<PAGE> 1
September 14, 1997
DEAR STOCKHOLDER:
You are cordially invited to attend the Annual Meeting of Stockholders of
Somatogen, Inc. (the "Company") to be held on the 28th day of October 1997, at
10:00 A.M. MDT, at the Broker Inn, 555 Thirtieth Street, Boulder, Colorado.
At this year's Annual Meeting, you will be asked to elect seven directors, to
amend the Company's Non-Employee Director Stock Option Plan and to ratify the
appointment of the Company's independent accountants for fiscal year 1998. The
accompanying Notice of Meeting and Proxy Statement describe these proposals. The
Board of Directors has approved the proposals described in the Proxy Statement
and recommends a vote "FOR" each proposal.
In addition to the formal business to be transacted, management will make a
presentation on developments of the past year and respond to comments and
questions of general interest to stockholders.
It is important that your shares be represented and voted, whether or not you
plan to attend the Annual Meeting. Therefore, please sign, date and promptly
mail the enclosed proxy in the prepaid envelope provided.
Sincerely,
Andre de Bruin
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 2
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 28, 1997
TO THE STOCKHOLDERS OF SOMATOGEN, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Somatogen,
Inc., a Delaware corporation (the "Company"), will be held on Tuesday, October
28, 1997, at 10:00 A.M. MDT, at the Broker Inn, 555 Thirtieth Street, Boulder,
Colorado, for the following purposes:
1. To elect seven directors to hold office until the next annual
meeting of stockholders;
2. To approve an amendment to the Company's Non-Employee Director
Stock Option Plan ("Directors' Plan"), to increase the
aggregate number of shares of Common Stock authorized for
issuance under the Directors' Plan by 200,000 shares, to
increase the non-discretionary option grants under the
Directors' Plan, to accelerate the vesting of options
granted under the Directors' Plan upon certain changes in
control of the Company, and to incorporate a directors'
deferred fee option grant feature;
3. To ratify the selection of Price Waterhouse LLP as independent
accountants of the Company for the fiscal year ending June 30,
1998; and
4. To transact such other business as may properly come before
the meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice.
The Board of Directors has fixed the close of business on September 3, 1997 as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any continuation, adjournment or
postponement thereof.
By Order of the Board of Directors
James C.T. Linfield,
Secretary
Boulder, Colorado
September 14, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE IS ENCLOSED FOR THAT PURPOSE.
EVEN IF YOU HAVE VOTED YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND
THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A
BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO ATTEND AND VOTE AT THE MEETING,
YOU MUST BRING TO THE MEETING A PROXY ISSUED IN YOUR NAME FROM THE BROKER, BANK
OR OTHER NOMINEE. ADDITIONALLY, IN ORDER TO VOTE AT THE MEETING, YOU MUST OBTAIN
FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 3
SOMATOGEN, INC.
2545 Central Avenue, Suite FD1
Boulder, Colorado 80301-2857
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors (the "Board
of Directors" or the "Board") of Somatogen, Inc., a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders to be held on Tuesday,
October 28, 1997, at 10:00 A.M. MDT, (the "Annual Meeting"), or at any
continuation, adjournment or postponement thereof, for the purposes set forth
herein and in the accompanying Notice of Annual Meeting. The Annual Meeting will
be held at the Broker Inn, 555 Thirtieth Street, Boulder, Colorado.
Solicitation
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly and mailing of this proxy statement, the proxy and any
additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding shares of the Company's Common Stock (the "Common Stock") in
their names which are beneficially owned by others to forward the solicitation
materials to such beneficial owners. The Company may reimburse persons
representing beneficial owners for their costs of forwarding the solicitation
material to such beneficial owners. Original solicitation of proxies by mail may
be supplemented by telephone, telegram, or personal solicitation by directors,
officers or other regular employees of the Company, or, at the Company's
request, Beacon Hill Partners, Inc. No additional compensation will be paid to
directors, officers or other regular employees for such services, but Beacon
Hill Partners, Inc. will be paid its customary fee, estimated to be about
$3,000, if it renders solicitation services.
This proxy statement and accompanying proxy card will be mailed on or about
September 14, 1997, to all stockholders entitled to vote at the Annual Meeting.
Voting Rights and Outstanding Shares
Only holders of record of Common Stock at the close of business on September 3,
1997 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on September 3, 1997 there were outstanding and entitled to
vote 20,870,621 shares of Common Stock. Each holder of record on such date is
entitled to one vote for each share held on all matters to be voted upon 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. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
<PAGE> 4
Revocability of Proxies
Any person giving a proxy pursuant to this solicitation has the power to revoke
it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, Somatogen,
Inc., 2545 Central Avenue, Suite FD1, Boulder, Colorado 80301-2857, a written
notice of revocation or a duly executed proxy bearing a later date, or it may be
revoked by attending the meeting and voting in person. Attendance at the meeting
will not, by itself, revoke a proxy.
Stockholder Proposals
Proposals of stockholders that are intended to be presented at the Company's
1998 Annual Meeting of Stockholders (the "1998 Annual Meeting") must be received
by the Company no later than May 14, 1998 in order to be included in the proxy
statement and proxy relating to the 1998 Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and By-laws provide that the
authorized number of directors shall be determined by resolution of the Board of
Directors. The resolution currently in effect provides for a Board of seven
members.
Vacancies on the Board may be filled by a majority of the remaining directors,
unless such directors determine to submit such matter for a stockholder vote. A
director elected by the Board to fill a vacancy (including a vacancy created by
an increase in size of the Board of Directors) will serve for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified.
There are seven nominees for the seven Board positions authorized by resolution
of the Board of Directors. If elected at the Annual Meeting, each of the
nominees would serve until the 1998 Annual Meeting and until his or her
successor shall have been elected and qualified, or until such director's
earlier death, resignation or removal. Each nominee listed below is currently a
director of the Company.
Directors are elected by a plurality of the votes cast. Proxies may not vote for
more than the number of candidates which have been nominated. It is the
intention of the persons named in the enclosed proxy, unless authorization to do
so is withheld, to vote the proxies received by them for the election of the
seven nominees named below. If, prior to the Annual Meeting, any nominee should
become unavailable for election, an event which is not now anticipated by the
Board, the proxies will be voted for the election of such substitute nominee or
nominees as the Board of Directors may propose.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF EACH NOMINEE.
<PAGE> 5
Nominees
The names of the nominees and certain information about them are set forth
below:
Name Age Principal Occupation
Andre de Bruin 50 Chairman of the Board, President and
Chief Executive Officer
Carlos A. Ferrer 43 General Partner of Ferrer Freeman Thompson &
Co., the General Partner and Management
Company of Health Care Capital Partners, L.P.
Bernadine Healy, M.D. 51 Dean of the College of Medicine and Professor
of Internal Medicine at The Ohio State
University
Gene I. Miller (1) (2) 55 General Partner of Miller & LaHaye, L.P.,
the General Partner of Peregrine Ventures II
George B.Rathmann, Ph.D.(1) 69 Chairman of the Board, Chief Executive Officer
and President of ICOS Corporation
Jack W. Schuler (2) 56 Chairman of the Board of Stericycle, Inc.,
Chairman of the Board of Ventana Medical
Systems, Inc.
Ralph Snyderman, M.D. 57 Chancellor for Health Affairs and Dean of the
School of Medicine at the Duke University
Medical Center
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Nominees for Election as Director
ANDRE DE BRUIN
Mr. de Bruin was appointed President and Chief Executive Officer in July 1994
and appointed to the Board of Directors in August 1994. He also was appointed
Chairman of the Board in January 1996. From 1989 until June 1994, Mr. de Bruin
was Chairman, President and Chief Executive Officer of Boehringer Mannheim
Corporation, Indianapolis, Indiana, a U.S. subsidiary of Corange Ltd., a
private, global healthcare corporation. Mr. de Bruin also serves on the Board of
Directors of Diametrics Medical, Inc. and is Vice Chairman of the Board of
Directors of Quidel Corporation.
<PAGE> 6
CARLOS A. FERRER
Mr. Ferrer became a director in July 1996. Since October 1995, he has been a
General Partner of Ferrer Freeman Thompson & Co., the General Partner and
Management Company of Health Care Capital Partners, L.P., a private equity fund
investing exclusively in the Health Care industry. Previously, Mr. Ferrer was
Managing Director and Head of Global Health Care Investment Banking at CS First
Boston Inc. where he was employed since July 1978. Mr. Ferrer is a Director of
Gensia Sicor, Inc., Americaid, Inc., and Chairman of the Board of Trustees of
the Cancer Research Institute, a not-for-profit research institution.
BERNADINE HEALY
Dr. Healy became a director in March 1996. She has been Dean of the College of
Medicine and Public Health, and Professor of Internal Medicine at The Ohio State
University since October 1995 and Senior Policy Advisor at the Page Center of
the Cleveland Clinic Foundation since July 1994. Dr. Healy was the Director of
the National Institute of Health (NIH) from April 1991 to June 1993. Immediately
prior to her appointment at the NIH, Dr. Healy was Chairman of the Research
Institute of the Cleveland Clinic Foundation from September 1985 to April 1991,
and was a staff member of the Clinic's Department of Cardiology. From February
1984 to September 1985, Dr. Healy was Deputy Director of the Office of Science
and Technology Policy at the White House and Chairman of the White House Cabinet
Working Group on Biotechnology. She additionally served as a member of several
advisory groups, including the Councils of the National Heart, Lung and Blood
Institute, and President of the American Heart Association. Dr. Healy serves on
the Board of Directors of Medtronic, Inc., National City Corporation, Karrington
Health, Inc. and Invacare Corporation.
GENE I. MILLER
Mr. Miller became a director in October 1988. He has been a General Partner of
Miller and LaHaye, L.P. ("M&L"), the General Partner of Peregrine Ventures II,
L.P., a private venture capital firm ("Peregrine"), since 1984 and, from 1981
until 1984, Mr. Miller was a General Partner of Peregrine Associates, the
General Partner of Peregrine Ventures, a private venture capital firm. Mr.
Miller currently serves on the Board of Digital Transmission Systems, Inc. and
Raytel Medical Corporation.
GEORGE B. RATHMANN
Dr. Rathmann became a director in June 1989. He is currently Chairman of the
Board, Chief Executive Officer and President of ICOS Corporation, a
biotechnology company which he founded in July 1990. He is also currently
Chairman Emeritus of Amgen Inc., a biopharmaceutical company. From 1981 to
October 1988, Dr. Rathmann served as President and Chief Executive Officer of
Amgen and from February 1986 to July 1990 as Chairman of the Board of Amgen. Dr.
Rathmann currently serves on the Board of Hedral Therapeutics, Inc.
<PAGE> 7
JACK W. SCHULER
Mr. Schuler has been a director since June 1991. He is Chairman of the Board of
Stericycle, Inc., a company that processes, sterilizes and recycles medical
waste, since January 1990. Mr. Schuler is also Chairman of the Board of Ventana
Medical Systems, Inc., a company that develops and manufactures
instruments/reagents that automate immunohistochemistry, since November 1995.
From 1972 to 1989, Mr. Schuler was employed by Abbott Laboratories, a
pharmaceutical company, and served as President and Chief Operating Officer of
Abbott from 1987 to 1989 and on the Abbott Board of Directors from 1985 to 1989.
Mr. Schuler is a member of the Board of Directors of Chiron, Inc. and Medtronic,
Inc.
RALPH SNYDERMAN
Dr. Snyderman became a director in March 1989. He has been Chancellor for Health
Affairs and Dean of the School of Medicine at the Duke University Medical Center
since May 1989 and was formerly Senior Vice President of Medical Research and
Development at Genentech, Inc. from January 1987 to May 1989. Dr. Snyderman also
serves on the Board of Directors of Proctor and Gamble, Inc.
Board Committees and Meetings
During the fiscal year ended June 30, 1997 ("fiscal 1997") the Board of
Directors held four meetings. The Board of Directors has an Audit Committee and
a Compensation Committee.
The Audit Committee meets with the Company's independent accountants at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent accountants to be retained;
and receives and considers the independent accountants' comments as to controls,
adequacy of staff and management performance and procedures in connection with
audit and financial controls. The Audit Committee is composed of two
non-employee directors: Messrs. Miller and Schuler. The Committee met twice
during fiscal 1997.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and performs such other functions regarding
compensation as the Board may delegate. The Compensation Committee is composed
of two non-employee directors: Mr. Miller and Dr. Rathmann. The Committee met
twice during fiscal 1997.
During fiscal 1997, each director attended each of the meetings of the Board and
the committees on which he or she served.
<PAGE> 8
PROPOSAL 2
APPROVAL OF NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
In July 1993, the Company adopted its Non-Employee Director Stock Option Plan
(the "Directors' Plan"), under which 150,000 shares of Common Stock have been
reserved for issuance. In October 1995, the stockholders approved an amendment
to the Directors' Plan to increase the aggregate number of shares of Common
Stock authorized for issuance under such plan by 120,000 shares. Options to
purchase 172,876 shares are outstanding under the Directors' Plan and 90,456 are
available for future option grants. In July 1997, the Board adopted an amendment
to the Directors' Plan which is subject to stockholder approval. In addition to
clarifying certain provisions of the Directors' Plan, the amendment increases
the number of shares of Common Stock available for grant under the Directors'
Plan from 270,000 to 470,000 shares, provides a directors' deferred fee option
grant attribute, provides for acceleration of vesting in the event of a change
in control of the Company, and increases non-discretionary stock option grants
to cover 15,000 shares upon initial appointment to the Board and annual stock
option grants thereafter at no less than 7,500 and no more than 15,000 shares,
respectively, as determined by the terms of the Directors' Plan.
The Board adopted the amendment to the Directors' Plan in order to provide its
current non-employee directors, together with any non-employee directors who may
in the future serve on the Board, with additional incentives to exert maximum
efforts for the success of the Company.
Stockholders are requested in this Proposal to approve the amendment to the
Director's Plan. The affirmative vote of the holders of a majority of the shares
represented and entitled to vote at the meeting will be required to approve the
Directors' Plan.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Directors' Plan are outlined below.
General
The Directors' Plan provides for non-discretionary grants of stock options to
purchase shares of the Company's Common Stock. The Directors' Plan also permits
non-employee directors to defer the receipt of fees in cash and receive future
payment of those fees in the form of discounted stock options, with the
aggregate discount equal to the amount of the fee deferral, to acquire the
Company's Common Stock. Options granted under the Directors' Plan are intended
not to qualify as incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"). See "Federal Income
Tax Information" below for a discussion of the tax treatment of nonstatutory
stock options.
<PAGE> 9
Purpose
The Company, by means of the Directors' Plan, seeks to retain the services of
persons now serving as non-employee directors to the Company, to secure and
retain the services of persons capable of serving in such capacity and to
provide incentives for such persons to exert maximum efforts for the success of
the Company. All non-employee directors are eligible to receive options under
the Directors' Plan.
Administration
The Directors' Plan is administered by the Board of Directors. The Board has the
power to construe and interpret the Directors' Plan and is authorized to
delegate administration of such plan to a committee composed of not fewer than
two members of the Board (the "Committee"). The Board of Directors does not
presently contemplate delegating administration of the Directors' Plan to any
committee of the Board of Directors.
As used herein with respect to the Directors Plan, the "Board" refers to the
Committee as well as to the Board of Directors itself.
Eligibility
Only non-employee directors of the Company are eligible to receive options under
the Directors' Plan. A non-employee director is defined in the Directors' Plan
as a member of the Board of Directors who is not otherwise an employee of the
Company. Six of the Company's seven current directors (all except Mr. de Bruin)
are eligible to participate in the Directors' Plan.
Stock Subject to the Directors' Plan
An aggregate of 470,000 shares of Common Stock have been authorized for issuance
under the Directors' Plan, subject to stockholder approval of Proposal 2. If
options granted under the Directors' Plan expire without having been exercised
in full, the stock not purchased pursuant to such options again becomes
available for issuance under the Directors' Plan.
Non-Discretionary Option Grants
The following is a description of the terms of non-discretionary option grants
under the Directors' Plan.
Initial Grant. On the date of initial election to the Board, each non-employee
director is granted a stock option to purchase 15,000 shares of Common Stock,
subject to stockholder approval of Proposal 2.
<PAGE> 10
Annual Grant. Subject to stockholder approval of Proposal 2, on the date of each
Annual Meeting of Stockholders of each year, commencing on the date of the 1998
Annual Meeting, each non-employee director who is then a member of the Company's
Board of Directors will receive an option to purchase a number of shares
determined by the following formula: 7,500 times a fraction, the numerator of
which is $20 and the denominator of which is the closing sales price of the
Company's Common Stock on such date. The minimum annual option grant will be
7,500 shares and the maximum annual option grant will be 15,000 shares.
Option Exercise. Non-discretionary stock option grants become exercisable
("vest") in equal quarterly installments over a period of three years, so long
as the optionee continues to serve as a director of the Company, and, subject to
stockholder approval of Proposal 2, become fully vested in the event of a change
in control of the Company. As defined under the Directors' Plan, a change in
control occurs if (i) any person (as such term is used in Sections 23(d) and
14(d)(2) of the Securities and Exchange Act of 1934 (the "Exchange Act"), other
than the Company, is or becomes the beneficial owner (as defined in Rule 13D-3
under the Exchange Act), directly or indirectly, of 50% or more of the combined
voting power of the outstanding shares of capital stock of the Company entitled
to vote generally in the election of directors (calculated as provided in Rule
13d-3(d) under the Exchange Act in the case of rights to acquire capital stock),
whether by means of a tender offer or exchange offer, Transaction or otherwise;
or (ii) the Board or the stockholders of the Company approve a Transaction. A
"Transaction" is: (a) any consolidation or merger of the Company other than a
merger solely to effect a reincorporation or a merger of the Company as to which
stockholder approval is not required pursuant to Sections 251(f) or 253 of the
Delaware General Corporation Law; or (b) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of 50% or more
of the assets of the Company; or (c) the adoption of any plan or proposal for
the liquidation or dissolution of the Company.
Exercise Price: Payment. The exercise price of all non-discretionary stock
options granted under the Directors' Plan is the fair market value of the Common
Stock on the date on which the option is granted. The exercise price of options
granted must be paid in cash at the time the option is exercised.
Term. Non-discretionary option grants under the Directors' Plan have terms of
six years. An option may be exercised following termination of the optionee's
service as a non-employee director of the Company only for that number of shares
for which it was exercisable on the date of termination of such services.
Subject to the maximum six-year term, options remain exercisable for three
months following termination of service as a director (twelve months in the case
of termination because of disability or death).
Non-Employee Director Fee Deferral Option Grants
Subject to stockholder approval of Proposal 2, non-employee directors may elect
to defer their fees otherwise payable in cash, in return for stock options to
purchase Common Stock at an aggregate discount from current fair market value
equal to the deferred fee amount.
Deferred Election. Elections to defer fees must be filed with the Company prior
to the Annual Meeting. Options granted pursuant to a fee deferral election will
be granted on the date of the Annual Meeting. The elections apply to fees which
will be earned during the year immediately following the date of grant. The
deferral election shall be irrevocable until the Annual Meeting of Stockholders
of the following year.
<PAGE> 11
Number of Shares. The number of shares of Common Stock subject to each option
shall be equal to A/(Bx66-2/3%), where A is the fee deferral amount and B is the
fair market value per share of Common Stock on the date of grant. The number of
shares shall be rounded down to the nearest whole number.
Exercise Price. The exercise price of each option granted pursuant to a fee
deferral election shall be 33-1/3% of the fair market value of the Common Stock
subject to such option on the date such option is granted. For example, a
director anticipates receipt of meeting fees totaling $5,000. The director
elects to defer all of those fees. If the fair market value of a share of stock
is $6.00 then the director will receive an option to purchase 1,250 shares of
common stock at an exercise price of $2.00 per share. Note that the aggregate
discount purchase price for the option is $5,000 which is the equal to the fee
deferral amount.
Vesting Term. Such options become exercisable in installments on each date that
director fees would have been payable in cash had no deferral election been
made, and shall terminate on the earlier of (i) six years from the date the
option was granted, or, (ii) three years following termination of his or her
relationship as a director. The terms of deferred fee option grants as set forth
in the Directors' Plan provide for options to become fully vested and
exercisable in the event of a change in control of the Company or in the event
the non-employee director dies or becomes disabled.
Adjustment Provisions
If there are any changes made to the shares of Common Stock (whether by reason
of merger, consolidation, reorganization, recapitalization, stock dividend in
excess of ten percent (10%) at any single time, stock split, combination of
shares, exchange of shares, change in corporate structure or otherwise),
appropriate adjustments shall be made in: (i) the number of shares of Common
Stock theretofore made subject to stock options, and in the purchase price of
such shares; and (ii) the aggregate number of shares which may be made subject
to stock options.
<PAGE> 12
Restrictions on Transfer
Under the Directors' Plan, an option may not be transferred by the optionee
other than by will or by laws of descent and distribution or pursuant to a
(qualified) domestic relations order. During the lifetime of an optionee, an
option may be exercised only by the optionee, or by his guardian or legal
representative.
Effect of Certain Corporate Events
If the Company or its stockholders enter into an agreement to dispose of all, or
substantially all, of the assets or outstanding capital stock of the Company by
means of a sale or liquidation, or a merger or reorganization in which the
Company is not the surviving corporation, the Committee shall have the power and
discretion to prescribe the terms and conditions for the exercise of, or
modification of, the stock options granted under the plan.
Duration, Amendment and Termination
The Board may alter, amend, suspend or discontinue the Directors' Plan at any
time. However, no such action will be effective unless approved by the
stockholders of the Company where such approval is required to conform to Nasdaq
or exchange listing requirements.
Federal Income Tax Information
The following is a summary of the effect of federal income taxation on the
optionee and the Company with respect to the grant and exercise of options under
the Directors' Plan.
Stock options granted under the Directors' Plan are subject to federal income
tax treatment pursuant to rules governing options that are not incentive stock
options.
Options granted under the Directors' Plan are nonstatutory options. There are no
tax consequences to the optionee or the Company resulting from the nonstatutory
stock option grant. Upon exercise of a nonstatutory stock option, the optionee
generally will recognize ordinary income for tax purposes measured by the excess
of the then fair market value of the shares over the option price. At the time
the optionee recognizes ordinary income due to the exercise of the option, the
Company generally will be entitled to a business expense deduction equal to the
taxable ordinary income realized by the optionee. Upon resale of such shares by
the optionee, any difference between the sales price and the exercise price, to
the extent not recognized as ordinary income as provided above, generally will
be treated as capital gain or loss, and will qualify for mid-term capital gain
or loss treatment if the shares have been held for more than one year and for
long-term capital gain or loss treatment if the shares have been held for more
than 18 months.
<PAGE> 13
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Price Waterhouse LLP as the Company's
independent accountants for the fiscal year ending June 30, 1998 and has further
directed that management submit the selection of independent accountants for
ratification by the stockholders at the Annual Meeting. Representatives of Price
Waterhouse 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.
Stockholder ratification of the selection of Price Waterhouse LLP as the
Company's independent accountants is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Price Waterhouse
LLP to the stockholders for ratification as a matter of good corporate practice.
If the stockholders fail to ratify the selection, the Audit Committee and the
Board will reconsider whether or not to retain that firm. Even if the selection
is ratified, the Audit Committee and the Board in their discretion may direct
the appointment of a different independent accounting firm at any time during
the year if they determine that such a change would be in the best interest of
the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares represented and
entitled to vote at the meeting will be required to ratify the selection of
Price Waterhouse LLP.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
<PAGE> 14
SECURITY OWNERSHIP OF DIRECTORS, OFFICERS
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of July 31, 1997 by (i) each
director of the Company; (ii) each Named Executive Officer (as hereinafter
defined); (iii) all executive officers and directors as a group; and (iv) all
those known by the Company to be beneficial owners of more than five percent of
its Common Stock.
<TABLE>
<CAPTION>
Percentage
Beneficially
Number of Shares (1) Owned(2)
<S> <C> <C>
Eli Lilly and Company............................................. 2,954,104 14.2%
Lilly Corporate Center
Indianapolis, Indiana 46285
Zesiger Capital Group LLC......................................... 1,067,400 5.1
320 Park Avenue
New York, NY 10022
Gene Miller (3)................................................... 460,616 2.2
Jack W. Schuler (4)............................................... 258,419 1.2
Andre de Bruin ................................................... 223,602 1.1
Bernadine Healy................................................... 11,323 *
Carlos A. Ferrer.................................................. 17,369 *
George B. Rathmann (5)............................................ 76,464 *
Ralph Snyderman................................................... 97,339 *
Robert F. Caspari................................................. 51,236 *
J. William Freytag................................................ 68,418 *
Richard J. Gorczynski............................................. 47,920 *
Timothy D. Hoogheem............................................... 85,413 *
All directors and executive officers as a group
(14 persons) (2), (3)-(6)......................................... 1,483,565 6.9
</TABLE>
- ----------------
* Less than one percent
<PAGE> 15
(1) This table is based upon information supplied by officers, directors and
principal stockholders. Unless otherwise indicated in the footnotes to
this table and subject to community property laws where applicable, each
of the stockholders named in this table has sole voting and investment
power with respect to the shares indicated as beneficially owned.
Percentage of ownership is based on 20,870,621 shares of Common Stock
outstanding as of July 31, 1997 adjusted as required by rules promulgated
by the Securities and Exchange Commission ("SEC").
(2) Shares of Common Stock subject to options currently exercisable or
exercisable within 60 days of July 31, 1997, are deemed outstanding for
computing the percentage of the person or entity holding such securities
but are not outstanding for computing the percentage of any other person
or entity. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them. Includes an aggregate number of
shares that may be issuable upon exercise within 60 days for each
individual as follows: Mr. Miller, 26,464; Mr. Schuler, 26,464; Dr. Healy,
8,323; Dr. Rathmann, 26,464; Dr. Snyderman, 49,589; Mr. Ferrer, 7,369; Mr.
de Bruin, 222,538; Dr. Caspari, 48,856; Dr. Freytag, 52,296; Dr.
Gorczynski, 46,609; and Mr. Hoogheem, 82,671; all directors and executive
officers as a group (14 persons), 648,611.
(3) Includes 433,952 shares held of record by Peregrine. Mr. Miller is a
General Partner of M&L, the General Partner of Peregrine. Mr. Miller
shares voting and investment power with respect to such shares and may be
deemed to be the beneficial owner of such shares. Also includes 200 shares
held by Mr. Miller's spouse as to which he disclaims beneficial ownership.
(4) Includes 7,000 shares owned by Mr. Schuler's spouse and an aggregate of
600 shares owned by Mr. Schuler's spouse as joint tenant with or as
custodian for Mr. Schuler's children.
(5) Includes 12,500 shares owned by Falcon Technology Partners, a Limited
Partnership of which Dr. Rathmann is a Limited Partner.
(6) Includes 250 shares held by an officer's spouse.
<PAGE> 16
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires the Company's directors and certain
officers, and persons who own more than ten percent of a registered class of the
Company's equity securities, to file with the SEC initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Officers, directors and greater than ten percent stockholders
are required by Commission regulation to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, for the fiscal year ended June 30, 1997, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
Compensation of Directors
During fiscal 1997, directors of the Company who were not employees of the
Company were not paid any cash compensation for their service on the Board of
Directors (the "Board") or any committees thereof. The members of the Board are
eligible for reimbursement of expenses incurred in connection with their service
on the Board. Effective July 22, 1997, non-employee directors of the Company who
are not salaried officers or employees receive a fee of $3,000 for each Board
meeting attended and $1,000 for participation in each telephonic Board meeting.
For Committee meetings held on non-Board meeting dates, non-employee directors
receive $750 for each meeting attended and $250 for participation in each
telephonic meeting.
Upon appointment to the Board, non-employee directors are eligible to receive a
stock option grant. Subject to stockholder approval of Proposal 2, non-employee
directors will receive a non-discretionary option grant of 15,000 shares from
the Directors' Plan upon initial appointment to the Board.
On the date of each Annual Meeting, each non-employee director who is elected as
a director at such meeting will be automatically granted a stock option to
purchase a number of shares of Common Stock determined by multiplying 7,500 by a
fraction, the numerator of which is $20.00 and the denominator of which is the
fair market value of one share of Common Stock on such date. The number of
shares subject to each annual stock option grant will not exceed 10,000 and will
not be less than 5,000. Subject to stockholder approval of Proposal 2, the
maximum and minimum number of shares covered by the option grant will be
increased to 15,000 and 7,500 shares, respectively. The exercise price of
non-discretionary options granted under the Directors' Plan is equal to the fair
market value of the Company's Common Stock on the date of the option grant.
Non-discretionary options granted under the Directors' Plan vest in equal
quarterly installments over a period of three years from grant and expire six
years after the date of grant.
<PAGE> 17
On July 22, 1997, in lieu of the non-discretionary option grant which would have
been made on the date of this year's Annual Meeting, the Company granted an
option to purchase 15,000 shares of Common Stock to each non-employee director
at an exercise price of $4.75 per share, the fair market value of the Company's
Common Stock on the date of grant. The options vest in equal quarterly
installments over a period of three years and expire after six years. The
options were granted under the provisions of the Company's Amended and Restated
Stock Option Plan (the "Stock Option Plan").
In connection with the Annual Meeting of Stockholders held on October 31, 1996,
and pursuant to the terms and provisions of the Directors' Plan, the Company
granted options covering 10,000 shares of Common Stock to each non-employee
director at an exercise price of $10.625, the fair market value of the Company's
Common Stock on the date of grant.
Subject to stockholder approval of Proposal 2, the amendment to the Directors'
Plan provides that in addition to non-discretionary stock option grants,
non-employee directors may elect to defer the payment of fees for their services
as directors and apply such deferrals to options with exercise prices set at a
discount to market with the aggregate amount of such discounts equal to the
aggregate amount of the fees so deferred. Non-employee director fee deferral
options are granted at an aggregate discount which is equal to the aggregate fee
deferral and vest as fees are earned.
As of June 30, 1997, 6,668 options had been exercised under the Directors' Plan.
<PAGE> 18
Compensation of Executive Officers
Summary of Compensation
The following table reflects for the fiscal years ending June 30, 1997, 1996 and
1995, certain compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer and its other four most highly compensated executive officers
at June 30, 1997 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
Awards
------------
Annual Compensation Other Securities
------------------- Annual Underlying All Other
Fiscal Salary Bonus Compensation Options Compensation
Name and Principal Position Year ($) ($) ($) (1) (#) ($) (2)
- ---------------------------- ---- ------- ------ -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Andre de Bruin 1997 321,012 47,609 0 30,000 4,900
Chairman of the Board, 1996 300,000 47,632 0 0 5,053
President and CEO 1995 300,000 47,621 0 500,000 2,944
Robert F. Caspari, M.D. (3) 1997 219,079 0 0 17,000 4,855
Senior Vice President of Medical 1996 210,000 25,000 1,031 0 4,620
and Regulatory Affairs 1995 141,500 25,000 135,189 110,000 4,620
J. William Freytag, Ph.D. (3) 1997 215,993 19,994 0 19,500 4,750
Senior Vice President of 1996 205,000 20,000 0 5,000 4,750
Technology and Business 1995 141,900 20,000 96,272 110,000 4,620
Development
Timothy D. Hoogheem 1997 180,932 0 0 54,500 5,183
Senior Vice President of Finance 1996 163,260 0 0 5,000 4,851
and Administration, Chief 1995 154,000 0 0 10,000 5,064
Financial Officer and Treasurer
Richard J. Gorczynski, Ph.D. (3) 1997 196,335 30,000 21,932 19,500 4,904
Vice President of Research and 1996 185,520 30,000 9,368 2,000 4,620
Development 1995 96,300 30,000 35,605 100,000 2,783
</TABLE>
- -----------------------------------------
(1) Represents solely relocation expenses reimbursed by Somatogen.
(2) Represents solely employer matching contributions to the Somatogen, Inc.
Custom 401(k) Plan (the "401(k) Plan") paid in shares of Common Stock which
vest over a four-year period commencing as of the employee's hire date.
(3) Drs. Freytag, Caspari and Gorczynski joined the Company in October 1994,
October 1994 and December 1994, respectively. For fiscal 1995, salary and
bonus for these officers represent amounts earned from the date they joined
the Company through June 30, 1995.
<PAGE> 19
Stock Option Grants And Exercises
The Company grants options to its executive officers under its Stock Option
Plan. As of June 30, 1997, options to purchase a total of 2,539,691 shares were
outstanding under the Plan and options to purchase 955,937 shares remained
available for grant thereunder.
The following tables show for the fiscal year ended June 30, 1997, certain
information regarding options granted to, exercised by, and held at year-end by,
the Named Executive Officers:
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Individual Grants
Potential Realizable Value
at Assumed Annual Rates
Number of % of Total of Stock Price
Securities Options Appreciation for Option
Underlying Granted to Exercise Term(3)
Options Employees in Price per ------------------------
Name Granted (#)(1) Fiscal Year(2) Share ($) Expiration Date 5% 10%
- ----- -------------- -------------- --------- --------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Andre de Bruin 10,000 1.2% 10.625 10/31/2002 $36,135 $81,978
20,000 2.5 5.625 05/02/2003 38,261 86,801
Robert F. Caspari 5,000 0.6 10.625 10/31/2002 18,068 40,989
12,000 1.5 5.625 05/02/2003 22,956 52,080
J. William Freytag 7,500 0.9 10.625 10/31/2002 27,101 61,484
12,000 1.5 5.625 05/02/2003 22,956 52,080
Timothy D. Hoogheem 35,000 4.4 11.500 07/16/2002 136,888 310,553
7,500 0.9 10.625 10/31/2002 27,101 61,484
12,000 1.5 5.625 05/02/2003 22,956 52,080
Richard J. Gorczynski 7,500 0.9 10.625 10/31/2002 27,101 61,484
12,000 1.5 5.625 05/02/2003 22,956 52,080
</TABLE>
- ----------------------------------
(1) Options granted in fiscal 1997 have a six-year term and vest quarterly over
a period of two to five years.
(2) Based on 802,690 options granted to employees in fiscal 1997.
(3) The potential realizable value is based on the term of the option at its
time of grant (six years in the case of the options listed above). It is
calculated by assuming that the stock price on the date of grant
appreciates at the indicated annual rate, compounded annually for the
entire term of the option and that the option is exercised and sold on the
last day of its term for the appreciated stock price. These amounts
represent certain assumed rates of appreciation only, in accordance with
the rules of the SEC, and do not reflect the Company's estimate or
projection of future stock price performance. Actual gains, if any, are
dependent on the actual future performance of the Company's Common Stock
and no gain to the optionee is possible unless the stock price increased
over the option term, which will benefit all stockholders.
<PAGE> 20
<TABLE>
<CAPTION>
Aggregated Option Exercises in
Last Fiscal Year and Fiscal Year-End Option Values
Number of Unexercised
Securities Underlying Value of Unexercised In-
Options at the-Money Options at
Fiscal Year-End Fiscal Year-End (2)
Shares Value -------------------------- ---------------------------
Acquired on Realized Exercisable Unexercisable Exercisable Unexercisable
Name Exercise (#) ($) (1) (#) (#) ($) ($)
- --------------------- ------------ -------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Andre de Bruin -- -- 218,288 311,712 -- --
Robert F. Caspari -- -- 46,444 80,556 -- --
J. William Freytag -- -- 49,417 85,083 -- --
Timothy D. Hoogheem -- -- 75,542 53,958 -- --
Richard J. Gorczynski -- -- 43,916 77,584 -- --
</TABLE>
- ----------------------------
(1) Value realized is based on the fair market value of the Company's Common
Stock on the date of exercise less the exercise price.
(2) Calculated on the basis of the closing sale price per share for the Common
Stock as quoted on The Nasdaq Stock Market of $4.625 on June 30, 1997,
less the exercise price.
Discretionary Stock Option Grant
In April 1997, the Company reprioritized its projects as a result of the
termination of the strategic alliance with Eli Lilly and Company. The
reprioritization of projects resulted in a staff reduction of 67 employees. As a
retention incentive to remaining employees, the Compensation Committee, at a
regularly scheduled meeting held May 2, 1997, approved a discretionary stock
option grant. Pursuant to the terms of the stock option grant as set forth by
the Compensation Committee, the options granted to employees vest quarterly over
a two year period and expire six years from the date of grant. Options to
purchase a total of 307,000 shares of the Company's Common Stock at $5.625 per
share were granted.
<PAGE> 21
Employment Agreements
On July 25, 1997, the Company entered into agreements (the "Retention
Agreements") with each of the Named Executive Officers and three other vice
presidents of the Company (individually, the "Executive"). The Retention
Agreements provide that if within one year of (i) a change in control of the
Company, (ii) or a change in the chief executive officer or chief operating
officer, (a) the Executive's employment is terminated without cause or (b) the
Executive voluntarily leaves after any of (i) a reduction in salary or benefits;
(ii) a substantial change in the nature or status of the Executive's
responsibilities or the assignment of duties to Executive inconsistent with
Executive's position; (iii) a relocation of the Company's principal executive
offices to a location outside of Boulder County; (iv) a material breach of any
provision of the Retention Agreement which has not been cured within 30 days;
or, (v) a failure to assume the Retention Agreement by a successor to the
Company, the Executive will receive severance compensation equal to his or her
base salary, any bonus or other incentive compensation, including Company paid
health insurance benefits for a period of twelve months. Additionally, any stock
options held by the Executive shall fully vest and become exercisable and shall
remain exercisable for a period of (i) 90 days if the termination occurs
following a change of control in which the Company's stock is exchanged for
consideration consisting of 75% or more cash; (ii) or twelve months in the event
of termination because of the Executive's disability; (iii) or two years
following a termination of employment for any other reason entitling the
Executive to severance pay under the Retention Agreement. Absent a change in
control or change in chief executive officer or appointment of a chief operating
officer, the Retention Agreements expire July 25, 1999. The Retention Agreements
may be renewed by written agreement of the Executive and the Company for
successive one year periods.
The Company entered into an employment agreement effective June 24, 1994 with
Andre de Bruin. The employment agreement provided for a base salary of $300,000
to be reviewed annually, an employment bonus of $142,862 which was paid biweekly
over a three-year period commencing on July 29, 1994 and it provides for a bonus
of up to 50 percent of his base salary to be awarded at the discretion of the
Compensation Committee. The employment agreement also provided that if Mr. de
Bruin is terminated without cause prior to the expiration of the aforementioned
three-year period, he would be entitled to continue to receive the employment
bonus on a monthly basis until it had been paid in full. See the Compensation
Committee Report for a discussion of the other terms of Mr. de Bruin's
compensation package.
Effective October 17, 1994, the Company entered into an employment agreement
with Dr. Freytag. The employment agreement provides for a base salary of
$205,000 to be reviewed annually and an employment bonus of $100,000 payable in
equal annual installments of $20,000 over five years. In the event Dr. Freytag
voluntarily terminates his employment or leaves for cause, the unpaid portion
will be forfeited. Based on performance and achievement of mutually agreed upon
goals, Dr. Freytag will be eligible to receive a target bonus of up to 40
percent of his base salary. The Company reimbursed Dr. Freytag for his
relocation and also provided him with an interest free bridge loan which was
repaid in fiscal 1996. If the Company terminates Dr. Freytag's employment for
any reason other than cause or persistent unsatisfactory performance, he will
receive severance compensation in an aggregate amount equal to base salary for a
period of six months. Corporate-paid health insurance will also continue for six
months after the termination date.
At the discretion of the Compensation Committee and based on performance and
achievement of mutually agreed upon goals, Drs. Caspari and Gorczynski are
eligible to receive target bonuses of up to 40 percent of their respective base
salaries.
<PAGE> 22
Compensation Committee Report (1)
The Compensation Committee of the Board of Directors (the "Committee") is
composed of two non-employee directors, Dr. Rathmann and Mr. Miller. The
Committee is responsible for setting the Company's policies governing employee
compensation and administering the Company's employee benefit plans, including
the Stock Option Plan, the Somatogen, Inc. Custom 401(k) Savings Plan and the
Employee Stock Purchase Plan.
The Company's executive compensation programs are designed to attract and retain
executives capable of leading the Company to meet its business objectives and to
motivate them to enhance long-term stockholder value. The Committee annually
evaluates the performance and determines the compensation of the Chief Executive
Officer and other executive officers of the Company, based upon a mix of the
achievement of corporate goals, individual performance and comparisons of
compensation paid to executive officers of other biotechnology and
biopharmaceutical companies. The competition for experienced senior executive
officers in the biotechnology and biopharmaceutical industries is intense. The
Committee takes into account the compensation paid by competing companies from
survey data to assist it in determining the compensation paid to executive
officers of the Company.
The annual compensation for the Company's executive officers consists of three
components: (i) a base salary; (ii) an annual cash incentive; and (iii) stock
option grants. Each of these components is described in detail below.
Base Salary: Base salaries for executive officers are determined in the context
of a review of salaries for similar positions offered by the salary survey data.
According to current survey data, the executive officers' base salaries are
currently set competitively between the middle and high-end of the range when
compared to other biotechnology companies. The Committee generally reviews and
adjusts each executive officer's base salary on an annual basis.
Annual Cash Incentive Plan: The annual cash incentive plan established for the
executive, management and other key employees to reward participants for their
contributions to the achievement of Company-wide performance goals was suspended
for fiscal years 1995, 1996 and 1997. This plan may be reestablished by the
Board in the future.
Stock Option Plan: The Stock Option Plan has been established to provide all
employees of the Company, including executive officers, with an opportunity to
share, along with stockholders of the Company, in the benefits deriving from the
long-term performance of the Company.
- ----------------------
(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC and is not to be incorporated by reference in any
filing of the Company under the Securities Act of 1933 as amended (the
"1933 Act") or the Securities Exchange Act of 1934, as amended (the "1934
Act"), whether made before or after the date hereof and irrespective of
any general incorporation language in any such filing.
<PAGE> 23
Grants of stock options have generally been granted to new employees upon
commencement of employment, and on an annual basis to all eligible employees
based on evaluations of individual performance levels. Stock options granted
under the Plan generally have a four or five-year vesting schedule and expire
six to ten years from the date of the grant. However, in order to retain
employees subsequent to the Company's April 1997 staff reduction, the Company
granted options to purchase 307,000 shares of Common Stock at a purchase price
of $5.625 with quarterly vesting over a period of two years. The exercise price
of options granted under the Plan is 100% of the fair market value of the
underlying stock on the date of grant. In fiscal 1997, the Committee granted
options to officers to purchase an aggregate of 189,900 shares of Common Stock.
The Committee also granted options to other eligible employees in the Company to
purchase an aggregate of 612,790 shares of Common Stock. Options were awarded
based on accomplishments and progress toward targeted individual performance
objectives for fiscal 1996 supporting the Company's strategic goals and to
retain employees after the April 1997 staff reduction.
In the future, the Committee plans to continue the formalized stock bonus award
program that rewards individual job performance at all levels of the Company
commensurate with accomplishments and progress toward specific individual
performance objectives established to support the Company's strategic goals.
The Company has amended its Stock Option Plan to comply with exclusions related
to Section 162(m) of the Code relating to the non-deductibility of compensation
of Named Executive Officers in excess of $1,000,000 per year.
Stock Option Exchange: The Compensation Committee, at its regularly scheduled
meeting on July 16, 1996, approved a stock option exchange plan for employees
who held stock options at exercise prices ranging from $23.00 to $40.50. The
exchange plan allowed employees to exchange stock options with exercise prices
in excess of $22.00 for the same number of options at the then current market
value of $11.50. The new options vest quarterly over a five year period
commencing September 28, 1996, and have six year terms. Nine employees accepted
the exchange covering an aggregate of 85,000 shares, including Mr. Hoogheem who
exchanged options to purchase 35,000 shares with an exercise price of $26.75 (of
which options to purchase 28,000 shares had vested) for options to purchase
35,000 at an exercise price of $11.50.
In April 1997, the Board of Directors approved a stock option exchange plan for
clinical and scientific consultants who held stock options which had been
granted under the Company's Consultants Stock Option Plan at exercise prices
ranging from $14.25 to $20.125. The exchange plan allowed consultants to
exchange their stock options for options to purchase the same number of shares
at an exercise price of $5.625 per share, the fair market value of the Company's
stock on the date of exchange. The new options vest quarterly over two and
one-half years and have six year terms. Options to purchase 46,000 shares of
Common Stock were exchanged pursuant to the terms of the exchange offer.
<PAGE> 24
The following table shows certain information concerning the repricing of
options received by the Named Executive Officers during the last ten years.
<TABLE>
<CAPTION>
Ten Year Option Repricings
Length of
Number of Market Original
Securities Price of Exercise Option
Underlying Stock at Price at Term
Options Time of Time of New Remaining
Repriced Repricing Repricing Exercise at Date of
Name Date (#) ($) ($) Price ($) Repricing
- ---- ---- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Timothy D. Hoogheem 7/16/96 35,000 11.50 26.75 11.50 1.8 years
</TABLE>
Chief Executive Officer Compensation: The Committee used the same procedures
described above for setting the base salary and stock option awards for the
Chief Executive Officer. During the past fiscal year, the Chief Executive
Officer's salary was determined based on comparisons with biotechnology
companies as described above. Mr. de Bruin's base salary was increased to
$320,000 in fiscal 1997 from $300,000 for each of the two previous fiscal years.
Mr. de Bruin's compensation was reviewed in July 1997 and increased to $370,000
per annum. In connection with Mr. de Bruin's June 1994 employment with Somatogen
and pursuant to the terms of Mr. de Bruin's employment agreement, Mr. de Bruin
received an employment bonus of $142,862 (paid bi-weekly over a three year
period). The employment bonus represented the portion of earned but unvested
compensation Mr. de Bruin lost as a result of departing from his former
employer. In addition Mr. de Bruin remains eligible for a discretionary
performance bonus of up to 50 percent of his base salary which will be within
the sole discretion of the Committee and will be based on his performance and
his achievement of goals mutually agreed upon by the Committee and Mr. de Bruin.
The Committee has not specified the terms of Mr. de Bruin's performance bonus
and has no plans to specify such terms until the Company achieves a stronger
financial position. Consistent with competitive practices in 1994, Mr. de Bruin
was also granted in 1994, a stock option to purchase an aggregate of 500,000
shares of Common Stock as an incentive for future performance. This option was
granted at an exercise price equal to the fair market value of the common stock
on the date of grant and vests on an annual basis over a seven-year period and
has a ten-year term. In recognition of Mr. de Bruin's leadership, an option to
purchase 10,000 shares of Common Stock was granted in October 1996 and a further
option to purchase 20,000 additional shares of Common Stock was granted after
the Company's April 1997 staff reduction. The Board of Directors remains
confident in Mr. de Bruin's leadership abilities and is pleased and encouraged
by the Company's progress under Mr. de Bruin.
COMPENSATION COMMITTEE
Dr. George B. Rathmann
Mr. Gene I. Miller
<PAGE> 25
Performance Measurement Comparison (1)
The following graph shows total stockholder return of the Nasdaq CRSP Total
Return Index for the Nasdaq Stock Market (U.S. Companies) and Nasdaq
Pharmaceutical Index beginning on July 31, 1991, and for the Company beginning
on August 2, 1991, the date on which the Company's Common Stock commenced public
trading:
(GRAPH)
- ---------------------------------
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the
Company under the 1933 Act or the Exchange Act whether made before or
after the date hereof and irrespective of any general incorporation
language in any such filing.
* The total return on investment (change in year-end stock price plus
reinvested dividends) assumes $100 invested on August 2, 1991 (or on July
31, 1991 as indicated on the above index) in Somatogen, Inc. Common Stock
(at the initial public offering price of $19.00 per share), the Nasdaq
CRSP Total Return Index for Nasdaq Stock (U.S. Companies) Index and the
Nasdaq Pharmaceutical Index.
<PAGE> 26
OTHER BUSINESS
The Board of Directors knows of no other business that will be presented for
consideration at the Annual Meeting. If other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote the shares represented thereby on such matters in accordance with
their best judgment.
By Order of the Board of Directors
James C.T. Linfield
Secretary
September 14, 1997
A copy of the Company's Annual Report to the Securities and Exchange Commission
on Form 10-K for the fiscal year ended June 30, 1997 is available without charge
upon written request to Secretary, Somatogen, Inc., 2545 Central Avenue, Suite
FD1, Boulder, Colorado 80301-2857.
