cordis Corporation
and NeoRx Corporation................................................ ++
10.31 License Agreement, effective as of October 12, 1994, between Indiana
University Foundation and NeoRx Corporation, as amended.............. ++
10.32 Agreement, dated as of June 1, 1987, between NeoRx Corporation and
the Board of Trustees of the Leland Stanford Junior University, as
amended.............................................................. ++
10.32(a) Amendment No. 3, dated November 15, 1995, to Contract between NeoRx
Corporation and the Board of Trustees of the Leland Stanford Junior
University........................................................... +++++
10.33 Research Collaboration Agreement, dated September 1, 1995, between
NeoRx Corporation and biosys, Inc.................................... +++++
10.34 Form of Registration Rights Agreement, dated January 30, 1996, by and
among NeoRx Corporation and Grace Brothers, Ltd., Genesee Fund, Ltd.
and SBSF Biotechnology Partners...................................... ++++
23.1 Consent of Arthur Andersen LLP....................................... 62
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Filed as an exhibit to the Company's Registration Statement on Form S-1 (Registration
No. 33-20694) effective August 11, 1988 and incorporated herein by reference.
** Filed as an exhibit to the Company's Registration Statement on Form S-1 (Registration
No. 33-28545) effective May 31, 1989 and incorporated herein by reference.
*** Filed as an exhibit to the Company's Registration Statement on Form S-4 (Registration
No. 33-33153) effective March 27, 1990 and incorporated herein by reference.
**** Filed as an exhibit to the Company's Form 10-K for the fiscal year ended September
30, 1990 and incorporated herein by reference.
***** Filed as an exhibit to the Company's Form 10-K for the fiscal year ended September
30, 1991 and incorporated herein by reference.
</TABLE>
34
<PAGE> 36
<TABLE>
<S> <C>
****** Filed as an exhibit to the Company's Registration Statement on Form S-3 (Registration
No. 33-64992) effective August 25, 1993 and incorporated herein by reference.
+ Filed as an exhibit to the Company's Registration Statement on Form S-2 (Registration
No. 33-71164) effective December 13, 1993 and incorporated herein by reference.
++ Filed as an exhibit to the Company's Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference.
+++ Filed as an exhibit to the Company's Registration Statement on Form S-3 (Registration
No. 33-60029) effective August 8, 1994 and incorporated herein by reference.
++++ Filed as an exhibit to the Company's Registration Statement on Form S-3 (Registration
No. 333-00785) effective February 7, 1996 and incorporated herein by reference.
+++++ Confidential treatment requested
</TABLE>
35
<PAGE> 37
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.
NEORX CORPORATION
(Registrant)
By /s/ ROBERT M. LITTAUER
------------------------------------
Robert M. Littauer
Senior Vice President, Chief
Financial Officer and Treasurer
Date: March 27, 1996
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ PAUL G. ABRAMS President, Chief Executive March 27, 1996
- --------------------------------------------- Officer and Director (Principal
Paul G. Abrams executive officer)
/s/ ROBERT M. LITTAUER Senior Vice President, Chief March 27, 1996
- --------------------------------------------- Financial Officer and Treasurer
Robert M. Littauer (Principal financial and
accounting officer)
/s/ FRED B. CRAVES Chairman of the Board of March 27, 1996
- --------------------------------------------- Directors
Fred B. Craves
/s/ JAMES G. ANDRESS Director March 27, 1996
- ---------------------------------------------
James G. Andress
/s/ JACK L. BOWMAN Director March 27, 1996
- ---------------------------------------------
Jack L. Bowman
/s/ LAWRENCE H.N. KINET Director March 27, 1996
- ---------------------------------------------
Lawrence H.N. Kinet
/s/ CARL-HEINZ POMMER Director March 27, 1996
- ---------------------------------------------
Carl-Heinz Pommer
</TABLE>
36
<PAGE> 1
EXHIBIT 3.1(D)
ARTICLES OF AMENDMENT
OF
NEORX CORPORATION
Pursuant to RCW 23B.06.020, NeoRx Corporation, a Washington corporation,
hereby states that the Designation of Rights and Preferences of Series 2
Convertible Preferred Stock attached hereto as Exhibit A duly adopted by the
Board of Directors of the corporation on January 25, 1996.
These Articles of Amendment are executed by said corporation by its duly
authorized officer.
DATED: January 25, 1996
NEORX CORPORATION
By /s/ ROBERT M. LITTAUER
------------------------------------
Robert M. Littauer
Senior Vice President
<PAGE> 2
EXHIBIT A
DESIGNATION OF RIGHTS AND PREFERENCES OF
SERIES 2 CONVERTIBLE PREFERRED STOCK
A series of Preferred Stock is hereby designated as Series 2 Convertible
Preferred Stock which series shall consist of 50,000 shares, par value $.02 per
share (the "Series 2 Shares"), and which shall have the rights, preferences,
privileges and limitations as set forth below:
(1) Dividends. The holders of the Series 2 Shares shall be entitled
to a dividend of eight percent (8%) per annum of the Stated Value (as
defined below), on a cumulative basis with quarterly compounding (prorated
for any portion of the applicable period during which the Series 2 Shares
are outstanding). Dividends shall accrue from the date of issuance of the
Series 2 Shares and shall be paid on each Series 2 Share at the time that
such Series 2 Share is converted or redeemed. Dividends (including
dividends payable to holders of Series 2 Shares as of the date such holder
elects to convert the Series 2 Shares into Common Stock as provided in
Section 2 below) may be paid at the Company's option in cash or Common
Stock valued based on the Average Market Price (as defined below) of the
Common Stock for the period of five (5) consecutive trading days ending on
the trading day before the dividend payment dates or the date of conversion
or redemption, as the case may be; provided, however, that in no event
shall accrued dividends be paid in shares of Common Stock if, after giving
effect to such distribution, the number of shares of Common Stock
beneficially owned by such holder and all other holders whose holdings
would be aggregated with such holder for purposes of calculating beneficial
ownership in accordance with Sections 13(d) and 16 of the Securities
Exchange Act of 1934, as amended, and the regulations thereunder ("Sections
13(d) and 16"), including, without limitation, any person serving as an
adviser to any holder (collectively, the "Related Persons"), would exceed
four and nine-tenths percent (4.9%) of the outstanding shares of Common
Stock (calculated in accordance with Sections 13(d) and 16); cash shall be
paid in lieu of any shares which cannot be issued pursuant to this proviso.
The Company shall not issue any fraction of a share of Common Stock in
payment of a dividend, but shall pay cash therefor. The Company shall, so
long as any of the Series 2 Shares are outstanding, reserve and keep
available out of its authorized and unissued Common Stock, such number of
shares of Common Stock as shall from time to time be sufficient to pay
dividends hereunder. Every reference herein to the Common Stock of the
Company (unless a different intention is expressed) shall be to the shares
of the Common Stock of the Company, $.02 par value, as such stock exists
immediately after the issuance of the Series 2 Shares provided for
hereunder, or to stock into which such Common Stock may be changed from
time to time thereafter.
"Average Market Price" of any security for any period shall be
computed as the arithmetic average of the closing bid prices for such
security for each trading day in such period on the National Association of
Securities Dealers Automated Quotation National Market System (the
"Nasdaq-NMS"), or, if the Nasdaq-NMS is not the principal trading market
for such security, on the principal trading market for such security, or,
if market value cannot be calculated for such period on any of the
foregoing bases, the Average Market Price shall be the average fair market
value during such period as reasonably determined in good faith by the
Board of Directors of the Company (all as appropriately adjusted for any
stock dividend, stock split or other similar transaction during such period
or between the end of such period and the date of conversion or dividend
payment, as applicable).
(2) Conversion of Series 2 Shares. The holders of the Series 2 Shares
shall have the right, at their option, to convert the Series 2 Shares into
shares of Common Stock on the following terms and conditions:
(a)(i) Each Series 2 share shall be convertible at any time after
the date of issuance (or, if such Series 2 Share is called for
redemption, at any time up to and including, but not after, the close of
business on the fifth full business day prior to the date filed for such
redemption, unless default shall be made by the Company in providing the
funds for the payment of the redemption price), into fully paid and
nonassessable shares (calculated to the nearest whole share) of Common
Stock at the
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<PAGE> 3
conversion price (the "Conversion Price") in effect at the time of
conversion determined as hereinafter provided; provided, however, that
in no event shall any holder be entitled to convert Series 2 Shares if,
after giving effect to such conversion, the number of shares of Common
Stock beneficially owned by such holder and all Related Persons would
exceed four and nine-tenths percent (4.9%) of the outstanding shares of
Common Stock (calculated in accordance with Sections 13(d) and 16). Each
Series 2 Share shall have a value of One Hundred Dollars ($100) (the
"Stated Value") for the purpose of such conversion.
(ii) Commencing on the later of (A) 180 days after the date of
original issue of Series 2 Shares or (B) 90 days after the effective
date of the Registration Statement (the "Registration Statement") filed
by the Company pursuant to the Registration Rights Agreement between the
Company and the original purchasers of the Series 2 Shares, the Company
may at any time cause the automatic conversion of all outstanding Series
2 Shares pursuant to written notice to the holders given not less than
30 days and not more than 60 days prior to the date fixed in the notice.
Any and all Series 2 Shares which have not been previously converted by
the holders shall be automatically converted into shares of Common Stock
as provided in Section (2)(a)(i) at the close of business on the date
fixed in such notice, at the Conversion Price which is eighty-three
percent (83%) (the "Conversion Percentage") of the Average Market Price
for the Common Stock for the five (5) consecutive trading days ending
one trading day prior to the date of automatic conversion; provided,
however, that in no event shall the Conversion Price be an amount more
than one hundred ten percent (110%) of the Average Market Price for the
Common Stock for the five (5) consecutive trading days ending one
trading day prior to the date of original issue of Series 2 Shares. The
Conversion Price Floor described in Section (2)(b) shall not be
applicable to an automatic conversion pursuant to this Section
(2)(a)(ii).
(b) The Conversion Price shall be eighty-three percent (83%) of the
Average Market Price for the Common Stock for the five (5) consecutive
trading days ending one trading day prior to the date the Conversion Notice
(as defined below) is received by the Company, subject to adjustment as
provided herein; provided, however, in no event shall the Conversion Price
be an amount less than $4.41 per share of Common Stock (the "Conversion
Price Floor") or more than one hundred ten percent (110%) of the Average
Market Price for the Common Stock for the five (5) consecutive trading days
ending one trading day prior to the issuance of the Series 2 Shares.
(c) If the Company shall consolidate with or merge into any
corporation or reclassify its outstanding shares of Common Stock (other
than by way of subdivision or reduction of such shares) (each a "Major
Transaction"), then each Series 2 Share shall thereafter be convertible
into the number of shares of stock or securities (the "Resulting
Securities") or property of the Company, or of the entity resulting from
such consolidation or merger, to which a holder of the number of shares of
Common Stock delivered upon conversion of such Series 2 Share would have
been entitled upon such Major Transaction, had the holder of such Series 2
Share exercised its right of conversion and had such Common Stock been
issued and outstanding and had such holder been the holder of record of
such Common Stock at the time of such Major Transaction, and the Company
shall make lawful provision therefor as a part of such consolidation,
merger or reclassification; provided, however, that during the period
commencing on the date of original issue of Series 2 Shares and ending on
the later of (A) 180 days after the date of original issue of Series 2
Shares or (B) 90 days after the effective date of the Registration
Statement, the Company shall not consummate a Major Transaction without the
approval of the holders of a majority of the outstanding Series 2 Shares,
unless (A) the Resulting Securities (or the securities into which the
Resulting Securities are immediately convertible without the payment of
additional consideration) are, at the date of the giving of the notice
referred to in clause (B) below, listed or included for quotation on
NASDAQ-NMS, the New York Stock Exchange or the American Stock Exchange (and
are, at the date of the giving of such notice, reasonably expected to
continue to be so listed or included for quotation for at least the six (6)
month period subsequent to the closing of the Major Transaction); and (B)
the Company gives such holder notice of such Major Transaction at least
thirty (30) trading days prior to the closing thereof (excluding any
trading days that sales cannot be made pursuant to the Registration
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<PAGE> 4
Statement for any reason); provided, further, that in any event the Company
shall give the holders of the Series 2 Shares written notice of any Major
Transaction not less than 30 days prior to its consummation.
(d) The Company shall not issue any fraction of a share of Common
Stock upon any conversion, but shall pay cash therefor at the Conversion
Price then in effect multiplied by such fraction.
(e) On presentation and surrender to the Company (or at any office or
agency maintained for the transfer of the Series 2 Shares) of the
certificates of Series 2 Shares so to be converted, duly endorsed in blank
for transfer or accompanied by proper instruments of assignment or transfer
in blank (a "Conversion Notice"), with signatures guaranteed, the holder of
such Series 2 Shares shall be entitled, subject to the limitations herein
contained, to receive in exchange therefor a certificate or certificates
for fully paid and nonassessable shares, which certificates shall be
delivered by the second trading day after the date of delivery of the
Conversion Notice, and cash for fractional shares, of Common Stock on the
foregoing basis. The Series 2 Shares shall be deemed to have been
converted, and the person converting the same to have become the holder of
record of Common Stock, for all purposes as of the date of delivery of the
Conversion Notice.
(f) The Company shall, so long as any of the Series 2 Shares are
outstanding, reserve and keep available out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the
Series 2 Shares, such number of shares of Common Stock as shall from time
to time be sufficient to effect the conversion of all of the Series 2
Shares then outstanding.
(g) The Company shall pay any and all taxes which may be imposed upon
it with respect to the issuance and delivery of Common Stock upon the
conversion of the Series 2 Shares as herein provided. The Company shall not
be required in any event to pay any transfer or other taxes by reason of
the issuance of such Common Stock in names other than those in which the
Series 2 Shares surrendered for conversion are registered on the Company's
records, and no such conversion or issuance of Common Stock shall be made
unless and until the person requesting such issuance has paid to the
Company the amount of any such tax, or has established to the satisfaction
of the Company and its transfer agent, if any, that such tax has been paid.
(3) Voting Rights. Holders of Series 2 Shares shall have no voting rights,
except as required by law.
(4) Redemption. The Company may, at any time subsequent to ninety (90)
days after the issuance of the Series 2 Shares, redeem the whole or any part of
the Series 2 Shares then outstanding at a redemption price of One Hundred Twenty
Dollars and Fifty Cents ($120.50) per Series 2 Share, plus in each case a sum
equal to all accrued and unpaid dividends thereon through the date fixed for
redemption, in accordance with the following redemption procedures:
(a) In case of redemption of only part of the Series 2 Shares at any
time outstanding, the Company shall designate the amount of Series 2 Shares
so to be redeemed and shall redeem such Series 2 Shares on a pro rata
basis. Subject to the limitations and provisions herein contained, the
Board of Directors shall have the power and authority to prescribe the
terms and conditions upon which the Series 2 Shares shall be redeemed from
time to time.
(b) Notice of every redemption shall be given by mail to every holder
of record of any Series 2 Shares then to be redeemed, at least thirty (30),
but no more than ninety (90), days prior to the date fixed as the date for
the redemption thereof, at the respective addresses of such holders as the
same shall appear on the stock transfer books of the Company. The notice
shall state that the Series 2 Shares shall be redeemed by the Company at
the redemption price specified above, upon the surrender for cancellation,
at the time and place designated in such notice, of the certificates
representing the Series 2 Shares to be redeemed, properly endorsed in blank
for transfer, or accompanied by proper instruments of assignment and
transfer in blank, with signatures guaranteed, and bearing all necessary
transfer tax stamps thereto affixed and cancelled. On and after the date
specified in the notice described above, each holder of Series 2 Shares
called for redemption shall be entitled to receive therefor the specified
redemption price upon presentation and surrender at the place designated in
such notice of the certificates for Series 2 Shares called for redemption,
properly endorsed in blank for transfer or accompanied by
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<PAGE> 5
proper instruments of assignment or transfer in blank, with signatures
guaranteed, and bearing all necessary transfer tax stamps thereto affixed
and cancelled.
(c) If the Company shall give notice of redemption as aforesaid (and
unless the Company shall fail to pay the redemption price of the Series 2
Shares presented for redemption in accordance with such notice), all Series
2 Shares called for redemption shall be deemed to have been redeemed on the
date specified in such notice, whether or not the certificates for such
Series 2 Shares shall be surrendered for redemption, and such Series 2
Shares so called for redemption shall from and after such date cease to
represent any interest whatsoever in the Company or its property, and the
holders thereof shall have no rights other than the right to receive such
redemption price without any interest thereof from and after such date.
(5) Liquidation, Dissolution, Winding Up. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the holders
of the Series 2 Shares shall be entitled to receive in cash out of the assets of
the Company, whether from capital or from earnings, available for distribution
to its stockholders (the "Series 2 Funds"), before any amount shall be paid to
the holders of the Common Stock, an amount equal to the Stated Value per Series
2 Share plus any accrued and unpaid dividends, provided that, if the Series 2
Funds are insufficient to pay the full amount due to the holders of Series 2
Shares and holders of shares of other classes or series of preferred stock of
the Company that are of equal rank with the Series 2 Shares as to payments of
Series 2 Funds (the "Pari Passu Shares"), then each holder of Series 2 Shares
and Pari Passu Shares shall receive a percentage of the Series 2 Funds equal to
the full amount of Series 2 Funds payable to such holder as a percentage of the
full amount of Series 2 Funds payable to all holders of Series 2 Shares and Pari
Passu Shares. The purchase or redemption by the Company of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof, be regarded
as a liquidation, dissolution or winding up of the Company. Neither the
consolidation nor merger of the Company with or into any other corporation or
corporations, nor the sale or transfer by the Company of less than substantially
all of its assets, shall, for the purposes hereof, be deemed to be a
liquidation, dissolution or winding up of the Company. No holder of Series 2
Shares shall be entitled to receive any amounts with respect thereto upon any
liquidation, dissolution or winding up of the Company other than the amounts
provided for herein.
(6) Series 2 Rank. All shares of Common Stock shall be of junior rank to
all Series 2 Shares in respect to the preferences as to dividends, distributions
and payments upon the liquidation, dissolution or winding up of the Company. The
rights of the shares of Common Stock shall be subject to the preferences and
relative rights of the Series 2 Shares. The Series 2 Shares shall rank junior to
the Company's Convertible Exchangeable Preferred Stock, Series 1 in respect of
dividends and distributions and payments upon the liquidation, dissolution or
winding up of the Company. The Company may authorize and issue additional or
other preferred stock which is of equal rank with the Series 2 Shares in respect
of the preferences as to dividends and distributions and payments upon the
liquidation, dissolution or winding up of the Company. In the event of the
merger or consolidation of the Company with or into another corporation, the
Series 2 Shares shall maintain their relative powers, designations and
preferences provided for herein.
(7) Vote to Change the Terms of Series 2 Shares. The affirmative vote at a
meeting duly called for such purpose of the written consent without a meeting of
the holders of the not less than two-thirds ( 2/3) of the then outstanding
Series 2 Shares shall be required to amend, alter, change or repeal any of the
powers, designations, preferences and rights of the Series 2 Shares.
(8) Amendments Upon Conversion or Redemption of Outstanding Series 2
Shares. When, as a result of the conversion or redemption of the Series 2
Shares, no Series 2 Shares remain outstanding, the Board of Directors may, at
its discretion and without a vote of the shareholders of the Company, withdraw
this Designation in its entirety by providing for the filing of the applicable
amendment or restatement of the Company's Restated Articles of Incorporation,
and the Series 2 Shares designated hereby shall thereby return to the status of
authorized but unissued and undesignated shares of Preferred Stock of the
Company.
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<PAGE> 1
EXHIBIT 10.4
COMMERCIAL LEASE
Rainier Properties
Home Office
3161 Elliott Avenue
Seattle, WA 98121
Phone: (206) 284-3950
Fax: (206) 298-9404
Local Owner Representative:
Rainier Properties, M. Scott/N. Ives
3161 Elliott Ave.
Seattle, WA
(206) 270-3439
<TABLE>
<S> <C>
Property #: 01-838, 01-841
---------------------------
Account #: 8380, 8410
---------------------------
Property Name: NeoRx Corporation
---------------------------
City: Seattle
---------------------------
Owner: Diamond Parking Inc.
---------------------------
Monthly Rental: $33,593.00
---------------------------
Security Deposit: $33,593.00
---------------------------
Key Deposit
($15 per key): 0.00
---------------------------
Prepared By: M. Scott/Norman Ives
---------------------------
Date: February 15, 1996
---------------------------
</TABLE>
THIS LEASE, dated as of the 15th day of February, 1996, between DIAMOND
PARKING INC., hereinafter called Lessor, and NEORX CORPORATION, a Washington
corporation, hereinafter called Tenant.
WITNESSETH:
1. LEASED PREMISES
Tenant leases from Lessor and Lessor leases to Tenant the real property,
herein referred to as the "Premises" situated in the City of Seattle, County of
King, State of Washington, described as follows:
Lots 3 through 11 in Block 5 of D.T. Denny's Water Front Addition to
the City of Seattle, as per Plat recorded in Volume 2 of Plats on page
61, records of King County, including (A) the buildings located
thereon containing (i) approximately 34,752 square feet in one
building located on Lots 3 through 6 (comprised of approximately
33,302 square feet of gross rentable area and approximately 1,874
square feet of drive-through area) and (ii) a 3-story parking garage
containing approximately 53 parking stalls and (B) on Lots 7-11, a
building containing approximately 2,896 square feet and a surface
parking lot containing approximately 42 parking spaces.
Post Office Address: 410 West Harrison
Seattle, WA 98119
Lessor represents that the buildings, parking garage and parking lot
described in the foregoing legal description are built within the boundaries of
the land legally described above.
Lessor shall have no right to rearrange or reconfigure the parking in the
parking garage, it being the parties' intention that Tenant shall (subject to
Lessor's repair and maintenance responsibilities in Section 8.2) have total
dominion and control of the parking garage.
2. BUSINESS PURPOSE
The Premises shall be used by Tenant for the purposes of general office,
research laboratory, pharmaceutical related manufacturing facilities and related
uses and for no other purpose without the prior written consent of Lessor, which
consent shall not be unreasonably withheld.
<PAGE> 2
3. TERM
The term of this lease shall commence on the 1st day of March, 1996 and end
on the 31st day of May, 2001.
Lessor and Tenant acknowledge that Tenant currently leases the Premises
pursuant to that certain lease dated May 16, 1986 ("Existing Lease"), expiring
on May 31, 1996. The Existing Lease is hereby terminated as of the commencement
date of this lease and is superseded by this lease.
4. RENT
Tenant agrees to pay to Lessor at the office designated by Lessor as rental
for the Premises, payable in advance on the first day of each calendar month of
the lease term or any period subsequent thereto while Tenant is in possession of
the Premises, the minimum monthly base rent of Thirty-Three Thousand Five
Hundred Ninety-Three Dollars ($33,593) per month.
Rent for a partial month shall be prorated. Tenant shall pay a collection
charge of Two Hundred Dollars ($200.00) if monthly rent due on the first day of
the month is not paid by the tenth day of the month and Twenty-Five Dollars
($25) for every check returned NSF or for any other reason. In addition, one and
one-half percent (1 1/2%) per month interest (not in excess of the highest rate
allowed by law) is due for any delinquent rental not paid by the tenth day of
the month. Said rental is exclusive of any sales, franchise, business and
occupation or other levy based on rents and should such taxes apply during the
life of this lease the rent shall be increased by such amount.
5. SECURITY DEPOSIT
Receipt is acknowledged of the sum of Thirty-Three Thousand Five Hundred
Ninety-Three Dollars ($33,593), as security for the performance by the Tenant of
Tenant obligations under this lease. Lessor may at any time apply such deposit
against any money due Lessor for any loss or damage sustained by reason of any
default by Tenant, including but not limited to the payment of rent and the cost
of cleaning, restoring and repairing said Premises and the cost of complying
with laws and regulations. Lessor shall return any remaining part of the
security deposit to Tenant. If any portion of the security deposit is used or
applied by Lessor as provided for herein, Tenant will within ten (10) days after
demand deposit additional money to restore the security deposit to its original
amount. No trust relationship is created between Lessor and Tenant with respect
to the security deposit. Notwithstanding the foregoing, Lessor must provide
Tenant with thirty (30) days written notice of its intention to use any portion
of the security deposit, and an opportunity to contest Lessor's use of the
deposit interest. Lessor shall hold the security deposit as trustee for Tenant.
The principal sum of the security deposit shall belong to Tenant, subject to the
terms hereof, and any interest earned thereon shall belong to Lessor.
6. PERCENTAGE OF OCCUPANCY
For the purposes of this lease it is agreed that the Tenant occupies and
uses one hundred percent (100%) of the total rentable and common area of the
property in which the herein leased Premises are situated.
7. TAXES AND ASSESSMENTS
(a) As additional rent, Tenant agrees to pay all of the real estate taxes
and general and assessments applicable to the Premises due and payable during
the term of this lease or any extension thereof. In all events, if any
assessment or tax may be payable over an extended period, Lessor shall elect the
longest period of time within which to pay such tax or assessment.
(b) Lessor shall submit to Tenant a copy of the tax statements and
assessments at least thirty (30) days before they become due and shall invoice
Tenant for the amount due thereunder. Tenant will pay real estate taxes and
assessments to the taxing authority not later than fifteen (15) days before the
taxing authority delinquency due date, and Tenant will send Lessor copies of
canceled checks showing that such taxes have been paid. If the term of this
lease commences and terminates other than January 1 and December 31, any
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<PAGE> 3
taxes and assessments payable shall be prorated for the first through the last
calendar months of the lease term.
(c) Tenant will pay a collection charge of Fifty Dollars ($50.00), plus
late charges and penalties due to the taxing authorities, if payment of taxes
and assessments are not paid to the taxing authority before the delinquency due
date. In addition, one and one-half percent (1 1/2%) interest shall be paid per
month for any taxes and assessments not paid when due (but not in excess of the
highest rate allowed by law).
(d) Tenant shall pay, before delinquency, any and all taxes levied or
assessed and payable during the lease term upon all Tenant's property located on
the leased Premises. If any of the same are assessed or taxed with the real
property, Tenant shall pay Lessor the amount of such taxes or assessments within
ten (10) days after receipt of a written statement setting forth the amount of
such taxes or assessments.
8. REPAIRS AND MAINTENANCE; SURRENDER
8.1 TENANT RESPONSIBILITIES
Throughout the initial term hereof and any renewal terms, Tenant will be
responsible for all costs to maintain in good condition and repair (subject to
ordinary wear and tear including deterioration and obsolescence due to passage
of time and ordinary use) all nonstructural portions of the interior of the
buildings and the parking facility, the paving, sidewalks, and landscaped areas
of the real property, together with the elevators, heating, ventilation and
air-conditioning systems and equipment, electrical and plumbing systems, floors
and floor coverings, interior walls, ceilings and doors. All such work will be
done in a sound and workmanlike manner.
Tenant will permit no waste, damage, or injury to the Premises. Tenant, at
its cost and expense, will: keep all drainage pipes free and open and will
protect damages caused by leaks from such drainage pipes; replace all doors on
the Premises which may become cracked or broken; and remove ice and snow from
sidewalks adjoining the Premises. Lessor may repair, at the expense of Tenant,
and only if Tenant fails to repair same within a reasonable time after written
notice from Lessor, any damage to the Premises or to the building of which they
are a part, or to its fixtures, grounds, facilities, appurtenances and equipment
caused by Tenant or caused by moving property of Tenant into or out of the
Premises, or from any cause due to the negligence or improper conduct of Tenant
or Tenant's employees, family, agents or visitors. The cost of such repair shall
be payable by Tenant as additional rent on the rent payment date next following
the submission of a statement by Lessor.
8.2 LESSOR RESPONSIBILITIES
Throughout the initial term hereof and any renewal terms, Lessor shall be
solely responsible for the maintenance and repair of all structural portions of
the buildings, parking facility and Premises including, but not limited to, the
structural foundation, exterior walls (including the glazing, caulking and other
maintenance of the exterior glass and the curtain wall, except for window
cleaning, and except that Tenant shall be responsible for replacing any broken
exterior windows in any year to the extent that more than 12 exterior windows
are broken in such year), exterior water, sewer, electrical, drainage systems,
all components of the roof (including structural components of the roof, and the
roof membrane and roof covering) and all lateral and subjacent support for the
real property. If Lessor fails to perform its responsibilities, Tenant may,
after reasonable written notice to Lessor (or without notice for emergency
repairs), cause the same to be performed, and the cost thereof will promptly be
paid by Lessor upon receipt of a statement from Tenant setting forth the amount
due. If such amount is not paid by Lessor within thirty (30) days of the
Tenant's request, Tenant may offset and reduce succeeding rental payments until
such amount has been repaid to Tenant. Any damage caused to any aspect of the
buildings or Premises which results directly or indirectly from Lessor's failure
to abide by these covenants shall be the exclusive responsibility of Lessor.
3
<PAGE> 4
8.3 LESSOR'S WORK
Notwithstanding Tenant's obligations hereunder, Lessor shall, by no later
than February 29, 1996, be solely responsible for the renovation, repair and
maintenance to the aspects of the buildings, parking facility, Premises and real
property as specified in EXHIBIT A ("Lessor's Work").
Lessor shall accomplish Lessor's Work in such a way as to interfere as
little as reasonably possible with the use of the Premises by Tenant. Tenant, in
its discretion, may refuse to allow Lessor to proceed with any of Lessor's Work
if Tenant believes, in its reasonable discretion, that such work will
inconvenience or disturb Tenant in the conduct of its business. Lessor will
insure that all workmen are under the direction and supervision of a licensed
and bonded contractor, as required by RCW 18.27 et seq.
In all events, Lessor shall perform Lessor's Work in a sound and
workmanlike manner and shall comply with all laws, ordinances, rules and
regulations of the city, county, state, federal government, or any other public
authority having jurisdiction thereof, and shall indemnify and save the Tenant
harmless from damage, loss or expense arising out of said work.
All warranties of any nature obtained by or for the benefit of Lessor from
any contractor, subcontractor, manufacturer, supplier, or installer of any
improvement, labor, equipment or material shall be assigned to the benefit of
Tenant so that Tenant may accomplish its obligations pursuant to Section 8.1
hereof.
Tenant shall not be liable for maintenance or repair or loss, damage or
liability resulting directly or indirectly from any action or failure by Lessor
or its agents in the accomplishment of Lessor's Work or Lessor's other duties
hereunder.
8.4 SURRENDER
Tenant shall, upon expiration or sooner termination of this lease,
surrender the Premises to the Lessor broom clean, free of any contamination from
hazardous material including radiation and in as good condition as when received
(or as may hereafter be put), ordinary wear and tear excepted. Unless as
specifically provided in this lease, Lessor shall have no obligation to alter,
remodel, improve, repair, decorate or paint the Premises, or any part thereof,
and the parties hereto affirm that Lessor and its agent have made no
representations to Tenant respecting the condition of the Premises or the
building except as specifically herein set forth.
9. UTILITIES AND FEES; SERVICES
Tenant agrees to pay all charges for electricity, light, gas, heat, water,
plumbing, air-conditioning, sewer, garbage, drainage, cleaning, and any
maintenance agreement applicable thereto and all other utilities and services to
the Premises, together with taxes and assessments thereon, during the term of
this lease. Tenant shall provide, at its sole cost and expense, all interior
building maintenance and janitorial services, window washing, exterior painting,
elevator services, heating, ventilation and air-conditioning, hot and cold water
for drinking, lavatory cleaning, landscape maintenance, and electrical and gas
service, and refuse and sewerage services to the Premises. Lessor shall not be
liable for failure, interruption or delay of any such utility services for any
reason whatsoever, unless due to the negligence or willful misconduct of Lessor
or its agents, employees or contractors. Tenant shall also pay all license fees
and other governmental charges levied on the operation of Tenant's business from
the Premises.
10. BUILDING CONDITIONS CODES AND ZONING
Tenant hereby accepts the Premises in their condition existing as of the
date of the possession hereunder, subject to Lessor's duties under Section 8 and
subject to all applicable zoning, municipal, county, state and federal laws,
ordinances and regulations governing and regulating the use of the Premises, and
accepts this lease subject thereto. Tenant acknowledges that neither Lessor nor
Tenant's agent has made any representation or warranty as to the suitability of
the Premises for the conduct of Tenant's business. Tenant has investigated all
applicable building and zoning codes, regulations and ordinances to determine
whether Tenant's intended use of the Premises is permitted. Tenant accepts the
Premises "as is," subject to Lessor's
4
<PAGE> 5
duties under Section 8 and all applicable statutes, ordinances and regulations
governing Tenant's use of the Premises.
11. INSURANCE
(a) Tenant shall maintain, at its sole cost and expense, policies of
insurance covering loss or damage to the buildings contained within the
Premises, including Tenant's personal property and the parking facility
structure, in the amount of the replacement value thereof, which may be
increased annually, which shall be reported in writing by Tenant to Lessor and
by agreement between Lessor and Tenant. The parties agree that the replacement
value of the buildings and parking facility as of the date of this Lease is
Three Million Five Hundred Ninety-Five Thousand Dollars ($3,595,000). Such
policies should insure against: all perils included in the classifications of
fire and extended coverage, including vandalism, malicious mischief, special
extended perils, boiler and machinery coverage and loss of rents for a period of
not more than one (1) year.
(b) LESSOR WILL NOT CARRY ANY INSURANCE ON TENANT'S PROPERTY. ALL PERSONAL
PROPERTY ON THE PREMISES SHALL BE AT THE RISK OF TENANT AND LESSOR SHALL NOT BE
OBLIGATED TO REPAIR ANY DAMAGE THERETO OR REPLACE THE SAME. TENANT SHOULD
PURCHASE ITS OWN INSURANCE COVERING TENANT'S PROPERTY IN THE PREMISES FOR ITS
OWN PROTECTION.
(c) Tenant agrees to maintain, at Tenant's cost, Commercial General
Liability Insurance of not less than Two Million Dollars ($2,000,000) single
limit (subject to reasonable deductible) insuring against all liability of
Tenant arising out of and in connection with Tenant's use and occupancy of the
Premises, and shall name Lessor and Lessor's agents as an additional insured.
Tenant's insurance company shall be reasonably acceptable to Lessor.
Tenant shall furnish Lessor, prior to occupancy of the Premises, a
certificate of insurance indicating the insurance policies are in full force and
effect, and that Lessor and Lessor's agents have been named as an additional
insured, and that the policies may not be canceled or altered unless thirty (30)
days' prior written notice of the proposed cancellation or alteration has been
given to Lessor.
In the event of the cancellation of said policies of insurance, Tenant
shall, prior to the effective date of cancellation, replace the canceled policy
of insurance and provide Lessor with a certificate of insurance assuring that
the replacement insurance is in full force and effect, in full compliance with
the terms and conditions set forth in this lease.
12. HOLD HARMLESS
Tenant shall indemnify and hold harmless Lessor from any and all claims,
costs and expense arising from Tenant's use of the Premises for the conduct of
its business or from any activity, work, or other thing done, permitted or
suffered by Tenant in or about the building, and shall further indemnify Lessor
against and from any and all claims arising from any breach or default in the
performance of any obligation on Tenant's part to be performed under the terms
of this lease, or arising from any act or negligence of the Tenant, or officer,
agent, employee, or invitee of Tenant, and from all costs, attorneys' fees,
expenses and liabilities incurred in connection with any claim or any action or
proceeding brought against Lessor for which Tenant is obligated to indemnify
Lessor. Tenant upon notice from Lessor shall defend the same at Tenant's expense
by counsel reasonably satisfactory to Lessor. Tenant as a material part of this
lease assumes all risk of damage to property or injury to persons in, upon or
about the Premises from any cause other than Lessor's acts or negligence and
waives any claim in respect thereto against the Lessor.
13. COMPLIANCE WITH LAWS AND REGULATIONS
Tenant shall, at Tenant's expense, comply promptly with all present and
future statutes, ordinances, rules, regulations, orders, requirements including
rules and regulations of the Americans with Disabilities Act (ADA), of any
health office, fire marshal, building inspector or other governmental officer.
Tenant will permit no waste, damage or injury to the Premises and will not use
or permit in said Premises anything that will
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increase the rate of fire insurance (unless Tenant pays for the increased
premium), nor will Tenant maintain therein anything that may, if used in
violation of law, be dangerous to life or limb; or overload floors; or permit
any objectionable noise or odor; nor permit anything to be done in or about the
Premises that will tend to create a nuisance; nor use or permit the use of the
Premises for lodging, sleeping or any illegal purpose.
14. ADDITIONAL TAX
Should there presently be in effect or should there be enacted during the
term of this lease any law, statute or ordinance levying any tax (other than
Federal or State income taxes or business and occupation taxes) upon rents,
Tenant shall pay such tax as additional rent ten (10) days prior to the due
date, or shall reimburse Lessor on demand for any such taxes paid by the Lessor.
15. LIENS AND SOLVENCY
Tenant shall keep the leased Premises and the property in which the leased
Premises are situated, free from any liens arising out of any work performed,
materials furnished or obligations incurred by Tenant and hold the Lessor
harmless therefrom including all costs and attorneys' fees. Lessor may require
at Lessor's sole option that Tenant provide at Tenant's cost and expense a
materialman's labor and performance bond acceptable to Lessor in an amount equal
to one and one-half (1 1/2) times the estimated cost of any improvements,
additions or alterations in the Premises which Tenant desires to make to insure
Lessor against any liability for mechanic's and materialman's liens and to
ensure completion of the work. In the event Tenant becomes insolvent,
voluntarily or involuntarily bankrupt, or if a receiver, assignee or other
liquidating officer is appointed for the business of the Tenant, then, to the
extent permitted by law, the Lessor may cancel this lease at Lessor's option and
the Tenant shall nevertheless be liable for any loss or damage sustained by
Lessor caused by the Tenant.
16. ASSIGNMENT
Tenant shall not assign this lease or any part thereof nor sublet the whole
or any part of the Premises without the prior written consent of the Lessor.
Such consent shall not be unreasonably withheld or delayed. On assignment or
subletting, one-half ( 1/2) of any net rent or other consideration paid to
Tenant in excess of the rent provided for in this Lease, after deducting
Tenant's costs incurred in effectuating the assignment or subletting, shall be
paid by Tenant to Lessor. In the event of any approved assignment of the lease,
except as described in the balance of this Section 16 Tenant shall no longer be
liable hereunder and shall be released from the performance of the terms and
conditions of this Lease. In the event of any assignment consented to by Lessor,
Tenant shall pay, in addition to any amounts described in the third sentence of
this paragraph, a maximum charge of Five Hundred Dollars ($500) to Lessor as
consideration for consenting to such assignment. Consent once given by the
Lessor to the assignment or subletting shall not relieve Tenant from obtaining
written consent to any new or future assignment or subletting as required
herein.
Anything contained herein to the contrary notwithstanding, Lessor hereby
consents to an assignment of this Lease, or a subletting of all or part of the
Premises, (a) to the parent of Tenant or to a wholly-owned subsidiary of Tenant
or of such parent, (b) to any corporation in whom or with which Tenant may be
merged or consolidated, provided that the net worth of the resulting corporation
is at least equal to the greater of (i) the net worth of Tenant on the date
hereof, or (ii) the net worth of Tenant immediately prior to such merger or
consolidation, or (c) to any entity to whom Tenant sells all or substantially
all of its assets, provided that such entity expressly assumes all of Tenant's
obligation hereunder. Lessor also agrees that a transfer, sale, pledge or other
disposition and/or power to vote the corporate stock of Tenant shall not be
deemed an assignment of this Lease and shall not require Lessor's consent.
Lessor acknowledges that Tenant has subleased a portion of the Premises to
Optein Inc. d/b/a Aptein Inc., and Lessor has previously consented to such
sublease.
If Lessor shall assign its interest in this lease or transfer its interest
in the Premises, Lessor shall be relieved of any obligation accruing hereunder
after such assignment or transfer, and such transferee shall
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thereafter be deemed to be the Lessor hereunder. Lessor shall transfer Tenant's
security deposit to such transferee, and Tenant shall look solely to such
transferee for the return of said deposit.
17. ACCESS
Tenant will allow Lessor or Lessor's agent access at all reasonable times,
on reasonable prior notice, to the Premises for the purposes of inspections,
cleaning, or making repairs, additions or alterations to the Premises or to any
property owned or under the control of Lessor, provided that Lessor shall not
disturb Tenant's business operations or use and enjoyment of Premises, and
provided, further, that Tenant shall have the right to escort Lessor during such
access and take reasonable steps to maintain the security and confidentiality of
the Premises and Tenant's business operations. The Lessor shall have the right
to place and maintain "For Rent" signs in a conspicuous place on said Premises
and to show the Premises to prospective tenants for sixty (60) days prior to the
expiration of this lease.
18. DAMAGE OR DESTRUCTION
In the event the Premises are damaged or destroyed by fire or other
casualty to such an extent as to render the same untenantable by Tenant, in
whole or in a substantial part thereof, or in the event the Premises are
destroyed in whole or in substantial part, Tenant, at its option, may either (a)
demand that Lessor repair or rebuild the same, or (b) elect to terminate this
lease. After the happening of any such casualty or fire, Tenant shall give
Lessor or Lessor's agent written notice within thirty (30) days after such fire
or casualty of Tenant's election hereunder. If Tenant elects to cause Lessor to
repair or rebuild the Premises, Lessor shall prosecute the work of such
repairing or rebuilding without unnecessary delay, and during such period the
rent of the Premises shall be abated in the same ratio that that portion of the
Premises rendered for the time being unfit for occupancy, in the opinion of
Tenant, shall bear to the whole of the Premises. In the event Tenant elects to
terminate this lease, this lease shall be deemed terminated as of the date of
such fire or casualty, in which event all duties of the parties, one to the
other, shall terminate except for such duties as may have accrued prior to the
date of such fire or casualty.
Any insurance proceeds payable to Tenant to reimburse or pay for such
repair or rebuilding shall be assigned and paid over to Lessor.
In the event the main building on Lots 3-6 shall be damaged to such an
extent that it shall not be economically practicable to repair or rebuild, then
it shall be optional with Lessor to terminate this lease by written notice
served on Tenant within sixty (60) days after such damage or destruction.
19. SIGNS
No sign, symbol, picture, advertisement or notice shall be displayed,
inscribed, painted or affixed to any of the glass, walls, woodwork or other part
of the Premises except those approved by the Lessor in writing (such approval
not to be unreasonably withheld) and at cost of Tenant. All such signs shall be
removed at Tenant's expense prior to termination of tenancy. No signs or devices
shall be hung or placed against the windows of said Premises nor on the exterior
wall of the building, and no furniture, curtain or other obstruction of any kind
or size shall be placed in any way so as to interfere with the typical and
ordinary appearance of the Premises as viewed from the exterior without written
approval of Lessor (such approval not to be unreasonably withheld).
Notwithstanding the foregoing, Lessor consents to the signs currently installed
by Tenant.
Lessor and Tenant acknowledge that Lessor has allowed Ackerley
Communications to install and operate a billboard in the parking lot of the
Premises. Lessor shall be entitled to all revenue derived from the billboard.
Lessor shall ensure that the billboard is not used by Ackerley Communications or
any other person or entity for the purpose of advertising or promoting cigarette
or alcohol products or services. Lessor shall be entitled to enlarge the
existing billboard, provided that Lessor notifies Tenant in advance of any work
to be done in connection with the billboard and provided, further, that Lessor
shall indemnify, defend and hold Tenant harmless from and against any damage,
loss, cost, liability or expense suffered by Tenant and which arises out of or
is caused by the billboard or any work thereto or any damage caused thereby.
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20. ALTERATIONS; OWNERSHIP OF PROPERTY
Tenant shall not make any alterations, additions, or improvements to said
Premises without first obtaining the consent of Lessor in writing, which consent
shall not be unreasonably withheld or delayed; provided, however, that Tenant
may make such alterations, additions or improvements without Lessor's consent if
the anticipated cost does not exceed $10,000.00 in any one instance. All such
alterations, additions and improvements shall be at the cost and expense of
Tenant.
If the Tenant shall perform work with the consent of the Lessor, as
described in the preceding paragraph, Tenant agrees to comply with all laws,
ordinances, rules and regulations of the appropriate city or county, and any
other authorized public authority. Tenant further agrees to hold Lessor harmless
from damage, loss or cost arising out of the said work. Lessor shall have the
right at any time and from time to time to post and maintain on the Premises
such notices as Lessor reasonably deems necessary to protect the Premises and
Lessor from mechanics' liens, materialmen's liens or other liens.
All items of property owned or leased by Tenant at the commencement date of
this Lease, or any property, building alterations, additions, improvements or
fixtures which may now or hereafter be installed in or on the Premises and/or
securely fastened to or enclosed within the Premises by, for or on behalf of
Tenant, including but not limited to counters, formica tops, piping, wiring,
powered exhaust systems, fire extinguishers, cabinets with fume hoods, motors
and fans for the exhaust cabinets, venthoods and other appurtenant laboratory
equipment, air compressors, hot water tank, sinks and plumbing (hereinafter
"personal property"), shall continue to be the sole and exclusive property of
Tenant and may be removed by Tenant at its sole cost on the termination of this
Lease, but only in compliance with the following subparagraph, and provided that
Tenant shall not remove the basic plumbing fixtures, normal office lighting or
the heating, ventilating and air conditioning system. This removal of all such
personal property may be accomplished notwithstanding the fact that all of said
personal property may be considered to be "fixtures." Lessor hereby waives any
rights in and to said property including any rights that may occur as a result
of the methods of attachment of any of such property and any Lessor's lien
rights and agrees to notify in writing all lenders of Tenant's property rights
hereunder. All personal property which Tenant elects not to remove shall, at the
option of Lessor, remain in the Premises following the termination of this Lease
without disturbance, molestation or injury, and without compensation or
allowance to Tenant, unless otherwise specified by written agreement between the
parties hereto, or upon demand by Lessor made within sixty (60) days prior to
the expiration of this lease shall be removed by Tenant.
If Tenant elects to remove any or all of the personal property (as defined
in the preceding paragraph) or in the event Lessor, within sixty (60) days prior
to the date of termination, demands in writing that Tenant remove any personal
property to be abandoned by Tenant at the expiration of this Lease, then in such
event, all such removal shall proceed in a reasonably expeditious manner. If
damage may be caused by removal of the personal property, Tenant and Lessor
shall agree in writing in advance of removal as to the details of the method of
removal and cost of repairs. Any damage caused by such removal shall either be
repaired by the Tenant, or if Tenant fails to undertake and pursue such repairs
within fifteen (15) days after written request by the Lessor to Tenant to do so,
then Tenant shall reimburse Lessor for the reasonable costs therefor. In no
event, however, shall Tenant be obligated to restore the Premises to any
condition other than the original condition, subject to ordinary wear and tear,
and Tenant shall not be obligated to perform any repairs or restoration which
would constitute a betterment or improvement to the Premises.
21. DEFAULT AND RE-ENTRY
If any rents reserved, or other obligations provided herein, or any part
thereof, shall be and remain unpaid for more than five (5) days following
written notice from Lessor that such amounts have not been paid on their due
date, or if Tenant shall violate or default in any of the other covenants and
agreements herein contained and such default shall not be cured within thirty
(30) days after Lessor shall have given Tenant written notice of the default
(provided that if the default is not reasonably susceptible of cure within such
thirty (30) days, Tenant shall have additional time to cure the default,
provided that it commences the cure within such thirty (30) day period and
diligently prosecutes the cure to completion), then the Lessor may
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cancel this lease upon giving the notice required by law, and re-enter said
Premises, using such force as may be allowed by law. Notwithstanding such
re-entry by the Lessor, the liability of the Tenant for the rent provided for
herein shall not be extinguished for the balance of the term of this lease, and
Tenant covenants and agrees to make good to the Lessor any deficiency arising
from a re-entry and reletting of the Premises at a lesser rental than agreed to
herein. The Tenant shall pay such deficiency each month as the amount thereof is
ascertained by the Lessor. In the event it becomes reasonably necessary as a
direct result of Tenant's default to make any changes, alterations or additions
to the Premises or any part thereof for the purpose of reletting said Premises
or any part thereof, Tenant shall be responsible for such cost.
22. NON-WAIVER
The failure of the Lessor to insist upon strict performance of any of the
covenants and agreements of this lease, or to exercise any option herein
conferred in any one or more instances, shall not be construed to be a waiver or
relinquishment of any such, or any other covenants or agreements, but the same
shall be and remain in full force and effect.
23. COSTS AND ATTORNEYS' FEES
In the event of any action or proceeding brought by either party against
the other under this lease, the prevailing party shall be entitled to recover
all costs and expenses, including the reasonable fees of its attorneys in such
action or proceeding. The venue of any legal action brought under the terms of
this lease shall be in King County.
24. REMOVAL OF PROPERTY
In the event of any re-entry or taking possession of the leased Premises
for default, the Lessor shall have the right, but not the obligation, to remove
from the leased Premises all personal property located therein, and may store
the same in any place selected by Lessor, including, but not limited to a public
warehouse, at the expense and risk of the owners thereof. Lessor shall have the
right to sell such stored property, without notice to Tenant, after it has been
stored for a period of thirty (30) days or more. The proceeds of such sale are
to be applied first to the cost of such sale, second to the payment of the
charges for the storage, if any, and third to the payment of any sums of money
which may then be due from Tenant to Lessor under any of the terms hereof, the
balance if any without interest to be paid to Tenant.
Tenant hereby waives all claims for damages that may be caused by Lessor's
re-entering and taking possession of the Premises as a result of Tenant's
default, removing and storing and/or selling the property of Tenant as provided
in this lease, and will hold Lessor harmless from loss, costs or damages caused
by Lessor, unless due to Lessor's negligence or willful misconduct. No such
re-entry shall be considered or construed to be a forcible entry.
25. TERMINATION FOR GOVERNMENT USE
(a) If any person or corporation, municipal, public, private or otherwise,
shall at any time, during the term of this lease, or any extension or renewal
hereof, lawfully condemn and acquire title to the Premises or any portion
thereof, or to the buildings, or their appurtenances, the parking facility or
the real property or any portion thereof, pursuant to any law, general, special
or otherwise, then Lessor shall be entitled to and shall receive any and all
awards that may be made in any such proceeding relating to any loss in the fee
estate owned by Lessor and Tenant shall be entitled to and shall receive any
portion of the award based upon, calculated or otherwise attributable to the
value of Tenant's leasehold estate, any relocation expenses or damages for
interruption of Tenant's business, which may be awarded to it by reason of such
taking. This Section 25(a) applies whether all, substantially all, or only a
part of the leased premises is taken.
(b) In the event of a total taking or of a substantial partial taking of
the real property, Premises or of the buildings, then, at the option of Tenant,
this Lease and the term hereof shall terminate and expire on the date of such
taking, and any rent or other sums and charges provided in this lease to be paid
by Tenant to the Lessor shall be apportioned and paid to the date of taking. For
the purposes of this Section 25(b), a
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substantial partial taking shall exist when the Premises or the portion thereof
remaining or the building of which the Premises is a part cannot reasonably be
used, in Tenant's sole opinion, after restoration, for the business purpose for
which the Premises are leased.
(c) In the event of less than a substantial partial taking as defined above
in Section 25(b), then the rights and obligations of the parties shall be as
follows:
(1) Where the portion of the real property taken consists of the
parking area or other common area surrounding the leased premises, or any
part thereof, then this lease shall not terminate but shall continue for
the balance of its term with appropriate reduction or abatement for the
rentals and all other sums and charges payable.
(2) Where the portion of the real property taken consists of the
Premises or the buildings, or any part hereof, then Tenant shall, at its
discretion, have the option to cancel and terminate this lease as of the
date of such taking by serving upon Lessor written notice of such election
within thirty (30) days after such taking.
a. If Tenant elects to cancel and terminate this lease pursuant to
the provisions of this subsection 25(c)2, then this lease shall
terminate and expire on and as of the date of taking, and all rent and
other sums and charges in this lease required to be paid by Tenant shall
be apportioned and paid to the date of termination.
b. If Tenant does not elect to cancel and terminate this lease
pursuant to the provisions of this subsection 25(c)2, then this lease
shall continue for the balance of its term as to the part of the
Premises remaining, with a prorata reduction or abatement of the rental
and all other sums and charges herein provided to be paid by the Tenant.
Should the provisions of this subsection 25(c)2.b apply, Lessor shall,
with reasonable dispatch, repair or rebuild the remaining portion of the
Premises or the building so as to restore such building and the Premises
as a building complete in itself and to the greatest extent possible
compatible with the purpose for which the building and Premises is used.
26. HOLDOVER
If the Tenant shall, with the written consent of Lessor, hold over after
the expiration of this lease, such tenancy shall be for an indefinite period of
time on a month-to-month tenancy, which tenancy may be terminated as provided by
law. During such tenancy, Tenant agrees to pay to the Lessor a rental amount
equal to one hundred ten percent (110%) of rent paid during the final term of
the lease, unless a different rent is agreed upon, and to be bound by all of the
applicable terms and conditions of this lease.
27. SUBORDINATION
This lease is subordinate to all present and future mortgages or deeds of
trust affecting the leased Premises or the property of which said Premises are a
part. Tenant agrees to execute, at no expenses to Lessor, any instrument which
may be deemed necessary or desirable by the Lessor to further effect the
subordination of this lease to any mortgage, deed of trust or encumbrance.
Notwithstanding the foregoing provisions of this Section 27, Tenant shall
not be required to subordinate or attorn to any holder of a mortgage or
beneficiary of a deed of trust (collectively, "Lender") unless the Lender shall
have delivered to Tenant an agreement ("Nondisturbance Agreement"), in
recordable form and otherwise in a form reasonably satisfactory to Tenant,
whereby such Lender agrees not to disturb Tenant's possession and occupancy (so
long as Tenant is not in default hereunder). Lessor represents that on the date
hereof the only mortgage or deed of trust encumbering the Premises is held by
Seattle-First National Bank ("Existing Lender"). Lessor agrees to obtain, by no
later than April 1, 1996, a Nondisturbance Agreement from the Existing Lender
for the benefit of Tenant, and failure to obtain such agreement shall, at
Tenant's option, render this lease voidable.
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28. MUTUAL RELEASE AND WAIVER
To the extent a loss is covered by insurance in force, the Lessor and
Tenant hereby mutually release each other from liability and waive all right of
recovery against each other for any loss from perils insured against under their
respective fire or other insurance policies, including any extended coverage
endorsements or all risk endorsements thereto; provided that this agreement
shall be inapplicable if it would have the effect of invalidating any insurance
coverage of the Lessor or the Tenant.
29. HEIRS AND SUCCESSORS
Subject to the provisions hereof pertaining to assignment and subletting,
the covenants and agreements of this lease shall be binding upon the heirs,
legal representatives, successors and assigns of any or all of the parties
hereto.
30. NOTICES
All notices to be given by the parties hereto shall be in writing and may
either be served personally or may be deposited in the United States Mail,
postage prepaid, by certified mail, and if to Lessor, to be addressed to the
Lessor c/o Lessor's agent, or, if to Tenant, may be addressed to Tenant at the
leased Premises (Attn: Manager QA/QC and Facilities). Notices given as aforesaid
shall be deemed given on the day of personal delivery or three (3) business days
after mailed.
31. HAZARDOUS SUBSTANCES
Lessor acknowledges that Lessor has been informed about the nature of
Tenant's business and that Tenant causes or permits, and may continue to cause
or permit, Hazardous Materials (as defined below) including, but not limited to,
radioactive materials, to be brought upon, kept, stored, discharged, released or
used in, under or about the Premises in the operation of its business, provided
such Hazardous Materials are used, kept and stored in a manner which complies
with all Hazardous Materials Laws (as defined below).
32. COMPLIANCE WITH HAZARDOUS MATERIALS LAWS
Tenant shall at all times and in all respects comply with all federal,
state and local laws, ordinances and regulations relating to or involving the
use, generation, manufacture, storage, discharge, release, disposal or
transportation of any materials, substances or wastes which are considered to be
or may be hazardous to human health or safety or the environment due to their
radioactivity, ignitability, corrosivity, reactivity, carcinogenicity,
infectiousness or other harmful or potentially harmful properties and which are
defined as or included within the definition of "hazardous materials," "toxic
substances" or "chemicals known to cause cancer or reproductive toxicity" under
any Hazardous Materials Laws (collectively "Hazardous Materials"). All laws,
ordinances and regulations relating to industrial hygiene, environmental
protection or the use, analysis, generation, manufacture, storage, discharge,
release, disposal or transportation of Hazardous Materials are collectively
referred to herein as "Hazardous Materials Laws."
Tenant shall handle, treat, deal with and manage all Hazardous Materials
in, on, under or about the Premises in total conformity with all applicable
Hazardous Materials Laws and prudent industry practices regarding management of
such Hazardous Materials. Upon expiration or earlier termination of this lease,
Tenant shall, at Tenant's sole cost and expense, cause all Hazardous Materials
brought or allowed on the Premises by Tenant during the lease term to be removed
from the Premises and transported for use, storage or disposal in accordance and
in compliance with all applicable Hazardous Materials Laws. Tenant shall not
take any remedial action in response to the presence of any Hazardous Materials
in or about, and which would have a material, adverse effect on, the Premises or
enter into any settlement agreement, consent decree or other compromise in
respect to any claims relating to any Hazardous Materials in any way connected
with the Premises, without first notifying Lessor of Tenant's intention to do so
and affording Lessor ample opportunity to appear, intervene or otherwise
appropriately assert and protect Lessor's interests with respect thereto.
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33. ENVIRONMENTAL NOTICES
Tenant shall immediately notify Lessor in writing of: (i) any enforcement,
clean up, removal or other governmental or regulatory action threatened,
instituted, or completed with respect to the Premises pursuant to any Hazardous
Materials Laws; (ii) any claim made or threatened by any person against Tenant
with respect to its operations in the Premises relating to damage, contribution,
cost recovery compensation, loss or injury resulting from or claimed to result
from any Hazardous Materials used by Tenant in the Premises; and (iii) any
reports made to any environmental agency arising out of or in connection with
any Hazardous Materials released on or about the Premises, including any
complaints, notices, warnings or asserted violations in connection therewith.
Tenant shall also supply to Lessor as promptly as possible, and in no event
later than five (5) business days after Tenant first receives or sends the same,
copies of all claims, reports, complaints, notices, warnings or asserted
violations which relate to the Premises and which might have a material, adverse
effect upon the Premises. Tenant shall maintain copies of hazardous waste
manifests reflecting the legal and proper disposal of all Hazardous Materials
removed from the Premises and, if Lessor reasonably demonstrates to Tenant that
Lessor is legally required to have copies of the same, Tenant shall supply
Lessor with such copies on request.
34. INDEMNIFICATION OF LESSOR
Tenant covenants and agrees not to cause or permit the impermissible
release of any hazardous materials whatsoever on or about the Premises,
including any hazardous materials as defined under applicable federal, state,
local laws or ordinances, including the Resource Conservation and Recovery Act
of 1976 ("RCRA"), the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA") or regulations promulgated thereunder.
Unconditionally, and without limitation, Tenant shall be responsible for
any release of hazardous material on or about the Premises proven to have been
caused by Tenant or any person under Tenant's control and Tenant shall
indemnify, defend and hold Lessor harmless from and against (i) all claims
arising from the release of any hazardous material on or about the Premises and
against all claims arising from any environmental damage or environmental law
violation which occurs on or about the Premises during the term of this lease
due to any act of Tenant or any person subject to its control, (ii) any and all
claims, of any kind or nature, arising from any breach or default by Tenant
under the terms of this lease, and (iii) all damages, losses, expenses,
liabilities, obligations, costs, attorneys' fees, consulting fees, and
engineering costs incurred in the defense of any claim under clauses (i) and
(ii) above or any civil or criminal action or proceeding brought thereon, and in
case any action or proceeding be brought against Lessor by reason of any such
claim, Tenant, upon notice from Lessor, shall defend the same at Tenant's
expense by counsel reasonably satisfactory to Lessor.
35. LESSOR'S RIGHT TO ORDER ENVIRONMENTAL STUDIES
Lessor may retain a qualified environmental consultant to conduct an
investigation of the Premises, or other adjacent areas in the environment that
may be affected by any reasonable suspected release of Hazardous Materials
attributable to Tenant (1) for Hazardous Materials contamination in, about or
beneath such areas and (2) to assess the compliance of Tenant with the
provisions of this lease. Lessor shall have the right within the last one
hundred twenty (120) days of the term of this Lease upon five (5) days' notice
to Tenant to order an environmental assessment to determine whether the Premises
or the environment surrounding the Premises contain any Hazardous Material that
may be attributable to Tenant's use of the Premises (the scope of such
assessment to be agreed upon in advance by Lessor and Tenant, and the consultant
to be subject to Tenant's reasonable approval) and if Lessor's consultant
determines that a release of hazardous materials has occurred at the Premises,
or from the Premises into the environment, proven to have been caused by Tenant
or a person under its control, Tenant shall pay the cost of any such
environmental assessment and comply with all reasonable recommendations of the
consultant as to any precautions to be taken with respect to the storage, use,
disposal, handling or emission of Hazardous Materials. Tenant shall cooperate
with the consultant to allow entry and reasonable access to all portions of the
Premises for the purposes of the investigation.
12
<PAGE> 13
36. TIME IS OF THE ESSENCE OF THIS LEASE
Time is of the essence of the terms and provisions of this lease.
37. CORPORATE AUTHORITY
If Tenant is a corporation, each individual executing this lease on behalf
of said corporation represents and warrants that he/she is duly authorized to
execute this lease on behalf of said corporation, and that this lease is binding
upon said corporation.
38. RENEWAL OPTION
(a) Tenant shall have the option to renew the term of this lease for one
renewal term ("Renewal Term") of five (5) years, such renewal to be upon the
covenants, terms and conditions as set forth in this lease, except that annual
rent for such Renewal Term shall be established as described below. In order to
exercise its option to renew, Tenant shall give written notice to Lessor not
less than one hundred eighty (180) days prior to the end of the then-current
lease term.
(b) The annual rent for the Renewal Term shall be equal to the lesser of
(i) the fair market rental value of the Premises at the commencement of the
Renewal Term ("Fair Market Rental Value") or (ii) the CPI Rent (as defined in
Section 38(d) below) which would be in effect at the commencement of the Renewal
Term; provided that the annual rent for the Renewal Term shall in no event be
less than the annual rent for the initial term.
(c) Lessor and Tenant shall seek to agree as to the Fair Market Rental
Value within thirty (30) days after Tenant gives Lessor notice of its election
to renew this lease. If Lessor and Tenant shall not agree as to the Fair Market
Rental Value within such thirty (30) day period, the Fair Market Rental Value
shall be determined by appraisal as follows:
Within fifteen (15) days after the expiration of the above-mentioned
thirty (30) day period, Lessor and Tenant shall each give notice to the
other stating the name and address of an impartial person to act as
appraiser hereunder. The appraiser specified in each of such notices shall
be a qualified M.A.I. appraiser doing business in Seattle, Washington and
having not less than ten (10) years' active experience as an appraiser in
Seattle, Washington.
The named appraisers shall together determine the Fair Market Rental
Value within thirty (30) days after their appointment; provided, however,
if either party fails to appoint an appraiser within such fifteen (15) day
period, than the determination of the appraiser first appointed shall be
final, conclusive and binding upon both parties. In making such
determination, the appraisers shall consider the rentals at which leases
are being concluded for comparable space in comparable buildings in
Seattle, Washington. If the appraisers shall fail to agree upon Fair Market
Rental Value within thirty (30) days of their appointment, but the
difference in their conclusions as to Fair Market Rental Value is ten
percent (10%) or less of the lower of the two appraisals, the Fair Market
Rental Value shall be the average of the two.
If the two appraisers fail to agree on the Fair Market Rental Value,
and the difference between the two appraisals exceeds ten percent (10%) of
the lower of the two appraisals, then the appraisers shall, within ten (10)
days after the expiration of such thirty (30) day period, appoint a third
appraiser, similarly impartial and qualified, to determine the Fair Market
Rental Value. Such third appraiser shall determine the Fair Market Rental
Value within thirty (30) days of his or her appointment, and the average of
the appraisals of the two closest appraisers shall be final, conclusive and
binding upon Lessor and Tenant. Upon the determination of the annual rent
for the Renewal Term, Lessor and Tenant shall execute and deliver to each
other an agreement specifying the amount of the annual rent for the Renewal
Term.
Lessor and Tenant shall each pay the fees of any appraiser appointed
by Lessor and Tenant, respectively, and Lessor and Tenant shall each pay
one-half ( 1/2) of the fees of any third appraiser appointed pursuant to
the provisions of this option to renew.
13
<PAGE> 14
(d) The "CPI Rent" shall be computed as of the date ("Renewal Term
Commencement Date") on which the Renewal Term commences. The CPI Rent shall be
computed as follows:
The base for computing the CPI Rent is "The Consumer Price Index for
All Urban Consumers, Seattle-Tacoma, All Items (1982-1984 = 100)" issued by
the Bureau of Labor Statistics of the United States Department of Labor
(the "Index") in effect for the month immediately prior to June 1996 (the
"Beginning Index"). The Index published on or in effect for the month
immediately preceding the Renewal Term Commencement Date (the "Extension
Index") is to be used in determining the amount of the increase. If the
Extension Index has increased over the Beginning Index, the CPI Rent shall
be computed as follows: the base monthly rent in effect for the month
preceding the Renewal Term Commencement Date shall be increased by an
amount computed by multiplying the base monthly rent times the percentage
by which the Extension Index exceeds the Beginning Index.
If the Index ceases to use the 1982-1984 average equaling 100 as the
basis of calculation, or if a change is made in the term or number of items
contained in the Index, or if the Index is altered, modified, converted or
revised in any other way, then the Index shall be adjusted to the figure
that would have been arrived at had the change in the manner of computing
the Index in effect at the date of this Lease not been altered. If such
Index shall no longer be published by the Bureau of Labor Statistics, then
any substitute or successor index published by said Bureau or other
governmental agency of the United States, and similarly adjusted as
aforesaid, shall be used. If such Index (or a successor or substitute index
similarly adjusted) is not available, a reliable governmental or other
reputable, non-partisan publication selected by Lessor and evaluating the
information thereto used in determining the Index shall be used.
(e) If at the Renewal Term Commencement Date the amount of the rent payable
during the Renewal Term shall not have been determined, then pending such
determination Tenant shall pay to Lessor the monthly rent which was payable
during the last year of the initial term of the lease. Upon the determination of
the rent for the Renewal Term, if the rent determined shall be greater than the
rent theretofore paid, Tenant shall promptly pay to Lessor the deficiency.
39. EARLY TERMINATION
Tenant shall have the right to terminate this lease for any reason by
delivering to Lessor a written notice of its election to terminate (the
"Termination Notice"), provided that no Termination Notice may be delivered
prior to the dates described below in this Section 39. The Termination Notice
shall specify the termination date ("Termination Date") selected by Tenant,
which date shall be either six (6) months ("6 Month Termination Notice") or
twelve (12) months ("12 Month Termination Notice") from the date on which the
Termination Notice was given to Lessor.
Tenant may give a 12 Month Termination Notice during the initial term or
the Renewal Term, provided that a 12 Month Termination Notice may not be
delivered prior to February 28, 1998. If Tenant delivers a 12 Month Termination
Notice, Tenant shall not be required to pay any termination fee, and this lease
shall terminate on the Termination Date set forth in such notice.
Tenant may give a 6 Month Termination Notice during the initial term or the
Renewal Term, provided that a 6 Month Termination Notice may not be delivered
prior to August 31, 1998. If Tenant delivers a 6 Month Termination Notice,
Tenant shall, simultaneously with the delivery of such notice, pay a termination
fee equal to three (3) months' base rent, and this lease shall terminate on the
Termination Date set forth in such notice.
14
<PAGE> 15
IN WITNESS WHEREOF, the Lessor and Tenant have executed this lease the day
and year first above written.
LESSOR:
DIAMOND PARKING INC.
By
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
TENANT:
NEORX CORPORATION, a Washington
corporation
By
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
15
<PAGE> 16
STATE OF WASHINGTON
ss.
COUNTY OF
On this day of , 1996, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared , to me known to be the
person who signed as of DIAMOND PARKING INC., the
corporation that executed the within and foregoing instrument, and acknowledged
said instrument to be the free and voluntary act and deed of said corporation
for the uses and purposes therein mentioned, and on oath stated that
was duly elected, qualified and acting as said officer of the corporation, that
was authorized to execute said instrument and that the seal affixed,
if any, is the corporate seal of said corporation.
IN WITNESS WHEREOF I have hereunto set my hand and official seal the day
and year first above written.
--------------------------------------
(Signature of Notary)
--------------------------------------
(Print or stamp name of Notary)
NOTARY PUBLIC in and for the State
of Washington, residing at
________________.
My Appointment Expires:______________.
16
<PAGE> 17
STATE OF WASHINGTON
ss.
COUNTY OF
On this day of , 1996, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared , to me known to be the
person who signed as of NEORX CORPORATION, the
corporation that executed the within and foregoing instrument, and acknowledged
said instrument to be the free and voluntary act and deed of said corporation
for the uses and purposes therein mentioned, and on oath stated that
was duly elected, qualified and acting as said officer of the
corporation, that was authorized to execute said instrument and that
the seal affixed, if any, is the corporate seal of said corporation.
IN WITNESS WHEREOF I have hereunto set my hand and official seal the day
and year first above written.
--------------------------------------
(Signature of Notary)
--------------------------------------
(Print or stamp name of Notary)
NOTARY PUBLIC in and for the State
of Washington, residing at
________________.
My Appointment Expires:______________.
17
<PAGE> 18
EXHIBIT A
LESSOR'S WORK
Lessor shall replace the seal and caulking of the exterior curtain wall and
glass, and replace window panes which have become stained, all in the locations
more fully described and identified on Exhibit A-1 attached hereto, and in any
other locations which the contractor to be chosen by the parties determines, in
its professional judgment, need to be sealed, caulked and/or replaced.
In order to perform Lessor's Work, Lessor shall select three companies,
subject to Tenant's prior approval, from which Lessor shall obtain bids for
Lessor's Work. Lessor and Tenant shall review all bids and Lessor shall select
the contractor, subject to Tenant's prior approval. The contractor shall, in its
professional judgment, perform the work in order to obtain the best possible
results with respect to sealing and caulking and replacement of window panes.
Lessor shall cause the selected contractor to perform Lessor's Work in
accordance with such contractor's bid and in accordance with Section 8.3 of this
lease.
18
<PAGE> 19
EXHIBIT A-1
ATTACHMENT TO EXHIBIT A
IDENTIFICATION OF WINDOWS TO BE REPLACED
East Wall of Main Building:
Room 335 (northern most window of room)
Room 237
South Wall of Main Building:
Room 315 (eastern most window of room)
Second floor window adjacent to elevator and copy machine
Room 209
Room 225
19
<PAGE> 1
EXHIBIT 10.25
AMENDMENT NO. 1 TO CONSULTING AGREEMENT
This amendment is made effective as of May 9, 1995, by and between NeoRx
Corporation, 410 West Harrison, Seattle, Washington 98119, and Dr. Fred Craves,
215 Laurel Grove, Kentfield, California 94904.
The parties hereby agree that the Consulting Agreement effective as of July
7, 1993, shall be amended as follows:
2. COMPENSATION.
(a) Cash Compensation.
The first sentence is amended to read:
"As cash compensation for any and all services which Consultant may render
to Corporation hereunder, Corporation shall pay to Consultant:
<TABLE>
<CAPTION>
QUARTER ENDING DATE PAYMENT FEE
--------------------------------------------------------------- -----------
<S> <C>
6/30/95........................................................ $28,333
9/30/95........................................................ $30,000
12/31/95....................................................... $30,000
3/31/96........................................................ $30,000
6/30/96........................................................ $30,000
</TABLE>
For each calendar quarter of services provided, with payments to be made
for each quarter within 30 days of the end of each quarter."
The remainder of Section 2 is unchanged.
6. TERM: TERMINATION.
(a) Initial Term Period.
"This agreement shall terminate on June 30, 1996 unless renewed by
agreement of the parties."
The remainder of Section 6 is unchanged.
<TABLE>
<S> <C>
NeoRx Corporation Dr. Fred Craves
By: By:
- -------------------------------------------- --------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K into the Company's previously filed
Registration Statements, File Nos. 33-43860, 33-46317, 33-87108, 33-60029,
33-64992, 33-63169 and 333-00785.
ARTHUR ANDERSEN LLP
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 7,182
<SECURITIES> 8,937
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 538
<CURRENT-ASSETS> 17,588
<PP&E> 6,731
<DEPRECIATION> 5,914
<TOTAL-ASSETS> 18,518
<CURRENT-LIABILITIES> 2,343
<BONDS> 1,283
0
4
<COMMON> 287
<OTHER-SE> 14,601
<TOTAL-LIABILITY-AND-EQUITY> 18,518
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140
<INCOME-PRETAX> (12,271)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,271)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,271)
<EPS-PRIMARY> (.98)
<EPS-DILUTED> (.98)
</TABLE>
