BIOTRANSPLANT INC, DEF 14A, 1997-04-15

BIOTRANSPLANT INC
DEF 14A, 1997-04-15
PHARMACEUTICAL PREPARATIONS

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<PAGE> 1

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 sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))

BIOTRANSPLANT INCORPORATED
(Name of Registrant as Specified In Its Charter)

BIOTRANSPLANT INCORPORATED
(Name of Person(s) Filing Proxy Statement)

PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:

- --------------------------------------------------------------------------------
<PAGE> 2

BIOTRANSPLANT INCORPORATED
BUILDING 75, THIRD AVENUE
CHARLESTOWN NAVY YARD
CHARLESTOWN, MASSACHUSETTS 02129

NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON MAY 20, 1997

The 1997 Annual Meeting of Stockholders of BioTransplant Incorporated (the
"Company") will be held at Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts, on Tuesday, May 20, 1997 at 10:00 a.m., local time, to consider
and act upon the following matters:

1. To elect seven directors for the ensuing year.

2. To approve the Company's 1997 Stock Incentive Plan.

3. To approve an amendment to the Company's 1994 Directors' Equity Plan
increasing from 15,000 to 50,000 the number of shares of Common Stock
reserved for issuance under the 1994 Directors' Equity Plan.

4. To ratify the selection by the Board of Directors of Arthur Andersen
LLP as the Company's independent accountants for 1997.

5. To transact such other business as may properly come before the meeting
or any adjournment thereof.

Stockholders of record at the close of business on April 1, 1997 are
entitled to notice of, and to vote at, the meeting. The stock transfer books of
the Company will remain open for the purchase and sale of the Company's Common
Stock.

All stockholders are cordially invited to attend the meeting.

By Order of the Board of Directors

STEVEN D. SINGER, Secretary

Charlestown, Massachusetts
April 14, 1997

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY CARD AND PROMPTLY MAIL IT IN THE ENCLOSED ENVELOPE IN
ORDER TO ASSURE REPRESENTATION OF YOUR SHARES AT THE MEETING. NO POSTAGE NEED BE
AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
<PAGE> 3

BIOTRANSPLANT INCORPORATED
BUILDING 75, THIRD AVENUE
CHARLESTOWN NAVY YARD
CHARLESTOWN, MASSACHUSETTS 02129

PROXY STATEMENT FOR THE 1997 ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON MAY 20, 1997

This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of BioTransplant Incorporated (the "Company")
for use at the 1997 Annual Meeting of Stockholders to be held on May 20, 1997
and at any adjournment or adjournments of that meeting. All proxies will be
voted in accordance with the instructions contained therein, and if no choice is
specified, the proxies will be voted in favor of the matters set forth in the
accompanying Notice of Meeting. Any proxy may be revoked by a stockholder at any
time before it is exercised by delivery of written revocation to the Secretary
of the Company.

The Company's Annual Report for the year ended December 31, 1996 is being
mailed to stockholders with the mailing of this Notice and Proxy Statement on or
about April 14, 1997.

A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, EXCEPT
FOR EXHIBITS, WILL BE FURNISHED WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN
REQUEST OF THE DIRECTOR OF FINANCE, BIOTRANSPLANT INCORPORATED, BUILDING 75,
THIRD AVENUE, CHARLESTOWN NAVY YARD, CHARLESTOWN, MASSACHUSETTS 02129.

VOTING SECURITIES AND VOTES REQUIRED

On April 1, 1997, the record date for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting, there were outstanding
and entitled to vote an aggregate of 8,562,941 shares of Common Stock of the
Company, $.01 par value per share ("Common Stock"). Each share is entitled to
one vote.

Under the Company's Bylaws, the holders of a majority of the shares of
Common Stock issued, outstanding and entitled to vote on any matter shall
constitute a quorum with respect to that matter at the Annual Meeting. Shares of
Common Stock present in person or represented by proxy (including shares which
abstain or do not vote with respect to one or more of the matters presented for
stockholder approval) will be counted for purposes of determining whether a
quorum is present.

The affirmative vote of the holders of a plurality of votes cast by the
stockholders entitled to vote at the Annual Meeting is required for the election
of directors. The affirmative vote of the holders of a majority of the shares of
Common Stock voting on the matter is required for the approval of each of the
other matters to be voted upon.

Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees, who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter, and will also not
be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on a matter
that requires the affirmative vote of a certain percentage of the votes cast or
shares voting on a matter, such as the election of directors, the approval of
the 1997 Stock Incentive Plan, the amendments to the 1994 Directors' Equity Plan
and the ratification of independent accountants.
<PAGE> 4

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information, as of January 31, 1997
or such later date as is noted, with respect to the beneficial ownership of the
Company's Common Stock by (i) each person known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) each
director and nominee, (iii) each executive officer named in the Summary
Compensation Table under the heading "Compensation of Executive Officers" below
and (iv) all directors and executive officers of the Company as a group.

The number of shares of Common Stock beneficially owned by each director or
executive officer is determined under the rules of the Securities and Exchange
Commission (the "Commission"), and the information is not necessarily indicative
of beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or investment power and also any shares which the individual has
the right to acquire within 60 days after January 31, 1997 through the exercise
of any stock option or other right. Unless otherwise indicated, each person has
sole investment and voting power (or shares such power with his spouse) with
respect to the shares set forth in the following table. The inclusion herein of
any shares deemed beneficially owned does not constitute an admission of
beneficial ownership of those shares.

<TABLE>
<CAPTION>
SHARES OF PERCENTAGE OF
COMMON STOCK COMMON STOCK
NAME AND ADDRESS BENEFICIALLY OWNED OUTSTANDING
- --------------------------------------------------------------------------- ------------------ -------------
<S> <C> <C>
Entities affiliated with Health Care Investment Corporation (1)............ 2,703,500 30.8%
Twin Towers at Metro Park
379 Thornhall Street
Edison, New Jersey 08837
Rho Management Trust II (2)................................................ 750,288 8.7
c/o Rho Management Company, Inc.
767 Fifth Avenue
New York, New York 10153
Funds managed by Hambrecht & Quist Capital Management Inc. (3)............. 660,540 7.7
50 Rowes Wharf
Boston, Massachusetts 02110
Novartis Pharma Inc........................................................ 532,125 6.2
Lichstrasse
CH - 40002
Basel, Switzerland
State of Wisconsin Investment Board (4).................................... 435,000 5.1
P.O. Box 7842
Madison, Wisconsin 53707
Elliot Lebowitz, Ph.D. (5)................................................. 144,150 1.7
Donald R. Conklin.......................................................... 3,000 *
William W. Crouse (6)...................................................... 2,703,500 30.8
James C. Foster, J.D. (7).................................................. 15,356 *
Daniel O. Hauser, Ph.D. (8)................................................ 532,125 6.2
Daniel P. Kearney, J.D. (9)................................................ 625 *
Robert A. Vukovich, Ph.D. (10)............................................. 7,500 *
James Hope, Ph.D. (11)..................................................... 30,697 *
Julia L. Greenstein, Ph.D. (12)............................................ 22,400 *
</TABLE>

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<PAGE> 5

- ---------------

* Represents holdings of less than one percent.

(1) Includes 1,570,886 shares of Common Stock held by HealthCare Ventures II,
L.P. ("HCV II") (including 78,877 shares which HCV II has the right to
acquire within 60 days of January 31, 1997 upon the exercise of warrants),
874,539 shares of Common Stock held by HealthCare Ventures III, L.P. ("HCV
III") (including 99,705 shares which HCV III has the right to acquire
within 60 days of January 31, 1997 upon the exercise of warrants), and
258,075 shares of Common Stock held by HealthCare Ventures IV, L.P. ("HCV
IV") (including 29,571 shares which HCV IV has the right to acquire within
60 days of January 31, 1997 upon the exercise of warrants).

(2) Includes 38,466 shares of Common Stock which Rho Management Trust II
("RMT-II") has the right to acquire within 60 days of January 31, 1997 upon
the exercise of warrants. Jan Philipp F. Reemtsma, Joshua Ruch and Fero
Ventures Limited may be deemed to beneficially own the shares held by
RMT-II, retain voting and dispositive rights for such shares and the right
to revoke such shares.

(3) Includes 360,108 shares of Common Stock held by Hambrecht & Quist Health
Care Investors ("H&Q Health") (including 10,210 shares which H&Q Health has
the right to acquire within 60 days of January 31, 1997 upon the exercise
of warrants) and 300,432 shares of Common Stock held by Hambrecht & Quist
Life Science Investors ("H&Q Life") (including 17,722 shares which H&Q Life
has the right to acquire within 60 days of January 31, 1997 upon the
exercise of warrants). Hambrecht & Quist Capital Management Inc. serves as
the investment advisor to H&Q Health and H&Q Life. The respective general
partners of H&Q Health and H&Q Life exercise sole voting and investment
power with respect to the shares held by each fund.

(4) Information based solely on a Schedule 13G filed with the Commission on
January 28, 1997.

(5) Includes 70,076 shares of Common Stock which Dr. Lebowitz has the right to
acquire within 60 days of January 31, 1997 upon the exercise of stock
options.

(6) Consists solely of shares held of record by HCV II, HCV III and HCV IV. Mr.
Crouse is a general partner of HealthCare Partners II, L.P., HealthCare
Partners III, L.P., HealthCare Partners IV, L.P. ("HCP II", "HCP III" and
"HCP IV", respectively), the general partners, respectively, of HCV II, HCV
III and HCV IV. Mr. Crouse, together with the other general partners of HCV
II, HCV III and HCV IV, respectively, shares voting and investment control
with respect to the shares owned by HCV II, HCV III and HCV IV. The same
individuals serve as general partners of HCP II, HCP III and HCP IV,
respectively.

(7) Includes 2,856 shares of Common Stock owned by Charles River Laboratories,
Inc., a wholly-owned subsidiary of Bausch & Lomb, Inc. ("CRL"). Mr. Foster,
a director of the Company, is the President and Chief Executive Officer of
CRL and may be deemed to beneficially own the shares held by CRL, although
he disclaims beneficial ownership.

(8) Consists solely of shares of Common Stock owned by Novartis Pharma Inc.
("Novartis"), formerly Sandoz Pharma Ltd. Dr. Hauser, a director of the
Company, is the Head of Preclinical Development and Project Management,
Operations in the United States for Novartis Pharmaceutical Inc., an
affiliate

3
<PAGE> 6

of Novartis. Dr. Hauser may be deemed to beneficially own the shares held
by Novartis although he disclaims beneficial ownership.

(9) Consists solely of shares of Common Stock which Mr. Kearney has the right
to acquire within 60 days of January 31, 1997 upon the exercise of stock
options.

(10) Includes 4,375 shares of Common Stock which Dr. Vukovich has the right to
acquire within 60 days of January 31, 1997 upon the exercise of stock
options.

(11) Includes 30,397 shares of Common Stock which Dr. Hope has the right to
acquire within 60 days of January 31, 1997 upon the exercise of stock
options. Also includes 300 shares of Common Stock held by Dr. Hope's minor
children. Dr. Hope disclaims beneficial ownership of the shares held by his
children.

(12) Consists solely of shares of Common Stock which Dr. Greenstein has the
right to acquire within 60 days of January 31, 1997 upon the exercise of
stock options.

(13) Includes 12,348 shares of Common Stock which Dr. White-Scharf has the right
to acquire within 60 days of January 31, 1997 upon the exercise of stock
options. Also includes 600 shares of Common Stock held by Dr.
White-Scharf's minor children. Dr. White-Scharf disclaims beneficial
ownership of the shares held by her children.

(14) Includes 348,374 shares of Common Stock which all directors and executive
officers as a group may acquire upon the exercise of outstanding stock
options and warrants exercisable within 60 days of January 31, 1997.

ELECTION OF DIRECTORS

The persons named in the enclosed proxy will vote to elect as directors the
seven nominees named below, unless the proxy is marked otherwise. If a
stockholder returns a proxy without contrary instructions, the persons named as
proxies will vote to elect as directors the nominees named below, each of whom
is currently a member of the Board of Directors of the Company.

Each director will be elected to hold office until the 1998 Annual Meeting
of Stockholders and until his successor is duly elected and qualified. The
nominees have indicated their willingness to serve, if elected; however, if any
nominee should be unable to serve, the shares of Common Stock represented by
proxies may be voted for a substitute nominee designated by the Board of
Directors.

There are no family relationships between or among any officers or
directors of the Company.

Set forth below are the name and age of each member of the Board of
Directors, and the positions and offices held by him, his principal occupation
and business experience during the past five years, the names of other publicly
held companies of which he serves as a director and the year of the commencement
of his term as a director of the Company. Information with respect to the number
of shares of Common Stock beneficially owned by each director, directly or
indirectly, as of January 31, 1997, appears above under the heading "Stock
Ownership of Certain Beneficial Owners and Management."

NOMINEES FOR DIRECTOR

ELLIOT LEBOWITZ, PH.D., age 56, has served as President and Chief Executive
Officer and as a member of the Board of Directors of the Company since April
1991. From 1985 to 1991, he served as Vice President for Research and
Development at C.R. Bard, Inc., a medical device company ("Bard"), directing
internal and

4
<PAGE> 7

collaborative research and development programs for Bard's Vascular Systems,
Cardiosurgery and Cardiopulmonary Divisions. From 1981 until 1985, Dr. Lebowitz
served as Director of Long Range Research and Development at DuPont Corporation,
a diversified health care company, developing immunopharmaceuticals. From 1977
until 1981, he served as Division Manager of the Medical Products Division of
New England Nuclear Corporation which developed, manufactured and sold
radiopharmaceuticals for in vivo diagnosis. Earlier in his career, Dr. Lebowitz
served at Brookhaven National Laboratories, a United States Department of Energy
research facility, where he developed Thallium-201, a radiopharmaceutical for
the diagnosis of coronary artery disease. Dr. Lebowitz was a founder of
Diagnostic Isotopes, Inc., a radiopharmaceutical company which was subsequently
acquired by Hoffmann-La Roche Inc., a pharmaceutical company. He was also a
founder of Procept, Inc., a biopharmaceutical company which focuses on rational
drug design. He holds a B.A. from Columbia College and a Ph.D. from Columbia
University.

DONALD R. CONKLIN, age 60, has served as a director of the Company since
January 1997. From February to December 1996, he served as Chairman of
Shering-Plough Health Care Products ("Schering-Plough Health Care"), a
wholly-owned subsidiary of Schering-Plough Corporation, a pharmaceutical
company. From 1995 to February 1996, he served as President of Schering-Plough
Health Care, and from 1986 until September 1994, he served as Executive Vice
President and President of Schering-Plough Pharmaceuticals. Mr. Conklin also
served as Executive Vice President of Schering-Plough Corporation, a position he
held since 1985. He received his B.A. from Williams College and his M.B.A. from
Rutgers University. Mr. Conklin also serves on the Board of Directors of
Cytotherapeutics, Inc. and Vertex Pharmaceuticals, Inc.

WILLIAM W. CROUSE, age 54, has served as a director of the Company since
June 1995. Since 1994, Mr. Crouse has served as Vice Chairman of HealthCare
Investment Corporation and as a general partner of HealthCare Partners I, L.P.
("HCP I"), HCP II, HCP III and HCP IV, the general partners of HealthCare
Ventures I, L.P. ("HCV I"), HCV II, HCV III, and HCV IV, respectively. Mr.
Crouse served as Worldwide President of Ortho Diagnostic Systems, a medical
device company, and Vice President of Johnson & Johnson International, a
pharmaceutical company, from 1987 to 1994. Mr. Crouse has more than 30 years
experience in the pharmaceutical industry. He also serves as a director of
Activated Cell Therapy, Inc., Human Genome Sciences, Inc., Trophix
Pharmaceutical, Inc., PharmaGenics, Inc., Raritan Bancorp, The New York Blood
Center and Liberty Science Center. Mr. Crouse received his B.S. in finance and
economics from Lehigh University and his M.B.A. from Pace University.

JAMES C. FOSTER, J.D., age 46, has served as a director of the Company
since February 1992. Since 1992, he has served as President and Chief Executive
Officer of Charles River Laboratories, Inc., a wholly-owned subsidiary of Bausch
& Lomb, Inc. ("CRL"), a supplier of research animals and animal-related products
and services. Previously, he served in various capacities with CRL since 1976.
Mr. Foster received his B.S. in psychology from Lake Forest College, his J.D.
from the Boston University School of Law and his M.A. in Science and Management
from the Massachusetts Institute of Technology.

DANIEL O. HAUSER, PH. D., age 59, has served as a director of the Company
since January 1994. Since January 1997, he has served as the head of Preclinical
Development & Project Management, Operations in the United States for Novartis
(formerly Sandoz Pharmaceutical Corporation), a pharmaceutical corporation. From
1992 until January 1997, he served as President of Sandoz Research Institute, in
East Hanover, New Jersey and as Senior Vice President of Research and
Development for Sandoz Pharmaceutical Corporation. From 1965 to 1992, he served
in various positions at the Pharma Division of Sandoz Pharma Ltd. (Switzerland)
and from 1985 to 1992, served as Senior Vice President. Dr. Hauser received his
M.S. and Ph.D. in chemistry from the Swiss Federal Institute of Technology
(Switzerland) and was a Post-doctoral Research Fellow in the Department of
Chemistry at the Israel Institute of Technology (Haifa).

5
<PAGE> 8

DANIEL P. KEARNEY, J.D., age 57, has served as a director of the Company
since March 1996. Since 1991, Mr. Kearney has served as President of Aetna Life
Insurance and Annuity Company ("Aetna"), a wholly-owned subsidiary of Aetna Life
& Casualty Company, an insurance company. In addition, he serves as Executive
Vice President and Chief Investment Officer of Aetna Life & Casualty Company.
Prior to joining Aetna in 1991, Mr. Kearney served as President and Chief
Executive Officer of the Resolution Trust Corporation Oversight Board (the
"Oversight Board"), a federal regulatory agency created to oversee the
liquidation of the assets of failed savings and loan institutions. Immediately
prior to joining the Oversight Board, Mr. Kearney was a principal at Aldrich,
Eastman and Waltch, Inc., a pension fund advisor. Mr. Kearney graduated from
Michigan State University and received a Masters in Economics from Michigan
State University. He received his J.D. from the University of Chicago Law
School. He also serves on the Board of Directors of MBIA, Inc.

ROBERT A. VUKOVICH, age 53, has served as a director of the Company since
March 1994. Since 1983, he had served as Chairman of the Board and Chief
Executive Officer of Roberts Pharmaceutical Corporation, a pharmaceutical
company which he founded. From 1979 to 1983, he served as the Director of the
Division of Developmental Therapeutics of the Revlon Health Care Group, a
pharmaceutical company. He received his B.S. from Allegheny College and his
Ph.D. in Pharmacology-Toxicology with a minor in Pathology from Jefferson
Medical College. Dr. Vukovich also serves on the Board of Directors of Cypros
Pharmaceutical Corp.

BOARD AND COMMITTEE MEETINGS

The Company has a standing Audit Committee of the Board of Directors, which
provides the opportunity for direct contact between the Company's independent
accountants and the Board of Directors. The Audit Committee has responsibility
for recommending the appointment of the Company's independent accountants,
reviewing the scope and results of audits and reviewing the Company's internal
accounting control policies and procedures. The Audit Committee held one meeting
in 1996. The members of the Audit Committee are Messrs. Foster and Kearney.

The Company also has a standing Compensation Committee of the Board of
Directors, which makes recommendations concerning salaries and incentive
compensation for employees of and consultants to the Company, establishes and
approves salaries and incentive compensation for certain senior officers and
employees and administers and grants stock options pursuant to the Company's
stock option plans. The Compensation Committee held two meetings during 1996.
The members of the Compensation Committee are Mr. Crouse and Dr. Vukovich. See
"Report of the Compensation Committee" below.

The Company does not have a nominating committee or a committee serving a
similar function. Nominations are made by and through the full Board of
Directors.

The Board of Directors held ten meetings during 1996. Each director
attended at least 75% of the total number of meetings of the Board of Directors
and all committees of the Board on which he served.

COMPENSATION FOR DIRECTORS

The Company's non-employee directors who are not affiliated with HealthCare
Investment Corporation, Novartis or CRL, receive $1,000, plus reasonable travel
and out-of-pocket expenses, for each meeting of the Board of Directors attended
and are entitled to participate in the Company's 1994 Directors' Equity Plan
(the "Equity Plan"). For a further description of the Equity Plan, see "Approval
of Amendment to 1994 Directors' Equity Plan" below.

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<PAGE> 9

COMPENSATION OF EXECUTIVE OFFICERS

Summary Compensation Table. The following table sets forth certain
information with respect to the annual and long-term compensation for the last
two fiscal years of the Company's Chief Executive Officer and the Company's
other executive officers whose total annual salary and bonus for 1996 exceeded
$100,000 (collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------------
------------------------------- SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) UNDERLYING OPTIONS(#)
- ---------------------------------------- ---- --------- -------- ---------------------
<S> <C> <C> <C> <C>
Elliot Lebowitz, Ph.D. ................. 1996 $228,913 $ -0- 71,021
Chief Executive Officer 1995 215,000 -0- 16,218
James Hope, Ph.D........................ 1996 $164,135 $ -0- 22,670
Senior Vice President of Development 1995 147,784 -0- 10,312
Julia L. Greenstein, Ph.D. ............. 1996 $185,193 $ -0- 22,930
Senior Vice President of Research 1995 168,586 -0- 8,000
Robert Kauffman, M.D., Ph.D. (1)........ 1996 $ 95,138 $63,000 50,000
Vice President of Clinical Affairs 1995 -- -- --
Mary White-Scharf, Ph.D. ............... 1996 $131,602 $ -0- 31,322
Vice President of Research 1995 107,171 -0- 10,936
</TABLE>

- ---------------

(1) Dr. Kauffman joined the Company in June 1996.

Option Grant Table. The following table sets forth certain information
regarding options granted during the year ended December 31, 1996 by the Company
to the Named Executive Officers.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF STOCK
------------------------------------ PRICE APPRECIATION
NUMBER OF PERCENT OF TOTAL FOR
SECURITIES OPTIONS GRANTED EXERCISE OPTION TERM(2)
UNDERLYING OPTIONS TO EMPLOYEES OR BASE EXPIRATION ---------------------
NAME GRANTED(#)(1) IN FISCAL YEAR(%) PRICE($/SH) DATE 5%($) 10%($)
- ---------------------------- ------------------ ----------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Elliot Lebowitz, Ph.D. ..... 49,333 12.4% $6.50 7/16/06 $201,664 $511,057
11,957 3.0% 6.00 12/10/06 42,684 110,462
9,731 2.5% 4.20 1/31/06 25,703 65,137
James Hope, Ph.D. .......... 11,000 2.8% 6.50 7/16/06 44,966 113,953
7,889 2.0% 6.00 8/21/06 30,074 76,220
3,781 1.0% 4.20 1/31/06 9,987 25,309
Julia L. Greenstein, 9,400 2.4% 6.50 7/16/06
Ph.D. .................... 38,425 97,378
6,930 1.8% 6.00 12/10/06 24,738 64,021
3,300 0.8% 4.20 1/31/06 8,716 22,089
3,300 0.8% 4.20 2/9/06 8,716 22,089
Robert Kauffman, M.D., Ph.D. .. 50,000 12.6% 8.50 6/26/06 267,280 677,341
</TABLE>

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<PAGE> 10

POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------ ANNUAL RATES OF STOCK
NUMBER OF PERCENT OF TOTAL PRICE APPRECIATION FOR
SECURITIES OPTIONS GRANTED EXERCISE OPTION TERM(2)
UNDERLYING OPTIONS TO EMPLOYEES OR BASE EXPIRATION ----------------------
NAME GRANTED(#)(1) IN FISCAL YEAR(%) PRICE($/SH) DATE 5%($) 10%($)
- ---------------------------- ------------------ ----------------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mary White-Scharf, Ph.D. ... 9,400 2.4% 6.50 7/16/06 38,425 97,378
8,633 2.2% 6.00 12/10/06 30,818 79,754
5,937 1.5% 4.20 2/9/06 15,682 39,741
5,446 1.4% 6.50 10/23/06 22,262 56,417
1,906 0.5% 4.20 1/31/06 5,034 12,758
</TABLE>

- ---------------

(1) Options granted in 1996 become exercisable in four equal annual
installments, commencing twelve months after the vesting commencement date,
which is typically the date of grant.

(2) Amounts represent hypothetical gains that could be achieved for options if
exercised at the end of the option term. These gains are based on assumed
rates of stock price appreciation of 5% and 10% compounded annually from the
date options were granted to their expiration date. Actual gains, if any, on
stock option exercises will depend on the future performance of the Common
Stock on the date on which options were exercised.

Year-End Option Table. The following table sets forth certain information
regarding stock options held as of December 31, 1996 by the Named Executive
Officers.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END (#) YEAR-END($)(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Elliot Lebowitz, Ph.D. .............. 67,644 100,686 $224,576 111,897
James Hope, Ph.D. ................... 29,452 31,030 100,505 33,669
Julia L. Greenstein, Ph.D. .......... 14,500 41,430 36,250 64,895
Mary White-Scharf, Ph.D. ............ 10,075 40,308 46,906 44,977
Robert Kauffman, M.D., Ph.D. ........ 0 50,000 0 0
</TABLE>

- ---------------

(1) Value is based on the closing sales price of the Company's Common Stock on
the Nasdaq Stock Market on December 31, 1996 ($6.50), the last trading day
of the Company's 1996 fiscal year, less the applicable option exercise
price.

SEVERANCE AGREEMENTS WITH EXECUTIVE OFFICERS

Under the terms of an agreement with Dr. Lebowitz, the Company's President
and Chief Executive Officer, in the event of involuntary termination of Dr.
Lebowitz' employment, he is eligible to receive six months of base salary from
the Company. Under the terms of agreements with Dr. Hope, Senior Vice President
of Development, and Dr. Greenstein, Senior Vice President of Research and Chief
Scientific Officer, in the event of a termination of employment without cause,
the terminated officer is eligible to receive six months of base salary, which
will be discontinued if the officer secures other employment. Furthermore, if at
the end of such six-month period Dr. Hope is unable to secure other employment,
then Dr. Hope and the Company have agreed to negotiate an additional severance
payment of up to six months of base salary.

8
<PAGE> 11

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based solely on its review of copies of reports filed by all officers of
the Company who are persons required to file reports ("Reporting Persons")
pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") or written representations from certain Reporting Persons
that no Form 5 filing was required for such persons, the Company believes that
during fiscal 1996 all filings required to be made by its Reporting Persons were
timely made in accordance with the requirements of the Exchange Act.

REPORT OF THE COMPENSATION COMMITTEE

The Compensation Committee of the Company, which is currently comprised of
two non-employee directors, Mr. Crouse and Dr. Vukovich, makes recommendations
concerning salaries and incentive compensation for employees of and consultants
to the Company, establishes and approves salaries and incentive compensation for
certain senior officers and employees and administers and grants stock options
pursuant to the Company's stock option plans.

The Company's executive compensation program is designed to promote the
achievement of the Company's business goals, and, thereby, to maximize corporate
performance and stockholder returns. Executive compensation consists of a
combination of base salary and stock-based incentives. The Compensation
Committee considers stock incentives to be a critical component of an
executive's compensation package in order to help align executive interests with
stockholder interests.

Compensation Philosophy

The objectives of the executive compensation program are to align
compensation with business objectives and individual performance, and to enable
the Company to attract, retain and reward executive officers who are expected to
contribute to the long-term success of the Company. The Compensation Committee's
executive compensation philosophy is based on the principles of competitive and
fair compensation and sustained performance.

- COMPETITIVE AND FAIR COMPENSATION

The Company is committed to providing an executive compensation program
that helps attract and retain highly qualified executives. To ensure that
compensation is competitive, the Compensation Committee compares the
Company's compensation practices with those of other companies in the
industry and sets the Company's compensation guidelines based on this
review. The Compensation Committee believes compensation for the
Company's executive officers is within the range of compensation paid to
executives with comparable qualifications, experience and
responsibilities in the same or similar business and of comparable size
and success. The Compensation Committee also strives to achieve equitable
relationships both among the compensation of individual officers and
between the compensation of officers and other employees throughout the
organization.

- SUSTAINED PERFORMANCE

Executive officers are rewarded based upon a subjective assessment of
corporate performance and individual performance. Corporate performance
is evaluated by reviewing the extent to which strategic and business plan
goals are met, including such factors as achievement of operating
budgets, establishment of strategic licensing and development alliances
with third parties, timely development of new processes and products and
performance relative to competitors. Individual performance is evaluated
by reviewing attainment of specified individual objectives and the degree
to which teamwork and Company values are fostered.

9
<PAGE> 12

In evaluating each executive officer's performance, the Compensation
Committee generally conforms to the following process:

- Company and individual goals and objectives generally are set at the
beginning of the performance cycle.

- At the end of the performance cycle, the accomplishment of the
executive's goals and objectives and his contributions to the Company
are evaluated and the results are communicated to the executive.

- The executive's performance is then compared with peers within the
Company and the comparative results, combined with comparative
compensation practices of other companies in the industry, is then
used to determine salary and stock compensation levels.

Annual compensation for the Company's executives generally consists of two
elements--salary and stock options.

The salary for executives is generally set by reviewing compensation for
competitive positions in the market and the historical compensation levels of
the executives. Increases in annual salaries are based on actual individual
performance against targeted performance and various subjective performance
criteria. Targeted performance criteria vary for each executive based on his
area of responsibility, and may include continued innovation in development of
the Company's technology, implementation of financing strategies and
establishment of strategic licensing and development alliances with third
parties. Subjective performance criteria include an executive's ability to
motivate others, develop the skills necessary to grow as the Company matures,
recognize and pursue new business opportunities and initiate programs to enhance
the Company's growth and success. The Compensation Committee does not use a
specific formula based on these targeted performance and subjective criteria,
but instead makes an evaluation of each executive officer's contributions in
light of all such criteria.

Compensation at the executive officer level also includes the long-term
incentives afforded by stock options. The stock option program is designed to
promote the identity of long-term interests between the Company's employees and
its shareholders and assist in the retention of executives. The size of option
grants is generally intended to reflect the executive's position with the
Company and his contributions to the Company, including his success in achieving
the individual performance criteria described above. The option program
generally uses a four-year vesting period to encourage key employees to continue
in the employ of the Company. All stock options granted to executive officers in
1996 were granted at fair market value on the date of grant. During 1996, all
current executive officers received options to purchase an aggregate of 197,943
shares of Common Stock, at a weighted average exercise price of $6.59 per share.

Compliance with Internal Revenue Code Section 162(m). Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), disallows a tax
deduction to public companies for compensation over $1.0 million paid to the
corporation's Chief Executive Officer and four other most highly compensated
executive officers. Qualifying performance-based compensation will not be
subject to the deduction limit if certain requirements are met. The Company
intends to structure the performance-based portion of the compensation of its
executive officers in a manner that complies with Section 162(m) of the Code to
mitigate any disallowance of deductions.

Dr. Lebowitz's 1996 Compensation

Dr. Lebowitz is eligible to participate in the same executive compensation
plans available to the other executives officers of the Company. The
Compensation Committee believes that Dr. Lebowitz' annual

10
<PAGE> 13

compensation, including the portion of his compensation based upon the Company's
stock option program, has been set at a level competitive with other companies
in the industry.

Dr. Lebowitz' salary for 1996 increased to $228,913 from $215,000 in 1995.
In 1996, Dr. Lebowitz was granted stock options to purchase 71,021 shares of the
Company's Common Stock at a weighted average exercise price of $6.10 per share
(which represented the fair market value of the Company's Common Stock on the
date of the grant). In determining whether to grant stock options to Dr.
Lebowitz, the Compensation Committee considered Dr. Lebowitz' overall
compensation package relative to that of other chief executives in the Company's
industry and past option grants as well as an assessment of continuing progress
of the Company's business plan.

Compensation Committee

William W. Crouse
Robert A. Vukovich, Ph.D.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The current members of the Compensation Committee are Messrs. Crouse and
Vukovich. No member of the Compensation Committee was at any time during 1996,
or formerly, an officer or employee of the Company or any subsidiary of the
Company, nor has any member of the Compensation Committee had any relationship
with the Company requiring disclosure under Item 404 of Regulation S-K under the
Exchange Act.

No executive officer of the Company has served as a director or member of
the Compensation Committee (or other committee serving an equivalent function)
of any other entity, one of whose executive officers served as a director of or
member of the Compensation Committee of the Company.

11
<PAGE> 14

COMPARATIVE STOCK PERFORMANCE

The comparative stock performance graph below compares the cumulative
stockholder return on the Common Stock of the Company for the period from May 8,
1996, the date of the Company's initial public offering, through December 31,
1996 with the cumulative total return on (i) the Total Return Index for the
Nasdaq Stock Market (U.S. Companies) (the "Nasdaq Composite Index") and (ii) the
Nasdaq Pharmaceutical Index (assuming the investment of $100 in the Company's
Common Stock (at the initial public offering price), in the Nasdaq Composite
Index and in the Nasdaq Pharmaceutical Index on May 8, 1996 and reinvestment of
all dividends). Measurement points are on May 8, 1996 and the last trading day
of the year ended December 31, 1996.

[PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
Nasdaq
Measurement Period BioTransplant Nasdaq Composite Pharmaceutical
(Fiscal Year Covered) Incorporated Index Index
<S> <C> <C> <C>
5/8/96 $100.00 $100.00 $100.00
12/31/96 $ 68.00 $109.00 $ 91.00
</TABLE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In March 1991, the Company entered into a supply agreement with CRL. Under
the terms of the agreement, CRL provides the Company with miniswine and
miniswine organs for research and development purposes in exchange for payments
based on future commercial sales of miniswine products by the Company. James C.
Foster, President and Chief Executive Officer of CRL, is a director of the
Company.

In 1993, the Company and Novartis entered into a collaboration agreement
for the development and commercialization of xenotransplantation products
utilizing gene transduction, which was subsequently amended and restated in
September 1995. Under the agreement, Novartis has committed research funding of
$20.0 million, of which $14.0 million had been received as of December 31, 1996,
and agreed to pay license fees of $10.0 million, of which $7.0 million had been
received as of December 31, 1996. Novartis has also agreed to fund all of the
development and pre-marketing costs of the licensed products, a portion of which
may be repayable from the Company's operating profits from sales of the XenoMune
System if the Company elects to co-promote, and a portion of which must be
repaid within 90 days following submission of a product license application to
the Food and Drug Administration for such products. Dr. Hauser, Ph.D., a
director of the

12
<PAGE> 15

Company, is head of Preclinical Development & Project Management, Operations in
the United States for Novartis Pharmaceutical Inc., an affiliate of Novartis.

In January 1996 and February 1996, the Company issued and sold an aggregate
of 3,495,409 shares of its Series D Stock, which converted into 873,850 shares
of Common Stock upon the closing of the Company's initial public offering, at a
purchase price of $2.00 per share ($8.00 on a common equivalent basis), to a
group of existing and new investors, including Everest, Hudson, H&Q Life, H&Q
Health, HCV II, Mr. Foster, Henry L. Foster, and Dr. Vukovich. Mr. Foster is a
director of the Company. Henry L. Foster is the father of Mr. Foster. Dr.
Vukovich is a director of the Company. Mr. Crouse, a director of the Company, is
a general partner of HP II, the general partner of HCV II. The purchase price of
the Series D Stock was paid in part by the conversion and cancellation of
promissory notes (plus accrued interest) previously issued by the Company to
certain investors.

APPROVAL OF 1997 STOCK INCENTIVE PLAN

On April 10, 1997, the Board of Directors of the Company adopted, subject
to stockholder approval, the 1997 Stock Incentive Plan (the "1997 Plan"). Up to
750,000 shares of Common Stock (subject to adjustment in the event of stock
splits and other similar events) may be issued pursuant to awards granted under
the 1997 Plan.

The 1997 Plan is intended to replace the Company's Amended 1991 Stock
Incentive Plan (the "1991 Plan"). As of March 31, 1997, options to purchase
691,611 shares of Common Stock were outstanding under the 1991 Plan and an
additional 26,396 shares were reserved for future awards. All outstanding
options under the 1991 Plan will remain in effect.

DESCRIPTION OF AWARDS

The 1997 Plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Code, nonstatutory stock options, restricted
stock awards and other stock-based awards, including the grant of shares based
upon certain conditions, the grant of securities convertible into Common Stock
and the grant of stock appreciation rights (collectively "Awards").

Incentive Stock Options and Nonstatutory Stock Options. Optionees receive
the right to purchase a specified number of shares of Common Stock at some time
in the future at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. Options may be
granted at an exercise price which may be less than, equal to or greater than
the fair market value of the Common Stock on the date of grant. Under present
law, however, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the Common Stock
on the date of grant (or less than 110% of the fair market value in the case of
incentive stock options granted to Optionees holding 10% or more of the voting
power of the Company). Options may not be granted for a term in excess of ten
years. The 1997 Plan permits the Board to determine the manner of payment of the
exercise price of options, including through payment by cash, check or in
connection with a "cashless exercise" through a broker, by surrender to the
Company of shares of Common Stock, by delivery to the Company of a promissory
note, or by any other lawful means.

13
<PAGE> 16

Restricted Stock Awards. Restricted stock Awards entitle recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares from the recipient in the event that the
conditions specified in the applicable Award are not satisfied prior to the end
of the applicable restriction period established for such Award.

Other Stock-Based Awards. Under the 1997 Plan, the Board has the right to
grant other Awards based upon the Common Stock having such terms and conditions
as the Board may determine, including the grant of shares based upon certain
conditions, the grant of securities convertible into Common Stock and the grant
of stock appreciation rights.

ELIGIBILITY TO RECEIVE AWARDS

Officers, employees, directors, consultants and advisors of the Company and
its subsidiaries are eligible to be granted Awards under the 1997 Plan. Under
present law, however, incentive stock options may only be granted to employees.
The maximum aggregate number of shares with respect to which an Award may be
granted to any participant under the 1997 Plan may not exceed 100,000 shares
during any calendar year of the Plan.

As of March 31, 1997, approximately 62 persons were eligible to receive
Awards under the 1997 Plan, including the Company's executive officers and
nonemployee directors. The granting of Awards under the 1997 Plan is
discretionary, and the Company cannot now determine the number or type of Awards
to be granted in the future to any particular person or group.

On March 31, 1997, the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was $6.875.

ADMINISTRATION

The 1997 Plan is administered by the Board of Directors. The Board has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the 1997 Plan and to interpret the provisions of the 1997
Plan. Pursuant to the terms of the 1997 Plan, the Board of Directors may
delegate authority under the 1997 Plan to one or more committees of the Board,
and subject to certain limitations, to one or more executive officers of the
Company. The Board has authorized the Compensation Committee to administer
certain aspects of the 1997 Plan, including the granting of options to executive
officers. Subject to any applicable limitations contained in the 1997 Plan, the
Board of Directors, the Compensation Committee, or any other committee or
executive officer to whom the Board delegates authority, as the case may be,
selects the recipients of Awards and determines (i) the number of shares of
Common Stock covered by options and the dates upon which such options become
exercisable, (ii) the exercise price of options, (iii) the duration of options
and (iv) the number of shares of Common Stock subject to any restricted stock or
other stock-based Awards and the terms and conditions of such Awards, including
conditions for repurchase, issue price and repurchase price.

The Board of Directors is required to make appropriate adjustments in
connection with the 1997 Plan and any outstanding Awards to reflect stock
dividends, stock splits and certain other events. In the event of a merger,
liquidation or other Acquisition Event (as defined in the 1997 Plan) any
outstanding Awards shall become immediately fully exercisable. If any Award
expires or is terminated, surrendered, canceled or forfeited, the unused shares
of Common Stock covered by such Award will again be available for grant under
the 1997 Plan.

14
<PAGE> 17

AMENDMENT OR TERMINATION

No Award may be made under the 1997 Plan after April 10, 2007, but Awards
previously granted may extend beyond that date. The Board of Directors may at
any time amend, suspend or terminate the 1997 Plan, except that no outstanding
Award designated as subject to Section 162(m) of the Code by the Board of
Directors after the date of such amendment shall become exercisable, realizable
or vested (to the extent such amendment was required to grant such Award) unless
and until such amendment shall have been approved by the Company's stockholders.

FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the United States federal income tax
consequences that generally will arise with respect to Awards granted under the
1997 Plan and with respect to the sale of Common Stock acquired under the 1997
Plan.

Incentive Stock Options. In general, a participant will not recognize
taxable income upon the grant or exercise of an incentive stock option. Instead,
a participant will recognize taxable income with respect to an incentive stock
option only upon the sale of Common Stock acquired through the exercise of the
option ("ISO Stock"). The exercise of an incentive stock option may, however,
subject the participant to the alternative minimum tax.

Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Stock over the exercise price.

If the participant sells ISO Stock for more than the exercise price prior
to having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of the
gain recognized by the participant will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term capital gain if the participant has held the ISO Stock for more than
one year prior to the date of sale.

If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a
long-term capital loss if the participant has held the ISO Stock for more than
one year prior to the date of sale.

Nonstatutory Stock Options. As in the case of an incentive stock option, a
participant will not recognize taxable income upon the grant of a nonstatutory
stock option. Unlike the case of an incentive stock option, however, a
participant who exercises a nonstatutory stock option generally will recognize
ordinary compensation income in an amount equal to the excess of the fair market
value of the Common Stock acquired through the exercise of the option ("NSO
Stock") on the Exercise Date over the exercise price.

With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the participant's tax basis in the NSO Stock. This capital gain or loss will be
a long-term gain or loss if the participant has held the NSO stock for more than
one year prior to the date of the sale.

Restricted Stock Awards. A participant will not recognize taxable income
upon the grant of a restricted stock Award, unless the participant makes an
election under Section 83(b) of the Code (a "Section 83(b) Election"). If the
participant makes a Section 83(b) Election within 30 days of the date of the
grant, then the participant will recognize ordinary income, for the year in
which the Award is granted, in an amount equal to

15
<PAGE> 18

the difference between the fair market value of the Common Stock at the time the
Award is granted and the purchase price paid for the Common Stock. If a Section
83(b) Election is not made, the participant will recognize ordinary income, at
the time that the forfeiture provisions or restrictions on transfer lapse, in an
amount equal to the difference between the fair market value of the Common Stock
at the time of such lapse and the original purchase price paid for the Common
Stock. The participant will have a basis in the Common Stock acquired equal to
the sum of the price paid and the amount of ordinary compensation income
recognized.

Upon the disposition of the Common Stock acquired pursuant to a restricted
stock Award, the participant will recognize a capital gain or loss equal to the
difference between the sale price of the Common Stock and the participant's
basis in the Common Stock. The gain or loss will be a long-term gain or loss if
the shares are held for more than one year. For this purpose, the holding period
shall begin just after the date on which the forfeiture provisions or
restrictions lapse if a Section 83(b) Election is not made, or just after the
Award is granted if a Section 83(b) Election is made.

Other Stock-Based Awards. The tax consequences associated with any other
stock-based Award granted under the 1997 Plan will vary depending on the
specific terms of such Award, including, whether or not the Award has a readily
ascertainable fair market value, whether or not the Award is subject to
forfeiture provisions or restrictions on transfer, the nature of the property to
be received by the participant under the Award, the participant's holding period
and tax basis for the Award or underlying Common Stock.

Tax Consequences to the Company. The grant of an Award under the 1997 Plan
will have no tax consequences to the Company. Moreover, in general, neither the
exercise of an incentive stock option nor the sale of any Common Stock acquired
under the 1997 Plan will have any tax consequences to the Company. The Company
generally will be entitled to a business-expense deduction, however, with
respect to any ordinary compensation income recognized by a participant under
the 1997 Plan, including as a result of the exercise of a nonstatutory stock
option, a Disqualifying Disposition or a Section 83(b) Election. Any such
deduction will be subject to the limitations of Section 162(m) of the Code. The
Company will have a withholding obligation with respect to any ordinary
compensation income recognized by participants with respect to the exercise of a
nonstatutory option or Restricted Stock Award under the 1997 Plan who are
employees or otherwise subject to withholding.

BOARD RECOMMENDATION

THE BOARD OF DIRECTORS BELIEVES THE 1997 PLAN IS IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND THEREFORE RECOMMENDS A VOTE "FOR" THIS
PROPOSAL.

APPROVAL OF AMENDMENT TO 1994 DIRECTORS' EQUITY PLAN

The Board of Directors believes that the continued growth and profitability
of the Company depends, in large part, upon the ability of the Company to
maintain a competitive position in attracting and retaining qualified directors.
Currently, 2,500 shares remain available for future awards under the Company's
1994 Directors' Equity Plan (the "Equity Plan"). Accordingly, on February 24,
1997, the Board of Directors adopted, subject to stockholder approval, an
amendment to the Equity Plan that increased from 15,000 to 50,000 the number of
shares of Common Stock available for issuance under the Equity Plan (subject to
a proportionate adjustment for certain changes in the Company's capitalization,
such as a stock split).

GENERAL

Under the Equity Plan, directors of the Company who are not officers of or
employees of the Company or of any subsidiary of the Company, nor affiliated
with HealthCare Investment Corporation, Novartis or CRL,

16
<PAGE> 19

shall each receive upon his or her appointment as a director of the Company, (i)
nonstatutory stock options to purchase 3,125 shares of Common Stock at fair
market value on the date of grant ("Initial Options") and (ii) 625 shares of
restricted stock, subject to a repurchase option, at a purchase price of $0.04
per share (the "Restricted Stock"). The Initial Options vest over five equal
annual installments beginning on the first anniversary of the date of grant and
the Restricted Stock will vest in four equal annual installments beginning on
the first anniversary of the date of grant.

ADMINISTRATION

The Board of Directors may suspend or discontinue the Equity Plan or amend
it in any respect; provided, however, that without the approval of the
stockholders, no amendment may change the number of shares subject to the Equity
Plan, change the designation of the class of directors eligible to receive
awards, or materially increase the benefits accruing to participants under the
Equity Plan. The Equity Plan may not be amended more than once during any
six-month period.

DESCRIPTION OF AWARDS UNDER THE EQUITY PLAN

Nonstatutory Options. Optionees receive the right to purchase a specified
number of shares of Common Stock at an option price and subject to such terms
and conditions as are specified at the time of the grant. All options may be
granted at an exercise price that may be less than, equal to or greater than the
fair market value of the Common Stock on the date of grant.

Restricted Stock. Restricted Stock awards entitle recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares, at a purchase price of $0.04 per share.

FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the United States federal income tax
consequences that generally will arise with respect to awards granted under the
Equity Plan and with respect to the sale of Common Stock acquired under the
Equity Plan.

Nonstatutory Stock Options

A participant will not recognize taxable income upon the grant of a
nonstatutory stock option. Unlike the case of an incentive stock option,
however, a participant who exercises a nonstatutory stock option generally will
recognize ordinary compensation income in an amount equal to the excess of the
fair market value of the NSO Stock on the Exercise Date over the exercise price.

With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the participant's tax basis in the NSO Stock. This capital gain or loss will be
a long-term gain or loss if the participant has held the NSO Stock for more than
one year prior to the date of the sale.

Restricted Stock Awards

A participant will not recognize taxable income upon the grant of a
restricted stock award, unless the participant makes an election under Section
83(b) of the Code (a "Section 83(b) Election"). If the participant makes a
Section 83(b) Election within 30 days of the date of the grant, then the
participant will recognize ordinary income, for the year in which the award is
granted, in an amount equal to the difference between the fair market value of
the Common Stock at the time the award is granted and the purchase price paid
for the Common Stock. If a Section 83(b) Election is not made, the participant
will recognize ordinary

17
<PAGE> 20

income, at the time that the forfeiture provisions or restrictions on transfer
lapse, in an amount equal to the difference between the fair market value of the
Common Stock at the time of such lapse and the original purchase price paid for
the Common Stock. The participant will have a basis in the Common Stock acquired
equal to the sum of the price paid and the amount of ordinary compensation
income recognized.

Upon the disposition of the Common Stock acquired pursuant to a restricted
stock award, the participant will recognize a capital gain or loss equal to the
difference between the sale price of the Common Stock and the participant's
basis in the Common Stock. The gain or loss will be a long-term gain or loss if
the shares are held for more than one year. For this purpose, the holding period
shall begin just after the date on which the forfeiture provisions or
restrictions lapse if a Section 83(b) Election is not made, or just after the
award is granted if a Section 83(b) Election is made.

Tax Consequences to the Company

The grant of an award under the Equity Plan will have no tax consequences
to the Company. Moreover, in general, neither the exercise of an incentive stock
option nor the sale of any Common Stock acquired under the Equity Plan will have
any tax consequences to the Company. The Company generally will be entitled to a
business-expense deduction, however, with respect to any ordinary compensation
income recognized by a participant under the Equity Plan, including as a result
of the exercise of a nonstatutory stock option or a Section 83(b) Election. Any
such deduction will be subject to the limitations of Section 162(m) of the Code.
The Company will have a withholding obligation with respect to any ordinary
compensation income recognized by participants under the Equity Plan who are
employees or are otherwise subject to withholding.

BOARD RECOMMENDATION

THE BOARD OF DIRECTORS BELIEVES THAT THE APPROVAL OF THE AMENDMENT TO THE
EQUITY PLAN IS IN THE BEST INTEREST OF THE COMPANY AND ITS STOCKHOLDERS AND
THEREFORE RECOMMENDS A VOTE "FOR" THIS PROPOSAL.

RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS

The Board of Directors, upon the recommendation of the Audit Committee, has
selected the firm of Arthur Andersen LLP as the Company's independent
accountants for the current fiscal year. Arthur Andersen LLP has served as the
Company's independent accountants since inception. Although stockholder approval
of the Board of Directors' selection of Arthur Andersen LLP is not required by
law, the Board of Directors believes that it is advisable to give stockholders
an opportunity to ratify this selection. If this proposal is not approved at the
Annual Meeting, the Board of Directors will reconsider its selection of Arthur
Andersen LLP. Representatives of Arthur Andersen LLP are expected to be present
at the Annual Meeting and will have the opportunity to make a statement if they
desire to do so and will also be available to respond to appropriate questions
from stockholders.

BOARD RECOMMENDATION

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS.

OTHER MATTERS

The Board of Directors does not know of any other matters which may come
before the meeting. However, if any other matters are properly presented to the
meeting, it is the intention of the persons named in the accompanying proxy to
vote, or otherwise act, in accordance with their judgment on such matters.

18
<PAGE> 21

All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and regular
employees, without additional remuneration, may solicit proxies by telephone,
telegraph and personal interviews. Brokers, custodians and fiduciaries will be
requested to forward proxy soliciting material to the owners of stock held in
their names, and the Company will reimburse them for their reasonable
out-of-pocket expenses incurred in connection with the distribution of proxy
materials.

DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING

Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders must be received by the Company at its principal office
in Charlestown, Massachusetts not later than December 15, 1997 for inclusion in
the proxy statement for that meeting.

By Order of the Board of Directors,

STEVEN D. SINGER, Secretary

April 14, 1997

THE BOARD OF DIRECTORS ENCOURAGES STOCKHOLDERS TO ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. A PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE
APPRECIATED. STOCKHOLDERS WHO ATTEND THIS MEETING MAY VOTE THEIR STOCK
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.

19
<PAGE> 22
Appendix A
----------

BIOTRANSPLANT INCORPORATED

1994 DIRECTORS' EQUITY PLAN

1. PURPOSE

The purpose of this 1994 Directors' Equity Plan (the "Plan") of
Biotransplant, Inc. (the "Company") is to promote the recruiting and retention
of highly qualified outside directors and to strengthen the commonality of
interest between directors and stockholders. Except where the context otherwise
requires, the term "Company" shall include all subsidiaries of the Company as
defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as
amended or replaced from time to time (the "Code").

2. ADMINISTRATION

The Plan will be administered by the Compensation Committee of the Board
of Directors of the Company or by the Board of Directors of the Company as a
whole, whose construction and interpretation of the terms and provisions of the
Plan shall be final and conclusive. References herein to the Board of Directors
relating to the administration and interpretation of the Plan shall mean the
Compensation Committee or the Board of Directors, as the case may be. Grants of
stock options ("Options") and restricted stock awards ("Awards") under the Plan
and the amount and nature of the Options and Awards to be granted shall be
automatic and non-discretionary in accordance with Sections 5 and 6. However,
all questions of interpretation of the Plan or of any Options or Awards issued
under it shall be determined by the Board of Directors and such determination
shall be final and binding upon all persons having an interest in the Plan. No
director shall be liable for any action or determination under the Plan made in
good faith.

3. PARTICIPATION IN THE PLAN

Only directors of the Company who are not employees of the Company shall
be eligible to be granted Options and Awards under the Plan. Directors who are
employed by, or affiliates of, either HealthCare Investment Corporation, Sandoz
Pharma Ltd. or Charles River Laboratories, Inc. or any of their respective
related entities, are ineligible to receive Options or Awards under the Plan. A
director may notify the Company in writing that he or she irrevocably elects not
to participate in the Plan and such director shall henceforth be deemed to be
ineligible.

<PAGE> 23

4. STOCK SUBJECT TO THE PLAN

(a) The maximum number of shares which may be issued under the Plan
shall be 60,000 shares of the Company's Common Stock, $.01 par value per share
("Common Stock"), subject to subsequent adjustment as provided in Section 10.

(b) If any outstanding Option under the Plan for any reason expires or
is terminated without having been exercised in full, or any Common Stock issued
pursuant to an Award shall be repurchased by the Company pursuant to the terms
of such Award, the shares allocable to the unexercised portion of such Option
and/or such repurchased shares shall again become aveilable for grant pursuant
to the Plan.

(c) All Options granted under the Plan shall be non-statutory options
which are not intended to meet the requirements of Section 422 of the Code.

5. TERMS, CONDITIONS AND FORMS OF OPTIONS.

Each Option granted under the Plan shall be evidenced by a written
agreement in substantially the form of Exhibit A hereto or in such other form as
the Board of Directors shall from time to time approve, which agreements shall
comply with and be subject to the following terms and conditions:

(a) OPTION GRANT DATES. Each eligible director shall automatically be
granted an Option to purchase 12,500 shares of Common Stock upon the later of
(i) his or her initial election as a director, or (ii) the adoption by the
Board of Directors of the Plan.

(b) OPTION EXERCISE PRICE. The option exercise price per share for
each Option granted under the Plan shall equal (i) the last reported sales
price per share of the Company's Common Stock on the Nasdaq National Market
(or, if the Company is traded on a nationally recognized securities exchange on
the date of the grant, the reported exchange) on the date of grant (or if no
such price is reported on such date, such price as reported on the nearest
preceding date on which such price is reported) or (ii) if the Common Stock is
not traded on Nasdaq or an exchange, the fair market value per share on the
date of grant as determined by the Board of Directors.

(c) OPTIONS NON-TRANSFERABLE. Each Option granted under the Plan by
its terms shall not be transferable by the optionee otherwise than by will or by
the laws of descent and distribution, or pursuant to a qualified domestic
relations order (as defined in

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<PAGE> 24

Section 414(p) of the Code) and shall be exercised during the lifetime of the
optionee only by such optionee.

(d) EXERCISE PERIOD. Each Option granted under the Plan may be
exercised on a cumulative basis as to 20% of the shares on the first anniversary
of the date of grant and an additional 20% at the end of each one-year period
thereafter. Each Option granted under the Plan, to the extent it has vested, may
be exercised in whole or in part at any time prior to the tenth anniversary of
the date of grant, but in no event may it be exercised thereafter.

(e) EXERCISE PROCEDURE. Options may be exercised only by written
notice to the Company at its principal office accompanied by payment of the full
consideration for the shares as to which they are exercised.

(f) PAYMENT OF PURCHASE PRICE. Payment of the exercise price shall be
made (i) by delivery of cash or a check to the order of the Company in an amount
equal to the exercise price, (ii) by delivery to the Company of shares of Common
Stock of the Company already owned and held by the optionee for at least twelve
months and having a fair market value equal in amount to the exercise price of
the Option being exercised, or (iii) by any combination of such methods of
payment. The fair market value of any shares of Common Stock which may be
delivered upon exercise of an Option shall be determined by the Board of
Directors of the Company as of the date that such shares are delivered.

6. TERMS, CONDITIONS AND FORMS OF RESTRICTED STOCK AWARDS

Each Award granted under the Plan shall be evidenced by a written
agreement in substantially the form of Exhibit B hereto or in such other form as
the Board of Directors shall from time to time approve, which agreements shall
comply with and be subject to the following terms and conditions:

(a) AWARD GRANT DATES. Each eligible director shall automatically be
granted an Award to purchase 2,500 shares of Common Stock upon the later of (i)
his or her initial election as a director, or (ii) the adoption by the Board of
Directors of the Plan.

(b) AWARD PRICE. The price per share of Common Stock subject to each
Award shall be $.01 per share, payable by cash or check upon execution of the
written agreement evidencing the Award.

(c) VESTING PERIOD. Each Award granted under the Plan shall vest
during the period in which an eligible director continues to serve as a director
of the Company, at the rate of 25% of the

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<PAGE> 25

shares on the first anniversary of the date of grant and an additional 25% at
the end of each one-year period thereafter.

(d) REPURCHASE RIGHT. The Company shall have the right to repurchase
any or all shares of Common Stock subject to an Award which shall not have
become vested as of the date an eligible director ceases to serve as a director
at a repurchase price of $.01 per share, such right to be exercised within 90
days after such director ceases to serve as a director of the Company. The
Company shall have the right to assign or transfer all or part of such
repurchase rights to one or more third parties, including other stockholders of
the Company

7. ASSIGNMENTS

The rights and benefits under the Plan may not be assigned, except as
provided in Section 5.

8. TIME FOR GRANTING OPTIONS AND AWARDS

All Options and Awards subject to the Plan shall be granted, if at all,
not later than six (6) years after the date of the Board's adoption of the Plan.

9. LIMITATION OF RIGHTS

(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the
granting of an Option or Award nor any other action taken pursuant to the Plan,
shall constitute or be evidence of any agreement or understanding, expressed or
implied, that the Company will retain a director for any period of time.

(b) NO STOCKHOLDER RIGHTS FOR OPTIONS. An optionee shall have no
rights as a stockholder with respect to the shares covered by his or her Option
under the date of the issuance to him or her of a stock certificate thereof, and
no adjustment will be made for dividends or other rights for which the record
date is prior to the date such certificate is issued.

10. ADJUSTMENT PROVISIONS RELATING TO OPTIONS.

(a) RECAPITALIZATIONS. If, after the Effective Date of the Plan,
through or as a result of any recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, (i) the
outstanding shares of Common Stock are increased or decreased or are exchanged
for a different number or kind of shares or other securities of the Company, or
(ii) additional shares or new or different shares or other securities of the
Company or other non-cash assets are distributed with respect to such shares of
Common Stock or other securities,

-4-
<PAGE> 26

an appropriate and proportionate adjustment shall be made in (x) the maximum
number and kind of shares reserved for issuance under the Plan, (y) the number
and kind of shares or other securities subject to then outstanding Options under
the Plan, and (z) the price for each share subject to any then outstanding
Options under the Plan, without changing the aggregate purchase price as to
which such Options remain exercisable, provided that no adjustment shall be made
pursuant to this Section 10 if such adjustment would cause the Plan to fail to
comply with Rule 16b-3 under the Securities Exchange Act of 1934, (the "Exchange
Act") as amended or any successor rule ("Rule 16b-3").

(b) REORGANIZATIONS. After the Effective Date of the Plan, in the
event of a consolidation or merger or sale of all or substantially all of the
assets of the Company in which outstanding shares of Common Stock are exchanged
for securities, cash or other property of any other corporation or business
entity or in the event of a liquidation of the Company, the Board of Directors
of the Company, or the board of directors of any corporation assuming the
obligations of the Company, may, in its discretion, take any one or more of the
following actions, as to the outstanding Options: (i) provide that such Options
shall be assumed, or equivalent options shall be substituted, by the acquiring
or succeeding corporation (of an affiliate thereof), (ii) upon written notice
to the optionees, provide that all unexercised Options will terminate
immediately prior to the consummation of such transaction unless exercised by
the optionee within a specified period following the date of such notice, (iii)
in the event of a merger under the terms of which holders of the Common Stock
of the Company will receive upon consummation thereof a cash payment for each
share surrendered in the merger (the "Merger Price"), make or provide for a
cash payment to the optionees equal to the difference between (A) the Merger
Price times the number of shares of Common Stock subject to such outstanding
Options (to the extent then exercisable at prices not in excess of the Merger
Price) and (B) the aggregate exercise price of all such outstanding Options in
exchange for the termination of such options, and (iv) provide that all
outstanding Options shall become exercisable in full.

11. AMENDMENT OF THE PLAN.

(a) The provisions of Sections 3, 5(a), 5(b) and 6 of the Plan shall
not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder. Subject to the foregoing, the Board of
Directors may at any time, and from time to time, modify or amend the Plan in
any respect, except that if at any time the approval of the stockholders of the
Company is required as to such modification or amendment under

-5-
<PAGE> 27

Rule 16b-3, the Board of Directors may not affect such modification or amendment
without such approval.

(b) The termination or any modification or amendment of the Plan shall
not, without the consent of an eligible director, affect his or her rights
under an Option or Award previously granted to him or her. With the consent of
each eligible director affected, the Board of Directors may amend outstanding
option agreements or restricted stock award agreements in a manner not
inconsistent with the Plan. The Board of Directors shall have the right to
amend or modify the terms and provisions of the Plan or any outstanding Option
or Award to the extent necessary to ensure the qualification of the Plan under
Rule 16b-3.

12. WITHHOLDING

The Company shall have the right to deduct from payments of any kind
otherwise due to an eligible director any federal, state or local taxes of any
kind required by law to be withheld with respect to any shares issued pursuant
to Awards or upon exercise of Options under the Plan.

13. NOTICE

Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received by the Company.

14. EFFECTIVE DATE AND DURATION OF THE PLAN

(a) EFFECTIVE DATE. The Plan shall become effective on June 27, 1994,
but no Option granted under the Plan shall become exercisable nor any Award
become vested unless and until the Plan shall have been approved by the
Company's stockholders. If such stockholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, (i) all
Options granted under the Plan shall terminate and no further Options shall be
granted under the Plan, and (ii) all Awards shall be cancelled and no further
Awards shall be granted under the Plan. Amendments to the Plan not requiring
stockholder approval shall become effective when adopted by the Board of
Directors: amendments requiring stockholder approval (as provided in Section
11(a)) shall become effective when adopted by the Board of Directors, but no
Option issued after the date of such amendment shall become exercisable nor
shall any Award vest (to the extent that such amendment to the Plan was
required to enable the Company to grant such Option or Award to a particular
eligible director) unless and until such amendment shall have been approved by
the Company's stockholders. If such stockholder approval is not

-6-
<PAGE> 28

obtained within twelve months of the Board's adoption of such amendment, any
Options granted on or after the date of such amendment shall terminate, and
shares issued pursuant to an Award shall be cancelled, in each case to the
extent that such amendment to the Plan was required to enable the Company to
grant such Option or Award to a particular eligible director. Subject to this
limitation, Options and Awards may be granted under the Plan at any time after
the effective date and before the date fixed for termination of the Plan.

(b) TERMINATION. Unless earlier terminated pursuant to Section 10, the
Plan shall terminate upon the earlier of (i) June 27, 2000, or (ii) the date on
which all shares available for issuance under the Plan shall have been issued
pursuant to the grant of Awards and exercise of Options granted under the Plan.
If the date of termination is determined under (i) above, then Options and
Awards outstanding on such date shall continue to have force and effect in
accordance with the provisions of the instruments evidencing such Options and
Awards.

15. GENERAL REQUIREMENTS

(a) INVESTMENT REPRESENTATIONS. The Company may require any person to whom an
Option or Award is granted, as a condition of exercising such Option or Award,
to give written assurance in substance and form satisfactory to the Company to
the effect that such person is acquiring the Common Stock subject to the Option
or Award for his or her own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Company deems necessary or appropriate in order to comply with
federal and applicable state securities laws.

(b) COMPLIANCE WITH SECURITIES LAWS. Each Option and Award shall be subject
to the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
Option or Award upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other condition
is necessary as a condition of, or in connection with, the issuance or purchase
of shares thereunder, such Option may not be exercised, in whole or in part, nor
such Award issued, unless such listing, registration, qualification, consent or
approval, or satisfaction of such condition have been affected or obtained on
conditions acceptable to the Board of Directors. Nothing herein shall be deemed
to require the Company to apply for or to obtain such listing, registration or
qualification, or to satisfy such condition.

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<PAGE> 29

16. GOVERNING LAW

The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the Commonwealth of Massachusetts.

Adopted by the Board of Directors
on June 27, 1994

Adopted by the Stockholders on
August 10, 1994

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<PAGE> 30

AMENDMENT TO
1994 DIRECTORS' EQUITY PLAN
OF
BIOTRANSPLANT INCORPORATED

The 1994 Directors' Equity Plan, as amended (the "Plan") be and hereby is
amended as follows:

1. The number 15,000 (after giving effect to the Company's 1:4
reverse stock split) in the second line of Section 4(a) of the
Plan shall be deleted and the number 50,000 shall be inserted
in lieu thereof.

Adopted by the Board of
Directors on February 24, 1997

<PAGE> 31
Appendix B
----------

BIOTRANSPLANT INCORPORATED

1997 STOCK INCENTIVE PLAN
-------------------------

1. PURPOSE
-------

The purpose of this 1997 Stock Incentive Plan (the "Plan") of
BioTransplant Incorporated, a Delaware corporation (the "Company"), is to
advance the interests of the Company's stockholders by enhancing the Company's
ability to attract, retain and motivate persons who make (or are expected to
make) important contributions to the Company by providing such persons with
equity ownership opportunities and performance-based incentives and thereby
better aligning the interests of such persons with those of the Company's
stockholders. Except where the context otherwise requires, the term "Company"
shall include any present or future subsidiary corporations of BioTransplant
Incorporated as defined in Section 424(f) of the Internal Revenue Code of 1986,
as amended, and any regulations promulgated thereunder (the "Code").

2. ELIGIBILITY
-----------

All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other
stock-based awards (each, an "Award") under the Plan. Any person who has been
granted an Award under the Plan shall be deemed a "Participant".

3. ADMINISTRATION, DELEGATION
--------------------------

(a) ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be
administered by the Board of Directors of the Company (the "Board"). The Board
shall have authority to grant Awards and to adopt, amend and repeal such
administrative rules, guidelines and practices relating to the Plan as it shall
deem advisable. The Board may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Award in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. All decisions by the Board shall be
made in the Board's sole discretion and shall be final and binding on all
persons having or claiming any interest in the Plan or in any Award. No director
or person acting pursuant to the authority delegated by the Board shall be
liable for any action or determination relating to or under the Plan made in
good faith.

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<PAGE> 32

(b) DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.

(c) APPOINTMENT OF COMMITTEES. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). If and when the
common stock, $0.01 par value per share, of the Company (the "Common Stock") is
registered under the Securities Exchange Act of 1934 (the "Exchange Act"), the
Board shall appoint one such Committee of not less than two members, each member
of which shall be an "outside director" within the meaning of Section 162(m) of
the Code and a "non-employee director" as defined in Rule 16b-3 promulgated
under the Exchange Act." All references in the Plan to the "Board" shall mean
the Board or a Committee of the Board or the executive officer referred to in
Section 3(b) to the extent that the Board's powers or authority under the Plan
have been delegated to such Committee or executive officer.

4. STOCK AVAILABLE FOR AWARDS
--------------------------

(a) NUMBER OF SHARES. Subject to adjustment under Section 4(c), Awards
may be made under the Plan for up to 750,000 shares of Common Stock. If any
Award expires or is terminated, surrendered or canceled without having been
fully exercised or is forfeited in whole or in part or results in any Common
Stock not being issued, the unused Common Stock covered by such Award shall
again be available for the grant of Awards under the Plan, subject, however, in
the case of Incentive Stock Options (as hereinafter defined), to any limitation
required under the Code. Shares issued under the Plan may consist in whole or in
part of authorized but unissued shares or treasury shares.

(b) PER-PARTICIPANT LIMIT. Subject to adjustment under Section 4(c),
for Awards granted after the Common Stock is registered under the Exchange Act,
the maximum number of shares with respect to which an Award may be granted to
any Participant under the Plan shall be 100,000 per calendar year. The
Per-Participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.

(c) ADJUSTMENT TO COMMON STOCK. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the

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<PAGE> 33

number and class of security and exercise price per share subject to each
outstanding Option, (iii) the repurchase price per security subject to each
outstanding Restricted Stock Award, and (iv) the terms of each other outstanding
stock-based Award shall be appropriately adjusted by the Company (or substituted
Awards may be made, if applicable) to the extent the Board shall determine, in
good faith, that such an adjustment (or substitution) is necessary and
appropriate. If this Section 4(c) applies and Section 8(e)(1) also applies to
any event, Section 8(e)(1) shall be applicable to such event, and this Section
4(c) shall not be applicable.

5. STOCK OPTIONS
-------------

(a) GENERAL. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".

(b) INCENTIVE STOCK OPTIONS. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.

(c) EXERCISE PRICE. The Board shall establish the exercise price at
the time each Option is granted and specify it in the applicable option
agreement.

(d) DURATION OF OPTIONS. Each Option shall be exercisable at such
times and subject to such terms and conditions as the Board may specify in the
applicable option agreement.

(e) EXERCISE OF OPTION. Options may be exercised only by delivery to
the Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.

(f) PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:

(1) in cash or by check, payable to the order of the Company;

- 3 -

<PAGE> 34

(2) except as the Board may otherwise provide in an Option
Agreement, delivery of an irrevocable and unconditional undertaking by a credit
worthy broker to deliver promptly to the Company sufficient funds to pay the
exercise price, or delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a credit worthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price;

(3) to the extent permitted by the Board and explicitly
provided in an Option Agreement (i) by delivery of shares of Common Stock owned
by the Participant valued at their fair market value as determined by the Board
in good faith ("Fair Market Value"), which Common Stock was owned by the
Participant at least six months prior to such delivery, (ii) by delivery of a
promissory note of the Participant to the Company on terms determined by the
Board, or (iii) by payment of such other lawful consideration as the Board may
determine; or

(4) any combination of the above permitted forms of payment.

6. RESTRICTED STOCK
----------------

(a) GRANTS. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, "Restricted Stock Award").

(b) TERMS AND CONDITIONS. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.

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<PAGE> 35

7. OTHER STOCK-BASED AWARDS
------------------------

The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.

8. GENERAL PROVISIONS APPLICABLE TO AWARDS
---------------------------------------

(a) TRANSFERABILITY OF AWARDS. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.

(b) DOCUMENTATION. Each Award under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.

(c) BOARD DISCRETION. Except as otherwise provided by the Plan, each
type of Award may be made alone or in addition or in relation to any other type
of Award. The terms of each type of Award need not be identical, and the Board
need not treat Participants uniformly.

(d) TERMINATION OF STATUS. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.

(e) ACQUISITION EVENTS
------------------

(1) CONSEQUENCES OF ACQUISITION EVENTS. Except to the extent
otherwise provided in the instrument evidencing the Award or in any other
agreement between the Participant and the Company, upon the occurrence of an
Acquisition Event or with respect to Options or any other similar Awards only,
upon the execution by the Company of any agreement with respect to an
Acquisition Event, (i) the Board shall provide written notice to the
Participants that all Options then outstanding shall become immediately
exercisable in full as of a specified date (the "Acceleration Date") prior to
the Acquisition Event and will terminate immediately prior to the consummation
of such Acquisition Event, except to the

- 5 -

<PAGE> 36

extent exercised by the Participants between the Acceleration Date and the
consummation of such Acquisition Event; (ii) all Restricted Stock then
outstanding shall become immediately free of all restrictions; (iii) all other
stock-based Awards all become immediately exercisable, realizable or vested in
full, or shall be immediately free of all restrictions or conditions, as the
case may be.

(2) An "Acquisition Event" shall mean (a) any merger or
consolidation which results in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving or
acquiring entity) less than 50% of the combined voting power of the voting
securities of the Company or such surviving or acquiring entity outstanding
immediately after such merger or consolidation; (b) any sale of all or
substantially all of the assets of the Company; (c) the complete liquidation of
the Company; or (d) the acquisition of "beneficial ownership" (as defined in
Rule 13-d-3 under the Exchange Act) of securities of the Company representing
50% or more of the combined voting power of the Company's then outstanding
securities (other than through a merger or consolidation or an acquisition of
securities directly from the Company) by any "person", as such term is used in
Sections 13(d) and 14(d) of the Exchange Act other than the Company, any trustee
or other fiduciary holding securities under an employee benefit plan of the
Company or any corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportion as their ownership of the stock
of the Company.

(3) ASSUMPTION OF OPTIONS UPON CERTAIN EVENTS. The Board may
grant Awards under the Plan in substitution for stock and stock-based awards
held by employees of another corporation who become employees of the Company as
a result of a merger or consolidation of the employing corporation with the
Company or the acquisition by the Company of property or stock of the employing
corporation. The substitute Awards shall be granted on such terms and conditions
as the Board considers appropriate in the circumstances.

(f) WITHHOLDING. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. The Board may allow Participants to
satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.

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<PAGE> 37

(g) AMENDMENT OF AWARD. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.

(h) CONDITIONS ON DELIVERY OF STOCK. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.

(i) ACCELERATION. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of all restrictions or that any other stock-based
Awards may become exercisable in full or in part or free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.

9. MISCELLANEOUS
-------------

(a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.

(b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.

(c) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective
on the date on which it is adopted by the Board, but no Award granted to a
Participant designated as subject to Section 162(m) by the Board shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been

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<PAGE> 38

approved by the Company's stockholders. No Awards shall be granted under the
Plan after the completion of ten years from the earlier of (i) the date on which
the Plan was adopted by the Board or (ii) the date the Plan was approved by the
Company's stockholders, but Awards previously granted may extend beyond that
date.

(d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that no Award granted to a
Participant designated as subject to Section 162(m) by the Board after the date
of such amendment shall become exercisable, realizable or vested, as applicable
to such Award (to the extent that such amendment to the Plan was required to
grant such Award to a particular Participant), unless and until such amendment
shall have been approved by the Company's stockholders.

(e) STOCKHOLDER APPROVAL. For purposes of this Plan, stockholder
approval shall mean approval by a vote of the stockholders in accordance with
the requirements of Section 162(m) of the Code.

(f) GOVERNING LAW. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.

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<PAGE> 39

APPENDIX C

- --------------------------------------------------------------------------------

BIOTRANSPLANT INCORPORATED

PROXY SOLICITED BY BOARD OF DIRECTORS

Annual Meeting of Stockholders -- May 20, 1997

Those signing on the reverse side, revoking any prior proxies, hereby
appoint(s) Elliot Lebowitz, Richard Capasso and Steven D. Singer, or each of
them with full power of substitution, as proxies for those signing on the
reverse side to act and vote at the 1997 Annual Meeting of Stockholders of
BioTransplant Incorporated and at any adjournments thereof as indicated upon
all matters referred to on the reverse side and described in the Proxy
Statement for the Meeting, and, in their discretion, upon any other matters
which may properly come before the Meeting.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER(S). IF NO OTHER INDICATION IS MADE, THE PROXIES SHALL
VOTE "FOR" PROPOSAL NUMBERS 1, 2, 3, 4 AND 5.

A VOTE FOR THE DIRECTOR NOMINEES, AND FOR PROPOSAL NUMBERS 2, 3, 4 AND 5 IS
RECOMMENDED BY THE BOARD OF DIRECTORS.

PLEASE VOTE, DATE, AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.

PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!

ANNUAL MEETING OF STOCKHOLDERS
BIOTRANSPLANT INCORPORATED

MAY 20, 1997

PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
- --------------------------------------------------------------------------------------------------------------
<S> <C>
[X] PLEASE MARK YOUR
A VOTES AS IN THIS
EXAMPLE.

FOR all nominees WITHHOLD AUTHORITY NOMINEES: Elliot Lebowitz, Ph.D.
listed at right (except as to vote for all
1. Election of marked to the contrary) nominees listed at right Donald R. Conklin
Directors [ ] [ ]
William W. Crouse
INSTRUCTIONS: To withhold authority to vote for individual
nominee(s), mark the box labeled "FOR" and strike a line James C. Foster, J.D.
through such nominee(s) name in the list at right. Your
shares will be voted for the remaining nominee(s). Daniel O. Hauser, Ph.D.

Daniel P. Kearney, J.D.

Robert A. Vukovich, Ph.D.

FOR AGAINST ABSTAIN
2. Approval of the Company's 1997 Stock Incentive [ ] [ ] [ ]
Plan.

3. Approval of an amendment to the Company's [ ] [ ] [ ]
1994 Directors' Equity Plan.

4. Ratify the selection of Arthur Andersen LLP as the [ ] [ ] [ ]
Company's Independent Accountants for 1997.

5. To transact such other business as may properly [ ] [ ] [ ]
come before the meeting or any adjournment
thereof.

PLEASE READ THE REVERSE SIDE OF THIS CARD.

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.

HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?

____________________ _____________________
____________________ _____________________

Signature ____________________ Date: ____________ Signature ____________________ Date: ____________

NOTE: Please sign this proxy exactly as your name appears hereon. Joint owners should each sign personally.
Trustees and other fiduciaries should indicate the capacity in which they sign. If a corporation or
partnership, this signature should be that of an authorized officer who should state his or her title.

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