<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant: [X]
Filed by a Party other than the Registrant: [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_]CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CELL THERAPEUTICS, INC.
-----------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[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:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange ActRule 0-11 (Set forth the amount on which the
filing fee was 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
LOGO T 206 . 282 . 7100 F 206 . 284 . 6206
May 22, 1998
Dear Shareholder:
You are cordially invited to attend the Cell Therapeutics, Inc. ("cti") Annual
Meeting of Shareholders, to be held at 11:00 a.m. on Thursday, June 18, 1998,
at 201 Elliott Avenue West, Suite 400, Seattle, Washington 98119.
Information concerning the business to be conducted at the meeting is included
in the accompanying Notice of Annual Meeting of Shareholders and Proxy
Statement. At the meeting, we also will report on the operations of cti and
respond to any questions you may have.
A copy of the 1997 Annual Report to Shareholders is also enclosed.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the meeting, it
is important that your shares be represented. Therefore, we urge you to sign,
date and promptly return the enclosed proxy in the enclosed postage paid
envelope. If you attend the meeting, you will, of course, have the right to
vote in person. Shareholders who plan to attend the meeting in person are
requested to promptly return the enclosed postage paid attendance card to
provide us with an estimate of the number of persons to expect for the Annual
Meeting.
I look forward to greeting you personally, and on behalf of the Board of
Directors and Management, I would like to express our appreciation for your
interest in cti.
Sincerely,
LOGO
James A. Bianco, M.D.
President &
Chief Executive Officer
Shareholder
Cell Therapeutics, Inc. 201 Elliott Ave West Suite #400, Seattle, WA 98119
<PAGE>
CELL THERAPEUTICS, INC.
201 ELLIOTT AVENUE WEST, SUITE 400
SEATTLE, WA 98119
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
THURSDAY, JUNE 18, 1998
To Our Shareholders:
The Annual Meeting of Shareholders of Cell Therapeutics, Inc. ("cti" or the
"Company") will be held at 11:00 a.m., on Thursday, June 18, 1998, at 201
Elliott Avenue West, Suite 400, Seattle, Washington 98119 for the following
purposes:
(1) To elect three Class I Directors, each to serve until the 2001 Annual
Meeting;
(2) To approve an amendment to the Company's 1994 Equity Incentive Plan to
increase the number of shares of Common Stock available for grant under
the plan by 1,500,000 shares;
(3) To ratify the selection of Ernst & Young LLP as the independent
auditors for the Company for the year ending December 31, 1998; and
(4) To transact such other business as may properly come before the
meeting, and all adjournments and postponements thereof.
All shareholders are invited to attend the meeting. Shareholders of record
at the close of business on April 22, 1998, the record date fixed by the Board
of Directors, are entitled to notice of, and to vote at, the meeting and all
adjournments and postponements thereof. A complete list of shareholders
entitled to notice of, and vote at, the meeting will be open to examination by
the shareholders beginning ten days prior to the meeting for any purpose
germane to the meeting during normal business hours at the office of the
Secretary of the Company at 201 Elliott Avenue West, Suite 400, Seattle,
Washington 98119.
Whether or not you intend to be present at the meeting, please sign and date
the enclosed proxy and return it in the enclosed envelope.
By Order of the Board of Directors
LOGO
Michael J. Kennedy
Secretary
Seattle, Washington
May 22, 1998
YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO SIGN,
DATE AND RETURN PROMPTLY THE ACCOMPANYING PROXY IN THE
ENCLOSED ENVELOPE REGARDLESS OF WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING.
<PAGE>
CELL THERAPEUTICS, INC.
201 ELLIOTT AVENUE WEST, SUITE 400
SEATTLE, WA 98119
----------------
PROXY STATEMENT
----------------
INFORMATION REGARDING PROXIES
GENERAL
This Proxy Statement and the accompanying form of proxy are furnished in
connection with the solicitation of proxies by the Board of Directors of Cell
Therapeutics, Inc. ("cti" or the "Company") for use at the Annual Meeting of
Shareholders (the "Annual Meeting"), to be held at 11:00 a.m. on Thursday,
June 18, 1998, at 201 Elliott Avenue West, Suite 400, Seattle, Washington
98119, and at any adjournment thereof. Only shareholders of record on the
books of the Company at the close of business on April 22, 1998 (the "Record
Date") will be entitled to notice of, and to vote at, the Annual Meeting.
At the Annual Meeting, shareholders will be asked to elect three Class I
Directors, each to serve until the 2001 Annual Meeting. Shareholders will also
be asked to approve an amendment to the Company's 1994 Equity Incentive Plan.
In addition, shareholders will be asked to ratify the selection of Ernst &
Young LLP as the independent auditors for the Company for the year ending
December 31, 1998.
It is anticipated that these proxy solicitation materials will be sent to
shareholders on or prior to May 22, 1998.
SOLICITATION OF PROXIES
This solicitation is made on behalf of the Board of Directors of the
Company. All expenses in connection with the solicitation of proxies will be
borne by the Company. In addition to solicitation by mail, officers, Directors
or other regular employees of the Company may solicit proxies by mail,
telephone, facsimile or in person. No additional compensation will be paid to
such persons for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Each share of common stock, without par value ("Common Stock"), of the
Company outstanding on the Record Date is entitled to one vote per share at
the Annual Meeting. The Company presently has no other class of capital stock
outstanding and entitled to be voted at the Annual Meeting. At the close of
business on the Record Date, there were issued and outstanding 15,385,689
shares of Common Stock. The presence at the Annual Meeting in person or by
proxy of holders of record of a majority of the outstanding shares of Common
Stock is required to constitute a quorum for the transaction of all business
at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the shareholders and will
have the same effect as negative votes against Proposals II and III. Broker
non-votes are counted towards a quorum, but are not counted for any purpose in
determining whether a matter has been approved.
<PAGE>
All shares of Common Stock represented by properly executed proxies which
are returned and not revoked will be voted in accordance with the
instructions, if any, given therein. If no instructions are provided in a
proxy, the shares of Common Stock represented by such proxy will be voted FOR
the Board's nominees for Director, FOR the approval of Proposals II and III
and in accordance with the proxy-holder's best judgment as to any other
matters raised at the Annual Meeting.
REVOCABILITY OF PROXIES
Any shareholder of record executing a proxy has the power to revoke it at
any time prior to the voting thereof on any matter (without, however,
affecting any vote taken prior to such revocation) by delivering written
notice to Michael J. Kennedy, Secretary of the Company, at the Company's
principal executive offices, by executing and delivering another proxy dated
as of a later date or by voting in person at the meeting.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Common Stock, as of April 30, 1998 by (i) each shareholder known
by the Company to be the beneficial owner of more than 5% of its outstanding
shares of Common Stock, (ii) each of the Company's Directors and nominees for
Director, (iii) each executive officer of the Company named in the Summary
Compensation Table herein, (iv) all Directors and executive officers as a
group, and (v) The Phoenix Partners:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OWNERSHIP(1)
- ------------------------------------ --------------------- ------------
<S> <C> <C>
The International Biotechnology Trust 1,316,098 8.55%
plc(2)....................................
c/o Rothschild Asset Management Limited
Five Arrows House
St. Swithin's Lane
London, England EC4N 8NR
Kummell Investments Limited(3)............. 1,287,456 8.37
922 Europort
Gibraltar
Johnson & Johnson Development Corporation.. 868,262 5.64
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
The Phoenix Partners (4)................... 724,592 4.72
James A. Bianco, M.D.**(5)................. 416,225 2.68
Jack L. Bowman**(6)........................ 28,573 *
Jeremy L. Curnock Cook**(7)................ 1,338,956 8.69
Wilfred E. Jaeger, M.D.**(8)............... 22,667 *
Max E. Link, Ph.D.**....................... 40,952 *
Terrence M. Morris**(9).................... 20,953 *
Mary O'Neil Mundinger, D.P.H.**(10)........ 4,763 *
Phillip M. Nudelman, Ph.D.**(11)........... 28,001 *
Jack W. Singer, M.D.**(12)................. 228,851 1.48
Louis A. Bianco(13)........................ 160,040 1.04
Robert A. Lewis, M.D.(14).................. 38,586 *
Maurice J. Schwarz, Ph.D.(15).............. 34,286 *
All Directors and executive officers as a
group
(14 persons)(16).......................... 2,426,585 15.30
</TABLE>
- --------
* Less than 1%
**Denotes Director of the Company
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and generally
includes voting or investment power with respect to securities. This
table is based upon information supplied by officers, directors,
Schedules 13D and 13G filed with the Commission and The Phoenix Partners.
Shares of Common Stock subject to options or warrants currently
exercisable or convertible, or exercisable or convertible within 60 days
of April 30, 1998, are deemed outstanding for computing the percentage of
the person holding such option or warrant but are not deemed outstanding
for computing the percentage of any other person. Except as indicated in
the footnotes to this table and pursuant to applicable community property
laws, the persons named in the table have sole voting and investment
power with respect to all shares of Common Stock beneficially owned.
3
<PAGE>
(2) Consists of 1,066,098 shares of Common Stock beneficially owned by The
International Biotechnology Trust plc, a company formed under the laws of
England ("IBT") and managed by Rothschild Asset Management Limited
("Rothschild"). Rothschild has or shares voting and investment power with
respect to the shares held by IBT and may be deemed to be the beneficial
owner of such shares. Mr. Curnock Cook is a director of IBT and
Rothschild, and may be deemed to be the beneficial owner of any shares
beneficially owned by each of IBT and Rothschild. Mr. Curnock Cook
disclaims beneficial ownership of shares beneficially owned by IBT and
Rothschild except to the extent of his proportionate interest therein.
Rothschild is advisor to Biotechnology Investment Limited ("BIL") and to
Rothschild Asset Management (C.I.) Limited, which is the manager of BIL.
See footnote (7) below.
(3) Mr. Morris is the Chief Executive Officer of Morningside Ventures, which
advises Kummell Investments Limited ("Kummell") on its private venture
capital portfolio. Mr. Morris does not have or share voting or investment
power with respect to the shares held by Kummell. See footnote (9) below.
(4) Although disclosure regarding beneficial owners of less than 5% of the
outstanding shares of the Company's Common Stock is not required by the
Commission's rules, information regarding the beneficial ownership of The
Phoenix Partners ("Phoenix") is being included at such shareholder's
request. The information regarding Phoenix's beneficial ownership is
based solely on information supplied by Phoenix to the Company and the
Company makes no representation as to the accuracy of such information.
Phoenix is not required to disclose changes in its beneficial ownership
of the Company's Common Stock to the extent such ownership remains below
5%. The Company is not aware of whether there are other entities whose
beneficial ownership is greater than that of Phoenix but less than 5% of
the outstanding shares of the Company's Common Stock. Phoenix's holdings
consist of 190,133 shares of Common Stock held by The Phoenix Partners II
Limited Partnership Liquidating Trust ("PPII"), 234,459 shares of Common
Stock held by The Phoenix Partners III Limited Partnership ("PPIII"), and
300,000 shares of Common Stock held by The Phoenix Partners IV Limited
Partnership ("PPIV"). Stuart C. Johnston and David B. Johnston are the
Managing General Partner and Non-Managing General Partner, respectively,
of Phoenix Management Partners II ("PMPII"), which is the General Partner
of PPII, the Managing General Partner and Non-Managing General Partner,
respectively, of Phoenix Management Partners III ("PMPIII"), which is the
General Partner of PPIII, and the Managing Member and Non-Managing
Member, respectively, of Phoenix Management IV LLC ("PMIV"), which is the
General Partner of PPIV. As such, Mr. Stuart C. Johnston and Mr. David B.
Johnson each have voting and investment power with respect to the shares
held by PPII, PPIII and PPIV, and may be deemed to be the beneficial
owner of such shares. Mr. Stuart Johnston and Mr. David B. Johnston
disclaim beneficial ownership of shares held by PPII, PPIII and PPIV,
except to the extent of their proportionate partnership interest therein.
PPII and PMPII disclaim beneficial ownership of the shares held by PPIII
and PPIV; PPIII and PMPIII disclaim beneficial ownership of the shares
held by PPII and PPIV; and PPIV and PMIV disclaim beneficial ownership of
the shares held by PPII and PPIII.
(5) Includes 140,337 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of April 30, 1998.
Does not include 163,335 shares issuable upon exercise of options not yet
vested. 26,191 of such options vest on December 5, 1998, 57,144 of such
options vest in equal installments on November 19, 1998 and 1999 and
80,000 of such options vest in equal installments on December 9, 1998,
1999 and 2000.
(6) Consists of 28,573 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of April 30, 1998.
(7) Includes 1,066,098 shares of Common Stock beneficially owned by IBT. IBT
is managed by Rothschild and Rothschild has or shares voting and
investment power with respect to the shares held by IBT and may be deemed
to be the beneficial owner of such shares. Mr. Curnock Cook is a director
of IBT and Rothschild and may be deemed to be the beneficial owner of any
shares beneficially owned by each of IBT and Rothschild. Mr. Curnock Cook
disclaims beneficial ownership of shares beneficially owned by IBT and
Rothschild except to the extent of his proportionate interest therein.
Also includes an immediately exercisable option to purchase 22,858 shares
of Common Stock. Mr. Curnock Cook is a shareholder, but is not an officer
or director, of BIL. See footnote (2) above.
(8) Consists of 22,667 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of April 30, 1998.
Does not include 12,858 shares issuable upon exercise of options
beneficially owned by affiliates of Collinson Howe Venture Partners
("CHVP") pursuant to an agreement with Dr. Jaeger. Dr. Jaeger, a director
of the Company, is a former partner at CHVP.
(9) Consists of an immediately exercisable option to purchase 20,953 shares
of Common Stock. Mr. Morris is the Chief Executive Officer of Morningside
Ventures, which advises Kummell on its private venture capital portfolio.
Mr. Morris does not have or share voting or investment power with respect
to the shares held by Kummell. See footnote (3) above.
(10) Includes an immediately exercisable option to purchase 4,113 shares of
Common Stock.
(11) Consists of 28,001 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of April 30, 1998.
(12) Includes 28,102 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of April 30, 1998.
Does not include 48,929 shares issuable upon exercise of options not yet
vested. 2,381 of such options vest on December 5, 1998, 19,048 of such
options vest in equal installments on November 7, 1998 and 1999 and
27,500 shares vest in equal installments on December 12, 1998, 1999 and
2000.
(13) Includes 56,530 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of April 30, 1998.
Does not include 35,001 shares issuable upon exercise of options not yet
vested. 5,715 of such options vest on December 5, 1998, 14,286 of such
options vest in equal installments on November 7, 1998 and 1999 and
15,000 of such options vest in equal installments on December 9, 1998,
1999 and 2000.
(14) Consists of an immediately exercisable option to purchase 38,586 shares
of Common Stock. Does not include 48,559 shares issuable upon exercise of
options not yet vested. 14,273 of such options vest on April 1, 1999,
14,286 of such options vest in equal installments on November 7, 1998,
and 1999 and 20,000 of such options vest in equal installments on
December 12, 1998, 1999 and 2000.
(15) Includes 34,286 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of April 30, 1998.
Does not include 37,858 shares issuable upon exercise of options not yet
vested. 3,810 of such options vest on December 5, 1998, 19,048 of such
options vest in equal installments on November 7, 1998 and 1999 and
15,000 of such options vest in equal installments on December 12, 1998,
1999 and 2000.
(16) Includes an aggregate of 417,386 shares of Common Stock issuable upon
exercise of options that are currently exercisable or exercisable within
60 days of April 30, 1998. See footnotes (5) through (15).
4
<PAGE>
PROPOSAL I
ELECTION OF DIRECTORS
The Amended and Restated Articles of Incorporation of the Company provide
for the Board of Directors to be divided into three approximately equal
classes of Directors serving staggered three-year terms and until their
successors are elected and qualified. As a result, approximately one-third of
the total number of Directors will be elected every year. Under cti's Bylaws,
the number of Directors constituting the entire Board of Directors may be
decreased or increased by majority action of either the Board of Directors or
the shareholders, but no decrease in the number of Directors may have the
effect of shortening the term of any incumbent Director. In the event of a
vacancy on the Board of Directors, the Company's Bylaws permit a majority of
the remaining Directors in office to fill such vacancy, and the Director so
chosen shall hold office until the next shareholders meeting at which
Directors are elected and until his or her successor is elected and shall
qualify.
Currently, the Board of Directors has fixed the number of Directors at nine.
The current terms of office of Class I Directors Dr. Phillip M. Nudelman, Mr.
Jack L. Bowman and Mr. Jeremy L. Curnock Cook expire at the 1998 Annual
Meeting. Mr. Curnock Cook was elected to a one-year term at the 1997 Annual
Meeting. The current terms of office of Class II Directors Dr. Max E. Link,
Mr. Terrence M. Morris and Dr. Wilfred E. Jaeger expire at the 1999 Annual
Meeting and the current terms of office of the Class III Directors Dr. James
A. Bianco, Dr. Jack W. Singer and Dr. Mary O'Neil Mundinger expire at the 2000
Annual Meeting.
Dr. Nudelman, Messrs. Bowman and Curnock Cook have been nominated for re-
election at the Annual Meeting as Class I directors for three-year terms
expiring at the 2001 Annual Meeting. The Board of Directors has approved all
such nominees.
If elected, each nominee will hold office until his term expires and his
successor is elected and shall qualify. It is intended that the accompanying
proxy will be voted for the election as Directors of the three nominees named
herein, unless the proxy contains contrary instructions. Each nominee has
agreed to serve if elected, and the Company has no reason to believe that any
of the nominees will not be a candidate or will be unable to serve. However,
if any of the nominees should become unable or unwilling to serve as a
Director, the persons named in the proxy have advised the Company that they
will vote for the election of such person or persons as shall be designated by
the Board of Directors.
The candidates elected will be those receiving the largest numbers of votes
cast by the shares of Common Stock entitled to vote in the election, up to the
number of Directors of such class to be elected by such shares. Votes that are
withheld and broker non-votes will not be counted in the election of
Directors.
5
<PAGE>
Set forth below is biographical information for each nominee for Director
and each person whose term of office as a Director will continue after the
Annual Meeting:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE CLASS
---- --- -------- -----
<S> <C> <C> <C>
Max E. Link, Ph.D.(1)(2)................................ 57 1995 II
James A. Bianco, M.D.(2)................................ 41 1991 III
Jack W. Singer, M.D. ................................... 55 1991 III
Jack L. Bowman(3)....................................... 65 1995 I
Jeremy L. Curnock Cook(2)(3)............................ 48 1995 I
Wilfred E. Jaeger, M.D.(3)(4)........................... 42 1992 II
Terrence M. Morris(3)(4)................................ 51 1995 II
Mary O'Neil Mundinger, D.P.H. .......................... 61 1997 III
Phillip M. Nudelman, Ph.D.(2)(4)........................ 62 1994 I
</TABLE>
--------
(1) Chairman of the Board of Directors.
(2) Member of the Executive Committee.
(3) Member of the Compensation Committee.
(4) Member of the Audit Committee.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2001 ANNUAL
MEETING--CLASS I DIRECTORS
DR. NUDELMAN has been a Director of cti since March 1994. He is the
President and Chairman of the Board of Kaiser/Group Health. From 1991 to 1997,
Dr. Nudelman was the President and Chief Executive Officer of Group Health
Cooperative of Puget Sound, a health maintenance organization. Dr. Nudelman
serves on the boards of directors of the American Association of Health Plans,
ATL Ultrasound, SpaceLabs Medical, Inc., Cytran Ltd., the United Way and
Intensiva Healthcare Corporation. Dr. Nudelman received his B.S. degree in
Microbiology, Zoology and Pharmacy from the University of Washington, and
holds an M.B.A. and a Ph.D. in Health Systems Management from Pacific Western
University.
MR. BOWMAN has been a Director of cti since April 1995. From 1987 until
January 1994, Mr. Bowman was a Company Group Chairman at Johnson & Johnson,
having primary responsibility for a group of companies in the diagnostic,
blood glucose monitoring and pharmaceutical businesses. From 1980 to 1987, Mr.
Bowman held various positions at American Cyanamid Company, most recently as
Executive Vice President. Mr. Bowman was a member of the Board of Trustees of
The Johns Hopkins University and serves on the board of directors of NeoRx
Corporation, CytRx Corporation, Cellegy Pharmaceuticals, Inc., Targeted
Genetics Corp., Osiris Therapeutics, Inc., Vaxcel, Inc., and Celgene Corp.
MR. CURNOCK COOK has been a Director of cti since March 1995. Mr. Curnock
Cook has been a director of the Bioscience Unit of Rothschild Asset Management
Limited since 1987. He is a director of several British companies, including
The International Biotechnology Trust, plc, Biocompatibles International, plc,
Vanguard Medica Group plc and Cantab Pharmaceuticals plc. He also serves on
the boards of directors of Creative Biomolecules, Inc., Targeted Genetics,
Corp., Sugen Inc. and Ribozyme Pharmaceuticals, Inc. in the United States, and
Inflazyme Pharmaceuticals Inc. in Canada.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING--CLASS II
DIRECTORS
DR. LINK joined the Board of Directors in July 1995 as its Vice Chairman and
has served as Chairman of the Board of Directors since January 1996. In
addition, Dr. Link has held a number of executive positions with
pharmaceutical and healthcare companies. Most recently, he served as Chief
Executive Officer of Corange, Limited ("Corange"), from May 1993 until June
1994. Prior to joining Corange, Dr. Link served in a number of
6
<PAGE>
positions within Sandoz Pharma Ltd., including Chief Executive Officer from
1987 until April 1992, and Chairman from April 1992 until May 1993. Dr. Link
currently serves on the boards of directors of Alexion Pharmaceutical, Inc.,
Human Genome Sciences, Inc., Procept, Inc., Protein Design Labs, Inc., Sulzer
Medica Ltd. and CytRx Corporation. Dr. Link received his Ph.D. in Economics
from the University of St. Gallen.
MR. MORRIS has been a Director of cti since July 1995. He is the Chief
Executive Officer of T. Morris & Company (d/b/a Morningside Ventures), which
advises Kummell Investments Limited, an international investment concern based
in Hong Kong, on its private venture capital portfolio. Mr. Morris has served
as Chief Executive Officer of Morningside Ventures since 1991. His previous
positions include product line manager at Baxter Healthcare Corporation and
strategy consultant with the Boston Consulting Group. Mr. Morris is a director
of several privately held companies.
DR. JAEGER has been a Director of cti since September 1992. Dr. Jaeger is a
founding general partner of Three Arch Partners, a venture capital firm which
focuses on health care investments and is the Secretary and Chief Financial
Officer of Radiant Medical, Inc., a medical device company. Prior to joining
Three Arch Partners in 1993, he was a partner at Schroder Venture Advisers
(presently named Collinson Howe Venture Partners) and The Phoenix Partners.
Dr. Jaeger is also a director of Intensiva Healthcare Corporation and several
privately held companies. Dr. Jaeger received his M.D. from the University of
British Columbia in Vancouver, B.C., Canada, in 1981. He practiced medicine
for six years before earning an M.B.A. from Stanford University.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING--CLASS III
DIRECTORS
DR. BIANCO is the principal founder of cti and has been cti's President and
Chief Executive Officer since February 1992 and a Director of cti since the
Company's inception in September 1991. Prior to joining cti, Dr. Bianco was an
Assistant Professor of Medicine at the University of Washington, Seattle, and
an Assistant Member in the clinical research division of the Fred Hutchinson
Cancer Research Center ("FHCRC"), the world's largest bone marrow
transplantation center. From 1990 to 1992, Dr. Bianco was the director of the
BMT Program at the Veterans Administration Medical Center in Seattle. Dr.
Bianco received his B.S. degree in Biology and Physics from New York
University and his M.D. from Mount Sinai School of Medicine.
DR. SINGER is a founder and Director of cti and currently serves as cti's
Executive Vice President, Research Program Chairman. Dr. Singer has been a
Director of cti since the Company's inception in September 1991. From April
1992 to July 1995, Dr. Singer was cti's Executive Vice President, Research and
Development. Prior to joining cti, Dr. Singer was Professor of Medicine at the
University of Washington and full Member of the FHCRC. From 1975 to 1992, Dr.
Singer was the Chief of Medical Oncology at the Veterans Administration
Medical Center in Seattle. In addition, from 1978 to 1992, he served as
director for the National Transplant Board for the Veterans Administration.
Dr. Singer has authored approximately 220 scientific publications in the areas
of cell biology, hematopoiesis and BMT. Prior to joining cti, he headed the
Growth Factor Research Program at the FHCRC. Dr. Singer received his B.A.
degree in Mathematics from Columbia College and his M.D. from State University
of New York, Downstate Medical College. His clinical training was performed at
the University of Chicago and at the University of Washington.
DR. MUNDINGER has been a Director of cti since April 1997. Since 1986, she
has been a Dean and Professor at the School of Nursing, and an Associate Dean
on the Faculty of Medicine at Columbia University. Dr. Mundinger is a
Commissioner on the Commonwealth Fund Commission on Women's Health and also
serves as a director of Health Care Services, Institute of Medicine of the
National Academy of Science and United Healthcare. Dr. Mundinger also serves
on the editorial board of National Health Publishing Company, Inc. Dr.
Mundinger is a cum laude graduate of the University of Michigan and received
her Doctorate of Public Health from Columbia's School of Public Health.
7
<PAGE>
BOARD AND COMMITTEE MEETINGS
The Board of Directors of the Company held nine meetings during the year
ended December 31, 1997. Each of the Directors attended at least 75% of the
total number of meetings of the Board of Directors and the total number of
meetings held by all committees of the Board of Directors on which they
served. The Board of Directors has three standing committees: an Executive
Committee, a Compensation Committee, and an Audit Committee. There is no
standing nominating committee.
The Executive Committee exercises the full power and authority of the Board
of Directors, except as limited by applicable law and except as specific
authority is otherwise delegated by the Board of Directors to its other
committees. No meetings of the Executive Committee were held during the year
ended December 31, 1997. The Executive Committee currently consists of Drs.
Bianco, Link and Nudelman and Mr. Curnock Cook.
The Compensation Committee has broad responsibility for assuring that the
officers and key management personnel of the Company are effectively
compensated in terms of salaries, supplemental compensation and benefits which
are internally equitable and externally competitive. The Compensation
Committee also administers the Company's 1994 Equity Incentive Plan and the
Company's 1996 Employee Stock Purchase Plan. Three meetings of the
Compensation Committee were held during the year ended December 31, 1997. The
Compensation Committee currently consists of Dr. Jaeger and Messrs. Bowman,
Curnock Cook and Morris.
The Audit Committee, which was established in January 1994, has
responsibility for assisting the Board of Directors in fulfilling their
responsibilities related to the corporate accounting and reporting practices
of the Company and the quality and integrity of the Company's financial
reporting. Three meetings of the Audit Committee were held during the year
ended December 31, 1997. The Audit Committee currently consists of three non-
employee Directors, Drs. Jaeger and Nudelman and Mr. Morris.
DIRECTOR COMPENSATION
Directors who are also employees of the Company are not paid an annual
retainer nor are they compensated for serving on the Board. Non-employee
Directors are paid $2,000 per meeting of the Board or Board committee, up to a
maximum of $10,000 per Director each calendar year. All Directors are
reimbursed for their expenses incurred in attending Board meetings. In
addition, in fiscal year 1997 each non-employee Director received a fully-
vested option grant for 1,905 shares pursuant to the Automatic Option Grant
Program in effect for them under the 1994 Plan. Each such option has an
exercise price equal to 100% of the fair market value on the grant date and a
term of ten years measured from such grant date.
8
<PAGE>
PROPOSAL II
APPROVAL OF AMENDMENT TO
THE 1994 EQUITY INCENTIVE PLAN
The Company's 1994 Equity Incentive Plan (the "1994 Plan") was adopted by
the Board of Directors in January 1994 and approved by the shareholders in
February 1994. A total of 582,685 shares of Common Stock were initially
reserved for issuance under the 1994 Plan and a predecessor plan, the
Company's 1992 Stock Option Plan (the "1992 Plan"). In May 1995, April 1996
and June 1997, the shareholders of the Company approved the adoption of
amendments to the 1994 Plan to increase the aggregate number of shares
authorized for issuance thereunder by 246,887 shares, 507,143 shares and
1,000,000 shares, respectively, bringing the total number of shares reserved
under the 1994 Plan to 2,336,715 shares of Common Stock. As of April 30, 1998,
options to purchase 64,018 shares have been exercised, ten-year options to
purchase 1,813,017 shares were granted and outstanding, and options to
purchase 459,680 shares of Common Stock remained available for future grants
under the 1994 Plan.
The 1994 Plan supersedes the 1992 Plan, pursuant to which the Board of
Directors was authorized to issue incentive stock options and nonstatutory
stock options upon terms and conditions similar to the 1994 Plan. Options
granted under the 1992 Plan continue to be governed by the terms of the 1992
Plan. The number of shares available for future grants under the 1994 Plan
will be increased by the number of shares of Common Stock for which options
granted under the 1992 Plan expire, terminate, or are canceled.
PROPOSED AMENDMENT TO THE 1994 PLAN
On May 11, 1998, the Board of Directors approved, subject to approval by the
shareholders of the Company, an amendment to the 1994 Plan that increases the
maximum number of shares issuable under the 1994 Plan by an additional
1,500,000 shares to a total of 3,836,715 shares.
Currently, options for a total of 2,336,715 shares may be issued under the
1994 Plan. Of these shares, 459,680 shares remain currently available for
future options. If the shareholders do not approve the increase, then the
maximum number of shares issuable under the 1994 Plan will remain at 2,336,715
with 459,680 shares available for future option grants. The purpose of the
proposed increase is to provide sufficient shares for future option grants to
new and existing officers, key employees, non-employee Directors and
consultants of the Company. The Board of Directors believes that the Company
should have shares available under the 1994 Plan to provide options to certain
of its prospective and existing officers, key employees, non-employee
Directors and consultants. The Board of Directors believes that the Company
and its shareholders significantly benefit from having the Company's key
management and scientific employees and consultants receive options to
purchase the Company's Common Stock, and that the opportunity thus afforded
these employees and consultants to acquire Common Stock is an essential
element of an effective management incentive program. The Board of Directors
also believes that stock options are very valuable in attracting and retaining
highly qualified management and scientific personnel and in providing
additional motivation to these individuals to use their best efforts on behalf
of the Company.
VOTE REQUIRED
The affirmative vote of a majority of the outstanding shares of Common Stock
present in person or represented by proxy entitled to vote at the Annual
Meeting will be required to approve the proposed amendment to the 1994 Plan.
Unless otherwise instructed, it is the intention of the persons named in the
accompanying form of proxy to vote shares represented by properly executed
proxies for approval of the proposed amendment to the 1994 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSED
AMENDMENT TO THE 1994 PLAN
9
<PAGE>
The 1994 Plan provides for (a) the grant of incentive stock options,
nonstatutory stock options and stock appreciation rights, (b) the award of
stock bonuses, (c) the sale of stock, and (d) any other equity-based or
equity-related awards which the plan administrator determines to be consistent
with the purpose of the 1994 Plan and the interests of the Company. The 1994
Plan also provides for the automatic grant of nonstatutory options to non-
employee Directors pursuant to the formula described below.
The terms and provisions of the 1994 Plan, as amended, are summarized more
fully below. This summary, however, does not purport to be a complete
exposition of all the provisions of the 1994 Plan. A copy of the 1994 Plan
will be furnished by the Company to any shareholder upon written request to
the Investor Relations Department of the Company at the Company's principal
offices in Seattle, Washington.
ELIGIBILITY
The 1994 Plan authorizes the granting of awards to (a) selected employees,
officers and Directors of the Company or any parent or subsidiary of the
Company, and (b) selected non-employee agents, consultants, advisers and
independent contractors of the Company or any parent or subsidiary. Directors
who are not employees of the Company shall receive automatic nonstatutory
stock option grants under the 1994 Plan, as described below, and will also be
eligible to receive other awards under the 1994 Plan. All persons selected by
the plan administrator to receive awards under the 1994 Plan must be
individuals that the plan administrator believes have made or will make an
important contribution to the Company.
As of April 30, 1998, approximately 175 employees (including eight executive
officers), 21 consultants and seven non-employee Directors were eligible to
participate in the 1994 Plan.
AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS
Under the 1994 Plan, each non-employee Director is automatically granted a
fully vested nonstatutory stock option to purchase 2,858 shares of Common
Stock upon his or her election to the Board of Directors for the first time.
In addition, each non-employee Director is automatically granted a fully
vested nonstatutory stock option to purchase 1,905 shares of Common Stock on
each anniversary of his or her immediately preceding election to the Board of
Directors. The exercise price of such options is 100% of the fair market value
of the shares of Common Stock on the date of grant. Each such option will have
a ten-year term from the date of grant, unless earlier terminated upon
termination of a non-employee Director's service with the Company. See "--
Stock Options."
Shareholder approval of Proposal II will also constitute pre-approval of
each automatic option grant made to the non-employee Directors on or after the
date of the 1998 Annual Meeting pursuant to such provisions of the 1994 Plan
and the subsequent exercise of that option in accordance with such provisions.
NUMBER OF SHARES COVERED BY THE 1994 PLAN
2,336,715 shares of Common Stock have been reserved for issuance under the
1994 Plan. If the shareholders approve the adoption of the amendment to the
1994 Plan, a total of 3,836,715 shares of Common Stock (representing
approximately 24.9% of the total number of shares of Common Stock issued and
outstanding as of the Record Date) will have been reserved for grant under the
1994 Plan, of which 1,877,035 shares are subject to outstanding options and
1,959,680 shares would be available for future grants. If an option or a stock
appreciation right granted under the 1994 Plan expires, terminates or is
cancelled, the unissued shares subject to such option or stock appreciation
right shall again be available for issuance under the 1994 Plan, and if shares
sold under the 1994 Plan are forfeited to the Company or are repurchased by
the Company at the issue price paid per share, the number of shares forfeited
or repurchased shall again be available for issuance under the 1994 Plan.
In no event may any one participant in the 1994 Plan be granted stock
options, separately exercisable stock appreciation rights and direct stock
awards for more than 233,671 shares in the aggregate per calendar year under
the 1994 Plan.
10
<PAGE>
ADMINISTRATION
The 1994 Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"). The Committee may promulgate rules and
regulations for the operation of the 1994 Plan, interprets the 1994 Plan and
related agreements and generally supervises the administration of the 1994
Plan. The Committee determines the persons to whom awards will be made under
the 1994 Plan, the amount of the awards, and the other terms and conditions of
the awards. The Committee may also advance the lapse of any waiting period,
accelerate any exercise date, waive or modify any restriction with respect to
an award, or give an employee an election to surrender an existing award in
exchange for the grant of a new award.
TERM OF 1994 PLAN
The 1994 Plan was approved by the Board of Directors of the Company on
January 7, 1994, and will terminate upon the earlier of (i) the date that all
shares available for issuance under the 1994 Plan have been issued and all
restrictions on such shares have lapsed and (ii) January 1, 2004. The
Company's Board of Directors has the power to suspend, terminate, modify or
amend the 1994 Plan at any time.
STOCK OPTIONS
The Committee may grant stock options under the 1994 Plan. The Committee
will determine the persons to whom options will be granted, the exercise price
of each option, the number of shares to be covered by each option, the period
of each option, the times at which each option may be exercised, and whether
each option is an incentive stock option or a nonstatutory stock option.
Options granted under the 1994 Plan must have exercise prices that are not
less then 100% of the fair market value of the underlying shares on the date
of grant. However, if an optionee of an incentive stock option at the time of
grant possesses more than 10% of the combined voting power of all classes of
the Company's stock (a "10% Shareholder"), the exercise price may not be less
than 110% of the fair market value of the underlying shares on the date of
grant.
Options may be granted under the 1994 Plan for varying periods established
at the time of grant (not to exceed ten years from the date of grant for
incentive stock options, or five years from the date of grant for incentive
stock options granted to any 10% Shareholder). During the optionee's lifetime,
the option is generally exercisable only by the optionee and may not be
assigned or transferred other than by will or the laws of inheritance
following the optionee's death. The Committee may, however, allow nonstatutory
options to be transferred or assigned during the optionee's lifetime to one or
more family members or a trust established exclusively for such family
members, to the extent such transfer or assignment is in furtherance of the
optionee's estate plan. Options will be exercisable in accordance with the
terms of an option agreement entered into at the time of the grant. In the
event of the death or other termination of an optionee's employment or service
with the Company, the 1994 Plan provides that the optionee's options may be
exercised for specified periods thereafter (one year in the case of
termination by reason of death or disability and three months in the case of
termination for any other reason). The 1994 Plan also provides that upon any
termination of employment or service, the Committee may extend the exercise
period for any option up to the expiration date of the option and may increase
the portion of the option that is exercisable. The 1994 Plan does not allow
options to be exercised after their expiration date.
The purchase price for shares of Common Stock purchased on exercise of
options granted under the 1994 Plan must be paid in cash, including cash that
may be the proceeds of a loan from the Company or, with the consent of the
Committee, in whole or in part in shares of Common Stock of the Company. With
the consent of the Committee, an optionee may request the Company to apply the
shares to be received on exercise of a portion of an option to satisfy the
exercise price for additional portions of the option.
STOCK APPRECIATION RIGHTS
The Committee may grant stock appreciation rights ("SARs") to employees
under the 1994 Plan. SARs may, but need not, be granted in connection with an
option. A SAR gives the holder the right to payment from the Company of an
amount equal in value to the excess of the fair market value on the date of
exercise of one
11
<PAGE>
share over its fair market value on the date of grant (or, if granted in
connection with an option, the exercise price per share under the option to
which the SAR relates), multiplied by the number of shares covered by the
portion of the SAR or option that is surrendered. An employee will not pay the
Company any cash consideration upon either the grant or exercise of a SAR,
except for tax withholding amounts upon exercise.
A SAR is exercisable only at the time or times established by the Committee.
If a SAR is granted in connection with an option, it is exercisable only to
the extent and on the same conditions that the related option is exercisable.
Payment by the Company upon exercise of a SAR may be made in shares valued at
fair market value, or in cash, or partly in shares and partly in cash, as
determined by the Committee. The Committee may withdraw any SAR at any time
and may impose any conditions upon the exercise of a SAR or adopt rules and
regulations from time to time affecting the rights of holders of SARs.
The existence of any exercisable SARs will require the Company to make
periodic charges against the Company's income to the extent of the amount of
appreciation, if any, in the market value of the shares over the exercise
price of shares subject to such SARs.
STOCK BONUSES
The Committee may award shares of Common Stock as stock bonuses under the
1994 Plan. The Committee will determine the persons to receive stock bonuses,
the number of shares to be awarded and the time of the award. No cash
consideration (other than tax withholding amounts) will be paid by persons in
connection with stock bonuses. Shares received as a stock bonus may be subject
to terms, conditions and restrictions as determined by the Committee.
STOCK PURCHASES
The Committee may authorize the sale of shares of the Company's Common Stock
under the 1994 Plan to eligible individuals in the Company's service, but in
no event may the price payable per share be less than 75% of the fair market
value of the shares at the time of issuance. The issued shares will be subject
to such terms, conditions and limitations as the Committee deems appropriate.
Such limitations may include restrictions on the transferability of the shares
and the implementation of a vesting schedule pursuant to which the issued
shares will be subject to forfeiture or repurchase by the Company, at the
issue price paid per share, should the recipient leave the employ or service
of the Company prior to vesting in those shares.
CHANGES IN CAPITAL STRUCTURE
If any recapitalization, reclassification, stock split, combination of
shares or stock dividend causes the outstanding shares of the Company's Common
Stock to increase or decrease or to be changed into a different number or kind
of securities of the Company or any other corporation, the Committee shall
make appropriate adjustments in (i) the number and kind of securities
available for awards under the 1994 Plan, (ii) the number and kind of
securities as to which outstanding options and SARs shall be exercisable, such
that the participant's proportionate interest before and after the event is
maintained, (iii) the maximum number and kind of securities for which any one
participant may be granted options, SARs and direct stock awards under the
1994 Plan per calendar year and (iv) the number and kind of securities for
which stock options will automatically be granted to newly elected or
continuing non-employee Directors. Appropriate adjustments will also be made
to the exercise price then in effect under outstanding options or SARs.
EFFECT OF REORGANIZATION OR LIQUIDATION
The 1994 Plan provides for automatic acceleration of the vesting of options
and SARs granted under the 1994 Plan if a merger, consolidation,
reorganization, plan of exchange or liquidation results in the Company's
shareholders receiving cash, stock or other property in exchange for their
shares, except as specified in the following paragraph. Option holders will
have the right during the thirty (30) day period immediately prior to any such
event to exercise their options or SARs without any limitation on
exercisability.
12
<PAGE>
The 1994 Plan provides that, if the Company's shareholders receive stock of
another corporation in exchange for shares of the Company in any merger,
consolidation, reorganization or plan of exchange, all options granted under
the 1994 Plan will be converted into options to purchase shares of the stock
of the other corporation and all SARs will be converted into SARs measured by
the stock of the other corporation. Under the 1994 Plan the Committee may, in
its discretion, accelerate the vesting of options and SARs in lieu of their
conversion, in which event holders would have a thirty (30) day period prior
to such event to exercise their options or SARs, as provided above. In
addition, the 1994 Plan allows the Committee to accelerate the vesting of the
options and SARs granted under the 1994 Plan upon the occurrence of a "Change
in Control." A "Change in Control" is defined as (a) the acquisition, directly
or indirectly, by any individual, entity or group (within the meaning of
Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934 (the "1934
Act")), of beneficial ownership (within the meaning of Rule 13d-3 under the
1934 Act) of securities representing 50.1% or more of either the then
outstanding shares of Common Stock or the combined voting power in the
election of Directors of the then outstanding voting securities of the
Company, (b) individuals who, as of the effective date of the Plan, constitute
the Board of Directors (the "Incumbent Board") (including any individual whose
subsequent election or nomination was approved by a vote of at least a
majority of the Directors then comprising the Incumbent Board) cease for any
reason to constitute at least a majority of the Board of Directors, or (c)
approval by the shareholders of the Company of certain reorganizations,
mergers or consolidations, or of certain liquidations, dissolutions or
dispositions of all or substantially all of the assets of the Company.
The Committee may make awards under the 1994 Plan that have terms and
conditions that vary from those specified in the 1994 Plan when such awards
are granted in substitution for, or in connection with the assumption of,
existing awards made by another corporation and assumed or otherwise agreed to
be provided for by the Company in connection with a corporate merger or other
similar transaction to which the Company or an affiliated Company is a party.
The Committee may also specify the terms and provisions of other equity-
based or equity-related awards not described in the 1994 Plan which the
Committee determines to be consistent with the purpose of the 1994 Plan and
the interests of the Company.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Incentive Stock Options
Certain options authorized to be granted under the 1994 Plan are intended to
qualify as "incentive stock options" for Federal income tax purposes. Under
United States Federal income tax law in effect as of the date of this Proxy
Statement, an optionee will recognize no income upon grant or exercise of an
incentive stock option. At the time of exercise, however, the difference
between the exercise price and the fair market value constitutes a tax
preference item which may have Alternative Minimum Tax consequences for the
optionee. If an employee exercises an incentive stock option and does not
dispose of any of the shares thereby acquired within two years following the
date of grant and within one year following the date of exercise, capital gain
or loss will be realized upon the subsequent disposition of the shares. If an
employee disposes of shares acquired upon exercise of an incentive stock
option before the expiration of either the two-year or the one-year holding
period specified in the foregoing sentence (a "disqualifying disposition"),
the employee will realize ordinary income in an amount equal to the lesser of
(a) the excess of the fair market value of the shares on the date of exercise
over the option price or (b) the excess of the fair market value of the shares
on the date of disposition over the option price. Any loss or additional gain
realized upon the disqualifying disposition will constitute capital loss or
gain. In general, the Company will not be allowed any deduction for Federal
income tax purposes at either the time of grant or the time of exercise of an
incentive stock option or when the shares thereby acquired are disposed of.
Upon any disqualifying disposition by an employee, however, the Company will
be entitled to a deduction to the extent the employee realizes ordinary
income.
13
<PAGE>
Nonstatutory Stock Options
Certain options authorized to be granted under the 1994 Plan will be treated
as "nonstatutory stock options" for United States Federal income tax purposes.
Under Federal income tax law in effect as of the date of this Proxy Statement,
no income is realized by the holder of a nonstatutory stock option until the
option is exercised. At the time of exercise, the optionee will realize
income, and the Company may be entitled to a deduction, in the amount by which
the fair market value of the shares subject to the option at the time of
exercise exceeds the exercise price. Upon the sale of shares acquired upon
exercise of a nonstatutory stock option, the employee will realize capital
gain or loss equal to the difference between the amount realized from the sale
and the employee's basis in the shares (i.e., the exercise price plus the
amount of income recognized on exercise of the option).
Bonus Shares and Shares Sold Outright Under the 1994 Plan
Bonus shares awarded under the 1994 Plan and shares sold outright under the
1994 Plan, which are transferable or not subject to a substantial risk of
forfeiture, will be taxable as ordinary income equal to the excess of the fair
market value of the shares received (determined as of the date of settlement)
over the amount, if any, paid for the shares by the participant. The Company
will be entitled to a tax deduction in the same amount.
In the case of shares that are not transferable and are subject to a
substantial risk of forfeiture on the date of issuance, the participant will
generally recognize ordinary income equal to the excess of the fair market
value of the shares (determined as of the date on which the shares either
become transferable or are not subject to a substantial risk of forfeiture)
over the amount, if any, paid for the shares. The Company will be entitled to
a tax deduction in the same amount. A participant may elect to recognize
income when the shares are received, rather than upon the expiration of the
transfer restriction or risk of forfeiture, and, in such event, the amount of
ordinary income will be determined as of the date of issuance rather than upon
expiration of the applicable restriction. The Company's tax deduction if any
will be determined at the same time.
PARTICIPATION IN THE 1994 PLAN
The ten-year options to purchase 1,813,017 shares of Common Stock which are
outstanding pursuant to the 1994 Plan and the 1992 Plan were granted to 215
employees, consultants and non-employee Directors and generally vest in equal
annual installments on the first three or four anniversaries of the date of
grant. The exercise prices of such options range from $17.50 to $3.78, with an
average weighted exercise price of $12.39.
14
<PAGE>
STOCK AWARDS
The table below shows, as to each executive officer of the Company named in
the Summary Compensation Table herein and the various indicated individuals
and groups, the number of shares of Common Stock subject to options granted
under the 1994 Plan between January 1, 1997 and April 30, 1998, together with
the weighted average exercise price payable per share. No stock bonuses or
sales of stock have been made to date under the 1994 Plan.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE
NAME AND POSITION OPTION SHARES PRICE ($)
- ----------------- ------------- ----------------
<S> <C> <C>
James A. Bianco, M.D............................ 80,000 $16.06
Jack W. Singer, M.D............................. 27,500 16.06
Louis A. Bianco................................. 15,000 16.06
Maurice J. Schwarz, Ph.D........................ 15,000 16.06
Robert A. Lewis, M.D............................ 20,000 16.06
All current executive officers as a group (7
persons)....................................... 200,000 16.06
All Directors (other than executive officers) as
a group (7 persons)............................ 20,955 8.72
All employees, including current officers who
are not executive officers, as a group (187
persons)....................................... 376,573 12.85
</TABLE>
NEW PLAN BENEFITS
As of the date of this Proxy Statement, no awards have been made under the
1994 Plan on the basis of the share increase which forms Proposal II. The
number and type of awards to be granted under the 1994 Plan to any particular
individual cannot be determined as of such date, except for the options that
will automatically be granted to certain non-employee Directors as described
above.
15
<PAGE>
PROPOSAL III
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 1998, and has further
directed that management submit the selection of independent auditors for
ratification by the shareholders at the Annual Meeting. Ernst & Young LLP has
audited the Company's financial statements since 1992. Representatives of
Ernst & Young LLP are expected to be present at the Annual Meeting, will have
an opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
In the event the shareholders fail to ratify the selection, the Board will
reconsider whether or not to retain that firm. Even if the selection is
ratified, the Board in its discretion may direct the appointment of a
different independent accounting firm at any time during the year if the Board
feels that such a change would be in the best interests of the Company and its
shareholders. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote at the Annual
Meeting will be required to ratify the selection of Ernst & Young LLP.
Abstentions will be counted toward total shares voted; broker non-votes will
not be counted toward the total.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS.
16
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
executive officers of cti:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James A. Bianco, M.D. .. 41 President, Chief Executive Officer
Jack W. Singer, M.D. ... 55 Executive Vice President, Research Program Chairman
Louis A. Bianco ........ 45 Executive Vice President, Finance and Administration
Maurice J. Schwarz,
Ph.D. ................. 58 Executive Vice President, Product Development
Robert A. Lewis, M.D. .. 53 Executive Vice President, Chief Scientific Officer
Susan O. Moore.......... 49 Executive Vice President, Corporate Resource Development
Jack M. Anthony......... 51 Executive Vice President, Marketing and Business Development
</TABLE>
See Proposal I for biographical information concerning Drs. Bianco and
Singer.
MR. BIANCO is a founder of cti and has been cti's Executive Vice President,
Finance and Administration since February 1, 1992, and a Director of cti from
the Company's inception in September 1991 to April 1992 and from April 1993 to
April 1995. From January 1989 through January 1992, Mr. Bianco was a Vice
President at Deutsche Bank Capital Corporation in charge of risk management.
Mr. Bianco is a Certified Public Accountant and received his M.B.A. from New
York University. Mr. Bianco and Dr. Bianco are brothers.
DR. SCHWARZ has been cti's Executive Vice President, Product Development
since May 1994. Dr. Schwarz held a variety of product development positions at
Ciba-Geigy for 26 years prior to joining cti, most recently as Vice President
of Pharmaceutical and Analytical Development and Chairman of the Development
Operations Board at Ciba-Geigy Pharmaceuticals Division. Dr. Schwarz received
his B.A. and Ph.D. degrees in chemistry from the University of Oregon.
DR. LEWIS has been cti's Executive Vice President, Chief Scientific Officer
since April 1996. From September 1994 to May 1995, Dr. Lewis was Senior Vice
President and Director, Preclinical Research and Development at Syntex-Roche
("Syntex"). From February 1992 to September 1994, he was President, Discovery
Research at Syntex. From February 1986 to February 1992, he held various
Senior and Executive Vice Presidential offices at Syntex. While at Syntex, he
held associate professorships at Stanford University and at the University of
California, San Francisco, where he also held an adjunct professorship from
1992 to 1994. Prior to joining Syntex, Dr. Lewis was an Associate Professor of
Medicine at Harvard Medical School. Dr. Lewis received his M.D. from the
University of Rochester and B.S. degree in chemistry from Yale University.
MS. MOORE has been cti's Executive Vice President, Corporate Resource
Development since October 1997. From August 1995 to September 1997, Ms. Moore
was cti's Executive Vice President, Human Resource Development and from March
1993 to July 1995, she was cti's Vice President of Human Resources. From
December 1992 to March 1993, Ms. Moore was the sole proprietor of a
compensation consulting firm. Prior to this sole proprietorship, Ms. Moore was
the Director of Human Resources of ICOS Corporation, a biotechnology company,
and a member of senior management at Digital Equipment Corporation.
MR. ANTHONY has been cti's Executive Vice President, Marketing and Business
Development since January 1997. From April 1996 to January 1997, Mr. Anthony
was cti's Vice President of Marketing and Business Development. Prior to
joining cti, Mr. Anthony was Vice President of Marketing and Business
Development at Inhale Therapeutic Systems, a drug delivery company, from
October 1994 to April 1996. From August 1989 to October 1994, he was Vice
President of Marketing and Business Development of Applied Immune Sciences, a
cell and gene therapy concern. From 1973 to 1989, Mr. Anthony held various
executive management positions at Baxter Healthcare Corporation, lastly as
Vice President, Blood Therapy Group.
17
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and Directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission (the "SEC") reports of ownership and
changes in ownership of common stock and other equity securities of the
Company. Officers, Directors and greater than ten percent shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file. The Company does prepare Section 16(a) forms on behalf
of its officers and Directors based on the information provided by them.
Based solely on review of this information, or written representations from
reporting persons that no other reports were required, the Company believes
that, during the 1997 fiscal year, all Section 16(a) filing requirements
applicable to its officers, Directors and greater than ten percent beneficial
owners were complied with, other than the reporting of transaction by Max E.
Link, a Director, that should have been filed on Form 4 in September 1997 but
instead was filed on Form 5 in February 1998.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth all compensation paid for the years ended
December 31, 1995, 1996 and 1997 to the Company's Chief Executive Officer and
the four other most highly compensated executive officers who were serving as
executive officers at December 31, 1997 (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(1)
--------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL COMPEN- OPTIONS/ ALL OTHER
POSITION YEAR SALARY ($) BONUS ($) SATION($)(2) SARS (#) COMPENSATION ($)
------------------ ---- ---------- --------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
James A. Bianco, M.D. .. 1997 393,840 120,000 88,426(2) 80,000 294,319(3)
President and Chief 1996 358,032 50,000 -- 85,714 72,223(4)
Executive Officer 1995 315,984 27,475 -- 137,955(5) 7,402(6)
Jack W. Singer, M.D. ... 1997 251,898 60,000 3,821(7) 27,500 11,655(8)
Executive Vice
President, Research 1996 248,976 15,000 -- 28,571 10,524(8)
Program Chairman 1995 248,976 -- -- 20,957(5) 9,762(6)
Louis A. Bianco......... 1997 300,120 -- 3,639(7) 15,000 96,109(9)
Executive Vice
President, Finance and 1996 263,088 -- -- 21,428 55,367(4)
Administration 1995 232,195 10,000 -- 55,098(5) 6,772(6)
Maurice J. Schwarz,
Ph.D. ................. 1997 187,500 35,000 3,221(7) 15,000 49,429(10)
Executive Vice
President, Product 1996 187,500 58,993 -- 28,571 65,619(10)
Development 1995 187,500 12,936 8,200(7) 28,571(5) 45,802(10)
Robert A. Lewis, M.D. .. 1997 262,032 40,000 2,741(11) 20,000 --
Executive Vice 1996 181,512 -- -- 67,142(12) 26,144(13)
President, Chief
Scientific Officer
</TABLE>
- --------
(1) Other annual compensation in the form of perquisites and other personal
benefits has been omitted where the aggregate amount of such perquisites
and other personal benefits constituted the lesser of $50,000 or 10% of
the total annual salary and bonus for the Named Executive Officer for the
applicable year.
(2) Other annual compensation for Dr. Bianco includes payments totaling
$86,366 to cover Dr. Bianco's estimated tax liabilities with respect to
certain perquisites as well as each of the life insurance premium payment
and loan forgiveness described in Note 3.
18
<PAGE>
(3) All other compensation for Dr. Bianco includes the following: (i)
payments aggregating $164,636 for unused sick and vacation leave accrued
by Dr. Bianco between 1992 and 1996, pursuant to the terms of his
employment agreement then in effect, (ii) reimbursement of long-term
disability insurance premiums of $8,737, (iii) a premium payment of
$40,000 for life insurance required by the terms of Dr. Bianco's
employment agreement, and (iv) loan forgiveness of $80,946 pursuant to
the terns of Dr. Bianco's current employment agreement. See--"Employment
Agreements".
(4) All other compensation includes payment of unused sick leave for Dr.
Bianco and Mr. Bianco accrued during 1992, 1993 and 1994, pursuant to the
terms of their employment agreements then in effect, aggregating $64,526
and $47,415, respectively, and reimbursement for long-term disability
insurance premiums of $7,697 and $7,952, respectively.
(5) In April 1995, the Board of Directors approved the repricing of
outstanding options to $11.725 per share by exchanging such outstanding
options for a fewer number of options pursuant to a Black-Scholes
formula. All other terms and conditions of the options remained
unchanged. Grants for the year ended December 31, 1995 include options
which were initially granted in prior years and have been repriced and
exchanged for a fewer number of options in 1995 as follows: Dr. Bianco,
64,285 options were repriced and exchanged for 57,857 options; Dr.
Singer, 14,285 options were repriced and exchanged for 12,857 options;
Mr. Bianco, 42,857 options were repriced and exchanged for 36,428
options; and Dr. Schwarz, 21,428 options were repriced and exchanged for
17,142 options.
(6) Represents reimbursement for long-term disability insurance premiums.
(7) Other annual compensation includes payments to cover estimated tax
liabilities with respect to certain perquisites, and, in the case of Mr.
Bianco, the life insurance premium described in Note 9.
(8) All other compensation for Dr. Singer includes reimbursement for long-
term disability insurance premiums of $10,524 and $11,655 in 1996 and
1997, respectively.
(9) All other compensation for Mr. Bianco includes the following: (i)
payments aggregating $86,210 for unused vacation leave accrued by Mr.
Bianco between 1992 and 1996, pursuant to the terms of his employment
agreement then in effect, (ii) reimbursement for long-term disability
insurance premiums of $8,474, and (iii) a premium payment of $1,425 for
life insurance.
(10) All other compensation for Dr. Schwarz includes loan forgiveness of
$42,210, $60,789, and $49,429 in 1995, 1996 and 1997, respectively, and
$3,592 and $4,830 of relocation expenses in 1995 and 1996, respectively,
all in connection with Dr. Schwarz's relocation to the Seattle area in
1996. See--"Employment Agreements".
(11) Includes payments to cover Dr. Lewis' estimated tax liabilities with
respect to the relocation expense reimbursements described in Note 13
hereto.
(12) Includes 45,716 options granted at the time Dr. Lewis was recruited.
(13) Includes reimbursement of Dr. Lewis' relocation expenses.
The following table sets forth for each of the Named Executive Officers the
number of options granted during the year ended December 31, 1997 and the
potential realizable value of such grants:
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
% OF TOTAL STOCK
NUMBER OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(3)
OPTIONS IN FISCAL PRICE EXPIRATION -------------------
NAME GRANTED(1) YEAR (%) ($/SH)(2) DATE 5% ($) 10% ($)
- ---- ---------- ---------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
James A. Bianco, M.D. .. 80,000 17.1% $16.0625 12/09/07 $808,130 $2,047,959
Jack W. Singer, M.D..... 27,500 5.8 16.0625 12/09/07 277,795 703,986
Louis A. Bianco......... 15,000 3.2 16.0625 12/09/07 151,524 383,992
Maurice J. Schwarz,
Ph.D................... 15,000 3.2 16.0625 12/09/07 151,524 383,992
Robert A. Lewis, M.D.... 20,000 4.2 16.0625 12/09/07 202,032 511,990
</TABLE>
- --------
(1) Options were granted under the 1994 Equity Incentive Plan (the "1994
Plan").
(2) Stock options were granted at an exercise price equal to 100% of the
estimated fair value of the Common Stock, as determined by the Board of
Directors on the date of grant.
(3) Potential realizable value is based on the assumption that the Common
Stock appreciates at the annual rates shown (compounded annually) from the
date of grant until the expiration of the option term. These assumed rates
of appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
the future Common Stock price. There can be no assurance that any of the
values reflected in this table will be achieved.
19
<PAGE>
The following table sets forth for each of the Named Executive Officers, the
fiscal year-end number and value of unexercised options. No options were
exercised by any of the Named Executive Officers during 1997.
AGGREGATED OPTION EXERCISES IN LATEST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL FISCAL YEAR-END
YEAR-END (#) 1997($)(1)(2)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James A. Bianco, M.D........ 140,337 163,335 $740,278 $514,592
Jack W. Singer, M.D......... 28,102 48,929 148,238 138,819
Louis A. Bianco............. 56,530 35,001 298,196 119,568
Maurice J. Schwarz, Ph.D.... 34,286 37,858 180,859 134,638
Robert A. Lewis, M.D........ 10,001 77,144 52,755 320,185
</TABLE>
- --------
(1) This amount is the aggregate number of in-the-money options multiplied by
the difference between the last reported sale price of the Common Stock on
the Nasdaq National Market on December 31, 1997 and the exercise price for
that option.
(2) The value of unexercised in-the-money options at April 30, 1998 was zero
based upon the last reported sale price of the Common Stock on the Nasdaq
National Market on that date.
EMPLOYMENT AGREEMENTS
Dr. Bianco, President and Chief Executive Officer, entered into an
employment agreement with cti, effective December 17, 1996 which agreement
will expire on December 31, 1999. The agreement provides that Dr. Bianco would
receive a base salary at an annual rate of $393,840 in 1997 or such greater
amount as the Board of Directors shall determine. The agreement provides that,
in the event that cti terminates Dr. Bianco's employment without cause or Dr.
Bianco terminates his employment for cause: (i) cti at such time shall pay Dr.
Bianco an amount equal to twenty-four months' base salary, (ii) all of Dr.
Bianco's stock options in cti shall immediately become vested, and (iii) cti
shall continue to provide certain benefits through the term of the agreement.
The agreement also provides for the forgiveness over the term of the agreement
of certain indebtedness of Dr. Bianco to cti. See Certain Relationships and
Related Transactions. In addition, the agreement provides that Dr. Bianco is
entitled to four weeks of paid vacation per year and that any unused vacation
time shall be paid in cash upon the termination of Dr. Bianco's employment for
any reason or at such earlier time as required to avoid forfeiture of accrued
but unused vacation time. The employment agreement restricts Dr. Bianco from
competing with cti for the term of the agreement and for two years after
termination of his employment with cti, unless cti shall have terminated Dr.
Bianco's employment without cause or Dr. Bianco shall have terminated his
employment for cause. The agreement also provides that, in the event a Change
in Ownership (as defined in Dr. Bianco's employment agreement) occurs, then
all of Dr. Bianco's stock options shall immediately become vested.
Mr. Bianco, Executive Vice President, Finance and Administration, entered
into a three-year employment agreement with cti, effective February 1, 1992,
which agreement was extended for an additional three-year period by a letter
agreement dated May 27, 1994, and which expired on January 31, 1998. The
agreement provided that Mr. Bianco's base salary was subject to annual
increases in proportion to increases in the consumer price index ("CPI"), plus
10% of the CPI-adjusted annual base salary, or such greater amount as the
Board of Directors might determine. The agreement provided that, in the event
that cti terminated Mr. Bianco's employment without cause or Mr. Bianco
terminated his employment for cause, cti would have paid Mr. Bianco at such
time an amount equal to the total base salary otherwise payable through the
expiration of the term of the agreement or six months' base salary, whichever
was greater, and would continue to provide certain benefits through the term
of the agreement. The agreement also provided that Mr. Bianco was entitled to
four weeks of paid vacation per year and that any unused vacation time and
sick leave would be paid in cash upon the termination of Mr. Bianco's
employment for any reason. The agreement additionally provided that in the
event a Change in Ownership (as defined in Mr. Bianco's employment agreement)
occurred, then all of Mr. Bianco's stock options would immediately become
vested. Effective January 1, 1997, cti's Board of Directors increased Mr.
Bianco's annual base salary to $300,120.
20
<PAGE>
Dr. Schwarz, Executive Vice President, Product Development, entered into a
two-year employment agreement with cti effective May 2, 1994, which was
renewable automatically for successive one-year terms subject to certain
termination provisions contained in the agreement and expired on May 1, 1997.
The agreement provided that Dr. Schwarz initially would receive an annual base
salary of $187,500, subject to periodic increases based on performance. In the
event cti terminated Dr. Schwarz's employment without cause, cti would have
been required to pay Dr. Schwarz such amounts owing for the remaining term of
the agreement. The agreement further provided that in connection with his
relocation to the Seattle area, Dr. Schwarz be reimbursed for capital loss on
the sale of his former residence in the form of a forgivable loan in an amount
not to exceed $150,000. The loan was to be forgiven in three annual
installments, subject to Dr. Schwarz's continued employment with cti, with any
unforgiven portion becoming immediately due and payable within three months of
any termination of Dr. Schwarz's employment.
Each of Jack W. Singer, Louis A. Bianco, Maurice J. Schwarz and Robert A.
Lewis have entered into a one-year severance agreement with cti effective
November 21, 1997, February 1, 1998, May 2, 1997 and January 7, 1998,
respectively. The agreements provide that, in the event any of the foregoing
Named Executive Officers is terminated by cti without cause or resigns for
good reason: (i) cti shall pay his base salary for one year from the severance
date (ii) cti shall pay his accrued but unused vacation through the severance
date, (iii) cti shall continue to pay his benefits for one year from the
severance date, and (iv) all of such officer's stock options shall become
immediately vested. Inventions and proprietary information agreements restrict
each of Drs. Singer, Schwarz and Lewis from competing with cti for two years
after the termination of his employment with cti.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
composed of Directors who are not employees of the Company. The Committee is
responsible for establishing and administering the Company's executive
compensation arrangements, including the compensation of the Chief Executive
Officer and the other executive officers and key employees of the Company,
subject to ratification by the Board. The Committee also administers the 1994
Plan and the 1996 Employee Stock Purchase Plan and makes all stock option
grants under the 1994 Plan to the Company's executive officers.
GENERAL COMPENSATION POLICY
The Company operates in the extremely competitive and rapidly changing
biotechnology industry. The Committee believes that the compensation programs
for executive officers of the Company should be designed to attract, motivate,
and retain talented executives responsible for the success of the Company and
should be determined within a competitive framework and based on the
achievement of strategic corporate objectives and individual performance and
teamwork. Within this overall philosophy, the Committee's objectives are to:
. Offer a total compensation program that takes into consideration the
compensation practices of a specifically identified peer group of
companies with which the Company competes for executive talent.
. Integrate each officer's compensation package with annual and long-term
corporate objectives and focus the officer's attention on the attainment
of those objectives.
. Encourage the creation of shareholder value through the achievement of
strategic corporate objectives.
. Provide annual variable incentive awards that take into account the
Company's performance relative to corporate objectives and the individual
officer's contributions.
. Align the financial interests of executive officers with those of
shareholders by providing significant equity-based, long-term incentives.
21
<PAGE>
COMPENSATION COMPONENTS AND PROCESS
The Committee has developed a compensation policy which is designed to
attract and retain qualified key executive officers critical to the Company's
success. In developing this policy, the Committee has concluded that it is not
appropriate to base a significant percentage of the compensation payable to
the executive officers upon traditional financial targets, such as profit
levels and return on equity. This is primarily because the Company's products
are still in either development or clinical testing phases, and the Company
has not yet realized any significant revenues or product sales. In addition,
the Company's stock price performance may often reflect larger market forces
than the Company's actual performance. For these reasons, it is difficult to
tie the Company's compensation programs to financial performance. Instead, the
Committee bases its decisions upon the attainment of corporate-wide, team and
individual performance. Such performance is evaluated in terms of the
achievement of strategic and business plan goals, including long-term goals
tied to the expansion of the Company's core technology and innovative product
development, the discovery of new drug candidates and the development of the
Company's organizational infrastructure.
In establishing the compensation package of the Company's executive
officers, the Committee has adopted a total pay philosophy which includes
three major components: (i) base salary set at levels which are commensurate
with those of comparable positions at other biotechnology companies, (ii)
annual bonuses and stock option grants tied to the achievement of strategic
corporate and team objectives and individual performance and (iii) long-term,
stock-based incentive awards intended to strengthen the mutuality of interests
between the executive officers and the Company's shareholders.
The Committee determines the compensation levels for the executive officers
with the assistance of an independent consulting firm that furnishes the
Committee with executive compensation data drawn from several nationally
recognized surveys of companies within the biotechnology and pharmaceutical
industries. On the basis of those surveys, the Committee has identified a peer
group of companies with which the Company competes for executive talent and
which have a total capitalization and head count similar to the Company's and
are at approximately the same development stage (the "Peer Companies").
The positions of the Company's Chief Executive Officer and the other
executive officers were compared with those of their counterparts at the Peer
Companies, and the market compensation levels for comparable positions were
examined to determine base salary, target incentives and total cash
compensation. In addition, the practices of the Peer Companies concerning
stock option grants were also reviewed and compared.
Base Salary. The Committee's policy is to target base salary levels for each
executive officer at the market average level of base salary in effect for
comparable positions at the Peer Companies. Executive officers who attain the
core competencies required of their positions are paid at that level. The
Committee makes its base salary determinations in accordance with the market
average level in effect for comparable positions at the Peer Companies,
competitive market forces and the evaluation of performance and core
competency provided for each executive officer by the Chief Executive Officer.
Variable Incentive Awards. To reinforce the attainment of Company goals, the
Committee believes that a substantial portion of the annual compensation of
each executive officer should be in the form of variable incentive pay. The
annual incentive payment for each executive officer is determined on the basis
of the achievement of the corporate objectives established for the fiscal year
and the Committee's evaluation of the officer's performance both on an
individual and team basis. For the 1997 fiscal year, the corporate performance
objectives were tied to the following measures of financial success: (i) the
completion of a successful initial public offering which raised net proceeds
of $26.8 million, (ii) an enhanced corporate communications program including
internal infrastructure and shareholder and investor relations, (iii) a
strengthened collaborative relationship with Johnson & Johnson, (iv) the
advancement of cti's two lead development compounds (LSF and CT-2584), and (v)
a strengthened discovery research program.
22
<PAGE>
Based on the surveys of the short-term incentive programs of the Peer
Companies, the bonuses awarded to the executive officers for the 1997 fiscal
year was below the mid-range of the bonus levels in effect for comparable
positions at the Peer Companies and were on average equal to 18% of base
salary for the year.
Long-Term, Equity-Based Incentive Awards. The goal of the Company's long-
term equity-based incentive awards is to align the interests of executive
officers with the shareholders and to provide each executive officer with a
significant incentive to manage the Company from the perspective of an owner
with an equity stake in the business. Such incentive is provided through stock
option grants made under the 1994 Plan. The size of the option grant to each
executive officer is set at a level which the Committee feels is appropriate
to create a meaningful opportunity for stock ownership based upon the
executive officer's current position with the Company, internal comparability
with stock option grants made to other Company executives, the executive
officer's current level of performance and his or her potential for future
responsibility and promotion over the option term. The Committee also takes
into account comparable equity incentives provided to individuals in similar
positions in the biotechnology and pharmaceutical industries, as reflected in
external surveys, and the number of unvested options held by the executive
officer at the time of the new grant. The Committee has established certain
general guidelines by which the Committee seeks to target a fixed number of
unvested option shares for each executive officer based upon his or her
current position with the Company and his or her potential for growth within
the Company, i.e., future responsibilities and possible promotions over the
option term. However, the Committee does not strictly adhere to these
guidelines in making stock option grants, and the relative weight which is
given to the various factors varies from individual to individual as the
circumstances warrant.
During fiscal 1997, the Committee awarded the executive officers stock
options for an aggregate of 200,000 shares of Common Stock. Each grant allows
the officer to acquire the shares underlying the stock option at a fixed price
per share (the market price on the grant date) over a specified period of
time. Specifically, the option vests in periodic installments over a three-
year period, contingent upon the executive officer's continued employment with
the Company. Accordingly, the option will provide a return only if the officer
remains with the Company and then only if the market price appreciates over
the option term.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The base salary of the Company's Chief Executive Officer, James A. Bianco,
M.D., is reviewed annually by the Committee and was set at $393,840 for the
1997 fiscal year. Such salary level was established on the basis of the
employment agreement then in effect between the Company and Dr. Bianco and the
base salary levels in effect for chief executive officers at the other
biotechnology and pharmaceutical companies comprising the Peer Companies. The
1997 salary level for Dr. Bianco brought him to a level which is 13% above the
average of the salary levels then in effect for the chief executive officers
of the Peer Companies.
The incentive compensation awarded to Dr. Bianco for the 1997 fiscal year
was equal to 30% of his base salary for the year and was based on the
attainment of the following corporate developments: (i) the completion of a
successful initial public offering which raised net proceeds of $26.8 million,
(ii) a strengthened collaborative relationship with Johnson & Johnson, (iii)
completion of a successful follow-on offering which raised net proceeds of
$34.3 million, and (iv) the initiation of an additional collaborative
relationship for diabetes research with the City of Hope National Medical
Center. Dr. Bianco was also awarded stock options for 80,000 shares of Common
Stock at an exercise price of $16.0625 per share. The grant reflected the
Committee's continuing policy to maintain his option holdings at a level
consistent with that for other chief executive officers of comparable
development-stage companies in the pharmaceutical industry and to subject a
portion of his overall compensation each year to the market performance of the
Company's Common Stock. Accordingly, the stock option grants will be of no
value to Dr. Bianco unless there is appreciation in the value of the Company's
Common Stock over the option term.
23
<PAGE>
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
As a result of Section 162(m) of the Internal Revenue Code, which was
enacted into law in 1993, the Company will not be allowed a Federal income tax
deduction for compensation paid to certain officers, to the extent that
compensation exceeds one (1) million dollars per officer in any one year. This
limitation will apply to all compensation which is not considered to be
performance based. Compensation which does qualify as performance-based
compensation will not have to be taken into account for purposes of this
limitation. The Company's 1994 Plan has been structured so any compensation
deemed paid in connection with the exercise of stock options granted under
that plan with an exercise price equal to the market price of the option
shares on the grant date will qualify as performance-based compensation.
The cash compensation paid to the Company's executive officers during fiscal
1997 did not exceed the one (1) million dollar limit per officer, nor is the
cash compensation to be paid to the Company's executive officers for the 1997
fiscal year expected to reach that level. Because it is unlikely that the cash
compensation payable to any of the Company's executive officers in the
foreseeable future will approach the one (1) million dollar limitation, the
Committee has decided not to take any action at this time to limit or
restructure the elements of cash compensation payable to the Company's
executive officers. The Committee will reconsider this decision should the
individual compensation of any executive officer ever approach the one (1)
million dollar level.
COMPENSATION COMMITTEE
Jack L. Bowman
Jeremy L. Curnock Cook
Wilfred E. Jaeger, M.D.
Terrence M. Morris
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last completed fiscal year, the Compensation Committee consisted
of Dr. Jaeger and Messrs. Curnock Cook, Bowman and Morris. None of these
individuals was at any time during the last completed fiscal year, or at any
other time, an officer or employee of the Company. At the 1997 Annual Meeting
of Shareholders, Dr. Jaeger and Mr. Curnock Cook were elected as Directors by
the holders of the outstanding shares of Common Stock. In March 1997,
Biotechnology Investments Limited, which is an affiliate of Mr. Curnock Cook,
purchased 250,000 shares of Common Stock in the Company's initial public
offering for an aggregate purchase price of $2.5 million. See "Certain
Relationships and Related Transactions".
24
<PAGE>
STOCK PERFORMANCE GRAPH
LOGO
<TABLE>
<CAPTION>
3/21/97 3/31/97 6/30/97 9/30/97 12/31/97
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Cell Therapeutics, Inc................. $100.00 $97.56 $108.54 $145.12 $165.85
Nasdaq Stock Index (U.S.).............. $100.00 $97.51 $115.39 $134.90 $126.52
Nasdaq Pharmaceutical Index............ $100.00 $93.51 $100.95 $113.25 $101.75
</TABLE>
The stock performance graph depicts the cumulative total return on the
Company's common stock compared to the current total return for the Nasdaq
Stock Index (U.S.) and the Nasdaq Pharmaceutical Index. The graph assumes an
investment of $100 on March 21, 1997, when the Company's stock was first
traded in a public market. Reinvestment of dividends, if any, is assumed in
all cases.
25
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1993 cti loaned Dr. Bianco $200,000 at 5.35% annual interest.
The promissory note originally provided for a single payment of principal and
interest on the earlier of July 1, 1997 and the third anniversary of the
effective date of the initial underwritten public offering of cti's Common
Stock. In December 1996 Dr. Bianco entered into an employment agreement with
the Company which amended the note to provide for the forgiveness of one-third
of the loan on each anniversary of the agreement. The unpaid portion of the
loan will accelerate and become due and payable in the event that cti
terminates Dr. Bianco's employment for cause or Dr. Bianco terminates his
employment without cause. The unpaid portion of the loan will be forgiven in
the event that cti terminates Dr. Bianco's employment without cause, Dr.
Bianco terminates his employment for cause, dies or becomes disabled, a Change
in Ownership (as defined in Dr. Bianco's employment agreement) occurs or cti's
public market capitalization equals or exceeds $500 million. See "Employment
Agreements". The loan is secured by a pledge of 5,715 shares of Common Stock
owned by Dr. Bianco.
At the 1996 Annual Meeting of Shareholders, Mr. Curnock Cook was elected as
a Director by the holders of the outstanding shares of Series A Convertible
Preferred Stock voting as a separate class. In March 1997, Biotechnology
Investments Limited, which is an affiliate of Mr. Curnock Cook, purchased
250,000 shares of Common Stock in the Company's initial public offering for an
aggregate purchase price of $2.5 million. See "Security Ownership of Certain
Beneficial Owners and Management".
In November 1996, Johnson & Johnson Development Corporation ("JJDC"), a
wholly-owned subsidiary of Johnson & Johnson, purchased 14,925.373 shares of
Series B Convertible Preferred Stock, for an aggregate purchase price of $5.0
million, pursuant to a Stock Purchase Agreement entered into between cti and
JJDC in connection with the execution of a collaboration agreement between the
Company and subsidiaries of Johnson & Johnson. JJDC also purchased an
additional 300,000 shares of Common Stock on March 26, 1997, concurrent with
the closing of the Company's initial public offering for an aggregate purchase
price of $3.0 million and an additional 125,000 shares of Common Stock in
October 1997 in the Company's follow-on public offering for an aggregate
purchase price of $2.0 million. Pursuant to the Stock Purchase Agreement, cti
is entitled to require JJDC to purchase additional shares of Common Stock upon
the achievement of certain milestones.
OTHER BUSINESS
As of the date of this Proxy Statement, management knows of no other
business that will be presented for action at the meeting. Management has not
received any advance notice of business to be brought before the meeting by
any shareholder. If other business requiring a vote of the shareholders should
come before the meeting, the person designated as your proxy will vote or
refrain from voting in accordance with his best judgment.
OTHER INFORMATION
The Company's Annual Report to Shareholders for the year ended December 31,
1997 (the "Annual Report") is being mailed concurrently with the mailing of
the Notice of Annual Meeting and Proxy Statement to all shareholders entitled
to notice of and to vote at the Annual Meeting. The Annual Report is not
considered proxy soliciting material nor is it incorporated into this Proxy
Statement.
26
<PAGE>
SHAREHOLDER PROPOSALS
A shareholder who intends to nominate a candidate for election to the Board
of Directors or to present a proposal of business at the 1999 Annual Meeting
and desires that information regarding the proposal be included in the 1999
proxy statement and proxy materials must ensure that such information is
received in writing by the Secretary of the Company at the Company's principal
executive offices not later than March 15, 1999.
By Order of the Board of Directors
LOGO
Michael J. Kennedy
Secretary
Seattle, Washington
May 22, 1998
27
<PAGE>
The Board of Directors Recommends a vote FOR the proposals regarding:
(1) Election of Directors: Class I: Phillip M. Nudelman, Jack L. Bowman and
Jeremy L. Curnock Cook
FOR
all nominees [ ]
(except as marked to the contrary to the right)
WITHHOLD
authority [ ]
Authority to vote for all nominees
(INSTRUCTIONS: To withhold authority to vote for any individual nominee,
write that nominee's name on the line provided below.)
- ------------------------------------------------------------------------
(2) Approval of amendment to the Company's 1994 Equity Incentive Plan.
FOR AGAINST ABSTAIN
----- --------- ---------
[ ] [ ] [ ]
(3) Ratification of the selection of Ernst & Young LLP as Independent auditors
of the Company for the fiscal year ending December 31, 1998.
FOR AGAINST ABSTAIN
----- --------- ---------
[ ] [ ] [ ]
<TABLE>
<CAPTION>
<S> <C>
I/We plan to attend the Annual Meeting [ ] I/We will not be attending the Annual Meeting [ ]
</TABLE>
------------------------- ------------------------
ACCOUNT NUMBER SHARES
SIGNATURE DATE
---------------------------------- ------------------
CELL THERAPEUTICS, INC.
ANNUAL MEETING OF SHAREHOLDERS
JUNE 18, 1998
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The shareholder(s) hereby appoints James A. Bianco, M.D., and Stephen
Faciszewski, and each of them, as proxies, with full power of substitution, to
represent and vote for and on behalf of the shareholder(s) the number of shares
of Common Stock of Cell Therapeutics, Inc. that the shareholder(s) would be
entitled to vote if personally present at the Annual Meeting of Shareholders to
be held on June 18, 1998, or at any adjournment thereof. The shareholder(s)
directs that this proxy be voted as follows:
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. This proxy, when properly
executed, will be voted in the manner directed herein by the shareholder(s).
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR ALL NOMINEES" IN ITEM 1
AND "FOR" ITEM 2 AND ITEM 3.
Please sign exactly as your name(s) appears on your stock certificate(s).
When shares are held jointly, each person must sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
An authorized person should sign on behalf of corporations, partnerships and
associations and give his or her title.
sign on behalf of corporations, partnerships, and associations and give his or
her title.
