<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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 Section 240.14a-11(c) or Section 240.14a-12
AASTROM BIOSCIENCES, 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):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange 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:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO OF AASTROM BIOSCIENCES, INC. APPEARS HERE]
24 FRANK LLOYD WRIGHT DRIVE
ANN ARBOR, MI 48106
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 12, 1997
Dear Shareholder:
You are invited to attend the Annual Meeting of the Shareholders of Aastrom
Biosciences, Inc. (the "Company"), which will be held on November 12, 1997, at
9:00 a.m. at the Holiday Inn North Campus, 3600 Plymouth Road, Ann Arbor,
Michigan 48105 for the following purposes:
1. To elect two Class III directors, each to hold office for a three-year
term and until their respective successors are elected and qualified.
2. To transact such other business as may properly come before the meeting.
Shareholders of record at the close of business on September 30, 1997 are
entitled to notice of, and to vote at, this meeting and any adjournments
thereof.
By order of the Board of Directors,
/s/ TODD E. SIMPSON
TODD E. SIMPSON
Secretary
Ann Arbor, Michigan
October 10, 1997
IMPORTANT: PLEASE FILL IN, DATE, SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY
CARD IN THE ACCOMPANYING POSTPAID ENVELOPE TO ASSURE THAT YOUR SHARES ARE
REPRESENTED AT THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY CHOOSE TO
VOTE IN PERSON IF YOU HAVE PREVIOUSLY SENT IN YOUR PROXY CARD.
<PAGE>
AASTROM BIOSCIENCES, INC.
24 FRANK LLOYD WRIGHT DRIVE
ANN ARBOR, MICHIGAN 48106
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
The accompanying proxy is solicited by the Board of Directors of Aastrom
Biosciences, Inc., a Michigan corporation (the "Company"), for use at the
Annual Meeting of Shareholders to be held November 12, 1997, or any
adjournment thereof, for the purposes set forth in the accompanying Notice of
Annual Meeting. The date of this Proxy Statement is October 10, 1997, the
approximate date on which this Proxy Statement and the accompanying form of
proxy were first sent or given to shareholders.
GENERAL INFORMATION
Annual Report. An annual report for the fiscal year ended June 30, 1997, is
enclosed with this Proxy Statement.
Voting Securities. Only shareholders of record as of the close of business
on September 30, 1997, will be entitled to vote at the meeting and any
adjournment thereof. As of that date, there were 13,272,674 shares of Common
Stock, no par value, of the Company, issued and outstanding. Shareholders may
vote in person or in proxy. Each holder of shares of Common Stock is entitled
to one vote for each share of stock held on the proposals presented in this
Proxy Statement. The Company's bylaws provide that a majority of all of the
shares of the stock entitled to vote, whether present in person or represented
by proxy, shall constitute a quorum for the transaction of business at the
meeting.
Solicitation of Proxies. The cost of soliciting proxies will be borne by the
Company. In addition, the Company will solicit shareholders by mail through
its regular employees, and will request banks and brokers, and other
custodians, nominees and fiduciaries, to solicit their customers who have
stock of the Company registered in the names of such persons and will
reimburse them for their reasonable, out-of-pocket costs. The Company may use
the services of its officers, directors, and others to solicit proxies,
personally or by telephone, without additional compensation.
Voting of Proxies. All valid proxies received prior to the meeting will be
voted. All shares represented by a proxy will be voted, and where a
shareholder specifies a choice with respect to any matter to be acted upon,
the shares will be voted in accordance with the specification so made. If no
choice is indicated on the proxy, the shares will be voted in favor of the
election of the nominees for director contained in this Proxy Statement and in
the discretion of the proxy holders on any other matter that comes before the
meeting. A shareholder giving a proxy has the power to revoke his or her
proxy, at any time prior to the time it is voted, by delivery to the Secretary
of the Company of either a written instrument revoking the proxy or a duly
executed proxy with a later date, or by attending the meeting and voting in
person.
1
<PAGE>
Stock Ownership of Certain Beneficial Owners and Management. The following
table sets forth certain information, as of August 31, 1997, with respect to
the beneficial ownership of the Company's Common Stock by (i) all persons
known by the Company to be the beneficial owners of more than 5% of the
outstanding Common Stock of the Company, (ii) each director and director-
nominee of the Company, (iii) each executive officer of the Company named in
the Summary Compensation Table, and (iv) all executive officers and directors
of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
-----------------------
BENEFICIAL OWNER NUMBER PERCENT
---------------- ------------ ----------
<S> <C> <C>
Cobe Laboratories, Inc.(2)........................... 3,214,199 24.2%
1185 Oak Street
Lakewood, CO 80215
State Treasurer of the State of Michigan(3).......... 1,408,168 10.5
Custodian of Certain Retirement Systems
c/o Venture Capital Division
430 West Allegan
Lansing, MI 48992
H&Q London Ventures ................................. 816,666 6.1
One Bush Street, 18th Floor
San Francisco, CA 94104
R. Douglas Armstrong, Ph.D.(4)....................... 822,888 6.0
Albert B. Deisseroth, M.D., Ph.D.(5)................. 28,333 *
Stephen G. Emerson, M.D., Ph.D.(6)................... 260,122 2.0
G. Bradford Jones(7)................................. 381,220 2.9
Robert J. Kunze(8)................................... 46,810 *
James Maluta(9)...................................... 83,332 *
Thomas E. Muller, Ph.D.(10).......................... 24,167 *
Walter C. Ogier(11).................................. 31,667 *
Todd E. Simpson(12).................................. 17,500 *
Alan K. Smith, Ph.D.(13)............................. 18,988 *
Horst R. Witzel, Dr.-Ing.(14)........................ 14,620 *
Edward C. Wood, Jr.(15).............................. 3,220,532 24.2
All officers and directors as a group (12
persons)(16)........................................ 4,950,179 36.1
</TABLE>
- --------
* Represents less than 1% of the outstanding shares of the Company's Common
Stock ("Common Stock").
(1) Shares beneficially owned and percentage of ownership are based on
13,285,511 shares of Common Stock outstanding. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or disposition power with
respect to such shares.
(2) Pursuant to a stock purchase agreement by and between Cobe Laboratories,
Inc. ("Cobe") and the Company, Cobe has an option to purchase from the
Company an amount of Common Stock equal to 30% of the Company's fully
diluted shares after the exercise of such option, at a purchase price
equal to 120% of the public market trading price of the Company's Common
Stock. The option expires on February 6, 2000. Cobe also has a "right of
first negotiation" in the event the Company receives any proposal
concerning, or otherwise decides to pursue, a merger, consolidation or
other transaction in which all or a majority of the Company's equity
securities or all or substantially all of the Company's assets, or any
material portion of the assets of the Company used by the Company in
performing its obligations under Cobe's distribution agreement with the
Company would be acquired by a third party outside of the ordinary course
of business. Edward C. Wood, Jr., a director of the Company, is the
President of Cobe BCT, Inc., an affiliate of Cobe. See footnote 15,
below.
(3) Includes 69,444 shares issuable upon exercise of warrants held by the
State Treasurer of the State of Michigan ("Michigan") that are
exercisable until October 15, 2000.
2
<PAGE>
(4) Includes 333,333 shares issuable upon exercise of options held by Dr.
Armstrong that are exercisable within the 60-day period following August
31, 1997. Also includes 15,711 shares that were surrendered to the
Company and cancelled in payment of the outstanding balance under a
promissory note subsequent to August 31, 1997. Dr. Armstrong's address is
24 Frank Lloyd Wright Drive, Ann Arbor, MI 48106.
(5) Includes 3,333 shares issuable upon exercise of options held by Dr.
Deisseroth that are exercisable within the 60-day period following August
31, 1997. Dr. Deisseroth resigned as a director of the Company in October
1997. 6,250 of the shares held by Dr. Deisseroth are subject to vesting
and a right of repurchase by the Company until December 15, 1997.
(6) Includes 3,333 shares issuable upon exercise of options held by Dr.
Emerson that are exercisable within the 60-day period following August
31, 1997.
(7) Includes 370,831 shares held by Brentwood Associates V, L.P. Mr. Jones,
as a general partner of Brentwood Associates V Ventures, L.P., which is
the general partner of Brentwood Associates V, L.P., may be deemed to
beneficially own such shares, but Mr. Jones disclaims beneficial
ownership of all such shares except to the extent of his pecuniary
interest therein. Also includes 3,333 shares issuable upon exercise of
options held by Mr. Jones that are exercisable within the 60-day period
following August 31, 1997.
(8) Includes 3,333 shares issuable upon exercise of options held by Mr. Kunze
that are exercisable within the 60-day period following August 31, 1997.
(9) Consists of shares held of record by James Maluta and Deborah Vincent, as
Trustees, with shared voting and investment power, of the James Maluta
and Deborah Vincent Living Trust dated October 26, 1993.
(10) Consists of shares issuable upon exercise of options held by Dr. Muller
that are exercisable within the 60-day period following August 31, 1997.
(11) Includes 26,667 shares issuable upon exercise of options held by Mr.
Ogier that are exercisable within the 60-day period following August 31,
1997.
(12) Consists of shares issuable upon exercise of options held by Mr. Simpson
that are exercisable within the 60-day period following August 31, 1997.
(13) Includes 17,500 shares issuable upon exercise of options held by Dr.
Smith that are exercisable within the 60-day period following August 31,
1997.
(14) Includes 8,620 shares issuable upon exercise of options held by Dr.
Witzel that are exercisable within the 60-day period following August 31,
1997.
(15) Mr. Wood, as the President of Cobe BCT, Inc., an affiliate of Cobe, may
be deemed to beneficially own shares held by Cobe, but Mr. Wood disclaims
beneficial ownership of all such shares. Includes 3,333 shares issuable
upon exercise of options that are exercisable within the 60-day period
following August 31, 1997. Mr. Wood's address is 1201 Oak Street,
Lakewood, CO 80215.
(16) Includes 444,452 shares issuable upon exercise of options that are
exercisable within the 60-day period following August 31, 1997.
ELECTION OF DIRECTORS
The Company has a classified Board of Directors currently consisting of two
Class I directors (Robert J. Kunze and Stephen G. Emerson), two Class II
directors (G. Bradford Jones and Edward C. Wood, Jr.), and two Class III
directors (R. Douglas Armstrong and Horst R. Witzel), who will serve until the
Annual Meetings of Shareholders to be held in 1998, 1999 and 1997,
respectively, and until their respective successors are duly elected and
qualified. Directors in a class are elected for a term of three years to
succeed the directors in such class whose terms expire at such annual meeting.
The nominees for election at the Annual Meeting of Shareholders to fill the
Class III positions on the Board of Directors are R. Douglas Armstrong and
Horst R. Witzel. If elected, the nominees will serve as directors until the
Company's Annual Meeting of Shareholders in 2000, and until their successors
are elected and qualified. If a nominee declines to serve or becomes
unavailable for any reason, or if a vacancy occurs before the election, the
proxies may be voted for such substitute nominee as the proxy holders may
designate.
If a quorum is present, the two nominees for the positions as Class III
directors receiving the highest number of votes will be elected. Abstentions
and broker non-votes will have no effect on the vote, except that abstentions
will be counted as shares present for purposes of determining the presence of
a quorum.
3
<PAGE>
The table below sets forth for the Company's directors, including the Class
III nominees to be elected at this meeting, certain information, as of August
31, 1997, with respect to age and background.
<TABLE>
<CAPTION>
POSITION DIRECTOR
NAME WITH THE COMPANY AGE SINCE
---- ---------------- --- --------
Class III directors to be elected at the 1997 Annual Meeting of Shareholders:
<S> <C> <C> <C>
R. Douglas Armstrong.............. President and Chief Executive 44 1991
Officer of the Company since
1991
Horst R. Witzel................... Director 70 1994
Class I directors whose terms expire at the 1998 Annual Meeting of
Shareholders:
Robert J. Kunze................... Chairman of the Board 62 1989
Stephen G. Emerson................ Scientific Adviser 43 1989
Class II directors whose terms expire at the 1999 Annual Meeting of
Shareholders:
G. Bradford Jones................. Director 42 1992
Edward C. Wood, Jr................ Director 52 1994
</TABLE>
R. Douglas Armstrong, Ph.D. joined the Company in June 1991, as a director
and as its President and Chief Executive Officer. From 1987 to 1991, Dr.
Armstrong served in different capacities, including as Executive Vice
President and a Trustee of the La Jolla Cancer Research Foundation ("LJCRF"),
a 250-employee scientific research institute located in San Diego, California.
Dr. Armstrong received his doctorate in Pharmacology and Toxicology from the
Medical College of Virginia, and has held faculty and staff positions at Yale
University, University of California, San Francisco, LJCRF and University of
Michigan. Dr. Armstrong also serves on the Board of Directors of Nephros
Therapeutics, Inc.
Horst R. Witzel, Dr.-Ing., a director since June 1994, served as Chairman of
the Board of Executive Directors of Schering AG in Berlin, Germany from 1986
until his retirement in 1989, whereupon he became a member of the Supervisory
Board of Schering AG until 1994. Prior to that, Dr. Witzel held various
leadership positions in research and development with Schering AG where he was
responsible for worldwide production and technical services. Dr. Witzel
received his doctorate in chemistry from the Technical University of West
Berlin. Dr. Witzel also serves on the Board of Directors of The Liposome
Company, Inc. and Cephalon, Inc. and is a member of the Supervisory Board of
Brau and Brunnen AG.
Robert J. Kunze, a director of the Company since its inception in 1989, is a
founder of the Company and served as its President and Chief Executive Officer
through May 1991. Mr. Kunze is a general partner of McFarland and Dewey, an
investment bank. From 1987 through early 1997, he was a General Partner of H&Q
Life Science Venture Partners, a venture capital fund specializing in medical
products and biotechnology investments. Previous to that, Mr. Kunze was
Managing Partner of Hambrecht & Quist Venture Partners. Prior to that he
served as a senior executive with W.R. Grace & Co. and General Electric. Mr.
Kunze also serves on the Board of Directors of Escalon Medical Corporation.
Stephen G. Emerson, M.D., Ph.D., a director of the Company since its
inception in 1989, is a scientific founder of the Company and has been an
active advisor of the Company since that time. Dr. Emerson has been a
Professor of Medicine at the University of Pennsylvania since 1994 where he
serves as head of Hematology and Oncology. From 1991 to 1994, Dr. Emerson was
an Associate Professor of Medicine at the University of Michigan. Dr. Emerson
received his doctorate degrees in Medicine and Cell Biology/Immunology from
Yale University. He completed his internship and residency at Massachusetts
General Hospital and his clinical and research fellowship in hematology at the
Brigham and Women's Hospital, the Dana-Farber Cancer Institute and Children's
Hospital Medical Center.
4
<PAGE>
G. Bradford Jones, a director since April 1992, is a general partner of
Brentwood V Ventures, L.P., the general partner of Brentwood Associates V,
L.P. Brentwood Associates V, L.P. is a partnership organized by the firm
Brentwood Venture Capital, which Mr. Jones joined in 1981. Mr. Jones was
elected to the Board of Directors of the Company pursuant to the terms of the
Series B Preferred Stock Purchase Agreement dated April 7, 1992 with the
Company, of which Brentwood Associates V, L.P. is a party. Mr. Jones received
a B.A. degree in Chemistry and an M.A. degree in Physics from Harvard
University and M.B.A. and J.D. degrees from Stanford University. Mr. Jones
also serves on the Board of Directors of Interpore International, ISOCOR, Onyx
Acceptance Corporation, and several privately-held companies.
Edward C. Wood, Jr., a director since August 1994, has served as president
of Cobe BCT, Inc., a division of Cobe Laboratories, Inc., since 1991. Cobe is
a subsidiary of Gambro AB, a Swedish company, and is a leading provider of
blood cell processing products. Prior to that, Mr. Wood held various positions
in manufacturing, research and development, and marketing with Cobe. Mr. Wood
received degrees in chemistry from Harvey Mudd College and in management from
the University of Colorado.
During the fiscal year ended June 30, 1997, the Board held six meetings.
Each director serving on the Board in fiscal year 1997 attended at least 75%
of such meetings of the Board and the Committees on which he served, except
for Dr. Deisseroth, who resigned as a director of the Company in October 1997,
and Dr. Emerson.
The Company does not have a standing Nominating Committee, but does have an
Audit Committee and a Compensation Committee.
The Audit Committee's function is to review with the Company's independent
accountants and management the annual financial statements and independent
accountants' opinion, review the scope and results of the examination of the
Company's financial statements by the independent accountants, approve all
professional services and related fees performed by the independent
accountants, recommend the retention of the independent accountants to the
Board and periodically review the Company's accounting policies and internal
accounting and financial controls. The members of the Audit Committee for
fiscal 1997 were G. Bradford Jones and Edward C. Wood, Jr. During the fiscal
year ended June 30, 1997, the Audit Committee held one meeting.
The Compensation Committee's function is to review and approve salary and
bonus levels and stock option grants. The members of the Compensation
Committee at the beginning of fiscal 1997 were Robert J. Kunze and Albert B.
Deisseroth. Currently, the Compensation Committee is composed of all members
of the Company's Board of Directors. During the fiscal year ended June 30,
1997, there were no separate meetings of the Compensation Committee. For
additional information concerning the Compensation Committee, see "Report of
the Compensation Committee of the Board of Directors on Executive
Compensation" and "Executive Compensation and Other Matters."
5
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation of
the Chief Executive Officer of the Company and each of the Company's five
other most highly compensated executive officers (the "Named Executive
Officers") for services rendered in all capacities to the Company, during the
fiscal years ended June 30, 1996 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------ ------------
SHARES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
--------------------------- ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
R. Douglas Armstrong, Ph.D.. 1997 $183,583 -- 333,333 $7,108(1)
President and Chief 1996 156,962 $55,000 -- 8,885(1)
Executive Officer
James Maluta................ 1997 130,354 -- 120,000 --
Vice President, Product 1996 118,942 10,000 -- --
Development
Walter C. Ogier............. 1997 120,265 -- 80,000 --
Vice President, Marketing 1996 106,250 7,500 6,667 --
Todd E. Simpson............. 1997 125,593 12,500 75,000 --
Vice President, Finance and 1996 60,779(2) -- 40,000 48,061(3)
Administration and Chief
Financial Officer
Alan K. Smith, Ph.D......... 1997 128,685 -- 75,000 60(3)
Vice President, Research 1996 77,740(4) -- 40,000 76,000(3)
Thomas E. Muller, Ph.D...... 1997 119,517 -- 20,000 --
Vice President, Regulatory 1996 118,560 -- 6,667 --
Affairs
</TABLE>
- --------
(1) Consists of vacation pay.
(2) Mr. Simpson began his employment with the Company in January 1996.
(3) Consists of relocation expenses.
(4) Dr. Smith began his employment with the Company in October 1995.
6
<PAGE>
The following table provides information with respect to stock option grants
to the Named Executive Officers during the year ended June 30, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
---------------------------------------------------------- -------------------------
% OF TOTAL
NUMBER OF OPTIONS GRANTED EXERCISE
SHARES UNDERLYING TO EMPLOYEES IN OR PRICE EXPIRATION
NAME OPTIONS GRANTED(2) FISCAL YEAR PER SHARE(2) DATE 5% 10%
---- ------------------ --------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
R. Douglas Armstrong,
Ph.D................... 333,333 42.5% $7.00 2/3/07 $ 3,800,750 $ 6,052,060
James Maluta............ 120,000 15.3 7.00 2/3/07 1,368,271 2,178,744
Walter C. Ogier......... 80,000 10.2 7.00 2/3/07 912,181 1,452,496
Todd E. Simpson......... 75,000 9.6 7.00 2/3/07 855,170 1,361,715
Alan K. Smith, Ph.D..... 75,000 9.6 7.00 2/3/07 855,170 1,361,715
Thomas E. Muller, Ph.D.. 20,000 2.6 7.00 2/3/07 228,045 363,124
</TABLE>
- --------
(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of the future price of
the Common Stock.
(2) Each of these options was granted under the Company's Amended and Restated
1992 Incentive and Non-Qualified Stock Option Plan (the "1992 Option
Plan") at an exercise price equal to the fair market value of the Common
Stock on the date of grant. With the exception of the option grant to Dr.
Armstrong, which is immediately exercisable, all such options vest over a
four-year period, subject to continued employment with the Company. See "
Severance and Change of Control Arrangements."
The following table provides information with respect to exercises of stock
options during the year ended June 30, 1997, and unexercised options held as
of June 30, 1997, by the Named Executive Officers.
AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT JUNE 30, 1997 AT JUNE 30, 1997(2)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. Douglas Armstrong,
Ph.D................... -- -- 333,333 -- $ 41,667 --
James Maluta............ 16,667 $99,169 -- 120,000 -- $ 15,000
Walter C. Ogier......... -- -- 22,083 92,917 130,842 86,533
Todd E. Simpson......... -- -- 12,500 102,500 74,063 172,313
Alan K. Smith, Ph.D..... -- -- 15,000 100,000 88,875 157,500
Thomas E. Muller, Ph.D.. -- -- 22,083 31,251 130,842 69,162
</TABLE>
- --------
(1) "Value Realized" represents the fair market value of the underlying shares
of Common Stock on the exercise date, minus the aggregate exercise price
of such options.
(2) The value of "in-the-money" stock options represents the difference
between the exercise price of such options and the fair market value of
$7.125 per share of Common Stock as of June 30, 1997, the closing price of
the Common Stock reported on the Nasdaq National Market on such date.
7
<PAGE>
SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS
The Company entered into employment agreements with no defined length of
employment with James Maluta, Walter C. Ogier, Thomas E. Muller, Ph.D., Alan
K. Smith, Ph.D. and Todd E. Simpson in June 1992, February 1994, April 1994,
October 1995 and December 1995, respectively. Pursuant to these agreements,
the Company agreed to pay Messrs. Maluta, Ogier, Smith and Simpson annual base
salaries of $90,000, $87,500, $110,000, $122,500 and $122,500, respectively,
certain of which base salaries have been increased and are subject to periodic
review and adjustment. Pursuant to the terms of the foregoing employment
agreements, either party may generally terminate the employment relationship
without cause at any time upon 14 days prior written notice to the other party
or immediately with cause upon notice.
In the event of a transfer of control of the Company, as defined under the
1992 Option Plan, the Company must cause any successor corporation to assume
the options or substitute similar options for outstanding options or continue
such options in effect. In the event that any successor to the Company in a
merger, consolidation or dissolution will not assume the options or substitute
similar options, then the options become exercisable in full and such options
will be terminated if not exercised prior to such merger, consolidation or
dissolution. The vesting of certain options granted to executive officers of
the Company accelerates if such officer is terminated following a transfer of
control.
Options granted under the Company's 1996 Outside Directors Stock Option Plan
(the "Directors Plan") contain provisions pursuant to which all outstanding
options granted under the Directors Plan will become fully vested and
immediately exercisable upon a "transfer of control," as defined under the
Directors Plan.
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives a cash payment of $1,000
for each meeting of the Board of Directors attended in person and a cash
payment of $500 for each telephonic meeting of the Board of Directors attended
telephonically. In lieu of such a cash payment for attending meetings, Mr.
Kunze receives $5,000 per month for his services as Chairman of the Board of
Directors, which payments have been approved through the date of the 1997
Annual Meeting of Shareholders. In addition, directors receive reimbursement
for expenses incurred in attending each Board and committee meeting. The
Company's Directors Plan provides for the initial automatic grant of an option
to purchase 5,000 shares of the Company's Common Stock to directors of the
Company who are not employees of the Company (an "Outside Director") upon
initial appointment or election to the Board of Directors, and subsequent
grants to each Outside Director of an option to purchase 5,000 shares of
Common Stock on the date of each annual meeting, provided the Outside Director
continues to serve in that capacity and has so served for at least six months.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Each member of the Board of Directors served as a member of the Compensation
Committee during fiscal year ended June 30, 1997. R. Douglas Armstrong and
Robert J. Kunze were employed by the Company as its President and Chief
Executive Officer and its Chairman of the Board, respectively.
CERTAIN TRANSACTIONS
In November 1993, in connection with the purchase of Common Stock upon
exercise of stock options granted under the Company's 1989 Stock Option Plan
to R. Douglas Armstrong, the Company loaned to Dr. Armstrong $120,000 at an
interest rate of 4% per annum pursuant to a full recourse promissory note.
Interest on the note is payable on an annual basis. During the 1997 fiscal
year, the Company extended the due date of the note to June 30, 1998.
In October 1993, in connection with the purchase of Common Stock upon
exercise of stock options granted under the Company's 1989 Stock Option Plan
and the 1992 Option Plan to Stephen G. Emerson, the Company loaned to Dr.
Emerson $47,303 at an interest rate of 6% per annum pursuant to a full
recourse promissory note (the "Emerson Note"). Interest on the Emerson Note is
payable on an annual basis and principal and accrued but unpaid interest is
due June 30, 1998. The loan is secured by 258,687 shares of Common Stock held
by Dr. Emerson. During May 1997, the Company and Dr. Emerson entered into an
agreement, pursuant to which
8
<PAGE>
Dr. Emerson may repay the outstanding balance under the note by surrendering
shares of Common Stock to the Company.
In October 1996, the Company executed a financing commitment with Cobe to
provide the Company with up to $5,000,000 from Cobe (the "Equity Commitment")
and up to $5,000,000 in funding from Michigan under a convertible loan
commitment agreement ("Convertible Loan Commitment"). Both the Equity
Commitment and the Convertible Loan Commitment terminated upon the closing of
the Company's initial public offering (the "IPO") without being drawn upon.
The Company issued warrants to Michigan to purchase 69,444 shares of Common
Stock as consideration for the Convertible Loan Commitment. The warrants
expire on October 15, 2000, if not exercised, and may be exercised, in whole
or in part, at a price equal to the lesser of (a) $9.00 per share, which price
increases by $3.00 per share on each of February 3, 1998, 1999 and 2000; and
(b) 85% of the fair market value of the Company's Common Stock at the time of
exercise.
Cobe Laboratories, Inc. purchased 714,200 shares of Common Stock in the IPO
at the initial public offering price of $7.00 per share.
The Company has entered into employment agreements with certain of its
executive officers. The Company has also entered into an Indemnification
Agreement with certain of its directors, officers and other key personnel.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10%
of the Company's Common Stock to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission ("SEC").
Such persons are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms furnished to the Company
and written representations from certain reporting persons, the Company
believes that all filing requirements applicable to the Company's executive
officers, directors and more than 10% shareholders were complied with, with
the exception of a single report with respect to a stock option exercise
during March 1997 by Mr. Maluta, which was filed late.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The members of the Compensation Committee of the Board of Directors at the
beginning of fiscal 1997 were Albert B. Deisseroth and Robert J. Kunze.
Currently, the Compensation Committee is composed of all members of the
Company's Board of Directors and, as such, the Compensation Committee does not
hold separate meetings. Most of the decisions for 1997 compensation were made
prior to the Company's IPO.
In fiscal 1997, the Compensation Committee was responsible for setting and
administering the policies governing annual compensation of the executive
officers of the Company. These policies are based upon the philosophy that the
Company's long-term success is best achieved through recruitment and retention
of the best people possible. The Compensation Committee applied this
philosophy in determining compensation for Company executive officers in three
areas: salary, bonuses and stock options.
Salary. The Company strives to offer salaries to its executive officers
which are competitive in its industry and in its geographic region for similar
positions requiring similar qualifications. In determining executive officers'
salaries, the Compensation Committee considers salary surveys of companies in
similar industries, and of similar size and geographic location. Companies
selected for salary comparisons are not necessarily the same companies used to
compare stock performance in the chart under the heading "Comparison Of
Shareholder Return."
9
<PAGE>
The Compensation Committee generally evaluates the performance and sets the
salary of the Company's Chief Executive Officer, Dr. Armstrong, on an annual
basis. Dr. Armstrong evaluates the performance of all other executive
officers, and recommends salary adjustments which are subject to review and
approval by the Compensation Committee. Performance evaluations for individual
executive officers are based on individual goals. For Dr. Armstrong, these
goals are set by the Compensation Committee and, for all other officers, these
goals are set by Dr. Armstrong. The goals of executive officers are based on
their individual management responsibilities. In addition to reviewing the
results of the performance evaluations and information concerning competitive
salaries, the Compensation Committee and Dr. Armstrong consider the financial
condition of the Company in evaluating salary adjustments. The salaries are
evaluated by the Compensation Committee, with each member using his personal
judgment and subjective factors to assess performance.
Bonuses. The Company seeks to provide additional incentives and rewards to
executives who make contributions of outstanding value to the Company. For
this reason, the Company may award incentive compensation which can comprise a
substantial portion of the total compensation of executive officers when
earned and paid. Cash bonuses are based on a subjective evaluation of
performance and existing salary, rather than a specific formula.
Stock Options. The Committee believes that employee equity ownership
provides significant additional incentive to executive officers to maximize
value for the Company's shareholders, and therefore makes periodic grants of
stock options under the Company's 1992 Option Plan. Such options are granted
at the prevailing market price, and will only have value if the Company's
stock price increases over the exercise price. Therefore, the Committee
believes that stock options serve to align the interest of executive officers
closely with other shareholders because of the direct benefit executive
officers receive through improved stock performance.
In fiscal 1997, the Compensation Committee made determinations concerning
the size and frequency of option grants for executive officers, after
consideration of recommendations from the Chief Executive Officer. Option
grants were based upon relative position and responsibilities of each
executive officer, historical and expected contributions of each officer to
the Company, and previous option grants to such executive officers. Options
were granted with a goal to provide competitive equity compensation for
executive officers compared to executive officers of similar rank in companies
of the Company's industry, geographic location and size. Generally, option
grants vest over four years. Option grants for fiscal 1997 are set forth in
the table entitled "Option Grants in Last Fiscal Year" in the section entitled
"Executive Compensation and Other Matters."
COMPENSATION COMMITTEE
R. Douglas Armstrong
Albert B. Deisseroth
Stephen G. Emerson
G. Bradford Jones
Robert J. Kunze
Horst R. Witzel
Edward C. Wood, Jr.
10
<PAGE>
COMPARISON OF SHAREHOLDER RETURN
Set forth below is a line graph comparing changes in the cumulative total
return on the Company's Common Stock, a broad market index (the Nasdaq Stock
Market-U.S. Index (the "Nasdaq Index")) and an industry index (those companies
that selected the same first three digits of their primary Standard Industrial
Classification Code Number as the Company (the "Industry Index")) for the
period commencing on February 4, 1997, the date the Common Stock commenced
trading on the Nasdaq National Market, and ending on June 30, 1997.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM FEBRUARY 4, 1997
THROUGH JUNE 30, 1997(1)
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
COMPANY/INDEX 12/31/96 2/4/97 3/31/97 6/30/97
------------- -------- ------- ------- -------
<S> <C> <C> <C> <C>
Aastrom........................................ n/a $100.00 $82.143 101.786
Nasdaq Index................................... $93.821 100.00 88.746 105.013
Industry Index................................. 92.444 100.00 87.377 94.056
</TABLE>
- --------
(1) Assumes that $100.00 was invested on February 4, 1997 in the Company's
Common Stock and each index, and that all dividends were reinvested. No
dividends have been declared on the Company's Common Stock. Stockholder
returns over the indicated period should not be considered indicative of
future shareholder returns.
11
<PAGE>
INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected Price Waterhouse LLP as
its independent accountants to audit the financial statements of the Company
for the fiscal year ended June 30, 1997. Price Waterhouse has acted in such
capacity since its appointment in July 1997. A representative of Price
Waterhouse is expected to be present at the Annual Meeting with the
opportunity to make a statement if the representative desires to do so, and is
expected to be available to respond to appropriate questions.
On July 9, 1997, the Company dismissed Coopers & Lybrand L.L.P. ("C&L") as
its independent accountants. The reports of C&L on the financial statements of
the Company for each of the fiscal years ended June 30, 1995 and 1996
contained no adverse opinion or disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope or accounting principle. The
decision to change independent accountants was recommended by the Company's
Audit Committee and unanimously approved by the Board of Directors. During the
Company's fiscal years ended June 30, 1995 and 1996 and through the date of
the dismissal of C&L, the Company has had no disagreements with C&L on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements if not resolved to the
satisfaction of C&L would have caused them to make reference thereto in their
report on the financial statements of the Company for such years. During the
Company's fiscal years ended June 30, 1995 and 1996 and through the date of
the dismissal of C&L, the Company has had no "reportable events," as defined
in Item 304(a)(1)(v) of Regulation S-K.
SHAREHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of shareholders intended to be presented at the next Annual
Meeting of the Shareholders of the Company must be received by the Company at
its offices at 24 Frank Lloyd Wright Drive, Ann Arbor, Michigan, 48106, not
later than May 10, 1998 and satisfy the conditions established by the
Securities and Exchange Commission for shareholder proposals to be included in
the Company's proxy statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board of
Directors intends to present or knows that others will present at the meeting
is as set forth above. If any other matter or matters are properly brought
before the meeting, or any adjournment thereof, it is the intention of the
persons named in the accompanying form of proxy to vote the proxy on such
matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ TODD E. SIMPSON
TODD E. SIMPSON
Secretary
October 10, 1997
12
<PAGE>
PROXY
AASTROM BIOSCIENCES, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints R. Douglas Armstrong and Todd E. Simpson, and
each of them, with full power of substitution to represent the undersigned and
to vote all of the shares of stock of Aastrom Biosciences, Inc. (the "Company")
which the undersigned is entitled to vote at the Annual Meeting of Shareholders
of the Company to be held at the Holiday Inn North Campus, Ann Arbor, Michigan
on Wednesday, November 12, 1997 at 9:00 a.m., and at any adjournment thereof
(i) as hereinafter specified upon the proposal listed on the reverse side and
as more particularly described in the Company's Proxy Statement, receipt of
which is hereby acknowledged, and (ii) in their discretion upon such other
matters as may properly come before the meeting.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSAL 1.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
A vote FOR the following proposals is recommended by the Board of Directors:
1. ELECTION OF DIRECTORS
NOMINEE: R. DOUGLAS ARMSTRONG FOR WITHHELD
[_] [_]
NOMINEE: HORST R. WITZEL FOR WITHHELD
[_] [_]
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW. [_] Even if you are planning to
attend the meeting in person,
you are urged to sign and mail
the Proxy in the return
envelope so that your stock
may be represented at the
meeting.
Sign exactly as your name(s)
appears on your stock
certificate. If shares of
stock stand on record in the
names of two or more persons
or in the name of husband and
wife, whether as joint tenants
or otherwise, both or all of
such persons should sign the
above Proxy. If shares of
stock are held of record by a
corporation, the Proxy should
be executed by the President
or Vice President and the
Secretary or Assistant
Secretary, and the corporate
seal should be affixed
thereto. Executors or
administrators or other
fiduciaries who execute the
above Proxy for a deceased
shareholder should give their
title. Please date the Proxy.
Signature(s)________ Date:___
