SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY REGISTRANT /X/ FILED BY A PARTY OTHER THAN THE REGISTRANT / /
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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))
Diacrin, Inc.
(Name of Registrant as Specified In Its Charter)
Diacrin, Inc.
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK 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:
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<PAGE>
Diacrin, Inc.
Building 96, 13th Street
Charlestown Navy Yard
Charlestown, MA 02129
Notice of Annual Meeting of Stockholders
To be Held on June 16, 1998
The Annual Meeting of Stockholders of Diacrin, Inc. (the "Company")
will be held at the offices of Hale and Dorr LLP, 60 State Street, 31st Floor,
Boston, MA 02109 on Tuesday, June 16, 1998 at 4:00 p.m., local time, to consider
and act upon the following matters:
1. To elect seven directors for a one-year term;
2. To ratify the selection of Arthur Andersen LLP as the Company's
independent auditors for fiscal 1998; and
3. 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 24, 1998 will
be entitled to notice of and to vote at the meeting and any adjournment thereof.
By Order of the Board of Directors,
Steven D. Singer, Secretary
Charlestown, Massachusetts
April 30, 1998
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WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF THE PROXY IS
MAILED IN THE UNITED STATES.
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<PAGE>
Diacrin, Inc.
Proxy Statement for the Annual Meeting of Stockholders
To be Held on June 16, 1998
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Diacrin, Inc. (the "Company") for use at
the Annual Meeting of Stockholders to be held on June 16, 1998 and at any
adjournment of that meeting. All proxies will be voted in accordance with the
stockholders' instructions, 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 its exercise by
delivery of a written revocation or a subsequently dated proxy to the Secretary
of the Company or by voting in person at the Annual Meeting.
At the close of business on April 24, 1998, the record date for the
determination of stockholders entitled to vote at the Annual Meeting, there were
outstanding and entitled to vote 14,311,908 shares of Common Stock (constituting
all of the outstanding voting stock of the Company). Each share of Common Stock
entitles the holder to one vote.
The Company's Annual Report for 1997 was mailed to stockholders, along
with this Notice, Proxy Statement and Proxy, beginning on or about April 30,
1998.
Votes Required
The affirmative vote of the holders of a plurality of the shares of
Common Stock present (either in person or by proxy) and entitled to vote is
required for the election of directors. The affirmative vote of the holders of a
majority of the shares of Common Stock present (either in person or by proxy)
and entitled to vote is required to ratify the selection of Arthur Andersen LLP
as the Company's independent auditors for the current year.
Shares of Common Stock represented in person or 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 at the Annual Meeting. Abstentions will be treated
as shares that are present and entitled to vote for purposes of determining the
number of shares present and entitled to vote with respect to any particular
matter, but will not be counted as a vote in favor of such matter. Accordingly,
an abstention will have the same effect as a vote against the matter. If a
broker or nominee holding stock in "street name" indicates on the proxy that it
does not have discretionary authority to vote as to a particular matter, those
shares will not be considered as present and entitled to vote with respect to
matters requiring a majority of shares present and entitled to vote.
Accordingly, a "broker non-vote" on a matter has no effect on the voting of such
matter.
Principal Stockholders
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of March 31, 1998 by (i) each director
or nominee for director of the Company, (ii) each executive officer of the
Company named in the Summary Compensation Table set forth under the caption
"Executive Compensation" below, (iii) all current directors and executive
officers
<PAGE>
as a group and (iv) each person known to the Company to be the
beneficial owner of more than 5% of the shares outstanding.
<TABLE>
<CAPTION>
Number of Shares Percentage of Outstanding
Beneficially Shares (2)
Name and Address Owned (1)
<S> <C> <C>
HealthCare Ventures II, L.P. 3,196,385(3) 22.4%
44 Nassau Street
Princeton, NJ 08542
HealthCare Ventures III, L.P. 994,078(3) 7.0%
44 Nassau Street
Princeton, NJ 08542
HealthCare Ventures IV, L.P. 291,922(3) 2.0%
44 Nassau Street
Princeton, NJ 08542
Rho Management Trust II 1,612,887(4) 11.3%
c/o Rho Management Company, Inc.
767 Fifth Avenue
New York, NY 10153
Hudson Trust 1,342,680(5) 9.4%
c/o Summit Asset Management Co., Inc.
666 Plainsboro Road
Suite 445
Plainsboro, NJ 08536
State of Wisconsin Investment Board 1,285,000(6) 8.6%
P. O. Box 7842
Madison, WI 53707
Thomas H. Fraser, Ph.D. 583,988(7) 4.1%
Zola P. Horovitz, Ph.D. 13,375(8) *
John W. Littlechild 4,482,385(3) 31.3%
Stelios Papadopoulos, Ph.D. 54,500 *
Joshua Ruch 1,667,387(9) 11.7%
Henri A. Termeer 29,000(10) *
Christopher T. Walsh, Ph.D. 3,750(11) *
E. Michael Egan 106,664(12) *
Mark J. Fitzpatrick 23,117(13) *
All directors and executive 6,964,166(14) 47.8%
officers as a group (9 persons)
</TABLE>
- ----------------------------------------------------------
- ----------------------------------------------------------
* Less than 1%
<PAGE>
(1) The inclusion herein of any shares as beneficially owned does not
constitute an admission of beneficial ownership of those shares. Unless
otherwise indicated below, the persons in the above table have sole voting
and investment power with respect to all shares beneficially owned by them.
(2) Number of shares deemed outstanding for purposes of calculating these
percentages includes 14,298,908 shares outstanding as of March 31, 1998,
plus any shares subject to options or warrants held by the person or entity
in question that are currently exercisable or exercisable within 60 days
after March 31, 1998.
(3) John W. Littlechild is a general partner of HealthCare Partners II, L.P.
("HCPII"), HealthCare Partners III, L.P. ("HCPIII") and HealthCare Partners
IV, L.P. ("HCPIV"), the general partner of HealthCare Ventures II, L.P.
("HCVII"), HealthCare Ventures III, L.P. ("HCVIII") and HealthCare Ventures
IV, L.P. ("HCVIV"), respectively. Mr. Littlechild, together with James H.
Cavanaugh, Harold R. Werner and William Crouse, the other general partners
of HCPII, share voting and investment control with respect to shares owned
by HCVII. Mr. Littlechild, together with Dr. Cavanaugh, Messrs. Werner and
Crouse and Mark Leschly, the other general partners of HCPIII and HCPIV,
share voting and investment control with respect to shares owned by HCVIII
and HCVIV, respectively. Mr. Littlechild does not own any shares of the
Company's capital stock in his individual capacity.
(4) Rho Management Partners L.P. may be deemed the beneficial owner of such
shares pursuant to an investment advisory agreement that confers sole
voting and investment control over such shares to Rho Management Partners
L.P.
(5) Mr. B. Diethelm Honer may be deemed to (i) beneficially own the shares held
by Hudson Trust ("Hudson"), (ii) retain voting and dispositive rights for
these shares, and (iii) retain the right to revoke these shares from
Hudson.
(6) Includes Common Stock Purchase Warrants originally issued on February 12,
1996 ("Public Offering Warrants") to purchase 650,000 shares of Common
Stock.
(7) Includes 105,293 shares of Common Stock issuable upon exercise of
outstanding stock options exercisable within 60 days of March 31, 1998.
Includes Public Offering Warrants to purchase 12,500 shares of Common
Stock.
(8) Includes 9,375 shares of Common Stock issuable upon exercise of outstanding
stock options exercisable within 60 days of March 31, 1998.
(9) Mr. Ruch is a controlling person of Rho Management Partners, L.P. and may
be deemed the beneficial owner of the shares held by Rho Management Trust
II. In addition, Mr. Ruch exercises investment and voting authority over
54,500 shares directly for his own account or for the account of family
members.
(10) Includes 16,250 shares of Common Stock issuable upon exercise of
outstanding stock options exercisable within 60 days of March 31, 1998.
Includes Public Offering Warrants to purchase 5,000 shares of Common Stock.
(11) Includes 3,750 shares of Common Stock issuable upon exercise of outstanding
stock options exercisable within 60 days of March 31, 1998.
<PAGE>
(12) Includes 102,495 shares of Common Stock issuable upon exercise of
outstanding stock options exercisable within 60 days of March 31, 1998.
(13) Includes 20,917 shares of Common Stock issuable upon exercise of
outstanding stock options exercisable within 60 days of March 31, 1998.
Includes Public Offering Warrants to purchase 2,000 shares of Common Stock.
(14) Includes 258,080 shares of Common Stock issuable upon exercise of
outstanding stock options exercisable within 60 days of March 31, 1998.
Includes Public Offering Warrants to purchase 19,500 shares of Common
Stock.
PROPOSAL ONE: ELECTION OF DIRECTORS
The Company's By-Laws provide that the Board of Directors shall fix the
number of directors to constitute the Board. The Board of Directors has fixed
the number of directors at seven to serve until the 1999 Annual Meeting of
Stockholders. The persons named in the accompanying proxy will vote to elect the
seven nominees named in the table below as directors (unless authority to vote
for one or more of the persons named in the table below is specifically
withheld), to serve until the 1999 Annual Meeting of Stockholders and until
their successors are elected and qualified, or until their earlier death,
resignation or removal. All of the nominees have indicated their willingness to
serve, if elected, but if any should be unable or unwilling to serve, proxies
may be voted for a substitute nominee designated by the Board of Directors.
The following table sets forth, for each nominee for director of the
Company, his name and age, his positions with the Company, his principal
occupation and business experience during the past five years and the year of
the commencement of his term as a director of the Company.
<TABLE>
<CAPTION>
Year First Principal Occupation or
Became a Employment During Past Five
Name Age Director Years and Current Directorships
<S> <C> <C> <C>
Thomas H. Fraser, Ph.D. 50 1990 President, Chief Executive Officer and
Director of the Company since 1990.
Zola P. Horovitz, Ph.D. 63 1994 Vice President, Business Development and
Planning from 1991 to 1994 of Bristol-Myers
Squibb Pharmaceutical Group; Director of
Roberts Pharmaceuticals. Also Director of
Avigen Inc., BioCryst Pharmaceuticals,
Clinicor, Magainin Pharmaceuticals, Procept,
Inc. and Synaptic Pharmaceuticals, Inc., all
biotechnology companies.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year First Principal Occupation or
Became a Employment During Past Five
Name Age Director Years and Current Directorships
<S> <C> <C> <C>
John W. Littlechild 46 1992 Principal, HealthCare Ventures LLC ("HCV"),
a venture capital management company, since
1992; Director of Orthofix International
N.V., a medical devices company; Director of
LeukoSite, Inc. and Virus Research
Institute, Inc., biotechnology companies.
Stelios Papadopoulos, Ph.D. 49 1991 Managing Director and Head of the Health
Care Investment Banking Group, PaineWebber
Incorporated since 1987.
Joshua Ruch 48 1998 President and CEO of Rho Management Company,
Inc., an investment advisory firm with which
he has been affiliated since 1981.
Controlling person of Rho Management
Partners L.P., an affiliated investment
advisory firm, since 1993.
Henri A. Termeer 52 1996 President and Director since 1983, Chief
Executive Officer since 1985 and Chairman of
the Board of Directors since 1988 of Genzyme
Corporation; Director of Abiomed, Inc.,
AutoImmune Inc., GelTex Pharmaceuticals
Inc., and Genzyme Transgenics Corporation,
all biotechnology companies and, a trustee
of Hambrecht & Quist Healthcare Investors
and of Hambrecht & Quist Life Sciences
Investors.
Christopher T. Walsh, Ph.D. 54 1997 Professor of Biological Chemistry and
Molecular Pharmacology at Harvard Medical
School since 1987 and Chair of that
department from 1987 to 1995; President of
the Dana-Farber Cancer Institute from 1992
to 1995; Director of LeukoSite, Inc., a
biotechnology company.
</TABLE>
<PAGE>
Meetings of Board of Directors and Committees
During 1997, the Board of Directors held six meetings. Each director
attended at least 75% of the aggregate of the number of Board meetings and the
number of meetings held by the committee on which he then served.
The Company has a Compensation Committee composed entirely of
independent outside directors which provides recommendations to the Board
regarding compensation programs of the Company and administers the Company's
stock option plans. In addition, this Committee approves the compensation paid
to the President and Chief Executive Officer and other executive officers of the
Company. The Compensation Committee met three times during 1997. The current
members of the Compensation Committee are Messrs. Littlechild and Termeer and
Dr. Papadopoulos.
The Company also has a Special Stock Option Administration Committee, a
subcommittee of the Compensation Committee, consisting of Messrs. Littlechild
and Termeer, each of whom qualified as an "outside director" for purposes of
section 162(m) of the Internal Revenue Code. This committee is authorized to
grant stock options to the President and Chief Executive Officer and other
executive officers of the Company. The Special Stock Option Administration
Committee met two times during 1997.
The Company has an Audit and Finance Committee which provides the
opportunity for direct contact between the Company's independent auditors and
the Board, reviews the effectiveness of the auditors during the annual audit,
monitors the Company's internal accounting control policies and procedures,
oversees financial reporting to shareholders, oversees the ethical behavior of
management, and considers and recommends the selection of the Company's
independent auditors. The Audit and Finance Committee met two times during 1997.
The current members of the Audit and Finance Committee are Drs. Fraser,
Papadopoulos and Horovitz.
Directors' Compensation
Drs. Horovitz and Walsh each receive $2,000 plus expenses per board
meeting attended plus an additional $4,000 annually for consultative work
performed. No other directors receive any cash compensation for services on the
Board of Directors.
In 1994, the Board of Directors of the Company adopted, and the
stockholders approved, the 1994 Directors' Stock Option Plan (the "Director
Plan"), authorizing the grant of options to purchase up to 30,000 shares of
Common Stock. The Director Plan, as amended to date, provides for the grant to
certain non-employee directors of the Company, upon his or her initial election
as a director, of an option to purchase shares of Common Stock at an exercise
price equal to the fair market value on the date of grant. Each option granted
under the Director Plan may be exercised on a cumulative basis as to 25% of the
shares on the first anniversary of the date of grant and an additional 25% at
the end of each one-year period thereafter.
On April 17, 1997, Dr. Walsh was granted an option to purchase 13,125
shares of Common Stock under the Director Plan and an option to purchase 1,875
shares of Common Stock under the 1990 Stock Option Plan, each at an exercise
price of $11.375 per share. Both option grants may be exercised on a cumulative
basis as to 25% of the shares on the first anniversary of the date of grant and
an additional 25% at the end of each one-year period thereafter.
No additional option grants are expected to be made under the Director
Plan.
<PAGE>
Executive Compensation
Summary Compensation Table. The following table sets forth certain
information with respect to the annual and long-term compensation for each of
the last three fiscal years of the Company's Chief Executive Officer and the
three other persons who served as executive officers of the Company during 1997
(the "Named Officers"):
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation (1)
Awards
-----------------------------------
Name and Securities Underlying
Principal Position Year Salary($)(2) Bonus($)(3) Options/SARS(#)
<S> <C> <C> <C> <C>
Thomas H. Fraser 1997 $ 240,000 $ 45,000 50,000(4)
President and Chief 1996 230,400 55,000 -
Executive Officer 1995 220,500 50,000 25,000
E. Michael Egan 1997 170,000 30,000 20,000
Senior Vice President 1996 150,000 36,000 20,000
of Corporate Development 1995 140,000 28,000 30,000
Mark J. Fitzpatrick (5) 1997 100,000 11,000 15,000
Vice President of Finance 1996 89,183 15,000 15,000
and Administration and
Chief Financial Officer
J. Stephen Fink (6) 1997 157,668 9,000 -
Former Vice President and 1996 111,103 32,000(7) 100,000
Clinical Research Director
</TABLE>
- ------------------------------
(1) The Company does not have a long-term compensation program that includes
long-term incentive payouts. No restricted stock awards or stock
appreciation rights were granted to any of the Named Officers during fiscal
1997.
(2) Amounts shown include cash compensation earned and received by the Named
Officers as well as amounts earned but deferred at the election of these
officers to the Company's 401(k) Plan.
(3) Amounts in this column represent bonuses paid or accrued under the annual
management bonus plan.
(4) Amount includes 20,000 options granted in 1997 in recognition of fiscal
1996 performance.
(5) Mr. Fitzpatrick became an executive officer of the Company in November
1996.
(6) Dr. Fink served as an executive officer from April 1996 until November
1997.
(7) Includes a signing bonus of $15,000 and an annual management bonus of
$17,000.
<PAGE>
Option Grants Table. The following table sets forth certain information
regarding options granted during the fiscal year ended December 31, 1997 to the
Named Officers:
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------
Number of
Securities Percent of Potential Realizable Value
Underlying Total Options at Assumed Annual Rates of
Options Granted to Exercise or Stock Price Appreciation for
Granted (#) Employees in Base Price Expiration Option Term (2)
------------------------------
Name (1) Fiscal Year ($/Sh) Date 5% ($) 10% ($)_
- --- ----- ------ ---- ----------- ---- ------- ---- ----- ----- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Thomas H. Fraser 20,000 10% $ 12.00 3/17/07 $150,934 $382,498
30,000 15% 10.75 12/17/07 202,818 513,982
E. Michael Egan 20,000 10% 10.75 12/17/07 135,212 342,655
Mark J. Fitzpatrick 15,000 8% 10.75 12/17/07 101,409 256,991
J. Stephen Fink 0 - - - - -
</TABLE>
(1) No stock appreciation rights were granted during fiscal 1997.
Options granted in 1997 become exercisable in four equal annual
installments, commencing 12 months after the date of grant.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term.
These gains are based on assumed rates of stock price appreciation
of 5% and 10% compounded annually from the date the respective
options were granted to their expiration date. Actual gains, if
any, on stock option exercises will depend on the future
performance of the Common Stock and the date on which the options
are exercised.
Aggregated Option Exercises and Year-End Option Table. The following
table sets forth certain information regarding aggregate option excercises
during the fiscal year ended December 31, 1997 and the number and value of
unexercised stock options held as of December 31, 1997 by the Named Officers:
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options at
at FY-End (#) FY-End ($) (2)
--
----------------------- ---------------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) ---------------- Unexercisable Unexercisable
Realized ($) (1)
- ---------------------- ----------------- ----------------------- ---------------------------
<S> <C> <C> <C> <C>
Thomas H. Fraser - $ - 105,293 / 57,500 $839,215 / $109,062
E. Michael Egan - - 102,495 / 50,000 850,519 / 159,000
Mark J. Fitzpatrick 15,200 185,381 20,917 / 32,500 154,214 / 75,624
J. Stephen Fink - - 25,000 / 0 15,625 / 0
</TABLE>
(1) Represents the difference between the exercise price and the value of the
Common Stock on the date of exercise.
(2) Based on the value of the Common Stock on December 31, 1997 ($10.125 per
share), less the option exercise price.
<PAGE>
Employment Agreements
Dr. Fraser has entered into an employment agreement with the Company,
dated February 6, 1990, providing for an annual salary plus bonus as determined
by the Board of Directors. The Company has agreed with Dr. Fraser to continue to
pay his then current salary for a period of six months if his employment is
terminated without cause by the Company. Dr. Fraser has also agreed not to
compete with the Company for one year following termination of his employment.
At the Company's election, this non-competition provision can be extended for an
additional two-year period upon the payment of additional consideration.
Report of the Compensation Committee
The Company's executive compensation program is administered by the
Compensation Committee, which during 1997 consisted of Messrs. Littlechild and
Termeer and Dr. Papadopoulos, none of whom is an officer or employee of the
Company. Mr. Termeer became a member of the Compensation Committee in January
1997 and, as such, did not participate in the evaluation of the Named Officers'
1997 base salary. The Committee reviews and approves the salaries and incentive
compensation of the Chief Executive Officer and the other executive officers of
the Company. In addition, the Special Stock Option Administration Committee, a
subcommittee of the Compensation Committee consisting of Messrs. Littlechild and
Termeer, is authorized to take action with respect to stock option grants to the
Named Officers.
The objectives of the Company's executive compensation program are as
follows:
o provide an incentive for the achievement of strategic goals and objectives
of the Company
o support the pay-for-performance concept by tying compensation to the
Committee's subjective determination of the quality of performance for the
preceding fiscal year
o attract and retain key executives essential to the long-term success of the
Company
o align the executive officers' interests with the long-term interests of the
stockholders
The Company's executive compensation program consists of three
principal elements-- base salary, an annual management cash bonus and common
stock options.
Given that the Company is in the process of developing its initial
products, the Committee does not believe that the use of profit levels as a
measure of the Company's achievements or as a basis for compensation decisions
is appropriate. However, the ability to control losses without compromising the
progress of the Company's product development programs is considered by the
Committee.
The Chief Executive Officer submits for the Committee's consideration
at the end of the fiscal year the amount of proposed compensation (following
fiscal year base salary, current fiscal year cash bonus and stock option awards)
for himself and for the Company's other executive officers. The factors
considered by the Chief Executive Officer in making his recommendations to the
Committee were the Board of Directors' prior evaluation of the Company's success
in meeting its strategic objectives during the most recent fiscal year and the
Chief Executive Officer's subjective evaluation of each executive officer's
individual performance. The Committee acts upon the recommendations made with
respect to the executive officers after subjectively weighing the Board of
Directors' evaluation of the Company's overall achievements for the year, the
Chief Executive Officer's discussion of each executive officer's individual
performance for the year and
<PAGE>
each executive officer's current level of
compensation. The Committee members, based upon their active professional
involvement with other companies within the Company's industry, are also able to
assess whether proposed compensation levels are in keeping with industry norms.
The Committee applies the same criteria in evaluating the Chief
Executive Officer's cash compensation as that applied to the other executive
officers of the Company as previously explained. The base salary for fiscal 1997
of the President and Chief Executive Officer of the Company was increased by
$9,600, to $240,000. Given a limited number of options available for grant under
the 1990 Stock Option Plan at the end of 1996 and the Company's anticipated
hiring plans at that time, Dr. Fraser recommended to the Compensation Committee
that the determination of the number of options to be granted to him for fiscal
1996 performance be deferred until a future meeting in 1997. On March 17, 1997,
the Special Stock Option Administration Committee granted Dr. Fraser options to
purchase 20,000 shares of Common Stock at a per share exercise price of $12.00
for his performance during the 1996 fiscal year. On December 17, 1997, the
Special Stock Option Administration Committee granted Dr. Fraser options to
purchase 30,000 shares of Common Stock at a per share exercise price of $10.75
for his performance during the 1997 fiscal year. Both options were granted at
exercise prices equal to the fair market value of the Company's Common Stock on
the date of grant. The options granted to Dr. Fraser in March 1997 vest, so long
as Dr. Fraser remains employed with the Company, in four equal annual
installments commencing one year from November 18, 1996, the date of which stock
options were granted to certain other executive officers of the Company for
fiscal 1996 performance. The options granted to Dr. Fraser in December 1997 vest
in four equal annual installments commencing one year following the date of
grant so long as Dr. Fraser remains employed with the Company. In awarding such
options to Dr. Fraser, the Special Stock Option Administration Committee
subjectively considered the compensation criteria discussed above as well as its
interests in providing incentive for long-term performance, promoting retention
of employees and further aligning the interests of the Chief Executive Officer
with that of the stockholders.
The Company does not believe that section 162(m) of the Internal
Revenue Code, which disallows a tax deduction for certain compensation in excess
of $1 million, will generally have an effect on the Company.
Compensation Committee
John W. Littlechild
Stelios Papadopoulos
Henri A. Termeer
Certain Relationships and Related Transactions
HCVII, HCVIII and HCVIV owned 22.4%, 7.0% and 2.0% of the outstanding
capital stock of the Company as of March 31, 1998, respectively. HCVII, HCVIII
and HCVIV are limited partnerships which were formed to provide capital to
companies in the health care fields. HCPII, HCPIII and HCPIV are limited
partnerships which serve as the general partner of HCVII, HCVIII and HCVIV,
respectively. John Littlechild, a director of the Company, is a general partner
of HCPII, HCPIII and HCPIV and is Principal of HealthCare Ventures LLC, the
management company for HCVII, HCVIII and HCVIV. Mr. Littlechild is an officer of
HCV. See "Principal Stockholders."
<PAGE>
Rho Management Trust II ("Rho") which owned 11.3% of the outstanding
capital stock of the Company as of March 31, 1998, also holds approximately
18.9% and 54.3% of the outstanding limited partnership interests in HCVII and
HCVIV, respectively. An affiliate of Rho is also a limited partner of HCPII,
HCPIII and HCPIV. Joshua Ruch, director of the Company, is a controlling person
of Rho. See "Principal Stockholders."
Hudson, which owned 9.4% of the outstanding capital stock of the
Company as of March 31, 1998, also holds approximately 6.0% and 11.9% of the
outstanding limited partnership interests in HCVII and HCVIV, respectively.
Hudson is also a limited partner of HCPII.
In February 1998, the Company completed a private placement of
1,027,027 shares of its common stock at $9.25 per share to three investors,
including Rho and Hudson.
In September 1996, the Company and Genzyme Corporation ("Genzyme")
formed a joint venture to develop and commercialize the Company's
NeuroCell(TM)-PD and NeuroCell(TM)-HD products for transplantation into patients
with advanced Parkinson's disease and Huntington's disease, respectively. Under
the terms, and subject to certain conditions, of the joint venture agreement,
which was effective October 1, 1996, Genzyme has agreed to provide 100% of the
first $10 million in funding and 75% of the following $40 million in funding for
the development and commercialization of the two products. All costs incurred in
excess of $50 million are to be shared equally between Genzyme and the Company
in accordance with the terms of the agreement. Any profits of the joint venture
will be shared equally by the two parties. Mr. Termeer, a director of the
Company, is the President, Chief Executive Officer and Chairman of the Board of
Genzyme. During 1997, the Company recognized revenues of approximately
$4,763,000 from the joint venture, constituting all of the Company's research
and development revenues. Revenues recognized from the joint venture and funded
by Genzyme in accordance with the terms of the joint venture agreement are
currently expected to represent a substantial majority of the Company's revenues
in 1998.
<PAGE>
Stock Performance Graph
The following graph compares, for the period commencing August 12, 1996
(the date of which the Company's common stock commenced trading on the Nasdaq
Stock Market) and ending on December 31, 1997, the total return of the Company's
Common Stock with the total return of (i) The Nasdaq Stock Market (U.S.) and
(ii) the Nasdaq Pharmaceuticals index, assuming the investment of $100 on August
12, 1996 and reinvestment of all dividends. The Company has not paid any
dividends on its Common Stock.
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG DIACRIN, INC., THE NASDAQ STOCK MARKET-US INDEX
AND THE NASDAQ PHARMACEUTICALS INDEX
[Stock Performance Graph]
Cumulative Total Return
-------------------------------------------------
8/12/96 12/31/96 12/31/97
<S> <C> <C> <C> <C>
DIACRIN, INC. DCRN 100 141 140
NASDAQ STOCK MARKET-US NAS 100 113 139
NASDAQ PHARMACEUTICALS NAP 100 109 112
* $100 INVESTED ON 8/12/96 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
</TABLE>
For the period from February 12, 1996 (the effective date of the
Company's initial public offering) until August 9, 1996, the Company's Units
(each of which consisted of one share of Common Stock and one Public Offering
Warrant) traded on the Nasdaq Stock Market. The trading range of the Unit during
this six month period was between $8.00 and $14.75. The Unit was offered at
$8.00 on February 12, 1996 and closed at $10.50 on August 9, 1996 (the last
trading date before the Common Stock and the Public Offering Warrant began to
trade separately).
<PAGE>
PROPOSAL TWO: RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Arthur Andersen LLP as
the Company's independent auditors for the current fiscal year. Arthur Andersen
LLP has served as the Company's independent auditors since the Company's
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.
OTHER MATTERS
The Board of Directors does not know of any other matters which may
come before the Annual Meeting. However, if any other matters are properly
presented to the Annual 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.
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, or
otherwise, to obtain proxies. Brokers, custodians and fiduciaries will be
requested to forward proxy soliciting material to the owners of stock held in
their names, and, as required by law, the Company will reimburse them for their
reasonable out-of-pocket expenses in this regard.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers and persons who own more
than ten percent of a registered class of the Company's equity securities to
file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Officers, directors and greater than ten percent beneficial
owners are required to furnish the Company with copies of all Section 16(a)
forms that they file.
To the Company's knowledge, based on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to the
Company's officers, directors and greater than ten percent beneficial owners
with respect to the fiscal year ended December 31, 1997 were complied with.
Annual Report on Form 10-K
A copy of the Company's Annual Report on Form 10-K is available without
charge upon written request to: Vice President of Finance and Administration,
Diacrin, Inc., Building 96, 13th Street, Charlestown
Navy Yard, Charlestown, MA 02129.
<PAGE>
Proposals for the 1999 Annual Meeting
Proposals of stockholders intended to be presented at the 1999 Annual
Meeting of Stockholders must be received by the Company at its principal office
in Charlestown, MA not later than January 1, 1999 for inclusion in the proxy
statement for that meeting.
By Order of the Board of Directors,
Steven D. Singer, Secretary
April 30, 1998
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL 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. PROMPT RESPONSE WILL GREATLY
FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION IS APPRECIATED.
STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY EVEN THOUGH
THEY HAVE SENT IN THEIR PROXIES.
- --------------------------------------------------------------------------------
<PAGE>
DIACRIN, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
To be held June 16, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned, having received notice of the meeting and management's proxy
statement therefor, and revoking all prior proxies, hereby appoint(s) Thomas H.
Fraser, Mark J. Fitzpatrick and Steven D. Singer, and each of them, with full
power of substitution, as proxies to represent and vote as designated herein all
shares of stock of Diacrin, Inc. (the "Company") which the undersigned would be
entitled to vote if personally present at the Annual Meeting of Stockholders of
the Company to be held at the offices of Hale and Dorr LLP, 60 State Street,
31st Floor, Boston, MA 02109 on Tuesday, June 16, 1998 at 4:00 p.m., local time,
and at any adjournment thereof.
In their discretion, the proxies are authorized to vote upon such other matters
as may properly come before the meeting or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1 AND 2. ANY PROXY MAY BE REVOKED BY A STOCKHOLDER AT ANY TIME
BEFORE ITS EXERCISE BY DELIVERY OF A WRITTEN REVOCATION OR A SUBSEQUENTLY DATED
PROXY TO THE SECRETARY OF THE COMPANY OR BY VOTING IN PERSON AT THE ANNUAL
MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO COMPLETE,
DATE, SIGN AND RETURN THIS PROXY IN THE ACCOMPANYING ENVELOPE.
1. Election of Directors Nominees: Thomas H. Fraser
[ ] FOR all nominees Zola P. Horovitz
(except as marked below) John W. Littlechild
Stelios Papadopoulos
[ ] WITHHELD from all nominees Joshua Ruch
Henri A. Termeer
Christopher T. Walsh
2. To ratify the selection of Arthur Andersen LLP, as the Cooporation's
independent auditors for fiscal 1998
For [ ] Against [ ] Abstain [ ]
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
For [ ] Against [ ] Abstain [ ]
Signature______________________________ Date__________________
Signature______________________________ Date__________________
NOTE: Please sign exactly as name appears hereon. When shares are held by joint
owners, both should sign. When signing as attorney, executor, administrator,
trustee or guardian please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
