<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):
[ ] 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]
___________, 2000
Dear Shareholder:
This special meeting of shareholders will be held on May 9, 2000 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 Special 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.
The Board of Directors and management look forward to seeing you at the
meeting.
Very truly yours,
R. Douglas Armstrong
President and Chief Executive Officer
<PAGE>
(LOGO)
AASTROM BIOSCIENCES, INC.
24 FRANK LLOYD WRIGHT DRIVE
ANN ARBOR, MI 48106
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 9, 2000
Dear Shareholder:
You are invited to attend the Special Meeting of the Shareholders of
Aastrom Biosciences, Inc. (the "Company"), which will be held on May 9, 2000, at
9:00 a.m. local time at the Holiday Inn North Campus, 3600 Plymouth Road, Ann
Arbor, Michigan 48105 for the following purposes:
1. To consider a proposal to amend the Articles of Incorporation to
increase the number of shares of authorized Common Stock to an amount
up to 100,000,000 shares.
2. To consider and vote upon a proposal to amend the 1992 Incentive and
Non-Qualified Stock Option Plan to increase the maximum aggregate
number of shares reserved for issuance thereunder by 1,400,000 and
establish a share grant limitation.
3. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on March 31, 2000 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 March 31, 2000 will be available for examination by any shareholder
for any purpose relating to the meeting during ordinary business hours at the
Company.
The Information contained under the headings "Executive Compensation and
Other Matters" and "Comparison of Shareholder Return" is the same information
that was included in the Proxy Statement for the Annual Meeting.
By order of the Board of Directors,
TODD E. SIMPSON
Secretary
Ann Arbor, Michigan
April __, 2000
- --------------------------------------------------------------------------------
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 SPECIAL 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
Special Meeting of Shareholders to be held May 9, 2000, or any adjournment
thereof, for the purposes set forth in the accompanying Notice of Special
Meeting. The date of this Proxy Statement is April ___, 2000, the approximate
date on which this Proxy Statement and the accompanying form of proxy were first
sent or given to shareholders.
GENERAL INFORMATION
Voting Securities. Only shareholders of record as of the close of business
on March 31, 2000, will be entitled to vote at the meeting and any adjournment
thereof. As of that date, there were [30,584,148] 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 two 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 February 29, 2000, 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 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>
Shares Owned (1)
-----------------------
NAME AND ADDRESS OF NUMBER PERCENTAGE OF
Beneficial Owner (2) OF SHARES CLASS (3)
- ------------------------------------------------------- --------- -------------
Cobe Laboratories, Inc. ............................... 2,389,199 7.8%
1185 Oak Street
Lakewood, CO 80215
RGC International Investors, LDC (4) .................. 3,114,151 9.9%
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
R. Douglas Armstrong, Ph.D. (5) ....................... 790,173 2.6%
William L. Odell (6) .................................. 0 *
Todd E. Simpson (7) ................................... 130,450 *
Alan K. Smith (8) ..................................... 131,560 *
Bruce V. Husel (9) .................................... 35,065 *
Stephen G. Emerson, M.D., Ph.D. (10) .................. 175,083 *
Mary L. Campbell (11) ................................. 203,749 *
Robert J. Kunze (12) .................................. 104,727 *
Joseph A. Taylor (13) ................................. 7,883 *
Arthur F. Staubitz (14) ............................... 17,083 *
All officers and directors as a group (10 persons) (15) 1,595,773 5.1%
- ----------
* 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, Michigan 48106.
(3) Calculated on the basis of 30,528,315 shares of Common Stock outstanding as
of February 29, 2000, except that shares of Common Stock underlying options
exercisable within 60 days of February 29, 2000 are deemed to be
outstanding for purposes of calculating ownership of securities of the
holders of such options.
(4) Includes 850,000 shares issuable upon exercise of warrants held by RGC
International Investors, LDC purchased on February 29, 2000 that are
exercisable until February 28, 2003 and 2,264,151 shares of Common Stock
purchased by RGC International Investors, LDC on February 29, 2000.
(5) Includes 317,000 shares issuable upon exercise of options held by Dr.
Armstrong that are exercisable within the 60-day period following February
29, 2000. Also includes 28,000 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) Mr. Odell is no longer employed by the Company.
(7) Includes 125,450 of shares issuable upon exercise of options held by Mr.
Simpson that are exercisable within the 60-day period following February
29, 2000.
2
<PAGE>
(8) Includes 125,450 shares issuable upon exercise of options held by Dr. Smith
that are exercisable within the 60-day period following February 29, 2000.
(9) Consists of shares issuable upon exercise of options held by Mr. Husel that
are exercisable within the 60-day period following February 29, 2000.
(10) Includes 17,083 shares issuable upon exercise of options held by Dr.
Emerson that are exercisable within the 60-day period following February
29, 2000.
(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 12,083 shares issuable upon
exercise of options held by Ms. Campbell that are exercisable within the
60-day period following February 29, 2000.
(12) Includes 61,250 shares issuable upon exercise of options held by Mr. Kunze
that are exercisable within the 60-day period following February 29, 2000.
(13) Includes 7,083 shares issuable upon exercise of options held by Mr. Taylor
that are exercisable within the 60-day period following February 29, 2000.
(14) Includes 7,083 shares issuable upon exercise of options held by Mr.
Staubitz that are exercisable within the 60-day period following February
29, 2000.
(15) Includes 707,547 shares issuable upon exercise of options that are
exercisable within the 60-day period following February 29, 2000.
3
<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
Compensation
Awards
Annual Compensation ------------------
------------------- Securities All Other
Name and Principal 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 1998 $225,000 - $ 9,735(1)
Executive Officer 1997 $183,583 - 333,333 $ 7,108(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 1998 $136,667 - 28,000 -
and Administration and 1997 $125,593 $12,500 75,000 -
Chief Financial Officer
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 1998 $ 74,792(4) - 35,000 $51,928(2)
Systems
</TABLE>
(1) Consists of vacation pay.
(2) Consists of relocation or temporary living expenses.
(3) Mr. Odell joined the Company in August 1998 and left the Company in
November 1999.
(4) Mr. Husel joined the Company in November 1997.
4
<PAGE>
The following table provides information with respect to stock option
grants to the Named Executive Officers during the year ended June 30, 1999.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
------------------------------------------------- Potential Realizable Value
Number of % of Total at Assumed Annual Rates
Securities Options of Stock Price Appreciation
Underlying Granted to Exercise or for Option Term(1)
Options Employees Price 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."
5
<PAGE>
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.
6
<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 assumed the responsibilities of Chairman of the Board, but
will not receive any additional compensation for serving as Chairman of the
Board. In March 2000, Mr. Kunze resigned as a Director. 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.
7
<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.
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 year 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 or her 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 Compensation 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
Compensation 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 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
8
<PAGE>
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 (Resigned as a Director in March
2000)
Joseph A. Taylor
Arthur F. Staubitz
9
<PAGE>
COMPARISON OF SHAREHOLDER RETURN
Set forth below is a line graph comparing changes in the cumulative total
return on the Company's Common Stock, a broad market index (the Nasdaq Stock
Market-U.S. Index (the "Nasdaq Index")) and an industry index (those companies
that selected the same first three digits of their primary Standard Industrial
Classification Code Number as the Company, 283, and have a market capitalization
of less than $200 million as of June 30, 1999 (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
[PERFORMANCE CHART]
[AASTROM NASDAQ INDEX INDUSTRY INDEX]
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
COMPANY/INDEX 2/4/97 6/30/97 12/31/97 6/30/98 12/31/98 6/30/99
- ------------- ------- -------- --------- -------- --------- --------
Aastrom $100.00 $ 101.8 $ 62.5 $ 53.6 $ 41.1 $ 17.9
Nasdaq Index $100.00 105.0 115.0 138.3 162.0 198.3
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.
10
<PAGE>
PROPOSAL 1
PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK
The Company is proposing to amend its Articles of Incorporation in one or
more amendments to increase the number of shares of authorized Common Stock from
40,000,000 shares up to a maximum of 100,000,000 shares. If authorized by this
proposal, the Board of Directors in its sole discretion at any time and from
time to time may file one or more amendments to the Articles of Incorporation to
increase the number of authorized shares of Common Stock authorized thereunder
up to a maximum of 60,000,000 additional shares. The authority granted to the
Board of Directors by this proposal, if approved, to file amendments to the
Articles of Incorporation shall expire on December 31, 2002.
On the record date, [30,584,148] shares of Common Stock were outstanding,
and 3,928,418 additional shares were reserved for issuance upon exercise of
outstanding stock options and warrants. As a result, the Company does not have a
substantial number of authorized shares for potential future transactions, such
as asset and stock acquisitions of other companies, equity financings or lease
or debt financings in which part of the consideration would likely be warrants
to purchase Common Stock. As of March 31, 2000, the Company does not have
immediate commitments for which it needs additional shares of Common Stock.
Rather, it is seeking to have a sufficient reserve of shares so that it has the
ability to act promptly on appropriate opportunities in the future.
VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION.
The affirmative vote of a two-thirds of the outstanding shares of Common
Stock is required for approval of this proposal. Abstentions and broker non-
votes will have the same effect as a vote against this proposal.
The Board of Directors believes that the proposed amendment of the Articles
of Incorporation is in the best interest of the shareholders and the Company for
the reasons stated above.
THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL
OF THIS PROPOSAL.
PROPOSAL 2
PROPOSAL TO AMEND THE 1992 INCENTIVE AND
NON-QUALIFIED STOCK OPTION PLAN
The Company's 1992 Incentive and Non-Qualified Stock Option Plan (the
"Option Plan") was adopted by the Board of Directors on April 24, 1992. As of
February 29, 2000, only 72,334 shares remained available for future option
grants under the Option Plan. The Board of Directors believes this amount is
insufficient to satisfy the Company's anticipated equity incentive objectives.
Accordingly, the Board of Directors has approved, subject to shareholder
approval, the reservation of an additional 1,400,000 shares of Common Stock for
issuance under the Option Plan.
The Internal Revenue Code of 1986, as amended (the "Code") limits the
amount of compensation paid to a corporation's chief executive officer and four
other most highly compensated officers that the corporation may deduct as an
expense for federal income tax purposes. To enable the Company to continue to
deduct in full all amounts of ordinary income recognized by its executive
officers in connection with options granted under the Option Plan, the Board of
Directors has amended the Option Plan, subject to shareholder approval, to limit
to 400,000 the maximum number of shares for which options may be granted to any
employee in any fiscal year (the "Grant Limit"). However, the Company's stock
option grants typically do not reach this limit.
The shareholders are now being asked to approve the increase from 1,900,000
shares to 3,300,000 shares as the maximum aggregate number of shares that may be
issued under the Option Plan and the establishment of the Grant Limit. The Board
of Directors believes that approval of these amendments is in the best interests
of the Company and its shareholders because the availability of an adequate
stock option program is an important factor in attracting,
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motivating and retaining qualified officers, employees and consultants essential
to the success of the Company and in aligning their long-term interests with
those of the shareholders.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION.
The affirmative vote of a majority of the votes cast at the Special 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 approval of the increase in the number
of shares issuable under the Option Plan and the establishment of the Grant
Limit is in the best interests of the Company and the shareholders for the
reasons stated above. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" APPROVAL OF THIS PROPOSAL.
SUMMARY OF THE PROVISIONS OF THE OPTION PLAN
The following summary of the Option Plan, as amended, is qualified in its
entirety by the specific language of the Option Plan, a copy of which is
available to any shareholder upon request.
General. The Option Plan provides for the grant of incentive stock options
within the meaning of section 422 of the Code and nonstatutory stock options. As
of February 29, 2000, the Company had outstanding options to purchase an
aggregate of 1,238,684 shares at a weighted average exercise price of $1.33 per
share. The exercise price of all options granted under the Option Plan has been
at least equal to the fair market value per share of the Common Stock on the
date of grant as determined in good faith by the Board of Directors. As of
February 29, 2000, options to purchase 588,987 shares of Common Stock granted
pursuant to the Option Plan had been exercised, and 1,472,334 shares of Common
Stock remained available for future grants under the Option Plan, provided that
the shareholders approve the increase in the number of shares authorized under
the Option Plan and approved by the Board of Directors.
Shares Subject to Plan. The Board has amended the Option Plan, subject to
shareholder approval, to increase by 1,400,000 the maximum number of authorized
but unissued or reacquired shares of the Company's Common Stock issuable
thereunder to an aggregate of 3,300,000. In the event of any stock dividend,
stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments will be made to the shares subject to the Option Plan,
to the Grant Limit and to outstanding options. To the extent any outstanding
option under the Option Plan expires or terminates prior to exercise in full or
if shares issued upon exercise of an option are repurchased by the Company, the
shares of Common Stock for which such option is not exercised or the repurchased
shares are returned to the Option Plan and become available for future grant.
Administration. The Option Plan is administered by the Board of Directors
or a duly appointed committee of the Board (hereinafter referred to as the
"Board"). With respect to the participation of individuals whose transactions in
the Company's equity securities are subject to Section 16 of the Securities
Exchange Act of 1934 (the "Exchange Act"), the Option Plan must be administered
in compliance with the requirements, if any, of Rule 16b-3 under the Exchange
Act. Subject to the provisions of the Option Plan, the Board determines the
persons to whom options are to be granted, the number of shares to be covered by
each option, whether an option is to be an incentive stock option or a
nonstatutory stock option, the terms of exercisability of each option and the
vesting of the shares acquired, including the effect thereon of an optionee's
termination of service, the exercise price and type of consideration to be paid
to the Company upon exercise of an option, the duration of each option, and all
other terms and conditions of the options. The Option Plan authorizes the Board
to amend, modify, extend or renew, or grant a new option in substitution for,
any option, to waive any restrictions or conditions applicable to any option or
any shares acquired upon the exercise thereof. Subject to certain limitations,
the Option Plan provides for indemnification by the Company of any director,
officer or employee against all reasonable expenses, including attorneys' fees,
incurred in connection with any legal action arising from such person's action
or failure to act in administering the Option Plan. The Board will interpret the
Option Plan and options granted thereunder, and all determinations of the Board
will be final and binding on all persons having an interest in the Option Plan
or any option.
Eligibility. All employees, directors and consultants of the Company or of
any present or future parent or subsidiary corporations of the Company are
eligible to participate in the Option Plan. In addition, options may be granted
to prospective employees, consultants and directors in connection with written
offers of employment or
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engagement. However, any such options may not become exercisable prior to such
individual's commencement of service. As of February 29, 2000, the Company had
28 employees, including four executive officers, and six directors one of which
resigned in March 2000. Any person eligible under the Option Plan may be granted
a nonstatutory option. However, only employees may be granted incentive stock
options. No consultants hold options to purchase Common Stock of the Company.
Terms and Conditions of Options. Each option granted under the Option Plan
is evidenced by a written agreement between the Company and the optionee
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements of the Option Plan.
The exercise price per share must equal at least the fair market value of a
share of the Company's Common Stock on the date of grant of an incentive stock
option and at least 85% of the fair market value of a share of the Common Stock
on the date of grant of a nonstatutory stock option. The exercise price of any
option granted to a person who at the time of grant owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or any parent or subsidiary corporation of the Company (a "Ten Percent
Shareholder") must be at least 110% of the fair market value of a share of the
Company's Common Stock on the date of grant. On March 23, 2000, the closing
price of a share of the Company's Common Stock was $[_____], as reported on the
Nasdaq National Market.
Generally, the exercise price may be paid in cash, by check, or in cash
equivalent, by tender of shares of the Company's Common Stock owned by the
optionee having a fair market value not less than the exercise price, by the
assignment of the proceeds of a sale or loan with respect to some or all of the
shares of Common Stock being acquired upon the exercise of the option, by means
of a promissory note, by any other lawful consideration approved by the Board or
by any combination of these. The Board may restrict the forms of payment
permitted in connection with any option grant.
Options granted under the Option Plan will become exercisable and vested at
such times and subject to such conditions as specified by the Board. Generally,
options granted under the Option Plan are exercisable on and after the date of
grant, subject to the right of the Company to reacquire at the optionee's
exercise price any unvested shares held by the optionee upon termination of
employment or service with the Company or if the optionee attempts to transfer
any unvested shares (the "Unvested Share Repurchase Option"). Shares subject to
options generally vest in installments subject to the optionee's continued
employment or service. The maximum term of an option granted under the Option
Plan is ten years, except that an incentive stock option granted to a Ten
Percent Shareholder may not have a term longer than five years.
Options are nontransferable by the optionee other than by will or by the
laws of descent and distribution, and are exercisable during the optionee's
lifetime only by the optionee.
Change in Control. 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.
Termination or Amendment. The Option Plan will continue in effect until the
earlier of its termination by the Board or the date on which all shares
available for issuance under the Option Plan have been issued and all
restrictions on such shares under the terms of the Option Plan and the option
agreements have lapsed, provided that all options must be granted by April 24,
2002, which is ten years from the date the Board approved the Option Plan. The
Board may terminate or amend the Option Plan at any time. However, subject to
changes in the law that would permit otherwise, without shareholder approval,
the Board may not adopt an amendment to the Option Plan which would increase the
total number of shares of Common Stock issuable thereunder, change the class of
persons eligible to receive incentive stock options, or otherwise require
approval of the Company's shareholders under any applicable law, regulation or
rule. No amendment may adversely affect an outstanding option without the
consent of the optionee, unless the amendment is required to preserve the
option's status as an incentive stock option or is necessary to comply with any
applicable law.
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SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE OPTION PLAN
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
Option Plan and does not attempt to describe all possible federal or other tax
consequences of such participation or tax consequences based on particular
circumstances.
Incentive Stock Options. An optionee recognizes no taxable income for
regular income tax purposes as the result of the grant or exercise of an
incentive stock option qualifying under section 422 of the Code. Optionees who
do not dispose of their shares for two years following the date the option was
granted nor within one year following the exercise of the option will normally
recognize a long-term capital gain or loss equal to the difference, if any,
between the sale price and the purchase price of the shares. If an optionee
satisfies such holding periods upon a sale of the shares, the Company will not
be entitled to any deduction for federal income tax purposes. If an optionee
disposes of shares within two years after the date of grant or within one year
from the date of exercise (a "disqualifying disposition"), the difference
between the fair market value of the shares on the determination date (see
discussion under "Nonstatutory Stock Options" below) and the option exercise
price (not to exceed the gain realized on the sale if the disposition is a
transaction with respect to which a loss, if sustained, would be recognized)
will be taxed as ordinary income at the time of disposition. Any gain in excess
of that amount will be a capital gain. If a loss is recognized, there will be no
ordinary income, and such loss will be a capital loss. A capital gain or loss
will be mid-term if the optionee's holding period is between 12 and 18 months or
long-term if the optionee's holding period is more than 18 months. Any ordinary
income recognized by the optionee upon the disqualifying disposition of the
shares generally should be deductible by the Company for federal income tax
purposes, except to the extent such deduction is limited by applicable
provisions of the Code or the regulations thereunder.
The difference between the option exercise price and the fair market value
of the shares on the determination date of an incentive stock option (see
discussion under "Nonstatutory Stock Options" below) is an adjustment in
computing the optionee's alternative minimum taxable income and may be subject
to an alternative minimum tax which is paid if such tax exceeds the regular tax
for the year. Special rules may apply with respect to certain subsequent sales
of the shares in a disqualifying disposition, certain basis adjustments for
purposes of computing the alternative minimum taxable income on a subsequent
sale of the shares and certain tax credits which may arise with respect to
optionees subject to the alternative minimum tax.
Nonstatutory Stock Options. Options not designated or qualifying as
incentive stock options will be nonstatutory stock options. Nonstatutory stock
options have no special tax status. An optionee generally recognizes no taxable
income as the result of the grant of such an option. Upon exercise of a
nonstatutory stock option, the optionee normally recognizes ordinary income in
the amount of the difference between the option exercise price and the fair
market value of the shares on the determination date (as defined below). If the
optionee is an employee, such ordinary income generally is subject to
withholding of income and employment taxes. The "determination date" is the date
on which the option is exercised unless the shares are subject to a substantial
risk of forfeiture and are not transferable, in which case the determination
date is the earlier of (i) the date on which the shares are transferable, or
(ii) the date on which the shares are not subject to a substantial risk of
forfeiture. If the determination date is after the exercise date, the optionee
may elect, pursuant to section 83(b) of the Code, to have the exercise date be
the determination date by filing an election with the Internal Revenue Service
not later than 30 days after the date the option is exercised. Upon the sale of
stock acquired by the exercise of a nonstatutory stock option, any gain or loss,
based on the difference between the sale price and the fair market value on the
determination date, will be taxed as capital gain or loss. A capital gain or
loss will be mid-term if the optionee's holding period is between 12 and 18
months or long-term if the optionee's holding period is more than 18 months. No
tax deduction is available to the Company with respect to the grant of a
nonstatutory option or the sale of the stock acquired pursuant to such grant.
The Company generally should be entitled to a deduction equal to the amount of
ordinary income recognized by the optionee as a result of the exercise of a
nonstatutory option, except to the extent such deduction is limited by
applicable provisions of the Code or the regulations thereunder.
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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.
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
April __, 2000
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