SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
CYTOTHERAPEUTICS, 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:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- -------------------------------------------------------------------------------
CYTOTHERAPEUTICS, INC.
701 GEORGE WASHINGTON HIGHWAY
LINCOLN, RI 02865
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 5, 1998
Notice is hereby given that the Annual Meeting of Stockholders of
CytoTherapeutics, Inc. (the "Company") will be held on May 5, 1998 at 1:00 P.M.
at the Company's executive offices located at 701 George Washington Highway,
Lincoln, Rhode Island 02865 for the following purposes:
1. To elect two Class I directors to serve until the 2001 Annual Meeting of
Stockholders.
2. To transact any and all other business that may properly come before the
meeting.
Stockholders of record at the close of business on March 9, 1998 are
entitled to notice of and to vote at the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN AND DATE
THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
FREDERIC A. EUSTIS, III
SECRETARY
March 30, 1998
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
OF
CYTOTHERAPEUTICS, INC.
The enclosed form of proxy is solicited on behalf of the Board of Directors
of CytoTherapeutics, Inc. (the "Company") for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held on May 5, 1998 at 1:00 P.M. at
the Company's executive offices located at 701 George Washington Highway,
Lincoln, Rhode Island 02865. The cost of solicitation of proxies will be borne
by the Company. Directors, officers and employees of the Company may also
solicit proxies by telephone, telecopy or in person. The Company will reimburse
banks, brokerage firms, and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of shares.
Only stockholders of record at the close of business on March 9, 1998 are
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof. There were 18,264,522 shares of the Company's Common Stock, $.01 par
value (the "Common Stock"), outstanding on such date, each of which is entitled
to one vote.
Shares represented by proxies in the form enclosed, if such proxies are
properly executed and returned and not revoked, will be voted as specified, but
where no specification is made, the shares will be voted for the election as
directors of the nominees named below and in the discretion of the named
proxies, as to any other matter that may properly come before the Annual
Meeting. Any stockholder signing and delivering a proxy may revoke it at any
time before it is voted by delivering to the Secretary of the Company a written
revocation or a duly executed proxy bearing a date later than the date of the
proxy being revoked. Any record stockholder attending the Annual Meeting in
person may revoke his or her proxy and vote his or her shares.
The Annual Report to Stockholders for the Company's fiscal year ended
December 31, 1997, and this proxy statement were first mailed to stockholders on
or about March 30, 1998.
QUORUM, REQUIRED VOTES, AND METHOD OF TABULATION
Consistent with Delaware law and under the Company's By-laws, a majority of
the shares entitled to be cast on a particular matter, present in person or
represented by proxy, constitutes a quorum as to such matter. Votes cast by
proxy or in person at the Annual Meeting will be counted by persons appointed by
the Company to act as election inspectors for the meeting.
The two nominees for election as Class I directors at the Annual Meeting who
receive the greatest number of votes properly cast for the election of directors
shall be elected as Class I directors of the Company.
The election inspectors will count shares represented by proxies that
withhold authority to vote for a nominee for election as a director or that
reflect abstentions and "broker non-votes" (i.e., shares represented at the
meeting held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or persons entitled to vote and (ii) the
broker or nominee does not have discretionary voting power on a particular
matter) only as shares that are present and entitled to vote on the matter for
purposes of determining the presence of a quorum, but neither abstentions nor
broker non-votes have any effect on the outcome of voting on the matter.
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
The number of directors is currently fixed at nine. For the reasons
described below, the Board of Directors expects to reduce such number to five
immediately after the Annual Meeting. The Company's Certificate of Incorporation
and By-laws provide for the classification of the Board of Directors into three
classes, as nearly equal in number as possible, with the term of office of one
class expiring each year. Unless otherwise instructed, the enclosed proxy will
be voted to elect the nominees named below, both of whom are now Class I
directors, as Class I directors for a term of three years expiring at the 2001
Annual Meeting of Stockholders and until their successors are duly elected and
qualified. Proxies cannot be voted for a greater number of persons than the
number of nominees named below. It is expected that the nominees will be able to
serve, but if they are unable to serve, the proxy will be voted for a substitute
nominee(s) designated by the Board of Directors. The nominees for election as
Class I directors, and the incumbent Class II and III directors are as follows:
NOMINEES FOR ELECTION AS CLASS I DIRECTORS -- TERMS EXPIRE 2001
NAME AGE POSITION
- ------------------------------------------------------------------- --- ----------
Mark J. Levin...................................................... 47 Director
Irving L. Weissman, M. D........................................... 59 Director
Mark J. Levin, a founder of the Company, has served as a director since the
Company's inception. From inception until January 1990 and from May 1990 until
February 1991, Mr. Levin served as the Company's President and acting Chief
Executive Officer. From November 1991 until March 1992, he served as Chief
Executive Officer of Tularik, Inc., a biotechnology company. From August 1991
until August 1993, Mr. Levin was Chief Executive Officer and a director of
Focal, Inc., a biomedical company. Mr. Levin is currently the Chairman of the
Board and Chief Executive Officer of Millennium Pharmaceuticals, Inc., a
biotechnology company. Mr. Levin is also currently on the Board of Directors of
Focal, Inc., and Tularik, Inc.
Irving L. Weissman, M.D. has served as a director of the Company since
September 1997. Dr. Weissman is the Karel and Avice Beekhuis Professor of Cancer
Biology, Professor of Pathology and Professor of Developmental Biology at
Stanford University. Dr. Weissman is a cofounder of Systemix, Inc., a
biotechnology company, and a member of its Board of Directors. Dr. Weissman is
also a member of the Scientific Advisory Board of Systemix, Inc. and has served
on the Scientific Advisory Boards of Amgen Inc., DNAX and T-Cell Sciences, Inc.,
all of which are biotechnology companies.
Seth A. Rudnick, M.D., the third incumbent Class I director, is not standing
for reelection at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS ELECTION OF THE TWO
NOMINEES DESCRIBED ABOVE
2
INCUMBENT CLASS II DIRECTORS -- TERMS EXPIRE 1999
NAME AGE POSITION
- ------------------------------------------------ --- -----------------------------
Edwin C. Cadman, M.D............................ 52 Director
Donald R. Conklin............................... 61 Director
Richard M. Rose, M.D............................ 49 President, Chief Executive
Officer and Director
Edwin C. Cadman, M.D., was elected to the Board of Directors of the Company
in August 1992. Dr. Cadman is Senior Vice President of Medical Affairs and Chief
of Staff at Yale-New Haven Hospital. In addition, he is Professor of Medicine at
the Yale University School of Medicine. Dr. Cadman served as Ensign Professor
and Chairman of the Department of Internal Medicine at the Yale University
School of Medicine and as Chief of Medical Services at the Yale-New Haven
Hospital from 1987 until 1994. Dr. Cadman is also a director of SciClone
Pharmaceuticals, Inc. Dr. Cadman has informed the Company that he will resign
from the Board after the Annual Meeting.
Donald R. Conklin was elected to the Board of Directors of the Company in
June 1993. From 1959 to 1996, Mr. Conklin held various positions with
Schering-Plough Corporation. From September 1994 until September 1996, Mr.
Conklin was President of Schering-Plough Health Care Products. From 1986 until
September 1996, Mr. Conklin served as President of Schering-Plough's
pharmaceutical division and, through 1996, was Executive Vice President of
Schering-Plough Corporation. Mr. Conklin, now retired, is also a director of
Vertex Pharmaceuticals, Inc., BioTransplant, Inc. and AlfaCell Inc. Mr. Conklin
has informed the Company that he will resign from the Board after the Annual
Meeting.
Richard M. Rose, M.D. became President, Chief Executive Officer and a
director of the Company in September 1997. Since May 1996 Dr. Rose has been
President and Chief Executive Officer of StemCells, Inc., a biotechnology
company acquired by CytoTherapeutics in 1997. From 1995 until May 1996, Dr. Rose
was a Managing Director of MPM Capital, a consulting and investment banking
group. From 1992 until 1995, Dr. Rose was Vice President, Drug Development,
Preclinical and Clinical Research and Chief Medical Officer of Cytel
Corporation, a biotechnology company.
INCUMBENT CLASS III DIRECTORS -- TERMS EXPIRE 2000
NAME AGE POSITION
- ------------------------------------------------------------------- --- ----------
Patrick Aebischer, M.D., Ph.D...................................... 43 Director
Richard J. Ramsden................................................. 60 Director
Peter Simon........................................................ 52 Director
Patrick Aebischer, M.D., Ph.D., a founding scientist of the Company, was
elected to the Board of Directors of the Company effective February 1, 1996. Dr.
Aebischer is the Chairman of the Board of Modex Therapeutiques SA, a Swiss
biotechnology company in which the Company has a minority interest. Dr.
Aebischer is the Director of the Gene Therapy Center at the Centre Hospitalier
Universitaire Vaudois ("CHUV") in Switzerland and has been Professor of Surgery
and Medical Director of the Surgical Research Division at CHUV since 1992. From
1988 to 1992, Dr. Aebischer was Associate Professor of Medical Research and
Chairman of the Department of Artificial Organs and Biomaterials at Brown
University. Dr. Aebischer is also Professor of Biomaterials (Research) at Brown
and Professor at the Swiss Polytechnical School.
3
Richard J. Ramsden, a director since 1994, is a private investor; he
previously served as President and CEO of Kinship Capital Corporation, a private
investment enterprise from 1983 to 1994. Mr. Ramsden is a director of the
Student Loan Marketing Association. He served as Chairman of the Board of the
College Construction Loan Insurance Association from 1987 to 1995 and as
director of Dryvit Systems, Inc., a building materials company, from 1990 to
1995.
Peter Simon, a director since May 1996, held a number of senior executive
positions from 1985 to 1995 at Roche Holding Ltd., most recently as Head,
Pharmaceutical Operations. At Roche Holding, the holding company for Hoffman La
Roche, an international pharmaceutical company located in Basel, Switzerland,
Mr. Simon led the creation of Roche Bioscience, a new unit formed following
Roche's acquisition of Syntex. In addition, he was responsible for supporting
the launch of Genentech's products in Europe following Roche's acquisition of a
majority ownership position in Genentech. Mr. Simon currently serves as an
advisor to and Board member of Modex Therapeutiques SA and as the Chairman of
the Board of Impetus, AG (Basel, Switzerland), a consulting company. Mr. Simon
has informed the Company that he will resign from the Board after the Annual
Meeting.
INFORMATION CONCERNING THE BOARD AND ITS COMMITTEES
The Board of Directors has two standing committees: the Compensation and
Stock Option Committee (the "Compensation Committee") and the Audit Committee.
The Company's Compensation Committee held four meetings during the fiscal year
ended December 31, 1997 and was composed of Messrs. Conklin, Levin, Simon and
Ramsden. The Compensation Committee makes recommendations concerning salaries in
general, determines executive compensation and approves incentive compensation
for Company employees and consultants. The Company's Audit Committee held one
meeting during the fiscal year ended December 31, 1997 and was composed of
Messrs. Conklin and Ramsden and Dr. Cadman. The Audit Committee reviews the
results and scope of the audit and other services provided by the Company's
independent auditors. The Company has no nominating committee.
During the fiscal year ended December 31, 1997, non-employee directors
received $1,000 for each Board meeting attended ($500 for each telephonic
meeting) and $500 for each Committee meeting attended. Beginning in 1998, each
non-employee director was entitled to receive a $10,000 retainer ($15,000 in the
case of the Chairman of the Board) payable quarterly and $1,500 per Board
meeting attended. Each director who is not an employee of the Company and who
serves on the Company's Compensation Committee has received an option to
purchase 5,000 shares of Common Stock exercisable at the fair market value of
the Common Stock at the time of grant. Upon reelection as a director, each such
director is entitled to receive an option to purchase an additional 5,000 shares
of Common Stock exercisable at the fair market value of the Common Stock at the
time of re-election. All such options vest equally over three years on each
anniversary of the grant date. In addition, such directors, for so long as they
are Compensation Committee members or eligible to serve as committee members
will receive an annual grant of an option to purchase 1,000 shares of Common
Stock exercisable at the fair market value of the Common Stock at the time of
grant; such options become exercisable one year after the date of grant.
Directors are reimbursed for their expenses in attending meetings of the Board
of Directors and of committees of the Board of Directors. Under a plan approved
by the stockholders, but not yet implemented, each non-employee director not
receiving consulting compensation from the Company will have the option to be
paid, in lieu of the cash fees payable for his service as a director, in shares
of Common Stock having a fair market value equal to the amount of such cash
fees. Shares of Common Stock issued to directors in lieu of cash payments for
Board service shall be nonforfeitable, and a director shall have all of
4
the rights of a stockholder of the Company with respect to such Common Stock.
The Board of Directors held five meetings during the fiscal year ended December
31, 1997. All of the directors attended at least 75% of the meetings of the
Board of Directors and of all committees on which they served except for Mr.
Conklin and Dr. Cadman.
EXECUTIVE OFFICER
The executive officer of the Company who is not also a director of the
Company is:
NAME AGE POSITION
- ------------------------------------------ ----------- -------------------------------------------
John McBride.............................. 46 Senior Vice President, Business Operations,
Chief Financial Officer and Treasurer
John McBride joined the Company as Senior Vice President, Business
Operations, Chief Financial Officer and Treasurer in May 1997. From January 1994
until May 1997, Mr. McBride was Vice President, Business Development and
Treasurer as well as Acting Chief Financial Officer of Phytera, Inc. a
biotechnology company. From October 1992 until December 1993, Mr. McBride was
Vice President, Commercial Development of Sparta Pharmaceuticals, Inc., a
biotechnology company. Previously, Mr. McBride was with U.S. Bioscience, Inc., a
biotechnology company, Eastman Kodak Company, a diversified chemical company,
and Atlantic Richfield Company, an international oil company.
All executive officers of the Company are elected annually and serve at the
discretion of the Board of Directors.
5
SHARE OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 9, 1998 by (i) each person
known by the Company to be the beneficial owner of more than 5% of the Company's
outstanding Common Stock, (ii) each director and nominee for director, (iii)
each executive officer named in the Summary Compensation Table and (iv) all
executive officers and directors of the Company as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the Common Stock
listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws where applicable, and that there are no other affiliations among
the stockholders listed in the table.
SHARES PERCENTAGE
BENEFICIALLY OF CLASS
NAME OF BENEFICIAL OWNER OWNED* BENEFICIALLY OWNED*
- ----------------------------------------------------------------------- ------------------ ---------------------
Princeton Services, Inc................................................ 2,763,558(1) 14.8%
Merrill Lynch Asset Management, L.P.
Merrill LynchGrowth Fund
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Genentech, Inc......................................................... 1,163,599 6.4%
1 DNA Way
South San Francisco, CA 94080
T. Rowe Price Associates, Inc.......................................... 960,000(2) 5.3%
100 East Pratt Street
Baltimore, MD 21202
Patrick Aebischer, M.D., Ph.D.......................................... 46,458(3) **
Edwin C. Cadman, M.D................................................... 26,500(4) **
Donald R. Conklin...................................................... 8,668(5) **
Mark J. Levin.......................................................... 116,304(6) **
Richard J. Ramsden..................................................... 21,618(7) **
Peter Simon............................................................ 3,668(8) **
Richard M. Rose, M.D................................................... 249,728(9) 1.3%
Seth A. Rudnick, M.D................................................... 254,656(10) 1.4%
Irving Weissman, M.D................................................... 310,783(11) 1.7%
John McBride........................................................... 3,839 **
Ivor Elrifi............................................................ 15,321(12) **
Frederic A. Eustis, III................................................ 154,857(13) **
E. Edward Baetge, Ph.D................................................. 94,135(14) **
Sandra Nusinoff Lehrman, M.D........................................... 46,869(15) **
All directors and executive officers as a group (14 persons)........... 1,353,404(16) 7.2%
6
- ------------------------
* All numbers are based on information obtained by questionnaire or filings on
Forms 13D or 13G received by the Company.
** Less than one percent.
(1) Includes 434,500 shares of Common Stock issuable upon exercise of a warrant
exercisable within 60 days. Princeton Services, Inc. ("PSI") is the
corporate managing general partner of Merrill Lynch Asset Management, L.P.
("MLAM"), which is a registered investment adviser under the Investment
Advisers Act of 1940. MLAM acts as investment adviser to investment
companies registered under Section 8 of the Investment Company Act of 1940,
including Merrill Lynch Growth Fund (the "Growth Fund"). Each of PSI, MLAM
and the Growth Fund have shared voting and investment power with respect to
the shares listed. PSI disclaims beneficial ownership of all such shares.
(2) These securities are owned by various individual and institutional investors
which T. Rowe Price Associates, Inc. ("Price Associates") serves as
investment adviser with power to direct investments and/or sole power to
vote the securities. For purposes of the reporting requirements of the
Securities Exchange Act of 1934, Price Associates is deemed to be a
beneficial owner of such securities; however, Price Associates expressly
disclaims that it is, in fact, the beneficial owner of such securities.
(3) Represents shares issuable upon exercise of stock options exercisable within
60 days.
(4) Represents shares issuable upon exercise of stock options exercisable within
60 days.
(5) Represents shares issuable upon exercise of stock options exercisable within
60 days.
(6) Includes 9,500 shares issuable upon exercise of stock options exercisable
within 60 days.
(7) Includes 2,000 shares owned by a trust for the benefit of Mr. Ramsden's wife
as to which he disclaims beneficial ownership. Includes 7,418 shares
issuable upon exercise of stock options exercisable within 60 days.
(8) Represents shares issuable upon exercise of stock options exercisable within
60 days.
(9) Includes 6,250 shares issuable upon exercise of stock options exercisable
within 60 days.
(10) Includes 252,683 shares issuable upon exercise of stock options exercisable
within 60 days.
(11) Includes 33,106 shares issuable upon exercise of stock options exercisable
within 60 days and 7,160 shares issuable upon exercise of warrants
exercisable within 60 days. Includes a total of 50,791 shares owned by
trusts for the benefit of Dr. Weissman's children as to which he disclaims
beneficial ownership.
(12) Includes 10,000 shares issuable upon exercise of stock options exercisable
within 60 days.
(13) Includes 128,749 shares issuable upon exercise of stock options exercisable
within 60 days.
(14) Includes 86,291 shares issuable upon exercise of stock options exercisable
within 60 days.
(15) Includes 43,750 shares issuable upon exercise of stock options exercisable
within 60 days.
(16) Includes 663,041 shares exercisable upon exercise of stock options
exercisable within 60 days.
7
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to
persons serving as its Chief Executive Officer during the fiscal year ended
December 31, 1997, the three other most highly compensated executive officers
serving as executive officers at the end of such fiscal year and two former
executive officers, each of whom earned more than $100,000 for the fiscal year
ended December 31, 1997 (collectively, the "named executive officers").
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
--------------------------
ANNUAL COMPENSATION AWARDS
----------------------------------------- --------------------------
OTHER RESTRICTED SECURITIES
NAME AND ANNUAL STOCK UNDERLYING
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS($) OPTIONS(#)
- --------------------------------------------- ---- --------- -------- --------------- ---------- ----------
Richard M. Rose, M.D. (1).................... 1997 68,750 0 0 0 300,000
Chief Executive Officer
Seth A. Rudnick, M.D. (3).................... 1997 272,308 0 7,629(4) 0 0
Chief Executive Officer 1996 281,192 25,046(6) 16,556(4) 0 40,000
1995 275,000 55,000(6) 7,953(4) 61,175(7) 55,000
John McBride................................. 1997 108,885 16,334(6) 0 0 145,000
Senior Vice President
Ivor Elrifi (8).............................. 1997 175,000 0 0 0 10,000
Vice President and General Counsel
Frederic A. Eustis, III...................... 1997 173,653 0 5,564(4) 0 0
Executive Vice President 1996 165,384 16,500(6) 12,075(4) 0 35,000
1995 151,500 36,250(6) 5,800(4) 48,940(9) 45,000
Sandra Nusinoff Lehrman, M.D. (11)........... 1997 232,123 0 0 0 0
Chief Operating Officer 1996 97,529 50,000 0 0 200,000
E. Edward Baetge, Ph.D. (12)................. 1997 149,404 0 1,391(4) 0 0
Vice President, Research 1996 168,330 12,600 3,019(4) 0 35,000
ALL
NAME AND OTHER
PRINCIPAL POSITION COMPENSATION($)
- --------------------------------------------- ---------------
Richard M. Rose, M.D. (1).................... 76,268(2)
Chief Executive Officer
Seth A. Rudnick, M.D. (3).................... 4,104(5)
Chief Executive Officer 5,199(5)
4,486(5)
John McBride................................. 2,256(5)
Senior Vice President
Ivor Elrifi (8).............................. 4,738(5)
Vice President and General Counsel
Frederic A. Eustis, III...................... 2,908(5)
Executive Vice President 4,531(5)
5,601(10)
Sandra Nusinoff Lehrman, M.D. (11)........... 2,819(5)
Chief Operating Officer 1,593(5)
E. Edward Baetge, Ph.D. (12)................. 4,521(5)
Vice President, Research 4,727(5)
8
- ------------------------
(1) Dr. Rose became Chief Executive Officer on September 26, 1997.
(2) Represents advance for relocation expenses of $75,000 and fair market value
of $1,268 of Company matching contributions of Common Stock to a 401(k)
plan.
(3) Dr. Rudnick ceased to be Chief Executive Officer on September 30, 1997.
(4) Represents amounts reimbursed for income tax in respect of a stock award.
(5) Represents fair market value of Company matching contributions of Common
Stock to a 401(k) plan.
(6) Represents bonus earned in indicated year and paid in the following year.
(7) Represents fair market value (without regard to vesting restrictions) at
time of grant of restricted stock award of 10,000 shares of Common Stock.
Such restricted stock award vested 25% on the date of grant and
approximately 1/48 of the stock award vests, each month beginning 13 months
after the
date of grant. Fair market value of 2,500 shares of unvested Common Stock at
December 31, 1997 was $10,000. Dividends, if any, will be paid on such
restricted stock.
(8) Mr. Elrifi resigned as Vice President and General Counsel on December 31,
1997.
(9) Represents fair market value (without regard to vesting restrictions) at
time of grant of restricted stock award of 8,000 shares of Common Stock.
Such restricted stock award vested 25% on the date of grant and
approximately 1/48 of the stock award vests each month beginning 13 months
after the date of grant. Fair market value of unvested Common Stock at
December 31, 1997 was $8,000. Dividends, if any, will be paid on such
restricted stock.
(10) Represents reimbursement for relocation expenses of $1,352 and fair market
value of $4,249 of Company matching contributions of Common Stock to a
401(k) plan.
(11) Dr. Lehrman resigned as Chief Operating Officer on August 4, 1997.
(12) Dr. Baetge resigned as Vice President, Research on August 5, 1997.
9
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in 1997 to the
named executive officers.
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO POTENTIAL REALIZABLE VALUE AT
GRANTED EMPLOYEES IN EXERCISE ASSUMED ANNUAL RATES OF STOCK
(# OF FISCAL PRICE EXPIRATION PRICE APPRECIATION FOR OPTION TERM
NAME SHARES) YEAR (1) ($/SHARE)(2) DATE (3)
- ----------------------------------- ----------- --------------- ------------- ----------- ----------------------------------
0%($) 5%($) 10%($)
----------- --------- ----------
Richard M. Rose, M.D............... 200,000(4) 30.2% 5.125 9/22/07 0 644,617 1,633,586
100,000(5) 15.1% 5.125 9/22/07 0 322,309 816,793
Seth A. Rudnick, M.D............... 0 -- -- -- 0 0 0
John McBride....................... 130,000(5) 19.6% 5.625 5/27/07 0 459,879 1,165,424
15,000(5) 2.3% 5.125 12/4/07 0 48,346 122,519
Ivor Elrifi........................ 10,000(6) 1.5% 5.125 12/4/07 0 32,231 81,679
Frederic A. Eustis, III............ 0 -- -- -- 0 0 0
Sandra Nusinoff Lehrman, M.D....... 0 -- -- -- 0 0 0
E. Edward Baetge, Ph.D............. 0 -- -- -- 0 0 0
- ------------------------
(1) The Company granted options covering 661,400 shares of Common Stock to
employees in the fiscal year ended December 31, 1997.
(2) The exercise price may be paid by delivery of already-owned shares and tax
withholding obligations related to exercise may be paid by offset of the
underlying shares, subject to certain conditions.
(3) As suggested by the Commission's rules on executive compensation disclosure,
the Company has presented option values based on arbitrary growth rates. The
Company does not necessarily agree that the information presented properly
values the options described.
(4) Options for 6,250 shares vested on the date of grant; the remainder of such
options vest subject to the achievement of certain milestones related to the
Company's stem cells research program and in the event of certain changes of
control.
(5) Options become exercisable as to 25% of the shares covered after one year
from the date of grant and as to 1/48 of the shares covered by the option
grant each month thereafter.
(6) Options vested on date of grant.
10
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
The following table provides information about option exercises in 1997 by
the named executive officers and the value of such officers' unexercised options
at December 31, 1997.
VALUE OF
UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
SHARES OPTIONS FISCAL
ACQUIRED VALUE AT FISCAL YEAR-END(#) YEAR-END($)(1)
ON REALIZED -------------------------- -----------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE
- -------------------------------------------- ------------- ----------- ----------- ------------- -----------
Richard M. Rose, M.D........................ 0 0 6,250 293,750 0
Seth A. Rudnick, M.D........................ 3,600 19,163 241,433 56,667 436,848
John McBride................................ 0 0 0 145,000 0
Ivor Elrifi................................. 0 0 28,750 0 0
Frederic A. Eustis, III..................... 0 0 123,124 38,876 0
Sandra Nusinoff Lehrman, M.D................ 0 0 43,750 38,876 0
E. Edward Baetge, Ph.D...................... 0 0 86,291 0 0
NAME UNEXERCISABLE
- -------------------------------------------- -------------------
Richard M. Rose, M.D........................ 0
Seth A. Rudnick, M.D........................ 0
John McBride................................ 0
Ivor Elrifi................................. 0
Frederic A. Eustis, III..................... 0
Sandra Nusinoff Lehrman, M.D................ 0
E. Edward Baetge, Ph.D...................... 0
- ------------------------
(1) The closing price of the Company's Common Stock on December 31, 1997 on the
NASDAQ National Market System was $4.00. The numbers shown reflect the value
of options accumulated over all years of employment.
11
EMPLOYMENT AND SEVERANCE AGREEMENTS
Under the terms of an employment agreement dated January 6, 1991, Dr.
Rudnick was entitled to receive $185,000 annually as a base salary and a minimum
"bonus" of $2,083 dollars per month for his service as Chief Executive Officer
during the fiscal year ended December 31, 1997. Under the terms of a severance
agreement dated as of September 30, 1997, Dr. Rudnick agreed to serve as
Chairman of the Board of the Company until at least the next Annual Meeting of
Stockholders of the Company, to provide transitional services to the Company
from October 1, 1997 to December 31, 1997 and to provide consulting services to
the Company for the period from January 1, 1998 to December 31, 1999. During the
period from October 1, 1997 to December 31, 1997, Dr. Rudnick was paid at the
rate of $200,000 per year. Beginning January 1, 1998, Dr. Rudnick will receive a
consulting fee of $12,500 per month until December 31, 1999. The agreement also
contains confidentiality and noncompetition covenants by Dr. Rudnick and
provides for health and life insurance and a retirement benefit of $30,000 per
year commencing at age 60.
Under the terms of an agreement dated September 25, 1997, Dr. Rose agreed to
serve as President, Chief Executive Officer and a director of the Company. Dr.
Rose is entitled to an annual salary of $275,000 and a bonus of up to 25% of his
salary. The Agreement provides for the grant to Dr. Rose of a stock option
covering 200,000 shares of Common Stock that vests as to one quarter of such
shares on the first anniversary of the date of grant and equally as to the
remaining shares over the next 36 months. In addition, Dr. Rose, under the
Agreement, was granted a stock option covering 100,000 shares of
CytoTherapeutics stock; the option vests based upon the achievement of certain
milestones related to the Company's stem cells research program. The vesting
under both options will be accelerated in the event of certain changes in
control of the Company. The Agreement provides for reimbursement of certain
costs of moving up to $125,000 and for a bridge loan for home purchase of up to
$200,000; the Agreement also provides for certain employee benefits and contains
provisions regarding confidentiality and noncompetition before and after
employment. The Company may terminate Dr. Rose's contract other than for cause
by written notice to Dr. Rose in which case the Company has agreed to pay Dr.
Rose (i) an additional year of salary or (ii) two years salary if the
termination results from a change of control (as defined) or (iii) salary
payments until September 25, 2000, whichever period is the longest; the
Agreement also provides that in these cases, unvested time-based options will
vest. Similar provisions apply if Dr. Rose terminates his employment for cause.
Dr. Rose may terminate his employment for any reason on three months' notice.
There are also special provisions for disability.
Under the terms of an agreement dated April 17, 1997, Mr. McBride agreed to
serve as Senior Vice President, Business Operations and Chief Financial Officer
of the Company. Mr. McBride is entitled to an annual salary of $190,000 and a
bonus of up to 15% of his salary. The Agreement provides for a grant of a stock
option to Mr. McBride covering 130,000 shares of Common Stock that vests as to
one quarter of such shares on the first anniversary of the date of grant and
equally as to the remaining shares over the next 36 months. The vesting under
the option will be accelerated in the event of certain changes in control of the
Company occurring within two years of the Agreement. The Agreement provides for
reimbursement of certain costs of moving up to $10,000; the Agreement also
provides for certain employee benefits and contains provisions regarding
confidentiality and noncompetition before and after employment. The Company may
terminate Mr. McBride's contract other than for cause by written notice to Mr.
McBride in which case the Company has agreed to pay Mr. McBride up to nine
months of severance pay offset by pay from another job and potentially by
profits available from option exercises; the Agreement also provides that in
these cases, unvested options which would have vested during the severance
period will vest. If such
12
termination results from a change of control (as defined) within the first two
years of employment, all the options granted at employment will vest. Similar
provisions apply if Mr. McBride terminates his employment for cause. Mr. McBride
may terminate his employment for any reason on three months' notice. There are
also special provisions for disability.
In the event the Company terminates Mr. Eustis' employment without cause or
Mr. Eustis terminates such employment with good reason, Mr. Eustis is entitled
to receive his then current salary until the earlier of up to nine months after
such termination or the date he secures a new position.
In the case of certain other than for cause terminations of employment with
the Company, all officers are entitled to severance equal to a percentage of
annual base pay; the exact percentage is adjusted for length of service with the
Company. In addition, in the event of certain changes of control of the Company,
severance payable to senior officers is increased to an amount equal to annual
salary reduced by the amount of certain stock and option gains.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
EXCHANGE ACT OF 1934 THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY
STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT AND THE PERFORMANCE GRAPH
ON PAGE 17 SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
The Company applies a consistent philosophy to compensation for all
employees, including executive officers. This philosophy is based on the premise
that the achievements of the Company result from the coordinated efforts of all
individuals working toward common objectives. The Company strives to achieve
those objectives through teamwork that is focused on meeting the expectations of
the Company's shareholders.
COMPENSATION PHILOSOPHY FOR EXECUTIVE OFFICERS
The goals of the compensation program are to reward individual and team
performance and to encourage future performance by aligning compensation with
business objectives and performance and to enable the Company to attract, retain
and reward executive officers who contribute to the long-term success of the
Company. The Company's compensation program for executive officers is based on
four principles:
- - The Company pays competitively.
The Company is committed to a compensation program that helps attract and retain
the best people in the industry. To ensure that its compensation is competitive,
the Company regularly compares its compensation levels with those companies it
considers comparable and sets its compensation parameters based on this review.
- - The Company compensates its executive officers for performance.
Executive officers are rewarded based upon both corporate performance and
individual performance. Corporate performance is evaluated by reviewing the
extent to which strategic and business plan goals are met. Individual
performance is evaluated by reviewing organizational and management development
progress against set objectives and the degree to which teamwork and Company
values are fostered by the individual's actions.
13
In early stage biopharmaceutical companies, performance is best judged by
success in achievement of scientific and technical milestones, product
development progress (including progress toward and through clinical trials),
strategic human resources development, capitalization and financing goals, and
commercialization goals. These are the bases presently used by the Committee.
- - The Company strives for fairness in the administration of pay.
The Company strives to achieve a balance of the compensation paid to a
particular individual and the compensation paid to other executive officers both
inside the Company and at comparable companies.
- - The Company believes that all employees, including executive officers, should
understand and constructively participate in the performance evaluation process.
The process of assessing performance is as follows:
1. At the beginning of the performance cycle, the evaluating manager (who in
the case of executive officers is the Chief Executive Officer) in
conjunction with the employee sets objectives and key goals for the employee
based upon Company goals previously established by senior management.
2. The evaluating manager gives the employee ongoing feedback on performance
against agreed upon goals.
3. At the end of the performance cycle, the employee submits a summary of the
employee's accomplishments against key goals and the manager reviews and
evaluates this summary.
4. The evaluating manager compares the evaluation results to the results of
peers within the Company.
5. The Chief Executive Officer and the Human Resources Director (and absent
such officer, the Chief Financial Officer) review results of all evaluations
except that of the Chief Executive Officer. These evaluations are
subsequently discussed between the evaluating manager and the employee in
reaching an agreed upon result.
6. For executive officers, the results of the performance evaluation are
discussed with the Committee which reviews these results and approves
(subject to their review) recommendations for compensation made by the Chief
Executive Officer.
7. The comparative result of the performance evaluation is the basis for
decisions on cash compensation and, where appropriate, stock options or
other long-term incentive compensation.
In the case of the Chief Executive Officer, the Committee is the evaluating
manager.
COMPENSATION VEHICLES
The Company uses a simple total compensation program consisting of cash and
equity-based compensation. Having a compensation program that allows the Company
to successfully attract and retain executive officers permits it to enhance
shareholder value, motivate technological innovation and foster teamwork. The
vehicles used are:
14
CASH-BASED COMPENSATION
SALARY -- The Company sets base salaries for executive officers by reviewing the
aggregate of base salary and bonus for individuals in competitive positions in
the market and adjusting such aggregate to reflect individual performance.
ANNUAL CASH BONUS -- Executive officers and the CEO are eligible to receive an
annual cash bonus upon the attainment of predetermined corporate objectives.
These objectives are approved at the beginning of the year by the Committee, and
progress against them reviewed at year end to determine the appropriate bonus
payment. At full achievement of objectives, the CEO is targeted to receive a
bonus of 25% of his annual base salary and the other executive officers to
receive 15%. The amount actually paid in any one year may be more or less than
the targeted bonus based on over or under achievement of objectives.
EQUITY-BASED COMPENSATION
STOCK OPTION PROGRAM -- The purpose of the Company's stock option program is to
provide additional incentives to executive officers to work to maximize
shareholder value. The Company believes strongly in the use of stock options
because they align employee interests directly with shareholder value. The
option program also utilizes vesting periods to encourage executive officers to
continue in the employ of the Company and to encourage long-term increases in
Company stock value. The Company grants stock options to all employees and
anticipates it may use stock options as a bonus vehicle in the future. A program
of cash awards for excellence in performance and attainment of goals is in
place.
Although provided for under the Company incentive plans, the Company presently
does not use stock appreciation rights as a compensation vehicle.
EVALUATION OF 1997 PERFORMANCE OF EXECUTIVE OFFICERS
The Committee compares the base salaries of executive officers against the
current competitive pay practices of comparable biotechnology companies by
reviewing data in the Radford Biotechnology Compensation and Benefits Survey
(and other biotechnology survey data, both formal and informal, as it becomes
available). Through these means, the Committee determined that though salaries
were generally rising, it would not provide for any raises for executive
officers in 1997 because of the poor performance of the Company, including the
performance of the Company's stock price.
The Committee has determined that several executive officers achieved a
number of goals important to the Company including the continuing advance in the
Company's clinical trial program, completion of its new facility, sale/leaseback
of its new facility, reorganization of its relationship with Modex
Therapeutiques SA and the acquisition of StemCells, Inc. However,
notwithstanding these achievements, the Committee felt that the overall
performance of the Company, particularly the poor performance of the Company's
stock price, made the award of discretionary bonuses to executive officers
inappropriate. Mr. McBride received a bonus of $16,334 as required by his
employment agreement.
In addition, Mr. McBride was granted an option covering 15,000 shares for
his contributions in improving the Company's financial condition and Mr. Elrifi
was granted an option covering 10,000 shares to recognize his contributions in
strengthening the Company's intellectual property.
15
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Dr. Rudnick received a salary at the rate of $295,000 per year during his
tenure as Chief Executive Officer in 1997. Upon Dr. Rose becoming Chief
Executive Officer in September 1997, Dr. Rudnick received a lower salary at the
rate of $200,000 per year because of his reduced role with the Company. The
Committee decided not to award a bonus to Dr. Rudnick because of the Company's
poor stock performance and the lack of discretionary bonuses to any other
executive officer.
In determining the proper base salary for Dr. Rose, who served as CEO from
September, 1997, the Committee took into account that his $275,000 annual salary
ranked in approximately the 65th percentile of the industry average of salaries
for CEOs in similar size biotechnology companies. The Committee determined that
this salary was appropriate given his tenure at the Company and taking into
account the option package and other components of Dr. Rose's total compensation
package.
COMPENSATION AND STOCK OPTION COMMITTEE
Donald R. Conklin
Mark J. Levin
Richard J. Ramsden
Peter K. Simon
16
PERFORMANCE GRAPH
NOTE: THE STOCK PRICE PERFORMANCE SHOWN ON THE GRAPH BELOW IS NOT NECESSARILY
INDICATIVE OF FUTURE STOCK PRICE PERFORMANCE.
COMPARISON OF CUMULATIVE TOTAL RETURNS ON COMMON STOCK OF CYTOTHERAPEUTICS,
INC.,
THE AMEX BIOTECHNOLOGY STOCK INDEX AND S&P 500 INDEX
FOR THE PERIOD FROM THE COMPANY'S INITIAL PUBLIC OFFERING UNTIL DECEMBER 31,
1997
The graph below compares the cumulative total returns on the Company's
Common Stock with the cumulative total returns of the Amex Biotechnology Stock
Index and the S&P 500 Index for the period from the Company's initial public
offering until December 31, 1997. (1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MEASUREMENT AMEX BIOTECHNOLOGY
DATES COMPANY STOCK INDEX S&P 500 INDEX
March 26, 1992 $100.00 $ 100.00 $100.00
December 31, 1992 $ 79.49 $ 94.41 $110.41
December 31, 1993 $125.64 $ 64.07 $121.53
December 31, 1994 $ 46.15 $ 45.41 $119.88
December 31, 1995 $175.64 $ 74.88 $160.48
December 31, 1996 $ 92.31 $ 80.00 $192.99
December 31, 1997 $ 41.03 $ 89.88 $252.84
- ------------------------
(1) Based on the closing price of CytoTherapeutics' Common Stock on the first
day of trading on the NASDAQ National Market System. Cumulative total
returns assume reinvestment of all dividends and a hypothetical investment
of $100 on March 26, 1992.
17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following non-employee directors served on the Compensation and Stock
Option Committee in 1997: Messrs. Conklin, Levin, Ramsden and Simon. In 1989,
1990 and 1991 Mr. Levin was an executive officer of the Company.
The Company has entered into several consulting agreements with Levin &
Associates, a company in which Mr. Levin's wife is a principal, for recruiting
services rendered to the Company. During the fiscal year ended December 31,
1997, the Company made payments of approximately $54,800 under such agreements.
The Company believes the terms of these agreements are no less favorable to the
Company than could have been obtained from unaffiliated third parties.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. Cadman, a member of the Board of Directors, was retained in August 1992
to serve as a consultant to the Company. Pursuant to his Consulting Agreement,
Dr. Cadman received $1,000 per day of consulting performed (totaling $12,000 for
1997) and has been granted an option to purchase 20,000 shares of the Common
Stock at $6.50 per share, the fair market value of the Company's Common Stock at
the time the option was granted. Effective January 1, 1998, Dr. Cadman was
compensated as a director on the same basis as other outside directors of the
Company.
Dr. Weissman, a member of the Board of Directors, was retained in September
1997 to serve as a consultant to the Company. Pursuant to his Consulting
Agreement, Dr. Weissman has agreed to provide consulting services to the Company
and serve on the Company's Scientific Advisory Board. The Company agreed to pay
Dr. Weissman $50,000 per year for his services and granted him an option to
purchase 500,000 shares of Common Stock for $5.25 per share, of which 31,250
shares vested at the date of grant and the remainder of which will vest upon the
occurrence of certain milestones related to the Company's stem cells research
program and in the event of certain changes of control. The Company also agreed
to nominate Dr. Weissman for a position on the Board of Directors. The
Consulting Agreement contains confidentiality, noncompetition and assignment of
invention provisions and is for a term of ten years, subject to earlier
termination by the Company for cause or frustration of purpose and earlier
termination by Dr. Weissman for good reason.
Dr. Aebischer, a founding scientist of the Company, serves as a member of
the Board of Directors and is party to a Research and Commercialization
Agreement providing for sponsorship by the Company of research by Dr. Aebischer
in return for certain rights in the results thereunder. The Company has granted
Dr. Aebischer stock options covering an aggregate of 80,000 shares at an average
weighted exercise price of $4.63 per share in addition to a restricted stock
grant covering 5,000 shares.
During 1996, Dr. Aebischer was one of four scientific founders of Modex
Therapeutiques SA ("Modex"). Dr. Aebischer was paid 18,260 SF (approximately
$14,580) by the Company for his services in connection with the formation of
Modex. Dr. Aebischer, the three other scientific founders, the Company and a
Swiss investment bank formed Modex by investing a total of SFr 140,000
(approximately $177,000) to acquire 14,000 shares of Modex Common Stock at SFr
10 (approximately $8.33) per share. Of such 14,000 shares, the Company acquired
6,500 shares, the Swiss bank 500 shares and the scientific founders 7,000
shares, of which Dr. Aebischer acquired 1,826 shares. After giving effect to
certain additional investments by the Company and the Swiss bank shortly after
founding, the Company owned 10,000 shares (or 50%) of
18
Modex Common Stock, the founding scientists 7,000 shares (or 35%) (of which Dr.
Aebischer owned 1,852 shares or 9.26%) and the Swiss bank 3,000 shares (or 15%).
As a condition to making such additional investments in Modex, the Company
entered into an Option Agreement with Dr. Aebischer and the other three
scientific founders, providing the Company and each scientific founder with the
right to exchange any or all of each scientific founder's shares in Modex at any
time for shares of the Company's Common Stock at a conversion ratio of 13.145
shares of the Company's Common Stock for each share of Modex Common Stock
(subject to the normal adjustments for stock splits, stock dividends, and the
like); on conversion of all of his 1,826 shares of Modex Common Stock, Dr.
Aebischer would have received 24,002 shares of the Company's Common Stock. In
addition, under the Option Agreement, the Company had the right to acquire from
Dr. Aebischer and the other founding scientists 1,522 shares of the Common Stock
of Modex initially acquired by them at the time Modex was founded at SFr 10 per
share, if at any time prior to July 1998, any such scientific founder (including
Dr. Aebischer) was terminated as a consultant for Modex for cause or resigned as
such a consultant without good reason.
Under the terms of the Company's Cross License Agreement with Modex as
originally entered into in 1996, Modex had the right to receive up to 300,000
shares of the Company's Common Stock (the "Milestone Shares") on the achievement
of certain scientific milestones. Modex expected to use such Milestone Shares to
provide incentive compensation to its key employees and consultants. Under the
terms of his consulting agreement with Modex, Dr. Aebischer received cash
compensation at the rate of SFr 12,000 (approximately $8200) per year for 1996
(amounting to an aggregate of SFr 3000 during 1996) and had the right to receive
from Modex up to 54,780 shares of such Milestone Shares upon the achievement of
the specified scientific milestones.
In October 1997, the Company completed a series of transactions which
reduced its ownership interest in Modex from 50% to approximately 25% in
exchange for $4 million cash from an investor group and elimination by Modex of
the Company's prior contingent obligation to contribute an additional Sfr
2,400,000 (approximately $1,600,000) to Modex in July 1998. In the transactions,
the Option Agreement between the Company and Dr. Aebischer was eliminated, along
with all other put and call arrangements between the Company and the other
stockholders of Modex, and the Company forgave approximately $500,000 in
intercompany receivables due from Modex to the Company. The Company and Modex
also modified the terms of their existing Cross License Agreement to (i) expand
the field in which Modex is exclusively licensed to apply the Company's
proprietary encapsulated cell technology to include, in addition to the original
field of diabetes, obesity, and anemia, (x) the treatment of hemophilia A and B
utilizing Factor VIII and/or Factor IX and (y) two additional applications to be
agreed to by the Company and Modex; (ii) eliminate Modex's right to receive any
Milestone Shares; (iii) limit the scope of the Company's technology licensed to
Modex to existing and future encapsulation technology and certain additional
existing technology; and (iv) specify the terms under which the Company will
manufacture any products Modex may develop based on the Company's technology and
grant Modex an option to manufacture or have manufactured such products on
payment of a higher royalty. The Cross License Agreement continues to provide
for the payment of royalties from Modex to the Company on the sale of any
licensed products. The revised agreement similarly limits the scope of the Modex
technology exclusively licensed, on a royalty-bearing basis, to the Company for
application to diseases, conditions and disorders of the central nervous system
to existing and future encapsulation technology and certain additional existing
technology. In addition to their purchase of Modex Common Stock from the
Company, the venture capital investors participating in the transaction invested
$1.6 million directly in Modex. In
19
connection with the transaction, Dr. Aebischer and the other scientific founders
transferred 2,000 shares of their Modex stock to the Company (of which Dr.
Aebischer transferred 522 shares) for nominal consideration (Sfr 10 per share)
and waived their right to receive any Milestone Shares under their consulting
agreements with Modex.
Dr. Aebischer is the principal investigator under the Research and
Commercialization Agreement between the Company and CHUV (the "CTI-CHUV
Agreement") and Modex and CHUV (the "Modex-CHUV Agreement"). The Company and
Modex provided research funding under the CTI-CHUV and Modex-CHUV Agreements
during 1997 in the total respective amounts of $675,000 and Sfr 96,674
(approximately $67,000).
20
OTHER INFORMATION
ACCOUNTING MATTERS
The Board of Directors has selected the independent accounting firm of Ernst
& Young LLP to audit the accounts of the Company for the year ending December
31, 1998.
A representative of Ernst & Young LLP who audited the accounts of the
Company for the year ended December 31, 1997, is expected to be present at the
Annual Meeting of Stockholders and will be afforded the opportunity to make a
statement if he or she desires to do so and will be available to reply to
appropriate stockholder inquiries.
STOCKHOLDER PROPOSALS
Proposals of Stockholders submitted for consideration at the next Annual
Meeting of Stockholders must be received by the Company (attention: Secretary)
no later than November 27, 1998.
FORM 10-K
THE COMPANY'S ANNUAL REPORT ON FORM 10-K (WITHOUT EXHIBITS), AS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION, IS AVAILABLE WITHOUT CHARGE UPON REQUEST
BY WRITING TO THE COMPANY AT 701 GEORGE WASHINGTON HIGHWAY, LINCOLN, RHODE
ISLAND 02865, ATTN: INVESTOR RELATIONS.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's Common Stock, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission
("SEC"). Officers, directors and greater than ten percent stockholders are
required by SEC regulations to furnish to the Company copies of all Forms 3, 4
and 5 they file. Based solely on the Company's review of copies of such forms it
has received, the Company believes that all of its officers, directors and
greater than ten percent beneficial owners complied on a timely basis with all
filing requirements applicable to them.
OTHER BUSINESS
The Board of Directors knows of no business that will come before the
meeting for action except as described in the accompanying Notice of Meeting.
However, as to any such business, the persons designated as proxies will have
discretionary authority to act in their best judgment.
By Order of the Board of Directors
FREDERIC A. EUSTIS, III
SECRETARY
March 30, 1998
21
4090-PS-98
APPENDIX A
PROXY
CYTOTHERAPEUTICS, INC.
ANNUAL MEETING OF STOCKHOLDERS MAY 5, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard M. Rose, M.D., John McBride and
Frederic A. Eustis, III, or any of them with power of substitution to each,
proxies to vote at the Annual Meeting of Stockholders of CytoTherapeutics, Inc.
to be held on May 5, 1998 at the offices of CytoTherapeutics, Inc., 701 George
Washington Highway, Lincoln, Rhode Island at 1:00 p.m. local time, or at any
adjournments thereof, all of the shares of Common Stock, par value $.01 per
share of CytoTherapeutics, Inc. that the undersigned would be entitled to vote
if personally present. The undersigned instructs such proxies or their
substitutes to act on the following matter as specified by the undersigned, and
to vote in such manner as they may determine on any other matters that may
properly come before the meeting.
SEE REVERSE SEE REVERSE
SIDE SIDE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
[X] Please mark
votes as in
this example.
This proxy when properly executed will be voted in the manner directed by
the undersigned stockholder(s). If no contrary direction is made, this
proxy will be voted FOR the election of the nominees for director named
below and in the discretion of the named proxies as to any other matter
that may come before the meeting.
1. Election of Directors. 2. In their discretion, the
The undersigned hereby proxies are authorized to vote
GRANTS authority to upon such other business as
elect the following may properly come before the
nominees as Class I meeting.
directors: Mark J. Levin
and Irving L. Weissman, M.D.
FOR WITHHELD
/ / / /
/ / ___________________________________________
For both nominees except as noted above
MARK HERE FOR ADDRESS CHANGE AND
NOTE AT LEFT / /
Note: Please sign exactly as name
appears on this card. All joint
owners should sign. When signing
as an executor, administrator,
attorney, or guardian or as
custodian for a minor, please give
full title as such. If a
corporation, please sign in full
corporate name and indicate the
signer's title. If a partner, sign
in partnership name.
Signature: Date: Signature: Date:
--------------- ------ --------------- ------
