SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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240.14a-12
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NEORX CORPORATION
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS:
The 1999 Annual Meeting of Shareholders (the "Annual Meeting") of NeoRx
Corporation (the "Company") will be held at The Mountaineers Club, 300 Third
Avenue West, Seattle, Washington 98119, on Friday, May 14, 1999, at 9 a.m., for
the following purposes:
1. To elect five members to the Company's Board of Directors; and
2. To transact such other business as may properly come before
the Annual Meeting and any adjournments or postponements
thereof.
Your attention is directed to the accompanying Proxy Statement for
further information with respect to the matters to be acted upon at the Annual
Meeting. To constitute a quorum for the conduct of business at the Annual
Meeting, holders of a majority of all outstanding shares of the Company's Common
Stock must be present in person or be represented by proxy. To ensure
representation at the Annual Meeting, you are urged to complete, sign and date
the enclosed proxy card and return it promptly in the enclosed postage-prepaid
envelope.
The record date for determining shareholders entitled to notice of, and
to vote at, the Annual Meeting is the close of business on March 19, 1999.
BY ORDER OF THE BOARD OF DIRECTORS
RICHARD L. ANDERSON
President and Chief Operating Officer, Secretary
April 2, 1999
Seattle, Washington
YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE ASKED TO COMPLETE, SIGN,
DATE AND RETURN THE ACCOMPANYING PROXY CARD REGARDLESS OF WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING.
NEORX CORPORATION
PROXY STATEMENT
GENERAL
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors (the "Board of Directors") of NeoRx Corporation
("NeoRx" or the "Company") of proxies in the accompanying form for use at the
Annual Meeting of Shareholders to be held on Friday, May 14, 1999, and any
adjournments or postponements thereof (the "Annual Meeting"). The Annual Meeting
will be held at 9 a.m. at The Mountaineers Club, 300 Third Avenue West, Seattle,
Washington 98119.
The Company's principal office is located at 410 West Harrison Street,
Seattle, Washington 98119. The approximate date of mailing this Proxy Statement
and the accompanying proxy card is April 2, 1999.
VOTING SECURITIES
Only shares of the Company's Common Stock, $.02 par value per share
(the "Common Stock"), outstanding at the close of business on March 19, 1999,
the record date for determining shareholders (the "Record Date"), are entitled
to receive notice of and to vote at the Annual Meeting. At the Record Date,
there were 21,006,964 shares of Common Stock outstanding. The presence, 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
business at the Annual Meeting. Each holder of Common Stock is generally
entitled to one vote per share held on the Record Date on each item to be voted
on at the Annual Meeting. In voting for the election of Directors, however, each
shareholder has the right to cumulate his or her votes and cast as many votes as
are equal to the number of Directors to be elected multiplied by the number of
such shareholder's shares. These votes may be cast for one candidate or
distributed among as many candidates as the shareholder desires. If a
shareholder wishes to cumulate his or her votes, he or she should multiply his
or her shares by the number of Directors to be elected (deriving a cumulative
total) and then write the number of votes for each Director next to each
Director's name on the proxy card. The total votes cast in this manner may not
exceed the cumulative total. If a shareholder does not wish to cumulate votes
for Directors, he or she should indicate the vote for or against each nominee,
as provided on the proxy card. On all other matters, each share of Common Stock
entitles its holder to one vote on each matter to be acted upon at the Annual
Meeting.
Under Washington law and the Company's Articles of Incorporation, if a
quorum is present at the Annual Meeting, the five nominees for election as
Directors who receive the greatest number of votes cast for the election of
Directors by the shares present in person or represented by proxy at the Annual
Meeting and entitled to vote, will be elected Directors. Abstention from voting
on the election of Directors will have no impact on the outcome of this proposal
since no vote has been cast in favor of any nominee. There can be no broker
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nonvotes on the election of Directors since brokers who hold shares for their
clients have discretionary authority to vote such shares with respect to this
matter.
The proxy cards also confer discretionary authority to vote the shares
authorized to be voted thereby on any matter that was not known on the date of
this Proxy Statement but may properly be presented for action at the Annual
Meeting.
YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE ASKED TO COMPLETE, SIGN,
DATE AND RETURN THE ACCOMPANYING PROXY CARD REGARDLESS OF WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING.
REVOCATION
Any shareholder returning a proxy has the power to revoke it at any
time before shares represented thereby are voted at the Annual Meeting. Any
shares represented by an unrevoked proxy will be voted unless the shareholder
attends the Annual Meeting and votes in person. A shareholder's right to revoke
a proxy is not limited by or subject to compliance with a specified formal
procedure, but written notice of such revocation should be given to the
Company's Corporate Secretary at or before the Annual Meeting.
EXPENSES OF SOLICITATION
The Company will bear the expense of printing and mailing proxy
solicitation material. In addition to the solicitation of proxies by mail,
solicitation may be made by certain Directors, officers and other employees of
the Company in person, by telephone or by facsimile transmission. No
compensation will be paid for such solicitation.
Arrangements also will be made with brokerage firms and other
custodians, nominees and fiduciaries to forward proxy solicitation material to
certain beneficial owners of the Company's Common Stock, and the Company will
reimburse such brokerage firms, custodians, nominees and fiduciaries for
reasonable out-of-pocket expenses incurred by them in connection therewith.
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ELECTION OF DIRECTORS
NOMINEES FOR DIRECTOR
Five Directors are to be elected by the holders of Common Stock at the
Annual Meeting. These Directors will serve one-year terms that will expire at
the 2000 Annual Meeting of Shareholders, or until their successors have been
elected and qualified. Unless a shareholder withholds his or her vote, each
proxy will be voted for the election of the following nominees:
PAUL G. ABRAMS, M.D., J.D., age 51 is a co-founder of the Company and
has been a Director since January 1985. He has been the Company's Chief
Executive Officer since May 1990 and was Vice President, Medical Affairs from
January 1985 to April 1990. Dr. Abrams holds J.D., M.D. and B.A. degrees from
Yale University. He is a board-certified internist and medical oncologist and is
an Affiliate Associate Professor in the Department of Radiology at the
University of Washington. Dr. Abrams serves on the Executive Committee of the
Board of Directors of the Biotechnology Industry Organization.
JACK L. BOWMAN, age 66, has been a Director since January 1994. Mr.
Bowman was Company Group Chairman of Johnson & Johnson, a multinational
pharmaceutical company, from 1987 until his retirement in 1993. Mr. Bowman is a
director of Cell Therapeutics, Inc., CytRx, Inc., Celgene Corp., Targeted
Genetics Corporation, Osiris Therapeutics, Inc., and Cellegy Pharmaceuticals,
each of which is a biotechnology company. He holds a B.Ed. degree from Western
Washington University.
FREDERICK B. CRAVES, Ph.D., age 53, has been the Company's Chairman of
the Board of Directors since July 1993. In June 1997, Dr. Craves founded Bay
City Capital Management LLC, a merchant bank providing advisory services and
investing in life science companies, and has served as chairman and managing
director since that company's inception. In November 1996, Dr. Craves founded
The Craves Group LLC; and in January 1994, Dr. Craves co-founded Burrill &
Craves. Both of these entities are investment companies. Dr. Craves is Chairman
of the Board and Acting Chief Executive Officer of Epoch Pharmaceuticals, and is
a director of Incyte Pharmaceuticals, Inc., both biotechnology companies. Dr.
Craves holds a Ph.D. degree in Pharmacology and Experimental Toxicology from the
University of California San Francisco Medical Center.
E. ROLLAND DICKSON, M.D., age 65, has been a Director since May 1998.
Dr. Dickson has been the Mary Lowell Leary Professor of Medicine at Mayo Medical
School and Director of Development at the Mayo Foundation for Medical Education
and Research since 1993. In 1999, Dr. Dickson was appointed to the Board of
Trustees of the Mayo Foundation for Medical Education and Research. Dr. Dickson
received his M.D. degree from Ohio State University.
ALAN A. STEIGROD, age 61, has been a Director since May 1998. Mr.
Steigrod has been Managing Director of Newport HealthCare Ventures, which
provides consulting and
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investment service to the biopharmaceutical industry, since 1996. From March
1993 to November 1995, he served as President and Chief Executive Officer of
Cortex Pharmaceuticals Inc., a development stage neuroscience company.
It is intended that votes will be cast pursuant to the enclosed proxy
card for the election as Directors of the foregoing nominees. Executing the
proxy card will give the proxies the authority to vote the shares in the
election of Directors as the proxies shall determine. If any nominee shall not
be a candidate for election as a Director at the Annual Meeting, it is intended
that votes will be cast pursuant to the enclosed proxy for such substitute
nominee as may be nominated by the existing Directors. No circumstances are
presently known that would render any nominee named above unavailable.
Pursuant to the Company's Bylaws, shareholders seeking to nominate
other candidates for election to the Board of Directors at the Annual Meeting
must give written notice to the Company's Corporate Secretary not less than 60
days nor more than 90 days before the Annual Meeting. Such notice must contain
certain information as to the shareholder giving the notice and each proposed
nominee, including information similar to that required under the federal proxy
rules. If less than 70 days' notice or prior public disclosure of the date of
the scheduled Annual Meeting is given, notice by the shareholder must be given
not later than the tenth day following the earlier of the mailing of notice of
the Annual Meeting or the date public disclosure of the Annual Meeting was made.
The Company's Bylaws provide that no person shall be elected a Director of the
Company unless nominated in accordance with the Bylaws. As of the date of this
Proxy Statement, the Company has not received any Director nominations by
shareholders.
The Board of Directors met 11 times during the year ended December 31,
1998. All members of the Board of Directors, except E. Rolland Dickson, attended
at least 75% of the total number of meetings held by the Board of Directors and
by the committees of the Board of Directors on which they served. E. Rolland
Dickson attended 64% of the meetings held by the Board of Directors and 66% the
Audit Committee meetings.
BOARD OF DIRECTORS RECOMMENDATION
The Board of Directors recommends a vote for each of the nominees.
COMMITTEES OF THE BOARD
The Board of Directors has two committees: an Audit Committee and a
Compensation Committee. It does not have a nominating committee.
The Audit Committee currently consists of two non-employee Directors:
Mr. Dickson and Dr. Craves. The Audit Committee reviews the preparation and
audit of the Company's accounts, considers the engagement of independent public
accountants for the ensuing year and the terms of such engagement, reviews the
scope of the audit proposed by such accountants, and receives and reviews the
audit reports. The Audit Committee met three times during the year ended
December 31, 1998.
4
The Compensation Committee currently consists of two non-employee
Directors: Messrs. Steigrod and Bowman. The Compensation Committee recommends to
the Board of Directors the salary and certain terms of employment of the
Company's officers and administers the Company's 1994 Stock Option Plan and the
grants of options thereunder. The Compensation Committee met six times during
the year ended December 31, 1998.
COMPENSATION OF DIRECTORS
The Company has a policy of paying Directors who are not employees of
the Company a semi-annual fee of $4,000 for service on the Board of Directors,
together with a fee of $1,500 for each Board meeting. Dr. Fred B. Craves does
not receive payments as a Director; he serves as the Chairman and Managing
Director of Bay City Capital, which has contracted to provide consulting
services to the Company. Non-employee Directors also receive stock option grants
under the Company's 1991 Stock Option Plan for Non-Employee Directors (the
"Directors Plan"). Each new non-employee Director, upon election or appointment
to the Board of Directors, receives an initial option to purchase 20,000 shares
of Common Stock at an exercise price equal to the fair market value per share of
Common Stock on the grant date. In addition, each non-employee Director
automatically receives an annual option grant to purchase 10,000 shares of
Common Stock following each annual meeting of shareholders at an exercise price
equal to the fair market value per share of Common Stock on the grant date,
provided that a non-employee Director who has received the initial grant for
20,000 shares of Common Stock within five months prior to any such annual
meeting of shareholders, does not receive the annual grant for such annual
meeting. The options granted as of each annual meeting of shareholders
(including the Annual Meeting) become exercisable in two equal installments on
the dates of the next two succeeding annual meetings of shareholders.
On February 21, 1997, the Board of Directors granted to Dr. Fred B.
Craves an option to purchase 60,000 shares of the Company's Common Stock from
the Restated 1994 Stock Option Plan for his services as Chairman of the Board of
Directors. In addition, Dr. Craves serves as the Chairman and Managing Director
of Bay City Capital, which has contracted to provide consulting services to the
Company. See "Certain Relationships and Related Transactions."
5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership, as of February 16, 1999, of the Common Stock by (a) each person known
by the Board of Directors to beneficially own more than 5% of the outstanding
Common Stock, (b) each Director and nominee for Director, (c) each of the
executive officers included in the Summary Compensation Table, and (d) all
executive officers and Directors as a group. Except as otherwise indicated, the
Company believes that the beneficial owners of the shares listed below have sole
investment and voting power with respect to the shares.
SHARES PERCENTAGE
BENEFICIALLY OF COMMON
NAME OWNED STOCK
---- ------------ ----------
Merrill Lynch Asset Management....................................... 3,314,400 15.8%
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Bay City Capital Management LLC (1).................................. 1,240,200 5.9%
750 Battery Street, Suite 600
San Francisco, California 94111
Ross Financial Corporation........................................... 1,196,000 5.7%
Micro Commerce Center
Cayman Islands B.W.I.
Paul G. Abrams (2)................................................... 324,672 1.5%
Richard L. Anderson ................................................. 10,000 *
Jack L. Bowman (3)................................................... 29,000 *
Becky J. Bottino..................................................... 2,005 *
Fred B. Craves (4)................................................... 1,417,700 6.7%
E. Rolland Dickson .................................................. 8,000 *
John M. Reno (5)..................................................... 179,500 *
Robert W. Schroff (6)................................................ 93,082 *
Alan A. Steigrod..................................................... 2,000 *
Bruce H. Walters (7)................................................. 92,925 *
All executive officers and Directors as a group (10 persons) (8)..... 2,158,884 10.0%
- -----------------
* Less than 1%.
(1) Based on publicly available information on February 16, 1999.
(2) Includes 177,375 shares subject to options exercisable within 60 days.
(3) Includes 27,500 shares subject to options exercisable within 60 days.
(4) Represents 177,500 shares subject to options exercisable within 60 days,
and 1,240,200 shares held by Bay City Capital Management Fund I, LP, 750
Battery St, Suite 600, San Francisco, CA 94111. Mr. Craves is the
Chairman and Managing Director of "Bay City" and disclaims beneficial
ownership of
6
these shares held by Bay City. Based on publicly available information
after February 16, 1999, Bay City purchased an additional 1,125,000 shares
of the Company, increasing its percentage of common stock owned to 11.3%.
(5) Includes 179,500 shares subject to options exercisable within 60 days.
(6) Includes 83,371 shares subject to options exercisable within 60 days.
(7) Includes 84,250 shares subject to options exercisable within 60 days.
(8) Includes 729,946 shares subject to options exercisable within 60 days.
7
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table sets forth all compensation for services rendered
in each of the last three years to the Company's Chief Executive Officer and the
other five most highly compensated officers in 1998 (the "named executive
officers").
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
-------------------------------------------------------
Bonus and Restricted Securities All Other
Name and Achievement Stock Underlying Compensation
Principal Position Year Salary ($) Award ($)(1) Awards ($) Options (#) ($)(2)
- ----------------------------------------------------------------------------------------------------------------
Paul Abrams 1998 $286,653 -- -- -- $1,200
Chief Executive Officer 1997 274,149 $69,000 -- -- 696
1996 258,457 1,700 -- 125,000 696
Dick Anderson 1998 209,000 13,560 -- 150,000 1,800
President and Chief 1997 184,141 64,663 -- 242,500 1,500
Operating Officer 1996 -- -- -- -- --
Becky Bottino 1998 143,798 9,059 -- -- 947
Vice President, Operations 1997 123,152 35,000 -- -- 492
1996 107,237 1,700 -- 25,000 388
John M. Reno (3) 1998 221,909 -- -- -- 1,104
Vice President, Research 1997 169,718 75,262 -- 30,000 1,152
and Development 1996 169,718 1,700 -- 25,000 1,152
Robert W. Schroff 1998 177,659 10,863 -- -- 367
Vice President and General 1997 169,718 77,345 -- 30,000 1,152
Manager, Cardiovascular 1996 157,925 1,700 -- 25,000 336
Products
Bruce H. Walters (4) 1998 143,140 -- -- 11,250 1,472
Vice President, Human 1997 137,551 35,000 -- -- 908
Resources 1996 137,551 1,700 -- 25,000 908
- -----------------
(1) Includes accrued bonus and achievement awards.
(2) Consists of premiums paid under group term life insurance policies.
(3) John M. Reno resigned as Vice President of Research and Development on
August 15, 1998.
(4) Bruce H. Walters resigned as Vice President of Human Resources on
January 4, 1999.
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STOCK OPTIONS
The following table provides details regarding stock options granted to
the named executive officers in 1998. In addition, in accordance with Securities
and Exchange Commission (the "SEC") rules, the hypothetical gains or "option
spreads" that would exist for the respective options are shown. These gains are
based on assumed rates of annual compounded stock price appreciation of 5% and
10% from the date the options were granted over their 10-year term.
OPTIONS GRANTED IN 1998
Potential Realizable Value At
Assumed Annual Rates of Stock Price
Individual Grants Appreciation for Option Term
-------------------------------------------------------- -----------------------------------
Number of Percent of
Securities All Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted(#)(1) 1998 Per Share($) Date 5%($)(2) 10%($)(2)
- ------------------- ------------- ------------ ------------ ---------- -------- ---------
Paul G. Abrams -- -- -- -- -- --
Richard L. Anderson 150,000 (2) 5.9% $1.25 12/14/2008 $117,918 $298,826
Becky Bottino -- -- -- -- -- --
John M. Reno (3) -- -- -- -- -- --
Robert W. Schroff -- -- -- -- -- --
Bruce H. Walters (4) 11,250 (5) * $1.25 1/04/2001 1,485 3,047
- ------------------
* Less than 1%.
(1) The Options granted will be exercisable in four equal annual
installments beginning on the first anniversary date of the option and
expire 10 years from the date of grant. All options were granted with
an exercise price equal to the fair market value of the Common Stock on
the date of the grant based on the closing price of the Common Stock as
quoted on the Nasdaq National Market. The options are also subject to
accelerated vesting upon the occurrence of certain events. See
"Employment and Change of Control Agreements and Severance Agreement."
(2) The amounts result from the assumed rates of stock price appreciation
required by the SEC and are not intended to forecast actual stock price
appreciation..
(3) John M. Reno resigned as Vice President of Research and Development on
August 15, 1998.
(4) Bruce H. Walters resigned as Vice President of Human Resources on
January 4, 1999.
(5) The options granted are exercisable on January 4, 1999 and expire two
years from the date of grant.
9
OPTION EXERCISES IN 1998 AND YEAR-END VALUE TABLE
The following table sets forth information on option exercises in the
year ended December 31, 1998 by the named executive officers and the value of
such officers' unexercised options at the end of 1998.
AGGREGATED OPTION EXERCISES IN 1998
AND YEAR-END OPTION VALUES
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-The-Money Options at
Shares December 31, 1998(#) December 31, 1998($)(1)
Acquired on Value --------------------------- --------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ----------- ----------- ----------- ------------- ----------- -------------
Paul G. Abrams 13,125 $41,107 177,375 500,000 -- --
Richard L. Anderson -- -- -- 392,500 -- $14,100
Becky Bottino -- -- -- 183,251 -- --
John M. Reno -- -- 179,500 -- -- --
Robert W. Schroff -- -- 83,871 149,879 -- --
Bruce H. Walters -- -- 84,250 29,500 $1,058 --
- --------------
(1) The value of unexercised in-the-money options is calculated based on the
market price per share on December 31, 1998 of $1.344 as reported by the
Nasdaq National Market, less the exercise price.
REPORT ON OPTION REPRICING
On December 14, 1998, the Compensation Committee of the Board of
Directors approved a plan pursuant to which employees, including executive
officers, were allowed to exchange options with exercise prices in excess of the
then current fair market price of the Common Stock for new options having an
exercise price per share of $1.60, which represented 128% of the fair market
value of the underlying Common Stock on that date. To qualify for the exchange,
employees had to agree to a one-year moratorium on exercise of these options.
During this "black-out period" any employee resigning from the Company will not
be able to exercise these options.
The Compensation Committee believes that stock options are a
significant factor in the Company's ability to retain and provide incentives for
employees and executives. The Compensation Committee further believes that at
their original exercise prices, the disparity between the exercise prices of
these options and the market price for Common Stock at the time the repricing
plan was implemented did not provide meaningful incentives to the employees and
executive officers holding the options. The Compensation Committee also believes
that the repricing plan benefits the Company's shareholders by strengthening the
Company's ability to retain experienced and productive employees and executives,
10
improving the morale of employees and executives, and creating greater
incentives for employees and executives to improve the Company's financial
performance.
OPTION REPRICING
The following table provides information on repricing of options held
by the named executive officers during 1998. Other than the repricing program
implemented in December 1998, the Company has not repriced any stock options
since October 1996, and has not repriced officer options for six years. Messrs.
Reno and Walters did not participate in the option repricing program.
Number of Market Exercise New
Securities Price of Price at Exercise Length of Original
Underlying Stock at the Time of Price Option Term
Options Time of Repricing ($/Sh) Remaining at the
Name Date Repriced Repricing (1) (2) Date of Repricing
- -------------------- -------- ----------- ---------- ----------- -------- -----------------
Paul G. Abrams 12/15/98 63,000 $1.25 $12.25 $1.60 3 years, 219 days
12/15/98 312,000 1.25 2.94 1.60 5 years, 218 days
12/15/98 125,000 1.25 7.00 1.60 7 years, 149 days
Richard L. Anderson 12/14/98 202,500 1.25 4.63 1.60 8 years, 41 days
12/14/98 10,000 1.25 4.44 1.60 8 years, 240 days
12/14/98 30,000 1.25 5.75 1.60 8 years, 353 days
Becky Bottino 12/15/98 60,750 1.25 2.94 1.60 5 years, 218 days
12/15/98 5,000 1.25 6.38 1.60 5 years, 303 days
12/15/98 32,501 1.25 5.13 1.60 6 years, 323 days
12/15/98 25,000 1.25 7.00 1.60 7 years, 149 days
12/15/98 60,000 1.25 5.44 1.60 8 years, 253 days
Robert W. Schroff 12/15/98 45,000 1.25 12.25 1.60 3 years, 219 days
12/15/98 18,750 1.25 10.62 1.60 4 years, 65 days
12/15/98 31,129 1.25 2.94 1.60 5 years, 218 days
12/15/98 25,000 1.25 7.00 1.60 7 years, 149 days
12/15/98 30,000 1.25 3.56 1.60 8 years, 163 days
- -----------------
(1) Options were granted with an exercise price equal to the fair market
value on the grant date based on the closing price of the Common Stock
as quoted on the Nasdaq National Market.
(2) Options were granted with an exercise price of $1.60, which represented
128% of the fair market value of the underlying Common Stock on that
date.
11
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
STATEMENT OF COMPENSATION PHILOSOPHY
The Compensation Committee of the Board of Directors is responsible for
establishing compensation levels for the Company's executive officers,
establishing and administering performance-based compensation plans, evaluating
the performance of the Company's executive officers, and considering management
succession and related matters.
The Company's executive compensation program primarily consists of
three parts: base salary, annual bonus, and stock options. The Company's overall
philosophy is to hire individuals who possess the requisite professional
managerial skills with demonstrated success in positions of comparable scope and
responsibility in healthcare and other research and industrial settings, and who
will help the Company achieve its mission of developing innovative
pharmaceuticals to provide solutions for critical, unmet needs in cancer and
cardiovascular diseases. The Company is committed to recruiting, motivating and
retaining senior executives with demonstrated talent and managerial leadership
skills.
The Company's goal for total compensation is to be competitive with
other biotechnology enterprises. The program places significant emphasis on
equity participation by granting stock options to align the interests of senior
management with those of the Company's shareholders. The Company's cash
compensation is designed to be competitive while also recognizing the need to
conserve cash for product development.
Compensation payments in excess of $1 million to each of the named
executive officers are subject to a limitation on deductibility for the Company
under Section 162(m) of the Internal Revenue Code of 1986, as amended. Certain
performance-based compensation is not subject to the limitation on
deductibility. Cash compensation to the Chief Executive Officer or any other
executive officer has never exceeded $1 million and the Compensation Committee
does not expect cash compensation in 1999 to the Chief Executive Officer or any
other executive officer to exceed $1 million. The Board of Directors intends to
qualify option awards for the performance-based exception to the $1 million
limitation on deductibility of compensation payments.
BASE SALARY
The Company's philosophy is to maintain executive cash compensation at
a competitive level sufficient to recruit and retain individuals possessing the
above-mentioned skills. Determinations of appropriate cash compensation levels
are generally made through regular participation in industry and
industry-related surveys, as well as by monitoring developments in key
industries such as biotechnology and pharmaceuticals. The Company's cash
compensation levels are designed to be approximately equal to cash compensation
paid by other biotechnology enterprises. For the last several years, executive
officer base salaries
12
have only been adjusted to be consistent with the Company's overall
compensation targets based on survey data.
The survey data considered by the Compensation Committee in determining
1998 executive compensation include salary information provided by 103
biotechnology enterprises having between 51 and 149 employees (the "Comparison
Group"), of which 82 are publicly traded companies. Approximately 65% of these
publicly traded companies are included in the Nasdaq Pharmaceutical Stock Index
referred to in the Stock Price Performance Graph that appears elsewhere in this
Proxy Statement.
ANNUAL BONUS
An annual bonus plan has been established to reward participants for
their contributions to the achievement of Company-wide performance goals. All
executive officers of the Company participate in the program, and the
Compensation Committee may elect to expand it to cover other employees. This
incentive plan is designed to ensure that when such payments are added to a
participant's base salary, the resultant compensation for above average
performance will approximate the average total cash compensation level of
comparable companies.
In 1998, executive officers were eligible to earn a bonus up to 25% of
salary, upon attainment of specific Company performance goals set by the Board
of Directors. These goals included forming strategic alliances, achieving
product milestones, and increasing cash reserves. The Compensation Committee
does not assign relative weights to these goals in formulating the amount of the
awards. In February 1999, the Compensation Committee determined that, although
several of the goals were met or nearly met in a very harsh climate, several
critical achievements did not occur. Based on the overall performance of the
company, bonuses equaling 6% percent of their respective base salaries were paid
to Mr. Anderson, Ms. Bottino, and Dr. Schroff for 1998.
In addition to the bonus plan, the Compensation Committee has the
discretion to grant achievement awards of cash and/or stock options to
individual executive officers. These achievement awards are intended to
recognize an individual for outstanding contributions to the Company. During
1998, Mr. Walters received an achievement award.
STOCK OPTIONS
Stock options are viewed as a basic element of the total compensation
program and emphasize long-term Company performance, measured by the creation of
shareholder value. Options under the Company's existing stock option plan are
granted to all employees. In determining the size of the grants, the
Compensation Committee considers the amount and value of options currently held,
but focuses primarily on the executive's past and likely continued contribution
to the Company, as well as the executive's relative position within the Company.
Although the Compensation Committee does not have a target ownership level for
Common Stock holdings by executives and key employees, the Compensation
Committee's
13
objectives are to enable such persons to develop and maintain a significant
long-term ownership position in the Common Stock.
Stock options to executive officers are granted with exercise prices at
least equal to the fair market value on the date of grant. The Company has
generally awarded options to executives at the time of employment and promotion,
and at discretionary intervals thereafter. The Compensation Committee seeks to
keep its executive stock option compensation competitive with other
biotechnology companies. Stock option exercisability is determined by the
Compensation Committee. Options become exercisable in periods generally ranging
from one to nine years after date of grant. In certain cases, exercisability may
be accelerated based on achievement of corporate and individual objectives.
In addition to granting stock options to the Company's current
executive officers under the programs described above, the Company also granted
152,750 stock options to approximately 25 other employees under the Company's
Restated 1994 Stock Option Plan. This broad-based program is designed to create
in the Company an entrepreneurial spirit and to provide broad incentives for the
day-to-day achievements of these employees, which, in turn, is expected to
improve the Company's long-term performance.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In determining the base salary compensation of Dr. Abrams for 1998, the
Compensation Committee considered the same factors that it considered when
determining compensation for all employees and for the Company's other executive
officers, including the Company's performance as a whole. Because of the
Company's 1998 performance, including a substantial decline in the market value
of its common stock, the Compensation Committee and Dr. Abrams agreed that no
salary increase or bonus was appropriate. His base salary compensation received
in 1998 was $286,653, which placed him at about the average of chief executive
officers in the Radford Associates Biotechnology Survey.
Submitted by the Compensation Committee of the Board of Directors
Jack L. Bowman
Alan Steigrod
14
STOCK PRICE PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
Company's Common Stock with the cumulative total shareholder return of the
Nasdaq Stock Market Index (US) and the Nasdaq Pharmaceutical Stocks Index.
Note: Stock price performance shown below for the Company is
historical, and not necessarily indicative of future price performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG NEORX
CORPORATION, NASDAQ STOCK MARKET INDEX (US) AND
NASDAQ PHARMACEUTICAL STOCKS INDEX(1)
NeoRx Corporation
Stock Price Performance Graph
Data Points
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
NeoRx Corporation $ 100 $ 53 $ 69 $ 45 $ 61 $ 15
Nasdaq Stock Market Index (US) $ 100 $ 98 $ 138 $ 170 $ 209 $ 295
Nasdaq Pharmaceutical Index $ 100 $ 75 $ 138 $ 138 $ 143 $ 183
NeoRx Corporation 9.25 4.875 6.375 4.125 5.625 1.344
Nasdaq Stock Market Index (US) 250.093 244.462 345.715 425.258 522.072 732.615
Nasdaq Pharmaceutical Stock Index (US) 287.262 216.205 395.549 395.975 409.905 525.983
Assumes $100 invested on December 31, 1993 in NeoRx Corporation Common
Stock, the Nasdaq Stock Market Index and the Nasdaq Pharmaceutical Stocks
Index, an index of approximately 217 companies, whose common stock is
quoted on the Nasdaq National Market. The Primary Standard Industrial
Classification Code Number (SIC) of these companies is #283 -
Pharmaceutical Companies. Total return performance for the Nasdaq Stock
Market Index and the Nasdaq Pharmaceutical Stocks Index is weighted based
on the market capitalization of the firms included in each index and
assumes that dividends are reinvested. The Nasdaq Stock Market Index and
the Nasdaq Pharmaceutical Stocks Index are produced and published by the
Center for Research in Securities Pricing at the University of Chicago.
15
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS AND SEVERANCE AGREEMENTS
Each of the executive officers of the Company has an agreement that
defines their terms of employment and change of control of the Company (as
defined in the agreement). A change of control occurs through certain mergers,
consolidations, certain purchases of a significant minority interest in the
Company's common stock, liquidations, reorganizations, and sales of
substantially all the assets of the Company. Upon a change of control of the
Company, the executive officers may receive 12 months' salary and a proportional
bonus if earned. Also, the vesting of all options outstanding under the
Company's 1984 Stock Option Plan and Restated 1994 Stock Option Plan will be
accelerated and optionees will have the right to exercise all or a part of such
options immediately prior to any such transaction. Any unexercised options will
terminate, except that, in the event of a merger in which the shareholders of
the Company receive capital stock of another corporation, such unexercised
options must be assumed or an equivalent option is substituted by the successor
corporation. A qualifying termination under this agreement also is considered to
occur when the executive officers' responsibilities or authority are materially
reduced on more than a short-term basis. These agreements automatically renew
biannually absent a notice of nonrenewal by either party.
The Company also has severance agreements with each executive officer
that provides that the executive officer would receive up to 12 months' salary
if such executive officer is terminated "without cause" (as defined in each
agreement). The severance agreements allow the Company to reduce payments to the
former executive officers who undertake consulting or employment elsewhere. The
agreements define severance without cause to include a material reduction in the
executive officer's responsibility or authority. These agreements automatically
renew bi-annually absent a notice of nonrenewal by either party.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 7, 1993, Dr. Frederick B. Craves, the Company's Chairman of the
Board of Directors, entered into a consulting agreement with the Company
providing that Dr. Craves shall be retained as a general advisor and consultant
to the Company's management on all matters pertaining to the Company's business.
In exchange for such services, Dr. Craves is compensated $30,000 for each
calendar quarter of services, plus reasonable travel and other expenses. On July
7, 1993, the Company also granted Dr. Craves an option to purchase a total of up
to 125,000 shares of Common Stock over four years that are fully vested. On
February 21, 1997, the Board of Directors granted to Dr. Craves an option to
purchase 60,000 shares of the Company's Common Stock from the Restated 1994
Stock Option Plan for his services as Chairman of the Board of Directors. The
option was granted at the then current market price of the Common Stock and
becomes exercisable in two equal installments beginning one year after the date
of grant. If Dr. Craves is terminated "without cause" (as defined in the
consulting agreement), he is entitled to a pro rata portion of the quarterly fee
for services up to the date of termination, all expenses incurred up to such
date, and a payment equal to three months of service.
16
Dr. Craves is also chairman of Bay City Capital, Ltd., ("BCC") a
merchant bank focused on the life sciences industry. Mr. Jack Bowman, a NeoRx
Director, is on the business advisory board of BCC. In December 1998, the other
NeoRx Directors unanimously approved retaining BCC to act as financial advisor
to the Company and to help establish strategic alliances for several of its
programs. Dr. Craves and Mr. Bowman removed themselves from discussion and the
decision to hire BCC and the terms of their engagement was made by the remaining
Directors. NeoRx paid BCC a $50,000 engagement fee, and BCC may earn a
percentage of the value of any transaction in which it plays an active role.
In November 1995 and April 1996, the Company loaned Dr. Paul G. Abrams,
the Company's President and Chief Executive Officer, a total of $140,000,
bearing interest at the applicable federal rate. The balance of loans due from
Dr. Abrams to the Company at December 31, 1998 is $91,981 and is due on demand.
Dr. Abrams is repaying the loans in monthly payments.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's Directors and executive officers, and persons who own
more than 10% of a registered class of the Company's securities, to file with
the SEC the initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Directors, executive
officers and greater-than-10% shareholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms it received, or
written representations from certain reporting persons that no such forms were
required for those persons, the Company believes that during 1998 all filing
requirements required by Section 16(a) applicable to Directors, executive
officers and greater-than-10% shareholders were complied with by such persons,
other than late Form 5 filings made by Paul G. Abrams, Richard L. Anderson,
Becky J. Bottino and Robert W. Schroff and a late Form 4 filing made by Fred B.
Craves.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP examined the financial statements of the Company for the
fiscal year ended December 31, 1998. The Board of Directors has selected KPMG
LLP as the Company's auditors for 1999. Representatives from KPMG LLP are
expected to be present at the Annual Meeting to make a statement if they so
desire and to respond to appropriate questions from shareholders.
17
PROPOSALS OF SHAREHOLDERS
Under the Company's Bylaws, shareholders seeking to propose business to
be conducted at an annual meeting of shareholders must give written notice to
the Company no later than the date that shareholder nominations for Directors
must be received. The notice must contain certain information as to the proposal
and the shareholder, including the shareholder's share ownership and any
financial interest of the shareholder in the proposal. Any proposal not made in
compliance with the Bylaws may be rejected by the Board of Directors. No
shareholder proposals for the Annual Meeting had been received by the Company as
of the date of this Proxy Statement.
A shareholder who intends to present a proposal at the 2000 Annual
Meeting of Shareholders and desires that information regarding the proposal be
included in the 2000 proxy statement and form of proxy must ensure that such
information is received by the Company no later than December 3, 1999.
OTHER BUSINESS
The Company knows of no other business to be presented at the Annual
Meeting. If any other business properly comes before the Annual Meeting, it is
intended that the shares represented by proxies will be voted with respect
thereto in accordance with the best judgment of the persons named in the
accompanying form of proxy.
Upon written request from any person solicited herein addressed to the
Company's Corporate Secretary at the Company's principal offices, the Company
will provide, at no cost, a copy of the Company's Form 10-K Annual Report as
filed with the SEC for the year ended December 31, 1998.
BY ORDER OF THE BOARD OF DIRECTORS
RICHARD L. ANDERSON
President and Chief Operating Officer, Secretary
April 2, 1999
Seattle, Washington
18
PROXY
NEORX CORPORATION
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby authorizes and appoints Richard L. Anderson and
Melinda G. Kile and each of them as Proxies, with full power of substitution,
to represent and to vote, as designated below, all the shares of Common Stock
of NeoRx Corporation held of record by the undersigned on March 19, 1999, at
the Annual Meeting of Shareholders to be held on May 14, 1999, or any
adjournment or postponement thereof.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
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- FOLD AND DETACH HERE -
Please mark
your vote as /X/
indicated in
this example.
1. ELECTION OF DIRECTORS
Election of the following five nominees to serve as Directors for the
ensuing year or until their successors are elected and qualified:
FOR WITHHOLD
all nominees AUTHORITY
(except as marked to vote for
to the contrary) all nominees
/ / / /
Nominees: Paul G. Abrams, Jack L. Bowman, Frederick B. Craves,
Alan A. Steigrod and E. Rolland Dickson.
INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
the name(s) of the nominee(s) below.
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UNLESS OTHERWISE DIRECTED, ALL VOTES WILL BE APPORTIONED EQUALLY AMONG THOSE
PERSONS FOR WHOM AUTHORITY IS GIVEN TO VOTE.
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 undersigned. IF
NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR ALL NOMINEES" IN ITEM 1.
YOUR VOTE IS IMPORTANT. PROMPT RETURN OF THIS
PROXY CARD WILL HELP SAVE THE EXPENSE OF ADDITIONAL
SOLICITATION EFFORTS.
Signature(s) Dated , 1999
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Please sign above exactly as your name appears on your stock certificate.
When shares are held jointly, each person should 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.
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- FOLD AND DETACH HERE -