<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
File by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
AASTROM BIOSCIENCES, INC.
(Name of Registrant as Specified In Its Charter)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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 No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[Aastrom Logo]
Dear Shareholder:
This year's annual meeting of shareholders will be held on November 11,
1998 at 9:00 a.m. local time, at the Holiday Inn North Campus, 3600 Plymouth
Road, Ann Arbor, Michigan 48105. You are cordially invited to attend.
The Notice of Annual Meeting of Shareholders and a Proxy Statement, which
describe the formal business to be conducted at the meeting, follow this letter.
After reading the Proxy Statement, please promptly mark, sign, and return
the enclosed proxy in the prepaid envelope to assure that your shares will be
represented. Your shares cannot be voted unless you date, sign, and return the
enclosed proxy or attend the annual meeting in person. Regardless of the number
of shares you own, your careful consideration of, and vote on, the matters
before our shareholders are important.
A copy of the Company's 1998 Annual Report is also enclosed.
The Board of Directors and management look forward to seeing you at the
annual meeting.
Very truly yours,
R. Douglas Armstrong
President and Chief Executive Officer
<PAGE>
AASTROM BIOSCIENCES, INC.
(LOGO)
24 FRANK LLOYD WRIGHT DRIVE
ANN ARBOR, MI 48106
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 11, 1998
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 11, 1998, 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 I directors, each to hold office for a three-year
term and until their respective successors are elected and qualified.
Management has nominated the following persons for election at the
meeting: Robert J. Kunze and Stephen G. Emerson.
2. To approve the issuance of the Company's Common Stock upon the
conversion of up to 5,000 and 3,000 shares of the Series I Preferred
Stock and the Series II Preferred Stock, respectively.
3. To consider a proposal to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's independent public
accountants for the fiscal year ending June 30, 1999.
4. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on September 30, 1998 are
entitled to notice of, and to vote at, this meeting and any adjournments
thereof. For ten days prior to the meeting, a complete list of the shareholders
entitled to vote at the meeting will be available for examination by any
shareholder for any purpose relating to the meeting during ordinary business
hours at the Company
By order of the Board of Directors,
TODD E. SIMPSON
Secretary
Ann Arbor, Michigan
[OCTOBER __], 1998
- -------------------------------------------------------------------------------
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 even if you have previously sent in your proxy card.
- -------------------------------------------------------------------------------
<PAGE>
AASTROM BIOSCIENCES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 11, 1998
TABLE OF CONTENTS
-----------------
GENERAL INFORMATION......................................................... 4
EXECUTIVE COMPENSATION AND OTHER MATTERS.................................... 10
REPORT OF THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION............................ 15
COMPARISON OF SHAREHOLDER RETURN............................................ 17
PROPOSAL 1 - ELECTION OF DIRECTORS.......................................... 18
PROPOSAL 2 - AMENDMENT TO THE AMENDED AND RESTATED 1992 INCENTIVE AND
NON-QUALIFIED STOCK OPTION PLAN....................................... 18
PROPOSAL 3 - APPROVAL OF ISSUANCE OF COMMON STOCK UPON CONVERSION OF
SERIES I PREFERRED STOCK AND SERIES II PREFERRED STOCK................ 22
PROPOSAL 4 - RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS.. 23
SHAREHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING................ 23
TRANSACTION OF OTHER BUSINESS............................................... 24
<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 11, 1998, 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], 1998, 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, 1998,
is enclosed with this Proxy Statement.
Voting Securities. Only shareholders of record as of the close of business
on September 30, 1998, will be entitled to vote at the meeting and any
adjournment thereof. As of that date, there were ___________ shares of Common
Stock, no par value, of the Company, issued and outstanding and 2,200,000 shares
of 5.5% Convertible Preferred Stock ("5.5% Preferred") which are currently
convertible into 2,204,408 shares of Common Stock and entitled to vote as if
presently converted into Common Stock. 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.
Stock Ownership of Certain Beneficial Owners and Management. The following
table sets forth certain information, as of August 31, 1998, 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.
1
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED (1)
---------------------------------
NAME AND ADDRESS OF NUMBER PERCENTAGE OF
Beneficial Owner (2) OF SHARES CLASS (3)
- -------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Cobe Laboratories, Inc. (4)......................................... 3,214,199 20.2%
1185 Oak Street
Lakewood, CO 80215
The Kaufman Fund, Inc............................................... 2,101,518 13.2
140 East 45th Street, 43rd Floor
New York, NY 10017
State Treasurer of the State of Michigan (5)........................ 1,408,168 8.9
Custodian of Certain Retirement Systems
c/o Venture Capital Division
430 West Allegan
Lansing, MI 48992
Pfizer, Inc......................................................... 864,546 5.4
235 East 42nd Street
New York, NY 10017
R. Douglas Armstrong, Ph.D. (6)..................................... 966,506 5.9
Stephen G. Emerson, M.D., Ph.D. (7)................................. 167,167 1.1
Mary L. Campbell (8)................................................ 95,416 *
Robert J. Kunze (9)................................................. 102,644 *
James Maluta (10)................................................... 127,333 *
Todd E. Simpson (11)................................................ 55,626 *
Alan K. Smith, Ph.D. (12)........................................... 59,834 *
Horst R. Witzel, Dr.-Ing. (13)...................................... 22,500 *
Edward C. Wood, Jr. (14)............................................ 3,226,366 20.3
All officers and directors as a group (11 persons) (15)............. 4,823,392 29.0
</TABLE>
- ------------
* Represents less than 1% of the outstanding shares of the Company's Common
Stock ("Common Stock").
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them, subject to community
property laws, where applicable.
(2) Unless otherwise provided, the address for each Beneficial Owner is 24
Frank Lloyd Wright Drive Ann Arbor, MI 48106.
(3) Calculated on the basis of 13,694,429 shares of Common Stock outstanding as
of August 31, 1998, except that shares of Common Stock underlying options
exercisable within 60 days of August 31, 1998 are deemed to be outstanding
for purposes of calculating ownership of securities of the holders of such
options and 2,204,408 shares of Common Stock issuable upon conversion of
the 5.5% Preferred.
(4) 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
2
<PAGE>
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.
(5) 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.
(6) Includes 500,333 shares issuable upon exercise of options held by Dr.
Armstrong that are exercisable within the 60-day period following August
31, 1998.
(7) Includes 9,167 shares issuable upon exercise of options held by Dr. Emerson
that are exercisable within the 60-day period following August 31, 1998.
(8) Includes 8,333 shares held by Enterprise Development Fund L.P. and 83,333
shares held by Enterprise Development Fund II, L.P. Ms. Campbell is the
general partner of Enterprise Management Inc., which is the general partner
of Enterprise Development Fund L.P. Ms. Campbell is a general partner of
Enterprise Ventures GP and the Vice President of EDM Inc., which is also a
general partner of Enterprise Ventures G.P. Enterprise Ventures G.P. is
the general partner of Enterprise Development Fund II, L.P. Ms. Campbell
disclaims beneficial ownership of all such shares except to the extent of
her pecuniary interest therein. Also includes 3,750 shares issuable upon
exercise of options held by Ms. Campbell that are exercisable within the
60-day period following August 31, 1998.
(9) Includes 59,167 shares issuable upon exercise of options held by Mr. Kunze
that are exercisable within the 60-day period following August 31, 1998.
(10) Includes 82,333 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 and 45,001 shares
issuable upon exercise of options held by Mr. Maluta that are exercisable
within the 60-day period following August 31, 1998.
(11) Consists of shares issuable upon exercise of options held by Mr. Simpson
that are exercisable within the 60-day period following August 31, 1998.
(12) Includes 55,626 shares issuable upon exercise of options held by Dr. Smith
that are exercisable within the 60-day period following August 31, 1998.
(13) Includes 16,500 shares issuable upon exercise of options held by Dr. Witzel
that are exercisable within the 60-day period following August 31, 1998.
(14) 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 9,167 shares issuable
upon exercise of options that are exercisable within the 60-day period
following August 31, 1998. Mr. Wood's address is 1201 Oak Street,
Lakewood, CO 80215.
(15) Includes 754,337 shares issuable upon exercise of options that are
exercisable within the 60-day period following August 31, 1998.
3
<PAGE>
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 (Mary L. Campbell 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 2000, 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 I positions on the Board of Directors are Robert J. Kunze and Stephen G.
Emerson. If elected, the nominees will serve as directors until the Company's
Annual Meeting of Shareholders in 2001, 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 I
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.
The table below sets forth for the Company's directors, including the Class
I nominees to be elected at this meeting, certain information, as of August 31,
1998, with respect to age and background.
<TABLE>
<CAPTION>
POSITION DIRECTOR
Name WITH THE COMPANY AGE SINCE
- ---- ---------------- --- -------
<S> <C> <C> <C>
Class I directors to be elected at the 1998 Annual Meeting of Shareholders:
Robert J. Kunze Chairman of the Board [63] 1989
Stephen G. Emerson Scientific Adviser [44] 1989
Class II directors whose terms expire at the 1999 Annual Meeting of Shareholders:
Mary L. Campbell Director [52] 1999
Edward C. Wood, Jr. Director [53] 1994
Class III directors whose terms expire at the 2000 Annual Meeting of Shareholders:
R. Douglas Armstrong President and Chief Executive [45] 1991
Officer of the Company since 1991
Horst R. Witzel Director [71] 1994
</TABLE>
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 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.
4
<PAGE>
STEPHEN G. EMERSON, M.D., PH.D. a director since the inception of the
Company 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.
MARY L. CAMPBELL a director since January 1998, currently serves as
Principal and Vice President of EDM, Inc., the general partner of the Enterprise
Development Fund II, L.P., a venture capital fund managing $30.0 million. Ms.
Campbell is also a director of Pacific Biometrics, Inc., a publicly held company
which develops non-invasive medical diagnostics for women's and children's
health; Pixelworks, Inc., a distributor of pixiliated flat panel displays and
designer of specialty chips; Think & Do Software, Inc., a developer and marketer
of factory automation software; and Vista Restaurants, Inc., a franchisee of
Perkins Family Restaurants. Ms. Campbell received her Masters of Business
Administration (with Distinction) from the University of Michigan; her Master of
Special Education (with Honors) from Fairfield University; and her Bachelor of
Arts in English from the University of Michigan.
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.
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.
During the fiscal year ended June 30, 1998, the Board of Directors held
nine meetings. Each director serving on the Board of Directors in fiscal year
1998 attended at least 75% of such meetings of the Board of Directors and the
Committees on which he served, except for Dr. Witzel.
The Company does not have a standing Nominating Committee, but does have an
Audit Committee. The Compensation Committee is comprised of the entire Board.
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 of Directors
and periodically review the Company's accounting policies and internal
5
<PAGE>
accounting and financial controls. The members of the Audit Committee for
fiscal 1998 were Mary L. Campbell, Edward C. Wood, Jr., and G. Bradford Jones,
until his resignation as director in 1997. During the fiscal year ended June
30, 1998, the Audit Committee held one meeting.
The Compensation Committee's function is to review and approve salary and
bonus levels and stock option grants. Currently, the Compensation Committee is
composed of all members of the Company's Board of Directors. During the fiscal
year ended June 30, 1998, 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."
6
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information for the fiscal years ended June
30, 1996, 1997 and 1998 concerning the compensation of the Chief Executive
Officer of the Company and each of the Company's four other most highly
compensated executive officers (the "Named Executive Officers") as of June 30,
1998, whose total salary and bonus for the year ended June 30, 1998, exceeded
$100,000 for services rendered in all capacities to the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation All Other
Annual Compensation Awards Compensation
------------------------- ------------------ ------------
Securities
Name and Principal Position Year Salary Bonus Underlying Options
- ---------------------------------- ---- ------------ --------- ------------------
<S> <C> <C> <C> <C> <C>
R. Douglas Armstrong, Ph.D........ 1998 $225,000 -- -- $ 9,735 (1)
President and Chief Executive 1997 $183,583 -- 333,333 $ 7,108 (1)
Officer 1996 $156,962 $55,000 -- $ 8,885 (1)
Alan K. Smith, Ph.D............... 1998 $141,667 -- 28,000 --
Vice President, Research 1997 $128,685 -- 75,000 $ 60 (2)
1996 $ 77,740 (3) -- 40,000 $76,000 (2)
James Maluta...................... 1998 $140,000 -- -- --
Vice President, Product 1997 $130,354 -- 120,000 --
Development 1996 $118,942 $10,000 -- --
Todd E. Simpson................... 1998 $136,667 -- 28,000 --
Vice President, Finance and 1997 $125,593 $12,500 75,000 --
Administration and Chief 1996 $ 60,779 (4) -- 40,000 $48,061 (2)
Financial Officer
Bruce V. Husel.................... 1998 $ 74,792 (5) -- 35,000 $51,928 (2)
Vice President, Quality Systems
</TABLE>
- -----------
(1) Consists of vacation pay.
(2) Consists of relocation expenses.
(3) Dr. Smith joined the Company in October 1995.
(4) Mr. Simpson joined the Company in January 1996.
(5) Mr. Husel joined the Company in November 1997.
7
<PAGE>
The following table provides information with respect to stock option
grants to the Named Executive Officers during the year ended June 30, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
----------------------------------------------------------- Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options Exercise or Price Appreciation for
Underlying Granted to Price for Option Term(1)
Options Employees in Per Expiration --------------------------
Name Granted(2) 1998 Share(2) Date 5% 10%
- ----------------------- ---------- ------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Alan K. Smith, Ph.D.... 28,000 7.5 $4.625 4/8/08 $210,942 $335,890
Todd E. Simpson........ 28,000 7.5 $4.625 4/8/08 $210,942 $335,890
Bruce V. Husel......... 35,000 9.4 $5.625 11/12/07 $320,629 $510,643
</TABLE>
- ------------
(1) Potential gains are net of exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation
only, in accordance with the Securities and Exchange Commission's rules.
Actual gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock, overall market conditions and the
optionholders continued employment through the vesting period. The amounts
reflected in this table may not necessarily be achieved.
(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. All such options vest over a four-year period, subject
to continued employment with the Company. See " Severance and Change of
Control Arrangements."
8
<PAGE>
The following table provides information with respect to exercises of stock
options during the year ended June 30, 1998, and unexercised options held as of
June 30, 1998, by the Named Executive Officers.
AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised
Shares Options In-the-Money Options
Acquired at June 30, 1998 at June 30, 1998 (2)
on Value ---------------------------- --------------------------
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------- -------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. Douglas Armstrong, Ph.D..... -- -- 333,333 -- -- --
James Maluta................... -- -- 37,500 8,500 -- --
Todd E. Simpson................ -- -- 45,938 97,062 $57,375 $44,625
Alan K. Smith, Ph.D............ -- -- 48,438 94,562 $63,750 $38,250
Bruce V. Husel................. -- -- -- 35,000 -- --
</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 $3.75 per
share of Common Stock as of June 30, 1998, the closing price of the Common
Stock reported on the Nasdaq National Market on such date.
9
<PAGE>
SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS
The Company entered into employment agreements with no defined length of
employment with James Maluta, Alan K. Smith, Ph.D., Todd E. Simpson and Bruce V.
Husel in June 1992, October 1995, December 1995 and November 1997 respectively.
Pursuant to these agreements, the Company agreed to pay Messrs. Maluta, Smith,
Simpson and Husel annual base salaries of $90,000, $122,500, $122,500 and
$110,000 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. The Company
has also entered into an Indemnification Agreement with certain of its
directors, officers and other key personnel.
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. 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 1998 Annual Meeting of Shareholders. In addition, directors
receive reimbursement for expenses incurred in attending each Board of Directors
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 certain directors 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 of Shareholders, 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, 1998. 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. In September 1997, Dr.
Armstrong repaid the outstanding balance on the note plus interest by
surrendering 15,711 shares of the Common Stock of the Company, which shares were
subsequently canceled.
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
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loaned to Dr. Emerson $47,303 at an interest rate of 6% per annum pursuant to a
full recourse promissory note (the "Emerson Note"). In October 1997, Dr. Emerson
paid off the outstanding balance on the note plus interest by surrendering 6,788
shares of Common Stock to the Company, such shares were subsequently canceled.
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"). The Company issued warrants
to Michigan to purchase 69,444 shares of Common Stock as consideration for the
Convertible Loan Commitment (the "Commitment"). The Commitment expired without
being drawn upon. 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)
$12.00 per share, which price increases by $3.00 per share on each of February
3, 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, 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.
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REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
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.
In fiscal 1998, 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."
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 1998, 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 1998 are set forth in the table entitled
"Option Grants in Last Fiscal Year" in the section entitled "Executive
Compensation and Other Matters."
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COMPENSATION COMMITTEE
R. Douglas Armstrong
Mary L. Campbell
Stephen G. Emerson
Robert J. Kunze
Horst R. Witzel
Edward C. Wood, Jr.
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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, 1998
COMPARISON OF CUMULATIVE TOTAL RETURN FROM FEBRUARY 4, 1997
THROUGH JUNE 30, 1998
AASTROM BIOSCIENCES, INC., INDUSTRY INDEX AND NASDAQ INDEX
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
COMPANY/INDEX 12/31/96 2/4/97 3/31/97 6/30/97 9/30/97 12/31/97 3/31/97 6/30/98
- --------------- --------- ------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aastrom n/a $100.00 $82.143 $101.786 $109.821 $ 62.500 $ 64.286 $ 53.571
Nasdaq Index $93.821 100.00 88.734 104.999 122.762 115.118 134.667 138.551
Industry Index 92.444 100.00 87.377 94.056 105.839 96.566 106.232 98.105
</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. Shareholder
returns over the indicated period should not be considered indicative of
future shareholder returns.
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PROPOSAL 1
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 (Mary L. Campbell 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 2000, 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. Information regarding
each Director is set forth in the Section captioned "GENERAL INFORMATION -
Directors."
Management's nominees for election at the Annual Meeting of Shareholders to
fill the Class I positions on the Board of Directors are Robert J. Kunze and
Stephen G. Emerson. If elected, the nominees will serve as directors until the
Company's Annual Meeting of Shareholders in 2001, 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, either in person or by proxy, the two nominees for
the positions as Class I 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. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE "FOR" THE NOMINEES NAMED ABOVE.
PROPOSAL 2
APPROVAL OF ISSUANCE OF COMMON STOCK UPON CONVERSION OF
SERIES I PREFERRED STOCK AND SERIES II PREFERRED STOCK
After a review of the Company's current and forecasted working capital
position, the Board of Directors determined that it was appropriate to raise
additional funding.
On July 2, 1998 the Company sold 5,000 shares of its newly created 1998
Series I Convertible Preferred Stock (the "Series I Shares") to one investor for
an aggregate purchase price of $5 million. The shares of Series I Shares are
convertible, at the option of the holder, into shares of the Company's Common
Stock at the lower of (i) $4.81, or (ii) a price based on the market price of
the Company's Common Stock prior to conversion. With limited exceptions, the
shares of Series I Shares are not convertible into Common Stock until March 30,
1999 and, subject to extension under certain circumstances, will automatically
convert into Common Stock on July 2, 2001, unless sooner converted. In general,
the Company may require the holders to convert the Series I Shares if the
average closing bid price of the Company's Common Stock exceeds $9.62 for
specified periods after July 2, 1999.
In connection with the sales of Series I Shares, the investor agreed to
purchase an additional $3 million of a new series of Preferred Stock (to be
designated 1998 Series II Convertible Preferred Stock and together with the
Series I Shares the "1998 Series Shares") if the Common Stock of the Company
trades at a price greater than $6.00 for a specified duration during the period
from October 2, 1998 through July 2, 1999.
3,788,369 shares (the "Shares") of Common Stock of the Company are issuable
upon conversion of the 1998 Series Shares. The Shares may be offered for sale
from time to time after such conversion by or on behalf of the holder of the
1998 Series Shares (the "Selling Shareholder"). The Series I Shares were issued
in connection with an equity financing pursuant to a Securities Purchase
Agreement (the "Purchase Agreement") and the Series II Shares will be issued in
connection with the second closing of this equity financing upon satisfaction of
certain conditions set forth in the Purchase Agreement, including the
effectiveness of a registration statement. None of these conditions is within
the control of the Selling Shareholder, and the Selling Shareholder is obligated
under the Purchase Agreement to purchase the Series II Shares upon satisfaction
of these conditions. The Company will not receive any proceeds from sales of
the Shares by the Selling Shareholders or from conversions, if any, of the 1998
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Series Shares. The Company has agreed to register the Shares for resale under
the Securities Act of 1933, as amended (the "Securities Act"). The Company is
also obligated to list the Shares on the Nasdaq National Market.
The Shares may be offered for sale in one or more transactions (which may
include block transactions) effected on the Nasdaq National Market (or any
national securities exchange or U.S. inter-dealer quotation system of a
registered national securities association, on which the Shares are then
listed), in sales occurring in the public market off such exchange, in private
negotiated transactions, through the writing of options on the Shares, short
sales or in a combination of such methods of sale, and on terms and at prices
then obtainable. The Company has agreed to indemnify in certain circumstances
the Selling Shareholder against certain liabilities, including liabilities under
the Securities Act. The Selling Shareholder has agreed to indemnify the Company
under certain circumstances against certain liabilities, including liabilities
under the Securities Act.
The Company will bear all reasonable expenses incurred in connection with
the registration of the Shares for resale, including, without limitation, all
registration and filing fees imposed by the Securities and Exchange Commission
(the "Commission"), the National Association of Securities Dealers, Inc. (the
"NASD") and blue sky laws, printing expenses, transfer agents' and registrars'
fees, and the reasonable fees and disbursements of the Company's outside counsel
and independent accountants, but excluding brokerage commissions, underwriting
discounts or commissions, if any, and other expenses incurred by the Selling
Stockholder in the offer and sale of the Shares.
In order to comply with the rules of the Nasdaq Stock Market which require
stockholder approval for issuances of 20% or more of the Company's outstanding
stock, the number of shares of the Company's Common Stock issuable pursuant to
this financing cannot exceed 20% of the Company's outstanding Common Stock
unless the Company obtains the approval of the Company's shareholders. By
approving this transaction, the shareholders are approving the issuance, if
required, of more than 20% of the outstanding shares of the Company's Common
Stock.
VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION.
The affirmative vote of a majority of the votes cast at the Annual Meeting
of Shareholders, at which a quorum is present and voting, either in person or by
proxy, is required for approval of this proposal. Abstentions will have the
same effect as a negative vote. Broker non-votes will have no effect on the
outcome of the vote.
The Board of Directors believes that the approval of the issuance of Common
Stock upon conversion of the Series I Stock is in the best interests of the
shareholders and the Company for the reasons stated above. THEREFORE, THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE ISSUANCE OF
COMMON STOCK UPON CONVERSION OF THE SERIES I STOCK.
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected PricewaterhouseCoopers
LLP as its independent accountants to audit the financial statements of the
Company for the fiscal year ended June 30, 1999. PricewaterhouseCoopers LLP has
acted in such capacity since its appointment in July 1997. A representative of
PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting of
Shareholders 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.
The affirmative vote of a majority of the votes cast at the Annual Meeting
of Shareholders at which a quorum is present and voting, either in person or by
proxy, is required for approval of this proposal. Abstentions and broker non-
votes will have no effect on the outcome of the vote. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF
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PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE
FISCAL YEAR ENDING JUNE 30, 1999.
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, (other
than proposals made under Rule 14a-8 of the Securities and Exchange Act of 1934,
as amended) between ____ and ____.
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
TODD E. SIMPSON
Secretary
October ___, 1998
17
