<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>
[LOGO TO APPEAR HERE]
October , 1999
Dear Shareholder:
This year's annual meeting of shareholders will be held on November 17,
1999 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 1999 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 LOGO]
AASTROM BIOSCIENCES, INC.
24 Frank Lloyd Wright Drive
Ann Arbor, MI 48106
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 17, 1999
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 17, 1999, 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 II 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: Mary L. Campbell and Arthur F. Staubitz.
2. To approve the issuance of the Company's Common Stock upon the
conversion of up to 3,000 shares of the 1999 Series III Preferred Stock.
3. To ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent public accountants for the fiscal year ending June 30, 2000.
4. To transact such other business as may properly come before the meeting.
Shareholders of record at the close of business on September 30, 1999 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 of record on September 30, 1999 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 , 1999
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.
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 17, 1999, or any
adjournment thereof, for the purposes set forth in the accompanying Notice of
Annual Meeting. The date of this Proxy Statement is October , 1999, 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, 1999, is
enclosed with this Proxy Statement.
Voting Securities. Only shareholders of record as of the close of business
on September 30, 1999, 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. 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, in
favor of the two other proposals specified in the Notice of the meeting, 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, 1999, 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.
<PAGE>
<TABLE>
<CAPTION>
Shares Owned (1)
-----------------------
Name and Address of Number of Percentage of
Beneficial Owner (2) Shares Class (3)
- -------------------- --------- -------------
<S> <C> <C>
Cobe Laboratories, Inc................................ 2,389,199 14.1%
1185 Oak Street
Lakewood, CO 80215
The Kaufmann Fund, Inc. .............................. 1,500,000 8.8%
140 East 45th Street, 43rd Floor
New York, NY 10017
State Treasurer of the State of Michigan (4).......... 1,408,168 8.3%
Custodian of Certain Retirement Systems
c/o Venture Capital Division
430 West Allegan
Lansing, MI 48992
Pfizer, Inc. ......................................... 864,546 5.1%
235 East 42nd Street
New York, NY 10017
R. Douglas Armstrong, Ph.D. (5)....................... 783,173 4.5%
William L. Odell (6).................................. 25,000 *
Todd E. Simpson (7)................................... 94,875 *
Alan K. Smith (8)..................................... 100,985 *
Bruce V. Husel (9).................................... 15,312 *
Stephen G. Emerson, M.D., Ph.D. (10).................. 172,583 *
Mary L. Campbell (11)................................. 201,249 1.2%
Robert J. Kunze (12).................................. 103,477 *
Joseph A. Taylor (13)................................. 5,383 *
Arthur F. Staubitz (14)............................... 2,916 *
All officers and directors as a group (10 persons)
(15)................................................. 1,504,953 8.5%
</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 16,993,292 shares of Common Stock outstanding
as of August 31, 1999, except that shares of Common Stock underlying
options exercisable within 60 days of August 31, 1999 are deemed to be
outstanding for purposes of calculating ownership of securities of the
holders of such options.
(4) Includes 69,444 shares issuable upon exercise of warrants held by the
State Treasurer of the State of Michigan that are exercisable until
October 15, 2000.
(5) Includes 317,000 shares issuable upon exercise of options held by Dr.
Armstrong that are exercisable within the 60-day period following August
31, 1999. Also includes 6,000 shares held in trusts in which
Dr. Armstrong is a co-trustee; Dr. Armstrong disclaims beneficial
ownership of all such shares except to the extent of his pecuniary
interest therein.
(6) Consists of shares issuable upon exercise of options held by Mr. Odell
that are exercisable within the 60-day period following August 31, 1999.
(7) Consists of shares issuable upon exercise of options held by Mr. Simpson
that are exercisable within the 60-day period following August 31, 1999.
(8) Includes 94,875 shares issuable upon exercise of options held by Dr.
Smith that are exercisable within the 60-day period following August 31,
1999.
(9) Consists of shares issuable upon exercise of options held by Mr. Husel
that are exercisable within the 60-day period following August 31, 1999.
2
<PAGE>
(10) Includes 14,583 shares issuable upon exercise of options held by Dr.
Emerson that are exercisable within the 60-day period following August
31, 1999.
(11) Includes 8,333 shares held by Enterprise Development Fund L.P. and
183,333 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 G.P. 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 9,583 shares issuable upon exercise of options held by Ms.
Campbell that are exercisable within the 60-day period following August
31, 1999.
(12) Includes 60,000 shares issuable upon exercise of options held by Mr.
Kunze that are exercisable within the 60-day period following August 31,
1999.
(13) Includes 4,583 shares issuable upon exercise of options held by Mr.
Taylor that are exercisable within the 60-day period following August
31, 1999.
(14) Consists of 2,916 shares issuable upon exercise of options held by Mr.
Staubitz that are exercisable within the 60-day period following August
31, 1999.
(15) Includes 638,727 shares issuable upon exercise of options that are
exercisable within the 60-day period following August 31, 1999.
3
<PAGE>
ELECTION OF DIRECTORS
The Company has a classified Board of Directors currently consisting of two
Class II directors (Mary L. Campbell and Arthur F. Staubitz), two Class III
directors (R. Douglas Armstrong and Joseph A. Taylor) and two Class I
directors (Robert J. Kunze and Stephen G. Emerson), who will serve until the
Annual Meetings of Shareholders to be held in 1999, 2000 and 2001,
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 II positions on the Board of Directors are Mary L. Campbell and Arthur
F. Staubitz. If elected, the nominees will serve as directors until the
Company's Annual Meeting of Shareholders in 2002, 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 II
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
II nominees to be elected at this meeting, certain information, as of August
31, 1999, with respect to age and background.
<TABLE>
<CAPTION>
Director
Name Position With the Company Age Since
- ---- --------------------------------- --- --------
<S> <C> <C> <C>
Class II directors to be elected at the 1999 Annual Meeting of Shareholders:
Mary L. CAmpbell............... Director 54 1998
Arthur F. Staubitz............. Director 60 1999
Class III directors whose terms expire at the 2000 Annual Meeting of Sharehold-
ers:
R. Douglas Armstrong........... President and Chief Executive
Officer of the Company since 1991 46 1991
Joseph A. Taylor............... Director 55 1998
Class I directors whose terms expire at the 2001 Annual Meeting of Shareholders:
Robert J. Kunze................ Chairman of the Board 64 1989
Stephen G. Emerson............. Scientific Adviser 45 1989
</TABLE>
Nominees for election at the 1999 Annual Meeting of Shareholders
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
approximately $26 million. Ms. Campbell is also a director of Centromine, Inc.
and Think & Do Software, Inc. 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.
Arthur F. Staubitz a director since March 1999, most recently served as
Senior Vice President, Portfolio Strategy at Baxter International. He has also
served as Senior Vice President and General Counsel at both Baxter and Amgen,
Inc. During his career at Baxter, Mr. Staubitz served in a broad range of
other executive positions including Vice President, Business Development,
Strategic Planning and Law, Baxter Diagnostics; and Vice President and General
Manager, Ventures Group, Baxter World Trade Corporation. While at Baxter, Mr.
Staubitz managed corporate, litigation and regulatory legal groups;
established processes to identify, assess and fund strategic technology
initiatives; negotiated technology acquisitions and corporate partnerships;
and helped to establish the Baxter Diagnostic subsidiary. Prior to that Mr.
Staubitz held several positions at Sperry Univac and
served as an Associate at the law firm of Sidley & Austin. Mr. Staubitz
received his A.B. (with Distribution and Honors) from Wesleyan University and
his Juris Doctorate (cum laude) from the University of Pennsylvania Law
School.
4
<PAGE>
Directors Continuing In Office
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"),
now named the Burnham Institute, 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.
Joseph A. Taylor a director since November 1998, is Director, Private Equity
Investments, at Munder Capital Management, an investment management firm with
$50 billion in assets under management, including investments in healthcare.
Prior to joining Munder Capital Management, Mr. Taylor worked with the
Treasurer's office at the State of Michigan for 15 years, where he led the
development of various statewide business development and assistance programs
in Michigan. Mr. Taylor currently serves as a member of the Regional Advisor
Committee of Blue Care Network and previously served as a director of Spectrum
Castings, Inc. and as Chairman of the Finance Committee of the Board of
Directors of Blue Care Network. Mr. Taylor holds a B.S. degree in Finance from
Chicago State University and an MBA from Illinois Governors State University.
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 has retired as 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.
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.
During the fiscal year ended June 30, 1999, the Board of Directors held
eight meetings. Each director serving on the Board of Directors in fiscal year
1999 attended at least 75% of such meetings of the Board of Directors and the
Committees on which he or she served, except for Mr. Staubitz.
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, review all
professional services performed and related fees 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 accounting and financial controls. The members of the Audit
Committee for fiscal 1999 were Mary L. Campbell, Edward C. Wood, Jr., until
his resignation as director in November 1998, and Joseph A. Taylor upon his
appointment in November 1998. During the fiscal year ended June 30, 1999, the
Audit Committee held one meeting.
5
<PAGE>
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, 1999, 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, 1997, 1998 and 1999 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,
1999, whose total salary and bonus for the year ended June 30, 1999, exceeded
$100,000 for services rendered in all capacities to the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation
Compensation Awards
-------------------- ------------------
Name and Principal Securities All Other
Position Year Salary Bonus Underlying Options Compensation
------------------ ---- -------- -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
R. Douglas Armstrong,
Ph.D................... 1999 $244,167 -- 317,000 $22,031(1)
President and Chief
Executive Officer..... 1998 $225,000 -- -- $ 9,735(1)
1997 $183,583 -- 333,333 $77,108(1)
William L. Odell........ 1999 $161,875(3) -- 100,000 $14,773(2)
Sr. Vice President,
Product Operations....
Todd E. Simpson 1999 $150,000 -- 50,000 --
Vice President, Finance
and Administration
and Chief Financial
Officer............... 1998 $136,667 -- 28,000 --
1997 $125,593 $ 12,500 75,000 --
Alan K. Smith, Ph.D..... 1999 $150,000 -- 50,000 --
Vice President,
Research.............. 1998 $141,667 -- 28,000 --
1997 $128,685 -- 75,000 $ 60(2)
Bruce W. Husel.......... 1999 $125,000 -- 50,000 --
Vice President, Quality
Systems............... 1998 $ 74,792(4) -- 35,000 $51,928(2)
</TABLE>
- --------
(1) Consists of vacation pay.
(2) Consists of relocation or temporary living expenses.
(3) Mr. Odell joined the Company in August 1998.
(4) 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, 1999.
Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable Value at
Individual Grants Assumed
----------------------------------------- Annual Rates of
Number of % of Total Stock Price
Securities Options Exercise Appreciation for
Underlying Granted to or Price Option Term(1)
Options Employees Per Expiration -------------------
Name Granted(2) in 1999 Share(2) Date 5% 10%
---- ---------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
R. Douglas Armstrong,
Ph.D. ................. 167,000 22.6% $3.375 07/10/08 $918,086 $1,461,898
150,000 20.3% $3.250 11/11/08 $794,086 $1,264,449
William L. Odell........ 100,000 13.5% $2.375 09/01/08 $386,862 $ 616,014
Todd E. Simpson......... 50,000 6.8% $3.562 11/09/08 $290,106 $ 461,946
Alan K. Smith, Ph.D. ... 50,000 6.8% $3.562 11/09/08 $290,106 $ 461,946
Bruce W. Husel.......... 50,000 6.8% $3.562 11/09/08 $290,106 $ 461,946
</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, except for Mr. Odell who was granted a
non-qualified option outside of the Company's Stock Option Plan. 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, 1999, and unexercised options held as
of June 30, 1999, by the Named Executive Officers.
Aggregated Option Exercises
And Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired Options at June 30, 1999 at June 30, 1999 (2)
on Value ------------------------- -------------------------
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. Douglas Armstrong,
Ph.D................... -- -- 317,000 -- -- --
William L. Odell........ -- -- -- 100,000 -- --
Todd E. Simpson......... -- -- 81,688 111,312 $1,625 $375
Alan K. Smith, Ph.D..... -- -- 84,188 108,812 $1,750 $250
Bruce W. Husel.......... -- -- 13,125 71,875 -- --
</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
$1.25 per share of Common Stock as of June 30, 1999, the closing price of
the Common Stock reported on the Nasdaq National Market on such date.
8
<PAGE>
Severance and Change of Control Arrangements
The Company entered into employment agreements with no defined length of
employment with Alan K. Smith, Ph.D., Todd E. Simpson, Bruce W. Husel and
William L. Odell in October 1995, December 1995, November 1997 and August
1998, respectively. Pursuant to these agreements, the Company agreed to pay
Messrs. Smith, Simpson, Husel and Odell annual base salaries of $122,500,
$122,500, $110,000 and $185,000 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.
The Company is a party to an Executive Retention and Severance Agreement
with Dr. Armstrong. Under the terms of this agreement, all repurchase rights
held by the Company or its successor on shares issuable upon exercise of stock
options currently held by Dr. Armstrong will terminate (i) if an acquiring
corporation fails to assume those options (or substitute substantially
equivalent options for those options), or (ii) Dr. Armstrong's employment is
terminated following a change in control. In addition, in the event of Dr.
Armstrong's termination upon a change of control, he will be entitled to
receive a lump sum severance payment of the maximum amount which, when added
to other compensation and benefits treated as parachute payments under the
Internal Revenue Code, does not result in any compensation or benefit becoming
subject to an excise tax pursuant to Section 4999 of the Internal Revenue
Code. Upon any termination of Dr. Armstrong's employment (other than for
cause), the Company will be required to reimburse him for his costs (incurred
within one year of termination of employment) for relocating to any other
location in the United States, up to a maximum of $50,000.
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. During the last fiscal year, Mr. Kunze received $5,000 per
month for his services as Chairman of the Board of Directors. Effective
October 1, 1999, Dr. Armstrong will assume the responsibilities of Chairman of
the Board, but will not receive any additional compensation for serving as
Chairman of the Board. 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.
9
<PAGE>
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, 1999. During that fiscal year, 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 1998, the Company and Cobe Laboratories, Inc. entered into a
Termination and Transition Agreement, pursuant to which the parties agreed to
terminate the Distribution Agreement entered into in October 1993. Among other
things, Cobe made a cash payment to the Company of $1,237,000 in connection
with the Termination and Transition Agreement.
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 1999, 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.
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In fiscal year 1999, 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 year 1999 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
Mary L. Campbell
Stephen G. Emerson
Robert J. Kunze
Joseph A. Taylor
Arthur F. Staubitz
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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, 283, and have a market
capitalization of less than $200 million (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, 1999.
Comparison of Cumulative Total Return From February 4, 1997 through June 30,
1999
Aastrom Biosciences, Inc., Industry Index and Nasdaq Index
[GRAPH APPEARS HERE]
[Aastrom Nasdaq Index Industry Index]
<TABLE>
<CAPTION>
Company/Index 2/4/97 6/30/97 12/31/97 6/30/98 12/31/98 6/30/99
------------- ------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Aastrom..................... $100.00 $101.8 $62.5 $ 53.6 $ 41.1 $ 17.9
Nasdaq Index................ 100.00 105.0 115. 138.3 162.0 198.3
Industry Index.............. 100.00 81.2 70.2 55.7 40.8 41.4
</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
cash 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 II directors (Mary L. Campbell and Arthur F. Staubitz), two Class III
directors (R. Douglas Armstrong and Joseph A. Taylor), and two Class I
directors (Robert J. Kunze and Stephen G. Emerson), who will serve until the
Annual Meetings of Shareholders to be held in 1999, 2000 and 2001,
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 II positions on the Board of Directors are Mary L. Campbell and
Arthur F. Staubitz. If elected, the nominees will serve as directors until the
Company's Annual Meeting of Shareholders in 2002, 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 II 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 1999 SERIES III PREFERRED STOCK
On May 27, 1999 the Company sold 3,000 shares of its newly created 1999
Series III Convertible Preferred Stock (the "Series III Shares") to one
investor for an aggregate purchase price of $3 million. The shares of Series
III Shares are convertible, at the option of the holder, into shares of the
Company's Common Stock at the lower of (i) $2.34, 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 III Shares are not convertible into Common
Stock until January 23, 2000 and, subject to extension under certain
circumstances, will automatically convert into Common Stock on May 27, 2002,
unless converted earlier. In general, the Company may require the holders to
convert the Series III Shares if the average closing bid price of the
Company's Common Stock exceeds $4.68 for specified periods after September 23,
2009, or upon certain changes of control transactions.
If conversion of the Series III Shares were to take place as of September ,
1999, shares (the "Shares") of Common Stock would be issued to holders of
the Series III Shares. However, because the number of shares of Common Stock
issued upon conversion of the Series III Shares is based upon the market price
at the time of conversion, the ultimate number of shares to be issued in
unknown. In order to comply with the rules of the Nasdaq Stock Market
pertaining to the issuance of new shares, approval for issuances of 20% or
more of the Company's outstanding stock is required by the shareholders of the
Company. By approving this proposal, the shareholders are approving the
issuance, if required, of more than 20% of the outstanding shares of the
Company's Common Stock upon conversion of the Series III Shares.
The Shares may be offered for sale from time to time after such conversion
by or on behalf of the holder of the Series III Shares (the "Selling
Shareholder"). The Series III Shares were issued in connection with an equity
financing pursuant to a Securities Purchase Agreement. The Company will not
receive any proceeds from sales of the Shares by the Selling Shareholders or
from conversions, if any, of the Series III 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.
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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 National Association of Securities Dealers, Inc. 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.
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 III 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 III 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, 2000. 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 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 UNANIMOUSLY RECOMMENDS A VOTE
"FOR" THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDING JUNE 30, 2000.
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) by June 11, 2000.
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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 , 1999
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