<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
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 Section240.14a-11(c) or
Section240.14a-12
CYTOTHERAPEUTICS, INC.
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/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:
----------------------------------------------------------
</TABLE>
<PAGE>
CYTOTHERAPEUTICS, INC.
525 Del Rey Avenue, Suite C
Sunnyvale, CA 94086
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 23, 2000
Notice is hereby given that the Annual Meeting of Stockholders of
CytoTherapeutics, Inc. ("CytoTherapeutics" or the "Company") will be held on
May 23, 2000 at 2:00 P.M. at Quadrus Conference Center, 2400 Sand Hill Road
#101, Menlo Park, California 94025 for the following purposes:
1. To elect a Class III director to serve until the 2003 Annual Meeting of
Stockholders;
2. To consider and vote upon a proposal to amend the Company's Restated
Certificate of Incorporation to change its corporate name from
CytoTherapeutics, Inc., to StemCells, Inc.;
3. To consider and vote upon a proposal to ratify the selection of Ernst &
Young LLP as independent public accountants for the Company for the fiscal year
ending December 31, 2000; and
4. To transact any and all other business that may properly come before the
meeting.
The Board of Directors has fixed the close of business on April 18, 2000 as
the record date for determining those Stockholders who are entitled to notice of
and to vote at the meeting. The stock transfer books will not be closed between
the record date and the date of the meeting.
Representation of at least a majority of all outstanding shares of Common
Stock of CytoTherapeutics is required to constitute a quorum. Accordingly, it is
important that your shares be represented at the meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN AND DATE THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. Your proxy may be revoked at any
time prior to the time it is voted.
Please read the proxy material carefully. Your vote is important and the
Company appreciates your cooperation in considering and acting on the matters
presented.
By Order of the Board of Directors,
IRIS BREST
SECRETARY
Sunnyvale, California
April 24, 2000
<PAGE>
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
OF
CYTOTHERAPEUTICS, INC.
The enclosed form of proxy is solicited on behalf of the Board of Directors
of CytoTherapeutics, Inc. (the "Company") for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held on May 23, 2000 at 2:00 P.M at
Quadrus Conference Center, 2400 Sand Hill Road #101, Menlo Park, California
94025. The cost of solicitation of proxies will be borne by the Company.
Directors, officers and employees of the Company may also solicit proxies by
telephone, facsimile or in person for no additional compensation. The Company
will reimburse banks, brokerage firms, and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of shares.
Only stockholders of record at the close of business on April 18, 2000 are
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof. There were 19,510,409 shares of the Company's Common Stock, $.01 par
value (the "Common Stock"), outstanding on such date, each of which is entitled
to one vote for each share on the matters to be voted upon.
Shares of the Company's Common Stock represented by proxies in the form
enclosed which are properly executed and returned to CytoTherapeutics and not
revoked, will be voted as specified therein by the stockholder. In the absence
of contrary instructions, or in instances where no specification is made, the
shares will be voted FOR the election as director of the nominee as described
herein under "Proposal Number 1-- Election of Director," FOR changing the name
of the Company from CytoTherapeutics, Inc., to StemCells, Inc. as described
herein under "Proposal 2--Amendment of the Company's Restated Certificate of
Incorporation to change its corporate namefrom CytoTherapeutics, Inc. to
StemCells, Inc.", FOR ratification of the selection of accountants as described
herein under "Proposal Number 3--Ratification of Selection of Independent Public
Accountants," and in the discretion of the named proxies, as to any other matter
that may properly come before the Annual Meeting. Any stockholder signing and
delivering a proxy may revoke it at any time before it is voted by delivering to
the Secretary of the Company a written revocation or a duly executed proxy
bearing a date later than the date of the proxy being revoked. Any record
stockholder attending the Annual Meeting in person may revoke his or her proxy
and vote his or her shares at the Annual Meeting.
The Annual Report to Stockholders for the Company's fiscal year ended
December 31, 1999 and this proxy statement were first mailed to stockholders on
or about April 24, 2000.
QUORUM, REQUIRED VOTES, AND METHOD OF TABULATION
Consistent with Delaware law and under the Company's Amended and Restated
By-laws, a majority of the shares entitled to be cast on a particular matter,
present in person or represented by proxy, constitutes a quorum as to such
matter. Persons appointed by the Company to act as election inspectors for the
meeting will count votes cast by proxy or in person at the Annual Meeting.
Election of directors by stockholders shall be determined by a plurality of
the votes cast by the stockholders entitled to vote at the election that are
present in person or represented by proxy. The approval of the proposal to
change the Company's name requires the approval of a majority of the votes
entitled to be voted at the Annual Meeting. The approval of the proposal to
ratify the selection of accountants requires a majority of the votes cast to be
affirmative.
<PAGE>
The election inspectors will count shares represented by proxies that
withhold authority to vote for a nominee for election as a director or that
reflect abstentions and "broker non-votes" (i.e., shares represented at the
meeting held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or persons entitled to vote and (ii) the
broker or nominee does not have discretionary voting power on a particular
matter) only as shares that are present and entitled to vote on the matter for
purposes of determining the presence of a quorum, but neither abstentions nor
broker non-votes have any effect on the outcome of voting on the matter.
Management does not know of any matters to be presented at this Annual
Meeting other than those set forth in this Proxy Statement and in the Notice
accompanying this Proxy Statement. If other matters should properly come before
the meeting, the proxy holders will vote such matters in accordance with their
best judgment. Any stockholder has the right to revoke his or her proxy at any
time before it is voted.
2
<PAGE>
PROPOSAL NUMBER 1
ELECTION OF DIRECTOR
The number of directors is currently fixed at four. The Company's Restated
Certificate of Incorporation and Amended and Restated By-laws provide for the
classification of the Board of Directors into three classes, as nearly equal in
number as possible, with the term of office of one class expiring each year.
Unless otherwise instructed, the enclosed proxy will be voted to elect the
nominee named below, who is now a Class III director, as a Class III director
for a term of three years expiring at the 2003 Annual Meeting of Stockholders
and until his successor is duly elected and qualified. Proxies cannot be voted
for a greater number of persons than the number of nominees named below. It is
expected that the nominee will be able to serve, but if he is unable to serve,
the proxy will be voted for a substitute nominee designated by the Board of
Directors. The nominee for election as Class III director and the incumbent
Class I and II directors are as follows:
NOMINEE FOR ELECTION AS CLASS III DIRECTOR -- TERM EXPIRES 2003
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION AGE POSITION
- ---- -------------------- -------- --------
<S> <C> <C> <C>
Donald Kennedy, Ph.D. Professor 68 Director
</TABLE>
Donald Kennedy, Ph.D., has served as a director of the Company since
July 1999. Dr. Kennedy is the Bing Professor of Environmental Science, Professor
of Education, and president emeritus of Stanford University. He is also
co-director of the Center for Environmental Science and Policy. From 1977 to
1979, he served as Commissioner at the U.S. Food and Drug Administration. He is
Chairman of Children Now; a member of the National Academy of Sciences, the
National Institute of Medicine, and the American Philosophical Society; and a
fellow of the American Academy of Arts and Sciences, the American Association
for the Advancement of Science, and the California Academy of Sciences.
Dr. Kennedy is a member of the Board of Directors of AxyS
Pharmaceuticals, Inc., and Alzeta Corp. Dr. Kennedy holds a Ph.D. in biology
from Harvard University. Beginning June 1, 2000, he will be Editor-in-Chief of
SCIENCE magazine.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF THE
NOMINEE DESCRIBED ABOVE
3
<PAGE>
INCUMBENT CLASS I DIRECTORS -- TERMS EXPIRE 2001
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION AGE POSITION
- ---- --------------------------------------- -------- ------------------
<S> <C> <C> <C>
Mark J. Levin..................... Chairman of the Board and Chief 49 Director
Executive Officer of Millennium
Pharmaceuticals, Inc.
John J. Schwartz, Ph.D............ President, Quantum Strategies 66 Director, Chairman
Management Company of the Board
</TABLE>
Mark J. Levin, a founder of the Company, has served as a director since the
Company's inception. From inception until January 1990 and from May 1990 until
February 1991, Mr. Levin served as the Company's President and acting Chief
Executive Officer. From November 1991 until March 1992, he served as Chief
Executive Officer of Tularik, Inc., a biotechnology company. From August 1991
until August 1993, Mr. Levin was Chief Executive Officer and a director of
Focal, Inc., a biomedical company. Mr. Levin is currently the Chairman of the
Board and Chief Executive Officer of Millennium Pharmaceuticals, Inc., a
biotechnology company. Mr. Levin is also currently on the Board of Directors of
Focal, Inc. and Tularik, Inc.
John J. Schwartz, Ph.D. was elected to the Board of Directors of the Company
in December 1998 and was elected Chairman of the Board at the same time. He is
the former President and Chief Executive Officer of SyStemix, Inc. Dr. Schwartz
is currently President of Quantum Strategies Management Company, a registered
investment advisor located in Atherton, California. Prior to his positions at
SyStemix, he served as Assistant Professor, Vice President and General Counsel
at Stanford University in California. Dr. Schwartz was graduated from Harvard
Law School in 1958 and received his Ph.D. degree in physics from the University
of Rochester in 1966.
4
<PAGE>
INCUMBENT CLASS II DIRECTORS -- TERMS EXPIRE 2002
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION AGE POSITION
- ---- ------------------------------ -------- --------
<S> <C> <C> <C>
Irving L. Weissman, M.D. (1).................... Professor, Stanford University 60 Director
</TABLE>
Irving L. Weissman, M.D. was elected to the Board of Directors of the
Company in September 1997. Dr. Weissman is the Karel and Avice Beekhuis
Professor of Cancer Biology, Professor of Pathology and Professor of
Developmental Biology at Stanford University. Dr. Weissman is a cofounder, and
currently is a member of the Scientific Advisory Board, of SyStemix, Inc. He has
also served on the Scientific Advisory Boards of Amgen Inc., DNAX and T-Cell
Sciences, Inc., all of which are biotechnology companies. Dr. Weissman is a
member of the National Academy of Sciences and also serves as Chairman of the
Scientific Advisory Board of the Company.
(1) The Company's Restated Certificate of Incorporation and Amended and
Restated By-laws provide for the classification of the Board of Directors into
three classes, as nearly equal in number as possible, with the term of office of
one class expiring each year. Due to the recent vacancies on the Board
occasioned by the resignations of Drs. Rose, Aebischer and Goddard and
Mr. Ramsden and in order to fulfill the intent of the Company's Restated
Certificate of Incorporation and Amended and Restated By-laws, the Board
unanimously approved a proposal on March 15, 2000 for the reclassification of
Dr. Weissman as a Class II director, who was previously classified as a Class I
director.
5
<PAGE>
INFORMATION CONCERNING THE BOARD AND ITS COMMITTEES
During 1999, the Board of Directors was composed of Mr. Levin and Drs. Rose,
Schwartz and Weissman for the entire year, Dr. Patrick Aebischer until his
resignation on April 19, 1999; Dr. Moses Goddard until his resignation on
August 30, 1999; Mr. Richard Ramsden until his resignation on September 30,
1999; and Dr. Donald Kennedy after his appointment on July 8, 1999. The Board
had three standing committees: the Executive Committee, the Compensation and
Stock Option Committee (the "Compensation Committee") and the Audit Committee.
The Company's Compensation Committee held 5 meetings during the fiscal year
ended December 31, 1999 and was composed of Mr. Levin, Dr. Schwartz, and, until
his resignation from the Board, Mr. Ramsden. The Compensation Committee makes
recommendations to the Board and the Company's management concerning salaries in
general, determines executive compensation and approves incentive compensation
for Company employees and consultants. During the fiscal year ended
December 31, 1999, the Company's Audit Committee was composed of Dr. Schwartz
and, until his resignation from the Board, Mr. Ramsden. The Audit Committee
reviews the results and scope of the audit and other services provided by the
Company's independent auditors. While there were meetings between the Company's
auditors and Company's management, including the members of the Audit Committee,
since the auditor's report contained no exceptions, the Company's Audit
Committee did not hold a formal recorded meeting with the Company's auditors
during the fiscal year ended December 31, 1999. The Company's Executive
Committee was composed Drs. Schwartz, Rose and Weissman and Mr. Levin; from
May 11, 1999 through September 30, 1999, Mr. Ramsden was also a member. The
Executive Committee has the power and authority to meet and act on behalf of the
full Board in between meetings of the Board, including the power to authorize
the execution of agreements. However, such Executive Committee does not have the
authority to declare dividends or to authorize the issuance of stock of the
Company. The Executive Committee held three informal meetings contemporaneously
with scheduled meetings of the full Board during the fiscal year ended
December 31, 1999. The Company has no nominating committee.
During the fiscal year ended December 31, 1999, each director who is not an
employee and who does not have a pre-existing consultancy relationship with the
Company received an annual retainer of $18,000 payable quarterly and received
$1,500 for each Board meeting attended ($500 for each telephonic meeting) and
$500 for each Committee meeting attended if not contemporaneous with a Board
meeting. Each director who is not an employee of the Company is entitled to
receive upon election or reelection (or contemporaneously with the approval in
1998 of the revised compensation plan with respect to those directors already
serving) an option to purchase 20,000 shares of the Company's Common Stock
exercisable at the fair market value of the Common Stock at the time of grant,
such shares vesting in equal portions over three years on each anniversary of
the grant date. Directors are reimbursed for their expenses in attending
meetings of the Board of Directors and of committees of the Board of Directors.
During the fiscal year ended December 31, 1999, under a plan approved by the
stockholders, but not yet implemented, each non-employee director not receiving
consulting compensation from the Company will have the option to be paid, in
lieu of the cash fees payable for his service as a director, in shares of Common
Stock having a fair market value equal to the amount of such cash fees. Shares
of Common Stock issued to directors in lieu of cash payments for Board service
shall be nonforfeitable, and a director shall have all of the rights of a
stockholder of the Company with respect to such Common Stock. At a meeting of
the Board on February 23, 2000, in order to conserve cash and demonstrate their
continuing confidence in the Company's future, the directors unanimously adopted
a resolution revising their compensation arrangements with the Company, for the
period commencing January 1, 2000. Under the terms of this resolution, the
directors waive any and all cash payments which may accrue to them for their
quarterly
6
<PAGE>
retainer and meeting fees and receive, in lieu of such cash payments,
compensation in the form of options to purchase shares of the Company's common
stock at below market prices ($0.25 per share). The number of shares to be
distributed to the directors shall be calculated using the closing price of the
Company's common stock for the date of the subject Board or Committee meeting
(if such Committee meeting is not held contemporaneously with a Board meeting)
or, with respect to the quarterly retainer payments, the closing price for the
last business day of the quarter, less the option price of $0.25 per share. All
options so issued to the directors shall vest immediately.
The Board of Directors of CytoTherapeutics held 17 meetings during the
fiscal year ended December 31, 1999. During the time they held office, all of
the directors attended at least 75% of the meetings of the Board of Directors
and of all committees on which they served except for Messrs. Ramsden and Levin,
who attended 73% and 71% of the meetings of the Board of Directors,
respectively.
7
<PAGE>
EXECUTIVE OFFICERS
The executive officer of the Company who is not also a director of the
Company is:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ----------------------------------------
<S> <C> <C>
George W. Dunbar, Jr................. 53 Acting President and Chief Executive
Officer
</TABLE>
George W. Dunbar, Jr., age 53, was appointed Acting President and Chief
Executive Officer of the Company effective as of February 1, 2000. Mr. Dunbar
joined the Company as Acting President of StemCells California, Inc., the
Company's wholly owned subsidiary, on November 8, 1999, and still holds this
office. (The Company, as the sole stockholder of StemCells, Inc., a California
corporation, voted on February 23, 2000 to amend the Certificate of
Incorporation of its subsidiary in order to change the name of the subsidiary
from StemCells, Inc. to StemCells California, Inc.) From September 1999 through
the present, Mr. Dunbar has been a founding member of ICEO, LLC. From July 1991
until July 1999, Mr. Dunbar was President, Chief Executive Officer and a member
of the Board of Directors of Metra Biosystems, which merged with Quidel
Corporation during 1999. Prior to Metra Biosystems, Mr. Dunbar was a vice
president of The Ares-Serono Group, a Swiss healthcare company, as well as a
prior position as a vice president of Amersham's International plc's life
sciences business in the United States. Mr. Dunbar serves as a Board member for
Competitive Technologies, Quidel Corporation, LJL Biosystems, Sonus
Pharmaceuticals and The Valley Medical Center Foundation. He also sits on the
MBA Advisory Board of the Auburn University School of Business, his alma mater.
All executive officers of the Company are elected annually and serve at the
discretion of the Board of Directors.
8
<PAGE>
PROPOSAL NUMBER 2
AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
TO CHANGE ITS CORPORATE NAME FROM CYTOTHERAPEUTICS, INC. TO
STEMCELLS, INC.
The Board of Directors of the Company has unanimously approved a proposal to
amend the Company's Restated Certificate of Incorporation to change the name of
the Company from CytoTherapeutics, Inc. to StemCells, Inc. and recommended that
the proposed amendment be submitted to the Company's stockholders for
consideration and approval at the Annual Meeting. If approved by the
shareholders, Article I of the Company's Restated Certificate of Incorporation
would be amended to provide as follows: "The name of this corporation is
StemCells, Inc."
The Board of Directors believes that it is in the best interests of the
Company and its stockholders to change the Company's name. In the judgment of
the Board of Directors, the corporate name change does not adequately reflect
the Company's concentration on the discovery, development and commercialization
of its platform stem cell technologies to treat disease. Because the Company
terminated its former programs in encapsulated cell technology and on
December 30, 1999 sold that technology, and because the Company's current
research, development and product plans all focus on stem and progenitor cells,
the name StemCells, Inc. was chosen to communicate and better reflect the
Company's current emphasis on its stem cell technologies.
The name change will not affect the validity or transferability of currently
outstanding stock certificates, and stockholders will not be requested to
surrender for exchange any certificates presently held by them. If the
stockholders approve the name change, the Company intends to change the symbol
for the Company's Common Stock on the Nasdaq National Market from "CTII" to
"STEM".
If the proposal is approved, the change of the Company's name will become
effective upon the filing of a Certificate of Amendment to the Restated
Certificate of Incorporation with the Secretary of State of the State of
Delaware. It is anticipated that officers of the Company will promptly make
appropriate filings in the State of Delaware and take any other actions
necessary to implement the Amendment.
The affirmative vote of a majority of all votes entitled to be cast at the
Annual Meeting will be required to approve the amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE AMENDMENT TO
THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO CHANGE ITS CORPORATE NAME
TO STEMCELLS, INC.
9
<PAGE>
PROPOSAL NUMBER 3
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Company is asking the stockholders to ratify the selection of Ernst &
Young LLP as the Company's independent public accountants for the fiscal year
ending December 31, 2000. The affirmative vote of the holders of a majority of
the shares represented and voting at the Annual Meeting will be required to
ratify the selection of Ernst & Young LLP.
In the event the stockholders fail to ratify the appointment, the Audit
Committee of the Board of Directors will consider it as a direction to select
other auditors for the subsequent year. Even if the selection is ratified, the
Board at its discretion may direct the appointment of a different independent
accounting firm at any time during the subsequent year if the Board determines
that such a change would be in the best interests of the Company and its
stockholders.
A representative of Ernst & Young LLP is expected to attend the Annual
Meeting and is not expected to make a statement, but will be available to
respond to appropriate questions and may make a statement if such representative
desires to do so.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO
RATIFY THE SELECTION OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000
10
<PAGE>
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of April 18, 2000 by (i) each person
known by the Company to be the beneficial owner of more than 5% of the Company's
outstanding Common Stock, (ii) each director and nominee for director,
(iii) each executive officer named in the Summary Compensation Table and
(iv) all executive officers and directors of the Company 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, subject to
community property laws where applicable, and that there are no other
affiliations among the stockholders listed in the table.
<TABLE>
<CAPTION>
PERCENTAGE
SHARES OF CLASS
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED* BENEFICIALLY OWNED*
- ------------------------ ------------------- -------------------
<S> <C> <C>
Donald Kennedy, Ph.D....................................... 956(1) **
Mark J. Levin.............................................. 271,491(2) 1.4%
John J. Schwartz, Ph.D..................................... 195,234(3) 1.0%
Irving Weissman, M.D....................................... 484,302(4) 2.5%
George W. Dunbar, Jr....................................... 31,000(5) **
All directors and executive officers as a group (5
persons)................................................. 982,982(6) 5.0%
</TABLE>
* All numbers are based on information provided to the Company by the
individuals listed.
** Less than one percent.
(1) Includes 956 shares issuable upon exercise of stock options exercisable
within 60 days.
(2) Includes 26,172 shares issuable upon exercise of stock options exercisable
within 60 days. Includes 118,519 shares issuable upon conversion of 6%
cumulative convertible preferred shares at the currently applicable
conversion price. Does not include a warrant to purchase 37,500 shares
exercisable at a price above the current market price.
(3) Includes 193,225 shares issuable upon exercise of stock options exercisable
within 60 days.
(4) Includes 33,106 shares issuable upon exercise of stock options exercisable
within 60 days and 7,160 shares issuable upon exercise of warrants
exercisable within 60 days. Includes 118,519 shares issuable upon conversion
of 6% cumulative convertible preferred shares at the currently applicable
conversion price. Does not include a warrant to purchase 37,500 shares
exercisable at a price above the current market price. Includes a total of
50,791 shares owned by trusts for the benefit of Dr. Weissman's children as
to which he disclaims beneficial ownership.
(5) Includes 31,000 shares issuable upon exercise of stock options exercisable
within 60 days. Mr. Dunbar was appointed Acting President and Chief
Executive Officer of the Company's wholly owned subsidiary, StemCells
California, Inc., effective as of November 8, 1999, and was appointed Acting
President and Chief Executive Officer of the Company effective as of
February 1, 2000.
(6) Includes 293,628 shares exercisable upon exercise of stock options
exercisable within 60 days.
11
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to its
Chief Executive Officer during the fiscal year ended December 31, 1999 and the
two other most highly compensated executive officers who served in such
capacities during the fiscal year ended December 31, 1999 but who were not
serving in such capacities as of the end of such fiscal year. There were no
other persons serving as executive officers at the end of such fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
AWARDS
-----------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -----------------------
---------------------------------------- RESTRICTED SECURITIES ALL
NAME AND OTHER ANNUAL STOCK UNDERLYING OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS($) OPTIONS(#) COMPENSATION($)
------------------ -------- --------- -------- --------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
RICHARD M. ROSE, 1999 279,794 0 0 0 0 4,667(2)
M.D.................. 1998 286,553 0 0 0 150,000(3) 11,330(4)
Chief Executive 1997 68,750 0 0 0 300,000(5) 76,268(6)
Officer(1)
PHILIP K. YACHMETZ..... 1999 406,731(8) 0 0 0 12,000 71,355(9)
Senior Vice President 1998 155,780 10,000 0 0 75,000 86,695(10)
and General Counsel
Acting Chief
Financial Officer and
Treasurer(7)
MOSES GODDARD, M.D..... 1999 195,176(12) 0 0 0 18,000 7,921(13)
Vice President, Chief 1998 188,957 0 0 0 67,875(14) 0
Technical Officer
Cell
Encapsulation(11)
</TABLE>
- ------------------------
(1) Dr. Rose became Chief Executive Officer on September 26, 1997. Dr. Rose
resigned as a director and officer of the Company and its wholly owned
subsidiary effective as of January 31, 2000.
(2) Represents the personal portion of the use of a Company vehicle, as well as
$5,000 of fair market value of the Company matching contributions of Common
Stock to Dr. Rose's account in the Company's 401(k) Plan.
(3) Represents the regrant of an option in the original amount of 200,000 shares
which was reduced to 150,000 shares as a result of the employee equity
incentive repricing plan approved by the Board of Directors on July 10,
1998.
(4) Represents $4,666.56 of fair market value of the Company matching
contributions of Common Stock to Dr. Rose's account in the Company's 401(k)
Plan.
(5) One option grant for 200,000 shares was reduced to 150,000 shares upon the
repricing of the grant effective as of July 10, 1998 at a price of $1.281
per share.
(6) Represents advance for relocation expenses of $75,000 and fair market value
of $1,268 of Company matching contributions of Common Stock to Dr. Rose's
account in the Company's 401(k) plan.
12
<PAGE>
(7) Mr. Yachmetz was appointed Acting Chief Financial Officer and Treasurer
effective as of April 2, 1999. The term of Mr. Yachmetz' Employment
Agreement expired on October 31, 1999 and he is currently acting as a
consultant to the Company pursuant to the terms of such Agreement.
(8) Includes $204,807 of compensation and accrued and unused vacation paid upon
the expiration of Mr. Yachmetz' Employment Agreement in accordance with the
terms of such agreement.
(9) Represents $15,304 as the fair market value of 9,601 shares of the Company's
Common Stock earned in 1998 and issued in 1999, $3,990 of fair market value
of Company matching contributions of Common Stock to Mr. Yachmetz' account
in the Company's 401(k) Plan and $52,061 of temporary living and relocation
expenses adjusted for taxes.
(10) Represents $14,724 of temporary living and relocation expenses adjusted for
taxes paid to Mr. Yachmetz and personal use of a Company vehicle. Also
represents $1,827 of fair market value of Company matching contributions of
Common Stock to Mr. Yachmetz' account in the Company's 401(k) Plan.
(11) Dr. Goddard resigned as a director and officer of the Company effective as
of August 30, 1999 and served as a consultant to the Company through
March 28, 2000.
(12) Includes $70,945 of compensation paid to Dr. Goddard in accordance with the
severance agreement entered into with the Company.
(13) Represents the fair market value of 4,687 shares of the Company's Common
Stock granted to Dr. Goddard through the Company's 1992 Equity Incentive
Plan.
(14) Represents the regrant of options in the total original amount of 90,500
shares which was reduced to 67,875 shares as a result of the employee equity
incentive repricing plan approved by the Board of Directors on July 10,
1998.
13
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in 1999 to the
named executive officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES PERCENT OF STOCK PRICE
UNDERLYING TOTAL OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM (3)
GRANTED EMPLOYEES IN PRICE EXPIRATION ------------------------------
NAME (# OF SHARES) FISCAL YEAR (1) ($/SHARE)(2) DATE 0%($) 5%($) 10%($)
- ---- ------------- ---------------- ------------ ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard M. Rose, M.D......... 0 0 0 0 0 0 0
Philip K. Yachmetz........... 12,000(4) 5.37% 1.19 4/1/01 0 8,981 22,759
Moses Goddard, M.D........... 18,000(5) 8.05% 1.19 6/1/00(6) 0 13,131 33,277
</TABLE>
- ------------------------
(1) The Company granted options covering 223,671 shares of Common Stock to
employees in the fiscal year ended December 31, 1999.
(2) The exercise price may be paid by delivery of already-owned shares and tax
withholding obligations related to exercise may be paid by offset of the
underlying shares, subject to certain conditions.
(3) As suggested by the Commission's rules on executive compensation disclosure,
the Company has presented option values based on arbitrary growth rates. The
Company does not necessarily agree that the information presented properly
values the options described.
(4) 1,500 shares became exercisable on September 1, 1999, with the remaining
shares vesting at a rate of 1,500 per month thereafter until fully vested.
The term of Mr. Yachmetz' Employment Agreement expired on October 31, 1999
and he is currently acting as a consultant to the Company pursuant to the
terms of such Agreement.
(5) 1,500 shares became exercisable on November 1, 1999, with the remaining
shares vesting at a rate of 1,500 per month until fully vested, provided
Dr. Goddard continued to act as a consultant to the Company. Dr. Goddard
resigned as a director and officer of the Company effective as of
August 30, 1999 and served as a consultant to the Company through March 28,
2000. Therefore, only 7,500 of the shares granted Dr. Goddard vested and the
remainder of the grant expired.
(6) Based on the termination of Dr. Goddard's consulting services as of
March 28, 2000.
14
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table provides information about option exercises in 1999 by
the named executive officers and the value of such officers' unexercised options
at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END(1) FISCAL YEAR-END($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Rose, M.D........... 0 0 76,837 79,413 90,421.95 101,728.05
Philip K. Yachmetz............. 0 0 81,000 6,000 103,215.00 7,140.00
Moses Goddard, M.D............. 59,076 106,067 3,000 15,000 3,564.00 17,820.00
</TABLE>
- ------------------------
(1) December 31, 1999
(2) The closing price of the Company's Common Stock on December 31, 1999 on the
NASDAQ National Market System was $1.469. The numbers shown reflect the
value of options accumulated over all years of employment.
15
<PAGE>
EMPLOYMENT AND SEVERANCE AGREEMENTS
Under terms of an agreement dated December 19, 1998, and amended as of
July 1, 1999 (the "Letter Agreement") Dr. Schwartz agreed to serve as a Director
and Chairman of the Board of Directors of the Company for a term expiring at the
2001 Annual Meeting of Stockholders. The Letter Agreement incorporates certain
payments provided for under a consulting services agreement dated July 27, 1998,
and amended as of December 19, 1998 (the "Consulting Services Agreement"). As a
result, Dr. Schwartz is entitled to a retainer of $192,000 per year plus $1,500
for each Board meeting or Committee meeting (if held at a date and time separate
from the Board meeting) physically attended and $500 for each Board meeting or
Committee meeting (if held at a date and time separate from the Board meeting)
held by conference call, payable quarterly in arrears. Dr. Schwartz is obligated
to spend no less than thirty business days per calendar quarter devoted to the
performance of his duties under the Letter Agreement. In the event Dr. Schwartz
devotes more than thirty business days in any calendar quarter to the
performance of his duties, Dr. Schwartz is entitled to receive additional
compensation at the rate of $1,500 per day. Under the Letter Agreement,
Dr. Schwartz was granted a stock option covering 40,000 shares of Common Stock
that vests in equal portions on the last day of each of the 29 months of the
term of the Letter Agreement. By virtue of provisions incorporated from the
Consulting Services Agreement, Dr. Schwartz also holds an option to purchase
76,000 shares of the Company's Common Stock at $1.281 per share, the fair market
value of the Company's Common Stock at the time the option was granted, vesting
at a rate of 3,167 shares per month for the ensuing 23 months after the date of
the grant, with a final vesting of 3,159 shares in the 24(th) month, plus
another option to purchase 48,000 shares of Common Stock at the then current
fair market value of the Company's Common Stock on July 27, 1999, vesting at a
rate of 2,000 shares per month. In the event Dr. Schwartz ceases to be Chairman
of the Board of Directors, either as a result of an affirmative vote of the
Board of Directors for reasons other than cause or due to his disability or his
resignation from such position, but remains a Director, his cash compensation
and remaining unvested portion of the 40,000-share time-based stock option will
be reduced to the then current rate for a Director of the Company, plus $5,000
per month pursuant to the Consulting Services Agreement. In the event
Dr. Schwartz ceases to be Chairman of the Board of Directors, either as a result
of an affirmative vote of the Board of Directors for reasons other than cause or
due to his disability or his resignation from such position, and then he resigns
as a Director or is removed as a Director pursuant to the Company's By-laws, the
Company shall have no further obligation to pay cash compensation to
Dr. Schwartz under the Letter Agreement but he would receive $5,000 per month
pursuant to the Consulting Services Agreement. Dr. Schwartz shall have one year
from such date to exercise the vested portion of the 40,000-share time-based
option and any unvested portion of that option shall lapse. In the event
Dr. Schwartz is removed from his positions as Director and Chairman of the Board
of Directors for cause, as defined in the Letter Agreement, the Company shall
have no further obligation to pay cash compensation to Dr. Schwartz under the
Letter Agreement, any unvested portion of the 40,000-share time-based option
shall lapse and the exercise of any vested portion shall be governed by the
terms of the Company's 1992 Equity Incentive Plan. The termination of the Letter
Agreement for any reason shall have no effect on the Consulting Services
Agreement, which shall remain in effect until July 27, 2000 unless renewed, and
Dr. Schwartz shall serve as a consultant to the Company rendering strategic
business advice and counseling services, including assistance in the negotiation
and consummation of strategic collaboration transactions specified by the
Company as provided therein. At a meeting of the Board on February 23, 2000, in
order to conserve cash and demonstrate his continuing confidence in the
Company's future, the Board of Directors, upon the suggestion of Dr. Schwartz,
approved a resolution revising the compensation arrangement between
Dr. Schwartz and the Company, for the period commencing January 1, 2000. Under
this
16
<PAGE>
resolution, Dr. Schwartz waives any and all cash payments which may accrue to
him for his retainer, monthly and meeting fees, and agrees to take, in lieu of
such cash payments, compensation in the form of options to purchase shares of
the Company's common stock at below-market prices ($0.25 per share). To
effectuate the intention of Dr. Schwartz and the other members of the Board to
change the form but not the amount of compensation, Dr. Schwartz will be granted
options covering a number of shares of the Company's common stock such that the
difference between the aggregate exercise price of such options and the
aggregate market value of the shares underlying such options (using the closing
price of the Company's common stock for the date of the subject Board or
Committee meeting (if such Committee meeting is not held contemporaneously with
a Board meeting) or, with respect to the quarterly or monthly retainer payments
of $33,000 and $5,000 respectively, the closing price for the last business day
of the quarter or month) is equal to the compensation he is entitled to receive.
All options so issued to Dr. Schwartz vest immediately.
Under the terms of an agreement dated September 25, 1997, Dr. Rose agreed to
serve as President, Chief Executive Officer and a director of the Company.
Dr. Rose was entitled to an annual salary of $275,000 and a bonus of up to 25%
of his salary. The agreement provided for the grant to Dr. Rose of a stock
option covering 200,000 shares of Common Stock that vested as to one quarter of
such number of shares on the first anniversary of the date of grant and equally
as to the remaining shares over the following 36 months. This stock option was
regranted in July 1998 and reduced to 150,000 shares of Common Stock as a result
of the repricing of the stock option, with no change to the vesting schedule
other than a pro-rata reduction of the number of shares which vest on each date.
In addition, Dr. Rose, under the agreement, was granted a stock option covering
100,000 shares of the Company's Common Stock, which option vests upon the
achievement of certain milestones related to the Company's stem cells research
program. The agreement provided for reimbursement of certain moving costs up to
$125,000 and for a bridge loan for purchase of a home up to $200,000. The
agreement also provided for certain employee benefits and contained provisions
regarding confidentiality and noncompetition before and after employment.
Dr. Rose's employment terminated as of the effective date of his resignation,
January 31, 2000. Pursuant to the terms of his agreement, Dr. Rose will continue
to receive periodic payments of his base annual salary for the period of
February 1, 2000 through January 31, 2001, retains his stock option grant which
vests upon the achievement of certain milestones related to the Company's stem
cells research program and he repaid a portion of the relocation expenses
previously advanced to him.
Under the terms of two agreements dated as of November 17, 1999 and
effective as of November 8, 1999, the first between the Company and iCEO, LLC
("iCEO") and the second between the Company and George W. Dunbar, Jr., a member
of iCEO, Mr. Dunbar agreed to serve as Acting President of StemCells
California, Inc., the Company's wholly owned subsidiary. Pursuant to the terms
of his agreement with the Company, Mr. Dunbar is entitled to an annual salary of
$175,000 and was granted a stock option to purchase 48,000 shares of the
Company's common stock that will vest at the rate of 4,000 shares per month
commencing on December 6, 1999 and continuing until fully vested so long as he
continues to serve as Acting President. The vesting under the option will be
accelerated in the event of certain changes of control of the Company.
Additionally, the agreement provides that the Board will consider once per
quarter the grant of an option for an additional 3,000 shares if it is
determined that the services rendered by Mr. Dunbar during the preceding quarter
exceeded expectations. Mr. Dunbar is an at-will employee of the Company and as
such may resign or be terminated with or without reason. There are no provisions
for any severance payments or other benefits upon Mr. Dunbar's resignation or
termination. Pursuant to the terms of the agreement between iCEO and the
Company, iCEO is entitled to receive annual compensation of $75,000 for so long
as Mr. Dunbar continues to serve in his role as Acting President of StemCells
17
<PAGE>
California, Inc. or in any other interim role with the Company. In addition,
iCEO was granted a stock option to purchase 48,000 shares of the Company's
common stock that will vest at the rate of 4,000 shares per month commencing on
December 6, 1999 and continuing until fully vested so long as Mr. Dunbar
continues to serve as Acting President of StemCells California, Inc. or in any
other interim role with the Company. Additionally, the iCEO agreement provides
that the Board will consider once per quarter the grant of an option to iCEO for
an additional 3,000 shares if it is determined that the services rendered by
Mr. Dunbar during the preceding quarter exceeded expectations. As a member of
iCEO, Mr. Dunbar is entitled to receive, once annually, a distribution of his
assigned allocable percentage of net taxable income and net long-term gain with
respect to the pooled income and gain from shares of stock or exercised options
received by iCEO from its clients, including that received from the Company.
Mr. Dunbar was also appointed Acting President and Chief Executive Officer of
the Company effective as of February 1, 2000, with no adjustment to his or
iCEO's compensation or stock options. In the event that during the period of his
service as Acting President and Chief Executive Officer or within 120 days from
the termination of such services, Mr. Dunbar was to become a permanent employee
of the Company in any capacity, the Company is obligated under the iCEO
agreement to pay iCEO a fee equal to one-third of the then targeted first year's
compensation for Mr. Dunbar.
Under the terms of an agreement dated as of June 8, 1998, and amended and
restated as of June 8, 1999, Mr. Yachmetz agreed to serve as Senior Vice
President, Business Development, General Counsel and Secretary of the Company
for a period ending on October 31, 1999 and to then serve as a consultant to the
Company for the period ending on April 30, 2000. Mr. Yachmetz was also appointed
Acting Chief Financial Officer and Treasurer effective as of April 2, 1999.
During his employment, Mr. Yachmetz was entitled to an annual salary of $250,000
and a bonus in a percentage amount of his salary similar to that for which other
members of the Company's senior management are eligible or are awarded, such
bonus to also be based on the achievement of specified milestones. The agreement
also provided for a "sign on" bonus of $15,000, one third of which was paid to
Mr. Yachmetz in registered shares of the Company's Common Stock in accordance
with the agreement. The agreement further provided for a grant of a stock option
to Mr. Yachmetz covering 75,000 shares of Common Stock that vested as to 30,000
shares on the effective date of the agreement and 3,000 shares per month
thereafter for the ensuing 15 months. The vesting under the option will be
accelerated in the event of certain changes in control of the Company. The
agreement provided for the reimbursement of certain relocation costs and
temporary housing and for the payment of a lump sum amount equal to nine months
salary upon the expiration of the term of Mr. Yachmetz' employment. The
agreement also provides for certain other customary employee benefits and
contains certain provisions regarding confidentiality during and after
employment. During his consultancy, Mr. Yachmetz is entitled to a monthly
retainer of $2,500 per month for up to 12 hours of consulting services and then
a per diem rate of $1,500, plus expenses, for additional consulting services.
Mr. Yachmetz also received a grant of a stock option covering 12,000 shares of
Common Stock that vests 1,500 shares per month commencing September 1, 1999
through April 1, 2000. The term of Mr. Yachmetz' employment expired on
October 31, 1999 and he is currently acting as a consultant to the Company
pursuant to the terms of the above agreement.
Dr. Goddard served as Vice President, Chief Technical Officer--Cell
Encapsulation of the Company and head of the Company's Encapsulated Cell Therapy
business unit. The Company had no employment agreement with Dr. Goddard, who
served as an at-will employee of the Company since 1993. Dr. Goddard agreed with
the Company to resign as a director of the Company should he cease for any
reason to serve as head of the Company's Encapsulated Cell Therapy business
unit. Dr. Goddard resigned as a director on August 30, 1999, contemporaneously
with the termination of his employment with the Company.
18
<PAGE>
In the case of certain terminations of employment with the Company other
than for cause, all officers are entitled to severance equal to a percentage of
annual base pay, adjusted for length of service with the Company. In addition,
in the event of certain changes of control of the Company, severance payments
payable to senior officers will be increased to an amount equal to annual salary
reduced by the amount of certain stock and option gains.
19
<PAGE>
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE FUTURE FILINGS,
INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT AND
THE PERFORMANCE GRAPH ON PAGE 23 SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY
SUCH FILINGS.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
The ongoing reorganization and rationalization of the Company's operations
throughout 1999 presented many unique challenges and periods of uncertainty for
the Company and its employees and executive officers. Throughout this period the
Company used it best efforts to continue to apply a consistent philosophy of
compensation for all employees, including executive officers. This philosophy is
based on the premise that the achievements of the Company result from the
coordinated efforts of all individuals working toward common objectives within
each of the then existing projects of the Company's respective business units.
The Company strives to achieve those objectives through teamwork focused on
meeting or exceeding strategic, scientific and business goals and the
expectations of the Company's shareholders. For the fiscal year ended
December 31, 1999, there were different levels of achievement of strategic,
scientific and business goals between the Company's business units and to
certain extents, the rewards and compensation awarded to the Company's
employees, including executive officers, reflected those differences.
COMPENSATION PHILOSOPHY FOR EXECUTIVE OFFICERS
The goals of the compensation program are to reward individual and team
performance and to encourage future performance by aligning compensation with
scientific and business objectives and performance and to enable the Company to
attract, retain and reward executive officers who contribute to the long-term
success of the Company. The Company's compensation program for executive
officers is based on four principles:
- Company pays competitively.
The Company is committed to a compensation program that helps attract and
retain the best people in the industry. To ensure that its compensation is
competitive, the Company regularly compares its compensation levels with those
companies it considers comparable and sets its compensation parameters based on
this review.
- Company compensates its executive officers for performance.
Executive officers are rewarded based upon both corporate performance and
individual performance. Corporate performance is evaluated by reviewing the
extent to which strategic and business plan goals are met. Individual
performance is evaluated by reviewing organizational and management development
progress against set objectives and the degree to which teamwork and Company
values are fostered by the individual's actions.
In early stage biopharmaceutical companies, performance is best judged by
success in achievement of scientific and technical milestones, product
development progress (including progress toward and through clinical trials),
strategic human resources development, capitalization and financing goals, and
commercialization goals. These are the bases presently used by the Committee.
- Company strives for fairness in the administration of pay.
20
<PAGE>
The Company strives to achieve a balance of the compensation paid to a
particular individual and the compensation paid to other executive officers both
inside the Company and at comparable companies.
- Company believes that all employees, including executive officers, should
understand and constructively participate in the performance evaluation
process.
The ongoing reorganization and rationalization of the Company's operations
during 1999 resulted in a reexamination of the then existing performance
evaluation process and the objectives and key goals previously established. At
the direction of the Compensation Committee, the Company's management undertook
a process of reviewing and modifying the performance evaluation process for all
employees. This evaluation process has resulted in the implementation of a
revised performance evaluation process for all employees of the Company
effective as of January 1, 1999. The revised process of assessing performance
was as follows:
1. At the beginning of the performance cycle, the evaluating manager (who in
the case of executive officers is the Chief Executive Officer) in
conjunction with the employee sets objectives and key goals for the employee
based upon Company goals previously established by senior management.
2. The evaluating manager gives the employee ongoing feedback about the
employee's performance against established goals.
3. At the end of the performance cycle, the employee submits a summary of the
employee's accomplishments against key goals and the manager reviews and
evaluates this summary.
4. The evaluating manager compares the evaluation results to the results of
evaluations of peers within the Company.
5. The Chief Executive Officer and the Human Resources Director (and absent
such officer, the Chief Financial Officer) review results of all evaluations
except that of the Chief Executive Officer. These evaluations are
subsequently discussed between the evaluating manager and the employee. In
the case of the evaluation of the Chief Executive Officer, the Compensation
Committee serves as the evaluating manager.
6. For executive officers, the results of the performance evaluation are
discussed with the Compensation Committee, which reviews these results and
approves (subject to their review) recommendations for compensation made by
the Chief Executive Officer.
7. Decisions on cash compensation and, where appropriate, stock options or
other long-term incentive compensation are based on the employee's
evaluation compared with the evaluations of all employees of the Company.
In light of the substantial scientific progress made in each of the
Company's stem cell technology projects during the preceding twelve months, in
September, 1999 the Compensation Committee approved, with subsequent
ratification by the full Board, a package of unrestricted stock grants and
grants of additional time-based and performance based options for each of the
employees of StemCells California, Inc., the Company's wholly owned subsidiary.
This package of stock grants and stock options was in lieu of any cash bonuses
or cash adjustments to the salaries of these employees. No executive officer of
the Company was a recipient of such an award.
21
<PAGE>
COMPENSATION VEHICLES
The Company uses a simple total compensation program consisting of cash and
equity-based compensation. Having a compensation program that allows the Company
to successfully attract and retain executive officers permits it to enhance
shareholder value, motivate technological innovation and foster teamwork. The
vehicles used are:
CASH-BASED COMPENSATION
SALARY.--The Company sets base salaries for executive officers by reviewing
the aggregate of base salary and bonus for individuals in competitive positions
in the market and adjusting such aggregate to reflect individual performance.
ANNUAL CASH BONUS.--Executive officers and the Chief Executive Officer are
eligible to receive an annual cash bonus upon the attainment of predetermined
corporate objectives. The Committee approves these objectives at the beginning
of the year, and progress against them is reviewed at year-end to determine the
appropriate bonus payment. At full achievement of objectives, the Chief
Executive Officer is targeted to receive a bonus of 25% of his annual base
salary and the other executive officers to receive 15% of their respective
annual bases salaries. The amount actually paid in any one year may be more or
less than the targeted bonus based on over or under achievement of objectives.
EQUITY-BASED COMPENSATION
STOCK OPTION PROGRAM--The purpose of the Company's stock option program is
to provide additional incentives to executive officers to maximize shareholder
value. The Company believes strongly in the use of stock options because they
align employee interests directly with shareholder value. The option program
also utilizes vesting periods to encourage executive officers to remain with the
Company and to encourage long-term increases in Company stock value. The Company
grants stock options to all employees upon hiring and anticipates that it may
use stock options as a bonus vehicle in the future. A program of cash awards for
excellence in performance and attainment of goals is currently in place.
Although provided for under the Company incentive plans, the Company
presently does not use stock appreciation rights as a compensation vehicle.
EVALUATION OF 1999 PERFORMANCE OF EXECUTIVE OFFICERS
The Committee compares the base salaries of executive officers against the
current competitive pay practices of comparable biotechnology companies by
reviewing data in the Radford Biotechnology Compensation and Benefits Survey
(and other biotechnology survey data, both formal and informal, as it becomes
available). Through these means, the Committee determined that though salaries
in the industry were generally rising, in light of their current compensation
and of the need to conserve cash, it would not provide for any raises for
executive officers in 1999.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
In reviewing the base salary for Dr. Rose, who has served as CEO since
September 1997, the Committee determined that his $275,000 annual salary was
appropriate taking into account the option package and other components of
Dr. Rose's total compensation package.
COMPENSATION AND STOCK OPTION COMMITTEE
Mark J. Levin
John J. Schwartz
22
<PAGE>
PERFORMANCE GRAPH
NOTE: THE STOCK PRICE PERFORMANCE SHOWN ON THE GRAPH BELOW IS NOT NECESSARILY
INDICATIVE OF FUTURE STOCK PRICE PERFORMANCE.
COMPARISON OF CUMULATIVE TOTAL RETURNS ON COMMON STOCK OF
CYTOTHERAPEUTICS, INC.,
THE AMEX BIOTECHNOLOGY STOCK INDEX AND S&P 500 INDEX
FOR THE PERIOD FROM THE COMPANY'S INITIAL PUBLIC OFFERING UNTIL DECEMBER 31,
1999
The graph below compares the cumulative total returns on the Company's
Common Stock with the cumulative total returns of the Amex Biotechnology Stock
Index and the S&P 500 Index for the period from the Company's initial public
offering until December 31, 1999. (1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mar '92 Dec '92 Dec '93 Dec '94 Dec '95 Dec '96 Dec '97 Dec '98 Dec '99
COMPANY 100.00 79.49 125.64 46.15 175.64 92.31 41.03 15.07 15.07
S&P 200INDEX 100.00 110.41 121.53 119.88 160.48 192.99 252.84 263.53 314.99
AMEX BIOTECH STOCK INDEX 100.00 94.41 64.07 45.41 74.88 80.00 89.88 159.9 338.09
</TABLE>
- ------------------------
(1) Based on the closing price of CytoTherapeutics' Common Stock on the first
day of trading on the NASDAQ National Market System. Cumulative total
returns assume reinvestment of all dividends and a hypothetical investment
of $100 on March 26, 1992.
<TABLE>
<CAPTION>
MAR
'92 DEC '92 DEC '93 DEC '94 DEC '95 DEC '96 DEC '97 DEC '98 DEC '99
--- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMPANY........................ 100.00 79.49 125.64 46.15 175.64 92.31 41.03 15.07 15.07
S&P 500 INDEX.................. 100.00 110.41 121.53 119.88 160.48 192.99 252.84 263.53 314.99
AMEX BIOTECH STOCK INDEX....... 100.00 94.41 64.07 45.41 74.88 80.00 89.88 159.90 338.09
</TABLE>
23
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following non-employee directors served on the Compensation and Stock
Option Committee in 1999: Mr. Levin, Dr. Schwartz and, until his resignation,
Mr. Ramsden. In 1989, 1990 and 1991 Mr. Levin was an executive officer of the
Company.
The Company entered in a Consulting Services Agreement with John J. Schwartz
on July 27, 1998, as amended December 19, 1998, for strategic business advice
and counseling services, including assistance in the negotiation and
consummation of strategic collaboration transactions specified by the Company
(SEE "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" HEREIN). Dr. Schwartz was
elected to the Board of Directors on December 19, 1998 and became a member of
the Compensation Committee on that date. During the fiscal year ended
December 31, 1999, the Company made payments to Dr. Schwartz under the
Consulting Services Agreement and the agreement dated December 19, 1998 and
amended as of July 1, 1999, under which he serves as a Director and Chairman of
the Board.
The Company believes the terms of these agreements are no less favorable to
the Company than could have been obtained from unaffiliated third parties.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. Schwartz, a member and Chairman of the Board of Directors, was retained
in July 1998 to serve as a consultant to the Company rendering strategic
business advice and counseling services, including assistance in the negotiation
and consummation of strategic collaboration transactions specified by the
Company. During Dr. Schwartz' service on the Board, his duties and compensation
under the Consulting Services Agreement are included within his duties and
considered part of his compensation for service as Chairman and Board member.
(SEE EMPLOYMENT AND SEVERANCE AGREEMENTS ABOVE.) To compensate Dr. Schwartz for
services rendered to the Company during the period of September 1997 through
July 1998, the Consulting Services Agreement provided for the payment to
Dr. Schwartz of $50,000 and the grant of a fully vested option to purchase
20,000 shares of the Company's Common Stock at $1.281, the fair market value of
the Company's Common Stock at the time of the grant. Further, in the event that,
at a time when he is not Chairman and member of the Board of Trustees and the
Consulting Services Agreement is in effect, Dr. Schwartz materially participates
in the negotiation and consummation of a strategic collaboration transaction
specified by the Company, he may be entitled to receive additional compensation
equal to three percent of the transaction consideration (as defined) when it is
actually received by the Company, such additional compensation payable half in
cash and half in the form of an option or warrant to purchase shares of the
Company's Common Stock at $0.20 per share, the number of shares being calculated
based on the fair market value of the Company's Common Stock ten days prior to
the first public announcement of the consummation of, the execution of a letter
of intent for or the existence of discussions concerning the collaboration
transaction. The payment of this additional compensation may be accelerated in
the event there is a change of control (as defined in the agreement) of the
Company. There was, at December 19, 1998, no such strategic collaboration
transactions in which Dr. Schwartz was materially participating which would give
rise to additional compensation.
Dr. Weissman, a member of the Board of Directors, was retained in
September 1997 to serve as a consultant to the Company. Pursuant to his
Consulting Agreement, Dr. Weissman has agreed to provide consulting services to
the Company and serve on the Company's Scientific Advisory Board. The Company
agreed to pay Dr. Weissman $50,000 per year for his services and granted him an
option to purchase 500,000 shares of Common Stock for $5.25 per share, of which
31,250 shares vested at the date of grant
24
<PAGE>
and the remainder of which will vest upon the occurrence of certain milestones
related to the Company's stem cells research program and in the event of certain
changes of control. The Company also agreed to nominate Dr. Weissman for a
position on the Board of Directors. The Consulting Agreement contains
confidentiality, noncompetition and assignment of invention provisions and is
for a term of ten years, subject to earlier termination by the Company for cause
or frustration of purpose and earlier termination by Dr. Weissman for good
reason. Dr. Weissman receives no compensation as a member of the Board of
Directors or for attending meetings of the Board or its committees or meetings
of the Company's Scientific Advisory Board, but is reimbursed for reasonable
expenses he incurs in attending such meetings.
In April 2000, the Company sold 750 shares of its 6% cumulative convertible
preferred stock plus a warrant to purchase 37,500 shares of the Company's common
stock to each of Dr. Weissman and Mr. Levin for $750,000, on terms more
favorable to the Company than the Company was able to obtain from outside
investors. The shares are convertible at the option of the holder into shares of
the Company's common stock at a price to be determined by reference to the price
of the Company's common stock from April 12, 2000 and during the 20 trading days
after April 17, 2000. The conversion price may be below the trading market price
of the common stock at the time of conversion. The preferred stock entitles its
holder to liquidation rights equal to the original purchase price of the share
plus accrued but unpaid dividends. The purchasers are entitled to make
additional investments in the Company on the same terms as those on which the
Company completes offerings of its securities with third parties within
6 months. If offerings totaling at least $6 million are not completed during the
6 months, the purchasers have the right to acquire up to 750 additional shares
each of convertible preferred stock at a pre-determined price per share. Any
unconverted preferred stock will be automatically converted into common stock,
on April 13, 2002 in the case of the original stock issued and two years after
the first purchase of any of the additional 750 shares, if any are acquired. The
warrant expires on April 13, 2005.
25
<PAGE>
OTHER INFORMATION
ACCOUNTING MATTERS
The Board of Directors has selected the independent accounting firm of
Ernst & Young LLP to audit the accounts of the Company for the year ending
December 31, 2000.
A representative of Ernst & Young LLP who audited the accounts of the
Company for the year ended December 31, 1999 is expected to be present at the
Annual Meeting of Stockholders and will be afforded the opportunity to make a
statement if he or she desires to do so and is expected to be available to reply
to appropriate stockholder inquiries.
STOCKHOLDER PROPOSALS
Proposals of Stockholders submitted for consideration at the next Annual
Meeting of Stockholders must be received by the Company (attention: Secretary)
no later than December 3, 2000.
FORM 10-K
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999 (WITHOUT EXHIBITS), AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, IS AVAILABLE WITHOUT CHARGE UPON REQUEST BY WRITING TO THE COMPANY
AT 525 DEL REY AVENUE, SUITE C, SUNNYVALE, CALIFORNIA 94086 ATTN: INVESTOR
RELATIONS.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's Common Stock, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission
("SEC"). Officers, directors and greater than ten percent stockholders are
required by SEC regulations to furnish to the Company copies of all Forms 3, 4
and 5 they file. Based solely on the Company's review of copies of such forms it
has received, the Company believes that all of its officers, directors and
greater than ten percent beneficial owners complied on a timely basis with all
filing requirements applicable to them other than Dr. Goddard, who failed to
file a timely Form 5 for the year ended December 31, 1999 reporting one
reportable transaction, and Mr. Yachmetz, who failed to file two timely Forms 4
and a timely Form 5 for the year ended December 31, 1999, collectively reporting
11 transactions.
OTHER BUSINESS
The Board of Directors knows of no business that will come before the
meeting for action except as described in the accompanying Notice of Meeting.
However, as to any such business, the persons designated as proxies will have
discretionary authority to act in their best judgment.
By Order of the Board of Directors
Iris Brest
SECRETARY
April 24, 2000
26
<PAGE>
DETACH HERE
PROXY
CYTOTHERAPEUTICS, INC.
ANNUAL MEETING OF STOCKHOLDERS, MAY 23, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder, by completing this card, hereby appoints
George W. Dunbar and Iris Brest, or either of them with power of substitution
to each, proxies of the undersigned to vote at the Annual Meeting of
Stockholders of CytoTherapeutics, Inc. to be held on May 23, 2000 at Quadrus
Conference Center, 2400 Sand Hill Road #101, Menlo Park, California at 2:00
p.m., local time, or at any adjournments thereof, all of the shares of Common
Stock, par value $.01 per share, of CytoTherapeutics, Inc. that the
undersigned would be entitled to vote if personally present. The undersigned
instructs such proxies or their substitutes to act on the following matter as
specified by the undersigned, and to vote in such manner as they may
determine on any other matter that may properly come before the meeting.
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
<PAGE>
VOTE BY TELEPHONE
It's fast, convenient, and immediate!
Call toll-free on a touch-tone phone
1-877-PRX-VOTE (1-877-779-8683).
Follow these four easy steps:
1. Read the accompanying Proxy Statement and Proxy Card.
2. Call the toll-free number 1-877-PRX-VOTE (1-877-779-8683).
3. Enter your 14-digit Voter Control Number located on your Proxy Card
above your name.
4. Follow the recorded instructions.
YOUR VOTE IS IMPORTANT!
Call 1-877-PRX-VOTE anytime!
VOTE BY INTERNET
It's fast, convenient, and your vote is immediately confirmed and
posted.
Follow these four easy steps:
1. Read the accompanying Proxy Statement and Proxy Card.
2. Go to the Website http://www.eproxyvote.com/ctii
3. Enter your 14-digit Voter Control Number located on your Proxy Card
above your name.
4. Follow the instructions provided.
YOUR VOTE IS IMPORTANT!
Go to http://www.eproxyvote.com/ctii anytime!
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR
INTERNET
DETACH HERE
/X/ Please mark votes as in this example.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER SPECIFIED BY
THE UNDERSIGNED STOCKHOLDER(S). IF NO CONTRARY DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF THE NOMINEE FOR DIRECTOR NAMED BELOW, FOR
THE AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO
CHANGE ITS CORPORATE NAME, FOR THE RATIFICATION OF THE SELECTION OF PUBLIC
ACCOUNTANTS, AND IN THE DISCRETION OF THE NAMED PROXIES AS TO ANY OTHER
MATTER THAT MAY COME BEFORE THE MEETING.
1. To elect the following nominee as Class III director:
NOMINEE: (01) Donald Kennedy, Ph.D.
FOR / / / / WITHHELD
NOMINEE FROM
NOMINEE
2. To amend the Company's Restated Certificate of Incorporation to change its
corporate name from CytoTherapeutics, Inc., to StemCells, Inc.
FOR AGAINST ABSTAIN
/ / / / / /
3. To ratify the selection of Ernst & Young LLP as independent public
accountants of the Company for the fiscal year ending December 31, 2000:
/ / / / / /
4. By my signature below, I confer to the named proxies discretionary
authority to vote upon such other business as may properly come before the
meeting or any continuations and adjournments thereof.
THE BOARD OF DIRECTORS OF CYTOTHERAPEUTICS, INC. RECOMMENDS A VOTE FOR THE
NOMINEE FOR DIRECTOR LISTED TO THE LEFT, A VOTE TO CHANGE THE NAME OF THE
COMPANY, AND A VOTE FOR RATIFICATION OF THE SELECTION OF INDEPENDENT PUBLIC
ACCOUNTANTS.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
NOTE: Please sign exactly as name appears on this card. All joint owners
should sign. When signing as an executor, administrator, attorney, or
guardian or as a custodian for a minor, please give full title as such. If a
corporation, please sign in full corporate name and indicate the signer's
title. If a partner, sign in partnership name.
Signature: Date:
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Signature: Date:
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