<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Creative BioMolecules, Inc.
(Name of Registrant as Specified In Its Charter)
[ ]
(Name of Person(s) Filing Proxy Statement; if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
CREATIVE BIOMOLECULES, INC.
45 SOUTH STREET
HOPKINTON, MA 01748
DEAR STOCKHOLDER:
We cordially invite you to attend our 1997 Annual Meeting of Stockholders
commencing at 10:00 a.m. on Tuesday, May 20, 1997 at the Harvard Club of Boston,
Main Clubhouse, 374 Commonwealth Avenue, Boston, Massachusetts. Please join us
for a pre-meeting continental breakfast at 9:30 a.m.
All holders of the Company's outstanding stock as of March 28, 1997 are
entitled to vote at the Annual Meeting. At the Annual Meeting, three persons
will be elected to the Board of Directors. The Company will also seek
Stockholder approval of amendments to the Company's 1987 Stock Plan to increase
the aggregate number of shares authorized for issuance thereunder and to extend
the term of the Plan. The Board recommends the approval of this proposal. Such
other business will be transacted as may properly come before the Annual
Meeting.
We hope you will be able to attend the Annual Meeting. Whether or not you
expect to attend, you are urged to complete, sign, date and return the Proxy
card promptly in the enclosed envelope in order to make certain that your shares
will be represented at the Annual Meeting.
Sincerely,
[Facsmile Signature]
Michael M. Tarnow
President and Chief Executive Officer
April 11, 1997
<PAGE> 3
CREATIVE BIOMOLECULES, INC.
45 SOUTH STREET
HOPKINTON, MA 01748
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1997
TO STOCKHOLDERS OF CREATIVE BIOMOLECULES, INC:
Notice is hereby given that the Annual Meeting of Stockholders of Creative
BioMolecules, Inc. will be held at the Harvard Club of Boston, Main Clubhouse,
374 Commonwealth Avenue, Boston, Massachusetts on Tuesday, May 20, 1997 at 10:00
a.m. local time for the following purposes:
1. To elect three nominees to the Board of Directors to serve until
the 2000 Annual Meeting of Stockholders or until their successors are duly
elected and qualified.
2. To consider and act upon a proposal to amend the Company's 1987
Stock Plan to increase the aggregate number of shares of Common Stock
authorized for issuance thereunder and to extend the term of the Plan.
3. To transact such other business as may be properly brought before
the Annual Meeting and any adjournments thereof.
Only stockholders of record at the close of business on March 28, 1997 will
receive notice of the Meeting and be entitled to vote at the Meeting or any
adjournment(s) thereof. The transfer books will not be closed.
You are cordially invited to attend the Meeting in person if possible.
Whether you plan to attend the Meeting or not, please fill out, sign and date
the enclosed Proxy and return it in the envelope enclosed for this purpose. The
Proxy is revocable by the person giving it at any time prior to the exercise
thereof by written notice received by the Company, by delivery of a duly
executed Proxy bearing a later date, or by attending the Meeting, revoking the
Proxy in writing, and voting in person.
By Order of the Board of Directors
[Facsimile Signature]
Wayne E. Mayhew III
Secretary
April 11, 1997
<PAGE> 4
CREATIVE BIOMOLECULES, INC.
45 SOUTH STREET
HOPKINTON, MA 01748
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1997
GENERAL INFORMATION
Introduction. This Proxy Statement is furnished in connection with the
solicitation by and on behalf of the Board of Directors of Creative
BioMolecules, Inc., a Delaware corporation (the "Company"), of Proxies for use
at the Annual Meeting of Stockholders of the Company to be held at the Harvard
Club of Boston, Main Clubhouse, 374 Commonwealth Avenue, Boston, Massachusetts
on Tuesday, May 20, 1997, at 10:00 a.m. and any adjournment(s) thereof (the
"Meeting"). The enclosed form of Proxy and Annual Report to Stockholders for the
fiscal year ended December 31, 1996, are being mailed to the Stockholders
entitled to notice of and to vote at the Meeting on or about April 11, 1997. The
Annual Report does not constitute any part of this Proxy Statement.
Voting and Revocability of Proxies. Where the Stockholder specifies a
choice on the Proxy as to how his or her shares are to be voted on a particular
matter, the shares will be voted accordingly. If no choice is specified, the
shares will be voted FOR the election of the three nominees for director named
herein and FOR the proposal to amend the 1987 Stock Plan as described herein.
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed Proxy bearing a later date, or by
attending the Meeting, revoking the Proxy in writing, and voting in person.
Solicitation. The entire cost of this solicitation will be paid by the
Company. The solicitation will be primarily by mail, but may also include
telephone, facsimile or oral communication by directors, officers and employees
of the Company who will receive no additional compensation for any such
solicitation. In addition, the Company may reimburse brokerage firms and other
persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners.
Quorum and Voting. Only stockholders of record of the Company's 32,972,893
shares of Common Stock outstanding as of the close of business on March 28,
1997, the record date, will be entitled to vote. Each share of Common Stock is
entitled to one vote on all matters to be voted on at the Meeting or any
adjournment(s) thereof. The presence of the holders of a majority of the voting
power of the outstanding shares of capital stock entitled to vote at the Meeting
present, in person or by Proxy, is necessary to constitute a quorum at the
Meeting. The vote required to approve each Proposal is set out at the end of
that Proposal.
Tabulation of Proxies. The shares represented by the proxies received will
be voted as specified therein, or, if no specification is made, will be voted
for each of the proposals. With respect to the tabulation of votes on any
matter, abstentions are counted as votes against a proposal and broker non-votes
have no effect on the vote.
A PROXY CARD IS ENCLOSED FOR YOUR USE. YOU ARE URGED TO SIGN, DATE AND
RETURN THE PROXY CARD IN THE ENCLOSED PRE-ADDRESSED, POSTAGE PAID ENVELOPE.
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 28, 1997, by (i) each
stockholder known by the Company to be the beneficial owner of more than 5% of
the outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each executive officer of the Company named in the Summary Compensation Table
herein, and (iv) all directors and executive officers as a group. Except as
otherwise indicated, the Company believes that the beneficial owners of the
Common Stock listed below, based on information furnished by such owners, have
sole investment and voting power with respect to such shares.
<TABLE>
<CAPTION>
NUMBER PERCENT
OF SHARES OF CLASS
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER** OWNED(1) OWNED(1)
- ---------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Entities associated with Patricof & Co. Ventures, Inc. or its
associate, Apax Partners & Co. Ventures Ltd.(2)....................... 4,559,416 13.7%
445 Park Avenue
New York, NY 10022
Biotechnology Investments Limited(3).................................. 2,266,122 6.9
St. Julian's Court
St. Peter's Port
Guernsey, Channel Islands
Amerindo Investment Advisors, Inc.(4)................................. 2,265,000 6.9
388 Market Street
San Francisco, CA 94111
Entities associated with Domain Associates(5)......................... 1,811,316 5.5
One Palmer Square
Princeton, NJ 08542
INVESCO Entities(6)................................................... 1,785,000 5.4
11 Devonshire Square
London, United Kingdom
Charles Cohen, Ph.D.(7)............................................... 739,956 2.2
Jeremy L. Curnock Cook(8)............................................. 2,273,622 6.9
5 Arrows House
St. Swithin's Lane
London, United Kingdom
Brian H. Dovey(9)..................................................... 1,825,004 5.5
One Palmer Square
Princeton, NJ 08542
Martyn D. Greenacre(16)............................................... 10,000 *
Arthur J. Hale, M.D.(10).............................................. 3,962,311 11.9
15 Portland Place
London, United Kingdom
Suzanne Denbo Jaffe................................................... -- *
Michael Rosenblatt, M.D.(16).......................................... 20,000 *
Michael M. Tarnow(11)................................................. 400,000 1.2
James R. Tobin(12).................................................... 7,500 *
Ronald D. Johnson, Ph.D.(13).......................................... 140,997 *
Gregory F. Liposky(14)................................................ 43,283 *
Wayne E. Mayhew III(15)............................................... 119,942 *
All directors and executive officers as a group (15 Persons).......... 9,542,615 27.4
</TABLE>
- ---------------
* Less than 1%
** Addresses are given for beneficial owners of more than 5% of the
outstanding Common Stock only.
(1) Applicable percentage of ownership is based on 32,929,308 shares of Common
Stock outstanding as of February 28, 1997 together with applicable options
or warrants for such stockholder. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities.
Shares of Common Stock subject to options or warrants which are currently
exercisable or convertible or which will become exercisable or convertible
within sixty (60) days after February 28, 1997 are deemed outstanding for
2
<PAGE> 6
computing the beneficial ownership of the person holding such option or
warrant but are not outstanding for computing the beneficial ownership of
any other person. 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.
(2) Includes 331,134 shares (306,987 shares of Common Stock and 24,147 shares
of Common Stock subject to a warrant) held by Banque Wormser Freres,
Custodian for Apax CR IIA; 131,591 shares (121,913 shares of Common Stock
and 9,678 shares of Common Stock subject to a warrant) held by Banque
Wormser Freres, Custodian for Apax CR IIC; 197,785 shares of Common Stock
held by Coutts & Co (Jersey) Limited, Custodian for APA Excelsior Venture
Capital Holdings (Jersey) Ltd.; 764,994 shares of Common Stock held by
Coutts & Co (Jersey) Limited, Custodian for Apax Ventures II, Ltd.; 778,498
shares (710,674 shares of Common Stock and 67,824 shares of Common Stock
subject to a warrant) held by Apax Funds Nominees Ltd. "A" Account,
Custodian for Apax Ventures III Trust; 954,060 shares (870,941 shares of
Common Stock and 83,119 shares of Common Stock subject to a warrant) held
by Apax Funds Nominees Ltd. "A" Account, Custodian for Apax Ventures III
International Partners, L.P.; 487,206 shares (406,005 shares of Common
Stock and 81,201 shares of Common Stock subject to a warrant) held by Apax
Funds Nominees Ltd. "B" Account, Custodian for Apax Ventures IV Trust;
841,092 shares (700,910 shares of Common Stock and 140,182 shares of Common
Stock subject to a warrant) held by Apax Funds Nominees Ltd. "B" Account,
Custodian for Apax Ventures IV International Partners, L.P., and 73,056
shares (70,048 shares of Common Stock and 3,008 shares of Common Stock
subject to a warrant) held by MMG Conseil (collectively "Entities
associated with Patricof & Co. Ventures, Inc."). Alan Patricof is a
director of Patricof & Co. Ventures, Inc., APA Partners, Apax Partners &
Co. Ventures Ltd., Apax Venture Capital Management (Jersey) Limited, Apax
Partners & Cie Gestion, which entities are the investment advisors or
manager of the funds listed in this footnote, and he may be deemed to be
the beneficial owner of 4,532,238 shares of Common Stock (after giving
effect to the exercise of warrants). Dr. Hale, a director of the Company,
is an associate of Patricof & Co. Ventures, Inc. and a partner and director
of Apax Partners & Co. Ventures Ltd., the manager of or an advisor to the
Entities associated with Apax Partners & Co. Ventures Ltd. Dr. Hale may be
deemed to be the beneficial owner of 3,962,311 shares of Common Stock as
described in Note 10 below. Dr. Hale disclaims beneficial ownership of
shares associated with Apax Partners & Co. Ventures Ltd. and Patricof and
Co. Ventures, Inc. Ronald Cohen is a director of Apax Partners & Co.
Ventures Ltd., and he may be deemed to be the beneficial owner of 3,126,284
shares of Common Stock (after giving effect to the exercise of warrants).
The address for Banque Wormser Freres, Custodian for Apax CR IIA, Apax CR
IIC and MMG Conseil, is No. 45 Avenue Kleber, Paris, 75116 France; the
address for Coutts & Co (Jersey) Limited, Custodian for APA Excelsior
Venture Capital Holdings (Jersey) Ltd., and Apax Ventures II, Ltd., is
23/25 Broad Street, St. Helier, Jersey, Channel Islands, and the address
for Apax Funds Nominees Ltd. "A" Account, Custodian for Apax Ventures III
Trust and Apax Ventures III International Partners, L.P., and for Apax
Funds Nominees Ltd. "B" Account, Custodian for Apax Ventures IV Trust and
Apax Ventures IV International Partners, L.P., is 62 Green Street, London
W14 4BA, United Kingdom. The address for Dr. Hale, Mr. Cohen and Apax
Partners & Co. Ventures Ltd. is 15 Portland Place, London W1N 3AA, United
Kingdom. The information in the chart and in this footnote, other than the
percentage of class beneficially owned, is based solely on Amendment No. 8
to Schedule 13D dated February 5, 1997 and filed with the Securities and
Exchange Commission and on information provided by counsel for the entities
and persons listed in this footnote. See Note 10.
(3) Includes 2,266,122 shares (2,165,538 shares of Common Stock and 100,584
shares of Common Stock subject to a warrant) beneficially owned by
Biotechnology Investments Limited ("BIL"). Mr. Curnock Cook is a director
of Rothschild Asset Management Limited, which is an advisor to BIL and to
Rothschild Asset Management (C.I.) Limited, which is the manager of BIL.
Mr. Curnock Cook is also a shareholder, but is not an officer or director,
of BIL. Rothschild Asset Management (C.I.) Limited is a wholly-owned
subsidiary of Rothschild Asset Management Limited. Mr. Curnock Cook
disclaims beneficial ownership of the shares owned by BIL. The information
in the chart and in this footnote, other than the percentage of class
beneficially owned, is based solely on a Schedule 13D dated
3
<PAGE> 7
January 19, 1995 and filed with the Securities and Exchange Commission and
on information provided to the Company by representatives of BIL. See Note
8.
(4) Amerindo Investment Advisors, Inc. ("Amerindo") is considered the
beneficial owner of an aggregate of 2,265,000 shares of Common Stock, which
shares were purchased for certain advisory clients of Amerindo. The
information in the chart and in this footnote, other than the percentage of
class beneficially owned, is based solely on a Schedule 13G/A dated
February 13, 1997 and filed with the Securities and Exchange Commission.
(5) Includes 1,750,062 shares (1,458,385 shares of Common Stock and 291,677
shares of Common Stock subject to a warrant) held by Domain Partners III,
L.P. and 61,254 shares (51,045 shares of Common Stock and 10,209 shares of
Common Stock subject to a warrant) held by DP III Associates, L.P.
(collectively "Entities associated with Domain Associates"). Mr. Dovey is a
General Partner of Domain Associates and a General Partner of the general
partner of the Entities associated with Domain Associates and may be deemed
to be the beneficial owner of shares owned by the Entities associated with
Domain Associates. The information in the chart and in this footnote, other
than the percentage of class beneficially owned, is based solely on a
Schedule 13D dated January 19, 1995 and filed with the Securities and
Exchange Commission and on information provided to the Company by
representatives of Domain Associates. See Note 9.
(6) The following entities share voting and dispositive power as to 1,785,000
shares of Common Stock: INVESCO PLC, INVESCO North American Group, Ltd.,
INVESCO, Inc., INVESCO North American Holdings, Inc., and INVESCO Funds
Group, Inc. INVESCO PLC holds the securities on behalf of the other
entities named in this footnote, none of which has an interest in the
securities in excess of 5% of the class of securities. The entities listed
in this footnote disclaim beneficial ownership of the Common Stock. The
information in the chart and in this footnote, other than the percentage of
class beneficially owned, is based solely on a Schedule 13G dated February
14, 1997 and filed with the Securities and Exchange Commission.
(7) Includes 298,163 shares of Common Stock owned directly by Dr. Cohen, 12,000
shares of Common Stock owned by Dr. Cohen's children, and 429,793 shares of
Common Stock subject to options exercisable on February 28, 1997 or within
60 days thereafter.
(8) Includes 7,500 shares of Common Stock subject to options exercisable on
February 28, 1997 or within 60 days thereafter and 2,266,122 shares of
Common Stock (after giving effect to the exercise of warrants) beneficially
owned by BIL. Mr. Curnock Cook is also a shareholder, but is not an officer
or director, of BIL. Rothschild Asset Management (C.I.) Limited is a
wholly-owned subsidiary of Rothschild Asset Management Limited. Mr. Curnock
Cook disclaims beneficial ownership of the shares owned by BIL. See Note 3.
(9) Includes 1,188 shares of Common Stock owned directly by Mr. Dovey, 12,500
shares of Common Stock subject to options exercisable on February 28, 1997
or within 60 days thereafter and 1,811,316 shares of Common Stock (after
giving effect to the exercise of warrants) held by Entities associated with
Domain Associates. Mr. Dovey is a General Partner of Domain Associates and
a General Partner of the general partner of the Entities associated with
Domain Associates and may be deemed to be the beneficial owner of shares
owned by the Entities associated with Domain Associates. Does not include
2,266,122 shares of Common Stock (after giving effect to the exercise of
warrants) beneficially owned by BIL. Domain Associates is the U.S. venture
capital advisor to BIL. Domain Associates has neither voting nor investment
power over the shares owned by BIL and Mr. Dovey disclaims beneficial
ownership of the shares owned by BIL. See Notes 3 and 5.
(10) Includes 112,061 shares of Common Stock owned directly by Dr. Hale, 11,900
shares of Common Stock owned by Dr. Hale's wife, 12,500 shares of Common
Stock subject to options exercisable on February 28, 1997 or within 60 days
thereafter, and 3,825,850 shares of Common Stock (after giving effect to
the exercise of warrants) held by Coutts & Co (Jersey) Limited, Custodian
for Apax Ventures II, Ltd., Apax Funds Nominees Ltd. "A" Account, Custodian
for Apax Ventures III Trust, Apax Funds Nominees Ltd. "A" Account,
Custodian for Apax Ventures III International Partners,
4
<PAGE> 8
L.P., Apax Funds Nominees Ltd. "B" Account, Custodian for Apax Ventures IV
Trust and Apax Funds Nominees Ltd. "B" Account, Custodian for Apax Ventures
IV International Partners, L.P. (collectively "Entities associated with
Apax Partners & Co. Ventures Ltd."). Dr. Hale is an associate of Patricof &
Co. Ventures, Inc., and a partner and director of Apax Partners & Co.
Ventures Ltd., the manager of or an advisor to the Entities associated with
Apax Partners & Co. Ventures Ltd. Dr. Hale disclaims beneficial ownership
of the shares associated with the Entities associated with Apax Partners &
Co. Ventures Ltd. and Patricof & Co. Ventures, Inc. See Note 2.
(11) Includes 20,000 shares of Common Stock and 380,000 shares of Common Stock
subject to options exercisable on February 28, 1997 or within 60 days
thereafter.
(12) Includes shares of Common Stock subject to options exercisable on February
28, 1997 or within 60 days thereafter. Does not include 1,542,680 shares
owned by Biogen, Inc ("Biogen"). Mr. Tobin is a Director, President and
Chief Executive Officer of Biogen. Mr. Tobin disclaims beneficial ownership
of the shares owned by Biogen.
(13) Includes 20,414 shares of Common Stock and 120,583 shares of Common Stock
subject to options exercisable on February 28, 1997 or within 60 days
thereafter.
(14) Includes 2,283 shares of Common Stock and 41,000 shares of Common Stock
subject to options exercisable on February 28, 1997 or within 60 days
thereafter.
(15) Includes 51,353 shares of Common Stock and 68,589 shares of Common Stock
subject to options exercisable on February 28, 1997 or within 60 days
thereafter.
(16) Includes shares of Common Stock subject to options exercisable on February
28, 1997 or within 60 days thereafter.
INFORMATION CONCERNING CURRENT DIRECTORS,
NOMINEES AND EXECUTIVE OFFICERS
Information regarding the executive officers and directors of the Company
on April 11, 1997 is set forth below as of that date:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- --------------------------------------------
<S> <C> <C>
Michael M. Tarnow......................... 52 Chief Executive Officer, President and
Director
Brian H. Dovey............................ 55 Chairman of the Board and Director
Charles Cohen, Ph.D.(1)................... 46 Chief Scientific Officer and Director
Steven L. Basta........................... 31 Vice President, Corporate Development and
Investor Relations
Thomas J. Facklam, Ph.D................... 46 Vice President, Product Development and
Quality
Ronald D. Johnson, Ph.D................... 52 Vice President, Operations
Cheryl K. Lawton.......................... 36 Vice President and General Counsel
Gregory F. Liposky........................ 42 Vice President, Contract Manufacturing
Wayne E. Mayhew III....................... 45 Vice President and Chief Financial Officer,
Treasurer and Secretary
Jeremy L. Curnock Cook(1)................. 47 Director
Martyn D. Greenacre....................... 55 Director
Arthur J. Hale, M.D....................... 70 Director
Suzanne Denbo Jaffe(1).................... 53 Director
Michael Rosenblatt, M.D................... 49 Director
James R. Tobin............................ 52 Director
</TABLE>
- ---------------
(1) Nominee for re-election to the Board of Directors.
Michael M. Tarnow joined the Company as President, Chief Executive Officer
and Director in July 1995. Previous to his joining the Company, Mr. Tarnow was a
career pharmaceutical executive at Merck & Co.,
5
<PAGE> 9
Inc., beginning in 1973. From 1988 to 1990, Mr. Tarnow headed Merck's worldwide
business development activities as Executive Director of Corporate Development.
In 1990, he was appointed President and CEO of Merck Frosst Canada, Merck's
Canadian subsidiary. In 1994, Mr. Tarnow returned to the United States as
Executive Vice President of Medco Containment Services and Merck Managed Care,
where he was responsible for initiating managed care programs in several
international markets. Mr. Tarnow received his J.D. from the University of
Illinois and bachelor's degree from Wayne State University.
Brian H. Dovey has served as Chairman of the Board since January 1995 and
as a member of the Company's Board of Directors since September 1992. Since
1988, Mr. Dovey has been General Partner of Domain Associates, a venture capital
firm, affiliates of which are stockholders of the Company. From 1983 to 1988,
Mr. Dovey was employed at Rorer Group Inc., now Rhone-Poulenc Rorer Inc., where
he held various management positions, most recently as President. He also serves
as a director of Connective Therapeutics, Inc., Geron Corporation, NABI, Inc.,
and Vivus, Inc.
Charles Cohen, Ph.D., a founder of the Company, has served as Chief
Scientific Officer since June 1990, and as a member of the Company's Board of
Directors since April 1982. Dr. Cohen previously served as Chief Executive
Officer from January 1985 to December 1991 and from November 1993 to July 1995,
President from January 1985 to December 1991 and from January to July of 1995,
Chairman of the Board from June 1990 to January 1995 and Vice President and
Scientific Director from April 1982 to January 1985. Prior to co-founding the
Company, he was Manager of Biochemical Development for Waters Associates, a
manufacturer of chromatography and filtration equipment, then a subsidiary of
Millipore Corporation. He also serves as a director of Cortech, Inc. and
Exelixis Pharmaceuticals, Inc. Dr. Cohen received his Ph.D. in Basic Medical
Science from New York University School of Medicine. Dr. Cohen served as a
Research Fellow in the University of Virginia's Department of Biophysics and
Biochemistry from 1976 to 1977.
Steven L. Basta joined the Company in February 1997 as Vice President,
Corporate Development and Investor Relations. Prior to joining the Company, he
was associated with Jundt Associates, an investment management firm, from July
1996 to December 1996. From September 1990 to June 1996, Mr. Basta held several
positions with The Immune Response Corporation, a biopharmaceutical company,
including Executive Director of Product Development from 1994 to 1996, Program
Director for an HIV research joint venture from 1992 to 1993, and Director of
Investor Relations and Market Development from 1991 to 1992. From 1988 to 1990,
he served as an Associate with Dillon, Read & Co, Inc. He received an M.B.A.
from the Kellogg Graduate School of Management of Northwestern University.
Thomas J. Facklam, Ph.D. joined the Company in May 1996 as Vice President,
Product Development and Quality. Prior to joining the Company, he served as
Senior Director International Project Management and Clinical Research at R.W.
Johnson Pharmaceutical Research Institute. From 1992 to 1994, he served as Vice
President Biotechnology at Ares-Sorono, N.V., a pharmaceutical company, where he
held drug development management positions from 1987 to 1992. Previously, he
held research and development positions at Serono Laboratories, Inc., a
pharmaceutical company, and the Batelle Memorial Institute, a contract research
organization. He received his Ph.D. in Biochemistry/Molecular Biology from Ohio
State University.
Ronald D. Johnson, Ph.D. joined the Company in August 1992 as Vice
President, Operations. Prior to joining the Company, he had served as Vice
President, Diagnostic/Growth Factor Manufacturing at Chiron Corporation, a
biopharmaceutical company, where he had served as Vice President, Process
Development and Manufacturing from May 1987 to December 1991. Previously, he
held process development positions at Merck Sharp & Dohme Research Laboratories
and Eli Lilly & Co. He received his Ph.D. in Biochemistry from Oklahoma State
University in 1972.
Cheryl K. Lawton joined the Company in January 1997 as Vice President and
General Counsel. Prior to joining the Company, she had served as Vice President
beginning in January 1996, General Counsel beginning in April 1995 and from May
1994 to April 1995, Associate General Counsel at MediSense, Inc., an
international medical device manufacturing company. From November 1989 to April
1994, she had held various legal positions and last served as Assistant General
Counsel at Damon Corporation, a clinical laboratory service provider. Ms. Lawton
received her J.D. from Suffolk University School of Law.
6
<PAGE> 10
Gregory F. Liposky has served as Vice President, Contract Manufacturing
since February 1997. From March 1993 to February 1997, he served as Vice
President, Manufacturing. Prior to joining the Company, he had served as Vice
President, Bioprocessing at Verax Corporation ("Verax"), a toll manufacturer of
biotechnology products, where he had served as Operations Manager from November
1989 to October 1991 and Production Manager from January 1985 to November 1989.
He received his M.B.A. from Monmouth College in 1984.
Wayne E. Mayhew III has served as Chief Financial Officer since May 1983,
Vice President since August 1984, Treasurer since December 1986, and Secretary
since 1990. Prior to joining the Company, he was a Small Business Services and
Audit Manager for Deloitte, Haskins & Sells. Mr. Mayhew is a certified public
accountant. He received his Masters in Accounting from Brigham Young University.
Jeremy L. Curnock Cook has been a member of the Company's Board of
Directors since January 1995. He is currently a director of Rothschild Asset
Management Limited which acts as an advisor to Biotechnology Investments
Limited, which is a stockholder of the Company. In 1975, Mr. Curnock Cook
founded and became Managing Director of The International Biochemical Group
Ltd., a company engaged in applied biotechnology, which was subsequently
acquired by Royal Dutch/Shell Group of Companies in 1985. He also serves as a
director of Cell Therapeutics, Ribozyme Pharmaceuticals, Inc., Sugen, Inc. and
Targeted Genetics Corp.
Martyn D. Greenacre has been a member of the Company's Board of Directors
since June 1993. Since 1992, Mr. Greenacre has been President and Chief
Executive Officer of Zynaxis, Inc., a drug delivery company based in Malvern,
Pennsylvania. Prior to Zynaxis, from 1973 through 1992, he was with SmithKline
Beecham where he held several senior management positions, most recently as
chairman of European operations. He also serves as a director of Cephalon Inc.,
Genset, IBAH, Inc., and Zynaxis, Inc.
Arthur J. Hale, M.D., has been a member of the Company's Board of Directors
since June 1987. Since 1985, Dr. Hale has been a partner and director of Apax
Partners & Co. Ventures Ltd., the United Kingdom associate of Patricof & Co.
Ventures, Inc., a venture capital firm, affiliates of which are stockholders of
the Company. Previously, he was Vice President of Research and Development at
G.D. Searle in the United Kingdom.
Suzanne Denbo Jaffe has been a member of the Company's Board of Directors
since January 1997. Since 1994, Ms. Jaffe has been the Managing Director of
Hamilton & Co., an investment management consulting firm. From 1985 to 1993, Ms.
Jaffe was a Managing Director of Angelo, Gordon & Co., L.P., a money management
firm. From 1983 to 1985, she was Deputy Comptroller of New York State. She
served under President Reagan on the Board of Trustees of the Social Security
and Medicare Trust Funds and also was a member of the ERISA Advisory Council of
the Department of Labor. She is currently a trustee of Fordham University and a
director of Olin Corp.
Michael Rosenblatt, M.D. has been a member of the Company's Board of
Directors since June 1993. Since 1996, Dr. Rosenblatt has been the Faculty Dean
for Academic Programs at Care Group at Harvard Medical School and Senior Vice
President for Academic Affairs at Beth Israel Deaconess Medical Center in
Boston. Since 1992, Dr. Rosenblatt has been the Ebert Professor of Molecular
Medicine at Harvard Medical School, Chief of the Division of Bone and Mineral
Metabolism at Beth Israel Deaconess Medical Center, and Director of the
Harvard-Massachusetts Institute of Technology Division of Health Sciences and
Technology. From 1983 through 1992, he was with Merck Sharp & Dohme Research
Laboratories, most recently serving as Senior Vice President for Research. He
also serves as a director of ProScript, Inc.
James R. Tobin has been a member of the Company's Board of Directors since
January 1995. He has served as Chief Executive Officer since February 1997 and
President since February 1994 of Biogen, a biotechnology company, which is a
stockholder of the Company. He also served as Chief Operating Officer of Biogen
from February 1994 to February 1997. Prior to joining Biogen, Mr. Tobin was with
Baxter International Inc., a health care products company, where he served as
President and Chief Operating Officer from 1992 to 1994, as Executive Vice
President from 1988 to 1992 and in various management positions prior to 1988.
He also serves as a director of Biogen, Inc. and Genovo, Inc.
7
<PAGE> 11
The Company has agreed to nominate James R. Tobin to serve as a member of
the Board of Directors of the Company through his current term and through one
additional three-year term. Commencing with the date on which the additional
three-year term of Mr. Tobin ends, the Company has agreed to nominate either the
Chairman or the President of Biogen to serve as a member of the Board of
Directors of the Company for two additional three-year terms thereafter.
Officers are elected and serve at the discretion of the Board of Directors.
There are no family relationships among any of the directors and executive
officers of the Company.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES
BOARD AND COMMITTEE MEETINGS
The Company has a standing Audit Committee of the Board of Directors, which
provides the opportunity for direct contact between the Company's independent
accountants and the Board. The Audit Committee met two times during 1996 to
review the services provided by the auditors during the annual audit, to review
the adequacy of financial statement disclosures, to discuss the Company's
internal control policies and procedures and to consider and recommend the
selection of the Company's independent accountants. The members of the Audit
Committee are Mr. Greenacre, Mr. Curnock Cook and Ms. Jaffe.
The Company also has a standing Compensation Committee of the Board of
Directors, which provides recommendations to the Board regarding compensation
programs of the Company and administers the Company's 1987 Stock Plan, Employee
Stock Purchase Plan and 1992 Non-Employee Director Non-Qualified Stock Option
Plan, including the grant of stock options and the issuance of restricted shares
to employees. The Compensation Committee also is responsible for establishing
and modifying the compensation of all corporate officers of the Company
(including compensation pursuant to stock options and other employee benefit
plans and arrangements) and the engagement of, terms of any employment
agreements and arrangements with, and termination of, all corporate officers of
the Company. The Compensation Committee met seven times during 1996. The members
of the Compensation Committee are Mr. Dovey, Dr. Hale and Mr. Tobin. See "Report
of the Compensation Committee on Executive Compensation."
The Company does not have a Nominating Committee.
The Board of Directors met eight times during 1996. Each director nominated
for re-election attended at least 75% of the aggregate number of Board meetings
and meetings held by all Committees on which the director then served.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR COMPENSATION
Standard Arrangements. For their services to the Company, non-employee
directors of the Company receive cash payments in the amount of an annual
retainer of $5,000 and $1,000 for each Board meeting attended in person.
Nonemployee directors who are members of a committee of the Board receive $1,000
for each committee meeting attended on a day other than a day on which a Board
meeting is held. There are no cash payments for participation in Board or
committee meetings held by telephone conference call. Directors who are employed
by the Company do not receive compensation for attendance at Board or committee
meetings. Directors are reimbursed for any expenses incurred attendant to Board
membership. Beginning in May 1997, the annual retainer paid to each non-employee
director will be increased from $5,000 to $10,000.
Pursuant to the Company's 1992 Non-Employee Director Non-Qualified Stock
Option Plan (the "Director Plan"), during the year ended September 30, 1993, Mr.
Dovey, Mr. Greenacre, Dr. Hale and Dr. Rosenblatt, and, during the year ended
September 30, 1995, Mr. Curnock Cook and Mr. Tobin were each granted an option
for the purchase of 10,000 shares of Common Stock. Pursuant to the amendment to
the Director Plan approved by the Stockholders in May 1996, each of the above
listed directors were granted an additional option for the purchase of 10,000
shares of Common Stock. Also pursuant to the Director Plan, Ms. Jaffe was
granted an option for the purchase of 20,000 shares of Common Stock in January
1997. The Director Plan provides that each future non-employee director will be
granted an option to purchase 20,000
8
<PAGE> 12
shares of Common Stock. In addition, the Director Plan provides the grant of an
annual option to purchase 5,000 shares of Common Stock to each non-employee
member of the Board serving as of the Annual Meeting. All of the options under
the Director Plan are granted at the fair market value of the Common Stock on
the date the option is granted. All of the options granted under the Director
Plan vest at the rate of 25% on each of the first four anniversaries after the
date of grant.
In connection with his services as a medical advisor to the Company, on
March 20, 1996 Dr. Rosenblatt was granted an additional option to purchase
10,000 shares of Common Stock at an exercise price of $9.34375 per share, 5,000
shares of which vested immediately and 5,000 shares of which vested on January
1, 1997. For his continuing services as Chairman of the Board of Directors, on
January 14, 1997 Mr. Dovey was granted an option to purchase 20,000 shares of
Common Stock at an exercise price of $10.0625 per share vesting annually over
four years from the date of grant.
EXECUTIVE COMPENSATION
Compensation which was earned for services in all capacities for the year
ended December 31, 1996 and the years ended September 30, 1995 and 1994 and
which the Company paid to or accrued for each person who served as Chief
Executive Officer during 1996 and each of the four other most highly compensated
executive officers of the Company for service during such periods, is set forth
in the following table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION
---------------------------------- AWARDS
OTHER ANNUAL SECURITIES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR(1) ($)(2) ($) ($)(3) OPTIONS(#)(4) ($)
- ------------------------------ ------- -------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Michael M. Tarnow(5).......... 1996 $286,362 $241,500 $ 12,423(5) 200,000 $193,781(7)
President and Chief 1995 57,292 -- 47,826(5) 1,000,000 --
Executive Officer
Charles Cohen, Ph.D........... 1996 239,090 165,000 -- 200,000 35,249(8)
Chief Scientific 1995 217,350 65,000 -- 470,000 50,878(9)
Officer 1994 210,000 -- -- 150,000 54,588(10)
Ronald Johnson, Ph.D.......... 1996 173,000 22,875 -- 24,000 4,500(11)
Vice President, Operations 1995 163,666 27,000 -- 80,000 3,989(11)
1994 157,500 -- -- -- 4,497(11)
Wayne E. Mayhew III........... 1996 134,000 56,250 -- 20,000 4,500(11)
Vice President and Chief 1995 130,727 41,000 -- 60,000 3,684(11)
Financial Officer, Treasurer 1994 123,833 -- -- -- 4,497(11)
and Secretary
Gregory F. Liposky(6)......... 1996 120,500 16,000 -- 14,000 4,273(11)
Vice President, Contract 1995 114,461 17,500 -- 56,000 13,004(12)
Manufacturing
</TABLE>
- ---------------
(1) In January 1996, the Board of Directors voted to change the Company's
fiscal year end from September 30 to December 31, effective with the three
month period ended December 31, 1995 (the "Transition Period"). During the
Transition Period, Mr. Tarnow, Dr. Cohen, Dr. Johnson, Mr. Mayhew and Mr.
Liposky received salary payments of $68,750, $59,500, $42,333, $33,017 and
$28,881, respectively and Mr. Tarnow received $85,854 in other annual
compensation (see Note 5 below). The bonuses related to the Transition
Period are included in the bonuses paid or accrued to the named executive
officers in 1996. No stock options were granted and no other compensation
was paid to the named executive officers during this Transition Period.
(2) The amounts shown include the individual's before-tax contributions to the
Company's 401(k) retirement plan.
9
<PAGE> 13
(3) Unless included in the table, non-cash benefits were less than the lesser
of 10% of each such person's respective cash compensation or $50,000.
(4) Options to purchase the number of shares shown were granted pursuant to the
Company's 1987 Stock Plan.
(5) Mr. Tarnow joined the Company in July 1995. The $12,423, $85,854 and
$47,826 reported as Other Annual Compensation in fiscal 1996, the
Transition Period and fiscal 1995, respectively, consist of reimbursed
relocation and related expenses, including reimbursement of related income
taxes.
(6) Mr. Liposky became an executive officer of the Company in January 1995.
Information for prior years is not required.
(7) Consists of payments made by the Company to third parties in connection
with the relocation of Mr. Tarnow ($190,000) and matching 401(k)
contributions ($3,781).
(8) Consists of payment of deferred compensation ($12,500), forgiveness of
principal and interest payable to the Company ($18,249) and matching 401(k)
contributions ($4,500).
(9) Consists of forgiveness of principal and interest under Dr. Cohen's notes
payable to the Company, as provided in his employment contract ($46,378)
and matching 401(k) contributions ($4,500).
(10) Consists of forgiveness of principal and interest under Dr. Cohen's notes
payable to the Company, as provided in his employment contract ($50,091)
and matching 401(k) contributions ($4,497).
(11) Consists of matching 401(k) contributions.
(12) Consists of payment of compensation ($9,493) due Mr. Liposky from Verax at
March 15, 1993, the date of the acquisition by the Company of a
manufacturing facility from Verax (obligation was assumed by the Company as
part of such acquisition) and matching 401(k) contributions ($3,511).
OPTION GRANTS
The following table shows, as to each person named, the options to purchase
Common Stock granted by the Company under the 1987 Stock Plan in 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------ VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(3)
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED(#) YEAR ($/SHARE) DATE 5%($) 10%($)
- -------------------------- ---------- ---------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael M. Tarnow......... 200,000(1) 18.8% $ 5.5625 7/16/06 $699,645 $1,773,038
Charles Cohen, Ph.D....... 200,000(1) 18.8% 5.5625 7/16/06 699,645 1,773,038
Ronald D. Johnson,
Ph.D.................... 24,000(2) 2.3% 9.34375 3/20/06 141,030 357,397
Wayne E. Mayhew III....... 20,000(2) 1.9% 9.34375 3/20/06 117,525 297,831
Gregory F. Liposky........ 14,000(2) 1.3% 9.34375 3/20/06 82,267 208,481
</TABLE>
- ---------------
(1) These options are non-qualified stock options granted under the Company's
1987 Stock Plan at fair market value for a term of ten years. Options become
exercisable as to 20% on July 16, 1997 and thereafter vest in equal annual
portions through July 16, 2001. In addition, the options fully vest in the
event of a change of control of the Company. See "Employment Agreements."
(2) These options are stock options granted under the Company's 1987 Stock Plan
at fair market value for a term of ten years. Options became exercisable as
to 25% on January 1, 1997 and thereafter vest in equal annual portions
through January 1, 2000. In addition, the options fully vest in the event of
a change in control of the Company. See "Employment Agreements."
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted.
10
<PAGE> 14
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES
The following table shows, as to each person named, the aggregated stock
options exercised under the Company's stock option plans in fiscal year 1996 and
year-end values.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SHARES SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ON VALUE AT FISCAL YEAR-END(#) AT FISCAL YEAR-END ($)(2)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael M. Tarnow..... 20,000 $76,250 380,000 800,000 $2,850,000 $ 5,462,500
Charles Cohen,
Ph.D................ -- -- 419,375 542,292 2,591,383 3,376,016
Ronald D. Johnson,
Ph.D................ -- -- 74,166 64,834 719,374 360,377
Wayne E. Mayhew III... 13,000 90,450 77,589 50,000 708,315 270,938
Gregory F. Liposky.... 6,500 41,234 36,500 43,000 222,516 250,938
</TABLE>
- ---------------
(1) Based upon the closing price of the Company's Common Stock on various dates
of exercise as reported by the Wall Street Journal. The options each had an
exercise price equal to the fair market value of the Company's Common Stock
on the date the options were granted. The value realized upon exercise of
the options resulted directly from appreciation in the Company's stock price
during the optionee's tenure with the Company.
(2) Based upon the $10.375 closing price of the Company's Common Stock on
December 31, 1996 as reported by the Wall Street Journal. The options each
had an exercise price equal to the fair market value of the Company's Common
Stock on the dates the options were granted. The valuation of the
unexercised in-the-money options results directly from appreciation in the
Company's stock price during the optionee's tenure with the Company.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Michael M. Tarnow pursuant to
which Mr. Tarnow has agreed to serve as President and Chief Executive Officer of
the Company at a current annual base salary of $315,000 (subject to increase),
plus an annual performance bonus at the discretion of the Board of Directors of
up to 60% of his annual salary. The Company's agreement with Mr. Tarnow is for
an initial two-year term ending on July 16, 1997, and thereafter for successive
one year periods, unless terminated by either party by prior written notice of
at least 90 days. Notwithstanding the foregoing, the employment agreement may be
terminated for cause. In the event that the Company terminates Mr. Tarnow's
employment other than for cause or Mr. Tarnow is constructively terminated by
having his authority and role materially reduced or by no longer serving as the
Company's President and Chief Executive Officer or as a Director, the Company
has agreed to pay his salary for a period of twelve months after the date of
termination and, after July 16, 1996, has agreed to pay a pro rata portion of
his annual bonus through the date of his termination. Pursuant to this
agreement, Mr. Tarnow was granted options to purchase 1,000,000 shares of the
Company's Common Stock. The options became exercisable as to 20% immediately and
thereafter vest in equal annual portions through July 16, 1999.
The Company has an employment agreement with Dr. Charles Cohen pursuant to
which the Company retained Dr. Cohen's services at a current annual salary of
$262,500 (subject to increase) and a target annual bonus of 60% of his annual
salary based on performance. The Company's original agreement with Dr. Cohen was
for an initial term ending on December 31, 1993 and, thereafter, continues for
additional periods of one year, unless at anytime during the term such agreement
is terminated by either party by written notice of not less than 90 days.
Notwithstanding the foregoing, the employment agreement may be terminated for
cause. In the event the Company terminates Dr. Cohen's employment other than for
cause, or Dr. Cohen terminates his employment as a result of breach by the
Company or in certain other limited circumstances constituting a
11
<PAGE> 15
constructive termination, the Company has agreed to pay his salary at the annual
rate in effect on the date of termination for twelve months after the date of
termination or, if sooner, the date of his employment by a third party. The
agreement also provided for forgiveness over three years, beginning in 1993, of
$132,464 aggregate principal amount of notes payable by Dr. Cohen to the Company
and the accrued interest thereon.
The Company has entered into an employment agreement with Steven L. Basta,
which agreement provides for a current annual salary of $125,000 (subject to
increase), plus bonus to be determined annually based upon mutually agreed
objectives and the payment of salary for six months following an involuntary
termination. Pursuant to this agreement, Mr. Basta was granted stock options to
purchase 50,000 shares of Common Stock vesting annually over four years.
The Company has entered into an employment agreement with Thomas J.
Facklam, Ph.D., which agreement provides for a current annual salary of $160,000
(subject to increase), plus bonus to be determined annually based upon mutually
agreed objectives and the payment of salary for six months following an
involuntary termination. Pursuant to this agreement, Dr. Facklam was granted
stock options to purchase 100,000 shares of Common Stock vesting annually over
four years.
The Company has an employment agreement with Dr. Ronald D. Johnson, which
provides for a current annual salary of $180,000 (subject to increase), plus
bonus to be determined annually based upon mutually agreed objectives. Pursuant
to this agreement, Dr. Johnson was granted stock options to purchase 70,000
shares of Common Stock vesting monthly over four years.
The Company has entered into an employment agreement with Cheryl K. Lawton,
which agreement provides for a current annual salary of $150,000 (subject to
increase), plus bonus to be determined annually based upon mutually agreed
objectives and the payment of salary for six months following an involuntary
termination. Pursuant to this agreement, Ms. Lawton was granted stock options to
purchase 70,000 shares of Common Stock vesting annually over four years.
The Company has an employment agreement with Gregory F. Liposky, which
agreement provides for a current annual salary of $125,500 (subject to increase)
and for the payment of salary for twelve months following an involuntary
termination.
The Company has an employment agreement with Wayne E. Mayhew III, which
agreement provides for a current annual salary of $154,000 (subject to increase)
and the payment of salary for six months following an involuntary termination.
The Company has agreed with Mr. Tarnow, Dr. Cohen, Mr. Basta, Dr. Facklam,
Dr. Johnson, Ms. Lawton and Mr. Mayhew that the options held by them will fully
vest in the event of a sale of all or substantially all of the assets of the
Company or a sale of the Company by merger or another transaction whereby the
stockholders of the Company prior to such transaction do not own a majority of
the outstanding shares of the Company after such transaction or if a majority of
the Board of Directors is changed as a result of a proxy contest (a "Change of
Control"). In addition, the Company agreed with Dr. Cohen that his options would
also fully vest in the event of his constructive termination, including failure
to be elected to the Board of Directors, and that his options would be
exercisable for up to one year after a termination following a Change of Control
or a constructive termination.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Overview and Philosophy
The Compensation Committee of the Board of Directors (the "Committee") is
composed entirely of independent outside directors. The Committee, which
consists of Dr. Hale, Mr. Dovey, and Mr. Tobin, approves stock option grants for
key employees and salaries and bonuses for officers of the Company. See
"Information about the Board of Directors and its Committees."
The goals of the Committee are to provide an executive compensation program
that enables the Company to attract and retain key executive personnel and to
motivate those executives to achieve the Company's objectives. The Company is
presently in its research and development phase and has not yet
12
<PAGE> 16
achieved profitability; therefore, traditional methods of evaluating executive
performance, such as profit levels and return on equity, would be inappropriate.
Accordingly, assessment of each executive's performance, as described more fully
below, is based on goals which reflect the Company's stage of development.
Compensation Policies Applicable to Executive Officers
There are three basic components of executive compensation: a base salary,
an annual cash bonus and periodic stock option grants. The annual cash bonus and
stock option grants are performance-based incentive compensation. In addition to
these components, executive officers of the Company are eligible to participate
in all employee benefit programs generally available to all other Company
employees.
In considering compensation of the Company's executives, one of the factors
the Committee takes into account is the anticipated tax treatment to the Company
of various components of compensation. Section 162(m) of the Internal Revenue
Code, as amended (the "Code") generally disallows a tax deduction by a public
company for annual compensation over $1 million paid to its chief executive
officer or any of the four other most highly compensated executives. Certain
performance-based compensation, of the type provided in the Company's 1987 Stock
Plan, can be exempt from the deduction limit if the plan satisfies the Internal
Revenue Service ("IRS") regulatory requirements.
It is the policy of the Committee and the Board of Directors to seek to
preserve tax deductibility of compensation paid to executives unless regulatory
requirements to do so are contrary to the best interest of the Company and its
stockholders.
Base Salary. In setting the annual base salary levels for each executive
officer, the Committee reviews surveys and other available information on the
base salaries of executive officers in other biotechnology companies. In
determining which biotechnology companies to include in its comparison, the
Committee considers the size and complexity of the company, the stage of
development of its products and geographical location. Within this survey group,
the Committee seeks to make comparisons to executive officers with comparable
levels of experience, and with similar responsibilities and expected levels of
contribution to the Company's performance. The Company seeks to set base
salaries and annual cash bonuses at the midpoint of the range of compensation
paid by comparable companies. In addition, the initial level of compensation
paid to those executives hired more recently has been determined by market
forces and is consistent with industry practice.
Annual Bonus. The annual cash bonuses are based on the Committee's
subjective evaluation of each executive officer's progress toward performance
objectives. The Company established these objectives in conjunction with
developing the business plan for fiscal 1996. Each executives's objectives are
comprised of two components: one based on progress toward the Company's overall
goals and the other based on progress toward goals derived from the Company's
goals but related specifically to that officer's areas of responsibility. In
this way, the Company seeks to reward its executives for team work as well as
individual effort. The Company's basic categories of goals and objectives are:
progress toward commercialization of the Company's products, progress in the
Company's discovery research programs and progress in funding the Company's
operations. The Committee determined the amount of each executive's bonus based
on a subjective assessment of progress toward the individual and the Company
components of that executive's performance objectives during fiscal 1996.
Accordingly, the Committee awarded incentive cash bonus compensation to
executive officers in fiscal 1996 as shown in the "Summary Compensation Table."
Long Term Incentive Compensation. The Company's 1987 Stock Plan authorizes
a committee of not less than two non-employee directors to grant stock-based
awards to executive officers. This plan is designed to align a significant
portion of the executive compensation program with stockholder interests. The
amounts of the awards are designed to reward past performance and create
incentives to meet long-term objectives. Awards are made at a level calculated
to be competitive within the biotechnology industry as well as a broader group
of companies of comparable size and complexity. In determining the amount of
each grant, the Committee takes into account the number of shares held by the
executive prior to the grant. Accordingly, the Committee granted options to
executive officers in fiscal 1996 as shown in the table "Option Grants in Last
Fiscal Year." The exercise prices of such options reflect the fair market value
on the date of grant.
13
<PAGE> 17
Compensation of Chief Executive Officer
Mr. Tarnow joined the Company in July 1995 as President, Chief Executive
Officer and Director. At the time he was hired by the Company, Mr. Tarnow
entered into a two year employment agreement with the Company which was
negotiated as a condition to his joining the Company. Under the agreement, Mr.
Tarnow receives a current annual salary of $315,000 (subject to increase), plus
an annual performance bonus at the discretion of the Board of Directors of up to
60% of his annual salary.
The compensation plan for Mr. Tarnow is determined by the Committee in a
manner that is similar to that of other executive officers. However, Mr.
Tarnow's total compensation is more weighted toward performance-based incentive
compensation, with such incentive compensation focused on progress toward
overall Company objectives, as compared to the other executive officers. The
rationale supporting this approach is that the CEO has greater responsibility
for the overall direction and performance of the Company in comparison to other
executive officers and therefore should be compensated accordingly.
In recognition of his achievement of substantially all of his performance
objectives from the date Mr. Tarnow was hired by the Company through his first
anniversary date of July 16, 1996, the Committee increased Mr. Tarnow's annual
salary from $275,000 to $300,000 and awarded Mr. Tarnow a $121,500 bonus. In
recognition of his achievement of substantially all of his performance
objectives from July 17, 1996 through December 31, 1996, including the signing
of the Research Collaboration and License Agreement and the Restricted Stock
Purchase Agreement with Biogen, the Committee increased Mr. Tarnow's annual
salary to $315,000 and awarded Mr. Tarnow $120,000 in bonuses. The Committee
believes Mr. Tarnow has made a significant contribution during these periods and
has continued to move the Company towards its long term strategic objectives.
As part of the compensation package negotiated with Mr. Tarnow at the time
of his hiring in July 1995, the Company granted qualified incentive stock
options to Mr. Tarnow to purchase 173,910 shares of Common Stock at an exercise
price of $2.875 per share, which represents the fair value on the date of grant.
The options became exercisable as to 20% immediately and thereafter vest in
equal annual portions through July 16, 1999. The Company also granted
non-qualified incentive stock options to Mr. Tarnow to purchase 826,090 shares
of Common Stock at an exercise price of $2.875, which represents the fair value
on the date of grant. The options became exercisable as to 20% immediately and
thereafter vest in equal annual portions through July 16, 1999. On July 16,
1996, the Company granted Mr. Tarnow additional non-qualified incentive stock
options to purchase 200,000 shares of Common Stock at an exercise price of
$5.5625 per share, which represents fair market value on the date of grant. The
options vest in equal annual portions through July 16, 2001. This option package
is designed to align the interests of Mr. Tarnow with those of the Company's
stockholders with respect to short-term operating results and long-term
increases in the price of the Company's stock. The grant of these options is
consistent with the goals of the Company's stock option program as a whole.
COMPENSATION COMMITTEE
Arthur J. Hale, Chairman
Brian H. Dovey
James R. Tobin
The report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Dr. Hale, Mr. Dovey and Mr.
Tobin. No executive officer of the Company is a member of the Compensation
Committee. There are no interlocks between the members of the Compensation
Committee and the executive officers of the Company.
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<PAGE> 18
STOCK PERFORMANCE GRAPH
The graph and table below compare the cumulative total stockholder return
on a quarterly basis on the Company's Common Stock for the period from December
17, 1992 (the date of the Company's initial public offering) through December
31, 1996, against the cumulative total returns on the Nasdaq Stock Market Index
(U.S.) ("Nasdaq Stock") and the Nasdaq Pharmaceutical Stock Index ("Nasdaq
Pharmaceutical") for the same period.
[LOGO]
The above graph and table assume $100 invested on December 17, 1992, with
all dividends reinvested, in each of the Company's Common Stock, the Nasdaq
Stock Market Index (U.S.), and the Nasdaq Pharmaceutical Stock Index.
CERTAIN TRANSACTIONS
In September 1994, the Company signed a three-year manufacturing contract
with Biogen to produce in the Company's manufacturing facility in Lebanon, New
Hampshire several of Biogen's protein-based therapeutic candidates for use in
Biogen's clinical trials. The contract covers the period from January 1995
through December 1997. As part of a research collaboration signed in December
1996, the companies agreed to extend the manufacturing contract for two years
through December 31, 1999, with Biogen having the option, but not the
obligation, to use the manufacturing facility for a mutually agreeable number of
months in one of the two years. To enable the Company to meet its obligations
under the manufacturing contract, Biogen financed the construction of a 7,000
square foot addition to the present facility for production using bacterial
fermentation at an estimated total cost of $2,900,000. The Company agreed to
reimburse Biogen for the construction costs and leasehold improvements at the
end of the contract term at an amount equal to Biogen's construction costs less
$300,000 and less all accumulated depreciation. The reimbursement to Biogen is
expected to be no more than $2,100,000. Biogen also agreed to lease equipment to
the Company for the operation of such portion of the facility and for production
using bacterial fermentation by the Company at an estimated total cost of
$2,400,000, as provided in an equipment lease agreement. The Company has the
option to purchase the equipment at the end of the extended lease term for an
amount equal to its then fair market value or for such other amount as
negotiated by the parties. James R. Tobin, a director of the Company since
January 1995, is President and Chief Executive Officer and a director of Biogen.
In December 1994, the Board of Directors designated a series of preferred
stock of the Company consisting of 1,500,000 shares of the authorized, unissued
preferred stock, as Series 1994/A Convertible
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<PAGE> 19
Preferred Stock (the "Series Preferred Stock"). In December 1994 and January
1995, the Company sold in a private placement, an aggregate of 1,130,000 units
(the "Units"), each Unit consisting of one share of Series Preferred Stock and
one warrant to purchase one share of the Company's Common Stock at a purchase
price of $9.9375 per Unit. Each share of the Series Preferred Stock was
converted in August 1995 into five shares of Common Stock. Each warrant is
exercisable for a period of five years from the date of issuance at an exercise
price of $2.385 per share. The investors who purchased the Units included, among
others, the following beneficial owners of more than 5% of the Common Stock:
<TABLE>
<CAPTION>
UNITS TOTAL
5% STOCKHOLDERS PURCHASED CONSIDERATION
- --------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Entities associated with Patricof & Co. Ventures, Inc. or its
associate, Apax Partners & Co. Ventures Ltd........................ 409,159 $ 4,066,018
Biotechnology Investments Limited.................................... 100,584 999,554
Entities associated with Domain Associates........................... 301,886 2,999,992
</TABLE>
Pursuant to stock purchase agreements executed in connection with the sale
of Units, described above, the Company filed a registration statement
registering for resale by the holders the Common Stock issued upon the
conversion of the shares of Series Preferred Stock.
In September 1996, as part of its employment agreement with Mr. Tarnow, the
Company provided him with a $350,000 employee relocation loan. The loan is
evidenced by a fully secured promissory note bearing interest at the annual rate
of 6.02% and payable in three equal annual installments, plus accrued interest.
The loan is secured by a mortgage on Mr. Tarnow's residence.
In December 1996, the Company entered into the Research Collaboration and
License Agreement and the Restricted Stock Purchase Agreement with Biogen to
collaborate on the development of novel therapeutics for the treatment of renal
disorders. The initial focus of the collaboration is on advancing the
development of the Company's morphogenic protein, OP-1, for the treatment of
acute and chronic renal failure. Under the agreement, the Company granted to
Biogen exclusive worldwide rights to manufacture, market and sell OP-1 and OP-1
products developed through the collaboration for the treatment of renal disease.
Biogen paid the Company a $10,000,000 license fee in 1996 and made an
$18,000,000 equity investment which were recorded in the quarter ended December
31, 1996. In addition, Biogen has guaranteed $10,500,000 in research funding
over the next three years, will pay up to an additional $69,000,000 upon the
attainment of certain milestones and will make available a $15,000,000 line of
credit. The agreement further provides for the payment of royalties to the
Company based on product sales. The Company may draw upon the $15,000,000 line
of credit over the next three years to fund the research and development of
small molecule products based on the OP-1 protein. Advances are limited to
$5,000,000 per year. In exchange for the line of credit, Biogen received an
exclusive option to obtain an exclusive, worldwide license to OP-1 protein small
molecule products for the treatment of renal disorders. In the event Biogen
exercises its option, Biogen will forgive the lesser of $10,000,000 or the
principal amount outstanding under the note. The remaining principal, together
with all accrued and unpaid interest, is due and payable five years from the
date of the first advance and may be repaid, at the Company's option, in either
cash, common stock or reduction of royalties due the Company from Biogen. James
R. Tobin, a director of the Company since January 1995, is President and Chief
Executive Officer and a director of Biogen.
As of February 28, 1997 the holders of approximately 5,033,612 shares of
outstanding or issuable Common Stock (the "Registrable Securities") are entitled
to certain rights to register such shares under the Securities Act of 1933, as
amended (the "Securities Act") for sale to the public. The holders of
Registrable Securities include, among others, Entities associated with Patricof
& Co. Ventures, Inc. or its associate, Apax Partners & Co. Ventures Ltd., BIL,
Entities associated with Domain Associates, and Biogen. Under the terms of the
Second Amended and Restated Registration Rights Agreement dated as of January
31, 1992, as amended, in the event the Company proposes at any time to register
any of its securities under the Securities Act for sale for its own account,
such holders shall be entitled to include shares of Common Stock in such
registration. Such holders have the additional right to require the Company, on
not more than three occasions, whether or not the Company proposes to register
any of its Common Stock for sale, to register all or part of
16
<PAGE> 20
their shares for sale to the public under the Securities Act, subject to certain
conditions and limitations. In addition, holders of Registrable Securities may
require the Company to register all or part of their shares on Form S-3 (or a
successor short form of registration) if the Company then qualifies for use of
such form, subject to certain conditions and limitations.
The Company has had equity transactions with BIL, Entities associated with
Patricof & Co. Ventures, Inc. or its associate Apax Partners & Co. Ventures
Ltd., Dr. Hale individually, Entities associated with Domain Associates and
Biogen, as described above. Mr. Curnock Cook, a director of the Company, is a
director of Rothschild Asset Management Limited, which is an advisor to BIL and
to Rothschild Asset Management (C.I.) Limited, which is the manager of BIL. Dr.
Hale, a director of the Company, is an associate of Patricof & Co. Ventures,
Inc., and a partner and director of Apax Partners & Co. Ventures Ltd., the
manager of or an advisor to the Entities associated with Apax Partners & Co.
Ventures Ltd. Mr. Dovey, a director of the Company, is a General Partner of
Domain Associates and a General Partner of the general partner of the Entities
associated with Domain Associates. Mr. Tobin, a director of the Company, is
President and Chief Executive Officer and a director of Biogen.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Compliance with Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors and officers, and persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission ("SEC") initial reports of ownership and reports of changes in
ownership of Common Stock of the Company. Officers, directors and greater than
ten-percent stockholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1996, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, independent accountants, audited the Company's
financial statements for the fiscal year ended December 31, 1996 and has been
selected by the Audit Committee of the Board of Directors as independent
auditors for the current year. The Company expects that representatives of
Deloitte & Touche LLP will be present at the Meeting, with the opportunity to
make a statement if they so desire, and will be available to respond to
questions.
PROPOSAL 1:
ELECTION OF DIRECTORS
The Restated Certificate of Incorporation of the Company provides for a
classified Board of Directors. The Board of Directors currently consists of nine
members, classified into three classes as follows: Mr. Dovey, Dr. Hale and Mr.
Tarnow constitute a class with a term ending at the 1998 Annual Meeting (the
"Class I Directors"); Mr. Greenacre, Dr. Rosenblatt and Mr. Tobin constitute a
class with a term ending at the 1999 Annual Meeting (the "Class II Directors");
and Dr. Cohen, Mr. Curnock Cook and Ms. Jaffe constitute a class with a term
which expires at the Meeting (the "Class III Directors"). At each Annual Meeting
of Stockholders, directors are elected for a full term of three years to succeed
those directors whose terms are expiring.
Pursuant to the Company's By-Laws, the Board of Directors on March 18, 1997
voted to nominate and to recommend to the Stockholders the election of Dr.
Cohen, Mr. Curnock Cook and Ms. Jaffe to the Board of Directors of the Company
to serve until 2000 in the class of directors whose term shall expire at the
2000 Annual Meeting of Stockholders or until their respective successors are
duly elected and qualified. The Class I directors (Mr. Dovey, Dr. Hale and Mr.
Tarnow) and the Class II directors (Mr. Greenacre, Dr. Rosenblatt
17
<PAGE> 21
and Mr. Tobin) will serve until the Annual Meeting of Stockholders to be held in
1998 and 1999, respectively, or until their respective successors have been
elected and qualified.
It is the intention of the persons named in the Proxy, unless otherwise
directed, to vote all proxies in favor of the election to the Board of Directors
of the nominees identified below. If any nominee should become unavailable to
serve for any reason, which management does not anticipate, the Proxy will be
voted for any substitute nominee selected by the Board of Directors prior to or
at the Meeting, or the Board of Directors may reduce the membership of the Board
of Directors to the number of nominees available. The Board of Directors has no
reason to believe that any nominee will be unable or unwilling to serve.
A plurality of the votes cast at the Meeting is required to elect each
nominee as a director.
THE BOARD OF DIRECTORS RECOMMENDS ELECTION OF DR. COHEN, MR. CURNOCK COOK
AND MS. JAFFE AS DIRECTORS AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN
FAVOR HEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
PROPOSAL 2:
AMENDMENTS TO THE COMPANY'S 1987 STOCK PLAN
GENERAL
The Company's 1987 Stock Plan, as amended (the "1987 Plan"), was approved
by the Board of Directors in May 1987 and the Stockholders in June 1987. In
1987, 1989, 1990, 1992 and 1994 the 1987 Plan was amended to increase the number
of shares of Common Stock authorized for issuance thereunder. Prior to January
18, 1997, a total of 5,150,000 shares of Common Stock had been authorized for
issuance under the 1987 Plan upon the exercise of options or in connection with
awards or purchases of stock. The term of the 1987 Plan is through May 15, 1997.
On January 14, 1997 and March 18, 1997, the Board of Directors voted to approve
amendments to the 1987 Plan to increase by 1,650,000 to 6,800,000 the aggregate
number of shares of Common Stock authorized for issuance under the 1987 Plan and
to extend the term of the 1987 Plan through June 30, 1999.
By the terms of the 1987 Plan, the 1987 Plan may be amended by the Board of
Directors or the Compensation Committee, defined above, except that Stockholder
approval must be obtained within 12 months before or after the Board adopts a
resolution authorizing an increase in the total number of Shares that may be
issued under the 1987 Plan and other amendments including any amendment which
requires stockholder approval to comply with Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended ("Rule 16b-3").
The Board believes that the increase in the number of shares reserved for
issuance under the 1987 Plan is advisable to give the Company the flexibility
needed to attract, retain and motivate employees, directors and consultants. All
employees, directors and consultants of the Company (as of February 28, 1997
approximately 198 people) are eligible to participate in the 1987 Plan.
These amendments are being submitted for Stockholder approval at the
Meeting to comply with the listing requirements of the Nasdaq Stock Market, to
permit the compensation recognized with respect to options granted under the
1987 Plan to be tax deductible under Section 162(m) of the Code, and to permit
the grant of "incentive stock options" within the meaning of Section 422 of the
Code.
Section 162(m) of the Code generally disallows a tax deduction by a public
company for annual compensation over $1 million paid to its chief executive
officer or any of the four other most highly compensated executives. Certain
performance-based compensation, of the type provided in the 1987 Plan, can be
exempt from the deduction limit if the plan satisfies the IRS regulatory
requirements.
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<PAGE> 22
OPTIONS GRANTED SUBJECT TO STOCKHOLDER APPROVAL
On January 14, 1997 and March 18, 1997, the Board of Directors authorized
the Company to grant to employees options to purchase an aggregate of 35,176
shares of Common Stock under the 1987 Plan, subject to Stockholder approval to
increase by 1,650,000 shares the aggregate number of shares of Common Stock
authorized under the 1987 Plan. The grant of stock options to such persons will
be null and void and of no effect if such Stockholder approval is not obtained
by May 20, 1997.
MATERIAL FEATURES OF THE 1987 STOCK PLAN
The purpose of the 1987 Plan is to attract, retain and motivate employees,
directors and consultants through the issuance of stock options and to encourage
ownership of shares of Common Stock by employees, directors and consultants of
the Company.
The Board has delegated administration of the 1987 Plan to the Compensation
Committee, which will be comprised at all times of two or more directors, all of
whom qualify as "Non-Employee Directors" within the meaning of Rule 16b-3.
Subject to the limitations set forth in the 1987 Plan, the Compensation
Committee has the authority to determine the persons to whom options and awards
will be granted and who may make purchases, the number of shares to be covered
by each option, award or purchase, whether the options granted are intended to
be incentive stock options, the duration and rate of exercise of each option,
the option exercise price per share and the manner of exercise, the time, manner
and form of payment upon exercise of an option, and whether restrictions such as
repurchase rights of the Company are to be imposed on shares subject to options,
awards and purchases. At the Compensation Committee's discretion, the exercise
price for an option may be paid in cash, stock or a full recourse interest
bearing note.
Options granted under the 1987 Plan may be either (i) options intended to
qualify as "incentive stock options" under Section 422 of the Code, or (ii)
non-qualified stock options. Incentive stock options may be granted under the
1987 Plan to employees and officers of the Company and its subsidiaries.
Non-qualified stock options may be granted to consultants (including directors),
employees or officers of the Company and its subsidiaries. Awards of stock may
be made to consultants (including directors), employees or officers of the
Company and its subsidiaries, and direct purchases of stock may be made by such
individuals.
The aggregate fair market value (determined at the time of grant) of shares
of Common Stock for which incentive stock options become exercisable for the
first time in any calendar year (under all stock plans of the Company) may not
exceed $100,000. Incentive stock options granted under the 1987 Plan may not be
granted at a price less than the fair market value of the Common Stock on the
date of grant (or 110% of fair market value in the case of employees or officers
holding 10% or more of the voting stock of the Company). Non-qualified stock
options granted under the 1987 Plan may not be granted at an exercise price less
than the par value per share of the Common Stock. Unless a shorter period is
required by the Compensation Committee, incentive stock options granted under
the 1987 Plan expire not more than ten years from the date of grant in the case
of incentive stock options granted to an employee or officer holding less than
10% of the voting stock of the Company, and not more than ten years and one day
in the case of non-qualified options.
An option granted under the 1987 Plan is exercisable, during the
optionholder's lifetime, only by the optionholder and is not transferable by him
except by will, by the laws of descent and distribution or pursuant to a
qualified domestic relations order to the extent permitted under Rule 16b-3.
An incentive stock option granted under the 1987 Plan may be exercised
after the termination of the optionholder's employment with the Company (other
than by reason of death, disability or termination for cause as defined in the
1987 Plan) to the extent exercisable on the date of such termination, for a
period of 90 days following such termination or for a period of one year in the
case of disability, provided that such incentive stock option has not expired on
the date of such exercise. In the event of the optionholder's death or
disability, incentive stock options may be exercised, to the extent exercisable
on the date of death or disability, by the optionholder's legal representative
at any time prior to the earlier of the option's specified expiration date or
180 days from the date of the optionholder's death or disability. In the event
of the optionholder's termination for cause, all outstanding and unexercised
incentive stock options are forfeited. Non-qualified
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<PAGE> 23
stock options shall be subject to such termination or cancellation provisions as
the Compensation Committee may specify.
If the Company is to be consolidated with or acquired by another entity in
a merger, sale of all or substantially all of the Company's assets or otherwise
(an "Acquisition"), an optionee's rights with respect to options granted under
the 1987 Plan will be appropriately adjusted. The Committee of the Company or
the Board of Directors of any entity assuming the obligations of the Company
(the "Successor Board") shall, as to the outstanding options, either (i) make
appropriate provision for the continuation of such options by substituting on an
equitable basis for the shares then subject to such options the consideration
payable with respect to the outstanding shares of Common Stock in connection
with the Acquisition; or (ii) upon written notice to the optionees, provide that
all options must be exercised, to the extent then exercisable, within a
specified number of days of the date of such notice, at the end of which period
the options shall terminate; or (iii) terminate all options in exchange for a
cash payment equal to the excess of the fair market value of the shares subject
to such options (to the extent then exercisable) over the exercise price
thereof. In the event of a proposed dissolution or liquidation of the Company,
each option will terminate immediately prior to the consummation of such
proposed action or at such other time and subject to such other conditions as
shall be determined by the Committee.
As of December 31, 1996, an aggregate of 5,064,976 shares have been issued
upon the exercise of options and pursuant to stock awards or are issuable upon
the exercise of options outstanding under the 1987 Plan including outstanding
options to purchase 10,000 shares granted to Dr. Rosenblatt, a director of the
Company, and outstanding options to purchase 2,683,757 shares granted to all
executive officers as a group. On February 28, 1997, the closing market price
per share of the Company's Common Stock was $10.375 as reported in the Wall
Street Journal.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a description of certain U.S. federal income tax
consequences of the issuance and exercise of options under the 1987 Plan:
Incentive Stock Options. An incentive stock option does not result in
taxable income to the option holder or deduction to the Company at the time it
is granted or exercised, provided that no disposition is made by the optionee of
the shares acquired pursuant to the option within two years after the date of
granting of the option nor within one year after the date of issuance of shares
to him (the "ISO holding period"). However, the difference between the fair
market value of the stock on the date of exercise and the option price therefor
will be an item of tax preference included in "alternative minimum taxable
income". Upon disposition of the stock after the expiration of the ISO holding
period, the optionee will generally recognize long term capital gain or loss
based on the difference between the disposition proceeds and the option price
paid for the stock. If the stock is disposed of prior to the expiration of the
ISO holding period, the optionee generally will recognize taxable compensation,
and the Company will have a corresponding deduction, in the year of the
disposition, equal to the excess of the fair market value of the stock on the
date of exercise of the option over the option price. Any additional gain
realized on the disposition will normally constitute capital gain. If the amount
realized upon such a disqualifying disposition is less than fair market value of
the stock on the date of exercise, the amount of compensation income will be
limited to the excess of the amount realized over the optionee's adjusted basis
in the stock.
Non-Qualified Stock Options. The grant of a non-qualified option will not
result in taxable income to the optionee or deduction to the Company at the time
of grant. The optionee will recognize taxable compensation, and the Company will
have a corresponding deduction, at the time of exercise in the amount of the
excess of the then fair market value of the shares acquired over the option
price. Upon disposition of the shares, the optionee will generally realize
capital gain or loss, and his basis for determining gain or loss will be the sum
of the option price paid for the stock plus the amount of compensation income
recognized on exercise of the option.
The affirmative vote of a majority of the votes present or represented and
entitled to vote at the Annual Meeting is required to approve the amendments to
the 1987 Plan.
20
<PAGE> 24
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE ADOPTION OF THE
AMENDMENTS TO THE 1987 PLAN TO INCREASE BY 1,650,000 SHARES THE AGGREGATE NUMBER
OF SHARES AUTHORIZED FOR ISSUANCE UNDER THE 1987 PLAN AND TO EXTEND THE TERM OF
THE 1987 PLAN THROUGH JUNE 30, 1999, AND PROXIES SOLICITED BY THE BOARD WILL BE
VOTED IN FAVOR OF SUCH AMENDMENTS UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE
ON THE PROXY.
21
<PAGE> 25
STOCKHOLDER PROPOSALS AND OTHER MATTERS
In order to be considered for inclusion in the Proxy Statement and Form of
Proxy distributed to Stockholders prior to the Annual Meeting of Stockholders in
1998, a stockholder proposal must be received by the Company no later than
December 12, 1997. Requests should be delivered in writing to Wayne E. Mayhew
III, Vice President and Chief Financial Officer, Treasurer and Secretary,
Creative BioMolecules, Inc., 45 South Street, Hopkinton, Massachusetts 01748.
The Board of Directors does not know of any other business to be acted upon
at the Annual Meeting other than that which is explained in this Proxy
Statement. If any other business calling for a vote of the Stockholders is
properly presented at the Annual Meeting, the persons holding the proxies will
vote your shares in accordance with their best judgment on such matters.
In order that your shares may be represented if you do not plan to attend
the Annual Meeting, and in order to assure the required quorum, please fill out,
sign, date and return your Proxy promptly.
By Order of the Board of Directors
/s/ Wayne E. Mayhew III
Wayne E. Mayhew III
Secretary
Date: April 11, 1997
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER
31, 1996 (OTHER THAN THE EXHIBITS THERETO) FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, WHICH PROVIDES ADDITIONAL INFORMATION ABOUT THE COMPANY, IS
AVAILABLE TO BENEFICIAL HOLDERS OF THE COMPANY'S COMMON STOCK WITHOUT CHARGE
UPON WRITTEN OR ORAL REQUEST TO WAYNE E. MAYHEW III, VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER, TREASURER AND SECRETARY, CREATIVE BIOMOLECULES, INC., 45
SOUTH STREET, HOPKINTON, MASSACHUSETTS 01748, PHONE (508) 435-9001.
22
<PAGE> 26
PROXY CREATIVE BIOMOLECULES, INC. PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS
OF CREATIVE BIOMOLECULES, INC. FOR THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1997
The undersigned hereby acknowledges the receipt of the Notice of Annual Meeting
of Stockholders and Proxy Statement dated April 11, 1997, and does hereby
appoint Michael M. Tarnow and Wayne E. Mayhew III, or either of them, the
undersigned's attorney-in-fact and proxies, with full power of substitution in
each, for and in the name of the undersigned, with all the powers the
undersigned would possess if personally present, hereby revoking any Proxy
heretofore given, to appear and represent and vote all shares of Common Stock
of Creative BioMolecules, Inc. which the undersigned would be entitled to vote
if personally present at the Annual Meeting of Stockholders to be held at the
Harvard Club of Boston, Main Clubhouse, 374 Commonwealth Avenue, Boston,
Massachusetts on Wednesday, May 20, 1997, at 10:00 a.m. and at any adjournments
thereof.
PLEASE FILL IN REVERSE SIDE AND MAIL IN THE ENCLOSED ENVELOPE
Please mark votes as in this example [X]
FOLD AND DETACH HERE
<PAGE> 27
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS DIRECTED HEREIN. IF NO DIRECTION
IS INDICATED, SUCH SHARES WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR
THE PROPOSAL LISTED BELOW. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
ELECTION OF DIRECTIONS AND FOR THE PROPOSAL.
1. Election of Charles Cohen, Ph.D., Jeremy Curnock Cook and Suzanne Denbo
Jaffe to the Board of Directors (or if any nominee is not available for
election, FOR such substitute as the Board of Directors may designate).
[] FOR ALL [] WITHHOLD (INSTRUCTION: To withhold authority to vote
NOMINEES EXCEPT AUTHORITY for any individual nominee, write that
AS NOTED TO THE FOR ALL nominee's name on the space provided
RIGHT. NOMINEES below.)
-------------------------------------------
2. Proposal to amend the 1987 Stock Plan to increase by 1,650,000 shares
the aggregate number of shares of Common Stock for which stock options may be
granted and to extend the term of the 1987 Stock Plan through June 30, 1999.
[] FOR [] AGAINST [] ABSTAIN
PLEASE MARK HERE IF YOU PLAN TO
ATTEND THE MEETING []
IN THEIR DISCRETION, THE PROXIES ARE ALSO
AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS
AS MAY PROPERLY COME BEFORE THE MEETING.
Please date and sign exactly as name appears on
this card. Joint owners should each sign. Please
give full title when signing as executor,
administrator, trustee, attorney, guardian for a
minor, etc. Signatures for corporations and
partnerships should be in the corporate or firm
name by a duly authorized person. Please return
this Proxy promptly in the enclosed envelope.
Signature______________________Date___________
Signature______________________Date___________
THIS PROXY MAY BE REVOKED IN WRITING AT ANY TIME
PRIOR TO THE VOTING THEREOF.
FOLD AND DETACH HERE
