AGENDA of the 2005 Annual General Meeting of Shareholders of CRUCELL N.V. (the "Company") to be held 2 June 2005 at 14.00 pm. Hilton Hotel, Apollolaan 138-140, 1077 BG Amsterdam
AGENDA: 1. Opening by the Chairman of the Supervisory Board. 2. Report of the Board of Management on the state of affairs and on the Annual Accounts for the financial year 2004 ended 31 December 2004. 3. Corporate Governance. 4. a)
b) Proposal to maintain the use of the English language for the Annual Accounts of the Company; Proposal to adopt the Annual Accounts for the financial year 2004 ended 31 December 2004.
5. Reservation and dividend policy. 6. a)
b) Proposal to grant discharge to Domenico Valerio for the period he has been a member of the Supervisory Board; Proposal to grant discharge to the members of the Board of Management and the members of the Supervisory Board for the exercise of their respective duties, insofar as the exercise of such duties is reflected in the financial reporting.
7. Resignation of Messrs. Pieter Strijkert and Phillip Satow as members of the Supervisory Board in accordance with the rotation plan mentioned in article 24 section 3 of the Company's Articles of Association. 8. Proposal to re-appoint Messrs. Pieter Strijkert and Phillip Satow and to appoint Arnold Hoevenaars as members of the Supervisory Board, in accordance with the nomination drawn up by the meeting of the holders of priority shares in the Company. 9. a) b)
Proposal to establish the remuneration policy for the Supervisory Board; Proposal to establish the remuneration of each individual member of the Supervisory Board and proposal to approve the stock-based part of the remuneration of the members of the Supervisory Board.
10. Proposal to establish the remuneration policy for the Board of Management.
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11. Proposal to approve the stock-based part of the remuneration of the members of the Board of Management. 12. Proposal to re-appoint Ernst & Young as the external auditor of the Company. 13. Proposal to extend authority to the Board of Management to repurchase shares in the Company's share capital for a period of eighteen months. 14. Explanation on entering into a new agreement with the Preferred Foundation (Stichting Preferente Aandelen Crucell). 15. Proposal to amend the Articles of Association of the Company, in accordance with the proposal of the Supervisory Board and in conformity with the draft Deed of Amendment of the Articles of Association dated 2 May 2005, as prepared by Allen & Overy (Amsterdam office), attorneys-at-law, civil law notaries and tax advisors with regard to the elimination of the priority shares by way of a conversion of the priority shares into ordinary shares and the appointment for a period of three years of the Board of Management as the body authorised to issue shares and to limit or exclude the right of pre-emption. 16. Proposal to authorise each member of the Board of Management of the Company and also each civil law notary, deputy civil law notary and notarial assistant of Allen & Overy, each of them severally, to apply to the Dutch Ministry of Justice for the Statement of No Objections and to have the Deed of Amendment of the Articles of Association executed. 17. Miscellaneous. 18. Closing.
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Explanatory notes and shareholders' circular as referred to in best practise provision IV.3.7 of the Corporate Governance Code. These explanatory notes and shareholders' circular form part of the agenda.
Explanatory note to item 3 (Corporate Governance) on the agenda: On 1 January 2004 the Corporate Governance Code of the Tabaksblat Committee ("Code") has become effective. The Code applies to all companies whose statutory seat is in the Netherlands and whose shares or depositary receipts for shares are officially listed on a government-recognised stock exchange. The Code contains the principles and concrete provisions which the persons involved in a company (including management board members and supervisory board members) and stakeholders (including institutional investors) should observe in relation to one another. The principles have been elaborated in the form of specific best practice provisions. These provisions create a set of standards governing the conduct of management board and supervisory board members (also in relation to the external auditor) and shareholders. The Company values good entrepreneurship, including integrity and transparency of decision-making by the Board of Management, and proper supervision thereof by the Supervisory Board. The Company is in the process to ensure that the Company complies as much as possible with the corporate governance provisions of the Code taking into consideration the market on which the Company operates and the business it is in. Listed companies to which the Code applies have the obligation to explain in their annual report whether, and if so why and to what extent, they do not apply the best practice provisions of the Code that are directed to the Board of Management and the Supervisory Board. We refer to the Corporate Governance Section in our annual report (which is placed on the Company's website (www.crucell.com)) for further explanation regarding the compliance and non-compliance with the principles and provisions of the Code. Corporate Governance is put on the agenda in order to give the Board of Management and Supervisory Board further opportunity to elaborate on this subject.
Explanatory note to items 4a) and b) (Adoption and language of annual accounts) on the agenda: The Company's audited annual accounts for the year 2004, as expressed in Euro and prepared in accordance with Dutch statutory accounting principles, are, given the international character of the company, submitted to the shareholders in the English language. The Board of Management and the Supervisory Board suggest to continue to have the annual accounts in the English language in the future. Copies of the Company's annual accounts and the reports of the Supervisory Board and the Board of Management are available for inspection by shareholders and other persons
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entitled to attend meetings of shareholders at the registered office of the Company at Company at Archimedesweg 4, 2333 CN Leiden, The Netherlands, and at the office of ING Bank N.V. at Foppingadreef 7, Amsterdam-Zuidoost, The Netherlands, and at the office of Bank of New York, 101 Barclay Street, 8 East New York, NY 10286, United States of America from the date hereof until the close of the Annual General Meeting of Shareholders.
Explanatory note to item 5 (Reservation and Dividend Policy) on the agenda: No dividend has been paid out to date and the Company does not intend to pay dividends on the ordinary shares for the foreseeable future. Any payment of future dividend will depend upon earnings, statutory and financial requirements and other factors deemed necessary by the Board of Management.
Explanatory note to items 6a) and b) (Discharge of members of the Board of Management and Supervisory Board) on the agenda: Mr. Domenico Valerio was appointed as supervisory director per January 1, 2005 at the last general meeting. However, Mr. Valerio decided shortly after January 1, 2005 to retreat as member of the Supervisory Board of the Company. Therefore, as he is no longer a member of the Supervisory Board at the time of this general meeting, separate discharge is requested for him. The general meeting of shareholders of the Company are requested to discharge the members of the Board of Management and the Supervisory Board from liability in respect of the exercise of their duties during the financial year concerned. This discharge concerns the possible liability of the members of respectively the Board of Management and the Supervisory Board for certain improper performance of their respective duties vis-à-vis the Company. The discharge will be limited by mandatory provisions of Dutch law, such as in the case of bankruptcy, and this discharge only extends to actions or omissions disclosed in or apparent from the adopted annual accounts.
Explanatory note to item 8 (Appointment of members of the Supervisory Board on the agenda: Under Dutch law and the articles of association of the Company, when a proposal or recommendation for appointment of a person as a member of the Supervisory Board is made, the following particulars shall be stated: his age, his profession, the number of shares he holds and the positions he holds or has held, insofar as these are relevant for the performance of the duties of a member of the Supervisory Board. Furthermore, the names of the legal entities of which he is already member of a supervisory board shall be
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indicated; if those include legal entities which belong to the same group, a reference to that group will be sufficient. The proposal or recommendation must state the reasons on which it is based. The Form 20F contains an overview of the number of shares held by the proposed members of the Supervisory Board. The Form 20F is available for inspection at the registered office of the Company at Archimedesweg 4, 2333 CN Leiden, The Netherlands, and at the office of ING Bank N.V. at Foppingadreef 7, Amsterdam-Zuidoost, The Netherlands. Copies may be obtained free of charge. The meeting of holders of priority shares has nominated Pieter Strijkert to be reappointed as member of the Supervisory Board, given his experience in the pharmaceutical industry and the outstanding way he previously performed this function. Pieter Strijkert will be reappointed for a period of four years as chairman. The attachment to these explanatory notes contains the particulars of Pieter Strijkert. The meeting of holders of priority shares has also nominated Philip Satow to be reappointed as member of the Supervisory Board, given his international business experience on strategic matters. Furthermore, Philip Satow has proofed himself to be a very valuable member of the Supervisory Board. Philip Satow will be reappointed for a period of four years. The attachment to these explanatory notes contains the particulars of Philip Satow. The meeting of holders of priority shares has also nominated Arnold Hoevenaars to be appointed as member of the Supervisory Board, given his financial background and experience also with listed companies. Arnold Hoevenaars will be appointed for a period of four years. The attachment to these explanatory notes contains the particulars of Arnold Hoevenaars. Although formally no profile has been made yet for the composition of the Supervisory Board, the composition after the appointment of the abovementioned gentlemen would be appropriate given the nature, the needs and the size of the Company.
Explanatory note to item 9a) and b) (Supervisory Board Compensation) on the agenda:
The Supervisory Board compensation and compensation policy are submitted for adoption by the general meeting. The compensation of all Supervisory Board members shall consist of an annual fixed fee in cash and an annual fixed number of shares. The fixed fee in cash shall amount to € 25,000 per Supervisory Board member, the Chairman will receive a fixed fee of € 40,000. Furthermore, each member of the Supervisory Board shall receive 2,500 shares. The shares must be held for as long as an individual is a member of the Supervisory Board. Instead of the share grant, a Supervisory Board member may also choose to receive a cash amount equalling the value of 2,500 shares at the date of grant minus 25%. The shares (or cash equivalent minus 25%) shall be awarded in 2006, as in December 2004 stock options were awarded to the Supervisory Board with respect to the year 2005. Committee fees and Committee Chairmanship fees are no longer
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granted. A tax free expense allowance of € 4,900 is awarded annually to the Chairman of the Supervisory Board.
Explanatory note to item 10 (Remuneration policy Board of Management) on the agenda:
The Remuneration Committee has advised the Supervisory Board and the Supervisory Board has reviewed the company’s remuneration policy and structure for the Management Board during 2004 in light of the Dutch Corporate Governance Code and market competitiveness. This remuneration policy is submitted for adoption by the general meeting. The Supervisory Board proposes a remuneration policy for 2005 and consecutive years based on four key principles: In 2005, overall remuneration levels need to be sufficient to attract, retain and motivate top management given the dynamic business environment in which Crucell competes for talent; Base salaries should be broadly in line with average market levels, whereas short- and longterm incentive levels should reflect an upside potential in case of outstanding performance; To enhance the effectiveness of the short-term incentive, clearly measurable and challenging targets are set, which reflect the strategic focus of Crucell in the short-term; The long-term incentive plan should ensure a focus on longer-term strategic performance targets, which aim for shareholder alignment and motivation and retention of qualified executives.
Remuneration structure 2005 The balance in fixed and variable pay for at target performance for the CEO amounts to 47% fixed and 53% variable compensation. For the other two Board members, the balance equals 56% fixed and 44% variable compensation.
Base Salary In 2005, base salary levels of the Management Board will be increased by 2% in order to account for an inflation correction. Each consecutive year the Supervisory Board considers whether base salary levels should be adjusted by taking account of the external and internal business environment of Crucell.
Short- and long-term incentive The short- and long term share-based incentive plans are submitted to the general meeting for approval (see item 11).
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Pension As from 2005 a new pension plan for the Management Board is introduced. The new plan is still a defined contribution plan, with a pensionable age of 65 years. Both the employer and the employee contribution are adjusted with regard to the fiscal requirements. The employee contribution is set at 7% of the pensionable salary (base pay minus an offset). The table below outlines the annual contribution rates, including the employee contribution. The risk premium for the survivor’s pension will be financed separately by the employer.
Total contribution rates Board members Crucell Age 25 till 30 30 till 35 35 till 40 40 till 45 45 till 50 50 till 55 55 till 60 60 till 65 Contribution rate 8.4% 10.2% 12.5% 15.2% 18.7% 23% 28.6% 36.1%
Contracts of employment The contracts for the members of the Management Board have been entered into for an indefinite period and provide for a notice period of up to six months upon termination by the Company and a notice period of three months upon termination by the individual. The maximum dismissal prescribed by the Dutch Corporate Governance Code corresponds to the contractual situation of the managing directors currently in force, provided that a dismissal arising from an unwanted change of control qualifies as clearly unreasonable and will result in a severance arrangement limited to two base salaries for the members of the Management Board.
Explanatory note to item 11 (Short-term incentive plan and long-term incentive plan) on the agenda:
Short-term incentive plan The short- term incentive plan is submitted for approval by the general meeting.
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During 2004, the short-term incentive plan of Crucell was revised in light of the short-term strategic focus of Crucell and the Dutch Corporate Governance Code. The short-term incentive plan to be used in 2005 was therefore retroactively applied in 2004. The short-term incentive is linked to the achievement of predetermined collective milestones in combination with a budget hurdle and individual milestones. The collective milestones are based on pre-determined annual milestones for research, development, business development, finance, intellectual property and corporate legal affairs. The specific details of the milestones are not disclosed as these qualify as commercially sensitive information. All predetermined milestones are contingent upon achievement of the annual pre-determined cash burn rate of the Company, which is the amount of net cash spent as a result of the Company’s operations. In addition, part of the short-term incentive award is based on individual milestones, assessed on the basis of predefined measurable milestones set for each executive. These milestones depend on the specific responsibilities of the individual and are approved by the Supervisory Board. All milestones linked to the short-term incentive plan are revised annually and approved by the Supervisory Board to ensure that they remain challenging but realistic. The table below shows the relative weight of the Collective and Individual Milestones: Management Board CEO, CFO, CSO Collective Milestones 70% Individual Milestones 30%
The target bonus of the CEO amounts to 75% of base salary and for the Chief Financial Officer (“CFO”) and Chief Scientific Officer (“CSO”) a target bonus of 50% of base salary is applicable. In the event performance exceeds expectations to a considerable extent, upto 125% of the target bonus could be rewarded as a maximum bonus. The bonus is payable in restricted shares or cash, optional to the participant. The Management Board members are encouraged to opt for restricted shares to maximize alignment of shareholders interest. Therefore when opted for cash, a penalty of upto 25% reduction will be applied.
Long-term incentive plan The long-term incentive plan is submitted for approval by the general meeting. As part of the overall review of the remuneration policy and structure of Crucell, the Remuneration Committee analysed the long-term incentive plan during 2004. The analysis assessed whether the vehicle used (stock options) sufficiently supported the long-term strategic objectives of Crucell. As a result of this study, the Remuneration Committee recommended the Supervisory Board to replace stock options with performance shares. Target long-term incentive levels amount to 40% of base salary for the CEO and 30% for the CSO and CFO. When achieving maximum performance, at most 200% of the target award can be achieved. Overall, no vesting takes place for below median performance.
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The performance shares will be conditionally granted and vest pursuant to meeting pre-set performance targets at the end of a three-year performance period. The performance targets imply a combination of absolute share price growth on the stock markets, and Crucell’s Total Shareholder Return (“TSR”). TSR reflects the return received by a shareholder, taking into account both the change in share price and dividends received, while assuming dividends are reinvested in the Company. The absolute share price growth serves as a hurdle which should be overcome in order to qualify for any possible vesting of the shares. After the share price hurdle is met, the TSR performance measurement is twofold: relative to a peer group consisting of 26 constituents of the Goldman Sachs European Biotech Index and relative to the NASDAQ Biotech Index. Fifty percent of the conditionally awarded shares vest subject to Crucell’s ranking within the Goldman Sachs Biotech Index on the date of vesting. The table below shows the vesting scheme:
Goldman Sachs EU Biotech Index Vesting Scheme
Ranking 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 - 27 Vesting as % of 50% of Target Award 200% 183% 167% 150% 133% 117% 100% 89% 79% 68% 57% 46% 36% 25% 0%
Explanatory note to item 12 (Reappointment of external auditor) on the agenda:
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Ernst & Young have been the Company's external auditors since foundation. The Audit Committee and the Board of Management of the Company have advised the Supervisory Board to propose to have Ernst & Young reappointed as the external auditors of the Company. Their performance is and will be measured and judged by the Company's Audit Committee.
Explanatory note to item 13 (Repurchase of Shares) on the agenda: Under Dutch law and the articles of association of the Company, the Company may, subject to certain Dutch statutory provisions, repurchase up to one-tenth of the Company's issued and outstanding share capital. Any such purchase is subject to approval of the Supervisory Board and the authorisation by the general meeting of shareholders, which authorisation may not continue for more than eighteen months. By resolution of the general meeting of shareholders adopted on 3 June 2004, the Board of Management was authorised for eighteen months to repurchase up to 10% of the outstanding share capital of the Company. This authorisation expires on 3 December 2005. It is proposed to grant the Board of Management the authority to repurchase up to 10% of the outstanding share capital of the Company for an eighteen-month period from the date of this meeting until 2 December 2006, against a repurchase price between, on the one hand, the nominal value of the shares concerned and, on the other hand, an amount equal to 110% of the highest price officially quoted on the Nasdaq National Market and the Euronext (Amsterdam) N.V. on any of five banking days preceding the date of the repurchase.
Explanatory note to item 14 (new agreement "Stichting Preferente Aandelen Crucell"): In line with the provisions of the Code and the corporate governance of the Company, the Board of Management and the Supervisory Board of the Company are of the opinion that the use of priority shares is to be considered as a form of permanent protection against possible take-overs, a form of protection to be abolished. As the use of anti-take over preference shares as a protection measure is of a more temporary nature, this form is to be preferred. In order to achieve adequate temporary protection for the Company, the agreement between the Company and the Stichting Preferente Aandelen Crucell is adjusted in order to grant an option to the Stichting Preferente Aandelen Crucell to acquire a number of preference shares, up to 100 per cent of the number of the Company's outstanding shares, necessary to match the total number of statutory votes on all of the ordinary shares outstanding at the time of the purchase.
Explanatory note to item 15 (Amendment of the articles of association) on the agenda:
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The Supervisory Board has proposed to amend the Articles of Association of the Company in conformity with the draft Deed of Amendment of the Articles of Association dated May 2, 2005 prepared by Allen & Overy (Amsterdam office), attorneys-at-law, civil law notaries and tax advisors. In accordance with article 44.2 of the articles of association of the Company a copy of the proposal, setting forth the text of the proposed amendment verbatim, shall be deposited for inspection at the Company's office and at the office of ING Bank N.V. at Foppingadreef 7, Amsterdam-Zuidoost, The Netherlands and shall be held available for Shareholders as well as for beneficiaries of a life interest and pledgees to which the voting rights on share accrue, free of charge until the end of the annual general meeting. Most of the proposed amendments to the articles of association are necessary to eliminate the priority shares, references to priority shares and the rights of the holders of priority shares or have to do with the authority to resolve to issue shares or limit or exclude preemptive rights. Please see below a summary of the most important amendments. Capital. The priority shares in the authorised capital will be deleted. Supervisory Board. • Supervisory Directors shall be appointed by the General Meeting of Shareholders from a list of candidates to be drawn up by the Supervisory Board (instead by the holders of priority shares). If the list of candidates contains the names of at least two persons it shall be binding. • A resolution to suspend, remove or revoke the suspension of a Supervisory Director other than at the proposal of the Supervisory Board may only be passed by the General Meeting of Shareholders with an absolute majority of the votes cast representing more than one third of the Company's issued capital (best practise provision IV.1.1). Authorisation Board of Management to issue shares. The duration of the authority of the Board of Management to issue shares and to grant rights to subscribe for shares as provided for in Article 7 of the articles of association, shall be fixed on three years, effective as of the day the amendment of the Company's articles of association takes effect. The authorisation concerns all non-issued shares of the authorised capital as it reads now or shall read at some point in time. The same applies to the authorisation of the Board of Management to limit or exclude the right of pre-emption, as provided for in Article 8 of the Articles of Association. This authorization of the Board of Management to issue shares is quite common for listed companies. It gives a Company as Crucell sufficient flexibility to attract new capital if the business of Crucell so requires. The present authorization to the Board of Management elapses 9 October 2005.
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ANNEX 1 PARTICULARS CANDIDATES SUPERVISORY BOARD
Phillip Satow has served as a member of our supervisory board since our incorporation. He spent 14 years at Pfizer, Inc. where his last position was vice president, Pfizer Europe. From 1985 to 1997, he was executive vice president of marketing at Forest Laboratories, Inc. From 1998 to 1999 he was president of Forest Pharmaceuticals, executive vice president of Forest Laboratories Inc. and a member of its board of directors. Mr. Satow currently serves on the public boards of Forest Laboratories Inc. (FRX), and Eyetech Pharmaceuticals Inc. (EYET) and is Chairman and CEO of JDS Pharmaceuticals LLC, a privately held pharmaceutical company. Mr. Satow received a Masters in Economics from Georgetown University. Pieter Strijkert has served as chairman of our supervisory board since our incorporation. He also served as chairman of the supervisory board of IntroGene from 1994 to October 2000, and as chairman of the supervisory board of U-BiSys from 1998 to October 2000. He currently serves on the boards of Chiron Corporation, a position he has held since 1987, and Paratek Pharmaceuticals, Inc., a position he has held since 1998. He served as chairman of the supervisory boards of Pharming from 1995 to 2001, and for deVGen N.V. and PamGene B.V. from 2000 to 2003. From 1985 to 1995 he was a member of the managing board of Gist-Brocades N.V. Mr. Strijkert has a PhD from the University of Utrecht. Arnold Hoevenaars has been attending our supervisory board meetings as an observer since July 2004. We expect that he will be nominated by the Priority Foundation as an independent supervisory board member, and that shareholder approval for his appointment shall occur at our next Annual General Meeting, scheduled for June 2005. Mr. Hoevenaars is a chartered accountant in the Netherlands, and his previous positions include, among others, Chairman of the Management Board of the Achmea Group, Chairman of the Board of Directors and Chairman/CEO of the Executive Board of Eureko B.V. and member of the Management Board and Chief Financial Officer of Royal Boskalis Westminster N.V.