<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant: [X]
Filed by a Party other than the Registrant: [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Cell Therapeutics, Inc.
-----------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange ActRule 0-11 (Set forth the amount on which the
filing fee was calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
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[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
May , 2000
Dear Shareholder:
You are cordially invited to attend the Cell Therapeutics, Inc. ("cti")
Annual Meeting of Shareholders, to be held at 11:00 a.m. on Friday, July 7,
2000, at The Bell Harbor International Conference Center, 2211 Alaskan Way,
Seattle, Washington 98121.
Information concerning the business to be conducted at the meeting is
included in the accompanying Notice of Annual Meeting of Shareholders and
Proxy Statement. At the meeting, we will also report on the operations of cti
and respond to any questions you may have.
A copy of the 1999 Annual Report to Shareholders is also enclosed.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the meeting,
it is important that your shares be represented. Therefore, we urge you to
sign, date and promptly return the enclosed proxy in the enclosed postage paid
envelope. If your shares are held in a bank or brokerage account, you may be
eligible to vote your proxy electronically or by telephone. Please refer to
the enclosed voting form for instructions. If you attend the meeting, you
will, of course, have the right to vote in person. Shareholders who plan to
attend the meeting in person are requested to promptly return the enclosed
postage paid attendance card to provide us with an estimate of the number of
persons to expect for the Annual Meeting.
I look forward to greeting you personally, and on behalf of the Board of
Directors and Management, I would like to express our appreciation for your
interest in cti.
Sincerely,
James A. Bianco, M.D.
President & Chief Executive Officer
Shareholder
<PAGE>
CELL THERAPEUTICS, INC.
201 Elliott Avenue West, Suite 400
Seattle, WA 98119
Notice of Annual Meeting of Shareholders
Friday, July 7, 2000
To Our Shareholders:
The Annual Meeting of Shareholders of Cell Therapeutics, Inc. ("cti" or the
"Company") will be held at 11:00 a.m. on Friday, July 7, 2000, at The Bell
Harbor International Conference Center, 2211 Alaskan Way, Washington 98121 for
the following purposes:
(1)To elect three Class III Directors, each to serve until the 2003 Annual
Meeting;
(2) To approve an amendment to the Company's 1994 Equity Incentive Plan to
increase the number of shares of Common Stock available for grant
under the Plan by 1,100,000 shares;
(3) To approve the issuance of an indeterminate number of shares of Common
Stock in connection with the acquisition of PolaRx Biopharmaceuticals,
Inc.;
(4) To ratify the selection of Ernst & Young LLP as the independent
auditors for the Company for the year ending December 31, 2000; and
(5) To transact such other business as may properly come before the
meeting, and all adjournments and postponements thereof.
All shareholders are invited to attend the meeting. Shareholders of record
at the close of business on May 31, 2000, the record date fixed by the Board
of Directors, are entitled to notice of, and to vote at, the meeting and all
adjournments and postponements thereof. A complete list of shareholders
entitled to notice of, and to vote at, the meeting will be open to examination
by the shareholders beginning ten days prior to the meeting for any purpose
germane to the meeting during normal business hours at the office of the
Secretary of the Company at 201 Elliott Avenue West, Suite 400, Seattle,
Washington 98119.
Whether or not you intend to be present at the meeting, please sign and date
the enclosed proxy and return it in the enclosed envelope. If your shares are
held in a bank or brokerage account, you may be eligible to vote your proxy
electronically or by telephone. Please refer to the enclosed voting form for
instructions.
By Order of the Board of Directors
/s/ Michael J. Kennedy
Michael J. Kennedy
Secretary
Seattle, Washington
May , 2000
YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO SIGN,
DATE AND RETURN PROMPTLY THE ACCOMPANYING PROXY IN THE
ENCLOSED ENVELOPE REGARDLESS OF WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING.
<PAGE>
CELL THERAPEUTICS, INC.
201 Elliott Avenue West, Suite 400
Seattle, WA 98119
----------------
PROXY STATEMENT
----------------
Information Regarding Proxies
General
This Proxy Statement and the accompanying form of proxy are furnished in
connection with the solicitation of proxies by the Board of Directors of Cell
Therapeutics, Inc. ("cti" or the "Company") for use at the Annual Meeting of
Shareholders (the "Annual Meeting"), to be held at 11:00 a.m. on Friday, July
7, 2000, at The Bell Harbor International Conference Center, 2211 Alaskan Way,
Seattle, Washington 98121, and at any adjournment or postponement thereof.
Only shareholders of record on the books of the Company at the close of
business on May 31, 2000 (the "Record Date"), will be entitled to notice of,
and to vote at, the Annual Meeting.
At the Annual Meeting, shareholders will be asked to: (1) elect three Class
III Directors, each to serve until the 2003 Annual Meeting, (2) approve an
amendment to the Company's 1994 Equity Incentive Plan to increase the number
of shares of Common Stock available for grant under the plan by 1,100,000
shares, (3) approve the issuance of an indeterminate number of shares of
Common Stock in connection with the acquisition of PolaRx Biopharmaceuticals,
Inc., and (4) ratify the selection of Ernst & Young LLP as the independent
auditors for the Company for the year ending December 31, 2000.
It is anticipated that these proxy solicitation materials will be sent to
shareholders on or prior to June 7, 2000.
Solicitation of Proxies
This solicitation is made on behalf of the Board of Directors of the
Company. All expenses in connection with the solicitation of proxies will be
borne by the Company. In addition to solicitation by mail, officers, Directors
or other regular employees of the Company may solicit proxies by telephone,
facsimile or in person. No additional compensation will be paid to such
persons for such services.
Voting Rights and Outstanding Shares
Each share of common stock, without par value ("Common Stock"), of the
Company outstanding on the Record Date is entitled to one vote per share at
the Annual Meeting. The Company presently has no other class of capital stock
outstanding and entitled to be voted at the Annual Meeting. At the close of
business on the Record Date, there were issued and outstanding shares of
Common Stock. The presence at the Annual Meeting in person or by proxy of
holders of record of a majority of the outstanding shares of Common Stock is
required to constitute a quorum for the transaction of all business at the
Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and "broker non-votes" (i.e., shares held by a broker or nominee
which are represented at the meeting, but with respect to which such broker or
nominee is not empowered to vote on a particular proposal). Abstentions will
be counted towards the tabulation of votes cast on proposals presented to the
shareholders and will have the same effect as negative votes against Proposals
2 and 3.
<PAGE>
Broker non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether a matter has been approved. In an uncontested
election of directors, any action other than a vote for a nominee will have no
effect, assuming the presence of a quorum. Abstentions and broker non-votes
will have no effect on Proposal 4 as they will not represent votes cast for
the purpose of voting on this proposal.
All shares of Common Stock represented by properly executed proxies which
are returned and not revoked will be voted in accordance with the
instructions, if any, given therein. If no instructions are provided in a
proxy, the shares of Common Stock represented by such proxy will be voted FOR
the Board's nominees for Director, and FOR the approval of Proposals 2, 3 and
4 and in accordance with the proxy-holder's best judgment as to any other
matters raised at the Annual Meeting.
Voting Electronically or by Telephone
If your shares are registered in the name of a bank or brokerage firm, you
may be eligible to vote your shares electronically over the Internet or by
telephone. A large number of banks and brokerage firms are participating in
the ADP Investor Communication Services online program. This program provides
eligible shareholders who receive a paper copy of the annual report and proxy
statement the opportunity to vote via the Internet or by telephone. If your
bank or brokerage firm is participating in ADP's program, your voting form
will provide instructions. If your voting form does not reference Internet or
telephone information, please complete and return the paper proxy card in the
self-addressed postage paid envelope provided.
Revocability of Proxies
Any shareholder of record executing a proxy has the power to revoke it at
any time prior to the voting thereof on any matter (without, however,
affecting any vote taken prior to such revocation) by delivering written
notice to Michael J. Kennedy, Secretary of the Company, at the Company's
principal executive offices, by executing and delivering another proxy dated
as of a later date or by voting in person at the meeting.
2
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of Common Stock, as of March 31, 2000, by (1) each shareholder known
by the Company to be the beneficial owner of more than 5% of its outstanding
shares of Common Stock, (2) each of the Company's Directors and nominees for
Director, (3) each executive officer of the Company named in the Summary
Compensation Table herein, and (4) all Directors and executive officers as a
group:
<TABLE>
<CAPTION>
Number of Shares Shares Subject Percentage
Name and Address of Beneficial Owner Beneficially Owned(1) To Options Ownership(1)
- ------------------------------------ -------------------- -------------- -----------
<S> <C> <C> <C>
Essex Woodlands Health Ventures Fund IV,
L.P.(2)...................................... 3,855,519 -- 14.34%
15001 Walden Road, Suite 101
Montgomery, TX 77356
Lindsay A. Rosenwald and The Aries Master
Funds(3)..................................... 2,887,210 -- 10.94%
c/o Paramount Capital Asset Management, Inc.
787 Seventh Avenue, 48th Floor
New York, NY 10019
The International Biotechnology Trust plc(4).. 1,358,156 -- 5.23%
c/o Rothschild Asset Management Limited
Five Arrows House St. Swithin's Lane
London, England EC4N 8NR
James A. Bianco, M.D.**....................... 621,111 310,340 2.36%
Jack L. Bowman**.............................. 32,383 32,383 *
Jeremy L. Curnock Cook**(5)................... 1,384,824 26,668 5.32%
Wilfred E. Jaeger, M.D.**(6).................. 39,335 39,335 *
Max E. Link, Ph.D.**.......................... 54,762 3,810 *
Mary O. Mundinger, DrPH**..................... 9,573 7,923 *
Phillip M. Nudelman, Ph.D.**.................. 33,811 31,811 *
Jack W. Singer, M.D.**........................ 309,318 82,865 1.19%
Louis A. Bianco............................... 216,523 98,198 *
Edward F. Kenney.............................. -- -- *
Robert A. Lewis, M.D.......................... 124,013 98,813 *
All Directors and executive officers as a
group (12 persons)........................... 2,920,341 812,434 10.92%
</TABLE>
- --------
* Less than 1%
** Denotes Director of the Company
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and generally
includes voting or investment power with respect to securities. This
table is based upon information supplied by officers, directors, and
Schedules 13D and 13G filed with the Commission. Shares of Common Stock
subject to options or warrants currently exercisable or convertible, or
exercisable or convertible within 60 days of March 31, 2000, are deemed
outstanding for computing the percentage of the person holding such
option or warrant but are not deemed outstanding for computing the
percentage of any other person. Except as indicated in the footnotes to
this table and pursuant to applicable community property laws, the
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned.
(2) Consists of 2,941,233 shares of common stock beneficially owned by Essex
Woodlands Health Ventures Fund IV, L.P. and 914,286 shares issuable upon
exercise of warrants held by Essex Woodlands Health Ventures Fund IV,
L.P.. Mr. Martin P. Sutter is the Managing Director of Essex Woodlands
Health Ventures Fund IV, L.P.
(3) Includes (a) 973,918 shares of common stock and 35,000 warrants to
purchase 35,000 shares of common stock held by Lindsay A. Rosenwald,
M.D., (b) 780,578 shares of common stock of CTI issuable upon conversion
of 1,688 shares of Series D preferred stock, 257,219 warrants to purchase
257,219 shares of common stock, and 250,143 shares of common stock held
by The Aries Master Fund, a Cayman Island exempted company, (c) 316,301
shares of common stock of CTI issuable upon conversion of 684 shares of
Series D preferred stock, 104,229 warrants to purchase 104,229 shares of
common stock, and 118,371 shares of common stock held by Aries Domestic
Fund L.P. ("Aries I"), (d) 24,509 shares of common stock of CTI issuable
upon conversion of 53 shares of Series D preferred stock, 8,076 warrants
to purchase 8,076 shares of common stock, and 18,866 shares of common
stock, held by Aries
3
<PAGE>
Domestic Fund II, L.P. ("Aries II"). Paramount Capital Asset Management,
Inc. ("PCAM") is the general partner of each of Aries I and Aries II and
the investment manager of The Aries Master Fund. Dr. Rosenwald is the
chairman and sole shareholder of PCAM.
(4) Includes 1,358,156 shares of common stock beneficially owned by
International Biotechnology Trust plc, a company formed under the laws of
England ("IBT") and managed by Rothschild Asset Management Limited
("Rothschild"). Rothschild has or shares voting and investment power with
respect to the shares held by IBT and may be deemed to be the beneficial
owner of such shares. Mr. Curnock Cook is a director of IBT and
Rothschild and may be deemed to be the beneficial owner of any shares
beneficially owned by each of IBT and Rothschild. Mr. Curnock Cook
disclaims beneficial ownership of shares beneficially owned by IBT and
Rothschild except to the extent of his proportionate interest therein.
See footnote (5) below.
(5) Consists of 1,358,156 shares of common stock beneficially owned by IBT
and 26,668 options that are currently exercisable or exercisable within
60 days of March 31, 2000 that are beneficially held by Jeremy Curnock
Cook, a director of IBT and Rothschild. Rothschild has or shares voting
and investment power with respect to the shares held by IBT and may be
deemed to be the beneficial owner of such shares. As a director of IBT
and Rothschild, Mr. Curnock Cook may be deemed to be the beneficial owner
of any shares beneficially owned by each of IBT and Rothschild; however,
he disclaims beneficial ownership of these shares except to the exent of
his proportionate interest therein. See footnote (4) above.
(6) Does not include 12,858 shares issuable upon exercise of options
beneficially owned by affiliates of Collinson Howe Venture Partners
("CHVP") pursuant to an agreement with Dr. Jaeger. Dr. Jaeger, a director
of the Company, is a former partner at CHVP.
4
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Amended and Restated Articles of Incorporation of the Company provide
for the Board of Directors to be divided into three approximately equal
classes of Directors serving staggered three-year terms and until their
successors are elected and qualified. As a result, approximately one-third of
the total number of Directors will be elected every year. Under cti's Bylaws,
the number of Directors constituting the entire Board of Directors may be
decreased or increased by majority action of either the Board of Directors or
the shareholders, but no decrease in the number of Directors may have the
effect of shortening the term of any incumbent Director. In the event of a
vacancy on the Board of Directors, the Company's Bylaws permit a majority of
the remaining Directors in office to fill such vacancy, and the Director so
chosen shall hold office until the next shareholders' meeting at which
Directors are elected and until his or her successor is elected and shall
qualify.
Currently, the Board of Directors has fixed the number of Directors at
eight. The current terms of office of the Class III Directors, Dr. James A.
Bianco, Dr. Jack W. Singer and Dr. Mary O. Mundinger, expire at the 2000
Annual Meeting. The current terms of office of the Class I Directors, Dr.
Phillip M. Nudelman, Mr. Jack L. Bowman and Mr. Jeremy L. Curnock Cook, expire
at the 2001 Annual Meeting. The current terms of office of the Class II
Directors, Dr. Max E. Link and Dr. Wilfred E. Jaeger, expire at the 2002
Annual Meeting.
Dr. Bianco, Dr. Singer and Dr. Mundinger have been nominated for re-election
at the Annual Meeting as Class III directors for three-year terms expiring at
the 2003 Annual Meeting. The Board of Directors has approved all such
nominees.
If elected, each nominee will hold office until his or her term expires and
his or her successor is elected and shall qualify. It is intended that the
accompanying proxy will be voted for the election as Directors of the three
nominees named herein, unless the proxy contains contrary instructions. Each
nominee has agreed to serve if elected, and the Company has no reason to
believe that any of the nominees will not be a candidate or will be unable to
serve. However, if any of the nominees should become unable or unwilling to
serve as a Director, the persons named in the proxy have advised the Company
that they will vote for the election of such person or persons as shall be
designated by the Board of Directors.
The candidates elected will be those receiving the largest numbers of votes
cast by the shares of Common Stock entitled to vote in the election, up to the
number of Directors of such class to be elected by such shares. Abstentions
and broker non-votes will not be counted in the election of Directors.
Set forth below is biographical information for each nominee for Director
and each person whose term of office as a Director will continue after the
Annual Meeting:
<TABLE>
<CAPTION>
Director
Name Age Since Class
---- --- -------- -----
<S> <C> <C> <C>
Max E. Link, Ph.D.(1)(2)................................ 59 1995 II
James A. Bianco, M.D.(2)................................ 43 1991 III
Jack W. Singer, M.D..................................... 57 1991 III
Jack L. Bowman(3)....................................... 67 1995 I
Jeremy L. Curnock Cook(2)(3)............................ 50 1995 I
Wilfred E. Jaeger, M.D.(3)(4)........................... 44 1992 II
Mary O. Mundinger, DrPH................................. 63 1997 III
Phillip M. Nudelman, Ph.D.(2)(4)........................ 64 1994 I
</TABLE>
--------
(1) Chairman of the Board of Directors.
(2) Member of the Executive Committee.
(3) Member of the Compensation Committee.
(4) Member of the Audit Committee.
5
<PAGE>
Nomination for Election for a Three-Year Term Expiring at the 2003 Annual
Meeting--Class III Directors
Dr. Bianco is the principal founder of cti and has been cti's President and
Chief Executive Officer since February 1992 and a Director of cti since the
Company's inception in September 1991. Prior to joining cti, Dr. Bianco was an
Assistant Professor of Medicine at the University of Washington, Seattle, and
an Assistant Member in the clinical research division of the Fred Hutchinson
Cancer Research Center ("FHCRC"), the world's largest bone marrow transplant
("BMT") center. From 1990 to 1992, Dr. Bianco was the director of the BMT
Program at the Veterans Administration Medical Center in Seattle. Dr. Bianco
received his B.S. degree in Biology and Physics from New York University and
his M.D. from Mount Sinai School of Medicine.
Dr. Singer is a founder and Director of cti and currently serves as cti's
Executive Vice President, Research Program Chairman. Dr. Singer has been a
Director of cti since the Company's inception in September 1991. From April
1992 to July 1995, Dr. Singer was cti's Executive Vice President, Research and
Development. Prior to joining cti, Dr. Singer was Professor of Medicine at the
University of Washington and full Member of the FHCRC. From 1975 to 1992, Dr.
Singer was the Chief of Medical Oncology at the Veterans Administration
Medical Center in Seattle. Dr. Singer received his M.D. from State University
of New York, Downstate Medical College.
Dr. Mundinger has been a Director of cti since April 1997. Since 1986, she
has been a Dean and Professor at the School of Nursing, and an Associate Dean
on the Faculty of Medicine at Columbia University. Dr. Mundinger also serves
on the editorial board of National Health Publishing Company, Inc. Dr.
Mundinger received her Doctorate of Public Health from Columbia's School of
Public Health.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
Directors Continuing in Office Until the 2001 Annual Meeting--Class I
Directors
Dr. Nudelman has been a Director of cti since March 1994. He is the
President and Chairman of the Board of Kaiser/Group Health. From 1990 to 1997,
Dr. Nudelman was the President and Chief Executive Officer of Group Health
Cooperative of Puget Sound, a health maintenance organization. Dr. Nudelman
serves as chairman of the board of directors of the American Association of
Health Plans, ATL Ultrasound, SpaceLabs Medical, Inc., Cytran Ltd., Franklin
Health and the United Way. Dr. Nudelman received his B.S. degree in
Microbiology, Zoology and Pharmacy from the University of Washington, and
holds an M.B.A. and a Ph.D. in Health Systems Management from Pacific Western
University.
Mr. Bowman has been a Director of cti since April 1995. From 1987 until
January 1994, Mr. Bowman was a company group chairman at Johnson & Johnson,
having primary responsibility for a group of companies in the diagnostic,
blood glucose monitoring and pharmaceutical businesses. From 1980 to 1987, Mr.
Bowman held various positions at American Cyanamid Company, most recently as
Executive Vice President. Mr. Bowman was a member of the board of trustees of
The Johns Hopkins University and serves on the board of directors of NeoRx
Corporation, CytRx Corporation and Cellegy Pharmaceuticals, Inc., Targeted
Genetics Corp., and Celgene Corp.
Mr. Curnock Cook has been a Director of cti since March 1995. Mr. Curnock
Cook has been a director of the Bioscience Unit of Rothschild Asset Management
Limited since 1987. He is a director of several British companies, including
The International Biotechnology Trust, plc, Biocompatibles International, plc,
Cobra Therapeutics. and Vanguard Medica Group plc. He also serves on the board
of directors of Creative Biomolecules, Inc., Targeted Genetics, Corp., and
Ribozyme Pharmaceuticals, Inc. in the United States.
6
<PAGE>
Directors Continuing in Office Until the 2002 Annual Meeting--Class II
Directors
Dr. Link joined the Board of Directors in July 1995 as its Vice Chairman and
has served as Chairman of the Board of Directors since January 1996. In
addition, Dr. Link has held a number of executive positions with
pharmaceutical and healthcare companies. Most recently, he served as Chief
Executive Officer of Corange, Limited ("Corange"), from May 1993 until June
1994. Prior to joining Corange, Dr. Link served in a number of positions
within Sandoz Pharma Ltd., including Chief Executive Officer from 1990 until
April 1992, and Chairman from April 1992 until May 1993. Dr. Link currently
serves on the board of directors of Alexion Pharmaceutical, Inc., Human Genome
Sciences, Inc., and Protein Design Labs, Inc. Dr. Link received his Ph.D. in
Economics from the University of St. Gallen.
Dr. Jaeger has been a Director of cti since September 1992. Dr. Jaeger is a
founding general partner of Three Arch Partners, a venture capital firm which
focuses on health care investments. Prior to joining Three Arch Partners in
1993, he was a partner at Collinson Howe Venture Partners, formerly Schroeder
Venture Advisors and the Phoenix Partners. Dr. Jaeger received his M.D. from
the University of British Columbia in Vancouver, B.C., Canada. Dr. Jaeger is
also a director of Intensiva Healthcare Corporation.
Board and Committee Meetings
The Board of Directors of the Company held twelve meetings during the year
ended December 31, 1999. Each of the Directors attended at least 75% of the
total number of meetings of the Board of Directors and the total number of
meetings held by all committees of the Board of Directors on which they
served. The Board of Directors has three standing committees: an Executive
Committee, a Compensation Committee, and an Audit Committee. There is no
standing nominating committee.
The Executive Committee exercises the full power and authority of the Board
of Directors, except as limited by applicable law and except as specific
authority is otherwise delegated by the Board of Directors to its other
committees. No meetings of the Executive Committee were held during the year
ended December 31, 1999. The Executive Committee currently consists of Drs.
Bianco, Link and Nudelman and Mr. Curnock Cook.
The Compensation Committee has broad responsibility for assuring that the
officers and key management personnel of the Company are effectively
compensated in terms of salaries, supplemental compensation and benefits which
are internally equitable and externally competitive. The Compensation
Committee also administers the Company's 1994 Equity Incentive Plan and the
Company's 1996 Employee Stock Purchase Plan. Four meetings of the Compensation
Committee were held during the year ended December 31, 1999. The Compensation
Committee currently consists of three non-employee Directors, Dr. Jaeger and
Messrs. Bowman, and Curnock Cook. Mr. Terrence M. Morris, who resigned from
the Board effective January 24, 2000, was previously on the Compensation
Committee.
The Audit Committee, which was established in January 1994, has
responsibility for assisting the Board of Directors in fulfilling their
responsibilities related to the corporate accounting and reporting practices
of the Company and the quality and integrity of the Company's financial
reporting. Three meetings of the Audit Committee were held during the year
ended December 31, 1999. The Audit Committee currently consists of two non-
employee Directors, Drs. Jaeger and Nudelman. Mr. Terrence M. Morris, who
resigned from the Board effective January 24, 2000, was previously on the
Audit Committee.
Director Compensation
Directors who are also employees of the Company are not paid an annual
retainer nor are they compensated for serving on the Board. Non-employee
Directors are paid $2,000 per meeting of the Board or Board committee, up to a
maximum of $10,000 per Director each calendar year. All Directors are
reimbursed for their expenses incurred in attending Board meetings. In 1999,
pursuant to the Automatic Option Grant Program in effect for the Directors
under the Company's 1994 Stock Option Plan, each non-employee Director also
received a fully-vested option grant for 1,905 shares on the anniversary date
of the commencement of such Director's service as a Director. Each such option
has an exercise price equal to 100% of the fair market value on the grant date
in 1999 and a term of ten years measured from such grant date, subject to
early termination following the optionee's cessation of service as a Director.
7
<PAGE>
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE 1994 EQUITY INCENTIVE PLAN
The Company's 1994 Equity Incentive Plan (the "1994 Plan") was adopted by
the Board of Directors in January 1994 and approved by the shareholders in
February 1994. A total of 582,685 shares of Common Stock were initially
reserved for issuance under the 1994 Plan and a predecessor plan, the
Company's 1992 Stock Option Plan (the "1992 Plan"). In May 1995, April 1996,
June 1997 and June 1998, the shareholders of the Company approved the adoption
of amendments to the 1994 Plan to increase the aggregate number of shares
authorized for issuance thereunder by 246,887 shares, 507,143 shares,
1,000,000 shares and 1,500,000 shares, respectively, bringing the total number
of shares reserved under the 1994 Plan to 3,836,715 shares of Common Stock. As
of March 31, 2000, options to purchase 470,725 shares have been exercised,
ten-year options to purchase 3,001,361 shares were granted and outstanding,
and options to purchase 364,629 shares of Common Stock remained available for
future grants under the 1994 Plan.
The 1994 Plan supersedes the 1992 Plan, pursuant to which the Board of
Directors was authorized to issue incentive stock options and nonstatutory
stock options upon terms and conditions similar to the 1994 Plan. Options
granted under the 1992 Plan continue to be governed by the terms of the 1992
Plan. The number of shares available for future grants under the 1994 Plan
will be increased by the number of shares of Common Stock for which options
granted under the 1992 Plan expire, terminate, or are canceled.
Proposed Amendment to the 1994 Plan
On May 8, 2000, the Board of Directors approved, subject to approval by the
shareholders of the Company, an amendment to the 1994 Plan that increases the
maximum number of shares issuable under the 1994 Plan by an additional
1,100,000 shares to a total of 4,936,715 shares. Currently, options for a
total of 3,836,715 shares may be issued under the 1994 Plan. Of these shares,
364,629 shares remain currently available for future option grants. If the
shareholders do not approve the increase, then the maximum number of shares
issuable under the 1994 Plan will remain at 3,836,715 with 364,629 shares
available for future option grants. The purpose of the proposed increase is to
provide sufficient shares for future option grants to new and existing
officers, key employees, non-employee Directors and consultants of the
Company. The Board of Directors believes that the Company should have shares
available under the 1994 Plan to provide options to certain of its prospective
and existing officers, key employees, non-employee Directors and consultants.
The Board of Directors believes that the Company and its shareholders
significantly benefit from having the Company's key management and scientific
employees and consultants receive options to purchase the Company's Common
Stock, and that the opportunity thus afforded these employees and consultants
to acquire Common Stock is an essential element of an effective management
incentive program. The Board of Directors also believes that stock options are
very valuable in attracting and retaining highly qualified management and
scientific personnel and in providing additional motivation to these
individuals to use their best efforts on behalf of the Company.
Vote Required
The affirmative vote of a majority of the outstanding shares of Common Stock
present in person or represented by proxy entitled to vote at the Annual
Meeting will be required to approve the proposed amendment to the 1994 Plan.
Unless otherwise instructed, it is the intention of the persons named in the
accompanying form of proxy to vote shares represented by properly executed
proxies for approval of the proposed amendment to the 1994 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE PROPOSED AMENDMENT
TO THE 1994 PLAN.
The 1994 Plan provides for (a) the grant of incentive stock options,
nonstatutory stock options and stock appreciation rights, (b) the award of
stock bonuses, (c) the sale of stock, and (d) any other equity-based or
equity-related awards which the plan administrator determines to be consistent
with the purpose of the 1994 Plan and the interests of the Company. The 1994
Plan also provides for the automatic grant of nonstatutory options to
8
<PAGE>
non-employee Directors pursuant to the formula described below. The terms and
provisions of the 1994 Plan, as amended, are summarized more fully below. This
summary, however, does not purport to be a complete exposition of all the
provisions of the 1994 Plan. A copy of the 1994 Plan will be furnished by the
Company to any shareholder upon written request to the Investor Relations
Department of the Company at the Company's principal offices in Seattle,
Washington.
Eligibility
The 1994 Plan authorizes the granting of awards to (a) selected employees,
officers and Directors of the Company or any parent or subsidiary of the
Company, and (b) selected non-employee agents, consultants, advisors and
independent contractors of the Company or any parent or subsidiary. Directors
who are not employees of the Company shall receive automatic nonstatutory
stock option grants under the 1994 Plan, as described below, and will also be
eligible to receive other awards under the 1994 Plan. All persons selected by
the plan administrator to receive awards under the 1994 Plan must be
individuals that the plan administrator believes have made or will make an
important contribution to the Company.
As of March 31, 2000, approximately 100 employees (including six executive
officers), 17 consultants and six non-employee Directors were eligible to
participate in the 1994 Plan.
Automatic Grants to Non-Employee Directors
Under the 1994 Plan, each non-employee Director is automatically granted a
fully vested nonstatutory stock option to purchase 2,858 shares of Common
Stock upon his or her election to the Board of Directors for the first time.
In addition, each non-employee Director is automatically granted a fully
vested nonstatutory stock option to purchase 1,905 shares of Common Stock on
each anniversary of his or her immediately preceding election to the Board of
Directors. The exercise price of such options is 100% of the fair market value
of the shares of Common Stock on the date of grant. Each such option will have
a ten-year term from the date of grant, unless earlier terminated upon
termination of a non-employee Director's service with the Company. See "--
Stock Options."
Shareholder approval of Proposal 2 will also constitute pre-approval of each
automatic option grant made to the non-employee Directors on or after the date
of the 2000 Annual Meeting pursuant to such provisions of the 1994 Plan and
the subsequent exercise of that option in accordance with such provisions.
Number of Shares Covered by the 1994 Plan
3,836,715 shares of Common Stock have been reserved for issuance under the
1994 Plan. If the shareholders approve the adoption of the amendment to the
1994 Plan, a total of 4,936,715 shares of Common Stock (representing
approximately 4.5% of the total number of shares of Common Stock issued and
outstanding as of March 31, 2000) will have been reserved for grant under the
1994 Plan, of which 3,001,361 shares are subject to outstanding options and
1,464,629 shares would be available for future grants. If an option or a stock
appreciation right granted under the 1994 Plan expires, terminates or is
canceled, the unissued shares subject to such option or stock appreciation
right shall again be available for issuance under the 1994 Plan, and if shares
sold under the 1994 Plan are forfeited to the Company or are repurchased by
the Company at the issue price paid per share, the number of shares forfeited
or repurchased shall again be available for issuance under the 1994 Plan.
In no event may any one participant in the 1994 Plan be granted stock
options, separately exercisable stock appreciation rights and direct stock
awards for more than 383,671 shares in the aggregate per calendar year under
the 1994 Plan.
Administration
The 1994 Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"). The Committee may promulgate rules and
regulations for the operation of the 1994 Plan,
9
<PAGE>
interprets the 1994 Plan and related agreements and generally supervises the
administration of the 1994 Plan. The Committee determines the persons to whom
awards will be made under the 1994 Plan, the amount of the awards, and the
other terms and conditions of the awards. The Committee may also advance the
lapse of any waiting period, accelerate any exercise date, waive or modify any
restriction with respect to an award, or give an employee an election to
surrender an existing award in exchange for the grant of a new award.
Term of 1994 Plan
The 1994 Plan was approved by the Board of Directors of the Company on
January 7, 1994, and will terminate upon the earlier of (i) the date that all
shares available for issuance under the 1994 Plan have been issued and all
restrictions on such shares have lapsed and (ii) January 1, 2004. The
Company's Board of Directors has the power to suspend, terminate, modify or
amend the 1994 Plan at any time.
Stock Options
The Committee may grant stock options under the 1994 Plan. The Committee
will determine the persons to whom options will be granted, the exercise price
of each option, the number of shares to be covered by each option, the period
of each option, the times at which each option may be exercised, and whether
each option is an incentive stock option or a nonstatutory stock option.
Options granted under the 1994 Plan must have exercise prices that are not
less than 100% of the fair market value of the underlying shares on the date
of grant. However, if an optionee of an incentive stock option at the time of
grant possesses more than 10% of the combined voting power of all classes of
the Company's stock (a "10% Shareholder"), the exercise price may not be less
than 110% of the fair market value of the underlying shares on the date of
grant.
Options may be granted under the 1994 Plan for varying periods established
at the time of grant (not to exceed ten years from the date of grant for
incentive stock options, or five years from the date of grant for incentive
stock options granted to any 10% Shareholder). During the optionee's lifetime,
the option is generally exercisable only by the optionee and may not be
assigned or transferred other than by will or the laws of inheritance
following the optionee's death. The Committee may, however, allow nonstatutory
options to be transferred or assigned during the optionee's lifetime to one or
more family members or a trust established exclusively for such family
members, to the extent such transfer or assignment is in furtherance of the
optionee's estate plan. Options will be exercisable in accordance with the
terms of an option agreement entered into at the time of the grant. In the
event of the death or other termination of an optionee's employment or service
with the Company, the 1994 Plan provides that the optionee's options may be
exercised for specified periods thereafter (one year in the case of
termination by reason of death or disability and three months in the case of
termination for any other reason). The 1994 Plan also provides that upon any
termination of employment or service, the Committee may extend the exercise
period for any option up to the expiration date of the option and may increase
the portion of the option that is exercisable. The 1994 Plan does not allow
options to be exercised after their expiration date.
The purchase price for shares of Common Stock purchased on exercise of
options granted under the 1994 Plan must be paid in cash, including cash that
may be the proceeds of a loan from the Company or, with the consent of the
Committee, in whole or in part in shares of Common Stock of the Company. With
the consent of the Committee, an optionee may request the Company to apply the
shares to be received on exercise of a portion of an option to satisfy the
exercise price for additional portions of the option.
Stock Appreciation Rights
The Committee may grant stock appreciation rights ("SARs") to employees
under the 1994 Plan. SARs may, but need not, be granted in connection with an
option. A SAR gives the holder the right to payment from the Company of an
amount equal in value to the excess of the fair market value on the date of
exercise of one share over its fair market value on the date of grant (or, if
granted in connection with an option, the exercise price per share under the
option to which the SAR relates), multiplied by the number of shares covered
by the portion of the SAR or option that is surrendered. An employee will not
pay the Company any cash consideration upon either the grant or exercise of a
SAR, except for tax withholding amounts upon exercise.
10
<PAGE>
A SAR is exercisable only at the time or times established by the Committee.
If a SAR is granted in connection with an option, it is exercisable only to
the extent and on the same conditions that the related option is exercisable.
Payment by the Company upon exercise of a SAR may be made in shares valued at
fair market value, or in cash, or partly in shares and partly in cash, as
determined by the Committee. The Committee may withdraw any SAR at any time
and may impose any conditions upon the exercise of a SAR or adopt rules and
regulations from time to time affecting the rights of holders of SARs.
The existence of any exercisable SARs will require the Company to make
periodic charges against the Company's income to the extent of the amount of
appreciation, if any, in the market value of the shares over the exercise
price of shares subject to such SARs.
Stock Bonuses
The Committee may award shares of Common Stock as stock bonuses under the
1994 Plan. The Committee will determine the persons to receive stock bonuses,
the number of shares to be awarded and the time of the award. No cash
consideration (other than tax withholding amounts) will be paid by persons in
connection with stock bonuses. Shares received as a stock bonus may be subject
to terms, conditions and restrictions as determined by the Committee.
Stock Purchases
The Committee may authorize the sale of shares of the Company's Common Stock
under the 1994 Plan to eligible individuals in the Company's service, but in
no event may the price payable per share be less than 75% of the fair market
value of the shares at the time of issuance. The issued shares will be subject
to such terms, conditions and limitations as the Committee deems appropriate.
Such limitations may include restrictions on the transferability of the shares
and the implementation of a vesting schedule pursuant to which the issued
shares will be subject to forfeiture or repurchase by the Company, at the
issue price paid per share, should the recipient leave the employ or service
of the Company prior to vesting in those shares.
Changes in Capital Structure
If any recapitalization, reclassification, stock split, combination of
shares or stock dividend causes the outstanding shares of the Company's Common
Stock to increase or decrease or to be changed into a different number or kind
of securities of the Company or any other corporation, the Committee shall
make appropriate adjustments in (i) the number and kind of securities
available for awards under the 1994 Plan, (ii) the number and kind of
securities as to which outstanding options and SARs shall be exercisable, such
that the participant's proportionate interest before and after the event is
maintained, (iii) the maximum number and kind of securities for which any one
participant may be granted options, SARs and direct stock awards under the
1994 Plan per calendar year and (iv) the number and kind of securities for
which stock options will automatically be granted to newly elected or
continuing non-employee Directors. Appropriate adjustments will also be made
to the exercise price then in effect under outstanding options or SARs.
Effect of Reorganization of Liquidation
The 1994 Plan provides for automatic acceleration of the vesting of options
and SARs granted under the 1994 Plan if a merger, consolidation,
reorganization, plan of exchange or liquidation results in the Company's
shareholders receiving cash, stock or other property in exchange for their
shares, except as specified in the following paragraph. Option holders will
have the right during the thirty (30) day period immediately prior to any such
event to exercise their options or SARs without any limitation on
exercisability.
The 1994 Plan provides that, if the Company's shareholders receive stock of
another corporation in exchange for shares of the Company in any merger,
consolidation, reorganization or plan of exchange, all options granted under
the 1994 Plan will be converted into options to purchase shares of the stock
of the other corporation and all SARs will be converted into SARs measured by
the stock of the other corporation. Under the
11
<PAGE>
1994 Plan the Committee may, in its discretion, accelerate the vesting of
options and SARs in lieu of their conversion, in which event holders would
have a thirty (30) day period prior to such event to exercise their options or
SARs, as provided above. In addition, the 1994 Plan allows the Committee to
accelerate the vesting of the options and SARs granted under the 1994 Plan
upon the occurrence of a "Change in Control." A "Change in Control" is defined
as (a) the acquisition, directly or indirectly, by any individual, entity or
group (within the meaning of Section 13(d) or 14(d)(2) of the Securities
Exchange Act of 1934 (the "1934 Act")), of beneficial ownership (within the
meaning of Rule 13d-3 under the 1934 Act) of securities representing 50.1% or
more of either the then outstanding shares of Common Stock or the combined
voting power in the election of Directors of the then outstanding voting
securities of the Company, (b) individuals who, as of the effective date of
the Plan, constitute the Board of Directors (the "Incumbent Board") (including
any individual whose subsequent election or nomination was approved by a vote
of at least a majority of the Directors then comprising the Incumbent Board)
cease for any reason to constitute at least a majority of the Board of
Directors, or (c) approval by the shareholders of the Company of certain
reorganizations, mergers or consolidations, or of certain liquidations,
dissolutions or dispositions of all or substantially all of the assets of the
Company.
The Committee may make awards under the 1994 Plan that have terms and
conditions that vary from those specified in the 1994 Plan when such awards
are granted in substitution for, or in connection with the assumption of,
existing awards made by another corporation and assumed or otherwise agreed to
be provided for by the Company in connection with a corporate merger or other
similar transaction to which the Company or an affiliated Company is a party.
The Committee may also specify the terms and provisions of other equity-
based or equity-related awards not described in the 1994 Plan which the
Committee determines to be consistent with the purpose of the 1994 Plan and
the interests of the Company.
Certain Federal Income Tax Considerations
Incentive Stock Options
Certain options authorized to be granted under the 1994 Plan are intended to
qualify as "incentive stock options" for Federal income tax purposes. Under
United States Federal income tax law in effect as of the date of this Proxy
Statement, an optionee will recognize no income upon grant or exercise of an
incentive stock option. At the time of exercise, however, the difference
between the exercise price and the fair market value constitutes a tax
preference item which may have Alternative Minimum Tax consequences for the
optionee. If an employee exercises an incentive stock option and does not
dispose of any of the shares thereby acquired within two years following the
date of grant and within one year following the date of exercise, capital gain
or loss will be realized upon the subsequent disposition of the shares. If an
employee disposes of shares acquired upon exercise of an incentive stock
option before the expiration of either the two-year or the one-year holding
period specified in the foregoing sentence (a "disqualifying disposition"),
the employee will realize ordinary income in an amount equal to the lesser of
(a) the excess of the fair market value of the shares on the date of exercise
over the option price or (b) the excess of the fair market value of the shares
on the date of disposition over the option price. Any loss or additional gain
realized upon the disqualifying disposition will constitute capital loss or
gain. In general, the Company will not be allowed any deduction for Federal
income tax purposes at either the time of grant or the time of exercise of an
incentive stock option or when the shares thereby acquired are disposed of.
Upon any disqualifying disposition by an employee, however, the Company will
be entitled to a deduction to the extent the employee realizes ordinary
income.
Nonstatutory Stock Options
Certain options authorized to be granted under the 1994 Plan will be treated
as "nonstatutory stock options" for United States Federal income tax purposes.
Under Federal income tax law in effect as of the date of this Proxy Statement,
no income is realized by the holder of a nonstatutory stock option until the
option is exercised. At the time of exercise, the optionee will realize
income, and the Company may be entitled to a deduction, in the amount by which
the fair market value of the shares subject to the option at the time of
exercise exceeds the
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<PAGE>
exercise price. Upon the sale of shares acquired upon exercise of a
nonstatutory stock option, the employee will realize capital gain or loss
equal to the difference between the amount realized from the sale and the
employee's basis in the shares (i.e., the exercise price plus the amount of
income recognized on exercise of the option).
Bonus Shares and Shares Sold Outright Under the 1994 Plan
Bonus shares awarded under the 1994 Plan and shares sold outright under the
1994 Plan, which are transferable or not subject to a substantial risk of
forfeiture, will be taxable as ordinary income equal to the excess of the fair
market value of the shares received (determined as of the date of settlement)
over the amount, if any, paid for the shares by the participant. The Company
will be entitled to a tax deduction in the same amount.
In the case of shares that are not transferable and are subject to a
substantial risk of forfeiture on the date of issuance, the participant will
generally recognize ordinary income equal to the excess of the fair market
value of the shares (determined as of the date on which the shares either
become transferable or are not subject to a substantial risk of forfeiture)
over the amount, if any, paid for the shares. The Company will be entitled to
a tax deduction in the same amount. A participant may elect to recognize
income when the shares are received, rather than upon the expiration of the
transfer restriction or risk of forfeiture, and, in such event, the amount of
ordinary income will be determined as of the date of issuance rather than upon
expiration of the applicable restriction. The Company's tax deduction if any
will be determined at the same time.
Participation in the 1994 Plan
The ten-year options to purchase 3,001,361 shares of Common Stock which are
outstanding pursuant to the 1994 Plan and the 1992 Plan were granted to 128
employees, consultants and non-employee Directors and generally vest in equal
annual installments on the first three or four anniversaries of the date of
grant. The exercise prices of such options range from $0.00 to $18.91, with an
average weighted exercise price of $2.70.
Stock Options and Awards
The table below shows, as to each executive officer of the Company named in
the Summary Compensation Table herein and the various indicated individuals
and groups, the number of shares of Common Stock subject to options and
restricted shares granted under the 1994 Plan between January 1, 1999 and
March 31, 2000, together with the weighted average exercise price payable per
share.
<TABLE>
<CAPTION>
Number of
Option and Weighted Average
Restricted Exercise Price
Name and Position Shares (#) ($)
- ----------------- ---------- ----------------
<S> <C> <C>
James A. Bianco, M.D............................... 135,394 $2.26
Jack W. Singer, M.D................................ 61,243 2.00
Louis A. Bianco.................................... 52,712 2.03
Robert A. Lewis, M.D............................... 77,225 2.18
Edward F. Kenney................................... 153,382 3.10
All current executive officers as a group (six
persons).......................................... 528,903 2.44
All Directors (other than executive officers) as a
group (six persons)............................... 15,240 5.11
All employees, including current officers who are
not executive officers, as a group (144 persons).. 824,560 2.33
</TABLE>
New Plan Benefits
As of the date of this Proxy Statement, no awards have been made under the
1994 Plan on the basis of the share increase which forms Proposal 2. The
number and type of awards to be granted under the 1994 Plan to any particular
individual cannot be determined as of such date, except for the options that
will automatically be granted to certain non-employee Directors as described
above.
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<PAGE>
PROPOSAL 3
APPROVAL OF THE ISSUANCE OF COMMON STOCK IN CONNECTION WITH THE POLARX
BIOPHARMACEUTICALS, INC. ACQUISITION
On January 7, 2000 the Company entered into a merger agreement with PolaRx
Biopharmaceuticals, Inc. (PolaRx) pursuant to which the Company merged a
wholly owned transitory subsidiary into PolaRx and acquired all of the
outstanding equity of PolaRx. PolaRx's sale asset consisted of the
intellectual property and other rights associated with a product containing
arsenic trioxide or its metabolites ("ATO"). The consideration for the
purchase of PolaRx and ATO consists of the following:
(i) 2,000,000 shares of Company Common Stock delivered in February, 2000;
(ii) an additional 3,000,000 shares of Company Common Stock to be issued
within the earlier of 30 days following the first New Drug
Application approved by the U.S. Food and Drug Administration
submitted by the Company for ATO or the day prior to the fifth
anniversary of the merger's closing.
(iii) an additional number of Company Common Stock having a fair market
value of $4,000,000 to be issued within 30 days after the first
quarter where sales of ATO exceed $10,000,000 for the previous year;
(iv) an additional number of Company Common Stock having a fair market
value of $5,000,000 to be issued within 30 days after the first
quarter where sales of ATO exceed $20,000,000 for the previous year;
(v) within 30 days after the end of each year until expiration of ATO
patent rights or seven years following the first commercial sale of
ATO, if net sales of ATO exceed $40,000,000 during such year, a
number of shares of Company Common Stock having a fair market value
equal to 2% of such net sales; and
(vi) assumption by the Company of all of PolaRx's liabilities and
commitments (approximately $5 million).
Under existing NASDAQ listing requirements the Company is required to seek
shareholder approval of the shares of Company Common Stock that might be
issuable under subclauses ( ii) through (v) above because, at the time of
entering into the merger agreement the number of shares potentially issuable
under subclauses (i) through (v) could potentially exceed 20% of the then-
outstanding shares of Company Common Stock. As of the date of the mailing of
this proxy statement, utilizing the Company's closing price of $ on
June , 2000 and assuming all milestones were achieved, a total of
shares of Company Common Stock would be issued, constituting approximately
% of the Company's currently outstanding shares. The number of shares
actually issued may be more or less than this amount based on the actual fair
market value of Company Common Stock and the number of shares of Company
Common Stock actually outstanding on the applicable dates.
Under the merger agreement the Company is required to seek shareholder
approval of the issuances under subclauses (ii) through (v) above at the
Company's annual shareholders meeting. If the Company's shareholders do not
approve the share issuances, the Company will not issue the shares. Instead,
the Company will be required to make cash payments to the former shareholders
of PolaRx equal to the fair market value of the shares of Company Common Stock
that these shareholders would have received if the Company's shareholders had
approved the share issuance.
The Company's Board of Directors unanimously recommends that Company
shareholders vote in favor of Proposal 3 and in favor of the share issuance.
In reaching its recommendation, the Board considered that the merger agreement
and the transactions contemplated thereby allowed the Company to acquire a
near term revenue product (ATO) without the expenditure of significant cash
amounts. Moreover, assuming the Company's market price increases if ATO is
successful, the number of shares of Company Common Stock issuable will
decrease because the amount of shares issuable under subclauses (iii) through
(v) is dependent on the fair market value of the Company's Common Stock. A
vote against Proposal 3 would require the Company to utilize its cash
resources, in an amount that could be significant, to pay PolaRx shareholders,
and any such payment would reduce the amount of cash that the Company could
devote to the development of ATO, its other products and research and
development.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE ISSUANCE OF
COMMON STOCK IN CONNECTION WITH THE POLARX BIOPHARMACEUTICALS, INC.
ACQUISITION.
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<PAGE>
PROPOSAL 4
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 2000, and has further
directed that management submit the selection of independent auditors for
ratification by the shareholders at the Annual Meeting. Ernst & Young LLP has
audited the Company's financial statements since 1992. Representatives of
Ernst & Young LLP are expected to be present at the Annual Meeting, will have
an opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
In the event the shareholders fail to ratify the selection, the Board will
reconsider whether or not to retain that firm. Even if the selection is
ratified, the Board in its discretion may direct the appointment of a
different independent accounting firm at any time during the year if the Board
feels that such a change would be in the best interests of the Company and its
shareholders. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote at the Annual
Meeting will be required to ratify the selection of Ernst & Young LLP.
Abstentions and broker non-votes will not be counted toward the total.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS.
15
<PAGE>
Executive Officers
The following table sets forth certain information with respect to the
executive officers of cti:
<TABLE>
<CAPTION>
Age as
of
Name 5/19/00 Position
- ---- ------- --------
<S> <C> <C>
James A. Bianco, M.D.... 43 President, Chief Executive Officer
Jack W. Singer, M.D..... 57 Executive Vice President, Research Program Chairman
Louis A. Bianco......... 47 Executive Vice President, Finance and Administration
Robert A. Lewis, M.D.... 55 Executive Vice President, Chief Scientific Officer
Susan O. Moore.......... 51 Executive Vice President, Corporate Resource Development
Edward F. Kenney........ 55 Executive Vice President, Chief Operating Officer
</TABLE>
See Proposal 1 for biographical information concerning Drs. Bianco and
Singer.
Mr. Bianco is a founder of cti and has been cti's Executive Vice President,
Finance and Administration since February 1, 1992, and was a Director of cti
from the Company's inception in September 1991 to April 1992 and from April
1993 to April 1995. From January 1989 through January 1992, Mr. Bianco was a
Vice President at Deutsche Bank Capital Corporation in charge of risk
management. Mr. Bianco is a Certified Public Accountant and received his
M.B.A. from New York University. Mr. Bianco and Dr. Bianco are brothers.
Dr. Lewis has been cti's Executive Vice President, Chief Scientific Officer
since April 1996. From September 1994 to May 1995, Dr. Lewis was Senior Vice
President and Director, Preclinical Research and Development at Syntex-Roche
("Syntex"). From February 1986 to February 1992, he held various Senior and
Executive Vice Presidential offices at Syntex. While at Syntex, he held
associate professorships at Stanford University and at the University of
California, San Francisco, where he also held an adjunct professorship from
1992 to 1994. Prior to joining Syntex, Dr. Lewis was an Associate Professor of
Medicine at Harvard Medical School. Dr. Lewis received his B.S. degree in
chemistry from Yale University and his M.D. from the University of Rochester.
Ms. Moore has been cti's Executive Vice President, Corporate Resource
Development since January 1999, responsible for Corporate Communications and
Human Resource Development, and served as Executive Vice President, Human
Resource Development from July 1995 to December 1998. From March 1993 to July
1995, Ms. Moore was cti's Vice President of Human Resources. Prior to joining
cti, Ms. Moore was self-employed as a compensation consultant. From 1991 to
December 1992, Ms. Moore was the Director of Human Resources at ICOS
Corporation, a biotechnology company. From 1984 to 1990, Ms. Moore served as
Program Manager for Software Engineering Digital Equipment Corporation.
Mr. Kenney has been cti's Executive Vice President, Chief Operating Officer
since January 1999. From February 1997 to September 1998 he was Vice President
of Marketing and Sales at CellPro Incorporated. From 1987 to 1996 he served in
various sales, marketing and business development positions at Cetus
Corporation and Chiron Corporation, which merged in 1991. From 1991 to 1996,
Mr. Kenney was a marketing manager in the cardiovascular therapy area at
Boehringer Ingelheim, and from 1978 to 1986, he served in various sales,
marketing and business development capacities at Bristol-Myers Corporation.
Mr. Kenney earned a M.S. degree in Natural Resources from Ohio State
University.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and Directors, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission (the "SEC") reports of ownership
and changes in ownership of Common Stock and other equity securities of the
Company. Executive officers, Directors and greater than ten percent
shareholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file. The Company prepares Section
16(a) forms on behalf of its executive officers and Directors based on the
information provided by them.
16
<PAGE>
Based solely on review of this information, or written representations from
reporting persons that no other reports were required, the Company believes
that, during the 1999 fiscal year, all Section 16(a) filing requirements
applicable to its executive officers, Directors and greater than ten percent
beneficial owners were complied with, other than the filings of Form 5, which
were filed late by the Company in May 2000, for the following executive
officers and Directors: James A. Bianco, Louis A. Bianco, Jack L. Bowman,
Jeremy L. Curnock Cook, Wilfred E. Jaeger, Edward F. Kenney, Robert A. Lewis,
Max E. Link, Susan O. Moore, Mary O'Neil Mundinger, Phillip M. Nudelman, and
Jack W. Singer.
Compensation of Executive Officers
The following table sets forth all compensation earned in the years ended
December 31, 1997, 1998 and 1999 by the Company's Chief Executive Officer and
the four other most highly compensated executive officers who were serving as
executive officers at December 31, 1999 (collectively, the "Named Executive
Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual compensation Compensation Awards
------------------------------ ---------------------
Other
Annual Restricted Securities
Compensa- Stock Underlying
Name and Principal tion Awards Options All Other
Position Year Salary ($) Bonus ($) ($)(1) ($)(4) (#)(2) Compensation ($)
------------------ ---- ---------- --------- --------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
James A. Bianco, M.D.... 1999 433,224 50,000 101,885(3) 108,412 100,000 141,397(5)
President and Chief 1998 433,224 30,000 89,096(6) -- 403,672(7) 139,917(8)
Executive Officer 1997 393,840 120,000 88,426(9) -- 80,000 294,319(10)
Jack W. Singer, M.D..... 1999 260,016 -- 4,850(11) 65,067 40,000 11,655(12)
Executive Vice
President, 1998 260,016 -- 3,725(11) -- 122,031(7) 11,655(12)
Research Program
Chairman 1997 251,898 60,000 3,821(11) -- 27,500 11,655(12)
Louis A. Bianco......... 1999 300,120 -- 7,210(13) 54,252 35,000 10,428(14)
Executive Vice
President, 1998 300,120 -- 4,150(13) -- 126,531(7) 72,517(15)
Finance and
Administration 1997 300,120 -- 3,639(13) -- 15,000 96,109(16)
Robert A. Lewis, M.D.... 1999 272,040 -- 3,796(11) 68,075 55,000 --
Executive Vice
President, 1998 272,040 -- 3,476(11) -- 142,145(7) --
Chief Scientific
Officer 1997 262,032 40,000 2,741(11) -- 20,000 --
Edward F. Kenney........ 1999 211,442 -- 3,100(11) 56,304 135,000 --
Executive Vice
President, 1998 -- -- -- -- -- --
Chief Operating Officer 1997 -- -- -- -- -- --
</TABLE>
- --------
(1) Other annual compensation in the form of perquisites and other personal
benefits has been omitted where the aggregate amount of such perquisites
and other personal benefits constituted the lesser of $50,000 or 10% of
the total annual salary and bonus for the Named Executive Officer for the
applicable year.
(2) None of the Named Executive Officers held any Stock Appreciation Rights.
(3) Other annual compensation for Dr. Bianco includes payments totaling
$101,885 to cover Dr. Bianco's estimated tax liabilities with respect to
(i) certain perquisites, and (ii) the life insurance premium payment and
loan forgiveness described in Note 5.
(4) All restricted stock grants were made on December 22, 1999 under the 1994
Equity Incentive Plan. The aggregate number of shares held by the Named
Executive Officers at the end of 1999 (and their market value as of
December 22, 1999) were: Dr. Bianco, 35,394 ($108,412); Dr. Singer,
21,243 ($65,067); Mr. Bianco, 17,712 ($54,252); Dr. Lewis, 22,225
($68,075); and Mr. Kenney, 18,382 ($56,304). All of these grants vest
100% on the third anniversary of the grant date.
(5) All other compensation for Dr. Bianco includes the following: (i)
reimbursement of long-term disability insurance premiums of $9,461, (ii)
a premium payment of $40,000 for life insurance required by the terms of
Dr. Bianco's employment, (iii) loan forgiveness of $88,036 pursuant to
the terms of Dr. Bianco's employment agreement, and (iv) travel and
expense reimbursements totaling $3,900.
(6) Other annual compensation for Dr. Bianco includes payments totaling
$89,096 to cover Dr. Bianco's estimated tax liabilities with respect to
(i) certain perquisites, and (ii) the life insurance premium payment and
loan forgiveness described in Note 8.
(7) In July 1998, the Board of Directors approved the repricing of
outstanding options to $2.906 per share by exchanging such outstanding
options for new ten-year options. The terms of the exchange also included
a one-year blackout period on the exercise of the repriced
17
<PAGE>
options that expired on July 31, 1999. All other terms and conditions of
the options remained unchanged. Grants for the year ended December 31,
1998, include options that were initially granted in prior years and have
been repriced and exchanged for new options in 1998 as follows: Dr. Bianco,
303,672 options were repriced and exchanged; Dr. Singer, 77,031 options
were repriced and exchanged; Mr. Bianco, 91,531 options were repriced and
exchanged; and Dr. Lewis, 87,145 options were repriced and exchanged.
(8) All other compensation for Dr. Bianco includes the following: (i)
reimbursement of long-term disability insurance premiums of $8,736, (ii)
a premium payment of $40,000 for life insurance required by the terms of
Dr. Bianco's employment, (iii) loan forgiveness of $84,309 pursuant to
the terms of Dr. Bianco's employment agreement, and (iv) travel and
expense reimbursements totaling $6,872.
(9) Other annual compensation for Dr. Bianco includes payments totaling
$88,426 to cover Dr. Bianco's estimated tax liabilities with respect to
(i) certain perquisites, and (ii) the life insurance premium payment and
loan forgiveness described in Note 10.
(10) All other compensation for Dr. Bianco includes the following: (i)
payments aggregating $164,636 for unused sick and vacation leave accrued
by Dr. Bianco between 1992 and 1996, pursuant to the terms of his
employment agreement then in effect, (ii) reimbursement of long-term
disability insurance premiums of $8,737, (iii) a premium payment of
$40,000 for life insurance required by the terms of Dr. Bianco's
employment agreement, and (iv) loan forgiveness of $80,946 pursuant to
the terms of Dr. Bianco's current employment agreement. See "--Employment
Agreements."
(11) Other annual compensation includes payments to cover estimated tax
liabilities with respect to certain perquisites.
(12) All other compensation for Dr. Singer includes reimbursement for long-
term disability insurance premiums of $11,655 in 1997, 1998 and 1999.
(13) Other annual compensation for Mr. Bianco includes payments to cover
estimated tax liabilities with respect to (i) certain perquisites, and
(ii) the life insurance premium payment.
(14) All other compensation for Mr. Bianco includes the following: (i)
reimbursement for long-term disability insurance premiums of $8,499, and
(ii) a premium payment of $1,929 for life insurance.
(15) All other compensation for Mr. Bianco includes the following: (i)
reimbursement for long-term disability insurance premiums of $8,442, (ii)
a premium payment of $1,674 for life insurance, and (iii) payments
aggregating $62,401 for unused sick and vacation leave accrued by Mr.
Bianco during 1997, pursuant to the terms of his employment agreement
then in effect.
(16) All other compensation for Mr. Bianco includes the following: (i)
payments aggregating $86,210 for unused vacation leave accrued by Mr.
Bianco between 1992 and 1996, pursuant to the terms of his employment
agreement then in effect, (ii) reimbursement for long-term disability
insurance premiums of $8,474, and (iii) a premium payment of $1,425 for
life insurance.
The following table sets forth for each of the Named Executive Officers the
number of options granted during the year ended December 31, 1999 and the
potential realizable value of such grants. No stock appreciation rights were
granted to such individuals for the 1999 fiscal year.
Options Granted in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------
Potential
Realizable Value
at Assumed Annual
% of Total Rates of Stock
Number of Options Price
Securities Granted to Appreciation for
Underlying Employees Exercise Option Term(3)
Options in Fiscal Price Expiration -----------------
Name Granted(1) Year (%) ($/Sh)(2) Date 5% ($) 10% ($)
---- ---------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
James A. Bianco, M.D.... 100,000 9.0% $3.06 12/22/09 $192,630 $488,163
Jack W. Singer, M.D..... 40,000 3.6 3.06 12/22/09 77,052 195,265
Louis A. Bianco......... 35,000 3.2 3.06 12/22/09 67,421 170,857
Robert A. Lewis, M.D.... 55,000 5.0 3.06 12/22/09 105,947 268,490
Edward F. Kenney........ 100,000 9.0 3.69 1/13/09 231,905 587,693
35,000 3.2 3.06 12/22/09 67,421 170,857
</TABLE>
- --------
(1) Options were granted under the 1994 Equity Incentive Plan (the "1994
Plan").
(2) Stock options were granted at an exercise price equal to 100% of the
estimated fair value of the Common Stock, as determined by the Board of
Directors on the date of grant, pursuant to the terms of the 1994 Plan.
(3) Potential realizable value is based on the assumption that the Common
Stock appreciates at the annual rates shown (compounded annually) from the
date of grant until the expiration of the option term. These assumed rates
of appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
the future Common Stock price. There can be no assurance that any of the
values reflected in this table will be achieved.
18
<PAGE>
The following table sets forth for each of the Named Executive Officers, the
fiscal year-end number and value of unexercised options. No options or stock
appreciation rights were exercised by any of the Named Executive Officers
during 1999, and none of the Named Executive offices held any stock
appreciation rights at the end of the 1999 fiscal year.
Aggregated Option Exercises in Latest Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year- In-the-Money Options at
End (#) Fiscal Year-End ($)(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James A. Bianco, M.D........ 310,340 193,332 $1,268,432 $771,601
Jack W. Singer, M.D......... 82,865 79,166 338,304 315,936
Louis A. Bianco............. 98,198 63,333 401,288 252,320
Robert A. Lewis, M.D........ 98,813 98,332 403,385 391,626
Edward F. Kenney............ -- 135,000 -- 469,045
</TABLE>
- --------
(1) This amount is the aggregate number of in-the-money options multiplied by
the difference between the last reported sale price of the Common Stock on
the Nasdaq National Market on December 31, 1999 and the exercise price for
that option.
Ten-Year Option Repricings
As discussed in the Report of the Compensation Committee below, in 1998 the
Company implemented a special option repricing program for all of its
employees, including executive officers and Directors, holding stock options
with an exercise price per share in excess of the fair market value of the
Company's Common Stock on the repricing date. The repricing occurred on July
31, 1998, and a number of outstanding options with an exercise price in excess
of $2.906 per share were exchanged for new options exercisable for the same
aggregate number of shares at an exercise price of $2.906 per share.
19
<PAGE>
The following table sets forth information with respect to all repricings of
options held by each Named Executive Officer since the Company became a
reporting company pursuant to Section 13(a) of the Securities Exchange Act of
1934, as amended. None of the Named Executive Officers hold any SARs.
Ten-Year Option Repricings
<TABLE>
<CAPTION>
Length of
Original
Number of Market Option
Securities Price of Exercise Term Remaining
Underlying Stock At Price At New At Date of
Date of Options Time Of Time Of Exercise Repricing
Name and Position Repricing Repriced Repricing Repricing Price (Yrs.)
----------------- --------- ---------- --------- --------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
James A. Bianco, M.D.... 7/31/98 57,858 $2.906 $11.725 $2.906 4.15
President, Chief
Executive 7/31/98 1,527 2.906 11.725 2.906 6.72
Officer and Director 7/31/98 78,572 2.906 11.725 2.906 7.35
7/31/98 85,715 2.906 11.725 2.906 8.30
7/31/98 80,000 2.906 16.063 2.906 9.36
Jack W. Singer, M.D..... 7/31/98 12,858 2.906 11.725 2.906 4.15
Executive Vice
President, 7/31/98 958 2.906 11.725 2.906 6.72
Research Program
Chairman 7/31/98 7,143 2.906 11.725 2.906 7.35
and Director 7/31/98 28,572 2.906 11.725 2.906 8.27
7/31/98 27,500 2.906 16.063 2.906 9.36
Louis A. Bianco......... 7/31/98 19,287 2.906 11.725 2.906 4.15
Executive Vice
President, 7/31/98 17,145 2.906 11.725 2.906 5.39
Finance and
Administration 7/31/98 1,527 2.906 11.725 2.906 6.72
7/31/98 17,143 2.906 11.725 2.906 7.35
7/31/98 21,429 2.906 11.725 2.906 8.27
7/31/98 15,000 2.906 16.063 2.906 9.36
Robert A. Lewis, M.D.... 7/31/98 45,716 2.906 11.725 2.906 7.66
Executive Vice
President, 7/31/98 21,429 2.906 11.725 2.906 8.27
Chief Scientific
Officer 7/31/98 20,000 2.906 16.063 2.906 9.36
Edward F. Kenney........ 7/31/98 -- -- -- -- --
Executive Vice
President, 7/31/98 -- -- -- -- --
Chief Operating Officer 7/31/98 -- -- -- -- --
</TABLE>
Employment Agreements
Dr. Bianco, President and Chief Executive Officer, entered into an
employment agreement with cti effective December 17, 1996. The agreement,
originally in effect until December 31, 1999, has been extended with all the
terms and conditions of the current employment contract, until contract
negotiations with the Compensation Committee of the Board of Directors have
been concluded. The agreement provides that, in the event that cti terminates
Dr. Bianco's employment without cause or Dr. Bianco terminates his employment
for cause: (1) cti at such time shall pay Dr. Bianco an amount equal to
twenty-four months' base salary, (2) all of Dr. Bianco's stock options in cti
shall immediately become vested, and (3) cti shall continue to provide certain
benefits through the term of the agreement. The agreement also provides for
the forgiveness of certain indebtedness of Dr. Bianco to cti over the term of
the agreement. See "--Certain Relationships and Related Transactions". In
addition, the agreement provides that Dr. Bianco is entitled to four weeks of
paid vacation per year and that any unused vacation time shall be paid in cash
upon the termination of Dr. Bianco's employment for any reason or at such
earlier time as required to avoid forfeiture of accrued but unused vacation
time. The employment agreement restricts Dr. Bianco from competing with cti
for the term of the agreement and for two years after termination of his
employment with cti, unless cti shall have terminated Dr. Bianco's employment
without cause or Dr. Bianco shall have terminated his employment for cause.
The agreement also provides that, in the event a Change in Ownership (as
defined in the employment agreement) occurs, then all of Dr. Bianco's stock
options shall immediately become vested.
20
<PAGE>
Each of Jack W. Singer, Louis A. Bianco, Robert A. Lewis and Edward F.
Kenney has entered into a severance agreement with cti effective November 21,
1997, February 1, 1998, January 7, 1998 and January 25, 1999, respectively.
The agreements provide that, in the event any of the foregoing Named Executive
Officers is terminated by cti without cause or resigns for good reason: (1)
cti shall pay his base salary for one year from the severance date (2) cti
shall pay his accrued but unused vacation through the severance date, (3) cti
shall continue to pay his benefits for one year from the severance date, and
(4) all of his stock options shall become immediately vested. Inventions and
proprietary information agreements restrict each of Drs. Singer and Lewis from
competing with cti for two years after the termination of his employment with
cti.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors (the "Committee") is
composed of Directors who are not employees of the Company. The Committee is
responsible for establishing and administering the Company's executive
compensation arrangements, including the compensation of the Chief Executive
Officer and the other executive officers and key employees of the Company,
subject to ratification by the Board. The Committee also administers the 1994
Equity Incentive Plan (the "1994 Plan") and the 1996 Employee Stock Purchase
Plan and makes all stock option grants under the 1994 Plan to the Company's
executive officers.
General Compensation Policy
The Company operates in the extremely competitive and rapidly changing
biotechnology industry. The Committee believes that the compensation programs
for executive officers of the Company should be designed to attract, retain
and motivate talented executives responsible for the success of the Company
and should be determined within a competitive framework and based on the
achievement of strategic corporate objectives and individual performance and
teamwork. Within this overall philosophy, the Committee's objectives are to:
. Offer a total compensation program that takes into consideration the
compensation practices of a specifically identified peer group of
companies with which the Company competes for executive talent.
. Integrate each executive officer's compensation package with annual and
long-term corporate objectives and focus the officer's attention on the
attainment of those objectives.
. Encourage the creation of shareholder value through the achievement of
strategic corporate objectives.
. Provide annual variable incentive awards that take into account the
Company's performance relative to corporate objectives and the individual
executive officer's contributions.
. Align the financial interests of executive officers with those of
shareholders by providing significant equity-based, long-term incentives.
Compensation Components and Process
The Committee has developed a compensation policy which is designed to
attract and retain qualified key executive officers critical to the Company's
success. In developing this policy, the Committee has concluded that it is not
appropriate to base a significant percentage of the compensation payable to
the executive officers upon traditional financial targets, such as profit
levels and return on equity. This is primarily because the Company's products
are still in either development or clinical testing phases, and the Company
has not yet realized any significant revenues or product sales. In addition,
the Company's stock price performance often may reflect larger market forces
than the Company's actual performance. For these reasons, it is difficult to
tie the Company's compensation programs to financial performance. Instead, the
Committee makes its decisions based upon the attainment of corporate-wide,
team and individual performances. Such performances are evaluated in terms of
the achievement of strategic and business plan goals, including long-term
goals tied to the expansion of the Company's core technology and innovative
product development, the discovery of new drug candidates and the development
of the Company's organizational infrastructure.
21
<PAGE>
In establishing the compensation package of the Company's executive
officers, the Committee has adopted a "total pay" philosophy which includes
three major components: (1) base salary set at levels which are commensurate
with those of comparable positions at other pharmaceutical or biotechnology
companies; (2) annual bonuses and stock option grants tied to the achievement
of strategic corporate and team objectives and individual performance; and (3)
long-term, stock-based incentive awards intended to strengthen the mutuality
of interests between the executive officers and the Company's shareholders.
The Committee determines the compensation levels for the executive officers
with the assistance of an independent consulting firm that furnishes the
Committee with executive compensation data drawn from several nationally
recognized surveys of companies within the biotechnology and pharmaceutical
industries. On the basis of those surveys, the Committee has identified a peer
group of companies with which the Company competes for executive talent and
which have a total capitalization and head count similar to the Company's and
are at approximately the same development stage (the "Peer Companies").
The positions of the Company's Chief Executive Officer and the other
executive officers were compared with those of their counterparts at the Peer
Companies, and the market compensation levels for comparable positions were
examined to determine base salary, target incentives, and total cash
compensation. In addition, the practices of the Peer Companies concerning
stock option grants were also reviewed and compared.
Base Salary. The base salary for each executive officer is set at a level
considered appropriate for comparable positions at the Peer Companies. The
Committee's policy is to target base salary levels at the market average level
of base salary in effect for comparable positions at the Peer Companies.
Executive officers who attain the core competencies required of their
positions are paid at that level. The Committee makes its base salary
determinations in accordance with the market average level in effect for
comparable positions at the Peer Companies, competitive market forces and the
evaluation of performance and core competency provided for each executive
officer by the Chief Executive Officer.
Variable Incentive Awards. To reinforce the attainment of Company goals, the
Committee believes that a substantial portion of the annual compensation of
each executive officer should be in the form of variable incentive pay. The
annual incentive payment for each executive officer is determined on the basis
of the achievement of the corporate objectives established for the fiscal year
and the Committee's evaluation of the officer's performance both on an
individual and team basis. For the 1999 fiscal year, the corporate performance
objectives were tied to the following measures of success: (1) establishing a
new corporate alliance; (2) developing a vertically integrated oncology
pipeline with financial resources adequate for taking two products through
registration; and (3) establishing a $12.00 per share floor.
Long-Term, Equity-Based Incentive Awards. The goal of the Company's long-
term equity-based incentive awards is to align the interests of executive
officers with the shareholders and to provide each executive officer with a
significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. Such incentive is provided through stock
option grants made under the 1994 Plan. The size of the option grant to each
executive officer is set at a level which the Committee feels is appropriate
to create a meaningful opportunity for stock ownership based upon the
executive officer's current position with the Company, internal comparability
with stock option grants made to other Company executives, the executive
officer's current level of performance and his or her potential for future
responsibility and promotion over the option term. The Committee also takes
into account comparable equity incentives provided to individuals in similar
positions in the biotechnology and pharmaceutical industries, as reflected in
external surveys, and the number of unvested options held by the executive
officer at the time of the new grant. The Committee has established certain
general guidelines by which it seeks to target a fixed number of unvested
option shares for each executive officer based upon his or her current
position with the Company and his or her potential for growth within the
Company (i.e., future responsibilities and possible promotions over the option
term). However, the Committee does not strictly adhere to these guidelines in
making stock option grants, and the relative weight which is given to the
various factors varies from individual to individual, as the circumstances
warrant.
22
<PAGE>
During fiscal 1999, the Committee awarded the executive officers new stock
options for an aggregate of 300,000 shares of Common Stock. Each grant allows
the officer to acquire the shares underlying the stock option at a fixed price
per share (the market price on the grant date) over a ten-year period of time.
Specifically, the options vest in periodic installments over a three-year
period, contingent upon the executive officer's continued employment with the
Company. Accordingly, the option will provide a return only if the officer
remains with the Company and then only if the market price appreciates over
the option term.
The Compensation Committee granted restricted stock to the executive
officers for fiscal year 1999 in the amount of 128,903 shares. Shares were
distributed to each executive based on competitive market information in the
biotechnology and pharmaceutical industries. The restriction on each grant is
for a three-year period. Each executive member must remain with the Company
for this three-year period, or the stock is forfeited upon termination.
Compensation of the Chief Executive Officer
The base salary of the Company's Chief Executive Officer, James A. Bianco,
M.D., is reviewed annually by the Committee and has remained at $433,224 since
the 1998 fiscal year. Such salary level was established on the basis of the
base salary levels in effect for chief executive officers at the other
biotechnology and pharmaceutical companies comprising the Peer Companies. This
salary level for Dr. Bianco brings him to 8.3% above the average of the salary
levels in effect for the chief executive officers of the Peer Companies. The
Compensation Committee granted Dr. Bianco a $50,000 bonus payable January 1,
2000. This amount is below peer data suggesting that short term incentive
target grants are approximately 40% of base pay.
Dr. Bianco was also awarded stock options for 100,000 shares of Common Stock
at an exercise price of $3.06 per share. The grant reflected the Committee's
continuing policy to maintain his option holdings at a level consistent with
that for other chief executive officers of comparable development-stage
companies in the pharmaceutical industry and to subject a portion of his
overall compensation each year to the market performance of the Company's
Common Stock. Accordingly, the stock option grants will be of no value to Dr.
Bianco unless there is appreciation in the value of the Company's Common Stock
over the option term.
Compliance with Internal Revenue Code Section 162(m)
As a result of Section 162(m) of the Internal Revenue Code, which was
enacted into law in 1993, the Company will not be allowed a Federal income tax
deduction for compensation paid to certain officers, to the extent that
compensation exceeds one (1) million dollars per officer in any one year. This
limitation will apply to all compensation which is not considered to be
performance based. Compensation which does qualify as performance-based
compensation will not have to be taken into account for purposes of this
limitation. The Company's 1994 Plan has been structured so any compensation
deemed paid in connection with the exercise of stock options granted under
that plan with an exercise price equal to the market price of the option
shares on the grant date will qualify as performance-based compensation.
The cash compensation paid to the Company's executive officers during fiscal
1999 did not exceed the one (1) million dollar limit per officer, nor is the
cash compensation to be paid to the Company's executive officers for the 2000
fiscal year expected to reach that level. Because it is unlikely that the cash
compensation payable to any of the Company's executive officers in the
foreseeable future will approach the one (1) million dollar limitation, the
Committee has decided not to take any action at this time to limit or
restructure the elements of cash compensation payable to the Company's
executive officers. The Committee will reconsider this decision should the
individual compensation of any executive officer ever approach the one (1)
million dollar level.
COMPENSATION COMMITTEE
Jack L. Bowman
Jeremy L. Curnock Cook
Wilfred E. Jaeger, M.D.
Terrence M. Morris
23
<PAGE>
Compensation Committee Interlocks and Insider Participation
During the last completed fiscal year, the Compensation Committee consisted
of Dr. Jaeger and Messrs. Curnock Cook, Bowman and Morris. None of these
individuals was at any time during the last completed fiscal year, or at any
other time, an officer or employee of the Company.
Stock Performance Graph
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
3/21/97 3/31/97 6/30/97 9/30/97 12/31/97
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Cell Therapeutics, Inc................. $100.00 $ 97.56 $108.54 $145.12 $165.85
Nasdaq Stock Index (U.S.).............. $100.00 $ 97.51 $115.39 $134.90 $126.49
Nasdaq Pharmaceutical Index............ $100.00 $ 93.51 $100.95 $113.24 $101.67
<CAPTION>
3/31/98 6/30/98 9/30/98 12/31/98
------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Cell Therapeutics, Inc................. $ 40.24 $ 26.22 $ 20.73 $ 29.27
Nasdaq Stock Index (U.S.).............. $148.00 $ 79.48 $137.87 $177.82
Nasdaq Pharmaceutical Index............ $111.76 $103.58 $ 98.02 $130.14
<CAPTION>
3/31/99 6/30/99 9/30/99 12/31/99
------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Cell Therapeutics, Inc................. $ 34.15 $ 24.09 $ 21.95 $ 68.29
Nasdaq Stock Index (U.S.).............. $199.34 $218.10 $223.07 $321.94
Nasdaq Pharmaceutical Index............ $141.87 $144.37 $164.98 $241.58
</TABLE>
The stock performance graph depicts the cumulative total return on the
Company's Common Stock compared to the current total return for the Nasdaq
Stock Index (U.S.) and the Nasdaq Pharmaceutical Index. The graph assumes an
investment of $100 on March 21, 1997, when the Company's stock was first
traded in a public market. Reinvestment of dividends, if any, is assumed in
all cases.
Certain Relationships and Related Transactions
In December 1993, cti loaned Dr. Bianco $200,000 at 5.35% annual interest.
The promissory note originally provided for a single payment of principal and
interest on the earlier of July 1, 1997, and the third anniversary of the
effective date of the initial underwritten public offering of cti's Common
Stock. In December 1996, Dr. Bianco entered into an employment agreement with
the Company which amended the note to provide for the forgiveness of one-third
of the loan on each anniversary of the agreement. The unpaid portion of the
loan will
24
<PAGE>
accelerate and become due and payable in the event that cti terminates Dr.
Bianco's employment for cause or Dr. Bianco terminates his employment without
cause. The unpaid portion of the loan will be forgiven in the event that cti
terminates Dr. Bianco's employment without cause, Dr. Bianco terminates his
employment for cause, dies or becomes disabled, a Change in Ownership (as
defined in Dr. Bianco's employment agreement) occurs or cti's public market
capitalization equals or exceeds $500 million. See "--Employment Agreements".
The largest balance outstanding on the loan during 1999 was $84,766. As of
December 31, 1999, the balance of the loan had been forgiven.
On December 16, 1998, in lieu of cash bonuses, cti extended loans at 4.97%
annual interest to the following executive officers: Dr. Bianco, $100,000; Dr.
Singer, $75,000; and Dr. Lewis, $75,000. The promissory notes provide for a
single payment of principal and interest on December 16, 2002. The largest
balances outstanding on the loans during 1999 were $105,184, $78,888 and
$78,888, respectively. The amounts outstanding at March 31, 2000 were
$106,482, $79,861 and $79,861, respectively.
In 1999, the Company entered into an agreement with a clinical medical
consultant who is the spouse of an executive officer of the Company. During
1999 the Company paid the clinical medical consultant approximately $107,000
in fees for services rendered.
Other Business
As of the date of this Proxy Statement, management knows of no other
business that will be presented for action at the meeting. Management has not
received any advance notice of business to be brought before the meeting by
any shareholder. If other business requiring a vote of the shareholders should
come before the meeting, the person designated as your proxy will vote or
refrain from voting in accordance with his best judgment.
Other Information
The Company's Annual Report to Shareholders for the year ended December 31,
1999 (the "Annual Report") is being mailed concurrently with the mailing of
the Notice of Annual Meeting and Proxy Statement to all shareholders entitled
to notice of and to vote at the Annual Meeting. The Annual Report is not
considered proxy soliciting material nor is it incorporated into this Proxy
Statement.
Shareholder Proposals
A shareholder who intends to nominate a candidate for election to the Board
of Directors or to present a proposal of business at the 2001 Annual Meeting
and desires that information regarding the proposal be included in the 2001
proxy statement and proxy materials must ensure that such information is
received in writing by the Secretary of the Company at the Company's principal
executive offices not later than . In addition, the proxy solicited by
the Board of Directors for the 2001 Annual Meeting will confer discretionary
authority to vote on any shareholder proposal presented at that meeting,
unless the Company receives notice of such proposal not later than .
By Order of the Board of Directors
/s/ Michael J. Kennedy
Michael J. Kennedy
Secretary
Seattle, Washington
May , 2000
25
<PAGE>
The Board of Directors recommends a vote FOR the proposals regarding:
(1) ELECTION OF DIRECTORS: Class III: Dr. James A. Bianco, Dr. Jack W. Singer
and Dr. Mary O. Mundinger
For Withhold For All
All All Except:
[_] [_] [_]
To withhold authority to vote, mark "For All Except" and write the nominee's
number on the line below.
________________________________________________________
(2) Approval of an amendment to the Company's FOR AGAINST ABSTAIN
1994 Equity Incentive Plan to increase
the number of shares of Common Stock
available for grant under the Plan [_] [_] [_]
by 1,100,000 shares.
(3) Approval of the issuance of an indeterminate FOR AGAINST ABSTAIN
number of shares of Common Stock in
connection with the acquisition of [_] [_] [_]
PolaRx Biopharmaceuticals, Inc.
(4) Ratification of the selection of FOR AGAINST ABSTAIN
Ernst & Young LLP as independent
auditors of the Company for the [_] [_] [_]
fiscal year ending December 31, 1999.
I/We plan to attend the Annual Meeting. [_]
I/We will not be attending the Annual Meeting. [_]
Number of Attendees [_]
________________ ________________ PLEASE MARK ALL [X]
ACCOUNT NUMBER SHARES CHOICES LIKE THIS
SIGNATURE __________________________________ DATE ___________________
Cell Therapeutics, Inc.
Annual Meeting of the Shareholders
July 7, 2000
This Proxy is Solicited on Behalf of the Board of Directors
The shareholder(s) hereby appoints James A. Bianco, M.D., and Michael J.
Kennedy, and each of them, as proxies, with full power of substitution, to
represent and vote for and on behalf of the shareholder(s) the number of shares
of Common Stock of Cell Therapeutics, Inc. that the shareholder(s) would be
entitled to vote if personally present at the Annual Meeting of Shareholders to
be held on July 7, 2000, or at any adjournment or postponement thereof. The
shareholder(s) directs that this proxy be voted as follows:
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting. This proxy, when properly executed,
will be voted in the manner directed herein by the shareholder(s). IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR ALL NOMINEES" IN ITEM 1 AND
"FOR" ITEMS 2, 3 and 4.
Please sign exactly as your name(s) appears on your stock certificate(s). When
shares are held jointly, each person must sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. An
authorized person should sign on behalf of corporations, partnerships and
associations and give his or her title.
