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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, 1996
|_| 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)
Washington 91-1261311
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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
Series 2 Convertible Preferred Stock
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 7, 1997 was approximately $76.8 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 7, 1997, approximately 16.5 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
13, 1997 are incorporated by reference in Part III of this Form 10-K.
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PART I
Item 1. Business
NeoRx Corporation ("NeoRx" or the "Company") develops innovative
biopharmaceuticals for the diagnosis and treatment of cancer and cardiovascular
disease. As part of its cancer treatment program, NeoRx is developing a
proprietary pretargeting platform for the delivery of therapeutic agents
directly to tumor sites.
The Company's portfolio of products include VERLUMA(TM), a small cell lung
cancer imaging kit, that was cleared for marketing by the United States Food and
Drug Administration (the "FDA") in August 1996. The Company's AVICIDIN(R) cancer
therapy agent is currently in Phase I/II clinical trials for the treatment of
solid tumors. Phase I patient accrual for the BIOSTENT(R) product, a
pharmaceutical agent designed to reduce restenosis following balloon angioplasty
through the inhibition of vascular remodeling, was completed in 1996 and data on
the final patients to complete the six month follow-up are being collected.
NeoRx is also conducting investigations into atherosclerosis in a Phase I study
to determine safety and dosage of a pharmaceutical agent with the intent of
inhibiting atherosclerosis.
All statements in this document that are not historical facts are considered
forward-looking statements. Sentences or phrases that use words such as
"believes," "anticipates," "hopes," "plans," "may," "can," "will," and others
are often used to flag such statements, but their absence does not mean a
statement is not forward-looking. Such statements reflect management's current
opinion and are designed to help readers understand management's thinking. By
their very nature, however, 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
release publicly 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.
Cancer and Its Treatment
Cancer is second only to cardiovascular disease as a cause of death in the
United States. The American Cancer Society estimates that approximately
1,382,000 new cases of cancer will be diagnosed in the United States in 1997, of
which 60% are expected to be tumors of the lung, colon, breast and prostate.
Cancer is a large group of diseases characterized by uncontrolled and
proliferative cell division. 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).
Current regimens for the treatment of cancer include chemotherapy,
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.
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. As 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.
Pretargeting: NeoRx's Approach to Delivering Drugs. NeoRx's cancer
therapeutic product under development employ monoclonal antibody based
technology. Antibodies are proteins produced by certain white blood cells in the
body's immune system in response to antigens (foreign substances) such as
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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 of
duplicate hybridomas that also secrete the desired antibody. These antibodies
can be purified for use as pharmaceutical agents.
In the conventional approach to radioimmunotherapy ("RIT"), the radiation is
linked to the antibody that is then administered to patients. The antibody and
the radiation circulate together. 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.
AVICIDIN: The First NeoRx Agent to Use the Pretargeting Platform. The
AVICIDIN agent takes advantage of the high binding affinity of two molecules:
biotin and streptavidin. An antibody 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 final step involves administering biotin
linked to the therapeutic radionuclide, yttrium-90. This small molecule
biotin-yttrium complex is designed to bind specifically to where the
streptavidin has accumulated, with the resultant beta particle emission from the
yttrium-90 killing tumor cells. Biotin-yttrium that does not bind to the
streptavidin is quickly eliminated through the kidneys, thereby reducing the
radiation dose to the bone marrow. In preclinical studies in animals, the
AVICIDIN agent 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.
The AVICIDIN agent is being tested in Phase I/II clinical trials in patients
with tumors that bind with the antibody, such as cancers of the lung, colon,
breast and prostate. The purposes of the study are to determine the maximum
tolerated dose ("MTD") of radiation, to observe anti-tumor effects, and to
determine the optimal timing and dosing of each component.
In one series of tests, the Company's investigators are trying to optimize
the dosing and timing of the three components ("dosimetry"). In a second series
of tests, the investigators are raising the radiation dose in groups of three
patients to determine the MTD and to observe anti-tumor effects when they occur.
These studies use an antibody produced by mouse cells so that the antibody is a
murine protein and results in a human anti-mouse antibody ("HAMA") response
after the first dose. Once the Company is satisfied it has a suitable humanized
antibody, it plans to substitute this for the foreign murine antibody.
To date, the AVICIDIN dosimetry studies have shown substantially less
exposure of bone marrow than conventional RIT. This has permitted safe
administration of higher radiation doses, and tumor shrinkage has been observed
following just a single AVICIDIN dose even in patients with advanced, bulky
tumors.
Other Uses of Pretargeting. NeoRx is testing the delivery of additional
agents such as other forms of radiation, drugs, immune response modifiers (e.g.
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tumor necrosis factor). This unique pretargeting platform may also offer the
first real opportunity to deliver alpha emitters, a form of radiation
significantly more potent than yttrium-90, effectively and safely to solid
tumors. NeoRx has received a Small Business Innovative Research ("SBIR") grant
to study alpha emitter chemistry.
Cancer: Diagnosis and Staging of Disease. Early diagnosis and precise
detection of the malignant cells are important for cancer treatment. Current
diagnostic imaging techniques include x-rays, computerized tomography ("CT"),
ultrasonography, radioisotopic imaging and nuclear magnetic resonance imaging
("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.
Small Cell Lung Cancer: Diagnosis and Staging. The American Cancer Society
estimates that approximately 178,000 new cases of lung cancer will occur in the
United States in 1997, of which the Company believes approximately 47,000 will
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 13%. Although most small cell lung cancer patients respond to
chemotherapy, most also suffer a relapse. Current treatment of this disease is
based on the extent 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 chest
radiation. Those patients whose disease has spread to the point that radiation
treatment would not encompass all known tumors within one radiation port 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.
The VERLUMA Kit: Imaging for Small Cell Lung Cancer. The VERLUMA kit is the
Company's diagnostic imaging product that is indicated to detect extensive
disease in patients with biopsy-confirmed, previously untreated small cell lung
cancer. Boehringer Ingelheim International GmbH ("Boehringer Ingelheim") holds
world-wide manufacturing rights and non-North American marketing rights to the
VERLUMA kit. Boehringer Ingelheim will pay royalties to NeoRx on future
non-North American product sales, if any.
The DuPont Merck Pharmaceutical Company ("DuPont Merck") markets the VERLUMA
kit in the United States and holds exclusive North American rights to market the
VERLUMA kit. In addition to paying NeoRx $4.5 million upon the FDA marketing
clearance in the United States, DuPont Merck will pay NeoRx royalties on sales
of the VERLUMA Kit in North America. To date, the VERLUMA kit is approved only
in the United States. No applications for foreign approvals have been filed.
The VERLUMA kit 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. In a Phase I/II
clinical trial, the VERLUMA kit localized to primary and/or metastatic small
cell and non-small cell lung cancer, and breast, colon and prostate cancers.
Data from a completely blinded analysis of NeoRx's Phase III small cell lung
cancer clinical trial show that the VERLUMA kit is more sensitive than any
single test used in the standard battery of four tests to determine how far the
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tumor has spread and has an accuracy level comparable to the standard battery of
tests. The Company believes that its use may result in cost savings, as well as
reduced staging time compared to conventional tests.
Cardiovascular Disease and Its Treatment
The American Heart Association estimates that approximately 60 million
Americans have one or more types of cardiovascular disease, and that the cost of
cardiovascular diseases and stroke in 1997 will be $259 billion. Nearly one
million people die of cardiovascular disease each year in the United States,
making it the leading cause of death.
Cardiovascular disease is divided into four main categories: high blood
pressure, coronary heart disease, stroke and rheumatic heart disease. Medical
procedures to treat coronary heart disease include percutaneous transluminal
coronary angioplasty, coronary artery bypass surgery and heart transplantation.
Angioplasty: The Procedure. 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 an artery following angioplasty.
This narrowing, that reduces blood flow through the artery, is believed to be
caused by a combination of at least three distinct but interrelated factors: (1)
vascular remodeling, or chronic constriction of the artery, (2) blood clot
formation and (3) the migration and proliferation of smooth muscle cells at the
site of the angioplasty procedure that encroach upon the flow of blood. Data
from human studies suggests that vascular remodeling accounts for the majority
of late lumen loss that leads to restenosis following balloon angioplasty.
The Company believes that over 500,000 angioplasties were performed in the
United States in 1996, and that approximately 30% 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
repeat angioplasty and/or the placement of a metal stent in the artery.
BIOSTENT: NeoRx's Approach to Treating Restenosis. The Company's BIOSTENT
agent under development is designed to inhibit vascular remodeling following
balloon angioplasty. By addressing remodeling, the BIOSTENT agent 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.
NeoRx's preclinical studies have shown that administering the BIOSTENT
agent immediately after angioplasty inhibits chronic construction of the artery
wall and thus helps maintain its dilated position. 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.
The Company believes that the collagen forms a rigid matrix, thereby
biologically supporting or "stenting" the arterial wall during the period that
treatment with the BIOSTENT agent inhibits arterial constriction.
The BIOSTENT agent may be 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. NeoRx scientists have assessed the effects of the
BIOSTENT treatment method in a swine femoral artery model that was then extended
to swine coronary arteries. Analysis of swine femoral arteries for as long as
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eight weeks and of swine coronary arteries for as long as three weeks following
a single exposure to the BIOSTENT agent has indicated in these experiments 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 catheter is an over-the-wire design that allows rapid placement using the
same guidewire used for balloon dilation. Commercialization of the BIOSTENT
agent will depend on obtaining the FDA approval of the catheter. NeoRx completed
patient accrual of a multidose, multicenter, randomized, double-blinded Phase I
trial. An interim analysis of the majority of the patients revealed no evidence
of drug-related toxicity. A final analysis of the data for the six month
follow-up is being performed.
Atherosclerosis. Atherosclerosis is a complex disease of blood vessels
commonly understood as clogging of arteries with cholesterol. It is a leading
cause of deaths from heart attack and stroke. Clogged arteries do not deliver
oxygen-carrying blood to organs as well as normal arteries and are more likely
to become completely restricted with blood clots that shut off blood flow. The
result is the affected organ receives insufficient oxygen and may die if flow is
not restored rapidly, leading to conditions such as heart attack and stroke.
Surgery and/or angioplasty (as described above) can improve blood flow, but
prevention or reduction in the disease progression would be preferred.
Raising TGF(beta) Levels: NeoRx's Approach to Treating Atherosclerosis.
Scientists at the University of Cambridge in the United Kingdom ("Cambridge"),
working with NeoRx, have discovered that patients with advanced coronary artery
disease have low levels of active TGF(beta), a protein that regulates the growth
of certain cell types such as those found in the lining of arteries. They have
reported that segments of arteries prone to atherosclerosis are low in active
TGF(beta) and that the elevation of active TGF(beta) can prevent the development
of lesions in arteries of a mouse animal model that express the human apo(a)
associated with atherosclerosis lesions in humans.
A Phase I dosing study is being conducted to determine safety and the dose
of a drug that maximally increases activated TGF(beta) in patients with advanced
coronary artery disease. This drug has been provisionally licensed from a third
party. Either NeoRx or the third party may terminate at will the further
development of this drug.
Products Under Development
The following table summarizes products under development by NeoRx:
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<CAPTION>
Product Indication Status
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Cancer Therapy:
AVICIDIN pretargeted cancer Treatment of solid tumors, e.g., Phase I/II human clinical
therapy product lung cancer, colon cancer, trials
etc.(1)
Cardiovascular Therapy:
Anti-restenosis
BIOSTENT agent Inhibition of restenosis Phase I human clinical trials
Atherosclerosis
TGF upregulation Treatment of atherosclerosis Phase I human clinical trials
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(1) The Company's currently planned first indication for this product is for the
treatment of small cell lung cancer.
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Patents and Proprietary Rights
The Company's policy is to protect its proprietary technology aggressively.
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 holds a co-exclusive license for the monoclonal antibody used in
its cancer imaging and treatment products and also has obtained U.S. and foreign
patent protection relating to its cancer imaging products. NeoRx has an
exclusive license from Stanford University for a patent issued in the U.S.,
Europe and Japan that covers the pretargeting technology used in NeoRx's
AVICIDIN cancer therapy product under development. The Company has been awarded
additional U.S. patents pertaining to its pretargeting technology, and has
received notices of allowance in the U.S. on several others; other applications
are pending. The Company has also received a notice of allowance in the U.S. for
its BIOSTENT technology and has several patent applications pending in both the
U.S. and foreign jurisdictions. NeoRx has exclusively licensed from Indiana
University a patent covering catheter delivery into blood vessel walls of
sustained release therapeutic agents contained within a particulate dosage form.
NeoRx is the exclusive assignee of a two U.S. patents granted to its Cambridge
collaborators for the use of various TGF(beta) elevating agents to treat a
variety of cardiovascular indications and has additional pending applications
related to this technology.
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 NeoRx'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
Research and development in cancer and cardiovascular diseases 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, the prevention of restenosis or the treatment of atherosclerosis. Many
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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 or atherosclerosis prevention products could render the Company's
technology and products under development less competitive, uneconomical or
obsolete.
Timing of market introduction and health care 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 and used by a large number of physicians. These, along with a nuclear
medicine test now being marketed, 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
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 product under development is designed to
prevent restenosis of blood vessels following angioplasty where such narrowing
is due to vascular remodeling. 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. There is
no obligation for the licensor of the drug being studied for TGF upregulation to
permit its continued development after the dosing study is completed.
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 U.S. and other
countries. In the U.S., drugs and biologics are subject to rigorous regulation
by the FDA. 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 U.S.
include (i) preclinical laboratory tests, in vivo preclinical studies and
formulation studies, (ii) the submission to the FDA of an Investigational New
Drug Application ("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 Biologic
License Application ("BLA") or New Drug Application ("NDA") to the FDA, and (v)
the FDA approval of the BLA or NDA prior to any commercial sale or shipment of
the drug. In addition to obtaining FDA approval for each product, each domestic
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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 ("cGMP")
regulations enforced by the FDA through its facilities inspection program for
biologics, drugs and devices. To supply products for use in the U.S., foreign
manufacturing establishments must comply with cGMP 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 the 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 the 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
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 BLA 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 BLA 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 BLA 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.
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Among the conditions for BLA or NDA approval is the requirement that the
prospective manufacturers' quality control and manufacturing procedures conform
to cGMP. 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, and does not expect to seek United States
regulatory approval for sales of its cancer and anti-restenosis treatment
products before the year 2000. Royalties from the sale of the VERLUMA diagnostic
imaging agent will begin in 1997. 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 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
9
<PAGE>
period. The Company's existing capital resources and interest income thereon are
currently expected to be sufficient to fund the Company's operations through the
second quarter of 1998. 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 the AVICIDIN
agent. 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. Also, the drug used in the atherosclerosis
clinical trial to raise activated TGF(beta) levels is dependent on a third party
both for supply and for agreement to continue testing and commercialization
after Phase I.
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 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 cardiovascular disease 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
10
<PAGE>
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 major pharmaceutical companies, either alone or
through collaboration with smaller companies, have active programs in
anti-restenosis therapy. Moreover, metal stents are now being used to hold open
the arteries after angioplasty by mechanical means. Several major pharmaceutical
companies market a drug from the class of HMG CoA-reductase inhibitors that have
been shown to reduce risk of heart attack. 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 already have, or 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 the "human anti-streptavidin antibody"
("HASA") response, 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
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 agent and has initiated a collaboration to
modify streptavidin, there can be no assurance that either 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, efficacy and quality by
numerous government authorities in the United States and other countries.
11
<PAGE>
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.
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 the 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 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
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<PAGE>
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 person 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 7, 1997, the Company had 70 full-time employees and 9 part-time
employees, 20 of whom hold Ph.D. degrees and two of whom hold M.D. degrees.
Sixty-one employees were engaged in research, development and manufacturing
activities and 18 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
On June 6, 1996, the United States District Court for the Southern District
of New York dismissed all claims against the Company in a purported class action
suit against David Blech, D. Blech & Co. and a number of other defendants,
including 11 publicly traded biotechnology companies, of which one was NeoRx,
that had been named in an amended complaint on March 27, 1995. The plaintiffs
have not appealed the order. On July 26,1996, the plaintiffs filed a second
amended pleading that did not include any claims against the Company. NeoRx is
not a defendant in the subject suit.
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<PAGE>
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. 49 President, Chief Executive Officer and
Director
Richard L. Anderson. 57 Senior Vice President, Chief Financial
Officer, Secretary and Treasurer
John M. Reno, Ph.D. 50 Vice President, Research and Development
Robert W. Schroff, Ph.D., M.B.A. 42 Vice President and General Manager,
Cardiovascular Products
Bruce H. Walters 53 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.
Richard L. Anderson became Senior Vice President, Chief Financial Officer,
Secretary and Treasurer when hired in January 1997. Mr. Anderson was Vice
President and Controller at Mosaix Inc. (formally called Digital Systems
International), a provider of computer telephony integration products and
services, from November 1994 to January 1997. From September 1993 to October
1994, Mr. Anderson was Vice President of Finance, Chief Financial Officer and
Secretary of Merix Corporation (formally a division of Tektronix Corporation), a
manufacturer of printed circuit boards. From April 1982 to August 1993, he was
with Tektronix Corporation, a manufacturer of test and measurement instruments,
serving in a variety of positions including Director of Corporate Development
and Group Controller. Mr. Anderson holds an M.S. degree in Management from Johns
Hopkins University, an M.S. degree in Solid State Physics from the University of
Maryland, a B.S. in Physics from Bucknell University and is a Certified Public
Accountant.
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 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
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<PAGE>
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.
15
<PAGE>
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.
SALES PRICE
---------------------
HIGH LOW
-------- -------
1996:
First Quarter...................... $9 13/16 $6 3/16
Second Quarter..................... 8 1/4 4 5/8
Third Quarter...................... 6 3/8 4 3/8
Fourth Quarter..................... 6 13/16 4
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
There were approximately 1,005 shareholders of record at December 31, 1996.
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 (In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended
----------------------------------------------------------- Three Months Ended
December 31, December 31,
------------------------------------------ September 30, -------------------
1996 1995 1994 1993 1992 1992 1991
------ ------ ------ ------ ------ ------ -----------
(unaudited)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Contract revenues and fees.... $ 4,784 $ 307 $ 1,568 $ 3,676 $ 9,180 $ 277 $ 119
Operating expenses............ 14,763 13,343 12,605 12,334 11,094 2,825 2,665
Loss from operations.......... (9,979) (13,036) (11,037) (8,658) (1,914) (2,548) (2,546)
Net loss...................... (9,001) (12,271) (11,144) (8,536) (2,763) (2,425) (3,688)
Net loss per common share..... $ (0.68) $ (0.98) $ (1.02) $ (1.10) $ (0.60) $ (0.36) $ (0.78)
Weighted average common shares
outstanding................. 15,604 13,142 11,616 8,449 6,530 7,303 5,169
Balance Sheet Data:
Cash and cash equivalents..... $ 2,945 $ 7,182 $ 2,428 $14,347 $12,359 $10,520 $11,094
Short-term investments........ 15,322 8,937 14,723 13,421 4,000 2,500 4,168
Working capital............... 17,523 15,245 15,992 26,934 14,463 11,720 14,096
Total assets.................. 20,510 18,518 20,035 29,848 18,511 14,943 17,355
Long-term debt................ 1,242 1,283 1,212 1,222 1,239 1,236 1,293
Shareholders' equity.......... $17,079 $14,892 $15,841 $26,776 $14,531 $11,740 $13,146
- ----------
<FN>
Note: In February 1993, the Company changed its fiscal year-end from September 30 to December 31.
</FN>
</TABLE>
16
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The NeoRx Corporation ("NeoRx" or the "Company") develops biopharmaceutical
products for the detection and treatment of human diseases. The Company is no
longer considered a company in the development stage as the Company's first
product, VERLUMA(TM) Small Cell Lung Cancer Imaging Kit, received marketing
approval by the Food and Drug Administration (the "FDA") in August 1996. Sales
began in February 1997, from which NeoRx will receive royalties. To date, 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 plans to enter into
additional collaborative agreements with corporate partners, but does not
currently have firm commitments for any such agreements. Expenses incurred have
been primarily for research and development activities and administration.
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.
Years Ended December 31, 1996, 1995 and 1994
The Company's revenues in 1996, 1995 and 1994 were $4.8 million, $.3 million
and $1.6 million, respectively, and consisted of license fees and payments
received under its collaborative and license agreements. Revenues in 1996 and
1994 consisted primarily of license fees of $4.5 million and $1.4 million,
respectively, from DuPont Merck for exclusive North American rights to market
NeoRx's VERLUMA lung cancer imaging products. As part of the agreement, DuPont
Merck also purchased 269,000 shares of Common Stock in October 1994.
The Company's total operating expenses were $14.8 million, $13.3 million and
$12.6 million in 1996, 1995 and 1994, respectively. Of these amounts, research
and development expenditures were $9.8 million, $8.7 million and $7.5 million in
1996, 1995 and 1994, respectively. Research and development expenses increased
12% in 1996 and 16% in 1995. The increase in research and development expenses
in 1996 and 1995 was primarily due to activities relating to antibody
humanization, increased clinical trial activities and a one-time license fee
payment in 1995. Approximately 100% of the Company's research and development
expenses in 1996 and 1995 were attributable to the Company's self-funded
research programs, and approximately 98% were self-funded in 1994. General and
administrative expenses were $5.0 million, $4.6 million and $5.1 million in
1996, 1995 and 1994, respectively. General and administrative expenses increased
8% in 1996 and decreased 9% in 1995. The increase in general and administrative
expenses in 1996 was principally due to patent filing costs and other legal
expenses associated with collaborative agreements. The decrease in general and
administration expenses in 1995 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 $1.1 million, $1.0 million and $.9 million
in 1996, 1995 and 1994, respectively. The increase in 1996 and 1995 was
primarily due to higher average cash balances resulting from sales of Common and
Preferred Stock. Interest expense was $.1 million in 1996, 1995 and 1994.
17
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Liquidity and Capital Resources
The Company's operations have been financed primarily by funds raised through
the issuance of equity securities and amounts received under manufacturing and
marketing licenses. Sales of the Company's Common and Preferred Stock raised an
aggregate of $21.2 million and cash fees received from license agreements
totaled $5.9 million during the past three years.
The Company has invested $.7 million in equipment, furniture and leasehold
improvements over the past three years, primarily to support its research and
manufacturing activities. As of December 31, 1996, the Company was committed to
spending approximately $2.2 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.
During 1996, total cash, cash equivalents and short-term investments
increased $2.1 million and improved the Company's current ratio to 9.0 from 7.5.
The increases were primarily due to the receipt of a $4.5 million license fee
payment and stock sales.
In January 1996, the Company issued 370,000 shares of Common Stock and 47,000
shares of Series 2 Convertible Preferred Stock in private transactions and
received net proceeds of $6.6 million. In October 1995, the Company registered
650,000 shares of Common Stock to be sold from time to time. During 1996, the
Company issued 464,000 shares and received net proceeds of $3.8 million, and
during 1995, the Company issued 186,000 shares and received net proceeds of $1.2
million. Also during 1995, the NeoRx received net proceeds of $8.3 million from
the sale of 1.4 million units consisting of Common Stock and three-year
warrants. In October 1994, the Company received $2.0 million from DuPont Merck,
for which DuPont Merck received VERLUMA marketing rights in North America and
269,000 shares of NeoRx Common Stock.
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 the second quarter of 1998. The Company's working capital
and capital requirements will depend upon 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.
18
<PAGE>
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Page
Numbers
-------
<S> <C>
Report of Independent Public Accountants..................................... 20
Balance Sheets - December 31, 1996 and 1995.................................. 21
Statements of Operations - For the Years Ended December 31, 1996, 1995 22
and 1994.....................................................................
Statements of Cash Flows - For the Years Ended December 31, 1996, 1995 23
and 1994.....................................................................
Statements of Shareholders' Equity - For the Years Ended December 31, 24
1996, 1995 and 1994..........................................................
Notes to Financial Statements................................................ 25
</TABLE>
All financial schedules are omitted since the required information is
applicable or has been presented in the financial statements and the notes
thereto.
19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of NeoRx Corporation:
We have audited the accompanying balance sheets of NeoRx Corporation, a
Washington corporation, as of December 31, 1996 and 1995, and the related
statements of operations, cash flows and shareholders' equity for each of the
years ended December 31, 1996, 1995 and 1994. 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, 1996 and 1995, and the results of its operations and its cash flows
for each of the years ended December 31, 1996, 1995 and 1994, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Seattle, Washington
February 25, 1997
20
<PAGE>
<TABLE>
<CAPTION>
NEORX CORPORATION
BALANCE SHEETS
(In thousands, except share data)
DECEMBER 31,
----------------------
1996 1995
--------- ---------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents.................................................... $ 2,945 $ 7,182
Short-term investments ...................................................... 15,322 8,937
Inventories ................................................................. 600 538
Prepaids and other .......................................................... 845 931
--------- ---------
Total current assets ......................................... 19,712 17,588
--------- ---------
Facilities and equipment, at cost:
Equipment and furniture ..................................................... 3,744 3,498
Leasehold improvements ...................................................... 3,237 3,233
--------- ---------
6,981 6,731
Less: accumulated depreciation and amortization ............................ (6,295) (5,914)
--------- ---------
Facilities and equipment, net .......................................... 686 817
--------- ---------
Other assets ................................................................ 112 113
--------- ---------
$ 20,510 $ 18,518
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................ $ 1,235 $ 1,511
Accrued liabilities ......................................................... 910 531
Deferred revenue ............................................................ -- 250
Current portion of capital leases ........................................... 44 51
--------- ---------
Total current liabilities .................................... 2,189 2,343
--------- ---------
Non-current liabilities:
Convertible subordinated debentures, 9 3/4% ................................. 1,195 1,195
Capital leases, less current portion ........................................ 47 88
--------- ---------
Total non-current liabilities ................................ 1,242 1,283
--------- ---------
Commitments and contingencies
Shareholders' equity:
Series preferred stock, $.02 par value, 3,000,000 shares authorized:
Convertible exchangeable preferred stock, Series 1,
208,000 shares issued and outstanding, and
Convertible preferred stock, Series 2,
7,000 and -0- shares issued and outstanding, respectively .... 4 4
Common stock, $.02 par value, 60,000,000 shares authorized,
16,451,000 and 14,359,000 shares issued and outstanding, respectively .. 329 287
Additional paid-in capital .................................................. 140,789 128,098
Deferred compensation ....................................................... -- (139)
Accumulated deficit ......................................................... (124,043) (113,358)
--------- ---------
Total shareholders' equity ................................... 17,079 14,892
--------- ---------
$ 20,510 $ 18,518
========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
21
<PAGE>
NEORX CORPORATION
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
Revenues:
<S> <C> <C> <C>
Contract revenues and fees .................................................. $ 4,784 $ 307 $ 1,568
-------- -------- --------
Operating expenses:
Research and development .................................................... 9,758 8,690 7,464
General and administrative .................................................. 5,005 4,653 5,141
-------- -------- --------
Total operating expenses .......................................... 14,763 13,343 12,605
-------- -------- --------
Loss from operations ........................................................ (9,979) (13,036) (11,037)
Other income (expense):
Investment and interest income, net ...................................... 1,120 1,002 908
Interest expense ......................................................... (142) (140) (127)
Litigation expense, net .................................................. -- (97) (888)
======== ======== ========
Net loss .................................................................... $ (9,001) $(12,271) $(11,144)
======== ======== ========
Preferred stock dividends ................................................... (1,684) (597) (725)
-------- -------- --------
Net loss applicable to common shares ........................................ $(10,685) $(12,868) $(11,869)
======== ======== ========
Net loss per common share.................................................... $ (.68) $ (.98) $ (1.02)
======== ======== ========
Weighted average common shares outstanding ................................. 15,604 13,142 11,616
======== ======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
22
<PAGE>
NEORX CORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss .................................................................. $ (9,001) $(12,271) $(11,144)
-------- -------- --------
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization ....................................... 381 402 290
(Increase) decrease in inventories .................................. (62) (145) 108
(Increase) decrease in prepaids and other assets .................... 119 699 (922)
Increase in accounts payable and accrued
liabilities ....................................................... 432 844 1,120
Increase (decrease) in deferred revenue ............................. (250) -- 48
Compensation expense on stock awards
and options ....................................................... 167 184 204
Common stock for consulting services ................................ 290 239 --
-------- -------- --------
Total adjustments ............................................... 1,077 2,223 848
-------- -------- --------
Net cash used in operating activities ..................................... (7,924) (10,048) (10,296)
-------- -------- --------
Cash flows from investing activities:
Proceeds from (purchases of) short-term
investments, net ..................................................... (6,385) 5,786 (1,302)
Facilities and equipment purchases ........................................ (250) (129) (280)
-------- -------- --------
Net cash provided by (used in) investing activities ....................... (6,635) 5,657 (1,582)
Cash flows from financing activities:
Proceeds from sale of common stock and warrants ........................... 5,767 9,215 635
Proceeds from sale of preferred stock ..................................... 4,418 -- --
Repayments of capital lease obligations ................................... (48) (35) (44)
Proceeds from stock options exercised ..................................... 693 423 95
Preferred stock dividends ................................................. (508) (458) (727)
-------- -------- --------
Net cash provided by (used in) financing activities ....................... 10,322 9,145 (41)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents ............................................................... (4,237) 4,754 (11,919)
Cash and cash equivalents:
Beginning of period ....................................................... 7,182 2,428 14,347
-------- -------- --------
End of period ............................................................. $ 2,945 $ 7,182 $ 2,428
======== ======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
NEORX CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per share data)
Additional Total
Number Par Number Par Paid-In Deferred Accumulated Shareholders'
of Shares Value of Shares Value Capital Compensation Deficit Equity
--------- ----- --------- ----- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 preferred stock for
common 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
Sale of common stock ($6.00-$9.42
per share) ......................... -- -- 803 16 5,751 -- -- 5,767
Sale of preferred stock ($100.00 per
share) ............................. 47 1 -- -- 4,417 -- -- 4,418
Exercise of stock options
($1.50-$6.38 per share) ............ -- -- 281 6 719 -- -- 725
Issuance of common stock in payment
of expenses ($5.50-$7.87) per share -- -- 116 2 691 -- -- 693
Exchange of preferred stock for
common stock ....................... (40) (1) 860 17 (16) -- -- --
Amortization of deferred
compensation ....................... -- -- -- -- -- 139 -- 139
Preferred stock dividends .......... -- -- 32 1 1,129 -- (1,684) (554)
Net loss ........................... -- -- -- -- -- -- (9,001) (9,001)
---- ---- ------- ---- --------- ----- --------- ---------
Balance, December 31, 1996 ......... 215 $ 4 16,451 $329 $ 140,789 $ -- $(124,043) $ 17,079
==== ==== ======= ==== ========= ===== ========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
24
<PAGE>
NEORX CORPORATION
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 no longer considered a company in the
development stage and will therefore no longer present results of operations and
cash flows for the period from inception. The Company's first product,
VERLUMA(TM) Small Cell Lung Cancer Imaging Kit, received marketing approval by
the Food and Drug Administration (the "FDA") in August 1996. Sales began in
February 1997, from which NeoRx will receive royalties. 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'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 FDA before the Company's
products may be sold domestically. Expenses incurred have been primarily for
research and development activities and administration. 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 a remaining maturity of
three months or less when purchased to be cash equivalents.
No capital lease obligations were incurred during the years ended December
31, 1996 and 1994. Capital lease obligations incurred to acquire equipment were
$143,000 in 1995.
Interest paid by the Company was $143,000, $141,000 and $127,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
In January 1996, the Company sold approximately 47,000 shares Series 2
Convertible Preferred Stock, $.02 par value per share ("Series 2 Preferred
Stock") at a stated value of $100 per share that may be converted into Common
Stock valued at $120.50. A non-cash dividend charge of $956,000 was recognized
by the Company in 1996 for the amount of the excess of the conversion value over
the stated value.
During the year 1996, the Company exchanged 40,000 shares of Series 2
Preferred Stock and paid accrued dividends by issuing 892,000 shares of Common
Stock. In June 1995, the Company exchanged 90,000 shares of Convertible
Exchangeable Preferred Stock, Series 1, $.02 par value per share ("Series 1
Preferred Stock") and paid accrued dividends by issuing 254,000 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.
25
<PAGE>
NEORX CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
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 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,
------------------------
1996 1995
------- -------
<S> <C> <C>
Federal government and agency securities .... $9,485 $6,988
Corporate debt securities ................... 5,837 1,949
------- ------
$15,322 $8,937
======= ======
</TABLE>
As of December 31, 1996, the Company considers that all short-term
investments as held-to-maturity securities and amortized cost approximates fair
value. All securities mature within one year.
NOTE 4. Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
----- -----
<S> <C> <C>
Compensation ................................ $781 $450
Preferred stock dividends ................... 88 42
Interest .................................... 9 9
Other ....................................... 32 30
---- ----
$910 $531
==== ====
</TABLE>
26
<PAGE>
NEORX CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
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 at December 31, 1996 and 1995, and accumulated amortization applicable
to such leases was $184,000 and $122,000 at December 31, 1996 and 1995,
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
$515,000, $450,000 and $418,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
Minimum lease payments and the present value of capital lease obligations
as of December 31, 1996, were as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
YEAR Leases Leases
- ---- --------- -------
<S> <C> <C>
1997 ................................................ $ 501 $48
1998 ................................................ 501 44
1999 ................................................ 501 5
2000 ................................................ 476 -
2001 ................................................ 167 -
Thereafter .......................................... - -
------ ----
Total minimum lease payments ................... $2,146 97
======
Less: amount representing interest
(5% - 12% annual interest rates) ................... (6)
----
Present value of capital lease obligations .... 91
Less: current portion of capital leases ............. (44)
---
Obligations under capital leases, non-current.. $47
===
</TABLE>
NOTE 6. Revenues
In 1996, the Company recorded as revenue a $4,500,000 milestone payment
from DuPont Merck upon FDA approval to market VERLUMA in the United States. 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 269,000 shares of Common Stock. In exchange, NeoRx received
$2,000,000, of which the excess of the fair value of the shares of Common Stock
issued was recorded as revenue. The Company will receive royalties on sales of
the product.
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 $25.73 per share, subject to
adjustment under certain conditions. Interest is payable semi-annually on June 1
and December 1. The Debentures are redeemable, in whole or in part, at any time,
at the option of the Company at 102.9% of par,
27
<PAGE>
NEORX CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
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 June 6, 1996, the United States District Court for the
Southern District of New York dismissed claims against NeoRx in a purported
class action suit against David Blech, D. Blech & Co. and a number of other
defendants, including 11 publicly traded biotechnology companies, of which one
was NeoRx, that had been named in an amended complaint on March 27, 1995. The
plaintiffs have not appealed the order. On July 26, 1996, the plaintiffs filed a
second amended pleading which did not include any claims against the Company.
NeoRx is not a defendant in the subject suit.
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 that may arise
from the use of its products.
NOTE 9. Shareholders' Equity
Common Stock Transactions. During 1996, the Company issued 919,000 shares
of Common Stock and received net proceeds and services valued at $6,460,000.
During 1995, the Company 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
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 Common Stock in connection with the VERLUMA marketing license
agreement.
During 1996, the Company exchanged 40,000 shares of Series 2 Preferred
Stock for 860,000 shares of Common Stock and paid accrued dividends on the
shares valued at $174,000 by issuing 32,000 shares of Common Stock. In June
1995, the Company exchanged 90,000 shares of Series 1 Preferred Stock for
225,000 shares of Common Stock and paid accrued dividends on those shares valued
at $159,000 by issuing 29,000 shares of Common Stock.
Preferred Stock Transactions. Holders of Series 1 Preferred Stock are
entitled to receive an annual cash dividend of $2.4375 per share if declared by
the Board of Directors (the "Board"), payable semi-annually on June 1 and
December 1. Dividends are cumulative. Each share of Series 1 Preferred Stock is
convertible into approximately 1.14 shares of Common Stock, subject to
adjustment in certain events. The Series 1 Preferred Stock is redeemable at the
option of the Company at $25.73 per share, decreasing to $25.00 per share by
1999. Holders of Series 1 Preferred Stock have no voting rights, except in
limited circumstances.
In June 1995, the Company exchanged 90,000 shares of Series 1 Preferred
Stock for 225,000 shares of Common Stock. (See "Common Stock Transactions"
above.)
Holders of Series 2 Preferred Stock are entitled to receive cumulative
dividends at the rate of 8% per annum compounded quarterly on the $100 per share
stated value of the Series 2 Preferred Stock. The dividend is payable, in cash
or Common Stock at the Company's option, at the time the Series 2 Preferred
Stock is redeemed or converted into Common Stock. The Series 2 Preferred Stock
is redeemable at the
28
<PAGE>
NEORX CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
option of the Company at $120.50 per share. Each share of the Series 2 Preferred
Stock is convertible at the option of the holder into the number of shares of
Common Stock determined by dividing $120.50 by the average stock market closing
bid price of the Common Stock for the five trading days prior to the day of
conversion, but not less than $4.41 nor more than $8.36 per share. The discount
to be realized by the difference between the conversion value and the stated
value of the Series 2 Preferred Stock issued was recognized by the Company as a
non-cash dividend charge of $956,000. The holders of the Series 2 Preferred
Stock have no voting rights, except in limited circumstances. The Series 2
Preferred Stock ranks junior to the Company's Series 1 Preferred Stock, as to
dividends, distributions and payments in liquidation.
In January 1996, the Company issued 47,000 shares of Series 2 Preferred
Stock and received net proceeds of $4,418,000. During 1996, 40,000 shares of
Series 2 Preferred Stock were converted to 860,000 shares of Common Stock. (See
"Common Stock Transactions" above.)
Shareholders' Rights Plan. On April 10, 1996, the Board adopted a
Shareholders' Rights Plan intended to protect the rights of shareholders by
deterring coercive or unfair takeover tactics. The Board declared a dividend to
holders of the Company's Common Stock, payable on April 19, 1996, to
shareholders of record on that date, of one preferred share purchase right (the
"Right") for each outstanding share of the Common Stock. The Right is
exercisable 10 days following the offer to purchase or acquisition of beneficial
ownership of 20% of the outstanding Common Stock by a person or group of
affiliated persons. Each Right entitles the registered holder, other than the
acquiring person or group, to purchase from the Company one-hundredth of one
share of Series A Junior Participating Preferred Stock ("Series A Preferred
Stock") at a price of $40, subject to adjustment. The Rights expire April 10,
2006. The Series A Preferred Stock will be entitled to a minimum preferential
quarterly dividend $1 per share and has liquidation provisions. Each share of
Series A Preferred Stock has 100 votes, and will vote with the Common Stock.
Prior to the acquisition by a person or group of 20% of the outstanding Common
Stock, the Board may redeem each Right at a price of $.001.
In lieu of exercising the Right by purchasing one one-hundredth of one share
of Series A Preferred Stock, the holder of the Right, other than the acquiring
person or group, may purchase for $40, that number of the Company's Common Stock
having a market value of twice that price.
The Board 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 has two stock option plans, the 1994 Stock Option
Plan (the "1994 Plan") and the 1991 Stock Option Plan for Non-Employee Directors
(the "Directors Plan"). The Company accounts for its stock option plans under
the guidelines of Accounting Principles Board Opinion No. 25 ("APB 25"), under
which no compensation cost has been recognized. In 1996, the Company adopted
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation," effective for years beginning after December 15,
1995. The Company has continued to measure compensation cost for employee stock
compensation plans under the guidelines of APB 25, as allowed by SFAS 123.
29
<PAGE>
NEORX CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
Had compensation cost for these stock option plans been determined in
accordance with SFAS 123, the Company's "Net loss" and "Net loss per common
share" would have increased to the following pro forma amounts for the years
ended December 31, 1996 and 1995 (in thousands, except per share data):
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C> <C>
Net loss................... As reported ....... $(9,001) $(12,271)
Pro forma ........... (9,503) (12,364)
Net loss per common share.. As reported ......... $(.68) $(.98)
Pro forma ........... (.72) (.99)
</TABLE>
Because the SFAS 123 method of accounting has not been applied to stock
options granted before January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
The 1994 Plan authorizes the Board or an Option Committee appointed by the
Board 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, Directors, 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, two-thirds of the option grants become exercisable in increments at
a rate of 25% per year over a four-year period from the grant date, and the
remaining one-third becomes exercisable over a period of one to nine years from
the grant date unless accelerated by the Option Committee. The exercise price of
options granted under the 1994 Plan is equal to the fair market value of the
Common Stock at the date of grant. As of December 31, 1996, there were 424,000
shares of Common Stock available for issuance under the 1994 Plan.
In October 1996, the Company canceled and reissued at an exercise price
range of $5.13 - $5.25 per share, the fair market value of the Common Stock on
the date of cancellation, all options held by non-executive employees with
exercise prices greater than the price range of $5.13 - $5.25 per share.
The Directors Plan, 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. As of December 31, 1996, there were
134,000 shares of Common Stock available for issuance under the Directors Plan.
30
<PAGE>
NEORX CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
Information relating to activity under the Company's stock option plans is
as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ---------------------- ------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Shares Share Price of Shares Share Price of Shares Share Price
--------- ----------- --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year ..... 2,911 $4.85 2,985 $4.61 1,003 $9.20
Granted .............................. 994 6.19 174 5.35 2,657 3.92
Exercised ............................ (281) 2.62 (219) 1.93 (35) 2.67
Canceled ............................. (815) 6.35 (29) 4.98 (640) 13.61
----- ----- ----- ------ ----- -----
Outstanding at end of year ........... 2,809 $5.11 2,911 $4.85 2,985 $4.61
===== ===== ===== ===== ===== =====
Exercisable at end of year ........... 1,267 $6.03 1,104 $6.86 769 $6.75
===== ===== ===== ===== ===== =====
</TABLE>
Information relating to stock options outstanding and stock options
exercisable at December 31, 1996 is as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
RANGE OF EXERCISE PRICES of Shares Life in Years Share Price of Shares Share Price
- ------------------------ ---------- ------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
$1.50 - $3.75 ........................ 1,506 7.4 $2.92 703 $2.85
$4.75 - $6.38 ........................ 689 8.7 5.34 211 5.75
$7.00 - $21.75 ....................... 614 7.0 10.25 353 12.54
----- --- ----- ----- -----
2,809 7.6 $5.11 1,267 $6.03
===== === ===== ===== =====
</TABLE>
The fair value of each stock option granted is valued on the date of grant
using the Black-Scholes option pricing model. The weighted average grant-date
fair value of stock options granted during 1996 was $3.66 per share using the
assumptions of expected volatility of 70%, expected option lives of five to ten
years and risk-free rates of interest of 6.5 - 6.7%. During 1995, the weighted
average grant-date fair value of stock options granted was $3.74 per share using
the assumptions of expected volatility of 70%, expected option lives of five to
ten years and risk-free rates of interest of 6.0 - 6.2%.
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 Common Stock at a per share
exercise price of $15.84 and to acquire 375,000 shares of Common Stock at a per
share exercise price of $21.12. The warrants expire in September 1997.
31
<PAGE>
NEORX CORPORATION
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,
----------------------
1996 1995
------- -------
<S> <C> <C>
Net operating loss carryforwards ................ $18,900 $16,700
Research and development credits ................ 900 600
Amortization and depreciation .................... 600 600
Other ........................................... 500 600
------- -------
Deferred tax asset ......................... 20,900 18,500
Deferred tax asset valuation allowance .......... (20,900) (18,500)
------- -------
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 period
from 1999 to 2011. 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 February 1997, the Company's marketing partner, DuPont Merck, began
sales of VERLUMA Small Cell Lung Cancer Imaging Kit, the Company's first
product, from which NeoRx will receive royalties.
32
<PAGE>
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 13,
1997, 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 14 and 15 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 13, 1997, 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 1996 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 13, 1997, 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 13, 1997, 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
13, 1997, filed with the Commission pursuant to Section 14(a) of the Exchange
Act.
33
<PAGE>
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.
34
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Page Number
or Incorporation
EXHIBIT Description By Referecnce To
------- ---------------------------------- ------------------
<S> <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 +++++
3.1(e) Restated Articles of Incorporation, dated April 29, 1996 39
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 ++++
4.6 Rights Agreement, dated April 10, 1996, between NeoRx Corporation
and First Interstate Bank of Washington, N.A. ++++++
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 +++++
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 *****
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Page Number
or Incorporation
EXHIBIT Description By Reference To
------- -------------------------------- ------------------
<S> <C>
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 +
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 +++++
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 ++++
10.35 Indemnification Agreement #
10.36 Change of Control Agreement ##
10.37 Form of Key Executive Severance Agreement ##
23.1 Consent of Arthur Andersen LLP 82
- -------- ----------
</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>
36
<PAGE>
<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.
+++++ Filed as an exhibit to the Company's Form 10-K for the Year Ended
December 31, 1995 and incorporated herein by reference.
++++++ Filed as an exhibit to the Company's Registration Statement on Form
8-A, dated April 15, 1996 and incorporated herein by reference.
# Filed as an exhibit to the Company's Form 10-Q for the Quarterly Period Ended March 31, 1996
and incorporated herein by reference.
## Filed as an exhibit to the Company's Form 10-Q for the Quarterly
Period Ended June 30, 1996 and incorporated herein by reference.
++ Confidential treatment requested
</TABLE>
37
<PAGE>
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/ RICHARD L. ANDERSON
-------------------------------------------
Richard L. Anderson
Senior Vice President, Chief
Financial Officer, Secretary and Treasurer
Date: March 25, 1997
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>
<S> <C> <C>
/s/ PAUL G. ABRAMS
- -----------------------------------------
Paul G. Abrams President, Chief Executive March 25, 1997
Officer and Director
(Principal Executive Officer)
/s/ RICHARD L. ANDERSON
- -----------------------------------------
Richard L. Anderson Senior Vice President, Chief March 25, 1997
Financial Officer, Secretary
and Treasurer (Principal
Financial and Accounting
Officer)
/s/ FRED B. CRAVES
- -----------------------------------------
Fred B. Craves Chairman of the Board of March 25, 1997
Directors
/s/ JAMES G. ANDRESS
- -----------------------------------------
James G. Andress Director March 25, 1997
/s/ JACK L. BOWMAN
- -----------------------------------------
Jack L. Bowman Director March 25, 1997
/s/ LAWRENCE H.N. KINET
- -----------------------------------------
Lawrence H.N. Kinet Director March 25, 1997
/s/ CARL-HEINZ POMMER
- -----------------------------------------
Carl-Heinz Pommer Director March 25, 1997
</TABLE>
38
<PAGE>
EXHIBIT 3.1(e)
RESTATED
ARTICLES OF INCORPORATION
OF
NEORX CORPORATION
Pursuant to RCW 23B.10.070, the following constitutes Restated Articles
of Incorporation of NeoRx Corporation, a Washington corporation, and correctly
sets forth without change the corresponding provisions of the Articles of
Incorporation as previously stated and amended and supersede the original
Articles of Incorporation and all amendments thereto.
ARTICLE I NAME
The name of this corporation is NeoRx Corporation.
ARTICLE II DURATION
This corporation shall have perpetual existence.
ARTICLE III PURPOSES
The purposes for which this corporation is organized is to transact any
or all lawful business for which corporations may be incorporated under the
Washington Business Corporation Act.
ARTICLE IV POWERS
The powers of this corporation shall be those powers granted by the
Washington Business Corporation Act, as amended, including any additional powers
granted by amendments to said Act after the formation of this corporation.
ARTICLE V CAPITAL STOCK
A. AUTHORIZED CAPITAL. The total number of shares which the corporation
is authorized to issue is sixty-three million (63,000,000) shares of two cents
($.02) par value, consisting of sixty million (60,000,000) shares of Common
Stock of $.02 par value and three million (3,000,000) shares of Preferred Stock
of $.02 par value. The Preferred Stock is senior to the Common Stock, and the
Common Stock is subject to the rights and preferences of the Preferred Stock as
hereinafter set forth.
B. ISSUANCE OF PREFERRED STOCK IN SERIES. The Preferred Stock may be
issued from time to time in one or more series in any manner permitted by law
<PAGE>
and the provisions of the Articles of Incorporation of the corporation, as
determined from time to time by the Board of Directors and stated in the
resolution or resolutions providing for the issuances thereof, prior to the
issuances of any shares thereof. The Board of Directors shall have the authority
to fix and determine, subject to the provisions hereof, the rights and
preferences of the shares of any series so established, including the rate of
dividend, whether shares may be redeemed and, if so, the redemption price and
the terms and conditions of redemption, the amount payable upon shares in event
of voluntary and involuntary liquidation, sinking fund provisions, if any, for
the redemption or purchase of shares, the terms and conditions, if any, on which
shares may be converted, and voting rights, if any.
C. DIVIDENDS. The holders of shares of Preferred Stock shall be
entitled to receive dividends, when and as declared by the Board of Directors,
out of funds of the corporation legally available therefor, at such rate, at
such time or times and cumulative or noncumulative, as may be provided by the
Board of Directors in designating a particular series of Preferred Stock.
D. REDEMPTION. The Preferred Stock may be redeemable at such
amount, and at such time or times as may be provided by the Board of Directors
in designating a particular series of Preferred Stock. In any event, such
Preferred Stock may be repurchased by the corporation to the extent legally
permissible.
E. LIQUIDATION. In the event of any liquidation, dissolution, or
winding up of the affairs of the corporation, whether voluntary or involuntary,
then, before any distribution shall be made to the holders of the Common Stock,
the holders of the Preferred Stock at the time outstanding shall be entitled to
be paid the preferential amount or amounts per share as may be provided by the
Board of Directors in designating a particular series of Preferred Stock,
together with the amount of any unpaid dividends accrued thereon, to the date of
such payment. The holders of the Preferred Stock shall not be entitled to
receive any distributive amounts upon the liquidation, dissolution, or winding
up of the affairs of the corporation other than the distributive amounts
referred to in this section.
F. CONVERSION. Shares of Preferred Stock may be convertible to
Common Stock of the corporation, at such rate and subject to such adjustments as
may be provided by the Board of Directors in designating a particular series of
Preferred Stock.
G. VOTING RIGHTS. Each outstanding share of Common Stock shall be
entitled to one vote on each matter submitted to a vote of the shareholders,
except as may otherwise be provided in these Articles of Incorporation. Holders
of Preferred Stock shall have such voting rights as may be provided by the Board
2
<PAGE>
of Directors in designating a particular series of Preferred Stock. At each
election for directors, every shareholder entitled to vote at such elections
shall have the right to cumulate his or her votes by giving one candidate as
many votes as the number of such directors multiplied by the number of his or
her shares shall equal, or by distributing such votes among any number of such
candidates.
ARTICLE VI NO PREEMPTIVE RIGHTS
Except as may otherwise be provided by the Board of Directors, no
holder of any shares of this corporation shall have any preemptive right to
purchase, subscribe for or otherwise acquire any securities of this corporation
of any class or kind now or hereafter authorized.
ARTICLE VII REGISTERED OFFICE AND REGISTERED AGENT
A. The current registered agent of this corporation in the State
of Washington is Lawco of Washington, Inc.
B. The location and post office address of the current registered agent
and the current registered office of this corporation in the State of Washington
is 1201 Third Avenue, 40th Floor, Seattle, Washington 98101-3099.
ARTICLE VIII DIRECTORS
A. This corporation shall have at least one (1) director, the actual
number to be prescribed in the Bylaws. The number of directors may be increased
or decreased from time to time by amendment of the Bylaws, but no decrease shall
have the effect of shortening the term of any incumbent director. The current
Board of Directors consists of six (6) directors.
B. The names and post office addresses of the current Board of
Directors of this corporation are as follows:
Paul G. Abrams Jack L. Bowman
410 West Harrison 410 West Harrison
Seattle, WA 98119 Seattle, WA 98119
James G. Andress Lawrence H.N. Kinet
410 West Harrison 410 West Harrison
Seattle, WA 98119 Seattle, WA 98119
Fred B. Craves Carl-Heinz Pommer
410 West Harrison 410 West Harrison
Seattle, WA 98119 Seattle, WA 98119
3
<PAGE>
C. The term of the current directors shall be until the next annual
meeting of the shareholders of the corporation and until their successors shall
have been elected and are qualified, unless removed in accordance with the
provisions of the bylaws.
D. In evaluating an offer by another party to make a tender offer or
exchange offer for securities of the Corporation, or to effect a merger or
consolidation involving the Corporation, or to acquire all or substantially all
the assets of the Corporation, or otherwise to acquire control of the
Corporation, the Board of Directors, in considering the best interests of the
Corporation, may consider the social, legal, economic or other effects of any
such offer upon employees, customers, suppliers and other constituencies of the
Corporation, communities in which the Corporation is located or operates, and
all other relevant factors.
E. Advance notice of nominations for the election of Directors, other
than nominations by the Board of Directors or a committee thereof, and advance
notice of business to be conducted at any annual meeting of shareholders, other
than business proposed by the Board of Directors or a committee thereof, shall
be given within the time and in the manner provided in the Bylaws.
ARTICLE IX CONFLICTING INTERESTS
This corporation may enter into contracts and otherwise transact
business with its directors, officers and shareholders and with corporations,
associations, firms and entities in which they are or may become interested as
directors, officers, shareholders, members or otherwise, as freely as though
such interests did not exist, even though the vote, action or presence of such
directors, officers or shareholders may be necessary to obligate this
corporation upon such contracts or transactions. In the absence of fraud, no
such contracts or transactions shall be void or voidable and no such directors,
officers or shareholders shall be held liable to account to this corporation for
any profit or benefit realized by them through such contracts or transactions
despite such interests or their fiduciary relationship, if any, to this
corporation. In the case of directors and officers of this corporation (but not
in the case of shareholders who are not directors or officers), for the
foregoing provisions to be available to such directors or officers the nature of
the interest of such directors or officers (but not necessarily the details)
must have been disclosed to the Board of Directors of the corporation at or
prior to the meetings at which said contracts or transactions were authorized or
confirmed. A general notice that directors or officers of this corporation are
interested in any other corporation, association, firm or entity shall be
sufficient disclosure with respect to all contracts and transactions with such
corporation, association, firm or entity.
4
<PAGE>
ARTICLE X RESERVED RIGHTS
This corporation reserves the right to amend, alter, change, or repeal
any provisions contained in its Articles of Incorporation in any manner now or
hereafter prescribed or as permitted by statute. All rights of shareholders of
this corporation are granted subject to this reservation.
ARTICLE XI REDEMPTION
This corporation shall have the right to purchase, take, receive or
otherwise acquire, hold, own, pledge, transfer or otherwise dispose of its own
shares. Subject to the provisions of the Washington Business Corporation Act,
purchases of its own shares, whether direct or indirect, may be made from
unreserved and unrestricted earned surplus and capital surplus available
therefor.
ARTICLE XII LIMITATION ON DIRECTOR LIABILITY
To the fullest extent permitted by Washington law at the time this
Article becomes effective or as may thereafter be in effect, a director of this
corporation shall not be liable to this corporation or its shareholders for
monetary damages for his or her conduct as a director. Any amendment to or
repeal of this Article XII shall not adversely affect any right of a director of
this corporation hereunder with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.
ARTICLE XIII INDEMNIFICATION OF DIRECTORS
To the fullest extent permitted by Washington law at the time this
Article becomes effective or as may be thereafter in effect, this corporation is
authorized to indemnify any director of this corporation. The Board of Directors
shall be entitled to determine the terms of such indemnification, including
advance of expenses, and to give effect thereto through the adoption of Bylaws,
approval of agreements, or by any other manner approved by the Board of
Directors. Any amendment to or repeal of this Article XIII shall not adversely
affect any right of a director of this corporation hereunder with respect to any
right to indemnification that arises prior to such amendment or repeal.
5
<PAGE>
------------------------------
STATEMENT OF RIGHTS AND PREFERENCES
OF THE $2.4375 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK, SERIES 1
($.02 Par Value)
------------------------------
(i) DESIGNATION. The designation of such series of the Preferred
Stock authorized shall be the "$2.4375 Convertible Exchangeable Preferred Stock,
Series 1" (the "Exchangeable Preferred Stock"). The maximum number of shares of
Exchangeable Preferred Stock shall be 1,120,000.
(ii) DIVIDENDS. Holders of shares of Exchangeable Preferred Stock will
be entitled to receive, when, as and if declared by the Board out of funds of
the Corporation legally available therefor, an annual cash dividend of $2.4375
per share, payable in semi-annual installments on December 1 and June 1
commencing June 1, 1990 (each a "dividend payment date"). Dividends on the
Exchangeable Preferred Stock will be cumulative from the date of initial
issuance of shares of Exchangeable Preferred Stock. Dividends will be payable to
holders of record as they appear on the stock books of the Corporation on such
record dates, not more than 60 days nor less than 10 days preceding the payment
dates thereof, as shall be fixed by the Board (each a "dividend payment record
date"). If dividends are not paid in full upon the Exchangeable Preferred Stock
and any other Parity Preferred Stock (as defined in paragraph (iii) below), all
dividends paid and declared upon shares of Exchangeable Preferred-Stock and
Parity Preferred Stock will be paid and declared pro rata so that in all cases
the amount of dividends paid and declared per share on the Exchangeable
Preferred Stock and such other Parity Preferred Stock shall bear to each other
the same ratio that accumulated and unpaid dividends per share on the shares of
Exchangeable Preferred Stock and such other Parity Preferred Stock bear to each
other. Except as set forth in the preceding sentence, unless full cumulative
dividends on the Exchangeable Preferred Stock have been paid, dividends (other
than in Common Stock of the Corporation (as defined in subparagraph (iv)(I)
below), other stock ranking junior to the Exchangeable Preferred Stock and
rights to acquire the foregoing) may not be paid or declared and set aside for
payment and other distributions may not be made upon the Common Stock or on any
other stock of the Corporation ranking junior to or on a parity with the
Exchangeable Preferred Stock as to dividends, nor may any Common Stock or any
other stock of the Corporation ranking junior to or on a parity with the
Exchangeable Preferred Stock as to dividends be redeemed, purchased or otherwise
acquired for any consideration by the Corporation (except for repurchases from
employees and consultants at cost and except by conversion into or exchange for
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stock of the Corporation ranking junior to the Exchangeable Preferred Stock as
to dividends). Dividends payable for any partial dividend period shall be
calculated on the basis of a 360-day year of 12 30-day months. Accrued but
unpaid dividends shall not bear interest.
For the purpose of determining the legality of dividends or redemptions
pursuant to Section 23A.08.420(2) (b) of the Revised Code of Washington, or any
successor statute, dividends on or redemptions of the Exchangeable Preferred
Stock may be paid or made without reference to the amount required to satisfy
the holders' Liquidation Preference.
(iii) RANK. The shares of Exchangeable Preferred Stock shall rank prior
to the shares of Common Stock and of any other class of stock of the Corporation
ranking junior to the Exchangeable Preferred Stock upon liquidation, so that in
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of the Exchangeable Preferred
Stock shall be entitled to receive out of the assets of the Corporation
available for distribution to its stockholders, whether from capital, surplus or
earnings, before any distribution is made to holders of shares of Common Stock
or any other such junior stock, an amount equal to $25.00 per share (the
"Liquidation Preference" of a share of Exchangeable Preferred Stock) plus an
amount equal to all dividends (whether or not earned or declared) accumulated
and unpaid on the shares of Exchangeable Preferred Stock to the date of final
distribution. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof, distributable
among the holders of shares of Exchangeable Preferred Stock and Parity Preferred
Stock shall be insufficient to pay in full the preferential amount aforesaid,
then such assets, or the proceeds thereof, shall be distributable among such
holders ratably in accordance with the respective amounts which would be payable
on such shares if all amounts payable thereon were paid in full. After payment
of the full amount of the Liquidation Preference and such dividends to which
holders of shares of Exchangeable Preferred Stock are entitled, the holders of
shares of Exchangeable Preferred Stock will not be entitled to any further
participation in any distribution of assets by the Corporation. For the purposes
hereof, neither a consolidation or merger of the Corporation with any other
corporation, nor a sale or transfer of all or any part of the Corporation's
assets for cash or securities shall be considered a liquidation, dissolution or
winding up of the Corporation.
For the purposes of this statement of Rights and Preferences any stock
of any class or series of the Corporation shall be deemed to rank:
(a) prior to shares of the Exchangeable Preferred Stock,
either as to dividends or upon liquidation, if the holders of stock of such
class or series shall be entitled by the terms thereof to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or winding
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up, as the case may be, in preference or priority to the holders of shares of
the Exchangeable Preferred Stock;
(b) on a parity with shares of the Exchangeable Preferred
Stock, either as to dividends or upon liquidation, whether or not the dividend
rates, dividend payment dates, or redemption or liquidation prices per share
thereof be different from those of the Exchange- able Preferred Stock, if the
holders of stock of such class or series shall be entitled by the terms thereof
to the receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in proportion to their respective
dividend rates or liquidation prices, without preference or priority of one over
the other as between the holders of such stock and the holders of shares of
Exchangeable Preferred Stock (the term "Parity Preferred Stock" being used to
refer to any stock on a parity with the shares of Exchangeable Preferred Stock,
either as to dividends or upon liquidation as the context may require); and
(c) junior to shares of the Exchangeable Preferred Stock,
either as to dividends or upon liquidation, if such class shall be Common Stock
or if the holders of the Exchangeable Preferred Stock shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in preference or priority to the holders of
stock of such class or series.
(iv) CONVERSION.
(I) Subject to and upon compliance with the provisions of this
paragraph (iv), the holder of a share of Exchangeable Preferred Stock shall have
the right, at such holder's option, at any time, to convert such share into such
number of fully paid and non-assessable shares of Common Stock (calculated as to
each conversion to the nearest 1/100th of a share) as the Liquidation Preference
of such share surrendered for conversion is a multiple of the Conversion Price
(as defined below) and by surrender of such share so to be converted, such
surrender to be made in the manner provided in subparagraph (II) of this
paragraph (iv); PROVIDED, HOWEVER, that the right to convert shares called for
redemption pursuant to paragraph (viii) or for exchange pursuant to paragraph
(vii) shall terminate at the close of business on the date fixed for such
redemption or exchange, as the case may be, unless the Corporation shall default
in making payment of the amount payable upon such redemption or in making the
exchange and payment of any amount payable upon such exchange. A holder of a
share of Exchangeable Preferred Stock is not entitled to any rights of a holder
of Common Stock until such holder has converted such share of Exchangeable
Preferred Stock.
The term "Common Stock" shall mean the Common Stock, $.02 par value, of
the Corporation as the same exists on the date of this statement of Rights and
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Preferences or as such stock may be constituted from time to time, except that
for the purpose of subparagraph (V) of this paragraph (iv) the term "Common
Stock" shall also mean and include stock of the Corporation of any class,
whether now or hereafter authorized, which shall have the right to participate
in the distribution of either earnings or assets of the Corporation without
limit as to amount or percentage.
The term "Conversion Price" shall mean $5.50, as adjusted in accordance
with the provisions of this paragraph (iv).
The term "Liquidation Preference" shall have the meaning specified in
paragraph (iii).
(II) In order to exercise the conversion privilege, the holder
of each share of Exchangeable Preferred Stock to be converted shall surrender
the certificate representing such share at the office of the conversion agent
for the Exchangeable Preferred Stock in the Borough of Manhattan, City of New
York or Seattle, Washington, appointed for such purpose by the Corporation, with
the Notice of Election to Convert on the back of said certificate completed and
signed. Unless the shares issuable on conversion are to be issued in the same
name as the name in which such share of Exchangeable Preferred Stock is
registered, each share surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the holder or the holder's duly authorized attorney and an amount sufficient
to pay any transfer or similar tax.
The holders of shares of Exchangeable Preferred Stock at the close of
business on a dividend payment record date shall be entitled to receive the
dividend payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof after such dividend payment record date
or the Corporation's default in payment of the dividend due on such dividend
payment date. However, shares of Exchangeable Preferred Stock surrendered for
conversion during the period between the close of business on any dividend
payment record date and the opening of business on the corresponding dividend
payment date (except shares called for redemption on a redemption date during
such period) must be accompanied by payment of an amount equal to the dividend
payable on such shares on such dividend payment date (the "dividend amount").
The dividend with respect to a share of Exchangeable Preferred Stock called for
redemption on a redemption date between the close of business on any dividend
payment record date and the opening of business on the corresponding dividend
payment date shall be payable on such dividend payment date to the holder of
such share on such dividend payment record date notwithstanding the conversion
of such share of Exchangeable Preferred Stock after such dividend payment record
date and prior to such dividend payment date, and the holder converting such
share of Exchangeable Preferred Stock need not include a payment of such
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dividend amount upon surrender of such share of Exchangeable Preferred Stock for
conversion. The holders of shares of Exchangeable Preferred Stock on a dividend
payment record date who (or whose transferees) convert any of such shares on or
after the corresponding dividend payment date will receive the dividend payable
by the Corporation on such shares of Exchangeable Preferred Stock on such
dividend payment date, and need not include payment of the dividend amount upon
surrender of such shares for conversion. Except as provided above, the
Corporation shall make no payment or adjustment for accrued and unpaid dividends
on shares of Exchangeable Preferred Stock, whether or not in arrears, on
conversion of such shares or for dividends on the shares of Common Stock issued
upon such conversion.
As promptly as practicable after the surrender by a holder of the
certificates for shares of Exchangeable Preferred Stock as aforesaid, the
Corporation shall issue and shall deliver at the office of the conversion agent
to such holder, or on the holder's written order to the holder's transferee, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such shares in accordance with the provisions of
this paragraph (iv), and any fractional interest in respect of a share of Common
Stock arising upon such conversion shall be settled as provided in subparagraph
(III) of this paragraph (iv).
Each conversion shall be deemed to have been effected immediately prior
to the close of business on the date on which the certificates for shares of
Exchangeable Preferred Stock shall have been surrendered and such notice
received by the Corporation as aforesaid, and the person or persons in whose
name or names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares of Common Stock represented thereby at such time
on such date and such conversion shall be at the Conversion Price in effect at
such time on such date, unless the stock transfer books of the Corporation shall
be closed on that date, in which event such person or persons shall be deemed to
have become such holder or holders of record at the close of business on the
next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date upon which
shares of Exchangeable Preferred Stock shall have been surrendered and such
notice received by the Corporation. All shares of Common Stock delivered upon
conversion of the Exchangeable Preferred Stock will upon delivery be duly and
validly issued and fully paid and non-assessable, free of all liens and charges
and not subject to any preemptive rights. Upon the surrender of certificates
representing shares of Exchangeable Preferred Stock, such shares shall no longer
be deemed to be outstanding and all rights of a holder with respect to such
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shares surrendered for conversion shall immediately terminate except the right
to receive the Common Stock or other securities, cash or other assets as herein
provided.
(III) FRACTIONAL SHARES. No fractional shares or securities
representing fractional shares of Common Stock shall be issued upon conversion
of the Exchangeable Preferred Stock. Any fractional interest in a share of
Common Stock resulting from conversion of a share of Exchangeable Preferred
Stock shall be paid in cash (computed to the nearest cent) based on the last
reported sale price of the Common Stock (as defined in subparagraph (IV)(d) of
this paragraph (iv)) on the business day next preceding the day of conversion.
If more than one share shall be surrendered for conversion at one time by the
same holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate Liquidation Preference
of the shares of Exchangeable Preferred Stock so surrendered.
(IV) ADJUSTMENT. The Conversion Price shall be adjusted from
time to time as follows:
(a) In case the Corporation shall (i) pay a
dividend or make a distribution on its Common Stock in shares of its Common
Stock, (ii) subdivide its outstanding Common Stock into a greater number of
shares, or (iii) combine its outstanding Common Stock into a smaller number of
shares, the Conversion Price in effect immediately prior thereto shall be
adjusted so that the holder of any share of Exchangeable Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the number of
shares of Common Stock of the Corporation which he would have owned or have been
entitled to receive after the happening of any of the events described above had
such share been converted immediately prior to the happening of such event. An
adjustment made pursuant to this subparagraph (IV)(a) shall become effective
immediately, except as provided in subparagraph (IV)(g) below, after the record
date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of subdivision or combination.
(b) In case the Corporation shall issue rights
or warrants to all holders of its Common Stock entitling them (for a period
expiring within 45 days after the record date mentioned below) to subscribe for
or purchase Common Stock at a price per share less than the current market price
per share of Common Stock (as defined in subparagraph (IV)(d) below) at the
record date for the determination of stockholders entitled to receive such
rights or warrants, the Conversion Price in effect immediately prior thereto
shall be adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the date of
issuance of such rights or warrants by a fraction of which the numerator shall
be the number of shares of Common Stock outstanding on the date of issuance of
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such rights or warrants plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares so offered for
subscription or purchase would purchase at such current market price, and of
which the denominator shall be the number of shares of Common Stock outstanding
on the date of issuance of such rights or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase. Such adjustment
shall be made successively whenever any such rights or warrants are issued, and
shall become effective immediately, except as provided in subparagraph (IV)(g)
below, after such record date. In determining whether any rights or warrants
entitle the holders of the Common Stock to subscribe for or purchase shares of
Common Stock at less than such current market price, and in determining the
aggregate offering price of the shares of Common Stock so offered, there shall
be taken into account any consideration received by the Corporation for such
rights or warrants, the value of such consideration, if other than cash, to be
determined by the Board of Directors.
(c) In case the Corporation shall distribute to
all holders of its Common Stock any shares of capital stock of the
Corporation (other than Common Stock) or evidences of indebtedness or assets
(excluding cash dividends or other distributions paid from retained earnings of
the Corporation) or rights or warrants to subscribe for or purchase any of its
securities (excluding those referred to in subparagraph (IV)(b) above), then, in
each such case, the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior to the date of such distribution by a fraction of which the
numerator shall be the current market price per share of Common Stock (as
defined in subparagraph (IV)(d) below) on the record date mentioned below less
the then fair market value (as determined by the Board, whose determination
shall, if made in good faith, be conclusive) of the portion of the capital stock
or assets or evidences of indebtedness so distributed or of such rights or
warrants applicable to one share of Common Stock, and of which the denominator
shall be the current market price per share (as defined in subparagraph (IV)(d)
below) of the Common Stock. Such adjustment shall become effective immediately,
except as provided in subparagraph (IV)(g) below, after the record date for the
determination of shareholders entitled to receive such distribution.
(d) DEFINITION OF CURRENT MARKET PRICE. For the
purpose of any computation under subparagraphs (IV)(b) and (c) above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the last reported sale prices for the ten consecutive Trading
Days (as defined below) preceding the day before the record date with respect to
any distribution, issuance or other event requiring such computation. The last
reported sale price for each day shall be (i) the last reported sale price of
Common Stock on the National Market System of the National Association of
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Securities Dealers, Inc. Automated Quotation System, or any similar system of
automated dissemination of quotations of securities prices then in common use,
if so quoted, or (ii) if not quoted as described in clause (i), the mean between
the high bid and low asked quotations for Common Stock as reported by the
National Quotation Bureau Incorporated if at least two securities dealers have
inserted both bid and asked quotations for such class of stock on at least five
of the ten preceding days, or (iii) if the Common Stock is listed or admitted
for trading on any national securities exchange, the last sale price, or the
closing bid price if no sale occurred, of such class of stock on the principal
securities exchange on which such class of stock is listed. If the Common Stock
is quoted on a national securities or central market system, in lieu of a market
or quotation system described above, the last reported sale price shall be
determined in the manner set forth in clause (ii) of the preceding sentence if
bid and asked quotations are reported but actual transactions are not, and in
the manner set forth in clause (iii) of the preceding sentence if actual
transactions are reported. If none of the conditions set forth above is met, the
last reported sale price of Common Stock on any day or the average of such last
reported sale prices for any period shall be the fair market value of such class
of stock as determined by a member firm of the New York Stock Exchange, Inc.
selected by the Company. As used herein the term "Trading Days" with respect to
Common Stock means (i) if the Common Stock is quoted on the National Market
System of the National Association of securities Dealers, Inc. Automated
Quotation system or any similar system of automated dissemination of quotations
of securities prices, days on which trades may be made on such system, or (ii)
if not quoted as described in clause (i), days on which quotations are reported
by the National Quotation Bureau Incorporated, or (iii) if the Common Stock is
listed or admitted for trading on any national securities exchange, days on
which such national securities exchange is open for business.
(e) No adjustment in the Conversion Price shall
be required unless such adjustment would require a change of at least 1% in such
price; PROVIDED, HOWEVER, that any adjustments which by reason of this
subparagraph (IV)(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment; [and provided, further, that
adjustment shall be required and made in accordance with the provisions of this
paragraph (iv). All calculations under this paragraph (iv) shall be made to the
nearest cent or to the nearest one hundredth of a share, as the case may be.
Anything in this subparagraph (IV) to the contrary notwithstanding, the
Corporation shall be entitled to make such reductions in the Conversion Price,
in addition to those required by this subparagraph (IV), as it in its discretion
shall determine to be advisable in order that any stock dividends, subdivision
or combination of shares, distribution of capital stock or rights or warrants to
purchase stock or securities, or distribution of evidences of indebtedness or
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assets (other than cash dividends or distributions paid from retained earnings)
hereafter made by the Corporation to its stockholders shall not be taxable.
(f) NOTICE OF ADJUSTMENT. Whenever the Conversion
Price is adjusted, as herein provided, the Corporation shall promptly file with
the conversion agent an officers' certificate setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment, which certificate shall be conclusive evidence of the
correctness of such adjustment. Promptly after delivery of such certificate, the
Corporation shall prepare a notice of such adjustment of the Conversion Price
setting forth the adjusted Conversion Price and the date on which such
adjustment becomes effective and shall mail such notice of such adjustment of
the Conversion Price to the holder of each share of Exchangeable Preferred Stock
at his last address as shown on the stock books of the Corporation.
(g) In any case in which this subparagraph (IV)
provides that an adjustment shall become effective immediately after a record
date for an event, the Corporation may defer until the occurrence of such event
(i) issuing to the holder of any share of Exchangeable Preferred Stock converted
after such record date and before the occurrence of such event the additional
shares of Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon such
conversion before giving effect to such adjustment and (ii) paying to such
holder any amount in cash in lieu of any fraction pursuant to subparagraph (III)
of this paragraph (iv).
(V) If:
(a) the Corporation shall declare a dividend (or
any other distribution) on the Common Stock (other than in cash out of retained
earnings); or
(b) the Corporation shall authorize the granting
to the holders of the Common Stock of rights or warrants to subscribe for or
purchase any shares of any class or any other rights or warrants; or
(c) there shall be any reclassification of the
Common Stock (other than a subdivision or combination of the outstanding Common
Stock and other than a change in the par value, or from par value to no par
value, or from no par value to par value), or any consolidation, merger, or
statutory share exchange to which the Corporation is a party and for which
approval of any stockholders of the Corporation is required, or any sale or
transfer of all or substantially all the assets of the Corporation or any Change
in Control (as defined in paragraph (ix) below); or
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(d) there shall be a voluntary or an involuntary
dissolution, liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed with the conversion agent, and
shall cause to be mailed to the holders of shares of the Exchangeable Preferred
Stock at their addresses as shown on the stock books of the Corporation, at
least 15 days prior to the applicable date hereinafter specified, a notice
stating (i) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights or warrants are to be determined or
(ii) the date on which such reclassification, consolidation, merger, statutory
share exchange, sale, transfer, Change in Control, dissolution, liquidation or
winding up is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, statutory share exchange, sale,
transfer, Change in Control, dissolution, liquidation or winding up. Failure to
give such notice or any defect therein shall not affect the legality or validity
of the proceedings described in subparagraph (VIII) of this paragraph (iv) or in
subparagraph (V)(a), (V)(b), (V)(c) or (V)(d) of this paragraph (iv).
(VI) RESERVATION OF COMMON STOCK. The Corporation covenants
that it will at all times reserve and keep available, free from preemptive
rights, out of the aggregate of its authorized but unissued shares of Common
Stock or its issued shares of Common Stock held in its treasury, or both, for
the purpose of effecting conversions of the Exchangeable Preferred Stock, the
full number of shares of Common Stock deliverable upon the conversion of all
outstanding shares of Exchangeable Preferred Stock not theretofore converted.
For purposes of this subparagraph (VI), the number of shares of Common Stock
which shall be deliverable upon the conversion of all outstanding shares of
Exchangeable Preferred Stock shall be computed as if at the time of computation
all such outstanding shares were held by a single holder.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value (if any) of the shares of Common Stock
deliverable upon conversion of the Exchangeable Preferred Stock, the Corporation
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully paid
and non-assessable shares of Common Stock at such adjusted Conversion Price.
The Corporation will endeavor to list the shares of Common Stock
required to be delivered upon conversion of the Exchangeable Preferred Stock
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prior to such delivery upon each national securities exchange, if any, upon
which the outstanding Common Stock is listed at the time of such delivery.
Prior to the delivery of any securities which the Corporation shall be
obligated to deliver upon conversion of the Exchangeable Preferred Stock, the
Corporation will endeavor to comply with all federal and state laws and
regulations thereunder requiring the registration of such securities with, or
any approval of or consent to the delivery thereof by, any governmental
authority.
(VII) TAXES. The Corporation will pay any and all documentary
stamp or similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Common Stock on conversion of the Exchangeable Preferred
Stock pursuant hereto; PROVIDED, HOWEVER, that the Corporation shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issue or delivery of shares of Common Stock in a name other than that of
the holder of the Exchangeable Preferred Stock to be converted and no such issue
or delivery shall be made unless and until the person requesting such issue or
delivery has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(VIII) MERGERS OR OTHER COMBINATIONS. In case of any
reclassification or change of outstanding shares of Common Stock (other than a
change in par value, or as a result of a subdivision or combination), or in case
of any consolidation of the Corporation with, or merger of the Corporation with
or into, any other Person, any merger of another Person into the Corporation
(other than a merger which does not result in a reclassification, change,
conversion, exchange or cancellation of outstanding shares of Common Stock) or
any sale or transfer of all or substantially all of the assets of the
Corporation, the holder of each share of Exchangeable Preferred Stock then
outstanding shall have the right thereafter to convert such share of
Exchangeable Preferred Stock into the kind and amount of securities, cash and
other property which the holder would have been entitled to receive upon such
reclassification, change, consolidation, merger, sale or transfer if the holder
had held the Common Stock issuable upon the conversion of such share of
Exchangeable Preferred Stock immediately prior to such reclassification, change,
consolidation, merger, sale or transfer, assuming such holder of Common Stock of
the Corporation (i) is not a Person with which the Corporation consolidated or
into which the Corporation merged or which merged into the Corporation or to
which such sale or transfer was made, as the case may be ("constituent Person"),
or an Affiliate of a constituent Person and (ii) failed to exercise any rights
of election as to the kind or amount of securities, cash and other property
receivable upon such reclassification, change, consolidation, merger, sale or
transfer (provided, that if the kind or amount of securities, cash and other
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property receivable upon such reclassification, change, consolidation, merger,
sale or transfer is not the same for each share of Common Stock of the
Corporation held immediately prior to such reclassification, change,
consolidation, merger, sale or transfer by other than a constituent Person or an
Affiliate thereof and in respect of which such rights of election shall not have
been exercised ("non-electing share"), then for the purpose of this subparagraph
VIII the kind and amount of securities, cash and other property receivable upon
such reclassification, change, consolidation, merger, sale or transfer by each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares). The above provisions of this
subparagraph VIII shall similarly apply to successive reclassifications,
changes, consolidations, mergers, sales or transfers.
(v) STATUS. Upon any conversion, exchange or redemption of shares of
Exchangeable Preferred Stock, the shares of Exchangeable Preferred Stock so
converted, exchanged or redeemed shall have the status of authorized and
unissued shares of preferred stock, and the number of shares of preferred stock
which the Corporation shall have authority to issue shall not be decreased by
the conversion, exchange or redemption of shares of Exchangeable Preferred
Stock.
(vi) VOTING RIGHTS. The holders of shares of Exchangeable Preferred
Stock shall have no voting rights whatsoever, except for any voting rights to
which they may be entitled under the laws of the State of Washington, and except
as follows:
(I) If and whenever at any time or times dividends payable on
the Exchangeable Preferred Stock or Parity Preferred Stock shall have been in
arrears and unpaid in an aggregate amount equal to or exceeding the amount of
dividends payable thereon for three semi-annual periods, then the holders of
such Exchangeable Preferred Stock and Parity Preferred Stock having similar
voting rights then exercisable shall have the exclusive right, voting as a
single class without regard to series, to elect two directors of the
Corporation, such directors to be in addition to the number of directors
constituting the Board of Directors immediately prior to the accrual of such
right. The remaining directors shall be elected in accordance with the
provisions of the Corporation's Restated Articles of Incorporation and Bylaws by
the other class or classes of stock entitled to vote therefor at each meeting of
stockholders held for the purpose of electing directors. Such voting right of
the Exchangeable Preferred Stock shall continue until such time as all
cumulative dividends accumulated on the Exchangeable Preferred Stock and Parity
Preferred Stock having cumulative dividends shall have been paid in full at
which time such voting right of the holders of the Exchangeable Preferred Stock
shall terminate, subject to revesting in the event of each and every subsequent
event of default of the character indicated above.
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Whenever such voting right shall have vested, such right may be
exercised initially either at a special meeting of the holders of the
Exchangeable Preferred Stock and Parity Preferred Stock having similar voting
rights then exercisable, called as hereinafter provided, or at any annual
meeting of stockholders held for the purpose of electing directors, and
thereafter at each successive annual meeting.
At any time when such voting right shall have vested in the holders of
the Exchangeable Preferred Stock, and if such right shall not already have been
initially exercised, a proper officer of the Corporation shall, upon the written
request of the holders of record of 10% in number of shares of the Exchangeable
Preferred Stock then outstanding, addressed to the Secretary of the Corporation,
call a special meeting of the holders of the Exchangeable Preferred Stock and
Parity Preferred Stock having similar voting rights then exercisable for the
purpose of electing directors. Such meeting shall be held at the earliest
practicable date upon the notice required for annual meetings of stockholders at
the place for holding of annual meetings of stockholders of the Corporation, or,
if none, at a place designated by the Secretary of the Corporation. If such
meeting shall not be called by the proper officers of the Corporation within 30
days after the personal service of such written request upon the Secretary of
the Corporation, or within 30 days after mailing the same within the United
States of America, by registered mail, addressed to the Secretary of the
Corporation at its principal office (such mailing to be evidenced by the
registry receipt issued by the postal authorities), then the holders of record
of 10% in number of shares of the Exchangeable Preferred Stock then outstanding
may designate in writing one of their number to call such meeting at the expense
of the Corporation, and such meeting may be called by such person so designated
upon the notice required for annual meetings of stockholders and shall be held
at the same place as is elsewhere provided for in this subparagraph (I). Any
holder of the Exchangeable Preferred Stock shall have access to the stock books
of the Corporation for the purpose of causing a meeting of stockholders to be
called pursuant to the provisions of this paragraph. Notwithstanding the
provisions of this paragraph, however, no such special meeting shall be called
during a period within 90 days immediately preceding the date fixed for the next
annual meeting of stockholders.
At any meeting held for the purpose of electing directors at which the
holders of the Exchangeable Preferred Stock shall have the right to elect
directors as provided herein, the presence in person or by proxy of the holders
of 33-1/3% of the then outstanding shares of the Exchangeable Preferred Stock
and Parity Preferred Stock having similar voting rights then exercisable shall
be required and be sufficient to constitute a quorum of such preferred stock for
the election of directors by such preferred stock. At any such meeting or
adjournment thereof (A) the absence of a quorum of the holders of the
Exchangeable Preferred Stock and Parity Preferred Stock having similar voting
18
<PAGE>
rights then exercisable shall not prevent the election of directors other than
those to be elected by the holders of such preferred stock, and the absence of a
quorum or quorums of the holders of other classes or series of capital stock
entitled to elect such other directors shall not prevent the election of
directors to be elected by the holders of the Exchangeable Preferred Stock and
Parity Preferred Stock having similar voting rights then exercisable, and (B) in
the absence of a quorum of the holders of Exchangeable Preferred Stock and
Parity Preferred Stock having similar voting rights then exercisable, a majority
of the holders present in person or by proxy of such preferred stock shall have
the power to adjourn the meeting, or appropriate portion thereof, for the
election of directors which the holders of such preferred stock are entitled to
elect, from time to time, without notice other than announcement at the meeting,
until a quorum shall be present.
The directors elected pursuant to this subparagraph (I) shall serve
until the next annual meeting or until their respective successors shall be
elected and shall qualify; PROVIDED, HOWEVER, that when the right of the holders
of the Exchangeable Preferred Stock to elect directors as herein provided shall
terminate, the terms of office of all persons so elected by the holders of the
Exchangeable Preferred Stock shall terminate, and the number of directors of the
Corporation shall thereupon be such number as may be provided in accordance with
the Restated Articles of Incorporation and Bylaws of the Corporations
irrespective of any increase made pursuant to this subparagraph (I).
So long as any shares of Exchangeable Preferred Stock are outstanding,
the Restated Articles of Incorporation and Bylaws of the Corporation shall
contain provisions ensuring that the number of Directors of the Corporation
shall at all times be such that the exercise by the holders of shares of
Exchangeable Preferred Stock of the right to elect Directors under the
circumstances provided in this subparagraph (I) will not contravene any
provisions of the Corporation's Restated Articles of Incorporation or Bylaws.
(II) So long as any shares of the Exchangeable Preferred Stock
remain outstanding, the Corporation will not, either directly or indirectly or
through merger or consolidation with any other corporation, without the
affirmative vote at a meeting or the written consent with or without a meeting
of the holders of at least 66-2/3% in number of shares of the Exchangeable
Preferred Stock then outstanding, (A) create any class or classes or series of
stock ranking prior to, or on a parity with, the Exchangeable Preferred Stock
either as to dividends or upon liquidation or increase the authorized number of
shares of any class or classes or series of stock ranking prior to, or on a
parity with, the Exchangeable Preferred Stock either as to dividends or upon
liquidation, (B) amend, alter or repeal any of the provisions of the Restated
19
<PAGE>
Articles of Incorporation (including this Statement of Rights and Preferences)
so as to affect adversely the preferences, special rights or powers of the
Exchangeable Preferred Stock, (C) authorize any reclassification of the
Exchangeable Preferred Stock or (D) incur or suffer to exist any Debt that, by
its terms or the terms of the instrument creating or evidencing it, is pari
passu with or subordinate in right of payment to the 9-3/4% Convertible
Subordinated Debentures due 2014 issued by the Company in May 1989 or the
Debentures described in paragraph (vii) herein. "Debt" shall mean (i) all
indebtedness and other obligations for the payment of money of the Corporation,
whenever created, incurred, or assumed, which is (a) for borrowed money,
evidenced by a note or similar instrument, or (b) for the payment of money
relating to (x) any obligations of the Corporation as lessee under leases of any
type of property required to be capitalized on the balance sheet of the lessee
under generally accepted accounting principles and leases of property or assets
made as part of any sale and lease-back transaction to which the Corporation is
a party or (y) any other agreement to lease, or lease of, any real or personal
property or mixture thereof, or (c) evidenced by a note or similar instrument
given by the Corporation in connection with the acquisition by the Corporation
or any subsidiary of any businesses, properties or assets of any kind other than
trade accounts payable or accrued liabilities arising in the ordinary course of
business, or (d) arising from letters of credit, bankers' acceptances, currency
agreements or interest rate swaps, or (e) relating to performance, completion or
similar bonds of the Corporation; (ii) any liability of others described in the
preceding clause which the Corporation has guaranteed or which is otherwise its
legal liability; and (iii) any modification, amendment, renewal, extension or
refunding of any such indebtedness or obligation.
(vii) EXCHANGE. The Exchangeable Preferred Stock is exchangeable in
whole at the option of the Corporation on any dividend payment date beginning
June 1, 1992, for the Corporation's 9-3/4% Convertible Subordinated Debentures
due 2014 (the "Debentures") as described in the Corporation's Registration
Statement on Form S-4, as amended (Registration No. 33-33152), as filed with the
Securities and Exchange Commission. Holders of outstanding shares of
Exchangeable Preferred Stock will be entitled to receive $25.00 principal amount
of Debentures in exchange for each share of Exchangeable Preferred Stock held by
them at the time of exchange; PROVIDED that the Debentures will be issuable in
denominations of $25.00 and integral multiples thereof. The Corporation will
mail to each record holder of the Exchangeable Preferred Stock written notice of
its intention to exchange not less than 30 nor more than 60 days prior to the
date of exchange (the "Exchange Date"). The notice shall specify the effective
date of the exchange and the place where certificates for shares of Exchangeable
Preferred Stock are to be surrendered for Debentures and shall state that
dividends on Exchangeable Preferred Stock will cease to accrue on such date of
exchange. Prior to giving notice of intention to exchange, the Corporation shall
20
<PAGE>
execute and deliver with a bank or trust company selected by the Corporation an
Indenture substantially in the form filed as an Exhibit to such Registration
Statement with such changes as may be required by law, stock exchange rule or
usage. The Corporation will cause the Debentures to be authenticated on the
Exchange Date; at such time the rights of the holders of Exchangeable Preferred
Stock as stockholders of the Corporation shall cease (except the right to
receive accumulated and unpaid dividends to the Exchange Date) and such shares
of Exchangeable Preferred Stock shall no longer be deemed outstanding and shall
represent only the right to receive the Debentures and such accumulated and
unpaid dividends. Notwithstanding the foregoing, if notice of exchange has been
given pursuant to this paragraph (vii) and any holder of shares of Exchangeable
Preferred Stock shall, prior to the close of business on the Exchange Date, give
written notice to the Corporation pursuant to paragraph (iv) of the conversion
of any or all of the shares held by such holder (accompanied by a certificate or
certificates for such shares, duly endorsed or assigned to the Corporation),
then such exchange shall not become effective as to such shares to be converted
and such conversion shall become effective as provided in paragraph (iv). The
Debentures will be delivered to the persons entitled thereto upon surrender to
the Corporation or its agent appointed for that purpose of the certificates for
the shares of Exchangeable Preferred Stock being exchanged therefor. If the
Corporation has not paid full cumulative dividends on the Exchangeable Preferred
Stock to the Exchange Date (or set aside a sum therefor) the Corporation may not
exercise its option to exchange the Debentures for the Exchangeable Preferred
Stock.
(viii) REDEMPTION BY THE CORPORATION. The shares of the Exchangeable
Preferred Stock may be redeemed at the option of the Corporation, as a whole, or
from time to time, in part, upon not less than 30 nor more than 60 days' prior
notice mailed to the holders of the shares to be redeemed at their addresses as
shown on the stock books of the Corporation, at the following redemption prices
per share during the 12-month period beginning June 1:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE YEAR REDEMPTION PRICE
- ---- ---------------- ---- ----------------
<S> <C> <C> <C>
1989 27.43750 1995 25.97500
1990 27.19375 1996 25.73125
1991 26.95000 1997 25.48750
1992 26.70625 1998 25.24375
1993 26.46250 1999 and thereafter 25.00000
1994 26.21875
</TABLE>
together in each case with an amount equal to all dividends accumulated and
unpaid to the date fixed for redemption; PROVIDED that no such redemption shall
be effected on or before June 1, 1992 unless (i) the last reported sale price of
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<PAGE>
the Common Stock, as determined in subparagraph (iv)(IV)(d) herein, equals or
exceeds 150% of the conversion price for at least 20 Trading Days within a
period of 30 consecutive Trading Days ending within five Trading Days prior to
the date on which the notice of redemption is first mailed or (ii) the
redemption is effected in connection with certain circumstances involving a
Change in Control (as defined below). If the Exchangeable Preferred Stock is
redeemed in connection with certain circumstances involving a Change in Control
prior to June 1, 1992 then, in addition to the amounts payable as set forth
above, the holders of redeemed shares of Exchangeable Preferred Stock shall also
receive as an additional premium an amount equal to the dividends they would
have received on the shares of Exchangeable Preferred Stock redeemed from, and
including, the date of redemption to June 1, 1992. For the purposes of this
paragraph (viii), a "Change in Control" of the Corporation shall have the same
meaning as applicable to the holder's optional repurchase right set forth in
paragraph (ix)(ii)(f) hereof, except that the proviso shall not apply.
If full cumulative dividends on the Exchangeable Preferred Stock have
not been paid, the Exchangeable Preferred Stock may not be redeemed in part and
the Corporation may not purchase or acquire any shares of the Exchangeable
Preferred Stock otherwise than pursuant to a purchase or exchange offer made on
the same terms to all holders of the Exchangeable Preferred Stock. If less than
all the outstanding shares of Exchangeable Preferred Stock are to be redeemed,
the Corporation will select those to be redeemed by lot or a substantially
equivalent method.
If a notice of redemption has been given pursuant to this paragraph
(viii) and if, on or before the date fixed for redemption, the funds necessary
for such redemption shall have been set aside by the Corporation, separate and
apart from its other funds, in trust for the pro rata benefit of the holders of
the shares so called for redemption, then, notwithstanding that any certificates
for such shares have not been surrendered for cancellation, on the redemption
date dividends shall cease to accrue on the shares of Exchangeable Preferred
Stock to be redeemed, and at the close of business on the redemption date the
holders of such shares shall cease to be stockholders with respect to such
shares and shall have no interest in or claims against the Corporation by virtue
thereof and shall have no voting or other rights with respect to such shares,
except the right to receive the moneys payable upon such redemption and the
right to accumulated and unpaid dividends, without interest thereon, upon
surrender (and endorsement, if required by the Corporation) of their
certificates, and the shares evidenced thereby shall no longer be deemed
outstanding. Notwithstanding the foregoing, if notice of redemption has been
given pursuant to this paragraph (viii) and any holder of shares of Exchangeable
Preferred Stock shall, prior to the close of business on the date fixed for
22
<PAGE>
redemption, give written notice to the Corporation pursuant to paragraph (iv) of
the conversion of any or all of the shares held by such holder (accompanied by a
certificate or certificates for such shares, duly endorsed or assigned to the
Corporation), then such redemption shall not become effective as to such shares
to be converted and such conversion shall become effective as provided in
paragraph (iv). Subject to applicable escheat laws, any moneys necessary for
redemption set aside by the Corporation and unclaimed at the end of two years
from the redemption date shall revert to the general funds of the Corporation,
after which reversion the holders of such shares so called for redemption but
not surrendered shall look only to the general funds of the Corporation for the
payment of the amounts payable upon such redemption. Any interest accrued on
funds so deposited shall be paid to the Corporation from time to time. Any funds
which have been deposited by the Corporation, or on its behalf, with a paying
agent or segregated and held in trust by the Corporation for the redemption of
shares converted into Common Stock on or prior to the date fixed for such
redemption shall (subject to any right of the holder of such shares to receive
the dividend payable thereon as provided in paragraph (iv)) immediately upon
such conversion be returned to the Corporation or, if then held in trust by the
Corporation, shall be discharged from such trust.
(ix) REPURCHASE BY THE HOLDER. In the event that, prior to June 1,
1994, there shall occur a Change in Control (as hereinafter defined) of the
Corporation, then each holder of a share of Exchangeable Preferred Stock
("Holder") shall have the right, at such Holder's option, to require the
Corporation to repurchase, and upon the exercise of such right the Corporation
shall repurchase, all or any part of such Holder's shares of Exchangeable
Preferred Stock that is an integral multiple of $25.00, on a date that is
forty-five days after the date of the notice of the Corporation provided
pursuant to subparagraph (I) hereof at a repurchase price equal to the aggregate
Liquidation Preference of the shares to be repurchased, plus dividends
accumulated and unpaid to the repurchase date. At the option of the Corporation,
the repurchase price may be paid in cash or by delivery of shares of Common
Stock having a fair market value equal to the repurchase price, PROVIDED that
payment may not be made in Common Stock unless at the time of payment such stock
is listed on a national securities exchange or quoted on the automated quotation
system of the National Association of Securities Dealers, Inc. ("NASDAQ") or
another comparable quotation system. For purposes of this paragraph (ix), the
fair market value of shares of Common Stock shall be equal to 95% of the average
of the last sale prices, as computed under paragraph (iv) (IV) (d), of such
Common Stock for each of the five consecutive Trading Days ending on and
including the third Trading Day immediately preceding the repurchase date.
(I) (a) Unless the Corporation shall have theretofore called
for redemption all the outstanding shares of Exchangeable Preferred Stock
23
<PAGE>
pursuant to paragraph (viii) on or before the thirtieth day after the occurrence
of a Change in Control, the Corporation or, at the request of the Corporation,
the paying, or transfer agent, if any, shall mail a notice of the occurrence of
the Change in Control and of the repurchase right set forth herein arising as a
result thereof at least thirty and not more than sixty days prior to the date
fixed for repurchase to the Holders of shares of Exchangeable Preferred Stock so
to be repurchased at their last addresses as the same appear on the registry
books of the Company. Such mailing shall be by first class mail. The notice if
mailed in the manner herein provided shall be conclusively presumed to have been
duly given, whether or not the Holder receives such notice. The Corporation
shall also deliver a copy of such notice of a repurchase right to the paying, or
transfer agent, if any, and cause a copy of such notice to be published in a
newspaper of general circulation in the Borough of Manhattan, The City of New
York.
Each notice of a repurchase right shall state:
(l) the repurchase date,
(2) the date by which the repurchase right must be exercised,
(3) the repurchase price,
(4) a description of the procedure which a Holder of Exchangeable
Preferred Stock must follow to exercise a repurchase right, and
(5) the Conversion Price then in effect, the date on which the right to
convert the shares of Exchangeable Preferred Stock to be repurchased will
terminate and the place or places where such shares of Exchangeable Preferred
Stock may be surrendered for conversion.
In addition, at least two Trading Days preceding the repurchase date,
the Corporation shall cause to be published, in a newspaper of general
circulation in the Borough of Manhattan, The City of New York, a notice
specifying whether the repurchase price will be payable in cash or in shares of
Common Stock.
No failure of the Corporation to give the foregoing notices or defect
therein shall limit any Holder's right to exercise a repurchase right or affect
the validity of the proceedings for the repurchase of the shares of Exchangeable
Preferred Stock.
(b) To exercise a repurchase right, a Holder
shall deliver to the Corporation or the paying or transfer agent, if any, as the
case may be, on or before the thirtieth day after the date of the notice by the
Corporation of a repurchase right (i) written notice of such Holder's exercise
24
<PAGE>
of such right, which notice shall set forth the name of the Holder, the
aggregate Liquidation Preference of the shares to be repurchased, a statement
that an election to exercise the repurchase right is being made thereby, and, in
the event that the repurchase price shall be paid in shares of Common Stock, the
name or names (with addresses) in which the certificate or certificates for
shares of Common Stock shall be issued, and (ii) the shares of Exchangeable
Preferred Stock with respect to which the repurchase right is being exercised,
duly endorsed for transfer to the Corporation. Such written notice shall be
irrevocable, except that the right of the Holder to convert the shares of
Exchangeable Preferred Stock with respect to which the repurchase right is being
exercised shall continue until the close of business on the repurchase date. If
the repurchase date falls during the period from the close of business on any
dividend payment record date preceding any dividend payment date to the opening
of business on such dividend payment date, the shares of Exchangeable Preferred
Stock to be repurchased must be accompanied by payment in New York Clearing
House or other funds acceptable to the Company of an amount equal to the
dividend payable on such dividend payment date on the number of shares being
repurchased and, notwithstanding such repurchase, such dividend payment will be
made by the Company to the holder of such share on such dividend payment record
date. Promptly thereafter, the paying, or transfer agent, if any, shall deliver
to the Corporation written notice of the aggregate Liquidation Preference of the
shares to be repurchased, the name of each Holder who exercised the repurchase
right and the aggregate Liquidation Preference to be repurchased with respect to
each such Holder.
(c) Upon receipt of the notice from the paying or
transfer agent, if any, or upon notice from each Holder, as the case may be, and
as described in subparagraph (I), the Corporation shall pay or cause to be paid
the repurchase price in cash or shares of Common Stock, as provided above, to
the Holders on the repurchase date, together with accumulated and unpaid
dividends to the repurchase date payable with respect to the shares of
Exchangeable Preferred Stock as to which the repurchase right has been
exercised.
(d) Any issuance of shares of Common Stock in
respect of the repurchase price shall be deemed to have been effected
immediately prior to the close of business on the repurchase date and the Person
or Persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such repurchase shall be deemed to have
become on the repurchase date the holder or holders of record of the shares
represented thereby, PROVIDED that any surrender for repurchase on a date when
the stock transfer books of the Corporation shall be closed shall constitute the
Person or Persons in whose name or names the certificate or certificates for
such shares are to be issued as the recordholder or holders thereof for all
purposes at the opening of business on the next succeeding day on which such
25
<PAGE>
stock transfer books are open. No payment or adjustment shall be made for
dividends or distributions on any Common Stock issued upon conversion of any
share of Exchangeable Preferred Stock.
(e) No fractions of shares or script representing
fractions of shares shall be issued upon repurchase of shares of Exchangeable
Preferred Stock. If more than one share shall be repurchased from the same
Holder and the repurchase price shall be payable in shares of Common Stock, the
number of full shares which shall be issuable upon such repurchase shall be
computed on the basis of the aggregate Liquidation Preference of the shares so
repurchased. Instead of any fractional share of Common Stock which would
otherwise be issuable on the repurchase of any share or shares, the Corporation
shall make payment in lieu thereof in an amount of United States dollars equal
to the value of such fraction computed on the basis of the last sale price of
the Common Stock on the last Trading Day prior to the repurchase date.
(f Any issuance and delivery of certificates for
shares of Common Stock on repurchase of shares of Exchangeable Preferred Stock
shall be made without charge to the holder of shares being repurchased for such
certificates or for any tax or duty in respect of the issuance or delivery of
such certificates or the securities represented thereby, PROVIDED that the
Corporation shall not be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue or delivery of certificates for
shares of Common Stock in a name other than that of the holder of the shares of
Exchangeable Preferred Stock being repurchased, and no such issue or delivery
shall be made unless and until the Person requesting such issue or delivery has
paid to the Corporation the amount of any such tax or duty or has established,
to the satisfaction of the Corporation, that such tax or duty has been paid.
(g) If any shares of Common Stock to be issued upon
repurchase of shares of Exchangeable Preferred Stock hereunder require
registration with or approval of any governmental authority under any federal or
state law before such shares may be validly issued or delivered upon repurchase,
the Corporation covenants that it will in good faith and as expeditiously as
possible endeavor to secure such registration or approval, as the case may be,
PROVIDED that nothing in this subpart shall be deemed to affect in any way the
obligations of the Corporation to repurchase Exchangeable Preferred Stock as
provided in this paragraph (ix).
(h) The Corporation covenants that any shares of
Common Stock which may be issued upon repurchase of Exchangeable Preferred Stock
will be issued from its authorized but unissued shares and upon issue will be
duly and validly issued and fully paid and non-assessable by the Corporation and
free of preemptive rights and that the shares of Common Stock which may be
issued upon repurchase of shares of Exchangeable Preferred Stock will be listed
26
<PAGE>
on any national securities exchange on which the outstanding Common Stock is
listed at the time of such issuance.
(i) If any share of Exchangeable Preferred Stock
surrendered for repurchase shall not be so paid on the repurchase date, the
Liquidation Preference of such share shall, until paid, bear interest to the
extent permitted by applicable law from the repurchase date at 9-3/4% per annum
and such share of Exchangeable Preferred Stock shall remain convertible into
Common Stock until the principal of such share of Exchangeable Preferred Stock
shall have been paid or duly provided for.
(II) For purposes of paragraph (ix):
(a) The term "Person" shall mean a corporation, an
association, a partnership, an organization, an individual, a government or a
political subdivision thereof or a governmental agency.
(b) The term "Subsidiary" shall mean a corpora-
tion more than 50% of the outstanding voting stock of which is owned, directly
or indirectly, by the Corporation or by one or more other Subsidiaries, or by
the Corporation and one or more other Subsidiaries. For the purposes of this
definition, "voting stock" means stock which ordinarily has voting power for the
election of directors, whether at all times or only so long as no senior class
of stock has such voting power by reason of any contingency.
(c) The term "Affiliate" of any specified Person
shall mean any other Person directly or indirectly controlling or controlled by
or under direct or indirect common control with such specified Person. For the
purposes of this definition, "control" when used with respect to any specified
Person means power to direct the management and policies of such Person,
directly or indirectly, whether through ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
(d) the term "Associate" of any Person, means (1)
any corporation or organization (other than the Corporation or a Subsidiary of
the Corporation or any Person controlled directly or indirectly (as defined in
the definition of Affiliate above) by the Corporation or a Subsidiary of the
Corporation) of which such Person is an officer or general partner or is,
directly or indirectly, the beneficial owner of ten percent or more of any class
of equity securities, (2) any trust or other estate in which such Person serves
as trustee or in a similar fiduciary capacity, and (3) any relative or spouse of
such Person, or any relative of such spouse, who has the same home as such
Person or who is a director or officer of the Corporation or any of its parents
or Subsidiaries;
27
<PAGE>
(e) the term "beneficial owner" shall be deter-
mined in accordance with Rule 13d-3 promulgated under the Securities Exchange
Act of 1934, as amended, as in effect on the date of effectiveness of this
Statement of Rights and Preferences; and
(f) a "Change in Control" of the Corporation
shall be deemed to have occurred at such time as any Person is or becomes the
beneficial owner, directly or indirectly, through a purchase, merger or other
acquisition transaction or series of transactions, of shares of capital stock of
the Corporation entitling such Person to exercise seventy-five percent or more
of the total voting power of all shares of capital stock of the Corporation
entitled to vote in elections of directors; PROVIDED that a Change in Control
shall not be deemed to have occurred if either (i) the last sale price of the
Common Stock on any five Trading Days during the 10 Trading Day period
immediately preceding the date of the Change in Control shall equal or exceed
105% of the conversion price in effect on such Trading Day or (ii) all of the
consideration (excluding cash payments for fractional shares) to be paid for the
Common Stock in the transaction or transactions constituting the Change in
Control consists of shares of common stock traded on a national securities
exchange or through NASDAQ or another comparable quotation system.
(x) CONSENT. Subject to the provisions set forth in paragraph (vi), no
consent of the holders of the Exchangeable Preferred Stock shall be required for
(a) the creation of any indebtedness of any kind of the Corporation, (b) the
creation, or increase or decrease in the amount, of any class or series of stock
of the Corporation not ranking prior to, or on a parity with, the Exchangeable
Preferred Stock either as to dividends or upon liquidation, (c) any increase or
decrease in the amount of authorized Common Stock or any increase, decrease or
change in the par value thereof or in any other terms thereof or (d) the
creation, or any increase or decrease in the amount, of authorized preferred
stock issuable by the Board of Directors in series.
(xi) NUMBER OF SHARES OF EXCHANGEABLE PREFERRED STOCK. Subject to the
provisions of paragraph (vi) hereof, the Board reserves the right by subsequent
amendment of this resolution from time to time to increase or decrease the
number of shares which constitute the Exchangeable Preferred Stock (but not
below the number of shares thereof then outstanding) and in other respects to
amend this resolution within the limitations provided by law, this resolution
and the Restated Articles of Incorporation.
28
<PAGE>
------------------------------
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
29
<PAGE>
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 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
30
<PAGE>
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
31
<PAGE>
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 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
32
<PAGE>
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 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
33
<PAGE>
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
34
<PAGE>
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.
35
<PAGE>
------------------------------
DESIGNATION OF RIGHTS AND PREFERENCES
OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
------------------------------
SECTION 1. DESIGNATION OF SERIES A JUNIOR PARTICIPATING PREFERRED
STOCK AND AMOUNT.
The shares of such series shall be designated as "Series A Junior
Participating Preferred Stock" (the "Series A Preferred Stock") and the number
of shares constituting the Series A Preferred Stock shall be 600,000, par value
$.02 per share. Such number of shares may be increased or decreased by
resolution of the Board of Directors; PROVIDED, HOWEVER, that no decrease shall
reduce the number of shares of Series A Preferred Stock to a number less than
the number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of Rights (the "Rights") issued pursuant to the
Rights Agreement dated as of April 10, 1996 between the Corporation and First
Interstate Bank of Washington, N.A., as Rights Agent (the "Rights Agreement"),
and provided, further, that if more than a total of 600,000 shares of Series A
Preferred Stock shall be issuable upon the exercise of the Rights, the Board of
Directors, pursuant to Section 23B.06.020 of the Washington Business Corporation
Act, shall direct by resolution that Articles of Amendment be properly executed
and filed, in accordance with the provisions thereof, providing for an increase
in the authorized shares of Series A Preferred Stock to the largest number of
whole shares issuable upon exercise of the Rights.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock, in preference to the holders of Common Stock, par
value $.02 per share (the "Common Stock"), of the Corporation, and of any other
junior stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September and
December in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (i) $1 and (ii) subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends, and 100
36
<PAGE>
times the aggregate per share amount (payable in kind) of all noncash dividends
or other distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event the Corporation shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under clause (ii)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of this Section 2
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); PROVIDED, however,
that, in the event no dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend Payment Date and
the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share
on the Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
37
<PAGE>
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.
SECTION 3. VOTING RIGHTS.
The holders of shares of Series A Preferred Stock shall have the
following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the shareholders of the
Corporation. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the number of votes per share to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock or any similar
stock, or by law, the holders of shares of Series A Preferred Stock and the
holders of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all matters
submitted to a vote of shareholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any corporate
action.
SECTION 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
38
<PAGE>
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i)declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior
(either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred
Stock;
(ii)declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the
Series A Preferred Stock and all such parity stock on
which dividends are payable or in arrears in
proportion to the total amounts to which the holders
of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior
(either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred
Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding
up) to the Series A Preferred Stock; or
(iv)redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock,
or any shares of stock ranking on a parity with the
Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders
of such shares upon such terms as the Board of
Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes,
shall determine in good faith will result in fair and
equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
39
<PAGE>
SECTION 5. REACQUIRED SHARES.
Any shares of Series A Preferred Stock purchased or otherwise acquired
by the Corporation in any manner whatsoever shall be retired and cancelled
promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock subject to the conditions
and restrictions on issuance set forth herein, in the Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation"), or in any
other Certificate of Designations creating a series of Preferred Stock or any
similar stock or as otherwise required by law.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
Upon any liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (a) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (b) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (a) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
40
<PAGE>
SECTION 7. CONSOLIDATION, MERGER, ETC.
In case the Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case each share of Series A Preferred Stock shall at
the same time be similarly exchanged or changed into an amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series A
Preferred Stock shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
SECTION 8. NO REDEMPTION.
The shares of Series A Preferred Stock shall not be redeemable.
SECTION 9. RANK.
The Series A Preferred Stock shall rank, with respect to the payment of
dividends and the distribution of assets, junior to all series of any other
class of the Preferred Stock.
SECTION 10. AMENDMENT.
The Certificate of Incorporation shall not be amended in any manner
that would materially alter or change the powers, preferences or special rights
of the Series A Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Series A Preferred Stock, voting together as a single class.
41
<PAGE>
These Restated Articles of Incorporation are executed by NeoRx
Corporation by its duly authorized officer.
Dated: April ____, 1996
NEORX CORPORATION
By_________________________
Jeffrey J. Miller
Senior Vice President
42
<PAGE>
CERTIFICATE REGARDING
RESTATED ARTICLES OF INCORPORATION
NEORX CORPORATION
Pursuant to RCW 23B.10.070, the undersigned hereby certifies that the
foregoing Restated Articles of Incorporation of NeoRx Corporation do not include
an amendment to the Articles of Incorporation as heretofore amended.
Dated: April ____, 1996
NEORX CORPORATION
By_________________________
Jeffrey J. Miller
Senior Vice President
43
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in the 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, 333-00785 and 333-00787.
ARTHUR ANDERSEN LLP
March 25, 1997
1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS OF NEORX CORPORATION AS OF 12/31/96 AND 12/31/95, AND THE RELATED STATE-
MENTS OF OPERATIONS FOR EACH OF THE YEARS ENDED 12/31/96, 12/31/95 AND 12/31/94
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-K REPORT FOR THE PERIOD
ENDED 12/31/96.
</LEGEND>
<CIK> 0000755806
<NAME> NEORX CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,945
<SECURITIES> 15,322
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 600
<CURRENT-ASSETS> 19,712
<PP&E> 6,981
<DEPRECIATION> 6,295
<TOTAL-ASSETS> 20,510
<CURRENT-LIABILITIES> 2,189
<BONDS> 1,242
0
4
<COMMON> 329
<OTHER-SE> 16,746
<TOTAL-LIABILITY-AND-EQUITY> 20,510
<SALES> 0
<TOTAL-REVENUES> 4,784
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142
<INCOME-PRETAX> (9,001)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,001)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,001)
<EPS-PRIMARY> (.68)
<EPS-DILUTED> (.68)
</TABLE>
